The DBPA: when defects are just not enough
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.