By an amended notice of motion dated 28 March 2024, the cross-claimant in respect of the third cross-claim, Frasers Central Park Land No 1 Pty Ltd (Frasers), seeks orders the effect of which would be to permit it to rely on a cross‑summons and cross‑claim list statement which were filed without leave on 24 July 2023 and served on 18 January 2024.
[2]
Background
The proceedings were commenced on 19 December 2019 by the owners corporation of a residential strata development in Chippendale against the builder, Watpac Construction (NSW) Pty Ltd (Watpac), which is the first defendant, and Frasers, which was the developer of the development and is the second defendant and the cross‑claimant, seeking damages for breaches of the warranties implied by Part 2C of the Home Building Act 1989 (NSW) (the HBA) arising from defects said to exist in the common property of the strata development.
On 24 July 2020, Watpac filed cross‑claims against some of its sub‑contractors including Johnson Pilton Walker Pty Limited (JPW), the architects for the project, and Advanced Property Solutions (NSW & ACT) Pty Ltd (formerly known as Triple M Mechanical Service Pty Ltd) (BSA), which provided design and construction work for the mechanical services.
An interim occupation certificate was issued in respect of the project on 26 July 2013 with the result that the 10-year limitation period for civil actions for loss or damage arising out of or in connection with defective building work imposed by ss 6.10 and 6.20 of the Environmental Planning and Assessment Act 1979 (NSW) expired on 26 July 2023.
On 24 July 2023, two days before the expiration of the limitation period, Frasers filed the cross‑summons and cross‑claim that are the subject of this application. As I have said, it did not serve those documents until 18 January 2024. The cross‑claim names JPW and BSA as cross‑defendants. BSA opposes the application. JPW neither consents nor opposes the application and did not appear at the hearing of the amended notice of motion.
On any view, the approach taken by Frasers was unorthodox. The proceedings were commenced and continued in a list case managed by a Judge. Under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 9.1(1) a party may make a cross‑claim in proceedings commenced by summons (as all proceedings in this list are) before the return date specified by the summons or within such further time as the Court may allow. It follows that a party may not make a cross-claim after the return date specified in the summons without the leave of the Court.
The requirement of leave provides a mechanism by which the Court keeps control of the scope and preparation of proceedings before it with the object, consistently with ss 56 to 60 of the Civil Procedure Act 2005 (NSW) (CPA), of achieving a just, quick and cheap resolution of the real issues in the proceedings. Normally, particularly in substantial building cases as this case is, the Court will, as a matter of course early in the proceedings, give a party general leave to bring cross-claims out of time. However, as the case progresses, it is not normal to give general leave because of the disruption and possible prejudice further cross‑claims may cause. At the very least, they are likely to involve delays in setting the matter down for hearing. Instead, a party is expected to make an application for specific leave supported by an affidavit which explains the delay in bringing the cross‑claim and which will often attach a draft of the proposed cross‑claim, so that the Court can be satisfied that there is a proper basis for the cross-claim. At the time leave is granted, the Court will normally make the cross‑claim returnable at the next directions hearing and give directions for its service, again for the purpose of minimising any disruption or prejudice that the bringing of the cross-claim late may cause.
The fact that a limitation period is about to expire or that the proposed cross-defendant may itself be unable to bring cross-claims because of the imminent expiry of a limitation period is not generally of itself a reason for refusing leave to file a cross-claim. The reason for that is that generally it will be open to the cross claimant to bring separate proceedings against the proposed cross defendant as an alternative to the cross-claim. The imminent expiry of a limitation period will be irrelevant to whether separate proceedings can be commenced and continued. Or to put the point slightly differently, when the court is faced with an application to file a cross-claim, the decision for the court will usually be whether to permit the claim to proceed by way of cross-claim or to leave the claimant to commence separate proceedings. Consequently, the issue before the Court will not be whether the claimant may commence the proceedings, but how it may do so. If the claimant is free to commence separate proceedings in any event, the effect of the delay on the defendant will not generally provide a good reason for refusing leave to commence the proceedings by way of cross-claim. Rather, the question whether the proceedings may be commenced by way of cross-claim will generally depend on the effect of the cross-claim on the existing proceedings. In this respect, the position in relation to cross-claims is different from the position in relation to amendments or applications to extend the time in which proceedings may be served. The fact that the defendant or cross defendant has lost the opportunity to bring a cross-claim arising out of a late amendment provides a strong reason for refusing leave to make the amendment: see, for example, National Australia Bank v Sayed (No 6) [2016] NSWSC 1253; Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2015] FCA 1098. Similarly, the fact that a defendant has lost the opportunity to bring a cross-claim because of the delay in serving the proceedings may provide a strong reason for setting aside orders granting an extension of time in which the proceedings may be served: see Hastie Group Ltd (in liq) v Moore [2016] NSWSC 1682.
It against that background that the present application must be judged. Obviously, however, the course followed by Frasers falls short of what might have been expected of proceedings case managed in this list.
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Frasers' submissions
Section 63 of the CPA provides:
Directions with respect to procedural irregularities
(1) This section applies to proceedings in connection with which there is, by reason of anything done or omitted to be done, a failure to comply with any requirement of this Act or of rules of court, whether in respect of time, place, manner, form or content or in any other respect.
(2) Such a failure -
(a) is to be treated as an irregularity, and
(b) subject to subsection (3), does not invalidate the proceedings, any step taken in the proceedings or any document, judgment or order in the proceedings.
(3) The court may do either or both of the following in respect of proceedings the subject of a failure referred to in subsection (1) -
(a) it may, by order, set aside the proceedings, any step taken in the proceedings or any document, judgment or order in the proceedings, either wholly or in part,
(b) it may exercise its powers to allow amendments and to make orders dealing with the proceedings generally.
(4) The court may not take action of the kind referred to in subsection (3) (a) on the application of any party unless the application is made within a reasonable time and, in any case, before the party takes any fresh step in the proceedings after becoming aware of the failure.
Frasers submits that as a consequence of this section, the onus is on BSA to establish that an order should be made under s 63(3)(a). Absent such an order, the proceedings continue unaffected by the irregularity. It also submits that the Court would only make an order under s 63(3)(a) if BSA could establish that it has been prejudiced by the irregularity. BSA points to two types of prejudice. First, it says that it sold part of its business in February 2023 with the result that it no longer has access to employees and records that may be relevant to its defence. Second, it submits that by reason of the expiration of the limitation period, it has lost the opportunity to bring cross‑claims.
Frasers takes issues with both types of prejudice. As to the first, it submits that the business was sold before the cross‑claim was filed, so BSA suffered no prejudice as a consequence of Frasers failure to seek an order pursuant to UCPR r 9.1. As to the second, again the relevant failure was a failure to seek an order under UCPR r 9.1(1). Had the order been sought at the time, BSA would still be in the same position. According to Frasers, it is not uncommon for parties to file cross‑claims at or about the last day of a limitation period (as was the case here). Any prejudice arises from that permissible conduct, not from the failure to seek an order under UCPR r 9.1(1) at the time.
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Consideration
In my opinion, Frasers mischaracterises the enquiry required of s 63 of the CPA. As it points out, the significance of s 63 is that it does away with the old distinction between nullities and irregularities: see Bobolas v Waverley Council [2016] 92 NSWLR 406; [2016] NSWCA 139 at [108]-[110] per McColl JA (with whom Simpson JA and Sackville AJA agreed). The consequence of classifying a failure as a nullity was that it deprived the Court of power to relieve the relevant party from the consequences of the failure. Section 63 permits the Court to relieve a party of the consequences of any failure to comply with the CPA or UCPR, but it does not place limits on the Court's power except the limit contained in s 63(4). Nor does it enable a party to avoid the need to seek relief from the Court from a failure to comply with the CPA or UCPR.
In the present circumstances, Frasers' failure raises two questions. The first is whether had it applied for leave to bring its cross‑claim out of time, it would have obtained that leave. The effect of s 63 of the CPA cannot be to put Frasers in a better position than it would have been if it had complied with UCPR r 9.1(1). The second question is whether, assuming it would have obtained leave, it should be prevented from pursuing the cross‑claim because of its failure to obtain that leave at the time the cross-claim was filed. There is no suggestion that s 63(4) of the CPA has any application in this case.
Relevant to the question whether leave would have been given is the length of the delay and the reasons for it, the effect of the delay on the conduct of the proceedings and whether any prejudice is occasioned by the delay. As is apparent from what I have said, in considering the question of prejudice, the Court is principally concerned with the prejudice that the cross-claim will cause the existing parties to the proceedings and the prejudice that the cross-defendant may suffer as a consequence of having the claim against it dealt with as an aspect of broader proceedings. The commencement of proceedings shortly before the expiration of a limitation period itself is unlikely to give rise to relevant prejudice, since that was an option that was always available to Frasers.
Frasers position is that BSA (and JPW) were already parties to the proceedings (having been joined by Watpac) and the same defects are the subject of both the claim brought by Watpac and the claim brought by Frasers. The proceedings have not been set down for hearing. None of the other parties has objected to the cross-claim. The reason that Frasers did not seek to join BSA and JPW before the time it did was that the parties were in settlement negotiations and Frasers hoped to avoid the costs of a cross‑claim. It was only when it became apparent that the proceedings were unlikely to settle and the limitation period was about to expire that Frasers served the cross‑claim. Frasers submits, and there is no reason to doubt, that had it appreciated that leave to file the cross-claim was required, it would have applied for that leave in time to obtain it before the expiration of the limitation period - or, presumably if it had not been obtained, in time to commence separate proceedings against BSA.
According to Frasers, it follows that the cross-claim will not have a significant effect on the conduct of the proceedings and it has given a reasonable explanation for the delay.
Frasers accepts that BSA has lost the opportunity to bring cross‑claims against its own sub‑contractors. However, BSA would have lost that opportunity if Frasers had commenced separate proceedings. In any event, Frasers submits that the prospects of a cross-claim were remote. BSA did not bring any cross‑claims following the claim by Watpac. There is no reason to think that it would have adopted a different position in relation to the claim by Frasers. The total amount claimed by the owners corporation is in the order of $4,000,000. The total value of those items for which BSA may have some responsibility is in the order $500,000. Some of those relate to minor items where a cross‑claim against the relevant sub‑contractor would be uneconomic. The two largest items are $190,650, which relates to ineffective air conditioning, and $152,280, which relates to the installation of relief openings above entry doors which, depending on the airflow direction, allows contaminated air from the corridors to enter the apartments. Even those, it is said, are unlikely to have justified cross‑claims.
I accept Frasers' submissions. Although there has been serious delay in bringing the cross claim, because of the slow progress of the main proceeding and other cross-claims and because the cross-claim concerns the same defects as the cross-claim by Watpac, the delay in bringing the cross-claim is unlikely to add significantly to the delay in the proceedings generally. That explains why none of the other parties objects to the cross-claim. Although the explanation for the delay is unsatisfactory, the delay appears to have arisen from a misapprehension of the proper way to conduct proceedings in this list and a failure to appreciate that leave to file the cross-claim was required, rather than dilatory conduct on the part of Frasers.
The real debate between the parties is whether BSA has been prejudiced by the delay. As I have explained, little weight can be attached to the imminent expiration of the limitation period at the time the cross-claim was filed, since it was open to Frasers to commence separate proceedings at that time, which would not have required leave. Moreover, there is considerable force in Frasers' submission that any further cross-claims would have been unlikely if the cross-claim had been brought within a reasonable time after proceedings were commenced, since BSA did not bring any cross-claims following the cross-claim brought by Watpac. It is true that the cross-claim by Watpac is different from the cross-claim by Frasers. But both concern the same defects, and it is unclear why it is said that the nature of the cross-claim against BSA would affect further cross-claims by it.
Similarly, the fact that witnesses that might have been called by BSA are no longer available is unlikely to have affected the question of leave, since it was open to Frasers to commence fresh proceedings at the time it filed its cross-claim.
For those reasons, in my opinion, Frasers would have obtained leave to file its cross-claim if it had applied for that leave shortly before the cross-claim was filed.
There was further delay between the time that the cross-claim was filed and the time that Frasers applied for an order under s 63 of the CPA curing the irregularity. During most of that time, BSA was unaware of the cross-claim. However, I do not think that that additional delay provides a sufficient basis for making an order under s 63(3)(a) setting aside the cross-claim. I accept that any delay is likely to cause a degree of prejudice: see Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709 at [276] per Ward CJ in Eq. However, the delay is unlikely to have a significant effect on the proceedings. The proceedings have still not been set down for hearing and the allocation of a hearing date is unlikely to be affected substantially if the cross-claim is permitted to proceed. As I have said, none of the other parties, including the plaintiff, object to the leave being given. Most of the prejudice that BSA will suffer arises from events that occurred before the cross-claim was filed and at a time when Frasers was free to commence separate proceedings against BSA if leave to file the cross-claim was refused. Moreover, BSA has been a party to the proceedings for several years and the claims it faces as a result of the cross-claim relate to the same defects that are already the subject of a claim against it. This is not a case where, as a consequence of the cross-claim, Frasers for the first time is required to address the alleged defects with its work. On balance, I do not think that any prejudice caused by the delay outweighs the consequences for Frasers if it is not permitted to pursue the cross-claim.
BSA points out that there are difficulties in the pleading of the cross-claim, which may mean that it will want to bring a strikeout application. The cross‑claim brought by Frasers seeks to plead two causes of action against BSA. One is that BSA breached its duty of care under Part 4 of the Design and Building Practitioners Act 2020 (NSW) (DBPA). The other is BSA engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL) by executing a mechanical services warranty deed on or around 2 April 2015 and issuing a building component certification on or around 25 July 2015. The mechanical services warranty deed contained the following representation:
All work performed and all materials or parts supplied by the Mechanical Services Subcontractor shall be in accordance with the quality and/or a standard not lower than the quality and/or standard stipulated by the building contract entered into by the Builder and the Principal and to the extent that that quality and/standard [sic] is not so stipulated, shall be of good workmanship and materials and of merchantable quality and be fit for purpose or purposes for which the same are required.
The building component certification contained the following representation:
Generally all building work has been designed (where applicable) and installed in accordance with the provisions of the Building Code of Australia, Australian Standards and Alternative Solution Reports.
I accept that there are difficulties with both those claims. The claim based on the DBPA does not identify how it is said that BSA was negligent in respect of the defects for which it is said to be responsible. In relation to the claim based on misleading and deceptive conduct, it is alleged that if the conduct had not occurred, Frasers would not have sought or permitted the registration of strata plan 88565 and consequently would not have become liable for the defects. That allegation seems implausible, since it would follow that Frasers would not have been able to sell units in the development.
However, those issues would not normally be dealt with at the time leave to file the cross-claim was sought. Rather, it would have been open to the cross-defendant once served to seek to strikeout the cross-claim on the basis that it was not properly pleaded. Although strikeout applications are discouraged in this list, they can succeed in relation to the inadequate pleading of a claim under the DBPA: see The Owners - Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 106 and The Owners - Strata Plan No 89005 v Stromer (No 3) [2022] NSWSC 1707. There is nothing to prevent BSA from bringing a strikeout application now and, in my opinion, any objection to the current form of the pleading is best dealt with in that way.
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Orders and costs
Having regard to the conclusions I have reached, it is appropriate to make an order sought by the notice of motion. However, I do not think that Frasers should have the costs of the motion. It seeks an indulgence in circumstances where its conduct has fallen short of what might be expected in this list. On any view, it was necessary for it to seek the orders it has to regularise the proceedings. Having regard to what happened, it was not unreasonable for BSA to oppose those orders.
The orders of the Court, therefore, are:
1. Order pursuant to section 63 of the Civil Procedure Act 2005 (NSW) excusing the second defendant's failure to obtain an order to serve the third cross-summons and cross list statement, with the effect that the third cross-summons and cross list statement are taken, nunc pro tunc, to have been:
1. validly filed on 24 July 2023; and
2. validly served on the first cross-defendant to the third cross claim and the second cross defendant to the third cross claim on 18 January 2024.
1. The second cross defendant's costs of the amended notice of motion dated 28 March 2024 (the Amended Notice of Motion) be the second cross defendant's costs in the third cross claim;
2. Each of the cross claimant and first cross defendant bear its own costs of the Amended Notice of Motion.
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Decision last updated: 22 April 2024
Parties
Applicant/Plaintiff:
The Owners-Strata Plan 88565
Respondent/Defendant:
ACN 103 211 141 Pty Ltd
Legislation Cited (7)
Australian Consumer Law Civil Procedure Act 2005(NSW)