Property Owners given 10 years to Claim for Financial Loss caused by Defects

Introduction

On 10 June 2020 the Design and Building Practitioners Act 2020 (NSW) (“DBPA”) took effect.

The Act contains a number of key changes, including the primary focus of this article which is the effect of the new duty of care on builders.

The Duty of Care

The duty is to exercise reasonable care to avoid financial loss to property owners caused by building defects.

To Whom is the Duty Owed?

The duty is owed to both present and future property owners.

When Will the Duty of Care be Breached?

Whilst individual cases may differ slightly, there are some general rules around establishing a breach of a duty of care to which a Court or Tribunal will have regard.

Property owners bringing an action for a breach will generally have to prove that;

1. There was a risk foreseeable to the builder that the way in which works were performed might result in defects that cause financial harm to present or future owners of the property;
2. The defects were caused by the builder’s failure to take appropriate steps to avoid it
3. The cause of the defects could have been avoided by the builder taking precautions which were reasonably available and proportionate to the risk.

Time Limits for Bringing A Claim

A claim must be bought within 6 years of when a defect first becomes apparent, but no later that 10 years from the completion of the building.

The Act further provides that the imposition of the statutory duty of care has a retrospective effect, whereby it extends to economic losses from defects that have become apparent at any time within the last 6 years, in any building completed within the last 10 years.

Importantly, this means that a claim can potentially be bought against you for defects that are not within the statutory warranty periods of the Home Building Act, and can be immediately bought in relation to work which you have long since completed.

For Which Defects Can a Claim be Made?

In The Owners – Strata Plan No 61288 v Brookfield Australia Investments the NSW Court of Appeal endorsed the Canadian position in relation to a builder’s liability for breach of duty of care where the economic loss is the cost of steps reasonably taken to mitigate the risk of physical damage or personal injury.

Importantly, the scope of that duty of care imposed by the Court of Appeal was limited to latent defects which were either structural in nature, required urgent attention, constituted a danger to persons or property, or interfered with habitability.

Whilst the decision was successfully appealed in the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288, the basis on which it was overturned did nothing to disturb the NSW Court of Appeal’s reasoning in limiting defect types recoverable.

The Measure of Damages

Generally, damages may be awarded for either the diminution of the property’s value attributable to the defect, or the cost of rectifying the defect. Tabcorp Holdings Ltd v Bowen Investments Pty Ltd is authority that the latter is the appropriate measure involving damages to a house.

However, there will be some circumstances where the damages measured by the diminution of value will be preferred.  This might occur, for example, where the cost to repair is not in proportion with the benefit to be obtained, or where repair is too risky or unsafe.

What to Do When a Claimant Comes Knocking

It is important to remember that all defects are not necessarily caused by a breach of the duty of care.  The duty of care might not be breached by some types of defects which would certainly be considered defects within the meaning of the Home Building Act 1989.

Consider for example, defects in a material used that whilst the material was new, could not be found by careful inspection. The Home Building Act will be breached because the material used was not fit for purpose, however there is no breach of the duty of care because the builder had diligently inspected the item prior to installation.

How We Help

A unique skill set will be required to properly assess whether the builder’s duty of care has been breached. A thorough understanding of building processes and systems viewed through the relevant statutory schemes and case law is essential.

Getting the right specialist legal help from an experienced construction lawyer as soon as a claim arises against you can be vital to your chances of defending any claim.