Major, or non-major, that is the question

The Home Building Act 1989 has for some time now sought to protect consumers from building defects by implying into residential building work various statutory warranties.


In 2015 New South Wales Parliament significantly changed the time periods within which homeowners, and owners corporations, must take action to claim for building defects.


From November 2016 however, the deadline for making claims under the statutory warranties changed. For building contracts entered into from 1 February 2012, claims for breaches of the statutory warranties must be made:


  • within 6 years for a breach of the warranties which results in a major defect; and

  • within 2 years for any breach of the warranties which does not result in a major defect (i.e. a “non-major” defect).


It is quite common for a homeowner, or an owners corporation, to discover that it has defects after the 2 year period has lapsed and when this occurs, the builder or developer usually defend the claim, or part of the claim, on the basis that the claim has been made out-of-time because the defects are not major defects.

The case of Stevenson v Ashton [2019] NSWSC 1689 is one example of this situation arising and I provide my review of the facts and analysis of this case below.


This case was an appeal to the Supreme Court from the Appeal Panel of the NSW Civil and Administrative Tribunal.


Stevenson was the current owner of the property in question, a terrace house in Darlinghurst. Ashton was the previous owner. Ashton did work to the property under an owner-builder permit. Ashton sold the property to Stevenson in about May 2016. The initial legal proceedings were commenced in November 2016 as at that time water leaks had started to occur.


The decision at first instance


The Tribunal found at first instance that:


  • the work undertaken by Ashton as an owner-builder reached practical completion in May 2014, being more than 2 years prior to commencing the proceedings in November 2016;

  • that although the experts could not, without further investigation conclude that stains on the ceiling arose due to defective balcony drainage, they agreed that the balcony was not constructed in accordance with the relevant standards;

  • the experts also agreed that the water penetration would result in certain consequences over time; and

  • the issue regarding the first floor external balcony was a “major defect” and was therefore claimed within time.


The decision at first instance was appealed.


The decision of the Appeal Panel


The Appeal Panel disagreed with the decision at first instance and reasoned that the stains on the ceiling did not constitute evidence of a defect as:


  • there was limited evidence that stains on the ceiling of the lounge room were caused by water penetration from the balcony;

  • there was no evidence of heightened moisture readings within the stained areas of the ceiling;

  • there was no evidence from the owner, Stevenson, as to the extent and frequency of the water penetration;

  • the was no evidence from the owner as to the impact of water penetration;

  • the only evidence was the stains on the ceiling of the lounge room;

  • the expert evidence appeared not to have been based on actual evidence of what occurred and was substantially based upon assumptions as to the nature and extent of the defects and the consequences arising from them;

  • the assumptions made by the experts were not supported by other evidence; and

  • speculation as to the extent of the problem is not sufficient to establish a defect amounts to a major defect.


The Appeal Panel reversed the decision at first instance, and decided that the first floor external balcony was a not a major defect and therefore found that the claim was out-of-time.


The decision of the Supreme Court


The Supreme Court found that:


  • the Appeal Panel was incorrect to find that the stains on the ceiling were the only evidence and was incorrect to require that the defect must have already manifested in order for the issue to constitute a major defect; and

  • if a defect is “likely to cause” an inability to use the building for its intended purpose, or is likely to cause the destruction of the building or part of it, it may be a major defect.


The Supreme Court set aside the decision made by the Appeal Panel and remitted the matter back to the Tribunal for determination again.


Analysis


This case turned on the interpretation of the definition of “major defect” in Section 18E of the Home Building Act 1989 and the application of the evidence to that definition.


The case is somewhat helpful as it confirms that the assessment of whether a defect is a major defect is not limited to what has manifested but also applies to what is likely to manifest in the future.


This case highlights the importance of ensuring an expert is properly briefed to prepare an expert report. In order to brief an expert properly in cases such as this, the expert needs to understand that to meet the onus of proof:


  • physical investigation and testing may be required;

  • the experts’ reasoning must cover all of the tests required under the Home Building Act 1989;

  • witness statements or affidavits will be required from anyone who has witnessed or experienced the defect firsthand; and

  • to prove what a defect is “likely to cause” involves more than speculation but reasoning based upon the experts’ experience.


Building defect claims which are made after the 2 year warranties have expired are likely to require very specific instructions being issued to the expert.


The best person to provide these instructions is a solicitor with experience in building defects disputes. Ideally a solicitor should be engaged early in these matters to ensure that the necessary documents may be provided to the expert and that the experts carries out the inspections understanding what is required.


The information provided in this article is general information only and should not be relied upon as legal advice or be used as a substitute for obtaining legal advice. The specific circumstances relating to you impact upon your legal rights and obligations and personal legal advice based upon your circumstances should be obtained. This area of law changes frequently and the law may have changed after the time this article was prepared, up-to-date legal advice should be obtained. Please do not hesitate to contact Williamson Lawyers if we may be of assistance.