Supreme Court New South Wales Medium Neutral Citation: The Owners – Strata Plan No 70335 v Walsh Bay Finance Pty Ltd [2015] NSWSC 1031 Hearing dates: 17 July 2015 Decision date: 21 July 2015 Jurisdiction: Equity Division - Technology and Construction List Before: Stevenson J Decision: (1) Paragraphs C60 and C61 of the Substituted Second Further Amended List Statement be struck out. (2) The fifth defendant's amended notice of motion filed on 19 June 2015 be otherwise dismissed. (3) The plaintiff's application for leave to amend paragraph C60 of the List Statement in the terms set out in MFI 1 be dismissed. (4) The plaintiff is to file and serve a Third Further Amended List Statement to reflect order 1 within 14 days. (5) Costs of the fifth defendant's notice of motion of 19 June 2015 be costs in the cause. Catchwords: PROCEDURE – whether there should be a separate determination as to whether the fifth defendant owed the plaintiff a duty of care – whether plaintiff's claim as to fifth defendant's breach of covenant of quiet enjoyment should be struck out or separately determined – whether plaintiff should be given leave to amend pleadings to meet strike out application Legislation Cited: Civil Procedure Act 2005 (NSW) Cases Cited: Brookfield Multiplex Ltd v Owners – Strata Plan No 61288 [2014] HCA 36; 313 ALR 408 Tepko Pty Ltd v Water Board [2001] HCA 19; 206 CLR 1 Volley Investments Pty Ltd v Coles Myer Ltd [2005] WASCA 52 Category: Procedural and other rulings Parties: The Owners – Strata Plan No 70335 (Plaintiff/Respondent) Roads and Maritime Services (Fifth Defendant/Applicant) Representation: Counsel: J Young (Plaintiff/Respondent) J A C Potts (Fifth Defendant/Applicant) Solicitors: Grace Lawyers (Plaintiff/Respondent) Maddocks (Fifth Defendant/Applicant) File Number(s): SC 2013/174411 EX TEMPORE Judgment (REVISED) 1. The plaintiff is an owners corporation. 2. Pursuant to a lease made on 10 June 2003 between the plaintiff and the Waterways Authority ("the Lease"), the plaintiff is the lessee of the "Common Property" referred to in the Lease, being the common property of a marina ("the Marina") adjacent to Pier 6/7 at Walsh Bay. 3. The plaintiff is the registered proprietor of that leasehold estate which comprises the seabed, overlying water, embedded piles and associated infrastructure of the Marina. 4. The Marina was constructed pursuant to a construction agreement made on 22 October 1997 between the Marine Ministerial Holding Corporation, the first defendant, and others. 5. Both the Waterways Authority and the Marine Ministerial Holding Corporation are statutory predecessors to the fifth defendant, Roads and Maritime Services ("RMS"). Mr Potts, who appeared for RMS, accepted that RMS, in effect, now stands in the shoes of its statutory predecessors. 6. The Marina was constructed between November 2002 and September 2003. The relevant strata plan was registered on 10 June 2003 and the plaintiff was incorporated that day. As I have mentioned, 10 June 2003 is also the date of the Lease. 7. In relation to the Marina, the plaintiff makes the following allegation in its second further amended list statement: "The Marina is suffering from defects whereby the piles and related structures are increasingly showing signs, and have deteriorated to the point, of failure as a result of their inability to withstand the wave movements in the area of the Marina, and related defects ('the Defects')." 1. The plaintiff alleges that those "Defects" emerged progressively from September 2003 until October 2014. 2. On 6 June 2013, the plaintiff commenced these proceedings against the first defendant as the developer of the Marina, the second defendant as a subcontractor of the first defendant, the third defendant as the designer of the Marina, the fourth defendant as the certifier of the Marina, and RMS as the statutory successor to the Marine Ministerial Holding Corporation and the Waterways Authority. 3. Although these proceedings have been on foot for over two years, "pleadings" have only just closed. Orders have now been made for the plaintiff to serve its evidence. 4. The plaintiff alleges that RMS owed it a duty of care ("the Alleged Duty") set out at par 56 of its list statement: "… the Fifth Defendant owed the Plaintiff the duty of care set out in paragraph 56A in performing its duties, obligations and functions as a highly experienced and expert developer and regulator of marinas in the waterways of New South Wales…". 1. In par 56A of the list statement, the plaintiff alleges that the Alleged Duty included a duty to: "(a) take reasonable steps directed at ensuring the design of the Marina and the piles enabled the piles to sustain the dynamic impact loads on the piles from wind and boat wave action so as to prevent the transmission of additional loads to vulnerable parts of the pile structure including the joints, baskets, and welds; (b) take reasonable steps, by way of adequate preliminary design, contractual provision and/or supervision, to ensure that the First to Third Defendants designed and constructed the piles to the standards required by the Construction Agreement…in order to sustain the dynamic impact loads on the piles from wind and boat wave action…". 1. The Alleged Duty is said to arise by reason of the matters alleged in par 57 of the list statement, including that RMS: 1. had "extensive experience and expertise in the design and construction of marinas and was aware, or ought reasonably [to] have been aware, of the risk that poor design and construction of the [Marina] could lead to the Defects"; and 2. "using such experience and expertise, approved of the design of the Marina and the parameters for its construction". 1. The plaintiff also alleges that RMS is in breach of a covenant for quiet enjoyment contained in cl 9.1 of the Lease ("the Covenant"). The Covenant is in the following terms: "9.1 Quiet Enjoyment The Lessee while duly and punctually observing the Lessee's Covenants is entitled to peaceably possess and enjoy the Premises during the Term without disturbance from the Lessor or any other person lawfully claiming through the Lessor, except to the extent specifically provided for in this Lease." 1. The plaintiff's claim concerning the breach of the Covenant is set out in pars 60 and 61 of its list statement: 60. Further and in the alternative, by reason of the existence of the Defects and, as a consequence…that the use of the Marina has been, and will be, at various times, impeded by the Defects and the repair and/or replacement of the piles at the Marina and associated work: (a) the Plaintiff is prevented from peaceably possessing and enjoying the Land and the Marina without disturbance; and, (b) the Fifth Defendant is thereby in breach of [cl 9.1] of the Lease... 61. By reason of the breach pleaded in paragraph C60, the Plaintiff has suffered loss and damage…". 1. The matter before me is the notice of motion filed on 19 June 2015 by RMS, in which it seeks: 1. a separate determination of whether it owed the plaintiff the Alleged Duty; and 2. an order dismissing or striking out the plaintiff's claim based on breach of the Covenant, or a separate determination of whether the matters alleged at pars 60 and 61 of the list statement "are capable of amounting to a breach" by RMS of the Covenant. Separate determination of the existence of the Alleged Duty 1. Mr Potts submitted that following the decision of the High Court of Australia in Brookfield Multiplex Ltd v Owners – Strata Plan No 61288 [2014] HCA 36; 313 ALR 408, RMS could not owe the plaintiff the Alleged Duty. In that regard, Mr Potts submitted: "In short, RMS contends that if, as the High Court held in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 313 ALR 408, Brookfield did not owe the owners corporation in that case a duty of care, the facts alleged in this case will be clearly insufficient to permit the Court to hold that RMS owed the duty of care alleged in this case. If anything, the absence of a duty of care is even more strongly evident in this case. The High Court did not suggest in that case that the determination of the existence of a duty of care as a separate and preliminary question was in the circumstances anything other than appropriate. The same is true in this case." 1. Mr Potts added, speaking of the question of both the Alleged Duty and the alleged breach of the Covenant: "On any view these proceedings will be long and expensive. If the separate questions are determined in RMS'[s] favour, it will be removed from the proceedings as a defendant. RMS'[s] cross-claims for contractual indemnity against other defendants would then only concern a claim for indemnity for its costs of the proceedings, to the extent that it did not recover its costs from the plaintiff. The separate questions are discrete, involve no other defendants, and if answered favourably to RMS, will be dispositive of the claims against it. The factual issues arising on the duty of care question are narrow, and unlikely to give rise to any overlap with any remaining factual questions should the separate questions be determined adversely to RMS." 1. The difficulty I see with ordering a separate determination of the existence of the Alleged Duty is that a factual question will arise from the allegations made in pars 57(a) and (b) of the list statement (set out at [13] above). 2. In its response to those allegations, RMS admits that it "has some experience in the development of marinas as an owner of waterfront land and waterways in New South Wales". RMS also asserts that "to the extent it approved of the design of the Marina and the parameters for its construction": 1. it "acted only as the owner of the Land and as the sole authority empowered to grant permission to erect structures in Sydney Harbour"; and 2. it appointed the NSW Department of Public Works and Services and an independent expert to advise it. 1. In those circumstances, the plaintiff's allegations are likely to give rise to a very wide-ranging factual inquiry as to the "experience and expertise" of RMS and its predecessors. 2. Mr Potts submitted that there was "unlikely" to be any overlap between that factual inquiry and the inquiries in the main proceedings. 3. In my opinion, it is impossible to predict at this stage whether that is so. 4. Mr Young, who appeared for the plaintiff, submitted that there was likely to be an overlap between the factual inquiry that would arise on the proposed separate question and, for example, the issues which will arise between the plaintiff and the fourth defendant, as certifier of the Marina. 5. Mr Young drew my attention to the observations of the High Court of Australia in Tepko Pty Ltd v Water Board [2001] HCA 19; 206 CLR 1 at [168] to [170]: "…The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap. The second and related comment is this. A party whose whole case is knocked out on a trial of a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the court's, rather than the parties', interests. Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise. Indeed, that could occur here were this appeal to be allowed and a retrial had in which the remaining issues of causation and damages were decided. Single-issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question." 1. At this stage of the proceedings, where no evidence has been served, I cannot be satisfied that it is "beyond question" that a separate determination of whether RMS owed the plaintiff the Alleged Duty would be useful, economical or fair. 2. Nor can I be satisfied that an order for separate determination would promote the overriding purpose of the Civil Procedure Act 2005 (NSW) that there be a "just, cheap and quick" resolution of the issues between the plaintiff and RMS (see s 56). 3. For those reasons, I am not prepared to order a separate determination of this question. The alleged breach of the Covenant 1. In order to meet RMS's application for an order striking out the plaintiff's claims for breach of the Covenant, Mr Young sought leave to amend cl 60 of the list statement in accordance with MFI 1 so that it read: "60. Further and in the alternative, by reason of the existence of the Defects and the acts and omissions particularised at paragraphs C39, C40E and C58, or any of them, and, as a consequence, as contended in paragraph C34(a), that the use of the Marina has been, and will be, at various times, impeded by the Defects and the repair and/or replacement of the piles at the Marina and associated work: (a) the Plaintiff is prevented from peaceably possessing and enjoying the Land and the Marina without disturbance; and, (b) the Fifth Defendant is thereby in breach of [cl 9.1] of the Lease...". [Emphasis in original] 1. I am not prepared to permit that amendment for the following reasons. 2. The proposed amendment seeks to incorporate into cl 60 of the list statement the "acts and omissions" particularised in pars C39, C40E and C58 of the list statement "or any of them". 3. The difficulty with the "acts and omissions" referred to in pars C39 and C58 is that they all predate the Lease and therefore cannot possibly be relevant to an allegation of breach of a provision of the Lease. 4. The alleged acts and omissions in par C40E certainly postdate the Lease, but none are said to have been done or omitted by any predecessor of RMS or anyone acting on behalf of or "claiming through" any such predecessor. Accordingly, they too cannot possibly be relevant to any alleged breach of the Covenant, which is directed only to "the Lessor or any other person lawfully claiming through the Lessor". 5. That leaves the pleading in its current form. 6. What is alleged is that the existence of the "Defects" (defined as I set out above), and the alleged fact that the use of the Marina will be "impeded" by reason of the Defects, without more, renders RMS in breach of the Covenant. 7. But that cannot be so. 8. As I have said, the Covenant, which is in a very familiar form, is directed to conduct of the "Lessor" or those "lawfully claiming through the Lessor". 9. In that regard, Mr Potts drew my attention to the decision of the Supreme Court of Western Australia in Volley Investments Pty Ltd v Coles Myer Ltd [2005] WASCA 52. In that case, Murray and Barker JJ were dealing with a covenant in terms similar to that in this case. Their Honours said at [10]: "We have remarked that the clause is expressed in traditional terms, used in leases for well over 100 years. The clause is not in terms a covenant by the lessor to strictly warrant the exercise by the lessee of its possession and enjoyment of the premises. In terms, the covenant will be breached when the interruption or disturbance of the quiet enjoyment of the premises is caused by the lessor 'or any person or persons lawfully claiming by or from or under it'. Putting to one side the fact that the lessor is defined to include its successors and assigns…the covenant will be breached where, as a matter of fact, the interruption or disturbance is caused by any conduct of the lessor or its agents." 1. Thus, to make out a breach of the Covenant, what the plaintiff must allege and prove is that the Defects result from "interruption or disturbance" caused by RMS or its predecessors or their agents. The allegations set out at [35] are not sufficient. 2. Further, there are many indications in the Lease of the intention of the parties that the "lessor" would not be liable for any "defects" which might arise in the Marina. 3. The Lease, which is for a term of 20 years, calls for a peppercorn rent of "one dollar for the whole of the Term" (cl 2.1). 4. Clauses 4.1 and 4.2 oblige the plaintiff to carry out a regular program of maintenance in relation to the common property of the Lease and promptly to make good any damage occasioned to the common property "by want of care, misuse or abuse or wilful act or omission or otherwise, on the part of the [plaintiff], its agents, contractors or employees". 5. In cl 6.2 the plaintiff acknowledges that RMS's predecessor in title made no promise, representation or warranty as to the "Wharf" or any "facilities in the Wharf", and that the plaintiff relied on its own inquiries. In cl 8.1 the plaintiff agrees to "take and be subject to the same responsibilities to which it would be subject" if it were the owner of the property. In cl 8.2 the plaintiff, without limiting cl 8.1, agrees to occupy the property "at its own risk" and to indemnify RMS's predecessors for any liability which might arise from that occupation. 6. I cannot accept that, in light of those provisions, the parties to the Lease intended that the Covenant would, in effect, impose on RMS or its statutory predecessors a positive obligation to remedy the Defects. 7. In that regard, I accept Mr Potts's submissions as follows: "…it is not even arguable that the development of structural and other defects in a built structure comprising part of the demised 'Premises' can amount to a failure by a lessor to allow a lessee to peaceably possess and enjoy the Premises without disturbance. The lessor has not done anything – the piles have simply developed defects. It cannot be the case that an express covenant of quiet enjoyment extends to embody an obligation to remedy defects in built form – that is a matter expressly dealt with in cl 4 of the lease. That case is hopeless and should be deal with summarily." 1. In those circumstances, I propose to order that pars 60 and 61 of the list statement be struck out. 2. I make the following orders: 1. Paragraphs C60 and C61 of the Substituted Second Further Amended List Statement be struck out. 2. The fifth defendant's amended notice of motion filed on 19 June 2015 be otherwise dismissed. 3. The plaintiff's application for leave to amend paragraph C60 of the List Statement in the terms set out in MFI 1 be dismissed. 4. The plaintiff is to file and serve a Third Further Amended List Statement to reflect order 1 within 14 days. 5. Costs of the fifth defendant's notice of motion of 19 June 2015 be costs in the cause. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 July 2015