The Owners - Strata Plan No 84674 v Pafburn Pty Ltd - [2023] NSWSC 116 - NSWSC 2023 case summary

Supreme Court of NSW|2023-02-16|Before: Rees J

Mr GA Sirtes SC / Mr A Di Francesco (First and Second Defendants)

Judgment

HER HONOUR: This is a building defects claim for damages for breach of the statutory duty imposed by section 37 of the Design and Building Practitioner Act 2020 (NSW) (the DBP Act). The defendant builder and developer seek to rely on proportionate liability defences in Part 4 of the Civil Liability Act 2002 (NSW) (the CLA).
On 16 February 2023, I heard an application to summarily dismiss or strike out the proportionate liability defence on the basis that the paragraphs disclosed no reasonable defence and were insufficiently particularised. I made orders dealing with the latter complaint. These are my reasons for dismissing the former complaint.

Summary dismissal

There was no dispute as to the principles, which have been variously expressed. The discretion of the Court to summarily dismiss a claim is to be sparingly invoked: Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 92 (per Dixon J); [1949] HCA 1; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 (per Barwick CJ); [1946] HCA 69. It must be clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99; [1983] HCA 25. A claim will be summarily dismissed as disclosing no reasonable cause of action only where "the case is so clearly untenable that it cannot possibly succeed": General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-131 (per Barwick CJ); [1946] HCA 69; Spencer v Commonwealth of Australia (2010) 241 CLR 118 at 140; [2010] HCA 28, at [55] (per French CJ and Gummow J).
There must be a high degree of certainty about the ultimate outcome of the proceedings if it went to trial: Agar v Hyde (2000) 201 CLR 552 at 575-576; [2000] HCA 41 at [57] (per Gaudron, McHugh, Gummow and Hayne JJ). The Court must form a view that the claim would fail if permitted to go to the trial such that it would be an abuse of process for the Court to allow the proceedings to continue: Ke Qin Ren v Hong Jiang (2014) 104 ACSR 149 at 158; [2014] NSWCA 388 at [49].
Summary disposal is not limited to cases where argument is unnecessary to show the futility of the defence or claim. Argument, even of an extensive kind, may be necessary to demonstrate that the defence is so clearly untenable that it cannot possibly succeed. The Court will determine questions of law on summary disposal applications if the Court is satisfied that the point is clear: Silverton Ltd v Harvey [1975] 1 NSWLR 659 at 665 (per Rath J).

The claim

The plaintiff is an Owners Corporation in respect of a strata development in Walker Street, North Sydney.
The first defendant, Pafburn Pty Ltd, was the builder.
The second defendant, Madarina Pty Ltd, was the developer and, until registration of the strata plan, the owner of the land.
As Stevenson J noted on an earlier strike out application - then brought by the defendants - the Owners Corporation commenced these proceedings on 1 December 2020, five days within the 10 year "long stop" limitation period concerning actions for defective building work prescribed by section 6.20 of the Environmental Planning and Assessment Act 1979 (NSW): Owners - Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659 at [8]. The claim is made exclusively pursuant to the DBP Act, "evidently because of limitation problems apprehended as arising from a corresponding claim under the Home Building Act 1989 (NSW)": at [9].
The Owners Corporation alleges that each of Pafburn and Madarina acted in breach of the statutory duty of care prescribed by section 37 of the DBP Act because, as to Pafburn, it constructed the building defectively, and as to Madarina, it engaged in "construction work" for the purposes of section 37 in that it "… supervised, coordinated, project managed" and "substantively controlled … the building work carried out by [Pafburn]".
The defendants admit that Pafburn owed the Owners Corporation the statutory duty of care in section 37(1) of the DBP Act but deny that Madarina owed the said duty. Both deny any breach of duty.
The defendants also plead a proportionate liability defence and name nine concurrent wrongdoers: 1. The defendants' architect: for designing wet areas said to have inadequate falls, for failing to specify the bedding and screeding course for the driveway pavers, and for any defect in the design which led to fire safety issues. 2. The company which recommended and installed aluminium composite panels (ACPs) and spandrel panels. 3. The manufacturer and the supplier of the ACPs. 4. The developer's certifier, who is said to have told the builder that the ACPs were acceptable without the need for any modification to the development consent and proceeded to issue a construction certificate and an occupation certificate. The certifier also passed critical stage inspections for waterproofing, falls in wet areas, the installation of spandrel panels and driveway pavers. The certifier issued a construction certificate and occupation certificate notwithstanding fire safety defects now said to exist. 5. The builder's sub-contractor, who tiled wet areas and balconies, and installed driveway pavers, now said to be defective. 6. The builder's waterproofing sub-contractor. 7. The waterproofing sub-contractor's tradesperson. 8. The Council which approved plans now said to be non-compliant with the Building Code of Australia and fire safety laws. 9. The builder's formwork sub-contractor, who provided formwork, reinforcement and concrete which may have caused or contributed to fire safety issues.
The Owners Corporation seek to strike out the proportionate liability defence on the basis that the relevant provisions of the CLA do not apply. The Owners Corporation submitted that the combined effect of section 39 of the DBP Act and sections 5Q and 39(a) of the CLA precluded the defendants from utilising the proportionate liability provisions where the statutory duty was non-delegable. All of the "concurrent wrongdoers" were said to fall into this category. The defendants submitted, however, that a claim for breach of statutory duty under section 37(1) of the DBP Act is not a "tort" but a claim "under statute" such that sections 5Q and 39(a) of the CLA do not apply.
It is necessary to consider the provisions of both Acts and how they intersect.

Design and Building Practitioners Act 2020 and proportionate liability

Section 37 of the DBP Act is found in Part 4, entitled "Duty of care". Although the extrinsic material does not specifically mention the High Court's decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185, the parties both explained that Part 4 was introduced to overturn its effect. In Brookfield, the High Court concluded that the builder of strata-titled apartments owed a duty of care to the developer and the first purchaser of an apartment but not to the owners corporation.
As described in the Second Reading Speech delivered by the Minister for Better Regulation and Innovation, Kevin Anderson, when introducing the Bill to Parliament, recent devastation had been caused by defective buildings, such as at Mascot and Opal Towers. "These incidents, coupled with a number of legal cases, have reduced consumer confidence and provided uncertainty about the extent of protections available for financial damages or pure economic loss." Part 4 was intended to address this for certain categories of owner, specifically, individual title holders and subsequent owners of a building, owners corporations and community, precinct or neighbourhood scheme associations. Developers or large commercial entities were excluded, as the Government considered these entities were sufficiently sophisticated to be able to commercially and financially protect their commercial interests.
Section 37 provides: (emphasis added) 37 Extension of duty of care (1) A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects - (a) in or related to a building for which the work is done, and (b) arising from the construction work. (2) The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land. (3) A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law. …
"Construction work" is defined in section 36(1) as: (a) building work, (b) the preparation of regulated designs and other designs for building work, (c) the manufacture or supply of a building product used for building work, (d) supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work referred to in paragraph (a), (b) or (c).
The significant change in the law effected by section 37 was described in the Second Reading Speech: For the first time in New South Wales, [section 37] establishes a statutory duty of care that eradicates any uncertainty that may exist in the common law that a duty is owed to the end user and in respect to liability for defective building work. … [Section 37] makes it clear that a beneficiary of the duty will be entitled to seek damages for the breach of the duty as though the duty was established by the common law. This means that while a duty of care will be automatically owed, any person who wants to proceed with litigation will be required to meet the other tests for negligence established under the common law and the Civil Liability Act 2002. This includes determining that a breach of the duty occurred and establishing that damage was suffered by the owner as a result of that breach. The hurdle of establishing that a duty is owed, however, will no longer be required, saving valuable court time and expense for the owner.
As helpfully summarised in the Second Reading Speech, section 38 specifically provides protections for owners corporations and associations by providing that the owners are taken to have suffered economic loss if they bear the cost of rectifying defects, including damage caused by the defects, that relate to the breach of duty. Section 38 recognises that owners corporations and associations may not be in existence when the construction work is occurring and puts beyond doubt that these owners are considered beneficiaries of the duty.
Section 39 of the DBP Act provides: A person who owes a duty of care under this Part is not entitled to delegate that duty.
Of this, the Second Reading Speech explained: The bill continues to safeguard the rights of owners through [section 39] by preventing a person who performs construction work from delegating … their duty. This is important, as practitioners will need to accept individual and collective responsibility for their work. …
Section 40 prohibits a person who performs construction work from contracting out of their duty. Section 41 sets out the relationship between the statutory duty and other duties of care and legislation: (emphasis added) 41 Relationship with other duties of care and law (1) The provisions of this Part are in addition to duties, statutory warranties or other obligations imposed under the Home Building Act 1989, other Acts or the common law and do not limit the duties, warranties or other obligations imposed under that Act, other Acts or the common law. … (3) This Part is subject to the Civil Liability Act 2002.
When used to define the relationship between two statutes, "subject to" is a standard means of establishing which provisions are dominant and which are subservient: Medical Council of New South Wales v Lee [2017] NSWCA 282 at [87] (Sackville AJA) citing Newcrest Mining (WA) Ltd v Commonwealth (1997) 190 CLR 513 at 580 (McHugh J). That Part 4 of the DBP Act is "subject to" the CLA indicates the CLA will apply in the event of any inconsistency between the statutes.
As observed in the Second Reading Speech: [Section 41] sets out the duty of care relationship with other duties of care and the law. The bill makes it clear that the obligations imposed under the Home Building Act 1989 or the common law are not limited by the new duty provided by the bill. Consistent with the existing position under the common law, the duty of care will be subject to the limitation period that applies to negligence claims under the Limitation Act 1969. This means that there will be strict time limits to bring a professional negligence claim and that court proceedings need to be commenced within six years from the date on which the damage or loss accrues. The duty-of-care model provided for in the bill will also work alongside existing well-established principles under the common law and the Civil Liability Act 2002 and will not operate to extend any limitation periods under these or other current laws.
It is convenient at this juncture to move to the proportionate liability provisions of the CLA. Part 4 "Proportionate liability" of the CLA commences by identifying the claims to which it applies. Section 34 provides (emphasis added): 34 Application of Part (1) This Part applies to the following claims (apportionable claims) - (a) a claim for economic loss … in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care … … (3A) This Part does not apply to a claim in an action for damages arising from a breach of statutory warranty under Part 2C of the Home Building Act 1989 and brought by a person having the benefit of the statutory warranty. …
Noteworthy, section 34(3A) provides that Part 4 does not apply to a claim for breach of statutory warranties under the Home Building Act 1989, but does not exclude a claim for breach of statutory duty under the DBP Act. When paired with section 41(3) of the DBP Act, which makes Part 4 of the DBP Act "subject to the Civil Liability Act 2002" without limitation, it is clear that the proportionate liability provisions of the CLA apply to a claim for economic loss in an action for damages arising from a failure to take reasonable care as required by section 37(1) of the DBP Act, whether that claim is an action "in contract, tort or otherwise".
The intersection between the extended duty of care in section 37(1) of the DBP Act and the proportionate liability provisions of the CLA was recently considered by Stevenson J in Boulus Constructions Pty Ltd v Warrumbungle Shire Council (No 2) [2022] NSWSC 1368. His Honour observed that the definition of "construction work" encompasses a wide range of activity and an even wider range of actors carrying out those activities: at [61]. His Honour then referred to the portions of the Second Reading Speech extracted above, and continued at [64]: The Act is expressed to be subject to the Civil Liability Act. The proportionate liability regime under Pt 4 of the Civil Liability Act thus applies to actions for breach of the s 37 statutory duty. This enables persons in the position of [the proposed cross-defendants, being the managing director and site supervisor for the builder] to identify concurrent wrongdoers and seek to have their liability for breach of the statutory duty limited under s 35 of the Civil Liability Act. This appears to be the means by which Parliament has sought to address the matters to which [their counsel] referred [being the potentially wide application of section 37 to every person on a construction site].
That is, the extensive statutory duty is potentially ameliorated by the ability of defendants to call in aid the proportionate liability provisions of the CLA.

Non-delegable duties and the CLA

As mentioned, section 39 of the DBP Act provides that the statutory duty is non-delegable. This brings us to sections 5Q and 39(a) of the CLA.
Section 5Q is to be found in Part 1A, "Negligence", of the CLA. There, section 5A(1) provides: (emphasis added) 5A Application of Part (1) This Part applies to any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise. "Negligence" means failure to exercise reasonable care and skill: section 5.
Division 7 of Part 1A comprises section 5Q, which provides: (emphasis added) Division 7 Non-delegable duties and vicarious liability 5Q Liability based on non-delegable duty (1) The extent of liability in tort of a person (the defendant) for breach of a non-delegable duty to ensure that reasonable care is taken by a person in the carrying out of any work or task delegated or otherwise entrusted to the person by the defendant is to be determined as if the liability were the vicarious liability of the defendant for the negligence of the person in connection with the performance of the work or task. (2) This section applies to an action in tort whether or not it is an action in negligence, despite anything to the contrary in section 5A. That is, section 5Q applies to all tortious claims, in negligence or otherwise.
A non-delegable duty and vicarious liability are similar but not the same. A defendant is under a "non-delegable duty" where they cannot acquit themselves by exercising reasonable care in entrusting the task to a reputable contractor, but must actually ensure that the task is done, and done carefully: Fleming, The Law of Torts, 10th edition, pg 464; Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 550; [1994] HCA 13. A non-delegable duty "enables a plaintiff to outflank the general principle that a defendant is not vicariously responsible for the negligence of an independent contractor": Leichhardt Municipal Council v Montgomery (2007) 230 CLR 22 at 27; [2007] HCA 6 at [6] (per Gleeson CJ). Thus, while a principal owing a non-delegable duty can still arrange for an independent contractor to carry out the work the subject of the duty, the principal retains a duty to ensure the work is carried out properly and is liable in the event that it is not done properly.
Vicarious liability is an instance of strict liability, "when the law holds one person responsible for the misconduct of another, although [the first person] is … free from personal blameworthiness or fault": Fleming, The Law of Torts at 437. As Lord Sumption explained in Woodlands v Essex County Council [2013] UKSC 66; [2014] 1 AC 537 at [3]: (citations omitted) … Where a defendant is vicariously liable for the tort of another, he commits no tort himself and may not even owe the relevant duty, but is held liable as a matter of public policy for the tort of the other. The boundaries of vicarious liability have been expanded … But it has never extended to the negligence of those who are truly independent contractors …
Put shortly, section 5Q equates the liability for breach of a non-delegable duty with vicarious liability: Woodhouse v Fitzgerald (2021) 104 NSWLR 475 at 487, 500; [2021] NSWCA 54 at [49] (Basten JA). Why it was thought necessary to enact such a provision bears repetition. In short, it was to prevent plaintiffs evading the reforms effected by the CLA, by bringing vicarious liability claims as claims for breach of a non-delegable duty instead.
Section 5Q was added to the CLA by the Civil Liability Amendment (Personal Responsibility) Act 2002, on the recommendation of the learned authors of Review of the Law of Negligence Final Report (September 2002), (the Ipp Report). Where the reforms effected by the CLA limit liability and damages, section 3C provides that such provisions also exclude or limit the vicarious liability of another person for that tort. However, the provisions may not apply where the plaintiff sued on the basis of a breach of a non-delegable duty: at [11.14]. Where liability for breach of a non-delegable duty was considered to be "functionally equivalent" to vicarious liability, "it would be unsatisfactory if plaintiffs could evade the application of the provisions of the [CLA] by inviting a court to impose a non-delegable duty on a defendant employer that would not be subject to the provisions of the [CLA] when, if they claimed against the negligent [employee], the claim would be subject to the provisions of the [CLA]": at [11.15].
An additional concern expressed by the Ipp Report was that the Courts had been considering the concept of non-delegable duty and new non-delegable duties may be recognised: at [11.17]. At [11.18]: The development of such general principles may provide encouragement to people looking for ways to evade the provisions of the [CLA]. [Section 5Q] is not intended to limit the recognition of new non-delegable duties. Its only purpose is to prevent non-delegable duties (both those that currently exist and any new duties that may be recognised in the future) being used as a way of evading the provisions of the [CLA].
The Ipp Report recommended that the problem be addressed by the enactment of a provision to the effect that, for the purposes of the CLA, liability for breach of a non-delegable duty would be treated as equivalent to vicarious liability.
Turning then to the proportionate liability provisions of the CLA, section 39 addresses a different problem. Section 39 provides: 39 Application of Part Nothing in this Part- (a) prevents a person from being held vicariously liable for a portion of any apportionable claim for which another person is liable …
As Basten JA explained in Woodhouse v Fitzgerald, section 39(a) seeks to avoid the difficulty identified by the New South Wales Law Reform Commission and Professor Davis' report, Inquiry into the Law of Joint and Several Liability: Report of Stage 2 (January 1995): to apply proportionate liability where one defendant is vicariously liable for another defendant "would completely undermine the principles of vicarious liability and the policy behind them."
To avoid this difficulty, it was recommended that any change to the rules on joint and several liability should be expressed not to apply to instances of vicarious liability, so as to preserve the effect of vicarious liability: at [101]. As Estcourt J put it when considering equivalent Tasmanian legislation, even in the case of vicarious liability, the section nonetheless envisages that the apportionment process will be carried out but the "practical consequence" is that nothing prevents a person from being held vicariously liable for that assessed proportion": Prestage v Barrett [2021] TASSC 27 at [664].
Combined with section 5Q, section 39(a) of the CLA renders the person owing a non-delegable duty liable for the proportion attributed to the independent contractor: Woodhouse v Fitzgerald at [100], [102] (per Basten JA).

Submissions

The Owners Corporation submitted that, by the combined operation of section 39 of the DBP Act and sections 5Q and 39(a) of the CLA, the defendants were precluded from deploying the proportionate liability provisions in respect of their non-delegable duty. Were it otherwise, the non-delegable duty imposed under the DBP Act would become delegable.
The Owners Corporation acknowledged that proportionate liability defences may be available in some circumstances. If the Owners Corporation brought proceedings against the certifier, then it was said that the certifier could apportion their liability against the defendants and sub-contractors, as the certifier was not vicariously liable for them. Ultimately, the Owners Corporation's counsel submitted there was a subtle and nuanced distinction between situations where those involved in "construction work" could rely on the apportionable claims provisions and those who could not.
The defendants submitted that every sub-contractor, tradesperson, private certifier or architect owed the Owners Corporation a duty under section 37 of the DBP Act and thus owed a "non-delegable" duty under section 39 of the DBP Act. If the Owners Corporation was correct, then no defendant to a claim under section 37 of the DBP Act could apportion liability under Part 4 of the CLA. Every defendant would be liable for 100% of the damage from their breach of duty, no matter how small or large a role they had in respect of that work. Such an outcome would be unusual and onerous.
Further, the defendants submitted that whether any of the concurrent wrongdoers could be considered a 'delegate' of either defendant was a factual matter which could only be determined at a final hearing. The defendants contended that: 1. the first defendant - but not the second defendant - subcontracted various trades to carry out the building works; 2. the second defendant - but not the first defendant - contracted with the architect and the certifier and applied to the Council to carry out their roles in respect of the construction works; and 3. the manufacturer of the aluminium composite panels was not contracted by either of the defendants to manufacture the panels, but sold the panels into the marketplace for use in building work. Although the manufacturer may owe a duty under section 37 of the DBP Act as a manufacturer of a building product (section 36(1)(c), DBP Act; Boulos at [59]), it may not be a delegate of the defendants. Which entities were concurrent wrongdoers and which were 'delegates' ought to be determined at trial: Boulos at [61].

Section 39 of the DBP Act and the CLA

Debate focussed on whether a claim for breach of the statutory duty imposed by section 37 of the DBP Act is a claim brought "under statute" or "in tort" within the meaning of section 5Q. The Owners Corporation submitted that section 37 of the DBP Act simply imposes a duty of care that forms part of a cause of action in negligence, relying on the dissenting judgment of Leeming JA in Vickery v The Owners - Strata Plan No 80412 (2020) 103 NSWLR 253, [2020] NSWCA 284 and the Second Reading Speech extracted at [25]. The defendants submitted otherwise, relying on the majority judgments of Basten and White JJA in Vickery and (also) the Second Reading Speech.
However, I consider that the debate on this application concentrated on the wrong thing. The DBP Act does, relevantly, two things: 1. Section 37 creates a statutory duty. 2. Section 39 prescribes that the statutory duty is non-delegable.
I consider that section 5Q is concerned with the second element, that is, the nature of the non-delegable duty imposed on the defendant. Section 5Q must be read as a whole. The section is directed to a defendant's "liability in tort … for breach of a non-delegable duty to ensure that reasonable care is taken by a person in the carrying out of any work or task delegated or otherwise entrusted to the person by the defendant". The section describes non-delegable duties as recognised in tort. Section 5Q requires that the non-delegable duty imposed on the defendant arises in tort.
This is apparent from the legislative history of section 5Q. The Ipp Report was clearly concerned with tortious claims for breach of a non-delegable duty, as developed by the common law and potentially expanded by the Courts, being used by plaintiffs as a way to evade the limitation or exclusion of liability for negligence effected by the CLA, including on vicarious liability. The authors were not concerned with non-delegable duties created by statute which, unlike general law duties, would not have been subject to the principles of vicarious liability. Further, in contradistinction to the reference to claims brought "in tort, in contract, under statute or otherwise" in section 5A(1), section 5Q specifically identifies liability "in tort" only.
Obiter, Basten JA left open the possibility that a statute may give rise to a non-delegable duty under section 5Q: Woodhouse v Fitzgerald at [99]. That is certainly available as a matter of language. However, having regard to the mischief to which section 5Q was directed, I consider that section 5Q does not apply where a duty is non-delegable as a consequence of statute.
The DBP Act provides that the statutory duty created by section 37 is non-delegable. A defendant's duty is non-delegable by reason of a statute, rather than by reason of the defendant's duty falling within any recognised general law category of non-delegable duty. Section 5Q is not engaged. Nor does section 39(a) of the CLA apply. The proportionate liability provisions are available to the defendants. It follows that I am not satisfied that the proportionate liability defences are manifestly groundless or so obviously untenable that the defences cannot possibly succeed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 February 2023

Design and Building Practitioner Act 2020(NSW)

Civil Liability Act 2002(NSW)ss 5A, 5Q, 34, 39(a)

(2020) 103 NSWLR 253

(2021) 104 NSWLR 475

The Owners - Strata Plan No 84674 v Pafburn Pty Ltd

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