Builders’ liability in WA - the key risks every builder should understand
Builders in Western Australia face potential liability from many directions: under their contracts, at common law, under the Australian Consumer Law, through complaints to the Building Commission, and under the security of payment regime. Some of these liabilities can arise years after a project is finished.
This article summarises the main sources of liability, and the time limits that apply to each.
Key takeaways
Contract claims generally must be brought within six years of the breach, or 12 years if the contract is a deed.
Negligence claims can arise years after completion, because time generally runs from when the loss is suffered, not when the work was done.
The Australian Consumer Law applies to all businesses, and its protections against misleading conduct and its consumer guarantees can't be contracted out of.
Building Commission complaints about defective work can generally be made up to six years after the work is completed, and can lead to orders to fix the work or pay compensation.
Home building work contracts are tightly regulated. Non-compliance can give the owner a right to terminate, and can expose the builder to penalties.
Security of payment deadlines are short and strict. Missing them can leave a builder liable for the full amount claimed by a subcontractor.
1. Breach of contract
Where a party breaches a building contract, whether by breaching an express term or a term implied by law or statute, the other party is entitled to damages that arise naturally from the breach, or that were reasonably in the contemplation of the parties when they entered into the contract.
Under the Limitation Act 2005 (WA), an action for breach of contract generally must be commenced within six years after the cause of action accrues (s 13). The cause of action accrues when the breach occurs, not when the owner discovers it. If the contract is executed as a deed, the limitation period is 12 years (s 18).
For building contracts, breaches relating to defective work will often have occurred by practical completion, or at the latest by the end of the defects liability period.
2. Contractual indemnities
Many building contracts require the builder to indemnify the owner against loss or damage to property, and against claims for personal injury or death, arising from the works.
A claim under an indemnity is a contractual claim. However, the cause of action generally accrues only when the owner suffers the loss covered by the indemnity. The six-year limitation period therefore may not start until long after the building is completed, so liability under an indemnity can surface many years later.
3. Negligence
To establish that a builder is liable in negligence, a claimant must show that:
the builder owed the claimant a duty to take reasonable care
the builder breached that duty by failing to take reasonable care
the breach caused the claimant to suffer loss that was a reasonably foreseeable consequence of the breach.
Negligence claims against builders are subject to the Civil Liability Act 2002 (WA). For claims for economic loss or property damage, the Act's proportionate liability provisions may limit a builder's liability to its share of the responsibility, where others (such as designers, certifiers or subcontractors) also contributed to the loss.
Whether a builder owes a duty of care to avoid pure economic loss (such as the cost of fixing defects) depends on the circumstances. The High Court has recognised such a duty to a subsequent owner of a house (Bryan v Maloney (1995) 182 CLR 609). But it has generally declined to find one in commercial settings, where the owner could protect itself by contract (Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185).
When does time start running?
The general limitation period is six years from when the cause of action accrues. In negligence, that is when the claimant first suffers loss or damage. For defective building work, that is generally when the defect becomes known or manifest, which can be many years after completion.
For personal injury claims, the limitation period is three years (s 14), generally running from when the injured person becomes aware of, or first shows symptoms of, a not insignificant injury (s 55).
4. The Australian Consumer Law
The Australian Consumer Law (ACL), in Schedule 2 of the Competition and Consumer Act 2010 (Cth), applies across Australia as a law of the Commonwealth and of each State. It applies to all businesses, whether or not they are companies.
Misleading or deceptive conduct
A person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or likely to mislead or deceive (ACL s 18). For builders, this can include representations about price, time for completion, the quality of the finished product, or the builder's experience and qualifications. Silence can also be misleading where there is a reasonable expectation that a fact would be disclosed.
A person who suffers loss because of a contravention can recover damages (ACL s 236). The action must be commenced within six years after the cause of action accrues, which is when the loss is first suffered. The Home Building Contracts Act 1991 (WA) also prohibits misleading or deceptive conduct by builders and owners in connection with home building work contracts (s 15A).
Consumer guarantees
Where a builder supplies services to a consumer, including any person who acquires services costing up to $100,000, or services of a kind ordinarily acquired for personal, domestic or household use, the ACL guarantees that the services will be rendered with due care and skill (s 60), and will be reasonably fit for any purpose the consumer made known (s 61). These guarantees can't be excluded by contract (s 64).
Unfair contract terms
The ACL's unfair contract terms regime applies to standard form contracts with consumers and small businesses. Since November 2023, proposing or relying on an unfair term can attract significant penalties. Builders using their own standard form contracts should have them reviewed.
5. Building Commission complaints
The main statutory avenue for owners to pursue defective work is a complaint to the Building Commissioner under the Building Services (Complaint Resolution and Administration) Act 2011 (WA).
Under section 5(1), a person may complain about a regulated building service that was not carried out in a proper and proficient manner, or is faulty or unsatisfactory. Regulated building services include work by registered building contractors and approved owner-builders, as well as unregistered home building work done for reward.
Key points for builders:
Time limit: a complaint generally must be made within six years after completion of the building service (s 6).
Notice first: the complainant must first give the builder a notice of proposed complaint, at least 14 days before lodging. This is the builder's opportunity to resolve the issue.
Orders: if the complaint is made out, the Building Commissioner (or the State Administrative Tribunal (SAT)) can make a building remedy order, requiring the builder to fix the work, pay the reasonable cost of having it fixed, or pay compensation (s 36).
Limits: the Building Commissioner can't order work or payments above $100,000 without the builder's consent (s 37). SAT can make larger orders against registered builders (s 38).
Courts: once a complaint is made, the matter generally can't also be pursued in court, unless an exception applies (s 54).
Enforcement: failing to comply with an order is an offence, and monetary orders can be enforced as court orders (ss 50 and 53).
Registration: the same conduct can also lead to disciplinary action affecting the builder's registration.
The Building Commissioner can refer complex complaints directly to SAT, and either party can seek a review of the Commissioner's decision in SAT. For more detail, see our article on Building Commission complaints in WA.
6. Home Building Contracts Act 1991
The Home Building Contracts Act 1991 (WA) (HBCA) applies to contracts between a builder and an owner for home building work worth between $7,500 and $500,000. It doesn't apply to subcontracts or to properly documented cost plus contracts.
Under the HBCA, a builder must:
put the contract in writing, signed by both parties and dated, and give the owner the prescribed explanatory notice before the owner signs (s 4)
give the owner a copy of the signed contract before work starts (s 5)
put variations in writing, with their cost, and sign them before the varied work starts, subject to limited exceptions (ss 7 and 8)
take a deposit of no more than 6.5% of the contract price, and after that only demand genuine progress payments for work already done (s 10)
not include a rise-and-fall clause (s 13), or understate prime cost items or provisional sums (s 12)
not engage in unconscionable, harsh or oppressive conduct (s 15), or misleading or deceptive conduct (s 15A).
It is also an implied term that the builder will make good defects notified in writing within four months of practical completion, or a longer period if the contract provides (s 11).
Some breaches give the owner a right to terminate the contract (s 19), and many are offences. Either the owner or the builder can make a home building work contract complaint to the Building Commissioner (BSCRA s 5(2)), generally within three years after the cause of action arose (s 6). The Commissioner or SAT can order payment of amounts due, declare amounts not payable, require work to be done, or award compensation (BSCRA s 41).
For most residential building work over $20,000, the builder must also have home indemnity insurance in place, and give the owner a certificate of insurance before demanding any payment (HBCA Part 3A).
7. Security of payment
The Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOPA), which replaced the Construction Contracts Act 2004 (WA) for contracts entered into from 1 August 2022, gives contractors, subcontractors and suppliers a statutory right to progress payments and a fast adjudication process for payment disputes.
For builders, SOPA cuts both ways.
As a claimant, a builder can make monthly payment claims to the principal, and has strong rights to recover unpaid amounts, including adjudication, debt recovery in court and suspension of work.
As a respondent, a builder that receives a payment claim from a subcontractor must give a payment schedule within 15 business days (or less if the contract requires), setting out every reason for withholding payment. If it doesn't, it becomes liable for the full amount claimed. Reasons not in the schedule can't be raised later in the adjudication.
Adjudicated amounts must generally be paid within five business days, and can be enforced as a court judgment. Head contractors may also need to hold retention money on trust. For more detail, see our guide to getting paid under WA's Security of Payment Act.
Managing the risk
Builders face a wide range of potential liabilities, some of which can arise many years after a project is completed. To manage that exposure, builders should:
Know their contracts, including any indemnities, defects liability periods and notice requirements.
Comply with the HBCA on residential work, using compliant contracts, deposits, progress payments and variations.
Keep good records, including site diaries, photographs, variations and correspondence. Evidence matters, often years later.
Respond promptly to payment claims, notices of proposed complaint and defect notices.
Review insurance cover with their broker, including public liability, contract works, professional indemnity (for design and construct work) and home indemnity insurance.
How we can help
Lang Litigation and Construction Law advises builders, contractors and owners on building contracts, defects claims, Building Commission complaints, State Administrative Tribunal proceedings and security of payment disputes. If you are facing a claim, or want to reduce your exposure on future projects, contact us.
This article is general information only and is not legal advice. You should seek specific advice about your circumstances.