Who Owes a Duty? NSW Supreme Court Clarifies Personal Liability Under the DBP Act

Where Boulus Constructions Pty Ltd v Warrumbungle Shire Council (No 2) [2022] NSWSC 1368 considered the scope of persons capable of owing the duty under s 37, Samdora focuses on the evidentiary question of how a plaintiff proves that a particular director or individual actually falls within that class.

Background

The proceedings concerned alleged defects in a residential townhouse development in Mangerton. The plaintiff Owners Corporation had commenced proceedings in NCAT against the builder, Samdora Pty Ltd (Samdora), and the developer, 3173 Pty Ltd (3173).

Those proceedings were resolved by a settlement agreement under which the plaintiff withdrew the NCAT proceedings in exchange for Samdora and 3173 agreeing to undertake specified rectification works. Samdora subsequently engaged MS Noun Construction Pty Ltd (MS Noun) to perform those works. The rectification works were alleged to have been carried out defectively and remained incomplete.

The proceedings before the Supreme Court concerned both defects in the original construction works and defects arising from the subsequent rectification works undertaken pursuant to the settlement agreement. Judgment was entered against MS Noun on the first day of the hearing.

As Samdora had been deregistered, the plaintiff pursued claims against 3173, its sole director and shareholder Mr Elie Chahwan, and Mr Ghassan Nassif, the sole director, shareholder and nominated supervisor of Samdora.

Claim against Mr Elie Chahwan

Although the Court found that 3173 had no contractual obligation to undertake the rectification works under the settlement agreement, the plaintiff separately alleged that Mr Chahwan personally owed a duty of care under s 37 of the DBPA.

To establish liability, it was necessary for the plaintiff to prove that Mr Chahwan had carried out "construction work" within the meaning of s 36 of the DBPA. The plaintiff contended that Mr Chahwan had been "supervising, coordinating, project managing or otherwise having substantive control" over the rectification works performed by MS Noun.[1]

The plaintiff relied on evidence that Mr Chahwan attended inspections, participated in discussions concerning the rectification works and was copied into various communications relating to the project. It was further argued that contractors sometimes referred issues to him for consideration.

Claim against Mr Ghassan Nassif

The plaintiff also pursued claims against Mr Nassif in respect of both the original construction works and the subsequent rectification works.

Unlike Mr Chahwan, it was not disputed that Mr Nassif had carried out construction work within the meaning of ss 36(a) and 36(d) of the DBPA. This was largely attributable to his role as the sole director and shareholder of Samdora, together with his position as the nominated supervisor for the project. In that capacity, Mr Nassif was responsible for overseeing the original construction works and exercised supervisory and coordinating functions in relation to those works. Further he retained MS Noun Construction Pty Ltd as a sub-contractor to complete the rectification works. 

The dispute instead concerned whether he had breached that duty by failing to adequately supervise the works and identify defects that would have been apparent upon reasonable inspection. The claim was advanced as a negligence claim, with issues of breach and causation assessed in accordance with the Civil Liability Act 2002 (NSW).

Decision

Mr Chahwan

The Court rejected the claim against Mr Chahwan.

Kunc J held that the evidence demonstrated no more than Mr Chahwan's interest in the completion of the rectification works as developer, lot owner and member of the strata committee. While he was involved in communications relating to the works, there was insufficient evidence that he exercised supervisory responsibility or substantive control over how the works were carried out.

Importantly, the Court distinguished between a person who is interested in the outcome of construction work and a person who actually carries out construction work for the purposes of s 36. The fact that contractors occasionally sought Mr Chahwan's views or that he attended inspections did not establish that he supervised, coordinated or project managed the works.

The Court also declined to draw a Jones v Dunkel inference from Mr Chahwan's failure to give evidence. Kunc J held that such an inference could not remedy the absence of positive evidence establishing that Mr Chahwan exercised the requisite level of control over the works.

Mr Nassif

The Court found that Mr Nassif owed and breached the statutory duty of care under s 37.

Relying upon the High Court's decision in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659 (Pafburn 2022), Kunc J confirmed that the duty imposed by s 37 is a personal duty owed by the individual who carries out the construction work. The duty is not discharged merely because other contractors, consultants or certifiers are engaged in the project.

The Court accepted expert evidence that a number of the defects would likely have been identified and rectified during construction had appropriate inspections and supervision occurred. Given Mr Nassif's role as nominated supervisor, together with his failure to give evidence explaining what supervisory steps he had undertaken, the Court inferred that he had not carried out adequate inspections or supervision of the works.

The existence of occupation certificates, compliance certificates and inspections undertaken by other professionals did not absolve Mr Nassif from liability. Those matters did not relieve him of his own personal statutory obligation to exercise reasonable care in carrying out construction work.

Significance

The decision provides important guidance on what would be considered insufficient evidence of performance of construction work when considering personal liability of directors and other individuals under the DBPA.

Consistent with Boulus and Pafburn, the Court confirmed that personal liability depends upon the function performed by the individual rather than their corporate title. A director will not be liable merely because they are a director, shareholder or developer. Rather, liability arises where the evidence demonstrates that the individual supervised, coordinated, project managed or otherwise exercised substantive control over construction work. Courts will closely examine the evidence concerning the individual's actual involvement in the works before imposing liability. Mere involvement in project discussions or attendance at inspections will not be sufficient.