Proprietors Units Plan No 95-38 & Ors v Jiniess Pty Ltd & Ors [2000] NTSC 89

Proprietors Units Plan No 95-38 & Ors v Jiniess Pty Ltd & Ors [2000] NTSC 89 | Case summary | Zoe

[10]

[2]

The first plaintiff is the body corporate for the Unit Plan and is the owner of the common property. The second to ninth plaintiffs are each a registered proprietor of a unit within the building and the tenth plaintiff is the registered proprietor of two units within the building.

[3]

The first defendant is a corporation which developed and constructed the building. At all material times the fourth defendant was a director of the first defendant and he was the person responsible for the business operations of the first defendant including the design, development and construction of the building. I will refer to the first defendant as "the builder".

[4]

The third defendant carried on business as a firm of professional engineers practising in the area of structural engineering. On or about 1 July 1996 it sold and assigned its business to the second defendant which also carried on business as a firm of professional engineers practising in the area of structural engineering. I will refer to the second and third defendants as "the engineers". The engineers were engaged by the agent of the first defendant to provide engineering services to the builder for the project.

[5]

The building was completed in 1995. On 10 May 1995 a permit to occupy was issued pursuant to the Building Act by the building certifier who relied upon the certifications issued by the engineer and upon the declarations of the builder for that purpose.

[6]

Water penetration, structural defects and excessive differential settlement began to become apparent in 1996. Problems with the building were first noticed when seepage was observed in relation to the rear retaining wall at the back of the car park ie on the ocean side of the building. Concerns were raised with the builder through Mr Glynatsis but it appears nothing was done. Eventually a meeting of the body corporate was called at which the matter was addressed. That meeting took place on 23 January 1997 and a motion was passed agreeing to engage the engineers to monitor and report on the subsidence of the verandah, the structural problems of the rear wall and "to include submission of a report to the managers". The engineers were appointed by letter dated 1 February 1997 from the manager of the body corporate. It was just a few days later that a Building Notice was issued by the Director of Building Control pursuant to the Building Act stating that the building posed a potential danger and requiring that the premises be made safe for any persons on the property. That report included the observation that an inspection on 3 February 1997 revealed the existence of:

[12]

[7]

The Building Notice was supplied to the engineers who responded by advising that there was no immediate danger to building users and that "a repair method is currently being developed by this office". The letter recorded that "Mr Glynatsis has agreed to undertake the work". A design and scope of remedial works exercise was undertaken by the engineers and was contained in drawings prepared by the engineers. The repair method was developed by the engineers in conjunction with the builder in order to address the defects raised in the Building Notice.

[8]

A meeting of the body corporate was held on 12 March 1997 to consider the proposed remedial work. The body corporate resolved to accept the remedial work which had been suggested and approved it "as an interim measure to ensure public safety". The builder was thereafter authorised to carry out the work but was alerted by letter to the concerns of the body corporate that the response was an interim measure only and noted the continuing need to address the serious and ongoing problems with the building. A similar letter was sent to the engineers.

[9]

Some work was carried out and on 10 June 1997 a permit to occupy was issued pursuant to the Building Act. That permit dealt with the remedial works and was issued by the building certifier who relied upon the certifications issued by the engineer and upon the declarations of the builder.

[10]

When the correspondence from the body corporate to the builder and to the engineers regarding the ongoing concerns was not the subject of a response, the body corporate took independent engineering advice and engaged the services of solicitors. The solicitors wrote a letter dated 30 April 1997 to both the engineers and the builder seeking information as to "the precise nature and extent of the remedial works being undertaken and including how these address our client's concerns raised over the failure of the column beam".

[11]

In the absence of responses from the builder and the engineers the body corporate held a meeting with its solicitors and with the engineer, Mr Rod Jones from Scott Wilson Irwin Johnson Pty Ltd ("Scott Wilson"). Scott Wilson was engaged to prepare an engineering report in contemplation of legal proceedings. As part of that process Scott Wilson wrote to the engineers advising of their involvement and informing them of specific problems relating to the building. One of those was "visually observable differential settlement of the building around the rear of the residences". The letter posed various questions for the engineers' attention. The letter was dated 2 February 1998. A further letter dated 16 March 1998 was sent from the management committee of the body corporate referring to the earlier letter and seeking a response. A response was eventually received in June 1998 in which it was indicated that whilst some further "checking" was taking place the problems were largely to do with the builder.

[12]

The plaintiffs allege that the initial problems in relation to the building arose from the negligence of the first defendant as builder in designing, developing or constructing the building and by the engineers in failing to properly design the building or inspect, test or determine the structural adequacy of the design of the building or to ensure the building was constructed in accordance with the design.

[13]

The plaintiffs say that the subsequent method of repair was not designed with due care and skill and the repair works were not carried out in accordance with the identified repair method. The repairs executed did not remedy the defects in the building as identified in the Building Notice, nor did they resolve the inadequacies in the design and the deficiencies in the construction of the building which were then manifest.

[22]

[23]

The remaining claims are characterised as being for pure economic loss and in each case the plaintiff is a subsequent purchaser of a particular unit. It was the submission of the engineers that in those circumstances they did not owe a relevant duty of care to any of the individual plaintiffs.

[24]

There is no dispute between the parties in this matter that the damages claimed represent pure economic loss. To succeed in a claim for pure economic loss it is necessary for each of the plaintiffs to demonstrate a special relationship with the engineers in order to satisfy the need for a sufficient degree of proximity to give rise to a duty to take reasonable care on the part of the engineers to avoid such loss.

[25]

The proposition that a person in a "skilled calling" involved in the design or construction of a building may owe a duty of care in tort is well established: Voli v Inglewood Shire Council & Anor [1963] HCA 15; (1962-1963) 110 CLR 74. The duty is owed "quite independently of his contract of employment". That case was concerned with a claim for personal injuries. It did not involve a claim for pure economic loss. In order to establish a relevant duty of care in this matter the plaintiffs submit that it is sufficient for the individual plaintiff to demonstrate that it relied upon the engineers and that there was an assumption of responsibility by the engineers. The finding of reliance by one party and the assumption of responsibility by another "is commonly present in the categories of cases in which a relationship of proximity exists with respect to pure economic loss": Bryan v Maloney (1994-1995) 182 CLR 609 at 627.

[26]

It is the submission of the plaintiffs that the engineers assumed responsibility for the structural design of the building and that they did so by virtue of the terms of agreement entered into in a letter dated 18 March 1994 addressed to the agent of the builder (Exhibit P8). In that document the engineers undertook to "provide structural design concepts and preliminary design options", to attend regular design meetings, to provide structural design certification, carry out structural calculations and provide structural input to the architect. They also undertook to "inspect structural aspects of the development during construction".

[27]

The plaintiffs submitted that the various individual plaintiffs each relied upon the engineers in that regard and that the evidence of such reliance is to be found in the statements and viva voce evidence of the representatives of the various plaintiffs.

[28]

The plaintiffs further submitted that in breach of the duty of care the work undertaken by the engineers was performed negligently for the reasons set out in the reports of Mr Thompson. Those reports became Exhibits P78 and P79. The evidence of Mr Thompson as contained in the reports is largely unanswered and unchallenged by the engineers.

[36]

[37]

Chesterman J agreed with the observations made by the Chief Justice. He also referred to the judgement of Brooking JA in Zumpano v Montagnese (1997) 2 VR 525 and noted that his Honour had there identified "in chilling detail the difficulties that one can expect to encounter should the decision in Bryan become an abstract principle of law concerning the liability of those who build or design structures to those who subsequently own or occupy them". He went on to express the view that the decision in Bryan v Maloney should be confined to the particular circumstances which gave rise to liability in that case.

[38]

Chesterman J distinguished Bryan v Maloney by reference to the fact that the design in the case then before the Court involved the design of a commercial building. He observed that the "purchaser of a substantial commercial building acquired for profit does not fit the description of a purchaser of a modest suburban house who 'is likely to be unskilled in building matters and inexperienced in the niceties of real property investment'."

[39]

As with the other members of the Court he did not regard the categorisation of the defects as being dangerous or likely to lead to injury or damage to other property as warranting the imposition of liability.

[40]

In Woollahra Municipal Council v Sved (1996) 40 NSWLR 101 the Court of Appeal in New South Wales dealt with a case where the purchasers of a defectively built house sued the builders, the vendor and the local council. The vendor had supervised the builders in the construction of the house and had made decisions resulting in inadequate work. Clarke JA pointed out that although the majority in Bryan v Maloney identified assumption of responsibility and known reliance as necessary elements, they referred also to other considerations as relevant including the absence of any specific term in the contract bearing on the relationship of proximity and the fact that there was no intervening negligence. He went on to say in relation to Bryan v Maloney (p133):

[38]

[41]

Clarke JA observed that Bryan v Maloney seemed to be a case "reflective of a determination based upon the particular facts rather than one applicable to a broad category of cases".

[42]

The High Court again considered the difficult topic of the existence of a duty of care in circumstances of pure economic loss in Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180. There the Court failed to identify a unifying approach to the problem. Although the members of the Court were unanimous in allowing the appeal they did so for differing reasons set out in individual judgments.

[43]

In that case there was a measure of recognition that proximity alone does not provide a unifying theme underlying the recognition of a duty of care. It remains one factor among others that may assist in identifying when a duty of care arises.

[44]

In the present case it was submitted by counsel for the engineers that Bryan v Maloney would not be resolved in the same way following the decision of the High Court in Perre v Apand Pty Ltd. Whether or not that is so is difficult to determine. Various members of the Court referred to Bryan v Maloney in the course of their judgments in Perre v Apand Pty Ltd but did not suggest that it was incorrectly decided. Given the divergence of approaches adopted by the members of the High Court in Perre v Apand Pty Ltd and given that Bryan v Maloney was not doubted in any of the judgments delivered by the members of the Court I regard Bryan v Maloney as continuing to have application to matters which are within its scope. It remains binding upon me to the extent of its application to the facts of the matters I have to determine.

[45]

The plaintiffs maintain that this case is "merely and simply" an application of the principles in Bryan v Maloney. At most, it is said, it may involve the Court taking a small incremental step insofar as the present matter involves a designer rather than a builder and also insofar as the building is a mixed commercial/residential building.

[46]

The engineers, in reply, say that Bryan v Maloney must be confined in the manner suggested in the cases referred to above ie Fangrove Pty Ltd v Tod Group Holdings; Zumpano v Montagnese and Woollahra Municipal Council v Sved. They submit that they are in an entirely different position from the builder in Bryan v Maloney. In that case there was a contract between the builder and the predecessor of the plaintiff. In this case there was no contractual connection between the engineer (a designer) and a predecessor of the plaintiffs. The contractual relationship was between the engineer and the builder/developer. Secondly in this case the plaintiffs are not to be equated with Mrs Maloney in terms of their ability to protect themselves by ascertaining the prospects for the presence of defects or by including some contractual protection in the purchase contract. Further there was no evidence of reliance by the plaintiffs other than "general reliance". Similarly there was no evidence of an assumption of responsibility by the engineers for future economic loss for anyone who may suffer such a loss as a consequence of any deficiency in the design.

[47]

The unsettled state of the law in this area creates obvious difficulties for a Judge at first instance. Those difficulties are equally present for those called upon to advise litigants caught up in circumstances such as exist in this case.

[48]

Turning to the general circumstances present in this matter it must be acknowledged that I am dealing with circumstances that differ in some respects from those found in Bryan v Maloney for example:

[40]

[49]

Accepting those differences, and without descending into the particular circumstances of the individual plaintiffs, it is difficult to see why the plaintiffs in these proceedings should be treated differently from the plaintiff in Bryan v Maloney.

[50]

National Mutual Life Association of Australasia Limited v Coffey and Partners Pty Ltd (1991) 2 Qd R 401, was a case in which a subsequent owner of a building sought to pursue proceedings against engineers alleging negligent advice and negligent design of foundations in relation to an industrial building. There it was alleged that one firm of engineers negligently advised the original owner as to the foundations which would be adequate for the building to be constructed and that other engineers negligently designed the foundations and negligently supervised the construction of the foundations. In considering whether the statement of claim should be struck out the Court observed (at 406) that "succession to the ownership of the subject matter of the professional design should be regarded as creating a relationship of necessary proximity" to establish a duty of care owed to a subsequent owner.

[51]

As with the situation in Bryan v Maloney the relationship between the engineers and the plaintiff unit owners is characterised by an assumption of responsibility on the part of the engineers for the professional design and supervision, and likely reliance upon the part of the owner. The loss arising from negligence in those areas is foreseeable as is the fact that the loss will be sustained by whichever of the first or subsequent owners happens to be the owner at the time when the inadequacy of the design becomes manifest.

[52]

The purchasers of the residential units and of the commercial units in the building with which I am concerned are likely to be people of the same characteristics as Mrs Maloney. As with Mrs Maloney the plaintiffs "will ordinarily have no greater, and will often have less, opportunity to inspect and test the footings of the house than the first owner". The subsequent owner is just as "likely to be unskilled in building matters and inexperienced in the niceties of real property investment". Similarly the engineers in the present case should be aware that subsequent owners "will be likely, if inadequacy of the footings has not become manifest, to assume that the (building) has been competently built and that the footings are in fact adequate". The engineers will obviously have "superior knowledge, skill and experience in the construction of (buildings)" and are clearly better qualified and positioned to "avoid, evaluate and guard against the financial risk posed by latent defects in the structure of (the building)".

[53]

Whilst the building in the present case was not exclusively a residential dwelling (as was the case in Bryan v Maloney) at least one of the plaintiffs was purchasing the residential unit as her place of residence. Others were corporations whose directors occupied the units as their place of residence. Although this building was not a stand alone house part of it nevertheless was, for each of the purchasers of the residential units or their directors, "a permanent dwelling house". The fact that the individual permanent dwelling houses were part of a complex of permanent dwelling houses would not place them in a different category from the premises in Bryan v Maloney.

[54]

The recognition of a relevant relationship of proximity between engineers and subsequent owners in circumstances such as those present in this case, including in relation to the commercial units, is not more likely to give rise to liability in an indeterminate amount to an indeterminate class for an indeterminate period than does recognition of the relationship between the builder and subsequent owner in the circumstances of Bryan v Maloney. Further I do not see that the nature of the contractual relationship between the engineers and the builder/developer alters the position. The contract entered into between the engineers and the builder created the sphere of activity which then brought the engineers and the subsequent purchasers into a relationship of proximity such that the engineers assumed an independent duty of care to design the building to reasonable standards. The duty of care owed by the engineers to subsequent purchasers arose not because of the contract but rather because they entered upon the work defined by the contract: CAI Fences Pty Ltd v A Ravi (Builder) Pty Ltd (WASC, unreported, 27 December 1990 per Malcolm CJ).

[55]

If it be accepted that the approach in Bryan v Maloney should apply to the residential units in this complex it is difficult to see why that same approach should not apply to the commercial units on the ground floor. They are in the same building. They are affected by the same failures of design, supervision and construction. The characteristics of the owners are not demonstrated to be different from those of the residential units. The only real difference is that they are to be used as commercial outlets.

[56]

In all of the circumstances, and subject to a consideration of whether there is established the necessary reliance by the individual plaintiffs and the presence of an assumption of responsibility by the engineers, I find that the engineers owed the subsequent purchasers a duty to take reasonable care in the design and construction of this building and may be liable to the individual plaintiffs in damages for an amount equal to the decrease in the value of the interest in the building held by the plaintiff arising from the inadequacy of the design and its consequences, loss of amenity and disruption and relocation during remedial works. I do not at this time consider the impact of the settlement of the first plaintiff's claims on the issue of damages recoverable. That will be a matter to be determined in the next stage of these proceedings.

[42]

[57]

As has been observed the plaintiffs assert that there has been an assumption of responsibility by the engineers and, further, that there was reliance upon the engineers by the relevant plaintiffs. In relation to the assumption of responsibility the plaintiffs point to the terms of the agreement entered into between the engineers and the agent of the builder (Exhibit P8) referred to in paragraph [26] above. The engineers having undertaken the responsibilities set out in the retainer have, in my opinion, clearly assumed responsibility in respect of those matters. It is not the retainer itself which provides for the undertaking of that responsibility to others but rather it is the fact that the engineers have undertaken to perform certain work identified in the retainer which gives rise to the assumption of responsibility in relation to that work.

[58]

Further, by undertaking the certification processes within the statutory regime created by the Building Act, the engineers certify that they assume responsibility for the competent design and construction undertaken. That certification relates not only to the immediate owner of the property but to any subsequent owner. The Building Act requires that an occupancy permit be granted by a building certifier. The building certifier (in this case Mr Driscoll) is, by virtue of s 40 of the Act, entitled to rely upon the certificate of "a building practitioner that building work complies with this Act or the Regulations". Mr Driscoll gave evidence that he in fact relied upon the various certificates issued by the engineers and upon the declarations of the builder and would not have issued the permits without them. The building practitioner in this instance is the engineer. The building certifier, in reliance upon the certificates and declarations along with other information, then issues an "occupancy permit" which is a certification that the building to which it applies is suitable for occupation. It is not a certificate that the building complies with the Act or the Regulations. The occupancy permit is a document that remains in the public domain. It follows as a matter of logic that the engineers must be aware that the certification process that they undertake is a preliminary and necessary part of the whole process which leads to a permit to occupy being issued. It is the permit to occupy that permits people to enter upon the premises. Whilst the permit does not certify that the building complies with the Act and the Regulations it does certify suitability for occupation.

[59]

By undertaking the work set out in the retainer and by undertaking the certification process the engineers assumed the responsibilities I have described. The engineers knew or ought to have known that upon completion of the building and the issue of the certificate to occupy, persons such as the present plaintiffs may purchase and become registered proprietors of the unit. Further, by nature of the statutory scheme, the engineers must have been aware that such people would rely upon the designers and certifiers of the building (even if unknown to them). That reliance is based upon the expectation of the due exercise of professional skill and judgment by the engineers.

[60]

It was the submission of the engineers that the certification process is no more than a statutory regime erected to satisfy the obligations of the requisite authorities with respect to building control. That may be part of the regime but it goes further. The certificate relates to occupancy and the suitability for occupation. It goes beyond mere satisfaction of the obligations of the authorities with respect to building control.

[61]

In the circumstances the engineers assumed a responsibility and therefore owed to the subsequent unit owners a duty of care to design, inspect and certify the construction of the building at the standard of a competent structural engineer.

[62]

In a further submission the plaintiffs said that the defects in the carpark occasioned by the engineers "deficient and negligent design" were dangerous and not merely shoddy or sub-standard design or workmanship. It was submitted that by this additional reason the plaintiffs can recover their losses. There can be little doubt that the defects in the building resulting from the design and construction failures made the building "potentially dangerous" and did not merely reflect shoddy or sub-standard workmanship. The building notice of 4 February 1997 is eloquent evidence of that. However in my view the fact that a defect may or may not be or become dangerous does not affect the existence or non-existence of a duty of care. I adopt, with respect, the observations on this issue that fell from de Jersey CJ in Fangrove Pty Ltd v Tod Group Holdings Pty Ltd (supra).

[44]

[67]

The seventh plaintiff purchased residential Unit 6 from Mr and Mrs Barnes. Evidence was given on its behalf by Michael John Burns a director of the company. Mr Burns gave evidence that he resided in the unit for approximately six months before he purchased it. He moved into the premises in about August 1996 and the agreement to purchase was entered into on 13 February 1997. The unit was purchased as an investment and continues to be occupied by Mr Burns.

[68]

The conveyancing work carried out in relation to the purchase was conducted by Karen Mellor, a conveyancing clerk with the legal firm Withnall Maley. Mr Burns indicated that he did not remember seeing a permit to occupy but relied upon the conveyancing clerk to ensure the appropriate permit was in place. He relied upon his solicitors to ensure that the building was constructed in compliance with relevant building codes and regulations. Ms Mellor gave evidence that the obtaining of a permit to occupy is one of the matters that she attends to in complying with a checklist which she "stringently" follows. I accept that she obtained or sighted a permit to occupy on this occasion.

[69]

Mr Burns gave evidence that during the time he was renting the premises there were cracks of a hairline kind in the kitchen floor tiles and outside of the unit there was a crack in grouting between tiles. Mr Burns did not obtain any professional advice in relation to the cracks. The crack that was present in the kitchen floor tiles when he first occupied the unit had not worsened. Prior to the purchase he was not aware of any difficulties that other unit holders were experiencing or any other defects that the building may have exhibited.

[70]

In relation to the seventh plaintiff the engineers submitted that Mr Burns had rented the unit for some six months prior to purchase and during that time other unit holders and the body corporate became aware of the deteriorating condition of the common area. As noted above Mr Burns himself was aware of a defect in the terrace slab prior to purchase. It was submitted that the seventh plaintiff had the opportunity and the obligation to inspect prior to purchase. Had it availed itself of that opportunity then the complaints made by others would have been revealed. In that sense, it was said, the defects could not be characterised as latent. This ignores the evidence of Mr Burns in relation to the particular defects. He said that two cracks were present one being inside and one outside at the unit. They were not of concern to him at the time and he did not feel the need to obtain any additional advice in relation to them. The problems that arose later were quite significantly different from, and more serious than, those minor cracks of which Mr Burns was aware. Reasonable inspection by Mr Burns would not have alerted him to the underlying problems. He is in a different position from the tenth plaintiff who engaged relevant expert assistance.

[71]

The engineers point out that the purchase of the unit by the seventh plaintiff on 13 February 1997 was shortly after the Building Notice was issued by the Director of Building Control. It was not suggested that this notice came to the attention of the seventh plaintiff or, indeed, that there was a mechanism which made it available to members of the public or potential purchasers.

[72]

Further it was submitted by the engineers that the occupants of Unit 8, Mr and Mrs Cox, were by that time aware of the defects evidenced by movement in the slab joints and penetration of water through the slab. Mr Cox gave evidence that he had observed a drop in the slab following a closer inspection of the area by his wife. He spoke to Mr Glynatsis about the problem and was informed that the movement was nothing unusual and that Mr Glynatsis would attend to the water penetration. Later an inspection took place with Mr Ross Dunkley, an engineer, and he informed Mr Cox that it was "normal subsidence for the Cullen Bay area". It was agreed that a monitoring regime should be put in place. That was agreed to by the body corporate at a meeting on 30 January 1997 and a letter was sent to Sinclair Knight Mertz Pty Ltd on 1 February 1997. The building notice was issued on 4 February 1997.

[73]

The submission on behalf of the engineers was firstly that by the end of 1996 Mr and Mrs Cox and the body corporate were expressing concerns with respect to aspects of structural integrity. Further that "either reasonable inspection of the premises or contact with the body corporate would have revealed to any potential purchaser the problems which both the unit holders and the body corporate now complain of". With respect that overstates the position. There were concerns being expressed by Mr and Mrs Cox and by the body corporate but nothing definite was known. A monitoring system was to be put in place. None of this information suggests that Mr Burns or the seventh plaintiff should have or would have discovered the underlying faulty design had he undertaken any further enquiries.

[74]

It was also submitted that further investigation should have been undertaken on behalf of the seventh plaintiff with the body corporate and the other unit holders in relation to matters of structure. This was not put to Mr Burns and it was not put to his conveyancing agent who was called to give evidence. There was no evidence to show that such an enquiry was usually undertaken by or on behalf of purchasers of units. The evidence did not establish that such an investigation would have led to the seventh plaintiff being provided with any relevant information. In the circumstances I reject the submission. I accept the evidence as to reliance.

[46]

[79]

Unit 10 was purchased by Ms M P Paspaley pursuant to an agreement dated 19 May 1997. Settlement took place on 30 May 1997. When she inspected the unit Ms Paspaley noticed some wall cracks and she arranged for an inspection of the building to take place by Mr Pat Coleman, a project and construction consultant. She also engaged a solicitor, Mr Cooney, to represent her on the conveyance.

[80]

Ms Paspaley obtained a report from Mr Coleman which identified the cracks as being "cosmetic rather than structural" and requiring minor repairs estimated to cost $10,000 to $15,000. Ms Paspaley therefore reduced her offer to purchase the unit by $15,000. The reduced offer was accepted.

[81]

Ms Paspaley gave evidence that she was generally familiar with the process for the issue of building work permits and certificates of compliance. She knew the building was occupied and she assumed that all formal requirements for approval, including permits as to occupancy, had issued. Nothing was reported to her by her solicitor or Mr Coleman that indicated anything was missing or unusual in relation to the necessary certification paperwork.

[82]

The purchase of the unit was from the first defendant and the contract included an acknowledgment by Ms Paspaley that she had inspected the building and accepted it in its present condition. The contract included a clause to the effect that she could not make a claim against the vendor for compensation because of any latent defect or in relation to the structural soundness of the building. By virtue of clause 30 she acknowledged that the development was constructed on reclaimed land and that the vendor gave no warranty in relation to the compaction of the land or its stability or future settlement.

[83]

It will be recalled that there was a building inspection in relation to premises on 3 February 1997 and, on 4 February 1997, a Building Notice issued by the Director of Building Control adverting to the potential danger to users of the building arising from the concrete beams over the car park being out of alignment with adjoining beams and also that adjacent areas of the composite floor slab had severely cracked with severe concrete spalling. The notice warned that "the services of a structural engineer will need to be obtained for advice regarding the structural integrity of the building and a building certifier for the necessary permits". The existence of this notice came to the attention of Mr Coleman who passed it on to Mr Cooney prior to settlement on 30 May 1997. In his note of advice Mr Coleman indicated that he had spoken with three different engineering firms who had been involved with the building including the building designer Sleeman Dunkley Treacy Pty Ltd. He indicated that he had been informed that the defect notice was lifted on the advice of the consulting engineers that the structure was sound but that some remedial works were necessary. He indicated that he would be undertaking a further inspection with the design engineer and would advise the outcome. Ms Paspaley said that nothing in that report concerned her or caused her not to complete her purchase. She did not hear any further information and the settlement proceeded on 30 May 1997. Ms Paspaley said in her evidence before me:

[50]

[85]

The submission of the tenth plaintiff was that the reliance of Ms Paspaley expressed above endured over any terms of the contract of purchase and that that was the effect of the evidence of Ms Paspaley. It was submitted that the fact that 'the foundations of the whole of the building were hopelessly incompetently designed' was not known to Ms Paspaley and was not obvious to anyone, including an engineer, upon reasonable inspection. Whilst she knew some things were wrong with the building she did not know of the defect in design or what would follow as a consequence of that defect. However the Reinhold report (Exhibit D2/5) which, as Mr Ross-Smith acknowledged, discloses the existence of the defective design and the scope and extent of it, was available and, the engineers submit, available to Mr Coleman. The engineers say that if Ms Paspaley's advisers had done what they ought to have done then she would have been fully aware of the problems.

[86]

The engineers pointed to the fact that neither Mr Cooney nor Mr Coleman was called to give evidence when one would expect to hear from them. Mr Coleman would have been able to explain the exact state of his knowledge. We do not know what he knew or what he had conveyed to Mr Cooney. They submit that Ms Paspaley relied upon her own advisers employed for the specific purpose of advising her in relation to this purchase. She did not rely upon any conduct on the part of the engineers nor did she rely upon the certification process. The information as to the condition of the building was there to be gathered and, in all probability had been or was being gathered. The purchase went ahead without waiting for investigations to be completed or, possibly, Ms Paspaley to be fully informed. If the investigations in fact proceeded or, if not, had been allowed to proceed, Ms Paspaley would have been made aware of the problems and not proceeded. She was at least on notice as to the presence of serious structural problems in the building by virtue of her knowledge through her agent of the building notice. That specific knowledge must displace any general reliance upon the engineers. She had in place her own expert advisers. She settled either in reliance upon the incomplete advice of her experts or in spite of that advice but not in reliance upon any conduct of the engineers. I accept that submission. I am unable to find relevant reliance by the tenth plaintiff upon the engineers. The same observations apply to reliance upon the builder.

[52]

[87]

The remaining claims against the engineers in relation to the remedial works are made by the sixth, seventh, ninth and tenth (Unit 10 only) plaintiffs. In relation to the seventh, ninth and tenth plaintiffs those claims are limited to claims for disruption, loss of amenity and building blight.

[88]

At the time remedial works were undertaken ownership of some units had changed. As has been observed the repair method was developed by the engineers in conjunction with the builder and, in so doing, the engineers owed a duty of care to the persons in relation to whom their work was to be done. Although the engineers were engaged by the builder to carry out the design and certification work, they owed a duty to the body corporate and also to each of the individual unit holders insofar as the repair work impacted upon their units. In its letter dated 5 February 1997 to the first plaintiff the second defendant advised that "a repair method is currently being developed by this office" and that "Mr Glynatsis has agreed to undertake the work". This letter is an acknowledgment of the acceptance of responsibility by the second defendant for the design of the repair methods. No other method was referred to and no other method was approved by any of the plaintiffs.

[89]

At that time, the engineers were aware that all of the plaintiffs were placing reliance upon them to develop and implement a repair method that addressed the defects then existing in the building and made it safe. The plaintiffs relied upon the engineers to remedy the inadequacy in the original design and any deficiencies in construction of the building that had become manifest. In developing that repair method the engineers assumed responsibility for it.

[90]

It was the submission of the engineers that the remedial works were commissioned by the builder and arose directly out of the builder's obligations to the unit owners and to the body corporate. Whilst that may be so it does not preclude a duty of care owed by the engineers to the unit owners of the kind discussed above.

[91]

Further the engineers submitted that the claim must fail because there was no particular or specific loss alleged to flow from any failure to undertake the remedial works properly. The claim of the first plaintiff has settled. It was not pleaded in the Statement of Claim that any breach of the duty of care alleged by the remaining plaintiffs to be owed in any way exacerbated the losses claimed in respect of the earlier breach relating to the duty of care to design, inspect and certify the construction of the building at the standard of a competent structural engineer. In short, it was said, nothing flowed from any breach of a duty of care owed to those plaintiffs in relation to the remedial works.

[92]

After discussion of the issue Mr Ross-Smith identified the nature of the claimed loss as being "the cost differential associated with the difference in timing" and a claimed diminution in the value of the individual units related to the reputation of the building.

[93]

As to the issue of timing it was acknowledged that this had not been pleaded by the plaintiffs and that it was necessary to plead the claim. I allowed the plaintiffs a period of time in which to seek leave to amend but no application was made. In the circumstances the claim cannot now be sustained.

[94]

As to the claim that negligence in the method of repair would add to any existing diminution in the value of the individual units by virtue of diminished reputation, this is also an issue which was not pleaded. I was referred to paragraph 26(b) of the statement of claim which deals with a claimed diminution of the value of the units resulting from the defects and the scale and nature of the rectification works necessitated to the building. It does not allege that any negligence on the part of the engineers caused delay that in turn contributed to the loss suffered. The negligence is pleaded to be in the design of the works and the construction but not in the timing.

[95]

Damage is a necessary element of the cause of action. As pleaded no relevant damage is identified as having arisen from any breach of the duty of care. I will not allow these claims. These observations have equal application to the claim against the builder in respect of the remedial works.

[58]

[100]

The plaintiffs' complain that the engineers failed to identify any of the design inadequacies or deficiencies in the building works in any of the certificates they issued.

[101]

In the case of each certificate the engineers (in particular the third defendant) asserted that it was a structural engineer as defined by the Building Act and practicing in the field of structural engineering.

[102]

The engineers submit that the building certifier was not the agent of the plaintiffs and his belief as to the structural integrity of the building, which may or may not have been based upon structural certificates of the engineers, is immaterial because, it is said, there is no connection between compliance with relevant building standards and the permit to occupy.

[103]

We are dealing here with the claims by the sixth, seventh, ninth and tenth plaintiffs, the claims of the other plaintiffs against the engineers having been resolved. In this case, as the engineers submit, the issue of reliance is specifically pleaded in paragraph 34 of the Statement of Claim. In that paragraph the remaining plaintiffs plead that they purchased their units in reliance upon the occupancy permit which was issued in reliance upon the third defendant's certificates detailed above. This is not a case of general reliance. For the reasons expressed above I find that there was reliance by the sixth, seventh and ninth plaintiffs but not the tenth plaintiff.

[104]

The engineers refer to s 72 of the Building Act which specifically provides that the occupancy permit is not a certificate that the building complies with the Act. The engineers submit that the representation as pleaded cannot be sustained because of the provisions of s 72. In my opinion that is not so. The occupancy permit was issued on the basis of the certificates produced by the engineers. Whilst that permit does not certify that the building complies with the Act it does certify that the building is suitable for occupation. It is this that the remaining plaintiffs say they relied upon in proceeding with their respective purchases. Had the engineers not been guilty of misleading conduct the building would not have been certified as being fit to occupy whether or not it complied with the Act and Regulations.

[105]

Reference was also made to s 153(2) of the Building Act which provides, inter alia, that nothing done or omitted to be done by a building certifier in good faith shall subject the building certifier to any action, liability, claim or demands. That sub-section does not provide protection from suit for a certifying building practitioner such as the engineers in this case.

[106]

In my opinion the engineers were guilty of misleading and deceptive conduct of the kind alleged by the remaining plaintiffs. Had they not issued those certificates or had they qualified them in the manner suggested by the remaining plaintiffs, the permit to occupy would not have issued. The engineers must have known this. The remaining plaintiffs would not have proceeded with their purchases in the absence of a permit to occupy and would not have suffered the loss and damage identified in the Statement of Claim at paragraph 26.

[107]

In the Statement of Claim there is a claim made on behalf of the fourth, eighth and tenth plaintiffs alleging misleading and deceptive conduct on the part of the engineers in respect of the remedial works. The claims of those plaintiffs have been resolved between the parties or were not pursued in the submissions made on their behalf.

[59]

[108]

The claims of the first, sixth, seventh, ninth and tenth plaintiffs against the builder and Mr Glynatsis remain extant.

[109]

There is no dispute that the builder developed and constructed the building at Lot 6389 Marina Boulevard, Cullen Bay. In addition to being the builder the first defendant was the developer and vendor of the units and was aware that upon registration of the Unit Plan the first plaintiff would be incorporated and would thereby become the owner of the common property pursuant to the Unit Titles Act. It was also aware that persons such as the second to tenth plaintiffs would purchase and become registered proprietors of the units. It must have known that the first plaintiff and the unit holder plaintiffs would rely upon the builder to construct the building in a proper and workman like manner.

[110]

It is alleged by the plaintiffs that a duty of care was owed by the builder to the plaintiffs and the builder breached that duty of care in failing to design, develop or construct the building with due care and skill. In addition it is alleged that the builder was negligent in failing to incorporate materials of an adequate standard and in failing to construct the building in accordance with the drawings and specifications approved in the building registration certification process. Finally it is alleged that the builder was negligent in failing to design, develop or construct a building in compliance with the relevant standards applicable under the Building Regulations or Building Code and, in particular, the Australian Standard Concrete Structures Code AS3600. In this regard I observe that the architect and the engineers were the agents of the builder and that the builder is liable for their negligence if the builder owed a relevant duty of care.

[111]

As has been noted above the builder was also involved in the remedial work. The plaintiffs allege that the builder owed a duty of care in relation to that work and that the duty was breached causing loss and damage to the plaintiffs.

[112]

The plaintiffs summarise their heads of claim against the builder as follows:

[61]

[113]

Whilst the builder was a developer it left the design of the structural aspects of the building to the engineers. I have found part of that design was defective. In some areas the builder constructed the building in accordance with the defective design. The builder, as the developer, is responsible for the defective design of the engineers. It has not, by any pleading, sought to pass on responsibility to the engineers. I consider the impact of the apportionment provisions of the Building Act later in these reasons.

[114]

However, the claims of the plaintiffs went beyond the defective design. They submit that the evidence demonstrated that there were defects in the building that resulted from the poor practices of the builder rather than being the result of any incompetence of design by the engineers. The builder is responsible for those matters. It is therefore necessary to consider the relationship between the builder and all of the plaintiffs.

[115]

Although the first and fourth defendants were represented by Mr Glynatsis in person throughout these lengthy proceedings it is clear, as he has acknowledged, that he received legal advice in preparing and presenting his claims. That was evident in the detailed written submissions which he presented at the conclusion of these proceedings.

[116]

It was the submission of the builder that the applicable law governing the relationship between the builder and subsequent purchasers was to be found in the High Court decision of Bryan v Maloney (supra) and the decision in Zumpano v Montagnese (supra). It was submitted that a careful reading of those decisions would serve to distinguish the facts of the present case from those where liability was found in Bryan v Maloney.

[117]

The first submission was that "the duty of care owed by a builder to a building owner for pure economic loss, as determined by Bryan v Maloney, cannot arise in circumstances where there has been no contract of any kind entered into by the builder as regards construction of the building in question."

[118]

In Zumpano v Montagnese, Brooking JA expressed the view that the majority in Bryan v Maloney treated the duty held to exist in that case as "a legitimate extension of the duty or duties of care to which the builder was already subjected in consequence of his relationship with the building owner, and that the decision would not have been same had this element been absent." His Honour went on to say (at 539):

[65]

[121]

It was then submitted that the effect of Bryan v Maloney was that "no liability can be found against a builder for a person who is a 'subsequent owner' in respect of claims for pure economic loss unless the damage giving rise to the claim for economic loss is in fact damage to the 'fabric' of the building brought about by 'latent defects in the structure' of the building." In making that submission the builder referred to Bryan v Maloney and in particular to the passage I have quoted at paragraph [32] above. With respect that passage does not provide support for the proposition put forward by the builder. The damage to the fabric of the building need only manifest the inadequacy of the footings. I reject the submission.

[122]

The first and fourth defendants repeated the submission made on behalf of the engineers that Bryan v Maloney applies only to a building used solely for "residential purposes". I have dealt with that issue in discussing the submissions made on behalf of the engineers.

[123]

In my opinion, and for the reasons I have discussed, the builder in this case owed a duty of care to the subsequent purchasers to avoid the particular kind of economic loss claimed by the plaintiffs in these proceedings. I reach this conclusion by reference to the reasons of the majority in Bryan v Maloney.

[124]

Neither the first defendant nor the fourth defendant raised in their defences the contractual relationship between the first defendant as vendor and any of the plaintiffs as purchaser of any unit. The impact of those contracts were not addressed in the submissions of those parties. In those circumstances I do not address that issue.

[125]

The first and fourth defendants went on to submit that they had "engaged expert structural engineers to procure suitable soil tests and to design and document the building in question in all structural respects". It was submitted that all problems now manifest in the building stem from the design and documentation of foundations for the building which are "grossly inadequate for the site". It was submitted that because the defects only became manifest at the time when gross differential settlement had occurred it followed that all of the defects arose because of the settlement. That is not so. The expert evidence was to the contrary and carefully distinguished between defects which arose due to design fault and the defects which arose by virtue of negligent construction on the part of the builder. I accept the evidence of the experts Mr Jones and Mr Peter Thompson in this regard. I will consider this in more detail in due course.

[126]

In relation to the issue of reliance the first and fourth defendants submitted that the claim of the tenth plaintiff was precluded because she did not rely upon the builder. I have dealt with that issue in relation to the claim against the engineers and for the reasons there set out I agree that the tenth plaintiff did not demonstrate the necessary reliance upon the builder.

[127]

I have dealt with the situation of the sixth, seventh and ninth plaintiffs in relation to the issue of reliance when discussing the claim against the engineers. Those observations are equally applicable to the builder and I will not repeat them. Indeed the builder made no further submissions in relation to those matters.

[128]

However, the first and fourth defendants did submit that the first plaintiff did not lead any evidence of reliance. The first plaintiff is the body corporate which came into being by operation of the Unit Titles Act. Upon registration of the Unit Plan, which was effected by the builder, the first plaintiff became incorporated and became the owner of the common property pursuant to the Unit Titles Act. In the circumstances of this matter it is clear that the first plaintiff, which was brought into existence by the builder for the purpose of holding the common property, was owed a duty of care by the builder in relation to the property it was to hold.

[129]

In relation to the remedial works the position of the builder is similar to that of the engineers. The builder undertook the "repair method" developed by the engineers. In so doing the builder was aware that all of the remaining plaintiffs were placing reliance upon it to ensure that the defects then identified in the building were addressed and the building was made safe. Again the issue of the nature and extent of any loss flowing from the failure of the builder to undertake the remedial works properly is fatal to the claims of the plaintiffs. I will not allow those claims.

[130]

The plaintiffs claim that the builder failed to take out or maintain an approved policy of insurance pursuant to s 61 of the Building Act. Mr Glynatsis claims that such a policy existed but failed to produce a relevant policy when provided with the opportunity to do so. I accept that the first defendant failed to comply with s 61 of the Act and with a condition of the relevant permit.

[68]

[132]

In this matter none of the defendants has issued contribution notice or third party proceedings seeking relief pursuant to s 155 of the Building Act. It is the submission of the plaintiffs that there should be no apportionment as between defendants because neither the engineers nor the builder has pleaded the statutory provisions. The second and third defendants join in that submission.

[133]

The plaintiffs referred to NBD Bank v South Italy Tiling SA (SADC 1 May 1997) a case which dealt with s 72 of the Development Act (SA). It was submitted that s 72 could be equated with the abovementioned provision of the Building Act (NT). In that case it was held that a defendant had to specifically raise s 72 in its defence because of the particular provisions of the applicable District Court Rules. The Rules applicable in this Court are quite different and the situation is readily distinguished from that which applied in South Australia. In addition I note that s 72 of the South Australian Act is in different terms from s 155 and s 156 of the Building Act.

[134]

Section 155 of the Building Act imposes an obligation on the court to "apportion the total amount of the damages between all persons who are found in the action to be jointly or severally liable ...". The matter is not one for the parties but rather a statutory obligation imposed upon the court.

[135]

In the circumstances of this matter the determination of the award of damages has been postponed pending resolution of the issues relating to the liability of the various parties. Section 155 does not have application until an award of damages has been determined. I therefore do not proceed to "apportion the total amount of damages" as referred to in that section.

[136]

However I have received evidence and heard full argument in relation to the responsibility of individual parties for identified defects. It is appropriate that I express views on those issues at this time, and I proceed to do so. I note that the matters remaining for consideration are now limited in light of the settlement or resolution of issues during the course of the hearing. The plaintiffs advised that the matters described in paragraph 43 of the plaintiffs' submissions dated 4 July 2000 remain for determination of who (if anyone) should bear responsibility.

[69]

[137]

In relation to the design and construction of the building I received expert evidence from Mr Peter Thompson, Mr Rod Jones and Mr Craig Sanders, each of whom is a structural engineer. Mr Thompson prepared a schedule of defects and identified the defects which, in his view, were not of structural engineering significance and belonged in the category of "builder's defects" for which the builder is responsible. Other items in the schedule were attributed to faulty design and failure to take account of the potential for differential settlement. Responsibility for these defects was attributed to the engineers.

[138]

Mr Thompson noted that the obligations of the engineers included the undertaking of a geotechnical investigation on soil conditions including the predicted and differential settlements. He observed that the engineers relied upon a report prepared by a third party which he said was "neither comprehensive or adequate in respect of soil conditions at the site, and its acceptance for the design of the building, was wrong." A competent structural engineer should have recognised the shortcomings of the report acted upon and this would have led to a correct assessment of the degree of differential settlement and a "different design would have emerged".

[139]

Mr Thompson identified beams within the engineers' drawings which were deficient in that they were incorrectly designed to carry the loads being applied to them. Those beams are now over-stressed to varying degrees. Some are showing signs of distress due to the differential settlement that occurred on the site and others would have failed whether differential settlement occurred or not.

[140]

Mr Thompson was taken to a report of Mr G.A. Markham, a consulting engineer engaged by the engineers, where he found a measure of agreement by Mr Markham with the opinions he had expressed. Parts of the report of Mr Markham found their way into evidence through questions asked of Mr Thompson. Mr Markham was not called to give evidence.

[141]

The report of Mr Markham recorded that on 4 June 1997 the engineers signed a certificate of compliance in respect of the rectification work shown on the engineers' sketch drawings. That certificate was submitted in the name of the engineers using its Building Practitioners registration number. Mr Markham observed that the rectification work undertaken "whilst an improvement, was not comprehensive". The repair work however was of limited effect. Mr Thompson agreed with those observations noting that the rectification work did not address the totality of the problems identified.

[142]

In my opinion the engineers were negligent in the structural design of the building. They also negligently certified the structural adequacy of the building.

[143]

In relation to the provision of a waterproof membrane for the retaining wall, Mr Thompson noted that an architectural drawing specified the provision of such a membrane. He expressed the view that it was the responsibility of the architect, the engineer and the builder to ensure that an adequate membrane was provided. He said he had not been able to obtain or identify a specification for the membrane on this occasion.

[144]

In relation to the problem of drainage of water from the mezzanine balconies Mr Thompson disagreed with evidence led from Mr Sanders on behalf of the first defendant that the problem was "attributable to the differential settlement of the building". Mr Thompson calculated the settlement of the building had not been enough to affect the fall constructed by the builder into the balcony in any meaningful way. Mr Jones agreed with this view. Settlement may have lessened the fall that the builder did construct but not to a sufficient degree to overcome the fact that the fall was inadequate in the first place. The following question and answer were present in the evidence of Mr Thompson:

[76]

[151]

Item nine: The first item of concern was the leaking of water through the terrace slab. This resulted from there having been no membrane applied between the tiles and the slab in that area. The architect provided for a membrane on part of the slab but made no specification in the area of the terrace slab.

[152]

Mr Nixon, the relevant architect, gave evidence that he did not specify a membrane over the carpark area. He said that for reasons of waterproofing there was no requirement to do so. It is a design decision for him to make. Mr Hatton, the relevant engineer, agreed that this was so. However, Mr Nixon said that if a membrane was required to ensure compliance with the Code, then that would be a matter for the engineer. The engineer would inform the architect. This did not occur on this occasion.

[153]

Mr Thompson noted that even though the engineers were not directly responsible for the specification they had relied upon the presence of a waterproof medium over the upper surface of the slab for durability. This reliance is evidenced by the choice of concrete strength made by the engineers and the need for the engineers to comply with AS3600. Mr Hatton agreed that the reduction in the strength of the concrete as authorised by him was a durability matter. In his view appropriate durability was to be achieved by tiling the top surface of the slab. However, he also said that the tiling would not protect against water penetration but only "reduce the amount of water coming through". It is obvious that it was necessary for the slab to be waterproof. The slab is exposed to the weather. Below it is a carpark for occupants of the building. Water passing through the slab will remove the paint from vehicles parked below. The architect should have specified a membrane. Mr Thompson expressed the view that a competent structural engineer would have made sure that the architect was made aware of the lack of a membrane at the design stage and also would have brought the omission of a membrane to the attention of the architect and the builder during the construction stage. I agree.

[154]

In the circumstances it is my opinion that the engineer and the builder should bear equal responsibility for this omission.

[155]

Item twelve: Water penetration through the rear retaining wall. The architectural details show a reinforced concrete block retaining wall with a membrane on the retaining face. The concrete wall is porous and therefore a membrane is required to provide impermeability. The submission of the plaintiffs is that the membrane is non-existent, incorrectly specified, incorrectly applied or was damaged during construction. I have had evidence that suggests that a membrane was applied but incorrectly so. Indeed the membrane is to be seen in exhibit P82.

[156]

Mr Thompson was shown the core samples taken from the retaining wall (exhibit P82). Those samples demonstrated that "something was painted on and that something does not cover the whole of the surface". Mr Thompson observed that it had no "significant thickness and I would say was totally inadequate to hold that water". To my mind this is clear evidence of an inadequate application of a waterproofing membrane by the builder.

[157]

In his report, Mr Sanders expressed the view that the failure of the waterproofing of the retaining wall on the northern boundary may be attributed to "rupture of the membrane due to structural stress of the wall, inadequate application of the membrane or build up of water pressure beyond which the membrane would normally be expected to resist". Mr Sanders said that information provided to him that the membrane when installed performed adequately, suggested an adequate installation. However, he agreed that his observation was of limited impact because he had no knowledge of what the membrane was or how it was applied. He agreed that any water penetration would be slow to become observable. Firstly a damp patch would appear and then, once water penetration had proceeded through the wall, the passage of the water through the wall may become a lot faster depending upon a number of variables. The fact that, in this case, the particular wall did not appear to leak for some time is understandable because of the type of wall that it is and that a membrane was present, albeit incorrectly applied. If there was an inappropriately applied membrane there may be a substantial delay before the leaking of water through the wall becomes obvious. Mr Sanders was not aware of the length of time that passed before manifestation of water penetration to the inner side of the wall became obvious.

[158]

Mr Sanders also noted that the footpath paving installed on the northern face of the wall now slopes towards rather than away from the wall causing a flow of water towards the wall that previously was not present. The cause of the altered slope of the footpath has not been made clear by any evidence. It may be due to structural movement of the building as it settles or it may be due to other causes such as a compaction of the backfill upon which the footpath is placed. This consideration does not alter the conclusion that the builder inadequately applied the membrane.

[159]

In relation to the membrane, Mr Thompson pointed out that membranes are usually "fairly pliable materials" and can tolerate a fair degree of movement. This observation serves to undermine the speculative submission made on behalf of the builder that the membrane on the retaining wall failed because of movement of the wall following upon differential settlement.

[160]

Mr Thompson sought to attribute some blame in relation to this matter to the engineers on the basis that they should have assured themselves of the efficiency of the membrane during the inspection process. He also expressed the view that the engineer had a responsibility to ensure that the weather proofing medium was applied correctly.

[161]

Mr Glynatsis gave evidence that the membrane used was specified by Mr Hatton, an officer of the engineers, who saw the wall after application. That was contradicted by Mr Hatton who said the membrane had not been applied at the time he inspected the wall for reinforcement. In his view it was a matter for the client whether that wall needed to be waterproofed. There was no structural requirement that it be waterproof so long as the "steel reinforcement is surrounded by concrete". When he inspected the wall, and in response to a question from the builder, he suggested that the builder use a "bitumen type membrane". He did not see the wall with any membrane applied to it. The effect of his evidence was that the use of a membrane at this location and in these circumstances was not a structural matter and not a matter for which he was responsible. I accept this to be the case. Mr Glynatsis agreed that the product suggested by Mr Hatton carried the warning that the coating should be covered with a protection sheet. That was not done. There is no suggestion that the engineers were aware of that failure or of any defective application of the membrane. I accept the evidence of Mr Hatton that he did not see the membrane applied and he did not see the uncovered wall again. The work was covered by backfill soon after the membrane was applied. In my opinion the only involvement of the engineer was the passing comment made by Mr Hatton. The builder is fully responsible for this defect which I find was the result of an incorrectly applied membrane. That application was without the knowledge of the engineers.

[162]

Item thirteen: Cracking in block walls between units. This broad heading encompasses cracks of different kinds eg vertical and diagonal. Sensibly I have not been invited to address each crack and allocate responsibility in relation thereto. Some cracks are clearly the builder's responsibility, some are the result of design faults or differential settlement and some result from a combination of causes. Mr Thompson confirmed this. The conclusions of Mr Thompson are set out in the transcript repeated at paragraph [145] above.

[163]

It was submitted by the plaintiffs that the builder should be 80 per cent responsible for this cracking but the evidence does not support that submission. In this regard, I have the benefit of the observations of Mr Jones. In his opinion, the diagonal cracks are caused by "settlement" (a proposition with which Mr Thompson agreed) and therefore are the responsibility of the engineers. I agree. In relation to the vertical cracks he said that they are "not unusual" and liability should not rest with either party. He said that such cracks are consistent with competent design. It seems to me that responsibility for the diagonal cracks must rest with the engineers and that no liability arises in respect of the vertical cracks (except for Item 14).

[164]

I also agree with Mr Jones in his conclusion that the responsibility for the cracks in the floor tiles should be apportioned 80 per cent to the engineers and 20 per cent to the builder. A major cause of the cracks was said to be shrinkage. In the circumstances of this building, Mr Jones said that shrinkage is a matter for the engineers. He spelled out his reasons in his report of January 2000 (Exhibit P90). I accept that reasoning. However responsibility rests with the builder for the method adopted for the laying of the tiles. The builder chose not to use a flexible tile adhesive which was called for in the circumstances. He also failed to utilise appropriate control joints.

[165]

Item fourteen: The vertical crack in the wall between units seven and eight. Mr Thompson expressed the view that the main reason for the initiation of this crack was the excessive and differential nature of the building movement. He therefore attributed the main responsibility for the defect to the engineers. However he added that the lack of control joints and the lack of reinforcement were also causative factors. He regarded differential settlement as being only "one part of it". In relation to that crack he felt that it did not fall easily into any of the categories of responsibility he had previously allocated in relation to other cracks as he thought that one of the major causes on this occasion was the lack of a control joint. That is a matter for the builder. Under cross-examination Mr Thompson apportioned responsibility two thirds/one third to the engineer and builder respectively. The plaintiffs submitted that 20 per cent should rest with the builder. I do not accept that submission and accept the views expressed by Mr Thompson.

[166]

Item seventeen: Support structure in sunshades terrace area. The base plate and bolts into the slab for the columns supporting the sunshades on the terrace area were undersized. Mr Thompson also noted that the type of bolt used was inappropriate. Mr Glynatsis gave evidence that "the details were given to me by the engineers" in relation to this structure. There was no dispute that it was not part of the original design. Mr Glynatsis said the structure was damaged in a storm and the engineer advised him how to reinstate it. The engineer, Mr Hatton, thought that he had no part in designing the shade-cloth structure. It was not referred to in his drawings. I find that, although there may have been some passing conversation between Mr Glynatsis and Mr Hatton in this regard, the engineers did not assume any responsibility for the design or construction of the support structure. It was something which came after the building was completed and was added by the builder. Although Mr Thompson in his report suggested that the engineers should have been involved in the design and construction of the sunshades there was no evidence to suggest they were involved on any formal basis. In my opinion the builder must accept full responsibility for this defect.

[167]

In relation to the terrace tiles Mr Thompson agreed with Mr Markham that these had been laid directly across the movement (expansion) bracket joint on the northern terrace and that was very poor building practice. I accept this evidence. Although this matter is pleaded in paragraph 11(c) of the Statement of Claim and was addressed in evidence, it is not referred to in the submissions made on behalf of the plaintiffs. Notwithstanding that omission I find as follows. The work did not form part of the engineers' retainer and was the responsibility of the architect or the builder. The normal practice would be for an architect to provide instruction as to how the tiles were to be laid. The builder is liable for any loss or damage arising from these matters.

[168]

In areas where a waterproof membrane was provided the builder failed to "turn up" the membrane at the conjunction of the wall and the floor. Mr Glynatsis said that if a "turn up" was not shown on the drawings he did not provide it. The expert witnesses agreed that to turn up such a membrane was basic building practice. To the extent that this failure caused loss the builder is responsible.

[79]

[174]

I have held that no duty of care was owed to the tenth plaintiff. I make the following observations in case I am wrong in that regard.

[175]

The floor tiles at the ground floor level of the front stair are not graded to the outside of the building and water accumulates around the base of the stair. This is the builder's responsibility.

[176]

Item one: Placement of the floor drainage outlets at the front first floor balcony were not placed at the lowest point. As with the other units this is the builder's responsibility.

[177]

Item nineteen: The level two mezzanine balcony has no fall to the outside. This is the builder's responsibility.

[178]

In relation to water penetration at the mezzanine floor level, Mr Thompson was taken to the opinion of Mr Markham that "the measurements taken together with the obvious departure from the detail by the builder in the construction of the balcony levels and poor architectural type detailing has caused the water penetration effects in this area". Mr Thompson agreed with that view. I accept their evidence. The builder is responsible for this defect.

[179]

In its submissions the builder invited me to speculate that the cause of the drainage problems identified above was not to do with the conduct of the builder but rather related to the differential settlement. The evidence led from the experts did not support that contention and the submission remained simply a matter of speculation. The calculations of the expert witnesses led to the conclusion that the builder did not allow sufficient fall and the drainage would have failed whether or not the building subsided. I accept the evidence of the expert engineers in this regard.

[180]

I have addressed the items referred to in the plaintiffs' submissions as "builder's defects" and in relation to which the costs of the remedial works for each of the remaining plaintiffs are sought. Given the matters addressed above I would allow the claims I have identified in respect of the common property and units six and eight. No claim is made in respect of Unit 9. I would not allow the claim in respect of Unit 10 for the reasons discussed elsewhere. In addition I note the tenth plaintiff was aware of the defects in Unit 10 at the time of purchase and a downward adjustment was made to the purchase price because of the defects.

[81]

[181]

There is no dispute that the builder was engaged in trade and commerce as a developer for commercial profit of the building. The builder is subject to the consumer protection provisions of the Trade Practices Act and the Consumer and Fair Trading Act (NT).

[182]

In the statement of claim the plaintiffs assert that the first defendant's registration of the Unit Plan was subject to and conditional upon a permit to occupy being issued in relation to the building. Mr Driscoll issued the permit to occupy and did so in reliance upon a representation by the first defendant as applicant for a building permit that the building works would be undertaken in accordance with the relevant Northern Territory Acts and Regulations. He also relied upon a declaration made by the first defendant that its building works were completed in accordance with the relevant approval certifications. Mr Driscoll confirmed that to be so in his evidence.

[183]

It was pleaded that the first defendant's conduct in making those representations, permitting Mr Driscoll to proceed in reliance upon them and using the permit to occupy to enable the Unit Plan to be lodged for registration with Registrar-General was misleading and deceptive conduct, or was conduct likely to mislead and deceive contrary to s 52 of the Trade Practices Act or s 42 of the Consumer Affairs and Fair Trading Act ("CAFTA"). It was misleading because the building works were not completed in accordance with the building approval certifications and were not undertaken in accordance with the requirements of the Building Act and the relevant standards called up thereunder. The first plaintiff was incorporated under the Unit Titles Act as a result of the first defendant's contraventions and it thereby suffered loss and damage. The loss and damage suffered is the cost of work required in order to remedy the deficiencies in the building. In the circumstances each of these matters has been established by the first plaintiff.

[184]

In relation to the remedial works, the plaintiffs allege the first defendant represented by its application for a building permit, that those works would be undertaken in accordance with the relevant Northern Territory Act and Regulations. Its conduct in providing a copy of the application to Mr Driscoll and permitting Mr Driscoll to proceed in reliance upon the representation to issue a permit to occupy was misleading and deceptive and was conduct likely to mislead and deceive contrary to s 52 of the Trade Practices Act and s 42 of CAFTA. The remedial works were not completed in accordance with the building approval certifications and were not in accordance with requirements of the Building Regulations, the Building Code and the relevant standards called up by this Regulation and Code. It is pleaded that the first plaintiff relied upon the first defendant's contraventions and has suffered loss and damage by reason of that contravention. The first plaintiff therefore seeks an award of damages.

[185]

I am unable to identify any loss or damage that may arguably have arisen out of any misleading or deceptive conduct on the part of the builder relating to the remedial works. I do not allow this claim.

[82]

[186]

The plaintiffs submit that if the claims of misleading and deceptive conduct are found against the builder then Mr Glynatsis is personally liable pursuant to section 75 B of the Trade Practices Act and/or section 93 (2) and (3) of the Consumer and Fair Trading Act (NT).

[187]

It is said that Mr Glynatsis had the prerequisite knowledge and was the "controlling mind" of the builder being the only director who participated in the builder's management. He was also the signatory of the documents which were said to be misleading and deceptive certificates of compliance (exhibits P 19 and P 53).

[188]

Section 52 of the Trade Practices Act provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. There is no dispute in this matter that the builder was engaged in trade or commerce. Section 82 provides that a person who suffers loss and damage by conduct of another person that was done in contravention of s 52 may recover the amount of the loss or damage by action against that person or against any person involved in the contravention. Section 75 B then provides that a person "involved in a contravention" is a reference to a person who has aided, abetted, counselled or procured the contravention or has been directly or indirectly, knowingly concerned in, or party to, the contravention. It is said that Mr Glynatsis was, in the circumstances, a person involved in the contravention by the builder. There are similar provisions in the CAFTA. It was the contention of both the first and fourth defendants that liability should not attach to the defendants as the builder was "merely the conduit of the second and third defendants in the production of the documentation". It was not submitted that, in the event that the builder was liable, the fourth defendant was not liable in the manner suggested by the plaintiffs.

[189]

In the event that the necessary loss and damage is demonstrated in the next stage of these proceedings, then the fourth defendant is personally liable therefore pursuant to the provisions of the Trade Practices Act and the CAFTA.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (87 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (6)