Since her admission in 2021, Gretel has been assisting builders, strata managers, owners corporations, and individuals in navigating complex legal proceedings and settlements.
Assisting companies and individuals navigate their way through the realm of construction law is a passion of Gretel’s. At Kreisson, Gretel has concentrated on providing legal advice and representation in a range of construction law disputes and enquiries, including matters involving defect claims, contractual disputes, and regulatory compliance. Gretel has also developed a practice in the area of strata law, guiding owners corporations and strata managers through strata focused disputes and issues.
Throughout her time at Kreisson, she has developed hands-on experience representing clients in courts, tribunals, and through alternative dispute resolution methods such as mediation, ensuring her clients are well-supported and well-informed through every stage of the process.
On 11 December 2024, the High Court handed down its decision Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49.
For a summary of the background facts and the arguments put forth by each party, you can read our previous article here linked:
Update on the Pafburn Saga – from the High Court
The High Court had to decide whether Madarina (the developer) and Pafburn (the head contractor) (together, the Appellants), can “rely on the failure of another person (such as a subcontractor) to take reasonable care in carrying out construction work, or otherwise performing any function in relation to that work, to limit their liability under Pt 4 of the Civil Liability Act 2002 (NSW) (“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” (at [1], [emphasis added]).
The decision was split 4:3. In short, the majority (being four out of seven Justices) found that Madarina and Pafburn wholly owe the duty of care pursuant to section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA) (s. 37 DOC), and that the duty is not delegable to the subcontractors or certifiers engaged by Pafburn and/or Madarina. In other words, the developer and the head contractor cannot avoid, limit or reduce liability by delegating work to others.
On the other hand, the minority (three out of seven Justices), in part, agreed with Pafburn and Madardina.
This article summarises both the majority and minority decisions of the High Court.
The Court had to decipher how section 37, 39 and 41 of the DBPA, and sections 5Q and 39 of the CLA worked together (amongst other provisions).
Those sections are summarised below:
DBPA
Section 37 of the DBPA sets out the s. 37 DOC, namely, the duty to take reasonable care to avoid economic loss caused by defects . This duty is owed by persons who carry out construction work.
Section 39 of the DBPA states that the s. 37 DOC is non-delegable. In other words, a person who carries out construction work cannot delegate the s. 37 DOC to another person.
Section 41 of the DBPA provides that Part 6 of the DBPA (which includes the above mentioned sections) is subject to the CLA.
CLA
Section 5Q of the CLA states that if a person owes a non-delegable duty, then that person is vicariously liable to others it engaged to complete the works.
It should be noted however that the use of the term ‘non-delegable’ in section 5Q of the CLA is a reference to the concept’s common law meaning, being “a type of duty of care which, if owed by a person, means that the person cannot exclude or limit their liability for conduct within the scope of the duty of care causing reasonably foreseeable harm merely by the person exercising reasonable care in arranging for another person to perform the function to which the non-delegable duty of care attaches” (see [20]). This is different to the statutory meaning provided in s. 39 of the DBPA.
Finally, section 39 of the CLA provides that, where a person is vicariously liable to another, then they are liable for the other person’s portion of liability.
Our previous article goes into further depth as to each party’s position; however, those positions can be summarised as follows.
The Appellants
The Appellants argued that the s. 37 DOC is owed by each person that “carries out construction work” and as such is an apportionable claim pursuant to section 34 CLA. The concurrent wrongdoers are the other people that carried out the construction work, such as a waterproofer, plumbers and electricians. As such, the Appellants argued that their liability should be reduced by the liability owed by the subcontractors and certifiers who also carried out the alleged defective construction works which led to the alleged loss.
The Owners
The Owners argued that Madarina and Pafburn each owe the s. 37 DOC, that section 39 DBPA makes the duty non-delegable, and the combination of section 5Q CLA and 39 DBPA means the Appellants are vicariously liable for the subcontractors and the certifiers they engaged.
The majority held that:
1. the s. 37 DOC when read with section 39 of the DBPA imposes a non-delegable duty;
2. section 5Q of the CLA applies to non-delegable duties, and as such a person can be vicariously liable for the negligence of those to whom the work was delegated;
3. the proportionate liability scheme under Part 4 of the CLA does not apply to the duty imposed by section 37 of the DBPA; and
4. the appellants (builder and developer) cannot limit their liability by apportioning to other ‘concurrent wrongdoers’ (e.g., subcontractors) because are wholly liable for the economic loss caused by construction defects and vicariously liable to the persons they engaged.
5. the appellants (builder and developer) can still pursue cross-claims against others (subcontractors) for breach of any applicable duty owed to them, to the extent that they are they are found liable to the Owners.
At [52], the majority (Gageler CJ, and Gleeson, Jagot and Beech-Jones JJ stated that:
“[…] the scope of the s 37(1) duty extends to all defects in or related to that building arising from all construction work in relation to the building whether or not the person in fact performed any of the physical acts comprising that construction work. In the case of a person who “supervises etc” work in para (a), (b) or (c) of the definition of “construction work” for part of the building (such as the foundations), the scope of the s 37(1) duty extends to all defects in or related to that part of the building (i.e., the foundations) arising from all such construction work.[Emphasis added]”
In other words, the following makes the Appellants liable to owe the s. 37 DOC (see [56]):
“(a) Madarina (as developer) “delegated or otherwise entrusted to” Pafburn the construction of the Building and, in so doing, “supervised etc” the whole of that construction work; and
(b) Pafburn (as head building contractor) constructed the whole of the Building and, in so doing, delegated or otherwise entrusted many kinds of construction work to others.
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 [such as a subcontractor]. 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.”
As such, the majority ruled that neither Appellant could delegate or entrust their ‘construction work’ to another person and as such are vicariously liable (per s. 5Q of the CLA) for the subcontractors and certifiers they engaged to actually carry out the construction work. Therefore, the Appellants cannot apportion any of their liability to the subcontractors or certifiers.
The decision concluded by noting that the Owners now must prove that the Appellants caused the economic loss claimed.
Minority judgement
Notably, three out of the four Justices of the High Court dissented and found in favour of the developer and builder.
Gordon, Edelman and Steward JJ forming the minority, on the other hand ruled in favour of the Appellants (minority judgment).
In summary, the minority judgement found that the s. 37 DOC is apportionable considering at least the following:
1. When interpreting legislation, one must begin with the text of the legislation/provision itself, as opposed to “any assumption about the desired reach or operation of the relevant provisions” (see [71]).
2. Weight was to be placed on the wording of s. 37 of the DBPA, and in doing so, the minority pointed out that there are two aspects to the s. 37 DOC, namely that:
a) S. 37 creates a “statutory duty to take reasonable care to avoid economic loss caused by defects” and is imposed on “a person who carries out construction work”. The minority went on further to opine that “given the different ‘construction work’ each person ‘carries out’, the scope of the duty owed by each person is different”; and
b) The s. 37 DOC is owed to subsequent owners. The minority found this part was included to clarify that the duty is owed to an end user (an uncertainty that lies with the common law negligence claim).
Section 39 of the DBPA does not turn the s. 37 DOC into the common law ‘non-delegable’ duty (as defined at the beginning of this article), but rather it simply ensures that a person who owes the s. 37 DOC cannot escape liability by assigning the part of the work they completed to someone else (see [81]).
In coming to its decision, the minority noted that, head contractors engage subcontractors to complete works in which the head contractors themselves are not experienced, or in work which they are not equipped to do, and as such it would seem to be unreasonable to make a head contractor strictly liable for work it did not, and could not complete (see [81] and [87] to [88]).
The minority also found that s. 5Q of the CLA does not apply to the s. 37 DOC, reasoning that (see [90] and [91]):
a) The s. 37 DOC imposes a duty to exercise reasonable care to avoid economic loss caused by defects which cannot be delegated;
b) S. 5Q of the CLA is concerned with a non-delegable duty of strict liability to ensure reasonable care is taken;
c) The s. 37 DOC is not one of strict liability;
d) The s. 5Q provision is concerned with the common law non-delegable duties;
e) A “non-delegable duty is not a duty of care” but the s. 37 DOC expressly states that it is a duty of care; and
f) Further, a ‘non-delegable duty’ is owed by the employer alone, whereas the s. 37 DOC is owed by all workers carrying out construction work.
The effect of this decision is that, in circumstances where an owner of a property sues a builder for defects, the builder will be wholly liable for the cost of the defects, and unable to blame others (such as its subcontractors) in the first instance to reduce the liability owed to the owner.
However, a builder may sue the subcontractors responsible for the defective works, by way of a cross-claim, to recoup the moneys it paid to the owner.
If you would like more information on the above or need any assistance, please contact us on 02 8329 6500 or excellence@kreisson.com.au
This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.
Legalese: The statutory duty owed under the Design and Building Practitioners Act 2020 (NSW) (DBPA) and statutory warranties owed under the Home Building Act 1989 (NSW) (HBA) are not apportionable, subject to the common law principal of vicarious liability, and therefore the proportionate liability scheme will not apply.
Plain English: Basically, if you are found liable for defective works under the HBA or DBPA, you will be made to wear the entire blame. You cannot share this blame with others (such as your subcontractors or the Owners of the property).
In this part of the article, we define key terms:
Proportionate Liability is a scheme in NSW established by the Civil Liability Act 2000 (NSW) (CLA). It allows persons who are found to be liable for damages to share (or apportion) the blame and the costs of that damage with others who contributed to the damage. It goes a step further and allows the damages to be apportioned depending on how much damage each wrongdoer is found to be liable for.
Vicarious liability is a common law principle which provides that an employer can be held legally responsible for the actions of their employees.
A statutory duty is a duty imposed on someone by the legislation. This includes:
The duty owed by a person who carries out construction work thereby owing a duty to exercise reasonable care to avoid economic loss caused by defects (see s. 37 of the DBPA).
A statutory warranty is an obligation owed by someone, and a right afforded to someone else, and both of which are established by legislation. This includes:
The duty owed by a person who completes construction works to the principal/property owner, to the effect that the works will be completed in a timely, proper and workmanlike manner and that the end result will be fit for habitation (see s. 18B of the HBA).
Below we touch on two cases where this principle of non-delegable statutory duty has recently been confirmed.
The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301
In this matter, the Owners sued Pafburn (being the builder) and Madarina Pty Ltd (the developer), arguing that both entities breached the statutory duty owed under the DBPA as the building works completed by the pair were said to be defective.
Pafburn admitted that it owed the Owners the statutory duty under the DBPA. However, it argued that it should not solely wear the blame, and that its nine subcontractors (made up of manufacturers, suppliers, certifiers, tilers, waterproofers, council and formwork subcontractors) who contributed to the defective works should be held to be proportionally liable (if there was liability).
The Court reminded the public of s. 37(3) of the DBPA, which provides the statutory duty under the DBPA is to be treated as though it is a common law duty. This means that the principal of vicarious liability applies (i.e. employer responsible for employee actions/omissions).
As a result, the Court determined Pafburn could not apportion the liability of the defective works with the 9 subcontractors.
In legalese:
“[101] Whether as a matter of general law principle, or by operation of s 5Q [of the CLA], the liability of the respondents [Pafburn] in the present case should be treated as a form of vicarious liability [employer responsible for employee] which is not subject to any limitation on their liability by apportionment as between them and concurrent wrongdoers under Pt 4 of the Civil Liability Act. There are two available pathways, but they reach the same conclusion.”
This decision has been appealed to the High Court and the decision is currently reserved.
The Owners – Strata Plan 80867 v Da Silva [2024] NSWDC 263
On 5 July 2024, the Court confirmed that the HBA statutory warranties are also non-delegable.
In this matter, the Owners sued Da Silva (being a waterproofing contractor) for completing defective works on the property. The defect meant that water from the balconies could enter inside the apartments through the sliding doors when it rained.
Da Silva admitted that the works were defective but argued that the liability for the defects should be apportioned with the installer of the sliding doors for incorrect installation, and also with the Owners for giving instructions to not complete the works to code. Both points were successfully defended by the Owners.
The Court reminded the parties of s. 34(3A) of the CLA, which provides that the proportionate liability scheme does not apply to the statutory warranties owed under the HBA.
Therefore, Da Silva was found solely liable for the defective works.
In legalese:
“[265] Section 34(3A) [of the CLA], which is in Part 4 [the part which provides the proportionate liability scheme], provides that “This Part does not apply to a claim in an action for damages arising from a breach of statutory duty under Part 2C [being the part that contains the statutory warranties] of the Home Building Act 1989 and brought by a person having the benefit of the statutory warranty”.
If you would like more information on the above or need any assistance, please contact us on 02 8329 6500 or excellence@kreisson.com.au
This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.
Very briefly, this matter was brought by the Owners of Strata Plan 84674 (the Owners or the Respondent) after allegedly defective works were completed at their property.
The Owners brought proceedings against Pafburn (being the builder) and Madarina Pty Ltd (the developer) (together, the Appellants), arguing that both entities breached the statutory duty to exercise reasonable care to avoid economic loss caused by defects owed under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA).
Pafburn admitted that it owed the Owners the statutory duty under the DBPA, but Pafburn defended that it should not solely wear the blame as its subcontractors (which included manufacturers, suppliers and certifiers/council) contributed to the defective works.
The NSW Court of Appeal found that Pafburn could not apportion its liability with the subcontractors (proportionate liability) due to operation of section 37 of the DBPA, holding that it was a non-delegable duty, in the context of the Civil Liability Act 2002 (NSW) (CLA).
Pafburn now appeals that decision.
On 15 October 2024, the parties to these proceedings argued their respective cases before the High Court.
In the anticipation of the ruling, this article simply summarises the positions and submissions of each party.
The Appellants’ position is ultimately that the section 37 duty to exercise reasonable care to avoid economic loss caused by defects (section 37 Duty) is owed by those who actually do the work (such as subcontractors) and that a head contractor who supervises or has substantial control over said work may also owe the section 37 Duty.
In other words, and I quote Mr Hutley (Senior Counsel for the Appellants):
“The central point, which we will develop, is that this is a duty which attaches to a person who carries out work, and we say whilst they are carrying out the work. It is a duty owed by that person or organisation in relation to the work that they carry out…
… We say the question is this: who is carrying out the work?”
Further, the Appellants argue that the proportionate liability scheme does apply to the section 37 Duty as the subcontractors are not vicarious to the head contractor and so owe the duty themselves.
In doing so, the Appellants’ identified 3 key issues:
ISSUE 1: Does the duty established by section 37 DBPA, together with section 39 DBPA, fall within the duty identified in section 5Q CLA
Section 37(1) states that “A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects…”.
I have extracted section 37 and 39 in full for reference here:
37 Extension of duty of care
(1) 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.
(2) The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land.
(3) A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law.
(4) The duty of care is owed to an owner whether or not the construction work was carried out—
(a) under a contract or other arrangement entered into with the owner or another person, or
(b) otherwise than under a contract or arrangement.
39 Duty must not be delegated
A person who owes a duty of care under this Part is not entitled to delegate that duty.
The Appellants argue that the section 37 Duty attaches to the person who actually carried out the construction work due to the use of the words “carries out”
The Appellant’s distinguish this section from Parts 2 and 3 of the DBPA, which sets out a duty to “ensure” which they argue applies to a person in a specific role (e.g. building or design practitioner) etc.
Therefore, the Appellants say that a subcontractor who actually carried out the building works owes the section 37 Duty, and that a person such as a head contractor may also owe that duty where they have supervised, coordinated, project managed or otherwise had substantive control over the works (see section 36 definition of construction work).
As for the operation of section 39 of the DBPA, the Appellants argue that section 39 (and I quote Mr Hutley’s submissions):
In other words (and I quote Gordon J), section “39 … says, you are both [eg, contractor and subcontractor] under a separate duty of care in respect of your respective obligations, and you cannot blame each other”.
Finally, the Appellant goes a step further and also argues that section 5Q of the CLA operates in the same fashion as section 39 of the DBPA.
I have extracted section 5Q of the CLA herein for reference:
5Q Liability based on non-delegable duty
(1) The extent of liability in tort of a person (the defendant) for breach of a non-delegable duty to ensure that reasonable care is taken by a person in the carrying out of any work or task delegated or otherwise entrusted to the person by the defendant is to be determined as if the liability were the vicarious liability of the defendant for the negligence of the person in connection with the performance of the work or task.
(2) This section applies to an action in tort whether or not it is an action in negligence, despite anything to the contrary in section 5A.
ISSUE 2: Can Part 4 of the CLA apply to a claim for breach of the duty established by section 37 DBPA?
Part 4 of the CLA sets out the proportionate liability scheme.
The Appellants argue that due to at least:
Part 4 of the CLA applies to the section 37 Duty under the DBPA.
Further, the CLA still allows a concurrent wrongdoer who is vicarious to the same apportionment as the person who is vicariously liable. For example, a head contractor will be vicariously liable for its employee, but not for the council certifiers, because they did not delegate the work to the council, rather engaged their services.
ISSUE 3: Is Part 4 of the CLA inapplicable to every claim against any person or entity the subject of a claim under section 37 of the DBPA if section 5Q and 39(a) of the CLA are enlivened?
The Appellants argue that the persons who they claim are concurrent wrongdoers are not vicarious to the Appellants and so are liable for their proportion of the loss.
The concurrent wrongdoers are:
In summary, it is the Respondent’s position that the section 37 Duty owed under the DBPA is non-delegable and as such the Appellants are responsible for the damages.
In coming to this position, the Respondent set out the following in its outline of submissions:
In respect of the CLA provisions:
In response to the Appellant’s arguing that the section 37 Duty extends to those who actually do the works, the Respondent argued:
At hearing, the Respondent made responsive submissions, which are summarised below:
In respect of the section 37 Duty, Mr Walker (Senior Counsel for the Respondent) explains that the section 37 Duty extends to somebody whether they do the construction work themselves or whether they employ a separate person to carry out the works:
“It is not seeing whether your paperwork and your diary is good enough for visiting the site. Whatever AICD may say about appropriate oversight, et cetera. It is a duty to avoid defects, and it is a duty to exercise reasonable care in that sense. We say that, in fact, “carries out” plainly includes having it carried out by others, not just your employees – that is, servants or agents in the old‑fashioned phrase – but also subcontractors or people who have managed to come on and do work, and will only be paid under a quantum meruit. It does not matter.” (quote from Mr Walker).
In respect of the function of section 39, Mr Walker explains:
“Section 39 is not some rootless, amorphous, defensive gesture. It is designed to ensure that the duty of care, relevantly under section 37 – that is the one we are interested in – is one which cannot carry in the train of its breach by the person who owes the duty the consequences of delegation. That is a long‑winded way of trying to spell out the meaning of the terse expression: not entitled to delegate that duty.”
So, in basic terms, it seems that the Respondent takes the position that:
There was discussion regarding how the DBPA works with the CLA, and it seems the Respondent’s position is that section 5Q of the CLA (which sets out vicarious liability) is of no utility in the light of section 39 of the DBPA (which states that the section 37 DBPA duty is not delegable).
We now await the High Court to pass down its judgement.
If you would like more information on the above or need any assistance, please contact us on 02 8329 6500 or excellence@kreisson.com.au
This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.
