Since the recent evacuation of a number of buildings in NSW, the standard of quality in the building industry has been the subject of significant media scrutiny which has been eagerly followed by homeowners, builders and developers alike.
This media frenzy, after a housing market boom and the reported down-turn and interest rates cuts, has created the perfect political storm for the NSW government to announce an overhaul of the current legislative regime and the proposed introduction of a new duty of care.
Last year the NSW government issued a Building Confidence Report which made recommendations to improve the national best practice model for building regulation and the National Construction Code (NCC). Now the NSW Government has committed to strengthening the residential building sector by opening a discussion paper with a view to introducing a robust regulatory framework for the construction of buildings in NSW. The government has proposed reforms including:
- Building practitioners to owe a common law duty to owners corporations and subsequent residential homeowners;
- Building designers such as architects, engineers and other building practitioners to declare that the building plans comply with the building regulations;
- A registration scheme for currently unregistered designers and commercial builders; and
- The appointment of a Building Commissioner to act as the consolidated regulator.
A government commissioned report also made other recommendations which included the creation of a register of engineers, independent third party certification of engineering designs, a regime of critical stage, onsite inspections by an independent registered engineers, increased transparency by an open repository for all certifications and the creation of a building structural review board.
Accordingly, the government has committed to deliver stronger protections for consumers and owners by clarifying the legislation and establishing a duty of care to subsequent property owners and other parties.
New duty of care
Currently, the Home Building Act 1989 provides statutory warranties for homeowners (which includes owners corporations) against builders and developers. However, two High Court decisions created doubt in relation to the protection for Owners Corporations in the event of negligence and denied the existence of a duty of care in two circumstances:
- Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 (‘Brookfield case’) held that the builders of an apartment complex did not owe a duty of care in negligence to the Owners Corporation for pure economic loss arising from latent defects in the common property; and
- Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 (‘Woolcock case’) held that the engineers did not owe a duty of care to subsequent purchasers of commercial property.
The above cases found that a duty of care could not be imposed unless it could be demonstrated that the Owners were vulnerable and unable to protect itself from the defendants’ lack of care/negligence. The High Court found in circumstances where the building contract contained detailed provisions in relation to the liability for defects, it was unlikely that the parties were vulnerable. The High Court also held that such a duty of care was unlikely to apply to subsequent owners who are sophisticated commercial parties.
Following these decisions, should statutory warranties be unavailable (for being out of time or the property is owed by a subsequent owner), it will be difficult for Owners to pursue building professionals for negligence or breach of contract for the building work.
Accordingly, the reforms aim to ensure that property owners have more avenues, and easier access, to seek redress for defective building and related damages and loss.
The NSW government has also set its sights on building practitioners to be held more accountable for their work by the implementation of declarations of compliance and a registry or repository of building plans and certification.
Practitioners will be liable for damages arising from a failure to take reasonable steps to prevent reasonably foreseeable risks of damage as a result of defects in the building which would see a broader range of building practitioners being held accountable for defective work.
Extent of reforms unknown
The government has not announced when these reforms will come in, but given the level of interest it may be before the end of the year. Until then, the extent of the duty or the building practitioners to be caught by the duty remains unknown.
However, it raises the possibility that the statutory duty of care may place some vicarious or concurrent liability on building practitioners in which case it will be important to know whether it is possible to contract out of such an arrangement. Further, where homeowners are out of time under their statutory warranties, will it still be open to pursue a claim under a new statutory duty of care?
We will be monitoring closely the implementation of any legislation and the extent of any liability created and will provide further updates as soon as we can.
This article was written by David Vaughan, Partner, Caroline Mallon, Associate and Robert Lee, Law Graduate.
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