Supreme Court New South Wales

• Medium Neutral Citation: The Owners - Strata Plan No. 80436 v Sezone Pty Ltd and Daphne Street No 1 Pty Limited [2014] NSWSC 264
• Hearing dates: 17 March 2014
• Decision date: 17 March 2014
• Jurisdiction: Equity Division
• Before: Sackar J

Decision

See paragraph 33

• Catchwords: DAMAGES - assessment of damages for defective building work - no question of principle.
• Legislation Cited: Civil Procedure Act 2005; Home Building Act 1989; Uniform Civil Procedure Rules 2005
• Cases Cited: Drummond v Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331; Harrison v Schipp [2001] NSWCA 13; Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23; Lahoud v Lahoud [2006] NSWSC 126; Leichhardt Municipal Council v Green [2004] NSWCA 341; Owners Corporation SP 74584 v Sezone Pty Ltd [2013] NSWSC 999
• Category: Principal judgment
• Parties: The Owners - Strata Plan No. 80436 - plaintiff; Sezone Pty Ltd - first defendant; Daphne Street No. 1 Pty Limited - second defendant
• Representation: Solicitors: Y Hazan - Hazan Hollander - plaintiff; No representation - defendants
• File Number(s): 2012/291591

Judgment

Proceedings

1 By its summons filed on 12 December 2012, the plaintiff seeks damages from the first defendant, a builder, for breach of statutory warranties and common law duties in respect of the erection of a strata title development at Botany.

2 The second defendant, the owner of the development site prior to its vesting in the plaintiff, has since been deregistered and no claim is pressed against it.

3 The proceedings were originally commenced in the Consumer, Trader and Tenancy Tribunal (CTTT) but were subsequently transferred to this Court by orders made on or about 10 September 2012.

4 On 15 March 2013, Justice Hammerschlag gave judgment for the plaintiff on liability with damages to be assessed. The assessment of damages is the subject of the current proceedings.

5 The plaintiff provided an affidavit by Mr Peter Whitehead, a solicitor for the plaintiff, that stated the first defendant had been served with notice of the assessment of damages hearing today, as well as the evidence upon which the plaintiff relies.

Evidence relied upon by the plaintiff

6 The plaintiff has filed expert evidence from a number of relevant professionals.

7 The affidavit of Mr Mark Kavanagh dated 7 March 2014, a senior building consultant of Integrated Building Consultants, exhibited three technical reports as to building defects dated 14 February 2011, 1 June 2012 and 11 June 2013. Mr Kavanagh has worked in the building industry for twenty-five years and prepared a substantial number of technical building reports. His evidence is that the defects arose due to non-compliance by the builder with the Building Code of Australia, conditions noted within nominated Australia standards and/or section 18B of the Home Building Act 1989. The defects largely related to water penetration throughout certain parts of the building.

8 The affidavit of Mr Donald MacLeod dated 10 March 2014, engineer, exhibits a report dated 12 July 2012. Mr MacLeod has a Bachelor of Engineering and a Masters in Engineering Science, and has substantial experience in reporting on structural and civil engineering matters. His report in these proceedings identified multiple and systemic structural defects to the common property. These defects related to floor joints, flooring and decking, waterproofing and the basement car park.

9 The affidavit of Mr Daniel Levy dated 7 March 2014, fire safety engineer, exhibits a report dated August 2012. Mr Levy holds a Masters of Fire Safety Engineering and has practised in the area of fire safety since 1996. His report identified extensive and systemic defects related to hydrants, sprinklers, fire ceiling and fire collars, dampers and fire doors.

10 The affidavit of Mr Anthony Fowler dated 7 March 2014, qualified engineer, exhibits a report dated 10 October 2013. Mr Fowler holds a Bachelor of Civil Engineering and has worked as a professional structural and civil engineer for a substantial period. He also has experience in inspecting and reporting on residential and commercial buildings. In his report, Mr Fowler identified defects he says arise from the builder's failure to properly undertake the construction works. The defects include acoustic treatment, timber floorboards, failure to properly seal against noise, water, wind and light, insufficient communication connections, inadequate installation of insulation, internal lighting and handrails and failure to supply air conditioning.

11 The affidavit of Mr David Kelly dated 6 March 2014, quantity surveyor, exhibits a report dated 20 February 2014. Mr Kelly holds a Bachelor of Building (Construction Economics) and has more than twenty years experience in the fields of quantity surveying and project management. His report sets out the cost of carrying out the work required to rectify the defects identified in the reports of Messrs Kavanagh, MacLeod, Fowler and Levy as $5,044,013.13 as at December 2013. The schedules to Mr Kelly's report provide a summary of each defect, a reference to the expert report that identifies the defect and his determination of the cost of rectification.

12 I am satisfied that each individual referred to above is appropriately qualified as an expert in their respective fields, and I accept their unchallenged evidence.

Consideration

13 No response was ever filed to the Commercial List Statement, and no evidence has been filed by either defendant in these proceedings as to the merits of the plaintiff's claims.

14 The building defect reports were served on the first defendant on 14 October 2013. The report of the quantity surveyor, Mr David Kelly, was served on the first defendant on 26 February 2014.

15 The plaintiff notified the first defendant of the listing of the matter today in a letter dated 5 March 2014. I am satisfied that the first defendant was given appropriate notice of today's hearing.

16 At the hearing before me today, there was no appearance on the part of the first defendant.

17 Having considered the materials advanced in relation to the claims against the first defendant, and having been taken through the relevant documentation by the solicitor for the plaintiff, I am satisfied that the plaintiff's case on damages is made out and appropriately quantified.

18 In addition the plaintiff seeks an order that the judgment is to take effect from 1 January 2014. Under UCPR r 36.4(3), the court may order that a judgment is to take effect as of a date earlier or later than the date on which it is given or made.

19 The plaintiff submitted that this was an appropriate case in which to order a judgment take effect at an earlier date on the basis that the report of Mr David Kelly was dated December 2013. I am persuaded that, as the quantification of the plaintiff's damages is calculated at a particular time and as Mr David Kelly notes that "any delay in commencing the works may result in an escalation of prices", it is appropriate to order that my judgment take effect from 1 January 2014.

20 On the issue of costs, the plaintiff seeks an order that the first defendant pay the plaintiff's costs of these proceedings. I would order as such, following the rule that costs follow the event under UCPR r 42.1 in the absence of any reason as to why another order should be made.

21 However, the plaintiff sought those costs on the indemnity basis, or alternatively interest on their costs pursuant to section 101(4) of the Civil Procedure Act 2005.

22 In Harrison v Schipp [2001] NSWCA 13 at [139], Handley JA observed in relation to indemnity costs that "departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down". Caution must be exercised when departing from making costs orders on the usual basis: Leichhardt Municipal Council v Green [2004] NSWCA 341.

23 An order for indemnity costs is based on the conduct of a party against whom it is made that relates to the proceedings themselves. While the categories of conduct giving rise to a claim for indemnity costs are not closed, cases brought without chances of success, cases that are an abuse of process and unreasonable conduct in the proceedings such as fraud or misleading the court may all constitute grounds for the granting of such an order. Attempts to settle the proceedings through offers of compromise and Calderbank letters, along with the giving of notice that a party intends to claim indemnity costs, are also relevant factors.

24 In oral submissions as I understood him, the solicitor for the plaintiff raised two matters in support of the claim for indemnity costs. First, the first defendant had initially defended the proceedings in the Consumer, Trader and Tenancy Tribunal, albeit without vigour and without filing a defence once the proceedings were transferred to this Court. Secondly, my attention was drawn to a judgment against the first defendant in unrelated proceedings: Owners Corporation SP 74584 v Sezone Pty Ltd [2013] NSWSC 999 (24 July 2013, per McDougall J). The resignation of Mr Anthony Younan as a director of the first plaintiff on 29 July 2013 was asserted to have been prompted by that decision.

25 However, I am not persuaded that the resignation of a director following an adverse judgment in unrelated proceedings is even relevant to the exercise of my discretion to award indemnity costs. Indeed, in my view, the plaintiff has not established any sufficient reason to warrant an order for indemnity costs. In particular, the defendants have not appeared and therefore cannot logically be said to have caused delay or engaged in any misconduct in the proceedings.

26 In the alternative, the plaintiff claims interest on their costs pursuant to section 101(4) of the Civil Procedure Act 2005.

27 The purpose of the power to order interest on costs "is to compensate the party entitled to costs for having been out of pocket as a result of paying legal costs over a period of time before being able to recover those costs from the other party": Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23 at [176].

28 In Idoport, Einstein J observed that the factors relevant to the exercise of discretion included (a) the amount of costs paid by the party entitled to costs; (b) the length of time for which the claimant is out of pocket before recovering its costs; (c) whether, during that time, the respondent has had the use of the money in a commercial enterprise; and (d) how the parties have conducted themselves during the litigation: at [177].

29 In Lahoud v Lahoud [2006] NSWSC 126 at [82], Campbell J observed that "there is no requirement, before an order for payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary".

30 It is also useful to bear in mind the comments of Campbell J at [81] in regards to a lack of evidence regarding whether the plaintiff had actually paid certain costs and disbursements:

[81] Mr Gyles [counsel for the defendant] submits that this lack of evidence means that there is an insufficient evidentiary foundation for the making of the order. I do not agree. The various proceedings which were determined by Palmer J are ones which, now, were commenced over five years ago. The plaintiffs have been represented by various firms of solicitors, and various counsel, in that time. There has been extensive preparation, including by making interlocutory applications to the Court. The litigation is commercial litigation, a species of litigation concerning which there is no regular practice of lawyers accepting work on a speculative basis. In my view it is more likely than not that the plaintiffs have had to pay some amounts of costs and disbursements as the litigation has progressed. Further, even if I were wrong in drawing this inference, the form of order which the plaintiffs seek is one which makes interest on a particular amount of costs run only from the date when an actual payment of that amount is made. If an order in that form were to be made, it would contain its own safeguard against the plaintiffs being able to recover interest concerning amounts of costs and disbursements which they had not actually paid.

31 A similar approach was adopted in Drummond v Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 (per Macfarlan JA, Tobias JA agreeing).

32 In this case, particularly as the plaintiff is an owners corporation and it is assumed that all costs are funded by levies on owners, it does seem to me to be appropriate to ensure that, so far as possible, the orders that the Court makes in relation to costs provide as full compensation as appropriate in the circumstances.

33 Accordingly, I order that judgment be entered for the plaintiff in the sum of $5,044,013.13 as against the first defendant, to take effect from 1 January 2014. The first defendant is to pay the plaintiff's costs, and I will also order that interest is to be paid on those costs.

**********

Decision last updated: 17 March 2014