Court ruling allows commercial property owners corporations to bring negligence claims against builders
The NSW Court of Appeal has opened the door for owners corporations for commercial buildings to bring claims of negligence for pure economic loss against builders - an action previously thought to be limited to subsequent purchasers of residential buildings.
Since the mid-1990s, the High Court has recognised the existence of a duty of care owed by a builder to a subsequent purchaser of residential premises for recovery of pure economic loss. It later refused, however, to extend this duty of care to a purchaser of a warehouse office building (Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515).
Last month, the NSW Court of Appeal, in The Owners – Strata Plan No. 61288 v Brookfield Australia Investments Ltd  NSWCA 317, found that the differences between the purchasers of residential and commercial properties are not as great as we might previously have thought. The key consideration for the court when establishing whether a builder owes a duty to a subsequent purchaser in respect of pure economic loss is the extent to which the purchaser is vulnerable.
The Owners - Strata Plan No. 61288 v Brookfield case concerned the construction of a mixed-use retail, restaurant, residential and serviced apartments building in Chatswood, NSW, in 1999.
The owners' corporation for the serviced apartments, which came into existence after completion of the building work on registration of the strata plan for the serviced apartments, discovered certain defects in the common property and, in November 2008, brought proceedings against the builder in negligence for pure economic loss.
The Court affirmed the importance of vulnerability of the plaintiff as a key factor in controlling the potentially expansive area of legal liability. The vulnerability of the purchaser was a key factor in identifying the scope of the builder's duty of care to that purchaser. Vulnerability refers to the purchaser's inability to protect itself from the consequences of the builder's failure to use reasonable care; whether than be in a physical sense (controlling the physical events that gave rise to the loss) or a legal sense (negotiating a contractual arrangement imposing liability on the builder).
The owners' corporation was found to be vulnerable in that the defects were latent and could not have been discovered by a purchaser exercising reasonable care; and there was no submission that the owners' corporation could in some way have protected itself by contract so as to impose liability on the builder.
While this case appears to expand the scope of a builder's liability to subsequent purchasers of buildings, the Court commented that this case does not in fact represent a radical change in the law, but is merely the application of existing principles to a novel set of facts.
By Philip Dawson, Clayton Utz