Owners Corporation Strata Plan 64757 v MJA Group Pty Ltd

[2011] NSWCA 236

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Owners Corporation Strata Plan 64757 v MJA Group Pty Ltd [2011] NSWCA 236

Hearing dates:

24 June 2011

Decision date:

16 August 2011

Before:

Allsop P at [1]; Macfarlan JA at [2]; Young JA at [6]

Decision:

Appeal dismissed with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

STATUTORY INTERPRETATION- Home Building Act 1989, ss 18C and 18E- s 18C imposes a contract for the work between developer and successor in title- what are the terms of that notional contract- is one cause of action only created- what is meant by "completion of the work" in s 18E- when completion of the work occurred is a question of fact properly found by the primary judge.

STATUTORY INTERPRETATION- Civil Liability Act 2002, s 34- whether a claim under s 18C of the Home Building Act 1989 is an action for damages from a failure to take reasonable care discussed.

Legislation Cited:

Civil Liability Act 2002, ss 34, 65
Contractors' and Workmens' Liens Act 1906-1921 (Qld)
Home Building Act 1989, ss 3A, 7, 18B, 18C, 18D, 18E, 95, 96A

Cases Cited:

Ace Woollahra Pty Ltd v The Owners-Strata Plan 61424 & Anor [2010] NSWCA 101
Honeywood v Munnings [2006] NSWCA 215; 67 NSWLR 466
HSH Hotels v Multiplex [2004] NSWCA 302
Morgan v S & S Constructions Pty Ltd [1967] VR 149
Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612
R v Police Magistrate at St George and Barron; Ex parte Lawson and Waldron [1918] QSR 21
Stucoid Pty Ltd v Stadiums Pty Ltd [1960] HCA 41; 107 CLR 521

Category:

Principal judgment

Parties:

Owners Corporation Strata Plan 64757 (Appellant)
MJA Group Pty Limited (Respondent)

Representation:

T Lynch (Appellant)
B DeBuse (Respondent)
Mills Oakley Lawyers (Appellant)
HWL Ebsworth Lawyers (Respondent)

File Number(s):

CA 2010/336794

 Decision under appeal 

Date of Decision:

2010-09-15 00:00:00

Before:

SJ Gibb DCJ

File Number(s):

DC 08/314869

Judgment

1. ALLSOP P: I agree with the reasons of Young JA and the additional comments of Macfarlan JA. I agree with the orders proposed by Young JA.

1. MACFARLAN JA: I agree with Young JA and add the following comments.

1. The appellant argued that "s 18C [ Home Building Act 1989] created a single right of action in respect of the totality of the residential building work done by the Respondent by its several contractors" (Written Submissions [1.7]). It submitted that the consequence of this was that the period within which the appellant, as the new owner of the property, could bring proceedings under s 18C against the respondent, as developer, commenced to run on the date of completion of the last of the building work undertaken for the respondent, even though that last completed work was done pursuant to a contract with a builder other than Build-Care Pty Ltd. If this submission is correct, the appellant commenced these proceedings within the seven year limitation period.

1. I do not however accept the submission. There is in my view nothing in the language of s 18C, or any other part of the Home Building Act , that prevents s 18C being construed distributively, so that a subsequent owner acquires a number of causes of action against the developer corresponding with causes of action that the developer has against different building contractors. Such a construction gives the section a sensible operation and is consistent with its language.

1. The defective work about which the appellant complains in the present proceedings was done for the respondent by Build-Care Pty Ltd more than seven years before the appellant commenced the proceedings against the respondent. The appellant does not contend that there was any aspect of the contract between the respondent and Build-Care Pty Ltd that deferred the accrual of the respondent's cause of action against Build-Care Pty Ltd and resulted in that cause of action arising within seven years of the commencement of the present proceedings. In these circumstances the primary judge was correct in concluding that the relevant limitation period had expired prior to the commencement of the proceedings and that they are therefore statute barred.

1. YOUNG JA: This is an appeal from a decision of Gibb DCJ in a dispute between the Owners' Corporation of a strata plan and the developer of the structure which morphed into the building that was the subject of the strata plan.

1. The basal facts are not in dispute, indeed, the majority of them were the subject of a statement of agreed facts. I will set out the basic facts necessary to understand what follows.

1. The respondent was the owner of the site at 13-15 Francis Street, Dee Why. It decided to redevelop the building on that site so as to create 12 residential units. In order to do this, it entered into a contract on 6 May 1998 with a company, Build-Care Pty Ltd ("Build-Care").

1. Build-Care performed work under the contract and the parties to the contract agreed that practical completion had occurred on 5 January 2001.

1. On 17 January 2001, the local council issued a compliance certificate in relation to the work done at the site. The evidence was that two days' notice had to be given to the council to make the inspection required before issuing such a certificate, so that, as at 15 January, the work under the Build-Care contract would have been finalised.

1. However, as at 16 January 2001, work included in the council's building approval had not been done with respect to the external finishing of the southern wall of the building.

1. On questioning counsel, we were told it was unclear whether this work, which involved the rendering of the southern wall, was part of the Build-Care contract or not. In March 2001, another builder did this work and there has been no complaint about it.

1. The appellant's statement of claim was filed in the District Court on 16 January 2008. It sued under what was described as the notional contract ie the contract referred to in s 18C of the Home Building Act 1989. I will set out the full text of that section in due course. Under s 18E of that Act, proceedings on that cause of action had to be commenced within seven years. The question before her Honour was whether the claim was made within the statutory time limit. Her Honour held it was not, and the appellant appeals against that decision.

1. There is no doubt on the agreed facts that the work done by Build-Care was defective and that the cost of remedying the defective work is $377,239.00. Build-Care is now in liquidation.

1. Section 18C of the Home Building Act was at the relevant date as follows:

A person who is the immediate successor in title to ... a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the ... developer were required to hold a licence and had done the work under a contract with that successor in title to do the work.

1. Section 3A of the Act is as follows:

(1) For the purpose of this Act, an individual, a partnership or a corporation on whose behalf residential building work is done in the circumstances set out in subsection (2) is a developer who does the work.

(2) The circumstances are:

(a) the residential building work is done in connection with an existing or proposed dwelling in a building or residential development where 4 or more of the existing or proposed dwellings are or will be owned by the individual, partnership or corporation, ...

1. There seems no doubt in this case that the "developer ... has done residential building work" on the relevant land within the meaning of s 18C.

1. Section 18B of the Act sets out a series of statutory warranties including:

(a) a warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract.

There are five other statutory warranties.

1. Section 18E is as follows:

(1) Proceedings for a breach of a statutory warranty must be

commenced within 7 years after:

(a) the completion of the work to which it relates, or

(b) if the work is not completed:

(i) the date for completion of the work specified or determined in accordance with the contract, or

(ii) if there is no such date, the date of the contract.

1. Section 7 of the Act provides that a contract to build under the Act must be in writing and subsection (2) says that it must contain, inter alia:

(c) a sufficient description of the work to which the contract relates.

1. The appeal was heard on 24 June 2011. Mr T Lynch of counsel appeared for the appellant and Mr B DeBuse appeared for the respondent.

1. In some respects, the present case is difficult because the legislature has chosen to insert notional relationships into the mix in order to fulfil the legislative policy that, despite lack of privity of contract, the purchasers of home units should have a remedy should the original builder have breached the statutory warranties in s 18B of the Act.

1. Both counsel referred to this Court's decisions in Honeywood v Munnings [2006] NSWCA 215; 67 NSWLR 466 and Ace Woollahra Pty Ltd v The Owners-Strata Plan 61424 & Anor [2010] NSWCA 101.

1. The principal matter in contention on appeal, as at first instance, was whether the cause of action was commenced in time. This matter involved two key questions:

A. How is the notional contract imposed by s 18C constructed?

B. What does "completion of work" mean?

A subsidiary matter may then arise:

C. What is the relevance of the Civil Liability Act 2002?

1. Mr Lynch took us through the contract between the respondent and Build-Care. It is edition BC3 produced by the Master Builders' Association of NSW. The works are described as "extend & refurbish existing building including additional 12 units" in accordance with drawings and specifications approved by the Warringah Shire Council. Condition 5 requires time of completion within six months of the date of commencement, which the evidence showed was August 1998. Clauses 21 and 22, so far as are relevant, are as follows:

21. Any defects or other faults which may appear and be notified in writing to the Master Builder within a period of 26 weeks after the date of practical completion and due to materials or workmanship not in accordance with this Contract shall be amended and made good by the Master Builder at his own cost. In the case of default by the Master Builder the Proprietor may recover from the Master Builder the cost of making good. The period of 26 weeks hereinbefore mentioned shall be known as the Defects Liability Period.

22. (a) Upon expiration of the Defects Liability Period or upon completion of the amendment and making good of any defects or other faults appearing and notified to the Master Builder in accordance with Clause 21 of these Conditions whichever is the later date the Master Builder shall give notice thereof to the Proprietor. ...

1. Counsel informed us that there were defects notified to Build-Care within the Defects Liability Period.

1. It is significant that the appellant, as plaintiff, had three attempts at putting together its statement of claim. As I have indicated, the initial statement of claim was filed on 16 January 2008. That document in paragraph 6 identified Build-Care Pty Ltd as "the Builder". In paragraph 12 it alleged that "the Builder" breached the statutory warranties. Paragraph 11 alleged that, by virtue of s 18C, the respondent was liable to the appellant for the breach of the statutory warranties.

1. The next version was filed on 14 January 2009. Again, the term "the Builder" was defined as meaning Build-Care Pty Ltd and otherwise the claims were the same save that claims in tortious negligence were deleted.

1. Finally, the further amended statement of claim was filed on 21 July 2009. In that version paragraph 8B endeavoured to define "the Builder" as Build-Care and "Other Builders to the extent of their various works, where all that work was residential building work done by the Defendant"; otherwise the pleadings were the same.

1. The respondent says in its outline of submissions, para 2 (Orange 17):

On 14 July 2009 the Appellant was granted leave to file a Further Amended Statement of Claim. The Court made the following order:

Order per s 64(3) Civil Procedure Act 2005 that the date of commencement of the proceedings in respect of any amendment that would have the effect of adding or substituting a cause of action is taken to be the date on which the amendment is made.

1. The respondent contended that "64(3)" was a typographical error for "65(3)". There was no traverse of that allegation. Her Honour did not actually deal with it, but it is part of the notice of contention which is filed by the respondent that if "the work" includes the work that was done on the southern wall, then, for the purpose of limitation of actions, the proceedings would have had to have been commenced no later than March 2008, so that the amended claim on 21 July 2009 was out of time.

A. Construction of the notional contract

1. The primary judge recorded at p 10 that the respondent's submission to her was:

The result of the combination of s 3A and s 18C is that where residential building work is done on behalf of a developer and subsequently there is a successor in title then that successor in title will have the benefit of the statutory warranties in respect of the work done on behalf of the developer as though the developer had done the work and not the person who did it on behalf of the developer.

1. The primary judge then said:

That is how I read s 18C. Unless the contractual shell given force by s 18C is to be shaped entirely from the ether, its content must be found in the contract under which the relevant work actually was done by the entity which (actually) did it. Section 18C finds the contract into which the warranties are implied as being the contract under which the relevant residential building work actually was done. That (actual) contract is construed "as if" the developer had been the person actually doing the work under the contract. The statute vests the developer with that done on its behalf such that the contract reads as against the developer "as if" the developer "had done the work;" and in so doing places the developer in the shoes of the relevant contractor for the purpose of enforcement of the statutory warranties in respect of the work. That simultaneously gives content to the warranties implied.

1. The primary judge said that s 18C involved the finding of a contract between the developer and the builder and then creating a notional contract of the same terms between the developer and the Owners' Corporation. She then held that the work under the contract with Build-Care was completed on 5 January 2001 so that the limitation period expired before the appellant issued its claim and so the action was statute barred.

1. The appellant says that her Honour wrongly construed s 18C so that there was a separate right of action in respect of each contract: (a) a right of action against the respondent for defects in the Build-Care work; and (b) a separate right of action for defects in work undertaken by the other builder. The true construction of s18C is that there is a single right of action in respect of the totality of the residential building work done. On this basis, the work was not completed until the southern wall had been finished some time in March 2001 and the action was within time.

1. In my view, her Honour was correct in her ruling on this question. Additionally to her own reasons, it seems to me that the whole structure of the Home Building Act ss 18B to 18E is that the developer is in a notional contractual relationship with the Owners' Corporation and the contract made by the developer with the builder is what is being looked at as to the content of that notional contract.

1. Further, though this is not as strong an indicator, it seems to me on parity of reasoning with Stucoid Pty Ltd v Stadiums Pty Ltd [1960] HCA 41; 107 CLR 521, that one reads "the work" as referring to the work the subject of the claim for defects. If this were not so great difficulties would be caused where a project manager had a building erected by multiple sub-contractors and one can hardly fix the legislature with the intention to cause such difficulties.

B. What is meant by completion of the work?

1. A key question is what is meant by "completion of the work" in s 18E(a). This should be looked at from two perspectives, first, whether the phrase has any generally accepted meaning in the authorities, and secondly, whether in its use in this particular legislation, it has some definite meaning.

1. In Stucoid Pty Ltd v Stadiums Pty Ltd the High Court considered a provision of the Queensland Contractors' and Workmen's Liens Acts 1906-1921 which required a sub-contactor to give notice within a limited time after "completion of the work". There had been a decision in Queensland in 1918 ( R v Police Magistrate at St George and Barron; Ex parte Lawson and Waldron [1918] QSR 21) to the effect that completion of the work meant completion of the work under the head contract. However, the High Court held that in its context, completion of the work meant completion of the work with which the sub-contractor was involved. This had the result that, in the instant case, the appellant was out of time for claiming a lien.

1. In Morgan v S & S Constructions Pty Ltd [1967] VR 149, a building contract provided that the owners should pay within 120 days of the "completion of the works", and if they did not, then the land on which the building was erected would be transferred to the contractor. The owners claimed there were defects or deficiencies and refused to pay the final instalment. The question was whether the work was completed within the meaning of the contract. The Victorian Full Court (Winneke CJ, Smith and Gowans JJ) said at 154:

Prima facie, one would have thought that the work to be done under a contract was "completed" when everything required to be done had been done in accordance with the contract, both in respect of manner and materials. But when the subject-matter is the erection of a house, it is reasonable to think that if the building owner had gone into occupation, it would not be open to him thereafter to rely on the fact that there had been latent or unobserved departures from the contract to justify a contention that he had gone into occupation of a house which was not "completed", at all events when relief against such departures was open to him through a "maintenance clause". On the other hand, it would seem equally reasonable to think that, if, before the owner went into occupation, he was able to point out obvious departures from the contract, which were not merely trivial, he could not be required by the contractor to accept occupation of the house as "completed", on the ground that it was thereafter open to him to give notice to have them remedied under a "maintenance clause". The proper view would appear to be that, until the work to be done under the contract had been carried out in accordance with the contract, both in respect of manner and materials (except for departures from the contract which were either latent or undiscovered or merely trivial), it would not be "completed".

1. This Court considered the matter in HSH Hotels v Multiplex [2004] NSWCA 302. The decision is not of that much guidance because the contract in that case actually had a definition of "completion", namely when work had reached the stage where it was complete except for minor defects and reasonably capable of being used for its intended purpose. However, at [56] Tobias JA, with whom Mason P and Hodgson JA agreed, noted that "completion" was a question of fact for the Referee which he answered in favour of Multiplex.

1. As the respondent's counsel pointed out during argument, that expression also appears in s 95(3)(a) of the Home Building Act relating to owner-builder insurance and s 96A(4) dealing with the obligations of developers in relation to insurance. With respect, I do not derive any assistance from the reference to either s 95 or s 96A.

1. In the instant case, the learned primary judge also dealt with the matter as a question of fact. She considered that practical completion was not necessarily the same as "completion of the work", but concluded at Red 81:

I find that the relevant work was completed at the latest on 8 January 2001, when the developer accepted that practical completion had been achieved on 5 January 2001.

1. In Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612, Ward J had to consider the question of what was meant by "the date of completion of the work" for the purposes of s 18E of the Act currently under consideration. Her Honour (at [50]) referred to a decision of the CTTT that the expression meant "when the construction of the building effectively came to an end". [There was no suggestion the Defects Liability Period should be taken into account in that case]. Her Honour seemed to approve of that guideline, but also said that practical completion was a "relatively clear signpost" that the building works had reached completion. The learned primary judge in the instant case took those matters into account when she found as a question of fact that there had been completion of the work by 8 January 2001.

1. I cannot see any error in her Honour reaching that conclusion.

1. As to the defects liability period in this case, it would appear to me that Mr DeBuse is correct in saying that it was not part of the appellant's case below that the work was not complete until the work notified under cl 21 of the Build-Care contract was done or the Defects Liability Period expired. The matter having been thus presented to the primary departure should not be permitted here. In fairness to Mr Lynch who appeared for the appellant, he recognised as much and did not press the point.

1. The question of completion is one of fact which the primary judge decided after reviewing and considering the primary facts. No error in that approach and conclusion was demonstrated.

1. It follows that, in my view, the learned primary judge was correct in finding that the "work was completed" on 8 January 2001 and hence the present proceedings were statute barred.

C. The Civil Liability Act

1. This conclusion means that it is not necessary to consider in depth the other submission made by the respondent, that the present claim is a "apportionable claim" within the meaning of s 34 of the Civil Liability Act 2002 (NSW).

1. The submission is that the only liability which should be placed on the developer's shoulders is that liability for which it was personally liable and not that vicariously liability (in the special sense used in this Act) for what the builder did.

1. It is ordinarily the duty of an intermediate appellate court to deal with all the issues that arise in the appeal, notwithstanding that the appeal can be decided on one of those issues. However, the present point is an extremely significant one and it is not in the public interest that, without full argument on it, a definitive decision should be given.

1. Accordingly, I will content myself by saying that there is much to be said for the view that a claim under s 18C of the Home Building Act is not an action for damages from a failure to take reasonable care within the meaning of s 34(1) of the Civil Liability Act 2002. One principal reason for taking this view is that to take any other view would completely negate the whole purpose of s 18C in the

case where the builder has become insolvent.

1. In my view, the appeal should be dismissed with costs.

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Decision last updated: 16 August 2011