A recent decision of the Victorian Civil and Administrative Tribunal considered the limitation period for a building action in Victoria in circumstances where no building permit is obtained, and no Occupancy Permit (OP) or Certification of Final Inspection (CFI) is given on completion – with an interesting, but not unexpected result.

Background

In Victoria a person historically had 6 years in which to bring a building action founded in contract or tort, after which time a claim for damages was statute barred^[1].

In an action founded in contract, the limitation period starts running from the date the breach occurs. In an action in tort (for example, negligence), time starts running when the damage caused by the negligent act becomes manifest, i.e. when damage caused by poorly designed footings becomes apparent.

It is usually easy to work out when the 6-year limitation period on a claim for breach of contract starts and finishes, because it is usually clear when the defective work was completed.

But for a claim in negligence, the position is not always clear. It is often difficult to pinpoint exactly when the damage first became apparent. Therefore, it is arguable that, in some circumstances, the 6-year limitation period on a claim for damages due to negligent design only starts to run 15 or 20 years after the work was finished leaving a builder or designer with an indefinite contingent liability.

Special limitation period under the Building Act

Section 134 of the Building Act 1993 (Vic) (Building Act) was intended to remove the uncertainty surrounding claims in tort. Section 134 provides that:

"Despite anything to the contrary in the Limitation 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 for the building work (whether or not the occupancy permit is subsequently cancelled or varied)."

It provides a limitation period of 10 years that covers certain types of claims for damages for defective building work. It operates both as a 10-year ‘long stop’ on negligence claims and extends – by up to 4 years – claims founded in contract.^[2] For both causes of action, time starts running when the OP or CFI is given.

Because the limitation period starts running on the issuance of an OP or CFI, on its face, section 134 seems only to apply to building work which requires a building permit.

Gledhill v Scotia Property Maintenance Pty Ltd ^[3]

Ms Gledhill owned an apartment in South Yarra. She engaged Scotia Property Maintenance (Scotia), a building company, in 2007 to carry out some repairs to her balcony. Scotia was not the original builder of the apartment. It did not obtain a building permit to carry out the repairs. And because no building permit was required, no OP or CFI was issued on completion.

Ms Gledhill claimed the repairs were defective and commenced a building action for damages in VCAT^[4] in May 2018, some 11 years after the alleged defective work was completed. She claimed Scotia had breached its contractual warranties of good workmanship and quality under section 8 of the Domestic Building Contracts Act 1995 (Vic) (DBCA) or alternatively, by a failure to take reasonable care and skill, caused her to suffer loss and damage.

In the absence of an OP or CFI, the question for VCAT was whether Ms Scotia’s claim for damages was barred by section 134 of the Building Act.

Scotia said that the limitation period under section 134 of the Building Act applied and argued that if no OP or CFI is given, then the 10-year limitation period started running from the date the remedial work was completed. If that argument was right, Ms Gledhill’s claim for damages - both in contract and tort - was statute barred.

Ms Gledhill also said that that limitation period under section 134 applied but that the 10-year limitation period had never started running because, if no building permit had been obtained, then no OP or CFI could have been given. If that was right, Ms Gledhill’s claim for damages would remain valid for several years.

Member Sweeney took a contrary view. The Member determined that because there was is no building permit, and thus no OP or CFI, section 134 of the Building Act did not apply at all:

‘Where there is no building permit in respect of building work as defined under the Building Act, there can be no issue of an occupancy permit or certificate of final inspection to the effect that s 134 has no operation.' ^[5]

Therefore, section 5(1) of the Limitation of Actions Act 1958 (Vic) applied by default and Ms Gledhill:

• had 6 years to sue for damages for breach of contract and by extension, a breach of the section 8 warranties: her claim would have expired in 2013 and was now statute-barred;
• had 6 years to sue for damages for negligence where time started running when the damage becomes manifest: it is not clear from the judgment when Ms Gledhill became aware of the alleged defects in Scotia’s work.

It is not clear whether this is the end of the road for Ms Gledhill. She may have no claim against Scotia for damages for breach of contract and the section 8 warranties, and it is not clear as to whether she has a surviving claim for damages for negligence.

If she became aware of the alleged defects immediately after completion, a claim for damages in negligence probably expired in 2013. But if she became aware of those defects in say 2016, her claim for damages will not expire until around 2022.

In addition to the limitation issue, a claim for damages in negligence for ‘pure economic loss’ may no longer be available for claimants like Ms Gledhill. Based on the current status of Australian law and recent judgments in this area^[6], the doctrine of concurrent liability – where the same conduct may give rise to liability in contract and tort – is unlikely to apply where the parties’ relationship is governed by contract.

The theme running through those recent judgements on this issue indicates that where an owner or subsequent purchaser can protect itself through its contractual relationship with a builder, designer or developer, it will be very difficult for them to establish that the builder, designer or developer owes it a concurrent and separate duty of care under the law of negligence.

Starting with Bryan v Maloney,^[7] the High Court held that a builder of a domestic dwelling in Tasmania owed a duty of care to a subsequent purchaser to avoid the loss caused by defective building work. But that case was decided before the DBCA gave rights to subsequent purchasers in Victoria to sue for breach of the builder’s contractual warranties to the original owner.

In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288^[8], the High Court considered a dispute over an alleged defect in the common property of a commercial serviced apartment development that the builder had constructed for the developer under a design and construct contract. The High Court held that no duty of care was owed by the builder to the owners corporation – nor to the developer – to avoid ‘pure economic loss’. The High Court held that the developer was not ‘vulnerable’ because it had the ability to protect itself through the terms of the design and construct contract. The owners who purchased from the developer could also protect themselves through the terms of their purchase contracts.

And recently, in Ku-ring-gai Council v Chan^[9], the NSW Court of Appeal considered the issue of ‘vulnerability’ where a subsequent purchaser had the benefit to sue for breaches of section 18B of the Home Building Act 1989 (NSW) - the NSW equivalent of the section 8 warranties. In that case, the Court of Appeal held, amongst other things, that because the subsequent purchaser had the benefit of the statutory warranties and remained able to protect themselves by negotiating the terms of purchase, they were not otherwise ‘vulnerable’ and accordingly, the Council did not owe a duty of care^[10].

The significance of Gledhill for owners and builders

Builders sometimes needs to return to completed dwellings to rectify defects after completion. Or, like in Gledhill, they may rectify defects in another builder’s work.

If the work requires the issuing of a fresh building permit, the builder will be liable for defects in the work for 10 years after the OP or CFI is given both in respect to claims for breach of contract and breaches of the section 8 warranties.

But where no building permit is required or obtained for the rectification work, how long may the builder be liable to the owner if there is a problem with that work? This question has to be answered by considering what the owner’s cause of action against the builder will be, if the work is defective.

Breach of contract

Building contracts typically do not include an express term requiring the builder to return to site to fix defects after a defects liability period has expired. So in those circumstances a builder cannot be said to have breached the original building contract when carrying out rectification work.

If the rectification work was carried out under a settlement agreement, then the owner could claim for damages for breach of contract, i.e. breach of the terms of the settlement agreement.

Where there is no settlement agreement, but the builder agrees to return to site to carry out rectification work, even though there may not necessarily be a contract in writing, a contract to do the remedial work probably will exist because there is likely to be:

• an offer – express or implied – by the builder to carry out the remedial work;
• acceptance of that offer by the owner; and
• valid consideration from the owner, allowing the builder to rectify the defects rather than suing the builder for damages.

If the contract is for domestic building work^[11], the section 8 warranties will apply and the owner can also sue for damages for breach of them.

Negligence

The original owner or a subsequent purchaser is unlikely to be ‘vulnerable’ if:

• the owner or subsequent purchaser had the ability to protect itself by negotiating appropriate terms of a building contractor or purchase contract, respectively; or
• (if Ku-ring-gai Council v Chan is applied in Victoria) a subsequent purchaser has the right to sue for breaches of the section 8 warranties.

So there is real uncertainty as to whether an owner or subsequent purchaser can sue a builder or other project participant in Victoria in negligence.

Summary

Of course, each case will turn on its specific facts and on the type of building work being carried out. But in light of the decision in Gledhill and other recent judgements, where a builder rectifies defects in a dwelling in Victoria and that rectification work is defective:

• if the work required a building permit, the builder will be liable for the defects – both for damages for breach of contract and by extension, breach of the section 8 warranties – for 10 years after the OP or CFI is given; and
• if the work did not require a building permit (or none was obtained) then the 10-year limitation period in section 134 of the Building Act will not apply and the 6-year limitation period under section 5(1) of the LAA will apply by default.

And unless an owner or subsequent purchaser can show ‘vulnerability’ arising from an inability to protect themselves from the works carried out by a builder, designer or developer, then a Court or Tribunal is unlikely to find that the relevant party owed to that owner or subsequent purchaser a concurrent duty of care.

[1] Section 5(1) of the Limitation of Actions Act 1958 (Vic).

[2] Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165.

[3] [2019] VCAT 422 (2 April 2019) – VCAT Building and Property List

[4] VCAT has jurisdiction over domestic building disputes in Victoria, including claims by owners regarding defective work.

[5] Gledhill, at [95].

[6] For example, Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 and Ku-ring-gai Council v Chan [2017] NSWCA 226.

[7] (1995) 182 CLR 609. Cf. Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515.

[8] (2014) 254 CLR 185.

[9] [2017] NSWCA 226.

[10] Ku-ring-gai Council v Chan, at [97], [98] and [119].

[11] ‘Domestic building work’ is defined in the Domestic Building Contracts Act 1995 (Vic) to include the ‘repair of a home’.