Alarm Bells For Builders: A Duty Of Care Owed In Respect Of Commercial Buildings In NSW And Potentially Australia
By Peter Micevski – Solicitor, Lovegrove Smith & Cotton
In a recent NSW Court of Appeal decision in Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd  NSWSCA 317, the Court found that a builder owed a duty to exercise reasonable care and skill in the construction of a non-residential building to avoid causing the owner and subsequent owner to suffer economic loss resulting from certain latent defects.
The case represents a significant development in tort law with respect to builders’ liability for economic loss caused by latent defects. This case has broadened the scope for litigation against builders, and has confirmed that a contract negotiated between two parties will not necessarily “cover the field” and exclude a common law duty of care (unless the existence of the tortious duty is so inconsistent with the terms of the relevant contract that the parties can be taken to have agreed to limit or exclude a tortious duty).
The Court of Appeal held that for a tortious duty to exist between a builder and a subsequent owner, such a duty must exist between the builder and the original owner.
In assessing whether such a duty exists between the builder and the origingal owner, the Court of Appeal confirmed that vulnerability is the key factor that will be considered. It also noted that the Court would consider the nature of the defects that are the subject of the claim by the subsequent owners, and the existence of and terms contained in a construction contract.
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  HCA 16 and the Owners Corporation Strata Plan 72535 v Brookfield  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.
As we understand, Brookfield Multiplex has filed an application in the High Court for special leave to appeal the NSW Court of Appeal’s decision. Until the special leave application has been granted and a High Court judgment handed down, it remains unclear if this decision will apply outside NSW or how residential warranty legislation in other States will impact on the application of a duty of care on builders in other States.
For now, what is known is that a commercial builder will owe a duty to exercise reasonable care in the construction of a building to avoid causing an owner to suffer loss resulting from latent defects which are:
- constitute a danger to persons or property; or
- make the building uninhabitable –
unless certain factors exist which militate against the existence of a duty. For example the original owner and the subsequent owner were not vulnerable to the consequences of the Builder’s negligence.
Vulnerability in this sense refers to the inability of a party to protect itself from the consequences of the Builder’s negligence. What is relevant is for the subsequent owner is its ability to control or influence the Builder’s conduct, or to negotiate contractual protections either with the Builder or its predecessor in title.
While this development in the law is probably confined to the somewhat novel position of a statutory owners corporation in its capacity as a successor in title to the original owner of a building development, this matter could open the door to similar findings in other more commonly encountered circumstances.
Of course, the same duties apply to residential development. Thus, builders of high rise residential apartments should be concerned that they are at risk of litigation being brought against them many years after completion by owners corporations for damages for latent defects, relying on a cause of action in negligence.
It may indeed ring alarm bells for many building firms out there.
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© Lovegrove Smith & Cotton 2014