A developer engaged a builder to construct a 22 storey building, of which about half the floors were to be serviced apartments and half the floors were to be residential apartments.  The serviced apartments were to be sold to investors but were to be managed as a serviced apartment business by another company.

When the building was completed in 1999 an owners corporation came into existence for the residential apartments and another owners corporation came into existence for the serviced apartments.  In 2008 both of the owners corporations sued the builder alleging numerous defects in the building.  The builder settled with the owners corporation for the residential apartments, but the litigation continued in respect of the claim by the owners corporation for the serviced apartments concerning defects in the serviced apartments and the common property.

That owners corporation conceded that it was not entitled to the benefit of the warranties in the NSW domestic building legislation. Accordingly it sued the builder in negligence, claiming damages for pure economic loss. The claim was characterised as pure economic loss because, when the owners corporation came into being, the building and the defects already existed so it became the owner of something which was less valuable because of the defects.

This is an area of the law which has seen conflicting decisions from the High Court. The NSW Court of Appeal accepted that the High Court decision of Bryan v Maloney meant that the law does not automatically impose a general duty to take care to avoid causing pure economic loss.  However the Court of Appeal decided there were significant factors in this case which favoured the finding of a duty of care as the defects were:

  1. structural;
  2. constituted a danger to persons in the vicinity of the serviced apartments; and
  3. made those serviced apartments uninhabitable. 

The Owners-Strata Plan Number 61288 v Brookfield Australia Investments

In this case the owners corporation for the residential apartments was able to sue the builder under the domestic building legislation.  In identical circumstances, the owners corporation for the serviced apartments could not do so.  But the court was prepared to impose on the builder a duty of care to avoid causing economic loss (which duty had been breached by reason of the building defects).