By Scott Higgins, Partner, Luke Stirton, Lawyer and Callum Jubb, Paralegal
The NSW Government has recently released its response to the Building Confidence Report that was commissioned by the Building Ministers’ Forum (BMF) in August 2017, authored by Professor Peter Shergold AC and Bronwyn Weir, and released in February 2018 (the Shergold Weir Report) (here).
This comes in the wake of the Opal Tower and combustible cladding crisis (our articles on these can be found here, here and here) which has seen confidence in our building regulatory system, and the construction industry as a whole, fall to an all-time low.
In its response, the NSW Government announced that it would support the majority of the Shergold Report’s recommendations and outlined four major reforms it intends to make across the construction industry.
This article will examine these proposed reforms in their broader context and whilst we await the outcome of the State election to see whether these reforms will be pursued.
New South Wales Reforms:
The NSW Government’s response to the Shergold Weir Report included four major proposed reforms, being:
- appointment of a Building Commissioner;
- overhaul of compliance reporting;
- requirement that building practitioners with reporting obligations be registered; and
- creation of an industry wide duty of care to homeowners.
It is worth noting that the NSW Government has recently overhauled certifier regulation with the passing of the Building and Development Certifiers Bill 2018 (NSW),which replaced the Building Professionals Act 2005 (NSW).
The Building Commissioner appointed under the first reform will act as the consolidated regulator for the construction industry, leading and overseeing building regulation and administration in NSW.
A large part of the Building Commissioner’s role will be to audit building plans, to monitor and scrutinise suspected incidents of wrongdoing and to take disciplinary action, such as suspension or cancelling of registrations, and order rectification of building works in circumstances of non-compliance.
Under the second reform the NSW Government will require building designers, architects, engineers and other building practitioners who provide final designs and/or specifications of elements of buildings to declare that the building plans specify a building which will comply with the BCA as well as other relevant building regulations.
These plans will also need to be lodged in digital format with the Building Commissioner and builders will be required to declare that buildings are constructed in accordance with these plans. It will be an offence under the reforms to dishonestly or recklessly declare inaccurate plans or fail to lodge prescribed documents with the Building Commissioner.
For the third reform, the NSW Government will introduce registration schemes for currently unregistered designers and commercial builders who intend to make declarations. Only registered practitioners will be entitled to declare that plans and any proposed performance solutions comply with the BCA, and that a building has been constructed in accordance with its plans.
Duty of care
For the fourth reform, the NSW Government has announced that it will ensure that building practitioners owe a common law duty of care to owners’ corporations and subsequent residential homeowners, as well as unsophisticated development clients.
This position is intended to overrule the decision of the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 and the Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515.
Given the extent of these upcoming reforms and the potential for more reforms in the future, there is genuine industry concern that the increase in oversight and regulation may result in additional cost burdens and ‘red tape’ generally.
The Shergold and Weir Report promoted that its recommendations do not represent an “imposition of unnecessary red tape or bureaucratic overreach”. More importantly, the authors concluded that “there is significant danger that without increased auditing and enforcement, the privatised building approvals process will lead to an ongoing decline in compliance standards.”
It is clear that wholesale reform is required and not just to the certification regime, but there is concern about ensuring the reforms are targeted and effective.
On their own, the imposition of duties on professionals to ‘sign-off’ on designs is unlikely to make substantial inroads to the present compliance problem. Such obligations already exist under many contracts and the private certification process contains much of the same. Coupled with clearer liability routes (via duties of care and disciplinary action under the registration and licencing scheme), however, we may see this step in the process taking on more significance.
The consolidation of building regulation and regulatory oversight is long overdue in NSW and were a key plank in reforms recommended in the Lambert review in 2015 as explained in one of our previous articles. Better enforcement is a key requirement and this requires funding and resources to be committed.
In regards to the planned imposition of a duty of care by all building practitioners, great care should be taken to avoid unintended consequences with such a reform.
In the Lacrosse decision, the absence of a direct duty of care owed by certain building practitioners made the Tribunal’s decision much easier to allow complete recovery for the Owners against the head-contractor, LU Simon (with LU Simon bearing the risk of recovering from the architect, surveyor and fire engineer – which it did successfully).
Litigators experienced in managing construction and defect cases will be all too familiar with the benefits and pitfalls that the proportionate liability legislation presents for plaintiffs.
Whilst widening the scope of duties of care may allow for greater avenues of recovery for owners where a head contractor and developer are insolvent, where those parties are available or where insurance would step in, it would be a curious turn of events if owners were instead forced by the new laws to sue everyone in the supply chain (and bear significant additional costs and risks that come with such multi-party proceedings) simply to obtain recovery.
The fact is that duties of care are already imposed upon developers and builders under the statutory warranties in the Home Building Act and for the benefit of owners. It is only in circumstances where the limitation period for commencing such actions has expired or where those parties are insolvent or no longer exist that owners need to think further afield for recovery. These issues, and the application and availability of home warranty insurance (along with its exceptions) should be considered alongside any consideration of extending the duty of care.
The NSW Government will no doubt be looking to the Queensland experience. In Queensland ,the Building and Construction Legislation (Non-conforming Building Products – Chain of Responsibility and other Matters) Amendments Act 2017 (QLD) (‘the Act’) introduced a duty of care for all those involved in the supply chain in regard to building products. A more detailed analysis of this can be found in the articles here and here.
What to expect
What can be taken away from the NSW Government’s recent announcement is that we can expect a stricter regulatory environment with a great deal more regulatory oversight. There will inevitably be a cost impost and increased risks of liability, however, there is clearly a strong public and industry sentiment that reforms are required to drive greater compliance and improvements in building practices.
With a NSW state election on 23 March 2019, there is no telling how much, if any, of the NSW Government’s response will be implemented. Regardless, we will see no new legislation until the new NSW Parliament sits, at a date that’s yet to be determined.
Mills Oakley will keep you informed of developments as more details come to light regarding any new legislative changes.