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In brief - Defendant would be denied opportunity to bring viable cross claim if plaintiff's application granted

The NSW Supreme Court held in Owners-SP 67635 v Metlej Developments Pty Ltd and others [2013] NSWSC 1564 that a plaintiff's application to amend its pleadings to add additional defects will not be allowed where a defendant, by the plaintiff's delay in requesting the amendment, is prevented from bringing a "viable and realistic" cross claim.

Owners corporation commences proceedings due to defects in residential building

The plaintiff, Owners-SP 67635, was an owners corporation of a residential building claiming a breach of statutory warranties under the Home Building Act 1989 (NSW) ("the Act") for a number of alleged defects. Metlej Developments Pty Limited were the builders and the second defendant and the third to fifth defendants were the developers of the building ("the defendants").

The final completion date was disputed by the parties, although completion had to have taken place by 19 March 2002, when registration of the strata plan took place.

Proceedings were commenced by the owners corporation in the Consumer, Trader and Tenancy Tribunal (CTTT) on 28 January 2009 and transferred to the Supreme Court on 7 October 2010 when it became apparent that the jurisdictional limit of the CTTT would be exceeded by the amount in issue.

Owners corporation seeks leave to include additional defects in claim

A list statement was filed on behalf of the owners corporation on 23 July 2011, which was amended in April 2012 (following revision and amendment of the Scott Schedule) and again in September 2012 (to remove the first defendant from the proceedings).

On 15 July 2013, the owners corporation filed a notice of motion ("the motion") seeking leave to amend its summons and list statement to include additional defects.

The motion was opposed by the defendants.

Defendants argue that allowing plaintiff to amend pleadings would result in injustice

The owners corporation sought to amend its pleadings to include mechanical ventilation defects in the claim. The defects were based upon an expert report received by the owners corporation on 27 March 2012 and served on the other parties on either 4 or 21 June 2012.

The damages identified by the owners corporation in respect of the newly identified defects were approximately $242,000.

The defendants opposed the motion on the basis that they:

• would suffer a degree of injustice from the owners corporation's delay to file the motion which would result in prejudice because of an inability to file a potentially exonerating cross claim against the certifier and the architect;

• deemed there to be an inappropriate particularisation of defects (an issue that was resolved between the parties and therefore not considered by the court).

Other cases where one party cannot bring a cross claim because of another party's delay

In consideration of the defendants' objection to the motion, His Honour looked at the principles for when leave may be granted to amend pleadings and in particular, where potential prejudice to a defendant's ability to pass on all or part of a claim was caused by the plaintiff's delay.

In Tekno Ceramics Pty Limited v Zdenko Milat [2003] NSWCA 254, the Court of Appeal considered whether the inability of the appellant to sue a third party caused it such prejudice so as to require the court to overturn the decision of the District Court.

The key question in this matter was whether the appellant's inability to bring a cross claim as a result of the respondent's delay had caused it prejudice. The court considered that on the facts, the cross claim was a viable one, with the loss of ability to bring the claim causing a prejudice that was "obvious and significant" (Foster AJA at [41]), with a conclusion that the District Court had erred in the exercise of its discretion by failing to take this into account.

Defendants would have had a viable cross claim against certifier of ventilation

In these proceedings, the court looked at the viability of the cross claims that the defendants claimed they were prevented from bringing and, in particular, against Accent Ventilation Pty Limited, which had certified the ventilation and issued compliance certificates for this work.

Elements of the mechanical ventilation that the owners corporation claimed were defective were covered by the scope of works of the certificates issued by Accent Ventilation. On this basis, it appeared for the court that there was a real claim to be made by the defendants.

Ten year limitation period for bringing building action

The ability to bring such a cross claim, however, was time barred because of the delay of the owners corporation in bringing the alleged defects to the attention of the defendants and the statutory bar to any potential cross claim imposed by section 109ZK of the Environmental Planning and Assessment Act 1979 (NSW) ("the EPA Act") which provides a limitation of 10 years from the date on which an Occupational Certificate was issued in which a building action may be brought.

On the basis that completion had occurred by 19 March 2002, the defendants would not be able to make a claim after 20 March 2012 and were therefore out of time to bring a cross claim against Accent Ventilation following the owners corporation's delay.

Proceedings against Building Insurer's Guarantee Corporation

The owners corporation responded with reference to the separate proceedings that were on foot against the insurer Building Insurers’ Guarantee Corporation (BIGC).

In these separate proceedings, BIGC had consented to the same proposed amendments to the list statement which added the mechanical ventilation defect. This consent was relevant because in the event that BIGC was obliged to pay any sum to the owners corporation, it had a statutory right to recover an amount paid under sections 103M and 103N of the Act from the builder.

The owners corporation argued that if this element of the claim succeeded, prejudice could not be caused to the defendant builder, which could still face a claim from BIGC for the mechanical ventilation defects irrespective of its objection to the amendments in its own case and it was simply a case of facing the claim, with the only question being which set of proceedings this would occur in.

Although the defendants countered this argument with a claim that BIGC was subject to the same statutory limitation under S109ZK of the EPA Act, this point was not fully considered because the court thought it inappropriate to consider such an argument where BIGC was not a party to the proceedings. The court did, however, consider it sufficient to note that the bar may apply to a claim against the builder by BIGC.

Owners corporation's motion dismissed because defendants prevented from making cross claim

The court dismissed the motion by the owners corporation to amend its pleadings.

The viability of the cross claim that the defendants were prevented from making against Accent Ventilation was a key factor in this decision. The court was satisfied "that such potential cross-claim(s) appear 'viable and realistic, rather than fanciful or theoretical' (GIO General Ltd v Love [2009] NSWCA 269 at [40] per Handley AJA" (at [20]).

Further, it was enough for the court that the additional defects were already on foot in the proceedings against BIGC, with "limited utility" (at [35]) for the court in permitting the owners corporation to bring the same claim in these proceedings.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​