Fugen Constructions v Terranasa

Judgment (EX TEMPORE - REVISED 23 SEPTEMBER 2013) 1HIS HONOUR: The plaintiff, Fugen, is a builder. It carried out the construction of a strata title development at Lilyfield. That work was substantially completed in June 2005, when the strata plan was registered. 2The defendant, Terranasa, was a subcontractor on the project. It was required to supply and install waterproofing membranes. 3Fugen's pleaded case (and I use the word "pleaded" loosely, because what we have is a Technology and Construction List Statement) is that "in or about 2006", the Owners Corporation notified it of damage to the common property (and, perhaps, lots) caused by water leaks. The damage is said to have occurred in 2005. 4Particulars sought and given reveal that Fugen became aware of the damage in June 2006. An email of 6 June 2006 from a proprietor to a Mr Dimet of Fugen is relied upon as the source of that knowledge. 5Fugen's pleaded case continues by asserting that it was liable to indemnify the Owners Corporation for the cost of rectification; that it mitigated that liability by rectifying the damage at its own cost; and that it incurred (exclusive of GST) about $911,000 in costs in doing so. 6Fugen pleads that Terranasa owed it a common law duty of care to carry out its obligations (in respect of the waterproofing membranes) in accordance with the relevant clauses of the subcontract between it and Fugen, and in accordance with the warranties implied by s 18B of the Home Building Act 1989 (NSW). 7Fugen pleads that Terranasa breached that duty because the waterproofing membrane to the balconies of the development was not adequately installed at various locations. As a result, Fugen says, water was able to get into habitable areas of the building through various penetrations. 8Terranasa moves for summary judgment on the claim or, alternatively, for an order that the List Statement be struck out. It does so on the basis (which Terranasa has pleaded in its List Response) that the claim must fail because it was brought more than six years after the cause of action accrued. The Summons and List Statement were filed on 18 December 2012. 9Mr Roberts of Senior Counsel, who appeared for Terranasa, accepted the high degree of persuasion required to obtain summary disposal of a case. That has been set out in numerous decisions of the High Court, including Dey v Victorian Railways Commissioners (1949) 78 CLR 62 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. The test was stated by the plurality (Hayne, Crennan, Kiefel and Bell JJ) in Spencer v The Commonwealth (2010) 241 CLR 118 at [54] as: "... requiring certain demonstration of the outcome of the litigation, not an assessment of the prospect of its success". 10At [55], their Honours referred with approval to what Barwick CJ had said in General Steel Industries at 130. His Honour had there observed "that the case of the plaintiff is so clearly untenable that it cannot possibly succeed". Again, their Honours observed, "[t]he test to be applied was one of demonstrated certainty of outcome". 11Mr Roberts submitted that the relevant certainty existed in this case. He constructed the argument as follows. First, as between the Owners Corporation and Fugen, the case was one of a claim for damages for pure economic loss. Secondly, and a fortiori, that was the same as between Fugen and Terranasa. 12Mr Roberts submitted that, as between Fugen and Terranasa, the orthodox doctrine in cases such as the present, traceable at least back to the judgment of Deane J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503-505, was that loss accrues, for the purposes of a limitation statute, when the defective work becomes manifest or is otherwise discovered. Mr Roberts relied on the decision of the Court of Appeal of this State (Bathurst CJ, Basten JA and Young JA) in Cyril Smith & Associates Pty Ltd v The Owners-Strata Plan No 64970 [2011] NSWCA 181 at [8]. 13Mr Roberts relied, further, on what Sackar J said in Lane Cove Council v Michael Davies & Associates and Others [2012] NSWSC 727 said at [68]. That was a case as between an owner and the architect, where it was alleged that the architect accepted negligent construction work (or method of construction) on the part of a builder. Against that background, his Honour observed [68] that, as between the owner and the architect, "[t]he cause of action in negligence arose when the defective method of construction used by the builder became known or otherwise manifest and damage was thereby suffered". 14Mr Goodman of counsel, for Fugen, submitted that it was open to his client to establish that it did not suffer loss until, having carried out investigations, it ascertained the defects and began to rectify them. If I may say so, on the present state of the authorities, that argument conflates the legal concept of loss or damage with the quantification of what is thereby suffered. That distinction has been made clear in a number of decisions, including most recently by the High Court in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 87 ALJR 505 at [24] (French CJ, Hayne and Kiefel JJ). 15Having said that, it is, of course, necessary to identify what is the interest that is said to have been infringed by the negligent act. Gaudron J made that clear in Hawkins v Clayton (1988) 164 CLR 539 at 601. Her Honour's observation was cited with approval in Hunt & Hunt by French CJ, Hayne and Kiefel JJ at [25]. 16In this case, it seems to me, the economic interest of Fugen infringed by the alleged negligent act or omission of Terranasa is its obligation to make good the defective work. That economic interest was infringed, in my view, when, the Owners Corporation having discovered the damage, they made a claim upon Fugen to rectify it. 17Any other approach would deny the proposition that loss or damage, in respect of negligent construction, accrues when the defects are manifested or discovered; and it would conflate the occurrence of damage (which is what the test is concerned with) with the manifestation of that damage (a distinction adverted to by the Court in Cyril Smith [24]). 18Taking those principles into account, it seems to me that the case for Terranasa is clear. What has been pleaded against it must be a cause of action that accrued in 2006 (and particularised as having accrued on or about 6 June 2006). The pleading says, in my view rightly, that once the Owners Corporation notified Fugen of the damage, and by implication demanded that it be rectified, Fugen came under a liability to indemnify the Owners Corporation for that cost, and thereafter mitigated that liability by rectifying the damage itself. 19It is the obligation or that liability to rectify that infringes the relevant economic interest of Fugen. 20Accordingly, it seems to me, Fugen's cause of action against Terranasa, accrued no later than 6 June 2006. That (if it be relevant) Fugen understood this to be the case is made clear from an email from Mr Dimet of Fugen to "George" of Terranasa dated 19 June 2006. Mr Dimet reported to George the result of Mr Dimet's inspections a few days earlier. He told George that, "you may need to advise the insurance company as it appears we have additional waterproofing issues to contend with". That makes it clear, in my view, that no later than 19 June 2006, Fugen, through Mr Dimet, understood that that responsibility for that for which it was required to indemnify the Owners Corporation should be attributed to Terranasa. 21Thus, as I have said, it is my view that the cause of action that has been pleaded, accrued no later than June 2006, and hence more than six years before the commencement of the action against Terranasa. 22Mr Goodman submitted that it might be possible for his client to articulate a different cause of action, based on different manifestations of damage, which would not be statute barred (if, against his primary submission I came to the conclusion, as I have, that the present cause of action as pleaded is on its face statute barred). 23Whilst I am not entirely sure that any different cause of action which depended purely on a different manifestation of the same damage would escape the problem that I see with the present cause of action, nonetheless I do not think that the position is so crystal-clear that Fugen should be denied that opportunity. In the circumstances, therefore, I will decline to give summary judgment on the claim, but I will order that the list statement be struck out, with leave to replead. 24I make an order in accordance with prayer 2 of the defendant's notice of motion filed on 31 June 2013, subject to hearing from the parties. I would think it appropriate to order the plaintiff to pay the defendant's costs of that notice of motion. I will hear the parties on the way in which any attempt to replead should proceed, but my tentative view is that any amended list statement should be filed and served within some defined time, that a list response should be filed and served within some time thereafter, and that the matter should be brought back at a later date, with directions for the filing and service of a notice of motion for judgment, if that is the course that Terranasa thinks is appropriate. [Counsel addressed] 25I order the plaintiff to pay the defendant's costs of the defendant's notice of motion.