Tag Archive for: duty of care

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].

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

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

Recap of the Duty of Care

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

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

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

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

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

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

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

Facts & Issues

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

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

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

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

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

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

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

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

Decision

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

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

A claim for negligence, must satisfy the following elements:

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

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

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

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

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

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

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

Key Takeaways

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

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

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

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

 

 

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

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

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

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

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

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

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