Builder Not Liable to Subsequent Owner for Building Defects

The High Court has recently delivered its decision in Brookfield Multiplex (Multiplex). The case is an important decision about the extent to which a builder will be held liable for building defects to a person other than the party that they entered into the building contract with.

A duty of care is an obligation imposed by the common law on a person or class of persons to exercise reasonable care to avoid loss to another person. The question in Multiplex was whether the builder of a unit development should be found to have a duty to exercise reasonable care, in carrying out the building work under the contract with the developer, to avoid economic losses to subsequent owners of the completed building.

In a unanimous decision the High Court found that the builder did not owe a duty of care to the subsequent owner of the building.
The Court found that subsequent owners were not vulnerable and had other ways to protect their interests. The builder was not liable to compensate the present building owner for economic loss arising from building defects.

The decision will make it difficult for successful claims to be bought against builders of commercial property for rectification of defective building work other than where the claim is bought by the party that contracted the builder to carry out the work. In the case of residential property, subsequent owners have a level of protection under statutory schemes. In Queensland there are protections for residential home owners in the Queensland Building and Construction Commission Act. The High Court decision does not affect those statutory liabilities for
builders of residential property. The statutory protections are, however, generally more limited than a builders liability for breach of contract or negligence.

The decision does highlight the importance, in any purchase of property, of undertaking appropriate investigations to make sure that the building being purchased does not suffer from defects.

In the context of purchase of commercial buildings the decision also highlights the importance of including in the contract, special conditions assigning any rights that the seller may have against the builder, and perhaps also any other professionals involved in the building construction such as engineers or architects.