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No duty of care owed by Builder/Developer to Owners Corporation

Owners Corporations need to be mindful of two recent landmark decisions handed down in the Supreme Court of NSW where Owners Corporations’ have unsuccessfully sued  builders and developers for alleged defective works carried out on a commercial and service apartment scheme.

Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712

This case involved a resort style complex known as “Star of the Sea” consisting of 52 serviced units in a multi-story property designed by Brookfield and developed by Hiltan, the First and Second Defendants respectively.

The owners corporation claimed that Brookfield and Hiltan owed the owners corporation a duty of care and had breached s18B of the Home Building Act 1989 (NSW).

Following the claim issued by the Owners Corporation, Brookfield filed a Notice of Motion seeking to have the following questions  determined separately pursuant to 28.2 of the Uniform Civil Procedure Rules 2005 (NSW):

  1. Whether the Owners Corporation was entitled to the statutory warranties under the Home Building Act. (Brookfield argued that regulation 6(f) of the Home Building Regulation 1997 (NSW) excluded the operation of the Home Building Act warranties because the complex was designed, constructed or adapted for commercial use as tourist, holiday or overnight accommodation).
  2. Whether Brookfield owed the owners’ corporation a duty of care.

Hiltan also undertook a similar Notice of Motion but seeking an answer as to whether a duty of care was owed by it, to the Owners Corporation.

In determination of the Notice of Motion, his Honour Justice McDougall referred to previous High Court decisions specifically Bryan v Maloney(1995) 182 CLR 609 with respect to purchasers of residential premises and Perre v Apand Pty Limited(1999) 198 CLR 180 for purchasers of commercial premises for determinations on tests and proximity. It was established that in order to prove Duty of Care, you must establish that a relationship existed between the builder and the developer. In this case, the ‘relationship’ concluded that Brookfield did not owe Hiltan a duty of care because their relationship was defined by a detailed contract negotiated between the parties, on what appeared to be equal footing.  In these circumstances, the Court should not interfere with the contract bargained for.

Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219

The plaintiff (the Owners Corporation) is the owners corporation of a strata title development at Chatswood (the serviced apartments development). That development is operated, under the name Mantra Chatswood Hotel, as serviced apartments available for public letting. The complex of which the development forms part was constructed by the first defendant (Brookfield) pursuant to a design and construct contract made with the developer, Chelsea Apartments Pty Ltd (Chelsea).

The Owners Corporation claimed that Brookfield’s work was defective, and that there were many defects in the common property of the serviced apartments development that required rectification. The Owners Corporation sued Brookfield to recover the cost of rectification based upon an asserted common law duty of care.

Unfortunately, as the property was of a commercial purpose, the property did not have the benefit of the statutory warranties under the Home Building Act.

His Honour Justice McDougall again was faced with two Notice of Motions filed pursuant to UCPR rule 28.2 as mentioned in the case above.

His Honour found that Brookfield did not owe the Owners Corporation a duty of care as alleged.

The result:

The decisions above (subject to any appeal) denote that  an Owners Corporation will have great difficulty establishing that builders and developers are liable for defective works in developments that are used for commercial and other non-residential purposes.

A builder will not have liability in negligence at common law in relation to alleged defective works but will be liable under the statutory warranties under the Home Building Act where the development is residential and is not to be used for a commercial purpose. Developments that do not have the benefit of the statutory warranties will include:

    1. serviced apartments, hotels and motels;
    2. developments to be used as a boarding house, guest house or hostel;
    3. residential accommodation for universities and other educational institutions;
    4. specialist aged care accommodation and accommodation specifically designed for persons with disabilities and children;
    5. residential accommodation for hospitals and other health care facilities; and
    6. houses and units designed, constructed or adapted for commercial use as a tourist, holiday or overnight accommodation.

Contractual provisions regarding defects liability will continue to apply. It is likely that contractual remedies will be the only recourse for Owners Corporations of strata developments that are used for non-residential purposes. This Court was unconvinced that builders should owe an additional common law duty of care merely because Owners Corporations were “vulnerable” due to their inability to bargain for contractual protections.

For any questions telephone Attwood Marshall Lawyers on 1800 621 071 or email info@attwoodmarshall.com.au.

 

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Charles Lethbridge

Charles Lethbridge

  • Senior Associate
  • Commercial Litigation
  • Direct line: 07 5506 8240
  • Mobile: 0421 885 195