The Owners Units Plan No 1917 v Koundouris [2016] ACTSC 96 (13 May 2016)

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

[2016] ACTSC 96

STATUTORY INTERPRETATION - BUILDING CONTRACTS - Building Act 1972 (ACT) s 58C - warranties implied into contracts for the sale of a residential building and contract to carry out residential building work to which the builder is a party - consideration of the two categories of contracts to which the section applies - comma in s 58C(1) cannot be read out - meaning of "has been or will be" - whether warranties involve ongoing or one off obligation on builder - rights of successors in title - meaning of "expire at the end of the prescribed period" - period within which a claim may be commenced varies according to category of contract the warranties are implied into

BUILDING CONTRACTS - Building Act 2004 (ACT) s 88 - warranties implied into "every contract for the sale of a residential building" - changes to "prescribed period" - end date for warranties in contracts of sale - period varies depending on whether defect is in "non-structural elements" or "structural elements" - "structural element" broadly defined

UNIT TITLES - entitlement of owners corporation to bring proceedings for breach of warranties under Building Act 1972 (ACT) and Building Act 2004 (ACT) - entitlement of unit owners to recover as damages proportional share of amounts paid by owners corporation

UNIT TITLES - maintenance obligations of owners corporation under Unit Titles Act 1970 (ACT) and Unit Titles (Management) Act 2011 (ACT) - significance of boundaries of units - boundary runs along the centre of the relevant floor, wall or ceiling -- expansion of obligations of owners corporation to "defined parts" of the building - extent of obligation - whether that includes waterproofing to slabs

STATUTORY INTERPRETATION - Limitation Act 1985 (ACT) s 40 - extension of limitation period for action in relation to latent damage to property - provision not limited to cases in tort - section permits extension of time for causes of action in contract

LIMITATION PERIODS - Limitation Act 1981 (ACT) s 40 - extension of limitation period for action in relation to latent damage to property - whether damage latent - extent of latency - assessment of matters in s 40(2) - case where defects were known for some time - significance of owners' failure to investigate defects and obtain independent advice - not fair and reasonable to extend time

NEGLIGENCE - whether builder owed a duty of care to the owners to carry out and supervise building work with reasonable care to ensure that the building work was carried out in a proper and workmanlike manner and in accordance with the statutory warranties - no duty of care arose with respect to defects in the original construction due to existence of statutory warranties - duty of care owed in relation to attempts to repair original defective work - duty not one which required bringing the building works up to standard required by the statutory warranties - duty to avoid foreseeable loss to the owners arising from undertaking the repair work

MISLEADING AND DECEPTIVE CONDUCT - REPRESENTATIONS - Fair Trading Act 1992 (ACT) - Trade Practices Act 1974 (Cth) - representations made as to rectification of defects - representation must be operative at the point where plaintiff acts of fails to act as a result of it - whether representations made to the effect that there were no defects

ESTOPPEL - LIMITATION PERIOD - whether estoppel arose to prevent reliance on limitation defences - defendant's conduct must generate a reasonable expectation on the part of the plaintiff - plaintiff's delay in getting advice as to their rights was for reasons other than reliance upon any statements made by the first defendant

Building Act 2004 (ACT)

Building (General) Regulation 2008 (ACT), ss 38(1), 40, 41

Civil Law (Wrongs) Act 2002 (ACT), ss 107B, 107D

Fair Trading (Australian Consumer Law) Act 1992 (ACT), ss 11, 12

Land Titles (Unit Titles) Act 1970 (ACT)

Trade Practices Act 1974 (Cth), ss 82, 87

Unit Titles Act 1970 (ACT), ss 16, 24, 25(1)(c), 26, 51(3)

Unit Titles Act 2001 (ACT), ss 14, 15 and 51, 51B

Unit Titles (Management) Act 2011 (ACT), ss 24, 27

Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613

Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541

Brookfield Multiplex Ltd v Owners - Strata Plan No 61288 [2014] HCA 36; (2014) 254 CLR 185

Building Insurers' Guarantee Corporation v The Owners-Strata Plan No 57504 [2010] NSWCA 23

Byrne v Australian Airlines Ltd (1995) 185 CLR 410;

Carr v Western Australia [2007] HCA 47; (2007) 232 CLR 138

Carre v Owners Corporation-Strata Plan 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302

Casey v Alcock [2009] ACTCA 1; (2009) 3 ACTLR 1

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

European Bank Ltd v Evans [2010] HCA 6; (2010) 240 CLR 432

Gagner Pty Ltd trading as Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413

Hadley v Baxendale [1854] EngR 296; (1854) 9 Exch 341

Itek Graphix Pty Ltd v Elliott [2002] NSWCA 104; (2002) 54 NSWLR 207

Kelly v Alford (1988) 1 Qd R 404

Kirkby v Coote [2006] QCA 61

Larking v Great Western (Nepean) Gravel Ltd [1940] HCA 37; (1940) 64 CLR 221

Lister v Romford Ice and Cold Storage Co Ltd [1956] UKHL 6; [1957] AC 555

Mash & Murrell Ltd v Joseph I Emmanuel Ltd [1961] 1 WLR 862

Owners Strata Plan No. 43551 v Walter Construction Group Limited [2004] NSWCA 429

Owners - Strata Plan No 68372 v Allianz Australia Insurance Limited [2014] NSWSC 1807

Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067

Perpetual Trustee Companies Ltd v CTC Group Pty Ltd (No 2) [2013] NSWCA 58

R v Fearnside [2009] ACTCA 3; (2009) 228 FLR 77

Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187

Simons v Body Corporate of Strata Plan No 5181 [1980] VicRp 12; [1980] VR 103

Smart v AAI Ltd [2015] NSWSC 392

Taylor v Owners - Strata Plan 11564 [2014] HCA 9; (2014) 253 CLR 531

Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Company Australia Pty Ltd [2011] NSWSC 75

Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2005] NSWCA 68

The Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272

VAI Industries (UK) Ltd v Bostock & Bramley [2003] EWCA Civ 1069

Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515

Attorney-General's Department, "Proposals for Reform and Modernisation of the Laws of Limitation in the Australian Capital Territory" (Working Paper, April 1984)

1. In 2001, the property the subject of these proceedings was marketed as follows:

Lagani. A magnificent new living style. A place of rest. Luxurious accommodation. Lagani now raises these traditional standards of quality and workmanship to new heights. Indulgence. If you're going to live in one of Canberra's finest locations be comfortable doing it.

2. Such glowing promotion is somewhat ironic having regard to the circumstances of this case described in the reasons which follow.

3. The plaintiff is the Owners Corporation for Units Plan No 1917 (Owners Corporation), created shortly after the building was completed. The plaintiff also had assigned to it the rights of the current owners of the units in the units plan (the Unit Owners). The first defendant is the builder of the building. The second defendant is the developer, that is, the owner of the land on which the building was built.

4. A Certificate of Occupancy for the building was issued on 20 December 2000 and the units in the building were sold to incoming purchasers. The present owners of the units are a mix of those who originally purchased the units and those who have bought from original or subsequent purchasers in the period since then.

5. Shortly after the building was completed, owners started making complaints, most particularly in relation to leaks into the units and into the basement carpark. When responding to these complaints the first defendant, Mr Koundouris, continued to engage in a friendly and apparently helpful way with the Owners Corporation and individual unit owners. Over the period from 2001 until 2009, he continued to attempt to rectify or repair problems with the units arising, principally, from water penetration. The steps he took to rectify the underlying causes of water penetration were ineffective.

6. Finally, when the owners and Owners Corporation decided to seek independent advice as to how to properly remedy defects, they sought a financial contribution to the cost of that work from the first or second defendant. No agreement could be reached and these proceedings were commenced.

7. In the reasons that follow I will refer to the plaintiff as the Owners Corporation. I will refer to the second defendant as "Koundouris Projects", the name under which the company traded.

8. The pleadings in the case are substantial. The following summary of the pleadings is an attempt to highlight the significant issues that arise out of them rather than to recapitulate them in detail.

9. In its Amended Statement of Claim (ASOC) the plaintiff pleads five causes of action against one or other or both of the defendants. The plaintiff identifies that it sues not only in its own capacity, but also as an assignee of the rights of the individual unit owners to take legal action for the recovery of loss and damage suffered by each: ASOC [8].

10. The first cause of action is an action for breach of statutory warranties by Mr Koundouris. It is alleged that he entered into a contract with Koundouris Projects to construct the Lagani Apartments. This is referred to as the Building Contract. He then constructed the building. This is referred to as the Building Work. It is then alleged that from March 2001, Mr Koundouris undertook further residential building work to investigate and repair defects in the Building Work. This was referred to as the Further Building Work: ASOC [11A].

11. The plaintiff pleads that the Building Contract had various statutory warranties implied into it by the Building Act 1972 (ACT) (1972 Act) and the Building Act 2004 (ACT) (2004 Act). These are referred to as the Statutory Warranties. Further, the plaintiff pleads that the Further Building Work was to be undertaken in accordance with certain specified statutory requirements. These are referred to as the Statutory Requirements.

12. Koundouris Projects is alleged to have been the owner of the land on which the building work was carried out up until the registration of the plaintiff: ASOC [13].

13. The plaintiff alleges that it and the Unit Owners, succeeded to the rights of Koundouris Projects in relation to the Statutory Warranties with respect to both the Building Work and the Further Building Work, or that they are "entitled to the benefit of" those statutory warranties: ASOC [14]-[14A]. Mr Koundouris is said to have breached the Statutory Warranties in relation to both the Building Work and the Further Building Work: ASOC [17]-[18].

14. The plaintiff alleges that during the five-year period after the completion of the Building Work and the Further Building Work, Mr Koundouris was required to rectify breaches of the statutory warranties and is liable in damages for breach of the statutory warranties in relation to the Building Work, the Further Building Work and also matters described as "the Defects, the Unsuccessful Repairs and the Defective Repairs": ASOC [16A]. Those additional activities are also alleged to have occurred during the statutory warranty period for the Building Work and the Further Building Work: ASOC [19]. It is alleged that Mr Koundouris failed to rectify the defects and remedy the breaches of the Statutory Warranties: ASOC [21]. It is also alleged that Mr Koundouris breached the Statutory Requirements in relation to the Further Building Work and that, as a result of that, work was defective: ASOC [21A]-[21B]. Damages are claimed for the costs of investigating and rectifying the defects.

15. The second cause of action is an action in negligence against Mr Koundouris in carrying out building work. It is alleged that he was subject to a duty of care to carry out and supervise the Building Work with reasonable care to ensure that it was carried out in a proper and workmanlike manner and in accordance with the Statutory Warranties: ASOC [27]. He is alleged to have breached that duty by reason of failing to comply with the 2004 Act, relevant Australian Standards, failing to ensure the Building Work was carried out in a proper and workmanlike manner, and failing to comply with the Statutory Warranties: ASOC [28]. The plaintiff claims the same loss and damage as in relation to the first cause of action.

16. The third cause of action is a cause of action in negligence against both Mr Koundouris and Koundouris Projects. The plaintiff pleads that the investigations and repairs carried out by Mr Koundouris and Koundouris Projects did not rectify the defects: ASOC [32]-[33]. By reason of the foreseeability of loss, the control and supervision exercised by the defendants and the vulnerability of the plaintiff and the Unit Owners, it is alleged at ASOC [34]-[37] that both defendants:

owed a duty to the Plaintiff and Unit Owners to properly investigate the Defects and to carry out and supervise the Unsuccessful Repairs with reasonable care to ensure the attempted repairs were carried out in a proper and workmanlike manner.

That duty is alleged to have been breached and the same losses are claimed as in relation to the first cause of action.

17. The fourth cause of action is a cause of action for misleading and deceptive conduct against Mr Koundouris. Mr Koundouris is alleged to have made representations to the plaintiff and the Unit Owners, on several occasions, that the repairs carried out were sufficient to rectify the defects: ASOC [42], or that there were no defects relating to water penetration: ASOC [43]. It is alleged that each of those representations was made in trade or commerce, and:

(a) to the extent that they related to future matters, were misleading in contravention of s 11 of the Fair Trading (Australian Consumer Law) Act 1992 (ACT);

(b) were misleading or deceptive in contravention of s 12 of that Act.

The same damages are claimed as in relation to the first cause of action.

18. The fifth cause of action is a claim of misleading and deceptive conduct by Koundouris Projects. The plaintiff alleges that the representations alleged in the fourth cause of action were in fact made by Koundouris Projects and the claim is otherwise similar to the fourth cause of action.

19. The defence to the ASOC alleges that any cause of action which arose accrued no later than 20 December 2000. It alleges that the statutory warranty period had expired no later than 20 December 2005. It alleges that the plaintiff had to commence proceedings in respect of its claim before 20 December 2005 and that the proceedings were only commenced on 29 November 2010. It alleges that the plaintiff's claim for breach of the statutory warranties was also brought outside the time permitted by s 11 of the Limitations Act 1985 (ACT) (Limitations Act): Defence [16].

20. The Defence alleges (at [25]) that the claim is an apportionable claim for the purposes of s 107B of the Civil Law (Wrongs) Act 2002 (ACT) (CLW Act) and identifies other persons whose acts or omissions are alleged to have caused the loss or damage for the purposes of s 107D of the CLW Act. They are Riccardo Jugovac, trading as Tiling Impressions (in relation to waterproofing defect claims), Bond James Murtagh Pty Ltd, trading as Murtagh Bond Structures Buro (in relation to the steel work defect claims) and Murtagh Bond and Dezignteam Pty Ltd (in relation to defects in masonry and expansion joints).

21. In relation to the second cause of action, the defendant alleges that the limitations period commenced on the latter of 20 December 2000 and the time at which the defects became manifest. It alleges that each of the defects was manifest and known to the plaintiff and the Unit Owners prior to 29 November 2004, being six years prior to the commencement of the proceedings. It therefore alleges that the claims are barred by s 11 of the Limitation Act. It repeats the proportionality pleading that was pleaded in relation to the first cause of action.

22. In relation to the third cause of action, the defendants plead that the limitation period commenced on the later of the date of the defective repair or when the defective repair became known or manifest. It alleges that that was prior to 29 November 2004 (six years prior to the commencement of the proceedings) and hence that the claim is barred by s 11 of the Limitation Act.

23. In relation to the fourth cause of action, the defence repeats the limitation defence: Defence [50].

24. In relation to the fifth cause of action, the defence repeats the limitation defence: Defence [56].

25. Finally, in relation to the whole of the claim in relation to water ingress to or from Unit 10, the defence pleads that between 2008 and 2010 the plaintiff or the owner of Unit 10 engaged "RnB Solutions" to conduct various works on the roof above that unit and on the balcony area of that unit, and that Mr Koundouris and Koundouris Projects did not cause the water ingress to or from Unit of 10.

26. The plaintiff filed a substantial Reply. The pleading in the Reply is targeted at those aspects of the defence which assert that the plaintiff is out of time or statute barred. In answer to those claims, the plaintiff asserts that the defendants made representations in order to obtain a certificate of occupancy that the works were compliant with the relevant statutory requirements. It alleges that the representations were made in trade or commerce and that they were misleading or deceptive because the works did not comply with those statutory requirements. The plaintiff alleges that it will suffer loss and damage if the certificate of occupancy is relied upon and say that under s 87 of the Trade Practices Act 1974 (Cth) (Trade Practices Act), or alternatively "as a matter of common law and equity", the defendant was not entitled to rely upon the certificate of occupancy, having procured it by misleading representations.

27. Next, the Reply pleads that "numerous and repeated representations" to the plaintiff and the Unit Owners to the effect (in summary) that the defendants had or would repair any defects that existed, that there was no systemic or general defects and that there was no need or reason for the plaintiff or Unit Owners to take legal proceedings: Reply [2(k)]. The various representations are particularised. The plaintiff is alleged to have relied upon those representations so as to "not obtain legal advice or seek to commence proceedings" in the period prior to December 2005 or September 2006. Next those representations in relation to repair are said to have been repeated in the period following September 2006. The plaintiff is alleged to have relied upon those further representations in not seeking legal advice or commencing proceedings in the period from October 2006 to October 2010.

28. The plaintiff alleges that it was only after the relationship between the plaintiff and the defendant broke down, and the plaintiff engaged an independent contractor in mid-2010, that the owners learnt about the inadequacy of the remedial works undertaken and the fact that there were systemic defects which gave rise to water ingress and penetration.

29. Next the plaintiff pleads a conventional estoppel arising from the dealings between the parties up until mid-2010, whereby the defendants would undertake investigations and inspections in relation to defects, followed by reasonable and necessary remedial works, and the plaintiff and the Unit Owners, would not commence legal proceedings or otherwise claim compensation: Reply [2(p)]-[2(r)].

30. In relation to the proportionate liability pleading, the Reply alleges that the claims are not apportionable or that the parties had contracted out of the relevant provisions of the CLW Act. It also pleaded that the parties nominated as concurrent wrongdoers are not liable to the plaintiff for economic loss. Further, it is alleged that the statutory warranties and statutory requirements under the 1972 Act and 2004 Act do not give rise to apportionable claims under the CLW Act.

31. In relation to the limitation defences, the plaintiff denies that the cause of action had accrued at a date earlier than six years prior to commencement of the proceedings. It says that each of the defects and its damage was not manifest and known to the plaintiff prior to 29 November 2006 and that the claim is not time barred by s 11 of the Limitation Act. In the alternative, the plaintiff says that "given the nature and extent of the defects and the conduct of the Defendants", the Court should extend the limitation period pursuant to s 40 of the Limitation Act.

32. Further, in relation to the fifth cause of action the plaintiff says that the cause of action did not arise until damage occurred and damage was not suffered until the defendants failed to undertake investigation and repairs work and the said failure or refusal was only communicated after the time when the defendants say the proceedings were time-barred. The plaintiff therefore says that the claim under s 82 of the Trade Practices Act was commenced within time.

33. The statement of the relevant facts which follows is largely based upon the statement of facts prepared by the defendant and modified by the plaintiff.

34. The building the subject of these proceedings is located in Fawkner Street in Braddon. It has a three level apartment building constructed on it. The building has a car parking area in the basement. Units 1, 2, 3 and 4 are on the ground floor. Units 5, 6, 7, and 8 are on the first floor. Units 9 and 10 are on the second floor. A feature of the development is that there are the large balconies on the second and third floors of the building and large courtyard areas on the ground floor. For aesthetic reasons the building was built without eaves.

35. The Owners Corporation for the units plan was created under the Land Titles (Unit Titles) Act 1970 (ACT) (1970 Act) and now operates under the Unit Titles Act 2001 (ACT) (2001 Act) and Unit Titles (Management) Act 2011 (ACT).

36. In 1995, Mr Koundouris became a licensed builder in the ACT and from 1998 he was employed by Koundouris Projects, an entity within a group of companies known as the Koundouris Group, as the Construction and Project Manager.

37. Mr Koundouris was paid income by the Elder Street Trust in financial years 2000/2001 and 2001/2002. Koundouris Projects was the trustee of the Elder Street Trust.

38. In 1999, Koundouris Projects engaged various consultants for the design of a development to be constructed at 1 Fawkner Street Braddon in the ACT. Koundouris Projects owned 1 Fawkner Street Braddon. The building that was constructed was named "Lagani".

39. As part of that design process various consultants were hired, including: concept architects, construction architects and a structural engineer. During the construction of Lagani, Mr Koundouris and Koundouris Projects relied on those consultants for their expertise to the extent to which they had expertise that Mr Koundouris, as a builder, did not possess.

40. On 26 February 2000, development approval was granted for Lagani and, on the same day, building approval was granted by Koundouris Projects' appointed certifier, Mr Joe Gioffre.

41. The application for building approval listed Mr Koundouris as the licensed builder. Under the heading "Housing Indemnity Insurance Policy details (where applicable as required by the Building Act 1972)" the insurer was identified as the Master Builders Association pursuant to an annual policy with an "insured value" of $5,000,000. The application for building approval was signed by Joe Gioffre on 15 April 2000 under the notification: "I hereby notify the building controller that the person or company described above is to carry out the building work described herein." By this document, Mr Koundouris was appointed as the licensed builder for Lagani. Construction of Lagani commenced shortly thereafter.

42. Certificates of housing indemnity insurance were issued by MBA Risk Management Services naming Koundouris Projects (being the owner of the building when constructed) as the beneficiary and Mr Koundouris as the builder. The sum insured was $85,000 or the cost of works, whichever is the lesser. Separate certificates were issued in relation to each unit in the development. The certificates were undated and the evidence did not otherwise disclose when they had been issued.

43. During the course of construction, Mr Richard Forner was on site full-time to supervise the building works, performing the role of 'foreman'. He was employed by Koundouris Projects or another company within the Koundouris Group. Mr Forner had been a licensed builder since the mid-1990's and was still a licensed builder at the time of the events giving rise to the plaintiff's claims.

44. Mr Forner gave evidence of his recollection that Mr Koundouris:

(a) made every effort to ensure that all of the trades and contractors undertook the works to ensure quality assurance;

(b) issued instructions and directions to each of the contractors involved in the works; and

(c) supervised and directed trades and contractors in the performance of their works.

45. To facilitate the construction of Lagani, Koundouris Projects engaged various subcontractors to perform the works. Mr Forner gave evidence that Mr Koundouris made the decisions in relation to which subcontractors were engaged based on his own assessment of whatever it was he considered important for those works to be performed.

46. At the completion of various stages of building work, specifically at the completion of the construction of Lagani, a number of the subcontractors and consultants issued documents to Koundouris Projects via Mr Koundouris certifying the work they had performed at Lagani and the work's compliance with the relevant Building Code and Australian Standards:

(a) On 1 December 2000, Mr Riccardo Jugovac, (at that time trading as Tiling Impressions), issued a waterproofing workmanship warranty to Koundouris Projects from Tiling Impressions in relation to Superflex waterproofing membrane that stated:

Subject to the conditions appearing over the page, this workmanship warranty applies to the installation of Superflex waterproof membranes for the project detailed above. The applicator warrants that the membrane has been installed as per the manufacturer's instructions and relevant Australian standards, and that the installation will not lose its water resistant qualities as a result of faulty workmanship for a period of five years.

The "conditions appearing over the page" were not in evidence and, as a consequence, the actual effect of the warranty cannot be determined.

Mr Jugovac had been engaged by Koundouris Projects to waterproof and tile the internal wet areas and the balconies at Lagani. Mr Koundouris relied on his waterproofing expertise.

Mr Forner gave evidence that Mr Koundouris inspected the work being undertaken by Mr Jugovac from time to time. Mr Koundouris corroborated this evidence.

(b) On 5 December 2000, Bridgewater Manufacturing provided certification for the fire rated doorsets installed at Lagani.

(c) On 13 December 2000, Mr Kenneth Murtagh issued a certificate of structural sufficiency which stated that:

I have inspected the above building work and/or the following components and their support elements.

Steel roof structure, floor slabs, vertical steel supports, Ground floor fire rated support steelwork, Ritek walls and Load Bearing block walls, foundations.

and [sic] that to the best of my knowledge that building work is structurally sufficient, sound and stable for the purposes for which it was to be occupied and used.

On the same date, Mr Murtagh also certified that the steelwork supporting the ground floor was certified to have a minimum fire-endurance period of 90 minutes. Mr Koundouris gave evidence that Mr Murtagh had always advised there were no structural issue in regards to the building.

(d) On 13 December 2000, Dino's Plumbers, Drainers and Gas Fitters wrote a letter stating that all plumbing and draining had been completed in accordance with AS3500 for Lagani.

47. On 20 December 2000, the ACT Department of Urban Services issued the Certificate of Occupancy and Use for Lagani. Mr Koundouris was stated as the builder on that document. At the bottom of the Certificate of Occupancy and Use was the following statement:

Important Note:

Residential building statutory warranties and residential insurance apply in relation to building work ...

48. On 9 January 2001, the inaugural meeting of the Owners of Unit Plan 1917 was held and Canberra Units Plan Services (CUPS) was appointed as the managing agent.

49. Each of the ten units in Lagani were sold between mid-2000 and early 2001. Five of the original owners continue to own their units at Lagani. In each contract for sale with those original purchasers, Koundouris Projects provided a 90 day defects liability period.

50. Throughout early 2001, each of the purchasers of the units in Lagani contacted Koundouris Projects to report defects to be addressed. Most notably:

(a) On 12 January 2001, the owner of Unit 10 complained about the rendering of balcony walls;

(b) On 18 January 2001, the owner of Unit 6 complained about structural steelwork rusted in the garage area;

(c) On 19 January 2001, the owner of Unit 5 complained about a bulge in the plaster in the ceiling of the living room;

(d) On 12 February 2001, the owner of Unit 2 complained about rain collecting and pooling in the covered courtyard area and subsidence in the garden near the foundations of the balcony;

(e) On 16 March 2001, the owner of Unit 9 provided a list of defects, which included 'some large cracks in the rendering' on the main balcony;

(f) On 20 March 2001, the owner of Unit 1 provided a list of defects which included leaking window frames;

(g) On 22 March 2001, CUPS informed James Koundouris that one of the owners of Unit 10 had advised that there was water running down the beams adjacent to his car port area and running along the concrete ceiling; and

(h) On 15 April 2001, Unit 6 provided a defect notification which included a complaint that the water from the patio did not drain away quickly, indicating the drainage was not of sufficient capacity or was blocked, and a note that the ceiling of the living room was stained, indicating water ingress from the unit above.

51. In response to the complaint of leakage into the basement, on 23 March 2001, Koundouris Projects wrote to CUPS advising that it had sealed the outside steps where the water was travelling through and into the basement.

52. On 15 April 2001, the owners of Unit 6 wrote to the owner of Unit 9 to complain about water leaking on their ceiling which they believed had been caused by works that had been performed on the Unit 9 balcony. In his evidence, the owner of Unit 9 could not recall whether building work was occurring on his balcony at that time, but did not think it was. He remembered receiving the complaint.

53. On 8 May 2001, James Koundouris wrote to the owners of Unit 6 and stated that all defects had been rectified. Mr James Leitch, the owner of Unit 9, gave evidence that he recalled repairs being done in that period.

54. On 15 June 2001, the owner of Unit 9 again wrote to Koundouris Projects to advise that rendering on two of the three walls of the balconies had cracked. The letter stated that this had been fixed on the main balcony, but the crack had returned.

55. On 20 July 2001, Tiling Impressions provided a further waterproofing workmanship warranty to Koundouris Projects in relation to planter boxes having been waterproofed using a Davco K-10 product. This warranty stated:

This workmanship warranty applies to the installation of Davco waterproof membranes for the project detailed above. The Applicator warrants that the membrane has been installed as per the manufacturer's instructions and relevant Australian standards, and that the installation will not lose its water resistant qualities as a result of faulty workmanship for a period of (5) years.

56. On 30 July 2001, CUPS wrote to Mr Leitch (Unit 9), in relation to problems experienced by Unit 5 which was the unit below his:

We believe recently a leak was reported into their unit 5 and our understanding is that it is the result of the unsealed penthouse balcony which should have been fixed.

The occupier of unit 5 is now experiencing a build-up of fungus on the ceiling which was previously leaking. This would indicate that there is some more build up in that area and we would ask that you take the necessary steps to ensure that any leak from your unit into unit 5 has been fixed.

57. Mr Leitch recalled receiving the letter and recalled contacting Koundouris Projects to inform it of the complaint.

58. Mr Koundouris gave evidence that James Koundouris would speak to him if he needed direction or assistance about issues that arose.

59. On 11 August 2001, the Owners Corporation held a meeting. Attached to the Minutes of that meeting was a document recording some notes from a meeting with Koundouris Projects. These notes include the following item:

Water in the basement (coming through the ceiling and walls) - Richie (the site foreman) has said he is working on this. What exactly is causing this and how and when will it be fixed?

Water dripping from ceiling above parking spot unit 2.

60. On 29 August 2001, CUPS wrote to the "Koundouris Group" requesting a site meeting on 14 September 2001. Koundouris Projects responded to CUPS stating:

We also confirm that we have met all our contractual obligations and do not see a need for any further site meetings.

61. On 14 September 2001, the Owners Corporation held a meeting. The Minutes of that meeting refer to a 'leakage problem in the basement', a decision to ask CUPS to write to each owner to obtain details of outstanding issues and for the Executive Committee of the Owners Corporation (the Executive Committee) to then put a letter to the "Koundouris Group" identifying issues including:

Leaking of water (most likely containing lime) into the basement onto cars.

...

There is severe leaking through the ceilings of Unit 10, Unit 7, Unit 5 and Unit 6.

62. An Agenda for an Owners Corporation meeting dated 14 September 2001 included:

The Koundouris Group have refused to meet as requested. Where to from here?

63. An attachment to that Agenda was meeting notes which refer to water in the basement, leaking windows and ceiling in Unit 10, and the Owners Corporation needing more information about the maintenance and warranty agreement on the lift.

64. On 27 September 2001, the owner of Unit 10 wrote to CUPS on behalf of the Owners Corporation. The letter included:

Could you also please write to all unit owners asking if they have any outstanding issues that need to be resolved with the Koundouris Group. We need details of when the problem first occurred and when it was first brought to the attention of the Koundouris Group. The Committee plans to write a letter to the Koundouris Group and would like to list all outstanding issues in this letter.

...

We need this information before COB Wednesday 10 October.

65. On 22 October 2001, Mr Leitch (Unit 9) wrote to CUPS in relation to outstanding repair issues including cracking in the main balcony wall, water leakage into the garage over his car space and some windows that leaked when it rained.

66. On 31 October 2001, a number of the Lagani owners wrote to James and Michael Koundouris to raise outstanding issues including:

11. Drainage hole on the balcony of [Unit 5] is too small to drain rainwater from it, so leaves pools of water causing it to be dangerous.

...

13. The main balcony wall [of Unit 9] is cracking.

14. Water leakage into garage over No. 9 parking space.

15. Most of the [Unit 9] apartment windows leak during rain storms.

...

17. Several large cracks have re-appeared on the top of [Unit 10] balcony wall and about 5 cm from the top...

18. Major pooling of water on [Unit 10] balcony (westerly side) in 2 spots - up to 3cm deep.

19. Leak through the ceiling in main living area [of Unit 10] which has caused water damage to the ceiling, a long crack (approximately 90cm) and damage around a light fitting.

...

22. Most windows [in Unit 10] leak when they are washed down with hose.

67. On 8 November 2001, Koundouris Group responded to the issues that had been raised by the owners. This response was generally that the items had been fixed, would be fixed or were not required to be fixed and included:

(a) item 3 (leaking to basement): "Currently being rectified. Waiting for dry weather";

(b) item 6 (water pooling in courtyard): "Water will pool in courtyards. Please identify areas and we will investigate";

(c) item 7 (most of the apartment windows leak when they are washed/posed): "Please advise if windows leak when it rains. Windows are designed for the elements. Richard Forner to arrange James Hardie to inspect and rectify if required."

(d) item 10 (basement bricks leaking when it rains affecting storage to Unit 5): "Richard Forner to check. Ventilated carpark exposed to elements as per BCA requirements";

(e) item 12 (drain hole on Unit 5 balcony too small): "Drains are per approved drainage plans and comply with Australian Standards. No action";

(f) item 13 (several leaks in second bedroom of unit 5): "Leak has been fixed 28/8/01. Richard Forner to check again";

(g) item 14 (main balcony wall of Unit 9 cracking): "Koundouris Project to provide Colourbond capping to top of parapet wall. Unit owner required to agree to rectification method";

(h) item 15 (water leakage over Unit 9 parking space): "Currently being rectified";

(i) item 18 (cracks on Unit 10 balcony wall): "Richard Forner to complete with capping. Unit owner required to agree to rectification method";

(j) item 19 (pooling of water on Unit 10 balcony): "Balcony as per approved hydraulic design and meets requirements of the BCA"; and

(k) item 20 (leaks through ceiling of living area Unit 10): "Koundouris Projects have fixed. Currently waiting G Weinert to allow subcontractor to finish rectification."

68. On 12 November 2001, Koundouris Projects wrote to CUPS stating that James Hardie Windows had resealed window beading for Units 9 and 10.

69. On 20 November 2001, Mr Gordon Weinert (Unit 10) wrote to Koundouris Projects regarding steps to fix his ceiling. The letter stated, inter alia:

I have had independent advice as to the best method to fix the water damage to ensure that it will not re-appear in the short to medium term. This is different to what was suggested by the painter arranged by you, who assessed the damage yesterday...

My acceptance of responsibility for the repair of the crack does not extend to any other damage, including reappearance of the repaired crack, that may occur due to future water leaks that are the responsibility of the builder to repair according to ACT Regulations.

70. On 21 November 2001, Mr Koundouris wrote to Mr Weinert (Unit 10) refusing to accept the proposal that other contractors complete the work and stating that Mr Koundouris' tradesmen would do the work if he would give them access.

71. On 27 November 2001, in a letter to James and Michael Koundouris of Koundouris Projects, Ms Joanne Weinert (Unit 10), on behalf of the Body Corporate, sought a meeting to discuss outstanding issues. The letter attached a schedule of alleged defects amended since 31 October 2001, including:

(a) Item: Leaking of water when it rains into the basement;

(b) Item 13: Several leaks into the second bedroom around the window of Unit 5;

(c) Item 14: Main balcony wall of Unit 9 is cracking;

(d) Item 15: Water leakage into garage space over Unit 9 parking space;

(e) Item 16: Leaking apartment windows in Unit 9;

(f) Item 18: Several large cracks on the balcony wall had reappeared at Unit 10;

(g) Item 19: Pooling water on the balcony of Unit 10;

(h) Item 20: Leaking through the ceiling in the main living area of Unit 10.

72. The letter requested that Mr Koundouris attend a meeting, rather than Richard Forner, to avoid the need for Mr Forner to report back to Mr Koundouris. Mr Koundouris gave evidence that Mr Forner would seek his approval or instruction in relation to significant proposed remedial works.

73. On 30 November 2001, Koundouris Projects responded to that letter setting out an updated response to the schedule. The updated response to particular items was as follows:

(a) Item 3: "Has been rectified";

(b) Item 6: "Not raised during defects period. Please identify.";

(c) Item 10: "Currently being rectified";

(d) Item 15: "Rectified".

74. Mr Koundouris gave evidence that his understanding of the position was:

(a) as put in that letter;

(b) a statement made honestly and candidly; and

(c) intended to be relied upon by the owners in terms of their own satisfaction of the issues.

75. On 10 December 2001, Mr Koundouris and Mr Forner met committee members of the Owners Corporation.

76. In relation to this attendance, Mr Koundouris gave evidence that:

...at all times during this whole process we engaged with whoever it was - the unit owner - and I'm sure there were conversations - on ones - I don't remember the exact time but during the whole process - the whole process - we were always available.

77. On 7 January 2002, the owners of Unit 10 wrote on behalf of the Owners Corporation to Mr Forner attaching a schedule of defects. This was to follow up on previous requests for rectification of defects including water leaking into the carpark, the cracking of balcony walls and water leakage into Unit 10. The email also indicated that there appeared to be a water leak in the foyer ceiling.

78. On 29 January 2002, CUPS wrote to James Koundouris complaining about a leak in the foyer and requesting that someone seek out the source of the leak and rectify it. Koundouris Projects responded to this letter on 31 January 2002 by letter signed by Michael Koundouris stating, in effect, that the leak into the foyer was not a defect.

79. On 7 February 2002, the owner of Unit 10 sent various emails to a number of Lagani owners. One of those emails referred to water leakage into Unit 5 and stated:

They have had the same leak for over 12 months and have reported it on many occasions.

I received letters from both apartments below mine last year concerning water damage to their ceilings. Koundouris/Ritchie assured me that they had identified and fixed the problem.

We've had assurances of getting things this week ... Gordon and I are of the opinion that we should give them another chance to do the right thing ...

(a) the denial of responsibility by the Koundouris Group for faulty water pumps; and

(b) inadequate repairs undertaken in relation to water leaks in the basement.

83. Mr Leitch's evidence was that after the attendances in 2001 and assurances in 2001 and 2002, he understood the leakage from the balcony of Unit 9 into the units below had been resolved.

84. On 25 February 2002, CUPS sent an email to Koundouris Projects stating:

Seepage through most of the basement walls and in particular the dripping over the car parking spaces for Units 9 and 10 has been reported on numerous occasions.

85. On 28 February 2002, the owner of Unit 10 sent an email to "Frank" (Unit 6) copied to certain owners in Lagani referring to water leakage problems, dripping over carparks and cracking in balconies. The context appears to have been a request for Mr Frank Johnson (Unit 6 owner) to attend the Owners Corporation meeting and that quotes would be obtained from consulting engineers to assess the building. This email stated the following in relation to obtaining quotes:

We don't want anything official at this stage, just a quote from the engineers, and need to be aware that if this goes through to the body corporate that it is kept on the public file (that prospective buyers have access to)...Could I recommend that if you follow up 2 of the 3 engineers that... is one, as he is the most likely not to be influenced by the power/influence of the builders.

86. On 7 March 2002, Hughes Trueman provided the owners with a fee proposal for a building inspection at Lagani. The proposed fee was $3,300 including GST. The Owners Corporation did not go ahead with obtaining a report from an engineer at that time.

87. On the subject of the potential report, Mr Leitch (Unit 9) gave evidence that:

(a) the owners were already receiving advice from Mr Koundouris at the time, and were always weighing up the issues;

(b) it was not clear at the time that the issues were caused by the construction and the owners were still trying to identify the causes of the leaks;

(c) there were obviously issues with cracks and leaks everywhere and they were still being investigated;

(d) it was a possibility that an engineer would be able to advise on the cause of the leaks;

(e) at the time they were consistently talking with Koundouris Projects, so part of the process was going back and forward with them while they were investigating what was going wrong;

(f) at every stage the owners reported issues, Koundouris Projects would respond and work through the problem the owners had at the time;

(g) it was not necessarily clear at the time that obtaining advice from an independent engineer was advisable;

(h) costs would have been a consideration, but their interaction with Koundouris was also a consideration at the time.

88. On 1 May 2002, Mr Koundouris wrote to CUPS advising that the 90-day maintenance for Lagani had expired. A list of contact details for 'key subcontractors' was provided.

89. On 6 May 2002, Mr Weinert (Unit 10) wrote a letter to Mr Koundouris 'putting the record straight' on alleged defects and what had been said in response to them. Included in the letter was this statement:

I fail to understand what is unreasonable to expect that our unit should not leak. Also, what is unreasonable in expecting that any repairs done to rectify these leaks should permanently correct the cause of the problem. The approach taken so far has been to disguise it by using silicone to seal all the possible sources of the leak without any regard to the long term effectiveness of this approach as well as the aesthetic impact to the unit.

90. After referring to difficulties with this approach to repairing the leaking windows, the letter continued:

A discussion then ensued where I indicated that taking the same approach as taking to repair the leaking roof was unacceptable as it would be clearly visible that it was a patch up job. At this time I expressed my dissatisfaction with repairs to the roof as I felt that they did not permanently fix the cause of the leak, merely disguised it.

... So far, all that has been done is a lot of head scratching and comments by Mr Forner to the effect that he cannot understand how it can be leaking and he has no idea where it is coming from. Therefore he has taken what seems to be his standard approach to these sort of problems and slap sealant everywhere in the hope that it will go away.

91. On 1 June 2002, the Owners Corporation held a meeting. Agenda items included "[p]ainting of foyer ceiling", "[b]lack doors at Eloura Street - white stain" and "[l]eakage into the building".

92. On 3 June 2002, Mr Koundouris wrote a letter to Mrs Weinert (Unit 10) stating (among other things):

Waterproofing: - Koundouris Projects have made several attempts to rectify this issue, with the last attempt being John Rae of Skillseal. A reputable tradesman is not willing to liaise with you, as he felt hindered in his ability to do work and felt subject to unreasonable demands with outrageous specifications/scope of works verbally advised by G. Weinert. If you undertake to make the site available to allow our tradespeople to do their job, we can arrange for the rectification to be done.

Rectification to the foyer ceiling was done outside the 90-day maintenance period at no charge to the body corporate.

93. On 5 June 2002, CUPS sent a letter to the owners of the units in Lagani which referred to an Owners Corporation meeting at which it was resolved that CUPS would write to all owners requesting that they detail any building related problems they (or their tenants) may be experiencing with their units. The letter continued:

We understand from the Committee that it is aiming to resolve any outstanding issues relating to the building with the builders. The Committee is particularly interested in any leakage problems into the units.

94. On 19 June 2002, Michael Koundouris wrote to Mr Weinert (Unit 10) undertaking to rectify certain issues with certain methods, and stating that the ceiling had been fixed and completed and no further action was required. The letter continued:

Please note we do not accept liability for any of the works. If our terms are not acceptable please forward any future correspondence to our solicitors.

95. On 12 August 2002, Mrs Weinert (Unit 10) sent an email to Mr Koundouris regarding the leak into the ceiling of the foyer, reported some months earlier, and stating that, notwithstanding the previous repair by Michael Koundouris' tradesmen, the leak had started again.

96. On 27 September 2002, CUPS wrote to Ari Lyras (Unit 3) stating:

We have been advised by a committee member that it has been ascertained that the drip in the basement onto the carport of Unit 5 is caused by problems within Unit 3. It has been requested by the committee member that if you wish to have this matter fixed that you may do so under the five year building warranty and make approaches to the developer.

97. On 4 November 2002, Ms McLeod (Unit 2) sent an email to CUPS complaining about a water leak from Unit 6 into Unit 2 caused by the use of the dishwasher water hose to clean the balcony when the tenants were moving out, which resulted in water pouring through her ceiling from around one of her lights.

98. On 14 November 2002, there was an exchange of emails between Ms McLeod (Unit 2) and Mrs Weinert (Unit 10) about a forthcoming Owners Corporation meeting regarding the possibility of consulting BEPCON about the water leakage problems from Unit 6 into Unit 3 to see what BEPCON had to say and to see if they could insist that "Koundouris Brothers" fix all the floors. The reference to BEPCON was to ACT Building, Electrical and Plumbing Control, an administrative unit of the ACT government.

99. In December 2002, Mr Michael Kumm was appointed as Body Corporate Manager for Lagani. Mr Kumm remained the managing agent until 2006.

100. During this time Mr Kumm was aware that there were a number of problems with the Lagani Apartments including issues with water penetration and leakage. In particular, there were issues with the balconies of Units 9 and 10, which formed the roof of living areas in the units underneath. Mr Kumm's evidence was that there were ongoing issues with water penetration from these balconies, and they seemed to get worse over time.

101. On 23 January 2003, Skillseal Waterproofing Services sent Mr Forner a quote to fix a water leak at a Lagani balcony. Although the quote did not state which balcony was the subject of the quote, having regard to other evidence, it is likely that it was for Unit 10 - the Weinerts. The quote refers to an on-site discussion with Mr Forner and notes, "for reasons earlier discussed, no warranties would be forthcoming."

102. Mr Forner gave evidence that when he attended the Lagani Development at Mr Koundouris' instruction, he would have to go back to Mr Koundouris and report before doing anything, that he would tell Mr Koundouris what he had seen and been told at the Lagani Development, that he would ask Mr Koundouris how to attend to the problem and that Mr Koundouris would then direct and instruct Mr Forner as to what he should do.

103. Mr Forner also gave evidence that he was aware, from at least 28 January 2003, that the leaks from Unit 10 were caused by a failed waterproofing membrane, and he would have, in accordance with his practice, informed Mr Koundouris of this assessment.

104. On 4 March 2003, Mr Koundouris received a letter from the Weinerts (Unit 10) in response to the proposal to fix their balcony leaks.

105. On 7 April 2003, Dr Rushbrook inspected the Owners Corporation's records. The notes made by Dr Rushbrook at that inspection referred to balcony wall cracking and apartment windows leaking in Unit 9, and concerns about the area above the carpark of Unit 9, plus leaks from the Unit 3 to Unit 5 carpark. Dr Rushbrook gave evidence that from his inspection, he did not consider the leaks serious and that he would not have purchased Unit 5 if he had known about the severity of the leaks.

106. Following a discussion with Mr Koundouris, on 10 April 2003, Mr Kumm faxed a letter to Mr Koundouris complaining about leakage into the common area at Lagani.

107. On 28 April 2003, Ms Jennifer Lindsay and Dr Lewis Rushbrook signed a contract to purchase Unit 5 of Lagani. Ms Lindsay gave evidence that she did not understand, in 2003, that the leaks were caused by leaks from other balconies.

108. On 5 May 2003, Mrs Weinert (Unit 10) emailed Mr Koundouris, copied to Mr Kumm, asking for rectification work to be done on leakage problems into Lagani's foyer and the units below her balcony. This email attached correspondence dated 4 March 2003.

109. In May 2003, Unit 5 was leased (until May 2006). From that date, a number of leaks were reported by the tenants in Unit 5, to their agent, Maloney's Real Estate.

110. On 12 June 2003, Mr Kumm met with Mr Koundouris to discuss repair works by the "Koundouris Brothers".

111. On 13 June 2003, Ms McLeod (Unit 2) wrote to the Koundouris Group complaining about a door lock, as well as other matters, and attaching copies of previous requests for rectification. In particular she said:

I also refer to the email of 9th January 2002 [18 months before] and in particular the last paragraph. The recent rain has caused swelling of the ceiling in my courtyard which is below the balcony of Unit 6. The crack referred to in my email has widened and there is obviously water penetration from the unit above. My December letter sets out my concern with regard to water from the kitchen of unit 6 flooding into my unit. I have had no response to this letter and although I have had no further incidents of this problem the fact remains that it could happen again under similar circumstances as before and no steps appear to have been taken to find, and correct, the cause of the problem

112. On 2 July 2003, Ms Lindsay (Unit 5) attended her first Owners Corporation meeting. The Draft Agenda for that meeting referred to the fact that the tenant of Unit 5 had been contacted about the leakage and had advised it "seems ok now", but also referred to leakage from the Unit 1 floor.

113. On 5 August 2003, Mrs Weinert (Unit 10) sent an email to Mr Koundouris referring to outstanding building issues including:

(a) the reappearance of a crack which had been fixed 10 months ago; and

(b) the fact that the resealing of the balcony to rectify leakage problems into the common foyer and Unit 8 below had still not been done.

The email indicated Mr Forner had said the guarantee on the method of repair was 10 years.

114. On 5 August 2003, LJ Hooker sent a facsimile to Mr Koundouris about Unit 10 requesting that attention be given to the ceiling of the balcony and external blistering and cracking. The facsimile followed up on a conversation Mr Kumm had with Mr Koundouris.

115. On 13 August 2003, Mr Leitch (Unit 9) sent an email to Mr Koundouris which stated:

As you know I have had a consistent problem with cracking on my balcony, and I have reported this many times to Koundouris. Each of these times an attempt to fix the problem has been made, the last of which was applying a membrane called Emer-Clad. Unfortunately, this has again proved unsuccessful and the balcony has some very large cracks appearing.

116. On 27 August 2003, Mrs Weinert (Unit 10) sent an email to other owners at Lagani stating that 'Ian' from Koundouris Group would be investigating where the water leakage from Unit 10 was coming from.

117. On 29 August 2003, Mrs Weinert (Unit 10) sent an email to other owners at Lagani referring to leakage from Unit 10 into Units 7 and 8. It stated that the source of the water leak had been identified as being a leak through a section of the roof of Unit 10 into Units 7 and 8 and down through to the foyer ceiling. It also stated that:

Being an internal leak, they [Mr Koundouris/Koundouris Projects] are obligated to fix the problem quickly...

Once the source of the problem is fixed, they will attend to fixing the damage caused by the leakage.

118. Mr Leitch (Unit 9) gave evidence that he recalled works being done on the roof at this time, but that the leaks persisted.

119. On 2 September 2003, Mrs Weinert (Unit 10) told Ms Lindsay (Unit 5), and a number of other unit owners, by email that Koundouris was attending the property on 6 September 2003 to identify any and all leakage problems and get them fixed.

120. On 8 September 2003, Mrs Weinert (Unit 10) sent an email to various owners at Lagani to provide an update on leakage problems and stating that:

Nick (who we met on Saturday) and the roofing guy think they have identified the source of the problem - several cracks in the roof.

A temporary (silicon) fix was applied on Saturday morning.

Nick will put forward suggested methods of repair to Koundouris Group.

Koundouris Group will decide what method of repair they will undertake.

The roofing person will fix the roof as per the method approved by Koundouris Group...

Koundouris Group will arrange for repair of the water affected areas ASAP, once the roof has been fixed.

...

121. On 24 November 2003, Ms Joelle Stoelwinder (Unit 8) sent an email to some of the Lagani owners and Mr Kumm, which referred to heavy rains causing leaking into her apartment and leakage onto her car in the basement.

122. That email was a response to Mr Weinert's (Unit 10) email of 23 November, which stated that Nick from Koundouris Group attended Lagani and had said the ongoing works would continue until everything was fixed, and the nature of the works made it difficult to give definite timeframes.

123. On 26 November 2003, Mr James Dalton (tenant of Unit 7) sent an email to a number of Lagani owners complaining about a leak into Unit 7 through the ceiling, and a leak into the foyer.

124. On 17 December 2003, Ms Stoelwinder (Unit 8) sent an email to other unit owners in Lagani complaining about water leaks into her apartment.

125. On 13 March 2004, Ms Stoelwinder (Unit 8) sent an email to the Koundouris Group complaining about water leaks into the basement.

126. On 23 March 2004, Ms Judy McLeod (Unit 2) sent a letter to Mr Koundouris complaining about leakage of water from the balcony of Unit 6 into her unit. The letter states that Nick (a representative of Koundouris Projects) looked at the ceiling and was quite shocked and assured her it would be attended to.

127. On 3 September 2004, a tenant inspection report of Unit 5 prepared by Maloney's Real Estate referred to leaks in Unit 5.

128. On 16 November 2004, Superior Waterproofing Systems issued an invoice to Koundouris Projects for investigation and repairs into Units 9 and 10 regarding water leaks.

129. Throughout 2005, Mr Koundouris regularly told Mr Kumm:"If it is our responsibility we will attend to it."

130. On 20 January 2005, Ms Stoelwinder (Unit 8) sent an email to Mr Kumm stating that she had made a claim on her insurance for repairs to damage for water leaks and had been notified that any further property damage should be the responsibility of the Owners Corporation.

131. On 25 January 2005, Koundouris Projects received an invoice from Superior Waterproofing Systems to deal with the water leak at Unit 9.

132. In February 2005, the Owners Corporation held its Annual General Meeting. At this meeting the Owner's Corporation considered obtaining an expert's report into defects. The Minutes of the meeting included the following statement:

The meeting authorised the Managing Agent to commission a report for the Body Corporate on the water problems and the likely impact for the corporation at the end of the five year warranty period by Koundouris Projects.

The report will hopefully be finished by the middle of the year and should address the questions:

'What are the causes of the leaking?' and 'What are our rights?'

133. Although Mr Kumm's recollection of this meeting was not good, it is likely, having regard to his evidence and the resolution recorded above, that he reminded the owners about the upcoming expiry of the five-year statutory warranty period. In March and July 2005, Mr Kumm obtained quotes to investigate and report to the Owners Corporation on water leaks within the building. The quotes were for amounts of $4000 and $4950 respectively.

134. Dr Rushbrook (Unit 5) gave evidence that his understanding was that the owners thought the builder was meeting with a degree of success in making repairs to the building and therefore didn't seem to warrant contemplating an external report at that stage.

(a) if he had not been given the reassurances by Mr Koundouris, or had not seen the efforts made to inspect, investigate and repair the problem, he would have taken steps to have the matters independently investigated, and considered legal proceedings;

(b) he was concerned about the cost of getting the report but, at the time, Mr Leitch did not consider it was necessary as he had been given repeated and regular assurances that Mr Koundouris would rectify the problems; and

(c) while in hindsight it made sense that the owners might have obtained a report in 2005, at the time, the owners were engaged with Koundouris directly, he was responding to all of their issues and would come in and deal with them on each occasion. The owners had an ongoing relationship with Koundouris Projects, and Mr Leitch's perception was that, if the owners had an ongoing problem that was reported, Mr Koundouris would continue to work on the issue.

136. Although the evidence of Mr Leitch as to the assurances given by Mr Koundouris was non-specific, I accept that, with a few minor exceptions in the early stages, this was the tenor of Mr Koundouris' interactions with the unit owners up to this time.

137. On 18 April 2005, a tenancy inspection report for Unit 5 referred to leaks in Unit 5.

138. From 10 July 2005 through to 18 August 2005, an employee of Koundouris Projects, Mark Jakobasch, attended the premises for approximately 14 hours to perform work. Other tradespersons also attended Lagani during this time.

139. On 18 August 2005, the owners held a Special General Meeting. The Minutes of that meeting recorded (among other things):

Water leaks

The meeting discussed at length the water leaks in the complex. Koundouris Projects were still endeavouring to rectify the situation and, at this stage are meeting with a degree of success.

The Managing Agent reminded the meeting that at the AGM an amount of $500 was set aside to commission a report from an engineer to determine our rights of redress, if necessary from Koundouris.

Two quotes (attached) were tabled for $4000 and $4500. The meeting decided not to proceed at this stage with a report.

The meeting was informed that unit 6 is still leaking and unit 3, whilst no longer leaking, is in need of internal repair. The managing agent will advise Koundouris accordingly.

140. Mr Kumm gave evidence that the Owners Corporation did not proceed with the report at that stage because of costs. Mr Kumm also said that "it had stopped raining".

141. Dr Rushbrook (Unit 5) gave evidence that in August 2005:

(a) he was aware that there would have been an architect and an engineer engaged to design the Lagani apartments, but that his state of mind as to rights of redress was that the builder built it, and it is up to him to determine where the rights of redress would be and who might have failed in the construction of the building;

(b) he did not know that he needed to seek legal advice to ensure that such rights as the Owners Corporation or himself as an owner had in respect of the leaks at the Lagani apartments did not expire;

(c) the managing agent had advised them of a five-year warranty period, but had not suggested that the owners get legal advice;

(d) he was not specifically aware of a limitation period in respect of commencing legal proceedings; and

(e) things seemed to be possibly moving in the right direction with the builders and he believed the owners would not need to be seeking legal advice at that point.

142. From 21 August 2005 to 10 November 2005, Mr Jakobasch (Koundouris Projects) and other subcontractors attended Lagani. Specifically, Koundouris Projects was invoiced by Tiling Impressions for:

(a) carrying out work at Unit 10 on 9 September 2005 ; and

(b) rectifying water leaks through window for Unit 10 on 27 October 2005.

143. The Tiling Impressions invoice of 9 September 2005 recorded that the warranty for the Lagani Development was terminated due to excessive building movement and Tiling Impressions would not be held liable for further water leaks. The invoice indicated that grout was removed from the perimeter of the Unit 3 balcony and a product intended to fix the problem ("PU 25") was applied. There is a reference to "further investigations" disclosing that "the leak was coming through from front window", but it is not clear what this means. It appears that the identified source of the leak was not in fact fixed at that time, because the invoice in October 2005 was for work done to "rectify water leaks through window ordered by Mark Jakabach".

144. Mr Koundouris gave evidence that he was not aware of communication (prior to 17 July 2007) to the owners that there had been significant building movement such that the water leaks were going to be an ongoing problem, because he would not rely on a tiler's assessment of the defects. He also gave evidence that he was not aware of any document recording him directing investigation of the building movement suggested by Tiling Impressions.

145. On 31 October 2005, the contract for the sale of Unit 8 by Ms Stoelwinder to Mr Rocco Cecere was exchanged. Mr Cecere was a lawyer.

146. On or around 4 December 2005, Mr Guiseppe Gallo attended Lagani to complete some unidentified "maintenance". Mr Koundouris was not aware of any reason why Mr Gallo would have attended Lagani at his direction other than in respect of defects.

147. On 26 January 2006, concerns about ongoing leaks were raised at the Annual General Meeting of the Owners Corporation. The Minutes of the meeting include the following:

Roof and balcony leaks

The meeting authorised the managing agent to write a strongly worded letter to Koundouris Projects and ask that the leak to unit 7, the uneven paving to the balcony of unit 10 and the staining to the ceiling of entry foyer be attended to as a matter of urgency.

The managing agent also undertook to obtain a quote to have these issues resolved in case Koundouris Projects do not meet their obligations.

148. In relation to the "strongly worded letter" and the concerns of the meeting:

(a) Mr Kumm gave evidence that the drought had started to break and there was more rain so the leaks were obvious;

(b) Ms Lindsay (Unit 5) gave evidence that the owners' concerns about the leaks had been increasing, that Mr Koundouris had kept coming back to fix the leaks and that the owners had wanted to keep the leaks on his agenda. She further said that the leaks were obvious and apparent in the rain, whereas the cracks were apparent when there was no rain, though the owners' concern did not go away in-between; and

(c) Dr Rushbrook (Unit 5) gave evidence that the letter was to be "strongly worded" because there were a large number of repairs coming up at the time and they wanted to make it clear to Koundouris Projects that they were unsatisfied with the state of repairs at that point.

149. Mr Kumm gave further evidence that while he was aware overall of the issues within the five-year period, the relevant work was underway, or was being undertaken, and Mr Kumm found Mr Koundouris was amenable to being approached to rectify works.

150. On 30 January 2006, Ms Nancye Jeffery (new owner of Unit 10), wrote a letter to Mr Kumm, copied to the owners of Units 2, 5, 6 and 9, referring to the Annual General Meeting held the week before and stating that certain matters were not adequately addressed and seeking information from the files so that the Executive Committee could plan for future repair/maintenance programme. Among the issues were:

The current situation for claims against complex builders Koundouris re water leaks and repair of paintwork from water leaks. I understand that we are all but at the end of our five year maintenance for structural problems period, however it is undisputable that the paintwork and the leaks have been ongoing for at least two years that I know about and still causing grief.

151. On 19 April 2006, Ms Jeffery (Unit 10) sent an email to Ms Lindsay (Unit 5) stating:

We had another plumber man come yesterday to shed some light on the water leak, apparently number 7 is getting a leak in again. We have put in a call to Mark from Koundouris and Michael Kumm and will let you know the outcome after we speak to Michael tomorrow. - What a pain I thought this was all fixed.

152. On 3 May 2006, the Owners Corporation held a meeting. The Minutes of that meeting dealt with water leaks again. Mr Kumm and Ms Jeffery (Unit 10) were to collect reports from all unit owners about current water leaks, and Mr Kumm was to ask Koundouris Projects to devote one of their staff to it until it was resolved.

153. On 17 May 2006, Ms Jeffery (Unit 10) sent an email to Mr Kumm reporting on water leaks at the units, including damage to Units 3, 5 and 6 and water leaks in Unit 7.

154. In May 2006, Ms Lindsay (Unit 5) moved into Unit 5 (and remained there until 2009). At this time, Ms Lindsay observed cracks in the skirting boards from water leaks. She prepared a list of defects which included reference to water damage on walls of the unit.

155. On 7 July 2006, Mr Koundouris inspected the Lagani Apartments with Mr Kumm and Ms McLeod (Unit 2).

156. On 17 August 2006, Ms Jeffery (Unit 10) sent an email to Mr Kumm asking for a notice to be put up indicating that Koundouris Projects was attending the site on 21 August 2006 "to finalise the leak repairs to our complex".

157. On 18 August 2006, Koundouris Projects was sent an invoice from Tiling Impressions for maintenance work conducted on the Unit 10 balcony. Tiles were removed in order to find a water leak, but no water leak was found and the process was stopped. It is not clear what area of tiles was removed or what areas were inspected. The surface was then prepared for waterproofing and two coats of waterproofing were applied. Floor and skirting tiles were then replaced and grouted.

158. On 1 September 2006, Ms Jeffery (Unit 10) sent an email to members of the Executive Committee and Mr Kumm stating:

We understand after speaking with Mark from Koundouris last Friday, that the repairs being carried out to our balcony area have been completed but final water testing was not able to be carried out because access to unit 7 was again denied. The contractors who had come to make the final repairs to affected units had not completed work because of illness.

Once this work is completed it is my understanding that the water leak issue will finally be at an end.

159. Workers arranged by Mr Koundouris attended the Lagani Apartments a number of times in August and September 2006 to flood balconies to test whether works had rectified the problems.

160. On 19 September 2006, Koundouris Projects sent a letter to Mr Kumm. Mr Koundouris' evidence was that he may have sought legal advice in relation to the letter. The letter stated:

We refer to the above contract.

In reference to any ongoing concerns that you have with the defects to the Lagani Apartments.

Please be advised that the defect period under the above contract has expired. We are therefore no longer contractually liable for any rectification works that you say you may require to be carried out. However, we are happy to meet with you on a 'without admission' basis and as an expression of good faith, with a view to discussing any concerns that you may have.

If, after meeting with you, we come to an arrangement in respect of your concerns, then we might undertake to carry out any such arrangement but we will do so on condition that it is done without any admission of liability on our part. If, after inspection, your concerns relate to a matter for which we concede we have statutory responsibility then naturally we will honour our statutory obligations.

161. Mr Leitch (Unit 9) gave evidence that he didn't receive the letter of 19 September 2006, but recalled the letter. Ms Lindsay (Unit 5) gave evidence that she received the letter and it did not change her view about legal redress, being that Mr Koundouris was responsible for the quality of work that he did.

162. In early October 2006, Koundouris Projects was invoiced by subcontractors for further maintenance work at Lagani, including Unit 7, the penthouse unit (which would be either Unit 9 or Unit 10) and Unit 5. It is not clear whether this related to waterproofing on balconies and, if so, precisely what area was targeted.

163. On 10 October 2006, Ms Jeffery (Unit 10) sent an email that appears to refer to the work undertaken, stating:

Water leaks

Koundouris builders have been working here again during the past week and yesterday removed their ladders etc. Do we now assume that all is finalized and fixed? Or does someone still have a problem. I am happy to stay out of the loop as we have not had a problem and will assume either all is now fixed or individual owners are making their own arrangements.

164. On 10 October 2006, Mr Cecere (Unit 8) sent an email to Ms Jeffery (Unit 10) stating that there was a leak in the ceiling above his carpark.

165. Mr Koundouris gave evidence that, if he had been contacted about this issue, notwithstanding the content of the 19 September 2006 letter, his general approach to issues of defects remained: that he would send individuals to the premises to investigate, and if thought reasonable, repair.

166. On 17 October 2006, Ms Jeffery (Unit 10) sent an email to Mr Kumm stating that the water leak was still happening from Unit 1 to the carpark.

167. On 22 October 2006, the Minutes of the Lagani Executive Committee meeting recorded the following:

Koundouris

Judy and Jenny both plan to correspond with Koundouris re inadequate recent repairs.

168. Mr Leitch (Unit 9) gave evidence that he thought at the time the committee considered the repairs inadequate, but their approach was an ongoing discussion with Mr Koundouris to work out where the water was and how to repair it. He gave further evidence that the scale and significance of the issues were not obvious to the owners.

169. On 28 October 2006, Ms Lindsay (Unit 5) wrote a letter to Mr Koundouris complaining about the inadequate touch up repairs to water damage in her unit and stating that the repairs dated back to the time of completion of the building.

170. On 30 October 2006 and 26 November 2006, Koundouris Projects was invoiced for maintenance work at Lagani, including Units 2, 3, 5 and 7. Once again it is not clear whether this related to waterproofing on balconies and, if so, precisely what area was targeted.

171. Mr Koundouris gave evidence that between 2001 and 2006, unless investigations concluded that a problem was the result of some occupation or use of the premises, his approach was to attend to rectification of the problem.

172. Mr Leitch (Unit 9) gave evidence that while he was aware that the warranty period was running out, he and the other owners did not have a full understanding of the limitation periods that could apply to various cases, or an understanding that Mr Koundouris would have had causes of action against other parties. He also stated that while it was now obvious that the owners should have sought legal and technical advice in 2005/2006, at the time the owners were still talking with Mr Koundouris regularly, and had decided not to proceed with obtaining reports because of the perceived lack of merit in doing so when they still had the relationship with Mr Koundouris.

173. On 21 March 2007, Minutes of the Owners Corporation Annual General Meeting record the following:

The performance of the builder Koundouris to rectify the irregularities in the complex have not been satisfactory. This was debated. It was resolved a letter from a solicitor be sent to the builder expressing the concerns of the members carried.

174. Dr Rushbrook (Unit 5) gave evidence that an external solicitor was not engaged, but that Mr Cecere (Unit 8) undertook to receive documents from other owners so he could draft a letter. Mr Leitch (Unit 9) gave evidence that the owners, at that stage chose to continue dealing with Mr Koundouris at every chance because it seemed the best approach.

175. On 28 June 2007, the Owners Corporation was given a report by Lewis & Associates, Engineers, as a result of an inspection at Lagani to advise upon water penetration problems. The report observed the following:

(a) at [2.2]: neither the drawings nor the Building File Inspection Reports provide details of the waterproofing undertaken to the walls or the ground floor slabs over the basement carpark;

(b) at [3.1]: that moisture was leaking through the balconies; and

(c) at [6.1] that:

• (i) water was leaking into the first floor units through the tiled upper balconies of the units above, as well as around windows;
• (ii) the leaks were "the result of inappropriate design and inadequate or failure of the waterproofing arrangements and membranes";
• (iii) the development did "not presently meet the BCA Objective for Damp and Waterproofing, which [was] to protect the building from damage caused by external moisture entering the building".

176. On 4 July 2007, Ms Lindsay and Dr Rushbrook (Unit 5) wrote to Mr Koundouris complaining about water damage in Unit 9, attaching photos of the damage, asking for the leaks and the damage to be fixed, and stating:

While it is now just outside the initial warranty period, it would be a shame if its reputation were to be affected through a continuation of the water issues and superficial repairs which have dogged the complex these first five years.

177. Ms Lindsay's evidence was that on 6 July 2007, Mr Koundouris called her and made comments about the then managing agent.

178. Mr Leitch's (Unit 9) evidence was that on 10 July 2007, 'Mark' from the Koundouris Group (likely to be Mark Jakobasch) called him about access to the balcony of his unit and that men from the "Koundouris Building Group" gained access on 16 July 2007.

179. Ms Lindsay's evidence was that on 11 July 2007, Mark from Koundouris Projects called her in response to her letter of 4 July 2007 to say that Mr Koundouris had given him the go ahead to do whatever needs doing, and that they would flood the balcony again. Mr Koundouris gave evidence that Mr Jakobasch would have spoken to him after he had spoken to Ms Lindsay.

180. On 17 July 2007, Koundouris Projects wrote to Unit 5 referring to water problems, but stating that the balconies had been wet-sealed in accordance with Australian standards and that the membrane on the balcony for penthouse Unit 10 had failed due to movement. The letter states:

All balconies during construction have been 'wet sealed' in accordance with Australian Standards. Wet sealing and tiling was contracted to Tiling impressions, Ricardo Jugovac phone [mobile phone number] and warranty is held by Tiling Impressions.

Our investigations have shown that the membrane on the balcony penthouse unit 10 has failed due to movement (see attached articles re movement).

Like you we are also very fond of the complex and wish to advise and provide assistance to such issues even though we are outside the maintenance period.

We will be contacting Tiling Impressions to ascertain if they are willing to rectify the problem by relaying the tiles in the balcony above and will advise accordingly.

We also note that over the past five years the building has had minimal maintenance by the body corporate and we have advised in writing and with manuals of preventative maintenance that is required for architectural building without eaves is imperative.

181. Mr Koundouris gave evidence that in the middle of 2007, he was still engaged in communications about the defects at Lagani Apartments, and that the process would have been that he sent someone out there to investigate the defect. He did not remember whether he directed or instructed a structural engineer to undertake an investigation concerning the movement of the building. If find that he did not, although he did consult with Mr Murtagh as described below.

182. On 30 July 2007, the Owners Corporation were invoiced for the Lewis & Associates report in the amount of $3,520.00. That invoice had a notation indicating it was paid on 10 August 2007.

183. On 23 September 2007, the Minutes of a "Special Meeting of Committee Members" states:

It is noted that the Managing Agent's advice as to how we should proceed with the matter of ongoing problems with the developers of "Lagani" is to put the matter into the hands of the ACT Building Controller. This course of action is at odds with the wishes of the majority of owners who would prefer to handle the matter in a less confronting manner and discuss a course of action directly with the builders, the Koundouris Group.

It was resolved that an appointment be made, if possible, for the 2nd October for Lewis Rushbrook and Alex Morozow to meet with the Koundouris Brothers and try to reach an agreement with them to have the work required to comply with the Engineer's Report completed in a satisfactory manner and a Certificate of Compliance issued at the completion of such work.

184. On 1 October 2007, the Chairman of the Body Corporate Committee (Dr Rushbrook, Unit 5) wrote to Mr Koundouris attaching the Lewis & Associates report, stating that the owners were concerned at the condition of the property and longstanding unresolved issues and asking for Koundouris Project's response. The letter also stated that remedial action taken before and since the maintenance period appeared unsatisfactory and had not addressed the root causes.

185. Mr Koundouris appears to have met with Dr Rushbrook following that letter on 2 October 2007 and, on 3 October 2007, Dr Rushbrook sent an email to other owners at Lagani reporting on a meeting with Mr Koundouris in relation to the Lewis & Associates report. That email stated that at the meeting:

(a) they discussed maintenance, managing agents, the design of the building and other approaches such as legal redress;

(b) Mr Koundouris said he would read the report and respond; and

(c) Mr Koundouris offered to visit immediately with relevant tradesmen to assess water damage issues.

186. On 4 October 2007, Mr Koundouris faxed a copy of the report to Mr Kenneth Murtagh for comment.

187. On 8 October 2007, Mr Darren Sault of AWT Consulting Engineers emailed Mr Koundouris about the Lewis & Associates report. He appears to have been asked by Mr Koundouris to comment on the Lewis & Associates report even though there is no direct evidence of Mr Koundouris having made such a request. The email indicated the report left the reader with no doubt that the problems had occurred due to failure or absence of the waterproofing membrane, questioned the degree of corrosion to the structural steel in the basement, and commented that the remedial works seemed reasonable and adequate. The email also queried which other parties were at fault.

188. By email on 8 October 2007, Mr Koundouris confirmed the meeting on 10 October 2007 and indicated that Mr James Miller of RnB Solutions (the trading name of Works Administration Pty Ltd) would attend.

189. As discussed at the meeting on 3 October 2007, on 10 October 2007 there was a meeting on site with unit owners, Mr Koundouris, Mr Forner and Mr Miller. Two sets of notes about this visit were recorded: a short version, which was provided to Mr Koundouris and a longer internal version which was not given to Mr Koundouris at the time.

1. Entrance hallway. We pointed out:

a. Shoddy paintwork on last repair, splashes down walls.

b. Ceiling bubble, large area of flaked paint, repainted ceiling. Obviously an ongoing problem, from at least early 2003.

...

3. Basement

a. Indicated water penetration - north, south and western walls

b. Indicated corroded steel - JM [James Miller] said yes, needs attention, important for long-term plan. He did not feel this was an urgent remedial matter. ...

...

4. Unit 5 (Jennie & Lewis): (assume a-d derive from balcony 9 - rear top)

a. Ceiling lounge: 2+ metre long water stain, bubbles in plaster, plastic ceiling aperture. Left like this since workman Peter visited (?July 07),

b. Water stains on ceiling above lounge windows and water damaged timber on or below three lounge windows. Has been attended to several times to date.

c. Recently replaced skirting (lounge) showing water damage.

d. Bedroom ceiling mould

e. Balcony:

i. Cracks in eastern-facing wall. Seen by JM, MK, RF

ii. Exposed and rusting horizontal reinforcing; rendering gone. MK said this was caused by water getting in behind the steel.

iii. Tiling. JM asked if water escaped reasonably fast. Lewis and Jim said yes. Mrs Townsend said water ponded on their westward-facing balcony (Unit 10).

5. Unit 9 balcony. Extensive inspection, discussion of sleeving over parapets, post-construction sealing in junction tiles and walls. James expressed view that this insufficient. Discussed idea of putting metal capping on the wall parapets in a similar way to that on roof. Richard said this had been considered but discomfort of hot capping a factor.

6. Did not enter Units 6 and 7. We informed Koundouris that there were similar water issues in both apartments. These were more severe in Unit 7. We indicated that its agent, Blue, had arranged for ceiling of balcony on 10 and replastered ceilings. JM expressed the view that the recent sealing would be ineffective.

7. Unit 10. Townsends welcomed us in. Inspected their westward-facing balcony, where remedial work had been attempted by tradesmen arranged by Blue for Unit 7. Water doesn't escape quickly from that balcony and we noted that someone, previous owner/tenant of Unit 10, had inserted a white plastic tube through wall. Townsends said this was ineffective given water levels.

191. Mr Koundouris gave evidence that he had no reason to think that these notes were not an accurate record of the discussions as they occurred, but said that it was not correct to say that, as at 2007, he had not provided the maintenance schedules relevant for the premises. On 15 or 16 October 2015, Mr Koundouris called Dr Rushbrook (Unit 5) indicating he hadn't forgotten the report and that things were underway. Mr Koundouris confirmed that this is what he said to Dr Rushbrook.

192. On 18 October 2007, Dr Rushbrook sent an email to various owners at Lagani. This email summarised and discussed the meetings with Mr Koundouris and with Mr Miller of RnB Solutions, including the phone call of 16 October 2007. The email recorded:

(a) Michael Koundouris, James Miller and Richard Forner met on site;

(b) they inspected the basement, the entrance hall, the exterior and Units 5, 9 and 10; and

(c) Mr Koundouris called Dr Rushbrook on 16 October 2007 to confirm he was working on a report responding to the Owners Corporation's report; and

(d) James [Miller, of RnB Solutions] had not worked with Mr Koundouris previously and Dr Rushbrook felt he gave an independent and helpful objective view_._

193. On 30 October 2007, Mr Koundouris sent a letter to Dr Rushbrook. The letter referred to the recent site meeting and stated:

Firstly the defect liability under the above contract has expired. We are no longer contractually liable for and rectification work. However, in good faith and 'without admission' basis we are happy to be involved and assist with items identified as discussed to ensure a better outcome for both parties.

194. It also responded to various aspects of the Lewis & Associates report and concluded:

In moving forward, and in conjunction with James Miller from RnB Solutions, we will await further tests and discuss our findings further.

Please feel free to contact the undersigned directly on [mobile phone number].

195. On 7 November 2007, Dr Rushbrook (Unit 5) sent an email to Mr Koundouris referring to the work to be conducted by Mr Miller of RnB Solutions. The initial testing was expected to be $2,000 to $3,000. The letter states:

Our committee invites Koundouris Projects, in view of the longstanding nature of the problems and as a matter of good will, to share this initial cost on a 50:50 basis.

We feel this will move things on well at this point. It gives us a report in relation to most of the (water-penetration) issues raised with yourselves over recent years and the committee feels your involvement in this way at this point will positively influence how owners receive the report and consider next steps.

...You have previously mentioned that you had given maintenance schedules to our strata manager and we would appreciate any copies of these from you, so that we stay adequately informed with respect to caring for our investment and your project.

...The problems persist, lingering form the past, as further recent water damage through the ceiling in Unit 5 and on to furniture assets. Your agreement to do this would helpfully ensure that we can quickly acquire a report and accelerate rectification and maintenance.

...James has put the matter on hold pending advice from me.

196. On 9 November 2007, Mr Koundouris responded and accepted the offer of paying 50% of the RnB Solutions fee. He said, however:

Please be advised that the defect period under the contract has expired. We are therefore no longer contractual liable for any rectification works that you say you may require to be carried out.

Furthermore, it is important to remember that previous body corporates have not maintained the building accordingly and this type of architectural building requires a level of maintenance that has not been performed properly in the past.

We look forward to assisting you to get this building back on track.

197. The email did not attach or otherwise mention the maintenance schedules requested by Dr Rushbrook.

198. On 16 January 2008, RnB Solutions invoiced the Owners Corporation for $363.00. A notation on the invoice records it was paid on 18 January 2008.

199. On 14 February 2008, RnB Solutions provided two written reports to the Owners Corporation. The short report set out that flood tests were carried out on four of the six balconies and stated that "All balcony decks are likely to be suffering failed waterproofing membranes and there can be no accurate results from testing until the decks are rectified".

It appears that substantial movement has caused cracks that would not be tolerated by the waterproofing treatment employed. Without demolition of the tiled surfaces and topping (which could possibly reveal inadequate topping depth, treatment at stress points, etc) the obvious lack of allowance for movement in the tiled surface would suggest that there is no such allowance for expansion joints which should be reflected through the substrate, waterproofing topping and tiles respectively.

Regardless of the underlying cause, this movement must be allowed for in any attempt to provide a workable solution. It is also obvious that this solution should be the most efficient and cost effective method available, whilst providing a confident level of successful restoration of the building's integrity.

201. The report estimated that, subject to engineering advice, on a "cost plus" basis the cost of rectifying the Unit 10 balcony alone was approximately $58,000 plus GST. It then went on to estimate, based on this price, that that the cost of repairing all of the balconies in the apartment complex would be $250,000 plus GST.

202. On 15 February 2008, the Minutes of the Executive Committee meeting of Lagani included the following statement:

Questions were raised about the quality of Koundouris Projects past works at the complex, and concern was raised in relation to the fact that the building was not constructed properly in the first instance, and therefore what confidence should the corporation have for Koundouris Projects to rectify the problems. The Managing Agent suggested that an engineer's report be obtained after Koundouris Projects have completed the works to ensure the works were undertaken in accordance with the report from RnB Solutions. The Corporation will look into this after the meeting is held with Koundouris Projects.

203. On 15 February 2008, the Owners Corporation was invoiced $1,237.50 for the investigative works by RnB solutions . Exhibit 22 recorded that that amount was paid on 24 April 2008.

204. On 20 February 2008, Dr Rushbrook (Unit 5) sent an email to other owners at Lagani reporting on an informal meeting the week before between a few unit owners. This email records that the meeting was supportive and positive with respect to outcomes.

205. The RnB reports of 14 February 2008 were sent to Mr Koundouris later on 20 February 2008. Mr Koundouris vaguely recalled receiving those reports.

206. On 25 February 2008, Mr Koundouris attended an Executive Committee meeting. The RnB Solutions report was discussed. The Minutes recorded the following:

(a) Mr Koundouris believed that the quote from RnB Solutions was excessive, and undertook to seek additional quotes in line with the report from RnB Solutions;

(b) Mr Koundouris did not believe that the weight of the balconies (referred to by RnB Solutions) was a concern and an offer was made that he would approach structural engineers to discuss and report on the current issues to the Owners Corporation;

(c) Mr Koundouris made enquiries about the Owners Corporation's insurance policy and a further potential to make a claim on it in relation to damage and repairs. A copy was provided to him;

(d) Mr Koundouris offered free labour and assistance in relation to project management of the work. The concern was raised about the quality of the work done by Mr Koundouris in the past. Mr Koundouris advised that their head project manager would be over seeing the works and therefore "the standard of the works will be at a maximum".

207. Mr Koundouris recalled giving undertakings in respect of sourcing alternative quotes, approaching Mr Murtagh about weight and loading as well as the water leaks to the basement, reporting back to the owners, receiving a copy of the insurance policy, offering free labour and assistance and for his project manager to oversee the works.

208. On 5 March 2008, there was an email exchange between Mr Forner and Mr Jugovac (Tiling Impressions) suggesting that a warranty claim be made against the wet sealing manufacturers, to which Mr Jugovac responded that there was no point since the warranty expired in August 2005. This email was forwarded to Mr Koundouris on 6 March 2008.

209. On 14 March 2008, the Owners Corporation held its Annual General Meeting. At that meeting the owners:

(a) "agreed to hold a Special General Meeting shortly to ... discuss in more detail the quotes sought be (sic) Koundouris for the balcony works";

(b) discussed the possible need for an additional levy once the pricing was received from Koundouris Projects; and

(c) discussed the maintenance required for the building.

210. On 18 March 2008, CUPS sent a letter to Mr Koundouris summarising commitments recorded at a meeting on 25 February 2008 that Mr Koundouris had attended. The letter:

(a) stated the Owners Corporation was anxious to ensure that the commitments made were followed through as soon as possible so that the Corporation could review, make decisions and initiate rectification without further delay;

(b) summarised the commitments made by Mr Koundouris as follows:

1. Undertook to source alternative quotes for the work described in the RnB Solutions Report.

2. Undertook to approach Mr Ken Mirtar [sic] (structural engineer) and report back in relation to concerns expressed by RnB Solutions about weight loadings on the balconies.

3. Undertook to discuss with KP's solicitors the possibility of claiming the damage and repairs under buildings insurance. A copy of the policy was provided to you at the close of the meeting.

4. Undertook, should the Owners Corporation accept your offer of free labour and assistance in relation to further project management, to have your head project manager oversight the works. You noted that the Owners Corporation reserved its right to seek professional independent assessment during and after the repairs to ensure they were completed in line with the RnB Solutions report.

5. Offered a quote for repainting, and Managing Agent was also seek quotations [sic]

6. Water leaking into the basement, with lime residue etc

a. offered to organise an initial washing of the car park walls, but with the meeting noting that this would not resolve the leaking;

b. undertook to refer to the structural engineer the problem of the water leaking into the basement.

7. Undertook to make good the interior damage (to apartments and foyer, ceiling under ramp leading to basement) arising from water damage and uncompleted previous repairs;

(c) requested that Michael Koundouris provide a response within 4 weeks of the letter as the Owners Corporation wished to schedule a Special General Meeting; and

(d) noted that the issues set out in the RnB Solutions report did not exhaust the number and variety of issues encountered in the complex.

211. On 4 April 2008, Mr Forner sent himself two images of tiles buckling or popping on the Unit 10 balcony at Lagani. Mr Koundouris agreed that Mr Forner had attended Unit 10 on 4 April 2008.

212. On 14 April 2008, Ms June Townsend (Unit 10) wrote to CUPS about Unit 10. The letter stated:

When can we expect some decision to be made regarding the rooftop terrace leaking problem in Unit 10.

As well as the waterproofing problem, we now have sixteen tiles cracked and buckled, some of them lifted 9cm above the concrete deck.

As this terrace forms the roof for the units below as well as the main foyer, in the event of heavy rain, they will (as in the past) suffer extensive leakage.

213. On 14 April 2008, Ms Townsend also wrote a letter to Ms Lindsay (Unit 5) setting out that the builder had inspected her balcony two weeks ago but since then, nothing had happened.

214. On 15 April 2008, Ms Gabrielle Ammendola of CUPS informed the owners that Mr Forner had attended Lagani with a contractor to complete a site visit and intended to get three quotes for retiling and resealing the balconies. He said he would get quotes for repainting the entire development and advised that he hoped to start work by June. The same day Mr Alex Morozow (Unit 1) responded to the email of earlier that day and referred to Mr Koundouris 'getting a proper grip on the cost of remediating the water problems and the prospect of a June start to the work'. Mr Morozow's email also stated:

However, we should not lose sight of one step that Gabrielle's email outline of the way forward was silent on. That is the fact that before we can proceed to any work we are yet to have a discussion/argument with Koundouris on how much of the cost of repairs they will contribute.

215. Ms Townsend (Unit 10) prepared a note dated 22 April 2008 stating that Richard from Koundouris (namely Richard Forner) came to the property on that day with the engineer and spent a considerable time inspecting the premises (around 45 minutes). Mr Koundouris gave evidence that he may have instructed Mr Murtagh to attend but he did not recall.

216. On 24 April 2008, PDA Marble & Granite provided a quote to repair the balconies for units 5, 6, 7, 8, 9, 10 and the entry podium, for $76,588 plus GST. The quote does not appear to be based upon the RnB Solutions specification. The evidence does not disclose what information was provided to the author of the quote. The quote was based upon installing a new waterproof membrane and tiles over the top of the old tiles.

217. On 14 May 2008 there is a further note from Ms Townsend (Unit 10) stating that Mr Forner attended again with a waterproofing expert.

218. On 16 May 2008, Murtagh Bond sent Mr Koundouris a letter and a draft report in relation to the defects at Lagani. The letter commences with some robust commentary:

You probably don't need to hear this but my assessment of Largani [sic] defects are generally related to the creation of the seamless look which is "Bullshit". Such an aesthetic would only be proposed for this type of project, if the "designers" were ignorant of basic building practice, which they are.

219. The letter identifies defects as follows (relevantly):

i) General lack of control joints to render in particular.

Work needs to be planned to stop at critical locations based on a days production. Certainly any changes in materials deserve respect and a joint.

ii) Control joints to brickwork also very necessary when the work is also rendered.

Even more important where the brickwork is exposed, worse still on both sides or at top surface.

...

iii) Blue Board is another fibre product which has been oversold, needs lots of joints.

When the moisture gets into the studs at Lagarni [sic] they will rot if timber;

iv) Balcony drains need to be spaced so that reasonable falls (1:100) can be provided noticeable in [sic] without large dips being generated.

Lagarni [sic] mega balconies should have been truncated to realistic size, if nothing else than for cost reasons.

v) Documenting Architects need to be more aware of these practical limitations and eliminate problems generated by Design Architects. ...

(a) provided a critique of the investigations and rectification method outlined in the RnB Solutions reports;

(b) commented on the sources of the leaks;

(c) set out an alternative to the rectification proposed by RnB Solutions, including cutting control joints, bandage repair of some areas and subsequent flood testing.

221. The report was signed, finalised and dated 16 May 2008.

222. On 20 May 2008, Mapei Australia Pty Ltd, the company that provided a waterproofing system, provided a short form specification to Mr Jugovac (Tiling Impressions) for new waterproofing membranes for Lagani. The specification was written on the proviso that no further structural building movement would occur.

223. On 28 May 2008, Mr Koundouris attended a meeting of the Executive Committee. The Minutes of the meeting recorded that quotes and rectification were discussed as follows:

The meeting commenced with the Developer presenting quotes for external painting and the repair of balcony areas. It was noted by James Leitch and Jennifer Lindsay that the quotes Mr Koundouris tabled represented a significant reduction in scope compared to the degree of rectifications outlined in the RnB report. Mr Koundouris commented that in his view, the RnB report was 'over the top' in both scope and estimated cost.

...

Mr Koundouris offered 3 repair options for the tiling on the damaged balconies. They were as follows;

1. Start from scratch and redo the membrane.

2. Re-tile over the top of the current tiles with a new membrane.

3. Remove tiles around the sealing/draining point, test the movement joints - floor waste; repair; and relay the original tiles.

(Any replacement tiles may be faded by application of bleach or sun damage in order to match the original tiles)

The Developer advised it would not be wise to action option 2 as it may not prevent reoccurring damage. He suggested actioning option 3 works on unit 10 as a first step to determine whether this is the problem causing the damage. When questioned, Mr Koundouris clarified that this course would also need to include treatment of water-incursion occurring under the windows, as suggested in the RnB report.

Mr Koundouris provided a rough estimate for option 3 of $2 - $3000 per balcony and offered to contribute funds to testing the first balcony once the work is complete. During the course of the meeting Mr Koundouris offered to phone his Tiler immediately to establish his availability to commence work on Monday 3 June 2008.

224. The owners did not agree and are recorded as requesting that an in depth proposal be provided prior to the upcoming Special General Meeting of the Owners Corporation so it could be discussed in detail. Mr Koundouris agreed to do so and to present a detailed Engineers report of proposed methods of repair to Ms Ammendola (of CUPS) by 3 June 2008.

225. There was then a discussion of general rectification works and the following matters were recorded in the minutes:

The meeting advised the Developer that some works that were previously attended are in need of repair again and he agreed to send contractors on site to re-repair the works that were not permanently rectified during previous repairs at no further cost. Jennie Lindsay once again raised the matter of the reduced scope of Mr Koundouris' proposal, raising in particular, the damage to the external and internal entry areas, the underground car park and the rusting steel beams throughout the underground area. Mr Koundouris agreed to rectify these issues.

226. At the end of the Minutes was the following statement:

The Developer stated that he will not be financially contributing to the rectification works, but he will discuss further. He agreed to provide contractors to carry out permanent repair of previous attempted rectifications which have not proved effective and will contribute to the cost of the Committee's preferred repair option for the balcony of Unit 10, in the first instance.

227. On 3 June 2008, there was a Special General Meeting of the Owners Corporation. Rectification works were discussed at length in the Minutes of that meeting. It was recorded that:

The report from Koundouris was tabled at the meeting. However, members advised that the information in the report presented was not exactly what they had requested Koundouris to provide them with. It was identified that this report was the engineering report which was supposed to be presented to the Committee from a while ago.

It was a general decision that the Committee would work with the owners and put together an itemised general list of issues that need attention on the property, keeping in mind the costing. A general meeting with the developer will be requested and the owners will try during this meeting to basically identify and convince the developer to at least do some of the rectification work at his cost: therefore it would be more of a negotiation process.

228. It is not clear what engineering report was being referred to. It may have been the report of Mr Murtagh dated 16 May 2008.

229. On 6 June 2008, Mr Forner (Koundouris Projects) sent an email to Mr Koundouris about conducting repairs. The email stated that he took "old Mr Jimmy from PDA" and showed him the issues. The email outlined what "old Mr Jimmy" proposed to do on the balcony and noted that Mr Forner told the owners that they wanted to start some time next week when they got approval from the Owners Corporation.

230. On 11 August 2008, RnB Solutions provided a further report on an alternative scope of works to that originally costed. The report included an estimate of costs to complete those works on Unit 10 in the amount of $37,560 plus GST.

231. The report indicated that RnB Solutions did not recommend the alternative scope of works, although the product specified may have sufficed to provide a serviceable waterproofing. RnB Solutions commented that they had specified a scope of work which would ideally reduce the likelihood of the membrane failing.

232. On 13 August 2008, Landmark Plumbing invoiced CUPS for $858.00. The invoice was approved for payment on 16 September 2008 and exhibit 22 records payment of the amount on 18 September 2008.

233. On 25 September 2008, RnB provided a proposed scope of works to remedy water entry and deterioration of the external masonry facade. The report set out three options for rectification of the facade and indicated that the steel work required work, but that the cost of such work could not be estimated at that point. Estimates for the work to exterior walls ranged, depending on the number of walls treated, from $39,000 to $91,000 plus GST for a full Emerclad system, or $32,400 to $51,000 plus GST for a Bristol Exterior Acrylic over Emerclad Bandage/expansion joints to all cracks style application.

234. On 12 October 2008, the Executive Committee meeting Minutes recorded that:

(a) RnB Solutions provided a quote for exterior works not associated with the balconies;

(b) the Committee resolved to seek a Body Corporate strata loan to finance all external repairs as quoted by RnB Solutions up to a maximum of $450,000 over seven years;

(c) a draft letter from Minter Ellison to Koundouris Projects had not been received by committee members and needed to be followed up;

(d) members confirmed a decision made at a meeting on 24 August 2008 to proceed concurrently with repairs and then approach Koundouris Projects, rather than delay repairs any longer in expectation of positive responses from Koundouris Projects.

235. The August 2008 Minutes of the Executive Committee, referred to in the above Minutes, were not in evidence.

236. On 10 November 2008, Dr Rushbrook (Unit 5) sent an email to Ryan Veurink, the strata manager at CUPS, containing the following statements:

I attended the exploratory work this morning on the balcony of Unit 10. Met with James, Michael and Matt from RnB...We noted a previous bandage repair in one spot and found thin (original) membrane below surface tiles....

Jenny and I also spoke with Tom Ellis at the opening in the weekend [sic]. The empty unit is now advertised at $365,000 and there is quite a bit of interest. Potential buyers are being told that they will need to put in another $40,000 or so.

237. A report from RnB Solutions dated 19 November 2008 consolidated its previous reports and provided a total scope of works for the balcony deck waterproofing and treatment of the exterior of the building. The estimated cost was $449,680 plus GST with a number of exclusions and provisional sums. Treatment of steel beams was not included in this estimate.

238. On 15 December 2008, RnB Solutions issued an invoice to CUPS for $1,650 which was paid on 16 December 2008.

239. On 8 December 2008, Minter Ellison wrote to Mr Koundouris at Koundouris Projects. The letter referred to Mr Koundouris' letter of 19 September 2006 and identified the claim of the Owners Corporation in relation to internal and external rectification work. It also asserted that the obligations of either Mr Koundouris or Koundouris Projects (the letter was not clear) were unaffected by the expiry of the statutory warranties. The letter put an offer of settlement, the terms of which were not in evidence. On 15 January 2009, Koundouris Projects responded to this letter through its lawyers.

240. On 10 February 2009, Dr Rushbrook wrote to a number of owners. That email recorded that:

(a) He had just spoken to Mr Morozow (Unit 1) who had received a call from Mr Koundouris. Mr Koundouris and a number of owners would meet on 23 February 2009;

(b) Mr Koundouris' "attitude indicate[d] an acceptance of problems and willingness to assist"; and

(c) Minter Ellison would dispatch a letter to Mr Koundouris' solicitors advising that the owners were preparing documents.

241. On 23 February 2009, Dr Rushbrook, Ms Lindsay (Unit 5) and Mr Morozow (Unit 1) met with Mr Koundouris. Mr Koundouris said he had a vague memory of this meeting. At this meeting, Dr Rushbrook told Mr Koundouris that the owners were not prepared to allow him to carry out any further rectification works, but that he would be permitted to attend the site to recalculate quotes and review the condition of the site. There was discussion of a cash settlement with Mr Koundouris.

242. Following the letter from Minter Ellison, Koundouris Projects' solicitors, Williams Love and Nicol, sent letters of demand to Ultrafloor Southern on 4 March 2009, Tiling Impressions on 12 March 2009, and then MDC Industries on 12 March 2009 (when it was made clear that MDC was the entity trading as Ultrafloor Southern at the time of the Lagani construction).

243. The letters to these subcontracting companies included the following statements:

It is likely that, if this matter is not resolved, the Owners Corporation will proceed to litigation, a costly and time-consuming exercise for all parties involved. If litigation is commenced, our client will seek to join you as a party and, as you were subcontracted to perform work relating to waterproofing, you may be held liable for any damages required to be paid to the Owners Corporation.

244. On 22 March 2009, the Minutes of a meeting of the Executive Committee recorded that:

(a) RnB Solutions' recommended that the Committee retain Diagnostech Pty Ltd (Diagnostech) as an independent expert;

(b) Mr Morozow (Unit 1), Ms Lindsay and Dr Rushbrook (Unit 5) had met with Mr Koundouris on 23 February 2009 and indicated that the owners were seeking a cash settlement of $150,000 to remedy internal and external repairs;

(c) Mr Morozow said he had had several discussions with Mr Koundouris who had agreed to advise the Committee through Mr Morozow of his response within two weeks;

(d) the Committee's preference was a cash settlement, as opposed to the time consuming process of preparing a dossier of information in response to the request from Koundouris Projects' lawyers; and

(e) a meeting was held with Dennis Stephenson of Diagnostech who was going to report to the Owners Corporation as to recommendations for repairs.

245. On 14 April 2009, Koundouris Projects' solicitors received a response from Tiling Impressions' solicitor (Meyer Vandenberg) stating that:

(a) there was no evidence to support that water ingress had been caused by their client;

(b) other suppliers had not been prepared to provide a warranted solution until the structural issues in the building were addressed;

(c) Tiling Impressions had been engaged to perform further work at Lagani at a cost to Mr Koundouris;

(d) the statutory warranties did not bind Tiling Impressions; and

(e) the general statutory limitation period had expired.

246. On 22 April 2009, Koundouris Projects' solicitors received a response from MDC Industries' solicitors (also Meyer Vandenberg) denying responsibility for water proofing problems at Lagani.

247. On 5 May 2009, Koundouris Projects' solicitors wrote to Meyer Vandenberg seeking a without prejudice meeting. This does not appear to have been responded to notwithstanding Koundouris Projects' solicitors sending a further email on 28 May 2009, following up whether a meeting could occur.

248. On 12 May 2009, Ray White Strata wrote a letter to all owners providing Mr Forner's mobile number so that owners could arrange a time for him to access the building and inspect the damage to the property. Mr Koundouris gave evidence that he would have been aware of an instruction to Mr Forner about this.

249. On 10 June 2009, Dr Rushbrook (Unit 5) prepared a report to unit owners about the activities of the Executive Committee. It referred to:

(a) major works planning to be undertaken by RnB Solutions and the steps that had been taken to obtain a report from an independent engineer (Dennis Stephenson of Diagnostech);

(b) financing of the repairs;

(c) the owners continuing to apply pressure on Koundouris Projects on the grounds that it remained liable for any and all works which were unsatisfactorily constructed or repaired during the statutory period;

(d) the Committee being firmly of the view that a cash settlement was preferred rather than Koundouris Projects undertaking any further works;

(e) the Committee having given Koundouris Projects permission to further inspect Lagani; and

(f) the Committee's understanding that Koundouris Projects was giving attention to its demand and seeking funds from some initial subcontractors on the Lagani Project.

250. On 9 July 2009, Diagnostech provided a proposal to investigate the balcony tiling, the lightweight walling, the masonry walls and parapet and the structural steel beams. The proposal specifically identified that RnB Solutions would perform the rectification works. Mr Koundouris confirmed he was aware of the issues of water ingress referred to in Diagnostech's investigation, having been informed of them over the prior years, although he could not recall receiving a copy of the report.

251. On 12 August 2009, Mr Rene Ter Bogt (Unit 7) sent an email about an inundation of water from the ceiling in the lounge room.

252. On 26 August 2009, Mr Koundouris wrote a letter to the Owners Corporation in relation to the building defects. The letter asserted that he would not be responsible for the causes of all defects, but believed it was in the combined commercial interests of the parties to resolve the matter as amicably as possible. He proposed that the parties first promptly agree on an approach to ascertain the cause of the problems.

253. On 29 September 2009, the owners were invoiced $618.20 by RnB Solutions which was paid on 11 November 2009.

254. On 28 October 2009, the Minutes of the meeting of Executive Committee held on 11 October 2009 referred to tender documents received from Diagnostech. The Executive Committee agreed with the proposal to have Diagnostech issue the tender documentation to RnB Solutions and Dr Rushbrook (Unit 5) undertook to advise Diagnostech.

255. On 30 November 2009, Dr Rushbrook (Unit 5) wrote a long letter to Mr Koundouris setting out a chronology, a summary of issues and asking for a contribution towards rectification costs of $300,000. The letter included a statement which accurately described the gradual change in the position of the owners over time:

Having gradually lost confidence in [Koundouris Projects'] ability to identify causes and provide effective remedies, the Owners reluctantly but understandably reached the conclusion that they did not wish [Koundouris Projects] to undertake any further onsite work. This was the message clearly conveyed to [Koundouris Projects] at the onsite meeting on 23 February 2009. Following this meeting, the Owners, as a goodwill courtesy to expedite [Koundouris Projects'] response, granted [Koundouris Projects] access to further assess its costs ([Koundouris Projects] already had quotes from early 2008) so as to respond promptly to the Owners claim for $300K. This response was promised by [Koundouris Projects] in short time but has not yet been received.

256. On 30 November 2009, Koundouris Projects' solicitors, Williams Love and Nicol, sent a letter to Dr Rushbrook (Unit 5) in response to the letter of 30 November 2009 The Williams Love and Nicol letter referred to a number of attempts by Mr Koundouris to gain access to Units 9 and 10, but stated that no access had been given. The letter referred to an entitlement to get access, and stated that without access, Mr Koundouris could not rectify the alleged problems. In his evidence, in reference to attending to rectification works, Dr Rushbrook also stated that he had to tell Mr Koundouris in February 2009, to stop coming.

257. Dr Rushbrook (Unit 5) gave further evidence that:

(a) the owners gave Mr Koundouris permission to come and visit and recalculate quotes;

(b) the owners told him he was free to visit to recalculate his calculations;

(c) the owners were not aware of Mr Koundouris seeking to access the site to inspect the repairs being carried out in 2009;

(d) the owners never removed Mr Koundouris from the site; and

(e) clarifying his previous comments, what he meant by "shut off" was that the owners did not want Mr Koundouris to be present, and that they had to stop him from coming, because he was still purporting to be managing the repairs, and he was instructed not to do any more work.

258. On 8 December 2009, Remedial Technologies Australia Pty Ltd (Remtech) (a specialist remedial building contracting company in which Mr Stephenson had an interest) provided a quote to conduct the rectification works identified in the Diagnostech specification for $684,450 plus GST. That letter stated that RnB Solutions declined to tender for the works as it did not have the expertise to carry out all aspects of the project.

259. In or about December 2009, a representative from Mr Koundouris' insurer attended the site.

260. On 2 February 2010, Diagnostech invoiced the Owners Corporation for building consultancy services for $10,758 which was paid on 25 March 2010.

261. On 16 February 2010, the Minutes of the Executive Committee meeting on 31 January 2010 recorded that:

(a) they discussed a telephone call from Mr Koundouris suggesting a proposal that Koundouris Projects make a $100,000 contribution over ten months;

(b) Mr Morozow (Unit 1) had said the owners had sought $300,000 and would need to confer with the Executive Committee;

(c) the Executive Committee considered the $100,000 was a starting figure for possible negotiation;

(d) Dr Rushbrook (Unit 5) had been through every apartment with a building consultant nominated by Koundouris Projects' insurers and was convinced of the serious state of the complex;

(e) the owners would need legal advice prior to accepting any offer; and

(f) they would continue to obtain quotes for repairs.

262. On 18 February 2010, Superior Waterproofing Services provided a quotation for rectification works for $897,315 including GST. Remedial Building Services also provided a quotation on 9 February 2010 for $872,624 including GST.

263. On 12 March 2010, RnB Solutions invoiced the owners for $429.00 which was paid on 7 September 2010.

264. On 18 March 2010, the Minutes of the Annual General Meeting of the Owners Corporation resolved that an Extraordinary General Meeting be held to discuss and finalise a contractor for external repairs. It also resolved to pursue legal action if Mr Koundouris did not "provide a settlement more satisfactory to the Executive Committee by the date of the Extraordinary General Meeting". It also resolved to "accept a settlement figure as offered by Mr M Koundouris' Building Insurer (QBE Insurance Pty Ltd)". The evidence does not disclose the nature of any settlement with QBE Insurance Pty Ltd or what it related to.

265. On 6 May 2010, the Minutes of the Extraordinary General Meeting of the Owners Corporation recorded decisions that Remtech be engaged to carry out repairs and that the Owners Corporation obtain a loan for $700,000 from Lannock Capital Pty Ltd.

266. On 13 May 2010, the contract between the Owners Corporation and Remtech was entered into for the rectification for $752,895. The technical specification set out in that contract was set out in detail at section 3 and covered:

(a) preliminaries;

(b) access;

(c) overhead protection;

(d) general preparation;

(e) existing services;

(f) facade cleaning;

(g) facade survey;

(h) spalled concrete repairs;

(i) debonded render repairs;

(j) facade crack repairs;

(k) facade coating and waterproofing works;

(l) balcony waterproofing;

(m) deck toping;

(n) overflow outlets;

(o) deck outlet grates;

(p) deck tiles;

(q) general painting;

(r) roof repairs;

(s) general contingency; and

(t) warranties.

267. Dr Rushbrook (Unit 5) gave evidence that this specification related to only urgent works to the balconies and the external facade, and that there were other issues to be attended to.

268. On 4 June 2010, the contract for the sale of Unit 6 from Mr James Barr to Mr Julian Mills-Mateer was signed.

269. On 23 June 2010, the Minutes of an Executive Committee meeting included:

(a) noting that seven of the unit owners would pre-pay their requirement to contribute to the $700,000 special levy; and

(b) foreshadowing a meeting with Mr Koundouris on 24 June 2010.

270. Dr Rushbrook (Unit 5) gave evidence that he met with Mr Stephenson and Mr Koundouris on 24 June 2010 and Mr Koundouris was shown the specification for the repairs.

271. On 9 July 2010, Diagnostech issued an invoice for $1,650 to the owners which was paid on 15 July 2010.

272. The Minutes of the Executive Committee meeting on 1 August 2010 referred to the fact that contract documents were executed by Owners Corporation and Dennis Stephenson as the signatory for Remtech. The Minutes also referred to a letter of demand being sent to Koundouris which would give three weeks to comply before action was taken.

273. On 26 August 2010, Diagnostech provided a proposal to address significant water ingress from Unit 5 into Unit 1 . The letter set out two possible rectification scopes of work, one involving resealing and re-tiling of the area surrounding the bath (without removing the bath), and the other involving completely stripping the whole bathroom and its re-waterproofing. The option of removing the bath and re-waterproofing the area underneath the bath was not an option dealt with in these quotes.

274. The following invoices were issued by Remtech referring to the contract of 13 May 2010:

(a) 3 August 2010: $75,000 (paid on 27 August 2010);

(b) 13 September 2010: $174,332.40 (paid on 12 October 2010);

(c) 2 November 2010: $235,893.85 (paid on 24 November 2010.

275. On 1 September 2010, Mr Murtagh wrote to Mr Koundouris indicating that the proposed procedure was not likely to eliminate the problems and the main deficiency was "in not laying membrane to falls". The evidence did not explain the point that Mr Murtagh was seeking to make.

276. On 10 September 2010, Remtech quoted for the scope of works set out in the Diagnostech letter of 26 August 2010. The letter stated, in relation to the cheaper option (resealing and re-tiling around the bath):

We must reiterate that this would represent a low cost alternative to proper re-waterproofing of the bathroom and would come in with no guarantees that differential movement between the bath and the wall and floor substrates will not cause this leak to reoccur.

277. On 14 September 2010, Diagnostech issued an invoice for $4,125 which according to Exhibit 22, was paid on 13 October 2010.

278. On 2 November 2010, Diagnostech issued an invoice for consultancy services for $1,331, which according to exhibit 22, was paid on 13 December 2011.

279. On 29 November 2010, the plaintiff filed these proceedings.

280. The following further invoices were issued by Remtech under the contract of 13 May 2010:

(a) 1 December 2010: $151,840.83 (paid on 22 December 2010); and

(b) 2 December 2010: $8,332.50, relating to works in Unit 8(paid on 7 December 2012).

281. The following other invoices were issued in respect of internal remedial works:

(a) 11 November 2010: $3,729.00; and

(b) 3 February 2011: $7,370.00,

282. On 28 January 2011, Remtech wrote to the Owners Corporation advising that the additional cost to strip and re-waterproof two planter boxes, necessary due to deficient waterproofing of the common area planter box structures, was $9,800.

283. On 7 February 2011, the defendants were served with the Originating Claim and Statement of Claim.

284. On 11 March 2011, the Defendants filed a conditional notice of intention to respond.

285. On 15 March 2011, the defendants sought further and better particulars from the plaintiff.

286. Remtech issued a further invoice based on the contract of 13 May 2011 on 25 March 2011 for $131,815 and it was paid on 13 May 2011.

287. On 13 July 2011, the solicitors for the Owners Corporation provided an initial response to request for particulars, but no details of alleged defects, and stated that the details of the defects would be provided in an independent expert report to follow.

288. On 29 June 2011, Remtech issued a number of other invoices to the Owners Corporation and various unit owners which did not refer to the contract of 13 May 2010:

(a) Invoice from Remtech for $18,871 for 're-waterproofing of eastern planters and plaster repairs and repainting of water damaged areas of main foyer ceiling' as partially quoted on 28 January 2011;

(b) Invoice from Remtech to Mr Morozow (Unit 1) for $4,400 for repair of internal water damage for Unit 1;

(c) Invoice from Remtech to Ms McLeod (Unit 2) for $3,190 for repair of internal water damage for Unit 2;

(d) Invoice from Remtech to Ms Jane Kinsman (Unit 4) for $5,830 for repair of internal water damage for Unit 4;

(e) Invoice from Remtech to Dr Rushbrook (Unit 5) for $9,557.90 for repair of internal water damage for Unit 5;

(f) Invoice from Remtech to Mr Ter Bogt (Unit 7) for $16,161.20 for repair of internal water damage for Unit 7.

289. Exhibit 22 recorded these invoices as having been paid as follows:

(a) $4,400 on 30 June 2011;

(b) $3,190 on 10 August 2011; and

(c) $4,557.90 on 12 December 2011, being the final payment in relation to the amount $9,557.90.

290. On 3 August 2011, Williams Love & Nicol wrote to Minter Ellison foreshadowing an application would be made for security for costs. The application was made in 2014: see Owners Units Plan 1917 v Koundouris [2014] ACTSC 269.

291. On 4 August 2011, MJ Painters issued an invoice to Mr Cecere Unit 8) for $3,500 for internal painting to a water damaged unit.

292. On 22 August 2011 and 26 August 2011, the solicitors for the Plaintiff provided further and better particulars in answer to the request made by the Defendants' solicitors.

293. Classique Chem Dry issued an invoice dated 19 January 2012 to Ms McLeod (Unit 2) for $500.00 for carpet cleaning and mould removal. Exhibit 22 indicates that this amount was paid by Ms McLeod on 30 January 2012. On 22 February 2012, Hood's Carpet Court issued Ms McLeod a job receipt for $1,193.00 for supplying and installing new carpet.

294. On 17 April 2012, Dennis Stephenson (of Remtech) sent an email to the Owners Corporation allocating costs for internal rectification works (as per Remtech invoices of June 2011 referred to above).

295. On 17 April 2012, Country Builders invoiced Rene Ter Bogt (Unit 7) for renovations to his bathroom and kitchen for $12,561. This does not appear to have related solely to the alleged defects.

296. On 2 July 2012, Remtech issued a final claim referring to the contract of 13 May 2010 for the amount of $19,714.94. This invoice was for the release retention sums only and does not appear to be for any further works.

297. The Minutes of the meeting of the Executive Committee on 7 September 2012 recorded that the committee authorised the Managing Agent to forward the final payment to Remtech.

298. On 15 October 2012, A & S Builders (associated with Ari Lyras of Unit 3) were invoiced $212.96 for paint. On 6 December 2012, Ari Lyras and A & S Builders (Unit 3) were invoiced $3,500 for the supply and installation of carpet to Unit 3.

299. On 1 February 2013, the Diagnostech Report prepared by Mr Stephenson (dated 11 December 2012) (2012 Diagnostech report) was served on Mr Koundouris' and Koundouris Projects' solicitors.

300. On 18 February 2013, in response to the Diagnostech report, the solicitors for the defendants wrote to Minter Ellison. The letter indicated they would not comply with the timeframe stipulated by Minter Ellison and stated:

We confirm this now satisfies our requests for further and better particulars. However, given the highly technical nature of the claim, we are briefing our own expert to enable us to prepare a proper and meaningful defence.

...your client's particulars have been outstanding since...6 September 2011 due to your client's own need to brief an expert so as to properly particularise their claim.

301. On 22 March 2013, the owners were issued with an invoice from Remtech for installation of drip trays to Units 9 and 10 carparks. According to exhibit 22, this was paid on 26 March 2013.

302. On 14 May 2013, the defendants' expert, Mr Joannides, first inspected the premises.

303. On 7 June 2013, the owners received a tender from Remtech for remedial waterproofing works for a quoted amount of $311,982 (including decks on Units 1, 2, 3 and 4 and bathrooms in Units 1 and 9). The work to Unit 1 was performed in 2015 and invoiced on 31 May 2015. The work to the decks on Units 1, 2, 3 and 4 was performed by Soleace Waterproofing Pty Ltd (Soleace), a remedial building and waterproofing company, in 2014. Soleace was a company operated by Brett Cawsey, Mr Stephenson's business partner in Remtech. The work to Unit 9 has not been performed.

304. On 9 July 2013, Dr Rushbrook (Unit 5) was issued with an invoice from Remtech for re-waterproofing and re-tiling the Unit 5 bathroom, for $11,990. According to exhibit 22, $5,000 was paid on 5 August 2013 and $6,990 was paid on 6 August 2012.

305. On 31 July 2013, the Owners Corporation was issued with an estimate from Remtech for installing a two-hour fire rated protection to the steel beams located in the undercover parking area, for $21,000 plus GST.

306. On 13 August 2013, the owners were issued with an invoice for the costs associated with an inspection by AE&D Fire for $2,250.00 for a site inspection and the preparation of tender specification for remedial works. According to Exhibit 22, this was paid on 22 August 2013.

307. Dr Rushbrook (Unit 5) gave evidence that the owners had been given informal advice by Mr Stephenson in 2009 that the steel beams had not been treated other than with a primer and therefore the beams were rusting because of the extensive water ingress.

308. On 17 October 2013, the Minutes of the meeting of the Executive Committee recorded an update regarding defect rectification and that information was contained within a circular dated 25 September 2013 (which was not in evidence). The Minutes recorded that it was agreed that the proposed works were essential and must be completed immediately to maintain the structural integrity of the building, and additional quotes would be obtained for the investigation.

309. The following quotes were issued to the owners:

(d) Soleace (quote no. 1126) for waterproofing and remedial works: $196,750.00 plus GST;

(e) Soleace (quote no. 1062-1) for fire upgrade basement carpark: $84,950.00 plus GST; and

(f) Soleace (quote no. 1264) dated 22 May 2015 for waterproofing and remedial works on the Western side terrace and the Fawkner Street entrance: $37,870.00 plus GST.

310. Mr Leitch (Unit 9) gave evidence that the remediation to the ground floor waterproofing was identified as something to be done later on and that the leaking issues had to be fixed before the beams could be fixed.

311. Soleace issued an invoice for $11,825 to Mr Morozow (Unit 1) for the remedial repair works to the Unit 1 bathroom on 31 May 2015.

312. Soleace issued invoices to the owners in respect of quote 1126 as follows:

(a) $10,821.25 on 21 October 2014;

(b) $24,750on 10 November 2014;

(c) $24,200 on 25 November 2014;

(d) $27,500 on 4 December 2014;

(e) $33,000 on 28 January 2015;

(f) $44,000 on 11 February 2015;

(g) $22,000 on 2 March 2015;

(h) $31,900 on 19 March 2015; and

(i) $16,500 on 22 April 2015.

313. According to Exhibit 22, these amounts were paid by the Owners Corporation on 10 November 2014, 1 December 2014, 17 December 2014, 16 February 2015, 5 March 2015, 16 March 2015, 14 April 2015 and 15 May 2015.

The limitation issue in relation to the statutory warranties

314. The central contest between the parties was as to the nature of the statutory warranties arising under the 1972 Act (which were relied upon by the plaintiff and which were stated by that act to expire five years after the date of the issue of the certificate of occupancy) and whether or not the limitation period ran from the date of that certificate, the date upon which a defect manifested itself, from the conclusion of a five year period after the issue of a certificate of completion or from some other point.

Legislative provisions relevant to the warranty

315. The legislative provisions set out below are based upon Republication No 4 of the 1972 Act. This republication was effective from 30 September 2000 until 19 December 2000. The contracts for sale to the original owners spanned the period from mid 2000 until early 2001. Therefore this republication covers most of the relevant period.

316. The critical provision for the present case is s 58C, but it is necessary to interpret that section in the context of the whole of Pt 5A which is set out below.

Part 5A - Residential Building - Statutory Warranties and Insurance

58A Definitions for pt 5A

In this Part:

builder, in relation to residential building work or a residential building, means the person whose name is notified to the relevant certifier under section 37A.

building does not include paving or a structure that is a fence, retaining wall, outdoor swimming pool, outdoor ornamental pond, mast, antenna, aerial, advertising device, notice or sign.

building work does not include work in connection with the demolition of a whole building.

cost, in relation to building work, means the cost of the work as ascertained under section 58AA.

ground storey has the same meaning as in the building code.

habitable room has the same meaning as in the building code.

residential building means a building intended primarily for private residential use, or a part of such a building, where -

(a) if the ground floor is habitable - the building has no more than 3 storeys at any point (including the ground storey); or

(b) if the ground floor is not habitable - the building has no more than 4 storeys at any point (including the ground storey); or

(c) in the case of a part of a building - the part provides structural support, or constitutes a structurally integral adjunct to the building.

residential building work means building work in connection with a residential building.

58AA Cost of building work

(1) For the purposes of this Part, the cost of building work is -

(a) where a contract has been entered into for the carrying out of the building work - the cost of the work as fixed by the contract; or

(b) in any other case -

(i) an amount agreed between the building controller and the builder; or

317. These provisions were renumbered in 2002, however, in order to avoid confusion I have continued to refer to the provisions by the numbers which they bore in Republication No 4.

318. The Building Regulations 1972 provided that the prescribed period for s 58C was five years after the date upon which the certificate of occupancy was issued. It also prescribed five years as the period for s 58E(1)(c) and 90 days for s 58E(1)(j).

319. Section 58C must be read in the context of the scheme created by Pt 5A as a whole. When originally inserted into the Act, ss 58C(3) and 58E did not refer to the "prescribed period" in s 58C(3) and s 58E(1)(c) , (d) and (j). Instead, s 58C(3) provided:

(3) The warranties expire at the end of the period of 5 years after the date on which a certificate is issued under section 53 in relation to the building or the building work.

Residential building work insurance

58E

(1) An insurance policy issued in respect of residential building work complies with this section if -

...

(c) if the builder is not the owner of the land on which the work is to be carried out - it insures the owner and the owner's successors in title for the period beginning on the date on which a building permit is granted for the work and ending 5 years after the date on which a certificate is issued under section 53 in respect of the work;

(d) if the builder is the owner of the land on which the work is to be carried out - it insures the builder's successors in title for the period beginning on the date on which the title in the land is transferred to another person and ending 5 years after the date on which a certificate is issued under section 53 in respect of the work;

...

(j) it provides that a claim under it may only be made within 90 days (or some specified period of more than 90 days) after the claimant becomes aware of the existence of grounds for the claim;

321. The references to five years and 90 days were removed by the Building (Amendment) Act 1995 (ACT) (No.28 of 1995), which instead substituted references to the prescribed period. The explanatory memorandum for the amending Act referred to the amendments as follows: "There are also a number of minor amendments. References to amounts and periods need to be adjusted periodically. It is easier if this is done by way of regulation." Of the specific amendments, the explanatory memorandum provided:

Clause 15 amends subsection 58C(3) by omitting the words "period of 5 years" and substituting "prescribed period".

...

Clause 16 amends section 58C by removing references to specific amounts and periods and replacing them with prescribed periods and prescribed amounts. This will enable changes to be made to periods and amounts without amending the Principal Act.

322. The explanatory memorandum did not indicate any intention to alter the statutory scheme in a substantive way.

323. In fact, notwithstanding the flexibility introduced as a result of the 1995 amendments, the regulations made under the Act up until 2001 maintained the periods of five years and 90 days respectively. In fact these periods remained prescribed up until the repeal of the act in September 2004: Building Regulations 1972 (ACT), ss 20(2)-(3).

324. It would generally be inappropriate to interpret the scope of the Act as at 2000 by reference to the terms of the regulations made under it. An instrument of the executive cannot determine what the legislature meant. However, in the present case, when trying to work out the effect of the statutory scheme, it is appropriate to have regard to the terms of the scheme as it was originally enacted notwithstanding that, by a subsequent amendment, the identification of the relevant periods has been delegated to regulations. That is because the statutorily defined periods in the provisions as originally enacted in relation to the existence of the warranty and the compulsory insurance might throw some light on what the legislature intended and because, if that can be worked out, it is clear that, having regard to what is said in the explanatory memorandum for the amending legislation, no substantive amendment to that statutory scheme was intended.

325. Looking then at the requirement for building work insurance in s 58E as originally enacted, the following becomes apparent. The Act established an insurance scheme which permitted claims within a period ending five years after the date of the certificate of occupancy provided that a claim was made within 90 days or some specified longer period after the claimant became aware of the existence of grounds for the claim. Relevantly, the risk was the risk of loss resulting from a breach of a statutory warranty.

326. Part 5A was inserted by the Building (Amendment) Ordinance 1988 (No 73 of 1988). The explanatory statement for that Ordinance placed principal emphasis upon the introduction of the statutory scheme of insurance, but also made reference to the insertion of statutory warranties as follows:

An important element of the Ordinance is the establishment of implied statutory warranties by the builder in contracts for the sale of a residential building work to which the builder is a party.

327. In relation to s 58C(1) the statement provided:

Subsection 58C(1) implies in every contract for the sale of a residential building and for the carrying out of residential building work (to which contract the builder is a party) the following statutory warranties by the builder:...

328. In relation to s 58C(3), which is the critical provision for present purposes, the statement provided:

Subsection 58C(3) provides for the warranties to expire 5 years after the date of issue by the Building Controller of a certificate of completion under section 53 of the Principal Ordinance.

329. The plaintiff placed great significance upon the words "has been or will be" in s 58C. It contended that the warranties only arise after work has been completed. The plaintiff contended that drawing the contrast between what "has been" done and what "will be" done meant that the builder warranted that both the work that has been performed is subject to the warranty and that if, and to the extent that, the work that has been performed does not comply with the warranties then the work "will be" brought into conformance with those warranties. The warranties therefore concerned two separate matters and contained within them:

(a) an "as performed element", namely that the work which has been done complies with the stipulated standards of quality and workmanship; and

(b) a "prospective element", namely that to the extent that the work that has been done does not comply with those standards the work "will be" done so as to conform to the standards.

330. Therefore, in the present case the effect of the warranties was to give rise to separate obligations as follows:

(a) a breach of the as performed element of the warranties occurred to the extent that the residential building work did not conform to the standards required as at completion;

(b) the builder was obliged to undertake rectification work so as to ensure that the work conformed to the warranties within the warranty period of five years;

(c) to the extent that the builder did not do so there was a continuing breach and an ongoing obligation to put right or rectify the residential building work;

(d) if the builder refused to rectify defects the builder was thereby in breach of the ongoing obligation contained within the warranty which of itself constituted a breach of the warranties;

(e) a further breach of the warranties occurred if the residential building work did not relevantly comply with the statutory warranties at the expiration of the five-year period because it was at that time that the builder had ultimately not fulfilled the obligation under the statutory warranties.

331. As a result, the plaintiff submitted that there may be, and was in this case, a continuing breach or series of breaches over the course of the statutory warranty period, the last of which occurred at the expiration of the statutory warranty period to the extent that the building at that point did not comply with the terms of the statutory warranties.

332. Alternatively, the plaintiff contended that the statutory warranties applied to the further building work performed and, as a result, there was a breach to the extent to which the further building work did not achieve conformity to the statutory warranties by the conclusion of the statutory warranty period.

333. The defendants contended if there were breaches of warranties, the last possible date of the breach arising from the original building work was when the construction was completed. They submitted that the five-year warranty period does not place any obligation on the builder to ensure that the building remains free of defects during that period. No such obligation appears in the Act and it cannot be interpreted so as to give rise to such an obligation. They make reference to a number of authorities said to support the proposition that any failure to comply with building standards is a "once and for all" breach which arises at completion: Larking v Great Western (Nepean) Gravel Ltd [1940] HCA 37; (1940) 64 CLR 221 (Great Western Gravel); VAI Industries (UK) Ltd v Bostock & Bramley [2003] EWCA Civ 1069; Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Company Australia Pty Ltd [2011] NSWSC 75 (Tranquility Pools).

334. The operation of provisions such as these, which are of significance for consumers and participants in the building industry, should be readily understandable and their operation should be clear. Unfortunately that is not the case with Pt 5A of the 1972 Act. Having regard to the fact that the provisions of the 1972 Act are picked up in the 2004 Act, the same comment can be made in relation to the latter Act.

335. In order to determine the appropriate interpretation of s 58C it is necessary to have an overall understanding of the operation of the section.

336. Stated in general terms, in a manner which avoids resolution of the interpretive problems to which the section gives rise, the effect of the section is to imply into particular classes of contracts certain statutory warranties. The rights pursuant to those warranties enure for the benefit of the owner's successors in title. The warranties are said to "expire" at the end of a five-year period after the date on which the certificate of occupancy is issued for the building or building work.

337. There are a number of features of the section which need to be examined in order to achieve that understanding:

(a) the scope of the two categories of contracts identified in s 58C(1) upon which the section operates;

(b) the significance of the use of the words "has been or will be" in paragraphs (a), (b) and (c) of s 58C(1);

(c) the operation of s 58C(2) and (4) which allows successors in title to succeed to the rights of the "owner" in respect of the statutory warranties; and

(d) what is meant by the "expiry" of the statutory warranties pursuant to subsection (3).

The two categories to which the section applies

338. The two categories established by s 58C(1) are "every contract for the sale of a residential building, and every contract to carry out residential building work (being a contract to which the builder is a party)". It is clear, having regard to the location of the comma after the word "building" that the bracketed words qualify only "every contract to carry out residential building work" and do not qualify "every contract for the sale of a residential building". If that comma was not there then the subsection would, in relation to contracts for sale of residential buildings, only apply to those contracts to which the builder was a party and would not apply where the builder was not a party.

339. The explanatory statement in relation to the Building (Amendment) Ordinance 1988 provided in its general explanation of the operation of the amending ordinance:

An important element of the Ordinance is the establishment of implied statutory warranties by the builder in contracts for the sale of a residential building work to which the builder is a party.

340. While the reference to "the sale of a residential building work" does not inspire confidence in the drafting of the statement, it is more consistent with the bracketed qualification on the contracts to which the subsection applies also applying in relation to the contracts for sale of residential buildings.

341. Consistently with that indication in the general explanation in the explanatory statement, the detailed description of the operation of s 58C(1) provides that it "implies in every contract for the sale of a residential building and for the carrying out of residential building work (to which contract the builder is a party)". Given the single reference to "contract" it is consistent with the bracketed words applying to contracts for sale as well as contracts for building works.

342. However, the comma remains and must be given effect unless there are very strong indications elsewhere in the provision that it should not. In Taylor v Owners - Strata Plan 11564 [2014] HCA 9; (2014) 253 CLR 531, 548 [37]-[38], a majority of the High Court recognised and described the capacity to interpret a statutory provision as if it contained additional words or omitted words as involving "a judgment of matters of degree". In the present case an examination of the other provisions of the 1972 Act and the extrinsic materials does not indicate that the existence of the comma or its position represents "a simple grammatical drafting [error] which if uncorrected would defeat the object of the provision": Taylor at 548 [38].

343. Further, the purpose of Pt 5A as disclosed by its provisions as a whole and the extrinsic materials to which I have referred is not sufficient to indicate that the ordinary grammatical effect should not be given to the comma. There might have been a basis for not giving effect to the comma if, by not tying any contract in some way back to the construction of the building, the "contract for the sale of a residential building" was left without any temporal limitation with the consequence that warranties would be implied forever. However, (as I describe below at [395]) by reason of s 58C(3) there is a temporal limitation on the operation of the warranties and hence the operation of the provision is not such as to require a temporal qualification on the "contract for the sale of a residential building" limb in order to avoid an unreasonable outcome.

344. The result is that the legal meaning of the chapeau to s 58C is the same as the grammatical meaning and the "contract for the sale of a residential building" does not need to be one to which the builder is a party.

345. Read in the context of the opening words of s 58C(1), the reference to "has been or will be" is reasonably simply explained. The opening words of the subsection refer to two circumstances:

(a) a contract for sale of a residential building;

(b) a contract to carry out residential building work.

346. If the first situation applies, the residential building may or may not be in existence. It might be the sale of an existing building or it could be an "off the plan" sale where the building is yet to be built. On the other hand, if the second situation applies then the residential building work has not yet been carried out. These two situations (building works complete or not complete) are then picked up in the terms of the warranties which are set out in the balance of the subsection. Paragraphs (a) and (b) refer to work that has been or will be carried out. Paragraph (c) refers to the warranty that good and proper materials for the work "have been or will be used". Paragraph (d) deals with the time in which work that has not been completed will be carried out. Paragraph (e) provides a warranty of fitness for purpose that the work and any material used in carrying out the work "is or will be" reasonably fit for purpose.

347. Because the circumstances described in these paragraphs incorporate circumstances where the contract in subsection (1) may or may not involve residential building work that has already been completed, it is necessary for the terms of the warranties themselves to accommodate the alternative possibilities. They do so by the references, as appropriate, to past, present and future circumstances. This gives a sensible operation to the terms of the warranties which corresponds to the different circumstances identified in the opening words of subsection (1).

348. I do not accept the plaintiff's submission that the statutory warranties only arise after the work has been performed or completed. Clearly enough, where a building contract is being entered into, the work the subject of that contract will not have been completed, yet the warranties as to the standards of construction will be incorporated into that contract by the statute.

349. Necessarily flowing from the interpretation which I have identified is a rejection of the plaintiff's submission that the phrase "has been or will be" applies to any single category of building work so as to necessitate an interpretation which imposes obligations in relation to that single category which are both "as performed" as well as "prospective". It therefore does not imply that further work undertaken during the period of the warranty before its expiry must comply with the requirements of the warranty. Rather, as I have indicated, the two elements of "has been or will be" correspond to the two different circumstances being addressed by the subsection.

350. I consider that the interpretation contended for by the plaintiff is one which goes beyond a reasonable interpretation of the statutory words. While I accept that the terms of Pt 5A are remedial and intended to advance the protection of owners, that fact is not sufficient to justify an interpretation which seeks to imply into the words actually used by the legislature a greater obligation than those words indicate: see Carr v Western Australia [2007] HCA 47; (2007) 232 CLR 138, [5]. In my view, giving the words in s 58C(1) the interpretation that I have does not deny to s 58C or Pt 5A its remedial and protective character.

351. Section 58C(2) provides that the "owner's" successors in title succeed to the rights of the owner in respect of the statutory warranties. It is important to note that the effect of this subsection is that successors in title only acquire the rights of the "owner" in respect of the statutory warranties. Thus, it is important to identify who is the "owner" and what rights have been acquired by reason of the statutory warranties. "Owner" is defined in subsection (4). The table below summarises the effect of subsection (4):

Contract to carry out residential building work (being a contract to which the builder is a party)

352. In relation to the first category of contract, namely, contracts for the sale of a residential building, because those words are unqualified the contract is not necessarily a contract to which the builder is a party and there may be multiple contracts within a five-year period following the issuing of a certificate of occupancy. This is unusual in that it means that the statutory warranties are warranties potentially given by a non-party and may arise on each occasion when the building is sold. In the circumstances of a subsequent sale of the property, subsection (2) will have little work to do because the new contract would give rise to new warranties by the (non-party) builder.

353. (If, on the other hand, the contracts for sale were limited to those to which the builder was a party, then the warranties would only be implied in the contract by the builder to sell the property to the first owner. The owner's rights under the warranty would then be passed to the owner's successors in title pursuant to subsection (2). This would avoid the unusual concept of the implication into a contract of statutory warranties by a non-party.)

354. In relation to the second category of contract, namely a contract for residential building work to which the builder is a party, then the rights are passed to the successors in title of the owner of the land on which the work was carried out. This has the necessary consequence that the contract needs to be a contract between the builder and the owner of the land. That is because if it was a contract between the builder and some other person then the owner, not being a party to the relevant contract, would have no rights which could be passed to the owner's successors in title under subsection (2).

What does "expire at the end of the prescribed period" mean?

355. It is uncontroversial that under the statutory scheme the warranties implied by s 58C(1) exist for a period of five years. The difficulty is in giving a meaning to the word "expire" in s 58C(3). The meaning given to the word "expire" will not only determine the status of the warranties and any claim made in relation to them after the end of the five-year period, but will also shed light on the nature of the warranties that existed between the date on which a certificate of occupancy was issued and the end of the five-year period. That in turn will shed light on the operation of the six-year period in the Limitations Act.

356. The warranties established by the Act are clearly a statutory invention which departs from the common law concept of a warranty. The section does more than merely add to the obligations of parties to a contract. As I have pointed out above, if effect is given to the comma in subsection (1), in the case of contracts for sale of residential buildings the warranty imposed is a warranty given by a person who is not a party to the contract. It is a statutorily imposed burden which picks up a contractual concept and imposes that upon the builder of the residential building.

357. Thus, if effect is given to the comma, that is indicative that the legislature has departed from ordinary contractual concepts and that departure must be taken into account when the effect of the provision is being determined. Having said that, the legislature clearly intended to pick up the contractual concept of a warranty as the vehicle through which the burdens set out in the section are imposed.

358. A cause of action for breach of contract, including a cause of action for breach of a warranty, arises at the point when the breach occurs rather than when damage is first suffered. In the case of a building contract, a warranty is breached, at the latest, at the point where the builder completes the relevant work. However, in the case of a contract for sale, which, even in the case of the first sale of a building, may or may not occur close to the time of completion of the building, any breach of warranty will occur not at the point where the construction is completed (or certificate of occupancy granted) but will, instead, occur at the point of sale. That is because if the building sold is not in fact constructed in accordance with the requirements of the statutory warranties then the warranty will be breached when the transaction is completed. The breach will occur upon completion even if the facts giving rise to the breach occurred during construction prior to the giving of the warranty or if any defect in the construction only manifested itself and caused damage after the giving of the warranty.

359. The section identifies the duration of the warranty by reference to the issuing of a certificate of occupancy. Under s 53 of the 1972 Act, the issuing of the certificate of occupancy generally corresponds to the completion of the building contract because it may only be issued when the building work is at least "substantially in accordance with" the "prescribed requirements" which include the requirements of the Act, regulations, building code and the approved plans. I say "generally" because it is perfectly possible that a certificate of occupancy could be issued, yet there remain items requiring completion or rectification pursuant to the building contract. However, in the context of a statutory scheme involving warranties and the provision of insurance, it is easy to understand why the precise date identified by the issuing of the certificate of occupancy is the date by which the expiry of the warranties is fixed.

360. As will be apparent from the above discussion of the different times when the warranties are given and breached, the commencement of the period in subsection (3) does not necessarily correspond with the point at which a breach of warranty will occur. Rather, the fixing of the period by reference to the date on which a certificate of occupancy is issued appears to be a convenient method of identifying a fixed period during which the warranties should operate.

361. What then should be made of the reference to the warranties "expiring" at the end of the five-year period after the date on which the certificate of occupancy was issued? There appear to be four alternatives:

(a) Option A: The five-year period up until expiry is a period during which the standards required by the warranties must continue to be met. This option involves, as the plaintiff submitted, a continuous obligation to meet, or bring the building up to, the standards required by the warranties. It involves imposing a continuing obligation to rectify the building which, if not done, is last breached at the end of the five-year period. That would mean that if, at the end of the five-year period, the standards set out in the warranty were not met, then a cause of action for breach of that warranty existed and the limitation period would run from the conclusion of the warranty period. The effect of this would be that proceedings could be brought at any time up until 11 years from the date upon which the certificate of occupancy was issued.

(b) Option B: The five-year period is the period during which the owner's successors in title succeed to the warranties under s 58C(2). This has the effect of interpreting subsection (3) as a qualification on subsection (2) so as to prevent further successors in title continuing to gain the benefit of the rights of the owner. Option B would have the effect that incoming purchasers of the property within a five-year period from the date of the certificate of occupancy would gain the benefit of the statutory warranties, but the operation of limitation periods in relation to a breach of that warranty would be unaffected. That would mean that if the building did not comply with the requirements of the warranties then a breach would occur in the case of the building contract limb of s 58C, when, under the contract, compliance was due or, in the case of the contract for sale limb of s58C, at the date of settlement of the contract. Any proceedings in relation to that breach would, therefore, need to be commenced within a six-year period from whichever was the applicable date. During the five-year period before the warranties "expire" a successor in title would take the benefit of that statutory warranty pursuant to s 58C(2). Thus:

• (i) an owner or person who purchased at about the time of the certificate of occupancy would have a year after the expiry of the warranties to commence proceedings; and
• (ii) a purchaser of the property immediately prior to the "expiry" of the warranties would have a further six years in which to commence proceedings.

362. It is notable that by adopting a scheme based upon the contractual concept of a warranty, the legislature has precluded the breach occurring at the time when it becomes manifest as opposed to when it occurred. Had the scheme fixed the date of breach as being the date upon which the defects became manifest, then the expiry of the warranties would have had the effect that defects manifesting themselves after expiry could not be claimed, but defects prior to expiry could be claimed from the point where they arose.

363. In order to further consider which of these interpretations should be given to the section, it is useful to examine the authorities relied upon by the defendants which address the operation of warranties in accordance with ordinary contractual principles. That is because it is those principles which are, having regard to the legislative choice to pick up the contractual concept of a warranty, the starting point for the operation of the statutory provision.

364. The cases to which the defendants referred relate to whether or not a warranty should be characterised as a continuing one in the sense that the breach of warranty continues on each day when the warranty is not satisfied or whether it is a once and for all breach which exists from the first occasion when the warranty is unsatisfied. This question of characterisation has obvious implications for the running of any limitation period.

365. Great Western (Nepean) Gravel Ltd [1940] HCA 37; (1940) 64 CLR 221 involved a licence granted by the appellant to the respondent to remove sand and gravel from the bed of a river which adjoined the appellant's land. There had been a breach of an obligation on the part of the respondent to erect and maintain in repair certain fences and a gate. The issue in relation to the nature of a breach of warranty was significant not for the purposes of limitation periods, but rather for the purpose of determining whether or not there had been a continuing breach of warranty after waiver of an initial breach. In separate judgments Rich ACJ, Starke and Dixon JJ held that the non-erection of the fence and gate within a reasonable time was not a continuing breach but instead a breach once and for all. As a consequence, it was open to find, as the Court did, that the breach had been waived.

366. At 236 Dixon J articulated the issue as follows:

Upon these facts, the first question for consideration is whether the covenants contained in clauses 12 and 15 operated to impose a continuing duty upon the respondent company so that a failure to fence involved new breaches for every day of default, thus including the period after 31st October 1939. If a covenantor undertakes that he will do a definite act and omits to do it within the time allowed for the purpose, he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach of his covenant. His duty is not considered as persisting and, so to speak, being forever renewed until he actually does that which he promised. On the other hand, if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided.

The distinction may be difficult of application in a given case, but it must be regarded as one depending upon the meaning of the covenant.

367. His Honour then examined those authorities relating to covenants that premises will be insured against fire, which had been interpreted as imposing a continuing obligation. He also referred to the distinction between covenants by a lessor to put demised premises in repair (an obligation broken once and for all) and a lessees covenant to keep them in repair (a continuing obligation). He continued (at 237-238):

If the covenant names a time for the doing or completion of a definite act, it is clear that failure to do the act within the time involves a breach once for all, and, as appears from the foregoing statement of Willes J., the same conclusion will follow where no time is limited but a specified thing is to be done and a reasonable time elapses for the performance of the covenant ...

The distinction between a covenant to do a definite act capable only of a breach once for all and a continuing covenant has consequences not only in relation to waiver but also in the measure of damage, in the effect of lapse of time under statutes of limitation, and, where the covenant runs with the land, in the liability of an assignee to sue or be sued for further breaches.

368. His Honour's conclusion was that the erection of the fence was a definite act which was required to be done within a reasonable time and failure to do it was a breach once and for all. Had the fence been erected and then fallen into disrepair or been destroyed then the obligation was to restore it. His Honour was unable to accept that the time for performance was kept open and the obligation unbroken. As a result, it was open to contend that the breach had been waived. Rich ACJ and Starke J reached the same conclusions (at 228 and 231).

369. VAI Industries (UK) Ltd v Bostock & Bramley [2003] EWCA Civ 1069 (VAI) provides an example of the difficulty of giving a sensible meaning to a warranty which is stated to exist for a defined period. The case involved the supply of gearboxes, couplings and lubrication systems to be installed in an aluminium rolling mill in India. The relevant warranty provided:

All equipment is to be warranted as free from defects in Design Materials and Workmanship and must conform to the specification and drawings.

The warranty period is for no longer than 24 months from F.O.B. Provided that delay in equipment acceptance is not attributable to equipment of your supply.

370. The issue that gave rise to the need to interpret the warranty was a limitations one. If the warranty was breached upon supply then the proceedings were statute-barred. If the warranty was breached at the end of the 24 month period then the proceedings were not statute-barred. The issue was, therefore, what to make of the reference to the 24-month period in the warranty. The Court was divided on the issue. The dissenting judge, Lord Justice Ward, identified the three possible interpretations of the warranty:

(a) a promissory warranty that each day the equipment would be free from defects in design and in conformity with the specification;

(b) the 24-month period defines the reasonable time after delivery that the equipment is to continue to be of proper quality;

(c) that the two-year period is simply a limit to the time during which a complaint of breach may be made.

371. Option (a) involved a continuing warranty which would mean that there was a continuing breach at the end of the 24 month period and hence the limitation problem was avoided.

372. Option (b) appeared to pick up the circumstances in Mash & Murrell Ltd v Joseph I Emmanuel Ltd [1961] 1 WLR 862 which related to a cargo of potatoes. The potatoes were in good condition when properly stowed, but were unfit for human consumption upon arrival. Diplock J found that the warranty as to merchantability was a warranty that the potatoes should remain merchantable for a reasonable time which included time for the normal transit to their destination and for disposal thereafter.

373. Option (c) was based upon the decision in Chapman v Gwyther (1866) LR 1 QB 463. That related to a warranty in a contract for the sale of a horse which the vendors "warranted sound for one month". Rather than holding that the warranty was that the horse would remain sound for a month (which I would respectfully suggest the words of the warranty indicated), the Court held that the warranty simply related to the point of delivery but limited the period during which complaint could be made to one month.

374. Ward LJ (dissenting) favoured option (a), saying:

This was a warranty for the equipment to be free from defects in design and conforming with the specification. Either the design was good or it was not. If it was not the equipment would have been delivered with that defect. There is, as I have already indicated, no point in providing that it should remain free from defects in design for a reasonable period. The reasonable period becomes meaningless. So some other meaning has to be given to the warranty being for up to two years. If the warranty continues for two years it seems to me inevitable that it is a promise that for each day of the two year period the equipment will be free from defect. For every day it continues to have a defect there is a breach and in my view Ms Jones is right in her submission.

375. Carnwath LJ did not agree that the obligation was a continuing one. He said (at [49]-[51]):

I find that difficult to reconcile with the terms of the warranty. If one took the first sentence alone, there would be no doubt. It would read simply as a normal warranty of freedom from defects, in respect of which time would run from the date of delivery. The wording of the second part of the warranty is far from clear. However, it does not seem apt to change the nature of the warranty, nor in particular to extend the obligation imposed upon the supplier. In context, as I read it, it is intended to place a limitation on the extent of the supplier's obligations.

This is confirmed by the last sentence which reads as a qualification on the first sentence. The reference to "your supply" has to be understood in a purchase order provided by the purchaser. The limitation constituted by the first sentence is not to apply if there is a delay in equipment acceptance caused by some defect in the equipment provided by the supplier. This suggests to me that the first part is concerned with the period in which any defect has to be discovered. The assumption is that it will be discovered at or about the time of acceptance, and accordingly if that is delayed for a reason attributable to the supplier then the time should be extended.

It is unnecessary for present purposes to decide whether the true interpretation is the second or third of those suggested. Either would result in the appeal failing. In any event the cases referred to by my lord, apart from Shaw v Shaw which was a very unusual case, give no assistance to the appellants. They tend to confirm the respondent's submission that a clause of this kind is generally to be interpreted as giving rise to a single breach at the time of delivery, even though the obligation at that point is to ensure that the goods are in a condition which will remain fit for the purpose for a reasonable time thereafter (see particularly Viskase Ltd v Paul Piefel GMBH [1993] 3 All ER 362, 378 per Chadwick LJ quoted by my lord at para 24). While each of these cases must be interpreted in the light of the particular wording of the contract in question, I believe that clearer words would be needed, certainly in a form of contract provided by the purchaser, to create a continuing obligation such as relied on the appellant.

If a buyer has the benefit of a warranty which extends to the equipment at the date of delivery, it is not entirely clear under what circumstances such a warranty can extend to each and every day thereafter. If the equipment conforms to the warranty at the date of delivery, what are the circumstances in which it is envisaged that after the date of delivery it will not do so? If it does not conform a breach occurs and liability arises but the existence of a breach at the date of delivery may not become apparent until the equipment has been tested and used. As such, where in connection with a warranty going to the state and condition of the equipment at the date of delivery, a period for the warranty is provided, the warranty makes provision for a breach which occurred at delivery to be raised for a period of time thereafter notwithstanding it having been subjected to use and treatment by the buyer. The commercial sense of this is well established whereas the suggestion it was a continuing warranty giving rise to separate breaches is not. (See Chapman v Gwyther (1866) LR 1 QB 463. The relationship of landlord and tenant (Bell v Peter Browne & Co [1990] 2 QB 495) and husband and wife (Shaw v Shaw [1954] 2 QB 429) have a continuing quality and character giving rise to an "exceptional" obligation and, in my judgment, are of no assistance when considering a commercial contract for the supply of goods.

The scope and meaning of the warranty is contained in the first sentence. The first three words of the second sentence, "the warranty period", relate not to the meaning and scope but to the period of time in which the warranty was to have effect as a promise to be answerable for any defect in "Design Materials and Workmanship" or lack of conformity with the "specification and drawings" which manifests itself in that period.

A warranty so expressed confers an advantage to a buyer. The occurrence of acceptance will not in itself avail the supplier and the impact of the buyer's use and treatment of the equipment, whilst not excluded from consideration, will have limited evidential significance and relevance where the evidence points to a breach at delivery. , which concerned a warranty of a different character to the one under consideration, namely the implied warranty of fitness for a particular purpose, was determined on an issue of causation arising out of the use by the buyer.

377. The effect of such a warranty was to provide a benefit to the buyer, in that acceptance of the equipment and its use by the buyer would not preclude the making of a claim relating to breach at the point of delivery. On the other hand it protected the supplier in that the defect had to be identified within that period.

378. If applied to the circumstances of the present case, such an interpretation would favour Option C described at [361](c) above, making clear that acceptance by the owner/purchaser was not a barrier to a claim for breach of warranty during the five-year period, notwithstanding the use of the building.

379. The decision in VAI was referred to by Einstein J in Tranquility Pools. That was a case relating to the manufacture of fibreglass pools. The plaintiffs manufactured such pools using a product supplied by the defendant. The pools were alleged to be defective. One issue was the extent of liability of the plaintiffs to customers with defective pools. This was affected by the meaning of an express warranty given by one of the plaintiffs to its customers. The warranty included a term that the pool shell was "free from defects caused by workmanship or raw materials used in the fabrication process for 10 years from the date the pool shell is first filled with water": Tranquility Pools at [467].

380. At [579]-[589], Einstein J considered the meaning of the warranty and the period during which the plaintiffs would be intentionally exposed to claims. The contention of the plaintiffs was that they would be liable under the warranty for 16 years from the date the relevant pool was filled with water (10 years plus a six year limitation period). On the other hand, the defendants submitted that customers had 10 years from the date the pool was filled with water in which to commence a claim under the warranty.

381. His Honour set out parts of the judgments in VAI in his decision. He did not accept the plaintiffs' submission that the warranty would be breached if a pool manifested osmosis on the last day of the 10-year period so that proceedings were able to be commenced within a six-year limitation period from that date. His Honour said (at [587]-[588]):

I do not accept Tranquility's submission. At least implicitly, Tranquility contends that the express warranty was only breached when the osmosis manifested itself.

In my view, the proper interpretation is that if a pool was supplied with a latent defect, such that it would eventually develop osmosis, the express warranty would be breached upon supply, since the shell would not be free of defects caused by workmanship and/or raw materials. That is, as Huntsman submits, at the time of delivery the customer's cause of action for breach of the express warranty would have accrued. In my view, the words "for 10 years when the Shell is first filled with water", define the period in which a claim for breach of the express warranty, based on the fact that defects had become manifest, could be made against Tranquility.

382. The effect of his Honour's interpretation is to give the warranty an effect similar to that given by the majority in VAI.

383. However, the conclusion is, in my respectful opinion, somewhat difficult to understand in circumstances where the 10-year period is longer than the six-year limitation period. As a consequence, on his Honour's interpretation, there would be a four-year period after the expiry of a limitation period where the contractual provision would permit a claim to be made but that claim would be statute barred.

384. In my respectful opinion, an alternative interpretation of the clause was that no defect caused by workmanship or the raw materials would manifest itself within the ten-year period. Therefore, contrary to the approach taken by Einstein J, the warranty would not be breached upon supply but would be breached at the point when the defect manifested itself, so long as that was within the 10-year period. The result would be that the plaintiff could be liable to claims for up to 16 years after supply, depending upon when the defect manifested itself. It would only be liable for six years if the defect manifested itself upon supply, but could be liable for 16 years if the defect manifested itself immediately prior to the expiry of the 10-year period.

385. The relatively straightforward points that I would take from these authorities are:

(a) first as Great Western Gravel demonstrates, careful attention must be paid to the terms of the obligation imposed by reference to the words that are actually used;

(b) second, as each of the cases referred to above illustrates, when interpreting the words used regard must be had to be subject matter of the contract in which the warranty appears; and

(c) third, as the differing opinions in VAI demonstrate, the interpretation ultimately given may often be a matter of upon which reasonable minds can differ.

386. For the purposes of this explanation of the operation of s 58C I will proceed on the basis outlined at [342]-[344] above, namely, that the comma which appears in subsection (1) cannot be read out of the provision.

387. The effect of the section is to both protect the owner or purchaser of a building through the insertion of statutory warranties, but also to extend that protection to subsequent owners for a defined period. Section 58C operates in parallel to s 58E which defines the scope of insurance that must be provided.

388. By statutorily implying warranties into building or sale contracts it is clear that the legislature is picking up on the contractual infrastructure that will already exist and, by doing so, adopting contractual concepts as the vehicle by which the legislative policy is implemented. While some consequences of the scheme do not fit neatly with general contract law, that does not deny the general proposition that the legislature has chosen to pick up contractual concepts.

389. Nothing in the terms of s 58C or elsewhere in the 1972 Act says anything about limitation periods for building actions. That is obviously a contrast with the 2004 Act which provides a 10-year "long stop" limitation period: s 142. The fact that nothing is expressly said about limitation periods indicates that the legislature was content to leave limitation issues to the general provisions of the Limitation Act operating upon the rights created by s 58C. I do not consider it appropriate to read a limitation provision into the ambiguous words of s 58C which refer to the expiry of the statutory warranties. That is notwithstanding that the insurance regime enacted in parallel required claims to be made within a five-year period: s 58E(1)(c) (as originally enacted).

390. As I have indicated above, I have not accepted the plaintiff's contention that the words of s 58C contain a prospective obligation where the building work has already been carried out. Further, having regard to the decision of the High Court in Great Western Gravel, I do not consider it possible to read the words of s 58C as incorporating a continuing obligation. A continuing obligation is not implied as a result of the actual terms of the warranties, which are more consistent with a once and for all obligation. Nor, in my view, can it be implied from the reference to the warranties "expiring". In the light of the terms of the warranties, the reference to the expiration is not sufficient to convert those warranties to continuing warranties as to the maintenance of a state of affairs throughout the period until expiry, rather than warranties as to the particular state of affairs referred to in each warranty.

391. Consistently with general contractual principles, a cause of action for breach of a warranty is not dependent upon the occurrence of damage. The time at which a breach of warranty will occur will vary depending upon whether what is being dealt with is a contract for sale of residential property or a contract for undertaking residential building work. In the case of a contract for sale, the warranty is made in that contract and will be breached upon the settlement of the contract if the building does not meet the standards of construction specified in the warranties. In the case of a contract for residential building work, the contract will be breached at the point when, under the contract, the work is required to be completed in accordance with the standards of construction specified in the warranties. That may be at or around the point at which a certificate of occupancy is issued, but when it actually occurs will be determined by the terms of the contract.

392. Because of the comma in s 58C(1), the subsection is not confined to a contract for sale to which the builder is a party. Therefore, the statutory words are apt to incorporate each subsequent sale of the building. That means that, subject to the expiry provision in subsection (2), the warranties are renewed upon each subsequent sale and may be breached upon the settlement of each subsequent sale contract. That has consequences for the running of limitation periods.

393. In my view, the section as a whole is given a reasonable operation consistent with the statutory text if the reference to the warranties expiring in subsection (3) is that after the end of the five-year period the warranties can no longer be passed on to any successors in title of the owner. Subsection (3) operates as a qualification on the operation of subsection (2). That has the effect to limit the class of persons who may take the benefit of the statutory warranties. It does not have the effect of denying the past operation of the warranties or destroy any rights accrued by reason of the existence of those warranties. To read the expression, the content of which is not certain, as extinguishing past rights accrued under the contract would go too far.

394. Thus the interpretation I have given to s58C(3) is that outlined in Option B above (see [361(c)] above).

395. The consequence of this interpretation of the operation of the section and, in particular, the meaning of "expire" in subsection (3) is that the time from which the limitation period runs will be affected by which type of contract the warranties are implied into. In relation to contracts for sale, because there is the potential for new contracts to be entered into right up to the end of the five-year period into which the statutory warranties are implied, there is the potential for limitation periods to commence to run right up until the expiry of the warranties five years after the certificate of occupancy. In the most extreme case, namely a contract entered into immediately prior to the end of the five-year period and only settled after the end of that period, the limitation period would only end in excess of 11 years after the certificate of occupancy. On the other hand, in the case of a contract for building work, the limitation period will expire six years after the breach of that contract. The six-year period may in fact be less than six years from the date of the certificate of occupancy because, as I have indicated above, the date upon which compliance is required will be determined by the contract and may not correspond to the date upon which the certificate of occupancy is issued. However, the six-year period will be restarted if the owner sells the building because that will pick up the other limb of s 58C(1).

396. (If, contrary to my conclusion above, the comma in subsection (1) could be "read out" then the class of contracts for sale of residential buildings to which the subsection would apply would be limited to those to which a builder was a party. That would mean that only the first contract for sale would be caught and that subsequent sales from non-builder owners to other persons would not be caught. That would have the effect of confining the warranties that might be breached to those in the first contract and hence ensuring that the limitation period only ran from the breach of that contract. That would bring about a greater degree of (but not complete) consistency in the running of limitation periods as between the two limbs of s 58C(1) but would give the section a different operation in relation to subsequent purchasers.)

397. The 2004 Act commenced on 1 September 2004. As at 31 October 2005, the 2004 Act (republication 6) provided:

Division 6.1 Application and interpretation of pt 6

83 Building work to which pt 6 applies and does not apply

(1) This part does not apply to -

(a) building work in relation to an exempt building; or

(b) building work exempted under a regulation.

(2) However, this part applies to building work mentioned in subsection (1) if the work involves the handling of asbestos or disturbance of loose asbestos.

84 Definitions for pt 6

In this part:

...

builder, in relation to residential building work or a residential building, means the person stated to be the builder in the commencement notice for the building work or building.

...

residential building means a building intended mainly for private residential use, or a part of such a building, if -

(a) the building has no more than 3 storeys at any point, excluding any storey used exclusively for parking; or

(b) for a part of a building - the part provides structural support, or is a structurally integral adjunct, to the building.

...

residential building work means building work in relation to a residential building.

...

85 Meaning of completion day for pt 6

(1) In this part:

completion day, for residential building work, means the day the work is completed or the day the contract relating to the work ends, whichever is the later.

(2) Without limiting subsection (1), the work is taken to have been completed no later than the day a certificate of occupancy (if any) is issued for the work.

...

Division 6.2 Statutory warranties

...

88 Statutory warranties

(1) By force of this section, every contract for the sale of a residential building, and every contract to carry out residential building work to which the builder is a party, is taken to contain a warranty under this section.

398. The transitional provisions for the 2004 Act made it clear that the Act applied to building work, whether done before or after the commencement of the Act: s 158 and modified the definition of "builder" so as to make clear that it included persons notified by the certifier under s 37A of the 1972 Act: s 164.

399. It is notable that the legislature has maintained in s 88(1) the effect of the comma that appeared in s 58C(1) so that the categories of contract the subject of statutory warranties are:

(a) every contract for the sale of a residential building; and

(b) every contract to carry out residential building work to which the builder is a party.

400. In s 88(4) the warranties are said to "end" rather than "expire" as was the case under the 1972 Act. In my view the change in language is not significant for the interpretation of the section.

Because s 88 of the 2004 Act mirrors s 58C of the 1972 Act, its operation will be substantially the same as the operation of s 58C. However, the regulations under the 2004 Act changed the prescribed period for the purposes of s 88.

401. The Building Regulation 2004 prescribed periods as follows:

(a) the prescribed period for s 88(4) was six years after the completion day for the work where the work was in relation to a "structural element" of a building, or two years after the "completion day" for the work where the work was in relation to a "non-structural element" of a building: s 24;

(b) the prescribed period for ss 90(1)(c) and (d) (which determined the period of insurance cover) was five years; and

(c) the prescribed period for s 90(1)(i) (which set the period in which a claim had to be made after the insured became aware of the grounds for the claim) was 90 days.

402. "Completion day" is, relevantly, no later than the date of the certificate of occupancy: 2004 Act, s 85.

403. "Structural element" and "non-structural element" were defined in s 24(2) of the Building Regulation 2004 as follows:

non-structural element, of a building, means a component of the building that is not a structural element.

structural element, of a building, means -

(a) an internal or external load-bearing component of the building that is essential to the stability of the building or any part of it; or

(b) any component (including weatherproofing) forming part of the external walls or roof of the building.

Examples for par (a)

a foundation, floor, wall, roof, column or beam

Note An example is part of the regulations, is not exhaustive and may extend, but does not limit, the meaning of the provision in which it appears (see Legislation Act, s 126 and s 132).

404. For those contracts of sale that occurred after 1 September 2004 (the date the 2004 Act commenced), the effect of the changes in the prescribed period before the warranties "end" was that the relevant periods before the warranties ended were two years for "non-structural elements" and six years for "structural elements".

405. Because the 2004 Act commenced more than two years after the completion day for the building work, in the present case the warranties could not be implied into the contracts for sale in relation to "non-structural elements" of the building. However, in relation to "structural elements" the warranties would be implied in contracts for sale up until six years after the completion date of the work, namely, up until 20 December 2006.

406. Section 58A of the 1972 Act defines "builder" as the person whose name is notified to the relevant certifier under s 37A. By notice dated 15 May 2000, the certifier Mr Joe Gioffre notified the Territory government pursuant to s 38(1) of the 1972 Act that Mr Koundouris had been appointed builder for the project. In the light of that notification I infer that the owner of the land had previously notified the certifier under s 37A of the Act of the name and licence number of Mr Koundouris. Therefore Mr Koundouris was the builder for the purposes of s 58A. By reason of ss 158 and 164 of the 2004 Act, that was also the situation under the 2004 Act.

Relationship between Koundouris and Koundouris Projects

407. My findings above are that Mr Koundouris was an employee of Koundouris Projects. He received income from a trust of which Koundouris Projects was the trustee. There is no evidence of there being a contract between Koundouris Projects and Mr Koundouris in relation to the building of the Lagani development.

408. I do not accept the submission put on behalf the plaintiff that the contract of employment was sufficient to come within the scope of s 58C because it was a "contract to carry out residential building work (being a contract to which the builder is a party)". The significant words are "to carry out residential building work". Those would appear to me to qualify the nature of the contract to which the subsection refers. In other words the subsection applies to a limited class of contracts which relate to a specific subject matter.

409. This is a more straightforward interpretation of the section and leads to a reasonable outcome in the sense that a developer whose employee is the builder does not get statutory warranties enforceable against its employee. However, such warranties arise upon the sale of the building or part of it to a third party via the other limb of s 58C. I accept that there are some complications arising in relation to unit titled buildings depending on which limb of s 58C(1) applies (which are discussed below), but that, in my view, is not a sufficient reason to adopt a different interpretation of the reference to "every contract to carry out residential building work".

410. As a result, it is only the first limb of s 58C(1), namely the "contract for sale" limb that is relevant in the present case.

Implication of statutory warranties in contracts for sale

411. The sale by Koundouris Projects of a unit in the building involved the sale of a part of a building intended primarily for private residential use. It was therefore, by reason of the definition of "residential building", a contract for the sale of a residential building within the scope of s 58C. Upon the interpretation adopted above, the operation of the provision is not confined to the first sale but extends to each subsequent sale within the prescribed period.

412. The evidence concerning contract and settlement dates was somewhat patchy. Insofar as the evidence discloses them, the following table sets out the dates of the sale of the various units. These dates are drawn from title searches, affidavits of unit owners, answers to interrogatories and printouts from the "Allhomes" website which were in evidence. There was some inconsistencies in the available evidence as to contract and settlement dates but none of which were of significant for the resolution of this case.

413. Having regard to the registration dates for the transfers of title from Koundouris Projects to the original purchaser, and making the assumption that the settlement of the contract occurred on that day, any breach of contract arising from a failure to satisfy the terms of the warranties occurred on that day and the six-year limitation period commenced running on that day. Under the 1972 Act the five years before the statutory warranties "expired" commenced on 20 December 2000. Therefore, for those contracts settled prior to the repeal of the 1972 Act the six year limitation period commenced to run from the date of settlement. Because the 1972 Act was repealed within the five year period after the certificate of occupancy was granted, the point at which s 58C(3) would remove the capacity for warranties to arise was not reached.

414. The units in relation to which the 1972 Act is applicable are Units 1, 2, 3, 4, 5 and 9. The six year limitation period ran in each case from the date of settlement of the contract for purchase by the current owner. The six year limitation period expired "6 years from" the settlement date namely at the end of the following dates:

(d) Unit 1: 15 February 2007

(e) Unit 2: 30 January 2007

(f) Unit 3: 8 March 2007

(g) Unit 4: 20 April 2007

(h) Unit 5: 13 August 2009

(i) Unit 9: 21 March 2007

415. For those contracts entered into after 1 September 2004 (the day when the 2004 Act came into effect), warranties were implied as a result of the operation of that Act but:

(j) only if the contract was entered into prior to 20 December 2006 because that was the end of the six year prescribed period; and

(k) where that was the case, only in relation to "structural elements" of the building.

416. That was the situation in relation to Unit 8 (contract date 31 October 2005) and Unit 10 (contract date 16 November 2006). As a consequence the limitation periods for those Units expired six years after the settlement dates as follows:

(l) Unit 8: 12 December 2011

(m) Unit 10: 9 January 2013.

417. The sale of Units 6 (contract date 4 June 2010) and Unit 7 (contract date 2 February 2009) occurred outside the six year period during which, under the 2004 Act, warranties in relation to structural elements could be implied or the previous owners' rights succeeded to. Therefore the current owners acquired no rights arising from statutory warranties or their breach.

Scope of rights under warranties implied by 2004 Act

418. The owners of Unit 8 and Unit 10 acquired rights under warranties implied by the 2004 Act. As pointed out above, those rights were limited to warranties in relation to "structural elements".

419. What, if any, limitations on the damages that might be recoverable arise from the limitation on the rights of Unit 8 and Unit 10 to matters relating to "structural elements"? The definition of "structural element" is set out above. It is important to note that while there might have been some uncertainty about the scope of the first limb of the definition of "structural element" ("an internal or external load-bearing component of the building that is essential to the stability of the building or any part of it"), that uncertainty is largely resolved by the example given at the conclusion of the definition. As is made clear by the note to the definition, s 132(1) of the Legislation Act 2001 (ACT) (Legislation Act) provides that an example may extend but does not limit the meaning of the Act or the particular provision to which it relates. In the context of the definition, s 132 means that the example may extend but does not limit the scope of the first limb of the definition of structural element. The example makes it clear that within the first limb of the definition are foundations, floors, walls, roofs columns or beams and hence that the scope of "structural element" is thereby quite broad. It avoids the need for any finely balanced questions of civil engineering as to whether or not a floor or column is "essential to the stability of the building" by making clear that the definition extends to the items in the example.

420. Finally, the owners of Unit 8 and Unit 10 cannot to avoid any limitation arising from the definition of structural element by relying upon succeeding to the rights of a previous owner who purchased at a time when the 1972 Act applied. The previous owners purchased under contracts dated 24 May 2000 and 6 February 2004 respectively. As at those dates the 1972 Act was still in force. Section 88(3) of the 2004 Act provides that each of the owner's successors in title succeed to the rights of the owner in relation to "the statutory warranties". The statutory warranties are those under the 2004 Act and do not pick up the warranties implied under the 1972 Act. Therefore the 2004 Act did not pick up rights of previous owners under the 1972 Act. Similarly, so far as the rights of the owners who purchased in 2004 prior to the repeal of the 1972 Act were concerned, those rights continued up until the repeal of the 1972 Act. In so far as those rights included a cause of action against Mr Koundouris, they were accrued rights continued for the previous owners by s 84 of the Legislation Act. However, the terms of the 1972 Act or of the Legislation Act did not pass on those accrued rights to purchasers after the repeal of the 1972 Act.

421. The defendants submitted that because the Owners Corporation must rely upon the contract for sale limb of s 58C(1) there can be no entitlement to make a claim relating to areas of common property. The argument put by the defendants was as follows.

(a) There were no statutory warranties given to the Owners Corporation in respect of the common property, because the common property was not sold to the Owners Corporation but rather vested in it upon registration of the units plan: 1970 Act s 25(1)(c);

(b) Only the owners were potential beneficiaries of any warranties under the contracts of sale and because Mr Koundouris was not a party to those contracts of sale, no warranties arose;

(c) Even if warranties arose under a contract to which Mr Koundouris was not a party, the warranty only extended to the subject matter of those contracts, namely each owner's unit;

(d) Each owner had an equitable interest in the common property which was held on trust for the unit owners by the Owners Corporation: 1970 Act s 25(1)(c);

(e) Such an equitable interest did not give the unit owners an entitlement to sue in respect of the common property. Rather, only the Owners Corporation could sue, but it had not been given a warranty in respect of the common property. Further, the interest of each unit owner could not rise above that of the Owners Corporation and, because the Owners Corporation did not have the benefit of any warranty, the unit owners do not get any beneficial interest arising from a warranty.

422. The effect of the submission is that there would be no statutory warranty in relation to any part of the premises which constituted common property. The defendants submitted that this meant that claims for breach of warranty in relation to the following areas must necessarily fail:

(a) the masonry and render cracking;

(b) the corrosion to beams in the basement;

(c) planter boxes; and

(d) the internal beams.

423. Only the claims for balconies and bathrooms would avoid this argument.

424. The plaintiff made the following submissions in response:

(a) All defects related to common property or "defined parts" of the development which the Owners Corporation must maintain pursuant to s 51(3) of the Act.

(b) The defendants admitted in their defence that load bearing walls, columns, footings, slabs beams and balconies must be maintained by the Owners Corporation: Amended Statement of Claim [6], Amended Defence and Counterclaim [2];

(c) The waterproofing membrane laid under tiles on a balcony formed part of the common property: The Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272 at 37-39.

(d) Each unit owner had a beneficial interest in the common property and held an undivided interest in the common property in equity as a tenant in common with all other unit owners: Carre v Owners Corporation-Strata Plan 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302 at [28], [29]; Owners Strata Plan No. 43551 v Walter Construction Group Limited [2004] NSWCA 429 at [45].

(e) Because the interest in the common property is undivided, only one lot owner need have or claim the benefit of the statutory warranties pursuant to a sale contract in order to claim in respect of the whole of the common property.

(f) The submission of the defendants should not be accepted because it would leave the common property of any residential development entirely unprotected by the statutory scheme of warranties under the 1972 Act where the builder was an employee of the developer.

(g) The statutory warranties were not premised on there being a contractual relationship between a builder and a subsequent purchaser and, to the extent that it is necessary, s 58C operates to make the builder a party to each sale contract.

425. The submission made by the defendants to the effect that any contract for sale must be one to which the builder is a party is inconsistent with the other submission that it made about the operation of s 58C(1). Having regard to the existence of the comma which separates the first limb of subsection (1) from the bracketed words in that subsection, the operation of the Act is to imply warranties by a builder into contracts to which the builder is not necessarily a party. While it is not necessary to say, as the plaintiff did, that the builder becomes a party to the contract, the statute does impose what are, in effect, contractual obligations upon the builder which arise out of contracts to which the builder may not be a party.

426. The difference in the operation between the two limbs of s 58C(1) in relation to property that is the subject of the Unit Titles Act is that where there is a contract to carry out residential building work then the whole of that work is covered by the warranty given to the owner and successors in title of the owner obtain the benefit of that work. However, upon the defendants' argument, where what is relied upon is a sale contract from a developer, then the subsequent owners succeed to a narrower category of rights because they only acquire the rights in relation to that portion of the property which they have purchased. They do not succeed to the bundle of rights relating to the whole of the building work that they would have if the building work had been done pursuant to a contract to which the Act applied. The Owners Corporation, having been brought into existence upon registration of the units plan and not (a) a party to any sale contract or (b) a party to the original building contract, acquires no rights as a successor in title.

427. This means that the effect of the defendants' submission would be to largely deny the operation of the warranty provisions in relation to buildings sold by a developer that employed a builder rather than contracting with a builder in a manner so as to create a "contract to carry out residential building work".

428. At this point it is necessary to go on a small excursion into the law of unit titles in the Australian Capital Territory. Up until 5 October 2001 the relevant Act was the Unit Titles Act 1970 (ACT). The Act provided for the approval by the Minister of proposals for unit title subdivisions: s 16. It was then possible to register the units plan. The effect of registration was, relevantly, described in s 24, 25 and 26 of the Act which provided as follows:

Subdivision of parcel made by registration

24. On and after the registration of the units plan, the parcel is subdivided in the manner specified in the diagrams in the units plan and the boundaries of the units, of the unit subsidiaries (if any) and of the common property shall be ascertained in accordance with those diagrams and with sections 14 and 15 as if a reference in those sections to proposals were a reference to the units plan.

Leases of units and common property

25. (1) On the registration of the units plan -

(a) the lease of the parcel is determined;

(b) the person who was, immediately before the registration of the units plan, the lessee of the parcel becomes possessed of an estate of leasehold in each unit for the term fixed under subsection (2) and subject to the provisions, covenants and conditions set out in the units plan in relation to that unit as if a separate lease of that unit for that term and subject to those provisions, covenants and conditions had been granted to him or her by the Commonwealth under the Land Act; and

(c) the corporation becomes possessed of an estate of leasehold in the common property for the term fixed under subsection (2) and subject to the provisions, covenants and conditions set out in the units plan in relation to the common property as if a lease of the common property for that term and subject to those provisions, covenants and conditions had been granted to the corporation by the Commonwealth under the Land Act.

...

26. (1) The corporation shall hold the common property in trust for the persons who are for the time being the members of the corporation as tenants in common in undivided shares proportional to the unit entitlements of their respective units, and shall afford those persons opportunity for the reasonable use and enjoyment of the common property.

(2) The estate in the lease of the common property held by the corporation is not capable, either at law or in equity, of being transferred, assigned, sublet or mortgaged.

429. Because of the explicit terms of s 26 of the Act it is not necessary to refer to the authorities on the NSW legislation, such as Carre v Owners Corporation - Strata Plan 52030 [2003] NSWSC 397; (2003) 58 NSWLR 302 at [28]- [29], in order to explain the relationship between unit owners and owners corporations.

430. The scope of the common property held in trust for the owners under s 26 was determined by the operation of ss 14-15, the operation of which was picked up by s 24. Those sections provided:

Boundaries of units and unit subsidiaries

14. (1) Where -

(a) the proposals show a unit as a Class A unit; or

(b) a unit subsidiary consists of a building or part of a building,

the boundaries of the unit or the unit subsidiary, as the case may be, shall be ascertained by reference to its floors, walls and ceilings.

(2) Where -

(a) the proposals show a unit as a Class B unit; or

(b) a unit subsidiary does not consist of a building or part of a building,

the boundaries of the unit or the unit subsidiary, as the case may be, shall be ascertained from the diagrams in the proposals, and the unit or the unit subsidiary, as the case may be, is unlimited in its vertical dimensions except to the extent of any projection above, or encroachment below, ground level by another part of the parcel.

Common boundaries

15. (1) Subject to subsection (3) where, in accordance with the proposals, a Class A unit or a unit subsidiary consisting of a building or part of a building is separated from common property, from a unit or from a unit subsidiary by a floor, wall or ceiling, the common boundary between them lies along the centre of that floor, wall or ceiling, as the case may be.

(2) Where a Class A unit or a unit subsidiary consisting of a building or part of a building is bounded by reference to an external wall of the building -

(a) the boundary of that unit or unit subsidiary lies along the centre of that wall; and

(b) so much of that wall as is outside that boundary is common property.

(3) If the proposals specify that a boundary referred to in subsection (1) lies elsewhere than in the position there described, the boundary is as so specified.

431. The point to note about the operation of ss 15(1)-(2) is that, unless specified otherwise in the units plan under s 15(3), then the boundary between a class A unit or unit subsidiary and either common property or another unit is along the centre of the relevant floor, wall or ceiling. The consequence of this appears to be that half of each floor, wall or ceiling forms part of the relevant unit. Because the common property means so much of a parcel as is not within a unit, these half floors, walls and ceilings do not form part of the common property. Thus the authority relied upon by the plaintiff, The Owners, SP 35024 v Seiwa Australia Pty Ltd [2007] NSWCA 272, is not applicable because it arose under NSW law which provides for a different definition of the scope of a unit in a strata plan.

432. However, the maintenance obligations upon the Owners Corporation extended only to the common property and certain other items not including the half floors, walls and ceilings incorporated into units. That is indicated by s 36 which provided:

General duties

36. (1) Subject to this section, a corporation shall -

(a) be responsible for the enforcement of its articles and the control, management and administration of the common property;

(b) keep in a state of good repair and properly maintain the common property and all chattels in its possession, custody or control;

(c) maintain in good repair and proper working order and, if renewal is reasonably necessary, renew, all pipes, wires, cables, ducts, and apparatus and equipment of any kind used, or intended, adapted or designed for use, in the provision of services in respect of which easements are created by section 27; and

(d) comply with any requirement made by or under any law in force in the Territory.

...

433. Paragraph 36(1)(b), the maintenance obligation on the Owners Corporation, referred relevantly only to "the common property", namely the areas outside the boundaries of a unit.

434. When the Unit Titles Act 2001 (ACT) (2001 Act) was introduced, the definition of units remained in relevantly the same form (see ss 14, 15), but the duties of the Owners Corporation were extended so that they included the common property as well as "the defined parts of any building containing class A units (whether or not the defined parts are common property)": s 51(3)(d). The phrase "defined parts" was defined to include load bearing walls, columns, footings, slabs or beams and any part of a balcony on the building: s 51(8). As a consequence, while an individual unit extended to half of the floors, walls and ceilings, the Owners Corporation had an obligation to maintain those structures if they were load bearing. There was also an entitlement on the part of the Owners Corporation to bring proceedings both in relation to common property and part of a unit if it was likely to affect the support or shelter provided by the building: s 51B. This entitlement was inserted into the Act in 2008.

435. When the management provisions were taken out of the 2001 Act and placed in the Unit Titles (Management) Act 2011 (ACT), the obligation upon the Owners Corporation in relation to "defined parts" was maintained: s 24(1)(d) as was the entitlement on the Owners Corporation to bring proceedings: s 27.

436. The limited portions of the units plan which were in evidence do not disclose any departure from the prima facie statutory rule that the units extend to half of their floor, walls and ceilings.

What about the Owners Corporation? - Part 2

437. The warranties given in the contract clearly gave entitlements to the owner of the unit in relation to that unit. Whether or not the defendants' submissions are correct depends upon whether the statutory warranties implied into a contract of sale extend to property other than the owner's individual unit.

438. The definition of "residential building" in s 58A includes "part of such a building". This might support an interpretation of the scope of the warranty imposed by s 58C that confines it to only that "part of the building" which was the subject of the contract for sale. However, when considered in the light of a sale of unit in a building which has been unit titled, it would, in my view, be artificial to confine the concept of what is being sold to only those parts of the building which are within the boundaries of the unit and ignore all those other parts of the building in which, pursuant to the terms of the statute, an interest is acquired by reason of the acquisition of the lease of the unit. Most significantly, the rights acquired include the equitable interest arising from the fact that the Owners Corporation holds the common property on trust for the persons who are, for the time being, the members of the corporation as tenants in common in undivided shares proportional to the unit entitlements of their respective units. Thus the rights given under the warranty to an individual unit holder extend to common property to the extent to which the owner has acquired an equitable interest in that common property.

439. The alternative interpretation, that which is contended for by the defendants, would give rise to very significant differences in the operation of the warranty provisions, which would appear to be inconsistent with the purpose of the legislation. The scope of the warranty would be dependent upon whether the first limb (contract of sale) or the second limb (contract for residential building work) of s 58C(1) applied. If, because the builder was an employee of the developer (as here), there was no "contract to carry out residential building work" then the rights acquired by an incoming owner would only relate to the owner's unit. On the other hand, if the builder contracted with the developer to carry out the building work then all of the rights of the developer would pass to the incoming purchaser as a successor in title. There is no basis in the underlying protective purpose of the legislation to create such a distinction. It was described by the defendants as a "lacuna" in the language of s58C which means that, in the present circumstances, no warranties arose.

440. Given that the Court is determining the operation of the 1972 Act commencing at the date of the contracts for sale of the units, the relevant provision was, until May 2002, s 11A of the Interpretation Act 1967 (ACT). Section 11A provided:

11A Regard to be had to purpose or object of Act

In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.

441. From July 2002, when the provision was moved to the Legislation Act, the provision underwent various modifications so that by April 2003 it was largely in its current form which requires the Court to prefer an interpretation which would "best achieve the purpose of the Act": s 139 Legislation Act.

442. The interpretation of the scope of the warranties that extends their operation to those parts of the building in relation to which the owner has an equitable interest, in my view, gives the terms of s 58C an interpretation which is reasonably open and which is more consistent with the beneficial objects of the legislation than one which confines the operation of the warranties to only those portions of building which actually comprise the unit itself. Notwithstanding that there may be a difference in the operation of a provision such as s 11A when compared with s 139 (see Casey v Alcock [2009] ACTCA 1; (2009) 3 ACTLR 1, [103] and R v Fearnside [2009] ACTCA 3; (2009) 228 FLR 77, [60]), either provision would compel the adoption of the interpretation I have outlined and the rejection of the interpretation contended for by the defendants.

443. However, even on the interpretation that I have preferred, a unit owner would remain limited in the damages that the unit owner could recover. The losses arising from the breach of warranty would extend to:

(a) Damages relating to the owners unit because the liability of the unit owner to maintain or repair that unit.

(b) Damages to the owner arising from a breach of warranty relating to the common property. That would arise in so far as a burden was placed upon the unit owner by reason of breach of warranty in relation to the common property. That would be limited to amounts representing the unit owner's proportional share of the costs incurred by the Owners Corporation. Such damages would be within the rule in Hadley v Baxendale [1854] EngR 296; (1854) 9 Exch 341 at 354; 156 ER 145 at 151 in that the damages were damages which would arise naturally in the usual course of things from the breach of the warranty: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 92, 99; see also European Bank Ltd v Evans [2010] HCA 6; (2010) 240 CLR 432 at [13].

(c) No damages would be recoverable in relation to damage solely to another owner's unit.

444. In relation to (c) above, the significant word is "solely". Under the 1970 Act the dividing line between unit and common property was down the middle of floors, walls and ceilings. Therefore if there was a defect on the inside of a wall relating to the structure of the building, the cost of renovating it was required to be shared between owner and the Owners Corporation: see Simons v Body Corporate of Strata Plan No 5181 [1980] VicRp 12; [1980] VR 103. As a result, losses might be incurred by the Owners Corporation and a proportion of those losses recoverable by the owner of another unit relying upon the statutory warranties.

445. The position was modified from October 2001 by the introduction of the 2001 Act when the obligations of the Owners Corporation were extended to the maintenance of the "defined parts" of the building: see [434] above. Thus the responsibility for these areas was no longer shared, but instead was the responsibility of the corporation.

446. Thus, for those contracts entered into after the commencement of the 2001 Act, the statutory warranties were implied in relation to buildings which incorporated a relationship between unit owner and Owners Corporation which included the obligation on the Owners Corporation to maintain the defined parts of the building. That relationship also included an obligation on a unit owner to contribute to the Owners Corporation to the extent necessary to meet that obligation. In those circumstances the losses recoverable by a unit owner would extend to the unit owner's proportional liability to contribute to the Owners Corporation's liability to maintain the defined parts of the building, even if those parts of the building would otherwise be considered to be within another owner's unit.

447. However, where the statutory warranty arose prior to the 2001 Act coming into force, losses incurred by the Owners Corporation in maintaining the "defined parts" of the building would not be proportionally recoverable by the owners of other units. That is because it cannot be said that, for the purposes of the statutory warranty given prior to the 2001 Act, such losses were losses of which the builder knew or ought to have known would probably result from the breach. That is because the builder could not be taken to have anticipated the extension of the obligation of the Owners Corporation effected by the 2001 Act. Such losses would not therefore be within the scope of the rule in Hadley v Baxendale.

448. In relation to contracts entered after the 2001 Act came into force, the position is as follows. In so far as what was purchased when purchasing a unit in a unit titled building, it incorporated the statutory relationship with an owners corporation and those statutory obligations upon an owners corporation included obligations in relation to parts of the building which were either common property or within other unit owners' units (because they are "defined parts" of the building):

(a) In so far as rights and obligations arising in relation to other parts of the building were part of what was sold in the contract, then that involved a sale of "part of ... a building" which goes beyond the individual unit and hence is the subject of the statutory warranties.

(b) Alternatively, the warranties in the paragraphs of s 58C extend to the whole of the building, but can only give rise to a loss to the unit holder when an imposition is placed upon the body corporate as opposed to another unit owner.

(c) Damage arising from the obligations upon the body corporate to maintain the common areas and defined parts of a building would be within the rule in Hadley v Baxendale because, having regard to a statutory warranty operating in the context of the 2001 Act, it is a loss which would arise naturally in the usual course of things.

449. In my view, the above interpretation of the operation of the warranties is reasonably open and necessary in order to give an operation consistent with the purpose of the provision in the context of unit titled developments.

450. The position then is one of some complexity. In the table below I identified in relation to each of the units:

(a) the date of any breach of warranty based upon that breach occurring on the date of the settlement of the contract (assumed to be the date of registration of the transfer which was in evidence);

(b) assuming the breach to have occurred at the point of settlement, namely when what was delivered under the contract did not comply with the statutory warranties, whether or not a breach of contract in relation to a unit the subject of contract which was entered into within the relevant prescribed period after the date upon which the certificate of occupancy was issued (namely, before 20 December 2005) occurred within six years of the commencement of the proceedings, namely after 29 November 2004;

(c) whether (regardless of whether or not the proceedings were commenced within the limitation period) the unit owner would be entitled to rely upon the "defined parts" obligation which only arose after 5 October 2001 (the commencement of the 2001 Act) by reason of having entered into a contract after that date.

Date of breach of warranty (ie date of registration)

Proceedings commenced within 6 years of breach? (ie is the breach after 29 November 2004,

451. This has the effect of identifying the owners of Unit 8 and Unit 10 whose proceedings are not, prima facie, statute barred. Both those unit owners are entitled to rely upon the "defined" parts obligation.

452. There are two features of the evidence in relation to defects which make that evidence less than ideal. The first is that there is very little evidence about what works were undertaken during the period 2001 to 2009 by Mr Koundouris. Particularly in relation to repairs to balconies there are only a few references to what was actually done. The extent of the work done is recorded in invoices sent to Koundouris Projects (see, for example, [128], [131], [142], [157], [162], [170]) and some references in the evidence of owners of units about the work that was done (see, for example, [67], [120], [159], [163]). The limitations on the evidence make it more difficult to work out (a) what the problem was that was identified and (b) what measures were taken to remedy the identified problem.

453. The second feature of the evidence is that when the owners got external advice about how to fix the problems they did so, understandably, with a view to getting the problems fixed rather than in a manner ideally suited to the forensic issues that would arise when seeking to recover their expenditure from the defendants.

454. The expert witnesses called were Mr Dennis Stephenson and Mr Dennis Dunn (called by the plaintiff) and Mr Nicholas Joannides (called by the defendants). It appeared to me that each of the expert witnesses who gave evidence, Mr Stephenson, Mr Dunn and Mr Joannides were doing their best to assist the Court with their considerable expertise. Mr Joannides and Mr Dunn appeared to engage constructively for the purposes of their joint expert report and that report substantially simplified and clarified the evidence in relation to defects. Notwithstanding that both sides submitted that, as a result of their evidence, I should reject or discount generally the evidence of the other side's expert or experts, I do not consider that such an approach is appropriate.

455. A significant feature of the evidence of Mr Joannides was that he undertook an analysis of when the relevant defect had been notified (based on a table prepared by Dr Rushbrook (Unit 9)) and made the assumption that if the defect had not been notified within the five-year period following the issuing of the occupation certificate then there was necessarily no defect for which liability could be attributed to the builder. This had a significant effect on the structure of his reports and the joint expert report although he did also express an opinion upon the assumption that the defect had been notified within the relevant period as to whether or not it amounted to a defect for which the builder was liable.

456. In the reasons that follow I have not referred to the particular statutory requirements, such as the relevant provisions of the Building Code, which are said to give rise to defects where they existed. These are set out in the reports and were largely not a matter of controversy between the experts or the parties.

457. The defects alleged by the plaintiff were identified and numbered in the report of Mr Stephenson dated 11 December 2012 which was referred to as the 2012 Diagnostech report. A Scott Schedule was also prepared which included different numbering. The joint expert report (Exhibit 13) grouped the defects into eight categories, cross-referenced to the numbers in both the 2012 Diagnostech report and the Scott Schedule, and I will deal with the defects in these categories.

458. In relation to each category of defect I will also identify whether, or the extent to which, the defects were latent damage for the purposes of s 40 of the Limitation Act. The meaning of latent damage which I have adopted for this exercise is set out at [507] below.

459. The defects which were described as glass debonded coating defects were identified as relating to the bathroom and ensuite windows to which paint had been applied. These were identified as being the main bathrooms to Units 3, 4, 7 and 8. The situation was unusual in that it arose because in order to place mirrors above hand basins in the bathrooms, it was necessary to place those mirrors across windows which were above the basins. This design fault led to the necessity to paint across the windows so as to disguise the fact that the mirror had been placed across the inside of it. The debonding was identified by Mr Stephenson who first went to the building in 2009.

460. The position of the experts identified in the joint expert report was that Mr Dunn considered that the debonding (as opposed to other deterioration) was the result of original defective application. Mr Joannides on the other hand considered the deterioration was as a result of an inappropriate level of maintenance by the owners. In oral evidence Mr Dunn was directed to his earlier report in which he had agreed that, even assuming the paint was applied correctly at the time of construction, it would likely still have needed to be replaced by total removal and replacement within 5 to 10 years. Mr Dunn could not say when during the period 2000 to 2009 the debonding occurred. As a consequence, the evidence was consistent with the debonding occurring during the period when, according to Mr Dunn's evidence, properly applied paint would, in any event, have to have been removed and replaced.

461. In the light of this evidence I am not satisfied that this category of defects are established as a breach of the statutory warranties.

462. Because this defect is not made out is it is not necessary to consider the extent to which it was latent damage for the purposes of s 40 of the Limitation Act.

463. These defects were described in general terms in the joint expert report as:

Corrosion, of steel framing sections supporting floors, walls and roofs, caused by water penetration from balconies ([decks] and wall surrounds) and external walls (cavity walls and face sealed walls).

464. There were a total of 12 different areas affected by the defects. The difference of opinion between Mr Joannides and Mr Dunn depended in large part on Mr Joannides' assumption that only defects notified within the five-year statutory warranty period could be relevant defects. Leaving that assumption aside, both experts agreed that all but one of the examples of steel work corrosion amounted to defects which were the responsibility of the builder. The only item that did not amount to a defect for which the builder was responsible was corrosion on a ground floor gate which was not a defect, but rather a matter which arose without a defect and which the Owners Corporation was responsible to fix pursuant to its maintenance obligation in relation to the common property.

465. Both experts agreed that the corrosion of the structural steel sections in the basement amounted to a defect for which the builder was responsible. The remaining defects involved corrosion of steel columns or stud framing inside cavity walls or, in one case, stud framing that was exposed. In relation to the corrosion inside cavity walls, that corrosion was only discovered when those walls were opened up as part of the rectification works undertaken in 2010.

466. Although Mr Joannides said during his oral evidence that he could not determine when the rusting had occurred and that it may have occurred in the time during which those columns or framing was exposed as a result of the opening up of the wall, I consider that it is more likely that the rusting occurred during the period when the metal was enclosed within the building. That is because it appears to me to be more consistent with the level of rusting apparent on the admittedly poor photographs contained within Exhibit 15 and because of Mr Stephenson's evidence recorded in the 2012 Diagnostech report which was based on his observations that the condition of the columns and frames amounted to a defect. Having regard to the nature of the construction, any actual water should have been kept away from the steel members by reason of flashing or waterproofing. The level of corrosion protection on the metal was sufficient to cope with moist air but not with water. The existence of the corrosion is therefore a symptom of water penetration affecting those metal structures.

467. On the assumption that the rusting had not occurred when the walls were opened up, Mr Joannides considered that the excessive rusting that was observed was due to a failure of the waterproof membranes and hence a defect by the builder. He considered that because the coating of the steel work had been impinged, the corrosion needed to be removed and the surface recoated. While Mr Dunn also contemplated the possibility of inadequate flashing and cracks in the brickwork due to inadequate movement joints being a cause of exposure to water, he otherwise appeared to agree with Mr Joannides.

468. Both experts agreed that the source of the water ingress into the basement carpark (where one of the examples of corrosion was located) needed to be addressed and that otherwise the specifications in a 2014 Diagnostech report, prepared by Mr Dunn, were appropriate rectification.

469. Consistently with this evidence, I find that each of the items except that relating to the gate of the ground floor is a defect which would constitute a breach of the statutory warranties.

470. These defects involved corrosion of steel which were either exposed or hidden in a cavity wall. Insofar as the column was inside a cavity wall it was only exposed during the remediation works undertaken in 2010. Insofar as the corrosion was inside wall cavities it was hidden from ready inspection. Thus although it might have existed prior to the point of its discovery, I consider that it is latent damage. However, those areas of exposed steel do not constitute latent damage from the date when the corrosion occurred. The evidence does not establish when that occurred, but also does not establish any delay of significance. My findings as to whether the defects were latent damage are summarised in the following table.

471. This category of defects is described in the joint expert's report as comprising:

(a) debonded masonry units to external walls and balcony parapets caused by the lack of movement control joints;

(b) cracked masonry units being cracks at the junction of different facade/structure elements caused by the lack of movement control joints;

(c) debonded render to facade works caused by poor application and the lack of movement control joints.

472. There were 16 different areas affected by defects in these categories. Leaving aside Mr Joannides' assumption that defects had to be notified within the statutory warranty period, there was little difference between the experts as to the existence of defects for which the builder was responsible. Both experts agreed that it was good and accepted practice to provide vertical control joints in brick walls at discontinuities and at eight metre maximum centres to allow for differential material properties, thermal movements and brick growth. This was even the case where no such movement control joints had been specified on the engineering or architectural plans. As a consequence, both Mr Joannides and Mr Dunn considered that the cracking and debonding which resulted were defects.

473. In relation to the appropriate rectification procedure, Mr Joannides provided a formulation of the required procedure with which Mr Dunn agreed in principle. However, Mr Dunn said he considered that the full rectification procedure was that set out in the 2014 Diagnostech report which was slightly more prescriptive as to how the work should be carried out. Mr Dunn's formulation required repair of small cracks whereas Mr Joannides' did not.

474. The issue of latency is a difficult one. Each of the defects was either notified on various dates between 2001 and 2008 or not notified at all. The dates of notification were 22 October 2001, 20 February 2002, 13 September 2006 and 18 June 2008. Relying upon the date of notification as being indicative of when the defects arose may be unreliable because notification at any particular time may not have been comprehensive. The expert evidence was that most such cracking would occur within the first three to five years. Each of these items is likely to have been latent for a period, but the issue is the duration of that latency noting that the first cracks were notified in October 2001. Thus, while each of the defects can be considered a latent defect, the period of latency, particularly in relation to those items which were not notified prior to repairs undertaken in 2010, cannot be determined. The only conclusion that it is possible to reach is that there was a degree of latency in relation to each of these defects, but it is not possible to make any specific finding other than that where the defects were notified the period of latency could not be longer than the period up to the date of notification.

475. This category of defects was described in the joint expert report as "large and extensive cracks to the fibre cement walls". The defects were located in three different areas adjacent to either unit 9 or unit 10.

476. Both experts agreed that the cracking at the fibre cement sheet joints indicated that the installation had not been carried out satisfactorily to ensure the joints were capable of accommodating building movements. As a consequence, they considered each of the items to be a defect attributable to the builder. Both agreed on the method of rectification that was required. There was, however, difficulty identifying the scope of the cracking that was repaired by Remtech in 2010 and whether the cracks that were repaired by Remtech in 2010 were the same cracks which were notified to the builder and possibly the subject of some attempted repairs in 2002. These difficulties arose from the absence of photographs of the cracking as at 2002 and the fact that the photographs of the cracking at the time of the rectification work were not proven to be comprehensive so as to illustrate the full extent of cracking.

477. As to whether or not these defects were latent damage, each of the three items (Scott Schedule items 29, 30 and 31) were notified in February 2002. Thus while they may have been latent for a short period of time, that period is not of great significance in terms of the operation of s 40 of the Limitation Act.

478. This category of defects was described in the joint expert report as:

(a) water penetration caused by ineffective waterproofing of the balcony decks and wall surrounds, into units and common areas below the balconies;

(b) water penetration caused by ineffective waterproofing of the balcony decks and wall surrounds into adjoining units and common areas on the same level.

479. The defects were alleged to exist in 22 different locations. Some of the defects were described by reference to the result, namely water ingress into a particular location. Others were described by reference to matters which might lead to such penetration, for example inadequate falls in a balcony deck, inadequate grates on drains or blocked pipes and leaking pipe joints. There were defects identified in all units relating to water penetration through the balcony floor-wall junction into that unit. There were also defects identified in all of the non-ground floor units (namely, Units 5, 6, 7, 8, 9 and 10) relating to water penetration into the unit or balcony below.

480. This category of defects did not relate to water penetration from the podium level into the basement, which was the subject of the separate category: "Podium deck waterproofing defects", addressed below.

481. The principal issue between the experts was the extent of rectification that was required, which in turn was dependent upon the inferences as to where the waterproofing defect that led to the water ingress was located. Mr Joannides considered that there was not sufficient evidence to confirm the extent of rectification that was necessary to the balconies. In particular, he considered that where there was water ingress at the door threshold or floor-wall junction, a localised bandage repair would be appropriate, but not a replacement of the waterproofing membrane across the whole of the balcony. Similarly, where there was water ingress through a balcony to a balcony below, then repairs could be carried out by localised repairs rather than repairs to the whole of the balcony. He also expressed the opinion that in those areas where there was leaking from a balcony to the balcony ceiling below, because the balcony below was not a habitable area the leakage was "not necessarily a defect". In oral evidence he qualified that opinion to say that it would be a defect if the water was passing through the balcony, because then it would increase future corrosion of the structural elements.

482. Mr Dunn's opinion was that while performing patch repairs might fix localised problems, it might not work because of the ability of water to track laterally along the structural floor beams and enter remote points so as to end up somewhere totally different from where the leak originally occurred. He was of the opinion that if the underlying slab was monolithic then there was less likelihood of water tracking from one side of the balcony to the other, but in this type of construction (which involved "Ultrafloor" concrete beams) there was quite a high risk that not all problems would be solved by doing a bandage repair on a confined area.

483. Mr Joannides, on the other hand, said that a bandage repair was likely to be sufficient and that a bandage repair on an acrylic membrane is fairly commonly done. He did not have evidence to show him that there were not any other defects, but had not been provided with any details of flood testing to identify where the local leaks were and where they occurred. He considered that a nine or 10 year-old membrane could be repaired by putting a bandage and lapping it onto the existing membrane. He did accept that the existing membrane after nine or 10 years would have deteriorated to some degree. He said that a bandage repair would not be less likely to be successful compared with other repairs that were carried out although the adoption of a complete stripping out replacement of the membrane system would enable a full warranty on the whole system to be provided.

484. In the light of the expert evidence, each of these items is a defect. The question then becomes whether or not the plaintiff can claim the cost of completely redoing the waterproofing system on the balconies as it has done, or whether it is confined to what might have been the cost of performing bandage repairs on the likely location of the waterproofing membrane failures.

485. The plaintiff submitted that the starting point on this issue was that the plaintiff was entitled to full rectification so as to produce complete contractual conformity and that only in circumstances where such a course was unreasonable would a lesser remedy form the basis for an award of damages. In making this submission it relied upon the line of authority based upon Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 620 (Bellgrove). The defendants, on the other hand, submitted that the correct approach was to identify with precision what the breach was and award damages upon the basis of what was an appropriate remedy for the identified breach. It therefore submitted that the only admissible evidence indicated that the most likely cause of water ingress to the balconies was at the floor-wall junction and that the plaintiff was only entitled to damages for a bandage repair in that area.

486. In my view the appropriate means of analysing the question is to first identify the defect and then to ask whether the method adopted in order to rectify the defect was a reasonable one. A number of the defects are explicitly identified as the water ingress from the balcony floor-wall junction. A number of the other defects are identified by reference to the occurrence of water penetration without specifying the location of the water penetration. What must be assessed is whether or not the approach taken by the owners, namely to completely redo the waterproofing system on the balcony, was a reasonable means of rectifying the defects. In addition to Bellgrove, the plaintiff relied upon Kirkby v Coote [2006] QCA 61 at [46]- [58] (Kirkby) and Building Insurers' Guarantee Corporation v The Owners-Strata Plan No 57504 [2010] NSWCA 23 at [73]- [83]. Those authorities involved cases where the contest was over the method adopted for, and hence the cost of, rectifying a breach of contract.

487. The cases stand for the following propositions:

(a) The primary remedy is rectification so as to produce contractual conformity: Bellgrove that 618;

(b) That is qualified by the requirement that the work undertaken to achieve conformity must be a reasonable course to adopt: Bellgrove at 618;

(c) Providing only the cost of a "doubtful remedy" would not adequately compensate a claimant, because it could not in any sense be regarded as ensuring that the claimant received the equivalent of a substantial performance of the contractual obligations: Bellgrove at 620;

(d) Because damages are assessed on a once and for all basis, the law must be astute to ensure that the measure of damages accurately reflects the restoration of the claimant to the position they would have been in had the defendant not failed in its duty: Kirkby at [59].

488. In Building Insurers Guarantee Corporation at [79]-[80] Handley AJA found that the builder had an evidentiary onus of adducing evidence of the functional equivalence of a less expensive remedy to a more expensive remedy. His Honour left open the question of whether or not the issue was one appropriately characterised as a failure to mitigate so that the defendant had the legal onus. In that case, a decision to replace timber hobs before they had failed, when there was no finding that a failure would probably occur during the design life of the building, his Honour said (at [83]):

83 In my judgment the findings of the referee and the Judge on this issue were correct. There was a breach of contract affecting the waterproofing defences of the building, inferior hobs was installed, there was uncertainty about their effectiveness and a risk that they would fail. Demolition and reinstatement was the only way, on the evidence, that the risk of water penetration could be eliminated. It was reasonable for the owners' corporation to undertake that work, and damages could properly be awarded on that basis.

489. In my view, the past decision to replace the whole of the water proofing membrane on the balconies of the units was a reasonable one and hence the whole of that cost constitutes damages incurred. That is for the following reasons:

(a) The decision to replace the whole of the balcony waterproofing was taken prior to proceedings and without having undertaken full excavation to conclusively determine the source of the leaks.

(b) There had been previous unsuccessful repairs to the balconies by contractors engaged by the defendants, including water testing of the balconies, but the nature location and extent of those repairs were not clearly documented, making it hard to determine whether or not those repairs had (i) further damaged the membrane (ii) fixed leaks in those areas indicating that further leaks must be elsewhere: see, in particular [138], [142], [143], [146], [151], [155], [159], [162], [163], [170];

(c) The owners had been the subject of the inconvenience and disturbance caused by ongoing problems since shortly after the completion of the building, increasing the reasonableness of adopting a more certain, once and for all, solution;

(d) If only bandage repairs were undertaken in the areas most likely to contain the failed membrane:

• (i) there were some risks of failure in that repair created by the need to join the bandage repair to the existing membrane, particularly in circumstances where the existing membrane was 10 years old;
• (ii) there was the risk that the most likely areas of leaking were not the only areas of leaking and hence that a bandage approach would not be effective;
• (iii) it would be difficult to match the new tiles with the remaining tiles that had been in place for years creating the potential for the repair work to be apparent;
• (iv) such repairs would not have the effect of rectifying the inadequate falls across the balcony to the water outlets which were defects on balcony 7, 8, 9 and 10.
• (v) the contractual warranties that might be available in relation to the waterproofness of the whole balcony would not be available in relation to a bandage repair.

490. I therefore conclude that the damages which are recoverable in relation to balcony defects are not limited to the cost of bandage repairs and extend to the replacement of the waterproofing system and reinstatement of the balconies as actually carried out.

491. In relation to the extent to which the damage was latent, the position is that the problem of leaking balconies was identified as early as July 2001 in relation to leaks from Unit 9 to Unit 5. Problems then continued to manifest themselves at various times until the repairs in 2010 despite various repair works by Mr Koundouris. In some cases the evidence is not specific enough to determine whether the leaks arose from the bathroom or balcony above. Although investigations were undertaken by tradespersons engaged by Mr Koundouris, the precise cause of the leaks remained hidden or undocumented. The conclusion that can be reached is that there was a degree of latency initially and after repairs were undertaken, but the Owners Corporation was well aware of the generalised problem of leaking balconies by no later than the end of 2003.

492. The alleged defect is described in the joint expert report as water penetration caused by ineffective waterproofing of the unit bathrooms (including ensuites) into other rooms of the units and into the units and common property directly below the leaking bathrooms. Units 1, 2, 3, 4, 5 and 9 were alleged to be affected. In relation to Units 1, 2, 3 and 4, the leaking was into the basement carpark. In relation to Units 5 and 9 the leaking was into the units below namely Units 1 and 6 respectively.

493. The experts agreed that all of the items involved defective work which was attributable to the builder. Mr Joannides said that there was not sufficient evidence to justify the full bathroom rectification works claimed and that localised repairs to either the bath tub-wall junction or at the shower were the most likely extent of appropriate repairs. Mr Dunn considered that full re-waterproofing was appropriate. They provided an agreed prescription of the rectification work that was required in cases where the leak was from around the bath tub only and where it was from other areas.

494. Mr Dunn agreed in oral evidence that he could not, on the basis of his limited investigations, say precisely where in the bathroom the leaks originated from. However, once the location was identified it was a problem which could be fixed.

495. In August 2010 Mr Stephenson had performed an investigation into a leak from Unit 5 to Unit 1. He also made some investigations of the location of leaks from the ground floor units into the basement. He concluded that it was "highly likely" that the wall and floor areas beneath the bath tubs had not been waterproofed. He gave two repair options: resealing around the bathtub or removal of the bath, waterproofing underneath it and then reinstalling it.

496. The evidence in terms of a quotation indicated that waterproofing around the bath only would cost $3050 plus GST. There was a further quotation for full bathroom re-waterproofing of $10,900 plus GST. This latter option went beyond what was recommended in Mr Stephenson's second option. There was therefore no specific evidence as to the that option: [273].

497. The leaking to the basement was reported between 2001 and 2007. The leaking from Unit 5 to Unit 1 was identified in the report of Mr Stephenson when he investigated a very large blister in the Unit 1 ceiling that was full of water from Unit 5. It is not clear when the leak from Unit 9 to Unit 6 was discovered. My conclusions are that some of these defects were latent and some were not. All defects were hidden in that the defect was the failure to waterproof underneath the bath. Compounding that problem was poor detailing and sealing around the lip of the bath. In my view the defects were latent to the extent to which they did not manifest themselves in visible leaking into the unit or the basement below.

498. I will deal with the defects individually by reference to the item number in the Scott Schedule:

(a) Item 55 (Unit 1 leaking to the basement) was latent until notified in 18 August 2005. The notification was of a pipe under Unit 1 leaking and this in my view is sufficient to tie the leak to the bathroom.

(b) Item 56 (Unit 2 leak into the basement) the evidence is not sufficient to determine that the notification made on 14 September 2001, which involved leaks onto parking spot 2, related to the waterproofing in the bathroom of Unit 2 and hence I treat this defect as latent up until Mr Stephenson's report of August 2010.

(c) Item 57 (leak from Unit 3 to basement) was reported as a leak from Unit 3 to the Unit 5 car site in the basement. Having regard to the terms of the report, which tied the leak to Unit 3, I consider that it was latent until the date of the report, namely 25 September 2002.

(d) Item 58 (leak from Unit 4 to basement) also involved a leak which was reported as being from Unit 4 and hence I will regard it as latent only after the date of that notification, namely 1 November 2007.

(e) Item 59 (leak from Unit 5 to Unit 1 bathroom ceiling) was the subject of Mr Stephenson's report of 26 August 2010 and I will regard it as being latent up until that time.

(f) Item 64 (leak from Unit 9 to Unit 6 ceiling) was not reported and I treat it as having been latent up to the date of Mr Stephenson's report, although that is really only a marker as to when the defective waterproofing was identified generally.

499. The podium deck is the area on the ground floor which is immediately over the basement carpark. It comprises the outdoor areas for Units 1, 2, 3 and 4 in addition to some landscaped and paved areas. The alleged defect is described as water penetration into basement carpark areas, caused by ineffective waterproofing of podium floor levels under ground level landscaped and paved areas. The alleged defects led to water ingress into the basement carpark. The experts agreed that the extent of water ingress into the basement involved defects attributable to the builder. Both experts agreed upon a prescription for rectifying the defects in the podium and balcony areas that were directly over the basement carpark. That prescription involved different treatment of the areas that were covered by balconies or terraces as opposed to areas that were covered by areas of landscaping. Mr Dunn proposed a slightly more detailed specification of rectification procedures so as to limit the discretion of a contractor engaged to carry out the work, but agreed as to the overall methodology.

500. These defects were identified in the joint expert report as having been notified on various dates from 2001 to 2007. I am not satisfied that the dates identified in that report are accurate. Leaking into the basement of the carpark was apparent from 2001 and the defects in the waterproofing of the podiums and landscaped and paved areas were defects which had manifested themselves at about this time. As a consequence, I do not treat these defects as being latent ones even though the defective construction was not readily visible.

501. These defects were described as poorly constructed roof cladding and associated components which allow water penetration into the roof space that could cause corrosion of the steel roof frame elements. There were four defects identified in different areas of the roof. The experts agreed that three of those four were defects for which the builder was responsible. The final one, a missing screw on parapet cladding was identified by both experts as a maintenance issue for the owners. Mr Dunn considered that if the integrity or waterproofing of the capping was affected it would be a defect attributable to the builder. There was no evidence that the integrity or waterproofing of the capping was in fact affected.

502. The experts agreed upon and set out in their joint report the manner of rectifying these minor defects.

503. I do not consider any of these defects to be latent damage. No particular damage is said to have arisen as a result of these items. They appear to be items which were able to be discovered if anyone examined the roof of the building.

Extension of time under s 40 of the Limitation Act

504. By reason of my conclusions set out above, the operation of s 40 is significant in relation to the rights of each of the unit owners except for the owners of Unit 8 and Unit 10, because the causes of action arising from any breach of statutory warranty are, prima facie, statute barred by operation of s 11 of the Limitation Act.

Latent damage to property and economic loss

(1) Subject to subsection (2), if a person has a cause of action for latent damage to property or for economic loss in relation to such damage to property the court may -

(a) if the court considers it just and reasonable to do so; and

(b) whether or not the limitation period applicable to that cause of action has ended; and

(c) whether or not an action for such damage or loss has been begun;

extend the limitation period in relation to which an action on that cause of action may be brought for the further period not exceeding 15 years beginning on the day when the act or omission that gave rise to the cause of action occurred that the court considers appropriate.

(2) In exercising the powers given to it by subsection (1), the court shall have regard to all the circumstances of the case including, for example, the following:

(a) the length of time between the occurrence of the damage or loss and the time when the damage or loss might reasonably have been discovered by the plaintiff;

(b) the extent to which the plaintiff, after he or she became aware of the damage or loss, acted promptly and reasonably;

(c) the extent to which an extension of the limitation period would, or would be likely to, result in prejudice to the defendant;

(d) the conduct of the defendant after the relevant cause of action accrued to the plaintiff, including the extent to which the defendant took steps to make available to the plaintiff means of ascertaining facts in relation to the cause of action;

(e) the steps (if any) taken by the plaintiff to obtain, for the purposes of the cause of action, legal or other expert advice and the nature of any such advice.

...

506. The defendants maintained the submission made for the purposes of their strike out application that this provision was limited to claims in tort, although they simply repeated the submission made on the strike out application. For the reasons which I gave in Koundouris No 1 at [67]-[84], s 40 is not limited to cases in tort but can permit an extension of time in relation to causes of action in contract so long as the cause of action is "for latent damage to property or for economic loss in relation to such damage to property".

507. Latent damage is damage which is "hidden" or "concealed", "present but not visible or apparent" (Macquarie Dictionary, 6th ed). A latent defect is "a hidden defect which could not have been discovered by reasonable examination" (Macquarie Dictionary, 6th ed). In the case of building damage, latent damage is damage which, although arising from an earlier breach of tortious or contractual duty, does not manifest itself for a period and is not otherwise reasonably discoverable.

508. I have identified above in relation to each category of defects the extent to which they were latent. In summary, the position in relation to the different categories is as follows:

(a) Debonded glass coating: not a defect;

(b) Structural steel corrosion: all defects were latent except for corrosion in basement;

(c) Facade masonry cracks and debonded render: defects were latent for various periods between 2001 and 2010;

(d) Facade fibre cement cracking: defect latent until up to February 2002;

(e) Balcony decks waterproofing: persistent problems had been identified by the end of 2003;

(f) Bathroom wet areas waterproofing: latent for various periods from 2002 until 2010;

(g) Podium deck waterproofing: not latent;

(h) Roof waterproofing defects: not latent.

509. The formulation in s 40 is similar to that which appears in s 36 of the Limitation Act in that it adopts the formula that requires the Court to consider or decide that "it is just and reasonable" to extend time. Further, it also requires the Court to "have regard to all the circumstances of the case" and provides a non-exclusive list of factors which must be taken into account. In the case of s 40, those factors are in s 40(2) which is reproduced above.

510. The 1984 Attorney-General's Department Working Paper on "Proposals for Reform and Modernisation of the Law of Limitation in the Australian Capital Territory" (discussed in Koundouris No 1 at [68]-[80]) said:

... it seems unreasonable that a plaintiff should lose his right of action before he knows that he has it...

On the other hand, it would seem inappropriate that modern limitation legislation should fix a limitation period in relation to claims involving latent damage to property or latent economic loss-and leave it at that. Surely, it must be anticipated that such legislation will inevitably result, in its application to particular instances, in grave injustice.

511. In giving effect to s 40 it is, in my view, necessary to bear in mind the mischief which it was intended to remedy, namely, the injustice that might arise if a limitation period expired before a claimant, because of the latency of the damage, was able to know that damage had been suffered.

512. Having regard to the operation of s 58C of the 1972 Act and s 88 of the 2004 Act, which I have set out at [316] and [397] above, the extension of time necessary varies in relation to the causes of action of each of the unit owners (being causes of action then assigned to the plaintiff).

513. The table below summarises the position of each of the owners and identifies the extension of time beyond the six-year limitation provided by s 11 of the Limitation Act that each requires.

Date of breach of warranty (i.e. date of registration)

Length of time until commencement of proceedings (29 Nov 2010)

514. While the list of considerations in s 40(2) is not an exclusive one, it is appropriate in the first instance to give specific attention to the matters referred to in that subsection.

(a) The length of time between the occurrence of the damage or loss and the time when the damage or loss might reasonably have been discovered by the plaintiff

515. The defendant submitted that, based upon the material in evidence, the two central defects water ingress and masonry cracking were known in 2001 and 2002. The plaintiff, on the other hand, submitted that while physical damage occasioned by the defects was present from as early as 2001, until the provision of the Lewis & Associate's report of 2007 the plaintiff had no awareness of the defects themselves.

516. In so far as the damage was the product of leaks caused by a failure of the waterproofing of balconies, it is not possible to determine whether the leaks at the time of repair were the result of the same leaks that originally existed, although the evidence indicates that in each case there were defects in the floor-wall junction on the balconies.

517. In relation to the waterproofing of the basement, there were early signs of the inadequacies in waterproofing of the areas over the basement being a combination of landscaped areas, paved areas, units and paved courtyards.

518. Had these two areas been the subject of independent professional advice then the causes of the balcony leaks and leaking into the basement could readily have been identified as it was when, finally, in 2007 Lewis & Associates was engaged to report. Although it is likely that the assessment by Mr Dossetor (of Lewis & Associates) was informed by the extensive history of water complaints between 2001 and 2007, it is likely, in my view, that a suitably qualified person independent of Mr Koundouris would have been able to identify the nature of the underlying defects well before the end of the five-year period after the issuing of the certificate of occupancy and prior to each expiry of the relevant six-year limitation period.

(b) The extent to which the plaintiff, after he or she became aware of the damage or loss, acted promptly and reasonably

519. In one sense the owners acted promptly in that they made complaints to Mr Koundouris who made attempts to address those problems. Further, their conduct can be seen as being reasonable in that the extent of the problems was not clear and only emerged over time. The owners initially had no reason to suspect that Mr Koundouris' efforts to remedy the problems would be so ineffective. They would, however, reasonably have been aware of the possibility that the builder would adopt a minimalist approach to any remedial measures.

520. It is understandable that the unit owners would hope that the problems with their units were minor and that Mr Koundouris' responses would be effective. It is understandable that they would be reluctant to proceed to an adversarial claim against Mr Koundouris in circumstances where he was apparently taking his obligations seriously and they hoped his actions would be effective.

521. However, the owners were well aware of the expiry of the five-year period from the date of the certificate of occupancy. That is made clear by the Minutes of the Annual General Meeting in February 2005, which noted the end of the five-year warranty period and authorised the managing agent to obtain a report on the causes of the leaking and the rights of the plaintiff and the owners (see [132] above). Even on the interpretation of the operation of the statutory warranties that I have adopted, the expiry of that period was significant for the potential for making of any claim under the compulsory insurance. Further, on 18 August 2005 the owners (or their predecessors in title), knowing that there were persistent problems with water leakage, made a deliberate decision not to obtain expert advice that would have disclosed to them the extent of the problem (see [139] above).

522. Similarly, the plaintiff was put on notice by Koundouris Projects' letter of 19 September 2006 that Mr Koundouris was "no longer contractually liable for any rectification works that you say you may require to be carried out" (see [160] above). The letter did contemplate the possibility that Mr Koundouris might agree to undertake further work, however, there was no guarantee of that and it would be without admission of liability. It did contemplate that if there was a matter for which Mr Koundouris conceded that he had "statutory responsibility", then he would honour his statutory obligations. In fact, this letter was given within the limitation period for any breach of statutory warranty arising under any of the sale contracts from Koundouris Projects. Therefore, the letter involved clear notice that Mr Koundouris considered himself to be no longer contractually liable.

523. These three matters in February 2005, August 2005 and September 2006 tell against an extension of time because they amount to deliberate decisions by the unit owners to allow what they or Mr Koundouris understood to be limitation periods expire without even taking steps to have problems with the building independently investigated, notwithstanding the knowledge at the relevant times that the problems were not isolated ones. As Ipp AJA pointed out in Itek Graphix Pty Ltd v Elliott [2002] NSWCA 104; (2002) 54 NSWLR 207, 225 (Itek), a deliberate decision to allow a statutory limitation period to expire is a powerful factor against a grant of an extension of time. In the present case, because of the obscurity in the operation of s 58C and hence the determination of the limitation period, it cannot be said that the owners knew of the limitation period and deliberately decided to let it pass. However, they had an awareness of some significance in the passage of five years after the certificate of occupancy and made a deliberate choice not to obtain expert advice as to the extent of the problems or their rights against the builder. By analogy with the reasoning in Itek, this is, in my view, a factor which weighs against a grant of an extension of time.

524. The plaintiff only obtained the Lewis & Associate's report on 28 June 2007 and then only made a demand through its solicitors 18 months later, on 8 December 2008, almost two years before the commencement of proceedings. After proceedings were commenced particulars were only provided in the form of the 2012 Diagnostech report on 1 February 2013.

525. There is no evidence of any attempt to make a claim on Mr Koundouris' compulsory insurance in relation to a breach of warranty. There is no evidence of the terms of that insurance and whether or not a 90-day period from knowledge of the defect would have been a barrier to any claim.

(c) The extent to which an extension of the limitation period would, or would be likely to, result in prejudice to the defendant

526. The defendants put forward a number of matters as illustrating sources of prejudice to them by reason of the delay in the commencement of the proceedings.

527. They submitted that because the bulk of the work was undertaken by Remtech in 2010, it is now not possible to ascertain whether the problems were the same problems said to have been present at the time the building was completed and which were manifested during the warranty period. They pointed to the fact that the defendants' expert, Mr Joannides, was only able to inspect the property after most of the remedial work had been completed.

528. I only partially accept this submission. Mr Koundouris had the opportunity from as early as 2001 to have a proper assessment made of the extent of the defects in the work that had been undertaken. He was, after all, the person who had been responsible for construction of the building and was in the best position to determine the location and cause of defective work and identify appropriate methods of rectifying the defects. There is little documentation as to what investigations were actually carried out. He appears to have adopted the approach of piecemeal repairs without ever undertaking a proper assessment of the scope of the problem. That may be understandable from the perspective of limiting his liability, but it detracts from the submission that there is some unfairness because an expert engaged for the purposes of the proceedings could only inspect the premises after the remedial work was carried out. Ex hypothesi, the remedial work was remedial work which Mr Koundouris was liable to either carry out or pay for and he had the opportunity to carry out and did not do so prior to it being undertaken by others. Further, prior to the carrying out of the works, Mr Koundouris was put on notice by the letter from Minter Ellison dated 8 December 2008. The defendants were therefore on notice of the intention to make a claim against them and, had they wished to, might have protected their position by making any investigations they considered appropriate.

529. The defendants pointed to prejudice arising from the unwillingness of Mr Mark Jakobasch, who conducted repairs on the building in 2001 - 2002, to give evidence in relation to the nature of the problems observed in the building at that time. The evidence on this point was in Mr Koundouris' affidavit to the effect that Mr Jakobasch told him that he did not want to provide an affidavit because he could not remember much about the building and was not interested in going to Court for something that long ago. The evidence does not disclose any more concerted effort to obtain evidence from him. Just because a person is unwilling to voluntarily give evidence for a party does not necessarily demonstrate prejudice. He may never have been willing to give evidence. His attitude to giving evidence may well have changed if he had been given a subpoena and the extent of his recollection may not be fully reflected in his brief comment to Mr Koundouris As a consequence I do not place significant weight on any prejudice arising from the evidence in relation to Mr Jakobasch.

530. The defendants submitted that they had lost the opportunity to bring proceedings against

(a) the architects;

(b) the engineer;

(c) the precast manufacturer of Ultrafloor;

(d) the supplier of the waterproofing membrane; and

(e) the waterproofer

for contribution or indemnity in tort or damages in contract because of the expiration of the limitation period, including the time within which a cross-claim for contribution could be made under s 21(1)(b) of the Limitation Act . That section provides, relevantly, that a claim for contribution between tortfeasors under s 21 of the CLW Act is subject to a limitation period of four years running from the date of the end of the limitation period for the principal cause of action.

531. In the present case, the contractual relationship appears to have been between Koundouris Projects and the contractors and advisers. Notwithstanding the submission of the defendants, I do not consider that in those circumstances Mr Koundouris would have a claim against them in tort: see Brookfield Multiplex Ltd v Owners - Strata Plan No 61288 [2014] HCA 36; (2014) 254 CLR 185 (Brookfield Multiplex). This is notwithstanding my conclusion below that he had no entitlement to indemnification by his employer Koundouris Projects. Therefore I do not consider this to be a source of prejudice to Mr Koundouris.

532. In relation to claims in contract by Koundouris Projects against any of the above parties, any breach of contract is likely to have arisen when the relevant construction work was undertaken or advice given. That would have been prior to the issue of the certificate of occupancy on 20 December 2000. As a consequence, the limitation period for such a claim would have expired in December 2006. Further, if there was any entitlement to claim contribution under s 21 of the CLW Act (which is not clear), then the limitation period under s 21 of the Limitation Act would have expired at various times after the commencement of proceedings depending upon when the principal cause of action arose.

533. However, Koundouris Projects would only suffer any loss if the liability of Mr Koundouris to pay damages for breach of the statutory warranties gave rise to a loss on the part of Koundouris Projects. If a liability imposed upon Mr Koundouris would not also give rise to a liability on the part of Koundouris Projects then any prejudice arising to Koundouris Projects by reason of its inability to bring a contractual action against its consultants and subcontractors would not be relevant. So far as the evidence discloses, Mr Koundouris was an employee of Koundouris Projects: see [407]. There is no obligation at common law for an employer to indemnify an employee for liabilities incurred by the employee in the course of employment: Lister v Romford Ice and Cold Storage Co Ltd [1956] UKHL 6; [1957] AC 555. That decision relates to tortious liability. The present case involves a statutorily imposed liability defined by contractual principles. Having regard to the:

(a) statutory scheme which imposes liability upon the builder;

(b) the obligation on the builder to hold compulsory insurance; and

(c) the absence of evidence about the terms of the contract of employment,

I cannot be satisfied that there was an implied term of the contract of employment that Koundouris Projects would indemnify Mr Koundouris for any liability incurred by him as a result of being identified as the builder for the purposes of the statutory warranty provisions of the 1972 Act. It certainly would not be a term which would be so obvious that it would go without saying and it is not necessary for the reasonable or effective operation of the contract: Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 442; cf Kelly v Alford (1988) 1 Qd R 404, 409-412. As a result I am not satisfied that Mr Koundouris would suffer prejudice by reason that a limitation period might prevent Koundouris Projects from pursuing claims against consultants or subcontractors on the project.

(d) The conduct of the defendant after the relevant cause of action accrued to the plaintiff, including the extent to which the defendant took steps to make available to the plaintiff means of ascertaining facts in relation to the cause of action

534. In relation to this factor, the plaintiff pointed to the conduct of Mr Koundouris during the period after the certificate of occupancy was granted. In particular it pointed to his representation that cracking and the water ingress had been or would be properly investigated and rectified. The plaintiff submitted that Mr Koundouris failed to undertake any sort of appropriate investigation so as to identify the real cause of the problems. Notwithstanding that Mr Koundouris did, through his employees and subcontractors, devote significant time to attempting to rectify defects, the evidence does not disclose that Mr Koundouris undertook any appropriate investigation to properly identify the underlying causes of those defects.

535. Further, there is no evidence that Mr Koundouris ever documented any diagnosis or assessment of the problems or documented the remedial work that was undertaken. Although he was a qualified builder with access to the contractors and advisers who were involved in the construction of the building, there is no evidence that he made any attempt to investigate, document or disclose the problems.

536. Having regard to the extent of complaints about leaks into units and the basement, it ought of have been obvious that there were some systemic problems with the building, but Mr Koundouris either never recognised the need to make a comprehensive assessment of the cause of the problems or chose not to. For example, the report of Mr Murtagh prepared in response to the Lewis & Associate's report provided a frank assessment of some of the difficulties with the building, including identifying the absence of control joints as being a significant issue. There is no evidence that the absence of control joints was ever disclosed to the plaintiff or that, when it was obtained, the Murtagh report was disclosed to the plaintiff. Instead, the response of Mr Koundouris was piecemeal, attending to problems as they arose. While his continuing to attend to problems as they arose was consistent with a recognition on his part that there were defects in the work for which he was responsible, he at no stage prior to the Lewis & Associates report took any affirmative step to make an assessment of the overall scope of the problems or disclose that to the plaintiff or the owners.

(e) The steps (if any) taken by the plaintiff to obtain, for the purposes of the cause of action, legal or other expert advice and the nature of any such advice

537. As recorded above, the plaintiff made a positive decision on 18 August 2005 not to obtain a report in relation to defects in the building. It did so in the knowledge of the impending expiry of the warranty period. Further, notwithstanding the letter of 19 September 2006, it was only in June 2007 that it obtained Lewis & Associate's report. Following that, all of the indications were that there were significant problems with the building that needed to be rectified yet it was only from about August 2008 that legal advice was sought from Minter Ellison. Thus the position appears to be that there was never legal or expert advice that indicated that there was not a problem or advice indicating that proceedings should not be pursued. Rather, it appears to be the case that had expert and legal advice been sought at an earlier stage, then the proceedings would have been brought earlier.

538. In the present case, because the application for extension of time was not determined in advance of the hearing of the claim, the Court is able to deal with the extension of time issue in the light of the findings as to the existence of the defects. It is not a case where the Court has to base a decision on the extension of time issue on a tentative assessment of the merits of the plaintiff's case. In my view it is a relevant matter to take into account the fact that the plaintiff has succeeded in establishing the vast majority of the defects which it said existed in the building. It has established therefore that not only did Mr Koundouris breach the obligations that he had under the warranties but also that, despite having years in which to do so, he failed to properly remedy the defects. Further, subject to the limitation issue, it has established the damages in relation to which findings are made in the following section of these reasons.

539. Finally, the period of extension required varies from one year and three months to three years and nine months, depending upon the date of the contract into which the warranties were implied. While the extension required is relatively short in relation to some of the owners, I consider that the determination of the application, in so far as it applies to the rights of those owners, must have regard to the fact that, through the plaintiff, those owners had access to the history of dealings in relation to the defects that had manifested themselves prior to the owner becoming a registered proprietor of the property.

540. In my view it is appropriate to apply the principles in relation to the operation of limitation periods outlined in Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 to the operation of s 40.

541. It is the latency which has potential to give rise to the injustice against which the capacity to extend time is directed. It is not a generalised power to extend time in relation to which latency might be a factor.

542. The extent of latency is summarised at [508] above. It varies from defect to defect. It is clear, however, that leaking from balcony areas and water penetration into the basement manifested themselves as problems early on, even if the full extent of problems, including problems consequential upon those defects, only emerged later or over time.

543. The present case involves a creeping realisation by the owners of the units of the extent of the problems. It involves a failure, notwithstanding knowledge of the expiry of limitation periods, to obtain advice about the scope and cause of the problems which had manifested themselves over the period since completion of the building. The owners may have been hopeful of the problem being resolved and those hopes were no doubt raised by the ongoing responsiveness of Mr Koundouris to the complaints about building defects.

544. The conduct of Mr Koundouris, apparently attending to fix problems as they emerged, made it easier for the plaintiff and the Unit Owners in that they were not forced, at an early stage, to adopt an adversarial stance in relation to Mr Koundouris. However, it led to the plaintiff and the owners never properly investigating the problems that arose because of Mr Koundouris' defective construction and to them allowing limitation periods to expire.

545. The case is not a typical case of latent damage where the defect existed without manifesting itself for a substantial period and then manifested itself at a time close to or after the expiry of the limitation period. That would be sort of case where there would clearly be a "grave injustice" if a limitation period that would otherwise apply was applied.

546. Because of my interpretation of the operation of s 58C (and consequentially s 88 of the 2004 Act) it is only Mr Koundouris that can be liable by reason of the operation of the statutory warranties. Therefore upon the findings that I have made, a claim against Koundouris Projects cannot succeed and for that reason no extension of time should be granted in relation to the claim against it.

547. In relation to Mr Koundouris, the discretionary exercise is relatively finely balanced. As pointed out above, the actual period of latency of the defects was not so great as to be a significant factor in favour of an extension of time. On the one hand, defects have been shown to exist: Mr Koundouris over many years recognised the existence of defects, but failed to take effective action to document or remedy them. On the other hand, the plaintiff made a deliberate choice not to investigate the extent of defects and the owners' rights in relation to them. Further, Mr Koundouris never indicated to the plaintiff or the unit owners that he would not rely upon any limitation period that was available, and gave explicit notice in 2006 that he considered his contractual liabilities at an end.

548. On balance I do not consider it to be fair and reasonable to extend time largely because of the limited period of latency and the deliberate decisions by the plaintiff not to pursue the investigation of the existence, causes and extent of any defects at an earlier time, notwithstanding the awareness for many years of the existence of problems arising from them.

549. The claim in negligence depended upon Mr Koundouris owing a duty to the plaintiff and the owners to carry out and supervise the building work with reasonable care to ensure that the building work was carried out in a proper and workmanlike manner and in accordance with the statutory warranties. A similar duty is alleged to exist in relation to the investigation of the defects and the carrying out of repairs on the units. The plaintiff submitted that a duty of care was readily established "if and to the extent that" the building work was not performed by Mr Koundouris under a contract for the purposes of the statutory warranties. If that was the case, the plaintiff submitted that it would be clearly vulnerable as it did not have the benefit of the statutory warranties as against the builder.

550. The defendants submitted that following the decision in Brookfield Multiplex, Mr Koundouris or Koundouris Projects owed no duty of care to the Owners Corporation or individual unit owners. They submitted that where the legislation has provided for a statutory warranty and the purchasers are persons who are well capable of protecting their own interests, there is no need for the imposition of a duty of care because there is no vulnerability in the relevant sense.

551. The defendants also submitted that insofar as work was done by way of rectification by Mr Koundouris or Koundouris Projects it is more properly considered as action in mitigation, which does not give rise to a separate claim: Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067.

(a) there was no duty of care to the owners of Units 5, 6, 7, 8 and 10 in respect of defects manifest or reasonably ascertainable at the time of their respective purchases;

(b) there was no evidence of negligence as distinct from a breach of warranty; and

(c) the claim, in any event, is statute barred.

553. The plaintiff's contentions in relation to the existence of a duty of care are dependent upon the absence of statutory warranties because there was no contract between Mr Koundouris and Koundouris Projects. Notwithstanding that I have reached the conclusion that there was no contract within the scope of s 58C, and hence no warranties implied into that contract by the section, I have found that the statute implies warranties from the builder into the first sale contract from Koundouris Projects given to each incoming owner and also into the contract upon each subsequent sale within the five-year period under the 1972 Act or the six-year period under the 2004 Act. The effect of this is that the Owners Corporation is denied the status of a successor in title to Koundouris Projects, but individual owners are beneficiaries of the warranties. This, of course, may not be a very coherent scheme from a policy point of view, but it gives effect to be words of the statute as I have interpreted them.

554. The decisions in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 and Brookfield Multiplex recognised that whether or not a duty of care would be found to exist would be influenced by whether or not statutory warranties were in place to protect subsequent purchasers: see Woolcock at [35], [233], Brookfield Multiplex at [134], [186]. Thus the existence of a regime of statutory warranties was characterised as overtaking, at least to a significant extent, the decision in Bryan v Maloney (1995) 182 CLR 609: Woolcock at [35], Brookfield Multiplex at [186].

555. Having regard to the decisions in Bryan v Maloney, Woolcock and Brookfield Multiplex, there are a variety of ways in which the absence of a duty of care can be rationalised in a case such as the present: the presence of statutory warranties or contractual provisions inconsistent with a general duty of care, the removal of the element of vulnerability by reason of the existence of statutory warranties or the confinement of the decision in Bryan v Maloney to the limited class of case described in the judgment of Gageler J in Brookfield Multiplex at [185].

556. It is sufficient to say that in the present case, the existence of statutory warranties meant that no duty of care arose on the part of Mr Koundouris to purchasers from Koundouris Projects in relation to latent defects in the original construction. In those circumstances it is unnecessary to consider the consequences of the fact that Mr Koundouris was an employee of Koundouris Projects or to address the subsequent submission of the defendants that there was no duty of care in relation to the purchasers of Units 5, 6, 7, 8 and 10 in relation to defects which were manifest or reasonably ascertainable at the time of their purchases.

557. So far as repairs go, the attempts at repair by Mr Koundouris and those who he engaged were not covered by the statutory warranties. Rather, those actions are better characterised as attempts to remedy the original defective work and hence attempts to reduce the scope of damage suffered by the beneficiaries of the statutory warranties. In my view, Mr Koundouris did owe a duty of care in relation to such work. However, the duty of care was not one which required him to bring the building works up to the standard required by the statutory warranties. Rather it was a duty to avoid foreseeable loss to the owners of the building and the Owners Corporation arising from the undertaking of the repair work. Thus, if, for example, the tradesmen engaged by Mr Koundouris had, when attempting to repair a leaking balcony, broken a window or caused structural damage to the balcony, then Mr Koundouris would be liable for losses caused by that damage. However, he would be liable because of the damage to the building rather than because he failed to achieve the standard of construction required by the statutory warranties. In the present case there is no evidence of damage in this former sense even though the standard required by the contractual warranties was not reached.

558. Therefore the plaintiff's claim based on negligence fails.

559. The plaintiff submitted that the first and second defendants were liable under the Fair Trading Act 1992 (ACT) and the Trade Practices Act 1974 (Cth) for misleading and deceptive conduct. As articulated in final submissions, the claim focused on the conduct of Mr Koundouris either as the builder or as a representative of Koundouris Projects.

560. The representations arose by reason of statements and conduct during the five-year period from mid-2001 to July 2006. The pleaded representations were in two categories. The first related to the rectification of defects:

(a) "Koundouris has rectified all the defects" (August 2001 and July 2007);

(b) "water penetration into the foyer has been rectified" (12 September 2002 and 29 August 2003);

(c) "water penetration into unit 5 has been rectified" (28 August 2001);

(d) "Koundouris will continue to rectify all defects until they are complete".

561. The second category were to the effect that there were no defects:

(e) "the water penetration relating to window and door frames are not caused by Koundouris' installation" (November 2001);

(f) "The water penetration from the balcony 10 to units below is not caused by membrane failure. It is due to movement, not failure of the wet sealing during construction" (17 July 2007);

(g) "the water penetration is due to lack of maintenance by the owners" (17 July 2007);

(h) "water penetration is to be expected because of the architectural design of the building as it has no eaves" (17 July 2007); and

(i) "The water penetration into the basement is to be expected. Construction is compliant with an open ventilated carpark."

562. The plaintiff submitted that it clearly relied upon the representations of Mr Koundouris. It submitted that an element of scepticism or distrust does not establish that a representation was not relied upon: Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2005] NSWCA 68.

(a) Mr Koundouris did in fact make every effort to fix the problems as they emerged;

(b) Koundouris Projects and Mr Koundouris made clear that their intention was to rely upon their strict legal rights while at all times seeking to achieve a mutually agreed satisfactory outcome;

(c) the plaintiff has not proved reliance because it has failed to call the relevant owners to give evidence as to their reliance upon the things said or done by Mr Koundouris.

564. Rectification of defects representations: The evidence does not explicitly establish all of these representations. Representation (a) could be a reference to the abrupt and inaccurate letter sent by Mr James Koundouris dated 31 August 2001 in which he inaccurately asserted that "we have met all our contractual obligations". The reference to a representation in July 2007 could be a reference to what appeared in the letter to Ms Lewis and Dr Rushbrook on 7 July 2007, but that does not contain any express representation to that effect nor is one reasonably implied. The representation (b) could be a reference to communications recorded in an email sent by Mrs Weinert (Unit 10) relating to fixing a leak into the foyer. However, that recorded statements of intention to fix the problem rather than any assurance that it had been fixed. It is not clear what, if any, representation was made on 12 September 2002. Similarly representation (c) has not been clearly identified. Such a representation is consistent with statements made to Mr Leitch in January and February 2002 rather than in August 2001. Similarly representation (d) is consistent with the general approach taken by Mr Koundouris, but has not been specifically identified in the evidence.

565. The evidence is not sufficient to establish that any of these representations were operative at the point where the plaintiff chose not to obtain external advice as to the scope of the defects. Further, it does not establish that any of these representations was operative at the point where the relevant limitation period expired in relation to any of the unit owners.

566. No defect representations: It is not clear what communication is said to give rise to the November 2001 representation in relation to the windows and doors. The response provided by Koundouris Projects dated 8 November 2001 responded to a complaint relating to leaking windows: see [67](c) above. That did not involve the pleaded representation and it has not been established that the representation, if made, was not correct or that it was relied upon at any relevant time.

567. The representations relied upon which are alleged to have been made on 17 July 2007 are derived from the letter of the date written to the owners of Unit 5, Ms Lindsay and Dr Rushbrook: see [180] above. That letter was in response to the letter dated 4 July 2007, which itself acknowledged that any claim to rectification was outside "the initial warranty period". Having regard to the terms of the letter, I am not satisfied that the representations (b), (c) or (d) were in fact made. In any event, it is clear that Dr Rushbrook and Ms Lindsay did not in fact rely upon anything said in that letter. First, it was after Mr Koundouris had sent the letter indicating that he did not consider himself to be liable in relation to building defects. The letter of Ms Lindsay and Dr Rushbrook made it clear that they recognised that the warranty period had expired. Second, the Owners Corporation had in fact received on 28 June 2007 the Lewis & Associate's report disclosing a significant range of defects and it is clear that the plaintiff and the unit owners relied upon that report subsequently.

568. The representation in relation to the carpark appears to be a reference to the response provided by Koundouris Projects quoted at [67](d) above. I am not satisfied that this communication amounted to the representation pleaded. In any event:

(a) While in one sense what was said there could be considered to be correct, the author did not address the defect which was being complained about which, I presume, did not relate to water penetration through the open parts of the basement. Any substantive response to the complaint was deferred to Mr Forner's investigation.

(b) There is no evidence that any representation contained in the response from Koundouris Projects was relied upon.

569. For these reasons I am not satisfied that the plaintiff is entitled to compensation or damages under the Fair Trading Act 1992 (ACT) or under the Trade Practices Act 1974 (Cth).

Estoppel preventing reliance upon limitation defences

570. The plaintiff claims in its reply that the making of representations so as to obtain the certificate of occupancy was misleading and that as a result, for a variety of reasons, the defendants are not entitled to rely upon the certificate of occupancy granted at that time. The evidence does not establish what representations were made by Mr Koundouris for the purposes of obtaining the certificate of occupancy. The terms of the 1972 Act place the obligation on the certifier to provide various documents to the Building Controller when the certifier is satisfied that the work has been completed in accordance with the requirements of the 1972 Act and substantially in accordance with the approved plans and that it is structurally sufficient, sound and stable for the purpose for which it is to be occupied or used: 1972 Act, s 40(1). These documents include copies of certificates issued by the certifier in relation to stages of work, structural engineer's certificates, any application to the certifier under the Act, any approval certificate, determination, notification or permission issued granted or given by the certifier and any certificate or other document given or prepared by another person that the certifier has relied upon for the purposes of giving any such approval certificate, determination, notification or permission. It is those documents which the Building Controller then relies upon in deciding whether to issue a certificate of occupancy: 1972 Act s 53(12). Thus, while it is the owner of the land that must make an application for a certificate of occupancy, the information relied upon appears to be that provided by the certifier. Therefore the plaintiff has failed to establish the making of the representations that underlie the claim that the defendants made representations in November or December 2000 relating to compliance with all relevant standards, codes and statutory requirements.

571. A broader range of representation is relied upon by the plaintiff in its reply so as to support its contentions that an estoppel by representation or conventional estoppel arose so as to prevent reliance by the defendant upon the plaintiffs delay in commencing proceedings. These estoppels are alleged to relate to the period up until 2006 and then also from 2006 to 2010.

572. In my view, the critical point is the letter of 19 September 2006. The conduct of Mr Koundouris up to that point was sufficient to generate a reasonable expectation on the part of the unit owners and plaintiff that he was attending to the defects and would take steps which were sufficient to rectify them. However, his letter of 19 September 2006 made it clear that he considered that he was no longer contractually liable for any rectification works. He left open the possibility of further cooperation, but a reasonable reader of that letter would have understood that Mr Koundouris considered there was no binding obligation on him. Having received that letter it would be, in my view, unreasonable for an owner to rely upon his previous course of conduct of attempting to respond to complaints and to remedy defects as indicating that he would continue to do so in the future notwithstanding that he was of the view he had no legal obligation to do so. The owners may have delayed in obtaining independent expert advice and delayed in commencing proceedings, but they were doing so for reasons other than their reliance upon any statements by Mr Koundouris that he had and would remedy the problems.

573. The total of the plaintiff's claim is $1,203,516.18 plus any applicable GST. It was articulated in final submissions as relating to a number of discrete subject matters which I will deal with separately below.

(a) that only the claims by the owners of Unit 8 and Unit 10 are not statute barred,

(b) as to the scope of the unit under the unit titles legislation,

(c) that an individual unit owner may claim in relation to losses incurred with other unit owners through the body corporate,

the approach to assessment of damages must be as follows. The owners of Unit 8 and Unit 10 are entitled to the cost of remedying the defects in their units and a proportionate share of the costs incurred by the Owners Corporation in remedying defects in the common property and the "defined parts" of the building, but not the costs relating to remedying defects within the units of other owners in so far as the areas remedied are not "defined parts" of the building. As may be apparent, this is an exercise which demonstrates the unsatisfactory intersection between the scope of statutory warranties and the provisions of the unit titles legislation. Having regard to the fact that the evidence was not led on the basis of a need to apportion damages as between individual units and as between individual units in the common property, this makes the assessment of damages difficult.

575. The plaintiff claims the cost of bathroom waterproofing that has been performed totalling $126,483.40. This amount was arrived at as follows:

(i) work performed to Unit 1 (work performed):$10,750 plus GST;

(ii) work performed to Unit 5 (work performed) $10,900 plus GST;

(iii) Unit 2 (yet to be performed): $24,268.42;

(iv) Unit 3 (yet to be performed): $29,995.83;

(v) Unit 4 (yet to be performed) $29,995.83;

(vi) Unit 9 (yet to be performed): $18,408.34.

576. The amount identified for Units 2, 3, 4 and 9 are derived from Mr Osenton's report. Remtech had also quoted $19,940 (plus GST) for the work on Unit 9 on 19 June 2013.

577. The work undertaken and proposed to be undertaken is a complete reseal of the bathroom, necessitating, a complete reconstruction of the bathroom. Although the experts disagreed as to the extent to which the bathrooms required re waterproofing, they agreed as to the methodology that should be adopted for repairs involving the bath or other areas. Having regard to the report of Mr Stephenson of 26 August 2010 I consider that it is most likely that the area under the bath was not properly waterproofed and that a proper remedial measure would involve installing waterproofing beneath the bath. The costing evidence did not specifically address this option. In my view it is likely to be somewhat more than the lesser option of sealing around the bath and significantly less than stripping the whole bathroom. The former option was costed in September 2010 by Remtech at $3050 (plus GST). Using that figure as a point of reference, I would allow a figure of $5000 per bathroom.

578. In approaching the matter in this manner I do not accept the submission of the plaintiff that the Bellgrove v Eldridge approach warrants full reinstatement of the waterproofing of the bathrooms. That is for two reasons. First, the Stephenson report of August 2010 identified the most likely location of the leaks. Second, it is not a situation where a number of different and unsuccessful and poorly documents attempts to fix the problem have been made in the past (as was the case with the balconies) which would render any site specific remedy uncertain.

579. However, as indicated above, damages can only be awarded for items within Unit 8 or Unit 10, or for work on areas outside those units which is property of the Owners Corporation or in "defined parts" of the building for which the Owners Corporation is responsible. The bathrooms of Units 1, 2, 3, 4, 5 and 9 are obviously not within Unit 8 or Unit 10 as they clearly fall on the inner side of the relevant boundary floor or wall for the purposes of the boundaries of unit. They are not common property. Therefore the only way in which the installation of waterproofing in the bathrooms of these units could be the responsibility of the Owners Corporation is if the waterproofing is part of the slab forming the floor of the unit and is one of the "defined parts" of the building.

580. As pointed out above, slabs form part of the defined parts of the building. Therefore the question becomes whether or not the waterproofing treatment applied to the slab is part of the slab for the purposes of the maintenance obligations in Unit Titles (Management) Act 2001. In the present case the area to which the waterproofing would be required to be installed (under the bath) is an area where tiles were not to be installed. However, in most bathroom areas there would be a cement topping over the slab providing the base for any tiles or other finishes. While there are arguments both ways, in my view the waterproofing is better treated as a part of the slab because it is a functional rather than decorative treatment to the slab and is practically integrated with it. It is distinct from a finish such as tiling or painting. In most cases it will be quite a distinct from such a finish because it is buried under a cement topping within the bathroom. Therefore it is an area the maintenance of which is the responsibility of the Owners Corporation.

581. Having regard to my conclusions above, the amount for which the Owners Corporation would be liable is $5000 per bathroom, namely $30,000 in total.

582. The amount which had been expended by the plaintiff for rectification works, was agreed by the quantum experts, at $768,297.02. This comprised $716,907.02 paid to Remtech and $51,390 of other invoices relating to Scott Schedule items. This amount is set out in the table prepared by the joint experts as being the total of Remtech contract invoices and other invoices that relate to items on the Scott schedule.

583. From this total must be removed the amounts for bathroom repairs in Unit 1 ($10,750), Unit 5 ($10,900) and Unit 9 ($19,940) which were included in the total.

584. The scope of works under the contract with Remtech were described in the contract specifications as including:

(a) Spalled concrete repairs;

(b) Debonded render repairs;

(c) Facade crack repairs;

(d) Masonry cracks;

(e) Lightweight cladding repairs;

(f) Facade coating and waterproofing works including steel beam corrosion on balconies;

(g) Balcony waterproofing; and

(h) Roof repairs.

585. The evidence is not sufficient to establish that the "spalled concrete repairs" and "roof repairs" related to defects for which the builder was responsible. There is no clear way to partition the amounts attributable to these two categories of work. However, it is possible to say that, having regard to the estimate of the reasonable costs of the Scott Schedule items, they are likely to be relatively minor amounts. I will therefore reduce the amount by $20,000 to take account of these works which have not been shown to be as a result of defects caused by the builder.

586. The total for this category is arrived as follows:

(a) Total $768,297

(b) Less - Bathroom repairs $41,590

(c) Less - Non defect works $20,000

(d) Damages $706,707

587. Works in each of the areas identified at [584] was either in a common area, on the common area side of the walls or in a "defined part" of the building (most notably walls and balconies). Further, each involved work on "structural elements" of the building as defined in s 24 of the Building Regulation 2004.

588. The amount agreed by the quantum experts for items 2, 8, 10, 13 and 18 as design and professional fees totalled $21,384. These items included the cost of the Lewis & Associate's report, the cost of Diagnostech drafting those specifications for the remedial work, preparation of contracts, correction to the specification and some consultancy services.

589. These all relate to the Remtech contract and, notwithstanding the minor limitation on the recovery of the amounts paid pursuant to that contract, these items are in my view proportionally recoverable.

590. The plaintiff claims the amount agreed by the experts for items 36 and 45 in Exhibit 17, the cost of which was identified by reference to quotations totalling $234,620. The two relevant quoted items were as follows:

(a) $196,750 being a quotation by Soleace for waterproofing courtyard areas 1-4, the main entrance courtyard and planter boxes; and

(b) $37,870 being a quotation by Soleace for waterproofing of the western side terrace and the Fawkner Street entrance.

591. These claims relate to items 67-72 in the Scott Schedule, described by Mr Dunn and Mr Joannides as the "Podium deck waterproofing defect". In the case of each item the reason for the defect was that water was leaking into the basement. In my view, having regard to the quotations the repairs proposed by Soleace are reasonable ones to remedy the defect.

592. None of these works relate to Unit 8 or Unit 10 directly. The issue is whether the works are works for which the Owners Corporation is responsible or whether, because some of the works are on the terraces which are within Units 1, 2, 3 and 4, any damages are, to that extent, the responsibility of the individual owners and not the responsibility of the Owners Corporation.

593. The areas affected by the works are all on the ground level.

(a) The courtyard areas of Units 1, 2, 3 and 4. These are outdoor areas equivalent to the balcony areas on the upper levels. They sit wholly or partly over the basement below. They cannot be considered to be balconies themselves because they are not elevated from the ground.

(b) The main entrance courtyard is the main pedestrian entrance to the building from Elouera Street. It is an area of common property within the building and sits wholly above the basement below.

(c) The western side terrace is an outdoor terrace to which there appears to be no routine access. It sits adjacent to Units 1 and 3 on the western side of the building.

(d) The Fawkner Street entrance is a pedestrian entrance to the building from Fawkner Street. It is on the ground floor between Units 2 and 4.

594. The works involved installing an affective waterproof membrane over the top of the slab which forms the roof of the basement and the floor of the relevant area. It involved removing the tiles and the tiled beds as well as planter boxes which had been installed, installing a membrane sufficient to link up with the existing membrane on the side walls of the basement then reinstalling the tiles and planter boxes where they had been demolished.

595. In my view the works were works on "structural elements" of the building for the purposes of the Building Regulation 2004 in that each of the areas affected was an internal or external load-bearing component of the building namely the floor of the building and the roof of the basement.

596. A more difficult question arises as to whether or not the work was the responsibility of the Owners Corporation or of individual unit owners. That is significant because if it was the responsibility only of the unit owners then no burden will be placed upon the owners of Units 8 and 10 and hence no damages arising from the works recovered in these proceedings.

597. Clearly enough the work that was undertaken on common property, namely the work on the main entrance courtyard, the Fawkner Street entrance and the western side terrace were all the responsibility of the Owners Corporation. However, the courtyard areas of Units 1, 2, 3 and 4 are all areas which are not common property, but instead fall within the scope of the relevant units.

598. In relation to those courtyard areas, in so far as the works were undertaken on part of the building which was between a unit and the basement below then, under the provisions of the Unit Titles Act 2001 the boundary between the unit and the common property below was along the centre of the floor, namely, the centre of the slab between courtyard and basement: see [430], [434] above. The waterproof membrane (or the area where it should have been installed) is clearly on the unit side of the centre line of the slab. This conclusion would indicate that the maintenance of that part of the slab which included the membrane was the responsibility of the unit owner.

599. However, the maintenance obligations of the body corporate extend beyond the common property to the "defined parts" of the building. That phrase includes load bearing slabs: see [434]-[435] above, Unit Titles (Management) Act 2011 s 24(2).

600. In my view, the obligation to maintain the slab in the common areas includes an obligation to maintain the waterproofing in the courtyard areas because that waterproofing is part of the "slab" for the purposes of the definition of "defined parts" of the building. That is because:

(a) the slab in these areas is load-bearing;

(b) even though the waterproofing does not form part of the monolithic portion of the slab it is, as a practical matter, integrated with and operates as part of the slab; and

(c) it is functionally essential for the effective operation of the slab in order to prevent water penetration through the slab to the common property below.

601. For these reasons, in my view, the work undertaken by the Owners Corporation in these areas was carried out by it as part of its obligation either to maintain the common property or to maintain the "defined parts" of the building and hence the costs which is incurred would be costs proportionally borne by the owners of Unit 8 and Unit 10.

602. The plaintiff claims the cost of rectification and corrosion protection on the basement structural steel. The claim is made based on the evidence of Mr Osenton and totals $54,896.74. This was calculated by applying rates identified by Mr Osenton in relation to item 2 in the Scott Schedule, which related to structural steel elements adjacent to carpark 9 to all steel beams within the basement carpark.

603. A claim for rectification and corrosion protection on the whole of the basement structural steel was not included in the Scott Schedule. The Scott Schedule item 2 only related to the basement area adjacent to carpark 9. No application was made to amend the claim so as to broaden the claim made.

604. In relation to item 2, Mr Osenton's figure was $1877.67 and Mr Elliot's was $407.22. The difference related to the rate per square metre for the removal of existing coatings and the application of a two part paint system. There was no cross-examination of the quantity surveyors on this issue. Having regard to the limited nature of the work involved, I consider that the costs involved are more likely to equate to those in Mr Osenton's report and I will allow $1877.67.

605. In summary the damages incurred by the Owners Corporation are:

(a) Bathrooms $30,000

(b) Remtech and other invoices $706,707

(c) Design and professional fees $21,384

(d) Soleace $234,620

(e) Basement carpark $1877

(f) Total $964,588

606. The plaintiff became registered for GST from 1 April 2014. Invoices paid after this date which included GST will give rise to an input tax credit and the plaintiff accepts it has not suffered a loss in respect of GST as it can claim such a credit: Gagner Pty Ltd trading as Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413.

607. Adopting this approach, the amounts for "Remtech and other invoices" and "Design and professional fees" were paid prior to 2014 and therefore an award of damages should include GST on those amounts. That brings the amounts to $777,378 and $23,522 respectively. As for the amount allowed in relation to the repair of waterproofing in bathrooms, only two of those bathrooms have been paid for. They have been paid for by owners rather than by the Owners Corporation. Unit 1 was paid for in May 2015 before the Owners Corporation was registered for GST. Unit 5 was paid for in July 2013 before the Owners Corporation was registered for GST. Having regard to the fact that individual owners have paid amounts which include amounts for which the Owners Corporation is liable, the obligation upon the Owners Corporation includes an obligation to reimburse for GST paid by the owner. Therefore a GST component should be allowed on two of the units, increasing the overall amount for bathrooms by $1000 to $31,000. The other items have not been paid and hence any GST on the amount will be the subject of an input tax credit.

608. Including the GST amounts brings the various components to:

(g) Bathrooms $31,000

(h) Remtech and other invoices $777,378;

(i) Design and professional fees $23,522

(j) Soleace $234,620;

(k) Basement car park $1,877

610. The defendants pleaded a defence based on the proportionate liability provisions in ch 7A of the CLW Act. In final submissions, no written or oral submissions were directed to this issue. It was not expressly abandoned.

611. Relevantly in order to be an apportionable claim the claim must:

(a) be a claim for economic loss or damage to property;

(b) in an action for damages (whether in tort, under contract or otherwise); and

(c) be one arising from a failure to take reasonable care.

612. What is involved within the concept of "a claim ... arising from a failure to take reasonable care" has been the subject of some contention. In relation to the New South Wales provisions (which are relevantly similar), Macfarlan JA has said in obiter dicta that the requirement was only satisfied if "the absence of reasonable care was an element of the, or a, cause of action upon which the plaintiff succeeded": Perpetual Trustee Co Ltd v CTC Group Pty Ltd (No 2) [2013] NSWCA 58 at [22] (Perpetual Trustee Co Ltd). In the same case Barrett JA suggested a wider enquiry involving determining the nature or quality of the claim by looking at a combination of the terms in which the claim was framed or pleaded and the relevant findings of the court. This was consistent with his Honour's previous decision at first instance in Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 at [19]- [30]. Meagher JA did not consider it necessary or appropriate to express any view on the issue: see [36]. Subsequent cases have not had to determine which of these approaches should be adopted: Owners - Strata Plan No 68372 v Allianz Australia Insurance Limited [2014] NSWSC 1807 at [31]; Smart v AAI Ltd [2015] NSWSC 392 at [156].

613. In the present case I have upheld the plaintiff's claim only in relation to a breach of the statutory warranties implied into the contracts for sale of Unit 8 and Unit 10 under the 2004 Act. Recovery for breach of those warranties is not contingent upon establishing a failure to take reasonable care. Having regard to the absence of argument on the issue, it is unnecessary to form a concluded view as to which of the alternative approaches identified in Perpetual Trustee Co Ltd should be preferred. Adopting Macfarlan JA's approach would clearly preclude the operation of the provisions. Adopting Barrett JA's approach would preclude the operation of the provisions having regard to the manner in which the statutory warranty claims were framed and my findings in relation to them.

614. For these reasons I do not consider that the proportionate liability defence is made out.

Damages recoverable via owners of Unit 8 and Unit 10

615. Because the damages recoverable are only recoverable by the plaintiff in so far as they involve the assigned right to damages owed to the owners of Unit 8 and Unit 10, the amount at [609] above must be adjusted so that it reflects the liability of the owners of Units 8 and 10 to pay the costs incurred or to be incurred by the Owners Corporation. That is dependent upon the number of units in the units plan attributable to Unit 8 and Unit 10. Only part of the units plan was in evidence and that part did not disclose the unit entitlement of Unit 8 and Unit 10. Having regard to the fact that my interpretation of the operation of s 58C of the 1972 Act and s 88 of the 2004 Act did not correspond with the primary contentions of the plaintiff for the defendants, I consider it appropriate to give the plaintiff an opportunity to apply to reopen its case so as to tender a copy of the units plan and hence permit an award of damages on the basis outlined in these reasons.

1. The proceedings are listed on 8 June 2016 at 3pm for the making of orders to give effect to these reasons, and, if necessary, any application by the plaintiff to reopen its case to tender a copy of units plan no 1917.

2. In the event that the parties do not agree on the orders required to give effect to these reasons, they have liberty to file and serve an outline of their submissions no longer than three pages in length including the orders for which the party contends.

I certify that the preceding six hundred and sixteen [616] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop