High Court of Australia hands down landmark judgment on application of proportionate liability regime

The High Court of Australia has confirmed that the proportionate liability regime does not apply to the breach of statutory duty under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA).

The proportionate liability regime aims to limit the liability of a defendant to an amount that reflects the proportion of the loss or damage claimed.  The court must consider this amount to be just, having regard to the extent of the defendant’s responsibility for the loss or damage.

In December 2023, we reported that the NSW Court of Appeal found that the proportionate liability provisions did not apply to claims for breach of statutory duty under the DBPA. The DBPA was introduced in response to the construction crisis caused by defective buildings such as Mascot and Opal Towers.

The builder and developer appealed the decision to the High Court of Australia (the Court), submitting that their liability was limited to supervision and did not extend to the building work and that the claim was therefore an apportionable claim within the meaning of Part 4 of the Civil Liability Act 2002 (NSW) (Civil Liability Act).

On 12 December 2024, the Court, by a four to three majority, dismissed the builder’s and developer’s appeal, reaffirming the DBPA’s purpose to protect apartment owners by holding head contractors and developers primarily responsible for breaches of statutory duty. The Court emphasised the allocation of risk and responsibility lies with those who are better positioned to manage such risks—the developer and the head contractor—rather than end-user apartment owners.

The High Court majority decision: key takeaways

The Court held the developer and head contractor were personally liable for the whole of the economic loss. 

In making its decision, the Court had regard to the aims of the DBPA, namely that persons who carry out construction work (i) have an automatic duty to exercise reasonable care to avoid economic loss caused by defects; (ii) cannot delegate or contract out of their duty; and (iii) must accept individual and collective responsibility for their work.

In particular, the Court ruled that:

1. The respective duties of the developer and the head contractor were non-delegable. They cannot discharge their duty merely by exercising reasonable care in arranging for another person to carry out any work or task within the scope of the duty under section 37(1) of the DBPA.
2. The statutory duty under the DBPA is subject to the Civil Liability Act, including section 5Q. This provides that liability based on a non-delegable duty is to be determined as if the liability were the defendant’s vicarious liability for the person’s negligence relating to the performance of the work.
3. Consistent with the decision in Strata Plan 87060 v Loulach Developments Pty Ltd [2020] NSWSC 550 (Loulach), the Owners Corporation (OC) will still be required to establish the alleged breaches by the developer and the head contractor and that their breaches caused the loss.
4. The statutory duty under section 37(1) does not prevent the developer and head contractor from cross-claiming against other parties in relation to any alleged breach of duty of care owed to them.

The majority concluded that its decision gave effect to, and maintained the unity of, the provisions of the DBPA and the CLA.

Legislative intent and allocation of responsibility

The majority decision aligns with the DBPA’s legislative intent to prioritise the protection of vulnerable end-users over the internal allocation of responsibility among developers and contractors.

Developers and head contractors, with their superior access to project documents, industry knowledge, and contractual control, are expected to allocate risk effectively through their contractual arrangements. This approach avoids imposing undue burdens on end-users who lack the capacity to manage these risks.

Claims limited to breach of statutory duty under the DBPA

This case was limited in scope to a claim for breach of statutory duty under the DBPA. Claims for breach of statutory warranties under the Home Building Act 1989 (NSW) (HBA) were unavailable as OC was out of time due to the HBA’s shorter limitation periods. Importantly, claims under the HBA are not apportionable, which follows amendments to Part 4 of the Civil Liability Act that resolved conflicting case law.

Takeaways for insureds and their insurers

1. Engaging qualified subcontractors
   The decision reinforces that merely engaging a suitably qualified subcontractor is insufficient to discharge statutory duties. Head contractors and developers must ensure comprehensive oversight and risk management.  

2. Consideration potential contractual and contribution claims
   Head contractors and developers must consider potential claims against consultants and subcontractors, including:  

• Contractual claims, such as breaches of warranty;  
• Claims for contribution, which are subject to 2- or 4-year limitation periods under section 26 of the Limitation Act 1969 (NSW).  
• Cross-claims. Litigation in this space will likely become more protracted and costly due to the increased likelihood of multiple cross-claims.  

3. The need for precise pleadings
   The Pafburn decision and related cases such as Loulach underscore the need for detailed pleadings in statutory duty breach claims, which can make the proceedings complex.
   It is expected that the decision will result in increased cross-claim activity.  The majority expressly acknowledged that persons owing a statutory duty under the DBPA are not prevented from cross-claiming against other persons who they allege breached any applicable duty of care owed to them. 

Future legislative considerations

To reduce disputes and streamline liability allocation, legislative amendments could clarify the definitions of “carried out the work” and “substantive control.” This would ensure that construction contracts are drafted in such a way that effectively allocates risks and responsibilities, reducing the likelihood of protracted litigation.

The upcoming NSW Building Bill, which will repeal and replace significant legislation including the HBA and DBPA, may address some of these uncertainties.

Conclusion

The Pafburn decision comes as no surprise, having regard to the intention of the DBPA.

The decision highlights the challenges for head contractors and developers in managing risks and responsibilities, particularly in the absence of clear legislative definitions.

With the forthcoming NSW Building Bill, there may be opportunities to address these complexities. For now, stakeholders must prepare for more detailed contractual arrangements and potentially costly litigation.