Personal liability for directors and natural persons under the DBP Act: Boulus Constructions Pty Ltd v Warrumbungle Shire Council [2022] NSWSC 1368

The Design and Building Practitioners Act 2020 (NSW) (the Act) was introduced to mandate a suite of new obligations on design and building practitioners to ensure that each step of construction is well documented and compliant. See our introductory review of the legislation in our articles dated June 2022 and November 2020.

In October 2022, Stevenson J handed down an interlocutory decision in the case of Boulus Constructions Pty Ltd v Warrumbungle Shire Council [2022] NSWSC 1368. The case was commenced in 2018 and concerned alleged defects arising out of the construction of a retirement village by Boulus on behalf of the Council at Dunedoo NSW. In August 2022 the Council brought an application to amend its claim to include a cause of action under s 37 of the Act as against Boulus and two proposed new cross-defendants, the managing director (Mr Boulus) and project site supervisor (Mr McCarthy) of Boulus in their personal capacities. The application required the Court’s interpretation and application of the statutory duty of care under s 37 of the Act.

Section 37 of the Act provides that “A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects”.

'Construction work' is defined in s 36 as any of the following:
  1. building work,
  2. the preparation of regulated designs and other designs for building work,
  3. the manufacture or supply of a building product used for building work,
  4. supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work referred to in paragraph 1, 2 or 3.

The question for the Court was to consider whether the word ‘person’ in s 37 should be read broadly such that it encompassed individual persons (such as the managing director and project site supervisor in their own personal capacities).

In considering whether Mr Boulus and Mr McCarthy are “persons” for the purposes of s 37 the Court considered:
  1. the word “persons” is sometimes used in the Act to mean a person deemed to be a “practitioner”; and sometimes it is not.
  2. in the critical part of the Act, Pt 4 (entitled “Duty of care”), there are a number of references to a “person” other than the “person” having the statutory duty under s 37(1) to carry out construction work with reasonable care.

Boulus’ counsel submitted that the concept of a ‘person‘ should be construed narrowly as otherwise every individual on a site ‘could potentially come within the ambit of a ‘person who carries out construction work’, and be the subject of an automatic statutory duty of care to the current and future owners of a project‘.

Stevenson J rejected that submission finding that that the proportionate liability regime applies to actions for breach of the duty under s 37 thus enabling the Council’s amendments to name the managing director and site supervisor concurrent wrongdoers and they could each seek to have their liability limited under s 35 of the Civil Liability Act 2002.

It remains to be seen whether the decision will be appealed as the case remains on foot or whether, upon consideration of the now wide-reaching grasp of the provision, whether government will turn its mind to making any further amendments to the legislation.

The effect of the decision is that s 37 may effectively “pierce or lift the corporate veil”, thus potentially increasing the number of parties sued in building and construction proceedings (and ultimately, the costs of defending those proceedings for insureds and insurers). It follows that insureds should consider how their professional indemnity and potentially directors’ and officers’ liability policies will operate in the event of claims against individual persons. Typically, the definition of an insured under a PI policy will include the company, its directors, officers and employees performing professional services in their capacity as such.

For further information and advice relating to management liability and professional indemnity cover in the construction industry please contact us via the form below.

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