High Court of Australia Makes a Landmark Ruling in Favour of Strata Schemes in Building Defect Claims

In a landmark win for consumer rights, a majority of the High Court of Australia handed down its judgment in Pafburn Pty Ltd & Anor v The Owners – Strata Plan No 84674 [2024] HCA 49 (Pafburn) on 11 December 2024. This decision has rebutted any aspirations that might be held by a builder or developer (as defendant/s) in relying upon a proportionate liability defence under Pt 4 of the Civil Liability Act 2002 (NSW) (CLA) in response to a claim for a breach of their duty to exercise reasonable care to avoid economic loss caused by defects made against them by an Owners Corporation pursuant to s.37(1)of the Design and Building Practitioners Act 2020 (DBPA) (together the Acts).

The particulars of Pafburn involved a builder and developer who sought to reduce their commercial exposures by seeking to attribute proportionate blame upon nine other parties involved in a strata scheme’s design and construction. The builder and developer asserted that such a defence was possible through the operation of the Acts. Grace Lawyers, in its second building and construction matter to come before the High Court of Australia, acted on behalf of the Owners Corporation to successfully argue that the proportionate liability scheme under Part 4 of the CLA did not apply to claims for breach of the statutory duty within the DBPA when raised as a defence by the builder or developer.

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

Why the decision is significant

Pafburn is significant because it closes down what was, until now, believed to be one of the largest defensive weapons in the defendant arsenal pertaining to claims under the DBPA – being the proportionate liability scheme under Part 4 of the CLA.

The proportionate liability regime, in effect, if it were not rebutted by the High Court, would allow a builder or developer to claim that anyone else involved in the construction was to an extent responsible for the damage and therefore attribute an amount to that party (or more than one named party). This defence, naming other “concurrent wrongdoers” – would seek orders from the Court that the amount of damages be reduced from the builder or developer to instead be payable by the introduced concurrent wrongdoers, based on their respective degree of culpability. In other words, the defendant sought to say that “if the court determines that I am at fault, then I reduce my degree of culpability by introducing that it is also the fault of named others to certain extents, also (attributed amounts).”

Practically (and previous to the Pafburn decision), this would mean that the Owners Corporation would sue the builder and developer responsible for the construction of the building only for the builder and developer to defend those proceedings by means of seeking an apportionment of liability against concurrent wrongdoers under the CLA that it would name. Thereafter, it would be for the Owners Corporation to determine which, if any, of the alleged concurrent wrongdoers they would seek to join to the proceedings and they would bear the cost, time, effort and risk of running claims against all parties.

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:

1. The waterproofer who performed the work;
2. The principal certifying authority who issued an occupation certificate despite the defective work; and
3. 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.

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; and
4. The claims against concurrent wrongdoers may be out of time.

The decision in Pafburn now means that an Owners Corporation can commence a claim against a builder/developer for a breach of the s.37(1) of DBPA (if the duty of care is established) and make the builder/developer personally liable for the whole of the economic loss caused by their breach (if both causation of loss by the breach and the amount of the loss are also established).

The builder/developer will no longer be permitted to file a proportionate liability defence and thereby the Owners Corporation no longer has to make the forensic decision of joining and pursuing any concurrent wrongdoer/s. The resulting situation post Pafburn is that the burden will be on the builder and developer to cross-claim against these other persons who they allege breached any applicable duty of care owed to them and they will have to incur the time, expense and risk of running these cross-claims.

In reaching its conclusion, the High Court affirmed that under the DBPA:

1. if the plaintiff fails to establish the alleged breaches by the main contractor and/or developer, then the defendant/s will not be found liable at all for the claimed loss;
2. if the plaintiff establishes such alleged breaches but fails to establish that those breaches caused the whole of the claimed economic loss, the defendant/s will be found liable only to the extent that their breaches caused the loss; and
3. to the extent that the defendant/s are found liable to the plaintiff ss 37(1) and 39 of the DBPA do not prevent them from cross-claiming against other persons who they allege breached any applicable duty of care owed to them.

The decision confirms the onus upon the plaintiff under the DBPA to carefully formulate its claim, including the parties it seeks to recover from, alongside establishing that the duty of care exists, the duty has been breached, and (finally) the proportion it seeks to recover from the identified defendants.

Including Pafburn, Grace Lawyers and its partner Daniel Radman have acted for Owners Corporations in a number of leading decisions including the High Court matter of Brookfield Multiplex Ltd v. Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36 and the NSW Court of Appeal matter of Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited [2022] NSWCA 146.

If you require advice about your particular circumstances or claim involving the construction of your building, please contact any of our senior building and construction team members: Daniel Radman, Jessica Bates, Colin Grace, Paul Berrill or Ali Behboudian on 1300 144 436.