The Owners - Strata Plan No. 85494 v PBS Building - [2024] NSWSC 381 - NSWSC 2024 case summary

Background to application

The proceedings concern the development by Iris of a block of apartments in Hunters Hill comprising 41 lots with basement car parking (the Building). A subsidiary of Iris entered into a contract with PBS Building (NSW) Pty Ltd (PBS) to design and construct the Building. The relevant works were carried out by PBS between September 2012 and March 2014.
On 17 March 2014, an occupation certificate was issued by Vic Lilli & Partners in relation to the works completed by PBS. In submissions in chief on this application, the Owners referred to the fact that this was titled an "interim occupation certificate" and that certain matters were excluded from it. They submitted that it was a matter for Iris to establish that this would be a sufficient trigger to commence the running of the 10-year limitation period under the EP&A Act. However, Iris pointed out that the Owners, in their existing Amended List Statement, have pleaded that the building works "were completed on or about 17 March 2014" and, in respect of that pleading, have particularised the occupation certificate issued on that date. In reply, Counsel for the Owners acknowledged that the Owners could not resile from that pleading. I have therefore approached this application on the basis that the end of the long-stop period for any claims for loss or damage arising out of or in connection with defective building work was 17 March 2024 (the Limitation Date).
On 13 March 2020, the Owners filed a home building application in the NSW Civil and Administrative Tribunal, which was transferred to this Court in March 2021.
On 25 June 2021, the Owners filed a List Statement which named PBS as First Defendant and Iris as Second Defendant. The allegations against Iris included that it had breached the statutory warranties which it owed to the Owners under s 18C of the Home Building Act 1989 (NSW) and the statutory duty of care which it owed to the Owners under s 37 of the Design and Building Practitioners Act 2020 (NSW). Annexure A to the List Statement contained one reference to a defect concerning fire safety, namely, that the cladding and silicone used on the external façade of the Building were combustible.
On 24 May 2022, the Owners filed an Amended Summons and an Amended List Statement, which remains the current form of the pleading. The Owners joined Squillace Architects Pty Ltd (Squillace) and Royal Tiles Australia Pty Ltd (Royal Tiles) as, respectively, the Third and Fourth Defendants. Annexure A to the Amended List Statement again referred to fire safety defects only in respect of the external cladding and silicone used in the joints of that cladding.
On 18 November 2022, Iris filed a cross-claim, naming PBS as Cross-Defendant.
On 7 March 2023, PBS was placed into external administration. Since that date, it has not taken an active role in the proceedings.
On 7 June 2023, the Owners' solicitors confirmed that the Owners had served the entirety of their evidence in chief, including on liability and quantum.
On 7 August 2023, the Owners served a Scott Schedule identifying each of the alleged defects which was the subject of their claim against the defendants, providing cross-references to the expert liability evidence.
On 14 July 2023, after completing the service of their evidence but before serving the Scott Schedule, the Owners received a Notice of Intention to Give a Development Control Order from Hunters Hill Council (the Council). This Notice referred to and attached a Fire and Rescue NSW Inspection Report dated 25 November 2022. That report identified fire safety concerns with the automatic fire detection and alarm system, the fire hydrant system, the annual fire safety statement and the fire engineering report. It was the opinion of Fire and Rescue NSW that "the fire safety provisions prescribed for the purposes of s 9.32(1)(b) of the EP&A Act, have not been complied with".
The Council also attached a copy of a "Proposed Development Control Order - Safety Order" which it intended to issue. The terms of this proposed order were, relevantly, that the Owners were required to engage an independent and suitably experienced "Building Surveyor - Unrestricted" and an independent and suitably experienced "Accredited Practitioner (Fire Safety)" in order to prepare a series of reports, and were required to submit the completed reports to the Council for review. These included reports in relation to the provision for escape and construction of exits; fire-resisting construction; smoke-proof construction; fire doors; fire seals and construction joints; fire dampers; offence notices and warning signage; the fire hydrant system; the fire hose reel system; the sprinkler system; the automatic fire detection and alarm system; emergency lighting; and exit signs. According to the terms of the proposed order, the specified practitioners would need to be engaged within 28 days of the issue of the order, and that the reports would need to be submitted within 90 days of the issue of the order.
On 22 September 2023, a "Development Control Order - Fire Order" was issued in materially the same terms as the proposed order which the Owners had received two months earlier. Accordingly, this Order required that the relevant practitioners be engaged within 28 days (that is, by 20 October 2023) and that the specified reports be provided to Council within 90 days (that is, by 21 December 2023).
On 1 November 2023, the Owners obtained an extension of the dates for taking the steps required by the Development Control Order. The date for engaging the required practitioners was extended to 20 November 2023, and the date for the delivery of the specified reports was extended to 22 January 2024.
On 10 November 2023, the Owners obtained a fee proposal from Enhanced Building Services Pty Ltd (EBS) in relation to the preparation of the reports specified in the Development Control Order. Despite the Owners being required to have the required practitioners engaged by 20 November 2023, no action appears to have been taken by them in relation to the fee proposal for over a month. According to an email from the Strata Managers dated 18 December 2023, this appears to have been due to a misunderstanding. On that date, the Strata Managers wrote to the Owners Committee, stating: "Initially, it was understood that the Building Management Committee (BMC) would take the lead in this matter. However, we have recently learned that this has not yet transpired. Consequently, we are writing to inform you of our proposal to engage EBS Consultants on behalf of [the Owners], as outlined in their attached fee proposal. … If you have any objections to proceeding with EBS, please inform us promptly."
The evidence led by the Owners on this application does not disclose when EBS was engaged. The affidavit filed in support of the motion states that EBS conducted an inspection of the Building on 6 and 7 February 2024. There is no evidence of any steps being taken prior to that time for the purpose of preparing the reports specified by the Development Control Order. Nor is there evidence of such communications as may have passed between the Owners and EBS in the period between 18 December 2023 and 6 February 2024.
Meanwhile, there had been significant developments in the proceedings. On 28 November 2023, there had been a mediation between the Owners, Iris, Squillace and Royal Tiles. Shortly after the mediation, the Owners settled with Squillace and Royal Tiles. On 25 January 2024, orders were made dismissing the proceedings against them.
From early December 2023, Iris took steps to identify potential cross-defendants (since, as noted above, its only existing cross-claim had been brought against PBS).
On 15 December 2023, Iris filed subpoenas addressed to a range of entities which had been identified as potential cross-defendants. Each of those subpoenas was served on the legal representatives of the Owners. The recipients of the subpoenas included Squillace and Royal Tiles, as well as Modon Consulting Pty Ltd (formerly trading as Vic Lilli & Partners), Scott Collis Consulting Pty Ltd and RP CQ Pty Ltd (formerly trading as Stephen Grubits & Associates Pty Ltd). Iris submitted, and the Owners did not dispute, that it must have been apparent to the Owners at this time that Iris was undertaking investigations into potential cross-defendants.
During the period between 15 December 2023 and 16 February 2024, approximately 7,500 documents were produced in response to these subpoenas.
On 8 February 2024 (being the day after EBS had inspected the Building), the Court made orders in these proceedings by consent, including that Iris file any further cross-claims by 29 February 2024. Iris was unaware at that time that the Development Control Order had been issued, that EBS had been engaged, or that investigations were being undertaken and reports were being prepared in respect of potential fire safety defects at the Building.
Throughout February 2024, Iris's solicitors reviewed the documents produced on subpoena, in the light of the defects contained in Annexure A to the existing Amended List Statement and the Scott Schedule, and prepared a cross-claim list statement based on those matters.
On 29 February 2024, Iris filed its cross-claim in the proceedings. It named nine cross-defendants, including Squillace, Royal Tiles, Titan Waterproofing Pty Ltd and various individuals.
Iris has pleaded, in respect of each of the defects currently identified in Annexure A to the Amended List Statement and the Scott Schedule, causes of action against these cross-defendants.
On the day after Iris's cross-claim was filed, the Owners received the first report from EBS, which was dated 26 February 2024. It was a "Penetration Audit Report", which identified a number of defects associated with penetrations of fire rated elements. This is one of the reports referred to in the Owners' Notice of Motion as identifying those defects which the Owners seek to add into their pleading.
The remaining reports referred to in the Notice of Motion were dated 12 and 13 March 2024. They are as follows: 1. "Assessment of Exits - BCA Parts D1 & D2 Report", dated 12 March 2024, which identifies a number of instances where fire exits at the building do not meet the Deemed-to-Satisfy provisions of the Building Code of Australia; 2. "Assessment of the Fire Engineering Report", dated 12 March 2024, which identifies instances where there are non-compliances with the fire engineering report for the building; 3. "Fire Door Audit Report", dated 13 March 2024, which identifies a number of defects associated with fire doors; and 4. "Building Inspection Record Fire and Life Safety Report", dated 13 March 2024.
The solicitor for the Owners, Mr Anderson, gave the following evidence: "It is my belief, based on my experience acting for many owners corporations that have received fire orders from Councils, that it is very likely that once the Owners submit the EBS reports to Council, it will receive a further fire order from Council requiring it to rectify the defects that have been identified by EBS."
Mr Anderson also gave evidence that he has been informed by EBS that there are further reports which are still being prepared by a contractor called "NF Passive" in response to paragraphs 12 to 17 of the Development Control Order. He did not give any evidence of the time frame for their completion, the reason why they had not been completed to date, or any attempts made in order to secure their completion prior to their (extended) due date, namely, 22 January 2024.
On Wednesday, 13 March 2024 at 4.50pm, Mr Anderson wrote to Iris's solicitors, stating that the Owners had "recently become aware of further potential defects". The email attached the Development Control Order that had been issued by the Council in September 2023 and provided links to the reports that had been received from EBS to date.
The email referred to various defects identified in those reports and asserted that Iris, as the developer, was liable to the Owners for any breach of the Home Building Act warranties as well as any breaches of the Design and Building Practitioners Act duty of care. The email further stated that the Owners had given instructions to amend the List Statement to include these further defects.
Mr Anderson also stated that further reports in relation to the remaining items in the Development Control Order are "presently being arranged" and that it was possible that these reports will identify further instances where works performed by the building are in breach of the Home Building Act warranties. He added: "We will provide your client with these reports once available (if they identify defects that our client intends to claim against your client)".
Mr Anderson referred to the Owners' intention to bring this amendment application and stated that the Owners' position is that the defects identified in the attached reports (and any further reports) "are further particulars of the same cause of action identified when our client first commenced proceedings against your client in March 2020".
The Owners' solicitors were conscious of the approaching Limitation Date, stating as follows: "We note that the residential building works performed at this property were completed on or about 17 March 2014 (at the earliest) when an interim occupation certificate was issued by Vic Lilli and Partners. That being the case, if the interim occupation certificate is the relevant occupation certificate for the purposes of section 6.20 of the Environmental Planning and Assessment Act 1979 (NSW), then the 10 year long stop limitation period expires on 17 March 2024. The purpose of this email is to bring these matters to your client's attention and to put your client on notice of the above matters so that your client has an opportunity to take whatever steps it deems necessary including, if it chooses, bringing any cross claims against relevant parties that may bear liability to your client for these matters before the 10 year long stop limitation period expires."
On Friday 15 March 2024, the Owners filed the Notice of Motion seeking leave to amend to add to the list of defects identified in Annexure A to their Amended List Statement, by including defects identified in the various EBS reports that had been received to date.
The solicitor for Iris deposed that: "In the period between 13 March 2024 and 15 March 2024, following receipt of the correspondence above, I considered whether the material disclosed any further cross-claims available to Iris. I concluded that I could not form a view that there were reasonable grounds to commence any new cross-claims against any further cross-defendants because: a. the Owners had not identified the actual defects that it was alleged Iris was responsible for; b. there was insufficient time to determine the veracity of the allegations, including by having the documents reviewed by technical experts in the area of fire safety engineering to confirm that there was a reasonable basis to assert that the defects existed; c. as with the position taken by Iris in its Cross-Claim, a cross-claim against any further cross-defendants would always have been contingent upon a claim being made out by the Owners as against Iris, and at this juncture there was no actual claim against Iris that had been pleaded, filed, or even provided in draft."

Should amendments be allowed from date of commencement of proceedings?

For those reasons, I accept the Owners' submission that Iris has not provided evidence sufficient to establish that it had, prior to the Limitation Date, viable and realistic cross-claims in respect of the defects which the Owners seek to add to their pleading. However, it does not follow that, as the Owners submitted, the Court should allow the amendments and order that they take effect at the date on which the proceedings commenced.
That is because the delay in obtaining the reports from EBS has contributed to Iris being in the position where it has not had sufficient time to carry out the investigations required in order to identify and articulate potential cross-claims arising from specific defects. As set out above, Mr Nielsen deposes, and I accept, that if the Owners had provided a draft amended pleading articulating the fire safety defects by December 2023, when Iris was undertaking its investigations into potential cross-defendants, Mr Nielsen would have caused investigations to be undertaken in order to identify cross-claims arising from those additional fire safety defects and to determine whether such cross-claims were maintainable. There is little doubt that this would have occurred, given that this is precisely what Iris's solicitors did in fact do in respect of the existing defects identified in the Amended List Statement and the Scott Schedule. That is, Iris's solicitors sought documents on subpoena from mid-December 2023, and spent significant time in February 2024 reviewing the subpoenaed documents against the existing pleaded defects and preparing cross-claims arising from each of them.
Under the Development Control Order issued in September 2023, the Owners were originally required to provide the reports specified in that Order by 21 December 2023. If the Owners had done so, and had provided Iris with copies of those reports at that time, Iris's solicitors would likely have been able to investigate any cross-claims arising from the full range of fire safety defects, and to form a view prior to the Limitation Date on whether there was a maintainable cross-claim in respect of each or some (and if so, which) specific defects. However, the Owners sought an extension of the deadlines to engage consultants and to provide the reports, and having done so, still had not engaged consultants by the middle of December 2023.
This appears to have been due to a misunderstanding about who was taking charge of that process, but there is no evidence of any updates being sought about the progress of the matter, and no evidence that those acting for the Owners had any sense of urgency despite the approaching deadline for the submission of the reports (21 December 2023, extended to 22 January 2024), and despite the approaching Limitation Date.
When asked whether there was any explanation as to why the Owners were some six weeks late in submitting reports to the Council (and then submitted only some of the required reports, with others still outstanding), Counsel for the Owners acknowledged that there was no evidence on this issue, and stated that: "I think the only thing I could point to is just that the Christmas period's intervening, and no doubt your Honour's had experience with experts in getting them to cooperate can be difficult, but I have no direct evidence".
Even accepting that there can be difficulty with obtaining expert reports over the holiday period, this makes the delay in engaging an expert more striking. The Owners were aware that the reports were originally due just before Christmas, and that this date was then extended until 22 January 2024. If there was to be any prospect of that date being met, it must have been appreciated that it would be necessary to have an expert engaged well before Christmas, so that work could be undertaken in advance of the holiday period. However, this had not been done as at 18 December 2023 and the first inspection by EBS does not appear to have occurred until early February 2024.
Having regard to those matters, I do not consider it would be just to determine at this point in time that the amendment should be allowed, so as to take effect from the date of the commencement of the proceedings. That is because the Owners have acknowledged that the existence of a viable and realistic cross-claim would be a "powerful factor" against the grant of leave, and the delay in the Owners obtaining the reports from EBS has put Iris in the position where it has not had time to carry out the investigations required to investigate the availability of a viable and realistic cross-claim in respect of each of the defects identified in the EBS reports.
The Owners submitted that if I came to such a view, I should allow the amendments, but reserve to the trial judge the question of when the amendments should take effect. However, it is not clear that this would sufficiently protect Iris's position. Given that the addition of defects to a claim under the Home Building Act warranties does not constitute a new cause of action, it would not seem to matter whether the amendments, if allowed, took effect on a date before or after the Limitation Date, since they would then take effect as further particulars of a cause of action that had been brought before the Limitation Date (see Parkview Constructions v The Owners - Strata Plan No 90018 at [103]).
I consider that the appropriate course is to allow the amendments to be made, but to reserve to the trial judge the issue whether the Owners should be permitted to rely on those amendments. That is, the Owners will be permitted to file a Further Amended List Statement which adds to Annexure A the particular defects upon which they rely, arising from the EBS reports served prior to 13 March 2024. After the Owners identify and plead out the specific defects upon which they rely, Iris will be in a position to investigate and articulate potential cross-claims in respect of each of those defects. There will also be evidence from the Owners regarding the costs of rectifying the various defects, which may, in some cases, be immaterial. The trial judge will then be in a position to assess whether Iris has been exposed to irremediable prejudice by the addition of the fire safety defects, and whether leave should be revoked in respect of any, some or all of those additional fire safety defects.
The Owners have previously stated an intention to make a further application to amend their pleading, in order to add such additional defects as may be identified in the further fire safety reports which are yet to be completed and submitted to the Council for review. It should not be assumed that the approach which I have outlined above will apply to any further amendment application, which sought to add fire safety defects that were only notified well after the Limitation Date. Counsel for the Owners acknowledged that: "Obviously, the owners are in a different position in relation to the second half [of the fire safety reports]. It's going to be much harder to bring an application to amend based on reports that weren't provided to the developer before the ten‑year long‑stop potentially expired, and so that's costs that the owners are already likely going to have to bear on their own without any recourse."
The Owners should pay Iris's costs thrown away by reason of the amendments. Otherwise, the costs of this motion should be costs in the cause.
For those reasons, I make the following orders: 1. Grant leave to the Plaintiff to file, by 5pm on 26 April 2024, a Further Amended Technology & Construction List Statement, on the basis that the amendments will add, to the list of defects identified in Annexure A to the Amended List Statement filed 24 May 2022, those defects identified in the following reports issued by EBS Consultants: 1. Penetration Audit Report dated 26 February 2024; 2. Assessment of Exits - BCA Parts D1 & D2 Report, dated 12 March 2024; 3. Assessment of the Fire Engineering Report, dated 12 March 2024; 4. Fire Door Audit Report, dated 13 March 2024; and 5. Building Inspection Record Fire and Life Safety Report, dated 13 March 2024; with such leave being conditional on the trial judge considering whether the Second Defendant has been prejudiced by those amendments, and whether the grant of leave to amend should be revoked and the Plaintiff's claims in respect of such additional defects be dismissed. 1. Order that the Plaintiff pay the Second Defendant's costs thrown away by reason of the amendments. 2. Order that the costs of the motion filed on 15 March 2024 be costs in the cause. 3. List the matter for Directions on 3 May 2024.

The Owners - Strata Plan No. 85494 v PBS Building

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Judgment (6 paragraphs)

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Legislation Cited (3)

Cases Cited (4)