Australia: Six year limitation period for major home building defects – or is it?

Earlier this year the NSW Court of Appeal confirmed that a party may be entitled to amend its claim for relief under section 18B of the Home Building Act 1989 (NSW) to add new defects to the claim, even after the statutory limitation period has expired.

The decision in Parkview Constructions Pty Ltd v Owners – Strata Plan No. 90018 [2023] NSWCA 66 opens the door to new defects being raised late in proceedings and creates significant ramifications for the liability of builders and developers.

The Home Building Act

Statutory Warranties

The Home Building Act 1989 (NSW) (HBA) applies to residential building work. Section 18B implies six statutory warranties into building contracts. These include that work will be done:

• with due care and skill
• in accordance with plans and specifications
• in accordance with and comply with all law
• with due diligence
• within the time stipulated in the contract.

The statutory warranties cannot be contracted out, meaning they will apply for the benefit of owners regardless of any terms of a contract which attempt to limit their affect.

If a builder has breached section 18B, it entitles the person who has the "benefit of" the statutory warranties to commence proceedings for loss and damage that has arisen. The HBA allows subsequent owners of a property, such as owners corporations and home owners, to commence proceedings for breach of the statutory warranties even though they were not a party to the original building contract.

Limitation periods

Proceedings for a breach of the statutory warranties must be commenced within:

• 6 years for "major" defects; and
• 2 years for any other (minor) defects.

The relevant period commences at the date of completion of the works to which it relates.¹ In the case of strata schemes, works are deemed to have been completed upon the issuance of an occupation certificate.²

Importantly, if the breach of warranty becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the end of the warranty period.

Once the limitation period has expired the person is barred from bringing proceedings, at least under the HBA (although, other causes of action may continue to apply, including for breach of the relatively new duty of care found in section 37 of the Design and Building Practitioners Act 2020 (NSW)).

In practice, proceedings are often commenced at the end of the limitation period, and often not all defects are known, because for example, there has been a delay in having a qualified building expert inspect the building. Additional defects may also arise or become known during the course of proceedings, after the limitation period has expired and which did not form part of the original claim.

In these instances, a builder or developer defendant may try to argue that additional defects cannot be added to the claim due to the expiration of the limitation period.

Parkview Constructions Pty Ltd v Owners – Strata Plan No. 90018 is authority for the position that new defects can be added to a plaintiff's claim, even though the limitation period has expired.

Parkview Constructions Pty Ltd v Owners – Strata Plan No. 90018

Background

In this case, the owners corporation (Owners) of a residential apartment building brought proceedings against the builder and developer of the apartment building for alleged defects under section 18B of the HBA.

The developer had engaged the builder to construct the residential apartment building which consisted of over 200 units. Significant defects were discovered by the Owners, and proceedings were commenced just within the two year limitation period.

Supreme Court proceedings

A total of 85 defects were particularised in the claim filed by the Owners. In addition, the Owners reserved the right to "provide further particulars of defects at the property".

The litigation was protracted over a period of 5 years, and during the course of the proceedings the parties negotiated in relation to all 85 defects, with the majority of defects being rectified or resolved.

At a late stage in the proceedings the Owners sought to amend their claim to delete all of the originally claimed defects and to include three additional defects. The builder and the developer opposed the amendment on the basis that it raised new causes of action which would be brought out of time, since the limitation period under the HBA had expired.

The Supreme Court found that a breach of the statutory warranties in the HBA gave rise to a single cause of action in respect of the warranty breached. This meant that the Owners were able to amend their claim to include the additional defects, as those defects formed part of the original cause of action which had been brought within the limitation period.

The decision was appealed to the Court of Appeal.

Issue on appeal

The main issue on appeal was whether or not each defect gave rise to a new cause of action. If each defect was a new cause action, then the three additional defects would have been out of time, and the Owners unable to recover for the loss which would flow from them.

Findings on appeal

After extensive analysis of legal principles, the Court of Appeal found that "...an amendment which does nothing more than introduce further departures from the building as promised will not give rise to a new cause of action which would otherwise be out of time" (at [103]).

It follows that the existence of each defect does not give rise to a new cause of action. Therefore, if proceedings have been commenced within time, and additional defects are later particularised in a claim, a party is entitled to seek relief for loss it is set to suffer.

Importantly however, the Court expressly reserved for further consideration the situation in which a claim was brought for "major defects" within time, but a party later sought to amend to include minor defects. In those circumstances, the different limitation periods of six years and two years may mean that the plaintiff does not have one single cause of action with respect to major and minor defects.

What this means

This decision allows a party to raise new defects late in proceedings, even if the warranty period has expired.

For builders and developers, this effectively means that a plaintiff could continue to add defects to its claim even after the warranties have expired, provided the proceedings were commenced before that expiration period.

Notwithstanding this decision, it is still prudent for owners corporations and home owners to obtain building reports and commence proceedings within the limitation periods in order to avoid any argument that the limitation period has expired. The Court in the Parkview matter reasoned that the "ordinary discretionary constraints" apply when a party purports to amend its claim to include additional defects – including the obligation to facilitate the just, quick and cheap resolution of proceedings (as required by section 56 of the Civil Procedure Act).

Whether you are a builder or developer, owners corporation or home owner, we can assist with any issues that might arise with respect to building defects.

Footnotes

¹ HBA s 18E(1).

² HBA s 3B(3).

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.