The Owners - Units Plan No 1917 v Koundouris & Anor
[2014] ACTSC 269
•28 October 2014
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | The Owners – Units Plan No 1917 v Koundouris & Anor |
Citation: | [2014] ACTSC 269 |
Hearing Date(s): | 30 June, 5 and 6 August 2014 |
DecisionDate: | 28 October 2014 |
Before: | Mossop M |
Decision: | See [175] |
Category: | Interlocutory application |
Catchwords: | PRACTICE AND PROCEDURE – Strike out applications – various grounds – whether pleadings defective – whether claims unarguable – applications dismissed BUILDING AND CONSTRUCTION – Statutory warranties under s 58C of the Building Act 1972 (ACT) – whether entitlement to sue upon them ends when they “expire” PRACTICE AND PROCEDURE – Destruction of documents prior to commencement of proceedings – test to be applied LIMITATION OF ACTIONS – Limitation Act 1985 (ACT) s 40 – latent damage – whether confined to claims in tort or extends to claims in contract PRACTICE AND PROCEDURE – Security for costs – body corporate established under the Unit Titles (Management) Act 2011 (ACT) – late application for security of costs – no reason to believe that the corporation will be unable to pay the costs of the defendants PLEADINGS – Amended reply – whether amendments to reply going beyond matters responsive to amendments to defence required leave |
Legislation Cited: | Building Act 1972 (ACT) Building Act 2004 (ACT) |
Cases Cited: | Allen v Tobias (1958) 98 CLR 367 Allianz v Waterbrook [2009] NSWCA 224 |
Texts Cited: | Attorney-General Department, Working Paper on Proposals for Reform and Modernisation of the Laws of Limitation in the Australian Capital Territory (April 1984) C Cameron and J Liberman, Destruction of documents before proceedings commence: what is a court to do? (2003) 27 MULR 273 |
Parties: | The Owners – Units Plan No 1917 ( Plaintiff) Michael Koundouris ( First Defendant) Acro Pty Limited T/A Koundouris Group and/or Koundouris Projects ACN 068527097 ( First Defendant) |
Representation: | Counsel: Mr F P Hicks and Ms M A Kloucek ( Plaintiff) Mr M Walton SC and Mr B Katekar ( Defendants - 30 June 2014) Mr B Katekar (Defendants - 5, 6 August 2014) |
| Solicitors: Minter Ellison ( Plaintiff) Trinity Law ( Defendants) | |
File Number(s): | SC 817 of 2010 |
Introduction
These reasons relate to three applications in proceedings which were heard on 30 June and 5-6 August 2014:
(a)an application in proceeding dated 8 May 2014 filed by the defendants (First Application) seeking security for the defendants’ costs;
(b)an amended application in proceeding dated 23 May 2014 filed by the defendants (Second Application) seeking:
(i)to have certain parts of the amended statement of claim struck out;
(ii)the provision of further particulars;
(iii)dispensation with certain provisions of the Court Procedures Rules 2006 (ACT) (Rules) relating to the application; and
(iv)an order that the reply to the defence to the amended statement of claim, filed by the plaintiffs, be removed from the Court file or, alternatively, that paragraphs of it be struck out;
(c)an amended application in proceeding filed by the plaintiff on 5 August 2014 (Third Application) seeking:
(i)an order striking out the defence to the amended statement of claim or, alternatively, particular parts of it;
(ii)an order permitting the plaintiff to serve, and requiring the defendants to answer, interrogatories; and
(iii)a grant of leave, if that is necessary, for the filing of the plaintiff’s reply to the defence to the amended statement of claim.
The nature of the proceedings
By its amended statement of claim dated 20 February 2014, the plaintiff alleges five different causes of action against the defendants.
The plaintiff is the owner’s corporation for units plan number 1917. That units plan was registered on 9 January 2001. The building to which the units plan relates contains 10 residential apartments and is located in Fawkner Street in Braddon. The building is known as “Lagani” (Lagani Apartments).
The plaintiff holds the common property of units plan number 1917 as agent for the unit owners. Under the Unit Titles (Management) Act 2011 (ACT) (Unit Titles Management Act) the plaintiff must maintain the common property, the load-bearing walls, columns, footings, slabs and beams and the balconies of the Lagani Apartments.
The claim pleads that the owners of the units in the units plan have assigned to the plaintiff their rights to take legal action for the recovery of loss and damage suffered by each unit owner in relation to the diminution in value of their units and any repairs to the units that are necessary.
The first cause of action alleged by the plaintiff is a breach of the statutory warranties under the Building Act 1972 (ACT) (Building Act 1972) and the Building Act 2004 (ACT) (Building Act 2004) by the first defendant, the builder of the Lagani Apartments. Those breaches are alleged both in relation to the original construction of the apartments, referred to in the pleadings as the Building Work, as well as in relation to the investigation and repair of defects in the building work in the period after March 2001, referred to in the pleadings as the Further Building Work.
The second cause of action is a claim of negligence against the first defendant relating to defects in the construction of the apartments.
The third cause of action is a claim of negligence against the first defendant and second defendant in relation to the investigation of defects in the construction of the apartments and carrying out repairs in relation to those defects.
The fourth cause of action is an allegation of misleading and deceptive conduct contrary to the Fair Trading Act 1992 (ACT) (now the Fair Trading (Australian Consumer Law) Act 1992 (ACT)) arising out of representations to the plaintiff and the unit owners that the repairs that were carried out were sufficient to rectify defects in the construction and that there were no defects relating to water penetration.
The fifth cause of action is similar to the fourth except that it relies upon the provisions of the Trade Practices Act 1974 (Cth) (Trade Practices Act) (now the Competition and Consumer Act 2010 (Cth)).
Although the pleadings originally included a loss in the value of the individual units in the Lagani Apartments, the present version of the statement of claim has deleted that allegation. The losses alleged and hence the damages sought are confined to the cost of investigating defects in the building and the cost of rectifying those defects.
Chronology of proceedings
The proceedings were commenced by originating claim on 29 November 2010.
A conditional notice of intention to respond was filed on 1 March 2011. The notice stated that the defendant proposed to challenge the Court’s jurisdiction. No application for an order under rule 40 of the Court Procedures Rules 2006 (ACT) (the Rules) appears to have been made so pursuant to sub-rule 111(4) of the Rules the conditional notice became on 29 March 2011 an unconditional notice of intention to respond.
A notice of intention to proceed was filed on 1 February 2012. A further notice of intention to proceed was filed on 16 January 2013.
A defence was filed on 3 April 2013.
A reply to the defence was filed on 17 April 2013.
In June 2013 an order was made by consent that no steps be taken in the proceeding until the plaintiff provided further and better particulars in accordance with a request from the defendants dated 23 April 2013.
Further consent orders determining that nothing would happen until further particulars were provided were made in July 2013.
In October 2013 consent orders were made relating to the filing and service of an expert report by the defendant and in relation to a proposed amended defence by the defendant.
An application in proceedings was filed on 11 November 2013 which sought leave to file an amended statement of claim as well as a timetable for filing an amended defence and amended reply.
In December 2013 the proceedings were referred to mediation.
The mediation occurred on 20 March 2014 and did not resolve the proceedings.
An application in proceedings was filed on 11 February 2014 seeking leave to file an amended defence.
On 17 February 2014 orders were made granting the defendant leave to file an amended defence by 24 February 2014. Leave was also granted to the plaintiff to file an amended statement of claim. The plaintiff was directed to file and serve a Scott Schedule by 17 March 2014. The plaintiff was granted leave to file “any amended response” to the defence to the amended statement of claim within 14 days from the date of service of the defendants’ defence to the amended statement of claim.
An amended statement of claim was filed on 20 February 2014 (Amended Statement of Claim).
An amended defence and counterclaim was filed on 21 February 2014.
A defence to the amended statement of claim filed on 20 February 2014 was filed on 17 March 2014 (Amended Defence).
An application in proceedings was filed on 18 March 2014. This application sought orders striking out various paragraphs of the amended statement of claim. This application was the precursor to the Second Application.
The reply to the defence of the amended statement of claim was filed on 2 April 2014 (Amended Reply). There is a contest between the parties over whether leave was required to file this document.
The First Application was filed on 8 May 2014.
The plaintiff filed its affidavit verifying its list of documents on 15 May 2014. The defendants filed their affidavit verifying their list of documents on 19 May 2014.
The proceedings were first listed before me on 16 May 2014. On that date the First Application and the application in proceedings dated 18 March 2014 were listed for hearing on 30 June 2014.
The Second Application, which was an amended version of the application filed on 18 March 2014, was filed on 23 May 2014.
The Third Application was filed by the plaintiff on 20 June 2014.
The First Application and Second Application were heard on 30 June 2014. Ms Imrie and Mr Falcetta, solicitors for the plaintiff and defendants respectively, were cross examined on their affidavits relating to security for costs. The Third Application was at that stage listed for hearing on 5 August 2014.
An affidavit verifying a supplementary list of documents was filed by the defendants on 15 July 2014.
The Third Application was heard on 5 and 6 August 2014. Theodoros Aristidis Koundouris and Aristidis Eric Dimitrios Koundouris were cross-examined on their affidavits.
Issues
The issues raised by the three applications were canvassed in written and oral submissions made by the parties.
In order to determine the applications it is, in my view, necessary to determine the following issues.
1.Are the implied warranty claims for the original building work time barred?
2.Should the Amended Reply be removed from the file as it was filed without leave or should leave be granted so as to permit it to be filed?
3.If the Amended Reply is permitted, should the new claims for an extension of the limitation period and estoppel be struck out?
4.Should the warranty claims for the Further Building Work be struck out as they were not undertaken under any contract?
5.Should the claims brought by subsequent owners be struck out, in whole or in part, because those unit owners suffered no loss to the extent that defects were manifest prior to their purchase?
6.Should certain claims made in the Amended Reply be struck out?
7.Should the plaintiff be ordered to provide particulars of the Further Building Work?
8.Should particulars of the time at which the alleged defects became manifest be provided?
9.Should the plaintiff be required to provide security for the defendants’ costs?
10.Should the Amended Defence be struck out because of destruction of documents by the defendant?
11.Should the plaintiff be permitted to interrogate the defendants so as to identify the persons engaged to investigate or rectify defects on behalf of the defendants?
12.Should the proportionate liability defence raised in the Amended Defence be struck out?
For the purposes of addressing those issues which involve a contention that pleadings should be struck out I adopt the approach of the Court of Appeal as outlined in McColley v Commonwealth of Australia [2014] ACTCA 21 at [30]-[34]. I also accept that the threshold for striking out pleadings is, in some respects, lower than that for summary judgment. As Justice Lindgren said in White Industries Aust Ltd v Commissioner of Taxation (2007) 160 FCR 298 at 309 (quoted with approval by French CJ and Gummow J in Spencer v Commonwealth (2010) 241 CLR 118 at [23]), there is a distinction between evidence disclosing that a party has a reasonable cause of action and a pleading disclosing a reasonable cause of action. For the purposes of a strike out application the issue is whether the pleading discloses the cause of action. If it does not because of a defect in the pleading which may be able to be cured then the appropriate course is usually to strike out the pleading and give an opportunity to replead the claim. However, as will become apparent, a number of the submissions made by the defendants tended towards submissions that might be available on a summary judgment application rather than a strike out application. Notwithstanding the defendants protestation to the contrary, a number of the defendants' submissions depended upon contestable conclusions on issues involving findings of fact that went beyond the allegations made by the plaintiff in the pleadings.
Issue 1: Are the implied warranty claims for the original building work time barred?
The pleading alleges that the first defendant contracted with the second defendant to build the Lagani Apartments. The pleading does not identify with precision when in 1999 the building contract between first and second defendants is alleged to have been entered into. However, as at the end of 1999 s 58C of the Building Act 1972 provided:
58CStatutory warranties
(1) There is implied, by force of this section, in every contract for the sale of a residential building, and every contract to carry out residential building work (being a contract to which the builder is a party), a warranty by the builder—
(a) that the residential building work, on the building, or to be carried out, has been or will be carried out in accordance with this Act;
(b) that the work has been or will be carried out in a proper and workmanlike manner and in accordance with the plans approved for the work by the Building Controller;
(c) that good and proper materials for the work have been or will be used in carrying out the work;
(d) if the work has not been completed, and the contract does not specify a date by which, or a period within which, the work is to be completed—that the work will be carried out with reasonable diligence; and
(e) if the owner of the land on which the work is being or is to be carried out is not the builder, and the owner expressly makes known to the builder, or a servant or agent of the builder, the particular purpose for which the work is required, or the result that the owner desires to be achieved by the work, so as to show that the owner is relying on the builder’s skill and judgment—that the work and any material used in carrying out the work is or will be reasonably fit for that purpose or of such a nature and quality that they might reasonably be expected to achieve that result.
(2) Each of the owner’s successors in title succeeds to the rights of the owner in respect of the statutory warranties.
(3) The warranties expire at the end of the prescribed period after the date on which a certificate of occupancy is issued for the building or the building work.
(4) In subsection (2), “owner” means—
(a) in the case of a contract referred to in subsection (1) for the sale of a residential building—the person to whom title in the land on which the building was built is transferred under the contract; or
(b) in the case of a contract referred to in subsection (1) to carry out residential building work—the owner of the land on which the work is to be carried out under the contract.
The defendants submitted that s 11 of the Limitation Act 1985 (ACT) (the Limitation Act) requires proceedings to have been commenced within six years from the date when the cause of action first accrued. The warranties in s 58C of the Building Act 1972, being implied in every contract for the sale of a residential building and every contract for residential building work, must, if breached, involve a breach of contract. The cause of action for breach of an implied warranty first accrues on breach and not when the damage occurs or is first discovered: Building Insurers’ Guarantee Corporation v The Owners - Strata Plan No 57504 [2010] NSWCA 23 at [46]; Carlisle v Filaria Pty Limited & Ors [2002] ACTSC 33 at [31]-[36]. That contrasts with a cause of action in negligence for latent defects, which is complete when the defects become manifest or are otherwise discovered: Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503-505; Hawkins v Clayton (1988) 164 CLR 539 at 587-588; Scarcella v Lettice (2000) 51 NSWLR 302 at [16]; Cyril Smith & Associates Pty Ltd v Owners-Strata Plan No 64970 [2011] NSWCA 181 at [8]; Christopoulos v Angelos (1996) 41 NSWLR 700 at 703-704; Melisavon Pty Ltd v Springfield Land Development Corporation Pty Limited [2014] QCA 233 at [45].
The defendants submitted that the last possible date for breach of the contractual warranties in relation to the original building work was when that work was completed, no later than the date on which the certificate of occupancy was issued on 20 December 2000. Alternatively, they point to the date identified in the plaintiff’s Scott Schedule which says that the building was completed by March 2001. Both dates are significantly more than six years prior to the commencement of proceedings on 29 November 2010.
The defendants also submitted that the reservations identified in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 533 about striking out a claim on a limitations point do not apply to this case. They submit the principle does not apply to a cause of action for breach of contract: see Carlisle v Filaria Pty Ltd [2002] ACTSC 33 at [31] and [46].
Further, the defendants submitted that the matters raised in the Amended Reply should not prevent the claim being struck out. In that respect they submit that s 40 of the Limitation Act only applies to a cause of action for latent damage to property or economic loss in relation to such damage to property. They submitted that s 40 applies only to tort claims where damage is an element of the cause of action and rely upon the expressed intention in the Attorney-General Department’s “Working Paper on Proposals for Reform and Modernisation of the Laws of Limitation in the Australian Capital Territory” (April 1984) at [52]-[55].
The plaintiff pointed to the words of s 58C of the Building Act 1972. The plaintiff submitted that the terms of the warranties are such that there is, at least arguably, an obligation that continues under the statutory warranties. It submits that if, and to the extent that, the residential building work does not conform to the statutory warranties within the statutory period, there is a continuing breach of those warranties. As a consequence the last occasion that a breach occurs is upon the expiration of the statutory warranty period. Therefore the six year limitation period applicable to a breach of contract claim commences at the end of the statutory warranty period.
The contentions of the parties boiled down to the effect of the word “expire” in s 58C(3). Does the expiry of the statutory warranties mean that after that time no proceedings may be brought in relation to them? If this is the case then s 58C(3) operates as a limitation period. Alternatively, the “expiry” of the warranties may mark the commencement of the period during which the limitation period runs. In other words, is there a continuing obligation on the builder up to the end of the warranty period to make good any failures to meet the statutory warranties?
In my view, the plaintiff’s submissions in relation to the operation of the statutory warranty provisions are not “so obviously untenable that [they] cannot possibly succeed” (see Carlisle v Filaria Pty Limited & Ors at [17]) and it is therefore not appropriate to strike out the claim based on those provisions at this stage. The matters of most significance in reaching that conclusion are as follows.
First, the language of the provisions is not clearly in favour of one or the other interpretation.
Second, the submissions of neither party provide a cohesive explanation for the terms of the provisions consistent with the operation for which they contended.
Third, the provisions, which were first introduced in 1988, must be considered in the light of their relationship with the compulsory insurance provisions introduced at the same time. The existence of that regime of insurance does not provide a complete explanation for the continuation of the warranty provisions for a period of five years.
Fourth, had there been an intention to limit the period during which proceedings may be brought rather than the period during which the warranty by the builder continued to operate then it is surprising that neither the drafter of the Building (Amendment) Ordinance 1988 (ACT) (which introduced the provisions) or the Building Act 2004 (which is substantially repeated them) said so. That is particularly the case where there were models readily available from other jurisdictions which did just that (and of which the drafters were clearly aware: see the Explanatory Statement to the Building (Residential Building Warranty) Amendment Bill 2003 (ACT)).
Fifth, notwithstanding that the provisions have been in existence for more than 20 years, there is no authority in the ACT as to which of these meanings is correct.
Sixth, the extent that regard can be had to decisions in other jurisdictions with similar statutory warranty and compulsory insurance provisions is limited because of the differences in language of the provisions and the absence of any sufficiently expressed intention for there to be a uniform regime. However, having said that there is no authority which would provide even any limited assistance.
Seventh, given that the provisions of the Building Act 1972 are largely mirrored in the Building Act 2004 the effect given to the 1972 Act’s statutory warranty provisions may, in a practical sense, have significant commercial consequences going beyond the scope of this case.
Eighth, I do not accept the defendants’ submission that the Court is obliged to determine a legal point such as this on a strike out application. There is nothing in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 that suggests that a trial judge must decide such questions in advance of the trial and, in my view, it would be inappropriate to do so: General Steel at 129-130; Tyco Australia Pty Ltd t/a Wormwald v The Owners Corporation Strata Plan 49302 [2012] NSWCA 112 at [39].
Issue 2: Should the Amended Reply be removed from the file as it was filed without leave or should leave be granted so as to permit it to be filed?
The statement of claim was filed on 29 November 2010. The defence to this the claim was served on the body corporate on 2 April 2013. A reply was filed on 16 April 2013.
On 20 February 2014 an amended statement of claim was filed. The Amended Defence was filed on 17 March 2014. Orders were made by consent on 21 March 2014 permitting the plaintiff to file and serve a reply to the Amended Defence by 31 March 2014. Those orders preserved the entitlement, if any, for the defendants to insist that the plaintiff obtain leave to file the reply. The Amended Reply was filed on 2 April 2014; outside of the time permitted. The Amended Reply introduced significant new matters which did not arise out of the amendments made to the defence.
The defendants submitted that leave to file the reply was necessary but was not sought. They contend that the Amended Reply is not responsive to the amendments that the defendants made to their Amended Defence. They submitted that there is no adequate explanation for the delay. They submitted that the reply should be removed from the court file.
The plaintiff contended that leave was not required to file the reply because the pleadings were reopened by the defendants. The plaintiff also said that no application was made under r 506 of the Rules. That rule requires that any application to disallow the amendments made in the plaintiff’s reply be made within 14 days of service of the reply. In any event, the plaintiff submitted that leave should be granted because:
(a)the defendants’ amendment to the defence involves substantial revisions which reopened pleadings;
(b)the amendments to the statement of claim and defence were made by consent;
(c)the amendment to the reply is of considerable importance to the rights of the plaintiff and arose following the engagement of counsel; and
(d)there is no hearing date set down and the limitation defence was always denied by the plaintiffs.
My conclusions as to application of the various provisions of the rules are set out below.
(a)Pleadings closed in 2013: see rule 483.
(b)Any amendments to pleadings after pleadings close requires leave: see rule 507.
(c)Rule 506 does not preclude the defendants objecting to the amendment of the reply because that rule applies to amendments made “before the close of pleadings”.
(d)Rule 512 did not permit the filing of a pleading that involved amendments that did not arise out of the amendments to the pleadings that it was responding to. That conclusion arises from the decision of Gray J in Davey & Anor v Herbst & Anor [2011] ACTSC 112 at [57] where his Honour said of r 512:
I do not regard that provision as enabling a further amendment of a party’s pleading at large but rather the amendment being restricted to the matter that is the occasion for the operation of the rule.
His Honour’s conclusion involves reading down the scope of the broad words of r 512 so as only to permit responsive amendments. Because interlocutory decisions of the Master are to a single judge of the Court: Supreme Court Act 1933 s 9(2)(a), the decision of Gray J is binding on me. The decision is, in any event, consistent with a substantial line of authority: Bowes v Chaleyer (1923) 32 CLR 159; Squire v Squire [1972] 1 Ch 391, Demasi v Linfox Transport (Aust) Pty Ltd (unreported, New South Wales Supreme Court, McLelland CJ in Eq, 14 June 1995), Joyce v Palassis [No 3] [2007] WASC 214, OD Transport (Australia) Pty Ltd (in liq) v OD Transport Pty Ltd & Ors [1998] FCA 1653.
(e)The orders of 21 March 2014, although less than ideally worded, were intended to preserve any entitlement to the defendants to contest a grant of leave.
(f)The Amended Reply was, in any event, filed outside the time permitted by the order relating to its filing so a further order was necessary to permit it: r 508.
The result is that the plaintiff requires a grant of leave to permit it to file an amended reply or regularise the filing of the Amended Reply that has, in fact, been filed.
The relationship between the terms of the rules and the orders made is not as clear as it might be because the orders consented to by the parties were not drafted with careful attention to how they related to the rules.
In my view the minor delay in the filing of the Amended Reply would not be a reason to refuse leave. The more substantial point in relation to whether or not the plaintiff should be permitted to rely upon the Amended Reply that includes a claim of misleading and deceptive conduct is the contention that the plaintiff should instead be required to amend its statement of claim to incorporate that claim. In my view it is open to plead misleading and deceptive conduct in a reply. A claim of misleading and deceptive conduct may be raised defensively: Bitannia Pty Ltd & Anor v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9 at [8], [90]-[104]. It is a matter appropriately raised in a reply because a plaintiff is not required to anticipate in its statement of claim the defendant’s pleading of a limitation bar. If there is a need for the defendants to do more than join issue with the matters in the Amended Reply then I would permit them to file an answering pleading. Such a pleading is specifically contemplated by the Rules: see r 481. The plaintiff did not oppose the making of a direction permitting the defendants to file such an answering pleading.
While there was no specific explanation for the delay in making the amendments to the Amended Reply, their making appears to have arisen from the briefing of counsel. The proceedings are not at a stage where a change in the pleadings such as that contemplated will have significant adverse affects. I therefore will make an order grant leave nunc pro tunc for the plaintiff to file the Amended Reply so as to regularise its filing.
Issue 3: If the Amended Reply is permitted, should the new claims for an extension of the limitation period and estoppel be struck out?
Extension of the limitation period
In paragraph 4 of the Amended Reply the plaintiff seeks, in answer to paragraph 15, 35 and 43 of the Amended Defence, an extension of the limitation period under s 40 of the Limitation Act.
Section 40 provides:
40Latent damage to property and economic loss
(1)Subject to subsection (2), if a person has a cause of action for latent damage to property or for economic loss in relation to such damage to property the court may—
(a)if the court considers it just and reasonable to do so; and
(b)whether or not the limitation period applicable to that cause of action has ended; and
(c)whether or not an action for such damage or loss has been begun;
extend the limitation period in relation to which an action on that cause of action may be brought for the further period not exceeding 15 years beginning on the day when the act or omission that gave rise to the cause of action occurred that the court considers appropriate.
...
The defendants submitted that s 40 of the Limitation Act only applies to a cause of action for latent damage to property or for economic loss in relation to such damage to property. They submitted that the implied warranty claims are not of that kind; they are for breach of contract and damage is not an element of that cause of action. They submitted that s 40 applies only to tort claims where damage is an element of the cause of action and does not apply to claims in contract. They submitted that, to the extent there is any ambiguity about the matter, the Attorney-General’s Department Working Paper on “Proposals for Reform and Modernisation of the Laws of Limitation in the Australian Capital Territory” dated 1984 (the Working Paper) clarifies the legislative intention.
The plaintiff submitted that the words of the section were not limited to claims in tort and that the Court only needed to be satisfied for the purposes of the application that it was arguably available.
In so far as the defendants submitted that s 40 cannot apply to a claim in contract and hence could not apply to the claims for breach of the implied warranty I do not accept that submission. My reasons for that conclusion are as follows.
Section 40(2) of the Limitation Act provides a list of factors that must be considered when exercising the power conferred by subsection (1). They are similar to those in s 36(3) of the Limitation Act which is applicable to certain claims for personal injury.
The operation of s 40 has not been considered in any decision of this Court to which the parties could refer me or which I could otherwise locate. Nothing in the language of the section would confine its operation to claims in tort. I do not accept the submission made by the defendant that the reference to “a cause of action for latent damage” means that the section is necessarily confined to those causes of action which require damage to be established as an element of the cause of action. Even if the use of the word “for” has the significance attributed to it by the defendants the opening words of subsection (1) continue, “or for economic loss in relation to such damage”. A claim in contract seeking damages arising from latent damage to property caused by a breach of contract is within the scope of those words.
Nothing else about the context in which s 40 appears is inconsistent with s 40 applying to claims in contract. Section 35 of the Limitation Act is a provision applicable only to the particular causes of action identified in that section and operates as a provision extending rather than confining the operation of Division 3.2 of the Act.
Section 40 was a legislative innovation in the Australian Capital Territory arising out of the Working Paper. Both under the provisions of the Interpretation Ordinance 1967 (ACT) in effect when the Limitation Ordinance 1985 (ACT) (Limitation Ordinance) was made, and under the provisions of the Legislation Act 2001 (ACT) (Legislation Act), it is open to have regard to the content of the Working Paper. Section 141 of the Legislation Act provides that “material not forming part of the Act may be considered”. Section 141(2) identifies matters to which regard must be had in deciding whether or not to do so. In my view, it is appropriate to have regard to the content of the Working Paper for the purposes of working out the meaning of the Act. As is made clear by s 138 of the Legislation Act, that process extends to confirming or displacing the apparent meaning of the Act. The Working Paper is the equivalent of a report of a law reform body. It carefully examined the existing limitation provisions in the Territory and elsewhere as well as the consideration of limitation issues by law reform bodies in other jurisdictions. It is clearly significant in working out the intention behind the making of the Limitation Ordinance.
The Working Paper engages in an extensive discussion of what to do about limitation periods for personal injury and property and economic loss where the damage cannot be detected until some later time. While the defendants have submitted that the Working Paper makes it clear that the intention was to limit the scope of the recommended provision to claims in tort and not to include claims in contract, I am not satisfied that that is the case. The recommendation relating to what became s 40 occurs under the heading “Commencement of the Running of Time-Contract and Tort”. In the introductory paragraph under that heading ([37]) the following appears:
In the case of claims for damages for breach of contract time runs from the breach and not from the occurrence of damage. Thus, although the damage may occur within six years before the action is brought, the action will be barred if the contract was broken before that period.
At [39] the Working Paper continues:
As will be seen below, it is in relation to claims for damages for personal injuries and in relation to claims for damage to property and economic loss-whether founded on contract, tort or breach of statutory duty-that difficulties have been encountered as a result of the rule that the limitation period begins to run from the moment the cause of action accrues.
These two paragraphs of the Working Paper and their heading are inconsistent with the defendants’ submission because they are clearly dealing with claims in both contract and tort.
The report then, at [40]-[51], discusses the situation of latent damage for personal injuries whether founded on contract, tort or breach of statutory duty. It recommended a six-year limitation period running from the date on which the person first knows that he has suffered those personal injuries and that those personal injuries were caused by the act or omission of some person. It also recommends a power to extend the limitation period.
It then addresses “Other Cases: Latent Damage”. At [53] the report states:
It is plain that the problem of latent damage to property and latent economic loss is a difficult one and involves issues that extend beyond the boundaries of limitation law and into the substantive law of tort and contract. The crux of the problem is to be found in the fact that, on the one hand, it seems unreasonable that a plaintiff should lose his right of action before he knows that he has it, and on the other hand, it would be hard on persons involved in the building industry, such as builders, architects, surveyors and engineers or professional men such as accountants and legal advisers, if they could be sued many years after they had committed the act which caused damage years later. (emphasis added)
Having examined the reports and legislation in other jurisdictions the report concluded at [55]:
It is not easy to arrive at a satisfactory solution that will strike a just balance between potential plaintiffs and potential defendants in relation to claims involving latent damage to property or latent economic loss; hence the differences of opinion among law reformers over the shape which reform should take in this area… On the other hand, it would seem inappropriate that modern limitation legislation should fix a limitation period in relation to claims involving latent damage to property or latent economic loss-and leave it at that. Surely, it must be anticipated that such legislation will inevitably result, in its application to particular instances, in grave injustice. It is accordingly, recommended that in relation to claims involving latent damage to property and latent economic loss that the court to be given a residual discretion to override a defence of limitation if, after considering the nature of the claim and the circumstances of the parties, the court considers it just to allow the action to proceed.
The explanatory statement for the Limitation Ordinance (Explanatory Statement) provided in its introduction:
The main areas in which the Ordinance adopts a different approach from the New South Wales Act are actions for recovery of an interest in land (because of the different land tenure system in the ACT) and the extension of time for bringing actions involving personal injuries (where the Ordinance is largely based on recent United Kingdom and Victorian reforms) or latent damage to property. (emphasis added)
In relation to the clause which became s 40 the Explanatory Statement makes no reference to it being limited to claims in tort.
In my view, the terms of the Working Paper and the Explanatory Statement make it clear that the intention of s 40 was that it would apply to claims in both contract and tort. There is nothing limiting the discussion to claims in tort. There are, on the contrary, specific references to claims in contract. In my view the terms of the Working Paper confirm the apparent meaning of the Act (paragraph (b) of the definition of “working out the meaning of an Act” in s 138 of the Legislation Act).
As a consequence, in my view the claim for relief under s 40 is one which is not precluded by the terms of s 40. So long as the damages are within the scope of “latent damage to property or … economic loss in relation to such damage to property” then it is, at the very least, arguably open under s 40 to grant an extension of time. The words of s 40 do not confine any extension to only the period during which the damage was not manifest. Having regard to the availability of s 40 and the nature of reliance upon it in the Amended Reply I am not satisfied that it is appropriate to strike out those portions of the Amended Reply that rely upon it.
Estoppel
The defendants’ second submission was that the estoppel claims in the Amended Reply are not maintainable because an estoppel is not an assignable right: Handley, Estoppel by Conduct and Election (Sweet & Maxwell, 2006) at 13-045; Brikom Investments Ltd v Carr and others [1979] 2 All ER 753 at 762, 765, and hence not a chose in action capable of assignment under s 205 of the Civil Law (Property) Act 2006 (ACT) (Civil Law (Property) Act). Therefore the defendants submit that the Reply should be struck out to the extent that it relies on claims of estoppel.
The plaintiff’s submissions assert that the estoppel “is not a personal Equity incapable of assignment” but make no reference to authority or anything else that would be of assistance in reaching that conclusion.
In my view, it is not appropriate to either strike out the parts of Amended Reply related to this claim or to refuse leave to file it for the following reasons.
First, the defendants’ submission only relates to the estoppel claim in so far as the body corporate is the assignee of the unit owners’ rights. However, the plaintiff’s pleading covers conduct and representations made to both the individual owners and the plaintiff. Therefore, the defendants’ submission involves a dissection of the claim to disentangle the parts of it which arise from representations made to the unit owners as distinct from those made to the body corporate which, of course, is run by the unit owners. In so far as the claim pleads reliance, once again the defendants’ submissions would involve disentangling those different aspects of the claim.
Second, the pleading of estoppel is raised in response to a defence to a cause of action which has been effectively assigned under s 205 of the Civil Law (Property) Act. Therefore, the submission of the defendants seeks to sever from that cause of action a matter which is sought to be relied on in reply to a defence pleading the expiry of the limitation period. The submissions of the defendants did not explain why the assignment would not be effective in relation to the whole of the rights of the unit owners in circumstances where there is no doubt that legal rights were effectively assigned. I am not satisfied that the plaintiff’s contention that the interests assigned included the entitlement to raise the matter now raised in the Amended Reply is hopeless or unarguable.
Third, the authority (Handley at 13-045) relied upon for the proposition that the unit owners’ individual rights are, in so far as they involve a defensive claim of estoppel in response to the pleading of a limitation period, not rights able to be assigned under s 205 of the Civil Law (Property) Act states, without reference to any case, “In practice the benefit of a promissory estoppel is only assignable by act of the parties if it relates to an interest in land”. The obiter dicta of the majority judges in Brikom involve brief statements not essential to their Honours’ conclusions in that case, which were based on waiver. In the light of the minimal written submissions and the fact that they were not developed in oral argument in this case I am not satisfied that the plaintiff’s claim in this regard is unarguable.
Fourth, having regard to the other matters raised in the Amended Reply and the absence of any issue in relation to the estoppel claims raised by the body corporate itself or in relation to the common law conventional estoppel assigned to the plaintiff by the owners, it may ultimately not be necessary to resolve this issue at a final hearing.
Fifth, following the amendment of the statement of claim to remove any claim for a loss in the value of the units, the significance of the assignment of any cause of action by the individual unit owners is very much reduced. There may be some residual claim for losses incurred by them personally but it is likely that the vast majority, if not all, of the losses will be those incurred by the body corporate. As a result, depending upon the findings of fact about who suffered what loss, the issue of the effectiveness of the assignment may not ultimately need to be determined.
Sixth, the defendants submitted that the estoppel point does not assist the claims made by the body corporate on behalf of the owners of units 6, 7 and 10. That is because those owners purchased after the limitation period had already expired. While this submission may be correct, there are allegations of further representations having been made between September 2006 up until October 2010 (Amended Reply [2](m)). The representations made in relation to each period have been particularised in the Amended Reply. While those defendants who purchased subsequently may not be able to establish an estoppel in relation to the earlier period the claim for an estoppel arising out of representations made after the expiry of the six year period from the certificate of occupancy are open to them. That claim may have some relevant interaction with the claim for an extension of time under s 40 since a claim against the defendants between 2006 and 2010 would have involved a shorter claim for an extension. Further, having regard to the now limited significance of the rights assigned by unit owners as opposed to the rights of body corporate, the particular position of the owners of units 6, 7 and 10 is likely to be of little significance. In my view, notwithstanding the logical difficulties with the references to the unit owners generally in relation to the period up until 2006, for the purposes of the claim of equitable estoppel against the defendants, and having regard to the other matters pleaded, it is not appropriate to strike out the claim relating to the owners of units 6, 7 and 10.
Issue 4: Should the warranty claims for the Further Building Work be struck out as they were not undertaken under any contract?
The defendant submitted that there was no contract to carry out any of the alleged Further Building Work. The defendants submitted that the work was simply an ex gratia attempt by the first defendant to make good the defects in the building. The defendants submitted that the building contract came to an end upon the issue of the certificate of occupancy and that any further work was done without consideration. It said that no certificate of occupancy was issued for any of the Further Building Work.
There is no evidence concerning the contract or when in fact it came to an end. The defendants asserted that the contract ended upon the issuing of a certificate of occupancy. I am not prepared to draw that inference from that circumstance for the purposes of a strike out application. Further, the ending of the contract is not a fact pleaded by the plaintiff which can be taken, for the purposes of the strike out application, to be correct. Therefore, I am not prepared to strike out the pleading in relation to the Further Building Work on the basis suggested.
The plaintiff also submitted that the pleading, although not explicitly asserting that the remedial work was done under the original contract, makes that proposition reasonably clear having regard to the structure of and allegations in the pleading. I accept the plaintiff’s submission. The allegations in paragraph 11 and 11A of the Amended Statement of Claim of the carrying out of building work comes after paragraph 10, which asserts entry into the building contract and under the heading “Building Contract”. Although the pleading could have been more explicit, and I would grant leave, if necessary, to make it so, I consider that the pleading is sufficiently clear to avoid being struck out.
The assessment of the plaintiff’s contention that the Further Building Work was done under the original building contract is dependent upon the proper interpretation of the implied warranty provisions of the Building Act 1972. The plaintiff’s submission is that there is an ongoing obligation, so long as those warranty provisions have not expired, to ensure that the building work complies with the statutory warranties and hence that work done in order to rectify defects which have emerged is work under the original building contract. How this works in circumstances where the units have been on sold and the benefit of the warranties given under statute to the new owners is a matter which may need to be explored. However, it cannot be said in the light of s 58C(2) that the contention that remedial work was done under the original contract (as affected by s 58C(2)) is unarguable.
Issue 5: Should the claims brought by subsequent owners be struck out, in whole or in part, because those unit owners suffered no loss to the extent that defects were manifest prior to their purchase?
The written submissions of the defendant were as follows:
If defects are manifest (as they must have been, water ingress being apparent from March 2001) when the later unit owners made their purchases, those purchasers were not vulnerable to a breach of duty by the builder. Thus there is no duty of care owed to the owners of units 5, 6, 7, 8 and 10 in respect of defects manifest, or reasonably ascertainable, at the time of their respective purchases: Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at [23]; The Owners - Strata Plan 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317 at [35] per Basten JA. Allianz v Waterbrook [2009] NSWCA 224 at [110] per Ipp JA, with whom Hodgson JA relevantly agreed. The Body Corporate has steadfastly refused, in the face of repeated requests, to indicate when any defects became manifest or were otherwise discovered. It cannot avoid the consequences of its own delay in bringing these proceedings by hiding behind its own failure to properly plead and particularise its claim.
The plaintiffs submitted that it would be inappropriate to determine that the claims of subsequent owners are to be struck out or summarily dismissed on the basis put forward by the defendants. The plaintiff submits that there is simply no evidence that would permit that to be done.
In my view be claims should not be struck out on the basis articulated by the defendants for the following reasons.
First, there is no finding of fact, nor is it pleaded by the unit owners that the defects, in so far as they affect unit owners 5, 6, 7, 8 and 10, as opposed to the body corporate, were manifest as at the date that they purchased the units. The defendants admitted that such knowledge was “simply a matter of inference”. It is not sufficient to simply say that water ingress was apparent from March 2001. The situation of each unit and the nature of the defect affecting that unit at different times would need to be pleaded or established.
Second, the passages from the authorities cited by the defendants in their submission do not establish the contention for which they are cited. The passage from Woolcock is a discussion of the authorities relating to the significance of vulnerability as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. The passage from Brookfield is a statement that vulnerability may, in a practical sense, have three aspects: inability to control or influence physical events giving rise to loss; inability to negotiate a contractual arrangement imposing liability on the defendant; and inability to obtain insurance against the economic loss suffered. The decision in Brookfield has been overturned: see Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor (2014) 88 ALJR 911, but not in a way that advances the defendants’ point on a strike out application. The passage from Allianz v Waterbrook is a statement in general terms that a successor in title who acquires a building with full knowledge of its defects suffers no loss as a consequence of those defects. Rather the loss is suffered from knowingly and deliberately paying more for the building than it was worth. The statement is made on the basis that there must be full knowledge of not only the existence of the defects but also of their significance. While these passages may provide a basis for a submission at a final hearing that no duty was owed to certain unit owners, they do not demonstrate that the pleaded claim, in so far as it relates to the causes of action assigned by the owners of units 5, 6, 7, 8 and 10 (as opposed to the cause of action of the body corporate), is unarguable or otherwise defective.
Issue 6: Should certain claims made in the Amended Reply be struck out?
Firstly, the defendants submitted that the misleading and deceptive conduct claims made in the Amended Reply at paragraphs 2(a) to (j) should be struck out because those claims for relief are premised on the certificate of occupation not being issued. However, had that not occurred the body corporate would not have come into existence: see s 16(1)(a) of the Unit Titles Act 1970 (ACT). The body corporate would not have been in any better position but for the alleged misleading conduct: Marks v GIO Australia (1998) 196 CLR 494.
Marks involved the entry by borrowers into loan facilities. The loan facilities were less favourable than had been represented to them. It was not established that the borrowers could have entered into more favourable facilities than they actually entered into. McHugh, Hayne and Callinan JJ held (at [47]) that a party that is misled suffers no prejudice or disadvantage unless it is shown that the party could have acted in some other way or refrained from acting in some way which would have been of greater benefit or less detriment to it than the course in fact adopted.
This case is a very different one to Marks. In this case the defendants seek to rely upon the obtaining of a certificate of occupancy so as to fix the date from which a limitation period of six years must run. The plaintiff says in answer that the obtaining of the certificate of occupancy was only obtained by representations which were misleading. The defendants then say that, without those representations and the issuing of a certificate of occupancy, the plaintiff would not have come into existence and therefore the plaintiff could not be entitled to damages and could not be entitled to relief under s 87 of the Trade Practices Act. This is therefore not a case in which the plaintiff was a party entering into a transaction which it was obliged to demonstrate was less favourable than an alternative course of action that was available to it. Rather, it is one in which the very existence of the plaintiff is dependent upon the making of representations of that nature. In my view it is at least arguable that relief under s 87 is available in the circumstances of this case. It is arguable that if the Occupation Certificate Representations described in the Amended Reply had not been made then the certificate of occupancy would not have been issued when it was but would have been issued at some later date when each of the representations was true. The plaintiff would then have come into existence and not been in a position where there were defects which needed to be addressed. For these reasons, in my view it cannot be said that the claim made at paragraphs 2(a) to (j) of the Amended Reply are unarguable or otherwise failed to disclose a reasonable pleading in reply.
Secondly, in relation to paragraphs 2(a) to (j) the defendants submitted that the claims are out of time because the causes of action were complete once the first defect was manifest in March 2001. The plaintiff contends that summary dismissal of the proceedings would not be appropriate where there is no evidence let alone findings of fact that would determine the date on which the defects were manifest.
In my view, it would not be appropriate to strike out this aspect of the Amended Reply on the basis put forward by the defendants. The pleadings in the Amended Reply do not identify the defects as the damage relied upon for the purposes of a claim under s 87 of the Trade Practices Act. They appear to identify the damage as the damage that would arise if the defendants were entitled to rely upon the issuing of the occupation certificate in the manner set out in the paragraphs of the Amended Defence referred to in the opening words of paragraph 2 of the Amended Reply. In other words, the pleadings do not hinge, for limitation purposes, on the manifestation of defects as suggested by the defendants’ submissions.
Thirdly, the defendants attack the pleadings in paragraphs 2(k) to (r) of the Amended Reply which plead a claim for an equitable or conventional estoppel. The authorities relied upon provide useful summaries of the elements of and differences between promissory and conventional estoppel: Waterman v Gerling (2005) 65 NSWLR 300 322; Moratic Pty Ltd v Gordon & Anor (2007) 13 BPR 24; [2007] NSWSC 5 at [27]-[32]. In relation to the particular complaints made I am satisfied that the plaintiff has pleaded that the defendants had adopted a convention (see [2](p)). Further, I am satisfied that the pleading asserts that the defendants resiled from the convention at the point where it is alleged that the relationship between the parties broke down (see [2](o)). While the pleading cannot be said to be perfect, in my view the pleading of the claims is sufficient and the claim cannot be said to be defective or unarguable so as to warrant it being struck out.
Finally, the defendants attack the pleading in 4(c) of the Amended Reply which seeks an extension of time under s 40 of the Limitation Act. The defendant submits that any extension of time application needs to be made by a proper application supported by evidence explaining the delay. It points to letters in 2006 and 2007 which it says make it plain that the unit owners were aware of the expiry of the warranty period some years prior to the commencement of the proceedings. It submits that there is no explanation for the three and a half year delay in making the extension application. In my view this is not a relevant submission to be made on an application to strike out the pleadings. The claim for an extension of time under s 40 is raised as a reply to the defendant’s defence. The question is one which can appropriately be addressed, if necessary, at a final hearing and it is not appropriate to give, in effect, summary judgment on that claim at this stage of the proceedings.
Issue 7: Should the plaintiff be ordered to provide particulars of the Further Building Work?
By the time of the hearing of the Second Application the plaintiff had prepared and attached to its submissions a Schedule of Further Building Work which was an elaboration of some aspects of an earlier Scott Schedule dated 17 March 2014.
The plaintiff said that these were the best particulars it could provide. The defendants appeared to accept that in the light of this there was no need for additional orders in relation to particulars.
Issue 8: Should particulars of the time at which the alleged defects became manifest be provided?
The defendants submitted that the plaintiffs should plead when the damage became manifest. The defendant does not refer to any authority that states the date of the manifestation of damage must be pleaded.
I am not satisfied that the plaintiffs should be required to provide any additional particulars identifying when defects became manifest to them. In so far as the manifestation of defects is a matter that is relied upon by the defendants for the purposes of their limitation defence then they bear the onus of proving when the defects were manifest (see Melisavon Pty Ltd v Springfield Land Development Corporation Pty Limited [2014] QCA 233 at [26]).
Issue 9: Should the plaintiff be required to provide security for the defendants’ costs?
The application for security for costs is made pursuant to r 1901(a) of the Rules and s 1335 of the Corporations Act 2001 (Cth). The plaintiff is a corporation: see s 9(1) of the Unit Titles Management Act. The question for the purposes of this application is whether there is reason to believe that the plaintiff will not be able to pay the defendants’ costs if ordered to pay them and if so whether, as a matter of discretion, security should be ordered.
Security is only sought for the costs to be incurred by the defendants in the future. No claim is made in relation to costs already incurred.
The evidence as to the costs likely to be incurred was not particularly satisfactory. The defendants’ solicitor estimated costs already incurred by the defendants at $200,000. A subsequent affidavit indicated that the figure was closer to $240,000. He estimated that the costs to the commencement of the hearing at between $75,000 and $170,000. This was arrived at not on the basis of an outline of the costs to be incurred for the different aspects of the preparation of the matter for hearing, but rather a process of simply thinking about it and arriving at a figure. In relation to the costs of a hearing the defendants’ solicitor estimated costs at $9,000 per day for a hearing of seven to ten days to arrive, strangely, at a figure of $36,000 to $54,000, which would be consistent with a 4-6 day hearing. Therefore, total costs of the whole of the proceedings were estimated at $351,000 to $464,000 and total future costs were estimated at $111,000 to $224,000. The affidavit was not clear whether these estimates were estimates of party-party costs or all the costs that would be incurred. However, the pre-application correspondence that was annexed to the affidavit made it clear that the figures were in fact actual costs and that costs recoverable on a party-party basis would be approximately 70% of those figures. Having decrypted the rather unsatisfactory evidence in this way I arrive at an estimate of party-party costs for the whole of the proceedings at $246,000 to $324,000 and for the future component of those costs as $78,000 to $119,000.
Although the plaintiff declined to provide information showing its financial position prior to the hearing, at the hearing financial records were produced and became Exhibit 1. They included accounts of the plaintiff from 2010, various minutes of the plaintiff relation to financial issues, and documents relating to a funding facility offered by a financier.
The defendant submitted that the plaintiff’s statement that it “is in a position to raise funds should it be faced with an adverse costs order” amounts to an admission that it does not have funds now but may be able to get them in the future should it choose to do so. The defendant submits that this is an admission which amounts to credible testimony that there is reason to believe that the plaintiff will be unable to pay its costs if the defendants are successful.
The defendants submitted that the possibility of a levy from owners is insufficient to avoid an order for security because in the event of success and non-payment of the costs order, the defendants would need to appoint an administrator to the body corporate. That is a course which is available under part 10 of the Unit Titles Management Act. That administrator is able to raise a special levy: see s 140 and in the event of non-payment may declare a charge over the non-paying unit owner’s property: see ss 95, 96. The defendants submitted that the time for determining the ability to pay is at the time of judgment: see Beach Petroleum v Johnson (1992) 7 ACSR 203 at 205; Professional Vending Services Pty Ltd v Christou [2010] FCA 580 at [13].
The defendants also pointed to a number of matters going to the discretion as to whether or not to order the provision of security, namely:
(a)the delay in commencing the proceedings and the slow progress of the proceedings over the three and half years which they have been on foot;
(b)the fact that the defects have been fixed make it extremely difficult for the defendants to respond to allegations;
(c)the weakness of the plaintiff’s case due to its limitation problems;
(d)the refusal of the plaintiff to give proper particulars of its claim;
(e)the absence of any suggestion of oppression or stultification if security is ordered to be paid; and
(f)what is said to be a threat to mount a public relations campaign if this application was made and the apparent execution of that threat when the application was in fact made.
The plaintiff submitted that the defendants have not proved that the plaintiff would not be entitled to raise a special levy to pay the costs or that such levies would not be paid: see Owner Strata Plan No 5530 v Walter Construction Group Limited [2001] NSWSC 820 at [33] and [36]. The plaintiffs point to:
(a)the powers under the Unit Titles (Management) Act 2011 to raise funds by way of a special levy;
(b)the fact that the plaintiff did in fact raise a special levy in July 2010 for the purposes of undertaking remedial and rectification work is at the Lagani Apartments; and
(c)the plaintiff’s loan funding secured for the purposes of these proceedings.
The plaintiffs submit that any suggestion that a special levy may not be paid is mere speculation which is insufficient for the purposes of such an application: Warren Mitchell Pty Ltd v Australian Maritime Offices Union (1993) 12 ACSR 1.
The plaintiff points to the financial records produced pursuant to a notice to produce and submitted:
(a)the plaintiff has never had any issue or difficulty in either levying strata fees or receiving such fees from owners when levied; and
(b)with the exception of a small deficit for financial year 2011, the plaintiff has maintained a positive net asset position; and there are no significant current liabilities or debts outstanding.
The plaintiff therefore submits that the threshold has not been met for an order of security. It also submitted that, in any event, such an order should be refused by reason of the delay in bringing the application and the fact that the plaintiff is a strata corporation not a trading corporation and hence by virtue of the process of special levies the owners are already personally committed to meeting any costs order that might be made against the plaintiff.
The income statement for the plaintiff for the 2010 calendar year shows that total funds belonging to the owners corporation at the end of that year were $119,475.86. It shows that income during that year raised by way of a special levy was $728,444.95. It also showed expenditure of $502,188.25 on an expense item identified as “defect”.
For the 2011 calendar year, the total owners funds was a debit amount of $1,937.04. For the 2012 calendar year the total owners funds were $4,382.81. For the 2013 financial year the total owners funds were $35,211.14. For the half year from January to June 2014 the evidence was that total owners funds were $7,854.50.
There was some evidence of an offer of an unsecured funding facility up to a total of $750,000 that could be made available “to assist the Borrower to meet expenditure that it is permitted by law to incur.”
In my view the evidence in the financial records of the plaintiff shows that, consistent with its purpose, the plaintiff has managed, when necessary, to raise substantial funds to meet its obligations in relation to the common property of the development. Other than in 2010 the amounts that have been required to be raised by the corporation for the purposes of the functions have been relatively modest.
Section 1335 of the Corporations Act requires that there be “reason to believe that the corporation will be unable to pay the costs of the defendant”. Rule 1901 (a) of the Rules is similarly worded. That phrase has been explained in the often applied decision of Von Doussa J in Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205. In Professional Vending Services Pty Ltd v Christou [2010] FCA 580 Bromberg J cautioned against substituting a judicial exposition for the words of the statute itself. He identified the statutory test that the courts must address as: is there reason to believe that the corporation will be unable to pay the defendant’s costs? In Livingspring Pty Ltd v Clyde Partners [2008] VSCA 93 at [15]-[16] Maxwell P and Buchanan JA said that the section requires the making of a judgment which amounts to a risk assessment. Their Honours said “[t]he section called for a practical, commonsense approach to the examination of the corporation’s financial affairs.” Their Honours pointed out that this provided a low threshold but that reflected the policy of the provision. In Warren Mitchell Lee J said (at 5) that “speculation as to insolvency or financial difficulties likely to confront the corporation will be insufficient to ground the exercise of discretion.”
In Owners-Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820 Bergin J, as her Honour then was, dealt with an application for security where no financial records had been produced. Her Honour was not prepared to draw any adverse inference from that fact. As to the burden on the applicant for security she said:
it needed to call evidence upon which, viewed objectively, I could be satisfied that the plaintiff was not entitled to raise a special levy to pay the costs or, if able to raise levies in respect of costs, that such levies would not be paid.
In the present case where the records of the body corporate were available they show that the entity has, in the relatively recent past, had the capacity to raise substantial amounts by way of a special levy from the owners. There is no evidence that indicates that the owners would be unable or unwilling to pay a levy that was necessary to fund a costs order against the plaintiff. While the plaintiff may not have that money immediately available there is no evidence to indicate that it could not be raised with in a reasonably short period of time and hence to be available to meet a costs order by the time that order became crystallised in an enforceable judgment for a particular amount.
Therefore, I am not satisfied that the defendant as passed the threshold for the purposes of an order for security for its costs.
In any event, I would, in the exercise of my discretion, have declined to make an order for security. That is essentially for two reasons. The first is the fact that under the Unit Titles Management Act the position of the defendant is secured to some extent by reason of the capacity that it has, if it is a creditor of the body corporate, to appoint an administrator to the body corporate: s 136, the capacity of the administrator to raise a levy: s 140 and to declare a charge over the non-paying unit holders property: ss 95, 96. While I accept that this would be an unsatisfactory exercise so far as a successful defendant was concerned, it puts the case in a different category from the position it would be in if it was dealing with an ordinary trading corporation under the Corporations Act.
The second is by reason of the delay in bringing this application. The proceedings have been on foot since November 2010. A conditional notice of intention to respond was filed on 1 March 2011. As I have pointed out previously, the capacity to obtain security for a defendant’s costs as a powerful weapon and one which should, generally, be exercised at an early stage of proceedings so that the plaintiff is aware of the basis on which it is required to conduct the proceedings: see Concerned Citizens of Canberra Inc v Chief Planning Executive (Planning and Land Authority) [2014] ACTSC 24 at [21]-[26]. While the defendant complains about the plaintiff’s delay in bringing and prosecuting the proceedings, the defendant has not brought this application at an early stage or prior to the plaintiff incurring substantial costs in the prosecution of the action. Although there was no specific evidence about the amounts expended by the plaintiff to date in the prosecution of the action, it is likely that the amounts would have been substantial having regard to the nature of the case, the length of time that it has been on foot and the extensive preparation of the case disclosed by the evidence on these applications. While I accept that, at least by the time of the hearing of the application, the defendant confined its claim to a claim for security from the date of the application, it would not in my view be appropriate to make any order at this stage.
For these reasons I refuse to make an order that the plaintiff provide security for the defendant’s costs.
Issue 10: Should the Amended Defence be struck out because of destruction of documents by the defendant?
The plaintiff has contended that the defendant should not be permitted to plead those paragraphs in the defence which assert that the plaintiff’s claim is out of time. That contention is put on the basis that the defendants have destroyed documents relevant to the plaintiff’s claim in circumstances which amount to an attempt to pervert the course of justice or contempt of court.
The background to this issue is set out in the grounds identified in the Third Application and the affidavit evidence served by the plaintiff in support of that application. The plaintiff amended its application in proceedings so as to rely upon both r 425 of the Rules and the inherent powers of the Court.
The defendants have admitted that they responded to water ingress claims at the apartments in 2001, 2003 and 2004. On 21 March 2014 the parties were ordered to provide discovery of certain nominated categories of documents. The plaintiffs anticipated, on the basis of documentary evidence in their possession, that documents would be produced by the defendant relating to investigation and rectification of defects, including water ingress, for the period 2004 through to 2007. Those documents would be relevant to the plaintiff’s claim in its reply relating to misleading and deceptive conduct or estoppel. They would also be relevant to the defendants’ claim that the proceedings are barred by the Limitation Act and both parties’ contentions relating to the operation of s 40 of the Limitation Act. The plaintiff also anticipated that documents from this period would disclose the identity of individuals or contracting entities that undertook remedial work during this period who might be subpoenaed to produce documents or give evidence. On about 27 May 2014 the plaintiff was served with a sealed copy of the defendants’ affidavit verifying their list of discoverable documents. That affidavit was sworn by the first defendant. In relation to those categories of documents relating to defects or remedial action after 20 December 2000 or attendances at the apartments or correspondence with the unit owners, no documents were produced relating to a period from mid-2003 until early 2007. In relation to a number of specified documents, but more significantly, in relation to certain categories of documents, the list verified by the first defendant provided: “Unknown whereabouts, the documents may have been destroyed in accordance with the Defendants’ customary practice.”
The plaintiff said that in the absence of an explanation of that “customary practice” or any identification that the documents were destroyed prior to the commencement of proceedings, the Court should conclude that there was no proper explanation or justification for that practice and that the practice amounted to an attempt to pervert the course of justice or contempt involving an effort to deny the court knowledge of the true circumstances of the case.
The defendants served affidavit evidence in response to the application. That affidavit evidence comprised an affidavit of Aristidis Eric Koundouris (known as Eric Koundouris) and Theodoros Aristidis Koundouris (known as Theo Koundouris). Eric Koundouris is a director of the second defendant and performs a “chairman” role for the group of companies owned by members of the Koundouris family (Koundouris Group). Eric Koundouris is also a director of the second defendant as well as other companies in the Koundouris Group. His primary responsibility is in relation to the supermarket operations of the Koundouris Group. Both deponents were cross-examined. The first defendant did not give any evidence notwithstanding that he was the one who had verified the defendants’ list of documents.
Eric Koundouris gave evidence that he was the person responsible for the policy and processes of the Koundouris Group in relation to archiving of documents. He gave evidence about the policy that was in place up until August 2007. That involved documents being stored in archive boxes. When those archive boxes were completely full they were labelled and the label was recorded in a register which recorded the label description including the date range of the documents in question. Up until August 2007 the archive boxes were stored in an office storeroom at an address in Civic. Since August 2007 a similar process has been followed except that from time to time the accumulated boxes are examined and any box containing documents no longer needed for daily operations is moved to an archive warehouse. In addition to this system some employees of the group store certain documents in their own offices and those are subject to the employee’s control.
The change in archiving practice occurred in August 2007. At that stage Eric Koundouris decided that there were too many documents to store at the Civic premises and established a warehouse in Fyshwick. He then conducted a review of all Koundouris Group archived files to see whether any of those files could be destroyed to prevent unnecessary handling during the move. Mr Koundouris was personally responsible for the review and destruction of archive files. He described the categories of documents which he made a particular effort to retain. Those categories of documents included any documents relating to litigation or potential litigation. To the best of his knowledge documents in those particular categories including documents relating to litigation or potential litigation were not destroyed. Documents outside those particular categories which were more than seven years of age were destroyed. Some other documents less than seven years old, which were not required to be kept for a period of seven years, were also destroyed. He could not recall whether or not he destroyed boxes of documents relating to the Lagani Apartments. As at that date he was not aware of any potential for litigation arising out of the construction of those apartments. Had he known there was any potential for such litigation he would not have destroyed any relevant documents.
There was a further significant move in July 2011 when the second defendant moved archive documents from the Fyshwick warehouse to its current warehouse in Queanbeyan. There was a further process of document destruction. Either Eric or Theo Koundouris oversaw that process. Both were aware of the current litigation. Eric Koundouris said he was certain he would not have authorised the destruction of any documents relating to be Lagani Apartments. Theo Koundouris said he would never have destroyed any document in relation to any of the Koundouris Group’s development or construction activities and that he has never destroyed any documents that had any relationship to the Lagani Apartments.
Both witnesses were cross-examined at some length. The plaintiff did not make any submission that their evidence was other than honest and reliable.
In cross-examination Eric Koundouris said that he had called a staff meeting at which he asked staff in the office to put old papers in properly marked archive boxes and he then would examine which were moved to the Fyshwick premises and which were destroyed. He took no steps to ascertain whether there were ongoing complaints about the building works undertaken at the Lagani Apartments in July 2007. He did not recall whether he asked the first defendant about whether there were any ongoing complaints as at July 2007. He was not aware of any defects and complaints as at July 2007 or indeed in any of the years back to 2001. The first time the first defendant told him of any issue in relation to defects or complaints by unit owners or the strata corporation was sometime after July 2007. He was not told about any rectification works undertaken in August 2007. He was not told about those works for the purposes of the cleansing process in August 2007 or otherwise. The first defendant did not mention to him that there was anything out of the ordinary in the years following the completion of the building works.
Based on this evidence counsel for the plaintiff’s made the submission that:
Michael Koundouris must have known, either as a result of that staff meeting or as a result of his position within the Koundouris Group that Eric Koundouris intended to undertake a cleanse of documents, that there was going to be a destruction of material insofar as Eric Koundouris understood that that material was not needed nor relevant nor of any significance with respect to the ongoing operations and interests of the Koundouris Group.
What appears to have happened, by reference to the evidence of Mr Eric Koundouris, is that Michael Koundouris has kept silent. Michael Koundouris, knowing that Mr Eric Koundouris was about to undertake the destruction of documents which Eric Koundouris believed were no longer needed, because of their age or because of their relevance, allowed the chairman to destroy material which Michael Koundouris ought to have known and in fact did know was relevant to the question of the Lagani project and complaints about defects and the adequacy of the works. (T205)
No submission was made that the documents were destroyed as a consequence of the exercise undertaken in 2011. That was because, in the light of the evidence of Eric and Theo Koundouris, it is very unlikely that documents relevant to the litigation were destroyed as part of that exercise.
Both parties submitted that the appropriate test in relation to striking out a defence where documents have been destroyed prior to the commencement of litigation was that articulated in British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524. The plaintiff did make a rather faint submission that I should prefer the approach identified in C Cameron and J Liberman, Destruction of documents before proceedings commence: what is a court to do? (2003) 27 MULR 273 at 301-304. However, in my view it is more appropriate to adopt an approach consistent with the considered decision of an intermediate court of appeal than the approach advocated by the authors of that article.
The difficulty that confronted the Victorian Court of Appeal in British American Tobacco was how to balance on the one hand the right of a person to manage their own documents at a time when legal proceedings were not on foot and on the other hand reduce the potential for persons to destroy documents in order to inhibit future proceedings against them: see [145]. The balance was struck by stating that “the destruction of documents, before the commencement of litigation, may attract a sanction (other than the drawing of adverse inferences) if that conduct amounts to an attempt to pervert the course of justice or (if open) contempt of court, meaning the criminal contempt …”. Their Honours recognised that there certainly could be an attempt to pervert the course of justice prior to the commencement of proceedings and did not need to determine whether contempt was possible before any proceeding has been instituted. The test from British American Tobacco was referred to with approval in Clark v State of New South Wales (2006) 66 NSWLR 640 (affirmed in Clark v State of New South Wales [2012] NSWCA 139), although that was a case concerning destruction of evidence during the course of proceedings in relation to which the Court’s power to prevent an abuse of its process was available.
In British American Tobacco the Court considered that the standard of proof for the purposes of a civil sanction would be the civil standard of proof: [173].
Thus, in relation to the destruction of documents prior to the commencement of proceedings, the Court looked to conduct which was unlawful, albeit proved to a civil standard: [173]. While the approach in British American Tobacco that focuses on the lawfulness of any pre-litigation destruction of potential evidence is appropriate, in the Territory the correct approach must be influenced and potentially modified by relevant statutory provisions in this jurisdiction. Those include rule 21 of the Rules (cf Palavi v Radio 2UE Sydney Pty Ltd (2011) NSWCA 264 at [93]) and ss 706 and 713 of the Criminal Code 2002 (ACT) (Criminal Code). The Criminal Code provisions relevantly provide:
706Destroying or concealing evidence
(1)A person commits an offence if the person destroys or conceals evidence with the intention of—
(a)influencing a decision about starting a legal proceeding; or
(b)influencing the outcome of a legal proceeding.
Maximum penalty: 700 penalty units, imprisonment for 7 years or both.
(2)In this section:
destroy evidence includes—
(a)mutilate or change evidence; and
(b)make evidence illegible, indecipherable or otherwise unable to be identified.
713Perverting the course of justice
(1)A person commits an offence if the person, by his or her conduct, intentionally perverts the course of justice.
Maximum penalty: 700 penalty units, imprisonment for 7 years or both.
(2)In this section:
perverts includes obstructs, prevents and defeats.
It is clear that perversion of the course of justice or an attempt to do so may occur before any proceedings have been commenced: R v Rogerson (1992) 174 CLR 268 at 277, 281, 294, 295, and 308.
It is important to note that s 706 is a provision which may also apply before any proceedings are on foot. That is made clear by the reference in paragraph (1)(a) to influencing a decision about starting a legal proceeding. There is some potential ambiguity in s 706 in that it is not clear whether paragraph (b) also applies to the period prior to the commencement of proceedings or only applies, in contrast with paragraph (a), once proceedings have been commenced. The explanatory memorandum for the Criminal Code (Administration of Justice Offences) Amendment Bill 2005 which led to the insertion of s 706 in the Criminal Code does not provide any assistance on this interpretation issue. However, having regard to the purpose of the provision and its significance in the administration of justice, in my view both paragraphs of subsection (1) should be interpreted as applying to conduct prior to the commencement of proceedings. If that was not the case then the intentional destruction of documents designed to deter another party from starting legal proceedings would be criminalised but the intentional destruction of documents designed not to influence a decision about the commencement of proceedings but to ensure those proceedings could not succeed would not be criminalised. That would be an arbitrary result and an interpretation not consistent with s 139 of the Legislation Act.
Given that the British American Tobacco approach is based on establishing unlawfulness, a provision such as s 706 may define more broadly than in jurisdictions without such a provision the scope for a court to strike out a defence if relevant documents are destroyed prior to the commencement of proceedings. However, s 706 still requires the establishment of intention to achieve one of the results specified in s 706(1).
The evidence given by Eric and Theo Koundouris did not readily intersect with the terms of the list of documents which was attested to by the first defendant. That is because there is no link in the evidence between the documents that the first defendant was referring to in the list of documents as having possibly been destroyed and the documents which were either moved or destroyed as part of the process supervised by Eric Koundouris in August 2007. It is not clear precisely what documents the first defendant maintained himself separately from those which were managed by the staff at the Civic office. It is not clear how, in the light of the evidence of Eric and Theo Koundouris, documents for the missing period could have been destroyed or otherwise lost. The position was made even less clear by the fact that, in response to a notice to produce issued by the plaintiff, the defendants produced some 14 boxes of documents out of which the plaintiff could identify at least some documents which had not been previously disclosed and which were apparently within one or more of the categories which the defendants were required to disclose.
The case is therefore a very different one from those like British American Tobacco, Clark v State of New South Wales,Fuji Xerox Australia Pty Ltd v Lee [2003] QSC 303, Moody Kiddell & Partners Pty Ltd v Arkell [2013] FCA 1066, Palavi v Radio 2UE Sydney Pty Ltd [2011] NSWCA 264 or Palavi v Queensland Newspapers Pty Ltd (2012) 84 NSWLR 523, in which the destruction of documents or evidence was clearly and specifically established. In the present case all I can say is that, having regard to the categories of documents and the period during which there are no documents produced, it is likely that those documents have either been destroyed or misplaced in a manner that has meant that they have not yet been produced.
I will assume for the purposes of argument that they were in fact destroyed as a consequence of the August 2007 exercise. So far as the destruction of documents by or under the supervision of Eric Koundouris is concerned I am not satisfied that those documents were destroyed with the intention required by s 706 or s 713 of the Criminal Code. They were destroyed as part of routine administrative process with no knowledge on Eric Koundouris’ part that there were pending or possible proceedings to which they would be relevant. To the extent to which Eric Koundouris could be characterised as an agent of the first defendant or acting on behalf (either as an officer or agent) of the second defendant, I am not satisfied that he destroyed the documents with knowledge that they may be relevant in proceedings that may be commenced against the defendants in the future or that he destroyed them for the purpose of influencing the outcome of the proceedings or otherwise perverting the course of justice.
So far as the first defendant is concerned there is no evidence that he destroyed or supervised the destruction of documents. The highest that the plaintiff put it was that he had remained silent in circumstances where it is likely he knew that Eric Koundouris was going to destroy documents that he knew would be significant in proceedings that might be commenced against the defendants relating to defects at the Lagani Apartments. The evidence that Michael Koundouris knew about the proposed document destruction was limited. It comes from the evidence of a discussion between Eric Koundouris and staff at the Civic office, the evidence of fortnightly meetings between the members of the Koundouris family who were directors of companies in the Koundouris Group, and the role and status of both Eric Koundouris and the first defendant within the Koundouris Group. It appears to me to be likely, in the light of these matters, that Michael Koundouris would have been made aware of the proposal for document destruction. The fact that Michael was not called to give evidence to the contrary is a factor which is properly taken into account as a circumstance in favour of drawing the inference that he was aware of the document destruction proposal: Jones v Dunkel (1959) 101 CLR 298 at 312. However, the evidence does not establish that he omitted to prevent the document destruction with the intention of depriving the plaintiff or other claimants in relation to the Lagani Apartments of evidence relevant to their claim. Rather, there is simply no evidence as to his intention or state of mind in not identifying documents relating to the repair defects at the Lagani Apartments as documents which should not be destroyed as part of the process being undertaken by Eric Koundouris. The circumstances are not such as to permit anything more than speculation about the intention of the first defendant at that time.
Because intention must be established to meet the requirements of s 706 or 713 of the Criminal Code or to establish a contempt of court (if that is available) this aspect of the Third Application must fail.
Had some unlawful destruction of documents prior to the commencement of the proceedings been proved, consideration would then need to have been given to the appropriate remedy. That can be an issue of some difficulty: Clark v State of New South Wales [2012] NSWCA 139 at [99]-[108].
As the contents of MFI B and C make clear there remains an issue as to whether or not the defendants’ discovery has been complete. I will admit MFI B which contains timesheets for workers apparently doing work after December 2000 at the Lagani Apartments. Those documents appear on their face to fall within discovery category 8. I will also admit MFI C insofar as it contains two invoices from Tiling Impressions Pty Ltd dated in 2005 relating to rectification work on the balcony and a window of unit 10. Those documents appear to me to fall within category 13. Both categories 8 and 13 were categories in relation to which the defendants list of documents included the reference to documents possibly having been destroyed in accordance with the defendants “customary practice”. The admission of those documents tends to undermine the plaintiff’s application in so far as it is based on destruction of documents. It does however cast some doubt upon the reliability of the defendant’s present list of documents.
Exhibit 3 was a report prepared by a building consultant, apparently for an insurer, dated 1 February 2010 which referred to reports prepared by Murtagh Bond Consulting Engineers commissioned by Koundouris Projects dated 16 May 2008, 17 July 2007 and 12 September 2005. The reports dated 17 July 2007 and 12 September 2005 were not disclosed in the list of documents even though the report of 16 May 2008 was. The 2008 report was included in a category which was not specifically referred to as one in which documents may have been destroyed in accordance with the defendants “customary practice”. The fact that the documents clearly existed as at February 2010 and that they are not referred to in the list of documents as being in existence or having been destroyed tends to cast further doubt on the reliability of the discovery process undertaken by the defendants. It is correct to say that the defendants were called upon to meet a case that documents in certain categories had been destroyed. They were not called upon to address inadequacies of their discovery in other respects. However, having regard to the lack of detail in the explanation given in the list of documents or of the affidavit which verified it, it was reasonable to explore the robustness of the general assertions in the list of documents. That was made more difficult by the forensic choice of the defendants not to expose the deponent of the affidavit verifying the list of documents, the first defendant, to cross-examination.
There remains a significant issue about the adequacy of the searches done for the purposes of discovery of documents. Having regard to the manner in which the potentially discoverable documents were produced it is not clear why the apparently discoverable documents were not previously discovered and whether or not this reflects some wider difficulty with the defendant’s approach to discovery. The defendants recognised that they were under a continuing obligation to provide discovery. In my view if they have not already remedied the apparent inadequacies with their discovery then it would be appropriate to make further directions to compel them to do so.
Issue 11: Should the plaintiff be permitted to interrogate the defendants so as to identify the persons engaged to investigate or rectify defects on behalf of the defendants?
In the Third Application the plaintiff sought an order, in the alternative to orders striking out parts of the Amended Defence, permitting it to interrogate the defendants to identify persons engaged to investigate or rectify defects on behalf of the defendants. The defendants accepted that interrogatories can be asked and any issue about the timing of those interrogatories can be dealt with by appropriate directions.
Issue 12: Should the proportionate liability defence raised in the Amended Defence be struck out?
As part of their Amended Defence the defendants have alleged that the first cause of action alleged against the defendants is an apportionable claim within the meaning of s 107B of the Civil Law (Wrongs) Act 2002 (ACT) (Civil Law Wrongs Act). The regime for proportionate liability in Chapter 7A of the Civil Law Wrongs Act is one which permits a concurrent wrongdoer to limit its liability to a proportion of the loss or damage that the court considers just having regard to the wrongdoer’s responsibility for the loss or damage.
The plaintiff submitted that the defence does not meet the requirements of r 432 of the Rules or s 107G of the Civil Law Wrongs Act. The plaintiff also submitted that the pleadings are open to be struck out under r 425 of the Rules. The plaintiff submitted that the pleading will tend to prejudice, delay and embarrass the proceedings and that the failure to identify the acts or omissions on the part of the third-party or how such act or omission caused damage or loss which is subject of a claim means that no reasonable defence is disclosed. The plaintiff relies upon the decision of Hammerschlag J in Ucak v Avante Developments [2007] NSWSC 367.
The plaintiff also submitted that, consistently with the decision in Ucak, the pleading of the proportionate liability claim should be done with the same degree of precision as if a cross-claim was being filed. It said that the defence must state the material facts, identify the person, the act or omission of the person and the causal connection between the occurrence and the loss. The alleged concurrent wrongdoer must be liable at law to the plaintiff.
The plaintiff submitted that the defence does not sufficiently state the basis of the liability of the alleged concurrent wrongdoers because it does not properly disclose how the concurrent wrongdoers are said to owe a duty of care to the plaintiff and the relationship from which a duty of care might arise is not particularised.
The defendants accepted that the decision in Ucak articulated principles that were appropriate to be applied to a claim under Chapter 7A of the Civil Law Wrongs Act. The defendant says that, having regard to the way the matter is pleaded in the present case, the decision in Ucak is plainly distinguishable and that the pleading meets the requirements identified by Hammerschlag J.
The regime permitting a limitation of liability which became chapter 7A was introduced by the Civil Law (Wrongs) (Proportionate Liability and Professional Standards) Amendment Act2004 (ACT). Neither party made any submissions about whether or not this regime could apply to claims arising out of the events which occurred prior to its enactment (cf Ucak at [18]-[22]). Because of the manner in which the parties approached this issue, I proceed on the basis that the chapter can apply in relation to conduct prior to its enactment.
Apportionable claims are defined in s 107B(2) of the Civil Law Wrongs Act as including “a claim for economic loss or damage to property in an action for damages (whether in tort, under contract or otherwise) arising from a failure to take reasonable care;”. Section 107B(3) excludes various classes of claim from being apportionable claims none of which are said to be relevant here. Section 107D provides that a concurrent wrongdoer is “1 of 2 or more people whose acts or omissions (or act or omission) caused, independently of each other or jointly, the loss or damage the subject of the claim.”
Section 107F of the Civil Law Wrongs Act provides that in a proceeding involving an apportionable claim the liability of a defendant who is a concurrent wrongdoer for the claim is limited to an amount reflecting the proportion of the loss or damage claimed that the court considers just, having regard to the extent of the defendant’s responsibility for the loss or damage; and the court must not give judgment against the defendant for more than that amount. Section 107E provides that some concurrent wrongdoers are excluded from this regime, namely those that intended to cause or fraudulently caused the economic loss or damage to property the subject of the claim. Section 107G empowers the court to make costs orders against a defendant if that defendant has reasonable grounds to believe that a particular person may be a concurrent wrongdoer for the claim but does not give the claimant, as soon as practicable, written notice of the information that the defendant has about the identity of that other person in the circumstances that may make the other person a concurrent wrongdoer for the claim.
The pleading in the present case is not defective in the same way as the pleading in Ucak. The defence properly identifies material facts sufficient to identify the existence of a particular person, the occurrence of an act or omission by that particular person and a causal connection between the occurrence and that loss that is subject to the claim. However, the point of difficulty identified by the plaintiff is that what is alleged is that a subcontractor to a builder or property owner owed a duty of care to a subsequent purchaser. While facts are pleaded which are said to give rise to a duty of care the plaintiff submits that the pleading does not properly disclose how the concurrent wrongdoers are said to owe a duty of care to plaintiff and the relationship from which the duty of care might arise is not particularised. In my view, while there may be very significant difficulties in the way of the defendants’ claim that a duty of care existed, it cannot be said that the claim, as pleaded, is unarguable. No authority was given for the proposition that such a claim as that pleaded in the present case was necessarily doomed to failure. In those circumstances, the pleading should not be struck out.
Conclusion and orders
In the light of the above, in my view the First Application, the Second Application and, to a large extent, the Third Application must each be dismissed. I will hear the parties in relation to costs. The proceedings will therefore be listed for directions and any argument as to costs. Having regard to the lamentably slow progress of the matter the parties should bring in agreed or competing directions that are required to have the ready for hearing.
The orders of the Court therefore are:
1.MFI B and C are admitted as Exhibits 4 and 5 respectively.
2.The application in proceeding dated 8 May 2014 filed by the defendants is dismissed.
3.The amended application in proceedings dated 23 May 2014 filed by the defendants is dismissed.
4.In relation to the amended application in proceedings filed by the plaintiff on 5 August 2014:
(a)the application is dismissed in so far as it seeks orders 1 to 4;
(b)leave is granted to the plaintiff, nunc pro tunc, to file the reply in fact filed by the plaintiff on 2 April 2014;
(c)the application is otherwise adjourned to the date set in order 5.
5.The proceedings are listed on 7 November 2014 at 10:00am for directions and any argument in relation to costs.
6.The parties are to consult and attempt to agree on the directions that are needed to have the matter ready for hearing and an estimate of the length of any hearing. The parties are to provide any agreed or competing directions and hearing estimates to my associate by email no later than 5 November 2014.
| I certify that the preceding one hundred and seventy five [175] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Master Mossop. Associate: Nikolas Willing Date: 28 October 2014 |
36
15