Construction Law Disputes Update

We take this opportunity to review some of the major recent developments affecting construction disputes.

Limitation Period For Defective Building Work

Last year, the Victorian Court of Appeal confirmed that an owner has 10 years from the issue of an occupancy permit to bring a claim in contract or tort for defective building work.

This case removed the previous uncertainty in Victoria regarding the length of this limitation period.

For other types of claims in contract and tort, typically the limitation period is 6 years after the cause of action accrued.

Builder’s Duty of Care

In another recent case, the High Court held a builder of “commercial” property (i.e. serviced apartments) did not owe a duty of care to an owners corporation to avoid causing it economic loss arising from defects in the common property.

In contrast, a builder will more readily be found to owe a duty of care to subsequent purchasers of “residential” premises for a claim for economic loss.

Liquidated Damages Clauses

A clause requiring a contractor to pay a fixed amount per day for delay is known as a liquidated damages clause.

A contractor may be able to avoid the operation of such a clause if it fixes an amount which is extravagant or all out proportion to the greatest conceivable loss.

However, recent decisions confirm that the Courts will generally lean in favour of upholding liquidated damages clauses.

For example, the Supreme Court of Queensland upheld a liquidated damages clause which operated where Grocon failed to achieve practical completion by the agreed date. This finding was despite arguments from Grocon that it had completed all the relevant works apart from only minor defects or omissions.

This decision comes on the back of the much publicised ANZ bank fees case earlier this year (which is subject to a pending High Court appeal). In that case, consumers failed to establish that certain credit card late payment fees were penalties.

Bank Guarantees

Bank guarantees are also a common feature of construction contracts.

Courts have traditionally been reluctant to grant an injunction to restrain a party from calling on bank guarantee.

This approach was reaffirmed in a decision of the Victoria Court of Appeal earlier this year.

The Court set aside an injunction preventing a call on bank guarantees.  The Court highlighted the importance of the purpose of the bank guarantees, namely to allocate risk as to which party would be out of pocket pending resolution of a dispute.

For more information or for specific advice on these or other issues such as:

  • construction contracts;
  • resolving construction disputes; and
  • mediation or legal proceedings,

please do not hesitate to contact Tom Read.