Australia: Building defects and limitation periods – the clock is ticking from when the cause of action accrues

The NSW Court of Appeal decision in Cyril Smith & Associates Pty Limited v The Owners-Strata Plan No 64970 [2011] NSWCA 181 serves as a reminder that building owners should investigate building defects as early as possible.

Background

The case concerned an eight storey residential building which was completed in early 2001. By the end of that year, it had become apparent that there were problems with the building including water ingress through windows which caused damage to the units and the steel structure supporting the roof.

The Owners Corporation commenced proceedings in 2005 claiming damages from the builder. In February 2008, the Owners Corporation joined the architect to the proceeding alleging negligence.

Supreme Court finding

The Owners Corporation obtained judgement against the builder and architect respectively. The builder also obtained judgement for contribution against the architect.

Issues on appeal

The architects appealed the decision on the basis that the cause of action accrued in 2001, when water ingress was identified by the Owners Corporation, and accordingly the six-year limitation period for bringing a claim had expired by 8 February 2008. It relied on s 14(1) of the Limitation Act 1969 (NSW), which stipulates that proceedings founded on contract or tort must be commenced within six years "running from the date on which the cause of action first accrues".

Accordingly, the issue before the Court of Appeal was when the cause of action first accrued to the Owners Corporation.

Court of Appeal – findings

The Court found that where there has been negligent construction of a building, the relevant loss accrues "when the defects becomes manifest or are otherwise discovered". Importantly, the Court held that it is the physical defect that must be known or manifest, not that the cause of the defect must be identifiable. The defect was therefore "the windows" (because they were not adequately weather proof) and not the design or installation of the windows or the physical consequences of the water ingress.

The Court held that the Owners Corporation was aware of water penetration through the windows (being the "defect") in 2001 and, as it had failed to bring its claim against the architect within six years of accrual of the cause of action, its claim against the architect was time-barred.

What do you need to know?

Building owners should investigate all signs of leaking or damage and take steps to enforce any rights at law against the parties responsible for defective works as soon as possible. It is particularly important that building owners investigate issues that may be symptomatic of an underlying latent defect, such as a structural problem, which may be expensive to remedy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.