Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288

October, 2014

No duty of care in tort to avoid pure economic loss is owed by a D&C Contractor to a body corporate of a strata title scheme in respect of latent defects in common property.

This week the High Court of Australia handed down its decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36. The High Court held that the contractor under a design and construct (D&C) contract did not owe a duty of care in tort to the body corporate of a strata title scheme to avoid pure economic loss occasioned by latent defects in the common areas of the property which the contractor had built.

The case concerned an apartment complex which had been built under a D&C contract between the appellant, Brookfield Multiplex Ltd (Brookfield), and the registered proprietor of the land and property developer, Chelsea Apartments Pty Ltd (Chelsea). The apartments were subject to leases given by Chelsea to Park Hotel Management Pty Ltd (Park Hotel), a Stockland company, which was to operate them collectively as a serviced apartment hotel. The lots in the apartment complex were then to be sold to investors, subject to the leases to Park Hotel, and Park Hotel would operate a business of servicing those apartments.

Upon registration of the strata plan, the body corporate of the strata scheme, known as the ‘Owners Corporation’, was created by operation of law. The interest in the common areas of the apartments was held by the Owners Corporation as agent for the owners of the lots the subject of the strata scheme.

The pure economic loss claim arose from latent defects in the common areas of the apartments and included the cost of rectification of those defects.

The High Court held that Brookfield did not owe a duty of care in tort to the Owners Corporation to avoid pure economic loss arising from latent defects in the common areas.   French CJ described the position of Brookfield as ‘analogous, although not identical, to the position of the purchaser of the complex in Woolcock’ [1] (Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515).

However, French CJ, Crennan, Bell and Keane JJ also held that the nature of the contractual and statutory arrangements between the parties meant that Brookfield did not owe a duty of care in tort to avoid pure economic loss to Chelsea, the original developer and principal under the D&C Contract with Brookfield.

The court held that neither Chelsea, the owners nor the Owners Corporation were vulnerable in the relevant sense to suffering loss caused by the latent defects. The contracts between the parties gave them protection and remedies for such loss which meant that they were not vulnerable. The relevant duties concerning defective works were governed by the terms of the contractual arrangements and ‘to supplement them with an obligation to take reasonable care to avoid a reasonably foreseeable economic loss to the developer in having to make good the consequences of latent defects caused by the appellant’s defective work would be to alter the allocation of risks effected by the parties’ contract.’ [2]

The case is a victory for contractors and will give the construction and property industries some comfort that their contractual risk allocations are now a little less likely to be disturbed by the law of negligence.

 

For further information, please contact:

greg-richards

Greg Richards | Partner
T: 07 3228 0443
E: grichards@millsoakley.com.au

 

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[1] Paragraph [35] – per French CJ
[2] Paragraph [144] – per Crennan, Bell and Keane JJ

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