Construction and building claims in Australia and beyond - a year in review

The last year has brought with it further dramatic changes to the legal landscape for the construction and building industry across the Australian States and overseas. 

The pace of change is set to continue in 2023 with the introduction of the next phase of legislative reforms in New South Wales.    

The draft legislation is wide ranging in scope and is designed to improve the regulatory framework and create end-to-end accountability for those who participate in the building and construction industry.  It will impact those operating in the commercial and residential construction space.

Kennedys are keeping the reforms under review and will be providing further updates, including the implications for insurers and insureds, in the next of our webinar series.

Overview

Following the fires at Lacrosse in Melbourne and Grenfell Towers in London, the Building Ministers Forum commissioned a review into building and construction industry in Australia. 

The Building Confidence report which followed made 24 recommendations to improve building regulation in Australia.   

It led to the introduction of a raft of new legislation designed to address the risks to people and property, and restore public confidence in the building industry. 

The reforms are moving into the next stage with the introduction of further draft legislation in NSW which has just completed the consultation stage:

  • Building Bill 2022;
  • Building Compliance and Enforcement Bill 2022;
  • Building and Construction Legislation Amendment Bill 2022; and
  • Building and Construction Legislation Amendment Regulation 2022.

It follows:

  • amendments to the Building Act 1993 in Victoria which extended the time for bringing a building cladding action from 12 years to 15 years;
  • the introduction of the Building Safety Act 2022 in the United Kingdom.

Extending the time for bringing a building action

In June 2022, the time limits for bringing a claim in respect of defective building work and/or defective cladding products in the United Kingdom were dramatically increased from 6 years to 30 years where the cause of action accrued before 28 June 2022, and 15 years thereafter. 

It followed an extension of time to bring a cladding building action in Victoria from 12 years to 15 years.

So what is the current position across the States?

The States at a glance

Victoria*, Northern Territory, South Australia & Tasmania

10 years (replacement view)
Victoria 15 years for cladding building actions

New South Wales & Australian Capital Territory

10 year ‘longstop’ which operates in tandem with applicable limitation periods in limitation of actions legislation

Queensland & Western Australia

No separate building specific limitation period. Claim to be brought within 6 years from date cause of action accrued.

Victoria

In Victoria, the time for bringing a ‘cladding building action’ has been extended from 12 years to 15 years (where the claim would otherwise have become time-barred between 16 July 2019 and 1 December 2023).

In all other cases, the 10-year limitation period in section 134 of the Building Act 1973 (Vic) continues to apply (and replaces other limitation periods in the limitation of actions legislation).

New South Wales

New South Wales

In New South Wales, the proposed legislative changes will not operate to extend current limitation periods subject to one possible exception.  The proposed changes are:

  • The 10 year ‘longstop’ on the time an action for defective building work may be brought will be transferred from the Environmental Planning & Assessment Act 1979 into the duty of care provisions in the proposed new Building Bill.
  • Applicable limitation periods under the Limitation Act 1969 will continue to apply (i.e. 6 years for a claim in contract or tort from the date the cause of action accrued).
  • The Home Building Act 1989 will be repealed and replaced by the proposed new Building Bill. The time for bringing a claim for breach of statutory warranties will be:
    • 6 years for a breach resulting in a ‘serious defect’ (currently described as ‘major defect’)
    • 2 years in all other cases (recently confirmed by the Supreme Court in Onslow v Cullen [2022] NSWSC 1257)
  • However, the proposed changes include consideration of extending the time frames for bringing claims for breach of statutory warranties to 10 years for major defects and 3 years for other defects.

United Kingdom

Section 135 of the Building Safety Act 2022 introduced a ‘special time limit’ of 30 years for the bringing of actions for breach of the duty to build dwellings properly in section 1 of the Defective Premises Act 1972 where the claim accrued (i.e. works completed) before 28 June 2022 (s135(2)).

Claims accruing after that date are subject to a 15 year limitation period which operates prospectively.

The limitation periods will operate as follows:

  • from 6 years to 30 years where the cause of action accrues before 28 June 2022;
  • from 6 years to 15 years for causes of action which accrue after 28 June 2022.

State intervention and funding of cladding remediation works

Since the events of the Lacrosse fire in Melbourne and the Grenfell Towers fire in London, the health and safety risks posed by the use of flammable cladding has been a key concern for State governments.

However, the level of State intervention and assistance in cladding rectification work has differed across the States.

Victoria

Cladding Safety Victoria is a State body which advances funds to owners corporation for the costs of removing and replacing combustible cladding.

Through section 137F of the Building Act 1993 (Vic), the State Government has rights of subrogation against any person in relation to the use or installation of any non-compliant or non-conforming cladding.

The extended limitation period for cladding building actions means that the State Government has further time to bring those recovery actions and there is an increasing trend towards the joinder of the State Government to proceedings. 

However, financial assistance is limited to cladding rectification works and owners corporations remain responsible for funding non-cladding latent defects. 

New South Wales

Project Remediate

This is a voluntary (opt-in) program to replace flammable cladding for eligible class 2 residential apartment buildings. Similarly to the position in Victoria, non-façade building elements are outside the scope of Project Remediate so owners corporations will need to fund any additional works.

Project Intervene 

This uses the compliance and enforcement powers available to the Secretary under the Residential Apartments Buildings (Compliance and Enforcement Powers Act) 2020 (RAB Act) to compel developers and builders to fix up serious defects in buildings where the occupation certificate issued less than 6 years ago.

A building is only eligible if:

  • it is a class 2 residential apartment building; and
  • the developer and builder are still solvent.

The RAB Act will be repealed and replaced with Building Compliance and Enforcement Bill 2022 which will extend the current powers of the Building Commissioner beyond residential apartment buildings to apply to all classes of building.

South Australia

The State Government in South Australia has also just introduced a limited loan scheme for cladding rectification works. 

Queensland

The State Government has established the Safer Buildings Taskforce to oversee the ongoing assessment and rectification of combustible cladding materials. However, it has refused to provide any financial assistance to building owners which has been a point of contention noting the additional obligations imposed by the Building and Other Legislation (Cladding) Amendment Regulation 2018 (Qld).

Personal liability exposure for directors and others

The reforms are directed towards ensuring end-to-end accountability for defective building work. The reforms confirm that a legal duty of care is by those who participate in the construction industry.  This extends beyond designers, engineers, and builders to include those involved in the management of a company to ensure compliance with the legislative changes. 

This can expose directors and others to personal liability in certain instances.  However, it usually arises where the company is in liquidation.    

New South Wales

Recent case law suggested that a director could be personally exposed to a claim for breach of statutory duty under the Design and Building Practitioners Act 2020 (NSW) if they have ‘substantive control over’ the carrying out of ‘construction work’ (a question to be decided on the facts of the case).

In Boulus Constructions Pty Ltd v Warrumbungle Shire Council, the Supreme Court of New South Wales allowed the joinder of a director and a site supervisor to the proceedings in their personal capacity. You can read more about that case here

In addition to the exposure for breach of statutory duty, directors are also responsible for the conduct of the company, including the performance of their staff.  As a result, directors will be required to:

  • ensure the work is carried out by an appropriately licensed individual;
  • ensure that the company complies with the legislative requirements and appropriate management systems are in place to ensure the corporation complies with those requirements;
  • report conduct that they suspect or reasonably suspect is a ground for taking disciplinary action.

The Building Bill also proposes to create a new concept of a 'nominee supervisor', being an individual that a corporation must engage to supervise the building work to ensure it complies with legislation.

Victoria

In Victoria, the personal liability of directors and officers for cladding building actions is legislatively prescribed. Section 137F of the Building Act 1993 (Vic) allows the State (who is the named party to recover for Cladding Safety Victoria) to recover against individual directors and officers and the trend towards State joinder to proceedings is continuing (discussed further below). 

The Building Act 1993 (Vic) provides:

(3) If a right or remedy to which the Crown is subrogated under this section is exercisable against an entity that is not an individual, it is enforceable jointly and severally against the entity and the people who were its officers at the time the act or omission that gave rise to the right or remedy occurred.

(4) If it is proved that an act or omission by an entity occurred without the knowledge or consent of an officer of the entity, a right or remedy is not enforceable as provided by subsection (3) against the officer in relation to the act or omission.

Building product safety: increased focus on manufacturers and suppliers

The States have responded to the risks posed by the use of high risk products in buildings by introducing legislation which clarifies the duties owed by those within the building product supply chain with respect to the risks and use of non-compliant building products.

Queensland

In Queensland, the Building and Construction Legislation (Non-conforming Building Products—Chain of Responsibility and Other Matters) Amendment Act 2017 (QLD):

  • established a chain of responsibility, placing duties on building supply chain participants to ensure building products are safe and fit for their intended purpose;
  • expanded the compliance and enforcement powers of the Queensland Building and Construction Commission (QBCC), and the responsible minister.

All participants in the building supply chain including designers, manufacturers, importers and suppliers of building products have a responsibility to ensure these products are compliant and suitable for their intended purpose.

New South Wales

In NSW, Building Product (Safety) Act 2017 (NSW) (BPS Act) gave powers to the Secretary to prohibit the use of certain building products which pose a safety risk.  This was following by a ban on the use of aluminium composite panels with a core of greater than 30% polyethylene in any external cladding (subject to certain exceptions) in August 2018.     

The latest reforms proposed in the Building and Construction Legislation Amendment Bill 2022, if enacted, will:

  • create a ‘chain of responsibility’ for those who form part of the building product supply chain. This will include manufacturers, suppliers, designers who incorporate the product into their designs, installers including those who physically do the work and those who coordinate or supervise and can include directors of companies)
  • participants in the building product supply chain are required to have knowledge that the product complies and conforms with the intended use of the product.

Victoria

With effect from 1 February 2021, Victoria prohibited the use of aluminium composite panels with a core of less than 93% inert mineral filler and all expanded polystyrene products on new multi-storey buildings.  The ban applies to:

  • apartment buildings, and other residential buildings such as hotels and aged care facilities with 2 or more storeys;
  • office buildings, shopping centres or other retail premises, warehouses, factories and car parks with three or more storeys.

The ban does not operate retrospectively. 

United Kingdom

One of the key reforms in the new Building Safety Act 2022 is the introduction of a new cause of action against manufacturers and suppliers where the construction product is inherently defective, fails to comply with relevant requirements, or a misleading statement has been made about the product.

This cause of action is subject to:

  • retrospective 30-year limitation period, applicable to cladding products only; and
  • a 15-year prospective period that will apply to all construction products.

Apartment defect insurance (decennial liability insurance)

New South Wales has become the first State in Australia to authorise decennial liability insurance for residential apartment buildings.  Cover under a policy of decennial liability insurance works as a strict liability policy of first resort.  The policy attaches to the building rather than to the developer or the builder.  Then if any major defects within 10 year indemnity period, the strata can lodge an insurance claim for assessment.

Kennedys are keeping the reforms under review and will be providing further updates, including the implications for insurers and insureds, in the next of our webinar series.