A new duty of care Design and Building Practitioners Act 2020

By Sebastian Brodowski is Special Counsel at William Roberts Lawyers. Patrick Wiggins is Special Counsel at Paramonte Legal. Both are Accredited Specialists in Commercial Litigation.

In response to the perceived building crisis in NSW, the State government has enacted the Design and Building Practitioners Act 2020 (NSW) (‘the Act’). The Act introduces a range of statutory obligations on builders, architects, engineers and other workers in the building industry. This article will focus on pt 4 of the Act which provides that anyone who performs construction work will owe a new statutory duty of care to both current and subsequent property owners.

Why a statutory duty of care?

The Shergold Weir Building Confidence Report on compliance and enforcement systems for the building and construction industry was released in 2018. In its response, the NSW Government recognised that although property owners had protections in the form of statutory warranties, there were doubts as to whether they were owed a duty of care and whether they had sufficient protection under the current legislative framework. (See Part 5, Building Stronger Foundations Discussion Paper, Implementing the NSW Government Response to the Shergold Weir Building Confidence Report, June 2019.) A statutory duty of care was consequently inserted into the Act in order to ‘eradicate’ any uncertainty as to whether a duty of care at common law was owed to property owners for defective work. (See the NSW Legislative Council Second Reading speeches of David Shoebridge, LC, Damien Tudehope, and Adam Searle).

Statutory duty to exercise reasonable care to avoid economic loss

Part 4 of the new Act is not entirely novel (there is already a statutory duty of care in s 177 of the Conveyancing Act in relation to the support for land), however the Act vastly extends the duty of care owed by persons in the construction industry to property owners at common law. Section 37(1) states: A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects – (a) in or related to a building for which the work is done, and (b) arising from the construction work.’

‘Construction work is broadly defined and includes: (a) residential building work under the Home Building Act 1989 (NSW) (‘HBA’), as well as (b) the preparation of designs, (c) the manufacture and supply of building products, and (d) the supervision, coordination, project managing or otherwise exercising substantive control over carrying out of the works referred to in (a), (b) or (c) (s 36(1)).

The duty of care is owed to all owners of the land and to all subsequent owners of the land. The term ‘owner’ is also broadly defined and includes individuals, corporations, owners corporations, and associations for schemes under the Community Land Management Act 1989 (NSW) and also includes ‘every person who jointly or severally or at law or in equity is entitled to receive, or receives, or if the land were let to a tenant would receive, the rents and profits of the land, whether as beneficial owner, trustee, mortgagee in possession or otherwise’ (s 36(1)).

If a person breaches this duty, s 37(3) states that they are liable for damages ‘if the duty were a duty established by the common law of negligence’. Section 37 makes it clear that the duty is owed to each owner, and to all subsequent owners irrespective of whether the work was carried out under a contract with the owners or otherwise.

The Act does not specify the standard of care required by those who owe the new duty of care and expressly states that pt 4 is subject to the Civil Liability Act 2002 (NSW) (‘CLA’). Therefore, a plaintiff will still need to establish the remaining elements of any negligence claim at common law.

Further, pt 4 of the CLA makes any claim apportionable. This leaves any plaintiff in the somewhat more difficult situation of having to join additional defendants in circumstances where concurrent tortfeasors may be liable for the defects. This is unlike the situation with claims made under statutory warranties arising under the HBA, where the burden of seeking any contribution or indemnity is placed upon a defendant developer and/or builder.

Retrospective operation & limitations periods

Notwithstanding, or possibly in accordance with, the maxim nova constitutio futuris formam imponere debet, non praeteritis,1 the duty of care operates retrospectively if the loss first became apparent within the 10 years immediately before the commencement of s 37 (see sch 1, cl 5). While this means that the duty of care may be deemed to exist between a property owner and building practitioner, the Note to s 41 of the Act makes clear that the limitation periods under the Limitations Act 1969 (NSW) and s 6.20 of the Environmental Planning and Assessment Act 1979 (NSW) still apply. This means that whether by accident or design, the extended duty of care may extend further back in time than any available cause of action.

Earlier drafts of the Act provided that the duty would not apply to proceedings that were already before the Courts. However, the enacted legislation expressly provides that the extended duty of care applies even if proceedings were commenced prior to the introduction of s 37 and may be taken into consideration unless it would not be in the interests of justice to do so (sch1, cl 5(3)).

Contracting out, damages and interaction with other laws

The Act expressly prevents parties from delegating the duty of care or contracting out of pt 4 (ss 3940). The remedies in pt 4 are in addition to any other duties, statutory warranties and obligations imposed by any other Acts or the common law. The Act does not limit any damages or compensation that is available to a property owner arising from a breach of duty of care (s 41), in fact s 38 specifies situations where economic loss is deemed to have been suffered by owners corporations and associations.

How does part 4 impact property owners?

The greatest beneficiaries of the Act will be owners who were not protected under the HBA. This includes owners who purchased property and subsequently discovered it contained latent defects which were not apparent prior to the purchase. Another notable beneficiary will be those home owners who have discovered defects after the expiration of limitation periods under the HBA. The HBA limitation periods expire within six years of the completion of the works in the case of a ‘major defect’ and two years in any other case. In contrast, the limitation period for a common law negligence claim in NSW runs for six years from when the loss becomes apparent (or for up to 10 years after the work was completed), and with no distinction between ‘major’ and ‘non-major’ defects (Limitations Act 1969, s 14 and Environmental Planning and Assessment Act 1979 (NSW)s 6.20).

Further, by making it easier for property owners to sue subcontractors in negligence directly (rather than suing under the contract) it also provides a remedy in circumstances where the builder or developer may have become insolvent without having an insurance policy which covers all of the loss (in NSW, for example, the Home Building Compensation Fund will only pay up to a maximum of $340,000 per dwelling).

Residential home-owners in NSW will continue to have the benefit of the non-apportionable statutory warranties under s 18B of the HBA, requiring that the work ‘be done with due care and skill and in accordance with the plans and specifications in the contract’.

The fact that claims are apportionable may, in practice, encourage defendants to attempt to shift the blame to others involved in the work, such as architects, engineers, superintendent, certifiers and other contractors. This would inevitably lead to increased cost and expenses.

How does part 4 impact on the construction industry?

As stated above, the Act does not specify the standard of care required; it just expands the circumstances in which a duty of care will exist. As such, the Act doesn’t change the standard of care required of builders, subcontractors, architects or anyone else working on a building site. In most cases the standard of care may be determined by compliance with the National Construction Code and any other relevant codes, standards and practices. Those obligations have not changed as a result of this legislation.

What will likely change is that there could be an increase in defect litigation, as property owners who formerly did not have a remedy under the common law due to difficulties in establishing a duty of care, or who may have missed their limitation period under the HBA, seek to exercise their new cause of action.

Conclusions for practitioners

Practitioners would do well to consider if they can remember seeing any previous clients within the past six to 10 years who may be affected by these issues – whether because they had no cause of action at the time, were excluded by a limitation period, or otherwise missed their deadline for filing a claim. Practitioners presently acting in construction litigation should be alive to the possibility of pleading this as an additional cause of action.

1 Latin meaning ‘except in special cases, the new law ought to be construed so as to interfere as little as possible with vested rights’.

*First published in the August 2020 edition of the Law Society of NSW Journal.