The High Court of Australia has granted Brookfield Multiplex Ltd (Brookfield) special leave to appeal from the Court of Appeal decision which found, significantly, that a builder owes a duty of care to an owners corporation in constructing serviced apartment blocks.
The case involved the development of a 22‑storey building that was designed and constructed by Brookfield pursuant to a contract entered into with the developer. The development consisted of both serviced apartments and residential apartments, however, the premises in question before the High Court related only to the serviced apartments.
The Owners Corporation (Owners) commenced proceedings in the Supreme Court for negligence for pure economic loss resulting from latent defects. The Court found that the claim relating to the serviced apartments was beyond the scope of the statutory warranties contained in the Home Building Act 1989 (NSW) and that it was not open to the Court to impose an additional ‘novel’ common law duty of care.
The Court also made the finding that because the relationship between Brookfield and the developers was defined by a sophisticated building contract made between parties of equal bargaining power, there was no need to impose a duty of care outside that contract. Accordingly, it was held that if no duty of care was owed to the developer, then no duty of care could arise with respect to successive owners.
The NSW Court of Appeal overturned the Supreme Court’s decision, finding that a builder owes a duty to exercise reasonable care in constructing serviced apartment blocks to avoid causing an owners corporation to suffer economic loss resulting from latent defects.
Central to this decision was the finding that both the developer and the owners were in a sufficiently vulnerable position to warrant a duty of care.
Brookfield challenged the finding of the Court of Appeal and sought special leave to appeal to the High Court.
At the crux of Brookfield’s argument was that the Court of Appeal had undermined the significance of the design and construction contract and the contractual rights that the parties bargained for.
While Brookfield accepted the well‑established principle that there can be concurrent contractual and tortious duties, it argued that the contract here was of such complexity and detail that it precluded a concurrent tortious duty of care from arising.
In response, the owners noted that Brookfield failed to advance its argument as to how a dividing line ought to be drawn on the spectrum of construction contracts – with simple residential contracts at one end, and more complex contracts at the other end. The owners submitted that what Brookfield was essentially arguing for was an ‘exception to concurrency’.
In considering whether any exception to concurrency could be found to exist, the owners argued that the decision of Woolcock Street Investments Pty Ltd v CDG Pty Ltd , which involved a complex contract, implied that no such exception existed. They stated that nowhere in the decision was there any suggestion that the complexity of the contract in some way precluded the existence of a duty of care.
In relation to the issue of vulnerability, the owners submitted that the features of vulnerability “will vary from case to case, category by category”. They stated that while vulnerability will be sufficient to support a duty of care, as per the approach adopted in Woolcock, it is not a necessary precondition.
Special leave was granted.
The outcome of the appeal will be eagerly awaited by all those involved in the construction industry.