Further clarification of limitation period for building actions in Victoria

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Posted By and on 15/07/21 at 10:21 AM
Lendlease Engineering Pty Ltd v Owners Corporation No.1 & Ors

In the case of Lendlease Engineering Pty Ltd v Owners Corporation No.1 & Ors [2021] VSC 338, the Victorian Supreme Court decided that where multiple occupancy permits are issued, the date of the last occupancy permit is the relevant date for calculating the 10-year limitation period for building actions under section 134 of the Building Act 1993 (Vic) (the Act).

The effect of Lendlease in some instances will be effectively to extend the available limitation period.

BACKGROUND

The Chevron development comprised the Chevron Hotel (Building One) and a new apartment building (Building Two).  The works were completed in three separable portions and between June 2006 and February 2007, four occupancy permits were issued.  The occupancy permit dated 16 February 2007 (the Last Occupancy Permit) certified that all of the apartments and associated common property in Building One and Building Two were suitable for occupation.

On 13 February 2017, the Owners Corporations of the Buildings commenced proceedings against Lendlease Engineering Pty Ltd (Lendlease) at VCAT alleging breach of the statutory warranties in section 8 of the Domestic Building Contracts Act 1995 (Vic) and seeking orders for rectification of an allegedly defective louvre system on the exterior of Building Two.

Lendlease sought that most of the Owners Corporations’ claim be summarily dismissed because:

  • the Owners Corporations only had standing to bring claims for allegedly defective building work in the common property; and
  • the Owners Corporations were statute-barred for some defective building work claims, because an occupancy permit had been issued more than 10 years prior,

(the dismissal application).

In response, the Owners Corporations applied to join apartment owners to the proceeding (the joinder application).

VCAT:

  • refused the dismissal application on the basis that the proceeding was commenced within 10 years of the date of issue of the Last Occupancy Permit; and
  • permitted the joinder application (notwithstanding the apartment owners were statute barred), stating the Owners Corporations had commenced the proceeding on their own behalf and on behalf of the apartment owners.

VCAT did not determine the issue of standing of the Owners Corporations, raised in the dismissal application, because the joinder application was permitted.

SUPREME COURT DECISION

On appeal by Lendlease, the Court considered:

  • Where multiple occupancy permits are issued, whether section 134 of the Act means that a building action cannot be brought more than 10 years after the date of issue of an occupancy permit for the building work which the claim concerns, or the last occupancy permit issued in respect of the entire building?
  • Whether the joinder application ought to have been dismissed because pursuant to section 134 of the Act, the apartment owners’ claims were statute barred and doomed to fail?
  • Whether there was evidence to support VCAT’s finding that the Owners Corporations were acting on behalf of the apartment owners in respect of the claims which they sought to bring, or whether that finding was unreasonable or perverse?

Limitation period – the proper construction of section 134 of the Building Act

The Court considered the provisions of the Act, its purpose and other caselaw including Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd (No. 2) (2014), observing that section 134 of the Act was introduced to constrain differing time limits on building actions dependent on how an action was pleaded.

The Court observed that the structure and language of the Act as a whole give direction to the proper construction of section 134.  In this context, the Court referred to section 20 of the Act, which provides that a building permit may be for the “whole of the proposed building work” or a “stage”; and to section 21, which provides that a building surveyor must, pursuant to section 21(1)(a), specify in a building permit whether an occupancy permit” is required in respect of building work and pursuant to section 21(1)(b) whether the occupancy permit” is required for the whole or part of the building.  The Court concluded that as section 134 refers to the occupancy permit”, that limitation provision was intended to apply from the date of issue of the occupancy permit issued under section 21(1)(b) in respect of the building, rather than an occupancy permit under section 21(1)(a). The Court also noted that this construction was consistent with the operation of section 134, in circumstances where a certificate of final inspection is issued, and the limitation period for a building action runs from the date of issue of that certificate.  Overall, the Court favoured a construction that “the occupancy permit that best reflects the whole of the work in the building covered by either occupancy permit or by the certificate of final inspection identifies the relevant permit and so the date for the purpose of starting time”.

The Court observed that this construction of section 134 “promotes the certainty of time limit for all parties… [which] was not dependent upon the way applications for building and occupancy permits might be staged or separated.” and that by adopting this approach “…Parliament’s intention and purpose was to fix an identifiable date for time to commence sufficiently proximate with the conclusion of the building work in that building.”

The Court held that the Last Occupancy Permit was the relevant occupancy permit for the purpose of section 134, which meant that VCAT was correct in determining that the Owners Corporations commenced their action against Lendlease within time.

Joinder issues  

The Court found that the joinder application was not “simply a formality” as described by VCAT, and distinguished permitting amendment of pleadings after expiry of a limitation period from the joinder application brought by the Owners Corporations which would have the effect of commencing a new proceeding. The Court also found that on the evidence available, it was not open to VCAT to conclude that the Owners Corporations were acting on behalf of apartment owners.

The Court allowed Lendlease’s appeal in respect of the joinder issues, meaning that the proceeding will return to VCAT for determination of the Owners Corporations’ claim against Lendlease without the apartment owners being joined.

IMPACT OF THE LENDLEASE CASE

The effect of Lendlease in some instances will be effectively to extend the available limitation period for building owners and owners corporations, doubtless to the concern of builders and other industry participants on the receiving end of such building actions. The decision has been appealed, so the longevity of the effect is yet to be seen.

More broadly, the Lendlease decision joins the ranks of decisions whose effect is to span a considerable period of time that may, in particular circumstances, be the applicable limitation period for a building action.  The possible limitation periods now range from a standard 6-year limitation period in circumstances where there is no certificate of final inspection and no occupancy permit (Gledhill v Scotia Property Maintenance Pty Ltd [2019]); through Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd (No. 2) (2014) that confirmed the 10-year limitation period in s 134 of the Act applies irrespective of how a building action is pleaded; to the Lendlease decision that effectively renders the 10-year limitation period in respect of defective building works arising from early stages of a project longer than 10 years.

Owners and owners corporations, and contractors, designers, building surveyors and others drawn into building actions, should obtain advice in relation to whether time is still running for commencement of a building action in circumstances of staged building work with staged issue of occupancy permits.  Please contact a member of our Construction & Engineering team if you would like to discuss.

KHQ Lawyers - Jack Fry

Jack Fry Lawyer

Jack is a lawyer in our Construction & Engineering team. He has experience representing clients in a variety of disputes concerning commercial and domestic building defects, protection works, breach... Read More

KHQ Lawyers - Catherine Bell

Catherine Bell Principal Solicitor

Catherine leads our Construction & Engineering team.  She is recognised as a leading construction law practitioner, and has more than 20 years’ experience in construction and infrastructure... Read More