Further changes ahead for the construction industry in NSW

In 2020, the NSW Government implemented significant reforms focused on creating clear lines of accountability for defective building work. The reforms include the introduction of a statutory duty of care owed by ‘persons’ who carry out ‘construction work’ to take reasonable care to avoid economic loss caused by defects (Statutory Duty).

On 12 October 2022, the Supreme Court of New South Wales delivered the latest decision which considers the scope of the Statutory Duty. The Court rejected submissions that a director of the Builder and a site supervisor should not be joined to the proceedings in their personal capacity because ‘persons’ for the purposes of the Statutory Duty did not extend to natural persons.

In this article, we explore the decision and consider the proposed legislative reforms and how this will impact the Statutory Duty.

Background facts

The relevant events were as follows:

  • Boulus Constructions Pty Ltd (Builder) was engaged by Warrumbungle Shire Council (Council) to construct a retirement village on a former hospital site in Dunedoo, NSW.
  • 2018: the Builder commenced proceedings against the Council in the Supreme Court of New South Wales alleging breach of contract and misleading and deceptive conduct under the Australian Consumer Law. The Council cross-claimed alleging defective works.
  • April 2022: the Builder filed its fifth iteration of its claim and its sixth iteration of its defence to the cross-claim which included allegations to the effect that the Council was not entitled to any remedy for defective works due to a lack of a valid Development Consent and a Construction Certificate.
  • August 2022: the Council brought an application seeking orders to further amend its cross-claim to include a cause of action under s 37 of the Design and Building Practitioners Act 2020 (DBP Act). The proposed amendment was made with respect to the Builder (the current cross-defendant), and proposed new cross-defendants, the managing director of the Builder and the project site supervisor in their personal capacities. It sought to introduce allegations that the managing director of the Builder and the project site supervisor were both able to and did exercise control over the carrying out of building work.

The issue to be determined by the Court was whether the Council’s proposed amendments should be disallowed against the ‘proposed individual cross-defendants’ because they are not ‘persons’ for the purposes of s 37 of the DBP Act.

What is the Statutory Duty?

In June 2020, the NSW Parliament introduced the Statutory Duty to create clear lines of accountability with respect to defective building work.

Section 37 of the DBP Act provides that the Statutory Duty of care is owed by a ‘person’ who carries out

‘construction work’ to exercise reasonable care to avoid economic loss caused by defects.

‘Construction work’ is defined in s 36 as follows:

‘construction work means any of the following—

    (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).’

In other words, it has the potential to capture anybody involved in or working on a construction project.

In The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659 the Court considered the scope of sub-clause (d) and held that ‘having substantive control over the carrying out of any work’ extends the Statutory Duty to a person able to control how the work was carried out even if they did not control how the construction work was carried out. While it depends on the facts of the case, it exposes directors, project managers, construction managers and site supervisors to claims.

Decision

The Builder submitted that the concept of a ‘person’ should be construed narrowly as otherwise every person on a construction site could potentially come within the ambit of a ‘person who carries out construction work’ and with such a broad interpretation every person on a construction site ‘could potentially come within the ambit of a ‘person who carries out construction work’, and be the subject of an automatic statutory duty of care to the current and future owners of a project’.

Stevenson J rejected the Builder’s submission noting that the proportionate liability regime applies to actions for breach of the Statutory Duty, enabling the managing director and site supervisor to identify concurrent wrongdoers and seek to have their liability limited under s 35 of the Civil Liability Act 2002.

Stevenson J accordingly granted the Council leave to amend its claim to name the managing director of the Builder (in administration) and the site supervisor in their personal capacities.

Implications

While the subject decision is only interlocutory, it provides further guidance to insurers and insureds on the broad approach taken by the Courts to the ambit of the Statutory Duty.

However, the question of what is meant by ‘under the substantive control of’ for the purposes of the DBP Act could be a thing of the past. There is currently a raft of proposed new legislation (currently in the public consultation stage) which, if implemented, will further overhaul the legislative framework for the construction sector.

Relevant to the operation of the Statutory Duty, the proposed legislation will:

- transfer Part 4 of the DBP Act (governing the Statutory Duty) into a new Building Act which is intended to create a licensing and regulatory framework for all building work in NSW;
- change ‘construction work’ to ‘building work’;
- revise the definition of ‘building work’ to relevantly include:
         - work, including coordinating and supervising work involved in the construction of a building;
         - For the purposes of the Statutory Duty only:
             - ‘design or inspection of building work’; or
             - the issue of a complying development certificate, a construction certificate, or an occupation certificate –                in other words, it clarifies that the Statutory Duty is owed by building certifiers;
- provide guidance and clarification as to the supervisory requirements on corporates, directors, and individual licence holders.
- clarify that the 10-year longstop applies to actions for defective building work.

Proposed legislative reforms

The proposed legislative reforms are contained in:

  • the Building Bill 2022 which will replace the Home Building Act 1989 (NSW), and will transfer and combine Part 6 of the Environmental Planning and Assessment Act 1979 (NSW) and Part 4 of the DBP Act;
  • the Building Compliance and Enforcement Bill 2022 which will replace the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (RAB Act) by expanding the NSW Building Commissioner’s broad investigative and enforcement powers beyond residential apartment buildings;
  • the Building and Construction Legislation Amendment Bill 2022 which will relevantly:
      • create a chain of responsibility with respect to non-conforming building products;
      • increase the powers (and obligations) on certifiers to require rectification of defects.

Kennedys is keeping the proposed legislative reforms and case law developments under review.

For more information please contact Special Counsel, Mairead Cusack.

Useful links

Boulus Constructions Pty Ltd v Warrumbungle Shire Council [2022] NSWSC 1368

 

Read other items in the Australian Insurance Brief – November 2022

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