The Owners - Strata Plan 58068 v Fair Trading Administration Corporation - [2009] NSWSC 850 - NSWSC 2009 case summary

The Owners - Strata Plan 58068 v Fair Trading Administration Corporation - [2009] NSWSC 850 - NSWSC 2009 case summary — Zoe

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First question: the licence The licensing and insurance regimes 4 The contract between Grocon as builder and the developer, Elarosa Investments Pte Limited (Elarosa) (the contract) was made on 23 October 1996. As the Act then stood, it required that all residential building work be done by or on behalf of an individual, partnership or entity that was the holder of a licence under the Act authorising the holder to contract to do that work. The Act also required that contracts for the performance of residential building work be in writing. See, respectively, ss 4 and 6 of the Act. 5 The Act and the Regulation were amended very substantially, with effect from 1 May 1997. Those amendments have no present relevance, because the amendments only apply to contracts for the performance of residential building work made on or after that date. 6 Whenever in these reasons I refer to or set out a provision of the Act or Regulation, I do so by reference to what the parties agreed was the form of each during the relevant period of time: 23 October 1996 to 17 April 1997. 7 The comprehensive scheme was authorised by s 91 of the Act. According to s 92(1)(a), the comprehensive scheme applies "in respect of residential building work if… the holder of an appropriate licence contracted to do or did the work". 8 The comprehensive scheme is set out in Form 4 in Schedule 1 to the Regulation. The prescription of that scheme was authorised by s 91(1)(a) of the Act. The key concept of the comprehensive scheme is "insured building work". That is defined in cl 1(1), relevantly for present purposes, to mean "residential building work… contracted to be done, or done otherwise than under a contract, by the holder of an appropriate licence". 9 Grocon did not hold any licence under the Act until 17 April 1997. On that date, it was issued with a licence which, it is common ground, authorised it to do, or more accurately to contract to do, work of the kind required to be done under its contract with Elarosa. 10 By cl 3(1)(a) of the comprehensive scheme, protection under the scheme was "automatically provided for… insured building work the cost of which exceeds $1,000.00 and which requires a building approval under Part 11 of the Local Government Act 1919, if all the work is done by the holder of an appropriate licence". 11 The conditions - costs in excess of $1,000.00 and necessity for a building approval - were met in this case. The competing submissions 12 It is common ground that work done by Grocon from 17 April 1997 has the benefit of automatic protection under the comprehensive scheme. The parties were divided as to the consequences of this common ground. For the Owners Corporation, Mr Jackman of Senior Counsel (who appeared with Mr Justin Young of counsel) submitted that, because the contract was an entire contract, requiring Grocon to deliver a completed building, substantially free of defects, on practical completion, and to rectify defects 12 within months thereafter, the comprehensive scheme applied to all defects existing on completion or coming into existence thereafter (to the extent that they have not been rectified), regardless of the time when the particular work from which they arose was performed. 13 Ms Olsson of Senior Counsel, who appeared for FTAC, submitted that indemnity was limited to defects arising from work performed after 17 April 1997. FTAC's position, as enunciated in Ms Olsson's outline of submissions, was "[t]hat a substantial portion of the work was completed prior to the issue of the licence, and that portion contained the causes of many of the defects now alleged to be apparent". 14 In support of his submission that the contract was an entire contract, Mr Jackman referred to many of its provisions. It is not necessary to go to the detail of those provisions, because Ms Olsson accepted (correctly) that the contract was an entire contract. However, she submitted, the position as between Grocon and Elarosa (or, for that matter, the position as between Grocon and the Owners Corporation - the "beneficiary" under the comprehensive scheme) was irrelevant. 15 I should also note that it was suggested that at least some of the work done prior to 17 April 1997 was done by subcontractors who were themselves the holders of appropriate licences. Although that suggestion is likely to be well-founded in fact, there is no evidence that would enable me to make a finding as to what items of work done prior to 17 April 1997 were done by appropriately licensed subcontractors. It was however common ground that all work done by appropriately licensed subcontractors was "insured building work" for the purposes of the comprehensive scheme. Decision 16 The scheme applies to insured building work if that is done by the holder of an appropriate licence. If work is not done by the holder of an appropriate licence, it cannot be insured building work. Thus - and for present purposes I leave aside the question of work done by appropriately licensed subcontractors to Grocon - work done by Grocon prior to 17 April 1997 was not insured building work. It was not "contracted to be done… by the holder of an appropriate licence". 17 In my view, the words "contracted to be done… by the holder of an appropriate licence" connote a contract made for the performance of residential building work by a person who is then (when the contract is made) the holder of an appropriate licence. In this case, once the licence was issued, the continuing nature of the obligations under the contract meant that the remaining work was "contracted to be done… by the holder of an appropriate licence". But it does not follow that the issue of the licence operated, with retrospective effect, to turn what had not been insured building work into insured building work. 18 To the extent that the work done prior to 17 April 1997 was not insured building work, cl 3(1)(a) of the comprehensive scheme did not operate to extend to it the benefit of automatic comprehensive protection. 19 It follows that the first question should be answered: "Because Grocon was unlicensed from the commencement of building work up until 17 April 1997, residential building work done during that period was not insured building work for the purposes of the comprehensive scheme except to the extent that it was performed by subcontractors who were themselves the holders of appropriate licences." Second question: awareness

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The defects 20 To give some substance to this issue, I set out brief details of the agreed major structural defects (taken from the joint experts' report dated 11 July 2009, to which I refer in more detail at [88] below): Item Nos Defect description Joint experts opinions 3.1.3 Water penetration from bathrooms to adjoining habitable spaces Major Structural Defect This is a defect in a major functional element and severely impacts habitability therefore I consider it to be a Major Structural Defect. 3.15 Moisture penetration to structure most notable around windows Major Structural Defect This is a defect in a major functional element and severely impacts habitability therefore I consider it to be a Major Structural Defect. 3.17 Waterproof membranes/flashings incomplete to Forbes Street apartments. Major Structural Defect On 8 July the experts inspected water penetration into unit FT10 from the roof deck above; the experts agree this is a Major Structural Defect. To the knowledge of the experts this is the only remaining leak from the roof terraced of the Forbes street units. 3.23 Moisture penetration to car part walkway ceiling and female toilets associated with gym Major Structural Defect The experts agree that this is a Major Structural Defect as it allows water to enter habitable areas of a residential building. 3.28 Major Structural Defect 4.2.1 Severe moisture penetration to upper levels through construction joints adjacent swimming pool in the roof of the garage. The experts agree that this problem has now been almost completely rectified by the builder, however it originally did drip onto occupants in the car park and while the remnant problem is very minor it is still in our opinion a Major Structural Defect until it is full rectified. 4,2,4 3.29 Major Structural Defect 4.2.3 Various leaks through cracks and around beams and pipes at junctions to internal floor slabs. The experts agreed that this problem has now been almost completely rectified by the builder, however it originally did drip onto occupants in the car park and while the remnant problem is very minor it still in our opinion a Major Structural Defect until it is fully rectified. 4.2.4 3.30 Slopes to various garage floors inadequate causing some ponding of water. Major Structural Defect 4.2.5 This is considered to be a Major Structural Defect because the seepage water still sits on the garage floor and the sediment creates a slip hazard. The experts consider the problem is inadequate drainage along the walls to drain away the seepage water coming through the retaining walls. The contractor has installed drains and they appear to be adequate with the exception of the drainage grates. In the rectification, bathroom floor grates were used in these drains and these silt up very easily. Completion of the rectification simply requires the replacement of the bathroom grates with heavy duty external grade Fulgo grates or equivalent. There is also a maintenance obligation on the Owners Corporation as any solution will rely on regular hosing to prevent the drainage system clogging with silt. 3.31.1 Major Structural Defect 3.35 Moisture penetration into carwash areas The experts agree that a permanently wet area on a slab creates a slip hazard through the deposition of silt on the floor, and consider this to be a Major Structural Defect. 4.2.3 3.31.2 Moisture penetration through various exit stair walls and ponding at landings in notably in [sic] the North eastern fire stairs between level 1 and 2 Major Structural Defect 4.2.6 The experts agree that water standing in a stair well creates a slip hazard through the deposition of silt on the floor, and that such a hazard in a fire exist is considered to be a Major Structural Defect. To remedy the defect drainage needs to be installed and the bunds (water retaining mounds) need to be levelled out with a topping. The water problem on the walls is agreed as a General Defect.

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21 The "Item Nos" are those used in a series of inspection reports prepared by Tyrrells Building Consultancy or an associated company, Tyrrells Technical Services Australia Pty Ltd (Tyrrells) in 1999 (for Elarosa) and 2002 (for the Owners Corporation). I shall refer to the first of these as "the 1999 Tyrrells report "and to those (three in number) prepared in 2002 as "the 2002 Tyrrells reports". 22 From the same source, I set out the defects on which the experts disagreed (although I do not include their reasons for disagreement): 3.3 Unsatisfactory sound insulation to walls separating units. The experts disagree on classification The experts agree that a wall separating occupancy units is a major functional element. The disagreement is around the degree of impact that non compliance with the BCA [sic] a sound transmission limits has on habitability. Design related defect with respect to design The experts agree that the handrail as built does not comply with the BCA because of [sic] the gaps between the rails exceed the limits set by the code. Design drawings by Harry Seidler & Associates numbers GD130 (HZ.022.015.0087) and GD 406 (HZ.022.015.0092) show that the stair balustrades were designed as a three rail balustrade with (by inference) a 150mm gap between the lowest rail and the finished floor level on the landings (section (12 GD130). 3.13 Forbes Street Apartment Stairwells - stairs handrails are an open design and do not comply with the Building Code. The stairs as built comply with the design with the exception that a steel plate has been fixed at the bottom of the balustrade at the landings to reduce the gap from 300mm to 220mm. The experts disagree regarding the classification of the height reduction The height is in places up to 15mm lower than the designed height of 1000mm. The question of whether handrails slightly lower than the BCA limit are acceptable is ultimately a local government determination and an occupancy certificate should be requested to clarify compliance. The experts agree that if council provide an occupancy certificate it is No Defect. If council do not provide an occupancy certificate then the considerations are as follows. The handrail is a "substantial functional element" as it prevents occupants falling off the stair. The experts disagree on the classification of this item 3.19 Entry paving level with internal entries to Clapton Place apartments. The experts agree on the following The outer skin of the brickwork at the entry to the townhouses is continuous behind the glass semi-circular lobby wall, the drawings show no cavity break at this junction, refer drawing DG412 (HZ.022.015.0085). The experts during their inspection of the site on 8 July found that a damp proof course was inserted at the level of the inside floor[.] The garden beds, which are against the building rise up to 150mm above the damp proof course. This has caused damp to rise in the external walls as high as 1500mm and moisture to migrate laterally through the wall into the internal brick walls within the entry foyers. These entry lobbies have a 4 metre overhang at the location of the entry lobbies. The experts agree that there would be no damp problem if there were no garden bed built up against the wall. 3.34 Protective barriers omitted to various service pipework and fittings, particularly in carwash areas. The experts disagree on the classification of this item. The experts agree that services pipework in a garage should be protected. There is no protection in most cases. Since the barriers do not exist[.] The experts disagree on the classification of this defect 3.40 The experts agree on the damage and its cause 4.2.2.3 Swimming pool plant area. Pool room was not effectively waterproofed or drained This item relates to equipment room for the operation of a swimming pool and to chemical induced damage to the fabric of the walls and fitments. This is an equipment room used by pool cleaning contractors and building maintenance personnel and not frequented by occupants in their use of their dwellings. Significant damage has occurred to the walls, doorjambs and pipework due to contact with corrosive pool chemicals. A waterproof membrane has not been installed to protect the floor and base of the walls, and the drainage is unsatisfactory (floor sloped away from drain tanking water and chemicals against the unprotected walls). This has caused corrosion to the poolroom and stair doorjambs and fretting to masonry walls.

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23 It will be seen that almost all of the agreed major structural defects relate to water or moisture penetration either from within lots to adjoining habitable spaces (item 3.1.3) or through common property either into other common property or into lots (items 3.15, 3.17, 3.23, 3.28, 3.29, 3.31.1 and 3.31.2). The remaining major structural defect (item 3.30) relates to the ponding of moisture on portions of the garage floors, because the floors were not properly graded or drained. 24 The most significant of the defects in respect of which there was no agreement as to classification is item 3.3, relating to alleged inadequate soundproofing. (I use the word "significant" to indicate not the impact of the defect on life and limb, but the amount of controversy and debate that it has attracted. The other disagreed defects received virtually no attention in the course of the hearing; by contrast, defect item 3.3 was the subject of considerable evidence and submission.) 25 The other point to note about the defects and their incidence is that the defects tables are not based on a survey or inspection of the entire complex. Mr Jackman said, without objection, that the Horizon development comprised some 256 residences. The original inspection by Tyrrells (undertaken in September 1999) looked at about 24 residences: somewhat less than 10% of the total. In addition, the plant rooms, lift stair, hallways, main entry foyer and carpark walkway and carpark (all forming interior parts of the common property) were inspected. Parts of the exteriors of the tower block, the low rise apartments and adjacent areas and other exterior elements of common property were also inspected. I do not think that the subsequent inspections (undertaken in February and April 2002) looked at any additional residences, or at other elements of common property. In other words, and as one might expect, the further inspections involved a reinspection of what had been looked at in 1999, in an attempt to determine whether defects had been rectified (one of the 2002 reports was specifically concerned to compare the observations made in February 2002 with those made in September 1999) and whether any further defects had developed. 26 Having said all that, I think it is reasonable to infer that the property that was inspected in September 1999 (and, accordingly, reinspected in February or April 2002) comprised residences (lots) or elements of common property in respect of which there had been significant complaints of unrectified defects Clause 7 of the comprehensive scheme 27 The question of awareness is relevant because of the time limitation provided in cl 7 of the comprehensive scheme. So far as it is relevant, cl 7 provided as follows: 7.(1) Subject to subclause (2), to qualify for the benefits under this Scheme, the beneficiaries must notify the Corporation in writhing of the matters that could give rise to the losses referred to in clause 5 or 5A within the following times: … (b) for loss relating to heads of claim in clause 5 (1) (d) or (e) incurred in rectifying major structural defects or in repairing damage to the dwelling that has occurred in consequence of major structural defects -within 6 months after the beneficiary first becomes aware of the defect, but not later than 7 years from: (i) the commencement of insured building work which is not also insured owner-builder work; or (ii) the date of issue of the owner-builder permit for insured owner-builder work; (c) for loss relating to heads of claim in clause 5 (1) (d) or (e) other than those referred to in paragraph (b)- within 6 months after the beneficiary first becomes aware of the defect, but not later than 3 years from: (i) the commencement of insured building work which is not also insured owner-builder work; or (ii) the date of issue of the owner-builder permit for insured owner-builder work; or … (2) The Corporation may extend the times specified in subclause (1) if it is satisfied that the delay in notification was due to circumstances outside the control of the beneficiary. (3) If the Corporation exercises its discretion under subclause (2), it may assess the indemnity for the cost of: (a) completing incomplete work or rectifying defective work; or (b) supplying part of a kit home, the supplying of another kit home of the appropriate kind by another licensed supplier, or rectifying a defective kit home, on the basis of the reasonable market costs prevailing at the latest time the notification would have been required to be made in the absence of that discretion. 28 The Owners Corporation came into existence on 15 October 1998: the date of registration of the strata plan. For the purposes of defects in common property, it is a "beneficiary", because it is "the successor in title to the owner of the land [Elarosa] on which the residential building work was done" (see cl 4(1)(c) of the comprehensive scheme). It follows that the question of awareness is relevant only on and from 15 October 1998. The competing submissions 29 Mr Jackman focused on the proposition that the Owners Corporation was the "beneficiary" for the purposes of the comprehensive scheme. He submitted that, accordingly, the relevant question was as to the awareness of the Owners Corporation. For this purpose, Mr Jackman submitted, the relevant awareness was that of the Owners Corporation as an entity or of its executive committee, not of individual proprietors. 30 Mr Jackman noted that it was not until 27 May 2002 that the Owners Corporation, through the executive committee, received the 2002 Tyrrells reports, which were prepared on the instructions of the executive committee based on inspections undertaken in February and April 2002. He submitted that it was not until the executive committee had had an opportunity of reviewing those reports that its members, and through them the Owners Corporation became "aware", for the purposes of cl 7(1) of the comprehensive scheme, of the relevant defects. 31 Ms Olsson submitted that it was artificial to view the matter only in terms of the awareness of the executive committee gained through the 2002 Tyrrells reports. She submitted that the evidence showed a consistent pattern of complaints made by individual proprietors to the executive committee, the building manager or the strata scheme manager, from at least 1999 on. In those circumstances, she submitted, awareness was established at least from the time that a consistent pattern of complaints about defects emerged. She referred, in particular, to complaints about alleged inadequate acoustic insulation; complaints about water penetration (both from the exterior of the building into lots and within lots); and complaints of water penetration into elements of the common property, including the carparks. 32 Further, Ms Olsson submitted, the executive committee had received a copy of the 1999 Tyrrells report (which was based on inspections undertaken in September 1999), well before May 2002. The evidence 33 The Owners Corporation relied on affidavits sworn by Mr Richard Gration and Ms Lynn Molloy. Mr Gration bought his apartment in Horizon in August 2000. He still resides there. He became a member of the executive committee in 10 May 2001; secretary of the Owners Corporation on 11 December 2001; and chairman of the Owners Corporation on 16 December 2002. 34 Ms Molloy, who gave her occupation as "Architectural draftsperson / Interior designer" and who has "tertiary level qualifications in architecture and drafting", became a proprietor in April 1999. She bought her apartment from Elarosa. She sold, and moved out, in early 2006. Ms Molloy too became a member of the executive committee on 10 May 2001. Thereafter, she became a member of a subcommittee known as the "House Committee". She had particular responsibility for problems (or perceived problems) with acoustic insulation. It is not clear when Ms Molloy ceased to be a member of the executive committee; but it is apparent that she remained a member at all times material to the issue of awareness. 35 Mr Gration and Ms Molloy gave evidence which suggested that it was not until the 2002 Tyrells reports had been received and reviewed (in late May and early June 2002) that they became aware of the existence of defects relating to water penetration in the bathrooms and wet areas of some apartments. Ms Molloy suggested also that it was not until she saw those reports that she became aware "there was [sic] widespread issues with drummy balcony tiles" or that "corrosion of the sprinkler heads was a widespread issue". 36 Mr Gration and Ms Molloy were cross-examined at some length. Ms Olsson did not submit that they were lying. She did however submit that their evidence should be treated with caution. 37 To my observation, Ms Molloy sought to downplay what she knew prior to May 2002 as to the existence and significance of defects. On a number of occasions, attempted to avoid acknowledging the clear impact of evidence that she had given. For example, she was questioned about a memorandum that she wrote on 10 August 2001 to Mr Robert Beck. Mr Beck was the manager of The Peak Management Company Pty Limited (Peak), which had been appointed by Elarosa as the manager of the building. (Peak was not the strata managing agent appointed under s 27 of the Strata Schemes Management Act 1996 (the SSM Act)). In that memorandum, Ms Molloy (who, I repeat, was by then a member of the executive committee) raised with Mr Beck a number of defects including a leak in the swimming pool; shower or bathroom leaks in three specified apartments; leaks to the penthouse; other facade leaks and water penetration complaints; and water in the carpark. 38 At T73.21-.47 she acknowledged that she had raised these matters with Mr Beck in the memorandum. She was then asked whether she would accept that she was aware of numerous defects in both common property and individual apartments. Her reply was in my view evasive (T74.13-.24): Q. So in August 2001 you through your understanding of the issues going on in the building and whatever relationship you were able to have with Robert Beck were aware of numerous defects within both the common property and the individual apartments ranging over a number of types of building issues. Would you agree with that? A. This particular document is just a response to the monthly report that Robert Beck was putting out about things that were happening in the building and he was managing and we were just trying to get a handle or understand what was going on and who was repairing these things because for so long just general maintenance wasn't happening so it was just trying to get a handle on who was going to do these repairs and whether they were defects or not I don't know, I mean. 39 Ms Molloy was then asked whether Mr Beck provided reports to the executive committee dealing with defects or alleged defects. Again, in my view, she sought to downplay the significance of that and to evade the obvious impact of the questions that were put (T74.38-75.25): Q. Now, you said that Robert Beck provided monthly reports. To whom did he provide them? A. To the Executive each month.

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Q. Right. A. As I said yesterday, I know enough about acoustics that people's perceptions is one thing and what is actual isn't necessarily defective. 40 The apparent force of Ms Molloy's evidence in chief was in my view severely undermined by these and many other passages in her cross-examination. To take one example, based on the first passage that I extracted: her evidence in chief that I have referred to at [37] above is clearly undermined by her acknowledgment as to awareness of those matters reflected in her memorandum to Mr Beck of 10 August 2001. 41 Another matter to bear in mind, in assessing the evidence of Ms Molloy and Mr Gration, is that they became members of the executive committee through their adherence to a group of owners who called themselves the "Independent Group" or the "Horizon Independents". That group formed because its members perceived that the executive committee was not acting appropriately and responsively to a number of concerns raised by owners. The Group produced newsletters, the first of which (apparently prepared in April 2001) stated among other things: "All of us are aware that there are outstanding building issues. There is an obvious need for an independent assessment. The problems of water leakage and common walls that may not comply with council standards fall under the aegis of the executive committee. The lack of resolution in this area is negatively impacting the capital value of the building." 42 The newsletter gave biographical details of the Group's candidates for the executive committee, including Ms Molloy. She said among other things: "I am a partner in an architectural practice. I plan to use my expertise in the building industry and dealing with Councils to help address the noise, fire & safety issues." 43 Other candidates emphasised their desire to join the executive committee so as to cause it to address defects (actual or alleged). 44 In the second newsletter, again prepared prior to the annual general meeting on 10 May 2001 at which Mr Gration and Ms Molloy, among others, were elected, the following appeared: " Building standards There are some immediate issues that need resolution Outstanding building issues need to be addressed during the warranty periods. Noise, Fire & Safety standards would be verified with South Sydney Council. The Horizon Independents will ensure that the negative uncertainty surrounding outstanding building issues is dealt with directly and the issues rectified promptly." 45 Mr Gration, too, sought to suggest in his evidence that it was not until he received and considered the 2002 Tyrrells reports in late May or early June 2002 that he became aware of the full nature and extent of the defects affecting the building. That no doubt is literally true, given that those reports marked the first comprehensive survey of defects undertaken for the Owners Corporation. (In saying this, I have not lost sight of Ms Olsson's submission that the executive committee received the 1999 Tyrrells report at some earlier time, and thus became aware of the range of defects there addressed. However, both Mr Gration and Ms Molloy denied that they had seen the 1999 Tyrrells report before the executive committee received the 2002 Tyrrells reports. Notwithstanding my concerns as to some aspects of their evidence, I accept those denials. The evidentiary foundation on which Ms Olsson based her submission is not sufficiently persuasive to cast doubt on the denials; and in my view, if the executive committee had received the 1999 Tyrrells report in 1999 or (at some stage thereafter but before May 2002) it would have acted on it.) 46 Mr Gration sought to downplay what in my view was the obvious impact of documents that were put to him. For example, he was questioned about the Horizon Independents' first newsletter (to which I have referred at [41] above). He gave the following evidence (T29.29-.38): "Q. You were aware, from that newsletter, that there were issues concerning outstanding rectification relating to water penetration and common walls? A. When you say aware of issues, I was aware that owners were agitating or some owners were agitating that they considered that both those things needed to be looked at.

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Q. As a result of meetings with the group that produced the newsletter, were you aware that there were widespread complaints about water penetration within units? A. No, not widespread complaints. I was only aware of one or two individual owners who said they had had complaints. And as I understood from discussions with the group, some of those owners, in fact, had taken up the running directly with Grocon to see if they could negotiate repairs directly to their unit." 48 Once Mr Gration was elected to the executive committee, he was assigned particular responsibility to deal with legal issues. (Mr Gration is a lawyer. He was then an employed solicitor in, and subsequently a partner of, a well known Sydney law firm; and he is now a member of the independent Bar of this State.) 49 On 2 May 2001, South Sydney Council wrote to the strata managing agent. The letter referred to "a number of complaints from residents of the Horizon over the last 2 years concerning the acoustic performance of the party walls". It stated that council had commissioned a report from Arup Acoustics, and enclosed a copy of that report. It noted that the report "concludes that a number of the party walls assessed do not meet the sound insulation [sic] of the BCA [Building Code of Australia]." 50 Mr Gration agreed that the letter and report came to his attention as "a member of the executive committee" shortly after he was elected. However, in my view, he sought to downplay the impact of this (T34.6-.36): "Q. That gave rise to some concerns about the adequacy of sound proofing within the building, did it not? A. It did. In fact I guess to give a completely accurate answer it came to my attention I think initially prior to becoming a member of the executive committee. From memory the South Sydney Council letter was a few days before the AGM in May 2001 and that was one of the hot issues that was being hotly discussed at the Annual General Meeting in 2001 and so as the new committee took over that was one of the first priorities we had, was to look into this allegation by South Sydney that there were deficiencies in the acoustics.

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(2) the Owners Corporation, through the executive committee, was aware of defects in relation to internal and external moisture penetration, moisture ponding and the other matters referred to in Ms Molloy's memorandum to Mr Beck of 10 August 2001 by no later than that date. In this context, I note that Ms Molloy wrote the memorandum not in some private capacity (if that makes any difference) but in her capacity as a member of the House Committee formed as a subcommittee of the executive committee. 58 As I said at [45] above, I do not accept that the Owners Corporation became aware of the terms of the 1999 Tyrrells report in 1999, 2000 or 2001. Equally, I do not accept that it was not until the executive committee received and considered the 2002 Tyrrells reports in late May or early June 2002 that it became relevantly aware of all the defects listed in those reports. 59 The language of the comprehensive scheme is not particularly clear. Clause 7(1)(b), (c) speaks of a period "within six months after the beneficiary first becomes aware of the defect". However, by the introductory words of cl 7(1), what is required is notification "of the matters that could give rise to the losses referred to in cl 5…": that is to say, relevantly, "losses in rectifying defects in insured building work due to" the specified causes (cl 5(1)(d)). It follows, in my view, that awareness of a widespread problem with (for example) moisture penetration will attract the obligation to notify because it is, obviously enough, something "that could give rise to" a claim for faulty workmanship or materials or the like. It is not necessary that the precise nature or cause of the defect be known before the obligation to notify arises. 60 Burchett AJ considered the obligation to notify in Fair Trading Administration Corporation v Owners Corporation SP 43551 [2002] NSWSC 624. His Honour observed that the requirement was to notify "the matters that could give rise to the losses" and that the obligation arose "within six month after the beneficiary first [became] aware of the defect". This, his Honour said, suggested that "what must be notified is… matters that could give rise to the losses", not "the actual defects that, in a precise sense, are the causes of those matters." Thus, his Honour said, "[a] degree of imprecision in a notice seems to be contemplated by a provision so framed". 61 In McCallum Developments Pty Ltd v The Owners Corporation SP 53908 [2002] NSWSC 1103, Studdert J said at [44] that, taking into account the beneficial nature of the scheme, time would not necessarily start to run until the builder asserted that the building work was complete and that it was not going to attend to any further defect rectification. Although I think that his Honour's view is more relevant to the fourth question, it does indicate that awareness gained during the defect rectification period (which lasted up until 28 August 1999) may not be relevant. 62 So far, I have addressed the principal defects that are either agreed, or alleged, to be major structural defects (with the exception of item 3.13). They are, in general terms, defects relating to moisture penetration, leakage or ponding, and acoustic insulation or separation. The evidence as to awareness did not address in great detail all of the other defects. 63 Those other defects include, as I have noted, one alleged (but not agreed) to be a major structural defect: item 3.13. They also include a number of other, not major structural, defects. Some of those defects in the latter category (which for convenience I will call general defects) are referred to in Ms Molloy's memorandum to Mr Beck of 10 August 2001. It follows from what I have said that the Owners Corporation, through the executive committee at least, was aware of the general defects identified by Ms Molloy in that memorandum by 10 August 2001. 64 To the extent that there are general defects identified in the 2002 Tyrrells reports that were not referred to in Ms Molloy's memorandum to Mr Beck (and I think that this is the case, although the parties did not address me on the point and I have not undertaken a line by line comparison of the documents in question), the evidence is silent. It follows that, in the absence of any other evidence, I should conclude that there was no relevant awareness of those general defects until the 2002 Tyrrells reports were received. For convenience, and since a few days either way have no impact on the remaining issues, I propose to treat this in a somewhat arbitrary fashion as awareness by 31 May 2002. 65 For those reasons, the second question should be answered as follows: "The Owners Corporation became aware of: (1) matters that could give rise to the defect or alleged defect relating to acoustic insulation or noise penetration between apartments, by no later than mid May 2001; (2) matters that could give rise to the agreed major structural defects identified in the joint experts' report, by no later than 10 August 2001; (3) matters that could give rise to such of the non-major structural defects as are identified in Ms Molloy's memorandum of 10 August 2001 to Mr Beck, by no later than 10 August 2001; and (4) matters that could give rise to any other major structural defect and the remaining non-major structural defects, by no later than 31 May 2002. Third question: date of commencement

[33]

The statutory definition 66 I have set out cl 7 of the scheme, so far as it is relevant, at [27] above. The concept of "the commencement of insured building work" is relevant to the ultimate time limits of seven years (major structural defects) and three years (other defects). 67 Clause 32 of the Regulation dealt with the time of commencement of work. It read as follows: 32.(1) For the purposes of section 90 of the Act, residential building work is to be taken to have commenced when the footings of the structure were placed or, if no footings are involved in the work, when the work substantially commenced. (2) In the absence of evidence satisfactory to the Corporation, the Corporation may determine when footings were placed and when work substantially commenced. The competing submissions 68 Mr Jackman submitted that the footings were placed on about 25 October 1996. He relied on a number of field test sheets bearing that date, setting out the results of tests carried out on site on various loads of concrete delivered, according to the documents, for "core footings" located at the "upper level" of the project. It appeared to be common ground that no earlier test sheets were now available. 69 Mr Jackman submitted, in the alternative, that if the fact that Grocon was unlicensed until 17 April 1997 meant that work done before that date was not insured building work, then the date of commencement of insured building work must be 17 April 1997. 70 Ms Olsson submitted that at least some footings were placed no later than 30 September 1996. She relied on Grocon's progress claim number 1 for the period ending "Sep 1996". That progress claim sought payment for, among other things, "Concrete in pads (6 No)" and "Reinforcement to pads (6 No)." Ms Olsson submitted that this document should be accepted as proving that at least some footings had been placed by the end of September 1996. However, Ms Olsson submitted, there was evidence that they had been placed earlier. That evidence consisted of a construction program said to have been revised on 26 September 1996, which showed the pouring of pad footings as commencing on 19 September 1996.

[34]

Decision 71 I do not regard the program on which Ms Olsson relied as being particularly significant. On its face, it is a revision of a program prepared at some earlier date. There is no evidence that it was revised so that it represents work "as built" up until 26 September 1996. 72 However, in my view, progress claim number 1 does show that pad footings had been placed by the end of September 1996. There is no reason to think that the claim was a bogus one or that in it Grocon claimed for work that had not been done. 73 I do not think that the field test sheets require any different conclusion. Each of them relates to core footings at the "upper level". There was no evidence to show what or where this level was, or where the pad footings apparently completed by 30 September 1996 were located. (The reference to "upper levels" may perhaps suggest that the core footings in question were not the lowest, or first, footings to be placed.) Nor was there evidence of the sequencing or relationship, in a structural sense, between the pad footings and the core footings. 74 Neither Mr Jackman nor Ms Olsson submitted that the words "when the footings of the structure were placed" in cl 32(1) referred to "all of the footings". Indeed, given the clause is intended to fix the time of commencement of work, there is no reason why it should refer to all, rather than some, of the footings. 75 Thus, I conclude, the work (leaving aside the question of whether or not it was insured building work) should be taken to have commenced no later than 30 September 1996. There is nothing in the evidence to enable me to fix an earlier date. The program on which Ms Olsson relied suggests that, if there were no slippage, work on forming up the pad footings should have started on 19 September 1996. In my view, with no knowledge of what delays (if any) had affected this part of the work, I cannot conclude that the pad footings were placed on any particular day thereafter. All that can be said with a degree of confidence (based on progress claim number 1) is that they were placed by 30 September 1996. 76 There is in evidence a progress report number 1 prepared by Grocon. Its purpose is to show the state of work as at 31 October 1996. It is of little assistance. It says that, as at that date: "[a]ll of the strip footings and Column pads (with the exception of C4) have been poured, as has the lift Pit/base to Ground Level". 77 That document is consistent with the position for which each party contended, and does not assist in a resolution of the dispute. 78 If Grocon had held an appropriate licence at all material times from September 1996 until 17 April 1997, the answer to the second question would be: "No later than 30 September 1996; the evidence does not permit a more precise answer to be given." 79 However, Grocon was not the holder of an appropriate licence before 17 April 1997, and I have concluded that work done by it under the contract up until that date was not insured building work. It follows necessarily that, so far as Grocon is concerned (putting aside work done by appropriately licensed subcontractors), and for the purposes of cl 7 of the comprehensive scheme, the date of commencement of insured building work was 17 April 1997. The footings had been placed about 6 or 7 months earlier. However, I do not regard cl 32 of the Regulation as setting an exclusive test of commencement. It provides a test for when "residential building work is to be taken to have commenced". It should not be read as precluding proof of commencement other than by reference to the placement of footings. If cl 32 were to be regarded as exclusive, it would have the extremely odd consequence that, in this case, the work never commenced for the purposes of cl 7 of the comprehensive scheme, even though (as is common ground) some of the work is covered by that scheme. 80 In dealing with the first question, I referred (at [15]) to the likelihood that at least some of the work had been done by appropriately licensed subcontractors, and (at [19]) to the impact of this. It is possible that the third question also is affected by the possibility that at least some of the work was done by appropriately licensed subcontractors. The evidence did not in any way touch on this; nor did the parties' submissions. That possibility is unlikely to have any real impact. That is because:

[47]

(5) the remaining defects (by my count, 16) were defects other than major structural defects. 89 It was common ground that I need not attempt to resolve the dispute between the experts as to the classification (i.e., as major structural or other) of the five defects in respect of which they remained in disagreement. The parties did not suggest that a resolution of that dispute would have any bearing on the question of whether, to the extent necessary, the time for notification should be extended. The competing submissions 90 Mr Jackman focused his attention on the actions undertaken by the executive committee after it received the 2002 Tyrrells reports in late May 2002. That approach was effectively dictated by his submission that awareness did not arise until those reports had been received and considered. Mr Jackman submitted that, in taking the various steps disclosed by the evidence, the executive committee acted diligently, reasonably and promptly. 91 In particular, Mr Jackman referred to the retainer of an independent law firm to advise, and to advice said to have been given by a partner in that firm. In effect, that advice was said to have been that no notification should be given to FTAC until such times as the Owners Corporation had exhausted whatever means were available to it to get Grocon to act on the remaining defects. Mr Jackman submitted that it was not unreasonable for the executive committee to act on that advice; indeed, he submitted, it would have been unreasonable for it to have done otherwise. Mr Jackman submitted that, if the "correct" advice had been given, and FTAC had been notified, this could and would have occurred within six months of receipt of the 2002 Tyrrells reports. 92 Ms Olsson's submissions were based on her proposition that awareness accrued at a point in time much earlier than late May 2002. To the extent that she focused on awareness prior to May or August 2001, her submissions can be put to one side given my findings as to the dates of awareness. However, Ms Olsson submitted, given that the executive committee (through Mr Gration) was aware of the existence and terms of the comprehensive scheme, there was no reason for it not to have notified FTAC within six months of the date of awareness. 93 Ms Olsson submitted that, as there was no explanation of the delay in notification for any period prior to late May 2002, no basis had been shown for extending time under cl 7(2) of the comprehensive scheme. Decision 94 An extension of time can be given if FTAC is satisfied that the failure to notify within time is "due to circumstances outside the control of the beneficiary". Thus, if the Court (acting, as the parties agreed it did, as the "merits" decision-maker in place of FTAC) is not satisfied that any of the relevant delays was due to circumstances outside the control of the Owners Corporation, there is no basis for an extension of time. 95 As I have said, once Mr Gration became a member of the executive committee, he assumed responsibility for investigating the legal position relating to insurance, including statutory insurance (T33.18-.21, .33-.42) Q. Now I think that as a result of that meeting there was a division of labour about how some aspects of rectification or maintenance of the building might be divided up, is that right? A. Between committee members?

[50]

Q. And you did that? A. I did." 96 Mr Gration spoke to a Ms Hackett or Ms Ledge of the then Department of Fair Trading (DFT). He then drafted a letter for the strata managing agent to send to the DFT, and this was done. In late August 2001, Mr Gration had a telephone conversation with Mr Elliott of DFT in the course of which Mr Elliott said, among other things, words to the effect that if the contract for the work had been signed prior to 1 May 1997, the comprehensive scheme would apply. Mr Elliott swore an affidavit on which FTAC relied. He did not challenge Mr Gration's account of the conversation. 97 On 28 August 2001 Mr Elliott wrote to Mr Gration confirming that if the contract had been made on 23 October 1996 then the work would be covered by the comprehensive scheme. That advice was confirmed by a letter from the Director-General of DFT dated (I think - the copy is less than clear) 4 September 2001. 98 As part of his investigations, Mr Gration prepared a report for the executive committee in June 2001. That report analysed, among other things, the elements of the comprehensive scheme and concluded that since the contract for the work was dated 23 October 1996, "it would appear that the Horizon residential building work should have been covered under the old BSC scheme". 99 In that report Mr Gration stated, among other things, the following: 7. The following time limits for making a claim must be strictly observed: (a) where the claim relates to a defect or repairs where there are major structural defects: six months of becoming aware of the defect, but in any event, within seven years; (b) where the claim relates to a defect or repairs where there are no major structural defects: six months of becoming aware of the defect, but in any event, within three years; and (c) in any other case, one year of the contract date, the date work under the contract was to commence, or the date work on the project ceased, whichever is the later: clause 7 Form 4 Schedule 1, Building Services Corporation regulation 1990 (NSW). 8. In practice, payments under the insurance schemes in respect of defective work are not usually made until the following steps have been followed: (a) the builder or the tradesman has been informed in writing by the complainant of the defects and the defects have not been rectified or resolved within 30 days of notification having been received by the builder or tradesman: section 57; (b) a complaint from alleging defective work by the builder or tradesman has been lodged within the statutory time limits with the Corporation: section 55; (c) the builder or tradesman has failed or neglected to rectify or complete the defective building work: section 58; (d) an insurance claim form annexing three itemised quotations from currently licensed builders or tradesmen as to the cost of rectifying the works plus other supporting documents have been lodged with and approved by the Corporation; and (e) an independent builder or tradesman has completed the rectification works to the Corporation's satisfaction. In larger works, progress payments are made to the rectifying builder or tradesman. 9. On payment of the claim the Corporation becomes entitled to sue the builder or tradesman to recover the amount paid: section 98. 100 Mr Gration said in evidence that he had looked at a book, Strata Schemes and Community Schemes Management and the Law, by Mr Alex Ilkin (LBC Information Services, 3rd Edition, 1998). It is apparent, as Mr Gration acknowledged, that paragraph 7 and 8 of his memorandum were lifted directly from passages at pages 297 and 298 of Mr Ilkin's book. 101 Mr Gration's memorandum concluded with the following recommendations: 20. The Executive Committee should write to the FTAC asking for urgent clarification as to why the premium paid by Grocon Pty Limited was refunded and the basis for claiming that the building work was subject to the new HBA provisions. 21. Due to the time limits for making a claim under the BSC insurance scheme, the Owners Corporation should immediately notify Grocon Pty Limited of the defects claimed by SSCC in their letter of 2 May 2001 based on Ove Arup's report. 22. If no satisfactory response is received from Grocon within 30 days, a claim should be lodged with the FTAC to ensure that the six-month time limit is not exceeded. 102 Mr Jackman referred to what he said was an error in both the memorandum and Mr Ilkin's book: namely, the proposition that the six month period applied to making a claim, not to notification. The technical error may be acknowledged. I do not think that it goes anywhere given that Mr Gration's recommendation displayed a keen awareness of the need for action to be taken within the statutory time limit. (It also confirms, contrary to Mr Gration's evidence and Mr Jackman's submission, that the executive committee had a sufficient awareness of circumstances that could give rise to the (alleged) acoustic insulation defect; there was otherwise no reason to think that the six month period had begun to run). 103 Once Mr Gration's view, that the comprehensive scheme applied, was confirmed by the DFT, he and the executive committee must have been aware that it was incumbent on them to act within six months in respect of defects of which they were aware. (As I have said, it does not seem to me to matter whether the appropriate action was the giving of notification or the making of a claim.) They were aware, by the time Mr Gration's memorandum was received and considered, that time was running in respect of the (alleged) acoustic defects. Equally, in my view, they must be taken to have been aware, no later than 10 August 2001, of the need to act within six months in respect of the other defects listed in Ms Molloy's memorandum to Mr Beck of that date. 104 The executive committee did not take any step to notify during 2001 or the first half of 2002. On the contrary, no notification was given until 22 September 2003. Even if it be accepted that the delay in notification after receipt and consideration of the 2002 Tyrrells reports could be explained by the apparently incorrect advice given by the external lawyers (and I will return to this), that provides no explanation at all of the failure to notify after June or August 2001. Even if the incorrect legal advice given after May 2002 could be said to have been a circumstance beyond the control of the Owners Corporation (and again, I will return to this) it cannot have any operative effect for the periods of six months from mid May and 10 August 2001. 105 It follows that the Owners Corporation has failed to discharge the onus of showing that the failure to notify within six months of first awareness (in relation to the defects of which it became aware by no later than mid May and 10 August 2001) was due to circumstances outside its control. 106 I turn to the remaining defects: item 3.13, and general defects identified and agreed by the experts in their joint report, other than those general defects of which awareness is shown through Ms Molloy's memorandum to Mr Beck of 10 August 2001. For the reasons that I gave in answering the second question, the relevant time frame for the purpose of assessing the merits of the claimed extension of time, is from 31 May 2002 until the date of notification, 23 September 2003. For this class of defects, there are two considerations:

[52]

(2) the failure to notify within three years of commencement of insured building work (or, perhaps, seven years in respect of item 3.13). 107 It seems to me that if the first extension of time ought be granted, it would hardly be just to deny the second, in circumstances where (by hypothesis) no awareness of the obligation to notify could have arisen until the 2002 Tyrrells reports were received. In this context, I note that Ms Olsson did not criticise the time that it took for those reports to be procured and considered. 108 Mr Gration said that he completed his review of the 2002 Tyrrells reports in late May or early June 2002. He said also that copies of the reports were given to the new building manager, MAM. MAM had been appointed as building manager, in Peak's place, in January 2002. MAM provided a series of emails dealing with its review. 109 The 2002 Tyrrells reports, and the review by MAM, were considered at the monthly meeting of the executive committee held on 24 June 2002. The committee resolved to execute repairs of urgent defects, and to seek legal advice. Some four law firms expressed interest in acting for the Owners Corporation. On 26 August 2002 the executive committee resolved to appoint one of them, Holding Redlich, "to manage the claim under the [comprehensive scheme] in respect of the construction defects". Thereafter, representatives of MAM met with Holding Redlich and provided a "brief" to that firm. 110 Mr Gration said that he, the then chairman of the Owners Corporation Mr Ewan Samway, and Mr Tony Marco of MAM, met Mr Justin Orsborn of Holding Redlich on 18 November 2002. According to Mr Gration, Mr Orsborn said words to this effect at that meeting: "We will need to determine whether the defects identified by Tyrrells are construction defects or design defects, as design defects cannot be claimed under the comprehensive insurance scheme. To do this we will need to get hold of the construction documentation, which we have been trying to do from Peak, WT Partnership and so on, so far without success. If the defects are construction defects we will need to first give Grocon an opportunity to repair them before we can make a claim on the comprehensive insurance scheme." 111 Mr Gration said that:

The Owners - Strata Plan 58068 v Fair Trading Administration Corporation

At a glance

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Judgment (86 paragraphs)

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Cases Cited (2)

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