Introduced in June 2020, the Design and Building Practitioners Act (NSW) established a statutory duty of care for persons carrying out construction work to exercise reasonable care to avoid economic loss caused by defects. Crucially, the Act specifies that this duty of care is owed to each owner, and subsequent owners of land and it applies to all residential building work.
Prior to its introduction, there was widespread speculation around the impact that this extended duty of care would have on the construction industry. The retrospective application of the duty was a cause for concern for both practitioners, and their professional indemnity insurers.
KEY DECISIONS INDICATE BROAD STANCE ON DUTY OF CARE
Over the last 12 months, the NSW Supreme Court has considered the scope of this duty in multiple matters, with two key decisions demonstrating that the judiciary appears prepared to adopt a broad interpretation of the provisions.
- Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 was the first to consider the application of this extended duty. In this case the Court found that the duty of care extends beyond Class 2 buildings. It was found that the meaning of both construction work and building provided by the Act refer to other pieces of legislation, including the Home Building Act 1989 (NSW) and the Environmental Planning and Assessment Act 1979 (NSW), which result in a broad definition. This decision has recently been affirmed by the NSW Court of Appeal, so the broad application of the duty of care appears hereto stay. This finding deviated from prior industry understanding that the duty of care would apply to Class 2buildings only.
- Boulus Constructions Pty Ltd v Warrumbungle Shire Council [2022] NSWSC 1368 is the most recent decision to consider the application of the duty of care. In this case the Court adopted a wide interpretation of ‘person’ for the purpose of considering the duty of care, and maintained that Directors and employees fall within scope. It is not necessary to be a construction ‘practitioner’ as defined in the Act, or indeed a registered construction professional to be subject to the new duty of care. Individuals who are involved in building, design work, manufacture or supply of building products, or the supervision of building projects (including project management) are all captured by this finding.
WHAT DOES THIS MEAN FOR YOU?
Construction professionals operating in NSW should ensure that their professional indemnity insurance policy will adequately respond to claims that may arise in respect of the new statutory duty of care. Key considerations include:
- Ensuring accurate disclosure to insurers at the time a policy is being negotiated, specifically in relation to the nature of your work.
- The presence of any non-standard exclusions specific to the new duty of care.
- Adequate retroactive cover for claims that may arise because of the retrospective application of the new duty of care.
- Appropriate professional services description, ensuring that all past activities are appropriately covered.
- Appropriate cover for Directors, employees, and the business itself.
NEXT STEPS
Honan is well placed to be able to negotiate appropriate cover, and to discuss risk exposures specific to your business.
Please reach out at any time to discuss your specific requirements.
Luke Vumbaca
Client Manager – Team Lead
Luke.Vumbaca@honan.com.au
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