Beware the Duty of Care: All Buildings Built in NSW Since 2010 are Now Covered

Introduction

In New South Wales, under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act), any person who carries out construction work (as defined) must 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. This 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.

This duty commenced on 10 June 2020 and also applies retrospectively to construction work carried out in the 10 years prior to that date if the economic loss first became apparent in that 10 year period (potentially subject to the standard limitation periods for making a claim). It had generally been understood that the duty of care would only apply to buildings to which the DBP Act has applied since 1 July 2021, being class 2 buildings or buildings containing a class 2 part, and residential building work.

The recent judgment of Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 has potentially greatly extended the types of buildings that the duty of care will apply to. While the judgment concerns boarding houses, which are excluded from being residential building work under the Home Building Act 1989 (NSW) (HBA), the reasoning is equally applicable to all buildings, whether residential in nature or otherwise.

The High Court had found in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16 that an engineer did not owe an equivalent duty of care to a subsequent purchaser of commercial premises. This position was extended by the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 to residential building work, such that Brookfield Multiplex did not owe the duty of care to the owners corporation.

In this article, we summarise the judgment in Goodwin v DSD on the statutory duty of care under the DBP Act, cover the parliamentary process that led to the interpretation difficulties encountered in it, and consider the judgment in light of that legislative history. We conclude this article with the question: what does this mean for the building industry in New South Wales?

Goodwin v DSD

Background

Goodwin Street Developments Pty Ltd (Goodwin) entered into a building contract with DSD Builders Pty Ltd (DSD) for the construction of three residential boarding houses on land owned by it in Jesmond, NSW, which were intended to be accommodation for students at the nearby University of Newcastle.

The sole director of DSD was engaged, and subsequently married, to Mr Daniel Roberts, who supervised works on the site from August 2017 until works ceased in March 2018.

Under the statutory duty of care, “construction work” includes supervising “building work” (the definition of which is covered below). Given the liquidation of DSD in 2021, Goodwin continued the proceedings against Mr Roberts alone.

Decision

“Building work” has two definitions under the DBP Act, being:

1. A section 4(1) definition, stated to be for the purposes of the whole of the DBP Act, being relevantly “the construction of a building of a class or type prescribed by the regulations for the purposes of this definition.”
2. A section 36(1) definition, stated to be for the purposes of Part 4 of the DBP Act (which is the Part containing the duty of care), being “includes residential building work within the meaning of the Home Building Act 1989.”

Part 4 of the DBP Act commenced on 10 June 2020. The balance of the DBP Act, including section 4, except for sections not relevant to this issue, commenced on 1 July 2021. Class 2 buildings and buildings containing a class 2 part were prescribed for the purposes of the section 4(1) definition from that date by the Design and Building Practitioners Regulation 2021 (NSW).

Justice Stevenson decided that the section 4(1) definition did not apply to the statutory duty of care, such that only the section 36(1) definition applied. His Honour stated that “… the statutory regime can only be seen to operate coherently if the s 4 definition of ’building work’ is interpreted as applying to the parts of the DPB Act that commenced on 1 July 2021, but not applying to Pt 4, which commenced on 10 June 2020 with retrospective operation.”

Justice Stevenson also considered section 36(2) which provides that: “In this Part [4], a reference to building work applies only to building work relating to a building within the meaning of this Part.”

The definition of ”building” for the purposes of Part 4, under section 36(1), is the definition under the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act) at section 1.4, which is “includes part of a building, and also includes any structure or part of a structure …, but does not include a manufactured home, moveable dwelling or associated structure within the meaning of the Local Government Act 1993.”

Justice Stevenson concluded that Mr Roberts carried out construction work (in supervising building work for a building within the EPA Act definition) and, therefore, owed the statutory duty of care to Goodwin. His Honour also concluded that Mr Roberts had breached the duty and was liable to pay damages to Goodwin for the cost of rectifying the defects in the buildings.

His Honour decided that the exclusion of a boarding house from being residential building work under the HBA was not relevant given the breadth of the definition of building. The question of how the exclusion of a manufactured home or moveable dwelling from that definition applies, given the limited circumstances in which work related to those items would be residential building work, was left unanswered.

How Did We Get Here?

The judgment in Goodwin v DSD is the result of amendments to the Design and Building Practitioners Bill 2019 (NSW) put forward by the Greens in the Legislative Council and subsequently passed by it and the Legislative Assembly.

Before the Greens’ amendments, the definition of building in the Bill comprised “a building of a class or type prescribed by the regulations” (matching the section 4(1) definition of building work) and “a class 1a, 1b, 2, 3, 10a, 10b or 10c building or a building containing parts classified as … [these classes]”. In that version of the Bill, the whole of the DBP Act was to commence on the same date.

The classes referred to in the paragraph above are set out in the table below:

As demonstrated in the table, the initial definition of building in the Bill would have limited the application of the duty of care to primarily residential-type buildings. While it appears clear from the speech of David Shoebridge of the Greens in the Legislative Council that the Greens intended the duty of care to extend to more than residential buildings, which has been upheld in Goodwin v DSD, it may be that this outcome was not otherwise understood or intended by Parliament.

What Does This Mean for the Building Industry in NSW?

The impact of Goodwin v DSD is immense. What had been generally understood as a reinstatement of the duty of care for residential buildings that was thought to exist before Brookfield Multiplex has morphed into a duty of care that extends to all construction work (as defined), whether residential or otherwise, carried out since 10 June 2010. Additionally, given the inclusion of designs, building products and supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any of those things or building work in the duty, its scope is pervasive in the building industry in New South Wales. It will give rise to significant issues with insurance cover given its retrospective effect. In particular, the introduction of a requirement for decennial liability insurance in NSW for multi-storey residential buildings will not extend to many types of buildings that are now covered by the duty of care.

It remains to be seen whether the judgment will be appealed. It seems most unfortunate that the legal position that the industry now faces is a result of the lack of consideration given to the Greens’ amendments by the other members of Parliament. The NSW government should seriously consider remedial legislation to bring the law back into line with the position that the Bill originally provided for.

For more information, please contact Veno Panicker or Grant Parker.