The NSW Supreme Court clarifies the nature and extent of building practitioners’ duty of care: what you need to know

The Design and Construction Practitioners Act 2020 (New South Wales) (BPD law) started a little over two years ago. An important feature of the DBP Act is the statutory duty of care it created, which states that persons carrying out construction work have a duty to exercise due diligence to save owners and subsequent owners from loss. economic caused by defects.

Remarkably, the duty of care has retroactive effect, applying to economic losses that became apparent within the 10 years immediately preceding the entry into force of the DBP Act (subject to relevant statutes of limitations).

The NSW Supreme Court has considered the duty of care under the DBP Act in a few recent cases, helping to clarify its nature and scope.

What does this mean to you

Any case regarding an alleged breach of duty will depend heavily on its facts. However, the cases below clarify the broad application of the duty, confirming that it applies to a wide range of buildings (including residential and commercial buildings) and a wide range of building practitioners, including beyond the legal persons hired to carry out the work.

The main findings of the cases discussed below are as follows:

  1. The duty of care applies to “construction work” (which includes design work, project management and supervision) of a “building” defined broadly by the Environmental Planning and Assessment Act 1979 (New South Wales) (AEPA), not just Class 2 buildings (multi-story residential). See section 1 below.
  2. The duty of care extends to the persons responsible for the project management and the supervision of the works. For the duty to apply, it may be sufficient to show that a person was able to exercise control even if that control was not exercised. See section 2 below.

To which buildings does the duty of vigilance apply?

In Goodwin Street Development Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 (Goodwin), Goodwin Street Developments Pty Ltd, the owner of the land, contracted DSD Builders Pty Ltd, the builder, to construct three boarding houses for use as student accommodation. Disputes arose between the owner and builder over alleged defects.

The owner brought proceedings in the NSW Supreme Court against the builder and then against Mr Roberts, who allegedly supervised and managed the project for the builder. Due to the builder’s insolvency, proceedings against the builder were stayed and the Court had to rule on the claims made against Mr. Roberts.

The owner alleged that Mr Roberts carried out “construction work” and breached his duty of care to avoid economic loss caused by defects resulting from that construction work.

A key question for the Court was whether the duty of care extended to “construction work” carried out in a boarding house.

The Court observed that resolving this question involved considering the “labyrinthine layout of art 36 of the [Act]‘ who ‘…seems to have been written in such a way as to make it as difficult to understand as possible.’

The duty of care applied to “construction work” which was, properly, “construction work”.

The law includes two definitions of “construction work”:

  • firstly, in article 4 of the law, “construction works” are defined by reference to particular categories or types of buildings specified in the Design and Construction Practitioners Regulations 2021 (New South Wales) (Regulation). The Regulations in turn specify which buildings are class 2 buildings (in whole or in part); and
  • second, section 36 of the Act (for the purposes of Part 4 of the Act) defines it as follows: ‘construction works includes work for the construction of dwellings within the meaning of House Building Act 1989′.

The Court found that the definition of “construction work” in Section 36 applied to Part 4 of the Act, which pertinently includes the duty of care. Counsel for both parties agreed (for different reasons) that the settlement did not affect the meaning of “construction work” here.

It is important to note that Article 36(2) provides that “…a reference to construction work applies only to construction work relating to a building within the meaning of this Part‘. ‘Building’ is defined to have the meaning given in the EPAA at Section 1.4 as ‘[P]the art of a building, and also includes any structure or part of a structure… but does not include a manufactured home, mobile home or associated structure within the meaning of the Local Government Act 1993.

The Court held that a boarding house was a building within the meaning of the above definition and therefore the law applied to ‘construction work’ in connection therewith.

While the definition of “construction work” was defined to include “residential construction work” to which Housing Construction Act 1989 (NSW) applied, it was not exhaustive and did not limit the buildings to which the duty of care applied. This is important because “residential construction work” does not include work in boarding houses.

Does the duty of care apply to those supervising or managing the work?

Another essential question which the Court must examine in Goodwin was whether Mr. Roberts had performed “construction work” as required for the duty of care to apply. This was important because the proceedings against the builder were suspended.

The Court found that, based on the evidence, Mr. Roberts had engaged in the management of the construction project, as well as the supervision.

As to the defects, the uncontested evidence was that the relevant defects had been brought to the attention of Mr. Roberts, who had assured the owners that they would be repaired. The Court found that they were caused by a lack of care in the management and supervision of the work by Mr Roberts, and he was held liable to pay damages for the cost of correcting the defects.

In another recent decision, the question of the degree of control required to carry out the management and supervision of the project was considered, albeit in the context of an application for authorization to modify a listing statement. In the Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659, owners of a residential development in North Sydney have taken legal action against the builder and developer.

As part of the proposed changes to the listing statement, the Court considered whether it was necessary to demonstrate that the person in question actually exercised substantial control, or whether it was sufficient to demonstrate that the person exercised substantial control’in the sense of having the ability to exercise such control, whether or not such control has actually been exercised.’

The Court held that the words “otherwise having substantial control‘ in the definition of ‘construction work‘ meant that it was enough to establish that the person was able to control the way the work was done, even if he did not do it. It was a question of fact in each case.

More recently, the promoter requested the dismissal of the lawsuits against him1 arising from additional changes proposed by the owners to their listing statement. Amendments related to the need to establish the developer had a duty of care because it was performing “construction work” by supervising, coordinating, managing the project, or exercising substantial control over the construction work. From a factual point of view, it was relevant that the developer’s sole director was also a director and shareholder of the builder (which in turn held all the shares of the developer) and the designated supervisor of the builder.

The Court concluded that it was at least arguable that the developer’s sole director, by virtue of his simultaneous status as sole director of the developer and designated supervisor of the builder, could have the capacity to control the manner in which the works of Construction was being carried out within its developer capacity. Accordingly, the Court declined to order the dismissal of the proceedings against the developer. Permission has been granted for the owners to file and serve the new amended list declaration.

What these decisions mean to you

The implications of these cases for those involved in construction work in New South Wales are significant.

As the Court has clarified that the duty of care extends beyond residential buildings (Class 2), commercial property owners may increasingly seek to rely on the statutory duty of care, including when possible direct contractual and other claims are not available. This will have implications in terms of insurance and risk distribution.

Additionally, individuals who have some control or ability to control the work may find themselves exposed to a breach of duty of care claim. This is likely to be particularly relevant where there have been insolvencies in the contractual chain.

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