The DBPA: when defects are just not enough

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OXFORD (NSW) PTY LTD V KR PROPERTIES GLOBAL PTY LTD TRADING AS AK PROPERTIES GROUP ABN 62 71 068 965 [2023] NSWSC 343

 

FACTS

 

On 8 October 2015 the first and second defendants (AK Properties Group), the ‘Owners’, entered into a contract with the plaintiff, the ‘Builder’, whereby the Builder was to construct a six-unit apartment building. The third and fourth defendants, Mr Eswaran and Mr Sharma, entered into a Deed of Guarantee and Indemnity with the plaintiff, where they guaranteed the fulfilment of the Owners’ obligations under the contract.

The plaintiff brought proceedings against the four defendants to recover amounts claimed in nine separate invoices. However, the Owners sought a cross claim against the director and the shareholder of the Builder, Mr Kazzi, and the architect of the Building, Mr Mahedy. Here they claimed that the works were incomplete, the work was defective, and that there was interest that had to be paid on borrowing that was used to fund the completion and rectification of the works. Furthermore, the first and second defendants also sought damages from the plaintiff under section 37 of the Design and Building Practitioners Act (DBPA), alleging that there were defects in the work that had occurred from the act of negligence by the Builder.

The DBPA establishes, under Part 4, that individuals and companies owe a statutory duty of care to the owner and subsequent owner of land where construction is being carried out in order to avoid economic loss caused by defects. This duty of care applies to a person who carries out construction work in or related to a building, where building is defined by section 1.4 of the Environment Planning and Assessment Act 1979 as “any part of a building and also includes any structure or part of a structure”.

 

ISSUES

 

The issue that was to be decided by the Court was the “extent to which the costs admittedly incurred by the Owners should be attributed to rectification of defects, rather than the completion of the work” [287]. As the DBPA states, economic loss may be incurred where there is a cost for the rectification of defects, including damage caused by defects, rather than work completion. Additionally, with respect to s37 of the DBPA, there was debate as to whether there was a ‘personal’ breach of duty that had occurred.

Another issue that the Court had to consider regarding the cross claim of the Owners was their entitlement to Hungerfords v Walker (1989) 171 CLR 125 damages. Here it notes that there may be an interest on damages following the time of the breach due to the fact that the plaintiff in this case incurred an economic loss by being deprived of the use of money and, thus, an opportunity to invest. This case brought forward the issue of whether the interest that was paid in order for the works to reach a stage of completion should also be included in the amounts recoverable.

 

HELD

 

The Court held that the Builder did not complete the works and that much of the work that had been completed was defective. Hence, while the Builder had originally sued for their entitlement to the invoices, it was the Owners of the property who were entitled to their cross claim for the incomplete and defective works. Importantly, the Owners made a claim based on Hungerford v Walker damages, stating that they had to take out additional loads to fund the building works in order for them to reach practical completion by a certain date which they were unable to repay. The Owner’s claim was for Hungerfords interest alone and the Court found that they were entitled to this interest.

Regarding the owners claims against Mr Kazzi personally under the DBPA, the Act provides that “a person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects”, going on to define construction work as the “supervising, coordinating, project managing or otherwise having substantive control over the carrying out of” the building work. While the Builder “offered the formal submission that Mr Kazzi was not a ‘person’ for the purpose of s 37 of the DBP Act” [332], it was determined by the Court that, due to the affidavit that noted Mr Kazzi to “attend the Property on a weekly basis… to oversee the construction of the Building” [330], he was therefore a person who had substantive control over the work in this instance; Stevenson J citing Boulus Constructions Pty Ltd v Warrumbungle Shire Council (No 2).

The Court then sought to establish whether Mr Kazzi acted in a breach of a duty to exercise reasonable care. The Court considered the findings in The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068 at [59] and noted that “it is not sufficient simply to assert a defect and allege that the builder was required to take whatever precautions were needed to ensure that the defect not be present”, reiterating the notion that the Act was developed to establish that a duty of care is owed. Should a party seek a breach of the duty, the other elements of negligence must be proved i.e. that a duty exists, the duty was breached, and the breach caused loss. The judge here determining that a defect is not enough to establish a breach of duty.

 

TO CONSIDER

 

With regard to this case, what is of central importance is that while the DBPA is highly influential in its purpose of protecting owners through the establishment of a duty of care, a defect alone is not enough to establish a breach of that duty.

 

Rise and Fall Clauses in Construction Contracts

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Overview

Rise and fall clauses (also referred to as cost escalation clauses) in construction contracts have been a highly discussed topic in the past few months, given prices for material such as timber, steel and concrete have been on the rise since early last year. There are various contributing factors as to the reason why these price increases have been observed, including the effects of the COVID-19 pandemic on the global commodities supply chain.

This article will outline the nature of rise and fall clauses and how these clauses may affect your construction contract as well as outline the elements to keep in mind when drafting a rise and fall clause to suit your construction contract.

Rise and Fall Clauses at a Glance

Rise and fall clauses essentially increase or decrease the price of a fixed-price or lump sum construction contract depending on the varying price of the materials to be used in completing the works under the contract. For example, if the price of timber rises during a construction project, and timber is a material that is to be used to complete the works under the contract, a rise and fall clause in the contract could mean that the contract price would increase correspondingly to accommodate for this rise in timber prices. Surveying the “price” of any given material is therefore crucial and, in Australia, is often done by reference to the indexes published by the Australian Bureau of Statistics (discussed below).

Rise and fall clauses were at their height during the inflation of the 1970s and 1980s. Since then, we have seen their relevance recently after the effects of the COVID-19 pandemic and the Russian-Ukrainian war.

Putting Together a Rise and Fall Clause

If you are considering a rise and fall clause to be included in your construction contract, you should first be aware of relevant legislation that may impact its legality.

The following table sets out whether a rise and fall clause in your residential or domestic building contract can be implemented based on the State or Territory in which the construction works are to be performed:

Legality of Rise and Fall Clauses in Different States
NSW Yes
QLD Yes
WA No, if the contract for works is less than $500,000
SA Yes
NT Yes
TAS Yes
VIC No, if the contract for works is less than $500,000
ACT Yes

 

 

Constitutive Elements

Rise and fall clauses implement mathematical formulas to calculate the change in contract price. The following are some of the more common elements implemented in rise and fall formulas:

a) Affected Material and Price

The affected material is essentially the specific material or commodity which is subject to fluctuating price. Considering rise and fall clauses typically do not apply to the entirety of a contract sum, the clause will apply to parts of the contract. The critical component of this element is to ensure the affected material is defined clearly and precisely.

b) Applicable Price Index

Price indexes record the value in the fluctuating price of a certain material/commodity. In the Australian setting, the price index most often referred to is the Producer Price Indexes (PPIs) published quarterly by the Australian Bureau of Statistics (ABS). The ABS provides a measure of the movement in the prices of the materials/commodities over a period of time. Other price indexes which are published by the ABS, and that may be of relevance to construction contracts, include:

  • the Consumer Price Index (CPI) which measures inflation;
  • The International Trade Price Indexes (ITPIs) which measures fluctuations in the prices of goods imported into Australia and exported from Australia; and
  • the Wage Price Index (WPI) which measures changes in Australian employee wages.

Visit the link below for the ABS factsheet with further information on each of these indices.

Use of Price Indexes in Contracts

c) Risk Buffer

A risk buffer functions to apportion the risk of increasing material prices between the owner and the contractor. For example, a risk buffer may operate such that the first 3% increase in a commodity or material is borne by the contractor, any percentage above this amount will be subject to the rise and fall clause.

d) Reference and Adjustment Dates

Reference (or base) dates concern the specific date from which the rise and fall of price of a specific commodity or material is to be calculated under the contract. The reference date may be any of the below:

i. the date of tender;

ii. the contract date; or

iii. a date some months following the date a Contractor is given access to a site.

Adjustment dates, as the name suggests, concern the date at which the price of any given material/commodity is to be adjusted under the contract. This may be monthly or yearly, depending on the scope and timeline of the construction project.

To Consider

If you are considering including a rise and fall clause in your construction contract, it is important to take into account all constitutive elements of a rise and fall clause, particularly reference dates and jurisdictional limitations. A rise and fall clause must be certain and specific in order to avoid ambiguity and operate correctly. If you are contemplating including a rise and fall clause in your contract, consider the specific requirements of your project and seek legal advice.

 

Claiming under HBCF insurance for incomplete or defective residential building works

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Licensed builders must take out insurance under the Home Building Compensation Fund (HBCF) before commencing residential building work valued over $20,000.[1] HBCF insurance provides an avenue for homeowners to recover compensation in some cases of incomplete or defective residential building work by a builder or tradesperson. However, homeowners must be careful to comply with the timeframes for notifying and bringing insurance claims under their policy. Failure to comply with these timeframes may result in the insurer denying a claim.[2]

When can homeowners bring a claim under HBCF insurance?

In order for homeowners to make a claim under HBCF insurance, there are three requirements:

  • the homeowners’ loss must have become apparent;
  • the loss or damage must have been caused by certain specified circumstances; and
  • a trigger event must have occurred.[3]

Bringing a claim under HBCF insurance becomes possible following the occurrence of a ‘trigger event’, i.e., after the builder:

  • becomes insolvent;
  • dies;
  • disappears; or
  • has their building license suspended by NSW Fair Trading.[4]

After one or more of the above trigger events have taken place, HBCF insurance will provide cover for homeowners in respect of loss or damage caused by a builder that has:

  • failed to commence residential building work;
  • ceased residential building work; or
  • carried out defective residential building work.[5]

Time limits for bringing a claim

Generally, the time limits for bringing a claim under HBCF insurance are specified in the insurance policy, or in the Home Building Act 1989 (NSW) (HB Act) and Home Building Regulation 2014 (NSW) (HB Regulation). The time limits are summarised in the following table:

Type of loss or damage Time limit
Non-completion of the work 12 months from the failure to commence or cessation of the work.[6]
Major defects 6 years after the completion of the work.[7]
Other 2 years or as otherwise prescribed by the Act and Regulation.[8]

 

In some circumstances, a homeowner will be permitted to bring a claim where the policy time limit has already expired. Known as either ‘extended claims’ or ‘delayed claims’, these claims may be possible where:

  • the loss became apparent during the final six months of the period of insurance;[9] or
  • the loss became apparent during the period of insurance, but a trigger event did not occur during this period.[10]

Extended claims are not possible for loss arising from non-completion of work, or from breaches of statutory warranty insured by a construction insurance contract.[11]

 

  • Loss became apparent during the final six months of the period of insurance

Where loss has become apparent in the final six months of the insurance period, as a result of a failure to commence or defects in residential building work, a homeowner may be able to bring an extended claim.[12]

  • Trigger event did not occur during insurance period

Alternatively, if the loss became apparent during the insurance period, but a trigger event did not occur during this period, a homeowner may also be entitled to bring a delayed claim.[13] For instance, a delayed claim would be possible where a builder failed to commence residential building works under a contract, but had not yet died, disappeared, gone insolvent or had their building license suspended.

To make a delayed claim, homeowners must be able to satisfy two requirements:

  • the loss was properly notified to the insurer within the insurance period; and
  • the homeowner diligently pursued recovery of the loss after the loss became apparent.

 

  • When is loss ‘properly notified’ to the insurer?

Loss is ‘properly notified’ to the insurer if the homeowner has provided to the insurer written notice of the loss, and the notice provides sufficient information regarding the nature and circumstances of the loss.[14] To do so, homeowners can complete a HBCF Loss notification form, accessible here. Notice must be given to the insurer within the insurance period.

 

  • What is ‘diligent pursuit’ of recovery of the loss?

From the time at which the loss became apparent, homeowners are required to take all steps which are reasonable and necessary to recover in respect of the loss.[15] These steps may include:

  • giving the builder written notice of the loss within six months of the loss becoming apparent;
  • allowing the builder access to return to inspect or complete the works;
  • lodging a complaint with NSW Fair Trading; and/or
  • commencing and advancing proceedings in a court or tribunal.[16]

 

Fulfilling steps (a) and (b) will entitle homeowners to bring a delayed claim for losses, in circumstances where a trigger event did not occur during the period of insurance.

Take home tips

If you are a homeowner seeking to recover in respect of incomplete or defective residential building work, HBCF insurance can be a powerful tool. To preserve your right to bring a claim, it is vital that you properly notify your insurer and take steps towards recovering your losses. For tailored advice on the steps which you should take to preserve your position to bring a HBCF claim, please contact a member of our team by phone on (02) 9030 7400 or by email at [email protected].

[1] Home Building Act 1989 (NSW) s 92; Home Building Regulation 2014 (NSW) s 14.

[2] Home Building Act 1989 (NSW) s 103BB(1).

[3] HBCF Insurance Policy clause 4.1.

[4] Home Building Regulation 2014 (NSW) ss 40–43.

[5] Home Building Regulation 2014 (NSW) ss 40–43.

[6] Home Building Act 1989 (NSW) s 103B(1).

[7] Home Building Act 1989 (NSW) s 103BB(2)(a).

[8] Home Building Act 1989 (NSW) s 103BB(2)(b).

[9] Home Building Act 1989 (NSW) s 103BB(3).

[10] Home Building Act 1989 (NSW) s 103BB(2).

[11] Home Building Act 1989 (NSW) s 103BB(2A).

[12] Home Building Act 1989 (NSW) s 103BB(3).

[13] Home Building Act 1989 (NSW) s 103BB(2).

[14] Home Building Act 1989 (NSW) s 103BB(7); Wesfarmers General Insurance Pty Ltd t/as Lumley Insurance v James Arthur Fordham [2015] NSWCATAP 103.

[15] Home Building Act 1989 (NSW) s 103BB(6); Home Building Regulation 2014 (NSW) s 46B.

[16] HBCF Homeowner Fact Sheet published by iCare, accessible here.

Change on the horizon for the NSW building and construction industry

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The NSW Government has proposed three bills to reform the building and construction industry. The bills introduce new changes and consolidate existing legislation, with the aim of promoting safety, quality, and transparency in the industry. The draft bills and the key changes associated with each are as follows:

  • the Draft Building Bill 2022 (Building Bill);[1]
    • repeals and replaces the Home Building Act 1989 (NSW) (HBA);
    • introduces further licencing requirements for building professionals;
    • consolidates the statutory duty of care provisions;
  • the Draft Building Compliance and Enforcement Bill 2022 (BCE);[2]
    • repeals and replaces the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act);
    • introduces further regulatory and enforcement powers;
    • expands existing powers for class 2 buildings to all building work;
  • the Draft Building and Construction Legislation Amendment Bill 2022[3] and the Draft Building and Construction Legislation Amendment Regulation 2022 (BCLA)[4];
    • amend various NSW Acts and Regulations; and
    • introduce duties to avoid intentional phoenix activity.

The objects of the reforms

The NSW Government has identified seven key objects to be achieved by the reforms. These are:

  1. making home building fairer and easier;
  2. securing prompt and fair payment for building work;
  3. strengthening building compliance and enforcement;
  4. licensing commercial and home building work;
  5. supplying and using safer building products;
  6. upskilling the building and construction industry; and
  7. regulating prefabricated and manufactured homes.

We discuss how the bills deal with each of these objects below.

  1. Making home building fairer and easier

The Building Bill and the BCLA aim to protect consumers from loss caused by defective building works by:

  • Consolidating the duty of care provisions under the Design and Building Practitioners Act 2020 (NSW) (DBP Act) and Environmental Planning and Assessment Act 1979 (NSW) (EPA Act).
    • This consolidation of the duty of care provisions achieves consistency across NSW building legislation and reflects Justice Stevenson’s interpretation of the DBP Act duty of care in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq).[5]
    • The duty of care is further expanded to subdivision work.[6]
    • The Building Bill specifies a 10-year limitation period for civil actions for loss or damage arising out of or in connection with defective building work.[7] This will displace the typical 6-year limitation period for breach of contract claims but may be subject to shorter limitation period for breaches of statutory warranties.[8]
  • Expanding on the HBA regime for home building works.
    • The concept of ‘major defect’ is replaced by ‘serious defect’, a broader definition including (for example) a failure to comply with the National Construction Code, relevant standards, or relevant approved plans.[9]
    • Certain statutory warranties are cast more broadly.[10]
    • The definition of a developer is expanded to parties which do not own land but have nonetheless contracted for, arranged, or facilitated the building work.
    • The NSW Government is considering extending the limitation periods for breach of the statutory warranties to 10 years for serious defects (previously 6 years) and 3 years for minor defects (previously 2 years).[11]
  • Requiring that payment claims served on residential owner-occupiers under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) include a “Homeowners Notice” document explaining the effect of and possible responses to a payment claim under SOPA.[12]
  1. Securing prompt and fair payment for building work

The BCLA introduces reforms to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) to ensure builders and tradespeople are paid more quickly and fairly. These reforms include:

  • Granting broader powers to adjudicators under SOPA including a power to obtain expert evidence and testing to resolve disputed factual issues.[13]
  • Creating ‘review adjudicators’ which are empowered to review SOPA adjudication determinations.[14] This is designed to operate as a new review mechanism of adjudication determinations which avoids the cost and delay associated with seeking judicial review of adjudication determinations in court.
  1. Strengthening building compliance and enforcement

The BCE introduces a consistent regulatory framework for the building and construction industry, by:

  • Repealing the RAB Act.
  • Expanding the NSW Building Commissioner and Secretary’s compliance and enforcement powers.[15]
    • Expanded powers include the ability to carry out investigations, require remedial action and/or rectification of serious defects, dispute resolution powers, and disciplinary action powers.
    • Existing compliance and enforcement powers for class 2 buildings will apply to all building work.
    • Promoting NSW Fair Trading as a body empowered to resolve building disputes.
    • Introducing a demerit points scheme to deter building licence holders from committing offences under building enforcement legislation.[16]
  • Establishing personal liability for directors and other ‘influential’ individuals for offences by the corporation.[17]
    • Directors or other individuals involved in the management of a corporation may be held personally liable for offences committed by the corporation/contracting entity. This shifting of liability acts as a significant deterrent for unauthorised behaviour and exposes individuals to harsh penalties.
    • This shift follows decisions of the NSW Supreme Court which indicate that the DBP Act duty of care is owed by directors or other individuals exercising ‘substantive control’ over building works.[18]
  • Regulating intentional phoenix activity, i.e., the liquidation of a company to avoid payment of debts and establishment of a new company in its place.[19]
    • The BCE and BCLA propose a duty for licence holders, registered certifiers, registered design practitioners, and other building professionals to take reasonable steps to avoid engaging with persons involved in intentional phoenix activity.
  1. Licensing commercial and home building work

The Building Bill streamlines and expands licencing requirements for building work. The reforms include:

  • Expanding licencing requirements from home building works to also:[20]
    • commercial works;
    • intellectual works, e.g., design works; and
    • other miscellaneous works, e.g., fire safety works and engineering works.
  • Holding directors responsible for supervising compliance with licencing requirements. A failure to properly supervise regulated works will result in heavy penalties for directors.[21]
  1. Supplying and using safer building products

The BCLA proposes changes to improve the safety and quality of building products.[22] These include:

  • Proposing amendments to the Building Product (Safety) Act 2017 (NSW).
  • Establishing various mechanisms to prevent the use of defective building products, including building product use bans, building product supply bans, and building product recalls.
  • Introducing a chain of responsibility for developers, building professionals, and manufacturers in respect of defective building work and products.
    • Each participant in the chain owes multiple and concurrent duties which relate to their involvement in the supply/installation of the defective building product, and relevant risk management factors.
    • Each participant may be liable for offences relating to using/supply a building product in contravention of a building product use ban, building product supply ban, or building product recall.
  1. Upskilling the building and construction industry

The Building Bill and BCLA introduce reforms aimed at promoting the technical competence of building professionals, including:

  • Introducing standardised guidelines for continuing professional development of builders, specialist tradespeople, engineers, building designers, and other professionals.[23]
  • Permitting penalty notice officers to issue education and training notices. These introduce training or education as an alternative to disciplinary action.[24]
  • Expanding skills assessments for contractor licence holders.[25]
  1. Regulating prefabricated and manufactured homes

The Building Bill introduces provisions specifically targeting ‘kit homes’, i.e., pre-fabricated or manufactured homes, including:[26]

  • Introducing new regulations for kit homes to improve building quality.
  • Emphasising that certain consumer protections for owner-builder and contractor work extend to kit homes. This ensures that purchasers of kit homes are adequately protected from loss caused by defective manufacture/construction of kit homes.

Take home tips

The amendments which may be of most interest to you are set out below:

If you are a… You may be particularly affected by…
Residential owner Consolidated duty of care provisions and HBA regime (item 1)
Developer Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Personal liability for directors (item 3)
Builder Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Personal liability for directors (item 3)

Licensing requirements (item 4)
Specialist tradesperson Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Licensing requirements (item 4)

Reforms to safer building products (item 5)
Architect Consolidated duty of care provisions and HBA regime (item 1)

Licensing requirements (item 4)

Reforms to safer building products (item 5)
Certifier Consolidated duty of care provisions and HBA regime (item 1)

Licensing requirements (item 4)
Building product supplier or manufacturer Reforms to safer building products (item 5)

 

The draft bills closed for submissions on 25 November 2022. The NSW Government will now consider further amendments. The bills will be implemented following public consultation, likely in 2024. For personalised advice on how you may be impacted by and can best prepare for the implementation of the reforms, please contact Bradbury Legal by phone on (02) 9030 7400 or by email at [email protected].

 

[1] See full text of the Draft Building Bill 2022 here.

[2] See full text of the Draft Building Compliance and Enforcement Bill 2022 here.

[3] See full text of the Draft Building and Construction Legislation Amendment Bill 2022 here.

[4] See full text of the Draft Building and Construction Legislation Amendment Regulation 2022 here.

[5] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624. For further detail, see our article on this decision here.

[6] Draft Building Bill 2022 (NSW) s 216.

[7] Draft Building Bill 2022 (NSW) s 217.

[8] Limitation Act 1969 (NSW) ss 7, 14(1)(a).

[9] Draft Building Bill 2022 (NSW) s 76; Draft Building Compliance and Enforcement Bill 2022 (NSW) Schedule 2.

[10] Draft Building Bill 2022 (NSW) s 75.

[11] Regulatory Impact Statement Part 3 for the Draft Building Bill 2022, accessible here.

[12] Draft Building Bill and Construction Legislation Amendment Regulation 2022 (NSW) Schedule 2 item [5].

[13] Draft Building Bill and Construction Legislation Amendment Bill 2022 (NSW) Schedule 3 item [5].

[14] Draft Building Compliance and Enforcement Bill 2022 (NSW) Schedule 3 item [7].

[15] Draft Building Compliance and Enforcement Bill 2022 (NSW) Parts 2–6.

[16] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 7.

[17] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 8 Division 4.

[18] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624; The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659. See our previous articles here and here.

[19] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 6; Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 10.

[20] Draft Building Bill 2022 (NSW) Parts 1–3.

[21] Draft Building Bill 2022 (NSW) Part 3 Division 3.

[22] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 1.

[23] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 11.

[24] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 9.

[25] Draft Building Bill 2022 (NSW) Part 3 Division 2.

[26] Draft Building Bill 2022 (NSW) Parts 2, 4.

Overview of the National Construction Code (NCC) 2022

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Various changes to the NCC are being implemented with new general requirements under the NCC 2022 to come into effect from 1 May 2023.

Some of the main changes include new liveable housing requirements, new residential energy efficiency and updated condensation mitigation, new fire performance requirements and the use of lead-free plumbing products.

Does the NCC 2022 Apply to My Construction Works?

The NCC 2022 will apply to construction contracts with applications for construction certificates issued on or following 1 May 2023 (subject to the transition periods outlined in the timeline below) and will be adopted by all states and territories (subject to any state and territory variations).

The NCC 2022 staged timeline is as follows:

1 October 2022: NCC 2022 Optional Adoption

  • Full NCC 2022 published.

1 May 2023: NCC 2022 Mandatory Adoption

  • General provisions come into effect (Except new energy efficiency and condensation and liveable housing).

1 October 2023: Transition Period Ends

  • New liveable housing requirements come into effect; and
  • New energy efficiency and condensation mitigation requirements come into effect.

1 September 2025: Transition Period Ends

  • Lead-free plumbing product requirements come into effect.

What Does This Mean for the Construction Industry?

Following their regulatory impact assessment, the Australian Building Codes Board (ABCB) have concluded that there are cost-effective improvements that will be implemented in the new code.

There will also be an improved structure and clause referencing system adopted which will include a Section-Part-Type-Clause system to improve consistency, user experience and online accessibility.

Energy Efficiency

There will be new energy efficiency requirements with a new minimum standard of thermal performance at 7 Stars NatHERS rating, compared to the previous 6 Stars NatHERS rating, to improve the thermal comfort of homes year-round.

There will also be a new annual energy use budget that provides a flexible approach to encouraging the selection of more efficient equipment. The annual energy use will be measured using a new ‘Whole of Home’ rating out of 100 which indicates whether the home meets the NCC budget. This rating will be separate from the NatHERS star rating assessment out of ten.

The options for demonstrating compliance with the performance requirements include using NatHERs accredited software, Deemed-to-Satisfy (DTS) elemental provisions, verification methods and performance solutions.

Fire Safety

There will also be changes implemented with regard to fire safety and the fire performance rating of building elements. The ABCB has considered stakeholder feedback in creating opportunities to integrate practical concessions whilst maintaining building safety. The main changes are additional concessions for minor, combustible building elements in section C2D10 (equivalent to section c1.9 in the 2019 code).

Plumbing Products

Changes have also been made to Volume Three of the NCC (Plumbing). These changes followed Macquarie University’s Lead in Plumbing Products and Materials Report which indicated that there is a possibility that Australia’s drinking water is currently susceptible to leaching from copper alloy drinking water products.

In response, the new code will require copper alloy plumbing products in contact with drinking water to contain less than 0.25% lead contact.

This will lead to major long-term health improvements for all Australians. Though, during the transition period between 1 September 2022 and 1 September 2025, plumbers may continue with the installation of existing products, provided that the products are certified under the WaterMark Certification Scheme.

Accessibility

Further, the new code aims to create more accessible housing and is based on the Silver Level of the Liveable Housing Design (LHA) Guidelines. The new rules aim to make Class 1a buildings (houses and townhouses) and Class 2 sole-occupancy units (individual apartments) easier to access and live in as well as being more cost-effective.

To Consider

It is important to review and consider the changes that are to be implemented in the new code.  The NCC 2022 may apply to your construction contract if the application for a construction certificate was made on or following the date on which the new code takes effect, which will be 1 May 2023 in the majority of cases.

For further information regarding the changes implemented in the new code, the preview of the NCC 2022 may be accessed through the following link: NCC 2022 .

 

 

 

Breach of contract or breach of statutory warranty? A lesson on limitation periods

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Part 2C of the Home Building Act 1989 (NSW) (HBA) sets out the statutory warranties which are implied into all contracts for residential building work. The statutory warranties are given by the holder of a contract licence (usually the builder) for the benefit of owners and serve as a guarantee that the works will meet a certain standard, for example, that the works will be done with due care and skill and will be in accordance with contract plans and specifications.[1] Section 18E(1) of the HBA provides that if a statutory warranty is breached, the limitation period for commencing proceedings is six years in the case of major defects, and two years in other cases.

In Onslow v Cullen [2022] NSWSC 1257, Justice Adamson considered the applicable limitation period where defective residential building works amount to both a breach of contract and a breach of the statutory warranties. The decision has important consequences for owners bringing a claim for breach of the statutory warranties, particularly in respect of non-major defects.

Facts

In January 2016, Mr Onslow, the builder, contracted with Mr and Mrs Cullen, the owners, to carry out building work on their residential property.[2] The contract was in the standard form issued by the Housing Industry Association (HIA) and clause 39 incorporated the statutory warranties into the contract.[3]

In April 2017, the builder left the property before completing the building works.[4] In August 2019, the owners commenced proceedings against the builder, claiming damages for breach of contract in respect of the incomplete works and certain defects in the completed works.[5] A dispute arose as to the applicable limitation period for the owners’ claim:

  • The builder argued that the defects in the completed works were non-major defects, and therefore that a two-year limitation period applied to the claim under section 18E(1)(b) of the HBA.[6] Since the owners commenced the proceedings 2 years and 4 months after the builder left the site, this would mean that the portion of the claim relating to defects in the completed works would be statute-barred and the owners would be unable to recover.
  • The owners argued that they had framed their claim as breach of contract, not breach of the statutory warranties, so a six-year limitation period should apply.[7]
  • Both parties accepted that the incomplete works constituted major defects, and therefore a six-year limitation period would apply regardless of whether the claim was framed as breach of contract or as breach of statutory warranty.[8]

Limitation period: two years or six years?

Justice Adamson considered that the applicable limitation period for the non-major defects was two years.

Relevant principles from the Limitation Act 1969 (NSW) (Limitation Act)

While the limitation period for breach of contract is typically six years,[9] section 7(a) of the Limitation Act provides that where legislation specifies another limitation period, that other limitation period will apply. Therefore, Justice Adamson held that if the owners claim could be properly characterised as a claim for breach of statutory warranty, the two-year limitation period under section 18E(1)(b) of the HBA would take precedence over the typical six-year limitation period for breach of contract.[10]

Clause 39 of the contract

The owners’ argument that they had framed their claim as breach of contract, not breach of statutory warranty, did not impact the applicable limitation period. Justice Adamson emphasised that a statutory warranty is merely a contractual term which has been implied by statute.[11] The fact that the statutory warranties were expressly incorporated into clause 39 of the contract did not change the nature of the owners’ claim.

Justice Adamson construed clause 39 and held that the parties objectively intended that the statutory warranties would only be given in so far as is required under the HBA, i.e., that the warranties for non-major defects would only be given for two years. This was because:

  • section 7(2)(f) of the HBA requires that the statutory warranties are included in the HBA;[12] and
  • the statutory warranties in clause 39 were expressed subject to the qualification “to the extent required by the Act, the builder warrants that […]”.[13]

Other relevant considerations

Justice Adamson also highlighted section 18G of the HBA, which prevents parties from restricting or removing statutory warranties “to remove the rights of a person”. His Honour emphasised that “a person” in section 18G applies equally to builders as well as owners, and a builder has a right not be sued in respect of non-major defects after the two-year period has expired.[14] Section 18G therefore provided support for the construction that the applicable limitation period in respect of the non-major defects was two years.

Finally, Justice Adamson noted that the contract was in the standard form issued by the HIA. Accordingly, it could not be described as having been “prepared by the builder” and therefore could not be construed against the builder.[15]

Decision

Justice Adamson held that the owners’ claim in respect of the non-major defects, being the defects in the completed works, was governed by the two-year limitation period in section 18E(1)(b). As a result, this portion of the owners’ claim was statute-barred, and the owners could not recover this amount.[16]

Take home tips

In cases involving defective residential building works, owners should avoid delay in commencing proceedings. Even where a contract is in place, a short limitation period may apply if the defects are non-major.

Owners should seek legal advice promptly to preserve their ability to commence proceedings. Bradbury Legal is experienced in advising both owners and builders in respect of defective residential building works, both before and during litigation. For specialist and tailored advice, please contact a member of our team by phone on (02) 9030 7400 or by email at [email protected].

[1] Home Building Act 1989 (NSW) s 18B(1)(a).

[2] Onslow v Cullen [2022] NSWSC 1257, [1].

[3] Onslow v Cullen [2022] NSWSC 1257, [10]–[13].

[4] Onslow v Cullen [2022] NSWSC 1257, [1].

[5] Onslow v Cullen [2022] NSWSC 1257, [2].

[6] Onslow v Cullen [2022] NSWSC 1257, [2].

[7] Onslow v Cullen [2022] NSWSC 1257, [29].

[8] For the limitation period for breach of contract, see Limitation Act 1969 (NSW) s 14(1)(a). For the limitation period for breach of statutory warranty which results in a major defect, see Home Building Act 1989 (NSW) s 18E(1)(b).

[9] Limitation Act 1969 (NSW) s 14(1)(a).

[10] Onslow v Cullen [2022] NSWSC 1257, [52].

[11] Onslow v Cullen [2022] NSWSC 1257, [58].

[12] Onslow v Cullen [2022] NSWSC 1257, [55]–[56].

[13] Onslow v Cullen [2022] NSWSC 1257, [56].

[14] Onslow v Cullen [2022] NSWSC 1257, [59]–[60].

[15] Onslow v Cullen [2022] NSWSC 1257, [61]–[62].

[16] Onslow v Cullen [2022] NSWSC 1257, [63].

Case Note: Strata Plan 92450 v JKN Para 1 Pty Ltd & Anor [2022] NSWSC 958

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       I   Overview

In a recent decision by the Supreme Court of New South Wales, Strata Plan 92450 v JKN Para 1 Pty Ltd & Anor [2022] NSWSC 958, the Court considered the application of section 18 of the Home Building Act 1989 (NSW)(“the Act”) in determining whether the allegedly combustible Vitrabond FR aluminium composite panels (“ACP Cladding”) installed on the property comprising 28 storeys and 133 lots (“Building”) complied with the Building Code of Australia (“BCA”) and the statutory warranties under the Act.

       II   Facts

  1. The Owners Corporation argued that the ACP cladding which was installed on the Building did not comply with the provisions under section 18B of the Act, in particular, that the product used was allegedly combustible.
  2. Section 18B of the Act provides warranties as to residential building works that are implied in every residential building work contract.
  • Some of the relevant warranties provided in this section are as follows:
  1. That all materials supplied by the contractor will be “good and suitable” for the purpose that they are to be used; and
  2. That work consisting of the construction of a dwelling will be “reasonably fit for occupation as a dwelling”.
  3. The main question in this case was whether the ACP cladding used, should it have been established to be combustible, breached the warranties noted above, and whether it complied with the BCA.

    III   Issues

A  Did the ACP cladding installed on the Building comply with the DtS provisions under the BCA?

  1. No AS1530.1 test was available to establish that the ACP cladding was not combustible (as defined), thus, the cladding installed on the building did not comply with the DtS provisions of the BCA.
  2. Further, it was held that even if the ACP cladding was established to be combustible as defined in the BCA, there was still the possibility of an Alternative Solution to overcome that risk.[1]
  • The Defendants argued that even if the ACP cladding did not pass the test under AS1530.1 for building materials, components, and structures or the test under AS5113 for fire propagation, there have been alternative fire safety measures implemented to address the fire hazard.

B  Did the ACP cladding comply with the BCA with regards to Alternative Solution under the provisions?

  1. When the question regarding whether the ACP cladding is compliant with the BCA in terms of Alternative Solution arose, it was held that it was not as there has been no Alternative Solution under the BCA that has been prepared before the issue of a construction certificate, or at the time of judgment.[2]

C  Was the ACP cladding composed of material that is not suitable for the purpose for which it is used?

  1. The Owners Corporation relied on the statutory warranties implied by section 18B of the Act for residential building works (mentioned in section II (iii) of this case note) and argued that the material used for the ACP cladding was not suitable for the residential building work as the product is allegedly combustible and affected the use of the exits in the building in the event of a fire.
  2. The Defendants argued that considering the ACP cladding was installed along with other fire safety features in the building (such as the sprinkler system), the material used is suitable for the purpose for which it is used.
  • To prove that a product is “combustible” within the meaning of the BCA, it needs to be established by a AS1530.1 test result.
  1. There was no evidence that the ACP cladding was combustible by any test whether it be a cone calorimeter test (a fire testing tool that measures the amount of oxygen consumed during the combustion of a sample material) or any other to prove that it would not be suitable for its purpose.
  2. There must be evidence indicating the rate of combustion of the ACP cladding and how it would affect the safety features of the building, such as the sprinkler system.[3]
  3. The Owners Corporation contended that due to the composition of the product, being 35-40% polyethylene, the ACP cladding would not be suitable or good for its use, however, there was no evidence of how the ACP cladding would perform in a fire in conjunction with its fire-retardant component.
  • Further, it was argued that the cladding is not suitable for its purpose as it is now banned under the Building Products (Safety) Act 2017 (NSW) (“BPSA”). This argument was not accepted as it is not possible to conclude that a material used in construction works was never suitable or good for its purpose due to the legislative reforms that now ban a product that previously was allowed.[4]

D  Did the ACP  cladding result in a dwelling that is “not reasonably fit for occupation as a dwelling”?

  1. It is agreed that the nature of the BCA is not determinative when assessing whether the Building is “reasonably fit for occupation as a dwelling”, although remains relevant.[5]
  2. It was argued by the Owners Corporation that the building was “not reasonably fit for occupation as a dwelling” due to its combustible nature.
  • The Defendants contended that the ACP cladding installed on the Building, due to other fire safety features present in the building such as the sprinkler system, allowed the Building to be considered “reasonably fit for occupation as a dwelling” under section 18B of the Act.
  1. It was concluded that there would be a breach of statutory warranty if it were established that the use of the ACP cladding in the Building gave rise to a real “danger to health” or “risk to life and limb” as per Owners Strata Plan 69230 v Kell & Rigby Holdings Pty Ltd.[6]

E  Did the Defendants breach the statutory warranties?

  1. It was found that the Owners Corporation did not establish that JKN and Toplace breached the statutory warranties on the balance of probabilities. Namely, they did not establish that the combustion of the ACP cladding that was installed on the building would create a risk of the fire spreading by the façade, through the cavity behind the ACP cladding, and into the windows of the Building, making the Building “not reasonably fit for occupation as a dwelling” or making the product “not suitable for its use”. Should these factors have been established, the statutory warranties would have been breached.[7]
  2. It was also held that there was no breach of the warranty that the material must be suitable for its purpose for the reasons mentioned in section C (iii) of this case note.

F  Did the Owners Corporation suffer any loss and if so, how is the loss assessed?

  1. It was not established that the Defendants breached the statutory warranties as noted above, thus, both questions do not arise.

G  Is there a liability to pay damages to rectify the construction works?

  1. The Owners Corporation contended that it is necessary to replace the ACP cladding with a product that is considered “non-combustible” under the provisions of the BCA and that the Defendants were to pay the costs for this rectification.
  2. It was concluded that should the Owners Corporation have undertaken a cone calorimeter combustibility test of the ACP cladding to establish that the combustible nature of the ACP cladding would outweigh the alternative fire safety features in the Building, such as the sprinkler system, the Defendants may have been liable to pay damages.[8]
  • However, as the Owners Corporation was unable to establish this risk on the Balance of Probabilities, the Court concluded in favour of the Defendants as consequential liability on behalf of the Defendants could not be established.[9]

    IV To Consider

This case highlights the importance of properly determining risks associated with certain building products and undertaking the necessary tests to establish whether the installation or use of that product results in a breach of the relevant statutory warranties. For contractors, this case underlines the importance of using Alternative Solutions to eliminate safety risks that would have been present if it were not for the measures implemented.

[1] Strata Plan 92450 v JKN Para 1 Pty Ltd & Anor [2022] NSWSC 958 [45].

[2] Ibid [48].

[3] Ibid [46].

[4] Ibid [55].

[5] Ibid [59].

[6] [2020] NSWSC 612 at [108].

[7] Ibid n 1 [56].

[8] Ibid [68].

[9] Ibid.

Substantive control – the broad scope of the DBP Act statutory duty

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The scope of the statutory duty of care created by Part 4 of the Design and Building Practitioner’s Act 2020 (NSW) (DBP Act) is clarified in the NSW Supreme Court decision of The Owners – Strata Plan No 84674 v Pafburn Pty Ltd.[1] Section 37(1) of the DBP Act provides that a person who carries out construction work has a duty 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.[2]

In this decision, Justice Stevenson elaborates on the definitions of “construction work” and “a person who carries out construction work” under the DBP Act.

Facts

This case involves a claim brought by the Owners Corporation of a North Sydney strata development. The Owners Corporation claimed in respect of alleged breaches of the statutory duty by both the builder, Pafburn Pty Limited (Pafburn), and developer, Madarina Pty Limited (Madarina), of the strata development.[3] Relevantly, the builder and developer were related entities:

  • Mr and Mrs Obeid are the directors and shareholders of Pafburn; and
  • Mr Obeid is the director of Madarina, and Pafburn is the sole shareholder of Madarina.[4]

Interpretation of “construction work”

The Owners Corporation argued that Madarina owed the duty of care under section 37(1) of the DBP Act, notwithstanding that it had not done physical building work at the strata development. To resolve this issue, Justice Stevenson turned to the definition of “construction work” under section 36(1). This section provides that “construction work” means any of the following—

  • building work,
  • the preparation of regulated designs and other designs for building work,
  • the manufacture or supply of a building product used for building work,
  • supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work referred to in paragraph (a), (b) or (c).[5]

Justice Stevenson’s analysis focused on section 36(1)(d) of this definition, noting that there are two possible interpretations of “substantive control”. Either:

  • the person must have actually exercised substantive control; or
  • it is sufficient to show that the person had the ability to exercise substantive control, regardless of whether such control was in fact exercised.

Justice Stevenson preferred the latter interpretation of section 36(1)(d); a person will be held to have carried out “construction work” where they were in a position to exercise substantive control, even if they did not in fact exercise that control.[6]

A person will be considered to have the ability to exercise substantive control over building work where they were able to control how the building work was carried out. This is a question of fact which will turn on the circumstances of each case. For example, Justice Stevenson suggested that a developer may have substantive control over building work where it owned all the shares in a builder and the two entities had common directors.[7]

In the present case, the question of whether Madarina had substantive control over the building works (and therefore whether it might owe a duty of care to the Owners Corporation) was left by Justice Stevenson for further consideration in a subsequent hearing.

Interpretation of “person who carries out construction work”

Next, Justice Stevenson considered whether an owner who carries out construction work on its own land may owe the duty of care. Madarina argued that the reference to “a person” in section 37(1) should be interpreted as excluding a person who was the owner of the land at the time at which the construction work was carried out. Madarina said that this interpretation would avoid the nonsensical result that the owner of the land might owe a duty of care to itself.[8]

Justice Stevenson did not accept this argument. Instead, his Honour avoided the nonsensical result by interpreting section 37(2) to mean that the duty is owed to each owner except an owner that has itself carried out the construction work.[9] This interpretation does not affect section 37(1), meaning that an owner who carries out construction work on its land will still owe a duty of care to subsequent owners of the land.

Does the duty extend to developers?

Finally, Justice Stevenson acknowledged that the Second Reading Speech for the Design and Building Practitioners Bill 2019 (NSW) suggested that the duty “does not extend to owners who are developers or large commercial entities”.[10] This suggestion is underpinned by the idea that these entities are sufficiently sophisticated to protect their commercial/financial interests through contract or otherwise. Despite this comment in the Second Reading Speech, there is nothing in the text of the DBP Act which excludes developers or large commercial entities from the scope of the duty of care. Justice Stevenson therefore concluded that the duty of care in section 37(1) extends equally to these entities.[11]

Key takeaways

The decision in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd emphasises the broad application of the DBP Act duty of care. The decision is particularly relevant to parties with shared directors or similar corporate structures to builders who undertake ‘construction works’ for the purposes of the DBP Act. These parties may be held to owe a duty of care, even where they themselves have not carried out any physical building work.

Bradbury Legal is experienced in advising on parties’ potential liability under the DBP Act, including where the parties have not carried out any physical building work. For specialist and tailored advice, please contact a member of our team by phone on (02) 9030 7400 or by email at [email protected].

 

[1] [2022] NSWSC 659.

[2] Design and Building Practitioners Act 2020 (NSW) s 37(1).

[3] The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659, [6]–[10].

[4] The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659, [4].

[5] Design and Building Practitioners Act 2020 (NSW) s 36(1).

[6] The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659, [25]–[26].

[7] The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659, [26].

[8] The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659, [43]–[46].

[9] The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659, [52]–[57].

[10] New South Wales, Parliamentary Debates, Legislative Council, 19 November 2019, 1781 (The Hon. Damien Tudehope) <https://www.parliament.nsw.gov.au/Hansard/Pages/HansardResult.aspx#/docid/’HANSARD-1820781676-81076′>

[11] The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659, [49]–[50].

Building professionals beware – statutory duty under the DBP Act is not limited to class 2 buildings or the contracting builder

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The recent decision of the NSW Supreme Court in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) clarifies the scope of the statutory duty found in Part 4 of the Design and Building Practitioner’s Act 2020 (NSW) (DBP Act). Section 37(1) of the DBP Act provides that a person who carries out construction work has a duty 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 construction work.

Justice Stevenson explains that the duty extends not only to class 2 and mixed-use buildings (typically multi-story residential/mixed-use apartment buildings) but to all building types.

Facts & issues

The plaintiff, Goodwin Street Developments Pty Ltd (Goodwin), was the owner of land located close to the University of Newcastle. In July 2017, Goodwin entered a building contract with the first defendant, DSD Builders Pty Ltd (DSD), for the construction of three residential boarding houses on the land. Goodwin contended that the second defendant, Mr Roberts, negotiated and administered the building contract and controlled the carrying out of construction work on the site on behalf of DSD.[1]

In early 2018, disputes arose between Goodwin and DSD in relation to defects and delays in the building works. In March 2018, Goodwin discovered that someone (found by Justice Stevenson to be Mr Roberts) had maliciously damaged the buildings and works at the site – including by removing materials, fittings and fixtures.[2]

Goodwin terminated the building contract and commenced proceedings against DSD and Mr Roberts. DSD became insolvent in 2021. Justice Stevenson’s judgment concerns claims brought by Goodwin against Mr Roberts for:

  • trespass, in respect of the malicious damage to the site, and
  • breach of the statutory duty owed under section 37 of the DBP Act, in respect of the pre-existing defects in the works.

In relation to Goodwin’s claim for breach of the statutory duty, Justice Stevenson considered whether:

  • the statutory duty of care could arise in relation to the construction of a boarding house;
  • Mr Roberts did “construction work” for the purpose of section 36(1) of the DBP Act; and
  • Mr Roberts breached the requisite standard of care.

Does the statutory duty of care arise in relation to a boarding house?

Mr Roberts argued that he did not owe a duty of care to Goodwin under section 37 because the construction of a boarding house did not fall within the definition of “construction work” in the DBP Act.

The definition of “construction work” at section 36(1) of the DBP Act includes (a) building work, […] and (d) supervising, coordinating, project managing or otherwise having substantive control over the carrying out of building work. There is a tension between the definitions of building work under section 4 and 36 of the DBP Act.

On the one hand, section 4(1) provides that “for the purposes of this Act” building work only includes buildings of a class or type prescribed by the regulations – that is, class 2 and mixed-use buildings.[3] On the other hand, section 36(1) provides that in Part 4, “building” has the same meaning as it has in the Environmental Planning and Assessment Act 1979 (NSW) (EPAA). The EPPA of “building” is much broader and extends to any structure or part of a structure (with certain exceptions such as manufactured homes and moveable dwellings).[4] It is worth noting that section 36(5) of the DBP Act states that the regulations may exclude work from being construction work for the purposes of Part 4.

Justice Stevenson resolved this tension by finding that the definition of “building work” in section 4 of the DBP Act (and in the regulations) has no application to the statutory duty at Part 4 of the DBP Act.[5] His Honour reached this conclusion for two main reasons:

  • It appears from parliamentary transcripts that the legislature intended for the duty of care to provide “broad coverage” for “all buildings”.[6]
  • Part 4 of the DBP Act commenced in June 2020 with retrospective operation, but the regulations, along with Parts 2, 3 and 5 to 9 of the DBP Act, only commenced in July 2021 and have no retrospective operation. Justice Stevenson therefore held that the statutory regime could only operate coherently if the section 4 definition of “building work” is limited to the parts of the DBP Act commencing in July 2021 and does not apply to Part 4.[7]

Following this reasoning, the boarding house is a “building” on which “construction work” was done under section 36(1). The boarding house therefore fell within the scope of the statutory duty in section 37(1).[8]

Did Mr Roberts do “construction work” on the boarding house?

Justice Stevenson held that Mr Roberts had clearly done “construction work” because he had been engaged in project management and supervision of DSD’s works within the meaning of section 36(1)(d) of the DBP Act. Mr Roberts’ supervision of the works included introducing himself as the builder and repeatedly assuring Goodwin of the progress of the works and status of defects.[9]

Did Mr Roberts breach the requisite standard of care?

There were 38 defects in the construction of the boarding house. Mr Roberts gave repeated written assurances that defects would be “all fixed” and that Goodwin should not worry.[10] Justice Stevenson held that breach of the statutory duty was established because Mr Roberts was the project manager and supervisor of the construction works, gave these repeated assurances, but failed to correct the defects.[11]

Given that Goodwin had successfully established the existence of duty, breach and causation, Mr Roberts was liable for damages reflecting the cost of rectifying the defects.[12]

Justice Stevenson’s explicit discussion of breach is consistent with his Honour’s previous remarks in The Owners – Strata Plan No. 87060 v Loulach Developments Pty Ltd (No 2).[13] In that case, his Honour explained that although claimants can rely on section 37 of the DBP Act as a shortcut to establishing duty, they are still required to adequately establish that the duty has been breached. Our previous article, available here, discusses this case in further detail.

Key takeaways

Building professionals beware: the decision in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) means that you may be liable in negligence for a failure to exercise reasonable care in construction works on virtually all buildings – not just class 2 or mixed-use buildings.  Further, that liability is not necessarily limited to the contracting entity (usually a company) that is engaged as the builder.

Bradbury Legal is experienced both in assisting owners with potential claims under the DBP Act, and in acting on behalf of building professionals to defend these claims. For specialist and tailored advice, please contact a member of our team by phone on (02) 9030 7400 or by email at [email protected].

 

 

 

 

[1] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [1]–[5].

[2] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [6]–[10].

[3] Design and Building Practitioner’s Regulation 2021 (NSW) s 12.

[4] Environmental Planning and Assessment Act 1979 (NSW) s 1.4.

[5] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [11].

[6] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [106].

[7] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [113].

[8] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [118]–[120].

[9] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [133]–[138].

[10] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [142]–[144].

[11] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [145].

[12] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, [148].

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

Implied Contractual Terms for Payment

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You hire a builder to demolish and rebuild your house under a “cost plus” contract, meaning you are obligated to pay the builder’s costs plus a 10% margin. To make sure you know what you are paying for, you ensure the contract requires detailed and itemised invoices with every progress payment claim raised by the builder. The builder has one year to complete the house. What would you do when the builder goes over $1 million and 3 years past budget? Would you decline to pay progress payments which did not comply with the contract, because they lacked the itemised costing?

 

This was the case in Renbar Constructions Pty Ltd v Sader [2022] NSWSC 172. The Court considered whether the builder, Renbar Constructions, was entitled to recover the balance of the building costs incurred in performance of the contract. The Court also considered how much in damages the owner, Dr Sader, would be entitled to for defects, and the significant delay to the completion of construction.

In total the builder raised sixteen progress claims, a dozen of which were paid by the owner despite the progress payment claims being non-compliant with the contract, which required detailed costing. Later, a dispute arose about the true cost and value of the building works, the lengthy delay, and defects with the building works.

The Court found a gap in the contract. On one hand, the contract required the owner to pay the “price of the building works in the manner and at the times stated in the contract”. On the other hand, it required the owner to pay “progressively as claimed” by the builder; claims which needed to be accompanied by invoices for building materials and other documents to entitle the builder to payment. The gap in the contract was found in the circumstances of the case— the owner was obligated to pay for the building works, but the builder was not entitled to payment until a progress claim was issued. Did the contract entitle the builder to payment when the payment claims did not comply with the contract requirements?

The Court found that the contract must have had an implied term that required the owner to pay the price for the building work done within a reasonable time, even though no valid progress payment claims were issued by the builder. The Court may infer that an implied contractual term exists if it is fair, obvious, clear, necessary to give business efficacy to the contract, and not in contradiction with other terms of the contract.

Consequently, Dr Sader could not rely on the lack of a valid progress payment claim as a defence against payment of the balance of the price for the building works. Sader could (and did) claim damages for the building defects and delay as a breach of contract.

Litigation for construction matters can be costly and unpredictable. But this risk can be minimised with the clear and careful drafting of contracts although, as this case shows, even standard form contracts can result in disputes. If it seems a project is becoming contentious, it may be worthwhile to engage legal assistance sooner rather than later to understand your rights and obligations, and before a costly dispute arises.