Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Tyco Australia Pty Ltd t/a Wormwald v The Owners Corporation Strata Plan 49302 [2012] NSWCA 112
• Hearing dates: 20 April 2012
• Decision date: 01 May 2012
• Before: Macfarlan JA at [1]; Sackville AJA at [1]

Decision

1 Application for leave to appeal dismissed.

2 The applicant to pay the respondent's costs of the application for leave to appeal.

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

• Catchwords: PRACTICE AND PROCEDURE - application for leave to appeal against a discretionary interlocutory decision- primary Judge dismisses motion to strike out the statement of claim as pleading statute barred causes of action - whether factual issues better left to trial - whether any error warranting appellate intervention against the decision - application dismissed
• Legislation Cited: Building Services Corporation Act 1989; District Court Act 1973; Environmental Planning and Assessment Regulation 2000; Home Building Act 1989; Limitation Act 1969; Limitation Act 1969; Uniform Civil Procedure Rules 2005
• Cases Cited: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; 148 CLR 170; CSG Ltd v Fuji Xerox Australia Pty Ltd [2011] NSWCA 335; General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125; Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1979] Ch 384; Wardley Australia Ltd v Western Australia [1992] HCA 55; 175 CLR 514
• Category: Principal judgment
• Parties: Tyco Australia Pty Ltd t/a Wormwald (Applicant); The Owners Corporation Strata Plan 49302 (Respondent)
• Representation: Counsel: K Rees (Applicant); G Sirtes SC with D Meltz (Respondent); Solicitors: Matthews Folbigg Pty Ltd (Applicant); Szekely & Associates (Respondent)
• File Number(s): 2012/23161

Decision under appeal

• Citation: The Owners Corporation Strata Plan 49302 v Tyco Australia Pty Ltd t/a Wormwald
• Date of Decision: 2011-10-21 00:00:00
• Before: Olsson DCJ
• File Number(s): 2010/101338

JUDGMENT

1 THE COURT: This is an application pursuant to s 127(2)(a) of the District Court Act 1973 for leave to appeal from an interlocutory judgment of the District Court. The primary Judge (Olsson DCJ) dismissed a motion by the present applicant (the defendant in the District Court proceedings) seeking an order striking out claims in negligence and contract pleaded by the respondent (the plaintiff in the proceedings). Her Honour also granted leave to the applicant to file an amended statement of claim.

2 The applicant argued in the District Court that the causes of action relied on by the respondent were statute barred. It submitted that each of the respondent's pleaded causes of action had accrued more than six years before the proceedings were commenced on 20 April 2010 and were thus barred by ss 14(1)(a) and (b) of the Limitation Act 1969. Her Honour did not resolve the limitations question, but dismissed the applicant's motion on the ground that any such question should be dealt with at the trial and not earlier.

3 At the conclusion of argument in this Court, orders were made dismissing the application for leave to appeal, with costs. What follows are the Court's reasons for making these orders.

Background

4 The respondent is the owners corporation of two apartment buildings in Pyrmont, located near the Sydney Fish Markets. Meriton Apartments Pty Ltd ("Meriton") constructed the buildings between 1994 and 1996. It was common ground before the District Court that Meriton commenced construction of the building on 31 January 1994.

5 Under the Environmental Planning and Assessment Regulation 2000 (and its predecessor) the respondent was required to obtain an annual fire safety statement complying with Australian Standards. In order to obtain the relevant certification, the respondent engaged a specialist company to provide inspection, maintenance and certification in relation to essential fire safety systems. This included inspection of mechanical fire dampers (safety devices inserted into air conditioning and ventilation ducts that snap shut in the event of fire).

6 The respondent engaged a company to provide these services between 1995 and October 1998. In the latter month, the respondent engaged the applicant to carry out the relevant inspections and provide the certifications. There appears to have been no evidence before the primary Judge as to the terms of the contract between the applicant and respondent.

7 The applicant provided annual fire safety statements from 1998 until 2003. The annual safety statements were submitted by the respondent to the relevant Council in accordance with the legislative requirements. The last certificate provided by the applicant was dated 2 July 2003. This certificate referred to several inspections, including an inspection of the fire dampers which had occurred on 2 May 2003.

8 The primary Judge found that each certificate was valid for a period of 12 months. This finding would suggest that the certificate was valid for a period of 12 months from the date it was given, provided that the relevant inspection took place within three months of the date on which the certificate was given: Environmental Planning and Assessment Regulation 2000, regs 175, 176. On this basis, the certificate would have expired on 1 July 2004. However, her Honour seems to have found (at [43]) that the certificate was valid until 9 May 2004. It is not clear why her Honour selected that date. For present purposes nothing turns on whether the certificate expired on 9 May 2004 or 1 July 2004 (or some date in between).

9 In October 2003, in circumstances that apparently were not the subject of evidence before the primary Judge, the respondent replaced the applicant with another company.

10 In June 2005, a different company was engaged to undertake inspections of the fire dampers in the building. As a result of this inspection, which took place during the period from June to August 2005, significant defects were discovered. Further defects were discovered during the rectification process. The total cost to the respondent of rectification works is said to have been $217,884.46.

Pleadings

11 The respondent pleaded in its statement of claim that the applicant owed it a duty of care to inspect and prepare annual fire statements in respect of the fire dampers in accordance with the relevant legislation and building standards. The respondent alleged that the applicant breached its duty by failing to exercise reasonable care and skill in inspecting the dampers each year between 1995 and 2003-2004, and in failing to exercise reasonable care and skill in providing certification when a proper inspection would have revealed some or all of the defects.

12 In consequence of the applicant's breach of duty, so it was alleged, the respondent suffered loss and damage. In the original statement of claim, the loss or damage was said to have been the loss of the opportunity to pursue a claim against the builder under the Home Building Act 1989. In the respondent's amended statement of claim, the loss was said to have been the lost opportunity to make a claim against the insurer established by the Building Services Corporation Act 1989 (now the Home Building Act 1989). In each case, the opportunity available to the applicant to bring a claim had been lost by reason of the applicable time bars.

13 It was common ground before the primary Judge that no claim against the builder or the insurer could be brought more than ten years after the commencement of the work. Thus, no such claim could be brought after 31 January 2004. As we have noted, the statement of claim in the present proceedings was filed on 20 April 2010. This was a little over six years from the last date on which claims might have been made against the builder or the insurer.

14 The respondent also pleaded that the applicant breached its contractual obligations to use proper care and skill in carrying out the inspections and providing certification. The loss flowing from the applicant's alleged breach of contract was particularised in similar terms to the loss caused by the applicant's alleged breach of duty.

15 The respondent claimed from the applicant damages equivalent to the cost of the rectification of the defective work, amounting to $217,884.46.

The Motion in the District Court

16 By an amended notice of motion filed on 20 April 2011, the applicant sought the following orders:

"1. The [respondent's] claim in negligence, pleaded in paragraphs 1 to 17 of the Statement of Claim, be struck out as:

(a) ...

(b) ... statute-barred pursuant to section 14(1)(b) of Limitation Act 1969 (NSW).

2. The [respondent's] claim in contract, pleaded in paragraphs 1 to 14 and 18 to 21 of the Statement of Claim, be struck out as statute-barred pursuant to section 14(1)(a) of Limitation Act 1969 (NSW)."

17 Before filing their motion, the applicant did not file a defence: cf Limitation Act, s 68A; Uniform Civil Procedure Rules 2005, r 14.14(2), (3). It was not until after the District Court dismissed the motion that the applicant filed a defence pleading that the respondent's causes of action in negligence and contract were statute barred.

18 The applicant submitted to the primary Judge that the respondent's cause of action in negligence accrued at the time its claim against the builder or insurer became statute barred (that is, no later than 31 January 2004). Since the limitation period was six years, the limitation period had expired before the present proceedings were instituted on 20 April 2010. According to the applicant, it was irrelevant when the respondent became aware it had suffered loss.

19 The applicant further submitted that the respondent's claim in contract had accrued when the breach occurred. Even if the applicant was under a continuing obligation, after having provided the last certificate in July 2003, that obligation could not have survived termination of the contract on 31 October 2003. Thus, any cause of action in contract had become statute barred no later than 31 October 2009.

20 Finally, the applicant contended that, since the proposed amended statement of claim merely addressed particulars of the loss, it would be futile to grant leave to file the new pleading.

21 The respondent submitted to the primary Judge that the defects in the fire dampers were latent defects. In such cases, so the respondent contended, a cause of action founded in negligence does not accrue until the actual discovery of the defect. Since the defects were not discovered until mid 2005, the limitation period applying to actions in negligence had not expired before the proceedings were instituted.

22 The respondent contended that the last date for effective performance of the contract was the date upon which the last certificate expired (which her Honour identified as 9 May 2004). According to the respondent, it did not matter that the contract with the applicant had been determined on 31 October 2003, because the applicant had issued a certificate that had currency under reg 177 of the Environmental Planning and Assessment Regulation until 1 July 2004.

Primary Judgment

23 The primary Judge noted, at [28], the observations by the High Court in Wardley Australia Ltd v Western Australia [1992] HCA 55; 175 CLR 514, at 533 per Mason CJ, Dawson, Gaudron and McHugh JJ, that when a limitation question falls to be determined by reference to the damage sustained by a plaintiff, the question should be decided in interlocutory proceedings in advance of the hearing only in the clearest of cases. In her Honour's view, there were "a number of unknown facts which ... render this case a good example of one which should not be decided at an interlocutory stage". The respondent, in order to succeed on its negligence claim, needed to establish that the defects were in fact latent and were not capable of discovery by some reasonably available process before April 2004. This issue would require expert evidence to resolve. The question of whether the defects were manifest or latent was clearly a triable issue of fact making it inappropriate to deal with the limitations argument at an interlocutory stage.

24 So far as the claim in contract was concerned, there were grounds for contending that the termination of the applicant's contract did not extinguish the possibility of performance by reason of the duration of the certificate. It was inappropriate to deal with this claim at an interlocutory stage "and deprive the [respondent] of the opportunity of developing its argument in the more appropriate context of a full hearing".

25 For these reasons, the primary Judge dismissed the applicant's motion, Her Honour also granted leave to amend the statement of claim in the manner sought by the respondent.

The Applicant's Submissions

26 Ms Rees, who appeared on behalf of the applicant, accepted that:

• the primary Judge had made a discretionary decision on a matter of practice and procedure; and
• the primary Judge was correct to regard the principle stated in Wardley v Western Australia as applicable to the motion filed by the applicant.

27 This Court is particularly cautious about granting leave to appeal from a decision relating to practice and procedure, the more so when the decision involves the exercise of a discretion. While there are no rigid criteria governing the circumstances in which leave will be granted, the question of injustice flowing from the order under challenge is a relevant consideration: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; 148 CLR 170, at 177, per Gibbs CJ, Aickin, Wilson and Brennan JJ.

28 Ms Rees appreciated the obstacles faced by the applicants but submitted that appellate intervention was justified because the primary Judge had made an error that vitiated the exercise of her discretion. The error was said to lie in her conclusion that resolution of the limitations question might require factual findings and thus should not be dealt with in advance of the trial. According to Ms Rees, the applicant's argument raised pure questions of law and required nothing more than an examination of the respondent's pleaded case. The appropriate course in these circumstances was for the primary Judge to decide the limitations question on the basis of the respondent's pleaded case, taken at its highest. It was not to the point that the resolution of the legal issues might involve extensive argument: General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125, at 130 per Barwick CJ.

29 Ms Rees contended that the primary Judge was wrong to say that, at [50], evidence was required to determine whether the defects discovered by the respondent in 2005 were "latent" and not capable of being detected until April 2004 or later (within the six year limitation period). Ms Rees pointed out that the applicant had been content to proceed in the District Court on the assumption, which she said was favourable to the respondent's case, that the defects were "latent" in the relevant sense. Even so, the authorities established that, as a matter of law, the respondent's cause of action in negligence was statute barred by the time the proceedings were instituted.

30 Ms Rees submitted that the question of whether the respondent's contractual cause of action was statute barred could also be decided without the need to make factual findings at a trial. She contended that any contractual cause of action accrued when the alleged breach of contract occurred. The last date on which the appellant could have breached the contract was October 2003, when the applicant's contractual relationship with the respondent was terminated. Since this was more than six years before the respondent initiated its proceedings, the contractual cause of action was statute barred.

Reasoning

31 It is convenient to consider first the contractual cause of action. Ms Rees, in support of the applicant's contention that the contractual cause of action was statute barred referred to Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1979] Ch 384. In that case, Oliver J recognised that contractual obligations, depending on the terms of the contract, may continue more or less indefinitely. For example, a solicitor who accepts a retainer to act on a client's behalf in a transaction requiring registration of an instrument and who neglects to register the instrument, may be under a continuing contractual obligation to take the necessary steps to obtain registration. Oliver J also suggested (at 343) that a continuing contractual obligation may come to an end if the party in default repudiates the contract and the other party accepts the repudiation as terminating the contract.

32 In the present case, no findings have been made as to the terms of the contract between the applicant and the respondent; whether any contractual terms, such as those relating to the discovery of defects, were capable of surviving termination after contract; or the circumstances in which the contract came to an end and the respondent appointed a new contractor.

33 Ms Rees did not seem to dispute that contractual obligations, depending on the terms of the contract and the circumstances of the case, may be capable of surviving termination of the contract: see, for example, CSG Ltd v Fuji Xerox Australia Pty Ltd [2011] NSWCA 335. However, she submitted that the respondent's pleading made it clear that it did not allege any breach of contract that was capable of surviving termination of the contract in October 2003.

34 This submission gives too narrow a reading to the amended statement of claim, which the respondent was given leave to file. Paragraphs 20 and 21 of the amended statement of claim are as follows:

"20. It was an implied term of the contract that if, upon proper inspection, the [applicant] discovered defects in the fire dampers the [applicant]:

a. would not provide a certification for the purposes of an annual fire safety statement; and

b. would inform the [respondent] that some or all of the dampers were defective in a timely manner to enable the [respondent] to attend to rectification work and/or for the Builder to be called upon to perform such rectification work in accordance with the provisions of the Building Services Corporation Act 1989 and the Scheme.

21. The [applicant] did not provide adequate or proper certification for the purposes of annual fire safety statements in accordance with the [Environmental Planning and Assessment Act 1979] and the Relevant Australian Standards up to 2000, and from and including 2000 in accordance with the [Environmental Planning and Assessment Regulation 2000] and the Relevant Australian Standards in each year between 1995 and 2003 - 2004 in circumstances where proper inspection would have revealed some or all of the defects ... and did not inform the [respondent] that some or all of the dampers were defective."

35 This pleading is less precise than it might have been had the applicant filed a defence pleading that the contractual claim was statute barred and had the respondent filed a reply to that defence. Nonetheless, para 21 can be read, without straining the language, to encompass a claim that the applicant's contractual obligation to properly inspect the building and to provide adequate certification continued until May 2004 (when, according to her Honour, the last certificate expired), notwithstanding (as pleaded in para 8) that the respondent ceased providing services in about October 2003.

36 In any event, the respondent's submissions to the primary Judge made it clear that, whatever the then current state of the pleadings, the respondent intended to press a case that the applicant's contractual obligations survived termination of the contract. The state of the pleadings may have justified the District Court in insisting, before dealing with the limitations question, that the applicant file a defence pleading that the causes of action were statute barred and that the respondent file a reply specifying the basis on which it contended that its causes of action were not statute barred. Be that as it may, there would seem to be little point in deciding a limitations question on the basis of a case other than the one a plaintiff wishes to put, unless there is no prospect of the plaintiff being permitted to amend its pleadings to conform with the case it proposes to advance.

37 The question of causation was not specifically raised in the submissions to this Court. However, it is very likely that such an issue will arise on the respondent's contract case. If the applicant had a continuing contractual obligation to properly inspect the building and discover defects, there may well be a question as to whether any breach committed after 31 January 2004 could be causally related to the loss of the opportunity to sue either the builder or the insurer (assuming that opportunity was irretrievably lost on 31 January 2004). The likelihood that a causation issue will arise does not justify concluding that the primary Judge was incorrect to decide that the limitations defence to the respondent's contractual cause of action should be determined at the trial.

38 The applicant's approach to the respondent's cause of action in negligence would require the District Court to conduct the summary dismissal application on the basis of an assumption that may or may not accord with the facts of the case. Furthermore, the precise assumption to be made is not necessarily clear. Characterising a defect as "latent" does not necessarily answer all the factual questions that may be relevant to deciding the precise date of accrual of a cause of action in negligence. There is a risk that if a separate question is identified for determination on the basis of factual assumptions, the assumptions may turn out to be incomplete or inadequate for the satisfactory resolution of the question so identified.

39 Furthermore, there is nothing in the judgment of Barwick CJ in General Steels that suggests that a trial judge must decide, in advance of the trial, what the applicant itself says are "novel issues of potentially wide commercial significance" by reference to assumed facts rather than the facts found at a trial. In the present case, the facts found at trial may demonstrate that the respondent's cause of action in negligence is statute barred, without the Court having to address any of the novel legal issues identified by the applicant.

40 Ms Rees submitted that dealing with the limitations question in advance of a trial might save costs. So it might, if a decision went in favour of the applicant. However, decisions on novel and potentially important questions of law often generate appeals that can themselves be complex and expensive to resolve. And if the respondent were to succeed on the limitations question, the result might well be to increase the cost of the proceedings, perhaps by a significant amount.

41 In our view, there was no error in the primary Judge declining to deal with the limitations defence to the cause of action in negligence in advance of the trial.

42 Mr Sirtes SC, who appeared for the respondent, accepted that it was essential for the respondent to file a reply that identifies clearly the basis on which it is said that the pleaded causes of action are not statute barred. On the basis of Mr Sirtes' assurance that a reply would be filed in a timely fashion, it is not necessary to make a formal direction.

43 It is for these reasons that the Court dismissed the application for leave to appeal, with costs.

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Decision last updated: 01 May 2012