Most Read Contributor in Australia, September 2016
Builders are not liable to future owners of commercial
buildings for defects – High Court re-affirms the law
In the recent case of Brookfield Multiplex Ltd v Owners
Corporation Strata Plan 61288 the High Court of Australia has
reaffirmed the current law relating to claims against builders for
latent defects. In short, with the exception of owners of dwelling
houses that fall into a class of persons incapable of protecting
themselves from the consequences of the builder's lack of
reasonable care, the general rule is that a builder owes no duty of
care in negligence to protect a subsequent owner from incurring the
cost of repairing latent defects. Justice Gageler explained that:
"[This] is because, by virtue of the freedom they
have to choose the price and non-price terms on which they are
prepared to contract to purchase, there is no reason to consider
that subsequent owners cannot ordinarily be expected to be able to
Where the current owner of a commercial building is the party
that engaged the builder, their only recourse is to pursue
contractual rights under the building contract. This may include
specific rights in relation to defective works identified during a
specified defect liability period (typically 12 months), and
possibly other rights for breach of contract.
Where commercial building works were commissioned by a prior
owner, the new owner will have no rights at all against the builder
unless contractual rights continue to exist in favour of the prior
owner, and those rights have been effectively assigned to the new
In the Brookfield Multiplex case a design and construct contract
was entered by the developer of an apartment complex. The
apartments were purchased by investors and leased to a management
entity who was to operate a business of servicing those apartments.
The Owners Corporation was created upon registration of the strata
plan, pursuant to a statutory scheme. Under this scheme, the Owners
Corporation held title to the common property on behalf of the
After discovering defects in the building works affecting the
common property, the Owners Corporation sued the builder for
The decision of the High Court
Whilst distinctions exist in the reasoning delivered by various
members of the High Court, each judgement referred to the decision
in Woolcock Street Investments Pty Ltd v CDG Pty Ltd
(2004) with approval. That case also involved a claim for economic
loss by a subsequent purchaser arising from defective construction
of commercial premises. That case was also dismissed because the
requisite duty was held not to be owed to the subsequent
The decision of the High Court in that case was based on the
court's assessment that neither the developer nor the
subsequent owners were sufficiently "vulnerable" in their
relationship with the builder to give rise to a duty of care.
All judges hearing the Multiplex Brookfield case made reference
to the detailed contractual arrangements between the builder and
the developer in finding that the builder owed no common law duty
to the developer. Of primary importance was that the builder had a
commercially negotiated contract which contained detailed
provisions dealing with the allocation of risk for economic loss
flowing from any defective work and provisions limiting liability.
The Court noted that the builder and developer were sophisticated
commercial parties capable of protecting themselves and therefore
the developer was not vulnerable in the sense required for a duty
of care to exist.
The building contract made reference to the standard contract of
sale between the developer and the investors for each apartment.
The contracts of sale gave the purchasers a right to require the
developer to rectify defects in the common property, within a
specified period following registration of the strata plan.
Therefore the High Court held that the existence of these
protections, bargained by each of the parties in their individual
agreements against the risk of certain defects, mitigated against a
finding that the subsequent purchasers were vulnerable in the sense
that they could not protect themselves from the builder's lack
of reasonable care. It followed that the Owners Corporation which
held the common property on the investors' behalf was also not
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
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