BUILDERS BEWARE OF EXPANDED RISK AND RIGMAROLE
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CONSTRUCTION | AUGUST 2021
BUILDERS BEWARE The New South Wales parliament has
introduced a new legislative regime
OF EXPANDED RISK that seeks to regulate the construction
AND RIGMAROLE industry in an effort to promote public
confidence in the construction of
apartment buildings following a
plethora of defects encountered
over recent decades.The new regime comprises the In this article we seek to address the must submit a further declaration
Design and Building Practitioners practical impact of the “compliance within 1 day of commencing the
Act 2020 (Act) and the Design and declarations” and “duty of care” varied work.
Building Practitioners Regulation provisions of the Act.
Only registered building and design
2021 (Regulations).
If you have any queries regarding practitioners can provide these
On 11 June 2020 the Act took effect. the provisions of the Act please compliance declarations.
On 1 July 2021 the Regulations do not hesitate to contact
Building declarations must
commenced and the operational the authors of this article.
be submitted before an
provisions of the Act came into force.
New Regulation of Design and Build application is made for an
The purpose of the Act is to impose “occupancy certificate” (OC).
Compliance Declarations
greater regulation on the building and
The Act and Regulations prescribe
construction industry in an effort to The Act provides that:
the form and content of three types
reduce the prevalence of design and
• A registered design practitioner of compliance declarations:
build defects in apartment complexes.
must provide a “design
The Act adopts a multi-faceted • Design compliance declarations –
compliance declaration” if the
approach in an effort to achieve its must include a declaration as to:
practitioner provides a “regulated
purpose and imposes a range of
design”1 to be used in connection – whether or not a regulated
requirements. Most notably the Act:
with “building work” 2; design complies with the
• Requires design and building requirements of the BCA;
• A registered principal designer
practitioners to register and be
must ensure that a design – whether other standards,
named on a publically accessible
compliance declaration has been codes or requirements have
register of practitioners;
submitted and the designer is been applied;
• Imposes mandatory registered in accordance with the
– whether specialist advice has
insurance obligations; Act3; and
been sought in respect of the
• Requires designers and builders to • A registered building practitioner designs; and
submit “compliance declarations” must provide a “building
– whether or not the design
which state whether a design or compliance declaration” (and other
complies with other applicable
building work complies with the documents) for building work.4
requirements prescribed by
requirements of the Building Code
Design declarations must be the regulations.
of Australia (BCA); and
submitted before building work
• Principal compliance
• Establishes a statutory commences. If the design is varied
declaration – must include a
duty of care regime. before or after the building work is
declaration as to:
commenced, design practitioners
1 “Regulated designs” is broadly defined to include any design prepared for “building work” (section 5).
2 “Building Work” is broadly defined to include, amongst other things, work involved in the construction, alteration, repair or renovation of a class 2 building (residential
apartments) (Section 4).
3 Section 12, the Act.
4 Section 17, the Act.“The Act adopts a multi-faceted
approach in an effort to achieve
its purpose and imposes a
range of requirements.”
– whether or not a design The “as-built” design documents with the Act. Presently the Act applies
compliance declaration must also be submitted via the NSW to civil, mechanical, geotechnical,
has been provided in planning portal within 90 days after electrical, fire and structural
accordance with the Act for the OC is issued. engineers.
each regulated design;
Compliance declarations must be Engineers that intend to issue design
– whether the design lodged via the “NSW planning portal”. compliance declarations must also be
practitioner is authorised to The forms can be accessed on the registered as a design practitioner.
give the declaration; and NSW Fair Trading Website. 5
Specialist Work
– any other matters prescribed It is worth emphasising that
The Act also contains a provision
by the regulations. monetary penalties apply for a
for “specialist work”. This provision
breach of the provisions relating
• Building compliance requires that all practitioners
to compliance declarations. In
declaration – must include providing “specialist work” in relation
some instances (for example,
a declaration as to: to apartment complexes must be
knowingly submitting a false or
registered under the Act.
– whether the building misleading declaration) a penalty of
work complies with the imprisonment also applies. Specialist work applies to work
requirements of the BCA that does not fall within one of the
The Act and Regulations impose
and any requirements categories described above.
specific and in some instances
in the regulations;
cumbersome requirements. Care Extended Statutory Duty of Care
– whether the building work is should be taken to ensure strict
Prior to the Act
compliant with the Act and compliance by practitioners.
if not, the steps required to Previously, the High Court of Australia
Professional Engineering Work
ensure compliance; held that the builder and designer
The Act applies to persons carrying of components of residential strata-
– whether the building work was
out professional engineering work. titled apartments, did not owe the
carried out in accordance with
owners corporation a duty to exercise
the regulated designs; and Professional engineering work
reasonable care in the construction
includes the application of
– whether a registered of the building to avoid causing
engineering principles and data to
design practitioner or a the owners corporation to suffer
design and construction related to
registered principal design economic loss resulting from latent
engineering. Some exceptions apply
practitioner was appointed, defects in the common property
under the regulations.
and the relevant compliance (Brookfield Multiplex Ltd v Owners
declarations were obtained. Engineers that intend to provide Corp Strata Plan 61288 (2014) 254 CLR
services related to class 2 buildings 185; 88 ALJR 911; [2014] HCA 36).
must be registered in accordance
5 https://www.fairtrading.nsw.gov.au/trades-and-businesses/construction-and-trade-essentials/design-and-building-practitioners/forms.As a result of a number of serious – when the owners corporation entitled to the land for an
latent structural defects in high- bears the cost of rectifying estate of freehold;
rise strata titled buildings, causing defects (including ancillary
• for a lot within a strata scheme,
residents of the building to evacuate, damage caused by defects)
the owner of a lot within the
the Act was introduced on 3 June that are the subject of a breach
meaning of the Strata Schemes
2020 to not only address future latent of the duty of care imposed by
Management Act 2015;
structural defects in high-rise strata Part 4 of the Act. However, it
titled buildings, but to also have a is only the cost of reparation • for a development lot or
retroactive effect. of the latent defects that is neighbourhood lot within a
the subject of the duty of care community scheme, the proprietor
Duty of Care Imposed by the Act
imposed by Pt 4 of the Act in relation to the lot within the
Section 37(1) of the Act states that “A (section 38(1) of the Act); meaning of the Community Land
person who carries out construction Management Act 1989;
• individual lot owner is taken to
work has a duty to exercise
have suffered economic loss: • every person who jointly or
reasonable care to avoid economic
severally or at law or in equity is
loss caused by defects: – when the defects (including
entitled to receive or receives, or
ancillary damage caused
• in or related to a building for if the land is let to a tenant would
by defects), as well as the
which the work is done, and receive, the rents and profits of the
reparation of the defects,
land, whether as beneficial owner,
• arising from the requires individual lot
trustee, mortgagee in possession
construction work.” owners to seek alternate
or otherwise; and
accommodation, or otherwise
“Construction work” is defined as:
causes economic loss to the lot • other persons prescribed by the
• building work, owner in the form of lost rent, regulations for the purposes of
or the loss of potential tenants. this definition.
• the preparation of regulated
designs and other designs for However, in calculating each
Who can be sued?
building work, lot owner’s economic loss one
must consider the owners All persons who carry out
• the manufacture or supply corporation’s economic loss construction work owe the duty
of a building product used to avoid “double dipping”. In created by section 37(1) and can be
for building work, most instances, because the sued. That includes those carrying
owners corporation will seek out building work, preparing designs
• supervising, coordinating, project
to recover economic loss for for building work, manufacturing and
managing or otherwise having
the benefit of individual lot supplying building products used
substantive control over the
owners, the lot owners will for building work and, supervising,
carrying out of any work referred
not seek to recover this same coordinating, project managing or
to in paragraph (a), (b) or (c).6
economic loss. This may result otherwise having substantive control
Section 37, imposes an obligation in one consolidated action as over the carrying out of any of that
on those who know, or ought to opposed to many actions. work (section 36 of the Act).
have known, of a latent defect in a
Only economic loss that was Accordingly, and until we see the
building that if failed to be rectified,
foreseeable is recoverable. Generally, Act in action, there is risk that the
would cause the owner or a future
this means that if at the time of relevant corporate entity and its
owner economic loss. This risk of
construction it was reasonably employees will owe a separate
liability continues for 10 years after
foreseeable (and not too remote) actionable duty of care.
completion of the construction work
(which extends beyond the six year that the breach would cause the loss The Act is Retroactive
limitation period for a breach resulting complained of, it may be argued that
the economic loss was foreseeable Importantly and a key feature of the
in major defects pursuant to section
and therefore recoverable. Act is that section 37 does not only
18E of the Home Building Act 1989).
apply to design and construction
It is important to note that section Who can sue? work undertaken after the
37 only applies to construction, Section 37(2) of the Act provides, commencement of the Act.
alterations, additions and repair of a “The duty of care is owed to each It applies equally to construction
building of a class or type prescribed owner of land in relation to which the work undertaken within the 10
by regulations7 made under the construction work is carried out and years immediately before the
section 4 of the Act. each subsequent owner”. commencement of the Act. It is
Economic Loss An owner of land, as defined under important to note that only the duty
section 36 of the Act, can be any of of care provision set out in section 37
An:
the following: of the Act is retroactive.8 This poses
• owners corporation is taken to a significant risk to those persons
have suffered economic loss: • every person who jointly or
described above who, by virtue of
severally or at law or in equity is
6 Section 36 of the Design and Building Practitioners Act 2020 (NSW).
7 Sections 12 and 13 of the Design and Building Practitioners Regulation 2021 specify the prescribed classes or types of building/ building work that is captured under the
Act, as well as certain work that is excluded from being building work (i.e. work that is carried out as exempt development; work that is waterproofing; work that is repair,
renovation or protective treatment of a building but only if the work involves a mechanical, plumbing or electrical service etc.).
8 Section 5 of the Design and Building Practitioners Act 2020 (NSW).the Act, owe a duty of care under the In theory it is possible to purchase
Act but may not have appropriate “claims made” cover with a
insurance in place for that period. retroactive date. In other words, cover
for projects that have already been
Reducing the Risk
carried out. However it remains to be
Ultimately, you cannot contract out of seen whether the insurance market
the duties and obligations imposed will be amenable to such requests in
by the Act. light of the Act.
Accordingly when defect claims Alternatively, parties may be able to
are made, act on them. All time negotiate an extension of the policies
lost prevaricating and refusing to held at the time, with their insurers.
acknowledge the issue will inevitably
The way in which insurance policies
involve an increased exposure for an
interact with the Act is yet to be seen
economic loss claim, which in some
in action and will ultimately depend
instances might be more significant
on an insurer’s response to any such
than the cost of rectifying the defect.
claim. It is possible that adequate
If you have a significant ongoing insurance cover becomes more
potential exposure, it is prudent to difficult and more expensive to obtain
investigate whether you can obtain noting the expanded duty of care and
insurance against that exposure. exposure to risk.
Insurance It is recommended that those owing
a duty of care have a conversation
Perhaps the most pressing
with their construction insurance
question is: will insurance
broker to determine how they are
cover respond to retrospective
responding. Although, we expect that
claims made under the Act?
insurers and brokers will view this as
The answer is, maybe. an opportunity and on that basis, are
already moving to get this covered.
Retroactive cover is not uncommon.
Many Directors and Officers and
Professional Indemnity policies have For more information please
retroactive dates and respond on a contact the authors of this briefing:
“claims made” basis.
In other words, if a policy was held at
the time the works were carried out,
a claim made years later will generally
be covered. This is subject to the
terms and conditions of the policy ELLA WALLWORK
and whether the circumstances of Associate, Melbourne
the claim were known at the time (if T +61 (0)424 169 697
so, the claim is likely excluded). E ella.wallwork@hfw.com
But will this cover automatically apply
to claims made under the expanded
duty of care?
Coverage will depend on the express
wording of the policy, in particular
the scope of the insuring, extension NATASHA JOUKHDAR
and exclusion provisions of a policy. Associate, Sydney
If the insuring provisions are broad, T +61 (0)488 246 036
this expanded liability may well be E natasha.joukhdar@hfw.com
covered. However this will need to be
assessed on a claim by claim basis.
But what if an individual or
company did not have a suitable
insurance policy at the time the
works were undertaken?HFW has over 600 lawyers working in offices across the Americas, Europe, the Middle East and Asia Pacific. For further information about our construction capabilities, please visit hfw.com/construction hfw.com © 2021 Holman Fenwick Willan LLP. All rights reserved. Ref: 003218 Whilst every care has been taken to ensure the accuracy of this information at the time of publication, the information is intended as guidance only. It should not be considered as legal advice. Holman Fenwick Willan LLP is the Data Controller for any data that it holds about you. To correct your personal details or change your mailing preferences please email hfwenquiries@hfw.com Americas | Europe | Middle East | Asia Pacific
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