DBP Act update – what is ‘substantive control’ of construction work?

In the recent decision of The Owners – Strata Plan No 84674 v Pafburn Pty Ltd (No 2) [2022] NSWSC 1002, the Court, for the first time, applied the test for “controlling” construction work, within the meaning of section 36 of the Design and Building Practitioners Act 2020 (NSW) (Act). This test was set out in the Court’s earlier judgment in the same proceedings (see our earlier article here).

The judgment clarifies the factual information and the standard of proof required to be established in proceedings to strike out a claim for breach of the duty of care under section 37 of the Act (Statutory Duty).

The claim

The Owners – Strata Plan No. 84674 (OC) brought proceedings against Pafburn Pty Limited (Builder) and Madarina Pty Limited (Developer).

The OC alleged that the Builder and Developer each carried out “construction work” within the meaning of section 36 of the Act, owed the OC the Statutory Duty and breached that duty.

The Builder admitted that it had carried out construction work and owed the OC the Statutory Duty. However, the Developer disputed that it had carried out construction work within the meaning of section 36 of the Act, and applied to have the OC's claim against it struck out.

The OC also applied to file an amended claim that included new defects. The Builder and the Developer opposed this. They argued that they were prejudiced because the limitation period for filing a cross-claim to pass through its liability for the new defects had expired.

Issues

The primary issues for the Court to decide were whether:

  • the allegations made in the OC’s amended claim, if proven, were capable of establishing that the Developer “carried out construction work” as it had substantive control of the work for the purpose of section 36 of the Act
  • the OC should be permitted to file the amended claim in circumstances where it included new building defects and the limitation period for filing a cross-claim has expired.

Decision

The Court refused to dismiss the OC’s claim against the Developer and allowed the OC to file its amended claim.

The Court’s reasons for refusing to summarily dismiss the OC’s claim against the Developer included the following:

  • “construction work” is defined in section 36(1) of the Act as “…supervising, coordinating, project managing or otherwise having substantive control over the carrying out of [building work]”
  • a person has “substantive control” over building work if they are able to control how the work is carried out
  • whether a person is able to control work is a question of fact that needs to be established in each case
  • the OC’s allegations in the amended claim included that, at the time the contract was entered into, and the building work was carried out:
    • the Builder owned all shares in the Developer
    • the majority shareholder of the Builder was also the sole director of the Developer
    • as such the Developer was in a position to exercise substantive control over the works.

The Court was unable to conclude that the OC was incapable of establishing, on the basis proposed in the amended claim, that the Developer was able to and in fact did control how the building work was carried out, thus engaging in construction work for the purpose of sections 36 and 37 of the Act.

The OC had further alleged that the Developer was in a position to control the works on the basis that its sole director was also the nominated supervisor for the building works. His Honour found that the director holding both roles was not determinative, but that it was arguable that, as a result of holding both roles, the director may have in fact had the ability to control the building work.

The Court’s reasons for granting the OC leave to rely on its amended claim, which included new defects, included the following:

  • claims for breach of the Statutory Duty are apportionable claims, and the Builder and Developer had already pleaded in their defences that the certifier and waterproofing contractor were concurrent wrongdoers within the meaning of section 34 of the Civil Liability Act 2002 (NSW) (CL Act)
  • in those circumstances, even if the Builder and Developer filed a cross-claim against the certifier and waterproofer, it would be unlikely to improve their prospects in the proceedings.

Impact

The effect of this decision is that if a plaintiff is able to plead sufficient facts that, if proven, will show that a person was in a position to control the building works, the Court is unlikely to strike out a claim for breach of the Statutory Duty before a substantive hearing of the claim. Careful identification and pleading of those facts is therefore necessary.

Further, a defendant who is sued for breach of the Statutory Duty, who identifies concurrent wrongdoers in its defence, and relies on section 35 of the CL Act, will need to identify some prejudice other than the expiry of the limitation period for filing cross-claims, in order to successfully oppose new defects being added into the claim after the limitation period has expired.

In the media

Interest rate rises will see property prices fall further as maximum home loan sizes shrink With property prices falling and interest rates and inflation rising, banks have lowered the maximum borrowing capacity for consumers seeking mortgages. Also, borrowers are feeling the effects of the Reserve Bank’s decision to raise the cash rate as lenders pass on the burden through lending rates (2 August 2022). More...

More building companies to ‘topple over’, as display home giant Metricon sheds staff to survive Metricon, a large homebuilding company, is undergoing a restructure which is set to stand down 9 per cent of its employees. “We are working to restructure our front end of the business given the current climate and the need to move forward more efficiently” said Peter Langfelder, acting chief executive of Metricon (2 August 2022). More...

Major changes to the Building Code On 27 July 2022, the Australian Building and Construction Commission announced that the Australian Government registered the Code for the Tendering and Performance of Building Work Amendment Instrument 2022. The newly amended code removes many substantive requirements for code covered entities, but leaves in place certain requirements such as undertaking labour market testing (27 July 2022). More...

Rental payments and Back Home grants now open The Ministers for Customer Service and Digital Government and Emergency Services and Resilience have announced that people affected by the June-July floods in 17 LGAs in Greater Sydney, the Central Coast, the Hunter and the Illawarra (5 August 2022). More…

Worrying sign Australian construction industry is heading for a bust In the history of Australia, the nation’s economy has often been defined by booms and busts. From the 1890s depression driven by a collapse in wool prices and housing price crash, all the way through to the current boom in thermal coal prices, Australia’s economy has thrived and dived on boom and bust cycles (7 August 2022). More…

‘I bet more builders go broke’ More builders will go broke in Australia because of its unique contracting system that loads all the risks of a project on to builders, says Scott Hutchinson, the chairman of Queensland’s biggest building company, privately owned Hutchinson Builders (4 August 2022). More…

Two record years of home lending “The value of housing loans issued across Australia reached a new record high in 2021/22, worth more than $380 billion,” stated HIA Economist, Tom Devitt (2 August 2022). More…

Practice and courts

Consultation on Indoor Air Quality Handbook - review and update now openAs a result of the COVID-19 pandemic, there is a renewed focus on Indoor Air Quality (IAQ) in buildings, with extensive research being undertaken by governments, industry and academics. Responses are invited until 9 September 2022.

Thinking Smarter About Skills Thinking smarter about skills is one of Consult Australia’s key priorities. Our thought leadership paper of the same name highlights the systemic skills shortages in our industry, sets out the challenges currently impacting skills in education, recruitment, and retention, as well as discusses our proposed solutions. Read more here.

2022 NCC Seminars – Volume One and Volume Two To support the upcoming 2022 NCC Seminars for Volume One and Volume Two we are providing stakeholders with communications material to assist with promotion of the event. Below you will find links to material that contain a variety of written resources that you can use to share information about the seminars across your organisation’s preferred media and communication channels. Read more here.

Published – articles, papers, reports

Australian Bureau of Statistics Building Approvals, Australia 02 August 2022

Cases

Lucien v Mullally [2022] NSWCATAP 257APPEALS – RESIDENTIAL BUILDING – Home Building Act 1989 – whether finding against the weight of evidence was “reasonably necessary”– whether Magistrate failed to provide adequate reasons for decision

Mullally v Lucien [2022] NSWCATAP 258APPEALS – RESIDENTIAL BUILDING – Home Building Act 1989 – appeal against cost decision – whether discretion to award costs miscarried

Cevolani v Site Demolition Pty Ltd [2022] NSWCATAP 252APPEALS – Legislation Cited Civil and Administrative Tribunal Act 2013 (NSW); Consumer, Trader and Tenancy Tribunal Act 2001; Home Building Act 1989

Fisher v N. Phillips and M. Phillips t/as Arise Building Services [2022] NSWCATCD 80BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – Contract – Defects – Major defect –Assessment of damages BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – Defences – s 18F Home Building Act 1989 (NSW)

Ling v Xu [2022] NSWCATCD 77BUILDING & CONSTRUCTION – Termination – Construction of contract – unlicensed contractor – Quantum meruit – Home Building Act 1989 (NSW) – Home Building Regulation 2014 (NSW)

Bhatt v Scalf Pty Ltd [2022] NSWCATCD 76RENEWAL OF PROCEEDINGS – Time for commencing proceedings – Section 18E of the Home Building Act 1989 – Major defects – Elements of a major defect that must be established

Keyworth v The Owners – Strata Plan No. 45081 [2022] NCWCATCD 75LAND LAW – Strata title – Whether duty to repair and maintain common property was breached – Whether works authorised by common property rights by law

Nanevski Developments Pty Ltd v Slaveski; Mega-Top Cargo Pty Ltd v Nanevski Developments Pty Ltd [2022] NSWSC 1066PARTNERSHIPS AND JOINT VENTURES – Existence of partnership – Agreement of partnership – No issue of principle – Home Building Act 1989 (NSW) – Partnership Act 1892 (NSW) – Uniform Civil Procedure Rules 2005 (NSW)

The Owners – Strata Plan No 84674 v Pafburn Pty Ltd (No 2) [2022] NSWSC 1002CIVIL PROCEDURE – amendment – pleadings – application for leave to file Amended Technology and Construction List Statement – where new building defects alleged – whether defendants prejudiced by proposed amendments – CIVIL PROCEDURE – whether the proceedings should be dismissed as against the developer defendant – whether allegations of fact if proven capable of establishing that developer engaged in construction work for the purposes of the Design and Building Practitioners Act 2020 (NSW)

Legislation

NSW

Environmental Planning Instruments Campbelltown Local Environmental Plan 2015 (Amendment No 31) – published LW 5 August 2022 Liverpool Local Environmental Plan 2008 (Amendment No 93) – published LW 5 August 2022 Manly Local Environmental Plan 2013 (Map Amendment No 1) – published LW 5 August 2022 Shoalhaven Local Environmental Plan Amendment (Complying Development) 2022 – published LW 5 August 2022 State Environmental Planning Policy (Planning Systems) Amendment (Aboriginal Land) 2022 – published LW 5 August 2022 State Environmental Planning Policy (Transport and Infrastructure) Amendment (Miscellaneous) (No 2) 2022 – published LW 5 August 2022 Wagga Wagga Local Environmental Plan 2010 (Map Amendment No 8) – published LW 5 August 2022