Koundouris v The Owners - Units Plan No 1917 [2017] ACTCA 36

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY COURT OF APPEAL

Case Title: Koundouris v The Owners – Units Plan No 1917

Citation: [2017] ACTCA 36

Hearing Dates: 11–12 May 2017

Decision Date: 22 August 2017

Before: Murrell CJ, Elkaim and Jagot JJ

Decision: See paragraph [177]

Catchwords: BUILDING CONTRACTS – residential building works – failure by builder to construct building to adequate standard – breach of statutory warranties – application of limitation periods – the extent to which subsequent owners succeed to rights for breach of warranties – whether builder required to be a party to contract for sale for owners to succeed to statutory warranties – claim for damages by owners corporation. STATUTORY INTERPRETATION – purpose, scope and object of statutory provisions read in context of legislation as a whole take precedence over inconsistent interpretation in Explanatory Statement – unreasonable consequences of an interpretation particular to facts not an appropriate guide to interpretation.

Legislation Cited: Building Act 1972 (ACT) ss 5, 14, 16, 24, 33A, 34, 37, 37A, 40, 41A, 52, 54, 58A, 58AA, 58B, 58C, 58D, 58E, 58F, 58G Building Act 2004 (ACT) ss 1, 2, 84, 85, 88, 142, 153, 154, 158, 164, 172, 173, 180, 181 Building (Amendment) Act (No 2) 1998 (ACT) Building (Amendment) Ordinance 1988 (ACT) Building Regulations 1972 (ACT) Construction Occupations (Licensing) Act 2004 (ACT) Interpretation Act 1967 (ACT) s 11A Legislation Act 2001 (ACT) ss 75, 84, 126, 139, 140, 141 Limitation Act 1985 (ACT) s 11 Unit Titles Act 1970 (ACT) ss 14, 15, 36 Unit Titles Act 2001 (ACT)

Cases Cited: Carre v Owners Corporation – SP 53020 [2003] NSWSC 397; 58 NSWLR 302 Esber v The Commonwealth (1991) 174 CLR 430 Granada Theatres Limited v Freehold Investments (Leytonstone) Ltd [1959] Ch 592 Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; 89 NSWLR 633 Wenham v Ella (1972) 127 CLR 454

Parties: Michael Koundouris (Appellant/Cross-Respondent) The Owners Unit Plan 1917 (Respondent/Cross-Appellant) Representation: Counsel Mr D Jackson QC with Mr B Katekar (Appellant/Cross- Respondent) Mr N Hutley SC with Mr F Hicks (Respondent/Cross-Appellant)

Solicitors Clayton Utz (Appellant/Cross-Respondent) Minter Ellison (Respondent/Cross-Appellant)

File Number: ACTCA 27 of 2016

Decision under appeal: Court/Tribunal: ACT Supreme Court Before: Mossop AsJ Date of Decision: 5 July 2016 Case Title: The Owners – Units Plan No 1917 v Koundouris Citation: [2016] ACTSC 96

THE COURT:

The appeal and cross appeal

Summary

1. In a dispute between an owners corporation and the builder of residential units involving numerous events and the operation of different legislative schemes from 2000, the primary judge held that the builder was liable to the owners corporation for damages including interest in the amount of $328,153 in respect of breach of statutory warranties in respect of units 8 and 10 in the residential building, but was not otherwise liable. The primary judge made orders to this effect on 5 July 2016 consequential on his principal reasons for judgment published on 13 May 2016 (The Owners – Units Plan No 1917 v Koundouris [2016] ACTSC 96).

2. By appeal the builder, Mr Koundouris, contends that the primary judge erred and should have dismissed all of the claims against him including for units 8 and 10. By cross appeal, the owners corporation contends that the primary judge erred and should have found in its favour in respect of all of its claims for all units, resulting in judgment in its favour in the amount of $1,068,387 plus interest.

3. We have concluded that while the primary judge’s conclusions were largely correct there are two key issues where we have reached a different conclusion.

4. First, perhaps not unexpectedly given the complexity of the claims and their resolution under the variously applying statutory schemes, the primary judge dealt only briefly with the claim of the owners corporation that the building works by way of repairs carried out by Mr Koundouris after the building had been constructed and the units within it sold were themselves in breach of the statutory warranties. He concluded at paragraph [349] that the provisions do not “imply that further work undertaken during the period of the warranty before its expiry must comply with the requirements of the warranty”. As a result, the primary judge concluded that the claims of all unit owners other than units 8 and 10 (which were resold while the warranties remained in force and within six years of the commencement of the proceedings and thus within the six year limitation period) were statute barred.

5. As explained below, we can see no reason why the statutory provisions would exclude from the scope of the warranties works to repair the building provided those works were carried out during the warranty period. Mr Koundouris made repeated, but failed, attempts to bring the building into compliance with the basic requirement that the building be constructed so as to prevent damage from water ingress to the interior. These works, which continued across the whole of the warranty period (and thereafter), were residential building works which were required to be carried out in accordance with the warranties. They were not, which is why the owners corporation ultimately carried out the necessary building works itself. Mr Koundouris’s failure to carry out the building works by way of repair (the so-called Further Building Works) in accordance with the warranties meant that he was in breach of those warranties during the entirety of the repair works, including as at expiry of the warranties. The breaches thus continued up to and including the last day on which the warranties expired (20 December 2005 and, for some units, 20 December 2006 given intervening legislative changes) and the proceedings were commenced within six years from those dates, on 29 November 2010, and thus within the limitation period. Accordingly, the claims of all unit owners were within time and the primary judge’s unchallenged factual findings that all unit owners would have succeeded in their claims but for the limitation periods mean that they must now succeed.

Some basic facts

8. Because the competing allegations of error concern issues of statutory construction it is unnecessary to delve too far into the complex web of facts with which the primary judge had to contend other than to the extent they arise in respect of each issue. At the outset it is sufficient to say that the second respondent below, Koundouris Projects, owned and developed land for a residential unit development known as Lagani consisting of 10 units in Fawkner Street, Braddon. Mr Koundouris was employed by Koundouris Projects and was the builder of the block of units under whose licence the residential building works were carried out. The certificate of occupancy for the block was issued on 20 December 2000. After the units were sold, residents complained about various issues including water ingress and cracking of masonry, brickwork, and facades. Mr Koundouris attempted to rectify the problems by carrying out further building works between 2001 and 2008. Ultimately, between 2010 and 2013, the owners corporation rectified the building at its cost, funded by a special levy on unit owners. In the proceedings the owners corporation sought to recover the cost of the rectification works.

9. Units have been sold, some on a number of occasions. The primary judge recorded the sale dates at paragraph [412] in a table as follows:

Unit Purchaser First First sale Second Second Third Settlement No sale settlement sale sale sale date contract date Contract settlement contract date date date date 1 Alexander 8 Aug 15 Feb Morozow 2000 2001 2 Judith 15 30 Jan McLeod 2001 Sept 2000 3 The Lyrases 9 Feb 8 Mar 2001 2001 4 Deborah 29 Dec 20 Apr Kinsman 2000 2001 5 Lewis 31 Oct 21 Feb 28 Apr 13 Aug Rushbrook/ 2000 2001 2003 2003 Jennifer Lindsay 6 Julian Mills- 23 Jun 7 Feb 26 Sept 28 Oct 4 Jun 26 Jul Mateer 2000 2001 2002 2002 2010 2010 (Previous owner James Barr) 7 Rene and 1 Aug 24 Jan 20 Dec 6 Feb 2 Feb 2 Mar Ashley Ter 2000 2001 2002 2003 2009 2009 Bogt 8 Rocco 24 May 25 Jan 31 Oct 12 Dec Cecere 2000 2001 2005 2005 (Previous owner Joelle Stoelwinder) 9 James 16 Feb 21 Mar Leitch 2001 2001 10 Alexander 22 May 10 Feb 6 Feb 14 Apr 17 Nov 9 Jan and June 2000 2001 2004 2004 2006 2007 Townsend

10. These dates are relevant because there is a dispute between the parties about the legislation which applies and the meaning of the legislation. The Building Act 1972 (ACT) (the 1972 Act) was in force at all relevant times until its repeal by s 181 of the Building Act 2004 (ACT) (the 2004 Act) which commenced on 1 September 2004. It will be apparent that some units were sold once only before 1 September 2004 and some were re-sold after that date.

11. An additional layer of complexity is added by the fact that the obligations of an owners corporation have changed over time. Under the Unit Titles Act 1970 (ACT) the maintenance obligations of an owners corporation extended to the common property but not to those parts of the floors, walls and ceilings which formed part of a unit, for which unit owners were responsible. Unless otherwise specified the boundary between the unit and the common property was the centre line of the relevant floor, wall and ceiling: ss 14, 15 and 36 of the Unit Titles Act 1970. The Unit Titles Act 2001 (ACT) commenced on 5 April 2001. Under the Unit Titles Act 2001, as the primary judge explained:

12. …the definition of units remained in relevantly the same form (see ss 14, 15), but the duties of the Owners Corporation were extended so that they included the common property as well as “the defined parts of any building containing class A units (whether or not the defined parts are common property)”: s 51(3)(d). The phrase “defined parts” was defined to include load bearing walls, columns, footings, slabs or beams and any part of a balcony on the building: s 51(8). As a consequence, while an individual unit extended to half of the floors, walls and ceilings, the Owners Corporation had an obligation to maintain those structures if they were load bearing. There was also an entitlement on the part of the Owners Corporation to bring proceedings both in relation to common property and part of a unit if it was likely to affect the support or shelter provided by the building: s 51B. This entitlement was inserted into the Act in 2008. 435. When the management provisions were taken out of the 2001 Act and placed in the Unit Titles (Management) Act 2011 (ACT), the obligation upon the Owners Corporation in relation to “defined parts” was maintained: s 24(1)(d) as was the entitlement on the Owners Corporation to bring proceedings: s 27.

13. Yet another layer of complexity is created by s 84(1)(c) of the Legislation Act 2001 (ACT), which provides that the repeal or amendment of any Act does not “affect an existing right, privilege or liability acquired, accrued or incurred under the law”. Accordingly, any rights accrued under the 1972 Act were not affected by the repeal that Act. Other relevant provisions of the Legislation Act include:

139 Interpretation best achieving Act’s purpose (1) In working out the meaning of an Act, the interpretation that would best achieve the purpose of the Act is to be preferred to any other interpretation. (2) This section applies whether or not the Act’s purpose is expressly stated in the Act. 140 Legislative context In working out the meaning of an Act, the provisions of the Act must be read in the context of the Act as a whole. 141 Non-legislative context generally (1) In working out the meaning of an Act, material not forming part of the Act may be considered. (2) In deciding whether material not forming part of an Act should be considered in working out the meaning of the Act, and the weight to be given to the material, the following matters must be taken into account: (a) The desirability of being able to rely on the ordinary meaning of the Act, having regard to the purpose of the Act and the provisions of the Act read in the context of the Act as a whole; (b) The undesirability of prolonging proceedings without compensating advantage; (c) The accessibility of the material to the public. (3) Subsection (2) does not limit the matters that may be taken into account. (4) For subsection (2) (c), material in the register is taken to be accessible to the public.

13. Before the Legislation Act commenced, s 11A of the Interpretation Act 1967 (ACT) also provided that the interpretation that would best achieve the purpose of the Act is to be preferred, whether or not the Act’s purpose is expressly stated in the Act.

14. On 29 November 2010 the owners corporation commenced these proceedings seeking to recover damages for breach of statutory warranties and misleading and deceptive conduct quantified by the cost to it of carrying out rectification works to repair the problems. The owners corporation brought the proceedings on its own account and as the holder of rights to damages assigned to it by individual unit owners.

15. Mr Koundouris does not press ground 5 of the appeal.

16. The owners corporation does not press grounds 4(d) and 4(e) of the cross appeal.

17. The only other matter to note at this stage is that, other than in respect of ground 6 of the appeal, we do not propose to deal with the appeal or cross appeal on the basis of the competing contentions of various inconsistencies between the way in which a party ran the cases before the primary judge and the cases as put in the appeal and cross appeal. Apart from ground 6 of the appeal which is in a different category (as explained below), the primary issues involve the interpretation of legislation which are best dealt with on the basis of the submissions as ultimately put to us, even if the submissions depart from the case put below. The same applies to the consequences of our conclusions, some of which were not required to be dealt with by the primary judge.

Must the builder be a party to a contract for sale?

The relevant provisions

18. The first source of the dispute between the parties concerns whether s 58C(1) of the 1972 Act and s 88(1) of the 2004 Act which contain the statutory warranties, require the builder to be a party to a contract for sale before those provisions apply.

19. Section 58C of the 1972 Act provides that:

(1) There is implied, by force of this section, in every contract for the sale of a residential building, and every contract to carry out residential building work (being a contract to which the builder is a party), a warranty by the builder – (a) That the residential building work, on the building, or to be carried out, has been or will be carried out in accordance with this Act; and (b) That the work has been or will be carried out in a proper and workmanlike manner and in accordance with the plans approved for the work by the building controller; and (c) That good and proper materials for the work have been or will be used in carrying out the work; and (d) If the work has not been completed, and the contract does not specify a date by which, or a period within which, the work is to be completed – that the work will be carried out with reasonable diligence; and (e) If the owner of the land on which the work is being or is to be carried out is not the builder, and the owner expressly makes known to the builder, or a servant or agent of the builder, the particular purpose for which the work is required, or the result that the owner desires to be achieved by the work, so as to show that the owner is relying on the builder’s skill and judgment – that the work and any material used in carrying out the work is or will be reasonably fit for that purpose or of such a nature and quality that they might reasonably be expected to achieve that result. (2) Each of the owner’s successors in title succeeds to the rights of the owner in respect of the statutory warranties. (3) The warranties expire at the end of the prescribed period after the date on which a certificate of occupancy is issued for the building or the building work. (4) In subsection (2): owner means – (a) In the case of a contract referred to in subsection (1) for the sale of a residential building – the person to whom title in the land on which the building was built is transferred under the contract; or (b) In the case of a contract referred to in subsection (1) to carry out residential building work – the owner of the land on which the work is to be carried out under the contract.

20. Section 88 of the 2004 Act is in these terms:

(1) By force of this section, every contract for the sale of a residential building, and every contract to carry out residential building work to which the builder is a party, is taken to contain a warranty under this section. (2) The builder warrants the following: (a) That the residential building work has been or will be carried out in accordance with this Act; (b) That the work has been or will be carried out in a proper and skilful way and in accordance with the plans approved for the work by the construction occupations registrar; (c) That good and proper materials for the work have been or will be used in carrying out the work; (d) If the work has not been completed, and the contract does not state a date by which, or a period within which, the work is to be completed – that the work will be carried out with reasonable promptness; (e) If the owner of the land where the work is being or is to be carried out is not the builder, and the owner expressly makes known to the builder, or an employee or agent of the builder, the particular purpose for which the work is required, or the result that the owner desires to be achieved by the work, so as to show that the owner is relying on the builder’s skill and judgment – that the work and any material used in carrying out the work is or will be reasonably fit for the purpose or of such a nature and quality that they might reasonably be expected to achieve the result. (3) Each of the owner’s successors in title succeeds to the rights of the owner in relation to the statutory warranties. (4) The warranties end at the end of the period prescribed under the regulations after the completion day for the work. (5) In subsection (2): owner means – (a) For a contract mentioned in subsection (1) for the sale of a residential building – the person to whom title in the land where the building was built is transferred under the contract; or (b) For a contract mentioned in subsection (1) to carry out building work – the owner of the land where the work is to be carried out under the contract.

21. The Building Regulations 1972 (ACT) provide that the prescribed period for s 58C was five years after the date upon which the certificate of occupancy was issued. The Building Regulations 2004 (ACT) provide that the prescribed period was six years after the completion day for the work where the work was in relation to a “structural element” of a building, or two years after the “completion day” for the work where the work was in relation to a “non-structural element” of a building. It is common ground that we are concerned with works to structural elements of the building.

Submissions for Mr Koundouris

22. Mr Koundouris contends that the bracketed words in s 58C(1) of the 1972 Act “(being a contract to which the builder is a party)” apply to both “every contract to carry out residential building work” and “every contract for the sale of a residential building” and that, in any event, the statutory warranties in s 58C(1)(a)-(e) may only be implied into a contract to which the builder is a party. The primary judge, it is said, was wrong to find to the contrary. The same position, it was submitted, applies to s 88 of the 2004 Act.

23. It was submitted for Mr Koundouris that, first, effect must be given to the fact that the legislature chose to use the vehicle and the language of contract. The warranties are inserted into contracts. In the ordinary course, the parties are bound by a contract, and no-one else. The effect of the primary judge’s conclusion, however, is to bind the builder to a warranty in a contract for sale to which the builder is not a party. The 1972 Act does not provide a statutory remedy for breach, meaning that the legislature assumed ordinary common law contractual remedies would be available. Yet if not a party to the contract, this assumption is not valid.

24. Second, it was submitted that the interpretation proposed for Mr Koundouris also better fits with the statutory regime as a whole, particularly the succession of rights provided for in ss 58(2) and (4). If the builder is not a necessary party to the contract for sale, the section operates to imply the warranties into every contract for sale of the unit, rendering the succession of rights in s 58C(3) nugatory. Further, as the succeeding owner will have new rights based on the implied warranties the effect is to extend the operation of the warranty under s 58C to a total of 11 years (five years being the prescribed period within which a sale may occur thus implying the warranties into every contract for sale in that period and then six years from the latest possible sale date within the five year period being the general limitation period under s 11 of the Limitation Act 1985 (ACT)). If, however, the builder is a necessary party to the contract, it will be the first contract for sale only to which the builder will be a party. If the unit is sold within the prescribed period of five years the rights of the new owners are rights only of succession under s 58C(3), not rights arising from the warranties implied into the new contract for sale. If, as Mr Koundouris contends, any cause of action accrued on the completion of each first sale, the limitation period would run for six years from that date, and a second or subsequent owner would succeed only to the rights of the original owner.

25. Third, it was submitted, that the primary judge’s interpretation means that it is possible for the warranties under the 1972 Act and the 2004 Act to operate in parallel. Taking unit 8 as an example, it was submitted that the prescribed period of five years ran from 20 December 2000 (the date on which the certificate of occupancy for the block was issued) until 20 December 2005. Unit 8 was sold on 25 January 2001 and the 1972 Act warranties, on the primary judge’s construction, were implied into that contract for sale. Unit 8 was sold again on 12 December 2005. Thus, on the primary judge’s construction, the warranties under the 2004 Act were implied into that contract for sale. However, the new owners also succeeded to the previous owners’ rights under the 1972 Act warranties. This is unlikely to have been intended.

An important element of the Ordinance is the establishment of implied statutory warranties by the builder in contracts for the sale of a residential building work to which the builder is a party. ... Subsection 58C(1) implies in every contract for the sale of a residential building and for the carrying out of residential building work (to which contract the builder is a party) the following statutory warranties by the builder:..

30. The Explanatory Statement to the 2004 Act is less clear but, it was submitted, still supports the interpretation proffered by Mr Koundouris. The Explanatory Statement says:

Clause 88 creates a statutory warranty. Its force is to affect every contract for the sale of a residential building, and every contract to carry out residential building work to which a builder is a party, so that the contract is taken to contain a warranty under the clause. An intention is that regardless as to whether or not such contracts provide such a warranty, the effect of the clause is to place that warranty into all such contracts.

31. “Such contracts”, it is said, are contracts to which the builder is a party.

32. Eighth, the primary judge’s concern at paragraph [439] that on the interpretation proffered by Mr Koundouris the protective purpose of the legislation would operate inconsistently depending on the happenstance whether the builder was also the owner and thus a party to the contract for sale does not mean that there may not be a duty of care separately owed by a builder at common law and, in any event, is insufficient reason to extend the beneficial purpose of the legislation given the matters set out above.

33. Ninth, the primary judge’s interpretation ultimately depended on the comma after the first reference to “residential building”. However, the comma is ambiguous or may be ignored or treated as an error. The comma does not necessarily indicate that the primary judge’s interpretation is correct, particularly not in the face of the Explanatory Statement for the 1972 Act.

Submissions for the owners corporation

34. The owners corporation contend that the interpretation proposed by Mr Koundouris would neuter the regime established by the 1972 Act and the 2004 Act. For example, where, as said to be the case here, a developer owns land and contracts with a builder to construct a residential unit building, the warranties will be implied into the building contract between the developer and the builder but not in the sale contract between the developer and the purchaser of any unit. The entire effect of the regime of warranties and insurance established by the introduction of Pt 5A of the 1972 Act in 1988 (by the Building (Amendment) Ordinance 1988 (No 73 of 1988)) would be set at nought merely by a land owner/developer ensuring that it was not also the entity which carried out the residential building work. The manifest object of the 1972 Act and the 2004 Act, to protect the public from shoddy building work, would be undermined.

35. The limitation which requires the builder to be a party to a contract for the residential building work is necessary because the builder might otherwise be liable under a myriad of contracts which are usually involved in residential building work and the builder then might be liable to the developer for the work of sub-contractors. But no such limitation is necessary or appropriate for a contract for sale.

36. The legislation does not need to provide a remedy for breach of the warranties. By force of the provisions themselves the warranties by the builder are inserted into every contract of sale between an owner of land on which a residential building is constructed and the purchaser under a contract. The remedies available are those which apply to any breach of warranty.

37. The primary judge’s interpretation does not make the succession provisions redundant. The extent to which those provisions have work to do will depend upon the facts including, for example, whether a succeeding owner has purchased with knowledge of the defects. If they have such knowledge, breach of the warranties inserted into their contract for sale may not have caused loss. However, succession to the rights of the previous owner may provide the new owner with rights of recovery. Further, the succession provisions ensure that the original owner no longer has rights against the builder after sale. Only the current owner has such rights.

38. It is also not the case that there is inconsistency with the insurance regime. Under s 58E of the 1972 Act insurance is required to protect the owner and owner’s successors in title for the period from the receipt of the required notice under s 37A before building work commences until five years after the completion of the work, with any such claim to be made within 90 days of the claimant becoming aware of the grounds for the claim.

39. Further, when considered in the context of the object of protecting the public from sub-standard building work, the asserted unreasonable effects on the builder are not apparent. The prescribed period remains as stipulated in each statute. For the warranties to be inserted into a contract for sale, the sale must occur within the prescribed period. The limitations period runs from the breach of the warranty (whether that be the date of entry into the contract for sale or completion, is a separate issue). Further, because units may always be sold even for the first time on different dates, the limitation periods will also always be different for the units. The content of the warranty does not alter. It is fixed in time by reference to the provisions as in force at the time the work is completed. It is the same warranty that is then inserted into each contract for sale within the prescribed period. It is also relevant that in the 2004 Act, s 142 provides for an absolute limitation period of 10 years for building actions from the issue of the certificate of completion, the date of the last inspection, or the date of first occupation.

Discussion

43. We do not find the submissions for Mr Koundouris persuasive. The primary judge did not err in construing s 58C(1) of the 1972 Act and s 88(1) of the 2004 Act as not requiring the builder to be party to a contract for sale. The submissions are inconsistent with the purpose of the legislation as a whole and the relevant parts of it containing the scheme for statutory warranties and insurance and the natural and ordinary meaning of the provisions. A number of the arguments, moreover, are not concerned with statutory interpretation so much as the consequences of the primary judge’s interpretation for the facts of this one case, which is not an appropriate guide to interpretation. And as submitted for the owners corporation, the alleged unreasonable outcomes are all concerned with potential impacts on the builder, when it is apparent that the purpose of the scheme for statutory warranties and insurance is the protection of the public from the consequences of sub-standard building work by builders. Another point which undermines many of the submissions for Mr Koundouris is that even if his interpretation is correct it does not alter the fact that:

(a) The scheme covers newly constructed residential buildings and new building work to existing residential buildings.

(b) The definition of “residential building”, to which the scheme applies, covers buildings of three habitable storeys and thus multi-unit developments.

(c) Units within a multi-unit development are likely to be sold at different times. Some may be sold off the plan. Some may be sold quickly after completion. Some may take months or longer to sell depending on market conditions.

(d) As a result, it is necessarily the case in a scheme of statutory warranties that the limitation period for each unit will commence at a different time (the usual time being the completion of the contract for sale) including for a period of nearly 11 years under the 1972 Act (and ten years under the 2004 Act given s 142) if the first sale occurs near the end of the prescribed period.

44. Apart from these matters, context is critical. The 1972 Act, before the introduction of Pt 5A, was concerned with regulating the carrying out of building work. All of its provisions, one way or another, were intended to ensure building work was safely carried out and buildings are safe for the public to occupy and use and meet certain standards of comfort and longevity. Thus, builders have to be licensed (s 14). To be licensed a builder must be suitably qualified (s 16). There must be approved a building code (s 24). There are certifiers for types of building work who must be suitably qualified (ss 29A to 33). An owner who wishes to carry out building work must obtain a building approval (ss 33A and 34). Building work must be carried out in accordance with certain requirements including that the work be carried out in a proper and skilful manner (s 37). Breach of this requirement is an offence by both the owner and the builder (s 41A). Before building work may be carried out on land the owner of the land must notify the certifier of the name and license number of the licensee who is to carry out the building work (s 37A). The certifier may issue a certificate of completion and an advice that the building controller would be justified in issuing a certificate of occupancy if the requirements of the Act and otherwise are satisfied (s 40). Buildings may not be occupied without a certificate of occupancy. Breach of this requirement is an offence (s 54).

45. As noted, Pt 5A was inserted into the 1972 Act in 1988. It is entitled Residential Building – Statutory Warranties and Insurance. A heading to a chapter is part of the Act (s 126(1) of the Legislation Act). Section 58A contains definitions for the purposes of Pt 5A including definitions of “builder” (the person whose name is notified to the certifier under s 37A), “building” (defined to exclude paving, fences, retaining walls, swimming pools and various other items), “building work” (does not include demolition of a whole building), “cost” and “residential building” (in effect, a building primarily for residential use which has no more than three habitable storeys). It is apparent from the nature of the definitions which are expressed not to include certain matters, that the provisions recognise that the 1972 Act otherwise contains definitions in s 5(1) including of “building” (which includes a structure upon or attached to land and a part of a building), “building work” (which includes work in connection with repairs of a structural nature to the building), licensee (a person to whom a builder’s licence has been granted), and “owner”. These definitions apply to Pt 5A but subject to the terms of s 58A.

46. Sections 58AA and 58B concern the cost of building work so that, amongst other things, Pt 5A does not apply to building work if the cost is less than the prescribed amount. By this means the legislature can ensure that minor works to a residential building are not subject to the scheme of statutory warranties and insurance.

47. Section 58C contains the statutory warranties. Importantly, for present purposes, s 58C(1), in terms, creates a legal relationship between persons. It does so expressly by using the words “by force of this section”. The warranties are “by the builder”. Accordingly, the legislation, by s 58C(1), is creating a legal relationship between the builder and other persons whether or not a legal relationship already exists. As a result, it is a not a “large step”, as the submissions for Mr Koundouris would have it, to accept that the warranties are inserted into a contract for sale to which the builder is not a necessary party.

Nothing in this Act shall be taken to limit the liability that a builder would have had to any person if this Act had not been made.

49. Part 5A thus creates new potential liabilities for builders by s 58C for breach of statutory warranties and ensures that potential liabilities by reason of any other legal relationship remain unaffected. This supports the submissions for the owners corporation that Pt 5A is not concerned with protecting builders from the consequences of their sub-standard building work. It is concerned with protecting the public, particularly the purchasers of residential buildings or units within residential buildings, from the consequences of sub-standard building work by builders. As such, alleged potential unreasonable impacts on a builder are not a reliable guide for the purposes of statutory interpretation of Pt 5A.

50. Section 58E is concerned with residential building work insurance. Such insurance must be for an amount equal to the cost of the work and, if the builder is not the owner of the land, must cover the owner and the owner’s successors in title. If the builder is the owner of the land, the insurance must cover the builder’s successors in title. The insurance must cover breach of the statutory warranties, as well as insolvency, death or disappearance of the builder, and subsidence resulting from the builder’s negligence. The insurance must provide cover both where the builder is the owner of the land and the owner of the land is not the builder. From this it is clear that the legislature was aware that the builder may or may not be the owner of the land and thus may or may not be a party to a contract for sale of the land. Either way, the insurance is required and must cover breach of the statutory warranties. Importantly, the insurance is not for the benefit of the builder. It is for the benefit of the owners of the land on which the builder has carried out building work.

51. Section 58F allows the insurer to recover against the builder if found liable and s 58G imposes certain duties on insurers.

52. Given this scheme, it is apparent that the submissions for Mr Koundouris based on concerns about potential adverse impacts on builders carry no weight. The scheme is not concerned with protecting builders from liability. It is about imposing liability on builders for sub-standard building work. As such, the submissions for the owners corporation that it would be incongruous for s 58C(1) not to apply for the benefit of successors in title to the owner in any case where the owner was not the builder, are persuasive. The interpretation proposed for Mr Koundouris would also create inconsistency with the insurance provisions in s 58E which require insurance for the benefit of successors in title to the land whether or not the builder also owns the land. In the face of a scheme intended to protect the public from sub-standard building work by imposing a new source of liability on builders (breach of the statutory warranties) and requiring insurance which must cover successors in title to ownership of land for breach of the statutory warranties whether the builder is the owner or the owner is not the builder, the interpretation advocated for Mr Koundouris conflicts with the manifest object of Pt 5A.

In my view, the section as a whole is given a reasonable operation consistent with the statutory text if the reference to the warranties expiring in subsection (3) is that after the end of the five-year period the warranties can no longer be passed on to any successors in title of the owner. Subsection (3) operates as a qualification on the operation of subsection (2). That has the effect to limit the class of persons who may take the benefit of the statutory warranties. It does not have the effect of denying the past operation of the warranties or destroy any rights accrued by reason of the existence of those warranties. To read the expression, the content of which is not certain, as extinguishing past rights accrued under the contract would go too far.

58. If, by this, the primary judge meant that a new owner could not succeed to the accrued rights of a previous owner after expiry of the prescribed period, we disagree. A previous owner may have a right which accrued during the warranty period. A new owner who buys after the warranty period does not obtain the benefit of the warranties in the contract for sale. However, that new owner will succeed to the accrued rights of the previous owner. The accrued right is actionable for the six year limitation period after the date of accrual.

59. We also do not accept that this means the content of the statutory warranties may vary over time. For one thing, the building work which is carried out will have been carried out and completed over a period of time. It is the form of the Act and building code as in force at that time which informs the content of the statutory warranties. The mere fact that the statutory warranties are inserted into contracts at different times depending on the contract date does not change the content of the warranties. For another thing, the alleged problem exists irrespective of the interpretation advanced for Mr Koundouris. This is because, as noted, even if the builder is the owner of the land, units within a residential building may not be sold immediately on completion or for months or years afterwards. In all cases the content of the statutory warranties will remain the same.

60. Further, the fact that the 2004 Act changed the prescribed period (two years for non-structural elements and six years for structural elements) is irrelevant to the interpretation of Pt 5A to the 1972 Act which commenced in 1988. The fact that the limitation period will commence at different times for the two sets of rights of a successive owner is not a material concern given that the rights can only accrue at all during the prescribed period and can only run for a maximum of six years (unless extended) and, under the 2004 Act, can only run for an absolute maximum of 10 years. In addition, the availability of multiple causes of action for the same conduct is routine in the common law, and regulated by the overarching principle that no person can recover twice for the same loss.

61. We also consider that the amendment to the definition of “builder” in the 1972 Act in 1998 so as to remove the reference to an employer or principal of a builder cannot support the submissions for Mr Koundouris. Part 5A of the 1972 Act was inserted in 1988. Its proper interpretation cannot be dependent on an amendment to a definition a decade later.

62. The fact that the legislature has chosen to deem certain contracts to contain statutory warranties from the builder does not mean that the builder is a necessary party to both kinds of contract nominated. The concept of a builder being taken to have given statutory warranties by force of statute in a contract for sale of land whether or not the builder is a party to that contract is not unintelligible. It is the statute which creates the legal relationship. The scheme as a whole recognises that the builder may or may not be the owner of the land. Either way, it is clear from s 58C(1) that the warranties are inserted into the contract for sale by force of the section and from s 58E that the insurance must cover the successors in title to the owner of the land. As submitted for the owners corporation, the provision creates new legal relationships. That it does so by inserting warranties from the builder into contracts for sale of land to which the builder may not be a party must have appeared convenient to the legislature. It is not difficult to envisage that such convenience might have been seen as arising from the fact that the mechanism of statutory warranties made available the suite of common law remedies for breach of warranty. As a result, the statute does not provide for remedies for breach of the warranties in either a contract for sale or a contract to carry out residential building work. It leaves that to the common law. It does, however, ensure that the insurer can recover from the builder by s 58F.

Retrospective operation of the 2004 Act

66. It was next contended for Mr Koundouris that the primary judge erred in his approach to the operation of the 2004 Act. The primary judge concluded that:

(a) The 2004 Act, which commenced on 1 September 2004, applied when the original contracts of sale pre-dated 1 September 2004.

(b) The statutory warranties in relation to “structural elements” were implied into all contracts for sale of units within the building between 1 September 2004 and 20 December 2006.

67. The 2004 Act included transitional provisions in Pt 11 (ss 153 to 180). It is apparent that republications of ACT legislation exclude provisions which formed part of the Act at commencement but which are considered to be spent. This practice means that it is difficult to understand the operation of transitional provisions without returning to the form of the Act at commencement. Another aspect of ACT legislation which may be thought to unnecessarily complicate the task of statutory interpretation is the inclusion of such provisions as s 180 in Pt 11 of the 2004 Act which provides that:

This part expires 2 years after the commencement day.

68. As noted, Pt 11 contains transitional provisions. A number of sections state that they expire on the day they commence (for example, ss 177(5) and 178(5)). At first blush, this appears to make no sense in that the provision expires as soon as it has commenced and thus can have no operation. This, however, is not the intention. When regard is had to the content of the sections, it is apparent that they need operate only once because they are deeming and definition sections. Having operated once to deem and define the specified matters, they operate for all time. The same conclusion applies to s 180. The effect of the section is not that, once two years have passed, the 2004 Act is to be read as if Pt 11 never existed. Part 11 existed and whatever effect its provisions had during the two year period continues. The part merely ceases to have any new effect after the two year period.

69. Part 11 included s 181 which repealed the 1972 Act. Part 11 also included provisions relating to the building code, including the Australian Capital Territory Appendix to the Building Code of Australia (Pt 8). By s 172 the Australian Capital Territory Appendix to the Building Code of Australia includes the latest version of that document made under the 1972 Act. By s 173 “building work” includes building work under the 1972 Act as in force at any time after 18 December 1998 in relation to which building approval was issued after 18 December 1998. The operation of the 2004 Act in respect of building work under the 1972 Act is reinforced by s 154 which provides that anything required to be given to the building controller immediately before the commencement day of the 2004 Act is required to be given to the construction operations registrar under the 2004 Act.

70. In this context, the terms of s 158 are critical. Section 158 provides that:

To remove any doubt, this Act applies to building work, whether done before or after the commencement day.

71. The “commencement day” for Pt 11 is defined in s 153 to mean the day the 2004 Act commences, while ss 1 and 2 of the 2004 Act commenced on 26 March 2004: this is another aspect of ACT legislation which may be thought to create complexity. By s 75(1) of the Legislation Act, naming and commencement provisions such as ss 1 and 2 commence on the notification day. However, the substantive operation of s 2 (which provides that “[t]his Act commences on the commencement of the Construction Occupations (Licensing) Act 2004, section 6” is that the 2004 Act commenced on 1 September 2004 (a matter which, in any event, is common ground between the parties).

72. Section 164 is also relevant. It provided that: In section 84: Builder, in relation to residential building work or a residential building, includes a person whose name was notified to the relevant certifier under the Building Act 1972, section 38A (Notifications by owner of land in relation to building work) at any time before its repeal.

73. Section 84 is in Pt 6 which is that part of the 2004 Act dealing with the statutory warranties and insurance (as well as fidelity certificates) for residential buildings. Section 84, for the purposes of Pt 6, defines “builder” as follows:

Builder, in relation to residential building work or a residential building, means the person stated to be the builder in the commencement notice for the building work or building. Submissions for Mr Koundouris

74. It was submitted for Mr Koundouris that s 158 applies to “building work” but not completed buildings. Under s 85 of the 2004 Act the “completion day” for residential building work is the day “the work is completed or the day the contract relating to the work ends, whichever is the later” (s 85(1)) and “the work is taken to have been completed no later than the day a certificate of occupancy (if any) is issued for the work” (s 85(2)). Under s 88(4) the statutory warranties “end at the end of the period prescribed under the regulations after the completion day for the work”. As noted by the primary judge at [401]:

[t]he prescribed period for 88(4) was six years after the completion day for the work where the work was in relation to a ‘structural element’ of a building, or two years after the ‘completion day’ for the work where the work was in relation to a ‘non-structural element’ of a building.

75. According to the submission it is proper to construe s 158 to mean that work which was commenced before the 1972 Act was repealed but completed after the 2004 commenced, is subject to the 2004 Act. Section 158, however, does not mean that the 2004 Act applies to building work completed before 1 September 2004. This, it was submitted, is consistent with s 180 which provides Pt 11 to expire two years after the commencement day.

76. It was also submitted for Mr Koundouris that s 180 of the 2004 Act excludes the claim in relation to unit 10. The sale contract for unit 10 was entered into on 17 November 2006 and completed on 9 January 2007, both dates being after expiry of Pt 11 under s 180 on 1 September 2006. As such, at the date the contract for sale of unit 10 was entered into and completed s 158 had expired by operation of s 180 and the 2004 Act was no longer the source of any rights in respect of the owners of unit 10. The primary judge, it was said, overlooked this when he said at [398]:

The transitional provisions for the 2004 Act made it clear that the Act applied to building work, whether done before or after the commencement of the Act: s 158 and modified the definition of “builder” so as to make clear that it included persons notified by the certifier under s 37A of the 1972 Act: s 164.

77. As a result, it was also submitted that the primary judge’s findings at [450] and [513] that Mr Koundouris, as the builder, had breached the statutory warranties to the subsequent owners of unit 10, cannot stand.

Submissions for the owners corporation

78. According to the submissions for the owners corporation it is important to recognise that s 158 is an aid to statutory construction which was made to “remove any doubt”. However, s 158 is not the source of the substantive operation of the 2004 Act. The source is to be found in the operative provisions of the 2004 Act including s 88 which operates by “force of this section” to insert the statutory warranties into the contracts specified. It thus does not matter if the completion day was before the commencement day.

79. Nor can it matter that by s 180, Pt 11 expires on 1 September 2006. The 2004 Act applies according to its provisions, including s 88. If the contract for sale was entered into within the prescribed period (six years from the date of completion for structural works and two years from the date of completion for non-structural works), then the statutory warranties are inserted into that contract by s 88. The rights of the owners of the units are thus not dependent on the transitional provisions.

80. In respect of unit 10, in any event, it is not the case that the statutory warranties exist and can be enforced only after completion of the contract for sale. The warranties exist and can be enforced by the purchaser as the equitable owner of the property. As such, the relevant date is the date of entry into the contract, 17 November 2006. The owners corporation also seeks to rely on fresh evidence, if necessary, that the contract for sale was completed on 15 December 2006. Both dates are within the prescribed period for structural elements.

Discussion

81. The submissions for Mr Koundouris are not persuasive. They do not recognise the function of the provisions in Pt 11 as transitional provisions, nor of s 158 as an aid to construction (in contrast to a substantive provision). Part 6 of the 2004 Act operates according to its terms. Those terms include s 88 by force of which every contract of the relevant kind (which includes contracts for sale whether or not the builder is a party) is taken to include the statutory warranties.

82. The expiry of Pt 11 by s 180 does not affect the operation of Pt 6. In particular, Mr Koundouris was deemed to be the “builder” within the meaning of the definition in s 84 by s 164. Section 164 did not need to continue; the deeming effect operated as at 1 September 2004 and continued to operate irrespective of s 180. Further, s 158, as submitted for the owners corporation, is an aid to statutory construction which operated to “remove any doubt” only. Whether or not Pt 6 creates any doubt is arguable but it does not matter as the part has effect according to its terms. Further, s 158 operated according to its terms on the relevant “building work”, being “building work” whether done before or after the commencement day. It operated so that the 2004 Act applied to such building work. The deeming effect of s 158 also continued to operate irrespective of s 180. Moreover, nothing in the terms of Pt 6 or s 158 supports the submission that the 2004 Act does not apply to building work completed before the commencement day. The 2004 Act applies to such work in accordance with its terms.

83. Accordingly, the position is that the statutory warranties in s 88(2) of the 2004 Act are taken to be contained in the contract for sale from one unit owner to the other provided that the warranties have not ended as provided for in s 88(4). The warranties end at the end of the period prescribed after the completion day for the work. For structural elements the period is six years from the date on which the certificate of occupancy issued, on 20 December 2000. The prescribed period under the 2004 Act thus expired on 20 December 2006.

84. Insofar as unit 10 is concerned, we agree with the owners corporation that there is no reason to conclude that the only possible date for breach of the warranty is the date of completion of the contract for sale. At the date on which contracts were entered into the purchaser had equitable rights to the property under a contract of sale which contained the statutory warranties which the builder had breached. While the purchaser is not then the “owner” under s 58C(4)(a), because that definition depends on the transfer of title, this does not mean that the purchaser has no capacity to enforce the builder’s obligations under the warranties. Without wishing to be definitive because the existence of that capacity would depend on the facts, it is not beyond the realms of orthodoxy to posit that the purchaser has rights by reason of the statutory scheme which the law will protect even though those rights are contingent on completion of the contract and transfer of the title. On completion the new owner succeeds to the rights of the old owner under s 88(3) (a fact reinforced by the definition of “owner” in s 88(5) which refers to the passing of legal title) but that does not require the conclusion that a purchaser has no rights at all under the statutory scheme which the law will protect. The submissions for Mr Koundouris to the contrary are inconsistent with the orthodox position that a purchaser under a contract for sale, in equity, owns the land. This principle was explained in Halsbury’s Laws of Australia at [185-230] in these terms (citations excluded):

In equity, a contract for valuable consideration to assign property effects an equitable assignment when the consideration is paid or executed — a case in which equity regards as done that which ought to be done.1 In equity, if a contract for the sale of land is one in respect of which specific performance would be ordered,2 the beneficial interest passes to the purchaser at the time of contract and the vendor becomes a constructive trustee for the purchaser.

85. The submissions for Mr Koundouris also fail to recognise that the law may provide remedies for actual and prospective breaches of warranty.

86. As such, the fresh evidence sought to be adduced by the owners corporation is unnecessary. It is also unnecessary on the same basis as discussed below for units 6 and 7.

87. For these reasons the primary judge did not err in his approach to the 2004 Act or to unit 10. Grounds 3(b) and (c) and 4(a) and (b) must be dismissed.

Warranties do not extend to “defined parts” of the building

88. Mr Koundouris sought leave to amend the notice of appeal by including ground 4A to the effect that the primary judge erred at [446] in concluding that:

Thus, for those contracts entered into after the commencement of the 2001 Act, the statutory warranties were implied in relation to buildings which incorporated a relationship between unit owner and Owners Corporation which included the obligation on the Owners Corporation to maintain the defined parts of the building. That relationship also included an obligation on a unit owner to contribute to the Owners Corporation to the extent necessary to meet that obligation. In those circumstances the losses recoverable by a unit owner would extend to the unit owner’s proportional liability to contribute to the Owners Corporation’s liability to maintain the defined parts of the building, even if those parts of the building would otherwise be considered to be within another owner’s unit.

89. The 2001 Act is the Unit Titles Act 2001 which, as the primary judge explained at [434], extended the responsibility of an owners corporation beyond the common property to:

the common property as well as “the defined parts of any building containing class A units (whether or not the defined parts are common property)”: s 51(3)(d). The phrase “defined parts” was defined to include load bearing walls, columns, footings, slabs or beams and any part of a balcony on the building: s 51(8). As a consequence, while an individual unit extended to half of the floors, walls and ceilings, the Owners Corporation had an obligation to maintain those structures if they were load bearing. There was also an entitlement on the part of the Owners Corporation to bring proceedings both in relation to common property and part of a unit if it was likely to affect the support or shelter provided by the building: s 51B. This entitlement was inserted into the Act in 2008.

90. Mr Koundouris’s contention is that the statutory warranties did not extend to the “defined parts” as such parts are not within the definition of the “unit” or the “common property”. Submissions for Mr Koundouris

91. The certificate of occupancy for the building was issued on 20 December 2000. The Unit Titles Act 2001 commenced on 5 October 2001. It is accepted that the statutory warranties extend to the common property in which each unit owner has an equitable interest as the primary judge found at [442]. However, the primary judge also held at [446] that the unit owners were proportionately liable to the owners corporation to maintain the defined parts of the building within other units. This, it is said, is incorrect because the statutory warranties are inserted into the contract for sale of particular units. The owner obtains legal title to their unit and has an equitable interest in the common property but has no interest in the defined parts of a building within other units. The warranties cannot apply to such defined parts in which the owner has no legal or equitable interest.

92. Further, the certificate of occupancy was issued before the Unit Titles Act commenced. The primary judge’s approach means that the scope of the warranties expanded retrospectively when there is a presumption against retrospective operation of legislation.

Submissions for the owners corporation

93. The contentions for Mr Koundouris are misconceived. The content of the statutory warranty has not changed. The issue is one of the scope of damages for breach which does not depend on legal or equitable title but the liability of the unit owners to pay for the rectification works. Accordingly, the correct analysis is that as a result of the breach by Mr Koundouris of the statutory warranties the unit owners became liable to the owners corporation to pay their proportion of the costs of repair of not only the common property but also the “defined parts” of the building wherever located. Such loss flows from the breach of the warranties and is thus recoverable. The loss is of a kind within the reasonable contemplation of the parties, being liability to pay a proportion of the special levies required to rectify the defects resulting from Mr Koundouris’s breach of the statutory warranties.

94. The fact that the obligations of the owners corporation did not exist in respect of “defined parts” of a building until the Unit Titles Act 2001 commenced is not determinative of the scope of the loss that may be recovered. While loss is usually assessed at the date of breach or when the cause of action arose this is not inflexible and subsequent events and circumstances may need to be considered to ensure adequate compensation: Wenham v Ella (1972) 127 CLR 454. Further, it follows that the primary judge’s conclusions at [446]-[447] bifurcating the approach depending on units sold before and after the Unit Titles Act commenced in October 2001, is unsustainable. The mere fact that the responsibility of the owners corporation was extended in October 2001 to the “defined parts” of a building does not mean that loss was not in fact suffered by reason of the need to repair those parts. Nor does it mean that such loss was too remote. All repair costs, provided they are reasonable, must be within the reasonable contemplation of the builder and the unit owners or owners corporation. The fact that the Unit Titles Act 2001 imposed the burden of repair on the owners corporation for the “defined parts” of a building, which enabled the owners corporation to levy the repair costs to the unit owners, did not change the building. It did not change the fact it had to be repaired. It did not change the cost of repair. As such, there is no sound basis upon which to exclude the costs of the repair of the “defined parts” of any of Lagani. Discussion

95. We accept the submissions for the owners corporation. While we accept that leave to raise the point should be granted to Mr Koundouris given it is one of interpretation only about which no further evidence could have been called, the submissions for Mr Koundouris elide the content of the warranties (which do not change) and the scope of liability for breach of those warranties. Accordingly, it is not the case that the approach of the primary judge retrospectively altered the content of the warranties. It is that the provisions of the Unit Titles Act 2001 expanded the obligations of the owners corporation as a result of which the owners corporation had to maintain the “defined parts” of the building and could recover the cost of so doing by special levy upon unit owners.

No damages payable

97. In ground 6 of the appeal Mr Koundouris contends that the primary judge erred in awarding damages to the owners corporation in respect of the assigned cause of action from the owner of unit 8 because that owner only assigned any claims he had for diminution in value of his unit and the cost of internal repairs to his unit and the damages awarded did not fit into those categories.

Submissions for Mr Koundouris

98. The deed of assignment from the owner of unit 8 to the owners corporation is limited to losses suffered for the diminution in value of and costs of internal repairs to the owner’s property arising from breaches of the statutory warranty by the builder of Lagani.

99. The owners corporation abandoned its claims for diminution in value and there was no evidence of the cost of any internal repairs to unit 8. The damages were calculated differently and in a manner outside of the scope of the assigned rights.

Submissions for the owners corporation

100. If the point is permitted to be raised, not having been raised below and being a point of interpretation of the deed about which evidence of surrounding circumstances relevant to interpretation could have been adduced, it should be rejected in any event. The context of the deed is a residential building consisting of multiple units, common property and defined parts. The recitals to the deed include that the building, Lagani, “contains various structural defects which the Assignee (the owners corporation) is having rectified”. The various structural defects are to the “common property and structure of Lagani”. The proceedings by the owners corporation against Mr Koundouris and Koundouris Projects (Acro Pty Ltd) “in relation to defects to the common property and structure of Lagani” are expressly contemplated. In that context, it is recited that the unit owner as Assignor wants to assign to the owners corporation as Assignee the unit owner’s claim for loss, being the diminution in value of the Assignor’s property and the cost of internal repairs to the Assignor’s property. The full terms of the assignment in clause 2 are as follows: 2. Assignment The Assignor hereby assigns to the Assignee all rights that the Assignor has or may have to sue Michael Koundouris or Acro Pty Limited in relation to losses suffered by the Assignor for the diminution in value of, and the costs of the internal repairs to, the Assignor’s property arising from: (a) breaches of statutory warranties by the builder of Lagani; (b) the negligent construction of Lagani; (c) negligent investigation of defects and repairs to Lagani; and/or (d) misleading or deceptive conduct by either Michael Koundouris or Acro Pty Limited in relation to Lagani (collectively, the Builder’s Conduct). For the avoidance of doubt, the Assignor does not assign those rights which the Assignor has or may have to sue in relation to losses suffered by the Assignor (arising from the Builder’s Conduct or otherwise) which do not relate to diminution in value of, or the costs of the internal repairs to, the Assignor’s property such as loss of rental income.

101. It is apparent from the exclusion that what the parties to the assignment intended to be excluded from the assignment was any right the unit owner might have to sue Mr Koundouris or Acro Pty Ltd for consequential losses. It could not have been their intention, given the context, to exclude the cost of repair of the common property or the defined parts of the building for which the owner of unit 8 was or would become liable. In any event, the owner of unit 8 held a legal interest in the unit and an equitable interest in the common property. At the least, accordingly, the “Assignor’s property” includes the common property. It must also not be overlooked that what is assigned is the unit owner’s right to sue “in relation to losses suffered by the Assignor for the diminution in value of, and the cost of the internal repairs to, the Assignor’s Property…”. The words “in relation to” require a connection, the scope of which must depend on context. It makes no sense for the assignment to include the costs of repair for which the owner of unit 8 was or would be liable in relation to the unit and the common property but not the defined parts of the building which are not within the unit. Further, it cannot be said that these costs do not relate to the diminution in value of the unit and the common property. Unless the costs of remedial works to the building as a whole for which the unit owner was or would become liable are included, the reference to diminution in value of the Assignor’s property makes little commercial sense. All components of the building would be relevant to the value of the Assignor’s property.

Discussion

102. The submissions for the owners corporation disclose why it would be a denial of procedural fairness to permit Mr Koundouris to raise this issue which was not raised below and is said to arise from the primary judge’s reasoning permitting recovery for the proportional liability of unit owners to the owners corporation for the costs of repair to the defined parts of the building. A problem, however, is that we accept that the owners corporation abandoned its claim for diminution in the value of the units. If, however, the point about interpretation of the deed of assignment for unit 8 had been raised, it is arguable that the claim for diminution in value, at least for that unit, would have remained. If so, it is difficult to argue against the proposition that the owner of unit 8, but for the repair works, would have suffered diminution in the value of his unit and his share of the common property by reason of the defects in the building as a whole including the defined parts. The cost of the repair works for which the unit owner was liable (it being noted that the loss is actual loss represented by the unit owner’s proportional share of the special levies in fact paid) would then be loss “in relation to the diminution in value of the…Assignor’s property”.

103. Further, we accept that if the issue had been raised it is arguable that the owner of unit 8 and the owners corporation could have given evidence about the circumstances surrounding entry into the deed which might have supported the interpretation proposed by the owners corporation. For these reasons we do not consider that Mr Koundouris should be permitted to raise this argument. At the least, if permitted to raise it, a consequence should be that the owners corporation be permitted to reconsider its position on the claim for losses in relation to diminution of value for the property of unit 8 and, if this is permitted, it would defeat the argument, which is another reason not to permit it.

104. Given these conclusions, we do not consider it appropriate to consider the issue of interpretation of the deed of assignment further.

105. For these reasons ground 6 of the appeal must be dismissed.

Conclusions about the appeal

106. None of the grounds of appeal have succeeded. It follows that the appeal must be dismissed. The primary judge’s conclusions about units 8 and 10 remain unaffected by the appeal. It is now necessary to consider the cross appeal.

The obligations under the warranties

107. The owners corporation contends that the primary judge erred in construing s 58C(1) of the 1972 Act as not imposing obligations in respect of both work as performed and as required to be performed in order to comply with the statutory warranties. Further, the primary judge erred in not concluding that s 58C(1) required the builder to ensure compliance with the statutory warranties during the warranty period. As described at [361(a)] of the reasons the primary judge ought to have concluded that Option A was correct, namely:

(a) Option A: The five-year period up until expiry is a period during which the standards required by the warranties must continue to be met. This option involves, as the plaintiff submitted, a continuous obligation to meet, or bring the building up to, the standards required by the warranties. It involves imposing a continuing obligation to rectify the building which, if not done, is last breached at the end of the five-year period. That would mean that if, at the end of the five-year period, the standards set out in the warranty were not met, then a cause of action for breach of that warranty existed and the limitation period would run from the conclusion of the warranty period. The effect of this would be that proceedings could be brought at any time up until 11 years from the date upon which the certificate of occupancy was issued.

108. According to the owners corporation the primary judge also should have found that the Further Building Work was required to comply with the statutory warranties and did not comply, with the consequence that the claim of the owners corporation to damages for the cost of rectification in the sum of $1,068,397 ought to have been sustained.

Submissions for the owners corporation

109. The first aspect of the contentions for the owners corporation depends on the words “has been or will be carried out” in each of ss 58C(1)(a), (b) and (c) of the 1972 Act. According to the owners corporation it is important to recognise that the statutory warranties are implied into contracts at different stages – from sales off the plan when the building is still conceptual to sales possibly years after the construction has been completed, and everything in between. The primary judge, however, held as follows:

110. Read in the context of the opening words of s 58C(1), the reference to “has been or will be” is reasonably simply explained. The opening words of the subsection refer to two circumstances: (a) a contract for sale of a residential building; (b) a contract to carry out residential building work. 346. If the first situation applies, the residential building may or may not be in existence. It might be the sale of an existing building or it could be an “off the plan” sale where the building is yet to be built. On the other hand, if the second situation applies then the residential building work has not yet been carried out. These two situations (building works complete or not complete) are then picked up in the terms of the warranties which are set out in the balance of the subsection. Paragraphs (a) and (b) refer to work that has been or will be carried out. Paragraph (c) refers to the warranty that good and proper materials for the work “have been or will be used”. Paragraph (d) deals with the time in which work that has not been completed will be carried out. Paragraph (e) provides a warranty of fitness for purpose that the work and any material used in carrying out the work “is or will be” reasonably fit for purpose. 347. Because the circumstances described in these paragraphs incorporate circumstances where the contract in subsection (1) may or may not involve residential building work that has already been completed, it is necessary for the terms of the warranties themselves to accommodate the alternative possibilities. They do so by the references, as appropriate, to past, present and future circumstances. This gives a sensible operation to the terms of the warranties which corresponds to the different circumstances identified in the opening words of subsection (1). 348. I do not accept the plaintiff’s submission that the statutory warranties only arise after the work has been performed or completed. Clearly enough, where a building contract is being entered into, the work the subject of that contract will not have been completed, yet the warranties as to the standards of construction will be incorporated into that contract by the statute. 349. Necessarily flowing from the interpretation which I have identified is a rejection of the plaintiff’s submission that the phrase “has been or will be” applies to any single category of building work so as to necessitate an interpretation which imposes obligations in relation to that single category which are both “as performed” as well as “prospective”. It therefore does not imply that further work undertaken during the period of the warranty before its expiry must comply with the requirements of the warranty. Rather, as I have indicated, the two elements of “has been or will be” correspond to the two different circumstances being addressed by the subsection.

534… Notwithstanding that Mr Koundouris did, through his employees and subcontractors, devote significant time to attempting to rectify defects, the evidence does not disclose that Mr Koundouris undertook any appropriate investigation to properly identify the underlying causes of those defects. 536. Having regard to the extent of complaints about leaks into units and the basement, it ought of have been obvious that there were some systemic problems with the building, but Mr Koundouris either never recognised the need to make a comprehensive assessment of the cause of the problems or chose not to. For example, the report of Mr Murtagh prepared in response to the Lewis & Associate’s report provided a frank assessment of some of the difficulties with the building, including identifying the absence of control joints as being a significant issue. There is no evidence that the absence of control joints was ever disclosed to the plaintiff or that, when it was obtained, the Murtagh report was disclosed to the plaintiff. Instead, the response of Mr Koundouris was piecemeal, attending to problems as they arose. While his continuing to attend to problems as they arose was consistent with a recognition on his part that there were defects in the work for which he was responsible, he at no stage prior to the Lewis & Associates report took any affirmative step to make an assessment of the overall scope of the problems or disclose that to the plaintiff or the owners. … 538…In my view it is a relevant matter to take into account the fact that the plaintiff has succeeded in establishing the vast majority of the defects which it said existed in the building. It has established therefore that not only did Mr Koundouris breach the obligations that he had under the warranties but also that, despite having years in which to do so, he failed to properly remedy the defects. Further, subject to the limitation issue, it has established the damages in relation to which findings are made in the following section of these reasons.

113. Insofar as details of the Further Building work might be required, at [128]-[146] the primary judge found that between November 2004 and December 2005 Mr Koundouris attempted to carry out repair works to prevent water ingress to units, noting as follows:

114. On 16 November 2004, Superior Waterproofing Systems issued an invoice to Koundouris Projects for investigation and repairs into Units 9 and 10 regarding water leaks. … 131. On 25 January 2005, Koundouris Projects received an invoice from Superior Waterproofing Systems to deal with the water leak at Unit 9. … 138. From 10 July 2005 through to 18 August 2005, an employee of Koundouris Projects, Mark Jakobasch, attended the premises for approximately 14 hours to perform work. Other tradespersons also attended Lagani during this time. … 142. From 21 August 2005 to 10 November 2005, Mr Jakobasch (Koundouris Projects) and other subcontractors attended Lagani. Specifically, Koundouris Projects was invoiced by Tiling Impressions for: (a) carrying out work at Unit 10 on 9 September 2005 ; and (b) rectifying water leaks through window for Unit 10 on 27 October 2005. 143. The Tiling Impressions invoice of 9 September 2005 recorded that the warranty for the Lagani Development was terminated due to excessive building movement and Tiling Impressions would not be held liable for further water leaks. The invoice indicated that grout was removed from the perimeter of the Unit 3 balcony and a product intended to fix the problem (“PU 25”) was applied. There is a reference to “further investigations” disclosing that “the leak was coming through from front window”, but it is not clear what this means. It appears that the identified source of the leak was not in fact fixed at that time, because the invoice in October 2005 was for work done to “rectify water leaks through window ordered by Mark Jakabach”. … 146. On or around 4 December 2005, Mr Guiseppe Gallo attended Lagani to complete some unidentified “maintenance”. Mr Koundouris was not aware of any reason why Mr Gallo would have attended Lagani at his direction other than in respect of defects. … 148. [As at 26 January 2006]… (b) Ms Lindsay (Unit 5) gave evidence that the owners’ concerns about the leaks had been increasing, that Mr Koundouris had kept coming back to fix the leaks and that the owners had wanted to keep the leaks on his agenda. She further said that the leaks were obvious and apparent in the rain, whereas the cracks were apparent when there was no rain, though the owners’ concern did not go away in-between; and 151. On 19 April 2006, Ms Jeffery (Unit 10) sent an email to Ms Lindsay (Unit 5) stating: We had another plumber man come yesterday to shed some light on the water leak, apparently number 7 is getting a leak in again. We have put in a call to Mark from Koundouris and Michael Kumm and will let you know the outcome after we speak to Michael tomorrow. – What a pain I thought this was all fixed. 155. On 7 July 2006, Mr Koundouris inspected the Lagani Apartments with Mr Kumm and Ms McLeod (Unit 2). 156. On 17 August 2006, Ms Jeffery (Unit 10) sent an email to Mr Kumm asking for a notice to be put up indicating that Koundouris Projects was attending the site on 21 August 2006 “to finalise the leak repairs to our complex”. 157. On 18 August 2006, Koundouris Projects was sent an invoice from Tiling Impressions for maintenance work conducted on the Unit 10 balcony. Tiles were removed in order to find a water leak, but no water leak was found and the process was stopped. It is not clear what area of tiles was removed or what areas were inspected. The surface was then prepared for waterproofing and two coats of waterproofing were applied. Floor and skirting tiles were then replaced and grouted. 158. On 1 September 2006, Ms Jeffery (Unit 10) sent an email to members of the Executive Committee and Mr Kumm stating: We understand after speaking with Mark from Koundouris last Friday, that the repairs being carried out to our balcony area have been completed but final water testing was not able to be carried out because access to unit 7 was again denied. The contractors who had come to make the final repairs to affected units had not completed work because of illness. Once this work is completed it is my understanding that the water leak issue will finally be at an end. 159. Workers arranged by Mr Koundouris attended the Lagani Apartments a number of times in August and September 2006 to flood balconies to test whether works had rectified the problems. … 162. In early October 2006, Koundouris Projects was invoiced by subcontractors for further maintenance work at Lagani, including Unit 7, the penthouse unit (which would be either Unit 9 or Unit 10) and Unit 5. It is not clear whether this related to waterproofing on balconies and, if so, precisely what area was targeted. 163. On 10 October 2006, Ms Jeffery (Unit 10) sent an email that appears to refer to the work undertaken, stating: Water leaks Koundouris builders have been working here again during the past week and yesterday removed their ladders etc. Do we now assume that all is finalized and fixed? Or does someone still have a problem. I am happy to stay out of the loop as we have not had a problem and will assume either all is now fixed or individual owners are making their own arrangements. 164. On 10 October 2006, Mr Cecere (Unit 8) sent an email to Ms Jeffery (Unit 10) stating that there was a leak in the ceiling above his carpark. 165. Mr Koundouris gave evidence that, if he had been contacted about this issue, notwithstanding the content of the 19 September 2006 letter, his general approach to issues of defects remained: that he would send individuals to the premises to investigate, and if thought reasonable, repair. 166. On 17 October 2006, Ms Jeffery (Unit 10) sent an email to Mr Kumm stating that the water leak was still happening from Unit 1 to the carpark. … 170. On 30 October 2006 and 26 November 2006, Koundouris Projects was invoiced for maintenance work at Lagani, including Units 2, 3, 5 and 7. Once again it is not clear whether this related to waterproofing on balconies and, if so, precisely what area was targeted. 171. Mr Koundouris gave evidence that between 2001 and 2006, unless investigations concluded that a problem was the result of some occupation or use of the premises, his approach was to attend to rectification of the problem. … 178. Mr Leitch's (Unit 9) evidence was that on 10 July 2007, ‘Mark’ from the Koundouris Group (likely to be Mark Jakobasch) called him about access to the balcony of his unit and that men from the “Koundouris Building Group” gained access on 16 July 2007. 179. Ms Lindsay's evidence was that on 11 July 2007, Mark from Koundouris Projects called her in response to her letter of 4 July 2007 to say that Mr Koundouris had given him the go ahead to do whatever needs doing, and that they would flood the balcony again. Mr Koundouris gave evidence that Mr Jakobasch would have spoken to him after he had spoken to Ms Lindsay.

Submissions for Mr Koundouris

115. As to the first aspect of these matters, it was submitted for Mr Koundouris that the text and context of s 58C(1) weighs against the conclusion that the warranties impose on the builder a continuing obligation to repair building work which does not comply with the warranties throughout the prescribed period. If building work is not carried out in accordance with the warranties then the builder is in breach and exposed to remedies for breach, but the warranties do not impose an obligation to rectify the breach. As the primary judge found the references to “has been” and “will be” carried out are explicable by reason of the fact that the warranties apply to building work which has or has not been carried out at the time of the relevant contract into which the warranties are implied. There is no justification for reading into the provisions any greater obligation than that for which they provide on their ordinary and natural meaning. Further, if any such obligation exists, it is necessarily the case that the builder must have a right of entry after completion of the building works to bring the completed works, if non-complying, into compliance. No such right is to be found in the 1972 Act.

116. Other submissions were also made for Mr Koundouris but they need not be recorded, as they do not add to the primary submissions on the interpretation of the warranties.

117. As to the second aspect, it was submitted that given the way in which the owners corporation put its case below, this argument depended on acceptance of the owners corporation’s interpretation of the warranties. As the sole argument put was based on the interpretation of “has been or will be carried out” imposing a continuing obligation, none of the evidence related to the items of the Further Building Work, and all of the evidence related to the failure of the building work to keep water out as required by the building code, the primary judge did not fail to deal with any alternative argument about the Further Building Works. Had this case been put below the owners corporation would have needed to identify each piece of Further Building Work, when it was done, and how it breached the warranties. This was not done. Further, the limitation period in respect of the original building work had expired long before the proceedings were commenced.

Discussion

118. As to the first aspect of the contentions for the owners corporation, we do not accept that the primary judge erred insofar as he dealt with the owners corporation’s case based on the warranties imposing an obligation to bring non-complying building works into compliance with the warranties throughout the prescribed period. We agree with the primary judge that the preferred interpretation of s 58C(1)(a) to (c) is that the builder warrants that if the work has not been carried out it will be carried out in accordance with the warranties and if the work has been carried out it has been carried out in accordance with the warranties. We consider this to be the natural and ordinary reading of those provisions. This does not involve an obligation under the statute to bring non-complying work into compliance.

119. This means that the warranties do not impose a continuing obligation throughout the prescribed period. Nor, however, do we accept that the warranties only impose any obligation once the works are completed. If the work has been completed before the contract for sale is entered into then the warranty operates on the completed work. If, however, the work has not been completed at the time the contract is entered into, the warranty operates on such work as has been completed (that it has been carried out in accordance with the warranties) and on the work to be completed (that it will be carried out in accordance with the warranties). For example, assume a purchaser under an exchanged or completed contract for sale becomes aware that the builder is carrying out the building work other than in accordance with the warranties. We do not accept that the purchaser necessarily must await the completion of the sub-standard work before there is a remedy. There is a breach in respect of both the completed and prospective work.

120. We do not accept that the case of the owners corporation was confined to the statutory warranties imposing a continuing obligation during the prescribed period to ensure the residential building work was brought into compliance with the statutory warranties. It is apparent from paras [11A], [12A], [14], [14A], [15], [16A] in particular of the further amended statement of claim that the case was put in multiple ways including that the Further Building Work was carried out in breach of the warranties as implied into the contracts for sale irrespective of the existence of a continuing obligation to repair. It is this case, moreover, that the primary judge rejected at [349] in these terms:

Necessarily flowing from the interpretation which I have identified is a rejection of the plaintiff’s submission that the phrase “has been or will be” applies to any single category of building work so as to necessitate an interpretation which imposes obligations in relation to that single category which are both “as performed” as well as “prospective”. It therefore does not imply that further work undertaken during the period of the warranty before its expiry must comply with the requirements of the warranty. Rather, as I have indicated, the two elements of “has been or will be” correspond to the two different circumstances being addressed by the subsection.

121. The primary judge thus dealt with the issue, albeit briefly. In our view, the primary judge’s conclusion conflates two separate matters. It is one thing to conclude, as we do, that a builder is not bound by the warranties to repair a building during the warranty period pursuant to continuing obligations imposed by the warranties. It is another thing to conclude, as the primary judge did, that a builder who does carry out further work by way of repairs to the structure during the warranty period, is not bound by the warranties to carry out that work as the warranties require. We are unable to accept that second conclusion. It is contrary to the terms of the statutory provisions which apply to work which “will be” and “has been” carried out during the warranty period. It is contrary to a statutory scheme which is intended to protect owners against sub-standard building work. Why sub-standard building work by way of repairs to a building would be outside the scheme is not apparent. Indeed, if the provisions operated in that way one might say that the very cases in which the scheme is most needed (where the building work is sub-standard so that structural repairs are required) would escape its operation in respect of the most important work, the repair work. It also fails to recognise that the issue of a certificate of occupancy permits occupation and commences the warranty period but nothing else. Section 52 of the 1972 Act thus provides that:

The issue, under this Part, of a certificate in respect of a building or portion of a building does not affect the liability of a person to comply with the provisions of a law of the Territory (including this Act) relating to the building or portion of the building.

122. Accordingly, the mere fact that the building was “completed” for statutory purposes and was subject to a certificate of occupancy does not necessarily mean that the builder has complied with all legal requirements for actual completion of the building. In the present case, the inescapable fact is that the building was never actually completed by Mr Koundouris. He built a building which did not comply with the warranties and, for the next eight or so years, continued to carry out building work trying to complete the building. This Further Building Work was a continuation of the building work. Because Mr Koundouris never completed the building as required, the owners corporation did so at its expense (levied to each unit owner).

123. The period during which the warranties operated under the 1972 Act was five years from the issue of the certificate of occupancy on 20 December 2000. For each contract of sale, the warranties as a whole (both the “has been” and the “will be” components) were implied into the contracts for sale. The residential building work as completed at 20 December 2000 did not comply with the statutory warranties. The limitation periods started to run for those breaches on completion of each contract for sale (we say completion because if, as we consider, the purchaser obtains rights to enforce the warranties on entry into a contract, there must nevertheless also be breach as at completion, even if these are fresh breaches).

124. Further, and consistent with the position above, succeeding owners obtained two sources of rights. They succeeded to the rights of the original owner under s 58C(2). They also obtained their own rights on completion of their own contract for sale because the warranties as a whole were implied into those contracts (under the 1972 Act or the 2004 Act depending on the date of sale). For those new contracts, provided the sale occurred within the prescribed period (of five years for the 1972 Act or six years for the 2004 Act, running from 20 December 2000), fresh breaches and thus causes of action arose on, at the least, completion of the contracts for sale, and the limitation period of six years commenced on the re-sale completion dates.

125. As noted, none of this means that the warranties changed in content. At all times it was the whole of each warranty that was implied into the contract for sale. The consequence, however, is that the Further Building Work aspect of the owners corporation’s case takes on significance. Given the multiplicity of possibilities with which the primary judge was presented, compared to the more limited scope of the appellate proceedings, it is perhaps unsurprising that this additional layer of potential complexity did not receive much attention. It is clear, however, that the expiry of the limitation period for the original building works as completed at 20 December 2000 is not an answer to this aspect of the claim.

126. By reference to the table of sale dates set out above it may be accepted that causes of action for breach of the statutory warranties for the original building work arose for every unit in between January and April 2001. As there was no continuing obligation to bring the building into conformity with the warranties throughout the prescribed period, the limitation period for those causes of action expired in between January and April 2007.

534 … Notwithstanding that Mr Koundouris did, through his employees and subcontractors, devote significant time to attempting to rectify defects, the evidence does not disclose that Mr Koundouris undertook any appropriate investigation to properly identify the underlying causes of those defects. 535. Further, there is no evidence that Mr Koundouris ever documented any diagnosis or assessment of the problems or documented the remedial work that was undertaken. Although he was a qualified builder with access to the contractors and advisers who were involved in the construction of the building, there is no evidence that he made any attempt to investigate, document or disclose the problems. 536. Having regard to the extent of complaints about leaks into units and the basement, it ought of have been obvious that there were some systemic problems with the building, but Mr Koundouris either never recognised the need to make a comprehensive assessment of the cause of the problems or chose not to. For example, the report of Mr Murtagh prepared in response to the Lewis & Associate’s report provided a frank assessment of some of the difficulties with the building, including identifying the absence of control joints as being a significant issue. There is no evidence that the absence of control joints was ever disclosed to the plaintiff or that, when it was obtained, the Murtagh report was disclosed to the plaintiff. Instead, the response of Mr Koundouris was piecemeal, attending to problems as they arose. While his continuing to attend to problems as they arose was consistent with a recognition on his part that there were defects in the work for which he was responsible, he at no stage prior to the Lewis & Associates report took any affirmative step to make an assessment of the overall scope of the problems or disclose that to the plaintiff or the owners.

128. In s 5(1) of the 1972 Act “building work” includes “work in connection with repairs of a structural nature to the building”. In s 58A “residential building work” means “building work in connection with a residential building”. The primary judge’s descriptions of the repair work Mr Koundouris carried out between 2001 and 2008 disclose that it was work in connection with repairs of a structural nature to the building (for example, it included 14 hours of work between 10 July and 18 August 2005 by an employee of Koundouris Projects and work by the same employee and sub-contractors between 21 August 2005 to 10 November 2005, all dealing with water ingress and problems caused by water ingress). As the owners corporation submitted, such work must be taken to include all repairs to the structure, in contrast to decorative repairs: Granada Theatres Limited v Freehold Investments (Leytonstone) Ltd [1959] Ch 592 at 603. In any event, it was also residential building work to complete a building that had never been completed as required. As such, no concern about the precise nature of that work or the dates on which it was carried out or its cost for the purposes of s 58B(1)(c) can arise. All that is relevant is that the building did not comply at purported completion and, during the warranty period, the builder continued to carry out “residential building work” to complete the building, but failed in this endeavour.

129. It is apparent, as submitted for the owners corporation, that the lack of movement joints and the absence or failure of the waterproofing affected the overall structural integrity of the building which manifested itself in cracking, corrosion, and debonding of render, allowing water ingress to internal areas. The attempted rectification works carried out between 2001 and 2008 included works in connection with repairs of a structural nature including substantial works in 2004, 2005 and 2006. Given the unchallenged findings of the primary judge that none of these works resolved the systemic issue (at [536]), it cannot be in serious question that these building works did not satisfy the requirements of the Act, including s 37(c) (which requires the building work to be carried out in a proper and skilful manner).

130. As noted, we do not accept that these building works must be treated as isolated items of work. The attempted repair works constituted a continuing course of conduct in which the builder repeatedly undertook building works in failed attempts to rectify a systemic problem with the construction of the building, the systemic problem being that the original building work did not comply with the requirements of the building code to ensure that water ingress to internal areas so as to prevent damage, was prevented, and the continuing systemic problem being that the building works by way of repairs did not deal with the underlying causes of the water ingress (non-existence or failure of the waterproofing membrane system and no movement control joints).

131. Ordinarily, the reasoning of the primary judge at [364]-[385] and [390] about the interpretation of the warranties not imposing a continuing obligation, with which we agree, would be the end of the matter. A builder who delivered a building which did not comply with the statutory warranties would have committed a single breach of the warranties in each contract of sale. The fact, if it be the fact, that damage may result at different times would not affect the existence of a single breach from which the limitation period would commence, because the cause of action for breach of warranty would then be complete. Of course, as at January to April 2001, when each unit was sold, this is what occurred in the present case. But the warranties were not exhausted by the fact of breach.

Finally, the owners of Unit 8 and Unit 10 cannot to avoid [sic] any limitation arising from the definition of structural element by relying upon succeeding to the rights of a previous owner who purchased at a time when the 1972 Act applied. The previous owners purchased under contracts dated 24 May 2000 and 6 February 2004 respectively. As at those dates the 1972 Act was still in force. Section 88(3) of the 2004 Act provides that each of the owner’s successors in title succeed to the rights of the owner in relation to “the statutory warranties”. The statutory warranties are those under the 2004 Act and do not pick up the warranties implied under the 1972 Act. Therefore the 2004 Act did not pick up rights of previous owners under the 1972 Act. Similarly, so far as the rights of the owners who purchased in 2004 prior to the repeal of the 1972 Act were concerned, those rights continued up until the repeal of the 1972 Act. In so far as those rights included a cause of action against Mr Koundouris, they were accrued rights continued for the previous owners by s 84 of the Legislation Act. However, the terms of the 1972 Act or of the Legislation Act did not pass on those accrued rights to purchasers after the repeal of the 1972 Act.

141. While this consequential aspect of the matter is difficult to resolve, not the least because it attracted no attention in the written submissions and little in the oral submissions, we are not attracted to this conclusion which would operate to deny relief in respect of units 6 and 7 but for their share of the costs of repairing the common property and “defined parts” of the building.

142. Given our conclusions above, the first and second owners of units 6 and 7 had the benefit of the warranties, as both contracts for sale were within the warranty period and before repeal of the 1972 Act. The second owners, from whom the most recent owners purchased the units after expiry of the warranty period and after repeal of the 1972 Act, had two sources of rights, consistent with the conclusions above. The second owners of each unit had the rights they succeeded to under s 58C(2) and the rights under the warranties as implied into their contracts for sale under s 58C(1).

143. However, what is the position of the most recent owners, who purchased after repeal of the 1972 Act and after the expiry of the warranty period under the 2004 Act? They obtained no fresh warranties under the 2004 Act. This is clear. They did not succeed to any warranties under s 88(3) of the 2004 Act because the previous (second) owners had purchased before the 2004 Act commenced. This too is clear. What is also clear is that by operation of s 84(1)(c) of the Legislation Act the repeal of the 1972 Act did not affect the accrued rights of the previous (second) owners.

144. Our view is that the nature of the accrued right is more expansive than the primary judge appears to have assumed. The previous (second) owners’ accrued rights were rights not merely to a remedy for breach of warranty. By s 58C(2) they had an accrued right under which their successor in title succeeded to their rights. The fact that this right was contingent on a further sale occurring within the limitation period during which the right could be exercised does not mean the right was not accrued: Esber v The Commonwealth (1991) 174 CLR 430 at 440-441. The repeal of the 1972 Act did not affect that accrued right to which the current owners of units 6 and 7 succeeded.

145. For these reasons we disagree with the conclusion of the primary judge that the proceedings were brought within time only for units 8 and 10 because those units were sold after 1 September 2004 and before 20 December 2006, with the sales having occurred not more than six years before the date of the commencement of proceedings on 29 November 2010: see the primary judge’s reasons at [412] to [417]. The proceedings were brought within time for all unit owners. Accordingly, grounds 4(a)(i)(A), 4(a)(ii) and 4(a)(iii) of the cross appeal must be dismissed and grounds 4(a)(i)(B) and 4(b) of the cross appeal must be allowed.

Contract to carry out residential building work

146. The owners corporation contends that the primary judge erred in rejecting its argument that the arrangement or agreement between Koundouris Projects and Mr Koundouris was itself a contract to carry out residential building work within the meaning of s 58C(1) of the 1972 Act.

147. The primary judge held as follows:

148. My findings above are that Mr Koundouris was an employee of Koundouris Projects. He received income from a trust of which Koundouris Projects was the trustee. There is no evidence of there being a contract between Koundouris Projects and Mr Koundouris in relation to the building of the Lagani development. 408. I do not accept the submission put on behalf the plaintiff that the contract of employment was sufficient to come within the scope of s 58C because it was a “contract to carry out residential building work (being a contract to which the builder is a party)”. The significant words are “to carry out residential building work”. Those would appear to me to qualify the nature of the contract to which the subsection refers. In other words the subsection applies to a limited class of contracts which relate to a specific subject matter. 409. This is a more straightforward interpretation of the section and leads to a reasonable outcome in the sense that a developer whose employee is the builder does not get statutory warranties enforceable against its employee. However, such warranties arise upon the sale of the building or part of it to a third party via the other limb of s 58C. I accept that there are some complications arising in relation to unit titled buildings depending on which limb of s 58C(1) applies (which are discussed below), but that, in my view, is not a sufficient reason to adopt a different interpretation of the reference to “every contract to carry out residential building work”. 410. As a result, it is only the first limb of s 58C(1), namely the “contract for sale” limb that is relevant in the present case.

Submissions for the owners corporation

148. It was submitted for the owners corporation that the primary judge took too narrow an approach to s 58C(1) which refers to “every contract to carry out residential building work”. Mr Koundouris held the building licence. He was employed by Koundouris Projects. His position with Koundouris Projects was Construction and Project Manager (at [36]). There is no reason to conclude that the contract of employment between Koundouris Projects and Mr Koundouris could not satisfy the requirement of “contract to carry out residential building work” for the purposes of s 58C(1). Under the contract of employment it must be the case that Koundouris Projects and Mr Koundouris agreed that, as and when required, Mr Koundouris would carry out building work as the builder on behalf of and in accordance with directions from Koundouris Projects. There cannot be any doubt that Koundouris Projects, the owner and developer of the land, directed Mr Koundouris to carry out residential building works pursuant to the contract of employment. On the relevant documents, Mr Koundouris is nominated as the builder of the building known as Lagani by name and licence number for all purposes under the 1972 Act.

149. Given these circumstances, it was not necessary for there to be a contract between Koundouris Projects and Mr Koundouris specific to the construction of Lagani to satisfy the terms of s 58C(1). The contract of employment between Koundouris Projects and Mr Koundouris under which it must have been agreed that Mr Koundouris would carry out building work as the builder on behalf of and in accordance with directions from Koundouris Projects satisfied the requirements of s 58C(1). It was a contract to carry out residential building work to which the builder was a party, at the least by the time Koundouris Projects directed Mr Koundouris to build that building. The fact that it was also a contract of employment is immaterial. There is no reason to read down the broad language of s 58C(1) insofar as it refers to “every contract to carry out residential building work (being a contract to which the builder is a party)”.

150. The context and legislative history support this interpretation. In 1998 the Building (Amendment) Act (No 2) 1998 (ACT) amended the definition of “builder”. The effect of the amendment was that where an employee holds the building licence, the employee and not the employer (as had been the case) is the builder. By this means, the person holding the licence became personally responsible as the builder for compliance with the statutory requirements. Given this, it would be incongruous to construe “every contract to carry out residential building work (being a contract to which the builder is a party)” in a manner which requires a specific contract for a specific development. Where a structure has been chosen in which the owner/developer is an entity which employs a builder to carry out residential building work as and when required, the contract of employment between the owner/developer entity and the employed builder must be within the scope of the expression “every contract to carry out residential building work (being a contract to which the builder is a party)”.

Submissions for Mr Koundouris

152. It was submitted for Mr Koundouris that s 58C(1) requires a contract to carry out residential building work. While the primary judge found at [407] that Mr Koundouris was employed by Koundouris Projects he also found that there “is no evidence of there being a contract between Koundouris Projects and Mr Koundouris in relation to the building of the Lagani development”. This finding is not challenged.

153. The context of s 58C(1) supports the primary judge’s conclusion that there must be a specific contract to carry out the residential building work. The warranties are implied into that contract. It is true that as the owner of the land Koundouris Projects nominated Mr Koundouris as the builder under s 37A on the building application. This occurred on 15 April 2000. It was this nomination which permitted Koundouris Projects to authorise Mr Koundouris to carry out the building of Lagani. It would have been a contravention of s 37A for the contract of employment, an unwritten contract dating from Mr Koundouris’s employment in 1998, to authorise the carrying out of that work.

154. Further, the submissions for the owners corporation mean that on or about 15 April 2000 the 1998 contract of employment became a contract within the meaning of s 58C(1) into which the warranties were implied. While a contract of employment may also be a contract within the meaning of s 58C(1) if it requires specific residential building work, the facts of the present case do not satisfy this requirement.

Discussion

155. We accept the submissions for the owners corporation.

156. First, it is orthodox that a contract may be in writing or oral or partly in writing and partly oral.

157. Second, it is orthodox that where there is an employment relationship, there must be a contract of employment.

158. Third, there is no doubt that from 1998 Koundouris Projects employed Mr Koundouris as its Construction and Project Manager.

159. Fourth, it cannot be subject to any real question that under the contract of employment between Koundouris Projects and Mr Koundouris that it was agreed between them that Mr Koundouris would carry out building work as directed by Koundouris Projects. This inference must be drawn given that Mr Koundouris was employed as the Construction and Project Manager and held a building licence.

160. Fifth, it does not matter whether Mr Koundouris was bound by the contract of employment to carry out building work at the direction of Koundouris Projects or whether reserved to himself the right to decide if he would carry out particular building work as the builder once the nature of that work became known. Either way, it must be inferred that by 15 April 2000 there was an agreement (that is, a contract) between Koundouris Projects and Mr Koundouris under which he agreed to be the builder for Lagani. This inference must be drawn given the nomination by Koundouris Projects of Mr Koundouris as the builder on the building application for the construction of Lagani. Whether the obligation was created by reason of an inference that Koundouris Projects gave this lawful direction to Mr Koundouris as an employee under the terms of the contract of employment or there was a further and new agreement in respect of this direction need not be resolved.

161. Sixth, the statement of the primary judge at [407] that “[t]here is no evidence of there being a contract between Koundouris Projects and Mr Koundouris in relation to the building of the Lagani development” cannot be a finding that there was no agreement between Koundouris Projects and Mr Koundouris to build Lagani. His Honour must be understood as saying that there is no evidence of any contract in writing to that effect (which is true). However, there must have been an agreement, whether it be the contract of employment or a further agreement entered into under the contract of employment, by which Koundouris Projects and Mr Koundouris agreed that he would be the builder of Lagani. To conclude otherwise is the same as saying that Koundouris Projects went on a frolic of its own in nominating Mr Koundouris as the builder on its building application and Mr Koundouris then went off on another frolic in which, without the agreement of Koundouris Projects as the owner of the land, constructed a 10 unit residential flat building on the land. This is unrealistic in the extreme.

162. Seventh, the existence of a contract pursuant to which Mr Koundouris was to construct Lagani on land owned by Koundouris Projects is supported by the terms of s 37A of the 1972 Act which provided that “the owner of a parcel of land shall not authorise the carrying out of building work on that land unless he or she, or his or her agent, has notified in writing the certifier of the name and licence number of the licensee who is to carry out the building work”. It necessarily follows that Koundouris Projects authorised Mr Koundouris to construct Lagani on Koundouris Projects’ land. It is inconceivable in so doing that there was not a contract between them for that purpose, whether or not it formed part of the employment contract (itself unwritten) or a subsequent oral contract additional to the employment contract.

Apportionment

167. The owners corporation contends that the primary judge erred at [443] in deciding that the damages recoverable by a unit owner for breach of the statutory warranties were confined to damages relating to that owner’s unit and the owner’s proportional share of the costs incurred by the owners corporation to rectify the common property.

168. Given our conclusions above it is likely that this contention is moot, but we propose to deal with it in any event.

Submissions for the owners corporation

169. For the owners corporation it was submitted that the equitable interest of each unit owner in the common property is an indivisible interest in the whole of the common property: Carre v Owners Corporation - SP 53020 [2003] NSWSC 397; 58 NSWLR 302 at [28]-[29]. It follows that the damage which a unit owner suffers in the natural and ordinary course is not limited to the unit owner’s proportional financial burden under levies raised by the owners corporation to rectify the common property. The damage extends to the costs of rectification of the whole of the common property given the indivisible interest in the whole of each unit owner.

Submissions for Mr Koundouris

170. While it was accepted for Mr Koundouris that each unit owner has a beneficial interest in the whole of the common property, the compensatory purpose of an award of damages remains the determinant of an award. In the present case, the primary judge found that the owners of units 8 and 10 alone were able to sustain their claims (the other unit owners’ claims being outside the limitation period). The loss of the owners of units 8 and 10 in respect of the common property was confined to their proportional liability to the owners corporation for the costs of repair.

Discussion

171. As a matter of principle relating to the assessment of damages, we accept the submissions for Mr Koundouris. The fact that each unit owner has an indivisible equitable interest in the whole of the common property does not dictate the assessment of damages. Damages for breach of contract remain compensatory, intended to put the party in the same position they would have been had the contract been performed. If the warranties had not been breached, the owners of units 8 and 10 would not have been liable for a proportion of the repair costs. The primary judge’s assessment of damages for those unit owners correctly reflects the applicable principles and the fact that those owners were not liable for the whole of the repair costs.

172. As noted, however, given our conclusion that the other unit owners brought their claims within the six year limitation period, the point is no longer material.

173. Accordingly, ground 4(f) of the cross appeal must be dismissed.

Outcomes

174. Apart from the fact that as a result of our conclusions the appeal must be dismissed and the cross appeal allowed, assessing the practical consequences of our conclusions for the purpose of calculating damages is no easy task. We accept that the award of damages must include the cost of repairs to the “defined parts” of the building. This means those costs are not to be counted in the damages relating to individual units. We accept that the owners corporation succeeded to the rights of Koundouris Projects in respect of the common property and is not dependent in that regard on the assigned rights from the unit owners.

175. Otherwise, we are persuaded by the further submissions for the owners corporation about the so-called Remtech contract for balcony works that the actual costs of these works, for which full allowance should be made in the award of damages, was $399,095. Otherwise the further submissions address alternative conclusions which are not consistent with the conclusions above.

176. In our view, the best course would be for the parties to seek to agree the calculation of damages, interest, and orders for costs on a basis consistent with our reasons. If agreement cannot be reached, the parties should be given an opportunity to make further written submissions in chief and reply about these outstanding issues provided those submissions are based on these reasons for judgment.

177. Our orders are as follows:

(i) The appeal be dismissed.

(ii) The cross appeal be allowed.

(iii) The parties confer and within 14 days submit either agreed orders dealing with damages, interest and costs or competing orders accompanied by a written submission of no more than four pages explaining the position of the party and the reasons for it.

(iv) The parties may also file and serve within a further seven days after the expiry of the 14 day period referred to in order (iii) a further submission in reply of not more than three pages.

I certify that the preceding one hundred and seventy-seven [177] numbered paragraphs are a true copy of the Reasons for Judgment of their Honours Chief Justice Murrell, Justice Elkaim and Justice Jagot.

Associate:

Date: 22 August 2017