Many of you may have been inspired to build a new house or renovate your existing house/property by television shows such as “The Block” and “House Rules”, but what happens when (true to the drama that is commercial TV) the services of your builder, architect or other tradesmen aren’t up to scratch?
As a general rule, any claim for building defects (including negligent works and/or breach of a contract) must be commenced within 6 years. But 6 years from when? Is it from when building works first commenced? Or is it from when the defect was first discovered?
The Queensland Court of Appeal recently found that when there is physical damage from a latent building defect, the limitation period for bringing a claim will not necessarily commence on the appearance of the damage, but rather when the damage can be traced to its source by the application of reasonable diligence.1
In January 2000, Springfield Land Development Corporation (“Springfield”) and Melisavon Pty Ltd (“MPL”) entered into a contract for the design and development of a residential golf course and club house.
MPL (the Builder) obtained a geotechnical report which revealed that the soil beneath the proposed club house was susceptible to ground heave2 because of varying moisture conditions. To overcome this issue, sufficient separation between the foundation slab of the club house and the ground itself was required.
Shortly after construction commenced, a crack in the foundation slab was identified. It was agreed by the parties that the crack was a result of ground heave that was greater than expected, but that the slab was otherwise stable. The parties agreed to apply a concrete seal to disguise the crack. However, at a site inspection some 7 months later extensive cracking was identified as a result of further ground heave.
Consequently, a defect liability period expiration inspection notice was issued to the Builder requiring rectification of (amongst other things) the cracks. In response, the Builder alleged that the majority of defects had been rectified and the remaining items were not caused by defective workmanship or materials.
In June 2005, the Builder ultimately denied liability for the ground heave and asserted the issue was the result of faulty design and maintenance.
The Supreme Court of Queensland proceedings
Springfield commenced proceedings against MPL in June 2011 seeking damages for negligence in the sum of $866,258. MPL defended the proceedings on the basis that the damage first occurred in late 2003 or, alternatively, in early 2004 and, consequently, Springfield’s claim was “out of time”.
Springfield argued that it did not discover the defects until 2009 or 2010 when it became aware that the damage was caused by the defective design of the club house and the surrounding area.
MPL filed an application for summary judgment against Springfield to dismiss Springfield’s claim on the basis that Springfield did not have a reasonable basis for its claim against MPL (“the Application”). In determining the Application, the Supreme Court of Queensland stated that the issue as to when the cause of action arose was not a simple matter of determining when the cracking first appeared in the foundation slab.3
As the Application was summary in nature, the Supreme Court dismissed the Application on the basis that it was necessary for a factual investigation to occur (and determinations to be made) as to when Springfield first became aware (or ought to have become aware) that it had suffered loss because of the alleged defective design.
The appeal proceedings
MPL appealed the Supreme Court’s summary decision to the Queensland Court of Appeal.
The Queensland Court of Appeal held that the cause of action arose when Springfield had actual knowledge of MPL’s faulty engineering design or when the defective design itself became apparent or could be discovered by reasonable diligence as it is only then that Springfield suffered an actual reduction in the market value of the club house.4
However, if reasonable enquiries would have revealed the cause of the defect, the defect would be said to be apparent even though it was not in fact known to Springfield at that time.5
How does this affect you?
The time in which proceedings may be commenced for material damage to building works may not start running until the link between the physical manifestation of the damage and the underlying defect responsible for the damage is known (or ought to be known).
If you (or someone you know) are aspiring “blockheads”, are involved in a building dispute and are unsure whether you are “out of time” to take further action against your builder, tradesmen and so forth (or if you yourself are a builder, tradesperson etc. involved in such a dispute), please contact our Commercial Disputes & Insolvency Team for assistance.
1Melisavon Pty Ltd v Springfield Land Development Corporation Pty Ltd  QCA 233.
2An excess in water which causes the ground to expand and ‘heave’ the property upwards and outwards.
3Springfield Land Development Corporation Pty Ltd v Melisavon Pty Ltd  QSC 228 at 62.
4Melisavon Pty Ltd v Springfield Land Development Corporation Pty Ltd  QCA 233 at 43 and 53. Similarly, in the case of Owners – Units Plan No. 1917 v Koundouris  ACTSC 269 at 42, it was held that “…a cause of action in negligence for latent defects…is complete when the defects become manifest or are otherwise discovered.”
5Cyril Smith & Associates Pty Ltd v The Owners – Strata Plan No 64970  NSWCA 181 at 15.
This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.