High Court confirms apportionment defence not available for developers or head contractors

In a significant decision for the application of proportionate liability in construction cases in NSW, on 11 December 2024, the High Court of Australia handed down its decision in Pafburn Pty Limited v the Owners – Strata Plan No. 84674 [2024] HCA 49.

In dismissing the appeal, the Court agreed with the NSW Court of Appeal that developers and head contractors who carry out “construction work” within the meaning of the Design and Building Practitioners Act 2020 (NSW) (DBP Act) will remain 100% liable for a failure to take reasonable care in the execution of those works, regardless of whether or not they subcontracted those works to others. Our article as to the underlying Court of Appeal decision can be found here.

Background

The Owners of a residential strata development in North Sydney brought a claim for breach of duty under section 37 of the DBP Act against the builder and developer responsible for the design and construction of the development.

At first instance(The Owners Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWSC 116), the Supreme Court of NSW found that a claim for breach of duty owed under the DBP Act was an apportionable claim within the meaning of Part 4 of the Civil Liability Act 2002 (NSW) (CLA). That is, the liability of a party who breached its duty owed under the DBP Act was able to be reduced proportionately to the extent that another 'wrongdoer' caused or contributed to the loss alleged.

The Owners appealed this decision to the NSW Court of Appeal, which overturned the decision of the Supreme Court, finding that the duty of care owed under the DBP Act was non-delegable, as expressly provided for in the DBP Act and therefore unable to be apportioned. What this means is, essentially, that, although a head contractor is able to delegate (or subcontract) certain aspects of the construction work it has agreed to perform to third parties, this does not absolve or otherwise reduce the liability of that head contractor for performance of this work.

High Court decision

Special Leave was granted to appeal the NSW Court of Appeal decision to the High Court. On appeal, the majority of the full Court of the High Court determined the primary question on appeal as follows:

Question: Can a developer or head contractor reduce their liability for a breach of their duty of care owed under section 37(1) of the DBP Act under the proportionate liability regime in the CLA i.e. can a developer or head contractor rely on the failure of another person to take reasonable care in carrying out construction work and thereby reduce their liability for a breach of their duty of care owed under the DBP Act?

Answer: No. Under section 5Q of the CLA, developers and head contractors are to be treated as if they are vicariously liable for any failure to take reasonable care by those to whom they subcontract. On this basis, a developer and head contract cannot exclude or limit their liability by apportioning it to those persons to whom each, in fact, delegated or otherwise entrusted any part of the construction work in relation to the Building.

The High Court’s determination on the operation of the DBP Act aligns with the stated intention behind its introduction, being as a response to the “crisis of confidence” in respect of the safety and quality of residential apartment buildings in New South Wales following the Opal Tower and Mascot Towers incidents.

Implications

The result of the High Court’s finding on the above question is that developers and head contractors will be held to be 100% liable for the actions of their subcontractors and consultants to whom they have delegated some or all of their construction work.

The decision is confined solely to developers and head contractors. It still remains unsettled whether other participants in a construction project are able to successfully rely on an apportionment defence under the CLA.