Guide to the Statutory Duty of Care under Section 37 of the Design and Building Practitioners Act: Implications for Strata Property Owners and Building Practitioners in NSW

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In the intricate landscape of property law, the Design and Building Practitioners Act 2020 (NSW) (DBP Act) stands as a pivotal piece of legislation, particularly Section 37. It introduces a statutory duty of care in section 37 of the DBP Act that directly affects construction professionals and property owners alike. For homeowners and strata corporations, it offers a legal foundation to seek redress for construction defects in building work leading to economic losses. On the flip side, construction practitioners are reminded of the importance of upholding quality standards, as lapses could result in legal consequences and financial repercussions.

Historically, claiming damages for construction defects was a challenging endeavour, often entangled in legal complexities. The DBP Act seeks to provide a more transparent and direct avenue for such claims, marking a significant shift in the property law sector in NSW. As we delve deeper into Section 37, this article aims to demystify its nuances, real-world implications, and the protection it offers to property owners.

Table of Contents

The Statutory Duty of Building Professionals under Section 37 of the DBP Act

Introduced in response to a spate of structural failures and defects in residential buildings, the Design and Building Practitioners Act 2020 (NSW) (DBP Act) outlines the statutory duty of care required of building professionals. Section 37 of the Act has been pivotal in safeguarding the rights of building owners and subsequent purchasers in NSW.

Section 37 crystallizes the duty of building practitioners, as defined in section 36 of the DBP Act, encompassing a broad spectrum from builders and architects to site supervisors and project managers. It mandates that these professionals uphold stringent standards and exercise reasonable care to avoid economic losses stemming from defects or substandard construction.

For those in the construction industry, understanding this provision is paramount. Not only does it shape their responsibilities, but it also serves as an assurance to consumers, bolstering confidence and trustworthiness in the sector.

To elucidate, under section 37 of the DBP Act, any individual involved in the construction process can be held personally accountable for economic losses arising from construction-related defects. This includes potential liabilities for directors and employees of construction entities, contingent upon their level of control over the building process.

A case in point: In the Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWSC 116, the owners corporation initiated legal proceedings against both the builder and developer for alleged defective construction. The developer sought to have the case dismissed, positing that it didn’t exercise substantive control over the construction. However, the court determined that the developer’s primary director, who also held positions with the building company, might have had the authority to oversee the construction. The ruling highlighted that the ability to exercise control, irrespective of its actual application, was pivotal.

Understanding the Breadth of Section 37’s Statutory Duty of Care in the DBP Act

Section 37 of the Design and Building Practitioners Act (DBP Act) underscores a duty to safeguard against economic losses, and its scope is notably expansive. This statutory duty is applied retrospectively, encompassing economic losses that surfaced within the decade leading up to the Act’s initiation (as referenced in sch 1, cl 5).

Interestingly, the Act doesn’t limit its scope solely to traditional residential structures and residential building work, such as class 2 type apartment buildings. As detailed by the Environmental Planning and Assessment Act 1979 (NSW) (EPAA), the term ‘construction work’ relates to a vast array of buildings, extending its applicability far beyond just residential edifices.

A landmark case elucidating this point is Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624. The pivotal issue here revolved around whether the duty of care provision within the DBP Act encompassed construction tasks performed on a boarding house. The court’s judgment clarified the broad extent of the duty, affirming that this statutory duty of care is not solely limited to class 2 buildings or typical residential works, but also to diverse building types like boarding houses and commercial establishments. This interpretation ensures a comprehensive protective ambit, safeguarding a multitude of stakeholders in the building sector.

Understanding Economic Loss Caused by Defects

The intricacies of economic losses caused by defects, especially within the context of the Design and Building Practitioners Act (DBP Act), are worth understanding. Under section 37, building practitioners must exercise reasonable care to avoid economic loss caused by defects. As per section 38, economic loss isn’t solely limited to immediate damage costs. It encompasses a variety of situations and repercussions that can arise from defects.

For owners corporations, economic loss manifests when they shoulder the financial responsibility of remediating defects and addressing any collateral damage resultant of those defects. Interestingly, a claim for this type of economic loss isn’t dependent on the corporation’s ownership status of the land during the construction phase.

In contrast, individual lot owners experience economic loss differently. They face it when defects in their properties force them into seeking alternative accommodations. For instance, if a defect renders a property uninhabitable, the lot owner, if a landlord, might need to provide alternate housing solutions for their tenants. The definition of economic loss for such owners doesn’t stop there. It further extends to direct costs associated with repairing defects, potential revenue losses like missed rent, and even missed opportunities with potential tenants.

It’s essential, however, to note the DBP Act’s limitations. It specifically targets latent defects in strata buildings, emphasizing those that were reasonably foreseeable at the time of construction. When it comes to quantifying this loss in legal terms, the court takes into account previously claimed rectification costs by the owners corporation on behalf of individual lot owners. This ensures that the same economic loss isn’t claimed twice—either within one lawsuit or across separate legal actions—by both the owners corporation and individual lot owners. It’s a measure that ensures fairness and avoids potential double compensation.

Understanding the Scope of the Statutory Duty of Care Under the DBP Act in NSW

Under the Design and Building Practitioners Act (DBP Act), there’s a clear delineation regarding to whom the statutory duty of care is extended. The Act’s provisions protect both present and succeeding owners of buildings. Delving into section 37(2), it confirms that this duty encompasses every landowner for which the construction task was executed, and to every owner that comes after. The significance of this is profound, as it empowers entities like the owners corporation, individual lot proprietors, or subsequent lot owners, granting them the right to pursue legal actions against builders or developers should they incur economic damages stemming from defects in strata buildings.

This provision heralds a marked shift from prior legal interpretations. Before the DBP Act’s enactment, only subsequent buyers, who either depended on the building practitioner’s expertise or were rendered vulnerable due to their inability to safeguard themselves against such losses, could seek damages for economic losses resultant of construction flaws. This is evident in the precedent set by the Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61228 [2014] HCA 36 case.

However, the entitlement to the duty of care isn’t absolute or unequivocal. An illustrative case in point is the recent Supreme Court of New South Wales judgment in the Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068. Here, the owners corporation of a Parramatta residential complex took legal action against both the developer and builder due to issues of water ingress and subpar cladding in their building. Their claims were dismissed, not because defects didn’t exist, but because they couldn’t demonstrate negligence or a breach of the said duty of care by the developer and builder. For example, one of the defects identified by the owners corporation was identified as “Unit 5- Bathroom: Corrosion affecting the door jambs”. However, what was the breach of duty alleged to have caused the corrosion? Was it:

1.      Installing the wrong lining?

2.      Installing the wrong PC item?

3.      Some other reason?

This underscores that merely identifying defects isn’t adequate. Claimants must convincingly establish that the defects arose because the developer or builder had breached the duty of care and that the breach caused economic loss. 

Understanding the Remedies for Breach of Duty of Care Under the DBP Act

For those adversely affected by construction defects within their strata properties, the Design and Building Practitioners Act provides clear avenues for seeking redress. According to Section 37(3) of the DBP Act, both the owners corporation and individual lot proprietors, who’ve endured economic damages stemming from such defects, can legally pursue the developer for breaching their duty of care.

Crucially, this provision doesn’t restrict or replace other legal recourses. Owners can still explore remedies grounded in the Home Building Act 1989, other relevant statutes, or even common law rights. It means that claimants have a multifaceted toolkit of legal avenues at their disposal, ensuring their rights are holistically protected.

Contractual Relationship and the Duty of Care Under the DBP Act

The duty of care in the context of the Design and Building Practitioners Act (DBP Act) is comprehensive. According to Section 37(4) of the Act, this duty is extended to an owner irrespective of the presence or absence of a contractual relationship or any other specific arrangement related to the construction work. This means that the mere existence of defects may give rise to a claim, and there’s no need for a formal contract to establish this duty of care. As such, potential claimants should be aware that the absence of a direct contractual relationship doesn’t preclude them from seeking damages under the DBP Act.

Wrapping Up: Insights into Section 37 of the DBP Act

The Design and Building Practitioners Act (NSW) introduces pivotal measures to protect the interests of strata property owners. Specifically, Section 37 empowers both current and subsequent strata property owners, as well as owners corporations, to pursue claims for economic losses against developers or builders associated with their strata schemes.

However, while the Act provides this recourse, it is essential for claimants to be cognizant of the associated limitation periods to assess their eligibility effectively. It’s also paramount to understand that a successful claim hinges on demonstrating that the duty of care was breached  and that the breach caused economic loss.

Whether you’re a strata property owner grappling with construction defects or a developer or building practitioner defending against an economic loss claim, seeking expert advice is crucial. Engaging with a strata lawyer in NSW can provide invaluable guidance and clarity on the nuanced facets of the DBP Act and the best course of action tailored to your circumstances.

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Picture of Authored By<br>Raea Khan

Authored By
Raea Khan

Director Lawyer, PBL Law Group

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PBL handled my late mothers estate, they were very obliging and patient with any and all questions that we had, thank you to David , Sharon and the other staff that we dealt with, everyone was so easy to talk to and friendly .David came to the home where my Mother was living and helped her to get her will in order, Sharon helped us through the process of executing her wishes when the time came even doing a house call which was so much easier, thank you all so much
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