The Variable Limitation Period of Domestic Statutory Warranties in the Australian Capital Territory

The Variable Limitation Period of Domestic Statutory Warranties in the Australian Capital Territory

25 Jan 2021

By Donna Abu-Elias, General Counsel, and Jordan Davies, Senior Paralegal, Lovegrove & Cotton – Construction and Planning Lawyers

Civil action in Australia is not an unfettered right, even for rightful claimants. The cost of civil litigation to Australia’s economy is immense. It is for this reason, amongst others, that policy makers in Australia divined statutory limitation periods for civil action across the 9 Australian jurisdictions.

Limitation periods under the likes of the Limitation of Actions Act 1958 (VIC), the Limitation Act 1969 (NSW), Limitation Act 1985 (ACT), and their coordinate jurisdictional equivalents, all serve to generally cap civil action to within 6 years of a civil claim arising, unless those Acts or other relevant Acts of Parliament provide otherwise.

Australian Building Industry Limitation Periods

In many Australian jurisdictions, the building industry has industry-specific limitation periods for “building action”. In Victoria and the Northern Territory, it is 10 years. In some other jurisdictions, such as the ACT and NSW, it is not as simple and depends on the type of “building action” and the type building defect concerned.

Statutory Warranties

A fundamental component of consumer protection in the building industry in Australia is the State and Territories’ respective building statutory warranty schemes. For more general information regarding statutory warranties, feel free to read an article on point HERE.

This article focuses on a specific aspect of the Australian Capital Territory’s statutory warranty scheme, specifically its limitation periods under Regulation 38 of the Building (General) Regulation 2008 (ACT) and compares the scheme to those found in some other states.

The Limitation Periods for Statutory Warranties in the ACT

In the Australian Capital Territory, the limitation period for Statutory Warranties under Section 88 of the Building Act 2004 (ACT) varies according to whether defects are structural or not structural.[1]

Regulation 38 of the Building (General) Regulation 2008 (ACT) provides that:

1) The period for the end of a warranty is—

(a) for residential building work in relation to a structural element of a building—6 years after the completion day for the work; or

(b) for  residential  building  work  in  relation  to  a  non-structural element of a building—2 years after the completion day for the work.

What is Structural vis-à-vis Non-Structural for Purposes of Regulation 38 of the ACT Building (General) Regulation 2008?

It follows that the definition of “structural element” is of immense importance with regards to the commencement of building action in the ACT.

Regulation 38 provides that “structural elements” are components of a building that are “load bearing” and “essential to the stability of the building or part of it”, or are components of the building that form part of the weatherproofing of the external walls or roof of the building. The regulation provides some examples of same, being: “a foundation, floor, wall, roof, column or beam”.

It follows that Regulation 38 is quite contingent upon technical arguments as to the essentiality of certain components to structural stability and whether or not a certain component is “load bearing”. In certain cases, the success or otherwise of these technical arguments may determine the success of a case where originating process for legal action is made after the shorter 2 year period.

What is the Significance of the Distinction?

By way of example, if one is an owner of an apartment in a tower that suffers a ventilation issue arising from defective building work and culminating in condensation, perhaps even mould, one may need to make a claim within 2 years of the Certificate of Occupancy and Use (instead of 6 years), despite the fact that the defect may have culminated in a residence being uninhabitable. This is because such a defect would often be considered to affect elements of a building that are:

  • non-load bearing;
  • not essential to the stability of the building;
  • not forming part of the weatherproofing of external walls or roof; and
  • therefore, non-structural for purposes of Regulation 38.

One issue with this regulatory scheme for consumers is that the distinction is not sensitive to the type or amount of loss and damage – it is not sensitive to the quantity of compensation necessary to restore a claimant to their original position. Some non-structural defects can inflict upon Owners and Owners Corporations substantial pecuniary loss; in some instances, the magnitude of this loss may be more than certain structural defects.

Comparative Limitation Periods in NSW and Victoria

New South Wales

Under the Home Building Act, components of a building such as filtration systems in pools, water heaters and coolers, refrigeration, air conditioning and plumbing are expressly included within the definition of ‘residential building work’.

In New South Wales, there is a distinction between “major building defects” and other types of defects, which determines the period within which a claim must be made under the statutory warranties under the Home Building Act.[2]

So, in New South Wales it does not matter whether a defect pertains to the likes of a filtration, ventilation or plumbing system vis-à-vis a structural component; rather, it depends on the severity of outcome and, amongst other things, the consequential habitability a component of a building.

Victoria

In Victoria, perhaps helpfully (for simplicity’s sake), there is not an equivalent distinction between types of defects and associated limitation periods for purposes of the statutory warranties under Section 8 & 9 of the Domestic Building Contracts Act 1995 – the standard building industry limitation period (see Section 134 of the Building Act 1993) applies, which is 10 years. Explanatory notes in the Domestic Building Contracts Act 1995 confirm that for warranties under Section 8 & 9, Section 134 of the Building Act 1993 applies. With this longer 10 year limitation period, in some senses, the Victorian regime is more consumer-friendly than its ACT and NSW counterparts.

There is one new narrow exception in Section 134(2) of the Building Act 1993 which, for certain cladding action, allows an extension of the standard building action limitation period from 10 years to 12 years, to cover a period between 16 July 2019 until 12 months after the commencement of the new Cladding Safety Victoria Act 2020 (VIC) which, amongst other things, amends the Building Act 1993 (VIC).

According to the Cladding Safety Victoria Act 2020‘s Explanatory Memorandum, the amendment to Section 134 of the Building Act 1993 “provides the State and building owners additional time to conduct due diligence activities to identify relevant building work and building practitioners against whom to bring legal proceedings. It is intended that these activities will have a deterrent effect on the building industry and assist the State to recoup costs associated with the cladding rectification program.

Both the Victorian Building Act 1993 and Northern Territory Building Act 1993 imported the 10 year liability “guillotine” from the National Model Building Act.

The founder of this firm, Professor Kim Lovegrove, has an intimate understanding of this limitation period innovation as he headed up the law reform team that developed the National Model Building Act and was subsequently deployed as instructing officer to Parliamentary Counsel for the development of the Victorian Building Act 1993.

The 10 year liability cap, that commences at the point of issue of either the occupancy permit or certificate of final inspection, was a “French import” in that it was based upon the Napoleonic code liabilitie decennial. Liabilitie Decennial is followed in a number of French-based jurisdictions and allows for the initiation of legal proceedings for a period of 10 years.

Professor Lovegrove stated that the rationale for adopting this adaptation of the French concept was to “give crystal-clear clarity regarding the limitation period for building action”. Prior to this innovation, the application of the previous 6 year limitation period was at times uncertain because there was no clear legislative “trigger event”. The prior regime relied upon evidence regarding building completion dates and such evidence was often highly contentious and had spawned an industry of conflicting expert testimony where plaintiff and defendant expert witnesses proffered opposing views.

Professor Lovegrove in his offshore law reform retainers always promotes the view of the French-based system in light of its clarity. Another point worthy of mention is that one of the key virtues of the 10 year period as compared to a 6 year limitation is that, as research has shown, there is a large incidence of claims between years 6 and 10.

Conclusion

It follows that if one is a consumer in the Australian Capital Territory, whether they are a natural person owner or Owners Corporation, and there is concern about potential defects in a building, one should take swift action to consult a construction lawyer to determine whether a claim is barred by any relevant statutory warranty limitation periods. In certain instances, this will depend upon whether the defects concerned pertain to a structural element or non-structural element of the relevant building. Building practitioners in the Territory also need to be live to this distinction in respect of potential liabilities and claims under the statutory warranty scheme.

 

Footnotes

[1] Building (General) Regulation 2008 (ACT), regulation 38; Building Act 2004 (ACT), s 88.

[2] See Section 18E of the Home Building Act 1989.