Andrew Hales | Sophie Wallwork | Will Ryan
In answer to a question raised in a strike out application, the NSW Supreme Court has suggested that a developer who ‘is in a position where it is able to control how construction work is carried out’ may have ‘substantive control over the carrying out of‘ construction work within the meaning of section 37(1) of the Design and Building Practitioners Act 2020 (NSW) (DBP Act). Put another way, a developer who has the ability to exercise substantive control over a builder may be found to have carried out ‘construction work’ within the meaning of the DBP Act and would therefore owe a duty of care to an owner of land even though it may not have actually done anything to cause that control to be exercised.
The plaintiff is the owners corporation of a strata development in North Sydney (owners corporation). Pafburn Pty Ltd (builder) was the builder of the development and Madarina Pty Limited (developer) was the owner of the land, until the strata plan was registered.
The builder and the developer are related bodies corporate. Relevantly:
- the builder owned all the shares in the developer;
- Mr Antonios Obeid and Mrs Maria Obeid owned all the shares in, and were directors of the builder; and
- Mr Obeid was the sole director of the developer.
The owners corporation commenced proceedings against the builder and the developer claiming that they both acted in breach of the duty of care prescribed by section 37(1) of the DBP Act, because:
- the builder constructed the building defectively; and
- the developer engaged in ‘construction work’ because it was responsible for ‘supervising, coordinating, project managing or otherwise having substantive control over the carrying out’ of the building work performed by the builder.
The builder and developer sought, by a notice of motion, an order that the proceedings be dismissed or, alternatively, an order that the list statement be struck out.
The court refused the notice of motion that the proceedings be dismissed or the list statement struck out.
Extent of duty: developers who perform ‘construction work’
Section 37 of the DBP Act prescribes that ‘A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects…The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land.‘
‘Construction work’ is defined under section 36 of the DBP Act to include ‘any of the following: (a) building work… (d) supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work referred to in paragraph (a)…’.
Stevenson J interpreted the definition of ‘construction work’ as follows:
- ‘supervising, coordinating, project managing’: means a person must actually supervise, coordinate or project manage the work to come within the definition (having the ability to do so is insufficient); and
- ‘otherwise having substantive control over the carrying out of any work’: may be enlivened where a person in a position to control how the work is carried out, without actually doing anything to control how the work was carried out. This is a question of fact in the circumstances of each case. In the present circumstances, where the builder owned all the shares in the developer and had common directors, the inference of substantive control ‘may be less easily available’. Conversely, if it was the developer who owned all shares in the builder and had common directors, the inference of substantive control is more readily available.
Extent of duty of care: owner of land who performs the construction work
Stevenson J also identified that section 37 of the DBP Act provides that a duty of care is owed to an owner of the land on which ‘construction work’ is carried out. However, where a person both owns land and performs ‘construction work’ on that land, parliament clearly did not intend to create a duty of care of the owner of land to itself. In this context, Stevenson J stated that the anomaly is readily avoided ‘by reading the expression “each owner” in s 37(2) as not including an owner that has itself carried out the construction work in question’.