10-year Liability and the Decision that Removed All Doubt 1

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Tuesday, September 13th, 2016
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In July of 1994, the Building Act was proclaimed, along with section 134, which introduced a 10-year liability limitation period for the initiation of legal proceedings.

Having been the instructing officer to Parliament with respect to the drafting of the Building Act 1993, I am intimately au fait with the journey that culminated in the proclamation of the legislation that gave life to section 134. The instructing officer, consistent with convention, prepares drafting instructions. Parliamentary counsel then drafts the Bill in accordance with the instructions. The parliamentary counsel’s office at the time was headed up by Rowena Armstrong QC.

It was reassuring to observe that the Victorian Supreme Court of Appeal in a decision handed down on August 6, 2014 gave full expression to the intent and the literal meaning of section 134 in the case Brirek Industries Pty Ltd v McKenzie GROUP Consulting (Vic) Pty ltd (2014 VSCA 165).

The decision was exceedingly important, as the decision validates what was clearly parliamentary intention in terms of clarifying an area of judicial uncertainty that had been the bane of many a litigant for some decades.

The very early 1990s marked the starting point for the law reform journey. In 1992, a team working in the then-Victorian Department of Building Control prepared the drafting instructions and the motivation was to bring clarity to bear with respect to the time by which a plaintiff had to initiate legal proceedings against a background of uncertainty that prevailed with respect to jurisprudential clarity or agreement upon the date upon which legal proceedings could be issued to do with compromised building work.

Before the promulgation of the 10-year liability limitation period, one had – courtesy of the Limitation of Actions Act – six years to initiate legal proceedings. The controversy, however, surrounded the issue of when precisely those six years began.

There were two competing legal tests at the time: the “from when the damage occurs test” and the from when the “damage becomes discernable test.” The later test was nicknamed the “infinity plus six test,” meaning that once the damage was discernable, one had six years to issue legal proceedings.

The below passage from the book explains the thinking behind section 134, which was an adaptation of section 185 of the Model Building Act. Such thinking was ultimately persuasive and ultimately found its way into the NMBA.

“One of the most innovative aspects of the legislation concerns liability reform. These reforms could profoundly change the contemporary and traditional approach to liability and will have ramifications that may go far beyond the strict ambit of the Building Bill.

There are two main thrusts to the reform:

  1. The establishment of certainty in respect of time limitations for law suits;
  2. The reform of joint and several liability.

Limitation periods typically run for six years. The cause of action in contract accrues on breach, and in tort on damage.

In tort the English case of Pirelli General Cable Works Limited v Oscar Faber Partners [1982] AC 1 held that the cause of action in a claim in tort for negligence in the design or workmanship of a building accrues at the date of damage, whether that damage is discernible or not. The case is considered to be applicable law in Australia, although the matter is not entirely settled.

The conclusion is that the present law is unsatisfactory. For the victim of the negligent act or omission, the starting date for the reckoning of the period of limitation is the date when the damage occurs, and time will start to run if the damage is not discoverable.

Potential plaintiffs may find themselves barred from taking legal action before they knew, or could even be in position to know, they had suffered damage.

Potential defendants are handicapped because they have no way of telling in advance how long they may be at risk of legal proceedings. As damage may not occur until many years after the building is erected, the parties involved in the construction of the building may remain liable for an indefinite and virtually unlimited time. This presents a particular problem in obtaining insurance.”

The report also quotes from a 1988 Royal Institute of Architects report where it was suggested that the most important requirements in relation to limitation periods were that the period be:

  • sufficient to ascertain when the cause of action accrues and therefore when the limitation period commences
  • long enough for most defects to become apparent
  • sufficiently limited for it to be practicable to obtain insurance cover for the whole period
  • not be so long that records and witnesses become unavailable or unreliable

It was also noted that some plaintiffs suffered from an unfortunate misconception that they should “enjoy” the right to be able to sue indefinitely.

The fallacy of that “right” is illustrated by the fact that:

  • after 10 years or so, many companies are no longer in existence
  • of those that remain, many will have paid up capital of no more than $2
  • if there has been divestiture of assets, the company will be effectively worthless
  • because insurers find it virtually impossible to quantify the risk, the potential defendants are not able to afford insurance cover

On page 55 of the report, it was stated that:

“The irony of it is that the consumer would avail itself of more protection if a 10-year liability cap was introduced, as this would enable insurers to quantify risk, premiums would most likely then be lower, professional indemnity insurance would return to favour and consumers would have financially viable defendants.”

On the same page, it was noted:

“Insurers to the Association of Consulting Engineers of Australia, CE Heath, advise the national building construction council that, although the vast majority of claims were discovered within 7 years of the incident, claims outside that time span did occur.  It mentioned that in some cases it was almost impossible to mount defence within reasonable cost constraints because invariably documents had long since been destroyed and the staff involved had no recollection of events or, alternatively had either left the practice or had died.”

On page 120 of the appendix to the report (provided courtesy of the Attorney General’s Office of New South Wales) it was stated:

“The present law is unsatisfactory to all parties. For the victim of a negligent act, the starting date for the reckoning of the period of limitation is the date when the damage actually occurs, and time will start to run even if the damage is not discoverable.

One of the main problems with the test and Pirelli is determining when the damage occurred and when the cause of action therefore accrues. It is by no means an easy matter to assess and is subject to disagreement among experts as to just when a latent defect becomes latent damage, given that damage is not necessarily discoverable, at least without extensive technical testing.

Against a backdrop of universal disquiet regarding the current law, we gave consideration as to how best to address the current tortfeasor dilemma. The decision was to come up with legislative certainty both in respect of commencement of the limitation period and expiration of the limitation period.

We are confident that this has been achieved through the liability provisions in Part 10. Section 185 is the most cogent section in this regard.”

Section 185 of the NMBA states that:

“an action is not maintainable by a plaintiff or another person claiming on behalf of a plaintiff it is brought after the end of the limitation period of 10 years running from the date on which the cause of action first accrues.

The cause of action accrues on the date of the issue of the occupancy permit in respect of the work or, if an occupancy permit is not issued, on the date of first occupation of the building concerned after completion of the work.”

Note the wording of section 134 of the Building Act 1993 (VIC):

Limitation on time when building action may be brought

“Despite anything to the contrary in the Limitation of Actions Act 1958 or in any other Act or law, a building action cannot be brought more than 10 years after the date of issue of the occupancy permit in respect of the building work (whether or not the occupancy permit is subsequently cancelled or varied) or, if an occupancy permit is not issued, the date of issue under Part 4 of the certificate of final inspection of the building work.”

Have regard also to the wording of section 160 of the Building Act 1993 (NT):

Limitation on time when action may be taken

(1) An action is not maintainable by a plaintiff or a person claiming on behalf of a plaintiff if it is brought after the end of a limitation period of 10 years after the date on which the cause of action first accrues.

(2) The cause of action accrues on the date of the grant of occupancy certification in relation to the building work that is the subject of the action or, if occupancy certification is not granted, on the date of first occupation of the building concerned after completion of the work.

The wording in the two state and territory Acts of Parliament is very similar to that of section 185 of the Model Building Act, and that is by design. The rationale and thinking behind the intent of the wording was derived from the research, extrapolations and collection of thoughts that found their way into the AUBRCC publications Model Building Act for the Consideration of the States and Territories Legislative Aims and Options and the Model Building Act publications.

It is a given that neither the above passage nor the National Model Building Act, nor the research publications produced at the behest of the AUBRCC are recognised as interpretation aids in a court of law. But for the historian, the academic or the student of the evolution of building law in this country, it has to be said that if it were not for the Model Building Act and the law reform initiative that was the NMBA it is very unlikely that 10-year liability limitation periods would not have been promulgated in Acts of Parliament.

For those who consider this to be a presumptuous statement, it is insightful to have regard to the fact that the then chairman of the AUBRCC (the predecessor of the ABCB) subsequently became the director of building control, and in this dual capacity, maintained a continuity of personnel, endeavour and resolve that assured the passage of implementation and promulgation of the Building Act 1993.

At this point, you should understand the rationale and the impetus that led to the promulgation of section 134. I also hope you have formed the conclusion that section 134 was designed on the one part to oust the application of the Limitation of Actions Act – in effect, make the six-year limitation period obsolete – to be superseded and replaced with a 10-year liability cap. Parliamentary intent does not always shine through, however, until the wording is tested in a court of law, and this is precisely what occurred in Brirek.

The case was heard at first instance in the County Court of Victoria. The trial judge found that the 10-year limitation period did not apply. This judge found that the six-year limitation period held jurisprudential currency. That finding was very much at odds with the legislature’s intent.

The appellate jurisdiction was not of like mind and found that “the words of section 134 of the Building Act should not be read down so that they are confined in their operations to claims in tort in such a way that it is only those claims that have the benefit of, and are subject to, the 10-year limitation period stipulated. The construction of s134 by the trial judge imposes unwarranted limitations on the scope and applicability of the section. In our opinion actions founded in contract, independent of any tort claim, fall within the scope of s 134 and may be brought within 10 years from the date of issue of the occupancy permit…Accordingly the trial judge was wrong to hold that claims made in reliance upon the 2004 contract were statute barred.”

The appellate jurisdiction went on to state that “the repealing of the very sections between ss 130 and 134 of the Building Act by the amending Act lends further support to the view that the legislature turned its mind to the question of ‘long stop’ liability exceptions in the amending Act.”

Needless to say, the Court of Appeal got it right and in so doing fully ratified and endorsed parliamentary intent. For the record, the policy behind section 134 was to absolutely and categorically remove the operation of the six-year limitation period. The 10-year limitation period by virtue of this decision now seems to be set in stone.

Those whom were involved with the policy and the crafting of the wording of section 134 were confident that the wording and its import were unambiguous but as the decision of first instance handed down by the County Court reveals one can never be too confident. The fact that a senior judge found a contrary interpretation notwithstanding that the Court of Appeal overturned the decision shows that legislative interpretation is very challenging and always susceptible to contrary points of view.

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  1. Charles Litho

    Building legal history very well summarized.
    We have a system that aims for most buildings to have a life of 25 years.
    We have standards that reflect this aim.
    People are surprised when a building starts to show stress before the 25 years have ended.
    We are killing the Building Practitioners who are supposed to keep the system afloat in a cheap way. We will soon see many more breakdowns and suicides.
    What was done by an Engineer in a day many decades ago is now done by a building inspector who cannot spend more than a few minutes on a site to do an inspection for under $200.
    If the community wants better outcomes in building, they need to spend money skilling the workforce and stop the Governments taxing the building system at every opportunity.
    Money needs to be spent on research to improve systems. A little money going towards the CSIRO will not have us repeating mistakes endlessly.
    Australia does have a culture of people enjoying being creative and working well for their community, we are doing ourselves a disservice by not recognising what we have.