The High Court has made a key judgment on building defect liability in a dispute involving problems at a North Sydney strata complex.

The block’s owners’ corporation sued builder Pafburn and developer Madarina for breaches of duty under the NSW Design and Building Practitioners Act 2020 – a law introduced after Opal Tower cracking and Mascot Towers failings raised concerns about development defects.

The companies denied duty breaches on the North Sydney project but said if found at fault the claim was “apportionable” and they were not liable for the work of parties such as subcontractors.

They argued “concurrent wrongdoers” included water proofers, aluminium composite panel providers and installers, the architect, the principal certifying authority and the local council.

But in a split decision, the High Court this month found a builder or developer responsible for a whole project cannot apportion liability to subcontractors for breaches of section 37 of the act, even for specialised work not within their field of experience. 

Law firm Clyde & Co says the decision means building practitioners and developers sued under section 37 will be held liable for economic loss resulting from defective work by their subcontractors and cannot raise a proportionate liability defence.

They will need to consider filing cross-claims or starting separate proceedings to pass on liability. 

“Construction professionals and insurers should take proactive steps to mitigate the risks associated with the High Court’s decision in Pafburn,” partner James Rigney says in an article.

The law firm says no concrete determination has been made on consultants’ ability to plead proportionate liability defences, but arguably they could do so for defective work not within their scope. 

“The handing down of the High Court judgment in Pafburn nearly six years to the day of the Christmas Eve evacuation of the Opal Towers feels symbolic,” Mr Rigney says. “That event was one of many in 2018 that signified a building defects crisis in NSW, which in turn led to various investigations that ultimately spawned the Design and Building Practitioners Act in 2020.” 

Law firm Hall & Wilcox says the owners’ corporation claim was specifically for a breach under the 2020 act and there is no modification of common law principles concerning delegation of a duty of care to an independent contractor. “Notwithstanding, the decision warrants close attention by developers, builders and their insurers,” it says.

The High Court majority decision refers to NSW parliamentary debate on the 2020 legislation, which highlighted that “the complexity and integrated nature of construction had caused uncertainty about the effectiveness” of redress for owners. 

Under the new law, that uncertainty was to be rectified in part by ensuring that owners were properly safeguarded and by preventing a person who performs construction work from delegating or contracting out their duty, to impose “individual and collective responsibility [on practitioners] for their work”, the judgment says. 

The decision is available here.

From Insurance News magazine: After a run of controversies and bad news stories, what next for the strata market?