Matthew Bell, Wayne Jocic and Rami Marginean, ‘Mind the Gaps! High Court Confirms Negligence Will Not Protect Economic Interests where Contractual Protection is Available’, 17 December 2014.

The High Court has unanimously allowed an appeal against the decision of the NSW Court of Appeal, in The Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd. After discovering severe defects in a new apartment complex, the owners corporation of the apartments brought a negligence claim against the builder (there was no contractual relationship between the parties). The Court of Appeal held that the builder of an apartment complex owed a duty of care to the future owners to avoid pure economic loss to the owners resulting from latent defects that were structural, dangerous to people and property in and around the apartments, or rendered the building uninhabitable.

In four separate judgments (French CJ, Hayne and Kiefel JJ, Crennan, Bell and Keane JJ and Gageler J), the Court held that no duty of care was owed to the future owners. Such a duty would have required vulnerability, which looks to ‘a plaintiff’s inability to protect itself from the defendant’s want of reasonable care … which would cast the consequences of loss on the defendant’ (at [51]). The contract between the appellant and developers laid out specifications and the extent of the appellant’s obligations: recognising an additional duty to take reasonable care to avoid future economic loss from latent defects would alter the allocation of risks provided for in the contract (see [58], [144]). As no duty of care was owed to the initial owners, no duty could be owed to the respondent as a subsequent owner.