The recent introduction of Project Intervene, an initiative implemented by the NSW Building Commissioner with the overarching objective of resolving issues concerning serious defects in residential buildings without the extensive costs and delays associated with litigation, has sparked some controversy within NSW Courts and Tribunals, particularly in regard to how the Courts and Tribunals case manage building defect litigation in respect of residential buildings that are also under investigation by Project Intervene.
Earlier this year, his Honour Justice Darke delivered a landmark interlocutory decision in the matter of Strata Plan 99576 v Central Construct Pty Ltd [2023] NSWSC 212, which has since been followed by other jurisdictions. In that case, his Honour declined an application that was made jointly by the builder and the developer seeking a stay of the proceeding on the basis that the residential building in question was also under investigation by Project Intervene.
His Honour’s decision was significant and in some respects may be viewed as being in conflict with one of the key objectives of Project Intervene; that is, to enable stakeholders to avoid costly litigation and to lessen the burden on Courts and Tribunals in connection with defect litigation. This article explores such issues further and provides some working examples on how the Court’s robust position on stay applications in the context of Project Intervene matters can be dealt with.
Project Intervene
Project Intervene was established by the NSW Building Commissioner in late 2022. It is an initiative aimed to resolve serious defects in residential apartments. To be eligible for Project Intervene:
- the building must be a residential apartment building over 4 storeys high;
- there must be a serious defect on common property relating to either fire safety, waterproofing, structure, building enclosure or building services
- the contractor or developer must still be trading (not insolvent);
- the occupation certificate must have been issued in the last ten (10) years.
Project Intervene relies on the powers of Fair-Trading NSW and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act) to reach an agreement between the builder and the owner to rectify serious defects. The serious defect areas addressed by Project Intervene include:
- waterproofing systems;
- fire safety systems;
- structural systems;
- building enclosures; and
- building essential services.
The program aims to avoid costly and lengthy processes of litigation through facilitating negotiations between developers and owners and encourages developers to negotiate with the NSW Building Commission. The processes adopted by the Commissioner include the following steps:
- The developer enters into a Deed Poll arrangement with the Commissioner. The Deed Poll seeks to appoint an undertaking manager to further investigate any defects present at the site and establish an approved design for rectification of the defects. All designs must comply with the RAB Act.
- Once the undertaking manager and the developer have agreed upon the rectification method of the serious defects, the Commissioner requests that the developer provides an undertaking to rectify the serious defects. This usually involves the developer providing security for the value of the rectification works.
In the event that the Developer is unable agree on either the defects present at the site or a rectification method of the defects, the Commissioner may issue a building works rectification orders pursuant to section 33 RAB Act. The building works rectification order specifies a timeframe in which a developer must rectify serious defects. These orders may be made public by the Commissioner. If the developer fails to rectify the serious defects within the timeframe specified, the developer may be issued with a penalty notice pursuant to section 57 RAB Act. The penalty notice requires the developer to pay a fine for their failure to complete the rectification works.
Project Intervene provides a useful alternative to solve issues raised in court proceedings. Often owners corporations have commenced proceedings in the relevant court or tribunal prior to referring the matter to Project Intervene. Indicating that usually owners corporations and developers are trying to address the same defects on two different fronts.
Strata Plan 99576 v Central Construct Pty Ltd[2023] NSWSC 212
A stay of proceedings occurs when a court exercises its statutory power to halt proceedings either permanently or until a specified date.
The recent decision of Strata Plan 99576 v Central Construct Pty Ltd [2023] NSWSC 212provides clarity as to when applications to stay proceedings (subject to concurrent Project Intervene processes) will be accepted.
In August 2021, the Owners Corporation of Strata Plan 99576 (Owners) commenced proceedings for damages in the Supreme Court of NSW against the contractor and the developer who was the builder of the strata development (Builders). The Owners alleged that the building work was seriously defective and failed to comply with the Building Code of Australia.
In December 2022, the Owners sent a letter to the Department of Fair Trading concerning the defects in the building. By January 2023, Fair Trading had referred the dispute to Project Intervene. In February 2023, the Builders sought a stay of the Supreme Court proceedings as the works had also become the subject of an investigation under Project Intervene and the RAB Act.
The Builders argued that Project Intervene was a parallel process dealing with the same subject matter as the Supreme Court proceedings and could be considered ‘double dipping’.
The Builders submitted 5 reasons for the stay (at [12]):
- “that there were prospects that the allegedly defective work the subject of the proceedings may be rectified either by the defendant pursuant to a building work rectification order or otherwise by the Secretary pursuant to s 42 of the Act;
- there were risks of inconsistent findings of fact in different courts about the same subject matters (in particular in the event that there was an appeal to the Land and Environment Court pursuant to s 49 of the RAB Act);
- a stay of the proceedings would avoid costly and time-consuming litigation which is consistent with the stated purpose of Project Intervene;
- it was vexatious and oppressive for the plaintiff to have initiated the Project Intervene process when Supreme Court Proceedings were already well underway; and
- that in the absence of a stay there may be considerable wastage of governmental resources in connection with the Project Intervene process”.[1]
Decision
The Court held that the outcome of the process under Project Intervene and the RAB Act was too uncertain to warrant delaying the Court proceedings.[2]
Justice Darke noted at [14] that “not only is the overall outcome of the process quite uncertain, the time for completion of the process is itself most uncertain, particularly when regard is had to the possibility of legal proceedings arising out of that process, whether that be in the nature of an appeal to the Land and Environment Court or an administrative law challenge to decisions made under the Act”.[3]
His Honour rejected the stay application noting that section 43 RAB Act contemplates that court proceedings may be determined even if orders under the RAB Act have been made.[4]
Whilst his Honour accepted that there may be a risk of inconsistent findings in different courts, that risk was not of a magnitude that it should impinge upon the Owners’ prima facie right to seek to uphold its legal rights in Court and obtain an award of damages.[5]
The fact that a Project Intervene investigation was on foot did not warrant the proceedings in Court to be delayed on that account.[6]
Further, in granting a stay the Court will usually consider any prejudice caused to either party. However, His Honour stated at [18]:
“the defendants have not pointed to any particular prejudice that they would suffer were a stay not granted, although I think that the very existence of the parallel processes is likely to cause some prejudice to the defendants. I have taken that into account”.[7]
The Court also refused the stay as the builders could not demonstrate that the concurrent Project Intervene investigation and court proceedings would cause any further prejudice.
Key Takeaway
The Courts and the Tribunal have continued to adopt his Honour’s approach in Strata Plan 99576 v Central Construct Pty Ltd [2023] NSWSC 212 in dealing with other matters which are akin to the situation the parties in that matter found themselves in. In fact, the Tribunal has also refused stay applications even when all parties to the litigation have either sought or consented to it.
One of the key take aways from his Honour’s decision is that due to the infancy of the Project Intervene initiative, there is still significant uncertainty as to the expediency and effectiveness of the initiative. In addition, in circumstances where the initiative is driven by an investigation that is conducted by a third party (as opposed to by the parties themselves), there may be times where the initiative deals with some but not all of the complaints the owners might have in connection with alleged defects and/or incomplete work within a residential building.
Generally, his Honour’s decision not to grant a stay is consistent with the general practice of the Courts and Tribunal in NSW; that is, if a proceeding has been initiated, the litigation is to be case managed having regard to the objectives set forth in s57 of the Civil Procedure Act 2005 (NSW), including the efficient disposal of the business of the Court, and the timely disposal of the proceedings and all other proceedings in the Court at a cost affordable by the respective parties. In other words, the Courts and Tribunal are often reluctant to order a stay of proceedings unless it can be demonstrated that, among other things, the parties seeking the stay will suffer significant prejudice unless the stay is ordered.
This however creates some difficulties, particularly for builders and developers who are met with both litigation and a Project Intervene investigation. We act for a number of builders and developers in this situation. Issues that have arisen for those parties include, among other things, an effective allocation of time and resources, and the incurring of significant additional costs in having to address both the investigation and the litigation.
One way in which the risk can be circumvented is by way of negotiating a dismissal of the proceeding with the owners corporation such that the owners corporation’s right of reinstatement is reserved. This is to enable the Project Intervene investigation to run its course and/or to enable the parties to otherwise negotiate a resolution; a step which is more often than not skipped due to, among other things, time pressures caused by statutory warranty expiry periods.
However, every matter is different and every party has a different set of circumstances and challenges. Our approach is to first understand what those circumstances and challenges are in the context of a concurrent investigation and Court proceeding prior to advising our clients on their options moving forward.
[1] Strata Plan 99576 v Central Construct Pty Ltd [2023] NSWSC 212, [12] (Darke J).
[2] Ibid [14].
[3] Ibid [14].
[4] Ibid [15].
[5] Ibid [16].
[6] Ibid.
[7] Ibid [18].
