NSW Builders Held Liable for Duty of Care Beyond Statutory Warranties of Home Building Act

It seems as though the duty of care issue is never cut and dry for Australian companies engaged in the construction business. One would think that following the guidelines of the HBA, or Home Building Act, would provide ample protection against litigation. But a recent decision by the New South Wales Court of Appeal says otherwise, and the effects across the industry could be huge.

The Court has ruled that Multiplex, a design/construction company, is to pay damages to investors that purchased a block of “serviced apartments” from the property development firm that originally contracted Multiplex to build the 21 story commercial project called the Chelsea Apartments at Chatswood.

The investors, who are the plaintiffs in this case, claim that Multiplex used inferior building materials, deviated from the blueprints, and provided sub-standard workmanship.

The defendant’s legal team argued that not only had they never entered into any direct contractual agreement with the plaintiff, but that furthermore they had not breached the Home Building Act as the project in question was commercial in nature and did not qualify under the Act’s definition of ‘dwelling’.

A reversal of fortunes.

During the initial proceedings, the Court sided with Multiplex’s assertion that they could not be held liable under the HBA.

His Honour McDougall J reasoned that the terms of the HBA were clearly laid out by the legislature, and that ignoring the stipulation that “the HBA should not be extended to those who construct, for commercial rather than purely residential purposes” would be inviting the courts to override the clear intent of the legislature.

Unfortunately for Multiplex, the Court of Appeals disagreed with his Honour’s point of view.

It all comes down to ‘vulnerability’.

Several errors were cited as the Court of Appeal reversed the initial decision and found Multiplex to be liable.

A key issue in their rationale had to do with the concept of vulnerability. In legal terms, vulnerability relates to whether or not the defendant had a reasonable influence over the event that caused rise to the loss.

Because the purchasers of the apartments had neither the opportunity to negotiate a contract directly with Multiplex nor the ability to obtain insurance, the Court ruled that they were indeed ‘vulnerable’ to loss.

You might be wondering why the developer is not responsible for any damages as they were the ones selling the apartments in question. The Court reasoned that they were not liable because it is not reasonable or cost-effective to require a developer to inspect every detail of a builder’s work prior to selling on a property.

Therefore, since Multiplex owed a duty of care to the developer, this duty of care would transfer on to the purchaser, even if the developer had never raised any complaints with the builder’s work.

Furthermore, the court stated that Multiplex’s exclusion from the statutory warranty clause of the HBA did not limit liability in terms of common law duty of care. The court was satisfied with the plaintiff’s proof that the builder had deviated from the design plans and used inferior building materials than those detailed in their agreement with the developer.

If you’re a builder, this is important news, and you’d better get protected.

It remains to be seen how far the fallout from this case will reach. It is more than possible that further extensions of duty of care will be seen not only in NSW, but across the nation.

One thing is for certain. The court has ruled that if the responsibility for duty of care has been established with a developer, then this same duty of care will transfer down the line to a buyer if it is the intention of the developer to sell on the property once construction has finished.

Even in cases where the statutory warranties of the HBA do not apply, a builder can still be at risk.

Legal advisers involved with the case warn that in light of the verdict, builders must consider protecting themselves against defects which could arise outside of the defects liability period.

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