The NSW Court of Appeal has opened the door for owners
corporations for commercial buildings to bring claims of negligence
for pure economic loss against builders – an action
previously thought to be limited to subsequent purchasers of
Since the mid-1990s, the High Court has recognised the existence
of a duty of care owed by a builder to a subsequent purchaser of
residential premises for recovery of pure economic loss (Bryan v
Maloney (1995) 182 CLR 609). It later refused, however, to extend
this duty of care to a purchaser of a warehouse office building
(Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR
The NSW Court of Appeal, in The Owners – Strata Plan No.
61288 v Brookfield Australia Investments Ltd  NSWCA 317, has
found that the differences between the purchasers of residential
and commercial properties are not as great as we might previously
have thought. The key consideration for the court when establishing
whether a builder owes a duty to a subsequent purchaser in respect
of pure economic loss is the extent to which the purchaser is
The Owners – Strata Plan No. 61288 v Brookfield concerned
the construction of a mixed-use retail, restaurant, residential and
serviced apartments building in Chatswood, New South Wales by
Multiplex (now Brookfield Australia Investments) in 1999. The
appellant, the owners' corporation for the serviced apartments,
came into existence after completion of the building work on
registration of the strata plan for the serviced apartments. It
discovered certain defects in the common property and, in November
2008, brought proceedings against the builder in negligence for
pure economic loss.
The Court affirmed that the concept of vulnerability of the
purchaser is a key factor in identifying the scope of the duty of
care for pure economic loss. Vulnerability refers to the
purchaser's inability to protect itself from the consequences
of the builder's failure to use reasonable care; whether than
be in a physical sense (controlling the physical events that gave
rise to the loss) or a legal sense (negotiating a contractual
arrangement imposing liability on the builder).
The appellant was found to be vulnerable in that:
the defects were latent and could not have been discovered by a
purchaser exercising reasonable care; and
there was no submission that the appellant could in some way
have protected itself by contract so as to impose liability on the
The Court did not agree with the builder's arguments that to
find a duty of care in these circumstances would be an extension of
the general law. It noted that Woolcock Street did not challenge
the principles in Bryan v Maloney and indeed Woolcock Street
rejected "a bright line between cases concerning the
construction of dwellings and cases concerning the construction of
other buildings". The plaintiff in Woolcock Street did not
fail simply on the basis that it was purchaser of a commercial
building, but rather because the plaintiff did not demonstrate that
it was sufficiently vulnerable to bring itself within the
principles established in Bryan v Maloney.
Similarly the Court did not agree with the builder's
argument that it would be inappropriate for the Court to go beyond
the statutory scheme under the Home Building Act 1989 (NSW), which
creates statutory warranties in respect of defects for subsequent
purchasers of residential buildings only, to expand builders'
liability for pure economic loss to an area where the legislature
did not intend it should operate.
The Court doubted that the legislature's intention, in
enacting such legislation in respect of residential buildings, was
to bar subsequent purchasers of commercial buildings from any
general law rights they may have to recover pure economic loss
resulting from defective work. It found that a consideration of the
Home Building Act was irrelevant for the purposes of determining
the question before it.
The Court commented that this case does not represent a radical
change in the law, but is merely the application of existing
principles to a novel case.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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