9 February 2021
What you need to know
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The NSW Court of Appeal has recently considered the 10-year long-stop period for building actions imposed by section 6.20 of the Environmental Planning and Assessment Act 1979 (NSW).
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The Court found the limitation applies to bar all claims for loss or damage arising out of or in connection with defective building work made more than 10 years after the date the works were completed, regardless of when the defect is identified, when the development consent for the relevant works was granted or whether the claim is for property damage or economic loss.
What you need to do
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Principals should take steps to preserve limitation periods as soon as a latent defect manifests, as long stop limitation periods operate in addition to limitation periods calculated by reference to when the cause of action accrued.
Latent defect led to damage in a fire
On 2 January 2017, a fire broke out in the shopping centre on the ground floor of the Capitol Square Building on George Street, Sydney. The fire activated the sprinkler system in the hotel above the shopping centre, causing material damage and consequential loss to Sydney Capitol Hotels Pty Ltd, who had been an occupier of the building since 1997.
The fire was alleged to have been caused by defective building work performed by Bandelle Pty Ltd on an exhaust duct system that allowed smoke from the fire to enter the hotel. Bandelle was contracted by a third party to undertake the building work, which was completed in 1997.
Capitol sued Bandelle in negligence, claiming that Bandelle had breached its duty of care to avoid the risk of harm to Capitol in carrying out the building work.
Bandelle argued that Capitol was barred by section 6.20 of the EPA Act, because Capitol had brought its claim more than 10 years after the date of completion of the work.
Primary judge rejected limitation point
At trial, Capitol argued that section 6.20 of the EPA Act should be construed narrowly so as to only regulate the relationship between contracting parties, and not parties who are only "accidentally, incidentally or indirectly" affected by the defective building works.
While Justice Hammerschlag considered the natural and ordinary meaning of "[a] civil action for loss or damage arising out of or in connection with defective building work" in section 6.20 of the EPA Act would capture Capitol's claim, his Honour considered he was obliged to reach a different conclusion consistent with the outcome of two previous decisions concerning a predecessor provision and analogous provision in Victoria.
Accordingly, his Honour reluctantly accepted that section 6.20 of the EPA Act did not apply because Capitol was a mere occupier of a part of the building and the loss and damage it suffered was only caused by the defective building work in an accidental, incidental or indirect sense.
Court of Appeal decided long stop limitation effective
The Court of Appeal unanimously agreed with Justice Hammerschlag that Capitol's claim fell within the natural and ordinary meaning of section 6.20 of the EPA Act, but did not agree that the earlier decisions required the Court to depart from that natural and ordinary meaning.
Accordingly, it did not matter that Capitol's claim was for property damage, rather than pure economic loss, or that Capitol first suffered loss after the expiry of the 10 year long-stop limitation period. If section 6.20 (or its predecessor, section 109ZK) otherwise applied to Capitol's claim, then it would operate to bar that claim.
This conclusion meant the Court needed to grapple with the complex legislative history because:
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the building work the subject of Capitol's claim was completed in 1997;
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when originally enacted in 1998, the limitation provision did not apply to building work carried out under a development consent issued prior to that time; and
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it was unclear whether this prospective application of the limitation period carried through to section 6.20.
While the issue split the Court, Leeming and White JJA held that section 6.20 applied to all building work, irrespective of when the development consent was issued. The Court also unanimously held that, despite some complexities in the timing of the repeal of the predecessor provision, there was no gap when neither provision applied. Accordingly, section 6.20 applied to bar Capitol's claim.
Implications for principals
The case serves as an important reminder that the 10 year limitation period under the EPA Act is a 'long-stop' that operates cumulatively with the limitation period calculated from the accrual of a cause of action (which is ordinarily 3 or 6 years depending on the cause of action).
Accordingly, notwithstanding that an action for a latent defect may not accrue until the defect becomes manifest, section 6.20 can apply to bar any claim made in respect of that latent defect more than 10 years after the relevant work was completed.
For example, a principal that identifies a latent defect 6 years after completion of the works will have 4 years to commence proceedings against a building contractor (rather than the usual 6 years that applies to contractual claims). Principals should be aware of the importance of computing and taking steps to preserve limitation periods as soon as a latent defect manifests.
For further information, please contact:
Adam Firth, Partner, Ashurst
adam.firth@ashurst.com
