Licence to add defects

A recent decision of the NSW Supreme Court has revisited the Onerati principle post section 18E(2), in a successor in title context.

In The Owners - Strata Plan No 90018 v Parkview Constructions Pty Ltd [2022] NSWSC 1123, an owners corporation brought proceedings in the NSW Supreme Court against the builder and developer for 85 defects referable to a breach of one or more statutory warranties. Subsequently, it sought to amend its claim to add:

  • a claim against the builder for breach of the statutory duty under section 37 of the Design and Building Practitioners Act 2020
  • further defects to the breach of statutory warranty claim.

The builder opposed the application to add the further defects to the statutory warranty claim on the basis that:

  • each new defect represented a new cause of action
  • each new cause of action was in pursuit of further claim for a breach of the statutory warranties
  • the limitation period for bringing a claim pursuant to the statutory warranties had passed, since the commencement of the proceedings.

Essentially, the contest was between whether the amendments to the statutory warranty claim were to introduce new causes of action and therefore time-barred, or, formed part of the same cause of action and would date back to the commencement of the proceedings.

Issues

Three issues were identified for determination:

  • whether individual defects that breach the statutory warranties constitute separate causes of action
  • whether the so-called Onerati principle would prevent the additional defects from being added in proceedings for breach of a section 18B statutory warranty brought by a successor in title under sections 18C and 18D
  • whether each of the six statutory warranties under section 18B(1) represents six possible causes of action, or whether they should be considered as one collective right (meaning a claim for a breach of any of the warranties would constitute a breach of section 18B(1) as a whole and therefore constitute a single cause of action).

The Onerati principle, derived from Onerati v Phillips Constructions Pty Limited (In Liq) (1989) 16 NSWLR, holds that there is one cause of action for breach of a contractual promise to carry out works in a good and workmanlike manner, such that judgment in one proceedings will bar subsequent proceedings for different defects, even if those defects were not apparent at the time of the first proceedings.

In November 2006, following a similar controversy in Honeywood v Munnings [2006] NSWCA 215, where Onerati was followed in a Home Building Act (HBA) context, Parliament sought to displace the Onerati principle, in limited circumstances, by inserting (inter alia) section 18E(2) into the HBA via the Home Building Amendment (Statutory Warranties) Bill 2006.

Section 18E(2) provides that where a person has enforced a statutory warranty under section 18B(1) in relation to a particular deficiency, it is not prevented from enforcing the same warranty in relation to a different deficiency in the same work, provided:

  • the other deficiency was in existence when the work to which the warranty relates was completed
  • the person did not know, and could not reasonably be expected to have known, of the existence of the other deficiency when the warranty was previously enforced.
  • the proceedings to enforce the warranty in relation to the other deficiency were brought within the relevant limitation period.

Decision

The Court held:

  • separate causes of action for breaches of the statutory warranties created by section 18B of the HBA do not arise each time there is a defect that constitutes a breach of such warranties
  • for each of the six statutory warranties created by section 18B of the HBA, there are either single causes of action available to a party entitled by reason of sections 18C and 18D of the HBA to enforce such warranties or, perhaps, but one cause of action for a breach of the statutory warranties taken together
  • subject to the specific exceptions created by sections 18D(2) and 18E(2) of the HBA, the Onerati principle does apply to claims for breach of those statutory warranties.

The effect of the above was to allow the amendments to the statutory warranty claim, notwithstanding the limitation period had passed, after the proceedings were commenced, but before the motion was filed.

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