Owners of Strata Plan No 84674 v Pafburn Pty Ltd and Owners of Strata Plan No 84674 v Pafburn Pty Ltd (No 2)

Owners of Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659 and Owners of Strata Plan No 84674 v Pafburn Pty Ltd (No 2) [2022] NSWSC 1002

This was an interlocutory decision of the Supreme Court of New South Wales that considered what was meant by “having “substantive control” within the meaning of the term “construction work” in the Design & Building Practitioners Act 2021 (NSW) (DBP Act). The Court also considered whether a duty under s 37 of the DBP Act could be owed by an owner of a property, given the duty was owed to the owner of a property, and the application of the limitation period in respect of new defects identified more than 10 years after the construction work.

The Plaintiff was, and is, the Owners Corporation in respect of a strata property in North Sydney (the Owners). The first defendant, Pafburn Pty Limited (Pafburn), was the builder. The Second Defendant, Madarina Pty Limited (Madarina), was the developer and was, until registration of the strata plan, the owner of the land upon which the development was undertaken.

The Owners alleged that Pafburn and Madarina acted in breach of the statutory duty of care prescribed by s 37 of the DBP Act because, as to Pafburn, it constructed the building defectively, and as to Madarina, it engaged in “construction work” for the purposes of s 37 of the DBP Act because it “substantively controlled” the building work carried out by Pafburn.

The Court held that to establish that a person has “substantive control” over the carrying out of building work, it will be sufficient to show that the person was in a position to control how the work was carried out, whether or not it was actually doing so at that particular moment in time. That is a question of fact that will need to be decided in each case. The fact that a developer owned all the shares in a builder, and had common directors, might lead to an inference of such an ability to control the work. Where, as here, the position is the other way around, namely that the builder owns all the shares in the developer, that inference may be less easily available. This issue did not need to be finally determined on the interlocutory application.

The Court also held that a duty under s 37 of the DBP Act could be owed by an owner of a property (such as a developer) provided it could be found to have undertaken “construction work”. The owner would not owe a duty to itself, but to “each owner” other than itself referred to in s 37 of the DBP Act. Subsequent owners, such as the Owners in the present case, could therefore be owed a duty of care by a previous owner that undertook “construction work”.

In a second interlocutory decision in this matter, the Court considered whether proposed amended pleadings were sufficient to make good a case against Madarina assuming the pleaded facts could be proved. The Court found that they were, primarily because where all that is needed to show that a person is able to control how work is carried out is that they are found to have exercised “substantive control” over building work.

Of note also was the further consideration given to the statutory limitation periods in respect of the identification of “new defects” after the expiration of the 10 year limitation period in the DBP Act. The Court confirmed that pleading “new defects” not previously pleaded did not introduce new causes of action, as there was a single cause of action (being the breach of s 37 of the DBP Act). Where “new defects” are identified even after the expiration of 10 years from the construction works, they can form part of an existing claim under s 37 of the DBP Act.