Who’s liable? Builders, Consultants and home building claims

A legal look at where liability really lands under the Home Building Act, and its interplay with the Design and Building Practitioners Act

The NSW Civil & Administrative Tribunal’s (Tribunal) decision in the recent case of Keogh v Samchris Pty Ltd [2024] NSWCATCD 32 (Keogh):

1. highlights the risks builders face when defects arise; and

2. demonstrates how the Tribunal applies the defences available under section 18F of the Home Building Act 1989 (NSW) (the Act) in proceedings for breaches of the statutory warranties provided in section 18B of the Act.

The case serves as an important lesson on the strict application of the time limits of the statutory warranties and the challenges of proving that reliance on professional advice is a valid defence under the Act.

Background

In 2018, the owners, Mr. and Mrs. Keogh (the Owners), entered into a construction contract (Contract) with Samchris Pty Ltd (the Builder) to renovate their residential property (the Works).

The Contract included engineering plans prepared for the Owners in 2015 by an engineer (Engineering Plans).

The Works were completed by the Builder in February 2018, and an occupation certificate was issued in May 2019 (Practical Completion).

Following Practical Completion, the Owners discovered significant water ingress throughout the lower level of the home, as well as other defects, including defective waterproofing and an incorrectly installed window (the Defects).

Breach of Statutory Warranties

The Owners commenced proceedings in the Tribunal in August 2022, alleging that the Builder breached the statutory warranties provided in section 18B of the Act. 

As most readers would be aware, those carrying out residential building work in NSW are required to comply with the statutory warranties set out in section 18B of the Act.

These warranties aim to protect owners from defective work and apply automatically – they do not have to be expressly included in any building contact or agreement.

They require builders to, amongst other things, complete residential building work with due diligence, care, and skill in accordance with plans, specifications, the Act or any other law, and that the work and any materials used will be reasonably fit for the specified purpose or result.

Under section 18E of the Act, the warranties last for six years for major defects and two years for all other defects (non-major defects), from completion of the work.

The Owners, in the case of Keogh alleged that:

• the Builder breached the statutory warranties under section 18B of the Act by failing to perform the Works with due care and skill and, failed to ensure the Works were reasonably fit for occupation as a dwelling; and

• the defects were ‘major defects’ for the purposes of section 18E of the Act.

The Builder argued that some of the Defects were ‘minor defects’ and therefore, the Owners were statute barred because they did not commence proceedings within the two-year time limitation for non-major defects.

Further, the Builder relied on section 18F of the Act to deny liability, arguing that the Defects arose due to Engineering Plans prepared by a third-party professional.

The Tribunal held that the water ingress was caused by structural defects and rendered the home uninhabitable and accordingly allowed the claims for these defects as they met the definition of a ‘major defect’ under section 18E of the Act.

Conversely, the Tribunal did not allow the Owners’ claims for cosmetic defects including the incorrectly installed window as they did not occur within a major element of the home, making them non-major defects in respect of which the Owners were out of time to make a claim.

The above highlights the need for builders performing residential building work to have a clear understanding of their obligations under the statutory warranty provisions of the Act, and to remain informed about their legal obligations to better protect their business reputation, manage client expectations, and mitigate the risks of disputes.

The Builder’s defence under Section 18F of the Act

In an attempt to avoid liability to the Owners’ claim for breaches of the statutory warranties, the Builder in this case relied on section 18F(1)(b) of the Act by arguing the defective work resulted from the flawed Engineering Plans that the Builder followed and not the Builder’s workmanship.

The Act provides for certain circumstances in which a builder will not be liable for a breach of the statutory warranties.

Firstly, section 18F(1)(a) of the Act states that a builder will not be liable if the owner gave instructions and those instructions led to the existence of the defect, if the builder advised the owner in writing prior to commencing any work pursuant to the owner’s instructions and the owner chose to disregard the builder’s advice.

Secondly, pursuant to section 18F(1)(b) of the Act, a builder will not be liable if the builder followed the written instructions from a ‘relevant professional’ engaged by the owner and the written instructions were given before the work was done, or confirmation of the instructions is given after the work was done.

For the purposes of section 18F(1)(b) of the Act, an independent ‘relevant professional’ is:

• an architect, engineer, surveyor, registered design practitioner or registered principal design practitioner or other recognised expert building consultant in connection with the building works; and

• independent from the builder, meaning, they were not and are not engaged by the builder and, were not and are not engaged by the owner based on a recommendation or referral by the builder; or 

• not a close associate of the builder within three (3) years before the relevant written instructions were given. 

In this case, essentially, the Builder argued that by building the works in accordance with the Engineering Plans, the Builder followed the written instructions of a ‘relevant professional’, being the engineer.

The Owners’ position was that the Builder could not rely on the defence as the engineer was not independent of the Builder during the construction period.

The Tribunal rejected the Builder’s reliance on the defence under section 18F(1)(b) of the Act because, although the engineer was classified as a ‘relevant professional’ and the relevant instructions were given in writing before the work was done, the engineer was not acting for the Owners independently of the Builder.

This finding was made for the following reasons:

• although the engineer had originally been engaged by the Owners in 2015 to prepare the engineering plans, during the construction period, the Builder directly engaged with the engineer to revise the plans obtained in 2015. These plan revisions were sent directly to the Builder and not the Owners;

• the Builder initiated contact with the engineer without consulting the Owners and continued to contact the engineer directly throughout the Works; and 

• the Builder paid the engineer’s invoice for the revised plans. 

As section 18F(1)(b) of the Act requires a ‘relevant professional’ to be independent of the Builder, and the Builder’s direct engagement with the engineer undermined this independence, the Tribunal found that the Builder remained liable for the defects.

This decision is significant for builders performing residential building work as it clarifies the limited scope of the defence provided under section 18F(1)(b) of the Act and reinforces that builders cannot shift liability simply by relying on engineering or professional advice provided by a third party in all circumstances.

Should builders wish to rely on the defence provided in section 18F(1)(b) of the Act, it is important to remember that:

• the relevant professional must be genuinely independent and acting for the owner; and 

• any direct engagement, control, or payment of the relevant professional by the builder can undermine this independence and invalidate the defence.

Implications for builders and key takeaways

The Tribunal’s decision in Keogh reinforces the strict enforcement of statutory warranties and time limitations while also clarifying the limited scope of defences under section 18F of the Act.

In particular, builders cannot rely on external professionals to escape liability unless they can prove that those professionals were truly independent.

To protect themselves from legal disputes, builders should:

• carefully manage contracts, documentation, and professional engagements to ensure they are not exposed to unnecessary risks; 

• be cautious when engaging with a professional engaged by an owner, for example, requesting changes to engineering plans or payments of invoices; 

• keep written records of all instructions and advice given to and received by an owner; and

• obtain legal advice at the first hint of an issue regarding potentially non-compliant work or in relation to reliance on a relevant professional’s instructions. 

Opinion regarding the interplay with the DBPA

In our view, it will be interesting to see how sections 18(F)(1)(a) and (b) of the Act and the case of Keogh will be applied and considered alongside section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA) which provides that:

“a person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects:

(a)   in or related to a building for which the work is done; and

(b)   arising from the construction work”,

(the Statutory Duty of Care).

It has been established in the case of The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068 (Loulach) that a plaintiff, where alleging a breach of the Statutory Duty of Care “…must identify the specific risks that the builder was required to manage, and the precautions that should have been taken to manage those risks.”

Specifically of interest will be where a builder has been given written directions from either an owner or an independent relevant professional and the builder advises the owner or relevant professional in writing, prior to commencing any work, that such directions may lead to defects in the works, whether that conduct would constitute taking steps to mitigate any risks for the purpose of the requirement provided in Loulach.  

Further, the defences provided under section 18F of the Act present an interesting point of consideration in light of the decision in Pafburn Pty Ltd & Anor v The Owners – Strata Plan No 84674 [2024] HCA 49 (Pafburn) where the High Court held that a claim alleging breach of the Statutory Duty of Care under section 37 of the DBPA is not apportionable. Accordingly, a builder could not discharge, exclude or limit their duty under section 37 by delegating or otherwise entrusting their “construction work” to another competent person.

Notwithstanding the above, the High Court did not necessarily close the door with respect to apportionability for parties who do not delegate any part of the work entrusted to them, and whether they could rely on the proportionate liability regime under the Civil Liability Act 2002 (NSW).

Therefore, if a subsequent owner (or "successor in title") commenced a claim under section 37 of the DBPA against a builder for defective works, it will be interesting to see how the Courts treat the situation where a builder pleads apportionment against the previous owner at the time of the relevant works or the independent relevant professional as concurrent wrongdoers, particularly if the builder had not delegated or entrusted the carrying out of any ‘construction work’ to those parties.

In light of the above, builders, if given directions from an owner or relevant professional, should be sure to provide advice in writing if they believe that such directions could result in defects.

Additionally, owners and relevant professionals should exercise caution when giving builders directions in relation to building works as they themselves may be found liable under section 37 of the DBPA (particularly given the broad definition of ‘construction work’ in section 36 of the DBPA which includes the supervision, coordination, project management or otherwise having substantive control over the carrying out of building work and the authorities which have interpreted that definition as merely requiring the ‘ability’ to control the work and not necessarily exercising any control). 

Authors: Anish Wilson & Elizabeth Morakis

 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.