The Court of Appeal recently confirmed that a ‘building action’ can be brought anytime within ten years from the date of the relevant occupancy permit – this has significant practical implications for participants in the building industry.
The contractual defect liability period under a construction contract (DLP), generally 12 months, provides a principal or client with a contractual mechanism for the rectification of defects in the works carried out by a contractor. However, a contractor’s liability for defects does not end there.
Many defects don’t manifest for years after the DLP has ended, and the only time bar on a contractor’s potential liability to a principal or client is the relevant statutory limitation period.
Statutory liability period
For building or development projects the relevant limitation period for a ‘building action’ is contained in section of 134 of the Building Act 1993 (Vic), and a recent decision of the Court of Appeal has clarified how that provision operates.1 Putting to bed years of legal uncertainty, Brirek confirms that:
- a ‘building action’2 can be brought anytime within ten years from the date of the relevant occupancy permit; and
- the six-year limitation period (for tort and contract) has no application to ‘building actions’.
This decision has significant practical implications for participants in the building industry as most building and construction contracts are based on the assumption that the maximum period of a contractor’s liability is six years. The risk profiles and associated drafting in your contracts may need to be reconsidered given Brirek. For example:
- Contractors should, to the extent possible, pass their liability to the principal ‘down the line’ to the relevant subcontractor. As a contractor is now liable for 10 years, a subcontractor warranty of a shorter period may create a gap risk for the contractor.
- Professional indemnity insurance should run in parallel with contractor’s liability period for the goods and/or services in question, but generally professional insurance coverage is only required for five to seven years.
- Product and/or material warranties should mirror a contractor’s contractual liability for the goods and/or services in question. For example, in a recent case, a builder procured materials from China together with a six year warranty from the supplier. Eight years after completion and the issuing of the occupancy permit, a claim was brought by the building owners against the builder for defects in the materials, and the builder was left significantly exposed.
- Document retention policies are generally based upon the six-year statutory limitation periods that apply to contract and tort claims. However, if a ‘building action’ can now be brought at any time before year 10, this may mean that documents are currently not retained for long enough to enable:
(a) discovery obligations to be met;
(b) the formulation and proving of any available defence(s); and/or
(c) considering claims ‘down the line’ against subcontractors.
If you would like to explore how your contractual frameworks can be improved to protect you against potential claims liability, please do not hesitate to contact us.
1. Brirek Industries Pty Ltd v McKenzie Group Consulting Pty Ltd  VSCA 165 (Brirek).
2. ‘Building action’ is defined broadly to include any action (including counter-claim) for loss or damage arising out of or concerning defective building work. ‘Building work’ means any physical activity involved in the erection of a building.