The High Court case of Pafburn Pty Limited v The Owners - Strata Plan No 84674 (Pafburn) was handed down towards the end of last year (December 2024) and was a split decision. This means that out of the 7 judges on the High Court, 4 decided in one direction, and 3 decided in the other. It is the decision of the 4 judges that becomes law. Split decisions of this nature always give rise to controversy and sometimes more questions than answers. The case of Pafburn is no different. It holds particular significance if you are the developer or head contractor on a high-rise residential development, as was the case in Pafburn.

To put it simply, the developer and/or head contractor can now be held directly and completely liable in negligence and damages to the owners corporation of a building for defective works carried out by any party that sub-contracted with the developer / head contractor to carry out the works (waterproofing, plumbing, concreting, etc). This is so even if the principal / head contractor did not directly undertake the works in question (as will nearly always be the case).

The following passage from the majority judgment makes this point clear:

Madarina [developer] and Pafburn [head contractor] are 100% liable for any failure to exercise reasonable care to avoid economic loss caused by defects in the building on the part of wrongdoers who in fact carried out the work or task from which the defects arose.

As the two entities with overall control of the development, the developer / head contractor assume liability for all works carried out anywhere on the entire building, even though the developer / head contractor are only directly involved in project management and supervision (as opposed to directly carrying out each component of the construction works).

This assumption of liability extends not only to the sub-contractors and suppliers, but to any negligence said to have been committed by the local council and the principal certifying authority (PCA) in approving the works. This is because the developer / head contractor are the entities responsible for engaging the local council / PCA to approve and certify the works. They therefore take responsibility for their work.

The 3 judges in the minority baulked at this wide approach to liability:

If that phrase [“a person who carries out construction work”] is to be construed as extending beyond the actual carrying out of construction work by a person or their agent, to include strict liability for work carried out by a sub-contractor in breach of s 37, then, as the appellants [Madarina and Pafburn] submitted, s 37 increases, dramatically, the liability of persons who carry out construction work for defects caused by sub-contractors no matter the care taken by the person in selecting that sub-contractor. As will be explained, such a broad construction of the phrase “a person who carries out construction work” should not be adopted.

If the developer or head contractor is being sued for defective works carried out by one of their sub-contractors or suppliers, they will need to sue that party directly by way of a cross-claim.

Attention to developers and head contractors: you are now directly on the hook for any shonky or defective work carried out by any of your sub-contractors or suppliers, no matter the time or effort put into managing, supervising or procuring their works. This liability cannot be avoided or contracted out of.

If you wish to find out more about the decision in Pafburn and how it may affect the risk controls on your current or future developments, call or contact Hamilton Mott today for a confidential discussion.