RECAP

Our case note of the Court of Appeal decision in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301 is available here.

Principally, this case concerns whether proportionate liability defences are available to construction professionals (and their insurers) for alleged breaches of the statutory duty of care prescribed by the Design and Building Practitioners Act 2020 (NSW) (DBPA).

Facts

The Owners - Strata Plan No. 84674 (Owners) brought proceedings against Pafburn (Builder) and Madarina (Developer) alleging that both breached the statutory duty of care prescribed by section 37 of the DBPA (DBPA Duty) when performing 'construction work' for the development at 197 Walker Street, North Sydney.

The Builder admits that it owes the Owners the DBPA Duty. However, the Builder (and the Developer) pleaded that the Owners' claim is an apportionable claim under the Civil Liability Act 2002 NSW (CLA) and named various other parties (consultants and subcontractors who were engaged in respect of the construction of the building) as concurrent wrongdoers (Proportionate Liability Defences).

The Owners brought a motion to strike out the Proportionate Liability Defences on the basis that section 39 of the DBPA prescribes that the DBPA Duty is non-delegable.

Primary Decision

Rees J held that in relation to the DBPA Duty:

1. the Builder and Developer could plead the Proportionate Liability Defences under Pt 4 of the CLA; and
2. Section 5Q of the CLA does not apply and is for non-delegable duties of care at common law.

The Appeal

1. The Court of Appeal overturned the Primary Decision and held that the Builder and Developer could not plead proportionate liability defences in respect of the DBPA Duty as:

• a. section 39 of the DBPA excludes Pt 4 of the CLA; and/or
• b. ss 5Q of the CLA and 39(a) of the CLA are enlivened by claims under Pt 4 of the DBPA such that no apportionment is to occur.

2. The practical outcome of the Court of Appeal decision in Pafburn is that persons owing the DBPA Duty are required to bring cross claims against any concurrent wrongdoer for contribution.

THE HIGH COURT

The Builder and Developer appealed to the High Court of Australia, seeking to have the Court of Appeal decision set aside and the orders made by Rees J reinstated.

The Builder/Developer's Submissions

The central argument for the Builder/Developer was that the DBPA Duty is only owed by those physically performing the building work.

The grounds of the appeal can be summarised as follows:

The Owners' Submissions

The Owners' position remained that the duty owed under s 37 of the DBPA is non-delegable and as such, the Builder/Developer are solely responsible for the damages.

The Owners made the following submissions on the CLA provisions:

• section 5Q of the CLA means that a breach of a non-delegable duty will be treated as though it is vicarious; and
• section 39(a) of the CLA confirms that vicarious liability applies regardless of what is set out in the proportionate liability scheme.

In answer to the Builder/Developer's argument that s 37 extends to those who physically do the works, the Owners:

• submit that the Builder/Developer relied on a misconstruction of s 37 which is inconsistent with the purpose of Pt 4 of the Act;
• in doing so, made submissions on the meaning of "carrying out works" under the DBPA and said that the DBPA does not require a head contractor to physically carry out the work in order to attract the s 37 duty and rather, it applies to anyone with 'substantive control'; and
• submitted that the absence of the word "ensure" in s 39 of the DBPA does not suggest that s 5Q of the CLA does not apply and say it is a defining characteristic of a non-delegable duty.

"Section 39 is not some rootless, amorphous, defensive gesture. It is designed to ensure that the duty of care, relevantly under section 37 – that is the one we are interested in – is one which cannot carry in the train of its breach by the person who owes the duty the consequences of delegation. That is a long winded way of trying to spell out the meaning of the terse expression: not entitled to delegate that duty."

JUDGMENT FROM HIGH COURT

The High Court confirmed today, in a 4 to 3 majority decision, that the DBPA Duty is not apportionable. This is, however, subject to the following considerations:

1. The DBPA was enacted in the context of addressing broader public concerns regarding building defects in NSW¹ directly referencing the Second Reading Speech which confirmed that "the need to restore consumer confidence was in a context in which this Court had decided in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 that a builder who undertook the construction of a … building … with a developer did not owe a duty of care "in carrying out [the] building works" to subsequent owners for latent defects in the building".
2. Critically, the majority confirmed for the Builder and Developer that:

• the scope of the DBPA Duty extends to all defects in or related to that building arising from all construction work in relation to the building whether or not the person in fact performed any of the physical acts comprising that construction work²;
• a person who owes the DBPA Duty cannot exclude or limit liability by delegating or otherwise entrusting the performance of any part of their DBPA Duty to take reasonable care to avoid economic loss caused by defects (s39 DBPA)³;
• a person (owing the DBPA Duty) cannot contract out of any provision of Pt 4 (s40 DBPA)⁴;
• Section 41(3) of the DBPA, in providing that Pt 4 of the DBPA "is subject to the Civil Liability Act 2002", ensures that Pt 4 (including ss 37(1) and 39) is subject to, amongst other provisions of the CLA, s 5Q of the CLA⁵.

3. Accordingly, the Builder and Developer, by reason of the operation of s 5Q of the CLA:

• cannot apportion any part of their liability to any of those persons to whom they delegated or entrusted construction work; and
• are vicariously liable (i.e. are 100% liable) for any failure to exercise reasonable care to avoid economic loss caused by defects in the Building, including on the part of any wrongdoers engaged by them to carry out any work or task for which a defect has arisen⁶.

4. The majority have, however, dealt with the Builder and Developer in a vacuum. The Builder and Developer allegedly delegated all works associated with construction of the Building and are therefore potentially liable for 100% of the claim for economic loss associated with any defect (for which the Owners can prove)⁷.

CONCLUSION

The High Court's decision is significant in that it has clarified that claims for breaches of the statutory duty under the DBP Act are not apportionable in certain circumstances. A builder and developer can be wholly liable to a plaintiff for breach of the duty and, to the extent there are other liable parties, the defendant will have to bring cross-claims against those parties.

Given the question addressed by the High Court is confined to whether the developer and head contractor can plead proportionate liability, the issue for consultants (and their insurers) as to whether they need to commence cross claims and scenarios where they would otherwise plead a proportionate liability defence in circumstances remains unanswered. The issue will need to be resolved by legislation or a professional building consultant raising the question for determination by the Courts.

¹ Pafburn Pty Limited v The Owners - Strata Plan No 84674 [2024] HCA 49, [42].

² Ibid 52.

³ Ibid 54.

⁴ Ibid 43.

⁵ Ibid 55.

⁶ Ibid 57.

⁷ See [65].