By Slim Majority, the High Court in Pafburn Says No: Developers and Head Contractors Cannot Apportion Liability Under the DBPA!

/in

In a narrow 4:3 ruling, the High Court of Australia in Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49 (Pafburn) has dismissed the appeal of a developer and head contractor, ruling that liability for breaches of the statutory duty under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA) cannot be apportioned under proportionate liability legislation. This highly anticipated decision significantly expands liability, holding developers and head contractors accountable for defects arising from the work of consultants or subcontractors.

The Facts

Background

The Owners Corporation of a North Sydney residential complex (the Owners) commenced proceedings against Pafburn Pty Ltd (the Builder) and Madarina (the Developer) for breaching their statutory duty of care under section 37 of the DBPA. The Owners claimed that the Builder and Developer failed to take reasonable care to prevent economic loss caused by construction defects. In response, the Builder and Developer sought to apportion liability for the defects among nine other concurrent wrongdoers involved in the construction, including the waterproofing contractor, the manufacturer and installer of the aluminium composite panels, the architect, the private certifier and even the local council. The Builder and Developer argued that, under Part 4 of the Civil Liability Act 2002 (NSW) (CLA), liability for the defects should be shared. The Owners contended, however, that the statutory duty under the DBPA was non-delegable, meaning the Builder and Developer could not shift responsibility for the defects to other parties that the Builder and Developer had delegated work to during construction.

Application to Strike Out Proportionate Liability Defences

The Owners sought to strike out the Builder and Developer’s proportionate liability defences. They argued that section 39 of the DBPA explicitly states that the statutory duty of care is non-delegable, preventing reliance on the proportionate liability provisions of the CLA. The Owners further contended that, under section 5Q of the CLA, the Builder and Developer should be treated as if they were vicariously liable for the negligence of those performing delegated work, including the alleged concurrent wrongdoers. As a result, the Builder and Developer should not be allowed to apportion liability for the defects to subcontractors or other parties involved in the construction work.

Key issue

The key issue was whether the Builder and Developer’s duty under the DBPA could be apportioned under the CLA, allowing them to share liability with other parties involved in the construction process.

 What did the Court say?

Primary Decision

The Supreme Court of NSW initially found that the Builder and Developer could plead the proportionate liability defences. Rees J rejected the Owners’ argument, determining that a claim for breach of duty under the DBPA was an apportionable claim under Part 4 of the CLA. Her Honour held that vicarious liability under section 5Q of the CLA applied to a defendant’s breach of a non-delegable duty in tort under common law, but not to the statutory duty under section 37 of the DBPA. This meant that the way in which parties led disputes remained largely unchanged.

Court of Appeal

The NSW Court of Appeal overturned the primary decision, ruling that the statutory duty of care under the DBPA is non-delegable. The Court found that section 39 of the DBPA expressly excludes the application of the proportionate liability provisions in Part 4 of the CLA. It also held that sections 5Q and 39(a) of the CLA treat breaches of the non-delegable duty as a form of vicarious liability, meaning the Builder and Developer’s liability cannot be reduced by the liability of others, thereby preventing any apportionment of liability for breaches of the statutory duty under the DBPA.

 High Court

 The Builder and Developer sought to appeal the Court of Appeal’s decision and reinstate Rees J’s orders. However, in a slim 4:3 ruling, the High Court dismissed the appeal, affirming that developers and head contractors cannot apportion liability for defects under the DBPA. The Court held that, under section 5Q of the CLA, they are vicariously liable for defects arising from the construction work, including those caused by subcontractors or consultants. Effectively, the Builder and Developer could not limit their liability by shifting responsibility to other parties involved in the construction process.

What does this mean for you?

Developers and head contractors who delegate construction work may not be able to apportion their liability under the DBPA. Depending on the circumstances, they may be vicariously liable (that is, 100% liable) for any economic loss caused by defects, including those resulting from the negligence of their consultants and subcontractors.

 Implications

 While owners of defective buildings will undoubtedly welcome the High Court’s decision. It will have several practical and potentially onerous implications for developers and builders:

  1. Increased exposure:
  • Developers and head contractors now face greater liability to exposure, leading to higher construction costs.
  1. Rise in cross-claims:
  • Developers and head contractors will need to pursue cross-claims against other parties involved in the construction to seek contribution for defects.
  • This complicates case management of proceedings, as defendants may struggle at the outset to identify other parties’ roles in the project, determine appropriate causes of action and balance the cost risks of joining third parties.
  1. Higher insurance premiums:
  • The removal of proportionate liability defences is expected to lead to higher insurance premiums and increased difficulty in obtaining insurance coverage for construction stakeholders.
  1. Limited scope (for now):
  • The decision currently applies only to developers and head contractors.
  • The High Court primarily focused on whether developers and head contractors can apportion liability, leaving the question unresolved of whether other parties, such as consultants or subcontractors (particularly when they have not delegated any part of construction works), can rely on apportionment defences.
  • Interestingly, the minority raised doubts about whether a certifier or local council, in performing their duties, even qualifies as “a person who carries out construction work” under the DBPA, raising further ambiguity about their potential liability under the Act.

Bradbury Legal is a specialist building and construction law firm. If you or anyone you know requires advice or assistance, reach out to us on (02) 9030 7400, or email us at [email protected] to see how we can assist you.