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Building & Construction News Alert: Builders fight back - High Court grant special leave application in Brookfield Multiplex v Owners Corporation

News Alert 04 April 2014

The High Court has granted special leave for Brookfield Multiplex Ltd (the Builder) to appeal a decision of the New South Wales Court of Appeal in which the court had found that the Builder, as a builder of commercial premises, owed a duty of care to the owners’ corporation in respect of defects to the common property of the development.

At least until the High Court decides the appeal, New South Wales builders should be aware that they may be liable for claims brought by owners’ corporations for defective work even if the builder has not entered into a contract with the owners’ corporation. Builders in Queensland and Victoria should also be aware that the Court of Appeal’s decision may have a similar on impact in their respective States, depending on the State’s construction legislation

The facts

The Builder contracted with Chelsea Apartments Pty Ltd (the Developer) to build a 22-storey building which included a number of serviced apartments. A strata plan for the serviced apartments was registered and an owners’ corporation for the strata plan was established. The owners’ corporation subsequently claimed to have identified defects in the common property of the building. Given that it was the Developer which had contracted with the Builder for the construction of the building, there was no contract between the Builder and the owners’ corporation. Accordingly, the owners’ corporation sued the Builder for negligence.

An essential element of a successful negligence claim is that the defendant owed the plaintiff a duty of care. At first instance, McDougall J of the Supreme Court of New South Wales found that the Builder did not owe the owners’ corporation a duty of care. On appeal, the Court of Appeal unanimously found that the Builder did owe the owners’ corporation such a duty.

Both McDougall J at first instance and the Court of Appeal accepted that the law as it stands is that, before a builder will be taken to owe a duty of care to a subsequent owner (such as the owners corporation in this case), it is necessary (but not sufficient) for the builder to owe a duty of care to the initial owner (such as the Developer in this case). However, McDougall J and the Court of Appeal differed as to whether the Builder owed a duty of care to the Developer. McDougall J, in finding that the Builder did not owe the Developer a duty of care (and thus did not owe a duty of care to the owners’ corporation) found that, given that the Builder and the Developer were parties of equal standing and had entered into a contract setting out their rights and obligations, there was no room for an additional tortious duty of care. By contrast, the Court of Appeal found that the Builder owed a duty of care to the Developer in addition to the contractual duties it owed to the Developer.

The High Court special leave application

On 14 March 2014, the High Court granted the Builder special leave to appeal against the Court of Appeal’s decision. This is significant for builders because the High Court may reverse the decision of the Court of Appeal. It appears that a key plank of the Builder’s appeal will be an argument that a detailed contract between a builder and an initial owner (such as the Developer) will exclude a duty of care in tort. Regardless of the outcome of the appeal, it is hoped that the High Court’s decision will clarify the law in this area.

The potential impact of the NSW Court of Appeal’s decision in Queensland and Victoria

Though the Court of Appeal’s decision will not be binding in other States, it will certainly be influential. In Queensland, under the Domestic Building Contracts Act 2000, implied warranties are not available to residential or commercial bodies corporate. Consequently, in light of this apparent ‘vulnerability’, Queensland courts may impose a common law duty of care on builders to such bodies corporate. The position in Victoria differs slightly as there are implied warranties in the Domestic Building Contracts Act 1995 which are owed to property owners and apply automatically to building works undertaken by builders. These warranties cannot be contracted out of and last for up to ten years from the completion of the works. As such, Victorian courts may be less likely to impose a common law duty of care.

Tony Mylne, Partner

Andrew Whitelaw, Partner

News Alert 04 April 2014
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