Mind the Gaps! High Court Confirms Negligence Will Not Protect Economic Interests where Contractual Protection is Available

By Matthew Bell, Wayne Jocic and Rami Marginean

Brookfield Case Page

The central issue in Brookfield was one which is especially important given the proliferation of multi-use, multi-storey developments around Australia’s major population centres. This was whether the builder of an apartment complex owes a duty of care in negligence to protect the Owners’ Corporation (as agent for the owners of apartments in the building) from pure economic loss arising from latent defects in the common property of that building where those defects were structural, constituted a danger to persons or property in the vicinity or made the apartments uninhabitable. The High Court found that the builder owed no such duty, reversing the decision of the NSW Court of Appeal.

This result may be surprising to lay people or those not versed in construction law. For the reasons we set out below, we think that the Court’s approach is, to a certain extent, based on flawed assumptions as to the availability of legal protection for building owners by way of contractual negotiation or legislation. That said, the decision reflects the greater trend in Australian law in the past ten years to reverse the expansion of the duty of care in negligence, and to leave the question of liability to contract or legislative schemes. Moreover, the Court’s continued backing away from tortious liability is consistent with the view expounded by the Court’s most recent appointee, Justice Nettle, in a 2004 Australian Law Journal article (G A A Nettle, ‘Commentary on Restricting Litigiousness’ (2004) 78 Australian Law Journal 389, 391):

the law of negligence is not concerned with all cases of damage caused by careless conduct but only with those cases that are the result of fault in the sense of breach of duty.

Thus, Brookfield sends a strong reminder to parties who fall outside the safety net of consumer protection legislation that they need to insist upon adequate contractual protections.

The result in the case has generally been welcomed, in many law firm notes, as providing much-needed clarity on the specific question of builder’s liability (if one types ‘[2014] HCA 36’ into the search engine FeeFiFoeFirm, links to more than a dozen examples can be found, such as this one from Hunt & Hunt).

The case also considers broader issues, including the current state of evolution of protection of economic interests through tort in Australia, especially the interaction between contract and tort and the status of vulnerability as one of the ‘salient features’ in determining whether a duty is owed. Brookfield therefore seems to place a book-end against the Court’s 1995 case of Bryan v Maloney [1995] HCA 17, which had allowed a subsequent owner of a home to recover in negligence against the builder (but see our comments below on early applications of Brookfield).

In this post, after outlining the facts of the case and the conundrum of risk which underpins it, we focus on three aspects of Brookfield:

  • the High Court’s current view of the interaction between contract, tort and legislation in this area;
  • how the Court’s approach sits against the way in which other jurisdictions deal with compensation in negligence for building defects resulting in pure economic loss; and
  • the tantalising glimpses it offers of further guidance on important aspects of private law, including the scope of pure economic loss, along with issues at the heart of Australian construction law, such as the role of the superintendent and how various provisions of the widely-used AS4300-1995 form of construction contract operate.

Facts, issues and outcome
Chelsea Apartments Pty Ltd (Chelsea) engaged Brookfield Multiplex Ltd (Brookfield) to build a 22-storey building in Chatswood, north Sydney. The first nine levels were to be sold to investors, on the condition that they be let to a subsidiary of the Stockland Trust Group, which would in turn sub-let the serviced apartments to the public (under the banner of the ‘Holiday Inn’ brand — the building is now the Mantra Chatswood).

Construction of the building reached final completion in 1999. The plaintiff in these proceedings, Owners’ Corporation Strata Plan 61288, was born at the same time. The Owners’ Corporation held the common property in the building and was responsible for the maintenance of those areas.

The Owners’ Corporation alleged that there were defects in the work that Brookfield had performed on that common property. It commenced proceedings in the Supreme Court of New South Wales. At trial, McDougall J regarded it as inappropriate for the Court to extend the reach of negligence so as to offer protection (at [102]) ‘to those who construct, for commercial rather than purely residential purposes, developments such as that with which I am presently concerned’, and therefore found that Brookfield did not owe the Owner’s Corporation a duty of care.

His Honour’s decision rested upon twin presumptions which resonate in the High Court’s views on appeal. First, the legislature had given due consideration to this situation in deciding to exclude commercial accommodation from the protections under the NSW Home Building Act 1989 (NSW), and secondly, ‘contractors in the position of Brookfield price their work, and more generally undertake contractual obligations, with reference, among other things, to the contractual and statutory warranties by which they are bound.’

Thus, McDougall J thought that any extension to the existing protections offered by the law was properly a matter for the legislature or appeal courts, requiring as it did ‘attention to a range of factors, including the additional costs that would be imposed on contractors and the corresponding benefits to those in whose favour the duty of care might extend’ (at [104]).

The NSW Court of Appeal was presented with an opportunity to undertake such a principled review, with the result there being that the Court was satisfied that, in the words of Basten JA at [129], ‘there are significant features which militate in favour of the existence of a duty of care’. In turn, there were two issues on appeal to the High Court. French CJ summarised them at [8]:

(1) Did Brookfield owe a duty of care to the [Owners’] 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?

The Court unanimously upheld the appeal by Brookfield, holding that it did not owe the Owners’ Corporation a duty of care in negligence. Consequently, the Owners’ Corporation’s cross-appeal (seeking removal of the requirement that the duty owed to it by Brookfield was contingent upon a similar duty being owed to Chelsea) was dismissed. This result was conveyed via four sets of reasons: those of Crennan, Bell and Keane JJ, of Hayne and Kiefel JJ, of French CJ, and of Gageler J.

The conundrum: anticipating the ‘known unknown’ risk of latent defects
Stripped of its factual complications, Brookfield mirrors a commonly-encountered situation in construction projects. A builder builds a building under a contract with a first owner. After a while, the first owner transfers the building to a second owner. This chain may go on for many years and through multiple on-sales. At each stage, there is a risk that one of those subsequent purchasers might discover latent defects in the building that dramatically reduce its value.

Practically and legally, what can (or, should) a purchaser do to reduce the risk (and exposure to the consequences) of such a discovery? Callinan J in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16 offered the following shopping list of possibilities (at [213]):

the obtaining of a report by a local authority … [, i]nsistence on a warranty, or condition of fitness or soundness, or the seeking of an inspection and report by an expert, who by making them, will become liable if negligent in not discovering and reporting relevant defects.

The assumption that these types of protections are available has underpinned the High Court’s retreat from the Bryan-initiated imposition of duties of care in negligence for defective work sounding in pure economic loss. The retreat began in Woolcock and is reinforced in Brookfield. As Gageler J observed at [185]:

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.

In practice, however (as Stuart Connor (see (2005) 21 Building and Construction Law 248) and Tracey Carver (see (2005) 29 Melbourne University Law Review 270) pointed out soon after Woolcock was handed down (see also Rami’s subsequent article in (2013) 29 Building and Construction Law 315, 326–8)), the availability of such contract-based protections tends at best to be problematic and, at worst, illusory.

Inspections can be costly, difficult to arrange and — especially when multiple parties have the same property inspected prior to an auction — a waste of money for the disappointed would-be purchaser. And, even if an inspection is done, latent defects may not be capable of being detected without the sort of invasive testing that is unlikely to be acceptable to the vendor. Moreover, Brookfield raises a peculiar difficulty (albeit Hayne and Kiefel JJ thought at [46] that nothing turned on it) in that the Owners’ Corporation could not itself engage an inspection because it did not exist before it was saddled with the alleged defective work.

The interaction of contract, tort and legislation
Hayne and Kiefel JJ made clear at [59] (and French CJ expressly concurred at [36]) that the reasoning leading to the finding that Brookfield did not owe a duty of care in negligence did not ‘depend … upon making any a priori assumption about the proper provinces of the law of contract and the law of tort.’

That said, the judgments contain a number of broader observations about the boundaries between contract and tort, and the primacy of the former. For example, Crennan, Bell and Keane JJ said at [132] that

[t]he common law has not developed with a view to altering the allocation of economic risks between parties to a contract by supplementing the terms of the contract by duties imposed by the law of tort.

In a similar vein, Hayne and Kiefel JJ confirmed at [58] that the existence of express provisions as to quality of work ‘demonstrates the ability of the parties to protect against, and denies their vulnerability to, any lack of care by the builder’, in turn precluding a duty of care in negligence.

Whilst it is by no means news that contract can trump tort in this way, there are indications from at least two members of the Court which signal a desire for an even more narrow purview for negligence. First, French CJ seems to suggest at [33] that builders will not owe subsequent purchasers a duty of care in negligence where they do not owe such a duty to the original owner:

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.

Such a restriction on the ability of subsequent purchasers to seek the imposition of a duty unquestionably would promote certainty of potential liabilities for builders. It would also mean that subsequent purchasers would be unlikely to be able to argue that, in the circumstances, they are vulnerable in the relevant sense or that other ‘salient features’ militate in favour of imposition of the duty. We wonder whether this issue could be decided at the standard of care stage, rather than the absence of a duty at the original ownership stage determining whether a duty is owed to subsequent purchasers.

Meanwhile, Gageler J offered at [185] perhaps the clearest — and, most limited — prescription amongst the judgments of the province of tort in this area:

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.

Bryan becomes, in this conception, a barnacle on an otherwise smooth hull of common law liability which is to be defined by contract rather than part of the superstructure of liability. In turn, where it is appropriate that protection be provided to parties not covered by the common law regime, this ‘is best done by legislative extension of those statutory forms of protection’ (see [186]).

The legislation being referred to here (and in similar comments elsewhere, including the concluding remark at [233] of Callinan J’s judgment in Woolcock) is the State-based, consumer protection-driven statutes such as the Home Building Act 1989 (NSW), which have as a key feature the imposition of non-excludable warranties by the builder in respect of workmanship, materials and other matters. These have certainly proven useful to home owners (including subsequent purchasers) in providing a remedy where one would not otherwise be available at common law.

That said, the protection offered by these statutes is far from uniform across Australia (a useful survey is provided by Julian Bailey in chapter 19 of his 2011 text Construction Law; specific examples of disparity are discussed here (see also (2013) 29 Building and Construction Law 465, 467)). Moreover, there are some significant exclusions from the ambit of this legislation, such as contracts with a value over $500,000 in WA (admittedly, that figure represents a significant residential build, but it is still less than the current median house price in Perth).

There is no indication in the Brookfield judgments that the Court was labouring under a misapprehension that statute offers universal protection to building owners. Indeed, Crennan, Bell and Keane JJ noted at [134] that gaps in protection exist and (echoing the views of McDougall J, noted above) that plugging — or not plugging — those gaps was properly a matter for the legislature:

To observe that the Home Building Act does not cover claims by purchasers of serviced apartments is not to assert that the Act contains an implied denial of the duty propounded by the respondent. Rather, it is to recognise that the legislature has made a policy choice to differentiate between consumers and investors in favour of the former. That is not the kind of policy choice with which courts responsible for the incremental development of the common law are familiar; and to the extent that deference to policy considerations of this kind might be seen to be the leitmotif of this Court’s decision in Bryan v Maloney, the action taken by the New South Wales legislature served to relieve the pressure, in terms of policy, to expand the protection available to consumers.

It will be instructive to observe what trial judges make of these comments and of Brookfield generally. The Owners Strata Plan No 51077 v Meriton Apartments Pty Ltd [2014] NSWSC 1761 gives some early indication. In this case, Bergin CJ in Eq rejected a strike out application on the basis that she did not accept that Brookfield made the plaintiff’s case ‘so clearly untenable that it cannot possibly succeed’. (Similarly see McDougall J’s judgment in The Owners — SP69567 v Landson Alliance Australia [2014] NSWSC 1592.)

Thus, whilst Brookfield restricts the circumstances in which a duty of care will be imposed, it does not confine those circumstances, as Meriton submitted, to ‘situations in which the duty owed by the builder to the subsequent owner is effectively an extension of, and of identical scope and content to, an anterior duty owed by the builder to the original owner with whom the builder contracted’.

Rather, the ability of (and requirement for) the court to examine the ‘salient features’ of the relationship between the builder and subsequent purchasers remains (at [15]):

It will be a matter of fact for the trial judge as to the nature of the events that gave rise to the building of the [building], the contractual characterisation, if any, and the true relationship between the owner and the builder. The manner in which the construction or building works were carried out (whether through a division of Meriton or otherwise) will be a necessary aspect of the salient features to be addressed by the trial judge.

International perspectives 
In finding that no duty of care was owed by Brookfield to the Owners’ Corporation, the High Court expressly declined to endorse the Canadian approach (stemming from Winnipeg Condominium Corporation No 36 v Bird Construction Co [1995] 1 SCR 85), preferring (as acknowledged at [163] by Crennan, Bell and Keane JJ) a view ‘in accord with the position in the United Kingdom’ and ‘the preponderance of judicial authority in the United States’.

A majority of the Court (Crennan, Bell and Keane JJ at [163]–[164] and Gageler J [176]–[177]) observed that an approach which better accorded with the coherent development of the common law was desirable. As Gageler J noted at [176], however, ‘[m]arkedly different approaches … have now prevailed for more than two decades in other common law jurisdictions’.

The Canadian recognition of a duty of care to subsequent purchasers (as Crennan, Bell and Keane JJ noted at [157]) where ‘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’ had formed a key plank underpinning Basten JA’s finding of a duty of care in the NSW Court of Appeal. Moreover, the Owners’ Corporation’s submission in its cross appeal, that the duty of care should extend to all latent defects, was supported by the Privy Council decision, on appeal from New Zealand, in Invercargill City Council v Hamlin [1996] AC 624.

Gageler J conceived the task of determining which scheme was preferable as a choice between different calibrations of a solid-state system of liability. Thus, he did not see any ‘reason to consider any one of those approaches to result in a greater net cost to society than any other’ (at [176]). This was based upon the assumption (which, for the reasons discussed above, we think is flawed when brought into practice) that builders and subsequent owners can ‘accommodate’ the (limited or wide) influence of tort in this area in the ‘contractual terms on which they are prepared to build … or purchase’ (at [176]).

Despite such general neutrality, Gageler J did express a concern that certainty be provided in order for those contracting decisions to be made, noting at [177] that ‘[t]here is a net cost to society which arises from uncertainty as to the principle to be applied.’ Hence, his Honour’s preference (noted above) for a limited view of the province of tort which harks back to the view expressed in the House of Lords by Oliver LJ in Murphy v Brentwood District Council [1991] 1 AC 398 at [498B] more than two decades ago:

I am able to see no circumstances from which there can be deduced a relationship of proximity such as to render the builder liable in tort for pure pecuniary damage sustained by a derivative owner with whom he has no contractual or other relationship.

Ignoring for a moment the reference to the now-discounted (at least in Australia) concept of proximity (though that concept was itself the subject of an amusing exchange before the Court), David Johnson has noted in ‘Defective Premises Law: Time for Remedial Works’ (2012) 28 Construction Law Journal 132, at 133 that Murphy ‘came at the high point of Thatcherite conservatism in the United Kingdom and marked arguably the most restrictive development in the availability of recovery since the formulation of the modern law of negligence.’

Murphy is also something of a jurisprudential rarity in the unequivocal and lasting nature of its impact, and it is still regarded as having ‘shut the door’ on claims for economic loss arising from defective building work, ‘at least for the foreseeable future’.

As the High Court has endorsed a preference for the Murphy position, it is worthwhile briefly reviewing the manner in which English law has developed since 1991. This is especially the case bearing in mind that that Murphy itself reversed (as Brookfield now has) an expansionist tendency (in England, stemming from the Anns allowance of recovery so long as sufficient proximity was established and there were no countervailing policy considerations).

The UK experience has been that the Murphy view has prevailed, albeit ‘the courts have consistently been striving to find ways to mitigate its effect and allow recovery for defects sustained as a result of inadequate building work.’ (See David Johnson, ‘Defective Premises Law: Time for Remedial Works’ (2012) 28 Construction Law Journal 132, 133. See also Stuart-Smith J’s ambivalence on whether a duty should be recognised in Sainsbury’s Supermarkets Limited v Condek Holdings Ltd [2014] EWHC 2016 (TCC).) Such striving has not, however, resulted in any significant inroads for subsequent purchasers by way of negligence. For example, in Bellefield Computer Services Ltd v E Turner & Sons Ltd [2000] BLR 97, Schiemann LJ was called upon to consider the finding at trial that a builder who had constructed a fire wall incorrectly was liable in negligence to the building owner for damage to chattels in the building (property damage) but not damage to the building itself. He observed at pages 102 and 104 of that judgment that his ‘instinctive reaction to that finding was one of unease’, but accepted that Murphy ‘clearly point[s] to that conclusion’. If negligence is generally unavailable to protect subsequent purchasers in England, do such parties avail themselves of contractual protections? The English experience seems to support our concern that such protections are, in practice, beyond the reach of most would-be owners. As Professor Philip Britton has observed:

most builders (including developers) have their own standard sale contracts with consumers and usually tolerate no changes to these: their terms normally give no rights of action against any other project parties and may exclude successors to the first buyer from relying on them.

Moreover, the level of warranty protection by way of statute in England (primarily by way of the Defective Premises Act 1972) is less extensive than that applicable in most Australian States and Territories: as characterised by Professor Britton with Julian Bailey, it is ‘as welcome as any plank in a shipwreck; but … does too little for too short a period, in comparison with the fully trained lifesaving patrol on hand in Australia.’ (For a recent application, see Rendlesham Estates plc v Barr Ltd [2014] EWHC 3968 (TCC).)

The upshot is that, in England, subsequent purchasers (and, indeed, any party relying upon the work of builders and construction professionals, including the original owner) have very few legal rights beyond those which they are able to negotiate for themselves.

Hopes for further guidance dashed
The facts of Brookfield raise several subsidiary issues close to the hearts of private lawyers (and, specifically, those who practise or study construction law). Three such issues were given tantalising consideration but were left unresolved.

(a)   The scope of ‘pure economic loss’ remains uncertain
Construction works exist in the physical world. Even latent defects have a physical manifestation. For example, hidden structural defects that reduce the life of a building or affect its value originate in deficient design, inappropriate materials or poor workmanship.

Pure economic loss arising from defective work is thus different in character from classic pure economic loss in cases like Perre v Apand Pty Ltd [1999] HCA 36, where the connection with the physical world is minimal. What if those structural defects cause plaster to crack? What if they occasionally cause ceiling fixtures to fall, cracking floor tiles? The line between pure economic loss and physical damage can be hard to draw.

Hayne and Kiefel JJ perhaps hint at this puzzle at [47] when they note that the ‘nature of the damage suffered is important to resolving the issue about duty of care.’ This is, of course, true. Nonetheless, the four judgments in the High Court disclose very little about the nature of the underlying defects (McDougall J at trial noted that they were problems with lintels, windows and cowlings, a cracked façade, and a leaking spa).

Hayne and Kiefel JJ, having raised the question of the proper characterisation of the damage, simply assert that there was no allegation that people or property had been damaged, and that the loss was accordingly pure economic loss. The other judgments also seem to take this for granted. This, no doubt, reflects the manner in which the case was argued.

It is nonetheless a shame that the distinction between pure economic and other loss was not further explored. Some aspects of the case might have afforded this opportunity. In particular, the Owners’ Corporation alleged at trial that a spa on level one of the building had been improperly constructed, with water leaking into the rooms below. On its face, the damage arising from the leak would seem to be physical. We can only speculate whether Brookfield might have owed a duty in respect of the consequences of the leak, but not in respect of the defective work itself.

(b)   The case adds little to our understanding of the superintendent’s role
The superintendent’s role under a construction contract is as an intermediary between the owner and the contractor. Classically, the superintendent has two roles. One is as agent of the owner, in situations like passing on directions from the owner to the contractor. The other is as an independent certifier when assessing monthly payments based on work performed, valuing variations or assessing claims for an extension of time.

The superintendent’s position is sufficiently difficult and significant to have been considered by the House of Lords on two occasions: Sutcliffe v Thackrah [1974] AC 727 and Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1999] 1 AC 266. Australian cases have also considered the position of the superintendent several times. There appears to be a divergence between the two jurisdictions on some important issues, such as whether the superintendent’s decision is likely to be final and binding on the parties (see Trevor Thomas, ‘The Value is Whatever I Say It Is: Determinations by the Owner under Construction Contracts’ (2009) 25 Building and Construction Law 246). Unfortunately, there was little opportunity for their Honours to address these issues in Brookfield.

Nonetheless, the case did raise one interesting question in this context: to what extent is an owner less vulnerable to a contractor where the superintendent must assess each month what work has been satisfactorily performed?

Crennan, Bell and Keane JJ adverted at [142] to the superintendent’s responsibilities for supervision, assessment and determination of payment to conclude that the contract put the risk of deficient work on Brookfield. This contractual allocation of risk was one reason for their conclusion that Brookfield did not owe the Owners’ Corporation a duty of care. Hayne and Kiefel JJ also noted this question at [53]–[55], but similarly found it unnecessary to reach a conclusion given the broader contractual relationship. Whether the superintendent’s position was a conclusive reason for denying a duty of care remains unclear, although it seems that their Honours considered it highly important.

An owner whose interests are represented by a capable superintendent will obviously be less vulnerable than an owner who simply pays invoices as the contractor provides them. Nonetheless, there is a powerful argument that the superintendent has a limited capacity to detect all defects, especially where they are latent. Basten JA recognised as much in the Court of Appeal at [120]:

Whatever may be possible in theory, there is no suggestion that in practical terms the contract was not administered in accordance with usual industry practices, which inevitably involve reliance by the developer on the exercise of responsibility by the builder.

In our view, Basten JA’s assessment of usual industry practices is accurate. It reflects the reality that the superintendent often cannot reasonably assess on a final basis whether each aspect of highly technical work is compliant. This might be because of the natural limitations of the superintendent, the impracticality of full testing (particularly of structural materials), or because some defects cannot readily be detected until the works are complete.

Basten JA’s approach is also consistent with uncontroversial features of standard forms of construction contract. Payment for work performed is typically provisional (‘on account only’), and payment expressly does not indicate contractual compliance. Similarly, the ubiquitous defects liability period exists because not all defects can be detected even at practical completion.

Contractual provision for a superintendent will generally mean that the owner is less vulnerable to the contractor’s negligence, but the suggestion that this should negate the possibility of a coexisting duty of care overstates, we think, the superintendent’s role on most projects.

(c)    There is no helpful comment on AS4300-1995
The design-and-construct contract for the project was an amended version of the standard form construction contract AS4300-1995. Earlier this year, we published (with Professor John Sharkey AM) the results of a survey on the use of standard forms of construction contract in Australia. It indicated that AS4300-1995 was the most commonly used standard form construction contract. Indeed, we found that it was used as the contractual base on 23% of projects using a standard form.

The case therefore offered the opportunity to the Court to provide authoritative guidance on key aspects of this widely-used form. However, construction lawyers and students scouring the judgments for such guidance, or even useful clues, as to the proper interpretation of the clauses will remain disappointed, as the Court managed to dispense with the case without detailed consideration of the contract. Indeed, Hayne and Kiefel JJ expressly observed at [60] that the Court’s ‘conclusion about absence of vulnerability [does not] depend upon detailed analysis of the particular content of the contracts.’

So — where does Brookfield leave us?
As was noted at the outset, the bulk of commentary to date on Brookfield has welcomed its having provided greater certainty to builders and other parties undertaking construction work or services as to their potential liabilities to subsequent purchasers.

This increased certainty applies in the case’s confirmation, specifically, that a duty of care is unlikely to be owed in negligence for pure economic loss in respect of latent defects in common property. The Court also provides a more general, clear marker at [132] of

the primacy of the law of contract in the protection afforded by the common law against unintended harm to economic interests where the particular harm consists of disappointed expectations under a contract.

In turn, the Court has endorsed the limited conception of the purview of tort in this area espoused in Murphy, apparently rendering Bryan outlier remnant from the early 1990s, to be accommodated at the margins rather than being a milestone towards a more expansionist view. This arguably regressive trend ought come as no surprise to most commentators in this area. Indeed, French CJ’s conception (at [22]) of ‘vulnerability’ as referring to ‘the plaintiff’s incapacity or limited capacity to take steps to protect itself from economic loss arising out of the defendant’s conduct’, echoes Carver’s observation a decade ago that

an inability to protect oneself will be a factor adding to vulnerability, whilst an ability to do so may result in a duty being denied. This is in line with the current general focus in tort law reform upon a need for greater self-responsibility.

This confirmation of the limits of protection via negligence in this area prompts further, detailed consideration of whether — and, if so, how — the law should offer a right of recovery for parties (and, impose corresponding liability upon counterparties) who, for whatever reason, fall outside the umbrella of protection offered by contract and the existing legislative schemes.

We have raised several concerns in this note about the less-than-watertight state of that umbrella. These include the limitations in practice of contractual protections, and the legislation being more a patchwork than security blanket. It is clear from the words, noted above, of McDougall J and Gageler J (amongst others) that the courts have vacated the reformist field in this area and anticipate that the legislative branch undertake a principled, ongoing reassessment of the purpose and scope of the residential building legislation and its interaction with building contracts (See David Ulbrick, ‘Constructing the Great Australian Dream: Formation of Domestic Building Contracts in Victoria’ (2010) 26 Building and Construction Law 78).

The fact that legislative power rests with the States may impede harmonised national reform in this area. Nonetheless, given the vast number of construction contracts entered into each year and the impact of these activities upon people’s lives and the national economy, we believe the exercise of identification and — where necessary — filling of these gaps to be a worthwhile one.

AGLC3 Citation: Matthew Bell, Wayne Jocic and Rami Marginean, ‘Mind the Gaps! High Court Confirms Negligence Will Not Protect Economic Interests where Contractual Protection is Available’ on Opinions on High (17 December 2014) <https://blogs.unimelb.edu.au/opinionsonhigh/2014/12/17/bell-jocic-marginean-brookfield/>.

matthew_bell_120x160Matthew Bell is a Senior Lecturer and Co-Director of Studies for Construction Law at Melbourne Law School. He joined the Law School in 2005 after several years’ experience as a construction lawyer with Clayton Utz and Clifford Chance. He is Professional Support Lawyer to the Major Projects and Construction Group at Clayton Utz on a part-time basis and the author of many publications in the field, including the texts Construction Law in Australia and Understanding Australian Construction Contracts (with Ian Bailey).


Rami Marginean Photo

Rami Marginean completed a Bachelor of Commerce degree with majors in economics and finance in 2011 and a Juris Doctor degree in 2014, both at the University of Melbourne. He is currently studying for a Master of Construction Law degree at the University of Melbourne and working as a research assistant in the construction law program. Rami is also a legal assistant in the Melbourne office of Sullivan & Cromwell.

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About Wayne Jocic

Wayne is a senior lecturer in the Melbourne Law School. His teaching and research interests are in construction law, contract and private law generally. Wayne was previously a sessional lecturer and Senior Fellow in the Melbourne Law Masters. While teaching part-time, Wayne worked for a decade as a specialist construction lawyer in a top tier firm.

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