Since the introduction of Part 4 of the Design and Building Practitioners Act 2020 (NSW) (“DBP Act”) relating to the legislative duty of care obligations (which commenced in June 2020) those in the construction industry, particularly those architects, engineers, other design consultants and builders performing their services in NSW, have been put on notice. There is a new legislative standard in town and it must be complied with.

Design consultants have a retrospective duty to each owner of the land and any subsequent owner of the land to “exercise reasonable care to avoid economic loss caused by defects” in or related to a building where the work is done and arising from construction work. The statutory duty of care obligation goes beyond simply class 2 buildings to many other sorts of buildings too.

The statutory duty of care obligation is separately determined from the remaining obligations under the DBP Act relating to registration, regulated designs and the Design Compliance Declaration scheme which relate back only to class 2 buildings.

The recent case of The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068 (SP87060 v Loulach), gives us further insight into the application and interpretation of the statutory duty of care and its interrelation with other duty of care obligations when performing professional services and proving a breach of the statutory duty of care.

The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2)

In this matter, the Owners Corporation commenced proceedings against Loulach alleging a breach of the Home Building Act 1980 (NSW) (HBA) and were seeking to amend their claim to include breach of the statutory duty of care under the DBP Act as a result of defects in a residential strata development in Paramatta.

In the amended claim, the Owners Corporation identified the various defects at the property, mainly involving water ingress and non-compliant cladding and argued that by proving that the work was done defectively under the HBA, this in turn also provided the same reasoning as to why the work was performed negligently under the DBP Act.

Loulach opposed the filing of the amended claim as although they conceded that the statutory duty was owed to the Owners Corporation, the amended pleadings did not adequately identify how the duty of care under the DBP Act was breached.

In its deliberation, the Court considered that the DBP Act states that the statutory duty of care in Part 4 is subject to the Civil Liability Act 2002 (NSW) (CLA). Therefore, the Court needed to ask whether the risk was foreseeable, not insignificant and what a reasonable person would have done to avoid the risk.

The Court refused the Owners Corporation application to file the amended claim. More specifically, the Court held that the Owners Corporation’s failed to adequately identify what risks Loulach was required to take reasonable care to avoid, and how it had failed to do this.

The Court gave the example that the claim needed to state not just that there was non-compliant ACP’s installed throughout the building facades, but the Owners Corporation needed to demonstrate how Loulach had breached its duty, for example, had Loulach failed to read or follow the architectural plans or had they inappropriately selected the location at which the cladding was to be installed.

This case confirms that it is not enough to establish a claim for breach of the statutory duty of care merely by the fact of a defect existing under the HBA, without addressing the requirements established at common law or under the CLA, asking whether the risk was foreseeable, not insignificant and what a reasonable person would have done to avoid the risk.

Conclusion

Generally, we have become aware of an increase in claims and amended claims including a breach of the statutory retrospective duty of care under the DBP Act. The case of SP87060 v Loulach provides clarification to design consultants around the application, essential elements and evidence required of the retrospective statutory duty of care in pleadings for a successful claim to be made for its breach.

It is important to remember that a design practitioner’s Professional Indemnity (“PI”) insurance is an important resource and risk management tool in the event of any claim made against you for any alleged breach of the retrospective statutory duty of care under the DBP Act. Most PI insurance policies do not specifically refer to or exclude the DBP Act. PI insurance policies cover you for the provision of professional services noted in the policy schedule (e.g. Architecture/Engineering). If your experience and professional expertise extended to the provision of services where the DBP Act applied, most PI insurance policies would be expected to cover you for your obligations under it, subject to the other terms and conditions of the PI insurance policy. Our colleagues at Planned Cover have started to see some policies which contain exclusions stating that all or some obligations under the DBP Act are not covered, but we understand that these policies are rare. To understand what you are and aren’t covered for, consult your PI insurance broker.

Felicity Dixon
Risk Manager

This article is only general advice in respect of risk management. It is not tailored to your individual needs or those of your business, nor is it intended to be relied upon as legal or insurance advice. For such assistance you should approach your legal and/or insurance advisors.