The High Court upheld the NSW Court of Appeal’s finding that the proportionate liability regime does not apply to all contractors that owe a duty of care under the Design and Building Practitioners Act 2020 (NSW). That is not to say the proportionate liability regime has no work to do, but the decision calls for a careful analysis by parties and practitioners. Further litigation cannot be ruled out.
In issue
- Whether a developer and/or head building contractor can rely on the proportionate liability provisions contained in Part 4 of the Civil Liability Act 2002 (NSW) (CLA) when it has been sued for an alleged breach of a non-delegable statutory duty of care imposed under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act).
The background and earlier judgments
The matter relates to a strata development in North Sydney. Pafburn Pty Limited (Pafburn) was the head building contractor for that development and Madarina Pty Limited (Madarina) was the developer (collectively the Appellants). The Owners Corporation of that development (Owners Corporation) is the respondent to the appeal.
The Owners Corporation alleged that the development contained defects and originally commenced proceedings against the Appellants in the Supreme Court of New South Wales for breach of the statutory duty of care owed under the DBP Act. In response, the Appellants pleaded a proportionate liability defence, naming nine others as concurrent wrongdoers.
In 2023, the Owners Corporation filed an interlocutory application to summarily dismiss or strike out the Appellants’ proportionate liability defence, and argued that proportionate liability cannot be pleaded in relation to the non-delegable duty contained in the DBP Act, due to combined operation of section 39 of the DBP Act and section 5Q of the CLA (those sections are described in detail ahead). The Owners Corporation was unsuccessful at first instance (see our previous case note on that decision), but was successful on appeal (see our previous case note on the appeal decision).
The Appellants appealed to the High Court. The following sections are relevant to the High Court’s decision:
- Section 36(1) of the DBP Act defines 'construction work' as building work, the preparation of designs for building work and the manufacture or supply of a building product used for building work. Additionally, it includes supervising, coordinating, project managing or otherwise having substantive control over that work (Supervision Obligations).
- Section 37 of the DBP Act establishes that a person undertaking 'construction work' owes a duty to exercise reasonable care to avoid economic loss caused by defects to owners and subsequent owners of the relevant property under construction and that such owners are entitled to damages for breach of such duty 'as if the duty were a duty established by the common law'.
- Section 39 of the DBP Act provides that the statutory duty of care under s 37 is non-delegable, meaning that a party allegedly owing this duty cannot discharge it by delegating it elsewhere.
- Section 41 of the DBP Act confirms that the sections of the DBP Act imposing the statutory duty are subject to the CLA and do not limit but, rather, are in addition to any duties or obligations imposed by legislation or common law.
- Section 5Q of the CLA equates ‘liability in tort’ of a person for breach of a non-delegable duty with vicarious liability. That section applies to an ‘action in tort’.
The Appellants argued that the Court of Appeal failed to recognise that the non-delegable statutory duty is confined to the type of 'construction work' that a party performs, and is not the type of non-delegable duty contemplated by section 5Q of the CLA. For instance, if a principal contractor performs Supervision Obligations, then the non-delegable duty contemplated by sections 37 and 39 of the DBP Act applies to performance of the Supervision Obligations alone, not the physical performance of building works. On that basis, a party with Supervision Obligations would only be liable for failure to perform those obligations, not for performance of a separate function in relation to the building by a separate contractor.
The Owners Corporation argued that firstly, Madarina delegated construction of the building to Pafburn (meaning that Madarina supervised the whole of the construction works), and secondly, Pafburn constructed the building and delegated many types of construction work to others. However, as section 5Q of the CLA applies, neither could discharge their section 37 duty by delegating their 'construction work' to another competent person and the Appellants’ are vicariously liable for the whole of the construction works.
The decision at trial
In its majority decision, the High Court dismissed the appeal.
In particular, the High Court considered that a party with Supervision Obligations for a whole building has a duty that extends to all defects in that building arising from 'construction work', regardless of whether that party performed the physical acts comprising that construction work. Whilst the section 37 duty is worded as a duty to exercise reasonable care to avoid economic loss caused by defects, and not to ensure that reasonable care is taken by another person, that duty cannot be read in isolation from section 39, which provides that the duty cannot be discharged through mere exercise of reasonable care in arranging for another person to carry out any work or task within its scope.
Moreover, the duty is subject to 5Q of the CLA, meaning that the extent of the Appellants’ breaches are to be determined as if the liability was the vicarious liability of each Appellant for the negligence of the party that performed the work or task involving 'construction work'. On that basis, the Appellants are 100% liable for any failure to exercise reasonable care to avoid economic loss caused by defects in the building, regardless of whether a separate wrongdoer physically performed the work from which the defects arose.
In support of that position, the High Court also referenced the DBP Act’s Second Reading Speech, and considered that the above analysis is consistent with its objectives. In particular, that speech recognised that the complexity and integrated nature of construction caused uncertainty about the effectiveness of available redress for owners, and that was to be rectified by preventing a person who performs construction work from delegating their duty, so as to impose 'individual and collective responsibility' on practitioners for their work. If section 5Q of CLA did not apply to sections 37 and 39 of the DBP Act, the duty would not impose 'individual' liability on parties and would only impose a form of 'collective' liability which involves recovery against multiple parties and complexity that the DBP Act was intended to avoid.
Justices Gordon, Edelman and Steward, who were in the minority, were of the view that section 5Q of the CLA does not apply to section 37 and considered that the Owners Corporation’s claim was apportionable. In particular, they remarked that it would be an 'odd' result if a head contractor was liable for work that a carefully chosen specialist subcontractor performed carelessly.
Implications for you
The High Court has clarified that developers and head building contractors cannot rely on the proportionate liability regime in DBP Act claims to reduce their liability by naming their subcontractors as concurrent wrongdoers. However, that liability can still be reduced through cross-claims or recovery proceedings.
Consistent with our earlier interpretation of the Court of Appeal decision, it still appears that a party that has not delegated its duty (to one or more subcontractors), or otherwise sits at the bottom of a contractual chain is still able to rely on the proportionate liability regime.
In any event, the outcome is consistent with Parliament’s desire, following the Opal Tower and Mascot developments, to hold builders/developers accountable for defective construction, with the result that those parties (rather than plaintiffs) will bear the pain of being unable to recover from impecunious sub-contractors.
Given the differing views of the court, we would not be surprised if there is further litigation on the scope of the proportionate liability defence under the DBP Act.
Pafburn Pty Limited v The Owners - Strata Plan No 84674 [2024] HCA 49
