Naqebullah v State of Victoria

[2024] VSCA 307

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2023 0101

OBAID NAQEBULLAH	Applicant
v
STATE OF VICTORIA	Respondent

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JUDGES:	McLEISH, NIALL and LYONS JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	19 September 2024
DATE OF JUDGMENT:	11 December 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 307
JUDGMENT APPEALED FROM:	[2023] VCC 1473 (Judge Macnamara)

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BUILDING AND CONSTRUCTION – Breach of statutory warranties by builder in relation to non-compliant cladding – State subrogated to rights of owners – Section 137F(3) of the Building Act 1993 provides that right or remedy to which State subrogated enforceable against officers of entity – Whether s 137F(3) has retrospective operation – Section 137F(3) applies retrospectively – Leave to appeal refused.

BUILDING AND CONSTRUCTION – Section 137F(4) of the Building Act 1993 provides that right or remedy under s 137F(3) not enforceable against officer of entity where act or omission by entity occurred without knowledge or consent of officer – Whether officer’s liability depends on knowledge of non-compliant nature of cladding – Knowledge of non-compliant nature of cladding not required – Leave to appeal refused.

BUILDING AND CONSTRUCTION – Whether judge erred in finding building permit invalid – Nothing turns on judge’s finding – Leave to appeal refused.

BUILDING AND CONSTRUCTION – Whether judge erred in finding State established quantum of liability – State proved reasonable costs of rectification – Leave to appeal refused.

PRACTICE AND PROCEDURE – Costs – Whether judge erred in awarding costs in relation to State’s intervention prior to parties being joined – Judge erred in applying s 137F in relation to costs where State brought proceeding in own name – Leave to appeal granted – Appeal allowed – Applicant to pay State’s costs from time of joinder only.

JURISDICTION – County Court proceeding heard on referral from Victorian Civil and Administrative Tribunal (‘VCAT’) – VCAT joined parties to proceeding – Whether VCAT’s joinder orders invalid because matter in federal jurisdiction – Sections 57F and 57G would validate joinder orders even if matter in federal jurisdiction – Leave to amend application for leave to appeal refused.

Building Act 1993, s 137F; Charter of Human Rights and Responsibilities Act 2006, s 27; Domestic Building Contracts Act 1995, s 8; Victorian Civil and Administrative Tribunal 1998, ss 57F, 57G, 57I.

Bellgrove v Eldridge (1954) 90 CLR 613; Maxwell v Murphy (1957) 96 CLR 261; Owners SP 92450 [2023] NSWCA 114; Productivity Partners v Australian Competition and Consumer Commission (2024) 98 ALJR 1021; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, considered.

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Counsel
Applicant:		Dr M Wolff
Respondent:		Mr N Pane KC with Mr R Chaile
Solicitors
Applicant:	Prior Law
Respondent:	Corrs Chambers Westgarth

MCLEISH JA
NIALL JA
LYONS JA:

Introduction

1. Shangri-La Construction Pty Ltd (‘builder’) constructed a building at 290 Hawthorn Road, Caulfield (‘building’) on which expanded polystyrene (‘EPS’) cladding was installed. As a result of the installation of the EPS cladding, the builder breached various statutory warranties under the Domestic Building Contracts Act 1995 (‘DBC Act’). Litigation was commenced in the Victorian Civil and Administrative Tribunal (‘VCAT’) in relation to those breaches. However, in March 2023, the builder entered into liquidation prior to the trial.

2. The respondent was subrogated to the rights of the owners of the building under s 137F(2) of the Building Act 1993 because it had paid financial assistance to them in relation to cladding rectification work on the building. Section 137F(3) provides that if a right or remedy to which the Crown is subrogated is exercisable against an entity that is not an individual, it is enforceable jointly and severally against the entity and the people who were its officers at the time the act or omission that gave rise to the right or remedy occurred. This liability is subject to a defence in s 137F(4), which provides that a right or remedy is not enforceable as provided by s 137F(3) against the officer if ‘it is proved that the act or omission by an entity occurred without the knowledge or consent’ of the officer.

3. On 6 December 2022, VCAT determined that it had jurisdiction to deal with the proceeding and a related proceeding (collectively ‘the proceeding’)[1] but did not otherwise determine the issues in dispute. As explained later in these reasons, on 15 December 2022, VCAT joined the applicant and respondent as parties to the proceeding. At the same time, pursuant to s 77 of the Victorian Civil and Administrative Tribunal Act 1998 (‘VCAT Act’), it struck out the proceeding and referred the matter to the County Court.

   [1]Owners Corporation 1 Plan No. PS707553K v Shangri-La Construction Pty Ltd (No 3) [2022] VCAT 1385 (‘VCAT Reasons’).

4. On 24 August 2023, the trial judge found that the applicant, who was the controlling officer of the builder at the relevant time, was liable to pay compensation to the State of Victoria (the respondent) for breaches of statutory warranties arising from the installation of cladding. The judge ordered that the applicant pay the respondent’s costs of the proceeding, including the costs incurred by the respondent during a period during which it had leave to intervene in the VCAT proceeding, prior to both parties being joined.

5. The applicant initially[2] sought leave to appeal from the decision of the judge on the following five grounds:

   [2]Proposed ground 5 was added by amendment of the application in March 2024.

   1. The learned trial judge has erred in ruling that s 137F of the [Building Act] has retrospective application.

   2.       The learned trial judge has:

   (a)misinterpreted s 137F of the [Building Act]; or

   (b)alternatively, misapplied s 137F of the [Building Act] in light of the evidence before him; and

   (c)erred in failing to correctly identify the essential elements of the act or omissions referred to in s 137F(2), (3), and (4) of the [Building Act].

   3.       The learned trial judge has erred in law when finding that:

   (a)the Applicant as the Builder’s director ought not to have followed the stamped building permit documents;

   (b)alternatively, in finding that a building permit that contains defects and infirmities is invalid;

   (c)alternatively, in finding that a building permit that contains defects and infirmities is invalid without identifying the defects and infirmities that lead to the alleged invalidity.

   4. The learned trial judge denied the Applicant natural justice by making findings not supported by law or evidence, and relying on matters he ought not to have considered or about which no admissible evidence was led:

   (a)The learned trial judge failed to afford the Applicant natural justice by assuming that use of EPS on the Milla was in violation of applicable laws and regulations in force at that time and ignoring submissions and evidence to the contrary

   (b)The learned trial judge erred in finding that the [respondent] had established quantum; in the alternative the learned trial judge failed to afford the Applicant natural justice in holding that combustible timber cladding was a timber lining between the EPS and the wall in the absence of any evidence supporting such a conclusion, and in the presence of evidence demonstrating the opposite.

   5. The learned trial judge denied the Applicant natural justice by making cost orders against him relating to the time-period before he was joined as a party to the proceeding.

6. By a notice of contention, the respondent argues that the decision of the judge should be upheld even if the applicant establishes the errors alleged in grounds 1, 2 and 4.

7. Three days before the hearing of the application for leave to appeal, the applicant applied for leave to amend its application to add the following ground:

   6.The learned trial judge has erred in failing to find that the Applicant and the Respondent had been joined to the proceeding without a proper jurisdictional basis.

8. For the reasons that follow, we refuse leave to appeal in respect of all grounds except ground 5. We also refuse the application to amend the application for leave to appeal to include the proposed additional ground 6. In respect of ground 5, we allow the appeal and set aside the order for the respondent’s costs during the period when it was an intervener. The applicant should only pay the costs of the respondent from the time of the respondent’s joinder as a party.

Facts

1. The Milla apartment complex (‘the Milla’) is located at 290 Hawthorn Road, Caulfield. The Milla consists of a basement, ground floor and two additional floors. Its construction was completed in 2015. On 8 September 2015, occupancy permit No. 20141192 was issued in relation to the building.

2. The Milla was constructed by the builder, the first defendant in the proceeding below, pursuant to a contract dated on or around 13 December 2013 between the builder and the developer, 290 Hawthorn Road Pty Ltd. It was common ground that the warranties in s 8 of the DBC Act were incorporated into this contract.

3. Two building permits were issued in respect of the Milla: Stage 1 was issued on 2 July 2014 for the basement and car parking spaces, and Stage 2 for the remainder of the works was issued on 3 December 2014 and varied on 10 December 2014. The proceeding below was generally concerned with the Stage 2 building permit and the works performed under it. As to those works, the Milla was constructed using combustible cladding, in the form of an EPS product referred to as ‘RMAX Orange Board’.

4. The decision to use RMAX Orange Board was made either at or before a meeting held on 11 June 2014 at which the applicant was in attendance. The use of RMAX Orange Board was known to the applicant since he was in charge of the builder’s operations and, therefore, he knew the material was being employed and he consented to it. The EPS cladding was installed sometime between December 2014 and 13 August 2015.[3]

   [3]Owners Corporation 1 Plan No PS 707553K and Ors v Shangri-La Construction Pty Ltd (ACN 130 534 244) and Anor [2023] VCC 1473, [12] (‘Reasons’).

5. Following the construction of the Milla, emergency orders were issued by the City of Glen Eira requiring certain steps to be taken in relation to the combustible cladding that had been installed or used in relation to the building. On 17 November 2020, the owners corporation and individual lot owners (together, the ‘owners’) in the Milla entered into a funding agreement with Cladding Safety Victoria (‘CSV’) for cladding rectification works to be undertaken in relation to the building. The first payment under the funding agreement was made on 16 April 2021.

6. Following the making of the first payment of funding to the owners, the respondent became subrogated to the rights and remedies of the owners against the builder by virtue of s 137F of the Building Act.

7. Under that provision, where CSV pays an amount to an owner of a building (‘payee’) by way of a grant of financial assistance in relation to cladding rectification work on the building, the Crown becomes subrogated to the rights and remedies of the payee against any person in relation to the installation or use of non-compliant or non-conforming external wall cladding. The respondent, having incurred approximately $1.2 million in undertaking, or causing to be undertaken, the cladding rectification works, sought to recover that amount from the builder by reason of breaches by the builder of the warranties in ss 8(b), 8(c) and 8(f) of the DBC Act.

8. In March 2023, however, the builder was placed into liquidation and the respondent’s claim against it was automatically stayed. Despite that fact, as already noted, s 137F(3) of the Building Act provides that if a right or remedy to which the respondent is subrogated is exercisable against an entity that is not an individual, it is enforceable jointly and severally against the entity and the people who were its officers at the time that the act or omission that gave rise to the right or remedy occurred.

9. It was common ground that the applicant was a director of the builder at all relevant times and, therefore, fell within the definition of ‘officer’ for the purpose of s 137F(3). The respondent therefore maintained its claim for damages against the applicant in respect of the breach of the warranties.

The judge’s reasons

1. There are five issues that arise on the application for leave to appeal that the judge addressed: whether s 137F(3) operates retrospectively; whether the building permit was invalid, which arose in the context of the question whether the builder had breached statutory warranties under the DBC Act; the scope of the ‘act or omission’ that gave rise to the respondent’s right or remedy for the purpose of the officer’s defence under s 137F(4) of the Building Act; the quantum of the applicant’s liability; and whether the respondent was entitled to its costs against the applicant for the period before he was joined as a party. It is convenient to structure the recitation of the judge’s reasons around those points. The sixth issue, which is the subject of the application for leave to amend the application for leave to appeal, was not considered by the judge and can be deferred for present purposes.

Retrospective operation of s 137F(3)

1. As mentioned, s 137F(3) provides for the respondent to exercise the rights or remedies to which it was subrogated against the relevant entity and ‘the people who were its officers at the time’ of the act or omission that gave rise to the right or remedy.

2. The judge found that the respondent was entitled to enforce the rights otherwise belonging to the owners by reason of its subrogation under s 137F(2) of the Building Act.[4] His Honour observed that the applicant’s contentions with respect to retrospectivity would mean that s 137F(3) would have no operation unless more buildings were erected with flammable cladding after s 137F commenced, with the result that it would serve no purpose.[5] Further, his Honour also appeared to accept that s 137F(3) did not operate retrospectively merely because it affected existing rights or ‘because a part of the requisites for its action is drawn from a time antecedent to its passing’.[6]

Breach of statutory warranties and validity of building permit

[4]Ibid [92].

[5]Ibid [82].

[6]Ibid [84]–[88], quoting Nicholas v Commissioner for Corporate Affairs [1988] VR 289, 296 (Kaye J, King J agreeing at 307).

1. The judge concluded that the builder breached the warranty in s 8(b) of the DBC Act so that the owners were entitled to judgment and the respondent, by reason of its subrogation, was also entitled to judgment.[7] The judge found that the builder had also breached the warranty in s 8(c) of the DBC Act: first, because the building permit authorising the cladding work should be treated as invalid by reason of ‘defects and infirmities’ identified by the judge, so that the works should be regarded as not having been carried out with the authority of a valid permit; and second, because the performance requirements of the Building Code of Australia (‘BCA’) were not met, so that the work was carried out in violation of the terms of the BCA.[8] Finally, the judge also upheld the respondent’s claim under s 8(f) of the DBC Act on the basis that the building could not be regarded as reasonably fit ‘for use and occupation as an apartment house’.[9]

Scope of officer’s defence in s 137F(4)

[7]Reasons, [92]. The relevant paragraph refers to s 8(c) but it is clear from the context and the parties agreed that this should be a reference to s 8(b).

[8]Ibid [98].

[9]Ibid [101].

1. Section 137F(4) provides that, if it is proved that an act or omission by an entity occurred without the knowledge or consent of an officer of the entity, a right or remedy is not enforceable as provided under s 137F(3) against that officer in relation to the act or omission.

2. The judge rejected the applicant’s submission that the defence in s 137F(4) of the Building Act applied, finding that the relevant act or omission resulting in the builder’s liability occurred with the applicant’s knowledge or consent. It was undisputed that the applicant knew about the use of RMAX Orange Board since he was in charge of the builder’s building operations.[10] The judge found that, at the time that RMAX Orange Board was used, the applicant was unaware that the product ‘was problematic or inappropriate in its use as external cladding on the building’ but only came to realise this in ‘2016 or 2017’.[11] However, his Honour found that a construction of s 137F(4) under which it was sufficient to establish liability that the officer knew of or consented to the acts or omissions giving rise to the liability (but not necessarily any other facts upon which a right or remedy depended) was preferable as it better advanced the purposes of the Act which introduced s 137F to the Building Act.[12]

Quantum

[10]Ibid [105].

[11]Ibid [108].

[12]Ibid [140].

1. In relation to quantum, the judge appeared to accept the respondent’s argument that composite timber cladding (‘CTC’) was in effect the ‘lining’ between the EPS and the underlying wall and that the removal of CTC was incidental to the removal of EPS. The judge also appeared to accept that the removal of CTC should therefore be regarded as included in the respondent’s allegation in its pleadings as to the outlays it necessarily undertook in the process of remediation.[13]

Costs

[13]Ibid [146], [153].

1. The judge ordered that the applicant pay the respondent’s costs. Those costs included, relevantly for present purposes, the respondent’s costs incurred as an intervener in the VCAT proceeding before the respondent and the applicant were joined as parties to the proceeding. After referring to several authorities dealing with costs orders in favour of interveners, the judge observed that it seemed to him ‘that the authorities referred to are supportive of the view that the State in a general sense as intervener ought to be entitled to a costs order in its favour’.[14] The judge also accepted the respondent’s submission that it was entitled to recover those costs by reason of its subrogation to ‘all rights and remedies of the payee’ under s 137F(2) of the Building Act.[15]

   [14]Owners Corporation 1 Plan No. PS 707553K and Ors v Shangri-La Construction Pty Ltd (ACN 130 534 244) and Anor [2023] VCC 2294, [20]–[22] (‘Costs Reasons’).

   [15]Ibid [22].

Ground 1: Whether s 137F(3) of the Building Act has retrospective operation

Submissions

1. The applicant submits that the judge’s construction of s 137F(3) gives the provision an operation that regulates past conduct in a manner that could not have been known to the subject of the law at the time he engaged in the conduct. To achieve such a result, Parliament was required to manifest a clear intention but it did not do so. The applicant says that the judge erred in finding that s 137F(3) would serve no purpose if it operated as contended by the applicant; rather, it would regulate conduct that occurred after 1 December 2019, when the provision commenced operation, thereby aligning with the prohibition that had then taken effect on the use of EPS cladding.

2. The applicant contends that the extrinsic materials support his construction, including the parliamentary debate in relation to the Bill that introduced s 137F(3) during which it was said, ‘There are no retrospectivity changes here. It is just retrospective because it happened in the past and you have to prove that you did not know about it’.[16] The applicant also says that the silence of the statement of compatibility and the Scrutiny of Acts and Regulations Committee on the question of retrospectivity is instructive in circumstances where s 27 of the Charter of Human Rights and Responsibilities Act 2006 (‘Charter’) provides that a person must not be found guilty of a criminal offence because of conduct that was not a criminal offence when it was engaged in.

   [16]Victoria, Parliamentary Debates, Legislative Council, 12 November 2019, 3937 (Jaclyn Symes, Minister for Regional Development, Minister for Agriculture, Minister for Resources).

1. The respondent contends that the judge was correct to find that s 137F(3) did not have retrospective operation because it has not changed or altered the law as it applied in 2014 and 2015 or the legal effect of conduct in that period. Rather, it imposes liability on an officer after the enactment of s 137F(3) in respect of conduct that was unlawful at the time that it occurred. Section 137F(3) has not interfered with any existing right enjoyed by the applicant because he did not enjoy any statutory or common law right that immunised him from liability.

2. By its notice of contention, the respondent submits that, if the judge did find that s 137F(3) operates retrospectively, he did so in error, for similar reasons.

3. In the alternative, the respondent argues that, even if s 137F(3) does operate retrospectively, it does so in accordance with the text and purpose of the provision.

Principles

1. Putting aside the possibility that certain retrospective criminal laws might raise an issue with respect to the Kable principle,[17] the Parliament of Victoria has undoubted constitutional competence to enact laws with retrospective effect.[18] Whether it has done so in a given case requires consideration of a statutory[19] and common law[20] principle, the general tenor of which is that an Act will not be construed to have retrospective effect unless its intention to do so is made manifest by clear or unmistakable language. The issue becomes whether the legislation in question has, on one available construction, a retrospective effect and, if it does, whether that construction is plainly the correct one.[21] The first aspect involves consideration of what it means for a law to have a retrospective effect so as to engage the principle of construction in the first place and the second involves the application of conventional constructional principles, with a focus on text, context and purpose, in order to discern whether competing constructions are open or whether a retrospective effect emerges with sufficient clarity.

   [17]Kable v DPP(NSW) (1996) 189 CLR 51; [1996] HCA 24. See, eg, Fardon v Attorney-General (Qld) (2004) 223 CLR 575, 644–5 [185]–[186] (Kirby J), cf 593 [24] (Gleeson CJ), 601 [43] (McHugh J), 619 [106] (Gummow J), 647–8 [195]–[198] (Hayne J), 658 [234] (Callinan and Heydon JJ); [2004] HCA 46.

   [18]See Minister for Natural Resources v NSW Aboriginal Land Council (1987) 9 NSWLR 154, 155 (Kirby P); Victoria v Robertson (2000) 1 VR 465, 471 [20] (Batt JA, Callaway JA agreeing at 466 [1], Buchanan JA agreeing at 475 [29]); [2000] VSCA 113.

   [19]Interpretation of Legislation Act 1984, s 14(2).

   [20]Maxwell v Murphy (1957) 96 CLR 261, 267 (Dixon CJ); [1957] HCA 7 (‘Maxwell’); Australian Education Union v General Manager, Fair Work Australia (2012) 246 CLR 117, 133 [24] (French CJ, Crennan and Kiefel JJ); [2012] HCA 19.

   [21]See Lodhi v The Queen (2006) 199 FLR 303, 310–14 [22]–[49] (Spigelman CJ, McClellan CJ at CL at 324 [96], Sully J agreeing at 327 [111]); [2006] NSWCCA 121.

2. In Maxwell v Murphy, Dixon CJ said:

   The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect rights or liabilities which the law had defined by reference to the past events.[22]

   [22]Maxwell (1957) 96 CLR 261, 267; [1957] HCA 7.

3. In the same case, Fullagar J said:

   I think that the word ‘retrospective’ has acquired an extended meaning in this connexion. It is not synonymous with ‘ex post facto’, but is used to describe the operation of any statute which affects the legal character, or the legal consequences, of events which happened before it became law.[23]

   [23]Ibid 285.

4. Before an Act commences, past events will have been the subject of existing rights and liabilities. If, by the enactment, those past events attract new rights and liabilities that hitherto had not been in existence, then the Act may have a retrospective effect. A law that ‘operates backwards’ and ‘changes the law from what it was’ has been described as ‘retroactive’.[24] The High Court has described the distinction between retrospective and retroactive laws as ‘terminological, not conceptual’,[25] observing that, however the relevant law is described, both kinds of law are ‘capable of defeating reasonable expectations concerning existing rights’.[26]

   [24]Stephens v The Queen (2002) 273 CLR 635, 651 [29] (Keane, Gordon, Edelman and Gleeson JJ); [2022] HCA 31 (‘Stephens’).

   [25]Ibid, quoting Ben Juratowitch, Retroactivity and the Common Law (Bloomsbury Publishing, 2008) 7.

   [26]Stephens (2002) 273 CLR 635, 651 [29] (Keane, Gordon, Edelman and Gleeson JJ); [2022] HCA 31.

5. Approaching the matter from a slightly different perspective, when a person engages in conduct, at the time of their act or omission they will be in a position to know what legal rights and consequences attach to that conduct. Of course, the person may not subjectively be aware of the legal consequences of their actions and in many cases the application of the law will be contestable but it is an incident of the rule of law, influenced by general notions of fairness, that people are entitled to order their affairs on the basis of the law that exists at the time they engage in conduct.[27]

Decision

[27]Ibid 653 [33], citing HLA Hart, The Concept of Law (Oxford University Press, 3^rd ed, 2012) 276.

1. Before coming to the application of the constructional principle, it is convenient to set out the provision in order to identify the area of debate:

   137F    Subrogation

   (1)This section applies if, after the commencement of section 54 of the Cladding Safety Victoria Act 2020, Cladding Safety Victoria pays an amount to an owner of a building (the payee) by way of a grant of financial assistance in relation to cladding rectification work on the building.

   (2)When the financial assistance is paid to the payee, the Crown is subrogated to all the rights and remedies of the payee against any person in relation to the installation or use of any non-compliant or non-conforming external wall cladding product, or other building work, that required the cladding rectification work to be undertaken.

   (3)If a right or remedy to which the Crown is subrogated under this section is exercisable against an entity that is not an individual, it is enforceable jointly and severally against the entity and the people who were its officers at the time the act or omission that gave rise to the right or remedy occurred.

   (4)If it is proved that an act or omission by an entity occurred without the knowledge or consent of an officer of the entity, a right or remedy is not enforceable as provided by subsection (3) against the officer in relation to the act or omission.

   (5)The Crown may exercise its rights and remedies under this section in its own name or in the name of the payee.

   (6)If the Crown brings proceedings under this section in the name of the payee, the Crown must indemnify the payee against any costs awarded against the payee in the proceedings.

   (7)If, in exercising its rights and remedies under this section, the Crown recovers more money than the amount of financial assistance paid to the payee, the Crown must pay the difference to the payee after deducting costs incurred to recover the money.

   (8)The payment of an amount referred to in subsection (1) in relation to cladding rectification work does not affect any right or remedy of the Crown by virtue of subsection (2) to recover from a person in relation to the installation or use of any non-compliant or non-conforming external wall cladding product, or other building work, that required the cladding rectification work to be undertaken.

   (9)A reference in this section to the rights of a payee includes any right the payee may have under section 86 of the Sentencing Act 1991.

   (9A)Despite the amendment of this section by section 54 of the Cladding Safety Victoria Act 2020, any right of subrogation conferred on the Crown under this section as in force immediately before its amendment continues to have effect.

   (10)In this section—

   officer—

   (a)in relation to an entity that is a corporation—means an officer of the corporation within the meaning of section 9 of the Corporations Act; or

   (b)in relation to an entity that is neither an individual nor a corporation—means an officer of the entity within the meaning of section 9 of the Corporations Act.

2. Cladding rectification work is defined in s 3(1) as follows:

   cladding rectification work means—

   (a)building work in connection with, or otherwise related to, a product or material that is, or could be, a non-compliant or non-conforming external wall cladding product; or

   (b)work of a type specified in a notice under section 185I of the Local Government Act 1989;

3. Section 137F was inserted by s 9 of the Building Amendment (Cladding Rectification) Act 2019 (‘Amending Act’), which commenced on 17 December 2019. Subsections 137F(1) and (2) were amended by s 54 of the Cladding Safety Victoria Act2020 (‘Second Amending Act’), which commenced on 1 December 2020.

4. As amended, s 137F(1) provides that the section applies if, after the commencement of s 54 of the Second Amending Act, CSV pays an amount to the payee by way of a grant of financial assistance in relation to cladding rectification work on the building. In other words, s 137F applies where there has been a grant of financial assistance after 1 December 2020.

5. As noted at paragraph 13 above, the first payment by way of financial assistance in the present matter was made on 16 April 2021 — after the commencement of the Second Amending Act. Section 137F therefore applied to this case in the form set out above.

6. When financial assistance is paid, s 137F(2) provides for the respondent’s subrogation to all rights and remedies held by the owner ‘in relation to the installation or use of any non-compliant or non-conforming’ cladding or other building work that required the cladding rectification work to be undertaken. The rights or remedies falling within this provision would include actions against a builder who installed the cladding but also other persons or entities associated with the installation or use. It may extend, for example, to an architect who specified the use of the cladding, or an engineer or surveyor.[28] The relevant rights or remedies might also arise from actions against officers and directors where, for example, a primary remedy against the builder under statute also gives rise to accessorial liability against those who are knowingly concerned in the contravening conduct.

   [28]See Tanah Merah Vic Pty Ltd v Owners' Corporation No 1 [2021] VSCA 72.

7. The installation or use of the cladding that might give rise to the right or remedy in favour of the owner includes any installation or use that predated the commencement of the relevant provision of the Amending Act on 17 December 2019. In other words, the right of subrogation extends to rights or remedies that were in existence prior to the commencement of s 137F. That proposition was not disputed by the applicant and is plainly correct.

8. It is correct because, by December 2019, the threat to life and property posed by the installation and use of non-compliant and non-conforming cladding on buildings was well understood.[29] The issue of policy was how the existing non-compliant and non-conforming cladding would be remediated and at whose cost. In that context, the right of subrogation is a new right in favour of the respondent and plainly operates in relation to past acts. That does not give rise to any real difficulties in terms of retrospectivity because the rights and liabilities already existed, albeit that they were exercisable by the owner. The subrogation did not place any putative defendant in the position of having to meet a newly formulated liability.

   [29]Victoria, Parliamentary Debates, Legislative Assembly, 6 October 2019, 3545–6 (Richard Wynne, Minister for Housing, Minister for Multicultural Affairs, Minister for Planning).

9. The position in relation to s 137F(3) is somewhat different. It provides for a right or remedy to which the respondent is subrogated to be enforceable jointly and severally against the entity and its officers at the time of the relevant act or omission. What is involved as against the officers is not the subrogation of an existing right but the conferral of a new right on the respondent and a new correlative liability on the part of officers.

10. Some things are tolerably clear and were not disputed on the present application. First, a predicate for the liability of the officer is that there exist, and be exercisable against an entity, a right or remedy in relation to an act or omission. That is to say, it is necessary to identify the act or omission that gave rise to the liability of the entity. Further, in light of s 137F(2), the act or omission must be in relation to the installation or use of non-compliant or non-conforming cladding.

11. Although it is true that an officer of a company may be liable for acts of the company in various circumstances, those circumstances represent a departure from the general rule that a company is separate and distinct from its shareholders and officers.[30] Further, although there may be existing liabilities of officers and correlative rights to which the respondent may be subrogated, the operation of s 137F(3) does not depend on any pre-existing liability of an officer. It provides for a form of vicarious liability that does not depend on a pre-existing breach of the law by the officer.

    [30]Salomon v Salomon & Co Ltd [1897] AC 22.

12. The area of dispute under this first ground concerns whether the acts or omissions with which s 137F(3) is concerned are only those acts or omissions that occurred after the commencement of the provision. For this purpose, as noted above at paragraph 38, the commencement date of the provision is 17 December 2019.

13. We find unpersuasive the argument of the respondent that s 137F(3) is not retrospective because, before its commencement, the applicant had no liability and an officer’s liability for a breach of warranty by an entity was ‘not regulated’. As best as we could follow the point, it was said that the imposition of a new liability on pre-existing ‘unregulated’ acts did not amount to a retrospective alteration to existing rights or liabilities. We do not accept that argument. At the time when the relevant pre-commencement act or omission occurred, the Building Act did not impose any liability on officers of an entity that breached a statutory building warranty owed by the entity. On the construction of s 137F(3) favoured by the judge, those past acts and omissions thereafter were capable of founding a new liability which, in our opinion, fits comfortably within the descriptions of a retrospective law given by Dixon CJ and Fullagar J in Maxwell. Of course, under a retrospective law, the liability will always be ‘new’ and determined by a court after its commencement, but the criterion of its operation will relevantly include past acts or omissions.

14. It follows that, if the section is construed so as to apply to acts or omissions of the entity that gave rise to the liability, regardless of whether they occurred before or after its commencement, then, to the extent that the section applies to pre-commencement acts or omissions and creates a new liability against officers, it is properly described as retrospective. On that basis, it would attract the constructional principle according to which retrospective operation should be avoided in the absence of sufficiently clear language.

15. Having identified a potentially retrospective operation, the question then becomes whether that was intended. That question can only be answered by reference to the principle that such an intention will not be discerned from legislation in the absence of clear words. The strength of the principle depends on the context.

16. It is common ground that, at least in relation to the rights of subrogation, s 137F(2) applies to breaches that occurred before its commencement. Given the ongoing danger that cladding presents once it is installed, its notoriety, and the fact that the industry is heavily regulated with statutory standards of competence and good standing, so that regulated persons are likely to know of the risks once they had been exposed, it is very likely, as the judge found, that future installation of flammable cladding will not occur. As the judge observed, the use of flammable cladding is a ‘legacy of building practices pre-2014 or at the very least pre-2020, which it is not expected to be repeated’.[31]

    [31]Reasons, [81].

17. It is also obvious that the intervention of government principally involved the funding of remediation of past installation or use rather than underwriting future installation or use. It follows that the section is designed to deal with a presently-existing problem arising from past installation and use rather than future installation and use. Although the prospect of future installation and use of non-compliant cladding cannot be ruled out entirely, and s 137F may be apt to address that eventuality, it is clear that the mischief to which the section is directed is past conduct. On the applicant’s construction, only some subrogated rights or remedies would give rise to officer liability, namely those that relate to acts or omissions occurring after December 2019. That limitation would give the provision an exceedingly narrow operation.

18. To limit the redress against individuals to acts or omissions of the entity in relation to the installation or use of cladding that occurred after December 2019 would neuter the practical operation of the provision. Subject to the defence in s 137F(4), the section is designed to assimilate the entity’s and the officers’ liability by imposing joint and several liability on officers.

19. The purpose of the rights conferred on the respondent, both the right of subrogation and the ability to enforce the right or remedy against officers of an entity, arises in the context where the respondent has expended money to underwrite remediation. The underlying purpose is to allow the respondent to obtain reimbursement from parties involved in the wrongdoing and to extend the liability to officers of the entity without the need to establish personal liability separate and distinct from the entity’s liability. Given this, it is most unlikely that the right to reimbursement for the remediation costs would depend on the date on which the cladding was installed or used.

20. Even applying the strictures that attend provisions that have a potentially retrospective operation, it is inescapable that the act or omission of the entity that gives rise to the liability and that is the subject of officers’ concurrent liability includes an act or omission which pre-dates the commencement of the provision.

21. Finally, the applicant’s submissions regarding the assistance to be gleaned from the extrinsic materials may be dealt with briefly:

    (a)The comments made in the course of the parliamentary debate in relation to the Bill that introduced s 137F(3) are ambiguous and ultimately offer little assistance in the constructional exercise.

    (b)Section 27 of the Charter concerns retrospective criminal laws, whereas s 137F(3) allows the respondent to exercise civil rights or remedies against a relevant officer. Accordingly, it is of no significance whether the statement of compatibility or the Scrutiny of Acts and Regulations Committee considered the compatibility of s 137F(3) with the human right set out in s 27 of the Charter.

22. Ground 1 must be rejected.

Ground 2: Officer’s knowledge of ‘act or omission’ under s 137F(4)

Submissions

1. By ground 2, the applicant contends that the defence in s 137F(4) applies if the applicant can establish that he was unaware of any of the three essential elements of the relevant ‘act or omission’, one of those being, relevantly, the non-compliant or non-conforming nature of the external wall cladding product. Accordingly, the unchallenged finding that the applicant did not know that the external wall cladding product was non-compliant until 2016 or 2017 means that the defence in s 137F(4) was available to the applicant.

2. The applicant says that the relevant ‘act or omission’ can be identified by reference to s 137F(2), which refers to ‘the installation or use of any non-compliant or non-conforming external wall cladding product, or other building work’. The applicant also draws support from authorities regarding the liability of directors for misleading and deceptive conduct,[32] in respect of which the phrase ‘knowingly concerned’ has been construed as requiring that the director has knowledge of the essential facts constituting the contravention.

   [32]In particular, Yorke v Lucas (1985) 158 CLR 661, [16] (Mason ACJ, Wilson, Deane and Dawson JJ); [1985] HCA 65.

3. As to the asymmetry that would result if an officer were required to have knowledge of the non-compliant or non-conforming nature of the cladding in order to be liable (whereas the builder need not have such knowledge in order to be liable for a breach of warranty), the applicant says that this is a natural consequence of the builder but not the officer being subject to the warranties under the DBC Act. The applicant also says that every class 2 or higher building has cladding of some sort, and the protection provided by s 137F(4) would be rendered hollow if it was unavailable in every case where cladding was installed with an officer’s knowledge or consent.

4. The respondent submits that the judge was correct to reject the applicant’s construction of s 137F(4) and that the applicant’s construction is inconsistent with the text and purpose of the provision. The respondent refers to the judge’s observation that, on the applicant’s construction, the defence that the officer relied on the advice of others ‘could generally be advanced … by the whole of this residual class of persons, unless perhaps one or more of them was in fact a fire engineer’, rendering s 137F(3) nugatory. The respondent also says that the judge’s construction of s 137F(4) is correct for four reasons:

   (a)The applicant’s construction would undermine the purpose of s 137F(4).

   (b)The text does not support the applicant’s construction in that, if it were intended that it be sufficient to establish a defence by proof that an officer was not aware that the cladding product was non-compliant, s 137F(4) could have expressly so provided.

   (c)The applicant’s construction runs contrary to the ordinary meaning of the words of the provision and there is no evidence that Parliament intended them to have a different meaning.

   (d)The applicant’s construction is not consistent with authorities concerning analogous provisions in which knowledge of unlawfulness is not required, it imposes a higher standard than statutory provisions concerning knowing involvement, and it would encourage ignorance on the part of practitioners and permit ignorance of the law to operate as a defence.

5. By its notice of contention, the respondent contends that, even if the judge misconstrued s 137F(4), his Honour’s construction should be affirmed on the basis that it accords with the text, context and purpose of the provision.

Decision

1. Ground 2 is concerned with the construction of the defence in s 137F(4) of the Building Act to an officer’s liability under s 137F(3). An officer will make out the defence, and thus avoid liability, if the officer proves that the relevant ‘act or omission by an entity occurred without the knowledge or consent’ of the officer.

2. The starting point is to identify which acts or omissions are referred to in s 137F(4). Textually, it seems plain that the acts or omissions are those of the entity, and there is no dispute about that aspect. The applicant submits that the acts or omissions are those referred to in s 137F(2), being ‘the installation or use of any non-compliant or non-conforming external wall cladding product’, with the consequence that the defence will be established if the officer did not know that what was being installed was non-compliant or non-conforming cladding. We do not accept that submission.

3. Although s 137F(2) provides that the rights or remedies mentioned in the section must be ‘in relation to the installation or use’ of non-compliant cladding, the liability of the officer hinges on acts or omissions of the entity which occurred at the time the person was an officer. When read with s 137F(3), it is plain that the relevant acts or omissions are those ‘that gave rise to’ the liability of the entity. Such acts may involve the use or installation of the cladding or they may be more distant, provided that the rights or remedies are sought in relation to the installation or use of the cladding. That part of s 137F(2) which refers to the installation or use of non-compliant or non-conforming cladding is part of the description of the right or remedy, rather than the acts or omissions which, either alone or in combination with other matters, give rise to that right or remedy. Those latter acts or omissions, critical to the operation of s 137F(3), are the acts or omissions to which s 137F(4) refers.

4. Therefore, to rely on the defence in s 137F(4), the officer must show that they did not have knowledge of or consent to the act or omission that gave rise to the relevant right or remedy. The identification of that act or omission depends on the nature of the right or remedy that is exercisable against the entity.

5. Here, the respondent pleaded that the owners were entitled to a remedy against the builder, on the basis that it breached statutory warranties under s 8 of the DBC Act. As already observed, the judge found that the builder had breached the warranties under s 8(b), (c) and (f) of the DBC Act. On the present application, the applicant did not challenge the finding that, by supplying and installing the EPS cladding, the builder breached a warranty under s 8 of the DBC Act. For present purposes, it does not matter that the applicant challenges the finding in relation to the warranty under s 8(c). The unchallenged liability of the builder is sufficient to support the claim against the applicant, subject to his asserted defence in s 137F(4).

6. Section 137F(4) directs attention to the act or omission of the builder that gave rise to its liability under s 8(b) and (f) of the DBC Act. The builder was liable under the warranties because, broadly speaking, it supplied and installed cladding that was not fit for purpose. That liability did not depend on the builder subjectively knowing that the cladding was dangerous or on the builder having been negligent in relation to its installation or use. The judge found that the applicant knew that the EPS cladding was being installed on the building, and there is no challenge to that finding. That finding as to knowledge of the relevant act is sufficient to exclude the operation of s 137F(4). It did not matter that, as the judge also found, the applicant did not know that the EPS cladding was ‘problematic or inappropriate in its use as external cladding’.[33]

   [33]Reasons, [108].

7. We also reject the applicant’s broader submission that knowledge of the act or omission must include knowledge of the legal character of the act. The applicant founds that submission on the basis of an asserted general proposition that the liability of a director for the default of a company requires knowledge of all essential elements of the cause of action. There are two insurmountable problems with that submission. First, as already explained, the liability of the builder in this case did not depend on it having knowledge that the cladding was dangerous or unsuitable. As such, an absence of knowledge on the part of the applicant would not constitute a lack of knowledge of an element of the cause of action.

8. Second, and more fundamentally, the submission is not supported by the text of s 137F and requires recourse to different statutory regimes that impose liability on directors of defaulting companies. Those different statutory regimes provide no assistance in the construction of s 137F(3) and (4) of the Building Act.

9. The circumstances in which a person will be liable for the acts of another person vary. Three examples are sufficient to illustrate the variation. First, vicarious liability generally describes the situation in which a person is made liable for the act or omission of another without the need to show any fault or participation on the part of the person made liable. Second, under agency principles, the acts of the agent (and therefore their consequences) are attributable to the principal. Third, a person who participates in or has a sufficient connection with the acts of the defaulting party may be equally liable as an accessory without the need to establish a primary liability. Each circumstance in which the liability of the principal actor is extended to associated parties raises difficult issues of policy informed by notions of responsibility and culpability. Depending on the nature of the primary liability to which the company is subject, some questions may arise in the identification of the facts that give rise to the liability. For example, identifying the material facts that give rise to a claim in negligence may depend on how the claim is formulated. No such difficult questions arise in this case.

10. The common law accommodates both vicarious liability and agency but only in limited circumstances. Neither contract nor tort have general principles of extended liability, with liability in the former largely confined by notions of privity and in the latter, at least in terms of negligence, through the imposition of a duty of care. There are exceptions such as a conspiracy to injure by unlawful means or tortious interference with contractual relations. Where the primary liability is statutory, many regimes provide for extended liability. Often, they employ similar concepts to guide and limit liability. One very common technique is the notion of being ‘knowingly concerned’ in the primary contravention.

11. A recent example considered by the High Court can be found in Productivity Partners v Australian Competition and Consumer Commission.[34] In that case, a company was found to have engaged in unconscionable conduct in contravention of s 21 of the Australian Consumer Law (‘ACL’).[35] An action was also brought against the director on the basis that he was knowingly concerned in that contravention.[36] The Chief Justice and Jagot J held that, in order for a person to be knowingly concerned in a contravention of s 21 of the ACL, it is necessary only to prove that they knew the essential matters that together made up the conduct ultimately characterised as unconscionable.[37] The question of whether they were knowingly concerned in the contravention is one of fact, not characterisation.[38] The distinction is between ‘the essential matters constituting the contravention (be they facts, circumstances or states of mind) and the character, quality, nature or status of those matters for the purpose of the characterisation of the conduct the statute requires’.[39] Their Honours held that for ‘accessorial liability, knowledge of the former is required but knowledge of the latter is not’.[40]

    [34](2024) 98 ALJR 1021; [2024] HCA 27 (‘Productivity Partners’).

    [35]Competition and Consumer Act 2010 (Cth), s 131(1), sch 2.

    [36]ACL, s 224(1)(e).

    [37]Productivity Partners (2024) 98 ALJR 1021, 1029 [12] (Gageler CJ and Jagot J) [2024] HCA 27.

    [38]Ibid.

    [39]Ibid [82].

    [40]Ibid. See similarly at 1055 [154] (Gordon J), 1082 [311] (Gleeson J), 1082 [308] (Steward J), 1088 [339] (Beech-Jones J).

12. A statutory liability based on a person being knowingly concerned in a contravention is very different to the liability established by s 137F(3) and (4). Ultimately, the cases regarding the meaning of ‘knowingly concerned’ do not assist the applicant.

13. The text of s 137F does not require the officer to be ‘knowingly concerned’ in the contravention’ (meaning the acts or omissions giving rise to a right or remedy). The evident purpose of s 137F(3) as revealed by its language is to impose a new joint and several liability on an entity’s officers. To require that the officer be knowingly concerned in the contravention would tend to defeat the purpose of a provision intended to address the discovery of dangers associated with a building product which had been widely installed without appreciation of its unsuitability.

14. Consistently with that understanding of s 137F(3), in our opinion, s 137F(4) on its proper construction is concerned with the officer’s knowledge of the acts or omissions that give rise to the right or remedy rather than the legal characterisation of those acts or omissions.

15. Ground 2 must be rejected.

Ground 3: Whether judge erred in relation to findings regarding building permit

Submissions

1. The applicant submits that the judge’s ruling that a building permit that contains defects and infirmities is invalid took the applicant by surprise and denied him natural justice. Consequently, the applicant says that the judge was wrong to conclude that the builder breached the warranty in s 8(c) of the DBC Act on the basis that the permit was invalid due to it containing errors (as mentioned at paragraph 21 above). The applicant says that it is problematic for the building industry to have a judgment on the record stating that, if a building permit has a single error in it, then the entire permit is void, in circumstances where almost all building permits will have minor errors.

2. The respondent contends that, as the applicant did not advance any case below as to whether the builder breached the statutory warranties, he cannot now challenge the judge’s finding as to this issue, nor has he been denied procedural fairness. The respondent says that the judge identified a litany of deficiencies that rendered the permit invalid. In any event, the respondent says that any error by the judge on this question was immaterial for two reasons. First, the judge found that the builder had breached the warranties in s 8(b) and (f). Those findings are unchallenged by the applicant and are each sufficient to establish the applicant’s liability under s 137F of the Building Act. Second, there was an independent reason why the judge found that the builder had breached the warranty in s 8(c) that was unrelated to the validity of the permit, namely that the EPS cladding did not meet the performance requirements of the BCA, which issue was uncontested at trial.

Decision

1. As the respondent contends, one of the reasons why the judge found that the builder breached the warranty in s 8(c) of the DBC Act was because the EPS cladding did not meet the performance requirements of the BCA. The judge also found that the builder breached the warranties in s 8(b) and (f) of the DBC Act. Either of those findings, which are unchallenged by the applicant, is sufficient to engage the operation of s 137F of the Building Act, and neither of them depends on the judge’s finding that the building permit was invalid. In those circumstances, as the applicant’s counsel appeared to accept at the hearing — although without formally abandoning this ground — nothing turns on the judge’s finding as to the validity of the building permit. The concerns expressed by the applicant regarding the effect of the judge’s finding on the building industry more generally provide no occasion for this Court to express a view as to the correctness of that finding.

2. Leave to appeal on ground 3 must therefore be refused.

Ground 4: Whether judge erred in relation to quantum

Submissions

1. At the hearing of the application, the applicant abandoned ground 4(a). As to ground 4(b), the applicant contends that the judge erred in finding that the respondent had established quantum or, alternatively, failed to afford the applicant natural justice in holding that CTC was a timber lining between the EPS cladding and the wall in the absence of any evidence supporting such a conclusion and despite evidence demonstrating the opposite.

2. The applicant says that it was neither pleaded nor part of the case run by the respondent that the removal of CTC was part of the removal of EPS cladding. The respondent’s submission regarding the characterisation of CTC as the ‘lining’ between the EPS cladding and the underlying wall was evidence given from the bar table and no evidence of any sort was led about the CTC being a timber lining prior to closing submissions.

3. Further, during the hearing, the judge asked counsel for the applicant, ‘do you accept that the EPS cladding and the wooden cladding were in the same places?’ The applicant’s counsel said ‘no’, to which the judge replied, ‘I don’t understand the evidence to establish that either’. In those circumstances, the applicant contends that it was a denial of natural justice for the judge then to hold that he accepted the respondent’s interpretation of the significance of CTC cladding.

4. The applicant also argues that the evidence, in particular two reports of a structural engineer dated 1 September 2021 and 11 October 2021, and the CSV Comprehensive Facade Investigation Report dated 3 June 2020, support the conclusion that the EPS cladding and CTC were used in different areas of the building and that CTC was not a timber lining between the EPS cladding and the underlying wall.

5. The applicant says that the invoices on which the respondent relied to establish quantum did not include a breakdown between the costs of CTC and EPS cladding removal, which is fatal to the respondent’s claim.

6. The respondent contends that the applicant’s argument misconceives the applicable principles. As the respondent’s claim was for the costs of rectifying defective building work, the measure of damages was the actual cost of rectification. The respondent was therefore required to prove the quantity of the loss and damage suffered with as much precision as the subject matter permitted. If, due to the circumstances of the loss, the respondent was unable to prove the quantity of its loss, the Court was required to do its best to estimate the loss suffered by the respondent fairly. At that point, the applicant would bear the onus of proving that the respondent acted unreasonably in undertaking the cladding rectification work, which test would only be satisfied in exceptional circumstances.

7. To the extent that there was any denial of procedural fairness, the respondent argues that it was occasioned to the respondent because the applicant raised this issue for the first time in his closing written submissions.

8. The respondent says that the judge formed his view as to the relationship between the EPS cladding and CTC by reference to the emergency order and that the judge referred to and was aware of the argument made by the applicant in relation to the structural engineer’s reports.

9. In any event, the respondent says that any denial of procedural fairness to the applicant was not sufficiently material to vitiate the judge’s finding that the respondent had established the quantum of its claim. The respondent led expert evidence as to the reasonableness of the scope of the rectification works. It was clear that the cladding rectification works involved both the removal of the EPS cladding and CTC, and the expert and documentary evidence confirmed that the costs were reasonable. The applicant’s suggestion that the invoices failed to distinguish between the removal of the EPS cladding and CTC fell well short of establishing the exceptional circumstances necessary to prove that the claimed quantum of the applicant’s liability was unreasonable.

1. Finally, the respondent contends that, even if ground 4 is allowed, the Court should affirm the judge’s finding that the respondent has establishing the quantum of its claim by applying ordinary principles applicable to a claim seeking rectification costs for defective building work.

Decision

1. Although framed as a denial of procedural fairness, the focus of the applicant’s argument was that the judge wrongly allowed the respondent to recover costs of removing or replacing the CTC which, it was argued, was not the subject of the claim. It is true that in its pleading the respondent confined its claim for loss and damage to costs incurred as a result of the replacement of the EPS cladding which was installed in breach of warranty. Nevertheless, the claim was for rectification and prima facie the measure of damages for defective work performed in breach of contract or warranty is the reasonable cost of rectification, not the diminution in value of the defective building.[41]

   [41]Bellgrove v Eldridge (1954) 90 CLR 613, 617 (the Court); [1954] HCA 36 (‘Bellgrove’).

2. Both the manner of rectification and the cost of performing the rectification work must be reasonable and, where the actual cost of the rectification work is known, that cost is evidence of the reasonable cost and will ordinarily provide a basis for damages.[42] In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd, the High Court concluded that Bellgrove ‘tends to indicate that the test of “unreasonableness” is only to be satisfied by fairly exceptional circumstances’.[43] In Bellgrove, the High Court gave the example of demolishing the walls of a house which were to be cement rendered with second-hand bricks to replace the second-hand bricks with new bricks, which the Court described as ‘quite unreasonable’.[44] Another example is where the cost of the proposed rectification is ‘out of all proportion to the benefit to be obtained’.[45]

   [42]Ibid 617–19.

   [43](2009) 236 CLR 272, 288 [17] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ); [2009] HCA 8; see also Owners SP 92450 v JKN Para 1 Pty Ltd [2023] NSWCA 114, [69] (Gleeson JA, White JA agreeing at [115], Brereton JA agreeing at [116]) (‘Owners SP 92450’).

   [44]Bellgrove (1954) 90 CLR 613, 618 (the Court); [1954] HCA 36.

   [45]South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd (2004) 88 SASR 65, 85 [90] (Debelle J); [2004] SASC 81, citing Ruxley Electronics & Constructions Ltd v Forsyth [1996] 1 AC 344.

3. The judge concluded that the claimed amount for rectification was reasonable. There was an adequate evidentiary basis for that conclusion. Mr Stephen Kip, a fire engineer, concluded that the scope of work undertaken to rectify the EPS cladding was reasonable.[46] Mr Douglas Buchanan, a quantity surveyor, concluded that the costs recorded in the invoices for remedial works were ‘reasonable’.[47] It is tolerably clear that the judge accepted each of those opinions.

   [46]Reasons, [150].

   [47]Ibid [141]–[142].

4. There is authority for the proposition that the defendant bears an evidentiary onus of displacing the prima facie rule of assessing damages as the cost of reinstatement.[48] The applicant’s argument is not that a different measure of damages should have been used but that the respondent failed to differentiate in its evidence between the costs of replacing the EPS cladding and the work referable to the removal of the CTC.

   [48]Owners SP 92450 [2023] NSWCA 114, [71]–[72] (Gleeson JA, White JA agreeing at [115], Brereton JA agreeing at [116]).

5. The problem with the applicant’s submission is twofold. First, there was evidence from which it could be inferred that the rectification works covered the removal of all of the cladding (both EPS and CTC) and that this scope of work was reasonable and reasonably priced in order to rectify the EPS cladding. Second, the applicant did not seek to rebut that evidence by adducing his own expert evidence or to test it by cross-examination. Indeed, counsel for the applicant disavowed testing the evidence on the basis that it was not incumbent on him to ‘prove the State’s case’.[49] As things concluded, the applicant provided no basis to support an alternative measure of damages and, although there was potentially a question as to whether the claimed works went beyond the costs of replacing the EPS cladding, the failure to challenge the respondent’s evidence in cross-examination left a sufficient factual foundation for the judge’s finding that the claim represented the reasonable costs of rectification — that is to say, reasonable in terms of both scope and price.

   [49]Reasons, [151].

6. There is some merit in the applicant’s argument that the judge found that the CTC was in effect the ‘lining’ between the EPS cladding and the underlying wall and therefore that both had to be removed at the same time,[50] although it is difficult to be definitive about this. If the judge did make that finding, it would have been in error, because the evidence did not support it. However, the respondent also argues by way of its notice of contention that, even if ground 4 is upheld, the amount claimed represented the reasonable cost of replacing the EPS cladding so that the respondent established the quantum of its claim. Consequently, even on the assumption that the judge made a finding that was not available on the evidence as to the physical relationship between the EPS cladding and the CTC, it would still be necessary for this Court to determine, if it can, what the correct measure of damages should be in light of the breaches of warranty for which the applicant is liable.

   [50]Ibid [146], [153].

7. In our view, the evidence of Mr Kip, who was asked about the reasonableness of the scope of work undertaken to rectify the EPS cladding, together with the evidence of Mr Buchanan about the reasonableness of the invoices, is directed to the amount claimed for rectification of the EPS cladding and there is no basis to reject it. The respondent proved that the amount claimed represents the reasonable cost of rectification. It was entitled to judgment in the amount ordered by the judge. Given that success on ground 4 would therefore not affect the orders made by the judge, we would refuse leave to appeal on that ground.

Ground 5: Whether judge erred in awarding costs in relation to period before applicant joined

Submissions

1. The applicant contends that the judge denied him natural justice by not dealing with his argument that he should not have costs ordered against him for a time period before he became a party to the proceeding. He also says that the judge erred in finding that s 137F of the Building Act entitled the respondent to recover its costs of the proceeding.

2. The respondent contends that the applicant cannot discharge the difficult task of establishing that leave should be granted to appeal in relation to costs. The respondent says that there has been no denial of procedural fairness nor any error identified in the judge’s decision in relation to costs. The respondent submits that it was entitled to its costs as an intervener because it succeeded on the jurisdictional question in VCAT. Those costs were payable by the builder and, by reason of the respondent’s subrogation under s 137F of the Building Act, they formed part of the ‘rights and remedies’ to which the respondent was entitled.

Decision

1. The proceeding in its original form and venue was commenced in VCAT on 22 January 2019. At all relevant times, the owners were parties to the proceeding. On 16 September 2022, the potential joinder of the respondent was discussed at a directions hearing. On 26 October 2022, the respondent applied to join in the proceeding as a party and to join the applicant to the proceeding on the basis of the respondent’s subrogated rights under s 137F of the Building Act. It also filed submissions and a supporting affidavit.

2. By 3 November 2022, the builder had indicated its intention to challenge the jurisdiction of VCAT to hear the proceeding. The hearing of the application was fixed for 4 November 2022 and adjourned to 24 November 2022 at the request of the parties. The respondent was given leave to intervene in the proceeding on 10 November 2022, for the apparent purpose of opposing the jurisdictional challenge. The jurisdictional challenge was heard on 24 November 2022. The respondent made submissions opposing the jurisdictional challenge, as did the owners who were parties to the proceeding.

3. Reasons on the jurisdictional challenge were delivered on 6 December 2022. The jurisdictional challenge was rejected. His Honour Judge Anderson adjourned the matter for further directions, including to determine the outstanding applications (such as the respondent’s application to be joined as a party and to join the applicant). Orders were made on 15 December 2022 that the respondent and the applicant both be joined as parties to the VCAT proceeding.

4. The judge appeared to accept the submission of the respondent that s 137F ‘subjects [the applicant] to the same liabilities as the [builder] would have’ with the result that the respondent is entitled to recover its costs as intervener, before the respondent and the applicant were joined as parties.[51] The applicant asserts that the judge should not have made an order to that effect.

   [51]Costs Reasons, [22]–[23].

5. In our view, the judge erred in relying on the fact that s 137F subjects the applicant (officer) to the same liabilities as the builder to justify a costs order in favour of the respondent. The liability of the builder and the officer under s 137F is joint and several, and that liability is owed to the payee of the financial assistance and subrogated to the respondent, but it does not follow that orders for costs against an officer of the builder must be the same as those against the builder itself.

6. It may be assumed for present purposes that an order for costs is a right or remedy ‘in relation to’ the installation or use of cladding (etc) within the meaning of s 137F(2), and that the right to costs is among ‘all the right and remedies’ of the payee to which the respondent is subrogated under s 137F(2). On that basis, the payee’s right to costs against the builder is enforceable jointly and severally against the builder and the officers at the time of the act or omission which gave rise to the order for costs. That act or omission is not the installation or use of cladding, however, but the later conduct of litigation. Section 137F(4) will not avail an officer who knew of or consented to the conduct of the relevant litigation.

7. If an order for costs is made against the builder, the above provisions will cause that order to be enforceable against an officer as well, given knowledge or consent. But that does not mandate the making of an order for costs in respect of an officer (or a builder). Nor is this the only way in which an order in respect of costs might be made against an officer who has participated in litigation. Nothing in s 137F excludes the ordinary rules of costs in litigation. Section 137F(6) contemplates the possibility of an order for costs against the payee. Section 137F(5) permits the respondent to bring proceedings in the name of the payee or in its own name. Where it brings proceedings in its own name, it is not depending on any right of subrogation when it comes to the determination of costs.

8. That is the present case. The judge made no order for costs in respect of the builder. The question of the respondent’s costs was therefore at large and the judge was in error in holding that s 137F provided otherwise.

1. Consistently with that analysis, presumably a significant proportion of the costs of the respondent before its joinder as a party arose because the respondent chose to make submissions on the jurisdictional challenge to support VCAT’s jurisdiction. During this period, as noted above, the owners were parties to the proceeding and also made submissions in relation to the jurisdictional challenge. This serves to confirm that the respondent was then not exercising rights of subrogation but was acting on its own account, independently of the owners.

2. Quite apart from any interest the respondent had in the proceeding arising from s 137F and the use of EPS cladding at the Milla, the respondent (as the State) had an interest in supporting VCAT’s jurisdiction more generally. As a result, we are not satisfied that, in making these submissions, the respondent was acting in support of its right of subrogation under s 137F against the builder and the applicant in relation to the Milla.

3. In our view, the judge’s interpretation of s 137F(2), which formed the basis of the order that the applicant pay the respondent’s costs of the proceeding prior to its joinder, was an error of a House v The King[52] kind which requires us to re-exercise the discretion.   

   [52](1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ); [1936] HCA 40.

4. It is exceptional for this Court to grant leave to appeal in relation to a question of costs. We will do so in this case, however, because the circumstances are very unusual. It is rare for a party to be ordered to pay costs incurred in litigation before the party in question became a party.[53] It is important to resolve the question whether s 137F has the effect of justifying such an order.

   [53]Cf Country Endeavours Pty Ltd v Casacir Pty Ltd [2013] VSC 22, [58] (Emerton J).

5. Since it is appropriate to grant leave to appeal and error has been established, the discretion falls to be exercised afresh.

6. The general rule is that an intervener neither pays nor receives costs,[54] and there is no usual practice of ordering costs in an intervener’s favour if their submissions are accepted, even if the intervention proved to be of assistance to the court.[55] Nevertheless, we are conscious that courts have ordered costs in favour of interveners where intervention was necessary to protect the interests of the intervener,[56] or the intervener had a special or legitimate interest in the proceeding that was different to a party’s interest.[57]

   [54]Mandalinic v Stone (No 2) [2023] FCAFC 176, [4] (Stewart, McElwaine and Button JJ) (‘Mandalinic’), citing City of Burnside v Attorney-General of South Australia (1994) 63 SASR 65 (‘Burnside’).

   [55]Liverpool City Council v Weir (1984) 58 ALJR 213, 216 (the Court); Johnston v Cameron [2002] FCAFC 301, [18]–[19] (Branson J); see also Tonto Home Loans Australia Pty Ltd v Tavares (No 2) [2012] NSWCA 129, [7] (Allsop P, Bathurst CJ agreeing at [1], Campbell JA agreeing at [22]).

   [56]Mandalinic [2023] FCAFC 176, [4]–[5] (Stewart, McElwaine and Button JJ), citing Burnside (1994) 63 SASR 65.

   [57]See, eg, Guss v Johnstone (2000) 74 ALJR 884, 894 [70] (the Court); [2000] HCA 26; Secure Funding Pty Ltd v Torbeckin Pty Ltd (in liq) (No 2) [2024] VSC 609, [30] (Attiwill J); Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus [2007] FCA 1878, [38] (Flick J); Xat Ky v Australvic Property Management Pty Ltd (No 2) [2007] FCA 1785, [22] (Middleton J).

7. However, for the reasons set out in paragraphs 105 to 110, the general rule as to the costs of an intervener should apply. We are not satisfied that the facts of this case justify an order for costs in favour of the respondent prior to its joinder as a party. Rather, we would order that the applicant pay the respondent’s costs only from the time of their respective joinder on 15 December 2022. As a result, we would grant leave to appeal on proposed ground 5 and allow the appeal to that extent.

Proposed additional ground 6: Whether VCAT’s joinder orders valid

Submissions

1. As already noted, the applicant seeks leave to amend its application to add a proposed ground arguing that the judge erred in failing to find that the applicant and the respondent were joined to the proceeding without a proper jurisdictional basis. For reasons that will appear, we can set out the background to this proposed ground quite briefly.

2. If permitted to pursue the ground, the applicant would contend that the proceeding involved federal matters, namely matters under the Australian Consumer Law (given effect by the Competition and Consumer Act 2010 (Cth)), the Trade Practices Act 1974 (Cth) and the Insurance Contracts Act 1984 (Cth). He would submit that, as a consequence of VCAT’s lack of jurisdiction to determine proceedings involving the exercise of judicial power in relation to a federal matter, VCAT lacks the power to join other parties to such a proceeding.[58] The applicant contends that the invalid joinder order infected the steps taken by VCAT to refer the matter to the County Court.

   [58]See Krongold Constructions (Aust) Pty Ltd v Thurin [2023] VSCA 191, [89]–[93] (Beach, McLeish and Niall JJA).

3. The respondent denies that the VCAT proceeding was in federal jurisdiction but, in any event, says that ss 57F and 57G of the VCAT Act operate jointly to treat the joinder order (if it was invalid) as though it had been made by the Magistrates’ Court and to validate every subsequent step taken by the parties in reliance on the joinder order as though that order had been made by the Magistrates’ Court.

4. The respondent notes that the only relevant exception is s 57I(3), which provides that ss 57F and 57G do not apply ‘if an appeal or a review which includes the ground that [VCAT] has no jurisdiction to exercise judicial power to resolve controversies involving federal subject matter has been commenced but not determined after 10 August 2021 and before or on’ the date on which the Justice Legislation Amendment Act 2023 received the Royal Assent (being 10 October 2023). However, the respondent says that the exception does not apply to this proceeding because, although the application was filed within the period to which the exception relates, it did not include the ground to which the exception speaks.

5. The applicant says that, if leave to amend the application to include the proposed ground were granted, then the proceeding would fall within the terms of s 57I(3) because the additional ground would be treated as having always been part of the proceeding.

6. The respondent observes that the applicant’s argument appears to depend on the principle of relation back in the context of pleadings and contends that there is no authority for that proposition applying in this context.

7. Finally, the respondent submits that the applicant has not explained why this issue was not raised when the application for leave to appeal was filed and that the applicant’s failure to do so prejudices the respondent because, at the time the application was filed, the County Court retained jurisdiction in the matter and the respondent could have sought an order of joinder from the County Court.

Decision

1. Whether at the time of the joinder order the matter was in federal jurisdiction and therefore VCAT did not have jurisdiction to make the joinder order involves a constitutional question. No notice of a constitutional matter was served by the applicant in relation to the proposed additional ground of appeal for the purposes of s 78B of the Judiciary Act 1903 (Cth). We are therefore not to proceed in the cause (which can be taken to mean the application for leave to appeal and not just the application for leave to amend), except to the extent that there are matters severable from any matter arising under the Constitution: s 78B(2)(c). The operation of ss 57F and 57G of the VCAT Act is such a severable matter (as are the grounds we have already addressed).

2. In our view, ss 57F and 57G of the VCAT Act operate to treat the joinder order as though it had been made by the Magistrates’ Court and to validate the steps subsequently taken by the parties in reliance on the joinder order. The construction of those provisions can be undertaken without embarking on any constitutional analysis and should be resolved adversely to the applicant. Therefore, the constitutional question does not need to be determined and leave to amend should be refused.

1. The applicant accepts that, subject to s 57I(3), ss 57F and 57G of the VCAT Act operate to validate the joinder order.

2. Section 57I(3) provides:

   Sections 57F, 57G and 57H do not apply if an appeal or a review which includes the ground that the Tribunal has no jurisdiction to exercise judicial power to resolve controversies involving federal subject matter has been commenced but not determined after 10 August 2021 and before or on the date on which the Justice Legislation Amendment Act 2023 receives the Royal Assent.

3. The applicant’s reliance on s 57I(3) is misplaced. Section 57I(3) refers to an appeal or review ‘which includes’ the relevant ground. That appeal or review, being an appeal or review that includes the relevant ground, must be one that had been commenced but not determined, relevantly, before 10 October 2023 (the date on which the Act that introduced s 57I(3) received the Royal Assent). The fact that the phrase ‘which includes the ground that the Tribunal has no jurisdiction to exercise judicial power to resolve controversies involving federal subject matter’ appears before the time limit indicates that the inclusion of the ground in the appeal or review prior to the expiry of the time limit is essential for the application of the exception. Had Parliament intended the exception to cover appeals or reviews to which the relevant ground is added after the expiry of the time limit, other forms of words would have better achieved that purpose. For example, the requirement that the appeal or review include the jurisdictional ground could have been referred to after the specified time limit, or the provision could have referred to an appeal or review which ‘could have’ included the relevant ground.

4. That construction is consistent with the purpose of the provision, which is to protect the position of parties that had raised jurisdictional challenges in the context of appeals or reviews commenced but not determined in the specified period. To apply s 57I(3) to proceedings that did not include the relevant jurisdictional ground until after 10 October 2023 would extend the protection it offers to such proceedings indefinitely, which is inconsistent with the time-limited nature of the provision.

5. The rule or practice by which amendments to a pleading or originating process are sometimes said to operate from or ‘relate back’ to the filing of the pleading does not assist the applicant. To treat s 57I(3) as operating in accordance with or in the same way as that rule or practice is inconsistent with the text of the provision and would be contrary to the purpose of the provision to confine the exception for which it provides to a limited period of time.

6. As a result, the proposed additional ground is without merit and the application to amend the application for leave to appeal to include the ground must be refused.

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