The construction industry invariably involves a vast and intricate network of relationships, not only between the client and the contractor but also among various professionals like architects, engineers, certifiers and subcontractors.
With the complexity involved in the construction process, there is a risk of building defects. Building defects can lead to devastating consequences, including structural damage, financial loss, and legal action.
We will explore some legal issues surrounding building defects, referring to cases where those involved in construction have faced disciplinary action due to inadequate workmanship or non-adherence to industry standards, and ways to mitigate such risks.
Building Defects and Legal Issues
Building defects are inadequacies in a building that reduce its value, usefulness or safety, ranging from faulty designs, poor workmanship to non-compliance with industry standards. Australia has a National Construction Code (NCC) that contains the technical requirements and standards for the construction of buildings and is implemented differently in each state.
The liability for these defects can often fall on any party involved in the construction process, depending on the specific contractual terms and legal obligations. Legal issues surrounding building defects often revolve around negligence, breach of contract, non-compliance with regulations, misrepresentation, and warranties. The repercussions for these offences can be severe, encompassing fines, penalties, professional disciplinary measures, and even imprisonment in severe cases. These issues highlight the critical importance for construction professionals to strictly adhere to industry standards and legal obligations.
What could happen to builders and professionals when defects occur?
Most registrations and licencing regimes in professions require that a person be ‘fit and proper’, and that they be granted and continue to hold a licence or registration relevant to that profession. The term ‘fit and proper’ is not always clearly defined in legislation. Generally, the term involves assessments of the person’s honesty, integrity, reputation and competence.
Builders and other professionals can face disciplinary action for a variety of reasons, usually involving violations of professional standards and regulations. These reasons may include:
- Engaging in unprofessional conduct: This may include actions that are dishonest, unethical, or harmful to clients.
- Gross and/or repeated negligence or incompetence: For example, either making severe mistakes or consistently demonstrating an inability to perform their duties competently.
- Not being a fit and proper person to hold a registered licence or qualification;
- Doing work in a class of work outside the class which the practitioner is permitted to do: Builders and other professions are often licensed to perform certain types of work. If they take on tasks outside their area of expertise, they can face disciplinary action.
- Breaching relevant building legislation or regulations.
- Illegally obtaining a registration as a builder/professional: This refers to instances where a builder gets their license through fraudulent means, such as false statements or documentation.
- Failure to maintain required insurance.
These are general grounds for disciplinary action and vary depending on the region or the regulatory body’s policies.
Builders and Tradespersons
In NSW, NSW Fair Trading is the regulatory authority for licensing of builders and tradespersons. NSW Fair Trading ensures compliance with the Home Building Act 1989 (Act). The Act requires builders and tradespeople to be licensed for the residential building work that they do, including tradespersons who undertake specialist work such as plumbing, electrical and air conditioning work. The Act also establishes standards in relation to competence, probity, contracts and statutory warranties. The Act sets out the grounds upon which disciplinary action can be taken and NSW Fair Trading has displayed a firm stance against professional shortcomings. The NSW Fair Trading website offers a public register of disciplinary actions taken against builders and other tradespeople in NSW.
The NSW Civil and Administrative Tribunal has recently affirmed a decision of the Commissioner to cancel a certifier’s registration and disqualify him from registration for 10 years (Orfali v Commissioner for Fair Trading [2024] NSWCATOD 4). Mr Orfali acted as the Principal Certifying Authority for a class 2 property development, despite being accredited for class 1 and 10 buildings only. Mr Orfali issued 13 complying development certificates and modified CDCs for 13 class 3 residential care developments that did not comply with minimum fire safety standards. NCAT found that Mr Orfali’s conduct fell short of the standard of competence, diligence, and integrity that a member of the public is entitled to from an accredited certifier and affirmed the findings of the Commissioner
Architects
The NSW Architect’s Registration Board is constituted by and operates under the Architects Act 2003, the legislation regulating architects in NSW. There are a number of recent examples where the Board removed the architect’s name from the Register for failing to demonstrate compliance with Continuing Professional Development requirements in breach of cl 16 of the NSW Architects Code of Professional Conduct (the ‘Code’). In particular, failing to satisfy the Board that they had undertaken activities that demonstrate the maintenance and improvement of the architect’s skill and knowledge as required by clause 16(1)(a) of the Code.
Developers
It is an offence under the Home Building Act for a developer to knowingly employ an unlicensed contractor. Monetary penalties will be imposed if the developer knowingly employs an unlicensed contractor. The Home Building Act provides for a maximum penalty of $22,000 for individuals and $110,000 for a corporation for these offences, relating to class 2 residential building work. From 1 March 2015, individuals convicted of a subsequent offence of unlicensed contracting are liable to a penalty not exceeding $55,000 or imprisonment for a term not exceeding 12 months, or both.
Ways to Mitigate Risks of Legal Issues
One way for industry professionals to prevent the risk of legal issues arising from building defects is by ensuring the highest possible quality of workmanship at all stages of the building process. This can be achieved through continuous training, skill development and maintaining rigorous quality assurance procedures. By ensuring workers are well equipped with the knowledge and skills required for their roles, contractors, architects, and builders can significantly reduce the likelihood of defects occurring.
Secondly, full compliance with industry standards and regulations is a must. In the construction industry, several codes of practice, standards, and legal regulations guide the safe and reliable construction of buildings. Adhering to these requirements not only ensures the quality of construction but also safeguards businesses against potential legal disputes.
Thirdly, clear and comprehensive contracts are essential in defining roles and responsibilities, setting out the scope of work, and outlining the obligations of all parties involved. A well-drafted contract can protect against uncertainties and potential disputes by providing a clear reference point for all parties.
Moreover, embracing technologies such as building information modelling (BIM) can aid in detecting potential defects before they become actual defects. BIM allows for a coordinated approach in designing, planning, constructing, and managing buildings, thereby minimising the chances of defects.
Lastly, adequate insurance cover is a significant aspect of risk management in the construction industry. It provides a financial safety net against unforeseen incidents that could lead to building defects.
The Overall Impact of Minimising Building Defects
Building defects can have severe legal implications for architects, engineers, builders, and contractors. However, by ensuring top-tier workmanship, strictly adhering to industry standards, drafting clear and comprehensive contracts, adopting progressive technologies, and ensuring adequate insurance cover, professionals in the building industry can significantly mitigate the risk of legal issues. It is important to remember that preventing defects not only protects professionals from legal issues but also contributes to their reputation, customer satisfaction, and the overall integrity of the construction industry.
By Chloe Ellis, Partner Commercial Dispute Resolution at Hicksons Lawyers
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