Out-Law Analysis 3 min. read
NSW court confirms that additional breach of statutory warranty claims do not create separate causes of action
20 Oct 2022, 3:56 pm
The New South Wales Supreme Court recently confirmed that building owners may add new defect claims to an existing proceeding for breach of statutory warranties – even if the warranty period for those new claims has expired.
Handing down his decision (22 pages / 193KB PDF), Justice Stevenson held that separate causes of action for breach of the statutory warranties in section 18B of the 1989 Home Building Act (NSW) (HBA) do not arise each time there is a defect that constitutes a breach of such warranties.
The ruling means that, once proceedings for breach of one or more of the statutory warranties are commenced by an owner in time, the proceedings can be amended to include new claims. That amendment will date back to the time the proceedings were commenced unless the court orders otherwise.
As a result, builders and developers should be aware that owners may attempt to bring claims for defects progressively once a proceeding has been commenced – including for defects that appear to have an expired warranty period. If bringing additional claims would give rise to undue prejudice of a builder or developer, however, the court may not permit them to be pursued.
The Home Building Act
The HBA provides that the statutory warranties in section 18B are implied into every contract for residential building work and can apply even where there is no contract for the residential building work between two parties.
Builders and developers should be aware that owners may attempt to bring claims for defects progressively once a proceeding has been commenced – including for defects that appear to have an expired warranty period
Under the HBA, an owners corporation, as successor in title to a developer, is entitled to the benefit of the statutory warranties as against the developer and is entitled to the same rights the developer had against a builder in respect of the statutory warranty. This means owners corporations may seek to claim directly against a developer for breach of statutory warranties as if the developer had done the work under the relevant contract.
The case before the Supreme Court
In Owners - Strata Plan No 90018 v Parkview Constructions Pty Ltd, the builder was engaged to carry out construction of a residential building in 2012. Despite rectification of several of the defects, the owners corporation commenced proceedings against the builder and the developer, alleging 85 defects in the common property caused by the builder’s breach of “one or more” of the statutory warranties specified in sections 18B(a)-(f) of the HBA.
After the proceedings had commenced, the owners corporation sought leave to amend its claim to add a claim against the builder for breach of the statutory warranty in section 37 of the 2020 Design and Building Practitioners Act (NSW). It also sought to add a group of “new defects” under sections 18C and 18D of the HBA concerning a number of areas of the building and its carpark. The owners corporation also told the court that it no longer wished to press the claims for 85 defects it originally brought.
The owners corporation argued that it was entitled to add the new defects to its existing claim on the basis that the defects were part of the same cause of action already brought under the HBA. The builder submitted that leave should not be given to pursue the new defects because the introduction of each one would give rise to a new cause of action in respect of the statutory warranties in section 18B of the HBA. It said each new defect would, therefore, be the subject of expired warranty periods.
According to section 18E(1)(b) of the HBA, the warranty period is six years for a breach of a warranty that results in a “major defect” or two years in any other case.
The Supreme Court decision
The Supreme Court held in favour of the owners corporation and gave it leave to file and serve an amended list statement incorporating the new defects.
The court acknowledged that a party seeking to enforce a statutory warranty must commence proceedings within the relevant warranty period. In this case, the proceedings commenced within the two-year period of completion of the works relevant to the new defects. The owners corporation was, therefore, entitled to amend the proceedings which would then date back to when the proceedings were commenced.
The Supreme Court did not accept that undue prejudice would be caused to the builder or developer in permitting the owners corporation to pursue the new defects as the owners corporation and builder had been aware of the new defects for a number of years and it was apparent that they would be determined by reference to expert evidence.
The court emphasised that separate causes of action for breaches of the statutory warranties created by section 18B of the HBA “do not arise each time there is a defect that constitutes a breach of such warranties” and “alarming circumstances would follow” if the situation were otherwise. The owners corporation’s proposed amendment therefore did not introduce a new cause of action, but rather had “the effect of amending its existing cause or causes of action”.
Co-written by Imogen Hines of Pinsent Masons.
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