| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : FLANNERY -v- BAGGETTA [2013] WADC 49 CORAM : DAVIS DCJ HEARD : 25 MARCH 2013 DELIVERED : 12 APRIL 2013 FILE NO/S : CIV 1358 of 2012 BETWEEN : MICHAEL LAURENCE FLANNERY ANNA MARIA FLANNERY
Plaintiffs
AND
CARLO BAGGETTA
First Defendant
TEVERE PTY LTD
Second Defendant
SHIRE OF HARVEY
Third Defendant
Catchwords: Practice and procedure - Appeal from a registrar dismissing defendants' applications for summary judgment on ground that plaintiffs' claim is statute barred - Turns on own facts
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Legislation: Limitation Act 1935
Limitation Act 2005
Rules of the Supreme Court 1971 O 16 r 1 Result: Appeals dismissed
Representation: Counsel:
Plaintiffs : Mr J C Yeldon
First Defendant : No appearance
Second Defendant : Ms D M Templeman
Third Defendant : Mr P G McGowan
Solicitors:
Plaintiffs : Irdi Legal
First Defendant : Contract Intelligence Pty Ltd
Second Defendant : Gilchrist Connell
Third Defendant : DLA Piper Australia
Case(s) referred to in judgment(s):
Ansearch Ltd v Wavtech Pty Ltd [2006] WASC 184
Bryan v Maloney (1995) 182 CLR 609
Cyril Smith & Associates Pty Ltd v Owners Strata Plan No 64970 [2011] NSWCA 181
Hawkins v Clayton (1988) 164 CLR 539
Kudrin v City of Mandurah [2009] WADC 75
New South Wales v Fahy (2007) 232 CLR 486
Pilbara Iron Ltd v Bonotto (1994) 11 WAR 348
Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27
Roads and Traffic Authority of NSW v Dederer (2007) 234 CLR 330
SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138
Sutherland Shire Council v Heyman (1985) 157 CLR 424
Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507
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Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514
Webster v Lampard (1993) 177 CLR 598
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1 DAVIS DCJ: The second and third defendants appeal from a decision of the deputy registrar made on 14 November 2012 to dismiss an application by each of them for summary judgment against the plaintiff pursuant to the Rules of the Supreme Court 1971 O 16 r 1, alternatively to strike out the plaintiffs' statement of claim.
2 The defendants have each filed separate appeals which were heard together. Pursuant to r 15(6) of the District Court Rules 2005 each appeal is by way of a new hearing of the defendant's application. 3 For the reasons which follow, I consider that this is not an appropriate case in which to grant summary judgment to the defendants or to strike out the statement of claim.
Background to this appeal 4 The second and third defendants made their separate applications on the ground that the plaintiffs' claim is statute barred under the provisions of the Limitation Act 1935 (the 1935 Act) because the plaintiffs' cause of action had accrued, at the latest, by August 2004. 5 The writ was issued on 10 May 2012. 6 The claim by the plaintiffs is in negligence and relates to economic loss suffered by reason of damage to their house, which was originally constructed in 1993. 7 It is alleged that the house was constructed upon a layer of compressible topsoil. This caused the house to undergo excessive settlement and cracking and thus loss and damage. The plaintiffs are seeking the cost of demolition and rebuilding, alternatively the diminution of the value of the property: see Plaintiffs' Answers to Third Defendant's Request for Further and Better Particulars, Answer 4.1.3. Both these alternative claims are economic loss claims: Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27 (Pullen), 68 - 70. 8 The plaintiffs purchased the property from the original owners in 1997. The first defendant constructed the house, the second defendant was the structural engineer who carried out compaction testing of the soil where the house was to be constructed, and the third defendant approved the plans for the house and issued a building licence for its construction. 9 The plaintiffs allege each of the defendants breached their respective duties arising from their role in the construction of the house. The alleged negligence by the second defendant is permitting the first defendant to (Page 5)
construct footings upon a layer of compressible topsoil which rendered the site unsuitable for the construction of the house (statement of claim par 25). The alleged negligence of the third defendant is the failure upon inspection of the footings to report on the fact that the footings were laid on compressible topsoil and allowing construction to proceed without remedial works to the footings first having been undertaken (statement of claim par 30 - 33). 10 The statement of claim is silent as to when the settlement and cracking to the house began. In the Plaintiffs' Answers to Third Defendant's Request for Further and Better Particulars, Answer 4.1.3, however, the plaintiffs stated that in 2004 they engaged engineers 'to investigate cracking and separating in walls (defects)' in the house. 11 There is also some detail in the affidavit material filed in support of and in opposition to the defendants' applications. The following summary of facts I have taken from an affidavit of Bradley William Baker sworn on behalf of the second defendant on 31 August 2012, an affidavit of Mervyn James Stewart sworn on behalf of the third defendant on 31 August 2012 and annexures to those affidavits, and an affidavit by each of the first plaintiff and the second plaintiff, both sworn 10 October 2012 in opposition to the defendants' applications. 12 By a letter dated 22 November 2011, the plaintiffs' solicitors wrote to the third defendant. In that letter it was stated that cracks began to appear in the house in about 2000 and these became progressively worse between 2000 and 2011. 13 After noticing cracking in the cornices at the west end of the house in 2004, the plaintiffs engaged the services of an engineer to investigate. The engineer undertook a site investigation on 6 August 2004 and provided a report dated 24 August 2004 (the 2004 report). 14 The site investigation included taking two boreholes to a 1.4 m depth and taking samples for laboratory analysis. One borehole was located near the northwest corner of the house where most of the cracking had occurred. The second borehole was located at the northeast corner of the house where, as stated in the 2004 report, no defects were observed. The laboratory testing revealed sand fill in the top layer and soft silty clay below, with some fine roots. There was a greater density of roots in the upper part of the clay layer at borehole 1 and overall, a greater density in the clay layer at borehole 1 than borehole 2. (Page 6)
15 The engineer reported that there was cracking of internal and external walls and the house exhibited settlement (rotation) of the floor slab, predominantly at the western end of the house. The engineer was of the view that the settlement was unlikely to be due to settlement within the sand pad, as any settlement should have occurred within a short time after construction. The settlement was more likely due to shrinkage within the clay under the sand pad. 16 The engineer's conclusion was that a tree in close proximity to the northwest corner of the house was the likely cause of the settlement, by causing shrinkage to the clay under the sand pad as a result of the tree's roots intercepting the water laying in the upper part of the clay. It was recommended that the plaintiffs remove the tree and wait to see if the cracks closed or at least stabilised, and water the ground around the northwest corner of the house. 17 The tree was removed and the plaintiffs watered the ground as the engineer had recommended. Both plaintiffs deposed in their respective affidavits to the effect that until about 2008 the cracks in the western corner of the house did not appear to be getting any worse. 18 In about 2008 or 2009, the first plaintiff observed that the cracks at the west end of the house were getting bigger and he also started to notice cracking in other parts of the house. According to the affidavit of the first plaintiff, he did not think much about them. However, in 2011 the plaintiffs resolved to move and sell the property. By that time, in the words of the first plaintiff, 'there was enough cracking throughout the house for me to want to have [the engineer] back to look at things before we sold the property'. The second plaintiff stated that after the decision to sell had been made she, too, noticed that there were cracks in other parts of the house which she had not noticed before. 19 The plaintiffs then arranged for the same engineer who had done the 2004 report to come back and do another report. He undertook an inspection of the house and arranged further geotechnical testing (pit tests) and provided a further expert report in May 2011 (the 2011 report). The geotechnical testing showed compressible topsoil in certain areas under the sand pad. As described in the 2011 report (page 7 of the affidavit of Mr Baker sworn 31 August 2012): The Geotechnical investigation discovered a depression into the natural clay below the original ground level filled with an organic topsoil material. This depression was seen in two locations along the northern edge of the building and may extend along a considerable length of the building … (Page 7)
The topsoil fill material was found to be compressible in nature. The extent of the topsoil inclusion below the sand pad has not been established … 20 The engineer was of the opinion that the settlement of the house and the cause of the cracking appeared to be the result of the gradual consolidation of the topsoil fill. That topsoil, the engineer stated, should have been removed prior to placing the sand fill for the sand pad for the house. The presence of the compressible topsoil fill material 'appears to be the cause of the ongoing settlement of the building. The movement does not appear to have ceased and further settlement could be expected.' 21 The first plaintiff deposed that after reading the report he was surprised. The second plaintiff described being 'shocked' and having no idea that there was such a big problem under the house. The first plaintiff has deposed that since then 'the cracking has got seriously worse'. The plaintiffs have been unable to sell the property. 22 The plaintiffs' claim is based on a latent defect. In cases dealing with latent defects in buildings, in particular defects in the adequacy of foundations, the cause of action accrues, and the limitation period begins to run, when the latent defect becomes manifest or is otherwise discovered: Sutherland Shire Council v Heyman (1985) 157 CLR 424, 503 - 505 (Deane J); Hawkins v Clayton (1988) 164 CLR 539, 587; Bryan v Maloney (1995) 182 CLR 609, 617; Pullen (71); Cyril Smith & Associates Pty Ltd v Owners Strata Plan No 64970 [2011] NSWCA 181 [8] (Cyril Smith). 23 In submissions filed before the hearing before the deputy registrar, the second defendant argued that it was known to the plaintiffs from 2004 that their house had an issue with settlement and cracking. At best the plaintiffs can say that they did not know the cause, however, they were aware of the damage. The cracking which was observed in 2004 constituted physical damage to the house which was manifest and thus known at the time. Accordingly, the second defendant submitted that the limitation period accrued at the latest in 2004 and, under the 1935 Act, proceedings should have been commenced within six years. The limitation period had, the second defendant submitted, expired well before the plaintiffs issued their writ in 2012. 24 The third defendant submitted that the plaintiffs were aware prior to 2004 that the house suffered structural damage, potentially including damage to its foundations. The third defendant submitted that the fact that (Page 8)
the engineer retained by the plaintiffs misdiagnosed the problem in 2004, does not alter the plaintiffs' knowledge of the existence of structural damage to the house. The damage and inadequacy of the foundations of the house had manifested itself by the time of obtaining the engineer's report in August 2004. 25 In relation to the third defendant, a local government authority, it was submitted the provisions of s 47A of the 1935 Actrequired the plaintiffs to both give notice to the third defendant as soon as practicable after the cause of action accrued, and commence action within one year. After the expiration of a year, leave is required to commence action. The plaintiffs did not seek to obtain leave to bring the action before the issue of the writ. Such leave cannot be retrospectively granted: Pilbara Iron Ltd v Bonotto(1994) 11 WAR 348; Kudrin v City of Mandurah [2009] WADC 75 [74] - [77], [93]. The third defendant submitted it is entitled to summary judgment as the plaintiffs failed to comply with s 47A. 26 The plaintiffs submitted that the 2004 report did not reveal the latent defect. The extent of the plaintiffs' knowledge in 2004 was what had been conveyed to them by the engineer in the 2004 report – that the tree was the problem, to remove it and keep watering. The obtaining of the 2004 report was a reasonable inquiry which did not reveal the underlying defect, nor inform a reasonable observer of the latent defect, which was not referred to until the 2011 report. Accordingly, the Limitation Act 2005 applied and the action is not time-barred (and the provisions of s 47A of the 1935 Act do not apply).
Legal principles on a defendant's summary judgment application 27 The power to order summary judgment is one that should be exercised with great care. Summary judgment pursuant to O 16 is available only in the clearest of cases where there is a 'high degree of certainty' that the plaintiff's claim is unsustainable: SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138 [20]. 28 For the purpose of a defendant's summary judgment application, the application is to be determined on the basis that the plaintiff's version of the facts, assuming that it is not inherently incredible, would ultimately be accepted at the trial of the action: Webster v Lampard (1993) 177 CLR 598, 608. (Page 9)
29 If, after argument, there remains a real uncertainty about the defendant's right to judgment without further investigation of the facts, summary judgment must be refused: Ansearch Ltd v Wavtech Pty Ltd [2006] WASC 184 [28] (Newnes M). 30 While the court may determine a difficult question of law on a summary judgment application, usually it is appropriate to leave the determination of such a question for trial: Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, 514 - 515; SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [20]. 31 Where the issue on a summary judgment application is a limitation question, as was said by the High Court in Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514, 533: We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question.
Consideration of the appeals 32 In this case there is a real issue as to what was the latent defect, when the latent defect first became known or manifest and, accordingly, the cause of action accrued. 33 The parties relied upon two cases in particular at the hearing of the appeals, Pullen and Cyril Smith. In order to understand the submissions on appeal it is necessary to set out the facts of and findings in these cases. 34 Pullen involved a claim relating to the building of the State Swimming Centre in Melbourne. The centre was built on a site known to be liable to settlement and compression. Building commenced in 1978 and reached practical completion in 1980. Problems occurred soon after the centre was opened to the public on 4 September 1980 and increased over the following years. These problems were investigated and reported on by the engineer which had prepared the designs and specifications for the centre. The engineer advised the State of Victoria that the problems were due to settlement, but that the settlement was within acceptable limits, or the predicted range. Later the State of Victoria obtained an independent firm to investigate and it was reported that the centre had been built without adequate footings. (Page 10)
35 Seven years after practical completion separate actions in negligence against the engineer were brought by the Minister for Public Works and the State of Victoria (the appellant). An issue was whether the action was statute barred. The trial judge accepted the proposition of law that damage is not sustained, and so time does not begin to run, until either the latent defect in the building is actually discovered or it becomes manifest in the sense of becoming discoverable by reasonable diligence: Pullen (67). The trial judge found, however, that the appellant had in fact discovered the defects and damages flowing therefrom more than six years before the commencement of the action. 36 On appeal the Victorian Supreme Court, Appeal Division, (Brooking, Tadgell and Hayne JJ) held that the trial judge was wrong in upholding the defence of the statute of limitations. Time began to run when the latent defect became known or manifest and the latent defect was the inadequacy or unsuitability of the footings: Pullen (71, 79). The claim was not statute barred as the respondent engineer had not shown that the inadequacy or unsuitability of the footings was known to the appellant before 8 April 1981 (a date within six years of the issue of the writ). 37 The trial judge in Pullen had referred to a chronology which revealed early complaints by the appellant about problems with the centre. On appeal, Brooking, Tadgell and Hayne JJ stated (78 - 79): The facts so found in the chronology are manifestly inadequate to support the findings later made by way of upholding the defence of the statute of limitations. The chronology items contain a finding that the leaking of the diving pool was and could be attributed to the incompetent fitting of the sealants. This is a finding that the diving pool leaks were in fact not due to the inadequacy of the footings and that they were attributed to something other than the inadequacy of the footings. The evidence was that these leaks were at concourse level and were caused by defective sealing. The facts found in the chronology certainly do not show that the diving pool leaks were caused by the inadequacy of the footings, let alone that the appellant knew this, and knew it before the relevant date. Nor do the findings in the chronology show that the appellant became aware of the settlements of various parts of the main swimming pool very shortly after it was put into commission. The relevant chronology findings are that on 13 November 1980 the appellant wrote to the respondent asserting that the main pool leaked and that in February and March 1981 there were meetings between all parties concerning the problems of commissioning the pool. These will not sustain his Honour's later finding that the appellant became aware of the settlements of various parts of the main pool very shortly after it was put into commission, let alone a finding that (Page 11)
those settlements were caused by the inadequacy of the footings and that this inadequacy was known to the appellant before the relevant date. … 'defects' means, 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 … (underlined emphasis added) 38 InCyril Smiththe facts were that in 2001 construction was completed on an eight storey residential building. Soon after completion it became apparent there was a problem with water penetration in a number of units. The Owners Corporation commenced proceedings in 2005, claiming damages from the builder. In 2008, leave was granted to the owners to join the architect. The owners obtained judgment against the architect in March 2009. On appeal, an issue for determination was whether the six year limitation period had expired before proceedings had been commenced against the architect (appellant). 39 Basten JA (who delivered the judgment of the New South Wales Court of Appeal, comprising also Bathurst CJ and Young JA) reviewed the decision of Pullen and [19] - [21] said this: … Pullenis authority for the proposition that even where actual damage caused by the latent defect in the building has been suffered more than six years before the commencement of the litigation, the cause of action does not accrue until the link between the physical manifestation and the underlying defect is known or ought to be known. Such a principle would constitute an exception to the rule that a cause of action in negligence accrues when material damage is first suffered. The potential consequences of the exception require consideration. For example, it is quite possible that damage to the fabric of a building might be repaired by the builder, at its cost, because the cause (inadequate design) was not then identified, and was not then reasonably capable of identification. In such circumstances, the builder would not have joined the architect or engineer responsible for the design. When, more than six years later, the real problem becomes manifest and the architect or engineer is (Page 12)
sued by the owner, would the builder be allowed in to recover from the architect the cost of the earlier repairs, even though that cost did not constitute damage for which the owner later sued? Despite considerations of this kind, it is necessary for this Court to follow the decision of the Appeal Division in Pullen, unless satisfied that it was clearly wrong. Not only is it not clearly wrong, but it is not necessarily wrong in any sense: all that can be said is that it appears to involve a development of the general law which may not find unequivocal support in the authorities upon which it relied. For reasons explained below, it will not be necessary to determine this case by reference to the extension to common law principle accepted in Pullen. 40 On the facts in Cyril Smith the New South Wales Court of Appeal held that the limitation period had expired. The Owners Corporation was aware of water penetration in April or May 2001 and by November 2001 at the latest, it was known that the water penetration was because of a defect in the windows. As explained by Basten JA [35], knowledge that the windows were defective did not mean that the owners knew who was responsible for the defect, but time had started to run and within six years of the accrual of the cause of action, the owners needed to ascertain who was responsible and, if necessary, commence proceedings. 41 In these appeals, the second defendant's submissions (which were adopted by the third defendant) were that there was physical damage to the plaintiffs' house which was demonstrably manifest in 2004. It was argued that the 'latent defect' is the settlement which was then occurring, and caused the cracking, and that was sufficient for the cause of action to accrue. 42 Reliance was placed on the statements of Basten JA in Cyril Smith [26], [28]: The primary judge stated that 'the physical defect, the cracking in the walls and ingress of water was observable, but the latent defects, the faulty design of the windows …' were not. This approach takes the test one step further than Sutherland Shire Council, as explained in Hawkins, and Pullen. Those cases are authority, at most, for the proposition that it is the physical defect which must be known or manifest, not that the cause of the defect must be identifiable. The relevant defect in the building was not the design, installation or inspection of the windows, but the windows themselves. Once it was appreciated that the windows themselves were defective (in that they were not adequately watertight) the defect was known. The physical consequence of the defect, namely the ingress of water, was not itself the defect, although it might well have been sufficient to lead a reasonable person to make inquiry and thus discover the defect. In this respect, there is an important distinction between a case of water (Page 13)
penetration into a room, where the point ingress can readily be investigated, and the adequacy of footings or foundations to a building, which can often only be inspected with difficulty. … … the referee was searching for material, in the relevant period, indicating that the Owners Corporation either did, or should have, identified not merely that the windows were defective (a physical condition) but that responsibility lay in the design of the windows (the cause of the defect). The authorities do not support that approach. For example, there was no suggestion in Sutherland Shire Council, or Pullen, that the cause of action did not accrue until the owner knew or ought to have known, not merely that the footings of the buildings were inadequate, but the cause of the inadequacy. The appellant's submissions were partly correct in alleging that the referee had erroneously sought, not merely signs of the defect, but that 'those defects were due to the act or omission of the alleged tortfeasor': see judgment, at [72]. The referee did not go so far as to require knowledge that responsibility lay with the architect, rather than the engineer or the builder, but he did erroneously look not merely for knowledge of the defect, but also the cause of the defect. Her Honour was, therefore, in error in rejecting that aspect of the submission: at [73]. (underlined emphasis added) 43 The second defendant submitted that these passages make it clear that the cause of the latent defect need not be known to start the limitation period running. 44 Counsel for the second defendant argued that the latent defect was the settlement and that had been discovered in 2004, even though the exact cause of the settlement was not known. 45 As evidenced in the diagram prepared by the engineer in the 2011 report, the concrete slab was laid on top of the sand pad which in turn was constructed upon a layer of compressible topsoil. As pleaded in the statement of claim (par 22, 25) what has been described as 'the footings' of the house were constructed upon a layer of compressible topsoil which rendered the site unsuitable for construction of the house. As a result there has been excessive settlement (par 26). I understand the allegation that the house was constructed upon a layer of compressible topsoil to be an allegation of a problem with the foundations of the house. 46 I consider that the settlement which occurred to the plaintiffs' house was therefore the physical consequence of something which was happening under the house and not itself the defect as argued by the second defendant. That settlement of a building is a physical consequence (Page 14)
of a defect in the foundations of that building is supported by Pullen and Cyril Smith [16], [19] – [21], [26], [28] (particularly the passages I have emphasised in [37] and [42] in these reasons above). 47 In these reasons I will therefore refer to the defect as the inadequacy in the foundations of the house. The real issue is whether that defect was known or manifest in 2004. 48 Although the third defendant relied upon the oral submissions made during the hearing by counsel for the second defendant, the third defendant also relied upon the written submissions it had filed for the hearing before the deputy registrar. As was put by the third defendant in its written submissions, structural damage to the house was manifest in 2004 and that potentially included damage to its foundations. It was submitted that this was why the plaintiffs hired the engineer – to investigate the foundations to the house. It was submitted that there was an inadequacy of the foundations of the house in 2004 and also that there was organic material under the house. 49 The essence of the plaintiffs' submission was that while the settlement and cracking in 2004 put them on notice of inquiry, the 2004 report commissioned by the plaintiffs was a reasonable inquiry and that did not disclose the inadequacy of the foundations of the house. It therefore could not be said that this defect was known or manifest at that time. 50 Counsel for the plaintiffs also pointed to the discussion by Basten JA in Cyril Smith [15], [16] to the effect that a structural defect may reveal itself progressively over time: … a structural defect may reveal itself over time, progressively. The first indications may be minor cracking requiring superficial repair, whereas the underlying problem requires far greater expenditure, assuming it to be capable of correction. If the superficial cracking should put the owner on notice of inquiry as to its cause and if reasonable inquiry would have revealed the cause, the underlying defect has become manifest, even though it did not in fact become known to the owner at that time. In Sutherland Shire Council, Deane J had described as 'consequential damage' the physical effects on the fabric of the house caused by movement resulting from the inadequate footings. (The courts below had not permitted recovery on that account.) His Honour stated (at p 512): It seems to me, as at present advised, that any such consequential damage to the building itself resulting from inherent defect in the foundations is properly to be seen as falling within the same category as the damage involved in the inadequacy of the actual (Page 15)
foundations, that is to say, as economic loss sustained by reason of the erection or purchase of the unsound building. Describing damage as consequential invites the question, consequential upon what? Given the context, the answer must be consequential upon the inadequacy of the footings. In other words, the damage, whether appreciated at the time or not, constituted a physical manifestation, as later proved, of the structural defect. The ambiguity in his Honour's language may be identified in the following way. On the one hand, a defect may be manifest before any physical damage eventuates. For example, the inadequacy of the footings may become known upon inspection by a prospective purchaser. In that case, the economic loss will accrue prior to the damage. That is one operation of the concept of a latent defect becoming known or manifest. The other possible operation is where the physical damage accrues first, but it is not known nor manifest that that damage is a result of the latent defect. In this latter case, it is the underlying cause of the damage which is neither known nor manifest. What is unclear is whether Deane J intended to encompass both cases within his explanation. The first would involve no departure from the ordinary principle of accrual of a cause of action in negligence; the latter would. 51 As subsequently stated by Basten JA in Cyril Smith [19], (as I have set out in [39] above) Pullen is authority for the proposition that even where actual damage caused by the latent defect in the building has been suffered more than six years before the commencement of the action, the cause of action does not accrue until the link between the physical manifestation and the underlying defect is known or ought to be known. 52 On the information before me, it is my view that in these appeals it could not be said with any certainty that the plaintiffs knew of the link between the settlement and cracking of their house in 2004 and the underlying defect identified in 2011, namely the inadequacy in the foundations of the house. 53 I do not find the plaintiffs' version of the facts inherently incredible and, on the authorities, I must proceed on the basis that the plaintiffs' version would ultimately be accepted at trial. 54 On that version of the facts, in 2004 the identified settlement was in one corner of the house, the settlement was attributable to a nearby tree and the only organic material found upon testing was fine roots in the clay below the sand fill. There was certainly nothing in the 2004 report from the engineer to indicate, as the 2011 report did, that there was a depression in the clay below the house filled with compressible topsoil material. The 'organic material' (as referred to by the third defendant) in 2004 was (Page 16)
some fine roots in the clay below the sand fill or sand pad of the house. There was no suggestion of the presence of unsuitable compressible topsoil which was the 'organic material' found in 2011. In fact the 2004 report specifically stated that settlement was unlikely to be due to problems with the sand pad. 55 I do not consider the situation of the plaintiffs in this case to be similar to the position of the Owners Corporation in Cyril Smith. On the issues in this case, what must be known or manifest is the inadequacy of the foundations of the house. Based on the information in these appeals it is not certain that the plaintiffs knew in 2004 that the foundations of the house were inadequate. It is, in my view, arguable that the plaintiffs in this case are in a similar position to the appellant in Pullen. 56 The defendants argued, however, that the defect ought to have been known or was manifest, in the sense of discoverable by reasonable diligence, in 2004, with the consequence that the damage was then sustained. Counsel for both defendants submitted, in essence, that the settlement which existed in 2004 was an ongoing problem which has continued and that there had been a 'misdiagnosed cause' of the settlement by the engineer in 2004. In the words of counsel for the second defendant, the engineer had 'got it wrong' in 2004. 57 Counsel for the third defendant went further and submitted that the 2004 investigations and report by the engineer were inadequate. The contention by counsel for the third defendant was that if the engineer had done in 2004 what was done in 2011, the defect would have been revealed. Counsel submitted that there was no difference in nature in these circumstances, for the purpose of the running of the limitation period, between an owner who does nothing and an owner who engaged an engineer who produced a report which was so inadequate that it failed to reveal the defect. The plaintiffs should have brought proceedings against the engineer, and not against the defendants in this action. 58 The submissions of the defendants raise an issue about the extent of the inquiry which a plaintiff must undertake once put on notice of physical damage which is the consequence of a latent defect. The requirement as set out by Basten JA in Cyril Smith [26] refers to the need for a reasonable person 'to make inquiry and thus discover the defect.' Is that requirement to make inquiry satisfied by the person appointing an expert? Or does the inquiry to be made by a reasonable person extend to the investigations actually undertaken by that expert? The decision in Pullen would suggest that the failure of an expert to (Page 17)
identify and report on an underlying defect will not operate to start time running: Pullen (78 – 79) (as set out and emphasised in these reasons [37]). However, in Pullen the expert was also the defendant; that may distinguish Pullen from the present case. That is a matter which in my view requires argument and is appropriate to leave for determination at trial. 59 Further, there is a real issue as to whether the settlement and cracking in 2004, which on the evidence was confined to the northwest corner of the house, demonstrated an inadequacy in the foundations of the house. As stated in Pullen (79), 'settlement in general and differential settlement in particular does not necessarily bespeak inadequacy of the footings'. On the evidence in these appeals I do not consider that it is clear that in 2004 an inadequacy in the foundations of the house (in the sense of it having been constructed on compressible topsoil) should have been discovered by the engineer. 60 It is true that, with the benefit of hindsight, it could now be said that the settlement of the plaintiffs' house is one ongoing process, which on the defendants' case began prior to 2004. In the 2011 report it was stated (in item 6, Discussion) that 'The presence of the former tree in hindsight appears to have had no impact on the integrity of the structure, as indicated by the ongoing settlement following its removal.' 61 However, hindsight should not be used in determining a matter such as this, including whether the engineer's report and investigations in 2004 were inadequate: Roads and Traffic Authority of NSW v Dederer(2007) 234 CLR 330 [65] - [66], and New South Wales v Fahy(2007) 232 CLR 486 [57], [125]. 62 Evidence from each of the 2004 and the 2011 reports concerning the geotechnical testing carried out by the engineer demonstrates some uncertainty in this case. 63 As I have set out in [14] above, the two borehole samples taken in 2004 revealed sand fill in the top layer and soft silty clay below, with some fine roots in that clay layer. 64 In the 2011 report, there is a summary of the geological testing undertaken from the pit tests (item 5, page 18 of the affidavit of Mr Baker sworn 31 August 2012). There were five test sites, including one from the northwest corner of the house. In every one of the results from the testing in 2011, including from the northwest corner of the house, there was topsoil found in the top layers where there should have been sand fill. (Page 18)
65 The differences in the testing results in 2004 and 2011 was a matter I raised with counsel for the second defendant during the appeal hearing. The differences could not be explained, although the engineer in the 2011 report opined that there had been a gradual consolidation of the topsoil fill. 66 In my view this evidence and the submissions of the defendants (in particular those made by counsel for the third defendant), raise further questions as to how the engineer's 2004 investigation and report was inadequate and whether some other expert investigation could have identified the inadequacy in the foundations of the house. For example: Was further testing in 2004 (that is, more than the 2 borehole samples which were taken) called for or necessary? How likely is it that further testing, if carried out in 2004, would have shown anything different to what was found in the 2 borehole samples? Could there have been movement and changes under the sand pad over time or, as the engineer put it, gradual consolidation of the topsoil fill, which could or might not have been detectable in 2004? 67 What investigations ought to have been undertaken by the engineer in 2004 and whether an inadequacy in the foundations of the house was then reasonably capable of identification are matters which cannot be decided on the second and third defendant's applications for summary judgment. There will have to be evidence led, including expert evidence. 68 I certainly could not find in these appeals, as I understand the third defendant's submissions to be, that the reason why the inadequacy in the foundations of the house was not discovered before 2011 was due to the engineer's negligence (namely inadequate investigations carried out in 2004). 69 There is one further argument raised by the second defendant which I need to address. Counsel for the second defendant also argued that in cases where the claim is for economic loss, economic loss is suffered when the manifestation of the defect affects the value of the property, as where it could not be honestly sold without disclosure of the defect: Sutherland Shire Council v Heyman (505); Cyril Smith [9]. Counsel submitted that the settlement and cracking in 2004 would have had to have been disclosed had the plaintiffs made a decision at that stage (Page 19)
to sell. Accordingly this would have affected the value of the property, so that loss was suffered at that time. 70 While the settlement and cracking in one corner of the house may well have affected the value of the property if sold in 2004, the second defendant has raised a hypothetical situation. There is no evidence that the plaintiffs contemplated selling at that stage. There is also no evidence concerning what, if any, effect those matters or the matters known from the 2004 report would have had on the value of the plaintiffs' property. Further, following Pullenit is the inadequacy in the foundations which is the defect which must be manifest before economic loss is suffered. For the reasons I have discussed, whether the settlement and cracking which existed in 2004 was sufficient to manifest an inadequacy in the foundations of the house is an issue which must proceed to trial. 71 In the circumstances, I do not consider that this is a clear case of the cause of action arising in or prior to 2004 where it is appropriate that the defendants should have judgment. 72 The issues of when the cause of action accrued, whether or not the limitation period had expired before the issue of the writ and, indeed, whether the 1935 Act or Limitation Act 2005 applies, are all issues which should be determined at trial. It is not appropriate to resolve them on an interlocutory application. 73 The defendants' appeals must be dismissed.
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