Bandelle Pty Ltd v Sydney Capitol Hotels Pty Ltd [2020] NSWCA 303

by Andrew Hales and Duncan MacKenzie

Key takeouts

A negligence claim by a tenant against a builder for loss and damage arising from a fire that occurred 20 years after completion of the work was held to be time barred by section 6.20 (formerly section 109ZK) of the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act), which limits the period within which a claim may be commenced for loss or damage arising out of or in connection with defective building work to 10 years from completion.  

Section 6.20 applies to claims:

• for physical property damage as well as pure economic loss
• for both defects and consequential damage caused by defects (eg water / fire damage which would not have transpired but for the initial defective workmanship)
• made against parties with whom the claimant may not have any contractual relationship
• made by tenants, not just owners or successors-in-title
• irrespective of when the relevant development consent was granted

Facts

On 2 January 2017, a fire broke out on the ground floor of a building on George Street, Sydney. The fire activated the sprinkler system on level 5, which was occupied by Sydney Capital Hotels Pty Ltd (tenant), causing material damage and consequential loss to the tenant. The fire was allegedly caused by defective building work completed in 1997 by the builder, Fletcher Construction Australia Pty Ltd, whose liabilities had been transferred to Bandelle Pty Ltd (builder) on the exhaust duct system which serviced the ground floor and passed through level 5.

The tenant was never a party to a contract for the building work. However, the tenant alleged that the builder owed it a duty of care in doing the work to avoid the risk of harm to it, that this duty was breached, and that damage was suffered as a consequence. The tenant commenced proceedings against the builder in 2019.

The builder pleaded that the tenant’s claim was statute barred because of section 6.20 of the EP&A Act.

The judge at first instance ordered that the builder’s limitation defence be struck out. Despite acknowledging that he would have reached a different conclusion if deciding the matter afresh, the primary judge considered himself bound to follow a particular interpretation of a Court of Appeal authority (Dinov v Allianz Australia Insurance (2017) 96 NSWLR 98). The primary judge explained that he understood Dinov to have held that section 109ZK (the predecessor to section 6.20) was to be given a restricted meaning so that it did not apply to claims for loss or damage caused by defective building work ‘in only an accidental, incidental or indirect sense‘. The primary judge found that as the tenant’s loss and damage was caused by the builder’s work only in this peripheral sense, so section 6.20 did not apply

Decision

The Court of Appeal allowed the appeal and held that section 6.20 applied to bar the tenant’s claim in negligence because it was a claim for loss and damage ‘arising out of or in connection with defective building work’.

The primary judge’s understanding that Dinov endorsed the view that section 109ZK should be construed restrictively was incorrect and, consequently, he had misdirected himself about the breadth of the expression ‘loss or damage arising out of or in connection with defective building work’ in section 6.20.