QUESTION
You are tasked with critically analysing s37 of the Design and Building Practitioners Act 2020 (NSW), addressing particularly:
1. How this section modifies the common law position; and
2. How broadly the Courts have been applying this section thus far, in terms of persons
the Courts have deemed to fall within the scope of the section, and whether you
personally agree with the Courts’ statutory interpretation. Word limit: 2000
SOLUTION
Critical Analysis of Sec 37 of the Design and Building Practitioners Act, 2020 (NSW)
‘Duty of Care’ is one of the chief foundations on which the Law of Negligence under Common Law stands. Under the Common Law, this doctrine prevents unreasonable loss or harm of a person due to someone else’s negligence because this other person has a ‘Duty of Care.’ Once this duty is breached, it will make the negligent party legally liable. This is a long-established doctrine under the English Tort Law, which was brought into prominence with the landmark case of Donoghue v Stevenson[1]. This case is a true legal milestone in the Common Law, as before this, strangers did not owe each other any duty of care.
In New South Wales, the legislation, Design and Building Practitioners Act, 2020 (DBP Act), was brought into the legal scape with the primary aim of enabling systematic registration of design practitioners, professional engineers, professional design practitioners, specialist practitioners, and other building practitioners. This Act also includes Regulation of compliance declarations and a duty of care for related purposes[2].
Part four of this Act contains sections with regard to the doctrine of 'Duty of Care.' Section 37 of this Act lays down the provisions to be followed with regard to the ‘Extension of Duty of Care.’ As per this section, when ‘construction work’ is carried out by a person, then that person has a duty to take reasonable care so that any economic loss is avoided that is caused due to a
[1] Donoghue v Stevenson [1932] AC 562.
[2] Design and Building Practitioners Act 2020 (NSW).
defect with regard to the building for which the work is done or in the construction work that was done by the person[3]. This part of the section gives clarity with regard to the subject of the defect due to which liability will arise as per the doctrine of ‘Duty of Care’ under this Act. This section was added in the Act as a statutory measure with regard to the duty of care in order to "eradicate" any doubt over whether property owners were owed a duty of care at common law for subpar labour giving rise to defective work[4].
Moving ahead, the second part of this section talks about the person to whom the duty in question is owed. The answer to this, as per the Act, is that it is owed to the present as well as the future owners of the land on which the ‘construction work’ was done[5]. These owners, in case of a breach in the duty stated, are entitled to damages, as if such a duty was established under the Common Law[6]. Thereafter, in this section, it is also mentioned that whether or not the building work was done in accordance with a contract or other agreement made with the owner or another person, a duty of care is owed[7]. Furthermore, such a duty of care cannot be contractually excluded, nor can it be assigned to another person[8]. The clauses went into effect in June 2020 and are retroactively applicable for the prior ten years[9] as per the DBP Act[10].
Modification of the Common Law Position by this Section
There have been certain modifications brought about by this section from the common law position. In Common Law, the notion that a duty of care can be owed to prevent another person's financial loss has been viewed as problematic because it is hard to define the boundaries of such culpability[11]. As a result, there exists a number of restrictions on the recovery of pure economic loss, with some types of economic loss being completely unrecoverable. Those who experience loss owing to the acquisition of a defective product, for
[3] Design and Building Practitioners Act 2020 (NSW) s37 (1).
[4] Robert Ishak, ‘A New Duty of Care Design and Building Practitioners Act 2020,’ (2020).
[5] Ibid, s37(2).
[6] Ibid, s37(3).
[7] Ibid, s37(4).
[8] David Creais, ‘Design and Building Practitioners Act 2020 (NSW) in Practice,’ (Dec 2022) .
[9] Ibid.
[10] Design and Building Practitioners Act 2020 (NSW) Schedule 1 s5(2).
[11] Jenny Steele, Tort Law: Test, Cases, and Materials, (Oxford University Press, 2007). 339.
instance, or who are harmed by damage done to the property of another business or person, cannot typically recover any losses sustained as a result[12].
But, in this section, it lays down that if the economic loss is caused with regard to a defect in the building or the construction, then the owners, present or future, would be entitled to get damages under the law. This is a significant modification from the common law position. Also, from the below mentioned cases, it has become evident that this section has given a broader meaning to the doctrine of ‘Duty of Care.’
Court’s Application of this Section
With regard to this section, some questions arose, which were answered by the Hon'ble Supreme Court of New South Wales. First was the question, by ‘building,' which kinds of buildings are included under the ambit of this section. This question was answered in the case of Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd.[13] In this case, the landowner Goodwin Street Developments Pty Ltd hired DSD Builders Pty Ltd, to construct three boarding houses for use as dorms for students. The owner and the builder got into arguments over purported flaws in the boarding houses.
The owner filed a lawsuit in the Supreme Court of New South Wales against the builder and, afterward, against Mr. Roberts, who was accused of supervising and project managing the building's work. The legal proceedings against the builder were suspended due to the builder's insolvency, and the Court was left to decide the claims filed against Mr. Roberts.
The owner claimed that Mr. Roberts engaged in "construction work" and violated his duty of care to prevent financial loss brought on by flaws resulting from that activity. Whether the duty of care applied to "construction work" done on a boarding home was one of the Court's main concerns.
Two definitions of "construction work" are provided in the Act:
The term ‘building work’ is initially defined in section 4 of the DBP Act with regard to specific classes or types of buildings listed in the Design and Building Practitioners Regulation of 2021 (NSW) (Regulation)[14]. Second, section 36 of the Act (for the purposes of Part 4, which talks about ‘Duty of Care’) defines it as follows: "Building work comprises residential building work
[12] Ibid.
[13] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd. [2022] NSWSC 624.
[14] The Design and Building Practitioners Regulation 2021 (NSW).
within the meaning of the Home Building Act 1989." The Regulation, in turn, identifies buildings that are class 2 buildings (in whole or in part)[15].
The Court determined that the definition of "construction work" under section 36 applied to Part 4 of the Act, which pertinently includes the duty of care. Counsel for both parties concurred that the Regulation had no bearing on what is meant by "construction work" in this context.
It is significant to note that section 36(2) states, "A reference to building work applies exclusively to building work relating to a building within the meaning of this Part.[16]" In the Environmental Planning and Assessment Act of 1979 (EPAA), the term "building"[16] is defined as "Part of a building, and also encompasses any structure or part of a structure... but does not include a manufactured house, mobile housing, or connected structure within the terms of the Local Government Act 1993."
The Court determined that a boarding house was under the aforementioned description of a building, making "construction work" in regard to it, subject to the Act.
Although "residential building work" covered by the Home Building Act 1989 (NSW)[18] was included in the definition of "building work," this did not limit the buildings to which the duty of care was determined to apply. This is crucial since work done on boarding houses is not considered "residential building work." Owing to this ruling, it is now clear that the definition of buildings is given a much broader meaning under the DBP Act.
The second question is with regard to the meaning of the term ‘person’ under this section, as clarity is needed as to whom all are included within this term’s ambit. In The Owners – Strata Plan No 84674 v. Pafburn Pty Ltd.[19], who may be regarded as a ‘person’ performing ‘construction work’ for the purposes of the Duty of Care as under section 37 of the DBP Act was a topic of discussion by the NSW Supreme Court. The Supreme Court considered whether a developer qualified under the definition of a person. The Court determined that a "person" who performed ‘construction work’ as defined by the DBP Act was not just confined to builders and contractors, and that it was not the intention of the DBP Act to exempt developers from owing a statutory duty of care. The Court concluded that a certain amount of distance from the actual job being executed might not be enough to shield one from responsibility and a duty of
[15] Ibid, Regulation 12.
[16] Ibid, s36(2).
[17] Environmental Planning and Assessment Act 1979 (NSW) s1.4.
[18] Home Building Act 1989 (NSW) Part 2.
[19] The Owners – Strata Plan No 84674 v. Pafburn Pty Ltd. [2022] NSWSC 659.
care under the DBP Act. Hence, following this logic, ‘developers’ were also included under the ambit of the term ‘person’ even though they are not doing the actual building work[20].
Thirdly, with regard to who is eligible to get the damages, it is mentioned in the Act that in addition to the present and future owner of the land, as mentioned in Sec 37 of DBP Act, when a building is a part of a strata or community title, an owner’s corporation or association is also considered to have suffered an economic loss if they have to pay to fix any flaws (including harm brought on by faults) that are the result of a breach of the duty of care[21]. The reasonable expenditures of providing alternative accommodations when appropriate are included in the economic loss incurred in this regard.
Also, in the case of Boulus Constructions Pty Ltd v Warrumbungle Shire Council[22] it was held by the Court that now Directors of building companies will be included under the ambit of the term ‘person’ and they would be held personally liable for the defects in the building or the construction work. This in turn, would ensure that the directors of the building companies would not be able to escape legal liability in this regard by simply using the doctrine of the ‘Corporate Veil’ as a legal loophole.
Hence, from these cases, it can be seen that the Courts have been applying this section to give a broad interpretation of the doctrine of ‘Duty of Care.
My Opinion with Regard to the Court’s Interpretation of Sec 37 of the Design and Building Practitioners Act, 2020 (NSW)
According to my understanding of this area of law and the Court’s stance with regard to the same, I completely agree and support the Court’s Decisions. This is because, as seen from the above cases, the meanings of the terms ‘Building’ and ‘Person’ are broadened by the Court through these important recent judgments.
This broadened legal stance of the Court would be extremely beneficial to the Owners of the land, as otherwise, they could have been cheated of their rightful claim to damages citing frivolous nitty-gritty of the law, for instance, since the definition of the term ‘Building’ is now broadened, owners of different categories of the building will get to enjoy the legal protection by the DBP Act, 2020. Furthermore, now, since the ambit of the term ‘Person’ is broadened too, owners will have a better opportunity to recover their rightful damages, as otherwise, just
[20] Ibid.
[21] Design and Building Practitioners Act 2020 (NSW) s38(1).
[22] Boulus Constructions Pty Ltd v Warrumbungle Shire Council [2022] NSWSC 1368.
This broadened legal stance of the Court would be extremely beneficial to the Owners of the land, as otherwise, they could have been cheated of their rightful claim to damages citing frivolous nitty-gritty of the law, for instance, since the definition of the term ‘Building’ is now broadened, owners of different categories of the building will get to enjoy the legal protection by the DBP Act, 2020. Furthermore, now, since the ambit of the term ‘Person’ is broadened too, owners will have a better opportunity to recover their rightful damages, as otherwise, just as in the abovementioned case, the builder has gone scot-free citing insolvency, putting the owner of the land in a tight spot. But now, even though the builder claims insolvency, the owners will be able to recover damage from other persons who had substantial control over the process of building or construction[23]. So, now, the directors of building companies will not be able to escape liability stating insolvency, as they would be held personally liable. In my opinion, this broadened interpretation of the terms by the Court is a good way to prevent people from escaping lawful liability. Also, this has brought a consumer-centric approach which is very important for protecting consumers (owners) from the ‘Persons’ engaged in a building by discouraging subpar labour leading to defective constructional work.
[23] The Owners – Strata Plan No 84674 v. Pafburn Pty Ltd. [2022] NSWSC 659.