Industry Update – No Finger Pointing Allowed! NSW Court of Appeal finds that proportionate liability DOES NOT apply to claims under the Design and Building Practitioners Act 2020

In a massive win for consumer rights in NSW, the Court of Appeal on Wednesday handed down its decision in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301, finding that defendants claims for breach of the statutory duty under section 37 of the Design and Building Practitioners Act 2020 cannot reduce their liability to a plaintiff by deflecting blame to other parties.

In this case, Grace Lawyers on behalf of the Owners Corporation successfully argued that the proportionate liability scheme under Part 4 of the Civil Liability Act 2002 (CLA) did not apply whatsoever to claims for breach of the statutory duty.

The decision is a welcome relief for Owners Corporation’s across NSW – mirroring the protections already afforded to homeowners and owners corporations under the Home Building Act 1989.

Why is the decision so significant?

The Pafburn decision is significant because its shuts down what was, until now, believed to be one of the biggest weapons in a defendant’s arsenal in defending claims under the DBP Act – being the proportionate liability scheme under Part 4 of the CLA. That was notwithstanding that s 39 of the DBP Act stated that the duty of care is “non-delegable”.

The proportionate liability regime, in effect, allows a builder/developer to a claim that it was somebody else involved in the construction that is responsible for the damage etc.  What they are doing by naming these other parties – known as “concurrent wrongdoers” – is asking the Court to reduce the amount of damages payable by them to reflect the number of parties who caused that loss, and their degree of culpability. In other words, the defendant is saying “if it’s my fault, it’s not only my fault” and asking the award of damages to reflect that.

For example, in a claim brought by an owners corporation against a builder for $1 million in damages arising from defective waterproofing, the builder might name any of the following parties as concurrent wrongdoers:

• The waterproofer who performed the work;
• More arguably, the principal certifying authority who issued an occupation certificate despite the defective work; or
• Even more arguably, the engineer who prepared the hydraulic blueprint for the building.

This could lead to a situation where the Court, accepting all four parties are responsible to some extent, “apportions” the damages amongst them accordingly.

In a perfect world, the builder, the waterproofer, the certifier and the engineer parties would all be parties to the claim, resulting in the Owners Corporation recovering its $1 million from four different parties (in proportions determined by the Court). Unfortunately, apportionable claims are rarely that simple.

The difficulties created by the proportionate liability regime for plaintiffs (particularly owners corporations) include the following:

1. The possibility of some parties being insolvent. This is particularly prevalent in modern developments where companies are set up as special purpose vehicles for the duration of a development, before being put into liquidation afterwards
2. The fact that the plaintiff ‘bears the risk’ of not joining a party to the claim once they have been nominated as a wrongdoer. If the Court finds that a non-party is liable for a portion of the loss claimed, the plaintiff is simply disentitled to that amount. This means that an Owners Corporation, when faced with a proportionate liability defence, is required to make an independent assessment of whether the party can or even should be joined to the claim. This is particularly onerous in the case of owners corporations, who are not privy to the contractual arrangements between parties involved in the building work before its time. As a result, these assessments are often conducted on nothing but the strength of the defendant’s pleading.
3. Commerciality concerns. Circling back to our example of the owners corporation with the defective waterproofing, let’s say the owners corporation is successful in obtaining $1 million in damages against the defendant waterproofer (who is found 100% liable). The builder, certifier and engineer are found not to be liable to any extent.

That would probably result in the Owners Corporation being hit with costs orders in favour of those successful defendants. Those costs orders, depending on how complex the claim is, could very quickly swallow up the $1 million in damages.

With these issues in mind, it is easy to see why owners have been wary of making of claims under the DBP Act. These risks, coupled with the eye-watering costs of multi-party litigation, can make these claims unattractive and expensive to pursue.

The Pafburn Appeal

In the Pafburn matter, the Owners Corporation sued the builder (Pafburn) and the developer (Madarina) alleging breach of the duty of care under s 37 of the DBP Act.

The builder and developer (together, the Defendants) defended the claim by trying to apportion the blame on others (they named 9 others including various subcontractors, the certifier, the architect and the project manager. Many of those parties were companies that had been deregistered. Others could not be joined due to the effluxion of limitation periods.

The Owners Corporation’s claim was simple in theory (but complex in legal terms).  We argued that the duty owed by the builder and developer was “non-delegable”, and hence, the proportionate liability regime did not apply.

The primary judge found that the proportionate liability regime did apply, and allowed the builder and developer to run those defences.

The Owners Corporation appealed the decision.

The Appeal

The Court of Appeal allowed the appeal, finding as follows:

• Section 37 of the DBP Act both extends the scope of the common law duty of care to owners and subsequent owners of land and creates a new cause of action deriving from statute which is to be treated as if it were a cause of action in tort;
• Section 5Q of the CLA should not be read down to exclude claims under the DBP Act, because doing so would undermine the statutory purpose of the provision. Section 5Q was intended to address the full scope of non-delegable duties. As such, liability for breach of the duty of care under section 37 of the DBP Act was characterisable as “liability in tort” for the purpose of section 5Q of the CLA;
• The proportionate liability regime under Part 4 of the CLA does not apply to claims for breach of the duty of care under section 37 of the DBP Act. The legislative intention was clear by s 39 of the DBP Act, which makes the duty “non-delegable”. The builder was thus vicariously liable for breaches by concurrent wrongdoers.

As a result of these the Court of Appeal’s findings:

• A defendant who has breached a non-delegable duty causing loss is liable for the entirety of the loss suffered by the plaintiff flowing from that breach. It cannot ‘offload’ liability onto others at the plaintiff’s expense;
• Whilst a defendant is entitled to file cross-claim against an alleged concurrent wrongdoer for a contribution, it cannot reduce its own liability to a plaintiff for the whole of the loss suffered. That is an important distinction because it shifts the risk of joining the wrongdoer (or an insolvent party) onto the defendant.

The decision is welcome one – paving the way for owners corporations to continue making claims under the DBP without the uncertainty and cost of the proportionate liability regime involved.

More importantly this decision also marks another win for the 19 lot Owners Corporation who were strong enough to fight for their rights.

Daniel Radman and Sean Turner of Grace Lawyers acted for the successful owners corporation in this appeal, and in the court below.