The Owners - SP 67635 v Metlej Developments Pty Ltd and others

Judgment 1The Owners of Strata Plan Number 67635 (the plaintiff) filed a notice of motion on 15 July 2013, seeking leave to amend its summons and list statement to the form annexed to its motion, and seeking an order that it pays the defendants' costs thrown away by reason of the amendment, if permitted. The second to fifth defendants oppose the motion. The first defendant no longer plays any role in these proceedings (as of September 2012). 2In the substantive proceedings, the plaintiff seeks damages from the second defendant as builder, and from the third to fifth defendants as developers, for a range of alleged defects in a building constructed in the years 2000 to 2001. The plaintiff's motion seeks to add to a Scott Schedule prepared in these proceedings further alleged building defects relating to mechanical ventilation, and to rely on two reports to substantiate those alleged defects. 3The relevant background to these proceedings, for the purpose of this application, can be briefly stated. The plaintiff is the Owners Corporation of a large residential building in Cecilia Street in Marrickville (the Building). As I have already noted, the second defendant is the builder, and the third to fifth defendants are developers of the Building. 4There is a dispute between the parties as to when the Building was completed, which in turn impacts on limitation issues. For present purposes, it is sufficient to note that on any view it was complete by 19 March 2002, when the strata plan was registered. 5At some point, defects became evident in the Building. On 28 January 2009, proceedings were commenced in the New South Wales Consumer, Trader and Tenancy Tribunal (the CTTT) by the plaintiff in respect of those defects. The proceedings were transferred to this Court on 7 October 2010, when it became apparent that the amount in issue would exceed the maximum jurisdiction of the CTTT. 6The plaintiff had a change of solicitors, and on 23 July 2011, the plaintiff's solicitors filed a list statement. The principal cause of action alleged is breach of the statutory warranties contained in s 18B of the Home Building Act 1989 (the HB Act). 7Since then, the list statement has been amended on two occasions, namely: (1)in April 2012, by the substantial revision and amendment of the Scott Schedule (which provided particulars of the defects alleged); and (2)in September 2012, when the first defendant was removed from the proceedings (after the plaintiff accepted his evidence that he was not the builder). 8Following a recommendation by the plaintiff's expert, the plaintiff retained a Mr Richard Duggan (Mr Duggan), an expert in mechanical ventilation, in October 2011, who prepared a report, received by the plaintiff on 27 March 2012 and then served on either 4 or 21 June 2012, identifying mechanical ventilation defects. The plaintiff concedes that the consequential amendment to its list statement, which it now seeks to make to include claims for mechanical ventilation defects, was overlooked at the time Mr Duggan's report was received. No hearing date has yet been fixed, and the plaintiff's evidence in chief is otherwise complete. 9The damages sought in relation to the newly identified defects is about $242,000. The balance of the claim is about $1.3 million. 10The defendants oppose the plaintiff's amendment application, not on the basis that the claims the subject of the proposed amendments are statute barred as against the defendants, but rather on the following two bases: (1)(degree of injustice, s 58(2)(b)(vi)) the plaintiff's delay in effecting the proposed amendment allegedly irremediably prejudices the defendants by depriving them of the ability to file viable and potentially wholly exonerating cross-claims against a certifier, Accent Ventilation Pty Ltd (Accent Ventilation), which provided two compliance certificates on 18 January 2002 in relation to ventilation in the Building, and an architect, Peter Rasa (Mr Rasa) who was retained in relation to the Building; and (2)(inappropriate particularisation of defects) the plaintiff's particularisation of the alleged mechanical ventilation defects merely "by reference" to expert reports, rather than by the conventional route of setting out the particulars of the defects, is allegedly oppressive and contrary to principle (however this is no longer in issue as it was resolved between the parties). 11The plaintiff's main response to the defendants' concerns is that there are already related proceedings on foot (2012/196185), to be heard with these proceedings, in which the Building Insurers' Guarantee Corporation (BIGC) is a defendant, and in which BIGC has already consented to identical amendments in that list statement (subject to a reservation of its rights to take limitation points at the hearing). The alleged relevance of these circumstances is that, since BIGC has a statutory right, under the HB Act, to recover from the builder amounts that BIGC pays to the plaintiff, the mechanical ventilation issues will be live in the proceedings in any event. The plaintiff alleges that, these circumstances, together with an appropriate costs order against it, effectively ameliorate or eliminate any prejudice suffered by the defendants as a result of the proposed amendments. 12The principles relating to the determination of applications for leave to amend pleadings are set out in Part 6 of the Civil Procedure Act 2005 and have been discussed at some length in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175. The prejudice occasioned by the deprivation from a defendant of a means to deflect liability to a third party by reason of a delay by the plaintiff in including a particular claim in its pleadings against the defendants, is a factor particularly relevant to the exercise of my discretion in the present application. Tekno Ceramics Pty Ltd v Zdenko Milat [2003] NSWCA 254 was an appeal from a decision of the District Court in which Delaney DCJ granted an application by an employee, Mr Milat, for an extension of time, under the relevant workers compensation legislation, in which to bring an action for damages for personal injury occasioned to him whilst in the employment of Tekno Ceramics Pty Ltd. Tekno Ceramics Pty Ltd argued that, had the claim been brought within time, it would have considered joining a particular third party, McNamara Group Constructions Pty Limited, to the proceedings as a cross-defendant. Foster AJA (with whom Meagher and Handley JJA agreed) upheld the appeal and said (at [41]): [41] The third question is whether the appellant has established that its inability to sue McNamara by way of cross-claim, to recover indemnity or contribution, has occasioned it such prejudice, as to require the reversal of his Honour's order. There was no dispute before his Honour, nor before this Court, that the effect of the relevant sections of the Limitation Act 1969 precluded the bringing of any action by Tekno against McNamara. On the facts of the accident, as alleged by Milat, there would have been a viable cross-claim, available to Tekno. At the time of the accident Milat was acting under the direction of Mr Maynard, a foreman employed by McNamara. He was lifting the metal tray, at the request of Mr Maynard, in order to assist Mr O'Brien, another employee of McNamara, in placing it in its correct position. It was Mr O'Brien who dropped his end of the tray and occasioned the injury to Milat. Clearly, Tekno would have had available a substantial claim for contribution. It would have had this claim available in June 1999, as the relevant limitation period did not expire until 17 September 2000. I am unable to agree that the loss of the right to seek contribution "should not be the basis upon which an application of this type should be refused." Whether one regards the ability to bring a cross-claim for contribution or indemnity as an ordinary incident of the ability to have a fair trial, or whether the loss of it is to be regarded simply as an incident of prejudice arising from a plaintiff's failure to sue a defendant within time, the result, in my opinion, is the same. The prejudice is obvious and significant. In the present case, it should have been taken into account by his Honour. His failure to do so, with respect, amounted to an error of principle in the exercise of his discretion. It means, in my view, that his Honour's decision must be set aside and the discretion re-exercised by this Court. The re-exercising of the discretion, taking into account this element of prejudice, must, in my view, lead to the decision that it is not just and reasonable to extend the time for the bringing of this action. 13The relevant principles were summarised by Ward J in Weston v Publishing and Broadcasting Ltd (2011) 83 ACSR 206 at [240]-[244]. In effect, the potential cross-claims must be viable and realistic, rather than fanciful or theoretical, for the loss thereof to amount to prejudice (at [241]). 14The statutory provision allegedly barring the defendants from joining a third party is s 109ZK of the Environmental Planning and Assessment Act 1979 (the EPA Act), which relevantly provides, apparently without exception: 109ZK Limitation on time when building action or subdivision action may be brought (1) Despite any Act or law to the contrary, a building action may not be brought in relation to any building work: (a) more than 10 years after the date on which the relevant final occupation certificate is issued, or ... 15As I have noted, the final occupation certificate for the Building was issued on 19 March 2002, and therefore the final date on which a "building action" could have been brought, by way of cross-claim by the defendants against a third party, in relation to any "building work", was 20 March 2012. The definitions of "building action" and "building work" are provided in s 109ZI: 109ZI Definitions In this Part: building action means an action (including a counter-claim) for loss or damage arising out of or concerning defective building work. building work includes the design, inspection and issuing of a Part 4A certificate or complying development certificate in respect of building work. 16The two certificates provided by Accent Ventilation are likely to be "Part 4A certificates" (as defined by the relevant provisions of the EPA Act). If that is so, the building work the subject of the certificates is the subject of the s 109ZK bar. 17Of the two compliance certificates from Accent Ventilation: (1)one certificate asserted that the ventilation systems relating to "WET AREAS Internal Toilets / Laundries" were compliant; and (2)one certificate asserted that the car-park drawings were reviewed and that the car park was adequately ventilated by natural cross-flows of air, and would be compliant with AS 1668. 18The proposed amendments allege that the following ventilation elements of the Building are defective: (1)ground floor and first floor bathroom and laundry are not compliant with AS 1668.2; (2)exhaust systems to second floor are not compliant with AS 1668.2; (3)there are no safety grills installed in the ventilation openings to the upper garages; (4)there is no ventilation in the main electrical switch room; (5)there is insufficient ventilation in the hot water plant room; and (6)the basement toilet ventilation is not compliant. 19It therefore appears fairly clearly that items (1), (3), (5) and (6) come within the scope of the Accent Ventilation certificates. It is not clear whether items (2) and (4) do, nor is it clear whether Mr Rasa was relevantly negligent. But clearly, there appears to be a case to be made by the defendants against Accent Ventilation, and perhaps Mr Rasa, in relation to the alleged defects in ventilation. 20By the time the report of Mr Duggan raising the ventilation issues was served on the defendants (being 4 or 21 June 2012), the critical date of 20 March 2012 had passed. Based on the evidence before me, and in particular the two certificates from Accent Ventilation, I consider the prejudice arising from the unavailability to the defendants of the opportunity to cross-claim against Accent Ventilation or Mr Rasa, to be "obvious and significant" (Tekno Ceramics Pty Ltd v Zdenko Milat at [41]), and I am satisfied that such potential cross-claim(s) appear "viable and realistic, rather than fanciful or theoretical" (GIO General Ltd v Love [2009] NSWCA 269 at [40] per Handley AJA with whom Basten and Young JJA agreed; Creevey v Barrois [2005] NSWCA 264 at [56] per Basten JA with whom Handley and McColl JJA relevantly agreed). It is no answer for the plaintiff to say that it only received Mr Duggan's report on 27 March 2012. The proceedings were on foot since early 2009. 21During the hearing before me, counsel for the plaintiff acknowledged that the proportionate liability regime created by Part 4 of the Civil Liability Act 2002 does not apply to a claim in an action for damages arising from a breach of statutory warranty under Part 2C of the HB Act and brought by a person having the benefit of the statutory warranty (s 34(3A) of the Civil Liability Act), and would not apply to this case. Therefore, in the event that leave was granted to the plaintiff to make the proposed amendments, the defendants would not be able to invoke that regime to limit their liability to a particular proportion. 22The question remains, however, of whether BIGC's involvement in related proceedings alleviates the prejudice that would be suffered by the defendants if the plaintiff's proposed amendment was permitted. Orders were made by Hammerschlag J on 20 July 2012 to the effect that proceedings 2011/42347 and 2012/196185 be case managed and heard together and that evidence in one be evidence in the other. The plaintiff concedes that s 109ZK of the EPA Act denies the defendants the opportunity of deflecting liability by cross-claiming against third parties. The plaintiff's argument, however, is that in its related proceedings against BIGC (2012/196185), the plaintiff has pleaded claims for the defects in mechanical ventilation, and that if the plaintiff succeeds, BIGC will, pursuant to its statutory right under the HB Act, eventually come after defendant builder in any event. Therefore, in effect, the plaintiff alleges the defendant builder will have to face the mechanical ventilation issues sooner or later, at the hands of the plaintiff or at the hands of BIGC. 23As the defendants accept, the HB Act provides, in general terms, two statutory mechanisms enabling BIGC to recover payments it makes. However, for the arguments advanced by the defendants, it is far from clear whether those statutory provisions, in the circumstances of this case, would enable BIGC to ultimately recover from the defendants any amounts it pays to the plaintiff in respect of the allegedly defective mechanical ventilation. I will deal in turn with the arguments advanced in respect of the relevant provisions of the HB Act. 24Section 103M of the HB Act relevantly provides: 103M Assignment of rights (1) Where the Guarantee Corporation pays an amount to a beneficiary (or a person nominated by a beneficiary) under the indemnity provided by this Division, the beneficiary is taken to have assigned the beneficiary's rights in respect of the matter covered by the indemnity to the Guarantee Corporation. (2) The Guarantee Corporation may enforce the rights assigned to it under this section as if those rights had been personally assigned by the beneficiary. ... (4) A reference in this section to the assignment of a beneficiary's rights includes a reference to the assignment of any rights that the beneficiary may have, in respect of the matter covered by the indemnity, against a developer or any other person. 25The defendants contend that the rights conferred on BIGC by s 103M are those which belonged to the beneficiary (i.e. the plaintiff in these proceedings). Since the plaintiff's rights are subject to the s 109ZK bar, the defendants allege that any right assigned to BIGC under s 103M of the HB Act would be subject to that same limitation. 26The second statutory mechanism which appears to confer some form of entitlement on BIGC to recover from the defendants any amounts it pays to the plaintiff, is contained in s 103N of the HB Act, which relevantly provides: 103N Guarantee Corporation may require builder to make payments or rectify work (1) Subject to subsection (3), if a claim is made by a beneficiary under the indemnity provided by this Division in respect of incomplete or defective residential building work, the Guarantee Corporation may give reasonable directions to the builder concerned in respect of: (a) the completion of the building work or the rectification of the defective building work, or (b) the payment by the builder to the Building Insurers' Guarantee Fund of any amount in respect of the completion of the building work or the rectification of the defective building work. (2) Subject to subsection (3), if a claim is made by a beneficiary under the indemnity provided by this Division, the Guarantee Corporation may direct the builder concerned to pay to the Building Insurers' Guarantee Fund any amount paid out of the Fund on that claim. (3) The Guarantee Corporation may only give a direction under subsection (1) or (2) to the extent that an insolvent insurer (if it was not insolvent) would be able to require that work or supply, or require a payment to the insurer by the builder, under the relevant insolvent insurer's policy. ... 27Again, the defendants contend that BIGC's entitlement to seek payment from the builder under s 103N is barred by s 109ZK of the EPA Act. The defendants' argument is that BIGC's right to recovery is expressly limited by s 103N(3) to the rights the relevant insolvent insurer would have had under the relevant policy of insurance. In this case, clause 4.6 of the relevant policy (annexed to the affidavit of Jessica Bates dated 21 August 2013) entitles the insurer, upon accepting liability under the policy, to be subrogated to any rights of the insured. The defendant alleges that such rights of the insured (and therefore of BIGC) are subject to the limitation in s 109ZK. Another limitation on BIGC's rights under s 103N is that they would only apply as against the builder, not the developers. 28In addition to these limitations on the rights of BIGC under ss 103M and 103N, the defendants observe that BIGC's rights under s 103N and 103M of the HB Act are subject to the limitation that they are only triggered after BIGC has made payment to the plaintiff, and that this has not yet occurred, and indeed BIGC is defending the claim the plaintiff has on foot against it. Finally, though it has provided its consent to identical amendments in the related proceedings, BIGC has reserved for itself the right to raise any limitation points available. There is also an argument that BIGC is not positively required, at least by the express language used in the legislation, to seek recovery from one or more of the defendants in the event that it makes payment to the plaintiff under the related proceedings. It simply "may" do so. However, the parties accepted, and I propose, to the extent it is relevant to this application, to assume, that BIGC would in fact seek such recovery if that course of action was open to it. 29The defendants' key argument therefore is that BIGC's statutory rights under ss 103M and 103N of the HB Act are subject to the limitation imposed by s 109ZK of the EPA Act, and therefore permitting the proposed amendment would require the defendants, without the opportunity of cross-claiming, to face claims they would otherwise not have faced. The plaintiff's response to all this is that BIGC's statutory rights under ss 103M and 103N of the HB Act may be exempt or not subject to the limitation under s 109ZK of the EPA Act. 30The question of whether the plaintiff's position or alternatively the defendants' position is correct is essentially one of statutory construction, and will have a potentially significant impact on BIGC in a multitude of other proceedings. Counsel on both sides brought to my attention that on the only two apparent occasions on which this question was previously considered, McDougall J did not need to, and did not, come to any conclusion or express any relevant preference (Meriton Apartments v Fair Trading Administration [2010] NSWSC 986 and The Owners Strata Plan 56963 v Australand [2011] NSWSC 710). Counsel for the plaintiff did not articulate any argument supporting the alleged inapplicability of s 109ZK to BIGC, but simply indicated that the position was not as clear as would appear from the defendants' written submissions. 31The statutory language is of broad effect, and the actions caught within s 109ZK are defined by reference to the character of the dispute, not (at least expressly) by reference to the identity of the party or parties involved in the claim. It is neither necessary nor appropriate for me to deal with the question for the disposition of the present application, especially where BIGC is not a party to it. 32Without commenting on the degree of probability, it is sufficient to note that, on the basis of the arguments advanced by the defendants, s 109ZK might apply to bar any claim eventually made by BIGC against the defendants. Therefore I consider that it is by no means clear that BIGC's qualified consent to the corresponding amendments in the related set of proceedings alleviates the prejudice that the defendants in these proceedings would suffer (by reason of their inability to cross-claim) if the plaintiff's proposed amendments were permitted in these proceedings. 33Following the hearing of the motion before me on 16 September 2013, I adjourned the matter to 16 October 2013 to permit the parties to view BIGC's list response to the further amended list statement (which was due to be filed shortly) in the related proceedings. BIGC filed its list response on 9 October 2013, and the parties again appeared briefly before me on 16 October 2013. In its pleading in that related proceeding, BIGC accepted that it is prevented, by s 109ZK, from recovering any indemnity paid to the plaintiff from Mr Rasa or Accent Ventilation. However, there is no suggestion in BIGC's list response that it is unable to proceed against the builder; BIGC is silent on this. The plaintiff therefore (in effect) submitted that it could be inferred from such silence that the mechanical ventilation issue is likely to be raised at some future stage as between BIGC and the builder. 34I appreciate the argument advanced by the plaintiff, but I do not consider BIGC's silence as to whether it is able to seek recovery from the builder to be significant. There are a number of possible legitimate reasons for BIGC's silence. It may express a reservation of position, but not any view in particular. Indeed, on 24 October 2013 BIGC's solicitors sent a letter (by email) to my Associate (with a copy to the other parties involved in these proceedings) in which it stated it would be inappropriate for it to make any comment about its ability to pursue the builder under s 103N of the HB Act, and that it simply reserves its position. 35There are additional factors relevant to the determination of this application. In the related set of proceedings, the plaintiff is already ventilating (to use a term apt to this application), as against BIGC, the full range of alleged defects in the Building, including the alleged mechanical ventilation defects. There would appear to be limited utility in permitting the plaintiff to ventilate these same issues against the defendants to these proceedings. It is therefore enough that the plaintiff already has these claims on foot in the related proceedings, against an obviously solvent defendant, especially in circumstances where the defendants in these proceedings would not have the opportunity to appropriately cross-claim to wholly or partially deflect liability. Another factor to take into account is that, since the time the defendants were served with the report of Mr Duggan in June of 2012, the defendants have not responded to that material. The issue is therefore not one which has already been addressed by the defendants. 36The plaintiff raised in its submissions the line of authorities suggesting that, where proceedings have been commenced on time, and further defects are later sought to be added after the expiration of the relevant limitation period, the addition of those further defects does not raise limitation issues where such defects form "one composite breach" or form part of a composite cause of action commenced in time (Honeywood v Munning (2006) 67 NSWLR 466 per Handley JA with whom Giles JA and Hislop J agreed; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514). In my view, those considerations do not arise here, given the manner in which the defendants have framed their opposition to the proposed amendments. There might have been room for these principles to operate had the defendants opposed the proposed amendments on the basis that the proposed further claims by the plaintiff, as against the defendants, are out of time. 37I do not need to address the question of whether the form by which the plaintiff has particularised the alleged defects in its list statement is inappropriate. During the hearing of the motion, the plaintiff indicated it would be content to have the proposed particulars the subject of contention struck out, and the parties agreed that the plaintiff would, instead, rely on its particularisation of the mechanical ventilation defects as found in the plaintiff's Scott Schedule. 38The motion is therefore dismissed, with costs.