Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49

Claire Tait  |  Maciej Getta  |  Luke Sundercombe

Key takeouts

• The High Court has confirmed that a party will be vicariously liable for breaches of the duty to exercise reasonable care to avoid economic loss that arises under section 37(1) of the Design and Building Practitioners Act 2020 (NSW) (DBP Act) committed by third parties to whom they delegated the performance of construction work. A party who is held as vicariously liable is not entitled to rely on the proportionate liability regime in Part 4 of the Civil Liability Act 2002 (NSW) (CLA) to limit their liability.

• Developers and builders will be wholly responsible for all economic loss.  The practical result of this is that developers and builders will need to bring cross-claims to recover contribution from subcontractors and consultants, and will bear the risk of solvency of those parties.

• It is also important to remember that the statutory duty extends beyond residential building work and applies to all buildings following the NSW Court of Appeal’s decision in Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5.

Facts

The facts of this case are set out in our update on the first instance decision: Proportionate liability regime applies to NSW statutory duty of care – Construction Law Made Easy

The Owners Corporation sued the developer and builder of a residential apartment building, for breaches of the statutory duty of care under the DBP Act.  The developer and builder both sought to rely on a defence of proportionate liability in the CLA, contending that subcontractors and other parties, including the principal certifying authority and council, were also concurrent wrongdoers because they had breached the statutory duty of care. The Owners Corporation sought to strike out this defence.

The Owners Corporation said that the proportionate liability regime in the CLA did not apply to the statutory duty of care because section 39 of the DBP Act (which provides a person who owes the statutory duty of care is not entitled to delegate that duty) and section 5Q of the CLA (which provides the liability of a person for breach of a non-delegable duty to ensure that reasonable care is taken by a person in the carrying out of any work or task delegated or otherwise entrusted to the person is to be determined as if the liability of the person were the vicarious liability of that person).

The first instance Court ruled in favour of the developer and builder finding that proportional liability regime was applicable.  The NSW Court of Appeal overturned that decision. See our update on the appeal decision: Pafburn Appeal: No proportionate liability defence to duty of care under the Design & Building Practitioners Act    – Construction Law Made Easy

Decision

The High Court rejected the appeal.  The High Court found by a majority of 4 to 3, that the developer or the head building contractor who carry out construction work in relation to the whole of the building cannot rely on the failure of another person to take reasonable care in carrying out construction work, or otherwise performing any function in relation to that work. They cannot limit their liability under the CLA to an amount reflecting the proportion of the loss that a court considers just having regard to the extent of the responsibility of each for the damage or loss.

When the construction work is in relation to the whole building (as alleged in this case) the scope of the s 37(1) duty extends to all defects in or related to that building. This will be the case whether or not the person in fact performed any of the physical acts comprising that construction work. If the work was in relation to part of the building, the same would apply to that part of the building.

Section 39 of the DBP Act provides that, within their scope, the duty owed under s37(1) is non-delegable. This means that a person cannot discharge the duty merely by exercising reasonable care in arranging for another person to carry out any work or task within the scope of the s 37(1) duty. The object of s 39 is to ensure that liability for breach of the s 37(1) duty is personal to the person the subject of that duty.

Section 41(3) of the DBP Act provides that Part 4 of that Act is subject to the CLA. Section 5Q of the CLA provides that if liability is established, the defendants are vicariously liable for the work of all of those persons to whom they have delegated or otherwise entrusted any part of the construction work in relation to the building. As between the defendants and those persons, there can be no apportionment of liability.

The High Court noted that their interpretation gave effect to and maintained the unity of all provisions of the DBP Act and CLA, and accords with parliament’s intentions in enacting the DBP Act to address a perceived crisis of confidence in respect of the safety and quality of residential apartment buildings in NSW, by enacting personal liability on developers and builders for the wrongdoing of their contractors.

Practical consequences

In light of this decision, to the extent that a developer or head contractor is found liable to an owner, they are unable to rely on the proportionate liability regime in Part 4 of the CLA. Therefore, they would be required to bring cross-claims for contribution under section 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).