NSW: Newsflash: A Big Win for Owners Corporations

This article is about the High Court has ruling that builders and developers cannot escape liability for negligent construction work.

In a significant victory for owners corporations across Australia, the High Court has ruled that builders and developers cannot escape liability for negligent construction work. The landmark decision in Pafburn Pty Limited v The Owners – Strata Plan No 84674 affirms that developers and head contractors bear a non-delegable duty to ensure the quality of construction, even if the work is outsourced to subcontractors. This ruling has far-reaching implications for the building industry and provides greater protection for property owners.

On 11 December 2024, the High Court of Australia handed down its judgment in the case of Pafburn Pty Limited v The Owners – Strata Plan No 84674. The key findings of the decision are as follows:

Key Findings

Appeal Dismissed: The appeal by Pafburn Pty Limited and Madarina against the NSW Court of Appeal decision in favour of the owners corporation was dismissed with costs. This means that the decision is in favour of the owners corporation.

Non-Delegable Duty: The court held that the duty imposed by Section 37(1) of the Design and Building Practitioners Act 2020 (NSW) (DBPA) is a non-delegable duty. This means that the developer and the head building contractor cannot limit their liability by delegating construction work to others.

Proportionate Liability: The court found that the proportionate liability scheme under Part 4 of the Civil Liability Act 2002 (NSW) (CLA) does not apply to claims for breach of the duty under Section 37 of the DBPA. The liability for breach of this duty is personal and cannot be apportioned among concurrent wrongdoers.

Vicarious Liability: The court clarified that Section 5Q of the CLA, which deals with liability based on non-delegable duties, applies to the duty under Section 37(1) of the DBPA. This means that the developer and the head building contractor are treated as vicariously liable for the negligence of those to whom they delegated construction work.

Economic Loss: The court confirmed that the owners corporation is entitled to claim damages for economic loss caused by defects in the building arising from the construction work, as per Section 37(1) of the DBPA.

Legislative Intent: The court emphasised that the DBPA was enacted to address public concerns about building defects and to ensure that owners have effective redress for economic loss caused by such defects. The provisions of the DBPA are intended to impose individual and collective responsibility on building practitioners for their work.

Outcome: The matter was remitted to hearing to determine whether the list response pleading can be maintained against all alleged wrongdoers, specifically whether they can be characterised as persons who carry out construction work under the DBPA.

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These findings reinforce the non-delegable nature of the duty of care imposed on developers and head contractors under the DBPA and clarify the interaction between the DBPA and the CLA. This is good news for an owners corporation because it means that a builder and developer cannot attempt to limit or apportion their liability by arguing that the work was done by someone else, in other words, their duty cannot be delegated to a subcontractor (non-delegable duty).

An owners corporation can still take direct action against subcontractors (if necessary), although the owners corporation must be able to establish that the subcontractors carried out construction work within the meaning of the DBPA and breached the duty in section 37 of DBPA. We also note that the decision does not prevent cross claims by the builder and developer.

Complex Area of Law

This is a complex area where we have significant experience. Please contact us if you have a similar case.

Helen Amanatiadis
JS Mueller & Co Lawyers
E: helenamanatiadis@muellers.com.au
P: 02 9562 1266

This post appears in Strata News #725.

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Disclaimer: The information contained in this article is provided for your personal information only. It is not meant to be legal or professional advice nor should it be used as a substitute for such advice. You should seek legal advice for your specific circumstances before relying on any information herein. Contact JS Mueller & Co for any required legal assistance.

JS Mueller & Co Lawyers has been servicing the strata industry across metropolitan and regional NSW for over 40 years. We are a specialist firm of strata lawyers with in depth and unmatched experience in, and comprehensive knowledge of strata law and levy collection.

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This article has been republished with permission from the author and first appeared on the JS Mueller & Co Lawyers website.

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