25/02/2025 – Pafburn: The High Court reshapes liability for construction defects
Pafburn Pty Ltd & Anor v The Owners – Strata Plan No 84674 [2024] HCA 49
Key points:
- The High Court ruled the builder and developer could not rely on proportionate liability defences for breach of s37 of the DBP Act
- The decision did not determine whether consultants or sub-consultants can rely on proportionate liability defences for claims for breach of the DBP Act
In December 2024, the High Court of Australia (the High Court) dismissed an appeal from the Court of Appeal of the Supreme Court of NSW brought by Pafburn Pty Ltd (Builder) and Madarina Pty Ltd (Developer). The issue in dispute was whether the Builder and Developer could rely on the failure of another person to take reasonable care in carrying out construction work (or performing any function in relation to that work) to limit their liability pursuant to Part 4 of the Civil Liability Act 2022 (NSW) (CLA).
The High Court dismissed the appeal, finding the Builder and Developer responsible for loss arising from their breach of s37(1) of the Design and Building Practitioners Act 2020 (NSW) (DBP Act). The case and its current implications are discussed in this article.
Facts of the Pafburn case
Strata Plan No 84674 (the Owners), initially brought proceedings in the Supreme Court of NSW against the Builder and Developer claiming damages for the construction of a building. The basis of the Owners’ claim was economic loss for breach of the statutory duty of care imposed by section 37(1) of the DBP Act. Section 37(1) of the DBP Act requires a person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects in or related to the building arising from the construction work.
As part of their defence, the Builder and Developer pleaded proportionate liability, identifying several other contractors as “concurrent wrongdoers”, one of whom was the architect, within the meaning of Part 4 of the CLA.
The Owners asked the Supreme Court to strike out the Builder and Developer’s proportionate liability defences. That application failed resulting in the Owners appealing that decision to the NSW Court of Appeal. The NSW Court of Appeal struck out the part of the Builder and Developers’ defence which relied on Part 4 of the CLA, thereby confirming that the proportionate liability scheme does not apply to claims for breach of statutory duty.
The Builder and Developer appealed this decision to the High Court, arguing that they only arranged for another person to carry out the work and that their liability was therefore limited to supervision only, rather than the carrying out of actual construction work. The Builder and Developer submitted that the claim brought by the Owners was therefore an apportionable claim within the meaning of Part 4 of the CLA.
What is proportionate liability?
The proportionate liability scheme applies to claims for negligence resulting in loss or damage. It apportions liability between “concurrent wrongdoers” in accordance with the proportion of loss or damage caused by each wrongdoer.
The scheme allows a defendant to bring a defence to limit its liability to the amount that reflects the damage or loss caused by it. It is then up to the Court to decide the amount of damage or loss which flow from the negligence of the defendant and any other “concurrent wrongdoer”.
Consider the following scenario:
Architect and Builder enter into an agreement for the design of an apartment building. Building defects arise in each apartment as the waterproofing to all external openings failed, causing mould and other defects, for which the cost of rectification is $500,000.
The apartment owners sue the Builder. In its defence, the Builder claims that the Architect is also liable as it incorrectly specified material on its plans, as well as the tradesperson who used incorrect adhesive to install the material.
The Builder claims that the Architect and tradesperson are therefore “concurrent wrongdoers” and its liability should therefore be limited as the claim is an “apportionable claim” pursuant to the proportionate liability scheme. By the time of the trial, both the Architect and tradesperson are insolvent.
The Court must determine whether the Architect and tradesperson are “concurrent wrongdoers” and if so, the proportion of loss for which they are liable, having regard to the extent of damage suffered by the apartment owners due to the actions of each of the wrongdoers. The Court finds that the Builder’s liability is limited to an amount of $150,000 which reflects the proportion of the damage caused by it, with the remaining loss of $200,000 attributed to the Architect and $150,000 to the tradesperson. Without being able to rely on proportionate liability as a defence, the Builder would have been liable for the full amount of damages of $500,000 due to the principle of joint and several liability.
The decision of the High Court in Pafburn
By a four to three majority, the High Court dismissed the Builder and Developer’s appeal, finding that a party cannot exclude or limit their liability by apportioning any part of their liability under section 37(1) of the DBP Act to any other person to whom they delegated any of the construction work. In short, the Builder and Developer could not rely on their defence of proportionate liability.
The High Court found that:
- The purpose of the DBP Act is protect the owners of residential apartment buildings in NSW and improve the damages available to the owners for building defects.
- A person cannot discharge the duty imposed by s37(1) and s39 of the DPB Act simply by exercising reasonable care in arranging for another person to carry out any work or task within the scope of the duty. In short, those duties are non-delegable, and the builder and developer were therefore vicariously liable for the “whole of the construction work” in relation to the building.
- The Builder and Developer were personally liable for the whole of the economic loss caused by their breach.
- Importantly, the High Court noted in its conclusion that:
(a). If the Owners failed to establish the breaches, then the Builder and Developer would not be liable at all for the loss.
(b). If the Owners established the breaches but failed to prove they caused all of the loss, then the Builder and Developer will only be liable to the extent that their breaches caused the loss.
(c). If the Builder and Developer are found liable, they may still bring a cross-claim against any other person (including the architect) who they claim breached any duty of care owed to them.
- The three dissenting judges had different interpretations of the relevant statutes which would have resulted in a completely different outcome for the Builder and Developer.
Key takeaways
The High Court’s decision highlights the challenges ahead for consultants in carrying out their duties and managing risks, noting that both the architect and principal certifying authority (building surveyor) were named by the Builder and Developer in their defence as “concurrent wrongdoers”.
Although this case might initially sound like a good outcome for consultants given the Builder and Developer were found liable for the loss, it is important to note that consultants will often have an equivalent duty to the Builder and Developer pursuant to s37 of the DBP Act. This judgment means that it is unlikely consultants will be able to rely on proportionate liability as a defence should a party make a claim against them pursuant to s37. It may also mean that a consultant cannot plead proportionate liability as a defence if it was the negligence of their sub-consultant who caused the s37 claim in the first place.
The case is a timely reminder for construction professionals to:
- Prepare detailed contractual arrangements which clearly state your obligations and responsibilities to avoid any future dispute about your scope of work.
- Engage and properly supervise qualified sub-consultants. The High Court’s decision is clear in that simply engaging a sub-consultant is not enough – you must thoroughly oversee the work of any sub-consultant to minimise future risks.
- Ensure the sub-consultancy agreement mirrors your obligations to your client under your own consultancy agreement. Remember you are liable for the work of your sub-consultant therefore you should remove any “gap” in the services of the sub-consultant.
- Require your sub-consultant to have the same insurance requirements as your own consultancy agreement.
- Be thorough and meticulous in your record keeping, remembering contemporaneous written records outweigh oral evidence in litigation.
Conclusion
It is important to note that the upcoming NSW Building Bill will repeal and replace significant legislation in NSW, including the DBP Act. These legislative reforms may address the issues and complexities raised in this case, noting the High Court’s comments regarding the purpose of both the DBP Act and the CLA.
Our upcoming national webinar, Reform Around Construction – what consultants need to know, presented by Bronwyn Weir, Director at Weir Legal Consulting, will discuss current reforms around construction, including recent reports on building regulatory issues and proposed regulatory reforms. As a contributor to government reports, Bronwyn will provide valuable insight into ways design practitioners may implement changes to comply with the reforms and avoid risks.
Filomena Maffi
Risk Manager VIC
This article is only general advice in respect of risk management. It is not tailored to your individual needs or those of your business, nor is it intended to be relied upon as legal or insurance advice. For such assistance you should approach your legal and/or insurance advisors.