Tag Archive for: DBP Act

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 info@bradburylegal.com.au.

 

[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.

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].

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 info@bradburylegal.com.au.

 

 

 

 

[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].