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Update – 11 April 2024: Builder’s Application for Special Leave to Appeal to High Court of Australia Granted In December 2023, we reported that the New South Wales Court of Appeal found the proportionate liability provisions did not apply to claims for breach of statutory duty under the Design and Building Practitioners Act 2020. The effect of the proportionate liability regime is to limit the liability of a defendant to an amount reflecting the proportion of the loss or damage claimed that the court considers just, having regard to the extent of the defendant’s responsibility for the loss or damage. The regime was introduced in response to the insurance crisis in Australia in 2001-2002 to reduce insurance costs. There is no automatic right of appeal to the High Court of Australia and the parties wishing to be heard must satisfy the Court that there are special reasons of public or legal importance warranting the attention of the High Court. These include the implications for the proportionate liability regime, the building and construction sector, and litigation involving causes of action for breach of statutory duty under the Design and Building Practitioners Act 2020. On 11 April 2024, the full bench of the High Court granted the builder (Pafburn Pty Ltd) special leave to appeal. |
Australia has a proportionate liability regime which applies to negligence claims for economic loss or property damage. The regime apportions liability amongst wrongdoers according to the respective proportions of responsibility for the claimed loss.
Following the introduction of the statutory duty of care under the DBP Act in June 2020, there has been uncertainty as to whether the regime extended to claims for breaches of the statutory duty. The NSW Court of Appeal has now clarified that:
- The proportionate liability regime does not apply to claims for breach of the statutory duty; and
- Although a defendant is entitled to cross-claim against concurrent wrongdoers, it cannot reduce its own liability to the plaintiff for the whole loss suffered by the plaintiff by reference to such wrongdoers.
The facts
The Owners, Strata Plan No 84674 (owners corporation), commenced proceedings against Pafburn Pty Ltd (builder) and Madarina Pty Ltd (developer) for breach of the statutory duty of care imposed by section 37 of the Design and Building Practitioners Act 2020 (DBP Act).
The builder and developer pleaded proportionate liability defences naming nine other contractors as concurrent wrongdoers for the purposes of Part 4 of the Civil Liability Act 2002 (which governs the regime.
The owners corporation brought an interlocutory application to strike out the proportionate liability defences. The application failed at first instance. The owners corporation sought leave to appeal. The main issues on appeal were whether:
- The non-delegable duty created by s 37(1) of the DBP Act is a “tort” for the purposes of of the CL Act. S5Q effectively equates liability for breaches of a non-delegable duty in tort with vicarious liability; and
- The proportionate liability provisions in Part 4 of the CL Act apply.
What is proportionate liability?
Proportionate liability was introduced in response to the insurance crisis in Australia in 2001-2002 to reduce rising insurance costs.
Where applicable, it replaces the common law principle of joint several liability. Liability for the harm caused jointly or concurrently by the wrongdoers is apportioned between them according to their respective proportion of responsibility.
By pleading this defence, an insured can seek to limit or gap its liability to the extent of its responsibility for the loss suffered.
History
In June 2020, the New South Wales Government introduced a statutory duty of care pursuant to Part 4 of the DBP Act. The statutory duty was introduced to eradicate “any uncertainty that may exist in the common law that a duty is owed to the end user and in respect to liability for defective building work”.
Part 4 of the DBP Act states that persons who carry out construction work have an automatic duty to exercise reasonable care to avoid economic loss caused by defects in or related to a building for which the construction work is done or arising out of that work.
The duty is:
- Non-delegable;
- Cannot be contracted out of; and
- Subject to the CL Act.
In Boulus Constructions Pty Ltd v Warrumbungle Shire Council (No 2) the Supreme Court accepted that claims brought under Part 4 of the DBP Act were apportionable because the duty was expressed to be subject to the CL Act.
In this application at first instance, the Supreme Court found that the proportionate liability provisions of the CL Act did apply to such claims on the grounds that section 5Q of the CL Act was not engaged:
“A defendant’s duty is non-delegable by reason of a statute, rather than by reason of the defendant’s duty falling within any recognised general law category of non-delegable duty. Section 5Q is not engaged.”
In May 2023, the Honourable Justice Ball in the Supreme Court in acknowledging the earlier decisions, decided not to express a final view on the matter as it was an “important issue” that had not been fully argued before him.
The Appeal decision
The Court granting leave and allowing the appeal, held:
Section 37(3) of the DBP Act is intended to:
- Extend the scope of common law duty; and
- Create a new cause of action deriving from statute.
Here, duty of care extends to the common law duty of care to owners and subsequent owners of land on which building work is done. It also created a new cause of action which is to be treated as if it were a cause of action in tort.
Section 5Q of the CL Act applies to the claim because it is a claim in tort for a statutory breach of a duty of care. The builder is, accordingly, vicariously liable for the breaches of concurrent wrongdoers.
Part 4 of the CL Act (governing the regime) does not apply to vicarious liability.
In rejecting the builder’s argument that the consequence of accepting that the proportionate liability regime did not apply would be unjust or contrary to public policy, the court said:
“The purpose of the proportionate liability provisions is to enable the amount for which the named defendant is liable to the plaintiff to be adjusted to reflect the named defendant’s responsibility for the damage suffered by the plaintiff, having regard to the responsibility of concurrent wrongdoers for that damage.”
Ramifications for insurers and insureds
The issues for insurers and insureds who undertake construction work within the meaning of the DBP Act to consider are:
Currently, proportionate liability defences are regularly pleaded in response to claims for breach of statutory duty under the DBP Act. The availability of such a defence significantly reduces time, costs and exposure of these claims.
Prior to this decision of the NSW Court of Appeal, Justice Ball who conducts the Technology and Construction List in the Supreme Court had made the following observations:
“Assuming the claim is not apportionable, the proportionate liability regime of the CLA will have no application: CLA, s 34. Liability would then be assessed at general law. In those circumstances, the Builder may still seek contribution from the person who actually selected the cladding, provided the Builder is able to establish that that person is a tortfeasor liable in respect of the same damage: Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the LRMP), s 5(1)(c). The amount of contribution recoverable would be that determined to be ‘just and equitable having regard to the extent of that person’s responsibility for the damage’: LRMP, s 5(2).”
Insurers and insureds should also be aware that claims against builders for breaches of the statutory duty are regularly accompanied by a claim for breach of the statutory warranties under the Home Building Act 1989 (HBA claim). HBA claims are also non-apportionable.
However, if there is no HBA claim, or the warranty period for bringing a HBA claim has expired (as was the case here) but the limitation period for bringing a DBPA claim has not, insureds and their insurers should consider whether to bring cross-claim proceedings against concurrent wrongdoers to reduce their liability.
There is a tranche of further legislative reforms in the review stage. These include the Building Bill 2022 which is intended to regulate all building work in New South Wales. The Bill proposes a duty of care that consolidates:
a) The certification of building work under the duties on certifiers under the Environmental Planning and Assessment Act 1979; and
b) The duty of care provisions under the DBP Act. It carries over the provisions that the duty is non-delegable, cannot be contracted out of, and is subject to the CL Act. In light of the Court of Appeal decision, the proportionate liability regime will not apply.
This could be significant as it is intended to apply to all building work and is not limited to only certain classes of building.
Comment
This decision of the NSW Court of Appeal confirms that the proportionate liability regime does not apply to these statutory claims. The impact on insurers and insureds is expected to be significant.
The proportionate liability regime was first introduced in response to the insurance crisis in Australia in 2001-2002. Over 20 years later, the construction industry in Australia is in crisis again. Construction company insolvencies currently account for 30% of all company insolvencies in Australia with 2,177 external administrations recorded in the 2022/2023 financial year.
The decision is likely to cause further financial pressure on the industry due to increased exposure for existing and future claims, and increased insurance premiums.
In addition, the proposed new legislation is designed to extend the duty of care to all classes of building.
The question is whether the NSW Government will now address this in the proposed new legislation before its becomes law.
Construction and engineering
Insurance and reinsurance
Australia