What you need to know
- The Building Ministers' Forum has agreed on a national implementation of the 'Building Confidence' report.
- The NSW Government has proposed a number of regulatory reforms which are outlined in the June 2019 'Building Stronger Foundations Discussion Paper'.
- A key element of the reforms is the proposed introduction of a new duty of care to protect building owners.
Background
In February 2018, a report commissioned by the Building Ministers' Forum made 24 recommendations to more effectively implement the National Construction Code: 'Building Confidence: effectiveness of compliance and enforcement systems for building and construction industry across Australia'.
At a meeting of the Building Ministers' Forum on 18 July 2019, the Building Ministers agreed to a national approach to the implementation of the Report and announced that an implementation team will be established to develop a national framework for the consistent implementation of the Report's recommendations.
Even before that meeting, several States had already begun developing and proposing various reforms, including (amongst other reforms):
- Victoria: which introduced additional compliance requirements on building surveyors before the issue of a building permit and registration requirements for building companies in 2018 and further changes to the building permit process on 1 July 2019.
- Queensland: which proposed to continue implementing the Queensland Building Plan reforms and focus on enhancing the current building certification processes in 2019.
- South Australia: which introduced a new planning system through the Planning, Development and Infrastructure Act 2016 (SA), "Phase One" of which saw the new system become operational in outback areas on 1 July 2019. "Phase Two" (Regional South Australia) and "Phase Three" (Metropolitan Adelaide) are due to come online in 2020.
NSW
The NSW Government issued its response to the Report in February 2019 and then provided further detail on implementation in the June 2019 'Building Stronger Foundations Discussion Paper' (the Discussion Paper). Both the response and the Discussion Paper focus on four key reforms:
- Declarations: Requiring categories of 'building designers' to declare that building plans and performance solutions comply with the Building Code of Australia, and that builders declare that the buildings are constructed according to the declared plans.
- Registration: Establishing a new registration scheme for 'building designers' for currently unregistered designers and commercial builders who intend to make declarations.
- Building Commissioner: Appointing a Building Commissioner, who will act as a consolidated regulator for the construction industry. The Building Commissioner will be armed with powers to investigate and take disciplinary action against building practitioners who have engaged in improper conduct.
- Duty of Care: Ensuring that a common law duty of care is owed by building practitioners to building owners (as well as unsophisticated development clients).
While each of these represent a significant change to building regulations in NSW, the proposal to introduce a new duty of care for building professionals is one area likely to be of particular interest not only to the building industry, but to the wider community as well.
The common law context
After acknowledging that building owners are protected by the statutory warranties (in the domestic building context), the Discussion Paper provides a brief summary of the current state of the common law in relation to claims in negligence for building defects.
As the loss occasioned by defective building work is characterised as pure economic loss, damages are not recoverable simply because the loss was reasonably foreseeable and a defendant's negligence was a cause of the loss. Something more is required to ensure that an appropriate balance is struck between holding parties accountable for their negligence where appropriate and avoiding exposing defendants to potential liability "in an indeterminate amount for an indeterminate time to an indeterminate class."1
The High Court of Australia has considered the question of what more is required to give rise to liability in negligence for pure economic loss in various contexts over many years. Through cases including Woolcock2 and Brookfield,3 the vulnerability of the plaintiff emerged as an important requirement to determine whether a duty of care existed.
In Woolcock, no duty of care was owed to a subsequent purchaser of a warehouse and office complex by engineers who had designed inadequate foundations for the complex. The joint judgment confirmed that in the circumstances of that case, the plaintiff was not 'vulnerable' to the economic consequences of negligent design by the engineers because the plaintiff could have protected itself in contract.
Similarly, in Brookfield, it was held that the builder did not owe a duty of care to the developer, subsequent purchasers or the owners corporation to avoid pure economic loss resulting from latent defects. Again, the Court found the parties were able to protect themselves through a sophisticated contract containing detailed provisions setting out the builder's responsibilities and the allocation of risks.
The Discussion Paper also refers to cases where the existence of contractual or legislative protections (including the statutory warranties under the Home Building Act 1989 (NSW)) have precluded a duty of care from arising or weighed heavily against the imposition of such a duty.4
A new duty of care
The Discussion Paper records the NSW Government's concern that the cases in this area call into question the degree of protection afforded to property owners. This is significant because the existing statutory protections available to owners (such as the statutory warranties under the Home Building Act 1989 (NSW)) may not be available when a defect is discovered (for example, because a claim for latent defects is outside of the limitation period or the warranties were given to a different party). Further, the likelihood of contractual protections being available is reduced where contracts have exclusions or limitations of liability.
In order to deliver on the NSW Government's commitment to provide stronger protections for consumers and owners of property, the Discussion Paper proposes an industry-wide duty of care to homeowners, owners’ corporations, subsequent titleholders and small businesses.
The Discussion Paper sought public comment on the details of the proposal, including:
- Whether the duty of care will be imposed by legislation, or whether the NSW Government could introduce legislation to clarify the principles relating to the duties of builders and developers and allow the common law to change the outcome of cases over time?
- Which building practitioners should be captured by the newly created or clarified duty of care?
- Which parties should be protected by the newly created or clarified duty of care? In this context, the Discussion Paper again contemplates there may be a continuing role for the common law in informing the scope of the duty of care by suggesting the decisions in Brookfield and Woolcock and the test of vulnerability are "a reasonable starting point for considering which types of consumers are in most need of a duty of care in the absence of being able to independently protect themselves."
What next?
Some of the other key issues on which the NSW Government sought public comment included:
1. Declarations: the stage at which it would be appropriate for plans to receive statutory declaration; whether a statutory declaration should accompany all variations to plans; what the process of declaring that a building complies with plans looks like;
2. Registration: what are the minimum requirements for a registration scheme; what are the mandatory skills for 'building designers'; should specific qualifications for 'building designers' be required; and
3. Duty of Care: who should owe the duty of care; how the duty of care will operate across the contract chain; to whom the duty of care should be owed.
The NSW Government is now analysing feedback received through the public consultation process and the submissions to that process will be made available to the public.
These reforms are likely to affect many participants in the construction industry, and could lead to a ground breaking development in the law of negligence for building matters in NSW. As such, this is clearly an area to watch.
Authors: Adam Firth, Partner; Mariel Hoare, Lawyer; Emily Mo, Graduate.
1. Per Chief Judge Cardozo Ultramares Corporation v Touche (1931) 174 NE 441 at 444.
2. Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515.
3. Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185.
4. Such cases include: Investments Pty Ltd v Walker Group Constructions Pty Ltd [2016] NSWSC 50, James v The Owners – Strata Plan No 11478 (2016) 18 BPR 36389 and The Owners — Units Plan No 1917 v Koundouris (2016) 307 FLR 372.
