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
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
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
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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