Owners Corporation v Shangri-La Construction
[2023] VCC 222
•22 February 2023
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Building Cases List
Case No. CI-22-05416
| Owners Corporation 1 Plan No. PS707553K and Ors | Plaintiffs |
| v | |
| Shangri-La Construction Pty Ltd and Anor | Defendants |
| and | |
| Nicholson Wright Pty Ltd & Ors | Third Parties |
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JUDGE: | HIS HONOUR JUDGE ANDERSON | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1, 9 and 10 February 2023 | |
DATE OF JUDGMENT: | 22 February 2023 | |
CASE MAY BE CITED AS: | Owners Corporation & Ors v Shangri-La Construction & Anor | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 222 | |
REASONS FOR JUDGMENT
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Catchwords: Practice and Procedure – Domestic Building dispute – Serious defects alleged in construction of apartment block – Proceeding commenced at VCAT in January 2019 - Trial date threatened by first defendant’s continued failure to properly plead apportionment defence and third party claims for contribution and indemnity – Severe prejudice to the apartment owner plaintiffs by further delay - Section 8 and 9(1) Civil Procedure Act 2010 (Vic) - Northern Health v Kuipers [2015] VSCA 172 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the First to Twelfth Plaintiffs | Mr N Phillpott | Gadens |
| For the Thirteenth Plaintiff | Ms G Gray | Corrs Westgarth Chambers |
| For the First Defendant | Mr C Hender | Prior Law |
| For the Second Defendant | Mr E Moon | Saint Kilda Law |
| For the First and Second Third Parties | Mr A Laird | Wotton Kearney |
| For the Third and Fourth Third Parties | Mr T Mullen | Clyde & Co |
| For the Fifth Third Party | No appearances | No appearances |
| For the Sixth and Seventh Third Party | Dhillon Legal | |
| For Sokratis Kromidellis (related party) | Mr J Whelen | Barry Nillson |
HIS HONOUR:
1This litigation has reached a critical stage. Decisions on three interlocutory applications will have significant consequences for the numerous parties and for the future conduct of the matter. Most importantly, this includes when the litigation will be heard by the Court and when there will likely be a final resolution of the disputes between the parties.
2Two related court proceedings have arisen from the construction of an apartment building in Caulfield (“the development”). The development was built between July 2014 and September 2015. In proceeding CI-22-05416 (“the first proceeding”), the plaintiffs are the two owners’ corporations, ten apartment owners (together, “the owners”) and the State of Victoria. The apartment owners purchased the apartments from the developer, subsequent to the development being completed. The first defendant is the builder of the development, Shangri-La Construction Pty Ltd (“Shangri-La”). The second defendant is Obaid Naqebullah. Mr Naqebullah has been the sole director of Shangri-La since 28 June 2013.
3The first proceeding commenced in the Victorian Civil and Administrative Tribunal (“VCAT”) in 2019 as proceeding no. BP125/2019 (“the first VCAT proceeding”). The first VCAT proceeding was initiated by the owners against Shangri-La.
4Since then, further parties have been joined in the litigation, as follows:
(a) on 9 December 2021, Shangri-La was given leave to join the following further parties:
(i)Nicholson Wright Pty Ltd and Jim Tsaganas (“the building surveyor parties”);
(ii)Integrated Fire Services Pty Ltd and Paul Verheijden (“the fire engineering parties”);
(iii)AGHG Pty Ltd and Gulnar Sultan (“the plasterer parties”), against whom Shangri-La has a modest contribution claim;
(iv)a further person, Reza Shefaie, who has been served but has not participated in the proceedings either at VCAT or in the Court;
(b) by application dated 5 August 2022, Shangri-La sought leave to join Sokratis Kromidellis, a building surveyor, to the first VCAT proceeding. That application was refused. It was heard on 16 September 2022 and reasons for decision were given on 4 October 2022;
(c) on 28 September 2022, Shangri-La issued VCAT proceeding no. BP 1352/2022 against Mr Kromidellis (“the second VCAT proceeding”). Shangri-La made an application to have the second VCAT proceeding heard together with the first VCAT proceeding. That application was refused. It was heard on 13 October 2022 and reasons for decision were given on 28 November 2022;
(d) on 20 October 2022 (the day following the decision of the Court of Appeal in Thurin v Krongold Constructions (Aust) Pty Ltd [2022] VSCA 226 (“Thurin”)), Shangri-La objected to the jurisdiction of VCAT to determine the two VCAT proceedings. Shangri-La’s objections were rejected by the Tribunal in a decision published on 6 December 2022;
(e) on 15 December 2022, the Tribunal struck out each of the two VCAT proceedings and referred the proceedings to the County Court, pursuant to s77 of the VCAT Act, as the more appropriate forum;
(f) on 26 October 2022, the State of Victoria had sought leave in the first VCAT proceeding to be added as an applicant to that proceeding and to join Mr Naqebullah as a second respondent. Those applications were granted, without objection by any party, on 15 December 2022.
5The first VCAT proceeding was set down for a hearing on 16 May 2022 by an order made in the Tribunal on 13 April 2021. The first VCAT proceeding was, in early 2022, referred to the County Court for hearing by a judge sitting as a VCAT vice-president. This was part of a tranche of approximately 80 cases forming part of the VCAT Covid backlog. The cases were referred to the Court pursuant to a collaborative protocol between VCAT and the County Court.
6Before the hearing date of 16 May 2022, the building surveying parties made an application to strike out Shangri-La’s Points of Claim in its contribution and indemnity proceedings against those parties. That application was heard on 30 March 2022, with reasons for decision being given on 13 April 2022. The trial date of 16 May 2022 was vacated. The Tribunal discussed draft orders with the parties. The parties themselves agreed on a revised timetable for interlocutory steps and a new trial date convenient to all parties of 13 March 2023. This date was subsequently corrected to 14 March 2023, to take account of the public holiday on 13 March 2023.
7At a hearing on 1 February 2023, the Court acceded to the request of all parties that the nominated trial date be changed from 14 March 2023 to 17 April 2023.
8The three applications currently before the Court were initiated by:
(a) the building surveying parties, by an application in the first VCAT proceeding dated 24 October 2022;
(b) the fire engineering parties, by an application in the first VCAT proceeding dated 26 October 2022; and
(c) Mr Kromidellis, pursuant to liberty to apply reserved in orders made in the proceeding CI-22-05417 (the “second proceeding”) which before referral was the second VCAT proceeding.
9Each of the applications essentially seeks to strike out references to the third parties in Shangri-La’s pleadings that allege they were concurrent wrongdoers, and which sought the apportionment of any liability Shangri-La may have for any losses established by the owners against it, and to strike out the separate claims for indemnity and contribution.
10Each of the applications was pursued as a “follow-on” from the two applications involving Shangri-La and Mr Kromidellis which were the subject of my previous decisions (sitting as a VCAT Vice-President) handed down on 4 October 2022 and 28 November 2022.
11The following matters were critical in the determination of the two applications involving Mr Kromidellis, and remain matters of significance in the determination of the three outstanding applications:
(a) the maintenance of the trial date of the first VCAT proceeding of 14 March 2023, now fixed for proceeding CI-22-04516 as 17 April 2023. This is referred to in each of my decisions and specifically noted in the order dated 2 September 2022, where it is stated in paragraph 4 that;
“For the avoidance of any doubt, it is contemplated that, at all costs, the objective of the Tribunal and as expressed by all parties to the Tribunal today is that the present trial date on 13 March 2023 be adhered to and that all interlocutory steps must be directed to achieving that objective”
(b) the concession by Shangri-La at the hearing of the first Kromidellis application dated 5 August 2022 that, as against Mr Kromidellis, the applicants’ claims were not apportionable;
(c) the inadequacy of the particulars of the alleged breaches by Mr Kromidellis of his responsibilities as a building surveyor for losses arising from the defects in the apartment block claimed in the first VCAT proceeding by the owners. Similar pleading inadequacies had been identified in my earlier decision given on 13 April 2022 in relation to allegations by Shangri-La against the building surveying parties;
(d) the repeated delays by Shangri-La in the first VCAT proceeding, noted by Tribunal in orders dated 7 July 2021 and by me in each of my reasons for decision, and in my orders dated 2 September 2022.
12The orders dated 15 December 2022 giving leave for Shangri-La to replead its claims against the building surveyor parties, the fire engineering parties and Mr Kromidellis (together, “the third parties”) in the first proceeding, and against Mr Kromidellis in the second proceeding, were made subject to Shangri-La:
“addressing outstanding issues, including the lack of appropriate particulars in the points of claim filed at VCAT” and that, “If Shangri-La fails to comply with any part of the orders … , by order made by the Court at the hearing on 1 February 2023:
(a) the paragraphs in the amended defence relating to the apportionment claims shall be struck out; and
(b) the amended statement of claim against the third parties (as appropriate) shall be struck out and the claim against the third parties (as appropriate) shall also be struck out”.
13The pleadings relevant to the three applications are as follows:
(a) Shangri-La’s pleadings involving the apportionment of the applicants’ claims as they relate to the building surveying parties and the fire engineering parties, being:
(i)Further amended points of defence in the first VCAT proceeding dated 5 August 2022;
(ii)Points of claim in the second VCAT proceeding dated 16 September 2022 against Mr Kromidellis;
(iii)Amended defence in the first proceeding dated 24 January 2023;
(b) Shangri-La’s pleading claiming contribution and indemnity against the building surveying parties and the fire engineering parties:
(i)Points of claim in the first VCAT proceeding dated 21 December 2021;
(ii)Amended points of claim in the first VCAT proceeding dated 5 August 2022;
(iii)Further amended statements of claim against each set of parties in the first proceeding dated 24 January 2023;
(iv)Proposed second further amended points of claim dated 8 February 2023 in the first proceeding against the building surveying parties and the similar pleading (mistakenly dated 24 January 2023 rather than 8 February 2023) in the first proceeding against the fire engineering parties;
(c) Shangri-La’s pleading claiming contribution and indemnity against Mr Kromidellis:
(i)Amended points of claim in the first VCAT proceeding dated 5 August 2022;
(ii)Points of claim in the second VCAT proceeding dated 28 September 2022;
(iii)Amended statement of claim in the second proceeding dated 24 January 2024;
(iv)Proposed amended points of claim in the second proceeding dated 8 February 2023.
14The pleadings at the various dates are relevant for the following purposes:
(a) the pleadings in 2021 and 2022 are only relevant because they indicate the deficiencies identified by the Tribunal in the decisions on 13 April and 4 October 2022;
(b) each of the third parties submitted that the pleadings dated 24 January 2023 were deficient and the self-executing provisions of the order dated 15 December 2022 were enlivened. Shangri-La submitted that the 24 January pleadings were adequate, or at least, a “good faith” attempt to comply and either did not or should not be regarded as sufficient non-compliance to enliven the self-executing orders;
(c) alternatively, Shangri-La submitted that the 8 February 2023 proposed pleadings were adequate pleadings to which each of the third parties might reasonably be expected to respond and that, as a consequence, the anticipated self-executing orders should be set aside.
15The applications were heard over 3 days:
(a) on 1 February 2023, following the completion of matters required to be discussed at the directions hearing that day, the parties agreed to spend about 2-3 hours foreshadowing the arguments that would be made on 9 February 2023, which was the day fixed for the hearing of the three applications. Following this discussion, it appears that Shangri-La made the decision to draft “proposed pleadings” which sought to address more specifically the complaints raised by the parties making the three applications in their preliminary submissions on 1 February 2023;
(b) on 9 February 2023 for the whole day and, on 10 February 2023 until about 12:30pm, the parties addressed the three applications. Then, all parties including those who had not been directly involved in the three applications, addressed the Court on matters relating to prejudice and the maintenance of the trial date.
16I have made certain findings and reached certain conclusions as a result of my consideration of the parties’ affidavit material and the comprehensive written and oral submissions of the parties. I will list my conclusions below, and later discuss the reasons for them:
(a) there was a breach of the orders dated 15 December 2022 by Shangri-La as it failed to file any amended pleadings prior to the cut-off time of 4.00pm on 24 January 2023. Some documents were filed later that evening and the balance the next day. This default is not, however, a determining factor in my consideration of the issue of whether there has been compliance with the orders, and I would excuse it if it were the only matter of complaint;
(b) there is no proper basis that has been shown for Shangri-La to raise the apportionment issue in its defence. The owner plaintiffs did not, at the outset of the first VCAT proceeding, bring any claim against the building surveyor parties, the fire engineering parties or Mr Kromidellis. After Mr Tsaganas and the fire engineering parties were joined to the first VCAT proceeding on 9 December 2021, the applicants made “contingent” claims against them. These claims were made “out of an abundance of caution” and if the applicants were “wrong” in their denial that any of those parties were a “concurrent wrongdoer within the meaning of s.24AH of the Wrongs Act” and “in the event that orders were made apportioning damages against any of those parties”.
(c) the claim made by the owner plaintiffs against Shangri-La for breach of a duty of care, by alleging a breach of the warranty provided for in s.8(e) of the Domestic Building Contracts Act 1995 (Vic), was deleted in the applicants’ second further amended statement of claim dated 23 December 2021;
(d) the s.8(a) warranty, which remains in the owner plaintiffs’ statement of claim, does not in my view raise such an issue. Considering the circumstances of Shangri-La’s participation in all of the proceedings to date, it would be an abuse of process if Shangri-La’s conduct were to prevent the plaintiffs’ claims to proceed to trial on 17 April 2023;
(e) I consider that it is also unlikely Mr Naqebullah would have any proper basis for seeking the apportionment of any recovery by the State of Victoria against him;
(f) the further amended pleadings in both Shangri-La’s defence and the contribution and indemnity proceedings against each of the third parties delivered on about 24 January 2023 in the first proceeding, and against Mr Kromidellis in the second proceeding are not sufficient compliance with the 15 December orders, by reason of the inadequacies in the documents and the lack of any explanation for the changes made, as to why a pleading in this form was not delivered earlier and the use of documents in the pleadings which had not previously been discovered;
(g) similarly, the proposed further amended pleadings in both Shangri-La’s defence and the contribution and indemnity proceedings against the third parties delivered on about 8 February 2023 in the first proceeding, and against Mr Kromidellis in the second proceeding are not sufficient compliance with the 15 December 2022 orders by reason of the inadequacies in the documents, the inconsistencies with the 24 January 2023 versions and the lack of any explanation for the changes made, as to why a pleading in this form was not delivered earlier and the use of documents in the pleading which had not previously been discovered;
(h) the 24 January 2023 version of the documents could not be said to have been delivered in “good faith”, and therefore the later proposed pleadings should not, in any event, be sufficient basis for ignoring the lack of compliance or for setting aside the consequences of the self-executing order;
(i) the 8 February proposed pleading was a “good faith” attempt at compliance with the 15 December 2022 orders. If such pleadings had been delivered when originally required by previous Tribunal orders, or perhaps even as late as 7 October 2022 when belatedly promised by Shangri-La, it is likely that the timetable of interlocutory steps might have been amended to permit a trial to commence on all issues (then contemplated) in March or April 2023;
(j) the integrity of the Tribunal’s and the Court’s orders require, in these circumstances, that the defaults by Shangri-La over a very long period should not be excused or be permitted to further delay the commencement of the trial of the issues between the plaintiffs and the defendants. Any trial of the third party claims must await the completion of adequate interlocutory processes before a trial of those matters can proceed.
Reasons for the conclusions
17There are a number of principles that must be considered when dealing with the present applications and how the determination of them may impact on the trial date and the resolution of the issues in dispute between the parties. The principles were not controversial although the emphasis given differed between the parties.
18The applicable principles requiring consideration include:
(a) giving effect to the overarching purpose of civil litigation, as set out in s8 of the Civil Procedure Act 2010 (Vic), by facilitating “the just, efficient, timely and cost-effective resolution of the real issues in dispute”, and in doing so the obligation the Court has in furthering the overarching purpose to have regard to the matters listed in s9 of the Act;
(b) the desirability, so far as is reasonably practicable and appropriate in all the circumstances, to have before the court all relevant parties and all disputes when a proceeding is heard;
(c) giving a party every reasonable opportunity to articulate and advance their case;
(d) not depriving a party of its rights to raise a defence or claim notwithstanding a “technical” or minor breach of Court orders if the party has generally acted in “good faith” and the default has been remedied, an appropriate explanation provided and other parties have not been significantly prejudiced.
19It is necessary to examine Shangri-La’s pleadings, both the defence and the third party claims as they relate to the building surveying parties, the fire engineering parties and Mr Kromidellis.
Apportionment issues raised in the defence
20Shangri-La’s assertion in its defence that the plaintiffs’ claim is an apportionable claim within the meaning of Part IVAA of the Wrongs Act 1958 is misconceived as the plaintiffs’ claim was not a claim “arising from a failure to take reasonable care”, as the definition of apportionable claim in s.24AF(1) requires. This point was conceded by Shangri-La’s counsel upon the hearing of the application to join Mr Kromidellis as a party to the first VCAT proceeding. Later, counsel suggested that the applicants’ removal of their reliance on the s.8(e) warranty by amendment of the points of claim had not been properly brought to the attention of Shangri-La. Whilst that suggestion had no basis, it did provide an explanation as to why Shangri-La had persisted with the allegation that the applicants’ claims were apportionable.
21Shangri-La’s remaining argument was that the owners still relied in the first proceeding on the s.8(a) warranty and that the first limb of warranty, that “the work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract”, necessarily involved a claim “arising from a failure to take reasonable care”.
22Shangri-La relied upon the recent judgment of Senior Member Edquist in Owners Corporation PS623721 v Shangri-La Construction Pty Ltd (Building and Property) [2022] VCAT 1499 at paragraph [133], where he stated that:
“…the first limb refers to a standard which is not absolute. I consider that whether the work is being carried out ‘in a proper and workmanlike manner’ in a particular case is a matter which must be considered in the context of all the circumstances. In this way, it is akin to an obligation to perform work in a reasonable manner. It is for this reason that I am satisfied in the circumstances of this case that the first limb of the warranty arising under s 8(a) gives rise to liability which may be apportionable under Part IVAA of the Wrongs Act.”
23Senior Member Edquist, at paragraphs [135] to [136] reached a similar conclusion in relation to the s.8(d) warranty which he said also consisted of two limbs, of which only the second limb was “absolute”. The first limb was “the only warranty which expressly refers to ‘reasonable care and skill’ [and was] clearly a warranty which creates an apportionable claim”.
24Counsel for the fire engineering parties, Mr Mullin, submitted that the owners’ fire claims were subrogated to the State of Victoria by the operation of s.137F of the Building Act 1993 (Vic) which provides that where “Cladding Safety Victoria pays an amount to an owner of a building … by way of a grant of financial assistance in relation to cladding rectification work on the building [the State of Victoria] is subrogated to all rights and remedies of the owner against any person in relation to the installation or use of any non-compliant external wall cladding product”.
25The State of Victoria, in its statement of claim against Shangri-La, did not rely upon the s.8(a) warranty and, accordingly it was submitted, the continued reliance by the owners on s.8(a) was irrelevant.
26The plaintiffs’ counsel, Mr Phillpott also submitted that the decision of the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 ("Brookfield") provided an answer to Shangri-La's assertion that the plaintiffs’ claim was apportionable.
27In Brookfield, the common property of a complex of serviced apartments was vested in the Owners Corporation as manager of the strata scheme and as agent for the owners of the serviced apartments. The design and construct contract contained detailed provisions with respect to the quality of the work to be performed by the builder and required the builder to remedy defects or omissions in the work within a defined defects liability period. The standard form contract of sale to purchasers of the serviced apartments, annexed to the design and construct contract, conferred on each purchaser specific contractual rights in relation to defects in the property, including the common property.
28The High Court held that a claim by the Owners Corporation could not succeed against the builder responsible for the design and construction of the complex. However, as Shangri-La’s counsel Mr Hender submitted, the finding in Brookfield that a duty of care did not exist was substantially based on the finding that the plaintiff was not vulnerable (see Brookfield at [34]-[36] (French CJ), [56]-[58] (Hayne and Kiefel JJ), [69], [130]-[132] (Crennan, Bell and Keane JJ)). Further, in finding that the Owners Corporation was not vulnerable, the Court noted that both the developer and original purchasers had made contracts which gave rights to have remedied defects in the common property vested in the Owners Corporation (see Brookfield at [56]-[58] (French, CJ)).
29In Brookfield, the High Court followed the decision in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 205 ALR 522 (“Woolcock”) and also considered the decision in Bryan v Maloney (1995) 182 CLR 609 (“Bryan”) and confirmed that no duty of care will be owed unless the subsequent owner falls within a class of persons incapable of protecting themselves from the consequences of a builder’s want of reasonable care.
30In respect of the warranties being apportionable as against the Building Surveyor parties and Mr Kromidellis, Mr Hender relied on the Court of Appeal decision in Moorabool Shire Council v Taitapanui (2006) 14 VR 55 (“Moorabool”) where a duty of care owed by a building surveyor to the subsequent owners of the property was recognised. The Court of Appeal considered that the duty arose as the work of building surveyors involved the performance of statutory functions and duties.
31In Moorabool, the Court examined the rights of subsequent owners to claim damages against building surveyors, and for engineers responsible for construction or design. It was not in dispute that a surveyor exercising their functions under the Building Act 1993 (Vic) owed a relevant duty of care to the original owners of the house at the time of engagement. The surveyor was also found to have owed the subsequent owners a duty of care to avoid economic loss.
32In Moorabool at [24], Maxwell P stated as follows:
“Nor is there anything in the decision in Woolcock to suggest that the class of case — the “species of negligence” — represented by the decision in Bryan could not, as a matter of principle, have encompassed an engineer just as much as a builder. On the contrary, the discussion in Woolcock of the “anterior step”, and of the concept of vulnerability, seems to have assumed without question that an engineer — like a builder — could owe a duty of care to the first owner and — potentially, at least — to a subsequent owner, to avoid pure economic loss”.
33In their judgment, Ormiston and Ashley JJA considered that the statutory scheme to administer residential building in Victoria was of substantial importance as a feature of the relationship between the building surveyor and subsequent purchasers in assessing whether any duty of care existed.
34At [71], Ormiston and Ashley JJA stated that “foreseeability of loss and unbroken chain of causation are necessary elements” of the duty of care with respect to pure economic loss. However, something more was required. In Moorabool, it was found that the Building Surveyor's issuing of a building permit carried with it the representation that the authorised building work was not in breach of the Building Act 1993 (Vic) and Regulations and had statutory implications that went beyond the owners at the time when the permit was issued (see [149]-[158]).
35Other salient features in favour of the existence of the duty included the surveyor's assumption of responsibility, the vulnerability of the subsequent owners, the practical content of the duty of care being identical, the surveyor’s awareness of the risk, the fact the duty of care was compatible with the surveyor’s statutory obligations which he willingly undertook and there being no risk of indefiniteness of potential liability (see [159] to [177]).
36Mr Hender also made reference to Owners Corporation No 1 of BS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286 where Judge Woodward accepted that building surveyors owed subsequent owners a duty to exercise reasonable care.
37In Tanah Merah Vic Pty Ltd v Owners' Corporation No 1 of PS631436T [2021] VSCA 72 (“Tanah Merah”), the Court of Appeal upheld the Tribunal’s decision and found that the builder was not negligent under the Wrongs Act 1958 (Vic), as was argued by the builder and building surveyor, architect and fire engineer. This was notwithstanding that the Court agreed that the builder had breached the implied warranty under the Domestic Building Contracts Act 1995 (Vic) and the Building Act 1993 (Vic) by constructing a building that did not comply with the Building Code of Australia (BCA).
38In Tanah Merah, however, the Court had to consider whether a building surveyor's failure to identify and remedy an omission in the description of the proposed cladding in the fire engineering report was causative of loss. Leave to appeal was granted on the issue of the building surveyor’s failure to identify and correct an omission in a fire engineering report. The building surveyor successfully argued that the Tribunal erred in finding that the building surveyor’s failure to identify and remedy deficiencies in the fifth fire engineering report caused the loss, and the Court set aside that finding. The Court agreed with the building surveyor’s position that, as the fire engineer was already aware that combustible aluminium composite panels were proposed for the cladding, the inaction by the building surveyor had no causal consequence.
39In my view, whilst the building surveyor parties in the present proceedings might be found liable to a subsequent owner for a breach of a duty, given they probably owed a duty of care in exercising their statutory functions under the Building Act 1993 (Vic), causation still needs to be established. Indeed, as emphasised by Ormiston and Ashley JJA in Moorabool at [71], “foreseeability of loss and an unbroken chain of causation are necessary elements”.
40Shangri-La in its pleadings to date has not directly addressed, identified, or even attempted to resolve necessary causation issues in respect of its claim against the building surveyor parties (and Mr Kromidellis) despite many opportunities to do so.
41Adopting the Court of Appeal's reasoning in Tanah Merah, a building surveyor’s failure to identify and remedy deficiencies in a fire engineering report may have no causative link. The fire engineering parties were already aware that Shangri-La intended to use EPS combustible cladding. This matter equally applies to Shangri-La’s reliance upon breaches of statutory duty to find a claim for apportionment against the building surveyor parties and Mr Kromidellis.
42Shangri-La’s claim for apportionment as against the building surveyor parties and Mr Kromidellis ought to therefore be struck out.
43In supplementary written submissions, Mr Hender conceded that, “in light of the decision of Uniting Church in Australia Property Trust (Vic) v Ian Hartley Architects Pty Ltd & Ors [2022] VSC 233 Shangri-La accepted that its claim should be struck out insofar as it alleges the existence of a duty of care owed by the fire engineering parties to the Owners”. However, Mr Hender submitted that, this did “not mean that its proportionate liability defence(s) and/or contribution claims should be struck out in their entirety; each is also predicated on a claim(s) for contravention of the ACL, which remains unaffected and a sufficient pleading that ought not be struck out”.
44In my view, if the pleading of the apportionment claim in the Shangri-La defence were to remain it would be an abuse of process, in circumstances where:
(a) Shangri-La had failed to sufficiently plead in its defence, and in its separate claims against the third parties, matters which indicated that the owners’ claims were claims “arising from a failure to take reasonable care” which would make them apportionable;
(b) it was this default that had put the present trial date at risk;
(c) Shangri-La’s conduct of the proceedings over many years had been unsatisfactory;
(d) the only way to make it likely that the plaintiffs’ claims could be determined in the foreseeable future was to split off the plaintiffs’ claims from Shangri-La’s apportionment defence and its claims against the third parties for indemnity and contribution;
(e) as presently pleaded the apportionment defence has little, if any, merit. It is, however, difficult if not impossible to foreshadow how the hearing of the proceeding could be split in any way, if the apportionment defence were allowed to stand;
(f) on the other hand, Shangri-La’s separate third party claims can be pursued, at some future time, if the apportionment defence is struck out and Shangri-La takes the necessary steps to properly articulate its third party claims;
(g) if Shangri-La were to pursue its third party claims, it would not necessarily suffer any greater financial loss than if the whole proceeding were delayed until the third party claims were ready to also proceed to trial. There might, however, be difficulties and financial consequences if Shangri-La were not able to finalise its pleadings in the third party claims without significant further delay.
45In these circumstances, I consider that the only viable option open to the Court is to strike out the apportionment references in the defence in the first proceeding and those similarly relevant portions of the statement of claim in the second proceeding.
46I propose to deal more fully, in the paragraphs which follow, with the reasons for concluding that Shangri-La’s pleading of the apportionment defences remains inadequate.
Allegations against the third parties in pleadings dated 24 January 2023
47The general factual background contained in each of Shangri-La’s pleadings dated 24 January 2023 against the third parties has a similar structure. Accordingly, the following summary of the facts relied on by Shangri-La is generally applicable to each of the pleadings, including Shangri-La’s further amended defence in the first proceeding and the amended statement of claim in the second proceeding.
Claim against the building surveyor parties
48Nicholson Wright Pty Ltd (“Nicholson”) was “engaged … to provide building surveying services” for the development, either pursuant to a retainer from the developer or Shangri-La. Nicholson employed both Mr Tsaganas and Mr Kromidellis “in their capacities as registered building surveyors”.
49Nicholson issued 4 building permits for the project between 2 July 2014 and 22 June 2015 and an occupancy permit on 8 September 2015. In addition, Nicholson “appraised, approved and stamped all the architectural and engineering drawings submitted as part of the building permit applications [and] undertook inspections of the Works on [eleven occasions between] … around 4 August 2014 … and 13 August 2015”.
50In relation to issue of combustible cladding, Shangri-La alleged that the building surveyor parties and the fire engineering parties were aware that combustible cladding would be used as “render” on the project because of references to “foam” board or rendered in specification and because of Mr Naqebullah informing a meeting in about June 2014, attended by representatives of various parties involved in the project including Mr Tsganas and Mr Verheijden, that “EPS, styro foam and/or RMAX Orange Board would be installed wherever the drawings said ‘rendered’”.
51Shangri-La made claims in contract and for breach of both a statutory and a common law “duty of care”. Shangri-La alleged that the third parties “knew or ought to have known [that] the Plaintiffs would or might rely upon the registered building surveyor to ensure that the permits issued for the Works were issued correctly and were issued in accordance with the Building Act, the Building Regulations, the Building Code of Australia and local authority requirements”. In the claim against Mr Tsaganas, specific reference was made to regulation 1502(a) in pleading the “statutory duty [he owed] to perform his functions as the relevant building surveyor in a competent manner and to a professional standard”.
52Shangri-La particularised the building surveyor parties’ breach of “the retainer” by reference to the “reasons, inter alia, outlined in the expert reports of Neil Shafto dated 1 August 2022 (“First Shafto Report”) and 4 August 2022 (“Second Shafto Report”) and the failure “to exercise reasonable care in conducting inspections and/or issuing the Occupancy Permit by reason of the … defects identified by the Plaintiffs in … the Plaintiff’s Summary of Defects and Costs dated 5 November 2021 (‘Summary’)”.
53Then followed, in relation to each of the 37 selected defects items listed from the Summary, an allegation that the particular defect should “have been noticed and/or identified during [a particular inspection, for example] the final inspection on 13 August 2015 and/or prior to the issue of the occupancy permit”. In addition, Shangri-La alleged that the building surveying parties “could not have been satisfied that the building work would comply with all laws and legal requirements as required by s.24 of the Building Act”.
54Item 27 in the Summary in the “Common Areas” related to the combustible cladding defect. Shangri-La alleged that the building surveyor clients “should have requested a Certificate of Conformity and details so an amended permit could be issued, on becoming aware that [combustible cladding] would be used, and/or upon receiving the installers compliance certificate for [the combustible cladding] on 12 August 2015”. In addition, Shangri-La alleged that the building surveying parties “could not have formed the view that the fire safety design complied with the Building Code of Australia”.
Claim against the fire engineering parties
55Integrated Fire Services Pty Ltd (“Integrated”) was retained on around 20 February 2015 by the developer or Shangri-La to provide fire safety engineering services in respect of the development. The retainer was comprised by Shangri-La’s Purchase Order No. 19 dated 11 June 2014 with implied warranties including statutory warranties.
56Mr Verheijden was a director and employee of Integrated and was a registered building practitioner under the Building Act in the class of Fire Safety Engineer.
57Mr Verheijden, as a registered fire safety engineer and on behalf of Integrated, prepared 2 fire engineering reports in December 2014 and “provided a Certificate of Fire Design”, on a date and to whom, which is unstated, and “details of which will be provided by Shangri-La after discovery is complete”.
58Similarly, as for the building surveyor parties, from around May 2014, Integrated and/or Verheijden, “were, or ought to have been, aware that Shangri-La intended to install EPS combustible cladding, specifically RMAX Orange Board [because] the Project Building Specifications which formed part of Building Permit refer to ‘75 mm foam board’ [and] the Shangri-La Specifications and Finishes Schedule which formed part of the Building Permit refer to ‘styro foam rendered’ [and also because of a] meeting in or around May 2014 between Mr Obaid Naqebullah, Mr Jim Tsaganas and Mr Paul Verheijden, during which Mr Naqebullah stated words to the effect that EPS, styrofoam and/or RMAX Orange Board would be installed wherever the drawings said ‘rendered’”.
59Integrated was liable for breach of the retainer and in negligence or misleading and deceptive conduct by reason of its failure to “inform Shangri-La that EPS, styro foam and/or orange max board were not appropriate for use and/or that they did not comply with the BCA”.
60Mr Verheijden owed a duty of care “at common law to Shangri-La, the original owner [the developer] and the Plaintiffs because he purported to undertake the fire design and or assess its adequacy as part of the Integrated [fire engineering] services [and] was the person who executed the Certificate of Fire Design”. In addition, Mr Verheijden was “involved (as defined in section 2 of the ACL) in the misleading or deceptive conduct” of Integrated.
61The breach involved the defective work described in the Plaintiffs’ Summary dated 5 November 2021 as “Common Areas - Item 26”, and for which, in respect of any recovery by the plaintiffs, Shangri-La claimed contribution and indemnity.
Claim against Mr Kromidellis
62The pleading was similar to the pleading of the claim against the building surveyor parties. However, the pleading differs in two significant ways:
(a) there is no allegation that Mr Kromidellis had been aware that combustible cladding would be used as “render” on the project by reason of references to “foam” board or rendered in specifications or because of Mr Naqebullah informing a meeting of that fact in about May 2014;
(b) instead of listing the 57 defects (the same defects alleged for which the building surveying parties had a concurrent responsibility with Shangri-La), the claim against Mr Kromidellis contains a table with five columns. The information in the first four columns identifies the location and details of the specific defects and is derived from the plaintiffs’ Summary. The fifth column purports to contain what is “alleged against Kromidellis”.
63The fifth column contained “standard” allegations, as follows:
(a) for all, or mostly all, items the standard allegation was that the alleged defect had not been noticed during a relevant inspection. For example, for “item 2”, it reads, “Defects in driveway construction (a)-(j) should have been noticed during final inspection and prior to the issue of the occupancy permit”. The column identifies the “occasion” upon which Mr Kromidellis should have noticed the specific alleged defects, but gives no further particulars;
(b) for “fire separation items” (items 25 and 26), the fifth column additionally alleged that, “The amended building permits should have specified that any fire separation walls must continue through the first floor ceiling level to the underside of the flooring above”;
(c) for “External cladding combustibility” (item 27), the fifth column additionally alleged that, “The amended building permits should have specified that cladding installed to the building must be a non-combustible cladding. Kromidellis should have requested a certificate of conformity and details so an amended permit could be issued upon receiving the installers compliance certificate for RMAX orange board on or around 12 August 2015”;
(d) for defects involving “leaking” or “water damage”, the fifth column additionally alleged that, “No waterproofing certificate was provided or obtained and Kromidellis could therefore not have relied on one”.
Discussion of Shangri-La’s pleadings in earlier decisions
64Before discussing the specific problems with these pleadings, it is appropriate to briefly refer to the conclusions I reached in earlier reasons for decision The first dated 13 April 2022 was concerned with the pleading dated 21 December 2021 as against the building surveying parties, although the pleading also had relevance to the pleading of the claim against the fire engineering parties. At that time, I wrote:
“13.The present state of these documents is entirely unsatisfactory. It is clear that the documents were prepared without the builder engaging an expert with either building surveying or fire services expertise. The builder’s counsel, Mr Stanistreet, informed the Tribunal during the hearing that before the builder could redraw the documents, it would need to engage a surveying expert and that the report from that expert would also provide the necessary information to particularise the pleadings involving the fire services parties.
14. I am referring to these documents as “pleadings” as convenient shorthand. The deficiencies are not technical shortcomings that often complicate the finalisation of pleadings in a court proceeding. In fact, VCAT claims are often particularised by specific reference to an expert’s report that has been separately provided. Usually, however, the VCAT Practice Notes ensure that such reports follow a standard format. Alternatively, as with the attempt by the owners to particularise their claims against the builder by reference to numerous reports, an order was made requiring the owners to file and serve a numbered, cross-referenced defects and quantum list.
15. The basic deficiency with the present particularisation of the builder’s defence and claims is that it directs the opposite party to a mound of material without any attempt to identify what is actually the substance of the detail of the claim the owners or the builder would separately have against each set of joined parties. This puts an impossibly onerous burden on the opposite parties to sift through substantial material to attempt to understand what might possibly be alleged against them, and then to attempt to answer the allegations”.
65Shangri-La was permitted to replead against these parties and Mr Kromidellis. The agreed timetable included in the Tribunal orders provided for the amended pleading and an application to join Mr Kromidellis to be filed by 5 August 2022. The lengthy period was primarily to give Shangri-La time to consult relevant experts and draft appropriate pleadings. The amended pleadings against the building surveying parties and the fire engineering parties resulted in their respective strike out applications issued by those parties on 22 October 2022 (later amended and reissued on 2 November 2022) and 19 October 2022 respectively. These are two of the applications currently being considered in the context of the 24 January 2023 pleadings.
66In the meantime, the Tribunal dealt with Shangri-La’s application to join Mr Kromidellis as a party to the first VCAT proceeding. After that application was refused, Shangri-La issued the second VCAT proceeding against Mr Kromidellis and Shangri-La made an application to have the two VCAT proceedings joined together. That application was also refused.
67Shangri-La’s claim for contribution and indemnity dated 5 August 2022 was against the three third parties. The comments in my reasons for decision in relation to both Shangri-La’s applications in relation to Mr Kromidellis also have some relevance to the consideration of the 24 January 2023 pleadings which are presently under consideration.
68In my reasons for decision dated 4 October 2022, the discussion of Shangri-La’s pleading against the three joined parties, including Mr Kromidellis, is at paragraphs [10] to [30]. At paragraph [31], I concluded as follows:
“31.In my view, the present pleading of the claim against Mr Kromidellis is defective and even if this matter were capable of remedy, the Tribunal should be wary of allowing further impediments to the final determination of the issues between the present parties involved in the proceeding”.
69In my reasons for decision dated 3 November 2022, the discussion of the adequacy of the pleading against Mr Kromidellis in the points of claim in the second VCAT proceeding is at paragraphs [14] to [22]. I noted in paragraph [16(a)] that those pleadings attached the applicants’ Second Further Amended Points of Claim dated 23 December 2021 as Annexure A, Shangri-La’s Points of Defence dated 5 August 2022 as Annexure B and the applicants’ Summary of Defects Claims dated 5 November 2021 as Annexure C. The first 2 annexures are provided as background to the applicants’ claims and Shangri-La’s defences. Annexure C, however, appears to be relied upon by Shangri-La as enabling Mr Kromidellis to interpret the tabulation of defects in the points of claim from pages 11 to 52. Ordinarily, an applicant would not be expected to undertake this type of cross-referencing exercise. It would be the responsibility of Shangri-La to make clear, in its pleading, what specific reports and the pages or paragraphs in these reports to which it was referring”.
70I made further comments in paragraphs [17] to [22] of the reasons concerning the adequacy of the further pleading in the newly issued proceeding against Mr Kromidellis.
71The passages referred to in the previous reasons for decision provide significant context for the Court’s consideration of Shangri-La’s further amended pleadings dated 24 January 2023 which are under discussion in the present applications.
Inadequacy of Shangri-La’s pleadings dated 24 January 2023
72The problem with the 24 January 2023 pleadings, including the amended defence and the third party claims in the first proceeding and the amended statement of claim in the second proceeding (particularly as the pleadings relate to the building surveying parties and Mr Kromidellis) is that they essentially ignore the problems with earlier pleadings identified in the reasons for decision referred to, particularly:
(a) the lack of sufficient connection between the identified defects and what is alleged to be the action or lack of action by the relevant third party that is relied on by Shangri-La;
(b) this lack of particularity seems to be due in large part to the absence of expert material. A lengthy delay was allowed in the orders dated 21 April 2022 to accommodate the requirements of the building surveying expert, Mr du Chateau of 12 weeks before he was available and 8 weeks to prepare a report in order for Shangri-La to have a further period to prepare and file amended pleadings. In fact, Mr Du Chateau was never engaged by Shangri-La. Enquiries were made later by the building surveyor parties’ solicitor, Mr Loney. He deposed in an affidavit sworn on 7 February 2023, that Mr du Chateau told him that Shangri-la’s solicitors had made enquiries about his availability in April 2022, and “he had only been asked how long he would require to provide a report if he was engaged and that he had not been instructed, retained or briefed with any material”. Shangri-la’s solicitor, Ms Ahne-Hawley, in an affidavit dated 15 September 2022, referred to the fact that Mr Shafto was sent a “letter of instruction on 26 July 2022 and a “brief/email requesting supplementary report” on 4 August 2022. Mr Shafto delivered two reports dated 1 and 4 August 2022. The relevant pleading against the third parties is dated 5 August 2022;
(c) the 24 January 2023 pleadings against the building surveying parties and Mr Kromidellis refer in a general way in the particulars to both of Mr Shafto’s reports. These references are inadequate in assisting the responding parties to understand what is alleged against them;
(d) an allegation that a specific defect should have been “noticed” on a particular occasion is insufficient. It is the statement of a conclusion. There is nothing to explain the process of reasoning which might have led to the conclusions stated in the pleadings, for example related to “usual practice” by inspecting building surveyors, the significance of the “particular characteristics” or “significance” of a defect of a specific nature or the “particular statutory requirement or building code” which the building surveyor had ignored. Expert evidence must contain more than a statement of conclusion;
(e) the lack of this particularity is unfair to responding parties. When investigating allegations in order to respond, those parties and their experts are forced to speculate as to what the complaint might be and to effectively consider, and if necessary to answer, each possibility. This would be unfair to the third parties. What would be more likely to happen, if the third parties were forced to plead to Shangri-La’s existing or proposed pleadings is that the third parties would simply respond with a “bland” pleading, either with simple denials or non-admissions which would provide no more clarity to the real matters in dispute. It would also inhibit the parties in their preparation for trial or in any attempts to resolve their disputes by agreement;
(f) it is not an answer to say that what the experts might say is a matter of evidence and not necessary for a pleading. The pleadings should clarify matters in dispute between the parties. In complex litigation with multiple parties involving scientific or technical issues, the pleadings must be used appropriately to ensure that the parties are not only ready for trial but can also meaningfully participate in other interlocutory and trial processes which are commonplace nowadays (including mediation, preparation of Scott schedules, conferences of experts and concurrent evidence sessions).
73In relation to the fire engineering parties, there are further issues relating to the pleading of the relationship between particular parties, the obligations that were assumed by the fire engineering parties and what their state of knowledge was. The particulars provided of these matters are generally inadequate. In summary, these issues are as follows:
(a) Shangri-La alleges that Nicholson was retained “on around 20 February 2015”, that the retainer was either by the developer or Shangri-La and that it was comprised by a Shangri-La purchase order dated 11 June 2014 and various implied warranties;
(b) there were apparently two fire engineering reports prepared by Mr Verheijden in December 2014 and a “Certificate of Fire Design” that he provided, details of which cannot be provided until “after discovery is complete”;
(c) Shangri-La also relies on a conversation at a “meeting in or around May 2014” at which it was alleged that Mr Naqebullah, Mr Verheijden and others were present and at which Mr Naqebullah made a statement that a product would be used in the development that Mr Verheijden should have recognised as combustible cladding. This should also have been obvious to Mr Verheijden from certain references to particular materials in the Project Building Specifications and the Finishes Schedule which formed part of the Building Permit;
(d) these allegations had not previously been made. No affidavit material was filed by Mr Naqebullah on behalf of Shangri-La attesting to the conversation or its context. No expert evidence from a fire engineering or other expert has been filed on behalf of Shangri-La, although the Court was informed that Shangri-La had, or may, obtain a report from a building consultant on these issues;
(e) further, the fire engineering parties’ counsel, Mr Mullin, suggested that the discovered documents only related to minor fire safety work undertaken by Integrated and Mr Verheijden on the development which would not justify a conclusion that those parties accepted general responsibility for fire engineering and safety for the development. In this regard, he submitted that Shangri-La’s compliance with its discovery obligation was deficient.
74Accordingly, I have concluded that the pleadings delivered by Shangri-La on 24 January 2023 did not comply with the self-executing order and the pleadings previously identified, namely the amended defence and the third party claims in the first proceeding and the amended statement of claim in the second proceeding have by reason of the non-compliance to be struck out.
Allegations against the third parties in pleadings served 8 February 2023
Shangri-La’s proposed second further amended defence in the first proceeding
75This pleading proposes several amendments relevant to the issue of the sufficiency of the pleading, as follows:
(a) the deletion of the alternative allegation that Nicholson was retained by Shangri-La rather than the developer. This removes the basis for the previous claim made against Nicholson in contract;
(b) the previous pleading in paragraph 27 of the awareness of Nicholson and Mr Tsaganas (and in paragraph 46A, of Integrated and Mr Verheijden) of “Shangri-La’s intention to install combustible cladding, specifically RMAX Orange Board” in the development significantly changed, as follows:
(i)a “meeting in or around May 2014” became a “meeting at Shangri-La’s head office … to discuss the development at the Property”, “on or around 11 June 2014”;
(ii)the attendees at the meeting, “Obaid [Naqebullah], Mr Jim Tsanagas and Mr Paul Verheijden” became “Arfan Alsous and Obaid Naqebullah of Shangri-La, Hedra Kamel of JPBS, Pat Richardson of Nicholson Wright, Leslie Zambuko of JBA, and Paul Verheijden of Integrated Fire Solutions”;
(iii)at the meeting, that “Mr Naquebullah stated EPS, styro foam and/or orange board would be installed wherever drawings said ‘rendered’” became “Mr Naqebullah said words to the effect that RMAX orange board was or would be Shangri-La’s construction methodology where render finish was specified in the project documentation; and Mr Verheijden said words to the effect that as long as the wall was fire rated he was ok with attaching RMAX orange board render finish on top of the fire rated wall”;
(iv)“The ‘Project Building Specifications’ which formed part of Building Permit refer to ‘75 mm foam board’” became “a document titled ‘Project Building Specifications’ (Building Specification), which referred at ‘Item 19.1 – External Rendering’ to ’75mm foam board’ render as per working drawings”;
(v)“The Shangri-La ‘Specifications and Finishes Schedule’ which formed part of the Building Permit refer to “styro foam rendered” became “a document titled “290 Hawthorn Rd Caulfield Specifications & Finishes Schedule” (Finishes Schedule), which referred at item 1.3 to ‘Styro Foam Rendered’”.
(c) a fresh pleading alleging a further matter, by reason of which, Nicholson “knew, or ought to have known, that RMAX orange board had been installed at the Property” by Shangri-La, namely an “email from Pat Richardson to Tarig Iesa dated 2 September 2015 [by which] Shangri-La was requested by Nicholson Wright to provide a statement for installation of lightweight external cladding system specifying the system that had been installed [to which Shangri-La responded] on or around 3 September 2015, [by providing] Nicholson Wright … with an installers compliance certificate dated 12 August 2015 which stated that RMAX orange board had been utilised at the Property”;
(d) in alleging negligence, breach of statutory duty or a duty of care against Nicholson, Shangri-La substantially amended the particulars previously provided to:
(i)refer to a specified part of the Second Shafto Report;
(ii)refer to the fact that directions “would have been given” by a “reasonable surveyor” to Shangri-La “to fix any defective works that were apparent during one or more of [the] inspections, pursuant to s.37A of the [Building] Act”;
(iii)to replace the previously listed defects with a five column table similar to the table forming part of Shangri-La’s statement of claim against Mr Kromidellis in the second proceeding. The fifth column of the table contained the matters “alleged against Nicholson Wright and/or Tsaganas”;
(e) to allege that Nicholson and Mr Tsaganas caused loss and damage to Shangri-La because, if the building surveyor parties had acted properly “in carrying out inspections and/or issuing the occupancy permit, Shangri-La would have rectified the defects identified in the particulars to paragraph 23, and/or the Plaintiffs would have acquired their respective properties without the defects present”;
(f) the deletion of the allegation that Integrated was initially retained by Shangri-La rather than by the developer. This appeared to remove the basis for the previous claim made against Integrated in contract. However, the basis for what was renamed “the first retainer” was amended to rely on an inference from a design report dated 30 June 2014 prepared for “EyeQ Constructions”. A second retainer “by Shangri-La … to provide fire safety engineering services” for the development, was stated to have been entered into “on or around 11 June 2014” and to be constituted by “Purchase Order No. 19 dated 11 June 2014” and to be inferred from an email from Mr Verheijden relating to an invitation for him to attend a design meeting on 10 June 2014 and an invoice from Integrated to Shangri-La dated 12 December 2014 for “the fire consultancy as quoted”;
(g) an allegation that Verheijden and Integrated had prepared and provided to Shangri-La and Nicholson two fire engineering reports, a report “titled ‘Fire Protection System Design – Report for the Fire Protection Services’ dated 1 December 2014 [and] a report for the ‘Alternative Solution of the DTS Provisions of the BCA’ dated 8 December 2014”. Neither report “set out any concerns or issues with the use of 75mm foam board render and/or RMAX orange board”;
(h) paragraphs relying upon Integrated’s misleading and deceptive conduct were added alleging that Integrated had “represented that the use of RMAX orange board by Shangri-La was appropriate, and otherwise complied with all relevant provisions of the Building Act, Building Regulations and the BCA”, and had failed to “inform Shangri-La that EPS, styro foam and/or orange max board were not appropriate for use and/or that they did not comply with the BCA”;
(i) to allege that “were it not for [Integrated’s conduct], Shangri-La would not have installed RMAX orange board cladding at the property, and therefore the Plaintiffs and/or the State would not have suffered any loss or damage arising out of or in connection with the EPS cladding”.
Shangri-La’s two proposed second further amended statements of claim in the first proceeding
76These two pleadings also propose several amendments relevant to the issue of the sufficiency of the pleadings against the building surveying parties and the fire engineering parties. However, they are essentially the same as the amendments proposed to Shangri-La’s defence in the first proceeding, which I have just discussed.
77I note that in paragraphs 24 and 24A of the proposed second amended statement of claim against the fire engineering parties, Shangri-La wishes to pursue a claim for breach of contract based upon “breach of the fire safety retainer”. The proposed pleading in paragraphs 9 and 9A has deleted the previous heading “Breach of Contract” and inserted the heading “Background and Engagement of Integrated Fire Services”. Then follows the amended allegations of two retainers, the “first retainer” with EyeQ and the “second retainer” with Shangri-La. It is unclear what the relationship is between the pleading of the two retainers and the allegation of breach in paragraphs 24 and 24A.
Shangri-La’s proposed further amended statement of claim in the second proceeding against Mr Kromidellis
78There are many changes proposed to this pleading. Many of them relate to matters which have been included to bring the pleading in line with the proposed changes in the third party claims against the building surveyor parties and the fire engineering parties. I will not separately refer to these matters.
79The most substantial change is to the fifth column of the table of defects. I have previously discussed this matter when considering the adequacy of Shangri-La’s amended statement of claim in the second proceeding dated 24 January 2023. I referred to the “standard” form of pleading adopted in relation to many defects.
80Similar forms of “standard” pleadings are used in the proposed pleading although they are generally longer. I will give three examples to illustrate the nature of the proposed amendments. I have included the two most frequently used “standard” form of words and the major defect relating to the use of combustible cladding:
(a) Common property - Item 2(a):
Defect alleged by the owner plaintiffs – “The installed driveway does not have any transitions installed and the slope remains a 1:4 to the basement floor”.
Allegation against Kromidellis in the 24 January 2023 pleading – “Defects in driveway construction (a)-(j) should have been noticed during final inspection and prior to the issue of the occupancy permit”.
Allegation against Kromidellis in the proposed 8 February 2023 pleading – “A reasonable surveyor would have inspected the driveway to the carpark, including as part of the final inspection. Upon a reasonable inspection by a building surveyor, the defects alleged by the Owners would have been reasonably apparent. In the circumstances, a reasonable building surveyor would have identified the defects in the driveway to carpark alleged by the Owners, informed Shangri-La of them, and required them to be fixed”.
(b) Common property - Item 27:
Defect alleged by the owner plaintiffs – “The EPS cladding installed to the building is not a non-combustible cladding”.
Allegation against Kromidellis in the 24 January 2023 pleading – “The amended building permits should have specified that cladding installed to the building must be a non-combustible cladding. Kromidellis should have requested a certificate of conformity and details so an amended permit could be issued upon receiving the installers compliance certificate for RMAX orange board on or around 12 August 2015”.
Allegation against Kromidellis in the proposed 8 February 2023 pleading – “On or around 2 September 2015, Shangri-La was requested by Nicholson Wright to provide a statement for installation of lightweight external cladding system specifying the system that had been installed (Email from Pat Richardson date 2 September 2015 titled ‘FW: 290 Hawthorn Rd: Mechanical Certificate/Fire Extinguishers). In response to that request, in or around September 2015, Kromidellis was provided with an installers compliance certificate dated 12 August 2015 which stated that RMAX orange board had been utilised at the Property. Upon being provided with the certificate, a reasonable building surveyor would have requested a certificate of conformity and details so an amended permit could be issued. By reason of the installers compliance certificate (and not having receive a certificate of conformity), a reasonable surveyor: (a) should have formed the view that the EPS cladding installed to the building was non-complaint with the BCA; (b) should not have been satisfied that the Building complied with the Act, Regulations and/or BCA, or that the Building was safe to occupy; and (c) would not have issued an Occupancy Permit in respect of the Building. Shangri-La refers to the Second Shafto Report at Question 4”.
(c) Apartment 1 - Item 3:
Defect alleged by the owner plaintiffs – “There is water damage to the living room ceiling … The balcony above the water damage has no fall to the drainage point”.
Allegation against Kromidellis in the 24 January 2023 pleading – “Defects in the lack of fall of the balcony should have been noticed during final inspection and prior to the issue of the occupancy permit. No waterproofing certificate was provided or obtained and Kromidellis could therefore not have relied on one”.
Allegation against Kromidellis in proposed pleading – “A reasonable building surveyor would have undertaken an inspection of the balconies. Upon a reasonable inspection by a building surveyor of the balconies, the defects alleged by the Owners (being the lack of fall) would have been reasonably apparent. A reasonable surveyor would not have formed the view that the Building was suitable for occupation in circumstances where the balconies had been constructed such that they would cause the water damage claimed by the Owner(s). In those circumstances, a reasonable surveyor would not have issued an Occupancy Permit in respect of the Building”.
81In my view, there are some improvements to the earlier particulars. For example, there are specific references to particular passages in the Shafto reports. However, these references are not particularly helpful because of the limitations of these reports which are in general language and mostly without reference to specific defects and any real explanation of the basis for the statements. This may be due to the fact that Mr Shafto was unable to inspect the defects as rectification work had already been undertaken and either had been completed or almost completed.
82With regards to the proposed pleading in the fifth column relating to item 27, the combustible cladding, Mr Shafto was asked as question 4, “Is the lightweight cladding installed different or the same to the RMAX Orange Board? He answered in his second report, “I have very limited information here but from the applicants submitted reports by their consultants clearly an EPS product has been installed that is in conflict with approved plans, the manufacturer or supplier it is from appears to be RMAX orange board as stated by the installers compliance certificate. If the Building Surveyor received this (which would have been post construction) it should have been queried for a Certificate of Conformity and details so an amended permit could be issued once compliance was determined. The concessions that relate to low rise Class 2 Buildings in the NCC / BCA at the time may have permitted such a cladding but works should in in accordance with approved documents”.
83This answer, although useful, demonstrates the limitations of Mr Shafto’s reports. It seems obvious that this aspect [the fifth column of the table] of the proposed 8 February 2023 pleadings relies more on counsel’s drafting skills using the basic information in the existing pleadings, rather than any new expert advice or instructions.
84In my view, the pleadings which connect the plaintiff’s claimed defects with a breach of obligations on the part of the building surveying parties and Mr Kromidellis have not been pleaded sufficiently to allow those parties to know the case they need to meet. These issues have repeatedly been pointed out to Shangri-La.
85In relation to the fire engineering parties, there has been a continuing shifting of the basis of the claims as new information has become available to Shangri-La. The proposed pleadings relating to the fire engineering parties rely on one conversation and a few documents as its basis. The details of the conversation changed in significant respects between 24 January 2023 and 8 February 2023. The documents relied upon also changed and now relies upon some documents not discovered, and in fact not made available to other parties until the morning of the directions hearing on 9 February 2023.
86These matters should have been the subject of proper and adequate explanation. There should have been an affidavit by Mr Naqebullah setting out his best recollection of the meeting and the critical conversation in May or June 2014. The absence of such material makes it impossible for me to determine whether there is any proper basis for the changes now proposed and, if so, why these matters were not pleaded at a much earlier time.
87In the circumstances, I do not consider that the proposed 8 February 2023 pleadings are adequate to allow the third party claims to presently proceed or to hold up the determination of the plaintiffs’ claims against the defendants.
Prejudice and other issues
88In relation to issues concerning matters of prejudice to the parties and the maintenance of the presently fixed trial date:
(a) the apartment owner plaintiffs would be severely prejudiced if the principal proceeding were not determined at a hearing commencing on 17 April 2023. This conclusion arises from the unchallenged evidence in the affidavit of Adrian Clifford sworn 2 February 2023 as to the financial and personal stress from which the apartment owner plaintiffs have suffered and continue to suffer. The next set of dates the Court could accommodate the trial commencement would be from 31 July 2023 through to August 2023. Counsel for the owners corporation and apartment owner plaintiffs, Mr Phillpott, informed the Court that he would not be available to participate in a trial of this matter because of a prior Supreme Court commitment in August. I do not consider that it would be appropriate in view of the matters contained in Mr Clifford’s affidavit and Mr Phillpott’s involvement in the proceedings over many years to require those parties to obtain alternative counsel for a trial commencing in August 2023. It appears that a trial date could therefore not be refixed before dates much later in 2023 or perhaps early in 2024. This would be an intolerable situation, particularly as those parties’ reasonable expectation was that the hearing would commence in May 2022;
(b) any prejudice to Shangri-La by it not being able to have any successful claims against it apportioned as part of its defence, so long as it retains the possibility of pursuing the contribution and indemnity claims against the third parties in the future, is of a lesser order;
(c) the building surveyor parties, the fire engineering parties and Mr Kromidellis would be prejudiced if they were required to participate in a hearing of all issues in the two proceedings if it were commencing on 17 April 2023.
89The two proceedings currently have the following disputes:
(a) the claim by the owners corporation and apartment owner plaintiffs against Shangri-La for defective work. The defective work has been rectified at a total cost of almost $3m. Of this sum $1,020,736.97(GST inclusive) was paid by the State of Victoria pursuant to s137F of the Building Act 1993 (Vic);
(b) the subrogated claim by the State of Victoria against Shangri-La and Mr Naqebullah pursuant to the Building Act 1993 (Vic);
(c) the claims for indemnity and contribution by Shangri-La against the building surveyor parties and the fire engineering parties in the first proceeding, and against Mr Kromidellis in the second proceeding.
90It is possible, and in some cases likely that, in addition to the matters presently raised in the two proceedings, further disputes may be sought to be raised and further interlocutory steps will be necessary:
(a) apportionment defences and contribution claims as between the building surveyor parties, the fire engineering parties and Mr Kromidellis when and if they were required to file defences and third party claims in response to the claims for indemnity and contribution made against them by Shangri-La. These matters were raised in the submissions by each of these parties as matters that would be addressed when they each were required to file a defence;
(b) the second proceeding is essentially a third party claim against Mr Kromidellis which was only commenced as the second VCAT proceeding because of Shangri-La’s lack of urgency in pursuing the third party claim in the first VCAT proceeding. If Shangri-La were to proceed with contribution and indemnity claims against Mr Kromidellis, and if Mr Kromidellis were to be joined by the building surveyor parties and the fire engineering parties in the first proceeding in order for them to pursue apportionment claims (or for Mr Kromidellis to join those parties in the second proceeding to pursue such claims against them), it is likely that, at some stage, what remained of the first and second proceedings after the determination of the issues between the plaintiffs and the defendants would need to be consolidated, or at least an order made that the two proceedings be heard together;
(c) third party claims by Shangri-La against Arch Underwriting at Lloyd’s (Australia) Pty Ltd (“Arch”) and the Underwriters arising under policies of insurance relating to the development. An application to join these matters in the first VCAT proceeding was considered and dismissed in December 2021, and the possibility of such a claim being reactivated was raised before the Tribunal in the jurisdiction hearing determined on 3 November 2022;
(d) third party claims by Mr Naqebullah against Arch and the Underwriters arising under the same policies of insurance as applied to Shangri-La, and against the building surveyor parties, the fire engineering parties and Mr Kromidellis similar to those that have been already pursued by Shangri-La. The possibility of the involvement by the insurers was raised at the directions hearing on 1 February 2023. The Court was informed by senior counsel for the insurers, who appeared at the request of the Court, that a claim had been made by Mr Naqebullah to the insurers under the policies and had been rejected. Mr Naqebullah’s counsel, Mr Moon, informed the Court that the possibility of third party claims was “under consideration”.
91In my view, these disputes can only appropriately be dealt with within the following time frame:
(a) a trial commencing on 17 April 2023 could, at best, only deal with the claims made by the plaintiffs (including the State of Victoria) against Shangri-La and the claim by the State of Victoria against Mr Naqebullah;
(b) the third party claims by Shangri-La against the building surveyor parties, the fire engineering parties and Mr Kromidellis would need at least until June/July 2023 before they were ready to proceed to a hearing. However, if the third parties raised the issue of apportionment and third party claims between themselves, it is unlikely a hearing involving these parties could proceed until later in 2023;
(c) if third party proceedings were instituted by Mr Naqebullah against the building surveyor parties, the fire engineering parties and Mr Kromidellis, the timing would also depend on what further issues were raised by the third parties;
(d) it would be impossible to make any sensible estimate if the insurers were joined by either Shangri-La or Mr Naqebullah, save that a hearing would be very unlikely before 2024.
92Further to these matters, it is appropriate that I attempt to anticipate and record what the likely effect of the orders proposed would have on the future conduct of the proceeding. The effect of the orders is likely to be as follows:
(a) the issues as between the plaintiffs and the defendants will be separated from the issues regarding contribution and indemnity as between the defendants and the third parties and as between the third parties;
(b) the plaintiffs will have the opportunity of having the issues with which they are involved dealt with at a hearing commencing 17 April 2023 and which is not inextricably bound up with issues which, with the striking out of the apportionment issues, no longer concern them;
(c) although the apportionment issues are disposed of, the defendants’ rights to claim indemnity and contribution can still be pursued;
(d) however, the pursuit of those issues will not have an effect on the plaintiffs’ claims against the defendants, and it will put the onus back on the defendants to make the necessary applications to file further pleadings and to take further interlocutory steps supported by appropriate affidavit material;
(e) for example, to pursue a third party claim against one of the present third parties (except the plasterers), Shangri-La would need to make application to the Court for leave to file an amended pleading and would need to satisfy the Court that the proposed pleading is appropriate and that the application is supported by the necessary affidavit material, including for example by exhibiting all previously undiscovered documents referred to in the proposed pleading dated 8 February 2023 and including affidavit material fully supporting the inclusion in the pleading of references to crucial conversations that underpin the pleading;
(f) The defendants will therefore need to not only prepare for trial of the issues with the plaintiffs, but also to advance the third party proceedings if they are to ever be permitted to proceed. In this regard, the interests of the 2 defendants are separate, although the fact that Mr Naqebullah is, and for many years has been, the sole director of the first defendant, lessens the risk of any real prejudice to him being suffered by this process being followed;
(g) ordinarily, third parties might wish to participate in a hearing which will decide the liability of the defendants to the plaintiffs and the quantum of any damages. Such participation is constrained to a degree by, for example, the legal principles which limit repetitive testing of evidence by cross-examination by parties having a similar interest. Also, during their submissions on the hearing of the applications, the third parties did not express any great willingness to be engaged in that process. The Court will reserve the opportunity for the third parties to participate, to a limited extent, in the hearing of the issues between the plaintiffs and the defendants. This is one reason the Court will hear further submissions before finalising the orders;
(h) the Court will retain control of the proceeding. If the defendants wish to pursue the third party claims, the onus will be on them to do so promptly and in an appropriate manner. It is obvious from the work that was done in the period before the hearing on 9 February 2023 that Shangri-La understands what is required of it. If it wishes to proceed with claims against the third parties, it must ensure that the defects in respect of which it wishes to seek contribution or indemnity from others are identified (this has generally been done, although at different times the defects in dispute have changed), and the basis for alleging the third party has any responsibility (this can only be done if there a better connection between the expert evidence and the specific defects);
(i) the onus will now be on the defendants, particularly Shangri-La, to properly attend to these matters. If this is not done, the defendants’ third party claims will not proceed. If the applicants obtain judgment on their claims, execution would proceed in the absence of a stay of execution. If the defendants sought a stay on the basis of third party claims, such an application would need to consider a variety of matters including whether there had been recovery in respect of defects not covered by third party claims, the extent to which the third party claims had advanced, and an assessment of the likely success of those third party claims based on all available material and, whether in those circumstances a general stay were warranted or a stay on terms would be more appropriate. Such terms might include immediate payment of any part of a judgment by the plaintiffs in respect of which the third party claims do not relate and the provision of security for the applicants’ costs or security for the parts of the judgment in respect of which the third party claims remain unsatisfactorily pleaded.
93In reaching my decision, I have applied the directions provided by the Court of Appeal in Northern Health v Kuipers [2015] VSCA 172.
94At [22], Kyrou and McLeish JJA emphasised that the Civil Procedure Act 2010 (“CPA”) was “pivotal to the resolution of disputes about case management issues…it must be apparent from the reasons for the ruling…that the judge took into account the applicable provisions”. At [89], their Honours noted that judges have an obligation under s.8 of the CPA to give effect to the overarching purpose of facilitating “the just, efficient, timely and cost-effective resolution of the real issues in dispute”.
95Section 9(1) of the CPA lists a number of matters which the Court is “obliged” to have regard to in furthering the overarching purpose. These are all matters of particular relevance in relation to the present proceedings:
a)“the just determination of the civil proceeding;
b)the public interest in the early settlement of disputes by agreement between parties;
c)the efficient conduct of the business of the court;
d)the efficient use of judicial and administrative resources;
e)minimising any delay between the commencement of a civil proceeding and its listing for trial beyond that reasonably required for any interlocutory steps that are necessary for—
i.the fair and just determination of the real issues in dispute; and
ii.the preparation of the case for trial;
f)the timely determination of the civil proceeding;
g)dealing with a civil proceeding in a manner proportionate to—
i.the complexity or importance of the issues in dispute; and
ii.the amount in dispute”.
96At [89], their Honours stated that the “main focus” of the considerations in s.9 of the CPA is “forward looking and, in particular, in ensuring a fair and just determination of the real issues in dispute”, and that particular regard must be given in certain cases to the “prejudice to the parties” (at [96]-[101]) and a party’s “reasons for breach” of orders (at [102]-[107]).
97At [118], their Honours concluded by emphasising that the outcome of the case before them reflected its “special circumstances” and that:
“Parties conducting proceedings in a managed list…must do all they can to comply with the Court’s timetabling orders. If they do not, they face the risk that orders will be made which may affect the manner in which, and the extent to which, they can conduct their case”.
98In the circumstances, it is appropriate to make orders to the following effect:
(a) permit Shangri-La to file a further amended defence in the first proceeding in the form of the proposed pleading dated 8 February 2023 omitting all references to the apportionment of liability;
(b) strike out the further amended points of claim against the building surveying parties and the fire engineering parties in the first proceeding dated 24 January 2023;
(c) strike out the further amended points of claim against Mr Kromidellis in the second proceeding dated 24 January 2023;
(d) confirm the trial date of 17 April 2023 for the determination of all issues between the plaintiffs and the defendants;
(e) any further interlocutory steps necessary prior to the trial including, if there were to be a mediation, whether all of the parties in both proceedings should be permitted or encouraged to attend;
(f) whether the building surveyor parties, the fire engineering parties, and Mr Kromidellis should be permitted to participate to any extent in the trial commencing on 17 April 2023;
(g) no further steps shall be taken in relation to Shangri-La’s contribution and indemnity claims against the building surveying parties and the fire engineering parties in the first proceeding and in the second proceeding against Mr Kromidellis unless and until Shangri-La makes application and obtains the leave of the Court to file and serve appropriate statements of claim.
99I will publish these reasons and seek the views of the parties as to the appropriate form of the orders proposed.
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Certificate
I certify that these 45 pages are a true copy of the judgment of His Honour Judge Anderson delivered on 22 February 2023.
Dated: 22 February 2023
Nikki Thomson
Associate to His Honour Judge Anderson
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