The recent decision by the NSW Court of Appeal in Kazzi v KR Properties Global Pty Ltd has provided further confirmation on the personal liability of individuals under the duty of care provisions in s 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act). This case reaffirms that individuals, including directors and project supervisors, can be held personally liable for defective works. The ruling underscores the broad scope of the statutory duty of care, highlighting the significant legal and financial risks for those involved in the construction industry.
As would be commonly known in the construction industry, the DBP Act introduced a duty of care to avoid economic loss caused by defects, owed by a person carrying out construction work, to owners of land on which the construction work is carried out.
Specifically, s 37(1) of the DBP Act states:
A person who carries out construction work has a duty of care 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.
Under s 36 of the DBP Act, the definition of 'construction work' includes supervising, coordinating, project managing or otherwise having substantive control over the carrying out of the building work, the preparation of regulated or other designs or the manufacture or supply of a building product.
The upshot of this is that in addition to building companies being found liable for defective work, individuals who have 'substantive control' over the carrying out of the building work may also be found to be personally liable.
Previous cases have confirmed building practitioners, such as directors and project site supervisors, can be found personally liable for damages under s 37 of the DBP Act (see for example Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 as confirmed by the NSW Court of Appeal in Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5).
The recent case of Kazzi v KR Properties is another example.
The case
This case, recently determined in the Court of Appeal, sheds light on the extent to which a person with direct control over the works might be found to be personally liable for defective works.
Mr Kazzi (the supervisor) was the sole director, shareholder and nominated supervisor of Oxford (NSW) Pty Ltd (Oxford), a building company.
Oxford was engaged to construct a six-unit apartment building on land in Gerringong.
The date for practical completion (being 4 July 2017) was not achieved and after a delay of approximately two years, the owners terminated the building contract.
The owners subsequently (in a cross-claim in answer to a claim commenced by Oxford) claimed costs incurred to complete the building works, rectify defective works and interest incurred on borrowings as a result of the works not being completed by the date for practical completion, relying on Hungerfords v Walker (1989) 171 CLR 125 (otherwise known as Hungerfords interest).
In the appeal, and amongst other things, the Owners challenged the primary judge's conclusion that they had failed in their claim against the supervisor for damages for breach of his statutory duty under s 37 of the DBP Act in relation to various defects (the owners had been successful in relation to two defects before the primary judge).
The Owners claimed that:
- as the nominated supervisor, the supervisor was responsible for carrying out all relevant work for the contract and ensuring that Oxford complied with all relevant codes of practice, laws and regulations;
- the supervisor carried out all relevant work for the contract on Oxford's behalf, and that he owed the owners a duty to exercise reasonable care to avoid economic loss caused by defects in or related to the building, or arising from the building works;
- the duty arose at common law and pursuant to s 37 of the DBP Act;
- the risk that they could suffer economic loss caused by defects was not insignificant and was foreseeable because it was a risk of which the supervisor was aware; and
- in the circumstances, a reasonable person in the supervisor's position would have taken precautions against the risk.
The supervisor admitted:
- that he was the nominated supervisor;
- that he supervised the building works; and
- that he was required to comply with obligations imposed on nominated supervisors under the Home Building Act 1989 (NSW),
but otherwise denied the allegations.
The Court of Appeal found that:
- the supervisor breached his statutory duty of care, as the nominated supervisor of works, by making decisions as to the progress and manner of the works that gave rise to the defects on which the Owners relied; and
- most of the defects alleged were the product of decisions made by the supervisor to depart from the approved planning and engineering documents for the building, in circumstances where he was provided with those documents and had arranged for the two construction certificates to be issued.
The below table sets out the alleged defects, and the findings on appeal regarding the extent of the supervisor's involvement in supervising the defective works and why this constituted a breach of the duty of care.
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Alleged breach of duty of care |
Extent of Supervision |
|
|
1. |
Failure to build a retaining wall which was in the structural engineering drawings. Specifically, the use of the Rediwall system to pour concrete as opposed to using concrete blocks. |
The decision to use Rediwall as in the supervisor's mind it was "cheaper and easier" to do so was a breach of the duty of care. |
|
2. |
Failure to undertake check surveys. |
This was admitted by the supervisor. |
|
3. |
Non-compliant foyer entry which had been constructed below street level due to the failure to undertake check surveys. |
Admitted in part by the admission relating to there being no check surveys (above) and otherwise amplified in correspondence from the supervisor to the certifying authority that surveys would be done. |
|
4. |
Failure to construct the foyer façade and roof in accordance with the amended consent and drawings. |
The breach of duty lay in deliberate decisions made, as the nominated supervisor, to deviate from the approved structural engineering plans and to construct the foyer in a way that led to significant defects and by causing Oxford, under supervision, to construct the foyer and façade in a manner that significantly departed from the approved plans. |
|
5. |
Defective wiring in basement which had been left unfinished and corroded. |
The failure to take any steps to cause the electrical wiring work to be completed constituted a breach of the s 37 duty of care. |
|
6. |
Non-compliance with fire safety (fire resistance and fire rated door jambs). |
The supervisor's involvement in the decision to install non-compliant door jambs in favour of a performance solution constituted a breach of the statutory duty of care. The non-compliances with fire resistance requirements, which included the installation of non-fire rated cladding on the external walls, without installing any fire protection beneath that cladding, also involved a breach. |
|
7. |
Concrete strength of ground and first floor slabs below structural engineer's specifications. |
The supervisor admitted that he was negligent in not arranging batch testing of the concrete delivered to the site, in order to check the concrete strength. Further, in breach of the s 37 duty of care, the building of the slab outside the brickwork involved a failure on the supervisor's part to take reasonable care, in his supervision of the works, to see that Oxford carried them out in a manner that was workman-like and in accordance with the plans. |
|
8. |
The pergolas were not constructed with strong enough timber to protect from weather exposure to the elements. |
The decision to build the pergolas using the wrong grade of material, and then to leave the pergolas exposed to the elements following the second cessation of works, involved a breach of the statutory duty of care. |
|
9. |
Water and gas points installed too close to balcony balustrades. |
The supervisor's involvement in the decision-making was consistent with his role as the nominated supervisor, and involved a breach of the statutory duty of care. |
|
10. |
Leaking through double brick parapet wall. |
The construction of parapet walls that did not meet requirements for flashings and weep holes involve a failure by the supervisor. |
|
11. |
Failure to design and construct wheelchair access to unit C1. |
The supervisor failed to take reasonable care as the nominated supervisor to follow the approved plans. That failure was also inconsistent with confirmation that had been provided by the supervisor to the certifier. |
Hungerfords Interest
In these proceedings, and as foreshadowed above, the owners also claimed Hungerfords Interest, being additional interest that they had to pay as a result of the building works not being completed by 4 July 2017 (the date for practical completion) on the basis that:
- the owners took out various loans to fund the building works;
- the owners sold a number of apartments in the building off the plan;
- the sales of those apartments could not settle until all the defects in the building had been rectified; and
- as a result, the owners were unable to repay their loans until late August/early September 2020, instead of July 2017.
In assessing this claim, the Court said:
- where an injury was the result of multiple conjunctive causal factors, it is sufficient for a plaintiff to prove that the negligence of the defendant "caused or materially contributed to the injury" (Amaca Pty Ltd v Booth (2011) 246 CLR 36; [2011] HCA 53; and
- whilst there were concurrent causes of delay, the supervisor's negligence was a material cause of the delay which extended back to the date for practical completion under the contract.
Mr Kazzi was ultimately found to be personally liable to pay $918,545.56 for rectification costs, costs to complete, and Hungerfords interest.
Key takeaways
- Building practitioners, including directors and project site supervisors, can be held personally liable for damages under s 37 of the DBP Act.
- This case, from a higher level being the Court of Appeal, underscores the broad scope of potential personal liability under the statutory duty of care contained in the DBP Act.
- Given the retrospective application of the duty of care (10 years from the commencement of the DBP Act), construction industry participants will likely be looking at past projects to identify risks associated with personal liability under the DBP Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.