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

Highlights:

  • Builder not found liable for latent defects
  • Builder may have been liable if the property was not commercial property, or if the Body Corporate had suffered more than pure economic loss

 Facts:

A building was built according to a design and build contract made in 1997 between Brookfield Multiplex Ltd (‘the Builder’) and the registered proprietor of the land & property developer, Chelsea Apartments Pty Ltd (‘Chelsea Apartments’). All of the apartments inside that building were subject to leases given by Chelsea Apartments to Park Hotel Management Pty Ltd (‘Park Hotel’), a subsidiary of the Stockland Trust Group. Stockland Trust Group was to operate them collectively as a serviced apartment hotel under the Hotel Inn brand.

Third parties subsequently bought these apartments from Chelsea Apartments Pty Ltd, subject to Park Hotel’s leases. The contracts of sale stipulated that the third party purchasers would confer all Body Corporate voting control to Stockland Trust Group. Therefore Stockland Trust Group controlled the Body Corporate. Because of this arrangement, the third party purchasers were effectively investors in the Holiday Inn hotel venture.

Latent defects then materialised in the building’s common property, causing economic loss to the Body Corporate.

 Decision:

 At first instance

Judgement for the Builder: Where the parties have negotiated in their full rights and obligations, there is no reason for the Courts to intervene by imposing some further general law duty of care.

 On Appeal to the NSW Court of Appeal

Judgement for the Corporation: The Builder owed a limited duty of care to the Body Corporate, based off the original duty of care that was owed to the first owner of the building (Chelsea Apartments).

On Appeal to the High Court

Judgement for the Builder: The Court found that the possible duty of care owed by the Builder to the Body Corporate was not an established duty of care category. This fact pattern falls in the “novelty” category of negligence law, as of the contract and body corporate statutory matrix that is present in this case.

Therefore the Court looked to the concept of “vulnerability” to see if a duty of care relationship could be imposed on the Builder. To this end, the Court found that the Body Corporate was not sufficiently “vulnerable” to warrant an imposition of duty on the Builder. While it could be said that the Body Corporate relied on the Builder to take due care to properly construct the building, the Body Corporate must have also been unable to protect itself from the Builder’s breach of care.

On the facts, the Body Corporate was able to protect itself from the Builder’s negligence, as both the developer and the original purchaser made contracts that expressly gave rights to have defects in the common property remedied. Such terms in the contracts demonstrate that the parties were in a position to protect themselves from the Builder’s negligent conduct. If the parties in this case wanted further rights in this regard, they should have included so in the contracts. It was not up to the Courts to fix a “bad bargain”.

That being said, the Court commented that further protection and/or rights would have been afforded to the Body Corporate, had more than mere economic loss (e.g. personal injury) had been suffered. The Court contrasted the case of Bryan v Maloney, where it was found that subsequent owner of a domestic household was vulnerable to the builder’s negligent work because they were incapable of protecting themselves. Unlike the Body Corporate, the subsequent owner in Bryan v Maloney had no opportunity to protect their interests in the form of a commercial or contractual relationship with the builder.

 Orders:

 (1) Appeal allowed;

(2) Special leave for cross appeal granted & cross appeal dismissed with costs; and

(3) Body Corporate pay the Builder’s costs of the appeal.

 Implications:

 The case of Bryan v Maloney has been confined to the category of case in which the building is a house[i] and in which the subsequent owner can be shown to fall within a class of persons incapable of protecting themselves from the consequences of the builder’s want of reasonable care.

Further legal protection in this area of law is to be extended by the legislature.

It is for the legislature, and not the courts, to make the policy decision to extend legal protection to commercial investments.

[i] Per Gageler J’s judgement

Lee lawyers are an expert commercial disputes and insurance law firm based in the Southport CBD, Gold Coast. Our principal lawyer Ross Lee and staff are focussed on keeping in touch with clients, cost efficiencies and results.

Lee Lawyers

No Comments

You must be logged in to post a comment.