A bill introduced into the New South Wales Parliament will increase significantly the opportunities for homeowners to claim for construction defects under the Home Building Act (Act).
Planned amendments to the Act directly target the Court of Appeal's recent decision in Honeywood v Munnings, which held that builders' warranties implied by the Act are limited to a single enforcement by an owner for all defects existing at the time of the proceedings.
In the Honeywood decision, the court applied the so-called Onerati principle, confirming that the limitations on an owner's ability to enforce a general contractual warranty also apply to the builder's warranties, which the Act implies into a construction contract.
The Onerati Principle
The 1989 decision of Onerati v Phillips Constructions confirmed an important limitation on an owner's ability to sue a builder for defects. It held that there is only one cause of action for breach of contract based on a breach of a promise such as 'to carry out work in a good and workmanlike manner'. An owner cannot bring a subsequent action for a breach of this warranty, even where the defects were not apparent at the time of the original proceeding or the defects relate to different aspects of the works.
Honeywood v Munning
In August 2006, the Court of Appeal held that the Act does not interfere with the Onerati principle in respect of the owners for whom the building work was done. The court also held that the Act overrides the Onerati principle as it applies to subsequent purchasers' rights to recover for defective work and materials which had not previously been the subject of enforcement of a builder's warranty under the Act.
The Munnings engaged Honeywood (the builder) to build a house. After the house was completed and the Munnings were in possession, they made a partly-successful claim against the builder in the Consumer, Trader and Tenancy Tribunal (Tribunal), for defective plumbing, stairs and a handrail.
Two years later, the Munnings claimed again for waterproofing defects. The builder was deceased but the Munnings persisted against his estate. The builder's executrix applied to dismiss the proceedings, arguing that the Onerati principle, or res judicata, as it is otherwise known, prevented the new claim.
The Tribunal said that the Onerati principle did not apply because Section 18D of the Act abrogated the principle. This decision was upheld by the Supreme Court.
Section 18D states: 'A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty, except for work and materials in respect of which the person's predecessor has enforced the warranty.'
The court said that section 18D did not abolish the Onerati principle as between the original parties to the contract, so the Munnings were not entitled to bring their subsequent proceedings. Section 18D was enacted to benefit subsequent owners but because the Munnings were not subsequent owners, Section 18D did not apply to them and they had no right to enforce the builder's warranty again.
The court also said that as the predecessor had no rights, because of the Onerati principle, Section 18D did not allow a subsequent purchaser to retain enforcement rights, once these had been exercised.
Importantly, however, the court held that the 'exception' in Section 18D meant that an earlier claim for part of the work and materials would not exclude a subsequent owner's right to enforce a warranty concerning some other part of the work and materials.
Implications of the Honeywood decision
The decision confirms that the original home owner has only one chance to enforce a builder's warranty for work and materials, even if the owner was not aware of the breach at the time of enforcement.
How the amendments will work
If passed, the Home Building Amendment (Statutory Warranties) Bill 2006 will amend Part 2C of the Act to displace the Onerati principle.
It will enable a person to bring proceedings to recover for several but distinct deficiencies arising from breaches of the same warranty, as long as those deficiencies were in existence when the work covered by the warranty was completed and the person did not know, and could not reasonably be expected to have known, of the existence of the deficiencies at the conclusion of earlier proceedings to enforce the warranty.
A subsequent owner will be entitled to the same warranty rights as the previous owner, but cannot enforce a warranty in proceedings for defective work or materials if the warranty has already been enforced for the particular deficiency by the previous owner.
Transitional provisions mean that the changes will apply to proceedings begun before the commencement of the amendments but which have not yet been heard.
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