Devel­op­ers beware the statu­to­ry ​‘non del­e­gable’ duty of care under the Design and Build­ing Prac­ti­tion­ers Act 2020

The Design and Build­ing Prac­ti­tion­ers Act 2020 (DBP Act) came into effect in NSW in June 2020. 

Since its intro­duc­tion the courts have pro­vid­ed guid­ance on the inter­pre­ta­tion and reach of this Act. This arti­cle looks at the recent High Court deci­sion of Paf­burn Pty Ltd v The Own­ers – Stra­ta Plan No 84674 which exam­ined the statu­to­ry duty of care imposed by the DBP Act on those car­ry­ing out con­struc­tion work to exer­cise rea­son­able care to avoid eco­nom­ic loss caused by defects.

At a glance

• The Design and Build­ing Prac­ti­tion­ers Act 2020 (NSW) (DBP Act) is a key part of the NSW Gov­ern­men­t’s com­mit­ment to reform of the NSW con­struc­tion indus­try aimed at restor­ing con­sumer con­fi­dence in the trust­wor­thi­ness of com­plet­ed buildings.
• The DBP Act impos­es a statu­to­ry duty of care owed by per­sons car­ry­ing out ​‘con­struc­tion work’ to own­ers and sub­se­quent own­ers of the land.
• ‘Con­struc­tion work’ is broad­ly defined in the DBP Act designed to increase the reach of those who owe the statu­to­ry duty of care.
• The statu­to­ry duty of care under the DBP Act owed to sub­se­quent own­ers of the land, extends the reach of the com­mon law duty of care.
• The DBP Act statu­to­ry duty of care owed to own­ers applies to all build­ings (includ­ing both res­i­den­tial and com­mer­cial build­ings) and is not lim­it­ed to cer­tain class­es of buildings.
• A devel­op­er owes the duty of care if it has ​‘sub­stan­tive con­trol over the con­struc­tion work’.
• A cer­ti­fi­er owes the duty of care if it has ​‘sub­stan­tive con­trol over the con­struc­tion work’.
• The courts have not as yet con­sid­ered the ques­tion as to whether a cer­ti­fier’s abil­i­ty to with­hold the issu­ing of an occu­pa­tion cer­tifi­cate pend­ing changes to the design or spec­i­fi­ca­tions or build­ing mate­ri­als of a build­ing, con­sti­tutes hav­ing ​‘sub­stan­tive con­trol’.
• In the recent High Court deci­sion in Paf­burn Pty Ltd v The Own­ers – Stra­ta Plan No 84674[1], the High Court deter­mined that nei­ther a devel­op­er or the head con­trac­tor could rely on the fail­ure of anoth­er per­son to take rea­son­able care in car­ry­ing out con­struc­tion work to lim­it their lia­bil­i­ty to an amount reflect­ing the pro­por­tion of the loss for which the devel­op­er or head con­trac­tor was responsible.
• The High Court deter­mined that the pro­por­tion­ate lia­bil­i­ty defences were not avail­able to the devel­op­er or the head con­tac­tor by hold­ing that they were vic­ar­i­ous­ly liable for the neg­li­gence of the sub­con­trac­tors they engaged to per­form tasks cov­ered by the duty which they owed.
• This deci­sion adds anoth­er lev­el of risk and poten­tial lia­bil­i­ty for per­sons such as devel­op­ers, head con­trac­tors and oth­ers involved in the design and con­struc­tion of build­ings with­in New South Wales.
• These per­sons, if found to owe the duty of care, bear not only the cost of bring­ing a cross-claim action against a con­cur­rent wrong­do­er, but also the insol­ven­cy risk of the con­cur­rent wrongdoer.
• A devel­op­er does not dis­charge its duty of care by the exer­cise of rea­son­able care in the selec­tion of the head contractor.
• A head con­trac­tor does not dis­charge its duty of care by the exer­cise of rea­son­able care in the selec­tion of skilled sub-contractors.
• Impor­tant­ly the statu­to­ry duty of care can­not be con­tract­ed out of and the lia­bil­i­ty of per­sons held to owe the duty of care is unlimited.

Back­ground to the DBP Act

• In response to sig­nif­i­cant inci­dents of build­ing fires, par­tic­u­lar­ly the Lacrosse Tow­er fire in 2014 and the Gren­fell Tow­er tragedy in 2017, the Build­ing Min­is­ter’s Forum, a forum com­prised of fed­er­al, state, and ter­ri­to­ry min­is­ters respon­si­ble for build­ing and con­struc­tion, com­mis­sioned the Sher­gold Weir Report in 2017.
• The terms of ref­er­ence of the Sher­gold Weir Report included:
  • exam­i­na­tion of the com­pli­ance and enforce­ment in the build­ing and con­struc­tion indus­try affect­ing the imple­men­ta­tion of the Nation­al Con­struc­tion Code; and
  • con­sid­er­a­tion of strate­gies for improv­ing com­pli­ance and enforce­ment practices.
• The Sher­gold Weir Report was deliv­ered in Feb­ru­ary 2018 mak­ing 24 rec­om­men­da­tions and iden­ti­fied amongst oth­er things:
  • that account­abil­i­ty was unclear;
  • that there was insuf­fi­cient con­trols on the accu­ra­cy of doc­u­men­ta­tion; and
  • doc­u­men­ta­tion in cur­rent build­ing process­es lacked the require­ment to demon­strate com­pli­ance with the Nation­al Con­struc­tion Code.
• The NSW Gov­ern­ment, in response to the Sher­gold Weir rec­om­men­da­tions, com­mit­ted to imple­ment (4) major reforms across the NSW con­struc­tion indus­try, namely:
  • the appoint­ment of an expert Build­ing Commission;
  • an over­haul of com­pli­ance reporting;
  • reg­is­tra­tion of build­ing prac­ti­tion­ers with report­ing oblig­a­tions and
  • an indus­try wide duty of care.
• The DBP Act was a key part of the NSW Gov­ern­men­t’s response to the Sher­gold Weir Report and com­mit­ment to reform of the NSW con­struc­tion industry.
• The key reforms intro­duced by the DBP Act were:
  • the require­ment for reg­is­tra­tion of build­ing and design practitioners;
  • the intro­duc­tion of com­pli­ance dec­la­ra­tions; and
  • the intro­duc­tion of a statu­to­ry duty of care owed by all those involved in ​‘con­struc­tion work’.
• As with all new or amend­ed leg­is­la­tion, indus­try par­tic­i­pants and stake­hold­ers eager­ly await, and rely on, the guid­ance of the courts as to the effect, inter­pre­ta­tion and appli­ca­tion of any enact­ed legislation.
• The intro­duc­tion of the DBP Act is no different.
• This arti­cle focus­es on the statu­to­ry duty of care intro­duced by the DBP Act and fol­lows its inter­pre­ta­tion and appli­ca­tion to date by the courts. 

Sec­tion 37 of DBP Act

• Sec­tion 37 of the DBP Act intro­duced a statu­to­ry duty of care owed by all those involved in ​‘con­struc­tion work.’
• Sec­tion 37 pro­vides as follows:

37 Exten­sion of duty of care

(1) A per­son who car­ries out con­struc­tion work has a duty to exer­cise rea­son­able care to avoid eco­nom­ic loss caused by defects—

(a) in or relat­ed to a build­ing for which the work is done, and

(b) aris­ing from the con­struc­tion work.

(2) The duty of care is owed to each own­er of the land in rela­tion to which the con­struc­tion work is car­ried out and to each sub­se­quent own­er of the land.

• The exten­sion of the duty of care to sub­se­quent own­ers of the land means that the ben­e­fit of the duty of care owed pass­es with the trans­fer of the land to new owners.
• This statu­to­ry exten­sion of the duty of care now owed to sub­se­quent own­ers is a sig­nif­i­cant depar­ture from the pri­or com­mon law position.
• It sig­nif­i­cant­ly expands the reach of the duty of care to beyond the High Court con­fir­ma­tion in Brook­field Mul­ti­plex v Own­ers Cor­po­ra­tion SP 61288 that no duty of care was owed by builders to devel­op­ers and future own­ers in claims for pure eco­nom­ic loss.
• The Gov­ern­men­t’s intent behind this statu­to­ry duty of care is clear from the 2^nd Read­ing Speech in which Mr Kevin Ander­son (then Min­is­ter for Bet­ter Reg­u­la­tion and Inno­va­tion) said:

… clause 30 [clause 37 in DBP Act] estab­lish­es a statu­to­ry duty of care that erad­i­cates any uncer­tain­ty that may exist in the com­mon law that a duty is owed to the end user and in respect to lia­bil­i­ty for defec­tive build­ing work. Any per­son who car­ries out con­struc­tion work will, under the pro­vi­sions of the bill and for the first time, have an auto­mat­ic duty to exer­cise rea­son­able care to avoid eco­nom­ic loss caused by defects …Clause 30 express­ly pro­vides that peo­ple who car­ry out con­struc­tion work owe a duty of care to …owners…and include indi­vid­ual title­hold­ers and sub­se­quent own­ers of a building….

Class­es of build­ings affect­ed by DBP Act

• The DBP Act pri­mar­i­ly affects Class 2, 3, and 9c build­ings which includes build­ings with a Class 2, 3, or 9c part.
• The var­i­ous require­ments of the DBP Act, such as:
  • the require­ment for build­ing and design prac­ti­tion­ers to be registered;
  • the require­ments for the sub­mis­sion of com­pli­ance dec­la­ra­tions on the NSW Plan­ning Por­tal; and
  • the oblig­a­tion to give at least 6 months’ notice of an inten­tion to apply for an occu­pa­tion certificate,
• present­ly only apply to Class 2, 3, and 9c build­ings, or build­ings which include a Class 2, 3, or 9c part.
• It should be not­ed that the class of build­ings to which the DBP Act pri­mar­i­ly applies was expand­ed on 3 July 2023 from class 2 build­ings only to also include class 3 and 9(c) build­ings tak­ing effect from 1 July 2024 for new build­ings and present­ly in tran­si­tion for ren­o­va­tion or repair works in exist­ing build­ings until 1 July 2025 and that the NSW Fair Trad­ing web­site informs that there is ​‘ongo­ing con­sul­ta­tion with indus­try to iden­ti­fy which oth­er build­ing types should be includ­ed in this reg­u­la­to­ry frame­work’.[2]
• How­ev­er, in Good­win Street Devel­op­ments Pty Ltd atf Jes­mond Unit Trust v DSD Builders Pty Ltd (in liq)[3][i], the NSW Supreme Court held that the sec­tion 37 statu­to­ry duty of care to avoid eco­nom­ic loss because of defects applies to all ​‘build­ings’[4].
• It is now set­tled that the sec­tion 37 statu­to­ry duty of care owed to own­ers and all suc­ces­sive own­ers of land applies to all build­ings (includ­ing both res­i­den­tial and com­mer­cial buildings).
• This statu­to­ry duty of care applies ret­ro­spec­tive­ly and applies to build­ing work car­ried out from June 2010 onwards. 

Do devel­op­ers owe the duty of care under sec­tion 37?

• The sec­tion 37 statu­to­ry duty of care is owed by a per­son who car­ries out ​‘con­struc­tion work’.
• If a devel­op­er car­ries out ​‘con­struc­tion work’ as defined on the DB&P Act, then that devel­op­er owes the duty of care.
• Con­struc­tion work under the DBP Act means build­ing work, prepa­ra­tion of design and man­u­fac­ture or sup­ply of build­ing products.
• Rel­e­vant to devel­op­ers, it also includes super­vis­ing, coor­di­nat­ing, project man­ag­ing or oth­er­wise hav­ing sub­stan­tive con­trol over the con­struc­tion work.
• The NSW Supreme Court[5] has sug­gest­ed that a devel­op­er who ​‘is in a posi­tion where it is able to con­trol how con­struc­tion work is car­ried out’ may have ​‘sub­stan­tive con­trol over the car­ry­ing out’ of con­struc­tion work with­in the mean­ing of sec­tion 37(1) of the DBP Act.
• A devel­op­er who has the abil­i­ty to exer­cise sub­stan­tive con­trol over a con­trac­tor may be found to have car­ried out ​‘con­struc­tion work’ and would there­fore owe a duty of care to an own­er of land even though it may not have actu­al­ly done any­thing to cause that con­trol to be exercised.

Do direc­tors of a cor­po­rate devel­op­er per­son­al­ly owe a duty of care to own­ers and all suc­ces­sive own­ers of land under sec­tion 37?

• In Kazzi v KR Prop­er­ties Glob­al Pty Ltd t/​as AK Prop­er­ties Group [6], the Court of Appeal con­firmed the per­son­al lia­bil­i­ty of indi­vid­u­als under the duty of care pro­vi­sions in sec­tion 37.
• The Court con­sid­ered the var­i­ous defects in detail and con­clud­ed that the direc­tor ​‘breached his statu­to­ry duty of care, as the nom­i­nat­ed super­vi­sor of works, by mak­ing deci­sions as to the progress and man­ner of the works that gave rise to the defects on which the Own­ers relied’.
• This case under­scores the poten­tial risk of per­son­al lia­bil­i­ty for any­one who super­vis­es, co-ordi­nates, project man­ages or oth­er­wise has sub­stan­tive con­trol over con­struc­tion works.
• It is clear from the case law that direc­tors of a devel­op­er, builder or con­sul­tants can be sued under the DBP Act if they had sub­stan­tive con­trol over how the con­struc­tion work was car­ried out.

Can a devel­op­er, who is also the own­er of the land, owe the sec­tion 37 duty of care to itself?

• In The Own­ers – Stra­ta Plan No 84674 v Paf­burn Pty Ltd [2022][7] NSWSC 659, the devel­op­er argued that a per­son who car­ries out con­struc­tion work, and there­fore by whom the sec­tion 37 duty of care is owed, can­not include a per­son who is the own­er of the land at the time the con­struc­tion work was car­ried out because it would be an absur­di­ty if such an ​‘own­er’ was to owe itself a duty to avoid eco­nom­ic loss caused by defects.
• The Court did not accept this propo­si­tion that if an own­er car­ried out the con­struc­tion work, then that own­er did not owe any par­ty the pre­scribed sec­tion 37 duty of care stat­ing that it was very unlike­ly that this was what the Par­lia­ment intended. 

Do cer­ti­fiers owe a duty of care to own­ers and all suc­ces­sive own­ers of land under sec­tion 37?

• If a cer­ti­fi­er has ​‘sub­stan­tive con­trol’ over the car­ry­ing out of build­ing work, then that cer­ti­fi­er will owe a duty of care to owners.
• The most like­ly exer­cise by a cer­ti­fi­er of sub­stan­tive con­trol over the car­ry­ing out of build­ing work, is the cer­ti­fier’s abil­i­ty (and oblig­a­tion in dis­charge of cer­ti­fi­ca­tion duties) to with­hold the issu­ing of an occu­pa­tion cer­tifi­cate, pend­ing a change to the design, work­man­ship or mate­ri­als of the building.
• Present­ly the courts have not been required to con­sid­er whether a cer­ti­fi­er exer­cis­es sub­stan­tive con­trol over the car­ry­ing out of build­ing work by rea­son of a cer­ti­fier’s abil­i­ty to demand change to the build­ing work pri­or to the issu­ing of an occu­pa­tion certificate.
• How­ev­er per­haps the minor­i­ty judges in Paf­burn Pty Ltd v The Own­ers – Stra­ta Plan No 84674[8], pro­vid­ed some indi­ca­tion on the issue when they stat­ed that:

[104] It is not self-evi­dent that a cer­ti­fi­er or the local coun­cil, in per­form­ing their duties, is ​“a per­son who car­ries out con­struc­tion work” with­in the mean­ing of s 36(1)(d) of the DBP Act. 

• This remains an issue for which the indus­try awaits defin­i­tive judi­cial guidance.

The sec­tion 37 duty of care and pro­por­tion­ate liability 

• Tra­di­tion­al­ly, the com­mon law rules of ​‘sol­idary’ or ​‘joint and sev­er­al’ lia­bil­i­ty meant that a par­ty could recov­er its entire loss from any one par­ty in cir­cum­stances where the same loss or dam­age was caused by two or more par­ties (referred to as con­cur­rent wrongdoers).
• In such cir­cum­stances, the par­ty liable for the entire loss (Liable Par­ty) could then seek con­tri­bu­tion or indem­ni­ty by way of cross claim from oth­er par­ties (con­cur­rent wrong­do­ers) who had also con­tributed to the loss.
• How­ev­er, this meant that the Liable Par­ty bore not only the addi­tion­al cost of bring­ing the cross-claim action but also the insol­ven­cy risk of the con­cur­rent wrong­do­ers which per­sons may have been per­sons with which the Liable Par­ty had not contracted.
• For exam­ple, a head con­trac­tor might be liable for loss suf­fered by a prin­ci­pal in cir­cum­stances where a con­sul­tant or select­ed con­trac­tor engaged or rec­om­mend­ed by the prin­ci­pal con­tributed to the loss.
• In bring­ing a cross claim against the con­sul­tant or select­ed con­trac­tor engaged or rec­om­mend­ed by the prin­ci­pal, not only must the head con­trac­tor fund the legal pro­ceed­ings, but it assumes the risk that, if it is suc­cess­ful, the head con­trac­tor will not be met by an insol­vent con­sul­tant or select­ed con­trac­tor who can­not pay the judg­ment debt.
• The com­mon law rules of ​‘sol­idary’ or ​‘joint and sev­er­al’ lia­bil­i­ty con­tributed to increased insur­ance pre­mi­um costs and increased lit­i­ga­tion costs as the Liable Par­ty sought to man­age this risk and was forced to lit­i­gate to seek con­tri­bu­tion or indem­ni­ty from con­cur­rent wrongdoers.
• The pro­por­tion­ate lia­bil­i­ty régime in Part 4 of the Civ­il Lia­bil­i­ty Act 2002 (NSW) (CLA) was intro­duced, among oth­er rea­sons, as a mea­sure to reduce increas­ing lia­bil­i­ty insur­ance costs and increased lit­i­ga­tion costs by enabling lia­bil­i­ty to be appor­tioned between wrong­do­ers accord­ing to their assessed pro­por­tion of respon­si­bil­i­ty for the dam­age or loss suffered.
• Instead of being liable for the entire loss, a defen­dant to a claim would argue, rely­ing on the pro­por­tion­ate lia­bil­i­ty defence, that it was only liable to the extent of its respon­si­bil­i­ty for the loss. 

Recent Paf­burn High Court deci­sion — claim for pro­por­tion­ate liability

• The High Court of Aus­tralia recent­ly pro­vid­ed some much-need­ed fur­ther clar­i­fi­ca­tion on the oper­a­tion of sec­tion 37.
• In Paf­burn Pty Ltd v The Own­ers – Stra­ta Plan No 84674[9], the High Court of Aus­tralia was asked to con­sid­er whether the devel­op­er or the head con­trac­tor could rely on the fail­ure of anoth­er per­son to take rea­son­able care in car­ry­ing out con­struc­tion work to lim­it their lia­bil­i­ty under Part 4 of the CLA to an amount reflect­ing the pro­por­tion of the loss that a court con­sid­ers just hav­ing regard to the extent of the respon­si­bil­i­ty of each for the dam­age or loss.
• The High Court deter­mined that nei­ther the devel­op­er nor the head con­trac­tor could do so and that they were vic­ar­i­ous­ly liable (liable for the acts or omis­sions of oth­ers) for the work they del­e­gat­ed or entrust­ed to be done by oth­ers, includ­ing their subcontractors.
• By major­i­ty, the High Court held that the pro­por­tion­ate lia­bil­i­ty defence was not avail­able to the devel­op­er or the head con­trac­tor for the fol­low­ing reasons:
  • con­trary to the claims by the devel­op­er and the head con­trac­tor, sec­tion 37 cre­at­ed a duty that was not able to be del­e­gat­ed. This means that the per­son respon­si­ble must ensure that any­one doing the work, takes rea­son­able care. For exam­ple, if the head con­trac­tor engages a water­proof­ing sub­con­trac­tor to install the water­proof­ing, the head con­trac­tor must ensure that the water­proof­ing work is done cor­rect­ly, If the water­proof­ing sub­con­trac­tors work is defec­tive and caus­es dam­age, the head con­trac­tor is liable. It is not suf­fi­cient in the dis­charge of its duty of care, that the head con­trac­tor took rea­son­able steps in select­ing and arrang­ing for the water­proof­ing sub­con­trac­tor to per­form the work to which the duty attaches.
  • as the devel­op­er and head con­trac­tor were respon­si­ble for super­vis­ing and coo ordi­nat­ing con­struc­tion of the entire build­ing, their duty extend­ed to all defects aris­ing from the con­struc­tion works, even if they did not phys­i­cal­ly do the work. By com­par­i­son, a plumb­ing sub­con­trac­tor would only be liable for exer­cis­ing the req­ui­site duty ofc are in respect of the scope of their plumb­ing works.
• The effect of this deci­sion is that under the DBP Act, a devel­op­er or head con­trac­tor who is respon­si­ble for a whole project, can­not appor­tion lia­bil­i­ty for breach of sec­tion 37 to each oth­er or to subcontractors.
• This duty can­not be dis­charged by the exer­cise of rea­son­able care in the selec­tion of skilled sub-contractors.
• Devel­op­ers and con­trac­tors are now more like­ly to be held liable for the neg­li­gence of their subcontractors.
• For devel­op­ers or head con­trac­tors who super­vise the con­struc­tion of a whole build­ing, the scope of the duty of care under the DBP Act will extend to all defects in or relat­ed to the build­ing, irre­spec­tive of whether they per­son­al­ly under­took the con­struc­tion work.
• Own­ers can now poten­tial­ly pro­ceed with more con­fi­dence in bring­ing a sin­gle claim against a devel­op­er or head con­trac­tor for the entire loss aris­ing from a breach of the duty of care under the DBP Act.
• How­ev­er, with the duty of care being deter­mined to be a non-del­e­gable duty to which the pro­por­tion­ate lia­bil­i­ty defences do not apply, devel­op­ers and con­trac­tors poten­tial­ly now face sig­nif­i­cant­ly increased expo­sure to risks, costs, and insur­ance pre­mi­ums relat­ing to con­struc­tion work in New South Wales there­by poten­tial­ly fur­ther dri­ving up the costs of construction.
• Devel­op­ers and head con­trac­tor are left with a cause of action for con­tri­bu­tion against those oth­er par­ties who they allege breached a duty to them and will increas­ing­ly rely on cross claims to trans­fer lia­bil­i­ty for defec­tive build­ing work per­formed by subcontractors.

[1] Paf­burn Pty Ltd v The Own­ers – Stra­ta Plan No 84674 [2024] HCA 49

[2] www​.fair​trad​ing​.nsw​.gov​.au

[3] Good­win Street Devel­op­ments Pty Ltd atf Jes­mond Unit Trust v DSD Builders Pty Ltd (in liq)[3][3] [2022] NSWSC 624

[4] ​“Build­ings’ is giv­en the wide mean­ing of that term in the Envi­ron­men­tal Plan­ning and Assess­ment Act 1979 (NSW) and is not lim­it­ed to Class 2, 3, and 9c buildings. 

[5] The Own­ers – Stra­ta Plan No 84674 v Paf­burn Pty Ltd [2022] NSWSC 659

[6] Kazzi v KR Prop­er­ties Glob­al Pty Ltd t/​as AK Prop­er­ties Group [2024] NSW­CA 143

[7] The Own­ers – Stra­ta Plan No 84674 v Paf­burn Pty Ltd [2022] NSWSC 659

[8] Paf­burn Pty Ltd v The Own­ers – Stra­ta Plan No 84674 [2024] HCA 49

[9] Paf­burn Pty Ltd v The Own­ers – Stra­ta Plan No 84674 [2024] HCA 49