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With the enactment of the Design and Building Practitioners Act 2020 (NSW) (‘the DBP Act’) and Design and Building Practitioners Regulations 2021 (‘the DBP Regulations’) the construction industry and lawyers alike are struggling to grapple with the application, scope and consequences of the imposition of the duty of care by operation of section 37 of the DBP Act.

Notwithstanding the detailed provisions of the DBP Act, codes of conduct and other requirements specified in the DBP Regulations, uncertainty persists in the industry as to how, practically, does one comply with the obligations under the DBP Act and minimise risk of personal liability.

The answer may be right under your nose. Get on top of the Australian Standard on risk management AS ISO 31000:2018, then dust of your OH&S policy and develop a management structure that identifies relevant risks and assists you to take reasonable steps to avoid or mitigate those risks.

No blaming the subbie

In late 2024, in the case of Pafburn Pty Ltd v The Owners Strata Plan No 84674 [2024] HCA 49, the High Court aptly demonstrated the uncertainty in this area of law by splitting 4:3 in determining a defendant sued under section 37 of the Act could not apportion liability.

This means that so long as a defendant is construed as a person carrying out the construction work, they are:

“100% liable for any failure to exercise reasonable care to avoid economic loss caused by defects in the Building on the part of wrongdoers who in fact carried out the work or task from which the defects arose.”

However, the minority judgment of 3 judges was strident in dissent at [99]:

“The contrary construction, treating s 37 of the DBP Act as creating a non‑delegable duty – a duty of strict liability – would alter the liability of those who carry out construction work in unintended ways. For example, if a head contractor sued for a breach of the s 37 duty was liable for the economic loss caused by defects, without any apportionment under Pt 4 of the CL Act, the head contractor would be exposed to significantly increased risks, costs and insurance premiums, the real-world considerations that Pt 4 of the CL Act sought to address.”

This is the reality that the construction industry faces and, absent legislative intervention, must deal with. The traditional development model of a head contractor / developer allocating risk by delegation to subcontractors is not good enough.

The real-world consequences of catastrophic defects rendering owners with no viable legal recourse moved the NSW Government to implement section 37 of the Act. The Second Reading Speech cited the Mascot and Opal Towers debacles and emphasised that those who carry out construction work “will need to accept individual and collective responsibility for their work”.

The Next Steps – Adapt an Existing Risk Management Regime

There is plenty of case notes about section 37 and the examples of the court applying the new duty of care, but not enough attention on what the next steps should be to manage the risks created by section 37.

The next steps should be to identify and adapt an existing risk management regime, such as the OH&S regime. Here is why.

If you affect the decision making of your company, there is a good chance you will be considered an ‘officer’ of the company under the Corporations Act 2001 by operation of section 9 of that Act. This means you will likely have a personal obligation to (amongst other things):

  1. exercise care and diligence (s 180);
  2. act in good faith in the best interests of the corporation and for a proper purpose (s181);
  3. not improperly use your position to gain an advantage for yourself or someone else or cause detriment to the corporation (s182);
  4. not improperly use information you obtain to gain an advantage for yourself or someone else or cause detriment to the corporation (s183);
  5. not act recklessly or dishonestly or failing to exercise their powers and discharge their duties in good faith in the best interests of the corporation or for a proper purpose.

Since you will be an officer under the Corporations Act, section 4 of the Work Health and Safety Act 2011 (NSW) (‘WHS Act’) provides that you will be an officer for the purposes of the WHS Act. Section 19 of the WHS Act sets out the fundamental obligation on a person conducting a business to ensure the health and safety of their workers.

As an officer of the company, you have an obligation to ensure that the company complies with the duty set out in section 19 of the WHS Act. This is made clear by section 27 of the WHS Act.

Section 27 of the WHS goes on to describe the concept of due diligence for officers – and gives practical guidance on how to comply with the duty under section 27.  In summary, this includes propositions involving:

  1. acquisition and renewal of relevant knowledge;
  2. understanding of operations, hazards and risks;
  3. resources to eliminate or minimize risks;
  4. processes to receive, consider and respond to information as to incidents, hazards and risks.

Here is a blueprint for how construction industry participants can develop a structured risk management approach.

Key takeaways

We suggest you take a proactive approach to risk management and avoid ending up in a Vincent Young case note.

If you would like to discuss this article with us, please contact Brett Vincent, Principal Partner, or Duncan Macfarlane, Special Counsel on (02) 9261 5900.