The Owners-Strata Plan 86807 v Crown Group Constructions Pty Ltd [2023] NSWSC 44

Andrew Hales  |   Michelle Knight  |  Luke Sundercombe

Key takeout

The NSW Supreme Court dealt with an application to join out of time claims for breach of the statutory warranties under the Home Building Act 1989 (NSW) (HBA) and breach of the statutory duty of care under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act).

The court emphasised its discretionary powers under the Civil Procedure Act 2005 (NSW) (CPA) to permit amendments to pleadings at any stage of the proceedings, subject to the principles stated in ss 56-60 of the CPA, including issues of delay in adding the claim, whether the claim has reasonable prospects of success, prejudice suffered by the other party if the amendment is allowed and prejudice suffered by the applicant if it is not.

In refusing leave to amend the claim, the court had regard to lack of evidence led by the plaintiff owners corporation to support the new claim, the loss by the builder of a valuable cross-claim to pass through liability to a subcontractor and the owners corporation’s delay in general.

Separately, the court gave insights into the need for proper particulars in pleading a breach of the statutory duty of care under the DBP Act by identifying the facts and circumstances that support the allegation that a builder was negligent in causing the defect.

Facts

The owners corporation commenced proceedings for breach of the statutory warranties implied by section 18B of the HBA in 2016 against Crown Group Constructions Pty Ltd (builder) and Crown W Pty Ltd (developer) in respect of alleged defects in a residential strata development in Waterloo, NSW.

On 10 December 2021, the owners corporation sought to amend its claim for breach of the statutory warranties against the builder and developer to add a claim in respect of façade cladding and a claim against the builder for breach of the statutory duty of care implied by section 37 of the DBP Act in respect of the cladding. Due to the limitation periods in s18E of the HBA, proceedings for breach of the statutory warranties for any major defect must have been brought by 12 December 2020 if brought afresh. In 2018, questions about the suitability of the cladding were first raised. At that time, the builder and developer obtained a report by a Building Code of Australia (BCA) consultant and fire engineer which stated that the cladding used was compliant. The owners corporation sought comments on the report from a consultant, who stated that the report confirmed that the cladding used was compliant.

In February 2022, the owners corporation obtained a report from another consultant which found there was no evidence to show that the cladding complied with the BCA at the time of construction.

Decision

Home Building Act amendment

The court refused to grant leave to allow the amendment to add the HBA claim concerning the cladding.

The application to add the cladding allegation was made out of time. Ball J referred to the decision in Onerati v Phillips Constructions Pty Ltd (in liq) (1989) 16 NSWLR 730 at 746 (Onerati), that ‘there is but one cause of action for breach of a contract founded upon breach of a promise such as to carry out the work in a good and workmanlike manner’.

However, Ball J also opined that ‘it is not easy to see how there could be a single cause of action for all breaches of the statutory warranties, or each of those warranties’, apparently distinguishing Stevenson J’s decision in The Owners – Strata Plan No 90018 v Parkview Constructions Pty Ltd [2022] NSWSC 1123 (at [60]). See our review of this decision Home Building Act: New defects same cause of action – Construction Law Made Easy

In a departure from authorities, Ball J indicated that the importance of Onerati is possibly overstated in circumstances where the CPA confers a broad power on the court to permit amendment of pleadings at any stage in the proceedings, including out of time claims.

In exercising its discretion, and in consideration of the principles in ss 56-60 of the CPA, the court refused to grant leave to allow the amendment to add the claim concerning the cladding on the following bases:

• The owners corporation had not produced any evidence that the cladding was defective. The owners corporation’s report concluded there was no evidence that the façade complied with the BCA, as opposed to providing evidence that the façade did not comply with the BCA.
  
• The owners corporation had been aware of a potential issue with the cladding since 2018 and relied on its own review of the report. It was open for the owners corporation to ask for more thorough investigation but it chose not to. Even by the time of the hearing, the owners corporation had not commissioned its own report into whether the cladding was defective.
  
• Given that statutory warranty claims are not apportionable (in that a defendant cannot reduce its liability proportionate to the concurrent wrongdoing of others), pass-through claims by the builder or developer to any subcontractor would be time barred.

Relevantly, if the lack of evidence that the cladding was defective was the only issue militating against the amendment being permitted, it may have been appropriate to defer consideration of the motion until the owners corporation had obtained evidence. However it was not in the interests of justice to permit the amendment in light of the other issues.

DBP Act amendment

In declining the owners corporation’s application to amend, the court found that the owners corporation’s proposed pleadings for breach of the statutory duty of care under the DBP Act did not give proper particulars of how the builder was negligent.

The pleadings alleged that the builder was under an obligation to carry out all necessary detailed investigations to satisfy itself that the cladding was not combustible and otherwise complied with the BCA and inferentially that the builder did not carry out those investigations. However, the court considered that it was unclear what the owners corporation said were the investigations the builder should have undertaken. For example, that a reasonable builder would have made enquiries of the supplier or manufacturer and failed to do so, or that the builder should have undertaken its own tests and failed to do so, or that the builder failed to undertake some other type of investigation.

The court stated:

‘It is not sufficient simply to allege, as the pleading apparently does, that the builder was under a duty to undertake whatever enquiries would have revealed that the cladding was defective because it was combustible or failed to comply with the BCA (assuming that that was the case) and breached that duty because it did not discover that the cladding was defective. The problem with the pleading is exacerbated because, as the evidence stands, the owners corporation is not in a position to allege that the cladding is defective in the sense identified.‘

The court considered that following further evidence being obtained, the owners corporation may be able to properly plead the claim in negligence. However, that would need to be considered against the other considerations for the court when granting an application to amend. In those circumstances, the court considered the best course was to disallow the proposed amendment, but give the owners corporation the opportunity to replead its case if it wished to do so later.