Strata Plan 68372 v Allianz

Supreme Court of NSW|2012-06-18|Before: McDougall J

Judgment - EXTEMPORE (REVISED 18 june 2012) 1HIS HONOUR: The question to be decided today is whether the joinder of the fourth defendant (Geotech) to these proceedings should be set side, and whether there should be judgment for it or the claim against it should be struck out. That question arises against the following background.

Background 2The plaintiff (the owners corporation) is the owners corporation of a substantial strata title development at Thornleigh. The development was effected by six stages, with the strata plan for each stage being registered on dates between 12 August 2003 (for stage 1) and 22 July 2005 (for stage 6). As each strata plan was registered, the common property described in that strata plan vested in the owners corporation and the owners corporation came under a statutory duty to repair, maintain and keep in good condition that common property. 3The owners corporation sues in these proceedings for what it says are numerous defect in the common property. Of particular relevance today, it says that the foundations for various structures (including buildings and roads) are defective, and that this has led to damage. The defects are said to arise, as between the owners corporation and Geotech, because Geotech failed to carry out geotechnical services appropriately at the time of design and construction of the works. 4Geotech was added to these proceedings by order made on 11 November 2011. It did not participate in the hearing in which that order was made, and hence is entitled to have the orders, as against it, set aside. See UCPR r 36.16(2). 5Geotech claims that the proceedings against it disclose no reasonable cause of action, or are prejudicial, embarrassing or delaying. It says that this follows from the fact that, at the time the order was made, the relevant limitation period against it had expired. In short, it says that it has an unarguably sound limitation defence. 6It is clear that the Court may entertain an application of this kind separately from and before the hearing of all issues in dispute. Equally, it is clear that a limitation question should be not be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. See Wardley Australia Limited v Western Australia (1992) 175 CLR 514. Is this such a clear case?

The pleaded case 7To understand how the limitation point arises, it is appropriate to look at the case that is "pleaded" against Geotech by the further amended technology and construction list statement, leave to file which was also granted on 11 November 2011. 8It is said that the developer, who is now the third defendant, retained Geotech to provide geotechnical engineering services for the project. Those services were said to require design of pavement thicknesses; testing site filling (including inspecting stripping operations and testing the fill when placed); compaction testing of pavement materials; and site classification. 9It is then said that Geotech prepared a compaction specification which, amongst other things, required compaction of fill to at least 95 per cent of SMDD. Then, it is said, Geotech provided a site classification classifying the site as M, or moderately reactive. 10It appears to be alleged, or may be inferred from the pleadings, that the design of the earth works, the pavements, and the footings were carried out on the basis of the specifications and site classification provided by Geotech. 11I pass over the circumstances that are said to have given rise to the existence of a duty of care owed by Geotech to the owners corporation, since Geotech does not submit that the proceedings should be struck out, or that it should have judgment, on the basis that there is no such duty of care known to the law. 12It is alleged that the duty of care was breached in numerous respects. They include the allegedly wrongful classification of the site as M or moderately reactive, when it should have been classified as P, or a problem site. They include also the allegedly incorrect specification of a compaction ratio (the correct ratio being said to have been 98 per cent SMDD) and failure to carry out testing during the course of earth works construction, including the placement and compaction of fill and, presumably, of the pavement substrates.

The limitation question 13The case for the owners corporation is, in essence, that because the site was wrongly classified as M rather than P, the structural engineer who carried out structural design did not design adequate footings for the buildings. Had the site been correctly classified as M, then, I assume, the designs provided would have been adequate. But because the site was a problem site (or is said to have been a problem site), it is said that the designs chosen were, as a matter of fact, inadequate. 14Geotech says that on any view of the facts the limitation period had expired by, at the very latest, 10 November 2005. It accepts that, because the case pleaded against it is a case in negligence, it is necessary to show that all elements of the cause of action had accrued by that date. It accepts, further, that because the cause of action is framed in negligence, damages are of the gist of the action, so that it is necessary to show that at least some, non-trivial or negligible, damage had accrued by 10 November 2005. Finally, to the extent that the defects alleged are latent (and Geotech challenges this), Geotech accepts that it must show that the defects were manifest, as that expression has been used in the authorities, as at 10 November 2005.

The expert and other evidence 15There is a great amount of evidence, of which only a relatively small portion was the subject of reference during the hearing. It is convenient to start with the expert report obtained by the owners corporation from Jeffery & Katauskas Pty Limited, a firm of consulting geotechnical engineers. The primary report, dated 12 October 2007, follows an orthodox pattern. It sets out the observations made and the investigations carried out, and then gives an opinion as to the cause of the cracking that was observed. It does so, in effect, in a repetitive fashion by reference to the different areas of the overall development that were the subject of complaint, investigation and report. The repeated conclusion drawn is, in effect, that on the evidence available to the author, the footings for the particular building being investigated were inadequate having regard to the subsurface conditions that had been revealed. In particular, the author said, the fill did not appear to have been properly compacted through its full depth, and thus settled from the imposed load of the building. That, in turn, in his view, caused the walls of the building that was being investigated to deflect and crack. 16In an addendum report, Jeffery & Katauskas expressed similar views. For example, in respect of one group of lots, they expressed the view that the observed cracking was consistent with settlement due to the poorly compacted fill below the footings. They referred to test data which were said to support that view. Again, similar views were expressed in relation to other parts of the project. 17I have referred to that at some length because one of the matters on which Geotech relies, to make good its case that the defects were known at the relevant time, is a report obtained by the builder of the project, Rubikcon Pty Limited, from SMEC Testing Services Pty Limited in March 2004. It is apparent that SMEC was retained to undertake geotechnical investigations of the site, because minor cracking had been observed and there were concerns expressed about the quality of filling on the site. I pause to note that, by March 2004, the stage 1 and 2 works would have been substantially complete. I note, further, that the bulk of the defects alleged by the owners corporations in these proceedings relate not to stages 1 and 2 but to stage 3. Stage 3 works were not completed until about May 2004: two months after the SMEC report. It could be inferred that they were under way when the SMEC report was prepared. 18SMEC stated that its investigations were undertaken for a number of purposes. They included determination of subsurface conditions, commenting on the quality of the fill, determining site classification, commenting on the problems and suggesting both causes and rectification. 19One of the lots inspected was lot 24. If I have read the overall staging plan accurately, that is located in stage 3 of the works. If I am correct in thinking that, then, first, it is the area of the work which is the subject of the greatest complaints and, secondly, it confirms that works on stage 3 were under way when SMEC inspected. 20The person who carried out the inspection noted fine cracks in described places which, he said, were consistent with foundation settlement. 21The SMEC report then dealt with the various tests that had been carried out, among other things, to determine the quality of compaction of the fill. It reported that there were areas where the level of compaction was less than it should have been, to be classified as well compacted fill. 22In those circumstances, the report concluded that the site, as work had been done, should have been classified as a problem site. It did, however, note that if the filling had been properly compacted, then the M classification would have been appropriate. 23It is clear from the report that the author regarded the visible damage that had been observed as a result of settlement in the footings, which in turn was due to the insufficient compaction of the fill. Thus, he recommended that the block in question should be underpinned, and that where work had been not commenced, the buildings should be piered to rock. 24What emerges from the SMEC report is that, in the opinion of the author, the problems that were observed were caused by the failure mechanism that is discussed in the reports of Jeffery & Katauskas. That is to say, the SMEC report establishes, as at March 2004, that the problems in the compaction of the fill were such that the footings designed for the project (to the extent that they had been constructed) were likely to be inadequate, and that there was likely to be settlement.

Conclusions on the evidence 25In those circumstances, I think, the proper view of the complaints with which the case against Geotech is concerned is that the defects alleged were not latent but patent. In other words, I think, the necessary link had been drawn, in March 2004, between the allegedly defective work carried out by Geotech and the consequences: namely inadequacy of footings designed for a site classified as M, or moderately reactive. 26If that is the correct analysis then, it seems to me, the arguments for Geotech must succeed. I say that because it is clear, from the judgment of Handley JA (with whom the other members of the Court agreed) in Scarcella v Lettice (2001) 51 NSWLR 302 at [15], that time commences to run, for the purposes of the Limitation Act 1969 (NSW), when damage accrues even if the plaintiff is not aware that damage has accrued. The report of SMEC appears to me to make it clear that damage had indeed accrued at the latest by March 2004. 27In the circumstances, it would not be necessary to consider the alternative arguments based on the proposition that the damage was not patent but latent.

Decision 28A little earlier in these reasons, I expressed some caution at the conclusions that would follow from acceptance of the SMEC report. I did so because if the link to which I referred is drawn between what SMEC reported and what Jeffery & Katauskas has said, then it seems to me that the owners corporation's case, against Geotech, should not proceed. 29What the Court is required to consider is the case that is sought to be articulated. I have referred already to the pleaded case. The key elements that can be extracted from the particulars of breach are the alleged incorrect classification of the site, the alleged failure to test during the course of earth works construction, including placement and compaction of fill, and the inadequate testing over the site as a whole. 30Each of the SMEC report and the Jeffery & Katauskas reports draws a clear link between those inadequacies (assuming for the sake of argument, that they are proved) and the failure mechanism that is the subject of report. The failure mechanism that is postulated, and supported, is that the footings were inadequate not of themselves but because the conditions for which they were designed were not as stated. On one view of the facts, the site was never an M site and was always a P site. On another view of the facts, if the work had been carried out properly, the site might have been an M site; but because the work of filling and compaction was not carried out properly, the site was a P site. Thus, whichever way one looks at the case, the link between the alleged breaches of duty and the damage sustained is clear. 31Thus, I think, it is correct to regard the case that the owners corporation seeks to articulate, as exposed through the expert evidence on which it relies, as reflecting in substance a case of loss that had already been demonstrated through the SMEC report. For those reasons, as I have indicated, I think it is appropriate to conclude that this is a case of patent defect, and thus a case in respect of which damage had commenced to accrue well before 11 November 2005. 32The evidence for Geotech suggests that it would be put to very substantial expense to defend the proceedings. Having regard to the scale of the development and the nature of the defects alleged, that is entirely understandable. Thus, where (as in my view it is) the limitation question is clear, I think that the appropriate course is to bring the proceedings, as against Geotech, to an end. 33For those reasons I make orders in accordance with prayers 1A, 2, 4 and 5 of the amended notice of motion filed on 4 June 2012. I order that the exhibits on the application be handed out.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 June 2012

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