Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution

In Brief

• A recent Victorian Court of Appeal decision has addressed the long-running debate as to whether section 134 of the Building Act 1993 (Vic) operates to ‘replace’ the usual six-year limitation period with a 10 year period, or provides a ‘long stop’ or ‘cap’ on the time in which a claim might be brought.
• The Court of Appeal overturned the trial judge’s decision, finding that section 134 replaces the usual six-year limitation of actions period for all ‘building actions’.
• In practice, this means that claims brought in contract can be made outside the six-year limitation period, as long as the action is brought within 10 years of the issue of an occupancy permit.
• The Court also considered that the 10 year liability period under section 134 applies equally to claims brought contract and negligence, meaning the section also operates as an ‘end date’ which will bar actions in negligence after 10 years (regardless of whether or when the damage has become apparent).

Operation of s 134 of the Victorian Building Act 

Background

In Brirek Industries Pty Ltd v McKenzie Group Consulting Pty Ltd [2014] VSCA 165, the developer of a two-storey office block (Brirek) brought an action against a quantity surveyor (McKenzie). Brirek alleged that McKenzie had issued certain building permits in breach of its contractual and statutory obligations and that Brirek had later suffered loss as a result.¹

The building permits in question were issued:

• more than six years before the relevant claims were made in the litigation, and
• within 10 years of the issue of the occupancy permit.

Although the Limitation of Actions Act 1958 (Vic) generally puts in place a six year limitation period for claims brought in contract or tort – which in this case would act as a bar to Brirek’s claims in contract – section 134 of the Building Act 1993 (Vic) (Building Act) provides that:

“despite anything to the contrary in the Limitation of Actions Act 1958 or in any other Act or law, a building action cannot be brought more than 10 years after the date of issue of the occupancy permit…”

The operation of section 134 of the Building Act was therefore squarely in the spotlight.

Brirek’s argument – `replacement`

Brirek argued that section 134 of the Building Act creates a separate limitation period which, in respect of ‘building actions’, whether brought in contract or in negligence, displaced or replaced the limitation regime under the Limitation of Actions Act.²

As a result, Brirek claimed its action could be brought at any time within 10 years after the occupancy permit was issued, even if a period greater than six years had expired since its cause of action accrued.

This interpretation is commonly referred to as the ‘replacement’ approach, in other words, that section 134 operates to replace the six year limitation period that the Limitation of Actions Act would otherwise impose with a 10 year period. 

McKenzie’s Argument – `long stop`

McKenzie contended for the ‘long stop’ approach, submitting that the general six year limitation period continues to operate and section 134 simply introduces an overall limit or ‘cap’ on the time by which an action must be brought.

McKenzie argued that section 134 applies only to ‘claims in negligence to address situations where a plaintiff does not become aware that it has suffered damage, by reason of negligence, until considerably later than the time when the breach was committed’.³  On this view, claims in contract are not impacted by section 134 as the cause of action accrues at the date of the breach and the limitation period will therefore expire before the 10 year ‘long stop’ date is of any effect.

Decision at first instance

The case was originally heard in the County Court of Victoria.

The trial judge accepted McKenzie’s ‘long stop’ interpretation,⁴ giving section 134 only restricted operation. The trial judge found that the provision ‘only applies to claims in negligence with respect to defective work and does not extend the six-year contractual limitation period’.⁵

In other words, the trial judge found that the 10 year limitation period would not breathe life into a limitation period which had otherwise expired, but would operate to shorten the limitation period where the relevant loss occurred less than six years prior to expiry of that 10 year period. For example, if a defect only became apparent seven years after the occupancy permit was issued: (a) any claim in contract would have expired, and (b) a claim in negligence would need to be brought within three years, so that it was within the 10 year ‘cap’.

Brirek appealed.

Court of Appeal decision

In a joint judgment, the Victorian Court of Appeal overturned the trial judge’s decision, finding that the ‘long stop’ interpretation ‘places an artificial constraint on the plain meaning of the words of s 134’.⁶ The Court of Appeal observed that the Building Act does not contain any express differentiation between claims brought in contract or negligence, and that such a distinction should therefore not be read in.

The Court of Appeal instead supported the approach taken in a number of earlier VCAT decisions,⁷ that section 134 replaces the limitation period in the Limitation of Actions Act.

In contrast to the first instance decision, the Court of Appeal found that a consistent approach must to be taken to claims brought under contract or in tort, and that section 134 identifies the period in which ‘building actions’ may be brought generally.

Practical implications

The Court of Appeal’s decision is significant and, subject to any appeal to the High Court, brings a level of certainty to this area of law. Participants in the building and construction industry in Victoria can proceed on the basis that the ‘replacement’ approach has prevailed.

The Court of Appeal’s decision approves the view that, in enacting section 134, Parliament struck a balance: ‘it had extended the time for bringing claims in contract, but it had placed a bar on all claims in tort, notwithstanding that they may not have become manifest until after the expiry of 10 years’.⁸

As a result of this decision:

1. building owners should be aware that any action, whether in contract or in tort, can and must be brought within 10 years of the date of issue of the occupancy permit. All such actions will be statute-barred after this date, and
2. those carrying out (or insuring those who carry out) building works should be aware that liability for loss caused by defective building works extends for a period of 10 years following issue of the occupancy permit. The six-year limitation period in the Limitation of Actions Act will not operate to shorten that period.

Endnotes

1. Brirek brought claims in both contract and tort, however the contractual claims are of primary relevance here as Brirek failed to establish its claim in negligence.
2. Brirek Industries Pty Ltd v McKenzie Group Consulting Pty Ltd [2014] VSCA 165 (Brirek Appeal) at [85].
3. Brirek Appeal at [86].
4. Brirek Industries Pty Ltd v McKenzie Group Consulting Vic Pty Ltd [2011] VCC 294 (Brirek First Instance Decision).
5. Brirek First Instance Decision at [88].
6. Brirek Appeal at [112].
7. For example, the decisions in Thurston v Campbell, Hardiman v Gory, Jacobi v Motalli and Martinov v Estension Builders Australia Pty Ltd, cited in the Brirek Appeal at [134].
8. Brirek Appeal at [96].

For further information, please contact:

Geoff Hansen, Partner, Herbert Smith Freehills

[email protected]

Herbert Smith Freehills Dispute Resolution Practice Profile in Australia