By Justin Cotton, Director, Lovegrove & Cotton – Construction and Planning Lawyers In a recent decision of the Victorian Building Appeals Board, the alternative pathway to compliance of satisfying the Performance Requirements under the Building Code has again been upheld in regard to potentially combustible cladding, despite a more cautious approach argued for by the Victorian Building Authority and the MFB. It has long been recognised that there are two potential pathways to compliance with the Building Code.  These being on the one hand prescriptive compliance with “Deemed to Satisfy” provisions of the Building Code, or alternatively an “alternative solution” of achieving performance-based benchmarks.  The alternative solution route must be scientifically or technically supported as being an equivalent level of compliance when compared to the prescriptive provisions. In the Building Appeals Board case decision of In the matter of 14 Elliot Avenue, Carnegie [2020] VBAB 19, the Board ruled that the prescriptive Deemed to Satisfy test for compliance of combustible cladding, such as Expanded Polystyrene (EPS) panelling, would not necessarily be the governing test if the performance requirements in CP2 and CP4 of the Building Code are satisfied, and if the holistic fire safety situation of the premises otherwise results in a satisfactory level of safety. The relevant site was an apartment building of some 21 self-contained apartments and a basement car parking area, with 4 storeys above the basement.  In response to a Building Notice from the Council calling for combustible external cladding on the façade to be removed, in April 2019 the Owners Corporation lodged an application with the Building Appeals Board seeking a determination under s160A of the Building Act 1993.  The determination sought was that the design or construction of the building complies with the performance requirements CP2 and CP4 of the Building Code, as an alternative path to compliance. Combustible EPS cladding had been installed only on the upper 2 levels of the building and on external walls on balconies, but with no combustible cladding on the ground level.  In addition, there was an eyebrow / canopy on the top-most level consisting of combustible Aluminium Composite Panelling (or “ACP”), set back some distance from the edge of the building. In regard to other fire safety features at the premises, there was sprinkler protection in accordance with AS2118.4 that covered the entire building including the basement carpark.  Also, each level containing apartments was supplied with an internal fire hydrant set in an enclosed fire isolated cupboard, plus an external fire hydrant set back from any flammable cladding by a distance of more than 3 metres. In summary, the Applicant at hearing highlighted some key features that bolstered a conclusion that the apartment building was compliant in in an overall or ‘holistic sense’:

• A reinforced concrete structural frame;
• Automatic fire sprinklers and smoke detection;
• Internal smoke-proof walls between sole occupancy units and corridors;
• Fire separation between the basement car park and habitable levels above; and
• Highly articulated or ‘wedding cake’ external facades that tend to prevent opportunity for vertical fire spread, or flammable materials falling from one level to levels below.

The performance-based solutions for fire safety were supported by the original fire engineering report by the project engineer, and a peer review report from an independent fire engineering firm, both of which had been deemed acceptable by the RBS for the project. In terms of more recent evidence, the Applicant relied on an audit report employing a Risk Assessment Tool (“RAT”) from Mr Stephen Kip, a fire-engineering and building surveying consultant.  According to Mr Kip’s report and use of the RAT, the building as constructed and occupied was classified as: “fire risk category 2, exit risk category 2 – low risk.” At the hearing the VBA argued that a proper fire risk assessment should result in a “moderate risk” overall for the building, and that the ignition risk was in fact “high” (including under the RAT analysis). Therefore, the VBA called for removal of all combustible cladding on the balconies, as the minimum option to sufficiently ameliorate fire risk.  It was not agreed by the Owners Corporation that this was necessary. Indeed, it transpired that the Board found that at the time of construction, the design of the building complied with the relevant Building Code performance requirements for fire safety. Key factors for this conclusion by the Board were:

1. There was reliance on CodeMark Certificates and a BRAC Certificate in regard to EPS and ACP panels, and these certifications complied with the Building Code and the Regulations;
2. The fire risk for the building was substantially “mitigated” by the sprinkler system installed in accordance with the relevant Australian Standard (ie AS2118.4);
3. ACP product was installed on the top level only as an eave feature with no risk of vertical external fire spread (and at the hearing only the MFB took issue with the ACP placement);
4. EPS product was only utilised on the top 2 storeys, and not the ground level or the floor above.  The Board decided that it therefore did not cause an undue fire risk for external fire spread, that would be greater than that contemplated by the deemed to satisfy provisions for a 2 storey Class 2 structure;
5. The Board largely accepted the fire engineering advice from the Applicant’s expert Mr Kip, to the effect that EPS is not a banned product, is not prohibited by the Regulations, does not ignite and sustain flaming in the absence of other combustibles, and its mere presence is not an unacceptable fire risk; and
6. Configuration of external walls for the separate storeys to ‘cascade back’ in a ‘wedding cake’ type design significantly reduced any chance for flame spread vertically, over multiple levels.

In coming to this conclusion, the Board did not require the removal of EPS panels from external walls on balconies, because it did not agree with the VBA’s argument that the fixture of EPS on balcony walls raised the building’s fire risk grading to “high”. Instead, the Board stated that the assessment of fire risk for a building is “an integrated assessment which is not automatically determined from a single variable.”  Therefore, the probability of ignition was just one factor to consider when deciding the level of risk for the building as a whole. Furthermore, the Board found the ACP lining on the eave to the top storey “to be of minor consequence to the level of fire safety in the Building”, and did not rule that any of it had to be removed. In summary, the Board determined that the EPS panels and ACP installed as external cladding complied with Performance Requirements CP2 and CP4 of the Building Code (BCA – Volume 1 of 2016).  This was subject to the Owners completing any remedial work measures described in the fire engineering report of 29 January 2016 by the project fire engineer. Finally, the hearing also dealt with an application under s160 of the Act by the Owners in regard to the fire hydrant and sprinkler booster assembly, which did not comply with the prescriptive Building Code provisions when the Building Permit was approved.  The Owners were ultimately successful in their application to dispense with the requirement for the booster assembly to be either shielded with fire resisting material or to be not less than 10 m away from the building. This outcome came about because:

• The Owners’ fire engineering consultant successfully argued that the current version of AS2419.1-2017 does not mandate hydrant booster shielding in sprinkler protected buildings.  Clause 7.6.1 (Sprinkler protected buildings) was relevant here, and no performance-based solution was needed; and
• Given the building frame of fire-resisting reinforced concrete construction, with the front elevation cascading back from ground level upwards, the chances of structural collapse were minimised.  So even without fire rated shielding the Board decided that there was enough protection for fire fighters from structural collapse, with the current location of the fire hydrant and booster assembly.

For legal advice and assistance in regard to representation at the Building Appeals Board and construction related regulatory advice, do not hesitate to engage construction law practitioners who are well versed in this area of law.

Lovegrove & Cotton Lawyers to the building industry

For thirty years, Lovegrove & Cotton have represented builders, building surveyors and building practitioners in Melbourne, Canberra, Sydney and Queensland. Justin Cotton is a leading Australian construction lawyer and widely respected in the building fraternity as evidenced by his appointment as Chairperson of the HIA Industrial Relations and Legal Services Committee, and member of the Regional Executive Committee, for HIA Victorian Chapter. Likewise, Doyles Guide ranks Kim Lovegrove as one of the leading construction lawyers in Australia. Lovegrove & Cotton can help practitioners resolve any type of building dispute and are preeminent in the area of building practitioner advocacy. If you wish to engage the firm, feel free to contact us via our website or by emailing enquiries@lclawyers.com.au. For related articles on cladding please see: How to Respond to Cladding Rectification Notices and Orders in Victoria Full Replacement of all EPS Cladding on Apartment Buildings may not be Ordered if Performance Based Solutions are Satisfied Appealing cladding related building notices under the Building Act 1993 (Vic) Cladding safety Victoria funding and demands for cladding regularisation – the interplay This is a Lovegrove and Cotton publication. Disclaimer This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact Lovegrove & Cotton Lawyers and our experienced lawyers will assist you based on the facts and circumstances of your case. Lovegrove & Cotton Cladding Compliance and Regularisation Lawyers For thirty years, Lovegrove & Cotton have provided advice and represented property owners, builders, and building practitioners in cladding regularisation matters. Please see the cladding section page for more information. Please see our page for more information. If you wish to engage the firm, feel free to contact us via our website, by emailing enquiries@lclawyers.com.au, or via phone at (03) 9600 4077.

Adjunct Professor Kim Lovegrove MSE RML FAIB

Continuing on from last week’s lawyer profile of Justin Cotton, this week we profile Adjunct Professor Kim Lovegrove MSE RML FAIB, a dual New Zealand and Australian citizen, who founded Lovegrove & Cotton in its original incarnation Lovegrove Solicitors in 1993. Kim has practised cross jurisdictionally for over 30 years.

He has been heavily involved in building regulatory law reform to date, and continuing, having headed up the National Building Act law reform initiative that became the template for building regulatory law reform in certain Australian jurisdictions such as Victoria in the nineties.

Kim is deployed in high level strategic advice regarding the resolution of complex building disputes such as multi-party litigation and regulatory compliance and probity matters, not limited to cladding and major structural defects disputes.

Kim is an Adjunct Professor at the University of Canberra in the faculty of Design and Arts.

Kim is a Senior International Consultant to the World Bank in which capacity he provides advice on good practice building regulatory ecology and has been deployed in such capacity in a number of offshore jurisdictions. He is the Chair of the International Building Quality Centre (‘IBQC’) and is a past conjoint professor in building regulation and certification.

He is the author of numerous books ranging from Lovegrove on Building Control to Disciplinary Hearings and Advocacy (co-author) to ‘Managment of Micro-economic Reform’ (co-editor and co-author).

Kim has been the beneficiary of Ethiopian Honours for services to Humanity on two occasions bestowed by Prince Ermias Sahle Selassie (the grandson of the late Emperor Haile Selassie) and he was the Ethiopian Honorary Consul to the Australian State of Victoria from 2018 to 2020. The Order of the Star of Ethiopia was established as an order of knighthood of the Ethiopian Empire was established to honour foreign and domestic civilian and military officials and individuals for service to the country.

Kim has also been the President of the New Zealand Institute for Building (North Chapter) and the Australian Institute of Building (Victorian Chapter) and is a past deputy CEO of the Australian Building Codes Board (mid-nineties).

 

By Adjunct Professor, Kim Lovegrove MSE, RML, FAIB, Senior Lawyer, Lovegrove & Cotton – Construction and Planning Lawyers

The International Building Quality Centre (IBQC) had its third virtual board meeting for the year on 24 July 2020 at 8pm AEST. It was a great meeting and the Board was able to report upon the progress of some of the initiatives that are on foot.

The first key initiative that is close to completion is the generation of a ‘power-packed’ five page set of maxims that are considered to be paramount ingredients of international building regulatory good practice. The Board discussed and finalised a couple of concepts that required consensual resolution on the part of all Board members. The instrument will be published within the month through a variety of poignant online mediums.

The Board also resolved that in the 2^nd half of September, the IBQC will hold its first international online forum whereupon a number of board members will address various elements of the good practice maxims. Dominic Sims, Chief Executive of the International Codes Council of the United States of America very kindly volunteered that the ICC will host this inaugural online forum. Once the date and the program is finalised, it will be published and available for perusal.

By Justin Cotton, Director, and Jordan Davies, Senior Paralegal, Lovegrove & Cotton – Construction and Planning Lawyers

Introduction

The Design and Building Practitioners Act 2020 (NSW) has now been enacted in New South Wales. The legislation has made key changes to the regulation of Building and Design practitioners in the state. This is particularly with regards to registration requirements, and by entrenching a duty of care owed by those practitioners to owners and subsequent owners for professional services carried out with respect to a building development.

Some of the provisions of the legislation including many of those pertaining to registration are yet to come into operation, but importantly, the statutory duty of care is, as of 11 June 2020, operative and may be used by consumers of as-built product in proceedings commencing (or that have commenced) after 11 June 2020 for loss that became apparent from up to 10 years ago.

This statutory duty of care, therefore, has profound impacts, particularly in light of its retrospective operation of up to 10 years and the fact that practitioners are unable to contract out of the statutory duty of care.[1]

The Jurisprudential Context: Brookfield

In common law jurisdictions, many relationships between certain parties are said to give rise to a “duty of care”. This phrase is often over-used, particularly in light of the fact that certain elements are needed to be shown to exist prior to there being found a duty owed. These aspects are known as “salient features”, and have proven, in certain high profile cases, as substantial obstacles for plaintiffs seeking compensation even in circumstances where there has been significant damage. A principal obstacle in building-related negligence claims has been the salient feature of “vulnerability” in claims arising in circumstances of what is known as “pure economic loss”.

The decision of Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36 (“Brookfield”) has served for some time now as a substantial hurdle in the face of occupiers of multi-residential apartment blocks in regards to arguing the existence of a duty of care owed by a builder to subsequent owners of multi-residential buildings. Pursuant to the Brookfield decision, a duty of care owed by a builder (and arguably other building practitioners) may be denied where it is shown that there was either:-

• contractual means available for protection (such as Vendor’s warranties and contractual assignment of builder’s warranties), and the claimant was ‘commercially sophisticated’ enough to protect themselves; or
• a statutory consumer protection regime that singled out certain classes of consumers as being in need of protection whilst being silent on other classes of consumers, and the plaintiff belonged to a class not included as needing protection under the regime – essentially the legislative ‘silence’ is taken to be intentional.

The case also reaffirmed that a Court will be loath to impose duties owed by builders to subsequent owners that have a greater scope than duties owed to first owners, who are often developers.

The Brookfield decision, therefore, was a very substantial hurdle for multi-residential building defects negligence claims, as Owners Corporations, particularly in mixed-use developments, are considered sufficiently ‘commercially sophisticated’ to avail themselves of the likes of contractual warranties. It also provided that where certain multi-residential building developments are exempt from building industry consumer protection statutes such as the Domestic Building Contracts Act 1995 (VIC) and Home Building Act 1989 (NSW), the tort of negligence would not come to the fore to make up for that legislative omission.

Design and Building Practitioners Act 2020 (NSW)

Arising partly out of concerns for the ramifications of the Brookfield decision, the New South Wales government has now passed new statutory provisions entrenching a duty of care like the one denied in Brookfield in the Design and Building Practitioners Act 2020 (NSW)^[2]. Some similar components of the DBP Act regarding signing off on compliance exist in Queensland under the Queensland Building and Construction Commission Act 1991 (QLD)^[3].

In the New South Wales legislation, legislators have seen fit to impose a duty specifically for persons “who [carry] out construction work” as regards pure economic loss, and this duty extends to builders, designers, building product suppliers or anyone “having substantive control over the carrying out” of such work.^[4] Importantly the relevant Section provides that “A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law”.^[5] The provision expressly circumvents the hurdles in Brookfield in regards to the availability of contractual protection and the existence of a statutory consumer protection regime militating against the existence of a duty.

The provision giving rise to this statutory duty of care is contained in Section 37 of the Design and Building Practitioners Act 2020, and reads verbatim as follows:-

Extension of duty of care

(1)  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.

(2)  The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land.

(3)  A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law.

(4)  The duty of care is owed to an owner whether or not the construction work was carried out—

(a)  under a contract or other arrangement entered into with the owner or another person, or

(b)  otherwise than under a contract or arrangement.

It follows therefore that the duty is quite expansive particularly given that it dispenses with the common law position that a builder does not necessarily owe subsequent owners a duty of care to avoid economic loss.

The provision leaves issues of breach and causation, pursuant to subsection (3), to be decided by way of established common law as altered by the Civil Liability Act 2002 (NSW) – i.e. what has been now the established test for breach and causation for negligence claims in NSW for well over a decade.

A Large Net of Practitioners and Actors Subject to the Duty

Importantly, pursuant to Section 36, “construction work” is defined 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 paragraph (a), (b) or (c).

This means there is a very broad net of actors that are captured by the provisions and owe a duty of care to owners and subsequent owners. This includes: builders, engineers, designers, architects, project managers and even manufacturers and suppliers of product for building work, or like actors having “substantive control”.

Owners Corporations

Owners Corporations for commercial components of multi-residential buildings have been viewed by Courts as commercially sophisticated which has proven to be a hurdle in establishing duties of care owed by builders and other building practitioners. In light of the promulgation of this statutory duty of care, Owners Corporations no longer face this substantial hurdle.

This important extension of the duty of care arises by virtue of Section 38 of the Act, which states that “an owners corporation or an association is taken to suffer economic loss for the purposes of this Part if the corporation or association bears the cost of rectifying defects (including damage caused by defects) that are the subject of a breach of the duty of care imposed under this Part.”

This means many Owners Corporations who were previously advised they were barred from attaining compensation under negligence for pure economic loss, may no longer be under the new statutory regime for claims in negligence against builders and other practitioners, against whom they had no contractual warranties nor statutory protections [such as statutory warranties under the Home Building Act], for loss or building defects that have appeared within the 10 years preceding 11 June 2020.

Economic loss under the provision includes economic loss for damage caused as a consequence of defects and loss associated with the provision of alternative accommodation for the likes of occupiers, but importantly is not limited to these kinds of economic loss.[8]

Building Actors and the Retrospective Application of the Duty of Care in New South Wales

The provisions will alter the risk profile of carrying out professional services in relation to building work in New South Wales. This is particularly the case in light of the retrospective application of the statutory duty of care and the inability for those subject to the duty to contract out of it.[9] The duty of care adds to existing duties, statutory warranties and other obligations under the likes of the Home Building Act and the common law.[10] It means actors involved in building projects in New South Wales will need to reassess the risk profile of their work.

Considerations for Building Practitioners Going Forward

A Non-Delegable Duty of Care

A crucial consideration for those subject to the new duty of care is found in Section 39 of the Act, namely that the duty of care is non-delegable. This means that principal contractors will be unable to delegate the duty of care to their subcontractors if they engage them for certain components of building or design work or the supply and manufacture of building products.

Concerns have therefore been raised regarding this inability to delegate the duty of care to subcontractors as it may leave principal contractors effectively vicariously liable for the subcontractors they engage on projects.^[11] This will have clear financial risk impacts upon principal contractors going forward.

It will thus behove principal contractors to ensure they adequately contractually protect themselves to account for the risks they will now assume with subcontractors. Prudence will dictate that in doing so, those carrying out building work, design work, or the supply or manufacture of building products, and those who have “substantive control over” such work, as a principal contractor, should consult an expert construction lawyer. The objective will be to fashion contractual provisions within their subcontract agreements to indemnify them for liability under the new provisions, in the event of want of care on the part of subcontractors.

Insurance Ramifications

Building practitioners affected by the new duty of care will need to turn their minds to ramifications for their insurance arrangements, particularly their professional indemnity cover, as it has been projected by some that there will be an increase in litigation as an eventual result of the new enactment.^[12]

Conclusion

The new statutory duty of care enshrined under the Design and Building Practitioners Act 2020 (NSW) therefore has a significant impact upon the building industry in New South Wales. The duty extends to owners and Owners Corporations and removes certain common law hurdles in negligence claims for pure economic loss. The provisions will alter the liability paradigm for building practitioners and other non-registered actors that provide services in the New South Wales building industry.

Owners and Owners Corporations in certain cases will now have an alternative statutory cause of action to argue in building defect matters.

Professionals involved in the provision of services in relation to building and design and the supply and manufacture of materials will need to consider the risk impacts involved with this new duty of care.

Regardless of whether one is an owner or a building professional, it will be prudent for one to consult with an expert construction lawyer to ensure you are appropriately apprised of your rights and obligations under the new law.

Footnotes:-

[1] See Design and Building Practitioners Act 2020 (NSW), s 40.

[2] s 37.

[3] s 74AF.

[4] Design and Building Practitioners Act 2020 (NSW), s 37(1).

[5] Ibid, s 37(3).

[8] See Design and Building Practitioners Act 2020 (NSW), s 38(4).

[9] Design and Building Practitioners Act 2020 (NSW), s 40.

[10] Design and Building Practitioners Act 2020 (NSW), s 41.

[11] Design and Building Practitioners Act 2020 (NSW), s 39; Aiden Davey, Fighting chaos with chaos: an analysis of the Design and Building Practitioners Bill 2019 (NSW) — (2020) 31(4) ACLB 49; Michael Bleby, ‘NSW opens door to thousands of defect claims’, AFR, June 15, 2020.

[12] See Michael Bleby, ‘NSW opens door to thousands of defect claims’, AFR, June 15, 2020.

Disclaimer

This article is not legal advice rather it is a discussion of the topic in only general terms.

By Justin Cotton, Director, and Jordan Davies, Senior Paralegal, Lovegrove & Cotton – Construction and Planning Lawyers

Introduction

The Design and Building Practitioners Act 2020 (NSW) has now been enacted in New South Wales. The legislation has made key changes to the regulation of Building and Design practitioners in the state. This is particularly with regards to registration requirements, and by entrenching a duty of care owed by those practitioners to owners and subsequent owners for professional services carried out with respect to a building development.

Some of the provisions of the legislation including many of those pertaining to registration are yet to come into operation, but importantly, the statutory duty of care is, as of 11 June 2020, operative and may be used by consumers of as-built product in proceedings commencing (or that have commenced) after 11 June 2020 for loss that became apparent from up to 10 years ago.

This statutory duty of care, therefore, has profound impacts, particularly in light of its retrospective operation of up to 10 years and the fact that practitioners are unable to contract out of the statutory duty of care.[1] It has significant impacts for aggrieved owners, particularly those who have purchased units in multi-residential buildings.

The Jurisprudential Context: Brookfield

In common law jurisdictions, many relationships between certain parties are said to give rise to a “duty of care”. This phrase is often over-used, particularly in light of the fact that certain elements are needed to be shown to exist prior to there being found a duty owed. These aspects are known as “salient features”, and have proven, in certain high profile cases, as substantial obstacles for plaintiffs seeking compensation even in circumstances where there has been significant damage. A principal obstacle in building-related negligence claims has been the salient feature of “vulnerability” in claims arising in circumstances of what is known as “pure economic loss”.

The decision of Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36 (“Brookfield”) has served for some time now as a substantial hurdle in the face of occupiers of multi-purpose multi-residential apartment blocks in regards to arguing the existence of a duty of care owed by a builder to subsequent owners of multi-residential buildings. Pursuant to the Brookfield decision, a duty of care owed by a builder (and arguably other building practitioners) may be denied where it is shown that there was either:-

• contractual means available for protection (such as Vendor’s warranties and contractual assignment of builder’s warranties), and the claimant was ‘commercially sophisticated’ enough to protect themselves; or
• a statutory consumer protection regime that singled out certain classes of consumers as being in need of protection whilst being silent on other classes of consumers, and the plaintiff belonged to a class not included as needing protection under the regime – essentially the legislative ‘silence’ is taken to be intentional.

The case also reaffirmed that a Court will be loath to impose duties owed by builders to subsequent owners that have a greater scope than duties owed to first owners, who are often developers.

The Brookfield decision, therefore, was considered a very substantial hurdle for multi-residential building defects negligence claims, as Owners Corporations, particularly in mixed-use developments, are considered sufficiently ‘commercially sophisticated’ to avail themselves of the likes of contractual warranties. It was also noteworthy that certain components of multi-residential building developments are exempt from building industry consumer protection statutes such as the Domestic Building Contracts Act 1995 (VIC) and Home Building Act 1989 (NSW).

Design and Building Practitioners Act 2020 (NSW)

Arising partly out of concerns for the ramifications of the Brookfield decision, the New South Wales government has now passed new statutory provisions entrenching a duty of care like the one denied in Brookfield in the Design and Building Practitioners Act 2020 (NSW)^[2].

In the New South Wales legislation, legislators have seen fit to impose a duty specifically for persons “who [carry] out construction work” as regards pure economic loss, and this duty extends to builders, designers, building product suppliers or anyone “having substantive control over the carrying out” of such work.^[4] Importantly the relevant Section provides that “A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law”.^[5] The provision expressly circumvents the hurdles in Brookfield in regards to the availability of contractual protection and the existence of a statutory consumer protection regime militating against the existence of a duty.

The provision giving rise to this statutory duty of care is contained in Section 37 of the Design and Building Practitioners Act 2020, and reads verbatim as follows:-

Extension of duty of care

(1)  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.

(2)  The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land.

(3)  A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law.

(4)  The duty of care is owed to an owner whether or not the construction work was carried out—

(a)  under a contract or other arrangement entered into with the owner or another person, or

(b)  otherwise than under a contract or arrangement.

It follows therefore that the duty is quite expansive particularly given that it dispenses with the common law position that a builder does not necessarily owe subsequent owners a duty of care to avoid economic loss.

The provision leaves issues of breach and causation, pursuant to subsection (3), to be decided by way of established common law as altered by the Civil Liability Act 2002 (NSW) – i.e. what has been now the established test for breach and causation for negligence claims in NSW for well over a decade.

A Large Net of Practitioners and Actors Subject to the Duty

Importantly, pursuant to Section 36, “construction work” is defined 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 paragraph (a), (b) or (c).

This means there is a very broad net of actors that are captured by the provisions and owe a duty of care to owners and subsequent owners. This includes: builders, engineers, designers, architects, project managers and even manufacturers and suppliers of product for building work, or any actor having “substantive control”.

Naturally, broad definitions will need to be tested in Court systems before it is known precisely what actors possess “substantive control” over building work, design work and product manufacture and supply work.

A Potentially Expanded Suite of Claimable Defects

The types of defects captured by the provision are very broad by virtue of Section 37 (1)(a) and (b) in that they are not confined to the likes of structural defects.

This means that unlike the statutory warranty regime in Part 2C of the Home Building Act 1989 (NSW), there is no distinction between “major” building defects and “other” building defects and “major elements” of buildings.[6] The distinction in the Home Building Act had previously left some claims for non-structural defects and defects concerning non-load bearing elements of buildings vulnerable particularly in light of the Brookfield decision.

It follows that certain defects that were formerly subject to short 2-year statutory limitation periods,[7] which often barred claims under the statutory warranties, may now be able to be claimed under the new statutory duty of care which has a much longer limitation period.

Owners Corporations

Owners Corporations have traditionally been viewed by Courts as commercially sophisticated which has proven to be a hurdle in establishing duties of care owed by builders and other building practitioners. Now, Owners Corporations suffering damage by way of defects to common property have had this substantial obstacle cleared.

This important extension of the duty of care arises by virtue of Section 38 of the Act, which states that “an owners corporation or an association is taken to suffer economic loss for the purposes of this Part if the corporation or association bears the cost of rectifying defects (including damage caused by defects) that are the subject of a breach of the duty of care imposed under this Part.”

This means many Owners Corporations who were previously advised they were barred from attaining compensation under negligence for pure economic loss, may now commence proceedings under the new statutory regime for claims in negligence against builders and other practitioners, against whom they had no contractual warranties nor statutory protections [such as statutory warranties under the Home Building Act], for loss or building defects that have appeared within the 10 years preceding 11 June 2020.

Economic loss under the provision includes economic loss for damage caused as a consequence of defects and loss associated with the provision of alternative accommodation for the likes of occupiers, but importantly is not limited to these kinds of economic loss.[8]

This legislation, therefore, is very beneficial for New South Wales Owners Corporations seeking redress for defects that have arisen due to want of care on the part of either builders, engineers, designers, architects, project managers and even manufacturers and suppliers of product for building work, or any actor having “substantive control” over such work.

It may be prudent for Owners Corporations who may have previously considered taking action, and had not proceeded due to the legal impediments outlined in Brookfield, to consider consulting an expert construction lawyer and potentially reconsider taking action in light of these new changes. For owners and Owners Corporations making future claims, the new duty of care will serve as a strong alternative argument for claims in contract or under statutory warranties.

Building Actors and a New Risk Profile in New South Wales

On the other side, the provisions profoundly alter the risk profile of carrying out professional services in relation to building work in New South Wales. This is particularly the case in light of the retrospective application of the statutory duty of care and the inability for those subject to the duty to contract out of it.[9] The duty of care adds to existing duties, statutory warranties and other obligations under the likes of the Home Building Act and the common law.[10] It means actors involved in building projects in New South Wales will need to reassess the risk profile of their work.

Considerations for Building Practitioners Going Forward

A Non-Delegable Duty of Care

A crucial consideration for those subject to the new duty of care is found in Section 39 of the Act, namely that the duty of care is non-delegable. This means that principal contractors will be unable to delegate the duty of care to their subcontractors if they engage them for certain components of building or design work or the supply and manufacture of building products.

Concerns have therefore been raised regarding this inability to delegate the duty of care to subcontractors as it may leave principal contractors effectively vicariously liable for the subcontractors they engage on projects.^[11] This will have clear financial risk impacts upon principal contractors going forward.

It will thus behove principal contractors to ensure they adequately contractually protect themselves to account for the risks they will now assume with subcontractors. Prudence will dictate that in doing so, those carrying out building work, design work, or the supply or manufacture of building products, and those who have “substantive control over” such work, as a principal contractor, should consult an expert construction lawyer. The objective will be to fashion contractual provisions within their subcontract agreements to indemnify them for liability under the new provisions, in the event of want of care on the part of subcontractors.

Insurance Ramifications

Building practitioners affected by the new duty of care will need to turn their minds to ramifications for their insurance arrangements, particularly their professional indemnity cover, as it is projected that there will be an increase in litigation as an eventual result of the new enactment.^[12] This may have quite a taxing impact on the industry in light of other external factors including diminished insurability and the current economic slowdown.

Conclusion

The new statutory duty of care enshrined under the Design and Building Practitioners Act 2020 (NSW) therefore has a profound impact upon the building industry in New South Wales. Whilst the duty benefits owners and Owners Corporations by removing what have been viewed as undesirable common law hurdles in negligence claims for pure economic loss, they also radically shift the risk paradigm for building practitioners and other non-registered actors that provide services in the New South Wales building industry.

Owners and Owners Corporations who have previously been advised that a claim for negligence would not succeed may wish to check if there may now be a successful claim made in light of the coming into effect of these provisions.

Professionals involved in the provision of services in relation to building and design and the supply and manufacture of materials will need to consider the risk impacts involved with this new duty of care and will need to ensure they adequately protect themselves.

Regardless of whether one is an owner or a building professional, it will be prudent for one to consult with an expert construction lawyer to ensure you are appropriately apprised of your rights and obligations under the new law.

Footnotes:-

[1] See Design and Building Practitioners Act 2020 (NSW), s 40.

[2] s 37.

[3] s 74AF.

[4] Design and Building Practitioners Act 2020 (NSW), s 37(1).

[5] Ibid, s 37(3).

[6] See: Home Building Act 1989 (NSW), s 18E.

[7] See ibid.

[8] See Design and Building Practitioners Act 2020 (NSW), s 38(4).

[9] Design and Building Practitioners Act 2020 (NSW), s 40.

[10] Design and Building Practitioners Act 2020 (NSW), s 41.

[11] Design and Building Practitioners Act 2020 (NSW), s 39; Aiden Davey, Fighting chaos with chaos: an analysis of the Design and Building Practitioners Bill 2019 (NSW) — (2020) 31(4) ACLB 49; Michael Bleby, ‘NSW opens door to thousands of defect claims’, AFR, June 15, 2020.

[12] See Michael Bleby, ‘NSW opens door to thousands of defect claims’, AFR, June 15, 2020.