Introduction

In this Update we look at a very recent NSW Court of Appeal decision on apportioning liability for defective building work to subcontractors.[1]  The appeal was from a decision of the NSW District Court.[2]

Background

In 1999, Mirvac built a two storey project home for Mr Richardson.  In 2006, Mr Richardson was upstairs in his new home in an area outside a bedroom with a balustrade extending along one side.  The balustrade was constructed with a timber handrail at the top, a bottom timber rail and metal infill panels running between the timbers.  Mr Richardson and his daughter each had a hand on opposite sides of the same handle of an internal door and were “wrestling”.  His left foot was resting on the timber rail at the bottom of the balustrade.  The timber gave way and he then fell backwards through the balustrade to the ground floor. He suffered a severe back injury.  Mr Richardson claimed compensation from Mirvac.

The design and construction of the home

When Mirvac built the home, it subcontracted the supply and installation of the stairs and balustrade to WB Jones.  WB Jones manufactured the balustrade components to a design provided by Mirvac.  WB Jones in turn subcontracted the installation of the balustrade components to JMKG Pty Ltd.

WB Jones had supplied balustrade components to Mirvac for some years and JMKG had installed the balustrade components for WB Jones for a similar time.  Over this extended period of time, the subcontracting arrangement had been operating with no problems and no complaints as to unsatisfactory workmanship.

The Richardson home was built of a timber frame interior.  The floor of the first floor area from which Mr Richardson fell was constructed of timber sheeting supported on wooden beams.  Gyprock had been fixed vertically to the timber framed wall below to butt up to the lower side of the floor sheeting.  The lower balustrade timber rail rested on the upper surface of the floor sheets.  The lower timber rail was an inverted “L” shape. The vertical section of the “L” extended down to cover the top of the gyprock.

When the floor sheeting was installed in the Richardsons’ home it extended well past the timber beam.  As a result, when the gyprock was installed, there was a small gap of between 10mm and 30mm between the gyprock and the timber floor beam.  The lower balustrade timber rail covered this gap.

When JMKG installed the balustrade timber, it used a nail gun to drive nails into the vertical side of the balustrade.  The nails passed through the gyprock and into the timber floor beam; however, due to the gap between the gyprock and the floor beam, the nails did not grip sufficiently and this caused the balustrade timber to give way.

Mr Richardson sued Mirvac for breach of contract and for negligence, ie a breach of its duty of care to build his home properly.

The parties’ responses

Mirvac claimed it was too late for Mr Richardson to sue for breach of contract, given the strict 6-year time limit in NSW on such claims.  As to the negligence claim, Mirvac said it had employed a competent subcontractor in WB Jones and that was all it was required to do to discharge its duty of care to Mr Richardson.  Mr Richardson joined WB Jones as a defendant in light of the position taken by Mirvac.

WB Jones said that it had properly manufactured the components and that if anyone was to blame it was JMKG who had installed the balustrade.  WB Jones said that JMKG was a competent subcontractor who had been installing balustrades for years without a problem.  Mr Richardson then also joined JMKG as a defendant.  Each of the three defendants then cross-claimed against each other.

Liability of subcontractors

Where a reputable and competent subcontractor is employed by a head contractor to perform building works, it is often said that the head contractor has fully discharged their common law duty of care to the building owner.[3]  In the Richardson case, there was no doubt that Mirvac had a reasonable basis for regarding WB Jones as a competent subcontractor.  Similarly, WB Jones had a reasonable basis for regarding JMKG as a competent subcontractor.  The years of successful subcontracting alone provided sufficient reassurance to the parties.

In this case, the District Court considered that the duties given by Mirvac to WB Jones and in turn by WB Jones to JMKG were able to be delegated down, but then considered what remaining duty of care, if any, rested with the delegating contractor.

The Standards

Mirvac had promised in its contract to comply with relevant standards and codes governing the building work.  The District Court found that the timber plate of the balustrade was a structural component of the building and as such, Australian Standard 1720.1 ‘Timber Structures Code’ applied to its installation.  Mr Richardson claimed that the Standard had been breached.  The District Court agreed but said it was too late to claim for that breach of contract because the 6-year limitation period had expired.  However, Mirvac’s contractual promises to comply with the standards were relevant in determining the scope of its common law duty of care to Mr Richardson.  The Court found that Clause 4.2.2.3 of the standard put an installer on notice that the use of gun-driven nails could increase the risk of failure of the nailed joint.  On that basis, a critical issue in the dispute related to the use by JMKG of gun-driven nails when it installed the timber rail.

Mirvac’s Construction Director quite properly conceded that Mirvac had overall responsibility to the home owner to ensure that the home owner was given a home in accordance with what had been agreed.  Part of that requirement was the inspection of a subcontractor’s work.  If an inspection revealed that work was not compliant, Mirvac would direct the subcontractor to remedy the non compliance.  The District Court said:

As a matter of almost certainty, if Mirvac was complying with its usual procedures … any defects in the floor sheeting would have or should have been picked up by Mirvac.

The reference to the defective floor sheeting is a reference to the resulting gap between the gyprock and the floor beam that contributed to the failure of the nails to retain the timber rail.  The District Court said:

… I find that Mirvac should have detected the poor craftsmanship in the laying of the floor on the first level.  I find that the laying of the flooring and the fixing of the balustrade should have been inspected … to make sure they were to an appropriate standard and contained no defects or errors.  I find that Mirvac should have ensured compliance with relevant codes and standards … I find that Mirvac could have seen that the fixture was made by gun driven nails by inspecting it.”

Mirvac’s own employees conceded that they could have detected the use of gun-driven nails at a distance of 2 metres.  Similarly, the District Court said JMKG’s use of gun-driven nails in the circumstances rendered JMKG to not be a competent subcontractor in this instance.  WB Jones was therefore found to have breached its duty of care to Mr Richardson by allowing JMKG to use gun-driven nails to fix the timber balustrade rail.

The Court of Appeal did not overturn any of the above findings however it marginally altered the District Court’s apportionment of liability.  Judgment in the full amount of $750,000 in favour of Mr Richardson was awarded against each of the three defendants and in respect of the cross-claims brought by each defendant, the Court of Appeal apportioned 50% of the liability to JMKG and 25% to each of Mirvac and WB Jones.  In effect, this means that the inability of any one defendant to pay the cross-claim award to the other defendants would not reduce the amount owed by the others to Mr Richardson and therefore could render the apportionment percentages above ineffective.

Conclusion

Subcontracting is a widespread practice in both the commercial and residential construction sectors.  However, it is not enough to subcontract to a reputable subcontractor and then not supervise and inspect the work.  Head contractors retain a duty to exercise reasonable care in inspecting the work of subcontractors.

A court will assess the competence of a subcontractor with the benefit of hindsight in the event of a breach of a Standard.  This makes the task of the head contractor onerous in that, while it is not required to closely supervise and control the work of a specialist subcontractor, it is required to inspect and detect defects which were there to be seen by an appropriately qualified builder.  Ignorance of standards is no defence.

Contracting parties are free to reach their own agreement in respect of issues of liability for defective works.

 


[1] WB Jones Staircase & Handrail Pty Ltd v Richardson [2014] NSWCA 127.

[2] Peter Richardson v Mirvac Constructions Pty Ltd [2012] NSWDC 204.

[3] This Update does not deal with contractual liability, with legislation which requires contractors to give guarantees or warranties or with duties that the law recognises as being “non-delegable”.