Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712 | Case summary

First issue: the statutory warranties 24On the defendants' case, the essential matter in contest was whether the development was, in the words of cl 6(f) of the Regulation, "a house or unit designed, constructed or adapted for commercial use as a tourist, holiday or overnight accommodation". 25At the start, it is necessary to observe that the excluding words in cl 6(f) refer to "a house or unit". That phrase picks up two of the examples of "dwelling" in the parenthesised part of the definition of that word in s 3(1) of the HB Act. It is clear that no technical meaning was intended to be conveyed by the use of those words. 26The argument in the present case relates to the whole of the development. As a matter of language, the exclusionary effect of cl 6(f) would appear to depend not on the design, construction or adaptation of the development overall, but on the design, construction or adaptation of individual residential lots within it. That however raises the question of what, by cl 5 of the Regulation, is taken to form part of the "dwellings" comprised by those lots. The submissions for Brookfield 27Mr Walker of Senior Counsel, who appeared with Mr Breakspear of Counsel for Brookfield, submitted that the Star of the Sea development was adapted for commercial use as tourist holiday or overnight accommodation. He developed that submission by the following steps: (1)the development application described the Star of the Sea development as a "residential resort"; and there were statements, or descriptions, to similar effect in other contemporaneous documents; (2)the "resort" was now, on any view, adapted for commercial use as tourist, holiday or overnight accommodation because there had been constructed facilities (including, but not limited to, a reception desk where holidaymakers could check in); there was a management company which conducted a holiday letting business; and all but three of the units were regularly available to be let to holidaymakers; (3)the evidence showed that at least some of the residential lots had been available for letting to holidaymakers virtually since the date of practical completion; (4)in those circumstances, it could be inferred that the present adaptation and use of the development was something that had always been planned, or proposed; and, thus, something for which the development had always been designed and constructed; (5)in the alternative, given the continuity of use for the stated purposes, it was incumbent on the Owners Corporation to show that this was a state of affairs that had developed subsequent to the making of the D&C contract, and this the Owners Corporation had failed to do. 28It was integral to Mr Walker's submissions that: (1)the question of adaptation (for convenience, I will focus on this, although it must be remembered that Mr Walker's submissions did not focus exclusively on adaptation) was not something to be assessed simply at the time the D&C contract was made; and (2)the question of adaptation was something to be considered and assessed quite separately from whatever might have been the objective intention of the parties to the D&C contract. 29Despite that last submission, Mr Walker did point to facts or events contemporaneous with the making of the D&C contract which might be thought to shed some light on the intention of the parties to it. 30In support of the first submission summarised at [28], Mr Walker noted that although s 18B adopted the approach of the common law, in that it effected the implication of specified warranties into contracts of a particular kind, the scheme of the Act thereafter departed radically from the common law. He submitted, correctly, that the following sections of Pt 2C (including, in particular, ss 18C and 18D) marked a distinct departure from the doctrines of the common law because they set aside, or over-ride, the doctrine of privity of contract. They operate to extend the benefit of the statutory warranties implied into a residential building contract to do residential building work to non-parties to that contract in certain circumstances, and give those non-parties the ability to enforce the statutory warranties in their own right. 31As I understood the submission (and I am not sure that I have taken in its every nuance), Mr Walker relied on this to support his submission that the operation of cl 6(f) of the Regulation should not be assessed at the time the D&C contract was made, but at the time it was sought to be enforced. It was only in the alternative that, he submitted, one went back to the time when the contract was made. The submissions for Hiltan 32As I have noted, the notice of motion filed by Hiltan did not pose, as a question for separate determination, the availability (to the Owners Corporation) of the statutory warranties. Hiltan, in its list response, had admitted that the D&C contract was, as alleged by the Owners Corporation, a contract to do residential building work. However, Hiltan did not admit the allegations made by the Owners Corporations in its list statement that: (1)the development as a whole was a "dwelling" for the purposes of s 3 of the HB Act; (2)alternatively, each of the residential lots in it and each owner's interest in common property was a "dwelling" for that purpose; (3)some of the statutory warranties were implied into the D&C contract, as warranties by Brookfield; and (4)the Owners Corporation was a successor in title to Hiltan in respect of common property, and thus was entitled to the benefit of the statutory warranties as against both Brookfield and Hiltan. 33Against that background, the written submissions for Hiltan stated, in relation to the statutory warranties issue (paras 54): While not pleaded against it, Hiltan supports the position taken by Brookfield on this issue and adopts its submission. It addresses this matter only briefly. 34The submissions that were then put, and that Mr Miller developed orally, focused principally on the question of adaptation. Mr Miller submitted that cl 6(f) of the Regulation was directed at the use made of the structure, or its character as identified by that use, rather than its physical form. 35Mr Miller submitted, by reference to the evidence to which Mr Walker had referred, that it was clear that the development had been adapted for use as tourist, holiday or overnight accommodation. In essence, Mr Miller adopted the position that the application of cl 6(f) was to be considered at the time enforcement of the statutory warranties arose, rather than at the time the contract into which they are implied was made. 36Mr Miller made reference to what he said were absurd or anomalous consequences flowing from the view that the implication of the warranties, and thus the question of their availability, was to be assessed at the time the contract into which they were said to be implied was made. He gave the example of a hotel operator, such as Hilton, buying the development from Hiltan at some time after practical completion, and operating it as a resort; but, nonetheless, having the benefit of the statutory warranties. 37However, Mr Miller then took a further step, and submitted that the D&C contract was not one to do residential building work, so that s 18B of the HB Act did not imply the statutory warranties into it. When it was pointed out that this was inconsistent with the admission in his client's "pleading", he stated that he would seek to withdraw that admission. 38On the following day of the hearing, Hiltan filed in court a notice of motion seeking leave to withdraw the admission, and an affidavit of its solicitor Mr Avendra Singh. I heard argument on the notice of motion. With the consent of the parties, I said that I would reserve my decision on the application for leave to withdraw the admission, and deal with it in the course of giving these reasons. The submissions for the Owners Corporation 39Mr Corsaro of Senior Counsel, who appeared with Mr Casselden of Counsel for the Owners Corporation, submitted that the question of implication under s 18B was to be addressed at the time the contract under consideration was made. That followed, he submitted, both from a consideration of the evident statutory purpose and from the wording of the section itself. 40Mr Corsaro submitted that any other construction would lead to the consequence that the availability of the statutory warranties would vary according to the use made of a structure (presumably, pursuant to some design, construction or adaptation) and, thus, that the warranties might or might not be available according to the use made of the subject property at any particular time. 41Further, Mr Corsaro submitted, the submissions for Brookfield and Hiltan looked at the use of the development overall, whereas the focus of cl 6(f) of the Regulation was on "a house or unit". Nonetheless, as Mr Walker and Mr Miller submitted and Mr Corsaro appeared to accept, what is a "house or unit" is something to be answered not in the abstract but by reference to relevant provisions of the HB Act and the Regulation. 42It appeared to be common ground that because the putative "dwellings" were strata title lots, the effect of cl 5(a) and (c) of the Regulation was in effect to assimilate with them common property by which they were defined or by which they were supported, and common property of which the owners of the lots had use in common from time to time. (This summary of the sub-clauses is not intended to be exhaustive.) I say that it appeared to be common ground, because each of Mr Walker and Mr Corsaro relied on the operation of cl 5 (although for different purposes); and Mr Miller, as I have noted, adopted and supported Mr Walker's submissions on the issue presently under consideration. 43Mr Corsaro referred to aspects of the evidence which, he submitted, showed that the intention of Hiltan was to develop, and thus that the intention of Brookfield was to construct, residential apartments of high quality and having features that could be characterised as "resort living". 44The Owners Corporation filed a number of affidavits from owners of residential lots within the development. Those owners deposed to their reasons for buying the particular lot. Some bought, intending to live there permanently. Others bought, for use by themselves, family and friends as holiday accommodation. Some bought with a view of living there in the future. Many in the last two categories made their lots available for lease when not otherwise required. Mr Corsaro relied on this evidence, to support the proposition, as I understand it, that the residential lots were designed and constructed for use as dwellings. 45Further, Mr Corsaro relied on what was characterised as the expert evidence of a town planner, Mr Peter Le Bas. That evidence was admitted subject to the defendants' objection as to its relevance. I will deal with it, and determine the objection on relevance, when I turn to consider the substance of this issue. 46Mr Corsaro relied on cls 21A and 30A of the D&C contract. By cl 21A Brookfield was required to effect and maintain insurance compliant with s 92 of the HB Act. By cl 30A, Brookfield warranted, among other things, that it would carry out work in accordance with the HB Act. Further, by cl 30A, Hiltan acknowledged that the contract complied with the HB Act, and warranted that it had not contracted to do work in contravention of Division 1 of the HB Act. 47Mr Corsaro submitted that, on the pleadings, it was not open to Hiltan to argue that the provisions of ss 18B and 18C of the HB Act did not apply for the benefit of the Owners Corporation against Hiltan. He opposed the application for leave to withdraw the admission. The application for leave to withdraw the admission 48I deal with this issue first. Mr Miller relied on UCPR r 12.6. That rule reads: 12.6 Withdrawal of matter in defence or subsequent pleading (cf SCR Part 21, rules 3 and 5; DCR Part 18, rule 2; LCR Part 17, rule 2) (1)A party raising any matter in a defence or subsequent pleading may withdraw the matter at any time. (2) Despite subrule (1), a party may not withdraw any admission, or any other matter that operates for the benefit of another party, except with the consent of the other party or by leave of the court. (3) A withdrawal under this rule is to be made by filing a notice of withdrawal stating the extent of the withdrawal. (4) If the withdrawal is by consent, the notice under subrule (3) must be accompanied by a notice from each party whose consent is required by subrule (2) to the effect that the party consents to the admission or other matter being withdrawn in accordance with the notice of withdrawal. The evidence 49The evidence of Mr Singh, which was unchallenged and uncontroverted, was to the following effect. 50Mr Singh said that the admission (that the D&C contract was one to do residential building work) "was made having regard to references in the Building Contract to the Act". He said, further, that the admission was made because he considered it was consistent with the contention that cl 6(f) of the Regulation "operates distributively in the event that the development of the building contract is subsequently adapted to a tourist development". This, Mr Singh explained, was why there were non-admissions that the complex or the units in it were a dwelling, and that the Owners Corporation was entitled to enforce the implied statutory warranties against Hiltan. 51Further, Mr Singh said, Hiltan did not plead to, and thus in effect admitted, the contention referred to at [32[4]] above because it considered that contention to have been levelled only at Brookfield. Although the question is far from clear, I do accept that the way the relevant paragraph in the list statement is drawn could well leave even a careful reader with that impression. 52Mr Singh said that Brookfield had always maintained that the D&C contract was not one to do residential building work. Thus, he said, if the court were to accept that submission, but at the same time hold Hiltan to its admission, the outcome "would be an anomalous result". 53Finally, Mr Singh said that he did not believe that the Owners Corporation could have suffered any prejudice, because the issue that Hiltan sought to raise (for which the withdrawal of the admission was a necessary first step) was in dispute as between the Owners Corporation and Brookfield in any event. 54Mr Singh did not say that the admission was made in error, or on an incomplete or inaccurate understanding of the relevant facts. On the contrary, it is I infer clear, both from what Mr Singh said and from what he did not say, that he, and through him Hiltan, had an adequate grasp of the facts, and made the admission because it was thought to be proper having regard to the relevant facts. One might say, in this context, that Hiltan of all people should have known whether or not the D&C contract was one to do residential building work. The submissions 55Mr Miller's submissions, in essence, developed the points made Mr Singh's affidavit. 56Mr Corsaro relied on the authorities, on r 12.6, as summarised by Harrison J in NM Rural Enterprises Pty Ltd v Rimanui Farms Limited [2010] NSWSC 969 at [10] and following. The principles 57It is clear, from the authorities, that the court does not readily grant leave to withdraw an admission where: (1)the party making it was under no disability; (2)the party making it had full opportunity to consider its case, in the light of the relevant facts; and (3)the admission was clear and distinct, and made, on the face of things, deliberately and with formality. 58Those observations apply to the present case. 59Equally, it is clear, the Court will generally grant leave to withdraw an admission where: (1)it was made inadvertently; or (2)it was made without proper consideration of material matters. 60Those observations do not apply to the present case. 61However, leave to withdraw an admission will generally be given (subject to any question of change of position on the part of the opposing party) if it is shown to be contrary to the actual facts. Mr Miller relied on this proposition. Whether or not the admission is contrary to the actual facts is of course the question that lies at the heart of the dispute as to availability of the statutory warranties. Decision 62In this case, it is clear that the admission was made deliberately, and that there was no question of ignorance or mistake vitiating the decision to admit. On the contrary, as I have suggested, Hiltan above all should have known, as a matter of fact, whether the D&C contract was one to do residential building work, as that expression is defined in s 3 of the HB Act. 63It is correct to say, as Mr Singh observed, that Brookfield has always taken a different position to that admitted by Hiltan. However, Hiltan, through its legal advisers, must have understood, at all material times, that Brookfield did have a different view of the consequences in law of the relevant facts. Hiltan made the admission in its list response filed on 20 May 2011. Brookfield filed its list response, taking issue with the relevant contention, a week later: on 27 May 2011. Hiltan did not seek, thereafter, to withdraw the admission that it had made. 64The evidence of the plaintiff's witness Mr Lloyd was served on about 21 February 2012. That evidence dealt in detail with the way that the various lots in the development were, and from time to time have been, used. 65Whatever consideration Hiltan made of that evidence did not persuade it to seek leave to withdraw the admission. On the contrary, on 23 March 2012, Hiltan filed its notice of motion in which it sought separate and prior determination of only one question: namely, whether it owed the Owners Corporation the duty of care alleged by the Owners Corporation in its list statement. 66That notice of motion was filed some 9 days after Brookfield filed its notice of motion seeking determination of both the statutory warranty issue (more accurately, the issue raised in reliance on cl 6(f) of the Regulation) and the duty of care issue. 67Thereafter, the defendants garnered their evidence on the issues to be dealt with separately and before other issues. That included further evidence (principally, but not exclusively, adduced through Brookfield's solicitor Mr Peter Pether) dealing with the question of use of lots in the development from time to time. 68As I have noted, when Hiltan put on its written submissions, it referred to the fact that the allegation, that the D&C contract was one to do residential building work, had been admitted. It did not suggest that this admission was one that had been made incautiously, or by oversight; or that it was one that Hiltan would seek to withdraw. 69In those circumstances, I do not see why the interests of justice, or wider considerations of "fairness" (if they are relevant) dictate that Hiltan should have the leave that it seeks. It chose to fight the claim on the basis that although the D&C contract was one to do residential building work, nonetheless it was not liable pursuant to s 18C of the Act because cl 6(f) of the Regulation had effect, operating, as Mr Singh put it, "distributively". 70It is, I think, open to infer that the application for leave to withdraw the admission was made once it became apparent, in the course of Mr Walker's submissions, that there were (to put the matter neutrally) difficulties with the proposition that the operation of cl 6(f) of the Regulation could be engaged not by reason of circumstances existing at the time the D&C contract was made, but by circumstances arising thereafter (indeed, after practical completion had been achieved). 71I do not think that the submission based on the prospect of anomalous outcomes is of any weight. It appeared to be common ground that if the pleadings stood as they are, it would be open to Hiltan to argue that cl 6(f) operated distributively (again to use Mr Singh's term) so that, notwithstanding that the contract was one to do residential building work (i.e., is to be so characterised at the time it was made), nonetheless events that occurred thereafter engage the operation of cl 6(f) and, thus, disentitle the Owners Corporation to the benefit of the statutory warranties as against both Brookfield and Hiltan. 72Thus, there can only be an anomalous outcome if that approach to construction is rejected and if it is held that, on the facts as they can be discerned at the time the D&C contract was made, it was indeed one to do residential building work. But that is the matter that Hiltan, having full knowledge of the relevant facts, chose to admit. 73If the court accedes to the alternative submissions for Brookfield on that basis, then there will be anomaly of outcome. Hiltan will be liable to the Owners Corporation pursuant to s 18C of the HB Act, but Multiplex will not be liable pursuant to s 18D. (I do not think that the different sources of liability are of any significance for present purposes.) But, taking into account what I have set out above, it can only be concluded that Hiltan was aware of, and chose to court the possibility of occurrence of, that potential anomalous outcome. 74Accuracy and clarity in pleadings (and in the equivalents of pleadings, such as list statements and list responses) are of great importance. Pleadings, and their equivalents, define the issues not only for the court but also for the parties. A pleading should enable the opposing party to know what is the case that it has to meet, so that it can frame the preparation of its case accordingly. That objective is undermined if admissions that have been made, as this one was, deliberately and with full appreciation of the relevant facts, are lightly permitted to be withdrawn. 75It is not just a question of prejudice in the context of evidence. In this case, I accept, that because the cl 6(f) issue is alive as between the Owners Corporation and Brookfield, the Owners Corporation must have been prepared to meet it (as best it could) in any event. But prejudice goes further than that. It was, for example, open to the Owners Corporation to take the view that, on the admission made by Hiltan and on the view that its own legal advisers took of the operation of cl 6(f) of the Regulation, it had good prospects of succeeding against Hiltan at least on the statutory warranties issue. 76There was of course no evidence to this effect. That can be explained, I think, because the question arose in the course of what was effectively a final hearing (although a final hearing on separate questions), in circumstances where the parties had spent a great deal of time, and I infer, a great amount of money, in preparing for and conducting that hearing. The Owners Corporation chose to meet the application on the basis of the evidence that was presented. Any other course would have required the termination of the hearing and an adjournment of the notice of motion, to enable it to be argued on the basis of whatever further evidence either party affected by it might seek to adduce. That would have lead to an unconscionable waste not only of costs but also of court time. 77In my view, in those circumstances, it is open to the court to draw inferences, as to prejudice, even in the absence of express evidence. In this context, I note that, as Tobias JA pointed out in Maile v Rafiq [2005] NSWCA 410 at [78] to [91], there is no need to establish actual prejudice, and the court may presume prejudice arising from delay. 78The question is a very difficult one. That is why I said that I wished to consider it, rather than to deal with it in an ex tempore judgment. It was preferable to consider in detail the evidence, the competing contentions, and the guidance to be obtained from the authorities (in which I include not merely the judgment of Harrison J in NM Rural Enterprises but also the various decisions to which his Honour referred from [11] to [14]) in order to reach a balanced view on the question. 79On the one hand, the court must be careful to avoid actual injustice. On the other hand, where the potential for injustice arises not from circumstances beyond the control of the party, but from circumstances for which that party is entirely and deliberately responsible, the court is entitled to give more weight to the counterbalancing considerations (which any analysis of the interests of justice involves in any event). Without wishing to express any definitive view, I would observe that, where an admission has been made by accident or oversight, or on an incomplete appreciation of the facts, and where leave to withdraw did not occasion substantial prejudice, the court might well be inclined to grant such leave. But for the reasons that I have sought to explain, this application is far removed from those hypothetical facts. 80In my view, the background against which and circumstances in which the admission was made, and the opportunity to reconsider the admission that from time to time presented itself, fortify the conclusion that the application is one made for tactical reasons rather than because Hiltan now believes that there is a serious basis for disputing the underlying facts. Hiltan chose the ground on which it wished to defend the claim by the Owners Corporation. It should not be permitted to change that basis, late in the course of what is in effect a final hearing intended to resolve the questions of principle raised between the parties in relation to that claim. 81To the extent that there is prejudice, or the prospect of anomaly, that is the result of Hiltan's deliberate decision, made, no doubt, with the benefit of capable legal advice. It is the author of any misfortune, and must bear the consequences. 82Balancing as best I can the competing considerations, and giving weight not only to the possibility of unfairness and anomaly, but also to presumed prejudice, I conclude that Hiltan should not have leave to withdraw the admission. I do not think that it is possible to explain in more detail the reasons for that conclusion. 83I will order that Hiltan's notice of motion filed in court on 15 June 2012 be dismissed with costs. Decision on the statutory warranties issue 84The starting point is that what was designed and built was a complex containing four low rise buildings, constructed on a single podium and with an underground carpark, comprising some 52 residential lots, and common property. Each residential lot was, clearly enough, designed and constructed so that someone could live in it. As I have said, some residential lots comprised three bedrooms, some four, and some five. Each comprised, in addition, a kitchen, laundry facilities, bathrooms, substantial living and dinning space and one or more balconies or terraces. Each had associated carparking. 85Brochures produced by Hiltan or an associated company, Tesrol Holdings, for the purpose of marketing residential lots in the development described it, and its features, in glowing terms (it is perhaps not necessary to say that one would hardly expect anything less). The marketing brochure was an invitation to prospective purchases "to live the life". It boasted that the development would featured the following: State of the art home technology, quality European kitchen inclusions, heated indoor and outdoor swimming pools with summer kitchen and pool cabana, tennis and squash courts, library, games and snooker room, gymnasium, steam room, spa within the luxuriant sub-tropical landscaping with extensive water features... 86It was said that those matters would: ... all combine to create part of this magnificent location, that you can call home. 87Another brochure, describing the "prestige apartments" in the "luxury residential resort", referred to the development as offering: 52 Resort Style residential apartments and penthouses. 88An advertisement in the Financial Review for 5 November 2003 referred to the development as offering "the ultimate in resort style living" and as "[c]omprising 52 luxury residential apartments". 89A feature article, or, it may be, "an advertorial", in Home and Architectural Trends, volume 20 number 16, quoted Mr Pat Sergi, of Tesrol as saying: Lifestyle factors have always been important to people wishing to live in a costal location. But today we are seeing a significant demand for resort-style accommodation that offers both luxury and security. 90In the same issue of that magazine, Mr Sergi was quoted again: This complex not only provides high-end apartment living, it also offers views, recreational facilities and privacy from neighbours... Security is another factor that has so influenced the demand for developments such as this. ... This is the first development of its kind on the New South Wales coast... . Buyers are attracted to the idea of a home that doubles as a holiday resort, and while many owners have bought apartments as holiday homes, others are commuting to the city each day. 91The same magazine referred to the development as "an apartment complex" with "resort" features such as "extensive landscaped gardens and recreational facilities, such as swimming pools and tennis courts". The architect described the project as "a prestige residential development - one that conveys the impression of a 5-star resort". 92The "Owner's Manual" apparently given to purchasers within the development referred to the "unique residential apartments" which, by reason of their design and finishes, would "provide a living environment that will meet the needs of the most discerning resident". It referred to the "extensive resort style facilities" and contained a detailed explanation of "all the features and amenities... so that you can enjoy the full benefits of your new apartment". It is fair to observe that many of the matters that were dealt with in the Owner's Manual were of particular application to permanent residents. 93In the context in which references to "resort" or "resort-style living" appear, it is, in my view, plain that the development was being marketed not as a resort, in the sense of a resort venue for the use of holiday-makers, but as a residential apartment complex which had features often associated with up-market holiday resorts. In other words, I think, the marketing was intended to create the impression (and in my view did create the impression) that those who became residents of the development would enjoy not only extremely spacious and well finished apartments, but also the recreational or "lifestyle" benefits often associated with up-market holiday resorts. 94As I have noted, the submissions for the defendants focused attention on material promoting the letting business conducted from within the development. On the evidence, the majority of the residential lots within the development were let, or available for letting; and it is apparent that there is a substantial rental market. 95Thus, as Mr Walker pointed out, many of the apartments have been available for letting, and from time to time let, virtually since practical completion. They include some seven apartments owned by Mr Sergi. 96A document prepared by the letting manager notes the following: (1)The building opened July 2004 with a 5 Star Rating from AAA Tourism and actually won the award for the best 5 Star Apartments in NSW. There are 52 apartments consisting of 5 x 5 bedrooms, 8 x 4 bedrooms & 41 x 3 bedrooms and 1 x Manager's Apartment owned by the Body Corporate. The strata levies have actually come down over the first 3 years as we have come in under budget mainly due to yearly budgeted maintenance contracts. (2)Get Active Management Services (Bob & Anne Lloyd) are the original on site managers and are responsible 24/7 for the caretaking, cleanliness, security and general management of the building for all owners and guests. (3)Currently we have 3 units occupied by permanent residents (they love it here) 6 units that are used exclusively for personal use and 43 units that rent via management. ... The attached rental & occupancy rates as listed are a realistic appraisal of both what we are currently achieving and our projected figures for the next 12 months. Now that we have peaked at 43 rental units we can all grow together and continue to raise the rental return bar. We market the apartments as resort, ocean or premier ocean view and this limits guest negotiation to the 4 winter months so we find we are able to achieve the published rental rates for the other 8 months of the year. It is most important that you review the annual income and calculate your potential net income which will determine your overall investment return and your ability to cover any mortgage payments. It is hoped that after your deposit you will be close to cash flow neutral but with the depreciation schedules ranging from $45,000+ you should definitely be tax flow positive. ... It is obvious that our weekend packages are very popular along with school holiday accommodation. We are heavily promoting our Winter Escapes from May-August where during the week you pay for 2 nights and get 2 nights free and on the weekend pay for Friday & Saturday & get Sunday night free. Exciting news is that from September 1st 2007 we have the Reef Restaurant exclusive Monday - Friday for conferences up to 90 delegates... this has tremendous potential to fill up mid week bookings at maximum rates. Currently we are marketing for 100% occupancy for our summer months November - February when the sun shines and the rates are at their highest. To achieve the attached projected rental figures we only need to grow by 7% and we are actually on target to grow 15%!! 97The same document, referring to ways in which the development had been advertised for letting, noted that: ... word of mouth has already taken over as our major source of referral as we have hosted over 50,000 guests in just three years. 98It could be inferred from this, and from some projected return figures, that the document was prepared in early to mid 2007. 99As I have said, Mr Corsaro relied on the evidence of an expert town planner, Mr Le Bas. Mr Le Bas was asked to give an opinion on three question (I paraphrase them): 1.was a statement of environmental effects prepared by a Mr John Hancock for the proposed development appropriate for something to be constructed or adapted for commercial use as tourist, holiday or overnight accommodation? 2.What, if anything, in that document is contrary to a statement of environmental effects for such a development? 3.How would that document differ it were intended as a statement of environmental effects for such a development? 100I have no doubt that Mr Le Bas is a qualified and experienced town planner, capable of giving expert evidence on matters relating to his field of expertise. However, I do not regard his report as adding significantly to the store of knowledge relevant to the issue with which I am now dealing. To the extent that it expresses opinions, it does not appear to trace any relationship between Mr Le Bas' undoubted specialised knowledge and the opinions expressed. Nor do the questions, or in most cases those opinions, seem to me to have anything to do with the issue with which I am presently dealing. Finally, to the extent that Mr Le Bas expresses relevant opinions, they are opinions as to conclusions of law (for example, that when the subject development was proposed, and application was made to the local council for consent, commercial use for tourist, holiday or overnight accommodation would have been prohibited in the particular zone within which the land is located). 101In those circumstances, I reject the report of Mr Le Bas. It follows that I will not take his opinions into account. I do find, however, based on the relevant provisions of the Gosford Planning Scheme Ordinance as it stood when consent was sought, that commercial use for tourist, holiday or overnight accommodation was prohibited for the subject land. 102I return to the relevant provisions of the HB Act. Section 18B provides that the statutory warranties "are implied in every contract to do residential building work". That language suggests that the warranties are implied when the contract, if it is one of the described kind, is made. 103Each of the warranties set out in paras (a) to (f) operates prospectively: "the work will be performed"; "materials supplied... will be good and suitable..."; and the like. 104Particular attention may be given to the warranty in para (e). Relevantly for present purposes, it states that: ... if the work consists of the construction of a dwelling, ... the work will result, to the extent of the work conducted, in a dwelling is reasonably fit for occupation as a dwelling. 105The structure of s 18B in general, and the language of the statutory warranties (para (e) in particular), suggest that the question of application of the section is to be determined when the contract is made. Thus, if at the time the contract is made it can be described as one "to do residential work", then the warranties are implied. 106In turn, if the warranties are implied, the consequences, as to non-party enforcement, set out in ss 18C and 18D will follow. 107A contract will be one "to do residential building work" if the definitions of "residential building work" and "dwelling" are engaged. 108If one reads those definitions together, and focuses for the moment only on the construction phase, residential building work may be understood as: ... any work involved in, or involved in co-ordinating or supervising any work involved in: (a)the construction of a building or portion of a building that is designed ... for use as a dwelling (such as a... strata... title home unit...). ... 109Accepting, as I do, that ss 18C and 18D in particular override the common law concept of privity of contract, nonetheless one would be slow to impute to the legislature an intention that the nature and extent of contractual obligations should not be known to and understood by the parties to the contract at the time they negotiate for it and make it. Adapting those observations to the present purpose, it seems to me that one must try to construe the relevant provisions of the Act to have the effect that the question of characterisation of a contract, to see whether or not it is one to which s 18B applies, must be capable of resolution no later than the time the contract is made, and in accordance with the objective circumstances in which it was made. 110Where the contract is one for the construction of a new building, then the question of whether what is to be constructed is a "dwelling" will turn necessarily on the question of design. Mr Walker submitted that, under a design and construct contract (such as the D&C contract with which I am concerned), the design would evolve over the life or performance of the contract. So much may be accepted. However, in this case, what was to be designed and constructed was a "project" that met the specifications of the "project brief" incorporated into the D&C contract. Although that project brief is largely unilluminating, nothing in it suggests that what was to be designed and constructed was anything other than a complex of 52 luxuriously constructed and appointed residential apartments, together with leisure facilities and landscaping equivalent to those to be found in up-market holiday resorts. 111In this context, I note that the development application submitted to the local council was one for the construction of a "residential resort" and that the statement of environmental effects accompanying it referred to the capacity of the development to "assist Terrigal in asserting its prominence as a tourist destination of local, national and international significance". Nonetheless, what was approved was a development for: RESIDENTIAL FLAT BUILDINGS CONSISTING OF FIFTY-TWO (52) UNITS AND ONE (1) MANAGER'S UNIT 112The conditions of approval required the construction to be "generally in accordance with" identified plans. Those identified plans showed, clearly enough, a complex comprising 52 residential apartments. 113It is clear that Hiltan and Brookfield regard the D&C contract as to one to which the provisions of the HB Act would apply. That is shown, in particular, by cls 21A and 30A. I confess to having some difficulty in understanding why the court should now second-guess the parties to the contract, who must be taken to have known what it was that they were proposing to construct. However, as Mr Walker submitted, I will leave the question of objective intention to one side. 114As I have noted at [44] above, Mr Corsaro relied on evidence of some (but not all) proprietors of residential lots, as to their intentions in buying their lots. It may be gathered from this evidence that although some proprietors bought their lots with the intention of making them available for holiday letting (for at least some of the year), they have not combined to carry on this enterprise in common. As I have indicated, the letting business is carried on by a management company. Further, at least some lots that are let for holiday purposes are let, not through that management company, but through independent real estate agents. I do not regard the evidence of proprietors, as to their subjective intentions, as having any bearing on the resolution of this issue. 115The answer seems to me to lie in the contract and in the plans and specifications. What was to be constructed was a complex of 52 residential apartments. Each was designed for people to live in. In other words, each was designed for use as a dwelling. In this context, I take the word "dwelling" to mean, as Dr Johnson said, a "[h]abitation; place of residence; abode" (Dictionary of the English language, first quarto edition, 1820). Lest it be thought that I am being unduly antiquarian in my choice of reference, I will note that the Oxford Dictionary of the Australian Language (second edition, 2004) defines a dwelling as "a house; a residence; an abode". 116In short, in my view, the evidence leads to the conclusion that the development was designed as a residential apartment complex, although one having luxurious features more often found in up-market holiday resorts. On that basis, the 52 residential lots within it were designed for use as dwellings, and the contract to design and execute the works was thus one to do residential building work. 117To my mind, the HB Act, in using the concepts of design, construction and adaptation, is looking at the status of the structure (or proposed structure) at the time the contract is made. If the contract is one for construction, then of necessity, in considering the contract to construct it, one must look at the design of what is to be constructed. If the contract is one to carry out further work or alternations, on or to an existing building, then one should look at what has been constructed already. In an appropriate case, it will be necessary (in seeking to characterise a contract to carry out further work on an existing building) to look also at how that which has been designed and built has been adapted: to what uses it has been adapted. 118In my view, it does not follow from this that the question of design, construction and adaptation is to be enlisted, for the purposes of considering of whether a particular contract for the construction of a building, is one to do residential building work, successively over the life of the building. It is one to be considered each time a contract involving work in relation to the building is made. 119Nor do I think that the question of application, or availability, of the statutory warranties is one to be considered, at the time a successor in title to Hiltan seeks to enforce a statutory warranty, by reference to the use to which the project, or particular lots within it, is being put at the time of enforcement. Even if it is to be accepted that there have been "adaptations" to the common property, to facilitate the letting of individual residential lots, I do not think that this bears on the ability of a particular successor in title to enforce a statutory warranty. That would mean that the availability and enforceability of the statutory warranties would vary from time to time, according to the use, or adaptation for use, of particular lots, or perhaps of common property, at particular times. It could mean that the warranties might be enforceable by some proprietors, but not by others. Or it could mean that the warranties might not be enforceable at all at some times, but become enforceable at others. 120There is no evidence to suggest that the design of the development was adapted, at any stage prior to practical completion and registration of the strata plan, to facilitate or accommodate use for the purposes set out in cl 6(f) of the Regulation. Undoubtedly, after practical completion and settlement of contracts for sale, some of the residential lots were used for those purposes. But, on the evidence, those lots were made available for letting in the state in which they had been constructed. Such adaptation as took place thereafter (for example, the installation of a reception desk on common property, in the foyer; or the adaptation of part of the common property to accommodate a restaurant) formed no part of any work undertaken under, or even contemplated by, the D&C contract. 121As I have noted, Mr Miller laid emphasis on what he said were anomalous consequences that would follow from a conclusion that successors in title to Hiltan have the benefit of the implied warranties. The real-world likelihood of such anomalous consequences may be thought to be doubtful. For example, if Hilton had been desirous of acquiring the whole of the development from Hiltan for the purpose of operating a holiday resort, one would expect that significant changes would have been made, in the course of the design and construction of the project, to facilitate that proposed use. That might well raise questions of evolving design, construction and adaptation. 122I do not think that theoretical prospect of anomalous consequences, of the kind sketched by Mr Miller, requires the conclusion that enforcement of the statutory warranties (or availability of the right to enforce them) will vary, over time, depending on the particular use to which the development is put, or for which it from time to time has been adapted. 123It is one thing to say that the benefit of the implied warranties is available to non-parties to a contract to do residential building work, and that those non-parties may enforce, in their own names, those warranties. That is something known to the parties to the contract at the time they make it. No doubt, the price that the builder negotiates, and the price that the developer charges for the lots, will reflect the liability that each may have, to successors in title of the developer, under the statutory warranties. 124It is quite another thing to say that the builder and the developer will not know with certainty, when they make the contract, whether the warranties will be enforceable against them in any particular time in the future. Nothing in the scheme of the legislation, including its significant inroads into the doctrine of privity of contract, seems to me to require that conclusion. 125Accordingly, I conclude that the question, of whether a particular contract is one to do residential building work, is one to be answered by looking at the subject matter of the contract at the time it is made. If the contract is one to construct a dwelling, or to alter or add to a dwelling, or to repair, renovate, decorate or protect a dwelling, then it is a contract to do residential building work. In the first case (construction), the question will be answered by reference to what is designed, and the extent to which what is constructed follows that design. In the second and third cases, the question will require consideration of the building that is being altered, added to, repaired etc.; and will involve consideration not just of how that building has been designed and constructed, but also (in an appropriate case) how it has been adapted. 126In the present case, the question is to be answered by looking at the development that was to be undertaken. If, as is clearly the case, the development was one for the construction of residential lots in a strata title complex, then it was a contract to do residential building work. The fact that some of the lots, after practical completion, registration of the strata plan and completion of contracts of sale or on-sale, may have been used for the purposes set out in cl 6(f) of the Regulation does not retrospectively affect, let alone undo, that characterisation of the contract. 127Thus, I consider, the D&C contract is one to do residential building work, and is one into which the warranties set out in s 18B of the HB Act were implied when it was made. It is, equally, a contract under which the Owners Corporation, as the successor in title to Hiltan, has rights under ss 18C and 18D, against both Hiltan and Brookfield.

Second issue: duties of care 128For reasons that will become apparent, I think that the question of imposition of a duty of care is one for consideration either at the final appeal level or by the legislature. Nonetheless, I will set out briefly the duties alleged, the facts said by one party or the other to be relevant, and the parties' submissions. I will also state, briefly, my conclusion. The pleaded duties 129The duties of care alleged, and the circumstances said to give rise to them, are set out in paras 11 to 14 of the amended Technology and Construction List Statement: 11Further, or in the alternative: (a)Brookfield knew, or alternatively should reasonably have known, that it was engaged to design and construct the Complex for Hiltan and that Hiltan intended to sell the units in the development by way of a strata title development; (b)Brookfield knew, or alternatively should reasonably have known, that once Hiltan had registered a strata plan, parts of the Complex would become the Common Property, would include balconies and other areas that were intended exclusively for use by specific individual lot owners, and that a purchaser would not reasonably uncover defects in the Common Property; (c)Brookfield knew, or should reasonably have known, that Hiltan required the apartments to be suitable for sale and use as residential units; (d)Brookfield designed and constructed the development, including the Common Property, on the basis that the Common Property would serve the units and, as such, had to be suitable for use by the owners of the residential units; and (e)Brookfield knew, or should reasonably have known, that compliance with the Statutory Warranties was required to ensure that work, including the Common Property, could be sold to purchasers so that the apartments could be suitable for use. 12.The Owners Corporation was "vulnerable" because upon registration of the relevant strata plan it automatically was required to assume responsibility for maintaining and repairing the common property, and accordingly had no option but to be placed in a position where it would suffer loss unless the Common Property was designed and constructed with reasonable care. 13.In the circumstances referred to in this List Statement Brookfield, as design and construct contractor of the Complex, owed the Owners Corporation a duty to take reasonable care in the design and construction of the Complex, including the Common Property. 14.Further, or alternatively, Hiltan owed the Owners Corporation a non-delegable duty to ensure that the Complex, including the Common Property, was designed and constructed with reasonable care. The material facts relied upon 130The material facts relied upon, to support each of the alleged duties of care, include the matters alleged in paras 11 and 12 of the list statement. 131In the course of submissions, particular stress was placed upon the position and duties of an owners corporation. 132An owners corporation is constituted on registration of a strata plan. See s 11 of the Strata Schemes Management Act 1996 (NSW) (SSM Act). Upon registration of a strata plan, the common property described in that strata plan vests in the owners corporation. See s 18(1) of the Strata Schemes (Freehold Development) Act (1973) (NSW) (SSFD Act). 133The owners corporation of a strata scheme holds common property as agent for proprietors from time to time in proportion to their unit entitlements. See s 20 of the SSFD Act. It can only be dealt with in accordance with the provisions of the SSFD Act and the SSM Act. See s 21 of the SSFD Act. 134One of the key responsibilities of an owners corporation is the maintenance and repair of common property. See s 61(2)(a) of the SSM Act. That obligation is given content by s 62 of the SSM Act: 62What are the duties of an owners corporation to maintain and repair property? (1)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. (2) An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation. (3) This clause does not apply to a particular item of property if the owners corporation determines by special resolution that: (a)it is inappropriate to maintain, renew, replace or repair the property, and (b) its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme. Note: The decision of an owners corporation under subsection (3) may be reviewed by an Adjudicator (see section 138). 135An owners corporation recovers the costs of carrying out all its statutory obligations by levies on proprietors. The power to levy contributions, and ancillary powers in aid, are given by Division 2 of Part 3 of Chapter 3 of the SSM Act. It is not necessary to go to the detail of those provisions. 136It will be seen from the statutory schemes that I have summarised that: (1)an owners corporation comes into existence by operation of law, and is given legal personality, on registration of the relevant strata plan. (2)Upon registration of that strata plan, and without any act on the part of the owners corporation, the common property described in that strata plan is vested in the owners corporation, again by operation of law. (3)Likewise, the duties of maintenance, repair and the like are imposed on the owners corporation by operation of law. (4)The owners corporation cannot divest itself of those obligations except in the limited circumstances described in s 62(3) of the SSM Act. (5)The owners corporation exercises its powers as agent for the proprietors from time to time, and is entitled to be fully recouped by those proprietors, for the costs properly incurred by it in the exercise of its statutory responsibilities, through the mechanism of levies. (6)Notwithstanding that an owners corporation holds its interest in common property as agent for the proprietors from time to time, it is entitled, by virtue of its legal interest in common property, to sue for and recover damages in respect of it, just as a trustee is entitled to sue for and recover damages in respect of trust property. The parties' submissions 137Mr Corsaro submitted that the Owners Corporation was relevantly vulnerable, because the operation of the statutory schemes meant, in substance, that ownership of common property was foisted on it without any opportunity to consider whether or not to accept the burden, and that with the ownership of common property there came the further burden or repair and maintenance. Further, he noted, the Owners Corporation had no ability to discharge that burden through its own resources, but could do so only by recouping itself from the proprietors. 138In those circumstances, he submitted that the principle development of the common law required recognition of both the duties of care alleged. 139In support of the duty alleged against Hiltan, Mr Corsaro relied on the decision of the Court of Appeal of New Zealand in Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA), where it was held that a developer owed a non-delegable duty of care to a purchaser of a dwelling in a block of flats "to see that proper care and skill are exercised in the building of the houses and that it cannot be avoided by delegation to an independent contractor". See Cooke J, giving the judgment of himself and Somers J, at 241; Richardson J at 242 agreed with this aspect of his Honour's reasons. 140Mr Walker noted that the only High Court authority supporting the existence of a duty of care owed by a builder of a dwelling to a subsequent owner was Bryan v Maloney (1995) 182 CLR 609. He submitted that the reasoning and conclusion of the majority in that case did not justify the imposition of the duty of care alleged on Brookfield. He relied on the later decision of the High Court in Woolcock Street Investments Pty Limited v CDG Pty Limited (2004) 216 CLR 515 in support of the proposition that no such duty should be imposed in the present case. 141Mr Miller noted that the duty of care alleged against his client was a non-delegable duty of care. He submitted that the imposition of such a duty was not supported by authority (in this respect, he submitted that the decision in Johnson was wrong and should not be followed), and that the case came nowhere near the circumstances recognised in the authorities as giving rise to such a duty. 142Further, both Mr Walker and Mr Miller submitted that if, contrary to their contentions on the first issue, the statutory implied warranties were available to the Owners Corporation and were enforceable by it, then this was another reason for concluding that no superadded common law duty of care should be imposed. Decision 143I do not think that the decision in Bryan authorises the conclusion, in this case, that a duty of care is owed by Brookfield to the Owners Corporation. There are three reasons for coming to this view. 144The first reason is that I have concluded that the Owners Corporation has the benefit of the statutory warranties. It may enforce those warranties against Brookfield under s 18D of the HB Act. In circumstances where the legislature has considered, and made clear provision for, the extent to which a builder is liable to a subsequent owner, I think that the courts should be slow to substitute their own judgment for that of the legislature. Certainly, I do not think that it is open to a trial judge to hold that some additional common law duty of care should be imposed. In this context, the concerns expressed by Brennan J in Bryan at 644 are of particular relevance: It would be anomalous to have claims relating to the condition of the building by an original owner against the builder determined by the law of contract if the relief claimed by the remote purchaser against the builder would be determined by the law of tort. Such a situation would expose the builder to a liability for pure economic loss different from that which he undertook in constructing the building and would confer a corresponding right on the remote purchaser which the purchaser had not sought to acquire from the vendor (45). It would be tantamount to the imposition on the builder of a transmissible warranty of quality. In some jurisdictions, Parliament has provided such a remedy by statute. The social question whether building costs should be inflated to cover the builder's obligation under such a transmissible warranty in an appropriate question for parliaments to consider but, in the absence of compelling legal principle or considerations of justice reflecting the enduring values of the community, the courts should not decide to extend remedies not hitherto available to remote purchasers of buildings without considering the cost to builders and the economic effect of such an extension. Those are questions which the courts are not suited to consider. The extension of remedies in that direction is properly a matter for Parliament. 145I accept that Brennan J was in dissent. But nonetheless, what his Honour said focuses attention on the critical questions to be considered in deciding whether, as a matter of policy, the law should impose, on a builder in the position of Brookfield, a duty of care (over and above the statutory warranties) in favour of a successor in title to developer, such as the Owners Corporation. 146Secondly, the actual decision of the majority in Bryan depended on the conclusion that there was a sufficient relationship of proximity between Mr Maloney and Mr Bryan to warrant the imposition of a duty of care. The concept of proximity has since been discarded as the basis of imposition of a duty of care. See Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street at [18].] 147Thirdly, the conclusion that Mr Bryan owed a duty of care to Mrs Maloney depended on the anterior conclusion that he had owed a duty of care to the owner (Mrs Maloney's remote predecessor in title). See the analysis of Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street at [14], [15]. There is no ground for concluding, in this case, that Brookfield owed any common law duty of care to Hiltan. They had negotiated, on what seems to be an equal footing, a detailed contract in which each bargained for what it would give as the price for what it would receive. There is no basis on which the court should usurp the parties' bargain. See Gleeson CJ, McHugh, Gummow and Hayne JJ in Astley v Austrust Ltd (1999) 197 CLR 1 at [47]. 148If a duty of care is to be imposed on Brookfield for the benefit of the Owners Corporation, it would require consideration of the concept of "vulnerability", in the sense of the Owners Corporation's inability to protect itself from the consequences of want of reasonable care (see Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street at [23]). I have set out earlier in these reasons the basis on which the Owners Corporation submitted that it was relevantly vulnerable. To the extent that this depended on questions of fact, the facts are non-contentious. 149Whether the Owners Corporation should be considered as vulnerable, in the light of my conclusion that it does have the benefit of the statutory implied warranties, is questionable. Since I have concluded that it is not appropriate, at the trial level, to impose some duty of care over and above the available measure of protection afforded by statute, in an area where the legislature has intervened expressly to protect the rights of parties such as the Owners Corporation, I do not propose to go further. 150To my mind, the consideration that the legislature has intervened, and afforded successors in title in the position of the Owners Corporation a remedy against developers in the position of Hiltan - is sufficient to dispose of the claim that Hiltan owed to the Owners Corporation the duty of care alleged. Accordingly, I see no point in attempting to deal with the questions of vulnerability and duty of care. 151I would, however, observe that the duty of care alleged is one that would require a principal under a design and construct contract to retain a small army of professional and otherwise qualified staff to supervise every aspect of the design and construction work undertaken by the builder. To my mind, the law should be slow to impose such an onerous and expensive requirement on developers. 152I add, further, that I do not regard the decision in Johnson as requiring me to conclude that the duty of care alleged was owed. If I may say so with the greatest of respect, the reasons of Cook J on this point are succinct to the point of being conclusionary. To the extent that they offer any insight into precisely why it was that his Honour thought it appropriate to impose a duty of care on the developer, it appears that the very close relationship between the developer and the builder, and the extent of control apparently exercised de facto by the developer over the activities of the builder, was significant. There is nothing in the evidence to suggest any equivalent relationship between Hiltan and Brookfield.

Owners Corporation Strata Plan 72535 v Brookfield

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Judgment (9 paragraphs)

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