The case before the High Court concerned a design and construct contract between a contractor and a developer to build a 22 storey complex featuring a mix of serviced and residential apartments. The developer, who engaged the contractor, then sold the serviced apartments to a number of individual owners and an owner’s corporation or body corporate was established.
Some years after the project was completed, a number of the latent defects in the common areas of the apartments were discovered. The defects were allegedly caused by defective design and construction of the building by the contractor. The body corporate incurred costs to repair the defects and sought to make a claim against the contractor and sue for economic loss of the costs incurred to rectify the defects.
The High Court unanimously decided that the contractor did not owe a duty of care to the body corporate. The contract between the contractor and the developer contained provisions with respect to the quality of work to be carried out and required the contractor to remedy defects within the specified defects liability period. The High Court concluded that there was no contractual relationship between the body corporate and the contractor. The relationship existed between the developer and the contractor only.
The High Court also considered whether the developer or the lot owners were vulnerable, and therefore needed protection. The Court concluded that owners of properties like this are usually sophisticated and often wealthy investors, who are advised by a team of competent solicitors, accountants, architects, engineers and valuers. The High Court concluded that the purchasers, in contracting with the developer, had the ability to protect themselves against any lack of care by the contractor. They could have insisted on a contractual right against the developer in relation to defective work by the contractor. The judges decided that the failure to insist on this protection was not something to be rectified by the Court after the fact.
Whilst this was a pleasing result for contractors in this case, future cases will continue to be decided on their particular factual situations. Whether or not a particular relationship will give rise to a duty of care will depend on the features of the relationship, and in particular the terms of any contract between the parties.
It is clear from this case, the court will look to the subsequent purchaser’s ability to protect themselves from a contractor’s negligence in determining whether such a duty of care is owed. It is more likely that a duty of care will be owed to purchasers who are considered vulnerable and not able to protect themselves in these situations, perhaps such as first home buyers, as opposed to experienced investors.
Contractors should ensure that their contract terms are specific in this regard to attempt to limit liability where appropriate and that they have adequate insurance in place to cover for any circumstance where they may be found to owe a duty of care to subsequent purchasers.