How long is a building professional’s liability for defects, really?

On Friday last week, the Victoria Court of Appeal resolved a long-unanswered question: is the 10 year limitation period in the Building Act a ‘long-stop’ date on claims for negligence, or does it also replace the 6 year limitation period for breach of contract?

The case, Brirek Industries v McKenzie Group Consulting (Vic) Pty Ltd, held that the limitation period for ALL building actions in Victoria – including breach of statutory warranties – is 10 years from completion of the building.

Why do I care about a Victorian case — I work in the ACT!

A similar unresolved question exists in the ACT. However, for a number of reasons set out below, Brirek is unlikely to have the same impact here as it does in Victoria.

An explanation of the unresolved question about limitation periods

Generally speaking, the limitation period for bringing any court proceedings is 6 years from the date the cause of action accrues.

In relation to claims for breach of contract, the cause of action accrues at the time of the breach. For building defects that is usually the date the works are handed over with defects in them – i.e. completion.[2]

In relation to claims for negligence, however, the cause of action accrues at the date the damage is suffered. Numerous cases have held that for building defects, the damage is suffered at the time that the defect becomes manifest. This could be several years after the completion of the building, creating a long trailing period of liability in negligence for defects.

For this reason, all Australian states and territories have introduced legislation which says that no claim for a building action can be brought more than 10 years after the date of completion of the building. In Brirek, it was argued that the 10 year cap was just a ‘long-stop’ date to protect builders from trailing negligence claims, but that the shorter 6 year period for breach of contract still applied. That argument was rejected.

The precise wording of the relevant legislation varies significantly from jurisdiction to jurisdiction. In the ACT:

There is a 10 year limitation for any ‘building action’ (s 142 of the Building Act 2004 (ACT)).
Statutory warranties are implied into every residential building contract, and the warranties ‘end’ at the end of the warranty period (2 years non-structural and 6 years structural) (s 88 of the Building Act 2004 (ACT)).
An action is not maintainable if commenced more than 6 years after the cause of action accrues (s 11 of the Limitation Act 1985 (ACT)).

But, where the damage is latent, the court has a discretion to extend a limitation period for a further period not exceeding 15 years from the date the cause of action accrued (section 40 of the Limitation Act 1985 (ACT)).

There are no cases in the ACT that give guidance as to how these various sections are to be read together.

What does Brirek mean for Victoria?

The decision means that in Victoria a claim for breach of contract is now longer for a building dispute (10 years) than any other contract dispute (6 years).

Importantly for Victoria, because the legislation implying warranties into residential building contracts did not expressly specify any limitation period on bringing claims for breach of those warranties, it means that the limitation period for breach of statutory warranty is now 10 years from completion.

Does Brirek answer the question in the ACT?

No. There are two important differences between the ACT and Victorian legislation.

First, the ACT statutory warranties expressly ‘end’ after 2 and 6 years. Whilst this is not as clearly worded as similar provisions in NSW, Queensland, South Australia and Tasmania (which all expressly say that a claim must be commenced within the warranty period), our view is that the end of the warranty period acts as limitation on bringing any claims. That is, our statutory warranty provisions have their own limitation periods, and do not simply rely on the limitation period for breach of contract like the Victorian legislation.

Second, the 10 year cap in the Victorian Building Act is expressed to operate ‘despite anything to the contrary in the Limitation of Actions Act 1958 or in any other Act or law’. The court placed considerable weight on these words in Brirek. No such express overriding words exist in the ACT legislation – and in fact our legislation specifically says that the 10 year period does not apply if a shorter limitation period applies under another Territory law. So the shorter 6 year period is preserved and the 10 year period in the ACT is in fact a ‘long-stop’ date.

Less clear, however, is whether the court’s discretion to extend a limitation period for up to 15 years for latent damage also applies to building actions.

What do I need to do?

If you work in Victoria, you need to be aware that the limitation period on any building action is now 10 years, and factor this risk in when pricing your jobs or signing contracts with subcontractors.

For ACT builders, the Brirek case serves as a reminder that the various limitation periods for building claims are overlapping. If you have a possible building action, or an action is being threatened against you, it is important that you seek early advice to make sure that you understand the relevant limitation dates.

For more information contact the Construction Dispute Resolution Team:

Alisa Taylor – Partner — Construction Dispute Resolution
(02) 6279 4388
alisa.taylor@mvlawyers.com.au