Victoria's time-barring regime clarified with respect to defective building works

On 8 June 2022 the Victorian Supreme Court of Appeal delivered its unanimous decision in Lendlease Engineering Pty Ltd v Owners Corporation No 1 [2022] VSCA 105. The decision caused a flurry of activity within the Victorian construction industry, given its restrictive consideration of the time-barring regime with respect to claims for defective building works.

The Court of Appeal was called upon to consider the proper application of the statutory time limit imposed by s 134(1) of the Building Act 1993 (Vic) and its interplay with the issue of staged-occupancy permits. The section provides that:

"...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."

The application of a 10-year limitation period is seemingly a simple mathematical exercise: 10 calendar years commencing from the date on which a building occupancy permit is issued. Beyond this date (so it appears), a party is statutorily time-barred from commencing a claim for loss and damage arising out of defective building works.

However, those within the construction industry recognise that interpreting s 134 is far more complicated in staged projects where multiple occupancy permits are issued at various points in time. The complexity is exacerbated when not all the occupancy permits relate to the defects in question.

The facts

In 2004 Lendlease was retained to construct residential apartments at a site at St Kilda, Melbourne. The site comprised building 1 (the refurbishment of the existing structure) and building 2 (the construction of a new tower).

Four occupancy permits (OP1 to OP4) were issued during various stages of the works. OP1 to OP3 (but not OP4) were issued more than 10 years before the commencement of the litigation. The occupancy permits had a cumulative effect, in that they each certified not only new work completed, but also the works certified in the preceding OPs, even though no further work had been undertaken to those earlier approved stages.

When it was discovered that the louvre blades installed to building 2 were possibly defective, the Owners Corporations commenced litigation for loss and damage against Lendlease in the Victorian Civil and Administrative Tribunal (VCAT). This proceeding was commenced days before the expiry of 10 years from the date of issue of the final occupancy permit (OP4).

Given the timing of the occupancy permits, the Owners Corporations adopted the position that the 10-year limitation period only commenced from the date of the last occupancy permit (OP4). That permit, so it was contended, certified work for the entire project and "started the clock" for the commencement of the 10-year limitation period pursuant to s 134(1).

Lendlease rejected this proposition. It argued that the period commenced from the date on which the relevant occupancy permit covering the contentious works was first issued. It contended that the claim was brought more than 10 years after the issue of the occupancy permit that (first) certified the allegedly defective works.

The VCAT

The VCAT accepted the Owners Corporations' submissions. It determined that the 10-year limitation period imposed by s 134(1) only commenced from the date on which the fourth and final occupancy permit (OP4) was issued, as it was intended to cover the entirety of the works carried out on the project.

The Supreme Court

The VCAT decision was upheld by the Supreme Court, with Forbes J determining that “the limitation period was not intended to apply from the varying dates of each occupancy permit”, i.e. that the 10-year limitation period commenced from the date the final occupancy permit (OP4) was issued.

The Court of Appeal

Lendlease then appealed to the Court of Appeal.

The Court of Appeal began its analysis with the widely accepted proposition that in construing s 134:

• it is necessary to commence with the ordinary and grammatical meaning of the words used, taking into account both context and legislative purpose
• consideration of context must be "in its widest sense", including taking into account the surrounding statutory provisions, as well as the "mischief" the statute is intended to remedy
• it is necessary to identify the solution that recommended itself to Parliament

In its analysis of the language of s 134, the Court of Appeal emphasised that the words "in respect of the building work" must be given a meaning. The Court of Appeal found that:

• the phrase "building action" is naturally referable to the "defective building work" which is the subject of that "building action", noting that it does not matter whether the relevant permit is subsequently cancelled or varied
• there is nothing in the language of s 134 to suggest that it is intended that the starting point, for the purposes of calculating the 10-year limitation period, should be the final, current or last permit; and
• the "ordinary meaning of the words suggests that the occupancy permit ‘in respect of the building work’ is intended to apply to the occupancy permit that is first issued in relation to the defective building work the subject of the building action — not any ‘final’ occupancy permit...The choice to omit 'final'...appears to be deliberate"

The Court of Appeal accepted that Parliament had intended to fix a single, clear trigger date to provide certainty. In its view, this construction advanced such certainty.

The Court of Appeal also found that multiple permits do not cumulatively operate to recertify an earlier stage of the work; they simply reiterate that work (previously certified) was carried out. It held at [71] that to choose the later permit as the starting point "would mean that the clock would be re-set on the issuing of the later permit, [which] would not promote certainty" and would also "ignore the critical fact that the building work had [already] been completed and was ready for occupation."

The Court of Appeal upheld Lendlease's argument and found that the Owners Corporations' claims were time-barred because of the earlier certifications in OP1 to OP3.

The position in New South Wales

The clarity of thought contained in Lendlease has not yet spilled over into New South Wales. In NSW, the position is likely to depend on which version of the equivalent legislative provision applies to the claim in question. However, the Court of Appeal has instructively emphasised that the word "final" is omitted in the Victorian legislation. This is likely to be decisive in favour of adopting a restrictive interpretation in NSW.

The current 10-year limitation period in NSW is contained in s 6.20 of the Environmental Planning and Assessment Act 1979 (NSW) (EPA), which provides that a claim in connection with defective building work cannot be brought "more than 10 years after the date of completion of the work".

S 6.20(2) provides that "building work is taken to be completed on...the date on which an occupation certificate is issued that authorises the occupation of the building...". This is sufficiently similar to the wording contained in the Victorian counterpart that it is likely the NSW Courts will follow suit by "starting the clock" from the issue of the occupation certificate applicable to the contentious building work.

S 6.20 replaced s 109ZK of the EPA on 1 March 2018. The latter provided that "a building action may not be brought in relation to any building work more than 10 years after the date on which the relevant final occupation certificate is issued". If the older version of the EPA is to apply a claim for building defects, it could be similarly argued that the "clock starts to run" from the date on which the final occupancy permit for a relevant site is issued, as opposed to any prior or interim certificate that may have been issued with respect to the relevant building work.

While this argument is broadly consistent with the Court of Appeal's reasoning in Lendlease, it is worth noting that this appears to be at odds with the following obiter remark by McDougall J in The Owners Strata Plan 56963 v Australand [2011] NSWSC 710:

"It will be noted that the prohibition is based on the date of issue of 'the relevant final occupation certificate'. In context, that seems to me to mean the Occupation Certificate relevant to the building work in respect of which the building action is brought or sought to be brought. In other words, it seems to me, it recognises that there may be several occupation certificates, reflecting staged completion of building work."

Comments

Uncertainties around time limits and the practical consequences that follow are familiar conversations construction lawyers have with clients. This uncertainty significantly impacts upon on a building practitioner's insurability and its appetite for risk, particularly with respect to long-tail claims.

Even though Lendlease disposes of a long-standing debate with respect to time limits in Victorian disputes, it raises further questions about its potential application in NSW. In summary, a cautious approach is certainly warranted.

A full copy of the decision is available here.

Photo by Ralph Kayden on Unsplash.