Koundouris v The Owners-Unit Plan No 1917

[2018] HCATrans 23

[2018] HCATrans 023

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Canberra  No C19 of 2017

B e t w e e n -

MICHAEL KOUNDOURIS

Applicant

and

THE OWNERS‑UNIT PLAN NO 1917

Respondent

Application for special leave to appeal

NETTLE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 16 FEBRUARY 2018, AT 9.28 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR B.F. KATEKAR, for the applicant.  (instructed by Clayton Utz)

MR N.C. HUTLEY, SC:   May it please the Court, I appear with my learned friend, MR F.P. HICKS, SC, for the respondent.   (instructed by MinterEllison Lawyers)

NETTLE J:   Mr Jackson.

MR JACKSON:   Your Honours, may I go to two paragraphs in our application first, where we set out the essential complaint which, in our submission, founds the application.  The first of those is page 195, paragraph 8 and the second is paragraph 22 on page 197.  I have to say I think in paragraph 32, the reference to paragraph 19 should actually be to paragraph 18.

NETTLE J:   Thank you.

MR JACKSON:   To put it shortly, your Honours, this was, in our submission, simple legislation, on the one hand to benefit those acquiring residential premises and, on the other hand, making clear to builders of such premises the ambit and duration of their obligations.  Instead, in our submission, the judgment of the Court of Appeal has brought about a situation where multiple sets of obligations are created and repair work to comply with the statutory obligations is treated as giving rise to a new and additional set of obligations and, to put it shortly, legislation designed to produce clarity has produced, we would submit with respect, obscurity.

Your Honours, may we say immediately, true it is that the legislation is not in similar terms in other Australian jurisdictions ‑ ‑ ‑

GORDON J:   So it is peculiar to the ACT.

MR JACKSON:   Yes, it is, your Honour.  I was going to say it will not infrequently be the case where important legislation of one State or a Territory is in question and, in our submission ‑ ‑ ‑

GORDON J:   It has been substantially amended on a number of occasions, though, has it not?

MR JACKSON:   Well, amended substantially so far as the present matters are concerned once only, I think, your Honour, and that was the conversion from the earlier Act to the 2004 version.  The provisions with which the Court is concerned are ones that have been in effectively similar form since 1972.  Your Honours, it is an important case for the Territory.

Your Honours, the relevant provisions of the two enactments can be seen at pages 201 and following.  If I could go perhaps to the later version commencing at page 203 of the 2004 Act, your Honours will see that as applies from section 88(1), which is on page 204, it applies to the two classes of contract there referred to.  There, your Honours, under each, the “builder” – and that is a term defined on page 203 in relation to section 84 – is a person stated to be “the builder in the commencement notice”.

The applicant was the builder for the relevant statutory provisions and the terms of section 88(3) at page 204 make it apparent that it is the owner who or which obtains rights in relation to the warranties in section 88(2).  Your Honours will see that:

Each of the owner’s successors in title succeeds to the rights of the owner in relation to the statutory warranties.

Your Honours, the warranties operate during a period which is fixed by two dates.  The first of them is the completion date for the work.  That is a term defined by section 85 at the bottom of page 203 and, as your Honours will see from subsection (2), it cannot be later than the day a certificate of occupancy was issued for the work and the other is the expiration of the period prescribed under the regulations, relevantly six years.

In the present case, if I could deal with the facts very briefly, the certificate of occupancy was dated 20 December 2000.  The six‑year warranty period thus expired on 20 December 2006.  That is referred to in the primary judge’s reasons, paragraphs 401 to 406 at page 76.  Of course, the proceedings were not commenced until nearly four years after the warranty had expired.

GORDON J:    But that was within the limitation period.

MR JACKSON:   I am just about to come to that, your Honour, if I may, with respect.  One had the warranty coming to an end on 20 December 2006.  I was going to say, your Honours, that the warranties – or the proceedings would be out of time unless they had been instituted within the limitation period after the breach or an extension of that period granted pursuant to the limitation legislation. 

Now, your Honours, one then has to ask when did the breach occur and, in our submission, the breach would occur in the sale of each unit when the settlement of the first sale and the transfer of ownership took place, and that is when the first owner becomes an owner.

Your Honours will see that the first sale was completed on 21 January 2001.  You can see that from the table which appears at page 152 in paragraph 9 of the Court of Appeal’s reasons.  Your Honours will see, looking at the headings to the columns, the heading “First sale settlement date” and in that column are the dates of the settlements and the completion dates for the sales of the 10 units were 24 January 2001 to 20 April 2001 and the six‑year limitation period thus expired in 2007 in each instance and, although there were applications at first instance for extensions of time, no extensions have been granted.

GORDON J:   Why was it not open, as the Court of Appeal found, to find that there was this systemic problem with the building as a whole that remained the position throughout the entire prescribed period until the end of the prescribed period, at which point the limitation period in a sense ran from the end of the prescribed period?

MR JACKSON:   Well, your Honour, really because of the provisions of section 85(2) - if I could just go back to them for a moment - that the work is taken to have been completed no later than the day the certificate of occupancy was issued and the certificate of occupancy was issued on 20 December 2000, so the six‑year period during which the warranty was in existence lasted for six years after that date.

Then, if one goes to the time at which the warranty was breached, our submission would be that the time in which the warranty was breached was the time at which the owner became entitled to sue in respect of it and that is the point at which, to use the words of section 88(3), the rights of the owner in respect of the statutory warranties solidified or the owner was entitled to sue at the point at which the limitation period started to run.

GORDON J:   But the point made by the Court of Appeal was, was it not, that the builder remained in breach throughout the period to the end of the prescribed period because of the systemic problems with the building and as a result of that and by reference to 88, the work has been or will be carried out, so it deals with that warranty period.

MR JACKSON:   Your Honour, could we say in relation to that that the Court of Appeal’s view was that it appeared to do two things, but could I come to the second of them which is the one your Honour is mentioning to me, I think, at the moment.  One sees that the Court of Appeal, at page 177 in paragraph 118 and 119 on the next page accepted that there was not a continuing obligation on the builder to bring non‑complying work into compliance.

It appeared to have accepted also - and this is page 181, paragraph 131 – that the limitation period would ordinarily run from settlement of each purchase of a unit.  That is paragraph 131.  Your Honours the court, however, then attempts to remedy defects after settlement as themselves attracting new warranties under the second limb of section 88(1). 

Could I take your Honours in that regard to paragraphs 128 and 131 that I have already mentioned?  Your Honours, the result is, in our submission, that one arrives at a situation asking why, in circumstances where there is an obligation to produce a building that is in accordance the terms of the warranties and the rights of the owner accrue at the time of settlement, why is not the breach treated as occurring at that time and that the course taken by the Court of Appeal in creating a new set of warranties on each occasion that the builder does some work to rectify a defect was, with respect, erroneous.

Your Honours, could we also say that the other particular aspect of the Court of Appeal’s decision that we would seek to challenge is of the views of the Court of Appeal which are – perhaps I should start by going to page 199 and to our written submissions, our application, at paragraphs 27 and 28, and to the views of the Court of Appeal that we paraphrase there.

Your Honours will see that the views of the Court of Appeal were that the first limb of section 88(1) applied not merely to the first sale of the building but to any sale thereafter.  Your Honours, it took that view and that, accordingly, notwithstanding the terms of what I describe as the succession provision in section 88(3), successive owners might yet have the two sets of rights to which we have referred in paragraph 28.

Your Honours will see the Court of Appeal’s views at page 162, paragraph 55, where they accepted that the adoption of that view meant that successive owners might have two sources of rights available for breach of the statutory provisions and then elaborated upon that.  That meant, your Honours, if one goes back to the table at page 152, in paragraph 9 of the Court of Appeal’s reasons, that each second and third sale referred to there gave rise to a new set of rights.

NETTLE J:   Mr Jackson, if there is an application that is worth applying special leave for it is really visitation, is it not, given that this is confined to the Australian Capital Territory.  It is really visitation.

MR JACKSON:   Your Honour, could I put it this way.  If one has to classify a case as visitation or non‑visitation, it is a visitation case.  I accept that.

NETTLE J:   If that is so, is it not within the remit of the legislature here to change it if they do not like the result produced by the Court of Appeal?

MR JACKSON:   Well, your Honour, no doubt it is possible for the legislature to do that, but this is a case where, in our submission, a significant amount of money – a non‑trivial amount of money – is involved.  The decision of the Court of Appeal is one that, if one is looking to change it, then there may be some difficulties in arriving at legislation that would do so in circumstances where ultimately the case is one that does have importance for the Territory. 

The Court has jurisdiction and, generally speaking, we would submit with respect, not every case that is limited locally and involves the statutes of one jurisdiction or another should be treated as one that is capable of being disposed of that way.

NETTLE J:   It is just that it is very difficult to see the apparent principles of construction applied by this Court being applied elsewhere in relation to other legislation or more generally.

MR JACKSON:   Well, your Honour, what one does see is that this is a case, your Honours, where, as we have said I think at page 199 – somehow the paragraph numbering on the second half of the page seems to have disappeared but it is about line 32 - in our submission, where you do have new rights created, specific provision made for their duration and who has the benefit and so on then the Court of Appeal’s approach is one that the Court should not race, if I may say so, with respect, to sanction.  Your Honours, those are our submissions.

NETTLE J:   Thank you, Mr Jackson.  Mr Hutley.

MR HUTLEY:   Your Honours, in the papers there are not copies of the definition of “building work” in the two Acts.

GORDON J:   Mr Hutley, would you mind standing at the lectern so we can hear you.

MR HUTLEY:   I do apologise, your Honour.  Could I hand – although referred to I think at paragraph 128, there are not copies of the definition of “building work” in the 1972 Act and the 2004 Act.  Could I hand up a copy of each to your Honours, because that definition picks up the repair concept.  As your Honours will see if I can take up the section 6 – building work, section 6(1):

work in relation to repairs of a structural nature -

Your Honours, can we go – it does not really matter which Act one deals with, but we should make this observation.  The 1972 Act is not identical to the 2004 Act.  Insofar as the owner’s corporation has a claim it is solely under the 1972 Act and in effect the question of construction in relation to that is just of historical interest only and is not of particular interest even to the ACT except such tale as there is, but the 2004 Act has language which is close to but not identical.

For example, the 1972 Act, which you can see the provisions best at application book 53 and following, and the expiry date under the 1972 Act you will see from section 58C(2) which is at about line 40 on page 54, that is from what is called the issue of a certificate of occupancy, not settlement.  So there are differences and they are differences of some little materiality.

But the important point, if I can deal with the construction of 58 C which is the first question, this idea of the multiplicity of rights every sale, with respect to the 2004 Act, it is not going to create any particular difficulties because there is a longstop provision which we have referred to in our submissions - section 142 – which stops any claim, that is, any suit being brought after 10 years.  So, there is no particular difficulty created by it. 

Secondly, when one analyses it, there has to be a multiplicity if one is going to adopt the approach of incorporating warranties in respect of these sorts of provisions.  There really has to be a multiplicity of warranties for a very good reason.

GORDON J:   There is always going to be multiplicity.  The question is the source of them.

MR HUTLEY:   Yes, but the multiplicity with respect to any given property – let us take a block of units, for example.  It is planned and contracts take place, sales take place off the plan with respect to various units.  They can happen at all manner of times prior to building up to at least with respect to the warranty period of six years.

GORDON J:    That is the reason why the statute picks up the language “will be carried out”.

MR HUTLEY:   Quite, but not only that, your Honour.  Let it be assumed the building is built with a defect and then a sale of a unit takes place to purchaser 1 in year 1, and let it be assumed purchaser 1 knows of that defect when he or she buys it.  His or her damages claim will be limited by that knowledge and if he or she then sells it to purchaser 2 without disclosing that defect, purchaser 2, again within the five‑year period, under section 58C(2), would succeed to that person’s rights.

That means the second purchaser, if wholly innocent of knowledge of the defect, would only get the claim that purchaser 1 had.  This actually was an issue in this case in the Court of Appeal until abandoned by our learned friends.  They took the approach that even if there were these successions because somebody earlier on in the chain had knowledge then any person down the line would be similarly limited.

It would lead to real problems of proof for successor purchasers within the periods because the vendor, that is the builder, could take the attitude, you have to negative that no intermediate purchaser had knowledge of the defect which you now claim in respect of because if they did you would have only inherited their right to damages which would have been reduced by virtue of the fact that they knew of the defect.

GORDON J:   But that argument has to be met, does it not, by the fact that you can have an acquisition by a subsequent purchaser during the prescribed period where the defect becomes evident only after purchase?

MR HUTLEY:   Quite.  That could happen.

GORDON J:   So that is a complete answer to that submission.

MR HUTLEY:   No, with respect, because what you succeed to, on our learned friend’s case, is the rights of the owner and the owner from their point of view is the prior ‑ ‑ ‑

GORDON J:   That is why you seek to uphold the decision of the Court of Appeal.

MR HUTLEY:   Quite and that is why we say that the construction makes perfect sense, which provides there is “an implied by force of the section” in every contract for sale of the residential building.  That means every contract for sale of the residential building within ‑ ‑ ‑

GORDON J:   The prescribed period.

MR HUTLEY:   ‑ ‑ ‑ the prescribed period a warranty and that warranty will be breached upon either entry into that particular contract ‑ ‑ ‑

GORDON J:   Because they have succeeded to the rights?

MR HUTLEY:   No, not because they have succeeded to the rights; it is because they have entered into a contract which promises them that the residential building work on the building, if it has been carried out, passed, has been carried out in accordance with the Act, an independent promise to each incoming purchaser of the property within the period and you are able to sue on that promise.

You will also succeed to the rights of your predecessor in title, but that will lead to no difficulty or double-counting because you can only get one set of damages.  What it does though is ensure – and this is protective legislation of consumers, as the Court of Appeal stressed – that each purchaser gets complete protection in respect of defects and is not inhibited in their claim by what might have been done by his or her antecedent purchaser within the warranty period.

So there is perfect sense to this - our learned friend’s main complaint of the Court of Appeal’s first construction of the multiplicity of warranties; perfect sense to it.  It ensures that consumers, and this is directed at consumers, acquire on each purchase, as long as the purchase is within the warranty period, a new promise from the builder of the character indicated.  That is the answer to the first question and it is a perfectly sensible construction. 

The second point that our learned friends put forward is the complaint with respect to repair work.  What happened here, and just to put it broadly, is after the building was completed, problems basically with water ingress and others started to appear.

GORDON J:   Well, it was described as a systemic problem.

MR HUTLEY:   Quite.  In effect, there were just ‑ ‑ ‑

GORDON J:   It leaked.

MR HUTLEY:   It leaked and it leaked because, in effect, there was not a crack or something like that, there was just a complete failure in the underlying construction steps taken.  The builder came along and purported to do extensive repair work and the builder did it ‑ ‑ ‑

GORDON J:   I think it is set out in paragraph 127 of their Honours’ judgment where they set out with absolute clarity what the problems were and what the builder had and had not done.

MR HUTLEY:   Precisely.  The Court of Appeal’s ultimate construction on the repair question is if you build into the covenant - to take the later section, the 2004 Act, and go to section 84 together with 88 and also use the definition of “building work”, which I have given you, and read them into 88(2), the warranty is the builder warrants that work in connection with repairs of a structural nature to the residential building will be carried out in accordance this Act.  That is the warranty they are under throughout the period and what happened ‑ ‑ ‑

NETTLE J:   Is that from the time of repair or from the time of the original contract?

MR HUTLEY:   From the time of the original contract.  So it is an ongoing warranty which literally speaks to repair of the building.  That is what occurred during the warranty period and it was defective, it was wholly defective, and the court said that the damages which flowed from the breach of that warranty was, i.e. if they had done that in accordance with their obligations, the building would have been repaired and therefore the damages which flowed from their breach of doing defective repair work was equivalent to the cost of doing the correct repairs.  That is the simple question which really answered the whole case.

Now, our learned friends accept that it was repair work.  Our learned friends accept that the matter was wholly defective.  Our friends have two points, as we understand it.  They say that the warranty does not extend to what they described as “voluntary repair work done after completion”.  Why that is the case is wholly obscure and it was wholly obscure to the Court of Appeal.  When one thinks about it, in what might be called a consumer‑orientated legislation, letting the builder off for defective repair work is, as it were, contraindicated. 

Our learned friends then seek to run a point:  but it was done for free and therefore is under the statutory limit of value.  But that is wrong.  That point was not really even run in the Court of Appeal and it is simply wrong because the only question of value is to the contract as a whole.  In other words, it says, “For minor building contracts” – under $12,000, I think – “you won’t get the warranties.”  But this was for large building so that goes nowhere.

At the end of the day, unless your Honours are of the view that there is some merit in the argument that these warranties do not extend to repair work, our learned friend’s prospects of success are nil.  That is really what it comes down to because if one goes to the original position of the strata corporation, it is suing under the original warranty.

GORDON J:   I put it to Mr Jackson that the principal point is that this building was systemically defective at the start of the prescribed period and at the end of the prescribed period.

MR HUTLEY:   Quite.  There was a lot of work done to try and repair that, all in breach of the warranty because it did not meet the standards of “will

be carried out in accordance with the Act”.  The repair work was hopelessly inadequate.

GORDON J:   All the claims were instituted within the limitation period following the expiration of the prescribed period?

MR HUTLEY:   Quite; exactly.  The repair work was going on full bore right up until and even past the end of the warranty period, but it is sufficient for our purposes it was going up to the warranty period.  So, in our respectful submission, the Court of Appeal was clearly right.  This multiplicity of covenants point was addressed by the Court of Appeal and correctly addressed because it is needed, if one undertakes appropriate analysis, if you are going to adopt this bespoke approach of the ACT. 

It is unique; it is not done anywhere else, and because of its unique character, to protect consumers you have to have this new warranty being given on each purchase which takes place within the warranty period, otherwise the purchasers would not be protected because they would in effect be dependent upon the behaviour of their predecessor in title, if one was relying solely on section 88(3), to take the example.  Those are our submissions, your Honours.

NETTLE J:   Thank you, Mr Hutley.  Any reply, Mr Jackson.

MR JACKSON:   Your Honours, may I say first of all, in relation to the reliance on section 142 could I take your Honours to our response at page 221, paragraph 2, and, as we submit there, section 142 simply says that 10 years is the longest period you can take and does not apply - the shorter limitation period is provided.  It does not really take the matter anywhere, in our submission.

The second thing is, your Honours, in relation to the successive purchasers argument, one does have a submission where, in relation to successive purchasers, they have contracts between themselves and the persons from whom they are purchasing.  What you find is that there are provisions which the statute implements and which apply in various circumstances.  If one goes to, to use section 58, as our learned friend did, you will see in subsection (2) at the top of page 203 that there are given specific but limited rights, that is:

Each of the owner’s successors in title succeeds to the rights of the owner in respect of the statutory warranties.

Otherwise, it is a matter of contract.  The legislature gives what it gives but it has not given more and if more is to be required then one should go, I suppose, to the legislature. 

Here, if one is looking at the case of the repairs – turning to a different point – the situation that one does see, going for a moment to section 58C(1) at page 202, that the implication is into contracts for the sale of a residential building and contracts to carry out residential building work.  The difficulty with the argument advanced for the respondent on this question is that the only relevant contract in relation to repair works is the one that has already been entered into at the time of the original building work.

Your Honours, in our submission, that contract or the breaches occurred at the time when the transfer of ownership of the property occurs and when you have someone who becomes the owner.  Those are our submissions.

NETTLE J:   Given, as is conceded, that this matter is confined to questions of construction of legislative provisions which are unique to the Australian Capital Territory and which have since been amended in part, the Court is not persuaded that the applicant has identified a question of principle of general importance which it would be in the interests of justice for this Court to consider.  Accordingly, the application is dismissed. 

Do you seek costs, Mr Hutley?

MR HUTLEY:   Yes, your Honour.

NETTLE J:   The application is dismissed with costs.  Thank you, gentlemen.

AT 10.03 AM THE MATTER WAS CONCLUDED