The Owners - Strata Plan SP 73014 v Bowcon Pty Ltd

[2015] NSWSC 351

Supreme Court

New South Wales

Medium Neutral Citation:	The Owners – Strata Plan SP 73014 v Bowcon Pty Ltd [2015] NSWSC 351
Hearing dates:	30 March 2015
Date of orders:	30 March 2015
Decision date:	30 March 2015
Jurisdiction:	Equity Division - Technology and Construction List
Before:	Kunc J
Decision:	Adjournment application refused; Judgment for plaintiff
Catchwords:	BUILDING AND ENGINEERING CONTRACTS – Remedies – Claim for breach of statutory warranties – Whether claim in time – Home Building Act, 1989 ss 18B, 18E PRACTICE – Adjournment – Discretionary considerations – Extended failure to comply with directions to file evidence - No proper or adequate explanation – Adjournment to file evidence refused.
Legislation Cited:	Civil Procedure Act, 2005 (NSW) Home Building Act, 1989 (NSW) Home Building Amendment Act, 2011 (NSW) Uniform Civil Procedure Rules Part 7 r 7.2
Category:	Principal judgment
Parties:	The Owners – Strata Plan No 73014 (Plaintiff) Bowcon Pty Limited ACN 086 400 197 (First Defendant) Viking Corporation Pty Limited ACN 003 251 358 (Second Defendant)
Representation:	Counsel: T. Davie (Plaintiff) S. Argyrou (Second Defendant) (In person) Solicitors:
File Number(s):	2012/296131
Publication restriction:	No

EX TEMPORE Judgment

Summary

1. HIS HONOUR: These proceedings were commenced by application in the Consumer, Trader and Tenancy Tribunal (as it then was) on 22 March 2011. The plaintiff is The Owners - Strata Plan 73014 (the “Owners”), being a block of units in Alexandria (the “Block”). The first defendant, Bowcon Pty Ltd, was the builder of the Block (the “Builder”). The second defendant, Viking Corporation Pty Ltd, was the developer of the Block (the “Developer”). The Owners sue the defendants for breaches of the statutory warranties set out in s 18B of the Home Building Act, 1989 (NSW) (the “Act”).

2. The proceedings were subsequently transferred to this Court, where they continued as if commenced in the Supreme Court in the Technology and Construction List of the Equity Division.

3. The proceedings are before the Court today for their final hearing. Mr T Davie of Counsel appears for the Owners. For reasons which I will explain, it was not expected that there would be any appearance for the defendants. However, during the hearing Mr Sergios Argyrou (“Mr Argyrou”), a director of the Developer, was granted leave to appear for the Developer.

4. The proceedings are able to be concluded today by judgment against the Builder. As against the Developer, the question for determination is whether or not the Court should accede to an adjournment application made on behalf of the Developer by Mr Argyrou. That application is refused and judgment will also be entered against the Developer.

Procedural history

5. The legal representation of the defendants has been subject to some vicissitudes. Both were originally legally represented. However, the Builder ceased to be represented by solicitors in January 2014. Significantly for present purposes, the Developer has been represented by solicitors up to 17 February 2015, which is the date of a Notice of Removal of Solicitor which was filed on 19 February 2015.

6. As a matter in the Technology and Construction List, the proceedings have been subject to case management in the usual way. A number of orders were made, from time to time, to progress the proceedings. For example, on 31 May 2013, orders were made for the defendants to file and serve by 12 July 2013 evidence in reply to the evidence already filed and served by the plaintiff. On another occasion, 7 November 2013, orders were made for the defendants to serve their evidence by 2 December 2013.

7. The case management of the proceedings included the exchange of expert reports and the holding of expert conclaves which resulted in a significant degree of agreement between the Developer’s expert and the Owner’s expert as to what work was required to be done to remedy the defects in the Block and what the cost of that work would be. However, despite orders being made for the filing of evidence by the defendants of the kind set out in the preceding paragraph, no evidence was filed by the Developer in support of a limitation defence that had been pleaded by the Developer.

8. That limitation defence was set out in paragraph 9 of the Developer's Technology and Construction List Response filed on 9 April 2013:

The Second Defendant says that the claims based on alleged breaches of the statutory warranties, or parts of those claims, have not been brought within the warranty period prescribed in section 81E of the HBA and cannot be maintained.

Particulars

(a)   The Plaintiff commenced proceedings in the Consumer Tenancy and Trader Tribunal on 22 March 2011;

(b)   The Plaintiff filed a Technology and Construction List Statement in the Supreme Court on 14 November 2012;

(c)   The Second Defendant says that the construction work relating to the defects particularised in Annexure A was completed prior to 22 March 2004.

9. The proceedings were fixed for hearing today at a directions hearing in August 2014. As the hearing drew nearer, the Owners sought to clarify what role the defendants proposed to play in the hearing. It will be recalled that, by this stage, the Builder was unrepresented but the Developer continued to be represented.

10. On 5 March 2015 (two weeks after the Developer had terminated its legal representation) the Owners' solicitors sent a letter to various persons connected with the Developer. Among the recipients of that letter was Mr Argyrou. Mr Argyrou is apparently one of two directors of the Developer. The other director is his brother, Mr Andrew Argyrou. Mr Argyrou's nephew, Mr Costa Argyrou, has been informally assisting his uncle at the bar table today.

11. The letter of 5 March 2015 said:

We refer to our letter of 2 March 2051 to which we have not yet received a response. Please advise whether or not you are currently represented by a solicitor; if you are, of course we will write to that solicitor.

Please advise whether or not you propose to be present at the Hearing of this matter listed for 30 March 2015.

We note that despite a number of requests we have not received any response from you in relation to the preparation of a joint report between your quantity surveyor and our quantity surveyor Mr Spicer. Please advise your intentions in this regard.

We served you the Court Book index on 19 February 2015, with no response. We therefore propose to have the Court Book as based on that Index photocopied and sent to you as soon as practicable. If you have any comments about the Index or the proposed contents please advise us as a matter of urgency.

12. There was no response to that letter and, at the Owners' request, the proceedings were listed for directions before the Technology and Construction List judge on 20 March 2015. On that occasion the Owners' counsel informed the Court that while the Builder had indicated that it would not be attending the hearing, no confirmation had been received from the Developer as to whether it would be attending the hearing. The Court confirmed the hearing date for the proceedings of 30 March 2015 for one day but listed the three other days for which it had been fixed as provisional.

13. After that directions hearing there was another attempt to communicate with the Developer by the Owners’ solicitors through Mr Costa Argyrou. That elicited an email on 26 March 2015 at 10.55am from Mr Costa Argyrou in response to the Owners' solicitor's email in these terms: "Thank you Richard. Viking will not be attending the hearing."

Today’s hearing

14. When the matter was called on for hearing before me this morning, Mr Davie announced his appearance on behalf of the Owners. There was no one else at the bar table. However, Mr Davie drew to my attention that Mr Argyrou, and his nephew Mr Costa Argyrou, were sitting in the Court as “observers”.

15. I had the defendants formally called outside the Court and there was no appearance for either of them.

16. Mr Davie opened his case and started to take me through the evidence. Mr Argyrou approached the bar table, initially indicating that he wished to sit there because he said he was having difficulty hearing what was going on. However, when I then inquired whether he wished to be heard on behalf of the Developer, he replied in the affirmative.

17. In an endeavour to deal with the matter in a practical way, I granted leave to Mr Argyrou to appear on behalf of the Developer, notwithstanding the absence of an affidavit of the kind referred to in UCPR Part 7, Rule 7.2. Mr Davie, quite properly having regard to the exigencies of the situation, did not oppose that leave being granted.

18. A little later during the course of the morning Mr Costa Argyrou also asked if he could speak on behalf of the Developer. I did not permit that to occur and left him to provide such assistance informally to his uncle as he thought appropriate. I should record that neither gentleman appeared to have any difficulty with the English language. They were both fluent and clearly understood what was going on.

19. Mr Davie closed his case. I inquired of Mr Argyrou whether he wished to seek an adjournment of the proceedings in order to obtain legal representation for the Developer. He considered his position over the morning tea adjournment and returned to request that the proceedings be adjourned to enable the Developer to be legally represented and to bring evidence in support of the limitation defence. The application was dealt with informally without benefit of sworn testimony. Rather, Mr Argyrou explained the relevant circumstances to me from the bar table.

The adjournment application

20. The basis of the adjournment application was that Mr Argyrou wished to put the Developer in funds (a lack of funds apparently being the reason why the solicitors’ retainer had been terminated) to enable the Developer to pursue the limitation defence. This would involve the tendering of documents such as invoices which Mr Argyrou suggested would demonstrate that a large part of the work the subject of the proceedings had occurred outside the limitation period, which in this case runs from 22 March 2004.

21. I was told that the relevant documents had been provided to the Developer's former solicitors some time ago and that Mr  Argyrou was unable to understand why those documents had not been filed in evidence in accordance with earlier directions of the Court. I had some exchanges with Mr  Argyrou in relation to whether or not there was any proper explanation that could be proffered as to why the material which was now sought to be relied upon and which had apparently been in the possession of the Developer's solicitors for some considerable time had not been filed in accordance with the Court's earlier directions.

22. No satisfactory answer was forthcoming. I was left with the impression from a number of things that Mr  Argyrou repeated during his address that the best explanation he could come up with for what had occurred was his hope and intention that the proceedings were going to be settled and therefore he was not willing to have the Developer put the time and effort into the prosecution of a more detailed defence.

23. Again in the absence of formal evidence, I also had some exchanges with Mr  Argyrou in relation to his personal financial circumstances and whether he could make good on his stated intention of putting the Developer in funds to retain lawyers to prosecute the limitation defence. It is not necessary for me to set out those exchanges in detail. It is sufficient for me to record that Mr Argyrou asserted from the bar table that he did have assets which would permit him to raise the funds to retain lawyers.

24. The application for the adjournment was opposed by the Owners. Mr Davie submitted that it was all far too late and that there was no proper explanation as to why the evidence had not been put on considerably earlier, notwithstanding there being activity on the part of the Developer in terms of filing expert reports and participating in expert conclaves with a view to determining the extent of any defects and the cost to remedy them.

25. I raised with the parties the possibility of entering judgment against the Developer (I will in due course enter judgment against the Builder) but staying that judgment for 28 days. The intention of so doing would have been to give Mr Argyrou an opportunity to make good on his stated intention of retaining lawyers and seeing to the prosecution of the Developer’s defence. Mr Davie submitted that, were I to grant a stay, it would be appropriate for a condition of that stay to be payment into Court of the entire judgment sum. Mr  Argyrou made it clear that while he was prepared to fund personally the Developer’s legal fees in an attempt to defend the proceedings, he was under no circumstances intending to guarantee any liability which the Developer may ultimately be found to have to the Owners. Given the reasons Mr Argyrou gave for the termination of the Developer’s solicitors’ retainer, there must be a real question as to what the ultimate recovery of the Owners will be against the Developer if and when judgment is entered.

26. While I was not initially in favour of a condition requiring the payment in of the entire judgment sum, I did raise with the parties the possibility of a condition to the effect that, as a price of the indulgence of an adjournment or a stay, the Developer should be required to pay an amount to secure the owners’ costs. What those costs would be was not a matter as to which I expressed any particular view. At that stage of the debate they could either have been the Owners’ entire costs of the proceedings to date or an amount to secure the Owners’ future costs if a stay or adjournment was granted but the Developer in the end failed to make out its defence. As things have now turned out, it is not necessary for me to take that aspect of the matter any further.

27. During the course of argument it became apparent that a matter which could have some bearing on the exercise of the Court’s discretion in relation to the adjournment application would be the quality of the evidence which the Developer foreshadowed it might seek to adduce. I gave Mr Argyrou the benefit of an extended luncheon adjournment in order to go to the Developer’s former solicitors to obtain the evidence which he said was available and was the sort of evidence that he intended the Developer to rely upon in support of the limitation defence. When the matter resumed at 2.30pm I received into evidence on the adjournment application half a dozen or so documents or small bundles of documents which were all that Mr Argyrou was able to obtain. He informed the Court that it was the best he could do in the limited time available.

28. I have looked at the documents which Mr Argyrou was able to obtain from the Developer’s former solicitors. Mr Davie submitted that they were of no probative value in relation to the limitation defence. While I would not go that far, none of them, even on the balance of probabilities, would by themselves satisfy the Court that particular work had or had not been completed outside the limitation period. There also remains a larger question as to whether the interplay between the Act and the relevant construction contract means that one looks at particular items of work or the entirety of the work comprising the building of the Block to determine the limitation question.

29. Nevertheless, a couple of the documents would suggest, consistently with the case which Mr Davie had sought to make, that works were completed within the limitation period. On the other hand, there is at least one document that with other evidence could establish that some specific work was completed outside the limitation period.

30. What is clear from the documents or small bundles of documents which have been produced is that any serious examination of the factual circumstances in the context of the limitation defence sought to be advanced by the Developer would be a large and painstaking evidentiary undertaking. I have no idea how much more of this material there is. Given what Mr Argyrou told me from the bar table this morning, I would have expected a considerably larger bundle of material, even if somewhat disorganised, to have been able to have been obtained over the lunch adjournment.

31. The real question is whether an examination of this issue, at this stage of the proceedings, ought to be allowed. That will only occur if I grant the adjournment. For the reasons which follow the Court declines to do so.

32. The fundamental consideration in a decision of this kind is to have regard to s 56 of the Civil Procedure Act 2004 (NSW) and the overriding purpose it sets out, being to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Justice must be exercised having regard to the interests of both parties. The Owners have done everything they can to prepare their case, comply with directions (I have not overlooked that their final expert’s report was served late, but as that report largely reduced their claim I can see no conceivable prejudice to the Developer by its late service) and otherwise to ensure that the proceedings have been conducted in a way consistent with the overriding purpose. Equally, if the Developer has an arguable defence, then in the ordinary course the Developer would be given every opportunity to advance that defence consistent with the overriding purpose.

33. The Developer has been given every opportunity to advance its limitation defence. At all relevant times it was represented by solicitors. The limitation defence was pleaded early in the proceedings and has always been part of the proceedings. Numerous directions have been made for the Developer to serve its evidence, which must extend to the evidence in support of the pleaded limitation defence. That did not occur.

34. Mr Argyrou has been unable to offer any sensible or credible explanation as to why that material was not served in accordance with the several directions made on earlier occasions. His suggestion from the bar table that somehow his solicitors got the law wrong is, with respect, unsustainable. His legal advisors were clearly astute and alive to the possibly of the limitation defence, given that they pleaded it. If the defence was seriously to be advanced then if, as I find, the relevant invoices and any other material was provided to them in good time, there is no reason why it would not have been served in accordance with the Court’s earlier directions. The Court is really left with two possible inferences. One is that in an understandable but ultimately unfulfilled hope that the proceedings would settle, instructions were given for the work not to be done. Alternatively, for whatever reason, a forensic decision was taken by the Developer’s legal advisors not to file that material.

35. Insofar as the possibility of settlement is concerned, while the Court always encourages parties to settle proceedings if they can, parties must also understand that the hope of settlement is not a reason to fail to comply with the Court’s directions. Parties must always proceed in the expectation that, absent special circumstances, if a settlement is unable to be achieved, the proceedings will go to hearing in accordance with the directions and orders of the Court.

36. Proceedings in the Technology and Construction List of the Equity Division are closely case managed to ensure that the real issues are identified as early as possible and the case is prepared for hearing in accordance with the overriding purpose. A very significant premium is given to the need for timely compliance with case management directions. In this list and the Commercial List parties well and truly understand the importance of compliance with directions.

37. The noncompliance in this case is completely unexplained. The evidence of the handful of documents that have been produced over the luncheon adjournment is not so persuasive as to suggest that there is a clear or simple way of proving a limitation defence that will significantly reduce or eliminate the amount of the Owner’s claim. I also take into account adversely to the Developer that, notwithstanding telling me that all the relevant documents were with the Developer’s former solicitors, Mr Argyrou has produced only a handful of documents despite my invitation that he produce all of the documents he intended the Developer would rely on.

20. What that limited material does demonstrate is that if it is to be deployed, presumably with other material, then a very lengthy and detailed factual examination will be undertaken. The Developer has had every opportunity to file the evidence to enable that to occur over more than two years of case management of these proceedings. To allow that to happen now, by granting the adjournment, would be entirely contrary to the overriding purpose and work a serious injustice on the Owners. While it may be unfortunate for the Developer, in proceedings which have been closely managed such as these and when the Developer has at all material times had the benefit of legal advice and had identified the relevant defence from the outset, failure to comply with directions can have serious results. This is an example of that phenomenon.

21. Accordingly, I decline to adjourn the proceedings against the Developer and, for the same reasons, would not grant a stay of any judgment. I therefore turn to determine the substantive proceedings.

The main proceedings

40. The Owners have established their entitlement to the relief which they seek. Given the substantially unopposed way in which the matter has proceeded, I will deal with the substantive proceedings briefly.

41. By reason of admissions in what might loosely be referred to as the pleadings, it is not in dispute that the common property of the Block is now vested in the Owners and that the Owners are the successors in title to the Developer. The Builder is, or was, clearly a builder. The Owners have adduced into evidence the contract between the Developer and the Builder dated 16 July 2002 which demonstrates that there was a contract to do residential building work between them. It is clear from, in particular, Clauses 6 and 6C of that contract that it was to do residential building work as that term is used in s 18B and the dictionary of the Act.

42. The relevant clauses of the contract are:

6.   Construction Duties of the Construction Manager

At an agreed time, the Construction Manager shall organise commencement of the Works and, in consultation with the Principal, co-ordinate construction of the Works by the Trade Contractors so as to achieve Final Completion in accordance with the terms of this Contract.

The Construction Manager must -

…

(c)   co-ordinate the work of Trade Contractors with the activities and responsibilities of the Project Team in order to complete the Works in accordance with the Drawings and Specification;

…

43. The relevant sections of the Act are:

18B Warranties as to residential building work

(1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work:

(a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,

(b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,

(c) a warranty that the work will be done in accordance with, and will comply with, this or any other law,

(d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time,

(e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,

(f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.

(2) The statutory warranties implied by this section are not limited to a contract to do residential building work for an owner of land and are also implied in a contract under which a person (the "principal contractor" ) who has contracted to do residential building work contracts with another person (a "subcontractor" to the principal contractor) for the subcontractor to do the work (or any part of the work) for the principal contractor.

44. The definition of “residential building work” provides:

2 Definition of “residential building work”

(1) In this Act, "residential building work" means any work involved in, or involved in co-ordinating or supervising any work involved in:

(a) the construction of a dwelling, or

(b) the making of alterations or additions to a dwelling, or

(c) the repairing, renovation, decoration or protective treatment of a dwelling.

(2) Each of the following is included in the definition of "residential building work" :

(a) roof plumbing work done in connection with a dwelling,

(b) specialist work done in connection with a dwelling,

(c) work concerned in installing in a dwelling any fixture or fixed apparatus that is designed for the heating or cooling of water, food or the atmosphere or for air ventilation or the filtration of water in a swimming pool or spa (or in adding to, altering or repairing any such installation).

…

45. It follows that, as the successor in title to the Developer, the Owners are entitled as against the Builder to enforce the statutory warranties given pursuant to the Act.

46. Furthermore, s 18C of the Act provides:

18C Warranties as to work by others

(1) A person who is the immediate successor in title to an owner-builder, a holder of a contractor licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the owner-builder, holder, former holder or developer were required to hold a contractor licence and had done the work under a contract with that successor in title to do the work.

(2) For the purposes of this section, residential building work done on behalf of a developer is taken to have been done by the developer.

47. It follows by reason of s 18C that the Owners are also entitled to enforce those warranties against the Developer.

48. The next question which needs to be considered is the limitation defence. When the proceedings were commenced on 22 March 2011 s 18E of the Act required proceedings for breach of the statutory warranties to be commenced “within seven years after the completion of the work to which it relates”. As a result of amendments to s 18E of the Act, proceedings must now be brought within two or six years (depending upon the severity of the defects). The seven year period continues to apply to these proceedings by reason of the savings and transitional provisions set out in Schedule 4 of the Act, especially s 109:

104 Definition

In this Part: "amending Act" means the Home Building Amendment Act 2011 .

…

106 Purpose and operation of amendments

The amendments made by the amending Act are made for the purpose of the avoidance of doubt and accordingly (except as otherwise provided by this Part) those amendments extend to:

(a) residential building work commenced or completed before the commencement of the amendment, and

(b) a contract of insurance entered into before the commencement of the amendment, and

(c) a loss or liability that arose before the commencement of the amendment, and

(d) the notification of a loss before the commencement of the amendment.

107 Legal proceedings not affected

An amendment made by the amending Act does not (despite any other provision of this Part) extend to or otherwise affect any decision of a court or tribunal in proceedings commenced in the court or tribunal before the commencement of the amendment (whether the decision is made before or after that commencement).

…

109 Proceedings for breach of statutory warranties

The amendment made to section 18E by the amending Act does not apply in respect of a contract for residential building work entered into before the commencement of the amendment.

49. The evidence adduced on behalf of the Owners supports the conclusion, and the Court finds, that the relevant work was completed after 22 March 2004 (being seven years before the proceedings were commenced). An occupation certificate application form was completed on 11 June 2004 and an interim occupation certificate was granted on the same day. Mr Davie invited the Court to infer, which it does, that an occupation certificate would be sought in the ordinary course as soon as possible after the relevant works had been completed. On that basis the Court is satisfied on the balance of probabilities that the work was completed after 22 March 2004 and therefore falls within the limitation period.

50. The breaches of the statutory warranties were set out in a Scott Schedule which was responded to on behalf of the Builder. Experts’ reports were filed on behalf of the Owners and also on behalf of the Developer. It is unnecessary for me to detail the interlocutory processes that then ensued. It is sufficient to record that the experts met in conclave pursuant to an order of the Court and produced a joint report dated 9 January 2014. A quantity surveyor retained by the Owners provided evidence as to how much it would cost to undertake the various rectifying works necessitated by the defects that were either agreed upon by the experts or which were not disputed by the Developer’s expert.

51. The final result of that process was the quantification of the claims by a further report from the Owners’ quantity surveyor. It is that report which was served late, but as I have already observed, because it had the effect of reducing the claim against the defendants no prejudice could arise from the late service.

52. Mr Davie has fairly and efficiently taken the Court through the evidence and indicated, in particular, areas where proper concessions have been made and amounts that might originally have been claimed but, on further consideration, are no longer pressed. The result of that process has been a claim which comprises the following:

Total defects	$498,345
Plus preliminaries	$200,814
Plus 25% margin	$174,790
Plus 8% professional fees	$59,916
Plus 10% contingency	$94,386
Total (ex GST)	$1,038,251.12

53. The orders of the Court are:

1. Judgment for the plaintiff against the first and second defendants for $1,038,251.12;

2. The defendants pay the plaintiff’s costs of the proceedings.

3. Direct that the subpoenaed material and exhibits be returned forthwith, the latter to be held by the parties or their legal advisers in accordance with Supreme Court Practice Note SC Gen 18 para 28.

**********

Decision last updated: 01 April 2015