New insight from Dino Dinov v Allianz Australia Insurance Limited  NSWCA 270
Since the introduction of 109ZK in 1998, there has been uncertainty as to the meaning of "building action" and, therefore, the types of claims that are subject to the 10 year limitation period. On 20 October 2017, the NSW Court of Appeal handed down its decision in Dino Dinov v Allianz Australia Insurance Limited  NSWCA 270 (Dinov v Allianz) providing guidance as to how the Courts will interpret the scope of section 109ZK and the types of claims which will be subject to the 10 year limitation period.
With effect from 1 July 1998, Part 4C was introduced into the Environmental Planning and Assessment Act 1979 (NSW) (EPA). Part 4C includes section 109ZK which provides that a "building action" may not be brought in relation to any "building work" more than 10 years after the date on which the relevant final occupation certificate is issued. "Building action" is defined in section 109ZI of the EPA as "an action (including a counter-claim) for loss or damage arising out of or concerning defective building work".
The primary takeaway from the case is that, where a claimant and a defendant are both "participants in the building industry" and the claim arises directly from that participation, they will likely be subject to the limitations in Part 4C of the EPA, regardless of how the claim is framed.
In 2002, Great Wall Constructions Pty Ltd (the Builder) undertook to carry out construction work for the benefit of the relevant Owners Corporation. Allianz Australia Insurance Limited (Allianz) insured the construction work on the condition that the directors and shareholders of the Builder and its associates (the Indemnifiers) "indemnified the Insurer for all loss, damage, costs, charges or other liabilities incurred or paid as a result of any claim arising under the Policy" 1
In July 2009 the Owners Corporation made a successful claim against Allianz for defective building work, less than 10 years after the date of the final occupation certificate.
More than 10 years from the date of the final occupation certificate, Allianz made a demand against the Indemnifiers under the indemnity they had provided. The Indemnifiers refused to pay on the basis that Allianz's claim was barred by the operation of section 109ZK of the EPA.
In the first instance, and on appeal, the Court found that Allianz's claim was not a "building action" and was therefore not barred by section 109ZK of the EPA. In coming to this decision, McDougall JA (Beazley P and Meagher JA agreeing) provides some guidance on how the Courts will interpret the scope of section 109ZK.
At , McDougall JA says that it is a task "impossible of fulfilment" to definitively set out the "full extent and effect of" the definition of 'building action' because "the definition must be considered with reference to the facts of each case, and taking into account the considerations I have set out". The considerations set out by McDougall JA can be summarised as follows:
- in determining the cause of the action, it is necessary to distinguish between the trigger of the action and factual conditions giving rise to the action. In this case, it was Allianz's demand on the indemnity that triggered the action, not the defective building work. The "defective building work was a necessary condition" of Allianz's obligation to pay the Owners Corporation and of the Indemnifiers' obligation to indemnify Allianz; 2
- "the provisions of a statute must be interpreted in context, and that "context" includes such things as the existing state of the law and the mischief that the statute was intended to cure"; 3
- the scope of the section 109ZK limitation period must be viewed in light of the purpose of Part 4C of the EPA, which is to protect participants in the building industry from claims without limitation as to time and amount. In this case, the Court held that Allianz and the Indemnifiers (as insurer and indemnifiers), were not participants in the building industry, and therefore the claim could not be considered a 'building action' under Part 4C of the EPA. This point is outlined further below as it provides the clearest indication as to how the scope of the section 109ZK limitation period will be interpreted in future cases.
The context and purpose of Part 4C
McDougall JA considered the meaning of the words "arising out of or concerning" in the definition of "building action". His Honour stated, at , that those words should be interpreted in such a way as to effect the intended purpose of the EPA but should not be given such a wide interpretation as to extend the limitation in section 109ZK beyond the intention of the legislature. His Honour concluded that the "recurrent theme in Part 4C is that it is concerned with participants in the building industry [emphasis added]."
In considering that intended purpose, McDougall JA referred to a decision of Bongiorno J in the Victorian Supreme Court 4 which considered the effect of section 131 of the Building Act 1993 (Vic), which creates a limitation period similar to that created by section 109ZK. In that case, Bongiorno J said that the scope of the words "arising out of" has to be considered in reference to the purpose of the Act which is "to regulate liability, inter se, of building owners and building practitioners". 5
Summary and broader application
The decision in Dinov v Allianz is consistent with the approach taken in the Victorian court and is the approach that Courts in New South Wales are now bound to follow. The approach can be summarised as follows:
- The scope of "building action" is to be determined on a case by case basis, bearing in mind the purpose of the legislation and the context of the dispute;
- The purpose of the limitation period in section 109ZK of the EPA is to protect participants in the building industry.
There has been speculation in the past that the 10 year limitation period in Part 4C of the EPA will not apply to contractual indemnities, allowing them to be enforced for longer durations. The decision in Dinov v Allianz suggests that, where both parties are participants in the building industry, this will likely not be the case.
1 Dinov v Allianz at , referencing clause 2 of the indemnities.
2 Ibid at .
3 Ibid at .
4 Australian Rail Track Corporation Ltd v Leighton Contractors Pty Ltd  VSC 189.
5 Dinov v Allianz at , referring to Australian Rail Track Corporation Ltd v Leighton Contractors Pty Ltd  VSC 189 at .