building stronger foundations: discussion paper

Submission to the New South Wales Government

Building Stronger Foundations: Discussion Paper

23 July 2019

ABOUT THE HOUSING INDUSTRY ASSOCIATION ......................................................................... 3

1. EXECUTIVE SUMMARY ................................................................................................................. 4

1.1 WHAT IS THE PROBLEM? ............................................................................................................................5 1.2 THE DISCUSSION PAPER ............................................................................................................................5 1.3 THE RESIDENTIAL BUILDING INDUSTRY ........................................................................................................6 1.4 RESPONSIBILITY FOR BUILDING QUALITY .....................................................................................................7

2. RESPONSE TO RECOMMENDATIONS ......................................................................................... 8

2.1 APPOINTMENT OF A BUILDING COMMISSIONER .............................................................................................8 2.2 DECLARATION OF PLANS ............................................................................................................................8 2.3 REGISTRATION OF ‘BUILDING DESIGNERS’ ................................................................................................ 12 2.4 INDUSTRY WIDE DUTY OF CARE ............................................................................................................... 14 2.5 EXISTING PROTECTIONS .......................................................................................................................... 18

3. A BETTER SOLUTION - PROPORTIONATE LIABILITY ............................................................. 26

3.1 PROPORTIONATE LIABILITY AND THE HB ACT ............................................................................................ 27

4. RESPONSES TO QUESTIONS POSED IN DISCUSSION PAPER............................................... 30

5. CONCLUSION .............................................................................................................................. 34

Housing Industry Association contact: David Bare Brad Armitage Executive Director NSW Assistant Director, Planning and Building

Housing Industry Association 4 Byfield Street, MACQUARIE PARK NSW 2113 Phone: 02 9978 3333

of 34 | Building Stronger Foundations: Discussion Paper

ABOUT THE HOUSING INDUSTRY ASSOCIATION

The Housing Industry Association (HIA) is Australia’s only national industry association representing the interests of the residential building industry, including new home builders, renovators, trade contractors, land developers, related building professionals, and suppliers and manufacturers of building products. As the voice of the industry, HIA represents some 60,000 member businesses throughout Australia. The residential building industry includes land development, detached home construction, home renovations, low/medium-density housing, high-rise apartment buildings and building product manufacturing. HIA members comprise a diversity of residential builders, including the Housing 100 volume builders, small to medium builders and renovators, residential developers, trade contractors, major building product manufacturers and suppliers and consultants to the industry. HIA members construct over 85 per cent of the nation’s new building stock. HIA exists to service the businesses it represents, lobby for the best possible business environment for the building industry and to encourage a responsible and quality driven, affordable residential building development industry. HIA’s mission is to:

“promote policies and provide services which enhance our members’ business practices, products and profitability, consistent with the highest standards of professional and commercial conduct.”

The residential building industry is one of Australia’s most dynamic, innovative and efficient service industries and is a key driver of the Australian economy. The residential building industry has a wide reach into manufacturing, supply, and retail sectors. The aggregate residential industry contribution to the Australian economy is over $150 billion per annum, with over one million employees in building and construction, tens of thousands of small businesses, and over 200,000 sub-contractors reliant on the industry for their livelihood. HIA develops and advocates policy on behalf of members to further advance new home building and renovating, enabling members to provide affordable and appropriate housing to the growing Australian population. New policy is generated through a grassroots process that starts with local and regional committees before progressing to the National Policy Congress by which time it has passed through almost 1,000 sets of hands. Policy development is supported by an ongoing process of collecting and analysing data, forecasting, and providing industry data and insights for members, the general public and on a contract basis. The association operates offices in 23 centres around the nation providing a wide range of advocacy, business support including services and products to members, technical and compliance advice, training services, contracts and stationary, industry awards for excellence, and member only discounts on goods and services.


1. EXECUTIVE SUMMARY

On 26 June the NSW Government released the Building Stronger Foundations: Discussion Paper (Discussion Paper). The Discussion Paper outlines reforms aimed at implementing the NSW Government’s response to the Building Confidence Report released in February 2018 by Professor Peter Shergold and Ms Bronwyn Weir. The four key reforms proposed in the NSW response are:

To appoint a Building Commissioner to act as the consolidated regulator for building in NSW.

To require that building designers declare that plans, specifications and performance solutions are compliant with the National Construction Code (NCC), and that builders declare that buildings are built according to the approved plans.

Introduce a registration scheme for building designers.

To introduce an industry wide duty of care owed by building practitioners to building owners. HIA is supportive of measures aimed at improving building quality in NSW. Reforms that respond to the recommendations of the Building Confidence Report would assist the building industry, government and the community to move forward with greater certainty regarding how buildings are approved and built. The Discussion Paper proposes a number of reforms that while aimed at implementing the recommendations of the Building Confidence Report, either go beyond the recommendations of the Report or are not considered the most effective means of achieving the stated objective. For example, while it is possible to use statutory declarations as a signifier of compliance, HIA submits that a more suitable approach would be to develop a design certificate tailored to the type of plans or specifications being prepared and the type of building professional normally involved in undertaking that work. Further, improving transparency and consistency in relation to changes or variations to plans during construction could be better achieved by establishing a tiered pathway for modifications to a construction certificate. For example, distinguishing and developing a process to respond to ‘minor’ and ‘major’ variations would provide greater outcomes in terms of compliance and transparency than the provision of a statutory declaration. In regards to the recommendation to appoint a Building Commissioner, there is a lack of details regarding their role, purpose and functions. This needs much greater examination in order to ensure that the role does not simply add further red tape and regulatory burden. HIA suggests that existing mechanisms such as the Planning Portal should be utilised to streamline some of the proposed actions to avoid potential red tape. Ensuring that building professionals are held accountable for their role in the construction of a building is an important element of improving building quality and compliance. One way of achieving this outcome is the proposal in the Discussion Paper to register a range of building designers. HIA sees this as an appropriate response and one that aligns with the recommendations of the Building Confidence Report. In contrast, the introduction of an industry wide duty of care is considered an inappropriate response that, particularly for residential building work, would duplicate a number of existing safety nets and as such is opposed. The duty of care proposal is not addressed within the recommendation of the Building Confidence Report and goes well beyond current consumer protection laws in Australia. If adopted the concept could adversely affect housing affordability and alter the way risk and responsibility are allocated throughout the residential building industry. A better and more effective approach, that could operate in conjunction with the registration of building designers, would be the re-introduction of the application of proportional liability under the Civil Liability Act 2002 (CLA) to claims for breach of a statutory warranty under the Home Building Act 1989 (HB Act). This would allow all responsible parties to be expressly held to account for their contribution to any damage or loss suffered. This contrasts to the current approach under which a builder is held solely responsible for such loss or damage and then must recoup any costs incurred from other parties, jeopardising the ability of a plaintiff to actually receive compensation.


HIA is also extremely concerned about the short time frames being proposed for substantial changes to the way risk and responsibility are to be apportioned. While several aspects of the proposed reforms can be actioned in the short term, the more complex reforms that go beyond the recommendations of the Building Confidence Report must be given more time to allow the impacts and potential outcomes to be thoroughly assessed.

1.1 WHAT IS THE PROBLEM?

HIA understands that the Government’s concerns are four-fold. Firstly, that there is a need for better accountability of building practitioners for their role in the design, construction and inspection of building work. Secondly, there are concerns with the current level and accuracy of documentation of newly constructed buildings when complete. The Government sees that there is a need to improve the documentation used for the design of buildings, including Performance Solutions, to assure compliance with the NCC and NSW building regulations. Thirdly to facilitate the improved documentation, that engineers and other key design practitioners should be registered. These two reforms could be implemented in the short-medium term. HIA supported the recommendations from the Building Confidence Report aimed at improving design documentation and ensuring that each person is responsible for the role they play in delivering a new building. Finally there is a view that a homeowner should be entitled to pursue a negligent building practitioner beyond the scope of existing legislative and legal remedies available to address a range of barriers that are believed to limit the ability of a homeowner to seek compensation.

1.2 THE DISCUSSION PAPER

While the Discussion Paper is seeking feedback on the type of building works that should be captured by the four key reforms there is no real examination or evidence provided regarding the areas that may require redress or closer scrutiny. For example while there appears to be some focus on high-rise residential construction, the majority of the proposals appear to affect all residential building work, the most notable of which is a suggestion that an industry wide duty of care apply to any residential building work over $5,000. The residential building industry is unique and is one of the most heavily regulated industries in NSW. The HB Act imposes a comprehensive mandatory regulatory framework on residential building work that impacts all manner of things from who can carry out residential building work, the type of work that will be subject to regulation, mandatory contractual terms, including limits on how payments can be taken and provides a range of consequences for a failure to comply. This stands at complete odds with the approach taken in response to commercial building work. Even within the residential building industry there are differences, for example projects of up to 3 storeys requires insurance under the Home Building Compensation Fund. This requirement does not apply to most multi-storey residential developments. All building work in NSW is also required to comply with the requirements of the Environmental Planning & Assessment Act 1979 (EP&A Act) and the conduct of building certifiers is subject to the provisions of the Building Professionals Act 2005. In addition, residential apartment buildings are subject to a raft of other legislative mechanisms including strata laws that seek to manage a builders responsibilities and to protect consumers. Further to this, the description of the problem with current building approval and design documentation focusses on changes that may occur throughout a project, particularly in design and construction contracts, and how these should be addressed. This is somewhat of a different issue to the broader matter of the quality and accuracy of current plans and specifications. It is considered that both these matters should be looked at separately as they would likely require different responses to relevant issues.


In order to achieve the objectives as outlined in the NSW response and the Discussion Paper these differences must be acknowledged and a more nuanced and targeted response may be warranted. Concern with a ‘one-size fits all’ approach The Discussion Paper appears to be taking a one size fits all response to the recommendations and fails to identify the differences between types of buildings and the mix of over-lapping regulations that already applies to certain buildings. On this basis, it is assumed that the changes will apply equally to all building types, which HIA is not supportive of. The construction of a multi-rise residential building in terms of the parties involved and expertise required is arguably more complex than the construction of a single dwelling. Such distinctions are of paramount importance when considering proposals that will affect accuracy of documentation, declarations as to compliance in design or construction and proposed duty of care. Further to this, there is a lack of recognition in the Discussion Paper that residential builders are already subject to a comprehensive and stringent regulatory process in order to be permitted to carry out residential building work. The time, cost and impact on all construction projects of the proposals should not be underestimated.

1.3 THE RESIDENTIAL BUILDING INDUSTRY

The practice and paradigm in the residential building industry differs significantly from those businesses operating in commercial construction and those solely building developments of more than 3 stories. The terms and conditions for commercial builders and those engaging in government contracts are significantly different from the conditions a builder faces when working on a residential job. Commercial projects and government works are generally characterised by:

a tendering process that often forces negative margins with the hope that future variations will cover the shortfall;

the use of retentions;

longer payments terms (up to between 45 and 60 days compared to 21 days in residential);

limitations on a builders ability to select subcontractors;

contract administration by a superintendent/ architect;

significant amounts for liquidated damages; and

long defects liability periods. Such elements are not present in the residential building environment, which faces equally as challenging yet different factors such as:

the homeowner, whose significant emotional and financial investment places additional pressures on the builder and trade contractors;

prescriptive statutory contractual arrangements;

quasi regulation of payment terms through the involvement of financial institutions;

ineffective, time consuming and often litigious methods of recouping late payments;

demanding terms of trade from suppliers; and

significant exposure to uncontrollable events such as inclement weather and fluctuations in supply of building materials.

On top of this, those in the industry must manage a complex web of national, state and local laws, regulations and codes. These range from planning, design, environment, health and safety, to local authority inspection and certification and a multitude of building, electrical, mechanical and plumbing processes. They must also comply with a legislative framework that spans licensing, ATO obligations, dispute resolution processes, builders warranty obligations and contractual requirements. There are significant cost implications associated with these regulations that are not referenced or acknowledged in the Discussion Paper. HIA would hope that as the proposed reforms progress more detailed analysis of the intended changes is developed and provided to industry for consultation.


1.4 RESPONSIBILITY FOR BUILDING QUALITY

Consistent with the seminal decision of Bryan v Maloney1, where the High Court held that the builder of a dwelling house owed a duty of care to a subsequent purchaser of the house, a builder should have a responsibility to ensure that a building, when built, is ‘fit for purpose’ and complies with the law. For residential buildings policy makers have sought to codify this in legislation, determining that such a responsibility should apply beyond the completion of a building for a specified period of time. In NSW that is 6 years for major defects and 2 years for other defective work. Builders should be able to rely on the expertise of other building professionals to ensure that a building is ‘fit for purpose’. Where a builder has relied on the expertise of other building professionals, those professionals should also have a responsibility to ensure that a building will be ‘fit for purpose’ and complies with the law. Currently under the HB Act a builder may cite reliance on instructions from a relevant professional obtained by the homeowner and provided to the builder as a defence to a claim for a breach of a statutory warranty.2 A homeowner is also now expressly required to mitigate their loss3 and provide reasonable access to allow for rectification works to be carried out.4 Under the EP&A Act building certifiers can be held accountable in a civil action for loss or damage arising out of or in connection with defective building work for up to 10 years. To that end, HIA does not oppose the licensing or registration of certain building (design) practitioners to allow the appropriate apportionment of any liability that arises from a failure. While the Discussion Paper acknowledges the operation of the existing legal and statutory framework, it underestimates the impact and effectiveness in responding to claims of defective building work in the residential building industry. Owners have a plethora of legal avenues available to them to determine and pursue liability for defects should they arise after the completion of a building. These include:

The expansive statutory warranties that are owed by developers, builders and subcontractors to those whom they are carrying out residential building work including subsequent title holders and non-contracting owners, including Owners Corporations.

Mandatory requirements regarding taking out of Insurance under the Home Building Compensation Fund for residential building work of up to 3 storeys and over $20,000.

A clear definition of a ‘major defect’ for assessing claims for breach of statutory warranty and claims for insurance under the Home Building Compensation Fund.

Other mandatory contract terms regarding building quality.

Disciplinary action via a comprehensive licensing regime.

The strata building bond and inspection regime under the Strata Schemes Management Bill 2015.

Implied guarantees in relation to the supply of goods and services under the Australian Consumer Law. Also notable is the observation, in the Discussion Paper, that ‘generally building practitioners are obliged to perform work with reasonable skill and care, and to the standard of a reasonably competent professional or specialist with similar skills’5, there is a clear recognition that the building practitioners in question will already owe some form of duty, whether that be express, or implied.

1 (1995) 182 CLR 609; [1995] HCA 17

2 See section 18F HB Act 3 See section 18BA(1) HB Act

4 See section 18BA(3)(b) 5 See pg. 27


2. RESPONSE TO RECOMMENDATIONS

2.1 APPOINTMENT OF A BUILDING COMMISSIONER

The Discussion Paper provides limited detail in relation to the recommendation to appoint a Building Commissioner. It is assumed that the role of a Building Commissioner will be fundamental to the implementation of the proposed reforms. The specifics of what that role will entail warrant public scrutiny and HIA looks forward to the Government providing further details on this appointment and intended role. In relation to the three proposed reforms which are discussed in more detail in the Discussion Paper, HIA would like to provide the following comments.

2.2 DECLARATION OF PLANS

The Discussion Paper proposes that declarations be made by building designers that building designs comply with the NCC and that builders are also required to make a declaration that they have built a building in accordance with the approved plans. It is a widely accepted principle that to build a complaint building the process needs to begin with compliant designs. Improvements to the compliance of design documentation will have a positive effect on the compliance of completed building work. Requiring design professionals to confirm that their designs comply with the NCC may be useful in assisting the building certifier more readily confirm that a design complies with the NCC. It is equally important that this reform can play a role in ensuring that each person in the process is responsible for the role they play in delivering a new building that meets all relevant legislative requirements. In implementing this reform it is important to consider what form such a declaration should take, the process that should be followed to make the declaration and whom should make the declarations. It is also critical to recognise that this reform works in tandem with the reform to register building design professionals. The creation of an obligation to provide design declarations can only operate in a regulatory framework if the people nominated with such an obligation are registered in some manner.

Statutory declarations to confirm compliance

While there may be benefits in the process of providing declarations which confirm compliance with the NCC and other regulatory requirements, HIA submits that these declarations should not be in the form of a statutory declaration. A statutory declaration is written statement which a person swears, affirms or declares to be true in the presence of an authorised witness — usually a JP or a lawyer. Hundreds of these declarations may be needed in the process of delivering a building and requiring statutory declarations is more likely to add unnecessary administrative burden and cost, rather than achieve a real improvement in design verification. The NCC provides requirements for evidence of suitability which outline a range of methods that can be relied upon to confirm that the provisions of the NCC have been met (part A5 NCC) with respect to a building product, system or design. Many engineers and designers use these ‘part A5 certificates’ to confirm compliance to a certifying authority although not mandatory in their own right. The terms used in these verifications are different to those used in a statutory declaration and are more appropriate for consideration in relation to building work and demonstrating NCC compliance. There are also examples of design compliance statements operating in other jurisdictions which may provide a better starting point, such as Form 15 used in Queensland. That certificate must be issued by certain competent (registered/licensed) people and be signed. In turn an installation compliance certificate can be utilised by a contractor who carries out the works (Queensland Form 16). These forms must be submitted to the certifier along with the plans and specifications. There may also be value in considering the approach used in Western Australia for certificates of design compliance for the appropriate form of wording for these design certificates.


It is important to acknowledge that the introduction of certification in NSW in 1998 did intend to bring in a much larger range of design professionals and approval professionals to provide that those most responsible for each element of design or construction would be accountable for that work. However, the amendments to the EP&A Act that were ultimately introduced fell short of achieving this outcome. In particular, the role of designers was not clearly captured, and the role of both designing engineers and inspecting engineers was left to operate in the same manner as occurred prior to certification being introduced. A key reason for this outcome was that the declaration sought on a Part 4A compliance certificate was not considered appropriate.

Design Compliance Declaration

Currently ‘building designers’ and more importantly the functions they perform, are not referenced in legislation. There is very little, if any guidance, on what information must be noted on plans to assist a certifying authority to come to an educated conclusion that a building design does or does not comply with the NCC. This essentially places the certifying authority in the position of having to check every detail in a set of design drawings, regardless of whether they have the specific expertise for that element of design. Rather than requiring broad declarations that the design complies, it would be more effective to have design certificates which relate to a specific design element which must be signed off and attached to the plans and specifications prepared by that building professional. For example a plan for a house would often be accompanied by a design certificate from a structural engineer for the design of the slab and/or footings and a design certificate from the building designer which confirms things such as room heights and compliance for stairs and balustrades or reference to these parts of the NCC on the plans or associated specifications. The design of a high rise apartment building would be required to have various design certificates for different aspects of compliance with the NCC according to the type of the building and the element of the construction that a designer is responsible for preparing. HIA considers that there would be substantial benefit for the NSW Government, or working collaboratively with the ABCB and other jurisdictions, to develop ‘Documentation Guidelines’ that describes the elements of design that will require design certificates that must then be submitted to the certifying authority. This should include some differentiation based on the risk and type of building. Various design certificates might be mandatory for an apartment building over 3 stories whereas a detached housing may only require a smaller number of design certificates. The skillset of particular design professionals must also be taken into consideration. For example an architect may be required to declare that a set of plans or a specification complies with the NCC. While an architect could rightly be expected to know if the materials specified for the project comply with the NCC the architect should not be expected to understand or sign off on whether or not the various engineering standards referenced in the NCC have been complied with. The scope of design certificates should be limited to the aspects of compliance for which the relevant expert should reasonably be expected to know. It is considered that this proposal would benefit from key stakeholders meeting together to workshop what design certificates should be required and what information should be on the design certificate. HIA would be happy to participate in such a workshop.

As Built Compliance Declaration

The other element of the declaration proposal is that the builder should make a declaration that the building has been constructed in accordance with approved plans. This proposal seems to be aimed at ensuring that the building approved for occupation matches the original approved design and is in line with implementing recommendation 16 made in the Building Confidence Report “that each jurisdiction provides for a building compliance process which incorporates clear obligations for the approval of amended documentation by the appointed building surveyor (certifier) throughout a project.”


Clause 98 of the Environmental Planning and Assessment Regulation 1979 places a prescribed condition on all development approvals that requires the building work to be undertaken in accordance with the requirements of the NCC. For residential building work, the HB Act also places a mandatory contract terms into residential building contracts which places a requirement on the builder to undertake the work in accordance with the NCC. Additionally, if the building does not match the approved design overall then the certifying authority cannot issue an occupation certificate. This reform is potentially more complex than suggested and warrants much greater discussion before determining a way forward. It should not be solely focused on the builder to provide verification for all built elements. All buildings, but particularly Class 2 – 9 buildings, involve a range of building practitioners in the construction of the building. Some of these works include constructing engineer designed elements based on approved engineering designs. Using this as an example, the oversight of the installer is one key aspect, while the verification of that installation is another key aspect. As referenced above in relation to design certificates, Form 16 in Queensland is an example of ‘as built’ verification which may be an appropriate form of words for people involved in undertaking specific elements of building work. HIA has previously supported the implementation of a regime which recognised other building professionals in NSW for the purposes of providing either design or installation verification. This was put forward in the White Paper for the overarching review of the Environmental Planning and Assessment Act in 2013 and is also reflected in the yet to be enacted Building and Development Certifiers Act. HIA considers that there would be substantial benefit for the NSW Government, or working collaboratively with the ABCB and other jurisdictions, to develop guidelines on ‘Certification Checklists’ that describes the elements that certifying authorities should collect as part of the final certification process. This would also help to improve compliance in this area with no regulatory changes required.

Works as Executed Plans

Another element in achieving this reforms is that after the installation or construction of a critical component, a works as executed plan should be submitted to the building certifier for approval. Whilst the submission of works as executed plans is possible, the broader question which must be addressed is the current barrier in the EP&A Act which does not permit any variations (minor or major) to be made to a CC once the building or that part of the building has been completed. This is regardless of whether or not what is constructed complies with the NCC. The long standing limit on retrospective building approvals has created confusion, and increases cost and time to ‘remedy’ that part of a building where the works may alter from the approved plans. The only avenue currently available is to refer the matter to the relevant local council and managed through a ‘building certificate’. Of more concern is where the building work is verified through this process, an occupation certificate cannot be issued for that element of the building. This makes ‘finalising’ a building prior to occupation incredibly complex and unsatisfactory for all parties. To permit works as executed plans to be submitted for approval clause 6.8 of the EP&A Act would need to be amended to permit a certifier to approve something which is compliant with the NCC and does not significantly deviate from the original approval. Providing this ‘loop back’ to the certifier will help to ensure that the final documentation for the project matches the completed building work and that any variations are adequately documented and where necessary approved. In addressing the questions of modified construction certificates and potentially retrospective approvals for variations, the concern is that the current system sees all variations as equal. In the context of compliance many minor variations would have no impact on the safety or compliance outcome of the building, or on the development approval requirements for the building. For example in renovation work there is no difference between a variation to a foundation/slab design compared with a variation related to changing the direction which an internal door swings. A mechanism could be created to provide a threshold at which variations must be approved by the certifying authority prior to the work being undertaken, with other minor variations to be documented and approved by the


builder and then shown in the final works as executed plans. The threshold for amendments which require approval by the certifying authority could be similar to the threshold for what constitutes a major defect in the Home Building Act. On that basis, a major amendment would include:

An amendment to the design that impacts on the structural performance requirements of the NCC including: o internal or external load-bearing component of a building that is essential to the stability of the

building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or

o a fire safety system, or o waterproofing.

Another differentiation may be variations which impact the external structure of the building, which has visual and structural impacts, as opposed to variations to the internal design of the building. All other minor amendments must be correctly documented but may be approved by the builder and shown in the final works as executed plans. The process to undertake a modified construction certificate is also complex due to the relationship with the development approval. In most instances, a modification of a construction certificate is contingent on a modification of a development approval due to the legislative requirements. While modifications of a development approval have a tiered pathway based on the impact of the change, the same system is not applied for modifications of construction certificates. A declaration for the compliance of an entire building also poses problems as different contractors can be engaged for different parts of the project. For example it is not uncommon for large buildings that one builder to be engaged to build the structure, while another could be engaged for the fit out. Deciding who should sign off on what could become quite a complex task where this work is covered by one construction certificate. It would be more preferable for contractors to submit to the certifier ‘as executed’ details along with a certificate of compliance after completing that work on any critical components. Not all works carried out in a building would require a compliance certificate. Where works are carried out which directly relate to a design compliance certificate which was submitted as part of applying for a construction certificate, this should trigger the requirement for submission of as executed drawings and an installation compliance certificate for that part of the building work. For example, a design compliance certificate should accompany the plans for the sprinkler system during approval. Then once installed, as executed drawings along with an installation certificate should be submitted to the certifying authority. This system would be similar to the Form 15 and 16 process in Queensland. The concept of providing works as executed drawings should be targeted at complex buildings, such as Class 2 – 9 buildings and particularly those where the building is under a design and construction contract.

Submitting documentation for audit

The Discussion Paper proposes that plans and documentation be submitted to the Building Commissioner for risk based auditing and compliance checks. It is critical that this process does not add unnecessary administrative burden on industry and where an audit is carried out it should not cause delays in active building work or delays in the building approval process. It is also important that the Government is using its resources most effectively. Requiring builders or developers to submit plans directly to the Building Commissioner in addition to the existing requirement for all certificates and documentation that is relied on to issue those certificates to be submitted to council within 7 days of issue is considered an unnecessary administrative burden. This approach may even put the goal of improving the accuracy of design documentation in jeopardy as the amount of hands that design documentation must pass through increases, the more difficult it can become to


maintain accurate version control. Retaining the current obligations for all documentation to be submitted to the council after completion should be retained and the Building Commissioner should then be authorized to access this information at any time. This could be further improved by requiring construction certificates to also be added to the functions of the Planning Portal. This will enable all designers to upload their plans, specifications and design compliance certificates in a single consolidated file which both the council and the Building Commissioner should have powers to access as required. As an interim measure until the Planning Portal can be adapted to administer construction certificates the Building Commissioner should be given powers to request building approval documentation from councils and certifiers as needed. In late 2018 the NSW Government committed to auditing 25-30% of all building certifiers work. This auditing regime working in isolation to the proposed auditing scheme by the Building Commissioner is likely to lead to unnecessary overlap.

2.3 REGISTRATION OF ‘BUILDING DESIGNERS’

The Discussion Paper states that a registration scheme will enhance accountability by ensuring that practitioners have the:

relevant skills, presumably to be able to sign off plans and declaring those plans comply with the NCC,

hold the appropriate insurance,

can be held accountable for their actions, and

be subject to appropriate disciplinary action. While the proposal to register building designers would support these objectives, any such framework must be set at a reasonable level. What is being proposed could be described as an ‘occupational registration’ which is usually based on an individual’s qualification and competency to actually ‘carry out’ the proposed work and reflects the nature and related risks of the actual work being performed, and therefore contemplates skills, competency, knowledge and experience. This proposal may assist in ensuring that all individuals involved in delivering a building are accountable for the role that they play, it is an integral element of enabling the obligation for building designers to provide verification of their designs. For a person to be held accountable their role or function must be clearly identified in legislation. HIA submits that the function of each building designer could be linked to the design compliance certificates mentioned earlier, in that a person is registered to issue design compliance certificates for certain aspects of NCC compliance. Only competent persons should be permitted to sign-off on the appropriate design certificate this should include relevant qualifications and/or experience.

To support implementation of this reform, guidance material must be developed to outline which design certificates (such as structural engineering elements, hydraulic design, fire engineered elements) should accompany an application for a construction certificate. This should also ensure that plans or designs of elements which do not need to comply with the NCC or a development consent condition, such as landscaping plans and conceptual plans for development applications are not captured by this reform.

It is also important that each design compliance certificate is only required to cover what is reasonable to expect from the relevant professional. For example an architect or draftsman should know what materials are compliant in most situations however they should not be expected to sign-off on matters related to fire safety engineering.

A registration scheme for design professionals must be focused on ensuring that design professionals have the necessary skills and knowledge on the NCC. The most concerning trend amongst designers is the lack of knowledge about the NCC. Most architecture and design related courses include some form of compliance training but it is usually an optional or elective course. For anyone to be registered to issue design certificates they must be competent at understanding and applying the NCC including being able to demonstrate knowledge of how the performance based code works.


The Australian Building Codes Board is actively working to improve this situation and it is hoped that moving forward new entrants to the industry will have this knowledge. However to implement the scheme in the near term, some additional training or evidence of knowledge may be required.

Licensed builders should be accepted as an appropriate person to issue a design certificate. This will ensure that builders who currently design in-house including Class 1 buildings and renovations may continue to do so.

Requirements regarding insurance

The purpose of mandatory professional indemnity insurance (PI) is to protect professionals and their customers where a loss is suffered as a result of negligence or breach of duty in performing their function. When insurance is available and coverage is established the insurer will have a duty to fund and defend the insured against the claim. The insurer may also ‘step in the shoes’ of the insured and settle the claim. In isolation, HIA does not oppose the proposal that some building designers, namely engineers, architects and building designers be required to hold PI as a part of a registration scheme. The form of PI could mirror that currently required by certifiers in NSW or for these professionals in other states such as Victoria. However, it is important to recognise that builders, acting as building designers, are not able to obtain PI insurance as they are not defined as building professionals for the purposes of this type of insurance. This has implications for other proposals within the Discussion Paper, such as the proposal to introduce an industry wide duty of care and existing insurance requirements for residential builders. Interaction with the proposal for an Industry Wide Duty of Care If an industry wide duty of care were to be introduced it would be unlikely that those subject of a registration scheme along with existing building certifiers would be able to secure the necessary PI insurance. The uncertainty of the scope of such a duty, coupled with the exposure of a building designer and building certifiers to liability beyond the current 10 year limitation would make such risks basically unquantifiable and therefore uninsurable. Interaction with current regulatory arrangements that apply to builders

As will be outlined in further detail below, insofar as liability to an owner is concerned, the builder is principally liable for any defective works even if the cause of defects was incorrect designs (unless the designer was independently engaged by the owner), incorrect footings (unless the engineer was directly engaged by the owner) or incorrect/ defective building materials. Most builders will hold public liability and construction works policies of insurance, but latent construction defect claims will ordinarily not be covered by these polices. Nor will claims for:

negligence, failure to warn and failure to exercise professional skill,

breaching misleading and deceptive conduct provisions of consumer legislation,

breaches of intellectual property rights, or

breach of contract. It is unclear whether, under these conditions, such a product would be offered to a builder given the unlimited nature of risks faced by a builder and their inability to sheet responsibility home directly to other parties. Also a factor is that on residential projects valued at more than $20,000 and up to 3 storeys a builder is required to take out insurance under the Home Building Compensation Fund. This is paid for by the builder and the policy is based and assessed against an individual builder’s eligibility. The insurance is for the benefit of the consumer. While it is only triggered in a limited number of circumstances this requirement may overlap with the ability of a builder to obtain PI. Not only because of the way a builder must structure their financial arrangements in order to obtain eligibility for insurance but also because PI can be called up in circumstances under which insurance under the HBCF could also be called upon. As a result, each insurance actor may assess their risk differently, having unintended consequences on the insurance markets for both products and the ability of a builder to secure the mandatory insurances.


If a registration scheme is to require PI for residential builders, these complexities must be addressed.

2.4 INDUSTRY WIDE DUTY OF CARE

HIA strongly opposes the proposal outlined at Part 5 – Duty of care of building practitioners of the Discussion Paper. No other Australian jurisdiction has taken such an approach, nor would it seem that any international common law jurisdiction has sought to clarify the common law duty of care through legislation or legislate an industry wide statutory duty. While HIA has broadly supported measures which would look to ensuring that building professionals are held accountable for their role in the build process, HIA strongly opposes any implication that a builder and/or building practitioners should be responsible (via the imposition of a duty) for the quality or integrity of a building forever. It is unreasonable. Limitation periods on legal recourse are a well-accepted and an integral component of a just and fair legal system. Such limitations are also critical to the functioning of a competitive market. Economic actors must be able to allocate and quantify their risk in order to determine how they will operate in such markets. Without such limitations, competitive markets become inherently uncertain. The proposal is also at odds to previous commitments made by the NSW Government regarding the approach to home building laws. In 2014, the then Minister for Fair Trading Stuart Ayres stated that:

‘The Liberals and Nationals Government is committed to reforming the home building legislation to ensure that it takes a balanced approach to regulating the industry by providing appropriate protection for home owners without imposing unnecessary red tape on industry.’6

It is unfortunate that just 5 years later, a Discussion Paper has been released by the same government that would undermine this approach.

Clarifying the common law or introducing a new ‘duty’?

In February 2019 the NSW Government announced a commitment to ensuring that:

‘building practitioners owe a common law duty of care to owner’s corporations and subsequent residential homeowners, as well as unsophisticated development clients’

In March 2019, in the NSW response, the NSW Government further stated that they would:

‘clarify the law to ensure that building practitioners owe a common law duty of care to owners corporations and subsequent residential homeowners, as well as unsophisticated development claims, to ensure they have the right to compensation where a building practitioner has been negligent’

The current Discussion Paper then goes further and in doing so lacks a necessary level of clarity in relation to what is being proposed. It would seem that the Discussion Paper suggests the imposition of an ‘industry wide duty of care’ through one of two distinct avenues. The first option would be to introduce a ‘statutory duty’. A statutory duty is one imposed by legislation. For example, under the NSW Work, Health and Safety Act 2011, section 19 – Primary duty of care - is a statutory duty, the existing statutory warranties under Part 2C of the HB Act also impose a statutory duty (Statutory Duty). The second option suggests the ‘strengthening’ of the common law over time by clarifying existing principles relating to duties of builder and developers. This is something very different to the Statutory Duty. By failing to fully outline the differences in approach the Discussion Paper is misleading and conflates two potentially complex and significant proposals.


An industry wide duty of care, whether that be by way of a Statutory Duty or clarified common law duty of care, will not address the issues identified in the NSW response or in the Discussion Paper. Attempting to adopt either option will simply:

Add complexity

Both avenues suggest that the duty would be owed to a variety of parties including building owners, home owners, vulnerable home owner, owners corporations, subsequent title holders, small businesses, subsequent residential homeowners, vulnerable development clients (including some definitions of ‘developer’) by a variety of building practitioners include including builders, building professionals/practitioners and subcontractors. Not only would an individual be able to (if not required to) take actions for breach of duty against a range of individual building practitioners, it would seem that individual building practitioners could be sued individually and independently by multiple parties.

Turn the current legal and regulatory consumer protection framework upside down Under the HB Act the builder is both contractually and legally responsible for delivering a building that is ‘fit for purpose’. Any perceived barrier to legal recourse are a creature of the current regulatory framework. Holding the builder responsible in aid of a comprehensive consumer protection framework (that includes access to third parties) has purposely funnelled all legal avenues available to homeowners towards (and through) the builder or developer. This accords with the flow of contractual arrangements throughout a residential building project that sees the builder basically as project manager. The introduction of a Statutory Duty or clarified common law duty of care represents a major upheaval of the current approach to consumer protection and, in fact, who is held ‘responsible’ will depend on an individual’s appetite to take legal action, including the risk of successfully obtaining compensation. HIA opposes any moves away from existing arrangements. Identifying specific parties to which obligations are owed is unwise, confusing and adds an unnecessary amount of regulatory burden. The current framework is clear, well understood and ‘fit for purpose’ in terms of a stated consumer protection objective. Existing protections are appropriate and available.

Adversely impact small business

The Discussion Paper also suggests:

‘…that practitioners who perform residential building work or commercial building work could owe a duty for work over a certain threshold. For example, a duty of care could be owed to residential building work that was valued at over $5,000 to align with existing requirements under the Home Building Act’

HIA would oppose any such approach. Imposing a duty of care on, for example, a sole trader carpenter would firstly, force that individual to close their business as they would not have the legal structures or financial security to take on such a duty. Secondly, the proposed approach completely and unjustifiably disrupt current arrangements. Currently, when a subcontractor works for a residential builder, that builder is responsible to the homeowner for the quality of those works and compliance with the statutory warranties under the HB Act. Subcontractors do not currently have a direct obligation to comply with the statutory warranties under the HB Act. Imposing a duty on all residential building work over $5,000 would displace this, introducing a new obligation on subcontractors, many of which are small businesses. It would also act as a significant disincentive to enter to industry. Apprentice commencement and completion rates are already at undesirably low levels and the industry, particularly the residential building industry is uncertain as to who the builders of the future will be. Apprentices, become trade contractors, who often become builders. Imposing this duty on those just starting out will act as a significant barrier to enter the industry.


Create legal uncertainties

It is unclear how maintaining express statutory warranties alongside either a Statutory Duty of clarified common law duty of care will affect a builders risk and liability. Not only would they operate for different time periods, but both options are likely to be interpreted more broadly than the existing statutory warranties. It is unacceptable that a builder could be held in breach of contract, in breach of the statutory warranties and in breach of another ‘duty’. A clarified common law duty of care is arguably more problematic as it introduces significant uncertainty, namely because how a court will interpret such a framework is completely unknown. In contrast to suggestions that such a duty will lead to better, more certain outcomes there is also no guarantee that a ‘clarification’ will led to compensation or a faster outcome/decision.

Add cost and further red tape to the industry

The Discussion Paper states that the proposed industry wide duty of care will operate together with existing protections. The residential building industry is one of the most heavily regulated industries in the state. A Statutory Duty or clarified common law duty of care uncomfortably overlaps with the range of existing consumer protection mechanisms simply adding cost and unjustifiable regulatory burden.

Adversely impact the allocation of risk in construction projects

Overtime, amendments to the HB Act have been made to ensure a builder has some certainty as to their liability and risk. For example, amendments to the definition of ‘completion’ under the HB Act sought to provide clarity in relation to the time length of liability under the statutory warranties. This amendment, made in 2014, was adopted in response to Owners Corporations who… ‘expressed concern about the ease with which they can apply the existing definition of completion to trigger the statutory warranties and insurance. This is because they are not parties to the original contract. To provide owners corporations with greater certainty about their rights the bill will introduce a new definition of completion of building work for strata schemes. This will be the date an occupation certificate is issued that authorises the occupation and use of the whole of the building.’7

What is proposed severely undermines this certainty.

The uncertainty of judicial interpretation coupled with the unknown scope and breath of any such duty makes it almost impossible for parties to allocate and manage risk.

Provide no guarantees to homeowners of compensation It is misleading to suggest that a Statutory Duty or clarified common law duty of care will provide a clear right to compensation. While both options can give rise to a legal cause of action, i.e. the right of a homeowner to bring a building practitioner to court, that says nothing about the satisfaction of other key elements to establish an action in negligence, let alone a right to compensation. Whether the duty has been breached, whether the breach of the duty caused damage to another and whether the loss sustained was not too remote a consequence of the breach of duty are all matters of evidence to be weighed by a court. Also misleading is the implication in the Discussion Paper that amending the law will ensure ‘a clear right to pursue compensation where a building practitioner has been negligent’ overcoming recent case law that ‘calls in to question’ the degree of protection provided to property owners and suggestions that ‘existing protections’ may be unsuitable. There is no guarantee that an ‘industry wide duty of care’ will be applied or interpreted by courts in the manor suggested.

Further, the suggestion that damages for breach of the duty be calculated in accordance with statue flies in the face of ensuring that a homeowner will in fact receive the compensation they are entitled to.

7 NSW. Parliamentary Debate. Legislative Assembly. 6 May 2014, page 49 Home Building Act Amendment Bill 2014


Not remove or limit judicial discretion in determining matters relating to negligence Imposing a Statutory Duty or clarified common law duty of care will not affect existing case law on the question of negligence. Recent decisions have not thrown doubt over remedies available to building owners or the degree of protection afforded to property owners. These decisions simply follow existing case law, apply the notion that a court should not interfere where a statutory regime ‘covers the field’ and follow the well-trodden principles of negligence. The decisions referred to in the Discussion Paper:

Do not relate to residential building work or works carried out under the HB Act. For example the case of Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd (Tzaneros Investments)8 dealt with defective concrete paving at a container terminal under a design and construct contract for warehouses. James v the Owners – Strata Plan No 11478; The Owners – Strata Plan No 11478 v James9 examined whether a duty of care existed between an owners corporation and an individual lot owner in a strata scheme. In that case, the obligations owed by an Owners Corporation were said to be set out in the legislative regime and to ‘impute a duty of care…would cut across the statutory regime to an intolerable extent.’10 Further, and as highlighted in the Discussion Paper the High Court decisions in the Woolcock case and the Brookfield case dealt with works that fell outside of the HB Act. In fact, at the time, the Government confirmed that the outcome in the Brookfield case did not affect the consumer protection offered under the NSW home building laws.

Confirmed the existence of a common law duty of care In the case of Tzaneros Investments an engineer (AMT Engineering) was held to have owed Walker Group Construction (WGC) a duty of care. In that case, WGC engaged AMT Engineering to design the concrete pavement that formed part of the container terminal. It was held that AMT Engineering fell within:

‘the well recognised class of case in which it has been held that a professional advisor who has been engaged by a person to provide advice falling within the advisor’s area of expertise in circumstances where the advisor knows that the person will act on that advice and it is reasonable for the person to do so owes a duty of care when giving that advice: see, eg, Brickhill v Cooke [1984] 3 NSWLR 396. Notwithstanding the development of vulnerability as an important requirement for the existence of a duty of care, the existence of a duty of care in cases such as the present one can still be explained in terms of the assumption of responsibility by one party in circumstances of known reliance by the other: See Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at [24] per Gleeson CJ, Gummow, Hayne and Heydon JJ.11

Of significance is that in that case, there was no contract between AMT Engineering and WGC, yet a duty of care was found to be owed.

Adversely impact on the ‘culture’ in the building industry The Discussion Paper argues that introducing a duty will encourage cultural change by creating an overarching standard for building work and ensuring greater accountability across all building practitioners in the chain of responsibility. The proposed approach will do the opposite. Individual building practitioners will look for ways to limit their exposure and confine any risk that flows from Statutory Duty or clarified common law duty of care.

8 [2016] NSWSC 540

9 [2016] NSWSC 1558 10 Ibid at paragraph 112

11 See paragraph 191


It is also likely that consumer confidence in the home building laws will diminish as they will bear a significant legal burden.

2.5 EXISTING PROTECTIONS

The raft of existing protections that apply to those who engage individuals to carry out residential building work, particularly those works to which insurance under the Home Building Compensation Fund is required is extensive. As such, there is little justification for a further industry wide duty of care to apply to those working in the residential building industry, particularly licensed builders and trade contractors.

Statutory Warranties

Part 2C of the HB Act sets out the warranties owed by anyone carrying out residential building work. Relevantly section 18B provides:

1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work: a) a warranty that the work will be done with due care and skill and in accordance with the plans and

specifications set out in the contract,

b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,

c) a warranty that the work will be done in accordance with, and will comply with, this or any other law,

d) a warranty that the work will be done with due diligence and within the time stipulated in the contract,

or if no time is stipulated, within a reasonable time,

e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,

f) a warranty that the work and any materials used in doing the work will be reasonably fit for the

specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment.

Each element operates to impose a separate and distinct obligation on an individual carrying out residential building work for example, the concept that work will be performed with due care and skill is generally interpreted on a case-by-case basis. It usually incorporates an assessment of the work done and the work as it should be have been done. It may also include an assessment of the circumstances under which the scope of works was established. That is, where the work is done to a budget, the workmanlike manner may be limited to the degree provided for by the budget. Further ensuring that work is carried out in accordance with the plans and specifications set out in the contract is a further discrete obligation and generally requires a comparison between the work actually performed and the requirements of the plans. If the plans conflict with the NCC, the builder should seek instruction in writing from the owner (or, if applicable, the architect) regarding how to proceed. A failure to comply with the NCC is a failure to satisfy the warranty that the work will comply with applicable laws. Construction certificates are issued subject to the requirement that the work done complies with the NCC. It is assumed, in the Discussion Paper that a range of parties (building owners, home owners, vulnerable home owner, owners corporations, subsequent title holders, small businesses, subsequent residential homeowners, vulnerable development clients) do not have access to current mechanisms under the HB Act. This is wrong. Currently, the protections under the HB Act are based on the type of works being carried out.


The HB Act purposively and specifically defines what is considered ‘residential building work’ and that those who engage a person to carry out residential building work will be afforded the protections under the HB Act. This will currently apply to all of those parties listed in the Discussion Paper where the work involves a ‘dwelling’. This includes ‘if non-residential parts of a building containing one or more dwellings give support or access to the residential part--the major elements of the non-residential parts giving such support or access.’12 These statutory warranties (along with the scheme of insurance under the Home Building Compensation Fund) are often characterised as the centrepiece of consumer protection laws in NSW. As highlighted by the then NSW Fair Trading Minister Anthony Roberts at the time of passing amendments to the HB Act in 2011:

‘…the statutory warranty and home warranty insurance schemes underpin the consumer protection framework for residential building in New South Wales.’13

Similarly, amendments to the HB Act in 2014 elicited the following commentary:

‘The statutory warranties scheme is a core element of the consumer protection framework of the Act. It creates legally enforceable standards for the quality and performance of building work.’14

Both the developer and the builder are liable to the purchasers of property (and their successors in title) for defects. This also means that if a builder becomes insolvent the developer will have an exposure both to subsequent owners and the insurer under the Home Building Compensation Fund. Relevantly, the HB Act applies to ‘Developers’ and is a class defined broadly under the HB Act. Section 3A provides:

(1) For the purposes of this Act, an individual, a partnership or a corporation on whose behalf residential building work is done in the circumstances set out in subsection (2) is a developer in relation to that residential building work.

(1A) Residential building work done on land in the circumstances set out in subsection (2) is, for the

purpose of determining who is a developer in relation to the work, deemed to have been done on behalf of the owner of the land (in addition to any person on whose behalf the work was actually done).

Note : This makes the owner of the land a developer even if the work is actually done on behalf of another person (for example, on behalf of a party to a joint venture agreement with the owner for the development of the land). The other person on whose behalf the work is actually done is also a developer in relation to the work.

(2) The circumstances are:

(a) the residential building work is done in connection with an existing or proposed dwelling in a building or residential development where 4 or more of the existing or proposed dwellings are or will be owned by the individual, partnership or corporation, or

(b) the residential building work is done in connection with an existing or proposed retirement

village or accommodation specially designed for the disabled where all of the residential units are or will be owned by the individual, partnership or corporation.

(3) A company that owns a building under a company title scheme is not a developer for the purposes

of this Act. In the recent case of The Owners – Strata Plan No 66375 v King15 a developer was held liable under section 18C of the HB Act. In that case, the builder was in liquidation and the Owners Corporation proceeded against Mr David King and Ms Gwendoline King (collectively Kings) as “developers”. The Court of Appeal found that the Kings were

12 Schedule 1, clause 2(d)

13 NSW. Parliamentary Debate. Legislative Assembly. 13 October 2011, page 6187. Home Building Act Amendment Bill 2011 14 NSW. Parliamentary Debate. Legislative Assembly. 6 May 2014, page 49 Home Building Act Amendment Bill 2014

15 [2018] NSWCA 170


“developers” under the Act and liable to the Owners Corporation for damages in the sum of $5,093,168.08 in respect of building works which breached the statutory warranties. It is also abundantly clear that obligations arising from the statutory warranties are owed to subsequent title holders and non-contracting parties. The Explanatory Memorandum to the Home Building Amendment (Warranties and Insurance) Act 2010 (NSW) stated that the object of the Act was to ensure that:

‘Where a contractor enters into a contract for residential building work on land with a party or parties who are not the owners of the land, the owner or owners of the land will be deemed to be persons on whose behalf work is done and will be entitled to the benefit of any statutory warranty. As a consequence, any successors in title will also be able to recover for the breach of statutory warranty.’

Another 2014 amendment inserted subsection (2) to section 18B of the HB Act as follows:

‘The statutory warranties implied by this section are not limited to a contract to do residential building work for an owner of land and are also implied in a contract under which a person (the "principal contractor") who has contracted to do residential building work contracts with another person (a "subcontractor" to the principal contractor) for the subcontractor to do the work (or any part of the work) for the principal contractor.’

This amendment implies that although a principal contractor is primarily responsible to the consumer for a breach of statutory warranty (even when the breach relates to work undertaken by a subcontractor) subcontractors are also responsible for statutory warranties. While this provision is yet to be tested, it is arguable that the terms used could be implied to apply to all subcontractors, being those building practitioners (engineers etc) who enter into a contract with a developer or a builder directly.

Insurance under the Home Building Compensation Fund

One defining feature of the residential building industry is the mandatory regime of Insurance under the Home Building Compensation Fund (HBCF). Insurance under the HBCF is currently regulated by the State Insurance Regulatory Authority (SIRA) and distributed through iCare. The scheme provides a completion guarantee for consumers and recourse for a breach of the statutory warranties for 6 years for a major defect and 2 years for all other defects after completion. Since 2001 the scheme has been one of “last resort”. This means that a consumer can only access the benefit of the policy of insurance when the builder dies, disappears or becomes insolvent. There is also a fourth trigger that enables a consumer to claim on the policy of warranty insurance when a builder has their licence suspended due to non-compliance with an order by Tribunal or court to pay you money. Under the HB Act any residential building work over $20,000 must obtain Insurance under the HBCF prior to the receipt of money or the commencement of work. Insurance is not required for a multi-storey building that has a rise in storeys of more than 3 (not including car park space), and contains 2 or more separate dwellings. In order to obtain Insurance under the HBCF a builder must be deemed ‘eligible’ by iCare. In determining eligibility iCare examines a range of financial and non-financial information provided by the business in order to assess the risk of potential threats to solvency. The scheme is quasi-regulatory and provides consumers a safety net to ensure that issues of building quality are resolved irrespective of the fact that the original builder may not be available to carry out rectification work

Definition of a ‘major defect’

The definition of a ‘major defect’ is critical to the operation and application of both the HBCF and the statutory warranties. Amendments made in 2014 (which commenced in 2015) recognised the need for reform in this area:

‘Reform of the definition of structural defect is long overdue. It is necessary to reduce the significant time and money spent by parties on disputes and to ensure more consistent court and tribunal decisions. This will deliver cost savings for home owners, builders and the Home Warranty Insurance Fund. The bill


replaces "structural defect" with a new concept of a "major defect" for six-year statutory warranty period. To provide further certainty the definition will be moved from the regulation to the Act. A two-step test will be introduced to determine whether a problem is a major defect. The first step is whether the defect is a major element of the building. Major elements will include structural load bearing elements, but for the first time fire safety systems and waterproofing are also expressly included.’16

It is envisaged that this reformulation will assist building industry participant and the community greater transparency and certainty regarding when, and if, an obligation will arise to rectify residential building work, facilitating the rectification of defective building work and reducing litigation costs.

‘This clearer and more robust definition will help reduce the number of disputes, and also the length and complexity of these disputes. This should help reduce the significant legal costs associated with these types of disputes.’17

A recent decision has provided a detailed interpretation on the amended provisions specifically as it relates to the express identification of ‘waterproofing’ as a major element of a building:

‘The redefinition of the category of an item of defective work for which the longer limitation period is to apply, from a ‘structural defect’ to a ‘major defect’ involves considerably more than the mere difference in the definition. The first step in the analysis is that the defect must be part of a “major element” of a building. The definition of “major element” includes “waterproofing”. This inclusion does not, however, mean that any, or all, defects involving an imperfection in the system of waterproofing of a building is a “major defect”. The extent to which a defect in the waterproofing system of a residence impacts on habitability or the integrity of the building needs to be proved by the proponent of a “major defect”. This was addressed in Panchal v Jones t/as Oz Style Homes [2018] NSWCATD 238:

87. The defect does not need to be shown to make the habitation or use of the building (or part of it) impossible, but it must be such that the habitation or use of the building (or any part of it) cannot be for its intended purpose.

88. There are many instances in which water penetration into a building diminishes the amenity and use of the building. The impact of the defect and the extent of its interference with the intended use will vary. The definition suggests that the impact of a defect in the waterproofing upon the capacity to inhabit or use the building for its intended purpose must be shown to be significant.

89. In some respects the impact upon the capacity to inhabit or use the building will depend upon the magnitude of the problem.

90. The evidence before the Tribunal, including videos, disclosed the extent and widespread impact of the water penetration in the two residences.

The consequences of the defect must be shown to have, or to probably have, a proven consequence for the habitation, or use, of the building, or to the integrity of the building. This is a matter for evidence which must be adduced to prove all of the elements required to establish a “major defect”. Subsection 18E(4)(a)(i) requires that there be a proven, or probable, inability to inhabit, or to use the building. This requires proof of something more than inconvenience. To prove that a defect has caused either of the consequences there has to be evidence as to the actual impact. In the absence of such evidence the claim will fail. The Appeal Panel considers that the evidentiary onus cannot be satisfied by speculation or assumption. The possible consequences of the defect, defined in subsections 18E(4)(a) (ii) and (iii) are at the high end of consequences, or impacts upon a building. The reference to “destruction of the building or any part of the building” does not connote a minor potential process of deterioration. The reasonably presumed legislative intention is that there must be evidence of a real possibility of destruction, not merely incidental damage or superficial deterioration.

16 NSW. Parliamentary Debate. Legislative Assembly. 6 May 2014, page 49 Home Building Act Amendment Bill 2014

17 NSW. Parliamentary Debate. Legislative Council. Hansard and Papers Tuesday 27 May 2014. Page: 29010. Home Building Act Amendment Bill 2014


These elements also need to be established by probative evidence of what the impact has actually been, or what it probably will be. Evidence from the occupants or users of the building would be necessary to establish these elements of the claim. To establish, or prove, the probability of the destruction of the building, or any part of a building, must involve more than a speculative, or pessimistic, assessment of possibilities. The proponent of a “major defect” should be required to prove that the defect will have the prescribed consequence, or that it probably will have the prescribed consequence.18

As further case law evolves, industry and the community will come to have greater certainty and transparency as to the obligations arising under the statutory warranties.

Limitations Act

As noted in the Discussion Paper, the Limitation Act 1969 (Limitation Act) prescribes the time within which a claim must be brought for damages to arise from a breach of duty. Under s 14(1) of the Limitations Act, for a breach of contract or a claim for negligence this is 6 years from when the cause of action arises. The operation of the Limitation Act in relation to the statutory warranties under the HB Act provision has gained recent attention in a decision that held that this provision of the Limitation Act applied to a breach of statutory warranty by way of contract. In the matter of Hutchings v Hope19 an Appeal Panel of the Civil and Administrative Tribunal of New South Wales found that:

‘a right of action for breach of an express term, not being a claim for claim for breach of statutory warranty under s 18E, could be brought within 6 years from when the cause of action accrues, whether or not the express warranty is wholly or partly in the same terms as the statutory warranty implied by s 18B.’

The HB Act requires that the terms of section 18B be expressly included in a residential building contract for works over $20,000, as such, the consequence of this decision is that a compliant residential building contract will allow a home owner as a contractual party to bring a claim for recovery for defects for up to 6 years from the date on which the cause of action first accrues. In other words if a defect is discovered within 6 years of the contract being entered into a home owner would have up to 6 years to bring an action. This is substantially longer than the period allowed for recovery under s 18E of the HB Act for defects, which, for major defects, allows at its greatest extent an additional 6 months on the 6 year warranty period that commences after completion of the works provided ‘the breach of warranty becomes apparent within the last 6 months of the warranty period.’ It follows that if the contract contains an express warranty provision, a home owner would be able to rely on breach of contract for this period, even for defects which would be considered minor and which attract a 2 year warranty under the HB Act.

Fair Trading Dispute Resolution and Inspection Service

While the Discussion Paper refers to the NSW Fair Trading and Dispute Resolution and Inspection Service as a legislative protection against defects, the Discussion Paper fails to explain the impact of this process on those carrying our residential building work. Section 48E allows an inspector to issue a rectification order against a contractor if, after an investigation the inspector determines that:

any residential building work or specialist work contracted to be done by the contractor is incomplete, or

any residential building work or specialist work done by the contractor is defective, or

the contractor, in the course of doing any residential building work or specialist work, has caused damage to any structure or work, or

as a consequence of any defective residential building work or specialist work done by the contractor, a structure or work has been damaged.

18 Ashton v Stevenson; Stevenson v Ashton [2019] NSWCATAP 67 at paragraphs 68 - 75

19 [2019] NSWCATAP 59


Under subsection 5 it is a condition of a contractor’s license that they comply with a rectification order. If a contractor fails to comply with a rectification order, disciplinary action may be taken, this can include the suspension or cancellation of the contractor’s license. This potential action provides a significant incentive for contractors to rectify alleged defective building work or residential building work the subject of a rectification order irrespective of whether the contractor agrees with the determination of the inspector or not.

Strata Building Bond and Inspection Regime

From 1 January 2018, strata developments that are not subject to the requirement to obtain insurance under the Home Building Compensation Fund must comply with a mandatory inspection and building bond regime (Inspection Regime). Under the Inspection Regime a developer must, in order to obtain an occupation certificate, lodge a building bond equal to 2% of the contract price with NSW Fair Trading. The developer must also carry out an interim and final inspection, obtain an inspection report and carry out works to rectify any defects identified in those report. If a developer fails to carry out such works, the Owners Corporation can call on the 2% building bond in order to have rectification works carried out. On introducing the Strata Schemes Management Bill 2015 the Minister at the time, Victor Dominello outlined the intent of the Inspection Regime:

‘Part 11 of the bill contains another significant reform—a defect bond and inspection regime which is carried out in the first two years and is designed to incentivise developers and builders to build well and to fix any problems early in the life of the building. The new process aims to reduce costs for all parties involved, minimise time delays, and reduce the incidence of drawn-out and expensive legal action. It is not, however, intended to displace an owner's corporation's right to pursue legal action under any other law, including the Home Building Act. It is simply a structured process to promote issues being brought to the forefront early in a building's life, and get them resolved quickly and cost-effectively...Essentially the process involves the developer lodging a bond or financial security with Fair Trading equal to 2 per cent of the contract price of the building work, to cover any unresolved defects that have been identified by a qualified independent inspector. Having a single process for independent defects reports will help avoid each party in the dispute spending thousands of dollars commissioning competing reports, which is a common occurrence...’20

Firstly, it would seem there is significant overlap between the stated aims of the Inspection Regime, and the proposed duty. Secondly, the Inspection Regime was aimed at simplifying and expediting defect identification and rectifications matters that are also sought to be addressed by the proposed reforms outlined in the Discussion Paper.

Australian Consumer Law

The Australian Consumer Law (contained in a schedule to the Competition and Consumer Act 2010) (ACL) creates a basic set of guarantees for consumers who acquire goods and services from Australian suppliers, importers or manufacturers. The ACL applies to all construction work where it meets the relevant criteria. Of note the NSW Government have expressly relied on the ACL to provide consumers protection. At the time of making significant amendments to the HB Act in 2014, certain works such as internal painting, concrete tennis courts, ornamental ponds or water features were excluded from the operation of the HB Act. It was noted that:

‘Consumers will remain protected by the Australian Consumer Law for these kinds of work.’21 These guarantees apply if the goods or services purchased cost less than $40 000. If the goods or services cost more than $40 000 but are normally used for personal, domestic or household purposes (such as landscape design), the guarantees will still apply. The effect of the definition of ‘consumer’ is as follows:

20 NSW. Parliamentary Debate. Legislative Assembly. 14 October 2015. Strata Schemes Development Bill, Strata Schemes Management

Bill 2015 21 NSW. Parliamentary Debate. Legislative Assembly. 6 May 2014, page 49 Home Building Act Amendment Bill 2014


a consumer can in fact be a large company if the purchase value is under $40,000;

if the price is less than $40,000, the goods or services do not have to be used for personal, domestic or household use;

if the goods or services cost more than $40,000, then they must be of a kind that are bought for personal, domestic or household use or consumption. It is not necessary for the consumer to be a householder. For example, if a builder supplies carpet costing more than $40,000 to a commercial business, the consumer guarantees would apply because carpet is ordinarily acquired for personal, domestic or household use or consumption.

The operation and application of the ACL has implications for the carrying out of construction work in NSW and the matters under consideration in the Discussion Paper. Of specific relevance are the implied guarantees as to service. Services must be:

Provided with acceptable care and skill or technical knowledge and taking all necessary steps to avoid loss and damage. Their work must be at least as good as what a competent person with average skills and experience would provide.

Fit for the purpose or give the results that you and the business had agreed to.

Delivered within a reasonable time when there is no agreed end date.

The relevant consumer guarantees in relation to fitness for purpose for goods include a: Guarantee as to acceptable quality. Goods will be considered to be of acceptable quality if they:

o are safe, durable and free from defects; o acceptable in appearance and finish; and o do everything that they are commonly used for.

Guarantee as to fitness for any disclosed purpose. There is a guarantee that the goods are reasonably fit for: o a purpose for which the supplier represents they are fit; or o a purpose the consumer makes known to the supplier or manufacturer that they will use the goods

for. These guarantees cannot be excluded, limited or restricted by contract. Unlike the express time periods for statutory warranties the consumer guarantees under the ACL contain no specific timeframe that goods be defect free. Rather goods or services must be free from defects for a reasonable period of time. Where the breach amounts to a major failure or where the defect in the goods cannot be remedied, the consumer is entitled to reject the goods by notifying the supplier of that fact and the supplier is obliged, in accordance with an election made by the consumer to either refund monies paid by the consumer or replace the rejected goods. A major failure occurs where the relevant goods:

would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure;

are substantially unfit for their disclosed purpose and cannot easily be remedied within a reasonable time to make them fit for that purpose;

depart significantly from their description, sample or demonstration model;

are not fit for a purpose that was disclosed to the supplier; or

are unsafe or the supply of services creates an unsafe situation. On the other hand, a “non-major failure” is any failure to comply with a guarantee which can be remedied and is not a “major failure”. On the other hand, if the failure to comply with the guarantee can be remedied and is not a major failure, a consumer who wishes to pursue a remedy must first give the supplier the opportunity to remedy the failure and only if and when the supplier refuses or fails to so remedy the failure can the consumer reject the goods. For all failures, the consumer is also entitled to recover from the supplier loss or damage suffered by the consumer because of the failure if it was reasonably foreseeable that the consumer would suffer such loss or damage. Often matters relating to home building involving defects will also give rise to a breach of the ACL.


Beyond that there is authority for the proposition that common law will imply a term regarding ‘fitness for purpose’ in consultancy agreements. In such cases, the ultimate question will be the role played by the consultant in the overall project. Consultancy agreements are often entered into between builders and/or developers and any one of the building practitioners mentioned in the Discussion Paper i.e. engineers, architects or building designers. In the case of Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners22 a company employed building contractors to construct a warehouse which would serve as storage for oil drums. The building contractors employed a firm of consultant structural engineers to design the structure of the warehouse. The building contractors made known to the consultants that the first floor would have to take the weight of loaded forklift trucks moving to and fro. The warehouse was built in accordance with the defendant's design. After a certain time, the floor cracked and became dangerous. The court found that there was a common intention of the parties that the consultants should design a warehouse which would be fit for the purpose for which it was required. The court implied into the agreement an 'absolute warranty' that the design would be fit for its intended purpose. Misleading and Deceptive conduct Under the ACL section 18 provides that a person (or company) shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. It makes no difference whether the misleading or deceptive conduct was intentional or not. A representation in relation to a future matter, for example an estimate of costs, will be taken to be misleading if the person making the representation did not have reasonable grounds for making it. If a home owner suffers loss or damage as a result of misleading or deceptive conduct (whether intentional or not) on the part of a builder or other building practitioner they will have a prima facie claim for damages under section 18 of the ACL. The question turns on an evaluation of whether or not the home owner acted in reliance on any misleading or deceptive representation (or conduct) if so, whether it was reasonable for the home owner to rely upon the particular representation. In the context of residential building disputes, reliance will typically be in the form of the home owner proceeding to enter into a building contract with the builder, or a builder/developer entering into an agreement with another building practitioner. Even if the contract includes provisions to the effect that the terms of the contract constitute the entire or whole agreement between the parties or that the home owners have not relied upon any representation made by the builder when entering into the contract, a home owner may still have a claim against the builder for misleading and deceptive conduct if their reliance was reasonable nevertheless. The loss or the damage that a home owner may suffer as a result of misleading or deceptive conduct will depend on the particular circumstances. For example:

An owner who relied on a representation in relation to an estimated cost of works when entering into a contract may be entitled to recover the difference between the amount paid to the builder and the amount that the home owner could have negotiated with another builder for the work to be performed under a lump sum price contract.

A home owner who relied on a representation in relation to the period of time for completion of the works, and thereby failed to include any express term relating to the period in which the work was to be completed, may be entitled to recover damages associated with additional rent or holding costs in connection with the delays.

A home owner who relied on a representation relating to the nature or manner of work that was to be performed (or work that was to be the subject of a variation) may be entitled to recover costs of having the work redone or rectified so that it corresponds to the manner represented by the builder (for example if the contract or variation did not sufficiently describe the work or corresponding specifications).

22 [1975] 3 All ER 99


In the case of Singh v Verdi Group Pty Ltd 23 a company director was held liable for misleading and deceptive conduct. In that case Mr Singh sought a referral for a builder for renovation of the residential premises through Hi-Pages. Mr Samer Hraiki on behalf of Verdi Group Pty Ltd responded and after discussing the work Mr Singh and Verdi Group Pty Ltd entered into a contract to renovate the house. It was later discovered that Verdi Group Pty Ltd did not have a builder's license to carry out building work. Mr Singh had also been provided with a Home Warranty Insurance Certificate with the contract and he made enquiries with the insurer which had no record of the insurance. Verdi Group Pty Ltd failed to complete the works despite numerous requests. Mr Singh subsequently terminated the contract. Amongst the findings against Verdi Group Pty Ltd and the director Charles Curro the Tribunal held Mr Curro responsible for misleading and deceptive conduct as a director of the Corporation with which the applicant contracted:

‘The Tribunal is satisfied that the Corporation was ultimately both unlicensed and uninsured and that both the Corporation and Mr Curro are liable for the losses that flow from that breach to the applicants. ss 4 and 5 of the HBA prevent unlicensed contracting and s92 of the HBA requires that contract work must be insured. Verdi Group Pty Ltd was unable to do the contract works. The Tribunal finds that Mr Curro’s misrepresentations, being the providing of his individual license as evidence that the works could be done and the providing of the Home warranty Insurance, induced the applicants into the contract. The Tribunal is also satisfied that the homeowners damages have arisen as a consequence of entering into the contract with an unlicensed and uninsured entity.’24

3. A BETTER SOLUTION - PROPORTIONATE LIABILITY

HIA proposes that a better approach, that would give homeowners ‘more avenues, and easier access to seek redress for defective building and related damages and loss’25 would be to allow for claims for breaches of statutory warranties to be apportioned, re-introducing the application of proportionate liability for claims under Part 2C of the HB Act. HIA agrees that the operation of liability rules and the allocation of risk across the various building and design professionals involved in the building construction and approval processes are key factors when considering the effectiveness of building regulation and building quality. In basic terms, proportionate liability enables responsibility and accountability for defective work or a damages claim to be shared by all wrongdoers. It has generally been understood that contractual responsibility (including the responsibility for statutory warranties implied into the building contract) rests with the licensed builder and this builder is responsible for the actions of its consultants and subcontractors. Proportionate liability replaced joint and several liabilities in claims for damages arising from claims in tort (a failure to take reasonable care) and certain statutory claims for misleading and deceptive conduct. Proportionate liability was a legislative response to ‘deep pocket syndrome’ – the concept of plaintiffs only suing those defendants with insurance irrespective of what percentage they were responsible for the loss or damage (it could be as little as 1 per cent). Proportionate liability means that the concurrent wrongdoers are only liable to a plaintiff for their apportioned share of responsibility for the loss. The risk of a wrongdoer being insolvent is transferred to the plaintiff who must pursue each wrongdoer for their share of responsibility. Part 4 of the CLA provides that a Defendant may argue that other concurrent wrongdoers are responsible for damages and loss suffered by the Plaintiff.

23 [2017] NSWCATCD 94

24 Paragraph 26 25 Discussion Paper pg. 25


Under Section 34 a concurrent wrongdoer is someone who causes loss or damage to property arising from a failure to take reasonable care:

1) This Part applies to the following claims ("apportionable claims"):

(a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury…

2) In this Part, a "concurrent wrongdoer", in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

Once a Defendant enlivens proportionate liability, the Plaintiff is then required to elect whether to join all those other concurrent wrongdoers as the Defendants liability may by limited under section 35 of the CLA:

(1) In any proceedings involving an apportionable claim: (a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss, and (b) the court may give judgment against the defendant for not more than that amount.

3.1 PROPORTIONATE LIABILITY AND THE HB ACT

The impact of the interaction between proportionate liability and the HB Act emerged in New South Wales with the 2010 decisions of the NSW Supreme Court in Owners SP 72357 v Dasco Constructions Pty Ltd & Ors26 (Dasco Construction) and The Owners of Strata Plan v Brookfield Multiplex Limited.27 In these cases, the Courts held that builder/developer was entitled to raise a defense of proportionate liability under the CLA in response to claim for a breach of the statutory warranties implied by the HB Act. In Dasco Construction, the owner’s corporation brought a claim against the builder alleging that the builder had breached the statutory warranties when it built the apartments under a contract with the developer. The defects related to fire safety construction and design. The builder sought to rely on proportionate liability as an arm of its defence and sought to join the engineer and building certifier as concurrent wrongdoers. The Court found that the builder was entitled to do so. Both decisions provoked considerable debate. It was argued at the time that proportionate liability was inconsistent with the overall consumer protection policy objectives and framework for home building work. It was also argued that it was not really within the legislature’s intent that parties such as designers, certifiers, Council, supervisors, and sub-contractors be joined as ’concurrent wrongdoers’ in warranty disputes with home owners. It was often highlighted that it is the builder, not the consumer, who engages these other parties, and who is in the best position to manage the risk of their contribution to any loss or damage suffered by the consumer. The NSW Government ultimately responded by amending the CLA to explicitly remove claims arising under the HB Act by inserting the following after section 34 (3) of CLA

(3A) This Part does not apply to a claim in an action for damages arising from a breach of statutory warranty under Part 2C of the Home Building Act 1989 and brought by a person having the benefit of the statutory warranty.

According to the Minister’s second reading speech, it was never considered that proportionate liability provisions of the CLA could apply to statutory warranty claims.

‘The scheme of proportionate liability is established by the Civil Liability Act 2002 and applies to apportionable civil claims, which are claims for economic loss or damage to property caused by two or more concurrent wrongdoers that arise from a failure to take reasonable care. The liability of each

26 [2010] NSWSC 819 27 [2010] NSWSC 360


wrongdoer is limited to that proportion of the loss for which they are directly responsible. Most residential building work is undertaken by subcontractors who work under contract to a head builder or contractor. The head builder or contractor holds a separate contract with the homeowner. Allowing builders and developers to use proportionate liability as a defence in statutory warranty claims would undermine the scheme's intent which is for homeowners to be able to recover their total losses from their builder or developer for a breach of statutory warranty.’ Before the 2010 Supreme Court decision it was never considered that the proportionate liability provisions of the Civil Liability Act applied to statutory warranty claims. The bill therefore restores this situation by specifically excluding statutory warranty claims from the proportionate liability scheme.’28

The situation in NSW regarding proportionate liability is unique and under the HB Act for claims of breach of statutory warranty joint and several liability applies and a plaintiff is entitled to recover the whole of its loss from only one party even though it is possible for a defendant to seek a contribution or indemnity from other (concurrent) wrongdoers, either by joining them as defendants or in a separate legal action In contrast in Victoria the availability of proportionate liability under the Wrongs Act 1958 to claims made under the Building Act 1993 have resulted in outcomes that hold those in the contractual chain responsible for their work by apportioning responsibility. For example in the matter of Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property)29 which concerned damages as a result of a fire at the Lacrosse Tower on La Trobe St in Melbourne the Victorian Civil and Administrative Tribunal sheeted home liability to three consultants who were not in a direct contractual relationship with the applicant owners. The Tribunal also found that that the failure to exercise reasonable care by each of the fire engineer, the building surveyor and the architect was a cause of harm to the builder resulting in its breach of the design contract, Judge Woodward found each to be a concurrent wrongdoer within the meaning of section 24AH and pursuant to section 51 of the Wrongs Act 1958 and ordered that the $5.7 million in damages payable by the builder to the Owners be apportioned in the following proportions:

Building surveyor: 33%

Architect: 25%

Fire engineer: 39% This approach and outcome would not be possible under the current arrangements in NSW. Based on the current Discussion Paper and the proposals regarding a Statutory Duty or a clarified common Law duty of care, the view as to the nature and operation of home building laws in NSW may have evolved. It makes sense for all claims regarding defective work, such as a subsidence action, to be held at the one time. At the moment, the onus is on the builder to separately join the concurrent wrong doers. Such joinder is not always guaranteed as it is a discretion exercised by the Courts under court rules, and Courts may determine that the consumer action not be confused or complicated with multi-party actions. Proportionate Liability is an existing and accepted mechanism for attributing blame and awarding compensation. HIA submit that re-introducing proportionate liability for a breach of statutory warranty under Part 2C of the HB Act would positively benefit the industry as it would:

Maintain the current consumer protection framework

Effectively create accountability in the contractual chain

Proportionate liability provides a better chance that those responsible will be held accountable and guarantees that responsible parties will be included in any legal actions.

28 NSW. Parliamentary Debate. Legislative Assembly. 13 October 2011, page 6187. Home Building Act Amendment Bill 2011

29 [2019] VCAT 286


Increase a homeowners prospects for compensation

Proportionate liability Increases the prospects of success in terms of a tangible outcome for compensation or remediation. By requiring that all parties come to the table from the outset, recouping of damages will not just rely on one party – who may not have the funds to pay and/or are required to await the outcomes of cross-claims against other parties to meet a court ordered damages bill. Worse, would be the case where the builder does not have the funds to pursue other parties, again reducing the likelihood of rectification.

Supports professional Indemnity Insurance

Proportionately liability encourages all building practitioners to obtain professional indemnity insurance. Proportionate liability encourages parties to consider, price and manage their risk. This stands in stark contrast to the implication relating to a Statutory Duty or clarified common law duty of care that would do the opposite.

Supports the operation of proportionate liability under the Environmental Planning and Assessment Act and Building Professionals Act

The model of building certification in NSW is based on the Model Building Act developed in the 1990s and used as the basis for each jurisdiction to introduce such reforms. A fundamental element of these reforms was to ensure that all key players in the building design, approval and construction process were clearly identified, had clear obligations, were registered in some manner and required to hold professional indemnity insurance while operating, and for a 10 year period after ceasing operations.


4. RESPONSES TO QUESTIONS POSED IN DISCUSSION PAPER

1. What kinds of plans should be signed off and declared by a statutory declaration?

Detailed drawings submitted in support of a construction certificate (CC) application or a complying development certificate (CDC) application. This would include construction drawings, engineering designs, and materials specifications.

2. Could plans be statutorily declared at the CC/CDC stages? If not, why not?

This would be possible, but is not the preferred approach. It is suggested that a more appropriate design certificate tailored to the type of plans or specifications being prepared be developed which could accompany plans as part of application for CC/CDC.

3. To what extent should changes to plans be submitted to the regulator?

A tiered pathway for modifications to a construction certificate needs to be established which disconnects minor variations from also requiring a modification of development consent. Major variations should continue to be approved by the certifying authority as a modified construction certificate (or CDC) and minor changes should be documented by the builder, reported to the certifying authority and reflected on final works as executed plans. All variations should be appropriately documented in the planning portal which the Building Commissioner should have power to access as needed.

4. Should a statutory declaration accompany all variations to plans or only major variations?

A major variation should be accompanied by an appropriate design certificate.

5. Are there any obstacles that would prevent a person from submitting a statutory declaration for variations? If so, what are those obstacles?

As per Q2, statutory declarations are overly complex and will add unnecessary administrative burden. Compliance certificates in accordance with part A5 of the NCC and design certificates as per HIA’s proposed response to Q2, should be required. These would be similar to Form 15 used in Queensland.

6. What other options could be workable if there are variations to plans?

Add a definition to legislation for major variations so it is clear which variations must be re-approved by the certifying authority and which can be endorsed by the principle contactor. All variations should be documented.

7. How could the modifications process be made simpler and more robust?

There must be an approval pathway for variations along with guidance material on what constitutes a variation which requires re-approval. The Planning Portal can help to consolidate/track variations as well as speed up approval.

8. How should plans be provided to, or accessed by, the Building Commissioner?

All CC/CDC applications should be made available through the Planning Portal, this will not only consolidate all building approval documentation for all parties but also enable the BC to access the documentation as required.

9. What types of documents should ‘building designers’ provide to the Building Commissioner?

Documents should not be submitted to the BC. Guidance material should stipulate what design certificates should be submitted to the certifier depending on the type of building, along with which installation certificates should be submitted, then the BC should have powers to access these documents as needed.


10. In what circumstances would it be difficult to document performance solutions and their compliance with the BCA?

There should be no circumstances where a performance solution cannot be clearly articulated if being put forward as part of a CC application.

11. Would a performance solution report be valuable as part of this process? If not, why not?

The NCC sets out a method for developing a performance solution which should provide the benchmark for all certifying authorities when receiving an application. There would be benefit in providing a standard form template or performance solution report which can be utilised as part of the building approval documentation.

12. Are there any other methods of documenting performance solutions and their compliance that should be considered?

There are no additional methods that should be considered to document a performance solution, but there would be merit in requiring any performance solution be included on a building’s list of essential services (class 2 – 9 buildings) and potentially creating an obligation for signage to be installed in or on the building to alert all emergency services persons to the details of any performance solutions that could impact access and egress. The building manual proposed in NSW picks up this concept and is supported.

13. What would the process for declaring that a building complies with its plans look like?

Wherever a design certificate is required a subsequent installation certificate could be issued by the contractor who carries out the work (Form 16 in Queensland) and be submitted to the certifying authority along with as executed drawings.

14. What kind of role should builders play in declaring final building work?

It is not possible for a builder to provide an all-encompassing declaration for an entire building. Installation certificates accompanying as executed drawings for each critical component such as fire suppression system installation through to elements like waterproofing should be submitted to the certifying authority and can assist with confirming compliance with the approved design. This position is supported by the approach taken in all states, including NSW, regarding the statement that a principal certifying authority is required to make when issuing an occupation certificate. While at design stage it is possible to work in definitive statements – “a building if constructed in accordance with plans will comply with the NCC”, it has been accepted under both the pre-certification era and now in an era of certification that no person can definitively state that something is exact.

15. Which builders involved in building work should be responsible for signing off on buildings?

See Q14.

16. Are there any circumstances which would make it difficult for builders to declare that buildings are constructed in accordance with their plans? If so, what are those circumstances?

See Q14. Building construction is a complex process. At times different principal contractors can be engaged by the developer to complete a building. For example, one builder may be responsible for the structure, while another is engaged for the fit out. Deciding who should sign-off on what would be a complex task in itself and even change from one site to another depending on how the contracts are set up. It would be more sensible to require contractors to submit works as executed drawings along with a


installation compliance certificate (sign off) to the certifying authority.

17. Are existing licensing regimes appropriate to be accepted as registration for some builders and building designers, such as architects, for the new scheme?

The Building Professionals Act 2005 enabled the registration of various engineers. It would make sense to have similar provisions for the registration of all other building professionals who would be required to issue design certificates for building work or installation or inspection certificates. It would also make sense for registration to be matched to certain types of building work in the same way that certifiers are categorised; A1, A2 and A3. Residential builders are already licensed, as are numerous categories of trade contractors. There should be no additional requirements for these types of professionals to be registered. Should they be required to provide new types of certification to assist a certifying authority complete their task, then this should be implemented through the existing continuing professional development provisions.

18. What occupations or specific activities are involved in ‘building design’ and should be in scope for the registration scheme?

Each of the following should be permitted to issue design certificates for building work and therefore be in scope for a registration scheme:

Licensed builders

Drafters

Architects

Engineers (all categories)

19. What should be the minimum requirements for a registration scheme?

HIA supports registration eligibility for building professionals being based on similar provisions as the existing Building Professionals Accreditation scheme, including but not solely subject to each of the following:

Technical competency

Industry experience

Financial viability – for example, insolvency should trigger an automatic suspension of license

Business financial checks to be undertaken annually by insurance providers, not consumer/licensing agencies

Personal probity

PI insurance

20. What form of insurance should be mandatory for ‘building designers’? Why?

All building professionals should be required to hold professional indemnity insurance. This type of insurance cover is fundamental to the operation of proportionate liability under the existing provisions of the EP&A Act and align with the original intentions of the Model Building Act which underpins all private certification schemes in Australia.

21. What kinds of minimum requirements should be prescribed for the insurance policy (for example, value, length of cover, etc.)?

Insurance requirements should be consistent with those currently required for building and engineering certifiers in NSW.

22. What skills should be mandatory for ‘building designers’? There are a wide range of building professionals that will be defined as ‘building designers’ for the purposes of this reform. The skills required for these professionals will vary to suit their technical nature, that is, a structural engineer will need to be


an appropriately qualified structural engineer, while a building designer drafting plans, should be required to have relevant building design qualifications. It is noted that many of these professionals do not have a thorough understanding of the NCC, nor how a performance based code works. Requiring these professionals to undertake a similar short training course, as occurred for accredited certifers under the current regime in relation to the requirements of the EP&A Act. As the ABCB completes the roll out of NCC training with the institutions responsible for training these professionals, this requirement may become redundant, but it would be essential for a transitional period.

23. Should specific qualification(s) be required? A person applying for registration should have specific qualifications appropriate to the type of the work they wish to undertake. In most ‘design’ related courses NCC compliance and understanding of the NCC are non-mandatory or elective units. For the purpose of issuing design certificates for building work, the ability to understand and apply the NCC must be mandatory.

24. Should there be other pre-requisites for registration? See Q19 and Q23.

25. What powers should be provided to the regulator to support and enforce compliance by registered ‘building designers’?

The regulator should have powers to regulate designers equivalent to the powers they already have to regulate certifiers.

26. Which categories of building practitioners should owe a duty of care?

There are no building practitioners that should not owe a duty of care (whether that be a Statutory Duty or clarified common law duty of care) beyond that which already exists under various legislation in NSW. The existing regulatory framework imposes duties on builders and developers under the HB Act, specifically Part 2C. HIA opposes any attempts to amend, broaden or clarify these duties or introduce any new duties on building practitioners including builders and developers. A preferable way of ensuring building practitioners are held accountable for their contribution to the loss or damage to an individual would be to re-introduce proportionate liability for residential building work.

27. What should be the scope of the duty of care? Should it apply to all or certain types of work? If so, which work?

As outlined above HIA has significant concerns with either a Statutory Duty or a clarified common law duty. If the Government is minded to continue to explore this avenue a cautious approach must be taken and the scope of the duty must be clear and narrowly defined. To do otherwise would introduce an unacceptable amount of risk and uncertainty into the construction industry which is likely to lead to a contrary outcome to that intended, being that no professionals will be able to obtain insurance and hence no duty could be effectively applied.


28. How will the duty of care operate across the contract chain?

This is unknown. Presumably contracting parties will attempt to manage their risk and use contractual and other measure to mitigate any exposure a duty of care would introduce.

29. What types of consumers should be owed a duty of care? As highlighted above the current laws are based on the type of work carried out, not the party for whose benefit the works are carried out. HIA submits that to move away from this approach is fraught with complexities and uncertainties and would be an unwise approach.

30. On what basis should a particular consumer be afforded the protection?

See response to Q29.

5. CONCLUSION

HIA has expressed in principle support for the implementation of improvements to the NSW building certification system that align with the recommendations from the Building Confidence Report released in February 2018. HIA appreciates that the NSW Government has developed an implementation plan and is now proceeding to develop these four reforms as the basis of implementing changes that are intended to improve building quality in NSW and regain consumer confidence. In relation to the proposed to create a new duty of care, HIA does not support this reform as it goes beyond the Shergold Weir recommendations. It is unclear in its form or genuine purpose in relation to residential building work, given the extensive framework of other legislative protections that currently exist. Its purpose for other classes of building also remains unclear. HIA looks forward to continuing to work with the NSW Government to ensure any reforms are implemented in a timely and sensible manner, providing industry with sufficient transitional periods to adapt and most importantly with extensive education and guidance material to ensure all building professionals, local governments and the community understand the intended changes.