High Court rejects delegation of liability in Construction Cases
In a recent decision, the High Court has confirmed that builders and developers are fully responsible for the quality of their work and can't delegate it to subcontractors.
On 11 December 2024, the High Court delivered judgment in Pafburn Pty Limited & Anor v The Owners – Strata Plan No 84674 [2024] HCA 49. This has clarified a critical aspect of the Design and Building Practitioners Act 2020 (NSW) (“the Act”): the liability of developers and builders.
Background
The owners corporation of a building in North Sydney sued the developer, Pafburn Pty Limited, and the builder Madarina Pty Ltd, claiming damages for economic loss arising from defects in a building. It was alleged that Pafburn and Madarina had breached the statutory duty of care imposed by section 37 of the Act.
Pafburn and Madarina filed a defence pleading that they could only ever be proportionately liable for any defects because subcontractors would also be in the wrong. In response, the owners corporation filed an application seeking to strike out the defence on the basis that Pafburn and Madarina were vicariously liable for any wrongdoing of the subcontractors.
Duty of care under the Act
The Act was originally brought in to address public concerns about building defects and to clarify the duties owed by builders and developers to owners. Under section 37 of the Act, a person who carries out construction work must exercise reasonable care to avoid economic loss caused by defects.
Who is the duty owed to?
The duty is owed to all owners of the property, including subsequent owners. Critically, this means that owners corporations of strata schemes may sue the original builder for breach of this statutory duty, despite never having a contract with the builder. Generally, owners corporations do not otherwise have recourse against the original builder (this was previously decided by the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36).
Who is liable for breach of the duty?
This is where it gets tricky, and unsurprisingly, this is where the parties were at loggerheads. Section 41 of the Act provides that the statutory duty is subject to the Civil Liability Act 2002 (NSW) which provides that some claims are subject to the principle of apportionment, also known as proportionate liability, which in simple terms means that if anyone else was in the wrong as well, some of the claim can be apportioned to them. However, in other cases, the apportionment principle does not apply – in such cases, the person who delegates the work is responsible for the actions of the person to whom the work was delegated (i.e. no amount of finger pointing will get the delegator off the hook!). So, the Court was asked to decide whether builders and developers are liable for the faulty work of subcontractors.
The High Court decision
The Court considered the overall objective of the Act. In doing so, the Court had regard to the Second Reading Speech (i.e., the discussion in Parliament when the legislation was introduced), which recognised the need for reform to the building industry by preventing a person who performs construction work from delegating or contracting out of their duty.
The Court also considered section 39 of the Act, which states that the duty of care cannot be delegated. The Court stated that where a developer or builder carries out construction work, they cannot discharge their duty to exercise reasonable care by simply delegating the duty to others.
Ultimately, the Court ruled that neither Pafburn nor Madarina could limit their liability for breach of the duty by blaming others involved in the construction work – they are liable for the failures of their subcontractors to exercise reasonable care.
What does this mean?
The High Court decision reinforces the non-delegable nature of the duty imposed by the Act, ensuring that builders and developers remain accountable for the quality of their work and the safety of the buildings they construct. The effect of the decision is that:-
- Builders cannot limit their liability by pointing the finger at subcontractors. The builder is treated as 100% liable for the failures of those to whom they delegated work. So, if it’s your building project and it goes wrong, you’re paying for it, even if you’re not the one hammering in the nails.
- If a builder is sued for defects because a subcontractor has done faulty work, the builder will need to file a cross claim against the subcontractor. Accordingly, the terms of the subcontract will need to adequately protect the builder.
- Developers who supervise or project manage the whole building project have a duty to avoid economic loss caused by defects in any part of the building.
- If a contractor has only been engaged to do specific work (e.g., plumbing or carpentry), the duty is owed only in relation to defects in that work.
However, the judgment left open the possibility of certain parties within the construction industry distinguishing their obligations from the non-delegable obligations of builders and developers. If you are involved in a dispute involving building works, the best thing to do is to seek legal advice at an early stage. For assistance, please contact Ben Hemsworth on (02) 9923 2321 or email us at enquiries@somervillelegal.com.au.