Who carries the can when construction goes wrong? The High Court makes a ruling

In the March 2024 issue of Council Connect, Bartier Perry discussed the Court of Appeal Judgment in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301 (the Appeal).

On 11 December 2024, the High Court of Australia handed down a final judgment in the case. We discuss this further below.

Recap

The complainant, Owners Corporation, had accused Madarina Pty Ltd (the Developer) and Pafburn Pty Ltd (the Builder) of breaching section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act). 

Section 37 of the DBP Act states that a person who “carries out construction work” has a duty to exercise reasonable care to avoid economic loss caused by defects.

Construction work can include:

• performing construction/building work

• preparing designs

• manufacturing a building product

• supervising, project managing, coordinating or having substantive control over the work.

As part of their defences, the Builder and the Developer alleged that other parties (such as the waterproofer, the manufacturer and local council as the consent authority) were proportionately liable for any economic loss. In other words, each party was liable only for their portion of contributed loss.

However, the Owners Corporation claimed that the duty of care in the DBP Act was ‘non-delegable’, making the Developer and the Builder wholly liable.

Chronology of findings

In the initial judgment, the Supreme Court found that the Builder and Developer could plead proportionate liability defences.

After the Owners Corporation appealed that decision, the Court of Appeal found that the Builder and Developer could not plead proportionate liability defences.

The proceedings were ultimately appealed to the High Court of Australia.

The High Court's findings

In a 4:3 split, the High Court dismissed the Builder and Developers’ appeal, finding that:

• the Developer and Builder wholly owed the duty of care under section 37 of the DBP Act

• the duty of care was not delegable to subcontractors, consultants or certifiers engaged by or on behalf of the Developer or the Builder.

What was the High Court's rationale?

The Court found that:

• Parliament had introduced the DBP Act to respond to the “crisis of confidence in respect of the safety and quality” of construction works in New South Wales, particularly because of building defects in incidents such as Mascot Towers.

• If the duty of care was delegable, it would create a collective liability, which would contradict the intention of  the DBP Act by complicating redress.

• The duty alleged to be owed by the council and principal certifying authority remains non-delegable:
  “… even if the source of these alleged duties on the part of the local council and the principal certifying authority is not s 37(1) of the DBPA (as pleaded), but is the common law (as also pleaded in respect of the principal certifying authority), the duties alleged to have been owed by the local council and the principal certifying authority remain within the scope of the non-delegable duties each appellant is pleaded to owe under s 37(1) of the DBPA and are therefore subject to the operation of s 5Q of the CLA, making each appellant vicariously liable for any failure by the local councilor the principal certifying authority to have exercised reasonable care in the carrying out of the tasks entrusted by the appellants to them.”

1. Neither the Developer or the Builder could discharge their duty by delegating the ‘construction work’ to someone else. The Court said:

“Contrary to the appellants’ submissions, the duty created by ss 37(1) and 39 of the DBPA is precisely the kind of nondelegable duty which s 5Q of the CLA contemplates

“Neither Madarina nor Pafburn, however, could discharge, exclude, or limit their s 37(1) duty by delegating or otherwise entrusting their ‘construction work’ to another competent person. On that basis, the liability of each of Madarina and Pafburn is ‘as if the liability were the vicarious liability of’ them for the whole of the construction work in relation to the Building.”

2. It is not self-evident that a certifier or local council is ‘a person who carries out construction work’ under the DBP Act.

What does this mean for council?

When push comes to shove, head contractors and developers can be wholly liable for breaches of the statutory duty under the DBP Act and cannot delegate this duty to downstream contractors. However, the question of whether a council is captured by the scope of the DBP Act remains open.

Authors: Nicholas Kallipolitis & Breitil Sulaiman

Read Council Connect April 2025 issue

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.