Are there any recent cases about whether a builder is liable to an owner's corporation for defective building works?

The design and construct contract contained detailed provisions with respect to the quality of the work to be performed by Brookfield and required Brookfield to remedy defects or omissions in the work within a defined defects liability period. The standard form contract of sale to purchasers of the serviced apartments, annexed to the design and construct contract, conferred on each purchaser specific contractual rights in relation to defects in the property, including the common property.

The decisions

The Supreme Court of New South Wales (McDougall J) held that Brookfield did not owe the duty suggested by the OC. That duty was to take reasonable care to avoid a reasonably foreseeable economic loss to the OC in having to make good the consequences of latent defects caused by the building's defective design and/or construction. McDougall J held that the duty alleged was novel and that it was not appropriate for a Judge at first instance to identify and impose a novel duty.

On appeal, the NSW Court of Appeal unanimously held that Brookfield did owe the OC a duty of care. However, the actual duty found to be owed was a narrower 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 also decided:

there will generally be concurrent liability for defects in both contract and tort, and

the requirement of "vulnerability" for pure economic loss was present for the developer, the OC and, probably, subsequent purchasers.

The Court of Appeal stated that Brookfield's liability in tort to the OC as subsequent purchaser only extended to defects that are "dangerous" and which therefore reasonably require rectification to protect the bodily integrity and property interests of the inhabitants of the building.

The High Court unanimously held that Brookfield did not owe a duty of care to the OC to avoid causing it economic loss resulting from latent defects in the common property.

Chief Justice French held that:

the nature and content of the contractual arrangements, including detailed provisions for dealing with and limiting defects liability

the sophistication of the parties, and

the relationship of the developer to the OC,

all weighed against a finding of vulnerability (and as a consequence the existence of a duty of care) to either the developer or the OC.

The High Court also stated that:

"To impose upon a defendant builder a greater liability to a disappointed purchaser than to the party for whom the building was made and by whom the defendant was paid for its work would reduce the common law to incoherence..."

Conclusion

The High Court recognised the importance of the terms of the bargain struck between the parties and recognised that the contract here meant that a concurrent duty of care did not arise.

W G Stark