The Design and Building Practitioners Act 2020 No 7 (NSW) (Act) is the NSW government’s legislative response to these issues. It aims to increase accountability and consumer confidence in the residential apartment sector.

Much has been written about the Act (which commenced on 11 June 2020 with the Regulation commencing on 1 July 2021), however, it wasn’t clearly understood how the Courts would interpret the legislation until recently.

With large construction projects and major expansions on the horizon across NSW, there is a clear need for practitioners and the industry alike to understand their obligations under the Act and to keep up with developing case law.

As Stevenson J noted in a recent case, interpreting the Act as drafted is ‘fiendishly difficult’. In this article we provide salient points from recent case law, and summaries of recent relevant cases.

Key takeaways

• Any claim brought should be drafted carefully to ensure that:
  • a duty of care exists (statutory duty of care imposed by s37 of the Act)
  • the duty was breached (which requires detail of specific risks that were required to be managed and precautions that should have been taken by each defendant to manage those risks), and
  • the breach caused loss or damage.
• The statutory duty in s37 of the Act is broader than ‘class 2’ (multi-residential) buildings. It is expected that claims from a broader range of ‘buildings’ may be brought, which could lead to increased exposure for designers and builders.
• Individuals, including supervisors or project managers may be found personally liable for damages pursuant to s37 of the Act if they were engaged in ‘construction work’.
• The words ‘otherwise having substantial control over the carrying out of any work’ in the definition of ‘construction work’ in s36(1) of the Act could apply to developers, directors or persons other than builders and designers if they were in a position in which they could control the work that was carried out, even if they did not actually carry out the work.

What does this mean for owners?

The Court’s interpretation of the Act is evolving. It remains to be seen whether Stevenson’s J comments on the difficulty in comprehending sections 36 and 37 of the Act are shared by other decision makers. If they are, it will be interesting to see whether the Act is amended.

However, it is clear that many owners are availing themselves of the Act. It’s apparent from the cases explored below that those individuals who may be caught by the Act may be wider than perhaps was initially anticipated. It is certain there will be more cases this year which will provide further insight into the Act’s interpretation.

Recent cases

The Owners - Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068

The Owners Corporation (OC) for a residential strata development in Parramatta brought proceedings against the developer and builder (collectively ‘Loulach’) as a result of a large number of alleged defects in the development, principally concerning water ingress and defective cladding. The OC sought to amend its claim to rely on the duty of care under s37 of the Act.

Loulach opposed leave being granted to the OC to plead the statutory duty of care. Loulach did not dispute the existence of the duty, only that the OC did not adequately articulate the breach. The OC submitted that the mere fact there was a defect in the building, which constituted a breach of the Home Building Act statutory warranties, also established a breach by the builder of the statutory duty of care.

Stevenson J did not agree with this approach and noted that parliamentary intent was not to provide “a shortcut as to the manner by which a breach of such duty might be established.”

Stevenson J went on to emphasise that the Act is expressed to be subject to the Civil Liability Act and that there is no provision in the Act which states that the mere fact of a defect establishes a breach. For those reasons, the Court refused the OC leave to file its proposed amended pleadings but made orders permitting it to file alternative amended pleadings.

Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624

The plaintiff, Goodwin Street Developments (Goodwin) entered into a building contract with the first defendant DSD Builders Pty Ltd (DSD) to construct three residential boarding houses. DSD (now in liquidation) was a company whose sole director, Ms Sendjirdjian, was the fiancée (and later wife) of the second defendant, Mr Roberts.

Goodwin alleged that Mr Roberts was the representative of DSD who negotiated and administered the contract on behalf of DSD and controlled the carrying out of the construction work on site. In 2018, disputes arose between Goodwin and DSD relating to defective building works and progress of the works.

Stevenson J found that the statutory duty of care under s37(1) of the Act extended to ‘construction work’ carried out on a boarding house. In coming to this conclusion, His Honour commented on the drafting of the Act, stating:

• “Resolution of the question involves consideration of the labyrinthine provision of s36 of the DBP Act. The section appears to have been drafted so as to make comprehension of it as difficult as possible.”
• “[T]he definitions in s36(1) incorporate by reference definitions from five other Acts...(s)uch a drafting technique, evidently used to achieve some kind of uniformity between the various statutes, renders construction of the section fiendishly difficult.”

As to whether Mr Roberts had engaged in construction work, Stevenson J considered the evidence concluding that Mr Roberts engaged in project management and supervised the construction of the boarding houses and as a result found that he had engaged in ‘construction work’ for the purposes of the Act.

The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659

The OC was a strata development in North Sydney who brought proceedings against the builder, Pafburn Pty Ltd (Pafburn) and the developer, Madarina Pty Ltd (Madarina). Madarina was also the owner of the land until registration of the strata plan on 6 December 2010.

The OC alleged that the defendants acted in breach of the duty of care prescribed by s37 of the Act because, as to Pafburn, it constructed the building defectively, and as to Madarina, it engaged in ‘construction work’ for the purposes of s37 of the Act in that it:

“… supervised, coordinated, project managed and substantively controlled … the building work carried out by [Pafburn].”

The defendants sought that the proceedings be dismissed because they did not disclose a reasonable cause of action against Madarina. This is due to the fact that, as Madarina contended, it did not engage in construction work and that a ‘person’ who carries out construction work does not include a person who was the owner of the land at the time the construction work was carried out. The defendants also submitted that the OC’s Scott Schedule did not adequately set out its claim.

As to whether Madarina engaged in construction work, Stevenson J made the following comments on the definition of ‘construction work’ under the Act:

“it is sufficient to enliven the definition to establish that the person was in a position where it was able to so control how the work was carried out. That would be a question of fact in each case.”

The defendants argued that, read literally, the effect of s37(2) is that such an ‘owner’ would owe a duty to itself to avoid a loss referred to in s37(1), to which Stevenson J commented was “an obvious absurdity”.

His Honour reasoned that while Parliament’s intent was not to “create a duty owed by an owner of the land in relation to which the construction work is carried out to itself …that anomalous result can readily be avoided by reading the expression “each owner” in s37(2) as not including an owner that has itself carried out the construction work in question.”

Finally, in relation to the Scott Schedule, the OC followed the recommendation of Stevenson J in Loulach in that it prepared a Scott Schedule. However, the schedule did not distinguish between what Pafburn (as the builder) and what Madarina (as the supervisor) should have done to respond to the risk in question. Stevenson J stipulated that the OC would need to separately identify what it was alleged that the defendants should have done if the proceedings were to continue against Madarina.

Further information / assistance regarding the issues raised in this article is available from the authors, Megan Palmer, Partner and Maia Hughes, Graduate at Law, or your usual contact at Moray & Agnew.