The NSW Court of Appeal recently confirmed in the case of Kazzi v KR Properties Global Pty Ltd t/as AK Properties Group [2024] NSWCA 143 that individuals, including company directors and project supervisors, may be personally liable for defective works under the provisions of the Design and Building Practitioners Act 2020 (NSW) (DBP Act). While not the first decision to affirm the broad scope of the duty of care provisions under the DBP Act, it underscores the potential risk of personal liability for anyone who supervises, co-ordinates, project manages or otherwise has substantive control over construction works.

Case Background

KR Properties Global Pty Ltd (KR) had engaged Oxford (NSW) Pty Ltd (Oxford) to construct a six-unit apartment in Gerringong NSW. Pierre Kazzi was the sole director, shareholder and nominated supervisor of Oxford. Practical completion under the Contract was due on 4 July 2017, which Oxford failed to achieve. Consequently, KR terminated the contract.

Oxford commenced proceedings against KR to recover payment of outstanding claims made under the contract. KR cross-claimed against Oxford and Mr Kazzi for damages for costs incurred in completing the development and rectifying defective works performed by Oxford plus interest incurred on borrowings resulting from the delay in reaching practical completion in reliance on the case of Hungerfords v Walker (1989) 171 CLR 125 [1989] HCA 8. Additionally, KR sought damages from Mr Kazzi for breach of his duty of care under s37 of the DBP Act to avoid economic loss caused by defective building works.

At first instance, and over four judgments, the Court:

(a)     rejected Oxford’s claim on the basis that it had wrongfully suspended works under the Contract and held KR’s termination was thereby valid;

(b)     held KR was entitled to damages for costs to complete and rectify defective works, plus ‘Hungerfords’ interest from 20 March 2019; and

(c)    initially dismissed KR’s claim against Mr Kazzi both for Hungerfords interest and for damages for defective works because it had not satisfied the Court that Mr Kazzi had personally breached his duty of care under s37 of the DBP Act nor proved what component of expenses related to rectification works as opposed to completing the incomplete works. However, on subsequent reconsideration, the Primary Judge held Mr Kazzi had breached his statutory duty under s37 of the DBP Act in respect of two defects and awarded interest against Mr Kazzi personally.

Appeal Proceedings

Mr Kazzi appealed the finding that he had breached his statutory duty of care in respect of the two defects and that KR was entitled to damages and interest against him personally in circumstances where other works had delayed the issue of an occupation certificate or strata plan.

KR filed a cross-appeal seeking judgment against Mr Kazzi for $918,545.46 and contended that the primary judge erred in determining:

1. the date from which the Hungerfords interest was payable; and

2. KR had failed in its claim against his duty Kazzi for damages for breach of his duty of care in respect of 14 defects, specifically:

      a. that KR had not established the breach by Mr Kazzil.

      b. that KR had not established its loss; and

      c. the primary judges’ rejection of KR’s expert evidence.

The Court considered the various alleged defects and was satisfied on the evidence that Mr Kazzi had, as nominated supervisor, breached his duty of care under the DBP Act by making decisions as to the progress and manner of works which gave rise to the defects alleged by the Owners Corporation.

On the interest issue, the Court concluded while there were concurrent causes of delay, Mr Kazzi’s negligence was a material cause of the delay which extended back to the date for practical completion under the contract.

Take away

The case sheds light on the various considerations the Court will have regard to in determining the extent of a supervisor’s involvement in supervising the defective works and why this can constitute a breach of the duty of care. It further serves as an important reminder of the risk of personal liability when managing or overseeing construction works.