The Owners - Strata Plan No 68372 v Allianz Australia Insurance Limited [2013] NSWSC 2009

Supreme Court New South Wales

Medium Neutral Citation: The Owners - Strata Plan No 68372 v Allianz Australia Insurance Limited [2013] NSWSC 2009 Hearing dates: 19/12/2013 Decision date: 19 December 2013 Jurisdiction: Equity Division - Technology and Construction List Before: McDougall J Decision: Proposed amendments not time - barred. Refer to the referee the question whether it is appropriate to grant leave to amend. Catchwords: PRACTICE & PROCEDURE - application to amend Scott Schedule - whether statute barred Legislation Cited: Home Building Act 1989 (NSW) Cases Cited: Owners - Strata Plan No 64757 v MJA Group Pty Limited (2011) 81 NSWLR 426 Vero Insurance Pty Limited v Kassem (2011) 86 ACSR 607 Category: Procedural and other rulings Parties: The Owners of Strata Plan 68372 (Plaintiff) Allianz Australia Insurance Limited (First Defendant) Vero Insurance Limited (Second Defendant) GEO Developments Pty Ltd (Third Defendant) Representation: Counsel: MR Gracie (Plaintiff) MS Henry SC / DA Hughes (Third Defendant) Solicitors: Crisp Legal (Plaintiff) Arnold Bloch Leibler (Third Defendant) File Number(s): 2007/266664

Judgment (ex tempore - revised 19 December 2013) 1HIS HONOUR: The plaintiff is the Owners Corporation of a strata title townhouse development at Thornleigh in the State of New South Wales. It claims that in many respects the building works that led to the creation of the townhouses were carried out defectively, and that in many respects those works resulted in the construction of dwellings that were not fit for occupation as dwellings. It sues the first and second defendants as (successively) insurers of the builder (the builder being in liquidation). 2The plaintiff asserts that the third defendant was a "developer" for the purposes of the Home Building Act 1989 (NSW). Thus, the plaintiff says, it, being the successor in title to the developer, is entitled to hold the developer to the statutory warranties that were given by the builder. 3The various questions in dispute have been referred to a referee, Ms Janet Grey. The reference has commenced and is part-heard. It is due to recommence at some time in 2014. 4The matter comes back before me on the plaintiff's application for leave to amend its Scott Schedule. What the plaintiff wishes to do is to include, in respect of two townhouses (or lots), allegations of cracking and movement in the various structures that constitute them. It is important, although not dispositive, that each of those lots is part of a "block" and that, in each case, there are other lots in the block that are already the subject of complaint. 5Those other lots have already been the subject of expert investigation. 6In the ordinary way, I would be inclined to refer back to Ms Grey the question of whether leave to amend should be granted. I would do that because I take the view that she, as referee, is far better placed than the Court is to assess whether granting the leave sought would impede in any significant way the further conduct of the reference; whether it would lead to excessive waste or duplication of costs; or whether there is any other, what I might call practical, reason why leave to amend should be refused. 7However, Mr Henry of Senior Counsel, who appeared with Mr Hughes of counsel for the third defendant, submitted that I should not take that course. That was so, he submitted, because the amendments sought to introduce a cause of action that was plainly statute-barred. 8The question of limitation arises because of the confusing and, in my view, inadequate way that the plaintiff particularised the further breaches. What it seeks to do is amend its Scott Schedule by means of a "supplementary Scott Schedule". That document identifies the two lots in question. In each case, it says, the nature of the defect is "building movement and cracking" and the cause of the damage is "differential movement". The method of rectification is said in each case to be underpinning as recommended by the geotechnical experts, with the costs to be determined by them. 9The third defendant asked the plaintiff to explain the allegations. It sought particulars which inquired, for each of the proposed amendments, whose acts or omissions were relied upon, what those acts or omissions were, when they occurred, and what was the damage claimed for each. 10The reply asserted, in relation to whose acts or omissions were relied upon, that the plaintiff's cause of action was for breach of the implied statutory warranties, I interpolate being warranties said to arise under what might be called the deemed contract between the third defendant as developer (if it is) and the plaintiff as its successor in title. If the reply had said no more, then the present confusion may not have arisen. Unfortunately, the reply continued in a way which I find utterly confusing, to introduce the possibility that the acts or omissions might have something to do with earthworks performed by a separate bulk earthworks contractor, or with geotechnical services provided by a geotechnical consultant. 11Mr Henry submitted that if the claims were based on breaches by the bulk earthworks contractor or the geotechnical consultant of their respective contracts with his client then the causes of action were plainly statute-barred. Mr Gracie of counsel, for the plaintiff, accepted that this would be so. 12Mr Henry submitted, based on decisions to which I shall return, that in some cases a developer might be liable under several deemed or statutory contracts between it and a successor in title, where residential building work had been performed for the developer by more than one contractor. That position is undoubtedly correct, at least at the level of principle or abstraction at which I have stated it. It follows from the decision of Young JA (with whom Allsop P and Macfarlan JA agreed) in the Owners - Strata Plan No 64757 v MJA Group Pty Limited (2011) 81 NSWLR 426. The rationale of that decision was stated by Macfarlan JA, in some additional comments, at [4] as being: ...a subsequent owner acquires a number of causes of action against the developer corresponding with causes of action that the developer has against different building contractors. 13That reading of the Home Building Act was reinforced by the decision of Campbell JA (with whom Meagher JA agreed) in Vero Insurance Pty Limited v Kassem (2011) 86 ACSR 607. Campbell JA quoted Macfarlan JA (including the passage that I have just extracted) at [66] and said at [67] that "the limitation period concerning any particular item of damages would commence to run when the work to which the damages relates was completed. That is not necessarily the date on which the works as a whole were completed". 14As I have said, the way in which the correspondence sought to particularise the further alleged breaches could be seen to enliven the proposition arising from the two cases to which I have referred. 15However, in submissions, Mr Gracie submitted that the only breach relied upon was breach of the implied warranty of fitness for purpose under s 18B(e) of the Home Building Act. He submitted that the relevant question was whether, by reason of the defects alleged, the lots were reasonably fit for occupation as a dwelling. If they were not, and if that were the result of defective footings (undoubtedly, work for which the builder would be responsible), Mr Gracie submitted that this was the end of the matter. The Court was not required to enquire into why it was that the footings were unable to contain or withstand movement in the underlying soils. 16On balance, and looking at the matter with a considerable degree of oversight and generality, I think that the approach for which Mr Gracie contends is in principle correct. That is to say I think that the claim sought to be made is one that may be articulated as a claim for damages for further aspects of breach of the implied warranty of fitness for purpose on the part of the builder. That is so because it is the footings that support the structure constructed over them. If the footings are inadequate, having regard to the nature of the underlying soils, then the building will move and cracking will result. 17For the purposes of the builder's liability, it does not seem to me to matter whether responsibility for the state of the underlying soils is work done by others. Thus, I do not think that it matters if the soils were unduly reactive, or if they were wrongly classified. The responsibility of the builder under its contract with the third defendant was to deliver a building that, in relevant respects, was fit for occupation as dwellings. If it did not do so, then, it seems to me, it breached its statutory obligation under s 18B(e). 18Mr Henry accepted that if it were appropriate to characterise the allegation in this way, then, notwithstanding the confusing particularisation of it in the correspondence to which I have referred, it was properly to be regarded as further particularisation of a claim for breach of contract that had been brought within time. 19On that basis, I think there should be no objection in principle to the grant of leave. 20That leaves unresolved the question of the practical consequences of granting leave. As I have indicated, I think that those consequences are better addressed by the referee, who will be able to say with some certainty whether or not to go ahead and grant leave would have either the adverse consequences to which I have referred, or, indeed, other adverse consequences that may arise. 21Thus, I do no more than record my conclusion that the amendments, to the extent that they are properly to be regarded as amendments to add further allegations of breach of the implied warranty of fitness for purpose (s 18B(e)), are not statute-barred and that the question of whether or not, thereafter, leave to amend should be granted is one to be sent to the referee for determination. 22That leaves the question of costs. 23It is common ground that if leave to amend is granted the usual costs order should be made. The referee can deal with that. 24The referee is not really in a position to deal with the costs before me. To my mind, those costs (to the extent that they are not covered by the usual order) should be costs in the proceedings. I say that because although the opposition was well-founded having regard to the way in which the claim was particularised, I have concluded, ultimately, that on a proper view of the claim there is no insuperable obstacle. I will however hear counsel if they contend for any different costs order. [Counsel addressed.] 25I refer to the referee the question of whether, taking into account all practical considerations and the stage of the reference, leave to amend should be granted so as to enable the plaintiff to assert in respect of lots 48 and 56 further particulars of breach of the implied statutory warranty of fitness for purpose arising out of building movement and cracking caused by inadequacy of the footings. I order that the costs of the application to date before me be costs in the proceedings but that the costs otherwise be in the discretion of the referee. 26The exhibit on the application is to be returned to Mr Gracie.