The NSW Court of Appeal has confirmed that the statutory duty of care prescribed by section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act) applies to all "buildings", as defined in the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act). The decision in Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5 has wide-ranging implications for various stakeholders across the NSW building industry.
The facts in Goodwin Street Developments
The appellant is a builder who operated through a company, which has since entered into liquidation. Prior to liquidation, the company was engaged by the respondent under a building contract for the construction of three residential boarding houses. Several disputes arose during the project, resulting in the work being suspended. The appellant entered the site and damaged the building and removed various fixtures from the site. Subsequently, the respondent terminated the building contract. The respondent contended that the appellant owed a statutory duty of care under section 37 of Part 4 of the DBP Act. Section 37 of the DBP Act imposes a statutory duty of care on persons carrying out construction work to exercise reasonable care to avoid economic loss caused by defects in or related to a building or arising from construction work.
In the NSW Supreme Court, Justice Stevenson found that the appellant owed a statutory duty of care to the respondent under section 37 of the DBP Act.
On appeal the appellant contended that the trial judge had incorrectly construed the statutory duty of care as applying to "buildings" as defined in the EP&A Act (which includes boarding houses).
The NSW Court of Appeal held that Justice Stevenson was correct, albeit arriving at this conclusion through a different interpretation. The appeal was dismissed with costs.
What did the NSW Court of Appeal determine the scope of the statutory duty of care to be?
The statutory duty of care under Part 4, section 37 of the DBP Act applies to a person who carries out "construction work". The definition of "construction work" draws its meaning from the definition of "building work" which had led to confusion as:
- "building work" is defined generally, and narrowly, at section 4 of the DBP Act;
- "building work" is separately defined in unclear terms, and only for the purpose of the statutory duty of care, at section 36(1) of the DBP Act; and
- section 36(1) also defines "building", and only for the purpose of the statutory duty of care, by reference to its meaning in the EP&A Act.
How these definitions were intended to interact was ambiguous.
While the Court contended that there were four possible constructions resulting from the definitions in the DBP Act, they favoured the view that it was always contemplated that the types of buildings to which the statutory duty of care in section 37 of the DBP Act applied may be different from those the subject of "building work" in other parts of the DBP Act. Kirk JA and Griffiths AJA considered the legislative history of the DBP Act in Parliament, where it was clearly envisaged that the statutory duty of care would apply broadly to all buildings:
"I turn now to briefly discuss the various amendments. Amendment No. 1 provides that the duty of care applies to all buildings and includes a definition of "building" for the purpose of the duty of care and that "building" has the broad meaning of "building" in the Environmental Planning and Assessment Act. Amendment No. 2 makes clear that the duty of care extends to building work, including residential building work within the meaning of the Home Building Act. This amendment will ensure that the duty of care amendments will have broad coverage, which is the intent. Amendment No. 3 extends the definition of "construction work" for the purpose of this duty of care to include supervising, coordinating and project managing or otherwise having substantive control over the carrying out of any work."
- David Shoebridge MLC (moving amendments to the duty of care provisions in the Legislative Hansard 2 June 2020 at 65, with the Court's emphasis).
The Minister accepted the above amendments and worked co-operatively with the Labor and Greens in relation to the DBP Act (then the DBP Bill) and did not oppose amendments to:
- expand the duty of care to all classes of buildings;
- expanding the definition to include residential building work within the meaning of the Home Building Act 1989 (NSW); and
- increasing the retrospective period for the duty of care from 6 to 10 years.
The Court stated that the effect of the limitation in section 36(2) of the DBP Act is that, for the purposes of section 37 of the DBP Act, the statutory duty of care is limited to building work relating to a "building" within the meaning of section 36, being the broad definition of "building" in the EP&A Act. The parties did not dispute that a boarding house is a "building" within the meaning of the EP&A Act and therefore within the meaning of "building" in section 36 of the DBP Act. Accordingly, the statutory duty of care in section 37 of the DBP Act applied to boarding houses.
Ultimately, the Court found that though "no construction here is straightforward" the best position is that:
- the definition of "building work" at section 4 of the DBP Act is only relevant in identifying the type of work to which the statutory duty of care will apply (ie construction, alterations or additions, repair etc), but not the type of building on which that work is undertaken; and
- the statutory duty of care will apply to a "building" as defined at section 36(1) of the DBP Act (itself being a "building" within the very broad meaning of that term in the EP&A Act).
The effect of this construction is that "building work" has a much more expansive meaning for the purpose of the statutory duty of care at Part 4 than "building work" as used in the other parts of the DBP Act.
The impacts on the NSW building sector as a result of the NSW Court of Appeal's judgment
As part of the NSW Government's plan to overhaul the construction industry with further legislative reform, the existing statutory duty of care under section 37 of the DBP Act would be expressly expanded to capture all types of building work, as well as subdivision work. The NSW Court of Appeal's decision is aligned with the proposed reform, in that the statutory duty of care is not limited to class 2 buildings or residential buildings, but any "building" as defined in the EP&A Act.
Further, the Building Legislation Amendment (Building Classes) Regulation 2022, which is scheduled to commence on 3 July 2023, would expand the definition of "building work" under section 4(1) of the DBP Act to include class 3 (including boarding houses) and 9c buildings.
The decision has wide-ranging consequences as all builders, developers, designers, manufacturers of building products and other stakeholders involved in the construction of a "building" now owe a statutory duty of care to owners and all successive owners of land. The duty has retrospective application, as those who have already carried out building work may owe the statutory duty of care where the economic loss has become apparent within the 10 years prior to the commencement of Part 4 of the DBP Act.
The decision also confirms that individuals may personally owe a statutory duty of care under the DBP Act to current and subsequent owners of buildings, as Mr Roberts was a person who (as an individual) carried out "construction work" within the meaning of section 37 of the DBP Act.
Further, the broad definition of building under the EP&A Act, which includes any "structure", will bring commercial buildings, civil works and infrastructure projects into the ambit of the legislation, creating duties to future owners of commercial and infrastructure assets. This is the case despite the Minister's original intent that "the duty deliberately does not extend to owners who are developers or large commercial entities, as the Government considers these entities to be sufficiently sophisticated and able to contractually and financially protect their commercial interests" (Minister's second reading speech, Legislative Assembly Hansard, 23 October 2019 at 1663).
Construction stakeholders (including individuals and insurers) will therefore need to consider:
- the retrospective application of the duty of care to a broad range of "building work" and their potential exposure, including for new claims by existing owners which arise from projects that were previously considered to be finalised;
- how best to structure dispute settlement to reduce the risk of the statutory duty of care re-enlivening claims; and
- the application of limitation periods and other considerations in disputes such as the proportionate liability regime to claims brought under the statutory duty of care (which remains subject to the Civil Liability Act 2002 (NSW), Limitation Act 1969 (NSW), and the "long stop" provision at section 6.20 of the EP&A Act).
For further information on how this decision may impact your business or construction project in NSW, please contact a member of our team.