In significant news for the construction industry, the High Court yesterday unanimously allowed Brookfield Multiplex Ltd's (Brookfield) appeal against the decision of the NSW Court of Appeal which had held that it in circumstances where it had contracted with a developer to design and construct a strata-titled serviced apartment building, it owed a common law duty of care to a subsequent Owner's Corporation.

The Owners Corporation had asserted that as the subsequent owner of the common property in the development, Brookfield owed it a duty to exercise reasonable care in the construction of the building to avoid causing the Owners Corporation to suffer pure economic loss as a result of latent defects in the common property.

The High Court found that where:

  • Brookfield had negotiated a sophisticated contract with the developer including detailed provisions for dealing with defects and limiting liability; and
  • the standard form contract of sale to purchasers of the serviced apartments conferred on each subsequent purchaser of the strata units specific contractual rights against the developer in relation to defects in the property for a specified period of time,

there was no duty of care to avoid pure economic loss flowing from latent defects owed by Brookfield to the developer or to the subsequent owners of each of the apartments. The High Court also found that there was no independent duty of care owed to the Owners' Corporation.

The Court distinguished Bryan v Maloney (1995) 182 CLR 609 in which it was held that the builder of a dwelling house owed a duty of care to a subsequent purchaser of the house.

French CJ said there was a sharp distinction between those circumstances and the present case as the developer, the subsequent purchasers and the Owners Corporation did not suffer from the same vulnerability as the original owner or subsequent purchasers in Bryan v Maloney.  The existence of contracts which expressly provided for the promised quality of works and the consequences of failure to meet it demonstrates that the parties had the ability to protect their own interest against the consequences of defective work.