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Proportionate liability regime does not apply to claims for breach of the statutory duty of care under the Design and Building Practitioners Act (NSW) 2020

Insurance Law & Litigation
Construction site.

The NSW Court of Appeal in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301 (Proceedings) has overturned the earlier decision of the NSW Supreme Court and confirmed that the proportionate liability regime does not apply to claims for breach of the statutory duty of care under the Design and Building Practitioners Act (NSW) 2020 (DBP Act).

Background facts

Parties

  1. The Plaintiff is the Owners Corporation for a multi residential development in North Sydney;
  2. Pafburn was the builder; and
  3. Madarina was the developer.

The Claim

  1. The Plaintiff alleged that Pafburn and Madarina breached their statutory duties of care under s 37 of the DBP Act as:
  • a. Pafburn constructed the building defectively; and
  • b. Madarina had substantial control over the defective construction work carried out by Pafburn.

    (collectively, the Claim)
  1. In their defences, both Pafburn and Madarina pleaded that the Plaintiffs' claim was apportionable under Part 4 of the Civil Liability Act 2002 NSW (CLA) and named nine other parties (including consultants and other subcontractors engaged in the construction of the building) as concurrent wrongdoers.

The Motion to Strike Out Proportionate Liability Defences Raised by the Defendants

The Plaintiff brought a motion seeking to strike out Pafburn and Madarina's defences on the basis that the duty of care under s 37 of the DBP Act is non-delegable (s 39 of the DBP Act) and the defendants were vicariously liable for their delegates (by reason of s 5Q of the CLA), which included the 9 concurrent wrongdoers. Part 4 of the CLA does not apply to limit liability under s 5Q.

Decision at first instance

Rees J concluded that the terms "liability in tort … for breach of non-delegable duty" in s 5Q are confined to a common law tort and a common law breach. Accordingly, Her Honour found that s 5Q does not apply to a statutory liability, such as the non-delegable duty imposed by the DBP Act and the proportionate liability defences under Part 4 of the CLA applied to claims for a breach of the duty.

Appeal

The Court of Appeal unanimously overturned Rees J's decision and found that s 5Q also applied to the non-delegable statutory duty under the DBP Act. The Court of Appeal further held that the fact that the duty is non-delegable by reason of s 39 of the DBP Act is sufficient to exclude the Part 4 of the CLA. As such the defendants proportionate liability defences were struck out although the Court noted that the defendants would be entitled to bring cross-claim(s) against the concurrent wrongdoers.

Conclusion and comment

The Court of Appeal decision is significant in that it has clarified that claims for breaches of the statutory duty under the DBP Act are not apportionable. A defendant will be wholly liable to the plaintiff for breach of the duty and, to the extent there are other liable parties, the defendant will have to bring cross-claims against those parties.

On one view, the change is not significant for builders and developers who must already respond to non-apportionable claims for breach of the warranties under Home Building Act 1989. The need to bring cross-claims to avoid 100% liability for the claimed loss is, however, a significant change for consultants and their insurers.

In the building and construction context, the decision dramatically winds back the protections for the insurance industry under the CLA that were introduced to ease the insurance crisis. It comes at a time when the construction industry itself is in crisis with insolvencies at an all time high. The inability to rely on proportionate liability defences will increase the costs and complexity involved in defending claims for breach of the statutory duty under the DBP Act and increase the financial pressure on the construction industry and its insurers.

All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.

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Marco Giallonardo

Marco Giallonardo