Reported Decision : 67 NSWLR 466 New South Wales Court of Appeal CITATION: Honeywood as executrix of the estate of the late Neville Honeywood v Munnings & Anor [2006] NSWCA 215 HEARING DATE(S): 10 March 2006 JUDGMENT DATE: 2 August 2006 JUDGMENT OF: Handley JA at 1; Giles JA at 43; Hislop J at 44 DECISION: (1) Appeal allowed with costs.; (2) Set aside the orders of Master Harrison and in lieu thereof substitute an order allowing the appeal of the executrix to the Supreme Court with costs.; (3) Set aside the orders of the Tribunal of 27 September 2004 dismissing the notice of motion of the executrix of 8 September 2003 with costs and in lieu thereof substitute an order dismissing the application by the proprietors to the Tribunal of 20 September 2001.; (4) Remit the proceedings to the Tribunal with liberty for either the executrix or the proprietors to apply to it, at their own risk as to costs, for an order for the costs of the proceedings in the Tribunal.; (5) The proprietors to have a certificate or certificates under the Suitors' Fund Act 1951 with respect to the costs of the appeal in the Common Law Division and the costs of the further appeal to this Court. CATCHWORDS: RES JUDICATA – merger – building contract – breach by builder – judgment for proprietor on cause of action – second claim against builder – claim barred - STATUTE – construction – Parliament mistakes existing law – existing law not necessarily changed - D Building Services Corporation Legislation Amendment Act 1996 LEGISLATION CITED: Consumer, Trader and Tenancy Tribunal Act 2001 Home Building Act 1989 Cartledge v E Jopling & Sons Ltd [1963] AC 758 Conquer v Boot [1928] 2 KB 336 Hawkins v Clayton (1988) 164 CLR 539 IRC v Dowdall, O'Mahoney & Co Ltd [1952] AC 401 Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 CASES CITED: Onerati v Phillips Constructions Pty Ltd (In liq) (1989) 16 NSWLR 730 Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1 State Government Insurance Office (Q) v Rees (1979) 144 CLR 549 The Indian Grace [1993] AC 410 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 West Midland Baptist Association v Birmingham Corporation [1970] AC 874 Beverley Anne Honeywood as executrix of the estate of the late Neville Honeywood (Claimant) Craig Stephen Munnings (First Opponent) PARTIES: Kylie Gaye Munnings (Second Opponent) Builders' Insurers Guarantee Corporation (Third Opponent) Registrar, Consumer Trader and Tenancy Tribunal (Fourth Opponent) FILE NUMBER(S): CA 40554 of 2005 E Olsson SC (Claimant) COUNSEL: R Glasson (First and Second Opponents) N/A (Third Opponent) Submitting appearance (Fourth Opponent) Derham Houston (Claimant) SOLICITORS: A C Knibb Kaine & Associates (First and Second Opponents) Holding Redlich (Third Opponent) I V Knight Crown Solicitor (Fourth Opponent) LOWER COURT JURISDICTION: Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S): SC 30101 of 2004 LOWER COURT JUDICIAL OFFICER: Master Harrison LOWER COURT DATE OF DECISION: 2 June 2005 LOWER COURT MEDIUM NEUTRAL CITATION: [2005] NSWSC 515 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40554 of 2005 HANDLEY JA GILES JA HISLOP J 2 AUGUST 2006 BEVERLEY ANNE HONEYWOOD AS EXECUTRIX OF THE ESTATE OF THE LATE NEVILLE HONEYWOOD v CRAIG STEPHEN MUNNINGS & ANOR CATCHWORDS RES JUDICATA – merger – building contract – breach by builder – judgment for proprietor on cause of action – second claim against builder – claim barred STATUTE – construction – Parliament mistakes existing law – existing law not necessarily changed FACTS In 1998 the respondents contracted with a builder for the construction of a dwelling house. After completion and delivery of possession they commenced proceedings against the builder in the Consumer Claims Tribunal for breach of contract alleging various defects and were partly successful. They claimed to have subsequently discovered further defects and brought a second action. This was continued against his widow as executrix of his estate. She applied for dismissal of the proceedings on the ground that the proprietors' cause of action had merged in the decision of the Tribunal. Her application was dismissed. The Tribunal distinguished Onerati v Phillips Constructions Pty Ltd (In liq) (1989) 16 NSWLR 730, and also held that s 18D of the Home Building Act 1989 had abrogated the defence of res judicata. The section provides: "A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty, except for work and materials in respect of which the person's predecessor has enforced the warranty." The executrix's appeal to the Supreme Court was dismissed by a Master. She sought leave to appeal on the s 18D issue and the proprietors sought leave to cross-appeal on the Onerati issue. HELD: (1) The alleged defects which formed the basis of the second action existed when the builder delivered possession of the dwelling and they formed part of one composite breach at that time; (2) Accordingly, the proprietors were barred from relitigating the claim in respect of defects which had not been claimed in the first action: Conquer v Boot [1928] 2 KB 336; (3) The second claim was barred whether or not the proprietors knew or should have known of the further defects; (4) Section 18D had no direct application as the respondents were not successors but the original proprietors; (5) The Act did not disclose an intention on the part of Parliament to displace the Onerati principles as between the original proprietor and the builder; (6) Parliament's mistaken belief as to the existing law does not necessarily operate as a positive enactment: IRC v Dowdall, O'Mahoney & Co Ltd [1952] AC 401, 417; West Midland Baptist Association v Birmingham Corporation [1970] AC 874, 898; (7) The appeal should therefore be allowed. ORDERS (1) Appeal allowed with costs. (2) Set aside the orders of Master Harrison and in lieu thereof substitute an order allowing the appeal of the executrix to the Supreme Court with costs. (3) Set aside the orders of the Tribunal of 27 September 2004 dismissing the notice of motion of the executrix of 8 September 2003 with costs and in lieu thereof substitute an order dismissing the application by the proprietors to the Tribunal of 20 September 2001. (4) Remit the proceedings to the Tribunal with liberty for either the executrix or the proprietors to apply to it, at their own risk as to costs, for an order for the costs of the proceedings in the Tribunal. (5) The proprietors to have a certificate or certificates under the Suitors' Fund Act 1951 with respect to the costs of the appeal in the Common Law Division and the costs of the further appeal to this Court. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40554 of 2005 HANDLEY JA GILES JA HISLOP J 2 AUGUST 2006 BEVERLEY ANNE HONEYWOOD AS EXECUTRIX OF THE ESTATE OF THE LATE NEVILLE HONEYWOOD v CRAIG STEPHEN MUNNINGS & ANOR Judgment 1 HANDLEY JA: On 26 April 1998 Mr and Mrs Munnings (the proprietors) contracted with Neville Honeywood (the builder) for the construction of a dwelling house at Phegans Bay. On 20 January 1999, following completion of the building and delivery of possession to the proprietors, they made a claim against the builder in the Consumer Claims Tribunal for breach of contract alleging various defects in the building. This was determined by that Tribunal on 11 June 1999, and the proprietors were partly successful. They subsequently discovered what they allege are further defects and on 20 September 2001 they made a second claim, limited to what they claim are the newly discovered defects, in the Fair Trading Tribunal which continued in the Consumer Trader and Tenancy Tribunal (the Tribunal). 2 The builder died on 12 November 2002, but the claim has been continued against his widow as executrix of his estate. On 8 September 2003 the executrix applied to the Tribunal for the dismissal of the proceedings on the ground that the proprietors' cause of action for breach of the building contract had merged in the earlier decision of the other Tribunal and a second action could not be brought. 3 This principle was applied by Giles J in Onerati v Phillips Constructions Pty Ltd (In liq) (1989) 16 NSWLR 730. The Tribunal held that Onerati was distinguishable because the proprietors were not aware of the defects sued for in the second action when they brought the first. It also held that s 18D of the Home Building Act 1989, inserted by the Building Services Corporation Legislation Amendment Act 1996, had abrogated the principle in Onerati for claims for breach of the warranties implied by s 18B in contracts for residential building work. The application by the executrix was therefore dismissed. 4 She appealed to the Supreme Court and her appeal was heard by Master Harrison. She held that the decision in Onerati was not distinguishable, and but for the effect of s 18D, she would have allowed the appeal. She held however that that section had abrogated the Onerati principle and dismissed the appeal. 5 The executrix sought leave to appeal on the s 18D issue and the proprietors sought leave to cross-appeal on the Onerati issue. It will be convenient to deal first with the Onerati issue. Res Judicata 6 In Conquer v Boot [1928] 2 KB 336 the Divisional Court held that a proprietor only had one cause of action for breach of a contract to build in a proper and workmanlike manner with proper materials. Accordingly a proprietor who had obtained judgment in respect of some defects could not bring a second action based on different defects, even if these were not known to him when judgment was obtained in the first action. At 342 Sankey LJ said: "The cause of action here is: (1) the contract to complete in a good and workmanlike manner a bungalow and (2) the breach of it. I do not think that every breach of it – every particular brick or particular room that is faulty – gives rise to a separate cause of action." 7 Talbot J said (344-5): "Here there is but one promise, to complete the bungalow; and the question whether or not it has been performed is to be decided by the state in which the bungalow was when it was handed over by the defendant to the plaintiff as complete. From that moment the statute of limitations began to run as to the whole. The plaintiff could not alter the fact that he was recovering damages for the breach of the single promise by failing to specify in his action all the particulars of the breach and all the damages to which he was entitled. The test whether a previous action is a bar is not whether the damages sought to be recovered are different, but whether the cause of action is the same." 8 The contract in that case was an entire contract (per Talbot J at 344) because the builder was obliged to construct the house and the proprietor was only obliged to pay the price on delivery of possession. Mr Glasson for the proprietors sought to distinguish that case because the proprietors were bound to make progress payments, and so, it was submitted, this was not an entire contract. 9 In Onerati Giles J, following a thorough analysis of the decisions in England and Australia before and after Conquer v Boot, concluded at 746-7: "1. In curial proceedings, for the purposes of the principle of res judicata there is but one cause of action for breach of contract founded upon breach of a promise such as to carry out the work in a good and workmanlike manner. There is not a number of causes of action according to particular defects or classes of defect resulting from the breach. 2. Accordingly, judgment in one proceedings will be a bar to second proceedings to recover damages with respect to defects or classes of defect not the subject of the first proceedings. 3. This will be so even where the defects or classes of defects the subject of the second proceedings were not apparent to the plaintiff at the time of the first proceedings. … there was but one promise the performance of which is decided by the state of the house when handed over upon completion. … the substance of the matter is that there is but one promise, and the cause of action is for breach of that promise." 10 Giles J added (748), in support of his statement of principle in para 3 of the quote: "As a matter of principle, if a cause of action passes into judgment it must do so regardless of the state of mind or knowledge of the plaintiff. Where the cause of action upon which the plaintiff proceeds is determined by judgment … it does not matter that he may have conducted his case in a particular way because he did not know of some relevant evidence … The only question is whether or not he has a separate cause of action upon which he can proceed in a second proceedings." 11 Earlier in Conquer v Boot (above) at 346 Talbot J had said: "There are many authorities … but they all come back to the same test, is the cause of action in the second action the same as that for which the plaintiff had judgment in the first? If it is, the second action cannot be maintained, and (speaking generally) it is immaterial whether the plaintiff knew or might have known, when he brought the first action, the facts on which he relies in the second." 12 Conquer v Boot was approved in The Indian Grace [1993] AC 410 where a second action was brought for breach of contract by an ocean carrier in respect of the same cargo. A fire had broken out on board which led to the loss by jettison of a small part of the cargo and damage by heat to the balance. Lord Goff, who delivered the principal speech, said (420-1): "Here, as is shown by Conquer v Boot [1928] 2 KB 336, it is necessary to identify the relevant breach of contract; and if it transpires that the cause of action in the first action is … the same breach of contract which constitutes the cause of action in the second, then the principle of res judicata applies, and the plaintiff cannot escape from the conclusion by pleading in the second action particulars of damage which were not pleaded in the first … The present case is not concerned with the failure to construct a building in accordance with a certain specification, which can result in a whole series of defects which may nevertheless lead to a single breach of contract ie the failure to hand over the building constructed in accordance with the terms of the contract. It is rather concerned with a single incident ie the fire during transit … which resulted in the damage to that consignment and a loss (by jettison) of a small part of it. Furthermore it appears from the pleadings that loss or damage might have resulted from breach of more than one term of the contract … However for present purposes there is no need to distinguish between the … breaches; because the factual basis relied upon by the plaintiffs … is the same." 13 In Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 Clarke JA, with whom Priestley JA agreed, said (559) that in determining whether a second action has been brought on the same cause of action as the first: "One matter which may be of importance in contract cases is whether, in substance, both actions are based on breaches of a particular term in a single contract." 14 He approved and followed Conquer v Boot (above) and Onerati (above) (560) although he reserved his opinion on whether the estoppel prevents the maintenance of a second action in respect of defects unknown at the time of the judgment. This is not even a dictum that a second action can be brought for breach of a building contract in respect of defects which were not known to the plaintiff when judgment was given in the first action. 15 This principle does not bar a second action for a later breach of the same contract because in such a case there are breaches at different times and separate causes of action. 16 This qualification does not apply here because all defects due to poor workmanship and the use of poor materials at different times during construction formed part of one composite breach of contract when the builder delivered possession of a poorly constructed house. 17 It is also evident that the defects due to poor workmanship or materials which form the basis of the second action must have existed when possession was given, and formed part of the one composite breach of contract which occurred at that time. 18 The irrelevance of the plaintiff's lack of knowledge in this situation is supported by the well established principle that once a cause of action has accrued time begins to run for limitation purposes whether the plaintiff is aware that he has a cause of action or not. This is well established in relation to causes of action in tort: Cartledge v E Jopling & Sons Ltd [1963] AC 758, 782-3; Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1; Hawkins v Clayton (1988) 164 CLR 539, 543, 560-1, 587-8, 598-602; and Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 540, 554-5. 19 In contract cases the cause of action is the breach and not the discovery of it: Scarcella v Lettice (2000) 51 NSWLR 302, 308, and time runs from the breach. The relevance of this principle was recognised in Conquer v Boot (above) by Talbot J in the passage already quoted: para [7], which was referred to by Giles J in Onerati at 747. 20 This principle is not excluded merely because the proprietors were bound to make progress payments. This obligation did not alter the obligation of the builder to give possession of a house that had been completed in a proper and workmanlike manner with proper materials. This was an entire obligation. The Master was therefore correct in holding that the Onerati principle applied unless it had been displaced by s 18D of the Act. 21 For these reasons, at the close of argument, the Court refused leave to cross-appeal against the judgment below. Home Building Act 22 Section 18D is in Pt 2C of the Act which was added in 1996. Section 18B defines the warranties implied in contracts for residential building work which cannot be excluded: s 18G. The statutory warranties include (a) a warranty that the work will be performed in a proper and workmanlike manner in accordance with the plans and specifications, and (b) that all materials will be good and suitable for the purpose, and, unless specified, will be new. Other warranties relate (d) to the time for completion of the work, (e) the fitness of the dwelling for occupation as such, and (f) its fitness for any particular purpose made known to the builder. 23 Section 18D provides: "A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty, except for work and materials in respect of which the person's predecessor has enforced the warranty." 24 Section 18E provides that where the work is completed proceedings for breach of a statutory warranty must be commenced within 7 years after completion. It prescribes a single limitation period so that the successor only has the benefit of whatever time remains when he takes title from the predecessor. 25 Part 2C of the Act does not in terms abolish the rule in Onerati as between the original parties to a contract for residential building work. The argument which has succeeded below is that s 18D, by conferring on a successor in title "the same rights as the person's predecessor in title in respect of the statutory warranty, except for work and materials in respect of which the … predecessor has enforced the warranty" proceeds on the assumption that the predecessor will retain rights in respect of a warranty after he has enforced it. 26 In the present context "enforced" must at least include, even if it does not mean, enforced by judgment. The result of Onerati is that once judgment has been obtained a successor in title with no more than the same rights as his predecessor can no longer enforce the warranty. 27 Section 18D must be given some effective operation where the proprietor transfers the property to a successor within 7 years from completion of the work. If the principle in Onerati applied in such a case the successor would acquire no rights under a warranty that has been partially enforced by the predecessor because the latter would no longer have any rights and would no longer be a person entitled to the benefit of that warranty. The whole cause of action will have merged in that judgment. 28 Where the predecessor has enforced the warranty the successor is entitled to the same rights subject to the exception. Since s 18D is the only section in Pt 2C which confers rights on the successor it follows that the successor has no rights under a statutory warranty for that part of the work and materials "in respect of which" the predecessor has enforced the warranty. 29 The scope of the exception is not altogether clear. The meaning of the expression "in respect of" is heavily dependent on its context which may limit the wide meaning of which it is otherwise capable: State Government Insurance Office (Q) v Rees (1979) 144 CLR 549, 561. In this case the context excludes the wider meanings of which the expression is capable. 30 The warranty of the builder is given in respect of all the work and all the materials but the exception would be meaningless if enforcement of the warranty in respect of some of the work and materials was held to be "in respect of" all the work and all the materials. It is not clear whether enforcement of the warranty for example in respect of some of the brickwork and some of the bricks would exclude a later claim for other brickwork and other bricks. That question can be left for decision if and when the point is squarely raised. 31 It follows therefore that where the exception in s 18D applies it does not destroy the general rule in the first part of the section. A successor can become entitled to rights under a warranty in respect of work and materials, although his predecessor has enforced it against the builder. 32 In this case the second claim is not made by a successor, but by the original proprietors, and s 18D has no direct application. The proprietors' submission is that the section has not only abolished the Onerati principle in favour of a successor, it has also abolished it in favour of the predecessor. 33 It is not apparent how s 18D can have such an operation. The general provision that the successor is entitled to the same rights in respect of the statutory warranty as the predecessor does not purport to enlarge the rights of the predecessor. It does no more than confer the same rights on the successor subject to the exception. The general rule created by the section does not displace the Onerati principle in favour of the predecessor. 34 That principle is displaced by the exception, but only for the benefit of the successor. There is nothing in the exception which displaces that principle for the benefit of the predecessor where there is no successor within the 7 years or before there is a successor. 35 It appears that the section was intended to give a successor greater rights in respect of latent defects due to a breach of the statutory warranty than a predecessor who had enforced that warranty. There are rational policy reasons for doing this because the predecessor could have inspected or arranged for the work to be inspected during construction and become aware of the defective workmanship or materials before they were covered up. The predecessor had a further opportunity of discovering defects when he enforced the warranty. A successor has no such opportunities. 36 Thus there is nothing in the text which discloses an intention on the part of Parliament to displace the Onerati principle as between the proprietor and the builder. This could have been done directly, rather than by a side wind, if Parliamentary Counsel had been instructed to do this and if this had been Parliament's intention. Not only is there nothing to this effect in the text itself, there is also nothing in the Second Reading Speech or Explanatory Statement which discloses such an intention. In this context the remarks of a Government backbencher in the debate on the Bill are of no weight in construing the text. 37 Parliamentary Counsel and Parliament may simply have assumed that the law was otherwise than as decided in Onerati. If so the exception may only have been inserted to prevent double recovery by both predecessor and successor in respect of the same work and materials. However it is also possible that Parliamentary Counsel were well aware of the principle in Onerati, and the exception was inserted for the benefit of a successor without any intention of altering that rule as between the builder and the predecessor. But even if Parliament did think the law was otherwise than as decided in Onerati, the existence of such a belief does not necessarily operate as a positive enactment. In IRC v Dowdall, O'Mahoney & Co Ltd [1952] AC 401, 417 Lord Reid said: "There is a difference between Parliament exhibiting an erroneous opinion as to the existing law and enacting that that law shall be changed." 38 Lord Radcliffe said at 426: "The beliefs or assumptions of those who frame Acts of Parliament cannot make the law." 39 See also West Midland Baptist Association v Birmingham Corporation [1970] AC 874, 898. 40 Although Parliament, in enacting s 18D, may have been mistaken about the existing law, the text does not disclose what it would have done to change the law if it had been correctly informed. Would it have allowed repeated claims for defects not previously claimed for, without restriction, or subject to some restrictions, and is so what? It is not possible to discover from the text or otherwise what Parliament's belief was, or what its intentions would have been if it had been properly instructed as to the existing law. In these circumstances Parliament's erroneous belief, even if established, does not operate to change the law: IRC v Dowdall O'Mahoney & Co Ltd (above) at 420, 421. In my judgment therefore the appeal succeeds. 41 Section 53(1) of the Consumer, Trader and Tenancy Tribunal Act 2001 provides that subject to that section and the regulations the parties in any proceeding in the Tribunal are to pay their own costs. Sub-section (2) provides that the Tribunal may, in accordance with the Regulations, award costs in relation to any proceedings. Regulation 20(4) provides that in any proceedings in respect of which the amount claimed or in dispute is more than $25,000 the Tribunal may award costs in relation to the proceedings in such circumstances as it thinks fit. The proprietors claimed $70,000 in their application of 20 September 2001 and this enlivened the power conferred by s 53(2) and Reg 20(4). 42 This power is conferred on the Tribunal and because this Court is not familiar with its practice we should simply set aside its order for costs. The proceedings should be remitted to the Tribunal with liberty for either the executrix or the proprietors to apply, at their own risk as to costs, for an order for the costs of the proceedings in the Tribunal. The following orders should be made: (1) Appeal allowed with costs. (2) Set aside the orders of Master Harrison and in lieu thereof substitute an order allowing the appeal of the executrix to the Supreme Court with costs. (3) Set aside the orders of the Tribunal of 27 September 2004 dismissing the notice of motion of the executrix of 8 September 2003 with costs and in lieu thereof substitute an order dismissing the application by the proprietors to the Tribunal of 20 September 2001. (4) Remit the proceedings to the Tribunal with liberty for either the executrix or the proprietors to apply to it, at their own risk as to costs, for an order for the costs of the proceedings in the Tribunal. (5) The proprietors to have a certificate or certificates under the Suitors' Fund Act 1951 with respect to the costs of the appeal in the Common Law Division and the costs of the further appeal to this Court. 43 GILES JA: I agree with Handley JA. 44 HISLOP J: I agree with Handley JA. ********** 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.