Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288: Latent Building Defects [2014] HCA 36

Wednesday 8 October 2014 @ 12.19 p.m. | Legal Research | Torts, Damages & Civil Liability | Trade & Commerce

In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36, the full court of the High Court of Australia has today (8 October 2014) unanimously allowed an appeal from the decision of the Court of Appeal of the Supreme Court of NSW in Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWSCA 317 (25 September 2013). The High Court’s decision is that Brookfield Multiplex (the builder), having constructed a strata-title apartment complex, did not owe a duty of care to the Owners Corporation – a duty requiring it to avoid causing the Owners Corporation (the Corporation) economic loss resulting from latent defects in the common property.

Background

The builder built the apartment complex under a “design and construct contract” with a developer who owned the land on which the apartment complex was built. Following the registration of a strata plan in relation to the part of the apartment complex to be used as serviced apartments, an Owners Corporation was established and the common property was vested in that Corporation as the manager of the strata scheme and agent for the owners of the serviced apartments.

Terms of the Contract

The design and construct contract contained detailed terms making provision for 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”. A standard form contract of sale to purchasers of the serviced apartments was annexed to the design and construct contract, and conferred on each of the serviced apartment purchasers specific contractual rights in relation to defects in the property, including those parts of the property included in the common property.

Actions in the NSW Supreme Court

In 2012, the Corporation commenced proceedings against the builder in the Supreme Court of New South Wales to recover damages including the cost of repairing latent defects in the common property of the apartment complex in Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 (10 October 2012). In that case, it was argued that the builder was liable in negligence for breach of a duty to take reasonable care to avoid a reasonably foreseeable economic loss to the Corporation because the Corporation had been required to make good the “consequences of latent defects caused by the building's defective design and/or construction”.

At trial the primary judge, McDougall J, had found that the builder did not owe the duty claimed by the Corporation. On appeal from that decision to the NSW Court of Appeal in 2013 (see [2013] NSWSCA 317) the Full Bench unanimously held that the builder did owe the Corporation a duty of care, but that the duty owed was narrower than the one argued for, being:

“.  .  . a duty to avoid causing loss resulting from latent defects which were structural or dangerous or which made the serviced apartments uninhabitable.”

The High Court Appeal

The builder was granted  special leave to appeal to the High Court and the Corporation was granted special leave to cross-appeal, seeking orders to extend the duty of care beyond the one that had been found to exist by the NSW Court of Appeal.

In its decision, the High Court has allowed the appeal and dismissed the cross-appeal, holding that that the builder did not owe the duty of care claimed by the Corporation nor did it owe the duty found by the NSW Court of Appeal.

Liability for Latent Building Defects Not Extended Beyond Residential Buildings

Commenting on the NSW Court of Appeal Case, the article: “Alarm bells for builders: Duty of care owed in respect of commercial buildings in NSW, and potentially in Australia” states that the Court of Appeal Case represented a “significant development in tort law with respect to builders' liability for economic loss caused by latent defects” saying further:

“Prior to this case, it was widely thought that a duty of this nature would only apply to residential buildings, in light of the High Court decision in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16 and the Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712.

The Court of Appeal dismissed the previous authority by holding that there is no ‘bright line’ separating cases concerning construction of dwellings and cases concerning the construction of other buildings. The Court held that the nature of the building is not the deciding factor when determining whether a duty of care exists.” (emphasis added)

However, the High Court has taken the opposite view saying at paragraph 185:

Absent any application that Bryan v Maloney [[2004] HCA 16; (2004) 216 CLR 515], should be overruled, and absent data which might permit the making of a value judgment different from that made in Woolcock Street Investments, the view expressed by McHugh J in Woolcock Street Investments should in my opinion be accepted. The continuing authority of Bryan v Maloney should be confined to a category of case in which the building is a dwelling house and in which the subsequent owner can be shown by evidence to fall within a class of persons incapable of protecting themselves from the consequences of the builder's want of reasonable care. Outside that category of case, it should now 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. That is because, by virtue of the freedom they have to choose the price and non-price terms on which they are prepared to contract to purchase, there is no reason to consider that subsequent owners cannot ordinarily be expected to be able to protect themselves against incurring economic loss of that nature. (emphasis added)

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