In the landmark decision of Pafburn Pty Ltd & Anor v The Owners – Strata Plan No 84674 [2024] HCA 49, the High Court has today confirmed that a defendant to a claim for damages for a breach of the duty of care under the Design and Building Practitioners Act 2020 (NSW) (DBP Act) cannot seek to reduce their liability to a plaintiff by attributing fault to third parties who they delegated part of their scope to.
The practical effect is that it is up to the Principal Builder (or others down the chain) to seek contribution by way of cross-claim from their respective consultants and subcontractors.
Further, proving a claim under the DBP Act is not easy. As the High Court pointed out:
- The plaintiff must prove that there has been a breach of the duty of care. The mere existence of a defect is insufficient to prove there has been a breach of the duty of care; and
- The plaintiff must prove that the breaches caused the whole of the loss claimed. Otherwise, the defendant will only be liable to the extent the breach of the duty caused the loss.
The High Court, in the minority Judgment, also left it open as to whether a private certifier or local council, in performing their duties, carries out “construction work” within the meaning of the DBP Act.
Primary Proceedings
The Owners Strata Plan No 84674 commenced proceedings against Pafburn Pty Ltd (Builder), and Madarina Pty Ltd (Developer), alleging they had breached the statutory duty of care under section 37 of the DBP Act to exercise reasonable care to avoid economic loss caused by defects while performing construction works at a strata development in North Sydney.
The Defendants sought to limit their liability by naming 9 independent subcontractors as concurrent wrongdoers under Part 4 of the Civil Liability Act 2002 (NSW) (CLA). The Owners argued that the builder and developer could not rely on the proportionate liability regime under the CLA because the duty owed was a “non-delegable” duty. The primary judge ruled that the proportionate liability regime did apply, and the defendants could plead proportionate liability as a defence. The Owners subsequently appealed the primary judge’s decision.
Appeal
In the case of The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301, the Court of Appeal unanimously overturned the primary judgment.
On the issue of whether the proportionate liability provisions in part 4 of the CLA apply, the Court of Appeal held that the CLA proportionate liability provisions did not apply to breaches of the non-delegable duty under section 39 of the DBP Act. On that basis, principal builders and developers who have breached a non-delegable duty are liable for the entirety of the loss and cannot seek to reduce their liability by attributing fault to third parties.
High Court Decision
The Builder and Developer subsequently appealed the decision of the Court of Appeal to the High Court.
The issue before the High Court was whether the Builder or Developer could seek to limit their liability by claiming a third party was proportionately liable under the CLA for such damages.
The Builder and Developer argued that if a person who supervises the carrying out of building work engages another party to perform that building work, then the non-delegable duty created under section 37(1) and 39 of the DBP Act attaches to the supervision of the building work but not the physical carrying out of the building work itself. Accordingly, the person supervising the work is personally liable under the non-delegable duty only to the extent of any failure to exercise reasonable care to avoid economic loss caused by defects in the building while supervising the works and not in respect of the actual carrying out of the building work.
The Builder and Developer further contended that the Court of Appeal had fallen into error in failing to recognise that the duty under s37(1) of the DBP Act which is not delegable by reason of s39 of the DBP Act, is confined to construction work that person has physically carried out. On this basis, the Builder and Developer contended that the Owners Corporations claim was apportionable against the concurrent wrongdoers who actually performed the defective construction works.
By a slim majority (4 to 3), the High Court dismissed the appeal and confirmed that the duty imposed under section 37(1) of the DBP Act is not delegable by reason of s39 of the DPB ACt and a defendant cannot discharge the duty simply by exercising reasonable care in engaging third parties to carry out that work within the scope of the duty. Further, by reason of s5Q of the CLA, the Builder and Developer are to be treated as if they are vicariously liable for any failure to exercise reasonable care by third parties they engaged. Accordingly, the appellants were not entitled to exclude or limit their liability by apportioning any liability to the alleged concurrent wrongdoers, in this case their subcontractors, who had been engaged to undertake the actual works
Impact
The decision confirms the strict liability assumed by developers and principal builders under the DBP Act and gives certainty to claimants that the proportionate liability regime will not apply in DBP Act proceedings. Principal builders the subject of a claim for breach of the duty of care under the DBP Act will instead need to cross-claim against their subcontractors. This transfers the risk of insolvency in subcontractors to the Principal builders.
It is important for principal builders to ensure they are actively managing their subcontractors and ensuring they have adequate security held to address issues in subcontractor’s works.
How can we help?
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We can assist you with:
1. Reviewing and negotiating contracts and creating a schedule of suggested departures;
2. Drafting contracts for the engagement of subcontractors;
3. Resolving any disputes.
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