Supreme Court New South Wales Medium Neutral Citation: Owners Corporation SP 78422 v Ware Building Pty Ltd [2015] NSWSC 1384 Hearing dates: 16 September 2015 Date of orders: 16 September 2015 Decision date: 16 September 2015 Jurisdiction: Equity - Technology and Construction List Before: McDougall J Decision: Notice of motion to amend quasi-pleadings and adjourn proceedings dismissed. Catchwords: PRACTICE AND PROCEDURE – dispute between owners corporation and builder – where defendant builder seeks to commence separate proceedings against the developer to rectify the contract pursuant to which the building was constructed – related application to amend list response in present proceedings to incorporate that defence – where it has been open to the defendant to agitate the question of rectification for three years – where substantial effort and expense has gone into the preparation of the case as currently pleaded – where a variation argument is in any event already provided for – consequence that it is not in the interests of justice to allow defendant the leave it seeks Legislation Cited: Corporations Act 2001 (Cth) Home Building Act 1989 (NSW) Category: Procedural and other rulings Parties: The Owners – Strata Plan No 78422 (Plaintiff) Ware Building Pty Ltd (Defendant) Representation: Counsel: M A McCall (Plaintiff) S Tully (Defendant) Solicitors: Walters Solicitors (Plaintiff) Barraclough Jones & Associates (Defendant) File Number(s): 2014/105793 Judgment (ex tempore – revised 16 september 2015) 1. HIS HONOUR: The plaintiff is the owners corporation of a strata title development at Port Macquarie. The defendant is the builder who carried out the residential building work comprising the erection of the building. The building consists of residential home units. 2. The developer for whom the defendant carried out the building work was a company known as Glenco Seamist Pty Ltd (the developer). That company has been deregistered. 3. The plaintiff's case is that the roof of the building is defective, and leaks. The plaintiff says that the contract between the first defendant and the developer required the use of a two-layer bituminous membrane, but that in fact a polyurethane membrane was used instead. The plaintiff's case, as to defective work and work not complying with the specification, is pleaded and particularised extensively and, as I understand it, supported by expert evidence. 4. But for the matters I am about to mention, the matter is ready for a hearing. It can be given a hearing date later this year, on the plaintiff's estimate that no more than five days would be required. It is obvious that the parties will have to go to a hearing, because there has been an unsuccessful mediation before Dr Briggs (a former member of the Consumer, Trader and Tenancy Tribunal (CTTT), now incorporated into the New South Wales Civil and Administrative Tribunal). 5. The defendant has filed a notice of motion and an amended notice of motion. The notice of motion sought leave to amend. The amended notice of motion sought an adjournment of these proceedings so that the defendant could commence proceedings against the developer to have the original building contract rectified. The defendant sought, further, that it should have leave further to amend its list response, and to serve further evidence, once the rectification proceedings were decided. 6. It is necessary at this point to look at some matters of history. The contract between the defendant and the developer was made in November 2005. Presumably, building work started shortly thereafter. Practical completion was reached in March 2007. The strata plan was registered on 30 April 2007. On that date, the plaintiff came into existence. 7. In November 2012, the plaintiff caused the issue of water leaks to be investigated. It received an expert report dealing with the failure to use the two-layer bituminous membrane to which I have referred. It provided that report to the defendant late in 2012. 8. The plaintiff made an application to the CTTT in December 2012. In the course of the conduct of those proceedings, the defendant procured an expert report in May 2013. That report addressed the issue of the contractual obligation to use a two-layer bituminous membrane for the roof. The plaintiff filed points of claim a month later, in June 2013. Those points of claim alleged the existence of that contractual obligation, and gave reasonably detailed particulars of breach (not nearly so detailed, however, as those that have been given in its Amended List Statement in this Court). 9. The CTTT proceedings were transferred to this Court late in December 2013. The parties have filed a List Statement and a List Response, and an Amended List Statement and Amended List Response. One of the issues raised by the defendant in its Amended List Response is that the contract between it and the developer was varied so as to permit the substitution of a different membrane for the two-layer bituminous membrane specified in the contract. It is common ground that if this variation was agreed, it was never documented. It is common ground that the form of contract and the plans and specifications in existence at all times when the work was done (and indeed, at all times since) required the construction of the membrane system on which the plaintiff relies. 10. Evidence in chief has been served by each party, and evidence in reply. The defendant has brought a cross-claim against the subcontractor who did the sealing work on the roof. The evidence on that cross-claim, in chief and in reply, is complete. 11. Thus, as I have said, the matter is ready to go to hearing. 12. The defendant's case on rectification is raised already in the proceedings between it and the plaintiff. To put it perhaps more clearly, there is an issue in the proceedings in this Court between the defendant and the plaintiff as to whether the contract between the defendant and the developer was varied in the way I have indicated. 13. However, if that position is to be established authoritatively, and if rectification were sought, it would be necessary for the developer to be resurrected from deregistration, and to be reinstated pursuant to s 601AH(2) of the Corporations Act 2001 (Cth). Whether the developer, upon resurrection, would be in a position to contest rectification proceedings is not a question on which any view can be expressed. Presumably, the developer was deregistered because it had served its purpose and, as the statement showed, had no relevant assets and no liabilities. Thus, its financial capacity to defend rectification proceedings, absent some injection of capital from its former directors, could be thought to be dubious. The desire of those former directors to fight a rectification suit in which they have no real interest might also be thought to be dubious. 14. In any event, the plaintiff would be, in a practical sense, a necessary party to the rectification suit, because if it were not a party, it would not be bound by the outcome. Thus, the plaintiff would be forced to expend its own funds in contesting rectification, and would be exposed to delay in the hearing of its claim whilst the reinstatement proceedings and the rectification proceedings were heard and dealt with. 15. There has been no real explanation of the delay, until now, in seeking to adjourn these proceedings so that the question of rectification can be fought out. The defendant must have known since at least November 2012, when the first expert report was served on it, that the plaintiff was asserting that the defendant had been required to use, and had not used, the two-layer bituminous membrane system in question. It must have known at that same time that (as it now says) the contract between it and the developer had been varied so as to permit substitution of the membrane system that was in fact applied. However, it has done nothing for almost three years to agitate the question of rectification, so as to deal with that issue. There has been no explanation of why it took the defendant almost three years to decide that rectification proceedings were either necessary or, at the very least, desirable. All the evidence says is that the defendant's solicitor had thought there might be difficulties in obtaining evidence from the former directors of the developer. That does not explain why the application has not been made before today. 16. Although it was submitted for the defendant that it was likely rectification would be granted, I have real doubts this is the case. However, it is not necessary to go into detail, save to say that if rectification were granted, there might be some conflict with the relevant provisions of the Home Building Act 1989 (NSW) requiring residential building work to be done pursuant to a written contract that includes the specifications to which the work is to be done (reflected in the implied statutory warranty set out in s 18B(a)). 17. Further, there must be at least a question as to whether the rectification sought could have any impact on the implied warranty of fitness for purpose arising under s 18(f). 18. However, those questions can be put to one side. That is because the issue of variation of the building contract is already raised in the proceedings between the plaintiff and the defendant, and is to be fought out. I have very great difficulty in seeing how formal rectification of the contract (even if that were available where what is relied upon is variation rather than mistake, as I understand it) would add anything. Even if I were wrong, and the question were truly one of mistake, nonetheless a decision on that issue in these proceedings will bind the plaintiff. Thus, it seems to me, there is really nothing to be gained by having a separate rectification suit. There is no need for the developer to be bound as well. 19. Further, in this context, it should be noted that the plaintiff has taken its stand in these proceedings on the basis that the contract called for the two-layer bituminous membrane system to be used, and based its claim on the fact that such a system was not used. The plaintiff has undoubtedly spent substantial sums of money on legal fees and expert witness fees. It has expended those sums of money on the basis that the specification pursuant to which the work was done was that which called for the use of the membrane system to which I have referred. Thus, now to permit that to be derailed, through a possible rectification suit which might result in the establishment of some different contract and some different specification, would be a very significant detriment to the plaintiff. 20. Finally, although the plaintiff is a corporation, it is a corporation of a very special kind. It is in substance (although not in law) the aggregate of proprietors from time to time of lots in the strata scheme. Thus, the plaintiff is in substance the aggregate of the individuals – some owner occupiers, and some absentee owners as I understand it – whose property and property rights have been detrimentally affected, on the plaintiff's case, by the alleged defects in construction. To my mind, it would be a rank injustice to those individuals to permit the hearing of their claim to be delayed from later this year to some indeterminate time in the future when the reinstatement and rectification proceedings contemplated by the defendant's application have been resolved. 21. For those reasons, it seems to me, the amended notice of motion must be dismissed. I take into account, as I have said already, not just the injustice to the plaintiff that would be caused if the relief sought by the amended notice of motion were granted but also the fact that, as the quasi-pleadings stand, the question of amendment is an issue that will be resolved on the hearing of the present dispute. 22. I order that the amended notice of motion filed on 15 September 2015 be dismissed with costs. I direct the parties to approach the List Judge forthwith for the allocation of a hearing date. ********** 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: 22 September 2015