Victorian building actions can be commenced up to 10 years after work is completed

Insurance eBulletin - 8 August 2014

Summary

The Victorian Court of Appeal has clarified that the time limit in Victoria for bringing a building action, whether it be in tort or contract, is 10 years from the issue of an occupancy permit or certificate of final inspection.

Subject to any appeal, this puts an end to the debate that has raged in Victoria about whether the 10 year limitation period provided for by s 134 of the Building Act 1993 (Vic) relates only to claims in negligence.

In this eBulletin, we look at the decision and what it means for builders, building professionals and their insurers.

 

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What happened?

The Victorian Civil and Administrative Tribunal (VCAT) and the County Court have been at odds over the time within which building actions may be commenced in Victoria.

VCAT's stance has been that legal proceedings for defective building works could be commenced up to 10 years after the occupancy permit or certificate of final inspection for the work was issued, regardless of whether the claim was for negligence or breach of contract.1

By contrast, the County Court's position2 was that the 10 year limitation in s134 of the Building Act 1993 (Vic) (Building Act) only applied to claims in negligence with respect to defective work and did not extend the six year limitation period for breach of contract claims contained in s 5(1)(a) of the Limitation of Actions Act 1958 (Vic) (Limitation of Actions Act).

These conflicting approaches arose because of perceived ambiguity in the wording of the limitation period in the Building Act, and because VCAT is not required to interpret the law in the same way as the County Court.

In Brirek Industries,3 the Victorian Court of Appeal had to determine which limitation period applied to any of the claims in contract brought against a building surveyor. Was it the 10 year period referred to in the Building Act or the six year period in the Limitation of Actions Act?

 

The Building Act

Section 134 of the Building Act provides that, despite anything to the contrary in the Limitation of Actions Act (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 or, if an occupancy permit is not issued, the date of issue of the certificate of final inspection.

VCAT had repeatedly interpreted this provision to mean that this is the only time frame for determining the period to commence building actions and the introductory words of s 134 mean that no other period applies to such actions.4

 

The Limitation of Actions Act

Section 5(1)(a) of the Limitation of Actions Act provides that actions founded on simple contract or tort must not be brought more than six years after the relevant cause of action accrues.

The County Court had opted to apply this more restrictive timeframe in which building actions may be commenced where the claim was based on a breach of a contract. The restriction had practical significance, because a cause of action in breach of contract claims accrues when the breach occurs. In cases where latent defects are involved, the six year limitation period may have commenced running long before the defects were discovered and plaintiffs could therefore find themselves statute barred by the time the defects became apparent.

By contrast, the limitation period for negligence actions commences on the date when the defect becomes apparent. Prior to the introduction of s134, this created the reverse problem for defendants who could face claims up to six years after the defect became apparent, regardless of when that occurred.

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Guidance from the Court of Appeal

The Court of Appeal has now determined that for breach of contract claims, so long as a building action is commenced within 10 years after the occupancy permit or the certificate of final inspection was issued, it does not matter if it is more than six years after the contract was breached.

After conducting an exhaustive analysis of the statutory wording, the Court of Appeal expressly agreed with the approach taken by VCAT. It confirmed that the County Court was not correct in interpreting the 10 year time period set out in the Building Act as only applying to claims in negligence.

 

What this means for builders, building professionals and their insurers

Subject to further appeal, the Court of Appeal decision provides certainty for parties to legal proceedings for defective building works in Victoria as to the time within which legal proceeding must be commenced.

Owners and developers commencing building actions, builders and building professionals now know that claims will have been made within time, so long as the legal proceeding is commenced within 10 years of the occupancy permit or certificate of final inspection being issued, whether the cause of action is in contract or negligence.

While builders, building professionals and their insurers might not be as pleased to discover that they remain liable for breach of contract claims for as long as 10 years after the occupancy permit or certificate of final inspection is issued, the decision provides some comfort insofar as it confirms that builders and building professionals will not be liable beyond 10 years in cases involving latent defects, where the damage does not manifest for many years after construction took place.

It is also not all bad news for insurers. The extension of the period within which breach of contract claims may be brought will be welcome news to insurers considering subrogated recovery actions.

Authors
Ashlea Hawkins | Lawyer
Nicole Feeney | Special Counsel
Patrick McGrath | Partner

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Further information


1 See for example Hardiman v Gory [2008] VCAT 267.

2 Brirek Industries Pty Limited v McKenzie Group Consulting (Vic) Pty Limited [2011] VCC 294.

3 [2014] VSCA 165 (6 August 2014)

4 See for example Owners Corporation PS447493 v Burbank Australia Pty Ltd (Domestic Building) [2013] VCAT 1911.

All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.

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