Case Note: The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068

Background: 

• Pursuant to the DBP Act, any person that carries out construction work owes a duty of care to the landowner and all subsequent landowners to exercise reasonable care to avoid economic loss from defects.
• The duty operates both prospectively and retrospectively. It covers loss that first became apparent within 10 years prior to, and loss arising after, the commencement of the DBP Act on 11 June 2020.
• The DBP Act provides that the statutory duty of care is subject to the Limitation Act 1969 and section 6.20 of the Environmental Planning and Assessment Act 1979. These provisions have the potential to reduce a contractor’s liability under the DBP Act.

Facts:

• The Defendant (Loulach Developments) commenced constructions on the Plaintiff’s (Owners SP 87060) building.
• The Owners Corp alleged a large number of defects principally concerning water ingress and defective cladding.
• The Owners Corporation alleged Loulach Developments had breached the statutory warranties implied into the construction contract under the Home Building Act 1989 (NSW).
• The Owners Corporation then sought to amend its claim by adding a claim for an alleged breach of the statutory duty of care created by the DBP Act.
• In that amended claim, the Owners Corp claimed that because of Loulach’s defective construction work as outlined in expert reports, they breached their duty of care under the DBP Act and caused economic loss to the Owners Corp.
• The Owners Corporation submitted that the existence of a defect, in and of itself, was sufficient to establish that the builder had breached the duty of care owed pursuant to the DBP Act. That is, without the builder’s breach, there would be no defect.

Decision: 

• The Court did not agree that the mere fact there was a defect present in the building which was shown to breach the warranties within the Home Building Act, established that the defect was the result of a breach by the builder of his statutory duty of care under the DBP Act.
• The Court stated that the DBP Act was enacted to alleviate the need for a party like the Owners Corp to prove a duty of care owed to it by the builder. This was following the infamous building failures at Opal Tower and Mascot Tower where the High Court found that builders and engineers did not owe a duty of care to subsequent purchasers of commercial property.
• His Honour went on to further state the DBP Act was not intended to provide a shortcut as to the manner by which a breach of such duty might be established. This means that while a duty of care will be automatically owed, any person who wants to proceed with litigation will be required to meet the other tests for negligence established under the common law and the Civil Liability Act 2002. This includes determining that a breach of the duty occurred and establishing that damage was suffered by the owner as a result of that breach.
• The hurdle of establishing that a duty is owed, however, will no longer be required, saving valuable court time and expense for the owner.
• The Court held that it was not sufficient to simply assert a defect and allege that the builder was required to take the appropriate precautions to ensure that defect not materialise. A party alleging a breach of the statutory duty must, with sufficient specificity, identify the link between the existence of the defect and the relevant breach of the duty of care.

Significance: 

• This decision demonstrates that the existence of a defect does not automatically amount to a breach of the statutory duty of care.
• A party alleging a statutory breach of the duty of care under the DBP Act by a builder must identify the specific risks that the builder was required to manage, and the precautions that ought to have been taken by the builder to manage those risks.