Meriton Apartments Pty Limited v Fair Trading Administration Corporation

Supreme Court of NSW|2009-11-17|Before: Einstein J, Newman J, Mr P

CITATION : Meriton Apartments Pty Limited v Fair Trading Administration Corporation [2009] NSWSC 1238

JURISDICTION : Equity Division Technology and Construction List

DECISION : Order that proceedings be stayed until the occasion when the defendant commences recovery proceedings against the plaintiff.

Builders Licensing Act 1971 Building Services Corporation Legislation Amendment Act 1996 (NSW) LEGISLATION CITED : Building Services Corporation Act 1989 (NSW) Home Building Act 1989 (NSW) Supreme Court Act 1970 (NSW)

BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 2) [2008] FCA 1656 Builders' Licensing Board v Inglis & Anor (1985) 1 NSWLR 592 Dixon & Ors v Laurance (1990) QSC, unreported 1125 of 1990 Forster v Jododex (Australia) Pty Ltd (1972) 127 CLR 421 Hanson v Radcliffe UDC [1922] 2 Ch 490 CASES CITED : Jododex (Australia) v Forster [1971] 2 NSWLR 299 Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [1977] 1 NSWLR 43 McCallum Developments v The Owners Corporation SP 53908 [2002] NSWSC 1103 P & V Sammut Homes Pty Ltd v Building Services Corporation [Newman J, Supreme Court of New South Wales, 24 April 1997] Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438; [1921] All ER Rep 329 Sankey v Whitlam (1978) 142 CLR 1; 21 ALR 505 Simmonds v Newport [1921] 1 KB 616

PARTIES : Meriton Apartments Pty Limited (Plaintiff) Fair Trading Administration Corporation (Defendant)

COUNSEL : Mr D Russell QC, Mr D Weinberger (Plaintiff) Mr P Griffin (Defendant)

SOLICITORS : Mr Daniel Grynberg, Meriton Group (Plaintiff) Ms Valerie Griswold Office of Fair Trading (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST

55056/09 Meriton Apartments Pty Limited v Fair Trading Administration Corporation

JUDGMENT The notice of motion 1 There is before the court a notice of motion filed on 14 October 2009 pursuant to which the defendant [Fair Trading Administration Corporation] ["FTAC"] seeks orders for the dismissal of the proceedings, generally pursuant to rule 13.4 (1) (b) of the Uniform Civil Procedure Rules 2005. 2 That rule provides that:

(1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings : (b) no reasonable cause of action is disclosed

the court may order that the proceedings be dismissed generally or in relation to that claim. 3 Additionally the defendant relies upon so much of rule 13.4 (c) as permits the court to strike out proceedings as an abuse of process. 4 The plaintiff is Meriton Apartments Pty Ltd [Meriton] The proceedings 5 The plaintiff's summons seeks the following relief:

A declaration that claims made by the owners of Strata Plan 57895 and settled by the defendant and/or paid by the defendant and claims intended to be settled or paid by the defendant are settlements and payments ultra vires of the BSC Comprehensive Insurance Scheme.

In the alternative to 1, a declaration that claims made by the owners of Strata Plan 57895 and settled and/or paid by the defendant have been paid/settled in amounts in excess of their reasonable value in amounts to be identified by this court. Legislative History 6 The legislative history of the various provisions which inform a proper understanding of the present scheme is as follows: The Building Services Corporation, ("BSC") was constituted by the Building Services Corporation Act 1989 (NSW) ("BSC Act") (s.105(1)).

S.105(3) of the BSC Act provided that for the purpose of attaining its objects, the BSC may, inter alia: (c) insure under this Act residential building work against its not being completed or its being defective

S.91 of the BSC Act (contained within Part 6) referred to the two insurance schemes which may be prescribed by the regulations under the BSC Act (and defines these schemes as "BSC Insurance"). S. 91(4) stated: "The Corporation is to be the Insurer under both schemes."

S. 98(1) of the BSC Act (also contained within Part 6) stated: "Any amount paid by the Corporation under BSC Insurance may be recovered by the Corporation in a court of competent jurisdiction as a debt from the person by whom the residential building work concerned was done or contracted to be done."

The Building Services Corporation Legislation Amendment Act 1996 (NSW) ("BSCLA Act") amended the BSC Act in the following manner: (i) The title of the BSC Act was changed to the Home Building Act 1989 (NSW) (Schedule 5 [2] BSCLA Act);

(ii) Sections 105 - 114 of the BSC Act were replaced by new sections 105-113 as set out in Schedule 5 [22] of the BSCLA Act;

(iii) The new s.106 of the BSC Act outlines the functions of the Director-General.

(iv) By the new s.107 of the BSC Act, the Fair Trading Administration Corporation was constituted (Administration Corporation) (Schedule 5 [22] BSCLA Act);

(v) The new s.109 of the BSC Act set out the functions of the Administration Corporation.

(vi) By the new s.110(1) of the BSC Act "the remaining assets, rights and liabilities of the BSC" were transferred to the Administration Corporation. S.110(2) provides that: The remaining assets, rights and liabilities of the BSC are the assets, rights and liabilities of the BSC immediately before the repeal of the provisions of this Act establishing the BSC by the Building Services Corporation Legislation Amendment Act 1996, other than any such assets, rights or liabilities as are transferred to a person or persons on behalf of the State by an order made under subsection (3) on or before that dissolution.

'BSC' was defined in the new s.105 of the BSC Act as the Building Services Corporation constituted under this Act as in force immediately before the commencement of section 110, as substituted by the BSCLA Act; (vii) The new s.110(5) of the BSC Act stated that clauses 43-45 of Schedule 4 apply to a transfer under s.110(1). The amendments commenced on 1 May 1997.

Section 43 set out in Schedule 4, Part 4 in the BSCLA Act contained further provisions in relation to the transfer of assets, rights and liabilities from the Corporation to the Administration Corporation, including the following: (2) The following provisions have effect (subject to any order directing the transfer):

(a) the assets concerned vest in the transferee by force of this clause and without the need for any conveyance, transfer, assignment or assurance,

(b) the rights and liabilities concerned become by force of this clause the rights and liabilities of the transferee,

(c) all proceedings relating to that part of the assets, rights or liabilities commenced before the transfer by or against the Corporation and pending immediately before the transfer are taken to be proceedings pending by or against the transferee,

(d) anything done or omitted to be done in relation to that part of the assets, rights or liabilities before the transfer by, to or in respect of the Corporation is (to the extent that it has any force or effect) taken to have been done or omitted to be done by, to or in respect of the transferee,

(e) a reference in any other Act, in any instrument, made under any Act or in any document of any kind to the Corporation is (to the extent that it relates to that part of the assets, rights or liabilities but subject to the regulations) to be read as, or as including, a reference to the transferee.

Section 39 set out in Schedule 4, Part 4 in the BSCLA Act stated in relation to the insurance schemes:

(1) Part 6, as in force immediately before the commencement of Schedule 4 [3] to the amending Act, and any other provisions of this Act or the regulations relating to insurance under this Act as so in force, applies to work insured, or existing work required to be insured, under that Part before that commencement, in the same way that those provisions applied immediately before that commencement.

(2) The Administration Corporation has the functions of the Corporation in relation to the provisions and the insurance referred to in sub clause (1).

'Corporation' in this Part was defined as the Building Services Corporation as constituted under the Building Services Corporation Act 1989 immediately before the commencement of Schedule 5 [22] to the amending Act. History of Insurance Claim 7 The following is the history of the insurance claim:

The affidavit of Dennis Fardy, the Director of Insurance Services for NSW Fair Trading, sets out a brief history of the insurance claim made by the Owners - Strata Plan 57895, ("the Owners"), to the defendant in respect to the building constructed by the plaintiff at 99 Jones Street, Ultimo, ("the Property").

The building work on the Property was substantially commenced on 6 November 1996, and was completed in October 1998. It was residential building work within the meaning of the BSC Act, now the Home Building Act 1989 (NSW) ("the HB Act").

The defendant is responsible for the administration of the Comprehensive Insurance Scheme ("the CIS").

On 5 July 2001 the Owners notified the defendant of matters giving rise to claims including the defects identified in an expert report. On 20 November 2001 the Owners advised the defendant of the plaintiff's failure to carry out any rectification works and its decision to proceed with its insurance claim. On 5 December 2001 the defendant advised the plaintiff of the Owners' decision to lodge an insurance claim.

On 9 January 2002, the Owners lodged an insurance claim form with the defendant in which it asserted that it became aware of defective work between September 1998 and March 2001. The Owners are entitled to a maximum amount of $6.76 million under the CIS.

The defendant has accepted various claims made by the Owners and approved the payments of various amounts arising from these claims. It has progressively advised the plaintiff of these payments.

The defendant has not accepted liability under the CIS for all the items that have been the subject of the Owners' claim. The plaintiff's list statement 8 In its list statement filed on 1 July 2009, the plaintiff contends that any liability for the claims accepted by the defendants is ultra vires under the comprehensive Insurance Scheme ["the CIS"] in that:

(a) the owners did not notify the defendant within time under the Scheme;

(b) the defendant in breach of section 56(1)(a) of the Building Services Corporation Act ("the Act") accepted a Complaint Form out of time and treated it as notification pursuant to clause 7(1)(b) of the Scheme;

(c) the defendant purported to extend the times specified in clause 7(1) of the Scheme pursuant to clause 7(2) of the Scheme in circumstances where it was not and could not have been satisfied that the delay in notification was due to circumstances outside the control of the owners and in circumstances where the delay was not outside the control of the owners;

(d) the defendant by its conduct was deemed by the Act to have declined the claims;

(e) the owners did not lodge an appeal from the deemed refusal within 30 days;

(f) the owners did not seek and were not granted leave to appeal from the deemed refusal out of time; (See paragraph C 7.) 9 The plaintiff further contends that all the decisions made by the defendant to pay or settle claims from the owners are ultra vires. Consequently, the plaintiff contends that it has no obligation to indemnify the defendant under s98 of the Act or the CIS. Other considerations 10 The defendant has informed the plaintiff that it believes the payments have been validly made. It has progressively advised the plaintiff of the approvals and payments made under the CIS and of its intention to seek recovery once the claim is fully paid out. The defendant has advised the plaintiff that it is prepared to negotiate reimbursements of the amounts paid before commencing any recovery action. 11 Importantly the defendant has not demanded recovery against the plaintiff pursuant to its rights under s.98 of the BSC Act. Section 98 12 Section 98 of the Building Services Corporation Act relevantly provides:

(1) Any amount paid by the Corporation under BSC Insurance may be recovered by the Corporation in a court of competent jurisdiction as a debt from the person by whom residential building work concerned was done or contracted to be done.

(4) After considering the circumstances of the case, the Corporation may decide:

(a) not to attempt to recover an amount under this section, or (b) to accept any amount in satisfaction of its right to take recovery action under this section. The defendant's contentions 13 The defendant has relied upon a number of authorities in support of its application. These include the following: i. In an unreported decision of P & V Sammut Homes Pty Ltd v Building Services Corporation (NSW Supreme Court 30091-96 dated 24 April 1997), Newman J considered the meaning of section 98 and observed: It seems to me that s 98 (4) confers a discretion on the Corporation as to whether or not it will seek to make recovery from a company in the plaintiff's position of any payments it makes under the insurance scheme. Thus the Board's entitlement to consider claims made would appear to be both prior to and separate from any question of the plaintiff's rights being affected as a consequence of the Board considering and making a payment under the scheme.

I say this because in my view Inglis and Collings make it plain that in order to succeed in an action for debt under s 98 the defendant must prove all elements of its claim. (Page 13).

ii. In Builders' Licensing Board v Inglis & Anor (1985) 1 NSWLR 592 at 596 Kirby P observed: It cannot be said that any amount paid by the Board is recoverable. For example, an amount paid as a result of an administrative error or for a reason wholly extraneous to the purposes of the Act, would clearly not be recoverable. (Point G.)

Kirby P was considering s 34(3) of the Builders Licensing Act 1971. In Sammut Newman J commented that there was sufficient similarity between this provision and s 98 for him to adopt Kirby P's construction of the ambit of the earlier provision to s 98.

iii. In Sammut Newman J found that any payment made by the BSC to the clients of the builder did not involve an interference with the private right of the builder to defend a claim made on the scheme. Thus, in the absence of demonstrating any interference to its private rights, to obtain relief the builder had to establish a special interest in the subject matter of the action. (Page 14.) No such interest or interference with private rights was established because the builder retained all its rights to defend an action for debt brought by the BSC.

iv. In McCallum Developments v The Owners Corporation SP 53908 [2002] NSWSC 1103 (21 November 2003) the Fair Trading Administration Corporation, ("FTAC"), was the second defendant. The plaintiff submitted that the first defendant could not make an insurance claim because it was out of time. Consequently, the second defendant had no power to assess or determine the claim and any approval in principle of the claim was void.

FTAC submitted that whether or not it determines it should make a payment pursuant to a claim under the statutory scheme was a matter between the defendants and that the plaintiff had no standing to seek the relief expressed in the summons. Studdert J observed that what was said by Kirby P in Inglis was equally apposite to s 98 and he agreed with Newman J's analysis of this section in Sammut and continued: It follows that should the second defendant make a payment to the first defendant on its claim and later take recovery proceedings against the plaintiff, the second defendant would in such proceedings be required to prove all elements of its claim, and it would be required to prove, if called upon by the plaintiff to do so, that the first defendant's claim was made within time for the purposes of Form 4 clause 7(1), or, alternatively, that time had been extended in accordance with clause 7(2), upon the corporation being satisfied "that the delay in notification was due to circumstances outside the control of " the first defendant. (Paragraph 25 page 8.)

His Honour considered the plaintiff's submission that it had a special interest by reason of the unlawfulness of the second defendant's decision to meet the insurance claim. He concluded that, unlike in Sammut, in this case there had been a failure by the second defendant to address a time requirement of the insurance scheme. In declining to make either of the declarations sought he commented as follows: The insurance scheme requires of the second defendant in the due processing of the first defendant's claim that it consider when the 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 jeopardize any right of recovery against the plaintiff under s 98 of the Building Services Corporation Act . (Paragraph 61 pages 12-3.) Finally Studdert J notes that even if the six-month requirement had not so far been addressed:

… 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. (Paragraph 62, page 13.) The court's power 14 There is no dispute as to the power of the Supreme Court [in an appropriate situation] to make binding declarations of right whether or not any consequential relief is or could be claimed: 15 Section 75 of the Supreme Court Act 1970 provides:

"No proceedings shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby and the Court may make binding declarations of right whether any consequential relief is or could be claimed or not" 16 As the plaintiffs have contended:

i. Declarations may be sought and made as to the existence of an obligation to comply with a statutory requirement: Simmonds v Newport [1921] 1 KB 616.

ii. The modern viewpoint is that in the ordinary case there is almost unlimited jurisdiction which the court may in its discretion exercise: Hanson v Radcliffe UDC [1922] 2 Ch 490 at 507, Forster v Jododex (Australia) Pty Ltd (1972) 127 CLR 421 at 434 ff, and Sankey v Whitlam (1978) 142 CLR 1; 21 ALR 505: see P W Young QC at [401].

iii. The jurisdiction to grant declaratory relief is available though there has been no contravention of rights or breach of obligations. It is sufficient if there be a legal controversy between the parties to the suit: BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 2) [2008] FCA 1656 (10 November 2008); see also Dixon & Ors v Laurance (1990) QSC, unreported. 17 As long ago as 1971/1972 in the Jododex litigation: Jododex (Australia) v Forster [1971] 2 NSWLR 299; [1972] 127 CLR 421, the ambit of the Court's discretion was acknowledged. Gibbs J at 435-38 put the matter as follows:

"The jurisdiction to make a declaration is a very wide one. Indeed, it has been said that, 'under O.XXV, r.5, the power of the Court to make a declaration, where it is a question of defining the rights of two parties, is almost unlimited; … With all respect, I find it difficult to see any reason why the Court should have lacked jurisdiction to declare that Jododex held the right which it claimed, namely the right of the holder of an exploration licence validly renewed. There is no provision in the Act that gives to any other tribunal exclusive jurisdiction to decide the question whether a person s the holder of a valid exploration licence, or that otherwise withdraws the determination of that question from the jurisdiction of the Supreme Court."

"It is neither possible nor desirable to fetter the broad discretion given by s.10 by laying down rules as to the manner of its exercise. It does, however, seem to me that the Scottish rules summarized by Lord Dunedin in Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd , should in general be satisfied before the discretion is exercised in favour of making a declaration:

'The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor, that is to say, some one presently existing who has a true interest to oppose the declaration sought.'" 18 In Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [1977] 1 NSWLR 43 the court was concerned with the construction of an unsigned policy statement (the press statement) issued by the Commonwealth and two State Ministers. 19 Street CJ and Moffitt P held that there is no legal restriction on the power of the court to make a declaratory judgment or order pursuant to section 75 of the Supreme Court Act 1970, so long as the jurisdiction is exercised with the proper sense of responsibility and the full realisation that judicial pronouncements ought not to be issued unless there are circumstances that call for their making. It was held that the court had jurisdiction (contrary to the finding at first instance) as the plaintiff had a justiciable issue. 20 Moffitt P at 54B said as follows:

"Having regard to the approach laid down in the decisions from which I have quoted, I am not prepared to take the extreme step of holding that there is no jurisdiction to entertain a dispute over the construction or meaning of this pat of the policy statement. I do not consider that the plaintiff's claim, vague and flexible as the policy statement may be, should properly be categorised as falling outside the scope of the declaratory jurisdiction." And at 57D:

"The proper conclusion to be drawn concerning the power to make a declaration is that the jurisdiction (in the strict sense) to grant declaratory relief in a properly constituted action is very wide, so that no particular limitation can be pointed to, but it may be excluded by statute in a particular type of case, eg where jurisdiction is conferred upon another tribunal in terms which exclude the jurisdiction of the Court. The limitation in respect of the Court not to exercise it, because the practice of the Court so dictates, or because the individual judge, on the facts of the case, in the exercise of his judicial discretion, determines it inappropriate to exercise the power." The concession by the plaintiff 21 During the hearing of the motion I drew counsel for the plaintiff's attention to certain of the wording used in the claim could declaration 1. The declaration sought had included a declaration as to future claim is intended to be settled or paid by the defendant. The defendant conceded that that phrase would require to be excised from the claimed declaration. The present procedural position 22 It is important to recall that in cases such as McCallum Developments, the Court was not dealing with a strike out motion, but dealing with the application for declaratory relief in a final sense. Presently the defendant pursues a strike out and/or abuse of process finding which is made would leave for another day the entitlement of the plaintiff to seek declaratory relief. 23 Further the one matter which I did not understand either party to gainsay, concerns the proposition that, albeit that the jurisdiction in a strict sense to grant declaratory relief in a properly constituted action is very wide, at least one accepted limitation [in respect of the Courts reticence in exercising that power], is encountered where the individual judge, on the facts of the case, in the exercise of the Court's judicial discretion, may determine it inappropriate to exercise the power. To my mind the present is such a situation. 24 The scheme of the legislation referred to in the reasons and the circumstance that the proceedings are in essence a pre-emptive move where very importantly the defendant has not yet commenced recovery proceedings against the plaintiff, read in the light of the authorities cited by the defendant, confirms my view that the plaintiff should not presently be permitted to continue its proceedings. The principled exercise of the relevant discretion is, as a matter of case management, to stay the proceedings until the occasion when the defendant commences recovery proceedings against the plaintiff. At that time there may well be a consolidation of the two sets of proceedings. 25 This mode of dealing with the current motion seems to me to be preferable. Whilst the making of a stay order in relation to the present proceedings does not achieve the plaintiff's intent, it does leave for another day, a decision as to whether and if so when, the stay should be lifted. *****

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Principles-Building Services Corporation Act 1989(NSW)

Building Services Corporation Legislation Amendment Act 1996(NSW)

Building Services Corporation Act 1989(NSW)

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