The Model Building Act in Australia – The Regulatory Template that Overhauled Liability Regimes Not Limited to Joint and Several Liability in the Early 1990s
AUBRCC – the Catalyst
In 1990 the Australian Uniform Building Regulatory Co-ordinating Council (AUBRCC) commissioned a consultancy to generate a National Model Building Act. This model template was designed to be a model piece of legislation that could be called up by the eight states and territories to facilitate best practice building regulation and uniform or harmonised building regulation. In the words of Doctor Anthony Lavers, a British international construction law expert, “Nothing so radical and so holistic in concept has ever been undertaken in a major jurisdiction…”(taken from paper “Protection of Real Estate Developers and Users Against Economic Loss Arising from Defects in Construction”, 2000.)The Rationale for the Project and the Problems with Building Regulation in the Early Nineties
National Microeconomic Reform – Bob Hawke and Cooperative Federalism
The Special Premiers Conference, a coalition of the nine governments, that was established by Australian Prime Minister Bob Hawke was intent on driving national microeconomic reform and where possible uniform inter-jurisdictional regulation. The reason being: to cut the cost of government, increase national efficiency and reduce costs emanating from conflicting regulation.
More expansive rationale for this building regulatory law reform initiative is found in the publication “Managing Microeconomic Reform” by Galligan, Lim and Lovegrove (a book published by the Federalism Research Centre, Canberra), where it is stated on pages 115 and 116,
“The ideological impetus for the preparation of model national building legislation emanated from a Special Premiers’ Conference in March 1989 where, in a communique released after the conference, the premiers indicated that they would be giving a high priority to the rationalisation of regulatory activities undertaken by the different levels of government, so as to remove inefficiencies brought about by varying regulatory regimes in the different jurisdictions.
There was recognition that although there was a single national construction industry, there were eight state and territory acts demarcating regulatory activity and furthermore entirely different state and territory approval and dispute resolution processes. It was conceded that the different legislative philosophies were not conducive to national harmonisation of building control and they severely impacted upon the maximum efficiency of the construction industry.
It was considered that the existing regulatory demarcation gave rise to an increased economic and social cost resulting from a less mobile workforce and reduced capacity to act quickly to meet the demand of interstate construction activity. Negative economic consequences included ‘developers operating beyond a single state/territory and associated costs of engaging experts to advise on up to eight different acts and regulations and the increased costs of operating the business that flow from this’. Furthermore a report prepared by Dr R. T. Graham of the University of Tasmania for the Commonwealth Department of Immigration, Local Government and Ethnic Affairs in 1990 ‘Identified potential savings of a billion dollars nationwide for the land and building development industry’ that would emanate from culling.”
The NMBA was one of the projects that came within its “radar” as it was identified that conflicting and contradictory building regulations were costing the country hundreds of millions of dollars annually. To quote Brian Welch, (a past CEO of the MBA and at the time the CEO of the Building Owners Managers Association) as stated on the back page of the Model Building Legislation Commentary publication, “There can be no doubt that streamlining legislation and regulation in a country as over governed as Australia is long overdue” Liability Conundrums and Concerns “The liability reforms would also benefit municipal associations and local authorities which were the recipients of grossly inequitable litigious assault.” The Age Newspaper Wednesday October 1991 Local government in particular, or as plaintiff lawyers affectionately refer to them “insurers of last resort”, were buckling under the burden of the joint and several liability doctrine. Frequently joined as co defendants in building actions, councils were often first choice defendants as they became de facto underwriters of the liability of impecunious co-defendants in multi party proceedings. The cost was identified as being an unfair burden on local government and something had to be done about it. At the time plaintiffs had six years to initiate legal proceedings for building disputes. The problem was, six years from when? From when the damage occurred or from when the damage was discernable? The limitation period start date was not clear at law, with the consequence that legal proceedings were being issued in an ambiguously long time after a building was built. The term “infinity plus six” was coined to illustrate the uncertainty. Consensus was that this area of law was very problematic. Delays in building permit issue The building industry at the time was concerned about the delays in the issue of building permits as the delays held up projects and caused negative economic collateral. We were charged with the task of identifying a way to speed up the building approval process.The Aims of the Project
- To develop the world’s best practice model of building regulation
- To reform construction liability laws/regimes
- To establish the most efficient appeal mechanisms and building control mechanism for expeditious resolution of building permit matters.
- To establish a privatised alternative to local government to the issuing of building permit – private certification.
The Methodology
- The first phase was comparative regulatory analyses and synopsis. The publication The Primary Building Acts of Australia a Comparative Study provided a synopsis of the then eight disparate building regulatory systems in Australia.
- The next publication and research project summarised the building permit and building control dispute resolution systems in the eight jurisdictions. This culminated in the publication of the book The Primary Building Acts of Australia Dispute Resolution Systems and Options.
- The reform team needed to analyse the best way of generating model legislation that could be promulgated as law. AUBRCC engaged the Comparative Constitutional Studies Centre of Melbourne University to prepare a report that we published called Constitutional Options for Uniform legislation.
- Comparative analysis was then carried out by the team on world best practice regulatory regimes to identify:
- Best practice insurance laws
- Best practice liability laws
- Best practice private certification regimes
- Best practice compliance and probity regulations
- Best practice registration systems
- The UK
- France
- Certain US and Canadian jurisdictions
- NZ
- All Australian states and territories
Consultation
Interposed and running in parallel with the research, the law reformers embarked upon a massive interstate consultation process. Be it addressing trade associations, state and territory building controllers and civil servants; be it addressing national or state and territory conferences on the reform proposals, the consultation process was exhaustive, exhausting and comprehensive.
Peak representative bodies were briefed and consulted with: local government, the MBAs, the HIAs, the then BOMA (predecessor of the property council), the Institute of Engineers, the AIBS; to name a few. Some seven research books totalling 27,000 were printed, published and distributed by AUBRCC throughout the nation at no cost to the key stake holders along with every council in Australia.
Questionnaire and Feedback
After the key stake holders had considered the Legislative Aims and Options book, they filled out questionnaires that had been dispatched 2 throughout the country seeking reform preferences. The reform team then sifted through the stake holder feedback forms and synthesised reform preferences.
Industry stakeholders and local government representatives volunteered certain key preferences:
Ten Year Liability Capping
A clear start date for the initiation and conclusion of legal proceedings being ten years from the issue of a construction permit. Ten years hence, the ability to initiate legal proceedings for economic loss or damages occasioned by problematic building work was “guillotined”. The use of the word guillotine is metaphorically poignant as we imported this idea from French based legal systems dating back to the Napoleonic code and the concept of liabilitie decennial.
Proportionate Liability
Building practitioners, representative bodies and local government all “sang the same tune” that joint several liability (JSL) as a liability apportionment and allocation doctrine should be replaced. The consensus was that JSL should be replaced with the legal doctrine, proportionate liability. This is the doctrine where in multi defendant legal proceedings, no defendant would be held liable for any more than his, her or its contribution of responsibility for the building ailment or malaise.
Private Certification
In the early 90’s, one could only obtain a building permit and occupancy permit and related building approval inspections through local government. Industry and consumer feedback revealed that the building approval process monopoly enjoyed by local government slowed down optimum speed regarding the issuing of building approvals.
Consensus was such that a privatised regime for the building approval process be introduced to enable private building surveyors to compete with local government for the issue of statutory building approvals. This was identified as a very important micro-economic reform.
Further, it was identified that a stringent compliance regime be introduced to “police” the private certification community, whereby state regulatory bodies would register and oversee private certifiers to ensure that they discharged their statutory obligations to the public. The phrase “deregulation with safeguards” was poignantly coined.
Alas, deregulation occurred but history has shown that the safeguard regime did not sufficiently evolve with the passage of time in that no jurisdiction introduced mandatory and annual auditing of private building surveyors and key building practitioners.
Furthermore, in the mid-90s a performance-based building code was introduced that gave building surveyors a largely unfettered discretion to approve alternative solution-based building design proposals. It should be noted that at the time the National Model Building Act was fashioned, there was no contemplation of the promulgation of a performance based building code. If there had been, model provisions would have been incorporated into the model template, specifically designed to manage this discretion-based aspect of the BCA.
Compulsory Insurance for Principal Actors
It was identified that the removal of the application of JSL and the replacement of this liability doctrine with proportionate liability without the compliment of compulsory insurance could be problematic.
Consumer advocates correctly, if not anxiously, opined that if joint several liability was removed and key co-defendants were not insured, then consumers could be met with “men of straw” defendants who would simply wind their companies up when confronted with judicial judgement. Net result, consumers would be in the invidious position of only receiving a mere percentage of that which had been found judicially owing to them. In the case of JSL the solvent defendant would have been compelled to pay the consumer for the financial liabilities of his, her or its insolvent co-defendants.
It was thus resolved that the NMBA would provide that all key building practitioner players of the likes of builders, engineers, building surveyors, building inspectors, architects would all be required to be registered with a central registration body and insured by law.
Compulsory Registration System
It was resolved that the above categories of registrant should be required to be registered by a central government body and insured.
One stop shop dispute resolution for building approval disagreements
It was resolved that any disputes or appeals to do with the issue of building approvals would be referred to an Appeals Board comprising reputable and prominent industry peers. The peers would preside over informal hearings and hand down prompt and practical decisions.
The stakeholder preferences were conveyed to the AUBRCC and the inter-jurisdictional building controllers that comprised the AUBRCC then conveyed this information to their governments and Ministers. It was resolved that the stakeholder preferences would be endorsed which culminated in the move to regulatory creation.
The Regulatory Drafting Process
Once the building controllers from the eight state and territory governments agreed in principle with the key reform tenets it was resolved that the writer would write to the relevant building control ministers to seek their permission to communicate with the Standing Committee of Attorney’s General (“SCAG”). This was, in due course forthcoming whereupon the writer had to contact the nine Attorney’s Generals to secure an official imprimatur for the deployment of the inter-jurisdictional Chief Parliamentary Counsels Committee. Again, fortuitously, this inter-jurisdictional imprimatur was forthcoming. The law reform team then formally wrote to the CPCC to nominate a parliamentary counsel to draft a Model Building Act. The CPCC did indeed, after some consultation with certain members of the committee, elect Dennis Murphy QC (Head of the offices of Parliamentary Counsel NSW) to utilise the resources of his august offices to draft the Model Act. Once this sanction was forthcoming, the drafting instructions for parliamentary counsel were prepared.Drafting Instructions
A set of drafting instructions is a document that is prepared by policy officers and the instructing officer to parliamentary counsel to encapsulate instructions and explanations to parliamentary counsel to assist them with preparing or drafting legislation. A number of drafts are usually honed with a great deal of consultation between the instructing officers before the legislative instrument is perfected. Within about 14 months of the beginning of this national micro economic reform initiative, the Model Act materialised. About 5,000 copies of the book, The Model Building Legislation for Consideration by the States and Territories – Legislative Commentary, were published and distributed throughout the nation to key stakeholders.What then Happened?
The Model Building Act, sadly according to some, did not become a uniform national act of parliament. Rather, the key tenets below were picked up in substance by the most Australian jurisdictions over the next ten years. The key tenets to reiterate were the introduction of:- Proportionate liability and a ten-year liability limitation period
- Private certification of building approvals
- An expedited building approval dispute resolution system
- Compulsory registration and insurance of building practitioners
The Northern Territory
This was the first jurisdiction to substantially promulgate Model Building Act reforms. The then Building Controller for the NT, Mr Bob Wallis, encouraged the NT to adopt the large majority of Model Building Act provisions. Indeed, the NT Building Act that was proclaimed in the early 90s would prove to be the “truest disciple” of the Model Building Act. The following was introduced:- a totally privatised system of building approval with no involvement of local government
- proportionate liability and ten-year liability capping
- compulsory registration of building practitioners with a government registration body
- compulsory insurance
- Building approval dispute resolution systems that were very true to the Model Building Act template.
Victorian Building Act 1993
This Act, although considerably more expansive than either the NT Act or the Model Building Act in keeping with the NMBA established proportionate liability and ten-year liability capping. A Building Practitioners Board that registered in excess of 24,000 registered building practitioners was established. The VBA now has responsibility for practitioner licensing and registration under Part 11 of the Building Act. A privatised approach to the issue of building permits was established where private building surveyors went into competition with council building surveyors for the issue of building permits. Other jurisdictions subsequently picked up a great many of the Model Building Act reform pillars; namely South Australia, Queensland and the ACT. The ACT, like the NT, introduced a building approval process where there was no involvement of local government and private certifiers carried out the entirety of building approval functions. Likewise, building practitioners came within the jurisdiction of government-controlled registration bodies. To varying degrees these jurisdictions adopted the liability reforms but not with identical wording.NSW
In the late 90s, the writer was engaged by the NSW government to advise on reforms to the Environmental Planning and Assessment Act (EPAA). The writer recommended that both ten-year liability capping and proportionate liability be introduced. Most of the writer’s recommendations were acceded to. Additional recommendations were that all key building practitioners of the likes of engineers, builders and designers should be registered with the central governmental registration body. A private sector body oversaw the initial establishment of private certification in NSW and it is a matter of historical fact that the private sector watch dog was not able to get long term traction. The BSAP failed and in due course the role was subsumed by government under the auspices of the Building Professions Board NSW. Further, unlike Victoria and the NT where builders, engineers, building surveyors, and in the case of Victoria, draftspersons, were required to be registered/accredited, the registration pool was limited to residential builders under the Home Building Act 1989, NSW building certifiers and their local government counterparts. A quarter of a century later, NSW passed the Design and Building Practitioners Act 2020, which required, amongst other things, the registration of any practitioner required to make compliance declarations under that Act including builders, professional engineers, designers and architects. Tasmania early in the third millennium radically reformed it’s building legislation and took cognisance of many of the tenets of the Model Building Act. More recently, West Australia has conducted a major overhaul of its building regulatory regime but without speaking with any authority on point it appears that this new act of parliament would not be considered a “close relation” of the Model Building Act.What Was So Pioneering About the Model Building Act?
It was the first legislation that introduced proportionate liability in the Antipodes and to that extent was many years ahead of the wholesale tort reform movement that occurred to Wrongs and Tort Acts early in the third millennium. The writer once remembers bumping into a past Victorian Chief Parliamentary Counsel, Mr John Finnamore QC in a Bourke St tram and the learned gentleman quipped that he never thought he would see these types of reforms in the 20th century.
In the Model Building Legislation – Legislative Commentary, the Honourable David Smith, the then Minister for Local Government Western Australia, stated, and I quote, “The Model Building Act will aim to encourage these savings by deregulating different elements in the system… will… cap liability at a definite time – this will result in quantifiable risk, lower premiums and the return to favour of professional indemnity cover. It will also reduce local authority liability exposure.”
Indeed, liability has been capped and PI has returned to favour and under any criteria local authority exposure has been reduced although this exposure has migrated to the private building surveying profession which is under severe pressure.
Doctor Anthony Lavers, an international expert on building regulation a then Doctor at Oxford Brookes University Oxford in a paper titled, “Protection of Real Estate Developers and Users Against Economic Loss Arising from Defects in Construction” at a Pacific Rim Real Estate conference in 2000 had this to say about the model act base reforms:
THE AUSTRALIAN REFORMS Australia undoubtedly presents the best examples of system reform in a common law country, Nothing so radical and so holistic in concept has ever been undertaken in a major jurisdiction as the legislative reforms in the States of Victoria and New South Wales, now being followed to differing extents in other Australian states. At least 5 principal benefits can be identified even from this author’s outline knowledge of the legislation, when compared with traditional liability/litigation based systems which the Australian States previously shared with the U.K.
- The ten year duration of liability could be regarded by producers as worse than the Limitation of Actions Act six year period. However, there is much solace in having a definitive start and end to the period of risk exposure of the producer and this certainty may be seen as a 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 Building Regulations Co-ordinating Council (Lovegrove, 1991) 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 j o i n t and several liability is deeply embedded in the common law and it has caused difficulties in U.K. reform (see below). The Victorian and NSW legislatures 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 upon their contribution to the work. In the U.K., the objection has been two-fold: that this allocation of percentages is arbitrary or even impossible and that it leaves clients/plaintiffs less protected than before. The answers which can be made to these objections are that courts routinely allocate percentages of responsibility in contributory negligence cases and that the notional reduction of protection can be compensated for through greater certainty of recovery, including insurance protection.
- Mandatory insurance. One of the most interesting innovations in the Australian reforms has been to require all ‘building practitioners’ to carry compulsory insurance cover. Mandatory insurance sometimes has negative connotations for practitioners. This author conducted simple attitude studies in Singapore and in Malaysia in 1996 and found resistance to the idea of compulsion. The U.K. Latham reforms (see below) have been partly stalled on this point. The French system’s mandatory requirements are considered below.
- 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 professional engineers to be registered, extending this to contractors is less common. Contractor registration does exist in some states of 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, (see France below).
- Dispute resolution. As was emphasised earlier in this paper, this is one of the most heavily criticised aspects of the traditional liability/ litigation based systems, by both consumers and producers. The jurisdictions of the Building Appeals Board and the Domestic Building Tribunal respectively represent a serious attempt to take construction disputes out of the court system and locate them where they can be resolved using non-confrontational techniques where possible (there is jurisdiction to use ADR), by tribunals with knowledge of construction (giving confidence to the parties and legitimacy to the decisions) and without excessive delay or cost. (Watts, 1998, pp. 10-12)
So Did the Model Building Act Reshape Modern Day Building Control?
Dr Lavers observed that “nothing so radical and so holistic in concept has ever been undertaken in a major jurisdiction as the legislative reforms in the states of Victoria and NSW”.
This observation comes from an international expert with a strong academic and legal pedigree in comparative analysis of international construction laws and legal regimes. Doctor Lavers would also qualify as a truly independent umpire who was able to proffer an opinion devoid of any agenda or bias. The combination of his academic credentials and an impartial disposition make his observations compelling.
As an aside, the other day the author was asked whether there could indeed be uniform legislation in Australia. The author said highly unlikely. Although Australia is one country in the geographical sense, as there are eight different state and territory governments, with eight different Acts of parliament regulating building control, Australia is not, for fear of sounding simplistic, one “legal country or legislature” rather it could be construed as eight separate “legal countries”. This being the case there are very well established parliamentary and legislative chorales that structurally make it exceptionally difficult to augment uniform legislation. If an Act of parliament is not uniform from an inter-jurisdictional perspective, regulatory uniformity for better or for worse will be “a tall order”.
Although the NMBA did not achieve uniform legislation there is little doubt that it generated far more philosophical and “legal doctrine” uniformity in Australia. Ironically the regulatory parlance is an area where there is much divergence. Be it a professional who is called a building surveyor in one jurisdiction or someone who is called a principal certifying authority in another jurisdiction or a NSW construction certificate that is called a building permit in another jurisdiction, the language with respect to the same mechanisms differs.
In Terms of Legacies of the National Model Building Act – What Worked, What Failed, What Was Learnt and What Wasn’t Learnt
The writer published an article in Sourceable, based on a paper he presented to the World Bank in Washington in 2016. The paper was called “Building Control – From Monopoly to Free Market to Hindsight”. In analysing the impact of the NMBA reforms, the writer stated and will be quoted verbatim:
The NMBA became the law reform blue print or template for much of modern day building control in Australia in that it introduced:
- Proportionate liability
- 10-year liability capping
- Compulsory insurance
- Private certification
At the same time, NZ had introduced a performance based building code and had amended its own Building Act absent the above NMBA reform innovations. Australia used the NZ performance based code as a template for the generation of the performance based building code – the Building Code of Australia that came into being in the mid-1990s.
The conclusions that I proffered with regards to the NMBA legacies were as follows:
Both countries in the early-1990s embarked upon a deregulation drive. Australia focused more on the concept of deregulation with safeguards and had greater regard for utilitarian holistics. NZ, meanwhile, experienced a massive system failure – the leaky building syndrome (LBS), the impact of which still reverberates today.
NZ has paid a terrible price measured in terms of billions of dollars and sadly some lives lost due to leaky building suicide for failing to have sufficient regard to regulatory safeguards and holistics. The LBS has cost the country billions of dollars and culminated in the proclamation of legislation to establish a Weather Tight Homes Tribunal that is still is in existence and was purpose-crafted to adjudicate over leaky building homes disputes.
Both countries witnessed the demise of certain bureaucracies – both the Building Commission of Victoria and the NZBIA fell. Both bodies were born of early-1990s law reform initiatives, good intention and optimism (as is so often the case with reforming civil servants), both were charged with regulatory oversight, but they both in inglorious circumstances were disbanded and their jurisdiction wrenched back into mainstream governmental and overarching departmental control.
In NZ, private certification came and went very quickly, whereas in Australia (albeit in a variety of guises depending upon the jurisdiction) it has survived to date.
A number of stakeholders in both countries came to recognise that the reforms went too far and in some instances not far enough and these are some of the lessons that should be learnt are as follows:
Classic free market principles should not apply to building surveyors in terms of that which they charge as they are performing a critical statuary function. Experience has shown that the free market often ensures that he who charges the least gets the gig, hence the term fee cannibalisation. This “professional” predilection that is characteristic of some members of the certifying profession has culminated, according to the sceptics, in an economic approach being deployed to the time devoted to tasks such as building inspections.
The use of performance based building codes married with the building surveyor’s power to issue building permits that are assessed with reference to performance or objective based criteria rather than prescriptive criteria was an ill-conceived cocktail, fraught with downsides and could create an environment where cutting cost “incentivisation” ran the risk of anaesthetising the public safety imperative.
When one introduces a privatised option for building control, then one must have very robust safeguards in place to ensure that the certifier cannot compromise his primary fiduciary obligation – the protection of the public. One of the ways to do this is to ensure that certifiers are audited annually, on at least one occasion each year. This is precisely what occurs in the legal fraternity where lawyers hold client monies in trust.
When one deregulates one must ensure that the utilitarian dividend to the public is not compromised which requires one to embrace the law reform mantra of “deregulation with safeguards.” Yes, deregulate – and yes this will improve efficiencies and yes it will reduce the cost of construction. But only deregulate if the regime introduces robust probity mechanisms such as:
- Mandatory annual auditing of key building regulatory service providers. In this regard, look to Japan for the best practice. Note that the Japanese in their Building Act have criminal sanctions for the most heinous of building related regulatory misdemeanours. Some would say that this is a bridge too far, over the top as it were, but not the Japanese who canonise the virtue of public protection.
- Ensure that the insurance and liability apportionment “holistics” are on song. For best practice, look to the proportionate liability and compulsory insurance regime in Victoria. This coupling has endured and unlike private certification has generated no controversy. Do not score highly the residential warranty regime for builders in Australia, however, as this regime has attracted a great deal of ire on the part of consumer advocates.
- For best practice in long tail liability, look to Victoria with its 10-year liability regime, but recognise that that concept is French in derivation.
