The Owners-Strata Plan No. 86807 v Crown Group Constructions Pty Ltd

Introduction

1. By a notice of motion filed on 20 March 2023, the plaintiff, the owners corporation of a residential strata development in Waterloo (the Owners Corporation), seeks leave to file an amended technology and construction list statement which adds a claim against the first defendant, Crown Group Construction Pty Ltd, the builder of the strata development (the Builder), for breach of a duty of care implied by s 37 of the Design and Building Practitioners Act 2020 (NSW) (the DBP Act) in respect of the cladding installed on the façade of the strata building.
2. The application has a somewhat complicated history. On 13 December 2022, the Owners Corporation filed a further amended notice of motion seeking leave to amend its technology and construction list statement to bring the claim under the DBP Act and to expand claims it had brought against the Builder and the second defendant, Crown W Pty Ltd, the developer of the development (the Developer), for breaches of the warranties implied by s 18B of the Home Building Act 1989 (NSW) (the HBA) to add a claim in respect of the cladding.
3. On 7 February 2023, I delivered judgment on that notice of motion: see The Owners-Strata Plan 86807 v Crown Group Constructions Pty Ltd [2023] NSWSC 44. At that time, I made the following orders: (1) Order that the further amended notice of motion filed in court on 13 December 2022 be dismissed with costs; (2) Direct that by 3 March 2023 the plaintiff serve on the defendants any proposed amended summons and amended list statement that includes a claim against the first defendant under the Design and Building Practitioners Act 2020 (NSW); (3) Direct that by 10 March 2023 the defendants notify the plaintiff whether it objects to the filing of any such amended document; (4) If the defendants object to the filing of any such document, direct that any motion seeking leave to file the documents be filed no later than 17 March 2023 and be made returnable on 24 March 2023; and (5) Stand the matter over to 24 March 2023.
4. The effect of these orders was to reject the amendments that expanded the claims against the Builder and the Developer under the HBA to include complaints about the cladding, to give the Owners Corporation an opportunity to make further amendments to its claim under the DBP Act and to reserve the question whether leave to amend the claim should be given until that had been done. One issue in relation to the claim as it stood was that it did not properly plead a claim in negligence. Another issue was the fact that the evidence relied on by the Owners Corporation to explain why it was seeking to bring the claim now was unsatisfactory. It was the Owners Corporation's case that it had only recently discovered that the cladding was combustible. However, the evidence it relied on in support of that contention did not go that far. The evidence consisted of an expert report prepared by Credwell Consulting which simply expressed the opinion that there was no evidence that the cladding complied with the Building Code of Australia that was in force at the relevant time: see [2023] NSWSC 44 at [6], [18].
5. The principal reason for refusing leave to amend the claim under the HBA was the delay in bringing that claim and the irremediable prejudice that that delay caused the Builder and the Developer. That prejudice arose from the fact that the claim under the HBA was not an apportionable one so that the Builder and Developer could not seek to reduce their liability by reference to the liability of others, such as the supplier of the cladding, the architect who specified it or the subcontractor who installed it. Moreover, any cross claim against those persons for breach of contractual warranties they may have given was likely to be statute barred. That was of particular significance because the contractual warranties were likely to correspond more closely to liability for breaches of the warranties implied by the HBA: see [2023] NSWSC 44 at [20]-[21].
6. In accordance with the orders I made on 7 February 2023, the Owners Corporation filed the notice of motion currently before the Court. That motion first came on for hearing on 14 April 2023. I refused leave to file an amended list statement in the form proposed by the Owners Corporation at that time but gave it a further opportunity to replead its case and stood the matter over to 5 May 2023. On 1 May 2023, the Owners Corporation served and provided to my Associate a further proposed list statement. The question before the Court is whether leave should be given to the Owners Corporation to file that list statement.
7. The Builder objects to leave being granted for three main reasons. First, it submits that the claim as pleaded is bound to fail. Second, it submits that the proposed amended list statement still does not plead a proper claim under the DBP Act. Third, it submits that the Court should, in the exercise of its discretion, refuse leave because of the delay in seeking the amendments and the prejudice it will suffer if the amendments are allowed.

Is the claim bound to fail?

1. In para C36 of the proposed list statement, the Owners Corporation pleads that "By about 1 October 2013, [the Builder] had designed the external walls of the building and shortly thereafter commenced to construct those walls …". The Builder submits that the allegation that it designed the external walls of the building is contrary to the evidence and consequently the claim is bound to fail.
2. In support of that contention, the Builder points to the fact that the evidence clearly discloses that the Builder retained Brian Meyerson Architects Pty Ltd to design the façade of the building.
3. In my opinion, this submission must be rejected. Section 37 of the DBP Act provides: Extension of duty of care (1) A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects - (a) in or related to a building for which the work is done, and (b) arising from the construction work. (2) The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land. (3) A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law. (4) The duty of care is owed to an owner whether or not the construction work was carried out - (a) under a contract or other arrangement entered into with the owner or another person, or (b) otherwise than under a contract or arrangement.
4. "Construction work" is defined in s 36 to mean: (a) building work, (b) the preparation of regulated designs and other designs for building work, (c) the manufacture or supply of a building product used for building work, (d) supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work referred to in paragraph (a), (b) or (c).
5. Section 39 of the DBP Act provides: Duty must not be delegated A person who owes a duty of care under this Part is not entitled to delegate that duty.
6. The Builder was required to construct the building forming the strata development in accordance with the design and construct contract dated 30 April 2012. It is apparent that the scope of the work it was to do under the contract included design of the building. As a result of s 37 of the DBP Act, the Builder owed a duty of care relevantly to the Owners Corporation in undertaking that work. That duty of care was non-delegable. Consequently, although the pleading in para C36 may over simplify the position for the purpose of a claim under the DBP Act, nothing turns on whether the Builder actually designed the external walls or delegated that task to an architect. It owed a non-delegable duty of care in relation to the work undertaken by the architect. Accordingly, it cannot be said that the Owners Corporation's claim is bound to fail or that any defect in the pleading of s 37 is sufficient to justify a refusal of leave.

The pleading point

1. In order to understand the Builder's second objection, it is necessary to say something about the pleading. The pleading draws a distinction between cladding that forms part of an external wall and cladding that is attached to an external wall. For present purposes, it is sufficient to focus on the former.
2. In substance, the Owners Corporation pleads (all references are to paragraphs in the most recent proposed amended list statement): 1. The building had to comply with the Building Code of Australia as in force at the time the application for a construction certificate was made (the BCA): para C30; 2. The BCA required the external walls of the building to be non‑combustible: para C42; 3. None of the installed cladding on the external walls was non‑combustible: para C44; 4. The Builder owed the Owners Corporation a duty to take reasonable care to avoid economic loss caused by defects: para C40; 5. Consistently with the duty referred to in (d), a reasonable person in the position of the Builder would not have installed the cladding without taking reasonable steps to satisfy itself that the cladding complied with the BCA: para C57; 6. The steps referred to in (e) involved making enquiries of the manufacturer of the cladding as to whether there was a certificate evidencing that it was non‑combustible or testing the cladding to satisfy itself that it was non-combustible: para C58; 7. In the absence of taking either of the steps referred to in (f), a reasonable builder would have used an alternative cladding that it had established to be non-combustible through one of the methods referred to in (f): para C58 (e); 8. The Builder did not take the steps referred to in (f) in relation to the cladding that was used: para C59; 9. Accordingly, the Builder acting reasonably would not have installed the cladding, but instead would have installed compliant cladding: para C62; 10. As a result, the Owners Corporation has suffered loss and damage: para C63.
3. The Builder contends that the proposed list statement is defective because it does not identify what would have happened if the Builder had not taken the steps the Owners Corporation says it ought to have taken. The example Mr Weinberger, who appeared for the Builder, gave was that the pleading does not identify what would have happened if the Builder had made an enquiry of the manufacturer concerning a certificate.
4. I accept that the proposed list statement is not entirely satisfactory. In particular, the pleading in para C62 is simply that "If [the Builder] had taken any of the steps identified in [para C58], it would not have used the Installed Cladding". There is no pleading of what it would have done. However, I think that it is implicit in the pleading that it would have identified compliant cladding in the way described in para (g) above and installed that cladding and consequently would not have exposed the Owners Corporation to the risks of having non-compliant cladding.
5. In order to make out this claim, the Owners Corporation will need to prove that the cladding that was installed did not comply with the BCA. It will also need to persuade the Court, among other things, that a builder acting with reasonable care would have sought a certificate in respect of the cladding or performed a test on it and that there was cladding on the market at the time in respect of which the required certificate was available or which would have passed the test that a reasonable builder would have undertaken. With one exception, these are matters for the final hearing. The exception relates to the allegation that the cladding does not comply with the BCA. As I have explained, the application to amend was made on the basis that the Owners Corporation had only recently discovered that the cladding did not comply with the BCA. However, the evidence relied on did not go that far. At the time I deferred consideration of whether the Owners Corporation should be permitted to bring a claim under the DBP Act, I indicated that the application should be considered in the light of a further report from Credwell Consulting (which provided evidence that the cladding did not comply with the BCA). There is no evidence before the Court that such a report has been obtained. I return to this point below.
6. As to the question of loss and damage, it appears that the Owners Corporation claims the costs of replacing the cladding. But even if that is not correct, the question of what loss and damage is claimed by the Owners Corporation can be resolved by a request for particulars.

Discretionary matters

1. Two main discretionary matters are raised in relation to the amendment. The first is delay in bringing the application. The second is that it is said that the Builder will be irremediably prejudiced if the amendments are allowed. In relation to that second issue, in my earlier judgment, I refused leave to amend to include a claim under the HBA in respect of the cladding principally because an action under that Act was not apportionable and any cross‑claim the Builder may wish to bring for breach of warranty was likely to be time barred: see [2023] NSWSC 44 at [20]-[22]. I said that the position was different in the case of a claim under the DBP Act because a claim under that Act was apportionable. It was for that reason I deferred the question whether leave should be granted until the Owners Corporation had had an opportunity to replead its case and obtain a further report from Credwell Consulting.
2. Mr Weinberger, relying on s 39 of the DBP Act, submitted that the view I expressed on the question whether the claim was apportionable was wrong. He submitted that a non‑delegable claim could not be apportioned at least as between the person who is said to owe the duty and the person who discharges it. If the position were otherwise, the provision making the duty non‑delegable would be otiose. Consequently, he submitted that the claim under the DBP Act suffered from the same problems as the amendment sought to be made to the claim under the HBA. Leave to amend to include a claim under the DBP Act should be refused for similar reasons.
3. I accept that the question whether a claim under s 37 of the DBP Act is an apportionable claim for the purpose of s 34 of the Civil Liability Act 2002 (NSW) (the CLA) has not been finally resolved. The issue arises because s 34(1)(a) of the CLA relevantly provides that an apportionable claim is "a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable case …". It is said that a claim based on a non-delegable duty of care (which includes a claim under s 37 of the DBP Act) is not a claim arising from a failure to take reasonable care. Rather, it is a claim based on a failure to ensure that another person (the person to whom the relevant task was delegated) took reasonable care: see Commonwealth of Australia, Review of the Law of Negligence: Final Report (September 2002) (the Ipp Report) para 11.10, citing Kondis v State Transport Authority [1984] HCA 61; (1984) 154 CLR 672 at 687 per Mason J (Kondis). (The Ipp Report was the report that led to amendments to the CLA which include the provisions relating to proportionate liability.) The CLA (on the recommendation of the Ipp Report: see Recommendation 43) seeks to deal with this issue by treating a non-delegable duty as a form of vicarious liability and making it clear that a person who is vicariously liable for the acts of another against whom an apportionable claim is made is liable for the portion of the claim for which the other is liable. The first of these steps is achieved by s 5Q of the CLA, which provides: 5Q Liability based on non-delegable duty (1) The extent of liability in tort of a person (the defendant) for breach of a non-delegable duty to ensure that reasonable care is taken by a person in the carrying out of any work or task delegated, or otherwise entrusted to the person by the defendant is to be determined as if the liability were vicarious liability of the defendant for the negligence of the person in connection with the performance of the work or task. (2) This section applies to an action in tort whether or not it is an action in negligence, despite anything to the contrary in section 5A. The second step is achieved by s 39 of the CLA, which provides: 39 Application of this Part Nothing in this Part - (a) prevents a person from being held vicariously liable for a portion of any apportionable claim for which another person is liable…
4. However, so the argument goes, s 5Q of the CLA only applies to an action in tort. An action under s 37 of the DBP Act is not "an action in tort". It is a statutory cause of action. Consequently, the proportionate liability provisions of the CLA do not apply to a claim under s 37 of the DBP Act.
5. I am inclined to think that this analysis is wrong. In my opinion, the claim under s 37 of the DBP Act is a claim "arising from a failure to take reasonable care", for the purposes of s 34 of the CLA, even though the duty the breach of which gives rise to the claim is a non-delegable duty. The claim still arises out of a failure by the delegate to take reasonable care. Moreover, it does not seem to me to be entirely correct to say that a non-delegable duty cannot be described as a duty to take reasonable care. To say a duty to take reasonable care is non-delegable simply means that any negligence of the person to whom the duty was in fact delegated is to be treated as the negligence of the person who owed the duty. I can find nothing in the judgment of Mason J in Kondis that suggests otherwise.
6. There is no difficulty in principle in applying the proportionate liability regime to a claim arising from a non-delegable duty of care, although the question of apportionment will be different. In the case of a non-delegable duty, the delegator's responsibility for any loss will be co-extensive with the delegate's responsibility. In that case, as between them, it is to be expected that they would be equally liable for the loss. But that does not make s 39 of the DBP Act otiose.
7. It follows that the proportionate liability provisions of the CLA apply. That is so whether or not s 5Q of the CLA catches a claim under s 37 of the DBP Act.
8. In Boulus Constructions Pty Ltd v Warrumbungle Shire Council (No 2) [2022] NSWSC 1368, Stevenson J accepted that a claim under s 37 of the DBP Act was an apportionable claim: The Act is expressed to be subject to the Civil Liability Act. The proportionate liability regime under Pt 4 of the Civil Liability Act thus applies to actions for breach of the s 37 statutory duty. This enables persons in the position of Mr Boulus and Mr McCarthy to identify concurrent wrongdoers and seek to have their liability for breach of the statutory duty limited under s 35 of the Civil Liability Act. … [footnote omitted]
9. Rees J reached the same conclusion in The Owners‑Strata Plan No. 84674 v Pafburn Pty Ltd [2023] NSWSC 116, albeit for different reasons than the ones I have given and in the context of a summary dismissal application.
10. It is, however, neither desirable nor necessary to express a final view on the issue. It is not desirable, since it is clearly an important point, but the issue was not fully argued before me. It is not necessary because it does not seem to me that the existence of a proportionate liability defence is critical to the outcome of the current application. That is so because it seems clear that, despite the delays in this case, it could not be said that any claim in negligence or for contribution that the Builder has against others involved in the selection of the cladding would now be time barred. As the case is framed against the Builder, the claim is that the Builder was negligent in selecting the cladding. Either the Builder made that selection itself or it relied on others in doing so or it relied on others to do so. In the first case, it is difficult to see who else the Builder could attribute responsibility for the selection of the cladding to. In the latter two cases, it is likely that the Builder would have its own claim in negligence against those persons which is not time barred and which is likely to be co-extensive with the claim against it. That is, if it is said that the Builder was negligent in selecting the cladding it would, for example, be open to the Builder to allege that the person who actually selected the cladding owed the Builder a duty of care and was negligent for the same reasons.
11. Assuming the claim is not apportionable, the proportionate liability regime of the CLA will have no application: CLA, s 34. Liability would then be assessed at general law. In those circumstances, the Builder may still seek contribution from the person who actually selected the cladding, provided the Builder is able to establish that that person is a tortfeasor liable in respect of the same damage: Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the LRMP), s 5(1)(c). The amount of contribution recoverable would be that determined to be "just and equitable having regard to the extent of that person's responsibility for the damage": LRMP, s 5(2).
12. It was not suggested that the limitation period in respect of either a claim in negligence or a claim for contribution has expired. The limitation period in respect of a claim in negligence is six years from the date the loss manifests itself: Limitation Act 1969 (NSW), s 14(1)(b) (the LA); Christopoulous v Angelos (1996) 41 NSWLR 700 at 703 per Handley JA; Scarcella v Lettice (2000) 51 NSWLR 302; [2000] NSWCA 289 at [16] per Handley JA; Cyril Smith & Associates Pty Ltd v Owners Strata Plan No 64970 [2011] NSWCA 181 at [17]-[19] per Basten JA; and in relation to damage arising from or in connection with defective building work, no later than 10 years after the date of completion: Environmental Planning and Assessment Act 1979 (NSW), s 6.20. The limitation period for a claim for contribution will be the earlier of (1) two years from the date on which the cause of action for contribution first accrues; or (2) four years from the date of expiration of the limitation period for the principal cause of action: LA, s 26(1). These limitation periods do not appear to have expired.
13. The position is different in the case of a claim under the HBA. As I explained in my earlier judgment, the warranties implied by the HBA are more extensive than the obligations arising from a duty of care. In order to pass on liability for breaches of those warranties, the Builder would need to rely on warranties given in its favour by the person who actually selected the cladding. But any such claim is likely to be statute barred. Consequently, the risk of irremediable prejudice in the two cases is not the same.
14. That still leaves the question whether the amendments should be permitted. If the amendments are not permitted, the Owners Corporation will undoubtedly lose the opportunity to bring a claim in respect of cladding it says is defective. However, it has led little evidence on the prospects of such a claim succeeding. There has obviously been a great deal of delay in bringing the claim in respect of the cladding since the proceedings were commenced and considerable delay since the Owners Corporation first became aware of a possible issue in relation to the cladding. On the other hand, the proceedings have not been set down for hearing. Much of the delay has arisen from consent orders standing the proceedings over while the parties attempt to negotiate a resolution of the Owners Corporation's claims and while the Builder has rectified defects which are the subject of complaint. Apart from suggesting that there is a theoretic possibility that cross claims that the Builder might have brought have now become time barred (which seems unlikely), the Builder has not led any evidence of the practical effect that the delay has had on its ability now to defend a claim concerning the cladding or bring cross claims against others.
15. Taking these matters into account, I have concluded that, with one qualification, the amendments should be permitted. The risk of prejudice to the Owners Corporation seems to me to outweigh the risk of prejudice to the Builder. The qualification relates to evidence that the cladding did not comply with the BCA because it was combustible. That is an essential element of the Owners Corporation's case. Particularly in view of the history of the matter, the Owners Corporation should not be permitted to advance that allegation without establishing that it has a reasonable basis for doing so. It has not done that. Consequently, any leave that is granted should be conditional on the Owners Corporation filing and serving a report from Credwell Consulting or some other suitably qualified expert concerning the question whether the cladding installed on the external façade of the building or that was attached to the external façade of the building complied with the BCA.

Costs and orders

1. Although the Owners Corporation has been successful, it has only been after several failed attempts. Moreover, even though the Owners Corporation has now been successful, it is not obvious that its claim will succeed. Taking account of those matters, in my opinion, the appropriate order in relation to costs is that the Owners Corporation should bear the costs of the motion up until 1 May 2023 (the date it served the current version of its list statement). The balance of the costs of the motion should be the Owners Corporation's costs in the cause. The Owners Corporation should not be entitled to recover its costs if its claim based on the cladding ultimately fails.
2. Accordingly, the orders of the Court are as follows: 1. Leave be given to the plaintiff to file an amended technology and construction list statement in the form provided to my Associate on 1 May 2023 (the List Statement); 2. Order (1) is subject to the plaintiff by 15 June 2023 filing and serving a report from Credwell Consulting or some other suitably qualified expert which expresses the opinion that the Cladded Walls (as defined in the List Statement) do not comply with the Building Code of Australia 2012 for the reasons set out in paragraphs C42 to C48 of the List Statement; 3. Order that the plaintiff pay the first defendant's costs of the notice of motion filed on 20 March 2023 up until and including 1 May 2023; 4. Order that the plaintiff's costs of the notice of motion filed on 20 March 2023 after 1 May 2023 be the plaintiff's costs in its claim pleaded in paragraphs C30 to C63 of the List Statement; 5. Stand the matter over to 16 June 2023.

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