When titles do not matter, but responsibility does: Personal liability for de facto directors in construction

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Overview

The recent Supreme Court of New South Wales decision in Brown v Etna Developments Pty Ltd [2025] NSWSC 358 delivers a compelling reminder that company directors – and even individuals acting as de facto directors – can be held personally liable for negligent acts during construction projects. This case underscores the importance of clearly understanding the roles and responsibilities of company agents, particularly when their conduct effectively places them in a position of control, decision-making, or assumed responsibility. For developers, builders, and those managing construction operations, it reinforces the real personal risk of informal or decentralised decision-making structures.

Background

The plaintiffs, Edmund Brown and Irena Saric, owned a residential property adjoining a construction site managed by Etna Developments Pty Ltd (Etna). Building works were carried out by Nutek Construction Pty Ltd (Nutek). During excavation, both companies failed to implement adequate safety and geotechnical measures to protect the plaintiffs’ land.

A significant collapse followed, rendering the plaintiffs’ property ‘virtually worthless’, cutting off vehicle access, and creating an ongoing risk of further subsidence. Expert evidence confirmed that the excavation was the proximate cause of the instability. Of particular significance, two individuals, despite never formally appointed as directors, had overseen and directed key elements of the excavation.

Findings

The Supreme Court found both Etna and Nutek liable in negligence and trespass. However, through the course of the proceedings, Etna entered into external administration and Nutek entered into Liquidation. The Court also made critical findings about the personal liability of the individuals who had operated as de facto directors of Nutek.

Justice Rees found that these individuals had:

  • exercised operational control over the site;
  • made key decisions about how the works were carried out;
  • failed to obtain adequate geotechnical advice; and
  • ignored foreseeable risks to neighbouring properties.

The Court held that by assuming effective control, they had stepped into the role of de facto directors1 – and, in doing so, owed a personal duty of care to the plaintiffs.2 Their failure to take reasonable precautions, despite knowledge of the risks, amounted to actionable negligence.3 Damages were awarded against Etna and the liability of Nutek was apportioned between the individual defendants based on their respective levels of responsibility.

Key Takeaways

  1. Titles Are Irrelevant – Agency and Responsibility are Everything

A de facto director is a person who is not formally appointed but who performs the functions of a director. Courts will examine conduct, not corporate records, to determine if someone is effectively in control. Those who direct operations, make strategic decisions, or hold themselves out as ‘in charge’ may face the same liabilities as appointed directors.

This case confirms that personal liability is not limited to officially registered directors. Individuals who act with authority and influence over corporate decisions—particularly where safety is at stake—can be held personally liable.5

  1. Construction Work Involves Heightened Duties

Directors and controllers of construction projects must proactively obtain expert advice and comply with all relevant safety and engineering standards. Courts will not accept cost-cutting or ignorance as a defence to property damage.6

  1. Review Internal Governance and Insurance

Firms involved in construction projects should review their governance structures and ensure appropriate professional indemnity insurance is in place. Those exercising effective control must be clearly informed of their obligations—and the potential personal exposure.7

If you or anyone you know is involved in construction or development and would like advice on managing director liability, contractor oversight, or professional indemnity risk, Bradbury Legal is a specialist building and construction law firm. Contact us on (02) 9030 7400, or at info@bradburylegal.com.au

 

Footnotes

  1. Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [113]–[115]; ASIC v King [2020] HCA 4 at [46]–[55]; Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 574–575.
  2. Perre v Apand Pty Ltd (1999) 198 CLR 180 at [103]–[105]; Bryan v Maloney (1995) 182 CLR 609 at 627–628.
  3. Smith v Jenkins (1970) 119 CLR 397 at 403–405; Hamilton v Whitehead (1988) 166 CLR 121 at 128.
  4. ASIC v King [2020] HCA 4 at [54]–[55]; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [113].
  5. ASIC v King [2020] HCA 4 at [54]–[55]; see also Grimaldi at [113].
  6. Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at [23]–[25]; Parsons v Raby [2007] NSWSC 1059 at [55]–[59].
  7. Hamilton v Whitehead (1988) 166 CLR 121; Walker v Wimborne (1976) 137 CLR 1 at 6–7 (per Mason J).

 

Freeze Now, Enforce Later: Understanding Freezing Orders in NSW

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A freezing order, also known as a Mareva injunction, is a powerful legal tool designed to prevent a party from disposing of or dealing with assets before a judgment can be enforced. In New South Wales, these orders are frequently sought in cases involving fraud, insolvency or complex commercial disputes. Their central aim is to preserve the enforceability of a future court judgment by preventing the dissipation of assets in the meantime.

What Is a Freezing Order?

A freezing order is an interlocutory injunction that restrains a party from dealing with specified assets, usually pending the outcome of litigation. The purpose is not to give a plaintiff a security interest in those assets, but rather to preserve the status quo so that any eventual judgment can be enforced.[1] These orders are typically granted under Rule 25.11 of the Uniform Civil Procedure Rules 2005 (NSW) and are often sought ex parte (without notifying the respondent) to avoid alerting the other party and triggering the very asset dissipation the order is designed to prevent.

Criteria for Granting a Freezing Order

Courts apply strict and well-defined criteria when determining whether to grant a freezing order. The applicant must satisfy all of the following:

  1. Good Arguable Case
    The applicant must demonstrate a “good arguable” case on the substantive claim. In Lambros v Urbanlux Homes Pty Ltd (in liq)[2021][2], the Court clarified that while the case need not have a greater than 50% chance of success, it must be plausible and capable of serious argument—higher than speculative but lower than proof on the balance of probabilities.
  2. Real Risk of Asset Dissipation
    There must be credible evidence that the respondent is likely to dispose of, hide, or deal with assets in a manner that could frustrate the enforcement of a future judgment.
  3. Danger That Judgment Will Be Unenforceable
    The court must be satisfied that, without the order, there is a real risk that a judgment in favour of the applicant would be wholly or partly unsatisfied due to the unavailability of the respondent’s assets.
  4. Balance of Convenience and Interests of Justice
    The court must be persuaded that the benefit of preserving the applicant’s potential remedy outweighs the inconvenience or prejudice to the respondent. Courts will also consider whether an undertaking as to damages has been offered by the applicant to compensate the respondent if the order proves unjustified.
  5. Jurisdictional Nexus
    There must be a connection between the respondent or the assets and the jurisdiction. The Supreme Court of NSW must have authority over the respondent or the relevant assets.

Scope and Enforcement

Freezing orders can apply to a wide range of assets, including bank accounts, real property, shares and personal valuables. They can also extend to assets located both within and outside Australia. Additionally, these orders can bind third parties, such as banks that hold assets on behalf of the respondent.

Key Considerations for Applicants

While freezing orders are powerful tools for preserving assets, they are discretionary and exceptional remedies that courts do not grant lightly.[3] Applicants seeking a freezing order should be mindful of the following:

  • Undertaking as to damages: Applicants must be prepared to compensate the respondent if the order is later found to have caused unjust harm, particularly if the freezing order is ultimately unjustified.
  • Access to funds: Orders generally allow respondents to access funds for reasonable living or business expenses, as specified in the order.[4]
  • Full and frank disclosure: In ex parte applications, applicants are under a strict duty to disclose all relevant facts, including those adverse to their case.[5] A failure on the part of the applicant to do so may result in the order being set aside.
  • Proportionality: The scope of the order must be proportionate to the value of the claim and tailored specifically to the risk of asset dissipation.

In Bennett (bht Jones) v State of NSW & Anor [2022][6], the Court reaffirmed its cautious approach to freezing orders, highlighting the need for a real danger of asset dissipation supported by clear and reliable evidence. The case underscores the importance of thorough preparation and detailed investigation of the respondent’s conduct when seeking such relief.

Freezing orders are also particularly effective in situations involving allegations of fraud, misappropriation of funds or asset stripping. They are also increasingly used in cross-border litigation, given their availability against third parties or foreign respondents in certain cases.

Final Thoughts

Freezing orders are a powerful litigation tool, but they must not be sought lightly. As an extraordinary and intrusive remedy, they demand careful attention to the evidence, full disclosure and precise drafting. Courts will closely scrutinise whether the legal criteria—especially in an ex parte setting—have been properly met.

Notwithstanding, when used wisely, freezing orders can mean the difference between a hollow victory and an enforceable judgment—underscoring the value of a strategy that enables litigants to freeze now, enforce later.

 

[1]  Jackson v Stirling Industries Ltd (1987) 162 CLR 612; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.

[2] NSWSC 1615 at [39].

[3] Frigo v Culhaci [1998] NSWCA 88, approved in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [51]; Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141 at [57].

[4] Goumas v McIntosh [2002] NSWSC 713 at [23].

[5] See Rees J in Madsen v Darmali [2024] NSWSC 76 at [12]–[15].

[6] NSWSC 1406.

The Price of Refusal – costs consequences of unreasonably rejecting Calderbank offers

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A Calderbank offer is a special type of settlement offer made in an attempt to resolve anticipated or commenced litigation and derives the name from the case that first established the relevant principles, Calderbank v Calderbank [1975] All ER 333.  It is special in that a valid Calderbank offer may:

  • if you are the successful party in litigation, increase the percentage of legal costs you recover from the unsuccessful party; or
  • if you are the unsuccessful party in litigation, decrease the percentage of legal costs you pay the successful party.

A properly advised litigant will be factoring legal costs into their overall litigation strategy and will use Calderbank offers to strengthen their position by either recovering more costs or paying less costs.  This “costs protection” element differentiates Calderbank offers from standard offers to negotiate or settle litigation.  It also forces a party receiving an offer to give careful thought to the risk involved in not accepting the offer given the potential consequences for legal costs recoverable or payable.[i]

The principles are encouraged by the courts and tribunals because they facilitate the efficient and economic disposal of litigation in accordance with modern case management principles which are directed towards avoiding waste and delay in litigation generally.[ii]

Costs of the proceedings

The costs of the proceedings are typically dealt with after there has been judgment on the substantive issues of the case.  This is because the practical result or outcome of the judgment often determines which party is responsible to pay costs.  This is known as the guiding principle that “costs follow the event” with the event being the practical result or outcome e.g. the plaintiff succeeded in their claim for damages for breach of contract.[iii]

Costs are ordinarily awarded on an “ordinary” basis[iv] but, in special circumstances, may be awarded on an “indemnity” basis.[v]  In simple terms, the indemnity basis (85-95% of actual costs) is a higher percentage of recovery of actually incurred costs compared with ordinary costs (65-75% of actual costs).  In short, the difference will generally be 10-15% higher if recovering on an indemnity basis.

However, costs are always in the discretion of the court or tribunal having regard to various factors. One factor that is weighed in exercising that discretion is the existence of Calderbank offers that were not accepted.  In particular, establishing that you issued a valid Calderbank offer that was a better outcome than the outcome that was obtained by proceeding to judgment may both affect:

  1. the party responsible for paying costs; and
  2. the “basis” on which costs will be assessed.

Examples

The examples below are not automatic or guaranteed outcomes given costs are always at the discretion of the court or tribunal[vi] and there are many competing factors that are taken into account such as delinquent conduct by the party that made the offer in the litigation.  The examples are presented for simplicity and ignoring competing factors that might arise.

Successful Plaintiff that makes an offer

Take the following example:

  • proceedings were commenced on 1 January 2024;
  • a valid Calderbank offer was made on 1 July 2024 by the Plaintiff to settle for $600,000 and rejected (unreasonably) by the Defendant; and
  • judgment was entered on 1 December 2024 in favour of the Plaintiff for $900,000.

As a matter of commonsense, the Plaintiff’s Calderbank offer would have been a better outcome for the Defendant had it accepted the offer rather than proceeded to judgment.

The law recognises this logic and gives effect to it by increasing the percentage of legal costs recoverable by the successful Plaintiff by using the indemnity basis for part of the overall legal costs payable by the Defendant.  Specifically, in our example, the consequence of unreasonably rejecting a Calderbank offer that was better than the ultimate outcome is that the court or tribunal may exercise its discretion to order that:

  • the Defendant pays the Plaintiff’s costs on an ordinary basis between 1 January 2024 to 1 July 2024 i.e. before the offer; and
  • the Defendant pays the Plaintiff’s costs on an indemnity basis between 2 July 2024 and 1 December 2024 i.e. after the offer.

In short, the successful Plaintiff recovers an overall higher percentage of part of their legal costs.

Unsuccessful Defendant that makes an offer

As a variation on that example, let us assume the following facts instead:

  • proceedings were commenced on 1 January 2024;
  • a valid Calderbank offer was made on 1 July 2024 by the Defendant to settle for $600,000 and rejected (unreasonably) by the Plaintiff; and
  • judgment was entered on 1 December 2024 in favour of the Plaintiff for $400,000.

As a matter of commonsense, the Defendant’s Calderbank offer represented a more favourable result for the Plaintiff than the judgment.  In that scenario, the court or tribunal may exercise its discretion to order that:

  • the Defendant pays the Plaintiff’s costs on an ordinary basis between 1 January 2024 to 1 July 2024 i.e. before the offer; and
  • the Plaintiff pays the Defendant’s costs on an indemnity basis between 2 July 2024 and 1 December 2024 i.e. after the offer.

In short, the unsuccessful Defendant manages to recover that part of their legal costs incurred only because the Plaintiff did not settle on reasonable terms.

To Consider

For completeness, the underlying concept of a Calderbank offer has been formalised in Division 4 of Part 20 of the Uniform Civil Procedure Rules 2005 (NSW) as “Offers of Compromise”, however those types of offers are outside the scope of this article.

Noting the costs consequences associated with making and rejecting Calderbank offers, it is crucial that litigants use them in a way that promotes settlement of disputes to achieve their “just, quick and cheap” obligations and, otherwise, to protect their own position on costs.

 

 

[i] Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [24]. Bluth v Boyded Industries Pty Ltd (No 2) [2024] NSWCA 194 at [43].

[ii] See section 56 of the Civil Procedure Act 2005 (NSW) (CPA).

[iii] See rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); see e.g. New Island Developments Pty Ltd v New Island Investments One Pty Ltd (No 2) [2024] NSWSC 454 at [29].

[iv] In the courts, section 98(1) of the CPA and rule 42.2 of the UCPR. In the Tribunal, section 60(4) of the Civil and Administrative Tribunal Act 2014 (NSW).

[v] See rule 42.5(b) of the UCPR.

[vi] Section 98(1) of the CPA; see e.g. Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [25].

Hedging your debt (certificates) – how much do you really owe?

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When entering into a contract for the performance of building works, the roles and responsibilities of each party are generally defined well enough to ensure the contract can be performed in a mutually beneficial manner. Although, what happens when these responsibilities are affected by the interaction between two pieces of legislation?

In Warrane Design Construct Fit-Out Pty Ltd v Woonona Bulli RSL Memorial Club [2025] NSWSC 123, the Supreme Court of New South Wales considers this question, where payment obligations between a Builder, Principal and Subcontractor changed due to the simultaneous application of the Building and Construction Industry Security of Payment Act 1989 (NSW) (SOPA) and the Contractors Debts Act 1997 (NSW) (CDA).

Key facts

During December 2023, Woonona Bulli RSL Memorial Club Limited (the RSL Club) contracted with Warrane Design Construct Fit-Out Pty Ltd (the Builder) to undertake works to the RSL Club’s carpark and converting the bowling green to another parking space (the Works). Shortly after, to complete the Works, the Builder entered into a subcontract with All Civil Solutions Group Pty Ltd (the Subcontractor). In the following year, the Subcontractor subsequently obtained three debt certificates from the District Court of NSW each valued at $989,183.55, $1,102,958.87 and $464,008.78 for unpaid works which were then served on the RSL Club pursuant to sections 6 and 7 of the CDA.[i] These provisions effectively allow a subcontractor who was not paid and still owed for works that were carried out, to obtain that payment from the principal that engaged the contractor.

At the time, the RSL Club fully paid the first but only partially paid the value of the second certificate. It is important to note that these were monies that would have been paid to the Builder, not the Subcontractor, as the act of issuing the debt certificates effectively assigned the RSL Club’s requirement to pay the Builder under to the contract to the Subcontractor. [ii]

Following this, the Builder obtained an adjudication determination against the RSL Club pursuant to section 22 of SOPA, and successfully sought to enforce it by way of an adjudication certificate and garnishee order for just over $2 million.[iii] Throughout this process, the fact that the RSL Club had made payments to the Subcontractor was not raised as a contentious issue before the adjudicator.

In response to this, the RSL Club filed two separate sets of proceedings to quash the determination by $1,030,281.79, [iv] on the basis that they had already partly paid or at the very least remained liable to pay the Subcontractor under the CDA.[v] The RSL Club also sought to set aside the garnishee order until the conclusion of the first set of proceedings.

What did the Court say?

Justice Stevenson concluded that because the Subcontractors served the debt certificates onto the RSL Club and payments were made pursuant to the CDA, the $2,141,780.83 awarded overstated the amount the RSL Club owed the Builder by approximately $1.2 million. [vi]

His Honour concluded that it was proper for the garnishee order to be set aside as this would undermine the legislative purpose of sections 6 and 7 of the CDA.[vii] Justice Stevenson also affirmed that the interpretation and construction of both SOPA and the CDA should be done in a way that ensures their ‘harmonious interaction’.

What does this mean for you?

Occasionally, certain Acts interact with each other which create new implications for how contractors and principals are required to manage and undertake payments. Given the large role legislation plays in encouraging or requiring parties to fulfil their payment obligations, ensure you can keep track of these obligations or otherwise seek assistance.

[i] Contractors Debts Act 1997 (NSW) ss 6-7.

[ii]  Ibid s 8(1)-(2).

[iii] Building and Construction Industry Security of Payment Act 1989 (NSW) ss 22, 25.

[iv] Warrane Design Construct Fit-Out Pty Ltd v Woonona Bulli RSL Memorial Club Ltd [2025] NSWSC 123 [15] (Stevenson J) (‘Warrane’).

[v] Ibid [15]-[17].

[vi] Ibid [17].

[vii] Contractors Debts Act 1997 (NSW) ss 6-7.

Time’s up!

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In Australia, our Limitation Acts impose strict time limits for commencing legal proceedings.

Time limits vary depending on the type of matter and the jurisdiction.

Limitation periods (often referred to as ‘statutes of limitations’) are a statutory barrier to prevent individuals or businesses from pursing claims after a period of time has passed since the ‘cause of action’ arose. The primary purpose being to balance the rights of parties and the effective administration of justice and, in practical terms, to ensure finality to potential claims.

Civil Claims

Generally speaking, civil claims have a limitation period of 6 years from the date of the cause of action.

What is the relevant limitation period applicable to building claims in NSW?

To work out the applicable limitation period, start with the legislation that gives rise to the action (e.g. defective building work in NSW would be the Home Building Act 1989 (NSW) and/or the Design and Building Practitioners Act 2020 (NSW) (DBPA)). If there is no relevant legislation, look in the limitation act for your relevant state or territory:

  • New South Wales – Limitation Act 1969(NSW) (LA)
  • Australian Capital Territory – Limitation Act 1985 (ACT)
  • Queensland – Limitation of Actions Act 1974(QLD)
  • Victoria – Limitation of Actions Act 1958(VIC)
  • Tasmania – Limitation Act 1974 (TAS)
  • Northern Territory – Limitation Act 1981 (NT)
  • South Australia – Limitation of Actions Act 1936 (SA)
  • Western Australia – Limitation Act 2005 (WA)

These Acts may not apply if the limitation period for a specific cause of action is prescribed by another Act.

At times, more than two pieces of legislation must be considered to determine a limitation period. In building defect claims, the statutory duty of care is not merely the statutory warranty periods under section 18E(1)(b) of the Home Building Act 1989 (NSW) of 6 years for major defects and 2 years in any other case. Under section 37 of the DBPA a person who undertakes construction work has a duty to exercise reasonable care to avoid economic loss caused by defective construction work.  Section 41 provides that the applicable limitation is 6 years under the LA and subject to the 10 year longstop under section 6.20 of the Environment Planning and Assessment Act 1979 (NSW).

The table below sets out some of the more common causes of actions (COA) and corresponding limitation periods in NSW.

 

Implications for individuals and businesses

Being informed of the limitation period for a cause of action is essential as it can have significant implications on the rights and obligations of individuals and businesses.  If a limitation period expires, it may be difficult or impossible to commence legal proceedings, even if a case has merit.

Understanding the limitation periods for potential causes of action allows claimants to bring a claim within time.

Bradbury Legal is a specialist building and construction law firm. If you or anyone you know requires advice or assistance regarding a potential claim and the application of limitation periods, reach out to us on (02) 9030 7400, or email us at info@bradburylegal.com.au to see how we can assist you.

 

[1] Section 14(1)(a) of the LA 

[2] Section 14A of the LA 

[3] Section 6.20(1) of the EPAA

[4] Competition and Consumer Act 2010 (Cth), Schedule 2 Section 18; section 14(1) of the LA 

[5] Section 14(1)(b) of the LA 

[6] Section 14(1)(b) of the LA 

[7] Section 16 of the LA 

Don’t let escalating losses from defects snowball into an avalanche of avoidable (and unrecoverable) losses

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What is mitigation?

In the context of construction disputes, “mitigation” refers to the obligation of a person suffering loss to not act unreasonably in allowing loss they suffer to worsen and result in additional loss.[1]  It is not about whether there was some better or ideal way in hindsight[2], but whether what was done was reasonable.  The obligation is not overly burdensome and does not require the person suffering loss to go out of their way and against self-interest to avoid loss, merely to have acted reasonably in seeking to prevent themselves suffering avoidable losses.[3]

For example, if the owner of a building is having significant water ingress issues due to defective roof waterproofing installed by their builder, the loss directly caused by the builder is a recoverable loss for the owner.  But if that owner sat on their hands and allowed the water ingress to worsen or cause consequential damage resulting in a greater loss e.g. internal damage of floors, walls, and furniture etc., the failure to avoid that additional loss is a failure to mitigate.

The mitigation obligation will be shaped heavily by any contractual agreement between the parties and override general law principles.[4]

Avoidable losses are not recoverable

In that example, an owner failing to avoid losses that can be avoided by taking reasonable action is exposed to the risk that a court or tribunal may decide the owner themselves caused that additional, avoidable loss and will not be able to recover it.  This is the case even where the original cause of the loss is the builder or one of its subcontractors.

The reason for this is that the compensation principle only requires that the owner is restored (by rectification works or money in our example) to the position they would have been had the builder not performed defective works.[5]  Avoidable loss caused by an owner’s inaction is not caused by the builder, only consequent upon it.

Further, the person who claims the other has failed to mitigate loss is required to prove that failure.[6]  In our example, the builder bears the obligation of persuading the court or tribunal that some parts of the ongoing loss suffered due to the water ingress followed from the owner’s failure to take reasonable steps to halt the water ingress.

Costs of reasonable steps to avoid loss are recoverable

Fortunately, the costs of actions taken by an owner to prevent the suffering of avoidable loss are compensable.  However, such losses must not be too remote which refers to excluding recovery of losses that would not typically arise or would not have been foreseen by the parties at the time of entering their agreement due to the breach.[7]

Recovery is possible even where the costs of the reasonable steps exceed the likely cost of the avoided loss (with the builder having to prove steps were unreasonable).[8]  For clarity, it is not necessary for the reasonable actions taken to have actually succeeded in avoiding the loss for the costs to be recoverable.

Mitigating by allowing the original builder access to rectify

With those general points in mind, this article considers a specific type of mitigation scenario which is an owner’s obligation to allow the original builder to return to rectify defective or non-compliant work before engaging a third party to take over and then claim monetary compensation.  This obligation can exist in the contract between the parties, in statute[9], and otherwise at common law[10].

Determining whether or not an owner has acted reasonably is assessed against the factual circumstances of the dispute.  Helpfully, Justice Rees in Ceerose[11] distilled four key facts that will be relevant in determining the question:

  1. the extent and seriousness of the defects;
  2. the quality of any repairs effected by the builder;
  3. the builder’s engagement with the owner in respect of the suggested defects and proposed method of rectification, in short, has the builder responded in a timely manner, taken the complaints seriously and acted fairly; and
  4. the efficacy or perceived futility of continuing to negotiate with the builder.

In this mitigation scenario, given the obligation to prove the failure falls on the builder and the standard of what is reasonable conduct for the owner is not high, it will typically be difficult to establish a failure to mitigate with the owner being precluded from recovering the avoidable loss.  Justice Rees in Ceerose remarked on this when considering recent decisions on this specific mitigation scenario.[12]

Economic advantages to both owner and builder of rectification

The advantages to an owner of mitigating their loss by allowing the original builder to return include:

  1. Ordinarily, the original builder will undertake this work at no cost to the owner given contractual and statutory obligations[13] to do so.
  2. If certain defects or non-compliant works are worsening over time, urgent and proactive action by an owner to allow a builder access will generally be a reasonable step to mitigate avoidable loss. As mentioned above, losses that could have been reasonably avoided will not be recoverable by an owner given the true cause of those losses is the failure to avoid them.

Builders often prefer returning for the simple fact it is generally cheaper than paying the equivalent amount in money to an owner.  This is because a knowledgeable builder will have contractual rights to compel subcontractors to rectify issues in their work at no cost, or, if there is a cost, that cost is less in the original builder’s hands compared with a fresh third party builder (which will include contingencies for the cost of unknowns involved in remedial work).[14]

Provided the rectification work is performed in good faith and correctly, the parties’ interests are aligned in this scenario and resolution is achieved without protracted litigation and accompanying costs.

If you’re an owner in a situation where your losses may worsen and you need advice on what steps you can take, or you’re a builder dealing with an owner that is refusing access which is worsening any issues you may have originally caused, please contact our team on (02) 9030 7400 or at info@bradburylegal.com.au.

 

[1] The Owners – Strata Plan No 89074 v Ceerose Pty Ltd [2024] NSWSC 1494 (Ceerose) at [38]-[39] per Rees J and the references therein.

[2] Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 at [506].

[3] Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187] per Giles JA.

[4] Ceerose at [37] per Rees J.

[5] Robinson v Harman (1848) 1 Ex 850.

[6] Ceerose at [40] per Rees J and the references therein.  See also section 18BA(3) of the Home Building Act 1989 (NSW).

[7] Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (2012) [2012] FCA 1028 at [988] per Rares J.

[8] Arsalan v Rixon Nguyen v Cassim [2021] HCA 40 at [32] per Kiefel CJ, Gageler, Keane, Edelman and Steward JJ.

[9] For example, section 18BA(3) of the Home Building Act 1989 (NSW).

[10] See generally Ceerose at [53] per Rees J.

[11] Ceerose at [51] per Rees J.

[12] Ceerose at [48]-[50] per Rees J.

[13] For example, in a claim for breach of the statutory warranties contained in section 18B of the Home Building Act 1989 (NSW) or the statutory duty of care contained in section 37 of the Design and Building Practitioners Act 2020 (NSW).

[14] See also Ceerose at [41]-[43] per Rees J and the references therein.

By Slim Majority, the High Court in Pafburn Says No: Developers and Head Contractors Cannot Apportion Liability Under the DBPA!

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In a narrow 4:3 ruling, the High Court of Australia in Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49 (Pafburn) has dismissed the appeal of a developer and head contractor, ruling that liability for breaches of the statutory duty under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA) cannot be apportioned under proportionate liability legislation. This highly anticipated decision significantly expands liability, holding developers and head contractors accountable for defects arising from the work of consultants or subcontractors.

The Facts

Background

The Owners Corporation of a North Sydney residential complex (the Owners) commenced proceedings against Pafburn Pty Ltd (the Builder) and Madarina (the Developer) for breaching their statutory duty of care under section 37 of the DBPA. The Owners claimed that the Builder and Developer failed to take reasonable care to prevent economic loss caused by construction defects. In response, the Builder and Developer sought to apportion liability for the defects among nine other concurrent wrongdoers involved in the construction, including the waterproofing contractor, the manufacturer and installer of the aluminium composite panels, the architect, the private certifier and even the local council. The Builder and Developer argued that, under Part 4 of the Civil Liability Act 2002 (NSW) (CLA), liability for the defects should be shared. The Owners contended, however, that the statutory duty under the DBPA was non-delegable, meaning the Builder and Developer could not shift responsibility for the defects to other parties that the Builder and Developer had delegated work to during construction.

Application to Strike Out Proportionate Liability Defences

The Owners sought to strike out the Builder and Developer’s proportionate liability defences. They argued that section 39 of the DBPA explicitly states that the statutory duty of care is non-delegable, preventing reliance on the proportionate liability provisions of the CLA. The Owners further contended that, under section 5Q of the CLA, the Builder and Developer should be treated as if they were vicariously liable for the negligence of those performing delegated work, including the alleged concurrent wrongdoers. As a result, the Builder and Developer should not be allowed to apportion liability for the defects to subcontractors or other parties involved in the construction work.

Key issue

The key issue was whether the Builder and Developer’s duty under the DBPA could be apportioned under the CLA, allowing them to share liability with other parties involved in the construction process.

 What did the Court say?

Primary Decision

The Supreme Court of NSW initially found that the Builder and Developer could plead the proportionate liability defences. Rees J rejected the Owners’ argument, determining that a claim for breach of duty under the DBPA was an apportionable claim under Part 4 of the CLA. Her Honour held that vicarious liability under section 5Q of the CLA applied to a defendant’s breach of a non-delegable duty in tort under common law, but not to the statutory duty under section 37 of the DBPA. This meant that the way in which parties led disputes remained largely unchanged.

Court of Appeal

The NSW Court of Appeal overturned the primary decision, ruling that the statutory duty of care under the DBPA is non-delegable. The Court found that section 39 of the DBPA expressly excludes the application of the proportionate liability provisions in Part 4 of the CLA. It also held that sections 5Q and 39(a) of the CLA treat breaches of the non-delegable duty as a form of vicarious liability, meaning the Builder and Developer’s liability cannot be reduced by the liability of others, thereby preventing any apportionment of liability for breaches of the statutory duty under the DBPA.

 High Court

 The Builder and Developer sought to appeal the Court of Appeal’s decision and reinstate Rees J’s orders. However, in a slim 4:3 ruling, the High Court dismissed the appeal, affirming that developers and head contractors cannot apportion liability for defects under the DBPA. The Court held that, under section 5Q of the CLA, they are vicariously liable for defects arising from the construction work, including those caused by subcontractors or consultants. Effectively, the Builder and Developer could not limit their liability by shifting responsibility to other parties involved in the construction process.

What does this mean for you?

Developers and head contractors who delegate construction work may not be able to apportion their liability under the DBPA. Depending on the circumstances, they may be vicariously liable (that is, 100% liable) for any economic loss caused by defects, including those resulting from the negligence of their consultants and subcontractors.

 Implications

 While owners of defective buildings will undoubtedly welcome the High Court’s decision. It will have several practical and potentially onerous implications for developers and builders:

  1. Increased exposure:
  • Developers and head contractors now face greater liability to exposure, leading to higher construction costs.
  1. Rise in cross-claims:
  • Developers and head contractors will need to pursue cross-claims against other parties involved in the construction to seek contribution for defects.
  • This complicates case management of proceedings, as defendants may struggle at the outset to identify other parties’ roles in the project, determine appropriate causes of action and balance the cost risks of joining third parties.
  1. Higher insurance premiums:
  • The removal of proportionate liability defences is expected to lead to higher insurance premiums and increased difficulty in obtaining insurance coverage for construction stakeholders.
  1. Limited scope (for now):
  • The decision currently applies only to developers and head contractors.
  • The High Court primarily focused on whether developers and head contractors can apportion liability, leaving the question unresolved of whether other parties, such as consultants or subcontractors (particularly when they have not delegated any part of construction works), can rely on apportionment defences.
  • Interestingly, the minority raised doubts about whether a certifier or local council, in performing their duties, even qualifies as “a person who carries out construction work” under the DBPA, raising further ambiguity about their potential liability under the Act.

Bradbury Legal is a specialist building and construction law firm. If you or anyone you know requires advice or assistance, reach out to us on (02) 9030 7400, or email us at info@bradburylegal.com.au to see how we can assist you.

Righting the Wrong in Wrongful Termination

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A common reason why an owner may seek to terminate a building contract is that they believe the builder has taken too long to complete the works. They would then claim that the builder has failed to proceed with due diligence under the contract.

For this argument, an owner must be able to show that the builder did not proceed with the works with due diligence within the time stipulated in the contract – which is a breach of the contract and the statutory warranties (as set out in section 18B of the Home Building Act 1989 (HBA)).

This concept of claiming a ‘due diligence breach’ was established in Re Stewardson Stubbs & Collett Pty Ltd v Bankstown Municipal Council [1965] NSWR 1671, which stated that the requirement of due diligence is breached when there is a failing to act with a level of promptness that is expected of a reasonable person undertaking a building project with regard to the contract. However, several cases have since challenged the ease with which owners are able to terminate building contracts by way of alleging a breach of due diligence.

Let’s start with a review of the statutory warranties

Implied into every residential building contract, the HBA states that the works under a building contract will be completed within the time stipulated in the contract or, if there is no time stipulated, within a reasonable time. For example, it must take into account instances that are out of the builder’s control such as third party delays. The HBA also determines that the owners must allow reasonable access to the site for builders who may be seeking to rectify any defects.

Turner Corporation Ltd (Receiver and Manager Appointed) v Austotel Pty Ltd (1994) BCL 378

In this case, Turner appealed the decision in favour of Austotel for the recovery of costs of engaging third parties to rectify defects in Turner’s work without notice and without allowing Turner to rectify the defects. The Court found that the owner did not follow the procedural steps and notice provisions in the contract relating to the defects. Here it is important to acknowledge sections 18BA(3)(a) and (b) of the HBA whereby the owners, through their own conduct, prevented Turner from rectifying the defects and were ultimately unsuccessful as a result.

Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303

In this case, it was decided that practical completion of the building work would be in May 2000, and in July of the same year a notice of default was served on the builder for failing to proceed with the building works with due diligence, and by the date for practical completion. In August 2000, the owners terminated the contract, claiming that the builders had failed to remedy the situation. The Court held that there had been no breach of contract, and the builder’s delay and lack of programme for completion, was not enough to amount to a substantial breach of due diligence.

Patel v Redmyre Group Limited [2021] NSWCATAP 132

In this case, the builder worked on the restoration of a residential apartment terrace which was to be completed within 32 weeks. However, the building was not complete by the time specified in the contract and the owners issued a notice of termination with immediate effect. At the time the notice was issued to the builder, the work was 26 weeks behind schedule. The builder sought to rectify the defects, but the owner did not allow access to the site. NCAT held that the builder did not fail to proceed with due diligence and no damages for delay or incomplete works were awarded as the owners failed to mitigate the loss and provide reasonable access to rectify the defects.

THINGS TO CONSIDER

In summary, whether you are a builder or an owner, there are some useful points derived from these cases that may be helpful in understanding if there has been a failure on the part of the builder to proceed with the works with due diligence:

  1. What is the reasonable and relevant time period for a diligent builder to complete the works?
  2. Whether the works are incomplete and, if so, whether there are any circumstances preventing the builder from performance of the works, as well as the pace of performance. This may include any disputes in relation to payment, lack of instructions, a change in scope, request(s) for variations, all of which would cause delay;
  3. Whether there is a lack of activity on the project for a significant period of time that cannot be satisfactorily explained;
  4. Whether the owner mitigated his/her/its loss by allowing reasonable access to the site for the builder to rectify its defects; and
  5. Whether the builder issued extension of time claims and updated programmes if required by the contract.

Terminating a contract based on the failure to proceed with due diligence is a risky one and this is why it must be approached carefully. Otherwise, the owners claiming a breach of due diligence could be found to have repudiated the contract and be liable for damages.

Legal advice should always be sought before terminating a contract.

If you have questions or would like to discuss this article, please contact us.

Think twice! The NSW Supreme Court’s take on Generative AI in practice

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Following its introduction in 2022, ChatGPT paved the way for other generative artificial intelligence (Gen AI) platforms, making them a force to be reckoned with, capable of streamlining any task with the help of data extrapolation and language learning processes.

Gen AI is considered a subset of artificial intelligence that operates by producing written responses (including images) when prompted. To produce these responses Gen AI relies upon the datasets it is fed, but these datasets can often be traced back to websites or other unverified sources of information.

In response to this, the NSW Supreme Court in conjunction with the NSW Land and Environment Court have developed a set of considerations, ensuring lawyers and other key players within the legal industry think twice before outsourcing key responsibilities to any open or closed source Gen AI models.

What do you need to know?

Commencing on 3 February 2025, Practice Note SC Gen 23 – Use of Generative Artificial Intelligence (Practice Note) contains a set of guidelines outlining where Gen AI is considered acceptable for litigants to use[1], as well as corresponding amendments contained within Uniform Civil Procedure (Amendment No 104) Rule 2025 (NSW) (Amended Rules).

The Practice Note does not apply to search engines, transcription or translation software, generic editing software like Microsoft Editor or legal research platforms supported by AI.[2]

Following a set of amendments published on 28 January 2025, the Supreme Court has outlined that Gen AI has limitations that both practitioners and unrepresented litigants should be aware of, including:

  • the production of inaccurate or incorrect responses including false citations or fabricated sections of legislative instruments;
  • the potential for spreading misinformation as the datasets fed to AI may contain irrelevant, out of date or ‘selective’ information; and [3]
  • information provided by Gen AI programs may not be relevant to the NSW legal jurisdiction.

Moreover, a host of ethical concerns arise when considering that many Gen AI platforms lack any inbuilt safeguards to maintain professional privilege over correspondence or other documents that may be uploaded in an attempt to make certain repetitive or administrative tasks more efficient.

Tips for Practitioners

Generally, Gen AI must not be used in generating the content of any ‘affidavits, witness statements, character references’ or other material that is intended to reflect the deponent or witness’ evidence and/or opinion without leave of the court.[4]

It is essential that practitioners include disclosures for deponents specifying that “generative artificial intelligence was not used to generate the content of the [affidavit/witness statement]” within the body of the affidavit/witness statement.[5]

Further, legal practitioners cannot enter information that is subject to non-publication orders, suppression orders, or Harman undertakings (documents obtained in proceedings can only be used for a litigious purpose) or produced by subpoena to Gen AI platforms.[6]

As an exception, provided specific criteria are met[7], practitioners can use Gen AI for the preparation of chronologies, to assist with the review of documents and to prepare written submissions.[8] In relation to written submissions, the writer must manually verify in the body of the document that the citations and academic authorities and references exist, are accurate and have relevance to the proceedings on foot.[9]

Considering the range of strict prohibitions, practitioners should consciously:

  • include the necessary disclosure in all witness statements/affidavits;
  • ensure they are familiar with the contents of the Practice Note so leave is sought for the use of Gen AI, where appropriate;
  • direct the attention of any expert witness being relied upon to abide by the guidelines set out in the Practice Note (see below), and noting Schedule 7 of the UCPR has been amended as part of the Amended Rules;
  • maintain confidentiality over all privileged documents, by storing them on secure document management systems and not uploading them to Gen AI platforms; and
  • where the use of Gen AI is permitted by the Practice Note, review all work produced to ensure accuracy.

Advice for Experts

The Practice Note also highlights the obligations of expert witnesses engaged to produce reports that state their opinion/s and reasoning as evidence.

As part of these obligations expert witnesses should now note that:

  • using Gen AI to produce an expert report is now prohibited without prior permission from the court[10];
  • where permission or leave has been granted by the courts, experts must now disclose and identify the parts of any report that have been produced with the assistance of Gen AI; and
  • reports prepared between 21 November 2024 and 3 February 2025 must identify which parts of the report (if any) have been produced with the assistance of Gen AI.

If at any point in the drafting process Gen AI has been used, the prompts provided to the AI tool and a record of how the outputs were used within the draft or final report must be annexed to the final report. [11]

What’s next?

The Practice Note will be subject to continued review as the capabilities of Gen AI expand beyond simple drafting assistance. Therefore, it is essential that practitioners, expert witnesses, and others periodically review the Practice Note for any updates to maintain best practice when using Gen AI.

Practice Note SC Gen 23 can be read here, but if you or anyone else you know is concerned about how these new guidelines may impact you, please contact Bradbury Legal on (02) 9030 7400 or at info@brabdurylegal.com.au to see how we

[1] Practice Note SC Gen 23 – Use of Generative Artificial Intelligence.

[2] Ibid [6].

[3] Ibid [7].

[4] Ibid [10] and [15].

[5] UCPR rules 31.4(3B) and 35.3B(2).

[6] Ibid [9A]. Also Harman v Secretary of State for the Home Department [1983] 1 AC 280.

[7] Practice Note SC Gen 23 – Use of Generative Artificial Intelligence at [9A].

[8] Ibid [9B and 16].

[9] Ibid [16].

[10] Ibid [20].

[11] Ibid [22(b)].

Case Study – Architect’s Adjudication

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In December, Bradbury Legal acted for a Queensland architecture firm in preparing an adjudication application against a builder for unpaid payment claims and variations claims. The architect was engaged to design an aged care facility in the New South Wales area. The builder sought to withhold over $200,000 from our client’s payment claim, citing back charges, defects, and unapproved variations.

In late October, our client submitted its payment claim for approximately $335,000. After issuing the section 17(2) notice, the builder certified just under $103,000, a difference of over $200,000. The Adjudication Application involved numerous late nights (including an all-nighter by Vinesh, Frankie, and Lachy), reviewing various documents, and drafting submissions and statutory declarations so that the Adjudication Application would be served before the Christmas shutdown period. In the end, the Adjudication Application totaled six folders worth of documents substantiating our client’s right to payment. This was a phenomenal effort by the Bradbury Legal team given the quantity of documents involved, the complexity of the issues, and the strict timeframes under the Security of Payment Act.

The Adjudicator awarded an Adjudication Amount of over $240,000 in favour of our client, representing an incredible result which the client was incredibly thankful for. The Adjudication Amount represented more than double the scheduled amount by the builder, promoting greater cashflow for the architecture firm.

Bradbury Legal is highly experienced in preparing and responding to adjudication applications. If you or anyone you know is struggling to be paid from a head contractor or developer or you have received an adjudication application, please contact Bradbury Legal.