Statutory duties of care for construction work: Australia’s High(est) Court has spoken

New South Wales: A laboratory for statutory intervention into private law norms

On 11 December 2024, the High Court of Australia handed down its judgment in Pafburn Pty Limited v The Owners - Strata Plan No 84674. It considers the interplay of two important statutory schemes in the Australian state of New South Wales (NSW):

• ‘proportionate liability’ under Part 4 of the Civil Liability Act 2002 (NSW) (CLA); and
• the statutory duty of care under Part 4 of the Design and Building Practitioners Act 2020 (NSW) (DBPA).

The proportionate liability provisions in the CLA are the NSW version of schemes in place across Australia (though, with inconsistent provisions). These schemes overturn the common law presumption of joint and several liability in relation to ‘apportionable claims’: relevantly for the Pafburn case about defective construction work,

‘a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care…’ (CLA s 34(1)(a)).

Instead, via CLA s 35(1)(a):

‘the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss’.

For its part, the core of the statutory duty scheme in Part 4 of the DBPA is its s 37(1):

‘A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects –

1. in or related to a building for which the work is done, and
2. arising from the construction work.’

The key words shown here in bold from the DBPA s 37(1) duty reflect the NSW government’s intent to fill the common law gap left by the High Court’s restrictive approach to the duties of care in negligence to prevent pure economic loss stemming from Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288. This approach in the judge-made law largely mirrors the also-restrictive approach in England and Wales via Murphy v Brentwood District Council, which is why the NSW scheme has been of significant interest in the context of reforms in the UK and beyond.

We have also added italics here to show terms which have meanings defined in the DBPA. Many of these – like ‘construction work’ – themselves have cascading sets of definitions under them. We outlined those elements of the scheme in a note on this blog when the DBPA was passed in 2020, predicting that the statutory duty of care was an important element in reforms which could be a ‘game changer’ but that it would ‘take some time for their implications to be fully absorbed in NSW and beyond’. This has turned out to be the case: four years on, there is a raft of caselaw interpreting – mostly expansively – the statutory duty, of which this latest decision from Australia’s apex court is a very important new plank.

The High Court’s decision in Pafburn

Pafburn was heard by the Full Bench (seven Justices) of the High Court, and the Court split in its decision 4:3. The majority’s key finding was that the developer and builder (as ‘head contractor’ – ‘main contractor’, in UK terms) would not have the benefit of the proportionate liability scheme in relation to their non-delegable duty under the DBPA. This meant, in particular, that they could not

‘exclude or limit their liability by apportioning any part of that liability to any of those persons to whom each, in fact, delegated or otherwise entrusted any part of the construction work in relation to the Building’ (at [57]).

The ‘would not’ here requires some explanation. The case reached the High Court based on an interlocutory ruling at trial which would have allowed the developer and builder to plead proportionate liability. That ruling was successfully appealed by the Owners Corporation in a December 2023 judgment of the NSW Court of Appeal, and that Court of Appeal judgment was upheld by the majority of the High Court. This means that the High Court did not determine the developer’s and builder’s liability under the statutory duty in Pafburn: that issue now returns to the Supreme Court.   

Section 41(3) of the DBPA provides that Part 4 (including the statutory duty in s 37) is subject to the CLA. In Pafburn, the Court had to decide whether this means that the proportionate liability scheme (in CLA Part 4) applies to allow the developer and builder (as holders of the statutory duty under the DBPA) to have any liability under that duty apportioned to those whom they have engaged to undertake construction work in relation to the building.

The majority of the High Court (Chief Justice Gageler and Justices Gleeson, Jagot and Beech-Jones) said that it does not allow for such apportionment. This was mainly because of the majority’s reading of s 5Q of the CLA. Thus, the dutyholders ‘are to be treated as if they are vicariously liable for any failure to take reasonable care by… all those to whom they delegated or otherwise entrusted any part of the construction work’ (at [57]). The majority reinforced this interpretation by referring to matters including:

• CLA s 39(a), which provides that nothing in CLA Part 4 ‘prevents a person from being held vicariously liable for a proportion of any apportionable claim for which another person is liable’ (see [58]);
• The need to read the CLA and DBPA harmoniously based on the principle that ‘the one legislature… does not intend to contradict itself’ ([63]); and
• The objects of the DBPA as expressed in the Second Reading Speech; the judges said that this ‘discloses the intended strength and scope of the legislative response to the crisis of confidence in respect of the safety and quality of residential apartment buildings in New South Wales’ ([64]).

For their part, the minority (Justices Gordon, Edelman and Steward) traversed similar ground in their interpretation of the statutes and their purpose (including acknowledgement of the ‘public concerns with building defects highlighted by widespread and serious defects’ – [80]). However, they saw the majority’s view as a bridge too far, citing practical concerns including that:

• s 37 ‘would become a duty to ensure that reasonable care is taken by sub-contractors, not merely a duty to take reasonable care in the construction work that a person carries out personally or through an agent’ ([83]); and
• it would be an ‘odd result’ if a main contractor without expertise in a specialist area of construction work might be personally – or, even, criminally – liable for the careless work of a specialist subcontractor which the main contractor had ‘reasonably chosen’ ([87]).

A tale of two cities?

This second point from the minority highlights that the position in NSW via the majority’s reasoning in Pafburn is significantly different from that found in the neighbouring state of Victoria in the 2019-2021 cases about the cost of rectification of combustible cladding at the Lacrosse building in Melbourne. These cases were the subject of blog posts by David Sawtell and Douglas Maxwell and Geoff Hanmer.

In the Lacrosse cases, the builder was in effect 100% liable to the apartment owners for the cost of rectification but then able to transfer 97% of that liability (via the Victorian version of the proportionate liability scheme) to various consultants responsible for the use of the cladding (the remaining 3% was assumed irrecoverable because it was ascribed to the building occupant who carelessly started the fire). 

The reason for the difference is primarily that there is, at present, no equivalent of the NSW DBPA duty in Australia’s other states and territories, including Victoria. Rather, the Lacrosse cases were based upon breach of the statutory warranties in the Domestic Building Contracts Act 1995 (Vic): the Victorian proportionate liability scheme applied as it was also found that the builder had not failed to exercise reasonable care in delegating the responsibility for the decision to the consultants. By contrast, under the NSW DBPA, there is express provision (s 39) that ‘a person who owes a duty under this Part [4 of the DBPA] is not entitled to delegate that duty.’

Section 39 of the DBPA was crucial to the majority’s reasoning in Pafburn. The majority emphasised that the non-delegable nature of the duty means, for example, that,

‘[i]n 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 (ie, the foundations) arising from all such construction work.’ (at [52])

In reaching that conclusion, they rejected the developer and builder’s submission that their personal liability extended only to their failure to take reasonable care in relation to the role they are undertaking –  the ‘supervising etc’ – not to the carrying out of the building work itself. The majority also implicitly rejected the minority’s concern, noted above, that such parties could be liable for the work done by sub-contractors, as opposed to just for choosing and supervising them.

Where does Pafburn leave NSW’s statutory duty of care?

The bottom line from Pafburn is that, thanks to a one-judge majority in the High Court, the position as it stood in NSW following its Court of Appeal’s decision a year ago largely continues to prevail. In practical terms, this means that developers and builders (and, potentially, other dutyholders under DBPA s 37) will need to bring cross claims against others who contributed to the loss the subject of a breach of that duty, placing a greater procedural burden on those dutyholders.

However, the High Court left many questions of the application of the DBPA open for further consideration. In particular, the granular implications of the non-delegable duty under the DBPA are still being worked through in the caselaw and practice. These include how the duty ‘pierces the corporate veil’ which industry personnel have relied upon to avoid personal liability in the always-risky realm of construction projects. The NSW Court of Appeal recently provided a reminder of how far-reaching personal liability under the DBPA can be in Kazzi v KR Properties Global Pty Ltd t/as AK Properties Group; there, the sole director of a builder was found personally liable for breaches of his duties under DBPA s 37 relating to the way he supervised the work.

Moreover, the impact of the judgment should not be overstated given, as the majority alluded to, it only relates to the duty stage: claimants need to still prove causation, quantum and other matters (see [62]).

Apart from the specific clarification which Pafburn has provided about the NSW statutory duty, it offers an instructive example of the complexities involved in attempting to intervene via statute in an area that traditionally has been the domain (whether narrow or wide) of private judge-made law. These complexities are compounded by the statutory duty having been mixed into an already-rich ‘soup’ of legislative, contractual and common law norms. These norms are not confined to contractual and tortious matters; as noted above, they extend, for example, to assumptions which traditionally have been made by builders and other industry professionals that they are able to shield themselves from personal liability behind the ‘corporate veil’.

In turn, the NSW experience with its statutory duty will be instructive to other jurisdictions which are considering heading down a similar path; notably, Victoria via its Building System Review process. They are also worth monitoring in the context of the UK’s own extensive reform process. This is not just because the UK reforms include potentially far-reaching statutory interventions; it is also because of the lessons which can be gleaned from the ‘experiment’ in the NSW ‘laboratory’ about how those reforms can be made to ‘stick’ in the real world.

The NSW statutory duty reforms were first mooted more than five years ago, and have now been in place for nearly half a decade. The extensive caselaw and further tweaking of the scheme provides an example of how enacting legislation is only the first, albeit crucial, step in implementing much-needed reforms to improve building safety, quality and confidence. As Pafburn reminds us, it is not until those measures are challenged in the courts by parties who suffer the consequences of them that we have a clearer sense of what their actual effect (and, effectiveness) is.  The fact that an interpretation which is largely favourable to the owner claimants – and, through them, consumers more generally – was ultimately only arrived at by a bare majority of Australia’s apex court also reminds us that the reform process is fragile and its outcomes when viewed through a legal lens far from predictable.