The buck stops at the top – for now: proportionate liability in DBP Act claims

The Owners – Strata Plan No 84674 (Owners) brought proceedings in the Supreme Court of NSW against Madarina (Developer) and Pafburn (Head Contractor) for economic loss arising from construction defects at the property, alleging breach of the statutory duty of care imposed on a person carrying out construction work by ss 37(1) and 39 of the DBP Act.

The Developer denied it supervised, co-ordinated and had substantive control over the carrying out of the building work by the Head Contractor and accordingly denied it carried out ‘construction work’ within the meaning of s36 of the DBP Act. The Developer and Head Contractor further contended that if the Owners suffered loss arising from a breach of s37 of the DBP Act by the Developer and Head Contractor, then:

• the claim was an ‘apportionable claim’ within the meaning of s34 of the CLA; and
• the waterproofer, manufacturer, supplier and installer of ACP panels, the architect, the principal certifying authority and the local council were concurrent wrongdoers; and
• in accordance with s35(1)(a) of the CLA, the liability of the Developer and Head Contractor is limited to the proportion of loss or damage having regarding to their extent of their responsibility for the loss.

The Owners filed an application seeking the proportionate liability defence be struck out under r 14.28 of the UCPR as those paragraphs disclosed no reasonable cause of action or defence. The outcome of that application and the relationship between the DBP Act and proportionate liability scheme in the CLA was the subject of the High Court’s judgment.

Majority (Gageler CJ, Gleeson, Jagot, and Beech-Jones JJ)

The majority referred to the Second Reading speech for the DBP Act and noted the DBP Act was enacted in the context of broader public concerns about building defects, particularly following the serious and widespread defects in the Opal Tower and Mascot Towers. The rationale being to safeguard the rights of owners and establish the individual and collective responsibility of building practitioners.

Having regard to this context, the Court held the substance of the s37(1) duty is 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 person owing the s37(1) duty, and liability cannot be excluded or limited by virtue of delegating the work to others. The duty is ‘personal’ and ‘direct’.

The Court examined the interplay between the CLA and the DBP Act and noted that the CLA does not define ‘non-delegable duty’. The majority decision characterised a ‘non-delegable duty’ broadly as a type of duty of care which is personally to ensure that that other person performing the delegated function in fact takes reasonable care. 

The majority held that the s37(1) duty is precisely the kind of non-delegable duty which s5Q of the CLA contemplates. Section 5Q of the CLA, assuming there was liability created by ss 37(1) and 39 of the DBP Act, treats the Developer and Head Contractor as vicariously liable for the work of all those to whom they delegated or otherwise entrusted any part of the construction work in relation to the Building. Section 39(a) of the CLA operates to ensure the liability of the person owing the non-delegable duty (ie the Developer) is limited to the proportion attributable to the person who is delegated or entrusted to do the work (ie subcontractor(s)). 

The majority rejected the Developer’s argument that their non-delegable duty was limited to ‘supervision’ and any liability arising from the delegation of the ‘supervision’ alone. The Court held that given the Developer had ‘supervised’ ‘construction work’ in relation to the whole building, the scope of the s37(1) duty extended to all defects in or related to that building arising from all construction work, whether or not the Developer in fact performed any of the physical acts comprising that construction work.

Noting the Developer and Head Contractor’s contentions that they had entrusted to the local council and the principal certifying authority certain functions in relation to the ‘construction work’, these functions were within the scope of the s37 duty owed by the Developer and Head Contractor, such that the Developer and Head Contractor would be vicariously liable under s 5Q of the CLA for any failure by the local council or the principal certifying authority to have exercised reasonable care. 

Noting the claim was not apportionable, and there was no reasonable defence on this basis, the majority held the Court of Appeal was correct to strike out the Developer and Head Contractor’s proportionate liability pleading.

Minority (Gordon, Edelman and Steward JJ)

The minority concluded that the Owners’ claim for damages for breach of s37 of the DBP Act was an apportionable claim under Part 4 of the CLA. In doing so, the minority distinguished between the phrase ‘not entitled to delegate’ in s39 of the DBP Act and a true ‘non-delegable duty’ under the common law.  

The minority narrowly construed the meaning of a ‘non-delegable duty’ in s5Q of the CLA as a duty of strict liability to ensure reasonable care is taken. They held the s37 duty is not a duty of the kind with which s5Q of the CLA is concerned. 

Rather, s37 imposes a ‘duty to exercise reasonable care to avoid economic loss caused by defects’. It is limited to ‘construction work’ carried out by the person owing the s37 duty. Section 39 has a limited purpose: to ensure that the duty is ‘personal’ and it prevents a person who performs construction work from delegating or contracting out of their duty in relation to the work performed or being performed. But it does not otherwise extend the duty in s37 to the work of independent contractors.

Further, s41(3) of the DBP Act, which states the DBP Act is subject to the CLA Act, has no work to do if the provisions of Part 4 of the CLA do not apply. Therefore, s41(3) of the DBP Act is a clear statement that the provisions of the CLA, including Part 4 of the CLA, apply and claims for damages for breach of s37 of the DBP Act are apportionable. 

The minority noted the enactment of Part 4 of the DBP Act sought to set aside the effect of the decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288^[1] and extend the recipients of the statutory duty of care and provide that the duty could not be delegated. If it was intended that ‘carries out construction work’ was to mean ‘agrees to carry out construction work’ and that the liability of a head contractor would extend to all subcontractors, without any apportionment, it is reasonable to expect the legislation would expressly say so.

The contrary construction, treating s37 of the DBP Act as creating a non-delegable duty or a duty of strict liability, would alter the liability of those who carry out construction work in unintended ways. For instance:

• it would produce an unusual result where, as in this case, the concurrent wrongdoers are alleged to have breached both s37 of the DBP Act and a duty of care at common law, any liability at common law would be apportionable but the liability under the DBP Act would not;
• it would be inconsistent with the prohibition in s35 of the DBP Act on carrying out specialist work, if a head contractor or builder was personally liable because a carefully chosen specialist independent contractor performed their work carelessly, in circumstances where a head builder or developer could not lawfully ‘carry out’ the specialist work;
• the criminal liability provisions in Part 3 of the DBP Act would be engaged for people who agree to carry out work where that work is done by a sub-contractor;
• the head contractor would be exposed to significantly increased risks, and insurance premiums, as well as the costs of bringing cross-claims against any other concurrent wrongdoers for contribution under s5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).

The minority held the correct construction of the two legislation was that claims for breach of the s 37 duty were claims to which Part 4 of the CLA apply. 

[1] (2014) 254 CLR 185.