By Andrew Buchanan, head of construction liability, Australia
The Supreme Court of New South Wales recently delivered an important decision on the duty of care owed by building practitioners under the highly publicised Design and Building Practitioners (DBP) Act, which took effect on 11 June 2020.
Both the act and the court’s ruling merit further attention by the construction and liability claims professionals.
The DBP Act of 2020
The act created a non-delegable statutory duty of care owed by building practitioners to owners (and subsequent owners) to exercise reasonable care to avoid economic loss caused by defects arising from “construction work” (see below) for a period of 10 years. This period corresponds to the decade-long stop limitation period for defective building work under the Environmental Planning and Assessment Act of 1979.
Extending the duty of care to subsequent owners (to include newly created owners corporations) is a significant departure from the previous position and therefore exposes building practitioners to greater risks — both in terms of the period in which claims can be brought and by whom.
The DBP Act also applies retrospectively to all building work, provided the defect became manifest in the 10-year period prior to 11 June 2020.
Goodwin Street Developments case
The recent case of Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq)concerned the construction of three university accommodation boarding houses, with the build commencing in July 2017 and disputes arising in early 2018 regarding progress of the works and alleged defects. In March 2018, someone maliciously damaged the works.
The Supreme Court considered whether the construction of boarding houses constituted “construction work” within the meaning of the DBP Act. Acknowledging the difficulty of properly interpreting the law, the judgment contains the remark that “resolution of the question involves consideration of the labyrinthine provision of section 36 of the DBP Act. The section appears to have been drafted so as to make comprehension of it as difficult as possible.”
In summary, section 36 of the DBP Act defines “construction work” as:
a) Building work
b) The preparation of regulated designs and other designs for building work
c) The manufacture or supply of a building product used for building work
d) Supervising, coordinating, project managing, or otherwise having substantive control over the carrying out of any work referred to in a), b) or c)
It also states that building work includes residential building work within the meaning of the Home Building Act of 1989.
Ultimately, the court concluded that this was an inclusive, rather than exclusive, definition. While “building work” within the DBP Act expressly includes residential building work (within the meaning of the Home Building Act), it does not exclude other, non-residential building work.
The judgment, therefore, potentially widens the application of the DBP Act beyond residential construction work (or “Class 2” work, per the National Construction Code) to all building work; possible exceptions include manufactured homes, moveable dwellings or associated structures.
Historical context and future implications
The High Court of Australia’s 2014 decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 and Anor had made it practically impossible for subsequent owners to succeed against building practitioners for claims of negligence in relation to building defects or design/certification errors. Because of widely known and significant construction failures, such as the Opal Tower in Sydney Olympic Park, the DBP Act is the statutory remedy to that situation.
Section 37 of the DBP Act extends the duty of care: “A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects—
a) in or related to a building for which the work is done, and
b) arising from the construction work.”
In Goodwin Street Developments, the claim had ultimately proceeded against the second defendant (project manager Daniel Roberts) after the first defendant (the builder) had entered liquidation; Roberts was found wholly liable to pay damages.
The 2022 procedural ruling in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd held that section 37(1) “provides, without any qualification, that any ‘person’ who ‘carries out construction work’ has the prescribed duty. Section 37(1) is therefore directed not only to a builder who engages in the relevant ‘building work’ but to any other ‘person’ who carries out ‘construction work’ as defined in section 36(1). … That includes a ‘person’ who supervised, coordinated, project managed, or ‘otherwise’ had ‘substantive control over the carrying out of’ the work. That ‘person’ may well be the ‘owner of the land in relation to which the construction work is carried out.’”
Accordingly, the duties imposed by the DBP Act are not restricted to the principal contractor; they may also apply to developers, project managers, site supervisors or anyone else (including individuals) with “substantive control” of the execution of the work. However, claimants are still required to demonstrate both negligence on the part of the building practitioner and a causative link between that practitioner’s range of substantive control and the subject defect.
Building practitioners (both corporations and individuals) are now confirmed to owe (and have owed, given the retrospective application of the DBP Act) a personal duty of care to owners and future owners to prevent economic loss arising from all (not just residential) construction work they’ve undertaken in New South Wales.
Key takeaways
- The DBP Act, which took effect on 11 June 2020, imposes a duty of care upon building practitioners, rendering them liable for economic losses arising from defects for 10 years; this duty applies retrospectively.
- The definition of “building practitioners” extends to people who had “substantive control” of the “construction works.”
- “Construction works” is now considered to include all building structures and is not limited to Class 2 works as defined by the National Construction Code.
Postscript from Neil Wright, head of liability, Australia
At Sedgwick, we proudly utilise our technical expertise to deliver cost-effective, expert claims solutions for our clients. Our Australian team has broad experience across all classes of liability claims, from simple trip-and-slip personal injury claims to multimillion dollar product recall and professional indemnity claims. Between us, we have hundreds of years of combined tenure!
By impartially applying our knowledge, we’re able to take an objective standpoint on claim circumstances and provide clients with clear guidance. Our experts skillfully transform complex issues into manageable solutions.
This blog is the first installment in a series where our liability experts will share their knowledge and expertise for the benefit of all in the industry. Stay tuned for the second blog, which is coming soon.
For more on our liability capabilities in Australia, please refer here or contact me.
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