Owners Corporation Strata Plan 76841 v Ceerose Pty Ltd

The respondents' summons for leave to cross-appeal

1. By their cross summons, the respondents seek leave to appeal from order 2 made on 14 December 2016. They contend that the primary judge erred in not imposing, as a condition of the grant of leave to file the List Statement, that the quantum of the applicant's overall claim be limited to $916,780.18.
2. The subject matter of the respondents' proposed cross-appeal and that raised by grounds 1 and 2 of the applicant's appeal overlap. The claimed cost of rectifying the Water Ingress Defect was set out in Mr Zakos' report of 11 May 2016. It consisted of nine cost items. Items 1 to 7 related to the rectification of the external cavity wall defects and items 8 and 9 to the removal of mould and repainting of the affected units. The cost of these two items alone was $324,000. The cost of the remaining 7 items was $265,000. The effect of the primary judge's orders of 2 November 2016 was to prevent the applicant from claiming these amounts as the cost of rectifying the Water Ingress Defect and its consequences.
3. The debate which led to the orders made on 14 December 2016 arose because the applicant sought to preserve the right to claim the cost of mould removal and repainting as separately caused by the Water Penetration Issues, which arose in relation to already pleaded defects. That was done by the inclusion of issues B5 and B6 in the List Statement (see [14] above). The respondents, on the other hand, sought to preclude the applicant from claiming the costs of those works by limiting the applicant's overall claim to $916,780.18 comprised as follows: the $554,655.56 claimed in the District Court (which included some allowance for the cost of rectifying the defects said to give rise to the Water Penetration Issues); $2,232.26 for new item 582; $164,892.06 for new items 539 to 581; and $195,000 being the capped amount for the Fire and BCA Defects.

The application for leave to appeal

1. Grounds 1 and 2 are directed to the primary judge's order refusing leave to make the Water Ingress Defect claim. The proposed grounds of appeal are not at all informative. The first asserts House v The King (1936) 55 CLR 499 error. The respects in which the primary judge is said to have made any such error are not stated. The second does not attempt to identify any error. It is a contention as to what the outcome should be in the event that this Court finds error, and determines to re-exercise the discretion to grant or refuse the amendment.
2. Ground 3 is directed to the imposition of the condition limiting the amount which may be claimed as damages caused by the Fire and BCA Defects. It asserts that the primary judge erred in imposing that limitation as a condition of any grant of leave to amend in circumstances when there was no application to amend, and in fact no amendment of, the Fire and BCA Defects claim.

The Water Ingress Defect claim (proposed grounds 1 and 2)

1. In oral argument, senior counsel for the applicant made two arguments in support of these grounds. The second relied on part of the applicant's written submissions, which were prepared by counsel who argued the matter before the primary judge.
2. The first is that the primary judge erred in holding that "the Water Ingress Defect [claim] was in the order of $1 million including on-costs and GST": Judgment [41]. It is said his Honour should have treated that claim as only being for $265,000, calculated as explained in [16] above. It is submitted that error was material to his Honour's conclusion that the respondents would suffer "obvious and significant prejudice if the proposed amendment was allowed: Judgment [94].
3. His Honour's reasoning leading to that conclusion was as follows: Environmental Planning and Assessment Act 1979 (NSW), s 109ZK imposes a ten-year limitation period for the bringing of an action for loss or damage "arising out of or concerning defective building work". That time runs from the date on which the "relevant final occupation certificate is issued" and, in respect of the building work which is the subject of the applicant's claim, expired on 10 April 2016. Although the applicant raised the prospect of the Water Ingress Defect claim in March 2016, the expert evidence in support of the claim was not served until mid-May 2016. By that time the so-called "long-stop period" under s 109ZK had expired. It was reasonable for the respondents to await service of that evidence before they considered what, if any, cross-claim could or would be brought arising out of it: Judgment [69]-[70].
4. His Honour found that the respondents had "viable and realistic" cross-claims with respect to the Water Ingress Defect against both the subcontractor responsible for the installation of the structural walling system (HD Projects) and the principal certifying authority for the project (Dix Gardner): Judgment [89], [93]. In March 2014 the respondents and their advisors had determined not to investigate the possibility of bringing cross-claims unless the quantum of one or more of the applicant's claims exceeded about $300,000: Judgment [27]. The Water Ingress Defect claim answered that description and by reason of the expiry of the "long-stop period", by the time that the applicant sought to amend, the respondents had lost the opportunity to investigate and prosecute those cross-claims: Judgment [94].
5. Taking account of this reasoning, the applicant submits that, had the primary judge found (as it is submitted he should have done) that the Water Ingress Defect claim did not exceed $300,000, he should have concluded that the respondents would not suffer prejudice if the amendment was allowed because they would not, in view of the amount involved, have pursued the opportunity to bring any cross-claim. Although the proposed claim included an amount of $324,000 for removing mould and repainting, it represented a potential additional liability of only $265,000 because the applicant already claimed the mould removal and repainting costs to some units as caused by defects giving rise to the Water Penetration Issues.
6. This first argument should be rejected. It was not squarely made to the primary judge and, in any event, mischaracterises the potential prejudice found by his Honour. There was no issue before the primary judge as to the likely quantum of the Water Ingress Claim. In March 2016, the applicant's solicitor had described the rectification costs of that claim as $835,000. In Mr Zakos' May 2016 report, the estimated cost of that work (excluding on-costs) was $589,000. During the cross-examination before his Honour of the respondents' solicitor, the applicant's counsel emphasised that from March 2016 the solicitor had appreciated that the new claim alone could result in additional costs of $835,000.
7. None of this is disputed. Instead, the applicant points to the following passage in its written submissions to the primary judge in support of the amendment: Item 582 is worth about $2,000. Item 583 is the lateral damp issue. It is worth about $265,110, see Mr Zakos' report of 11 May 2016. The defendants elide the claim for rectification of the later damp with the cost of removing the mould and reinstating the units. That cost, removal of the mould is as much a consequence of the water ingress allegations that are already in the proceedings (and have been since 2012). The defendants misstate the quantum of the cost arising from item 583.
8. No further oral submissions were made to his Honour concerning this passage. The description of the claimed cost of mould removal as being "as much a consequence of the water ingress allegations that are already made" [emphasis added] accepted that the need to undertake those works was claimed to be the result of the Water Ingress Claim. The applicant's position before the primary judge was that those costs were sought to be recovered as damages on either basis. Each group of defects was claimed to be a separate and sufficient cause of the need to undertake that work.
9. Two things necessarily follow. The first is that the primary judge did not err in proceeding on the basis that the quantum of the proposed claim was "in the order of $1 million including on-costs and GST": Judgment [41]. The second is that, when assessing the prejudice to the respondents in permitting that claim to proceed, it was not to the point that some of the costs claimed were also sought to be recovered "by reason of defects already pleaded". The proposed claim sought to recover those costs on a different basis and one which did not depend on the applicant succeeding in establishing the defects underlying the Water Penetration Issues or that those defects had necessitated the mould removal and repainting work. This first argument does not identify any error of fact or principle of the primary judge in assessing the prejudice resulting from the allowance of this amendment.
10. The applicant's second argument as made had two aspects. It was said that, having assessed the prejudice to the respondents if the proposed amendment proceeded, the primary judge did not then weigh in the balance the prejudice which would result to the applicant if that claim was not allowed to proceed. It was also said that in assessing the prejudice to the respondents his Honour did not take account of the possibility that s 109ZK would not prevent the bringing of a claim against the corporate certifying authority for misleading or deceptive conduct. Whether such a claim, presumably based on a certificate issued by that authority, would itself have been statute barred was not considered in the argument in this Court.
11. It is apparent from his Honour's reasons and reference to the argument before him that, as one might expect, the issues in relation to the applicant's amended application were confined. The respondents opposed the application on two bases. The first was that the proposed claim was itself statute barred: Judgment [46]-[47]. It was otherwise accepted that the claim was arguable and, subject to the respondents' second argument, that it should be allowed to proceed. The second basis was that the respondents would suffer significant and incurable prejudice if the amendment was allowed. These observations are sufficient to dispose of the first part of the applicant's argument. In the way the question was formulated and argued, if the primary judge was satisfied the respondents suffered actual prejudice not attributable to their own conduct from the loss of "viable and realistic" claims, the amendment would be refused.
12. The applicant's arguments to the primary judge in relation to the subject of prejudice included that some of the claims said to have been lost were not reasonably arguable or statute barred (Judgment [78], [80]); that some remained available (Judgment [82]); and that some that may have been lost had no value, for example, because the potential defendant was impecunious and had no insurance cover (Judgment [90]). Having dealt with each of them, the primary judge concluded that the respondents had lost viable and realistic claims against the subcontractor and the corporate certifier: Judgment [89], [93]. The second aspect of the applicant's argument to this Court which was not developed either in writing or orally does not demonstrate that his Honour's conclusion in relation to those claims and prejudice involved error.
13. As the arguments in support of grounds 1 and 2 do not identify any arguable House v The King error, leave to appeal on those grounds should be refused.

The imposition of the condition limiting the Fire and BCA Defects claim (ground 3)

1. The primary judge imposed a limit on the amount that could be claimed as a condition of a grant of leave to the applicant to amend this aspect of its claim. I agree with the applicant's submission that there was no such application to amend, and no need for the applicant to make one.
2. Immediately following the transfer of the proceedings to the Supreme Court, the applicant's claim was as formulated in the current District Court pleading. The defects alleged included the Fire and BCA Defects. By that time, the applicant had served the expert quantum and other evidence relied on in support of that claim. That evidence supported a claim in the order of $335,000 plus on-costs in respect of those Defects: Judgment [41]. The only relevant difference between the proposed List Statement and the earlier pleading was in relation to the evidence identified in the additional column of the schedule attached to the former (see [9] above). All of that evidence had been served on the respondents by mid-May 2006: Judgment [41]. Furthermore, the provision of that information in an annexure to the List Statement was not required by Practice Note SC Eq 3, para 8. In the circumstances, there was no amendment of the Fire and BCA Defects claim sought or made by the proposed List Statement.
3. Accordingly, the filing of the List Statement did not afford any basis for imposing a monetary limit as a condition of granting leave to amend: cf Judgment [7], [103]. No such condition had previously been sought or imposed when the proceedings were transferred to the Supreme Court. Nor was that transfer made subject to such conditions as might thereafter be imposed. The primary judge erred in imposing the condition in the purported exercise of the power to permit amendment.
4. The respondents seek to uphold the imposition of that condition by reference to the Court's power under Civil Procedure Act, s 61(3) which permits the Court to "limit any claim made by a plaintiff" in the event that that party has failed to comply with a relevant direction. The difficulty with this argument is that the primary judge did not purport to exercise this power and made no findings as to the circumstances which might justify its exercise.
5. I should make one further observation. The primary judge was persuaded to impose the limitation on this claim because his Honour considered that the respondents were similarly prejudiced by the late notification of an increase in the amount of this claim from the assumed amount of $195,000 (as to which see [10] above and Judgment [19], [44]).
6. By the end of March 2016, the claims maintained in the District Court, which included the Fire and BCA Defects claim, exceeded the monetary jurisdictional limit of that Court of $750,000: District Court Act 1973 (NSW), s 44. The applicant then applied to have the proceeding transferred to the Supreme Court. The obvious end intended by that transfer was that the claims ceased to be subject to any monetary limit. The record does not suggest that the respondents opposed the transfer or argued for the imposition of any condition of the kind subsequently imposed on the basis of prejudice from the removal of the monetary limit with respect to the Fire and BCA Defects.
7. In the circumstances, and notwithstanding that the matter is one of practice and procedure, the interests of justice require that the applicant have leave to appeal on ground 3. The appeal on that ground should be allowed.

The application for leave to cross-appeal

1. The three proposed grounds of cross-appeal argue that the primary judge erred in granting the applicant leave to file a List Statement without limiting the quantum of the claim that the applicant could make for mould removal and repainting as a result of the Water Penetration Issue defects. The proposed means of effecting that limitation was by the imposition of an overall limit as explained in [17] above. It is said that the primary judge should have imposed that limit to avoid the prejudice to the respondents that would flow if the applicant were permitted to claim those additional costs as resulting from those defects in circumstances where they no longer had the opportunity to pursue any cross-claims in respect of that claim.
2. As is noted earlier, the primary judge determined this further dispute in favour of the applicant. He did not, however, give any reasons for doing so, but the absence of reasons is not relied on as a ground of appeal.
3. The respondents submit that the rejection of their argument for the imposition of a further limit necessarily involved error. His Honour accepted that to permit the applicant to amend to make the Water Ingress Claim would result in "obvious and significant" prejudice: Judgment [94]. It was said to follow that to permit the applicant to continue to claim some of those costs as resulting from defects already pleaded would also result in prejudice.
4. I do not agree. Any difference between the position the primary judge took in relation to the Water Ingress Claim and in relation to this matter is explicable. The former involved an application to amend by adding additional defects whereas the latter did not, and fell to be considered in circumstances where the existing defects claim included mould removal and repainting internal unit areas as a result of water ingress from doors, windows and cavities. The description of the issues in paragraphs B5 and B6 of the List Statement does not permit the applicant to claim damages for mould removal and repainting which is not the consequence of the defects giving rise to the Water Penetration Issues.
5. The primary judge's refusal to accede to the respondents' application to limit the overall claim does not bespeak error. It follows that the respondents' application for leave to cross-appeal should be dismissed.

Conclusion

1. Each of the parties has had partial success. The applicant has failed on the principal matter raised by its proposed appeal and succeeded on the remaining issues raised by the proposed appeal and the proposed cross-appeal. In the circumstances, there should be no order as to the costs of the applications to this Court.
2. Having regard to the respondents' success in this Court in relation to the matter which occupied most of the hearing before the primary judge, I do not consider that there should be any variation to the costs order made by his Honour, which was that the applicant pay three quarters of the respondents' costs of the motion filed 20 July 2016.
3. To give effect to the applicant's success in relation to ground 3 it is necessary to set aside the order made on 2 November 2016 granting the applicant leave to amend the Fire and BCA Defects claim on condition that claim is limited to $195,000. It is also necessary to amend order 2 made on 14 December 2016 by adding a sub-paragraph requiring the deletion of the underlined words in paragraphs A6 and C25 of the form of List Statement which is the subject of the leave. Those words are "to the extent allowed pursuant to the judgment of Stevenson J on 2 November 2016" which would otherwise have the effect of limiting the Fire and BCA Defects claim to $195,000.
4. As it appears that the orders made by the primary judge on 2 November 2016 were never formally entered, the appropriate course is for this Court to direct the applicant to undertake to have those orders entered by the Registry.
5. Accordingly I propose the following orders: 1. Direct the applicant to cause that the orders of Stevenson J made on 2 November 2016 in proceedings SC 2014/58603 be entered into the computerised court record system. 2. Grant leave to the applicant to appeal from the orders of Stevenson J made on 2 November 2016, but only in respect of the second of those orders and on proposed ground 3. 3. Direct the applicant to file within seven days a notice of appeal limited to that ground 3. 4. Allow the applicant's appeal from the second of the orders made by Stevenson J on 2 November 2016. 5. Set aside the order made on 2 November 2016 that the applicant have leave to amend the Fire and BCA Defects claim on condition that the claim for those defects is limited to $195,000. 6. Otherwise dismiss the applicant's summons for leave to appeal. 7. Dismiss the respondents' cross-summons for leave to appeal. 8. Amend order 2 made by Stevenson J on 14 December 2016 by adding as (d) the following: (d) Delete the words "to the extent allowed pursuant to the judgment of Stevenson J on 2 November 2016" in paras A6 and C25. 1. Make no order as to the costs of the applicant's summons, the appeal or the respondents' cross-summons.
6. SIMPSON JA: I agree with Meagher JA.

Amendments 23 June 2017 - [38] Typographical error corrected 23 June 2017 - Coversheet orders and 49 amended to insert closing quotation mark DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 June 2017