Section 37: A statutory duty to do what?

Introduction

The Supreme Court of New South Wales recently handed down its decision in The Owners – Strata Plan 82089 v Omaya Holdings Pty Ltd (No 3) [2024] NSWSC 1511. The decision clarifies the scope of the statutory duty of care contained in section 37 of the Design and Building Practitioner’s Act 2020 (NSW) (DBP Act) and overturns the prevailing authority on the relevance of the Guide to the Building Code of Australia (BCA) to the interpretation of the BCA.¹

The plaintiff’s allegations

The proceeding was brought by the Owners Corporation (plaintiff) of a large residential apartment building located in Strathfield, New South Wales (Building).

The plaintiff alleged there were defects in the Building and sought damages from Omaya Holdings (the builder) and Arinson (the developer). There was a written building contract dated 4 September 2009 between the builder and the developer in relation to the design and construction of the building (Building Contract)

The plaintiff alleged that the builder and the developer breached the:

1. Warranties implied into the Building Contract by reason of section 18B of the Home Building Act 1989 (NSW) (HBA).
2. Statutory duty of care in section 37 of the DBP Act (Statutory Duty).

The plaintiff also alleged there was a contract between the developer and Omaya Investments (the former trustee of a significant property holding trust), relating to design and construction of fire and life safety works for the Building. The allegation was made on the basis that Omaya Investments carried out construction work for the purposes of the DBP Act because, amongst other things, it was named on various architectural and certification documents relating to the Building, including the development application. Accordingly, the Plaintiff sought damages for an alleged breach of the Statutory Duty.

Claim

Broadly speaking, the plaintiff’s claim related to two categories of alleged defects, the Non-effective Height Defects, and the Effective Height Defect, which had, to the extent liability was found, agreed rectification costs of $298,462.79 and $3,084,234.42 respectively.

The builder and developer accepted liability to rectify the Non-effective Height Defects by reason of the warranties implied into the Building Contract by section 18B of the HBA. Accordingly, there was no contest before the Court with respect to the Non-effective Height Defects.

In respect of the Effective Height Defect, the Court held that the Guide to the BCA could be relied upon to assist the Court in understanding the provisions of the BCA, in particular, the context behind the BCA requirement for additional fire safety measures in buildings which exceed an Effective Height of 25 metres.

The defendants were wholly successful in defending the plaintiff’s allegation as to the existence of the Effective Height Defect. The Court held that the Effective Height of the building was exactly 25 metres, measured from the ground floor lobby to the floor level of the topmost storey.

Statutory duty of care

While the Court did not consider it necessary to determine the plaintiff’s allegations against Omaya Investments under the DBP Act because of its findings on the alleged Effective Height Defect, given the extent of submissions received on the issue, the Court elected to deal with some key aspects of the DBP Act submissions.

Failure to ensure

The plaintiff argued that Omaya Investments breached the Statutory Duty because it failed to ensure the Building did not exceed an Effective Height of 25 metres, and failed to ensure that if the Building exceeded an Effective Height of 25 metres, the Building had the requisite fire safety measures. Consistent with previous authority², the Court observed that the Statutory Duty is a duty to exercise reasonable care to avoid economic loss caused by defects arising from construction. It is not an obligation to “ensure” anything.

Consequently, because the Statutory Duty is not a duty to “ensure” anything, it does not amount to a duty to “ensure that reasonable care is taken by a person” as set out in section 5Q of the Civil Liability Act 2002 (NSW). Accordingly, the Court considered that the scope of the Statutory Duty in the circumstances of this case did not give rise to a finding of vicarious liability.

Substantive control

The plaintiff also alleged that because Omaya Investments was the applicant on the development application for the Building and various architectural and certification documents were addressed to it, Omaya Investments had substantive control over the design and certification of the Building for the purposes of the Statutory Duty.

The Court held that neither Omaya Investments, nor the builder or developer, had substantive control over the design and certification of the Building, stating:

“But there is no suggestion in this case that [any of the defendants], played any role in the design of the Building so far as concerns its Effective Height. …There is no suggestion in the evidence that …any of the [Defendants] had any ability or power to control how the drawings were prepared.

Far from having the ability and power to control how the Architect and Certifier acted so far concerns the Effective Height of the Building, the [Defendants] left it to those professionals to exercise their expertise in that regard and received reassurances from both that the Building did not have an Effective Height greater than 25 metres.”³

Key takeaways

Developers and builders can take comfort from this decision that:

1. They can rely upon the Guide to the BCA to provide context to the provisions of the BCA and how they should be applied in practice.
2. The Statutory Duty does not operate to import vicarious liability upon a developer or builder in respect of the negligence of a subcontractor or consultant (note that the observations of Stevenson J on the operation of vicarious liability under the statutory duty of care in this decision are inconsistent with the subsequent High Court decision in Pafburn Pty Ltd v The Owners – Strata Plan No. 84674 [2024] HCA 49).
3. They may not be considered to have substantive control over the carrying out of certain works or services by subcontractors or consultants to the extent that those subcontractors or consultants are professionals and their expertise is wholly relied upon (note that the observations of Stevenson J on the question of control and the extent of liability for subcontractors and consultants under the statutory duty of care in this decision are inconsistent with the subsequent High Court decision in Pafburn Pty Ltd v The Owners – Strata Plan No. 84674 [2024] HCA 49).

Note: Norton Rose Fulbright acted for the Defendants in these proceedings.