Negligence – duty of care – pure economic loss – strata-titled apartment complex constructed pursuant to contract between builder and developer – latent defects in common property – owners corporation for strata scheme claimed damages from builder for pure economic loss – whether builder owed owners corporation a duty of care – relevance of inquiry into whether builder owed anterior duty of care to developer
This case provides the much awaited decision of the High Court in relation to whether a duty of care is owed by a builder to an owners corporation or subsequent owners. The Court held that where a builder has a commercially negotiated building contract (including a standard form contract of sale to purchasers of strata units) setting out its rights and obligations, a builder does not owe a duty of care to the developer or the subsequent owners of the apartments. Consequently, it does not owe a duty of care to the owners corporation either.
Brookfield Multiplex Ltd (Brookfield) built a serviced apartment complex pursuant to a construction contract with a developer who owned the land. The owners corporation was established following the registration of the strata plan. It commenced proceedings in the Supreme Court to recover damages for pure economic loss caused by Brookfield's negligence. The damages for pure economic loss included the cost of repairing latent defects in the common property.
At first instance the judge held that Brookfield did not owe the duty of care claimed by the owners corporation. The Court of Appeal overturned the decision, holding that Brookfield did owe the owners corporation a duty of care to avoid causing loss resulting from latent defects which were structural, dangerous or made the apartments uninhabitable. Brookfield appealed to the High Court, and the owners corporation cross-appealed seeking a duty of care of wider application.
The High Court allowed the appeal, dismissed the cross-appeal and held that Brookfield did not owe the duty of care propounded by the owners corporation or found by the Court of Appeal.
The general rule at common law is that damages for economic loss which is not consequential upon damage to person or property are not recoverable in negligence even if that loss is foreseeable. Vulnerability is, however, a rationale for exceptions to this rule. Vulnerability in this context concerned the reasonable foreseeability of loss if reasonable care was not taken by Brookfield, and the inability of the owners corporation to take steps to protect itself from the risk of loss. The High Court found that the owners corporation was not sufficiently 'vulnerable' in its relationship with Brookfield.
Reliance on Brookfield to do its job properly was not sufficient to establish the required level of vulnerability on the part of the owners corporation. The lack of direct contractual relationship between the owners corporation and Brookfield was not sufficient either. In fact, the contract of sale between the developer and the owners of the apartments was detailed and addressed Brookfield's liability for defects. Furthermore, the contracts of sale for the apartments made provisions regulating the quality of what was received in return for a purchase price. There was no reason to consider that subsequent owners could not be expected to be able to protect themselves against incurring economic loss of this type by negotiating their contract of sale.