Articles

By Lovegrove & Cotton – Construction and Planning Lawyers

Statutes of limitations in Australia, such the Limitation of Actions Act 1958 (VIC), generally cap civil action to within 6 years of a civil claim arising, unless the relevant statute of limitations or other relevant Acts of Parliament provide otherwise. In regards to the building industry in Victoria, the Building Act 1993 (VIC) (‘the Building Act’) provides otherwise in Section 134 of that Act.

This article spells out some of the intricacies of Section 134 and the reasoning behind its implementation. It also outlines how long potential claimants have to sue in relation to building work, and how long building practitioners remain potentially liable for building work and related claims.

Lastly, it outlines some recent developments regarding cladding building action and a longer limitation period that applies for eligible cladding building actions.

Limitation on When “Building Action” May be Brought

Section 134(1) of the Building Act 1993 (VIC) is an exceptionally significant provision. The section enshrines the limitation period for the initiation of building-work-related law suits (or ‘building action’) in Victoria. Many other jurisdictions do not have a limitation period that is bespoke to their particular jurisdiction and their statutory limitation period is governed by their respective broad umbrella Limitations of Actions Acts or Limitations Acts.

Section 134(1) of the Building Act 1993 (VIC) provides that:-

Despite anything to the contrary in the Limitation of Actions Act 1958 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 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 10-year limitation period, to put it bluntly, operates as a law suit ‘guillotine’. The use of the word guillotine is not entirely metaphorical as the 10-year limitation period was of French jurisprudential derivation. The section however is not a stand-alone and must be read in conjunction and within the collective context of other defined terms in this Part.

Important Related Definitions

With respect to the interpretation of Section 134(1), close regard must be had to the terms used in that clause.

One term used is building action, which is a defined term, and encompasses an extensive scope of construction related law suits that can be initiated in the state of Victoria.

Section 129 which contains the Definitions for Division 2 of Part 9 of the Building Act provides the following:-

In this Division—

building action means an action (including a counter-claim) for damages for loss or damage arising out of or concerning defective building work;

building work includes the design, inspection and issuing of a permit in respect of building work.

Building work is also defined in Section 3 of the Building Act. Close regard must also be had to the term building work and note too its relationship with the term construct. One cannot have a total grasp of that breadth of Section 134 unless one looks closely at the definition of building work and construct.

Section 3 “Definitions” in the Building Act 1993 provides:

building includes structure, temporary building, temporary structure and any part of a building or structure;

building work means work for or in connection with the construction, demolition or removal of a building;

construct, in relation to a building, includes— (a) build, re-build, erect or re-erect the building; and (b) repair the building; and (c) make alterations to the building; and (d) enlarge or extend the building; and (e) place or relocate the building on land;

The definition of building work in Section 129 therefore does not derogate from the meaning provided by Section 3 of the Act which contains the general definitions of the Building Act 1993. The definition of Building Work in Section 129 appears to be included to make clear that design, inspection and building surveyor functions are included for purposes of Section 134 within the definition of “building work”. For purposes of Division 2 of Part 9 it is important to note that definition of building work in Section 129 is an inclusive one and is not exhaustive.

When the connotations of the terms building work, building and construct are factored in, it is clear that the scope and breadth of that which is captured by Section 134 is very ambitious and extensive. It appears clear from the language used in the legislation that it was desired that there be ‘no stone left unturned’.

The firm’s founding principal, Kim Lovegrove, has often attested that this was by design, (having been instructing officer to parliamentary counsel on the development of the Building Act 1993). Professor Lovegrove, being a lawyer, was particularly focused on the intricacies and reach of the limitation periods. The reform team recognised that the introduction of the 10-year limitation period was a major departure from the past. This was not only in terms of providing an unambiguous extension of the period of time that one could sue, but also in terms of it being a departure from some established British-based legal conventions.

Professor Kim Lovegrove recalls having a chance meeting, in a Melbourne tram, with a retired Parliamentary Counsel John Fennimore QC who volunteered that he never thought he would see such far-reaching changes to liability which also included Section 131, the first ever proportionate liability provision in Australia.

Historical Varying Interpretations of Section 134

When considering the ambit of Section 134, it is important to note that the Limitation of Actions Act 1958 (VIC) (‘the LAA’) generally caps civil action to within 6 years of a civil claim arising, unless the LAA or other relevant Acts of Parliament provide otherwise. Accordingly, Section 134(1) of the Building Act states that it operates “despite anything in the Limitation of Actions Act 1958 (VIC) or in any other Act or law”.

Someone unfamiliar with the Building Act could overlook the paramountcy of Section 134 and apply the wrong limitation period; for instance, the general limitation period of 6 years for contractual and tortious claims in accordance with Section 5(1) of the LAA.

There is much to be said for the argument that the wording of Section 134 is clear and non-contentious, but this view was not necessarily universal.

Brirek Industries v McKenzie Group

In 2011, a County Court Justice held at trial that Section 134 operated as a “long-stop” liability cap rather than a standalone limitation period that dispensed with the provisions of the LAA. The finding was overturned on appeal. A key takeout here is that one can never make assumptions about the way in which statue will be interpreted, pending a judicial determination.

Trial Judgement at the County Court

Brirek Industries Pty Ltd v McKenzie Group Consulting (Victoria) Pty Ltd (2011) VCC 294

Justice Shelton of the County Court contended that the 6-year period applied to Section 134 for all building action save for negligence action.

At [88] Justice Shelton stated that “I have concluded that Section 134 of the Building Act only applies to claims in negligence with respect to defective work and does not extend the six-year contractual limitation period.” His Honour considered Section 134 to be “an absolute cap” or “long stop” provision serving only as the absolute cap on the so-called “infinity plus six” regime under the Limitation of Actions Act, with its six-year limitation period applying from the date of a cause of action arising.

“Its purpose is to limit the common law position where the limitation period only runs in negligence from when defects in the building works were first known or manifest”

In finding that the 6-year cap still applied to contract, Justice Shelton stated “it appears clear to me that the mischief which s.134 addresses is open-ended potential liability in negligence in respect of defective workmanship. It is not concerned with breach of contract where the cause of action arises upon the breach.”

This decision was appealed but the appeal failed to deliver a different outcome, although the Victorian Supreme Court of Appeal considered Shelton’s findings as to statute barring to be incorrect. His Honour was, however, correct in one discrete respect, Section 134 is concerned with imposing an embargo on open-ended liability; however, such an objective was not limited to negligence but all sorts of manifestations of civil action that came within the definition of a building action.

The Victorian Supreme Court of Appeal’s finding on Section 134

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

The Victorian Supreme Court of Appeal dismissed an appeal but in obiter considered that the wording of legislation was clear & that the limitation period was 10 years for all building actions. The scope of the definition of building action was very broad and all-encompassing and not limited to negligence.

“We found the trial judge was wrong to hold that the claims made in reliance upon the 2004 contract were statute-barred.”

The Supreme Court of Appeal therefore held that a claimant may bring a building action in contract or tort within 10 years of the date of the certificate of occupancy or certificate of final inspection.

The Supreme Court of Appeal considered that Section 134 did not distinguish between limitation periods for civil action in negligence and contract, nor obvious or latent defects. The purpose of Section 134 was held to be to limit the period within which building actions generally may be brought. In light of the broad scope of Section 134, the Court of Appeal considered that actions in contract and tort both fell within its scope and could therefore be brought within ten years from the date of an occupancy permit or certificate of final inspection.

Historical Context of the 10 Year Liability Period in Section 134

The finding of the Victorian Supreme Court of Appeal is in keeping with the purpose and historical objectives of Section 134 of the Building Act, along with its developmental history.

Prior to the promulgation of section 134 the limitation period was governed by the Limitation of Actions Act 1958 that dictated that legal proceedings had to be initiated within six years. At face value this seemed fairly straightforward and devoid of controversy. The problem was that it was unclear at law when the six-year period commenced and this resulted in two conflicting lines of authority:-

• One test was from when damage occurs; and

• The other test was from when a fault is discernible”.

The term “infinity plus six” was coined for these tests; in other words, many years could pass before damage occurred or for a defect to become evident, and only from either of those contestable events onwards would the limitation period begin to run.

The concept was British-based. In practice, the confusion as to the “trigger event” culminated in a paradigm where conflicting expert testimony became one of the hallmarks of arguments over the date upon which the limitation period commenced. Much was at stake because if a defendant could argue that a law suit was statute barred on account of a limitation period having expired, then that respondent could not be held to account. Equally, if a plaintiff was out of time then he, she or it forfeited potential entitlements.

Liabilitie Decennial – 10-year liability of French extraction

As mentioned earlier, Kim Lovegrove is intimately familiar with the rationale that underpinned the law reform initiative that culminated in Section 134 and the 10-year liability cap, having headed up a team that produced the National Model Building Act (‘NMBA’) in the early nineties. This project was commissioned by the Australian Uniform Building Regulatory Coordinating Council – the previous incarnation of the ABCB. The team grappled with limitation periods, and, during international comparative analyses, chanced upon the French system and the concept of liabilitie decennial; a Napoleonic Code liability model. Kim Lovegrove was subsequently was appointed as instructing officer to Parliamentary Counsel in Victoria in his capacity as Assistant Director of Building Control in the then-Department of Building Control (an early predecessor of the VBA). The NMBA was used as a law reform template and Section 134 of the Building Act 1993 imported the 10-year Model Building Act French-based liability model.

The liabilitie decennial limitation period affords a plaintiff 10 years to initiate legal proceedings before the ability to sue is ‘guillotined’. The key virtue of the 10-year period was that it balanced the need for a long enough period of time to allow consumers to take building action for latent defects with the need to ensure that practitioners did not face an uncertain and open-ended “six plus infinity” liability. The reform team’s research revealed that between years 6 and 10 there was still exposed a significant number of claims whose origins were more than six years old; so, it was considered that 10 years was more altruistic from a consumer protection point of view.

A Clear “Trigger Event”

It was all well and good to have a longer and more consumer-friendly limitation period but this did not cure the limitation period commencement date conundrum.

It was resolved that the 10-year period would begin to run from the date upon which either an occupancy permit or the certificate of final inspection was issued by the relevant building surveyor. The rationale for this was that a standardised statutory “trigger event” would remove any confusion over the date upon which the limitation period began to run.

Furthermore, to shore up the effectiveness of this mechanism, the Building Act 1993 contained a provision that made it mandatory for building surveyors to provide a copy of the occupancy permit or the certificate of final inspection to the local authority to ensure that said documents were safely archived in perpetuity with a public authority.

Personal Injury Claims Unaffected by Section 134

Section 130 of the Building Act provides that ‘nothing in this division applies to or affects any right to recover damages for death or personal injury arising out of or concerning defective building work’.

It follows that for claims relating to personal injury or death arising from building defects or building work, the conventional statutory limitation periods regarding the initiation of such proceedings apply. These are contained within the Limitation of Actions Act 1958 (VIC) in, for example, Sections 5(1AA), (1A), (1B), (1C) and in Part IIA of that Act. It is important to have regard to this caveat or restriction on the 10-year limitation period.

“Cladding Action” – A Potential Exception to the 10-year Limitation Period

The below analyses regarding the interpretation of the new cladding  provision in section 134 is a product of the deliberations of Justin Cotton, Donna Abu-Elias, Kim Lovegrove and our senior paralegal Jordan Davies. It was a joint brainstorm of the significance of the amendments and possible impacts.

As of December 2020, there is one 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. This is to cover a period between 16 July 2019 until 12 months after the commencement of Section 53 the new Cladding Safety Victoria Act 2020 (VIC) which, amongst other things, amends the Building Act 1993 (VIC).

The rather long amendment in Section 134(2) provides that:

(2) Despite subsection (1), a building action may be brought more than 10 years but less than 12 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 if—

(a) the building action is a cladding building action; and

(b) the building action has become or becomes prohibited on or after 16 July 2019, but before 12 months after the commencement of section 53 of the Cladding Safety Victoria Act 2020, by this section as in force immediately before the commencement of that section of that Act.

Subsection (2)(b) contains reference to “building action” which has become “prohibited” (and context would dictate ‘prohibited’ refers to the operation of the 10-year liability cap) during the period 16 July 2019 through to a date 12 months after the commencement of Section 53 of the Cladding Safety Victoria Act 2020 (VIC).

According to the Endnotes of the Building Act 1993 (VIC), the amendment made by Section 53 of the Cladding Safety Victoria Act 2020 (VIC) came into effect on 1 December 2020. This means that the latest date by which claimants intending on taking a cladding building action must commence proceedings, if they intend to avail themselves of the longer 12-year limitation period, is 1 December 2021.

What is a “Cladding Building Action”?

Section 134(3) provides that: –

cladding building action means a building action in connection with, or otherwise related to, a product or material that is, or could be, a non-compliant or non-conforming external wall cladding product.

CSV’s Subrogation of Claims – Section 137F of the Building Act 1993

Under changes brought about by the Cladding Safety Victoria Act 2020, and other earlier amendments from 2019, Cladding Safety Victoria has a right of subrogation in circumstances where it funds cladding rectification to an owner of a building pursuant to Section 137F (2) of the Building Act 1993.

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.”

It is therefore clear that this 2020 amendment has been inserted to ensure that Cladding Safety Victoria has additional time to take action to recover costs associated with its cladding rectification funding program, by allowing the State to use its right of subrogation under Section 137F to sue parties deemed to be at fault for non-complaint cladding use where there is a valid cause of action.

Notably, however, the wording of the amendment is not drafted so as to deny building owners the capacity to take cladding building action in their own right. In fact, the definition of cladding building action is very broad.

The Significance of Section 134(2)(b)

In light of the looming 1 December 2021 deadline for the commencement of cladding building actions eligible for the 12-year extended limitation period, there may be an increase in cladding building actions initiated by CSV through its right of subrogation rights under Section 137F(2) throughout the remainder of 2021. There may also be an increase in building owners taking cladding building action in their own right.

Cladding Building Action that was barred by the 10-year liability period from 16 July 2019 to 1 December 2021 may now be unencumbered by that limitation period if proceedings are commenced within 12 years of the occupancy permit or certificate of final inspection. In this regard, there is a mild retrospective effect in that potentially those claimants who were barred in late 2019 or early 2020 may now have an opening to issue proceedings.

Of course, the viability of such action may be contingent upon whether respondents are sufficiently solvent or whether there is a pathway to make a claim on a builder’s Domestic Builder Insurance, which may in certain instances be doubtful if one requires an extension to the 10-year limitation period. Domestic Builder Insurance covers rightful claimants only for 2 years after the completion date of building work, or termination of building contract, in regards to non-structural defects, or 6 years in regards to structural defects. Also, Domestic Builder insurance is not mandatory for buildings over 3 storeys.

Building owners and building practitioners should be aware of this reality and consider their potential rights or, contrastingly, their potential liability exposure in light of Section 134(2) as inserted in December 2020.

Conclusion

It follows that the statutory limitation periods contained within Section 134 of the Building Act 1993 are of immense significance to the success or otherwise of building law suits. It is one of the first questions any construction lawyer should ask a prospective claimant or defendant: “when was the occupancy permit or certificate of final inspection issued?”

In light of the December 2020 changes for cladding building actions, building owners along with building practitioners involved with building work where there have been concerns regarding cladding removal should be considering this question themselves.

In any event, if one is considering taking a building action, it is essential one consults a lawyer to ensure that one’s right to claim has not expired by operation of any limitation period “guillotine”. It should also be emphasised that as there are no legal precedents that provide an interpretation guide to the new amendments it is not possible to be definitive with regards to the legal import of the amending provisions. This further reinforces the importance of obtaining seasoned legal advice on one’s causes of action and the likely scenarios.