Owners Corporation actions and limitation periods under the Building Act 1993 clarified by the Court of Appeal

What happened?

In Lendlease v OC No. 1,¹ the Court of Appeal reconsidered the Supreme Court’s 2021 judgment (see our article on the Supreme Court’s decision here), with respect to proceedings commenced by the owners corporation (OC) against Lendlease in 2017 for alleged defective works at the Chevron apartment complex in Melbourne. Lendlease had performed these works between 2004 and 2007 in separable portions, with each separable portion issued with a separate occupancy permit.

Despite section 134 of the Building Act 1993 (Vic) noting a building action cannot be brought more than 10 years after issue of an occupancy permit, the OC sought to establish that the limitation period should apply from the last occupancy permit which, they argued, applied to the whole of the works (limitation issue). Under this cover, the OC then sought to join individual lot owners who would have had proper standing (joinder issue). In the first instance, VCAT agreed and allowed the joinder.

On initial appeal in 2021,² the Supreme Court held:

• where multiple occupancy permits applied to staged works, the limitation period under section 134 would run from the last permit issued, and as the last occupancy permit at the Chevron complex was issued within the 10-year period, the claims would not be statute barred; and
• where the OC commences proceedings within time and subsequently seeks to join lot owners who would otherwise be statute barred under section 134, those lot owners will remain statute barred unless it is demonstrated the OC had commenced proceedings on their behalf (which, in this case, it was not).

This case was appealed by Lendlease (on the limitation issue), and the OC (on the joinder issue).

Issues in Dispute / Arguments

1. Limitation Issue

Firstly, the Court of Appeal considered the timing of the alleged defective works and the proper construction of section 134 (which does not distinguish between multiple permits), to determine if any claim could be brought for the alleged defects.

The Supreme Court held that as section 134 applied to “the occupancy permit”, this must indicate some finality and therefore mean / refer to the last occupancy permit issued (as it “best reflects the whole of the work in the building …”).

This was challenged by Lendlease on several grounds, including:

• section 134 expressly precludes the recommencement of the limitation period in circumstances where an occupancy permit has been varied or cancelled, and contains no power to extend the limitation period (therefore, it was intended to restrain); and
• in some instances, separate permits may relate to discrete portions of work but the last permit may not actually relate to the whole of the works, and in that case it cannot have been the intention of Parliament to apply the limitation period in that way.

On the contrary, the OC argued overturning the Supreme Court’s judgment would introduce confusion and uncertainty (particularly in relation to multi-storey developments with overlapping occupancy permits).

2. Joinder Issue

The Court of Appeal also considered whether joinder of lot owners (who were otherwise statute barred) would be allowed to give the OC standing in this matter.

What did the Court of Appeal Say?

1. Limitation Issue

The Court of Appeal, in allowing the appeal noted:

• the wording of section 134(1) suggests time runs from the date an occupancy permit is first issued in respect of defective work, by expressly stating that it applies “in respect of the building work”, while “building action” is defined under the Act as arising out of, or concerning, “defective building work”;
• Parliament clearly intended for the limitation period to run from the date that the occupancy permit is first issued (with no allowance for extension, even for variation or cancellation of the permit);
• there is nothing in the language to suggest Parliament intended the starting point to be the “final”, “current” or “last” occupancy permit (unlike other provisions, for example, section 40, that expressly reference the “current” occupancy permit), and instead suggests that Parliament intended to define the occupancy permit by reference to the relevant building work;
• nothing in the surrounding provisions works to change that interpretation;
• if the OC’s position were favoured, the limitation period would re-commence from the re-issue of each subsequent occupancy permit, which would further create uncertainty rather than cure it; and
• ultimately, this interpretation best links the alleged defective works with section 134.

Whist the Court acknowledged that this interpretation would potentially attach multiple limitation periods to building works occurring over separate stages, the Court noted that it would not undermine certainty in the same way recommencing limitation periods would.

2. Joinder Issue

The OC’s appeal was rejected by the Court of Appeal as it was held that no evidence was presented to suggest that the Supreme Court had erred in determining that the OC had not in fact commenced proceedings on behalf of the individual lot owners. Further, it was noted that allowing joinder in such circumstances would effectively undermine the limitation period created by section 134 and therefore, could not have been intended by Parliament.

Why is this important?

It is now settled law that the 10-year limitation period will run from the date of first issue of the occupancy permit that relates to the relevant portion of the building work (and not, the last permit applying to the works more generally).

As a result, both claimants and respondents alike should be aware that, when dealing with claims for defective works in relation to a development with multiple occupancy permits, the limitation period commences on the date of the relevant occupancy permit, and not the final occupancy permit as previously held. In instances where the relevant works are covered by multiple occupancy permits, it will be best to assume that the earliest date applicable will start the clock.

As the law that relates to joinder is unchanged, for lot owners wanting to bring a claim against a builder for a building action, they should ensure that they directly commence proceedings within the statutory limitation period, or ensure that they can clearly demonstrate that the OC acted on their behalf in commencing a proceeding. Otherwise, they risk being time barred from bringing their claim.

HWL Ebsworth Lawyers has expertise in domestic building disputes involving OC considerations. Please contact Alan Chiang of our Construction and Infrastructure team to discuss any aspects of the above.

This article was written by Alan Chiang, Partner and Rob Gilchrist, Solicitor.

¹Lendlease Engineering Pty Ltd v Owners Corporation No 1 PS526704E & Ors [2022] VSCA 105.
²Lendlease Engineering Pty Ltd v Owners Corporation No 1 PS526704E & Ors [2021] VSC 338.