Owners Strata Plan 51673 v Fair Trading Administration Corporation

Supreme Court of NSW|2009-08-03|Before: Tamberlin AJ, Studdert J

CITATION : Owners Strata Plan 51673 v Fair Trading Administration Corporation [2009] NSWSC 816

DECISION : I order that: 1. The Referee Report of Ms Grey be adopted. 2. The defendant be ordered to pay the plaintiff the sum of $3,017,875 plus GST with interest from 19 June 2009. 3. The defendant pay the plaintiff's costs as agreed or assessed or taxed. 4. Liberty to apply on 12 hours notice.

CATCHWORDS : BUILDING AND CONSTRUCTION - Building Services Corporation Act 1989 - statutory insurance scheme - indemnity for loss where notification of defects - referee's report - time limitations - whether notification of defects sufficient - SUMMARY JUDGMENT - payments made under mistake - fraud - defence of change of position in reliance - good faith - onus of proof of awareness - sufficiency of defence

Building Services Corporations Act 1989 LEGISLATION CITED : Building Services Corporation Regulation 1990 Strata Titles Act 1973

Abigroup v Peninsula Balmain [2001] NSWSC 752; (2002) 18 BCL 15 Fair Trading Administration Corporation v Owner's Corporation SP 43551 [2002] NSWSC 624 CASES CITED : Studdert J McCallum Developments Pty Ltd v The Owner's Corporation Strata Plan 53098 [2002] NSWSC 1103 Super Pty Ltd v The SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Walter Construction Group Ltd v The Walker Corporation Ltd [2001] NSWSC 283; (2001) 47 ATR 48

PARTIES : The Owners - Strata Plan No 51673 (Plaintiff) Fair Trading Administration Corporation (Defendant)

COUNSEL : F Corsaro SC (Plaintiff) L Olsen SC (Defendant)

SOLICITORS : Koffels (Plaintiff) Legal Services of Office of Fair Trading (Defendant)

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

55059/2008 OWNERS STRATA PLAN 51673 v FAIR TRADING ADMINISTRATION CORPORATION JUDGMENT 1 HIS HONOUR: The plaintiff ("Strata") seeks an order that a referee's report of Ms Janet Grey be adopted and entered as a judgment by this Court. 2 The Report arises from a reference by the Court to Ms Grey as expert referee for inquiry and her report pursuant to an order made on 28 November 2008. The defendant ("FTAC") opposes the motion on the ground that Ms Grey made legal and factual errors by misinterpreting provisions of the Building Services Corporation Comprehensive Insurance Scheme and failed to properly take into account the operation of time limitations which are alleged to have affected her conclusions as to whether the claims were time barred. 3 A further allegation is that Ms Grey erred in finding that render on the building was a "major structural component" because there was no expert evidence or otherwise to support this finding and the evidence demonstrated that the render did not provide any supporting structure to the wall and was a decorative feature only. 4 The third error alleged was that Ms Grey exercised her discretion to extend time without giving proper reasons and failed to take any account of the evidentiary obligation on the plaintiff to demonstrate why its claims were made out of time in circumstances where the onus was on it to satisfy FTAC that delay and notification were due to circumstances beyond its control. 5 The issue in general terms is whether any or all of the above errors have been made out and if so what consequences follow in relation to adoption of the Report. Factual Background

6 This proceeding arises out of defects in the construction of "The Pyrmont", a mixed 156 lodge strata unit development at 231 Harris Street Pyrmont. The development company built two apartment blocks referred to as the northern building and southern building. The northern building is seven stories high and the southern is eight stories. Both buildings back on to a common place but each is of pre-stressed or reinforced concrete construction with in-fill cavity brick walls. The roof areas of the development are waterproof with a thick membrane over concrete taped with a hessian and pebble ballast system. 7 The original developer of the project was Evantang Developments (Pyrmont) Pty Ltd which arranged for the design and construction of the development. The building work was commenced in January 1995 and was completed in December 1995. 8 When the building work was carried out, s 9(1) of the Building Services Corporations Act 1989 (NSW) ("the BSC Act") provided for the establishment of the Building Services Corporation Comprehensive Insurance Scheme for residential building work. This was set out in Form 4 of Schedule 1 in the Building Services Corporation Regulation 1990 (NSW) which was designed to provide indemnity for losses in rectifying defective work. Under the BSC Act, the Building Services Corporation (BSC) was created with the function of providing insurance schemes for home-owners. The BSC was abolished but the Scheme remains in force in relation to the subject development. The defendant, FTAC, stands in place of the BSC for the purpose of the insurance scheme. 9 Strata was established under the Strata Titles Act 1973 (NSW) on registration of the strata plan for the subject building on 18 December 1995. It had the principal responsibility for managing the common property for the benefit of all of the owners and it is a beneficiary under clause 4(1) of the Scheme, being the successor in title to the owner of the land on which the residential building work was done. There is no issue that the work carried out by the builder on the development is defective but there are a number of agreed structural defects including matters such as water penetration due to defective waterproofing and membrane works, leaky bathrooms, delamination of external render and cracks. 10 FTAC accepts that Strata has qualified for some benefits under the Scheme but maintains it is not entitled to an indemnity for rectifying all the agreed defects. 11 It is common ground that FTAC considers it had received notice of the defects for the purpose of the Scheme by way of a building inspection and services report prepared for Strata by Maunsell Australia Pty Ltd ("Maunsell") dated 25 October 2001 and a later report in respect of rectification of defects in the development which was prepared for Strata by Sutech Pty Ltd ("Sutech") dated July 2003. 12 There is no dispute as to the quantum of the losses and the assessment of Strata's losses ultimately depend on the factual findings and on whether specific claims made by Strata come within the Scheme. Strata contends that all of the agreed defects are indemnified under the Scheme and that FTAC is liable to pay the quantum as agreed in a quantum report. 13 Clause 5 of the Scheme relevantly provides that FTAC will indemnify losses reasonably incurred by a beneficiary in respect of residential building work for rectifying bad workmanship or losses in repairing damage caused to a dwelling by a defect in the building. 14 Clause 7 of the Scheme is concerned with time limits and notice. 15 The relevant provisions of Clause 7 are as follows:

"7. (1) Subject to subclause (2), to qualify for the benefits under this Scheme, the beneficiaries must notify the Corporation in writing of the matters that could give rise to the losses referred to in clause 5 or 5A within the following times:

(a) for loss in relation to incomplete residential building work - within 12 months from: (i) the contract date; or (ii) the date provided in the contract for commencement of work; or (iii) the date work ceased on the project, whichever is the latest; (b) for loss relating to heads of claim in clause 5(1)(d) or (e) incurred in rectifying major structural defects or in repairing damage to the dwelling that has occurred in consequence of major structural defects - within 6 months after the beneficiary first becomes aware of the defect, but not later than 7 years from: (i) the commencement of insured building work which is not also insured owner-builder work; or (ii) the date of issue of the owner-builder permit for insured owner-builder work; (c) for loss relating to heads of claim in clause 5(1)(d) or (e) other than those referred to in paragraph (b) - within 6 months after the beneficiary first becomes aware of the defect, but not later than 3 years from: (i) the commencement of insured building work which is not also insured owner-builder work; or (ii) the date of issue of the owner-builder permit for insured owner-builder work; or (d) … 7. (2) The Corporation may extend the time specified in sub-clause (1) if it is satisfied that the delay in notification was due to circumstances outside the control of the beneficiary." (Emphasis added) 16 Under Clause 7 the beneficiary becomes entitled to the insured benefits, which the Scheme provides, when the beneficiary provides written notice of matters that could give rise to the losses in the Scheme. This reference to "could" is of importance in this application. 17 Clause 10 of the Scheme provides that "despite" clause 7(2) FTAC has no further liability under the Scheme more than 10 years after the commencement of the residential building work in relation to which the Scheme applies for any reason attributable to that work. Adoption of the referee report - legal principles 18 The applicable legal principles are well settled and there is no substantial dispute between the parties in relation to them. There is a concise summary of the relevant principles in the judgment of Gleeson CJ in Super Pty Ltd v The SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 562-563 where His Honour made the following observations: o There is no rule that a party dissatisfied with a referee's report is entitled to as a right to require the judge to reconsider and determine afresh all issues whether of fact or law which that party may desire to contest before the judge. o Decisions can be reviewed for error of law, perversity or manifest unreasonableness. But there is no general right of review or appeal by way of rehearing. o It is inconsistent with the object and purpose of the rules and productive of delay, expense and hardship that the practical effect of appointing a referee should simply add an extra level to the hierarchy of decision-makers in a given case. o It is important to bear in mind the modern trend to encouragement of alternative dispute resolution to avoid or minimize litigation and achieve a final and binding result. o The above views are consistent with the right of a referee to conduct a reference as he or she thinks fit unconstrained by the rules of evidence. And the judge reviewing the report and deciding whether to adopt, vary or reject it has a judicial discretion to exercise in a manner consistent with the purpose of the rules and the broad setting referred to above. o In so far as the subject of dissatisfaction with the referee's report is a question of law or the application of legal status to establish facts then a proper exercise of discretion would require the Court to consider and determine the matter afresh. It is undesirable to attempt closely to confine the manner in which the discretion is to be exercised. Some matters to take into account are the nature of the complaints made about the report, the type of litigation, the length and complexity of proceedings before the referee. o It would frustrate the purpose of achieving a whole or partial resolution of disputes alternative to orthodox litigation to allow the reference to be treated as some kind of warm-up for the real contest. o Judicial review may be granted if there is an error of principle, an absence or excessive jurisdiction, or some patent misapprehension of the evidence that may be a reason for rejecting it, as would perversity or manifest unreasonableness in fact finding. These principles have been followed in a number of subsequent cases including Walter Construction Group Ltd v The Walker Corporation Ltd [2001] NSWSC 283; (2001) 47 ATR 48 and Abigroup v Peninsula Balmain [2001] NSWSC 752; (2002) 18 BCL 15. 19 FTAC refers to the decision of Studdert J McCallum Developments Pty Ltd v The Owner's Corporation Strata Plan 53098 [2002] NSWSC 1103 for the proposition that Clause 7 places an obligation on a claimant under the Scheme to notify matters that could give rise to the losses in question. His Honour there observed that the language of the clause should not be construed narrowly because of the beneficial nature of the legislation. 20 FTAC refers to one of the purposes of the Scheme as being to ensure that the fiscal impact of the Scheme has a minimal effect on the public purse and it refers to the public policy and practical reasons for the imposition of the statutory time limitations. FTAC says that if it is possible to recover any monies paid under the Scheme from a builder it must be able to investigate the claim and prove breach by the builder which in turn requires that there be timely knowledge of the actual complaint. FTAC says that the notification to it must be such as to identify the broad headings of damage sufficient to enable investigators to locate and understand the problem. FTAC's case 21 FTAC submits that Ms Grey erred in finding that the defects identified years later, and in some cases, more than 10 years since the time period began to run on commencement of the building work, were covered by the Scheme because they represented "systemic" defects in the construction. 22 In so doing, it is submitted she failed to properly take into account the fact that the evidence disclosed that only some parts of the premises were affected by the defects and others were unaffected. Her conclusion, it is said, was unsupported by the evidence, and her decision failed to disclose the reasoning process she adopted in finding that the defects were "systemic." Also, her reasoning is said to be so flawed that it constituted an error of law. 23 In addition, FTAC says that Ms Grey failed to take proper account of the impact of clause 10 of the Scheme which removes further liability on the expiry of 10 years after the commencement of the work for any reason attributable to that work. FTAC says that this clause operates to disallow any claim for defective work made 10 years after commencement of the building. By way of example, FTAC refers to the fact that of the 156 units in the premises the plaintiff asserted that 74 had defective hobs and 89 had defective wall cavities. One result of the defective hobs and wall cavities was said to give rise to water penetration and associated damage. However, only 12 of the hobs and 14 of the cavities had been notified within the prescribed time limits. This, it is said, was an error because the referee wrongly accepted that the cause of all the defects was systemic failure notwithstanding that the defects were only manifested in many units after the passage of 10 years from the date of registration of the strata plan. The reasons given by Ms Grey were manifestly wrong. It says that the intention of the legislation was to close the Scheme and extinguish all further liabilities of whatever kind after the passage of 10 years from the date of commencement of the building works from any cause. Otherwise, the builder and insurer would be liable for the indefinite future for any defect which the owner could link to a notified defect. The Referees Report 24 After setting out the factual background and the relevant sections of the Scheme, Ms Grey referred to the "beneficial nature of the Scheme." Ms Grey referred to a decision of Burchett AJ in Fair Trading Administration Corporation v Owner's Corporation SP 43551 [2002] NSWSC 624, where His Honour observed at [24] in relation to notification under s 7 of the Scheme: "It is important to note that the six months is measured from the first awareness by the beneficiary (not someone else) of "the defect", although what must be notified is described as " matters that could give rise to the losses ", not the actual defects that , in a precise sense, are the causes of those matters . A degree of imprecision in a notice seems to be contemplated by provision so framed. " (Emphasis added) 25 Ms Grey noted that the Schedule to the Home Building Regulations defined "major structural defect" as follows: "An inherent or damaged induced defect: (a) in an element that provides essential supporting structure to the whole of or any part of a dwelling, for example, a footing beam, column or suspended slab which renders the element inadequate for its structural purposes; or (b) in a substantial functional element essential to the habitability of a dwelling (for example, a panel wall, masonry veneer wall, or slab on ground) which is of such a kind that the element itself does not have an adequate structure for its purpose." (Emphasis added)

26 Ms Grey noted the agreement of the parties that for defects to be considered major structural defects the element must have a function such as keeping out the wind and rain or letting in light and air that is essential for the suitability or fitness for habitation and which is defective because its composition, make-up, form or manner of construction does not provide the characteristics required to fulfil its intended purpose. Notification 27 Ms Grey then considered the issue of notification. In particular she considered whether the notification of a manifestation of a particular defect, in one or a number of units, could be notice of the same defect in other units. She described such defects as "systemic" defects. She noted that counsel for FTAC had identified as issues in relation to the time notification defence: "i) whether notification of the possibility of a claim where certain apartments permits a claim in respect of other apartments even where the latter claim would otherwise be out of time;

ii) whether notification of a claim allows for a claim for 'systemic' defects, and if so, whether that permits claims to be made for an indefinite period." 28 Ms Grey noted that FTAC had conceded that if a notification made out of time was merely a particularisation of a notification already made then the time limitation defence would fail. At [23] Ms Grey stated: " The defendant conceded that if latter notification were merely particularisation of a notification already made, then the time limitation defence would fail. As an example, in relation to the first items of the defects, i.e. water penetration through the cavities in external walls and hob, the FTAC submitted: "Thirdly, Clause 10 of the Scheme makes it quite clear that no claims can be accepted more than 10 years after the commencement of word for any reason. If the learned Referee determines that the notification of the water penetration in the later notification is merely further particularisation of a notification already made then this point fails . If otherwise, it operates as a complete bar to the Plaintiff's claim in respect of the latter-notified defects" (Emphasis added) 29 At [24] Ms Grey said: "The specific wording in the notification of each item claimed and whether the current claim amounted to particularisation of these matters or to entirely new matters will be considered separately in relation to each defect item claimed." 30 The matter was therefore considered by the Referee on the basis that the Clause 10 defence would not apply if the notification was a particularisation of a notification already made. The same approach was taken by FTAC in its submission in reply on the hearing before me [T.35].

31 Ms Grey then dealt with the defect items. It is convenient to illustrate the principles and approach to consider the way in which she dealt with the Item 1 involving defective wall cavities and hobs because she took a similar approach in relation to the other defects in relation to timely notification. 32 Ms Grey first noted the expert evidence that in the wall cavities at the junction of other walls or columns the flashings were not abutted onto the adjoining structure in a watertight manner and the evidence is that this was a fault in workmanship. She described the problem with hobs as being that the membrane intended to waterproof the hob had been painted up its outside skin and that the waterproofing was of very poor quality. The result being that water penetrated through the hobs into habitable areas. She found that defective construction had allowed water to penetrate through walls and hobs into habitable areas and that the walls and hobs were "substantial functional elements" intended to keep out the rain, which their defective construction permitted to enter. She concluded these were "major structural defects." 33 The next question she addressed was whether there was a "systemic" failure and whether adequate notice had been given. She noted that the March 2009 Defects Report, established that of the 156 units, 74 had defective hobs and 89 had defective external wall cavities. She referred to the submission by FTAC that of these units only 12 units with defective hobs and 14 units with defective external wall cavities had been notified within time. FTAC admitted liability for there latter defects but because of the notification it had denied liability for the remaining defects. 34 She then proceeded to consider FTAC's outline of submission in detail and referred to extracts from the 25 October 2009 Maunsell Report and the 2003 Sutech Report. 35 She addressed the question whether the initial notification gave adequate notice only of matters which could give rise to losses in the specific units identified in the Sutech Report or whether the notification was sufficient to give notice of losses arising in the additional units identified later as suffering the same problems. She observed that the expert's uncontested evidence was that the water penetration problems with cavity walls and hobs resulted from the same two causes. She considered that the Maunsell Report had made it clear that it was very likely that not all the defects had been identified at the time the notice was given. She accepted expert evidence as to the reasons why the effect of "underlying defects" may not have become apparent in all units at the time the Maunsell Report was prepared in 2001. She found that the underlying defects were present from the beginning and were widespread and in that sense were "systemic." 36 Ms Grey proceeded to give reasons for reaching this conclusion. The first was that if in one large development constructed by one contractor, a membrane and cavity flashings were found to be defective in some areas, it was reasonable to assume a possibility, if not a likelihood, of systemic failure in the application of these materials leading to a likely manifestation of the problems apparent in other areas. Second, she referred to the "relaxed requirement" for notice outlined by Burchett AJ, in the above quotation indicating that detailed identification of the actual cause was not necessary at the notification stage. She observed that the notice given by Strata had identified water ingress through entrapment in the cavity together with poor waterproofing of junction walls and floor. In her opinion this was sufficient to give notice of matters that were likely to give rise to losses in so far as those losses arose from wall cavity and hob defects and she so found. Extension of Time 37 She noted that the Department had exercised its discretion to extend the statutory six month notification period running from the time when Strata first became aware of the defect because there was a long period of ownership by the developer and apparent ongoing willingness on the contract to rectify defects. 38 She decided for reasons which she gives at [46] that the decision of the Department to exercise its discretion to extend time in relation to major structural defects properly notified was reasonable and appropriate and that it was reasonable and appropriate to infer that the same time extension would apply to additional matters, which were rejected by the Department but for which notice had been properly given. Nevertheless, she exercised her own discretion to extend the six month period having regard to the ongoing negotiations between Strata and the building contractor. 39 Her conclusions in relation to "Item 1 - the wall cavities hobs" are as follow at [51]: " … Conclusion In conclusion, for the reasons outlined above, I find that all the defective construction of the cavity wall and hobs claimed by the plaintiff in the areas outlined in s 2.1 of the Defects Report [2009] are major structural defects; that sufficient notice of these was given within the seven year limitation period; that discretion to exercise six month notification period from the date these defects became known to Strata should be exercised in the circumstances and that under the Scheme the plaintiff is entitled to indemnity for the cost of rectifying these defects." 40 Ms Grey then considered the remaining 10 items using similar reasoning. In respect of three items she found the notice given was insufficient to notify the matters that gave rise to the losses associated with the need to replace and repair. In the remaining cases she found that the notice, given in the reports was sufficient. 41 Finally, she noted that the experts had agreed on rectification costs and the parties had adopted the agreement. Render

42 In relation to the issue whether the delaminating render was a "major structural defect" for the purposes of the Scheme she concluded that the render was a component of the exterior walls and that the walls and render together must be seen as a single integral feature having regard to the expert evidence. 43 FTAC had submitted that the delaminating render was a "general defect" saying that its purpose was merely decorative and that there was no defect in its composition, make-up, manner or the form of its construction and that the render was delaminating which would justify a finding it was a structural defect simply because water was entering the slab. Ms Grey referred to the expert evidence that those areas of the building from which the render was delaminating were such that the falling render could cause danger and injury to persons below with consequent danger, in particular, to pedestrians, residents and maintenance workers and therefore made the building dangerous to inhabit. 44 Although it was agreed that the render did not provide supporting structure and that its principal purpose was decorative the expert evidence was that the render assisted in preventing water getting into the cavities and putting a load on the internal waterproofing system. The render was very substantial in places being up to 50 - 60 mm thick which was about 50 per cent of the width of the outer skin of brickwork. This led to more water getting into the cavities than if the render was only the normal 10 - 12 mm. The evidence was that the thicker the render above the 10 mm, the greater the need for reinforcement to support it and to bond. The render in this case was not like paint which would only have an aesthetic effect. She accepted evidence that the design was badly executed and this allowed the ingress of water.

45 She concluded therefore that the render delaminated because the underlying defect causing it was a "major structural defect."

Reasoning Notification 46 Under Clause 7(1) the notice must be in respect of matters which could give rise to losses in notifying defects and rectifying defects due to bad workmanship. The use of the expression "could" is important. The term "could" taken alone indicates a possibility or potentiality which connotes a spectrum of causes ranging from something which is remotely possible to something which is likely. In the context of the Regulation, the term requires something less than "probable" or "likely" and connotes "a reasonable possibility." 47 It is evident from the case law and the language of Clause 7 that it is not necessary at the notification stage to precisely specify the exact underlying cause which gives rise to the manifestation of the loss arising. The exercise is to notify a "matter" which "could" give rise to a loss arising from the necessity to rectify defects in the insured work due to bad workmanship. FTAC submitted to Ms Grey that it was necessary to particularise the cause at the notification stage because otherwise FTAC would have no opportunity to protect its interest. 48 In practical terms, however, it will often not be possible, to immediately identify with any specificity the underlying cause of the defect but only to describe the manifestation or symptoms of the problem. The determination of the actual underlying defect will often be a question for expert evidence as to what the notifications indicate in the relevant circumstances. As an illustration of the problem, in relation to the defective hobs and wall cavities, out of the 156 units in the building, 12 defective hobs and 15 defective cavities had been notified within time. However, the claim made was in respect of 74 hobs and 89 defective cavity walls. FTAC accepted liability in respect of the hobs and cavity wall defects notified within time but rejected the remainder as being outside the limitation period. Whether there is a common underlying cause may depend on matters such as the number of defects, their common features and the time span over which the defects were manifested. 49 As Ms Grey points out in her Referee Report, the October 2001 Maunsell Report included the following statement:

"Residents have recorded on response sheets to the landlord moisture ingress in the ceilings and walls. Due to the limited access to apartments during the inspection the recorded defects from the survey of December 2000 questionnaire in respect of October 2001 had been taken into consideration for the preparation of remedial recommendations." (Emphasis added) 50 In the July 2003 Sutech Report, elaborating on the initial notice, a specific example of the problem notified by the Maunsell Report, was given in relation to the walls as follow in respect of a unit: "Unit S102 … water entrapment in cavity, poor waterproofing of junction wall and floor allowing lateral water penetration ." (Emphasis added) 51 The above elaboration was repeated in respect of a range of defects in other units and it was the defects in these identified units for which the claim was approved in principle. 52 Ms Grey saw her task as being to determine if the initial description gave adequate notice only of the matters that could give rise to losses in the specific units identified in the Sutech Report or whether the description in the notification was sufficient to give notice of losses arising in the further units identified as suffering from the same problem in a later report which FTAC contended was out of time. 53 She referred to the uncontested expert evidence that all water penetration problems through the cavity walls and hobs resulted from two causes in respect of which the underlying defects may not have become apparent in all units at the same time. She then gave reasons in paragraphs [42]-[43] of her report for finding that there was adequate notice of the matters which could give rise to losses. I have already summarised above the steps she took in dealing with the sufficiency of the notification concerning this item. She took a similar line of reasoning and analysis in relation to the evidence of other items as to sufficiency and timeliness of notification. 54 It is to be noted that after considering the expert evidence she did not find the notification in respect of some items namely "Item 8 - corroding reinforcement" and "Item 9 - cracking concrete" sufficient and accordingly the claim failed. 55 The question whether notification of defects, events and manifestations in this 156 residential unit building were of such a nature to indicate one or more underlying or systemic causes which were not substantially different is a classic question of fact and degree calling for some expert opinion. In the light of the substantial body of expert evidence in this case and the fact that Ms Grey is an expert decision-maker, in performing this task she was obliged to, and did in fact, consider the relevant principle and bring her expertise to bear in assessing the circumstances and reaching her determinations as to the relationship as to the nature of the defects rectified. 56 I do not accept that in this case it is necessary for every manifestation of an underlying cause to be notified within the prescribed period, provided there is notification of matters that could give rise to losses arising in the need to rectify bad workmanship even though they are manifested later. I am not persuaded that Ms Grey has fallen into any error of fact or law, which would justify a refusal to accept her report in this matter on the ground that there was no timely notification. Item 6 - Render Repairs 57 In relation to Item 6 which concerns render repairs, FTAC submits that the heavy cement render to the face of the building which delaminated should not be classified as a "major structural defect" but rather as a general defect for the purpose of the Clause 7 time limitations. 58 Ms Grey decided that the render was a major structural part of the building and was integral to the wall and that the delamination arose from a "major structural defect." On the hearing FTAC contends that the cement render was only a "decorative", as distinct from a "structural," feature and therefore any fault in relation to the render works was a general defect. 59 At [83]-[93] of her report Ms Grey addresses this issue in detail and refers to the expert evidence. She refers to the definition in the Housing Regulation Scheme of "major structural defect" as being an "inherent or damage induced defect in a substantial functional element essential to the habitability of the dwelling." She noted the evidence from an expert witness that falling render from the face of the building onto public places could impact on the "habitability" of the building by causing danger to persons entering and leaving the building and residents whose terraces projected beyond the render and maintenance workers. She refers to expert evidence that the render assisted in preventing water getting into cavities thereby putting a load on the internal waterproofing system and she also accepted expert evidence as to the bad execution of the render wall and design and the fact that it had to be excessively thick to achieve a vertically aligned finish. 60 The question as to what weight could be given to this expert evidence and as to its importance in determining whether the defects caused were structural defects is a question of fact and degree for the referee and is not one in respect of which this Court will readily to set aside the finding. 61 I am not persuaded that any error has been shown in relation to the characterisation of the render claim. 62 Having regard to the evidence to which she refers and her own expertise, I am not satisfied that any error has been shown in the reasons and conclusion of Ms Grey in this respect. Extension of time 63 Under Clause 7(2) the time for notification may be extended where the delay in notification was due to circumstances beyond the control of the beneficiary. Ms Grey exercised her discretion to extend the six month time limit having regard to the evidence before her of ongoing negotiations between Strata and the Contractor. 64 FTAC submits that this exercise of discretion was in error because no reasons were given by her to show that the extension of time was beyond the control of Strata. FTAC submits that Ms Grey did not take proper account of the onus on Strata to make out its claim for an extension. She has given her reason for the extension but FTAC considers they are not sufficient. FTAC refers to the attitude of the Contractor which it says indicated that negotiations after a certain period would be fruitless and it also refers to the alleged dilatory conduct of Strata in making the claim. 65 There are three reasons why this submission is not made out. First, Ms Grey is an expert referee exercising a broad discretion on the reference and she has heard detailed evidence and submissions on the circumstances. The courts will not lightly overturn such an exercise of such a broad discretion unless there is a clear error as to principles or facts in the exercise of discretion. It is not sufficient to show that a different conclusion could have been reached. Second, essentially the argument is that in exercising her discretion she reached the wrong conclusion and did not give proper weight to the considerations raised by FTAC. This is a question of degree for determination by her. Third, she gave as her reason the ongoing negotiations with the Contractor. The counter submission by FTAC was that the Contractor at an early stage had indicated its unwillingness to negotiate. It is notoriously difficult to evaluate when a course of negotiation between parties such as Strata and the Contractor can be said to be finally concluded and whether further negotiation would be fruitless. Accordingly, having regard to the above, I do not consider that this submission establishes that any ground has been made out for not accepting the report of Ms Grey.

Clause 10 66 Clause 10 of the Scheme refers to Clause 7(2) which permits an extension of time where FTAC is satisfied that the delay in notification was due to circumstances outside the control of the beneficiary. An effect of Clause 10 is that there can be no extensions of time after the 10 year period. Clause 10 is cast in wide terms to provide that no further liability can arise under the Scheme after the expiry of 10 years from the commencement of the building work for any reason whatsoever related to the building work. 67 This clause does not in my view affect claims that have already been notified within 10 years in relations to systemic defects or defects arising from the same underlying cause. The word "further" is significant here as is the term "liability" so that where a liability has crystallised within the 10 year period so as to become an "existing" liability, later manifestations arising from the same underlying defect are not excluded and there is no issue as to further or additional liability. 68 FTAC submits that such an interpretation could potentially expose it to innumerable claims for the indefinite future. However, for a later manifestation in other units or parts of common property to be the subject of a claim outside the 10 year statutory period, it will be necessary for the claimant to establish that the manifestation arises on a manifestation previously notified underlying defect. In practical terms, it will become increasingly difficult as time passes after a period of 10 years to establish such a nexus. If the nexus with the previously notified defect can be established by appropriate evidence then a claim cannot be said to be inconsistent with the beneficial intent of the Scheme. 69 I note that when the matter was before Ms Grey, FTAC appears to have accepted that the expiration of the 10 year period provided for in Clause 10 did not prevent claims being made and liability attaching in cases where the defect in a particular unit or common property is a manifestation or particularisation of a defect already notified. Also, on the hearing before me, in its address in reply, after referring to Clause 10, FTAC submitted that unless properly construed, a defect is the same as one already notified, and it cannot be claimed after March 2005 Conclusion 70 For the above reasons, I make the order that: 1) The Referee Report of Ms Grey be adopted. 2) The defendant be ordered to pay the plaintiff the sum of $3,017,875 plus GST with interest from 19 June 2009. 3) The defendant pay the plaintiff's costs as agreed, assessed or taxed. 4) Liberty to apply on 12 hours notice.

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.

Building Services Corporations Act 1989(NSW)

Building Services Corporation Regulation 1990(NSW)

Strata Titles Act 1973(NSW)

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