How Long is a Builder on the Hook for Allegedly Defective Building Works? 5

Tuesday, March 15th, 2016
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Though it has been some 18 months since the Court of Appeal in Victoria clarified how long a property owner has to sue a builder for allegedly defective building works, it is worth restating the now clarified position once again.

There was previously some debate in the law for the construction industry as to the time period which applied. The debate was as to whether the period which applied was six years at a maximum or whether the longer period of 10 years (after the issuing of the occupancy certificate) applied.

In late 2014, in Brirek Industries Pty Ltd v McKenzie Group Consulting Pty Ltd [2014] VSCA 165, the court said that in cases both of breach of contract by a builder and for negligence in the building works, the limit of the time period within which a legal action must be brought is now 10 years.

The Critical Issues

Despite the fact that the case involved the alleged wrongful issuance of building permits, the findings in the case hold wider ramifications for the building industry. The findings in the case apply basically to all types of building work in Victoria.

An indication as to the complexities of the issues in the case is the fact that the trial judge (in the County Court) differed in his interpretation of the law as it then stood, saying that the maximum period was six years within which to sue. The Court of Appeal disagreed, following a line of previous VCAT decisions, saying that in cases where an owner sues for both contract breach and for negligence, the same limitation period applied.

One of the things the court said, and it is hard to disagree, is that it would be unreasonable and inappropriate for a different time limit to apply where a builder is sued for breach of contract as opposed to where a builder is sued for negligent works.

There has not been an appeal to the High Court, so that settles the particular the subject of this article, in Victoria at least. Note that the opposite applies in New South Wales.

So the result of the case is that despite an expressly written time limit in legislation, the maximum period prescribed for a ‘building action’ is 10 years from the OC being issued.

Relevant insurance policies perhaps need to be revisited to ensure that they provide coverage for the full period of the 10 years applicable.

Builders (and their insurers) are now potentially ‘on the hook’ for a longer period after there is an occupancy permit issued for a residential building project.

The clarification/change in the law does not technically mean that a builder cannot actually be sued in cases where it is now beyond ten years since an OC has issued, but it means that if he or she or it is, that builder will have a defence.

Save ‘exceptional circumstances,’ which mean what the words suggest, once a limitation period to sue has passed, an action cannot then proceed. And any solicitor acting for a builder sued for a claim arising in excess of 10 years previously would likely be negligent unless he or she advised their client to ‘take the limitation point.’

At least, despite the fact as just stated, that builders are now potentially ‘on the hook’ for a longer period than six years, there has been clarification in the law, and that is nearly always a good thing for all in the industry.

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  1. Brett Bates

    Thanks Paul. Just to clarify please – "There has not been an appeal to the High Court, so that settles the particular the subject of this article, in Victoria at least. Note that the opposite applies in New South Wales."
    Does this mean that statutory warranty provisions under the Home Building Act in NSW still take precedence? That is a maximum of 6 years for 'major defects' plus any other type of claim including any alleged breach of contract or is there an implied 10 year statute of limitations to run a claim as there appears to be in Victoria?

  2. David Chandler

    Paul, It is interesting that no one is discussing the criminal offence – fraud. A building contract requires a builder to construct the work in accordance with the contract. This would mean the designs, the specifications and the BCA (the law). A builder makes progress claims for work completed in accordance with the contract. While the contract does not say "and not otherwise" it is an implied term. Builders make other statements in favour of progress payments such as having paid worker wages, the statutory obligations and prior trade contractors whose efforts made up the last paid claim. On many occasions these inducements to pay are found to be faulty. Project Managers and Quantity Surveyors who have assessed these claims on behalf of clients and approved them for payment claim that contract retention or security stands to cover these shortcomings. The reality is that the assessors are out of their depth and ignorance or no action is not a defence, they should be sued. This has led to faulty work being valued, paid for and then covered up. At best some compromised patch up might happen but this will not be to the standard specified. This still leaves the builder having made a false claim – fraud. There is no defence here as the builder has a duty of care and a legal obligation to construct the works in accordance with the contract. And, any weakness in a trade or contractor input with a line like "thats just industry standard" is just bollocks.
    A builder is allowed to contract out work, but that does not relieve him of any obligation for having performed the work himself. Its time for the industry's clients to step up. If you want the real deal then exercise your rights. If you are ripped off call the police.

    • beverley-jane

      Despite dangerous defects, contract breaches and substantial outstanding refunds, our builder of 30 years, walked away without rectification or paying a cent and was allowed ongoing registration for years after he eventually liquidated! His liquidation and diligent asset protection ensuring he suffered no consequences.
      He subsequently promoted himself as a Building Inspector for which he was not registered and merely received a slap on the wrist in court and a 1 year good behaviour bond for this fraud!
      Multiple successful claims against warranty insurance and VCAT appearances against his defective work meant absolutely nothing.
      Both insurers and regulators allowing this destructive individual ongoing insurance cover and registration to continue wreaking havoc on other vulnerable families.
      No wonder this offender felt invincible suffering no consequence for repeatedly substandard delivery!
      Complaining to a prominent industry player re this builder's ongoing membership, I was advised by their Executive Director, that the reports of Building Inspector's, (those same reports used to bring about VCAT decisions!) were merely individual opinions with, quote: "two equally qualified persons inspecting the same element can often conclude differently." and "Any report prepared by a consultant who is paid by an individual (whether consumer or builder) cannot be regarded as independent."
      Does he expose fundamental flaws if subjective, biased opinions are considered viable options in costly VCAT determinations ?
      Does this massive construction industry wrecking ball, raise too much revenue to be sincerely challenged? What hope do consumers have if the regulators and government bodies don't have the will or ability to control?

  3. Graham Teede

    David well covered ," that's industry standard " or " that's accepted practice " cannot be accepted we have Aust Standards and Codes of Practice plus the NCC and we mustn't forget the Specification surely they set the Baseline.

    • Graham Morrow

      I am unclear why a cause of action for breach of a building contract, which arises when the contract is breached, can be treated in Victoria as the same as a cause of action in negligence, which arises when the damage has been suffered?