Statutory duty of care – don’t get caught out by a poorly drafted claim.

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The Supreme Court’s decision in The Owners – Strata Plan No. 87060 v Loulach Developments Pty Ltd (No.2) provides useful insights into the newly created statutory duty of care by section 37 of the Design and Building Practitioners Act 2020 (NSW) (Act).

Recap of the Duty of Care

The Act was enacted in 2020 and introduced significant legislative changes to the building industry. One such change was the creation of a statutory duty of care owed by any person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects:

  • in or related to a building for which the work is done; and
  • arising from the construction work.

The Act states that this duty of care is owed to each owner of the land on which the construction is carried out. The duty of care extends to all subsequent owners of that land.

The duty of care operates retrospectively in that it applies to economic loss caused by a breach of duty of care if the loss first became apparent within the 10 years immediately before the commencement of the duty of care.

How to correctly plead a claim for a breach of the duty of care?

When the statutory duty of care was first enacted, there was uncertainty among the legal profession on how a claim for a breach of the statutory duty of care should be pleaded, and what elements and evidence will be required to successfully prove economic loss arising from a breach.

The Supreme Court in The Owners – Strata Plan No. 87060 v Loulach Developments Pty Ltd (No.2) has provided clarification on this matter.

Facts & Issues

In this case, the Owners alleged that there were a number of large defects in the works performed by the developer and builder, Loulach. The Owners claim was based on the alleged breaches of statutory warranties implied by the Home Building Act 1989 (NSW).

The Owners subsequently sought leave to amend their claim to also include a claim for an alleged breach of the statutory duty of care.

The Owners argued that the mere fact that there was a defect in the building, established that the defect was a result of the breach of the statutory duty of care, and had Loulach not been negligent, there wouldn’t be defects.[1]

Loulach opposed leave being granted to the Owners to plead its case in this way and contended that whilst there was no dispute that a duty of care existed, the proposed pleading did not properly articulate the breach of that duty.[2]

The Court agreed with Loulach and rejected the Owners’ position.[3]  The Court noted that the Owners’ argument posed difficulty as it was unclear what breach the Owners were alleging in relation to each item of the Scott Schedule.[4]

For instance, one of the defects in the Scott Schedule was identified as “Unit 5- Bathroom: Corrosion affecting the door jambs”. But what was the breach of duty alleged to have caused the corrosion? Was it:

  • installing the wrong PC item; or
  • installing the wrong lining; or
  • something else?

A similar difficulty was present in most of the 451 defects identified in the Scott Schedule.

Decision

The Court held that Act is designed to remove the hurdle for the Owners to establish that a duty of care is owed, and it is not intended to provide a shortcut manner in which a  breach of that duty might be established.[5]

In that sense, a party looking to claim a breach of the statutory duty, must also prove the other elements of a negligence claim in order to show a breach and then losses from that breach.

A claim for negligence, must satisfy the following elements:

  1. That a duty of care existed between the parties; and
  2. That the duty of care was breached; and 
  3. That the breach caused loss.

Section 37 of the Act simply answers the first element; however a party must also answer the balance of the elements in order to succeed on their claim for a breach of the statutory duty of care. There is no provision in the Act to suggest that a mere fact of a defect establishes breach.[6]

Furthermore, a claim for negligence also requires a party to identify the “risk of harm” and show that the person who owed the duty of care knew, or ought to have known of the risk of harm and failed to take precautions against a risk of harm that a reasonable person would have.

In this case, the Court was not satisfied that the Owners’ proposed pleading:

  • showed that the statutory duty of care was breached;
  • identified the specific risks that Loulach was required to manage; and
  • the precautions that should have been taken to manage those risks.

It was not sufficient for the Owners to simply assert a defect and allege that Loulach was required to take whatever precautions were needed to ensure that the defect not be present.

Therefore, the Court refused the Owners’ application for leave to amend their claim to include a claim for a breach of the statutory duty of care. It was also noted that the required degree of specificity may have been achieved if the Owner’s List Statement referred to the Scott Schedule and the Scott Schedule was revised to include further information regarding each defect, the relevant risk and what the Owners contend Loulach should have done in relation to that risk.[7]

Key Takeaways

The statutory duty of care established by the Act can provide an extremely useful remedy for parties such as the Owners, however, such a claim should be carefully drafted to avoid the risk of missing out because of a poorly drafted claim.

All three elements must be established for a party to succeed in a claim for a breach of statutory duty:

  • that a duty of care exists (this is automatically proven by existence of section 37 of the Act); and
  • that the duty was breached; and
  • that the breach caused harm (loss or damage).

We regularly assist parties which may find themselves either in the position of the Owners or Loulach. We can assist you with preparing your claim for a breach of the statutory duty of care, or help you defend a such a claim brought by an owner. For specialist and tailored advice, please contact a member of our team by phone on (02) 9030 7400 or by email at info@bradburylegal.com.au.

 

 

[1] [20] – [22] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[2] [19] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[3] [23] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[4] [24] – [34] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[5] [35] – [36] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

[6] [38] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068

[7] [44] The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068.

Security Of Payment Reminder: Christmas Is Coming, But Adjudicator Shopping Is Not Permitted

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The Building and Construction Industry Security of Payment Act (NSW) (‘SOPA’) is touted as establishing a scheme of “pay now, argue later” which promotes the speedy payment of progress claims and resolution of disputes. While these objects do not prevent parties from serving multiple payment claims in respect of the same amount,[1] they do dictate that parties will not be permitted to reagitate the same issues at multiple adjudications. It is necessary to examine the circumstances in which a previous adjudicator’s finding will be binding in a subsequent adjudication.

 

Section 22(4) of SOPA

Section 22(4) of the SOPA provides a helpful starting point for this analysis. This section provides that where one adjudicator has determined the value of any construction work or of any related goods or services under a construction contract, an adjudicator in a subsequent adjudication must give the work (or goods or services) the same value as previously determined, unless satisfied that the value has since changed.

 

Back in 2009, the New South Wales Court of Appeal considered the effect of section 22(4) of the SOPA in the decision of Dualcorp Pty Ltd v Remo Constructions Pty Ltd.[2] Macfarlan JA held that section 22(4) is not an exhaustive statement of the matters determined by an earlier adjudication which are binding on a subsequent adjudicator. His Honour held that the Act as a whole “manifests an intention to preclude reagitation of the same issues”.[3]

 

Objects of SOPA

Section 3 of the SOPA sets out the objects of the Act: promoting the prompt making and payment of progress claims and speedy resolution of disputes. In Dualcorp, the court held that it would be inconsistent with this objective to allow a claimant who was dissatisfied with the outcome of an adjudication to obtain a fresh reconsideration of its claim by simply serving an identical payment claim. If this were possible, there would be no limit to the number of times a claimant could seek to reagitate the same issues at adjudication.[4] Clearly, such abuse would be inconsistent with the object of the legislation.

 

Did the previous adjudicator determine the merits of the issue?

A claimant will only be barred from reagitating an issue addressed in a previous adjudication where the adjudicator decided the merits of the issue. This point was emphasised by the New South Wales Supreme Court in Arconic Australia Rolled Products Pty Ltd v McMahon Services Australia Pty Ltd.[5] In that case, McMahon made three contentious payment claims describing costs for delay and variations. In a fourth adjudication between the parties, Arconic argued that McMahon was not entitled to reagitate its claim since it had been determined by the previous adjudicator.[6]

 

The Court followed the approach in Dualcorp[7] but clarified that the objects of the SOPA would only be frustrated where the first adjudicator had heard and decided the merits of the claim.[8] Here, the adjudicator had rejected the relevant payment claim as it was made prematurely by McMahon. Given that the adjudicator did not consider the merits of the claim, McMahon was entitled to reagitate the issues raised in that payment claim in a subsequent adjudication.[9]

 

Take home tips

Parties should be wary that they are not entitled to raise the same issues at multiple adjudications.

If you are claimant considering whether to proceed with a second adjudication application, you should carefully consider whether the merits of your claim has been determined by a previous adjudicator.

We can assist with advice regarding a previous adjudication determination and the prospects of seeking a further determination.

[1] SOPA s 13(6).

[2] [2009] NSWCA 69 (‘Dualcorp’).

[3] At [67].

[4] At [52].

[5] [2017] NSWSC 1114.

[6] At [3]–[9].

[7] At [13]–[15].

[8] At [29].

[9] At [31]–[32].