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Limelight Articles

Limelight 07/20

Building reforms in NSW – A new duty of care and greater regulation of construction process

The NSW government has recently introduced two pieces of consumer protection legislation as part of broader building reforms aimed at instilling confidence back in the construction industry, in light of well-publicised defects in the Opal Tower and the Mascot Towers.  The significance of these changes are likely to have marked impacts on construction professionals and their insurers.

In a significant departure from the seminal High Court decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288[1], the Design and Building Practitioners Act 2020 (NSW) (DBP Act) introduces a new statutory duty owed by construction professionals to owners, including subsequent owners, to exercise reasonable care to avoid economic loss caused by defects.

The Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act) commences on 1 September 2020 and provides the Department of Customer Service with powers to manage building developments during the construction phase.

Design and Building Practitioners Act

 Statutory duty of care

The DBP Act imposes a statutory duty on construction professionals to owners and subsequent owners of the building (including owners corporations) to exercise reasonable care to avoid economic loss caused by defects in a building arising from that construction work. This is irrespective of whether the owners were a party to the construction contract.  It is a marked departure from the High Court’s decision in Brookfield Multiplex that a builder does not owe a subsequent owner a duty of care to avoid economic loss, unless in special circumstances.

Initially, when the Design and Building Practitioners Bill was introduced into NSW Parliament, the proposed duty was limited to residential buildings only; however, as passed, the duty appears to apply to almost all buildings.

The duty also applies retrospectively, including to completed projects, as long as the loss became apparent after 11 June 2010. It also applies to Court proceedings commenced by owners before 10 June 2020, unless the Court considers that it would be not in the interests of justice. That raises the rather vexed question of when it would not be in the interest of justice.

A construction professional cannot delegate this duty, nor contract out of it. The duty is subject to the provisions of the Civil Liability Act 2002 (NSW), which broadly sets out the requirements for a cause of action in negligence.  It also means that the proportionate liability regime applies, and we should now expect to see land owners join all relevant construction professionals to proceedings.

The imposition of this duty is quite possibly one of the most significant developments in the NSW construction industry in the last decade. Whether other States and Territories follow suit remains to be seen. At least in NSW, we expect to see an increase in claims against construction professionals.

Regulation over construction process

From 1 July 2021, there will be a closer regulation of the construction process under the DBP Act, including, amongst other things:

  • the introduction of the concept of “regulated designs”, requiring architects and engineers to provide a declaration that the design complies with the BCA (design compliance declaration) and to be adequately insured;
  • a requirement that no building work is commenced until a design compliance declaration is obtained by the builder and a declaration is provided by the builder that the building was constructed in accordance with the design and the construction work complies with the BCA and that the builder is adequately insured;
  • engineers and those carrying out specialist work (fire safety systems, waterproofing, load bearing components of a building and services works) will be subject to stricter regulations; and
  • a requirement that builders, architects, engineers and those carrying out specialist work be registered with the Department of Customer Service, which will have broad powers including taking disciplinary action, investigating non-compliance, issuing a stop work order and directing insurers of registered practitioners to provide information about their insurance policies.

Residential Apartment Buildings (Compliance and Enforcement Powers) Act

The RAB Act builds upon the DBP Act by providing the Department of Customer Service with powers to manage building developments during the construction phase. It applies only to residential apartments either not yet completed or completed in the last 10 years.

The Secretary of the Department of Customer Service will have the power to:

  • issue a stop work order if building work is being carried out, or likely to be carried out, in a manner that could result in a significant harm or loss to the public or current or future occupiers of the building; or
  • issue a building work rectification order to require developers to rectify defective building works; or
  • prohibit the issuing of an occupation certificate if, amongst other scenarios, the Secretary is satisfied that a ‘serious defect’ in the building exists.

A “serious defect” includes a failure to comply with a performance required in the BCA, a defect that jeopardises the safety of the building, and the use of a banned building product.

The NSW Building Commissioner has said in the media that 20% of new buildings have “significant defects”. It remains to be seen how many of those meet the definition of “serious defects”.

The RAB Act also:

  • imposes an obligation on developers to notify the Secretary at least 6 months, but not more than 12 months, before an application for an occupation certificate is to be made;
  • provides investigative and enforcement powers for authorised officers to ensure compliance with the Act, including conducting interviews, requesting production of documents, and entering premises to execute search warrants; and
  • establishes penalties for contraventions of the Act.

In addition, the Secretary is to keep a public register published on the Department’s website which contains copies of prohibition orders, building work rectification orders and stop work orders in force. The public register may be used by not only consumers, but also insurers to assess whether to insure buildings.

The RAB Act should see claims for defective work arrested at the development stage, rather than those claims being ventilated after homeowners have moved into the apartments and are forced to commence litigation to recover their losses. Better accountability and governance at an early stage, to our mind, should put downward pressure on building disputes between homeowners and construction professionals.

[1] (2014) 254 CLR 185


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