The Expanding Scope Of Developer And Builder Liability: Owners Strata Plan No 66375 v King [2018] NSWCA 170

The New South Wales Court of Appeal’s deci­sion in The Own­ers Stra­ta Plan No 66375 v King remains one of the most sig­nif­i­cant author­i­ties on statu­to­ry war­ranties under the Home Build­ing Act 1989 (NSW). The case clar­i­fied both the inter­pre­ta­tion of sec­tion 18B war­ranties and the breadth of a developer’s lia­bil­i­ty to an own­ers cor­po­ra­tion under sec­tion 18C.

Back­ground

The dis­pute arose from the rede­vel­op­ment of a her­itage ware­house in Camper­down into res­i­den­tial apart­ments by devel­op­ers David and Gwen­do­line King. Fol­low­ing com­ple­tion and reg­is­tra­tion of the stra­ta plan, the Own­ers Cor­po­ra­tion com­menced pro­ceed­ings in rela­tion to exten­sive defects affect­ing the com­mon prop­er­ty, includ­ing fire safe­ty, acoustic and drainage issues.

The most sig­nif­i­cant defect con­cerned the fail­ure to install sprin­klers in con­cealed ceil­ing and sub-floor voids, with rec­ti­fi­ca­tion costs exceed­ing $300,000. Impor­tant­ly, the defects were large­ly attrib­uted to omis­sions in the archi­tec­tur­al design rather than defec­tive work­man­ship by the builder.

By the time pro­ceed­ings com­menced, the builder had entered admin­is­tra­tion, leav­ing the devel­op­ers as the prin­ci­pal defendants.

The Key Legal Issues

The appeal focused on two impor­tant questions:

1. Whether the Kings were per­son­al­ly par­ties to the build­ing con­tract and there­fore liable as devel­op­ers; and 
2. Whether statu­to­ry war­ranties under sec­tion 18B extend to design defects, even where the builder was not respon­si­ble for prepar­ing the design documentation. 

The Court’s Findings

The Court of Appeal over­turned the first instance deci­sion and found the devel­op­ers liable.

Although the signed build­ing con­tract could not be locat­ed, the Court accept­ed exten­sive cir­cum­stan­tial evi­dence, includ­ing cor­re­spon­dence, meet­ing min­utes and financ­ing doc­u­ments, estab­lish­ing on the bal­ance of prob­a­bil­i­ties that the Kings had con­tract­ed in their per­son­al capacities.

More sig­nif­i­cant­ly, the major­i­ty held that the statu­to­ry war­ranties in sec­tion 18B must be read cumu­la­tive­ly. In par­tic­u­lar, the war­ran­ty that work be com­plet­ed ​“in accor­dance with the plans and spec­i­fi­ca­tions” oper­ates along­side the sep­a­rate war­ran­ty that the work ​‘will com­ply with the law’.

The Court reject­ed the argu­ment that a builder or devel­op­er could avoid lia­bil­i­ty mere­ly because the non-com­pli­ance orig­i­nat­ed in defec­tive design pre­pared by oth­ers. The major­i­ty con­clud­ed that if the com­plet­ed build­ing work con­tra­vened statu­to­ry require­ments, the statu­to­ry war­ranties were breached regard­less of whether the defect arose from design or construction.

The Sig­nif­i­cance of Sec­tion 18C

The deci­sion also sub­stan­tial­ly broad­ened the under­stood scope of sec­tion 18C.

The Court con­firmed that a developer’s lia­bil­i­ty to an Own­ers Cor­po­ra­tion under the ​‘notion­al con­tract’ cre­at­ed by sec­tion 18C is not con­fined by the terms of the actu­al con­struc­tion con­tract entered into with the builder. Devel­op­ers may there­fore remain liable for all res­i­den­tial build­ing work car­ried out on the project, includ­ing work falling out­side the builder’s con­trac­tu­al scope.

This inter­pre­ta­tion closed what the Court described as a poten­tial loop­hole that might oth­er­wise have allowed devel­op­ers to escape respon­si­bil­i­ty for defects aris­ing from frag­ment­ed con­trac­tu­al arrangements.

A Divid­ed Court

Notably, Jus­tice Leem­ing dis­sent­ed on the design defect issue. His Hon­our con­sid­ered it com­mer­cial­ly unre­al­is­tic to impose lia­bil­i­ty on a builder for fail­ing to iden­ti­fy omis­sions in plans and spec­i­fi­ca­tions the builder nei­ther pre­pared nor was engaged to review.

The dis­sent high­lights the ongo­ing ten­sion between con­sumer pro­tec­tion objec­tives under the Home Build­ing Act and the prac­ti­cal allo­ca­tion of respon­si­bil­i­ty with­in con­struc­tion projects.

Why the Deci­sion Matters

The King deci­sion remains a land­mark author­i­ty for devel­op­ers, builders, insur­ers and own­ers cor­po­ra­tions. It con­firms that statu­to­ry war­ranties under the Home Build­ing Act are inter­pret­ed broad­ly and pur­po­sive­ly, with a strong empha­sis on con­sumer protection.

For devel­op­ers in par­tic­u­lar, the case serves as a reminder that lia­bil­i­ty expo­sure may extend well beyond the express terms of the con­struc­tion con­tract, includ­ing lia­bil­i­ty for design-relat­ed defects even where those ser­vices were per­formed by others.

For builders, the sec­tion 18B war­ranties impose an oblig­a­tion to ensure that not only will the work be car­ried out in accor­dance with the plans and spec­i­fi­ca­tions but also that the work will com­ply with the law. Implied­ly, the builder is war­rant­i­ng that the con­struc­tion of the work in accor­dance with the plans and spec­i­fi­ca­tions will com­ply with the law. The King deci­sion estab­lish­es that the lia­bil­i­ty of the builder to ensure the work com­plies with the law, is not lim­it­ed or exclud­ed by virtue of defec­tive plans (design) pre­pared by anoth­er party.

For further information please contact:

Michael Byrnes, Partner
Phone: + 61 2 9233 5544
Email: mjb@swaab.com.au

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.