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A broader legal duty of care for building practitioners

Since Design and Construction Practitioners Act 2020 (NSW) was first enacted, building professionals (and their insurers) have struggled to understand the extent and impact of its provisions.

The recent decision of Goodwin Street Developments atf Jesmond Unit Trust v DSD Builders (in liq) [2022] NSWSC 624 provides the first decision of the Supreme Court of New South Wales on Part 4 of the Design and Construction Practitioners Act 2020 (New South Wales) (BPD law) which introduces the new (legal) duty of care for building practitioners.

Specifically, the decision provides an interpretation that identifies the range of buildings covered by the duty of care imposed by Part 4 of the BPD Act. Prior to the ruling, most commentators had interpreted the duty of care as limited in its application to class 2 buildings (multi-level residential) or mixed class buildings (with class 2).

However, the Court adopted a broad interpretation, meaning that the legal duty of care applies to a wider range of buildings. The decision must be appealed. Depending on the outcome of this appeal, this potentially opens the floodgates for an influx of additional claims under the DBP Act.

This ruling, while not ideal, provides early clarity to insurers and their policyholders on the scope and impact of this part of the DBP Act.

Background

Goodwin engaged DSD Builders (DSD) for the construction of three residential boarding houses for the accommodation of university students. Mr. Roberts, the husband of DSD’s sole director, supervised and directed the work (at least for the relevant period in this case).

While construction work was underway, disputes arose over faulty construction work, delays and payment issues. Ultimately, Goodwin served notice on DSD, terminating its construction contract. Shortly thereafter, Goodwin brought proceedings against DSD for damages, defects and losses resulting from DSD’s alleged failure to complete the construction work. Mr. Roberts was later added as a second defendant to the proceedings.

DSD was put into liquidation three years after the start of the procedure. Proceedings were stayed against Goodwin but continued against Mr. Roberts. Among other things, Goodwin pleaded that Mr. Roberts breached his statutory duty of care under DBP Section 37 (Statutory obligation).

Results

Before coming to his conclusion, Judge Stevenson alluded to the difficulties encountered in interpreting the DBP Act:

“Resolving the issue involves reviewing the labyrinthine layout of Section 36 of the DBP Act. The section seems to have been written in such a way as to make it as difficult to understand as possible.

Nevertheless, the Court held that:

  • the construction works of the pension (which was not a class 2 building) were ‘construction work‘ for whom the legal duty of care under Article 37 of the BPD Act applied;
  • Mr. Roberts was performing ‘construction work’ for the purposes of Article 36 of the DBP Law, when acting as supervisor and project manager; and
  • Mr. Roberts had breached the statutory duty of care under Section 37(1) of the DBP Act due to his lack of care in supervising and managing the project’construction work’.

Reasoning

At the heart of this decision was the Court’s consideration of the meaning of “construction work” in the context of legal obligation. The Court concluded that:

  • Although there are two definitions of “construction work” in the DBP Act, the definition of “construction work” in Section 4 of the DBP Act does not apply to the statutory obligation. Notably, Section 4 essentially restricts “construction work” to only Class 2 building construction work; and
  • the relevant definition of “construction work” for the purposes of the legal obligation is the much broader definition in section 36 of the DPB Act:

‘[B]building work includes residential building work within the meaning of the Home Building Act 1989 [(NSW)]‘.

This is where the Court adopted a broad interpretation. The Court emphasized that Section 36 of the DPB Act is an inclusive (and not exclusive) definition which incorporates by reference definitions from several other pieces of legislation. In particular, it included in the same definition section, the following definition of “building”:

‘….’building’ has the same meaning as in the Environmental Planning and Assessment Act 1979.’

The definition of a “building” in the Environmental Planning and Assessment Act 1979 (New South Wales) (EPA Act)[1] is as follows:

‘…includes part of a building, and also includes any structure or part of a structure (including any temporary structure or part of a temporary structure), but does not include a manufactured home, mobile home or associated structure within the meaning of the Local Government Act 1993.

The Court’s conclusion is essentially that any building as defined in the EPA Act is covered by Part 4 of the DBP Act.

Implications: the legal obligation applies to more categories of buildings

The diagram below provides a visual aid to the range of building categories to which the legal obligation applies.

It remains to be seen whether the decision will lead to an influx of claims from owners of non-Class 2 buildings, for breach of legal duty. However, the decision is up for appeal and we expect building professionals and insurers to look forward to seeing if the Court of Appeal will overturn this very important decision.

Reminder: the legal obligation

Finally, it should be considered to whom and to what the legal obligation applies.

  • The BPD Act states that a duty of care extends to persons carrying out construction works as well as designers, manufacturers and suppliers of construction products, supervisors, coordinators and main contractors of construction works, but does not s does not extend to certifiers.
  • The obligation is 10 years from the date of completion of the construction works.
  • The obligation covers construction work on all works up to 10 years before the entry into force of the DBP law on June 11, 2020 – it is therefore partly retroactive.
  • The advantage of legal obligation for a consumer is that it extends to:
    • current and future owners; and
    • leasehold condominium plans.
  • The Legal Obligation is subject to compliance with the following limitation periods:
    • submit a claim within six years of the first manifestation of a known damage/defect (which is the trigger for a claim) under the Limitation Act 1969; and
    • lodge any complaint within the extended 10-year stoppage period existing for the opening of proceedings after the completion of the works, in accordance with article 6.20 of the Environmental Planning and Assessment Act 1979.
  • With regard to the implications of the DBP Act, there are various observations to be made (‘including’ but perhaps not limited to):
    • on the one hand:
      • limitation periods are slightly longer;
      • direct obligations now fall on parties which were not direct contracting parties; and
      • these benefits extend to the rightful claimants (this already existed for manufacturers within the framework of their six-year legal warranties);
    • on the other hand:
      • the appeals against the builders were always subject to a limitation period of six years from the date of manifestation of the defect and to a 10-year stoppage;
      • the builders still had the right to issue cross claims against the design and all other parties to the process for up to four years after their six-year statute of limitations expired; and
      • proportionate liability has always applied under both regimes (with the exception of a builder’s legal warranty where a builder could still bring a counterclaim).

In summary, other than giving the owner direct access to all potential defendants (which otherwise might not have been the case if the builder had deregistered or become insolvent), some suggest that little have really changed in practice.

In other words, the downside risk for insurers on buildings already constructed may not be worse than current experience. However, time will tell.

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