King & Wood Mallesons

Asia-Pacific 100 position: 2

NSW Court of Appeal finds defects duty

In a judgment dated 25 September 2013 in The Owners — Strata Plan No. 61288 v. Brookfield Australia Investments Ltd (2013) NSWCA 317, the NSW Court of Appeal has found that a builder owed a duty to exercise reasonable care in the construction of a building, to avoid causing an Owners’ Corporation to suffer loss resulting from latent defects in the common property which were structural, constituted a danger to persons or property in the vicinity or made those apartments uninhabitable. Along the way, the court found the builder owed a concurrent duty in tort to a developer with whom it had a detailed written building contract, although both were major, sophisticated corporations.

This is a surprising judgment, which will rightly concern the construction industry in Australia.

In Star of the Sea [2012] NSWSC 712, McDougall J had found that a builder did not owe a duty of care to an Owners’ Corporation in constructing a residential apartment block. At least part of the reasoning in Star of the Sea was that parliament had legislated in the Home Building Act (NSW) for a system of warranties to protect residential owners from defects…

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1 Farrer Place
NSW 2000

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