Defective Design: When is a Builder Responsible?
Generally, a builder is only responsible for bringing building work to completion according to the design. The builder is entitled (and, indeed, generally under an obligation) to build a structure strictly in accordance with the plans and specifications and be paid the contract price.
However, when does this general position change such that the builder becomes legally responsible for defects, not in the building work itself, but in the design of the structure?
Design and construct contract
It is not uncommon for a builder to be made responsible under the terms of the building contract for both the design and the construction of a building: a design and construct contract. Where this is the case, the builder will be liable to the owner or head contractor for defects in the design. It may be, in turn, that the builder also has remedies against the architect, draftsperson or other designer for the defective design but that will not remove the builder's contractual responsibility to the owner or head contractor.
The exact scope of the builder's liability will, of course, depend on the terms of the particular contract. For instance, the contract may exclude or limit the builder's liability in certain circumstances. It is important, therefore, that the terms of the contract be carefully looked at before the exact scope of a builder's liability under a design and construct contract can be determined.
Designer as agent of the builder
A builder may also be responsible for design where the architect, draftsman or designer is the builder's agent. The contract may, for instance, provide that the builder is to prepare the contract plans in which case the builder would directly engage the designer and, therefore, generally be contractually responsible for the design. In other cases, the contract may not be clear on the subject and it will be a matter of determining from the circumstances whether or not the designer is the agent for the builder. Agency will arise where a builder expressly appoints the designer as agent, but agency can also be determined to exist in other circumstances such as when the builder represents to an owner that a designer is acting on his authority or as his representative.
Contract to build or contract to produce a result
Generally, in building contracts, there is an obligation imposed on the builder to undertake building work with good workmanship. However, that is not the same as a warranty that the works, when completed, will be fit for the purpose for which they are required or that the contract is to produce a given result. For instance, a house may be perfectly constructed from a workmanship point of view but fall well below an owner's expectations because of the finish or design.
In some cases, courts will interpret a contract as requiring a builder to produce a given result. Whether the contract is of this type will require a consideration of the contract terms and, if the terms are not conclusive, the surrounding circumstances, in particular, whether an owner is placing reliance upon the skill and judgment of the builder to produce a result. This will be particularly relevant in home building situations (particularly when a display home is involved) where you would commonly encounter people without commercial and building industry experience.
Home builders should also be aware Section 46 of the Domestic Building Contracts Act (DBCA) incorporates a warranty (which overrides any other provision in the contract) as to the suitability for occupation of a home once constructed. There will be occasion when this warranty, in effect, makes a builder responsible for defective design where it is sufficient to render a home unsuitable for occupation. Importantly, Section 42(2) also imposes an obligation on a builder to build in accordance with the plans and specifications. This would seem to require that a builder not continue with work if he suspects that plans and specifications are substantially defective. The DBCA also imposes specific obligations on builders when a display home is involved that require construction to the same design and standard as the display home, unless the contract expressly provides otherwise: refer Section 88 and 89 of the DBCA.
Duty to warn
In any circumstances, it is not sufficient for a builder to blindly follow manifest defects in a design which would be obvious to a builder following reasonable standards of industry practice. In those circumstances a builder has a duty to warn the owner, superintendent or other applicable party of the defect and obtain instructions.
QBSA Policy - Subsidence
In Queensland, the building regulator, the Building Services Authority, has a set policy in regard to subsidence which, in effect, sets responsibilities for a builder in respect of the design of footing and slab systems. This policy should of course be read and understand in its entirety. In this context, I note that the policy requires a builder to obtain from an engineer written confirmation of the validity of the design using engineering principles conforming with deemed safety requirements of the BSA and relevant Australian standards. Further, the policy requires builders to be aware of the relevant Australian standard and the practises in relation to construction requirements for site preparation and footings and slabs for residential construction.
Non-compliance with the BSA policy may give rise to contractual or general common law liabilities but, more importantly, it would be relevant in regard to:-
- the exercise of the BSA powers in relation to defective and incomplete work;
- claims by the BSA under Section 71 of the QBSA Act to recover, from builders at fault, payments made under the Statutory Insurance Scheme applying to residential construction.
Negligence
Independent of contract, a builder may have liability for defective design under the law of negligence. This liability is important because:-
- the liability may extend to parties who are not party to the building contract eg a future purchaser of a home;
- contractual obligations and the obligation not to be negligent can impose quite different standards of performance;
Under the common law of negligence, a builder is under duty to take reasonable care in construction work and this duty will be owed to other persons who have, at law, a sufficiently close relationship with the builder to have relied on the builder's expertise. In one case, this duty was held to be owed by a builder to a future purchaser of a home that had defective foundations but the purchaser and builder had no direct contractual or other relationship. 1. The principles in this case have not been extended to the construction of commercial premises. 2.
Liability and Damages
A builder can be held liable in contract and negligence for losses caused to others by defective design. This can include costs of repair and/or financial loss such as loss in value.
There will be a general constraint on damages to that which is reasonable and necessary to compensate the other party for the loss. 3.
Nonetheless, in appropriate cases, failure to build in accordance with the design can require that the work be demolished to the extent necessary and replaced with building work which complies with the design.
Different considerations may apply to damages and negligence claims but these are too complex to go into in this paper.
Further, a builder can be the subject of a Direction to Rectify issued by the Queensland Building Services Authority where the Authority is satisfied the builder is responsible for building defects caused by defective design.
Hints for builders
- Think through the potential consequences before assuming responsibility for design matters in construction.
- Give careful consideration to the terms of the contract (including limiting or excluding liability in particular situations) when assuming responsibility for design.
- Make clear in your contract who the designer/architect/draftsman is to be engaged by. If he is engaged by the builder, then the builder is likely to be legally responsible under the contract for the design.
- Beware of the QBSA subsidence policy.
- Scrutinise plans and specifications carefully and warn of obvious mistakes. As necessary, suspend work until the mistake is resolved. Do not blindly follow the plans.
- Beware of the risk of assuming responsibility to achieve a given result, particularly in residential work.
In residential work, know your obligations under the Domestic Building Contracts Act.
1. Refer Bryan –v- Maloney (1995) 182 CLR 609
2. See Wilcock Street Investments –v- CDG Pty Ltd (2003) 19 BCL 15
3. Belgrove -v- Eldridge (1954) 90 CLR 613 |
