High Court confirms that the duty of developers and head contractors under the Design and Building Practitioners Act is not apportionable.
In what may be seen as a blow to developers and head contractors (and their insurers) alike, in a split decision, the High Court in Pafburn Pty Ltd & anor v The Owners – Strata Plan No 84674 [2024] HCA 49 has held that the proportionate liability scheme in Pt 4 of the Civil Liability Act 2002 (NSW) (CLA) does not apply to claims for damages for breach of s 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA).
Facts
The Owners claim arises from defects in a residential block of units. The defendants (and appellants in the High Court) Madarina and Pafburn, were respectively the developer and head contractor for the works. In the proceedings (which continue in the court below) the Owners seek damages from the defendants based exclusively on breaches of the DBPA alleging that (a) Pafburn carried out residential building work within the meaning of cl 2 of Sch 1 to the Home Building Act by constructing the building; (b) by reason thereof, Pafburn carried out “building work” and “construction work” within the meaning of s 36 of the DBPA; (c) Madarina supervised, co-ordinated and project managed and had substantive control over the carrying out of the building work by Pafburn; and (d) Madarina, accordingly, carried out “construction work” within the meaning of s 36 of the DBPA.
The Owners also allege that in the carrying out of the construction work, Pafburn and Madarina each owed them a duty, under section 37(1) of the DBPA, to exercise reasonable care to avoid economic loss caused by defects in or related to the building arising from the construction work, being: (a) the preparation of regulated designs and other designs for the building work; (b) manufacture or supply of a building product used for the building work; and (c) supervising, co-ordinating, project managing or otherwise having substantive control over the carrying out of this work.
The defendants deny liability under the DBPA, but contend that if it is determined otherwise, the Owners’ claim is an “apportionable claim” under section 34 of the CLA, with the result that their liability should be limited to the amount reflecting the portion of the damage for which they are responsible. Relevant to that argument was that the defendants had subcontracted the works to various trades and had not undertaken the works themselves.
The defendants argued that:
- Any non-delegable duty they owed under the DPBA was limited to the actual “construction work” they had performed, such that the duty only attaches to the supervision, co-ordination and project management work, and does not extend to any defects in the carrying out of construction work performed by subcontractors; and
- As a consequence, where there are multiple other parties (ie. subcontractors) potentially responsible for the same loss, the Owners’ claim was apportionable.
Decision
In a 4:3 split decision, the High Court held that a claim for breach of section 37 of the DBPA is not an apportionable claim for the purpose of the CLA. In doing so, the Court necessarily considered the interaction between the DBPA and the CLA.
The majority relevantly confirmed that the basic scheme of Pt 4 of the CLA provides that if a claim is a “single apportionable claim” in respect of which there is a “concurrent wrongdoer” then, subject to the terms of section 34(3A), the liability of each concurrent wrongdoer is limited to an amount reflecting that proportion of the damage or loss that the court considers just having regard to the extent of each such concurrent wrongdoer’s responsibility for the damage.
However, and critical to the majority’s reasoning, was that “overlaying” the basic scheme was the vicarious liability regime imposed by:
- section 39(a) of the CLA that “[n]othing in this Part … prevents a person from being held vicariously liable for a proportion of any apportionable claim for which another person is liable”; and
- section 5Q of the CLA which requires the extent of the liability of a person who has breached a non-delegable duty to be determined as if the person was vicariously liable for the negligence of the person who in fact carried out the work or the task.
In relation to the DBPA, the majority confirmed that:
- section 37(1) imposes statutory duty on a person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects in or related to a building for which the work is done and arising from the construction work.
- section 37(2) ensures that this duty is owed to subsequent owners.
- section 37(3) provides that a person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law.
- section 39 provides that a person who owes a duty under section 37(1) “is not entitled to delegate that duty”, which was held to mean that the person who owes that duty cannot exclude or limit their liability by delegating or otherwise entrusting the performance of any part of their duty to another person.
- section 41(3) of the DBPA provides that Part 4 of the DBPA is subject to the CLA.
Having noted that statutory framework, the majority held that the duty imposed by section 37 of the DBPA was personal to each person carrying out construction works, and by virtue of section 39 cannot be delegated to a third party, and cannot be discharged by merely exercising reasonable care in arranging for another person to carry out the work. Furthermore, since section 41 of the DBPA provides that that Part 4 of the DBPA is subject to the CLA, including section 5Q, that meant:
- the defendants’ liability was to be determined as if they were vicariously liable for the person who performed the work; and
- in those circumstances:
- in the case of a person who “supervises etc” construction work in relation to the whole building (as the Owners contend), the duty under section 37(1) extends to all defects in or related to that building arising from all construction work, whether or not the person in fact performed any of the physical acts comprising that construction work;
- the liability of each of Madarina and Pafburn is as if they were vicarious liable for the whole of the construction work in relation to the building; and
- Madarina and Pafburn cannot exclude or limit their liability by apportioning any part of it to parties to whom they delegated or otherwise entrusted any part of the construction work because, by section 5Q of the CLA, they are vicariously liable for any failure by those parties to take reasonable care.
The High Court did, however, point out that section 37(1) and 39 of the DBPA do not prevent the defendants from cross-claiming against other persons who they allege breached any duty of care owed to them.
Concluding comments
While, as the High Court recognised, the DBPA was introduced to address issues in the construction industry highlighted by the Opal Tower and Mascot Tower matters, where developers and owners rely on skilled subcontractors to do the work and have otherwise taken reasonable steps to ensure that those contractors have the required skills, the Court’s decision, that they are unable to rely on the proportionate liability regime in claims for damages for breach of section 37 of the DBPA seems harsh.
Given the current review of the DBPA, it will be interesting to see whether the decision in Pafburn results in legislative reform to the DBPA and or the CLA to, in this writer’s opinion, make it more aligned with the intent of the proportionate liability regime. Until then, head contractors and their insurers should consider how they appropriately provision for this liability.
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The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
