Supreme Court clarifies limitation periods under Construction Contracts
In the recent case of Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA165 the Full Court of the Supreme Court of Victoria has ended uncertainty about the period in which legal action can be taken under building contracts.
Uncertainty had emerged in differing decisions in the Victorian Civil and Administrative Tribunal and the County Court as to whether the relevant limitation period under building contracts was 6 years as provided in section 5(1)(a) of the Limitation of Actions Act rather than 10 years under section 134 of the Building Act.
Brirek’s claim involved a complicated series of arrangements concerning the construction of a two-storey office block with ground level parking. Brirek was the plaintiff and owner of the property while McKenzie, the defendant, was a private building surveyor.
The issue on appeal concerned interpretation of the agreement alleged to exist with McKenzie and whether or not the claim against McKenzie on the basis of breach of contract was statute barred as it fell outside the 6 year limitation period under the Limitation of Actions Act.
At first instance the County Court found that, in fact, the Limitation of Actions Act applied and the relevant limitation period was 6 years.
On appeal, the Full Court found that section 134 of the Building Act applied to both claims in contract and in negligence and accordingly the relevant limitation period was 10 years.
In giving its judgment the Full Court confirmed that claims arising from breach of contract accrue at the time of the breach and that proof of damage is not an element of a claim for breach of contract. By contrast negligence is only actionable on proof of damage and claims arising in negligence accrue when the damage caused by the breach is sustained.
The Full Court also observed in building actions it can be unclear when damage is sustained and that section 134 of the Building Act provides a common “long stop” limitation period which applies both to actions in negligence and in contract.
As a consequence of the Full Court’s decision building industry professionals are on notice that claims are able to be brought against them, whether for breach of contract or negligence, for up to 10 years.
The 10 year limitation period commences from the date of issue of the occupancy permit in respect of building work or, where an occupancy permit is not issued, the date of issue of any certificate of final inspection of that work.