The New South Wales Court of Appeal has recently given guidance to difficult questions about time limits for bringing claims for defective building work. It has confirmed the brutal reality that building claims must be brought within 10 years of completion of the work (and in most cases, much sooner).
The case centred around the all-important ‘long-stop’ limitation period for making building claims for defective works, which is 10 years from the date that the works were completed. It was a case of fine distinctions, and heavy on statutory interpretation.
The argument centred around Environmental Planning and Assessment Act 1979 (NSW) (Act).
No doubt the parties involved could never have imagined that so much ink would be spilled because of the simple fact that the development consent concerned was issued before 1998. The three-member Court split 2-1 on whether the current version of the long-stop limitation period applied to building work completed under development consents issued before 1998.
However as always, there are broader and more universal lessons that can be taken from the case.
In this article, we dive into the current section 6.20 of the Act (Current Long-Stop), and its similar predecessor, section 109ZK of the Act (Previous Long-Stop). We then consider the facts of the case, the points on which all judges agreed, and the majority decision where there was disagreement. We conclude with what we can take from this case going forward.
Long-Stop Limitation Period
All people involved in building need to be aware of limitation periods. These are time limits for bringing claims. If an otherwise meritorious claim is brought outside the limitation period, then a court will not consider it, no matter how well-supported it is or how “unjust” it may seem.
For this reason, anyone who believes that they have a claim, or will face a claim, needs to seek legal advice as soon as possible. This is especially true for building cases. Very often the clock will have started ticking as soon as the work was finished, regardless of when the problems first appeared. A few days can very well be the difference.
It is also important to bear in mind that multiple limitation periods may apply for a particular case. This article discusses the ‘long-stop’ limitation period, but there are other limitation periods that may take priority. For example, for residential building jobs, the Home Building Act has a very complicated regime for limitation periods, which range from two years to six years depending on the type of claim brought. These limitation periods apply notwithstanding anything in this article. Again, legal advice must be sought for the individual case.
The “long-stop limitation period” in broad terms is a 10-year limit from the date of completion of the work on when building claims can be brought to a Court. In most cases, this will be the date when the final occupation certificate was issued.
The case concerned works of a subcontractor for a main contractor completed in 1997 for a shopping centre and hotel on George Street, Sydney. The subcontractor had constructed an exhaust duct system that serviced the shops and restaurants in the shopping centre.
After the works were complete, Sydney Capitol Hotels Pty Ltd (Sydney Capitol) occupied the building. Meanwhile, Bandelle Pty Ltd (Bandelle) assumed the liabilities of the subcontractor under a scheme of arrangement sanctioned by the Federal Court of Australia in 2014.
In 2017, fire and smoke from kitchen exhaust at the bottom of a building spread to the hotel in the upper levels of the building. This caused the sprinkler system to activate. Sydney Capitol alleged that the subcontractor had breached its duty of care, as the shaft for the exhaust duct system was not constructed in accordance with the certified plans. The shaft did not extend beyond the roof sheeting, and so it was alleged that it was not properly fire-rated in accordance with the Building Code of Australia.
Bandelle denied that the subcontractor’s construction was defective. However, it also claimed that Sydney Capitol’s claim was a “civil action for loss and damage arising out of or in connection with defective building work within the meaning of s 6.20 of the Planning Act”, which was required to have been brought within 10 years of the completion of the building works.
If true, Sydney Capitol would be prevented from making the claim at all.
The Current Long-Stop (s 6.20), commencing in 2018, provides:
“(1) A civil action for loss or damage arising out of or in connection with defective building work or defective subdivision work cannot be brought more than 10 years after the date of completion of the work.”
The Previous Long-Stop (s 109ZK of Part 4C) provided:
“(1) Despite any Act or law to the contrary, a building action may not be brought in relation to any building work:
(a) more than 10 years after the date on which the relevant final occupation certificate is issued, or …”
Clause 34 of the Environmental Planning and Assessment (Savings and Transitional) Regulation 1998 (NSW), applied to the Previous Long-Stop until 2012. Clause 34 provided:
“Part 4C of the amended EP&A Act 1979 does not apply to or in respect of any development carried out under the authority of:
(a) a development consent granted under the unamended EP&A Act 1979 …”
The upshot was that because of Clause 34, the limitation period in the Previous Long-Stop did not apply to a development carried out under the authority of a development consent that was issued before 1998.
The big issue for the Court of Appeal was: whether the Current Long-Stop was affected by the Clause 34. The answer may have seemed like an obvious “no”, as Clause 34 had been repealed in 2012. However, Parliament had confusingly stated its intention that the Current Long-Stop was to carry on the effect of the Previous Long-Stop. The two laws had very similar drafting. Moreover, there was an argument that the rules of statutory interpretation required that the effect of Clause 34 continue after its repeal for some cases.
If the Current Long-Stop was affected by Clause 34, then there was a good chance that Sydney Capitol could bring its claim, unrestrained by the limitation period. However, if the Current Long-Stop was not affected, then Sydney Capitol’s claim could be dismissed.
There was a second issue: essentially, if it applied to a case, how wide should the Current Long-Stop be interpreted? Should it prevent all types of claims that result from building work, even if the building work was not completed by the other party, as was the case here?
Does the Current Long-Stop Apply to pre-1998 Developments?
The casenote for this issue appears simple, but in the words of White JA: “Even the experienced lawyers engaged in the litigation did not come to grips with the intricacies of the legislation and regulations at the hearing before the primary judge, and in some respects, not even on appeal.” Showing that laws are complex even for the best legal minds in NSW, the Court of Appeal was required to undertake a lengthy process of statutory interpretation, and it arrived at a 2-1 split on the main issues of the case. At the end of His Honour’s judgment, White JA called for Parliament to make the intention of the Acts and their amending Acts clear for those who are not minded to read the judgment.
The 2-1 majority found that the Current Long-Stop applied to the construction completed under a development consent issued before 1998.
The majority also found that the Current Long-Stop was not affected by Clause 34. Building carried out pursuant to development consents issued before 1998 (or any time) were covered by the Current Long-Stop.
Unfortunately for Sydney Capitol, this meant that the very wide phrasing of the Current Long-Stop applied to its own case. A different majority found that had the Previous Long-Stop still applied today, Sydney Capitol could have brought its claim.
The Operation of the Current Long-Stop
Accepting that the Current Long-Stop applied, what was the effect of this?
Essentially, claims for economic loss from defective building work must be brought at a maximum within 10 years of the completion of the work, irrespective of when the defects become manifest.
As the judges observed, the Current Long-Stop is designed to create some certainty for parties in the case of latent defects, which may only become known after some time and in piecemeal way. Other limitation periods (contract law or negligence) that also apply will often kick in only when damage becomes manifest.
In contrast, the long-stop limitation period applies notwithstanding any timing of defects becoming visible. The only relevant date is when the building work is completed, which is usually defined to be when the final occupation certificate is issued. From this time, there is a 10-year period during which a claim for economic loss must be brought. This provides builders with some degree of protection.
The Current Long-Stop has very wide phrasing. It applies to all who seek to bring claims for property or economic loss that arise from defective building work, including for negligent design and certification. The only apparent exceptions are for claims brought for death or personal injury.
Unfortunately for Sydney Capitol, the majority found that the damage that it suffered arose out of or was in connection with defective building work. The smoke damage from the fire was caused by the allegedly defective building work (or so the claim ran). Even though the building work failed to prevent the damage, rather than causing it directly, it was still caught by the Current Long-Stop.
More brutal for Sydney Capitol was that the company was not even the original owner of the property or the successor in title. Further, its opponent Bandelle had not completed the work but (in effect) guaranteed the work. Essentially, both parties had taken over the pre-existing rights and obligations of the owner and the builder. Yet the Court was unanimous in finding that these facts did not matter. All that mattered was that the claim concerned defective building work.
Consequently, even though the damage only became apparent to it in 2017, almost twenty years later, Sydney Capitol was barred from bringing a claim.
One final note, once again: very often, claims must be brought even sooner than 10 years. Depending on the type of building and the type of claim brought, another limitation period may make this period even shorter.
Much will be written about this case, and a lot of it will be relevant to lawyers rather than builders.
Nevertheless, the case demonstrates the brutal reality of limitation periods. Sydney Capitol was not even a successor in title, and it occupied a commercial premises in 1998. It only became aware of a defect in 2017. Nevertheless, it was prevented from claiming damages against anyone involved in the defect.
The case also shows the need for rigorous inspections prior to occupying or owning an older property. Sometimes, the only protection that incoming purchasers will have is prevention rather than the cure, if problems take years to become obvious.
However, the Current Long-Stop gives little comfort for those whose property suffers from latent defects, that only make themselves known long after building work is completed. Parliament has decided that after 10 years of completing a job, builders can live with relative certainty that they can be free of claims.
The case does not settle the question of whether parties can contract out of the long-stop limitation period, or similarly enter into a deed to that effect. The courts in NSW have not yet been required to resolve this question definitively.