The High Court of Australia has this month held that no duty of care  is owed by a builder to avoid a subsequent purchaser’s pure economic loss resulting from latent defects in common property in an apartment building.

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36

The case concerned a mixed-use apartment complex built by Brookfield Multiplex under a ”design and construct contract”. Apartments in the complex were sold to individual purchasers (which were then leased to a serviced apartment operator) and an Owners’ Corporation was established.

The Owners’ Corporation subsequently sued Brookfield for the cost of rectifying alleged latent defects in the common property.

The High Court’s Decision

The High Court unanimously held that no duty of care was owed by Brookfield, given that the Owners’ Corporation was not “vulnerable” to suffering economic loss from latent defects. In reaching this conclusion, the Court relied on the parties’ contractual rights and obligations, specifically stating that the parties were commercial parties capable of allocating risk and protecting themselves in the contracts they enter into:

"The common law has not developed with a view to altering the allocation of economic risks between parties to a contract by supplementing or supplanting the terms of the contract by duties imposed by the law of tort.”

What Does This Mean For You?

The case is good news for builders, developers and contractors who can confidently stand behind the allocation  of risk specifically negotiated in their contracts, rather than as separately determined by the court.