The Owners - SP69567 v Landson Alliance Australia

Judgment (ex tempore - revised 7 november 2014) 1HIS HONOUR: The plaintiff is the Owners Corporation of a strata scheme involving land at Rosebery. It says that the aluminium framed windows and doors that form part of the common property are defective. It seeks damages from the first or, alternatively, the second defendant, claiming that one or other of them was responsible for the design, supply, installation and certification of those windows and doors. 2The first and second defendants (for present purposes, it is not necessary to distinguish between them, and I shall simply refer to them as "the defendants") have moved for summary dismissal of the proceedings or, alternatively, for an order that the Second Further Amended Technology and Construction List Statement (which I will simply call "the list statement") be struck out. 3In essence, the plaintiff puts its case in two ways. First, it says, the defendants engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). There is an alternative or further case of false representations as to standard etc in breach of s 53(a),(b). The plaintiff claims damage, said to be the cost of rectification. 4Alternatively, the plaintiff says, the defendants owed it a duty of care in respect of both the certification of the work done by them and in relation to the performance of that work. It says that it was relevantly vulnerable. The case as to breach of duty essentially overlaps the case of breach relied upon to falsify the representations said to have been made, in the first limb of the case. 5The defendants say that the second aspect of the claim - that based on negligence - is doomed to fail, because of the decision of the High Court of Australia in Brookfield Multiplex Ltd v Owners - Strata Plan No 61288 [2014] 88 ALJR 911. 6Further, the defendants say, the case based on alleged misleading or deceptive conduct and false representations as to standard etc is doomed to fail, for two reasons. The first reason is that, particularly in relation to the case based on misleading or deceptive conduct, the plaintiff must plead and prove that it relied in some way on the representations, and that reliance has not been pleaded. Alternatively, the defendants say, it follows from aspects of the reasoning in Brookfield Multiplex that the plaintiff has suffered no loss. 7There are, as it were, two hurdles that the defendants must surmount. The first arises from the fact that proceedings entered into the Technology and Construction List (as the present proceedings are) are governed by Practice Note SC Eq 3. That Practice Note seeks to regulate the way in which proceedings are conducted in the Technology and Construction List and in the Commercial List. As para 4 says, its purpose "is to set out the case management procedures employed in the Lists for the just, quick and cheap disposal of proceedings". And as para 6 says, there is an expectation "that this Practice Note will be observed for the conduct of proceedings entered in either of the Lists". 8The defendants have made no express application to be relieved from compliance with the Practice Note. However, nothing turns on that. 9I mention the Practice Note because, in para 62, it deals with applications for summary judgment. The paragraph states that "[a]s a general rule applications to strike out or for summary judgment will not be entertained". However, following from the fact that this is "a general rule", it is recognised that there may be exceptional cases. The paragraph continues by stating: Sometimes applications are appropriate, but Practitioners should expect strictness in declining to entertain such applications. 10The policy embodied in para 62 was applied by me in Built NSW v Evolvebuilt Contracting [2014] NSWSC 255. It was also the subject of observations by Hammerschlag J in Imperial Tarmacadam and Asphalting Company Pty Ltd v St George Bank Ltd [2009] NSWSC 1287. His Honour reinforced the importance of the Practice Note at [22], having observed at [21] that, in the particular circumstances of that case, making the orders sought (which did not seek to strike out the whole of the "pleading") would not serve the overriding purpose set out in s 56(1) of the Civil Procedure Act 2005 (NSW). 11The second hurdle which such applications face flows from decisions of the High Court which emphasise the sparing nature of the jurisdiction to terminate an action summarily. The reference most often given comes from the judgment of Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128-130. 12Some years later, in Agar v Hyde (2000) 201 CLR 552, Gaudron, McHugh, Gummow and Hayne JJ re-emphasized the point at [57]. As their Honours noted, a party should not ordinarily be denied the opportunity to put its case before the court in the usual way and after taking advantage of the usual interlocutory processes. 13Mr Dubler SC, who appeared for the defendants, attacked first of all the pleaded case in negligence. However, I think it is more appropriate to start with the case based on asserted contraventions of the Trade Practices Act. 14Unfortunately, to understand how the argument runs, it is necessary to know a little about the detail. What follows is taken by way of summary from the "pleading" in the list statement. It should not be thought that, by putting matters as the Owners Corporation has pleaded them, I am making findings of fact. 15The development was constructed on various contiguous parcels of land at Rosebery. The proprietor of some of that land was a company known as Baron Corporation Pty Ltd. The proprietor of others of those parcels was a company known as Oldtex Ltd. It is convenient to refer to them, as does the list statement, as "the owners". 16The owners retained Metro Village Development Pty Ltd to undertake and manage the development. Metro (as I shall call it) contracted with a builder, Baseline Constructions Pty Ltd. Baseline (as I shall call it) contracted with a number of subcontractors for various aspects of the works. In particular, the Owners Corporation says, Baseline contracted with one or other of the defendants for the aluminium and glazing works to which I have referred. 17As is required, there was a "Principal Certifying Authority" (PCA) for the development. The PCA was required to certify various stages of the development, including compliance with relevant Australian Standards. As part of its processes, the PCA required certificates from the subcontractors engaged, including the defendants. According to the Owners Corporation, the defendants supplied a number of certificates and the PCA relied on those for the purpose of issuing a number of interim and final occupation certificates for the various stages of the development. 18Under the contracts of sale, it is said to have been, among other things, the issue of the relevant final occupation certificate that triggered the obligation of purchasers to complete. 19As one might expect, there were warranties given up the ladder from subcontractor to builder and from builder to developer. There were also warranties given by Metro, as developer, to the owners. 20In essence, the case that the Owners Corporation seeks to make out, in respect of alleged contraventions of the Trade Practices Act, is that the certificates falsely stated some of the matters which they certified; that the PCA relied on those certificates to issue the occupation certificates; that Baseline relied on them not to require rectification of allegedly defective work; and so on up the ladder. 21The Owners Corporation came into existence on registration of the Strata Plan. When it came into existence, and by virtue of registration of the Strata Plan, it became the owner of the common property described in that Strata Plan. It held that common property as "agent" for the proprietors of the lots. Initially, before any of the contracts for sale were completed, it was the owners who were the proprietors of the lots. 22For present purposes, nothing turns on the fact that there was a staged development because two of the lots created on registration of the first Strata Plan were themselves the subject of further strata subdivision. 23The Owners Corporation says that the works done by the defendants were defective, but that, because of the matters pleaded which I have summarised briefly and perhaps inadequately, there was no opportunity for those defects to be rectified before it became the proprietor of the lots and subject to its undoubted statutory obligation, which exists independently of the cause or source of the defects, to maintain the common property and keep it in good repair. It would seem to be the case that the windows and doors to which I have referred would be part of the common property, and thus that the Owners Corporation would have that statutory responsibility for maintenance and repair. 24In those circumstances, the Owners Corporation says, it is entitled to damage, through what it characterises as contraventions of ss 52 and 53 of the Trade Practices Act. 25The primary attack that was made on this articulation of the case was founded on the proposition that the case was one of "indirect reliance" and that it was bad in law. 26The distinction between direct reliance cases and indirect reliance cases has been the subject of discussion on a number of occasions. For convenience only, and not because I think that it says anything of jurisprudential significance, I refer to what I said on the topic in Johnson Controls Australia Pty Ltd v Webb Australia Group (NSW) Pty Ltd (2013) 96 ACSR 640 at [289] to [294]. 27The Owners Corporation says that it is "a passive victim of misleading conduct" (to quote from Ipp JA in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653 at [617]). His Honour's reasons at that paragraph and, two paragraphs earlier, at [615] show the difference between the direct and indirect causation approaches. 28Where a person claims to have entered into a transaction, or made a decision, on the basis of misleading or deceptive conduct, that person must show that it relied on, and was misled by, the conduct. In other words, that person must show that he or she acted, or refrained from acting, by reason of the misleading or deceptive conduct. 29In contrast, there are cases where the misleading or deceptive conduct did not cause the claimant to act, or refrain from acting, but nonetheless caused damage because a third party was induced to act in a certain way by that misleading or deceptive conduct, and the plaintiff (or applicant) suffered damages in consequence. 30A clear example of that kind of case may be found in the decision of Lockhart J in Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526. The applicant and the respondent were competitors in the market for veterinary products. The applicant claimed that the respondent's misleading or deceptive conduct, as to its products that competed with the applicant's products, caused consumers to buy the respondent's products in preference to the applicant's. That, the applicant said, caused it loss. It was held entitled to recover, notwithstanding that it was the consumers who relied on the misrepresentations, not the applicant. 31The case was described, in Digi-Tech (Australia) Ltd v Brand (2004) 62 IPR 184 at [155], in these terms: [155] Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd followed the approach of Janssen-Cilag. Stockland, like Janssen-Cilag, was not a case where the plaintiff claimed damage caused by entering into a transaction induced by misleading conduct. In both cases the misleading conduct had caused others to act to the direct prejudice of the plaintiff. That is to say, the chain of causation was as follows: first, misleading conduct by the defendant; second, an innocent party is induced by the misleading conduct to act in some way; third, the innocent party's act, by its very nature, causes the plaintiff loss. On this basis, no act of the plaintiff contributes to the loss. The chain of causation is complete without there needing to be any act or omission on the part of the plaintiff. 32As the court (Sheller, Ipp and McColl JJA) then pointed out at [156], that type of case was materially different to the type of case where the plaintiff itself is induced by misleading representations to do or refrain from doing something: [156] The Janssen-Cilag and Stockland category of claim is materially different to that which occurs when plaintiffs suffer loss because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced. The difference lies in the fact that in the first category of case no conduct on the part of the plaintiff forms a link in the causation chain. In the second category, the inducement of the plaintiff and his or her act or omission causing loss is an essential part of the chain. Without such inducement and a consequential act or omission on the part of the plaintiff there is indeed no linking chain between the misleading conduct and the plaintiff's loss. 33Giles JA looked at the distinction in Ingot at [12], [13]. His Honour adverted to the distinction drawn in Digi-Tech between cases where conduct on the part of the plaintiff forms a link in the causal chain, and cases where it does not. As his Honour said at [12], in the former category there must be reliance on the misleading conduct if the plaintiff is to succeed. In the latter, there need not be reliance by the plaintiff if the act of the innocent party, induced by the misleading conduct, of its very nature causes loss to the plaintiff. 34His Honour explained at [13] that the distinction was between "a passive sufferer from another's act" (the first category of case) and "someone who made a decision to enter into the transaction to which the representation was material" (the second category of case). 35To my mind, it is by no means clear, on the pleaded case, that this must be said to be so clearly a case of direct reliance, or not a case of passive suffering, that the claim should be struck out. 36It is important (and I shall return to this in considering the case on negligence) to bear in mind that we have no more than the material facts that are pleaded in the list statement. What facts may be proved, within the compass of the pleaded and particularised facts, is a matter ordinarily for trial. To succeed, the defendants must show that no facts that could be proved, within the compass of the pleaded and particularised facts, could possibly sustain a case of passive suffering. Putting it less dramatically, the defendants must show that nothing could be proved which would put the case into the "indirect reliance" category of cases such as Janssen-Cilag, rather than into the "direct reliance" category of cases exemplified in Ingot. 37I do not think that this hurdle can be surmounted. In essence, the case for the Owners Corporation is that, when it came into existence and thereby (or at the same time) became the proprietor of the common property, the common property was affected by defects, which defects had not been rectified because of reliance up the contractual ladder on the supposedly misleading or deceptive, or false, certificates issued from time to time by the defendants. I do not see how the Owners Corporation could plead reliance, when it was not in existence, as I understand it, at the time that any of those certificates were issued. And even if it were in existence, reliance is an alien concept where acquisition of the estate in the common property depends not on some voluntary act or decision, but, rather, on the operation of the statutory scheme by which strata title development is regulated. 38Mr Dubler may well be right, and at the end of the day this may turn out to be a case of direct reliance rather than a case of indirect reliance. But at the level of certainty needed to justify stopping the case from going to trial, I do not think that the burden of demonstration has been discharged. 39That leads to the alternative attack, which is based on the proposition that the Owners Corporation has suffered no loss. In support of that aspect of his case, Mr Dubler relied on observations made in some of the judgments in Brookfield Multiplex. 40I start with the joint judgment of Crennan, Bell and Keane JJ. At [66], their Honours referred to the appellant's submission that the contracts pursuant to which owners of lots acquired their rights in common property afforded them, and thus the respondent (Owners Corporation) as their agent, protection against the risk of economic loss attributable to defects in construction, so that they were not relevantly vulnerable. 41At [67], their Honours said that the submission should be accepted. They pointed out that it was critical that "the loss for which the respondent claimed damages is truly characterised as economic loss". Their Honours said that: The respondent's claim is based on the failure of the purchasers of the apartments to get value for money from the developer rather than on the appellant's causing damage to the respondent's property. One difficulty with the respondent's claim is that the respondent itself paid nothing for the common property: It suffered no 'loss' arising out of the acquisition of the common property. And to say that the common property, for which it paid nothing, is less valuable to it by the amount which it must expend to repair it, is distinctly not to show that any act or omission on the part of the appellant caused the respondent's assets to be diminished. 42At [68], their Honours looked at an alternative formulation of the proposition: [68] If that preliminary difficulty is put to one side on the basis that the respondent acquired the common property as a proxy for the purchasers of apartments who are disappointed with the bargains they made with the developer, a substantial difficulty remains. The circumstance that economic loss of this kind is a foreseeable consequence of a want of reasonable care by the appellant is not of itself sufficient to make the loss compensable in negligence, even where acceptance of the claim will not give rise to indeterminate liability. 43At [69], their Honours referred to Bryan v Maloney (1995) 182 CLR 609. They said that the decision in Bryan was not authority for the proposition that a builder who breaches contractual obligations to the first owner of the building "is to be held responsible for the consequences of what is really a bad bargain made by subsequent purchasers of the building". 44Gageler J likewise looked at the burden of the economic loss. His Honour said at [173]: [173] If the builder of a strata development is to be recognised as having the putative duty of care, it is because the owners corporation stands in relation to the builder as proxy for the owners from time to time of the registered lots corresponding to apartments in the building. In them the beneficial interest in the common property is vested as tenants in common. For them the corporation is constituted agent. To them the corporation can ultimately look to cover the cost of repair if that cost cannot be recouped elsewhere. It is they who bear the economic burden of the loss. 45The approach taken by French CJ, did not, as I read what his Honour said, depend on the analysis appearing in particular from the reasons of Crennan, Bell, and Keane JJ, as to identification of the economic interest that was infringed and whose burden that was. 46Hayne and Kiefel JJ said at [45]: [45] There may be a real and lively debate about whether the Owners Corporation itself suffered any loss as a result of defects in the common property. The better view may be that any loss constituted or occasioned by defects in the common property was suffered by the owners of the lots for whom the Owners Corporation held the common property as "agent". It is not necessary, however, to pursue that question. 47That suggests to me that what their Honours thought might be "the better view", at least for the way in which they came to the conclusion that there was no duty of care, was not essential to their reasoning. 48I accept that if the analysis to which I have referred is applicable to claims under the Trade Practices Act or its analogues or successors, then it will impose a very substantial burden on the Owners Corporation in the present case. However, it is important to note that the analysis was undertaken for the purpose of analysing vulnerability. Vulnerability was relevant in Brookfield Multiplex because, as all their Honours agreed, it was vulnerability, in the sense of inability to take reasonable steps to protect oneself from the risk of economic loss, that was the determinant of the existence of a duty of care in a claim for pure economic loss. 49It does not follow that the analysis is applicable to all cases where a claim is made, on whatever basis, for economic loss. 50Accordingly, I do not think that it can be said to be so clear as to justify summary dismissal, that the observations made in Brookfield Multiplex necessarily mean that in this case the Owners Corporation cannot have suffered loss. 51Accordingly, I do not propose to strike out the claim based on asserted breaches of the Trade Practices Act. 52That conclusion is significant for what remains. It means (assuming no appellate intervention) that the case will go to trial, on the issues arising under the Trade Practices Act claim. There will be a significant overlap between those issues and the issues that would arise if the claim in negligence were permitted to go to trial. Mr Dubler submitted that the overlap might not be complete. I am inclined to agree; but I think it is likely to be so extensive that the savings in time and costs, if the negligence case were to be struck out, are not likely to be significant. 53Mr Kalyk of counsel, who appeared for the Owners Corporation, submitted that the decision in Brookfield Multiplex was distinguishable on its facts. That may be accepted. The real issue is, however, whether the decision essentially requires the conclusion that the claim based in negligence must fail. 54As will be apparent from what I have said, Mr Dubler submitted that the inevitable or inexorable logic of the decision in Brookfield Multiplex meant that the negligence claim, as it is pleaded, must fail. 55There is one distinction between Brookfield Multiplex and this case which is worth bearing in mind. The former was not an application to strike out or for summary dismissal. The question of the existence of a duty of care was determined, as a separate question, on the basis of agreed facts and an agreed bundle of documents. This is not such a case. The question in this case falls to be decided purely by reference to the pleadings, and seeing, or envisioning, what might be proved within the compass of the pleadings. 56It is also necessary to bear in mind that the negligence case has two limbs. 57The duty of care which is asserted was said to have two aspects. First, the defendants were said to owe a duty of care to take reasonable care in the performance and completion of the subcontract works. However, they were said also to have a duty to take reasonable care in relation to the issue of their certificates. 58It may readily be seen that the first duty of care is extremely close to that alleged in Brookfield Multiplex. The second is not. As an aside, it might be thought that the pleading of vulnerability and the existence and terms of the duty of care owed much to the decision of the Court of Appeal from which the appeal to the High Court was taken: The Owners - Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479. 59I acknowledge without any hesitation whatsoever that the Owners Corporation will face an extremely difficult case at trial to distinguish either of its claims in negligence from the decision in Brookfield Multiplex, so as to show a meaningful reason (rather than a distinction without a difference) as to why the logic of that decision does not dictate, adversely to it, the outcome of its claim in negligence. If there were only a claim in negligence, then it would require closer consideration than I propose to give it. However, in circumstances where (as I have said, in the absence of appellate intervention) there will be a case to go to trial, in any event, because of what I have said as to the first aspect of the Owners Corporation's claim, and where for the reasons I have indicated I do not think that the overriding purpose set out in s 56(1) of the Civil Procedure Act will be served by striking out the case in negligence. 60To put it another way, I think that this is a case where, despite the very formidable obstacles placed in the path to success by the decision in Brookfield Multiplex, the case in negligence should go to trial. I have taken into account in this context the observations of Kirby P in Wickstead v Browne (1992) 30 NSWLR 1 at 5-7. (Although his Honour was in the minority, an appeal (by special leave) was allowed, with the High Court essentially adopting his Honour's reasons (Wickstead v Browne (1993) 10 Leg Rep SL 2.) I take into account that in this case the plaintiff has yet to put before the court all the evidence that it can muster in support of its case. I take into account that the duty of care is not asserted to be simply one to take reasonable care in the construction of the works, but also to take reasonable care in the certification of the works. 61In those circumstances, in relation to this aspect of the strikeout, I think that the proper course to take is that advocated by Hammerschlag J in Imperial Tarmacadam at [21], [22]. That is to say, in respect of this limb of the application to strike out or for summary judgment, I think that the appropriate course is to decline to entertain it further. 62The outcome is that the defendants' notice of motion filed on 6 August 2014 should be dismissed and I so order.