05 Aug 2021

Major Projects & Construction 5 Minute Fix 81: UK Building Safety Bill, NSW home building limitation periods, landowner duty of care

By THE MAJOR PROJECTS & CONSTRUCTION TEAM

Get your 5 Minute Fix of major projects and construction news. This issue: significant building regulatory reforms proposed in the UK with the introduction of the Building Safety Bill, limitation periods under the Home Building Act 1989 (NSW) are considered by the NSW Supreme Court, the duty of care to adjoining landowners is also considered by the NSW Supreme Court, and a case on contractual interpretation in the NSW Court of Appeal.

Building Safety Bill introduced in the UK to improve residential building safety

A Bill has been tabled in the UK parliament that will, if passed, herald the introduction of significant regulatory reforms in the UK construction and residential property sector. The Bill will be watched with interest as reforms in Australia continue, especially given the common themes across the jurisdictions.

Adopting many of the recommendations of the 2018 Hackitt report into building regulation and fire safety (which was commissioned by the UK government following the Grenfell Tower fire tragedy), the Building Safety Bill seeks to establish a new and robust regulatory regime that will apply to prescribed classes of buildings, relevantly high-rise residential, and other "higher risk", buildings.

Among other things, the new regulatory requirements include:

  • the establishment of a "Building Safety Regulator" (BSR) with responsibility for managing and resolving building safety risks in new and existing high rise residential buildings and overseeing the safety and performance of all buildings;
  • the imposition of competency requirements on persons carrying out design or building work;
  • obligations relating to the management of documentation and information throughout the lifecycle of a building;
  • material extensions to limitation periods;
  • the creation of "dutyholder" and "accountable person" roles, imposing duties on persons in connection with the design and construction, or management, of buildings;
  • the implication of warranties into residential building contracts (a feature that has parallels with Australian building legislation, for example, section 18B of the Home Building Act 1989 (NSW)); and
  • the creation of "stop/go" decision points, to ensure that safety risks are appropriately considered during the design and construction of a building.

The Bill seeks to afford residents and homeowners new rights, for example:

  • the establishment of a residents' engagement strategy and complaints procedure;
  • an entitlement to escalate safety concerns to the BSR; and
  • by increasing the limitation period for seeking compensation for sub-standard building work from 6 to 15 years (which change will apply retrospectively).

The reforms introduced by the Bill have resonance with legislative changes that have recently occurred in NSW. For example, the Design and Building Practitioners Act 2020 (NSW) and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) have, among other things:

  • established the NSW Building Commissioner (with similar functions to the BSR);
  • enhanced compliance and competency measures; and
  • introduced requirements to monitor design and construction work at various stages.

Further analysis on this Bill will be provided in due course.

Pleading the limitation defence under the NSW Home Building Act: a matter of timing

A recent case before the NSW Supreme Court is illustrative of the complex issues that can come into play when a limitation defence is raised under the Home Building Act 1989 (NSW) (HB Act).

In The Owners – Strata Plan No 89005 v Stromer [2021] NSWSC 853, an application by the defendants for leave to amend their pleading so as to raise a limitation defence was refused by the Court on the basis "it would be contrary to the overriding purpose and dictates of justice to impose that prejudice on the plaintiff". In consequence, it was unnecessary for the Court to consider and determine whether the construction of those provisions in the HB Act on which the defendants' proposed limitation defence depended was reasonably arguable. Nevertheless, the case usefully traverses the legislative history of the HB Act and demonstrates how certain of the amendments made impact the availability of a limitation defence.

The plaintiff (a body corporate) claimed damages for defects resulting from alleged breaches of statutory warranties implied by Part 2C of the HB Act into the building contract between the first to third defendants (developer) and the fourth defendant (builder). Relevantly, the building contract was entered into before 1 February 2012, and the works completed in 2013.

Owing to the operation of sections 18C and 18D of the HB Act, the benefit of the statutory warranties implied by Part 2C extended to the plaintiff as the immediate successor in title to the building works or as the immediate successor in title to the person entitled to the benefit of the statutory warranties.

However, section 18E of the HB Act imposes limitation periods in respect of proceedings for breach of a statutory warranty. Its amendment history is as follows: 

  • pre-1 February 2012: section 18E provided that proceedings for breach of a statutory warranty must be commenced within 7 years after completion of the relevant work;
  • post-1 February 2012: section 18E was amended in 2011 to provide that, in the case of structural defects, proceedings must be commenced within 6 years from completion of the relevant work, and in all other cases, within 2 years (the 2011 Amendment); and
  • from 15 January 2015: section 18E was further amended so as to replace the reference to "structural defects" with "major defects" (the 2015 Amendment).

Relevantly, by virtue of a transitional provision (clause 109 of Schedule 4 to the HB Act), the 2011 Amendment did not apply to a "contract for residential building work" entered into before the commencement of the amendment to section 18E. In contrast, the 2015 Amendment applied to contracts entered into before 15 January 2015, and to building works commenced or completed prior to that date.

Originally, the defendants pleaded that the defects in issue were not "major defects" and that the plaintiff's claim was statute barred because the proceedings were commenced (in 2019) more than 2 years after completion of the work.

The plaintiff's solicitors then corresponded with the defendants' solicitors noting the defendants could not avail themselves of the 2011 Amendment to section 18E because the relevant works had been performed under a contract for residential building work entered into before 1 February 2012. In other words, on the basis of section 109, the plaintiff was entitled to a 7 year limitation period for all types of defects.

Effectively conceding the plaintiff's position, the defendants withdrew their original pleading and later made application to reintroduce a limitation defence arguing, among other things, that:

  • their earlier admission that the works were performed under a contract entered into prior to 1 February 2012 was confined to the actual contract between the developers and the builder;
  • the entitlement to the benefit of statutory warranties under section 18C of the HB Act derived from a "Notional Contract" between the developers and the plaintiff which did not arise until November 2013 (either when the plaintiff body corporate was constituted or the works were completed);
  • section 109 applied only to an actual contract, not any "Notional Contract"; and
  • the 2011 Amendment applied, the defects were not "structural defects" and that, therefore, the limitation period of 2 years applied to statute bar the plaintiff's claim.

In refusing the defendants' application, the Court considered that the plaintiff would be prejudiced if leave was granted because it would be unable to join subcontractors as parties to the proceedings in circumstances where the 7 year limitation period under the relevant subcontracts (entered into before the 2011 Amendment took effect), had expired.

The defendants were, the Court observed, the authors "of any prejudice they may suffer and it would be unjust to permit them to avoid such prejudice by granting leave to amend with the consequential prejudice to the plaintiff."

Withdrawal of support to adjoining property – where does the risk fall?

Cohen v Double Bay Bowling Club (No 2) [2021] NSWSC 872 serves as a reminder that choices made in the structuring of building contracts and subcontracts can have significant implications when it comes to determining who owes a duty of care to an adjoining landowner.

Under section 177 of the Conveyancing Act 1919 (NSW):

  • for the purposes of common law negligence, a duty of care exists in relation to the right of support for land; and
  • a person owes a duty of care not to do anything on or in relation to land that removes the support provided by that land to any other land.

The risk of breach of this duty of care to adjoining landowners is an ever-present risk in major construction projects for principals and contractors. 

In this case, the defendant (the Double Bay Bowling Club), engaged a builder to construct a dual occupancy on land owned by the Club (Site). The builder in turn engaged a subcontractor to carry out excavation and piling works at the Site.

The plaintiffs were the owners of a residential property adjacent to the Site and alleged that vibration arising from the piling works removed support to their land and caused damage to their home. They alleged that this resulted in a breach of a duty of care that was non-delegable within the meaning of section 5Q of the Civil Liability Act 2002 (NSW). If the plaintiffs succeeded on that argument, the Club would be vicariously liable to the plaintiffs for the actions of the piling subcontractor.

Section 5Q(1) of the Civil Liability Act is in the following terms:

“The extent of liability in tort of a person (the defendant) for breach of a non-delegable duty to ensure that reasonable care is taken by a person in the carrying out of any work or task delegated or otherwise entrusted to the person by the defendant is to be determined as if the liability were the vicarious liability of the defendant for the negligence of the person in connection with the performance of the work or task."

The phrase "any work or task delegated or otherwise entrusted to the person by the defendant" was critical to the Court's analysis on this point. The piling work was delegated or otherwise entrusted to the piling subcontractor, however, the plaintiffs failed to demonstrate how the Club (as opposed to the builder engaged by the Club) constituted a person responsible for delegating or otherwise entrusting the relevant works to the piling subcontractor.

In addition, the plaintiffs alleged that the Club breached the duty of care by failing to prohibit the builder from removing support to the plaintiffs' land. The Court identified the key question as being whether the Club did something (namely a positive act, rather than an omission) “on or in relation to” the Club’s property that removed support to the plaintiffs’ property. The Court was not persuaded that entering into the building contract could be said to have been a positive act causing the removal of support.

The Court dismissed the claims against the Club.

A reminder on contract interpretation: "notwithstanding" not always a get out of jail card

The recent NSW Court of Appeal decision in Jabbcorp (NSW) Pty Ltd v Strathfield Golf Club [2021] NSWCA 154 concerned variations issued under a guaranteed maximum price contract. A decision that ultimately turned on its facts, the case is a useful reminder that contractual clauses will be read as a whole, harmoniously with other provisions in contract, particularly in circumstances where two competing interpretations cannot be resolved by grammatical considerations alone.

In 5MF63, we covered the NSW Supreme Court proceedings in this case. On appeal, the parties' dispute was reduced to a single issue – namely, whether variations issued under the contract fell within the definition of “Excluded Works”, in which case the appellant (Jabbcorp) would be entitled to be paid by the respondent (the Club) for the variations over and above the guaranteed maximum contract price.

The definition of “Excluded Works” read:

“Notwithstanding any other clause means the following works which do not form part of the Contract Sum and if required to be carried out, will constitute a variation under this Contract…

(u) Any works required on the golf course and outside the construction boundary of the Site, including if those requirements are pursuant to the Development Consent;"

Emphasising the ordinary literal meaning of the words in paragraph (u), Jabbcorp argued that all of the works falling within the variations were “Excluded Works” because they were works which were outside the construction boundary of the Site and required pursuant to conditions of the Development Consent.

In response, the Club argued that the words "if required to be carried" and "will constitute a variation" in the introduction of the definition of "Excluded Works" did not contemplate work which must be done under the contract. As Jabbcorp had accepted that the works falling within the variations were "Works" which had to be done under the contract, it could not simultaneously argue that the works were "Excluded Works".

In dismissing Jabbcorp's appeal, the Court reasoned that:

  • while syntactical analysis explained the force of the competing constructions, the legal meaning of the definition could not be determined by mere grammatical considerations alone;
  • the definition was to be read as a whole and there was an oddity in Jabbcorp’s construction that the variation works were “Works” which formed part of the Contract Sum but also “Excluded Works” for which it was entitled to be paid extra;
  • it was not possible to reconcile this oddity, particularly in light of the contract being a guaranteed maximum price contract and other clauses expressly providing that Jabbcorp was responsible for work required by the relevant conditions of the Development Consent; and
  • finally, the words “Notwithstanding any other clause” did not resolve in Jabbcorp’s favour any of the difficulties mentioned above.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.