Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36
In a landmark judgment, the High Court of Australia unanimously held that Brookfield Multiplex Ltd (Brookfield), the builder of serviced apartments, was not liable to The Owners of Strata Plan No 61288 (Owners Corporation), a subsequent owner, for the cost of fixing alleged defects in the common property of the apartments.
The High Court decided that Brookfield did not owe the Owners Corporation a duty of care in negligence for pure economic loss resulting from latent defects in the common property.
This decision has been eagerly awaited by the construction industry and has removed the uncertainty as to whether builders owe a separate duty of care to subsequent purchasers.
Background
Brookfield was engaged by Chelsea Apartments Pty Ltd (Chelsea) under a design and construct contract to build strata-titled apartments in Chatswood. Chelsea was the property developer and the registered proprietor of the land.
The Owners Corporation came into existence on registration of the strata plan and became the registered proprietor of the common property. It had no contractual relationship with Brookfield or Chelsea. The Owners Corporation did, however, hold the common property as agent for Chelsea and was effectively subject to Chelsea's control.
In 2008, the Owners Corporation brought proceedings against Brookfield, alleging that it was liable for defects in the common property. Having no contractual rights against Brookfield, the Owners Corporation claimed in negligence for breach of a duty "to take reasonable care to avoid a reasonably foreseeable economic loss to the Owners Corporation in having to make good the consequences of latent defects caused by the building's defective design and/or construction."
At first instance, McDougall J ruled that Brookfield did not owe the Owners Corporation a duty in relation to the defective works. McDougall held that the duty alleged was novel and that it was not appropriate for a Judge at first instance to identify and impose a novel duty.
Court of Appeal decision
The Court of Appeal overturned McDougall J's decision and held that:
- Brookfield owed a duty of care to the Owners Corporation
- there will generally be concurrent liability for defects in both contract and tort, and
- the requirement of "vulnerability" for pure economic loss was present for Chelsea, the Owners Corporation and, probably, subsequent purchasers.
On the extent of Brookfield's liability in tort to the Owners Corporation as subsequent purchaser, the Court of Appeal stated that it would not be correct to impose a tortious duty equivalent to the contractual obligations of the builder to the developer. Instead, the Court held that Brookfield's liability extended to defects that are "dangerous" and which therefore reasonably require rectification to protect the bodily integrity and property interests of the inhabitants of the building.
High Court decision – no duty of care owed by Brookfield to the Owners Corporation
On appeal, the High Court unanimously held that Brookfield did not owe a duty of care to the Owners Corporation to avoid causing it economic loss resulting from latent defects in the common property.
The issues for consideration before the High Court were whether:
- Brookfield owed a duty of care to the Owners Corporation independently of the existence of a duty of care owed to Chelsea, and, if so, what was it?
- Brookfield owed a duty of care to Chelsea and thereby a similar duty of care to the Owners Corporation, and, if so, what was it?
Chief Justice French held that:
- the nature and content of the contractual arrangements, including detailed provisions for dealing with and limiting defects liability
- the sophistication of the parties, and
- the relationship of Chelsea to the Owners Corporation,
all weighed against a finding of vulnerability and therefore the existence of a duty of care to either Chelsea or the Owners Corporation.
On the "vulnerability" of the Owners Corporation, the High Court observed that the existence of contracts between the parties, which expressly provided for what quality of work was promised, demonstrates the ability of the parties to protect against, and denies their vulnerability to, any lack of care by Brookfield in the performance of its contractual obligations.
The High Court also stated that:
The High Court's judgment, which comprises four separate judgments, is available here.
Implications of the decision
The outcome of the High Court appeal has been eagerly awaited by the construction industry. The decision has removed the uncertainty caused by the Court of Appeal's decision as to whether builders owe a separate duty of care to subsequent purchasers.
Importantly, the High Court recognised the significance of the commercial bargain and the contractual rights of the parties. While the High Court did not reject the well-established principle that there can be concurrent contractual and tortious duties, the Court recognised that the contractual arrangements in place meant that a concurrent tortious duty of care did not arise.
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