Much has been said about the complexities associated with attribution of liability for defective building works between various parties including builders, developers and subcontractors.
In recent years, and particularly since the introduction of the Design and Building Practitioners Act 2020 (NSW) (DBP Act), it has become more difficult for developers and builders to limit their own liability for defective works. This can even extend, in some cases, to personal liability for individual directors and project supervisors (see for example Kazzi v Kr Properties Global Pty Ltd (t/as AK Properties Group) [2024] NSWCA 143).
The recent High Court decision of Pafburn Pty Ltd v The Owners – Strata Plan No 84674 [2024] HCA 49 has further entrenched these difficulties, by holding that the builders and developers in that case were in effect vicariously liable for the work conducted by subcontractors.
Accordingly, the builder and developer could not rely upon Part 4 of the Civil Liability Act 2002 (NSW) to apportion liability between themselves and the subcontractors in relation to claims arising from breaches of the “duty to exercise reasonable care to avoid economic loss caused by defects” under Section 37 of the DBP Act.
The Court held as follows:
“[54] …. As explained, s 39 ensures that a person subject to the duty imposed by s 37(1) 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…..”
This was qualified as follows, noting that “Madarina” was the developer and “Pafburn” was the builder:
[65] In reaching these conclusions it is also relevant to recognise that:
(a) if the owners corporation fails to establish the alleged breaches by Madarina and Pafburn, Madarina and Pafburn will not be found liable at all for the claimed loss;
(b) if the owners corporation establishes such alleged breaches but fails to establish that those breaches caused the whole of the claimed economic loss, Madarina and Pafburn will be found liable only to the extent that their breaches caused the loss; and
(c) to the extent that Madarina and Pafburn are found liable to the owners corporation, ss 37(1) and 39 of the DBPA do not prevent them from cross-claiming against other persons who they allege breached any applicable duty of care owed to them.
The dissenting minority, being three of the seven judges that heard the case, stated as follows in relation to the reasoning of the four judges in the majority:
“Many head contractors or builders rely on sub-contractors in areas where the head contractor or builder has no expertise. It would be an odd result if a head contractor or builder who agreed to procure specialised plumbing, concreting, electricity or woodworking would be personally liable if a carefully chosen specialist independent contractor performed their work carelessly.”
and also:
“…the head contractor would be exposed to significantly increased risks, costs and insurance premiums”
This view will be shared by many in the industry, although one may argue that this will lead to a front-loading of due diligence on construction projects, which will be beneficial for the industry and its customers in the long term.
In any event, this decision will certainly have a significant impact on an industry that has been facing substantial difficulties in recent years, many of which have arisen from global factors that are very difficult to control.
Author: Matthew Peach
If you or any someone you know needs assistance or advice in relation to construction, insolvency / restructuring or other commercial matters, please contact us on 02 9525 8688 or email dean@wmdlaw.com.au or matt@wmdlaw.com.au.
