'Fiendishly difficult' – duty of care to impact more NSW building projects

Supreme Court holds duty to avoid economic loss applies to any 'building' 4 min read

The recent Goodwin Street Developments decision provides much-needed guidance on the application of the statutory duty of care owed by builders (and certain building professionals) to property owners under section 37 of the Design and Building Practitioners Act 2020.

The NSW Supreme Court held that this duty of care is not limited by the definition of 'building work' contained in s4 (which limits other parts of the Act to Class 2 (residential apartment) buildings)¹. Instead, it applies to any building caught by the broad definition of 'building' in the Environmental Planning and Assessment Act 1979, thereby potentially extending to non-residential buildings. This means that a wider scope of buildings will be captured by the duty of care than may initially have been contemplated by some in the industry.

Key takeaways 

• Part 4 of the Design and Building Practitioners Act 2020 (NSW) (the Act) imposes a statutory duty of care on persons carrying out construction work, to avoid causing economic loss to current and future landowners due to defects.
• The decision in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 clarifies that this duty of care applies to any building within the meaning of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act) – it's not confined to residential apartment-type buildings.
• Builders (and other building professionals caught by the duty) can't contract out of this duty to exercise reasonable care to avoid economic loss.²
• This duty applies retrospectively – it extends to capture losses that first became apparent after 10 June 2010.³
• It will still be subject to the usual statutory limitation periods and proportionate liability regimes.⁴

The case

Facts

In 2017, Goodwin Street Developments Pty Ltd entered into a contract with DSD Builders to construct three boarding houses on property owned by Goodwin. Disputes arose relating to defects and delays, which ultimately led to Goodwin terminating the contract in March 2018.

In August 2018, Goodwin commenced proceedings against DSD , which later went into liquidation, in 2021. Goodwin also sued Mr Roberts, who was alleged to be DSD's representative by virtue of administering the contract and controlling construction work on its behalf. Goodwin claimed against Mr Roberts for property damage and trespass to land (in relation to the removal of certain material from the buildings and onsite damage), as well as breach of the statutory duty of care in s37 of the Act to avoid economic loss to Goodwin when carrying out 'construction work'.

Findings

Goodwin was successful in both claims. In relation to the statutory duty of care claim, Justice Stevenson found that a boarding house (ie a non-Class 2 building)⁵ was a 'building' to which the duty of care in s37 applied. Further, by supervising and project-managing the works, Mr Roberts carried out 'construction work' within the meaning of s36 of the Act. Ultimately, His Honour held that Mr Roberts acted in breach of his duty of care under s37 of the Act.

Statutory regime and legislative intent

The statutory duty of care is contained within Part 4 of the Act and relates to the carrying out of 'construction work'. It requires the duty holder to exercise reasonable care to avoid economic loss caused by defects in or related to a 'building' for which the work is done, and arising from the 'construction work'. 'Construction work' is defined in s36 of the Act and relevantly includes 'building work'. Section 36 goes on to define 'building work', for the purposes of Part 4 of the Act, as including 'residential building work' within the meaning of the Home Building Act 1989 (NSW). It is therefore an inclusive, and not an exhaustive, definition. Importantly, 'building', for the purposes of Part 4 of the Act, is defined by reference to the far broader definition of 'building' contemplated in the EPA Act, which would capture both residential and non-residential structures.⁶

In contrast, s4 of the Act provides that, 'for the purposes of this Act', 'building work' means, among other things, work involved in the construction of a building of a class or type prescribed by the applicable regulations. The Design and Building Practitioners Regulation 2021 prescribes Class 2 buildings only.

In his judgment, Justice Stevenson commented on the 'labyrinthine' and 'fiendishly difficult' nature of the s36 definitions, noting that the 'section appears to have been drafted so as to make comprehension of it as difficult as possible'.

Ultimately, he concluded that the definition in s4 has no application when considering the statutory duty of care in Part 4 of the Act, and that the broader definitions of 'building work' and 'building' contemplated in s36 apply instead. The rationale for this interpretation included that:

• Part 4 commenced on 10 June 2020 when the Act was assented to. It is also given retrospective operation. The Regulation did not commence until 1 July 2021. Accordingly, the statutory regime can only be seen to operate coherently if the s4 definition of 'building work' is interpreted as not applying to Part 4 (and, instead, only applies to those parts of the Act that commenced on 1 July 2021).
• This interpretation is confirmed by s36(1) containing its own definition of 'building work' expressed to be applicable 'in this Part'.
• This interpretation also appears consistent with the legislative intent expressed when the amendments for the current definitions were introduced into the NSW Legislative Assembly⁷.

Actions you can take now

• For owners – consider whether a claim for damages for breach of the statutory duty of care may be brought for defective works in a building, irrespective of whether it is a Class 2 building.
• For building practitioners (and other building professionals caught by the duty) –
  • review insurance arrangements;
  • consider whether pricing is adequate for the potentially increased liability regime; and
  • look at whether downstream contracts sufficiently deal with the potentially increased risk.