Supreme Court New South Wales Medium Neutral Citation: The Owners – Strata Plan No 84674 v Pafburn Pty Ltd (No 2) [2022] NSWSC 1002 Hearing dates: 20 July 2022 Date of orders: 27 July 2022 Decision date: 27 July 2022 Jurisdiction: Equity - Technology and Construction List Before: Stevenson J Decision: Application to dismiss proceedings against second defendant refused; plaintiff granted leave to file Amended Technology and Construction List Statement Catchwords: CIVIL PROCEDURE – amendment – pleadings – application for leave to file Amended Technology and Construction List Statement – where new building defects alleged – whether defendants prejudiced by proposed amendments CIVIL PROCEDURE – whether the proceedings should be dismissed as against the developer defendant – whether allegations of fact if proven capable of establishing that developer engaged in construction work for the purposes of the Design and Building Practitioners Act 2020 (NSW) Legislation Cited: Civil Liability Act 2002 (NSW) Design and Building Practitioners Act 2020 (NSW) Environmental Planning and Assessment Act 1979 (NSW) Home Building Act 1989 (NSW) Home Building Regulation 2004 (NSW) Cases Cited: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659 Category: Procedural rulings Parties: The Owners – Strata Plan No 84674 (Plaintiff) Pafburn Pty Limited (First Defendant) Madarina Pty Limited t/as c/- Finn Warner and Associates Pty Limited (Second Defendant) Representation: Counsel: D Weinberger (Plaintiff) A Di Francesco (Defendants) Solicitors: Grace Lawyers (Plaintiff) M&A Lawyers (Defendants) File Number(s): 2020/340673 JUDGMENT 1. The plaintiff is the Owners Corporation in respect of a strata development in Walker Street, North Sydney. 2. The first defendant, Pafburn Pty Limited, was the builder of the development. I will refer to it as "the Builder". 3. The second defendant, Madarina Pty Limited, was the developer and was, until registration of the strata plan on 6 December 2010, the owner of the land on which the development took place. I will refer to it as "the Developer". 4. Mr Antonios Obeid and Mrs Maria Obeid then owned the shares in the Builder (80% to Mr Obeid and 20% to Mrs Obeid). The Builder owned all the shares in the Developer. Mr and Mrs Obeid were the only directors of the Builder. Mr Obeid was the sole director of the Developer. 5. These relationships are summarised in the attached diagram. Attachment A (70715, pdf) 6. The Builder and the Developer allege that the building work was carried out by the Builder pursuant to an oral contract made between the Builder and the Developer on or about 2 June 2008. 7. In particulars supplied by the solicitors for the Builder and the Developer to the solicitors for the Owners Corporation on 16 June 2022 it was stated that the relevant conversations took place between Mr and Mrs Obeid and their son, Mr John Obeid. Precisely who said what during these intra-family conversations is yet to be revealed. 8. An occupation certificate was issued on 6 December 2010, the same date that the strata plan was registered. 9. The Owners Corporation commenced these proceedings on 1 December 2020, 5 days within the 10 year "long stop" limitation period concerning actions for defective building work prescribed by s 6.20 of the Environmental Planning and Assessment Act 1979 (NSW). 10. The Owners Corporation's claim is brought under the Design and Building Practitioners Act 2020 (NSW) ("the DBP Act"). 11. The Owners Corporation alleges that each of the Builder and the Developer engaged in "construction work" for the purposes of s 37 of the DBP Act and in so doing acted in breach of the statutory duty of care prescribed by s 37 of the DBP Act. 12. Section 37 of the DBP Act provides, relevantly: "(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." 1. "Construction work", for the purpose of s 37 of the DBP Act, is defined in s 36(1) of that Act to mean, relevantly: "… supervising, coordinating, project managing or otherwise having substantive control over the carrying out of [the building work]." 1. In my judgment of 24 May 2022 in these proceedings, [1] I held that, on the proper construction of the DBP Act: 1. a "person" referred to in s 37(1) of the DBP Act includes the owner of the land in relation to which the construction work is carried out; and 2. a person "otherwise having substantive control" over the carrying out of any work for the purposes of the definition of "construction work" in the DBP Act is a person who, as a matter of fact in the circumstances of the particular case, is able to control how the work is carried out. [2] 1. One effect of the former conclusion is that the Developer is a "person" for the purpose of s 37(1) of the DBP Act. 2. There is no dispute in these proceedings that the Builder "carried out construction work" for the purposes of s 37(1) of the DBP Act, and thus had a duty of the kind referred to therein. 3. The critical question now before me is whether the allegations which the Owners Corporation seek to make in a proposed Amended Technology and Construction List Statement, if proven, are capable of establishing that the Developer itself "carried out construction work" for the purpose of s 37(1). 4. As long ago as 5 November 2021, the Owners Corporation filed a Notice of Motion seeking to amend its List Statement. On 1 December 2021, the Builder and the Developer filed a Notice of Motion seeking to have dismissed or struck out the Owners Corporation's current List Statement. 5. On 28 June 2022, following the hearing that resulted in my judgment of 24 May 2022, the Owners Corporation circulated a further proposed Amended List Statement, in which, relevantly, it seeks to articulate its claim that the Developer carried out "construction work" in relation to the development. During the hearing before me on 20 July 2022, the Owners Corporation filed in Court an Amended Notice of Motion seeking leave to amend its List Statement in accordance with that document. 6. This was the fourth iteration of the Owners Corporation's proposed Amended List Statement. 7. On 20 July 2022, argument before me proceeded on the basis that the Builder's and the Developer's Notice of Motion of 1 December 2021 be treated as applying to so much of the latest proposed Amended List Statement as is directed to the position of the Developer. 8. Subject to an issue which arises in relation to the "New Defects", to which I will refer below, the Builder does not oppose the Owners Corporation having leave to amend its List Statement in accordance with the proposed Amended List Statement. 9. The Developer, however, opposes the Owners Corporation having such leave. 10. To establish that the Developer carried out "construction work" for the purposes of s 37(1) of the DBP Act, the Owners Corporation must prove that the Developer supervised, coordinated, project managed, or otherwise had substantive control of, that is, was able to control, the carrying out of the building work. 11. The Owners Corporation articulates its claim against the Developer in the proposed Amended List Statement in pars C12A-C13. 12. In pars C12A and C12B, the Owners Corporation makes the following allegations of fact, that, it is common ground, I must assume the Owners Corporation can establish: 1. Mr Obeid was: 1. one of the two directors of the Builder (the other being his wife); [3] 2. the sole director, and thus the "controlling mind", of the Developer; [4] 3. an 80% shareholder, and thus the "controlling shareholder", of the Builder; [5] 4. the "nominated supervisor" for the Builder's contractor license, for the purpose of s 3 of the Home Building Act 1989 (NSW); [6] 5. required to "and in fact did" supervise the building work carried out by the Builder and had control over the doing of the building work; [7] 6. the applicant for the development consent, notice to commence building work and appointment of a private certifier, construction certificate and occupation certificate for the development; [8] and 1. the Builder owned all the shares in the Developer. [9] 1. In the proposed Amended List Statement the Owners Corporation contends that three conclusions follow from these matters of fact. The appointment of Mr Obeid as nominated supervisor of the building work 1. The first is contained in the proposed par C12B(f) which provides: "At all material times, [Mr Obeid]: … (f) as the sole director and controlling mind of the [Developer] (the owner of the development), appointed himself as the nominated supervisor of the building work by contracting, on behalf of the [Developer], the [Builder] (of which [Mr Obeid] was the nominated supervisor) to carry out the building work." 1. The allegation in this paragraph is thus that Mr Obeid: 1. "appointed himself" as nominated supervisor of the building work; 2. did so "as sole director and controlling mind" of the Developer; and 3. did so "by contracting", on behalf of the Developer, with the Builder to carry out the building work. 1. In substance, the allegation is that it follows from: 1. the fact that Mr Obeid, as sole director of the Developer, caused the Developer to contract with the Builder to carry out the building work; that 2. he, as a director of the Developer, appointed himself as nominated supervisor of the building work. 1. I find it difficult to see how the conclusion in (b) could follow from the matters in (a). For the reasons that follow, it is not necessary for me to express a conclusion about this. The Developer's alleged supervision, coordination and project management of the building work 1. The second conclusion is in proposed par C12C which provides: "At all material times, the [Developer] supervised, coordinated and project managed the carrying out of the building work by the [Builder] as the sole director and controlling mind of the [Developer] was the nominated supervisor of the building work. Particulars The [Owners Corporation] repeats paragraphs 12A and 12B above." 1. The particulars repeat "paragraphs 12A and 12B" of the proposed Amended List Statement. Those paragraphs contain the factual allegations that I have set out at [26] above. 2. Mr Weinberger, who appeared for the Owners Corporation, accepted that the word "as" in this paragraph of the proposed Amended List Statement should be read as meaning "because". 3. Thus, the allegation in proposed par C12C is that because: 1. Mr Obeid was the sole director and controlling mind of the Developer and also the nominated supervisor of the building work; it follows that 2. the Developer "supervised, coordinated and project managed the carrying out of the building work" by the Builder. 1. I initially had difficulty seeing how (b) could follow from (a). 2. As Mr Di Francesco for the Builder and Developer submitted, Mr Obeid could only be a nominated supervisor of the Builder if he, personally, held an "endorsed contractor licence" that enabled him to supervise the work "for which the contractor licence applied for … is required"; that is, the work to be carried out by the Builder. [10] Mr Obeid was thus the Builder's nominated supervisor in his personal capacity as a licensed builder and not as a "functionary" of the Developer. 3. However, what appears to be alleged in par C12C is a matter of fact. That is that because Mr Obeid concurrently held the positions of sole director and thus "controlling mind" of the Developer and also the Builder's nominated supervisor he, in his capacity as the sole director and "controlling mind" of the Developer, in fact "supervised, coordinated and project managed the carrying out of the building work". 4. That proposition may not be made out at the hearing. But I cannot conclude at this stage that it certainly will not be. The Developer's alleged substantive control over the building work 1. The third conclusion is contained in proposed par C12D, which is in the following terms: "At all material times, the [Developer] had substantive control over the carrying out of the building work by the [Builder] in that: (a) the sole director and controlling mind of the [Developer] was the nominated supervisor of the building work; (b) the controlling shareholder of the [Builder], who was the sole shareholder of the [Developer], was the nominated supervisor of the building work; (c) by reason of the matters pleaded in paragraphs 12D (a)-(b) above: (i) the [Developer] had the ability and the power to control how the building work was carried out; and (ii) the [Developer] in fact controlled how the building work was carried out. 1. The allegation here is that, by reason of the fact that Mr Obeid was: 1. the sole director and controlling mind of the Developer, and the "controlling shareholder" of the Developer's parent company, the Builder; and also 2. the nominated supervisor of the building work; 3. it follows that: 1. the Developer, by Mr Obeid, had the ability and power to control how the building work was carried out and thus, consistently with my finding in the 24 May 2022 judgment, had substantive control over the carrying out of that building work; and 2. "in fact controlled" how the building work was carried out. 1. Again, I initially had difficulty seeing how the conclusions in (c) could follow from the matters in (a) and (b). 2. However, as I have said, a person will have "substantive control" over building work if the person is able to control how the work is carried out; a question of fact in each case. [11] 3. In those circumstances, and on reflection, I think it at least arguable that because Mr Obeid had the concurrent capacities as sole director of the Developer and the Builder's nominated supervisor, he may, as a matter of fact, and in his capacity as a director of the Developer, have had the ability to control how the building work was carried out. 4. I am persuaded that Mr Weinberger was correct to submit that whether Mr Obeid, in his capacity as sole director of the Developer, did in fact control how the work was carried out is a matter of fact to be explored at the hearing. Conclusion 1. The "jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion" that the claim is "so obviously untenable that it cannot possibly succeed". [12] I am unable to reach that conclusion here because I cannot conclude that the Owners Corporation is incapable of establishing, on the basis proposed in the Amended List Statement, that the Developer was able to and in fact did control how the building work was carried out; and thereby engaged in construction work within the meaning of ss 36 and 37 of the DBP Act. 2. For those reasons I decline to dismiss the proceedings as against the Developer. The "New Defects" 1. As I mentioned in my 24 May 2022 judgment, [13] there is annexed to the proposed Amended List Statement a "Scott Schedule" which identifies some 330 alleged defects under the headings "Internal Water Proofing and General Building Defects", "Fire and General Safety Defects" and "External Façade Defects". 2. A number of the particular defects alleged under these general headings are "new" in the sense that they were not identified in the List Statement filed on 1 December 2020. 3. In my 24 May 2022 judgment, I held that the identification of these "new" defects did not introduce new causes of action against the Builder or the Developer and that the Owners Corporation relies on a single cause of action; namely, the alleged breach of the statutory duties under s 37 of the DBP Act. [14] 4. The parties have now produced a document which identifies the "new" defects as being ones identified by a number of experts in reports prepared in July 2021; some seven months after these proceedings were commenced on 1 December 2020. 5. The Owners Corporation seeks leave to amend its claim to add these "new" defects. 6. Mr Di Francesco submitted that leave should be refused as the Builder and the Developer are prejudiced by reason of not being able to bring cross-claims against two nominated parties: the certifier and a water proofing contractor, relating to the "new" allegations. 7. However, in their List Response the Builder and the Developer have identified those two parties as concurrent wrongdoers for the purposes of s 34 of the Civil Liability Act 2002 (NSW) and seek an order under s 35 of that Act limiting their liability to the Owners Corporation to an amount reflecting their relative responsibility for the Owners Corporation's loss. Bringing a cross-claim against those parties would not be likely to advance their position. 8. In any event, the Builder and the Developer were served with the current Summons and List Statement on 4 December 2020, two days before the expiry of what Mr Di Francesco accepts was the limitation period for any cross-claim against those parties. They thus had no realistic prospect of bringing a cross-claim in any event. Conclusion 1. I decline to dismiss the proceedings against the second defendant. 2. I grant the plaintiff leave to amend its List Statement in accordance with the document circulated on 28 June 2022. 3. The parties should confer and agree on the orders necessary to give effect to these reasons. 4. If there is a dispute about costs, the parties should confer and agree on a timetable for brief submissions (not more than five pages). I will deal with that question on the papers. 5. I stand the proceedings over for directions in the Technology and Construction List on 5 August 2022. ********** Endnotes 1. The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659. 2. At [25]-[26]. 3. C12B(b). 4. C12B(c). 5. C12A(b) and C12B(a). 6. C12B(d) and C12B(e). 7. C12B(e)(i) and (ii). 8. C12B(g). 9. C12A(a). 10. Home Building Regulation 2004 (NSW) reg 26(4); the applicable regulation at the relevant time. 11. See [14(a)] above and [26] in my 24 May 2022 judgment. 12. General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128-129; [1964] HCA 69 at [8] (Barwick CJ). 13. At [28]. 14. At [35]-[36]. 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