The Owners - Strata Plan No 92183 v Samdora Pty Ltd

Judgment

1. HER HONOUR: This is an application under rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) to summarily dismiss the proceedings against the second defendant, 3173 Pty Ltd. The proceedings were commenced in September 2022 and Commercial List Responses have yet to be filed. The plaintiff, The Owners - Strata Plan No 92183, seeks damages in respect of alleged building defects in a townhouse development from six defendants: 1. the builder, being the first defendant Samdora Pty Ltd, and its director, fourth defendant Ghassan Nassif; 2. the developer, being the second defendant, and its director, fifth defendant Elie Chahwan; and 3. the repair contractor, being the third defendant MS Noun Construction Pty Ltd, and its director, the sixth defendant, Omar Noun. The plaintiff sues under the Home Building Act 1989 (NSW), Design and Builders Practitioners Act 2020 (NSW) and the Australian Consumer Law.
2. In short, the plaintiff, the builder and the developer reached a settlement agreement in March 2019, resolving earlier proceedings in the Civil & Administrative Tribunal of New South Wales (NCAT) in respect of the alleged defects. The developer contended that the settlement agreement incorporated the terms of a draft Deed of Settlement, which did not contain any obligation on the developer to carry out remedial construction work and released it from all claims of the type now brought.
3. The plaintiff submitted that the draft deed that was never finalized or executed, nor was execution ever sought by either party. Rather, the parties had determined to depart from entry into a deed. Further, even if the release were found to be given, it did not preclude the plaintiff's claims against the developer that it breached the settlement agreement given defects in the repair works carried out pursuant to the agreement, breached the statutory warranties implied into the settlement agreement, and breached a duty of care owed in respect of the repair works. Nor was the developer released in respect of representations made in respect of the settlement agreement.

Summary dismissal

1. There was no dispute as to the principles, which have been variously expressed. The discretion of the Court to summarily dismiss a claim is to be sparingly invoked: Dey v Victorian Railways Commissioners (1949) 78 CLR 62; [1949] HCA 1; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1946] HCA 69. It must be clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99. A claim will be summarily dismissed as disclosing no reasonable cause of action only where "the case is so clearly untenable that it cannot possibly succeed": Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256; [2006] HCA 27; Bryant v Commonwealth Bank of Australia (1994) 51 FCR 529; Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28, per French CJ and Gummow J at [25].
2. There must be a high degree of certainty about the ultimate outcome of the proceedings if it went to trial: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at [57]. The Court must form a view that the claim would fail if permitted to go to the trial such that it would be an abuse of process for the Court to allow the proceedings to continue: Ke Qin Ren v Hong Jiang (2014) 104 ACSR 149; [2014] NSWCA 388 at [49].

Ascertaining contractual terms

1. The question of what the parties agreed is a question of fact: Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26; 260 CLR 1 at [27]. The Court must ascertain the "objective intention" of the parties, that is, "the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had, concerning the subject matter of the alleged contract": Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 655 per Campbell JA (with whom Mason P and Tobias JA agreed); Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [66] per Giles JA (with whom Hodgson and Campbell JJA agreed); Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248 at [26] per Glass JA (McColl JA and Young CJ in Eq agreeing).
2. The parties also relied on post-contractual conduct in support of their contention as to the content of the settlement agreement. Post-contractual conduct is admissible on the question of whether a contract was formed but not on the question of what a contract means: Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]-[26]. Post-contractual conduct is an aid to finding what the terms of the contract were: Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303 at [125]-[126] per Campbell JA which whom Basten JA and Sackar J agreed. Subsequent conduct may also indicate what was important or essential to the transaction and indicate the parties' contractual intention: Queensland Phosphate Pty Limited v Korda and Shepard (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269 at [37].

Facts

1. In what follows, the facts are as pleaded in the Technology and Construction List Statement, supplemented by documentary tenders and evidence of the plaintiff's solicitor, Paul Jurdesczka.
2. On 10 April 2015, the developer entered into a contract to construct nine townhouses and common property, being residential building work for the purposes of the Home Building Act 1989. The residential building work was completed on 27 October 2016. The strata plan was registered on 7 November 2016. The developer continued to own four of the townhouses.
3. On 14 October 2018, the plaintiff obtained a report which identified defective and incomplete work in the townhouses and common property, being 141 defects in total. On 25 October 2018, the plaintiff commenced proceedings against the builder and the developer in NCAT in respect of the alleged defects. The builder was named as the first respondent. The developer was the second respondent.
4. The builder and the developer jointly retained a solicitor who, on 13 November 2018, wrote to the plaintiff's solicitor suggesting that the proceedings were vexatious and frivolous such that the respondents were entitled to their costs. The respondents proposed, however, that orders be made in the NCAT proceedings, without admission, for the respondents to repair the defects claimed in the report of 14 October 2018 but for the plaintiff to pay their legal costs.
5. At an Extraordinary General Meeting on 12 December 2018, the plaintiff struck levies to fund the NCAT proceedings. On 20 January 2019, the plaintiff issued levy notices which included a special levy for legal representation. As a lot owner, the developer received levy notices but objected to payment. Mr Jurdesczka became concerned that the plaintiff would not be able to sustain the NCAT proceedings without raising additional funds.
6. In January 2019, the respondents approached the plaintiff's solicitor again, seeking to resolve the matter. On 25 January 2019, the plaintiff's solicitor replied without prejudice, welcoming the respondents' interest in resolving the matter and inviting them to submit a proposed scope of works to repair the defects. Further: (emphasis added) … We attach a draft Deed (which we are seeking instructions to confirm such is appropriate, but in our experience deals with all relevant issues and should be acceptable) in respect of an agreement to do repairs … as part of the process of trying to resolve this matter. As provided for in the draft Deed, certain details (such as the scope) still need to be provided, but we put such forward so as to open discussions in that regard and try to advance that document in the meantime.
7. As such, the attached Deed of Settlement was a draft document on which the plaintiff's solicitor had yet to obtain instructions. The document was put forward to "open discussions". The draft Deed of Settlement was obviously in the early stages of preparation, with key inputs such as the Commencement Date for repair works, the number of weeks over which the repair work was to be completed and, indeed, the Agreed Works, simply marked "XXXX". It is the terms of this document on which the developer now relies as barring these proceedings.
8. The deed proposed that the builder would perform the Agreed Works and warrant that, in performing those works, the works would comply with the Statutory Warranties. The developer also places reliance on the fact that the proposed deed required the builder to undertake the repair work. Further, proposed clause 2.13 provided: 2.13 Release On the day of this Deed, except as provided for in these Terms, the OC unconditionally and irrevocably releases and discharges forever Samdora and 3173 from the Claims. where "Claims" was defined as: Claims means all past, present or future claims (known or unknown) for relief of any kind whatsoever including all actions, suits, demands, liabilities (whether arising at law, in tort, in equity, pursuant to statute or otherwise) arising out of, in connection with, or in relation to the alleged defects the subject of the [NCAT] Proceedings including the Report [of 14 October 2018] except as provided for in this Deed.
9. Proposed clause 2.18 provided that, after entering into the Terms, the parties would resolve the NCAT proceedings on the basis that the proceedings were withdrawn, with the respondents to pay the plaintiff's costs of the proceedings on the ordinary basis.
10. On 3 February 2019, the builder and developer's solicitor replied, attaching a Schedule of Works. The schedule was entitled with the names of both the developer and builder. The schedule listed each of the defects identified by the building consultant and provided the builder's observations and comments; the builder generally stated the defect either did not exist or was minor and inexpensive to fix.
11. Some of the defects were highlighted in green. The document explained that the items in green "are not defects but we are still willing to fix". Presumably the "we" referred to both the developer and the builder. The developer and builder also proposed not to fix the defects identified in respect of townhouses owned by the developer. As I read the Schedule of Works, it was proposed that the builder and the developer would be responsible for ensuring that the repair works were done.
12. Returning to the cover letter of 3 February 2019, the builder and developer's solicitor referred to the proposed Deed of Settlement and advised: Deed of Settlement 4. We are instructed to agree to a Deed of Settlement with the following amendments to your proposed terms: a. The parties accept the proposed schedule of works as agreed works. b. Item 2.16 is deleted c. The applicant pay for its own inspection. … We propose that inspections be undertaken after the respondents complete the works in accordance with their proposed schedule of repairs. d. Each party bear their own costs. e. In order to give effect to the preceding part, the parties consent to an order under section 90 of the Strata Schemes Management Act 2015 (SSMA) with the effect that any costs paid to the applicant's solicitors must be levied against all lots, other than those that belong to the second respondent. (Clause 2.16 proposed contractual limitation periods for breach of statutory warranties in respect of the Agreed Works.)
13. On 21 February 2019, the plaintiff's solicitor replied, "Our client rejects that offer, and makes a counter offer as set out herein." The plaintiff's solicitor contended that "your clients were responsible for the defects originally" and now proposed to do repairs without a sufficiently detailed scope of works. The plaintiff considered that agreeing "to provide your clients with the opportunity for the First Respondent to return and do any repairs on behalf of the Respondents is a compromise".
14. The plaintiff's solicitor then addressed each of the sub-paragraphs of the offer of 3 February 2019. As to paragraph 4(a), the proposed schedule of works was considered inadequate and a proper scope of work was sought. As to paragraph 4(b), deleting clause 2.16 of the proposed Deed of Settlement was acceptable. As to paragraph 4(c), advice was being sought from the building consultant. Issue was taken with paragraph 4(d). The plaintiff did not agree to paragraph 4(e), where a separate application would need to be made to NCAT for an order under section 90 of the Strata Schemes Management Act 2015 (SSMA) and would likely fail. Nor would such an order absolve the developer from liability to pay the special levies already issued, "In any event it would require a general meeting resolution to do so, even if such were legal."
15. The plaintiff's solicitor put forward a counter offer, offering to settle the matter on the following basis: (emphasis in original) Our Client's Settlement Offer 1. The Applicant agrees to the First Respondent returning to do the work set out in the schedule of works attached to your clients' offer of 3 February 2019, including those items … said to be contained in lots owned by the Second Respondent. … Notwithstanding the concerns as to the lack of detail in the schedule of works, the Applicant is prepared to have the Second Respondent do that work given it will be work done under an agreement and thus subject to the statutory warranties provided under Section 18B of the HBA, including in particular that under Section 18B(f) that "the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, … so as to show that the owner relies on the holder's or person's skill and judgment" with the purpose of the work being the repair of those defects. 2. In addition, the Respondents agree to also attend to the additional items … 3. The settlement shall explicitly exclude, and the Applicant reserves its rights in respect of [specific defects]. … 4. Each side to bear own costs of the proceedings. 5. The applicant will not and cannot agree to the requested order under section 90 of the SSMA for the Second Respondent. 6. To avoid the need to enter into the proposed Deed, and to then call an Extraordinary General Meeting to authorise such, we propose that by consent the Tribunal be requested to make orders giving effect to the above settlement … by way of a work order. …
16. Whether the reference to "the Applicant is prepared to have the Second Respondent do that work" is a typographical error is not known. However, the plaintiff proposed that, in lieu of a deed and the need to call an Extraordinary General Meeting to authorise entry into the deed, consent orders would be made by NCAT. That is, there would be no deed. The plaintiff provided proposed short minutes of order, including that the builder would undertake repair works on behalf of the plaintiff.
17. On 19 March 2019, the builder and developer's solicitor responded, generally at odds with the plaintiff's solicitor. The builder and developer's solicitor referred throughout the letter to "our clients", that is, to both the builder and the developer. The letter concluded: 17. Finally, we reiterate our client's offer to undertake the works in accordance with its schedule of repairs in accordance with our letter dated 3 February 2019. It will note (sic) undertake anything (sic) further works …
18. It is unclear whether "our client's" is a typographical error intended to refer to "our clients" - as appeared elsewhere in the letter - or was a reference to the builder or the developer (or which one was being referred to). The schedule of works accompanying the letter of 3 February 2019 was itself ambiguous as to whether one or both clients undertook responsibility to attend to the repairs: see [18]-[19].
19. The developer submitted that the offer made on 19 March 2019 revived the terms of the offer made on 3 February 2019 and, with it, incorporated the proposed Deed of Settlement by reference, including the release in clause 2.13. At odds with this, I note that the offer of 3 February 2019 required a consent order under section 90 of SSMA, which the plaintiff had already clearly rejected, supported by a detailed argument as to why such an order could not readily be obtained. I do not read the offer of 19 March 2019 as reinvigorating that requirement. Nor did the letter of 3 February 2019 refer to the execution of the Deed of Settlement. I accept that the developer's suggested construction of the offer is arguable but, for my part, not particularly compelling.
20. On receipt of the offer, Mr Jurdesczka noted that paragraph 17 made an unqualified offer to do the repair work set out in the Schedule of Works provided on 3 February 2019 and was not subject to the same terms as the offer made on 3 February 2019. Mr Jurdesczka considered that the offer may be acceptable as incorporation of the Schedule of Works meant that the settlement agreement would amount to an agreement to do residential building work for the purposes of section 18B of the Home Building Act 1989. Although the settlement agreement provided for the builder to do the relevant works, the agreement was also with the developer against whom the NCAT proceedings would be withdrawn. Accordingly, he considered that the statutory warranties would be implied into that agreement and, if the scope of repairs proved inadequate or the repairs were not properly undertaken, then the plaintiff would be able to sue for a breach of the statutory warranties as a result.
21. On 27 March 2019, the plaintiff's solicitor replied, responding to the various matters about which the builder and developer complained. In addition: (emphasis added) Further, we are instructed that the Second Respondent has continued to fail to pay levies on time, which has understandably (and we say deliberately) interfered with the ability of our client to bring the current proceedings. In respect of your client's offer at paragraph 17 to undertake works in accordance with the schedule of repairs provided 3 February 2019, our client accepts that offer. In reliance on that agreement, our client will now: 1. discontinue the current proceedings; and 2. provide reasonable access for the First Respondent … to do the agreed repairs. … The plaintiff's solicitor did not clarify whether the client making "your client's offer" was the builder, the developer or both.
22. The developer submitted that the settlement agreement incorporated the terms of the draft Deed of Settlement, in particular, the release in clause 2.13. It was said that one could not isolate the schedule of works from the proposed Deed of Settlement, where the deed contemplated a schedule of works, and the content of the letter of 3 February 2019. The schedule of works and the proposed Deed did not make sense in isolation from one another. The schedule of works set out the works to be carried out and the time those works would take while the deed out the manner in which the works had to be carried out. Were it otherwise, there would have been no need to refer to the letter of 3 February 2019 at all in the letter of 19 March 2019, nor any need to use the phrase "in accordance with" on two occasions in that letter, by reference to the schedule of works and, again, by reference to the letter of 3 February 2019.
23. I do not agree. Rather, to the extent that the builder and developer's offer of 19 March 2019 was ambiguous, the plaintiff's solicitor was, I think, clear as to the offer it was prepared to accept, being the offer to undertake works in accordance with the schedule of repairs provided on 3 February 2019. The plaintiff did not accept each element of the offer made on 3 February 2019, which included a Deed of Settlement and an order under section 90 of the SSMA.
24. The plaintiff's solicitor informed NCAT that the parties had reached a settlement and provided a Request for Withdrawal of Application. NCAT made orders accordingly on 28 March 2019. The developer submitted that, on NCAT making orders on 28 March 2019, it was thereby released from all Claims in accordance with clause 2.13 of the draft Deed of Settlement. If follows from what I have said that I do not agree, although I accept that such a construction of the correspondence is arguable.

Post-contractual conduct

1. The developer submitted that the plaintiff's subsequent conduct in withdrawing the claim made in the NCAT Proceedings with no order as to costs was consistent with the settlement agreement incorporating the terms of the draft Deed of Settlement, where the deed contemplated a withdrawal of the NCAT proceedings and the letter of 3 February 2019 contemplated that each party would bearing its own costs. The plaintiff's conduct in this regard is equivocal where the parties' correspondence generally envisaged that a settlement would result in the NCAT proceedings coming to an end and where the plaintiff's offer of 21 February 2019 also proposed that there would be no order as to costs of those proceedings.
2. The plaintiff pointed to the fact that Mr Jurdesczka did not receive any request that the plaintiff execute a finalised version of the draft deed. The developer submitted that there was no need to request the execution of the deed where its terms had been incorporated into the settlement agreement by reference. I accept that this is possible but consider that it would have been a somewhat unusual way to proceed. The most common way to formalise a settlement agreement which includes the provisions of a deed is to execute the deed. The absence of any execution of the Deed of Settlement, or any request from the builder and the developer to finalise and sign the document, tells against parties intending that the terms of the deed formed part of the settlement agreement.
3. In September 2019, the plaintiff commenced debt recovery proceedings against the developer for unpaid levies. In December 2019, the developer lodged an application with NCAT, seeking orders that the special levies be deemed excessive and unreasonable. The developer did not then suggest that the settlement agreement included paragraph 4(e) of the letter of 3 February 2019, which required the parties to consent to an order under section 90 of the SSMA with the effect that the plaintiff's costs be levied against all lots other than those belonging to the developer. If that term had formed part of the settlement agreement, then it would have been open to the developer to raise this matter when challenging the special levies. The fact that the developer made no such suggestion is consistent with the entirety of paragraph 4 of the offer of 3 February 2019 not forming part of the settlement agreement (where paragraph 4(a) made reference to the draft Deed of Settlement).
4. On 22 December 2020, the plaintiff's solicitor wrote to the builder and developer's solicitor, noting that the NCAT proceedings had been resolved by acceptance, "of your clients' offer" on 27 March 2019 on the basis that the builder would undertake the rectification works in accordance with the schedule of repairs provided on 3 February 2019, with the plaintiff to discontinue the proceedings. Whilst the developer relied on the letter as post-contractual conduct consistent with the settlement agreement for which it contends, I regard it as entirely consistent with the plaintiff's acceptance of the offer on 27 March 2019: see [31] and [30]. Nor did the letter of 22 December 2020 suggest that the settlement agreement included the Deed of Settlement.
5. The developer also relied on the minutes of a strata committee meeting on 29 July 2021 as post-contractual conduct consistent with the settlement agreement for which it contended. The strata committee then resolved not to commence legal proceedings in respect of building defects "under the terms of Agreement dated 3 February 2019 (as accepted by the Owners Corporation on 27 March 2019), against any liable party." I do not think the minutes take the matter any further. The minutes beg the question: what were the terms of agreement dated 3 February 2019? Nor do the minutes suggest that the proposed Deed of Settlement formed part of that agreement.
6. Further light is shed on the resolution of 29 July 2021 by the notice of meeting, which included an agenda and an explanation of agenda items. The explanation records that the strata committee had considered five advices from the plaintiff's solicitor but resolved not to commence proceedings despite the solicitor's recommendation, as statutory warranties may have lapsed. Further, "the committee has decided such including on a commercial basis after carefully considering the costs and risks involved, including that some rights for some alleged defects still remain open." Instead, the committee intended to repair the defects itself. The explanation for the agenda item does not suggest that the plaintiff decided not to press its claims against "any liable parties" by reason of a release in the proposed Deed of Settlement but had other considerations in mind.

Conclusion

1. The defendant has fallen a long way short of establishing that the proceedings against it should be summarily dismissed, having regard to the principles earlier set out: see [5]-[7]. Indeed, on the evidence before the Court on this interlocutory application, I consider that the settlement agreement did not incorporate the terms of the draft Deed of Settlement. Further, whilst it was clearly envisaged that the builder would undertake the repair works, the contemporaneous documents suggest that the builder would do so on behalf of both the builder and the developer: see [20]-[21], [23], [25]-[26]. The suggestion that only the builder had an obligation to undertake the repair work is undermined by imprecisions in the correspondence and the fact that offers to undertake the repair work emanated from a solicitor who was acting for both the builder and the developer.
2. Nor is it clear to me how the terms of the draft Deed of Settlement - even if it formed part of the settlement agreement - had the consequence that other causes of action sought to be pursued by the plaintiff, for example, under the Australian Consumer Law, should also be dismissed. As a consequence, the developer's motion for summary dismissal fails.

Costs

1. The developer accepts that costs ought follow the event. The plaintiff, however, sought an order for indemnity costs. The developer opposed such an order on the basis that the motion was not without merit and the developer may ultimately succeed on the issue at a final hearing.
2. The principles in determining whether a special costs order should be made on the basis of a Calderbank offer were considered by Ward CJ in Eq in In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) (No 2) [2021] NSWSC 1161 at [93]-[99], which summary I gratefully adopt. In short, non-acceptance of an offer comprising a genuine compromise enlivens a discretion to award indemnity costs where it was unreasonable to reject the offer.
3. In response to indications by the developer's legal representatives that a summary dismissal application may be brought, the plaintiff's solicitor sent a comprehensive and, with respect, compelling letter on 23 November 2022, setting out why the settlement agreement reached in March 2019 did not incorporate the release in the proposed Deed of Settlement. The plaintiff reserved its right to rely on the letter in support of an application for indemnity costs if a summary dismissal application was brought.
4. The motion was filed by the developer the next day. On 29 November 2022, the plaintiff's solicitor wrote again, setting out why the application was doomed to fail. The plaintiff offered to consent to the motion being dismissed with no order as to costs and reserved the right to rely on the letter in support of an application for indemnity costs. The offer was not accepted.
5. The only offer made by the plaintiff was to agree to bear its own costs of the motion. That said, there was nothing else the plaintiff could offer, save to accede to the developer's application for summary dismissal. In the circumstances, I consider the plaintiff's offer to constitute a genuine compromise.
6. Three matters suggest that non-acceptance of the plaintiff's offer was unreasonable. First, the developer had the benefit of an extensive explanation as to why the motion was doomed to fail. The developer's application failed for the reasons advanced by the plaintiff's solicitor on 23 November 2022. Second, the high bar applicable to an application for summary dismissal is notorious. Third, whilst the contention that the settlement agreement incorporated a release from a draft Deed of Settlement circulated by the plaintiff's solicitor at the commencement of settlement negotiations is arguable, the application for summary dismissal was ambitious.
7. The plaintiff's offer to bear its own costs of the motion if the developer agreed not to press the application was sensible. I consider the developer's non-acceptance of the offer to be unreasonable in the circumstances.

Orders

1. For these reasons, I make the following orders: 1. Dismiss prayer 1 of the motion filed on 24 November 2022. 2. Order the second defendant to pay the plaintiff's costs of the motion on an indemnity basis.

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