Defective building work in the construction of residential towers is not new. Many readers will recall the building construction disasters of Opal Towers and Mascot Towers in Sydney of 5 years ago. We wrote about them in our post of April 2021: Residential Relief Imminent.
That article dealt with the introduction of the Design and Building Practitioners Act 2020 (NSW) (the DPA Act) and how developers, builders, sub-contractors, engineers, etc carrying out “building work” on residential apartments now owed a duty to exercise reasonable care in avoiding economic loss caused by defective building works.
Previously, incredibly, there was no such duty of care between a builder and an Owners Corporation or strata unit owner. The imposition of this duty of care gives an Owners Corporation and/or a strata unit owner right against engineers, builders, designers, architects, and the like for defective works.
This duty of care was recently tested in the High Court of Australia in the decision of Pafburn Pty Limited & Anor V The owners – Strata Plan No 84674 [2024] HCA 49 . In this case the Owners Corporation for a Strata Scheme in North Sydney NSW sued the developer known as Madarina Pty Limited and a builder known as Pafburn Pty Ltd for breaches of the statutory duty of care under Section 37 of the DPA Act.
A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects–
(a) in or related to a building for which the work is done, and
(b) arising from the construction work.
(2) The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land.
(3) 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.
(4) The duty of care is owed to an owner whether or not the construction work was carried out–
(a) under a contract or other arrangement entered into with the owner or another person, or
(b) otherwise, than under a contract or arrangement.
The developer and builder both sought to rely on a defence of proportionate liability under the Civil Liability Act 2002 (NSW) (CLA Act) arguing that subcontractors, the principal certifying authority, and council, were also wrongdoers because they had breached the statutory duty of care. If the developer and builder could defend on these grounds, then its exposure to any damages would be significantly limited on the grounds it was only liable to the extent the court considers just having regard to the extent of each wrongdoer’s responsibility for the damage or loss and the court may give judgment against the developer and builder for not more than that amount.
The Owners sought to strike out this arguing that Section 39 of the DPA Act means the proportionate liability provisions of the CLA Act does not apply. Section 39 of the DPA Act simply states:
“A person who owes a duty of care under this Part is not entitled to delegate that duty.”
Does the fact someone cannot delegate its duty of care mean that the proportionate liability provisions of the Civil Liability Act do not apply?
The High Court by a slim majority of 4 to 3 found that the builder and developer cannot limit their liability to an amount equal to the extent of the responsibility of each for the damage or loss. In other words, the proportionate liability provisions of the CLA Act do not apply and do not therefore limit the developers and builders’ exposure to pay damages for defective works.
Key Learnings for Builders, Developers and Sub Contractors:
- Developers need ensure they undertake considerable due diligence regarding the competence of the Builder / Head Contractor selected to undertake the development works as ultimately, they are liable under the DPA Act for the Builder and its subcontractor’s defective works.
- Builders and Head Contractors likewise need to ensure they choose competent experience and skilled subcontractors and tradesmen as they too will be liable for the defective work the subcontractor performs.
- Sub Contractors who Sub Sub Contract work need to turn their mind to the same considerations.
- Instead of relying upon the proportionate liability provisions of the CLA to reduce their liability to damages for defective work developers, builders and head contractors will need to bring a cross claim for contribution by the relevant wrongdoer.
