Supreme Court New South Wales Medium Neutral Citation: The Owners - Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068 Hearing dates: 29 October 2021 Decision date: 15 November 2021 Jurisdiction: Equity - Technology and Construction List Before: Stevenson J Decision: Leave to amend Technology and Construction List Statement is refused Catchwords: BUILDING AND CONSTRUCTION – Design and Building Practitioners Act 2020 (NSW) – statutory duty under s 37 – application to amend Technology and Construction List Statement – whether sufficient merely to identify the alleged defects – whether necessary to plead the risks the builder was required to manage and the precautions the builder should have taken to manage those risks Legislation Cited: Civil Liability Act 2002 (NSW) Design and Building Practitioners Act 2020 (NSW) Home Building Act 1989 (NSW) Cases Cited: Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36 Garzo v Liverpool/Campbelltown Christian School [2011] NSWSC 292 Garzo v Liverpool/Campbelltown Christian School [2012] NSWCA 151 Sergienko v AXL Financial Pty Ltd [2019] NSWSC 1610 Stewart v Australian and New Zealand Banking Group Ltd [2020] NSWSC 1787 Woolcock Street Investments v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 Texts Cited: Second Reading Speech for the Design and Building Practitioners Bill 2019 (NSW) Category: Procedural rulings Parties: The Owners - Strata Plan No 87060 (Plaintiff/Applicant) Loulach Developments Pty Ltd (First Defendant/Cross-Claimant/Respondent) Loulach Steel Pty Ltd (Second Defendant/Cross-Claimant/Respondent) Rustom Kudinar-Kwee (First Cross-Defendant) Jiri Kure (Second Cross-Defendant) Dix Gardner Pty Ltd (Third Cross-Defendant) Lyall Dix (Fourth Cross-Defendant) Representation: Counsel: D S Weinberger (Plaintiff/Applicant) T Maltz (Defendants/Respondents) Solicitors: JS Mueller & Co (Plaintiff/Applicant) Centurion Lawyers Pty Ltd (Defendants/Respondents) File Number(s): 2019/198332 Judgment 1. The plaintiff is the Owners Corporation of a residential strata development in Paramatta. 2. The Owners Corporation alleges that there are a large number of defects in the development, principally concerning water ingress and defective cladding. 3. The Owners Corporation brings these proceedings against the first defendant, Loulach Development Pty Ltd, the developer of the project and the second defendant, Loulach Steel Pty Ltd, the builder (together, "Loulach"). 4. Originally, the Owners Corporation's claim was based upon alleged breaches of the statutory warranties implied into the relevant building contract by the Home Building Act 1989 (NSW). 5. The Owners Corporation now seeks to amend its Technology and Construction List Statement to add a claim relying on an alleged breach of the statutory duty of care created by s 37 of the Design and Building Practitioners Act 2020 (NSW) (the "DBP Act"). 6. Section 37 of the DBP provides: "37 Extension of duty of care (1) A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects -- (a) in or related to a building for which the work is done, and (b) arising from the construction work. (2) The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land. (3) A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law. (4) The duty of care is owed to an owner whether or not the construction work was carried out -- (a) under a contract or other arrangement entered into with the owner or another person, or (b) otherwise than under a contract or arrangement." 1. I will refer to this as the "Statutory Duty of Care". 2. Section 39 of the DBP Act provides: "39 Duty must not be delegated A person who owes a duty of care under this Part is not entitled to delegate that duty." 1. Section 41 of the DBP Act provides, relevantly that: 1. the provisions of the relevant part of the DBP Act are in addition to the duties, statutory warranties and other obligations imposed by Home Building Act; 2. the relevant part of the DBP Act is subject to the Civil Liability Act 2002 (NSW). 1. The Owners Corporation's application to amend its claim to incorporate a claim under the DBP Act has been on foot for over a year. 2. On 23 October 2020, the Owners Corporation filed a Notice of Motion seeking leave to file and serve a Second Further Amended List Statement incorporating the DBP Act claim. 3. That motion was listed before Henry J on 27 November 2020. 4. On that occasion her Honour directed that the Owners Corporation serve: "A draft of a further Technology and Construction List Statement, which includes a Scott Schedule, and identifies those defects which it relies on in support of its pleading that the second defendant has breached its duty under the Design and Building Practitioners Act 2020". 1. There were delays in the preparation of the Scott Schedule, for reasons with which I need not presently deal. Ultimately, a Scott Schedule was served on 17 September 2021. The Scott Schedule identifies 451 defects in the development. 2. The Owners Corporation has also now circulated its proposed Second Further Amended Technology and Construction List Statement. 3. In the proposed List Statement, the Owners Corporation articulates a claim under the DBP Act as follows: "Duty of care - Second defendant 19A. The work carried out by the second defendant under the contract was 'construction work' within the meaning of Part 4 of the DBP Act. 19B. By operation of section 37 of the DBP Act, the second defendant owed the plaintiff a duty to exercise reasonable care to avoid economic loss (the duty) caused by defects in or related to a building to be constructed as part of the works. 19C. The duty is non-delegable. 19D. By reason of sub-sections 36(1) and 36(3)(a) of the DBP Act, the plaintiff is an owner of land in the form of the common property in the strata scheme within the meaning of Part 4 of the DBP Act. 19E. Upon becoming such an owner of the common property and the strata scheme, the plaintiff became a "subsequent owner" of the common property and the land respectively within the meaning of sub-section 37(2) of the DBP Act. 19F. By reason of the matters set out in paragraphs 19A to 19E above, the duty was and is owed to the plaintiff. 19G. By reason of the defective construction work referred to in the particulars to paragraph 16 above, the second defendant breached the duty and caused the plaintiff the loss and damage referred to in paragraph 19 above. 19H. The works contain defective work. Particulars of defective work i).The plaintiff refers to and repeats the particulars of the defective work set out in paragraph 16 above". 1. Paragraph 16 of the List Statement referred to in pars 19G and 19H is in the following form: "The residential building work that was carried out by the second defendant contains defects (defective work). Particulars of defective work (i) Report of George Dahrie of Noviion Engineering Pty Ltd, dated 2 April 2018; (ii) Report of George Dahrie of Noviion Engineering Pty Ltd, dated 30 April 2018; (iii) Report of George Dahrie of Noviion Engineering Pty Ltd, dated 4 September 2018; (iv) Report of George Dahrie of Noviion Engineering Pty Ltd; dated 20 February 2019; (v) Report of Peter Karsai of Karsai Consulting, dated 23 June 2020; (vi) Report of Mark Thomas of Synchronised Testing and Inspection, dated 2 July 2020; (vii) Report of John Riad of Landlay Consulting Group Pty Ltd, dated 20 July 2020; (viii) Report of Ross Warner of Engineered Environments Pty Ltd dated 27 May 2021; (ix) Report of Nathan Halsted of AED Pty Ltd dated 25 August 2021; (x) Report of Peter Johnsson of ACOR Consultants dated 7 September 2021; (xi) Report of Nathan Halsted of AED Pty Ltd dated 10 September 2021." 1. The proposed List Statement makes no reference to the Scott Schedule, although argument before me proceeded on the basis that the List Statement and the Scott Schedule should be read together. 2. Loulach opposes leave being granted to the Owners Corporation to plead [1] its Statutory Duty of Care case this way, contending that while there can be no dispute as to the existence of the Statutory Duty of Care, a pleading in the form proposed leaves the question of breach of that duty "wholly unarticulated". 3. Mr Weinberger, for the Owners Corporation, submitted it was sufficient for the Owners Corporation to identify the defects complained of and to contend that those defects themselves bespoke a breach of the s 37 duty. 4. Thus, Mr Weinberger submitted: "And we say, well whoever did the defective work – the builder or subbie – necessarily did it negligently because, had you not been negligent, there wouldn't be a defect. That's how we put the case. … [H]ere we are going to prove a breach of the Home Building Act and we say once we prove a breach of the Home Building Act ie, this particular item of work was done defectively that, in and of itself, translates into or is the negligence. So we don't say res ipsa, we don't just say: There is a defect; we win. We prove, for the purposes of the contract claim ie, the home warranty claim, what was done defectively, the reasons we say it was done defectively, and the reasons we say it was done defectively are also the reasons it was done negligently. That's how we put the case." 1. In effect, Mr Weinberger's submission was that the mere fact that there was a defect in the building which was shown to constitute a breach of the Home Building Act statutory warranties established that the defect was the result of a breach by the builder of the statutory duty of care. 2. I do not agree. 3. A number of examples expose the difficulty with this approach. 4. Item 223 in the Scott Schedule identifies as a defect: "Combustible Aluminium Composite Panels Façade Cladding – Multiple Locations – Throughout Combustible aluminium composite panels (ACP) installed throughout the building facades." 1. Thus, this allegation is that defective cladding had been installed "throughout" the complex. 2. It will be Loulach's case that the cladding type was selected by the architect. In those circumstances, and assuming in the Owners Corporation's favour, that the cladding does not comply with requisite standards, what is the breach of duty alleged? 3. Is it that: 1. the builder failed to read the architectural plans; or 2. the builder failed to follow the architectural plans; or 3. the builder inappropriately selected the location at which the cladding was to be installed; or 4. the manner in which the cladding was installed in particular locations converted otherwise acceptable cladding into unacceptable cladding; or 5. the builder had a duty to choose cladding other than that specified by the architect; or 6. the builder failed to ask questions, and if so what questions, about the specification of the cladding in the architect's plans; or 7. that the builder should have commissioned a flammability report; or 8. something else? 1. Another, admittedly less dramatic, example is item 22 in the Scott Schedule which identifies a defect as follows: "Unit 5 – Bathroom Corrosion affecting the door jambs." 1. What is the breach of duty alleged that has caused the "corrosion" referred to? 2. Is it: 1. installing the wrong PC item; or 2. installing the wrong lining; or 3. something else? 1. A further example is item 176 in the Scott Schedule which identifies the defect: "Unit 53 – Balcony Exposed gap at the junction of the blade wall and balustrade. Balustrade height is measured at 910mm which is less than the required 1m in accordance to BCA." 1. What is the breach of duty that is said to have led to this alleged defect? 2. Is it that: 1. the builder did not construct the balustrade to the height specified in the architectural design; or 2. the builder had a duty to know what the BCA specified in relation to balustrade heights; or 3. something else? 1. The DBP Act was enacted to alleviate the need for a party like the Owners Corporation to prove a duty of care owed to it by the Builder. This reform was seen as being needed in light of the building failures at Opal Tower and Mascot Tower and High Court decisions in cases such as Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2] and Woolcock Street Investments v CDG Pty Ltd [3] in which the High Court found that builders and engineers did not owe a duty of care to subsequent purchasers of commercial property. 2. The DBP Act was not intended to provide a shortcut as to the manner by which a breach of such duty might be established. 3. This is made clear by the following passage from the Second Reading Speech for the Design and Building Practitioners Bill 2019 (NSW), made by the Minister on 23 October 2019: "Clause 30 [4] makes it clear that a beneficiary of the duty will be entitled to seek damages for the breach of the duty as though the duty was established by the common law. This means that while a duty of care will be automatically owed, any person who wants to proceed with litigation will be required to meet the other tests for negligence established under the common law and the Civil Liability Act 2002. This includes determining that a breach of the duty occurred and establishing that damage was suffered by the owner as a result of that breach. The hurdle of establishing that a duty is owed, however, will no longer be required, saving valuable court time and expense for the owner." (Emphasis added.) 1. The passage I have emphasised is reflected by the facts that: 1. as I have said, the relevant part of the DBP Act is expressed to be subject to the Civil Liability Act; and 2. there is no provision in the DBP Act stating that the mere fact of a defect establishes breach. 1. Section 5B of the Civil Liability Act provides: "5B General principles (1) A person is not negligent in failing to take precautions against a risk of harm unless -- (a) the risk was foreseeable (that is, it is a risk of which the person knew or ought to have known), and (b) the risk was not insignificant, and (c) in the circumstances, a reasonable person in the person's position would have taken those precautions. (2) In determining whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things) -- (a) the probability that the harm would occur if care were not taken, (b) the likely seriousness of the harm, (c) the burden of taking precautions to avoid the risk of harm, (d) the social utility of the activity that creates the risk of harm." 1. In Garzo v Liverpool/Campbelltown Christian School, [5] Meagher JA said: "To address the questions and considerations in s 5B, it is necessary to formulate a plaintiff's claim in a way which takes account of the precautions which it is alleged should have been taken and identifies the risk or risks of harm which the plaintiff alleges eventuated and to which those precautions should have been directed." 1. More recently, in Sergienko v AXL Financial Pty Ltd, [6] Ward CJ in Eq cited with approval the following observations made by Garling J as the trial judge in Garzo v Liverpool/Campbelltown Christian School: [7] "As a starting point, a proper pleading of a claim requires the plaintiff to identify, and articulate clearly the "risk of harm" in respect of which, it is alleged, the defendant was obliged to take precautions. This puts a court in a position to determine the defendant's knowledge of a specified risk of harm, to assess the probability of that risk occurring, and to evaluate the reasonableness of the defendant's response, or lack of response, to that risk… A proper pleading will also need to plead whether it is part of the plaintiff's case that the defendant had actual knowledge of the risk of harm, and that the risk was thereby foreseeable (s 5B(1)(a)), or whether the plaintiff only contends that the defendant ought to have known of the risk of harm. Particulars of such a pleading would then ordinarily be provided. A defendant would then be in a position to fully plead to such allegation. … As a real and practical matter, where a court is considering any of the essential steps in s 5B(1), it must do so against the identified risk of harm. It is a matter of common experience in common law claims, that in any given set of factual circumstances, there are a number of risks of harm which can be identified. Unless the risk of harm being relied upon is clearly identified then it will not be possible to identify what steps ought reasonably to have been taken by a defendant to address the risk. Nor will it be possible for a court to determine what the application of reasonable care required." [8] 1. These authorities establish that a plaintiff alleging a breach of duty of care by a builder, and this must include a breach of the Statutory Duty of Care, must identify the specific risks that the builder was required to manage, and the precautions that should have been taken to manage those risks. 2. It is not sufficient simply to assert a defect and allege that the builder was required to take whatever precautions were needed to ensure that the defect not be present. 3. It may be, in this case, that the requisite degree of specificity can be achieved by causing the List Statement to refer to the Scott Schedule and revising the Scott Schedule to add further columns identifying, in relation to each defect, the relevant risk and, more importantly, exactly what the Owners Corporation contends Loulach should have done in relation to that risk. Conclusion 1. I decline to grant the Owners Corporation leave to amend its List Statement in the form proposed. 2. I propose to allow the Owners Corporation one further opportunity to formulate an Amended List Statement. 3. The parties should confer and agree on a timetable to enable that to occur. 4. As to costs, if the parties cannot agree, they should agree on a timetable for short written submissions. I will deal with that question on the papers. ********** Endnotes 1. A List Statement is not, strictly speaking, a pleading as proceedings in the Technology and Construction List are not commenced by statement of claim; however, for present purposes, the same particularity is required as if it were a pleading: see Stewart v Australian and New Zealand Banking Group Ltd [2020] NSWSC 1787 at [18]-[21] (Hammerschlag J). 2. (2014) 254 CLR 185; [2014] HCA 36 (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ). 3. (2004) 216 CLR 515; [2004] HCA 16 (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ). 4. Now s 37 of the DBP Act. 5. [2012] NSWCA 151 at [22]. 6. [2019] NSWSC 1610 at [46] (Ward CJ in Eq). 7. [2011] NSWSC 292. 8. At [60]-[61], [64]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 November 2021