Court considers whether latent defects claim against building consultants out of time

In the recent case of Melisavon Pty Ltd v Springfield Land Development Corporation Pty Limited [2014] QCA 233, the Queensland Court of Appeal considered whether a latent defects claim against building consultants was out of time.

Case facts

In about January 2000, Springfield Land Development Corporation (Springfield) engaged civil and structural engineering consultants Melisavon Pty Ltd to design a clubhouse on land that Springfield was developing into a residential golf course community.

Shortly after being engaged, Melisavon commissioned a report that revealed that the soil under the building area for the clubhouse was susceptible to substantial ‘ground heave’, which could vary from 15 to 120 millimetres, due to moisture conditions.

The report said it was essential for the clubhouse to be designed so that it could withstand potential movement of up to 85 millimetres with other measures in place to ensure the surroundings did not become saturated.

Melisavon completed its design in 2003 and the clubhouse was constructed in accordance with Melisavon’s design. After construction had been completed, the soil under the clubhouse expanded, resulting in damage to parts of the clubhouse and its surrounds.

While cracks and a number of other physical issues were observed in late 2003 or early 2004, these issues were initially investigated and attributed to construction and operational issues such as water and drainage problems.

Springfield alleged that it was not until 2009 and 2010 that the physical issues were identified as possibly resulting from an underlying defect in the clubhouse design.

Court proceedings

In June 2011, Springfield commenced court proceedings against Melisavon, arguing that Melisavon’s clubhouse design was a latent defect that caused Springfield to suffer economic loss.

Springfield argued that Melisavon breached its duty of care by failing to design the lower slab of the clubhouse in such a way that could tolerate ground heave greater than 40 millimetres.

One of the responses made by Melisavon was that the claim was out of time under section 10 of the Limitation of Actions Act 1974 (Qld) because the physical damage had first occurred in late 2003 or early 2004 – meaning that more than six years had passed since the cause of action arose.

Relying on this ‘out of time’ argument, Melisavon applied to have the case determined in its favour by way of summary judgment.
Springfield contested the summary judgment application and argued that it was not until 2009 and 2010 that the latent defect in the clubhouse design was discovered, and that Springfield did not, and could not reasonably, have discovered the cause of the physical damage until that time.

Decision

At first instance in the Supreme Court of Queensland, Melisavon’s application for summary judgment was refused. Justice Daubney concluded that that there was a need for a factual investigation about when Springfield first became aware, or ought to have become aware, that it had suffered loss because of the alleged defective design and, as a result, the case was not one in which summary judgment was appropriate.

Melisavon appealed to the Queensland Court of Appeal arguing that the primary judge had erred in finding that the limitation period did not commence until Springfield ‘first became aware, or ought to have become aware, that it had sustained loss because of the alleged defective design’.

In considering the issues, the Queensland Court of Appeal reviewed the development of the law in Australia in relation to limitation periods for negligence where the damage suffered was purely economic loss.

Acknowledging that this area of law was still ‘developing incrementally’, President McMurdo (with whom A Lyons J agreed) ultimately found that, for the purposes of considering the applicable limitation period, Springfield’s cause of action arose when it suffered economic loss.

President McMurdo found that this occurred when the latent defect (in this case, the allegedly faulty design of the clubhouse) ‘first become known or manifest in the sense of being discoverable by reasonable diligence’ – or in simple terms, when the physical damage was able to be traced to its source by reasonable investigation – as it was only at this time that the market value of the clubhouse decreased.

President McMurdo concluded that the case was not one that should be decided by summary judgment as there were a number of factual issues that were keenly disputed between the parties (including the key issues of what was required of Springfield in terms of reasonable diligence and at what point Springfield suffered economic loss). President McMurdo found that the out of time defence was not so clear that summary judgment should be granted.

One of the judges in the case, Holmes JA, disagreed with President McMurdo’s interpretation of the legal authorities in Australia and decided, in her dissenting judgment, that the latent defect became manifest on the appearance of the physical damage or cracking that first occurred in 2003, regardless of whether Springfield had identified the underlying cause of the cracking at that time.

The end result (by majority decision 2:1) was that the first instance decision of the Supreme Court was upheld.

Comment

The differing views of senior Queensland judges in this case demonstrate the problems and uncertainty associated with determining time limits for legal claims for negligence in building and construction cases involving latent defects.

The Court of Appeal acknowledged that the law in this area is developing incrementally as courts apply the relevant legal principles to the infinitely variable factual circumstances arising in individual cases.

The message for those seeking to pursue claims involving latent defects is that they should act very quickly in investigating and seeking legal advice to make sure claims do not become out of time. For those who wish to avoid claims – which may emerge many years down the track – it is important to seek to minimise risk by having clear and comprehensive contractual arrangements that define (and if possible limit) the scope of duties and obligations.

If you would like more information about these issues, please contact Camille Tewari or Rocco Russo on
+61 7 3231 2444.