Australia: Subsequent Owner Loses Claim For Breach Under The Home Building Act

Last Updated: 15 December 2009
Article by David Jury and Alison Ewart

In Allianz v Waterbrook [2009] NSWCA 224, the NSW Court of Appeal held that no loss was suffered by the subsequent purchaser of a property as they had full knowledge of the defects in the building work at the time of purchase. The Court held the fact the subsequent purchaser had full knowledge of the defects meant it could not claim there had been a loss suffered by a breach of statutory warranty under the Home Building Act 1989 (NSW).

Key points:

  • The Home Building Act 1989 (NSW) implies into every residential building contract statutory warranties about the quality of a builder's work. A subsequent owner of the property can sue for a breach of these warranties for up to seven years.
  • If a subsequent owner has 'full knowledge of the existence, nature and extent of defects' when acquiring a property, an insurer can use this knowledge as a defence to a claim of breaches of a builder's statutory warranties in relation to residential building work.


Waterbrook sued for a breach of the statutory warranties implied into every residential building contract under the Home Building Act 1989 (NSW) (Act).

At the time of acquiring the property, some of the defects were reasonably visible and were known to Waterbrook because of a link between the developer and Waterbrook. Waterbrook made a claim under a Builder's Warranty Insurance Policy (Policy) provided by Allianz for the cost of rectifying these defects.

The Policy included a clause that provided that the insurer would not be liable, broadly, for any loss or damage arising from consequential loss (Exclusion Clause). The Policy further included an indemnity clause which stated that the insurer would not be liable for '...any defects in the work which would have been reasonably visible at the time any successor in title acquired the dwelling' (Indemnity Clause).


The Court had to consider whether the Exclusion Clause and Indemnity Clause were void for non-compliance and/or inconsistency with the Act.


The majority of the Court of Appeal concluded that parts of the Policy were void on the basis that it would have excluded cover that the Act had required Allianz to provide. However, Waterbrook's specific knowledge of the defects provided Allianz with a defence to the claim because Waterbrook did not suffer loss or damage when it had 'full knowledge of the existence, nature and extent of defects'. Rather, any loss was due to Waterbrook paying more for the property than what it was worth. If Waterbrook's claim was successful it would mean that a successor in title could profit from acquiring a property at a lower price due to the defects, and then claim for losses under a builder's warranty insurance.


This case sends an important message to insurers providing builder's warranty insurance not to take a claim by a successor in title at face value. In the event that a claim is made, investigations should be made into the state of the successor's knowledge of the alleged defects at the time the property was acquired. As was the case in Allianz v Waterbrook, a shared director of the developer and the successor company had such knowledge. If this or other particular facts of a situation indicate that a successor in title had 'full knowledge of the existence, nature and extent of defects', the insurer may use this to resist a claim for breach of statutory warranty.

For a vendor of a property who sells the property with defects, valuation evidence of the property without defects should be obtained in order to preserve the right to make a claim on a builder's warranty insurance policy. The case also serves as a reminder that, aside from builder's warranty insurance, it is essential that insurance policies and other contracts covered by the law of New South Wales, and all Australian jurisdictions by implication, expressly state what losses are excluded. For example, loss of profits, loss of revenue, loss or denial of opportunity, loss of good will and loss of production should all be addressed.

Although in light of Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26 and Allianz v Waterbrook, it appears that exclusions of consequential loss will operate to exclude loss of profits, parties will be better positioned to exclude liability in the event that the policy is explicit as to excluded loss. However, in the absence of a High Court decision on the matter, this area is not yet settled.

It should also be remembered that, as was the case in Allianz v Waterbrook, an exclusion of consequential loss in relation to residential building work will be void due to inconsistency with the Act.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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