A looming court decision on a residential building defect dispute could have implications for construction liability insurers, according to law firms following the case.

At the heart of the dispute is the application of the proportionate liability regime in negligence claims for economic loss or property damage. The regime was introduced to the Civil Liability Act 2002 (NSW) to address rising liability insurance costs, and essentially means if two or more wrongdoers contributed to a plaintiff’s loss, they are only liable to pay compensation for the proportion of damage they caused.

The case will go before the High Court this month after Pafburn Pty Ltd and Madarina Pty Ltd were granted special leave in April to challenge a NSW Court of Appeal ruling from last December.

Pafburn and Madarina, the builder and developer of a residential building in Sydney, presented proportionate liability defences in proceedings lodged by the property’s owners’ corporation.

They said nine independent contractors “were current wrongdoers” and should be apportioned their share of liability.

But the owners’ corporation said the proportionate liability provision did not apply. It said the builder and developer were both in breach of the Design and Building Practitioners Act 2020.

Section 37 of the 2020 legislation states a person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects, and section 39 states the duty must not be delegated.

The Supreme Court ruled against the owners’ corporation in February last year, dismissing its bid to strike out the proportionate liability defence. But the Court of Appeal unanimously granted leave to appeal and overturned the primary judgment.

“The purpose of the proportionate liability provisions is to allow damages for which a defendant would otherwise be liable to be adjusted to reflect the defendants’ responsibility for the damage suffered having regard to the responsibilities of concurrent wrongdoers,” the appeal court ruling says.

“Where a defendant breaches a non-delegable duty, it is consistent with the purpose of the provision for that wrongdoer to remain liable for the whole of the loss.

“The respondents are entitled to a cross-claim against concurrent wrongdoers, but this cannot reduce their liability to the applicant for the whole loss suffered.”

Law firm Clyde & Co says the High Court appeal will “decide whether [NSW] construction professionals and insurers can continue to rely on the proportionate liability regime to mitigate risk and minimise costs in litigation, as they have done for the past two decades”.

Another law firm, Kennedys, says the Court of Appeal’s ruling “confirms that the proportionate liability regime does not apply to these statutory claims. The impact on insurers and insureds is expected to be significant.”

Click here for the Court of Appeal decision.