A building action's limitation period commences from the date the occupancy permit is first used

The Court of Appeal in Lendlease Engineering Pty Ltd v Owners Corporation No 1 [2022] VSCA 105 has unanimously allowed a builder’s appeal and confirmed that, under section 134 of the Building Act 1993 (Vic) (the Act), the ten-year limitation period for a building action in respect of defective building work commences on the date an occupancy permit is first issued, not from when the final occupancy permit is issued.

Background

The Owners Corporations commenced proceedings against the building contractor (Contractor) in the Victorian Civil and Administrative Tribunal (VCAT) seeking rectification of an allegedly defective louvres system fitted on the exterior of the building.

First instance decision

The Contractor brought an application for summary dismissal arguing that:

• The Owners Corporations only had standing to bring a claim in relation to defects to the common property (which was met with a joinder application to join the 137 individual lot owners effected) (the Joinder Issue).
• The Owners Corporations’ claims were brought ten years after the relevant occupancy permit had been issued and were statute barred pursuant to section 134 of the Act (the Limitation Issue).

VCAT refused the Contractor’s summary dismissal application but permitted joinder of the private lot owners (VCAT Decision).

Supreme Court of Victoria Appeal

In relation to the Limitation Issue, the Supreme Court found that “the limitation period was not intended to apply from the varying dates of each occupancy permit” and time starts to run from the date the final occupancy permit is issued. The Court allowed the appeal in respect of the Joinder Issue.

Our earlier article discusses the Supreme Court’s decision in more detail. Read the full judgment here.

The Court of Appeal

The Contractor sought leave to appeal the Limitation Issue and the Owners Corporations sought leave to cross-appeal the Joinder Issue.

On the Limitation Issue, the question was whether by proper construction of section 134 of the Act (in cases where multiple occupancy permits are issued in respect of a particular building project), a building action cannot be brought more than ten years after the date of issue of:

• The occupancy permit issued in respect of the allegedly defective building work in respect of the claim for damages is based.
• The final occupancy permit issued in respect of the entire building project.

The Court of Appeal’s decision

In construing section 134 of the Act, the Court of Appeal confirmed it is necessary to start with the “ordinary and grammatical meaning of the words used, taking into account both context and legislative purpose”. To that end, the court noted that the relevant time period is expressly said in the Act to commence from the date of the issue of the occupancy permit “in respect of the building work”. Moreover, given “building action” (which is the subject of section 134) is defined under the Act as an action arising out of, or concerning “defective building work” the phrase is “naturally referable to the ‘defective building work’ the subject of the ‘building action’”.

Secondly, the court agreed with the Contractor that the phrase “whether or not the occupancy permit is subsequently cancelled or varied” in section 134(1) of the Act emphasises that the clock does not stop running even if there was a cancellation due to fraud or misrepresentation. In this way, parliament was intending for time to run from the date the occupancy permit was first issued and the limitation period could not “restart” if subsequent occupancy permits were issued.

Lastly, the court held that there is nothing in the language in section 134 of the Act to suggest that Parliament intended the starting point to be some “final”, “current” or “last” occupancy permit. The court considered parliament’s choice to omit such language was deliberate and parliament instead evinced a clear intention to define an occupancy permit by reference to the relevant building work.

In conclusion, the court held:

“The ordinary meaning of the words therefore suggests that the occupancy permit ‘in respect of the building work’ is intended to apply to the occupancy permit that is first issued in relation to the defective building work the subject of the building action — not any ‘final’ occupancy permit”.

Comment

For large residential and commercial projects it is not uncommon for works to be completed in separable portions with multiple occupancy permits issued (sometimes issued many months apart).

On one view, the more straightforward outcome would have been for building action limitation periods to commence with the issuing of the last occupancy permit so that there is only one limitation period running for each project.[1] However, the Court of Appeal has found that this is not what the legislation says.

Moving forward, owners and contractors alike will need to make an early assessment as to which occupancy permit applies to the particular alleged defects referable to the building action.

To avoid the commencement (and strike out) of potentially statute barred claims, owners with a potentially expired limitation period might be well served to engage in a dialogue with the contractors to ascertain which occupancy permit applies. To engage in this before proceedings are commenced will reduce the load in the courts and tribunals and this proactive step accords with the parties’ overarching obligation to narrow the issues in dispute.

The key takeaways for construction professionals are:

• Head contractors and subcontractors should keep records of each and every occupancy permit for their projects and have those documents readily accessible (electronically) for a period beyond the ten-year limitation period.
• Where construction litigation is already on foot, parties may need to consider what amendments may need to be made to limitation defences and whether particular claims remain within time.

Absent any legislative amendment, a test case may be needed to see how the courts and tribunals deal with situations where certain alleged defects are referable to different occupancy permits (with different limitation periods applying). Similarly, the question arises for “cladding building actions” where these claims can be brought more than ten years (but less than 15 years) after the date of issue of the occupancy permit but are often brought with allegations in relation to other construction or design defects.

Read other items in the Australian Insurance Brief – September 2022