The Design and Building Practitioners Act is taking shape.
Over two years on from the enactment of the Design and Building Practitioners Act 2020 (the Act), we now have several cases which consider how the Act operates and which practitioners are covered by its provisions.
The following is now clear in relation to the Act:
To allege a breach of the s37 Statutory Duty, a plaintiff must specifically identify the alleged breach of duty. It is not sufficient simply to identify the defects[1].
Engaging in the project management and supervision of the construction is sufficient to establish that a person has engaged in “construction work” for the purpose of s37 of the Act[2].
A person can have been found to have engaged in “construction work” if they had the ability and power to control how the work was done, even if they were not actually doing anything at a particular time to exercise that control[3].
A person who carries out construction work for the purpose of s37 of the Act can include a person who owned the land upon which the work was being carried out[4].
“Persons” for the purpose of a claim under s37 of the Act is broader than “practitioners” and can include the managing director of a builder, and a project site supervisor, depending on the facts of each case[5].
To date, the Act has been interpreted broadly. Most recently, in Boulus Constructions Pty Ltd v Warrumbungle Shire Council (No 2) [2022] NSWSC 1368 (Boulus), his Honour Justice Stevenson found that the managing director and project site supervisor of a builder could be persons to which the statutory duty created by the Act could apply, rather than the duty being limited to “practitioners”.
Here, we consider the key case law to date considering the Act and its interpretation by the Supreme Court.
Background to the Act
Home Building Act 1989
Prior to the enactment of the Act, an owner’s claim for the cost to rectify defective works commonly arose under the Home Building Act 1989 (HBA). S18B of the HBA implies statutory warranties into contracts to do residential building works, including a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract (s18B(1)(a)). The time period for claims is six years for major defects and two years for a defect that is not major (the definition of major defects and the date from which the warranty period begins are set out in the HBA). However, the HBA is limited to claims against builders (and developers in certain circumstances). There were also practical difficulties in owners seeking rectification costs where the builder was insolvent.
Further, the High Court decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA established that no duty of care was owed by a builder to an owner’s corporation for pure economic loss. The Act was in part aimed at addressing that issue.
Terms of Statutory Duty
The Act was enacted on 10 June 2020 and s 37 of the Act introduced a statutory duty of care on “a person who carries out construction work”, requiring that person 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.”
(s 37 Statutory Duty).
Second Reading Speech[6]
The intention of the Act was set out in its Second Reading Speech, being to prioritise safety and quality in the building and construction industry and to restore consumer confidence[7]. The s 37 Statutory Duty “eradicates any uncertainty that may exist in the common law that a duty is owed to the end user and in respect to liability for defective building work”[8]. The Act was intended to ensure that “that key practitioners are held accountable for their work across the planning, design and construction stages”[9]. The owners protected by the duty include subsequent owners of a building and owners corporations, whose protection was regarded as having been weakened previously. Those owners did not need to have had a contract with the person who carried out the construction work to obtain the benefits of the Act. The Act also removed the hurdle of establishing a duty of care, saving Court time and expense. However, the Second Reading Speech made it clear that although the duty of care will be automatically owed, there was still to be a requirement to establish the other tests for negligence under the common law and the Civil Liability Act 2002, including determining that a breach had occurred and establishing that damage was suffered by the owner as a result of that breach.
How to claim breach of to s37 Statutory Duty in List Statement – not sufficient to simply list defects
On 15 November 2021, Stevenson J handed down judgment in The Owners - Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068 (Loulach). This case involved an allegation of defects by the Owners Corporation against both the developer and builder of a residential development in Parramatta. The Owners Corporation sought leave to amend its Technology and Construction List Statement (List Statement) to include a claim for breach of the s37 Statutory Duty. The claim previously relied only on an alleged breach of statutory warranties implied into the building contract by the HBA.
Whilst the defendants accepted that the s37 Statutory Duty existed, they took issue with the way in which the alleged breaches of that duty had been set out in the Owners Corporation’s proposed amended List Statement. In the relevant paragraph of the List Statement, the plaintiff simply stated that “The works contain defective work”[10]. The particulars provided referred to a list of reports carried out which presumably gave details of the alleged defective works. The Owner’s Corporation also relied upon its Scott Schedule, which it said should be read alongside its List Statement.
The Owners Corporation argued that it was sufficient to “identify the defects complained of and to contend that those defects themselves bespoke a breach of the s 37 duty”[11]. His Honour did not agree. As an example, his Honour referred to one of the alleged defects, being defective cladding. Assuming that the cladding was found not to comply with the relevant standards, and in circumstances where the defendants argued that the cladding type was selected by the architect, his Honour posited what the alleged breach of duty could be, such as that “the builder failed to read the architectural plans” or “the builder failed to follow the architectural plans” or “the builder had a duty to choose cladding other than that specified by the architect” or “the builder failed to ask questions, and if so what questions, about the specification of the cladding in the architect’s plans” or “the builder should have commissioned a flammability report”[12].
His Honour referred to the Second Reading Speech and held that as stated in that speech, the Act was intended “to alleviate the need for a party like the Owners Corporation to provide a duty of care owed to it by the Builder” not “to provide a shortcut as to the manner by which a breach of such duty might be established.”[13] When alleging a breach of the s37 Statutory Duty, his Honour held that the plaintiff “must identify the specific risks that the builder was required to manage, and the precautions that should have been taken to manage those risks. It is not sufficient simply to assert a defect and allege that the builder was required to take whatever precautions were needed to ensure that the defect not be present”[14]. His Honour stated that this could potentially be done through the Scott Schedule, by referring to it in the List Statement and adding an extra column identifying the relevant risk in relation to each defect and exactly what the plaintiff contents the defendant/s should have done in relation to that risk[15].
Who can be regarded as carrying out construction work for the purpose of s37 of the Act
Next, Stevenson J further considered the operation of the Act in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 (Goodwin Street). This case concerned alleged defective works at a development to construct three residential boarding houses on a site intended for the use as university student accommodation, as well as malicious damage caused to that property. The builder who undertook the original construction works (DSD Builders Pty Ltd (in liq)) was subsequently wound up in insolvency and the case proceeded against the second defendant, Mr. Roberts. Mr. Roberts’ fiancée (and later wife) was the sole director of DSD Builders Pty Ltd (in liq).
It was argued by the plaintiff that Mr. Roberts administered the building contract on behalf of the builder and controlled the carrying out of the construction work on the site by the builder, and as such, he carried out “construction work” within the meaning of s37 of the Act. The plaintiff alleged that Mr. Roberts breached the s37 Statutory Duty.
His Honour found that Mr. Roberts did cause the malicious damage to the property in question, based on the witness testimony heard by the Court. Mr. Roberts did not give evidence.
Insofar as the Act was concerned, first, Mr. Roberts argued that the s37 Statutory Duty did not extend to “construction work” carried out on a boarding house.
“Construction work” is defined in s36 of the Act as including “building work”. “Building work” is defined as including “residential building work within the meaning of the Home Building Act 1989”. “Building” is then defined as having “the same meaning as it has in the Environmental Planning and Assessment Act 1979”.
His Honour considered those definitions as set out in s36 of the Act, and commented that “[t]he section appears to have been drafted so as to make comprehension of it as difficult as possible.”[16] However, working through the relevant provisions of the Act as summarised above, his Honour did not accept that “construction work” carried out on a boarding house was not “construction work” for the purposes of the Act. His Honour stated that the definition of “building work” is “an inclusive, not an exclusive, definition”[17].
Based on the evidence available to the Court, his Honour found that in circumstances where Mr. Roberts was observed to have supervised work, attended every site meeting as the only representative on behalf of the builder, introduced himself as “the builder” of the project and responded to requests about defects by saying words to the effect of “don’t worry about it’ll all be fixed”, that he engaged in both project management of the site and supervision of the construction. He was therefore held to have engaged in “construction work” for the purpose of the Act[18].
As to whether the defects were caused by a want of care by Mr. Roberts, there was no dispute that a range of defects existed. The evidence (particularly in the absence of evidence from Mr. Roberts which allowed an inference to be drawn by the Court) established that Mr. Roberts repeatedly stated that he would fix the defects and so his Honour was able to conclude that the defects had been “brought about by a want of care on his part in his project management and supervision of the work”[19]. Mr. Roberts was therefore liable to pay damages to the plaintiff for the cost of rectifying the work.
What is substantive control for the purposes of the s37 Statutory Duty
The Act was next considered by Stevenson J in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659 (Pafburn). The plaintiff in this case was an Owners Corporation of a development in North Sydney and the defendants were the builder of the development (Pafburn Pty Limited) and the developer (Madarina Pty Limited). The respective interest and involvement in those companies was as follows:
Mr. Antonios Obeid and Mrs. Maria Obeid owned the shares in Pafburn (80% Mr. Obeid, 20 % Mrs. Obeid).
Pafburn owned all of the shares in Madarina.
Mr. and Mrs. Obeid were the directors of Pafburn.
Mr. Obeid was the sole director of Madarina.
The claim was brought pursuant to the Act due to limitation problems arising from bringing a claim under the HBA. The proceedings were commenced only five days before expiry of the 10 year long stop limitation period for defective work claims set out in s 6.20 of the Environmental Planning and Assessment Act 1979. The plaintiff alleged that the defendants had breached the s37 Statutory Duty; the builder because it had constructed the building defectively and the developer because it engaged in “construction work” by supervising, coordinating, project managing and substantively controlling the builder’s building work[20]. The plaintiff sought leave to amend its List Statement to further particularise those matters. The defendants filed an application seeking for the proceedings to be dismissed or struck out[21].
There were a number of issues to be determined by the Court. Firstly, it was argued by the defendants that no reasonable cause of action was disclosed against the developer. The question arising was whether, for the purpose of the definition of “construction work” in s 36 of the Act, it needs to be established that the person actually exercised “substantive control”, or if it was sufficient to show that the person had the ability to exercise such control, whether or not they actually did[22]. His Honour stated that the words in s37 of a person who “carries out construction work” suggests that the work was actually carried out. However, the words in s 36 forming part of the definition of “construction work” include a person “otherwise having substantive control”. This could include someone notwithstanding that “at any particular moment in time, the person was not actually doing anything to cause that control to be exercised; provided the person had the ability and the power to control how the work was carried out.”[23] His Honour held that this will be a question of fact in each case, and where a developer owns all of the shares in the builder, this may make it more likely that an inference of control can be made. That inference may be less readily available where, as in this case, it is the other way around and the builder owns all of the shares in the developer[24].
The next point to be considered was whether the Scott Schedule annexed to the plaintiff’s List Statement adequately set out the plaintiff’s claim. The Scott Schedule appeared to have been drafted based on his Honour’s comments in Loulach[25] as a column was included headed “Response to Risk”. His Honour stated that the response included under that heading in the plaintiff’s Scott Schedule, in many cases, was expressed as to what “the defendants” should have done, without distinguishing between what the builder should have done, and what the developer, as the party supervising, coordinating, project managing or having substantive control of the work, on the other hand, should have done[26]. His Honour found that this would need to be corrected by the plaintiff if the proceedings were to continue against the developer[27]. The plaintiff would also need to specify how inspections should have taken place in respect of the instances where it was alleged in the Scott Schedule that the response to the risk was to “inspect” the work, including, for example, whether a visual inspection was sufficient or if testing was required and if so, what kind of testing[28].
The next point considered was whether the plaintiff introduced “new” defects in its amended List Statement as identified by its experts. His Honour did not regard the identification of these “new” defects as involving new causes of action, in circumstances where the plaintiff relied on a single cause of action, being breach of the s 37 Statutory Duty[29]. However, an opportunity was given for the plaintiff to indicate whether it agreed that the defects were new and for the defendants to indicate precisely what prejudice they would suffer if the plaintiff was permitted to rely on those defects.
Finally, there was an argument raised by the defendants about whether a “person” who carries out construction work excludes an a person who owned the land at the time the construction work was carried out, as the developer did in this case. The defendants argued that the s 37 Statutory Duty, which is expressed as being owed “to each owner of the land in relation to which construction work is carried out and to each subsequent owner” would create an absurdity if read to mean that in the case of an owner also being the “person who carries out construction work”, as the owner would owe a duty to itself. His Honour quickly rejected this argument, noting that s 37 of the Act attributes the s 37 Statutory Duty to any “person” who “carried out construction work”. That person may well be the “owner of the land in relation to which the construction work is carried out”[30]. The anomalous result that the wording of s 37 of the Act causes an owner to owe a duty to itself can “readily be avoided by reading the expression “each owner” in s 37(2) as not including an owner that has itself carried out the construction work in question”.[31]
Pafburn, the sequel
A further judgment in Pafburn was handed down by Stevenson J on 27 July 2022, being The Owners – Strata Plan No 84674 v Pafburn Pty Ltd (No 2) [2022] NSWSC 1002 (Pafburn (No 2)). This judgment concerned the same applications before the Court in Pafburn. Only the second defendant (the developer) pressed the application to dismiss the proceedings against it, which Stevenson J declined to grant. His Honour also granted the plaintiff leave to amend its List Statement.
In considering the developer’s dismissal application, his Honour reviewed the evidence and arguments in respect of whether the developer supervised, controlled, project managed or otherwise had substantive control over the carrying out of the building work. His Honour stated that this would be a question of fact in each case and that based on the facts of the case, it was at least arguable that Mr. Obeid, as the sole director of the developer and the nominated supervisor of the builder, may have had the ability to control how the building work was carried out[32]. His Honour agreed with the plaintiff that the extent to which Mr. Obeid did control how the work was carried out was a matter of fact to be explored at a final hearing. As a result, the developer’s dismissal application failed.
As foreshadowed in Pafburn, there was also consideration in Pafburn (No. 2) about the plaintiff adding “new” defects to its List Statement. The defendants argued that they were prejudiced by this course as they were unable to bring cross claims against the certifier and a water proofing contractor in respect of these “new” allegations. However, those people had already been identified in the defendants’ List Response as concurrent wrongdoers pursuant to the Civil Liability Act 2002 and the defendants had sought an order limiting their own liability to the extent of their relative responsibility for the plaintiff’s loss. His Honour found that bringing a cross-claim against those people was unlikely to advance the defendants’ position[33]. His Honour also commented that in circumstances where the defendants were served with the plaintiff’s Summons and List Statement two days before the expiry of the limitation period for the claim and consequently any cross claim, the defendants “had no realistic prospect of bringing a cross-claim in any event”[34].
Is the s 37 Statutory Duty owed by “persons” or only “practitioners”?
Most recently, in Boulus Constructions Pty Ltd v Warrumbungle Shire Council (No 2) [2022] NSWSC 1368, the Court considered whether a managing director and project site supervisor of a builder could be “persons” for the purposes of a claim under s 37 of the Act, or whether the duty was limited only to “practitioners”.
The case concerns an application by a builder (Builder) against a local council (Council) seeking payment for construction of a retirement village. The Council cross-claimed alleging some 300 defects in the work. The application the subject of the judgment was brought by the Council seeking to include a claim under s 37 of the Act against the Builder, its managing director, and project site supervisor. The Builder submitted that the managing director and project site supervisor were not “persons” for the purposes of the section.
His Honour referred to his finding in Pafburn that a person “having substantive control over the carrying out of any work” included a person “able to control how that work was carried out”. Boulus took issue with this analysis submitting a narrower view should be taken as “Every person on a construction site has substantive control or supervision over some building work performed at that site, often the work that they themselves directly perform, and accordingly, taking section 37 at its broadest interpretation, every such person could potentially come within the ambit of a ‘person who carries out construction work’…”.
His Honour considered the various definitions of “practitioners” under the Act, that “persons” is not defined under the Act, and that throughout the Act “persons” is used sometimes to mean “practitioner” and sometimes not. His Honour drew analysis from the purpose of the Act by reference to the Second Reading Speech, ultimately, finding that “the supervision, coordination, project management and having substantive control over building work could be effected by a wide range of actors. The word the Parliament has used to determine who those actors are is “person”. I am unable to see by what process of statutory interpretation that word could be read down to mean a person acting “in their own capacity”. That would, in effect, involve reading “person” in s 37(1) as meaning “practitioner”.
His Honour ultimately held the managing director and project site supervisor could be “persons” for the purposes of the section, insofar as finding that the Council could proceed with their amendment. His Honour stressed that such a finding will be a question of fact in each case. With that in mind, a person holding these titles may not automatically be considered to be “persons” for the purposes of a claim under s 37 of the Act. Undoubtedly, however, the Court is giving the definition a broad interpretation and therefore all individuals involved in a construction project should be conscious of any possible duty they may hold.
This is certainly an evolving area and a lot of more activity can be expected over the next 12 months.
[1] Loulach [2] Goodwin Street [3] Pafburn and Pafburn (No. 2) [4] Pafburn [5] Boulus [6] New South Wales Legislative Council, Parliamentary Debates (Hansard), 19 November 2019 (Damien Tudehope, Minister for Finance and Small Business) [7] Second Reading Speech [8] Second Reading Speech [9] Second Reading Speech [10] [17], Loulach [11] [20], Loulach [12] [28], Loulach [13] [36], Loulach [14] [42] – [43], Loulach [15] [44], Loulach [16] [101], Goodwin Street [17] [127], Goodwin Street [18] [131] – [138], Goodwin Street [19] [147], Goodwin Street [20] [10], Pafburn [21] [13], Pafburn [22] [22], Pafburn [23] [23] – [25], Pafburn [24] [26], Pafburn [25] [28], Pafburn [26] [29], Pafburn [27] [31], Pafburn [28] [32], Pafburn [29] [35] – [36], Pafburn [30] [52], Pafburn [31] [57], Pafburn [32] [44], Pafburn (No. 2) [33] [54], Pafburn (No. 2) [34] [55], Pafburn (No. 2)
