How it just became even better to buy an apartment in NSW
Protections for apartment buyers in NSW – which already leads other states in terms of consumer safeguards – have strengthened further with a High Court ruling that curbs the ability of developers and builders to pass on liability for defects to subcontractors and consultants.
The country’s highest court last week widened the gap in consumer protection between NSW and other states when it ruled that the developer and builder of a North Sydney apartment building could not apportion liability for faults in the building to other parties.
In 2020, the state’s Design and Building Practitioners Act created an explicit duty of care by developers and builders to their customers, putting NSW ahead of other states and territories.
Last week’s judgment rejected the arguments of builder Pafburn and developer Madarina – sued by owners for breaching their duty of care under the act – that they could shift liability for defects to groups including the waterproofing subcontractor, architect and certifier.
“This means the responsible builder or developer must ensure that anyone doing the work takes reasonable care,” Clyde & Co partner James Rigney told The Australian Financial Review.
“For example, if a head contractor hires a subcontractor to install electrical systems, the head contractor must ensure the work is done correctly. If the subcontractor’s work is faulty and causes damage, the head contractor is still technically liable.”
While the builder and developer can separately take action against subcontractors for not doing their job properly, the court ruled they could not join them to any action brought by the apartment owners – a move that slows litigation attempts and adds to costs for the plaintiffs.
Great result for apartment owners
“It is a very good outcome for owners,” construction lawyer Bronwyn Weir told the Financial Review. “This provides a much more streamlined process for owners to pursue compensation. That’s a big win for owners that won’t exist in the other jurisdictions in the absence of this legislation.”
The judgment in the NSW case – over legislation that the state passed after the development failures of Opal and Mascot Towers almost six years ago – showed the growing difference between NSW, which has introduced consumer protections in apartment developments, and the other states that hadn’t, said Ms Weir, the co-author of a major report in 2018.
“The gap’s widening,” she said. “It is quite material. In the other states, owners do get bogged down in the severely protracted and expensive litigation because of the proportionate liability regime.”
But the act and judgment do not create a free-for-all for aggrieved owners. They still need to prove a breach of duty of care and resulting loss, which was not straightforward, Mr Rigney said.
“The underlying challenges of proving their claims against developers will remain,” he said.
“Builders and developers involved in the project are in possession of the relevant documents and have access to the relevant witnesses. A plaintiff does not have the same advantages and is often playing catch-up, having to embark on expensive processes of identifying and obtaining documents to prove a cause of action.”
Extra burden
The judgment would create an extra burden for industry, Ms Weir said. “There will be people on the industry side saying this is going to affect the viability of developments and the willingness of developers to take on risks.”
Stuart Ayres, the chief executive of industry body Urban Development Institute of Australia NSW, declined to comment.
Tom Forrest, the CEO of Urban Taskforce, another industry body representing developers, said the extra risk that the ruling created for developers would increase their financing burden and push the overall cost of development higher.
“In the middle of a housing supply crisis, we cannot afford additional burdens on the cost of a regulatory system which simply transfers responsibility for the failures of all associated with the design and construction onto builders and developers,” Mr Forrest said.
“This High Court decision has exposed the level of this risk transfer. It is a significant problem.”
Both Ms Weir and Mr Rigney said the ultimate goal should be to build buildings without defects.
“It remains to be seen whether the increased costs of construction and insurance that arise from greater exposure from [the judgment] will be passed onto the consumers, or whether the decision will drive improvements in construction quality in a way that reduces defects, and disputes and benefits consumers as a whole,” Mr Rigney said.
