The NSW Supreme Court reviewed the scope of a developer’s duty under the Design and Building Practitioners Act 2020 (NSW), and found that a developer owed a duty in circumstances where it was able to control how construction work was performed, and that it can still owe a duty even in circumstances where it is/was the owner of a building.
The NSW Supreme Court considered the proper construction of the definitions of “construction work” and a “person” used in s 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act) and found that a developer could owe a duty of care to subsequent owners if it had the ability to exercise substantive control. It is not necessary for a claimant to show that such substantive control was actually exercised.
The plaintiff was the Owners Corporation of a strata development in North Sydney (Owners). The defendants were the builder of that development, Pafburn Pty Limited (Builder) and the developer, Madarina Pty Limited (Developer).
The Owners alleged that the development contained defects and commenced proceedings against the Builder and the Developer in the Supreme Court of New South Wales.
The Owners’ pleadings were based solely on breaches of the statutory duty of care owed under s 37 of the DBP Act.
This judgment considered two motions brought by the parties: one by the Owners seeking leave to amend their pleadings, and the other by the Builder and Developer seeking an order that the proceedings be dismissed or an order that the pleadings be struck out.
The Court did not determine whether leave should be granted to amend the pleadings and instead ordered that the Owners Corporation be given the opportunity to seek particulars of the contract between the Developer and Builder, with any proposed amended pleadings be circulated thereafter.
In doing so, the Court did provide some valuable discussion as to the proper construction of the definition of “construction work’ as it appears in s36(1) of the DBP Act.
The DBP Act relevantly defines “construction work” to mean “(d) supervising, coordinating, project managing or otherwise having substantive control over the carrying out of [relevantly, building work]”.
The Court considered the question of whether in order to establish that someone had “substantive control over the carrying out of” building work, it was necessary to show that they actually exercised such “substantive control”.
The Court found that the words “supervising, coordinating, [and] project managing” used in s 37 required the person to actually supervise, coordinate or project manage the work.
However, the Court found that the words “otherwise having substantive control” did not require the person to actually exercise that control. A person could have “substantive control” if it “had the ability and the power to control how the work was carried out.”
To determine whether a person had the ability and power to control how the work was carried out is a question of fact and would need to be determined on a case-by-case basis.
The Court also considered whether the word “person” used in s 37 of the DBP Act included the owner of the land at the time that construction work was carried out. The Developer (who was the Owner at the time the work was carried out) argued that it would give rise to an absurdity if the DBP Act were read so as to owe itself a duty of care to avoid causing itself economic loss.
The Court found that it was obvious that Parliament could not have intended to create a duty by an “owner of the land in relation to which the construction work is carried out” to itself. It instead said that the preferable construction of the expression “each owner” used in s 37(2) of the DBP Act should be read as not including an owner that has itself carried out the construction work in question.
Implications for you
This case is a reminder that the question of whether a person has performed “construction work” and consequently owed a duty of care under s 37 of the DBP Act ultimately turns on the facts.
We will be watching this space to see what matters the Courts consider are relevant to the question of whether a person had “substantive control” and the extent to which developers are the subject of claims for breach of the duty owed under s 37 of the DBP Act.