Under the Home Building Act 1989, claimants in defective building cases against corporate builders and/or corporate developers may hit a roadblock in the case of ultimate insolvency of those parties even if the claims are successful and rectification or damages orders are made in respect of the defects.
Has this now changed? Are the controlling minds of those companies, traditionally not touched by such litigation, now at risk?
We are all aware that the Building Commissioner of New South Wales is utilising his ever increasing powers under continuing construction reform in NSW to stamp out “risky” builders and developers with the intent of tagging those parties with a label to prevent them ever building again or at least be in the difficult position of being unable to obtain insurance for the performance of building works.
Three NSW Supreme Court decisions handed down during 2022 by His Honour Justice Stevenson suggest those “controlling minds”, may not be as safe a previously thought. Whilst we may be seeing some appeal decisions out of these cases, the path ahead is clear, director’s formerly protected, may not be protected any more.
This new direction is all down to one thing. The Design and Building Practitioners Act 2020 (DBP Act) has brought in changes for defect claims to introduce a new statutory duty of care. This duty of care is now held by a “person” who carries out construction work. A “person” must now exercise reasonable care to avoid economic loss caused by defects arising from construction work.
How the law defines “construction work” and “person” is emerging which (although the decisions being discussed may be challenged on appeal), is not really surprising given the Parliamentary ‘intent’ of the DBP Act which has been clear since the outset – to build better buildings and to increase consumer confidence.
Construction work includes (as expected) building work. But, “construction work”, also includes “supervising, coordinating, project managing or otherwise having substantial control over the carrying out” of the building work.
The emerging path is illustrated by the Supreme Court judgments in three recent cases. Those cases are Pafburn No. 1  NSWSC 659, Pafburn No. 2  NSWSC 1002 (Pafburn cases) and Boulos Constructions Pty Ltd v Warrumbungle Shire Council (No 2)  NSWSC 1368 (Boulos).
The Pafburn cases concerned the same building. The claimant had alleged its building was defectively constructed and sued the builder and developer under the DBP Act. Both of these defendants were corporations. The builder replied that it had carried out construction work, but the developer denied it had carried out the work and asked the court to strike out the claim against it, saying the case could not possibly succeed.
The developer argued it could not be liable because it did not carry out the work and furthermore did not supervise, project manage or have control over the carrying out of the work.
In the Pafburn cases, the builder and developer had a particular structure one often sees. Firstly, they were both corporations. Secondly, the builder had a building licence. The sole director of the developer (Mr Obeid) was also one of the two directors of the builder. And Mr Obeid was also personally the nominated supervisor on the building licence.
Justice Stevenson heard the Pafburn cases. He decided two important points. Firstly, he said that the words, “supervise, project manage or have control” of work does not mean to actually exercise control, but instead means able to control that work. Secondly, he said that it was arguable that Mr Obeid being both sole director of the developer and the builder’s nominated supervisor were two important pieces of information. And given this information, it was arguable that Mr Obeid had the ability to control the carrying out of work and that he did in fact control the carrying out of that work.
And as a result, because Mr Obeid had that ability, Justice Stevenson said he would not strike out the defects claim against the developer and also said the case should go on.
In the decision of Boulos, Justice Stevenson granted leave to the plaintiff in a building defects case, to amend its pleadings to include the managing director and project site supervisor of the defendant builder, as defendants in a personal capacity as ‘persons’ for the purposes of section 37 of the DBP Act.
A defence of ‘illegality’ argued by the Builder’s legal representative, was rejected stating that that argument was only relevant where it was being considered as to whether ‘a duty should be held to arise at all’ [17-18] not where that question did not arise because section 37 already states that there is such a duty.
The next question to be considered in Boulos was whether the director and/or the project site supervisor (Mr Boulus or Mr McCarthy) were “persons” for the purposes of s37 of the DBP Act. His Honour made reference to his earlier decisions in the Pafburn cases and failed to accept the Builder’s Counsel’s legal arguments, on the question of whether Mr Boulos or Mr McCarthy exercised ‘control over the carrying out of the building work’, that, ‘such a broad interpretation could make hundreds, or on a very large job even thousands, of people personally liable in respect of the construction work over which they have control or supervision, which would have far reaching and negative impacts on the construction industry’ .
His Honour did not accept this argument and went on to discuss the definition of ‘person’ as opposed to ‘practitioner’ under the DBP Act in some detail. His Honour held at  ‘I am unable to see by what process of statutory interpretation that word could be read down to mean a person acting ‘in their own capacity. That would, in effect, involve reading ‘person’ in s37(1) as meaning ‘practitioner’.
Whilst it is clear it will be a question of fact in each particular case, there follows an interesting question, if the nominated supervisor controlled the building work, does this mean that not only might the developer be liable, but also the nominated supervisor personally? If this were the case, claimants may not be bound by the previous difficulties in suing corporations, but may also pursue individuals for their losses, despite the corporate structures.
Time will tell if these recent cases will have that effect. As evidenced by the above, these cases are continually emerging and we are anxiously awaiting further decisions to be in a position to clearly apply the new law to each building defects case.
With the combination of further legislative reform pending, including the Building Bill 2022 and further amending legislation, the world of “NSW construction” continues to evolve and develop with the ultimate aim of the return of consumer confidence in the industry.
Helen Kowal, Partner
Nicholas Hufton, Special Counsel
Swaab Projects Team