Introduction

The statutory duty of care under Section 37 of the Design and Building Practitioners Act 2020 (NSW) establishes a legal obligation for individuals and entities involved in construction work to exercise reasonable care to avoid economic loss caused by defects. This duty extends to a wide range of buildings, including residential, commercial, and boarding houses, ensuring that all strata property owners and building practitioners in New South Wales are protected against substandard construction practices.

The relevance of this duty is paramount as it safeguards the interests of property owners and upholds the integrity of the construction industry. By imposing clear responsibilities, Section 37 fosters accountability among builders and supervisors, thereby promoting higher standards of construction and reducing the incidence of building defects that can lead to significant economic losses for owners.

Understanding Section 37 of the Design and Building Practitioners Act

Definition and Scope of the Duty of Care

Section 37 of the Design and Building Practitioners Act 2020 (NSW) establishes a statutory duty of care for individuals and entities involved in construction work. This duty requires them to exercise reasonable care to prevent economic loss caused by defects in or related to a building for which the construction work is performed. The duty of care is comprehensive and applies regardless of whether the construction work was undertaken under a contractual agreement or not.

Key aspects of the duty of care include:

• Economic Loss Prevention: The primary focus is on avoiding financial losses resulting from defective construction. This includes costs associated with rectifying defects and any consequential damages that may arise.
• Broad Application: The duty extends to all classes of buildings as defined under the Environmental Planning and Assessment Act 1979 (NSW), ensuring that both residential and commercial structures are covered.
• Retrospective Scope: The duty applies to construction work carried out from 11 June 2010 onwards, even if the Design and Building Practitioners Act 2020 (NSW) was not in effect at the time the work was performed.

Entities Owing the Duty of Care

Under Section 37, various stakeholders in the construction industry are obligated to uphold the duty of care. These entities include:

• Builders and Contractors: Individuals or companies directly involved in the physical construction of buildings are primary bearers of this duty.
• Designers and Architects: Those responsible for the design aspects of a building must ensure that their designs do not lead to defects that could cause economic loss.
• Project Managers and Supervisors: Individuals overseeing construction projects hold a significant responsibility to coordinate and manage work effectively to prevent defects.
• Suppliers of Building Products: Companies that manufacture or supply materials used in construction must ensure their products meet the required standards to avoid contributing to defects.

These obligations extend to both current and subsequent owners of the land, ensuring continuous accountability for the quality of construction work.

What Counts as “Economic Loss”

The Design and Building Practitioners Act 2020 (NSW) aims to protect property owners from economic loss caused by defective building work. Section 37 of the Design and Building Practitioners Act 2020 (NSW) imposes a duty on anyone carrying out “construction work” to exercise reasonable care to avoid causing such loss. This duty extends to both current and subsequent owners of the land.

“Economic loss” in this context goes beyond just the initial cost of repairing defects. It encompasses a broader range of financial consequences that owners corporations or individual lot owners might face due to defective building work.

For owners corporations, economic loss can include:

• Rectification Costs: The primary component is the expense of fixing the actual defects in the building.
• Consequential Damages: This covers additional losses that flow directly from the defects, such as damage to other parts of the building caused by water ingress from a faulty roof.

Individual lot owners can also suffer economic loss, which may include:

• Alternative Accommodation: If a defect makes a unit uninhabitable, the owner might incur costs for temporary housing.
• Lost Rental Income: Defects can lead to loss of rental income if the property cannot be leased or requires rent reductions.
• Diminished Property Value: Defects can lower the market value of the property, impacting the owner’s investment.

It’s crucial to understand that the Design and Building Practitioners Act 2020 (NSW) focuses on latent defects, those hidden within the building structure and not apparent. These are defects that a reasonable builder should have foreseen and avoided during construction.

Scope of the Statutory Duty Under Section 37

Types of Buildings Covered

Section 37 of the Design and Building Practitioners Act 2020 (NSW) imposes a broad statutory duty of care that applies to a wide range of buildings. The Act’s definition of “building” aligns with the Environmental Planning and Assessment Act 1979 (NSW) and includes:

• Traditional residential buildings
• Commercial buildings
• Boarding houses

This expansive scope was affirmed in the case of Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, which established that the duty of care under Section 37 protects owners of different types of buildings from economic loss caused by defective construction work.

Construction Work Included

The statutory duty under Section 37 extends to all forms of construction work performed in relation to a building, including:

• Physical erection of structures
• Project management and supervision
• Design work
• Supply of building products

The duty of care encompasses various construction-related activities such as:

• Designing
• Supervising
• Coordinating
• Project managing
• Supplying or manufacturing building products

Recent court decisions, including Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 and The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301, have reinforced that individuals in control of various aspects of construction work are liable under Section 37 for any defects arising from their work.

Liability and Apportionment under Section 37

Personal Liability of Building Practitioners

Under Section 37 of the Design and Building Practitioners Act 2020 (NSW), personal liability extends to:

• Builders
• Project managers
• Supervisors
• Other building practitioners with substantive control over construction

Building practitioners must exercise reasonable care to avoid economic loss caused by defects. This requirement was demonstrated in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, which established that project managers and supervisors can be held personally liable for failing to meet their duty of care. This emphasis on personal liability highlights the critical importance of thorough oversight and strict adherence to building standards by all construction parties.

Proportionate Liability and Recent Court Decisions

Recent judicial decisions have established several key principles regarding liability under Section 37:

1. The statutory duty of care is non-delegable:
   • Liability cannot be shared or apportioned among multiple parties
   • Tasks cannot be delegated to mitigate liability
2. The “buck stops at the top” principle applies:
   • Primary parties remain fully liable for defects
   • Involvement of subcontractors does not reduce liability
   • Arranging for others to perform work carefully is insufficient to discharge duty

These principles were confirmed through significant cases:

• Pafburn Pty Limited & Anor v. The Owners – Strata Plan No 84674 [2024] HCA 49
• Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624

These decisions establish a stringent standard for building practitioners, emphasising that maintaining control and oversight of construction work is essential to fulfilling statutory duties and avoiding personal liability.

Limitation Periods for Claims under Section 37

Application of Limitation Periods

Claims under Section 37 of the Design and Building Practitioners Act 2020 (NSW) are governed by limitation periods from two key pieces of legislation:

1. Limitation Act 1969 (NSW) (LA):
   • Requires civil actions to be initiated within six years from when the cause of action first accrues;
2. Environmental Planning and Assessment Act 1979 (NSW):
   • Introduces a ‘long stop’ provision under Section 6.20;
   • Restricts claims to no more than ten years after construction work completion;
   • Construction work is deemed complete upon either:
     • Issuance of an occupation certificate;
     • Completion of required inspection; or
     • First occupation of the building.

To illustrate these timeframes:

• If a defect is discovered three years after the occupation certificate, claims must be filed within the remaining three years to meet the six-year limitation.
• If a defect is identified five years post-occupation, claims must be lodged within the remaining five years before the ten-year long stop deadline.

Retrospective Application of the Duty

Section 37 of the Design and Building Practitioners Act 2020 (NSW) applies retrospectively to construction work since 11 June 2010, with the following implications:

• Requires building practitioners and builders to understand their responsibilities extend to past projects within this timeframe;
• Imposes a statutory duty of care on individuals and entities involved in construction work;
• Requires reasonable care to prevent economic loss caused by defects;
• Enables owners and subsequent owners to bring claims for defects from construction work performed from 11 June 2010 onwards.

Implications for Strata Property Owners and Building Practitioners in NSW

Economic Impacts and Risk Management

Section 37 of the Design and Building Practitioners Act 2020 (NSW) imposes a significant statutory duty of care on individuals and entities involved in construction work. For strata property owners and building practitioners in New South Wales, this translates into potential economic ramifications tied to construction defects.

Key economic impacts include:

• Increased Liability Costs: Building practitioners, including builders, designers, and project managers, may face substantial financial liabilities if defects arise from their work. This can result in costly legal defences and damages payable to property owners.
• Insurance Premiums: The heightened risk of liability under Section 37 may lead to increased insurance premiums for building practitioners. Insurers may consider the broader scope of the duty of care when assessing risk and setting premiums.
• Project Delays and Additional Expenses: Addressing defects often necessitates project delays and additional expenses to rectify issues, which can affect both the financial viability of projects and the profitability of builders.

Effective risk management strategies are essential to mitigate these economic impacts:

• Comprehensive Contractual Agreements: Clearly outlining responsibilities and obligations in construction contracts can help manage and distribute risks appropriately among parties.
• Regular Quality Inspections: Implementing routine inspections during the construction process can identify potential defects early, reducing the likelihood of significant economic loss.
• Training and Development: Ensuring that all building practitioners are adequately trained and aware of their duties under the Design and Building Practitioners Act 2020 (NSW) can help prevent breaches of duty that lead to financial liabilities.

Compliance and Best Practices

Adhering to Section 37 of the Design and Building Practitioners Act 2020 (NSW) requires strata property owners and building practitioners to implement robust compliance measures. Failure to comply can result in severe legal and financial consequences.

Best practices for compliance include:

• Thorough Documentation: Keeping detailed records of all construction activities, decisions, and inspections ensures accountability and provides evidence of due diligence in case of disputes.
• Engaging Qualified Professionals: Hiring qualified and experienced building practitioners who understand their duties under the Design and Building Practitioners Act 2020 (NSW) helps minimise the risk of defects and breaches of duty.
• Implementing Quality Control Systems: Establishing stringent quality control protocols throughout the construction process ensures that all work meets the required standards and reduces the likelihood of defects.
• Regular Training Sessions: Conducting ongoing training for all parties involved in construction projects about their responsibilities under the Design and Building Practitioners Act 2020 (NSW) fosters a culture of compliance and proactive risk management.
• Legal Audits and Reviews: Periodically reviewing compliance with the Design and Building Practitioners Act 2020 (NSW) through legal audits can identify and address potential issues before they escalate into costly legal disputes.

By adopting these best practices, strata property owners and building practitioners can effectively navigate the requirements of Section 37, thereby safeguarding their financial interests and maintaining high standards of construction quality.

Conclusion

The statutory duty of care under Section 37 of the Design and Building Practitioners Act 2020 (NSW) is fundamental in safeguarding the interests of strata property owners and ensuring high standards among building practitioners in New South Wales. This duty mandates that all parties involved in construction work exercise reasonable care to prevent economic loss caused by defects, thereby promoting accountability and integrity within the construction industry.

Understanding and adhering to these obligations is crucial for both property owners and building professionals. To navigate the complexities of Section 37 effectively and ensure compliance, it is highly recommended to consult with our team of experienced strata and construction lawyers. Contact us today to explore how our specialised knowledge can help you manage risks and uphold the highest standards in your construction projects.

Frequently Asked Questions