Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288

HIGH COURT OF AUSTRALIA

FRENCH CJ,
HAYNE, CRENNAN, KIEFEL, BELL, GAGELER AND KEANE JJ

BROOKFIELD MULTIPLEX LTD  APPELLANT

AND

OWNERS CORPORATION STRATA PLAN 61288
& ANOR  RESPONDENTS

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288

[2014] HCA 36

8 October 2014

S66/2014

ORDER

1.Appeal allowed.

2.Set aside the order of the Court of Appeal of the Supreme Court of New South Wales made on 25 September 2013 and, in its place, order that the appeal to that Court be dismissed with costs.

3.Special leave to cross-appeal granted.

4.Cross-appeal treated as instituted and heard instanter and dismissed with costs.

5.First respondent to pay the appellant's costs of the appeal.

On appeal from the Supreme Court of New South Wales

Representation

D F Jackson QC with T J Breakspear for the appellant (instructed by Gilbert + Tobin Lawyers)

F Corsaro SC with P J Bambagiotti for the first respondent (instructed by Grace Lawyers Pty Ltd)

Submitting appearance for the second respondent

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288

Negligence – Duty of care – Pure economic loss – Strata-titled apartment complex constructed pursuant to contract between builder and developer – Apartments sold pursuant to standard form contract of sale – Contracts conferred rights to have defects remedied – Latent defects in common property – Owners corporation for strata scheme claimed damages from builder for pure economic loss – Whether builder owed owners corporation a duty of care – Relevance of inquiry into whether builder owed anterior duty of care to developer.

Words and phrases – "assumption of responsibility", "common property", "disconformity of obligations", "proximity", "pure economic loss", "reliance", "vulnerability".

FRENCH CJ.

Introduction

1. The Court of Appeal of New South Wales held that the builder of strata-titled serviced apartments on land at Chatswood owed a duty of care to the owners corporation to avoid causing it to suffer loss resulting from latent defects in the common property which were structural or constituted a danger to persons or property in the vicinity or made the apartments uninhabitable[1].  An owners corporation is created by statute whenever a strata plan is registered.  The common property is vested in it as manager of the strata scheme and as "agent" for the owners of the apartments.  In this case, the owners corporation ("the Corporation") is the first respondent.  The serviced apartments were incorporated in levels one to nine of a 22 storey development[2].  The apartments had been built under a design and construct contract made in November 1997 between the appellant, Brookfield Multiplex Ltd ("Brookfield"), and the registered proprietor of the land and property developer, Chelsea Apartments Pty Ltd ("Chelsea").  All of the apartments were subject to leases given by Chelsea to Park Hotel Management Pty Ltd ("Park Hotel"), a subsidiary of the Stockland Trust Group ("Stockland"), which was to operate them collectively as a serviced apartment hotel under the "Holiday Inn" brand. 

   [1]The Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479.

   [2]The balance of the development comprised residential apartments which are the subject of a separate strata scheme and a different owners corporation.

2. The principal question raised on this appeal from the decision of the Court of Appeal is whether Brookfield owed the Corporation a duty to exercise reasonable care in the construction of the building to avoid causing the Corporation to suffer pure economic loss resulting from latent defects in the common property.  The Corporation has filed a notice of contention asserting, contrary to the conclusion of the Court of Appeal, that the duty owed to it was not contingent upon the existence of a similar duty of care owed to Chelsea.  The Corporation also seeks special leave to cross-appeal in relation to the limited ambit of the duty as defined by the Court of Appeal.

3. The contractual arrangements between Brookfield, Chelsea and Stockland had as their purpose the creation of a commercial venture which comprised serviced apartments to be operated collectively as a serviced apartment hotel.  The Corporation, a creature of statute, came into existence as the statutory agent of Chelsea, albeit controlled pursuant to the lease arrangements by the hotel operator.  The purchasers of individual apartments from Chelsea were effectively investors in the hotel venture.  The nature and content of the contractual arrangements, including detailed provisions for dealing with and limiting defects liability, the sophistication of the parties and the relationship of Chelsea to the Corporation all militate against the existence of the asserted duty of care to either Chelsea or the Corporation.  The appeal should be allowed.  Special leave to cross-appeal should be granted and the cross-appeal dismissed.

4. The text of relevant statutory and contractual provisions, the reasoning at first instance and the reasoning of the Court of Appeal are set out in the joint judgment of Crennan, Bell and Keane JJ.  Reference to the salient features of the statutory framework and the contractual arrangements appears later in these reasons.

   Procedural history

5. By summons issued out of the Supreme Court of New South Wales on 3 November 2008, the Corporation claimed from Brookfield the cost of rectifying alleged defects in the common property[3].  The claim was in negligence and depended upon the existence and breach of a relevant duty of care owed by Brookfield to the Corporation.

   [3]There was one other defendant, the second respondent in this Court, whose involvement is not material for present purposes.

6. On 10 October 2012, McDougall J delivered judgment on the separate question of the existence of a duty of care[4].  The alleged duty of care, as propounded by the Corporation, was a duty "to take reasonable care to avoid a reasonably foreseeable economic loss to the [Corporation] in having to make good the consequences of latent defects caused by the building's defective design and/or construction"[5].  His Honour held that the Corporation had not established that Brookfield owed it the duty of care alleged[6].  He made orders directing entry of judgment for the defendants and ordered the Corporation to pay their costs.  The Corporation appealed to the Court of Appeal. 

   [4]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219.

   [5]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [18].

   [6]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [109].

7. On 25 September 2013, the Court of Appeal allowed the appeal and set aside the orders made by McDougall J.  Their Honours answered the separate question thus[7]:

   "[Brookfield] owed the [Corporation] a duty to exercise reasonable care in the construction of the building to avoid causing the [Corporation] to suffer loss resulting from latent defects in the common property vested in the [Corporation], which defects (a) were structural, or (b) constituted a danger to persons or property in, or in the vicinity of, the serviced apartments, or (c) made those apartments uninhabitable."

   Brookfield appeals to this Court by special leave granted on 14 March 2014[8].

   [7]The Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 510 [132] per Basten JA, Macfarlan JA agreeing at 511 [133], Leeming JA agreeing at 512 [139].

   [8][2014] HCATrans 052 (French CJ and Crennan J).

   The questions

8. The appeal raises two questions:

   1.Did Brookfield owe a duty of care to the Corporation independently of the existence of a duty of care owed to Chelsea, and, if so, what was its content?

   2.Did Brookfield owe a duty of care to Chelsea and thereby a similar duty of care to the Corporation, and, if so, what was its content?

   As appears from the reasons that follow, the interaction between the statutory scheme and the contractual matrix causes the two questions to converge.  It requires a negative answer to both.  An outline of the statutory and contractual arrangements follows. 

   The strata schemes statutes

9. Under strata schemes laws in New South Wales, a parcel of land, including any building or buildings which comprise part of it, can be subdivided into lots in accordance with a strata plan[9]. A strata plan for freehold lots is registered in the office of the Registrar-General pursuant to s 8 (read with s 5(1)) of the Strata Schemes (Freehold Development) Act 1973 (NSW) ("the Strata Freehold Act"). Common property is so much of a parcel as is not comprised in any lot[10].  Under the Strata Schemes Management Act 1996 (NSW) ("the Strata Management Act"), the owners of the lots from time to time in a strata scheme constitute a body corporate designated "The Owners—Strata Plan No X", where "X" is the registered number of the strata plan to which that strata scheme relates[11].  The owners corporation comes into existence upon registration of the strata plan[12]. The Corporation came into existence on 11 November 1999. An owners corporation has the functions conferred upon it by the Strata Management Act or any other Act[13].  The common property is vested in it[14].  It holds its estate or interest as "agent" for the proprietor or proprietors of the lots[15].  If different persons are proprietors of each of two or more lots, it holds the common property as agent for the proprietors as tenants in common in shares proportional to the unit entitlements of the respective lots[16].  The content of the term "agent" is to be derived from the statutory functions conferred upon the owners corporation. 

   [9]Strata Schemes (Freehold Development) Act 1973 (NSW), s 7.

   [10]Strata Freehold Act, s 5(1).

   [11]Strata Management Act, s 11(1). The body corporate constituted under s 11 is referred to as an owners corporation elsewhere in the Act: see s 8 and the Dictionary definition of "owners corporation" in the Strata Management Act.

   [12]Strata Management Act, s 8(1).

   [13]Strata Management Act, s 12.

   [14]Strata Freehold Act, s 18.

   [15]Strata Freehold Act, s 20.

   [16]Strata Freehold Act, s 20(b).

10. The interest of a lot owner in the common property has been characterised by the Supreme Court of New South Wales as an equitable interest as a tenant in common with other lot owners[17].  On that basis, the owners corporation has been described as holding the common property "as trustee for all the lot proprietors in proportion to their unit entitlements"[18].  Leeming JA in the Court of Appeal also referred to the relationship as "analogous to trustee and beneficiary"[19].  That cautious description may avoid attachment to the functions of the Corporation of the full panoply of equitable and statutory incidents of the trust relationship.  In any event, the characterisation of the Corporation as a trustee or an analogue of a trustee was not in dispute before the Court of Appeal or in this appeal[20]. 

    [17]Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 56 per Handley JA, Mason P agreeing at 48, Beazley JA agreeing at 60; Young v Owners — Strata Plan No 3529 (2001) 54 NSWLR 60 at 64 [14] per Santow J; Lin v The Owners — Strata Plan No 50276 (2004) 11 BPR 21,463 at 21,464 [7] per Gzell J.

    [18]Segal v Barel (2013) 84 NSWLR 193 at 209 [81] per Barrett JA, McColl JA agreeing at 195 [1], Preston CJ of LEC agreeing at 218 [140].

    [19]The Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 512 [142].

    [20]The Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 498 [74]–[76] per Basten JA.

11. The owners corporation has a statutory duty to properly maintain the common property and keep it in a state of good and serviceable repair[21].  It must renew or replace any fixtures or fittings comprised in the common property[22].  Those duties do not apply to a particular item of property if the owners corporation, by special resolution, determines that it is inappropriate to do any of those things[23], albeit that exemption does not apply if the safety of any building, structure or common property is affected or the appearance of any property in the strata scheme detracted from[24].  The duties of the owners corporation do not depend upon whether someone was to blame for the common property being other than in a state of good and serviceable repair.  As the primary judge correctly observed[25]:

    "The duty to maintain and repair common property is not limited by reference to the source of the problem that gives rise to the need for maintenance or [repair].  The duty will extend, in an appropriate case, even to the rectification of defective work left unrectified by the builder."

    Generally speaking, funding for repairs and maintenance of the common property must come from the lot proprietors by way of levies.  The owners corporation must establish an administrative fund and a sinking fund and can, and in some circumstances must, impose a levy so that it can meet particular maintenance and repair obligations[26].  Insurance payments, damages awards and negotiated settlements with persons said to be liable for damages for defects in the common property comprise other obvious sources of funding.

    [21]Strata Management Act, s 62(1).

    [22]Strata Management Act, s 62(2).

    [23]Strata Management Act, s 62(3)(a).

    [24]Strata Management Act, s 62(3)(b).

    [25]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [64].

    [26]Strata Management Act, ss 66–71, 75–76 and 78.

12. The connection between the Corporation and Chelsea, created by the Strata Management Act and Strata Freehold Act, was said in argument to be relevant to the question whether the Corporation was "vulnerable" with respect to economic loss arising from latent defects in the common property caused by Brookfield's alleged lack of care. As appears from these reasons, the Corporation's statutory relationship to Chelsea and subsequent purchasers of the lots is a circumstance which, taken with the contractual arrangements described below, militates against a finding of vulnerability supportive of the existence of a duty of care.

    The Deed of Master Agreement

13. The working of the statutory relationship between the Corporation on the one hand and Chelsea and the purchasers of the apartments on the other was affected by the provisions of a Deed of Master Agreement made between Chelsea and Stockland.  Under the Master Agreement, the apartments were to be leased to Park Hotel and operated collectively as a serviced apartment hotel under the "Holiday Inn" brand[27].  Under the leases, Park Hotel was to acquire Chelsea's rights, in effect, to direct the operation of the Corporation.  Individual purchasers of the apartments were to acquire their interests subject to the leases to the operator[28].  The leases required that the owners yield their voting rights in the Corporation to the operator by appointing it as their proxy[29].  In the Master Agreement, Chelsea provided detailed warranties to Stockland in relation to the quality of the building work[30].

    [27]Master Agreement, cll 9.1, 10 and 25.4(a).

    [28]Standard form contract, cl 53.2.  The leases were each for a term of 10 years commencing 10 November 1999, with options to renew for two further successive terms of five years each.

    [29]Lease agreement, cl 19; see also Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [36]–[37]. Stockland's interest in Park Hotel was subsequently sold to the Mantra Group and the apartments became known as the "Mantra Chatswood". Nothing turns on that for the purposes of this appeal.

    [30]Master Agreement, cll 5.2, 6.1 and 9.9.

    The design and construct contract

14. The design and construct contract between Brookfield and Chelsea was made on 5 November 1997.  The contract sum was $57,539,000.  The contract contained detailed provisions relating to the quality of the services to be provided by Brookfield[31].  It imported the Australian Standard General conditions of contract for design and construct AS 4300-1995.  It is not in dispute that Brookfield and Chelsea were experienced and sophisticated entities negotiating on an equal footing and at arms length.  The contract contemplated the sale of the apartments to individual investors and annexed a standard form contract of sale to such investors.  Brookfield was required to register the strata plan by 31 March 2000.

    [31]Design and construct contract, cll 4.1 and 30.1.

15. There was provision in the contract for a Defects Liability Period of 52 weeks, which commenced upon practical completion[32].  A Final Certificate would stand as evidence that the Works had been completed in accordance with the contract[33].  An exception was made in cl 42.6(b) for:

    "any defect (including omission) in the Works or any part thereof which was not apparent at the end of the Defects Liability Period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the Final Certificate".

    The contract also contained an express provision requiring Brookfield to maintain professional indemnity insurance with a run-off period of four years after issue of the Final Certificate[34].

    [32]Design and construct contract, cl 37 read with Annexure PtA, item 44.

    [33]Design and construct contract, cl 42.6. 

    [34]Design and construct contract, cl 21 read with Annexure Pt A, item 32.

    The standard form contract of sale

16. The standard form contract of sale to purchasers of the apartments, annexed to the design and construct contract, required Chelsea to cause the property and "the Common Property" to be finished in accordance with the schedule of finishes and "in a proper and workmanlike manner" before completion[35].  Chelsea was obliged to repair defects or faults in the common property due to faulty materials or workmanship of which written notice was served on it by the Corporation within seven months after the date of registration of the strata plan[36].  Notice of Special Faults, which were structural or required urgent attention or might cause danger to persons in the property or made the property uninhabitable, could be served by a purchaser[37].

    [35]Standard form contract, cl 32.1.

    [36]Standard form contract, cl 32.7.

    [37]Standard form contract, cll 23.1, 32.5 and 32.6.

17. Basten JA said in his judgment in the Court of Appeal that there were no specific provisions in any of the contractual arrangements between Brookfield and Chelsea, and Chelsea and the purchasers of the lots, dealing with latent defects or limiting liability with respect to such defects[38].  There was, however, the qualification in cl 42.6(b) of the design and construct contract on the effect of the Final Certificate with respect to defects not apparent at the end of the Defects Liability Period.

    [38]The Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 496 [68].

    The nature of the defects

18. It was conceded before the primary judge that it was reasonably foreseeable, at the time of construction, that if there were defects in the building, some of them might be latent at the time of registration of the strata plan[39].  His Honour observed that if the defects alleged by the Corporation existed, then many of them would properly be characterised as latent defects not readily detectable by any reasonable process of inspection[40].  So much can be assumed for present purposes.  The question whether the defects existed and were latent and/or structural and/or dangerous would be a matter to be determined at trial if the appeal were to be dismissed.

    [39]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [67].

    [40]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [71]. The defects alleged related, inter alia, to the failure to hot-dip galvanised steel lintels, the failure to properly fabricate and coat sheet metal cowlings above certain windows to the exterior of the building and the defective installation of picture windows and a spa.

    The duty of care

19. The existence of a relevant duty of care is a necessary condition of liability in negligence.  As this Court said in Sullivan v Moody[41]:

    "A defendant will only be liable, in negligence, for failure to take reasonable care to prevent a certain kind of foreseeable harm to a plaintiff, in circumstances where the law imposes a duty to take such care."

    [41](2001) 207 CLR 562 at 576 [42]; [2001] HCA 59.

20. Historically, duties of care were attached to particular categories of relationships.  The search for "some larger proposition" covering differing sets of circumstances was foreshadowed by Brett MR in Heaven v Pender[42].  Later, as Lord Esher MR, in Le Lievre v Gould[43], he introduced what Lord Atkin characterised in Donoghue v Stevenson as a "notion of proximity" underpinning the existence of a duty of care.  That "doctrine" was said by Lord Atkin to be reflected in his famous description of the "neighbour" in law to whom a duty of care is owed[44].  His generalisation, as refined in later decisions bearing with them the metaphor of "proximity", was restated in Wyong Shire Council v Shirt[45]:

    "prima facie a duty of care arises on the part of a defendant to a plaintiff when there exists between them a sufficient relationship of proximity, such that a reasonable man in the defendant's position would foresee that carelessness on his part may be likely to cause damage to the plaintiff".

    [42](1883) 11 QBD 503 at 509.

    [43][1893] 1 QB 491 at 497.

    [44][1932] AC 562 at 580–581.

    [45](1980) 146 CLR 40 at 44 per Mason J, Stephen J agreeing at 44, Aickin J agreeing at 50; [1980] HCA 12.

21. An extended concept of proximity was adopted in this Court as a criterion of the existence of a duty of care in the 1980s and until the beginning of this century[46].  It was used to identify categories of cases in which a duty of care arose under the common law of negligence, rather than as a test for determining whether the circumstances of a particular case brought it within such a category[47].  It was invoked in 1995 in Bryan v Maloney[48], in which the Court held that the builder of a dwelling house owed a duty of care to a subsequent purchaser of the house, a breach of which, by careless construction giving rise to latent defects, would support an action in negligence for economic loss.  Thereafter it became a metaphor under threat.  McHugh J in Perre v Apand Pty Ltd[49] regarded it as already despatched[50].  In Sullivan v Moody, it was put to rest by the whole Court, which observed that despite its centrality for more than a century[51]:

    "it gives little practical guidance in determining whether a duty of care exists in cases that are not analogous to cases in which a duty has been established".

    That was not to say, and the Court did not say, that its application in previous cases such as Bryan v Maloney, which was of a classificatory and conclusionary character, falsified the underlying judgments that the circumstances said to be indicative of "proximity" gave rise to a duty of care.  As Basten JA observed in the Court of Appeal, "the factors which were apt to be included" in "the concept of 'proximity' as a touchstone of the existence of a duty of care ... remain relevant"[52].

    [46]Wyong Shire Council v Shirt (1980) 146 CLR 40 at 44 per Mason J, Stephen J agreeing at 44, Aickin J agreeing at 50; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 355 per Gibbs CJ, Mason, Wilson and Dawson JJ; [1986] HCA 68; Cook v Cook (1986) 162 CLR 376 at 381–382 per Mason, Wilson, Deane and Dawson JJ; [1986] HCA 73; Gala v Preston (1991) 172 CLR 243 at 252–253 per Mason CJ, Deane, Gaudron and McHugh JJ; [1991] HCA 18; Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 542–543 per Mason CJ, Deane, Dawson, Toohey and Gaudron JJ; [1994] HCA 13.

    [47]Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 543 per Mason CJ, Deane, Dawson, Toohey and Gaudron JJ.

    [48](1995) 182 CLR 609; [1995] HCA 17.

    [49](1999) 198 CLR 180; [1999] HCA 36.

    [50](1999) 198 CLR 180 at 209–210 [74] referring to Hill v Van Erp (1997) 188 CLR 159 at 176–177 per Dawson J, 210 per McHugh J, 237–239 per Gummow J; [1997] HCA 9 and Pyrenees Shire Council v Day (1998) 192 CLR 330 at 414 per Kirby J; [1998] HCA 3.

    [51](2001) 207 CLR 562 at 578 [48].

    [52]The Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 486 [24].

22. Abstracting the reference to proximity in Bryan v Maloney, the decision adverted to factors adverse to the recognition of a duty of care for pure economic loss other than in special cases.  The special cases would commonly, but not necessarily, involve an identified element of known reliance or dependence on the part of the plaintiff, or the assumption of responsibility by the defendant, or a combination of the two[53].  The contract between the prior owner and the builder in that case was "non-detailed and contained no exclusion or limitation of liability"[54].  The subsequent owner would ordinarily be unskilled in building matters and inexperienced in the niceties of real property investment.  Any builder should be aware that such a subsequent owner would be likely to assume that the building had been competently built and that the footings were adequate[55].  Those considerations may be seen as elements of the notion of "vulnerability", which has become an important consideration in determining the existence of a duty of care for pure economic loss.  In this context, it refers to the plaintiff's incapacity or limited capacity to take steps to protect itself from economic loss arising out of the defendant's conduct[56].

    [53](1995) 182 CLR 609 at 619 per Mason CJ, Deane and Gaudron JJ.

    [54](1995) 182 CLR 609 at 622 per Mason CJ, Deane and Gaudron JJ.

    [55](1995) 182 CLR 609 at 627 per Mason CJ, Deane and Gaudron JJ.

    [56]Perre v Apand Pty Ltd (1999) 198 CLR 180 at 225 [118] per McHugh J; see also Stapleton, "Comparative Economic Loss: Lessons from Case-Law-Focused 'Middle Theory'", (2002) 50 UCLA Law Review 531 at 554–561.

23. It is in relation to vulnerability that there is a sharp distinction between Bryan v Maloney and the present case.  That distinction is analogous to that made in the subsequent decision of this Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[57], which is discussed below.  Before turning to Woolcock, the point should be made that there are special features of the present case, generated by the contractual and statutory matrix in which the duty of care is asserted, that give it an element of novelty not overcome by a straightforward application of precedent.

    [57](2004) 216 CLR 515; [2004] HCA 16.

24. This Court in Sullivan v Moody eschewed any attempt at formulating a general test for determining the existence or non-existence of a duty of care for the purposes of the law of negligence.  As the Court said, different classes of case raise different problems, requiring "a judicial evaluation of the factors which tend for or against a conclusion, to be arrived at as a matter of principle"[58].  The development of the law of negligence had revealed "the difficulty of identifying unifying principles that would allow ready solution of novel problems"[59]. 

    [58](2001) 207 CLR 562 at 579–580 [50].

    [59](2001) 207 CLR 562 at 580 [53].

25. Much legal reasoning in relation to novel cases can proceed by way of analogy, as McHugh J pointed out in Crimmins v Stevedoring Industry Finance Committee[60].  The advantage of the analogical approach appears from an observation by Professor Cass Sunstein quoted by McHugh J[61]:

    "[A]nalogical reasoning reduces the need for theory-building, and for generating law from the ground up, by creating a shared and relatively fixed background from which diverse judges can work.  Thus judges who disagree on a great deal can work together far more easily if they think analogically and by reference to agreed-upon fixed points."

    Reasoning by analogy should be conducive to coherence in the development of the law.  Concerns about coherence may also inform the determination of the existence or non-existence of a duty of care in particular classes of case.  As the Court said in Sullivan v Moody, the problems in determining the duty of care[62]:

    "may [sometimes] concern the need to preserve the coherence of other legal principles, or of a statutory scheme which governs certain conduct or relationships".

    [60](1999) 200 CLR 1 at 32 [73]; [1999] HCA 59.

    [61](1999) 200 CLR 1 at 33 [74] citing Sunstein, One Case at a Time:  Judicial Minimalism on the Supreme Court, (1999) at 42–43.

    [62](2001) 207 CLR 562 at 579–580 [50].

26. The reference to analogical reasoning directs attention to the decision in Woolcock.  This Court held that an engineering company, which had designed inadequate foundations for a warehouse and office complex resulting in subsequent structural damage, did not owe a duty of care in respect of economic loss suffered by a subsequent purchaser of the complex.  The case came to the Court on appeal from a decision of the Court of Appeal of the Supreme Court of Queensland, which had decided the matter on a case stated to that Court from a single judge[63].  It was decided on a restricted set of agreed and pleaded facts.

    [63]Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2002) Aust Torts Reports ¶81-660.

27. Bryan v Maloney was held not to support the plaintiff's claim.  On the agreed and pleaded facts in Woolcock, the prior owner had exercised control over geotechnical investigations carried out by the engineering company[64].  There was no allegation of any assumption of responsibility by the engineering company or of known reliance by the prior owner[65].  There was no duty of care owed to the prior owner[66]. 

    [64](2004) 216 CLR 515 at 531–532 [25] per Gleeson CJ, Gummow, Hayne and Heydon JJ.

    [65](2004) 216 CLR 515 at 532 [26] per Gleeson CJ, Gummow, Hayne and Heydon JJ.

    [66](2004) 216 CLR 515 at 532 [27] per Gleeson CJ, Gummow, Hayne and Heydon JJ.

28. In Bryan v Maloney, the existence of an anterior duty of care to the prior owner was supportive of a duty of care to the subsequent purchaser.  Its existence overcame a "policy" concern that liability to the subsequent purchaser would be inconsistent with the defendant's legitimate pursuit of its freedom to protect its own financial interests by limiting its liability to the prior owner[67].  The building contract had left the way open for concurrent tortious liability to the prior owner.  There was no disconformity, therefore, between the duty owed by the builder to the first owner and the duty asserted by the subsequent purchaser[68].  This Court in Woolcock did not decide whether such a disconformity would always deny the existence of a duty of care to a subsequent purchaser[69].  There is no reason to regard the existence, or non-existence, of an anterior duty of care to a prior owner as more than an important factor relevant to the existence of a duty of care in respect of pure economic loss to a subsequent purchaser.

    [67](1995) 182 CLR 609 at 623–624 per Mason CJ, Deane and Gaudron JJ.

    [68](1995) 182 CLR 609 at 665 per Toohey J.

    [69](2004) 216 CLR 515 at 533 [30] per Gleeson CJ, Gummow, Hayne and Heydon JJ.

29. The question whether the plaintiff in Woolcock was vulnerable, so as to attract a duty of care, could not be answered definitively in that case.  The agreed and pleaded facts were insufficient to demonstrate vulnerability.  Specifically[70]:

    •It was not shown that the plaintiff could not have protected itself against the economic loss which it suffered.

    •No warranty of freedom from defect was included in the contract entered into by the plaintiff in purchasing the complex.

    •There was no assignment to the plaintiff by the prior owner of the prior owner's rights in respect of any claim for defects.

    •There was nothing to demonstrate what could have been done to cast on to the engineering company the burden of the economic consequences of any negligence by it.

    •There was nothing about whether the plaintiff could have obtained the benefit of terms of that kind in the contract.

    In the end, Woolcock was not a "special" case in the sense in which that term was used in Bryan v Maloney.

    [70](2004) 216 CLR 515 at 533 [31] per Gleeson CJ, Gummow, Hayne and Heydon JJ.

30. The present appeal falls for decision against a background of prior decisions about classes of case in which a person performing a contract may have a concurrent duty of care to another contracting party, classes of case in which a party to a contract may owe a duty of care to a person who is not a party to the contract, classes of case involving pure economic loss, and classes of case in which the careless performance of a building contract has left latent defects in the building and thereby caused economic loss to a subsequent purchaser.  Those decisions interact with each other but none is precisely applicable in this case.  Consistently with the approach taken in Woolcock and, before that, in Bryan v Maloney, the determination of this appeal requires consideration of the salient features of the relationship between the Corporation and Brookfield, including whether Brookfield owed Chelsea a relevant duty of care and whether the Corporation was vulnerable in the sense discussed above.

    Whether Brookfield owed a duty of care to the Corporation

31. When Brookfield entered into the design and construct contract with Chelsea, Chelsea was the owner of the parcel of land upon which the apartment block was to be constructed. It remained the registered proprietor of that parcel until it was subdivided into lots and common property when the strata plan was registered by Brookfield in November 1999. Upon that registration, the Corporation came into existence and became the legal owner of the common property. It had no contractual relationship with Brookfield or with Chelsea. Nevertheless, it held the common property as agent for Chelsea within the meaning of the Strata Freehold Act. It was effectively subject to Chelsea's control, albeit Chelsea's controlling rights and those of its successors in title to the strata lots were ceded to Park Hotel under the prior leasing arrangements.

32. The Corporation had a function under the standard form contract of sale whereby it could, within seven months of registration of the strata plan, serve written notice of defects or faults in the common property on Chelsea which would enliven Chelsea's contractual obligation to the lot owners to repair such defects and faults.  No doubt control of the Corporation, which was effectively conferred on Park Hotel by the leases from the lot owners, enabled Park Hotel to require the Corporation to issue such notices.  Chelsea, as initial owner of all of the lots, was at the outset the directing mind of the Corporation, albeit it had delegated its powers of direction to Park Hotel.  The Corporation was controlled by Chelsea and Park Hotel, who were party to and therefore can be taken to have been fully apprised of the contractual arrangements and in particular the extent and limits of Brookfield's obligations and liabilities in relation to defects in the common property.  

33. The responsibility assumed by Brookfield with respect to Chelsea, as initial owner of the lots, was defined in detail by the design and construct contract.  Chelsea cannot be taken to have relied upon any responsibility on the part of Brookfield, and Brookfield assumed none, in relation to pure economic loss flowing from latent defects extending beyond the limits of the responsibility imposed on it by the contract.  The statutory relationship between the Corporation and Chelsea as first owner meant that there was no duty of care owed to the Corporation as a proxy for Chelsea.  The question that follows is whether there was a duty of care owed to the Corporation by virtue of its relationship to subsequent purchasers from Chelsea.

34. The purchasers of lots from Chelsea were effectively investors in a hotel venture under standard form contracts which were an integral part of the overall contractual arrangements.  The standard form contract contained specific provisions relating to the construction of the building and Chelsea's obligations to undertake repairs.  Those provisions have already been mentioned.  This is not a case in which, for the purposes of the subsistence of a duty of care, the subsequent owners could be regarded as vulnerable.  Nor, therefore, could the Corporation as their statutory "agent".  The position of the subsequent owners and the interaction of the contractual and statutory frameworks are antithetical to the proposition that Brookfield owed the Corporation the duty of care found to exist by the Court of Appeal.

35. Against that background, the relationship between Brookfield and the Corporation is not analogous to the relationship in Bryan v Maloney between the builder of a dwelling house and the downstream, arms-length purchaser of the house, who suffered economic loss by reason of latent defects in the construction.  It is analogous, although not identical, to the position of the purchaser of the complex in Woolcock. 

36. There was no duty of care in respect of pure economic loss flowing from latent defects owed by Brookfield to Chelsea.  Nor was there a duty of care owed by Brookfield to the subsequent owners.  There was therefore no duty of care owed to the Corporation.  That conclusion means that the appeal must be allowed.  It is fatal to the notice of contention and to the proposed cross-appeal.  In so holding, I would also wish to associate myself with the observation by Hayne and Kiefel JJ that that conclusion does not depend upon any a priori assumption about the proper provinces of contract and tort.

    Conclusion

37. The following orders should be made:

    1.        Appeal allowed.

    2.Set aside the order of the Court of Appeal of the Supreme Court of New South Wales made on 25 September 2013 and, in its place, order that the appeal to that Court be dismissed with costs. 

    3.        Special leave to cross-appeal granted.

    4.Cross-appeal treated as instituted and heard instanter and dismissed with costs.

    5.First respondent to pay the appellant's costs of the appeal.

    HAYNE AND KIEFEL JJ.

    The issue

38. The first respondent ("the Owners Corporation") claimed damages from the appellant ("the builder").  The Owners Corporation alleged that the builder owed it a duty of care in carrying out certain building works on land at Chatswood, New South Wales.  The Owners Corporation alleged that, because the builder had breached that duty of care, the building had various latent defects in common property vested in the Owners Corporation and that, as a result, the Owners Corporation had suffered loss and damage.  The Owners Corporation particularised that loss and damage as the cost of rectifying the defects and "the diminished value to the Building and the loss of rents and income during the period of and due to the rectifying of the defects".

39. Did the builder owe the Owners Corporation the alleged duty of care?

    The decisions below and the appeal to this Court

40. In the Supreme Court of New South Wales, McDougall J held[71] that the builder did not owe the alleged duty and entered judgment for the builder.  On appeal, the Court of Appeal of the Supreme Court of New South Wales held[72] that the builder owed the Owners Corporation "a duty to exercise reasonable care in the construction of the building to avoid causing [the Owners Corporation] to suffer loss resulting from latent defects in the common property vested in [the Owners Corporation], which defects (a) were structural, or (b) constituted a danger to persons or property in, or in the vicinity of, the serviced apartments, or (c) made those apartments uninhabitable".

    [71]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219.

    [72]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 510 [132].

41. By special leave the builder appeals to this Court.  The Owners Corporation applies for special leave to cross‑appeal seeking orders providing for a larger duty of care than that found by the Court of Appeal.  The builder's appeal should be allowed with costs.  The orders of the Court of Appeal should be set aside and the appeal to that Court dismissed with costs.  The Owners Corporation should have special leave to cross‑appeal but the cross‑appeal should be dismissed with costs.

    The essential facts

42. The building works were to construct "a mixed use retail, restaurant, residential and serviced apartments building" on the land.  The builder undertook these works under a "design and construct" contract it made with a developer:  Chelsea Apartments Pty Ltd ("the developer").  The contract obliged the builder to construct the building in general accordance with detailed plans and specifications for a contract price of more than $57 million.  The contract incorporated detailed provisions regulating the performance and superintendence of the work.  The contract provided for certain warranties by the builder about the work and for the builder to remedy defects or omissions in the work.  It provided that the issue of a "final certificate" under the contract was evidence, subject to specified exceptions, that the works had been completed in accordance with the contract.

43. Before a final occupation certificate was granted by the relevant municipal council, a strata plan was registered in relation to that part of the building which was to be used for serviced apartments.  Initially, the developer owned the lots in the strata scheme.  The lots were later sold by the developer to different proprietors under standard sale contracts, the form of which was fixed by agreement between the developer and the builder.  Those contracts obliged the developer, as vendor, to "cause the Building to be constructed in a proper and workmanlike manner" and made detailed provision about the repair of defects or faults (including defects or faults in the common property).

44. Upon registration of the strata plan, the Owners Corporation was created by operation of law[73].  The owners of the lots from time to time in the strata scheme constitute[74] a body corporate under the name of the Owners Corporation.  The estate or interest of that body corporate in the common property is held[75] by the Owners Corporation as agent for the owner or owners of the lots the subject of the strata scheme.  Initially, the Owners Corporation held the common property as agent for the developer as the owner of all of the lots.  Now that the lots are owned by different proprietors, the Owners Corporation holds the common property as agent for those proprietors as tenants in common in shares proportional to their unit entitlements[76].  The Owners Corporation is bound[77] to properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the Owners Corporation and to renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the Owners Corporation.

    [73]Strata Schemes Management Act 1996 (NSW), s 8(1).

    [74]Strata Schemes Management Act 1996 (NSW), s 11(1).

    [75]Strata Schemes (Freehold Development) Act 1973 (NSW), s 20.

    [76]Strata Schemes (Freehold Development) Act 1973 (NSW), s 20(b).

    [77]Strata Schemes Management Act 1996 (NSW), s 62.

    The damage

45. There may be a real and lively debate about whether the Owners Corporation itself suffered any loss as a result of defects in the common property.  The better view may be that any loss constituted or occasioned by defects in the common property was suffered by the owners of the lots for whom the Owners Corporation held the common property as "agent"[78].  It is not necessary, however, to pursue that question. 

    [78]cf Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co‑operative Assurance Co of Australia Ltd (1931) 46 CLR 41 at 50 per Dixon J; [1931] HCA 53, observing the difficulties created by the many senses in which the word "agent" is employed.

46. Nor is it necessary to explore what follows from observing that, at the time the builder is alleged not to have taken reasonable care in the execution of the building works, the Owners Corporation did not exist.  It is convenient to assume, without deciding, that nothing turns on this observation.  It is sufficient to instead focus on whether the builder owed a duty of care to a subsequent owner of part of the building.

47. The nature of the damage suffered is important to resolving the issue about duty of care.  The defects which the Owners Corporation identifies in the common property are not alleged to have caused any damage to person or property.  Steps can be taken, therefore, to prevent damage to person or property.  If the Owners Corporation has suffered damage, that damage is pure economic loss. 

    Duty of care to avoid pure economic loss?

48. Determination of whether, under the common law of Australia, the builder owed a duty of care to a subsequent owner of part of the building (in this case, the Owners Corporation) depends on applying the principles which have been established by the decisions of this Court.  Immediately, it requires close attention to what this Court decided in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[79].  No doubt Woolcock Street must be read and understood in the light of the Court's earlier decisions including, in particular, Bryan v Maloney[80].  No party suggested, however, that Woolcock Street should be reopened.  Hence, that decision must be the starting point for considering the issue in this appeal.

    [79](2004) 216 CLR 515; [2004] HCA 16.

    [80](1995) 182 CLR 609; [1995] HCA 17.

    Woolcock Street Investments Pty Ltd v CDG Pty Ltd

49. In Woolcock Street, six members of the Court held[81] that an engineering company which designed the foundations of a warehouse and office complex did not owe a subsequent purchaser of the building a common law duty of care to avoid economic loss.  That decision was reached recognising[82] that similar questions had been considered by the courts of other jurisdictions and resolved by applying principles about recovery for negligently inflicted pure economic loss which differ from those which this Court has held are to be applied in Australia. 

    [81](2004) 216 CLR 515 at 534 [35] per Gleeson CJ, Gummow, Hayne and Heydon JJ, 559‑560 [114]‑[116] per McHugh J, 586‑587 [208]‑[210] per Callinan J.

    [82](2004) 216 CLR 515 at 534 [34] per Gleeson CJ, Gummow, Hayne and Heydon JJ, 538‑541 [49]‑[55] per McHugh J, 593 [232] per Callinan J.

50. Four members of the Court observed[83] that the decision in Bryan v Maloney had depended upon an anterior demonstration that the builder owed a duty to take reasonable care to avoid economic loss to the original owner of the kind suffered by the subsequent purchaser.  And the plurality further observed[84] that in Woolcock Street there had been neither reliance by the original owner on, nor an assumption of responsibility by, the engineering company.  Hence, the plurality held[85] that the reasoning in Bryan v Maloney by which an original duty owed by the builder to the owner was extended to a subsequent purchaser did not apply.

    [83](2004) 216 CLR 515 at 531 [25] per Gleeson CJ, Gummow, Hayne and Heydon JJ.

    [84](2004) 216 CLR 515 at 532 [26].

    [85](2004) 216 CLR 515 at 532 [27].

51. The plurality founded[86] their conclusion that the engineering company did not owe the subsequent purchaser a duty of care on the proposition that the subsequent purchaser was not vulnerable to the economic consequences of the engineering company's negligence in designing the foundations.  In the context, vulnerability was said to refer[87] to a plaintiff's inability to protect itself from the defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.  It is the question of vulnerability which, consistent with the decision in Woolcock Street, must determine the outcome of this appeal. 

    [86](2004) 216 CLR 515 at 533 [31].

    [87](2004) 216 CLR 515 at 530 [23] per Gleeson CJ, Gummow, Hayne and Heydon JJ.

    Matters that need not be considered

52. Before dealing with the issue of vulnerability, two other aspects of the matter, mentioned in argument, should be noted but then put aside from consideration.

53. First, it is not useful to examine particular decisions made in other jurisdictions about the tortious liability of a builder for economic loss occasioned by the negligent construction of a building without recognising that those decisions necessarily reflect the particular ways in which those jurisdictions have developed and applied principles about recovery for negligently caused pure economic loss.  It was not submitted that this Court should revisit those principles as they have been developed by this Court.

54. Second, some argument was directed in this Court to the proper construction of the contract pursuant to which the builder built the building.  In particular, there was debate about three aspects of that contract:  the provisions which stated the builder's obligations; the provisions for superintendence of the work by a superintendent appointed by the developer; and the provisions about the defects liability period and the issuance of the final certificate.  In addition, argument was directed to the proper construction of the standard form agreements for purchase of lots in the relevant strata scheme.

55. It will not be necessary to pursue the arguments about the proper construction of these provisions to their conclusion.  It is enough to notice that the relevant parties made contracts for the construction of the building and for the subsequent sale of parts of the building which were contracts that could (and did) make provisions regulating the quality of what was to be received in return for payment of the price.  The making of those contracts denies vulnerability.  It is necessary to explain that conclusion.

    Vulnerability?

56. It may be assumed, without deciding, that the developer and the purchaser of a lot from the developer relied on the builder to do its work properly.  The purchaser of a lot could not check the quality of the builder's work as it was being done.  Perhaps the developer was in no different position.  (That would turn on what meaning is given to the superintendence provisions of the developer's contract with the builder.)  The Owners Corporation was in no better position to check the quality of the builder's work as it was being done than the original purchaser of a lot.  Because these parties could not check the quality of what the builder was doing, it can easily be said that each relied on the builder to do its work properly. 

57. Reliance, in the sense just described, may be a necessary element in demonstrating vulnerability, but it is not a sufficient element.  As noted earlier, vulnerability is concerned with a plaintiff's inability to protect itself from the defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. 

58. It is neither necessary nor profitable to attempt to define what would or would not constitute vulnerability.  It is enough to observe that both the developer and the original purchasers made contracts, including the standard contracts, which gave rights to have remedied defects in the common property vested in the Owners Corporation.  The making of contracts which expressly provided for what quality of work was promised demonstrates the ability of the parties to protect against, and denies their vulnerability to, any lack of care by the builder in performance of its contractual obligations.  It was not suggested that the parties could not protect their own interests[88].  The builder did not owe the Owners Corporation a duty of care.

    [88]cf Smith v Eric S Bush [1990] 1 AC 831; Stapleton, "Comparative Economic Loss: Lessons from Case‑Law-Focused 'Middle Theory'", (2002) 50 UCLA Law Review 531 at 555‑556.

    Contract and tort

59. The conclusion just expressed denies the existence of a duty of care.  The conclusion does not depend, however, upon making any a priori assumption about the proper provinces of the law of contract and the law of tort.  As McHugh J pointed out[89] in Woolcock Street, "[t]he decisions in Hedley Byrne [& Co Ltd v Heller & Partners Ltd[90]], Donoghue [v Stevenson[91]], White [v Jones[92]] and Hill [v Van Erp[93]] ... make it difficult to argue that claims in negligence for pure economic loss should be excluded merely because such claims may outflank or undermine fundamental doctrines of the law of contract".  And as McHugh J also observed[94], this Court rejected in Bryan v Maloney "the notion that in Australia contract and tort were so neatly compartmentalised that it would be an error to give a remedy in tort for economic loss".  That rejection manifests the necessary premise for earlier decisions of this Court about liability for pure economic loss, such as Mutual Life & Citizens' Assurance Co Ltd v Evatt[95], as well as later decisions like Perre v Apand Pty Ltd[96].  

    [89](2004) 216 CLR 515 at 552 [92].

    [90][1964] AC 465.

    [91][1932] AC 562.

    [92][1995] 2 AC 207.

    [93](1997) 188 CLR 159; [1997] HCA 9.

    [94](2004) 216 CLR 515 at 552 [92].

    [95](1968) 122 CLR 556; [1968] HCA 74. See, on appeal, Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628; [1971] AC 793.

    [96](1999) 198 CLR 180; [1999] HCA 36.

60. Nor does the conclusion about absence of vulnerability depend upon detailed analysis of the particular content of the contracts the parties made.  As in Woolcock Street[97], it is not necessary to decide in this case whether disconformity[98] between the obligations owed to the original owner under the contract and the duty of care allegedly owed to the subsequent owner would necessarily deny the existence of that duty.  It may again be observed, as it was in Woolcock Street[99], that in Bryan v Maloney there was the absence of disconformity of that kind.  The absence of disconformity was an essential step in the reasoning in Bryan v Maloney.  That step is not available in this case.

    [97](2004) 216 CLR 515 at 532 [28].

    [98]cf Voli v Inglewood Shire Council (1963) 110 CLR 74 at 85 per Windeyer J; [1963] HCA 15.

    [99](2004) 216 CLR 515 at 532 [29].

    Conclusion

61. The appeal to this Court should be allowed.  The first respondent should pay the appellant's costs.  The orders of the Court of Appeal of the Supreme Court of New South Wales should be set aside and, in their place, there should be orders that the appeal to that Court is dismissed with costs.  The Owners Corporation should have special leave to cross‑appeal; the cross‑appeal should be treated as instituted and heard instanter and dismissed with costs.

62. CRENNAN, BELL AND KEANE JJ.   The first respondent, which is conveniently referred to as "the respondent"[100], is the owners corporation in respect of the common property in a strata‑titled serviced apartment complex in Chatswood, New South Wales.  The appellant built the complex pursuant to a contract with a developer, who owned the land on which it was built. 

    [100] The second respondent played no part in the appeal beyond filing a submitting appearance.

63. The respondent brought proceedings against the appellant in the Supreme Court of New South Wales to recover damages for the cost of repairing what were said to be latent defects in the common property of the serviced apartment complex.  The respondent contended that the appellant was liable in negligence for breach of a duty "to take reasonable care to avoid a reasonably foreseeable economic loss to the [respondent] in having to make good the consequences of latent defects caused by the building's defective design and/or construction."[101]  The respondent's contention was rejected[102] at first instance, but was upheld[103] (albeit subject to limitations presently contested by the respondent) by the Court of Appeal of New South Wales. 

    [101]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [18].

    [102]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [4], [110].

    [103]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479.

64. The Court of Appeal proceeded to its conclusion on the basis that the duty of care propounded by the respondent matched an equivalent tortious duty of care owed by the appellant to the developer of the serviced apartment complex.  The appellant contended that the Court of Appeal had erred in supplementing the appellant's obligations to the developer by adding a tortious duty equivalent to that propounded by the respondent:  the appellant's obligations to the developer as to the quality of the work were comprehensively stated in the contract pursuant to which the complex was built.  The respondent disputed the contention that it was not permissible to supplement the appellant's contractual obligations to the developer in this way, and argued that, in any event, imposing an equivalent tortious duty in favour of the developer was not an essential step on the path to holding the appellant liable in negligence to the respondent. 

65. To the latter contention the appellant replied that dispensing with the need for an equivalent liability on its part to the developer, for whom it built the complex, would reduce the law to incoherence, in that, in relation to defects in the quality of construction, a builder of a building may find itself potentially liable in tort to every subsequent owner of the building and yet not be liable to the party for whom the building was originally constructed. 

66. The appellant also contended that the contracts pursuant to which the owners of apartments acquired their rights in the common property afforded those owners, and the respondent as their agent, such protection against the risk of economic loss attributable to defects in construction that the owners and the respondent were not relevantly vulnerable to the appellant, for the purposes of the law of negligence, in respect of the risk of economic loss by reason of such defects.

67. The appellant's contentions should be accepted.  It is of critical importance in this regard that, as was common ground between the parties, the loss for which the respondent claimed damages is truly characterised as economic loss.  The respondent's claim is based on the failure of the purchasers of the apartments to get value for money from the developer rather than on the appellant's causing damage to the respondent's property.  One difficulty with the respondent's claim is that the respondent itself paid nothing for the common property:  it suffered no "loss" arising out of the acquisition of the common property.  And to say that the common property, for which it paid nothing, is less valuable to it by the amount which it must expend to repair it, is distinctly not to show that any act or omission on the part of the appellant caused the respondent's assets to be diminished[104].  As Stanley Burnton LJ said in Robinson v P E Jones (Contractors) Ltd[105]:

    "the crucial distinction is between a person who supplies something which is defective and a person who supplies something (whether a building, goods or a service) which, because of its defects, causes loss or damage to something else.  …

    I do not think that a client has a cause of action in tort against his negligent accountant or solicitor simply because the accountant's or solicitor's advice is incorrect (and therefore worth less than the fee paid by the client).  The client does have a cause of action in tort if the advice is relied upon by the client with the result that his assets are diminished."

    [104]Murphy v Brentwood District Council [1991] 1 AC 398 at 477, 478, 479, 487‑488.

    [105][2012] QB 44 at 64-65 [93]-[94].

68. If that preliminary difficulty is put to one side on the basis that the respondent acquired the common property as a proxy for the purchasers of apartments who are disappointed with the bargains they made with the developer, a substantial difficulty remains.  The circumstance that economic loss of this kind is a foreseeable consequence of a want of reasonable care by the appellant is not of itself sufficient to make the loss compensable in negligence, even where acceptance of the claim will not give rise to indeterminate liability[106]. 

    [106]Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 632-636; [1971] AC 793 at 801-804; Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 555, 572-574, 590-592; [1976] HCA 65; Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] AC 1; Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] AC 785.

69. The expansive view of the appellant's obligations to the respondent which was upheld by the Court of Appeal in this case is not supported by the decision in Bryan v Maloney[107]; and it does not accord with the decision of this Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[108].  This Court's decision in Bryan v Maloney does not sustain the proposition that a builder that breaches its contractual obligations to the first owner of a building is to be held responsible for the consequences of what is really a bad bargain made by subsequent purchasers of the building.  To impose upon a defendant builder a greater liability to a disappointed purchaser than to the party for whom the building was made and by whom the defendant was paid for its work would reduce the common law to incoherence[109].  Moreover, to hold that a subsequent purchaser of a building is vulnerable to the builder so far as the risk of making an unfavourable bargain for its acquisition is concerned would involve a departure from what was held by this Court in Woolcock Street Investments[110]. 

    [107](1995) 182 CLR 609; [1995] HCA 17.

    [108](2004) 216 CLR 515; [2004] HCA 16.

    [109]Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at 532 [28]. See also Woollahra Municipal Council v Sved (1996) 40 NSWLR 101 at 120.

    [110](2004) 216 CLR 515 at 530 [23], 533 [31], 548-553 [80]-[96].

    The commercial background

70. The serviced apartment complex was constructed by the appellant as part of a transaction between Chelsea Apartments Pty Ltd ("the developer") and companies in the Stockland Group ("Stockland").  The development involved the construction of a 22‑storey building, with two major components, the serviced apartment complex being floors one to nine, and residential apartments being floors 10 to 22. 

71. The respondent is the owners corporation in respect of the serviced apartment lots on floors one to nine.

72. Pursuant to the terms of a Deed of Master Agreement dated 11 August 1997 ("the Master Agreement"), the developer, who was the registered proprietor of the land on which the building was to be constructed, agreed with Stockland to design and construct the building and then to lease apartments on certain floors to a Stockland subsidiary, Park Hotel Management Pty Ltd ("Park"), to be operated by Park as serviced apartments[111].  The apartments were to be sold to investors, subject to the leases granted to Park; and Park would operate a business of servicing those apartments under the "Holiday Inn" brand[112].

    [111]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [34]; The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 496-497 [69]‑[70].

    [112]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [33].

73. Under the Master Agreement, the developer warranted the quality of its building work to Stockland[113]. 

    [113]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [38].

74. On 5 November 1997, the developer and the appellant entered into a design and construct subcontract ("the D&C contract") for the construction of the building for the sum of $57,539,000.  It was common ground that the D&C contract was negotiated between sophisticated and experienced parties at arms' length and on an equal footing[114].

    [114]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [44]; The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 496 [67].

    The D&C contract

75. The D&C contract contained detailed provisions with respect to the quality of the work to be performed by the appellant as "Contractor" for the developer as "Principal". 

76. Clause 3.1 of the D&C contract provided that "[t]he Contractor shall execute and complete the work under the Contract in accordance with the requirements of the Contract."

77. Clause 4 of the D&C contract provided relevantly:

    "4.1     Contractor's Warranties

    Without limiting the generality of Clause 3.1, the Contractor warrants to the Principal that the Contractor—

    (a)… shall exercise due skill, care and diligence in the execution and completion of the work under the Contract;

    …

    (e)shall execute and complete the work under the Contract in accordance with the Design Documents so that the Works, when completed, shall—

    (i)be fit for their stated purpose; and

    (ii)comply with all the requirements of the Contract and all Legislative Requirements."

78. Clause 30 of the D&C contract provided relevantly:

    "30.1   Quality of Material and Work

    The Contractor shall use the materials and standards of workmanship required by the Contract.  In the absence of any requirement to the contrary, the Contractor shall use suitable new materials and proper and tradesmanlike workmanship.

    ...

    30.3    Defective Material or Work

    If the Superintendent discovers material or work provided by the Contractor which is not in accordance with the Contract, the Superintendent shall as soon as practicable notify the Contractor.  The Superintendent may direct the Contractor—

    …

    (c)to … reconstruct, replace or correct the material or work; or

    …

    The Superintendent may direct the times within which the Contractor must commence and complete the … reconstruction, replacement or correction.

    …

    30.6    Generally

    ...

    Nothing in Clause 30 shall prejudice any other right which the Principal may have against the Contractor arising out of the failure of the Contractor to provide material or work in accordance with the Contract."

79. Clause 55 of the D&C contract obliged the appellant to:

    "(a)cause the Building to be constructed in general accordance with the Development Consent (including, without limitation, the plans and specifications in the Development Application);

    (b)cause the Serviced Apartments Parcel to be constructed in general accordance with the Serviced Apartments Floor Plan;

    (c)cause the Serviced Apartments Parcel to be finished in general accordance with the Serviced Apartments Finishes; and

    (d)install in each of the Serviced Apartments the FF&E Package (as amended by the Trade Off List) relevant to the particular Serviced Apartments."

80. The D&C contract provided for a Defects Liability Period.  In this regard, cl 37 provided that the appellant would be liable to rectify construction defects for a period of 52 weeks commencing from the date of practical completion[115]. 

    [115]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 494 [58].

81. Clause 31 of the D&C contract made provision for the Superintendent to test any material or work at any time before the expiry of the Defects Liability Period.  To this end the Superintendent was authorised by cl 31.2 to direct that any part of the work under the contract shall not be "covered up or made inaccessible without the Superintendent's prior approval."

82. Clause 42.6 provided for the Superintendent, at the expiry of the Defects Liability Period, to issue to the developer a "Final Certificate" of "the amount which, in the Superintendent's opinion, is finally due from the Principal to the Contractor or from the Contractor to the Principal arising out of the Contract or any alleged breach thereof."

83. Clause 42.6 continued:

    "Unless either party, either before the Final Certificate has been issued or not later than 21 days after the issue thereof, serves a notice of dispute … the Final Certificate shall be evidence that the Works have been completed in accordance with the terms of the Contract … except in the case of—

    (a)fraud, dishonesty or fraudulent concealment relating to the work under the Contract or any part thereof or to any matter dealt with in the said Certificate;

    (b)any defect (including omission) in the Works or any part thereof which was not apparent at the end of the Defects Liability Period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the Final Certificate".

84. The effect of cl 42.6(b) was that the developer had contractual protection against the appellant in respect of the expense of repairing latent defects in the building after the Defects Liability Period had expired.

85. The D&C contract also provided for the terms on which the developer would offer individual lots for sale to investors.  Annexed to the D&C contract was a form of standard contract for sale, which conferred on each purchaser of a lot specific contractual rights in relation to defects in the property, including the common property[116].

    [116]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [45]; The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 495-496 [63].

    The contracts for sale

86. By cl 26.1 of the standard form contract for sale the purchaser represented and warranted that it "did not rely on any representations or warranties about the subject matter of this contract … except those representations and warranties set out in this contract", and had "obtained appropriate independent advice on and is satisfied about … the purchaser's obligations and rights under this contract".

87. Clause 32.1 of the standard form contract set out the purchaser's rights in respect of the quality of construction.  In particular, the developer was obliged "[b]efore completion … [to] cause the property and the Common Property to be finished as specified in the Schedule of Finishes … in a proper and workmanlike manner."

88. Clause 32.6 obliged the developer to:

    "repair in a proper and workmanlike manner, at the [developer's] expense, within a reasonable time after the applicable notice has been served by the purchaser, any defects or faults in the property due to faulty materials or workmanship (including Special Faults but excluding minor shrinkage and minor settlement cracks) of which notice is served by the purchaser within 6 months after completion.  The purchaser may not serve notice of defects or faults other than Special Faults on more than 3 occasions."

89. Clause 32.7 obliged the developer to:

    "repair in a proper and workmanlike manner, at the [developer's] expense, within a reasonable time after the applicable written notice has been served on the [developer], any defects or faults in the Common Property due to faulty materials or workmanship … of which written notice is served on the [developer] by the Owners Corporation within 7 months after the date of registration of the Strata Plan."

    The strata scheme legislation and the owners corporation

90. After a construction period of approximately two years, the serviced apartments were completed.  On 11 November 1999, the appellant registered the strata plan for the serviced apartments.  By virtue of that registration, the respondent was brought into existence[117] and the common property in the serviced apartment complex was vested in it[118]. 

    [117]Strata Schemes Management Act 1996 (NSW), s 8(1).

    [118]Strata Schemes (Freehold Development) Act 1973 (NSW), s 18.

91. The developer, as the registered proprietor of the serviced apartment lots, sold them to investors subject to the leases which enabled them to be deployed by Park in its "Holiday Inn" business.

92. Section 20 of the Strata Schemes (Freehold Development) Act 1973 (NSW) ("the SSFD Act") provides:

    "The estate or interest of a body corporate in common property vested in it or acquired by it shall be held by the body corporate as agent:

    (a)where the same person or persons is or are the proprietor or proprietors of all of the lots the subject of the strata scheme concerned—for that proprietor or those proprietors, or

    (b)where different persons are proprietors of each of two or more of the lots the subject of the strata scheme concerned—for those proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots."

93. Section 61(1)(a) of the Strata Schemes Management Act 1996 (NSW) ("the SSM Act") provides that "[a]n owners corporation has, for the benefit of the owners … the management and control of the use of the common property of the strata scheme".

94. Section 62(1) of the SSM Act provides that "[a]n owners corporation must properly maintain and keep in a state of good and serviceable repair the common property".

    The proceedings

95. The respondent commenced an action against the appellant in 2008[119] to recover the cost of rectifying defects found in the construction of the common property of the serviced apartment complex. Initially, the respondent also claimed that the appellant was liable for breaching statutory warranties relating to the quality of workmanship under Pt 2C of the Home Building Act 1989 (NSW), but that claim was resolved before trial[120].

    [119]The respondent also commenced proceedings against the second respondent.  The respondent's pleadings did not disclose a cause of action against the second respondent; and as noted above, the second respondent has no involvement in this appeal.

    [120]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [8]-[9].

96. The respondent particularised the defects of which it complained[121].  The primary judge accepted that "if the defects alleged exist, then many of them are properly to be characterised as latent defects"[122].  For present purposes, it is necessary to note only that of the five categories of alleged defects, the complaint made by the respondent in relation to two categories, namely, the steel lintels and windows, was that the work does not comply with the specifications under the D&C contract.  The complaint in respect of the third category was that "[t]he external render to the façade of the building is defective."  The complaint in respect of the fourth category, namely, the sheet metal cowlings to the fire services shutters, is that they "were fabricated and coated with materials which were unsuitable for exterior exposure."  The complaint in respect of the fifth category of defects, namely, the water leak from the spa, is that there were "defects to the waste connection and inadequate waterproofing to the enclosure below the spa."

    [121]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [65].

    [122]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [71].

97. Whether such defects as may be proved to exist are structural or likely to render the building dangerous to person or property or uninhabitable is an issue contested by the appellant.  It has not yet been decided.

    The decision of the primary judge

98. The parties asked the primary judge (McDougall J) to determine the question whether the appellant owed the respondent the duty propounded by the respondent separately from the other issues in the proceedings.

99. On 10 October 2012, the primary judge answered the separate question, holding[123] that the appellant did not owe the respondent the duty of care propounded by the respondent.  In consequence, his Honour gave judgment for the appellant in the action.

    [123]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [4], [110].

100. His Honour held[124] that "[w]here the parties have negotiated in full their rights and obligations, there is no reason for the law to intervene by imposing some general law duty of care."  His Honour concluded that the duty of care propounded by the respondent was not supported by this Court's decision in Bryan v Maloney[125]; and, given the difficulties of principle involved in imposing on the appellant what Brennan J in Bryan v Maloney referred to as a transmissible warranty of quality[126], any alteration to the position at common law should be undertaken by the legislature[127].

     [124]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [90].

     [125](1995) 182 CLR 609.

     [126](1995) 182 CLR 609 at 644.

     [127]Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [88]-[92].

     The decision of the Court of Appeal

101. The respondent appealed to the Court of Appeal of the Supreme Court of New South Wales.  The Court of Appeal (Basten JA, Macfarlan and Leeming JJA agreeing) allowed[128] the appeal. 

     [128]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479.

102. Basten JA proceeded on the basis "that no general law duty of care can arise with respect to successive owners unless there [is] a general law duty owed to the original owner with whom the builder contracted to construct the building."[129]  His Honour concluded[130] that the appellant owed the developer a duty under the law of tort to take reasonable care that it should not suffer economic loss concurrently with the contractual duties which arose under the D&C contract.  In this regard, his Honour held[131] that the developer was "vulnerable" to the appellant in the sense that it was reliant on the appellant's "expertise, care and honesty ... in performing its obligations under the [D&C] contract." 

     [129]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 503 [100].

     [130]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 509 [127], 510 [129].

     [131]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 508 [118]-[120].

103. Basten JA rejected the argument that the contractual arrangements between the appellant and the developer dealt comprehensively with their relationship so as to leave no room for the imposition of a duty of care in tort[132].  His Honour held that the D&C contract:

     "did not purport expressly, or by necessary implication, to exclude any liability for defects or omissions which might arise otherwise than during [the Defects Liability Period], whether under contract or under the general law."[133]

     [132]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 501-504 [91]-[100].

     [133]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 503 [98].

104. It may also be noted here that Macfarlan JA, melding a number of lines of argument, including a reference to this Court's decision in Astley v Austrust Ltd[134], said[135]:

     "The existence of a contract between the developer and a builder for the latter to construct a building does not preclude the existence of a duty of care owed by the builder to the developer as similar contractual and tortious rights may exist concurrently[136].  Further, it was not suggested in Astley that proof of the existence of a tortious duty of care concurrent with contractual obligations was dependent upon proof by the party to whom it was owed that it could not have negotiated with the party subject to the duty for contractual protection against the loss that came to be suffered.  This being the case, it is difficult to see why a successor in title, or a party otherwise related to that to whom the duty of care was owed, should have to show that it could not have negotiated contractual protection in order to establish that a duty of care was owed to it."

     [134](1999) 197 CLR 1; [1999] HCA 6.

     [135]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 511 [136].

     [136]Astley v Austrust Ltd (1999) 197 CLR 1 at 20‑23 [44]‑[48]; see also Bryan v Maloney (1995) 182 CLR 609 at 619‑620.

157. Basten JA derived support[191] for his answer to the separate question from the decision of the Supreme Court of Canada in Winnipeg Condominium Corporation No 36 v Bird Construction Co[192].  In that case the Supreme Court of Canada held that a builder owes a duty of care in tort to a subsequent purchaser of the building if it can be shown that it is foreseeable that a failure to take reasonable care in constructing the building would create defects that pose a substantial danger to the health and safety of occupants.  Where such defects become manifest before any damage to persons or property occurs, a subsequent purchaser may recover the reasonable cost of making good the defects in order to put the building into a non‑dangerous state.

     [191]The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 509-510 [127]-[128].

     [192][1995] 1 SCR 85.

158. The respondent argued that the Court of Appeal erred in limiting the duty said to be owed by the appellant to the respondent to cases where the repair of defects in construction was necessary to obviate a situation of danger to person or property.  Nevertheless, counsel for the respondent sought to rely upon the decision of the Supreme Court of Canada in Winnipeg Condominium as a last resort to support the Court of Appeal's answer to the separate question. 

159. It may be noted that in Winnipeg Condominium the Supreme Court of Canada chose not to follow the approach of the House of Lords in D & F Estates Ltd v Church Commissioners for England[193] and Murphy v Brentwood District Council[194]. 

     [193][1989] AC 177.

     [194][1991] 1 AC 398.

160. The approach in Winnipeg Condominium was noted, but not followed, by this Court in Bryan v Maloney[195] and in Woolcock Street Investments[196].  In Fangrove Pty Ltd v Tod Group Holdings Pty Ltd[197], de Jersey CJ, in the Court of Appeal of Queensland, noted that no Australian authority had adopted this approach.  In terms of Australian authority, the position has not improved for the respondent in this regard in the years since that case was decided. 

     [195](1995) 182 CLR 609 at 621 fn 66, 649-651.

     [196](2004) 216 CLR 515 at 534 [34] fn 108.

     [197][1999] 2 Qd R 236 at 239-240 [12].

161. The approach in Winnipeg Condominium is attended by the practical difficulty that "the existence of the duty will not be known until after the defects have occurred and they can be confidently categorised as dangerous."[198]  More importantly, in point of principle the approach in Winnipeg Condominium is driven by the assumption that the cost of repair or diminution in market value of a building is a reflex of the liability for physical damage to person or property which may occur if the defect is not repaired.  Quite apart from the haphazard nature of this notion of equivalence of damage, this approach is flawed in that it detaches the duty not to inflict harm from the harm which is the gist of the cause of action.

     [198]Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236 at 248 [46].

162. As Lord Oliver of Aylmerton said in Murphy v Brentwood District Council[199]:

     "If one assumes the … case of one who has come into possession of a defective chattel … which may be a danger if it is used without being repaired, it is impossible to see upon what principle such a person, simply because the chattel has become dangerous, could recover the cost of repair from the original manufacturer.

     The suggested distinction between mere defect and dangerous defect … is, I believe, fallacious.  …  [O]nce the danger ceases to be latent … [t]he plaintiff's expenditure is not expenditure incurred in minimising the damage or in preventing the injury from occurring.  The injury will not now ever occur unless the plaintiff causes it to do so by courting a danger of which he is aware and his expenditure is incurred not in preventing an otherwise inevitable injury but in order to enable him to continue to use the property or the chattel."

     [199][1991] 1 AC 398 at 488‑489.

     The position in other common law jurisdictions

163. The conclusion that the duty propounded by the respondent should not be accepted is in accord with the position in the United Kingdom[200].  In addition, the preponderance of judicial authority in the United States accords with the conclusion that the respondent's claim should fail[201].

     [200]D & F Estates Ltd v Church Commissioners for England [1989] AC 177; Murphy v Brentwood District Council [1991] 1 AC 398; Robinson v P E Jones (Contractors) Ltd [2012] QB 44.

     [201]East River Steamship Corp v Transamerica Delaval Inc 476 US 858 at 870 (1986); Redarowicz v Ohlendorf 441 NE 2d 324 (Ill 1982); Sensenbrenner v Rust, Orling & Neale, Architects Inc 374 SE 2d 55 (Va 1988); Casa Clara Condominium Association Inc v Charley Toppino and Sons Inc 620 So 2d 1244 (Fla 1993); Calloway v City of Reno 993 P 2d 1259 (Nev 2000); Moglia v McNeil Co Inc 700 NW 2d 608 (Neb 2005); Association of Apartment Owners of Newtown Meadows ex rel its Board of Directors v Venture 15 Inc 167 P 3d 225 (Haw 2007); Davencourt at Pilgrims Landing Homeowners Association v Davencourt at Pilgrims Landing LC 221 P 3d 234 (Utah 2009). But see Brown v Fowler 279 NW 2d 907 (SD 1979); Morris v Holt 401 NE 2d 851 (Mass 1980); Terlinde v Neely 271 SE 2d 768 (SC 1980); Cosmopolitan Homes Inc v Weller 663 P 2d 1041 (Colo 1983); Oates v Jag Inc 333 SE 2d 222 (NC 1985).

164. That a different view prevails in Canada has already been noted.  For the reasons set out above, that approach should not be followed in Australia.  The respondent's preferred position is also supported by the decision of the Judicial Committee of the Privy Council on appeal from New Zealand in Invercargill City Council v Hamlin[202].  But in that decision it was acknowledged that it departed from the approach which has prevailed in the United Kingdom[203].  For the reasons set out above, the latter view better accords with the coherent development of the common law.

     [202][1996] AC 624. See also Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394; Mount Albert Borough Council v Johnson [1979] 2 NZLR 234; Chase v de Groot [1994] 1 NZLR 613.

     [203][1996] AC 624 at 648‑649.

     Conclusion and orders

165. The appeal should be allowed.

166. The orders of the Court of Appeal of New South Wales should be set aside, and in their place it should be ordered that the appeal to the Court of Appeal of New South Wales should be dismissed with costs. 

167. The first respondent should be granted special leave to cross‑appeal, but the cross‑appeal should be dismissed with costs. 

168. The first respondent must pay the appellant's costs of the appeal to this Court.

169. GAGELER J.   A duty of care at common law is a duty of a specified person, or a person within a specified class, to exercise reasonable care within a specified area of responsibility to avoid specified loss to another specified person, or to a person within another specified class.  Whether or not a particular duty of care should be recognised in a novel category of case is determined on the understanding that "[t]here are policies at work in the law which can be identified and applied to novel problems, but the law of tort develops by reference to principles, which must be capable of general application"[204].

     [204]Sullivan v Moody (2001) 207 CLR 562 at 579 [49]; [2001] HCA 59.

170. The question in this appeal from the Court of Appeal of the Supreme Court of New South Wales is whether the builder of a strata development should be recognised to have a duty to exercise reasonable care, in executing the building work undertaken pursuant to a contract with the developer, to avoid specified loss to the owners corporation, which is the body corporate brought into existence on registration of the strata plan[205], as the legal owner of the common property[206], with an ongoing statutory responsibility for keeping the common property in a good state of repair[207]. 

     [205]Section 8 of the Strata Schemes Management Act 1996 (NSW).

     [206]Section 18 of the Strata Schemes (Freehold Development) Act 1973 (NSW).

     [207]Section 62 of the Strata Schemes Management Act 1996 (NSW).

171. The specified loss, on the widest formulation of the putative duty, would extend to the cost of repairing all defects in common property not apparent at the time of registration of the strata plan.  A narrower formulation of the duty, which the Court of Appeal accepted, would limit the specified loss to the cost of repairing only those defects in common property not apparent at the time of registration of the strata plan which are structural, are dangerous to persons or other property, or make an apartment in the building uninhabitable.

172. Neither the existence nor the scope of the putative duty of care can turn on the peculiar feature of an owners corporation that the corporation has no option but to be brought into existence as the legal owner of common property and to shoulder the ongoing responsibility for keeping that common property in a good state of repair.  It is not the function of the common law to fashion a principle of tortious liability which would confer a right to compensation exclusively on the unique statutory creation of a particular statutory scheme. 

173. If the builder of a strata development is to be recognised as having the putative duty of care, it is because the owners corporation stands in relation to the builder as proxy for the owners from time to time of the registered lots corresponding to apartments in the building.  In them the beneficial interest in the common property is vested as tenants in common[208].  For them the corporation is constituted agent[209].  To them the corporation can ultimately look to cover the cost of repair if that cost cannot be recouped elsewhere[210].  It is they who bear the economic burden of the loss.

     [208]Section 20 of the Strata Schemes (Freehold Development) Act 1973 (NSW).

     [209]Section 20 of the Strata Schemes (Freehold Development) Act 1973 (NSW).

     [210]Sections 69-71, 75(2)(e) and 76 of the Strata Schemes Management Act 1996 (NSW).

174. Whether or not the putative duty of care should be recognised therefore falls to be determined by applying principles which must be capable of general application to determine the existence and scope of such duty as a builder may have to exercise reasonable care, in the execution of building work, to avoid a subsequent owner incurring the cost of repairing latent defects in the building. 

175. It has long been accepted that a common law duty of care can coexist with a duty in contract and that a duty of care can be to avoid economic loss.  That being so, legal taxonomy alone cannot assign such common law liability as a builder may have to a subsequent owner of a building to the province of contract to the exclusion of the province of tort.  Nor is recognition of a duty on the part of a builder to avoid a subsequent owner incurring the cost of remedying a latent defect in the building open to criticisms of indeterminacy which often count against recognising a common law duty of care to avoid economic loss. 

176. Markedly divergent approaches to whether a builder should be recognised to have such a duty of care to a subsequent owner have now prevailed for more than two decades in other common law jurisdictions.  In the United Kingdom, a duty of care has been rejected[211].  In Canada, a duty of care has been recognised, limited to the cost of remedying dangerous defects in the building[212].  In New Zealand, a duty of care has been recognised, extending to the cost of remedying all latent defects[213].  There is no reason to consider any one of those approaches to result in a greater net cost to society than any other.  Provided the principle of tortious liability is known, builders can be expected to accommodate it in the contractual terms on which they are prepared to build and subsequent owners can be expected to accommodate it in the contractual terms on which they are prepared to purchase.

     [211]Murphy v Brentwood District Council [1991] 1 AC 398; Department of the Environment v Thomas Bates and Son Ltd [1991] 1 AC 499.

     [212]Winnipeg Condominium Corporation No 36 v Bird Construction Co [1995] 1 SCR 85.

     [213]Invercargill City Council v Hamlin [1996] AC 624.

177. There is a net cost to society which arises from uncertainty as to the principle to be applied.  McHugh J made that point in the context of discussing tortious liability for economic loss more generally when he referred to costs to parties and to the public of principles or rules whose application cannot confidently be predicted, and stated that "[i]f negligence law is to serve its principal purpose as an instrument of corrective justice, the principles and rules which govern claims in negligence must be as clear and as easy of application as is possible"[214].  Concern to minimise the cost of legal uncertainty was identified as a factor in overruling, rather than attempting to distinguish, prior authority so as to arrive at the position in respect of the liability of a builder to a subsequent owner which has prevailed in the United Kingdom[215].

     [214]Perre v Apand Pty Ltd (1999) 198 CLR 180 at 216 [91]; [1999] HCA 36.

     [215]Murphy v Brentwood District Council [1991] 1 AC 398 at 471-472.

178. Part of the difficulty encountered by the Court of Appeal in the present case was in discerning the principle for which Bryan v Maloney[216] remains authority after Woolcock Street Investments Pty Ltd v CDG Pty Ltd[217]. 

     [216](1995) 182 CLR 609; [1995] HCA 17.

     [217](2004) 216 CLR 515; [2004] HCA 16.

179. The question addressed in Bryan v Maloney was identified by the plurality in that case (Mason CJ, Deane and Gaudron JJ) as "whether, under the law of negligence, a professional builder who constructs a house for the then owner of the land owes a prima facie duty to a subsequent owner of the house to exercise reasonable care to avoid ... foreseeable damage" specified as "the diminution in value of the house when a latent and previously unknown defect in its footings … becomes manifest"[218] equating to "the amount which would necessarily be expended in remedying the inadequate footing[s] and their consequences"[219].  Their Honours gave a positive answer to that question.  They said that the contrary approach which had then recently come to prevail in the United Kingdom rested on "a narrower view of the scope of the modern law of negligence and a more rigid compartmentalization of contract and tort than is acceptable under the law of this country"[220].

     [218](1995) 182 CLR 609 at 617.

     [219](1995) 182 CLR 609 at 616.

     [220](1995) 182 CLR 609 at 629.

180. The plurality in Bryan v Maloney referred to the relationship between the builder and the subsequent owner of a house as one characterised "by assumption of responsibility on the part of the builder and likely reliance on the part of the owner"[221], and emphasised that the decision in that case turned, "to no small extent, on the particular kind of economic loss involved" and, in particular, on the building having been "erected to be used as a permanent dwelling house"[222].  The other member of the majority, Toohey J, similarly emphasised that the decision related to "the building of a house that is a non-commercial building"[223].  Subsequent decisions of intermediate courts of appeal treated its holding as confined to buildings of that description[224].  The plurality in Woolcock Street Investments (Gleeson CJ, Gummow, Hayne and Heydon JJ) nevertheless expressed doubt that Bryan v Maloney should be "understood as depending upon drawing a bright line between cases concerning the construction of dwellings and cases concerning the construction of other buildings" and pointed to difficulties of maintaining such a distinction[225].

     [221](1995) 182 CLR 609 at 627.

     [222](1995) 182 CLR 609 at 630.

     [223](1995) 182 CLR 609 at 665.

     [224]Woollahra Municipal Council v Sved (1996) 40 NSWLR 101; Zumpano v Montagnese [1997] 2 VR 525; Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236.

     [225](2004) 216 CLR 515 at 528 [17].

181. The question addressed in Woolcock Street Investments was whether an engineering company owed a duty to exercise reasonable care, in designing the foundations of a warehouse and office complex, to avoid a subsequent purchaser of the building sustaining economic loss when it became apparent after purchase that the building was suffering substantial structural distress.  The plurality noted that the engineering company designed the foundations in circumstances where "the original owner asserted control over the investigations which the engineer undertook for the purposes of performing its work"[226].  Their Honours did not, however, treat the alleged defect in the design of the foundations as outside the scope of the work undertaken.  Their stated ground for concluding that the engineering company did not owe the putative duty was that the subsequent purchaser did not allege that it "could not have protected itself against the economic loss"[227].  They mentioned as a possible means of achieving that protection that the subsequent purchaser might have contracted on terms which would have cast on the engineering company the "economic consequences" of any negligence[228]. 

     [226](2004) 216 CLR 515 at 531-532 [25].

     [227](2004) 216 CLR 515 at 533 [31].

     [228](2004) 216 CLR 515 at 533 [31].

182. The ground so stated by the plurality for denying the putative duty accorded with the observation of McHugh J, who also formed part of the majority in Woolcock Street Investments, that "the capacity of a person to protect him or herself from damage by means of contractual obligations is merely one – although often a decisive – reason for rejecting the existence of a duty of care in tort in cases of pure economic loss"[229].  In Woolcock Street Investments, it was the decisive factor.

     [229](2004) 216 CLR 515 at 552 [94].

183. McHugh J referred in Woolcock Street Investments to a variety of ways in which a subsequent purchaser might take steps to protect against the risk of latent defects by adjusting the terms on which the subsequent purchaser is prepared to contract with the vendor[230].  He also referred to the possibility of commissioning expert investigation of the building prior to purchase[231].  He pointed to disadvantages of imposing tortious liability on a builder which included the practical difficulties in determining whether there has been a breach of an appropriate standard of care and the incentive to create artificial business structures to avoid a long tail of claims[232].  He continued[233]:

     "Of course ... contractual protections and expert investigations may turn out to be inadequate.  In that event, a remedy in tort – particularly a remedy against secondary parties such as architects, engineers and sub-contractors – would be desirable.  But cases where contractual protection will be found deficient are likely to be the exception rather than the rule.  Whether exceptional or not, the ultimate question is whether the residual advantages that an action in tort would give are great enough to overcome the disadvantages to which I have referred.  This involves a value judgment, and the data that might permit that judgment to be made, if the data exists at all, is not before us.  Because that is so, the better view is that this Court should not take the step of extending the principle of Bryan v Maloney to commercial premises.  That is, this Court should hold that, in the absence of a contract between the owner of commercial premises and a person involved in the design or construction of those premises, the latter does not owe a duty to the current owner to prevent pure economic loss."

     [230](2004) 216 CLR 515 at 550 [85], 558-559 [111].

     [231](2004) 216 CLR 515 at 559 [111].

     [232](2004) 216 CLR 515 at 557-558 [107]-[109].

     [233](2004) 216 CLR 515 at 559 [112].

184. Turning specifically to the continuing authority of Bryan v Maloney, McHugh J said[234]:

     "Nothing in this judgment is intended to suggest that Bryan v Maloney would now be decided differently.  Whether a different decision would now be reached under current doctrine almost certainly depends on whether evidence would reveal that the purchasers of dwelling houses are as vulnerable as the Court assumed in that case."

     [234](2004) 216 CLR 515 at 560 [116] (footnote omitted).

185. Absent any application that Bryan v Maloney should be overruled, and absent data which might permit the making of a value judgment different from that made in Woolcock Street Investments, the view expressed by McHugh J in Woolcock Street Investments should in my opinion be accepted.  The continuing authority of Bryan v Maloney should be confined to a category of case in which the building is a dwelling house and in which the subsequent owner can be shown by evidence to fall within a class of persons incapable of protecting themselves from the consequences of the builder's want of reasonable care.  Outside that category of case, it should now be acknowledged that a builder has no duty in tort to exercise reasonable care, in the execution of building work, to avoid a subsequent owner incurring the cost of repairing latent defects in the building.  That is because, by virtue of the freedom they have to choose the price and non-price terms on which they are prepared to contract to purchase, there is no reason to consider that subsequent owners cannot ordinarily be expected to be able to protect themselves against incurring economic loss of that nature.

186. The plurality in Woolcock Street Investments noted that the actual decision in Bryan v Maloney had by then been "overtaken, at least to a significant extent, by various statutory forms of protection for those who buy dwelling houses which turn out to be defective"[235].  The Court of Appeal in the present case referred in detail to the current statutory regime in New South Wales[236].  If legal protection is now to be extended, it is best done by legislative extension of those statutory forms of protection.  Neither version of the putative duty of care should be recognised.

     [235](2004) 216 CLR 515 at 534 [35].

     [236]Part 2C of the Home Building Act 1989 (NSW). See The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479 at 498-500 [77]-[82].

187. I agree with the orders proposed by the Chief Justice.