Robert gilbert coshott and LJILJANA COSHOTT v KAM TOU MAK, IOK PENG WAN, RODERICK IAN LEAROYD, SALWEEN PTY LIMITED, WOOLLAHRA MUNICIPAL COUNCIL, JOSEF HOI and josef hoi constructions pty limited

Federal Court of Australia|1998-03-03|Before: Wilcox J

REASONS FOR JUDGMENT WILCOX J: Before the Court are four Notices of Motion whereby all seven respondents to this proceeding seek its summary dismissal as against them, alternatively that the applicants' Amended Statement of Claim be struck out in whole or in part.

The facts The applicants, Robert Gilbert Coshott and Ljiljana Coshott, claim to be the registered proprietors of a house known as 5 Gilliver Avenue, Vaucluse. The first and second respondents, Kam Tou Mak and Iok Peng Wan ("the building owners"), are said to be the registered proprietors of the adjoining property, 7 Gilliver Avenue. The applicants claim the third and fourth respondents, Roderick Ian Learoyd and Salween Pty Limited ("the architects"), acted as architects for Mr Mak and Ms Wan in relation to the erection of a new house at 7 Gilliver Avenue. Vaucluse is within the Municipality of Woollahra, so the architects made various applications to the Woollahra Municipal Council ("the council"), the fifth respondent. The sixth and seventh respondents, Josef Hoi and Josef Hoi Constructions Pty Limited ("the builders"), are alleged to have acted as building contractors in relation to the project. According to the Amended Statement of Claim, the first application made to the council in respect of 7 Gilliver Avenue was a development application dated 4 July 1994. That application sought consent to the erection of a four storey dwelling house with swimming pool and garage, replacing an existing bungalow. The parties accept it was an application pursuant to the Environmental Planning and Assessment Act 1979 (NSW), presumably s 77. According to the Amended Statement of Claim, the council refused that application on 10 October 1994; however, it invited the building owners to submit an amended application proposing a smaller building. In response to that invitation, on 26 October 1994, the architects lodged an amended application. On 14 November 1994, the council approved the amended application. Subsequently, building approval was sought and obtained and building activity commenced. Demolition and excavation occurred between 21 August 1995 and mid-November 1995, according to the Amended Statement of Claim. Thereafter, apparently in late 1995 or early 1996, work commenced on the erection of the new building.

The Land and Environment Court proceeding Sometime in 1996 - I think perhaps on 5 July - Mr and Mrs Coshott instituted a proceeding in the Land and Environment Court of New South Wales against the council, the building owners and Mr Learoyd. They sought a declaration that the development consent and building approval granted by the council were both invalid, an order requiring demolition of the building and monetary compensation. As no relief was sought against Mr Learoyd, he was dismissed from the proceeding at an early stage, but the case went to hearing as against the council, Mr Mak and Ms Wan. The matter was heard over ten days by Bannon J. On 19 November 1996 his Honour delivered a judgment in which he substantially rejected the applicants' case. He held the development consent was invalid because of the apparent failure of the council to consider one relevant matter, a draft environmental planning instrument. However, he rejected most of the applicants' criticisms of the respondents' conduct and, in particular, their contention that they were misled by the council as to the features of the proposed building. He also found the applicants and their architect had exaggerated the detrimental effects of the new building upon enjoyment of the applicants' house. Partly for these reasons, but mainly because of the Coshotts' substantial delay in instituting the proceeding, notwithstanding their knowledge of the building work, Bannon J declined to make a demolition order. He held compensation was not available and there was no utility in a declaratory order. In the result, his Honour dismissed Mr and Mrs Coshott's Application, and also a counter-claim brought against them by Mr Mak and Ms Wan. He made no order regarding the council's costs but ordered Mr and Mrs Coshott to pay the costs of the building owners. Mr and Mrs Coshott filed a Notice of Appeal against Bannon J's decision, in the New South Wales Court of Appeal. That appeal has not yet been heard. However, on 24 February 1997, Powell JA heard and dismissed an application by Mr and Mrs Coshott for a stay of the costs order made against them by Bannon J. Those costs were assessed at $124,774 and are the basis of a bankruptcy notice served on Mr and Mrs Coshott on 5 September 1997.

The proceedings in this Court On 24 September 1997 Mr and Mrs Coshott instituted this proceeding. Shortly afterwards, on 4 November 1997 they filed an Application seeking an order setting aside the bankruptcy notice. As was obviously appropriate, they named as respondents only Mr Mak and Ms Wan. The two proceedings were linked and came before Moore J on several occasions. His Honour made orders from time to time extending time for compliance with the bankruptcy notice. His most recent order extended time until 4pm on 27 February 1998 but, at the hearing of these motions on 24 February, I granted a further extension up to and including 11 March 1998. The applicants filed a Statement of Claim in the principal proceeding on 24 September 1997. On 21 November 1997 they replaced that document with an Amended Statement of Claim. On 3 December 1997 the solicitor for the building owners wrote to the applicants' solicitors pointing out several deficiencies in the amended pleading, one of which was the omission to plead any basis for implicating the building owners in any conduct of the architects that was said to contravene the common law or the Trade Practices Act 1974. The letter invited the applicants to review their pleading and, "if they feel disposed to amend it", to do so by filing and serving a Further Amended Statement of Claim by 5pm on 8 December 1997. The letter stated that, if this invitation was not accepted, the solicitor would oppose any later attempt to amend and would seek an order for summary dismissal. The solicitors for the applicants responded on 8 December stating "the necessary elements for relief under the Trade Practices Act have been pleaded". They said they were "prepared to consider any specific criticism which you may have of specific paragraphs" but, in essence, they stood by their existing pleading. The solicitor for the building owners replied the following day saying: "It is not up to our clients to teach your clients how to plead their case. We have, on instructions, drawn your attention to the deficient areas in the hope that the document could be objectively reviewed, and pleaded properly, so that the Court's time is not wasted further. We will be asking your Counsel in Court tomorrow to confirm that the Amended Statement of Claim will be your final pleading in the matter." The matter came before Moore J on 10 December 1997. All parties were represented. A transcript of that hearing has not been taken out but it seems to be common ground that counsel for the applicants intimated that his clients did not wish to make any further amendment of their Statement of Claim and the representatives of all the respondents intimated they wished to pursue strike out applications. Subsequently, as I have indicated, four Notices of Motion were filed: one on behalf of the building owners, one on behalf of the architects, one on behalf of the council and the last on behalf of the builders. As Moore J was unable to find an early date to hear these motions, they came before me on 24 February.

The Amended Statement of Claim The Amended Statement of Claim pleads six causes of action: (i) Breaches of s 52 of the Trade Practices Act and s 42 of the Fair Trading Act 1987 (NSW) (paras 7 - 49, 61 - 63 and 64 -72); (ii) Nuisance stemming from construction activities (paras 50 - 59); (iii) Nuisance stemming from reduction of privacy and light to the applicants' property (para 60); (iv) Conspiracy to perform an illegal act (paras 64 - 72); (v) Trespass to the applicants' property (paras 73 and 74); and (vi) Negligence by the council in relation to the development and building applications and the granting of consent to each (para 75). It is desirable for me to deal separately with each of these causes of action. The misleading conduct claims Numerous misleading conduct claims are made. One of the problems about those claims is that the pleading rarely identifies the respondent or respondents against whom particular allegations are made. Much is left for the reader to deduce, a situation that is unacceptable. While the modern tendency is against taking a pedantic approach to pleadings, it is fundamental that a pleading must clearly indicate what allegations are made against each respondent. However, it seems clear that no charge of misleading conduct is made against the builders, other than a claim in paras 64 - 72 relating to an air conditioning plant. It is also clear that nowhere is there an allegation that any respondent was at relevant times a "corporation" within the meaning of s 52 of the Trade Practices Act; that is a foreign corporation, a trading or financial corporation formed within Australia, a body corporate or a holding company of one of the foregoing: see the definition of "corporation" in s 4 of the Act. I assume the applicants could responsibly allege, and later prove, that the fourth and seventh respondents are trading corporations, but they have not done so. It is much less clear that the fifth respondent, the council, is a trading corporation: see Mid Density Development Pty Limited v Rockdale Municipal Council (1992) 39 FCR 579 at 583-585. Although a respondent's status as a "corporation" is critical to a successful claim against it under s 52 of the Trade Practices Act, this is not the position under s 42 of the Fair Trading Act. In a practical sense, therefore, it may not matter if respondents against whom the applicants allege misleading or deceptive conduct are not shown to be "corporations". However, like s 52 of the Trade Practices Act, s 42 of the Fair Trading Act applies only to conduct "in trade or commerce". A major deficiency of the Amended Statement of Claim is that it contains no allegation that anybody acted in trade or commerce. This is not a mere quibble; it is far from clear that any of the persons who are apparently said to have been involved in the conduct referred to in paras 7 to 49 was acting in trade or commerce. The building owners were involved in the project only in that capacity; there is no suggestion they were involved in the matter for the purpose of earning a commercial profit. Not every financial transaction is performed "in trade or commerce" and that is especially true of transactions involving a person's own home: see Argy v Blunt & Lane Cove Real Estate Pty Ltd (1990) 94 ALR 719 at 733-737. When this was pointed out to counsel for the applicants, he intimated his clients claimed that Mr Mak and Ms Wan were "knowingly concerned" in the architects' contravention of s 52 and s 42: see s 75B of the Trade Practices Act and s 61of the Fair Trading Act. But no such case is pleaded. Indeed, the Amended Statement of Claim makes no allegation at all against the building owners in relation to the matters set out in paras 7 to 49. On a generous reading of the pleading, I think paras 7 to 49 do make allegations against the architects. They are said to have lodged various documents with the council that were misleading and deceptive; this should be read as an allegation of misleading or deceptive conduct. But there is no allegation that, in lodging the documents, the architects acted in trade or commerce. Nor is it clear they did. No doubt the architects lodged the plans in the course of their professional practice and acted for reward. However, even though the Fair Trading Act defines the term "trade or commerce" so as to include "any business or professional activity" and "business" includes "a trade or profession", Santow J of the New South Wales Supreme Court has held not all professional activities are "in trade or commerce": see Prestia v Aknar (1996) 40 NSWLR 165 at 181-191. His Honour's discussion of the issue is comprehensive and interesting. I have reservations about some of his observations but I need not pause to identify and discuss them. It is enough to say the discussion shows the essentiality of clear allegations as to the circumstances surrounding conduct claimed to contravene s 52 of the Trade Practices Act or s 42 of the Fair Trading Act, including clear allegations about actions said to be "in trade or commerce". In paras 7 to 49 of the Amended Statement of Claim allegations of misleading conduct are made against the council or council officers in relation to outsiders (paras 9 and 10, 33 and 34, 42, 47 and 48) and council officers in relation to the council itself (paras 17 and 18, 23, 26 and 27, 31 and 32). The latter group of paragraphs are clearly demurrable. They seek to charge the council with vicarious liability in damages for the conduct of officers in misleading the council itself. The pleading does not allege a causal connection between this conduct and any damage suffered by the applicants. More fundamentally, it ignores the choice made by the majority of the High Court in Concrete Constructions (NSW) Pty Limited v Nelson (1990) 169 CLR 594 at 603 in relation to two alternative constructions to s 52. The first of those constructions would treat as conduct "in trade or commerce" anything done in the course of, or incidental to, the carrying on of an overall trading or commercial business. Examples given by the Justices included inaccurate information given by one employee to another in the course of carrying on the building activities of a commercial builder. The alternative construction was narrower, treating the term as including only "conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character". This was the preferred construction. It plainly does not extend to a communication internal to the relevant corporation. Even in relation to the first category of allegations, there is a major difficulty. It seems to me impossible to conclude that local government authorities are engaged in trade or commerce when carrying out development and building control functions. These are public functions conferred on local authorities by statute. In the exercise of those functions, local authorities are required to make discretionary judgments that must take into account both private interests and the welfare of the wider community. In Mid Density Development, Davies J held a council does not act in trade or commerce when undertaking the mechanical task of issuing a certificate under s 149 of the Environmental Planning and Assessment Act, notwithstanding it charges a fee for the service. That conclusion applies even more forcefully to statements made by local authorities in the course of the performance of discretionary development and building control functions. The Trade Practices Act and Fair Trading Act claims against the council are plainly untenable. Nuisance stemming from construction activities These allegations concern dust, noise and vibrations resulting from the work of demolition and excavation at 7 Gilliver Avenue. The dust and noise is said to have caused temporary inconveniences and the vibrations to have resulted in cracking of the applicants' house. All these nuisances are said to have been committed by the building owners, the architects and the builders; not the council. The pleading does not explain how the building owners or architects are implicated in the nuisances. This is a serious defect. The allegations of construction nuisance raise issues commonly dealt with in State courts. There is no utility in them being considered in this Court. They do not depend in any way on federal law, nor do they arise out of a common substratum of fact with the Trade Practices Act claims.

Nuisance stemming from reduction of privacy and light Paragraph 60 of the Amended Statement of Claim alleges loss of light, loss of privacy and loss of value of the applicants' property. This is said to be a nuisance committed by the building owners, architects and builders, not the council. The pleading does not explain why these losses are said to constitute a legally actionable nuisance; they are commonplace incidents of the erection of a building on adjoining land. Nor does it explain how it is said all the identified respondents are responsible for the nuisance. If there is a tenable cause of action at all, it needs to be properly formulated; once again it is something entirely dependent on State law.

Conspiracy In para 72 of the Amended Statement of Claim, the applicants allege a conspiracy between Mr Mak (but not Ms Wan), the architects and the builders in relation to the installation of an air conditioning plant. As I understand the preceding paragraphs, the suggestion is these people agreed to install the air conditioning plant in a position different from that on the approved plans and concealed the plant by false ceilings at the time of Bannon J's inspection of the premises; after the inspection, vents were installed and the plant was operated, causing a noise which constitutes a nuisance. Once again, these are allegations that have no basis in federal law. However, they are also said to give rise to a Trade Practices Act claim (paras 64 to 72). If that claim is pressed, the conspiracy claim should be heard with it. Trespass Paragraph 73 alleges one Michael Bates, on the instructions of the building owners, entered the applicants' property on 22 August 1996, destroyed a one metre length of fence and cut down a tree. Once again, this is properly a matter for a State court, if the issue is to be pursued at all.

Negligence In the final paragraph of the Amended Statement of Claim, the applicants allege the council owed them a duty of care in relation to its consideration of the development and building applications. Some particulars of breach were supplied but the pleading did not state any facts by virtue of which it might be concluded there existed a relevant duty of care. I asked counsel for the applicants to address me on that subject but he indicated he could not put an argument in favour of the existence of a legally enforceable duty of care. Notwithstanding this, it may be possible for the applicants to establish the existence of a duty of care in relation to the handling of the development and building applications: see Alex Finlayson Pty Limited v Armidale City Council (1994) 51 FCR 378 and McMullin v ICI Australia (1997) 72 FCR 1 at 93-96. Before this will be productive, from the applicants' point of view, it will be necessary for them, not only to establish one or more of the alleged breaches of duty, but also to show a causal connection between any such breach and the sustaining of damage. That will necessarily take them over much the same ground as that traversed in the litigation before Bannon J and it is likely they will encounter problems of issue estoppel. I have not attempted to determine the extent to which the applicants' allegations remain open to them, but I suspect the opportunities are few and minor. Once again, the relevant allegations arise under State law; however, some or all of them depend on facts intimately connected with the Trade Practices Act claim against the architects. Orders It will be apparent I regard the Amended Statement of Claim as a most unsatisfactory pleading. It needs heroic surgery, so as to cut away the Trade Practices Act and Fair Trading Act claims against the council and the causes of action that depend entirely on State law and lie outside the facts relevant to the Trade Practices Act claims; that is causes of action (ii), (iii) and (v) in the list set out above. What will then remain needs expansion, so as to be more specific in its allegations and the identification of relevant respondents. Having regard to the extent of the necessary amendments, it is inappropriate to attempt to deal with the problem by piecemeal amendment. At the very least, the Amended Statement of Claim must be struck out. If the proceeding is to remain in this Court, the pleading must be totally rewritten. The respondents submit I ought not allow the proceeding to remain. They say the applicants have had ample opportunity to put their pleading in order; they were expressly warned about its deficiencies in December but insisted on maintaining and defending it. Further, the applicants have failed to pay the costs ordered against them by Bannon J notwithstanding the decision of Powell JA refusing a stay of that order. They say the proceeding ought simply to be dismissed. There is force in these submissions. Moreover, it is difficult to see much prospect of the applicants recovering significant damages. In relation to the allegations in paras 7 to 49 of the Amended Statement of Claim, all that remains on my analysis is some allegations of misleading conduct against the architects, which may perhaps be reformulated to include allegations of known complicity by the building owners. If the allegations were made good, it would still be necessary to establish a causal connection between the proved allegations and the sustaining of damage. To the extent that the building at 7 Gilliver Avenue was built substantially in accordance with the approved plans (as Bannon J found), this would require the applicants to show the misleading conduct was the effective cause of those approvals. To the extent that it was not, any misleading of the council would appear not to have occasioned damage to the applicants. If the Trade Practices Act and Fair Trading Act claims against the architects were litigated, it would be appropriate to allow the applicants to join with them any negligence claim against the council they might wish to pursue. On issues of causation and damage there would certainly be an overlap between the two claims. The builders are not implicated by the claims made in paras 7 to 49 or 61 to 63 of the Amended Statement of Claim. They are involved in the claim regarding the air conditioning plant. That claim has a Trade Practices Act aspect so it is not inappropriately brought in this Court. If the air conditioning plant claim is pursued, arrangements can no doubt be made for this to be done at a separate hearing; thereby saving the builders the expense of being represented throughout the whole trial. The critical question is whether I should terminate the proceeding immediately or allow the applicants one more opportunity to put their claims in order. Notwithstanding all the matters I have mentioned, I am reluctant, at this stage, to take a course that will bar the applicants from pursuing properly amended claims (i), (iv) and (vi). I think they face considerable difficulties regarding claims (i) and (vi) - I know very little about (iv) - but I cannot say their case is hopeless. Although they have been stubborn in maintaining an untenable pleading, this is not a case of repeated failure diligently to prosecute the case. Accordingly, I will not dismiss the proceeding. I will merely strike out the Amended Statement of Claim. Despite my decision to allow the action to remain alive, I see no justification for a further extension of time for compliance with the bankruptcy notice. I am not satisfied that the applicants have a counter claim, set off or cross demand equal to the amount sought in the bankruptcy order. If the applicants fail to comply with the requirements of the bankruptcy notice on or before 11 March 1998, they will commit an act of bankruptcy. All the respondents seek orders for costs of the motions. They are entitled to that. However, notwithstanding their submissions, I will not order costs on an indemnity basis. I have no information as to the practical effect of such an order. I am not prepared to issue blank cheques on the applicants' account. Moore J made party/party costs orders in favour of the respondents in respect of certain directions hearings, reserving leave to the respondents to apply for an order that those costs be taxed on an indemnity basis. Counsel seek such an order but I decline to make it, for the reason set out above. Moore J reserved the costs of the directions hearings held on 21 October and 10 December 1997. Counsel seek an order for those costs. I am prepared to accede to that request because I think the hearings were effectively wasted by reason of the applicants' failure to file a proper pleading. It is appropriate to permit the respondents forthwith to tax the above costs and enforce the costs orders. I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.

Counsel for the Applicant: P Stone

Solicitor for the Applicant: Gunn Hamilton & Blay

Counsel for the First and Second Respondents: DPF Officer QC and DB Studdy

Solicitor for the First and Second Respondents: Phillip Bushby International Lawyers Counsel for the Third and Fourth Respondents: W R Davison SC and D Miller

Solicitor for the Third and Fourth Respondents: Abbott Tout Counsel for the Fifth Respondent: P R Garling SC

Solicitor for the Fifth Respondent: Deacons Graham & James

Counsel for the Sixth and Seventh Respondents: P Braham

Solicitor for the Sixth and Seventh Respondents: Moray & Agnew

Date of Hearing: 24 February 1998

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