Cyril Smith & Associates Pty Ltd v The Owners-Strata Plan No 64970

Court of Appeal (NSW)|2011-06-07|Before: Bathurst CJ, Basten JA, Young JA

CA 78; 196 CLR 53 Kamloops v Nielsen [1984] 2 SCR 2; 10 DLR (4th) 641 Owners of Strata Plan 50946 v Multiplex Constructions (NSW) Pty Ltd [2006] NSWSC 377 Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27 Scarcella v Lettice [2000] NSWCA 289; 51 NSWLR 302 Super Pty Ltd v SJP Framework (Aust) Pty Ltd (1992) 29 NSWLR 549 Sutherland Shire Council v Heyman [1985] HCA 41; 157 CLR 424 Category: Principal judgment Parties: Cyril Smith & Associates Pty Ltd (Appellant)

The Owners - Strata Plan No. 64970 (First Respondent Austruc Constructions Ltd (In liq) (Second Respondent) Representation: Counsel:

F P Hicks - First Respondent Submitting appearance - Second Respondent Solicitors:

David Le Page Solicitor - First Respondent Carneys Lawyers - Second Respondent File Number(s): 2005/270978 Decision under appeal Citation: [2009] NSWSC 208; [2010] NSWSC 212; [2010] NSWSC 568 Before: Bergin CJ in Eq File Number(s): 2005/55048

HEADNOTE [This headnote is not to be read as part of the judgment] In 2001 construction was completed on an 8 storey residential building on the central New South Wales coast. Soon thereafter, it became apparent that there were problems with the building including water penetration in a number of units which caused damage to the contents of those units and rusting of the steel structure supporting the roof. The Owners Corporation commenced proceedings in 2005, claiming damages from the builder. On 8 February 2008 the Corporation was granted leave to file an amended summons joining the architects, Cyril Smith & Associates Pty Ltd, the present appellant. On 31 March 2009, the Owners Corporation obtained a judgment against the appellant in the amount of $170,804.18. The Owners Corporation also obtained a judgment against the builder in an amount of approximately $1.25 million and the builder obtained judgment for contribution against the appellant in an amount of $297,791. The issues for determination on appeal were: (i) whether the six-year limitation period had expired before proceedings were commenced against the appellant; and (ii) whether the appellant should be required to pay an amount by way of contribution to the builder, in respect of a matter as to which it had been held to have no liability to the Owners Corporation. The Court held allowing the appeal: In relation to (i)

The relevant defect in the building was not the design, installation or inspection of the windows, but the windows themselves. Once it was appreciated that the windows themselves were defective (in that they were not adequately watertight) the defect was known. The physical consequence of the defect, namely the ingress of water, was not itself the defect, although it might well have been sufficient to lead a reasonable person to make inquiry and thus discover the defect: [24]. Sutherland Shire Council v Heyman [1985] HCA 41; 157 CLR 424; Hawkins v Clayton [1988] HCA 15; 164 CLR 539; Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27 followed. Owners of Strata Plan 50946 v Multiplex Constructions (NSW) Pty Ltd [2006] NSWSC 377 distinguished.
The Owners Corporation, through its caretaker, was aware of water penetration in April or May 2001. By November 2001 at the latest, the defect in the windows was manifest. Knowledge that the windows were defective did not mean that the Owners Corporation knew who was responsible for the defect, but the time within which it needed to ascertain who was responsible and, if necessary, commence proceedings, had started to run. It failed to act within six years of the accrual of the cause of action and the proceedings brought in respect of the defect were, accordingly, statute barred as against the appellant: [27]-[33].
The steelwork supporting the roof started to rust no later than 2001. Responsibility for the rusting was not established until later. However accrual of the cause of action did not depend upon that knowledge and accordingly, the limitation defence should have succeeded: [37]. In relation to (ii)
The Owners Corporation made a claim against both the builder and the appellant for damages to the contents of the building. The claim against the appellant was dismissed, but that against the builder was upheld. Because the appellant is entitled to a final judgment against the Owners Corporation, it is a party which has been sued, unsuccessfully, and is not liable for contribution pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), in respect of that loss: [40], [50]. James Hardie & Coy Pty Ltd v Selstam Pty Ltd [1998] HCA 78; 196 CLR 53; Hart v Hall & Pickles Ltd [1969] 1 QB 405; Brambles Constructions Pty Ltd v Helmers [1966] HCA 3; 114 CLR 213 followed.

Judgment 1JUDGMENT of the COURT delivered by BASTEN JA : In early 2001 the construction was completed of an 8 storey residential building at The Entrance on the central New South Wales coast. A strata plan was registered on 20 March 2001 and various units in the building were sold and occupied. Soon thereafter, it became apparent that there were problems with the building which required remedial action. The first, and major problem involved water penetration in a number of units. At about the same time, it became apparent that the steel structure supporting the roof was rusting. The penetration of water caused damage to the contents of those units affected. 2The dispute over responsibility for the defects in the building and the consequential damage led to two sets of proceedings in the Supreme Court. The earlier in time was a claim brought by the developer (Eko Developments Pty Ltd) against the builder, the architect and the engineer. The second proceedings were brought by the Owners Corporation against the builder and the architect. Both sets of proceedings were referred to a Referee, Mr John Brownie QC. In an interim report, dated 1 April 2008, he determined that only one of the two plaintiffs could succeed and that the proper plaintiff was the Owners Corporation. That finding permitted the evidence to be restricted to that relevant to the Owners Corporation's claim, which was more restricted than that brought by the developer. The Owners Corporation commenced its proceedings in 2005, claiming damages from the builder, Austruc Constructions Ltd, now in liquidation (referred to by the referee and the primary judge as "Austruc"). On 8 February 2008 the Corporation was granted leave to file an amended summons joining the architects, Cyril Smith & Associates Pty Ltd, the present appellant (referred to by the referee and the primary judge as "CSA"). The primary issue in the appeal is whether the six-year limitation period had expired before proceedings were commenced against the appellant, which was taken to have happened on 8 February 2008. 3The principal report of the referee was delivered on 26 June 2008. A supplementary or further report was delivered on 24 September 2008. In February 2009, Bergin CJ in Eq heard submissions in respect of the adoption of the referee's reports, the principal judgment being delivered on 31 March 2009: Eko Investments Pty Ltd v Austruc Constructions Ltd ; The Owners-Strata Plan No 64970 v Austruc Constructions Ltd [2009] NSWSC 208. Pursuant to the orders made by the primary judge, the Owners Corporation obtained a judgment against the appellant in the amount of $170,804.18. The Owners Corporation also obtained a judgment against the builder in an amount of approximately $1.25 million. The latter judgment is not in dispute: however, the builder obtained judgment for contribution against the appellant in an amount of $297,791. The last judgment gave rise to the second issue in dispute, the appellant claiming that it should not be required to pay an amount by way of contribution to the builder in respect of a matter as to which it had been held to have no liability to the Owners Corporation. The subject matter of that disputed liability was known as "the contents claim". 4In discussing the correct approach in respect of orders adopting a referee's report, the primary judge noted that the appellant's challenges to adoption of the report were confined to alleged errors of law: at [42]. For reasons which will be indicated below, that was not entirely accurate, but her Honour also accepted the somewhat wider proposition espoused by Gleeson CJ (Mahoney and Clarke JJA agreeing) in Super Pty Ltd v SJP Framework (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563, identifying as a proper exercise of judicial discretion in respect of adoption of a referee's report, a challenge addressing a question of law, "or the application of legal standards to established facts".

First issue: limitation defence 5It was not in dispute that both water penetration into the units and the rusting of the steel roof structure were patent and known to the Owners Corporation prior to 8 February 2002. It was also accepted that both forms of damage bespoke negligence of some party. However, as explained by the referee in a part of his report adopted by the primary judge, a distinction was to be drawn for the purposes of the Limitation Act 1969 (NSW) between the visible signs, indicating a physical defect in the building, and the cause of that defect: principal judgment at [71]-[74]. Although the primary judge expressed herself as accepting the approach adopted by the referee, there were differences in the language each used to express the test to be applied. As, in my view, the appellant is correct and the wrong test was applied, it is convenient to seek to identify the test according to the statutory provision and relevant case-law, before considering the linguistic differences adopted by the appellant, the referee and the primary judge. 6Pursuant to s 14(1) of the Limitation Act , a cause of action founded on contract or tort is not maintainable if brought after the expiration of a limitation period of six years "running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims": s 14(1). The question is when the relevant cause of action first accrued. 7In some circumstances, the Limitation Act provides greater guidance as to the course to be taken where material facts are not known and not capable of being discovered upon reasonable inquiry for a period of time: see, eg, Part 3, Div 3, Sub-div 1, in respect of certain personal injury cases. However, in relation to buildings with latent defects, the question of first accrual depends upon principles arising under the general law. 8Where there has been negligent construction of a building, it has been held that the relevant loss accrues "when the defects become manifest or are otherwise discovered": Scarcella v Lettice [2000] NSWCA 289; 51 NSWLR 302 at [16] (Handley JA, Powell and Giles JJA agreeing). Handley JA described this principle as "orthodox doctrine in much of the common law world" and traced it to the judgment of Deane J in Sutherland Shire Council v Heyman [1985] HCA 41; 157 CLR 424 at 503-505. 9The reasoning underlying this rule is of some importance. Sutherland Shire Council involved a claim against the authority responsible for inspecting the footings of a recently constructed house. The footings proved to be inadequate and shifted, causing significant damage to the house. The inspection was claimed to have been negligent. The focus of the discussion in the judgments was on the existence or otherwise of a common law duty of care on the part of the authority. The question of damages arose in response to an argument that the only damage was economic and was not recoverable because of the constraints on such recovery under the general law. No member of the Court accepted this proposition as a basis for rejecting liability, although the reasoning varied. Deane J noted (at 504) the characterisation by the House of Lords in Anns v Merton London Borough Council (1978) AC 728, in respect of a similar claim, as being "material, physical damage, and what is recoverable is the amount of expenditure necessary to restore the dwelling to a condition in which it is no longer a danger to the health or safety of persons occupying and possibly ... expenses arising from necessary displacement": Anns , at 759 (Lord Wilberforce). Deane J rejected that classification, holding that "the loss or injury involved in the actual inadequacy of the foundation cannot, in the case of a person who purchased or leased the property after the inadequacy existed but before it was known or manifest, properly be seen as ordinary physical or material damage". As his Honour noted, the building itself was not subjected to such damage "by reason merely of the inadequacy of its foundations since the building never existed otherwise than with its foundations in that state". His Honour continued (at 504-505): "Loss or injury could only be sustained by such a purchaser or tenant on or after the acquisition of the freehold or leasehold estate without knowledge of the faulty foundations. It is arguable that any such loss or injury should be seen as being sustained at the time of acquisition when, because of ignorance of the inadequacy of the foundations, a higher price is paid ... than is warranted by the intrinsic worth of the freehold or leasehold estate that is being acquired. Militating against that approach is the consideration that, for so long as the inadequacy of the foundations is neither known nor manifest, no identifiable loss has come home: if the purchaser or tenant sells the freehold or leasehold estate within that time, he or she will sustain no loss by reason of the inadequacy of the foundations. The alternative, and in my view preferable, approach is that any loss or injury involved in the actual inadequacy of the foundations is sustained only at the time when that inadequacy is first known or manifest. It is only then that the actual diminution in the market value of the premises occurs." 10Two points may be noted about this analysis: first, what needed to become manifest was not any legal responsibility for the cause of the defect, but the actual physical defect in the structure. Thus, the loss in value of the premises was triggered by knowledge of the inadequacy of the foundations, being a physical defect, not by knowledge of who, as between the architect, engineer, builder or inspector, may arguably have been responsible for the defective work. Secondly, the reasoning left open questions as to when a particular defect becomes "known" or "manifest". That issue did not need to be addressed in Sutherland Shire Council , because the reasoning was concerned with the nature of the damage, rather than the time at which it actually occurred. 11The reasoning set out by Deane J is unlikely to have been seen at the time as controversial. As noted by Brennan J in Hawkins v Clayton [1988] HCA 15; 164 CLR 539 at 561, "[t]here is no doubt that most causes of action for negligence first accrue when the plaintiff first suffers damage caused by the defendant's breach of duty", referring to Cartledge v E Jopling & Sons Ltd [1963] AC 758. Indeed, his Honour referred to Sutherland Shire Council as a case illustrating the difficulty in applying the rule, not by way of an exception to it. 12The issue in Hawkins was somewhat different: the breach of duty was that of a solicitor who failed, for more than six years, to locate the named executor and inform him of the will. During that period, the main asset of the estate, a house, fell into disrepair. The executor (and beneficiary) contended that the cause of action against the solicitor did not run until he discovered, or could on reasonable inquiry have discovered, that the damage had been sustained: p 587. Reliance was placed on a decision of the Canadian Supreme Court in Kamloops v Nielsen [1984] 2 SCR 2; 10 DLR (4 th ) 641. Deane J rejected the submission that Kamloops supported such a broad proposition, noting at 587-588: " Kamloops ... was a case where economic loss had been sustained as a consequence of the development of a latent defect in a building. Commonly in such cases, the building never existed and was never owned without the defect and (in the absence of consequential collapse or physical damage or injury) the only loss which could have been sustained by the owner was the economic loss which would be involved if and when the defect was actually discovered or became manifest, in the sense of being discoverable by reasonable diligence, with the consequence that the damage was then sustained by the then owner: cf Sutherland Shire Council .... The position is different in cases where all or some of the damage, be it in the form of physical injury to person or property or present economic loss, is directly sustained in the sense that it does not merely reflect diminution in value or other consequential damage which occurs or is sustained only when a latent defect which has existed at all relevant times becomes manifest. In those cases, damage is sustained when it is inflicted or first suffered and the cause of action accrues at that time." 13This analysis leaves open a critical question: a structural defect may reveal itself over time, progressively. The first indications may be minor cracking requiring superficial repair, whereas the underlying problem requires far greater expenditure, assuming it to be capable of correction. If the superficial cracking should put the owner on notice of inquiry as to its cause and if reasonable inquiry would have revealed the cause, the underlying defect has become manifest, even though it did not in fact become known to the owner at that time. In Sutherland Shire Council, Deane J had described as "consequential damage" the physical effects on the fabric of the house caused by movement resulting from the inadequate footings. (The courts below had not permitted recovery on that account.) His Honour stated (at p 512): "It seems to me, as at present advised, that any such consequential damage to the building itself resulting from inherent defect in the foundations is properly to be seen as falling within the same category as the damage involved in the inadequacy of the actual foundations, that is to say, as economic loss sustained by reason of the erection or purchase of the unsound building." 14Describing damage as consequential invites the question, consequential upon what? Given the context, the answer must be consequential upon the inadequacy of the footings. In other words, the damage, whether appreciated at the time or not, constituted a physical manifestation, as later proved, of the structural defect. The ambiguity in his Honour's language may be identified in the following way. On the one hand, a defect may be manifest before any physical damage eventuates. For example, the inadequacy of the footings may become known upon inspection by a prospective purchaser. In that case, the economic loss will accrue prior to the damage. That is one operation of the concept of a latent defect becoming known or manifest. The other possible operation is where the physical damage accrues first, but it is not known nor manifest that that damage is a result of the latent defect. In this latter case, it is the underlying cause of the damage which is neither known nor manifest. What is unclear is whether Deane J intended to encompass both cases within his explanation. The first would involve no departure from the ordinary principle of accrual of a cause of action in negligence; the latter would. 15This issue arose for determination in Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27. The Appeal Division of the Victorian Supreme Court (Brooking, Tadgell and Hayne JJ) considered the issue in relation to damage suffered by the State Swimming Centre in Melbourne. The Centre was built, with inadequate footings, on silt known to be liable to settlement and compression. The proceedings were brought by the owner (the State of Victoria) against the engineer which prepared designs and specifications for the project. The proceedings were commenced some nine years after work began and seven years after practical completion. The limitation period for a cause of action in negligence was six years. The Appeal Division identified the question at 65-66: "The cause of action being for negligence, it is not complete until damage not negligible is sustained by the plaintiff. The question is when in contemplation of law damage is first sustained in a case like the present. The respondent says that damage is sustained as soon as physical damage is done to the structure .... The appellant contends that in a case like the present damage is not sustained, and so time does not begin to run, until either the latent defect in the building is actually discovered or it becomes manifest in the sense of becoming discoverable by reasonable diligence. The judge accepted the appellant's submission here but found that the appellant had in fact discovered 'the defects and damages flowing therefrom' more than six years before the commencement of the first action." 16The Appeal Division considered in detail the reasoning of Deane J in both Sutherland Shire Council and Hawkins . Their Honours accepted that in the latter case his analysis had the support of Mason CJ and Wilson J and therefore constituted a majority view (although Mason CJ and Wilson J dissented in relation to an earlier issue and therefore did not, strictly speaking, need to consider the further issues). They also addressed the way in which Deane J had discussed "consequential damage" in both Sutherland Shire Council and Hawkins . Their Honours emphasised the passage in Sutherland Shire Council which appeared to equate "consequential damage" with diminution in value resulting from a latent defect, rather than as a form of physical injury to property, in the passage set out at [13] above: Pullen at 69(10)-(15). 17One difficulty with that reasoning is that the passage appears to treat the diminution in value and the consequential damage as occurring or being sustained only when the latent defect becomes manifest. It is doubtful whether Deane J was addressing the question of actual physical damage which occurred prior to the time when the latent defect became manifest, the physical damage itself not being a relevant manifestation because it did not put the owner on inquiry as to its cause. However, Pullen is authority for the proposition that even where actual damage caused by the latent defect in the building has been suffered more than six years before the commencement of the litigation, the cause of action does not accrue until the link between the physical manifestation and the underlying defect is known or ought to be known. Such a principle would constitute an exception to the rule that a cause of action in negligence accrues when material damage is first suffered. 18The potential consequences of the exception require consideration. For example, it is quite possible that damage to the fabric of a building might be repaired by the builder, at its cost, because the cause (inadequate design) was not then identified, and was not then reasonably capable of identification. In such circumstances, the builder would not have joined the architect or engineer responsible for the design. When, more than six years later, the real problem becomes manifest and the architect or engineer is sued by the owner, would the builder be allowed in to recover from the architect the cost of the earlier repairs, even though that cost did not constitute damage for which the owner later sued? 19Despite considerations of this kind, it is necessary for this Court to follow the decision of the Appeal Division in Pullen , unless satisfied that it was clearly wrong. Not only is it not clearly wrong, but it is not necessarily wrong in any sense: all that can be said is that it appears to involve a development of the general law which may not find unequivocal support in the authorities upon which it relied. For reasons explained below, it will not be necessary to determine this case by reference to the extension to common law principle accepted in Pullen . 20As noted by the primary judge at [70], there has been consideration of what is to be treated as a "latent defect" in this context: see Owners of Strata Plan 50946 v Multiplex Constructions (NSW) Pty Ltd [2006] NSWSC 377 at [20] (White J). His Honour expressed the following view: "In my view, there is no additional requirement that in order for a defect to be latent it must not be visible, or must be concealed or hidden, although, of course, a defect which is visible and not hidden may be manifest in the sense of being discoverable with reasonable diligence. Moreover, a defect may be, and often will be, different from the physical thing which may be observed. For example, there may be a latent defect in the design of a building where a temporary external wall is too thin to carry a load, even though the thickness of the wall and the size of the roof it carries is plainly visible." 21The critical passage in the reasoning of the referee, which was accepted by the primary judge as revealing no error appeared at [316] of his report. That paragraph considered a submission put on the part of the appellant that the window units themselves, which were said to be defective, had operated in the same way since the time of their installation and that "any defect with the specification must have manifested itself when signs of water first appeared on the sills of the windows": set out by the referee at [315]. The referee continued at [316]: "In my view this submission ... does not state the correct test, and it glosses over the distinction between the visible signs and the cause of those signs, or to put the same thing in other ways, the distinction between the fact that physical defects were known, and the fact that those defects were due to the design of CSA, or between the symptoms of a disease and the diagnosis of the disease." 22In upholding the referee's approach, the primary judge stated at [73]: "I do not agree with CSA's submissions that the Referee has stated a test in which it must be demonstrated that any defects identified were due to the act or omission of the alleged tortfeasor. The Referee was doing no more than applying what had been said in the line of authority to which he referred. The present case is not dissimilar to the facts in Pullen. In Pullen there were observable physical symptoms or defects such as a large horizontal gap, which had opened up in the north wall about one metre above the ground. However the latent defect was the inadequacy or unsuitability of the footings. Although the physical defect was observable, the latent defect of inadequacy of the footings was not discovered until a later time. In this case the physical defect, the cracking in the walls and ingress of water was observable, but the latent defects, the faulty design of the windows and the inappropriate rendering over the control joints inconsistently with the design as specified in the Handbook, the specifications and the drawings were not identified until after 8 February 2002." 23The issue in these proceedings cannot be determined by a factual comparison with the circumstances in Pullen . A number of points of distinction are significant. Practical completion of the State Swimming Centre was achieved on 4 September 1980. The six year period prior to the commencement of proceedings began on 8 April 1981. Accordingly, the cracking and leakage from the pool of which the claimants were aware, and which demonstrated inadequacy of the footings, needed to occur within that period. (There was no suggestion that they should otherwise have known of the inadequacy of the footings at that stage.) However, there was an expectation that the structure would settle and, accordingly, that some cracking might be perceived regardless of the adequacy of the footings. Further, and importantly for the assessment of the facts made by the Appeal Division, an internal memorandum of the respondent of 3 May 1982 was found to be "the first written material relating to faults allegedly due to differential settlement": p 82(35). 24The primary judge stated that "the physical defect, the cracking in the walls and ingress of water was observable, but the latent defects, the faulty design of the windows ..." were not. This approach takes the test one step further than Sutherland Shire Council, as explained in Hawkins, and Pullen . Those cases are authority, at most, for the proposition that it is the physical defect which must be known or manifest, not that the cause of the defect must be identifiable. The relevant defect in the building was not the design, installation or inspection of the windows, but the windows themselves. Once it was appreciated that the windows themselves were defective (in that they were not adequately watertight) the defect was known. The physical consequence of the defect, namely the ingress of water, was not itself the defect, although it might well have been sufficient to lead a reasonable person to make inquiry and thus discover the defect. In this respect, there is an important distinction between a case of water penetration into a room, where the point ingress can readily be investigated, and the adequacy of footings or foundations to a building, which can often only be inspected with difficulty: cf Strata Plan 50946 v Multiplex, above at [21].

Approach adopted by referee 25Bearing in mind that the critical date for commencement of the limitation period was 8 February 2002, the referee discussed the evidence relating to discovery of the relevant defects. The extract set out below suggests that he focused on what he referred to in various places as the "design fault" or "design defect" thus: "[317] The submissions [of the appellant] noted events in 2001: in short, water ingress was observed. On 3 and 4 February 2002 there was a storm, and on about 6 February 2002 somebody removed the plaster lining from a room in Unit 11 so that Messrs Quested and Spicer observed water ingress there; and on that day Mr Quested wrote to All Strata Services, the strata managing agent in respect of the building, recording that he and Mr Spicer now knew that some windows leaked because they were not properly sealed, and suggesting that all windows be checked and resealed. His letter concluded with two words: 'Storm [guards]?' The proposition that the windows were not properly sealed appears to be consistent with poor workmanship, rather than poor design. [318] Earlier, there was a general meeting of the corporation, on 17 November 2001. The minutes of that meeting record that Mr Kirk was present, as the representative of the owner of 8 units, presumably Eko; and the following: 'There is storm water damage to the units on the South-East corner of the complex. Mr Kirk advised that all stack work and [grilles] will be inspected on all units and rectified as quickly as possible.' [319] At another place, the minutes recorded: 'Mr Kirk advised that water had penetrated the roof and into the lights and the builder has been notified to fix the waterproofing and replace lights.' [320] These statements are consistent with a volume of other evidence to the general effect that throughout 2001 and well into 2002 Austruc and Eko (Eko generally acting through CSA) received defect lists and other information about defects, and subject to some debate as to which of them should do so, they usually attended at the site promptly and caused remedial work to be done, but during this period nobody suggested that CSA was to blame . ... [322] On 12 December 2001 All Strata Services sent a fax to 'The Rapp Report', an entity apparently controlled by Mr Rapp, an architect, asking him to quote for the cost of preparing a report 'to identify faults in the building work which may be addressed back to the builder' .... [323] On 21 January 2002 the Executive Committee of the Corporation resolved to seek another quotation. I infer that nothing was done along these lines before 8 February 2002, but on 28 February 2002 Brawill Building Services Pty Ltd (Brawill) faxed to All Strata Services a document ... [that] suggests for the first time so far as the evidence shows, that perhaps there was a design fault . [324] It appears that Brawill was a local builder, asked by All Strata Services to search for a possible cause of the water ingress, and that the view of the author of the document was that there were a number of problems with the construction of the windows, some of which might now be categorised as design problems . ... [327] ... Similarly in this case, whilst some money was spent by the Corporation, it was not spent with any knowledge of the defective design by CSA ." (Emphasis added.) 26This material demonstrates that the referee was searching for material, in the relevant period, indicating that the Owners Corporation either did, or should have, identified not merely that the windows were defective (a physical condition) but that responsibility lay in the design of the windows (the cause of the defect). The authorities do not support that approach. For example, there was no suggestion in Sutherland Shire Council , or Pullen , that the cause of action did not accrue until the owner knew or ought to have known, not merely that the footings of the buildings were inadequate, but the cause of the inadequacy. The appellant's submissions were partly correct in alleging that the referee had erroneously sought, not merely signs of the defect, but that "those defects were due to the act or omission of the alleged tortfeasor": see judgment, at [72]. The referee did not go so far as to require knowledge that responsibility lay with the architect, rather than the engineer or the builder, but he did erroneously look not merely for knowledge of the defect, but also the cause of the defect. Her Honour was, therefore, in error in rejecting that aspect of the submission: at [73].

Consequence of error 27Because the wrong test was applied, it becomes necessary to consider what course this Court should take. The appellant submitted that the application of the proper legal test to the combined findings of the referee and the primary judge or, if that course were necessary, those findings taken in conjunction with evidence before the primary judge but not considered, would lead this Court to uphold the limitation defence. Mr Quested, who gave evidence for the Owners Corporation was cross-examined, but the respondent did not suggest that anything arose from that cross-examination which would make it inappropriate for this Court to consider the factual issues identified by the appellant. The material relied upon by the appellant was identified in its written submissions in the following terms at paragraph 33: "(a) the windows in the building (other than the kitchen window) did not contain subsills (report [100]); (b) the absence of subsills meant ' that water that entered through the windows remained inside the outer surface of the walls, and ran downwards through the building causing damage as it did so " (report [100]); (c) the ingress of water was observable and, in view of the nature of this finding, this must have been in connection with the windows (J [73]-[74]); (d) on 8 April 2001, following an incident of wind driven rain, Mr Spicer (an employee of the builder) attended the site and water staining was observed by him ' on the sills ' [Tcpt 225(6); 228(37)-229(22)]; (e) on 11 May 2001, Austruc wrote to CSA recording that water ' entering via the central window joint is being collected in the window sill. A small amount of water is pooling on the sill lining ' [Affidavit of Mr Kirk]; (f) on 20 November 2001 there was water penetration, observed to be localised to the area or carpet area below the windows, to units 2, 6, 10, 14, 18, 26 and 30 (affidavit of John Quested sworn 29 March 2004, T461.16). These units are located in the south eastern corner of the building, and were located on every level of the building, except the fifth level (T461.16); (g) on 25 November 2001 water penetration, confined to the carpet area below the window located in the second bedroom, occurred in unit 22 [Quested affidavit, T462.4]. This unit is located on the fifth level, on the south eastern corner of the building (T461.37-44); (h) on 27 November 2001 there was water penetration, confined to the second bedroom, but possibly the kitchens and hallways, to units 2, 6, 10, 14, 18, 22, 26 and 30 [Mr Quested, T462.41-463.18]. These units are all located on the south eastern corner of the building, and on different and successive levels of the building (T462.30-39); (i) on 3 February 2002 water penetration, localised to the window area, was observed to extended [sic] to units 7, 11, 15, 19, 23, 27 and 31 [Mr Quested, T470.15-20]. These units are all located on the north eastern corner of the building, and extend over each level of the building except the ground level (T468.47-469.4); (j) on 4 February 2002 water penetration extended to units 7, 11, 15, 19, 23, 27 and 31 (Mr Quested note dated 6 February 2002). Mr Quested inspected these units with Mr Spicer from Austruc. The plaster from the wall of unit 11 was removed and the window was observed not to be sealed and he could ' see the waves coming in from the ocean ' (T471.24). He also realised that there were not storm guards on the windows (T472.9)." 28The appellant relied upon a number of affidavits and passages in the evidence of Mr John Quested, one of the first occupants of the building, who was appointed caretaker in about February 2001, when the building was first occupied. He was required to report matters such as water penetration to the manager appointed by the Owners Corporation, All Strata Services Pty Ltd. He stated in an affidavit of 29 March 2004 (par 3): "Since I have been caretaker I have observed on numerous occasions water entering into the building in the course of heavy rain, wind and storm. Water penetrates the building from whichever ... direction the storm is coming from." 29In cross-examination he was asked questions in respect of an affidavit in which he described water entering his unit in about April or May 2001. He said he had observed the carpets were wet in his second bedroom and, on rolling back the carpet, discovered staining suggesting that it had been wet in that location on a prior occasion: Tcpt, 17/04/08, p 453. The layout of the building appeared to involve second bedrooms having two windows and no balcony: p 454. He agreed that he checked "just about all of" the units in the south-western and north-eastern corners of the building in April/May 2001 and found water had penetrated most of the second bedrooms: p 455-456. He identified the water penetration in unit 11 as having been "on the floor area beneath the window in that second bedroom": p 455(13). At least as a matter of inference, the water penetration was under the windows in each of the units inspected. 30He undertook further inspections in November 2001, again finding water around or beneath the windows, and extending further into the room: p 461(26). In his affidavit of 12 July 2007, Mr Quested said: "10. Whenever it rains, water gets into units in the property. Since approximately November 2001, I have carried out additional services to my caretaking job during periods of rain. These additional services include lifting furniture and carpet in units so that they don't get wet, mopping up water that gets into units when it rains, and drying out carpet after the rain has stopped. ... Due to the unpredictability of rain, I have been unable to take a holiday since I moved into the property. ... 15. From November 2001 until the present date, I have been cleaning up water that gets into the units in the property .... 19. Whenever it begins to rain, I check the direction the rain is coming from and decide which units are likely to be worst affected by the rain. ... [If rain is coming from the south] I place towels along the skirting boards of the southern wall and on the window sills of the windows in the southern wall. I move carpet and furniture in every unit on the south side of the building to which I have keys." 31Although dated 6 February 2002, only a day before the commencement of the six year period prior to the proceedings, a handwritten note, over his name, but apparently written by his wife, and sent to All Strata Services, read: "Rain damage On Sunday 3.2.2002 and Monday 4.2.2002 second bedroom in all units. Units effected [sic] were 31, 27, 23, 19, 15, 11, 7, an inspection was made by Mr Bill Spicer (Austruc) site supervisor. Because units 23 and 11 were so bad we were almost sure it was the windows. To be sure Bill removed the plaster from the wall of unit ... to find the leaks. We now know it is the windows. The[y] are not sealed, some hopper windows are tight at the top and are hard to seal at the bottom, as you can feel the air coming through. Our main concern now is how many windows in the building are not sealed as storms can come in any direction. We feel all windows should be now checked and re-sealed 'storm gards'?" 32The inference to be drawn from this material is that the Owners Corporation, through its caretaker, reporting to the manager, was aware of water penetration, probably through the windows of the second bedrooms, in April or May 2001. This was confirmed by further heavy storms in November 2001. By November 2001, the manager, on behalf of the Owners Corporation, was paying Mr Quested extra money to clear up water damage. By November 2001 at the latest, the defect in the windows was manifest. By 6 February 2002, it can be said that the Owners Corporation had actual knowledge that the windows were defective. 33Knowledge that the windows were defective did not, of course, mean that the Owners Corporation knew who was responsible for the defect, but the time within which it needed to ascertain who was responsible and, if necessary, commence proceedings, had started to run. It failed to act within six years of the accrual of the cause of action and the proceedings brought in respect of the defect were, accordingly, statute barred as against the appellant.

Steel rooftop structure 34The appellant pleaded a limitation defence in respect of the rusting of the steel support for the rooftop, which was dealt with by the referee but not expressly by the primary judge. An amount for repair of the steel structure was included in the judgment against the appellant. 35The referee considered the complaints in respect of the structural steel frame from [146]-[158]. That discussion identified the steps by which the original intention to require galvanised steel was abandoned and replaced with a requirement for epoxy paint. As the referee noted, "[a]fter completion of the building, the steelwork started to rust, no later than 2001": at [159]. The referee accepted that galvanising was not essential, but that the alternative adopted was inadequate and that the appellant was liable, in an amount of $22,850, for rectifying the problem. 36There was a separate claim, upheld by the referee, but rejected by the primary judge, in relation to the inadequate waterproofing of the faade of the building generally (that is, over and above the issue relating to the windows). In the referee's report at [329] he noted: "CSA submitted that the issue concerning the rusting rooftop steel can only be related to a breach of the overall duty alleged by the Corporation, to provide a waterproof design. I respectfully doubt that this is an apt categorisation, but in any event I find that what was known or manifest before 8 February 2002 was the fact of rusting, and not that the rusting was or might be thought to be related to a decision taken by CSA." 37With respect to knowledge of the defect, it is clear that the approach adopted by the referee was precisely that identified above with respect to the windows, only more starkly expressed. The defect was not latent for long: what took time to be revealed was the element of responsibility attaching to the respective parties. For reasons already explained, accrual of the cause of action did not depend upon that knowledge. Accordingly the limitation defence should have succeeded on this basis in respect of the steel rooftop structure. 38It is not necessary to consider other ways in which the appellant sought to rely upon repairs undertaken pursuant to s 62 of the Strata Schemes Management Act 1996 (NSW) or expenses otherwise incurred, as constituting relevant damage in respect of the accrual of the cause of action.

Liability for contribution: contents claim 39The final matter raised by the appellant concerned the order for contribution made in favour of the builder against the appellant. 40An owners corporation "must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation": Strata Schemes Management Act , s 62(1). The Owners Corporation accepted liability in respect of claims made by owners of various lots for loss and damage suffered as a consequence of the "inability" of the Owners Corporation to fulfil its obligations (amended summons, par 25). The Owners Corporation sought to recover this amount from both the builder and the appellant ("the contents claim"). The claim against the appellant for this head of damages was dismissed, but that against the builder was upheld. The appellant argued before the primary judge that, in those circumstances, it could not be held liable to contribute to the judgment against the builder, in respect of that loss. The claim for contribution was made pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) which, so far as presently relevant provides: " 5 Proceedings against and contribution between joint and several tort-feasors (1) Where damage is suffered by any person as a result of a tort ...: ... (c) any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise .... (2) In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage ...." 41The appellant contended that there were two classes of tortfeasor who could be the subject of a claim for contribution: those who are sued and found liable, and those who are not sued but who would, if sued, have been found liable, in each case, in respect of the same damage. The section, it was submitted, did not envisage a third category of persons liable to pay contribution, namely those who had been sued but found to be not liable in respect of the relevant damage. 42This proposed inflexible dichotomy must be approached with caution. The first category, as expressed in the statute, includes a person "who is ... liable", not one who has been found by a court to be liable: the first category is defined as the obverse of the second. However, adopting that approach, one would need to ask what assumptions one must make about the second category: are they persons who are sued in a timely fashion, where proceedings are prosecuted expeditiously and effectively, which are not settled, and not the subject of default judgments? 43Some of these questions were identified and addressed in James Hardie & Coy Pty Ltd v Selstam Pty Ltd [1998] HCA 78; 196 CLR 53. That case involved a plaintiff suing three defendants as concurrent tortfeasors in the Dust Diseases Tribunal. After the commencement of the trial, the first and second defendants consented to judgments against them in favour of the plaintiff; the plaintiff consented to a judgment in favour of the third defendant. Prior to the trial commencing, cross-claims had been filed between the defendants, including a cross-claim brought by the first defendant against the third. Once judgment was entered against the first defendant, its right to sue for contribution under the statute was complete. The amount recoverable then depended upon a determination in accordance with s 5(2). The issue in dispute was whether the third defendant (Seltsam Pty Ltd) fell within either category of persons from whom contribution could be obtained. By majority (Gaudron, Gummow and Callinan JJ) the Court held that it could not, because the judgment entered in its favour was a final order, inconsistent with liability. Further, having been sued, Seltsam could not fall within the second category of persons who would "if sued" have been liable. As explained by Gaudron and Gummow JJ at [35]: "The first limb of s 5(1)(c) identifies those who, like the respondent, have been sued by the injured party but fixes only upon those who have been made liable. The second limb identifies those who would, if sued at any time, have been liable, not those who were sued but obtained the entry of judgment in their favour, whether by consent or otherwise. There is no third category which identifies a person from whom contribution may be recovered by reference to the circumstance that this person has been sued and has been held not liable. Unless the first or second limb is satisfied, there is, in the terms of s 5(1)(c) itself, no person 'entitled to recover contribution under this section'." 44There is a point of distinction between the present case and Seltsam . As explained in the joint judgment and as emphasised by Callinan J at [126]-[127], what stood in the way of James Hardie's claim for contribution, was the existence of a judgment of a court of record in favour of Seltsam. As the present proceedings stood at the time the primary judge was considering the issue, the Owners Corporation was entitled to a judgment in its favour against the appellant. When that judgment was entered, the appellant could not be said to be a party which had a final judgment in its favour, exempting it from liability to the Owners Corporation. All it had was a judgment against it for a sum of damages which did not include an amount on account of the damages for which the builder sought contribution. Neither Seltsam , nor the cases relied upon by the majority, involved a situation where it was necessary to distinguish for the purposes of determining a claim for contribution, between a defendant which had successfully defended the claims of the plaintiff and a defendant which had a judgment against it, but in an amount which did not include the "same damage" for which the joint tortfeasor sought contribution. 45In those circumstances, the primary judge held that the appellant was liable to a claim for contribution because it had not been sued to judgment "on the merits"; rather this particular claim had been dismissed as between it and the Owners Corporation because the latter had failed to pursue its claim in a manner which accorded procedural fairness to the appellant. Before turning to consider the viability of that conclusion, it is convenient to note that the circumstances have now changed. The appellant having succeeded in respect of its outstanding liability to the Owners Corporation by reason of the limitation defence, it will, at the time judgment is given in this matter, be a person who is not liable to the Owners Corporation and will have a final judgment against the Corporation in its favour. 46The reliance by the majority in Seltsam on the existence of a final judgment is significant in two respects. First, the majority accepted, or at least did not dissent from, the proposition established by the English Court of Appeal in Hart v Hall & Pickles Ltd [1969] 1 QB 405, which found that a defendant who had obtained a summary judgment against the plaintiff for want of prosecution was not a person falling within the second category because the dismissal was not a final judgment precluding further action on the same facts: at [38] (Gaudron and Gummow JJ) and at [122]-[123] (Callinan J). 47The second point is that, as explained by Barwick CJ in Brambles Constructions Pty Ltd v Helmers [1966] HCA 3; 114 CLR 213 at 219, a tortfeasor falling within the first category may be described as "another tortfeasor who has also come under an obligation to pay money in respect of the same damage", suggesting that the converse may also not necessarily depend upon an absence of liability reflected in a final order. 48Nevertheless, in the circumstances which now arise, the claim by the builder must fail. The most generous authority, from the builder's point of view, is Hart , holding that a putative tortfeasor was not excluded from a claim for contribution where the claim by the plaintiff had been dismissed for want of prosecution. However, that case did not allow a similar conclusion in respect of any final judgment, including one resulting from a limitation defence. As Lord Denning MR (Davies and Winn LJJ agreeing) stated at 410-411: "The words [of the section] do not cover a third situation: (3) where a person who is alleged to be a tortfeasor has been sued and has been held not liable. If he has been held not liable on the merits of the case , clearly he cannot be sued for contribution. If he has been saved from liability by reason of the statute of limitations, again he cannot be sued for contribution...." 49There remains the point relied upon by the primary judge, namely that dismissal of a claim on the basis of procedural unfairness may not preclude liability for contribution. With respect, that conclusion cannot stand with the result in Seltsam: the dismissal of a claim for procedural unfairness constitutes an interlocutory judgment. There was no judgment unfairly entered, which was then set aside, leaving the plaintiff's claim unresolved; rather, it was held that the plaintiff's claim could not be determined fairly to the defendant in any circumstances. The unfairness would have been exacerbated, rather than resolved, by commencement of fresh proceedings. In any event, no such proceedings could be commenced, because they would be statute barred. 50The appellant has (or is entitled to have) a final judgment in its favour against the Owners Corporation. While it may be possible to dissect a judgment in a particular sum of money, to determine whether it has been found liable "for the same damage" as that claimed by the tortfeasor seeking contribution, it is not possible to divide a final judgment, to ascertain on what bases particular aspects of the claim were dismissed. Accordingly, whatever the proper analysis to be undertaken at the time of the judgment below, there is now no right on the part of the builder to claim contribution against the appellant. Accordingly, the judgment for contribution must also be set aside.

Orders 51Although the appellant has been successful, it is, unfortunately, not clear what orders should follow. The appellant, in its notice of appeal, invited the Court to "set aside orders and judgment dated 31 May 2010". First, the primary judge handed down six judgments, of which the last, delivered on 31 May 2010, purportedly addressed only three issues, namely: (a) whether the amount of the judgment in favour of the Owners Corporation against the appellant should include a figure of $197,822 for scaffolding; (b) whether it was appropriate to give a verdict in respect of the cross-claims, or enter judgment, and (c) the question of costs as between the Owners Corporation and the appellant. No issue was raised as to the first two points on the appeal; the question of costs was treated as consequential upon success on the major points. 52The second difficulty concerns the form of the orders, which were made on 31 May 2010 and entered on 4 June 2010. They included, adopting the language of the primary judge in her reasons, orders which referred to paragraphs in short minutes of order marked, initialled and dated by her Honour. Given that the orders as entered were those included in the computer record, it was, correctly, considered necessary to include the relevant material from the short minutes in the entered judgment. However, because not all of the orders numbered 1 to 11 made clear to what document they were referring, a degree of confusion has resulted. Further, the plaintiff's short minutes of orders referred to the adoption of three reports of the referee, subject to variations approved by the primary judge in three separate judgments, which were then identified. There was a lack of precision in respect of the findings which were not adopted. 53Thirdly, many of the orders dealt with the liabilities and rights of parties who were not before this Court. It is presumably not intended that this Court interfere with those orders. 54In respect of the contribution claim, the Court is also invited to set aside orders dated 23 April 2010. 55It is not clear that any orders were made on that date. A judgment was handed down on 23 April 2010 which concluded that two reports of the referee "are to be adopted except for those parts that have been previously rejected or the subject of settlement between the parties": at [54]. No order in that form was entered on that date or any other date. As her Honour recognised, it required refinement and her Honour required the parties to file short minutes of orders. That step was taken and the relevant orders were made on 31 May 2010. 56In order to resolve these difficulties, it will be necessary for the appellant to identify with precision those orders which it seeks to have set aside. It should have done so in its notice of appeal and it should pay the costs of the additional steps required to resolve this issue. 57The appellant seeks judgment against the plaintiff, to which it is entitled. It also seeks an order that there be restitution in the sum of $170,804.18 plus interest at the rate prescribed by Schedule of the Uniform Civil Procedure Rules 2005 (NSW). It may be inferred that that amount, which was the judgment obtained by the Owners Corporation, has been paid. However, there is no evidence as to when it was paid. It would not be appropriate for this Court to make an order for payment of interest without identifying the date from which interest is to run. 58The primary judge ordered that each party pay its own costs of the proceedings as between the Owners Corporation and the appellant: order 11. As the appellant has now succeeded against the Owners Corporation, no reason having been advanced why costs should not follow the event, that order should be made. The amended notice of appeal does not seek an order for the costs of the appeal. 59In relation to the issue of contribution, the appellant seeks judgment against the builder on the builder's cross-claim for contribution. It is entitled to that order. It may be noted that in an alternative form of that order, the appellant asked that an order be set aside which required it to contribute $184,016 "awarded to the [Owners Corporation] against the [builder] for the 'contents claim'". No such figure appears in the orders of 31 May 2010, nor do they contain an amount described as referrable to the "contents claim". 60The appellant seeks orders, either that the builder pay its costs "of the cross-claim" or, more broadly, that it pay the appellant's costs. It does not appear that the primary judge made any order as to the costs of the cross-claim, as between the builder and the appellant. However, as the appellant is entitled to have a judgment against the builder on the cross-claim, it would usually be entitled to its costs of that proceeding. However, the builder's submitting appearance in this Court contained the usual qualification as to costs. Accordingly, the builder must be given an opportunity to respond to this proposed order. If an order is sought against the second respondent in respect of the appellant's costs in this Court (which is unclear), it will also need to be afforded an opportunity to resist such an order. 61All of these matters should have been entirely foreseeable to the appellant, as consequential upon success in its appeal. They should have been addressed in its original written submissions, or orally on the hearing of the appeal. To the extent that no agreement is reached as to the appropriate orders, the parties should, in their further submissions, address the responsibility for any additional costs incurred, otherwise than in respect of the orders sought against the builder. 62At this stage, the Court can do no more than give the following directions: (1) Direct that the appellant, within 14 days of delivery of these reasons file and serve a statement identifying with precision: (a) the orders made on 31 May 2010 which it seeks to have set aside, and (b) the orders which it seeks in lieu thereof, together with any additional orders, and such statement to be accompanied by brief submissions in support of the proposed orders. (2) Direct that the appellant, if it seeks any order for costs against the builder, within the same period, file and serve on the builder a statement indicating the proposed order(s) and the reasons therefor. (3) Direct that the Owners Corporation, to the extent that it resists the orders proposed by the appellant, within 14 days of receiving the statement and submissions of the appellant, file and serve its response. (4) Direct that the builder, to the extent that it resists the orders as to costs sought by the appellant, within 14 days of receiving the statement and submissions of the appellant, file and serve its response. (5) Direct that the respondents, within the time limited for responding to the appellant's proposed orders, indicate whether, not being ineligible pursuant to s 6(7), they seek a certificate under the Suitors' Fund Act 1951 (NSW).

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 July 2011

Suitors' Fund Act 1951(NSW)

Strata Schemes Management Act 1996(NSW)

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Judgment (13 paragraphs)

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Cases Cited (10)