Eko Investments Pty Limited v Austruc Constructions Limited & Ors; the Owners Strata Plan No 64970 v Austruc Constructions Limited & Ors - [2009] NSWSC 208

No judgment structure available for this case.

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

LEGISLATION CITED: 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)
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)

CASES CITED: 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
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

COUNSEL: G Sirtes SC (Owners Corporation)
I D Faulkner SC/N E Chen (CSA)
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)

SOLICITORS: David Le Page (Owners Corporation)
Kennedys (CSA)
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

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.

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.

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):

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:

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%.

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:

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):

Caltex Oil

Perre v Apand Pty Ltd,

Perre,

Hill v Van Erp,

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords,

23 The Referee concluded:

Woolcock

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.

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:

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.

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

and must, in any event, give such judgment or make such order as the court thinks fit.

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:

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:

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.”

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.

Home Building Act

Zumpano v Montagnese

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:

Bryan v Maloney

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:

Bryan v. Maloney

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:

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:

Domestic Building Contracts Act

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):

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):

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.

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:

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:

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:

Pullen v Gutteridge Haskins & Davey Pty Limited

"… 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:

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.

"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 …".

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.

Kinzett v McCourt

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:

Particulars

(sic)

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.

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.

Seiwa Australia Pty Ltd v. Owners Strata Plan 35042

Owners Strata Plan 35402 v. Siewa Australia Pty Ltd

· 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).

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.

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:

81 The Referee dealt with the contents claim as follows:

Strata Schemes Management Act

“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.”

Ridis v Proprietors of Strata Plan 10308

Eady v The Owners-Strata Plan No 20530

Seiwa Pty Limited v Owners Corporation – Strata Plan 35042

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…

…

Ridis v Proprietors of Strata Plan 10308

obiter

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…

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:

Management Act

Act

Management Act

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]].

Lyn

Lubrano

Re Alcan Australia Ltd; ex parte Federation of Industrial Manufacturing and Engineering Employees

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:

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]:

O'Neill

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]:

Australian Securities Commission v Marlborough Gold Mines Ltd

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):

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.

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01/04/2009 - Incorrect quotation - Paragraph(s) 77

01/04/2009 - Incorrect quotation - Paragraph(s) 77

02/04/2009 - Typographical error - Paragraph(s) 58

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Citations

Eko Investments Pty Limited v Austruc Constructions Limited & Ors; the Owners Strata Plan No 64970 v Austruc Constructions Limited & Ors [2009] NSWSC 208

Most Recent Citation

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Cyril Smith & Associates Pty Ltd v The Owners-Strata Plan No 64970 [2011] NSWCA 181

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Statutory Material Cited

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Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16

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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
LEGISLATION CITED:	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) 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)
CASES CITED:	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 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
COUNSEL:	G Sirtes SC (Owners Corporation) I D Faulkner SC/N E Chen (CSA) 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)
SOLICITORS:	David Le Page (Owners Corporation) Kennedys (CSA) Stacks/Forster (EKO) Doyles Construction Lawyers (Austruc) DLA Phillips Fox (Slater Lomas) James Tuite & Associates (Traditional Windows)