In late 2023, the NSW Court of Appeal handed down a significant decision in the case of The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301 where it was held that proportionate liability does not apply to claims for breach of statutory duty under the Design and Building Practitioners Act 2020 (NSW) (DBP Act).
Primary Judgment
The Owners Corporation commenced proceedings against the builder, Pafburn Pty Ltd, and the developer, Madarina Pty Ltd, alleging they had breached the statutory duty of care under section 37 of the DBP Act 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.
The Appeal
The Court of Appeal unanimously overturned the primary judgment.
On appeal, the two key issues were:
- whether the non-delegable duty created by s37(1) of the DBP Act is a “tort” for the purposes of s5Q of the CLA; and
- whether the proportionate liability provisions in Part 4 of the CLA apply.
As to the first issue, the Court confirmed that the statutory duty under the DBP Act is classified as a “tort” for the purposes of the CLA. The Court reasoned that interpreting section 5Q of the CLA to exclude claims under the DBP Act would undermine the intended purpose of the provision. In deciding this issue, the Court also referred to section 37 of the DBP Act which provides that a person to whom the duty of care is owed is entitled to damages for breach of the duty “as if the duty were a duty established by the common law”. In the Court’s view, this deeming phrase evinces a clear legislative intention to extend the scope of the common law duty of care to owners and their successors and create a new statutory derived cause of action to be treated as if it were a cause of action in tort.
On the second issue, the Court held that the CLA proportionate liability provisions did not apply to breaches of the non-delegable duty under section 39 of the DBP Act. Therefore, 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.
Principal builders will need to cross-claim against the subcontractors. This transfers the risk of insolvency in subcontractors to the Principal builders.
Impact
The decision has significant implications for owners and construction industry stakeholders alike. It is a huge win for owners, giving certainty that the proportionate liability regime will not apply in DBP Act proceedings.
Conversely, the decision leaves defendants to such proceedings in a much more precarious situation because, while they are entitled to cross-claim against concurrent wrongdoers, they cannot seek to reduce their liability to owners and subsequent owners.
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 the subcontractors works.
How can we help?
Keystone are experts in the construction industry. We can assist you with:
- reviewing and negotiating contracts and creating a schedule of suggested departures;
- drafting contracts for the engagement of subcontractors;
- resolving any disputes.
If you need any assistance, please reach out.