Articles

Nearly thirty years ago, the National Model Building Act (‘NMBA’) was used as a law reform template in a number of Australian jurisdictions.  It was the catalyst for some profound paradigm shifts that upended traditional approaches to liability apportionment and the building permit delivery system.

Considered by some to be deregulatory, the writer is intent on mounting a case in this paper that they were the antithesis of same. This author will contend that the reforms were the pre-emptors of an increase in both regulation as the reforms created new statutory institutions and systems that were very ambitious in their reach.

The writer headed up the team that developed the NMBA, the project was commissioned by the Australian Uniform Coordinating Council, the predecessor of the ABCB in the early nineties and was subsequently engaged by the Victorian Government as Assistant Director of Building Control and instructing officer to parliamentary counsel to evolve the NMBA into the Building Act 1993 (Vic). It follows that he was intimately aufait with this particular journey.

What were the most far reaching reforms?

They are well expressed in a summary articulated by Doctor Anthony Lavers in a paper that he provided to the Pacific Rim Real Estate conference in Melbourne 2000. Doctor Lavers was at the time working at Oxford Brookes University Oxford. That which makes his observations particularly useful was a combination of his being an international expert on post construction defects liability and the fact that he analysed the reforms through totally impartial and geographically far-removed lenses. (As an aside Doctor Lavers arranged for the writer to address the English Forum for Construction Law Reform chaired by Sir Tony Baldry MP at a venue in the the House of Commons on the nature and impact of the NMBA reforms in the late nineties).

“The Australian reforms undoubtedly presents the best examples of system reform in a common law country. Nothing so radical and so holistic has ever been undertaken in a major jurisdiction as the legislative reforms in the Sates of Victoria and NSW, now being followed to different extents in other Australian states. At least 5 principal benefits can be identified even from this authors outline knowledge of the legislation liability/litigation based systems which the Australian States previously shared with the UK.

The ten year of liability could be regarded by producers as worst than the Limitation of Actions Act six year period. However there is much solace in having a definitive start date and end to the period of risk exposure of the producer and this certainty may be seen as fair exchange for the additional four years. From the point of view of consumers, the extension is very welcome; the evidence before the Australian Uniform Regulations Coordinating Council ( Lovegrove 191) was that this would increase the percentage of post- construction defects detected from some 80% (within 6 years of error) to some 98% (within 10 years of error).

Proportionate  liability. The doctrine of joint and several liability is deeply embedded in the common law and it has caused difficulties in the U.K. reform (see below). The  Victorian and NSW legislature have cut through the problem by enacting proportionate liability; so that the respective parties to the project only bear a maximum of financial liability based on their contribution to the work. In the UK the objection has been two fold; that this allocation of percentages is arbitrary or even impossible and that leaves clients/plaintiffs less protected than before. The answers which can be made to these objections are that the courts ultimately allocate percentages of responsibility in contributory negligence cases and that the notional reduction of protection  can be compensated for though greater certainty of recovery, including insurance protection.

Mandatory insurance . One of the most interesting innovations has been to require all building practitioners to carry compulsory insurance cover. Mandatory insurance sometimes has negative consequences for practitioners. This author conducted sample attitude studies in Singapore and in Malaysia in 1996 and found resistance to the idea of compulsion. The UK Latham reforms have been partly stalled on this point.

Registration of building practitioners. To make possible the enforcement of mandatory insurance, all practitioners have to be registered. While many countries have long required architects and engineers to be registered, extending this to contractors is common. Contractor registration does exist in some states in the US and also in Singapore, although the Australian States have gone further than the latter, where little use is actually made of the registration system. The idea of contractors being insured against post construction defects would be novel in most, although not all systems.”

It is worthy of mention that Dr Lavers addressed this international conference in 2000 and by that time, the dust had settled as many jurisdictions had introduced the NMBA reforms. It is also interesting that he did not venture into the private certification discussion and there is some irony here, as the NMBA has by many been defined by this particular microeconomic reform, rather than as Dr Lavers puts it, they were a set of reforms that were the ‘best example of systems reforms in a common law country’.

Note also his use of the word ‘holistic’. The use of this word is reassuring to the writer because the reform maxims were indeed designed to be holistic, akin to a jig saw puzzle, an unfinished work until every piece of the puzzle is incorporated to get the full picture.

As stated at the outset, the NMBA was the catalyst for a number of far reaching reforms that were adopted in reforming jurisdictions; not the least of which being:-

• 10 year liability capping;
• A clear trigger date for the initiation and sunsetting of liability periods;
• Proportionate  liability;
• Mandatory practitioner licencing and registration;
• A privatised option for the issue of building permits; and
• A centralised, aggregated and top down approach to building control administration.

What was the  law reform process?

The project took one year with three lawyers working on the project whilst managing  their construction law file loads.

Within that period of time 5 books were written and published, some 25,000  were distributed nationally to stakeholders.  There were numerous interstate consultation conferences, very well attended which gave stakeholders the ability to have input into the shaping of the law reform narrative.

5 books were published-:

• Comparative Analyses of Building Acts;
• Dispute Resolution Systems and Options;
• Legislative Aims and Options;
• Constitutional Options for Uniform Law; and
• The Model Building Act with Commentary.

The NMBA drafting process

The NMBA was as its name suggests, a national model act, it had to be drafted and sanctioned by the National Chief Parliamentary Counsels Committee. Said committee comprises the Chief PCs from the nine Australian governments.

To secure their engagement the writer had to write to, and obtain the sanction of the nine responsible ministers for building and once this was forthcoming the nine Attorneys General; all of which was forthcoming. Easy to make mention of as a footnote in history,  but the sanction was never a foregone conclusion as it was an ‘all for one and one for all scenario’ that relied upon the approval of 18 different ministers.

If any single minister had vetoed the sanction the CPC could not have been deployed. It was a red letter day when the final Ministerial confirmation came through, for this facilitated the approval of the CPCC to begin its work. The CPCC then chose from within its ranks the NSW Parliamentary Counsel`s office to draft the NMBA under stewardship of CPC the venerable Dennis Murphy QC.

It was an extraordinary example of cooperative federalism and the writer very much doubts whether such spirit d`accord would be possible today, for if anything state and territory sovereign assertion of rights are now considerably more fortified than was the case in the early nineties.

In terms of cooperative federalism, the early nineties was the Camelot time in large part due to the stewardship of the consummately politically inclusive skills of the late Bob Hawke abetted by his federalist law reform vehicle the Special Premiers Conference (the predecessor of the COAG).

The key reforms and their rationale

The writer as head of the team was given a blank canvass to develop a model piece of legislation from scratch, hence the appropriateness of the metaphor  blank canvass. It was considered that instead of bringing in amending legislation a fresh canvass was in order.

We were also instructed to carry out international best practice analyses. The writer will now more comprehensively explain the rationale that underpinned the most seminal reforms and their impact although they have been loquaciously summarised by Dr Lavers.

10 year liability capping and infinity plus six

One of the banes of the eighties litigant was much confusion concerning the commencement date for limitation periods for the initiation of legal proceedings. There were two conflicting lines of case law authority on point:-

• The from when the damage occurred test; and
• The from when the damage is discernable test.

Adversaries were compelled to wrestle with these notions to determine when the start date for the initiation of legal proceedings crystallised. The term infinity plus six was aptly coined.

We pondered how do we cure this vexed jurisprudential  challenge only to  find the answer in the French Napoleonic Code construct liabilitie decenniale ie 10 year liability. There was an attraction to the 10 years from a consumer protection point of view because our research revealed that by year 10, initiation of legal proceedings was very rare because the overwhelming majority of defects had, had plenty of time to present their manifestation.

However, the idea of a 10 year liability cap was all very well, but no cure-all, the deftness would be in removing any doubt as to when the limitation period would start to run. We thus came up with the idea that the trigger should be the date upon which an occupancy permit was issued by the statutorily appointed building surveyor. Thus with the stroke of a parliamentary counsel pen, contentious arguments and evidence being brought to bear to determine when the limitation period would commence were expunged.

Proportionate liability

Prior to the promulgation of Acts of Parliament such as the Victorian and Northern Territory (‘NT’) Building Acts the prevailing legal doctrine for attaching liability was joint and several liability.

Joint and several liability explained

In multi-party proceedings where a number of actors are joined in legal proceedings, when a case proceeds to judgement, if one or more of the defendants becomes insolvent, the solvent defendants assume the liability of impecunious co-defendants.

Hence the terms:-

• Deep pocket syndrome; and
• And the euphemism insurer of last resort.

The caption deep pocket syndrome was coined for municipal authorities by virtue of their inviolate ability to fund a liability courtesy of rate payer patronage and legally mandated largess.

Deep pockets generally referred to the insured defendant.

The reform team picked up universal local government disconcertment with respect to the way the JSL doctrine, in a sense victimised, local government with respect to what was perceived by this sector as being a misplaced somewhat avaricious and unfair attraction to said statutory authorities.

It was resolved that the doctrine needed to be replaced with a more equitable doctrine and proportionate liability was deemed to fit the bill. This doctrine provides that liability is apportioned to those responsible and the liability does not involve the assumption of liability of others.

It was however recognised that the adoption of proportionate liability could leave the consumer plaintiffs exposed in circumstances where the aggregation of the apportioned liability of the responsible actors felt short in a quantum sense of 100 per cent.

Compulsory Insurance

In recognition of the fact that proportionate liability could result in scenarios where there was an aforesaid consumer shortfall, we recognised that there needed to be a holistic approach to consumer protection. It was thus resolved that a mandatory registration regime should be introduced where:-

• Key actors would be registered; and
• Insured.

A compulsory registration and licencing regime for key actors

The NMBA was the pre-curser to the establishment of a government controlled and funded licensing regime, key elements of which being:-

• The registration of engineers in the appropriate categories, for the first time ever draftspersons, building surveyors, building inspectors, commercial and residential builders and quantity surveyors;
• A mandatory and bespoke qualification and experience registration criteria;
• The subordination of the building practitioners to a disciplinary and oversight regime; and
• The carriage of compulsory insurance for all registered building practitioners.

The introduction of private certification for the issue of building permits

The NMBA established the regulatory platform for a privatised approach to the issue of building permits, the net effect of which was:-

• The consumer could choose to engage either a private building surveyor or a municipal building surveyor to
• Issue the building permit;
• Carry out mandatory inspections; and
• Issue an occupancy permit.

The primary rationale for the introduction of the privatised alternative was to improve the building permit building delivery time without compromising sound as built outcomes.

The impact of the NMBA in terms of legislative influence

Victoria and the NT replaced their predecessor building regulations with NMBA key reform pillars. Both jurisdictions introduced all of the above i.e.:-

• 10 year liability capping;
• Building practitioner boards for the registration of key actors;
• Compulsory insurance;
• Proportionate liability;
• Private certification; and
• A top down centralised building control administration (which in the case of Victoria was the Building Control Commission the forerunner to the VBA).

Other jurisdictions ‘cherry picked’ if you will. Case on point was NSW where in the late nineties the writer was engaged by the NSW government to advise on the development of the Part 4 reforms to the Environmental Planning and Assessment Act 1979 (NSW).

The EPAA introduced:-

• Private certification (albeit with the title accredited certifier rather than building surveyor which is used in Victoria);
• 10 year liability capping as a back stop limitation cap;
• Proportionate liability; and
• A building practitioners board.

Some reforms were not adopted:-

• Government control and oversight of building registration;
• Mandatory registration of all key actors; and
• Compulsory insurance of the above.

The government resolved to establish the BSAP ie Building Surveyors and Allied Professions scheme, a private sector body whose exclusive remit was to register certifiers. The BSAP concluded its tenure a couple of years after and its jurisdiction was migrated to a government controlled building practitioners board. The BSAP lacked the resource and ‘enforcement infrastructure’ to see through and give life to some of is mandates.

Further the government  of the day resolved not to introduced a ‘broad church’ registration scheme, instead registration was limited to one class of practitioner – accredited certifiers. A broader registration regime has only recently been introduced in NSW but this has no nexus with the NMBA as the NMBA was published in 1992, nigh on 30 years before NSW ventured into this paradigm.

One of the consequences of the late nineties reforms was that proportionate liability was not introduced with the safety net of a mandatory insurance regime for key actors. The only actors that were required to be insured were residential builders and accredited certifiers. Using the jig saw puzzle analogy a couple of key pieces of the picture were left out of the puzzle.

Have the key pillar reforms been sustainable?

The model building act inspired proportionate liability reforms such as the original section 131 of the Building Act 1993 (Vic) (which has now been repealed and replaced with a more universal proportionate liability regime) were the first proportionate liability reforms introduced to the antipodes. Since then the doctrine has been adopted in many other non – construction related settings. New Zealand (‘NZ’) examined the merits of introducing proportionate liability some years back, but chose not to, possibly because the JSL tradition was so entrenched that it had evolved into an insurmountable inertia of sorts.

The French inspired 10 year liability capping regime appears to be set in stone, there has been no controversy in light of its clear law suit limitation periods where the ability to issue legal proceedings for economic loss is ‘guillotined’ 10 years after the issue of the occupancy permit

Government Controlled centralised building practitioner registration is very much central casting in Victoria and the NT and when NZ overhauled its Building Act it pretty much adopted the Victorian model ‘hollis bollis’. Victoria now registers well in excess of 25,000 building practitioners.

Private certification in a variety of manifestations was introduced in the early nineties. Victoria, NSW, Queensland and the NT followed the NMBA template most closely. The NT introduced a substantially privatised alternative but the Crown chose to retain the power to issue occupancy permits.

It is fair to say that private certification has proved to be the most controversial aspect of the reforms for a whole variety of reasons but the venturing into this discussion is not the remit of this paper. The system has survived but its status in some jurisdictions is dynamic.

In one form or another it is likely to remain as it has become part of the fabric of the building control system in Australia. Further local government is unlikely to have the critical mass of building officials to resource what is now a very large building industry. This municipal ‘boots on’ the ground human resource achilles heel was recognised in Japan in the mid-nineties.

Paradoxically the Japanese established private certification not to improve building approval turnaround time, but to generate a critical mass of codes compliance officials in order to adequately resource the inspection demands.

It did not however survive in NZ when in 2008 the insurers chose not to underwrite the profession any longer, early third millennium and the system is under considerable stress in the UK.

Mandatory insurance for key actors has proved to be very sustainable and there is little to suggest that the status quo will change. There have however been challenges for instance when the Model Building Act reforms were introduced in the early nineties, they coincided with the introduction of long tail run – off cover. Once a building practitioner retired the run off cover crystallised and the retiree was indemnified ten years hence. Close to the end of the last millennium the insurance industry impressed upon the governments that such cover was not sustainable in light of the massive assumption of risk and unviability of such a long term indemnity. The governments amended their ministerial gazettes and annual claims made pi cover with no runoff became the new normal.

Interestingly the writer understands that one jurisdiction is looking at the viability of introducing long tail cover somewhat akin to the French system that inspired nineties style insurance pi cover.  It is submitted that this should be approached with some caution if not trepidation and the lessons of the past are instructive for the following reasons:-

• Long tail cover existed for much of the nineties in Australia;
• It was one of the NMBA core elements and a key cog in the holistic jig saw puzzle;
• It was indeed utilitarian as it provided long tail indemnification for practitioners when they retired. Hence the writer often referred to it as utopian or Camelot cover;
• But it is a matter of fact and record that it did not survive, such was the cost of underwriting long tail risk that the insurers pulled out;
• For those that contend that the French have managed to develop a sustainable long tail cover, I say correct and moreover I refer to the French system as being international best practice on point in offshore law reform deployments;
• But the French system is profoundly different in so many key respects to that of the offerings in any Australian Act of parliament, that the regulatory infrastructure that would be required to duplicate the system here would be such that there would need to be very major regulatory reengineering;
• That is assuming that there is an appetite on the part of the northern hemisphere underwriters and reinsurers  to come on board. There is little point in promulgating a utopian form of cover if insurers either decline to underwriter it or having chosen to underwrite the risk subsequently vacate the market; and
• The latter is a worst case but not unlikely scenario and for fear of labouring the point, the experience of the nineties is most instructive if not sobering in this regard.

Elements of the NMBA that still have relevance for international good practice

In 2019, 2020 and 2021 the World Bank retained the writer as a senior law reform advisor to advise 4 Chinese Governments Beijing, Shanghai, Changzhou and Chongqing on that which is considered to be international best practice building regulation. In 2021 the writer was retained  to review and provide recommendations on the first ever Malawian Building Act.  Further the Japanese government retained the writer to participate in a law reform think tank in 1997 and 20011 to advise on ways by which their building regulations could be improved.

Key NMBA derivatives and elements that underpin any of the writers` recommendations in off shore law reform deployments to date and continuing that in the writer`s view sit comfortably with international good practice are:-

• Proportionate liability wedded to compulsory insurance;
• 10 year liability capping;
• A centralised and single peak body responsible for the central administration of building control;
• Mandatory, government controlled broad church registration; and
• In terms of private certification the Japanese system is the exemplar, for even though it was based on the Victorian system it introduced an annual mandatory auditing regime for all building surveyors. This has not been emulated in any Australian jurisdiction, yes there is auditing but it is not an annual mandatory event for building officials.

The writer does not commend private certification as a form of building permit delivery in emerging economies as they tend to lack the institutional frameworks that are critical to the viability and sustainability of private certification.

Take outs and conclusions

The frequently rolled out contention that the reforms were ‘deregulationary’ is perplexing as there is a pretty good argument that the converse was the case. The NMBA based jurisdictions promulgated regulations that created new institutions such as the Building Practitioners Board that had massive reach and the then Building Control Commission (which in its new incarnation is the VBA).

There is nothing ‘deregulationary’ about a government introducing a regime that compels 25,000 key building practitioners to be:-

• Registered;
• Qualified;
• Insured; and
• Subordinated to a disciplinary system that can reprimand, fine, suspend or cancel ones` registration.

Classic free marketeers regard government controlled licensing to be an affrontery as they prefer the market and the stakeholder bodies to regulate their own without the spectre of any big brother in the background.

The establishment of an investigating and auditing regime is not ‘deregulationary’ nor is the necessity of insurability and the carrying of insurance.

It is more accurate to be dispassionately clinical about the viability of the ‘deregulationary’ descriptor. The establishment of a  privatised alternative to building permit delivery is better described as ‘different regulation’ or regulation that is ‘paradigm shift regulation’ in that it freed up a system.  To say that it was deregulation this author contends is a tad flippant. The NMBA based building acts did in fact introduce more regulation that was bespoke to building officialdom in that building inspectors and building surveyors had to be:-

• Registered;
• Qualified;
• Experienced;
• Insured;
• Come within the jurisdiction of a government controlled oversight body; and
• Subject to audit (albeit not mandatory).

And with all of this came new Parts and divisions of building acts.  The question of whether all of the forays were ‘right regulation’ is another question. The writer with benefit of hindsight having looked at the results of the laboratory of time is of the view that in large part the answer is affirmative. But there are many and varied views to that, but that is the poignant question and many would consider it to be a very vexed question. The answer very much depends upon stakeholder point of view. Consumers and industry are likely to have a different perspectives and even within the consumer fraternity there may well be different points of view.

Notwithstanding the writer reiterates that in all of his off shore law reform advisory deployments the Australian reforms are central to the law reform recommendations that he promotes off shore and Japan, NZ and even some of the Caribbean countries have been significantly influenced by said reforms.

The writer concludes by stating that there was much more to the Model Building Act than the introduction of a privatised building approval alternative. On this the writer will round the paper off  with once again quoting Dr Anthony Lavers.

“The Australian reforms undoubtedly presents the best examples of system reform in a common law country. Nothing so radical and so holistic has ever been undertaken in a major jurisdiction as the legislative reforms in the Sates of Victoria and NSW”.

 

By Professor Kim Lovegrove MSE RML, Senior Lawyer, Lovegrove & Cotton – Construction & Planning Lawyers is a construction of 35 years standing and has been deployed as a high-level building law expert to advise on best practice building regulation in Japan, other Asia Pacific countries such as China, and Africa. He has had carriage of projects such as the National Model Building Act in Australia where he has been heavily involved in the design of building legislation from ground up. He has also presided as a chair of a state jurisdiction that oversaw licencing, registration and probity controls. Kim has been a senior law reform consultant to the World Bank for a number of years and is the Chairman of the International Building Quality Centre and has received honours for humanitarian services to Ethiopia and is a past Ethiopian Honorary Consul to Victoria.

The views expressed in this paper are his own personal views.