The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Anor

Supreme Court of NSW|2009-10-21|Before: Bergin CJ

CITATION : The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Anor (No 3) [2010] NSWSC 60

JURISDICTION : Equity - Technology & Construction List

The Corporation's Motion for the adoption of that part of the Report in relation to the Negligence Explanation will be dismissed. 2. The findings in the Judgment ([2009] NSWSC 208) in relation to the Corporation's case against CSA for design negligence will not be reconsidered. 3. The Corporation's Motion for the rejection of that part of the Report in relation to the Contents Claim against CSA will be dismissed. DECISION : 4. That part of the First Report in relation to the Contents Claim against CSA will be rejected. 5. That part of the Report in relation to the Contents Claim against CSA will be adopted. 6. CSA's limitation defence in relation to negligent design of the windows will be dismissed. 7. The parties are to file Short Minutes reflecting these outcomes when the matter is listed on 2 March 2010.

CATCHWORDS : REFEREES/REFERENCES - Whether the Referee's explanation impacts on findings previously made in judgment ([2009] NSWSC 208) - Whether Referee addressed matter remitted - Whether Report in respect of architect's liability for Contents Claim should be adopted - Whether architect's limitation defence available

LEGISLATION CITED : Corporations Act 2001 (Cth) s 440D Strata Schemes Management Act 1996 s 62

Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors [2009] NSWSC 208 CASES CITED : Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors (No. 2) [2009] NSWSC 329 Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No. 64970 v Austruc Constructions Limited & Ors (Costs) [2009] NSWSC 371 Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228

The Owners Strata Plan No 64970 Austruc Constructions Limited PARTIES : Cyril Smith & Associates Pty Ltd Eko Investments Pty Limited Traditional Windows Pty Ltd

G A Sirtes SC (Corporation) M G Rudge SC/M White (Austruc) COUNSEL : I D Faulkner SC (CSA) M Galvin (EKO) S J Walsh (Traditional Windows)

David Le Page (Corporation) Doyles Construction Lawyers (Austruc) SOLICITORS : Kennedys (CSA) Stacks/Forster (EKO) James Tuite & Associates (Traditional Windows)

1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION LIST TECHNOLOGY & CONSTRUCTION LIST

55048/05 THE OWNERS STRATA PLAN NO 64970 V AUSTRUC CONSTRUCTIONS LIMITED & ANOR (NO 3) JUDGMENT 1 The circumstances of this litigation have been dealt with in a number of previous judgments: Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No 64970 v Austruc Constructions Limited & Ors [2009] NSWSC 208 (the Judgment); [2009] NSWSC 329 (the Second Judgment); and [2009] NSWSC 371 (the Costs Judgment). This judgment should be read with those previous judgments. Unless stated otherwise, the terminology used in those judgments will be adopted in this judgment. 2 On 30 April 2009 an order was made that the Referee provide a further report explaining the basis upon which the conclusion was reached in his report dated 26 June 2008 (the First Report) that CSA was negligent in the design of the façade of the Building giving rise to CSA being responsible for 75% of the loss and damage suffered by the Corporation. A further order was made remitting the matter to the Referee: (a) to provide CSA with an opportunity to be heard on the issue that the Corporation was entitled to succeed on its Contents Claim irrespective of whether claims had been made on it by individual lot owners; and (b) to report further on this matter. There was also an order that if considered appropriate or necessary the Referee should consider Austruc's "fall back" submission in relation to CSA's alleged duty of care to it.

The Report 3 The Referee provided his further report dated 2 August 2009 filed with the Court on 11 August 2009 (the Report). The Report deals with: (1) the explanation of the basis upon which the Referee reached the conclusion that CSA was negligent in the design of the façade of the Building (the Negligence Explanation); and (2) the remitter of the matter to provide an opportunity for CSA to be heard in relation to the Contents Claim and to report further (the Contents Claim). The Referee reported that the Contents Claim against CSA should be dismissed. The Referee did not regard it as appropriate or necessary to consider Austruc's "fall back" submission in respect of CSA's alleged duty of care to it.

Adoption Hearing 4 On 24 August 2009 the Corporation filed a Notice of Motion seeking an order that the Report be adopted in respect of the Negligence Explanation but rejected in relation to the Contents Claim. For various reasons the parties requested that the hearing of the Motion not take place until 21 October 2009. On that date Mr GA Sirtes SC appeared for the Corporation; Mr MG Rudge SC, leading Mr M White, of counsel, appeared for Austruc; and Mr ID Faulkner SC appeared for CSA. Mr M Galvin, of counsel, and Mr SJ Walsh, of counsel, appeared respectively for EKO and Traditional, for the limited purpose of making submissions on costs.

5 At the adoption hearing Austruc supported the Corporation's Motion for the adoption of the Report in respect of the Negligence Explanation and the submission that the Court should reconsider paragraph [66] of the Judgment. It sought to take the benefit of the Report in respect of the rejection of the Contents Claim against CSA and to obtain a similar finding in respect of the Contents Claim against it. Austruc also sought the determination of its "fall back" submission in relation to CSA's alleged duty of care to it. 6 CSA seeks the rejection of the Negligence Explanation and opposes the Court reconsidering paragraph [66] of the Judgment. It seeks the adoption of the Report in respect of the Contents Claim. It also seeks the determination of its limitation defence relating to any aspect of the matter on which it is held liable. 7 After judgment was reserved the parties requested that the matter be re-listed. On 2 February 2010 the Court was advised that Austruc had been placed into voluntary administration on 22 January 2010. The only application by consent of all parties was to have the matter adjourned to 2 March 2010 to allow the Administrator to consider Austruc's position. The proceedings against Austruc are presently stayed: s 440D(1) Corporations Act 2001. The Administrator has not provided his written consent to the proceedings continuing against Austruc and there has been no application for leave to proceed. 8 The applications as between the Corporation and CSA are not affected by the present status of Austruc. The parties were notified that it was intended to deliver judgment in relation to those applications unless the parties sought deferment of the delivery of judgment. No application has been made in this regard and this judgment deals only with the Corporation's claims against CSA and CSA's limitation defence. Applicable Principles 9 The principles applicable to these applications are set out in paragraphs [37]-[44] of the Judgment. The exercise of the power in respect of these applications is in the nature of a discretion: Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 per Spigelman CJ and Allsop P (with whom Campbell JA agreed) at [51].

The Negligence Explanation 10 In paragraph 2 of the Report the Referee referred back to paragraph 19 of the First Report in which he had stated that if the façade of the Building was to be watertight it was "critical both that the façade is designed in a way that is adequate overall, and that the construction work is carried out carefully". 11 In paragraph 3 of the Report the Referee reiterated his conclusions in the First Report that: (a) one of the sources of water ingress was through horizontal cracking in the external protection system; (b) this cracking was the result of Austruc rendering over the control joints; (c) Austruc's conduct was in breach of the term of its contract with EKO which forbade rendering over the control joints; and (d) Austruc's conduct constituted negligence by it as against the Corporation. Paragraph 3 concluded as follows: In the course of this, I said:

CSR had issued a handbook that has considerable importance in the litigation, on the issues whether Austruc complied with the terms of the building contract, and whether either or both of CSA and Slater Lomas acted improperly in failing to prepare a more adequate specification for the work to be done by Austruc. 12 The Referee then continued: 4. That is, two of the issues for resolution were whether the design of the façade was adequate overall, and whether the specification, incorporating the handbook, which contained one sentence saying explicitly that the joints should not be rendered over, should have been amplified. 13 The Referee referred to the section of the First Report in which he had reported on the requirements of good practice (paragraph 64) and the extracted evidence of Mr Smith (paragraph 65) which he summarised in paragraph 4 of the Report as Mr Smith agreeing: (a) that it was obvious upon inspection that the terms of the Handbook had not been complied with; and (b) what he had seen on inspection constituted good practice. 14 The Referee continued: 5. I then said: 66. I am not satisfied either that Mr Smith noticed at the time that the joints had been rendered across, or if he did, that he thought then that this was significant; and although, as between Austruc and CSA, his evidence might be regarded as in the nature of an admission, as between the other parties to the litigation, it is just another piece of evidence to be weighed. From an early stage in his cross-examination, he appeared to be embarrassed, and anxious to be relieved from having to answer further questions. I do not have any real confidence in the reliability of his evidence, I do not accept that he was qualified to express an expert opinion as to what good practice required concerning rendering across control joints in relation to a building with perimeter walls consisting of a single skin of Hebel blocks, and in any event I reject his evidence that rendering across the joints was good practice. 6. In the passage of the report to be now explained, I said: 86. On these assumptions, and as between Austruc and CSA, I consider that CSA was more at fault than was Austruc, for although the problem was compounded by the poor workmanship of Austruc or its sub-contractor, making the building watertight was essentially a question going to the design of the building, in the sense that the building needed to be watertight, but CSA appears to have neither recognised the importance of the topic, nor to have given Austruc any relevant instructions beyond the reference to the handbook. In addition, I accept the submission that if CSA had drawn attention to the error in rendering over the joints, at the time that or soon after the error was made, the problem could have been readily solved. In relation to this topic, considered alone, I consider that as between Austruc and CSA, CSA's responsibility for the damage was 75%, and Austruc's 25%. 15 The following paragraphs of the Judgment are relevant to paragraph 86 of the First Report: 63 The latter part of the passage in paragraph 86 is also in very general terms. It records the Referee's conclusion that CSA did not recognize "the importance of the topic", meaning, I infer, that CSA did not recognize the importance of having a watertight building. It is not possible to identify the evidence upon which the Referee based this conclusion. Mr Smith's evidence grounded a criticism of CSA not administering the contract appropriately - in failing to identify that the controls joints had been rendered over but that does not seem to me to support the criticism levelled at CSA that it did not recognize the importance of having a watertight building. That paragraph also records the Referee's conclusion that CSA did not give Austruc any relevant instructions beyond the reference to the Handbook. The sentence immediately after this conclusion, upon which Austruc did not rely is the following: In addition, I accept the submission that if CSA had drawn attention to the error in rendering over the joints, at the time or soon after the error was made, the problem could have been readily solved. 64 Paragraph 86 contains general statements about lack of recognition of the need to make the Building watertight, without any specificity as to what part, if any, of the design of the Building was faulty. The other parts of the Report referring to the rejection of the minority expert opinion that the Building "leaked by design" supports the conclusion that it was not the design, but rather the failure to follow the design that caused the breach of the watertight barrier. This conclusion excludes the problems with the lack of sub-sills in the windows, which was a design fault, which CSA has accepted in this application. That is the matter that is referred to in paragraphs 101, 102 and 110. 65 The Referee expressed himself in general terms of CSA's failure to design a waterproof building. However on analysis of his reasoning, I am satisfied that his conclusion was that the design was appropriate and was able to be waterproofed. The problem was the failure to follow the design and specification both in respect of the positioning of some of the control joints and in respect of the rendering over the control joints. The Corporation was therefore protected by the statutory warranties in respect of the façade, however this protection was not available to the Corporation in respect of the negligent design and specification for the windows. 66 In those circumstances the Report of the Referee in relation to the findings that the Corporation was "vulnerable" in respect of the façade (excluding the lack of sub-sills in the windows) will not be adopted. So far as the Report relates to the negligent design of the windows an order may be made that the findings of the Referee will be adopted. 16 The Referee explained his statement in paragraph 86 of the First Report as follows: 11. I intended to convey by [86] the conclusion that CSA had been negligent in not recognising and dealing appropriately with the importance of designing a building that would be watertight. Instead, it effectively allowed Austruc to render over the control joints, without comment or protest, much less instructions to remedy the position; and it was a party to the decision to change the design so far as concerned the windows, without, so far as the evidence showed, considering whether this change might have any effect upon the adequacy of the design of the façade overall. The decision to change the design concerning the windows was of course the subject of separate parts of my report, but in [86] I was speaking of the position so far as concerned the external protection system, as an element in the overall façade. 17 In paragraph 12 of the Report the Referee referred to the "voluminous" nature of Mr Smith's first affidavit of 29 October 2004 and emphasised that there was only one paragraph devoted to the "topic" of the decision to change the design of the façade from a double skin of bricks to a single skin of bricks. That paragraph included the following: He [Mr Smith] attributed to Gray Kirk of Eko the motive of cost cutting, and said that he had told Mr Kirk (in only one sentence) that he should bear in mind that he would be totally reliant on the performance of the external protection system to act as a waterproof membrane for the building. 18 In paragraph 13 of the Report the Referee continued his analysis of Mr Smith's first affidavit and after noting that he had "devoted 21 paragraphs to the waterproofing of the podium slab" said: He [Mr Smith] dealt extensively with what happened during the course of construction without speaking of his having considered the question of watertightness generally, except to deal with the issues whether the outer joints lay over the inner joints; and he devoted 3 paragraphs to the decision to change the design so far as concerned the windows. On this last topic, he said only that Mr Kirk had made the decision, for cost cutting purposes; he asserted, without going into detail, that residential grade windows should have been adequate, if installed properly and in accordance with the specifications and drawings; he said that his recollection was that there had been "some problems with leakages from or around the windows", but denied that there were any "obvious gaps" there; and he exhibited some documents. 19 In paragraph 14 of the Report the Referee emphasised that in his second affidavit of 9 August 2007 Mr Smith attributed the selection of the Hebel bricks and the change of the windows to "cost cutting decisions". The Referee also said that Mr Smith "did not speak of his having given consideration to the adequacy of the design of the façade as a whole, once the latter decision [the change in the windows] had been made, or whilst that decision was under consideration". In paragraph 18 of the First Report the Referee observed in this regard that although CSA initially proposed a structure "with a conventional reinforced concrete frame of columns and slabs, and perimeter walls consisting of two skins of bricks, with a cavity between those skins", it was EKO that "sought to find a cheaper method of construction" and it was Slater Lomas who apparently suggested the use of Hebel blocks. 20 In paragraph 16 of the Report the Referee contrasted what he described as Mr Smith's "small volume of evidence" with the "mass of evidence served by other parties" which included material that was "sharply critical of the adequacy of the overall design, and of specific aspects of the design". The Referee then reported as follows: 17. There was also a great deal of evidence, served by other parties before the hearing commenced, challenging the proposition that I accepted (see [63]) that the specification effectively adopted the handbook, with its one sentence making clear what was otherwise at least less debatable, that the control joints should not be rendered over. Mr Smith's grasp of this important proposition was at best uncertain, for in the passage extracted at [65] [of the First Report], he opined that what Austruc had done constituted good practice, and said that he had thought at the time that the work actually carried out had been done in accordance with the specification. 18. The work of CSA did not end with the production of documents recording a design, or the last amendment to that design, so as to leave to others the entire task of constructing the building as designed. In [86] I intended to express the view that CSA had not recognised the importance of designing a building that was watertight, in that so far as the evidence showed, Mr Smith had given only superficial consideration to the topic at any time; that he had not at or about the time of the change concerning the windows separately considered whether the design previously adopted remained adequate, now that there was likely to be water ingress, but no mechanism for draining the water away safely; that although the specification incorporated the handbook and its requirement that the joints not be rendered over, he had failed to make that requirement as clear as he might have; and he had failed to do anything when they were rendered over, at a time when he should have appreciated that the terms of the handbook were not being followed. 19. These views led me to conclude that, when considering what was required, as between Austruc and CSA, and in relation to the design of the external protection system, considered alone, it was just and equitable that CSA contribute 75% and Austruc 25% of the Corporation's loss, having regard to the responsibility of each of these parties for the damage. The last mentioned circumstance (the failure of CSA to recognise, and take steps to correct the rendering over of the joints at an early stage) led to "the damage" (as distinct from the state of the exterior protection system) being significantly greater than would otherwise have been the case, and to my view that the contribution of CSA should be significantly greater than the contribution of Austruc: compare Oran Park v Fleissig [2002] NSWCA 371 at [108]-[111]. That was a case requiring consideration of an allegation of contributory negligence, and therefore the provisions of s9 of the Law Reform (Miscellaneous Provisions) Act 1965, whilst this case requires consideration of the contributions to be made as between tortfeasors, and therefore s5(2) of the Law Reform (Miscellaneous Provisions) Act 1946, but the words of the two statutes are not relevantly distinguishable.

Consideration 21 The Referee's emphasis on the paucity of the detail of Mr Smith's evidence by use of the expression "only one paragraph" and "in only one sentence" is an emphasis that was absent from the First Report. The comparison between the 21 paragraphs in relation to the waterproofing of the podium slab and the 3 paragraphs in relation to the change of design of the windows further emphasised such paucity. So too did the statement that in those 3 paragraphs Mr Smith "said only" that Mr Kirk had made the decision for cost cutting purposes, having previously said that Mr Smith attributed to Mr Kirk "the motive" of cost cutting for the change. However it seems to me that this is an inconsequential emphasis in respect of the present applications. The Referee clearly accepted in his First Report that EKO wanted to cut costs. 22 In the First Report the Referee made no express finding that CSA failed to consider whether the change in the windows "might have any effect upon the adequacy of the design overall". However in paragraph 11 of the Report the Referee said that this is what he intended to convey by the statement in paragraph 86 of his First Report that CSA had not recognised the importance of making the Building waterproof. In apparent support of this statement the Referee referred in paragraph 14 of the Report to the absence from Mr Smith's affidavit of 9 August 2007 of any evidence that he gave consideration to the adequacy of the design of the façade as a whole, either at the time the decision to change the windows was made, or after the decision had been made. 23 In paragraph 18 of the Report the Referee repeated that he had intended in paragraph 86 of the First Report to express the view that CSA had not recognised the importance of designing a Building that was watertight and that such a view was based on Mr Smith's evidence from which the Referee had concluded that he had "given only superficial consideration to the topic at any time", and importantly in this regard, that Mr Smith had not at the time the windows were changed "separately considered whether the design previously adopted remained adequate". The Referee's explanation in this regard does not change his conclusion in the First Report that it was the rendering over the control joints and the consequential cracking that was the cause of the water ingress. Notwithstanding this part of the Referee's explanation and emphasis, the fact remains as stated by the Referee in paragraph 86 of the First Report that "the problem" - the failure of the waterproof exterior protection system - "could have been readily solved" if CSA had drawn Austruc's attention to the "error in rendering over the joints". 24 In paragraph 86 of the First Report the Referee said that CSA had not "given Austruc any relevant instructions beyond the reference to the handbook". Paragraph 63 of the First Report did not emphasise that the relevant instruction in the Handbook was only "one sentence" as paragraph 4 of the Report does. Rather in paragraph 63 of the First Report the Referee referred to the instruction as "a plain and unambiguous statement" that "in no circumstances should a movement control joint be rendered across". 25 Commencing at paragraph 43 of the First Report, the Referee dealt specifically with the issue of whether CSA acted improperly in "failing to prepare a more adequate specification for the work to be done by Austruc". The Referee's findings included: (a) that a note issued by Slater Lomas [that the blockwork was to be installed "strictly" in accordance with the manufacturer's recommendation] "constituted a detail which, read with the specification, required Austruc to work in accordance with the handbook, except to the extent there were instructions to the contrary" (paragraph 52); (b) that such a finding was supported by the various expert witnesses (paragraph 53); and (c) that Austruc claimed it acted in accordance with the Handbook (paragraphs 54 - 55). 26 Significantly, the Referee concluded in the First Report as follows: 57 CSA now submits that, if one looks at drawing W3, it shows that the sealant was detailed to the external face of the blocks and not rendered over, and that Mr Ware's [Austruc's general manager] reference to the internal face serves to show that at the time, Austruc was treating the book as part of its instructions as to how to carry out the building work, and I accept this. 58 Austruc contends that the instructions given to it permitted it to render across the control joints, and that the handbook was not clear about this. I do not agree. If one focuses on the drawings in the handbook, alone, the matter might be arguable, but the last sentence in section 7.4, quoted at [46] [in no circumstances should a movement control joint be rendered across], makes the matter quite clear. 27 Although the Referee did not state in express terms in the First Report that CSA did not act improperly by failing to prepare a more adequate specification, the only rational and reasonable conclusion to be drawn from the finding in these two paragraphs of the First Report, read in the context of the preceding paragraphs 46 - 56, is that the claim that CSA had acted improperly in this way was not made out. The irresistible conclusion to be drawn from the Referee's acceptance of CSA's submission as recorded in paragraph 57 and his disagreement with Austruc's contention as recorded in paragraph 58, combined with his finding that the "matter" was quite clear, is that CSA did not act improperly in failing to prepare a more adequate specification. 28 The Referee's explanation in paragraph 18 of the Report that he intended to convey that Mr Smith had failed to make the requirement that the control joints not be rendered over "as clear as he might have" is unclear. However, if that expression was intended to convey a conclusion that the specification should have been amplified, it is inconsistent with the irresistible conclusion to be drawn from the First Report that CSA did not act improperly in failing to prepare a more adequate specification for the work to be done by Austruc. 29 As mentioned in the Judgment, the Referee rejected the expert evidence that the Building "leaked by design". The "design" was not the problem. It was the fact that Mr Smith "had failed to do anything when they were rendered over, at a time when he should have appreciated that the terms of the handbook were not being followed", as recorded by the Referee in paragraph 18 of the Report. That was not design negligence. That was a failure to administer the contract. 30 The Report in relation to the Negligence Explanation will not be adopted. There is no proper basis for a reconsideration of paragraph [66] of the Judgment. The Corporation's Motion seeking the adoption of this aspect of the Report will be dismissed. This outcome means that orders in accordance with paragraph [66] of the Judgment should be made as between the Corporation and CSA.

Contents Claim 31 The matter was remitted to the Referee to provide CSA with an opportunity to be heard on what was described in the Judgment as the "new issue", being that the Corporation did not have to prove that it received a demand or claim from the lot owners, nor did it have to prove that it had a particular liability to the lot owners, for it to succeed in a claim for damages against CSA for the damages to which the lot owners may be entitled: [96]. The Referee reported that when the matter was remitted to him to provide CSA with an opportunity to be heard on this issue, CSA did not seek to call any further witnesses or further cross-examine any witness, nor did it tender any further documents or otherwise seek to re-open its case. CSA confined itself to making submissions. The Referee reported as follows: 21 It submitted that it had been prejudiced in a number of ways. Witness statements had been served (at some unspecified time), in which neither Mr Abad nor Mr Quested spoke of intending to make a claim against the Corporation, leading to CSA being in the position where it expected to be able to submit that the inference should be drawn that they did not intend to do so; and there had been no other evidence foreshadowed to the effect that claims had been or would be made. Had the Corporation foreshadowed a different volume of evidence, or had CSA anticipated a ruling that the corporation did not need to prove that claims had been made, CSA would have sought further discovery from the corporation; it would have sought leave to issue various subpoenas for the production of documents, so as to be able to explore thoroughly the question whether claims had been made, and whether they were genuinely made; it would have taken a number of steps to explore whether the claims of the various lot owners were statute barred as against the Corporation, so as to give CSA a defence in relation to the Corporation's claim against it; it would have cross-examined Messrs Abad and Quested in a different way; and it would have asked questions of the expert witnesses, calculated to explore when the claim of each individual lot owner against the Corporation arose, and the quantum of that claim. Further, assuming that the Corporation must prove, not that it is liable to the individual lot owners, but that they have made claims that might be accepted, those claims must be treated as being governed by the principles set out in Malec v J C Hutton Pty Ltd (1990) 169 CLR 638, [1990] HCA 20 at [7]; and this would have required the evidence to be examined in a different light. However, by say 28 May 2008 it was too late to do any of these things, without suffering prejudice, including incurring delay and additional costs. 22 CSA embarked upon the hearing with all this in mind. The claims letters were produced on 7 April, and on 8 April Mr Abad gave evidence. The Corporation did not then make any attempt to supplement his written statement, or otherwise to do anything so as to prove that Mr Abad had made any claim upon the corporation, or that he intended to do so; and CSA made the forensic decision not to raise the matter with Mr Abad. This pattern was repeated when Mr Quested gave evidence. 23 No party took any further step, now relevant, until the claims letters were tendered and rejected. Later, the parties provided written submissions (CSA on 7 May and the Corporation on 8 May), and final oral submissions commenced on 28 May. 24 Contrary to what was assumed or said on a number of occasions prior to 14 July 2009, the second day of the present hearing, and inconsistently with the facts accepted by Bergin CJ in Eq in her judgment of 31 March 2009, particularly at [101], it now appears that the sequence of relevant events is this: 21 September 2007 The Corporation gave discovery (T1254). 2 November 2007 Order for reference made; hearing to commence 1 April 2008. 16 November 2007 Claim letters dated; apparently sent then or shortly afterwards. 1April 2008 Hearing commenced. 4 April 2008 Notice to produce given by CSA to the Corporation. 7 April 2008 Letters produced to CSA for first time. 8 April 2008 Mr Abad gave evidence. 17 April 2008 Mr Quested gave evidence. 28 April 2008 Letters tendered, decision reserved. 29 April 2008 Letters rejected. 8 May 2008 Written submissions of the Corporation, making contents claim. 28 to 30 May 2008 Final oral submissions 25 CSA now accepts (T1237) that any prejudice that it has suffered had already been suffered by about 28 May 2008 (except for the consequences of the effluxion of time since then, perhaps relevant to the limitation defence). So far as I can say now, I did not consider the question whether the Corporation needed to prove that the lot owners had made claims against it until after the hearing had concluded, when I came to prepare my report. 26 If the topic had been raised in late May, or in June 2008, then CSA would have done only what it does now, that is, submit that it had already been prejudiced in the ways mentioned, that the prejudice could not be remedied, and that the Corporation should be held to be bound by its pleadings. It would not then, and it does not seek now to adduce any further evidence. It would instead have made the submissions made now. 27 I have difficulty saying now what I would have done then (late May or June 2008) if the submissions made now had been made then, but think that I would have come to the view that whatever had been done by way of lulling CSA into a false sense of security had been done by 8 April 2008, and this was the critical time, rather than when the letters were tendered and rejected, some three weeks later, or when the parties came to make final submissions, later still. On 8 April Mr Abad was called, and the Corporation made no attempt to supplement his written statement, served earlier, in which he had said nothing about his making a claim, or intending to make a claim. By 8 April, the Corporation had produced the bundle of claims letters, all dated after the Corporation had given discovery, and CSA had to make the forensic decision whether or not to raise the topic in cross-examination. Once that decision was taken, the further forensic decisions not to cross-examine Mr Quested, or to raise the topic with the expert witnesses, probably followed naturally. 28 By late May or June, the position had been reached where any application for further discovery from the Corporation, or for the issue of further subpoenas, or for that matter the taking of any step that would have led to any significant delay, required an application to the Court rather than to me (there was an order that I report by 30 June). CSA did not make any such application. It does not seem appropriate for a referee to report to the Court as to how the Court might have reacted if that application had been made. 29 However, the critical matter appears to be the forensic decisions mentioned, commencing with the decision made on 8 April not to cross-examine Mr Abad relevantly, and there remain the propositions that CSA cross-examined Messrs Abad and Quested on a basis that has now been shown to be incorrect, and did not explore the issue with the expert witnesses. Whilst I would not have hesitated to do whatever was appropriate to require any or all of the Corporation's witnesses to be present for further cross-examination, and notwithstanding the acceptance that the timetable of relevant events is as set out above at [24], I have difficulty seeing how I could have resisted the proposition that this was an insufficient remedy for CSA at that stage: see Mehta v Commonwealth Bank of Australia, Rogers J, 7 May 1990 at 4-5, Bailey v Redebi Pty Ltd; Santow J, 12 August 1999 at [7], on appeal, Sherson & Associates Pty Ltd v Bailey [2000] NSWCA 275 at [101]; and Commissioner of Taxation v Brambles Holdings Ltd (1991) 28 FCR 457 at 455, 456 and 476. As at 8 April there were six active parties, and an uncommonly large number of issues separating them; and decisions such as how CSA should cross-examine Mr Abad were matters requiring detailed and careful consideration. 30. The Corporation submits that, the matter having been remitted to me to provide CSA with an opportunity to be heard, and CSA not having taken up that opportunity, the Corporation succeeds. However, allowing for the change in the perceived sequence of relevant events, and for the fact that the parties were engaged in a tactical forensic battle, I report that the contents claim should be rejected, on the basis that CSA was prejudiced by the sequence of events mentioned.

Consideration 32 The Corporation submitted that CSA was given an opportunity to address the confined issue on the remitter to the Referee as to whether the Corporation could sustain its Contents Claim irrespective of whether claims had been made upon it by the lot owners. The Corporation submitted that the Referee had already concluded in his First Report that the letters were not a constituent part of the Corporation's Contents Claim and that the remitter gave CSA an opportunity of addressing this issue in any way it saw fit. The Corporation submitted that one way of addressing the issue was by making submissions as to why the letters were a necessary part of the Contents Claim. However it was submitted that is not what CSA did. 33 It was submitted that the Referee was required to report to the Court on whether the Corporation was entitled to succeed on its Contents Claim, irrespective of whether claims had been made on the Corporation by the individual lot owners, after giving CSA the opportunity to be heard on that issue. It was submitted that the Referee failed to report as required, but assumed contrary to his First Report that the letters were significant and reported that the Contents Claim against CSA should be rejected on the basis that CSA was prejudiced by the sequence of events mentioned in the Report. 34 The Corporation submitted that the Referee was not asked to re-determine the natural justice issue, as the Court had determined that issue. It was submitted that in rejecting the Contents Claim on the basis of irremediable prejudice, the Referee exceeded the terms of the remitter and decided the matter on a basis different to the approach adopted in the First Report. It was submitted that this becomes apparent by the Referee's reversion in paragraph 31 of the Report to his original reasoning. 35 The Corporation emphasised the Referee's finding in paragraph 31 of the Report that once any contents of a lot were damaged, the Corporation became liable to the lot owner concerned "there and then". It was submitted that if the letters were irrelevant, CSA did not suffer any forensic disadvantage or prejudice. It was submitted that the Referee's observations in paragraph 31 of the Report amount to a correct finding of a lack of necessity for individual claims to be made on the Corporation and therefore CSA's complaints about forensic prejudice were inconsequential. 36 The Corporation submitted that paragraphs 20 - 30 of the Report ought to be rejected and that CSA ought to be held liable for the Contents Claim as found by the Referee in the First Report. 37 CSA submitted that the purpose of the remitter was as described in the following passage of the Second Judgment: 17 I am of the view that it is appropriate in the circumstances of the findings in the Judgment to remit the contents claim to the Referee so that CSA may have an opportunity to address the Referee on the issue that it did not matter whether the individual lot owners had made claims on the Corporation before CSA could be found liable for the contents claim. Mr Faulkner's client wishes to make additional submissions and may even make an application to the Referee to re-open the case in respect of the contents claim. As to whether any such application is allowed is a matter for the Referee. The basis of the remitter of this aspect of the matter is to provide CSA an opportunity to be heard by the Referee. 38 CSA submitted that no point was taken by the Corporation before the Referee that it was not open for him to decide the matter in the way that he did, or that CSA was contending for an outcome not remitted. CSA submitted that it was the Corporation that sought to have the matter referred back to the Referee on this issue because of his intimate and detailed understanding of the case. CSA also submitted that the conclusion that CSA had suffered prejudice was a factual judgment made by the Referee and that the Corporation has failed to demonstrate any proper basis to justify the Court intervening in respect of such a finding. 39 The Referee candidly reported that he did not consider the "new issue" until he commenced the preparation of the First Report. In paragraph 203 of the First Report the Referee concluded that it did not matter "one way or another" to the Corporation's entitlement to recover damages from CSA, "measured by the extent of its liability to the lot owners", whether the individual lot owners had "formally given notice to the Corporation" that they intended to rely on their rights under s 62 of the Management Act. 40 The pleaded Contents Claim was that the Corporation was entitled to damages because it was liable to lot owners who had served their claims. Those claims were not proved. Assuming the Referee is correct in his conclusion that it mattered not to the Corporation's entitlement to recover damages from CSA whether the lot owners had formally notified the Corporation, it was still necessary to analyse the extent of the Corporation's liability to those lot owners for the purpose of sheeting that liability home to CSA. 41 In paragraph 31 of the Report the Referee concluded that as between any individual lot owner and the Corporation, time to make a claim for relief under s 62 of the Management Act begins to run when the relevant damage to the contents occurs. The identification of that matter is of some significance to CSA's position. Accepting that s 62 provides a private right to the lot owners to sue the Corporation for such damage (as discussed in the Judgment), it is still necessary for the individual lot owner to notify the Corporation of such damage so that the Corporation can consider whether the claim is a valid one. In other words, it is necessary to consider whether the contents were damaged by reason of the Corporation's failure to properly maintain and keep the common property in a state of good and serviceable repair. If the Corporation does not rectify the damage or compensate the lot owner for such damage, then the lot owner is entitled to bring an action against the Corporation within the time limit applicable to the exercise of such private right. In working out whether the lot owner's claims were valid claims, CSA would have been entitled to test the detail of the alleged damage; the date(s) upon which the damaged occurred; the nature of the damage; and the likelihood or otherwise that the alleged damage resulted from the Corporation's failure to properly maintain and keep the common property in a state of good and serviceable repair. CSA persuaded the Referee on the remitter that for the reasons outlined in the Report it had committed itself to forensic decisions and a course of action which placed it in a position of irremediable prejudice. 42 The Referee's statement in paragraph 31 of the Report that the Corporation became liable to the lot owners "there and then" when the contents were damaged, does not mean that the Corporation is liable irrespective of the cause of the damage and/or irrespective of the date of the damage. The Corporation is entitled to assess a lot owner's claim of damage both as to the cause and as to the date upon which it occurred. This latter aspect was recognised by the Referee in paragraph 31 of the Report when he observed that time to make a claim under s 62 of the Management Act begins to run when the relevant damage to the contents occurs. 43 The finding made by the Referee that CSA suffered such irremediable prejudice in the circumstances was a finding of fact or a finding of fact and law. I agree with CSA's submission that the Referee was far better placed than anyone to make that finding in the very complicated process that occurred before the Referee. I am not satisfied that the Corporation has demonstrated any proper basis upon which the Court would reject such a finding. 44 The Corporation's Motion to adopt the findings in the First Report against CSA in relation to the Contents Claim and to reject the section of the Report in respect of the Contents Claim will be dismissed. The section of the Report on the Contents Claim will be adopted. Consequential orders should be prepared. Limitation Defence 45 CSA's limitation point was dealt with in the Judgment at paragraphs [67]-[74]. CSA's claim that the Referee misstated the test for determining when loss accrues in cases involving latent defects in buildings was rejected, as was the claim that the Referee failed to apply the correct legal test. However, CSA submits that neither the Referee nor the Court has dealt with what is described as CSA's limitation defence, as outlined in its written submissions before the Referee as follows: 59 In this case the architect contends that the alleged defects referable to both defective design and defective workmanship (which embraces the plaintiff's claim against the architect for failing to properly administer the building contract works) were discovered and/or manifest outside the limitation period of 6 years - that is, they were discovered or manifest prior to 8 February 2002 (6 years prior to the date leave was granted by the Court to commence the action against the architect - see Part 6 r 6.28 Uniform Civil Procedure Rules). More specifically, the architect contends that the plaintiff suffered measurable damage in the following ways: (a) by the incurring of a liability, by virtue of s 62 of the Strata Schemes Management Act 1996, to repair these defects. This liability arose, as earlier expressed, variously throughout 2001 (as the analysis below demonstrates) but beyond doubt prior to 8 February 2002. Further, if the principal case of the plaintiff is accepted - essentially that the design per se was contrary to ordinary good practice … and exposed the plaintiff to " costly maintenance and repair work for the life of this façade …" - the plaintiff suffered, by reason of the 'defective design', immediate and measurable damage at the time of its registration; that is, on 20 March 2001. (b) by the incurring of expenditure referable to these defects - essentially the cost of cleaning up and hiring of drying equipment following the ingress of water. 60 On either basis, the plaintiff's action against the architect is statute barred. Specifically, it is submitted that a finding, on any of the limitation issues, addressed below, that a particular defect was manifest at any time prior to 8 February 2002 bars the entire action against the architect: each defect advanced amounts to not insignificant (that is, legally significant, measurable) loss or damage. 46 CSA has been successful in resisting a finding of design negligence except in relation to the windows. It has also been successful in resisting liability for the Contents Claim. In those circumstances, CSA submitted that the aspect of the limitation defence to be considered in this judgment is CSA's liability in relation to the windows. 47 The submissions in relation to the windows are those contained in CSA's written submissions before the Referee and are as follows: 87. The complaint of the plaintiff is that the windows were under specified (or, perhaps, inadequately detailed in the specification) and inadequately installed. 88. It is submitted that any damage referable to the inadequate specification only bears characterisation of a breach of the architect's (alleged) duty to design a proper and waterproof structure. Any complaint relating to inadequate installation would only arise in the context of the alleged duty relating to administration of the building contract. In either case, the damage was manifest before 8 February 2002 or, alternatively, with reasonable diligence it was discoverable before that time. 89. To the extent that the plaintiff has demonstrated problems with the window units themselves (as opposed to the surrounds), it is plain that there has been no appreciable difference in the way the windows have performed since installation. That is, the evidence does not permit a finding that the current performance (or non performance, as the case may be) of the windows differs today than when first installed. It follows, therefore, that any defect with the specification must have manifested itself when signs of water first appeared on the sills of windows - this being the only evidence directed to the issue of failure of the windows by reason of their under specification. Undoubtedly, this was in 2001, as the following makes clear: (a) following the episode of wind driven rain on 8 April 2001 (following which Mr Spicer attended the site) water staining was observed by him "on the sills" (T225.6; 228.37 - 229.22). He recalled that the "window people" had already been to the site to undertake rectification work. (b) The letter from the builder to the architect dated 11 May 2001 (annexure 4.4 to the affidavit of Gary Kirk sworn 18 March 2004), records that water "entering via the central window joint is being collected in the window sill. A small amount of water is pooling on the sill lining …" .

(c) On 6 February 2002, following rain on 3 and 4 February 2002, Mr Quested and Mr Spicer removed the plaster from the wall in unit 11. Mr Quested's evidence about his observations at this inspection is at T470.31 - 472.22. Mr Quested also recorded his observations of this inspection in a letter sent to All Strata dated 6 February 2002 (exhibit C15). Relevantly, he recorded: "Because units 23 and 11 were so bad we were almost sure it was the windows. To be sure Bill [Spicer] removed the plaster from the wall of unit no.11 to find the leaks. We now know it is the windows. The are not sealed, some hopper windows are tight at the top and hard to seal at the bottom, as you can feel the air coming through. (emphasis in original) Our main concern now is how many windows in the building are not sealed as storms can come in any direction. We feel all windows should now be checked and re-sealed. "Storm gards"? [sic]

(d) The report from Brawill Building Services Pty Limited to All Strata dated 21 February 2002 (annexure page 792 to the affidavit of Ken Ware). The report records: "Mr John Quested stated that the original builder has sent the window supplier up to look at the windows, he believes the problem is not with his windows but the installation of the windows and the water pressure building up over the head of the windows and believes because the building has been constructed with no weep holes over the heads, the water has to pressure rise and drain into the building. The design of the building is not of a cavity design so as to the building (sic) requiring the weep holes this is not right and the windows are hard to the underside of the above units floor slab".

(e) Ken Ware made an inspection of the windows on 22 February 2002. The evidence of his observations is contained in paragraph [110] of his affidavit sworn 15 September 2004 and annexure 22 (pages 204 - 212). Mr Ware also observed water on sills (see, for example, page 206 for unit 11; and page 207 for unit 25). Mr Ware's evidence relating to this inspection is at T337.38 - 341.33. According to Mr Ware's (unchallenged) evidence, the window problems he observed were likely to have been present "in the previous year, 2001" (T341.27). Having regard to the evidence outlined above, there can be no doubt that this was so. 90. The above evidence, it is submitted, puts beyond doubt that, to the extent that any window 'defect' is demonstrated to be design related, then damage was manifest in 2001. Indeed, having regard to the unchanged nature of the evidence surrounding this alleged defect - essentially the position in 2008 mirrors the position in 2001 - any finding that there is a design related defect in the windows mandates a finding that measurable damage occurred in 2001, and outside the limitation period. 91. Moreover, if it is somehow suggested that there was no manifestation of any design defect referable to the windows, then it is submitted that this defect was discoverable by reasonable diligence on the part of the plaintiff. The plaintiff should have taken steps to secure expert examination (such as that undertaken by Brawill Building Services on 21 February 2002) of the building by no later than December 2001. Any alleged defect would have been revealed by such investigation, as the Brawill report makes clear. The plaintiff was obliged to undertake or arrange inspections of this very kind by operation of s.62 of the Strata Schemes Management Act 1996. 92. In December 2001 All Strata recommended to the plaintiff to seek expert advice relating to the problems and defects within the building (T465.43-466.7; exhibit C14 - letters from All Strata to The Rapp Report dated 12 December 2001 and letter to Richmond & Ross Pty Limited consulting civil and structural engineers dated 18 December 2001). Unquestionably, the plaintiff ought to have secured specialist examination, in a timely way, following the advice and recommendation of All Strata. It did nothing, and gave no evidence (nor, for that matter, did any individual lot owner) at all explaining why it ignored the advice. In the absence of such explanation, or an explanation for its omission, it is appropriate to draw a Jones v Dunkel inference against the plaintiff and, more specifically, an inference of the kind discussed in Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, 418. 93. This is not simply a case where the plaintiff failed to act on the advice of its managing agent. The need for such investigation and report was not merely due to the fact that this advice had been given, but had arisen by the very observations made by Mr Quested (and no doubt other lot holders) of water ingress during 2001 and 2002 (see, the affidavit of Mr Quested sworn 29 march 2004, exhibit C14; evidence of Mr Quested commencing at T453.22) which had been reported to All Strata (T458.44 - 459.9; 462.18). That is, the need to arrange for expert investigation ought properly be viewed against the significant ingress of water into the structure which had been observed by Mr Quested from as early as April 2001 which, critically in this immediate context, Mr Quested observed to be localised to around the windows, predominantly in the second bedrooms (see, for example, for the water ingress in April and May 2001 - T455.11; for the water ingress on 20 November 2001 - T461.12). 94. Moreover, by the time of the water ingress event on 27 November 2001, the ingress had (repeatedly) affected units over every level of the building (see affidavit of Mr Quested sworn 29 March 2004, paragraph [4]; T462.26 - 462.39). 95. There is, it is submitted, a further matter which rationally bears on this issue and why these defects were discoverable on reasonable diligence: water ingress problems were manifest in 2001, and the plaintiff knew of such water ingress - notably the other defects earlier described such as the kitchen exhaust vents, the podium slab, and the overflow outlets on the roof top. It also knew of water ingress from the rooftop area affecting units 29 and 31 (T445.21 - 449.29). 96. Having regard to what was contained in the report from Brawill Building Services, there can be no doubt that if the plaintiff had acted on the strata manager's advice, then the contents and advice contained in the Brawill report (to the extent that it added anything to the knowledge of the extant problem) would have been received well prior to 8 February 2002. 48 The success of the limitation argument depends upon the "defect" being manifest as at 8 February 2002. The inappropriate specification for the windows as the cause of the water ingress does not seem to me to have been manifest as at 8 February 2002. Certainly the evidence referred to in these submissions suggests that Mr Quested knew on 6 February 2002, two days before the relevant date, that there was a problem with the windows, in that they were not sealed. He suggested, reasonably, that a proper investigation had to be made to assess all the windows. It was necessary to investigate whether the cause of the symptom (water ingress around the windows) was the lack of sealant or some other factor. 49 On 6 February 2002 Mr Quested noted that he and Mr Spicer were sure the problem was the windows, noting they were "not sealed". There was a question as to whether the windows that had been the subject of the inspection were the only ones that were "not sealed", thus Mr Quested's suggestion that "all windows should be now checked and re-sealed". It is also clear from the evidence referred to in these submissions that the true cause and extent of the problem with the windows was not manifest until after 8 February 2002. The fact that there was water ingress around the windows in 2001 has to be seen in light of the fact that the "window people" had attended the Building to complete "rectification work". It was not until after 8 February 2002 that the true extent of the problems and the cause, the under-specification, was manifest. 50 As can be seen from the Reports and judgments in this matter, the Corporation was dealing with numerous and various problems with this Building. I do not accept that the "underspecification" of the windows was manifest or reasonably discoverable by 8 February 2002. 51 CSA's limitation defence in respect of its liability for the windows fails.

Conclusion 52 The Corporation's Motion for the adoption of that part of the Report in relation to the Negligence Explanation will be dismissed. The findings in the Judgment in relation to the Corporation's case against CSA for design negligence will not be reconsidered. The Corporation's Motion for the rejection of that part of the Report in relation to the Contents Claim against CSA will be dismissed. That part of the First Report in relation to the Contents Claim against CSA will be rejected. That part of the Report in relation to the Contents Claim against CSA will be adopted. CSA's limitation defence in relation to negligent design of the windows will be dismissed. 53 The parties are to file Short Minutes reflecting these outcomes when the matter is listed on 2 March 2010.

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At a glance

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Judgment (24 paragraphs)

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Cases Cited (10)

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