There are lessons to be learnt from the Multiplex Case for property buyers, builders, developers and strata corporations. High profile and complex, this class action building/strata dispute in the Federal Court of Australia raised key issues in relation to the law of negligence and the duty of care that may be owed by a builder or developer. Commercial Litigation Senior Associate, Charles Lethbridge explains.
Acting for the owners corporation of a strata scheme, Attwood Marshall Lawyers recently took legal action against an ASX-listed developer after the discovery of a series of defects in its premium marketed apartment development. Units sold to residents at a cost of up to $900,000 each in the developer’s high rise which were found to be riddled with corrosion, rust, water leaks, cracked tiles, flaking paint and rotting timber. One major defect to the building was caused by a porous pre-fabricated walling system used throughout the building which had failed, allowing significant water ingress into units. Of the many complex legal issues which arose, the one which stood out notably concerned a relatively new law relating to a builder’s liability to an owners corporation, in respect of ‘latent’ building defects. A latent defect is one which is not apparent for some time until after construction is completed. Usually a builder would be responsible for such a defect – but not in the Multiplex Case.
‘The Multiplex Case’ – builders did not owe duty of care to owners corporation
The case was subject to a legal precedent set in the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 (‘the Multiplex Case’). The Multiplex Case had serious ramifications for purchasers and owners of units in strata schemes, and the builders /developers who built them.
Buying a unit is an important decision and for most people, a significant financial investment. Just as when buying a house, prospective buyers should employ a building inspector to inspect a unit to make sure it is free from building defects which may result in problems down the track. Latent defects are more prevalent in strata schemes, particularly newer buildings, due to potential defects within the common property, which a building inspector is unlikely to inspect.
In the Multiplex Case, some time after construction of the building and the sale of units within the building, the owners corporation identified defects in the common property which it alleged resulted from the original construction of the building. The statutory warranties under the Home Building Act were not available to the owners corporation because it was a commercial, rather than a residential, strata scheme. The owners corporation claimed in the Supreme Court of NSW against the builder for its economic loss in rectifying the alleged defects. The action was based upon a claim in negligence and for a claim in negligence to succeed, the owners corporation had to establish that the builder owed it a duty of care.
In the Multiplex Case, the High Court held that the builder (Brookfield) did not owe a duty of care to avoid causing the owners corporation of a strata scheme economic loss of the cost of repairing latent defects in the property. This meant that the owners’ corporation’s claim against the builder to recover compensation for the cost of rectifying the defects failed. While it may be more likely that a duty of care will be found in domestic (residential) building cases, ultimately whether that is so will depend on a detailed consideration of the circumstances.
No duty of care by engineer and subcontractor in work on residential buildings
This was illustrated in two subsequent New South Wales Supreme Court decisions:
- Chan v Acres  NSWSC 188
- Owners SP 74602 v Brookfield Australia Investments Limited  NSWSC 1916
These later cases found no duty of care was owed by an engineer and a subcontractor in respect of works undertaken on residential buildings. These decisions have shown that proving whether a person is relevantly vulnerable and therefore owed a duty of care depends on a close examination of all relevant features of the relevant relationship and that each case will turn on the individual facts.
Owners’ corporation unable to claim for damages relating to defects from builder or developer
As a consequence of the Multiplex Case, if latent defects which may have been impossible for a building inspector to detect upon inspection arise down the track, an owners’ corporation is now unable to claim for damages relating to those defects from the builder/developer. This means that prospective buyers of units need to be even more vigilant with their pre-purchase enquiries. Additional inquiries about the builder/developer’s history of building practices are essential.
What to look for in a builder or developer’s history
If a builder/developer has a history of defending lawsuits relating to problems and defects associated with the buildings it has constructed, alarm bells should sound for prospective buyers of units. The decision has significant consequences for builders as well. The accountability of builders to subsequent owners is important, in our view, in promoting the quality of construction. However now, absent reasonable safeguards and protections, purchasers of home units in strata schemes may not be prepared to accept the risk of that investment and the exposure to the risk of the cost of rectifying defects. Builders with a track record of disputes relating to the buildings they have constructed may find it even harder to sell the units they construct.
The implications of the decision are not limited to builders alone. They are also relevant to builders, professionals and other trades, all of whom may owe a duty of care to subsequent purchasers to avoid pure economic loss in some circumstances. The Courts will look to the subsequent purchaser’s ability to protect themselves from the builder’s/trade’s/professional’s negligence before concluding whether such a duty of care is owed. A Court is much more likely to conclude that such a duty is owed to a subsequent purchaser who is not in a strong position to protect themselves from the negligence of the builder/tradesperson/professional, than to a subsequent purchaser who is in a strong position.
There is no hard and fast rule as to who a duty will be owed by, but it seems that where the building in question is a commercial development it is far more likely that the relevant parties will have been in a position to protect themselves and therefore that no duty is owed to them.
How can Attwood Marshall Lawyers help?
Attwood Marshall Lawyers have extensive experience acting for both builders, unit owners and owners’ corporations who find themselves involved in disputes which have arisen as a result of poor workmanship and/or building defects. Our litigation and dispute resolution lawyers have an unparalleled success rate in achieving just and equitable results for both parties in these unfortunate, yet frequent, types of disputes. Please contact our department manager, Amanda Heather, on (07) 5506 8245 or email firstname.lastname@example.org or free call 1800 621 071.