Monday, 2 December 2013

Unscrupulous builders will use any trick in the book to try escape liability - not this time says Judge Hammerschlag

So what was the trick the builder tried this time?  Quite an audacious one actually.  In terms of s80D of the Strata Schemes Management Act 1996 (NSW), an owners corporation ("OC") of a building must not seek legal advice or commence legal action unless a resolution is passed at a general meeting of the OC approving this.

Now this requirement is in the Strata Schemes Management Act, and based on this, as well as a common sense reading of the section, one would assume that this is intended for the protection of unit owners within a building and not as a loophole through which a builder who has been sued can try escape.  But no, they saw the loophole and they tried to drive their ute through it.

In The Owners Strata Plan No. 73943 v 2 Elizabeth Bay Road Pty Ltd the OC claimed against the builder for breach of the statutory warranties set out in the Home Building Act 1989 (NSW) due to alleged defective building work carried out by the builder.  The OC retained lawyers to bring the claim and the claim was initiated before a resolution to this effect had been properly passed.  The resolution was, however, passed after the event.  And wouldn't you have guessed it, the builder found this out and shouted "hey that's my defence"?

The position is precisely summed-up by Judge Hammerschlag as follows:

"The defendant moves for an order that the proceedings be struck out or dismissed on the grounds that they were commenced "without lawful authority".

It puts that the prohibition in s 80D(1) on initiating legal action is only capable of being removed by a resolution passed before the action is taken and that the plaintiff's resolution passed afterwards is ineffective to remove it. It puts that the absence of a prior resolution is an insuperable statutory inhibition on the commencement of proceedings and denies them legal effect.

The plaintiff accepts, the point having been taken, that to further the action there must be compliance with s 80D(1). It says that the resolution of 7 March 2013 is compliance. It accepts that if this is not the case the action cannot proceed.

This gives rise to the following two related questions:

(a) are proceedings commenced without prior compliance with s 80D(1) of no legal effect, that is, a nullity?

(b) if not, can the bar to legal action imposed by s 80D(1) be lifted by a subsequent resolution?"

Maybe the builders thought they were lucky as there were two authorities relied on by them that found that a failure to pass a resolution at all in terms of s80D would render proceedings brought by an OC void.  However, in those cases, unlike the present, there was no resolution passed after the fact and, in at least one authority, the defence was raised by a unit owner - the very person s80D seeks to protect.

So Judge Hammerschlag's answers to the questions in (a) and (b) above were no to the first question and yes to the second.  His conclusion was as follows:

"Division 3 of the Strata Schemes Management Act is directed to curtailing expenditure and more widely to minimising internal dispute by way of imposing requirements on processes internal to the owners corporation.

The words of s 80D(1) do not, let alone clearly, reveal an intention to take away any common law right of the plaintiff or to curtail the jurisdiction of the court to entertain a claim.

I do not consider that a statutory purpose of a provision directed to limiting expenditure (and then only above particular levels) without specific authority is to visit nullity on legal action taken and the possible forfeiture of common law rights even where the necessary authority is given ex post facto."

A valiant attempt by the builder, but not this time. 

The issue was raised as a preliminary point, so the case still needs to go to a hearing to be finally determined.  Maybe the builder should just put its pride in its pocket and instead of trying to drive his ute through the loophole, drive it back to the building, loaded with tools, to do the necessary repairs or, failing that, loaded with money to pay the OC. 

My bet is they'll try their luck at a hearing.  If they've got the guts to try the preliminary point, they'll think of something to try at the hearing too.  Maybe they'll draw Judge Hammerschlag again.  Because what goes around, comes around.  Especially when you're dealing with loopholes.

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