Proportionate liability defence unavailable for builders, developers and head contractors

The recent decision of the NSW Court of Appeal in the case of The Owners — Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301 provides further guidance on the expansive and increasingly consumer friendly scope of the statutory duty of care recently introduced by section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act) (explained in detail here). Absent any impending legislative changes, it also creates a situation akin to that prior to the introduction of the proportionate liability regime.

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[1], the Supreme Court of NSW relevantly 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 Act2002 (NSW). That is, the liability of a party who breached its duty was able to be reduced proportionately to the extent that another ‘wrongdoer’ caused or contributed to the loss alleged.

The Owners appealed this decision.

Appeal judgment

The NSW Court of Appeal overturned the decision of the Supreme Court, finding that the duty of care owed under the DBP Act was non-delegable, and therefore unable to be apportioned, stating:

“It is neither unjust nor contrary to public policy for a wrongdoer which breaches a non-delegable duty to remain liable to the injured party for the whole of the loss since this is the purpose and effect of a non-delegable duty. To read Part 4 of the Civil Liability Act as applying to an action for breach of a non-delegable duty, whether imposed by the common law or, as in the present case, imposed by statute, would be entirely inconsistent with the character of the builder’s duty as non-delegable. In these circumstances, the proportionate liability provisions of the Act can have no sensible application.”

Implications

The Court of Appeal’s decision, however, is focused on the application of the non-delegable duty owed under the DBP Act by the builder and developer who sought to apportion their liability to a number of their subcontractors.

The effect of the decision, insofar as it prevents the ability to raise a proportionate liability defence, is seemingly confined to parties who seek to apportion their liability to other parties to whom they have contracted (or otherwise delegated) some or all of their role. As explained by the Court:

“non-delegable duty” is an inelegant label given to circumstances where a form of strict liability is imposed on a principal for the negligence of a person to whom it has in fact “delegated” the performance of a function, without freeing itself from the liability for that performance by an independent contractor.

To the extent that a proportionate liability defence does not involve an element of delegation, it appears to still be available based on the limited reasoning of the Court of Appeal. However, this may be further clarified by the Court in subsequent decisions.

The main effect of this decision, though, is seemingly a throwback to the days prior to the introduction of the Civil Liability Act and the proportionate liability regime. It means that that builders, developers, head contractors and other contractors involved in multi-party building developments will remain fully liable to a claim by plaintiffs for breach of duty of care owed under the DBP Act. These parties will now need to separately claim against each other and their subcontractors to attempt to pass through their liability, rather than for the Court to apportion liability based on an assessed percentage of fault.

Although it might have the effect of reducing the number of parties required to be joined by the Owners of a building to a primary proceeding, this decision will certainly increase the number of cross-claims (and/or recovery proceedings) that arise from each primary claim. This will in turn further increase the number of parties (and consequent insurance claims), complexity and costs for construction professionals and their insurers associated with bringing building and construction claims to a resolution. It will likely also cause the need for higher insurance limits for likely primary defendants (builders, lead construction professionals) due to the real risk of judgments for unapportioned damages.

[1] The Owners — Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWSC 116