NSW Court Of Appeal Confirms Duty Of Care Applies To Construction Work On Non-residential Buildings

The Design and Building Practitioners Act 2020 (NSW) (Act) imposes on persons who carry out construction work a duty to exercise reasonable care to avoid economic loss to owners and subsequent owners caused by defects.

In September 2022, we reported on a NSW Supreme Court decision in which Stevenson J considered whether the statutory duty of care applied to the construction of boarding houses.

The decision was appealed, and the Court of Appeal handed down its judgment last week (see Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5). The Court of Appeal unanimously upheld the finding of Stevenson J at first instance that the statutory duty of care is not limited to class 2 (multi-unit residential) buildings only – though with slightly different reasons than those of Stevenson J.

What this means for you

The key takeaway is that the Court of Appeal has confirmed the duty of care will apply to 'construction work' (which is broadly defined and can include certain design work, project management and supervision as well as building work itself) in respect of not just multi-unit residential (class 2) buildings, but also all buildings and structures other than manufactured homes, moveable dwellings or associated structures.

While the construction adopted by the Court of Appeal differed from the first instance decision, the outcome was the same.

For now, owners of non-residential buildings may increasingly look to rely on the statutory duty of care, including where potential direct contractual and other claims are not available. This will continue to have implications in terms of insurance and risk allocation, particularly in circumstances where the Act applies retrospectively to economic losses which became apparent within ten years before the Act commenced (subject to other applicable limitation periods).

However, further law reform is in the works, with the draft Building Bill 2022 introduced last year for consultation (among other draft legislation). That draft bill includes a consolidated statutory duty of care which is proposed to apply (more clearly) to residential and non-residential buildings, and extend the duty to others involved in construction. Further developments on the scope and nature of this evolving statutory duty of care are therefore likely this year, so watch this space.

The decision appealed

Background

Goodwin Street Development Pty Ltd (Goodwin) engaged DSD Builders Pty Ltd (DSD) to construct student accommodation (ie boarding houses) on land owned by Goodwin. David Roberts, the appellant, was a builder employed by DSD and worked on the development. Disputes emerged and works were suspended and terminated.

Following this, Goodwin commenced proceedings against DSD and Mr Roberts, however following DSD's insolvency the proceedings against DSD were stayed. Goodwin sought damages in relation to damage to its property, and defects in the work performed.

Based on the grounds of appeal pursued by Mr Roberts, there were two key topics addressed by the Court of Appeal:

1. the appropriate measure of damages in respect of the tortious claim (for damage to property). The Court of Appeal undertook a detailed analysis of the appropriate measure of damages in this context. The majority dismissed the appeal and held that the appellant had not discharged the onus of demonstrating that the cost of repair was not the appropriate measure of damages; and
2. the proper scope of the statutory duty of care under section 37 of the Act, and in particular whether it extended to construction work on boarding houses (and by extension other non-class 2 buildings).

This note considers the second topic.

The relevant statutory provisions

Section 37 of the Act provides:

1. A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects—
   1. in or related to a building for which the work is done, and
   2. arising from the construction work.

At first instance and on appeal, there was a dispute about whether section 37 applied to 'construction work' associated with a boarding house.

'Construction work' is defined in s 36(1) of the Act as including, among other things, 'building work'. There are two definitions of 'building work' within the Act, as set out below.

Section 36 definition of building work

Section 36(1), which only applies to Part 4 of the Act (which includes section 37, the duty of care provision) provides that 'building work includes residential building work within the meaning of the Home Building Act 1989.' It was not in dispute that work on a boarding house was not residential building work for the purpose of the Home Building Act 1989 (NSW).

Section 36(2) also relevantly provides that 'a reference to building work applies only to building work relating to a building within the meaning of this Part.'

Section 36(1) defines 'building' as having the same meaning as it has in the EP&A Act, which is:

Section 4 Definition of building work

Section 4(1), which is a general definition of 'building work', provides that:

1. For the purposes of this Act, building work means work involved in, or involved in coordinating or supervising work involved in, one or more of the following—
   1. the construction of a building of a class or type prescribed by the regulations for the purposes of this definition,
   2. the making of alterations or additions to a building of that class or type,
   3. the repair, renovation or protective treatment of a building of that class or type...

For the purposes of section 4(1)(a), the Design and Building Practitioners Regulation 2021 (NSW) (Regulation) only prescribes work involving buildings or parts of buildings that are class 2 buildings under the National Construction Code (ie residential apartment buildings). Boarding houses are a class 3 building.

Supreme Court decision

Relevantly, Stevenson J found that the general definition in section 4(1) had no application to Part 4 of the Act. Further, his Honour found that the non-exhaustive definition of 'building work' in section 36(1), read alongside the definition of 'building' in section 36(1) and the EP&A Act, included boarding houses.

As a result, Stevenson J held that the duty of care applied to the work in question.

Duty of care – Court of Appeal decision

Possible constructions of the Act

A key focus of the appeal relating to the scope of the duty of care was on the relationship between the different definitions of 'building work' in sections 4(1) and 36 of the Act. This was important because:

• if the more limited definition of 'building work' in section 4(1) dictated the scope of the duty of care, then the statutory duty would not apply to building types beyond those set out in the Regulation (currently only class 2 buildings); and
• if the broader definition of 'building work' in section 36(1) dictated the scope of the duty, then the duty would apply to building work in relation to any buildings or structures within the EP&A Act definition of 'building' (including commercial, residential and other buildings).

On appeal, Kirk JA and Griffiths AJA, with Ward P agreeing, considered four possible constructions of the Act for the purposes of determining what was encompassed by 'building work'.

• The definition of 'building work' in section 4(1) applies in full to the further definition of that term in s 36(1), such that boarding houses were not encompassed by Part 4. This is the argument that was advanced by the appellant.
• The reference to 'includes' in the definition of building work within s 36(1) should be understood as 'means'. This submission was also advanced by the appellant, but abandoned during oral submissions.
• The general definition in section 4(1) has no application to Part 4 of the Act. This was the finding of Stevenson J at first instance and the argument initially advanced by the respondent.
• The general definition in section 4(1) only applies in identifying the type of work undertaken. The 'building' that the work is undertaken on is addressed by the definition of 'building' in s 36(1).

Favoured construction

The Court observed that reasonable arguments could be made for the first, third and fourth constructions set out above. It ultimately found that the fourth construction made the best sense of the text, context and purpose of the relevant provisions, and therefore that boarding houses were encompassed within 'building work'. Some of the key reasons for this construction being favoured are summarised below.

The Court considered that the presence of section 36(2) indicated that the definition of 'building work' needed to be understood in terms of the definition of 'building' in section 36(1) (which in turn refers to the EP&A Act). This led the Court to conclude that the type of building to which part 4 applied 'was always intended to be the subject of distinct articulation, separate from any regulations made addressing the issue generally for the purposes of s 4(1).'

Their Honours therefore concluded that the statutory duty of care applies to 'building work' as defined in section 4(1), relating to a 'building' as defined in section 36(1). The Court considered this interpretation was supported by the legislative history of the Act, including because amendments to the Bill that added the definitions for 'building' and 'building work' under part 4 were discussed in terms of expanding the duty of care to all classes of buildings, including specifically in relation to boarding houses.

Their honours considered that the construction applied by Stevenson J at first instance (the third construction summarised above) would leave open the question of what type of work (as opposed to what type of buildings) was encompassed within the concept of 'building work' for the purposes of Part 4, and did not appear to be the intention of the legislature given the 'careful definition' in section 4(1).

As a result, in order to assess whether work is 'building work' to which the duty of care (at section 37 of the Act) applies, it is necessary to consider:

• whether the type of work being undertaken is construction, alteration, addition, repair, renovation, or protective treatment, or the coordination or supervision of those types of work; and
• whether that work is being done on a building prescribed by the regulations, or within the broader meaning of 'building' as set out in the EP&A Act.

If the answer to both questions is yes, then based on the Court of Appeal's reasoning the duty of care can apply.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.