Australia: Authority for the 10 year long stop period under the EPA in New South Wales

Construction Law Update

On 2 November 2016, Justice Stevenson of the Supreme Court of New South Wales delivered a favourable decision for builders in NSW in Owners Corporation Strata Plan 76841 (the Owners Corporation) v Ceerose Pty Ltd & Anor [2016] NSWSC 1545.

One of the key takeaway points from the decision is that the Court would not grant leave to the Owners Corporation to introduce new claims because the 10 year long stop period pursuant to section 109ZK of the Environmental Planning and Assessment Act 1979 (EPA Act) had expired. This is because Ceerose, the contractor, had lost an opportunity to prosecute viable and realistic cross-claims therefore suffering obvious and significant prejudice if leave was allowed to introduce any new claims.

The decision is authority for the way the NSW Courts will deal with new claims brought after the 10 year long stop period has expired when proceedings are on foot.

In this article, we consider his Honour Justice Stevenson's decision in more detail and the implications for the NSW construction industry:

Background

The Owners Corporation is responsible for the common property of an 8-storey residential building comprising 64 residential units in Waitara. Ceerose Pty Ltd (Ceerose) constructed the building which was completed in September 2005.

On 10 April 2006, a final occupation certificate was issued in respect of the building.

On 1 February 2012, the Owners Corporation commenced proceedings in the Consumer Trader and Tenancy Tribunal alleging defects "greater than $30,000" in the building works and breach of the statutory warranties implied under s18B of the Home Building Act 1989 (HB Act). It was common ground that, at the relevant time, the warranty period under section 18E of the HB Act was seven years and that the period expired on 10 April 2013.

In February 2014, the Owners Corporation transferred the proceedings to the District Court because at that stage the Owners Corporation schedule of defects (Scott Schedule) assessed the total rectification costs at $555,000 (including the fire and BCA claims, however, these claims had not yet been quantified).

After settlement negotiations between the parties broke down in March 2015, the District Court ordered the Owners Corporation to serve and finalise its expert evidence by 5 June 2015. The Owners Corporation did not comply with that order. Nor did the Owners Corporation comply with a subsequent court order to file their evidence by 26 February 2016.

On 7 March 2016, the Owners Corporation first identified their water ingress claim, however, at this time it lacked meaningful expert evidence to support it.

On 8 March 2016, the District Court extended the time for the Owners Corporation to serve its evidence to 9 May 2016, despite Ceerose's objection and the expiry of the 10 year long stop period under the EPA Act.

In May 2016, the Owners Corporation served evidence with the total amount claimed exceeding $2.3 million, including $1 million for the water ingress claimed and approximately $335,000 for the fire and BCA claims.

The proceedings were transferred by the Owners Corporation to the Supreme Court where the Owners Corporation pursued an application to amend their pleadings to include the water ingress claim and the BCA and fire claims.

Ceerose opposed the Owners Corporation's application to amend so far as it concerned the addition of the water ingress claim and the BCA and fire claims (insofar as the BCA and fire claims claim now exceeded the $195,000 amount, being the difference between the quantified claim of $555,000 and the jurisdictional limit of the District Court being $750,000).

Findings

Counsel for Ceerose submitted that the water ingress claim should be refused for two reasons. First, that it was statute barred under s18E of the HB Act as it arose from a cause of action that expired after the end of the 7 year period. Second, because the 10 year long stop period had lapsed before evidence in support of the claim was given by the Owners Corporation, with the result that Ceerose's ability to offset their liability by way of cross claims was adversely affected.

Justice Stevenson was not persuaded that the water ingress claim was statute barred under s18E of the HB Act, because, amongst other things, it arose from an alleged breach of statutory warranties under the HB Act and the alleged defects were particulars of that breach and so it was arguable that the addition of the water ingress claim in the proceedings was not a new cause of action.

His Honour did, however, accept that the inclusion of the water ingress claim would adversely affect Ceerose in that, to allow the water ingress claim after the 10 year long stop period had expired, would unfairly prejudice Ceerose as it had unfairly lost out on the opportunity to pursue subcontractors and/or certifiers responsible for defective building work.

His Honour also held that in respect of the fire and BCA claims, because the long stop period expired before service of the Owners Corporation's evidence, Ceerose could no longer bring a cross-claim against the certifier. Accordingly, Ceerose had suffered prejudice similar to that suffered in respect of the water ingress claim. However, since Ceerose was prepared to take the risk that the fire and BCA defects claim might be in an amount of up to $195,000 his Honour granted leave to the Owners Corporation to amend to bring the fire and BCA defects claim limited to $195,000.

This decision is a timely reminder to plaintiffs that in commencing proceedings for defective residential building defects they should properly particularise their case in time. There is also now more certainty around how the court will apply the 10 year long stop period under the EP Act, giving builders more comfort that their exposure is limited..

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