On 11 December 2024, the High Court of Australia handed down its decision in Pafburn Pty Limited & Anor v The Owners - Strata Plan No 84674¹, a landmark case concerning the application of the proportionate liability scheme in Part 4 of the Civil Liability Act (2002) (NSW) (CLA) to claims brought under the Design and Building Practitioners Act 2020 (NSW) (DBPA).

Facts

The Owners – Strata Plan No 84674 (Owners) commenced proceedings against Pafburn Pty Limited (ACN 003 485 505) (Builder) and Madarina Pty Limited (ACN 080 675 627) (Developer) for alleged breaches of the statutory duty of care prescribed by section 37(1) of the DBPA. Section 37(1) provides that a person who carries out “construction work” has a duty to exercise reasonable care to avoid economic loss caused by defects:

(a) in or related to a building for which the work is done; and

(b) arising from the construction work.   

The crux of the Owners’ argument was that the Builder constructed a defective building, and the Developer, by allegedly supervising, coordinating, project managing and having substantive control over the defective building work, breached the non-delegable statutory duty under the DBPA to exercise reasonable care to avoid economic loss caused by defects.

The Builder conceded that it owed the section 37(1) duty of care to the Owners, however, in defence, both the Builder and Developer asserted that the Owners’ claim should be subject to the proportionate liability scheme established by Part 4 of the CLA. They named several other parties involved in the construction project as “concurrent wrongdoers”, seeking to divide responsibility for any damage.

The Owners originally brought a motion seeking to strike out the defence argument of the Builder and Developer on the basis that:

(a) section 39 of the DBPA explicitly states that the duty of care cannot be delegated, rendering the concept of proportionate liability inapplicable; and

(b) the Builder and Developer were vicariously liable for their delegates by reason of s 5Q of the CLA.

At first instance, Rees J of the Supreme Court ruled in favour of the Builder and Developer, allowing them to raise the proportionate liability defence on the basis that the statutory duty established by section 37(1) of the DBPA was not a “tort” for the purposes of s 5Q of the CLA.

The Court of Appeal allowed the appeal, unanimously overturning the first instance decision on the basis that by providing that the duty was “non-delegable” (s 39 of the DBPA), the DBPA excluded any right the Builder and Developer might have had to apportion liability between themselves and concurrent wrongdoers under Part 4 of the CLA.

Central Legal Issue

The key question before the High Court was whether the proportionate liability scheme in the CLA applied to claims brought under section 37 of the DBPA. In the words of the majority, whether the developer or the head building contractor, 

… can rely on the failure of another person to take reasonable care in carrying out construction work, or otherwise performing any function in relation to that work, to limit their liability under part 4 of the CLA to an amount reflecting the proportion of the loss that a court considers just having regard to the extent of the responsibility of each for the damage or loss… ²

The High Court’s Split Decision

Majority

The High Court was divided in its decision, issuing two separate sets of reasons. The majority held that the DBPA duty cannot be apportioned. In reaching this decision, their Honours relied on:

• section 39 of the DBPA which provides that a “person who owes a duty of care under [Part 4 of the DBPA] is not entitled to delegate that duty”; and
• section 41(3) of the DBPA which provides that Part 4 of the DBPA “is subject to the Civil Liability Act 2002” which in turn means that ss 37(1) and 39 of the DBPA is subject to, amongst other provisions of the CLA, s 5Q of the CLA.

The effect of sections 39 and 41(3) is that the Builder and Developer:

• cannot exclude or limit their liability by apportioning any part of that liability to any of those persons to whom each, in fact, delegated or otherwise entrusted any part of the construction work.³ This is because section 39 creates a non-delegable duty, rendering the Builder and Developer personally liable for the entire economic loss caused by defects in the Building, regardless of the involvement of other parties; and
• are vicariously liable (100% liable), by reason of section 5Q of the CLA, for the negligence of the person in connection with the performance of the work or task involving “construction work” that the Builder and Developer delegated or otherwise entrusted to any other person.⁴

The result is that the liability of the appellants for breach of the s 37(1) duty (if established) makes them personally liable for the whole of the economic loss caused by their breach (if both causation of loss by the breach and amount of the loss are also established).⁵ There can be no apportionment of liability; rather, by section 5Q, the Builder and Developer are 100% liable for any failure to exercise reasonable care to avoid economic loss caused by defects on the part of wrongdoers who in fact carried out the work or task from which the defects arose.⁶

However, the majority confirmed that developers or head contractors facing DBPA claims can still pursue crossclaims against other parties who they allege breached applicable duties of care owed to them.⁷

Implications

This decision will have significant implications for the construction industry. Developers and head building contractors face a high bar when attempting to limit their liability for building defects under the DBPA, as they cannot rely on the proportionate liability scheme of the CLA to deflect responsibility for work delegated to others. This highlights the importance of diligent oversight by developers and head contractors who will need to carefully select and manage subcontractors and other parties involved in a project to minimise the risk of defects and avoid bearing full responsibility for any resulting economic loss.

Conclusion

Pafburn represents a crucial development in the interpretation of the DBPA and its relationship with the CLA. It imposes a stringent, non-delegable duty of care on key players in the construction process. This decision will likely have a significant impact on future building defect litigation, potentially leading to greater accountability for developers and head contractors while prompting a more nuanced understanding of the scope of "construction work" and the roles of various parties involved in building projects.

1. [2024] HCA 49.
2. Ibid [1]. 
3. Ibid [57].
4. Ibid [55].
5. Ibid [62]. 
6. Ibid [57].
7. Ibid [65].