High Court Decision on Non-Delegable Duty of Care in Construction Law

Introduction

In a pivotal decision for the construction industry, the High Court in Pafburn Pty Ltd & Anor v The Owners – Strata Plan No 84674 [2024] HCA 49 has ruled that the statutory duty of care owed by developers and head contractors under the Design and Building Practitioners Act 2020 (NSW) (DBPA) is non-delegable and not apportionable. This ruling has significant implications for developers, contractors, and their insurers.

Relevant Legislation

Section 37 of the DBPA imposes a duty on anyone carrying out ‘construction work’ to exercise reasonable care to avoid causing economic loss caused by defects, including (1) those related to a building for which the work is done or (2) those arising out of construction work. This duty extends to both current and subsequent owners of the land.

Apportionment legislation is also relevant here as the defendants (developer and head contractor) contended that apportionment liability should apply to limit their liability to their proven wrongdoing. In NSW, the relevant statute is the Civil Liability Act 2002 (NSW) (CLA).

Case Facts

In this case, the defendants (Pafburn and Madarina) were a developer and head contractor for building works of a residential block of units. The Owners claimed that there were defects in the works and sought damages from the defendants. The Owners alleged that in carrying out the construction work, the defendants owed them a duty under s37 of the DBPA to exercise reasonable care to avoid economic loss caused by defects.

Importantly, the Owners argued that the statutory duty of care under the DBPA was non-delegable. They claimed that the developer and head contractor were personally responsible for the entire construction project, including the work performed by subcontractors. In essence, they sought to hold Madarina and Pafburn fully accountable for any defects in the building.

In response, the defendants argued that they were not liable. Further, the defendants argued that if it was determined otherwise, the Owners’ claim was an ‘apportionable claim’ under s34 of the CLA, therefore meaning that their liability should be limited to the amount reflecting the portion of the damage for which they were liable.

Decision

In a 4 to 3 decision, the High Court ruled that the proportionate liability regime in the CLA did not apply to claims for breach of section 37 of the DBPA. The Court's reasoning turned on the interpretation of the DBPA and its interaction with the CLA. The High Court ruling confirmed that claims for breach of section 37 of the DBPA are not subject to apportionment under the CLA. In sum, developers and head contractors cannot reduce their liability by sharing it with subcontractors or other parties involved; their responsibility for defects in the building is personal, and they remain fully liable for the entire loss.

Implications

The decided nature of the statutory duty as non-delegable means that developers and head contractors cannot avoid responsibility for defects by outsourcing work or relying on subcontractors. They must bear the full risk, even for work they did not directly perform.

Vicarious liability is a legal point that also requires attention here. Vicarious liability refers to a legal situation where one person is held responsible for the actions of another person. Generally, developers and head contractors are treated as vicariously liable for the actions of their subcontractors. This means they are responsible for ensuring that subcontractors and others involved in construction work exercise reasonable care. However, they cannot limit their liability based on how much of the work was performed by subcontractors.

Turning to address more practical consequences, developers and head contractors who find themselves in an analogous situation to this case must carefully consider their contractual arrangements with subcontractors and ensure they are financially prepared to bear the full cost of any defects.

Conclusion

Developers, head contractors, and their insurers face higher exposure to risk because they cannot rely on the proportionate liability regime in these facts. The ruling makes them wholly responsible for the defects, regardless of who actually caused the issue. This could result in increased insurance costs and a need for more careful risk management strategies. With the apportionment liability legislation unavailable, a developer or contractor in an analogous situation to this case may be required to bring cross-claims against subcontractors or consultants who may have contributed to the defects, however, this legal avenue does not reduce the initial liability held by the court.

To learn more about any of the matters discussed here, or if you require legal assistance, please contact Chris Moshidis, Director and Principal Lawyer on +61 9521 7956 or chris@urbanlawyers.com.au.