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Residential Focus

15 June 2022

#Property, Planning & Development, #Construction, Infrastructure & Projects

Published by:

Nicholas Achurch

Residential Focus

When does a developer owe the statutory duty under the Design and Building Practitioners Act?

In The Owners – Strata Plan no 84674 v Pafburn Pty Ltd & Anor [2022] NSWSC 659, the Court considered who may be a “person” carrying out “construction work” for the purposes of the statutory duty in part 4 of the Design and Building Practitioners Act 2020 (NSW) (Act).

The interpretation questions were raised by a developer who argued that it did not carry out “construction work” within the meaning of the Act and, in any event, could not be a “person” who owed the duty by virtue of its role.

Background

The plaintiff Owners Corporation of a strata development (Owners) commenced proceedings against the builder of the development, Pafburn Pty Limited (Builder) and the developer, Madarina Pty Limited (Developer).

The works were carried out under an oral contract between the Developer and the Builder, and were completed in December 2010. The proceedings were commenced days within the expiry of the 10-year long-stop period, and the sole cause of action was breach of statutory duty under section 37 of the Act. 

Relevantly, section 37 of the Act provides that:

" (1) A person who carried out construction work has a duty to exercise reasonable care to avoid economic loss cause by defects:

      ….

     (b) arising from construction work

     ….

(4) the duty of care is owed to an owner whether or not the construction was carried out –

     (a)  under a contract or other arrangement entered into with the owner or another person, or

    (b) otherwise than under a contract or arrangement."

What is “construction work”?

The Developer argued that it did not carry out “construction work” for the purposes of Part 4 of the Act, so there was no reasonable cause of action against it.

“Construction work” is defined in part 4 of the Act as, relevantly:

"construction work means the following -    

(a) building,

….

(d) supervising, coordinating, project managing or otherwise having substantial control over the carrying out of any work referred to in paragraph (a) …"

The question before the Court was whether the Developer fell within limb (d) of this definition.

In approaching the issue, the Court considered whether, to establish that a person had substantial control over building work, it is necessary to show that the person:

    • actually had “substantive control” or;
    • could exercise “substantive control”, whether or not that control was exercised.

The Court found that the words “otherwise having substantive control” in the definition of “construction works” pointed to a conclusion, having regard to all relevant circumstances, that a person could have substantive control over the carrying out of building work without actually exercising it at a particular point in time. Accordingly, those who have the ability to exercise “substantive control” may owe the statutory duty.

This approach neatly avoids factual issues around actual exercise.

The Court concluded that it is sufficient, to enliven the definition, to establish that the person was in a position where the person was able to control how the work was carried out, giving the example:

“the fact that, say, a developer owned all the shares in a builder, and had common directors, might lead to an inference of such an ability to control.”

Who is a “person”?

The Developer argued that a “person” for the purposes of section 37 of the Act does not include the  owner of the land at the time that the construction work was carried out. Otherwise, an absurdity would arise as the owner at the time the construction work was carried out would owe itself a duty of care to avoid causing itself economic loss.

In aid of its argument, the Developer relied on the Second Reading Speech, which included (although apparently in relation to those to whom a duty is owed, rather than those who owe a duty, and is not reflected in the final wording of the Act) that:

“the duty deliberately does not extend to owners who are developers or large commercial entities, as the Government considered these entities to be sufficiently sophisticated and able to contractually protect their interests.”

The Court found that there was no such exclusion and that the duty is directed not only to a builder who engaged in the relevant building works but to any other “person” who carried out “construction work” as defined under part 4 of the Act. Further, it was not Parliament’s intention to exclude developers from owing the statutory duty, and any anomaly in the wording with respect to developers can be alleviated by the expression “each owner” in section 37(2).

Implications

An expansive approach is being taken to the application of the statutory duty. This can be read as consistent with the reform agenda for the construction industry in NSW, of which the Act is part.

Those involved in construction work in NSW are on notice that their designation/role, or degrees of separation from physically carrying out the work may not be sufficient to avoid the duty.

Authors: Christine Jones & Nicholas Achurch

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Time running out for land owners in south-west Sydney estate stuck in sewerage limbo
Over 30 landowners may lose their land nearly three years after purchasing land at Torana Estate in Austral, NSW due to a lack of sewerage connections. The land owners signed three-year sunset clauses with the developer Kitron, which allows Kitron to refund deposits and re-sell the land (12 June 2022).  More…

Council takes owner of gutted Sydney boarding house to court over concerns for safety of passersby
The owner of a Sydney boarding house where three people died in a blaze is being taken to court by the local council after allegedly failing to make the gutted property safe for passers-by (13 June 2022).  More…

Land supply to constrain building activity in 2023
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Published – articles, papers, reports

Market Sentiment Survey
Labour shortages and major increases in the cost of construction materials are seeing the construction sector across the nation overheat according to a new market sentiment report released today by Arcadis and the Australian Constructors Association (9 June 2022). Read the report here.

Responses to Consultation RIS on proposed NCC 2022 residential energy efficiency provisions
The Australian Building Codes Board has published an interim consultation report that summarises the key themes raised by stakeholders and gives a broad response to each theme. A full consultation report will be released with the Decision Regulatory Impact Statement in the middle of 2022 (6 June 2022). Read the report here.

Identifying limitations of Australian Standards for cold-water plumbing design: Comparing actual and designed demand in multi-residential buildings
Funded by the ABCB's Student Research Scholarship, this report studies the actual water demand in Australian multi-level residential buildings. Research conducted throughout this report consists of three components to identify the current limitations of Australian cold-water service design standards and practices (2 June 2022). Read the report here.

Australian Bureau of Statistics - Building Approvals, Australia
This data provides the number of dwelling units and value of buildings approved. The seasonally adjusted estimate for total dwellings approved fell 2.4% (April 2022: released 31 May 2022). Read more here.

Research on consumer confidence to purchase apartments
The Office of the Building Commissioner published a report exploring the current state of confidence for consumers towards purchasing an apartments in NSW. The report found 3 in 10 people looking to purchase an apartment in the next 2 years would be confident buying an apartment in the current market (27 May 2022). Read the report here.

Practice

The Professional Standards Scheme – How This Relates to Levels of Professional Indemnity Insurance
The Australian Institute of Building Surveyors is aware that there are misconceptions regarding the interaction between the Professional Standards Scheme (‘the PSS’) and Professional Indemnity insurance (‘PI insurance’) that require urgent clarification (9 June 2022). Read more here.

NCC Volume One sanitary facilities calculator
This Australian Building Codes Board resource assists in better understanding and applying Part F2, Sanitary and other facilities DTS Provisions (2 June 2022). Read more here.

Cases

Marinko v The Owners – Strata Plan No 7596 [2022] NSWCATAP 187
LAND LAW – Strata titles –  application for the appointment of a compulsory strata manager under s 237 of the Strata Titles Management Act 2015 (NSW) (SMA) – alleged failure by the owners corporation to comply with consent orders made in earlier proceedings in respect of rectification work to be done for the benefit of a lot owner, including to raise special levies – alleged breach by the owners corporation of s 106 of the SMA – costs order made against the lot owner in dismissing his proceedings against the owners corporation on the basis he was the unsuccessful party. APPEAL – alleged errors of law, principally, by the Tribunal failing to respond to substantial and significant submissions and supporting evidence – whether Rule 38 of the Civil and Administrative Rules 2014 (NSW) was applicable to the proceedings at first instance and, hence, on appeal by reason of Rule 38A.
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Strata Schemes Management Act 2015 (NSW).

Robinson v Quick Built Systems Pty Ltd [2022] NSWCATAP 192
APPEAL – NCAT – leave to appeal – no transcript or sound recording of hearing before Tribunal – limited and incomplete evidence on appeal – unable to determine whether Tribunal’s findings were not fair and equitable or against the weight of evidence – no substantial miscarriage of justice – no issue of principle.
Civil and Administrative Tribunal Act 2013 (NSW); Home Building Act 1989 (NSW); Surveillance Devices Act 2007 (NSW).

Tohme v Commissioner for Fair Trading [2022] NSWCATAD 181
ADMINISTRATIVE REVIEW – application for extension of time in which to seek administrative review – factors relevant to the exercise of that discretion – extension of time granted.
Administrative Decisions Review Act 1997 (NSW); Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Home Building Act 1989 (NSW).

Tom v Commissioner of Fair Trading [2022] NSWCATOD 57
ADMINISTRATIVE LAW – REVIEW OF DECISION BY EXTERNAL DECISION-MAKER – decision to cancel contractor licence and disqualify a licence holder pursuant to section 62 of the Home Building Act 1989 (NSW); PRACTICE AND PROCEDURE – INTERLOCUTORY ORDER – joining a complainant to proceedings – access for the purposes of an inspection.
Administrative Decisions Review Act 1997; Civil and Administrative Tribunal Act 2013; Civil and Administrative Tribunal Rules 2014; Home Building Act 1989; Liquor Act 2007 ; Police Act 1990.

Legislation

NSW

Bills passed by both Houses of Parliament
Statute Law (Miscellaneous Provisions) Bill 2022 – 9 June 2022

Regulations and other miscellaneous instruments
Community Land Management Amendment (COVID-19) Regulation 2022 LW 1 June 2022
Environmental Planning and Assessment Amendment (Temporary Emergency Facilities) Regulation 2022 LW 3 June 2022
Strata Schemes Management Amendment (COVID-19) Regulation 2022 LW 1 June 2022

Environmental Planning Instruments
Ballina Local Environmental Plan 1987 (Amendment No 117) LW 10 June 2022
Byron Local Environmental Plan 2014 (Map Amendment No 2) LW 10 June 2022
Cessnock Local Environmental Plan 2011 (Amendment No 34) LW 10 June 2022
Coffs Harbour Local Environmental Plan 2013 (Map Amendment No 4) LW 10 June 2022
Newcastle Local Environmental Plan 2012 (Map Amendment No 1) LW 10 June 2022
Warringah Local Environmental Plan 2011 (Amendment No 27) LW 10 June 2022
Woollahra Local Environmental Plan 2014 (Amendment No 24) LW 10 June 2022
Campbelltown Local Environmental Plan 2015 (Map Amendment No 6) LW 3 June 2022
Great Lakes Local Environmental Plan 2014 (Amendment No 23) LW 3 June 2022
Maitland Local Environmental Plan 2011 (Map Amendment No 2) LW 3 June 2022
Muswellbrook Local Environmental Plan 2009 (Amendment No 16) LW 3 June 2022
State Environmental Planning Policy Amendment (Temporary Emergency Facilities) 2022 LW 3 June 2022

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Nicholas Achurch

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