Thinking | 21 July 2022

A broader statutory duty of care for building practitioners

By Gemma Dehn and Christian Gaulke

Since the Design and Building Practitioners Act 2020 (NSW) was first enacted, building practitioners (and their insurers) have been scrambling to understand the breadth 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 New South Wales Supreme Court decision on Part 4 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act) which introduces the new (statutory) duty of care owed by building practitioners.

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

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

This decision, while not ideal, provides some early clarity for insurers and their insureds on the scope and impact of this part of the DBP Act.

Background

Goodwin engaged DSD Builders (DSD) to construct three residential boarding houses intended for university student accommodation. Mr Roberts, the husband of the sole director of DSD, supervised and project managed the works (at least for the period relevant to this case).

While construction works were ongoing, disputes arose relating to defective building works, delay, and payment issues. Ultimately, Goodwin served a notice on DSD, terminating its building contract. Shortly after, Goodwin commenced proceedings against DSD in relation to damage, defects and loss arising from DSD’s alleged failure to properly carry out the building works. Mr Roberts was later added as a second defendant to the proceedings.

DSD went into liquidation three years into the proceedings. The proceedings were stayed as against Goodwin but continued against Mr Roberts. Among other things, Goodwin pleaded that Mr Roberts had breached his statutory duty of care under s 37 of the DBP Act (Statutory Duty).

Findings

Before reaching his conclusion, Justice Stevenson alluded to the difficulties faced with interpreting the DBP Act:

‘Resolution of the question involves consideration of the labyrinthine provision of s 36 of the DBP Act. The section appears to have been drafted so as to make comprehension of it as difficult as possible.’

Nonetheless, the Court held that:

  • construction works to the boarding house (which was not a Class 2 building) was ‘building work’ for which the statutory duty of care under s 37 of the DBP Act applied;
  • Mr Roberts was carrying out ‘construction work’ for the purposes of s 36 of the DBP Act, when acting as supervisor and project manager; and
  • Mr Roberts had breached the statutory duty of care under s 37(1) of the DBP Act due to his lack of care in supervising and project managing the ‘construction work’.

Rationale

Central to this decision was the Court’s consideration of the meaning of ‘building work’ in the context of the Statutory Duty. The Court concluded that:

  • while there are two definitions of ‘building work’ found in the DBP Act, the definition of ‘building work’ in s 4 of the DBP Act is not applicable to the Statutory Duty. Notably, s 4 essentially restricts ‘building work’ to mean only work in the construction of Class 2 buildings; and
  • the relevant definition of ‘building work’ for the purposes of the Statutory Duty is the much broader definition in s 36 of the DPB Act:

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

This is where the Court took a broad interpretation. The Court emphasised that s 36 of the DPB Act is an inclusive (not exclusive) definition which incorporates by reference, the definitions from several other pieces of legislation. In particular, this included in the same definition section, the following definition of ‘building’:

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

The definition of a ‘building’ in the Environmental Planning and Assessment Act 1979 (NSW) (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, moveable dwelling or associated structure within the meaning of the Local Government Act 1993.'

The Court’s conclusion in essence is that any building as defined in the EPA Act is captured under Part 4 of the DBP Act.

Implications: the Statutory Duty applies to more building classes

The diagram below provides a visual aid to the range of building classes to which the Statutory Duty applies.

Building Classes

It remains to be seen whether the decision will result in an influx of claims by owners of non-Class 2 buildings, for breach of the Statutory Duty. However, the decision is to be appealed and we expect building professionals and insurers alike with be waiting with interest to see whether the appellate court will reverse this very significant decision.

Refresher: the Statutory Duty

As a final note, it is worth reflecting on who and what the Statutory Duty covers.

  • The DBP Act states that a duty of care extends to persons carrying out construction work and also designers, manufacturers and suppliers of building products, supervisors, coordinators and project managers of construction work, but does not extend to certifiers.
  • The duty is for 10 years from the date of completion of the construction work.
  • The duty covers construction work on all jobs up to 10 years prior to commencement of the DBP Act on 11 June 2020 – so it is in part retrospective.
  • The benefit of the Statutory Duty for a consumer is that it extends to:
    • current and future owners; and
    • leasehold strata schemes.
  • The Statutory Duty is subject to compliance with the following limitation periods:
    • bringing any claim within the six years from when damage/a known defect first manifests (which is the trigger for a claim) under the Limitation Act 1969; and
    • bringing any claim within the existing 10-year long-stop period for commencement of proceedings after completion of the works, pursuant to s 6.20 of the Environmental Planning and Assessment Act 1979.
  • In terms of the implications of the DBP Act there are various observations to make (‘inclusive’ of but perhaps not limited to):
    • on the one hand:
      • limitation periods are slightly longer;
      • direct duties now arise to parties who were not direct contracting parties; and
      • those benefits extend to successors in title (this already existed for builders under their six-year statutory warranties);
    • on the other hand:
      • claims against builders were always subject to a six-year limitation period from the date of manifestation of the defect and a 10-year long-stop;
      • builders always had the right to issue cross claims against design and all other parties in the process for a period of up to four years after their six-year limitation period expired; and
      • proportionate liability has always applied under both regimes (except for a builder’s statutory warranty where a builder could still bring a cross claim).

In summary, apart from giving an owner direct access to all potential defendants (which otherwise might not have been the case if the builder had de-registered or become insolvent), some suggest that not a great deal has really changed in practice.

Putting it another way, the downside risk for insurers on buildings already constructed may not be any worse than present experience. However, time will tell.


[1] By reference to the definition of ‘building’ in s 36 of the DBP Act.

Contact

Gemma Dehn

Gemma is an experienced insurance lawyer specialising in construction, financial lines and environmental product lines.

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