Mabel Dorothea Fligg v The Owners Strata Plan 53457 - [2012] NSWSC 230

Supreme Court

New South Wales

Case Title: Mabel Dorothea Fligg v The Owners Strata Plan 53457

Medium Neutral Citation: [2012] NSWSC 230

Hearing Date(s): 28 & 29 February 2012

Decision Date: 15 March 2012

Jurisdiction: Equity Division

Before:
Slattery J

Decision:
Order that the defendant execute by 15 June 2012 the agreed remedial works provided for in the experts' conclave agreement made on 24 February 2012. Order the defendant pay 80 per cent of the plaintiff's costs of the proceedings. Order the defendant to pay the plaintiff's out of pocket expenses incurred to Mr John Worthington, Cardno NSW Pty Limited (Mr D. McMillan) and the solicitor Mr David Le Page. If remedial works are not successful in eliminating all water penetration and all calcium staining windows within three months of the date of this judgment, namely 15 June 2012, then the proceedings are to be re-listed by 30 June 2012 to determine any diminution in the market value of the plaintiff's apartment.

Catchwords:
REAL PROPERTY - Strata titles - owners corporation's duty to maintain common property - water penetrates plaintiff's apartment in and after episodes of rain - some remedial works undertaken - only partially effective - experts agree on further remedial work to be executed - whether defendant should pay the plaintiff's costs of the proceedings - whether defendant should pay certain of the plaintiff's out of pocket expenses - whether diminution in market value of plaintiff's apartment, if works not carried out.

Legislation Cited:
Civil Procedure Act 2005 (NSW)
Civil Liability Act 2002 (NSW)
Strata Schemes Management Act 1996 (NSW)
Strata Schemes (Freehold Development) Act, 1973 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:
Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194
Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359
Coffs Ex-Services Memorial & Sporting Club Limited v Coffs Harbour Catholic Recreation & Sporting Club Limited [2010] NSWSC 605
Degman Pty Limited (in liquidation) v Wright (No. 2) (1983) 2 NSWLR 354
Edwards Madigan Torzillo Briggs Pty Limited v Gloria Stack [2003] NSWCA 302
Flight Centre v Janice Louw [2011] NSWSC 132
James v Surf Road Nominees Pty Ltd (No. 2) [2005] NSWCA 296
Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13
Hypec Electronics Pty Limited (in liquidation) v Mead (2004) 61 NSWLR 169
In Re Wilcox; Venture Industries Pty Limited (No 2) (1996) 72 FCR 151
Latoudis v Casey (1990) 170 CLR 534
Lin & Anor v The Owners - Strata Plan No 50276 (2004) 11 BPR 21,463
Lubrano v Proprietors of Strata Plan 4038 (1993) 6 BPR 13, 308
Ohn v Walton (1995) 36 NSWLR 77
Oldham v Lawson (No. 1) [1976] VR 654
One.Tel Limited v Commissioner of Taxation (2000) 101 FCR 548
Oshlack v Richmond River Council (1998) 193 CLR 72
NMFM Property Pty Limited v Citibank Ltd (No 2) (2001) 109 FCR 77
Paramount Pictures Corporation v Hasluck (2006) 70 IPR 293.
Re: The Minister for Immigration and Ethnic Affairs and the Commonwealth of Australia ex parte Lia Qin (1997) 186 CLR 622
Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449
Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157
State of New South Wales v Corby (2010) 76 NSWLR 439
Sydney Ferries v Morton (No.2) [2010] NSWCA 238
The Proprietors of Strata Plan No. 6522 v Furney & Anor (1976) 1 NSWLR 412
The Proprietors of Strata Plan (No. 30234) v Margiz Pty Ltd (1993) 32 NSWLR 294
Trevallyn-Jones v Owners Strata Plan No 50358 [2009] NSWSC 694
Vincent v Peacock (1973) 1 NSWLR 466
Zreika v State of New South Wales [2009] NSWCA 99

Texts Cited:

Category: Principal judgment

Parties:
Plaintiff:- Mabel Dorothea Fligg
Defendant:- The Owners Strata Plan 53457

Representation

- Counsel:
Plaintiff:- R. Horsley
Defendant:- D. A. Moujalli

- Solicitors:
Plaintiff:- Jonathan Abbott, Jonathan Abbott & Associates
Defendant:- Duncan Stuart, McCulloch and Buggy

File number(s): 2010/328338

Publication Restriction:

Judgment

On 11 June 2008 Mrs Mabel Fligg settled her purchase of an apartment ("Apartment 73") in a block of units in Alfred Street, South Milsons Point. Within a week of purchasing Apartment 73 Mrs Fligg encountered problems with water penetration into her living spaces. She complained to the Owners Corporation, which undertook some investigations. But the problem was not rectified. She commenced proceedings in the Consumer, Trader and Tenancy Tribunal ("CTTT") in November 2009, which resulted in January 2010 in a mediated settlement and the doing of some remedial works to her apartment. But these works did not solve the problem. Water continued to leak into Apartment 73, especially during heavy storms.
So Mrs Fligg commenced these proceedings on 1 October 2010. She says she was frustrated that the Owners Corporation did not appear to be taking her water penetration complaints seriously or doing anything to fix the continuing problem. She says she felt she had no alternative but to commence proceedings. In contrast, the defendant says it was managing the investigation of water penetration problems and the undertaking of remedial works in Mrs Fligg's and in other apartments in the building and that there was no need for the plaintiff to commence the proceedings.
The plaintiff's claim had three main components: (1) a claim for an order under the Strata Schemes Management Act 1996 (" Management Act "), s 62 for the performance of identified remedial and rectification works, and in the alternative a claim for damages for loss of the value of Apartment 73 if the water penetration went unrectified; (2) a claim for damages for loss of amenity, distress and inconvenience, and damage to personal property resulting from the water penetration; and, (3) a claim for aggravated and exemplary damages. Mrs Fligg also sought interest and costs.
Mrs Fligg abandoned parts of her claim at the hearing on 28 and 29 February 2012. She gave up her claims for loss of amenity, distress and inconvenience, in the face of defences under the Civil Liability Act that the damages identified did not meet the required statutory threshold under Civil Liability Act , s 16. She gave up her claims for aggravated and exemplary damages, in the face of a contention that the defendant's conduct did not warrant an award of such damages.
But she maintained the claims for rectification and the loss of market value of Apartment 73. A conclave of experts took place on the Friday immediately preceding the week of the hearing: Friday, 24 February 2012. At this conclave the plaintiff's and defendant's technical experts made findings upon the cause of the water penetration and identified the works they assessed were necessary to remedy the problem. Their agreement was recorded in written form on Monday, 27 February 2012. The Court was invited to make orders for the carrying out of remedial works to Apartment 73 in accordance with the findings of the experts conclave.
After the experts' conclave agreement, three matters remained for the Court's resolution: the loss of value of the apartment in the event that remedial works were unsuccessful; out of pocket expenses (principally consulting engineers and solicitors fees), and costs. As explained later in these reasons the Court decided that the first of these, the diminution in market value of the apartment due to the existence of the water penetration problems was better determined once it was ascertained whether or not the work could be successfully carried out. The parties then put submissions about the remaining issues, the recovery of out of pocket expenses, and costs. But to determine these issues it was necessary for the Court to understand and examine many of the parties' contests. These reasons carry out that examination.
In the result the Court has found that the plaintiff is able to recover most of her out of pocket expenses, that the plaintiff conducted herself reasonably in bringing the proceedings and was almost certain to have been successful had the issue of relief not been compromised and that she should recover her costs of the proceedings. But the Court has also found that the plaintiff should lose a small percentage (20 per cent) of those costs, on account of the claims she has abandoned.
The case was efficiently presented by the legal advisors for the parties in considerably less than the originally allotted hearing time. Mr R. Horsley of counsel appeared for Mrs Fligg instructed by Jonathan Abbott, Jonathan Abbott & Associates of Dural. Mr D. A. Moujalli of counsel appeared for the defendant, instructed by Duncan Stuart, McCulloch and Buggy, solicitors of Sydney. The case had its difficulties for both sides: an apparently intractable water penetration problem creating its own anxieties, multiple meetings of the Owners Corporation, and technical experts with competing opinions until the last moment. Through all this, the lawyers on both sides appear to the Court, from the way the case was presented, to have served their respective clients well.

Mrs Fligg and Apartment 73

The period of almost four years between Mrs Fligg's purchase of Apartment 73 in June 2008 and the hearing of these proceedings in February 2012 can be divided into five phases, in which the parties engaged with one another about water penetration into Apartment 73.
(a)June 2008 to February 2009 - Purchase and Initial Investigation;
(b)February 2009 to January 2010 - From the First Set of Works to the Mediation;
(c)January 2010 to May 2010 - The CTTT Mediation and Carrying Further Agreed Remedial Works;
(d)May 2010 to October 2010 - The Prelude to Litigation; and
(e)October 2010 to February 2012 - The Last Phase up to the Hearing.
It is necessary to understand the parties' actions throughout each of these phases to decide the remaining questions in issue.
But an account of Mrs Fligg's dealings with the defendant Owners Corporation is best given in light of an initial analysis of the applicable statutory provisions that found her pleaded statutory cause of action against the defendant.

Applicable Statutory Provisions

In her Statement of Claim Mrs Fligg pleads that the defendant has breached Management Act , s 62, which provides as follows:-
"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:
(a) it is inappropriate to maintain, renew, replace or repair the property, and
(b) its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme."
This case principally engages the provisions of Management Act , s 62(1) rather than s 62(2), as the problems addressed by the experts' reports essentially relate to maintaining and keeping the common property in repair, more so than renewing or replacing parts of its structure.
The statutory schemes for the ownership and management of strata title property provide that upon registration of a strata plan for a strata scheme an "owners corporation" for that strata scheme is established and holds common property for the proprietors of lots in the scheme: Management Act , ss 8 and 20. The common property of a strata scheme is defined under the Strata Schemes (Freehold Development) Act , 1973 (" 1973 Act ") to mean "so much of the parcel from time to time as is not comprised in any lot": 1973 Act , s 5. The boundary of a lot is the interior wall, ceiling and wall surfaces of each apartment: 1973 Act , s 5(2). Thus, problems with water penetrating through gaps and openings near fixtures such as balcony doors, are problems within the common property of the strata scheme.
It is useful to consider common features of Management Act , s 62 duties and some specific obligations that arise under Management Act , s 62(1).
Common features of Management Act, s 62 duties . Each of the duties imposed under s 62(1) and (2) is an absolute duty and compliance with it is mandatory: Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449 at [5] per Hodgson JA; and Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at [21] per Brereton J. The strict nature of ss 62(1) and (2) duties makes irrelevant any issues of whether or not an owners corporation took all reasonable steps to comply with those duties, if ultimately the owners corporation failed to meet the strict requirement of the s 62 duty: Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at [21]. The duty of an owners corporation under Management Act , s 62 is owed to each lot owner and breach of the duty gives rise to a private cause of action under which damages may be awarded to a lot owner for the breach: Lubrano v Proprietors of Strata Plan No 4038 (1993) 6 BPR 13,308 at 13,310-11. The obligation imposed on an owners corporation under Management Act , s 62 extends to oblige the owners corporation to do things which could not be for the benefit of the proprietors as a whole or even a majority of them: The Proprietors of Strata Plan No 159 v Blake [1986] NSW Titles Cases 50,650 at 50,564 per Yeldham J; Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449 at [166] per McColl JA and Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at [4] per Brereton J. Under both Management Act, ss 62(1) and (2), breach of the absolute duty occurs as soon as something in the common property is no longer operating effectively or at all, or has fallen into disrepair: Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449 at [177] per McColl JA; Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at [5] per Brereton J.
Management Act, s 62(1) obligations . The obligation in Management Act , s 62(1) upon an owners corporation to "properly maintain and keep in a state of good and serviceable repair of common property" has been well defined in authority. Prima facie the obligations of maintenance and repair in Management Act , s 62(1) are directed to keeping the common property operational and restoring something which is defective: Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449 at [158] per McColl JA. The primary meaning of "repair" in Management Act , s 62(1) is to restore to sound condition that which has previously been sound, to make good, and the operation of making an article good, irrespective of whether the article has been good or sound before: The Proprietors of Strata Plan No. 6522 v Furney & Anor (1976) 1 NSWLR 412 (" Furney's Case ") at 416, citing Lord Patrick in Burns v National Coal Board [1957] SC 239 at 245; The Proprietors of Strata Plan (No. 30234) v Margiz Pty Ltd (1993) 32 NSWLR 294 at 297-8 per McLelland CJ in Eq; and Lin & Anor v The Owners - Strata Plan No 50276 (2004) 11 BPR 21,463 at [48] per Gzell J. But the duty of repair in Management Act , s 62(1) can include making additions to the common property of necessary articles even if they are not originally included in the building: The Proprietors of Strata Plan No. 6522 v Furney & Anor (1976) 1 NSWLR 412 at 416 per Needham J.
This legal background assists the assessment of the conduct of the parties between June 2008 and the present time. The Court is not conducting a hypothetical trial of these proceedings. But in order to assess costs and make the necessary findings about out of pocket expenses that the parties seek, much of the extended history of this mater must be recorded. Moreover, the parties' submissions on the remaining issues were extensive, and a proper understanding of the facts is required to do them justice. The parties invited the Court to make the necessary findings of fact, even though cross-examination in the case was limited to Mrs Fligg.

(a) June 2008 to February 2009 - The Purchase and Initial Investigation

Prior to purchasing her apartment Mrs Fligg made reasonable efforts to ascertain whether anything in the strata records should deter her from her purchase. Her pre-purchase Strata Inspection Report revealed that there were issues with the maintenance of the building going back to 2002, but there was no record in the strata scheme's files of any defect relating to Apartment 73. Nor did Mrs Fligg see any damage to the apartment during her pre-purchase inspections. She exchanged contracts on 15 May 2008, completed her purchase on 11 June 2008, and moved in a few days later.
The apartment is located on Level 14 of what is a sixteen level building. The precise address of the building on Alfred Street, Milsons Point is not published in these reasons in order to reduce the risk of identity theft. The apartment has three-bedrooms and a large balcony, opening out from the west facing living room, and with a smaller south facing balcony opening off the main bedroom and a dining room. The difference between the two balconies is important, because the water penetration associated with each one needed to be separately remedied. Problems persisted with the smaller southern facing balcony for longer than they did with the larger western facing balcony.
Within days of her purchase Mrs Fligg realised all was not well with her apartment. She found that the carpet adjacent to the balcony doors of both the southern and western balconies had been replaced to a distance of about 60 centimetres from the sliding doorways, apparently to replace water damaged carpet.
After she moved in Mrs Fligg found that the first rainstorm resulted in substantial water penetration from the western balcony into her apartment. Mrs Fligg saw that water was coming into the apartment from the living room balcony, that the walls around that balcony were damp and water had penetrated along the entire length of the carpet along the sliding door leading to the living room balcony.
Mrs Fligg consulted her solicitor, Mr Abbott of Jonathan Abbott & Associates of Dural, who wrote to the Strata Managers for the building, Mssrs Bright & Duggan Pty Ltd ("Bright & Duggan") on 18 June 2008. Mr Abbott's letter is a contemporaneous record of Mrs Fligg's earliest experience of water penetration in Apartment 73. It complains of "water damage to her carpet in the living room, which seems to have arisen from water penetrating in from the balcony" and alleges "carpet is damaged and will need a replacement" and that "the stonework is also soft at the entrance which would indicate there is some water logging". The letter flags very early that Mrs Fligg seeks the repair of those problems and the replacement of the carpet.
Mrs Fligg was given a claim form, which she lodged with the caretaker, Mr Ray Ristuccia (a building manager employed by the Building Management Service Company then providing services to the defendant, High Rise Engineering Maintenance Pty Limited).
The problems in the apartment continued. The Owners Corporation and the Strata Manager did nothing in the short term directly to rectify them. The Owners Corporation was involved in other larger scale investigations of problems (including water penetration issues) in the whole building at this time through Savills Proect Management Pty Limited ("Savills") and Taylor Thompson Whitting NSW Pty Limited ("TTW"). But none of the their investigative work led to remedial work in Mrs Fligg's Apartment 73, before March 2009.

Mrs Fligg realised how serious a matters the water problem was, as a result of events on 28 July 2008. Early that morning, a period of very heavy rain, caused serious flooding to the apartment. Water penetrated into the living room from the balcony and soaked the carpet in from the balcony door by about 2 metres. Mrs Fligg was up until 1 am placing towels at the balcony entrance to the living room to prevent the whole room becoming flooded. Two days later, on 30 July 2008, Mr Abbott wrote again to Bright & Duggan alerting the Strata Manager to the intensity of this inundation and the penetration of water into the living room. Thus, about six weeks after settlement Mrs Fligg's solicitor had identified her main concern, water penetration from the west into her living room area.
But by this time Mr Abbott, in consultation with his client, had also done some spadework in order to suggest to the Owners Corporation what might be a source of the problem. He had discovered from the strata records that from November 2003, about five years earlier, as his correspondence asserted, "extensive work was carried out to the unit above our client's unit, being lot 116". This work involved enlargement of the balcony above, the relocation of the external wall, incorporating an existing balcony into a bedroom on level 15, removal of balcony tiles and the re-tiling of the balcony area. Mr Abbott made a number of reasonable suggestions to broaden the Owners Corporation's ideas about the possible source of the living room water penetration and to help obtain recovery of compensation for Mrs Fligg in the short term:-
"It may well be that this work was defective in that proper drainage requirements were not met. The owner of Lot 116 may well have a right to claim against the builder who carried out that work. What is abundantly clear however is that it is untenable for Mrs Fligg to have to continue to endure flooding in her unit when it rains. She is elderly and these issues are adversely affecting her health.
We need hardly point out that Mrs Fligg is entitled to the quiet use and enjoyment of her unit and this is being disrupted in the extreme by the water penetration problems which would seem to emanate from the unit above.
We make the comment in passing that not only would it be of serious concern for the integrity and safety of our client's unit should water penetration, water logging and, potential, softening of the formwork continue into the future but it should also be of great concern to the unit owner above our client who clearly relies from support from below."
Shortly after the major flooding event of 28 July 2008, Mrs Fligg first noticed one of two other persistent problems with Apartment 73, in addition to water penetration from the western living room balcony. Well after the rain had stopped Mrs Fligg noticed water continuing to leak down the balcony door, as though from a reservoir of water above. This left a white residue on the door which could not be removed, even with tradesmen's assistance. Mr Abbott drew the Strata Manager's attention to this residue, which was a lime or calcium deposit. The Building Manager, Mr Ristuccia and the building caretaker visited the unit a number of times. But they did not give Mrs Fligg any commitment that anything would be done to correct the water penetration problems.
On 19 August 2008, the first reply correspondence from the Owners Corporation, took no responsibility for the problem but blamed Mrs Fligg. The Owners Corporation advanced the hypothesis that Mrs Fligg or a previous occupant had caused the "external sliding door weep holes to be deliberately blocked with a sealant" and therefore rainwater "builds up in the cavity until it overflows into the apartment interior". The Owners Corporation suggested to Mrs Fligg that she should have the external sliding door weep holes unblocked.
Mrs Fligg was understandably disheartened by this communication. She says, and I accept, that she saw no point in re-carpeting the unit and that she would arrange for her own building inspection. In restrained terms Mr Abbott told Bright & Duggan on 10 September that their communication of 19 August was unsatisfactory. Mr Abbott pointed out that no attempt was being made, "to have an independent builder actually inspect the balcony above and our client's balcony to establish where the real issues lay and how they might be best fixed". This independent builder was Mr John Worthington, whose fees are still in dispute in the proceedings. Mr Abbott requested the Owners Corporation, "would you please make a genuine attempt to come to terms with this issue" and foreshadowed that as a result of the Owners Corporation's failures Mrs Fligg would arrange her own builder to examine the problems and their causes and report back to the Owners Corporation with respect to recommend remedial measures.
Despite what was happening elsewhere in the building, in my view, given what Mrs Fligg had been told and what she faced, her decision at this time to engage Mr Worthington, an independent builder, was reasonable. It was a coherent and proportionate response to the Owners Corporation's dealings with her up until that point. The Owners Corporation's perspective on this period will be given later.
Another important water related defect in Apartment 73 came to Mrs Fligg's attention, in October 2008, when she noticed that water was also coming into her bedroom and the dining room from the southern balcony.
Mrs Fligg says, and I accept, that in late 2008 or early 2009 she filled in a form and lodged it with the caretaker's officer, specifically complaining about the water problem emanating from both the western and southern balconies. She was mainly concerned about the level of water damage in the living room area because it was worst in that area and she was exasperated by the continuing run off from the wall above. It was her impression that a ledge above the window and door on the western side and below the apartment above on level 15 where prior works had taken place, allowed water to gather and then overflow down the wall. But nothing was done by Christmas 2008.
In early 2009 the Executive Committee of the Owners Corporation reported to an extraordinary general meeting about the engagement of a building company specialising in water penetration, Watergate, which had been engaged to fix water penetration problems in a number of balconies in the building. A member of the Executive Committee, Mrs Jane Campbell, visited Mrs Fligg's unit and made observations about the extent of the problem there. Mrs Campbell's email reproduces her immediate reaction to what she saw. In the email she reported to the whole Executive Committee and looked forward to action on the 2 March:-
"Hello
I have just been into May's apartment. Not for business, but I am now making it so.
The rain, once again, has entered May's apartment. The water is coming in from the balcony. More than two feet (depth) of her lounge room carpet is ruined. May has hired engineer who says it is because the balcony level is the wrong height in relation to the floor. He is more than willing to speak to the committee, and I have asked him to put in writing as well.
It is a disgrace. No-one should have to put up with wet and smelly skirting boards is relatively minor but something that needs to be fixed as well as they will only get worse. Fortunately (for the committee as much as May) the afternoon sun does help to reduce the mould.
Everything seems to come back to the pediments. This is not a pediment problem. We need to get it(and other apartments) fixed as they are only going to get worse.
I hope the meeting on 2 March will bring a decision instead of the continued circles.
Regards,
Jane"
Much can be drawn from this email. It informs the Committee that Mrs Fligg has already hired Mr Worthington; it invites him to communicate with the Executive Council; the author's reaction to the last nine months of the apartment in the present condition was, "it is a disgrace"; and, the lack of resolution up to that time, despite the contact between the parties that had taken place, was described in her words as "continued circles". Mrs Campbell said in evidence that she does not recall looking at Mrs Fligg's southern balcony at this time. That is probably correct as the main ingress of water at that time was from the western balcony area. But once that was mostly fixed in early 2010, residual problems with the southern balcony came into greater focus.
Mrs Fligg did have a report by then from Mr Worthington, his report dated 3 February 2009. She had already made this report available to the building caretaker. Mrs Fligg had engaged Mr Worthington before the Executive Committee acted to retain Watergate to do repair work to the building generally. It is not necessary to reproduce Mr Worthington's report in these reasons, but it clearly identifies the three areas of water penetration that were troubling Mrs Fligg: (1) water penetration from the large balcony to the west into the living room; (2) water penetration from the southern balcony into the bedroom and dining room; and, (3) calcium staining on the living room windows apparently from the accumulation of water in the area of the unit above. Mr Worthington included photographs and clear descriptive findings about each of these problems. Mr Worthington concludes that "further investigation should be carried out and the balconies [should] be water tested".

(b) February 2009 to January 2010 - From the First Set of Works to the Mediation

The February 2009 Owners Corporation AGM led to the engagement of Watergate at an Executive Committee meeting of the Owners Corporation on 2 March 2009 (Exhibit D - and based upon a Watergate quotation of 27 February 20009). Watergate soon commenced work on a number of balconies throughout the building. Mrs Fligg recalls that work commenced in March 2009 in her unit. The work involved pulling up the old tiles on the balconies and installing a waterproof membrane. Mrs Fligg found the presence of workmen in her unit for the long periods involved was highly intrusive, inconvenient and produced dirt and disorder in Apartment 73. She recalls, and I accept, the period was an extremely stressful one for her and the work went on in her unit for a number of months.
During late June or early July 2009 an incident occurred that led to the disputes between the parties about the recovery of the other out of pocket expenses in issue, Mr McMillan's and Mr Le Page's fees. Mrs Fligg put a stop to the remedial work being done on Apartment 73, which stoppage had financial consequences about which the parties cannot agree.
Mrs Fligg directed a stoppage of work in the following circumstances. By late June 2009, she was becoming increasingly concerned about one aspect of the work being done on her balconies. She feared that the cement bed the workmen were creating on the surface of each balcony was going to increase its height, to the point that water could enter into the apartment that way. She was questioning the wisdom, at least for her unit, of the repair method that Watergate had adopted. This seemed to her to be a significant issue. She asked Watergate's workmen to stop their work so she could get an independent assessment done before the work was completed. Mrs Fligg tried to contact Mr Worthington to do an inspection. But he was not contactable. So she arranged a Mr David Zihrul, another consultant to attend the apartment on 4 July 2009. According to Mrs Fligg, Mr Zihrul confirmed the same day that rectification work should not go ahead. Mr Zihrul's letter of 9 July 2009, questioned whether the repair work should continue "unabated", without apparent regard to the Worthington Report; Mr Zihrul queried, "I must ask is this wise?" In paragraph 2.11 of Mr Worthington's report he had identified a number of options for repair, although "further invasive investigation will be required". These options included constructing a hob, enclosing the balcony and proving the integrity of the window frame sealant. But his suggestions also included the possibility of removing the balcony tiles and re-laying them, but as he said, "still maintaining the appropriate falls to the drainage points". Mrs Fligg's late June 2009 concerns about the height and the fall of the tiles were generally consistent with Mr Worthington's February 2009 advice. In my view her concerns were reasonable, in the circumstances.
Between July 2009 and May 2010 Mrs Fligg engaged Mr David Le Page to act as her solicitor. Mr Le Page in turn engaged Mr David McMillan, a consulting engineer from Cardno NSW Pty Limited, to give Mrs Fligg advice. Mr McMillan inspected the unit on 13 August 2009 and provided a report to Mrs Fligg the following day, 14 August 2009. In my view, the plaintiff's engagement of both Mr Le Page and Mr McMillan was appropriate and reasonable in the circumstances.
After Mr McMillan completed his inspection on 13 August 2009 he reported to Mr Le Page on 14 August on the partly completed works. His report highlighted that there was cause for Mrs Fligg's concern. He reported, " I advise Mrs Fligg of my concerns that the now partly completed works may not prevent further leakage under the sliding doors and into her unit". In order to assess whether the partly completed membrane and the re-tiling work had solved the moisture ingress problems, Mr McMillan sought full details of the works from the contractor for review to ascertain "that the current works have a good chance of solving the past problems, or until a revised scope of works [is developed] that will reasonably ensure a satisfactory outcome, can be agreed". Until then Mr McMillan recommended Mrs Fligg delay the further works on her balcony.
But Mr McMillan also dealt with the staining to the balcony doors from level 15. He observed:-
"No indications were observed to suggest that any remediation of the problems, associated with lime, late and water ingressing from the tile bed on level 15, and being blown into and staining the base of the sliding doors to the balcony, was contemplated."
He also asked for the managing agents to provide details of how the current problems with regard to lime staining on the glass doors were to be rectified. He pointed out: that there was significant cracking and obvious rust staining in the pediments above the level 15 balconies; and that these problems seemed to be the result of inadequate maintenance. Mr McMillan concurred with the recommendations of a Taylor Thompson and Whiting (NSW) Pty Limited ("TTW") Report of 29 October 2008, that the causes of the pediment distress should be adequately investigated before a remedial strategy for it was formulated.
Mr McMillan's report generated an important round of correspondence in the first half of September 2009. Mrs Fligg said she was saddened by Mr McMillan's report, because she realised that it meant that the work then being carried out may not fix the water leakage problems.
By this stage lawyers were involved on both sides: Mr Le Page for Mrs Fligg and Mr Mark Morgan of Morgan Lewis Attorneys for the Owners Corporation. Exchange of their correspondence in the first half of September 2009 identified three problems: (1) whether the waterproofing work to the balcony would prevent water ingress to the unit; (2) the staining to Mrs Fligg's balcony doors from lime affected water running from the balcony slab above; and, (3) the removal of pediments. It is not necessary to detail all the correspondence on each of these matters, but rather to look at the result achieved.
The result achieved on each of these matters was the following: (1) Watergate Industries explained how it had placed the waterproof membrane and conducted waterproofing and, subject to issues concerning the use of sealant, Mr McMillan seemed to be satisfied with the Watergate Industries' explanation; (2) the issue of lime affected water staining the apartment's balcony windows was to be taken up "with the building manager"; and, (3) the Owners Corporation made no commitment to waterproofing the area under the pediment on the basis that the pediment may be removed, but no commitment was given as to when that removal might occur.
On the evening of 5 October 2009 Mrs Fligg's apartment flooded again with water coming into the bedroom, the dining room and the living room. After this event she started to bring her dealings with the Owners Corporation to a more formal level. On 12 November 2009, her solicitor, Mr Le Page filed an application for mediation with the CTTT.
Shortly after the filing with the CTTT, Mrs Fligg's neighbours on the same floor of the building showed her an email dated 16 November 2009 from the building manager, Mr Ristuccia and Mr Waterman of Watergate. This correspondence is instructive. It demonstrates inaction, but not so much on the part of the Owners Corporation members. Rather it shows that Mr Ristuccia only appears to have forwarded Mr McMillan's letter of 17 September 2009 on to Mr Waterman, two months later, early on the morning of Monday, 16 November 2009. Mr Waterman understandably protests, "I received a letter from David Le Page on Friday, 13 November, which is the first correspondence I have received from Mr Le Page regarding this issue". Apparently, the September exchange of correspondence had not been referred to Mr Waterman until just after Mrs Fligg filed her process with the CTTT. I infer that it was her action in filing CTTT process on 12 November 2009 that contributed to the action early on 16 November 2009. Mr Ristuccia sent his email at 5.36am that day and Mr Waterman replied at 7.22am. Once the issues were presented to him Mr Waterman said:-
"Flood testing of the balcony is the easiest way of telling that there are no leaks from the balcony. However this would have best been achieved had the flood test been carried out prior to the tile bed being installed or after all the waterproofing had been completed. As all are aware the works were stopped halfway through the process."
Later that same morning at 8.46am Mr Ristuccia informed the solicitors for the Owners Corporation and its Executive Council, that it appeared to him that on the information available to him that: the cement tile bed over the membrane may have become water logged and that may have affected good repair and that the tile bed may need to be removed but that may damage the membrane itself and therefore they may have to start the work all over again. With this background the parties went into a mediation at the CTTT.

(c) January 2010 to May 2010 - The CTTT Mediation and Carrying Further Agreed Remedial Works

At the CTTT mediation on 19 January 2010 the parties successfully concluded an agreement, in the three areas, the western (main) balcony, the southern (bedroom balcony) and the calcium staining to balcony doors, in the following terms:-
"The parties agree that:
1. The Owners Corporation agrees to repair the water penetration from the main balcony and using best endeavours to complete the repairs no later than 28 February 2012.
2. The Executive Committee agrees to investigate any water penetration issues from the bedroom balcony, and arrange for an necessary repairs to be undertaken at the time of the main balcony.
3. The Executive Committee agrees to investigate the leakage from the slab above the balcony with a view to making any necessary repairs, and any consequential repairs to the balcony doors. Any repairs to be undertaking as soon as practicable after the repairs to the main balcony."
The parties then set about attempting to implement the agreement that they had made. In this they were less successful.
Watergate did considerable work to Mrs Fligg's apartment pursuant to the January 2010 mediated agreement. Mrs Fligg believed it involved putting in aluminium doors servicing the main bedroom, the dining room and the living room. Watergate undertook water testing of the main balcony off the living room on the western side of the unit but not the smaller southern balcony. Watergate thought the water might be coming through the doors.

The work done was principally to the western balcony itself. This work to Apartment 73 was given considerable priority in Watergate's work schedule throughout the building because of the efforts of Mr Brett Campbell, the chairman of the Executive Committee of the Owners Corporation. But it did not address the problem of calcium deposits spilling from the balcony above or the other problem of water penetration from the southern balcony into Mrs Fligg's bedroom and dining room.
The then Chairman of the Executive Council of the Owners Corporation, Mr Brett Campbell did make many attempts to get in touch with Mrs Fligg to see whether the January 2010 agreement had been implemented to her satisfaction. But after an episode of rain in what I infer was about April 2010, Mrs Fligg telephoned Mr Campbell and had, according to Mrs Fligg, a conversation with him to the following effect:-
"[Mrs Fligg]: 'Brett, this is just not good enough. The rainfall was four days ago and I've still got white coloured water with some sort of paint mixed into it running down the balcony doors. Basically nothing has happened since mediation. Have you forgotten what you signed in the Fair Trading Agreement?'
Brett: 'I know what we promised at mediation regarding the balcony and the doors. We didn't agree to fix that.'
[Mrs Fligg]: 'Yes you did'.
Brett: 'We will have to go to mediation again'."
Mr Campbell denies this conversation. And although he did not give oral evidence and was not cross-examined, the objective probability suggests that his denial is correct. I do not accept Mrs Fligg's evidence on this. Mr Campbell's version of what happened (and he puts it only vaguely as occurring in the period February to July 2010) was a conversation on this subject, but to the following different effect:-
"[Brett]: 'Mae, we have tried to remove the stains to the balcony doors but without success. I think the best thing to do is to replace the glass to the balcony doors and I make that offer to you on behalf of the Executive Committee.
[Mrs Fligg]: 'I don't want any more work done until the balcony above me is finished.'
[Brett]: 'Mae, that could take months. I suggest we replace the doors now because you are unhappy with them'.
[Mrs Fligg]: 'No I don't want that.'"
Mr Campbell denies saying to Mrs Fligg words to the effect that the Owners Corporation did not agree to carry out any repairs to address the staining to the balcony doors. Both Mr and Mrs Campbell can be seen from the objective documentary evidence to have shown an insightful and community minded concern about Mrs Fligg's water penetration problem. Mrs Fligg's version of this shows Mr Campbell apparently repudiating clause 3 of the January 2010 agreement. I doubt that he would have done that. Moreover, if he had, it was likely to have produced a stronger reaction from Mrs Fligg. He says, and I accept, that he may have suggested to Mrs Fligg that the matter go back to mediation. But he says that he only did so because Mrs Fligg had rejected his offer to replace the balcony doors. He says, "I was unable to see what more the Owners Corporation could do to comply with this aspect of the settlement agreement".
But even accepting Mr Campbell's version, in my view, Mrs Fligg's position was not unreasonable. For a long time after Mr Worthington's February 2009 Report and Mr McMillan's August 2009 Report, the leaching of lime deposits out of the unit above on level 15 and down Mrs Fligg's windows was seen to be problem best solved at its source, somewhere on level 15. Mrs Fligg's position that she refused to go through the inconvenience of having her balcony windows replaced until the source of the calcium deposits was eliminated was therefore quite reasonable. But events did not seem to be progressing, so Mrs Fligg decided to go back to Mr Abbott. He then took steps that became a prelude to the present litigation.

(d) May 2010 to October 2010 - The Prelude to Litigation

Once engaged, Mr Abbott pressed Mrs Fligg's case to Bright & Duggan by letter dated 18 May 2010, pointing out that there was still work outstanding under the January 2010 agreement: water was still running down the living room balcony doors from the level 15 slab (or pediments); and there was still a need to replace or clean the balcony doors. These items were covered by Item 3 of the January 2010 agreement. Mr Abbott sought a "strict timetable" for the investigation and elimination of the problem in the apartment above. No immediate response was received to Mr Abbott's letter. On 1 June 2010 Mr Abbott wrote a reminder letter but also pointing out that the problem of water entry into Mrs Fligg's bedroom had re-emerged and needed to be rectified. Mr Abbott's letter concluded, "it is now more than two years that Mrs Fligg has been denied the proper use and enjoyment of her property, we will now recommend to our client that in the circumstances she has little alternative but to commence formal proceedings".
In fact, Mrs Fligg stayed her hand for a further four months before commencing proceedings in this Court, a period that shows that she was not hasty in seeking out litigation. Rather, she was met during this period with inaction or poor communication. Mr Abbott was required to write once again on 28 June 2010 because of the failure of Bright & Duggan to respond to the firm's letters of 18 May and 1 June.
Mr Radanovic responded on 1 July 2010 saying, "we have been trying to speak to Mae Fligg and you about this" and expressing disappointment about indications that it might go to the Supreme Court. His letter sought a meeting, "to discuss this issue and update you with the actions we have taken and our suggestions for Mae's apartment". He expressed a sincere hope that "we can work with you and Mae to develop an acceptable solution".
Mr Abbott's response to this was to the point. He declined to attend the meeting, pointing out that the position was clear from previous correspondence and remained unaddressed. He further alleged that the Owners Corporation was by then in breach of the January 2010 agreement. He concluded, "until those issues are addressed, there is no point in Mrs Fligg attending yet another meeting. Although Mr Radanovic's response of 8 July 2010, consequent upon an executive meeting of 5 July 2010, expressed disappointment that Mr Abbott did not attend, in my view Mr Abbott's approach was quite reasonable. It was now July 2010. Mrs Fligg had suffered these problems since June 2008. The Executive Committee had not responded directly to Mr Abbott's letter of 18 May that went to the heart of what was perceived to be the source problem, curing the water leakage from the lime drenched overflow from level 15 above Mrs Fligg's unit. If a clear proposal to address that problem existed it could undoubtedly haven been put in writing. Mr Abbott's refusal to meet was a signal that her position was firming and that the time for discussion was coming to an end. His strategy was to get Mrs Fligg a concrete proposal at the lawyer level.
Mr Campbell says that in July 2010 he asked Mrs Fligg to come to a meeting with the Executive Committee. There was an Executive Committee on 28 July, which Mr Campbell believes, based upon its minutes, is the meeting that he asked Mrs Fligg to attend. He says that she responded by saying, "I don't want to meet with you. You will have to go through my solicitor". In my view Mrs Fligg did say something like that. But the way to "go through" Mrs Fligg's solicitor was to respond in terms to his correspondence. The Executive Committee did not do this.
Mr Campbell says that by late July he understood, from the reports to him on the Executive Committee, that Watergate's work had effectively addressed the problems in Mrs Fligg's apartment. He says, "I therefore considered that the most effective way to deal with any ongoing concerns was for Mrs Fligg to meet with the Executive Committee so that we could discuss any ongoing concerns which she had and to formulate a cause of action to deal with those concerns". But then Mrs Fligg indicated that she wanted Mr Campbell to "go through my solicitor". Despite Mr Campbell's other commendable efforts, that is what he and the Executive Committee should have done.
Whilst Mrs Fligg's stress and anxiety at this stage is not now the subject of a claim for damages, I accept her evidence that she was very anxious about this matter at this time and had reached the point where she wanted it dealt with by Mr Abbott in whom she had confidence.
From the months of August and September the matter drifted. There is no evidence of much contact between the parties in either direction at this time. On 1 October 2010 Mrs Fligg commenced these proceedings. As had been the case when she filed process at the CTTT, this generated more activity within the Owners Corporation.

(e) October 2010 to February 2012 - The Last Phase up to the Hearing

Members of the Executive Committee inspected Mrs Fligg's unit on 11 October 2010. Mr Campbell says in his affidavit that Mrs Fligg complained that "there is still water getting into my apartment" and asked an inspector from the Department of Fair Trading to use his moisture meter to test areas that might be affected by water penetration. Those inspections, according to Mr Campbell revealed that the living room balcony was not leaking; there was a normal level of moisture on the floors and walls but there was a higher level of detectable moisture in the bedroom on the southern side. This is confirmed by the inspection report from the Department of Fair Trading Inspector of that same date. According to Mrs Fligg, at this same meeting it was determined that, "that some of the skirting boards were wet". This must have been in relation to the bedroom area. Thus, as a result of the 11 October 2011 meeting I find that dampness was found in the bedroom. Although the officer from Fair Trading thought that in the living room, "the cement seems fine", when Mrs Fligg said to him "if you believe everything is fine would you please put in writing it is safe for me now to replace the carpet with timber floors", there was no reply. No correspondence from him or from the Executive Committee gave Mrs Fligg this guarantee either.
There was one more visit by Mr Scott Isaac from the Executive Committee and some contact with Mrs Jane Campbell about the same time, mid October 2010. But since November 2010 these proceedings were underway and surprisingly no further action was taken in respect of repairs to Mrs Fligg's unit. Mr Steven Mueller, the building manager for the building, in December 2010 did try to get the then on site contractor, Metro Commercial Maintenance, "to have a look at Mae Fligg's apartment". But she reasonably continued to insist that all this be done through her lawyer. That is where clear proposals should have then been sent.
At the Court's pre-trial directions hearing on 7 February 2012 the Court encouraged the experts to communicate to see whether any agreement could be reached between them. Their communications were fruitful, resulting in agreement about what work was needed in Apartment 73. Their joint report was tendered in evidence, resulting from a meeting they had at Apartment 73 on Friday, 24 February 2012. Prior to that meeting the prospects of agreement did not look encouraging. In his report of 17 November 2011 Mr John Elliott, the defendant's expert and a civil engineer with the particular experience in hydrology concluded:-
"It is my opinion that if there is further water penetration to the unit, then this could be the result of the doors being left open. My opinion is based on experience of similar cases, my observation of this site and having read the reports by Mr Worthington."
But between 10am on 12 noon on 24 February 2012 the experts made the findings that defects in the bedroom on the south side of Apartment 73 and staining on the sliding doors of the window unit were probably to be explained by more than doors being left open. Both Mr Elliott and Mr Worthington have signed a document (Exhibit B) which records their findings and recommendations about the final repairs to be done to Mrs Fligg's apartment and relevantly provides:-
"METHODOLOGY: External skirting tile was removed from the Northern side of the sliding aluminium door to the Main Bedroom and the cavity flashing was exposed. The attendees agreed that only one are of invasive investigation was required as they are of the opinion that it would be typical and it would be unreasonable to carry out invasive investigation to all of the wall and door junctions.
THE DEFECT/FINDINGS::
A. The cavity flashing was not correctly installed because:
1. The junction of flashing to the door frame was not sealed which allowed water to penetrate between the aluminium door frame and the flashing.
2. The cavity also contained rubble which impeded the drainage of water to the weep hole. This defect was caused at the original construction stage because cavities were not cleaned of cement mortar rubble.
3. The existing weep hole did not allow water to drain out of the cavity and allowed rainwater to penetrate into the cavity because the outer edge of the flashing was set below the level of the balcony tile.
4. Gradient of the balcony tiles to the drain was inadequate to allow water to be directed to the grated drainage outlet.
B. A white cloudy file is evident to the glass to the sliding door window unit.
1. The experts agree that the most probable cause is water flowing from the concrete surface above carrying the salts.
2. The cloudy staining is also present on the floor tiles to the balcony.
3. The experts agree that this staining can be removed.
RECOMMENDATION:
The experts recommend that a tiled border be installed to the internal line of the door. The main Entry Foyer at street level has a tiled border. The purpose of this tiled border is to create an internal hob and act as a secondary line of resistance to any water ingress under the door/window frame."
No work was required in the living area. This was consistent with the earlier observations that the area of increased moisture was in the bedroom. The Court will make orders for work to be carried out in accordance with these findings and recommendations, which the parties should formulate into short minutes of order.
But the experts' agreement assumes that cleaning the lime stained windows will be sufficient remedial work. Given the history of the correspondence about a possible source of calcium laden water from Level 15 and the lack of any proper explanation in the evidence that that source of water has actually been removed, the possibility exists that this calcium will re-appear. For this reason the Court will direct that the matter be brought back in three months time after sufficient period has elapsed to determine, in Sydney's currently frequent rainfall conditions, whether or not the staining problem may re-appear. If it does, the parties may need briefly to re-address the remediation of this problem before final orders are made.

The Market Value of Apartment 73

It is not uncommon in proceedings under Management Act , s 62 for a successful plaintiff to be awarded damages for loss of market value of the plaintiff's apartment in the strata plan, in the event that the ordered remedial works do not rectify the problem: cf Lubrano v Proprietors of Strata Plan 4038 (1993) 6 BPR 13, 308 at 13,310-11.
In this case there were issues about the admissibility, and compliance with the experts' code of conduct, of the plaintiff's expert valuation evidence. Those issues threatened to delay the present hearing if the apartment's valuation was contested at the present hearing. But the valuation issue may never have to be resolved: the ordered remedial works may be effective; if they are not fully effective, they may nevertheless be partially effective. By the time it is clear they are not effective, Apartment 73's market valuation may be out of date. Also the plaintiff is not keen to sell her apartment. The parties considered these matters in the course of the hearing. As a result the Court directed that this issue be determined, if and only if, the parties determined that the remedial works had not been successful. The Court will grant liberty to apply for this purpose. But that liberty cannot be extended indefinitely. The remedial works being ordered are not extensive. Most of the required remedial work has already been undertaken on Apartment 73. So a period of no more than three months, until 15 June 2012, should be sufficient for the remedial works to be done and to be tested by a range of sufficiently typical wet weather conditions. The proceedings should be listed before me by 30 June 2012. If no market valuation is required at that time the proceedings may then otherwise be finally dismissed.

Narrowing of the Issues

By the time the hearing started, the parties had narrowed the issues into two baskets, one relating to out of pocket expenses and the other relating to costs. In relation to out of pocket expenses the parties agreed that three disputes remained that they wished the Court to determine.
(a) Were Mr Worthington's fees reasonably incurred?
(b) Were (Cardno NSW Pty Limited's (Mr McMillan's) fees reasonably incurred?
(c) Were Mr Le Page's fees reasonably incurred?
In relation to the costs of the proceedings the parties agreed they were also left with three disputes.
(a) Were the proceedings necessary for the repair work to be done?
(b) What costs consequences flow from the plaintiff's abandonment of parts of her claim?
(c) Was the defendant's conduct such as to warrant indemnity costs?
These issues now provide the framework for the Court's judgment.

Out of Pocket Expenses - (a) Mr Worthington's fees

For the reasons already stated above under the heading "June 2008 to July 2009 - the Purchase and Initial Investigation" I have found that Mrs Fligg's engagement of Mr Worthington was reasonable in the circumstances.
The case against Mrs Fligg on the issue of Mr Worthington's fees is not persuasive. The Owners Corporation says that this expense was unreasonably incurred because Mrs Fligg knew that: (1) the defendant was arranging Watergate to carry out repair work; (2) Mrs Fligg knew Watergate was experienced in waterproofing works; and, (3) an Executive Committee member was contacting other proprietors in relation to the repair work.
Whilst Mrs Fligg did agree in oral evidence that she was aware of Watergate's engagement, a number of factors reinforce the conclusion that her engagement of Mr Worthington was reasonable: (1) by February 2009 she had been complaining for eight months (since June 2008) to the Owners Corporation without a demonstrable action by way of actual repairs or a clear commitment to deal with the leakage in her apartment; (2) the Owners Corporation's statutory duty was an absolute one throughout this period, not just a duty to take reasonable steps to effect an acceptable result in time; and, (3) in the confined area of Mrs Fligg's apartment, the dampness and the smell were undoubtedly very unpleasant. Mrs Fligg felt she needed to do something because the Executive Committee's management had not rectified the defect for eight months. Indeed, Mrs Campbell's email sent on 2 March 2009, a few days after Mr Worthington was retained, seemed to be appropriately understanding of Mrs Fligg's decision to engage an independent engineer. Mrs Campbell's email endeavours to have the Executive Committee engage with Mr Worthington. It was her contemporaneous judgment that she saw the Owners Corporation's engagement with Mr Worthington as useful. In my view, this expense was reasonably incurred.

Out of Pocket Expenses - (b) Mr McMillan's fees and (c) Mr Le Page's fees

The Court has already found in the section above "February 2009 to January 2010 - From the First Set of Works to the Mediation" that Mrs Fligg's engagement of Mr David Le Page and Mr McMillan, from Cardno NSW Pty Limited, was appropriate and reasonable in the circumstances. The Owners Corporation attempts to answer this finding by saying that Mr McMillan subsequently advised that Watergate's original works would be effective if carried through, as he ultimately did. The Owners Corporation contends that the onus is on the plaintiff to establish that she had a reasonable basis to interrupt Watergate's work and retain Mr Le Page and Mr McMillan, an onus that the Owners Corporation contends she has not discharged. Indeed, the defendant says that the plaintiff doubted the effectiveness of Watergate's work on the basis of her own inexpert opinion that further tiling of her balcony would cause a problem and that Mr McMillan was really engaged only on her solicitor's advice.

In my view, the defendant's points are answered by the wider context considered earlier in these reasons. The reasonableness of her conduct must be assessed at the moment that Mrs Fligg decided to stop the work and immediately afterwards. At that time she was fully supported by Mr Zhirul and by Mr McMillan who both queried aspects of the work proceeding. Mr Zhirul thought that Watergate were paying insufficient regard to the advice in the original February 2009 Worthington Report. Mr McMillan also thought that comprehensive information should be obtained from the contractor for review before it was decided whether the works should proceed to finality. The fact that he ultimately formed the view that the work proposed was satisfactory (subject to proviso's about how the work should be done) does not detract from his concern that the work should not have been permitted to proceed without the comprehensive picture being known and assessed. As the relevant part of the work was being done in Mrs Fligg's apartment, and she would suffer if it was wrong, she was reasonably entitled to have the benefit of Mr McMillan's investigation and assurance before the work was finalised.
Moreover, there is something of a false issue in relation to Mr McMillan's and Mr Le Page's fees. The Owners Corporation appears to blame Mrs Fligg for stopping the work and incurring Mr Le Page and Mr McMillan's costs. However, the work that Mrs Fligg stopped had to be redone in any event because it was defective. Presumably, if the work had not been stopped and Mr McMillan engaged the Owners Corporation's costs of redoing the defective work would have been even greater.
But in any event part of Mr Le Page's disputed fees are associated with engaging Mr McMillan and should also be recovered. But they are also part of the plaintiff's legal fees during the period that she did not engage Mr Abbott. She was entitled to legal representation throughout this complicated building dispute and can recover her legal costs, including those paid to Mr Le Page.

Costs - (a) Were the proceedings necessary?

As a result of the experts' conclave on 24 February 2012 the parties agreed on the remedial work that needed to be done and therefore the orders that the Court should make. But they could not agree about who should bear the burden of legal costs in the circumstances. It is first necessary to state the legal principles that apply to such a situation. These are set out in the next section.

Applicable Legal Principles

Where the parties have agreed upon the result of the proceedings without a contested hearing but where they cannot agree about the question of costs, the general principles to be applied in considering what costs order should be made are stated in two cases. The first is a classic passage in McHugh J's decision in Re: The Minister for Immigration and Ethnic Affairs and the Commonwealth of Australia ex parte Lia Qin (1997) 186 CLR 622 sitting as a single judge of the High Court, in which his Honour stated the law thus:
"In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Latoudis v Casey (1990) 170 CLR 534; 97 ALR 45. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. Latoudis (1990) 170 CLR 534 at 543, 566-8; 97 ALR 45. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; 116 ALR 523 at 530. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council ; Ex parte Raysun Pty Ltd [1971] QWN 13, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission Fed C of A, 10 February 1989, unreported, where his Honour ordered the respondent to pay 80% of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
The critical question in this case then is whether or not the prosecutrix acted reasonably in bringing these proceedings and whether the respondents acted so unreasonably in not informing the prosecutor that an application to review the decision to refuse a visa was being considered that it would be proper for the minister to pay the whole or part of the cost of the proceedings. In determining whether or not the prosecutor acted reasonably, it is necessary to mention some further facts in the matter."
The second decision, Hill J's decision in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201; (1993) 116 ALR 523 at 530, reduces the applicable principles to the following five propositions:
"(1) Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order ...
(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial ... This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3) In determining the question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them
(4) In a particular case it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation ...
(5) Where the proceedings terminate after interlocutory relief has been granted, the court may take into account the fact that that interlocutory relief has been granted ... [Footnotes omitted]".
What then is the appropriate costs order in relation to this case? The Court concludes that the plaintiff, Mrs Fligg, both (1) had no reasonable alternative but to commence litigation and (2) was almost certain to have succeeded, if the matter had been fully tried. Mrs Fligg is entitled to costs on both of the bases identified by McHugh J in Lia Qin . It is convenient to deal first with the plaintiff's near certain prospects of success.
The expert conclave agreement shows that the plaintiff would have succeeded. The findings and the agreement for remedial work between the experts demonstrates that there was unanimity: that the common property needed further repair to make Apartment 73 weatherproof and its gloss windows and doors stain free; and, that the work required to do that could be readily defined. The consensus reflected in the conclave agreement predicts what orders the Court would have made, as the defendant's expert ultimately offered no contest upon the subject matter of the existing defects or the remedial work that was needed. Indeed, the orders that the Court will make reflect the very relief that was likely to have been given under Management Act , s 62. The plaintiff's continuing complaints about dampness in her bedroom were justified on technical grounds. The expert conclave also justifies Mrs Fligg's complaints about calcium salts staining the doors and windows of her apartment. These two themes have persisted through the plaintiff's complaints in 2010, after the post January 2010 mediation work was done, and from the time she commenced these proceedings.
But it can also be said that the defendant behaved unreasonably in causing the plaintiff to commence these proceedings. The Owners Corporation's communications with the plaintiff have been analysed above for the period immediately before the commencement of the proceedings (see Section (d) above "May 2010 to October 2010 - the Prelude to Litigation"). From this analysis it can be seen that before Mrs Fligg commenced these proceedings:-
(a) Mrs Fligg and her lawyers were pointing to the need for rectification works to prevent calcium deposits on her windows and the continuing need for further rectification to the southern balcony had long been drawn to the Owners Corporation's attention;
(b) There was no clear commitment from the Owners Corporation to put a concrete proposal back to Mrs Fligg's lawyers as to what the Owners Corporation was going to do to both investigate and then rectify her water penetration problems, meanwhile, as later correspondence showed (Exhibit E) the Owners Corporation was reluctant to allow Mrs Fligg's experts to do their own investigation on common property without express permission;
(c) The Executive Committee continued to take the position in correspondence that Mrs Fligg, by her own conduct, may be responsible for her own problems;
(d) In the months of August and September 2010 there was a lack of communication with Mrs Fligg or her lawyer, Mr Abbott. Someone needed to ensure on the Owners Corporation's side that there was engagement through the lines of communication that Mrs Fligg had chosen, through Mr Abbott; and
(e) The Owners Corporation had not complied with the January 2010 mediated agreement; so contemplating action in the Supreme Court was the logical next step, as unlike the CTTT, this Court has the power to award damages under Management Act , s 62: Seiwa Pty Limited v Owners Strata Plan No. 35042 [2006] NSWSC 1157 at [24].
Not only were there these failures shortly before Mrs Fligg commenced this action, but there had been a long period prior to October 2010 in which Mrs Fligg was saying that the initial works to her balconies done in the first quarter of 2009 had not been effective to stem the water penetration problem and nothing effective was being done in Apartment 73 itself to address her concerns.
Part of the case put against Mrs Fligg is that construction work was done but she stopped it in August 2009. Whilst this is true, the evidence suggests the work had to be redone in any event in her and other apartments because it was of doubtful effectiveness. It was re-done after the January 2010 mediation.
Moreover, the Owners Corporation defends itself by contending that it took reasonable steps to comply with its duties. But for the Owners Corporation to point to the taking of reasonable steps to comply with its duties is not an answer to the strict requirements of Management Act , s 62 if what was actually done was not effective to remedy the water penetration in Apartment 73: Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at [21]. The defendant's duty was to rectify the problem rather than merely to show that its conduct was reasonable.
The Owners Corporation also says that the delay in resolving the problem was the result of it being a concealed defect; and the defendant had a duty to ascertain the necessary works to be carried out: Trevallyn-Jones v Owners Strata Plan No 50358 [2009] NSWSC 694 at [155]. But the experts found the problem here at trial fairly quickly when energy was applied to the task.

Costs - (b) Costs consequences of abandoning parts of the claim

The plaintiff's claims for general damages, namely, for loss of amenity, distress, and inconvenience and for exemplary/aggravated damages were maintained up until the morning of the first day of the hearing, when they were abandoned. These heads of damages were the subject of written submissions by both sides, filed pursuant to the Court's pre-trial directions the day before the trial commenced on Tuesday, 28 February 2012. What are the costs consequences of the abandonment of these claims? First it is necessary to examine the principles of law that apply.

Applicable Legal Principles

There was disagreement as to the applicable legal principles in these circumstances. The defendant contended that the applicable principle is to be derived from cases in which one party "after litigating for some time, effectively surrenders to the other": One.Tel Limited v Commissioner of Taxation (2000) 101 FCR 548 at 553 per Burchett J. The defendant submitted that in such cases "there were commonly lacking any basis for an exercise for the Court's discretion otherwise than by an award of costs to the successful party": One.Tel Limited v Commissioner of Taxation (2000) 101 FCR 548 at 553 and Edwards Madigan Torzillo Briggs Pty Limited v Gloria Stack [2003] NSWCA 302 at [5].
This principle seems mainly to be applicable to costs orders made when proceedings have been abandoned, or one side in effect "surrenders" to the other. But it has also been applied to award to a defendant the costs of particular claims, abandoned by a plaintiff: Coffs Ex-Services Memorial & Sporting Club Limited v Coffs Harbour Catholic Recreation & Sporting Club Limited [2010] NSWSC 605 per Lindgren AJ.
But a broader discretion may apply if the appropriate analogy is an award of costs where there are multiple issues in proceedings but upon which the plaintiff only succeeds on some issues. Upon the application of these principles, an unsuccessful party may be ordered to pay the entirety of the successful party's costs, the successful party may be deprived of some of its costs or indeed may have to pay the costs of the unsuccessful party on the issues upon which the successful party has failed. The circumstances in which these various orders may be appropriate are discussed in the NSW Court of Appeal's decision in James v Surf Road Nominees Pty Ltd (No. 2) [2005] NSWCA 296 in a passage which, although it refers to the former costs provisions of Pt 52A, r 11 of the Supreme Court Rules, has been held, with appropriate modifications, to state the law in relation to the Civil Procedure Act 2005, s 98 and Uniform Civil Procedure Rules 2005, r 42.1: cf Sydney Ferries v Morton (No.2) [2010] NSWCA 238 per Campbell JA at [12]. The Court of Appeal stated the law as follows in James v Surf Road Nominees (No. 2) [2005] NSWCA 296:-
" [31] Costs orders in the Supreme Court are governed by the provisions of s 76 of the Supreme Court Act 1997 and the Supreme Court Rules. Section 76 provides, relevantly that subject to the Act and the Rules, costs shall be in the discretion of the Court: s 76(1)(A). Part 52A r 11 acts as a limited proscription of the Court's discretion conferred by s 76. Part 52A r 11 provides that, subject to Pt 52A, the Court shall order that costs follow the event "except where it appears to the Court that some other order should be made as to the whole or any part of the costs".
[32] The effect of Pt 52A r 11 is that an unsuccessful party may be ordered to pay the entirety of the costs of the successful party, even though the successful party did not succeed on all issues. However, as is specified by the rule itself, the Court is entitled to make a different order. That may occur where there are multiple issues involved. This was the subject of comment in Waters v P C Henderson (Aust) Pty Ltd (unreported CA(NSW) Kirby P, Mahoney and Priestley JJA, 6 July 1994) where Mahoney JA said:
Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless, unless a particular issue or group of issues is clearly dominant or separable, it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed.
[33] Similarly, Toohey J made the following observations in Hughes v Western Australian Cricket Association (1986) ATPR 40-748:
1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order.
2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed.
3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. (references omitted)
[34] Where a matter involves multiple issues and the question before the court is whether it should make some other order as to costs other than the order that costs follow the event, a distinction is commonly drawn between cases which involve clearly discrete issues for determination, and those in which all issues are inseparable, or at least sufficiently linked, with respect to the overall disposition of a particular matter. In Permanent Trustee Aust Ltd v FAI General Insurance Co Ltd (unreported, NSWSC, 3 June 1998), Hodgson CJ in Eq noted that the obvious examples of a matter involving discrete issues is one where a plaintiff makes separate claims for different relief, or a claim by a plaintiff and a cross-claim by a defendant. Another example is where a respondent is successful in having an appeal against an earlier decision dismissed, but for reasons other than those raised in the respondent's Notice of Contention. This is not to say that so-called "discrete issues", for the purposes of apportioning costs, only exist in cases where there are separate claims made within a single matter. As Toohey J stated in the passage quoted at [33] above, it can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter.
[35] In Madden v Connell [2001] NSWSC 1051, Hamilton J referred to there being a "rule" that where there are "discrete issues and the time taken on each issue at the hearing can be identified or realistically estimated", an order for costs may be made against the party which fails on such issues, or alternatively, that party may be deprived of its costs for that portion of the matter. In the Court's opinion it is preferable not to speak in terms of "rules". However, the underlying approach to the "rule" stated by his Honour may be an available approach to the exercise of the court's discretion as to costs in a particular case, depending upon all of the circumstances.
[36] Where the court does exercise its discretion to apportion costs, the apportionment itself involves the exercise of discretion. As Gummow, French and Hill JJ recognised in Dodds Family Investments Pty Ltd v Lane Industries Pty LtdI (1993) 26 IPR 261 :
Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion for the trial judge. Mathematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation."

The present case involves the application of these principles, but with one caveat: rather than determining Mrs Fligg's success by judgment after a contest on the merits I have determined instead, by reference to the plaintiff's evidence and the outcome of the experts pre-hearing conclave, that she would almost certainly have been successful. Applying Lia Qin , I have concluded that the plaintiff is entitled to an order for costs. Once that point is reached the situation, in my view, is analogous to one in which the plaintiff has succeeded in the litigation and the law as stated in James v Surf Road Nominees (No.2) may be applied.
The treatment of Mrs Fligg's abandoned claims can be divided into two parts: first the claims for loss of amenity and distress, and secondly, the claim for aggravated and exemplary damages. The costs treatment of each of these raise slightly different considerations. Although it does not matter in the exercise of the discretion, it can be said, for different reasons in each case, both claims were almost certain to have failed.
Distress/Loss of Amenity - General Damages . The plaintiff abandoned its case for distress, loss of amenity, stress and anxiety. The personal injury aspect of this head of damage was almost certain to have failed. Civil Liability Act 2002, Pt 2, applies to "an award of personal injury damages": Civil Liability Act , s 11A(1). This is so whether the claim for damages is brought in tort, in contract, under statute or otherwise: Civil Liability Act , s 11A(2). A claim for damages inconvenience, distress and disappointment constitutes a claim for personal injury damages, thereby attracting the provisions of Civil Liability Act , Pt 2: Flight Centre v Janice Louw [2011] NSWSC 132 at [31].
Civil Liability Act , s 16 inhibits an award of damages for non-economic loss unless the severity of the non-economic loss is at least 20 per cent of a most extreme case. Although what the plaintiff suffered was personally very distressing for her, requiring a prescription of valium, requiring a consultation with her general practitioner, Dr Hodgson, the plaintiff has managed relatively well and any award to her of general damages for personal injuries would not have exceeded the 20 per cent threshold: cf Zreika v State of New South Wales [2009] NSWCA 99 (a case of much more severe and permanent injury than that Mrs Fligg suffered yet did not reach the 20 per cent threshold).
But the same is not necessarily true of the loss of amenity claim. The breach of duty and its consequences in a claim under Management Act, s 62 are closely analogous to the tort of nuisance, from which guidance can be derived when ascertaining the measure of damages: Seiwa Pty Limited v Owners of Strata Plan 35042 [2006] NSWSC 1157 at [27]. A claim in nuisance is based upon the unreasonable interference with the plaintiff's use and enjoyment of her land, in this case Apartment 73: Oldham v Lawson (No. 1) [1976] VR 654, 655 per Harris J. In the tort of nuisance the unreasonable interference with the use and enjoyment of land may take the form of physical damage to property; but it may also consist of interference with the comfort or amenity of the inhabitants of the property: Oldham v Lawson (No. 1) [1976] VR 654 and Vincent v Peacock (1973) 1 NSWLR 466. Mrs Fligg complained of dampness in and smells emanating from her carpet, due to the ingress of water. Because it is not strictly an action for personal injuries, although bundled with such an action here, this part of Mrs Fligg's claim may perhaps arguably not have been captured by the Civil Liability Act . But loss of amenity claims based on actions in nuisance, often do not attract very large amounts in damages.
That being said, the important fact is that whole of these bundled claims were abandoned. But these abandoned claims cannot readily be separated from the matrix of the factual issues that nevertheless remained alive in the proceedings. The plaintiff adduced minimal medical evidence in support of her claim, a medical report from her general practitioner, Dr Hodgson. The defendant did not adduce any medical evidence in response. Throughout her evidence Mrs Fligg's account of her distress, stress and anxiety is interwoven with her account of her dealings with the Owners Corporation, with the events associated with the ingress of water, with her engagement of experts and with her commencement of the proceedings. These factual issues were not readily severable from one another. In fact the evidence relating to Mrs Fligg's personal circumstances, her distress, stress and anxiety, was able to be taken into account in relation to the primary question of water penetration, which the defendant did not admit on the pleadings. Indeed, the defendant argued for a period that if water penetration had occurred that it had only been caused by Mrs Fligg leaving her balcony door open. It was open to the plaintiff to contend that an apartment which produces that degree of personal stress to its occupant, is one which is likely to have the very characteristics of water penetration of which the plaintiff complained.
In summary therefore, the loss of amenity and distress issues, are not readily separable from the other issues in the proceedings. Mrs Fligg may possibly have succeeded on loss of amenity issues (although perhaps attracting only small sum of damages) but probably failed on the rest. These abandoned issues have of course not been fully argued.
Exemplary/Aggravated Damages . The plaintiff's claim for aggravated damages also attracted Civil Liability Act , Pt 2: State of New South Wales v Corby [2010] NSWCA 27; (2010) 76 NSWLR 439. The plaintiff was unlikely to have established, in any event, that the defendant's conduct caused humiliation and injury to her feelings to the level that the law requires for an award of aggravated damages. There is no doubt the plaintiff suffered immense frustration from and was very upset by her treatment by the Owners Corporation. But there is considerable evidence that the Owners Corporation, especially its members such as Mr and Mrs Campbell, did attempt to deal with, although inadequately, the plaintiff's complaints of leaking to her apartment.
The answer to the plaintiff's exemplary damages claim is clear. The plaintiff's action to remedy the water penetration problem in Apartment 73 and for damages, arises under the Management Act , s 62. Exemplary damages are available under a statutory cause of action when the statutory regime makes provision for them: Paramount Pictures Corporation v Hasluck [2006] FCA 1431; (2006) 70 IPR 293. The Management Act makes no provision for the award of exemplary damages, which are in any event an unusual remedy: Paramount Pictures Corporation v Hasluck [2006] FCA 1431; (2006) 70 IPR 293 at [36] per French J.
It is as difficult to separate out the aggravated/exemplary damages evidence, as it is to separate out the loss of amenity/distress evidence, from all the other evidence in the proceedings. The evidence the plaintiff would have relied on to support aggravated/exemplary damages is the same as that she relies upon for loss of amenity/distress. Neither claim is readily separable from the wider matrix of contested fact.
But in its opening written submissions, the defendant did commit considerable time to demolishing the plaintiff's case on both these claims for loss of amenity/distress and aggravated/exemplary damages through its written argument. The defendant advanced extensive and effective legal argument as to the weaknesses of these claims, some of which has been taken up in these reasons. Due to the plaintiff's abandonment of these claims the defendant has wasted some time on producing these written contentions. But the defendant's wasted time and costs is principally in deploying this legal argument. The defendant did not call any medical evidence. The appropriate way, in the Court's discretion, fairly to make allowance for this waste of resources is to reduce the costs which the plaintiff is to recover by 20 per cent. I conclude therefore that the plaintiff should recover 80 per cent of her legal costs of the proceedings.

Costs - (c) Indemnity Costs

The defendant resists the plaintiff's claim for indemnity costs. In the result I find that indemnity costs should not be awarded. But first it is necessary to consider the applicable legal principles.

Applicable Legal Principles

The principles that govern an award of indemnity costs such as is claimed in this case are clear. The discretion to order indemnity costs must be exercised on grounds connected with the actual litigation; and, conduct in the circumstances leading up to the litigation, as opposed to conduct in the litigation itself, is not a relevant type of connection, unless it bears upon the conduct as a litigant: Hypec Electronics Pty Limited (in liquidation) v Mead (2004) 61 NSWLR 169 at 178-181 [40] - [47] per Campbell J. T he exercise of a discretion to order costs on an indemnity basis does not exist for the purposes of punishing an unsuccessful party: Latoudis v Casey (1990) 170 CLR 534 at 542-3 per Mason CJ; Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ; and Oshlack v Richmond River Council (1998) 193 CLR 72 at [1] per Brennan CJ, at [44] per Gummow and Gaudron JJ, at [67] per McHugh J.
Other relevant principles in relation to the award of indemnity costs are the following:-
(a) Even unconscionable conduct, breaches of fiduciary duty, fraud and other deplorable conduct when established in litigation will ordinarily lead to an order for costs on the usual basis, and something more must be established for a special order as to costs: Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13 at [136] per Giles JA (with whom Handley and Fitzgerald JJA agreed); NMFM Property Pty Limited v Citibank Ltd (No 2) (2001) 109 FCR 77 at 92 [56] per Lindgren J; Hypec Electronics Pty Limited (in liquidation) v Mead at [43]-[46] per Campbell J.
(b) The starting point to any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party on a party party basis, which will fall short of complete indemnity: In Re Wilcox; Venture Industries Pty Limited (No 2) (1996) 72 FCR 151 at 152-153.
(c) The conduct relevant to the issue of indemnity costs, is the party's conduct as litigant , but the knowledge that a party has, including knowledge of his or her past conduct may be relevant to an assessment of his or her conduct as a litigant: NMFM Property Pty Limited v Citibank Ltd (No 2) at [56] per Lindgren J.
(d) The conduct of an unsuccessful party as litigant may justify an indemnity costs order for example where the successful party's money and the Court's time were wasted on totally frivolous and thoroughly unjustified defences, which the defendant knew were bound to fail, or the maintenance of the proceedings was an abuse of process: Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362; and where an unsuccessful party prolongs a trial by deliberately false defences and allegations of fact, an indemnity costs order may be appropriate: Degman Pty Limited (in liquidation) v Wright (No. 2) (1983) 2 NSWLR 354.
One difficulty with the plaintiff's claim for indemnity costs is that she criticises the defendant's general conduct leading up to the litigation which commenced on 1 October 2010, not just the defendant's conduct connected with the conduct of the litigation itself. The plaintiff criticises the defendant's alleged mistreatment of the plaintiff throughout 2008, 2009 and 2010 and relies upon the defendant's alleged failure to listen to her complaints about water ingress in Apartment 73. The defendant argues from this history that the defendant's conduct was so high handed as to warrant an order for indemnity costs. I have found above that the defendant made errors in managing the plaintiff's complaints. But the Owners Corporation did undertake investigations of the problem, although it was slow to take action in Apartment 73. But these findings do not relate to the conduct of the defendant in the litigation itself.
Nor does the defendant's conduct in the litigation justify an award of indemnity costs against it. The defendant only made admissions that there was a water ingress problem late in the proceedings. But I accept the defendant's argument that it did not know the cause of the problem, which was the subject of ongoing investigation. The defendant was always entitled to test its theory at trial that the water penetration was caused by the plaintiff leaving her balcony doors open, because the defendant did not know before the trial took place just what had happened on a daily basis with the balcony doors inside Mrs Fligg's apartment. Some delay in making admissions in the litigation was reasonable. The Owners Corporation did not execute a calculated strategy to conduct the proceedings by defending the indefensible.

Conclusions and Orders

In the result therefore the plaintiff has substantially succeeded in her contentions. The Court has found she is entitled to recover her out of pocket expenses to Mr John Worthington, Cardno NSW Pty Limited (Mr McMillan) and Mr David Le Page. The final agreed amounts of these out of pocket expenses and any interest on such expenses as have been paid may be calculated and included in final short minutes of order to be proposed by the parties.
Moreover, the plaintiff has also substantially succeeded in relation to her costs contentions. The Court has found the plaintiff was justified in commencing the proceedings and that had the matter proceeded to a full contest the plaintiff is almost certain to have succeeded in her claim. Moreover, it is unlikely that the repair work would have been done or the repair resolution which has now been reached would have been achieved, unless the plaintiff had commenced these proceedings; so, it was reasonable for her to do so. Therefore, she is entitled to an order for costs in her favour, notwithstanding that the form of relief in the proceedings became the subject of agreement between the experts retained for each side on Friday, 24 February 2012.
But the plaintiff has also abandoned some of her claims. The Court does not accept the defendant's argument that the plaintiff should pay the defendant's costs of those abandoned claims for relief. Those claims are not sufficiently separable from the other factual and legal issues in the proceedings to warrant such an order. Rather, the Court will order that the plaintiff recover only 80 per cent of her costs of the proceedings to take account of the defendant's wasted costs associated with this abandonment. The plaintiff fails on her claim for indemnity costs. The defendant's conduct in the litigation itself is not such as would justify an order for indemnity costs in the plaintiff's favour.
The defendant has agreed to undertake the remedial works on Apartment 73 the subject of the experts' conclave on 24 February 2012. The Court will make an order under the Management Act , s 62 that the defendant is to execute those agreed works. Issues of the diminution in the market value of Apartment 73, if the remedial works are not effective, may be deferred until any lack of utility of such works is clear. The parties are at liberty to restore the proceedings before me for the determination of the issue of diminution of market value, if required. But the parties must restore the proceedings for the making of final orders by 30 June 2012. Subject to further submissions, the Court is minded to give the defendant a period of some three months, until 15 June 2012, to complete the agreed remedial works, and test their effectiveness in a variety of weather conditions.
I direct the parties to bring in short minutes of order to give effect to these reasons by 4pm on Monday, 19 March 2012. The proceedings will be listed for directions and the entry of final orders on Tuesday, 20 March 2012 at 9.30am.
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Case Title:	Mabel Dorothea Fligg v The Owners Strata Plan 53457
Medium Neutral Citation:	[2012] NSWSC 230
Hearing Date(s):	28 & 29 February 2012
Decision Date:	15 March 2012
Jurisdiction:	Equity Division
Before:	Slattery J
Decision:	Order that the defendant execute by 15 June 2012 the agreed remedial works provided for in the experts' conclave agreement made on 24 February 2012. Order the defendant pay 80 per cent of the plaintiff's costs of the proceedings. Order the defendant to pay the plaintiff's out of pocket expenses incurred to Mr John Worthington, Cardno NSW Pty Limited (Mr D. McMillan) and the solicitor Mr David Le Page. If remedial works are not successful in eliminating all water penetration and all calcium staining windows within three months of the date of this judgment, namely 15 June 2012, then the proceedings are to be re-listed by 30 June 2012 to determine any diminution in the market value of the plaintiff's apartment.
Catchwords:	REAL PROPERTY - Strata titles - owners corporation's duty to maintain common property - water penetrates plaintiff's apartment in and after episodes of rain - some remedial works undertaken - only partially effective - experts agree on further remedial work to be executed - whether defendant should pay the plaintiff's costs of the proceedings - whether defendant should pay certain of the plaintiff's out of pocket expenses - whether diminution in market value of plaintiff's apartment, if works not carried out.
Legislation Cited:	Civil Procedure Act 2005 (NSW) Civil Liability Act 2002 (NSW) Strata Schemes Management Act 1996 (NSW) Strata Schemes (Freehold Development) Act, 1973 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 Coffs Ex-Services Memorial & Sporting Club Limited v Coffs Harbour Catholic Recreation & Sporting Club Limited [2010] NSWSC 605 Degman Pty Limited (in liquidation) v Wright (No. 2) (1983) 2 NSWLR 354 Edwards Madigan Torzillo Briggs Pty Limited v Gloria Stack [2003] NSWCA 302 Flight Centre v Janice Louw [2011] NSWSC 132 James v Surf Road Nominees Pty Ltd (No. 2) [2005] NSWCA 296 Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13 Hypec Electronics Pty Limited (in liquidation) v Mead (2004) 61 NSWLR 169 In Re Wilcox; Venture Industries Pty Limited (No 2) (1996) 72 FCR 151 Latoudis v Casey (1990) 170 CLR 534 Lin & Anor v The Owners - Strata Plan No 50276 (2004) 11 BPR 21,463 Lubrano v Proprietors of Strata Plan 4038 (1993) 6 BPR 13, 308 Ohn v Walton (1995) 36 NSWLR 77 Oldham v Lawson (No. 1) [1976] VR 654 One.Tel Limited v Commissioner of Taxation (2000) 101 FCR 548 Oshlack v Richmond River Council (1998) 193 CLR 72 NMFM Property Pty Limited v Citibank Ltd (No 2) (2001) 109 FCR 77 Paramount Pictures Corporation v Hasluck (2006) 70 IPR 293. Re: The Minister for Immigration and Ethnic Affairs and the Commonwealth of Australia ex parte Lia Qin (1997) 186 CLR 622 Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449 Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 State of New South Wales v Corby (2010) 76 NSWLR 439 Sydney Ferries v Morton (No.2) [2010] NSWCA 238 The Proprietors of Strata Plan No. 6522 v Furney & Anor (1976) 1 NSWLR 412 The Proprietors of Strata Plan (No. 30234) v Margiz Pty Ltd (1993) 32 NSWLR 294 Trevallyn-Jones v Owners Strata Plan No 50358 [2009] NSWSC 694 Vincent v Peacock (1973) 1 NSWLR 466 Zreika v State of New South Wales [2009] NSWCA 99
Texts Cited:
Category:	Principal judgment
Parties:	Plaintiff:- Mabel Dorothea Fligg Defendant:- The Owners Strata Plan 53457
Representation
- Counsel:	Plaintiff:- R. Horsley Defendant:- D. A. Moujalli
- Solicitors:	Plaintiff:- Jonathan Abbott, Jonathan Abbott & Associates Defendant:- Duncan Stuart, McCulloch and Buggy
File number(s):	2010/328338
Publication Restriction: