There is increased protection for building owners in Victoria today, after the Court of Appeal held that owners now have 10 years to bring an action from the date an occupancy permit is issued. In handing down judgment in Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165 ("Brirek Industries"), the Court overturned the trial judgment of Shelton J, who had held that the limitation period for building actions was significantly shorter.

For building owners it can often be unclear when damage occurs to their building and, therefore, whether an action is statute-barred under the Limitation of Actions Act 1958 (Vic) (Limitations Act). If the damage was caused by a breach of contract, then the limitation period starts from the date of breach. If a breach caused a building defect, and the defect was not discovered until five years after the breach occurred, then the owner would only have one year left to bring an action. This reduces the protection of the owner under the contract. However, on the other hand, if the damage was caused by negligence, then the limitation period starts from the date the damage became apparent, which for example might not be for 15 years after construction. This exposes the builder to claims against it for a period of up to 21 years or more after construction. This uncertainty led to increased insurance costs for builders.

Section 134 of the Building Act 1993 (Vic) sought to create a unique limitation period for “building actions” aligned to the issuing of the occupancy permit for the building. Section 134 reads:

“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 …”

There have been two competing interpretations of s 134. The first is that is operates as a cap on the standard six-year limitation period that applies to actions in contract or tort. The second interpretation is that s 134 replaces the standard six-year limitation period with a ten-year limitation period.

In Brirek Industries, a building surveyor was sued for breach of contract causing delay. The Plaintiff brought the action more than 6 years after the breach of contract could have occurred (meaning that the action would normally have been barred under the Limitations Act). When the matter was heard at the County Court, Shelton J held that s 134 only served to prevent an action from being brought in negligence outside of the ten-year period. It did not affect actions in contract. Shelton J noted in his reasoning that:

"the mischief which s 134 addresses is open-ended potential liability in negligence in respect of defective workmanship.  It is not concerned with breach of contract where the cause of action arises upon the breach." (pa 78)

The Court of Appeal disagreed with that interpretation and instead found that the words of s 134 ought not be read down in the manner undertaken by Shelton J. The Court noted that s 134 contained no express limitation confining its operation to negligence (pa 114). Reference to the Second Reading Speech suggested that Parliament was not only concerned with the "open-ended potential liability" of builders, but with providing building owners with additional protection (pa 118). Accordingly, the Court held:

"the construction given to s 134 by the trial judge imposes unwarranted limitations on the scope and applicability of the section.  In our opinion, actions founded in contract, independent of any tort claim, fall within the scope of s 134 and may be brought within 10 years from the date of issue." (pa 135)

This approach confirms that s 134 seeks to balance the rights of owners and builders by extending the time for bringing claims in contract, while capping the time for bringing claims in tort.

Today's decision should be welcomed by building owners who can now be assured that their rights under contract are preserved for a longer period of time.

We will send out a separate alert on possible ramifications of the decision for other States, for example New South Wales has a similar 10 year long stop under S109ZK of theEnvironmental Planning and Assessment Act 1979 (NSW).