The Construction of Clause 10
32 The first defendant's contention is that liability arose in the Corporation for payment under the Scheme at the time of notification, not at the time of claim. On the basis of this assumption, clause 10 did not apply to the circumstances of this case, because notification occurred within 3 years of the commencement of building work and there had been no need for the Corporation to extend the time limits set by clause 7.
33 The plaintiff's submission is that liability cannot arise until four requirements have been met, namely, a relevant loss within the terms of clause 5 has occurred, there has been a notification of the matters potentially giving rise to a loss within the relevant time frame, a claim has been lodged in relation to that loss and there has been an assessment of the claim. The plaintiff does not dispute that the first two of these requirements are satisfied. However, in the absence of the last two requirements, according to this argument, no liability attaches to the Corporation. Clause 10 applies, so that the first defendant cannot recover for any losses pursuant to a claim made 12 years after the commencement of building work.
34 A plain reading of clause 10 makes it abundantly clear that it is directed to a notification that may have exceeded the relevant time limit, but has been given the benefit of clause 7(2). The reference to further liability assumes that liability has been established and assessed under the Scheme. The object of the clause is to ensure that, whatever liability has been accepted for defects notified out of time, liability for any defects attributable to the building work is determined once and for all at the expiration of 10 years from the commencement of that work. Clause 10 says nothing about when liability arises in the Corporation, that is, whether it is at the point of notification or at some later stage.
35 In Hristorforidis v FTAC [2007] NSWSC 1243 at [33], I said :-
This provision indicates on its face that, notwithstanding the existence of circumstances justifying the lodgement of a claim more than 3 years or more than 7 years after the commencement of building work, no claim would be entertained after 10 years.
36 I acknowledge that this passage refers to the lodgement of a claim and that, strictly speaking, that does not accord with the construction of clause 10 according to its terms. However, in Hristorforidis there was no issue that notification had occurred and later, a claim had been lodged. The issue in that case concerned the power of the Corporation to reconsider a claim it had earlier declined, simply because it decided to re-classify the nature of the defects.
37 Clause 10 has been the subject of comment in other decisions of this Court. However, all of them were determined on the basis that a claim had been made.
38 Owners of Strata Plan 43551 v FTAC ; Walter Construction Group v FTAC [2004] NSWSC 158 and Walter Construction Group v FTAC ; FTAC v Owners SP 43551 [2005] NSWCA 65 were relied upon by the first defendant to support its contention that liability arises at the time of notification. In the former, Grove J held at [65] and [70] that :-
clause 10 is directed to termination of liability but liability is not the same concept as payment. I would construe the words "has no further liability" to mean that there can be no determination of such a liability after the designated span of 10 years. I would not construe the words to exclude requirement to make actual payment for a liability which has been established within the time.
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I do not construe clause 10 as an arbitrary bar discharging FTAC from fulfilling a liability which has been established within the relevant period of time.
39 In the latter, Santow JA (with whom Sheller JA and Tobias JA agreed) said :-
[119] If clause 10 were construed as operating to exonerate FTAC from a liability it would otherwise have under the Scheme if it could dispute and delay payment beyond 10 years from the time the original residential building work commenced, it would place a premium on the kind of litigious point taking that has, regrettably, characterised these proceedings.
[120] …………… Clause 10 is simply designed to make sure that FTAC does not under clause 7(2) extend the time specified in clause 7(1) beyond the 10 years. But where the beneficiary has in fact complied with a notification requirement, FTAC is able to ascertain the nature of the liability in question within a reasonable timeframe, even if the execution of rectification work is delayed by ongoing dispute as to the full quantum of that liability. (italics not in original)
40 The italicised words immediately above are called in aid by the first defendant as authority for the proposition that liability arises where FTAC has been notified in a manner that allows it to ascertain the nature of the liability in question.
41 I cannot agree. The proceedings in Walter Construction Group were conducted on the basis that a series of claims were lodged (see Walter Construction Group v FTAC ; FTAC v Owners SP 43551 at [1] and [22]) and that FTAC had accepted liability, as Grove J makes clear at [70]. One of the issues was whether the FTAC could rely upon clause 10 to deny liability, in circumstances where the FTAC had agreed to settle a claim, made within the relevant time frame, but later sought to revoke that decision.
42 Even if Santow JA's comments at [120] are taken at face value, without placing them in the context of the circumstances with which he was dealing, they do not support the first defendant's position. There is nothing in the judgment of the Court of Appeal or in Grove J's judgment at first instance that grapples with the question, when does liability arise. In any event, this seems to me to be the wrong question. The question is, when is liability determined. The plaintiff in this case was never in a position to ascertain the nature of the liability in question, including the quantum, because the quotes for the rectification work which were an essential part of the claim were never submitted.