Subsequent owners beware: no duty of care owed by builder

In the recent case of Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36, the High Court of Australia unanimously held that a builder, Brookfield Multiplex, that constructed a strata title apartment complex did not owe a duty of care to the Owners Corporation (the Corporation) to avoid causing economic loss occasioned by latent defects in the common property. This overturned the decision of the New South Wales Court of Appeal, which had held that a duty of care was owed.

By way of background, the apartment complex was constructed under a ‘design and construct contract’ between the builder and a developer who owned the land on which the complex was built. The Corporation was established following the registration of a strata plan over the portion of the apartment complex to be used as serviced apartments. The common property was vested in the Corporation as the manager of the strata scheme and agent of the owners of the serviced apartments.

The contract contained terms relating to the quality of work to be performed by the builder and required the builder to remedy defects or omissions in the work within a defined ‘defects liability period’.

The Court of Appeal of New South Wales unanimously held that the builder did owe the Corporation a duty of care; however that duty was narrower than the one argued for. Specifically, it was said to encompass ‘a duty to avoid causing loss resulting from latent defects which were structural or dangerous or which made the serviced apartments uninhabitable’.

The Court of Appeal dismissed the previous authority of Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, holding that ‘the nature of the building is not the deciding factor when determining whether a duty of care exists’. Furthermore, the Court of Appeal stated there is no ‘bright line’ that distinguishes cases dealing with the construction of dwellings and cases dealing with the construction of other buildings.

The High Court firmly disagreed with the Court of Appeal, stating the Court of Appeal had incorrectly dismissed the previous authority. The High Court stated the view expressed by Justice McHugh in Woolcock Street Investments should continue to be accepted. Additionally, the authority of Bryan v Maloney [2004] HCA 16, which was relied upon by the Court of Appeal, should be confined to a category of cases where the building is a dwelling house and where it can be evidenced that the subsequent owner falls within a class of persons incapable of protecting themselves from the consequences of the builder’s lack of reasonable care.

The High Court held that, aside from that particular category of case, it should be acknowledged that a builder has no duty in tort to exercise reasonable care in the execution of building work to avoid a subsequent owner incurring the cost of repairing latent defects in the building.

This decision provides some comfort to the construction and property industry, narrowing the boundaries of a builder’s duty of care.