Tag Archive for: building and construction specialists

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 info@bradburylegal.com.au.

 

[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].

Valmont Estopped In Its Tracks by Armani

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The issue of estoppel in the context of a rejected variation claim was recently considered by the NSW Court of Appeal in Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 2) [2021] NSWCA 93.

In this case, Valmont Interiors Pty Ltd (Valmont) was led to assume that it would be paid for additional joinery works that were directed by Giorgio Armani Australia Pty Ltd (Armani) as a purported variation.  However, as the procedure for claiming and approving variations under the contract was not adhered to, Armani sought to rely on the time bar in the variation provision to reject the claim.

Facts

In early 2016, Valmont entered into a contract with Armani to provide fit-out works for the new Emporio Armani store at Sydney Airport. The scope of works originally excluded certain joinery items, which were to be sourced by Armani from a third party supplier. However, shortly after the works commenced, the third party supplier was not able to meet the tight schedule for delivery and Armani directed Valmont to supply the joinery items.

Valmont supplied the joinery items but Armani refused to pay for them on the basis that Valmont did not follow the procedure set out in clause 15 of the contract for claiming a variation and waived its claim.  Relevantly, this clause provided that if Valmont considered that a direction of Armani constituted a variation it was required to give notice of the purported variation within five business days.  This clause also provided that failure to provide notice within the specified time period resulted in Valmont releasing and waiving any entitlement to a claim.

Valmont’s position was that Armani should be estopped from relying on the time bar in clause 15 to reject the claim because Armani did also not follow the procedure in clause 15 for instructing the supply of the additional joinery items (as well as for previous other variations).  As a result of this, Valmont argued that Armani led it to assume that strict compliance with the procedure in clause 15 was not required in order to claim payment for the additional joinery work.

The First Decision

The primary judge held that, although Valmont did not strictly comply with the procedure set out in clause 15 of the contract for claiming a variation, Armani was estopped from relying on the time bar in that clause and that the costs of certain variation were recoverable by Valmont.

However, the primary judge also found that at a certain point in time (being 11 April 2016), email correspondence between the parties corrected Valmont’s assumption that it could claim payment for variations without complying with the procedure set out in clause 15 of the contract and that Armani would rely on strict compliance with that procedure for future variations.  Accordingly, it was held that the estoppel ceased on that date and the costs of purposed variations after that date (including the additional joinery works) were not recoverable.

The Appeal

On appeal the Court disagreed with the primary judge and found that the estoppel continued to operate after the 11 April 2016 email because:

  1. the email did not displace Valmont’s assumption that was induced by Armani that it would be paid for supplying the additional joinery works. This was partly because Armani’s email was not sufficiently clear to correct Valmont’s assumption (ie. that strict compliance with clause 15 of the contract was not required in order to be paid for additional joinery works);
  2. the email conveyed that the supply of the joinery was not a variation but additional works outside of the contract;
  3. Valmont was entitled to expect to be paid for the additional joinery works that were directed by Armani. The fact that it continued to incur liabilities after receiving the email from Armani demonstrated that the email did not correct Valmont’s understanding of the situation.  Further, Valmont relied on that understanding to its detriment, and as it was no longer possible for Valmont to comply with clause 15 of the contract it could not overcome the detriment already suffered; and
  4. in the circumstances, it was unconscionable for Armani to refuse to pay Valmont for the additional joinery works.

Take home tips

We understand that in administering contracts parties do not always strictly comply with the procedures and timing set out in the contract for claims, especially if the parties consider they have a good relationship or believe that strict compliance is too formal.  This case highlights the potential serious consequences of taking that approach.

Parties to a contract should be aware of the risks of acting inconsistently with their rights under the contract (ie. in Armani’s case, not requiring compliance with the terms of the contract for claiming variations and also not formally directing variations), as this could lead to those rights being lost and there not being a basis to reject claims.

If a principal or head contractor (or other party in a similar position) is concerned that a particular state of affairs exists between them and the downstream party that is inconsistent with the contract, it is crucial that the principal or head contractor:

  1. corrects that understanding by stating in clear and precise terms that the current understanding must be departed from and that strict compliance with the contract is required;
  2. provides sufficient notice of this so that the downstream party has time to comply with the procedure in the contract for claims and can attempt to overcome any detriment; and
  3. then strictly requires and enforces the procedure in the contract for claims so as to avoid any doubt that another state of affairs exists between the parties.