Separate breaches of statutory warranties confirmed not to create separate causes of action in building defect claims

Case note: The Owners - Strata Plan No 90018 v Parkview Constructions Pty Ltd [2023] NSWCA 66

In a decision handed down on 17 April 2023, the NSW Court of Appeal held that a proceeding brought under section 18B of the Home Building Act 1989 (NSW) (HBA) is for a breach of a single contract and therefore, multiple defects do not give rise to multiple causes of action.

Facts

The owners corporation of a residential apartment block in Sydney brought proceedings against The Quay Haymarket Pty Ltd (the developer) and Parkview Constructions Pty Ltd (the builder) for 85 alleged defects, said to be in breach of the statutory warranties under section 18B of the HBA.

The owners later sought leave to amend their list statement to, relevantly, delete all 85 defects and include three new defects. The main issue for consideration was whether each individual defect invoked a separate cause of action, and thus whether the owners were out of time to bring the new defect claims.

Supreme Court decision

The builder argued that the principle articulated in Onerati v Phillips Constructions (1989) 16 NSWLR 730, which states that:

"there is but one cause of action for breach of contract founded upon breach of a promise such as to carry out the work in a good and workmanlike manner. There is not a number of causes of action according to particular defects or classes of defect resulting from the breach" (the Onerati Principle)

did not apply, as the owners corporation was not a party to the contract with the builder, under which the section 18B warranties are implied. The builder also relied upon the 2006 and 2010 amendments to the HBA (introducing sections 18D(2) and 18E(2)), which circumvent the Onerati Principle.

At first instance, the Court found in favour of the owners corporation, holding that by reason of sections 18C and 18D of the HBA (the provisions that give a successor in title the benefit of the statutory warranties), a breach of any of the six statutory warranties contained in section 18B will give rise to a single cause of action in respect of that particular warranty, or one cause of action for a breach of the statutory warranties taken together.

The Court found that the wording of sections 18D(2) and 18E(2), as well as the Explanatory Memorandum, supported a finding that the Onerati Principle applies to claims for breaches of the HBA warranties, so that there is "but one cause of action" in respect of each statutory warranty, save as provided for by the exceptions in those sections.

Court of Appeal decision

On appeal, the builder argued that the primary judge, Stevenson J, erred in applying the Onerati Principle and further, that His Honour erred in asking whether there was anything which displaced that principle. The builder contended that the Onerati Principle only applies to a contractual cause of action and His Honour should have looked at the question by considering whether there was any reason to apply the principle to claims relying on sections 18C and 18D of the HBA. The builder argued that the Onerati Principle should not apply to such claims brought by a successor in title because, under the HBA, there is no singular obligation to deliver a house free from defects (which it said was the case in respect of a contract). Therefore, there is no singular cause of action.

The Court of Appeal held unanimously in favour of the owners, finding that the proceeding was one for breach of contract (notwithstanding that there is no actual contract to which the owners were a party). Interestingly, the Court did not rely on the Onerati Principle because the case from which it arises did not concern a late amendment and because legislation had been enacted to overturn aspects of the principle that were unfavourable to owners. Instead, the Court relied largely on the wording of the HBA and the purpose and context in which 2006 and 2010 amendments to the HBA (introducing sections 18D(2) and 18E(2)) were made.

It should be noted that Leeming JA expressly cautioned against applying his reasoning (which Ward P and Simpson AJA agreed with) to cases where a successor in title sued a builder for "major defects" and then, after the expiry of the two-year limitation period for minor defects, sought to add further defects which were not major defects. As this application did not turn on such a point, that question was left to one side.

Implications

Notwithstanding the need for caution identified by the Court, this decision is poised to potentially be a major blow for builders engaged in residential construction, given the propensity for latent defects to arise ─ often after the expiry of limitation periods. The judgment also emphasises that the purpose of the legislative amendments to the HBA introduced in 2006 and 2010 were to enhance the position of plaintiffs, homeowners and consumers.

Image by Bence Boros on Unsplash.