Are claims for breach of the implied warranties in domestic building contracts apportionable claims? An overview of the positions in NSW, VIC and QLD

Transcription

1 Are claims for breach of the implied warranties in domestic building contracts apportionable claims? An overview of the positions in NSW, VIC and QLD Authors: Reena Dandan, Jordan Farr, Thomas Byrne & Hubert Wajszel The relationship between implied warranties and proportionate liability in the context of domestic building disputes is of relevance to both construction professionals and their insurers. On one hand, the implied statutory warranties in domestic building contracts (domestic building warranties) provide important protection for home owners in the event of defective building work. On the other, the proportionate liability regimes, which allow for the apportionment of liability between concurrent wrongdoings in certain claims, are often utilised in domestic building disputes to limit a defendant s liability. This article seeks to explore the ability of defendants to claims for breach of domestic building warranties to successfully argue the defence of proportionate liability under the respective legislative provisions in New South Wales, Victoria and Queensland. THE LEGISLATION In New South Wales, the domestic building warranties are provided for under part 2C of the Home Building Act 1989 (NSW) (HBA), in Victoria, under section 8 of the Domestic Building Contracts Act 1995 (VIC) (DBC Act) and in Queensland, under division 1, part 3 of Schedule 1B of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act)[1] (collectively, the Building Acts). The Building Acts provide various warranties, including warranties in relation to the

2 materials supplied, time for completion and compliance with legal requirements. Notably, each Act also provides for a warranty in relation to the standard of care and skill required when carrying out building work. While the wording between the states differs slightly, the warranties are essentially equivalents of one another. In New South Wales, the building contractor must warrant that the work will be done with due care and skill [2], and in Victoria and Queensland, that the work will be carried out with reasonable care and skill.[3] In relation to the relevant civil liability legislation, proportionate liability is provided for under part 4 of the Civil Liability Act 2002 (NSW) (CLA NSW), Part IVAA of the Wrongs Act 1958 (Vic) (Wrongs Act), and part 2, chapter 2 of the Civil Liability Act 2003 (Qld) (CLA Qld) (collectively, Civil Liability Acts). Relevantly, the proportionate liability regimes in each state only apply to apportionable claims. The Civil Liability Acts define an apportionable claim as a claim for economic loss or damage to property in an action for damages arising from a failure to take reasonable care under the wording in NSW and Victoria, and arising from a breach of a duty of care under the wording in Queensland. Accordingly, it has come at issue before the Courts as to whether breach of the domestic building warranty that work be done with due care or skill or similarly reasonable care and skill falls within the meaning of an approtionable claim, whereby the position between the three states is discussed individually below. NEW SOUTH WALES While the position in New South Wales was initially uncertain as demonstrated by the following decisions, legislative amendments have provided clarity on the relationship between domestic building warranties and proportionate liability. In The Owners-Strata Plan No v Dasco Constructions Pty Limited & Ors [2010] NSWSC 819, the Owners Corporation issued a claim against a builder in relation to defective building work. The only cause of action pleaded against the builder was breach of the statutory warranties pursuant to section 18DA of the HBA. The builder sought to rely on the proportionate liability provisions in part 4 of the CLA NSW to reduce any ultimate liability to the claim. The court noted that Parliament had been careful to exclude from Part 4 of the CLA NSW a number of claims by reference to certain acts, for example, it excluded personal injury claims and the matters in section 3B. Einstein J noted that it would have been a simple matter for the legislature to include in s 3B actions such as the type made by the plaintiff thereby taking them outside the operation of the Act. They chose not to do so. [4]

3 The Court make reference to the decision of Owners Strata Plan v Brookfield Multiplex Ltd [2010] NSWSC 360, where his Honour MacDougall J granted the defendant builder in that case leave to amend its list response to plead that its various sub-contractors were concurrent wrongdoers pursuant to the CLA NSW. Einstein J accepted the defendant s submissions that MacDougall J s decision in Brookfield Multiplex implicitly supports its contention that the CLA NSW applies to the plaintiff s cause of action. Ultimately, Einstein J concluded that: It is trite law that the court must apply the words of the drafter in their ordinary and natural meaning and by reference to the intention in the second reading speeches...i accept that the ordinary and natural meaning of s34 means that proportionate liability applies.[5]

4 In Pastovic & Co Pty Limited v Farrington [2011] NSWDC 94, the owner of a residential property issued a claim in the Consumer, Trader & Tenancy Tribunal against the builder as a result of defects in a retaining wall. The claim relied on domestic building warranties under the HBA. The Tribunal found that the builder failed to comply with the statutory warranties under the HBA and the builder was negligent in the building of the retaining wall. The builder appealed on a number of grounds, including failing to apply the CLA NSW so as to apportion liability amongst concurrent tortfeasors (ground 14). The court concluded that the Tribunal was bound to consider whether the builder s liability should be limited having regard to his responsibility for the damage and loss. On that basis the appeal in relation to ground 14 succeeded. The above cases can be contrasted with the NSW Court of Appeal case of The Owners-Strata Plan No v MJA Group Pty Limited [2011] NSWCA 236, whose judgment was made only a few days after Pastrovic. That case involved a claim by the Owners Corporation against a developer arising out of defects in a residential redevelopment. The claim was made under s18 of the HBA. There was no doubt that the work carried out by the builder was defective. The principal issue on appeal was whether the cause of action was commenced in time. Depending on the outcome of this issue, there was a further possible issue surrounding the relevance of the CLA NSW. Ultimately the Court considered that the claim was statute barred and therefore it was not necessary to consider whether the proportionate liability provisions under s34 of the CLA NSW applied. Young JA did note however that the issue was an extremely significant one and it is not in the public interest that, without full argument on it, a definitive decision should be given, and commenting further that: there is much to be said for the view that a claim under s18c of the [HBA] is not an action for damages from a failure to take reasonable care within the meaning of s34(1) of the [CLA NSW]. One principal reason for taking this view is that any other view would completely negate the whole purpose of s18c in the case where the builder has become insolvent.[6] Home Building Amendment Act 2011 As a result of the above cases, and particularly Dasco Constructions, the NSW Government introduced the Home Building Amendment Act 2011 (Amendment Act). The Amendment Act expressly removed actions based on breach of the domestic building warranties under the HBA from the operation of the proportionate liability

5 regime in New South Wales. Accordingly, section 34(3A) of the CLA NSW provides that [t]his Part does not apply to a claim in an action for damages arising from a breach of statutory warranty under Part 2C of the [HBA] and brought by a person having the benefit of the statutory warranty. Relevantly, the Amendment Act only applies to claims commenced after 25 October VICTORIA Unlike the position in New South Wales, the Wrongs Act does not expressly exclude claims for breach of the domestic building warranties from the scope of the proportionate liability provisions. Accordingly, the position is relatively uncertain as demonstrated by the following decisions. Gunston v Lawley [2008] VSC 97 was an appeal from the Victorian Civil and Administrative Tribunal (VCAT/Tribunal). The VCAT proceedings involved, among other things, a claim by the applicant owners against the builder respondent for breach of the implied warranties under section 8 of the DBC Act. Ultimately, the Tribunal concluded that the owners claim against the builder were not claims within the meaning of Part IVAA of the Wrongs Act. While this finding was not challenged on appeal to the Supreme Court of Victoria, Byrne J nevertheless made specific reference to the Tribunal s findings, noting: The Tribunal noted that one of the statutory warranties relied on by the owners was that the builder would carry out the work with reasonable care and skill. It nevertheless concluded that this was not an apportionable claim, that is, it was not a claim (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care. This conclusion was not challenged before me and nothing turns upon this. I would not, however, like to think that my silence should be taken as an indication that I share this view. The point is of no significance in this appeal because, in the Tribunal s consideration of the responsibility of the other respondents for the loss or damage of the owners, the builder was in fact treated as a concurrent wrongdoer. (our emphasis) In light of the above, it is apparent that the Court did not expressly accept nor reject the approach taken by the Tribunal in the first instance. Byrne J s comments in Gunston were revisited by Aird DP in LU Simon Builders Pty Ltd v Allianz Australia Insurance Ltd & Ors (Domestic Building) [2013] VCAT 468. The VCAT proceedings concerned an application for joinder by the builder of subcontractors for the purposes of apportionment under Part IVAA of the Wrongs

6 Act. Here, Aird DP considered whether it was arguable that a claim for breach of the s 8 warranties under the DBC Act was an apportionable claim. She found that it was for the purposes of allowing the joinder. In coming to this conclusion, Aird DP made reference to two earlier VCAT decisions which supported the contention that such claims were not apportionable claims. The first decision was that of Macnamara DP in Serong v Dependable Developments Pty Ltd (Domestic Building) [2009] VCAT 760, where it was held: The contractual claim against [the builder] does not arise from a claim for misleading and deceptive conduct nor does it arise from an alleged failure to take reasonable care. Rather it arises out of allegations that [the builder] has failed to meet certain absolute standards arising out of the contract [The builder s] liability under the contract is to perform its terms not to use reasonable care to perform them. Mr Gurr submits that the effect of Section 24AI is that there should be no apportionment as between the contractual claim against [the builder]... I agree with this submission. The second decision referred to was that of Lacava J in Spiteri & Ors v Stonehenge Homes & Associates Pty Ltd (Domestic Building) [2011] VCAT 2267, whereby reasoning consistent to Serong was applied: 136. Mr Laird submitted that the claims made against [the builder] in the primary proceedings are brought under the statutory warranties in the case of the Owners and in contract in the case of Wesfarmers. He correctly, in my view, submits that claims brought under the statutory warranties contained in the Act and the claim in contract are not apportionable claims within the meaning of the Wrongs Act With respect, that submission must be correct. Part IVAA of the Wrongs Act 1958 requires a court or tribunal when apportioning a claim, to assess from the facts, the degree of responsibility or liability between concurrent wrongdoers. That can be done in the context of a negligence claim but not in a claim in contract or where the claim is based in breach of warranty Despite the views expressed in Sergon and Spiteri, Aird DP was not persuaded that the question of whether breach of the implied warranty under s8(d) of the DBC Act satisfies the definition of an apportionable claim under the Wrongs Act had been finally determined. Referring to Byrne J s comments in Gunston, as referred to above, to exemplify the current uncertainty in the law Aird DP ultimately allowed

7 the joinder, partly on the basis that the question as to whether the claim for breach of the warranty under section 8(d) is an apportionable claim was arguable. QUEENSLAND As noted above, the definition of apportionable claim used in the civil liability legislation in Queensland differs from that in New South Wales and Victoria. Rather than a claim arising from a failure to take reasonable care, section 28 of the CLA Qld provides that an apportionable claim is a claim for economic loss or damage to property in an action for damages arising from a breach of a duty of care. Duty of care is defined to mean a duty to take reasonable care or to exercise reasonable skill (or both duties). Further, duty is defined to mean a duty of care in care in tort, or a duty of care under contract that is concurrent and coextensive with a duty of care in tort, or another duty under statute or otherwise that is concurrent with a duty of care of either of those kinds. There are few reported decisions dealing with section 28 of the CLA Qld, and the scope of the proportionate liability regime in Queensland (particularly in a contractual context) is not settled. The extent of any practical distinction between claims arising from a breach of duty of care and claims arising from a failure to take reasonable care is uncertain, but the adoption of the former language in the proportionate liability regime in Queensland may result in a narrowing of its scope in certain circumstances. Although it does not deal with a claim for breach of the domestic building warranties, the decision in Hobbs Haulage v Zupps Southside [2013] QSC 319 offers guidance as to the scope of the proportionate liability regime in general. The case involved the purchaser of a modified vehicle suing the vendor, alleging breach of the conditions as to fitness for purpose or merchantable quality implied under the Sales of Goods Acts 1896 (Qld) and the Trade Practices Act 1974 (Cth) (TPA), as well as breaches of the warranty that services will be rendered with due care and skill, implied under the TPA.[7] The Court held that none of the purchaser s claims for damages for breach of any implied condition as to fitness for purchase or merchantable quality were apportionable claims because none of them is a claim arising from a duty to take reasonable care or to exercise reasonable skill. The Court went on to question whether the purchaser s claim for breach of the implied warranty that services will be rendered with due care and skill was an apportionable claim, because it is not a claim from a breach of duty of care. It considered that because a contractual obligation to render services with due skill

8 and care is, in a general sense, a duty to take reasonable care or to exercise reasonable skill, it could be a duty of care as defined in the CLA Qld - provided that the obligation is a duty within the meaning of the definition of duty. For a duty based in contract to meet that definition, there would have to be a concurrent and co-extensive duty of care in tort owed by the promisor to the promisee. The Court noted that the relevant question was whether the vendor arguably owed a duty of care to the purchaser in tort which is concurrent and coextensive with the implied contractual term under the TPA. However, because the purchaser did not argue that point, the Court did not have to consider it further. The Court did however make reference to the High Court s decision in Astley v Austrust Ltd [1999] HCA 6 which examined whether the contributory negligence provisions in the Wrongs Act 1936 (SA) could apply to cases of breach of contract where there is a breach of concurrent and co-extensive contractual and tortious duties of care. Here, the High Court examined a number of United Kingdom decisions which applied contributory negligence legislation to breaches of contract and ultimately found that those decisions are wrong and should not be followed in this country. Examining the warranties implied into domestic building contracts by the QBCC Act in light of the particular wording of the CLA Qld (and the Court s decision in Hobbs Haulage), it might be concluded that claims for damages for breach of implied warranties to produce a particular result[8] would not be apportionable claims under the CLA Qld, because they arise from a party s failure to produce what they contracted to produce, rather than from any failure to take reasonable care or to exercise reasonable skill. In contrast, claims for damages for breach of those implied warranties that call for the exercise of reasonable care or skill[9] may be apportionable claims under the CLA Qld, on the basis that a contractual obligation to render services with due skill and care is, in a general sense, a duty to take reasonable care or to exercise reasonable skill but only if upon looking to the facts, it is arguable that the promisor owed a concurrent and co-extensive duty of care in tort. CONCLUSION The position differs between New South Wales, Victoria and Queensland as to whether claims for breach of domestic building warranties constitute apportionable claims under the Civil Liability Acts. While each of the states Building Acts provide that the building contractor must warrant that the work will be done with due care and skill or similarly reasonable care and skill, claims for breach of this warranty may not necessarily constitute an a claim arising from a failure to take reasonable care or similarly a breach of a duty of care as required for the proportionate

9 liability provisions to apply. While statutory amendments to the CLA NSW now make it clear that the proportionate liability defence is not available to defendants in claims for breach of the domestic building warranties, this statutory clarity is not provided for under the legislation in Victoria and Queensland. While no authoritative determination on this issue has been made in Queensland, it is arguable that breach of the limited number of domestic building warranties that call for the exercise of reasonable care and skill may be apportionable, however only if there a concurrent and co-extensive duty of care in tort owed by the promisor. In Victoria, although the Courts have been hesitant to expressly confirm that the position in New South Wales also applies in Victoria, it is arguable that this position may be preferred particularly noting the recent emphasis on consumer protection. In Victoria, it is arguable that the High Court s rejection of the application of contributory negligence provisions in cases of breach of contract where there is a breach of concurrent and co-extensive contractual and tortious duties of care could be applied in the context of the proportionate liability provisions. If this reasoning is followed, this would prevent the ability of defendants to utilise the defence of proportionate liability in claims for breach of the domestic building warranties, in that they are purely claims for breach of contract, regardless of whether a concurrent duty in tort may exist. Given that it is not uncommon for home owners to make claims for breach of domestic building warranties, it is important for building professionals subject to these claims, including their professional indemnity insurers, to carefully consider the ramifications of joinder applications for the purposes of apportionment, such as costs, settlement options and the ability to claim contribution from other parties. For more information, please contact our Queensland, New South Wales and Victoria representatives from Barry.Nilsson.'s Insurance & Health Law Team. QUEENSLAND Richard Leahy Partner E: richard.leahy@bnlaw.com.au P: NEW SOUTH WALES Nicholas Andrew Partner E: nicholas.andrew@bnlaw.com.au P:

10 VICTORIA Hubert Wajszel Partner E: P: Disclaimer: The information contained in this e-alert is not advice and should not be relied upon as legal advice. Barry.Nilsson. recommends that if you have a matter that is legal, or has legal implications, you consult with your legal adviser. [1] These provisions apply to all regulated domestic building contracts entered into after 1 July The equivalent provisions under the now repealed Domestic Building Contracts Act 2000 (Qld) continue to apply to domestic building contracts entered into prior to that date. [2] s 18B(1)(a) HBA. [3] s 8(d) DBC Act and s 22, schedule 1B QBCC Act. [4] At [18]. [5] At [23]. [6] At [53]. [7] Now section 60 of the Australian Consumer Law. [8] See sections 20(1)(a), 20(1)(b), 21, 23(2) and 24(2)), schedule 1B QBCC Act. [9] See sections 22, 25 and 27, schedule 1B QBCC Act Authors Hubert Wajszel Phone: hubert.wajszel@bnlaw.com.au

11 Reena Dandan Phone: reena.dandan@bnlaw.com.au