Builder did not owe duty of care to subsequent owners for latent defects

The High Court recently had to consider whether a builder owed a duty of care to subsequent investor-owners of part of a building. In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 the Court unanimously held that a builder did not owe a duty of care to an owners corporation to avoid causing the owners corporation to suffer economic loss arising from latent defects in the construction.

Background

In this case, Brookfield Multiplex Ltd (Brookfield), a building company, entered into a contract with a developer Chelsea Apartments Pty Ltd (Chelsea) for the construction of serviced apartments. The contract included a defects liability period. Chelsea on sold each of the strata-titled apartments to investors. The apartments in question were owned by investors and intended to be operated collectively as serviced apartments. Chelsea included provision for defects liability periods in each of the Contracts for Sale with purchasers of units. The common property was held by the owners corporation as “agent” for the owners of the units. Following completion of construction and expiration of the defects liability periods, defects to the common property were identified.

The owners corporation commenced proceedings against Brookfield and attempted to impose a duty of care on the builder in order to attribute liability in negligence.

Decision

The High Court found that there was no duty of care in negligence owed by the builder to either the developer or the owners corporation. This was based on several factors including the nature and content of the contractual arrangements and, specifically, the detailed provisions relating to liability for defects, the sophisticated nature of the parties to the building contract and the relationship of Chelsea to the owners corporation.

The High Court held that there was no duty of care because the subsequent owners were not be considered vulnerable. The fact that the Contracts of Sale set out in detail the quality of work the builder would undertake was a factor in denying any vulnerability and refuting the assertion that the owners were unable to protect against lack of care by the builder.

Although the decision in this case was much anticipated by members of the legal profession, it has not set a broad precedent as the decision was very much based on the particular facts of this case.

The decision did not address the question of whether builders owe a duty of care to subsequent purchasers independently of any duty owed to the first owner, nor did it set out any clear guidance on when a builder will owe a duty of care.

Implications

Builders, property developers and purchasers should carefully review the wording in their contracts in light of this case as the High Court’s decision has reiterated that each case will be assessed on its particular facts.

If you require advice or assistance in relation to a construction contract or contract for sale please contact our office.

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