MAGOG (NO. 15) Pty Ltd v The Body Corporate for the Moroccan

[4] In very general terms, the plaintiff's claim consists of two parts. Firstly, there is a claim for repair works to lot 1 in the amount of $12,628.12 said to be as a result of damage done to lot 1 by reason of a faulty waterproofing membrane (part of the common property of the body corporate) which permitted water to seep through from the podium level into lot 1. Secondly, there is a claim in respect of rental abatement in the amount of $230,042. The plaintiff's pleadings also include an issue estoppel arising from a decision of an Adjudicator under the Body Corporate and Community Management Act in respect of water leaks at the relevant times which found the leaks to be attributable to a faulty waterproofing membrane.

[5] The parties have settled an agreed statement of facts and contentions in the following terms:

1. The Elkhorn Tower was constructed in 1996 by Rapcivic Constructions Pty Ltd. The B.U.P was registered on 9 January, 1995 (Exhibit 1).

2. Lot 1 is owned by the Plaintiff, since about 1996 and, at all material times was leased to the retailer known as Prada.

3. Lot 1 fronts Elkhorn Avenue. It is the western-most of six shopfronts along that roadway.

4. Immediately above Lot 1 is a concrete slab which is common property of the Body Corporate Defendant and is the responsibility of the Defendant (viz the ceiling to Lot One). At all material times most of the area above the concrete slab has been developed as a lawn and garden. The concrete slab contains the waterproofing membrane which is the subject of these proceedings.

5. On or about 6 June 1999, water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

6. At a point in time between 24 June and 28 June 1999, water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

7. By correspondence to it dated 5 August 1999, Rapcivic Contractors was directed by the Queensland Building Services Authority to undertake repair works as a consequence of water penetration, at various places within the Elkhorn Tower complex.

8. On 18 August 1999 the Plaintiff's solicitors wrote to the Defendant (care of its body corporate manager, Body Corporate Services Pty Ltd) requesting the Defendant to take urgent action to rectify the water leaks into Lot 1.

9. On or about 29 August 1999, water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

10. On 1 September 1999, Body Corporate Services (the body corporate manager of the Elkhorn Tower) wrote to the Plaintiff's solicitors advising that the matter "now lies with the Queensland Building Services Authority and under an Order from the QBSA, all works are to be completed by 5 September 1999".

11. The minutes of the meeting of the Defendant committee of 6 December 1999 recorded that Rapcivic Constructions had "dug up part of the common property garden and Lot 1 to rectify the leak into the Prada shop".

12. The minutes of the meeting of the Defendant committee of 12 November 2001 recorded that it was resolved to engage Solutions in Engineering to "provide a report on the source of the water penetration problems together with a proposed specification of works to be carried out to rectify the problems".

13. Solutions in Engineering sent its report to the Defendant on 23 November 2001. That report concludes that the cause of leaks along the Elkhorn Avenue frontage was the failure of the waterproof membrane.

14. The minutes of the meeting of the Defendant's Budget committee of 25 February 2002 recorded that Solutions in Engineering had provided an initial general report "concerning the leakage from the garden area above the commercial shops". The minutes also record that the Solutions in Engineering Report suggested that the Body Corporate "remove all of the existing landscaping and replace the existing membrane". The minutes also record that it was resolved that Solutions in Engineer be authorised to draw specifications and call for tenders for the replacement of the existing membrane.

15. The minutes of the meeting of the Defendant committee of 6 May 2002 recorded that Solutions in Engineering had received proposals from three tenderers. It was resolved that Roof and Building Service be chosen as the preferred tenderer.

16. At a point in time between 22 August 2002 and 25 August 2002 water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

17. An Extraordinary General Meeting of the Defendant on 27 August 2002 resolved to "carry out the rectification to the first floor garden area in accordance with the specifications drawn up by Solutions in Engineering ...as quoted by Roof and Building Service".

18. The minutes of the meeting of the Defendant committee of 26 September 2002 recorded that Roof and Building Services would commence its work (in line with the specifications drawn up by Solutions in Engineering) "soon".

19. The minutes of the meeting of the Defendant committee of 4 November 2002 recorded that "the Building Manager reported that the repairs of specified leaks have been completed." The 'repairs' referred to appear to be those repairs provided for in the specifications of Solutions in Engineering referred to at the EGM of 27 August 2002.

20. At a point in time between 4 and 5 February 2003 water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

21. On or about 6 February 2003, Body Corporate Services engaged GK Consulting to investigate the issue of water leakage into Lot 1.

22. The minutes of the meeting of the Defendant's Budget Committee of 24 February 2003 recorded that a report from GK Consulting had been tabled regarding various further leaks reported. The minutes record that the Committee discussed that the rectification works carried out in 2002 (by Roof & Building Services) 'have not addressed the issue of water ingress into the commercial premises". It was resolved that GK Consulting draw up specifications, to call tenders for any proposed rectification works to the garden as a matter of urgency.

23. On 14 March 2003 the Defendant committee resolved, outside a committee meeting, to engage GK Consulting Engineers to prepare plans and specifications, to call tenders and to oversee paving, garden bed replacement and membrane replacement on the first level garden areas.

24. In or about April 2003, rectification works which included the installation of drip trays by the Plaintiff to the water damaged internal fit-out of Lot 1 were completed and paid for by the plaintiff at a cost of $12,628.12.

25. The minutes of the meeting of the Defendant committee of 17 June 2003 record the attendance at the meeting of Mr Kaoustos of GK Consulting and his advice that "the ongoing investigation in to the water leaks from the 1st floor garden area into the commercial premises below" was continuing.

26. The minutes of the meeting of the Defendant committee of 28 October 2003 recorded "After identification of the source of some further minor leaks into the ships, it was RESOLVED that the contractor who will carry out the rectification works [a reference to rectification to the roof of the building], Wetfix, will be engaged to attend to these minor rectification works in the first floor garden area.

27. The minutes of the meeting of the Defendant's Budget committee of 2 March 2004 recorded "Committee noted that after unreasonable delays in Wet Fix Waterproofing attending to the further waterproofing work on the 1st floor garden area that Roof and Building Service will be instructed to immediately proceed with the waterproofing rectification works which should address the various reported problems".

28. The minutes of the meeting of the Defendant committee of 12 July 2004 recorded that Roof and Building Services had carried out the work as quoted by them.

29. On or about 7 and/or 8 November 2004 water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

30. On or about 10 December 2004 water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

31. On or about 15 December 2004, the Defendant caused Building Rectification Services Pty Ltd to carry out waterproofing works on the stairs adjacent to the premises.

32. On 18 May 2005 the Plaintiff lodged a dispute resolution application with the Office of the Commissioner for Body Corporate and Community Management for recovery of the costs of rectification costs of $12,628.12 and for loss of rent pursuant to clause 18.5 of the lease in the sum of $28,324.44.

33. On or about 30 June 2005 water leaked form the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

34. In or about July 2005, the Defendant caused Building Rectification Services Pty Ltd to install additional drip trays in the ceiling of Lot 1.

35. At a point in time between 1 and 3 December 2005 water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

36. On or about 20 January 2006 water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

37. At a point in time between 3 and 6 March 2006 water leaked from the concrete slab above the commercial lots, through the ceiling into Lot 1 as reported by the tenant of Lot 1.

38. On 14 March 2006 Mr Miskinis, an Adjudicator under the Body Corporate and Community Management Act made interim orders requiring the Defendant to cause drip-trays to be installed in the ceiling cavity of Lot 1, to repaint the ceiling after installation and to repair the water damaged carpet.

39. At an extraordinary general meeting of the Defendant committee of 11 April 2006 it was resolved that a contractor (Building Rectification Services Pty Ltd) be engaged to effect repair works to the podium level to enable it to fulfil its obligations under s 109 of the Standard Module.

40. On 18 September 2006 the Adjudicator made final orders that the Defendant implement the resolution made on 11 April 2006, that it require Building Rectification Services to commence work within 2 months, and that it engage GK Consulting Engineers to be appointed project manager.

41. On 1 March 2007, GK Consulting Engineers certified that waterproofing work was complete.

42. In respect of all of the above incidents of water leaking from the concrete slab above the commercial lots through the ceiling into Lot 1, that water leakage caused damage to the fit-out and property of the tenant of Lot 1."

**[6] The lease between Magog and Prada[3] identified the permitted use of the premises as the retail sale of Prada fashion. Under the lease there were two options for four years each.[4] Such option was required to be exercised not more than six months, nor less than three months prior to the date of expiration of the term by notice in writing of the lessee to the lessor. Accordingly, Prada could not exercise the first option before 1 March 2003 or after 31 May 2003.

[7] In June 1999 Dr Ross first became aware that water was leaking into lot 1.[5] In general terms there was then a subsequent history of water leaks up until the end of 2006 at which time rectification work was carried out to the podium pursuant to final orders of the adjudicator.[6] The first letter from Prada to Dr Ross (through his agent Knight Frank Gold Coast) dated 29 June 1999 contained the following information:

On June 6th, 1999 our leased premises sustained internal water damage. This issue to date has not been rectified and as a result we are still experiencing water leaking into the boutique. Ultimately this has lead to the forced closure of our premises on the 6-7the June and also the 28-29th June.

We are currently resolving matters with our insurance agent, but are more concerned that the cause of the leakage was [sic] not been fixed, or for that matter identified by the previous agent. No correspondence has ever been submitted to our Company in regard to this matter from Jones Lang LaSalle.

Our own assessment as to the cause of the leakage has been conducted (Report: Design & Build Pty Ltd.), and I have attached a copy for your records.

Our Company would like to resolve this issue immediately. You can appreciate the situation we are faced with for repairs have been held off for the damage that occurred in the first instance, as this problem still persists.

[8] By facsimile dated 30 June 1999 Mr Tony Tooma, Managing Director of Knight Frank Gold Coast, informed Prada that "We are aware of the problem and the owner has requested a member of Raptis Group to attend to its repair. I am seeking clarification as to what has been done and when it will be fixed if not already - will respond shortly."[8]

[9] Prada contacted the plaintiff's solicitors by facsimile on 23 August 2002 and referred to a continuation of water leakages into shop 1, the most recent of which occurred on 22 August 2002. Prada complained of substantial damage to the ceiling and carpet within the premises and indicated that it was being forced to review whether it was possible to continue to trade from the premises. Prada requested that it be advised when the problem would be rectified as it had continued for more than three years.[9] Dr Ross expressed his concern in particular with respect to Prada's statement that it was reviewing its ability to continue to trade from shop 1.[10] Mr Tooma contacted Prada by facsimile on 26 August 2002 advising that he had discussed the matter with the body corporate's on-site manager who stated that he had inspected the tenancy and had spoken with Prada staff about the leak. Mr Tooma stated that the body corporate had engaged an engineer to address the problem who had "advised major remedial works for which finance has been approved".[11] Dr Ross testified that he was not aware of any works carried out in respect of this particular leak.[12] As at August 2002 the current lease with Prada still had twelve months to run before becoming subject to the exercise of any option to extend the lease. Further leaks in December 2002 and on 5 February 2003 led to Dr Ross undertaking rectification work by having drainage trays placed underneath the cracks through which the water was leaking. The trays were placed between the ceiling and the slab. Dr Ross recalled having sent, through Mr Tooma, a letter to the body corporate requesting the body corporate to pay for the repairs effected by way of the drainage trays but was unable to recall correspondence between February or March 2003 and September of that year. [13] Dr Ross identified invoices from Donnelly Plumbing and O'Donnell Griffin at Tingalpa relating to the repairs which had both been paid by Dr Ross.[14]

[10] Counsel for the defendant reiterated that the agreed statement by reference to paragraph 26 of the second further amended statement of claim admitted that eight payments totalling $12,628.12 were made by the plaintiff and that the work relating to each payment had been completed.[15]

[11] As the relevant date for the exercise of the option by Prada approached (the option period extending from 1 March 2003 to 31 May 2003) Dr Ross was concerned that Prada may have had reservations about exercising the option to renew the lease.[16] In particular, Dr Ross was concerned with the statement in the facsimile of 23 August 2002 from Prada to the plaintiff solicitors that "Prada was being forced to review whether it is possible to continue to trade from the premises."[17] It was to reassure Prada that Mr Tooma on behalf of the plaintiff informed Prada that the body corporate had engaged an engineer to address the problem and that major remedial works had been advised for which finance had been approved.[18] So concerned was Dr Ross as to whether Prada would exercise the option that he discussed with Mr Tooma whether an offer should be made to Prada by way of an incentive to encourage them to exercise the option.[19] As a result of these discussions Mr Tooma by facsimile dated 27 May 2003 wrote to Ms Catherine Low at Prada in Sydney stating as follows:

I refer to our recent discussion regarding the lease of this premises.

The landlord values Prada as a tenant and has instructed we put to you the following rent arrangement which will take affect [sic] at the commencement of the option period should Prada now exercise it's option under the lease -

A. Rent reduced by 15% for the next year - being $194,551 per annum + outgoings then yearly CPI increases for following 3 years.

B. Rent discounted by 50% for next year to $114,442 per annum + outgoings followed by 10% reduction of current rent down to $205,996 and thereafter increased by CPI for following 2 years.

In Option B the 50% deduction will be by way of a monthly credit and all discounts are subject to prompt payment of rent in accordance with the lease.

Both options provide Prada with an attractive financial outcome and we regard this proposal by the Landlord as most generous.

Would you please confirm in writing if Prada wishes to now exercise its option under the lease and elect which rent plan it wishes to take up.

Should you wish to discuss the matter please do not hesitate to contact me.

[12] When asked to explain why those options were being made on 27 May 2003, Dr Ross made it clear that he wished to encourage Prada "to exercise their option or to come to some sort of deal to stay in the shop."[21] A letter from Prada to the plaintiff dated 30 May 2003 contained Prada's proposals with respect to the extension of the lease. The following points were put forward for Dr Ross's agreement:

• An extension of the lease for a period of four years commencing 1 September 2003;

• Rent for the period 1 July 2003 to 31 August 2004 to be $114,442 per annum or $9,536.83 per calendar month;

• Rent for the period 1 September 2004 to 31 August 2005 to be $194,551 per annum or $16,212.58 per calendar month;

• For the periods 1 September 2005 to 31 August 2006, and 1 September 2006 to 31 August 2007, the rent for the previous year is to be reviewed to Consumer Price Index (CPI) on the commencement of each such period in accordance with clause 1.2(b) of the lease;

• The plaintiff to be responsible at its own cost and expense for repairing the cause of any water damage or leaking which may occur at the premises. In the event that the premises suffer from water damage or leaking at any time and the cause of such damage or leakage is not repaired by the plaintiff at its own cost and expense within three days of the damage or leaking occurring, the rent due is to be reduced to 50% from the date on which the damage or leakage occurred until the date on which the cause of the damage or leakage is repaired by the plaintiff at its own cost and expense. Clause 4.8 of the lease is accordingly amended. Prada to have the right to effect such adjustment by making a deduction from the rent in subsequent months, and clause 1.3 of the lease to be amended accordingly. This to be without prejudice to Prada's rights under clause 6.1 of the lease;

• Each party to bear its own legal costs in relation to the extension of the lease. All stamp duties payable in respect of the extension of the lease to borne in equal shares by the parties and clauses 2.10 and 14.4 of the lease to be amended accordingly; and

• The lease otherwise to remain in full force and effect.[22]

[13] Dr Ross was concerned that Prada may have had some reservations about exercising the option because in August 2002 they had forwarded a letter to his solicitors expressing their concerns about the leaks. The letter referred to by Dr Ross was under the hand of Mr Andrew Olson, legal counsel for Prada Hong Kong Limited, and was dated 23 August 2002. Mr Olson made it clear that as a result of the ongoing leaks Prada was "being forced to review whether it is possible to continue to trade from the premises."[23]

[14] Dr Ross instructed Mr Tooma of Knight Frank, the managing agent for the premises, to respond to Mr Olson whose letter of 26 August 2002 included the statement that "the Body Corporate has engaged an engineer to address the problem which has also affected some of the adjoining shops. He has advised major remedial works for which finance has been approved."[24]

[15] Dr Ross discussed with Mr Tooma whether an offer should be made to Prada by way of an incentive to encourage Prada to exercise the option. This led to the letter of 27 May 2003 referred to above. The letter from Prada to the plaintiff dated 30 May 2003 setting out Prada's propositions was followed by a further letter from Prada dated 23 June 2003[25] which was ultimately accepted by Dr Ross. Under the latter proposal:

• The lease was to be extended for a period of four years commencing 1 September 2003;

• The rent for the period 1 July 2003 to 31 August 2004 was to be $114,442 per annum or $9,536.83 per calendar month;

• The rent for the period 1 September 2004 to 31 August 2005 was to be $205,996 per annum or $17,166.33 per calendar month;

• For the period 1 September 2005 to 31 August 2006, and 1 September 2006 to 31 August 2007, the rent for the previous year was to be reviewed to Consumer Price Index (CPI) on the commencement of each such period and in accordance with clause 1.2(b) of the lease;

• The plaintiff to be responsible at its own cost and expense for repairing the cause of any water damage or leakage which may occur at the premises. In the event that the premises suffer from water damage or leakage at any time and the cause of such damage or leakage is not repaired by the plaintiff at its own cost and expense within three days of the damage or leaking occurring, the rent due was to be reduced by 50% from the date on which the damage or leakage occurred until the cause is repaired by the plaintiff at its own expense. Clause 4.8 of the lease to be amended accordingly. Prada to have the right to effect such adjustment by making a deduction from the rent in subsequent months, and clause 1.3 of the lease to be amended accordingly. This to be without prejudice to Prada's rights under clause 6.1 of the lease;

• Each party to bear its own legal costs in relation to the extension of the lease; and

• Otherwise the lease to remain in full force and effect.[26]

[16] Dr Ross thought that there was no chance that the reduction in rent would ever be incurred. His reasons were that:**

"Firstly, because I put in the water trays so for the immediate future we'd dealt with the current leaks and there were minutes of meetings from the body corporate in March '03 which was a few months before this which appeared to show that the body corporate was taking very seriously and were taking responsibility for the water leaks and that they had a duty of care to repair them and I think the minute says something to the effect of that they should replace the garden and replace the water membrane which is, I mean - which didn't happen till the end of 2006, but - so I had reassurance from the minutes and also they mentioned something in the minute about that there was threatened legal action if they didn't do anything about it so that was actually in the minute that they should take it seriously..."[27]

**[17] The minutes of the resolution referred to by Dr Ross were in terms that the Body Corporate engages GK Consulting Engineers to prepare plans, specifications, call tenders and oversee paving, garden bed replacement and membrane replacement on the first level garden areas at a cost of $2,640 (including GST). A note to the motion recorded "further water ingress problems have been reported by Shops 1, 3, 4 and 6 during recent heavy rains. Legal action has been threatened by the owner of Lot 1 in the event that their tenant terminates the tenancy so it is important that the Body Corporate addresses the issue." Those minutes were dated 14 March 2003.[28]

[18] Demand was made by the plaintiff of the Body Corporate for the sum of $12,628.12 in respect of rectification of water damage. The letter of demand included notice to the Body Corporate that the tenant (Prada) had now entered into a new lease for the premises and that due to the problems encountered previously, the landlord (plaintiff) has had to concede a number of special conditions in the lease. In the event of further leaks and damage, Prada was now entitled to relief including rent deductions and substantial other reliefs and remedies against the plaintiffs. Any claim or loss suffered by the plaintiff under these circumstances would be held against the Body Corporate. The letter concluded with the following "we trust the Body Corporate comprehends its obligations and puts in place the necessary works to prevent any further losses." That letter dated 11 September 2003 was under the hand of Mr Tooma[29] and receipt of it was acknowledged in the minutes of the committee meeting of the Moroccan Elkhorn Tower CTS 17574 on 28 October 2003.[30]

[19] The new lease that was to operate from 1 September 2003 for four years was signed on behalf of the plaintiff by Dr Ross as director and by his wife as director/secretary. The term of the lease was extended to 31 August 2007. The clause relating to water leakage in the new lease was in the following terms:

(a) The Lessor at the Lessor's cost and expense must take such action as is necessary to prevent any water damage or leakage which may occur at the Demised Premises, to repair the cause of any such water damage or leakage and to repair any damage to the Demised Premises caused by the water damage or leakage. The Lessor must do this within a reasonable time having regard to the fact that the Lessor may have to obtain approval from the Body Corporate to do so;

(b) If the water damage or leakage is not prevented and the damage and the cause of the leakage or damage is not repaired at the Lessor's cost and expense within three days after the damage or leakage occurs then the Lessee is entitled to reduce the rental by 50% for the period commencing on the date on which the damage or leakage occurred and ending on the date on which the leakage is prevented or the date on which the damage and the cause of the leakage or damage is repaired whichever date is the latest to occur. The reduction in rental must be calculated on a pro rata daily basis. Clause 4.8 of the Lease is hereby amended accordingly. The Lessee shall have the right to effect such adjustment by making a deduction from the rental in subsequent months, and clause 1.3 of the Lease is hereby amended accordingly. This is without prejudice to the rights of the Lessee under clause 6.1 of the Lease.

(c) The provisions of clauses 18.5(a) and 18.5(b) apply:-

**(i) despite anything to the contrary in this Lease; and

(ii) Without prejudice to the other rights the Lessee has under this Lease; and

(iii) In addition to any other obligations the Lessor has under this Lease"[31]

[20] It is this clause that Prada relied on for a rental rebate commencing around October 2004 following alleged water leaks into the premises.

[21] Dr Ross further explained in his evidence his reason for accepting the insertion of clause 18.5 in the extended lease. He stated that "the alternative was to call their bluff and try and do a better deal but if they'd walked away I had a premises which was unlettable, as it turned out it was unlettable till 2007 because it was a leaking premises and then I had to go through all the costs of a new plant, so, I think that my damages would have been much more severe if I hadn't taken that course, so, potentially, enormously greater". He confirmed that as at 31 August 2003, when the lease ended up by effluxion of time, had Prada moved out he was not aware of any other tenant that could have moved in. He added that it would have been difficult to show tenants the premises because of the water leaks.[32]

[22] By letter dated 17 May 2005[33] the plaintiff's solicitors wrote to the Office of the Commissioner for Body Corporate and Community Management in relation to a dispute resolution application seeking payment by the defendant of $43,952.56 including an amount of $28,324.44 in respect of rent reduction loss as at December 2004 and legal fees in the amount of $3,000 together with expenses incurred in rectifying a water leak in March/April 2003 in the sum of $12,628.12 including GST[34].

[23] A certificate of dismissal under the hand of the Acting Commissioner for Body Corporate and Community Management dated 1 September 2005 was issued on the basis that the dispute should be dealt with in a court of competent jurisdiction.[35] This certificate allowed these proceedings to be commenced in this Court.[36]

[24] A further dispute resolution application by the plaintiff was made on 7 March 2006 seeking both interim orders and orders as follows:**

1. The Body Corporate forthwith, on an emergency basis, prevent the continuing penetration of Lot 1 by way of immediate installation of drainage trays in the ceiling of Lot 1.

2. That the Body Corporate carry out such further or other repairs as necessary for the Body Corporate to give effect to an order that it prevent the continuing water penetration of Lot 1."

1. The Body Corporate forthwith repair and rectify the podium level of the scheme, where the podium appears at Level C of the Building Units Plan Number 101652, forming a roof structure above Lot 1, by:

(a) The excavation of the gardens situation at the podium level above the commercial lots;

(b) The removal of the defective waterproof membrane;

(d) All other repairs and rectification works as required thereby preventing water penetration from the podium level into Lot 1 and to other of the commercial lots namely Lots 2 to 6 inclusive of the scheme.

2. That the Body Corporate carry out such further or other repairs and rectification works as necessary for the Body Corporate to give effect to an order that it repair the common property."[37]

**[25] On 14 March 2006 an adjudicator made interim orders under Part 9 of Chapter 6 of the Body Corporate and Community Management Act 1997 requiring the Body Corporate to engage plumbers to install drainage trays in the ceiling cavity of Lot 1 to catch water penetrating the concrete slab roof of Lot 1. The Body Corporate was further ordered to engage a contractor to repaint the ceiling after the installation of the trays and replacement of plasterboard. A further order was made requiring the Body Corporate to engage a contractor to repair the water-damaged carpet in Lot 1.[38]

[26] On 18 September 2006 the Adjudicator made the following final orders:

"I hereby order that the Body Corporate implement the resolutions carried at the EGM on 11 April 2006 whereby it was resolved that Building Rectification Services Pty Ltd be engaged to effect repair works to the podium level to enable the Body Corporate to fulfil its obligations under section 109 of the Body Corporate and Community Management (Standard Module) Regulation.

1. I further order that the Body Corporate is to require Building Rectification Services Pty Ltd to commence repair work as per the quotation dated 12 January 2006 within two months of the date of this order or such other period as may be specified in a supplementary order made by an Adjudicator from this office.

2. I further order that the Body Corporate is to require GK Consulting Engineers Pty Ltd to be appointed as Project Manager for the works within two months of the date of this order or such other period as may be specified in a supplementary order made by an Adjudicator from this office."[39]

[27] In cross-examination Dr Ross conceded that he could have insured against loss of rent but he had not made inquiries about obtaining such cover. Indeed, Dr Ross suggested that with a tenant of the stature of Prada it would not have been necessary.

[28] In response to the suggestion by counsel for the defendant that he was an over-eager landlord too keen to retain Prada and was prepared to execute a lease on favourable terms simply to keep them on, Dr Ross stated that his reasonable expectation was that Prada would not stay without the rent reduction clause.[40]

[29] Mr George Kaoustos is a registered engineer operating under the company name GK Consulting Pty Ltd. He was retained in about 2002 by the defendant to provide reports in respect of a number of matters relating to the three towers of the Moroccan development but principally by the Elkhorn Tower from about 2002 until the replacement of a waterproofing membrane in late 2006 to 2007.

[30] Mr Kaoustos had prepared a report (dated 23 February 2003) entitled "Water Penetration Report at the Moroccan Elkhorn Shops". According to paragraph 1.1 of the report "it has been reported that there are water leaks into the shops fronting Elkhorn Street, and it is the purpose of this report to identify the cause of the water penetration and to recommend a solution to repair the problem."[41] The report noted water damage to the ceiling at the south end and east side of the Prada shop and Mr Kaoustos commented that the water penetration was through the garden bed and the grassed area above. The current system of waterproofing the garden bed was said to not be suitable for gardens with such large trees and root systems. The tree and plant roots were said to have penetrated through the garden membrane allowing water to seep through the garden bed and into the shops below. Mr Kaoustos reported that due to the substantial root growth in the soil and the nature of the vegetation it was highly likely that the roots would penetrate through the membrane at other areas of the garden in the near future causing water leaks elsewhere. Accordingly, a partial repair to the area was not recommended as it could not be determined from which area of the garden future leaks would occur. Two solutions were offered by the report for the consideration of the defendant. Both options involved the removal of all vegetation and soil from the garden area, the removal of the existing membrane ensuring that the substrate is sound in preparation for the application of the new membrane. The more expensive of the two options involved the application of two layers of Index Defend - Anti Root H supplied by Parbury Technologies, with application of each layer by torch as per the manufacturer's specifications. That application was to be followed by the application of Telfond Drain Plus as the anti-root and drainage system to be installed as per manufacturer's specification. The less expensive option involved the application of only one layer of Index Defend Anti Root H. However, with this option large trees or plants with a large root system could not be planted.[42]

[31] Mr Kaoustos was requested by the defendant to prepare tender documents for replacement and repair of the garden membrane which resulted in a further report dated June 2003. Notwithstanding the preparation of this document by Mr Kaoustos no repair works were carried out by the defendant to the membrane in relation to that tender document.[43] It was not until about 2006 that Mr Kaoustos was approached by the defendant and put the replacement of the podium membrane out for pricing. In a facsimile dated 14 February 2006 to Body Corporate Services Mr Kaoustos stated:

"Here is another quotation for the replacement of the podium membrane for Morrocan Elkhorne

The quotation we have from BRS is $363000 including GST

If you have any questions please contact me" (original spacing and punctuation)

[32] By letter dated 9 March 2006 to the defendant Mr Kaoustos stated that he had been informed of an application for an interim order to install drip trays to catch water leaks into the Prada tenancy. Mr Kaoustos stated in his letter that such a solution would provide temporary protection to Prada and that his recommendation to provide a permanent long-term solution was to repair the membrane to the podium area above the unit as it is difficult to determine the exact origin of water penetration. According to Mr Kaoustos drip trays could only be installed where water penetration had been found and were a short-term measure in relation to preventing water penetration through the ceiling. He commented that it was neither practical nor useful to install drip trays under every part of the ceiling.[44]

[33] In October 2006 Mr Kaoustos prepared a Contract Document for Membrane Repairs for the Moroccan Elkhorn shops. This included tender documents for replacement and repair of the garden membrane and formed the contract that was ultimately entered into for the repair of the membrane on the podium level. The contract was entered into with Building Rectification Services (BRS) and the contract price was $352,000 which included GST.[45]

[34] Mr Kaoustos was appointed the superintendent to supervise the works which involved the implementation of the more expensive of the two options discussed above.[46]

[35] Site notes of the work involved in excavating the soil from the podium slab indicated that the existing waterproof membrane had not been correctly installed. In fact, in some areas it was not installed at all.[47]

[36] By letter dated 27 November 2006 to the defendant Mr Kaoustos reported that:

"As excavation work has now begun, it is clear to see that membrane in this area has only been partly applied, approx 20% of the currently excavated area has membrane, the expansion joints had paper backing where a backing rod was required, this is bad practice and would prevent a firm layer of sealant to be applied, thereby allowing for moisture penetration to occur. The perimeter at the interface with the building has holes approximately 30mm wide that were not correctly sealed and pockets allowing water to remain were common place. Photos of this area are on file."[48]

[37] In the same letter Mr Kaoustos notified the Body Corporate of the need to expend an additional sum of $23,100 to repair an area of the podium above the Prada shop. The previous repair works carried out prior to 2003 resulted in gaps in the membrane which allowed water to penetrate between the building and the membrane where the membrane joined the building.[49] Further variations to the original contract were also recommended as a result of poor workmanship in effecting earlier repairs.[50]

[38] Mr Kaoustos confirmed by letter dated 1 March 2007 that the waterproofing work had been completed and that the garden areas were being landscaped. He confirmed having inspected the work carried out by Building Rectification Services in relation to replacement of the podium membrane above the retail shops and, further, that the work conformed to the manufacturer's specification and had been carried out in a tradesmanlike manner.[51]

[39] Mr Anthony Tooma is the principal of Knight Frank Gold Coast, a company carrying on real estate activities and leasing of commercial properties in the Gold Coast area. He has had some 27 years experience in real estate and property management. The plaintiff company was a client of Knight Frank Gold Coast and became so in approximately 1999. Mr Tooma claimed to "have a hands-on role with every management we've got".[52] A property manager by the name of Mr Amrit Singh was employed by Knight Frank Gold Coast from about 1999 to 2005 and was involved in the management of the Prada shop.[53]

[40] Mr Tooma was aware of water entry into Lot 1 (the Prada shop) from the podium above since 1999. The water leaks stopped only after the gardens above had been excavated and a membrane put down some two years ago in approximately 2007.[54]

[41] A schedule setting out the dates upon which leaks were detected and the approximate date on which those leaks were inspected by Mr Tooma was tendered by the plaintiff.[55] Leaks were detected in the Prada shop on the following dates: 6 June 1999, 28 June 1999, 28 August 1999, 23 August 2002, 16 September 2002, 4 February 2003, 17 January 2004 and 12 October 2004. Apart from the leak of 12 October 2004 all the other leaks are the subject of admissions. Mr Tooma inspected the Prada shop on 29 June 1999, 2 September 1999, 25 August 2002, 16 September 2002, 17 February 2003 and 12 October 2004. Each of those inspections revealed damage to the ceiling, walls and carpet of Lot 1.[56] The leaks occurred in multiple locations in Lot 1 specifically across the shopfront, in the vicinity of a column some four metres back from the shopfront, towards the western side storeroom and stairwell area, on the eastern wall in the region of shelving and displays some two-thirds of the way down the shop on the eastern side. Damage was occasioned to paintwork on the ceiling, the carpet and sections of the shelving had to be replaced.[57]

[42] Mr Tooma was involved in negotiating with Prada on behalf of the plaintiff the exercise of the option to extend the lease beyond 31 August 2003. He recalled at that time that there was enormous concern as to whether Prada would continue to lease the premises beyond that date and was aware that Prada were threatening to vacate the premises.[58] In that regard Mr Tooma confirmed having received a copy of the letter of 23 August 2002 from Mr Olsen, legal counsel of Prada Hong Kong Limited, to the plaintiff's solicitors in which Mr Olsen referred to continuing leakage (most recently on 22 August 2002) which was forcing Prada to review whether it was possible to continue to trade from the premises.[59]

[43] Mr Tooma responded to Mr Olsen by letter dated 26 August 2002 advising that the defendant had engaged an engineer to address the problem and had advised major remedial works for which finance had been approved.[60] Mr Tooma stated that he was attempting in this letter to comfort the tenant and to assure them that their concerns were being dealt with at every instance. He was also attempting to deflect blame away from the plaintiff as he did not "want the landlord to look bad in the tenant's eyes".[61]

[44] When shown a letter[62] from Ms Catherine Low, Finance and Administration Manager, Prada Australia Pty Ltd dated 11 February 2003 to Knight Frank, Mr Tooma stated that he was at that stage more concerned that Prada would close their shop in Lot 1 and make a claim for loss of trade to the landlord. He was more concerned that this would occur rather than having any concerns to the exercise of the option to extend the lease.[63] Mr Tooma responded to Ms Low by letter dated 17 February 2003 advising that he had made strong representations to the defendant and, through the plaintiff's solicitor, had demanded that the defendant immediately commence works to provide a long-term solution. He stated that the defendant had advised him that it was reviewing the problem with engineers.[64] Mr Tooma also notified Ms Low in that letter that alternative solutions were being investigated involving the installation of drip trays.

[45] A letter from Prada Australia Pty Ltd under the hand of Mr Sculley, Project Coordinator dated 24 March 2003 to Mr Tooma outlined the conditions under which works could be carried out to restore Lot 1 by repairing the damaged ceiling and carpet. The work was carried out in accordance with Prada's stipulations.[65]

[46] The defendant was notified by Mr Tooma by facsimile on 4 April 2003 that the plaintiff had completed rectification works to the internal fit-out of the premises occupied by Prada. Mr Tooma stated that he had been advised by the rectification contractor that when the internal ceiling had been removed the concrete roof above the store showed serious signs of cracks and expansion joints required attention. Mr Tooma urged the defendant to immediately remedy this problem to avoid further water leaks into the premises. Mr Tooma also foreshadowed the forwarding of the account for rectification works to the defendant and indicated that in the event that Prada made a claim for damages Magog would hold the defendant responsible for that cost as well.[66]

[47] A letter from the defendant dated 14 April 2003 to Mr Tooma indicated that the correspondence of 4 April 2003 and 9 April 2003 regarding water leaks into the Prada shop would be referred to the next committee meeting of the Body Corporate. The letter also advised Mr Tooma that the defendant had engaged GK Consulting Engineers to draw up specifications for repairs to the waterproof membrane on the first floor garden area, prepare drawings and call for tenders for these works. The date for the close of tenders was said to be 11 April 2003. The contents of this letter caused Mr Tooma to believe that the problem with the waterproofing membrane may be coming to an end and that it would be rectified by the Body Corporate.[67]

[48] Mr Tooma confirmed having written a letter dated 27 May 2003 to Ms Low of Prada Australia Pty Ltd in Sydney[68] indicating that Magog had instructed him to put before Prada the following rent arrangement to take effect at the commencement of the option period should Prada now exercise its option under the lease:

(1) Rent reduced by 15 per cent for the next year - being $194,551 per annum plus outgoings then yearly CPI increases for following three years; or

(2) Rent discounted by 50 per cent for next year to $114,442 per annum plus outgoings followed by 10 per cent reduction of current down to $205,996 and thereafter increased by CPI for following two years.

In option two, the 50 per cent deduction was by way of a monthly credit and all discounts were expressed to be subject to the prompt payment of rent in accordance with the lease. Mr Tooma observed that both options provide Prada with an attractive financial outcome and the proposal was regarded by him as most generous. Prada was asked to confirm in writing if it wished to exercise its option under the lease and elect which rent plan it wanted to take up.

[49] Mr Tooma was asked why he had written this letter and he replied:**

"We were at the point where Prada are going to do a deal with us, if it's the right deal and stay on, and we were conscious that we needed to create - to maintain the face value of the lease by keeping our rental rate respectable, from an investment point of view and a valuation point of view, at the same time seeking to meet the tenant in relation to rental incentives; to be competitive in the marketplace."

**[50] It was considered worthwhile to put this offer to Prada as Ms Low had made it known to Mr Tooma that Prada was looking at other premises. In particular Prada had been approached by both Marina Mirage and Circle on Cavil and was assessing whether to remain with the plaintiff or take up an offer from one of the other potential landlords.[69] Mr Tooma explained that the net cash position to the landlord is pretty much the same with respect to both options offered to Prada and that both took account of a similar amount of rental incentive in dollar terms.[70] Mr Tooma considered that an offer involving "50 per cent incentive half rent for a couple of years was pretty much par for the course."[71]

[51] Ms Low communicated with Mr Tooma by way of facsimile dated 2 June 2003 enclosing Prada's proposal with regards to exercising its option for the extension of the lease of Lot 1.[72] The proposal was by way of a facsimile dated 30 May 2003 to Magog which has previously been set out in paragraph 12 of this judgment. In effect, Prada generally accepted the second offer put forward by Mr Tooma with some alterations.[73] One alteration was that the rent discount of 50 per cent was to commence from 1 July 2003 which had not been the subject of Mr Tooma's offer. A higher rent from 1 September 2004 was to apply with some discount and then from 1 September 2005 the rent was to be at the normal commercial rate.[74] This was the first time the rental rebate had appeared in any correspondence from Prada.

[52] Subsequently a further written offer from Prada dated 23 June 2003 was forwarded to Magog for Dr Ross's signature.[75] In this second version of the rental rebate proposal the rent remained the same from 1 July 2003 to 31 August 2003, however the rent from 1 September 2004 is increased in the second proposal to $205,996 per annum which is a sum greater than that contained in the earlier proposal of 30 May 2003. The proposal of 23 June 2003 was accepted by Magog and Dr Ross signed Prada's letter to indicate his agreement to the terms contained therein.[76]

[53] Mr Tooma arranged for the plaintiff's solicitor to prepare the new lease document from 1 September 2003 and also sent a letter of demand to the defendant in respect to rectification costs of internal fixtures and fittings of the Prada shop seeking payment of $12,628.12 on behalf of the plaintiff.[77] The letter of demand dated 11 September 2003 also put the defendant on notice that Prada had entered into a new lease and that due to the problems previously encountered with respect to water damage the plaintiff had been obliged to concede a number of special conditions in the lease. The defendant was put on notice that should the plaintiff incur rent reductions as a result of further leaks and damage the defendant would be held liable.[78]

[54] Mr Tooma identified the document relating to the extension of the lease over Lot 1 by Prada and confirmed that the expiry date of the original term of the lease had been extended to 31 August 2007. Clause 2(e) inserted into the lease the clause 18.5 relating to rent reduction due to water leakage.[79]

[55] In October 2004 there was a further rain event or water leak to Lot 1 which triggered the operation of clause 18.5. Mr Tooma sent an e-mail to the defendant on 20 October 2004 stating that despite a number of calls to the building manager nothing had been done to address the issue of water leaking into the Prada shop. Mr Tooma expressed his concern about the situation and requested that the chairman of the defendant call Mr Singh as a matter of urgency.[80] Mr Tooma identified the position of the leaks the subject of his e-mail as being adjacent to the eastern wall of Lot 1 where it shares a wall in common with Lot 2 and extending to the centre of the shop from that wall. There was also a leak on the western wall inside the Prada shop in the area of the staircase.[81]

[56] Mr Tooma acknowledged that he was aware of e-mails he received after 12 October 2004 on behalf of the defendant which spoke of the air conditioning in Lot 1 and alleged that these leaks had occurred on 12 October 2004. The air conditioning was located in the back area of the Prada shop above the storeroom. Mr Tooma said that the air conditioning was some six to eight metres from where he had observed the leaks on 12 October. Mr Tooma saw no connection between the air conditioner and the leaks he observed in the shop on either the eastern or western walls.[82]

[57] An e-mail from Mr Bruce Adam on behalf of the defendant to Mr Tooma dated 13 October 2004 indicated that he had been advised that the cause of the water leak into Prada "is some fault with the air conditioning equipment in Prada."[83] Mr Tooma stated that he did not agree with that assertion and when he inspected the premises on 12 October there was no leak from the air conditioning.[84]

[58] Mr Tooma corresponded by way of e-mail to Mr Bruce Adam on 17 November 2004 confirming that all leaks in the tenancy "are coming from the Body Corporate area"[85] Mr Tooma remains of that view to the present.[86] Subsequently Mr Tooma became aware that Prada had claimed a 50 per cent rebate on its rent.[87] The amount of rent paid by Prada is set out in Knight Frank's trust account statements which had been provided to an accountant, Ms Bland, for her to work on. Rental invoices to Prada from the period October 2004 to the beginning of 2007 were issued and these also have been provided to Ms Bland for her purposes.[88]

[59] According to Mr Tooma the defendant did carry out some repair work by way of trenching where vertical and horizontal concrete surfaces met but this work was ineffective and it was not until February 2007 when the waterproofing membrane was replaced that the problem was cured.[89]

[60] Discussions between Mr Tooma and Dr Ross took place with respect to the contingency that if Prada left and the premises had to be prepared for another tenant that a huge tray may have to be inserted under the whole slab above Lot 1 to prevent further water entry.[90] In any event the tenancy was large and expensive and therefore the field of potential tenants available would be diminished. In all probability a more generous offer would have had been made to another tenant including the supply of a level of fit-out once Prada had stripped the shop upon its departure.

[61] In cross-examination Mr Tooma acknowledged his awareness that claims had been made by Prada of a water leak on 12 October 2004, another on 7 or 8 November 2004 and then another on approximately 10 December 2004. These incidents became the source of considerable controversy between Prada, Magog and the defendant as Prada was asserting a right to the rental rebate from as early as October 2004.[91] Magog was seeking to maintain a position that the rental rebate did not commence at that time because the leak on or about 12 October 2004 was the responsibility of the tenant. That, at least, was Mr Tooma's assertion on behalf of Dr Ross.[92]

[62] Mr Tooma stated that he had never held the view that the leak of 12 October 2004 was caused by the air conditioning.[93] However, he was referred by counsel for the defendant to a series of e-mails the first being from Ms Low to Mr Tooma of 28 June 2005 which included the following:

"... the issue really comes down to the nature of the leaks. I was advised by my staff that the first leak was a result of the building fault and the second, from problems from the air conditioning, hence my request for the credit for October. If the opposite was true then I agree that the credit should start from November. I will look into this and get back to you."

Mr Tooma responded to Ms Low the following day, 29 June 2005, in these terms:

"The first complaint was a leak in the back right hand corner of the store above the shelves. This is the location of the air conditioner. When I visited the store to check the problem, I had a look in the ceiling and found the drip tray full of water. I checked the adjoining shop Hermes but it was dry. This lead [sic] us to engage the air conditioning consultant which proved correct. I have no doubt the first problem was air conditioning."

[63] Mr Tooma conceded that what he had stated in the e-mail of 29 June 2005 was inconsistent with his previous evidence. It was put to him that he had held the view at all times that it was, in fact, the air conditioner that was responsible for the leak in October 2004. Mr Tooma replied, "I'm under oath here. I'm not under oath when I write to the tenant."[94] When asked to whom had he lied, the Body Corporate or Prada, Mr Tooma replied, "I believe it was Prada".[95] This evidence reflects poorly upon Mr Tooma and was probably responsible for counsel for the plaintiff abandoning any reliance upon the leak of 12 October 2004.[96] At the close of cross-examination Mr Tooma told counsel for the defendant that he had never seen a clause similar to clause 18.5 that had been introduced by Prada. It is of some importance to note that Mr Tooma was not asked a similar question in respect of clause 6.1 of the original lease.

[64] Mr Amrit Samra was employed by Knight Frank Gold Coast for some 10 years from 1995 as the commercial property manager. He changed his name to Samra from Singh in about 2006.[97] He and Mr Tooma managed the property at Lot 1 the Moroccan at Elkhorn Avenue, Surfers Paradise from soon after its purchase by the plaintiff up until 2005.[98] Mr Samra was aware of issues relating to water penetrating the tenancy and spoke of a number of inspections by himself and Mr Tooma of the premises.

[65] In particular, Mr Samra identified a facsimile from himself to the defendant dated 6 February 2003 confirming that an alternative engineer had been engaged by the defendant to investigate the leaks which were experienced "in the past few days". Mr Samra recorded his understanding that the defendant had engaged GK Consultants to meet with the building manager and expressed his interest in attending the meeting with the building manager and the engineer to offer assistance.[99] On the same date Mr Samra wrote by facsimile to Ms Low at Prada advising her that the Body Corporate had confirmed that an engineer had been engaged to inspect the leaks within the next seven days.[100] Ms Low responded by referring to leaks in August 2002, December 2002 and February 2003 stressing the seriousness of the situation and indicating that Prada was reviewing whether it was possible to trade from the premises.[101]

[66] Mr Samra recalled having inspected the ceiling and carpet at Lot 1 in February 2003 and confirmed that he had observed paint coming off the ceiling, that the ceiling was bowed and that there was water dripping from the ceiling onto the carpet.[102] Further correspondence with the defendant ensued in an effort to get the matter attended to. However, Mr Samra stated that he had to write and be in touch with the defendant consistently to get action.[103]

[67] Mr Samra communicated with the defendant on 28 January 2004 advising that Prada had not seen any activity from the defendant's waterproofing contractors as a result of the recent water leakage. The works were supposed to have been completed prior to Christmas 2003 and Mr Samra recommended that the defendant appoint an alternative contractor to complete the works.[104] By this stage, January 2004, Prada had entered into the new lease to stay on in the premises from September 2003 for another four years.[105]

[68] Mr Samra confirmed having received an e-mail dated 15 November 2004 from Prada referring to water damage to the carpet in the cashier section of the store as a result of heavy rains on 7 and 8 November 2004.[106] As a result of this communication Mr Samra inspected the Prada shop and noticed that there was water damage to the carpet.[107] A further e-mail from Prada to Mr Samra dated 10 December 2004 reported yet another water leak in the store in the ceiling above the men's section. Water in the ceiling had to be released by making a hole in the ceiling to drain the water into a bucket. Prada asked Mr Samra to ensure that the defendant was in no doubt about the urgency with which it was required to respond to this event.[108] Mr Samra identified this leak as occurring in the middle of the store where the men's section was. It was, he stated, "not a good look".[109]

[69] Prada did not pay rent for the month of December 2004 and Mr Samra wrote to Prada on 22 December 2004 to ask that payment for that month be made.[110] In response Ms Low wrote to Mr Samra stating as follows:**

"... We have paid the full rent for the months of October and November which means that as at December, we would still have a credit of 50% of a month's rent. This will be applied to January's rent which I believe would still be at a 50% discount unless the water problems are resolved by the end of December.

We currently have a new carpet in Gold Coast incurring storage costs because we want the water problems to be fixed before we changed them at the store. We also have paintwork in the ceiling bubbling and flaking due to the water leaks that occurred on December 10th. Again the ceiling will not be repainted until the water leaks are resolved. The image of our store is currently not at its best.

Considering the continuing water problems that we have been experiencing at the store, it is highly unlikely that I would recommend the renewal of the lease when it next falls due. You can appreciate that the site requires a lot of time and effort in managing it."[111]

**[70] Ms Low advised Mr Samra by e-mail on 15 February 2005 that she had applied 50% discount on the rental for Lot 1 "from November 2004" and asked Mr Samra to issue credit notes to adjust the invoices for the rent.[112] A further e-mail from Ms Low to Mr Samra dated 21 February 2005 confirmed that Prada had applied the 50% discount on rental for the months of October, November and December 2004 and January 2005. Ms Low also made mention of a leak reported in the store on 31 January 2005 "which is allegedly caused by the condensation from the air conditioning unit."[113] On 6 May 2005 Ms Low corresponded by e-mail with Mr Samra pointing out that the most recent leaks in the store occurred on 12 October 2004 and that those leaks were reported to Knight Frank on the same day and again on 20 October 2004. Ms Low indicated that because it took three months to resolve the problem the rental discount should, in her opinion, commence from October.[114]

[71] Apart from tendering some documents the defendant did not call evidence.[115]

[72] With the exception of Mr Tooma none of the witnesses were subjected to any real attack so far as their credibility was concerned. Indeed, a very significant proportion of the evidence of all the witnesses was supported by documentary evidence in the form of letters, facsimiles, e-mails, invoices, minutes of meetings and reports. A disconcerting aspect of Mr Tooma's testimony was that he was revealed to be prepared to resort to untruths in his business dealings with Prada on behalf of the plaintiff. However, it was not suggested or demonstrated that Mr Tooma had not been truthful in his evidence to the Court. I am prepared to accept that Mr Tooma did give honest evidence in circumstances where his account was not materially contradicted by any other witness. So far as the other witnesses are concerned I have no concerns as to their veracity and reliability.

[73] I make findings of fact in terms of each of the paragraphs of the Agreed Statement of Facts and Contentions.

[74] The plaintiff in its third further amended statement of claim alleges that the defendant has breached its statutory duty under section 152 of the Body Corporate and Community Management Act 1997 ("the Act") by failing to administer, manage and control the common property reasonably and for the benefit of lot owners.[116] The plaintiff further alleges that the defendant breached its statutory duty pursuant to section 109(1) of the Body Corporate and Community Management (Standard Module) Regulation 1997 ("the Module").

[75] The plaintiff further or alternatively claims that the defendant has breached its duty of care owed to the plaintiff to maintain, manage and control the common property so that water did not leak from the common property into Lot 1 and to rectify promptly and to prevent water leaks from occurring on the common property into Lot 1, and failed to ensure that there was a waterproofing membrane in the common property above Lot 1 which prevented water from leaking into that lot.[117]

[76] It is also pleaded that in order to mitigate the losses and damages suffered by the lessee (Prada) and in order to prevent the lessee from terminating or failing to renew the lease as a result of the water ingresses and the defendant's alleged breach of duty, the plaintiff made certain repairs the costs of which totalled $12,628.12.[118]

[77] The plaintiff claims further in respect of the rental reduction pursuant to clause 18.5 of the lease for the period commencing on or about 7 and 8 November 2004 until about March 2007 resulting in an alleged loss of $230,042.00 to the plaintiff.[119]

[78] The findings made by the Departmental Adjudicator in his reasons for decision and the orders of the Departmental Adjudicator are said to estop the defendant from denying, maintaining or asserting to the contrary that the defendant did not meet its statutory obligations pursuant to section 152 of the Act and section 109 of the Module in maintaining the common property, including the waterproof membrane, in good condition so as to prevent water leaking into Lot 1.[120]

[79] Interest is also claimed on damages at 10 per cent per annum.[121]**

**[80] Magog claims that the defendant owes a duty of care to it pursuant to the provisions of the Act or the relevant Module. Section 152 of the Act provides, as relevant, that:

"(1) The body corporate for a community titles scheme must -**

(a) administer, manage and control the common property and body corporate assets reasonably and for the benefit of lot owners; and

(b) comply with the obligations with regard to common property and body corporate assets imposed under the regulation module applying to the scheme..."

**[81] Section 109 of the Module relevantly provides that:

"(1) The body corporate must maintain common property in good condition, including, to the extent that common property is structural in nature, in a structurally sound condition..."

[82] The relevant time for the statutory duty to arise in this case is during the period from 6 June 1999 (the time when the first water leak occurred).[122] In relation to the alleged breach of statutory duty by the defendant Magog claims the costs of carrying out repairs to Lot 1 of $12,628.12 and the rental abatement claim of $230,042.[123] In my view it is clear from the words of section 152 of the Act and section 109 of the Standard Module that there is an intention disclosed by the legislation for a duty of care to arise. A duty of care is owed by the Body Corporate for the benefit of lot owners and other users of the common property. The defendant had a duty to maintain common property in good condition, including, to the extent that common property is structural in nature, in a structurally sound condition. The duty to maintain a common property in good condition required the defendant to maintain and manage and control the common property so that water did not leak from the common property into Lot 1. This required the defendant to ensure that there was a waterproofing membrane in the common property above Lot 1 which prevented water from leaking into that lot.

[83] In Seiwa Pty Ltd v The Owner's Strata Plan 35042[124] Brereton J in the Supreme Court of New South Wales Equity Division was considering the scope of the duties of a body corporate under the Strata Schemes Management Act 1996 (NSW). Section 62 of that Act provided that "an owners' corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners' corporation." His Honour held that this provision imposes on a body corporate a duty to maintain, and keep in a state of good and serviceable repair, the common property. That duty is not one to use reasonable care to maintain and keep in good repair the common property, nor one to use best endeavours to do so, nor one to take reasonable steps to do so, but a strict duty to maintain and keep in repair.[125] His Honour further held that the duty to maintain:

• involved an obligation to keep the thing in proper order by acts of maintenance before it falls out of condition, in a state which enables it to service the purpose for which it exists;

• required the body corporate not only to attend to cases where there is a malfunction, but also to take preventative measures to ensure that there not be a malfunction;

• extended to require remediation of defects in the original construction of the common property; and

• extended to oblige the body corporate to do things which could not be for the benefit of the proprietors as a whole or even a majority of them.[126]

[84] Brereton J in Seiwa[127]stated that there has been a breach of the section 62 duty as soon as something in the common property is no longer operating effectively or at all, or has fallen into disrepair. The duty of a body corporate under section 62 is owed to each lot owner, and its breach gives rise to a private cause of action under which damages may be awarded to a lot owner for breach of a statutory duty.[128] An appeal against the decision of Brereton J was dismissed by the New South Wales Court of Appeal.[129]

[85] The defendant had a statutory obligation to maintain the waterproofing membrane in the common property above Lot 1. It was aware that the waterproofing membrane had failed at least from the dates of the water leaks commencing on 6 June 1999 and the letter from the plaintiff's agent to the defendant on 18 August 1999.[130] The waterproofing membrane was not replaced or rectified until 2007. Accordingly, the defendant has breached its duty of strict liability from at least 2003 when the plaintiff carried out works by installing drip trays in the ceiling and repairing damage to its own property.

[86] In his written submissions counsel for the defendant concedes that on the authority of Seiwa, it appears inevitable that the fact that the membrane leaked will be sufficient to demonstrate a breach of the statutory duty pleaded under section 109 of the Standard Module to maintain the common property in good condition.[131] The real issue, submits counsel for the defendant, is whether the defendant can reasonably be held to be liable for the loss claimed in respect of the costs of works undertaken in 2003 and in respect of the rental abatement loss.

[87] In respect of the claim of the cost of works undertaken in 2003 ($12,628.12) the defendant submits that this amount was not incurred through repairing damage to the plaintiffs own property. The work was carried out to abate the nuisance by installing drip trays in the ceiling and for repairs to the tenant's property. The defendant submits that, as was held in Seiwa, such costs are not recoverable. Brereton J in Seiwa[132] stated as follows:**

"Essentially, Seiwa's primary position involves a claim for the cost of undertaking works, not to repair damage to its own property, but to rectify a defect in the common property: it seeks to be permitted to perform the requisite repairs to the common property which the owner's corporation ought to have done, and to recover damages for the cost to it of doing so. This is in the nature of a claim for the costs of abatement. By analogy with the position relating to abatement of a nuisance, in my opinion such damages are not recoverable. In my view, therefore, the damages to which Seiwa is entitled comprise the diminution of the value of its unit occasioned by the continuing defect, and the consequential loss of the use of the unit since August 1994."

**[88] It is clear, however, that the costs spent by Magog by way of repairs were not spent on any part of the common property as was the case in Seiwa. The $12,628.12 was spent for repairs inside Lot 1 and they do not fall within the category of costs that Brereton J disallowed in Seiwa. Furthermore, these costs were incurred in mitigation of damages in respect of rental abatement under clause 6.1 of the initial lease. That clause[133] provided for an abatement of rent and suspension of covenant to repair in circumstances where there was damage to the demised premises. Clause 6.1 relevantly provides:

"In the case of ... damage to the demised premises by ... flood, storm, tempest... or Act of God and without any neglect or default on the part of the lessee whereby the demised premises shall be rendered wholly or partially unfit for occupation or use by the lessee in the conduct of its business payment of the rent hereby reserved or a proportion or part thereof according to the extent of the damage sustained... shall be suspended until the demised premises shall have been restored and again put in proper condition fit for use by the lessee for the purposes of its business...."

[89] Clause 6.1 of the lease dated 9 February 1998, therefore, establishes that through water penetration into Lot 1 as a result of a storm or other relevant Act of God, the tenant was entitled to an abatement of rent until the demised premises had been restored and again put in proper condition. I accept that Magog had a proper interest in ensuring that not only were the premises put in proper condition but also that any preventative measures such as drip trays in the ceiling would serve to ensure that there was no abatement of rent in the future pursuant to clause 6.1 of the lease. In my view, the costs of the repairs were a proper mitigation of Magog's loss. In my opinion, had there been an abatement of rent pursuant to clause 6.1 Magog could have sued for that loss by reason of the defendant's failure to maintain the common property in a proper condition which it was under a strict duty to do.

[90] Accordingly, the repairs costs were recoverable by reason of the defendant's breach of duty. Further, the repair costs were incurred by Magog in mitigation of damages in respect of rental abatement under clause 6.1 of the initial lease and also by way of mitigation in respect of loss of rental in the event that Prada vacated the premises at the expiration of the initial lease in August 2003 if Prada decided against extending the lease. As Brereton J explained in Seiwa, while a person affected by a nuisance is entitled to abate it, including by entering onto the land on which the nuisance arises and removing its cause, the costs of abatement are not recoverable, unless as reasonable costs of mitigation, and even then probably not if they involve going onto the land of the other party.[134]

[91] I am satisfied that the costs of repair in the sum of $12,628.12 were reasonable costs of mitigation and that the plaintiff is entitled to recover damages in that amount.

[92] The defendant submits that the claim for rental abatement loss is not made in respect of any property losses or damage but is solely in respect of pure economic loss not consequential upon damage to Magog's property. It is contended that, accordingly, the losses which may be recoverable of the statutory duty are limited to those which are reasonably foreseeable.[135] Counsel for the defendant seeks to distinguish Seiwa in this respect. In that case, it is said, the loss of use damages arose by virtue of the abandonment of the premises and the defendant had accepted that it was reasonably foreseeable that if the unit was vacated as a consequence of the breaches of the Act, there would be a loss of rent. That, it is submitted, is not the case here.

[93] Counsel for the defendant contends that the question for present purposes is whether a deliberate loss of the kind allowed by clause 18.5 was damage of a kind that a reasonable person in the position of the defendant should reasonably have foreseen.[136] It is argued that it was not for the following reasons:**

(a) The defendant was not on notice of the negotiations before their execution. Notification after the event, as in the letter of 11 September 2003 from Knight Frank to the Body Corporate chairman does not affect the issue;

(b) ultimately the defendant was not on notice of the potential for any loss; the extent of the communication was that concessions had been made

(c) the loss claimed is not in respect of abandonment, but in respect of a clause inserted upon the renewal of the lease;

(d) clause 18.5 was not the subject of any negotiation - it was inserted by the tenant, Prada, and accepted unconditionally by Magog;

(e) it is of a kind that a person as experienced in commercial leasing as Mr Tooma had never seen;

(f) it is entirely contrary to the standard clause 1.3;[137] and

(g) the trigger for the claim was not the defendant's action or inaction but Magog's; clause 18.5 required the "lessor" to take such action as is necessary the prevent water damage or entry. Thus Magog now seeks to attribute to the defendant losses which were caused by its own breach of contract.

**[94] There is an immediate problem with the submissions made on behalf of the defendant in that it was not pleaded that the rental abatement was not reasonably foreseeable. The further amended defence either does not admit[138] or denies[139] Magog's allegation of rental abatement losses. No specific case is alleged by the defendant that any such alleged loss was not reasonably foreseeable as is submitted on behalf of the defendant in the defendant's outline of written submissions.

[95] However, in any event, there is evidence capable of establishing that the rental abatement losses were reasonably foreseeable. As counsel for Magog points out in his reply to the defendant's submissions, clause 6.1 of the lease of 9 February 1998 contains a rental abatement clause (see [88] above). That clause leaves "at large" the amount or proportion of the rent that is to be suspended until the demised premises shall have been restored following damage by storm or other relevant Act of God and are again put in good condition fit for the use by the tenant.[140] The effect of clause 18.5 is to limit the rent reduction to 50 per cent where there is water damage or leakage and that reduced rental continues until the occurrence of the events described in the clause.

[96] Counsel for Magog submits that given the history of water leaks into Lot 1, clause 18.5 is an appropriate and a practical means of dealing with the already existing provision in clause 6.1 for the abatement of rent. I accept that the defendant had received ample notice that further episodes of water leaks into Lot 1 would cause Magog to suffer damage and that damages would be claimed as a result from the defendant. That notice is comprised of the following communications, most of which have been referred to in this judgment:**

(a) letter dated 28 June 1999 from Jones Lang LaSalle to Body Corporate Services in the following terms:

"As previously discussed the above premises has sustained water penetration and the tenant has now indicated their intention to seek damages. We attach correspondence received from the tenant to enable you to put the Body's Corporate Insurance Broker on notice.

The tenant has again contacted our office today to advise water is leaking into the premises and we would appreciate your plumber attending to rectify... ."[141]

(b) Letter dated 23 August 2002 from Prada Hong Kong to Body Corporate Services stating:

"...PRADA Australian has suffered on-going loss and disruption to its business for over three years as a result of water leaking through the roof of its premises. PRADA Australia was informed in 1999 that the Queensland Building Services Authority had ordered the building who constructed the building to carry out repairs to prevent leakage from re-occurring. Nevertheless, the leakage has continued and culminated in further substantial damage to the ceiling and carpets in the premises on 22nd August 2002, which is still continuing.

As a result, PRADA Australia is being forced to review whether it is possible to continue to trade from the Premises..."[142]

(c) Letter dated 11 February 2003 from Prada Australia Pty Ltd to Knight Frank:

"As you are aware, the leaks started in August 2002 and continued to occur in December 2002 and more recently, last week in February 2003.

The most recent leak damaged merchandise in our display windows and worsened the condition of our ceiling and carpet. You can appreciate the condition of our store due to this ongoing problem. We have had to put 2 bins in our display window to prevent further water damage to our carpet and stock. In addition, the peeling of paint on our ceiling cannot be repaired until the water problem is permanently fixed.

We are almost 6 months into this water leak problem and have suffered on-going loss and disruption to our business. We would like to stress the seriousness of this situation and are now forced to review whether it is possible to trade from the premises.... ."[143]

(d) Letter dated 14 February 2003 from Short Punch & Greatorix (solicitors for Magog) to Body Corporate Services stating:

"We act for the owner of this Lot Magog (No. 15) Pty Ltd. We note that there has been a long standing problem with water leaking through the roof of the Lot and that it is the Body Corporates (sic) responsibility to fix the problem. We understand that after substantial delay the Body Corporate attended to remedial work in September, 2002. The tenant in the Lot Prada Australia Pty Ltd advised our clients (sic) letting agent Knight Frank, Surfers Paradise in mid December, 2002 that water leakage into the premises was again occurring. Our clients (sic) letting agent, after ensuring that the leak was not occurring as a result of the air-conditioning equipment, raised the matter with Warren Wagland (a representative of the Building Manager employed by the Body Corporate) on 18 December, 2002 and we understand that the Building Manager raised the matter with you on 15 January, 2003. We note that in a letter to you dated 29 January, 2003 our clients (sic) letting agent raised the matter directly with you.

We enclose a copy of correspondence dated 11 February, 2003 from the tenant to our clients (sic) letting agent. You will note from the tone of the correspondence that the tenant is on the verge of terminating its tenancy. The tenant has also previously indicated through its solicitors that it will consider claiming damages against our client. If the tenant follows through with either of these actions our client will have no alternative but to take action against the Body Corporate for its losses which would run into the tens of thousands of dollars.

Our client therefore urges you to convene a Body Corporate Committee Meeting as a matter of urgency to take immediate action to remedy the problem including if necessary an application to the commission for an urgent order approving the expenditure necessary to resolve the problem."[144]

(e) Report prepared by George Kaoustos dated 23 February 2003 entitled "Water Penetration Peport at the Moroccan Elkhorn Shops. The report was for the sole use of the Body Corporate.[145]

(f) Letter dated 4 April 2003 from Knight Frank to Body Corporate Services stating:

"... Further to my previous advice to the members of the Body Corporate, our client - the lot owner Magog Pty Ltd, has now completed rectification works to the internal fitout of the premises occupied by Prada.

I have been advised by the rectification contractor that when they removed the internal ceiling the concrete roof above the store showed serious signs of cracks and expansion joints required attention. The Body Corporate is urged to immediately remedy this problem, which will certainly lead to further water leaks into the premises if left unattended.

The account for rectification works will be issued shortly and we are instructed to forward same to you for payment. The tenant has not yet made any claim for damages. In the event a claim is made we put Body Corporate on notice that our Client holds them responsible for this cost as well... ."[146]

(g) Letter dated 14 April 2003 from Body Corporate Services to Knight Frank advising, inter alia, that the defendant under its duty of care and responsibility had carried out previous rectification works to the first floor garden area.[147]

(h) Letter dated 11 September 2003 from Knight Frank to the defendant demanding the payment of $12,628.12 in respect of costs of repairs and further stating:

"We also put you on notice that the tenant has now entered into a new lease for the premises. Due to the problems encountered previously, the Landlord has had to concede to a number of special conditions in the lease.

In the event of further leaks and damage, the tenant is now entitled to relief including rent reductions and substantial other reliefs and remedies against the Landlord. Should any claim or loss be suffered by the Landlord under these circumstances then the Body Corporate will be held liable.

We trust the Body Corporate comprehends its obligations and puts in place the necessary works to prevent any further losses."[148]

(i) Minutes of the committee meeting of the defendant of 28 October 2003 acknowledging receipt of the letter dated 11 September 2003 from Knight Frank with respect to water damage to the Prada shop in Lot 1.[149]

**[97] There is nothing in the material before me to suggest that the defendant responded to the letter of 11 September 2003 from Knight Frank advising that Prada was entitled to relief including rent reductions under the terms of the new, or extended, lease. It was open to the defendant to inquire as to the nature and extent of the reductions, but it apparently chose not to do so. In my view the defendant had been made aware of the likelihood of rent reductions pursuant to the new lease by the letter of 11 September 2003. The operation of clause 18.5 of the extended lease was triggered by the water leaks of 7 and 8 November 2004, some 13 months after the letter from Knight Frank of 11 September 2003. That has resulted in Magog's claim with respect to rental abatement in these proceedings. In these circumstances I am quite unable to accept the submission of the defendant that the claim in respect of rental abatement loss was not reasonably foreseeable. The documents referred to above in paragraph 94 speak for themselves. The leaks were not rectified until 1 March 2007 as confirmed by the final certification by Mr Kaoustos.[150] In my view the rental abatement loss sustained by Magog as a result of the triggering of clause 18.5 was reasonably foreseeable by the defendant and had in fact been brought directly to the defendant's notice at least by 11 September 2003.

[98] Magog has pleaded issue estoppel against the defendant principally with respect to a number of relevant dates on which water leakage was sustained by Lot 1 and with respect to the cause or origin of those leaks.[151] However, the agreed statement of facts and contentions sets out those dates that are not contentious upon which leaks occurred and it is accordingly not necessary for Magog to rely upon the doctrine of issue estoppel in respect of those dates.[152]

[99] To the extent that the claim by Magog rests upon a common law duty owed by the defendant to take reasonable care to avoid causing harm to the plaintiff, I am persuaded by the evidence that the defendant did act unreasonably. It should be kept in mind that from time to time the defendant purported to act to rectify the problems and that engineers and engaged various tradesmen to remedy the problem causing the leaks. This involved carrying out repairs on sections of the waterproofing but it seems that the actions undertaken on behalf of the defendant were neither diligently pursued or likely to resolve the problem. In Woolcock Street Investments v CDG Pty Ltd[153] the High Court considered the circumstances in which damages for economic loss may be recoverable. It was said in that case that:**

"[D]amages for pure economic loss are not recoverable if all that is shown is that the defendant's negligence was a cause of the loss and the loss was reasonably foreseeable.

In Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad", the Court held that there were circumstances in which damages for economic loss were recoverable. In Caltex Oil, cases for recovery of economic loss were seen as being exceptions to a general rule, said to have been established in Cattle v Stockton Waterworks, that even if the loss was foreseeable, damages are not recoverable for economic loss which was not consequential upon injury to person or property. In Caltex Oil, Stephen J isolated a number of "salient features" which combined to constitute a sufficiently close relationship to give rise to a duty of care owed to Caltex for breach of which it might recover its purely economic loss. Chief among those features was the defendant's knowledge that to damage the pipeline which was damaged was inherently likely to produce economic loss.

Since Caltex Oil, and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. "Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp, the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company."[154]

**[100] In Perre v Apand[155] the High Court considered the determination of whether a duty of care exists where there is economic loss. Gaudron J stated:

"Where a person is in a position to control the exercise or enjoyment by another of a legal right that position of control and, by corollary, the other's dependence on the person with control, are, in my view, special factors or, which is the same thing, give rise to a special relationship of "proximity" or "neighbourhood" such that the law will impose liability upon the person with control if his or her negligent act or omission results in the loss or impairment of that right and is, thereby, productive of economic loss."[156]

Kirby J in Perre suggested in deciding whether a legal duty of care in negligence exists three questions should be asked:

"(1) Was it reasonably foreseeable to the alleged wrongdoer that particular conduct or an omission on its part would be likely to cause harm to persons who have suffered damage or a person in the same position?

(2) Does there exist between the alleged wrongdoer and such person a relationship characterised by the law of one "proximity" or "neighbourhood"?

(3) If so, is it fair, just and reasonable that the law should impose a duty of a given scope upon the alleged wrongdoer for the benefit of such a person?"[157]

[101] McHugh J in considering the reasons for denying or imposing a duty of care in cases of pure economic loss stated that:

"In determining whether the defendant owed a duty of care to the plaintiff, the ultimate issue is always whether the defendant in pursuing a course of conduct that caused injury to the plaintiff, or failing to pursue a course of conduct that would have prevented injury to the plaintiff should have had the interest or interests of the plaintiff in contemplation before he or she pursued or failed to pursue that course of conduct [Donoghue v Stevenson [1932] AC 562 at 580, per Lord Atkin]. That issue applies whether the damage suffered is injury to person or tangible property or pure economic loss [see Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR 529]. If the defendant should have had those interests in mind, the law will impose a duty of care. If not, the law will not impose a duty."[158]

[102] Applying the above principles to the facts of this case I accept that it must have been reasonably foreseeable to the defendant from at least 23 February 2003 when it received Mr Kaoustos's report "Water Penetration Report at the Moroccan Elkhorn Shops" that further damage would be sustained by the commercial lots, including Lot 1, underneath the podium level of the Elkhorn units if the waterproofing membrane was not satisfactorily repaired. I further accept that by reason of Magog being a lot owner in the Body Corporate scheme and Prada being an occupier of a lot in the Body Corporate scheme of which responsibility for the administration, management and control of the common property had been given to the defendant, the appropriate relationship of "proximity" or "neighbourhood" exists.[159] Furthermore, I consider that it is fair, just and reasonable that the law should impose a duty on the defendant to take steps to repair the waterproofing membrane in order to prevent water leaks into the commercial lots for the benefit of Magog and its tenant. The defendant had particularised the actions it took in claiming that it acted reasonably at all times in accordance with its obligations. Those particulars are as follows:

(a) In 1999 the Defendant took action through the Queensland Building Services Authority to have the membrane repaired.

(b) In November 2002 the membrane was again repaired.

(c) On 24 February 2003 a committee meeting was held following the receipt of a letter from KF [Knight Frank] dated 29 January 2003. It was resolved that tenders be called for rectification works.

(d) On 7 March 2003 the committee resolved to engage G&K Consulting Engineers to prepare plans and specifications resolved to engage G&K Consulting Engineers to prepare plans and specifications, call tenders, oversee paving, garden bed replacement and membrane replacement on the first level garden areas.

(e) On 17 June 2003 a committee meeting was held. The building manager reported that there was ongoing investigation in relation to the water leaks from the first floor garden area. It was resolved that G&K Consulting Engineers arrange for quotes for the removal of trees above the shops and to report on the condition of the membrane in this area. It was also resolved that the building manager was to arrange a plumbing contractor to check the condition of the drainage pots from the garden area to ensure that water was not being blocked in any of the drains.

(f) On 8 September 2003 a committee meeting was held. It was reported that the quotations for the removal of the trees in the first floor garden had not been received. It was resolved that there be drilling of test holes in relation to water drainage from the garden area. The committee was also advised that the functioning of drainage from the garden area had been investigated by a plumbing contractor and that the drain was functioning correctly.

(g) On 28 October 2003 a committee meeting was held and the committee was advised that there were some minor leaks in the first floor garden area and it was resolved that a contractor would be engaged to attend to minor rectification works.

(h) On 2 March 2004 a committee meeting was held and it was reported that the contractor who had been engaged to carry out the waterproofing repairs, Wetfix Waterproofing, had not responded to the acceptance of their quotation. The committee then resolved to accept a quotation for the work to be carried out by another contractor, and to advise Wetfix accordingly.

(i) On 12 July 2004 a committee meeting was held and the committee was advised that Roof and Building Services had carried out the works."

[103] These particulars of the actions taken by the defendant to demonstrate that it acted reasonably at all times in accordance with its obligations must be viewed in the context of its knowledge of ongoing problems with water penetration into Lot 1. The Agreed Statement of Facts and Contentions records leaks on 6 June 1999, between 24 June and 28 June 1999, 29 August 1999, between 22 August and 25 August 2002, between 4 and 5 February 2003 between 7 and 8 November 2004, on 10 December 2004, on 30 June 2005, between 1 and 3 December 2005, on 20 January 2006 and between 3 and 6 March 2006. The response by the defendant cannot be said to have been reasonable when viewed against the repeated and ongoing problems of water leaking into Lot 1. There were lengthy periods of time, notably from June 2003 to July 2004 when little action was taken by the defendant to ensure that the problem was being appropriately addressed.

[104] Ms Julie Bland, an accountant and principal of an accountancy firm trading under the name of WHK at Benowa on the Gold Coast, gave evidence regarding the rent payable by Prada as compared with the rent actually received by the plaintiff during the period from October 2004 to March 2007 (a total period of 29 months). Ms Bland's report dated 30 September 2009 was tendered in the proceedings.[160] In her report Ms Bland noted that as evidenced by Knight Frank invoices raised for the relevant period, the 50 per cent rental rebate for water leakages was only applied by Knight Frank on behalf of Magog for the two months of November 2004 and December 2004. According to these invoices, the actual amount of rebate applied was $8583.16 for each of those months. If these rebates are added to the base rent charged (exclusive of GST) for the period 1 October 2004 to 1 February 2007 (inclusive) base rent of $510,003.13 would have been charged by Knight Frank on behalf of Magog had the water leakage rebate not been applied.

[105] The actual amount received from Prada during the same period as evidenced by the relevant trust account bank statements during the same period was $331,307.64. Of this amount, as evidenced by the trust account receipts, $279,961.13 was applied towards the base rent with the difference being applied to either overheads or GST. Thus, the shortfall in the base rental for the period was $230,042.00.[161]

[106] This estimate of the shortfall in the base rental for the relevant period was not affected by the calculation relating to a slightly shorter period namely from 7 November 2004 to March 2007 following the decision by the plaintiff to discontinue its claim in relation to events of October 2004.[162] Ms Bland's evidence was not in any way challenged.[163]

[107] In the result then I give judgment for the plaintiff in respect of costs of repairs in the sum of $12,628.12, together with interest from 11 September 2003 to the date of judgment at the rate of 10% per annum in the sum of $8,192.71.[164] I give judgment for the plaintiff in respect of the claim for rental abatement losses in the sum of $230,042.00, together with interest from 1 November 2004 to the date of judgment at the rate of 10% per annum in the sum of $95,033.62.

[108] The defendant is to pay the plaintiff's costs of and incidental to the trial to be assessed. In this regard counsel for the plaintiff has sought as part of the costs order an order that the defendant when raising its funds from lot owners by levy to pay its costs and any costs payable to the plaintiff not levy the plaintiff as a lot owner in respect of:

(a) the defendant's legal costs and charges in respect of defending the plaintiff's claim; and

(b) for any costs which it may be ordered to pay to the plaintiff by reason of these proceedings.

[109] I am not persuaded that it is appropriate to include an order in these terms as part of the costs order against the defendant Body Corporate having regard to the provisions of section 141 of the Body Corporate and Community Management Act 1997 which provides that:

(2) If a liability arises for which no provision, or inadequate provision, has been made in the budget, the body corporate must, by ordinary resolution -

(a) fix a special contribution to be levied on the owner of each lot towards the liability...

(5) The contributions levied on the owner of each lot (other than contributions payable for insurance and any other matter for which, under the Act or this regulation, the liability attaching to each lot is calculated other than on the basis of the lot's contribution schedule lot entitlement) must be proportionate to the contribution schedule lot entitlement of the lot.

[1] IPI 21 Australia changed its name to Prada Australia Pty Limited in or about May 1999. See transcript page 2-10 line 20.

[2] The Body Corporate and Community Management (Standard Module) Regulation 2008.

[3] Court Book Volume 1 1998 document number 1 pages 1-42 is described as a Form 7 Lease commencing 1 September 1997 for six years until 31 August 2003.

[5] Transcript pages 2-10 line 55 and 2-11 line 5.

[6] See Agreed Statement Of Facts And Contentions paragraphs 39 and 40.

[7] Court Book Volume 2 1999 pp 63, 64. In fact, Prada had written to the previous agent of Magog (No. 15) Pty Ltd on 28 June 1999 but Dr Ross was uncertain that he had seen that letter. See transcript p2-13 line 58.

[22] Court Book Volume 6 2003, pp330-331.

[23] Transcript, p3-8, lines 10-20; Court Book Volume 5 2002, p221.

[24] Court Book Volume 5 2002, p223, paragraph 6.

[26] Court Book Volume 6 2003, pp367-368.

[29] Transcript p3-17 lines 30-40; Court Book Volume 6 2003, p409-410.

[30] Item 34 in the list of correspondence at page 5 of the minutes; Court Book Volume 6 2003, p426.

[31] Court Book Volume 4 2007 pp454-455.

[32] Transcript p3-19 lines 45-55; 3-20 lines 1-3.

[34] Court Book Volume 8 2005, pp748-756.

[36] Transcript p3-21 line 52; Body Corporate and Community Management Act 1997, s250(4).

[37] Court Book Volume 9 2006, pp1130-1131.

[39] Affidavit of Peter Wilford George, solicitor, sworn 7 October 2009, paragraph 52.

[44] Court Book Volume 9 2006, pp1164-5.

[45] Court Book Volume 9 2006, p1208-1228.

[47] Transcript p4-8 lines 35-40; Further Supplementary Court Book p58.

[57] Transcript p4-28 lines 20-35, p4-29 lines 1-8.

[59] Court Book Volume 5 2002, p221, referred to in para 13 above.

[67] Court Book Volume 6 2003, p321; Transcript p4-34 lines 20-45.

[77] Court Book Volume 6 2003 p409; Transcript p4-41 line 8.

[80] Court Book Volume 7 2004 p610; Transcript p4-42 lines 50-60.

[104] Further Supplementary Court Book, p25.

[109] Transcript p5-18 lines 55-60; p-19 line 1.

[116] Third Further Amended Statement of Claim, paragraph 11(a).

[117] Third Further Amended Statement of Claim, paragraph 11(A).

[118] Third Further Amended Statement of Claim, paragraph 26.

[119] Third Further Amended Statement of Claim, paragraph 45.

[120] Third Further Amended Statement of Claim, paragraph 54.

[121] Third Further Amended Statement of Claim, paragraph 63.

[122] Third Further Amended Statement of Claim, paragraph 31; Agreed Statements of Facts and Contentions, paragraph 5.

[123] Report of Ms Julie Bland dated 30 September 2009 in Supplementary Court Book document number 5, pages 51-53, and addendum to the report dated 1 October 2009 pages 54-55.

[124] [2006] NSWSC 1157.

[129] The Owners SP35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272.

[130] Agreed Statement of Facts and Contentions, paragraph 8.

[131] Written outline of submissions on behalf of the defendant, 8 November 2009, paragraph 14.

[132] [2006] NSWSC 1157 at [28].

[133] Court Book 1998 Volume 1 pp1-42 and particularly at p14.

[134] Seiwa Pty Ltd v The Owner's Strata Plan 35042 [2006] NSWSC 1157 at [27].

[135] Written outline of submissions on behalf of the defendant, 8 November 2009, p5 para 18.

[136] Overseas Tankship (UK) v Morts Dock & Engineering Co Ltd ("The Wagon Mound (No 1)") [1961] UKPC 1; [1961] AC 388; Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413; written outline of submissions on behalf of the defendant pp5-6 paragraph 20.

[137] Court Book Volume 1 1998, page 3, clause 1.3 is in the following terms: "The annual rental payable hereunder shall be payable in advance without any deduction whatsoever to the Lessor or such other person and at such place as the Lessor shall from time to time in writing direct by equal consecutive calendar monthly instalments each being one twelfth of the annual rental and payable on the first day of each month during the term or extended term the first of such monthly instalments being made on the date of commencement hereof. The Lessee will if required by the Lessor concurrently with the execution of this lease and thereafter as and when required by the Lessor make and give and deliver to the Lessor a valid and effectual order or orders in the form required by the Lessor addressed by the Lessee to the bankers of the Lessee for the time being authorising the said bankers to pay to the Lessor or any bank or other person from time to time nominated by the Lessor the annual rental and other moneys payable by the Lessee to the Lessor hereunder at the times and in the manner herein provided or otherwise agreed to."

[138] See paragraphs 22, 23, 24 of the Further Amended Defence of the defendant.

[140] Reply to the defendant's submissions, paragraph 5.8.

[145] Water Penetration Peport at the Moroccan Elkhorn Shops, paragraph 1.1; Court Book Volume 6 2003 pp303, 310.

[149] Ibid, pp420-428, particularly at p426.

[150] Court Book Volume 10 2007, p1294 where Mr Kaoustos stated, "We confirm that we have inspected the work carried out by BRS in relation to replacement of the podium membrane above the retail shops and that the work conforms to the manufacturer's specification and also to our specification No. 2021, and that the work has been carried out in a tradesman like manner. The waterproofing work is now complete and the garden areas are currently being landscaped."

[151] Third Further Amended Statement of Claim paragraphs 48, 49, 50, 51, 52, 53 and 54.

[152] Written Submissions for the Plaintiff, p27 paragraphs 8.1, 8.2.

[153] [2004] HCA 16; (2004) 216 CLR 515.

[154] Ibid 530-1, [22]-[24] per Gleeson CJ, Gummow, Hayne & Heydon JJ.

[155] [1999] HCA 36; (1999) 198 CLR 180.

[159] More recent High Court authority has referred to proximity as a doctrine that is "not only difficult to define but difficult to apply" see Tame v New South Wales [2002] HCA 35; (2002) 211 CLR 317 at 405 per Hayne J and a doctrine that is "rejected" see Joslyn v Berryman [2003] HCA 34; (2003) 214 CLR 552 at 563-4 per McHugh J. In Sullivan v Moody (2001) 207 CLR 562 the High Court (Gleeson CJ, Gaudron, McHugh, Hayne & Callinan JJ) stated at p576 that "a defendant will only be liable, in negligence, for failure to take reasonable care to prevent a certain kind of foreseeable harm to a plaintiff, in circumstances where the law imposes a duty to take such care." At p578 the Court stated, "As Professor Fleming said, "no one has ever succeeded in capturing in any precise formula" a comprehensive test for determining whether there exists, between two parties, a relationship sufficiently proximate to give rise to a duty of care of the kind necessary for actionable negligence. The formula is not "proximity". Notwithstanding the centrality of that concept, for more than a century, in this area of discourse, and despite some later decisions in this Court which emphasised that centrality, it gives little practical guidance in determining whether a duty of care exists in cases that are not analogous to cases in which a duty has been established." (footnotes omitted).

[160] Exhibit 10, see also Supplementary Court Book, pp51-53.

[163] There was no cross-examination of Ms Bland, see Transcript p4-78 line 25 and p5-9 line 25.

[164] The date of demand on the defendant Body Corporate.