Matthew Yee has analysed this recent decision in the New South Wales Supreme Court:

Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [2016] NSWSC 50

Significance

Assignment of warranties may give an assignee the benefit of rights in respect of breaches arising both before and from the date of assignment. Contracts should contain express wording to the contrary if the parties intend otherwise.

Facts

In 2003 the first defendant, Walker Group Constructions Pty Ltd (builder) was instructed to construct a container terminal by P&O Trans Australia Holdings Limited (P&O), the lessee of the land upon which the terminal was to be built. These instructions were formalised in a contract in September 2004 (Contract), after the works were complete. The second defendant, AMT Engineers Pty Limited (designer) was appointed by the first defendant to design the pavement, a substantial part of the Contract works.

In 2005 the leasehold interest was transferred to the plaintiff, Tzaneros Investments Pty Limited (assignee). The assignee was also assigned 'absolutely all of the benefit of the [warranties under the Contract]' (which was consented to by the builder). At this time, defects were apparent in the pavement.

The assignee claimed against the builder for breach of warranties and the designer in negligence. The builder asserted that (i) the assignment was not effective to assign claims for breach arising prior to the date of assignment, and (ii) any liability it did have should be reduced as a result of the designer's negligence. The builder brought a cross claim against the designer.

Decision

  • Assignment of warranties

The court held that the assignment of the builder's warranties to the assignee was effective.

Ball J found that the assignee had a right to sue in respect of breaches that had already occurred on the basis that the assignment had purported to assign 'all of the benefits' of the warranties. The assignment had occurred where the parties knew there were pavement defects, and Ball J was satisfied that they must have contemplated the possibility that these defects would give rise to a claim.

The assignee was entitled to recover the cost of rectifying the defects, but only in respect of those panels which had or which might be subject to the loads specified in the Contract.

  • No duty owed by third party contractor

The court held that the designer did not owe the assignee a duty of care and rejected the builder's argument that the designer was concurrently liable for the breach.

The court followed the High Court's decision in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, that there is no duty of care owed to a subsequent purchaser of commercial property to avoid pure economic loss where the purchaser is not vulnerable to the economic consequences of any negligence. The assignee had protected itself by taking an assignment of P&O's rights. Therefore the assignee was not in a position of vulnerability with respect of any failure by the designer to take reasonable care in the design of the pavement. As a result the designer did not owe a duty of care to the assignee, and therefore could not be concurrently liable with the builder.

  • Builder's cross claim

The court found that the designer was liable to the builder for the amount that the builder had been ordered to pay to the assignee.

One of the issues was whether there was in fact a contract between the builder and the designer which would give rise to a contractual duty. The court considered whether, if it were wrong in accepting that there was a contract, there was in any event a tortious duty of care.

The court considered that there is an established tortious duty of care where a professional advisor is engaged to provide advice falling within its area of expertise where the advisor knows the advice will be relied upon. The court held that the designer owed a duty to the builder to exercise reasonable care and skill in designing the pavement to meet the performance specification in the Contract (which duty had been breached).