Setting the Record Straight: Design and Building Practitioners Act

KEY TAKE-OUTS:

• In 2020, the Design and Building Practitioners Act was introduced, which created another statutory warranty in the building industry by establishing a duty of care on builders to prevent pure economic loss to current, as well as future owners caused by defective design, or defective construction works, or both.
• After the associated Regulations came into effect in 2021, there was some confusion as to whether the Act only applied to class 2 buildings (multi-storey apartment blocks), or if it also applied to other buildings such as residential homes, boarding houses and others. A recent case, Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 has clarified that the duty of care under the Act applies to all buildings, not just class 2 buildings.
• The Design and Building Practitioners Act 2020 (NSW) applies retrospectively for the preceding 10 years, meaning that any building work conducted from 10 June 2010 could be subject to this warranty. Accordingly, if there is an issue with your property that has only now become apparent, you may still be able to make a claim pursuant to the Design and Building Practitioners Act.

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In residential building matters, a builder has obligations pursuant to the Home Building Act 1989. This includes the statutory warranties set out in section 18B of the Home Building Act which include obligations that a Builder will perform its work to a certain level of quality, with due care and skill, and free from defects.

Under the Home Building Act, for proceedings commenced after 15 January 2015, the time limits to claim are: 6 years for a breach that results in a major defect in residential building works and 2 years in any other case- Section 18E of the Home Building Act 1989. Further, if the breach of warranty becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the end of the warranty period.

The Warranty period starts on completion of the work to which it relates.

In 2020 another act was introduced in New South Wales called the Design and Building Practitioners Act  2020 (NSW) (“the Design Act”), which aimed to create another statutory warranty in the building industry by establishing a duty of care on builders to prevent pure economic loss to current, as well as future owners caused by defective design, or defective construction works, or both.

Under the Design Act, an owner who suffers economic loss because of one or more latent defects will have a cause of action in negligence against the relevant builder or designer. However, it is necessary to prove a failure to exercise reasonable care. This statutory duty is in addition to the duties, statutory warranties and other rights an owner has under the Home Building Act 1989, any other legislation, and the common law.

There was, however, some confusion when the Design and Building Practitioners Regulation was introduced in 2021, as this appeared to place a limitation on the application of the Design Act to only class 2 buildings. This initial limitation meant that the Design Act and obligation of duty of care pursuant to the Design Act would only apply to buildings such as multi-storey apartment blocks, and not other types of buildings like residential homes.

Despite this confusion, a recent case in the Supreme Court has cleared up whether the statutory duty applies to all types of buildings, or just to class 2 buildings. We examine this case and the duty of care established under the Design Act in further detail below.

The Duty of Care

The duty of care is established under section 37 and is a duty owed to the initial owner of the land who engages the builder, as well as any subsequent owners. The duty is owed in relation to “construction work”, which is defined under section 36 to include “building work”. Building work is defined under section 4 of the Design Act as construction of a class of building defined under the Design Regulations. Under Regulation 12 of the Design Regulations it states “that for the purposes of section 4 of the Design Act, building work is in relation to class 2 buildings”.

As a result of this, it was not clear whether this meant that the duty of care under the Design Act only applied to class 2 buildings. However, the case below has sought to clarify the position regarding the duty of care obligation.

The Case

Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 (“Goodwin v DSD”) concerned Goodwin engaging DSD in July 2017 to build 3 boarding houses. A dispute arose in relation to multiple defects and delays, and after failing to have these rectified, Goodwin terminated the contract in March 2018. The site was left with substantial damage to the buildings, several items were missing such as doors, windows and stairs.

In August 2018, Goodwin sued DSD, which later went into liquidation in 2021. Mr Roberts of DSD was added as a defendant in April 2019, as he was alleged to be DSD’s representative, given he administered the contract and controlled the construction work on behalf of DSD.

The Issues

The issues to be considered by the Court were:

1. Did Mr Roberts cause the damage to the buildings and remove the materials?
2. Did Mr Roberts carry out “construction work” on the site, and therefore breached the statutory duty of care under s 37 of the Design Act?

Based on the evidence presented to the Court, it was found that Mr Roberts was indeed responsible for causing the damage to the buildings and that he was the person responsible for taking the missing materials.

Therefore, the final consideration was whether “construction work” had been carried out on the site.

The Decision

It was found that based on the proper construction of the Design Act, the section 4 definition of building work, which refers to the Design Regulations and limits the scope to class 2 buildings, applies to all parts of the act except for the sections relating to the duty of care, from sections 36 to 41 (“Part 4”). This was for two reasons:

1. When the Design Act was being passed, the purpose discussed in Parliament for the inclusion of the duty of care sections was to establish a duty of care to apply to all buildings, including residential building work, and coverage was intended to be quite broad.
2. Due to section 2 of the Design Act, some of the Act commenced when the Act was assented to by Parliament on 10 June 2020, whereas the rest of the Design Act commenced on 1 July 2021. The Duty of Care obligation was a part that commenced on 10 June 2020, and therefore commenced earlier than the introduction of the Design Regulations in 2021. Therefore, the Court found that the work Mr Roberts undertook did classify as construction work, and he was held to have breached his duty of care under the Design Act and was liable for the damages to rectify the defects.

What does this mean for you?

With the clarification provided by Goodwin v DSD, it is now clear that the Design Act introduces a significant additional statutory warranty to homeowners building residential homes in circumstances where defective works are carried out by the builder. This duty also applies to subsequent owners of the property and is in addition to the rights already afforded to customers under the Home Building Act.

For developers, this is quite a broad statutory duty that could make them liable for economic loss to their clients if they suffer economic loss as a result of defective construction works.

It is also important to note that the Design Act applies retrospectively for the preceding 10 years, meaning that any building work conducted from 10 June 2010 could be subject to this warranty. Accordingly, if there is an issue with your property that has only now become apparent, you may still be able to make a claim pursuant to the Design Act.

If the Design Act duty is breached, an owner is entitled to damages as if the duty were a duty established by the common law. This is likely to mean that owners may recover reasonably foreseeable losses they incur as a result of the breach of the Design Act duty.

However, whilst the limitation periods applicable to the Design Act duty are more generous than those in respect of the warranties under the Home Building Act 1989. The liability for breach of the Design Act duty (unlike liability for breach of the Home Building Act warranties) is apportionable – meaning that where (as is common in defects disputes) multiple parties are alleged to be responsible for the same defects, the liability of each defendant is limited to reflect its comparative responsibility for the defects.

If you have any questions about your rights under the Design Act, Home Building Act, or you have a building issue you wish to discuss, please do not hesitate to contact our office.

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