New South Wales Supreme Court CITATION : Eko Investments Pty Limited v Austruc Constructions Limited & Ors; The Owners Strata Plan No 64970 v Austruc Constructions Limited & Ors [2009] NSWSC 208 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 16 and 17 February 2009 JUDGMENT DATE : 31 March 2009 JURISDICTION : Equity Division - Technology & Construction List JUDGMENT OF : Bergin CJ in Eq DECISION : Some aspects of Referee's Report adopted. CATCHWORDS : [REFEREES] - Development of practice of referring the whole of proceedings to retired judicial officers - [REFEREES' REPORTS] - Principles applicable to review of referees' reports in which errors of law are alleged - challenge to conclusions reached upon arhcitects responsibility in respect of building which leaked - whether report should be adopted - [PROCEDURAL FAIRNESS] - whether referee should have provided opportunity to affected party to make submissions in relation to approach taken by referee outside aspects of pleaded case Strata Schemes Management Act 1996 (NSW) s 62 Uniform Civil Procedure Rules 2005 R 20.14, 20.24 Home Building Act 1989 (NSW) s 18B House Contracts Guarantee Act 1987 (Vic) LEGISLATION CITED : Local Government Act 1958 (Vic) Domestic Building Contracts Act 1995 (Vic) Customs Act 1901 (Cth) s 214 Evidence Act 1995 (NSW) s 138 Limitation Act 1969 s 14(1) Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, (2004) 216 CLR 515 Xuereb & Anor v Viola & Ors (1989) 18 NSWLR 453 Beveridge & Anor v Dontan Pty Ltd (1991) 23 NSWLR 13 Super Pty Ltd (formerly known as LEDA Constructions Pty Ltd) v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Ryde City Council v Tourtouras [2007] NSWCA 218 Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 Zumpano v Montagnese [1997] 2 VR 525 Moorabool Shire Council v Taitapanui (2004) VSC 239 CASES CITED : Pullen v Gutteridge, Haskins & Davey Pty Limited [1993] 1 VR 27 Scarcella v Lettice (2000) 51 NSWLR 302 Owners of Strata Plan 50946 v Multiplex Constructions (NSW) Pty Ltd [2006] NSWSC 377 Ridis v Proprietors of Strata Plan 10308 [2005] NSWCA 246 Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272 Pantorno v R (1989) 166 CLR 466 Parker v Comptroller-General of Customs [2009] HCA 7 (12 February 2009) In the matter of Lawrence Charles O'Neill, unreported, District Court of New South Wales, 18 August 1988, Dunford DCJ TEXTS CITED : Ian Freckelton SC and Hugh Selby, Expert Evidence: Law, Practice, Procedure and Advocacy, 4th ed. Thomson Reuters, 2009 FILE NUMBER(S) : SC 55047 of 2003; 55048 of 2005 G Sirtes SC (Owners Corporation) I D Faulkner SC/N E Chen (CSA) COUNSEL : M J Slattery QC/M Galvin (EKO) M G Rudge SC/M S White (Austruc) I G Roberts (Slater Lomas) R A Cavanagh (Traditional Windows) David Le Page (Owners Corporation) Kennedys (CSA) SOLICITORS : Stacks/Forster (EKO) Doyles Construction Lawyers (Austruc) DLA Phillips Fox (Slater Lomas) James Tuite & Associates (Traditional Windows) - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST BERGIN CJ in Eq 31 MARCH 2009 55047 OF 2003 EKO INVESTMENTS PTY LIMITED v AUSTRUC CONSTRUCTIONS LIMITED & ORS 55048 OF 2005 THE OWNERS STRATA PLAN NO 64970 v AUSTRUC CONSTRUCTIONS LIMITED & ORS JUDGMENT Introduction 1 This litigation relates to the design and construction of an eight-storey block of 32 home units on the Central Coast of New South Wales (the Building). The developer of the Building was EKO Investments Pty Limited (EKO). EKO retained architects, CSA Architects Pty Limited (CSA) and structural engineers, Slater Lomas Pty Limited (Slater Lomas). The builder, Austruc Constructions Pty Limited (Austruc) subcontracted relevantly with a window contractor, Traditional Windows Pty Limited (Traditional). 2 The Building was completed in early 2001 and the Strata Plan was registered in March 2001 when the Owners Strata Plan No 64970 (the Corporation) became responsible for the common property of the Building. The façade of the Building was not properly waterproofed and the design of the windows was inadequate in that they did not have sub-sills. Rainwater penetrated the home units and caused damage to the interior of the units. The structural steel support frame on the roof of the Building was not properly treated and it rusted. The water penetration of the units was first observed in 2001 and thereafter the Corporation sought expert advice on the problem and subsequently commenced these proceedings. The Proceedings 3 The first proceedings were commenced in 2003 by EKO against Austruc, CSA and Slater Lomas claiming damages for alleged defects in the Building (55047 of 2003). The second proceedings were commenced in 2005 by the Corporation against Austruc claiming damages for alleged defects in the Building (55048/05). 4 On 8 February 2008 the Corporation was granted leave to file an Amended Summons joining CSA. That Amended Summons filed on 14 February 2008 claimed that CSA: was retained by Austruc and EKO to design the Building (par 15 & 16); owed EKO, Austruc and "thereby" the Corporation a duty of care as successor in title to the common property in the Building (par 17(i)); owed the Corporation a duty of care to provide a proper design such that the Building would not suffer substantial water ingress (par 17(ii)); and breached its duty of care by failing to provide a proper design in consequence of which the Building suffered significant water ingress (par 18); whereby the Corporation suffered loss and damage (par 19). There was a further and similar claim pleaded by the Corporation based on an alleged duty owed by CSA to Austruc and "thereby" the Corporation (pars 20 – 22). 5 The Corporation also claimed that CSA was liable to it in respect of the Corporation's liability to the individual unit owners for the damage to their units caused by the water ingress by reason of the Corporation's failure to comply with its obligation under s 62 of the Strata Schemes Management Act 1996 (NSW) (Management Act) to "properly maintain and keep in a state of good and serviceable repair the common property" (the contents claim) (pars 23-27). The Reference and Reports 6 On 2 November 2007 both proceedings were referred to the Honourable John Brownie QC (the Referee) for inquiry and report pursuant to Rule 20.14 of the Uniform Civil Procedure Rules 2005 (UCPR). The reference was heard over 19 days between 1 April 2008 and 30 May 2008. The Referee delivered an Interim Report on the first day of the hearing, 1 April 2008 (the Interim Report) (adopted by a consent order of the Court on 4 April 2008) and a final Report dated 26 June 2008 (the Report). There was a further hearing day on 20 September 2008 and the Referee delivered a further Report dated 24 September 2008 (the Second Report). 7 Application was apparently made by one or more of the parties on the first day of the hearing to prevent EKO from proceeding with its case in the first proceedings because the Corporation was the entity entitled to bring proceedings in respect of the common property of the Building. The Referee delivered an Interim Report in respect of that application which included the following: 7 The problem here is that the remedial work that Eko contends for is different to the work that the owners corporation contends for. 8. It is common ground that (assuming defects in the building, and legal liability on the part of somebody in respect of those defects), when Eko commenced the first action, it had a prima facie entitlement to damages, and that the damages might have been assessed in the way Eko now contends for. However, the parties other than Eko contend that, now that the owners corporation has commenced the second action, it is the owners corporation and not Eko that is entitled to bring the claim for any damages that might be awarded in respect of the cost of rectifying the defects. They go on to submit, and Eko does not dispute that there cannot be a double recovery by the two plaintiffs, or a double liability on the part of any defendant. 9. Eko contends that it brought the first action at a time when it was entitled to do so, and that it has not lost that right. It asserts that, save for deducting from the damages it should recover the costs associated with the litigation, it intends to use the damages to rectify the defects in the building. … 12. Here, if the owners corporation agreed with Eko's proposal as to what remedial work should be carried out, it might well be that Eko's contention should be accepted, but the owners corporation does not agree with Eko's proposal, contending for remedial work that is different, and more limited; and since the owners corporation is now able to stipulate what work might or might not be done on its property, and Eko is not, it would not be reasonable to award damages to Eko, assessed by reference to the cost of doing some remedial work that will not be carried out. 13. I therefore report, on an interim basis, and on the assumed facts mentioned, that Eko is not entitled to damages assessed by reference to the cost of carrying out the remedial work that it proposes, when the owners corporation opposes the carrying out of that work, and the owners corporation proposes to carry out different work. Since only one of the two plaintiffs can be entitled to damages from the relevant defendant or defendants, it follows that the owners corporation and not Eko should be the party entitled to any damages awarded that are assessed by reference to the cost of remedial work. 14. It also follows that, if a just, quick and cheap resolution of the real issues in the proceedings is to be achieved, I ought not to receive evidence going to prove the appropriateness of the remedial work proposed by Eko, and opposed by the owners corporation, or to the reasonableness of the cost of that work, and I propose to reject evidence going only to these matters. I see no reason why Eko might not lead evidence going to other matters, or why it might not advance some other claim to damages (although it may need to amend its pleadings to do this, a topic yet to be considered). 8 The Referee defined the term "façade" of the Building as including "the perimeter walls, the windows or their surrounds, the sliding glass balcony doors or their surrounds, and the exhaust fans or their surrounds" and reported that water penetrated "often, and at many points, principally through the façade" (par 7). The Referee identified the water penetration as the "main issue" and recorded a number of factual questions to be resolved including: identifying the deficiencies; determining whether the alleged deficiencies arose as a result of some design error; and if so identifying the party responsible for the design error; determining whether there was a deficiency in workmanship; and determining what damage resulted and what remedial work was appropriate (par 11). 9 CSA's original design of the Building was changed to accommodate EKO's desire to save costs. The original design was for a structure with conventional reinforced concrete frames of columns and slabs with perimeter walls consisting of two skins of bricks on either side of a cavity. The amended design was a structure using non-load-bearing perimeter wall panels (each panel consisting of a single skin of "Hebel" brand autoclaved aerated concrete blocks) bordered on each side by a reinforced concrete column on top of which there was a reinforced concrete slab. This design required the inclusion of control or expansion joints between the concrete columns, the floor slabs and Hebel blocks. Waterproofing of the perimeter walls was to be achieved by the application on the outer surfaces of the columns, slabs and blocks of a waterproof coating consisting of a skim coat, a render coat and a coat of paint. The Referee referred to this coating as the "exterior protection system", interchangeably, it seems, with the description "external protection system". I will use the latter description. 10 In the introductory remarks in relation to the deficiencies with the façade the Referee said: 21. The control joints between the Hebel blocks and the concrete frame of the building had to be extended into the external protection system, and, so extended, they should serve two distinct purposes: a structural purpose, to contain the expected movements of the building members; and a waterproofing purpose. The former purpose was achieved, in a way that is of no importance now, and need not be further described, but there was much said about the waterproofing of the joints. If the building is to be watertight at about the location of a control joint, the external protection system must be able to flex, so as to accommodate any movement that might occur. If the external protection system cracks, then the cracking might provide a path for water to penetrate the facade. In this building, joints were struck, or carved into the external surface of the render. 22. If so much of a control joint as is contained within the external protection system is to flex, it should be located close to, and preferably just outside the internal part of the joint. However, it is plainly established that, in places, the outer parts of the control joints were not placed outside the inner parts, but some little distance to one side of them. It is also plainly established that, in many if not all places, the render coat and the paint were put into such a position that the render and the paint covered, or extended across the external joints. That is, there was render immediately over the inner part of the joint, and at the same time a joint was carved into the render, along a line which did not coincide with the line of the inner joint. 11 The manufacturer of the Hebel blocks, CSR Hebel (Australia) Limited or CSR Ltd (CSR), had issued a Handbook which took on "considerable importance" in the litigation in respect of the issue as to whether either or both of CSA and Slater Lomas acted improperly in failing to prepare a more adequate specification for the work to be done by Austruc. The Referee extracted parts of the Handbook in his Report, in particular the information relating to the water resistance capacity of Hebel blocks, including the statement that, "for external walls waterproof texture coatings and renders are recommended" (par 45). He also referred to the section of the Handbook identifying important issues "when designing in CSR Hebel blocks" and set out the relevant part of section 7.4 "Movement control joints" as follows (at par 46): To minimise cracking in walls caused by thermal expansion, contraction, foundation movement, drying shrinkage etc joints should be located in accordance with the following guidelines … the project architect and engineer should be involved in the locating of control joints … for further guidance and guidelines see [another publication] … In no circumstances should a movement control joint be rendered across. 12 The Handbook contained some recommendations and some imperative terms. It also included drawings with details about a variety of matters. The appendices to the Handbook consisted of separate sample specifications for the blocks and panels. Slater Lomas, had issued a note that all the block work was to be installed "strictly in accordance" with the manufacturer's recommendation in the Handbook and that the block work was to be "fully articulated by placement of control joints at maximum of 6.0m spacing and as indicated on plan in accordance with [manufacturer's] recommendations" (par 41). The Referee considered that that note "constituted a detail which, read with the specification, required Austruc to work in accordance with the handbook, except to the extent that there were instructions to the contrary" (par 52). 13 The Referee referred to CSA's submission that one of the drawings, W3, showed that the sealant was detailed to the external face of the blocks and not rendered over (par 57). The Referee also referred to Austruc's contention that the instructions given to it permitted it to render across the control joints and that the Handbook was not clear about this. The Referee reported that he did not agree with this contention and referred back to the statement in section 7.4 of the Handbook that in "no circumstances should a movement control joint be rendered across". 14 The Referee also reviewed whether the requirements in the Handbook had been varied by analysing communications between CSA, Slater Lomas and Austruc (par 59-62). The manufacturer wrote to Slater Lomas with a "sketch" of its thoughts for the Building. The Referee recorded that this sketch set out considerable detail of what should be provided by Austruc, by way of control joints and fixings between the Hebel blocks and the concrete framework of the Building. This was apparently done by reference to drawing W3 from the Handbook. That showed where the control joint should be placed between the Hebel blocks and the columns on either side of the block work panel, and between the Hebel blocks and the soffit of the slab at the top of the panel. The Referee recorded that the drawing provided that the joints should be 10 mm or more wide, and that they should be filled in with a backing rod, and sealed with a polyurethane sealant. The Referee concluded that to his mind, "it shows that render should not be placed over the sealant" (par 59). 15 The Referee recorded that Slater Lomas checked the position and approved the details of the sketch and advised CSA of that position and asked CSA "aren't the hebel walls to be waterproofed? If so then galvanised dowels may be ok. Your thoughts?". That communication was also given to Austruc who advised that they were a builder and "not a designer". Austruc also advised that it had informed CSA of the "lack of suitably documented detail in relation to the fixings between windows and Hebel blocks, and that this was a problem for "the design team" to overcome" (par 61). 16 The Referee concluded that these exchanges showed that Austruc was to act, so far as the Hebel block work was concerned, in accordance with the Handbook, except where there were specific instructions to act otherwise. The Referee noted that these communications said nothing about making the Building watertight (par 63). The Referee then set out some evidence given by an employee or officer of CSA, Mr Smith, in which he was cross-examined about his observations as to whether the control joints had been rendered over. He agreed that it was obvious when he looked at the Building at practical completion that there were not 10 mm open-face construction joints in the locations that had been indicated on the drawing. He accepted that the engineer had specified 10 mm wide joints and that he had passed that specification onto the builder. The Referee was not satisfied that Mr Smith had noticed that the joints had been rendered across or if he had, he did not regard it as significant at the time. The Referee rejected Mr Smith's evidence that rendering over control joints was consistent with good practice (par 66). 17 The Referee identified that each of the experts (Messrs Alden, Dunstan, Knox, Plaister, Skinner, Smee and Wilkinson) said that "good practice did not permit the rendering across of these joints" and observed that this was a "matter that goes to both the design responsibility and the quality of the work". The Referee also referred to Mr Alden's evidence that by rendering across a movement joint "you are guaranteed to have cracks and spalling" in the render. The Referee recorded that he accepted that evidence (par 67-68). He then reported: 69 If the external protection system as a whole was to work as intended, it was critical that the render coat be sufficiently flexible for it not to crack, but it did crack. Once it cracked, it was likely that in windy conditions, there would be a high pressure differential between the outer surface of the façade, exposed to the wind, and the inner surface, which is not; and then water was likely to percolate through the cracks. I find that a significant reason that the façade cracked was because the joints had been rendered over, and that this was a result of Austruc (through its sub-contractor) not following the instructions in the handbook. 18 The Referee considered the liability of CSA and Austruc in relation to the water penetration of the external protection system and reported as follows: 86 On these assumptions, and as between Austruc and CSA, I consider that CSA was more at fault than was Austruc, for although the problem was compounded by the poor workmanship of Austruc or its sub-contractor, making the building watertight was essentially a question going to the design of the building, in the sense that the building needed to be watertight, but CSA appears to have neither recognised the importance of the topic, nor to have given Austruc any relevant instructions beyond the reference to the handbook. In addition, I accept the submission that if CSA had drawn attention to the error in rendering over the joints, at the time that or soon after the error was made, the problem could have been readily solved. In relation to this topic, considered alone, I consider that as between Austruc and CSA, CSA's responsibility for the damage was 75%, and Austruc's 25%. 87 By its cross-claim, Austruc also asserted that CSA owed Austruc a duty of care. Assuming it did, and deferring consideration of the limitation issue, I consider that CSA breached this duty. Assuming liability of Austruc to the corporation, I again consider that CSA is responsible for 75% of the damage, and Austruc 25%. 19 The Referee dealt with the water penetration through the windows separately and later in his Report (pars 95-111). He reported that during the hearing, attention had been directed to whether the water had entered through the window suites themselves "so as to go to show bad design" or through the window surrounds "so as to go to show bad workmanship" (par 95). CSA designed the Building with "residential grade", rather than "commercial grade", windows. The lack of sub-sills in the residential grade windows allowed water to enter and remain inside the outer surface of the walls, running downwards through the Building and causing damage (par 100). There was also a failure to provide drip grooves on the soffits of the slabs above and immediately outside the windows and a further failure to ensure a 15 degrees slope on the window-sills. The Referee reported as follows: 104. More significantly, the windows were not adequately sealed, as required, and the aluminium window frames were not fitted correctly in position in relation to the Hebel block work, so that there are places where there are gaps between the two substances. I find that this absence of proper sealing and poor installation work, both matters going to the quality of the workmanship and not the design, are the major factors in the windows leaking, after the absence of subsills. 20 The Referee's conclusions in relation to the failure to provide sub-sills was a finding of a fault in the design of the Building, for which CSA, as the architect, was liable (pars 88 & 101). It would appear that the Referee concluded that the failures in relation to the drip grooves and the slope on the window-sills, was bad workmanship. This is apparent from the Referee's apportionment of responsibility for the damage caused by the problems with the windows at 80% to CSA and 20% to Austruc. 21 The Referee concluded that in respect of the contents claim CSA was liable to the Corporation for the cost of remedying the damage to individual lot owners' units caused by the water ingress (par 200-205). 22 The Referee referred to the "work" that CSA agreed to do in acting as EKO's architect including: "Design Development Services", "the administration of the building contract" and "weekly inspection of the works and quality control" (par 280). As this was a claim for pure economic loss the Corporation had to establish that it was vulnerable. The Referee proceeded with his analysis of the Corporation's "vulnerability" on the basis of what was said in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, (2004) 216 CLR 515, in the judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ as follows, at [23] (footnotes omitted): Since Caltex Oil , and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases were a duty of care to avoid economic loss has been held to have been owed. "Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp, the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company. 23 The Referee concluded: 282. It was submitted that the corporation was in a position of vulnerability, as that expression is to be understood having regard to what was said in Woolcock at [23], and I accept this as correct. In contrast to the position described in some earlier cases, the corporation was never in the position of a purchaser, or possible purchaser. It had no opportunity to inspect the building before acquisition, and no opportunity to seek to protect itself by obtaining some form of contractual protection. Instead, once Eko took the steps that led to the registration of the strata plan, the corporation came into existence by force of law, already possessed of a bundle of rights and obligations, and unable to do anything to protect itself concerning those obligations. 24 The Referee referred to CSA's attempt to escape from this conclusion by reference to a number of arguments, based upon the proposition that the lot owners, as a group, had inspected, or at least had the opportunity to inspect the Building before they purchased the various units. There was reliance on clauses 3(a)(i) and 18 of the contracts for purchase of the units containing respectively, a warranty that the Building would be constructed in a proper and workmanlike manner in accordance with approved plans and specifications, and an agreement to construct the Building to the satisfaction and in compliance with the council's requirements prior to settlement. 25 CSA's submission to the Referee that the Corporation was not vulnerable because clauses 3(a)(i) and 18 of the contracts contained sufficient protection for all the lot owners and therefore the Corporation, was rejected. The Referee concluded that those clauses would not have operated to protect the lot owners, nor the Corporation, from the "relevant risk, namely that of a design that was deficient, and did not result in a watertight building" (par 290). CSA had also submitted to the Referee that the Corporation had not proved actual reliance upon CSA. The Referee concluded that this was not necessary particularly where the Corporation did not exist at the time of CSA's relevant conduct (par 293). 26 The Referee referred to the statutory warranties in s 18B of the Home Building Act 1989 (NSW) relevantly: (a) that the work would be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract; and (b) the material supplied would be good and suitable for the purpose for which they were used and unless otherwise specified would be new. The Referee noted that, as the immediate successor of EKO, the Corporation was entitled to the statutory warranties and that it succeeded against Austruc for breach of those statutory warranties and also in negligence (pars 74 and 84). 27 The Referee dealt with CSA's submissions in relation to the statutory warranties in the Home Building Act as follows: 289 CSA contends that these statutory warranties give to the corporation, and to the relevant unit owners, rights at least as extensive as the benefit of any duty of care that CSA owed, but I do not consider that this is correct. The essence of the corporation's claim that CSA was negligent is that the design work of CSA was such that the building is not watertight. It is true that the corporation also says that there was bad workmanship, but the immediate inquiry is whether the statutory warranties provide the corporation or the lot owners with protection against what are said to be CSA's breaches of duty of care, and they do not. The only ones that might possibly have this effect are (e) and (f), but (e) only applies "to the extent of the work conducted", "work" being "work [consisting] of the construction of a dwelling", and (f) would only apply if there had been "express" conduct, making known to Austruc (or Eko) a purpose or result desired, so as to show a reliance on Austruc's (or Eko's) skill and judgment, but this was not done in relation to making the design of the building watertight. 290 CSA submitted that if the purchasers of 29 units could have obtained contracts of purchase containing clauses such as 18 and 3(a)(i), set out above, then so could all the others, and that would have been a sufficient protection for all the lot owners, and therefore the corporation, so that the corporation was not in a position of vulnerability. There seems to be a difficulty at the commencement of this argument, in that Eko apparently retained (and it might be still retains) ownership of one lot, but in any event assuming that all 32 units had been sold by Eko, and all contracts of purchase had contained these clauses, they would not have operated to protect the lot owners, or the corporation, from the relevant risk, namely that of a design that was deficient, and did not result in a watertight building. 28 The Referee concluded that CSA owed the Corporation a duty to take reasonable care to protect the Corporation from the loss in question and that it breached that duty (par 294). 29 The Referee concluded that the Corporation was entitled to damages as against Austruc relevantly in relation to the façade, the structural steel support frame and what was described as the "contents" claim, being the costs of remedying items of damage to the units consequent upon water ingress (the contents claim). The Referee also concluded that the Corporation was entitled to damages as against CSA for the same items. The Referee further concluded that EKO was entitled to judgment against Austruc but that Austruc was entitled to judgment against CSA. The Referee also concluded that Austruc was entitled to judgment against Slater Lomas and Traditional. 30 The Referee dealt finally with CSA's contention that the Corporation's claim against it was statute barred. It was common ground before the Referee that, 8 February 2008 was the date of commencement of the action against CSA, being the date of the order granting leave to the Corporation to join CSA as a defendant. It was also common ground that the question to the Referee was whether the Corporation's cause of action accrued before 8 February 2002 (par 306). The fundamental issue for decision by the referee on this aspect of the matter was the date upon which the latent defect, being the defective design of the Building, became known or manifest (par 308). 31 CSA's submissions before the Referee had referred to a number of physical defects in the Building that had been identified before 8 February 2002. Those submissions included the claim that it was plain that there had been no appreciable difference in the way that the windows in the Building had performed since installation. It was submitted that it therefore followed that any defect must have manifested itself when signs of water first appeared on the sills of the windows. The Referee reported on this submission as follows: 316 In my view this submission (like others that followed) does not state the correct test, and it glosses over the distinction between the visible signs and the cause of those signs, or to put the same thing in other ways, the distinction between the fact that physical defects were known, and the fact that those defects were due to the design of CSA, or between the symptoms of a disease and the diagnosis of the disease. 32 The Referee also dealt with CSA's similar submissions relating to the external protection system and the frame as follows: 328 The position is generally similar in relation to CSA's submissions concerning the exterior protection system, but there is no suggestion of any criticism of the design of this system until well after 8 February 2002. At [124] I found that CSA was not negligent in relation to the ventilation system, and in any event prior to 8 February 2002 CSA was attributing the faults found to Austruc. 329 CSA submitted that the issue concerning the rusting roof top steel can only be related to a breach of the overall duty alleged by the corporation, to provide a waterproof design. I respectfully doubt that this is an apt categorisation, but in any event I find that what was known or manifest before 8 February 2002 was the fact of rusting, and not that the rusting was or might be thought to be related to any decision taken by CSA. 33 The Referee concluded that CSA's limitation defence against the Corporation failed (par 330). 34 The Referee recommended that damages be awarded as follows: $240,263 in respect of the external protection system; $43,447 in respect of the windows; $22,850 in respect of the steel frame; and $237,940 in respect of the contents claim. Adoption Hearing 35 The applications for adoption of the Reports were heard on 16 and 17 February 2009. Mr G Sirtes SC appeared for the Corporation. Mr ID Faulkner SC leading Mr NE Chen, of counsel, appeared for CSA. Mr MJ Slattery QC leading Mr M Galvin, of counsel, appeared for EKO. Mr MG Rudge SC leading Mr MS White, of counsel, appeared for Austruc. Mr IG Roberts, of counsel, appeared for Slater Lomas and Mr RA Cavanagh, of counsel, appeared for Traditional. 36 All parties other than CSA seek orders adopting the Referee's Reports. CSA submitted that an order for adoption should not be made. It challenges a number of aspects to the Report. It claims the Referee committed errors of law in: (a) concluding that CSA owed a duty of care to the Corporation; (b) failing to find that the Corporation's claims against CSA were statute barred; (c) that he denied CSA procedural fairness in relation to the contents claim. Applicable principles 37 The former Part 72 Rule 13 of the Supreme Court Rules 1970 (the former Part) was replaced by Part 20.24 of the UCPR in 2005 which provides as follows: 20.24 Proceedings on the report (1) If a report is made under rule 20.23, the court may on a matter of fact or law, or both, do any of the following: (a) it may adopt, vary or reject the report in whole or in part, (b) it may require an explanation by way of report from the referee, (c) it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report, (d) it may decide any matter on the evidence taken before the referee, with or without additional evidence, and must, in any event, give such judgment or make such order as the court thinks fit. (2) Evidence additional to the evidence taken before the referee may not be adduced before the court except by leave of the court. 38 In Xuereb & Anor v Viola & Ors (1989) 18 NSWLR 453 Cole J (as his Honour then was) dealing with the former Part, held that referees are able to conduct proceedings as they see fit and are not bound by the rules of evidence. His Honour said at 466: The clear purpose of Pt 72 as substituted in 1985, and as amended on 22 September 1989, is to enable the Court to have the facility to obtain a report from a referee, which report may be obtained in the most efficient, expeditious and least expensive method available. This is particularly so where technical or accounting issues are involved and where it may be considered inappropriate or unnecessary for the processes normally adopted in the conduct of a trial to be availed of to obtain a just opinion upon the question referred. 39 In the early 1990s a practice emerged of referring matters under the former Part to "persons who have formerly held high judicial office". This practice was said to be "due to pressures of congested court lists": Beveridge & Anor v Dontan Pty Ltd (1991) 23 NSWLR 13. Since then the reference of matters to former judicial officers for report to the Court under both the former Part and under the UCPR has become far more prevalent. This practice did not become more prevalent because of congested court lists. It developed by the consensual approach of the parties and in the main, has resulted in increased efficiencies and the just, quick and cheap resolution of the real disputes between the parties. 40 It has been suggested, although without any empirical support, that this practice has had the "subtle but significant effect" of preventing what may have previously been the "routine" challenging of referees' report: Ian Freckelton SC and Hugh Selby, Expert Evidence: Law, Practice, Procedure and Advocacy, 4th ed. Thomson Reuters, 2009 p 465. One advantage of this practice is the expertise of the former judicial officer in controlling the efficient hearing of the reference combined with the freedom to conduct it without the constraints that would be imposed on a trial judge, should the matter stay with the Court. 41 The authorities make clear the confines within which the Court considers a referee's report and the matters to which attention should be given in the exercise of the discretion under the relevant Rule; Super Pty Ltd (formerly known as LEDA Constructions Pty Ltd) v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549. The power to reject or vary a referee's report should not be exercised too readily and there must be a proper justification for rejecting or varying a referee's report: Ryde City Council v Tourtouras [2007] NSWCA 218 per Basten JA (with whom Santow and McColl JA agreed)at [22]. 42 In the present application the grounds upon which CSA challenges the adoption of the Report are confined to alleged errors of law. In Super Pty Ltd v SJP Framework (Aust) Pty Ltd (1992) 29 NSWLR 549 Gleeson CJ (with whom Mahoney and Clarke JJA agreed) said at 563: In so far as the subject matter of dissatisfaction with a referee's report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine that matter afresh. 43 In Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605, the Court (Clarke, Meagher and Handley JJA) said at 609: Whatever be the proper approach to a report dealing with issues of fact, there can be no justification for the Court exercising any restraint when dealing with a referee's decision on issues of law. The powers of reference currently conferred by Pt 72 are derived from powers of compulsory reference to an arbitrator or referee previously conferred on the court by s 15, s 16 and s 17 of the Arbitration Act 1902. The nature and extent of the court's jurisdiction to supervise references under these sections was considered in Buckley v Bennell Design and Constructions Pty Ltd (1978) 140 CLR 1. Jacobs J said (at 38): "… In respect of errors of law there can be no implied authority given to an arbitrator under s 16(1) to make errors of law." A referee appointed under Pt 72 can have no wider authority. In our opinion therefore the court in deciding what action to take on a referee's report is both entitled and bound to decide for itself whether the referee has erred in law and to correct any such error. 44 It is therefore clear that where the grounds in support of an application for an order for rejection of a referee's report are alleged errors of law, irrespective of whether the referee is a former judicial officer, the Court must consider and determine the matter afresh and may do so without restraint. Duty of care 45 There are two aspects of the design and construction of the Building relevant to CSA's submissions in respect of the Referee's conclusion that CSA owed a duty of care to the Corporation. The first relates to the water penetration into the Building through the external protection system. The second relates to the water penetration through the windows or their surrounds. 46 CSA submitted that when the Referee's findings of breach of duty of care are analysed, it is plain that there was no finding that CSA had breached any duty based upon negligent design, except in what was said to be "one minor respect", failing to specify sub-sills for the windows. CSA claimed that the Referee's findings effectively "exculpated" it in relation to the faulty design claim except in relation to that "minor" matter. It was submitted that the "sole basis" on which the Referee found CSA liable was its inadequate administration of the contract following faulty building work, being its failure to detect that the builder had rendered across the control joints. 47 This characterisation of the Referee's findings is important to CSA's submission that the Referee fell into error in concluding that the Corporation was vulnerable. If the only finding by the Referee of a breach by CSA was its failure to detect that the builder had rendered across the control joints, CSA submitted that the Corporation was not vulnerable because it was protected by statutory warranties. If the Referee's conclusions are to be characterised as findings of negligent design of the Building, the Referee did not fall into error in imposing a duty of care. 48 In its written submissions in the present application, CSA submitted: 25. The referee found that the owners corporation and each of the first owners of the units in the building (after the developer, Eko Investments) " had available to it and them the benefit of the statutory warranties, as against both Austruc and Eko " (report at [288], page 90) but despite this rejected the submission that " these statutory warranties give to the corporation, and to the relevant unit holders, rights at least as extensive as the benefit of any duty of care that CSA owed . " … 27. The creation and imposition of a duty of care is not undertaken in the abstract; it is imposed by law when the facts so warrant it. It was wrong for the referee to impose a duty, and find vulnerability, inconsistent with and without reference to the findings made on issues of breach. 28. Contrary to what the referee concluded on the vulnerability issue, the statutory warranties did, in fact, provide protection in respect of each of the operative defects upon which CSA's ultimate liability was founded. Indeed, as is apparent, the faulty building work underpinned the basis of CSA's liability (except in relation to the subsills) and was the basis of judgment against CSA. On the referee's findings, the owners corporation was protected by the warranties under the Home Building Act 1989 in respect of the totality of the losses suffered by it. This is a significant matter telling not only against any conclusion as to vulnerability, but against the existence of a duty of care: Zumpano v Montagnese [1997] 2 VR 525. 49 Although paragraph 28 of these submissions refers to the "basis of judgment against CSA", it must be remembered that the Referee did not give "judgment". A referee makes a report to the Court and the conclusions reached or recommendations made in a report do not become a judgment until the Court adopts those conclusions or recommendations. In the present case there was no issue that there was a "sufficiently close relationship" between the Corporation and CSA. The only question was whether the Corporation had established that it was vulnerable in the sense that it was unable to protect itself from the consequences of CSA's want of reasonable care: Woolcock at [23]. The parties have argued this matter on the basis that if the statutory warranties were available to the Corporation in respect of the identified deficiencies, then the Corporation was not "vulnerable" as that concept is understood in Woolcock. If CSA is correct in its characterisation of the Referee's findings, there is no need to decide whether the existence of statutory warranties tells against the imposition of a duty of care. 50 Zumpano v Montagnese [1997] 2 VR 525 referred to in paragraph 28 of CSA's submissions, was a case in which the appellants, professional builders, sold the home that they had built the previous year, having advertised it as a "builder's own home". The plumber employed by the builders had failed to include a boundary trap in the sewerage works and the purchaser sued the builders/vendors in the Magistrates Court for the cost of installation of the trap and associated other costs. The purchasers succeeded and on appeal, Mandie J dismissed the appeal. The builders were successful in the Court of Appeal on the basis that, assuming a duty of care, it was not open to find a breach of duty in the builders' failure to personally inspect the plumbing works. Relevantly to the submissions made by CSA in the present case, Brooking JA, after referring to the statutory warranties in the Domestic Building Contracts and Tribunal Act 1995 (Vic), said at 527: In addition, it may one day be necessary to consider whether it is appropriate, in a case in which work has been carried out under a "domestic building contract" as defined, to impose on the builder the duty of care held to exist in Bryan v Maloney . For it may be suggested that the statutory regime really cannot co-exist with a common law duty of care, or at least that the existence of the statutory regime should as a matter of policy point against the imposition of a duty of care. 51 Brooking JA also referred to the provisions of the House Contracts Guarantee Act 1987 (Vic) pursuant to which a guarantee in relation to domestic building work inures for the benefit of the building owner's successors in title and said at 536: It is arguable … that the regime of the compulsory provision of guarantees established by the House Contracts Guarantee Act 1987 and the legislation formerly in force, if not inconsistent with the duty of care held to exist in Bryan v. Maloney , none the less bears on whether that duty should be imposed in Victoria, the argument being that, so far as policy considerations are concerned, the protection already afforded by the legislation at the expense of builders should tip the balance in deciding whether in all the circumstances a duty of care should in addition be imposed. 52 His Honour also referred to the provisions of Division 1A of the Local Government Act 1958 (Vic) pursuant to which a guarantee was deemed to have been given to the purchaser and the successors in title in relation to the construction of the dwelling and said at 537: … it is in my view arguable that the existence of the regime imposed by Div. 1A has the result, when account is taken of the other relevant considerations, that as a matter of policy the builder of a house in Victoria should not be subjected to the duty of care recognised in Bryan v Maloney. 53 Brooking JA's observations were not expressly endorsed by Tadgell and Phillips JJA, however their Honours said that while they agreed "with much that his Honour has written" they preferred to rest their conclusions on the basis that it was not open to the Magistrate to find any negligence on the part of the appellants (at 544). 54 Austruc referred to Moorabool Shire Council v Taitapanui (2004) VSC 239 in support of its submission that a regime of statutory warranties did not prevent the imposition of a duty of care. In that case the Victorian Court of Appeal dealt with the statutory warranties implied by the Domestic Building Contracts Act 1995 (Vic) in similar terms to those in the Home Building Act. Ormiston and Ashley JJA said: 181. … The relevant provisions of the Domestic Building Contracts Act and the Act imply commonplace warranties into contracts to which a builder is a party. The warranties are such as particularly relate to construction work carried out by a builder. It is true that the particular warranties run in favour of successors in title. But it is another thing altogether to conclude that the Parliament objectively intended to displace the common law as it should otherwise apply in respect of the quite different conduct of a building practitioner of another class. 55 CSA submitted that the Referee's conclusion in relation to the Corporations' vulnerability proceeded erroneously on the basis that there was negligent design by CSA, whereas the Referee's findings did not amount to such a finding but rather a failure to properly administer the contract. It was submitted that the warranties were available to the Corporation for CSA's failure to identify that the builder had rendered over the control joints because this was bad workmanship rather than a design defect. In support of this submission CSA relied upon the Referee's findings that "if CSA had drawn attention to the error in rendering over the joints, at the time that or soon after the error was made, the problem could have been readily solved" (par 86). 56 The Referee rejected the expert opinion of Mr Moisidis, which was supported by another expert, Mr Karsai, that the Building "leaks by design" and that no amount of good workmanship at the construction stage could have prevented "the inevitable failure of the waterproofing of the building" (par 126). The Referee said he found the evidence of the other experts "persuasive" that if the external protection system had been properly applied it would have been "adequate or appropriate" and reported (at 130): It seems that the system is one that is used in the community generally from time to time; and the large majority of the expert witnesses considered its use unremarkable and that it was possible to repair this aspect of the building. 57 The Referee also found that while the system chosen was "an acceptable one" it would require more by way of inspection and maintenance routine than a "system constructed with cavity brick walls, and would have done so even if the original workmanship had been perfect" (par 138). The Referee did not accept that increased maintenance costs could be awarded as damages because they were inevitable, having regard to the use of this system (par 140). The Referee then reported as follows (par 141): As against CSA, the position is not so obvious, but the conclusion is the same. Eko retained CSA to design a building that was to cost less by way of construction, but would be more expensive to maintain. Presumably the reduced cost of construction was reflected in reduced prices for the units in the building, paid by the lot owners who now constitute the Corporation … but in any event the instructions given to Eko are not irrelevant; … and it is not easy to see how the designer of a building can be regarded as being liable in negligence to pay damages assessed by reference to increased maintenance costs, if it was the fulfilment of the instructions to the designer that resulted in the building needing the increased level of maintenance. 58 The Referee did not elaborate on his statement in paragraph 67 of the Report that the rendering across control joints was a matter going to both "the design responsibility and the quality of the work". However that statement was made in the paragraph immediately prior to the finding that "a significant reason" the façade cracked was because the joints had been rendered over (par 68-69). It seems to me that what the Referee intended to convey by the statement in paragraph 67 was that CSA, who had the design responsibility of the Building, had a responsibility to ensure that any drawings or specifications made clear that joints were not to be rendered over; alternatively the person with the design responsibility, CSA, was obliged to ensure that the joints were not rendered over. In this case it is clear, and the Referee so concluded, that the Hebel Handbook and the drawings made clear that the joints were not to be rendered over. Accordingly there could be no criticism of CSA in respect of its "design responsibility" in this regard. What the Referee made quite clear in paragraph 69 of the Report was that it was Austruc through, its sub-contractor, who had caused the problem by not following the instructions in the Handbook. 59 The Referee's rejection of the minority expert opinions that the Building "leaks by design" and his finding that if the external protection system had been properly applied it would have been "adequate or appropriate" suggests to me that there was no problem with the design of the Building, rather it was a failure to follow or implement the design or specification that caused the problem. There seem to have been two major aspects of that failure. The first was identified in paragraph 22 of the Report when the Referee was dealing with the general overview of the matter and referred to the fact that in places the outer parts of the control joints were not placed outside the inner parts, but some little distance to one side of them. This was inconsistent with the specification and the drawings. It was not a design fault but a failure to follow or implement the design as specified. 60 The factual question addressed by the Referee was whether the Corporation was vulnerable. The Referee concluded that the Corporation was unable to protect itself from the consequence of CSA's negligent design because the statutory warranties would not be available in respect of negligent design. However implicit in the Referee's reasoning is the conclusion that if it was poor workmanship, that is a failure by CSA to administer the contract properly in checking on the builder's work to ensure that the building work complied with the design as produced by CSA, the statutory warranties would be available and the Corporation would be able to protect itself against CSA's conduct in that regard. 61 Austruc took issue with the way in which CSA characterised the Referee's findings and submitted that the Referee concluded that CSA had significantly neglected to design a building that was watertight. It submitted that although CSA acknowledged the Referee's conclusion that it had breached its duty to design a Building that was watertight, it sought to play down the significance of the breach. Austruc submitted that the following parts of the Report establish that the Referee concluded that CSA was negligent in failing to design a building that was watertight: 18. … Part of the solution found was to design and later construct the building using non-load-bearing perimeter walls consisting of panels, each panel being made of a single skin of "Hebel" brand autoclaved aerated concrete (AAC) blocks, each panel being bordered on each side by a reinforced concrete column, and at its top by reinforced concrete slab. … 19. This is a system used from time to time, but if the façade of a building so designed is to be watertight, it is critical both that the façade is designed in a way that is adequate overall, and that the construction work is carried out carefully. … … 86. … as between Austruc and CSA, I consider that CSA was more at fault than was Austruc, for although the problem was compounded by the poor workmanship of Austruc or its sub-contractor, making the building watertight was essentially a question going to the design of the building, in the sense that the building needed to be watertight, but CSA appears to have neither recognised the importance of the topic, nor have given Austruc any relevant instructions beyond the reference to the handbook. … … 101. The evidence, particularly of Dr Jacob and Messrs Karsai and Moisidis, shows that a high rise building with a single skin façade, such as the building in question, located where it is, should be designed so that its windows have subsills. Assuming a relevant duty of care on the part of CSA, it was in breach of that duty in respect of the lack of subsills for the windows other than the kitchen windows. 102. … Good design practice requires that drip grooves should have been provided for, on the soffits of the slabs above and immediately outside the windows, so that water did not run along the undersides of the slabs, up against and then down the face of the windows. Mr Smith acknowledged that he did not consider the matter at the design stage. 110. …I assess the responsibility for the damages relating to the windows as between Austruc and CSA at 80% CSA and 20% Austruc even if the windows had been perfectly installed, they would have leaked. 62 Paragraphs 18 records the background to the change in design to accommodate the owner's desire to save costs. Paragraph 19 is a very general statement with which there can be no issue. Paragraph 86 is once again in very general terms with some circularity, in particular the statement that: … making the building watertight was essentially a question going to the design of the building, in the sense that the building needed to be watertight … 63 The latter part of the passage in paragraph 86 is also in very general terms. It records the Referee's conclusion that CSA did not recognize "the importance of the topic", meaning, I infer, that CSA did not recognize the importance of having a watertight building. It is not possible to identify the evidence upon which the Referee based this conclusion. Mr Smith's evidence grounded a criticism of CSA not administering the contract appropriately – in failing to identify that the controls joints had been rendered over but that does not seem to me to support the criticism levelled at CSA that it did not recognize the importance of having a watertight building. That paragraph also records the Referee's conclusion that CSA did not give Austruc any relevant instructions beyond the reference to the Handbook. The sentence immediately after this conclusion, upon which Austruc did not rely is the following: In addition, I accept the submission that if CSA had drawn attention to the error in rendering over the joints, at the time or soon after the error was made, the problem could have been readily solved. 64 Paragraph 86 contains general statements about lack of recognition of the need to make the Building watertight, without any specificity as to what part, if any, of the design of the Building was faulty. The other parts of the Report referring to the rejection of the minority expert opinion that the Building "leaked by design" supports the conclusion that it was not the design, but rather the failure to follow the design that caused the breach of the watertight barrier. This conclusion excludes the problems with the lack of sub-sills in the windows, which was a design fault, which CSA has accepted in this application. That is the matter that is referred to in paragraphs 101, 102 and 110. 65 The Referee expressed himself in general terms of CSA's failure to design a waterproof building. However on analysis of his reasoning, I am satisfied that his conclusion was that the design was appropriate and was able to be waterproofed. The problem was the failure to follow the design and specification both in respect of the positioning of some of the control joints and in respect of the rendering over the control joints. The Corporation was therefore protected by the statutory warranties in respect of the façade, however this protection was not available to the Corporation in respect of the negligent design and specification for the windows. 66 In those circumstances the Report of the Referee in relation to the findings that the Corporation was "vulnerable" in respect of the façade (excluding the lack of sub-sills in the windows) will not be adopted. So far as the Report relates to the negligent design of the windows an order may be made that the findings of the Referee will be adopted. The Limitation Point 67 The limitation point relates to the latent defect, which the Referee identified as faulty design. As I have found above that the real cause of the water ingress was a failure to follow the design, that is poor workmanship in not following the design, and failure to supervise the work, the relevant defect was the improper positioning of some of the joints, inconsistently with the drawings and the rendering over the control joints, inconsistently with the Handbook. In those circumstances, it is only necessary to deal with the limitation point in respect of the faulty design of the windows, however I will also refer to the "defect" of failing to construct the Building consistently with the Handbook, the specifications and the drawings. 68 CSA submitted that the Referee misstated the test for determining when loss accrues in cases involving latent defects in buildings and that he failed to apply the correct legal test. It was submitted that had he applied the appropriate test CSA's limitation defence would have been upheld. CSA also submitted that the Referee misstated, and thus misunderstood, what the Full Court decided in Pullen v Gutteridge, Haskins & Davey Pty Limited [1993] 1 VR 27, which lead to the Referee misstating the applicable test in paragraph [316] of the Report. 69 The Referee conducted a detailed review of the relevant authorities in relation to when time runs in respect of a cause of action in respect of "latent defects in a building". He commenced that analysis by reference to the judgment of Handley JA (with whom Powell and Giles JJA agreed) in Scarcella v Lettice (2000) 51 NSWLR 302 at 306-308, pars [13-24] in which his Honour said relevantly that the "loss accrues when the defects become manifest or are otherwise discovered, and not before": par [16]. The Referee then referred to Pullen and said: 308. … Pullen v Gutteridge Haskins & Davey Pty Limited [1993] 1 VR 27 (sic) was a case brought against an engineer who had designed a swimming centre. As designed and constructed, the footings were inadequate and unsuitable, in that they did not make proper allowance for the differential settlement that occurred. Before the relevant date, various items of "real and substantial" physical damage became known to the appellants/proprietors, and were the subject of complaints, but the cause of this damage was neither known nor manifest then. 309. At 77-79, Brooking, Tadgell and Hayne JJ distinguished between the awareness of the appellants of the fact that settlements had occurred before the relevant date, and the fact that those settlements were due to the inadequacy of the footings, saying that in this context what had been proved was knowledge of "defects", meaning in this context: "… not some physical damage to the structure occasioned by the inadequacy of the footings, but that inadequacy itself. Moreover, in considering what was actually known, regard must be had to the conduct of the respondent. It was the expert and its conduct as regards the appellant as soon as problems emerged with the centre tended to suggest to the appellant that the problems being experienced were not the result of inadequate footings. Another important matter to be borne in mind, whether one is considering knowledge or manifestation, is that what must be known or made manifest is the inadequacy of the footings, and that on the facts of this case settlement in general and differential settlement in particular does not necessarily bespeak inadequacy of the footings". 70 The Referee then analysed other relevant authorities including setting out in detail, extracts from White J's judgment in Owners of Strata Plan 50946 v Multiplex Constructions (NSW) Pty Ltd [2006] NSWSC 377: par [312]. That extract included the following: 20. … The concept of a latent defect in a building is used in the authorities in this area in the sense of something which is not known or manifest. They are two sides of the one coin. In this area, the concept of what is manifest extends to what is not known but would be discovered through the exercise of reasonable diligence. … In my view, there is no additional requirement that in order for a defect to be latent it must not be visible, or must be concealed or hidden, although, of course a defect which is visible and not hidden may be manifest in the sense of being discoverable with reasonable diligence. Moreover, a defect may be, and often will be, different from the physical thing which may be observed. For example, there may be a latent defect in the design of a building where a temporary external wall is too thin to carry a load, even though the thickness of the wall and the size of the roof it carries is plainly the visible. 71 It was after the analysis of these authorities that the Referee said the following: 313. The corporation's case, supported by Austruc, was that all that (sic) the defects listed by CSA, whether considered individually or collectively, showed that there were known physical defects in the building, but the defective design of the building was not known or manifest. Austruc described the distinction as akin to that between the symptoms of the disease, and the diagnosis of the disease; and it is submitted that the evidence showed that Austruc, as the expert, had been called in to address the symptoms as far as concerned it, and to prescribe a cure. 314. The submissions of CSA refer in copious detail to many complaints, but I consider that I should put some of them out of mind, when considering the limitation issue, because they relate to matters where CSA has not been shown to have been negligent: … (In addition there were many other complaints, never suggested to be other than complaints about the workmanship.) Assuming all these defects were known or manifest before 8 February 2002, but are not the result of negligence by CSA, and they do not bear on the issue of when the corporation's cause of action against CSA in negligence accrued. 315. These topics aside, CSA's submissions first addressed the question of the windows, as a cause of the water ingress, this way: "89 To the extent that the [Corporation] has demonstrate problems with the window units themselves (as opposed to their surrounds), it is plain that there has been no appreciable difference in the way that the windows have performed since installation. That is, the evidence does not permit a finding that the current performance (or non-performance, as the case may be) of the windows differs today from when first installed. It follows, therefore, that any defect with the specification must have manifested itself when signs of water first appeared on the sills of the windows - this being the only evidence directed to the windows by reason of their under specification …". 316 In my view this submission (like others that followed) does not state the correct test, and it glosses over the distinction between the visible signs and the cause of those signs, or to put the same thing in other ways, the distinction between the fact that physical defects were known, and the fact that those defects were due to the design of CSA, or between the symptoms of a disease and the diagnosis of the disease 72 CSA made the following written submission in respect of the Referee's rejection of its limitation defence: 41. In both actual and practical terms, what the referee concluded when disposing of CSA's limitation defence, was that for damage to be known or manifest, two matters had to be proven: first, that there were signs of the defect and, secondly, that those defects were due to the act or omission of the alleged tortfeasor. Whilst CSA had proven the first element of the referee's test, it failed on the second. 42. It is submitted that the test expressed by the referee is erroneous. Neither element correctly identifies what is required to be demonstrated for damage to be known or manifest, and hence for a cause of action to accrue. The second aspect, essentially a requirement that it be shown that there is a connection between the 'signs and symptoms' and the alleged acts and omissions of the alleged tortfeasor, invokes notions which enable a party to secure an order extending the limitation period: see Kinzett v McCourt (1999) 46 NSWLR 32. They are irrelevant in the context of whether damage has accrued. 73 I am not persuaded that the Referee applied an incorrect test. It seems to me that CSA has misunderstood the test that the referee expounded in paragraph [316] of the Report. I do not agree with CSA's submissions that the Referee has stated a test in which it must be demonstrated that any defects identified were due to the act or omission of the alleged tortfeasor. The Referee was doing no more than applying what had been said in the line of authority to which he referred. The present case is not dissimilar to the facts in Pullen. In Pullen there were observable physical symptoms or defects such as a large horizontal gap, which had opened up in the north wall about one metre above the ground. However the latent defect was the inadequacy or unsuitability of the footings. Although the physical defect was observable, the latent defect of inadequacy of the footings was not discovered until a later time. In this case the physical defect, the cracking in the walls and ingress of water was observable, but the latent defects, the faulty design of the windows and the inappropriate rendering over the control joints inconsistently with the design as specified in the Handbook, the specifications and the drawings were not identified until after 8 February 2002. 74 Although paragraph [316] referred to "the design of CSA", the Referee was not posing a test that required the identification of the tortfeasor. The test identified by the Referee was that the defect, not merely the presence of physical damage, had to be known or manifest. It was the defects identified above, as opposed to the physical damage, the cracking of the walls and the ingress of water that were the latent defects. I am not satisfied that the Referee fell into error in rejecting the claim made by CSA. This aspect of CSA's attack on the Referee's report fails. Contents Claim 75 The Corporation pleaded the contents claims as follows: 23. The Plaintiff owes statutory duties to the owners of lots in Strata Plan No. 64970. Particulars The plaintiff relied (sic) upon the provisions of section 62 of the Strata Schemes Management Act 1996 (NSW) "the Act". 24. The owners of lots in Strata Plan No. 64970 have served upon the Plaintiff claims for loss and damage suffered to their property arising from the Plaintiff's inability to properly maintain and keep in a state of good and serviceable repair the common property pursuant to section 62 of the Act. Particulars Letters of demand dated 16 November 2007 served upon the Plaintiff by the owners of Lots 1, 2, 3, 4, 8, 9, 10, 11, 13, 15, 17, 18, 19, 21, 22, 23, 25, 26, 27, 29, 30 and 31 in Strata Plan No; 64970 ('the lot owners"). 25. The Plaintiff is liable to the lot owners for loss and damage suffered by them as a consequence of its inability to fulfil its obligations under s.62(1) of the Act. 26. The loss and damage for which the Plaintiff is liable to the lot owners is a consequence of the breaches of duty by the First Defendant and the Second Defendant as pleaded in paragraphs 7, 11, 18 and 21 above. 27. By reason of the First and Second Defendant's breaches of duty, the Plaintiff has incurred a liability to the lot owners who have suffered loss and damage, as a consequence of its failure to repair and maintain common property. Particulars The Plaintiff relies on the expert report by Norman Fisher dated 24 March 2006. 76 It is common ground that during the course of the hearing before the Referee the Corporation sought to tender the various letters referred to in the particulars to paragraph 24 of the Amended Summons to establish "the exposure of the owners corporation to potential claims by the lot owners" (tr 28 April 2008, p 919.41). CSA objected to those letters and on 29 April 2008 the Referee rejected them. 77 Quantification was not in issue and the parties addressed on liability. The relevant written submissions of the Corporation before the Referee on this aspect of the matter were as follows: 49. The Owners Corporation is exposed to the cost of not merely rectifying the defects to the common property but, also, to the consequential costs of rectifying the damage caused by the defective common property to the individual lot owners' property. 50. Brereton J. in Seiwa Australia Pty Ltd v. Owners Strata Plan 35042 [2006] NSWSC 1157 (6 November 2006), upheld on appeal Owners Strata Plan 35402 v. Siewa Australia Pty Ltd [2007] NSWCA 272 held, inter alia, the following: · S. 62(1) of the Strata Schemes Management Act imposes on an owners Corporation a duty to maintain, and keep in a state of good and serviceable repair, the common property. The duty is not one to use reasonable care, nor best endeavours, but a strict duty to maintain and keep in repair; · the duty of an Owners Corporation under s. 62 is owed to each lot owner and its breach gives rise to a private cause of action under which damages may be awarded to a lot owner for breach of statutory duty. 51. In the Seiwa proceedings, the Owners Corporation was required to pay damages to the lot owner for losses suffered in consequence of damages (sic) to the lot owner's property (primarily, the living-room carpet). 52. The plain and un-arguable exposure of the Owners Corporation to the substantial and obvious damage suffered by many lot owners exists absent the institution of any proceedings in the Consumer, Trader & Tenancy Tribunal (which has concurrent jurisdiction with Courts in NSW). 78 CSA's relevant written submissions before the Referee were as follows: THE INDIVIDUAL LOT OWNERS' CLAIM 129. The amended summons, filed by the plaintiff, seeks damages from the defendants based upon (to express the matter broadly) the plaintiff's asserted liability to the individual holders occasioned by the plaintiff's "inability to properly maintain and keep in good state (sic) of good and serviceable repair the common property pursuant to section 62 [of the Strata Schemes Management Act 1996]" (see paragraphs [23] and [24]). 130. More specifically, the plaintiff alleged, in paragraph [24] of the amended summons, that claims had been served by on the "owners of lots in Strata Plan 64970" . There is simply no evidence of this asserted fact. 131 This part of the claim, which encompasses the claims for damage allegedly occasioned to the inside of particular lots, should be dismissed. 79 Neither the Corporation nor CSA pointed to any oral submissions before the Referee on this topic. Paragraph 52 of the Corporation's submissions does not address the point that it was necessary for the Corporation to prove its case, as pleaded. It was not submitted by the Corporation that it did not matter that the individual lot owners had not made claims on the Corporation at any particular time or at all. 80 Section 62 of the Management Act provides: 62 What are the duties of an owners corporation to maintain and repair property? (1) An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation. (2) An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation. (3) This clause does not apply to a particular item of property if the owners corporation determines by special resolution that: (a) it is inappropriate to maintain, renew, replace or repair the property, and (b) its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme. 81 The Referee dealt with the contents claim as follows: 200 The corporation made a claim for the cost of remedying items of damage sustained, not to the common property, but within the units of various individual lot owners, consequent upon water ingress into those units. It claimed to be entitled to be indemnified against its liability to the lot owners. This liability is said to have arisen under section 62(1) of the Strata Schemes Management Act 1996, which provides: "An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation." 201 CSA submitted that this provision created no right to damages, citing Ridis v Proprietors of Strata Plan 10308 [2005] NSWCA 146 at [115]. In Eady v The Owners-Strata Plan No 20530 , Supreme Court no 4499/2005, I acted as referee. In my report I refer to the statute, and said: "9 The plaintiff submitted that the following propositions can be distilled from the judgment in Seiwa Pty Limited v Owners Corporation – Strata Plan 35042 [2006] NSWSC 1157: 1. the duty owed by the owners corporation is a strict duty, and not one to use reasonable care to maintain and repair. 2. the duty involves an obligation to keep common property in proper order by acts of repair and maintenance before it falls out of proper condition. 3. the duty extends to remedying defects in the original construction of the common property. … 6. the duty is owed to each lot owner, and a breach gives rise to a private cause of action in damages… … 11. the defendant did not during the hearing challenge the sixth proposition. After the hearing, the parties made written submissions, and both parties referred to the decision of the Court of Appeal in Ridis v Proprietors of Strata Plan 10308 [2005] NSWCA 146. In that case McColl JA expressed a view, at [115], that is contrary to the sixth proposition. This appears to be obiter : see [87], and inconsistent with the view taken by Brereton J in Seiwa at [6] - [7]. I take it that the decision that I am to follow is that in Seiwa ." 202 I understand that this report was adopted by the Court, although without opposition; and I adhere to the view I expressed in Eady . 203 Assuming a breach by Austruc of one or more of the statutory warranties, and/or a breach of duty of care owed by Austruc or CSA towards the corporation, I conclude that the corporation is entitled to recover damages measured by the extent of its liability to the lot owners, and I do not consider that it matters one way or another whether they have formally given notice to the corporation that they intend to rely upon their rights under section 62. 204 The various units sustained damage to carpets, skirting boards, wall linings, granite kitchen benchtops, and kitchen cupboards… 205 I consider that the corporation has established an entitlement to damages in respect of the consequences of water ingress into the units. 82 The Referee was cognisant of the fact that McColl JA had expressed the following view in Ridis v Proprietors of Strata Plan 10308 [2005] NSWCA 246 at 115: 115 This review of the scheme of the Management Act indicates that, as its name indicates, the Act is concerned to allocate responsibilities for the strata scheme between the owners corporation and lot proprietors, to set out the functions of the owners corporation and to establish a regime to enable the enforcement, without recourse to courts, of a function conferred or imposed by or under the Management Act in relation to a strata scheme. Significantly, too, there are some matters the legislature considered so significant as to create a liability in damages for exercise of the function (s 65) or to create an offence by the owners corporation for their breach (ss 65C 83, 84 and 87). A "breach" of s 62 does not sound in damages nor constitute an offence under the Management Act . Rather, it is apparent, in my view, that the legislature intended the system of adjudication established under Chapter 5 to be the vehicle through which the owners corporation's discharge of its s 62 functions could be regulated. 83 In Seiwa Pty Limited v Owners – Strata Plan 35042 [2006] NSWSC 1157, Brereton J said: 6 That the duty of an owners corporation under s 62 is owed to each lot owner, and its breach gives rise to a private cause of action under which damages may be awarded to a lot owner for breach of statutory duty. This conclusion was reached by Young J, as his Honour the Chief Judge then was, in respect of the predecessor of s 62, namely Strata Titles Act 1973, s 68, in Lubrano v Proprietors Strata Plan No 4038 (1993) 6 BPR 97, 457, at 13,310 – 13,311, upon a thorough consideration of earlier authorities to like effect [ Jaklyn v Proprietors Strata Plan No 2795 [1975] 1 NSWLR 15, 24 (Holland J); Proprietors Strata 464 v Oborn (1975) 1 BPR 9623, 9624 (Holland J); Proprietors Strata Plan 159 v Blake, 50,654 (Yeldham J); Proprietors Strata Plan 30234 v Margiz Pty Ltd (NSWSC, Brownie J, 30 June 1993). Gzell J has since followed it in the context of a 1996 Act [ Lyn v Owners Strata Plan No 50276 [2004] NSWSC 88, [90]]. 7 Mr Sirtes, for the owners corporation, argued that this was no longer the case under the 1996 Act. He submitted that the point had not been argued before Gzell J in Lyn , and that the extensive scheme provided by the Act for alternative dispute resolution through an adjudicator and the CTTT evinced an intention that there be no private cause of action. However, the 1973 Act also contained alternative dispute resolution mechanisms (involving a Strata Titles Commissioner and Strata Titles Board). Nothing in the 1996 Act affects the reasoning by which the cases culminating in Lubrano held that there was a private right of action under the 1973 Act. Moreover, given that it was well established by authority that there was such a cause of action under the 1973 Act, Parliament should be taken to have intended, when enacting corresponding sections in the 1996 Act, to have intended them to have the effect which the authorities had given to their predecessors [ Re Alcan Australia Ltd; ex parte Federation of Industrial Manufacturing and Engineering Employees [1994] HCA 34; (1994) 181 CLR 96, 106] and thus to have intended to preserve the private cause of action. In my opinion, therefore, a breach of s 62(1) gives rise to a private cause of action by a lot owner who suffers damage against the owners corporation. 84 The appeal from Brereton J's judgment originally included a claim that his Honour had erred in holding that s 62(1) imposed a statutory duty which gave rise to a private cause of action sounding in damages. That claim was abandoned two days before the hearing of the appeal and the Court of Appeal did not deal with that aspect of the matter: Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272. 85 The Referee observed that McColl JA's view was obiter by reason of the fact that that the appellant in that case had not asserted that s 62 gave rise to a statutory cause of action but that a breach of the duty imposed under s 62 amounted to evidence of negligence: at [87]. The Referee found that the Corporation was entitled to damages against CSA for breach of duty of care owed to the Corporation irrespective of whether the individual lot owners had given notice to the Corporation that they intended to rely upon "their rights" under section 62 of the Management Act. 86 CSA submitted that the finding made by the Referee that CSA (and Austruc) were liable for the contents claim occurred as a consequence of a "prejudicial breach of the rules of natural justice". In reality CSA claimed that the Referee had denied it procedural fairness. There was no issue that parties appearing in cases before referees are entitled to procedural fairness. It was submitted that the Referee determined this aspect of the claim outside the pleaded claim, and in the absence of notice of the Referee's intention to do so. CSA emphasised paragraph 24 of the Amended Summons extracted above in which the Corporation pleaded that it incurred a liability to the individual lot owners who had "suffered" loss and damage as a consequence of its failure to repair and maintain common property, the particulars of which claim were the letters of demand. 87 CSA submitted that the Corporation pleaded its case on the basis that it was entitled to damages because the individual lot owners had made claims against it. CSA submitted that it was entitled to (and did) approach the matter in accordance with the express position stated by the Corporation in its pleading. CSA accepted that the Referee was entitled to take the view that the way the parties conducted the litigation did not bind them, however it submitted that if the Referee contemplated determining the case on a different basis to the way the case had been pleaded and conducted, he was required to inform the parties of this prospect so that they had the opportunity to address any new or changed issue. In this regard reliance was placed on the following passage of the judgment of Mason CJ and Brennan J in Pantorno v R (1989) 166 CLR 466 at 473: When the parties to an adversarial proceeding agree on a proposition of law and conduct their cases on that basis, their agreement does not bind the trial judge. If the judge determines the law to be different, he may apply the law as he determines it to be, but he must inform the parties of the view he has formed when that is necessary to give them an opportunity to address new issues arising from the judge's departure from the proposition of law on which the case was conducted. 88 Parker v Comptroller-General of Customs [2009] HCA 7 (12 February 2009) was a case in which the appellant had been convicted of various offences under the Customs Act 1901 (Cth) in relation to the unauthorised movement of goods, imported Scotch whisky, and the evasion of duty on those goods. The charges arose out of an enquiry sparked by concern that some importers had been mixing imported brandy with a grain-based alcohol produced in Australia on which duty had not been paid. Customs officers searched a number of premises including those controlled by the appellant and/or his company in reliance on notices and warrants issued under s 214 of the Customs Act. The documents and records that were seized were tendered against the appellant at trial. 89 At the trial, the Comptroller-General conceded invalidity of the notices. In addition the trial judge found that the range of documents seized went well beyond what would have been authorised by s 214, even if the notice had been valid. In this regard the trial judge based her decision on In the matter of Lawrence Charles O'Neill, unreported, District Court of New South Wales, 18 August 1988, Dunford DCJ, (as his Honour then was). Although the documents were obtained "illegally", the trial judge admitted the evidence pursuant to s 138 of the Evidence Act 1995 (NSW) and the appellant was convicted. The appeal to the New South Wales Court of Appeal (Basten JA, with whom Mason P and Tobias JA agreed) was dismissed. 90 The limited basis on which special leave was granted to appeal to the High Court was that the Court of Appeal had denied the appellant procedural fairness in deciding that O'Neill had been wrongly decided, when the correctness of that judgment was not in issue in the appeal and no notice had been given to the appellant that the Court of Appeal intended to review the correctness of O'Neill and no opportunity had been given to the appellant to make submissions in respect of that matter. The High Court (French CJ; Gummow, Hayne and Kiefel JJ; Heydon J dissenting) dismissed the appeal. French CJ said at [85]: A court is not necessarily obliged to identify to the parties or their legal representatives, from among prior non-authoritative decisions, those which it may decide not to follow. What is essential is that the parties to proceedings be given an opportunity to be heard on all the issues in the case. Where a proposition of law is not in contest, the court should not decide the case on the basis of a departure from that proposition without notice to the parties. In this case, the Court of Appeal should have given the parties notice of its intention to consider O'Neill and an opportunity to make submissions about it. 91 The Chief Justice posed the questions: whether the appellant had been "lulled into a false sense of security" because there had been no challenge to the correctness of O'Neill; and whether the appellant could have approached the case any differently if he had been put on notice of such a challenge (par [90]). The Chief Justice concluded that, even if put on notice, there were no arguments upon which the appellant could have succeeded and in those circumstances there was "no relevant unfairness" (at [91]). 92 Gummow, Hayne and Kiefel JJ approached the appeal on the footing, favourable to the appellant, that the Court of Appeal should not have cast any doubt upon O'Neill: par [126]. Notwithstanding the fact that the Court of Appeal concluded that O'Neill had been wrongly decided, their Honours analysed Basten JA's reasons and were satisfied that the Court of Appeal "decided the appeal before it on the footing, accepted by the respondent, that O'Neill was correct": at [134]. Their Honours then said at [137]: The second matter concerns the scope of the principles respecting procedural fairness in curial proceedings. The content of the requirement of procedural fairness at appellate level, as elsewhere, cannot be surveyed in metes and bounds. But this litigation illustrates a point of general importance, habitually assumed without elaboration. It is that consideration by a court of the weight to be given to decisions that are not authoritative (because made by courts lower in the hierarchy) does not necessarily attract an obligation to invite submissions by the legal representatives of the parties directed specifically to those decisions. To extend that invitation on occasion may be prudent, but it is not always mandated by the requirements of procedural fairness and, as the decision of this Court in Australian Securities Commission v Marlborough Gold Mines Ltd [(1993) 177 CLR 485; [1993] HCA 15] illustrates, it may be necessary to consider more than the dictates of procedural fairness. But what is required is that the parties are given a sufficient opportunity to be heard on the issues in the case and those issues will not often be defined in a way that requires specific identification of particular, but non-binding, previous decisions. 93 Their Honours concluded that "the decision by the Court of Appeal to examine the correctness of O'Neill without inviting the parties to make submissions about the point was not a denial of procedural fairness": par [138]. 94 CSA submitted that there were a number of matters to which evidence and submissions would have been directed had it been given an opportunity to address the Referee if it had known he intended to proceed in the way that he did in the absence of the letters of demand. The first matter upon which CSA submitted it would have addressed the Referee was that some or all of the underlying claims of the individual lot owners against the Corporation were barred by operation of s 14(1) of the Limitation Act 1969. It was submitted that damage had been occasioned in many instances in 2001 and it would have been incumbent upon those lot owners to have commenced proceedings within six years from that time for the Corporation to have any liability. CSA further submitted that there would have been a live issue concerning the operation of s 62(3) of the Management Act, whether the Corporation had by special resolution determined not to undertake any works contemplated by s 62(1). It was submitted that in such circumstances there would be no entitlement in an individual lot owner to maintain an action against the Corporation. 95 It was also submitted that there would have been cross-examination of the witnesses called by the Corporation in respect of the alleged damage to the units. Mr Faulkner advised that a forensic decision was made not to cross-examine those witnesses on the basis of the pleaded claim and by reason of the fact that no attempt had been made by the Corporation to prove the letters of demand on the Corporation that each had apparently sent on 16 November 2007. 96 As I understand Mr Faulkner's submissions the "new issue" as that expression was used in Pantorno, was that the Corporation did not have to prove that it received a demand or claim from the lot owners, nor did it have to prove that that it had a particular liability to the lot owners, for it to succeed in a claim for damages against CSA for the damages to which the lot owners may be entitled. It was submitted that in the light of (a) the way this aspect of the matter was pleaded, and (b) the manner in which this aspect of the matter was litigated before the Referee, the Referee should have informed the parties of this new issue and given them an opportunity to address him on it and, perhaps, seek leave to call some evidence in relation to it. CSA submitted that the failure by the Referee to afford that opportunity to CSA was a denial of procedural fairness and amounted to a legal error vitiating this aspect of the Referee's decision. 97 Mr Sirtes SC submitted on behalf of the Corporation that CSA had not advanced any principle of law that it was necessary for the individual lot owners to notify a claim before the Corporation was entitled to succeed in the damages claim against CSA for the cost of repair to the individual units. He submitted that the claim by CSA that there had been a denial of procedural fairness came down to "nothing more than a pleading point". He made the following submission in this application (tr 71): If your Honour is, nevertheless, satisfied that the way it was argued before the referee and, indeed, as a matter of law the proposition is not incorrect, that is, that no notification was needed because the lot owners who were affected had rights, had private rights to pursue the owners corporation and the owners corporation was exposed to those rights, then the point falls away as being merely a pleading point in circumstances where it wasn't an elemental part of the cause of action for the tortious claim that such notification had to be given. 98 I am not satisfied that this is a mere pleading point, however, the way in which the Corporation pleaded its case is certainly significant. CSA went to the hearing to meet a case that it was liable to the Corporation for the Corporation's liability to the individual lot owner's for the loss and damage to their units. If those lot owners claims were statute barred as against the Corporation, then CSA was entitled to argue that it was not liable to the Corporation for those individual claims. Put more aptly to the submission made by CSA in this application, there was an argument that could have been put to the Referee that it was necessary to establish, as the Corporation had implicitly recognised in its pleading, the reality of the liability to each of the unit owners. There was available to CSA the argument, a reasonable argument in my view, that in the absence of evidence in relation to the dates upon which the individual lot owners made their claims it was not possible to determine the reality of the Corporation's liability. 99 The case put forward by the Corporation before the Referee was that an event had occurred, that is, that the lot owners had served claims for loss and damage. Paragraph 203 of the Report records the Referee's conclusion that the Corporation was entitled to recover damages "measured by the extent of its liability to the lot owners". To measure the liability of the Corporation to the lot owners an assessment had to be made as to whether the Corporation was liable to those lot owners. The Referee did not make that analysis. 100 The Referee's finding that it did not matter whether the lot owners had "formally given notice" to the Corporation that they intended to rely upon their rights under s 62 of the Management Act suggests that the Referee formed the view that the lot owners were entitled to recover the loss or damage from the Corporation for the damage to their units by reason of the water ingress, even though they had not taken the "formal" step of notifying the Corporation of their claim. No party on this application sought to suggest that as a matter of statutory interpretation of the Management Act, the individual lot owners did not have an entitlement to sue the Corporation for a breach of s 62(1) of that Act. It is clear that the Referee was of the view that such a right exists. The point made by CSA is that it is not appropriate to impose liability on it for those individual lot owners damage and losses unless an enquiry is made in respect of each of those lot owners entitlements to bring such an action, for instance, to be satisfied that such claims are not statute barred. 101 It was reasonable for CSA to be "lulled into the false sense of security" that, once the letters in support of the Corporation's claim in paragraph 24 of its Amended Summons were excluded from evidence, it did not have to cross-examine the Corporation's witnesses about the detail of the individual lot owners claims, including the dates of the identification of the loss or damage and the dates upon which the claims were made. It was also reasonable for CSA to be "lulled into the false sense of security" that once the letters were excluded, it did not have to address the Referee on the proposition that it was liable to the Corporation irrespective of whether the individual lot owners had "formally given notice" to the Corporation of such a claim. 102 I am satisfied that the Referee should have given notice to CSA that he was considering making a finding on the basis outside the pleaded case – that is – that it was not necessary for the Corporation to prove that the individual lot owners had made claims on it before CSA was liable to the Corporation. That failure in my view amounted to a denial of procedural fairness. Accordingly this aspect of the Referee's Report will not be adopted and I will hear argument from the parties on the specific orders sought in respect of the future of this claim. Conclusion 103 Those parts of the Report in which the Referee concludes that the Corporation was not vulnerable in respect of the façade will not be adopted. Those parts of the Referees Report in relation to CSA's failure to design the windows with sub-sills may be adopted. CSA has succeeded in its challenge to the Referees Report in relation to the contents claim and I will hear the parties on what further direction should be given in respect of that aspect of the matter. The matter is listed for directions at 9.30 am on 9 April 2009 for that purpose. 104 There were a number of costs applications made during the adoption hearing. Having regard to these findings I will hear from the parties as to whether they wish to adjust the submissions they have made. Each of the parties is to provide a Short Minute of Order of the costs they now seek in respect of both the reference and the adoption hearing. I will also hear from the parties in respect to this aspect of the matter at 9.30 on 9 April 2009. **************************** 01/04/2009 - Incorrect quotation - Paragraph(s) 77 01/04/2009 - Incorrect quotation - Paragraph(s) 77 02/04/2009 - Typographical error - Paragraph(s) 58 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.