Australia: Does a builder owe a duty of care to an owners corporation?

Last Updated: 11 March 2013
Article by Andrew Murray, Jun Zhou and Daniel Ward

In brief - Supreme Court of NSW dismisses negligence claim for defective works

In the decision of Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 (the Mantra case), Justice McDougall of the Supreme Court of NSW dismissed a negligence claim for defective works by an owners corporation against a builder on the grounds that there was no duty of care owed.

Owners Corporation brings claim against builder for defects in development

The plaintiff in the Mantra case was the Owners Corporation of serviced apartments at Chatswood.

The development was designed and constructed by the defendant, Brookfield Multiplex Pty Ltd, pursuant to a contract with the developer, Chelsea Apartments Pty Ltd.

The Owners Corporation brought a claim against Brookfield for defects in the development based upon alleged breaches of a duty of care said to be owed by Brookfield to the Owners Corporation.

Plaintiff seeks to rely on earlier High Court decision

The plaintiff in the Mantra case sought to rely on the 1995 High Court decision of Bryan v Maloney.

In Bryan, it was held that the builder owed a subsequent owner of a residential home a duty of care. That conclusion was based primarily upon findings that:

  • the builder owed the original owner of the residential home a duty of care
  • there existed a relationship of "proximity" between the builder and the subsequent owner of the home
  • the property concerned a home which was a significant investment for a residential purchaser such as the subsequent owner
  • it was foreseeable by the builder that his negligent construction was likely to cause economic loss

No duty of care owed by builder to Owners Corporation

McDougall J found that Brookfield did not owe the Owners Corporation the duty of care alleged on the basis of four arguments.

First, the Owners Corporation was unable to point to any authority (apart from Bryan) which supported the existence of such a duty.

Secondly, Bryan was not authority for the imposition of a duty of care for the reasons set out by his Honour in an earlier judgment in the Owners Corporation Strata Plan 72535 v Brookfield (the Star of the Sea case), namely that:

  • the Owners Corporation in that case had the benefit of the statutory warranties under the Home Building Act 1989 (NSW) (HBA)
  • the decision in Bryan was based upon the concept of "proximity" which has since been discarded as the basis for imposing a duty of care
  • the conclusion that the builder in Bryan owed a subsequent purchaser a duty of care depended on the conclusion that he owed the original owner a similar duty. In the Star of the Sea case, there was no basis for concluding that Brookfield owed the developer any duty of care because they had negotiated, on equal footing, a detailed contract.

Thirdly, although the Owners Corporation in the Mantra Case did not have the benefit of the statutory warranties under the HBA as the development was used as serviced apartments, that was the intent of parliament, and the Court should be slow to substitute its own judgment for that of parliament.

Finally, the Supreme Court of New South Wales, as a court of first instance, is not the appropriate court to establish the existence of a novel category of duty of care and, for that reason, it was not appropriate for His Honour to make a finding as to whether owners corporations in the position of the plaintiff in the case were "vulnerable" and if so, what consequences might flow from such a finding in terms of imposing a duty.

Commercial deal for construction of building recorded in detailed contract

Despite the fact that the Owners Corporation could never have had the benefit of the statutory warranties under the HBA, in the circumstances of the Mantra Case, His Honour was unwilling to find that a duty of care was owed by Brookfield to the Owners Corporation.

Accordingly, the availability of the statutory warranties, which seemed to play no small part in McDougall J's finding in the Star of the Sea case that no duty of care was owed to the plaintiff owners corporation, was not itself determinative of the question of the existence of a duty of care in the Mantra case.

We are left with the provisional conclusion that where an original owner (typically the developer) and a builder have struck a commercial deal for the construction of a building and recorded that deal in a detailed contract, a court of first instance would be unlikely to impose a duty of care above and beyond the terms of that contract. Hence a subsequent owner cannot take the benefit of a duty of care that never existed in the first place.

The Mantra case is currently on appeal to the NSW Court of Appeal. It remains to be seen whether the Court of Appeal (or, ultimately, the High Court) which is less constrained than a court at first instance, will examine the concept of the "vulnerability" of owners corporations and determine the extent to which a duty should be implied into their relationship with the builder.

Andrew Murray Jun Zhou
Owners corporation construction defect disputes
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Andrew Murray
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