McCallum Developments v The Owners Corporation SP53908

(iii) clause 7(2) permits the corporation to extend the above time limits "if it is satisfied that the delay in notification was due to circumstances outside the control of the beneficiary". 31 As Burchett AJ said when considering clause 7(2) in Fair Trading Administrative Corporation v The Owners Corporation Strata Plan 43551 [2002] NSWSC 624: "Careful reading shows that the provision applies, not on the sole basis that timely notification was outside the control of the beneficiary but on the basis that the delay in notification was due to circumstances which were outside the control of the beneficiary. In the present case the circumstances incontrovertibly included the fact that the beneficiary did not exist at the date the three years began to run." 32 Sub-clause (2) applied to all the time limits set in clause 7(1). The language of the sub clause makes that clear. The various periods of "six months", "seven years", and "three years" may be extended in appropriate cases. 33 The defendants have submitted that the plaintiff has failed to prove that the difficulties giving rise to the insurance claim are not structural defects attracting the limitations in clause 7(1)(b). In Owners Corporation Strata Plan 43551 Burchett AJ considered the construction of "major structural defect" in the scheme was a liberal concept. 34 It does not seem to me, as I understand the plaintiff's argument, that it is necessary for the plaintiff to prove whether the various defects were major structural defects or not. The "six months" time limitation applies equally to sub clause (1)(b) and to sub clause (1)(c), and it is that time restraint which it is contended the second defendant has failed to address. 35 What does the evidence disclose about the making of the first defendant's claim? 36 The obligation to notify is an obligation imposed upon the claimant beneficiary but the scheme prescribes no formality concerning that notification and the language of Form 4 should not be construed narrowly because of the beneficial nature of the legislation. 37 It is to be observed that the building work here commenced no earlier than 23 July 1995 (Mr McCallum's affidavit of 6 February 2002, para 6), although the commencement date may have been somewhat later (Mr Elliott's affidavit 3 May 2002, paras 16 and 17). The work proceeded in two stages, and Mr McCallum deposed that the date of practical completion was "on or about December 1996", although in cross examination he conceded that stage 2 may not have been completed until October 1997. 38 The evidence did not disclose exactly when the first defendant came into existence. In para 7 of Mr McCallum's affidavit of 6 February 2002 he fixed the happening of this event by reference to the registration of SP 53908, effected upon "the expiry of the initial period", but Mr McCallum did not know when that was. The strata scheme was registered on 10 February 1996 and Mrs Edwards purchased her unit in April 1997, saying that she was the last purchaser of stage 1. It would seem that it would have been somewhere about the middle of 1997 when one-third of the units were sold and the body corporate would have come into existence. 39 Until the first defendant came into existence it could not have become aware of defects for the purposes of clause 7, although individual unit owners may well have acquired knowledge of defects before then. 40 On 10 June 1998 the secretary of the first plaintiff forwarded to the Department of Fair Trading a document described as an "Assistance Form", under cover of a letter advising of defects in the building work carried out by the plaintiff. There was attached to the communication a lengthy schedule of defects. 41 The letter of 10 June 1998 concluded with this paragraph: "We have allowed the builder in excess of six months to rectify the problems but as he has not communicated with the owners corporation we believe we need some form of adjudication in order that responsibility can be ascertained and the necessary repairs can be made. We hope your department can help us with this matter." 42 The communication above referred to suffices to notify of "matters that could give rise to losses" for the purposes of clause 7 of form 4. Certainly that notification was given less than three years after the commencement of the building work. Precisely when that notice was given in relation to the time that the first defendant first became aware of the defects listed, the evidence does not establish. Nor is it clear whether those defects then scheduled accord precisely with the schedule of rectification work exhibited to the affidavit of Mrs Edwards (SJE 7). That schedule identifies the work to which the "approval in principle" has been expressed. 43 What followed the notification of 10 June 1998 was that the Department of Fair Trading nominated a mediator in respect of the dispute. On 20 August 1998 heads of agreement were reached which did no more than to provide the framework for addressing grievances. The owners' representative was required to provide a full list of defects to the plaintiff and the plaintiff was then to "submit method and specification to carry out the works", and give a date on which the work was to be carried out. This agreement provided should there be further dispute concerning the terms of that agreement the dispute was also to be mediated. That first mediation did not lead to resolution of the dispute between the plaintiff and the first defendant and neither did a second mediation which the Court was informed was held recently. 44 It does not seem to me that time for notification under clause 7 would necessarily run before the builder asserted the building work was completed. Regard has to be had to the beneficial nature of this scheme. For instance, if some defect was detected whilst construction was continuing and when this was pointed out to the builder he indicated he would rectify that defect, then in those circumstances there would be good reason to conclude that time did not start to run until any attempt at rectification was completed unsatisfactorily and/or until the builder communicated he was not going to attend to any persisting defect. 45 Alternatively, delay in notifying when the defect was first observed would in the circumstances posed in para 44 justify an extension of time under clause 7(2). 46 It is apparent from the terms of the letter of notification written by the first defendant on 10 June 1998 that there had been prior efforts to have the plaintiff address the defects, extending, it was then asserted, over a period "in excess of six months", which, indeed, may well have taken the efforts back to the time of completion in October 1997. If this was so, then it would have been open to the second defendant to conclude that notice was given within time in June 1998 in respect of the defects then advised, or if not that the circumstances warranted an extension of the six month period by operation of clause 7(2). 47 Has the second defendant directed its attention to the "six months" time restraint in this case? 48 The assessment of the second defendant as to the significance of the time lapse after the matter first went to mediation in 1998 is reflected in the letter written by the Senior Claims Officer of the Department of Fair Trading to the plaintiff on 30 November 2001. That letter reads in part: "In response to your letters, the Department did not consider time limitations was an issue given the turn of events leading to this insurance claim. I note that the Mediation Agreement in 1998 was not complied with, although there were repeated requests for the Summary Work Schedule. There was an e-mail from you to the Owners Corporation Building Consultant, dated 4 March, 2000 accepting responsibility. Furthermore, there was evidence on file that indicated you failed to attend site meetings when requested and failed to satisfactorily rectify all the complaint items. Although you oppose the outcome of this matter, the Department considers that you have had ample opportunity to rectify the defects at this property in an acceptable manner and the claimants do have a justified insurance claim. An approval in principle has been granted for this insurance claim subject to the claimants providing quotations from appropriately and currently licensed contractors to address Schedule A - Rectification Work. This 48 page schedule is part of an extensive report (158 pages) provided by an independent Technical Consultant engaged by the department to attend site and determine whether there was a valid insurance claim against you. Please note that the estimate to rectify these outstanding building works correctly is approximately $700,000. Subsequent to your correspondence, I spoke with the General Manager for Insurance Services. It was suggested that should you wish to arrange a meeting to discuss your liability please notify the Department of a suitable time and day and we will endeavour to accommodate." 49 One interpretation of the above communication is that it reflected a decision taken for extension of time under clause 7(2). 50 However, there is the evidence of Mr Elliott to consider. Mr Elliott is the general manager charged with the administration of the insurance scheme for the second defendant. In his affidavit sworn in these proceedings Mr Elliott deposed: "17. The letters referred to in paragraphs 15 & 16 of this affidavit indicate that work commenced between 23rd July 1995, at the earliest, and 16th October 1995, at the latest and are relied upon by the Second Defendant in setting the limitation periods in clause 7 of the CIS. Accordingly, for the purposes of clause 7(1) of the CIS, written notification of the matters which may give rise to a claim was required to be given by the First Defendant to the Second Defendant prior to 16 October 1998 at the latest written notification, in the form of the documents referred to in paragraph 7 hereof was received within the three year period stipulated by clause 7(1)(c) of the CIS. 18. Clause 7(2) of the CIS provides the Second Defendant with discretion to extend the times contained in clause 7(1) where the failure to provide notification was due to circumstances outside the control of the claimant. 19. Owing to the matters set out in paragraph 17 it has not been necessary for the Second Defendant to consider this discretion at this stage." 51 Mr Elliott was cross examined and in that cross examination gave the following answers to the following questions: "Q. In your affidavit, paragraphs 17, 18 and 19 - if you just focus on 17 for a moment - you formed a view, rightly or wrongly, that the written notification was received within the three year period stipulated by clause 7(i)(c) of the Scheme? A. Yes. Q. You never ever turned your mind to when the proprietors became aware of the defects did you? A. No. Q. In paragraph 18 you refer to, the discretion to extend the time contained in clause 7(i) with a failure to provide notification, was due to circumstances outside the control of the claimants. Because of your answer you have just given, you didn't consider that either did you? A. No." 52 Mr Elliott may not have been directly in charge of this particular claim and certainly another officer of the department, Mr Kennedy, was involved. Mr Elliott was cross examined on a claim form, annexure H to the affidavit of Mr McCallum of 2 May 2002, which had some notations on it, including a notation "First complaint 19 June '98". Mr Elliott said that that notation was not in Mr Kennedy's writing but in that of his immediate supervisor, Mr Forsyth. Mr Elliott agreed that there was nothing in the document to indicate Mr Kennedy's consideration as to when the beneficiary became aware of the defects. Mr Elliott was not aware of any direction given to Mr Kennedy to take into account when it was that the claimant became aware of the defects. 53 Certainly there is no evidence before the Court that before approving in principle the first defendant's claim the second defendant had regard to the six month time limitation expressed in both clause 7(1)(b) and Clause 7(1)(c), but it was submitted by Mr Loofs that the evidence of Mr Elliott indicated that the second defendant would still consider extending time under clause 7(2) when it considered the claim in detail. I do not understand Mr Elliott's evidence to be to that effect but the opportunity still exists for the second defendant to consider the necessity for exercising its discretion under clause 7(2) before any payment is made to the first defendant. 54 What occurred in attempting to have defects rectified before the notification in June 1998 would be a relevant consideration for the purposes of clause 7(2). As I read the evidence before the Court, and having considered the competing submissions of counsel, it seems to me that there are here circumstances by reason of which the second defendant could consider it appropriate to grant any necessary extensions under clause 7(2). However it is not for this Court to extend any time specified under clause 7(1). It is for the corporation to do that and only if it is satisfied that any delay in notification was due to circumstances outside the control of the beneficiary. The proper processing of the first defendant's claim requires that due regard be had to clause 7(2) and this in turn requires a determination by the second defendant as to whether notice was give by the first defendant within a six month period. If not, should an extension of time be granted? 55 It would be wrong for the second defendant to proceed upon the basis that provided a notification was given within three years of the commencement of the building work there was no need to consider when the beneficiary first became aware of the defects giving rise to the claim. To do so would ignore the requirements of clause 7. 56 Since the evidence does not support a finding that the second defendant has to this point of time addressed the "six months" requirement, this is a circumstance which distinguishes Sammut Homes case, and I accept Mr Thompson's submissions in this regard. In the present case, there appears to have been a failure thus far to address a requirement of the insurance scheme, whilst there was no such failure in Sammut Homes. 57 Should the Court make the declarations which the plaintiff seeks? 58 The first of the declarations should only be made if this Court is satisfied that a claim by the first defendant under the insurance scheme cannot properly be maintained. This would involve not only being satisfied that any required notification was not given within six months after the first defendant became aware of the defect but also that the second defendant could not properly exercise its discretion in favour of the first defendant under clause 7(2). As I indicated earlier, I am not satisfied that there is no proper basis upon which the second defendant could act under clause 7(2), assuming that sub-clause to be enlivened. 59 For that reason I decline to make the declaration sought in para 1 of the summons. 60 What is the utility in making the declaration sought in para 3? 61 The insurance scheme requires of the second defendant in the due processing of the first defendant's claim that it consider when that claimant first became aware of the defects giving rise to the alleged loss and whether notification was given within six months of first awareness of any such defect. If not, the due processing of the claim requires the second defendant to determine whether the time for notifying should be extended under clause 7(2). If the second defendant fails to address these matters and if it were then to make payment to the first defendant in respect of the claim, then it would do so at its peril since it would thereby jeopardise any right of recovery against the plaintiff under s 98 of the Building Services Corporation Act. 62 On the other hand, whilst it may be that to date the defendant has failed to address the six month requirement in the mistaken belief that it was only necessary to look at the three years requirement, it is not to be assumed, if such be the case, that the second defendant, in the responsible discharge of its statutory duties, would continue to ignore what the scheme requires it to do now that this judgment expressly addresses those obligations. 63 With these considerations in mind, I conclude that no useful purpose would be achieved by making the second of the declarations sought and for this reason the Court should decline to make that declaration also. 64 For the above reasons I decline to make either declaration and the summons is dismissed. 65 Costs are reserved and the matter will be listed on Thursday 28 November 2002 for the purpose of hearing submissions as to costs. **********

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