Australia: QCAT finds that building company directors may be held personally liable for negligence in relation to building work

Last Updated: 16 March 2016
Article by Russell Ensbey

In brief - Residential builders who use building companies should consider how to limit personal liability

A decision of the appeal arm of QCAT - the Queensland Civil and Administrative Tribunal - handed down on 2 March 2016 - has found that the director of a residential building company can be personally liable for negligently carried out building work by the building company.

Builder's personal liability for building company's building work before this decision

It is common for builders to incorporate and license companies to contract and carry out building work. One of the reasons for this is to limit the builder's own personal liability in relation to the building work undertaken. Whilst there are already some circumstances where builders, who are directors, can still be liable in certain circumstances (for example, under the Queensland Building and Construction Commission legislation), it is generally thought to be the case that individual builders, as directors, would not be found to be liable in negligence in relation to building work carried out by the building company.

However, a very recent Decision of the Appeal division of the QCAT - Wagner and Olinderidge Pty Ltd - has decided otherwise.

Home owners bring claim in negligence against building company and its director

Rod Wagner was a licensed builder and a director of Olinderidge Pty Ltd, a licensed building company. Olinderidge entered into a residential building contract with Mr and Mrs Tracey in 2001 to build a house for them. Mr and Mrs Tracey subsequently brought a claim in QCAT against both Mr Wagner and Olinderidge in negligence concerning what they claimed to be substantial deficiencies in the construction.

Appeal Tribunal finds circumstances sufficiently similar to Bryan v Maloney

Ultimately, Olinderidge was only found to be liable for relatively minor works - a defective ORG and some missing downpipes; however, not just Olinderidge, but Mr Wagner also was found to owe Mr and Mrs Tracy a duty of care and was found liable to them for these defects in negligence, notwithstanding the fact that Mr and Mrs Tracey had contracted only with Olinderidge, and not Mr Wagner, to carry out the building work.

Mr Wagner appealed against the decision finding that he owed Mr and Mrs Tracey a duty of care and was liable to them in negligence.

The Appeal Tribunal found that the circumstances were sufficiently similar to a High Court decision of Bryan v Maloney [1995] HCA 17 which was decided over 20 years ago. That case was concerned with circumstances where a builder owed a duty of care to not the person for whom the builder carried out the building work, but for a person who subsequently purchased the property on which the house was built. It was not concerned with the issue as to whether the director of a building company could be found liable for negligent building work carried out by the building company.

The High Court has, in subsequent decisions, restricted the decision in Bryan v Maloney to its particular facts and has referred to it as being a "special case". Nevertheless, the Appeal Tribunal found that as a matter of both principle and policy, Mr Wagner was liable in negligence even though he had not agreed to be personally liable, and wasn't the entity that contracted to carry out the building work.

Decision may be relevant to claims in other states

The other states, including NSW and Victoria, have similar Tribunals to QCAT, which hear and determine building disputes. Claims against directors of building companies in negligence could also be brought in these jurisdictions as well, relying on this QCAT decision. The QCAT decision is not binding on interstate Tribunals, but could influence these Tribunals in their decisions.

Directors and nominees should consider how they can reduce risk of their potential liability

This is a decision that should concern directors (and, potentially, nominees) of residential building companies in terms of their own personal liability in the event that their building company negligently carries out building work. Whether this decision applies to just "mum and dad" building companies, or whether it extends to larger residential building companies is unclear. What is also unclear is whether this decision will ultimately be followed by the courts. However, as matters presently stand, it is a decision of the Appeal Tribunal which would be expected to bind QCAT decisions at first instance.

Residential builders should now give consideration to how they can limit their personal liability if they are carrying our building work via a building company, including whether it is appropriate to incorporate additional terms in the building contract to try to exclude the potential liability of the director or nominees in negligence.

Note: Colin Biggers & Paisley acted for Mr Rod Wagner and Olinderidge in the case discussed in this article.

Russell Ensbey
Construction 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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