Restoring the balance in residential building projects
Limiting the liability of builders and developers to claims in negligence by subsequent purchasers
The recent decision of Owners Corporation Strata Plan 72535 v Brookfield Australia Investments Limited & Hiltan Pty Limited  NSWSC 712 should provide some comfort for developers and builders involved in residential projects in New South Wales and, if followed, across Australia.
The decision itself turned on the application of statutory warranties under the Home Building Act 1989 (“Act”) to ‘residential resorts’. This article will focus on the salient comments made by his Honour Justice McDougall, albeit in obiter, limiting claims by Owners Corporations in negligence against builders and developers for residential building defects.
No duty of care to an owners corporation
The Act imposes statutory warranties importing minimum standards and requirements into contracts for residential building works as between a developer and builder. In such circumstances, his Honour held that no duty of care was owed to an Owners Corporation as the successor in title to a developer.
His Honour distinguished stata titled property from sole dwellings on the basis that:
a builder does not owe a duty of a care to a developer in circumstances where they have negotiated a residential building contract for their bargain on equal terms – and the Court should not intervene in that bargain;
unlike cases such as the High Court decision of Bryan v Maloney, where the builder owed a duty of care to the owner of a property (the plaintiff in that decision’s immediate predecessor in title), no relationship of proximity exists between a builder and an Owners Corporation;
Owners Corporations have the benefit of the statutory warranties pursuant to section 18D of the Act;
the legislature considered and made clear provisions under the Act for the liability of a builder or developer to that Owners Corporation or subsequent purchasers;
the Courts should be slow to impose additional obligations in such circumstances where the Owners Corporation has such protections (arguably disposing of any ‘vulnerability’ otherwise potentially giving rise to the duty of care in decisions such as Bryan v Maloney); and
the imposition of any such duty, particularly on a developer, would be very onerous and increase project costs.
The need for further reform
Recent legislative reforms in New South Wales have limited the scope of the statutory warranties. It is hoped that the Hiltan decision will provide a further disincentive for Owners Corporations to defer making claims under the Act to the death knell of the statutory warranty period (up to 6 years). The decision may also be a disincentive for making claims in the alternative in negligence as a safeguard against the expiry of the statutory warranty period.
It is important for industry participants that reforms to the Act provide an appropriate incentive for such claims to be prosecuted by Owners Corporations in a timely manner. Whilst decisions such as Hiltan should give both builders and developers some comfort, there are few legislative incentives for Owners Corporations to prosecute claims under the Act as soon as they become aware of defects. Delays in making such claims often exacerbate, if not give rise to, the lion share of the damages in issue.
For more information, please contact:
Veno Panicker | Special Counsel
T +61 2 8233 9552
F +61 2 8233 9555
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