High Court rules builder does not owe duty to prevent pure economic loss to owners corporation

Insurance update - 8 October 2014

In our October eBulletin, Builder's liability for pure economic loss - duty of care extended, we reported on the decision of the New South Wales Court of Appeal in The Owners - Strata Plan No 61288 v Brookfield Australia Investments Ltd, in which a 'Design and Construct' contractor was found to have owed a limited duty of care to an owners corporation of strata-titled serviced apartments in respect of latent defects in the common property.

The High Court today allowed the D&C contractor's appeal, finding that it did not owe such a duty to the owners corporation.

Unlike claims for personal injury or property damage, mere reasonable foreseeability of damage is not sufficient when it comes to establishing a duty of care in tort for pure economic loss. The courts instead consider a number of 'salient features', including the relationship between the parties, the need to avoid indeterminate liability and the ability of the plaintiff to protect itself from the consequences of the defendant's wrongdoing. The latter factor, often referred to as 'vulnerability', is particularly important in construction claims.

While the decision to allow the appeal in Brookfield was unanimous, four separate judgments were delivered. It seems, however, that the owners corporation's vulnerability, or rather lack thereof, was the predominant factor in the finding that no duty existed. This was because of the detailed contractual arrangements between the parties, which included rights to have defects in the common property remedied.

It should be emphasised that the majority of the High Court did not make a blanket ruling that builders do not owe a duty of care in tort to subsequent owners of property to avoid causing them pure economic loss. The majority did, however, emphasise that the ability of subsequent purchasers to protect themselves from the consequences of a builder's lack of reasonable care will be a very important, if not determinative, factor in deciding whether such a duty of care exists.

Justice Gagelar was the one voice in the Court to rule that, except for cases involving subsequent purchasers of dwellings who can show that they were incapable of protecting themselves from the builder's want of care, builders do not owe a duty in tort to exercise reasonable care to avoid causing a subsequent owner to incur the cost of repairing latent defects in a building. In His Honour's view, this is because, by virtue of the freedom that most subsequent purchasers have to choose the price and non-price terms on which they are prepared to buy, there is no reason to consider that they cannot ordinarily be expected to be able to protect themselves against incurring economic loss of that nature.

You can read the High Court's full decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 here.

Author
Kate Clark, Special Counsel

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