We built this city on increased checks and retrospective roles: a new regime for design and building in NSW

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19/08/2020

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On 11 June 2020, the New South Wales Government enacted the Design and Building Practitioners Act 2020 (NSW) (the Act), conferring new obligations and duties on design practitioners, engineers and builders in a bid to reform the construction industry. Here’s what you need to be aware of:

Why has it been introduced?

Christmas Eve 2018 was a little less festive for residents of Sydney’s Opal Tower, who were evacuated when cracking sounds sparked fears of a building collapse.

Unfortunately, this is just one high profile example of serious defects being discovered in a new build Sydney apartment building. Mascot Towers and 93 Auburn Road have also featured in the news for defects. Indeed, research by UNSW City Futures Research Centre, Griffith and Deakin Universities, has consistently estimated that between 72% and 85% of apartments in NSW have defects.

What does it change?

Part 4 – Duty of care

In a major departure from the common law, section 37 of the Act extends a statutory duty of care to persons who carry out “construction work” (defined to include building work, the preparation of designs, manufacture or supply for a building product for building work and the supervision, coordination and project management)to avoid economic loss caused by defects to owners and subsequent owners of the land.

The salient features of the duty of care are that it:

  • Applies irrespective of any contractual arrangement (section 37(4)).
  • Applies to residential building work and any other building class or type prescribed by the regulations (which are yet to be released).
  • Is non-delegable (section 39) and cannot be contracted out of (section 40)
  • Has retrospective effect allowing owners to claim for a loss which first became apparent within the 10 years immediately prior to the commencement of section 37 i.e. if the loss first became apparent from 11 June 2010 onwards (schedule 1, clause 5).
  • Remains subject to the civil liability act 2002 (NSW) (section 41(3)), meaning that while subsequent owners no longer have to grapple with the difficulties of demonstrating a duty exists, they must still establish breach, causation and loss to be successful on a claim.

Part 2 – Regulated designs and building work

Registered design practitioners will be required to provide a compliance declaration for regulated designs, to the effect that “the design is in a form suitable for use by that person or another person in connection with building work” (Section 9(1)(b)). Compliance declarations will be required for further designs that vary those previously submitted.

Registered building practitioners will also be required to provide a building compliance declaration for building work, contractor document and other required documents before an application can be made for an occupation certificate.

The regulations will prescribe the content of the compliance declarations.

Sections 14, 24 and 33 - Compulsory insurance

The Act provides that design practitioners (section 14), building practitioners (section 24) and registered engineers (section 33) are to be indemnified.

Specifically, these practitioners must ensure that they are “adequately insured” against any liability for the work they carry out. What is meant by “adequately insured” is currently unknown and will be clarified by the regulations when they come into effect.

When does it come into effect?

The imposition of the statutory duty took immediate effect on 11 June 2020.

The remainder of the changes will come into effect on 1 July 2021.

How will it impact practitioners and insurers?

With the imposition of a retrospective duty of care, insurers may find themselves exposed in ways not contemplated when policies were written. Without the need for subsequent owners to demonstrate vulnerability, reliance and assumption of responsibility, there could be a raft of new claims for defects, or even amendment of existing pleadings to join building and design practitioners to proceedings.

Depending on the scope of the regulations, compulsory insurance requirements may also create tension when the regulations come into effect given the existing issues for brokers in finding coverage where non-compliant materials have been used in construction.

What may create more certainty, however, is the provision of compliance declarations for designs and variations. If the regime works as envisaged, there might be a clearer paper trail and easier means of establishing liability (which could, in turn, limit legal costs). Adherence to the regime will, of course, be key.

It remains to be seen whether the Act becomes as notorious in insurance circles as the Starship ballad this article was named after.