Tag Archive for: litigation

Breach of contract or breach of statutory warranty? A lesson on limitation periods

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Part 2C of the Home Building Act 1989 (NSW) (HBA) sets out the statutory warranties which are implied into all contracts for residential building work. The statutory warranties are given by the holder of a contract licence (usually the builder) for the benefit of owners and serve as a guarantee that the works will meet a certain standard, for example, that the works will be done with due care and skill and will be in accordance with contract plans and specifications.[1] Section 18E(1) of the HBA provides that if a statutory warranty is breached, the limitation period for commencing proceedings is six years in the case of major defects, and two years in other cases.

In Onslow v Cullen [2022] NSWSC 1257, Justice Adamson considered the applicable limitation period where defective residential building works amount to both a breach of contract and a breach of the statutory warranties. The decision has important consequences for owners bringing a claim for breach of the statutory warranties, particularly in respect of non-major defects.

Facts

In January 2016, Mr Onslow, the builder, contracted with Mr and Mrs Cullen, the owners, to carry out building work on their residential property.[2] The contract was in the standard form issued by the Housing Industry Association (HIA) and clause 39 incorporated the statutory warranties into the contract.[3]

In April 2017, the builder left the property before completing the building works.[4] In August 2019, the owners commenced proceedings against the builder, claiming damages for breach of contract in respect of the incomplete works and certain defects in the completed works.[5] A dispute arose as to the applicable limitation period for the owners’ claim:

  • The builder argued that the defects in the completed works were non-major defects, and therefore that a two-year limitation period applied to the claim under section 18E(1)(b) of the HBA.[6] Since the owners commenced the proceedings 2 years and 4 months after the builder left the site, this would mean that the portion of the claim relating to defects in the completed works would be statute-barred and the owners would be unable to recover.
  • The owners argued that they had framed their claim as breach of contract, not breach of the statutory warranties, so a six-year limitation period should apply.[7]
  • Both parties accepted that the incomplete works constituted major defects, and therefore a six-year limitation period would apply regardless of whether the claim was framed as breach of contract or as breach of statutory warranty.[8]

Limitation period: two years or six years?

Justice Adamson considered that the applicable limitation period for the non-major defects was two years.

Relevant principles from the Limitation Act 1969 (NSW) (Limitation Act)

While the limitation period for breach of contract is typically six years,[9] section 7(a) of the Limitation Act provides that where legislation specifies another limitation period, that other limitation period will apply. Therefore, Justice Adamson held that if the owners claim could be properly characterised as a claim for breach of statutory warranty, the two-year limitation period under section 18E(1)(b) of the HBA would take precedence over the typical six-year limitation period for breach of contract.[10]

Clause 39 of the contract

The owners’ argument that they had framed their claim as breach of contract, not breach of statutory warranty, did not impact the applicable limitation period. Justice Adamson emphasised that a statutory warranty is merely a contractual term which has been implied by statute.[11] The fact that the statutory warranties were expressly incorporated into clause 39 of the contract did not change the nature of the owners’ claim.

Justice Adamson construed clause 39 and held that the parties objectively intended that the statutory warranties would only be given in so far as is required under the HBA, i.e., that the warranties for non-major defects would only be given for two years. This was because:

  • section 7(2)(f) of the HBA requires that the statutory warranties are included in the HBA;[12] and
  • the statutory warranties in clause 39 were expressed subject to the qualification “to the extent required by the Act, the builder warrants that […]”.[13]

Other relevant considerations

Justice Adamson also highlighted section 18G of the HBA, which prevents parties from restricting or removing statutory warranties “to remove the rights of a person”. His Honour emphasised that “a person” in section 18G applies equally to builders as well as owners, and a builder has a right not be sued in respect of non-major defects after the two-year period has expired.[14] Section 18G therefore provided support for the construction that the applicable limitation period in respect of the non-major defects was two years.

Finally, Justice Adamson noted that the contract was in the standard form issued by the HIA. Accordingly, it could not be described as having been “prepared by the builder” and therefore could not be construed against the builder.[15]

Decision

Justice Adamson held that the owners’ claim in respect of the non-major defects, being the defects in the completed works, was governed by the two-year limitation period in section 18E(1)(b). As a result, this portion of the owners’ claim was statute-barred, and the owners could not recover this amount.[16]

Take home tips

In cases involving defective residential building works, owners should avoid delay in commencing proceedings. Even where a contract is in place, a short limitation period may apply if the defects are non-major.

Owners should seek legal advice promptly to preserve their ability to commence proceedings. Bradbury Legal is experienced in advising both owners and builders in respect of defective residential building works, both before and during litigation. For specialist and tailored advice, please contact a member of our team by phone on (02) 9030 7400 or by email at info@bradburylegal.com.au.

[1] Home Building Act 1989 (NSW) s 18B(1)(a).

[2] Onslow v Cullen [2022] NSWSC 1257, [1].

[3] Onslow v Cullen [2022] NSWSC 1257, [10]–[13].

[4] Onslow v Cullen [2022] NSWSC 1257, [1].

[5] Onslow v Cullen [2022] NSWSC 1257, [2].

[6] Onslow v Cullen [2022] NSWSC 1257, [2].

[7] Onslow v Cullen [2022] NSWSC 1257, [29].

[8] For the limitation period for breach of contract, see Limitation Act 1969 (NSW) s 14(1)(a). For the limitation period for breach of statutory warranty which results in a major defect, see Home Building Act 1989 (NSW) s 18E(1)(b).

[9] Limitation Act 1969 (NSW) s 14(1)(a).

[10] Onslow v Cullen [2022] NSWSC 1257, [52].

[11] Onslow v Cullen [2022] NSWSC 1257, [58].

[12] Onslow v Cullen [2022] NSWSC 1257, [55]–[56].

[13] Onslow v Cullen [2022] NSWSC 1257, [56].

[14] Onslow v Cullen [2022] NSWSC 1257, [59]–[60].

[15] Onslow v Cullen [2022] NSWSC 1257, [61]–[62].

[16] Onslow v Cullen [2022] NSWSC 1257, [63].

Engaging expert witnesses – practical advice

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Expert evidence often plays a crucial role in building disputes, either in identifying defects, valuing works, or providing other technical information. Expert witnesses take on the role of an independent observer, with an overriding duty to assist the Court impartially on matters relevant to their expertise.[1] Typically, an expert will deliver their opinion in a report, in response to stated questions.[2]

The procedural rules governing expert evidence and expert reports are set out in:

  • Part 31 Division 2 to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR);
  • the Expert Witness Code of Conduct, found in Schedule 7 to the UCPR; and
  • NSW Civil and Administrative Tribunal (NCAT) Procedural Direction 3.
    (collectively, the Codes)

The Codes create various procedural requirements for expert reports, for example, that the report contain an acknowledgement that the expert has read and agrees to be bound by the code of conduct.[3] For a detailed overview of these requirements, see our article here.

A common issue engaging experts

We have noticed a common scenario when parties obtain expert evidence:

A party engages an expert to inspect and provide a preliminary report. The report does not comply with the Codes. Later, litigation commences, and the expert either:

  • prepares a second more thorough report which complies with the Codes; or
  • puts on an affidavit acknowledging that their first report will be bound by the Codes.

No problem, the expert has fulfilled their obligations under the Codes… right?

Not necessarily. This approach may result in non-compliance with the Codes, which leads to two risks:

  1. the Court may hold that the expert report is inadmissible; or
  2. the Court may admit the report but give it little weight due to concerns regarding the expert’s credibility.

The Court may hold that the expert report is inadmissible

Courts have a broad discretion whether to admit into evidence expert reports which have been prepared in the scenario outlined above. In Welker & Ors v Rinehart & Anor (No 6),[4] the respondent sought to rely on expert reports which did not comply with the UCPR Code. The experts were not provided with a copy of the Code until after they had prepared their reports, meaning the reports did not contain an acknowledgement that the experts had read and agreed to be bound by the Code. The experts subsequently filed affidavits swearing they had since read the Code and agreed for their earlier report to be bound by it.

Rule 31.23(3) of the UCPR provides that an expert report which does not comply with the Code may not be admitted into evidence unless the Court orders otherwise. Ball J considered whether there was substantial compliance with the Code by examining the circumstances in which the report was prepared.[5] His Honour noted that the Court has a broad discretion whether to admit expert reports, but held that these particular reports were inadmissible because they:

  • did not give evidence justifying the assumptions underlying the expressed opinions;
  • lacked reasoning to support the conclusions in the report; and
  • contained generalised assertions which did not reflect the expert’s area of expertise.[6]

Although the Court retains a discretion when applying rule 31.23(3), this judgment demonstrates that non-compliant expert reports prepared in the above scenario may be deemed inadmissible.

The Court may give the expert report little weight 

Even if the Court admits an expert report prepared in the above scenario, there is a serious risk that the Court will give the report little evidentiary weight. In Smith v Ulan Coal Mines Ltd,[7] Campbell J exercised the discretion under rule 31.23(3) to admit an expert report filed by the plaintiff which did not strictly comply with the UCPR Code. His Honour made the following remarks in relation to rule 31.23(3):

“[…] Where it appears that the expert in preparing the report has been guided by impartiality, independence from the parties and a motivation to assist the Court rather than the party retaining him, there will have been substantial compliance with the Code. However mere retrospective inclusion of the required acknowledgment in an amended report will not satisfy the requirements of the sub-rule unless it can be shown that there has been substantial compliance in the sense I have already discussed.”[8] (emphasis added)

Although the report was technically admissible, it was given little weight at the final hearing. Hoeben CJ noted that in relation to the expert’s evidence that “there was a tendency to favour the plaintiff in some of the responses”.[9] The plaintiff’s claim failed, in part because his Honour was “not persuaded on balance that the plaintiff has given accurate evidence”.[10]

If parties prepare expert reports in the above scenario, they risk the Court drawing similar conclusions about the reliability of their expert evidence. If experts are not aware of their obligations under the Code at the time of preparing the report, including their overarching duty to the Court, this may raise doubts as to the expert’s credibility, and as a result, the persuasiveness of the expert report. These doubts may adversely impact the outcome of the proceedings, even if the reports are technically admissible.

Obligations in NCAT

Finally, parties should be aware that these same risks may exist in NCAT proceedings. Although NCAT is not usually bound by rules of evidence,[11] the Tribunal may direct that expert reports must comply with the NCAT Code.  In McGrath v The Owners – Strata Plan No 13631,[12] the Tribunal made this direction in respect of two expert reports, and the applicant failed to comply. As a result, the Tribunal refused to admit part of one report and the entirety of the other report into evidence.[13] The judgment was upheld on appeal.[14] This decision serves as a warning – the same risks set out above may apply to parties seeking to file expert evidence in NCAT proceedings.

Take home tips

When engaging expert witnesses, parties must be careful to comply with the Codes – this is true even when only a preliminary report is required.  In other words, parties must ensure when an expert is engaged that:

  • the expert is familiar with the Codes; and
  • the Codes are at the forefront of the expert’s mind when any preliminary inspections, condition reports or investigations are carried out.

This is to ensure that the credibility of the expert is not compromised in any subsequent litigation.

Bradbury Legal has extensive knowledge of the procedural rules governing expert evidence. We can assist in engaging expert witnesses in a manner which will best protect a party’s position at trial. For specialist and tailored advice, please contact a member of our team by phone on (02) 9030 7400 or by email at info@bradburylegal.com.au.

[1] UCPR Schedule 7 clause 2.

[2] UCPR r 31.21, 31.23(4).

[3] UCPR r 31.23(3); UCPR Schedule 7 clause 3(b); NCAT Procedural Direction 3 clause 19(a).

[4] [2012] NSWSC 160.

[5] Welker & Ors v Rinehart & Anor (No 6) [2012] NSWSC 160, [35].

[6] Welker & Ors v Rinehart & Anor (No 6) [2012] NSWSC 160, [40]–[44].

[7] [2019] NSWSC 1263.

[8] Smith v Ulan Coal Mines Ltd [2019] NSWSC 1263, [11].

[9] Smith v Ulan Coal Mines Ltd (No 2) [2020] NSWSC 416, [160].

[10] Smith v Ulan Coal Mines Ltd (No 2) [2020] NSWSC 416, [188].

[11] Civil and Administrative Tribunal Act 2013 (NSW) s 38(2).

[12] [2021] NSWCATAP 167.

[13] McGrath v The Owners – Strata Plan No 13631 [2021] NSWCATAP 167, [3].

[14] McGrath v The Owners – Strata Plan No 13631 [2021] NSWCATAP 167, [87].