Proportionate Liability for NSW Building Defects | Pafburn Pty Limited v The Owners
5 min read
11 December 2024
In Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49, the High Court considered whether a developer and head building contractor could rely on the proportionate liability provisions of the Civil Liability Act 2002 (NSW) to reduce any liability arising under s 37 of the Design and Building Practitioners Act 2020 (NSW).
By a 4–3 majority, the High Court held that Pafburn Pty Limited and Madarina Pty Limited could not apportion their potential liability to persons to whom they had delegated or entrusted relevant construction work. The Court dismissed their appeal with costs.
The High Court did not determine whether Pafburn or Madarina had breached the statutory duty, whether the alleged defects caused the Owners Corporation’s loss or the amount of any damages payable.
Background
The Owners – Strata Plan No 84674 is the owners corporation for a residential strata building in North Sydney.
Before registration of the strata plan, Madarina owned the land and engaged Pafburn to construct the building. Pafburn was also Madarina’s sole shareholder, and the two companies shared a controlling director.
The Owners Corporation commenced proceedings alleging that the building contained defects and that Pafburn and Madarina had breached the statutory duty of care imposed by s 37(1) of the DBPA.
Section 37(1) requires a person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects in or related to a building arising from that construction work.
Pafburn admitted that it had carried out construction work by constructing the building. The Owners Corporation alleged that Madarina had also carried out construction work because it supervised, coordinated and project-managed the building work and exercised substantive control over it. Madarina denied that allegation.
The proportionate liability defence
Pafburn and Madarina pleaded that the Owners Corporation’s claim was an apportionable claim under Pt 4 of the CLA.
They identified several alleged concurrent wrongdoers, including:
waterproofing subcontractors;
the manufacturer, supplier or installer of aluminium composite panels;
the architect;
the principal certifying authority; and
the local council.
They argued that, if they were liable, their liability should be limited to the proportion of the loss for which they were responsible.
The Owners Corporation applied to strike out that part of their defence on the basis that it disclosed no reasonable defence.
At first instance, Rees J permitted the defence to remain. The NSW Court of Appeal reversed that decision and struck it out. Pafburn and Madarina appealed to the High Court.
The majority decision
Gageler CJ, Gleeson, Jagot and Beech-Jones JJ dismissed the appeal.
The majority found that s 39 of the DBPA makes the duty imposed by s 37(1) non-delegable. A person owing that duty cannot avoid or limit liability merely by arranging for another person to perform work falling within its scope.
Section 41(3) of the DBPA provides that Pt 4 of the DBPA is subject to the CLA. The majority therefore applied s 5Q of the CLA, under which liability for breach of a non-delegable duty is determined as if it were vicarious liability for the negligence of the person entrusted with the work.
As a result, Pafburn and Madarina could not reduce their potential liability by attributing responsibility to persons to whom they had delegated or entrusted relevant construction work. For the purpose of the Owners Corporation’s claim, the negligence of those parties was attributed to Pafburn and Madarina as if they were vicariously liable for it.
The majority stated that, as between Pafburn and Madarina and the persons entrusted with the relevant work, Pafburn and Madarina would be 100% liable for any failure to exercise reasonable care that fell within the scope of their respective duties.
Limits of the decision
The majority expressly recognised that:
if the Owners Corporation failed to prove breach, Pafburn and Madarina would not be liable;
if the Owners Corporation failed to prove that a breach caused the whole loss, liability would be limited to the loss actually caused;
Madarina’s alleged substantive control over the construction work remained to be proven; and
Pafburn and Madarina could still bring cross-claims against other parties that allegedly owed and breached duties to them.
Accordingly, the High Court did not impose final liability on either appellant. It determined that the particular proportionate liability defence pleaded by them was unavailable.
The dissenting judgment
Gordon, Edelman and Steward JJ would have allowed the appeal in part.
The dissenting Justices considered that s 37 imposes a duty to take reasonable care in the construction work actually carried out by a person. In their view, it does not create a strict obligation to ensure that every independent subcontractor takes reasonable care.
They concluded that s 5Q of the CLA did not apply and that a claim under s 37 of the DBPA could be an apportionable claim. They would have remitted the matter to determine whether the pleaded parties could properly be characterised as persons carrying out construction work.
Key takeaways
The decision establishes that:
the duty imposed by ss 37 and 39 of the DBPA is non-delegable;
a head contractor cannot avoid responsibility merely because defective work was physically performed by a subcontractor;
a developer may owe the same duty if it supervised, coordinated, project-managed or had substantive control over construction work;
an upstream party cannot use proportionate liability to transfer responsibility to persons to whom it entrusted work falling within the scope of its duty;
the claimant must still prove breach, causation and economic loss; and
builders and developers may still pursue subcontractors and consultants through appropriate cross-claims.
The decision should not be described as abolishing proportionate liability for every participant in every s 37 proceeding. Its operation depends on the construction work carried out by the particular defendant, the scope of that defendant’s duty and whether the alleged wrongdoer was entrusted with work or functions falling within that scope.
Conclusion
The High Court upheld the striking out of Pafburn and Madarina’s proportionate liability defence. If their alleged liability under s 37 is established, they cannot reduce it by attributing responsibility to persons to whom they delegated or entrusted work falling within the scope of their non-delegable duties.
However, the High Court did not determine whether Pafburn or Madarina breached those duties or award damages to the Owners Corporation. Those matters remained for determination in the underlying proceeding.
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