Professional Indemnity: No duty of care by builder and developer

Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712

Introduction

In the recent decision, Owners Corporation Strata Plan 72535 v Brookfield (Brookfield),1 the NSW Supreme Court provided further guidance on the common law duty of care, with Justice McDougall determining that builders and developers of residential premises do not owe a duty of care to an owners corporation where the statutory warranties provided by section 18B of the Home Building Act 1989 (NSW) (HB Act) apply.

The decision should provide some comfort for builders and developers in NSW and, if followed, elsewhere across Australia. However, there may be implication for Home Owners Warranty insurers considering any subrogated recovery actions.

Background

The "Star of the Sea" is a resort-style strata development at Terrigal, New South Wales, comprising 52 residential lots, only three of which were permanently occupied by their owners. The development was designed and constructed by Brookfield Australia Investments Pty Limited (Brookfield) pursuant to a D&C contract with the developer, Hiltan Pty Limited (Hiltan).

In an all-too common scenario, the Owners Corporation alleged that there were defects in the common property and commenced proceedings against both Brookfield and Hiltan for breaches of the statutory warranties contained in section 18B of the HB Act. The Owners Corporation also claimed that Brookfield and Hiltan breached their common law duties of care.

McDougall J was asked to determine two preliminary questions:

Whether the Owners Corporation was entitled to the statutory warranties contained in section 18B of the HB Act; and Whether Brookfield and Hiltan owed the Owners...