Pafburn: Australia-wide implications for the construction industry?

It's a "landmark" Court ruling for NSW

Pafburn: Australia-wide implications for the construction industry?

Construction & Engineering

By Daniel Wood

The High Court of Australia recently handed down a “landmark ruling” for the construction industry and insurers in NSW. The Court’s decision in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd ended the proportionate liability regime used for two decades. So, what are the implications for insurers and brokers in other Australian states?

“The case itself involved the liability of a builder and a developer who sought to apportion their liability under the Civil Liability Act to various other concurrent wrongdoers on the project including the certifier and installers of aluminium composite panels,” said James Rigney (main picture, left side), Sydney-based partner and construction insurance specialist with global law firm Clyde & Co.

Rigney assessed the significance of the ruling for Insurance Business and reached out to Australia-wide colleagues for their views on the local implications for industry stakeholders.

NSW impetus from building defects crisis

“The interpretation and application of laws across Australia’s states and territories is rarely uniform, with each jurisdiction having its own legislative frameworks and judicial personality in respect of certain issues,” he said.

“NSW was the epicentre of the building defects crisis that emerged around 2018 and has since led the way in reforming building and construction laws,” said Rigney.

This included, he said, the introduction of the Design and Building Practitioners Act 2020 (DBPA).

Vic is watching NSW

Ross Donaldson (main picture, centre), a partner with Clyde & Co in its Melbourne office, suggested that the Victorian government could follow the NSW example.

“Legislation imposing liabilities on developers and building professionals is not yet advanced in Victoria, but a recent VBA [Victorian Building Authority] report suggests it is possible,” he said.

Donaldson said the government plans to strengthen building surveyor powers, increase inspections, improve domestic building insurance and enhance consumer rights against developers and professionals.

He said the local authorities have “a close eye on NSW’s approach.”

Not a NSW style statutory duty of care

In Queensland, any similar industry shakeup impacting insurers and brokers, suggested Hannes Marais (main picture, right side), could be further away.

“While Queensland is actively pursuing construction industry reforms to alleviate the strain on the housing system as part of the Homes for Queenslanders plan, the introduction of a statutory duty of care, similar to the DBPA, does not presently appear to be under consideration,” said Marais, a partner with Clyde & Co in their Brisbane office.

He said existing common law principles will continue to apply in Queensland.

Pafburn ruling: a close call

Despite the significant impact of the decision in terms of its shake-up to the NSW industry’s lability rules and insurance coverages, the decision itself was a close call.  

“What is interesting is this decision was a split court of four judges who were in favour of endorsing the statutory intention of the DBPA and the policy reasons behind it and the three dissenting judges who interpreted the relevant statutes in an entirely different way and arrived at an entirely different outcome,” said Rigney.

He said this “well-reasoned dissenting view” could have led to an entirely different outcome, which could suggest that if construction industry authorities in other states examine the case closely, they could also come away with different applications for their jurisdictions.

“The Court decided that if you are a builder or developer and have taken on the responsibility to do construction work, whether by physically doing the work, coordinating it, or supervising it, you can’t escape liability by passing that responsibility down to others,” he said. “You are still accountable to the current and future owners of the building for any issues, even if someone else physically carried out the work.”

Rigney said the Court decided that the duty of care under Section 37 of the DBPA relevant to builders, developers and anyone seeking to delegate their duty, creates a non-delegable duty.

“If a developer has agreed to coordinate the construction or oversee the construction and it seeks to delegate that responsibility,” he said, “then the developer is ultimately responsible or liable for any losses that flow from a failure to supervise or coordinate by a party that they had entrusted that responsibility to.”

Are you an insurance broker in the NSW construction industry? How will the Pafburn ruling change the advice and coverages you offer to building firms?

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