Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCATrans 126 (18 June 2014)

Last Updated: 18 June 2014

[2014] HCATrans 126

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S66 of 2014

B e t w e e n -

BROOKFIELD MULTIPLEX LTD (ACN 008 687 063)

Appellant

and

OWNERS CORPORATION STRATA PLAN 61288

First Respondent

MULTIPLEX CORPORATE AGENCY PTY LTD

Second Respondent

FRENCH CJ
HAYNE J
CRENNAN J
KIEFEL J
BELL J
GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 18 JUNE 2014, AT 10.16 AM

Copyright in the High Court of Australia

____________________

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR T.J. BREAKSPEAR, for the appellant. (instructed by Gilbert + Tobin Lawyers)

MR F. CORSARO, SC: May it please the Court, I appear with my learned friend, MR P.J. BAMBAGIOTTI, for the first respondent. (instructed by Grace Lawyers Pty Ltd)

FRENCH CJ: There is a submitting appearance for the second respondent. Yes, Mr Jackson.

MR JACKSON: Your Honours should have our outline of submissions. Your Honours will see that the case raises a number of issues. The issue arising directly on the appeal is referred to in paragraph 1 of that outline, and the respondent then, as your Honours will see from paragraph 2, seeks by its notice of contention an application for special leave to challenge two things. One is the limitation on the ambit of that duty. May I take your Honours to that; it is in volume 4 at page 1558, where you will see in paragraph (2) at the bottom of the page, last lines:

to avoid causing the appellant to suffer loss resulting from latent defects in the common property . . . which defects (a) were structural, or (b) constituted a danger to persons or property in, or in the vicinity of, the serviced apartments, or (c) made those apartments uninhabitable.

The limited nature of that is the subject of our learned friend’s contention. The second aspect on which they seek to challenge is that we have referred to in paragraph 2b) of that outline of submissions. Your Honours, as we mentioned in paragraph 3, the finding of the Court of Appeal was that we had owed the developer a duty of the nature referred to in paragraph 2b) and that is the aspect which we wish to challenge on the appeal.

Could I say, your Honours, that the notice, say in relation to the course of our submissions, that I want to deal first, if I may, with the question whether the developer with whom we contracted would have had a cause of action against us in tort in relation to the suggested defects in the building and, secondly, to deal with the situation whether there is a freestanding, as it were, duty owed to the – duty in tort owed to the body corporate.

CRENNAN J: Mr Jackson, I appreciate this has come to us in the form of a preliminary question being answered, but is there anywhere in the papers where we can conveniently see some summary of the alleged latent defects?

MR JACKSON: Yes, your Honour, it can be seen – I will give your Honour a reference in just a moment if I may, but they are listed under a number of categories. I will give your Honour the page, if I may, in just a moment, but they are listed under a number of categories in the right column, I think it is, something suggesting what the evidence would be if the matter were to go to trial.

Your Honour can see it in volume 4 at page 1475 - that is in the primary judge’s reasons – and paragraph 65. You see, your Honours, if I could go to about line 38 on page 1475 where there is a heading “Particulars of item claimed” you will see No 1, “Steel Lintels - Curved on Plan” and then if one goes to the next page, about line 25, item 2 - “Windows”; on page 1477 about line 19 “3. External Render Repair”; further down the page, line 39, “4. Cowlings” and page 1478, “5”, item 5, about line 22, “Water leak from Spa”.

CRENNAN J: Is there some contest foreshadowed about whether these defects are dangerous or render the building uninhabitable, anything of that kind?

MR JACKSON: There will be, yes, of course, your Honour.

CRENNAN J: There will be?

MR JACKSON: Yes.

CRENNAN J: Thank you.

MR JACKSON: Now, your Honours, before dealing with the two aspects that I mentioned, may I just say something about the relevant statutory provisions. There are two statutes which are relevant and they are called or perhaps I should say presently called the Strata Schemes (Freehold Development) Act 1973 and the Strata Schemes Management Act 1996. Could I take your Honours first to the Strata Schemes (Freehold Development) Act. Your Honours will see that for once these days, if I could put it that way, the long title describes what the Act sets out to do and your Honours will see that the starting operative provision is section 7(2) which permits the subdivision of land:

into lots, or into lots and common property –

and subsection 2A applies to land which is part of a building. Now, your Honours, as those provisions indicate, subdivision occurs:

by the registration of a plan as a strata plan.

Your Honours, the matters to be included, to use the language of section 8 of that same Act, as sheets of such a plan are referred to in section 8(1) and they include “a schedule of unit entitlement”. That is the entitlement of each lot to vote and matters of that kind. Section 18(1) of that Act provides that:

Upon registration of a strata plan any common property in that plan vests in the body corporate for the estate or interest evidenced by the –

relevant folio. Your Honours, that gives rise to a need to resort to some definitions. “Common property” is defined in section 5(1). It means:

so much of a parcel as from time to time is not comprised in any lot.

The definition of “lot” is that it is the cubic space forming part of a parcel. Your Honours, if I could go from that to section 11 of the Management Act, the Strata Schemes Management Act, section 11(1) of that provides that:

The owners of the lots from time to time in a strata scheme constitute a body corporate under the name –

set out there and as your Honours will see, the name of the respondent in the present case. The owners corporation comes into being on the registration of the plan. You will see that also set out in section 8(1) of this Act and, your Honours, if I could go back for a moment to the Freehold Development Act in section 20 of that Act, by section 20 of that Act:

The estate or interest of a body corporate in common property . . . shall be held by –

it as agent for, and your Honours will see subparagraphs (a) and (b), to put it shortly, held as agent for the proprietors from time to time.

HAYNE J: Do we need to trouble about in what sense the word “agent” is used in this section?

MR JACKSON: It is possible, your Honour; in the end, probably not. What it seems to – we would say that – I will come to this in due course. What we would say, in the end, is that if you look at the position at the time when the body corporate comes into being, the body corporate holds the property, the common property, on behalf of - to use a relatively neutral expression - the various owners of the lots. It cannot be separated – ownership of the body corporate cannot be separated from the ownership of a lot in the sense that no one who – a person who owns a lot cannot sell the lot without the body corporate and the body corporate cannot sell the common property without the lots being sold as well and the nature of the concept of agency is a little unclear.

Certainly, it seems to involve that there is some acting on behalf of all the people who are owners and doing so collectively. There is also section 227, your Honour, which enables the body corporate to bring or have brought against it proceedings. As your Honours will see in our written submissions, we have said this in paragraph 45, the beneficial interest held as agent cannot be severed from the lot – cannot be severed from ownership of the lot.

Your Honours, finally in relation to these provisions, may I just say this, that at the time of registration of the starter plan the developer was the owner of all the lots which is the normal situation, section 20(a) of the Freehold Development Act would apply. That is referred to also by Justice McDougall at paragraph 82 on page 1485 in volume 4.

Your Honours, one thing that might emerge from that, and in response to what your Honour Justice Hayne put to me a moment ago, was that at that point at least the owners corporation had, in relation to the common property, the rights which the developer had because the developer had been the owner of the property at the time of registration of the plan.

FRENCH CJ: There is a statutory provision which supports that, is there?

MR JACKSON: I am sorry, your Honour?

FRENCH CJ: There is a statutory provision which supports that? I thought I saw a reference in the submissions to - - -

MR JACKSON: Your Honour, I am sorry. So far as the – I am sorry, I will start again, your Honour. The fact of the matter was that the developer was the owner of all the lots and that was so at the time of registration of the plan and, your Honour, so far we would say that the rights which the owners corporation had were when tied up with the need for there to be a common ownership of interest, in effect, in the body corporate and in the lots that the owners corporation we would say had - if one goes to section 227 of the Management Act, you will see in subsection (2) of that:

If the owners of the lots in a strata scheme are jointly entitled to take proceedings against any person . . . the proceedings may be taken by or against the owners corporation.

Your Honour, whether as a matter of law what I have just said is absolutely correct. It is, in our submission, a factor to be taken into account in determining whether there is an independent duty owed to the owners corporation in circumstances where each of the owners who form part of an owners corporation are, at that point, persons who have a common interest in the property, and when the property moves over to individual ownership of the lots you have a situation where, in this case, the original investors in the scheme - not being the developer or the builder – the original investors in the scheme were persons, all of whom had entered into a common form of contracts with us in which they had rights which were limited.

Your Honours, could I come to the contractual arrangements? There are several documents which bear upon the matter called the master agreement, the design and construct contract and the standard form of contract for unit sales. May I deal for the moment in relation to the position as between the developer and the builder with the first two of those, the master agreement and the design and construct contract?

The master agreement can be seen in volume 1 at page 2 – I am sorry, 1 of the supplementary appeal books, your Honours. It can be seen at page 2. You will see the parties being the developer, Chelsea Apartments, and three Stockland companies. The underlying nature of the transaction appears from the recitals on page 5 that the developer:

proposes to develop the Building and sell the Serviced Apartments.

May I pause at that point, your Honours, to say this? As your Honours will have seen from the reasons, the building had two parts. This relates to, in effect, the part that was to be dealt with as serviced apartments. The other part was to be residential apartments in relation to which there was some legislative provision and proceedings in relation to that were, as you will see from the judgments, compromised at some point.

So this document relates to the serviced apartments. You will see that “Park”, in recital B, “has agreed to lease” them from Chelsea, and “agreed to purchase” a particular lot. Stockland – then if there are unsold apartments – this is recital D – there is a put option. Then recital E:

Chelsea has agreed . . . to have the Serviced Apartments Body Corporate enter into . . . Management Agreement with Park and grant in favour of the Stockland Lot exclusive use or special privileges in respect of certain parts of the common property –

Recital F, there is to be a “serviced apartment business” conducted on the premises. Your Honours, so far as construction of the building was concerned, at page 13, clause 4.1(a) provided that the building was:

to be constructed in general accordance with the Development Consent –

and you will see the remainder of that provision set out there. You will see in clause 4.2 an acknowledgment by Park and an intention by the developer -

that it be built and finished, in accordance with –

the matters set out at the top of page 14. As appears from page 15 in clause 7.1, the developer was to register the strata plan by 31 March 2000. If one goes then to clause 9.1 on page 16, it was to register the apartment lease in respect of each apartment -

within 28 days after the registration of the Serviced Apartments Strata Plan, but . . . before completion of the sale –

by the developer of the relevant units. The investors would be purchasing a lot, but a lot that was leased to the company that was to conduct the serviced apartments.

You will see then, your Honours, at clause 10.1 at page 17 that there was to be a serviced apartment business conducted “to at least a four star standard”, and you will see, your Honours, if one goes then to clause 25.1 at page 27 that Park had acknowledged the developer would be selling off the apartments leased to it, and be making representations as to their use. Then if one goes to clauses 25.2 to 25.4, your Honours will see what was to take place in relation to the marketing of the property. Your Honours, I mentioned the put option. Its nature can be seen at page 46, clause 2.1. There was an option for Chelsea, the developer:

to require Stockland to purchase one or more of the Potential Put Units –

at the terms set out there. Your Honours, the master agreement is, in a sense, by way of background. May I come now to the design and construct contract? Your Honours, that is the document which is of more critical significance as to the legal relationship between the developer and the appellant. Your Honours, the contract can be seen in volume 2 of the appeal book at page 675. You will see the contract which is used is one of an Australian standard containing general conditions of contract for design and construct. The parties to it, as you can see at page 675, are Chelsea and the appellant.

The annexure, which is at page 676, provides the details that relate to particular parts of the contract and the special conditions commence at page 682. You will see it refers at page 682 in the definition at about line 26 to the deed of master agreement, to which I referred a moment ago, and then at page 683 about line 22 to the standard sales contract for sales of apartments. Now, your Honours, our obligation to construct appears at page 684 in clause 55 where we are to:

cause the Building to be constructed in general accordance –

with the matters there set out and your Honours will see the reference to the “Serviced Apartments” in paragraphs (b), (c) and (d). That is expressed in general terms. You will see the complementary provisions, the provisions complementary to clause 55 in clause 56 on the same page. Now, your Honours, again there is a reference to the fact that the strata plan is to be registered by 31 March 2000. You will see that at page 685 in relation to clause 65. The works are described generally at page 687 about line 41 in clause 87:

generally described as a 26 level building (including lower ground floor and roof plant room) containing 109 residential apartments, 165 serviced apartments –

and so on. A contract sum is at page 688 at paragraph 97, it is $57.5 million. Now, your Honours, could I come then to the general conditions of contract which commence at 689. You will see the reference to the Australian standard – to the fact that it is an Australian standard. Then if one goes at page 699 to clause 3.1, you will see that our obligation is to:

execute and complete the work under the Contract in accordance with the requirements of the Contract.

But that is put in more detail relevantly for present purposes on the next page at page 700 in clause 4.1. Clause 4.1(a) provides a warranty to the principal that at all times the contractor:

shall be suitably qualified and experienced, and shall exercise due skill, care and diligence in the execution and completion of the work under the Contract.

Your Honours will see in clause 4.1(e) that the contractor warrants that it:

shall execute and complete the work under the Contract in accordance with the Design Documents so that the Works, when completed, shall –

(i) be fit for their stated purpose; and

(ii) comply with all the requirements –

et cetera. Now, your Honours will see in clause 9.1 which is at page 705 that we are not able to assign our rights without consent and also that in clause 21 at page 713 that there is a requirement for insurance by us for a period which is four years after a final certificate has been given. That period of four years can be seen at page 679 - I do not think I need to take your Honours to it. Your Honours, the required quality of material and work is referred to again in clause 30 and that is at page 718 where your Honours will see - 30.1:

The Contractor shall use the materials and standards of workmanship required by the Contract. In the absence of any requirement to the contrary, the Contractor shall use suitable new materials and proper and tradesmanlike workmanship.

Now, your Honours, could I pause at that point to say this, that you will see then in clause 30.3 a reference to a superintendent of the works. The superintendent of the works has very wide powers. Could I refer your Honours to 30.3:

If the Superintendent discovers material or work provided by the Contractor which is not in accordance with the Contract, the Superintendent shall as soon as practicable notify the Contractor.

Your Honours will see then in (a) to (d) the powers of the superintendent. Then your Honours will see at the top of page 719 the further provision of 30.3 saying that:

The Superintendent may direct the times within which the Contractor must commence and complete the removal –

et cetera. I will take your Honours to clause 31 in just a moment which deals with the further powers of the superintendent, but may I just say, your Honours, that the superintendent is identified at page 676 in the special conditions. You will see at the bottom of page 676 the identity of the superintendent and that goes down to the bottom of the page and then the addresses of the superintendent are set out on the top of the next page. You will see also, your Honours, if I could go to clause 23 at page 715 there has to be a superintendent and your Honours will see the superintendent’s functions stated more broadly and the contractor has to comply with directions of the superintendent.

Could I go then, your Honours, back to the provision I said I would go to a moment ago, it is clause 31 at page 719? You will see that clause 31 is dealing with examination and testing and 31.1 says that:

At any time before the expiry of the Defects Liability Period the Superintendent may direct that any material or work under the Contract be tested.

You will see the ability to require samples, and then if one goes over the page to 31.2:

The Superintendent may direct that any part of the work under the Contract shall not be covered up or made inaccessible without the Superintendent’s prior approval.

Your Honours, without going through them at any length, if your Honours would look at clauses 31.3, 31.4, 31.5, 31.6 and 31.7 then, your Honours, you will see that the superintendent has very significant powers in relation to matters that might later become described as the subject of latent defects. Could I take your Honours also to clause 31.8? You will see that:

If before the issue of the Final Certificate -

a matter to which I will come in just a moment -

(a) the Principal or the Superintendent asserts that material or work is not in accordance with the Contract; and

to put it shortly, the contractor disagrees, you will see that the contractor is to have access to “test the material”. If I could just pause at that point, your Honours. In dealing with the question of vulnerability of the developer, the Court of Appeal, your Honours, appears to have, in our submission, diminished significantly the effect of the provisions to which I just referred.

Could I take your Honours to volume 4 at page 1552? It is a passage, your Honours, which commences at the bottom of page 1552, paragraph 114 and goes over to paragraph 120. Your Honours will see, if I could go ultimately to paragraph 120, his Honour said in the third line of paragraph 120:

There was a superintendent appointed under the design and construct contract, but there can be no doubt that the developer relied upon the expertise, care and honesty of the builder in performing its obligations under the contract. Whatever may be possible in theory, there is no suggestion that in practical terms the contract was not administered in accordance with usual industry practices, which inevitably involve reliance by the developer on the exercise of responsibility by the builder. There is no reason . . . to treat the developer as otherwise than vulnerable in the relevant sense –

Then, if I could take the last sentence of paragraph 120, you will see he said -

If the imposition of liability on the builder in those circumstances was thought to impose an additional commercial cost, it must equally be assumed that to require the owner to check every step taken by the builder in executing the contract must impose a very significant commercial cost on an owner.

Could I say this, your Honours? Your Honours have seen a contract which is executed between two substantial organisations dealing with the construction of a building. In fact, our interests own 40 per cent of the developer. We did not own the other 60 per cent. That was owned by another developer who was very experienced in the area. The parties agreed to use a contract which was in our Australian standard form for design and construction of buildings.

One of the aspects – of course, it is a situation that in building such a building, one is reliant upon the skills of the builder. But equally, the developer has not left aside questions of its own protection. You will see the provision for the superintendent to inspect things before they are completed, and matters of that kind. Your Honours, what is said in paragraph 120 really diminishes very significantly the contractual role of the superintendent and the protections that are gained by having that ability.

FRENCH CJ: Does it involve any factual assumption about what actually happens on the ground with the superintendent?

MR JACKSON: Of course it does, your Honour, if I may say so, with respect, because what his Honour is saying, whatever may be possible in theory, there is no suggestion that in practical terms the contract was not administered in accordance with usual industry practices, whatever they may be. Now, your Honour, if that is a matter on which one can take judicial notice and then give some content to, it is very difficult to see where it comes from. It has got an air of originality in doing that.

CRENNAN J: It seems redolent of the concept of reliance in the context of a professional’s responsibility – an architect, an engineer, whatever.

MR JACKSON: Yes, your Honour, it is - - -

CRENNAN J: It seems to touch on that idea and transposes it across to this context where you have got rather a complex building contract.

MR JACKSON: Yes, your Honour, but we would really say two things about it. First of all, in relation to what your Honour the Chief Justice put to me. What his Honour said in the middle of paragraph 120 really involves a very large assumption, not established by any evidence, that somehow the existence of the superintendent and the powers of the superintendent are just really put to one side.

HAYNE J: Are the contracts provided expressly for who would bear the costs of tests ordered by the superintendent?

MR JACKSON: The answer I think, your Honour, is yes. May I give your Honour a reference to that?

HAYNE J: I think it was in the clause that you were taking us to about the superintendent, but the point is not the detail of the arrangement that is made. I think the costs of testing generally would fall on the developer, not the builder, unless the work were found to be defective.

MR JACKSON: Yes.

HAYNE J: But having the capacity under the contract through the superintendent to procure a test, albeit a test at cost if the work is found to be at a standard, the developer makes a commercial choice about whether or no the superintendent will be required to make the test, does it not?

MR JACKSON: It could, your Honour, but if one goes back to, I think it was clause 23 at page 715, the principal was required to ensure that there always was a superintendent and that the superintendent acted in the way there set out. I do not think it goes beyond that, your Honour, relevantly.

Your Honour asked me about the costs of testing - that is clause 31.7 and that provides for a method of allocation of the costs in varying circumstances. But the point we seek to make about the provisions is that if one is looking to see whether there is vulnerability in the position of the contractor, the fact of the matter is that the contract is one by which significant provision has been made for the principal to have ensured that the work is done properly. Particularly, your Honours will recall the provision of clause 31.1 and 31.2 where the superintendent can direct that work shall not be covered up or made inaccessible until, in effect, the superintendent has said you can do so.

Your Honours, I mentioned I think twice already, this is a standard form of contract in this regard. It gives very significant powers to a superintendent and, your Honours, it gives the lie, in our submission, to vulnerability in the sense I will mention in a moment on the part of the developer. As the plurality said in Woolcock Street Investments [2004] HCA 16; (2004) 216 CLR 515 at 530, paragraph 23, your Honours, about point 8 on the page, said:

Rather, “vulnerability” is to be understood as a reference to the plaintiff’s inability to protect itself from the consequences of a defendant’s want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.

That is speaking partly in terms of consequences, but it also is speaking about inability to protect. Your Honours, if one is looking to see whether the developer in this case was vulnerable it had the means of protection of itself from at least the consequences and the conduct said to give rise to the consequences presently in question.

HAYNE J: Well, Mr Jackson, is it enough for the purposes of your argument to observe that the question of what check or test would be made of the quality of the builder’s work and at whose cost that check or test would be conducted was a matter of express agreement?

MR JACKSON: Yes, it is, your Honour. It is sufficient. I am going to say also that this was, in addition to the matters of protection to which your Honour has just referred, this was a contract which also provided for express limitations on the potential liability of the builder. Could I come to that aspect - - -

CRENNAN J: But does that temporal aspect, the defects liability, warranties for 52 weeks and the builder has professional indemnity insurance for a run-off of four years, does that temporal capacity in the context of vulnerability raise an issue about, well, there is a gap after the four years when the latent defects turn up late?

MR JACKSON: Well, your Honour, could I say in relation to that that I am going to take your Honours to the provisions of clauses 37 and 42 which deal with the situation and in particular, your Honour, I will come to it more fully in a moment, but could I just take your Honour for a moment to clause 42.6. It is at page 731, subparagraph (b) there. May I come back to that in just a moment, your Honour.

If one goes to clause 37, the defects liability period is a period of 52 weeks and we had the obligation to comply with it, and you will see the second paragraph of clause 37. Your Honours will see clause 37 is a hardly surprising type of defects liability provision. If one goes to the position which obtained at the end of that period, it is dealt with in clauses 42.5 and 42.6, and they are at page 731. You will see in clause 42.5:

Within 28 days of the expiry of the Defects Liability Period . . . the Contractor shall provide the Superintendent with a final payment claim and endorse it “Final Payment Claim”.

In 42.6, your Honours will see that:

Within 14 days of receipt of the Contractor’s Final Payment Claim . . . the Superintendent shall issue to the Contractor and to the Principal a final payment certificate endorsed “Final Certificate” . . . In such Final Certificate the Superintendent shall also set out such of the allowances –

et cetera. Then, your Honours, the next paragraph commencing about line 29 on page 731 says that:

Unless either party . . . serves a notice of dispute under Clause 47, the Final Certificate shall be evidence that the Works have been completed in accordance with the terms of the Contract and that any necessary effect has been given to all the terms of the Contract . . . except in the case of –

and you will see (a) “fraud”, et cetera, and then (b):

any defect (including omission) in the Works or any part thereof which was not apparent at the end of the Defects Liability Period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the Final Certificate –

Now, your Honours, one sees then that if one looks at clause 42.6 it does impose some restriction on the liability of the builder. The provision for the final certificate to be evidence that the works have been completed in accordance with the contract would include evidence that clause 4.1(a) and 4.1(e) – I am sorry, 4.1(a) at page 700 and also 4.1(e) on the same page had been complied with subject, of course, to the reservations in paragraph (b), for example, on page 731.

But assuming that something fell within the final certificate and was not something within one of the exceptions referred to on page 731, then an action whether it be in tort or in contract against the builder for want of due care in performance of the work would fail in the face of such a certificate, one would expect. Your Honours, I mention that because it is, with respect, a little difficult to see what was said by Justice Basten in paragraphs 97 and 98 at volume 4, page 1545 sits with the terms of that provision. If I could go to paragraph 97 first, your Honours will see about two-thirds of the way through the paragraph, his Honour said:

The conclusion that there can be concurrent duties does not preclude a finding that, in a particular case, the general law duty has been excluded or limited by the contract between the parties -

Then he goes on in paragraph 98 to say -

There was no express term in the contract . . . which even refers to, let alone regulates or excludes, a general law duty of care in tort -

Then if one goes to the last sentence of paragraph 98, having referred to - his Honour says -

It did not purport expressly, or by necessary implication, to exclude any liability for defects or omissions which might arise otherwise than during that period, whether under contract or under the general law.

Well, insofar as that might be related to this contract that does not seem, with respect, quite right because the terms of clause 42.6 appear to do that very thing. His Honour was referring to this contract; he was referring to clause 37.

CRENNAN J: Are you making an inconsistency point here?

MR JACKSON: I am sorry, your Honour?

CRENNAN J: Are you making an inconsistency point – it would be inconsistent to impose a tortious duty in the circumstances of this contract?

MR JACKSON: Well, I am making a point, your Honour, that really has two aspects of which that is one. The first aspect of it is that what is apparent from the terms of clause 42.6 is that it is a provision which in some circumstances will exclude or limit liability in respect of duty of care whether that duty of care be tortious or contractual. That is the first thing.

The second point about it is the one that your Honour mentioned, namely, that we are saying that if you look at the contract that has been arranged, it deals in specific terms with the liability for events really of the very nature that are the subject of the suggested duty in tort and why, in circumstances where that is done by the contract and gives a specific but to some extent limited provision, does one also say that the circumstances give rise to a duty in tort to the other contracting party?

CRENNAN J: I suppose the contract, on one analysis, allocates the risk of latent defects - - -

MR JACKSON: Yes, your Honour.

CRENNAN J: - - - to the builder for the four years of the run of professional indemnity insurance and thereafter perhaps the correct analysis is that that risk is allocated to the developer or whoever then takes title from the developer. I do not know. I am just trying to work out – I understand the point about consistency, and then there is this temporal issue that allocation of risk does put the risk on the builder, the contractor, for those years of professional indemnity coverage at least, I presume. But then there is a gap or a question mark, or is there a voluntary assumption of risk - - -

MR JACKSON: Well, there is a situation, your Honour, where - - -

CRENNAN J: - - - by what is called the principal under this contract for that period thereafter?

MR JACKSON: Well, the situation which obtains, your Honour, seems to be this, that for one purpose there is a defects liability in relation – defects have to be fixed up in a year. Then the contractor is required to provide material and is entitled to obtain a final certificate. The purpose of the final certificate is that it is evidence, no doubt in favour of the contractor, that the works have been completed, et cetera, and that all necessary effects have been given to the contract.

But it does not have that effect in respect to the matters referred to in paragraph (b), so that there is no contractual evidential provision arising and the situation would just be, if there is a debate about the issue, it is a matter which arises between the parties to be determined by the ordinary provisions appropriate to the contract. The point we seek to make about it, your Honour, is that it is not as if these are issues which the parties left to be determined without turning attention to them and are turning attention to their rights in the actual contract.

GAGELER J: Mr Jackson, is it part of your submission that clause 42.6(b) displaces tortious liability?

MR JACKSON: I am sorry, your Honour, I just did not hear the last part of what your Honour said.

GAGELER J: Is it your submission that clause 42.6(b) displaces or replaces tortious liability with contractual liability?

MR JACKSON: Well, it provides for contractual liability. Its existence is a strong reason, in our submission, why one should not attempt to add to contractual liability a tortious liability because the issue is one that is dealt with by the parties’ contract. Your Honours, if I could just go for a moment to what was said in Bryan v Maloney (1995) 182 CLR 609 in the passage which commences at 620, the bottom of page 620, and goes through to page 622, your Honours will see the quotation commencing at page 621 from Central Trust Co v Rafuse and then paragraph 3 of that quotation on the next page where it is said:

A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be most advantageous –

Now, your Honours, what we would say is that the terms of clause 42.6 do provide some limitation on the liability of the contractor and in circumstances of that kind where the issue of liability has been dealt with by the contract and, in our submission, there is simply no reason for saying that the circumstances of the case would attract an additional liability in tort to the developer - - -

FRENCH CJ: You say, do you not, that the provisions evidence want of vulnerability and thereby are inconsistent with the existence of a duty of care in the tortious sense?

MR JACKSON: Yes, we do, your Honour. Now, your Honours, we would submit to put it shortly there is no need, if I could use that expression, to create as between developer and builder an additional liability in tort. If I could use an expression from another area, we submit that the contractual provisions that there are, in effect, cover the field and any possible tortious liability would be excluded, in our submission.

Could I go then, your Honours, to the second part of the argument and that concerns the position of the Owners Corporation. Now, your Honours, that situation arises in circumstances – I am sorry, may I start that again. I have referred already, your Honours, to the position as between the builder and the developer; in effect, first owner and the builder. That, of course, is on the basis that something that is dealt with is a requirement pursuant to the two cases of Bryan v Maloney and Woolcock Street Investments.

The argument on behalf of the owners corporation appears to be – if one looks at it by itself, as it were, the circumstances give rise to an inability in the owners corporation, or an entitlement in tort to sue us, whatever might be the position as between us and the developer. Could I go first, your Honours, to the group - - -

CRENNAN J: Just before you leave that contract, are you saying that by reason of 42.6(b), the developer anyway is protected for latent defects within this contract whenever occurring?

MR JACKSON: Yes.

CRENNAN J: Not restricted to the professional indemnity time periods, or the defects warranty period?

MR JACKSON: Yes, that is so, your Honour. How that would actually work out in litigation, another question. What I mean by that is that no doubt there will be litigation in contract based on whether we did or did not do things properly in proceedings between the developer - - -

CRENNAN J: I was just asking about temporal limitations, that is all.

MR JACKSON: Yes. Your Honours, the document – I was going to take your Honours to volume 3, and volume 3 at page 1191 is the document which deals with the contract of sale of lots.

HAYNE J: Sorry, what page, Mr Jackson?

MR JACKSON: Page 1191, your Honour.

HAYNE J: Thank you.

MR JACKSON: You will see, your Honours, that it commences based on a standard form, the sale of land, and then one goes to the additional provisions which commence at page 1199. There is a definitions provision, an interpretation provision, at 1201. Could I mention only one of the terms defined, which is the term “special fault” at 1203:

a fault or defect . . . which:

(a) is structural; or
(b) . . . requires urgent attention; or
(c) may cause danger to persons in the property; or
(d) makes the property uninhabitable.

Your Honours, the additional provisions include clause 26.1; that is at page 1204. Your Honours will see that the purchaser represents and warrants that they were not induced to enter into it by various representations or warranties, et cetera. Then if one goes to 26.1(c), the purchaser represents and warrants that it:

has obtained appropriate independent advice on and is satisfied about:

(i) the purchaser’s obligations and rights under this contract –

Now, your Honours, this is a contract which has a cooling-off period of five days, I think - that is page 1194 - and you will see that there is a very long list of Australian and overseas investors who are listed in the strata roll which appears in volume 4 at page 1406. It goes on for some pages. You will see in the right column in each of those pages that the date on which the property was transferred to them, some original, some not, but there is a long list of investors. Those, your Honours, who were original investors, in our submission, should be treated as having taken or chosen not to take the appropriate independent advice which is referred to in clause 26.1(c) and that advice should have included advice as to the matters in 26.1(c)(i), that is:

(i) the purchaser’s obligations and rights under this contract -

and, in particular, advice as to the obligations and rights which are referred to in the provisions to which I am about to come, that is clauses 31 and 32 which commence at page 1206. You will see in clause 31:

the vendor must cause the Building to be constructed in a proper and workmanlike manner.

That was a right that the investors had. You will see in clause 32.1, provision as to the finishes and the items to be installed, that were to be done “in a proper and workmanlike manner” and then, your Honours, if one goes to clause 32.4 to 32.7, what one sees is that the best starting point is clause 32.5:

The purchaser must serve notice of any Special Fault –

and I took your Honours to the definition of that a moment ago –

immediately after the purchaser becomes aware of that defect of fault.

As clause 32.5 makes clear that can be done before completion as well as, of course, afterwards. You will see then that clause 32.4 also makes it clear that it is only special faults in relation to which notice can be given before completion.

Clause 32.6 deals more generally with defects in the property and could I say, your Honours, clause 33.1 defines “property” to include the common property. Clause 32.6 provides that notice of any defect in the property be given “within 6 months after completion”. There can be three notices given in that period, three such notices given in that period, but more if the defect is a special fault.

Clause 32.7 is the provision dealing with defects in the common property and your Honours will see any defects “due to faulty materials or workmanship”. There is a seven-month period for serving notices and there may be a total of three notices and the entity to give the notice is the Owners Corporation, and any disagreement about these matters is to be determined, as your Honours will see from clause 32.8, by an expert determinator.

CRENNAN J: So there is no back to back of 42.6(b), I think it was?

MR JACKSON: No, your Honour, but the point we would seek to make about it, if I could say something at this point, is that the persons who are the investors who buy in accordance with the terms of these contracts, are persons who are obtaining some remedies by virtue of the provisions to which I have referred, limited of course, limited in time, we would accept, but they are the remedies for which they have bargained. What remedies might exist as between the builder and developer is a different question, an issue to which they are really not parties. But for the prices that they have paid, they are obtaining what they get here. If they do not get more, well, then that is bad luck. If they were to get more, maybe they would have to pay more.

Could we say also, your Honours, that if one is dealing with the position of persons who are purchasers from those who were the first purchasers, as it were, and perhaps purchasers further down the line, some of them will be people who have purchased at a time when it is suggested – I am sorry, who have purchased at a time when it may be suggested there is knowledge of the suggested defects and of the possibility of litigation in relation to them, or the possibility of expenditure in relation to them.

But having said that, your Honours, these are pure commercial transactions, they are contracts between parties and they are contracts which are in circumstances where they are part of an investment. You can see they are part of an investment from clause – I am sorry, I have just lost the provision, your Honours. I will give your Honours the reference in a moment, if I may.

CRENNAN J: Do you say, Mr Jackson, they are not vulnerable because they could have asked for a back-to-back warranty that mirrored 42.6(b) from the developer? Is that the argument on vulnerability?

MR JACKSON: Well, that is an argument. Your Honour, they could have asked for something more than is given by the contract. Now, to do that we would have had to agree because the terms of the agreement with the purchasers was one that was itself annexed to the building – the design and construct contract and there was an agreement that there would not be dealings with the investors on terms other than those in the draft contract which was attached to it.

Your Honours, one of the reasons, one might think, for there to be provisions of that kind was so that you would not have a situation where individual people would be making individual claims of various kinds. People were all on the same footing, like it or not. But the choice, of course, was to enter into the agreement or enter into an agreement which perhaps might be agreed to be different from the basic form or one that was – or not enter into it at all. These are properties which are of an investment nature.

Could I go then to clauses – finally in relation to this – 53.1 and 53.2 at page 1217. Your Honours will see that the form of contract recognised that the unit was one that was going to be leased out. So, your Honours, could I go then to our written submissions in-chief at page 11, paragraphs 42 and following. I have already referred to the statutory context which is set out, in effect, in paragraphs 42 and following. Could I turn then to the circumstances which might be considered as possibly giving rise to a duty of care owed to the corporation on its coming into existence on registration of the strata plan.

Could I, your Honours, refer to paragraphs 51 to 54 of those submissions and, in particular, your Honours, mention the fact that if one looks at the position of Stockland, it had contractual protection because of the provisions of the master agreement. There were express rights conferred in the contracts of sale to the investors in respect of the defects in the common property and express rights conferred in relation to the Owners Corporation as well as to the individual purchaser.

If one leaves aside what we have said in paragraph 56 which relates to the first point I mentioned, your Honours, one does have a situation where the Owners Corporation does have a position as a statutory agent. It has the legal result, in our submission, of putting the body corporate in respect of the position which the developer and owner of the lots had at the time when the plan was registered.

Your Honours, whatever contractual rights the developer had are ones which the body corporate, at least at that point, would have been able to exercise. Now, it may be that if there were litigation about it, there would be a question about whether those rights survived but, pausing at the point of commencement, they had the rights of the developer.

HAYNE J: Can I just understand that better than I presently do, Mr Jackson.

MR JACKSON: Yes.

HAYNE J: That is a conclusion you say follows from the statutory description of the Owners Corporation as agent?

MR JACKSON: Yes.

HAYNE J: In what sense is the word “agent” there being used?

MR JACKSON: Well, could I take your Honour to the provisions - - -

HAYNE J: Bearing in mind that I turned up the well-known statement in Colonial Mutual 46 CLR 50 that:

“No word is more commonly and constantly abused that the word ‘agent’.

MR JACKSON: Your Honour, that passage was relied on in the case in the New South Wales Court of Appeal to which we referred in paragraph 48 of those submissions. Well, I should say, your Honour, as we said in paragraph 48, in that case which is Owners – Strata Plan No 43551, Chief Justice Spigelman said that:

the word “agent” . . . is not used in the technical sense of the law of agency.

Your Honours, we would have some doubt about whether that is entirely correct because if one looks at section 20 of the Freehold Development Act, it said:

The estate or interest of a body corporate in common property . . . shall be held by the body corporate as agent –

and you will see in section 24(1) of the same Act that it says:

In any dealing or caveat relating to a lot, a reference to that lot includes a reference to any estate or interest in common property which is vested in the body corporate as agent for the proprietor of that lot –

Now, your Honour, what we would seek to say is that whilst it may be that in terms of instituting litigation the effect of section 20 is to give the body corporate the entitlement to sue as body corporate in respect of rights of a lot-holder rather than the lot-holder necessarily doing it themselves.

Your Honour will see I use the words “may be”. It may be the effect of it, but in circumstances where you have a - section 20(a) contemplates a situation where all the lots are owned at the time of registration of the plan by the same person, as was the case here and as would ordinarily be the case, the situation which would obtain is that the body corporate would have, in our submission, the rights of the persons who are the holders of the various lots, be those rights contractual, tortious, whatever it may be.

HAYNE J: There would be no division between the – the best expression I can come up with is the extent of the interest of the body corporate as distinct from the unit holders. The point I grasp for is that the body corporate is entitled to the whole of the damages, as it were, but then holds it for – what is the nature of the legal relationship thus created?

MR JACKSON: Your Honour, the nature of the situation would be that the body corporate would be suing, if it may be assumed for the moment, would be suing in respect of damage to the common property. That means that would be an amount which could be utilised by it in dealing with whatever had to be done to remediate – if I could use that word - the common property but the money would remain, in that case, property of the body corporate, at least when talking about a unity of interests.

HAYNE J: Be applied then in accordance with the Strata Titles Act in satisfaction of - - -

MR JACKSON: Yes.

CRENNAN J: Because the beneficial interest is with the body corporate.

MR JACKSON: Yes, your Honour.

FRENCH CJ: What about the operation at 227(2)? For a short time and I suppose while the developer is the owner of all the lots, one can say that the owners of all the lots are jointly entitled to take proceedings and that means this, but does that evaporate upon the first sale to some outsider?

MR JACKSON: Well, it could, your Honour, yes, yes, it does. It would be - - -

FRENCH CJ: I am talking about the effect of the D & C contract and liabilities under that.

MR JACKSON: Yes, your Honour, yes. Look, in relation to that the existence of the joint entitlement would depend - and I am sorry to give an answer that is slightly complicated - but it would depend in a sense on the relationship between a first owner, as it was, of a lot and a subsequent owner because it would be possible for the subsequent owner to acquire the rights of the first owner. But if he did not, no there is no - - -

GAGELER J: Mr Jackson, I may have misunderstood you but are you saying that while the developer remains or remained the owner of all the lots, the body corporate had the right as agent of the developer to enforce contractual liability for latent defects under the construction contract?

MR JACKSON: Yes, it would, of course, once the – difficulties may arise, your Honours, once the various units are sold.

HAYNE J: Would it plead that as an action in contract?

MR JACKSON: That being, I am sorry, your Honour?

HAYNE J: This claim of which you speak. It has the rights of the developer. What would its claim be? It would not be in contract, it is not a party to the contract, would it?

MR JACKSON: No, your Honour, but it would be claiming by virtue of its right to act as a statutory agent of the persons whose lots are associated, inevitably, with the common property. Now, it may be a little unusual, perhaps, but it would be a cause of action in contract.

HAYNE J: Does that not depend upon the supposition that a duty was owed to the owners?

MR JACKSON: Well, a contractual obligation was owed, yes, your Honour.

HAYNE J: To which they are not parties.

MR JACKSON: Well, your Honour, the – I am sorry, I will start again, your Honour caught me on that occasion, if I may say so, with respect.

HAYNE J: That was not the intention, Mr Jackson.

MR JACKSON: No, your Honour, I understand. My mind wandered, I am afraid. Your Honour, the position would be that they are suing, in effect, in right of the developer under that contract.

FRENCH CJ: For so long as the developer owns all the lots.

MR JACKSON: Yes.

FRENCH CJ: That is by virtue of the statutory standing, as it were, conferred by 227(2).

MR JACKSON: Yes.

FRENCH CJ: That is derivative from the contractual entitlements.

MR JACKSON: That is so, your Honour. Yes.

HAYNE J: I would like to see paragraph 1 of the statement of claim, Mr Jackson. That would be a very exciting piece of pleading, I think, about how this is spelled out.

MR JACKSON: Well, I do not know about the excitement of it, your Honour.

HAYNE J: I think of little else, Mr Jackson.

GAGELER J: Mr Jackson, when one of the units is sold, so the developer no longer owns all of the units, does that put an end to this action that is available?

MR JACKSON: Well, your Honour, it would be a question of some difficulty, I have to say, whether it would be a case that continued to fall within section 227(2) of the Management Act. There would have been a joint entitlement to take proceedings which could then be taken by the owners corporation and, your Honours, that would be question whether that requirement was that that be the case at the institution of the action or whether it had to remain so throughout. We would say the better view is probably just at the start of the action. It may well be, your Honours, that – I mean, it can be a situation, of course, that if you have got depressed

economic circumstances that a building that is built remains, in effect, unused and not sold that could happen, but I accept it is not the usual case.

Could we just say this, your Honours, that a question does arise, however, whether it be a matter of strict contract or not, in determining whether there should be some independent duty owed to the owners corporation? One does have a situation where the contracts of sale gave specific rights to the owners of lots and they contracted for there to be specific rights given in relation to the body corporate and, your Honours, in determining whether there should be a separate duty in tort. We would submit there is no reason why the owners corporation should have greater rights than those for which the persons who agreed to acquire the lots in the premises agreed that the owners corporation should have.

Your Honours, in reality, we would say, insofar as the case is based on a kind of freestanding duty owed to the owners corporation, it is really based on no more than the fact that the owners corporation will have to bear the cost of fixing up any defects and that individual investors should have to pay in consequence, and if that is to be the duty, it is something we would submit is better imposed by statute than by decisions. Your Honours, those are our submissions. I may deal with my learned friend’s points in reply, if I may.

FRENCH CJ: Thank you, Mr Jackson. Yes, Mr Corsaro.

MR CORSARO: Your Honours, may I commence by dealing with the first of the issues addressed by my learned friend, namely, the nature and character of the first respondent because it is true, your Honours, that that played a significant role in the deliberations and outcome in the proceedings below?

Of course, it may be accepted without further argument that it is a creature of statute and under the arrangements that existed in respect of the construction of the building, which included the seven lower levels which were destined to be used as serviced apartments with members of the public ultimately buying serviced lots in the development, that their Honours saw that position as unique and somewhat, we would say, probably unarguably vulnerable if one does away with the suggestion that one can lift the corporate veil in some sense because of the structure of the Act in order to identify the interests of the owners corporation with those of the developer at the initial point of registration.

May we firstly invite your Honours to return to the construction contract, volume 2, 685? My friend touched on it but I do not know whether in fact your Honours perceive the disparity between the management agreement – the master agreement, I am sorry, and this contract. At clause 65 of the contract, the ultimate obligation - - -

HAYNE J: What page, sorry?

MR CORSARO: I am sorry, 685. I do apologise, your Honour.

HAYNE J: Thank you.

MR CORSARO: Page 685, and I am here dealing with clause 65 at line 45. The ultimate obligations in connection with the registration of the strata plan and the creation of the owners corporation which flowed as a matter of statute on its registration was actually cast, as your Honours will see, not on Chelsea, but on Multiplex, the appellant. We say that by virtue of the design and construct contract, the contractor was placed in the position of controlling not only the timing of the creation of the physical property itself, namely, when the building was actually built, but also the creation of the first respondent itself. We will come back to that because it is relevant to the issue of control in the vulnerability sense, but I ask your Honours to just note it for the moment.

Upon its creation, your Honours, the owners corporation became liable for the administration of the common property, true it is, on behalf of the lot owners that might own individual lots in the development from time to time under the relevant statutory regime that the appellant has referred to in the written submissions and which our learned friend has addressed. The nature of the defects which were the subject of the first respondent’s claim, which Mr Jackson took your Honours to by reference to the primary judge’s findings, were not known, could not be known, and were not known during the defects liability period.

I will take your Honours to the relevant issue in that regard in a moment, but the findings of the primary judge made clear that the defect for which the appellant contended for below were neither susceptible nor discoverable on reasonable examination. That is an important factor to appreciate in connection with my learned friend’s submission about the advice that individual lot owners might have received, or alternatively, the steps that the individual lot owners might have taken in connection with protection of their interests when they acquired the lot.

I am here talking about the initial investors because my friend’s submissions principally dealt with those particular classes of individuals. Relevant foreseeability in respect of damage was conceded and was not in issue on appeal. Your Honours will find that at 12 of Justice Basten’s decision.

FRENCH CJ: Page?

MR CORSARO: Page 1513 in volume 4. Our learned friend seeks to bring together or to draw the peculiar facts of this case into the subsequent purchaser cases by, in effect, inviting your Honours to not view an owners corporation which is the creature of statute as an autonomous and individual entity created with its own rights and obligations and its own interests, but rather equating it with the individuals who might come to buy a lot and with it take a part of the common property as part of that acquisition.

Can we just make plain that we see a very significant distinguishing feature. No doubt their Honours below did, in the circumstances here as opposed to the subsequent purchaser cases. The subsequent purchaser cases deal with individuals who have autonomy of choice, who have the freedom to contract on particular terms, and therefore have an opportunity to make an informed decision as to the risk of the existence of unknown and undetectable defects in the works. Our simple point, your Honours, is that the first respondent did not.

That characteristic was obviously considered significant by all members of the New South Wales Court of Appeal in their reasoning. May I take your Honours to where your Honours will find that proposition made good? Firstly, as to Justice Basten, if your Honours go to volume 4 at 1555, his Honour deals with the vulnerability of the appellant - the vulnerability of the first respondent vis-à-vis the appellant in this case at 121. As your Honours will see, the respondent submitted there that:

the appellant, at the point of registration, was not so much a successor in title to part of the building as the alter ego of the developer –

a submission which it repeats now in this Court –

which was then the owner of all allotments and hence the beneficial owner of the common property. However, on the basis that there can be no liability to a successor in ownership unless there had been equivalent liability to the original owner, this argument cannot assist the respondent. In other words, one does not ask whether the appellant was owed a duty of care unless it has already been established that the developer was owed such a duty. If the developer was owed such a duty, presumably it did not cease to be owed such a duty at the point in time at which the appellant came into existence –

Now, we will return to this, your Honours, because we say that there is a fundamental misconception by Justice Basten in relation to that issue, but for the moment all I want to do is to indicate where their Honours find significance in relation to the distinction between the purchaser cases and the owners corporation in the particular circumstances of the case before them.

CRENNAN J: The owners corporation gets that seven month defects warranty, does it not, through the mechanism of the purchase contracts?

MR CORSARO: No, your Honour. The owners corporation does not get that right for the simple reason that it is not privy to the contract. There is no mechanism, in our respectful submission, despite Mr Jackson’s valiant attempt to create one, that will enable the owners corporation as an individual and separate entity to rely on any contractual provision, either by the lot owners or, alternatively, the developer in its contractual dealings - - -

CRENNAN J: So you say for reasons of lack of privity, notwithstanding that every purchaser’s contract is in the common form which gave the seven months defect period anyway, it could not avail itself of that period?

MR CORSARO: Yes, your Honour.

CRENNAN J: Is that what you are saying?

MR CORSARO: Yes, your Honour, and we respect – would wonder – we can see paragraph 1 of the statement of claim, we can also see paragraph 1 of the response, namely, you are not a privy to the contract. We say that there is no jurisprudential mechanism which the appellant has made good either in writing or in oral submissions today which would justify a conclusion by this Court that there are some juridical bases for the remedy alleged. We just cannot see it, your Honour. May I then return to what Justice Basten had to say on this issue at 122? His Honour said this:

The second stage in the argument is based on the assumption that the appellant is to be viewed as a true successor in title to the interests of the developer. However, it was vulnerable with respect to latent defects in the same way that the developer was. Indeed, its position was weaker than that of the developer, which may have had some opportunity to carry out inspections during the course of the construction –

and I will come back to that because I want to deal with what our learned friend has said in relation to the superintendent position under this contract –

and before the defective materials were no longer examinable. Once the proposition that the developer had such realistic opportunities to protect itself in a physical sense, it follows that the position of the appellant can be no better.

As to that issue, Justice Macfarlan at 1559 at 135, as your Honours will see, dealt with the vulnerability of the first respondent in the sense of it being able to protect itself, and the answer which his Honour suggests at line 45 on that page, what he says is one answer:

is that the appellant only came into existence on registration of the strata plan and was not a conventional successor in title which acquired the property in question under a contract with the previous owner (here the developer).

At Justice Leeming who perhaps spent more time dealing with the statutory underpinnings, at 1562, at 144, deals with the effect of the statutory provisions which his Honour sets out at 142 and 143, and in respect of the statutory provisions his Honour says this:

There is nothing antithetical in those provisions to a duty of care owed by the builder to that special creature of statute which is intended by builder and developer to come into existence following the performance of the builder’s obligations. The legislative scheme is such that the owners corporation is much more vulnerable than, say, a company which owns land on which is to be erected a company title building. To the contrary, what would be strange, to my mind, would be an imputed legislative intention to deny to that corporation the ordinary rights legal persons enjoy at common law.

HAYNE J: Now, does his Honour in his reasons examine in any detail at all in what sense the Owners Corporation suffers any loss?

MR CORSARO: No, because, your Honour, it simply was not an issue below. So there was no examination of whether or not the loss, assuming that we be right in respect of the duty, flows to the lot owners or, alternatively, is loss which accrues to the Owners Corporation which they subsequently need to account to to the lot owners. Can I just say something - - -

HAYNE J: It is not a question of accounting to, it is a question anterior to that. I would have thought that a possible point of view is that the question of duty may, if we are to go down the vulnerability path, at least have some regard to vulnerable to what and in the case of an owners corporation if we avoid the word “agency” and employ a probably even sloppier term, that the owners corporation is nothing but the creature of the unit holders, it does not have to do anything until it is put in funds, does it?

MR CORSARO: It does.

HAYNE J: Does it?

MR CORSARO: It has an absolute - - -

HAYNE J: To repair whether or not the owners put it in funds?

MR CORSARO: It has a right to call for funds and if the lot owners refuse or cannot provide funds the owners corporation has a statutory right, your Honour, to sell a lot for the purposes of meeting - - -

HAYNE J: Has a right, but does it have an obligation to undertake the work until it is put in funds?

MR CORSARO: On the basis of the law as it currently stands in New South Wales in respect of this scheme, yes, your Honour. It is said in the cases that the obligation of the owners corporation under section 62 of that Act is absolute. It arises irrespective of whether or not, for example, the owners corporation knows of the existence of the defect. In other words, the statutory obligation to repair, maintain the common property found in the legislation is absolute so that an owners corporation becomes liable, for example, at the suit of a lot owner for its failure to deal with defects.

That is as it currently stands but may I come back to that because I think it is relevant to say something about the decision which our learned friend referred in connection with the sale of a lot and how that plays out in the agency position, to go back to agency in the sense that your Honour raised it with our learned friend.

CRENNAN J: When you talk about their obligations being absolute, they have always got, have they not, the owners corporation, a right to recover from the lot owners?

MR CORSARO: Yes.

CRENNAN J: Whether it is a debt or whether it is done through a levy, they always have that right ultimately.

MR CORSARO: Yes, I will just ask my learned junior to turn up the provision. I think the statute itself makes it perfectly plain that that is the case, your Honour. In our written submissions, your Honours, we refer to particular passages of the primary judge’s decision on the issue of vulnerability as well. I will not take your Honours to them, but your Honours might care to note that at 26 to 27 of the primary judge’s decision at volume 4 of the appeal book, 1467, his Honour made perfectly plain that the vulnerability of the owners corporation was as an individual and autonomous body coming into existence by virtue of the statutory provision.

The appellant’s alter ego submission which it revisits in this Court and which it put below, seeking to draw from the statutory scheme that the first respondent must be equated with the developer was, in our respectful submission, correctly considered and discarded by the New South Wales Court of Appeal and we say that the brief analysis of Justice Leeming on that issue, to which we have referred, is correct and a complete answer to the appellant’s contentions in this Court.

Can I just correct perhaps something that our learned friend put to your Honours in respect of the alienation of the common property, because I think it came from your Honour Justice Hayne, a question that came from your Honour as to whether or not the sale of the lot carries with it the common property? Clearly it does, but that is not to say that there cannot be an alienation of the common property without carrying with it a lot, and your Honours will find that in section 25 of the Development Act and your Honours will see that under section 25(1) of the Strata Schemes (Freehold Development) Act 1973:

A body corporate may, pursuant to a unanimous resolution, execute a transfer or lease of common property other than common property the subject of a lease accepted or acquired by the body corporate under section 19(2).

So the common property, although it is held on behalf of the individual lot owners, can carry with it the ability of the owners corporation to sell or alienate by special resolution.

CRENNAN J: Well, unanimous resolution, is it not?

MR CORSARO: I am sorry. I do apologise. Yes. Yes.

CRENNAN J: Unanimous resolution of the lot owners.

MR CORSARO: Quite so. Yes, your Honour.

KEANE J: So that an individual lot owner can stymie such a resolution - - -

MR CORSARO: Could.

KEANE J: - - - which tends to suggest that the owners corporation is simply a vehicle for the exercise of the rights and duties of the individual lot owners.

MR CORSARO: I do not think there is any issue that the owners corporation as a creature of statute holds the interests in the common property for the lot owner, so much is plain on the face of the statutory provisions to which our learned friends have referred, but in the context of the case, the New South Wales Court of Appeal case to which our learned friend referred, there was an issue in that case as to whether or not, in the exercise of the section 27 agency rights, the sale by one of the first initial lot owners meant that the owners corporation could not avail itself of a right to bring an action on behalf of the owners corporation in respect of defects in the common property.

What had occurred in that particular case, as one will see from his Honour Justice Spigelman’s decision, was that there was a large residential development complex, hundreds as I recall it, of lot owners. The consequence of having a very large residential development carries with it transitory sales, so sales come and go over time. By the time that the defects became manifest, there had been a transfer of the initial lot ownership. Proceedings were commenced by the Owners Corporation at first instance. A preliminary point was taken as to the standing. The Owners Corporation’s claim was rejected as a matter of summary dismissal and that led to the appeal, which Mr Jackson took your Honours to.

What happened in that case on appeal was that the New South Wales Court of Appeal determined, setting aside the first instance decision, that the Owners Corporation did not have to rely on section 27 to commence proceedings in connection with defects in relation to the common property. There were two bases on which it could rely. The first is in its own right as a registered owner of the property; and secondly, as trustee in connection with the beneficial ownership of the common property shares owned by each of the individual lot owners at the time. Your Honours will find that in the decision to which our learned friend has referred.

Subsequently, the New South Wales Court of Appeal in – and I am sorry that we do not have that in our list of authorities, but may I invite your Honours to note it – in an insurance case called Vero Insurance Limited v Owners of Strata Plan No 69352 [2011] NSWCA 138; 81 NSWLR 227, the issue that arose is whether or not in connection with a claim made under a home owner warranty insurance, an owners corporation making a claim in respect of defects in the common property was making one claim, i.e. for itself, or alternatively making many claims – I forget the exact numbers - in respect of each of the lot owners in the development, the issue there being does it attract one excess or many?

The Court of Appeal held that the owners corporation held the common property as the registered owner. It itself had an insurable interest in connection with the common property. It itself could make a claim as an owner and in itself had made a claim and only one deductible was charged. So we say that that subject matter has come into consideration closely in New South Wales and we say, with respect, all of the cases, everything indicates that the correct analysis of the statutory scheme so far as the New South Wales courts are concerned is that the owners corporation is itself particularly and specially entitled to an interest in the owners corporation’s common property, in itself as an individual and separate entity can bring claims.

CRENNAN J: Does that mean it could have negotiated warranties with the developer in relation to the common property?

MR CORSARO: No, your Honour, because it did not exist at the relevant time. Under the statute, it springs automatically once the contractor lodged the strata plan, once the appellant took the step of filing the strata plan at the registry office in New South Wales.

CRENNAN J: Well, the first moment after it sprung into existence, is it able on this analysis – has an insurable interest and so on – it is able to negotiate warranties?

MR CORSARO: The problem is the one that my learned friend, Mr Jackson, touched upon. I suppose as a matter of theory it could ask the developer - at a stage when the developer owns all of the units, ask itself will you give me a warranty, but there are two answers to that. The answer is it is unlikely because the developer is unlikely to extend its own liability to the owners corporation by doing that, as a matter of practicality. Secondly, it is highly impractical that that could be done in circumstances where the developer itself is the controlling mind and will of the Owners Corporation until the initial period expires.

KIEFEL J: The position at the time it came into existence is, however, that the developer could sue with respect to latent defects under its construction contract.

MR CORSARO: The answer to that is probably yes and no. Can I indicate why I put it that way, your Honour, and invite your Honour to go back to the design and construct contract. My friend’s analysis of the documents failed to distinguish, in our respectful submission, between the concept of “superintending” as a verb and the “superintendent” as a noun. Can I try and put a little meat to that bare submission? If your Honours go to general condition 25 at appeal book 2, page 715, your Honours will find at 955 of the standard wording under “Contractor’s Representative” a provision that says:

The Contractor shall personally superintend the execution of the work under the Contract –

That obligation of superintending the execution of the work means to be present and to ensure that the execution of the work on a day-to-day basis is carried out properly. That is different and distinct from the obligations or powers, perhaps more properly put, of the superintendent under the terms of this contract. There is no power or obligation of the superintendent to actually superintend. It is the contractor’s obligation to personally superintend.

KEANE J: It is the contractor’s obligation to superintend the performance of its obligations, that is to say, if it has a lot of subcontractors doing actually the work, it has to superintend that work. The superintendent properly designated superintends the works.

MR CORSARO: Your Honour, with respect, we would say no. Can I just indicate why we put it that way? There is a difference between administration of the contract, which is the superintendent’s role and superintending the works in the sense that your Honour Justice Keane just put to me. We agree, with respect, that the builder has to superintend, i.e. be present to ensure that his subcontractors do the work properly. That is what “superintend” means. But when one comes to the rights and powers and obligations of the superintendent, one does not find that is either an obligation or a power. Can I indicate why?

There are various provisions in this contract which give the superintendent particular powers. The superintendent is not a party to this contract. The superintendent has no power to do anything other than what the contractor and the developer have agreed that the superintendent can do. So he does not have the power of privity of contract to actually enforce this contract. He can administer it and he administers it as the contract provides in respect of particular functions.

So, for example, if your Honours go to the provisions of the contract dealing with progress claims and certification of progress claims, your Honours will find that the superintendent’s powers and obligations require him to receive progress claims on a monthly basis or a periodical basis as provided for in these terms to then assess the value of the works, to issue a certificate and there are obligations that then follow as a consequence of that administration.

CRENNAN J: He or she has the overall obligations in relation to the quality of works and materials - - -

MR CORSARO: No, your Honour, he does not. That is why we, with respect, say he has the ability, if he wants to, if something becomes known to him – and this is the point of distinction which we think, with respect, was lost in our learned friend’s submissions. The provisions to which our learned friend refers are provisions that say that if something comes to his notice, or if there is something that he is concerned about then there are powers of opening up and powers of direction. But these are defects which are latent; they are not defects that are known. They are defects that emerge after a very significant period of time - - -

KIEFEL J: Quite so. I did not understand the appellant to be saying that we have here a question of being able to sue for proper performance of the contract, but rather that it was part of the contract that there were mechanisms; that questions such as this were dealt with, but more particularly in general terms clause 42.6(b) provided - excepted from the final certification process latent defects, which is the area that we are in. The question I am more generally interested in is it is the case, is it not, that the developer could then sue with respect to a latent defect at any time whilst the developer maintained an interest in the property. Is that correct? That was the assertion of the appellant?

MR CORSARO: It is, and can I deal with it this way - - -

KIEFEL J: What I am looking for is, is there an hiatus with respect to the Owners Corporation, because as I understand the appellant’s argument, the developer could sue under 42.6(b) and then when the owners of individual lots came on the scene, they took under the standard form and there were contractual provisions to which they were subject, and hypothetically they could have either contracted around them, or if they did not have bargaining power, they need not have entered into. The focus on the Owners Corporation suggests that the Owners Corporation was not at some critical period in a position of suing?

MR CORSARO: Absent tort?

KIEFEL J: I am sorry, in the sense that it was not a party to either contract.

MR CORSARO: Indeed.

KIEFEL J: Is that your case?

MR CORSARO: Exactly so. Can I just put a little twist in that issue, because much has been said of that 42.6 obligation and I want to deal with it, if I may, your Honour? Can I do that in a moment, because what I am currently trying to imperfectly get across to your Honours is that there is no obligation on the superintendent to supervise the work.

HAYNE J: Be it so, the fact is the parties to that contract – this may have in the end no significance at all, but it is to be observed that the parties to that contract provided expressly for what kinds of test of the quality of work might be made at whose expense and when.

MR CORSARO: They did, your Honour.

HAYNE J: Why do the particular terms of that bargain matter beyond the fact that they have bargained about what tests will be made of quality?

MR CORSARO: It matters because Justice Basten saw the administration of this contract in the context of assumption of responsibility and reliance and the developer’s reliance through that mechanism on the skill, integrity, the capacity and the undertaking.

HAYNE J: Well, notions of assumption of risk and reliance at least begin in a proper understanding of the contract. I am not quite sure what more they legitimately add to - - -

MR CORSARO: They are - - -

HAYNE J: - - - the observation about, well, the contract provided X or Y and that is that.

MR CORSARO: I am sorry, I did not mean to cut across you.

HAYNE J: No, no.

MR CORSARO: True, they are a factor, and perhaps it is just one of the things in the mix, but one needs to start with the appropriate way that this contract operates and can I just finish off that point very simply by inviting your Honours to go back to the clause to which our learned friend refers, firstly, 30.3 at 718, volume 2.

The testing and examination provision in relation to defective materials or work is if “the Superintendent discovers material” and if the superintendent cannot discover that material because it is latent or because it is hidden or because the contractor chooses to do the works in a particular way or because the superintendent is not present at the time the works are done, which happens in building contracts – the superintendent sits in the office, he is not on the site – then that defect becomes part of the work and manifests itself later and that is part of the reasoning as to why, in the scheme of things and the connection with the undertaking, the skill was an important factor in the reliance equation. Again, we say, the beginning perhaps but one factor.

May I next go to the clause that I wanted to revisit a moment ago, clause 42.6. That is at page 731. Your Honour Justice Kiefel’s question as to whether or not the developer has a right to sue in contract because there is a residual carrying over of a contractual liability for defects that do not manifest themselves in the relevant period, the reason I answer that yes and no is that it depends whether or not title in the property remains with the developer at the time of manifestation. It is the time of manifestation of the economic loss that - - -

KIEFEL J: Yes, that is why I asked you, so long as they have the requisite interest in the property.

MR CORSARO: - - - and the problem here is that the developer divests itself of its title - - -

KIEFEL J: To the common property.

MR CORSARO: - - - to the common property at the point of registration, so it loses at that point any right to rely on this provision.

KIEFEL J: It does not prevent it suing but it cannot take advantage of 42.6(b).

MR CORSARO: It cannot take advantage of 42.6(b) and it suffers no loss. It can bring a claim but it suffered no loss. It suffered no loss of contractual bargain because it has divested itself – it may have suffered loss in respect of the new property created by virtue of the registration of the strata plan in the lot. It is now a proprietor of Lot 401 of 402 but it is not privy to this contract. There is a different type of property.

KIEFEL J: But the developer holds the other lots. Until purchasers come along, the developer holds the balance of the lots.

MR CORSARO: True it is, you Honour.

KIEFEL J: It is wearing two hats. It maintains its interest - - -

MR CORSARO: It does.

KIEFEL J: - - -in property.

MR CORSARO: What it does not do is it does not own the common property anymore. It can certainly sue – at the widest stretch - - -

KIEFEL J: What you are faced with is a standing problem, is it not?

MR CORSARO: It is a standing problem and a damage problem, your Honour. It is the very problem which engendered the debate in Owners - Strata Plan No 43551 v Walter Construction. It was the very problem - the standing problem was also allied to the damage problem. To come back to your Honour Justice Hayne’s question of me - - -

KIEFEL J: I am sorry, the developer still maintains an interest in the property through its ownership of the lots.

MR CORSARO: But it cannot - - -

KIEFEL J: Why can it not assert its contractual right in that way? It does not need any of the notions about the lots and common property to be able to assert its contractual rights. It suffers damage so long as anything affecting its interest in property - regardless of whether or not there is an entity who is acting as a statutory agent for the proprietors for some purposes.

MR CORSARO: Your Honour, in my respectful submission, it operates this way. On registration of a strata plan, lots are created. The statutory scheme creates lots and, by definition, everything that is left over remains common property. So the developer will own, in respect of each lot, the cubic space contained within the extremities of the structure. It will not own the structure. The structure has now been passed to an entity which is a creature of statute which has an independent existence and which has now obligations created by statute which are absolute and require it to take, to hold, own and to manage and to pay for the defects in the common property.

HAYNE J: As agent for – as agent for.

MR CORSARO: As agent for.

KIEFEL J: It is the way to test it to say, if the developer sued, whether or not the developer would be able to identify damage?

MR CORSARO: That is one issue, and the second issue is whether or not the developer has the standing to sue.

HAYNE J: Well, standing and procedural difficulties, I think, may be more illusory than real. Even if they are real, why do they stand in the way of the analysis that has just been put to you? Why would not the developer be a party to a contract which has been broken by reason of which it has suffered loss? End of game.

MR CORSARO: Because, your Honour, at the time of manifestation – I am assuming at the moment that your Honour’s question of me assumes that the defect which causes the economic loss occurs only after the point of registration. If that is the appropriate - - -

HAYNE J: Yes, exactly so, and the developer is still owning some of the lots.

MR CORSARO: Because it has never been the law, your Honour, that a beneficiary in connection with a legal property has the right or the ability to sue. It is only if the trustee, for example, or those that own the legal property, do not bring - - -

HAYNE J: Well, you are just imposing certain legal classifications on a statutory scheme which may or may not be apt. I suspect that an answer that is rooted in the imposition of those classifications is one which may be inferred.

MR CORSARO: Your Honour, the reason perhaps I am imposing is because I have been schooled by those in New South Wales and schooled in a way which often has not been pleasant and, for example, I was the one that argued - - -

HAYNE J: We all have some losses engraved on our hearts, Mr Corsaro.

MR CORSARO: Well, that is the answer, your Honour; whether it be right or not, that is the answer.

KIEFEL J: If the problem, however, was only procedural, if the loss is truly that of the lot owners who have the true interest in the common property because the owners corporation only holds it, in whatever capacity, only holds their interests for their benefit, procedurally all that would mean was that the owners corporation would be a necessary party, in which case the lot owners would sue and they would be joined as a defendant to the proceedings.

MR CORSARO: Yes. Can I assist and divulge a bit of my schooling perhaps by the New South Wales courts and invite your Honours to go to the Owners – Strata Plan No 43551 v Walter Construction which dealt with these rather interesting issues? May I invite your Honours to go in particular to the observations of the Chief Justice which start at about 179 of the report? Can I pick up your Honour Justice Hayne’s agency point first and invite your Honour to go to 45 of the Chief Justice’s decision?

FRENCH CJ: By the way, did the application for special leave in this matter proceed? I see there is a note at the bottom of the footnote there was an application for special leave.

MR CORSARO: The answer is no, I think.

FRENCH CJ: You mean it did not proceed or it was not granted?

MR CORSARO: The special leave point really relates to the cross-appeal which is not this point. It relates to really the - - -

FRENCH CJ: No, I am just wondering about the ultimate fate of this particular decision.

MR CORSARO: I am sorry, yes. Special leave was – well, I do not know about it and so I assume it did not proceed, your Honour. So far as I know there has been no indication that it ever went further.

KIEFEL J: Before you proceed into these reasons, could I just ask you in the extrinsic materials to the statute when the section that creates the owners corporation as an agent, was there any explanation given, by the use of the word “agent”, were they trying to avoid complications of the word “trustee” or thus like? Statutory agency may have had - - -

MR CORSARO: The answer is it remains dark, your Honour. The answer is no. There is no illumination to be found in any of the extrinsic material, so far as I can recall, your Honour. I was going to paragraph 45 where his Honour the Chief Justice agreed with some observations of Justices Barrett and Gzell:

It is not appropriate to characterise the statutory role of an owners’ corporation solely in terms of an agency at common law.

Then his Honour goes on to deal with the concept of trust and agency, and the doctrine at 47 upon which the respondent successfully relied below was on the basis that being an agent it could not bring the proceedings.

The “inability to sue in contract”, as your Honours will see, is touched upon at 48:

the statutory scheme does not suggest that the appellant suffers from any incapacity –

and at 49 his Honour goes on to deal with the role as legal owner. At 51, which I think is germane to the discussion that we have been having, there was, as your Honours will see:

the propositions that the proprietors who purchased after the defects became manifest had no right of action and that the appellant has suffered no loss -

that is loss in its own right as the owners corporation -

However, such issues as arise in this regard do so under the respondent’s denial of duty, breach and damage. They do not arise –

As far as I know, there has been no further consideration of the damage point.

HAYNE J: All this cast, as we see, from the introduction to the judgment, in terms of a procedural question about standing, not a question about duty, not a question about obligation - - -

MR CORSARO: It ultimately started with a suggestion that the standing point and the damage point were allied. That is how it started but, ultimately, as your Honour would have seen from the various passages to which I have referred, that question of damage was not dealt with because it was dealt with ultimately as a standing point and remitted to be dealt with in that context. May I also - - -

HAYNE J: The question is at 171, line 3:

“Does the plaintiff, as an owners Corporation, have standing to sue in its own name in respect of the alleged defects –

MR CORSARO: If it does, and the authority to which I have referred which I do not have unfortunately here indicates that it has a right to bring a claim in its own right and its own loss as proprietor – that insurance case - can I add to that insurance case, and my learned junior has turned up the second case which I wanted to refer your Honours to. I am sorry, it is not part of the materials, but the Court of Appeal of New South Wales have revisited the same issue in a case called The Owners of Strata Plan 50276 v Thoo [2013] NSWCA 270.

In the debate about the special position we put forward that the Owners Corporation occupies when compared with a subsequent purchaser, in our respectful submission, one should not lose sight of the underlying policy that seems to be the underpinning for the tortious duty or the duty that is sometimes found for the builders’ obligation in tort. Winnipeg Condominium has been referred to in various times in this Court with approval.

HAYNE J: Where?

MR CORSARO: I think Justice McHugh in Bryan – I will take your Honour to it - - -

HAYNE J: I thought it was expressly disapproved in the later one, in Woolcock, was it not?

MR CORSARO: No, I think – well, I will take your Honour to it. I do not think we should die wondering. I think we should obviously go to the case and if my recollection is not right, then I will adjust the submission accordingly, if I may, your Honour. For the moment, can I proceed on the assumption that the underlying proposition of Justice La Forest recognised that the policy underlying the imposition of a duty on a builder – and in Canada, as your Honours will know, the duty has been truncated to a duty to avoid economic loss resulting from defects which are prone to create risk of damage to persons or property, the sort of duty which Justice Basten found below and which is the subject of the application for leave.

Justice La Forest found, and I think, your Honours, it is at 103 of the report and I should go to it directly, it is [1995] 1 SCR 85 at paragraph 21 at page 103 of the report, dealing with D & F Estates, the English line of authorities, at about point 4 on that page, his Honour describes the policy in this way:

The point is simply that, prima facie, he who puts into the community an apparently sound and durable structure, intended for use in all probability by a succession of persons, should be expected to take reasonable care that it is reasonably fit for that use and is does not mislead. He is not merely exercising his freedom as a citizen to pursue his own ends. He is constructing, exploiting or sanctioning something for the use of others. Unless compelling grounds to the contrary can be made out, and subject to reasonable limitations as to time or otherwise, the natural consequences of failure to take due care should be accepted.

FRENCH CJ: This is a quotation from Sir Robin Cooke.

MR CORSARO: It is and we say there are powerful factors that, in our respectful submission, go into the determination of duty in that sense.

KIEFEL J: But you cannot really talk about duty of care in the abstract, it has to be duty of care with respect to what damage. You have to identify the damage before you make sense of it, do you not?

MR CORSARO: True, we accept that, your Honour.

KIEFEL J: The damage here is an interest to financial interest.

MR CORSARO: It is, we cannot gainsay that; that is true. But we do say that the notion of duty of care, even though we cannot deal with it in a general sense in the way that your Honour has put to me, and the duty of care and negligence for economic loss is one that reflects underlying legal policy which, in turn, reflects community expectations, and in this case the real question is whether the community expects that the builder who builds a development with reasonable knowledge that it is going to be used for the purposes of sale to individuals who take a position in respect of lots.

When we are talking about these being commercial premises, the reason that they are commercial premises is because under the relevant legislation in New South Wales, the Home Building Act, it excludes short term accommodation. It excludes holiday accommodation. It excludes all manner of construction so that, in fact, if the owners corporation is left without a tortious claim either because our friends are right and it requires a pre-existing duty to be owed to the owners to the developer which we challenge, then does a wide body of dwellings for short term accommodation serviced apartments would simply remain prone to substantial issues in respect of defective building works without - - -

KIEFEL J: That suggests that legislative amendment might be appropriate if that is the way that the – if you are talking about community and statutory policy that is not an area – the question of where the line is drawn for recoverability of economic loss is a matter of legal policy.

MR CORSARO: True, and we have made the point in our written submissions that when one goes to the decided cases, it is clear that on the basis of authority that the way in which Justice Basten dealt with the matter and determined the duty point was conventional and consistent with authority – the legal policy or legal authority to which your Honour has referred.

CRENNAN J: One reason for the proposition that Justice Kiefel has put to you may be that the community understands that building contracts involve allocation of risk and a possible point of view is that an owner not covered by a warranty in relation to defects has accepted the risk of those latent defects emerging and the cost in a sense – and this is an economic analysis – comes out of the returns on the investment, if you like, or the potential capital gain. I mean, it is all just about allocating risk, in a sense - - -

MR CORSARO: It is and it is not, your Honour, because - - -

CRENNAN J: - - -with economic loss.

MR CORSARO: - - - it would make perfect sense if, for example, we are dealing in this case with a situation where the duty contended for is in some way substantially changing the obligations in contract which are the subject of the risk allocation which your Honour has put to me, and we say that is not this case, and their Honours below found that it was not this case. They say that there was nothing inconsistent and nothing contrary to the developer or the builder’s economic interests in respect of this very contract in imposing this duty.

So it was something that the New South Wales Court of Appeal had in mind and took into account and they found nothing inimical between the allocation of risk in this contract and the finding of the concurrent duty which they found. And we say any contract can be the subject of allocation of risk, but yet this Court has on many occasions acknowledged concurrency in connection with the very matter in question, and as your Honours will - - -

CRENNAN J: Warranties in relation to quality usually have a cost factor. That is what I meant by – it is not just allocation of risk, it is an allocation of risk against the context of cost. There may be agreed limits, if you like, in a building contract in relation to a builder’s liability for defects. I am just speaking hypothetically now. There may be a temporal limit which is related to not requiring the builder to have run-off insurance for 20 years or something. In other words, it is related to the cost. A purchaser – just speaking economically – may decide well, I am happy to purchase this particular built apartment on the basis that the warranty in relation to quality is limited in time. I will take the risk and it may be that the capital gain is such that my returns are going to be okay in any event.

MR CORSARO: There are two issues.

CRENNAN J: Well, the returns are sufficient for me - for it to be rational for me, in the risk allocation exercise, to take that risk. That is one reason possibly why it is appropriate to say that it is a matter for the legislature.

MR CORSARO: I will go back to the sale contracts because we say there is no limitation in respect of the warranty in the way that your Honour has put to me a moment ago, and I will try and make that good in a moment. But one thing that does arise in respect of what your Honour has raised is that even in England where the courts have been antithetical to the imposition of a duty to take reasonable care to avoid economic loss – even there where the complex structure theory has been put forward – even there, even in Canada, at the very least, they do impose tortious duties in respect of defects that are said as being risks to life or to the building.

The reason that that has been put forward – there are various policy provisions that underlie that. It depends on which judgment one looks at, but for example, if one goes to Winnipeg Condominium, part of the rationale for that is that it makes no sense, but consistent with Voli, consistent with previous Canadian Supreme Court authority, that if something were to fall off a building onto me and injure me, I would have a cause of action against the owners corporation. The owners corporation could turn around and sue the builder.

CRENNAN J: Well, this is hitching the economic loss to some potential for personal injury.

MR CORSARO: Yes. If the same defect is going to fall off the building and injure me, but I catch it before it does, it makes no sense that the law would not allow tortious recovery while it is on the building, but would allow tortious recovery if it hits me. The way that often that is put forward is it is a mitigation of damage, in essence. What one does, when one repairs defects which are potentially liable to cause personal injury or property damage and one catches it in mid-air, so to speak, is that you are really mitigating your loss because that ought be recoverable because it otherwise is tantamount to permitting in the community retroactive or, in fact, anti-productive conduct. In other words, a building owner could let it go, and get it fixed as a result of the property damage issue or personal loss issue, but not otherwise. So we say that there has to be some recognition of that, and there has been in other jurisdictions, and we have referred in our written submissions to other jurisdictions and other cases where similar duties - - -

CRENNAN J: Winnipeg is a clear example of that approach, is it not?

MR CORSARO: Winnipeg is clear, indeed, and we say nothing in that – now, it may affect our application for leave in respect of the way that the duty is put because we try and broaden that, so it may be relevant to what we say, but there is perfectly good sense in the way that his Honour Justice Basten saw the temporal limitation as being truncated, saw that the obligation to avoid personal harm is generic and part of the obligation in any event and why there should be no distinction drawn as a matter of contract or tort because it makes no sense that if the contract does not exclude tort – it makes no sense that if there are procedural and other advantages, contribution issues, limitation issues, all sorts of manner of additional benefits that one gets in respect of negligence, why a proprietor merely because the contract has been bid which provides for the work to be done consistently with that, in any event, should not avail itself of the procedural and other advantages which tort brings. That, I think, is what we would say in respect of that matter.

FRENCH CJ: That might be a convenient moment, Mr Corsaro. We will adjourn until 2.15.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

FRENCH CJ: Yes, Mr Corsaro.

MR CORSARO: Can I just return to one of the submissions that I put in respect of Winnipeg. I have checked it. Bryan, 621, 629, cites Winnipeg as persuasive – that is the majority citation, coming back to what your Honour Justice Hayne put to me – cited by the plurality in Woolcock at 534 without relevant comment.

HAYNE J: Oh.

MR CORSARO: Oh. Am I wrong?

HAYNE J: Well, you are there to tread the line, Mr Corsaro.

MR CORSARO: Well, I am taking a cue to the right here, your Honour.

HAYNE J: The point is that in, is it paragraph 34, the plurality says it is unnecessary to decide whether the law in Australia should be developed, I think is the word.

MR CORSARO: But at least I have Bryan there, your Honour, I have Bryan.

HAYNE J: Exactly.

MR CORSARO: Secondly, can I return to something your Honour Justice Crennan asked of me and I think it was in relation to the levies issue in connection with the defects. Can I indicate that under section 78 of the Strata Management Act there is an obligation cast on the Owners Corporation to actually raise levies for the administration of the scheme and the management and repair and rectification of the common property would fall within - - -

HAYNE J: Could I just take up with you a small matter of the history of some aspects of the provisions of the Act? The 1961 Act seems to be the genesis of - - -

MR CORSARO: Strata title.

HAYNE J: strata title legislation in Australia.

MR CORSARO: It is the Strata Titles Act?

HAYNE J: Yes. You go to the 1961 Act and you find two provisions not textually linked. Section 9 which provides that common property should be held by the proprietors as tenants in common in shares proportionate to the unit entitlement of their respective lots and you find then in section 13, is it – no, 14, the creation of the body corporate and there is not a textual link. That changes with the 1973 Act where you get section 20 largely in its current form. At least some commentators, Moses and is it Tzannes - I may well butcher the name, forgive me, says of the word “agent”:

The concept of “agency” in this context is unusual.

One normally acts as agent for a principal but holds land as trustee for a beneficiary.

The duties of the body corporate are so particularly prescribed under the Act, as to eliminate for practical purposes any significance in the choice of terms.

Now, it is at least an available point of view, I would have thought, that the words “trust” and “trustee” are avoided to avoid injection of common law notions of – equitable notions of trusteeship and that the word “agent” is used to identify that it is the owners of the units who are, leave aside the register, at least in some sense, the owners as tenants in common in shares proportionate to their unit holding of the common property.

Now, true it is the body corporate is the registered body; it is the body in whose name proceedings may perhaps, perhaps not, have to be taken, but the notion of agency is at least suggestive, perhaps, that it is reflective of what was the position under the first version of the Act, that it is the unit holders who are the owners of the common property as tenants in common.

MR CORSARO: The answer is perhaps it is certainly, we would think, not totally consistent with the way the New South Wales Court of Appeal have dealt with it, and - - -

CRENNAN J: But the New South Wales Court of Appeal has recognised the owners of the lots as equitable tenants in common.

MR CORSARO: Yes, but that carries with it the implication that the owners corporation as the registered owner is the legal owner and, thus, the damage when suffered is damage suffered by the owners corporation, and then the matter is to be left with the issue being resolved between the lot owners on a per se basis as they are beneficiaries under a trust. The issue that troubled the Court of Appeal in the Walter Case on the damage issue, which remained unresolved, was what is to happen in circumstances where the original ownership is held by a number of lot owners, they then sell.

In order to determine if the damage is to be determined accurately, where the damage lies in a multi-lot development, it would require – if the loss lies in the individual lot owners and their position vis-à-vis sales and acquisitions of property – an almost unmanageable and unrealistic investigation as to what has occurred in the ownership, and what each individual transaction involving lot property has resulted in. In other words, what - - -

CRENNAN J: I do understand the point but the capacity in which the damages would be held by the owners corporation would be very like a trustee capacity, would it not?

MR CORSARO: Yes, your Honour. I think that is a view.

FRENCH CJ: You sought to draw, as I understood it, a dichotomy between what you called autonomous purchasers and the owners corporation which as it comes into existence, as it were, shackled to the property, but it strikes me as a difficult dichotomy if one simply regards the owners corporation as a statutory mechanism through which the owners can fully enjoy their property rights in a collective way. It is not like just a successive owner who is brought into existence and is, as it were, subject to principles of vulnerability and so forth - notions of vulnerability and so forth.

MR CORSARO: Your Honour, the difficulty with an analysis which seeks to draw together the legal ownership in the common property, irrespective of whether it is held under a trust or some other type of mechanism, agency, whatever that might mean, and the lot owners, is that in the context of an owners corporation where the lot ownership changes from time to time, it is rather difficult to understand what the body of lot owners is which one equates to the interests of the owners corporation, whereas the owners corporation was a separate legal entity in the way that Justice Leeming saw the statutory regime operating, means that you have clarity in respect of holding, in respect of suit, in respect of damage - - -

HAYNE J: Why do you not have that clarity, in any event, by the register registering the ownership of the strata unit? You know who are the proprietors, who are the tenants in common in shares proportional to the unit entitlements of their respective lots of the common property – see section 20(b).

MR CORSARO: From time to time, yes, but the debate currently before the Court is whether or not it is permissible or this Court ought lift the corporate veil at the point of incorporation or shortly afterwards at the point of initial sale of the original lots for the purposes of determining the vulnerability of the owners corporation as an entity which endures for a considerable period of time in circumstances where defects may only emerge after the initial shareholding is divested and dealings occur in respect of that matter where, if one is equating the risk or the bargain in respect of the transfer of lots in that matrix, it is almost an impossible task to try and determine vulnerability in that way.

FRENCH CJ: This is not really a matter of lifting a corporate veil, is it? This is a matter of characterising its function vis-à-vis the individual purchasers. It is a statutory function. It is a mechanism which is created for a particular purpose. It is not just the corporation that is brought into existence and it can be treated in the same way as any other corporation.

MR CORSARO: Well, it has all of the indications that it is a corporation like any other - - -

FRENCH CJ: It has got corporate existence, absolutely.

MR CORSARO: It has got a corporate existence. It has got a management which is of a corporate nature. There is an executive committee that deals with the decisions of the owners corporation. It has on the register its own property. It is different from the lots. In other words, it has no particular interest or economic concern in the individual lots, the cubic space which makes up each lot owner’s interests.

When one looks at the body of lot owners in a complex dwelling and looks at the disparate elements in respect of common property and looks at it as a tenant in common issue it makes it very difficult to isolate what part of the common property – for example, if there is damage on my balcony at my home which is common property, the tiles leak, everyone has an interest in that because it is common property. It might be attached to my home. I might be the only person that has exclusive right or interest in living on my balcony, but because it is common property everyone has an interest in respect of the defects in my home.

That is one of the points I was going to raise in respect of the practicality of the suggestion put by our learned friends that the lot owners here could make investigations in respect of the property in any practical or meaningful way. In other words, vulnerability in the sense of being equated with a prospect or possibility of protecting one’s commercial interests needs to have some practicality of approach or possibility attached to it.

The suggestion, for example, that an individual lot owner can make a rational, legitimate decision in determining whether or not to acquire in the circumstances of this contract, in particular - and I will return to it in a moment - as opposed to acquisition generally in respect of this sort of commercial property, needs to be understood as to the practicalities of that matter. Latent defects; the fact that I cannot have access to all of the common property.

It would be unusual that I, purchasing an investment unit in this development, could say I want to go onto the balcony to see what has happened on unit number 201’s balcony. So the means of investigation and the means of acquiring knowledge in respect of making a rational commercial decision for the purposes of property appraising risks simply are not there in this sort of structure.

KIEFEL J: Accepting that investigations are not feasible, the question then is how one usually – the choices one has or the ability to protect yourself contractually. Now, they were faced with a standard form contract. Is it your submission that their lack of bargaining power to be able to change the standard form contract amounts to vulnerability in the sense spoken of?

MR CORSARO: Yes, we do, and there is more. Can I return to the sales contract?

HAYNE J: Just before you develop that, I think that the submissions you have just been making about difficulty of inspection may be submissions that may not sufficiently accept what is entailed in the concept of tenancy in common. Tenancy in common has been described as “promiscuous occupation” and that may then be limited by the particular provisions of the Act, but tenancy in common, you have rights in respect of the whole. Now, if that is cut down by the Strata Titles Act, so be it.

MR CORSARO: But dealing with the practicalities, if I may, your Honour. If each of us in this room would own a lot in a development such as this and the common property which is affected is the common property associated with your Honour’s balcony, it is difficult to understand how your Honour, absent my consent and my involvement in that process, would be able to put a case for the rectification of the entire cost – I am sorry, for the cost of the rectification of the entire work associated with your Honour’s balcony because your Honour only has one - - -

HAYNE J: But you fudge the issue by describing it as my balcony as opposed to common property. If it is common property, the problem goes away. If it is my balcony, my property, there is no problem, I have one. Now, accuracy is very important.

MR CORSARO: I do not mean to fudge. I am trying to deal with a very difficult concept, your Honour.

HAYNE J: Yes.

MR CORSARO: I am not fudging, what I am suggesting to your Honour is this. If we all have a common interest in your Honour’s balcony and I do not mean - - -

HAYNE J: I think we had better not personalise it further, we will get into all sorts of strife.

MR CORSARO: Is it the promiscuous part that is the problem, your Honour? If we all have an interest in - - -

HAYNE J: You can blame Cheshire for that.

MR CORSARO: If we all have an interest in connection with your Honour’s – let us just talk about someone else’s property, not your Honour’s, someone else’s property, that person cannot – that lot owner, even though he has one sixtieth, one one hundredth or one two hundredth of an interest in that common property, can never recover the cost of making good all of the defects of that common property. It requires everyone to sue, your Honour. It does present particular problems, for me as a lot owner, wanting to take care and to ensure that I have ultimate protection to protect myself by any way of bargaining in respect of the defects and the property which I do not occupy, which is common property and which I do not know about, your Honour.

It makes it an incredibly difficult thing to conceptualise as to how a lot owner, if one were to look at the damage issue by reference to the lot owner, would and could take adequate means to protect itself from the risk of damage to the entire common property by its own individual actions at the time of acquisition.

GAGELER J: Mr Corsaro, does a lot owner have insurable interest in the common property?

MR CORSARO: No – I am sorry, there are two issues. Firstly, in respect of its own interest in the common property, perhaps, its one sixtieth per cent interest. But it does not have an interest in the 59th per cent. Because it is a tenant in common, it has the lot together with that piece of common property; the one sixtieth component of the common property attendant to its own lot. In other words, it has got the share relevant to its own purposes. It is hard to see how, in fact, the insurance would be achieved, your Honour.

CRENNAN J: But the premiums to be paid would be paid by all the lot owners, would they not?

MR CORSARO: They would be paid by the owners corporation. That is what usually happens, your Honour.

CRENNAN J: Paid by the owners corporation, but they would be rateably levied against the lot owners.

MR CORSARO: I was going to take your Honour to the relevant provisions about that. The answer is yes, because as I have indicated, your Honour, the structure of the Act envisages that the proper administration and care and maintenance of a common property forms part of the administration functions of the owners corporation which it obtains by statute. Section 78 then says it has an obligation to raise levies in respect of its functions, and section 80 then gives it a right of recovery in respect of any itinerant lot owner who does not pay in accordance with the levies struck. That is the mechanism by which it - - -

CRENNAN J: In a sense, the owners corporation is the representative owner in circumstances where you have 60 tenants in common. That is how it works, really, is it not?

MR CORSARO: It is a representative, but at law it is also a legal owner. That is the way it has been categorised, the way it has been viewed and, from an insurance point of view in the cases to which I have referred, how it has been treated. It has its own separate insurable interest in respect of damage to its own property. I fear I am repeating myself and I will move on, but that is really the analysis.

Can I, though, just return to the sales contract because there is one particular provision which I think may be relevant to the matter at issue. Your Honours, the reports in volume 3 at 1204. As we perceived, our friends have taken your Honours to clause 26.1 at line 45 on that page.

GAGELER J: Keep going, Mr Corsaro.

MR CORSARO: I am sorry, just pausing for his Honour. If your Honours would be good enough to go to 1206 of the appeal book, the developer in this particular instance in clause 31 of the contract, agreed that:

Before completion the vendor must cause the Building to be constructed in a proper and workmanlike manner.

So, in connection with the acquisition of this particular lot, a lot owner would come, would see that in fact the developer has provided that obligation, that warranty perhaps - it is difficult to see how one would construe that for the moment – and our friends submit that the provisions of clause 32.6 and 32.7 in effect bargain away, and perhaps by reference to the purchase price, its rights in connection with suing, in connection with faulty building works. We say that one cannot construe the contract in that way. It simply cannot be construed in that way.

Clause 32.6 is in the nature of a defects liability provision and a defects liability provision in a construction contract, your Honours, serves two purposes. On the first hand, it serves the purpose of enabling the builder, in this case the vendor, to exercise a right it otherwise wold not have, in this case, to return and to repair so that it is able to at its own expense carry out the works in respect of defects notified in that period.

So it is a right given to the vendor and a consequent obligation on the purchaser to enable the vendor to exercise that right so as to mitigate the right that otherwise the purchaser would have to sue for damage. That is how a defects liability provision works. This is how 32.6 and 32.7, in our respectful submission, would work. It does not mean that if at some later stage a defect latent at the relevant time appears, the vendor is not obliged by reference to the provision in clause 31 of the contract, to pay damages in respect of its failure to honour that particular provision of the contract. So we say that on no view can it be seen as a bargaining away of the right.

KEANE J: But it creates obligations on the vendor. It does not say in 32.7 “the vendor may repair”.

MR CORSARO: Yes.

KEANE J: It obliges it to.

MR CORSARO: Yes, your Honour.

KEANE J: Clause 32.6 limits the right of a purchaser to give notice of defects. It seems an odd way to read it to suggest that it is about conferring rights on the vendor.

MR CORSARO: Well, your Honour, one needs to construe 32.6 and 32.7 in the light of what appears in 31, we say, and in 31 there is an obligation that “the vendor must cause the Building to be constructed in a proper and workmanlike manner”, so that, in our respectful submission, construing the contract as a whole, one could not construe, or one should not construe, with respect, 32.6 and 32.7 as the limitation of that obligation so as to only cover defects notified in that relevant time period, your Honour. That is the way we put it.

KEANE J: And 32.5 which speaks in mandatory terms of:

The purchaser must serve notice –

in your submission, that is not cutting back the purchaser’s rights.

MR CORSARO: No, your Honour. Can I indicate why? The regime in 32.1 through to 32.11 is a regime which deals with finishes and the vendor’s obligations to repair. I understand that one ignores the headings but, in essence, what it relates to is the obligation to repair in respect of defects emerging within a particular time period. It should not be seen, in our respectful submission, as a code that effectively does away with the consequences of the breach of the prime obligation in clause 31.

GAGELER J: Is the consequence of that submission that the claim you now bring against the builder in tort could be brought in contract against the developer?

MR CORSARO: If the developer is viable and in existence and not bankrupt and not in liquidation, and we say the possibility of having co-extensive rights does not in any way abrogate from our entitlements to have the tortious advantages, if they are otherwise not excluded. That is the stuff of concurrent liability. It is the stuff that this Court has acknowledged since the time of Astley v Austrust, and we say unless the contract is inimical to the imposition of concurrent duties, then we might have alternate rights against the developer, if they are worth powder and shot, but it does not mean that we do not have obligations against others and we do not have obligations in tort, if they produce procedural or other advantages including time limitations. This would be a six year limitation. In tort, we would get a longer period of time because it relates to the time from when the defect becomes manifest as opposed from the time of breach, which is the time the work is done.

GAGELER J: It is not great for your argument about vulnerability though, is it?

MR CORSARO: Well, can I say this, only if one takes the view that vulnerability is, firstly, a necessary condition for duty, and we say it is not. Secondly, if the acquisition of an alternative remedy is in some way cutting across the concept of duty, and we say it is not. Thirdly, if the co-extensive but not inconsistent rights mean that we should not have the procedural advantages we would otherwise would have had, all of those circumstances, your Honour, to answer your Honour’s question.

BELL J: If you take vulnerability out of the equation, in relation to a tortious duty respecting pure economic loss, what feature do you rely on, apart from foreseeability to establish a duty?

MR CORSARO: Proximity, reliance.

BELL J: What does proximity mean?

MR CORSARO: It means the fact that - - -

HAYNE J: Answer in not more than three hours, write in your number at the head of each sheet, Mr Corsaro. Commence writing.

MR CORSARO: Your Honour is asking me what proximity means?

BELL J: What I am asking, Mr Corsaro, is after we stopped using proximity and vulnerability hoved into view, if it hoves out of view, what is there, apart from foreseeability upon which the duty depends?

MR CORSARO: The things that his Honour Justice Basten relied on if I could refer to those.

BELL J: That was a notion of proportionality in part, was it not?

MR CORSARO: Your Honour, can I just refer to the relevant passage rather than – it is at – it really starts at 1553 of volume 4 of the appeal book at paragraph 116 of his Honour’s judgment. Perhaps it is relevant if I could deal with the way his Honour actually dealt with vulnerability because there is nothing, with respect, untoward in the way in which – can I just turn that up?

If your Honours go to volume 4 at 1518, this is part of the discussion in the court below in respect of the concept of vulnerability. There is nothing unexceptional about the way that his Honour dealt with it. So his Honour dealt with Caltex and Perre v Apand about the plaintiffs neither being physically nor legally able to protect themselves:

from economic loss arising from the negligent conduct of the defendant . . . the defendant is not working on or near –

the relationship, so he deals with the - - -

BELL J: Mr Corsaro, the point of departure here was your submission in response to a question asked of you by Justice Gageler that you were not dependent upon vulnerability. I think you were going to take us to that part of Justice Basten’s analysis which establishes duty absent vulnerability by some criteria in addition to foreseeability.

MR CORSARO: Can I take your Honours to 1554 then? I am sorry, I apologise if I was off on a frolic of my own, so to speak.

BELL J: Which paragraph number - - -

MR CORSARO: Paragraph 120, your Honour.

BELL J: Paragraph 120, thank you.

MR CORSARO: I am reading from about line 41:

There was a superintendent appointed under the design and construct contract, but there can be no doubt that the developer relied upon the expertise, care and honesty of the builder in performing its obligations under the contract -

So we have skill, expertise in respect of the actual works and reliance on that issue -

Whatever may be possible in theory, there is no suggestion that in practical terms the contract was not administered in accordance with usual industry practices, which inevitably involve reliance by the developer on the exercise of responsibility by the builder -

So we have the assumption of responsibility and reliance -

There is no reason in these circumstances to treat the developer as otherwise than vulnerable –

Can I just say, your Honours has asked me irrespective of vulnerability.

BELL J: Yes.

MR CORSARO: We say that is sufficient to constitute vulnerability. The reason I put the submission in the way that I did is that my learned friend’s point is that that is not sufficient. The concept of reliance, the concept of assumption of risk together with the other factors mentioned by his Honour are not sufficient to comprise the element of vulnerability.

So we say even if those elements do not comprise vulnerability, we put the matter in three ways. We say firstly there is no authority of this Court. There is no authority anywhere which suggests that the concept of vulnerability in a multifactorial salient features incremental approach is a necessary precondition. It is one of a variety of factors and there is nothing to suggest that if you have reliance and if you have assumption of responsibility you may not still under the multifactorial approach emerge with the duty issue. So we say it is not a - - -

CRENNAN J: It is not difficult to understand this argument in the context where there is not a complicated contract, for example, a medical practitioner and a patient, or a financial advisor, Hedley Byrne v Heller. That constellation of circumstances, reliance, assumption of risk, is generally employed in the context of a special skill being utilised, not in the context like this context where you have a very complex, very detailed contractual arrangement. I am just lacking in confidence about what you mean when you say “reliance and assumption of risk” in the context of both the D & C contract and also the purchaser’s contract.

MR CORSARO: There is no jurisprudential reason as to why one would divorce in a professional situation when someone comes to see a solicitor for the purposes of undertaking some retainer, where you have a contract which may or may not be bargained, nowadays retainer letters I have seen go to many, many pages. There is no reason why those factors in that situation should not be translated into the present situation.

The complexity of the building contract – the term “complexity”, your Honours, is vague. What is it about the building contract? Is it the fact that under the terms of the standard conditions there are warranties? Even if that were so, why would the existence of the warranties which are not inimical to a general law duty to take reasonable care to carry out the works in a particular way - which may not be exactly referred to in the contract but certainly is not limited in the contract and is not contrary to the obligations in the contract to make the building safe, for example - there should be no reason why one would draw a fine line in the application of those criteria, one set of circumstances to another.

HAYNE J: Well, Mr Corsaro, is it relevant to notice that the development contract and the sale contract both contained provisions about quality of what was to be built, and in one case transferred, and both contained provisions dealing – maybe exhaustively, maybe not exhaustively – with the subject of what consequences would follow from default?

MR CORSARO: It should make no difference, your Honour.

HAYNE J: Why? The parties are shown to have addressed the subject and ended up with a particular bargained position which reflects whatever their competing bargaining positions may be - - -

MR CORSARO: Can I answer it this way, and perhaps it might be rhetorical, and I apologise if it sounds that way. Assume for the moment that the defect in question here that we are dealing with is a defect to the external render of the premises which is liable to fall off the exterior and kill someone. Under the terms of this contract, the contractual obligation on any view would require the work to be done in accordance with the contract. That is as a matter of particular bargain on a private law basis between the two bargaining entities. Tort comes from it from a different perspective. It is an imposition of community standards in a different context.

If contractually the result required will result in having to build the building in a way which ensures the plaster does not fall, why would there be any justification if there is nothing inimical in the contract in the law saying you should not have the procedural and other advantages as to time, as to contribution, as to the variety of different factors that one obtains by imposing on that a concurrent obligation in tort.

The rationale for that has been acknowledged and was accepted in Astley. It has been acknowledged in other jurisdictions. It is consistent with the underlying philosophy and regime. It does not do disservice to the contractual matrix and it procures the same result but provides procedural advantages. That is the way we would put it, your Honour. That is why I say I hope it does not appear to be rhetorical, but that is what the reality of the present situation is. Indeed, his Honour Justice Basten made a finding that the duty of care which he determined was simply not contrary to the contractual bargain at – I will ask my learned junior to find it - but there is a specific finding by Justice Basten in the court below which specifically deals with that particular matter that your Honour Justice Hayne has raised with me.

GAGELER J: Mr Corsaro, as between the builder and the developer here, we have an Australian standard contract. A submission was put against you that clause 42.6(b) creates a contractual obligation which displaces any tortious duty that might otherwise arise. Is there any case law, or even industry understanding, about the operation of a contract in this standard form?

MR CORSARO: I could give you my understanding, your Honour.

GAGELER J: Well, you can give me your submission.

MR CORSARO: I would be flattered if your Honour accepted that as the industry understanding, but it is not an area which is foreign to me, as your Honour knows. The reality is yes. Can I just turn it up?

The way that these things work is that the contracts – this being one of them – are structured in a way which requires the builder to proceed to complete the works to satisfy the contractual provisions. These warranties are not unusual in the standard form contracts. There is then given to the builder a right; an entitlement. That entitlement is, if defects appear within the 52-week, in this case, defects liability period, the entitlement to come and fix.

The reason that is a valuable matter is because absent a defects liability period, there would be a contractual right to sue in respect of breach of contract at the immediate point at which the works are done. It operates in favour of the contractor, but it also operates in favour of the proprietor because what it does is allows the proprietor to call on the original contractor, depending on the wording of the defects liability clauses, to come and rectify any defect in the works, howsoever arising, in other words, it may not even relate to the work carried out by the contractor. That is why the variation provisions can apply in respect of works done during the defects liability period.

What then happens is you have final completion. The works up until defect rectification stage are not finally complete. They are complete except for minor defects and omissions that do not prohibit or prevent occupation of the premises. The defects liability period is a means of getting the owner in early and of allowing minor works to occur in a second round of work. At the end of that period, presumably all works have been done so that no defects are apparent; no omissions are apparent because a defect includes an omission in the works, namely work to be done.

By the time the defects liability comes to an end, there is then a final divvying up of the rights and obligations under the contract, including any potential rights for variations. What then happens is the superintendent, I think, in this case – yes, the superintendent in this case then administers the contract by issuing a final certificate saying this is the final divvying up of moneys, of rights one way and rights the other. That certificate is usually taken to be a final entitlement to sue in respect of the contract. The contract is at an end, except for accrued rights.

A clause like 42.6 which says that the final certificate serves to close off that venue, and which then preserves the right to sue for defects that are not apparent means that there is a recognition, that there is ability to sue for breach of contract following that defects liability period ending with the final certificate. That is my understanding of how it works, and that is how I think your Honours will find this contract works when one goes to the relevant provisions.

GAGELER J: Thank you, but it was not quite my question. My question was what is the position in tort in negligence as between the builder and the developer?

MR CORSARO: We say there is no limitation on suing either for contract or for tort. That is at least how it has been understood. For example, if the defect appears outside the six-year period then it is then customary – I think this is the first case in which this point was taken, this and the allied case of Star of the Sea where Owners have sued for the concurrent duties in tort in respect of defects occurring in the six-year limitation period by reference to the manifestation of the latency.

CRENNAN J: So does the limitation period run from the discovery, does it?

MR CORSARO: Yes. The reason why it is critically important in many cases is that in contract a builder would have six years from the date the works are done. It has particular acuteness in New South Wales and in other jurisdictions that have Home Building Act provisions because the Home Building Act provisions have limited time claims in respect of contractual rights. For example, in New South Wales in respect of residential building works at the current moment, the Home Building Act says you have two years to claim for breach of statutory warranty for structural, seven years for non-structural – I am sorry, six years for non-structural. That is under Part 2C of the Act.

As Justice McHugh, I think it was, in Perre v Apand perhaps – my memory fails me, it might have been Clayton v Hawkins, I am sorry I have just forgotten which case it was – once you categorise economic loss as being the product of the damage to the building caused by something within the building as opposed to external force, it then results in economic loss occurring at the time of manifestation because damage, of course, is obviously a requisite element for a tortious action.

It runs from six years from the date that the damage becomes manifest, so one obtains a very significant procedural substantive right if one has the tortious right to sue because often latency results in the contractual right already going by the time that people know about it. In Bryan v Maloney it occurred many years afterwards – in Pullen v Gutteridge Haskins which we refer to in the written submissions. So it is a recognition that there is a very considerable right which is granted to an owner if it is tortious, and it has been understood, certainly to the extent that I can speak about the industry, that is the way it has been understood.

GAGELER J: I do not want to dumb down your case at all - - -

MR CORSARO: Dumb down my case? I would be grateful if your Honour did dumb down my case.

GAGELER J: In Woolcock, Bryan v Maloney, and I am looking at paragraph 15 of Woolcock, is said to have:

depended upon equating the responsibilities which the builder owed to the first owner with those owed to a subsequent owner.

MR CORSARO: Yes.

GAGELER J: Does your case come down to that?

MR CORSARO: No. My friends say for the Owners Corporation to be successful in this case Bryan v Maloney or Woolcock have established that a successor in title case requires as a precondition to liability for a successor in title the establishment of a duty of care between owner and original builder. We say on no view of Bryan v Maloney and on no view of Woolcock is either case authority for that proposition.

When Woolcock came – I am not going to tell Justice Keane what Woolcock means, but when Woolcock came to be determined, the issue in that case was whether or not Bryan v Maloney had determined a separate category of case and whether the facts in Woolcock came within the principle of Bryan v Maloney so that it was binding and that was the end of it. There was no novelty and no need to then look at any other result flowing from any other principle.

So most of the debate in respect of whether or not the duty, what is described as the anterior duty in that case, had to be owed, was based on the proposition that the case being advanced there was that it fell totally within Bryan v Maloney and the Court in that case said that the Bryan v Maloney category of case was dictated because of the reasoning in that case by one element being the necessity to show anterior duty. We do not accept that.

We say even on the reading of Bryan, Bryan itself does not indicate that it would have been decided differently had there been no existing duty. It is part of the reasoning but there is nothing in Bryan to suggest that it would have been decided otherwise but for that factor. Leave that to one side for the moment, Woolcock certainly does not stand for the proposition that there is only the Bryan v Maloney category of case and there is only one category of case for a successive – a successor in title or a subsequent purchaser, namely having to slot oneself in to the same duty or a duty to be found in an anterior step.

Now, that is part of our contention and we say that simply it is not – there was no authority that establishes that. So we say that in fact there is a neat analysis, with respect, I think, in Justice McHugh’s statement of the principle that indicates that what we put is correct. No doubt your Honour will tell me whether what I have put is wrong, but let me just - - -

KIEFEL J: But why, as a matter of principle, should a subsequent purchaser be owed a greater duty than the original owner or the vendor?

MR CORSARO: Two reasons. Since Voli this Court has accepted that inter partes dealings between party A and party B cannot limit the duty of a third party. If that was so, it would mean that my friends could have an associated company and put in the provision of the contract - - -

KIEFEL J: I think that is an entirely different context, though.

MR CORSARO: Yes and no, your Honour. Voli simply made plain that the contractual dealings between two parties cannot by those dealings eliminate the duty issue in respect of a party who is not privy to those dealings, that is the first point.

BELL J: .....the issue respecting personal injury.

KEANE J: That is right.

BELL J: It is a significant difference, surely.

MR CORSARO: The answer is certainly in respect of personal injuries but what is the juridical basis for limiting it in that way?

KEANE J: Because duties do not exist in the ether. Tortious duties are concerned with the obligation not to inflict loss on others. It is well established that personal injuries, damage to people’s property are in a different category to economic loss, inflicting injury on financial interests for the reason that historically there was not recovery for harm to economic loss until Hedley Byrne v Heller. Hedley Byrne v Heller and the liability there established depended on the notion of actual reliance or assumption of risk. They are the features that make the defendant responsible for the loss that is caused to the party who has either relied on the defendant or has looked at the defendant who has assumed a risk – sorry, who has assumed a responsibility not to cause a loss. You need to identify the loss first.

MR CORSARO: But then, your Honour, we come back to the very simple proposition that I think emerges from cases like Winnipeg and even in the English cases, that there is no good sense, with respect, in trying to limit, for example, that loss to personal injuries but yet not extend that obligation to the elimination by rectification of the very defects which are liable to cause that very result.

KIEFEL J: But that is to identify the wrong damage. The damage here is to financial interest, relevantly. The only interest that has been affected is a financial interest.

MR CORSARO: True.

HAYNE J: It may be said that a fundamental tenet of the capitalist economy is that the market participants seek financial advantage with consequent financial detriment to their competitors. Somehow you have got to fit the law of tort into certain frameworks of the organisation of the commercial system of the country.

KIEFEL J: If you are speaking of the realities of the situation, as you are wont to do, the reality of the situation here is that if attention had been directed in the relevant purchasers’ minds to latent defects and the risk that might have been assumed in relation to it, the choices would have been two. One would have been not to enter into the contract because there was perceived to be a risk; or two, alternatively, to have bargained for some warranty. Now, if they had done the latter, no doubt there would have been an adjustment in the purchase price because the risk would have shifted. But that is the territory that you are in, really.

MR CORSARO: I have got to go into the territory. I am in that territory and I am walking the territory, true it is, but always, your Honour, recognising clause 31 of this contract.

KIEFEL J: But it is in that territory that you are suggesting that it makes sense for the builder to remain liable when all of this happens down the train. People contract in relation to something that has been built, they make their own decisions about what they are going to take as a risk and how much they are going to pay for something. Why should someone have to make good someone else’s financial decisions? That is really what it comes down to.

MR CORSARO: I can do no more than I think put it slightly differently from the way I put it because I do not want to repeat myself. If one goes to the jurisdictions where the duty to avoid pure economic loss has been limited – England, Canada – both jurisdictions - - -

KIEFEL J: Germany.

MR CORSARO: I do not know about Germany, but if your Honour says Germany, then Germany. The two jurisdictions I do know still allow recovery in tort for the type of damage that his Honour predicated in the duty found. It may affect what I am saying on the cross-appeal because I want it broadened. True, that may be a factor. But in circumstances where even in the jurisdictions where tort has been limited there is a clear recognition, absent a limitation in the contract, that tortious obligations should extend to the type of damage that his Honour found in this case and we say that makes perfect sense because it is consistent with the contractual obligation in any event.

CRENNAN J: What are the English cases you are relying on in that regard?

MR CORSARO: I think our learned friends put on a recent - - -

CRENNAN J: Robinson.

MR CORSARO: I am sorry, I think Winnipeg Condominium itself refers to them but in a note that we got yesterday I think from our learned friends and presumably your Honours got, there is a reference to Robinson v Jones, a decision of the English Court of Appeal and in England they have a statute dealing with defective premises. Their Honours, commencing at Part 5, paragraph 37 at page 53 of the Queen’s Bench decision deal with the law, starting at paragraph 37 with the reference to George Mitchell, as your Honours will see, and I will just see whether I can turn it up quickly.

Your Honours will see at 65 there is an observation that the defects in the particular case did not cause personal injury or they did not cause damage to other property - it is an economic loss and they deal with the issue by reference to assumption of responsibility and at - - -

CRENNAN J: Well, at the top of page 60:

The law of tort imposes a different and more limited duty upon the manufacturer or builder. That more limited duty is to take reasonable care to protect the client against suffering personal injury or damage to other property.

MR CORSARO: Yes.

CRENNAN J: Then I think the threads are drawn together at paragraphs 87 and 88 - - -

MR CORSARO: Thank you, your Honour, and in this particular case it was - - -

CRENNAN J: Page 63. They bear out what Justice Kiefel was putting to you, I think, that a purchaser of a building, and here I know the claimant was the original owner so it does not have that complication, but there are really three choices. You can either not accept a contract, not buy the apartment say or bargain for warranties in relation to latent defects or, there is a third choice; accept the risk themselves in an allocation of risk sense for the latent defects and choice 2 and 3 will both have an impact in relation to price.

MR CORSARO: Can I deal with the two aspects of the matter that I need to deal with as a result of that? The first is that in Robinson v Jones, as I recall it, the court was not minded to find the duty to avoid economic loss for the cost of rectifying defects liable to cause personal injury or damage because in that particular case that was excluded by a limitation of liability clause. There was a specific clause saying that will not be - - -

CRENNAN J: Well, the court found in paragraph 86 that that was a sensible allocation of risk. It seems to be accepting that the parties to the building contract made as part of their bargain the allocation of risk in relation to latent defects.

MR CORSARO: Yes, and that was typified by virtue of an exclusion clause which excluded liability, but their Honours went on to say but for that, they would have found that obligation which is consistent with the obligation and the way that his Honour Justice Basten saw the defects in the case. His Honour saw the defects in the case as being structural in the sense of causing damage to the occupants, or alternatively potentially causing damage to the property. It is also consistent with the way the Canadian Supreme Court has dealt with it in a case called Rivtow, out of which Winnipeg was born, and your Honours will see reference to that in Winnipeg.

HAYNE J: But the question you have to confront is, is it consistent with where we have got to?

MR CORSARO: Your Honour, it is the policy issue that - - -

HAYNE J: No, no, no. Is it consistent with what the state of authority is, given Bryan v Maloney followed by Woolcock?

MR CORSARO: Yes, we say it is, your Honour.

HAYNE J: Or are succeeded by Woolcock. I do not think Woolcock can be quite characterised as following Bryan.

MR CORSARO: We say it is, and I will come to that briefly, if I may. The second point that falls out of what your Honour Justice Crennan asked is what else could they have done. There is a clause in this contract that imposes, if we be right on this construction, an absolute obligation on the developer to get it right at the time of construction. As we construe the contract - - -

HAYNE J: But what do the particular terms of the contract matter? Is it not enough that the contract addresses the subject to whichever effect? The parties are in a relationship where they order their affairs according to their bargain.

MR CORSARO: The answer is no. Can I tackle that head on, and I do not mean to be disrespectful, your Honour, in saying that. The answer is one needs to see what they have actually bargained for. The mere fact that the subject matter has been touched upon would gloss over the proposition, for example, that there is an observation in some of these cases that say if there is no real bargaining one needs to take into account the practicalities of the bargaining; one needs to take into account the availability and practicality of what has occurred.

Then, if the mere fact that the matter has been referred to or there is occasion for it to have been taken, then we say that the fact that it might have been taken or might have been referred to is inconsistent with this Court’s finding in Barclay v Penberthy and we refer to that in the written submissions. But it has to be more than an opportunity, and the mere reference to the subject matter, we say, is not sufficient, even on the authorities as they currently stand, your Honour.

HAYNE J: Well, that takes you off into the several criticisms of Bryan v Maloney made by Justice Brooking in Zumpano v Montagnese [1997] 2 VR 525 at pages 528 and following, the difficulties that his Honour identified and which are referred to in Woolcock, as being presented by the Bryan v Maloney solution.

MR CORSARO: I hope I am not doing the case disservice, but as we understand what was actually happening in Woolcock, that dealt with whether or not one could slot oneself within the Bryan v Maloney context. It did not deal with whether or not the pre-existing anterior duty had to be found in all cases in connection with successor cases or subsequent purchaser cases.

If your Honours just excuse me, I was going to turn up his Honour Justice McHugh’s statement of what was occurring in that case as support for the proposition. I just have not been able to find it and hopefully my junior will turn it up in a moment. Can I put the matter this way? The correct approach, we say, is the multifactorial approach in connection with this duty if it is novel. That requires an investigation of the circumstances between the plaintiff, the first respondent in this case, and the defendant.

In Woolcock Street, after the view was taken that Bryan did not dictate the matter, the reasoning did not stop. This Court went on to consider whether or not as a stand-alone duty, even though there could be no duty of care coming out of the facts in Woolcock vis-à-vis the original owner, nevertheless one could find the duty in connection with a subsequent purchaser.

There is no doubt that the analysis went further, and it went further because the first limb was shut out on the anterior duty. The second limb had to then be considered on a multifactorial approach. The case then turned on the issues which unfortunately were pleaded and the case stands pregnant with the observation that the pleading did not plead the relevant requirements sufficient for the court on the stated case to find one way or the other as to the existence of that duty.

The simple point is the stand-alone duty was looked at and was rejected on grounds which are very particular to Woolcock Street itself. This is the passage that I have been looking for and my junior has finally turned it up. May I invite your Honours to go to Woolcock Street at [2004] HCA 16; 216 CLR 515 at 542. This is the part of his Honour Justice McHugh’s decision which I was hoping to find where his Honour deals with the ratio decidendi of Bryan:

The first issue in this appeal is whether the ratio decidendi of Bryan v Maloney covers the present case. If it does, Woolcock must succeed. If it does not, a further issue arises as to whether this Court should hold that those involved in the building of commercial premises owe a duty to subsequent purchasers that is similar to the duty owed by a builder to a subsequent purchaser of a dwelling house.

What is replete in that comment is it was a two-phase investigation. The first is where all of the discussion occurred in respect of the pre-existing duty, the anterior duty. Why the observations in Woolcock, for example, the Chief Justice’s observation that the case failed at the anterior step is because in that particular case the subsequent purchaser put all of its eggs into the Bryan v Maloney basket. Nevertheless, there was an investigation in respect of whether or not the circumstances otherwise justified the stand-alone duty.

We stress – and I am sorry to repeat myself, I will not further – it failed because of a pleading point. It did not fail because of the failure to find a pre-existing duty, and we say there is no case which establishes that as a matter of principle and there is no reason why as a matter of law it ought be found.

KEANE J: Well, when you say it failed as a pleading point, it failed because the pleading did not allege any facts that might be regarded as proving factually, rather than attributing fictionally, reliance or an assumption of responsibility in respect of the contract whereby the property was purchased.

MR CORSARO: Yes, but that is not this - - -

KEANE J: Absent those facts, no duty. Now, is your submission that those facts are supplied here?

MR CORSARO: Yes.

KEANE J: What are the facts that show reliance or assumption of responsibility in respect of the contracts that the purchasers made, that the investors made?

MR CORSARO: The individual investors, your Honour, as opposed to - - -

KEANE J: Well, so far as the owners corporation is concerned, it is difficult to see how it could be said to have relied at all. It did not do anything by way of reliance and there is nothing by way of assumption of responsibility towards it.

MR CORSARO: We say two things: firstly, Woolcock does not stand for the proposition that the anterior duty has to be found.

KEANE J: All right.

MR CORSARO: Secondly, the pleading point is, with respect, as your Honour Justice Keane points out. Thirdly, we say we are a creature of statute and we are particularly vulnerable in the sense that we have put it. Fourthly, in respect of the individual lot owners, we say clause 31 has a warranty in it saying that the developer will ensure that it is built to completion in accordance with property standards.

KEANE J: So you say you have got a contractual right.

MR CORSARO: We have a contractual right against the developer if 31 is to be interpreted in the way that we put it, but we say, your Honour - - -

KEANE J: It is still enforceable.

MR CORSARO: Well, it might be enforceable if he is alive or if it is a viable entity. We go back to the proposition that I put, and I do not want to repeat myself, even though we have an alternate right or may have an alternate – even as individual lot owners, if it is fair to equate in a way that we say one should not, the interests of every individual lot owner at point 1 of the time period, at the point of initial acquisition, with the statutory corporation, we say – and your Honours know how we put the case and I will not go back to it – if it is relevant to look at the interests of the individual lot owners, then they might have a duty – I am sorry, they might have an obligation which they could press, assuming the developer was around in respect of loss to them, and the loss to them does not equate to the loss in respect of the overall common property defects. It relates to their individual loss in respect of their one one-hundredth or whatever it is, your Honour, share and interest in that property. So if I bought it, I would have that. So we stand especially, your Honour - - -

KEANE J: Looking at the stand-alone duty then, how do you say there is a case of reliance by the owners corporation or an assumption of responsibility by Mr Jackson’s client in its favour that you can rely on to show the stand-alone duty?

MR CORSARO: We say two things, reliance and assumption of responsibility are only two factors. We get vulnerability in a different way, if we are the owners corporation. We get it by the imposition of the obligation under section 62 of the Act, to repair our property which we automatically acquire, without selection, without choice and without the ability of freedom to contract out of it, at the point of registration.

So we do not have reliance as the owners corporation, we cannot, we do not exist, but it does not mean we are not vulnerable because what emerges clearly out of the case is that the multifactorial approach is a varied approach. You look at all the relevant features and ultimately it is weighing - and there is a value judgment, I cannot be gainsaying to say there is no value judgment, I think it is clear that there has got to be a value judgment by this Court in respect of where we go.

FRENCH CJ: What principle informs the conclusion from consideration of a number of factors that there is a duty of care?

MR CORSARO: Well, I will answer it this way, which may not be a satisfactory answer. His Honour Justice McHugh I think once said, and I think it might have been in Woolcock, that this Court has strived over the course of many, many years, to arrive at a general principle which applies in all cases. His Honour went on to say that maybe that will never happen, so it is a case-by-case basis. That is consistent with a Perre v Apand approach in relation to incremental development. It is by analogy with Bryan v Maloney and the vulnerability arises in our particular case - - -

FRENCH CJ: But you are not depending upon the doorway of vulnerability for your conclusion that there is a duty of care.

MR CORSARO: We do not have to, your Honour, but if we do, as an owners corporation, we have it automatically because we acquire the property. But we say there is no authority of this Court, there is certainly no authority that I could point your Honours to it to indicate that in that multifactorial approach - we have given on the list authorities Justice Allsop’s judgment in Caltex v Stavar, which we think is, with respect to his Honour, a very convenient and neat summary of the principles.

He there, by reference to every case which has been decided, although it was not an economic loss case, sets out the correct approach in another category. It is the approach which we advocated below; I think his Honour Justice Basten refers to it, and by reference to all those authorities, his Honour the President set out a variety of factors which the cases recognise as relevant to consider in the weighing up process ultimately a value judgment as to whether or not a duty is owed.

Vulnerability is one, and I am not here to try and convince your Honours that this Court has not said it is an important factor, but the simple point we make is, your Honours have never said that it is the only factor and so it involves a weighing up of various considerations and in circumstances where we have an owners corporation, the owners corporation has to assume this liability, it has no choice.

FRENCH CJ: I think we have been round that track.

MR CORSARO: Yes, I do not want to go around that track again, your Honour. I do not want to go around that track. Can I just say, in connection with one of the questions I think came from Justice Gageler, namely, the fact that we have got an alternative contractual right against the developer, I think Justice Macfarlan, with respect, put the matter much more succinctly than I could and we say, correctly, below.

HAYNE J: While you are looking for it, that proposition which you say can be deduced from Justice Macfarlan’s reasons would be directly contrary to, for example, what Justice McHugh says in paragraphs 110 and 112 of Woolcock.

MR CORSARO: That means I do not have to go to the particular proposition, your Honour has obviously - - -

HAYNE J: It seems to me that at some point in the argument, Mr Corsaro, you have got to confront the fact that there is a majority of the Court in Woolcock which until I am persuaded otherwise seems to me to be directly against your submissions and it can be seen I think clearly in, for example, Justice McHugh at 110 and 112.

MR CORSARO: Can I just turn that up?

HAYNE J: Of course.

MR CORSARO: Yes, that stands starkly in contrast with two things, his Honour’s own judgment in Astley which I think came eight months before this case - I am sorry, Perre which came eight months before this case.

HAYNE J: His Honour makes more than one reference to Perre v Apand in Woolcock.

MR CORSARO: I must say, I have tried to reconcile why his Honour - - -

CRENNAN J: In paragraph 113 his Honour precisely refers to what he said in relation to Perre v Apand which bears on this issue.

MR CORSARO: Sorry, 117?

CRENNAN J: Paragraph 113. Justice Hayne took you to 110.

MR CORSARO: Yes, where a contract exists the concepts and assumptions of responsibility in reliance may create it. We say, your Honour, there itself even Justice McHugh’s own words by reference to his earlier judgment, the proposition that if you have no contract, you have no duty. You have to have a contract to have a duty. Provided the contract shows assumption of reliance and responsibility, then you can have a duty.

So we say there is nothing contrary to Justice Macfarlan’s statement. It is, with respect, the proposition that the ability to contract or the existence of a contract must stand in stark contradistinction to what this Court has said in Astley v Austrust and what the courts have repeatedly accepted comes from Astley v Austrust. True it is, it needs to be reconciled but at the end of the day if the existence of the possibility of contract is a determinant, it is difficult to see why Barclay v Penberthy was not determined otherwise.

It is difficult to understand why if the consumer sophisticated contracts with a large firm of lawyers at the exorbitant rates that these lawyers charge with a detailed retainer why that does not create a concurrent duty and the courts have found a concurrent duty in that regard. The Stavar propositions come out of 102 and 103 and when your Honours look at 103 of the President’s judgment, your Honours will see the multifactorial task involves a variety of circumstances.

The only other thing that I want – I am conscious of the time and I have made a commitment to my learned friend. There are only two things I want to say in relation to the amplification of the duty contended for. I have had to concede, and I concede frankly, that there were two justifications for his Honour Justice Basten’s limitation of the duty to the structural issue and the safety issue. I have tried to indicate where his Honour got that from Winnipeg and why it stands also as a limitation to the temporal indeterminacy problem that his Honour grappled with and resolved in the judgment below.

The only thing that we want to say in addition to the written submissions on the duty contended for, which is the subject of the special leave point, is if economic loss is triggered by the existence of defects that entail either a diminution in value of property or the need to expend money, then the significance of the expenditure or loss does not depend on the characterisation of the type of defect involved. An expensive non-structural item may have a greater significance and loss in value in the property than a structural requirement.

We say that if the concern is the limitation of liability, then that could have been very well dealt with, as his Honour seemed to suggest, by the structure found in the limitation provisions of the various States. In New South Wales there is a close-off position, 109ZK of the Environmental Planning and Assessment Act which says, irrespective of what happens, any building case is drop dead at 10 years, no more. So that has other equivalent provisions I think in Northern Territory and South Australia –

Victoria and South Australia, but we say if the concern was to limit duty to deal with indeterminacy, there was no justification for it.

GAGELER J: Ten years from what?

MR CORSARO: I am sorry, 10 years from completion – sorry, from occupation certificate. So there is usually, as your Honour would know, when a building is complete, a certificate is handed over by the council or the prescribed certifying authority which allows occupation, and it is 10 years from that point. If your Honours want to see how it has operated in respect of the matter, there is a decision of his Honour Justice McDougall. We can provide a note.

There are cases that have dealt with the limitation. I will just ask my learned junior to turn it up and if I may I will indicate what that is once we have it, but that will demonstrate how the section that we have referred to operates and there are equivalents, as I have indicated, in the other States and I think in the Northern Territory. Would your Honours just excuse me? Yes, I indicated earlier that there was a part of his Honour Justice Basten’s judgment where his Honour found that the contract was not inconsistent with the duty of care established. Your Honours will find that at 98 of his Honour’s judgment, volume 4.

FRENCH CJ: Page?

MR CORSARO: Page – my junior is not that good, your Honour.

KIEFEL J: Page 1546.

MR CORSARO: I am indebted to your Honour; and 99, the last three lines.

FRENCH CJ: Thank you, Mr Corsaro. Yes, Mr Jackson.

MR JACKSON: Your Honours, may I say something first generally, and then turn to a number of specific matters arising from our learned friend’s submissions. Your Honours, speaking generally, the position is that the purchasers of lots were also purchasers of the related interests, if I can put it neutrally, in the body corporate. They paid what they paid for what they got and for what they were bound to do in the future. That included obligations ultimately enforced by the ability to levy unit holders in order to maintain the building.

The nature of the claim made by our learned friends is in the end one which says – difficult to see why there would be a limitation – it says that the builder is always liable in tort to the body corporate. That would seem to be the result that follows from the argument and why, your Honours? One asks why, and the answer seems to be because that is the way it should be. Your Honours, the difficulty with that is that it is hard to see why, if that be the case, one would limit the potential liability to latent defects or would limit it to latent defects having particular qualities. It just would seem to be a statement that there should always be a liability in the builder in tort to the body corporate in respect of such a building.

Your Honours, if one goes to Woolcock for a moment – and perhaps I could put the point more shortly by referring to our written submissions. If one goes to our written submissions at paragraph 63, where the passage from - - -

HAYNE J: Sorry, paragraph?

MR JACKSON: Paragraph 63, your Honour - - -

HAYNE J: Thank you.

MR JACKSON: - - - submissions in-chief. We would say in that regard that the appropriate conclusion was that reached by Justice McHugh in Woolcock in the paragraph which we have there set out. Your Honours, could I come to deal with a number of other submissions made by our learned friends. The first concerns the superintendent. I do not want to dwell unduly on this aspect, but insofar as the position between developer and builder is germane, the position of the superintendent is important because it demonstrates that the developer can and has taken steps to protect itself.

I have taken your Honours to clauses 23, 26, 30.5, 31.1 and 31.2 of that contract. They include, amongst other things, the provision to which I referred earlier and, your Honours, they are in pages 715 and immediately following. Your Honours will see that there is a particular provision which allows the superintendent to require inspection before things are covered over. The superintendent does indeed have considerable powers and one would expect him to exercise them and your Honours will see the earlier provision to which I referred said that that was in effect what the superintendent was to do.

If you add to that the provision to which our learned friend referred in clause 25 at page 715 of volume 2, the contractor’s representative, you will see that the participation by the principal in the matter was to be considerable.

Your Honours, could I mention also one aspect, and that is the position of the unit holder? Some question was raised I think about whether the unit holder would suffer – could suffer any damage. Well, the unit holder, one would think, would suffer damage in two respects. One would be that the value of the property overall would be diminished, and the second would be that there is an obligation – one is exposed to the obligation – one is exposed to a levy which must be imposed to meet the cost of repairs. That is provided for by section 76(4) of the Management Act.

Your Honours, so far as the Winnipeg Case is concerned, our learned friend said, well, at least I have Bryan in support of that. Your Honours, that is what I had I think in the Woolcock Street Case and it was not much good to me then either, with respect.

Your Honours, could I deal now with clause 26.1 which is the provision in volume 3 at page 1204? That is clause 26.1 of the sale contract. My learned friend has said, well, how could the buyers go and inspect the premises and so on? Well, accepting all that, what they were required – what was contemplated was that they warranted – that they had taken independent advice about the rights and obligations under the contract. That is rights and obligations. What that demonstrated, if they were taking the proper advice, would have been that they were potentially at risk in respect of any costs that might be involved in the future in relation to the building, save to the extent that they were dealt with otherwise by the contract.

Your Honours, another issue that was mentioned was who can sue in respect of some of these things. Could I refer your Honours to section 228 of the Management Act in respect of structure? It says in section 228(1) that any interested person, a term defined:

may take proceedings for the rectification of the condition of a part of a building, or a part of the site of a building –

if it affects support or shelter, to put it shortly. “Interested person” is defined in subsection (4) and your Honours will see also subsection (2) which provides some limitation on the ability to bring such proceedings. Those are proceedings for rectification of condition, of course, as distinct from claims for money. A question was raised and I thought I should refer your Honours to the provision.

Your Honours, could I go then to the ability to ensure - the body corporate has an ability to ensure – I do not think I need to take your Honours to the provision except to give the reference. It is section 88(1) of the Management Act.

Could I go then to volume 3, please? Could I go back to the sales contract in volume 3 at page 1207? Your Honours, if it be that clauses 32.1 through to 32.11 do not cover the situation and that there is a greater right given by clause 31, then the position is that greater rights are given to the purchaser than otherwise might be the case. If that is so, the greater the rights that are conferred, the less there would seem the “need”, to use the word in inverted commas, to import a potential liability in tort.

Could I say, your Honours, in relation to potential liability our learned friends have referred to the fact that it is a multifactorial exercise involving salient features and there was a third attractive word which I am afraid I have just forgotten to describe the concepts that are involved. But if one looks at it and asks what really are the factors in this multifactorial activity it really comes down, in our submission, to no more than the fact that the body corporate comes into existence on the registration of the plan. It is foreseeable, your Honour Justice Bell’s question to my learned friends, but what else is there?

Your Honours, in our submission, there is relevantly nothing else or, at least, nothing sufficient to produce the notion that there should be a duty in tort apart from the fact that it would be convenient if you are a body corporate for there to be such an obligation. Your Honours, our learned friends - if I could go back to volume 2 at page 731 and this is in relation to clause 42.6 – could I say in relation to that, your Honours, what one sees on page 731, about line 33 on the page, is that the final certificate is “evidence” – it does not say conclusive evidence, of course, but is evidence that all:

Works have been completed in accordance with the terms of the Contract –

Now, if one goes to clause 30.1 on page 718, you will see the obligation to use “proper and tradesmanlike workmanship”, similarly at clause 30.3. If one goes further back to clause 4 at page 700, you will see 4.1(a) and 4.1(e) to which I referred your Honours earlier, indeed also create such obligations. Now, your Honours – sorry, the point I am seeking to make in relation to that is this. That one does see that the terms of clause 42.6 have a potential effect in limiting the ability otherwise to sue and what it means is that the parties have arranged their affairs in that regard.

Your Honours, may I mention three – sorry, four further things. The first is I was going to refer your Honours to what had been said by Justice McHugh in Woolcock Street 216 CLR at paragraph 108 at page 558, it immediately precedes the passage to which I think your Honour Justice Hayne referred my learned friend and it is to the same effect.

The second point, your Honours, was this and it is something referred to in our reply submissions in paragraph 9. You will see the builder – and we have referred to Voli and in Voli the builder who constructed the stage was not liable because his contract confined his obligations to constructing in accordance with the architect’s plans. Your Honours, that is a slightly forensic point I am making but could I just say it is in response to the proposition that the issue is resolved or that Voli assists significantly towards this resolution.

Your Honours, the penultimate point is this. Our learned friends referred to the reasons of Justice Allsop in Caltex v Stavar 75 NSWLR at pages 676 to 677. His Honour there is setting out a list of all the factors that one might possibly take into account in the multifactorial approach to things. Your Honours, and I do not mean this in any way adversely critical to what his Honour said, but it is simply a list of possible factors drawn from many cases referred to in, I think, the next paragraph.

If one looks at them what they tend to suggest by the collection of them is that they are mostly ones listing factors which might help a plaintiff. It is the nature of them because cases have said it might be this, it might be that and if you add them all together and see what you get.

KIEFEL J: Are they also factors which are more referable to a pre-existing relationship?

MR JACKSON: Yes, your Honour, yes, that is so. Your Honours, could I just say this in relation to suing on the agreement for sale. If one just looks at suing on the promise contained in the agreement for sale in relation to the position of the Owners Corporation at clause 32.7, I think, the promise given there is one which is for the benefit of a third party, albeit a third party yet to come into being, the body corporate.

Now, in relation to that, your Honour, there is no reason, in our submission, why the body corporate could not sue, joining the original party to the contract in order to enforce a contract for its benefit as a third party. Also, your Honours, we would submit that by virtue of section 20, it could sue on behalf of the owners.

Your Honours, could we just go to our outline of submissions and refer your Honours to what we have said in paragraph 12, that it is difficult to see any policy reason why an owners corporation should have greater rights in respect of the common property in the building than have been provided for by the contracts agreed upon by the original investors. Your Honours, those are our submissions.

FRENCH CJ: Thank you, Mr Jackson. The Court will reserve its decision. The Court adjourns until 10 o’clock tomorrow morning.

AT 3.54 PM THE MATTER WAS ADJOURNED