NEGLIGENCE
WHEN DOES A
SUBCONTRACTOR OWE A
DUTY OF CARE?
Nick Rudge, Partner
Anna Thwaites, Senior
Associate
Allens Arthur Robinson,
Melbourne
IN BRIEF
When will a subcontractor
in a building project owe the
proprietor or subsequent owners
a duty of care? Is the liability of
other concurrent wrongdoers
under Victoria’s proportionate
liability regime affected if another
concurrent wrongdoer reaches a
settlement with the plaintiff?
HOW DOES IT AFFECT YOU?
Subcontractors’ liability.
Building industry participants
should take care to ensure that
their contractual arrangements
provide adequate protection
against the negligence of
subcontractors. Absent special
reliance or vulnerability on the
part of the principal, the courts
will be reluctant to impose a
duty of care on a subcontractor,
particularly where the principal
has the ability to protect
itself through its contractual
arrangements.
Proportionate liability.
Litigants should be careful when
settling apportionable claims
with concurrent wrongdoers:
settlement with one concurrent
wrongdoer at under–value or
over–value does not affect the
liability of other concurrent
wrongdoers
48 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #121 JULY/AUGUST 2008
GUNSTON V LAWLEY—
LIABILITY OF
SUBCONTRACTORS TO
SUBSEQUENT OWNERS
In an appeal from the Victorian
Civil and Administrative Tribunal
(VCAT), Justice Byrne in Gunston
v Lawley [2008] VSC 97 has
ruled on the tortious liability of
subcontractors to principals
and subsequent owners in the
domestic building context. His
Honour has also considered the
liability of concurrent wrongdoers
where the plaintiff reaches
settlement with one concurrent
wrongdoer.
This case is of particular interest
because it highlights the courts’
reluctance to impose a duty
of care on subcontractors to
principals. Although the case
arose in the domestic building
context, similar principles will
apply in the commercial context.
FACTS
A developer engaged an
associated company, the
defendant builder, to construct
two dwellings on the developer’s
property. The builder retained
the co–defendant architectural
draftsman to provide drawings
and the co–defendant building
surveyor to assess plans and
conduct inspections. The
developer sold the completed
dwellings to two purchasers,
who subsequently on–sold the
dwellings to the plaintiff owners.
After discovering extensive
cracking, distortion and other
defects in the building, the
plaintiffs brought proceedings
in VCAT against, relevantly,
the builder, the architectural
draftsman and the building
surveyor. Senior Member
Young found the builder, the
architectural draftsman and the
building surveyor to be liable in
negligence to the plaintiffs.
Although the plaintiffs had
reached a settlement with
the building surveyor and the
builder’s statutory insurer had
paid the plaintiffs up to the
statutory insurance limit, Senior
Member Young nevertheless
apportioned liability between
the builder, the architectural
draftsman and the building
surveyor under Part IVAA of
the Wrongs Act 1958 (Vic). The
architectural draftsman appealed
against VCAT’s finding of liability.
LIABILITY OF
SUBCONTRACTORS
TO PRINCIPALS AND
SUBSEQUENT OWNERS
Justice Byrne in the Supreme
Court of Victoria upheld the
architectural draftsman’s appeal.
Applying the two–stage test in
Woolcock Street Investments
Pty Ltd v CDG Pty Ltd,1 Justice
Byrne held that the architectural
draftsman did not owe the
developer a duty of care. As a
result, no duty of care was owed
to the plaintiffs as subsequent
purchasers.
Justice Byrne acknowledged
that although there is no
general principle of law that
a subcontractor cannot owe
a duty of care to a principal, a
duty of care will only arise if
the relationship between the
principal and the subcontractor
is such that there is reliance or
vulnerability on the part of the
principal.
As he had done in Aquatec–
Maxcon Pty Ltd v Barwon
Regional Water Authority (No
2),2 Justice Byrne emphasised
the importance of vulnerability
in establishing a duty of care.
Justice Byrne held in Gunston v
Lawley:
The feature which is of great
importance in the cases, at least
since 1999 in determining the
existence of a duty of care in the
architectural draftsman to the
proprietor is vulnerability, that
is, the ability of the plaintiff to
protect itself from the loss in
the event of negligence. In the
normal case, where duty is said
to be owed by a subcontractor
to a proprietor, this requirement
may be difficult for the proprietor
to satisfy. There will usually be a
contract between the proprietor
and the head contractor which
will contain covenants protecting
the proprietor from defective
work. Even if it does not, it will be
difficult in the typical case for the
proprietor to persuade the court
that it did not have the ability to
protect itself in this way.3
His Honour observed that
reliance or vulnerability may
be established through a
combination of factors such as
where:
• the subcontractor is nominated
by the principal;
• the parties are in a close,
almost contractual relationship;
• the subcontractor’s work
results from direct dealings
between the principal and the
subcontractor; or
• the subcontractor’s work is of
a particular skilled or technical
nature.
However, Justice Byrne found
that vulnerability is difficult to
establish in the domestic building
context where the principal:
• is a developer;
• has some experience or
expertise in construction matters;
• is involved in the construction
activity; or
• engages a qualified, registered,
experienced head contractor.
In the present case, the fact
that the developer and the
builder were related companies,
controlled by a common director,
and that the architectural
draftsman received instructions
from the director and enjoyed
a close relationship with the
developer, was not sufficient to
attract a duty of care. Justice costs to be allocated in the same
Byrne held that the developer proportions as the liability of the
lacked the requisite vulnerability concurrent wrongdoers.
for a duty of care to arise.
CONSEQUENCES FOR
The developer was involved in BUILDING INDUSTRY
aspects of the construction work,
PARTICIPANTS
knew that further architectural
Participants in building projects
drawings would be required
should be careful to ensure that
and could have sought, but did
the matrix of contracts gives
not seek, further advice from
them adequate protection in
the architectural draftsman
the event of default by another
on these matters. In addition,
party. Justice Byrne’s decision
the developer had the ability
highlights the increasing
to protect itself from the
reluctance of Victorian courts to
consequences of the architectural
impose a duty of care on parties
draftsman’s negligence through
the contractual arrangements where there is no contractual
between the developer and relationship, particularly where
the builder. As a consequence, those parties are capable of
no duty of care was owed by protecting themselves against the
the architectural draftsman to default of subcontractors through
subsequent purchasers of the their contractual arrangements.
dwellings. Although Gunston v Lawley was
concerned with the domestic
APPORTIONMENT building context, it nevertheless
The plaintiffs reached a provides guidance on how courts
settlement with the building will consider these issues in the
surveyor before the VCAT
broader commercial context.
proceedings concluded. Senior
Member Young nevertheless
apportioned liability to the REFERENCES
building surveyor in accordance 1. (2004) 216 CLR 515.
with the apportionment regime
in Part IVAA of the Wrongs Act, 2. [2006] VSC 117, [275].
but did so in an amount that 3. Gunston v Lawley [2008] VSC
was significantly lower than the 97, [28] (footnotes omitted).
settlement amount.
Justice Byrne declined to Nick Rudge and Anna Thwaites’
adjust the liability of the other article was previously published
in Allens Arthur Robinson’s
concurrent wrongdoers. His
Honour held that settlement by Focus Construction—June 2008.
a plaintiff with one concurrent Reprinted with permission.
wrongdoer in an amount that
is greater than that concurrent
wrongdoer’s liability to the
plaintiff does not affect the
liability of other concurrent
wrongdoers. However, in these
circumstances the plaintiff would
not be permitted to recover from
the concurrent wrongdoers more
than 100 per cent of the plaintiff’s
loss.
On the question of costs, Justice
Byrne held that the proportionate
liability regime does not require
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #121 JULY/AUGUST 2008 49