Since its enactment in 2020, the practical implications of the Design and Building Practitioners Act 2020 (NSW) (the 'DBP Act') has mystified many within the construction and legal industry.
In particular, the introduction of a statutory duty of care owed by "a person who carries out construction work" has raised questions as to the basis on which owners can exploit this new avenue to seek damages for defective building works.
The recent Supreme Court of New South Wales case of The Owners - Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) (Loulach) sheds some light on how the DBP Act applies in practice.
The body corporate of a residential building in Parramatta (Owners) commenced legal proceedings against the developer, Loulach Development Pty Ltd, and the builder, Loulach Steel Pty Ltd (Builder), for alleged defects in the building, principally water ingress and defective cladding.
The owners originally based their defects claim upon alleged breaches of the Home Building Act 1989 (NSW) (the 'HBA Act') before seeking to amend the claim by also relying on an alleged breach of the duty of care provisions under section 37 of the DBP Act.
Section 37 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 was done and arising from the construction work' (Duty of Care).
The Duty of Care is owed to both current and future owners of the land who are able to seek damages for a breach of the Duty of Care. It is important to note that section 41 of the DBP Act provides, amongst other things, that the Duty of Care "is subject to" the Civil Liability Act 2002 (NSW) (the 'CLA').
The Owners identified 451 defects in the building and argued that the mere fact there was a defect in the building which constituted a breach of the HBA Act statutory warranties established that the defect was the result of a breach by the Builder of the Duty of Care.
The Court disagreed with the Owners. It found that although the Duty of Care is automatically owed under the DBP Act, a party is required to prove that a breach of the Duty of Care has occurred. This includes meeting the tests for negligence as established under the common law and section 5B of the CLA which provides that a person is not negligent in failing to take precautions against a risk of harm unless:
- the risk was foreseeable;
- the risk was not insignificant; and
- in the circumstances, a reasonable person in the person's position would have taken those precautions.
The Court said that a party alleging a breach of the Duty of Care must identify the specific risks that the defendant was required to manage, and the precautions that should have been taken to manage those risks but did not. The mere fact that a defect exists does not establish that there has been a breach of the Duty of Care. A party alleging a breach must go a step further and establish that the manner of undertaking the works which gave rose to the defect was negligent.
Key takeaways
This case is significant as it provides much needed clarification as to what the Courts expect when a party is alleging a breach of the Duty of Care. It is not enough for a party to merely prove the existence of a building defect - one must look to the CLA and establish that the defendant has been negligent.
The Court's interpretation of the DBP Act is still developing and we anticipate that there will be further insights from the Courts this year as more owners attempt to rely upon the Duty of Care when pursuing builders and developers for defective works. Watch this space!
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