Sharing the blame: Proportional liability in construction contracts

Commercial Directions

McGrath Corporation Pty Ltd v Global Construction Management Pty Ltd & Ian Vincent Taylor [2011] QSC 178

The Supreme Court of Queensland recently handed down an important judgment regarding the proportionate liability of parties to construction contracts for losses in circumstances where a third party is directly responsible for the breach.

Background

  • McGrath Corporation (‘MCPL’) sought to develop and construct a twin tower unit
  • Global Construction (‘Global’) was engaged as construction manager for the project
  • ITF Formwork (‘ITF’), was also engaged by McGrath to install formwork on the project
  • Given their position as construction manager, Global had contractual responsibilities to monitor ITF’s work and to notify MCPL of any defects in the event of ITF’s failure to perform the form work to the appropriate standard
  • ITF failed to complete the work to the standard required
  • MCPL alleged that Global had breached its contractual responsibilities by failing to monitor ITF’s progress and to notify them of any defects
  • This claim was governed by the proportionate liability provisions of the Civil Liability Act 2003 (QLD).

The result

The Supreme Court of Queensland found that it was ITF who was actively engaged in the activity causing loss.

Despite this finding, the Court stated that Global was significantly responsible for the damage arising from their contractual obligations and their failure to perform duties owed to McGrath which would have prevented the loss.

In its decision, the Court followed the principle set out in Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463 which provides that a court:

‘should apportion liability according to considerations such as (but not limited to) which of the wrongdoers was more actively engaged in the activity causing loss and which of the wrongdoers was more able effectively to prevent the loss happening.’

It appears that the facts of each case will be critical in determining how broad the responsibilities of each party to the contract will be. Here, Global was found particularly responsible because the failure to report the defects had continued over a significant period of time during the construction of the buildings, meaning that the extent of the defective works became progressively worse as the buildings were further constructed. Accordingly it was held that both Global and ITF had breached their obligations and duties.

Global was ordered to bear 50% of the rectification costs and the direct delay costs, amounting to $557,166 in damages.

Implications

On a general level, this case highlights that parties may be found proportionately liable for losses caused by other parties where they owe some duty to prevent those losses.

Specifically, the case demonstrates that construction managers must ensure they carry out their duty to monitor and report any defects in the construction work. A failure to do so may result in a damages award being made against the construction manager.

Authored by Sean O’Sullivan, Partner, Newcastle.


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