Taking the plunge on legislative intent of the Design & Building Practitioners Act NSW (2020)

Taking the plunge on legislative intent of the Design & Building Practitioners Act NSW (2020)

The following case study provided by Brooklyn Underwriting, and republished with their permission, highlights a claim where the intention of the Design & Building Practitioners Act NSW (2020) was put under the microscope.

What happened

Our Insured is a small structural engineering firm based in NSW. In 2015 it was engaged by the architect to provide structural engineering drawings for alterations at a residential home in the Inner West of Sydney (Property).

The Plaintiffs purchased the Property in 2017 and identified structural defects by way of insufficient underpinning of the garage and sandstone walls resulting in cracking. They assessed the remediation costs at over $500,000.

The Plaintiffs brought a claim in 2021 in the District Court of NSW against the builder and the Insured alleging that the Insured:
• owed them a duty of care pursuant to section 37 of the Design & Building Practitioners Act 2020 (NSW) (DBP Act) to avoid the Plaintiffs suffering economic loss as a result of defects (DBP duty of care); and
• owed them a duty of care at common law to ensure the engineering works complied with the relevant Australian Standards and were fit for purpose (common law duty of care).

Brooklyn Response

Indemnity was granted to the Insured promptly, and focus turned to whether the Plaintiffs actually had any recourse against the Insured. It was clear that the Insured did not owe a common law duty of care because:
• There was no reliance by the Plaintiffs on the Insured or assumption of responsibility by the Insured to the Plaintiffs at the time of the work.
• The existence of a contract and the ability of the Plaintiffs to negotiate terms of the sale and purchase of the Property after the completion of the works by the Insured, has been held to mitigate against vulnerability of subsequent purchasers.

We then considered whether there was a DBP duty of care. This was harder to determine given the Insured was engaged to provide engineering advice in relation to a Class 1a building (i.e. single detached residential dwelling), and the DBP Act is intended to apply to construction work of a Class 2 building (containing 2 or more-sole occupancy units i.e. apartment buildings).

Putting the DBP Act into context, it was created as a response to major construction defects impacting high rise residential buildings. The second reading speeches foreshadow the duty being limited, at least initially, to Class 2 buildings.

Despite this context, the way the legislation and its associated regulations have been drafted muddies the water in that:
• Part 4 of the DBP Act, which contains the duty of care provisions, uses the term “Construction work” which includes “building work”, which is in turn defined under the Home Building Act 1989 (NSW) which, relevantly, includes any work involved in, or involved in coordinating or supervising any work in the construction of a “dwelling”. That term does not refer to any particular class of building.
• On the other hand, the DBP Regulations prescribe that “building work” for the purposes of s 4(1) of the DBP Act (which contains definitions which apply to all parts of the Act) is a reference to Class 2 buildings.

Although the DBP Act may be considered untidy and presents different definitions of “building work”, Brooklyn formed the view that we were on the better side of the argument – namely that the DBP duty of care only applies to Class 2 buildings. This claim, involving a Class 1a building, is consequently out of scope.

Resolving the Claim

Our own forensic engineering expert indicated that the Insured has exposure to the claim from a liability perspective. We formed the view that we should “nip this claim in the bud” by asking the Court to first determine the threshold question: whether the duty of care imposed by section 37(1) of the DBP Act applies beyond Class 2 buildings (threshold question). If the Court’s answer to the threshold question was ‘no’, that would be the end of the matter.

Although our legal panel were pragmatic about our prospects of succeeding, Brooklyn formed the view that the matter was too significant to Brooklyn’s portfolio of design and construction professionals to leave the threshold question unanswered. Additionally, it could potentially spare the Insured from a lengthy litigation process.

There was a further hurdle as the Plaintiffs needed to consent to the threshold question being heard first. Brooklyn achieved this by making a commercial offer that, if we were unsuccessful on the threshold question, the Insured would concede liability and settle the claim for a certain amount.

This strategic move applied pressure on the Plaintiffs, including a risk of exposure to pay our legal costs if they were unsuccessful on the threshold question. Ultimately it produced an ideal outcome for Brooklyn and our Insured: the Plaintiffs agreed to abandon the claim against the Insured. Although we will have to wait for another case to come along to obtain some certainty about the application of the DBP Act to non-Class 2 buildings, we were able to produce an excellent commercial outcome for our Insured.


Stay Informed – Connect with us on LinkedIn
Important Notice

This summary is intended for informational purposes only. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details. XL Insurance Company SE (trading as Brooklyn Underwriting) is part of AXA XL, a division of AXA Group providing products and services through three business groups: AXA XL Insurance, AXA XL Reinsurance and AXA XL Risk Consulting. AXA, the AXA and XL logos are trademarks of AXA SA or its affiliates.

This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product. Deductibles, exclusions and limits apply. This type of insurance is issued by various insurers and can differ.

Information is current as at the date the article is written as specified within it but is subject to change. CRM Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of CRM Brokers.