Australia: Fair suck of the sauce bottle: Can a builder be sued twice for the same defects?

Last Updated: 19 September 2014
Article by Justin Cotton

There can be few things more stressful, as a Builder, of having had a matter litigated at VCAT or in the courts and then having what seems like the same building defect claims materialising at a later time.

Particularly in domestic building disputes, the standard terms of settlement if a case settles outside a hearing, is that the Builder is given a full and final release in regard to all claimed building defects that are currently known, or ought reasonably to be known to exist to the parties at that time (ie the time the terms are signed).

But what happens where a domestic building dispute has already been ruled upon at Court or at VCAT (including any decision on defects), but then the same owners (or subsequent owners) then come back at the Builder down the track with more defect claims?

The issue then becomes, is the new claim relating to 'new defects', that were not known or could not reasonably have been known to exist at the time of the earlier settlement or ruling – or are they instead a regurgitation of the same or similar defect problems?

In such cases, and remembering that every fact situation is unique, the Builder can perhaps raise the legal argument of 'issue estoppel'. This is possibly 'legalese' for saying that a party should not be sued twice for the same thing.

There is a seminal case of the High Court that looked at this factor, in a matter involving a workplace injury to a worker (Mr Sotareles) caused by crane equipment, in circumstances where the (faulty) crane had been hired from the Port of Melbourne Authority by the worker's employer.

Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45

The earlier case with Sotareles' claim for personal injury compensation for an accident caused by crane equipment hired by Anshun from the Port Authority, had decided the contributions under the Wrongs Act between Anshun and the Authority.

In a second later proceeding, the Authority tried to claim the amount it had paid to Mr Sotareles, under an indemnity clause in the crane hire contract between itself and Anshun. The Authority argued that the cause of action about the indemnity was not canvassed in the Sotareles action and was not determined in that judgment, so no form of "estoppel" would apply to prevent the indemnity being raised in a second later action.

Two closely related legal defences in this type of scenario can be summarised as follows:

Res Judicata (cause of action estoppel): the right or cause of action claimed in the second suit has already in the former proceedings passed into judgment, so that it is merged and no longer has a separate existence.

Issue Estoppel: in the new action a state of fact or law is alleged or denied, the existence of which is a matter necessarily decided by the prior judgment or order.

As the indemnity cause of action was not litigated as part of the contribution proceedings in the earlier Sotareles case, this was not a case of Res Judicata.

But there is a wider principle of law that a party can be shut out of later litigation of an issue which could and should have been litigated in earlier proceedings.

The question was whether this case fell within the extended principle expressed by Sir James Wigram VC in Henderson v Henderson (1843) 3 Hare at page 115:

"...the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case."

Though each case will turn on its own facts. Note the decision in Davis v Hedges (1871) LR 6 QB 87 where a plaintiff was not precluded from claiming damages for non-performance and improper performance of work, by reason of his failure to raise this claim when earlier sued by the defendant for the price of the (allegedly defective) work completed.

In a case involving a plaintiff estopped from bringing a new proceeding by reason of a dismissal of an earlier action, Somervell L.J in Greenhalgh v Mallard (1947) 1 All ER 255 stated: "...res judicata for this purpose is not confined to the issues which the court is actually asked to decide, covers issues or facts which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of process of the court to allow a new proceeding to be started in respect of them."

This serves both public policy and the interests of litigants in finally determining the rights and liabilities of the parties in the one proceeding.

The Court in Anshun appears to have been of the view that a finding in the Authority's favour on the indemnity defence, although open to be made, would be inconsistent with the judgments earlier made on contribution in the first proceeding (see paragraph 41).

The Court went on to find that: "The matter now sought to be raised by the Authority was a defence to Anshun's claim in the first action. It was so closely connected with the subject matter of that action that it was to be expected that it would be relied upon as a defence to that claim..." Further the Court said: " was unreasonable for the Authority to refrain from raising its case of indemnity for disposition in the first action."

However it has also been held that in order for a party to raise this type of estoppel argument as a bar against the other party in a later action " must be shown that the plaintiff had an opportunity of recovering, and but for his own fault might have recovered, in the former suit that which he seeks to recover in the second action."

See the case of Young v Keighly [1809] Eng R 541 for the proposition that leave would be refused if the new matter could have been discovered with "reasonably active diligence".

So where does this summary of the case in Anshun and other case law leave a Builder faced with a secondary defect claim in an already concluded matter?

If the Builder has obtained signed terms of settlement or a judgment, that effectively deals with known defects and gives the Builder a 'release', then the same defects cannot be raised against the Builder again at a future time.

They will generally be regarded as the 'same defects' and not genuinely 'new defects' if they can be shown to have been known to exist by the claimant owner at the time of the earlier decision or settlement, or should have been reasonably known to or discoverable by the owner at that time. Good evidence the Builder can call upon will be the earlier defect lists in the matter, the statement of claim or counterclaim, and the expert reports produced in the earlier case.

If the claimant is a new owner (who purchased the property from the original plaintiff or claimant), then there is a good argument that the new owner will be bound by any release given to the Builder in regard to the same defects that was given by the original owner. That is they will be arguably bound by that release as regards the Builder, but may have a separate claim against the original owner under a contract of sale of the land. Again, each case may differ depending on its unique facts.

Depending on the facts in a particular building case, the Builder can possibly get the benefit of the principle of law that a party can be shut out of later litigation of an issue which could and should have been raised in earlier proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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