WHO PAYS: The applicability of the Proportionate Liability Regime to disputes arising out of breaches of the statutory warranties under the Home Building Act 1989

The applicability of the proportionate liability regime to home building disputes arising out of defective construction works remains in a state of flux following the recent decision of the NSW Court of Appeal in The Owners-Strata Plan No. 64757 v MJA Group Pty Limited, on 24 June 2011.

What is the Proportionate Liability Regime

Commencing on 1 December 2004, the proportionate liability provisions contained in Part 4 of the Civil Liability Act 2002 ("the CL Act"), in essence, allows the liability of a wrongdoer to be apportioned amongst one or more other persons:

"whose acts or omissions caused, independently of each other or jointly, the damage or loss that is the subject of a claim" (Section 3492) of the CL Act).

This means that the amount of damages payable by any one of the concurrent wrongdoers can be limited to a portion of the total claim, for which that person can be said to be responsible.

The regime applies to an "apportionable claim" for "economic loss or damage to property, in an action for damages (whether in contract, tort or otherwise) arising out of a failure to exercise reasonable care” (Section 34(1)(a) CL Act). These provisions take effect regardless of whether all concurrent wrongdoers are parties to the legal action or not. However, a plaintiff cannot enforce the judgment against a person who is not a party to an action. The plaintiff will have to bring further legal action against that non-party concurrent wrongdoer for that portion of the claim.

Key question within the Industry

The pressing question within the building and construction industry is how these proportionate liability provisions affect a claim arising out of alleged breaches of the statutory warranties implied by Section 18B of the Home Building Act 1989 ("HB Act"). One of the statutory warranties includes a warranty that works will be carried out "in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract" (Section 18B(a) of the HB Act). There have been a number of cases in which this question was argued before the NSW Courts. However, none of these cases provide a clear answer.

NSW Court of Appeal Casts Doubt on Applicability of Regime

In The Owners-Strata Plan No. 64757 v MJA Group Pty Limited [2011] CA 236, the Owners Corporation claimed against the developer for defective building works in breach of Section 18B of the HB Act. The developer entered into a construction contract with a builder to convert a building at Dee Why into 12 residential units. The builder completed the works under the construction contract on or about 8 January 2001.

The parties agreed that the works by the builder were defective. The builder became insolvent and the Owners Corporation looked to the developer for compensation. Section 18E of the HB Act requires that a claim for a breach of the statutory warranties be brought within 7 years after the completion of the work. The Owners Corporation did not comply with this limitation period and the case was dismissed on that basis.

During the hearing, lawyers for the developer submitted that the Owners Corporation's claim was an "apportionable claim" to which Pt 4 of the CL Act applies. As the claim was made out of time, the NSW Court of Appeal did not consider it necessary to deal with this issue. However, his Honour, Allsopp J commented that:-

"….the present point is an extremely significant one and it is not in the public interest that, without full argument on it, a definitive decision should be given. Accordingly, I will content myself by saying that there is much to be said for the view that a claim under Section 18C of the [HB Act] is not an action for damages from a failure to take reasonable care within the meaning of s34(1) of the [CL Act]. One principal reason for taking this view is that to take any other view would completely negate the whole purpose of s18C in the case where the builder has become insolvent."

Later Cases apply Proportionate Liability Regime

His Honour Allsopp J’s opinion is contrary to that of the NSW District Court in the subsequent case of Pastovic & Co Pty Limited v Farrington, which was heard on 7 July 2011.

In this case, the owner claimed against the builder in the Consumer, Trader & Tenancy Tribunal for alleged defective building works in breach of the statutory warranties. The builder appealed to the District Court on a number of points of law, including that:

"1. The Tribunal erred in construing Part 4 of the [CL Act] to apply only in circumstances where notice was given by the builder to the owner of concurrent wrongdoers; and
2. The Tribunal erred in failing … apportion liability amongst concurrent tortfeasors including Wollongong City Council, the developer Johnson Property Group Pty Limited, and the landscaping contractors for the sub-division and the site."

There was no dispute amongst the parties that the owner's claim was an "apportionable claim". However, the builder had failed to give the owner prior notice of the identity of the other concurrent wrongdoers as required by Part 4 of the CL Act. The Tribunal found this failure to be fatal to the builder's position. The District Court disagreed and ruled in favour of the builder on these points of appeal.

The pertinent issue in this case is that both the Tribunal and the NSW District Court accepted that the proportionate liability regime applies to a home building claim arising out of alleged breaches of the statutory warranties under the HB Act.

The opinions of the District Court and the Tribunal are similar to the view taken by his Honour Einstein J of the NSW Supreme Court in the case of The Owners-Strata Plan No. 72357 v Dasco Constructions Pty Limited & Ors [2010] NSWSC 819, which was heard on 23 July 2010.

In that case, his Honour Einstein J found that the Owners Corporation's clam was an “apportionable claim” as it was a claim for "economic loss" in an "action for damages in contract" which arose out of a "failure to take reasonable care".

The Owners Corporation tried to rely on an exemption under Section 39(c) of the CL Act which states that nothing in Part 4 of the CL Act "affects the operation of any other Act to the extent that it imposes several liability on any person in respect of what would otherwise be an apportionable claim." However, his Honour reasoned that Section 18B did not impose liabilities on a builder or a contractor nor does it create a cause of action for a plaintiff. Rather, Section 18B provides for particular terms to be implied into certain construction contracts. Section 18D then allows a successor in title the benefit of those terms. For these reasons, Section 39(c) does not assist the Owners Corporation’s claim. His Honour further reasoned that if Parliament had intended to exclude home building defects claims from the proportionate liability regime, it would have expressed that exemption in the legislation. For these reasons, his Honour decided that Part 4 of the CL Act applied to the dispute before him.

The Safe Approach

These decisions and the contrary opinion of his Honour Allsopp J in the higher NSW Court of Appeal do not provide any certainty as to whether the proportionate liability regime under the CL Act applies to claims for breaches of the statutory warranties under the HB Act. In the present state of flux, a party may be wise to conduct its legal action as if those provisions apply, until proven otherwise.

- Lelien Chua, Solicitor of Watson and Watson Lawyers, Accredited Specialists with experience in Building and Construction Law. This article also appears in the Master Builders Association magazine.

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