Avoiding Checkmate: How Proactive Moves Contain Escalating Defect Exposure

By Bianca Hoare

In this newsletter, we examine the Supreme Court of NSW’s decision in The Owners – Strata Plan No 87639 v Karimbla Properties (No 4) Pty Ltd [2025] NSWSC 58. The judgment highlights a familiar reality for contractors and project principals: exposure in defect litigation is rarely static. Here, a $25-million claim expanded to $123-million years into the proceedings and well after all relevant limitation periods had expired. This decision clarifies when and why late pleading amendments will be permitted, and why the prospect of such ballooning exposure underscores the need for genuine proactivity in defect litigation—rather than a ‘wait and see’ approach.

Case Facts

This dispute concerns the “Alcove” development in St Ives, constructed by Karimbla Properties more than 12 years ago. In 2019, the Owners Corporation (OC) commenced proceedings seeking approximately $25.6 million, relying on expert evidence identifying more than 5,000 defects said to place Karimbla in breach of the statutory warranties under the Home Building Act 1989 (NSW).

When negotiations collapsed in 2024, the OC served a substantially larger second tranche of evidence and sought to amend its Technology and Construction List statement. Specifically, these amendments proposed to include new breach-of-statutory-warranty claims under the Design and Building Practitioners Act 2020 (NSW) and increase the quantum of the claim to $123 million. To justify this, the OC relied on Section 65(2)(c) Civil Procedure Act 2005, which permits an out-of-time amendment as to—

3. add or substitute a new cause of action, together with a claim for relief on that cause of action, provided the court is satisfied it arises from the same (or substantially the same) facts as those underpinning an existing cause of action in the originating process.

Why 8,000 New Defects Still Counted as the “Same Facts”

In Karimbla, the Court emphasised that the above Clause’s purpose is to balance a plaintiff’s ability to pursue all claims arising from a single event against a defendant’s entitlement to finality once limitation periods expire. Applying that purpose, the Court held that s 65(2)(c) was satisfied, observing that “qualitatively, the amendments clearly arise from the same facts, or substantially the same facts, as the existing claim.”

The OC’s initial List Statement relied on expert reports identifying 40 categories of defects and alleged that these issues were systemic across the complex. Because the experts had inspected only a sample of units, that allegation lacked evidentiary support at the time; rather, the submissions appeared aimed at prompting early settlement and avoiding extensive litigation. Once settlement discussions broke down, however, the OC was required to prove the systemic nature of the defects their experts had previously opined on. Their second tranche of evidence, served in March 2024, comprised 46 further expert reports identifying more than 8,000 additional defects across the entire development, thereby substantiating the systemic-defect allegation. As a result, the 2024 amendments were not treated as introducing new factual controversy but as resting “on the same facts.”

How the Court’s Case-Management Role Shaped the Outcome

Beyond opening the statutory gateway in s 65(2)(c) of the CPA (2005), the Court’s decision was also influenced by broader normative considerations inherent in its role as a “case manager,” requiring it to balance the gravity of the claim against the resulting prejudice to the defendant. To this end, the Court explicitly acknowledged that the substantial nature of the alleged defects was a “serious matter if true,” thereby underlining the necessity of granting leave to amend, as denying the OC and its members the opportunity to establish such a case was considered “a hard thing to do.”

Though crucially, the Court did address the Builder’s concerns about the resulting impact on its procedural rights. The Court noted that the absence of a trial date, the fact that the Builder had not yet served its evidence, and its express concession that it could, in fact, meet the OC’s expanded case, removed key procedural barriers that might otherwise have prevented the amendment. Further, the Court relied on its powers under s 65(3) of the Civil Procedure Act 2005 (NSW) to address the most significant source of prejudice arising from the expiration of the long-stop limitation period. The section provides:

3. Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced.

The Court exercised its discretion to “order otherwise,” ruling that the amendments would take effect “only from the date of the Owners Corporation’s Notice of Motion of 11 November 2024,” rather than from the commencement of the proceedings. This later operative date ensures that any limitation risks arising from the greatly expanded case—particularly those linked to potential new causes of action under the Design and Building Practitioners Act 2020 (NSW)—would be borne by the Owners Corporation. Going forward, this is significant in preserving a live pathway for contractors to strike out or narrow expanded claims on timeliness grounds. Rather than benefiting from the original 2019 commencement date, the OC may have to prove these late-emerging causes of action were still within time as November 2024.

Mitigating Prejudice Through Early Protective Measures

Even though the Court’s discretion mitigated some prejudice from the expiry of limitation periods, the Builder maintained that further prejudice remained. It argued that the substantial expansion of its potential liability now made crossclaims against subcontractors necessary, yet it was prejudiced because the relevant limitation periods had likely expired. This meant that it “may have lost the opportunity to make crossclaims against such of its subcontractors that are still in existence.”

In a response that offers an important lesson for contractors and principals alike, the Court observed that the OC’s claim had been substantial from the outset, and the Builder had always been able to take protective steps earlier. The Court noted that the Builder took “no steps to bring any cross-claim against subcontractors and the like,” likely in the “mutual hope that the matter would settle.” By allowing the limitation periods governing those crossclaims to expire without action, the resulting prejudice was, in the Court’s view, “to some extent, of its own making.”

Conclusion

Ultimately, Karimbla reinforces that while courts may permit late pleading amendments and exercise their discretion to address the future risks created, they will not shield defendants from the procedural consequences of their own inaction. For contractors and principals, the message is clear: proactive case management and early protective crossclaims are essential to containing exposure in defect litigation. Contact Crisp Law to ensure risks are identified early and your legal position is protected from the outset of a dispute.

Contact Crisp Law for advice and information:
Telephone: +61 2 8042 8701
Email: admin@crisplaw.com.au

References

The Owners – Strata Plan No 87639 v Karimbla Properties (No 4) Pty Ltd [2025] NSWSC 58