Defects liability – How long am I liable?

Limitations on claims for breach of Statutory Warranties under the Home Building Act

Contractors who undertake residential building work now carry the risk of multiple claims for defects for a period of seven years from completion of the works.

Recent amendments to the Home Building Act 1989 NSW (“the HBA”) have changed the law on how many times a contractor can be sued for deficiency of works or materials (“defects”) based upon the “statutory warranties” implied into a contract by section 18B of the HBA.

Prior to the amendments, an owner only had one chance to litigate for all defects.

On 27 November 2006, Parliament amended section 18 of the HBA to allow for multiple proceedings for different defects by the Principal to the contract (the original owner) and by subsequent owners (a successor in title).

Prior to the amendments, the Courts had determined that a person who had commenced proceedings against a contractor for breach of warranty in respect of one defect, was prevented from bringing further proceedings for breach of warranty, even if it was in respect of a claim for another defect, or the defect was not known to the person at the time of the first proceedings.

This legal principle is known as the “Onerati Principle” which was applied by the Supreme Court of NSW in 1989 in the decision of Onerati –v- Phillips Constructions Pty Limited (In Liq) (1989) 16 NSWLR.  This decision was based upon the legal principle of res judicata which prevents a cause of action (such as breach of statutory warranty) which has been litigated and determined from being pursued again.

In August 2006, the NSW Court of Appeal heard the matter of Honeywood as executrix of the estate of the late Neville Honeywood –v- Munnings & Anor [2006] NSWCA 215 to determine whether the Onerati Principle was displaced by the enactment of statutory warranty provisions in Part 2C of the HBA.  The Court held that the Onerati Principle was still good law as the enactment of Part 2C did not disclose Parliament’s intent to displace the Onerati Principle.

As this decision would have prevented multiple claims based upon the statutory warranties, Parliament quickly introduced the Home Building Amendment (Statutory Warranties) Bill 2006 to make amendments to the HBA to displace the Onerati Principle and to clarify the rights of a successor in title.  This was done by inserting section 18E(2) into the HBA and amending section 18D of the HBA.  These amendments apply to all new proceedings and any proceedings that are commenced but not yet heard.

A person can now make multiple claims for different types of defects if:

  • The defects existed when the works were completed;
  • The owner did not know of the defect or could not reasonably be expected to have known of them at the conclusion of the earlier proceedings; and
  • The claims are commenced within 7 years after completion of the works.
  • A person cannot make multiple claims for the same type of defect.
  • A successor in title has the same rights but cannot claim for a defect that has been subject to proceedings by a previous owner.

As a result of the amendments, contractors are now liable for multiple defect claims for a period of 7 years from completion of the works even if a claim for one defect has been subject to prior proceedings.

Settlement Negotiations

The amendments to the HBA do not however address the issue of settlement of defect disputes outside of proceedings.

If an owner settles a defects dispute it may extinguish the cause of action and prevent the owner from pursuing later proceedings for other defects.  This is due to the fact that section 18E(2) of the HBA which seeks to maintain an owners rights to subsequent proceedings for a different defect is conditional upon prior proceedings.  If the matter is settled without prior proceedings, section 18E(2) will not assist an owner.

Due to this anomaly, a contractor may prevent multiple proceedings by an owner if the contractor can negotiate terms that extinguish a cause of action and properly document the settlement.

Disclaimer

This is intended as a guide only and should not be used in place of professional legal advice.

For further information please contact:

Mr Brett Vincent, Principal of Vincent Young
P: (02) 9261 5900
E: brett.vincent@vylaw.com.au