FEDERAL COURT OF AUSTRALIA

Joey Constructions Pty Ltd v IT Environmental (Australia) Pty Ltd [2018] FCA 534

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application filed on 30 September 2016 be dismissed.

2.    The costs of and associated with the interlocutory application filed on 30 September 2016 be the applicant’s costs in the cause.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WIGNEY J:

1    This interlocutory application provides further proof, if further proof be needed, of the difficulties and dangers inherent in attempting to determine whether an action for damages for misleading and deceptive conduct or negligence is statute-barred, other than at a final hearing when sufficient is known about exactly how the applicant puts and seeks to prove its case concerning damages.

2    The applicant, Joey Construction Pty Limited, commenced proceedings against the respondent, IT Environmental (Australia) Pty Limited (formerly known as Fluor Daniel GTI) on 21 January 2016. It alleges, in summary, that an environmental site assessment report prepared by IT Environmental in May 1997 for Australian Petroleum Pty Limited (now known as Caltex Australia Petroleum Pty Limited) contained a misleading and deceptive representation that a property in Granville then owned by Caltex was suitable for “residential purposes” and that “no further action at the site [was] necessary”. That is said to amount to a contravention of ss 52 and 53A of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW). Joey also alleges that IT Environmental owed it a duty of care and breached that duty in making the representation in the report. Joey claimed it was induced to purchase the Granville property in November 1997 in reliance on the representation, and that it suffered loss and damage arising from the alleged contraventions of the Trade Practices Act and Fair Trading Act and the negligence of IT Environmental.

3    IT Environmental filed a defence to Joey’s claim in which it pleads, amongst other things, that Joey’s claim is statute-barred by reason of s 14(1)(b) of the Limitation Act 1969 (NSW), s 82(2) of the Trade Practices Act and s 68(2) of the Fair Trading Act. IT Environmental contends, in that regard, that any damage suffered by Joey was suffered on either 25 November 1997, the date it exchanged contracts for the purchase of the Granville property, or 13 February 1999, the date one year after Joey’s purchase of the property was settled. The basis of the latter contention is said to be that the alleged contamination of the property that provided the foundation for Joey’s claim that the representation was misleading or negligent was reasonably discoverable from 13 February 1998 onwards.

4    IT Environmental was sufficiently confident of the merits of its limitation defence that it sought to have the issue determined prior to the trial of the substantive action. It did not, however, apply to have Joey’s claim summarily dismissed or struck out. Rather, it applied to have the Court hear and determine the issue by way of preliminary questions pursuant to r 30.1 of the Federal Court Rules 2011 (Cth). It was initially envisaged that the separate questions would be determined by reference to an agreed statement of facts. As events transpired, however, the parties were unable or unwilling to agree on the facts. IT Environmental proposed, in those circumstances, that the separate question be determined on the basis of an assumption that all of the facts alleged by Joey in its pleading would be made out. IT Environmental made it clear, however, that the assumption was to be made only for the purposes of the determination of the separate questions. Somewhat curiously, Joey appeared to consent, at least initially, to the determination of the limitation issue in this manner.

5    Despite the position taken by the parties, for the reasons that follow, the limitation issue is not an issue that is amenable to determination by way of the separate or preliminary questions proposed by IT Environmental. It is not possible to answer the proposed questions on the basis of the pleadings alone. The application for the hearing of the separate questions must accordingly be dismissed.

JOEY’S PLEADED CASE

6    It is perhaps an understatement to say that Joey has had some difficulties in formulating and properly pleading its claim against IT Environmental. Its originating application, filed on 21 January 2016, was wholly unsatisfactory. It was a strange hybrid document which contained both details of the relief claimed as well as some paragraphs that purported to be “pleadings and particulars”. Both IT Environmental and Caltex were named as respondents. The claim was said to be under the Trade Practices Act and the relief claimed was “damages for consequential losses arising out of remediation expenditure” and “damages for consequential losses of business caused by the delay in the project including finance costs and loss of opportunity to commence further ventures”. The purported pleadings and particulars were, at best, unclear and confused. There were other difficulties with Joey’s initial claim, including that IT Environmental was deregistered as a corporation by the Australian Securities and Investments Commission between Joey commencing proceedings against IT Environmental and the first case management hearing on 16 February 2016.

7    Joey subsequently managed to have IT Environmental re-registered. In late March 2016, Joey filed an amended originating application and statement of claim. It discontinued its action against Caltex. The statement of claim was an improvement on the previous pleadings, but not by much. In July 2016, Joey filed, by leave, a further amended statement of claim. IT Environmental filed its defence in August 2016.

8    The essential facts pleaded by Joey in support of its claim are relatively narrow in compass. In 1997, Joey identified the Granville property as a potential future development site. The property was zoned so as to permit low-density residential development. Joey knew that the property had formerly been used as a petrol station by Caltex. At some stage, Caltex had commissioned IT Environmental to conduct an investigation and provide a report as to whether the property was suitable for residential use. Caltex provided IT Environmental’s report to Joey when Joey expressed interest in purchasing the property. When Joey contracted with Caltex to purchase the property in November 1997, the report was allegedly annexed to the contract.

9    Though not specifically pleaded, it appears to be common ground that, on 25 November 1997, Joey exchanged contracts for the purchase of the property. It would appear that the settlement of the property purchase occurred on 13 February 1998 and that Joey became the registered owner on 19 February 1998.

10    It is unclear from Joey’s pleading what, if anything, occurred in respect of the property between November 1997 and late 2009. In late 2009, Joey succeeded in having the property rezoned as being suitable for commercial tenancies and other commercial purposes. In February 2010, Joey lodged a development application with Parramatta Council to build a residential apartment complex. It was advised by the Council that it needed to do its own soil testing to ensure that the property was suitable for residential use before the Council would approve the application. Having received that response from the Council, Joey retained its own consultant to test the soil on the property. The report prepared by Joey’s consultant stated that there was a possibility of contamination on the property and that it was not suitable for residential use without further remediation. In November 2010, Joey retained another consultant who reported that the property would be suitable for a mixed residential and commercial development subject to further remediation and validation. That work was done and, in June 2011, the site was validated such that Joey was able to proceed with the development of the property.

11    As noted earlier, Joey claims that the IT Environmental report contained a false and misleading representation. That representation was that the property was “suitable for residential purposes and that no further action at the site [was] necessary”. Joey contends that the representation was false and misleading because, when it purchased the property in 1997, it was “obviously contaminated it was and not fit for residential use”. As will be seen, that assertion sits rather oddly with Joey’s submissions in opposition to this interlocutory application that the contamination of the property was a latent defect.

12    Joey also contends that the IT Environmental report contained an implied representation that the property would be suitable to be developed as a hardware store or another development unrelated to a petrol station. The report is said to have given rise to that implied representation because if the property was suitable for residential purposes, it must also be suitable for any purpose not related to a petrol station. This implied representation is also alleged to have been misleading and deceptive.

13    Joey contends that it relied on the IT Environmental report, and the express and implied representations concerning the suitability of the property for residential or other uses, when deciding to purchase the property. It relied on the report because it “potentially wanted to develop a hardware store or a low-density residential development on the Land or potentially have the Land rezoned to enable future commercial or residential developments to be undertaken on the Land”. Joey alleges that it was misled by the express and implied representations and induced to purchase the property in reliance on those representations.

14    Joey claims that, by reason of the misleading and deceptive nature of the express and implied representations in the report, IT Environmental contravened ss 52 and 53A of the Trade Practices Act and s 42 of the Fair Trading Act. It also claims that it suffered damage by reason of those contraventions and seeks an award of damages pursuant to s 82 of the Trade Practices Act and s 68 of the Fair Trading Act.

15    Critically, for the purposes of this application, Joey’s pleading contains no particulars whatsoever of the damage that it claims to have suffered. It is unclear whether Joey claims that it purchased the property for more than it was worth having regard to the contamination that it subsequently discovered, or whether its damages claim relates only to the fact that it was required to perform remediation work to make the property fit for its intended uses. The initial originating application filed by Joey tended to suggest the latter, though the present pleading is completely silent on the issue.

16    Joey also contends that IT Environmental owed it a duty of care because IT Environmental knew or ought to have known that Joey or other potential purchasers of the property would rely, or most likely rely, on the report in deciding whether to purchase the property. Joey alleges that IT Environmental breached its duty of care because it failed to exercise care and skill, both in the environmental investigation it carried out and in the preparation of its report. Detailed particulars are provided of the alleged deficiencies. Joey claims that it suffered economic loss as a result of IT Environmental’s “negligent misstatement” and claims damages “in this regard”. It is again entirely unclear from the pleading exactly what damage Joey claims to have suffered as a result of IT Environmental’s alleged negligence.

17    In support of this application, IT Environmental tendered a copy of the contract between Joey and Caltex in relation to the purchase of the property. Three points should be noted about the terms of the contract. First, the contract contains an acknowledgment by Joey, as purchaser, that it cannot make a claim, objection or requisition, or rescind or terminate the contract, in respect of, amongst other things, any environmental hazard or contamination disclosed in the contract, any latent or patent defect in the property, or anything disclosed in the environmental site assessment of IT Environmental attached to the contract. Second, the contract includes a release and indemnity whereby Joey releases and indemnifies Caltex in respect of any claims it may have against Caltex arising out of, or in any way connected with, any environmental contamination of the property. Third, the contract includes an acknowledgment by Joey that it had inspected the property and was aware that the property had been used for the storage and dispensing of petroleum products.

18    It is not difficult to see why Joey discontinued its claim against Caltex. The question whether those contractual acknowledgements may adversely affect Joey’s claim against IT Environmental, particularly its allegations concerning reliance, does not arise on this application. IT Environmental accepted, for the purposes of this application, that Joey relied on its report in purchasing the property. It should be noted, however, that the acknowledgments in the contract again sit somewhat oddly with Joey’s claim that the contamination was a latent defect that was not discovered or discoverable by it until April 2010.

THE PROPOSED SEPARATE QUESTIONS

19    Rule 30.1 of the Rules provides that a party may apply to the Court for an order that a question arising in the proceeding be heard separately from other questions. IT Environmental’s interlocutory application seeks an order that the following questions be heard prior to, and separately from, any other question in the proceedings:

1.    On what date did the Applicant’s cause of action based on alleged negligence accrue?

2.    On what date did the Applicant’s causes of action based on alleged contraventions of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) accrue?

3.    Having regard to the answers to questions 1 and 2 above, are these proceedings statute-barred under section 14(1)(b) of the Limitation Act 1969 (NSW), section 82(2) of the Trade Practices Act 1974 (Cth) and section 68(2) of the Fair Trading Act 1987 (NSW)?

Relevant principles – separate questions

20    The starting point for considering any application under r 30.01 is that, in the ordinary course, all issues of fact and law should be determined simultaneously: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-142. The Court must therefore be persuaded that the determination of separate questions facilitates the just resolution of disputes as quickly, inexpensively and efficiently as possible, consistent with the overarching purpose in s 37M of the Federal Court of Australia Act 1974 (Cth): see Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718; (1999) 217 ALR 495 at [8]-[9]; Olbers Co Ltd v Commonwealth of Australia (No 3) [2003] FCA 651 at [8].

21    While the decision to order a hearing on separate questions is ultimately one for the Court, the Court will generally have regard to the attitude of the parties: TVW Enterprises v Duffy, M.J. & Ors [1985] FCA 109 at 4. It should perhaps be noted, however, in the specific context of this case, that the Court is less likely to have regard to the attitude of the parties where it becomes apparent that the parties have not given careful thought and consideration to whether it is genuinely appropriate and possible to determine the proposed separate questions, and to the precise basis upon which the questions are to be decided.

22    As has already been noted, Joey initially appeared to consent to the resolution of the limitation issue by way of the proposed separate questions. At a case management hearing shortly after the interlocutory application was filed, Joey submitted, through its counsel, that the limitation issue was “fairly narrow and probably separate to the substantive issues of breach and damage”. As will be seen, the suggestion that the limitation issue is separate to the issue of damage is nonsense. That appears to have been recognised by the time of the hearing of the application. At the hearing, Joey submitted that the application should be dismissed. The basis of that submission will be considered later in these reasons.

23    Irrespective of the attitude of the parties, it is generally accepted that the determination of separate questions is a “procedure that should be adopted with caution and can be fraught with difficulties”: Save the Ridge Inc v Commonwealth (2005) 147 FCR 97 at [15]. More significantly, it has also been accepted that it is generally undesirable to isolate a preliminary question of law when the factual foundation for the determination of that question has not been resolved: Rocklea Spinning Mills Pty Limited v Anti-Dumping Authority (1995) 56 FCR 406 at 423; SmithKline Beecham (Australia) Pty Ltd v Chipman [2002] FCA 674 at [35]. The “identification of separate questions for determination on the basis of an incomplete set of assumed facts is fraught with difficulty”: Director of Fisheries (NT) v Arnhem Land Aboriginal Land Trust [2001] FCA 98; (2001) 185 ALR 649 at [163].

24    As has already been noted, it was initially envisaged that the separate questions would be determined on the basis of an agreed statement of facts. It would appear, however, that the parties were unable or unwilling to agree on any facts for the purposes of this application. In those circumstances, the parties proposed to proceed on the basis that the facts pleaded by Joey in its further amended statement of claim would be assumed to be proved for the purposes of the application. That is despite the fact that IT Environmental’s defence took issue with many of the pleaded facts and IT Environmental made it tolerably clear that if its application failed, it would contest the facts in issue on the pleadings at the final hearing.

25    It is difficult to see how the determination of separate questions relating to a limitation issue, based purely on the pleaded allegations, taken at their highest, differs in any material respect from an application for summary dismissal. The only real difference is that the summary dismissal of a claim is interlocutory in nature, whereas a determination of a separate question is final.

26    There could be little doubt that, had IT Environmental applied for summary dismissal of Joey’s claim on the basis that it was statute-barred, it would have faced significant difficulties. It is well-accepted that it is a rare case in which the operation of a limitation period would justify summary dismissal of a proceeding. In Wardley Australia Limited v Western Australia (1992) 175 CLR 514, the High Court said (at 533):

We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question.

27    Those sentiments have been echoed in many cases: see for example SZWBH v Minister for Immigration and Border Protection (2015) 229 FCR 317 at [31]; PZ Cussons (International) Ltd v Rose Dora Imports Pty Ltd [2007] FCA 1642 at [14]; Chang v CST Minerals Lady Annie Pty Ltd [2015] FCA 620 at [11]; Queensland North Australia Pty Ltd v Takeovers Panel [2015] FCAFC 68; (2015) 320 ALR 726 at [75]; Melisavon Pty Ltd v Springfield Land Development Corporation Pty Ltd [2014] 1 Qd R 476 at [54].

28    It is clear that exactly the same considerations operate to make it generally undesirable, if not inappropriate or impossible, to determine whether a proceeding is statute-barred on the basis of separate or preliminary questions, particularly when the questions are supposedly to be determined purely on the pleadings.

29    In Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1, the Full Court allowed an appeal where the primary judge had, on the determination of a separate and preliminary question, held that actions for misleading and deceptive conduct under the Trade Practices Act were statute-barred. The preliminary question was to be determined on the basis of the pleadings and a statement of agreed facts. Beaumont J, with whom Black CJ, Gummow, von Doussa and Hill JJ agreed, said (at 15):

It is also necessary to bear in mind that, in order for declaratory relief of the kind sought by Westpac to be granted, the court is required to give a definite, and affirmative, answer to the separate or preliminary question asked. That is to say, the court cannot give a definite answer to the question whether a claim is barred, or not, because, for instance, the answer depends upon an analysis of the evidence offered at the trial, the court should state that it is not possible to give a definite answer to the question at that stage and the matter should proceed to trial without any declaration being made: see eg UBAF Ltd v European American Banking Corp [1984] 1 QB 713 at 728.

30    His Honour subsequently stated (at 17):

In this connection, it will be recalled that the appellants have not yet provided particulars of the loss or damage they allege they have suffered. It must also follow that it is not yet possible to decide, in any conclusive sense, whether or when the appellants suffered any relevant loss or damage. In other words, whether any of the causes of action pleaded under the Trade Practices Act are, or are not, statute barred will necessarily depend upon an analysis of the evidence at the trial.

31    The approach taken by the Full Court in Magman was expressly approved in Wardley at 533.

32    The parties did not take the Court to Magman or any of the authorities concerning the undesirability of determining limitation issues other than at trial. IT Environmental relied instead on the decision of Hansen J in Rod Investments (Vic) Pty Ltd v Abeyratne (No 2) [2009] VSC 278. That case did not concern a limitation issue. Rather, it concerned preliminary questions concerning the applicability of the Federal proportionate liability provisions in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth). Those provisions only applied if the plaintiff’s causes of action accrued on or after 26 July 2004. The preliminary questions were answered on the basis of particular paragraphs of the plaintiff’s pleading. Hansen J held that the causes of action accrued before 26 July 2004. That was because the causes of action related to a misleading representation that induced the plaintiff to purchase shares and it was unequivocal on the pleadings that the losses claimed by the plaintiff were suffered when the shares were acquired at an undervalue before 26 July 2004.

33    As will be seen, however, it is by no means unequivocal on the pleadings in this matter that the loss and damage claimed by Joey was suffered when it purchased the property in November 1997 or February 1998.

The limitation issue

34    Given the factual chronology, it is hardly surprising that IT Environmental raised a limitation defence. The potential limitation issues are fairly obvious from Joey’s pleading. As has already been made clear, however, it does not follow that it is appropriate, or possible, to determine the limitation issues by way of the proposed preliminary questions and on the basis of the pleadings alone.

35    The following matters were either essentially common ground, or were not contested, in relation to the relevant limitation period.

36    First, an action for damages under s 82(1) of the Trade Practices Act was initially required to be commenced within three years after the day on which the cause of action accrued: s 82(2) of the Trade Practices Act. The limitation period was, however, increased to six years by an amendment made by the Trade Practices Amendment Act (No 1) 2001 (Cth). The relevant amendment commenced on 26 July 2001. The relevant savings and transitional provisions had the effect that the six-year limitation period applied to causes of action that accrued before 26 July 2001, but only if they did not accrue more than three years before that date.

37    Second, the relevant limitation period in respect of actions for damages under s 68(1) of the Fair Trading Act was also initially three years from the date on which the cause of action accrued: s 68(2) of the Fair Trading Act. That limitation period was increased to six years as a result of an amendment made by the Fair Trading Amendment Act 2003 (NSW). That amendment commenced on 25 August 2003. The relevant savings and transitional provisions had the effect that the new six-year limitation period did not apply to a cause of action that accrued before the commencement of the amendment, and that the three year limitation period continued to apply in such cases as if the amendment had not been made.

38    Third, the limitation period for a cause of action founded on tort, including negligence, in New South Wales is six years running from the date on which the cause of action first accrued: s 14(1)(b) of the Limitation Act.

39    Fourth, a cause of action based on a contravention of the Trade Practices Act and Fair Trading Act accrues when actual loss or damage is sustained: Wardley at 525.

40    Fifth, a cause of action in tort accrues when “actual loss occurs”: D’Agostino (t/as D’Agostino Solicitors) v Anderson [2012] NSWCA 443 at [7] and the cases there cited. Damage which is merely prospective or contingent does not qualify as actual damage for this purpose: Wardley at 531.

41    The critical question on this application is whether it is possible to determine, on the facts as pleaded alone, whether Joey suffered actual loss arising from the alleged misleading and deceptive conduct, or alleged negligence of IT Environmental, at a time more than six years before 21 January 2016, being the date it commenced this proceeding. IT Environmental contended that the answer to this question is “yes” because it is clear on Joey’s pleaded case that it suffered loss on the date it exchanged contracts to purchase the property. That was on 25 November 1997, obviously well before 21 January 2010. Joey, on the other hand, contended that it only suffered damage on or after April 2010, when it discovered the “latent defect” in the soil of the property.

42    The answer to this critical question, however, is not as straightforward as either IT Environmental or Joey would have it. There are at least two potential difficulties. The first difficulty, somewhat ironically, is that the precise nature of Joey’s damages claim is unclear from the pleadings. The second difficulty concerns whether the authorities relating to latent defects apply to this case or, more particularly, whether the pleaded facts are sufficient to determine whether that is the case.

43    As for the first difficulty, in Wardley, the majority stated (at 527) that the “kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected”. The difficulty here is that it is somewhat unclear from Joey’s pleaded case exactly what interest Joey alleges was infringed and, more to the point, unclear exactly what economic loss Joey claims that it suffered when that interest was infringed.

44    It would appear to be tolerably clear that, where a plaintiff claims to have been induced to enter into a contract to acquire property by a misrepresentation or negligent misstatement and, as a result, acquires the property at a price greater than the actual value of the property, the plaintiff suffers loss and damage at the time the contract is entered into. It does not necessarily follow, however, that a plaintiff who claims to have been induced to enter into a contract to acquire property by a misrepresentation or negligent misstatement necessarily suffers, or claims to have suffered economic loss of that type at the time they entered into the contract. That proposition was effectively rejected by the majority in Wardley at 528, 531-532; see Christopoulos v Angelos (1996) 41 NSWLR 700 at 704. The question whether the plaintiff suffered loss of that type at the time of entry into the contract will depend not only on the precise way that the claim is framed, but also on the evidence.

45    IT Environmental’s contention that Joey suffered damage when it entered into the contract to purchase the property, allegedly having been induced to do so by the misleading and deceptive statements, or negligence, of IT Environmental, assumed that Joey’s pleaded case is that it suffered damage upon entering into the contract because the property was worth less than it paid for it. Nowhere in the pleading is that alleged by Joey. Indeed, as has already been noted, Joey’s pleading provides no particulars whatsoever of the nature of the loss or damage it claims to have suffered.

46    Nor can it necessarily be assumed, in the absence of any evidence, that the property was in fact worth less than what Joey paid for it by reason of the contaminated soil. Even though Joey’s case appears to be that it entered into the contract in the belief that the land was fit for a residential development without the need for any further remediation works, it does not necessarily follow that it paid more than the true value of the property. This case is far removed, at least at this stage, from HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640, one of the cases relied on by IT Environmental. In that case, there was unchallenged evidence that the plaintiff was worse off on exchange of contracts or settlement because the market value of the property purchased by the plaintiff as a result of the defendant’s breach was less than the price paid by the plaintiff: see HTW Valuers at [28]); see also Hutchinson v Equititour Pty Ltd [2011] 2 Qd R 99 at [35]-[36], where there was evidence that the “true value” of the property was less than the price the plaintiff had paid.

47    It is at least possible that Joey’s case will be that it was induced by IT Environmental’s misrepresentations or negligence to purchase the property for a particular purpose, being to develop for residential uses, and that it only suffered loss and damage when it attempted to apply the property to that purpose and discovered that was not suitable for such a development without further remediation works. It may be no part of Joey’s case, and there may be no evidence to suggest, that the property was worth less than the price Joey paid for it. If that turns out to be the case, it may be that Joey did not suffer any loss or damage until February or April 2010, and that its claim is therefore not statute-barred. In those circumstances, Joey’s case may be analogous to, and relevantly indistinguishable from, the case considered by the Court of Appeal of the Supreme Court of Victoria in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358.

48    In Peerless, the respondent claimed damages for breach of contract and misleading and deceptive conduct arising from its purchase of machinery (the RTO) on the basis of representations that it was fit for a particular purpose. The appellant contended that the respondent’s Trade Practices Act claim was statute-barred because the respondent suffered loss at the time the contract was entered into, which was outside the limitation period. That contention was rejected. Nettle JA, with whom Ashley and Dodds-Streeton JJA agreed, after referring to HTW Valuers and Henville v Walker (2001) 206 CLR 459, said (at [106]):

In the result, I take the law to be that where a plaintiff is induced by misleading and deceptive conduct to purchase an asset for a particular purpose for which it is unsuitable, and there is no evidence that the asset is worth less than the price agreed to be paid for it, no loss is incurred until and unless the asset is applied to the particular purpose for which it is purchased and is as a result found not to be as the plaintiff was induced to believe that it would be.

49    Nettle J rejected the appellant’s contention that upon entry into the contract, the respondent was obliged to pay the purchase price and thus suffered loss at that point. His Honour said (at [113]):

On the evidence, there was nothing to show that the RTO was worth any less than the price which the respondent agreed to pay for it. There was no loss necessarily and irretrievably sustained until the respondent incurred the costs of installing and commissioning the RTO for the purpose for which it was falsely represented to be suited.

50    It follows from this analysis that IT Environmental’s contention that Joey’s case, on the pleadings, is that it suffered a loss when it entered into the contract to purchase the property must be rejected. That is not necessarily the case. Nor is it necessarily the case that Joey in fact suffered a loss at that time on the basis that the property was worth less than what Joey paid for it. That may turn out to be the case, but that will depend on the evidence. For the purpose of this application, there is no evidence, or assumed or agreed fact, that the “true value” (cf. Hutchinson at [35]-[36]) of the property was less than what Joey paid for it. Nor can that be inferred or assumed. On the present pleadings, it is at least open to Joey to contend that it only suffered loss and damage when it expended money on the remediation works after it ascertained that, contrary to the alleged representation by IT Environmental, such works were necessary for the property to be fit for residential use. Whether that turns out to be the case, and whether Joey is ultimately able to make out such a case, will depend on the further particularisation of Joey’s case, and the evidence that is led at trial.

51    The second difficulty for IT Environmental relates to the cases concerning latent defects. It is well established that in tort cases and, it would appear, in cases involving misleading and deceptive conduct in contravention of the Trade Practices Act, time commences to run when damage is suffered and that the cause of action accrues at that time, even if the plaintiff is unaware that damage has been suffered: Hawkins v Clayton (1988) 164 CLR 539 at 561-562, 587-588, and 599-602; Wardley at 540, 554-555; Commonwealth v Cornwell (2007) 229 CLR 519 at 523; Christopoulos at 703; Scarcella v Lettice (2000) 51 NSWLR 302 at [15]; Peerless at [108].

52    It is, however, equally well established that where an owner suffers economic loss because of the existence of latent defects in a building, loss or damage only accrues when the defects become manifest or are otherwise discovered, and not before: see Scarcella at [16] and the cases there cited. That principle has been extended to cases involving latent defects in title: Christopoulos at 705; Registrar-General v Cleaver (1996) 41 NSWLR 713; but only in cases where the defects in title would not be discoverable by normal conveyancing procedures; Scarcella at [22], [32].

53    The rationale behind the principle may be traced back to the judgment of Deane J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503-505, where his Honour said:

… the respondents’ claim … is for the loss or damage represented by the actual inadequacy of the foundations, that is to say, it is for the cost of remedying a structural defect in their property which already existed at the time when they acquired it … It is arguable that any such loss ... should be seen as being sustained at the time of acquisition when, because of ignorance of the inadequacy of the foundations, a higher price is paid … than is warranted by the intrinsic worth of the freehold or leasehold estate that is being acquired. Militating against that approach is the consideration that, for so long as the inadequacy of the foundations is neither known nor manifest, no identifiable loss has come home: if the purchaser or tenant sells the freehold or leasehold estate within that time, he or she will sustain no loss by reason of the inadequacy of the foundations. The alternative, and in my view preferable, approach is that any loss … involved in the actual inadequacy of the foundations is sustained only at the time when that inadequacy is first known or manifest. It is only then that the actual diminution in the market value of the premises occurs.

54    In Christopoulos, which concerned a latent defect in title, Handley JA said (at 705):

The courts have been endeavouring to work out the relevant principles in the area of tortiously caused economic loss on an incremental, case by case basis. There is no general principle that loss is not incurred until it is discovered or discoverable, but in some cases that is when loss is first incurred. A clear rule has been laid down for loss caused by latent defects in buildings and a close analogy exists between such cases and the present.

55    Joey contended that the principle concerning latent defects may apply to a latent defect in the nature of contaminated soil, even if that may involve an incremental extension of the principle. It submitted that if it is assumed that it relied upon IT Environmental’s report to satisfy itself as to the suitability of the property before it purchased it, it is reasonable to assume that a subsequent purchaser may also have been similarly satisfied. In those circumstances, so the argument went, Joey could have sold the property at full value before it discovered the contamination and would not have incurred any loss.

56    IT Environmental, on the other hand, submitted that Joey’s submission in that regard was akin to the argument that was rejected in Scarcella, where the defect in title was discoverable by ordinary conveyancing principles. In those circumstances, Handley JA said (at [32]):

In my view the chance of avoiding loss which is dependent upon a speculative and improbable breach of duty by the solicitor for a future purchaser should not prevent the recognition of economic loss when an asset with a defective title such as this is purchased for more than its true value.

57    IT Environmental’s submission in that regard, however, rather demonstrates the difficulties in dealing with this issue on the basis of assumed facts based on the pleading. The resolution of the issue must depend on the evidence, including the evidence concerning the nature of the property, the nature of the soil contamination, how readily the contamination could have been ascertained by a prospective purchaser, whether it would have been reasonable for a prospective purchaser to rely on the IT Environmental report without making independent inquires or seeking independent expert advice, and similar such matters. It is neither appropriate nor possible to resolve this issue on the basis of the pleaded facts alone. It also should be noted, in this context, that real issues may arise at the trial, when all the evidence is adduced, as to whether the contaminated soil on the property could in any event be considered to be a latent defect, in the sense that it was not discoverable with reasonable diligence. But again, that is an issue for the trial.

58    The principles relating to limitation issues in cases involving, or potentially involving, latent defects are by no means easy to apply, even in cases where the evidence and facts are settled: cf. Melisavon at [70]-[72]. Needless to say it is even more difficult to see how the principles could readily be applied in a case involving the determation of separate questions on the basis of assumed, but incomplete, facts.

CONCLUSION AND DISPOSITION

59    It follows from a close analysis of the limitation issue in this matter that it is neither possible nor appropriate for the issue to be determined by way of the proposed separate questions and on the basis of the pleadings alone. At this stage of the proceeding, no answer can be given to the proposed separate questions. The assumed facts, based on the pleadings, are not sufficient to enable the questions to be answered. It is more than likely that the limitation questions will only be able to be answered on the basis of the evidence led at trial. IT Environmental’s interlocutory application must accordingly be dismissed.

60    It should perhaps be noted that at the hearing of the application, IT Environmental suggested that if the Court had any “disquiet or discomfort” in determining the limitation issue on the basis of the separate questions, its application could be taken as being an application for summary dismissal. That was despite the fact that the interlocutory application did not seek summary dismissal as an alternative to separate questions. No detailed submissions were made in support of the proposition that Joey’s claim should be summarily dismissed on the basis of the limitation issue.

61    In any event, even if the application could properly be treated as an application for summary dismissal, it would have no merit for essentially the same reasons as those given for refusing the application for determination of the limitation issue by way of the separate questions. To use the words of the majority in Wardley, “insufficient is known of the damage sustained by [Joey] and of the circumstances in which it was sustained to justify a confident answer to the question” whether Joey’s action is statute barred. This is far from a clear case. It is at least arguable that Joey’s claim is not statute barred.

62    It should also perhaps be reiterated, or emphasised, in this context, that nothing that has been said should be taken as indicating that Joey has anything more than a potentially arguable case that its action is not statute barred. At trial, when the evidence and facts are clear, there may turn out to be considerable force in IT Environmental’s contention that the action is statute-barred. Needless to say, Joey may also face a number of other difficulties in making its case out at trial.

63    The only outstanding issue is whether IT Environmental should be ordered to pay Joey’s costs of the unsuccessful application. There are two factors that militate against ordering IT Environmental to pay Joey’s costs, despite Joey being the successful party. The first consideration is that Joey initially did not oppose the limitation issue being determined by way of the separate questions. The second consideration is that Joey’s success, and IT Environmental’s failure, on the application was in part due to the lack of clarity and detail in Joey’s pleadings, particularly in relation to loss and damage.

64    In all the circumstances, the appropriate order is that the costs of this interlocutory application be Joey’s costs in the cause. If, as it turns out, Joey is successful in its action, it should have its costs of this application. If on the other hand, Joey fails at trial, and in particular if it fails because it turns out that, upon the whole of the evidence, the action is statute barred, Joey plainly should not recover its costs of this application.

Associate:

Dated:    20 April 2018