2. The First Respondent's claim against the Third Respondent is dismissed by consent of those parties with no order as to costs.

3. Order the First Respondent to pay to the Applicant the sum of $608,275.52, plus interest pursuant to the contract of $235,550.30, making together the total sum of $843,825.82.

4. Order the First Respondent to execute such documents and do such things as may be reasonably necessary to secure the release to the Applicant of the sum $190,024, together with any accumulated interest thereon, held in trust pursuant to the agreement made on 20 March 2000 between the Applicant and the First Respondent, such sum to be received by the Applicant in part satisfaction of the sum awarded in paragraph 3 of this order.

5. Order the First Respondent to forthwith deliver up to the Applicant the security bond provided by it to the First Respondent.

6. Liberty is reserved to the Applicant to apply for any necessary orders in aid of enforcement of paragraphs 4 and 5 of this order.

7. Until such time as the security bond is delivered up pursuant to paragraph 5 or until further order, the First Respondent, by its directors, servants, agents or otherwise howsoever are restrained from:

(a). making any claim or demand upon the surety of the bond;

(b). seeking to make any claim or enforce any right or entitlement thereunder;

(c). transferring, charging, pledging, assigning or parting with possession with the bond; or

(d). dealing with the bond in any manner whatsoever, save for the purpose of returning it to the Applicant.

8. Order the First Respondent to pay to the Applicant the further sum of $6,286.82 damages for failing to release the said security bond.

9. The First Respondent's counterclaim against the Applicant is dismissed.

1. These four sets of proceedings were listed for hearing together before me on 7 July 2003 with an estimated duration of 35 days. The combined hearing, interrupted by several short adjournments, occupied a total of 28 hearing days. Each set of proceedings had cross-claims within it, raising other questions to be determined between the various parties. In addition, apportionment or contribution was sought between some parties pursuant to s.131 of the Building Act 1993 ("s.131") and/or s.23B of the Wrongs Act 1958 ("s.23B").

2. All proceedings relate to the construction of an apartment block comprising 48 apartments at 65 Beach Street, Port Melbourne.

3. At the outset the various parties to the disputes and their respective roles should be identified.

4. The Apartments were constructed by Hansen Yuncken Pty Ltd ("the Builder") pursuant to a building contract ("the Building Contract") entered into on 30 July 1998 and varied by a subsequent deed dated 20 April 1999. The other party to the building contract, that is, the party with which the Builder contracted to construct the Apartments, was a developer, TS Services Pty Ltd ("TS Services"). TS Services, and its related company, Residential Investments Australia Pty Ltd ("RIA"), describe themselves as "the RIA Group".

5. The owner of the land upon which the units were constructed was Baxter Lodge Pty Ltd ("Baxter Lodge"). This company was the trustee of a unit trust used as the vehicle of the investors funding the project. It was incorporated expressly for the purpose of the development and entered into a joint venture agreement with TS Services, the substance of which was that TS Services was to carry out the development in exchange for a share of the profits. Baxter Lodge would sell the units to the individual purchasers and the proceeds of sale were to be applied in a particular way specified in the joint venture agreement.

6. Robert Peck YFHK Pty Ltd ("Peck") was the architect of the project. It prepared the architectural plans and supervised the construction for most of the construction period.

7. Gerling. Australia Insurance Company Limited ("Gerling") is an insurer that issued a contract works policy to the Builder that was current at the material times. In general terms, the policy was to indemnify the Builder with respect to certain loss that it might sustain or liability it might have to other persons in regard to building work that it carried out during the period of the policy.

8. In the first proceeding, D671/2000, (`the First Proceeding") the Builder as Applicant claims from TS Services and RIA various sums that are said to be due under the Building Contract. These include outstanding variations, extensions of time and unpaid progress claims. The proceeding was brought against RIA as well as TS Services because the Builder alleges that it is principally liable with TS Services for reasons I shall consider below. RIA denied any liability and TS Services defended and cross-claimed for delay and defective workmanship. TS claimed damages against Peck for defective supervision and design and Peck defended, denying negligence.

9. The second proceeding, D277/2001, (`the Second Proceeding") was brought by the Body Corporate of the strata plan for the apartments. It sought rectification and/or damages with respect to defects in the building and common property. These related principally to water penetration through the outer skin of the building and certain windows and defects in the swimming pool. The Builder claimed apportionment or alternatively, contribution, under s. 131 and s.23B against Peck, alleging defective design. There was a corresponding claim by Peck against the Builder alleging defective workmanship and claiming apportionment under s. 131.

10. The third proceeding, D45/2001, (`the Third Proceeding") was brought by the purchasers of Unit 801, Ian West, Dawn Shepheard and Parbanna Pty Ltd. They sought orders for rectification and/or damages from Baxter Lodge and the Builder with respect to defects in that apartment. Baxter Lodge in turn claimed orders pursuant to s.131 apportioning responsibility for the claimed defects to Peck and TS Services. It also claimed damages from the Builder for defective workmanship. The Builder in turn cross claimed against Baxter Lodge seeking declaratory relief that it was responsible with TS Services and RIA to pay the Builder for the construction of the Units and a further declaration that the proceeds of the sale of units it had received were held by it upon trust for the Builder. Finally, the Builder sought indemnity from Gerling

11. The fourth proceeding, D79/2001, (`the Fourth Proceeding") was brought by the purchasers of Unit 704, Grace Callegari and Phillip Osmond. They sought rectification and/or damages with respect to defects in that apartment from the Builder and to appeal against the decision of HIA Insurance Services Pty Ltd rejecting their claim for indemnity under the applicable domestic building insurance. The Builder claimed apportionment against Peck pursuant to s.131 or s 23B and Peck made a similar claim pursuant to s.131 against the Builder. The Builder also sought indemnity from Gerling.

12. Many of these claims and cross claims have since been resolved and certain of the parties called no evidence. When the hearing commenced on 7 July 2003, Baxter Lodge did not appear and the third and fourth proceedings were largely settled.

13. In the Third Proceeding, D45/2001, the Applicants sought an order that the claim against Baxter Lodge be struck out with no order as to costs. At the request of the parties affected I also indicated that I would strike out the claims brought by Baxter Lodge against the Builder, Peck and TS Services for non-appearance. I think it is more appropriate that those claims be dismissed. During the course of the hearing the other claims were settled as between the Applicants and the remaining respondents and, except for two remaining issues, orders are only required now that the proceeding be struck out with a right of reinstatement with no order as to costs. The two issues remaining to be determined in the third proceeding are the claim by the Builder against Baxter Lodge for a determination concerning the proceeds of sale of the various units and its claim for indemnity against Gerling with respect to the settlement it has made with the Applicants.

14. The Fourth Proceeding has also been settled and save for one matter, orders are only required that the proceeding be struck out with a right of reinstatement with no order as to costs. The outstanding issue is the claim by the Builder against Gerling for indemnity with respect to the settlement it has made with the Applicants.

15. Resolution of the Second Proceeding was assisted by a considerable amount of remedial work carried out by the Builder on the windows and external skin of the building, which was completed shortly before the hearing commenced. This was done pursuant to a written agreement entered into between the Builder and the Body Corporate. Essentially, the agreement provided that the work was to be done on a "without prejudice" basis, with certain consequences to follow upon certification of completion. Peck was not a party to that agreement. Most of the work related to sealing the gaps in the external pre-formed panels to change the drained joint design of the exterior skin to a fully sealed skin. A number of windows and doors were also removed, rebuilt and reinstalled and some compressed cement sheeting was removed and replaced following some underlying structural work. This work appears to have solved the water penetration problem, and the Builder now seeks orders against Peck for contribution or apportionment of the cost it has incurred in doing the work. The remaining claims by the Body Corporate against both the Builder and Peck were settled during the hearing and in regard to those claims orders are only required that they be struck out with no orders as to costs. The claim against TS Services remains, both in regard to defects to the pool and also the inability of the Body Corporate to access the lift control panel on the 9th floor from common property. This problem arose because, when that floor was subdivided, the lift lobby area was included within the title boundary of the 9th floor penthouse.

16. At the conclusion of the hearing I indicated to the parties that I would determine the disputes between the Builder on the one hand and Baxter Lodge, TS Services and RIA on the other, as soon as possible. I did this for two reasons. In the first place, as a result of the failure of any of those three related companies to call any evidence, the evidence of the Applicant is uncontested. It also appears from the evidence of Mr Apperly, the director of those companies, that the profits made from the development have been distributed and that TS Services and Baxter Lodge Pty Ltd are without any substantial assets. An early determination of the claims against those companies was therefore sought by Mr Whitten as a matter of urgency. I was prepared to do this and make a decision on those claims as soon as I had done so, rather than wait until I had dealt with and decided the outcome of the more difficult contested parts of the case.

The claim by the Builder against TS Services and RIA

17. TS Services and RIA defended the Builder's claim in the First Proceeding on the following bases:

(b) The work was not completed in accordance with the plans and specifications;

(c) The works were not complete so that the site was suitable for residential accommodation;

(d) The works were not such as to provide luxury accommodation;

(e) The Applicant was not entitled to the extensions of time claimed;

(f) The Second Respondent denied that it was a contracting party or the principal of the First Respondent or that it had any liability to the Applicant.

In addition, by way of counterclaim, TS Services sought damages for defective workmanship and materials. In its particulars, the damages sought were:

(a) the cost of rectifying defects, which was said to be $1,557,092;

(c) Loss of use of money arising from delayed settlements, said to be $132,000;

(d) Loss of goodwill and reputation, for which $1,000,000 was claimed.

17. TS Services also sought damages from Peck with respect to certain defects to the extent that they may have been due to defective design, inspection or supervision. These related to leaking doors and windows and water penetration of the external skin of the building. This claim was settled and on the first day of the hearing, with the consent of those parties, I made an order dismissing TS Services' claim against Peck with no order as to costs between them. Following that order, the only remaining claims in that proceeding were the claim by the Builder against TS Services, TS Services' counterclaim against the Builder and the Builder's claim against Peck pursuant to s. 131 or s. 23B in regard to TS Services' counterclaim against it. I determined that, although I was disposed to make the consent orders sought as between TS Services and Peck, Peck would remain as a Respondent to the Application for the purpose of the s. 131 and s. 23B claims. Since the counterclaim is to be dismissed, it is now unnecessary to consider or determine the s.131 and s. 23B claims in the First Proceeding against TS Services.

18. As to TS Services' counterclaim, the claims with respect to damages for delayed settlements and loss of goodwill were struck out in the interlocutory stages and, due to its failure to file and serve certain material in accordance with an order of the Tribunal made on 30 June 2003, it was precluded from leading any evidence as to the defects claimed.

19. Immediately following the opening by counsel of the Builder's case and before any evidence was called, counsel for the Second and Third Respondents, Mr Stirling, stated that his clients, TS Services and RIA wished to withdraw from the evidentiary stage of the proceedings, reserving the right to make submissions at the end. Mr Stirling was excused from further attendance and thereafter, save for a statement read by a representative of RIA, Mr Wayne Barwood, at the conclusion of the evidence, neither TS Services nor RIA took any further part in any of the proceedings. A witness statement of their common director, Mr Apperly had been filed but they did not call him. At the request of the Applicant's counsel, Mr Whitten, I directed that a summons to witness be issued at the conclusion of the rest of the evidence, directed to Mr Apperly, pursuant to which he attended, produced a number of documents and gave some evidence.

20. In the First Proceeding, evidence was given on behalf of the Builder by its then project manager, Merilyn Voigt, its then site manager, Ron Ellerbock, an administrative officer, Anne Stratton, its then operations manager, Mark Bonnamy and its then Victorian Manager, Tom Wilson. Many documents were produced and proven by these witnesses. The evidence is uncontradicted and I accept it.

21. The first matter to be determined is the claim by the Builder against RIA. The principal identified in the contract was TS Services. Mr Whitten submits that I should nonetheless regard RIA and TS Services as a single entity. The two companies had common directors and some common staff, although the employee who was principally involved in the project, Jan Sigley, was an employee of TS Services, not RIA. The letterhead of RIA was commonly used for correspondence and giving directions to the Builder and to other parties involved. This letterhead had the name of RIA printed on it but not TS Services. By their terms, some of these directions do appear to have emanated from RIA. Some correspondence directed to the Builder was signed by persons who were identified in that correspondence as staff of RIA. The Builder itself sometimes communicated with RIA for instructions and received them. During the course of the work RIA sometimes gave directions to the Builder to vary the works or rectify defects. The complaints by RIA to the Builder about lack of progress were made in its own name, without making any reference to TS Services. In one memorandum to the Builder, Mr Apperly sought a meeting between the other parties and RIA, not TS Services. RIA was referred to in some of the Superintendent's directions as being the principal.

22. Numerous documents to this effect were produced which I have read. However despite all this, it is clear from the face of the contract that the party contracting with the Builder was TS Services. That was the party for which the Builder was doing the work and to which it was to look for payment. There is nothing in the contract to suggest that TS Services entered into the contract otherwise than on its own account. Apart from any inferences to be drawn from the matters stated above, there is no evidence that RIA was the principal or one of the principals on behalf of which TS Services was acting.

23. The common director of both companies (and also Baxter Lodge), Mr Apperly, described TS Services as the primary development vehicle of the group. It was, he said, intended to be the single purpose entity for all their development projects. He said that one employee of TS Services, Mr Barwood, did sales for the group as a whole and he even suggested that the profits from the development that TS Services had received "would have gone to meet normal day to day running costs of the group."

24. Despite this, as I pointed out during argument, there is no evidence of any relationship of agency between TS Services and RIA. An inference would have to be drawn from the evidence as to RIA's actions in the course of the project and the other matters referred to. The matters relied upon by Mr Whitten are equally consistent with RIA assisting TS Services to manage the project. Any actions it took to do this are consistent with the close connection between the two companies. The use of the letterhead is equivocal. The letter accepting the Builder's quote is on RIA letterhead but is expressed to be from TS Services, the signatory identifying himself as a director of TS Services. The same applies to the letter accepting the quote for removal of contaminated soil. For the correspondence, RIA's letterhead is commonly used but the contractual documents are expressly in the name of TS Services. The use of monies received by TS Services by the group as a whole does not establish that it was earned by the group as a whole. There is no evidence as to what the nature of this use was or how it was treated in whatever accounts there might be for these companies.

25. In the alternative, the claim against RIA is expressed to be one of misleading or deceptive conduct. The representations RIA is said to have made are first, that it had the authority to give the various directions and instructions that it gave and secondly, that the Applicant would be paid a reasonable price for undertaking the work. As to the first representation, even if one were to accept that such a representation can be spelled out from RIA's conduct, there is no evidence that it was misleading or deceptive. It does not appear that any direction RIA gave to the Builder was given without the authority of TS Services. As to the second, merely giving a direction on behalf of someone else does not in itself amount to a representation that the party on behalf of which the direction was given will pay for the work directed to be done. The claim against RIA must therefore fail.

26. The contract is the form of General Conditions of Contract (AS2124-1992). The contractual documents included a lengthy tender submission, a Functional Design Brief and many plans and drawings. Much of the design work was done after the contract was entered into. The price was $12,991,856 and the work was to be completed by 6 August 1999. The work was supervised by Peck until February 2000 and then by another company called MCD (Australia) Pty Ltd ("MCD"). Numerous meetings were held and site directions were given by Peck or MCD.

27. Throughout the course of the work, progress claims were submitted by the Builder. The contract required these to be submitted to the "Superintendent", which was Peck. In practice, they were given to Wilde & Woolard, a firm of quantity surveyors that had been engaged to value the work for which progress claims were made. Wilde & Woolard would then advise Peck which would then issue the certificate under the contract. Clause 42 of the contract required the Superintendent to issue a payment certificate within 14 days of receipt of a claim for payment. Within 28 days after receipt of a claim or 14 days of the issue of the certificate, the Principal was required to pay to the Builder the amount of the certificate or, if none had been issued, the amount of the claim. Submission of the various claims is proven by Ms Voigt's evidence.

28. On 2 March 2000, the Builder made progress claim No 19, claiming an amount of $406,581.50. No certificate was ever issued by Peck with respect to the claim, nor by MCD. Accordingly, pursuant to clause 42 of the contract, the amount claimed became due on 30 March 2000. It has not been paid. This part of the claim is established.

Progress claims 17 and 18 - the 20 March agreement

29. In March 2000, TS services retained half of two progress claims (17 and 18) on account of complaints as to certain defects. The two amounts totalled $190,024 and it was agreed that this sum would be retained in a solicitor's trust account pending certification that the defects had been rectified. Practical difficulties with the implementation of this arrangement then arose. There was doubt as to the continuing authority of Peck and MCD in regard to the approval and certification of the rectification work. There was some confusion about the various lists of defects that were produced and no clear system emerged as to how to identify what had been done and what had not been done. A great deal of rectification work was carried out by the Builder to the units, but it does not appear that the completion of the work was ever certified nor is there any direct evidence that every item of the work was done. Nevertheless, it is clear that the sum in question is part of the progress claims referred to and that, subject only to it fulfilling its obligations under the 20 March agreement, the Builder is entitled to receive it. All of the apartments to which the work was to be done have now been sold and transferred and neither TS Services nor RIA have any continuing involvement or interest in having done any work that might remain. There is no evidence of any continuing complaints from owners about defects, apart from what has been raised in these four proceedings. Finally, the Builder has a continuing responsibility to the owner of the relevant unit for any defect that might remain, although there is no evidence that there are any remaining defects. For these reasons I think the Builder is now entitled to an order that the amount held now be released.

30. Claims for extension of time were made from time to time under the contract. Most were resolved but claims for 15.46 days have not been certified and are in dispute. These are verified by the evidence of Ms Voigt and since there is no contrary evidence the Builder's entitlement to the extensions is established. By clause 36 of the contract, where the Builder has been granted an extension of time under clause 35.5, the Principal is required to pay to the Builder such extra costs as are necessarily incurred by it by reason of the delay. These were claimed as variations.

31. The Builder submitted many claims for variations most of which were not disputed. Some of these reflected claims for extra costs incurred by reason of delay. A significant dispute as to the costs arising from two extensions of time (54 and 57) was whether the costs of the crane should be included. Ms Voigt's evidence in this regard is unchallenged. In her witness statement she says that the Builder was entitled to variations totalling $305,805.52 which were not approved for payment. Again her evidence is unchallenged.

32. According to the witness statement of Ms Voigt, when she left the employ of the Builder in about October 2000, there was a balance of $608,275.52. The calculation of this figure is complicated but the figures from which it is derived are set out in her witness statement. Essentially, it represents the difference between the contract price, adjusted to take account of variations, delay costs, prime cost and other adjustments, less the amounts paid. It includes the sum of $190,024 held in trust. Her evidence is not contested and I find that this is the balance due under the contract.

33. Clause 42.9 of the contract provided for payment of interest on late payments at a rate equivalent to 1% above the overdraft rate published by the Commonwealth Bank of Australia from time to time for the amount overdue, accruing on a daily basis and compounding monthly. The evidence of Marcus Worn is that this amounts to $224,403.16, as at 17 July 2003, and the calculations are set out in an exhibit to his affidavit. Between that date and the date upon which this decision is handed down a further 53 days has passed and on my calculations, at the rate established in the affidavit, a further $11,147.14 interest has accrued. This makes a total of $235,550.30. There being no other evidence and it appearing that the calculations are in accordance with the relevant clause, I accept that this is the sum due for interest. This sum should also be allowed and, being payable under the contract, should be added to the balance.

34. Pursuant to clause 5 of the contract, the Builder provided two insurance bonds by Allianz Australia Insurance Limited ("Allianz""), equivalent to 5% of the contract sum as security. The contract provided that the security was to be available where TS Services became entitled to exercise a right under the contract. In this case, TS Services now has no such rights to exercise, nor does it appear that it would have had any such right following the expiration of the defects liability period.

35. Clause 42.8 of the contract provides that the security shall be released within 14 days of the issue of the final certificate, which must in turn be issued within 14 days of the expiration of the time fixed for the lodgement of a final payment claim. The time for lodgement of such a claim expired 28 days from the end of the defects liability period. The last progress claim made was progress claim 19 and it is not expressed to be a final payment claim. Hence the contract required the final certificate to be given no later than 42 days after the end of the defects liability period and the security to be released within 14 days after that date. However no such certificate was given. Peck was not then the Superintendent and it is uncertain whether MCD had authority to issue such a certificate.

36. The form of security required by the contract is such that it cannot be withdrawn by the Builder. The liability of the surety will continue until it is released by the principal. The continuing liability of the surety imposes an ongoing cost upon the Builder which it can do nothing about. For this arrangement to operate on a commercial basis a term must be implied into the contract that the principal will release the security when it is no longer required for the purpose for which it was provided. In this case, there was no "final certificate" and so nothing for the principal to pay "within 14 days". The security should have been released as soon as the time for the issue of the final certificate expired with no such certificate having been issued.

37. Since the defects liability period expired on 19 January 2001 the security should have been released by 2 March 2001. Using the figures set out in the affidavit of Marcus Joseph Worn sworn 5 August 2003 and apportioning the interest, I find that interest charged by Allianz to the Builder attributable to the period after that date is $6,286.82. Since this expense has been incurred as a result of the wrongful refusal of TS Services to release the security, it is a proper head of damages to award against it in favour of the Builder.

38. The Builder also seeks an order that the security be returned. I cannot make an order determining rights as between TS Services and a surety that is not a party to this proceeding. Any order I make must be as between the parties before me. I think appropriate orders can be made pursuant to s. 53(1) of the Domestic Building Contracts Act 1989. That subsection provides as follows:

(1). The Tribunal may make any order it considers fair to resolve a domestic building dispute."

The term "domestic building dispute" is defined in s. 54 of the Act to include a dispute or claim arising between a building owner and a builder in relation to a domestic building contract. I think these words are wide enough to include a dispute concerning the non-return of a security when it should have been returned.

39. It is fair in the circumstances that the bond be returned. It is also both fair and appropriate that, until it is returned, TS Services be restrained from making any claim or demand on Allianz Australia Insurance Limited or doing any other thing to enforce the insurance bond.

40. The only remaining part of the counterclaim is for liquidated damages. This was dependent on evidence of late completion. No evidence was led in this regard. The evidence of the Builder was to the contrary. The counterclaim will therefore be dismissed. These orders are sufficient to dispose of the first proceeding D671 as between the Builder, TS Services and RIA.

41. In its cross claim in the third proceeding, the Builder claimed a number of declarations against Baxter Lodge. In essence, these related to the responsibility of Baxter Lodge for the costs of constructing the Apartments and a declaration that Baxter Lodge holds the proceeds of the sale of the apartments upon trust for the benefit of the Builder pending satisfaction of any damages awarded to it in the first proceeding.

42. TS Services undertook the development of the project pursuant to a joint venture agreement ("the joint venture agreement") dated 25 August 1997 and the entitlement to each of the declarations sought is said to arise from the operation of this agreement and the construction of the units by the Builder on behalf of TS Services.

43. Following a directions hearing on 30 June, the prayer for relief was amended to claim a determination in each case instead of a declaration. This amendment was made because I was listed to hear the case and, not being a presidential member, I cannot exercise the Tribunal's power to make a declaration. The determinations now sought are to the following effect:

(a) A determination that TS Services was at all material times the agent of Baxter Lodge;

(b) A determination that Baxter Lodge is, with TS Services and/or RIA, jointly liable for the satisfaction of any award of damages in favour of the Builder against TS Services and/or RIA in proceeding number D671/2000;

(c) A determination that the costs of constructing the units incurred by the Builder and claimed in proceeding number D671/2000 are agreed project costs pursuant to the joint venture agreement;

(d) A determination that Baxter Lodge holds on trust for the Builder the disbursed settlement funds received by it pending satisfaction by TS Services and/or RIA of any damages awarded to the Builder in proceeding number D671/2000.

The claim for a determination that TS Services was the Agent of Baxter Lodge

44. On the question of any agency between TS Services and Baxter Lodge, the relevant clauses of the joint venture agreement are 2.4 and 7. The first of these is as follows:

"Except as specifically provided in this agreement no party shall act or have authority as agent of the other party or in any way bind or commit the other party to any obligation, duty or liability to any third party."

Clause 7 is a lengthy clause that contains a limited power of attorney that empowers TS Services and certain of its officers to execute certain documents in the name of Baxter Lodge and to do other things that are described in the clause. The clause concludes:

"...nothing in this Clause will entitle the Developer to use the power of attorney herein to sign a mortgage or charge over the Property or for any other purpose than as specifically provided herein."

The matters authorised to be done under the power of attorney do not extend to entering into any contract with the Builder on behalf of Baxter Lodge.

45. There is nothing in the form of joint venture agreement to suggest that, in entering into the Building Contract, TS Services is doing so as agent for Baxter Lodge. TS Services may be bound by its joint venture agreement with Baxter Lodge to choose a Builder and enter into a contract with it, but that alone does not make Baxter Lodge a party to the contract between TS Services and the Builder that it chooses. The joint venture agreement provides that TS Services has authority to mortgage the subject land (clause 7), but only to secure the costs of the development. (see clauses 6.1.2 and 6.2). The exposure of Baxter Lodge is to be pursuant to this mortgage. Otherwise, the general tenor of the joint venture agreement is that the personal liability is to be undertaken by TS Services, not Baxter Lodge. There being no evidence of any agency, I cannot make the determination sought.

The claim for a determination that Baxter Lodge is jointly liable

46. For the reasons already given, I cannot make a determination that Baxter Lodge is liable to satisfy the award of damages to be made against TS Services.

The claim for a determination that the costs of construction are "Agreed Project Costs"

47. The important parts of the joint venture agreement are clauses 4 and 8, which were as follows:

"The Owner and Developer acknowledge that certain costs and expenses contemplated by Clause 3 hereof will be recoverable from the sale proceeds of Units as provided herein. Only those costs and expenses incurred by Developer which have been approved in writing by the Owner as recoverable expenditure ("Agreed Project Costs") may be reimbursed to the Developer from the sale proceeds of Units in accordance with the provisions of this agreement. The Owner agrees not to unreasonably withhold its approval of expenditure incurred pursuant to this agreement and appoints Ian Holman of 46 Rosebery Terrace, Chelmer, Queensland as its sole agent pursuant to this clause. "

"The Owner and The Developer mutually covenant and agree that the proceeds of sale of all Units sold and settled pursuant to this Joint Venture ("settlement funds") will be applied as follows:

8.1 Firstly, in repayment of any monies due to the Financier;

8.2 payment of any agent's commission (other than sales made by the Developer) and other expenses associated with the sale of the Units;

8.3 the Owner will receive the next $3.2 million in settlement funds;

8.4 the Owner will receive the next $1.6 million settlement funds;

8.5 the Developer will receive the next $1.6 million settlement funds;

8.6 the Developer will receive the agreed project costs;

8.7 The balance of settlement funds will be applied as follows:

The important thing about this order of payment is that the two figures of $1.6 million dollars are to be paid out before the agreed project costs. These two figures would seem to represent profits on the development and Mr Apperly's evidence was to that effect. The explanation for this apparently odd order of payment must be clause 3.11, which provides that TS Services is to procure finance for "all construction costs associated with the joint venture". In order for these construction costs to be met before the division of profits with Baxter Lodge, they must first be borrowed from the financier. They could then form part of the first payment. Anything that TS Services paid or incurred on its own account could only be claimed after Baxter Lodge had received back the cost of the land and both it and TS Services had both received their initial shares of the profit. Although Mr Apperly first said that the banking facility established was more than enough to cover the cost of construction, he was unable to say what it was and later in his evidence he said that the costs of the development were well in excess of what had been borrowed from the financier. This inevitably meant that, even if they were agreed project costs, they were not to be paid until after the participants had drawn their profits. As to variations, he said these would have to be funded by the individual unit holders or from the proceeds of sale, again indicating that the variations were to be paid after the first draw down of profits by Baxter Lodge and TS Services.

48. In fact, according to Mr Apperly, there was never any accounting as to what were agreed project costs although he said that after the two amounts of $1.6 million were paid out, the balance was used to pay the other costs of the project. He acknowledged that these would be agreed project costs. Although his evidence would suggest that they were not actually agreed with Baxter Lodge, the companies at this time had common directors. The unit holders had handed control of Baxter Lodge to Mr Apperly and his co-director Mr Bowtell, and Mr Apperly's understanding was that TS Services were to have any surplus from that point to pay the remaining expenses. He said that after payment of these, there was "nothing left". He even included as one of the costs the costs incurred by all three companies in conducting this litigation, although the wording of the joint venture agreement does not seem to me to contemplate costs of that nature.

49. I think the money awarded to the Builder in this proceeding must fall within the definition of "Agreed Project Costs". Although there is no evidence as to any "approval in writing" by Baxter Lodge, for the purposes of the clause 4 of the agreement, TS Services was required by clause 3.1 to "select a builder" and so any money payable by it under the resulting building contract not paid by the financier must be "Agreed Project Costs", otherwise it would not be recoverable without the Owner's consent. Since the Owner collects all the money from the purchasers of the units, that would not be a realistic interpretation of the agreement and cannot have been the intention of the parties. In the case of money falling due under the building contract, the approval in writing is to be found in the agreement itself. In addition to the original contract price, this must also include other sums falling due under the contract in order to bring the development to completion, since this is something TS Services was not only authorised but agreed to do. Indeed, in cross-examination by Mr Whitten, Mr Apperly acknowledged that these moneys should be regarded as Agreed Project Costs. I therefore determine that all moneys falling due to the Builder under the contract were Agreed Project costs within the meaning of clause 4 of the joint venture agreement between TS Services and Baxter Lodge.

The claim for a determination that Baxter Lodge holds disbursed funds upon a constructive trust

50. The first difficulty is that Baxter Lodge no longer holds these funds. Mr Apperly was very vague in his evidence as to the figures but was able to say that the money received by Baxter Lodge has all been distributed to the Unit holders. This is confirmed by a bank statement and financial records he produced pursuant to the summons to witness.

51. The law relating to constructive trusts is complex. A very helpful discussion is to be found in the Chapter on Constructive trusts by Associate Professor Barbara McDonald in the Second Edition of "The Principles of Equity", edited by Patrick Parkinson. It is not the function of this Tribunal to indulge in in-depth legal analyses except insofar as it might be necessary to explain its reasoning.

52. Mr Whitten submitted that the joint venture agreement provided a means whereby certain of the proceeds of sale were to be applied towards the cost of construction. It did make such a provision, but it did so in the course of a commercial agreement between the owner of land and a developer. He said that the joint venture agreement inured to the benefit of the Builder. I agree, but only in the sense that it allowed TS Services to use funds to pay the Builder. The joint venture agreement cannot be construed in my view as having been intended to confer a benefit on the Builder. He submitted that the Builder acted to its detriment in performing the work and incurring the cost of construction. I think this is an artificial way of looking at it. It performed the work because it had entered into a contract with TS Services to do so and it did the work, not on the faith of any agreement between Baxter Lodge and TS Services, but on the faith of a separate building contract it had entered into itself with TS Services. Similarly, it is a rather strained interpretation of the situation to say that the Builder carried out work for the benefit of Baxter Lodge. It did, but only in the sense that it was to the benefit of Baxter Lodge for the work to be done. However in doing the work, it was not the intention of the Builder to confer a benefit on Baxter Lodge. Its intention was to discharge its contractual obligations to TS Services. I agree with Mr Whitten that the amount claimed here amounts to the balance of the cost of construction but I see nothing unconscionable about Baxter Lodge receiving and retaining the money to which it was entitled under the joint venture agreement without first ensuring that the Builder has been paid in full. It was entitled to insist on its rights under the joint venture agreement. There is no evidence that it played any part in TS Services not paying the Builder.

53. The facts in this case cannot in my view justify a determination that there is a constructive trust in favour of the Builder. There is no fiduciary relationship between Baxter Lodge and the Builder. The only connections between them were that they both contracted with TS Services and that Baxter Lodge was the owner of the land upon which the Units were to be built. The proceeds of sale of the various units cannot in my view be considered trust property. The manner in which they were to be dealt with was provided for in the joint venture agreement. Contractual obligations can be enforced in law without calling in aid difficult equitable remedies. The same applies to the obligations vis a vis TS Services and the Builder. The obligation of TS Services to pay the Builder arises in contract and contractual remedies are the appropriate means of enforcement.

54. The actions of the Directors of TS Services in causing that company to disburse funds that might have been used to discharge its obligations to the Builder might be questioned in future proceedings involving those directors and, perhaps, further parties but they are not something that this Tribunal can or should be called upon to examine. As to Baxter Lodge, it has disbursed the money it received to the various unit holders of the Unit Trust of which it was trustee. A determination that the money was, for a short time, held upon trust for the Builder would now seem to be academic. A more appropriate remedy if there is one might be tracing, although it does not seem to me that this share of the "profits" was ever trust money to which the Builder had any entitlement. For these reasons, the determination sought should not be made.

55. I now turn to the Second Proceeding but before dealing with the merits I must first consider something that has arisen since the parties made their submissions following the close of the evidence. On 5 September 2003, a decision was handed down by the Tribunal in Body Corporate No.I/PS40911511E St James Apartments -v.- Renaissance Assets Pty and Multiplex Constructions Pty Ltd (D764/2001) ("the St James Apartments Case"). In that case the Tribunal struck out a proceeding pursuant to s.75 of the VCAT Act on the ground that it was hopeless and doomed to fail. The body corporate of a residential apartment building had brought the proceeding in its own name, alleging that it was the owner of the common property in the building. It claimed damages from a Respondent, alleging negligence in the carrying out of work to (inter alia) the common property. The respondent applied successfully to have the proceeding against it struck out on the basis that the body corporate was not the owner of the common property. Reliance was placed upon s.28(d) of the Subdivision Act 1988, which states as follows:

"In addition to section 24, when a plan providing for the creation of one or more bodies corporate or containing common property is registered--

(a) each body corporate for which the plan provides is incorporated; and

(d) any common property vests in those owners as tenants in common in shares proportional to their lot entitlement; and

(e) the Registrar must create folios of the Register for any common property in the name of the body corporate as nominee for those owners but must not produce a certificate of title for those folios, and may require submission of and cancel any existing certificate of title for common property."

After considering the effect of this section, particularly subsection (d), the learned Deputy President said (on page 3 of the decision):

"It seems to me that when the Applicant became incorporated under the 1988 Act, the common property of the premises became vested in the owners as tenants in common, in shares proportional to their lot entitlement. By reason of s.28(d), I do not see how it can be maintained, under any circumstances, that the common property fell to the ownership of the Applicant. In my view s.28(d) excludes the possibility of the Applicant being the owner of the common property."

56. A copy of this decision was forwarded to me by the solicitors for Peck under cover of a letter requesting the opportunity to make further submissions in reliance on it. Although this course was opposed by the solicitors for the Builder, a further directions hearing was held at which I gave directions for the parties to file further submissions. These have now been received.

57. In his further submissions, counsel for Peck, Mr Grahame, pointed to the Body Corporate's pleading, which alleges that it is the owner of the common property and claims damages against the Builder and Peck on the grounds I have already described. He also referred to the definition of "domestic building dispute" in s.54 of the Domestic Building Contracts Act, which refers to disputes between (inter alia) a "building owner" and a builder or architect. He submitted that it was foundational to the Body Corporate's pleading that it was the owner of the common property.

58. Mr Grahame also submitted that, if the Body Corporate is not the owner of the common property an order under s.131 or s.23B cannot be made. As will appear from what follows, I do not have to decide this point.

59. Both counsel for the Builder, Mr Whitten, and counsel for the Body Corporate, Mr Minahan, pointed out that, in its Points of Defence in the Second Proceeding, Peck admitted that the Body Corporate was the owner of the common property. That is true, but I have to decide claims between Peck and the Builder under s.131 and s.23B and those go beyond Peck's own pleading. Mr Whitten said that, in over three and a half years of litigation, the Body Corporate's ownership had not been put in issue. Again, this does not answer the difficulty. For reasons that will appear later in this decision, in order to decide the Builder's claims under s.131 and s.23B I must determine whether the Body Corporate is entitled to maintain its claim and the Builder did not admit that the Body Corporate was the owner of the Common property.

60. It may also be, as Mr Alstergren has argued, that the ownership or otherwise of the common property, involving as it does the proper interpretation of the Subdivision Act 1988 ("the Subdivision Act"), is a matter of law and not fact.

61. If an application were made by Peck to amend its Points of Defence, I have some sympathy with Mr Whitten and Mr Minahan's submissions that I should not allow Peck at this late stage to change its admission of ownership to a denial. They both refer in their submissions to a number of authorities as to the withdrawal of admissions that I do not need to refer to. Suffice it to say that in this case the evidence has all been given and, save for this new development, the parties have made their closing submissions. It was always open for Peck to have put the argument that found favour in the St James Apartments Case but it did not do so. Generally, a case should not be allowed to be re-opened simply because a party discovers a new argument and wishes to withdraw an admission in order to put it. The other parties have prepared and argued their cases and called their evidence on the pleadings as they stood. However, I do not need to consider any of these matters because, even if I were to allow an amendment, it would not assist Peck since I think that Mr Whitten and Mr Minahan's substantive submissions are well founded.

62. Mr Whitten submits that I should not follow the decision in the St James Apartments Case. It is true that I am not bound by the decision, but it is certainly of considerable persuasive force. As Deputy President Cremean pointed out in the case of Dore -v.- Housing Guarantee Fund Ltd [2002] VCAT 1495:

"To have a point re-argued only two months or so after it was decided by the Tribunal is a wasteful exercise. It is, moreover, an expensive exercise for all concerned including the Tribunal in the allocation of its resources. I consider I am not bound by the Senior Member's decision. But having to re-hear a matter only recently heard is not a practice to encourage. Otherwise, any decision, formally given, might be re-argued again, and again, before different members with different results. It is all the more embarrassing when this happens only a short time, as in this case, after the pronouncement given."

63. I respectfully agree with these comments. I would add that when I read the decision in the St James Apartments Case I considered, with respect, that it was plainly right. However, in the light of the submissions made to me in this case, I feel compelled to reach a different view.

64. Mr Whitten referred to s.28(e) of the Subdivision Act which requires the Registrar of Titles to create folios for the register for any common property "in the name of the Body Corporate as nominee for those owners" but forbids the Registrar from producing a certificate of title for those folios. He pointed out that under s.28A, a share in the common property of a member cannot be dealt with except by the body corporate in accordance with the regulations. He also relied upon s. 29, which states:

(1) A body corporate has perpetual succession and a common seal and is capable of suing and being sued in its own name.

(2) A body corporate and its members have the constitution, duties, functions, powers, rights and liabilities specified in the regulations.

.................................................

(6)The body corporate may in its own name and on behalf of its members execute any document or do anything necessary or convenient to enable it to carry out its duties, functions, powers, rights and liabilities, and the document or thing has effect as if executed or done by the members."

65. He referred to s.30(2) that, which provides that the Body Corporate must be taken to have an insurable interest in the common property, and to s.32(1), which allows it to dispose of any part of the common property in certain circumstances. He also made references to s.38 and the Subdivision (Body Corporate) Regulations 2001.

66. Mr Whitten submitted that these provisions demonstrate parliament's intention to confer upon a body corporate legal standing to be a party to proceedings before the Tribunal in respect of common property. I do not see that intention demonstrated in the provisions he refers to. What does appear is that parliament sets out what the Body Corporate can do and in what circumstances. There does not appear to be any "catch all" provision giving the Body Corporate the power to deal with the common property in ways not set out in the Act.

67. Mr Whitten's key submission, and the one that I think explains how the whole of s.28 operates, is based upon the effect of s.28(e) of the Subdivision Act, which is set out above. By virtue of that sub-section, the Body Corporate is, he submits, the registered proprietor of an estate in fee simple in the common property. I think this is right. Sub-section (e) provides that the Registrar of Titles is to create folios for the common property in the name of the Body corporate. It is implicit in the system set up by the Transfer of Land Act 1958 that a folio is part of the Register Book and when created records an estate or interest in land and the name of the registered proprietor of that estate or interest. (see Transfer of Land Act s.27(4),(7)(a) &(c)(i) and the definition of "land" in s.4(1)). This can only mean that the Body Corporate becomes the registered proprietor of the common property or rather, of an estate in fee simple in it.

68. The folios so created are to be in the name of the Body Corporate "as nominee for those owners", that is, the owners of the specified lots. The use of the plural word "folios" in s.28 would suggest that it is intended that there will be a separate folio with respect to the interest of each owner in the name of the body corporate as nominee for that owner. However the succeeding section, 28A, uses the singular form "folio", suggesting that only one folio is to be created for all the common property. I have no evidence as to the practice adopted by the Registrar in this regard but the difference would not seem to be material.

69. The words "as nominee" are curious and are not explained in the Act. However I think the position of a body corporate can be deduced from the surrounding provisions setting out the extensive powers that it has. Amongst these is a power to dispose of the fee simple estate in the common property in certain circumstances, conferred by s.32(1)(a)(i). By s. 29(6) it can do this and execute the necessary documents in its own name. Section 29(10) of the Subdivision Act, specifically prevents the body corporate from mortgaging the common property. Such a provision would have been unnecessary if the body corporate were not the registered proprietor of the fee simple estate in the common property. Finally, if the body corporate is dissolved, s.37(7) provides that the lots and common property become a single lot and vest in the former lot owners as tenants in common in proportion to their lot entitlements and the Registrar must create a folio of the register accordingly.

70. From these provisions it is clear that upon registration of the plan of subdivision a body corporate becomes registered as proprietor of an estate in fee simple in the common property and it holds this estate in its own name as nominee for the lot owners.

71. Turning now to the Domestic Building Contracts Act 1995 ("Domestic Building Contracts Act"), as stated above, the definition of "domestic building dispute" in s.54 of that Act includes disputes between (inter alia) a "building owner" and a builder or architect. By s.9 of that Act, any person who is the "owner" for the time being of the building or land with respect of which domestic building work was carried out may take proceedings for any breach of the statutory warranties in s. 8. The term "owner" is not defined in that Act. By s.38 of the Interpretation of Legislation Act 1984, in all Acts or subordinate instruments, "land" includes buildings and other structures permanently affixed to land and any estate or interest in land.

72. Although one might speak loosely of "owning land", it is not possible in our legal system to own land. What is owned is an estate or interest in the land. Since there can be more than one estate or interest in the same physical piece of land, so there can be more than one "owner" of the land for the purposes of the Domestic Building Contracts Act. I think it follows that the registered proprietor of an estate in fee simple in land must therefore be an "owner" of the land for the purposes of the two sections in the Domestic Building Contracts Act referred to. Of course, a body corporate would not be the beneficial owner, because it is the registered proprietor only as "nominee" for the lot owners. However it is nonetheless the registered proprietor of an estate or interest in the common property and the Domestic Building Contracts Act does not confine its operation to beneficial owners. If a mere legal owner of land, such as a trustee, contracts with a builder to have domestic building work done on the land, there would seem to be no reason why he could not sue the builder under the Act in his own name if the work should prove to be defective. Similarly, if he, as trustee, buys land upon which domestic building work has been done, s.9 does not say that, because he is only the bare legal owner, he cannot take proceedings for a breach of the warranties implied by s.8 if defects should appear in the work.

73. By virtue of s.28(d) of the Subdivision Act, the unit holders, in whom the ownership "vests" must also be owners within the meaning of the Act. I think the intention of the Act is that they are the beneficial owners but as registered proprietor, the Body Corporate is also an "owner", albeit a bare legal owner.

74. I have therefore concluded that the Body Corporate was entitled to bring the Second Proceeding in its own name. I now proceed to deal with the merits of the remaining issues in that proceeding.

The claim by the Builder against Peck for apportionment under Section 131 of the Building Act 1995

75. These claims relate to the settlement by the Builder of the claim brought by the Body Corporate in regard to the defects in the building that were rectified by the Builder pursuant to the 20 December Agreement. I shall refer to this claim as "the Settled Claim". In essence, the Builder claims that Peck was partly responsible for the defects in the building that were the subject of the Settled Claim and so should contribute towards the cost incurred by it in regard to the rectification work that was done to settle the Settled Claim. The claim is made alternatively under s.31 or s.23B.

76. Section 131 and the following two sections of the Building Act 1995, are as follows:

"Limitations on liability of persons jointly or severally liable

131. Limitations on liability of persons jointly or severally liable

(1) After determining an award of damages in a building action, the court must give judgment against each defendant to that action who is found to be jointly or severally liable for damages for such proportion of the total amount of damages as the court considers to be just and equitable having regard to the extent of that defendant's responsibility for the loss or damage.

(2) Despite any Act or rule of law to the contrary, the liability for damages of a person found to be jointly or severally liable for damages in a building action is limited to the amount for which judgment is given against that person by the court.

"court" includes the Victorian Civil and Administrative Tribunal."

Despite anything to the contrary in the Wrongs Act 1958, a person found to be jointly or severally liable for damages in a building action cannot be required to contribute to the damages apportioned to any other person in the same action or to indemnify any such other person in respect of those damages

Operation of Wrongs Act 1958

133. Operation of Wrongs Act 1958

Except as provided in section 132, nothing in this Division affects the operation of Part IV of the Wrongs Act 1958."

77. The relevant parts of s.23B and the following section of the Wrongs Act are as follows:

(1) Subject to the following provisions of this section, a person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with the first-mentioned person or otherwise).

(2) A person shall be entitled to recover contribution by virtue of sub-section (1) notwithstanding that that person has ceased to be liable in respect of the damage in question since the time when the damage occurred provided that that person was so liable immediately before that person made or was ordered or agreed to make the payment in respect of which the contribution is sought.

(3) A person shall be liable to make contribution by virtue of sub-section (1) notwithstanding that that person has ceased to be liable in respect of the damage in question since the time when the damage occurred unless that person ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against that person in respect of the damage was based.

(4) Subject to section 24(2B), a person who in good faith has made or agreed to make any payment in settlement or compromise of a claim made against that person in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not the person who has made or agreed to make the payment is or ever was liable in respect of the damage provided that that person would have been liable assuming that the factual basis of the claim against that person could be established.

(6) References in this section to a person's liability in respect of any damage are references to any such liability which has been or could be established in an action brought against that person in Victoria by or on behalf of the person who suffered the damage and it is immaterial whether any issue arising in any such action was or would be determined (in accordance with the rules of private international law) by reference to the law of a place outside Victoria".

......................................................................................

(2) Subject to sub-sections (2A) and (2B), in any proceedings contribution under section 23B the amount of the contribution recoverable from any person shall be such as may be found by the jury or by the court if the trial is without a jury to be just and equitable having regard to the extent of that person's responsibility for the damage; and the jury or the court if the trial is without a jury shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity.

(2A) Where the amount of the damages which have or might have been awarded in respect of the damage in question in an action brought in Victoria by or on behalf of the person who suffered it against the person from whom the contribution is sought was or would have been subject to-

(a) any limit imposed by or under any enactment or by any agreement made before the damage occurred;

(b) any reduction by virtue of section 26; or

(2B)If in any proceedings for contribution under section 23B the jury or the court, if the trial is without a jury, finds that the amount of any payment made or agreed to be made in settlement or compromise of a claim was excessive the jury or the court (as the case requires) in assessing the amount of the contribution recoverable from any person shall disregard any part of the payment which appears to it to have been excessive."

78. In the present case the work carried out by the Builder was all in regard to defects that formed part of the claim brought against it by the Body Corporate. They were the items that Mr Whitten refers to in his submission as the water penetration issues. It was important that these should have been dealt with in a timely way in order to contain any damage that might have arisen from any further water penetration.

79. The agreement entered into on 20 December 2002 between the Body Corporate and the Builder was that these problems would be rectified by the Builder on a without prejudice basis. Shortly before that agreement was entered into, Peck had been joined as a Respondent to the Second Proceeding on the application of the Builder. Notwithstanding that it was a party to the proceeding, Peck was not a party to the 20 December agreement. I have said that the work which is the subject of this claim against Peck was done pursuant to the 20 December agreement. However, not all of the work that was the subject of that agreement was done and the scope of works and the methodology was changed by the parties during the course of the work. The effect of the doing of the work was to cause the Body Corporate to withdraw its claim in regard to the items rectified. I shall refer to the claim that was so satisfied as "the Settled Claim".

80. The ground upon which Peck's joinder was sought, as set out in the affidavit accompanying the application for joinder, was to enable an order to be made pursuant to s.131 if it should be found that the Builder and Peck were jointly and severally liable to the Body Corporate. Points of claim were not served on Peck by the Builder until 3 February 2003. These included a claim, not only under s.131 but also s.23B.

81. On 31 July 2003, during the course of the hearing, further amended Points of Claim were filed by the Builder and served on Peck by direction of the Tribunal. These set out the following allegations:

(a) that the Builder had entered into the 20 December agreement with a denial of liability;

(b) that it had carried out the rectification work at a cost of $362,884.39;

(c) that Peck was liable in respect of the loss and damage caused by, resulting from or associated with the water penetration.

The Builder then claims judgement against Peck to the extent of its responsibility for the water penetration pursuant to s.131 or alternatively, contribution pursuant to s.23B on the following bases:

(ii) Pursuant to s.23B(2), the Builder is entitled to recover contribution notwithstanding that it has ceased to be liable in respect of the damage since the time the damage occurred;

(iii) Pursuant to s.23B(3), Peck is liable to make contribution, notwithstanding that it has ceased to be liable in respect of the damage since the time the damage occurred;

(iv) Pursuant to s.23B(4), the Builder entered into the December 20 agreement in good faith and performed the work, paid for it and conferred on the Body Corporate the benefit of the value of the work.

82. On 13 August 2003, Peck filed and served Points of Defence to these amended Points of Claim. In this document, after denying the facts alleged, Peck said that:

(a) the rectification works were domestic building works;

(b) the 20 December agreement was a 'major domestic building contract' within the meaning of the Domestic Building Contracts Act 1993 and failed to comply with a large number of specified provisions of that act.

83. The 20 December agreement was formally proved and evidence was also led that the work was done. As a result of the work, the Body Corporate abandoned the Settled Claim. The Body Corporate settled the whole of its claim against Peck shortly thereafter, although I have not been told what the terms of that settlement were. Before dealing with the extent and cost of the work done by the Builder in satisfying the Settled Claim I must first consider whether this claim can be maintained under either head, that is, under s.131 or s.23B.

84. In Wimmera-Mallee Rural Water Authority -v.- FCH Consulting Pty Ltd & anor VSC 3 June 1998 - unreported) Gillard J. Said of s.131 and the following sections:

"The purpose of s.131-s.133 (inclusive) is clear. A party responsible for causing damage in respect of building works is obliged to pay that proportion of the damage for which the party is responsible and is not obliged to contribute any sum of damages which is the responsibility of the other party".

85. In the leading case of Boral Resources (Vic) Pty Ltd -v.-- Robak Engineering & Construction Pty Ltd & anor. [1999] VSCA 66; [1999] 2 V.R. 507, Tadgell J.A. said (at p.509):

"The evident policy of s. 131 is to ensure that damages to be borne by a defendant in a building action (as defined in s.129) are no more than proportionate to that defendant's responsibility for the loss or damage for which compensatory damages are awarded against all defendants in that action."

Later on the same page, his Honour provided the following example:

"If it be assumed that the only parties to the proceeding were P and D, and that P were to obtain judgment against D for damages, it would be open to D to sue X in a fresh proceeding, alleging that X was partly responsible for causing P's compensable damage and claiming contribution from X in respect of D's established liability to P in respect of that damage. D's right of contribution from X (if X were proved to have been partly responsible for P's damage) would prima facie exist, subject of course to any valid defence, independently of s.131 of the Building Act 1993: the right would not be affected by s.132 of that Act, which applies only to deny rights of contribution and indemnity between persons found jointly and severally liable in the same action. The availability to D, under Part IV of the Wrongs Act 1958, of a right of contribution from X would be expressly preserved by s.133 of the Building Act."

"The opening words of s.131(1), 'After determining an award of damages in a building action', cannot be a reference to the judgment for recovery of damages, for there cannot be a judgment in the air or against the world and the judgment against defendants liable is referred to later. The expression....must be understood as referring to determining upon an award of damages and its total amount."

86. It seems clear from the wording of s. 131(1), that an order for apportionment is to be made after determining to make an award of damages in a building action. The Tribunal must give then give judgment against each respondent who is found to be jointly or severally liable for damages, for such proportion of the total amount of damages as it considers to be just and equitable having regard to the extent of that respondent's responsibility for the loss or damage. However the Builder here is seeking to have apportioned, not of an award of damages, but of an amount that it has already paid or incurred, that is, the cost of carrying out the rectification work. I do not believe I can make such an order under s.131.

87. Mrs Crennan submitted that, notwithstanding that the Body Corporate has settled its claims against all parties except TS Services, I should still make an apportionment of damages under s.131. For the reasons which appear below, I do not accept this submission although I do accept her submission that s.131 only contemplates orders for damages in favour of an applicant.

88. The rectification work has been done and the Body Corporate no longer persists with a claim for the cost of carrying it out. I cannot therefore make an award of damages in favour of the Body Corporate with respect to this sum. If the work had not been done and it was found to be appropriate to make an award of damages against the Respondents, then an order under s.131 could be made apportioning the award between the Builder and Peck, if the requirements of the section were otherwise satisfied and it was appropriate to do so. However, an apportionment cannot be made with respect to the amount sought by the Builder here because there is no award to apportion. As I pointed out during argument, s.131 is clearly inappropriate in such a situation as this. Mrs Crennan acknowledged that only the Body Corporate can obtain an order for damages under s.131 and, except in regard to the distinct claims against TS Services, the claims by it are settled.

89. I agree with Mr Whitten's submission that s.23B specifically caters for cases where a settlement of a principal claim has occurred and the party effecting the settlement wishes to claim contribution for someone else. He further submitted that:

(a) both the Builder and Peck were liable in respect of the same damage, ie, the Settled Claim;

(b) although, as result of the carrying out of the rectification work, the Builder has ceased to be liable in respect of the damage, I should find that it was so liable before the rectification work was done;

(c) although Peck has ceased to be liable with respect to the damage, it is nonetheless liable to make contribution;

(d) the carrying out of the work was a "payment in settlement or compromise" of the Settled Claim and was made in good faith.

90. On this basis, he submitted, I should make an order for contribution towards the cost of satisfying the Settled Claim in an amount which I find to be just and equitable.

91. Mrs Crennan submitted that, on either basis, this claim is misconceived. Her first point was that a claim for contribution under the Wrongs Act is blocked by s.132 of the Building Act, set out above. She referred to the passage in the judgment of Tadgell JA quoted above and submitted that what his Honour was saying was that the saving provision in s.132 of the Building Act only operates to deny rights of contribution and indemnity between persons found jointly and severally liable in the same action. She submitted that this means that one cannot have contribution under the Wrongs Act when one has the defendants all joined in the same action. That is not what his Honour said and I do not accept this submission. For the right of contribution and indemnity between persons to be denied, they must be found jointly and severally liable in the same action. In regard to the Settled Claim, I cannot make such a finding. I can make findings to a similar effect in contribution proceedings under s.23B in the same action but not in the action itself. Further, if Mrs Crennan were correct, I could not even do that.

92. The mechanism of s.131 is that, where an application involving several respondents to a building action is successful and two or more respondents are found to be jointly and severally liable, there will then be a determination upon an award of damages and its total amount, a division of the damages between the unsuccessful respondents according to their relative degrees of responsibility and an appropriate award of damages will be made against each of them in favour of the Applicant. Once this has occurred, there can be no subsequent attempt to re-apportion damages between the unsuccessful Respondents pursuant to the Wrongs Act, for the very good reason that an apportionment has already been made. To use the words of Chernov JA in Robak, (p.515) "That issue is subsumed in the resolution of the responsibility of each defendant for the Plaintiff's loss." There is nothing like that situation here. I cannot apportion the damages between the Respondents in this case pursuant to s.131 because the Settled Claim has been settled and so there are no damages to apportion or award.

93. I now turn in more detail to Mrs Crennan's submission that I can make an apportionment under s.131, notwithstanding that the Settled Claim is settled. Indeed, she went further and said that I should make an overall apportionment of the of the Body Corporate's whole claim, including the parts that are settled and those still pending against TS Services and the Builder. She said that my task was to evaluate the whole claim, apportion liability and then make an order for damages only in regard to the claim against TS Services, because all the other claims have been settled. I do not believe this is the sort of exercise the section contemplates. Since there is only one Respondent left, I cannot make any apportionment, and so the exercise would serve no purpose. As Chernov J. pointed out in Robak (at p.515): "...s.131(1) has no operation if there is only one defendant in a building action."

94. Further, the claim against TS Services with respect to the lift service area is a distinct claim and has nothing to do with any of the claims against the other parties. That claim in itself could not be apportioned, even if there were multiple respondents, because TS Services is solely responsible for it. There is not more than one respondent jointly and severally liable with respect to it. In determining how the burden of any of the other claims should be shared (assuming for the moment that they were still alive) the claim in regard to the lift service area would be of no relevance.

95. Mrs Crennan placed considerable emphasis on comments made in Robak which she said indicated that the reservation of recourse to the Wrongs Act found in s.133 of the Building Act was only in favour of third parties or insurers, not against co-defendants. (see the passages quoted above and the judgments of Batt JA (p.512 - line 17) and Chernov JA (p.515 -para 27 -bottom). I think she takes these comments out of context. In each case the learned judge is assuming that the apportionment exercise contemplated by s.131 has been done and damages awards have been made. In the present case, it cannot be done.

96. Mrs Crennan submitted that the 20 December 2002 agreement was a major domestic building contract within the meaning of the Domestic Building Contracts Act. That seems a highly artificial analysis of the situation. The Act contemplates in s.9 that subsequent owners of the land upon which domestic building work is carried out might seek to enforce the statutory warranties to be found in s.8. The overwhelming majority of domestic building disputes are settled by agreement and very often that agreement is that the builder will return and rectify the work claimed to be defective. Where the party for whom the rectification work is done is not the original contracting party, as is the case here, does this make the agreement to return and rectify another domestic building contract? Mrs Crennan suggested that offences had been committed because the December 20 agreement, as a domestic building contract, fails to comply with the Domestic Building Contracts Act in numerous respects. She did not suggest that that had any impact on the way this case must be decided, except to suggest that there would be public policy reasons for not allowing contribution in these circumstances. I do not accept that suggestion. Because of the conclusions I have reached below, it is unnecessary for me to decide these questions because nothing turns on the point.

97. Mrs Crennan says that the damage alleged to have been suffered by the Body Corporate is not "the same damage" as that sought to be recovered by the Builder pursuant to s.23B. She says that what the Builder is seeking to recover is not damages paid to the Body Corporate but rather, a contribution towards the costs it incurred in carrying out work pursuant to the 20 December agreement.

98. She referred to the English case of Birse Construction Ltd -v.- Haiste Ltd [1996] 2 All ER 1. In that case, a builder (B) contracted with a water authority to build certain works and engaged a consulting engineer (H) as engineer for the project. Certificates for the work were to be issued by an engineer employed by the authority (N). The works were defective and B entered into a further agreement with the authority to construct new works in their place. B sued H claiming the damages it had suffered. H then served a Third Party notice on N, claiming contribution pursuant to the Civil Liability (Contribution) Act 1978, alleging that N was a person liable in respect of "the same damage" as H. The Court of Appeal held that the damage suffered by the authority in not having the work carried out properly in the first instance was not "the same damage" as that suffered by B in having to incur the expense of reconstructing the works.

99. The decision is, with respect, unremarkable. The contribution sought against N was not in regard to a claim for the damages suffered by the authority, in regard to which all of parties might have been liable. If it had been, the claim for contribution would have been with respect to the same damage. The claim for contribution failed because it sought contribution in regard to an action by B for the expense it had incurred. That was a claim with respect to damage, but not the same damage as that for which all three were said to be liable. This is clear enough from the passages Mrs Crennan referred to, (see the last paragraph on page 6, finishing on page 7 in the judgment of Sir John May; the penultimate and final paragraphs of the judgement of Roch LJ.; and the penultimate paragraph of the judgment of Nourse LJ.).

100. Both Mr Whitten and Mrs Crennan referred me to the decision of Byrne J of the Supreme Court of Victoria in the case of Meadow Gem Pty Ltd & ors -v.- ANZ Executors and Trustees & ors (unreported - 29 April 2003). In that case his Honour said (at p.29 of the decision)

"It has been authoritatively held that where the negligent act of a tortfeasor causes personal injury to a plaintiff, the damage suffered by the plaintiff includes both the injury itself and other foreseeable consequences suffered by the plaintiff including, if it be such a consequence, the injury caused by the wrongful act of a third party: Mahony -v.- Kruschich (Demolitions) Pty Ltd.91985) [1985] HCA 37; 156 CLR 522 at 527........................................................................................Moreover, it is clear that the expression under consideration permits a negligent tortfeasor to claim contribution notwithstanding that its wrong was committed after that of the wrongdoer from whom contribution is sought.

Mahony's case stands for the proposition that, where successive tortfeasors are guilty of acts of negligence, the damage flowing from each includes all the foreseeable consequences of the wrongful act. Accordingly. The question whether one tortfeasor is liable for injury incurred subsequently by another's tortious act will depend upon:

'...whether or not the subsequent tort and its consequences are themselves properly to be regarded as foreseeable consequences of the first tortfeasor's negligence.' "

101. Mr Whitten pointed that the design by Peck preceded any workmanship by the Builder but both resulted in the damage suffered by the Body Corporate. Both were jointly and severally liable for the same damage. Mrs Crennan suggested that Mr Whitten was suggesting that the carrying out of the rectification work was a foreseeable consequence of the nature referred to in Meadow Gem but I do not think that was what he meant. Having looked at that case and having read with care the passages referred to me by both Mrs Crennan and Mr Whitten, I can see nothing further of relevance to this case, nor anything that would lead me to conclude that the Builder and Peck are not liable in regard to the same damage. It is not disputed that, to be liable with respect to the same damage, it must be the damage suffered by the applicant, in this case, the Body Corporate.

102. The fundamental difference between this case and Birse is that here the Builder and Peck are claimed to be liable for the same damage, that is, the damage suffered by the Body Corporate by reason of the defects in the building. Perhaps if the Builder were seeking contribution towards an amount of money it had paid to the Body Corporate to settle the claim for that damage the right to contribution would be clearer. The source of the argument seems to be that, instead of paying money to the Body Corporate, the Builder has incurred the cost of carrying out rectification work. I think that makes no difference.

103. By s.23B(4), contribution can only be sought with respect to "any payment in settlement or compromise of a claim". The term "payment" is nowhere defined. In common parlance, it means payment of money, but it need not be. In White -v.- Elmdene Estates [1959] 2 All ER 605, Lord Evershed said (at p.610):

"...the word 'payment' in itself is one which, in an appropriate context, may cover many ways of discharging obligations. It may even.....include a discharge, not by money payment at all, but what is called 'payment in kind' "

104. In Meadow Gem, Byrne J said (at p. 5 of the judgement)::

"The legislation under consideration is remedial in character and a construction of s23B(4) which tends to overcome the difficulty which it seeks to remedy is to be preferred if possible."

105. The remedy provided by this legislation is to facilitate an equitable contribution towards the cost of settling a claim with respect to damage, by the persons liable with respect to that damage. There is no reason to confine the right of contribution to cases where the settlement was achieved by a monetary payment. Indeed, that would be contrary to the intention of the Act. In building cases particularly, settlement is often achieved by the doing of remedial work.

106. Mrs Crennan referred to s.53 of the Domestic Building Contracts Act, where the Tribunal is empowered (inter alia) to make orders for the payment of a sum of money and orders for the rectification of defective work, but I found that to be of no assistance in this regard.

107. For the reasons advanced, I am satisfied that the Builder and Peck were liable in respect of the same damage and that, by rectifying the defects in the building, the Builder has made a payment, albeit, a payment in kind, in settlement of the Settled Claim. I am satisfied that the "payment" was made in good faith for the purpose of achieving such settlement. I now turn to consider the amount of contribution that should be allowed, having regard to the evidence and s.24 of the Wrongs Act.

108. Section 24 requires that the amount of contribution shall be such as may be found to be just and equitable, having regard to the extent of Peck's responsibility for the damage. In this context, "damage" means the defects in the building that the Builder has repaired. I agree with Mr Whitten's submission that the thrust of the Act is that the respondents liable for the damage should pay their fair share of it and, if one of them has satisfied the claim, that party should be able to recover a just and equitable contribution from each of the others responsible.

Peck's liability with respect to the Settled Claim

109. Mr Whitten submits that Peck owed the Body Corporate a duty of care, as pleaded in paragraph 19 of its Further Amended Points of Claim. In Peck's Points of Defence it admits that it was required to discharge the services subject to its retainer to the standard expected of a reasonably skilled architect.

110. By clause 21 of its defence, Peck admitted that it was required to perform its services in compliance with regulations 2, 5 and 6 of the Architect Regulations 1993. Regulation5 provides:

"An architect must perform his or her work as an architect in a competent manner and to a professional standard.

"An architect must employ his or her skills in the interests of his or her client.

111. I accept that Peck owed a duty of care, not just to its client, TS Services, but also to its principal. The existence of a duty of care owed by architects to third parties has long been recognised (see Voli -v.- Inglewood Shire Council [1963] HCA 15; (1962-1963) 110 CLR 74 at p.85). As to the duty owed by builders of a dwelling house to subsequent owners, in the case of Bryan-v.-Maloney (1994-1995) 182 CLR 609, Mason C J, Deane and Gaudron JJ said as follows (at p.625):

"It is in the context of the above-mentioned relationships of proximity that one must determine whether the relationship which exists between a professional builder of a house, such as Mr Bryan, and a subsequent owner, such as Mr Maloney, possesses the requisite degree of proximity to give rise to a duty to take reasonable care on the part of the builder to avoid the kind of economic loss sustained by Mrs Maloney in the present case. It is likely that the only connection between such a builder and such a subsequent owner will be the house itself. None the less, the relationship between them is marked by proximity in a number of important respects. The connecting link of the house is itself a substantial one. It is a permanent structure to be used indefinitely and, in this country, is likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make during his or her lifetime. It is obviously foreseeable by such a builder that the negligent construction of the house with inadequate footings is likely to cause economic loss, of the kind sustained by Mrs Maloney, to the owner of the house at the time when the inadequacy of the footings first becomes manifest. When such economic loss is eventually sustained and there is no intervening negligence or other causative event, the causal proximity between the loss and the builder's lack of reasonable care is unextinguished by either lapse of time or change or ownership."

112. Turning now to the evidence, I heard evidence as to the causes of the various defects and how the blame should be allocated, from Mr Peter McGann, an architect called by the Body Corporate, Mr Langford, an Architect, called by the Builder, and Mr Spurgeon, a structural engineer called by Gerling. The site visit that I made to the building has assisted me in understanding the evidence of these experts, although by the time of my visit, the remedial work had been done.

113. The only defects I am concerned with in this part of the case are those for which the Builder is seeking contribution. They are the windows, doors and precast panels that were leaking .

114. Mr Whitten relied upon the case of Oldschool -v.- Gleeson Constructions Ltd (1976) 4 BLR 103 where it was said (at p.131of the report):

"But if, as was suggested here, the design was so faulty that a competent contractor in the course of executing the works could not have avoided the resulting damage, then on principle it seems to me that the consulting engineer should bear the loss."

I accept that as a statement of principle. A builder is contractually bound to perform the work in accordance with the design. It is not for a builder to alter the design to accord with how he thinks it should be. There may be circumstances where, for example, he knows or believes the design to be defective or deficient, where he should seek instructions and not proceed until he has them, but generally, his job is to build in accordance with the contract plans.

115. Insofar as the damage arises from poor construction, this is the sole responsibility of the Builder, unless it is something that should have been detected by Peck in its role of supervisor, in which case it is also the responsibility of Peck. It seems to lie ill in the mouth of the Builder to complain that Peck did not detect its poor workmanship, but it must be remembered that "damage" for the purposes of s.24(2), is the damage suffered by the Body Corporate, and "responsibility" means responsibility to the Body Corporate, not the Builder.

116. The windows and doors were designed by Peck and fabricated and installed by the Builder's subcontractor, I.N.D. Window Fabrications Pty Ltd ("IND"). . There were window and sliding door sets that extended down to an up-stand near the floor and there were punched windows, that is, windows formed by holes in pre-cast panels. According to the report of Mr Langford, Peck's specifications for these windows and doors have a number of deficiencies. The fundamental one is the failure to specify the required wind pressures for the project. Mr Langford said that no wind pressure diagram was included in the architectural or structural drawings for the Builder or the window fabricator. He said that this should have been provided by "an experienced architect", particularly given the exposure of the building to Port Phillip Bay.

117. Before fabrication of the doors and windows commenced, the Builder was required to submit the workshop drawings to Peck for approval. The drawings were prepared by IND and examined by Peck. Some annotations were made but I do not think they indicate any disapproval of the drawings and there does not appear to have been any objection from Peck when the windows and doors were fabricated and installed without any further approval. The workshop drawings were stamped and, on the evidence of Mr Langford, I find that the windows and doors were fabricated in accordance with them. I therefore conclude that the fabrication method set out in the drawings was approved by Peck.

118. Mr Langford criticises Peck for approving these drawings, saying they have a number of deficiencies "..which should have been identified during a thorough examination...by a prudent architect as a detailed review is normal practice". Although I accept his evidence in this regard, the deficiencies he identifies did not, on all the evidence, contribute to the ultimate failure of the windows and doors, save only for the absence of joint sealant in the frame junctions. As to that, it does not appear that the joints in the windows and doors in the unexposed parts of the building have leaked. Certainly, the exposed windows and doors required sealing at the joints but I think this deficiency is tied up with the failure by Peck to recognise the wind pressure the windows and doors would have to cope with. Had the pressure been less, they should have coped without sealing. As Mr McGann pointed out in cross-examination:

"...the integrity of the system is that you assume that it will leak and then you drain it internally down to the sub-sill, the sub-sill acting as the to then drain the water to the outside."

What I think went wrong in this situation, is that these windows were not capable of draining in this exposed environment. A different sort of window should have been specified that was capable of coping with these sorts of pressures.

119. There was an amendment on site, when Peck directed that sub-sills be extended beyond the windows and doors so as to allow the compressed cement sheeting that clad the pillars to be finished off in the sub-sills. This was done for aesthetic reasons and the direction is Peck's Superintendent's direction 232. It made the sub-sills more inclined to admit water and contributed to the leaking, but by how much, it is impossible to say.

120. The door and window units were to be made from extruded aluminium mouldings of a given profile for each component. As stated, the intention of the design was to allow any water that entered the frame to pass down the inside of the mullions to the sub-sill and then pass to the outside of the building through weep holes in the sub-sill. According to the evidence of Mr Spurgeon, an internal air seal is critical to the functioning of these sorts of windows, if water that enters past the rain seal is to drain to the outside. The plans do not show internal air seals in either the doors and windows or the punched windows. Mr Spurgeon says in his report that without these seals, "...leakage of the joint is virtually inevitable." As to the hobs of the door sets, no inner seal is shown in Peck's drawings, but the omission has been corrected in the workshop drawings. No outer seal was installed, but I accept the evidence of Mr McGann that it would have been unwise to do so, since water that found its way under the sub-sill would have been unable to drain away.

121. Both Mr Langford and Mr Spurgeon said no stop ends to the sub-sills were shown in Peck's drawings or the workshop drawings. Mr Spurgeon points out in his report that stop ends were required to provide an air seal to the ends of the sub-sills and that without them, air pressure can force water through the open ends of the sub-sill into the wall cavity. He said this is what happened. There are a number of sections in the plans that were put to Mr Spurgeon in cross-examination containing the notation: "Prop Alum Stop End Bead to Nom 3mm caulked gap". He suggested that these related to the vertical section and that there was no such notation in the detail for the sub-sill. However he could not explain what else the notation could mean. I cannot see that there would be any need for a stop end in the mullions themselves.

122. I think the annotation does refer to stop ends on the sub-sills, but the position would be far from clear to anyone reading the plans. I think a further detail should have been added showing where the stop end was to go, what its dimensions and profile were to be and how it should be fitted in with the other window components. The windows were fabricated without stop ends in the sub-sills. Instead, the ends of the sub-sills were siliconed to the panel at each end, although to what height I cannot say from the evidence. It seems from the evidence that the water level rose above the height of the silicone and so the sealing was ineffective. I doubt whether stop ends to a similar height would have been any more effective. I think the failure to install stop ends to the sub-sills contributed to the leaking and that the Builder and its subcontractor IND were partly responsible for not picking up the notation on Peck's plans and installing sub-sill stop ends. Peck was also responsible for not making clearer what was required, for approving the workshop drawings without stop ends and for not properly supervising this part of the job. Despite all this it is questionable whether this would have made any difference if the external wind pressure had been less. The less exposed windows appear to have been constructed in the same way and they did not leak.

123. The windows and doors appear to have kept out the weather on the less exposed parts of the building, but significant leaking occurred on the exposed side facing the sea. I find on the evidence that the windows and doors as designed were inadequate to cope with wind driven rain on the exposed parts of the building. This was due to a combination of these factors but the overriding factor is the high wind pressure.

124. The basic design of the apartments also made them susceptible to the sort of leaking that occurred. The balcony levels were above the internal floor levels, the balconies had little fall and the horizontal part of the upstand upon which the door sets rested was not rebated, so that once water got up under the sub-sill, only a perfect internal seal would have prevented it from flowing directly into the apartment. The absence of a front seal to the underside of the sub-sill was criticised but on balance I do not believe it was decisive. The problem was that, given the design of the balcony, the upstand, the doors and windows and the sub-sills, and the other factors mentioned, the doors were highly vulnerable to water penetration, in that wind driven rain was likely to pond on the balcony and be driven into the sill and enter the units, which is what happened. Added to this, the doors and windows themselves were not designed to withstand the pressures they were exposed to. All of these matters are problems of design for which Peck is responsible.

125. When the windows and doors were installed, the mullions were not fixed to any upright stud or other structure so as to prevent movement. The force of the wind caused a breakdown of the silicone seal between the mullion and the cement sheet. There does not appear to have been any adequate detail of the interface between the mullions and the cement sheet in the drawings, but I believe that good building practice required that the Builder support the sheeting with a sufficient frame rather than simply rely upon a silicone seal, as was apparently done here. I believe this to be a building defect. It contributed to the leaking because the air pressure caused differential movement between the sheeting and the mullion, breaking down the seal between the two and allowing water to enter.

126. Mr Spurgeon refers in his report to "...a number of construction inadequacies in the window assemblies and lack of sealant in some joints..." but does not go into any detail about these in his report or his evidence. I think construction defects played a part, but only a minor part.

127. The solution adopted was to seal the mullions internally to prevent the water rising up within them and stop a flow of air from outside to the inside of the apartments. In addition, the doors and windows needed to be dismantled and the joints sealed, additional parts had to be added and the design altered to cope with the external wind pressures. The Builder's foreman, Mr Petty, gave detailed evidence of what was done. On the evidence, particularly that of Mr Petty, it is highly questionable, whether much of this work would have been required if the wind pressures had been less, except perhaps the repairs to the sheeting and the framework where it joined the mullions.

128. I find that the windows and doors were not perfectly made and installed but the problems arose, not so much as a result of that, but as a result of poor design. I allocate responsibility for water penetration through the windows and doors at twenty per cent to the Builder and eighty per cent to Peck.

129. The exterior of the building was clad in precast panels with what is called a fully drained joint system. The panels sat either on a hob cast on a concrete slab or on top of a panel underneath. Each panel was rebated at the top to prevent water that entered the horizontal gap from entering the building. Where a panel sat on a hod, the bottom edge of the panel and the top of the hob it was to sit on were not rebated but flat, making the horizontal joint highly vulnerable to water penetration. Where the panels joined at the sides, a neoprene baffle was inserted in between to catch water that entered the gap between the panels and deflect it out over the top of the panels below. Where a row of panels met the row above or below, the vertical gaps would also be covered with a stainless steel flashing designed to prevent water entering the four way junction between the gaps and between the rows. Apart from these measures and central to the drained joint concept was the need to make the internal surface of the wall airtight so the air pressure between the panels would help prevent water entering. Otherwise, a flow of air from outside could by pass the baffles and flashings and carry water with it to the inside of the building. This is what happened.

130. Mr Langford said in his report that Peck's plans did not indicate any method for water proofing at the precast wall panel where it joined the in situ hob upstand or document it at all, which is, he says, contrary to good design practice.. He also said that the concrete wall panel connections were not sufficiently rebated and constructed to act as a drained joint / baffle system. He said that the unrebated horizontal joints allowed water to travel along the horizontal panel joints and permeate through the grout joints to the inside of the building. He said that the water penetration to Unit 801, which faced south, ie., towards the bay, was "...suspected as being directly attributable to the precast wall panel joint drainage design." He said further:

"The water penetration through the exterior walls of the complex has generally been experienced on the South and South East elevations of the building due to the high exposure of these wall areas to heavy wind driven rain and wind pressure which should have been calculated and taken into account when designing the window / sliding door systems for the project and designing the precast concrete wall panel connection system to be adopted. These requirements should have been specified by the architect as part of comprehensive documentation."

131. However, in other parts of his report, he criticises the installation. He says that the stainless steel flashing pieces are "poorly placed" and the vertical baffle is not, in all instances, carried over the edge of the panel horizontal joints and the four way panel junction has been "poorly constructed". I cannot deduce the extent of these faults from his report. Only a few parts of the construction were exposed and able to be inspected. However, it does appear that water penetration was largely confined to the exposed parts of the building.

132. Mr Spurgeon in his report agrees that the plans do not detail the waterproofing requirements of the unrebated hob. He also said that no details of flashing or air seal are given. He said the detail should have clearly indicated the requirements for the joint, specifically, stepped flashing overlapping with balcony waterproofing membrane, rebated joint and internal air seal. Under cross-examination, he said that if the hob were not rebated, all that could be done would be a horizontal flashing turned up on the inside of the panel. Such a flashing would, of course, be flat and he said that the whole principle of the drained joint is to direct any water outside the building and so the flashing really needs to be sloping to the outside and not be flat. He said that a rebated hob would direct the flow out and provide a vertical step against any wind driven rain coming into the joint. With a flat hob, water could flow to the side of the flashing and into the building.

"The inspection of the vertical joints revealed that the construction of the joints was in accordance with good practice and with the architectural details.

Inspection of the horizontal joints revealed that the joint sealant forming the inner air-seal in the region of the vertical joint had not been installed, Due to the absence of this seal rainwater which by-passed the vertical baffle could penetrate into the building at this point."

(He also referred to the report of Mr Bonaldi, but since that report is not before me, I cannot make use of his comments about it.)

134. As to the joints between the pre-cast panels and the hobs, he said that the in situ hob appeared to be as shown in the drawings and that no sealant was provided in the horizontal joint across the vertical joint. He said:

"The lack of a rebate in the joint and the consequential small upturn of the flashing would result in rain water in the vertical joint readily being pushed by wind pressure over the flashing and into the rear of the joint. From this point it could soak through the grout and into the building."

135. Mr McGann said that, to create a negative pressure cavity, a seal at the rear of the panel would be required but in the absence of destructive testing he could not ascertain whether such a seal was provided. If it had not, he suggested, the joint would fail. He said this would be a construction issue. He said that the detail in the drawings of the transition joint between horizontal panels was not appropriate in that it left a gap at the rear of the vertical joint which could allow any water which by-passed the vertical gasket to enter the building via the vertical or horizontal panel joint. He suggested this would be a design issue. From his inspection he was unable to ascertain how the joints had been constructed, although in a number of instances he observed that the lower edge of the vertical gasket was above the upper return of the stainless steel flashing which he said would considerably reduce the effectiveness of the flashing.

136. Mr McGann said that the detailing of the intersection between the panels and the in situ concrete was uncertain, but that in Unit 704, where the internal wall sheeting had been removed, the step was continuous from the inside to the outside. It was open on the outside and there was no attempt to seal the inner end of the stepped joint with the consequence that water under wind pressure is drained directly into the unit. He attribute the failure of the wall panel system to both design and construction.

137. As to the presence or absence of a rear seal, the site manager for the Builder, Mr Ellerbock, said that on the upper levels they had to caulk some of the panels because of the joint arrangement but just what was done in this regard is unclear from his evidence. The Builder's project Manager, Ms Voigt, swore that the vertical joints were caulked. Another project Manager, Mr Worn, said he saw the vertical seals in place. He said: "In numerous apartments it [the rear of the precast system] was exposed and we saw them in place." Mr Petty, a site foreman of the Builder said that wherever he saw a vertical joint it was caulked. As opposed to this, Mr McGann, saw some instances where the caulking was missing. I think on this evidence I must find that most of the seals were in place but a few were not.

138. I find that the entry of water into the building through the external pre-cast panels resulted for the following factors:

(a) The design of a flat hob for the panels to rest on and the unsatisfactory flashing system that was adopted for the flat hob;

(b) The failure of Peck to detail an adequate sealing or treatment of the interface between the panels and the hob;

(c) Incorrect placement of some baffles by the Builder during the course of construction;

(d) In a few isolated instances, failure of the Builder to adequately seal the inner joints between the panels so as to create an airtight seal.

These factors combined, to make it impossible for the system to function effectively as a drained joint system. As to the division of blame, I think Peck is slightly more to blame than the Builder. I attribute liability 60% to Peck and 40% to the Builder

139. As to the compressed fibro-cement sheet panels, they were designed to be fixed to steel studs but the details as to how that was to be done was not clear. In construction, the Builder set the stud and the window mullions independently with only a thin bead of silicone joining the two. This was criticised by Mr McGann as being an inadequate method of construction. The method of rectification adopted included joining the steel stud to the mullion so that they would work together. According to Mr McGann, they should have been designed in this way in the first place, although he said that an architect does not draw every nail and screw and some things are left up to the builder. There was no such direction in the drawings and I think there should have been. However, I am satisfied that a prudent builder would not have adopted the method used by the Builder. Apart from this, there was the site direction by Peck I have referred to that the bottoms of the sheets were to be finished in the extended sub-sills. This proved to be unsatisfactory and aggravated the leaking problem. I think both the Builder and Peck share the responsibility for the need to rebuild this part of the work and there is no reason to attribute more blame to one than the other.

140. The defect that appeared from the evidence was that zinc plated bolts were used to secure the blades. They rusted, and the rusted bolts had to be replaced with galvanised bolts. It would seem that the wrong bolts were used by the Builder in the first place and I cannot find any design defect in the blades themselves.

141. The rectification cost incurred by the Builder was proven by the evidence of Mr Worn. He was the Builder's project manager for the development from 3 February 2003 and oversaw the rectification works. He produced a chart prepared from the Builder's records, setting out what he calculated the Builder had spent on rectifying the defects making up the Settled Claim and the anticipated cost of rectifying other defects that had not been attended to at the time of the hearing. The records themselves were produced. I accept his evidence.

142. The rectification process extended from February 2003 until June 2003 and involved many people. The total cost to the Builder is said to have been $362,884.39 and in his statement, Mr Worn provides a breakdown of this sum. It became apparent during cross-examination that the source information, such as time sheets and invoices that he had used in calculating the total cost was second-hand but I think this is inevitable for this sort of exercise. Mr Worn was supervising the process and had recourse to the Builder's financial records in regard to the work, for which he was responsible. I am satisfied that he has calculated the cost with care and that I should accept his figure in the absence of any contrary evidence.

143. The rectification of the doors and windows was done by IND at its own cost. According to Mr Worn, no extra is claimed by the Builder with respect to this work, whether for labour, materials, preliminaries or on-costs. The cost with respect to which contribution is claimed in regard to the doors and windows is the cost of removing and reinstating internal linings to the units to allow the windows and doors to be removed, repaired and replaced, as well as testing to determine a method of rectification. That, as with all other costs claimed, does include preliminaries. The "preliminaries", in regard to this and all the other items, are the cost incurred by the Builder in running the site. Hence there are invoices for such things as construction and repair of staff amenities. I am satisfied that without incurring this type of expense, the work could not have been done and that it is therefore a proper cost to allow.

144. Applying the figures calculated by Mr Worn to the percentages referred to above, I allocate responsibility for the damage suffered by the Body Corporate with regard to water penetration as follows:

145. I am satisfied that the carrying out of all these rectification works at its own cost by the Builder amounted to a "payment in settlement or compromise" of the Body Corporate's claim in so far as it related to the defects that were repaired, ie., the Settled Claim, and that it was made by the Builder in good faith. Pursuant to s.24 of the Wrongs Act, I think that the amount of the contribution by Peck recoverable from it by the Builder with respect to the work is $223,615.12.

146. Apart from the rectification costs incurred by the Builder as aforesaid, there were a number of claims in the Second Proceeding that remained unresolved. However, both the Builder and Peck have settled individually with the Body Corporate with respect to those claims and no contribution is sought between them in regard to those settlements.

147. The Builder's claim against Gerling is with respect to a Contract Works Insurance Policy. The claim is said to be with respect to the cost of rectifying items damaged as a result of defective work or water penetration that is, consequential loss. As was pointed out in argument, the claim against Gerling is derivative that is, until such time as the Builder's liability to another party is established and the amount of the loss is ascertained, a claim under the policy cannot be made (see Post Office - v - Norwich Union Fire Insurance Society Limited [1967] 2QB363 and Bradley - v - Eaglestar Insurance Co Ltd [1989] AC957.

148. Any liability of Gerling under the policy in regard to the sections relied upon by the Builder (Section D and Section E) is to indemnify against liability. Until such time as liability is established, no valid claim under these parts of the policy can be made. It is possible in the meantime for an insured to seek a declaration in appropriate circumstances as to its entitlement to make a claim. In the present case since the Tribunal's power to make declarations is only exercisable by a presidential member, it was agreed between the parties that, in all the proceedings before me, wherever a declaration was sought in a prayer for relief, the word "determination" should be substituted.

149. On the fifth day of the hearing, Mr Alstergren applied to have the proceeding against Gerling struck out, or alternatively, for the Tribunal to be reconstituted to include a presidential member. There was no presidential member available to hear the case and I refused to strike out the proceeding because, regardless of whether a mere determination in the Builder's favour against Gerling would be of any practical value, it was nonetheless desirable that Gerling should be bound by, or have the benefit of, the findings of fact made in the cases to which it was a party.

150. I do not accept Mr Whitten's suggestion that I should simply make determinations in the same terms as the declarations that were sought in the original prayer for relief. To do that would be to grant declarations by another name which is contrary to the intention of s.124 of the Victorina Civil and Adminstrative Tribunal Act 1989. If a declaration is to be made it should be made as a declaration and not be disguised as something else.

151. I also think that I should not seek to finally determine the proper legal interpretation of the policy between the parties except for the purpose of making a declaration or granting substantive relief.. However it is desirable that I ascertain what the policy means and how it should be interpreted in order to ascertain what facts might be usefully determined in the course of this combined proceeding which could be of assistance to the Builder and Gerling. The purpose of leaving Gerling in as a party is as stated above to these proceedings was so that it would be bound by, or have the benefit of, any orders made. This is particularly important in regard to the determination of the liability of the Builder to other parties and the establishment of the extent of the Builder's liability with respect to the rectification works. Although I do not believe a Tribunal should make a determination that does not lead to a substantive order, the use that may be made of any determination is uncertain and to that end I propose to reserve liberty to both the Builder and Gerling to apply for further orders based upon the determinations that I make.

152. During the course of the proceedings the Builder settled the claims made against it in the Third and Fourth Proceedings and also the residue of the Body Corporate's claim against it. I have been provided with copies of the Terms of Settlement entered into by the Builder in regard to each of those claims.

153. By the terms of the policy Gerling indemnified the Builder with respect to a wide range of matters. The two relevant parts of the policy upon which the Builder sought to rely are Sections D and E.

154. On page 5 of the schedule, the insuring clause relating to Section D reads as follows:

"These sections are to indemnify the insured in respect of their legal liability under the terms of any contract maintenance or defects liability clauses for loss and/or damage not specifically excluded by paragraph 2 below, to the property described in Sections A and B of this Insurance which may occur during the maintenance or defects liability period".

155. On page 2 of the policy schedule the property insured under Section D includes contract works and any work of reconstruction rectification or repair of such works. Of the exclusions referred to, the relevant one is to be found on page 6 in subclause 2(f), which reads:

(f) "loss or damage caused by negligent workmanship, negligent construction or negligent design or wear and tear or normal upkeep or normal making good but this exclusion shall be limited to that part of the property insured immediately affected and shall not apply to any other part or parts lost or damaged in consequence thereof;"

156. I agree with Mr Whitten's submission that, for the purpose of the present case, the words "....in consequence thereof;" mean in consequence of the Builder's defective workmanship. That is, that the exclusion relates to the defective workmanship itself but does not exclude any damage that arose as a consequence of such defective workmanship.

157. In the present case the defects in the outer skin of the building and to the windows and doors, insofar as they relate to the defective workmanship of the builder, are not covered by the policy because of exclusion 2(f). However, any damage arising to other parts of the contract works would be covered, absent any other relevant exclusion. In regard to the water penetration, the two rainstorms in April and May 2000 would, I think, be the "Occurrence". That part of the claim against Gerling appears uncontentious. The real question is whether anything else is recoverable under Section D.

158. During the course of rectifying the windows and doors, it was necessary to destroy parts of the internal linings of several apartments in order to permit the removal of the windows and doors that required repair. The Builder argues that the internal linings were not in themselves defective and were therefore not "the property insured immediately affected" for the purposes of Clause 2(f) on page 6 of the policy schedule. Its counsel, Mr Whitten, argues that those words only apply to the defective windows and doors themselves, they being the parts of the property insured immediately affected by the negligent workmanship, construction or design.

"That part of the property insured immediately affected"

159. As to the construction of the term "that part of the property insured immediately affected" for the purpose of exclusion (f) applicable to the claim under Section D of the policy, Mr Whitten relied upon the case of Chalmers Leask Underwriting Agencies - v - Mayne Nickless Limited [1983] HCA 20; (1983) 155 C.L.R. 279. In that case, the respondent constructed flood mitigation works, including a dam to protect the construction works. The dam was defectively made, as a result of which flood waters penetrated it and damaged the construction work. The High Court unanimously held that, although the defective dam itself was not covered by reason of the exclusion, the exception to the exclusion applied so that the construction works were covered.

160. Mr Whitten also relied upon the New South Wales case of Graham Evans and Co (QLD) Pty Ltd - v Vanguard Insurance Co & Ors. (1986) 4 ANZ Ins. Cas. 60-689. In that case a policy indemnified the plaintiff against "all risks of physical loss of or damage to property of every kind and description for which the Insured may be responsible". There was an exclusion for loss or damage directly caused by defective workmanship which was qualified by the words "...but this exclusion shall be limited to the part which is defective and shall not apply to any other part or parts lost or damaged in consequence thereof. ' In that case, three coats of paint were applied to a building. The first coat failed as a result of which the other two coats of paint, which were not defective, flaked and the whole of the paint had to be removed. In an ex tempore judgement, Foster J. held that the second and third coats of paint were not part of the defective work and so the exclusion did not apply to the loss or damage to the second or third coats of paint, i.e., the loss of the second and third coats of paint was not damage "directly caused" by defective workmanship. His Honour therefore found it unnecessary to deal with the question whether those two coats of paint would have been separate parts of the work. In the course of his decision, his Honour said that the policy was a commercial document and should be construed beneficially.

161. Mr Alstergren relies upon two decisions. The first is that of the New South Wales Court of Appeal in Walker Civil Engineering Pty Ltd - v - Sun Alliance and London Insurance Plc (1999) 10 ANZ Ins. Cas. 1-418. The policy in that case required the insurer to indemnify the appellant for physical loss of or damage to property that it owned, used or was responsible for in its operations under a construction contract. An exclusion stated that the policy did not cover loss or damage directly caused by defective workmanship, construction or design but this exclusion was "limited to the part which (was) defective (did) not apply to any other part lost or damaged in consequence thereof." The works to be carried out included certain tanks that the appellant constructed defectively. The defective tanks had to be replaced and the need to replace them was "directly caused" by the appellant's defective workmanship and so the replacement cost was not covered because of the exclusion. In the course of replacing the tanks, equipment inside the tanks that was in working order was damaged and had to be replaced. The court held that, not withstanding that the equipment that required replacement was not in itself defective as a result of any defective workmanship of the appellant, it fell within the exclusion together with the tanks. Sheller JA said in the penultimate paragraph of his judgement:

"In my opinion, the appellant's claim is properly categorised as a claim to be indemnified under the policy for the cost of reinstating the defective part, namely the fibre glass tanks. So characterised, it was a not a claim in respect of any other part or parts lost or damaged in consequence of defective workmanship, construction or design, any more than would be claimed for the cost of stripping off the second and third coats of paint in Graham Evans if they had remained intact and undamaged but had to be removed in order to reinstate the primer coat".

"the loss or damage directly caused by the defective workmanship is the loss of the fibre glass tanks and the concrete together with, in my opinion, the necessity to replace the tanks. In my view upon a proper construction of the exclusion clause, the rectification of the tanks is loss or damage directly caused by defective workmanship, construction, or design. I include, in that, the loss of the concrete, which had to be jack-hammered, because, as I have sought to explain, that was, in my view, an integral part of the tank. The exclusion clause thus applies".

"It is important, I think, to reach a conclusion on the meaning of the words "part" and "any other part or parts" where used in the limitation to the exclusion clause. In my opinion, "part" is not a reference to a part such as a tank or a gasket; it is a reference to part of the work being carried out by the appellant. There was no mention of "part" or "parts" in the operative part of the exclusion clause. The words appear only in the limitation to it. The natural meaning of the word "part" in those circumstances is that it refers to the part of the works which being defective, have been productive of loss or damage".

"It is perfectly (clear) that the complex of equipment installed within the tanks was not defective but the entirety of that part of the work was of no use once it was found that the tanks were emitting water. That made the whole of that part of the work defective".

162. The second case Mr Alstegren relied upon is Prentice Builders Ltd - v - Carlingford Australia General Insurance Ltd (1990) 6 ANZ Ins. Cas. 60-951. In that case, a similarly worded exception was held to exclude liability to the insured for the cost of demolishing a non-defective part of a mound, part of which had been damaged by defective workmanship. Fullagar J., in a judgement with which the other members of the court agreed, said:

"If for example the mound in the present case had been a brick wall made with poor workmanship and as a result, part of it fell and damaged some machinery, the proviso to the exclusion would apply to leave recoverable under the policy the loss suffered by reason of the fall and the damage to the machinery. But, in my opinion, in the present case there is no difference in character between what Mr Shaw calls rectification of non-defective parts and what he calls rectification of defective parts because both parts merely are constitutes of a defective whole, or a whole that embodies, as a whole, defective workmanship".

163. I think all these cases turned on whether the subject of the claim could be said to be a different part to that "affected" by the faulty workmanship and I shall deal with their application below.

164. The other part of the policy relied upon by the Builder is Section E. This is the cover for what might be termed "liability insurance". The relevant insuring clause is to be found on page 11 of the policy schedule and it states (inter alia) as follows:

"The insurers hereby agree, subject to the limitations, terms and conditions hereinafter mentioned, that they will:

(a) pay on behalf of the Insured all sums which the insured shall become legally obligated to pay as compensation in respect of;

(2) loss of and/or damage to and/or destruction of property and/or the loss of use thereof;

in respect of and/or arising out of an Occurrence ....during the period of insurance in connection with the "Construction Operations" and/or "other business operations" and/or "Products Liabilities/Completed Operations" and/or "Property Insured" detailed in the schedule.

(b) "defend in the name of and on behalf of the Insured any claim or suit against the Insured to recovered damages in respect of and/or arising out of an Occurrence covered hereby".

(c ) Pay in addition to the Sum Insured/Limits of Liability expressed in the Schedule;

(2) All expenses incurred by or with the permission of Insurers for investigation, negotiation and defence of claims and suits".

165. Mr Alstergren submitted that this part of the policy relates only to what he called "third party claims". He said that, whereas the other sections of the policy relate to loss or damage to the contract works and liability under the contract maintenance or defects liability clauses, Section E relates to the risk of injury or other loss or damage to a third party for which the insured might be liable. This does seem to have been the intention of the policy, but I must still consider whether the words used nonetheless attract liability to Gerling in the circumstances that have occurred.

166. In regard to any claim under Section E, reliance was placed by Gerling upon an exclusion in paragraph 3 (f) on page 12. That must be read with exclusion 3 (e). The two sub-clauses provide that Section E does not apply to liability:

"(e) arising out of Completed Operations and Products Liabilities for loss or damage to property which formed part or all of the Insured's construction contracts or goods or products, but this exclusion shall be limited to the part which is defective or deficient and shall not apply to any other part or parts of such construction contract or goods or products lost or damaged in consequence thereof".

(f) for loss of use of or for the repairing or replacing of any defective product(s) or any part(s) thereof used or supplied by the Insured in the "Construction Operations" or "Other Business Operations" except to the extent that cover is provided for in Exclusion (e) of Section E of this policy".

167. Sub-clause (e) is inapplicable, because the losses arose before the maintenance/defects liability period expired and they did not relate to product liability. It is important to note that exemption (e) does not "provide for" any cover at all. It is simply an exclusion with a limitation attached. What then do the last two lines of (f) mean?

168. The Builder contends that those words mean that the exclusion does not apply to damage that is merely consequential as previously stated. It is argued that although cover is not provided for the defective work itself it is provided with respect to any liability for consequential damage. Mr Whitten said that the policy is a commercial document and I should try and give it a beneficial interpretation.

169. By its terms, exclusion 3 (e) applies only to loss or damage to property arising out of "Completed Operations" and Product Liabilities", which does not apply here. The term "Product Liabilities" is defined in General Condition 1 (f) of the policy. It is an inclusive definition but it seems to be concerned with goods rather than building operations. Similarly, the word "product" in exclusion 3 (f), although not defined, would seem more appropriate to describe goods rather than additions to a freehold, which is the consequence of building operations. However I must take into account that the clause contemplates that the work to be done by the Builder is "Construction Operations" or Other Business Operations". The only sensible meaning to attach to "product" in exclusion 3 (f) would be what those operations produce, although the verbs "used" and "supplied" are inappropriate to describe the carrying out of building work.

170. In order to give the concluding words in exclusion 3 (f) the meaning urged by Mr Whitten, I would need to insert words into the policy and I do not believe that I can go that far. This is not a question of ambiguity, it is a question of meaninglessness. Although Mr Whitten's interpretation may well be what the parties intended, I cannot construe the words in the policy to have that meaning. I can construe but I cannot re-write. Hence I cannot find that the exception to exclusion 3 (f) has any meaning at all. I must therefore see whether the exclusion itself applies.

171. The exclusion in 3 (f) exempts from the cover in Section E, indemnity with respect to legal liability for loss, damage or destruction of property arising out of the Builder's building operations where that loss is the repairing or replacing of any defective products or parts of products "used or supplied" by the Builder. A builder can use and supply materials and can supply labour. It can "use" the labour of others. But if the "product" is the fruit of the labour and materials it supplies, it cannot be said to use that product. The word "use" is inappropriate, but this seems to be a poorly drafted clause, or perhaps it has been lifted from another type of policy. The only sense I can make of it is that it exempts what might be termed "product liability" claims which, in a building context, means liability for poor workmanship and materials. The concluding words might have been intended to limit the exemption in a similar way to clause 2(f), but since I am unable to find that they have any meaning, the exemption stands as unqualified and as such, prevents any claim with respect to liability of the Builder for defective "products(s)", ie., defective workmanship and materials. Without the limitation suggested by Mr Whitten I think this would include loss consequential upon such repair.

That the work done was done under a fresh agreement outside the period of the policy

172. Mr Alstergren also submits that there is in any event, no liability under the policy with respect to the monies expended by the Builder under the 20 December 2002 agreement. He says that that work was carried out pursuant to a separate contract entered into between the Builder and the Body Corporate and it was entered into outside the period of the policy. I think this misunderstands the situation. The remedial work was carried out in order to discharge a liability that the Body Corporate claimed the Builder had with respect to defective workmanship. Insofar as I have not found that the damage suffered by the Builder was as a result of defective design by Peck, the Body Corporate's application against the Builder was justified. It does not matter in my view whether the work was done in satisfaction of the application, done pursuant to terms of settlement or some other form of agreement or just voluntarily by the Builder. What is important is the reason it is done i.e. in discharge of its legal liability under the contract maintenance or defects liability during the maintenance liability period. I now turn to consider whether the exclusion in clause 2(f) applies.

The Section D claim - What is consequential? What is the defective part?

173. Mr Alstegren submitted that in the light of the authorities referred to above, I should hold that the defective work includes the whole of the façade of the building, both internally and externally. This, he says, would include the windows, doors, linings, plaster board, architraves, and skirtings. The difficulty I have with this argument is to determine where, in those circumstances, the part "immediately affected" would extend to. The words "part" and "immediately" must have some meaning. I can understand that it might extend beyond the window to the bolts fixing it to the façade and the sealant used with the intention of making the windows watertight, but I cannot see that anything more than that could fairly fall within the description of "...that part of the property insured immediately affected...".

174. In Walker's case, the tanks and their contents were an identifiable and severable part of the works and because the machinery contained within them was such that it could not be re-used once the tanks had been demolished and replaced, it could fairly be said that the tanks and the machinery within them were the one part immediately affected by the defective workmanship. However, I do not think in the present case it is possible to say that the internal linings to these rooms including the reveals, the plaster board and the carpet can be said to be "immediately affected" by the defective work. They are not, to use the words of Sheppard AJA, part of the works which being defective, have been productive of loss or damage.

175. Similarly, although the cost of rectifying the defective preformed panels is caught by the exception, the cost of destroying and reinstating the internal linings of the units to allow the work to take place would not be caught, because the internal linings are not the same part as the external preformed panels.

176. The claim against Gerling with respect to the swimming pool is that, because of underlying defects, the tiles, which are said to be not defective, will have to be replaced and this, it is said, is recoverable under the policy. Both the Builder and Peck have settled the claim with the Body Corporate in regard to the defects to the swimming pool and neither now claims from the other any contribution with respect to the cost of that settlement. Nevertheless, an extensive amount of evidence has been lead and the parties have gone to considerable expense in arguing the matter.

177. The claim with respect to the pool is for re-tiling consequent upon the failure of the pool membranes. The swimming pool leaked. The immediate cause was the failure of the membrane but there were some subordinate causes. Accordingly to Mr Langford, shrinkage or control joints should have been incorporated in the design and flexible joints in the tiling should have been specified by the architect. He said that there was inadequate reinforcement and the detailing of the pool did not deal with the junction between the pool edge and the top row of tiles. When he inspected the pool after it was drained on 7 February 2003, there were many areas of "drummy" tiles. He appears to have attributed the failure of the waterproofing membrane system to excessive movement due to inadequate reinforcement. Mr Pettigrew made similar criticisms although he criticised some aspects of the design and the joint between the east side wall and the floor of the pool where there was an area of porous concrete. He had a number of other criticisms of the construction and agreed that some of the tiles were drummy. The evidence of the Builder's subcontractor was that he applied a membrane but I am uncertain from his evidence whether it was suitable for this sort of application.

178. The problem with this part of the claim against Gerling is in separating out the re-tiling from the other parts of the work that are defective. Indeed, it appears from the evidence that at least part of the tiling itself was defective. I think that it cannot sensibly be said that those parts of the tiling in the pool that were not defective constituted a separate part of the pool from those areas that were defective. I think this claim falls within the comments of the New South Wales Court of Appeal in Walker's case. It is caught by the exception.

179. Similarly, I cannot see that the CFC Sheeting can sensibly be regarded as a separate part of the work to the framing that supported it. Without the framing, it is just sheeting. It is not part of the work at all. In my opinion, the sheeting and the framework that supported it are, together, a distinct part of the work but the sheeting alone is not. I think this part of the claim is caught by the exception.

180. The defect that appeared from the evidence was that zinc plated bolts were used to secure the blades. They rusted and had to be replaced with galvanised bolts. I think the rust staining on the blades was damage consequent upon the defect but the replacement of the incorrect bolts is rectification work caught by the exception.

181. I now turn to consider the costs that, on my interpretation of the policy, are recoverable. As a general comment, I agree with Mr Alstergren that the evidence is less than ideal. However the Builder and its sub-contractors were concerned with rectifying the problems that occurred and returning the Units to a habitable condition rather than worrying about how the cost of the various items of the work they were doing would be categorised in future legal proceedings. I think in terms of the evidence, the Builder has done the best it can and it is sufficient to enable findings of fact to be made that might assist the parties with the foreshadowed claims.

182. Clause 6 of the policy says that the basis of settlement is the full cost of repairing, reinstating or replacing "the Property" that is damaged to a condition equal to its condition when new. This of course is subject to the exclusion of the cost of repairing the defective part itself. A proportion of each cost was given in Mr Worn's evidence as the proportion applicable to consequential loss, that is, the loss arising from the defect other than the rectification cost of the defective part itself. I shall deal with each head of damage and then consider what is properly consequential, ie., not referable to repairing the defective part.

183. The amounts recoverable here relate to internal linings damaged by water penetration and the consequential damage arising from the removal of the windows and doors to enable them to be made watertight. There is an obvious overlap in that damaged internal linings that would have required repair or replacement needed to be removed anyway to allow the removal and replacement of the windows. Only two of the invoices (3 and 24) appear to refer to water penetration damage. They total $3,083.85 but part of invoice 24 does not relate to water penetration. Mr Worn says that the vast bulk of the invoices referable to the windows and doors relate to obtaining access to the windows and doors for repair. Fortunately, because I consider that both claims are recoverable, I do not need to separate them out any further than Mr Worn has done. He said the cost of removing and reinstating the internal linings of the units attributable to the windows and doors was $139,160.45. This figure is arrived at by adding the proportion of the direct cost incurred, $45,740.64, to the cost of testing the windows and doors, $19,563.50, preliminaries of $73,672.23 and a further $184.08 for paint. Mr Alstergren queried why no part of the preliminaries figure was attributed to the work done by IND but preliminaries would seem to be referable only to work carried out by the Builder, not work done by others who would have to fund there own infrastructure and support their own staff.

184. Mr Worn says that a further $80,303.33 was damage consequential upon water penetration through the precast panels. However when one looks at his calculation of this sum it allocates none of the preliminaries relating to this work against the actual rectification cost, which would not be recoverable. Unlike the windows and doors, this was work for which the Builder was responsible and which it had to carry out. It seems to me from annexure 2 of Mr Worn's statement that the preliminaries relate to all the work in regard to the panels. It should therefore be apportioned between the recoverable and non recoverable items. The recoverable items make up only 13% of the whole and it would seem logical therefore that only that percentage of the preliminaries should be regarded as consequential. Treated in this way, the consequential claim relating to the pre-cast panels is $20,723.00.

185. This item is impossible to assess on the evidence. There is no doubt that some damage occurred to the carpet from water penetration but whether it warranted renewal or merely cleaning of the carpet is impossible to say on the limited evidence I have. One unit (306) where it was claimed the carpet required replacement has, it appears, a timber floor. It also appears that the carpets in the units are the property of the individual unit holders and not the Body Corporate. I cannot find that there is any claim against Gerling with respect to carpet.

186. I find that the rust needed to be cleaned from the blades. In assessing the cost of this I think one should take into account that the access cost and preliminaries were also applicable to the replacement of the bolts, which is an item of repair, not consequential loss. The access cost and preliminaries should therefore be apportioned between the two heads of damage. Mr Alstergren suggested that half the sum claimed would be an appropriate allowance and I think this is right. I would therefore allow $7,060.00 as the consequential damage recoverable under the policy.

187. The Third Proceeding, was settled by the Builder paying to the applicants in that case the sum of $55,000.00 plus costs. The terms of settlement do not apportion that sum between the various amounts claimed. The Fourth proceeding, was settled by the Builder paying to the applicants in that case the sum of $60,000.00 plus costs. That sum is apportioned in the terms between various heads of damage. I heard no evidence in those proceedings and so I do not believe I am in a position to make any determinations in regard to the appropriateness or otherwise of those settlements or whether any and if so, how much, of the amounts paid are properly claimable by the Builder from Gerling. The balance of the claim against the Builder in the second proceeding was also settled. Most of that concerns the swimming pool, which I have already considered, and the cost of future maintenance of the pre-cast panel façade, which I think is really defective work and not recoverable under the policy. Various rectification works are to be done, which are not recoverable and a fund is set up to secure the performance of any future rectification works that might be required to the windows and doors. I cannot find that there will be any definite sum that the Builder will have to pay for any future work on the windows and doors or whether in the course of carrying out any such work, consequential loss might occur. In summary, I can make no findings in regard to the three terms of settlement that might assist the parties.

188. The policy provides for an excess for claims under Section D of $10,000.00 for each occurrence. And there is a limit of indemnity in regard to any one occurrence.

The Body Corporate's remaining claims against TS Services and RIA

189. The Body corporate claims damages against TS services with respect to the swimming pool and the lift.

190. The basis of the first claim is that TS Services is the Builder. I agree that a developer might well also be a builder, but the evidence clearly establishes just what role TS Services played and although it was required by the joint venture agreement to engage a builder but it was not the builder itself. Mr Minahan points to various things that it did, such as preparing a functional design brief and engaging an architect and engineer, but doing those things does not make an owner or developer a builder. To be a builder it has to take on itself a contractual obligation to the owner to construct the building. It did not do that. Its contractual obligation to Baxter Lodge was to engage someone else to undertake that task.

191. Alternatively, Mr Minahan argued that TS Services was liable to the Body Corporate in negligence with respect to the defects in the swimming pool. I agree that the body corporate that would come into being on the subdivision of the building on its completion would be sufficiently proximate to TS Services that it might owe the Body Corporate a duty of care with respect to some of its actions that might in the future affect the Body Corporate, but I cannot see how, on the evidence in this case that would extend to the defects in the swimming pool. Even if it owed such a duty with respect to the selection of the people to do the work, as to which I have some doubt, TS Services engaged an apparently competent builder, an apparently competent architect and an apparently competent engineer and between them, they were responsible for the design and construction of the pool. Mr Minahan submitted that TS Services had a duty to ensure that someone had overall responsibility for the pool and that the way it contracted with the Builder, Peck and the engineer enabled each to deny liability. I do not accept this suggestion. Any defects must be blamed on one or more of those three parties. I cannot see where TS Services has been negligent.

192. The claim with respect to the lift is quite different. That is established by the evidence of Mr Johncock. The relevant Australian Standard (AS1735 part 2) in Clause 5.5.1 states:

"Unrestricted access shall be provided by the most direct route possible between the machine room and the nearest door served by the lift."

The lift in this building has no machine room but I am satisfied on Mr Johncock's evidence that the lack of access to the control panel from common property has serious safety implications. Access to the control panel is required if anyone should be trapped in a lift and also for the lift to be serviced. To leave the panel within the interior of a Unit is not feasible and it will have to be moved.

193. It was designed to be on Level 9 in the foyer that appeared on the plans. However when the building was subdivided, TS Services instructed the surveyor to prepare a plan of subdivision incorporating the Level 9 foyer into Unit 9. It then procured the registration of the plan. The effect of this is that, in order to obtain access to the control panel to the lift, it is necessary to enter Unit 9.

194. Mr McGann has suggested a solution to the problem which involves moving the control panel into the common area above the lift shaft. I accept that this is what will have to be done and I accept the evidence of Mr McGann that the cost of carrying out that work will be $143,849.00.

195. It was clearly negligent of TS Services to subdivide the building in the way it did, in that the cost now to be incurred by the Body Corporate is the inevitable result of its actions in that regard. The negligence was not, I think, so much in the way it subdivided the building but rather, that it subdivided it in a way that there was no lawful access to the lift control panel.

196. Orders have already been made in the First Proceeding. Orders will be made in the other three proceedings as follows:

1. The Application as between the Applicant and the First and Third Respondent is struck out with a right of reinstatement.

2. No order as to costs as between the Applicant and the First Respondent and the Applicant and the Third Respondent.

3. Order the Second Respondent to pay to the Applicant the sum of $143,849.00. The remaining claims by the Applicant against the Second Respondent are dismissed.

4. Order the Third Respondent to pay to the First Respondent the sum of $223,615.12.

5. The remaining claims by the First Respondent against the Third Respondent are dismissed.

6. Costs are reserved as between the First and Third Respondents.

7. Liberty is reserved to the First Respondent and the Joined Party to apply as to the form of any order between them consequent upon the findings made in the hearing of this proceeding.

8. Costs are reserved as between the First Respondent and the Joined Party.

1. The Application by the Applicants against the First Respondent is struck out

2. The Claim by the First Respondent against the Second, Third and Fourth Respondents is dismissed.

3. The Claim by the Second Respondent against the First Respondent is dismissed.

4. Liberty is reserved to the Second Respondent and the Joined Party to apply as to the form of any order between them consequent upon the findings made in the hearing of this proceeding.

5. Costs are reserved as between the Second Respondent and the Joined Party.

6. The proceeding is otherwise struck out with a right of reinstatement and no order as to costs.

1 Liberty is reserved to the Second Respondent and the Joined Party to apply as to the form of any order between them consequent upon the findings made in the hearing of this proceeding.

2 Costs are reserved as between the Second Respondent and the Joined Party.

3 The proceeding is otherwise struck out with a right of reinstatement and no order as to costs.