Owners of Strata Plan 50946 v Multiplex Constructions

DECISION : See paras 29 & 31 of the judgment.

CATCHWORDS : PRACTICE & PROCEDURE - Application by first and fifth defendants to strike out plaintiff's amended statement of claim - Application by first and fifth defendants that proceedings be summarily dismissed - Plaintiff's causes of action allegedly statute barred - Section 14(1)(b) Limitation Act 1969 (NSW) - Whether limitation question should be decided in interlocutory proceedings - TORT - First defendant engaged to design and construct works of refurbishment on building - Fifth defendant engaged to assess and certify refurbishment according to, inter alia, Building Code of Australia -Plaintiff alleged breach of duty of care by reason of "latent defects" in fire safety system of building - Plaintiff claimed cost of rectification - When claim for economic loss for latent defects in building arises - Meaning of term - Whether determination could be made in interlocutory hearing that alleged defects were not latent.

LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) Limitations Act 1969 (NSW)

Wardley Australia Limited and Western Australia (1992) 175 CLR 514 Sutherland Shire Council v Heyman (1985) 157 CLR 424 Hawkins v Clayton (1988) 164 CLR 539 Bryan v Maloney (1995) 182 CLR 609 Scarcella v Lettice & Anor (2000) 51 NSWLR 302 CASES CITED : Pullen v Gutteridge Haskins & Davey Pty Ltd (1993) 1 VR 27 Sherson & Associates v Bailey (2001) Aust Torts Reports 66,491 Evans v Balog (1976) 1 NSWLR 36 Parramatta City Council v Lutz (1988) 12 NSWLR 293 Pantalonie (1989) 18 NSWLR 119 Pinnock Brothers v Lewis & Peat Limited (1922) 1 KB 690 Robert A. Parente v Bayville Marine Inc. and General Insurance Company of America (1975) 1 Lloyds Law Reports 333

PARTIES : Owners of Strata Plan 50946 v Multiplex Constructions (NSW) Pty Ltd & 4 Ors

Plaintiff/Applicant: R Darke SC COUNSEL : 1st Defendant/Respondent: M Slattery QC, D Miller 5th Defendant/2nd Applicant: A Colefax SC, C Mulvey

Plaintiff: Blake Dawson Waldron SOLICITORS : 1st Defendant: Gilbert & Tobin 5th Defendant: Hunt & Hunt

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Technology & Construction LIST

55046/02 The Owners of Strata Plan 50946 v Multiplex Construction (NSW) Pty Ltd & 4 Ors

1 HIS HONOUR: This is an application by the first and fifth defendants pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005 (NSW) to strike out an amended statement of claim filed on 15 September 2005, for the proceedings to be summarily dismissed pursuant to rule 13.4, and for other relief.

2 The ground of the application is that the defendants contend that the plaintiff's causes of action pleaded in the amended statement of claim first accrued more than six years before its being filed. (See Limitation Act 1969 (NSW) s 14(1)(b)). The proceedings were commenced on 4 October 2001. The plaintiff contends that the causes of action on which it now relies did not accrue until 2003. The fifth defendant was joined as a party by the amended statement of claim. The plaintiff's causes of action alleged in the amended statement of claim are barred if they arose before 15 September 1999. (Uniform Civil Procedure Act ss 64(3) and UCPR rule 19.2(4)). The first and fifth defendants say that if the plaintiff has any causes of action against them, they accrued on 29 September 1995.

3 In Wardley Australia Limited and Western Australia (1992) 175 CLR 514 at 533 the High Court warned: "We should ... state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question."

4 The plaintiff is the owner of the common property of a building known as the Goldsborough Mort building situated at 243 Pyrmont Street, Darling Harbour. The common property was vested in it on registration of the strata plan number 50946 on 29 September 1995.

5 The first defendant had been engaged in 1994 by the then owner and developer of the building, Jaguar Investments (NSW) Pty Ltd, to design and construct works of refurbishment of the building. The building is located in the Darling Harbour precinct. The consent authority for the project was the Darling Harbour Authority. It delegated the tasks of assessing and certifying development of land within the Darling Harbour precinct to certain approved independent certifiers. The fifth defendant was such a certifier. On 25 September 1995, the fifth defendant issued to the Darling Harbour Authority a "Partial Certification of Building Occupation/Completion". The certificate was partial because it excluded the fit-out of part of the building and excluded compliance with the requirements of certain authorities. The exclusions are not presently relevant. Mr Howse, on behalf of the fifth defendant, certified "that the works as constructed comply with the principles and objectives of the Building Code of Australia and the Local Government (Approvals) Regulation 1993 as are applicable to the premises and the conditions of approval contained in certification number J94134 issued by this company and dated 14 June 1995".

6 In its original statement of claim filed on 3 October 2001 the plaintiff pleaded that the first defendant owed to it a duty of care to: "(a) design and construct the Works including the Common Property in accordance with the Contract [between it and Jaguar Investments NSW Pty Ltd] ; (b) design and construct the Works including the Common Property in a proper and workmanlike manner; (c) design and construct the Works including the Common Property generally in accordance with the plans and specifications, all relevant legislative requirements, standards and codes and [Jaguar's] project brief; (d) ensure that the Works and the Common Property were fit for purpose."

7 The plaintiff alleged that the first defendant breached that duty of care by reason of the building's containing various structural defects. That claim, and the claim against three other defendants, was ultimately resolved. The defects in the building the subject of the plaintiff's original complaint did not extend to fire safety systems for the building.

8 In the course of the litigation, experts were engaged by the plaintiff to inspect the adequacy of the building. In mid 2002 one such expert recommended that a fire safety expert be engaged. As a result of that recommendation, in December 2002, a Mr Alexander of Engineered Fire and Safety Solutions Pty Ltd was engaged to provide a report on the adequacy of the fire safety systems installed in the building. The first such report was provided in March 2003. The plaintiff's evidence on the present application, which was not challenged on this application, is that prior to Mr Alexander expressing concerns to it shortly before the finalisation of his report, it was not aware of any defects in the fire safety system.

9 Between 2003 and September 2005 there were negotiations, mediation and other steps taken to attempt to resolve all the disputes. These efforts were only partially successful. On 14 September 2005 orders were made by consent that the plaintiff have leave to file the amended statement of claim, but that was not to be construed, or relied upon by the plaintiff, as indicating that it was entitled to such leave, or as an admission of any matter by the first and fifth defendants. The first and fifth defendants say that the plaintiff was not entitled to such leave because the claims introduced by the amendment are statute barred. They are not precluded from advancing that contention by the orders made on 14 September 2005. They make no other complaint about the amendment. It is common ground that if the point in relation to the Limitation Act does not succeed the leave granted on 14 September 2005 will stand without qualification.

10 The effect of the amendment was to delete entirely the previous allegations of breach of the duty of care allegedly owed by the first defendant to the plaintiff. No claims are now made against the second to fourth defendants. Instead, the plaintiff now alleges that the first defendant breached its duty of care to the plaintiff by failing to design and construct the works and the common property in the manner required by the duty it allegedly owed to the plaintiff, by reason of alleged defects in the fire safety system. 11 12 There are twenty-nine such alleged defects. They include the following, which are provided by way of example: (a) occupancies of different classification on levels 1 to 2 are not separated by fire resisting construction (item 1); (b) certain windows are unprotected by fire resistant materials (item 2); (c) the heads of bolts in original timber columns used to strengthen the columns are unprotected (item 3); (d) service riser ducts located in the services area of each floor are constructed of materials which have an inadequate fire resistance level, are not protected by additional or adequate sprinklers and their construction provides for fire and smoke to pass through all levels of the building (item 5); (e) there is inadequate sprinkler protection of certain timber columns (item 7); (f) essential fire safety equipment is hidden behind set plaster walls with no provision for access (item 8); (g) fire hose reel cupboards on certain levels are mounted at the wrong height and are not adequately signposted (item 18).

13 The plaintiff alleges that the fifth defendant owed it a duty of care in relation to its certification that the building complied with relevant requirements. It alleges that the fifth defendant breached that duty by, amongst other things, wrongly certifying that the design and construction of the building complied with the principles and objectives of the Local Government (Approval) Regulations and the Building Code of Australia. The plaintiff relies on the same particulars of breach concerning the allegedly defective fire safety system as it does in its case against the first defendant.

14 The plaintiff claims damages for the costs of rectifying the alleged defects. It does not claim as damages the diminution in value of the building or the common property by reason of the presence of the alleged defects, compared with what its value would be if the defects did not exist. Nor does the plaintiff allege that has been required by any authority to carry out the work it claims is needed to rectify the alleged defects. I understand the plaintiff to contend that the alleged defects are on the common property and that the work said to be required to rectify the defects would be undertaken on the common property.

15 In support of this application the first defendant read evidence to the effect that its task was not to design and construct the building in compliance with the prescriptive conditions relating to fire safety in the Building Code of Australia. Rather, because the building was a heritage building, it says that the refurbishment was required to be, and was, designed and carried out in accordance with the principles and objectives of the Code. Whilst this is a useful background to the parties' positions, the evidence is not directly relevant to the ground on which the present application is brought. The defendants do not deny that there is an arguable case that they owed the duty of care alleged. Nor do they deny that there is an arguable case that those duties were breached. Their contention is that the matters now complained of as defects existed from the time the refurbishment was completed and the strata plan registered. That appears to be common ground. They submit that the damage allegedly suffered by the plaintiff by reason of what it contends to be defects was suffered when the common property was vested in the plaintiff, that is, on 29 September 1995. They submit that the plaintiff's causes of action expired on 29 September 2001.

16 No defence has yet been filed. However, I can assume that there will be nothing to preclude the defendants from relying on a defence under the Limitation Act, and that the defence would be pleaded if the amended statement of claim is not struck out. The application was heard on this basis without objection by the plaintiff.

17 The plaintiff submits that its cause of action to recover the costs of rectification arising from a latent defect or defects in the building is a claim for economic loss which first accrued when the defects either became known to the plaintiff or became manifest, in the sense of being discoverable by reasonable diligence. (Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 505; Hawkins v Clayton (1988) 164 CLR 539 at 543 and 587-588; Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 at 540; Bryan v Maloney (1995) 182 CLR 609 at 617, 625; Scarcella v Lettice & Anor (2000) 51 NSWLR 302 at 606; Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27 at 71; Sherson & Associates v Bailey (2001) Aust Torts Reports 81-591 at 66,495-66,496.) These authorities establish that a purchaser who buys a building containing a latent defect which is not then known and is not manifest, in the sense of being discoverable through the exercise of reasonable diligence, does not suffer loss at the time of purchase, but only does so when the defect becomes known or manifest. The reason for this is that the purchaser has not at that stage outlaid moneys because of the defect, (compare Sheldon v McBeath (1993) Aust Tort Reports 81-209 at 62,082), and there is no diminution in the value of the house by reason of the unknown and unmanifested defect. There is no reason to think that the plaintiff, in whom the common property was vested on registration of the strata plan, would stand in a relevantly different position from such a purchaser.

18 Although it appeared from the written submissions of the first defendant that it might contend that different principles applied where the loss claimed is the cost of rectifying the defect or damage to property, rather than diminution in the value of the property, senior counsel for the first defendant made it clear in oral address that no such contention was advanced. Nor did the fifth defendant advance such an argument. This is understandable given that the cost of rectification is a recognised head of damage in tort for the negligent occasioning of damage to a building. (Evans v Balog [1976] 1 NSWLR 36; Parramatta City Council v Lutz (1988) 12 NSWLR 293; Pantalone v Alaouie (1989) 18 NSWLR 119). In Hawkins v Clayton at 588 Deane J referred to the economic loss which is to be taken to arise from a latent defect only when it is known or manifest, as consisting of diminution in value or other consequential damage. Even if an owner's claim is for the cost of rectification, the owner will first suffer economic loss when a latent defect becomes known or manifest, through the diminution in the value of the property.

19 Instead, the defendants submitted that the principles referred to above only apply to the case of a latent defect. They submitted that the defect or defects alleged by the plaintiff were not latent. With the possible exception of five items, they were visible. They were not hidden or concealed. It was submitted that a defect was not a latent defect within the sense of the authorities referred to, merely because the plaintiff did not appreciate the significance of what was observable, and that was so even if a person in the position of the plaintiff, exercising reasonable diligence, would not appreciate the significance of what was observed. Further, the defendants relied upon an opinion expressed by the plaintiff's expert, Mr Alexander, that the alleged defects would have been revealed by a reasonably complete inspection by a qualified building inspector. That, it was submitted, both prevented the alleged defects from being classified as latent, and meant that the defects were always manifest, in the sense that they would be apparent through the plaintiff's exercising reasonable diligence by engaging a qualified building inspector to inspect the building.

20 The difficulty with these submissions is that they raise questions of fact which are not suitable for determination before a final hearing. The concept of a latent defect in a building is used in the authorities in this area in the sense of something which is not known or manifest. They are the two sides of the one coin. In this area, the concept of what is manifest extends to what is not known but would be discovered through the exercise of reasonable diligence. A defect which is not known or manifest in this sense is latent. Equally, in my view, a defect is latent if it is not known or manifest in this sense. In my view, there is no additional requirement that in order for a defect to be latent it must not be visible, or must be concealed or hidden, although, of course, a defect which is visible and not hidden may be manifest in the sense of being discoverable with reasonable diligence. Moreover, a defect may be, and often will be, different from the physical thing which may be observed. For example, there may be a latent defect in the design of a building where a temporary external wall is too thin to carry a load, even though the thickness of the wall and the size of the roof it carries is plainly visible. (Sherson & Associates v Bailey at 66,505). The defects alleged by the plaintiff in this case are, primarily at least, defects of design. The principles as to when economic loss is first suffered through latent defects in a building are the same whether the defect is one of construction or design. (As to defects of design, see e.g. Pullen v Gutteridge Haskins & Davey Pty Ltd; Sherson & Associates v Bailey; and Bryan v Maloney. As to defects of construction, see Sutherland Shire Council v Heyman).

21 Moreover, the defendants accepted that there is a triable issue in respect of five of the alleged defects that the allegedly defective physical work would not be visible on an ordinary inspection and would therefore not be latent defects even in the sense in which they contended that expression should be understood. These defects included the lack of separation of different occupancies by fire restriction construction which is hidden by a ceiling (item 1), the installation of sprinkler mains which are located behind set plaster walls (item 8), and the riser shafts and associated sprinklers which are also enclosed by set plaster (item 5). It is not necessary to refer to all five of such items.

22 Mr Darke SC for the first defendant submitted, rightly, that the plaintiff has contended that the particular defects alleged are all aspects of what it alleges to be a defective fire safety system with interdependent parts. He submitted that if some of the allegedly defective components of the integrated system were not latent defects, the allegedly defective system was also not a latent defect, even if other defective components were not visible. I do not decide whether this is the correct way of looking at the question. If it is, the submission raises a question of fact and degree as to the extent to which the allegedly defective visible components made manifest the defect or defects in the system. That must be an issue for trial.

23 As I have said, Mr Alexander also expressed the opinion that most of the other items relied upon by the plaintiff as defects in the fire safety system would not have been identified as a defect except by an expert in the field. For example, the windows (item 2), the exposed bolt heads in timber columns (item 3), the sprinkler system protecting certain timber columns (item 7), and the height of the fire hose reel cupboard (item 18), are all visible. But there is evidence that only an expert in the field of building construction could be expected to appreciate the alleged deficiencies. This, in my view, raises a triable question as to whether such alleged defects are latent, or whether they are manifest.

24 The defendants submitted that a defect was not a latent defect if it would be revealed by expert examination. Senior counsel for the fifth defendant referred to the discussion of what constitutes a latent defect in Pinnock Brothers v Lewis & Peat Limited [1922] 1 KB 690 at 697, and in Robert A. Parente v Bayville Marine Inc. and General Insurance Company of America [1975] 1 Lloyds Rep 333. Neither of those cases dealt with the expression in a context similar to the present. The test enunciated in Parente v Bayville Marine Inc was said to be one applicable to the facts of that case, and is clearly not that which the authorities have had in mind when describing defects such as inadequate footings as being latent. In Pinnock Brothers v Lewis & Peat Limited, Roche J said that the word latent was only applicable to a defect not discoverable by the exercise of reasonable care. That appears to be the same question as whether a defect would be manifest by being discoverable through the exercise of reasonable diligence. That is a question of fact to be decided in all the circumstances of the case. The fact that in Pinnock Brothers this might require expert examination of a cargo does not, in my view, mean that expert examination would necessarily be required in all cases. In Sherson & Associates v Bailey it was held (at [96], 66,508-66,509) that defects did not become manifest, so that loss thereupon immediately accrued, when it was reasonable for an owner to make enquiry of an expert, such that until a reasonable period for enquiry expired, the discovery of the defect was to be taken to be delayed. This is not consistent with a defect being manifest and not latent if at any time it would be revealed by expert inspection.

25 It was submitted for the fifth defendant that a strict approach was required before a defect could be considered to be latent if the policy of the Limitation Act were to be observed. It was submitted that to be consistent with this policy, a defect should not be characterised as latent unless it would not be identifiable on expert examination, because, for example, the work had been covered up. That does not appear to be consistent with Sherson & Associates v Bailey, although the defendants submitted that there the question of whether the defect was latent was conceded.

26 In my view, the submission has the difficulty that the policy of the Limitation Act, in its application to causes of action in tort, is that the limitation period should not commence to run until some non-negligible damage has been sustained. The question is, when does the plaintiff first suffer economic loss? Leaving aside a case where a payment has been made for works which should not have been made because the work was defective (Sheldon v McBeath at 62,082), the answer provided by the authorities is that such a loss first occurs when the knowledge or manifestation through reasonable diligence of the defect will affect the value of the property, as where it could not be honestly sold without disclosure of the defect. There is no policy reason for bringing forward the time at which loss is to be taken to be first sustained by adopting a priori rules as to what discoverability through reasonable diligence requires, or, what in my view is the other side of the same question, as to what is required before a defect can be classified as latent.

27 The question of what is manifest through reasonable diligence is a question of fact. There is clearly a triable issue about it. Even if the defendants are right, that reasonable diligence by the plaintiff would require the engagement of an appropriately qualified expert, or that a defect is not latent if it would be apparent to a suitably qualified expert, the issue is still one for trial. I should not assume that the statement in Mr Alexander's report upon which the defendants rely, would be the only evidence on the subject. That opinion may well be the subject of contest, particularly by the fifth defendant who certified the building as having been constructed in accordance with the principles and objectives of the Code.

28 For these reasons, in my view, the limitation issue raised by the defendants cannot be determined at an interlocutory hearing. No question of the exercise of a discretion arises. It follows that paragraphs 3 and 4 of the first and fifth defendants' notices of motion should be dismissed. Paragraph 1 of those notices of motion sought a substantive order that the grant of leave to file the amended statement of claim should be set aside. However, as the limitation issues were the only issues raised in opposition to the amendment, that application should also be dismissed. Paragraph 2 of the notices of motion sought an order that the original statement of claim be struck out. That statement of claim has been amended. The amended statement of claim will not be struck out. Hence paragraph 2 should also be dismissed.

29 For these reasons I dismiss the first and fifth defendants' notices of motion dated 15 September 2005 and 14 December 2005 respectively with costs. The exhibits may be returned.

30 Application is made for indemnity costs, essentially on the ground that the notices of motion were hopeless and that they ought not reasonably to have been brought. Although the defendants' applications were unsuccessful, I do not consider that raising them was a relevant delinquency. I decline to make the order for indemnity costs which is sought.

31 The parties are agreed that the matter should be put back before the Technology and Construction List Judge for further directions to be made for the progress of the proceedings. I stand the proceedings over to 12 May 2006 before the Technology and Construction List Judge.

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.