A very recent NSW Supreme Court Decision has given more certainty to builders, architects, certifiers and others in the NSW residential building industry about how long they will remain exposed to possible building defect proceedings.
It is also a warning to owners and their lawyers that they must be careful to file all claims in a timely way in the correct court or tribunal, and properly investigate and quantify their claims before the 10-year “long stop” liability period is up.
This refers to section 109ZK of the Environmental Planning & Assessment Act 1979 (the EPA Act). That section specifies a capped 10-year period after approval of a final occupation certificate within which a building action can be started against builders, architects, certifiers and other building professionals.
As we know, architects can be sued directly or joined to such proceedings as co-defendants where such defects are caused by or contributed to by design faults or negligence, or if there has been a failure by an architect to properly administer a building contract so that the works have not been managed correctly.
It is also relevant that more and more commonly, residential building disputes in NSW and indeed other states will concern defects in apartment living, and especially waterproofing concerns in regard to balconies.
The Supreme Court decision in Owners Corporation SP 76841(Owners) v Ceerose Pty Ltd & Anor  NSWSC 1545 was delivered on November 2. Leave was refused to the owners to change their building action to include a new claim for water ingress ("the water ingress claim" to the sum of $1,000,000) and the Court ordered that the claims for fire services and Building Code matters should be limited to the $195,000 limit of the District Court jurisdiction prior to the limitation period expiry.
A final occupation certificate had been approved on April 10, 2006 for a residential 64-apartment building. Therefore the 10-year limitation period for starting a building action started from the date of that certificate.
Although legal proceedings were originally started in the Consumer Trader and Tenancy Tribunal in February 2012, at that time the claim was only for general defects in breach of the statutory warranties said to be “exceeding $30,000.”
Proceedings were later transferred to the District Court (in February 2014) for general defects quantified by the owners at $555,000, but the water ingress claim had still not been made by the owners. The jurisdiction limit for proceedings in the District Court was $750,000.
The builder/developer “Ceerose” made the decision not to pursue cross claims against the certifier and various subcontractors based on the sum claimed by the owners. This decision was based partly on an expectation that the fire services and Building Code matters would not exceed $195,000. Although this aspect had not been quantified in the claim, the $195,000 represented the difference between the value of the general damages and the District Court monetary limit ($750,000).
District Court timetable orders required all of the owner’s expert evidence on defects by 26 February 2016, which was prior to the expiry of the 1o-year limitation period on April 10, 2016.
It was only on March 7, 2016 that the owners first raised the water ingress claim, but no substantive expert evidence to support this component was supplied at this time. There was no dispute that the water ingress claim was a totally new and separate defect allegation.
Then in May 2016, and after the expiry of the 10-year limitation period, the owners served their expert evidence to support the new water ingress claim. This expert evidence was in support of liability and also quantum to rectify. Also, there was quantification given for the fire and Building Code claims in the sum of about $600,000.
Ceerose had previously denied all defect claims made, but they now opposed the owner’s application in regard to any part of the water ingress claim (for being out of time) and in respect of the fire and Building Code component insofar as that exceeded the previously known limit of $195,000.
The Court accepted Ceerose’s argument on the grounds of prejudice caused in running its defence. Due to the delay in bringing the new aspects of the defect claim, Ceerose gave evidence about and was able to demonstrate that it had lost the opportunity to bring cross-claims against the certifier and various subcontractors about the water ingress claim.
This was because the cross-claims would now be time barred for being outside the 10-year ‘long stop’ limitation period.
For a similar reason, that of prejudice to Ceerose in now being barred from bringing a cross-claim against the certifier and various subcontractors, the increased quantum of the fire and Building Code defects claim was also disallowed. Ceerose was able to persuade the Court that it would have cross-claimed against other parties had the full amount of the claim been properly adduced prior to the end of the 10-year limitation period.
Ceerose had also tried to argue that the water ingress claim was barred by statute, because it came out of a cause of action that expired after the end of the seven-year limitation period in the then section 18E of the Home Building Act (NSW).
However, the Judge did not accept this argument, and found that it was at least arguable that the water ingress claim was not an entirely new cause of action, but was really just further particulars of the general defects claims made earlier. While it was not critical to the decision, the Judge considered that he would not likely have refused the introduction of the water ingress claim for this reason alone (though it was refused because of the aforementioned prejudice reasons).
Unfortunately it could be suggested that this last consideration is indicative of further grey areas in the legislation, such as:
- Why the need for a seven-year limitation period for statutory building warranty claims on the one hand but also a longer 10-year ‘long stop’ period for building actions generally?
- Where is the dividing line between a “new cause of action” and what amounts to further particulars/details of a claim that has already been made-
For defect claims against architects (as opposed to builders) it is suggested that the longer 10 year liability period is more applicable, because claims against architects are more likely to be made based on negligence or breach of contract rather than statutory warranty.
For the second aspect, we consider that on a case-by-case basis a common sense approach should be adopted to examine whether we are faced with an entirely new defect claim or cause of action, as opposed to just further particulars of a matter that has already been raised. If necessary, technical expert evidence could assist in resolving this question.
The case decision is illustrative of the need to ensure that all building defect claims are properly investigated before commencing proceedings, so far as is possible, and within the period allowed before expiry of the limitation period.
If possible, such investigation should include quantification of the likely costs of rectifying, though accepting that as more information comes to hand, such costings may increase.
The case also illustrates that the 10-year long stop limitation period will be upheld by the Courts even where there are question marks over whether a component is truly a new cause of action, if in fact there is prejudice caused to the primary defendant in being prevented from raising cross-claims in a timely way.