Proctor : February 2019
29 PROCTOR | February 2019 Litigating over builder liability for defects uncovered by subsequent owners of a property remains an uncertain area. Harry Knowlman suggests that residential and commercial builders could consider contractual measures to help them resist potential negligence claims. held (perhaps implicitly) that a disconformity in duty could deny the existence of a duty of care to subsequent owners. 19 Nevertheless, an equivalence between the two duties was accepted in both Woolcock St and Brookfield as having been an essential step in the reasoning of the majority in Bryan. 20 The Joint Judgment’s incoherence argument was also perhaps presaged and supported by the reasoning of Brennan J in Bryan (although Brennan J proceeded from the viewpoint of the subsequent purchaser rather than the builder).21 The Joint Judgment therefore appears to reflect a growing judicial emphasis on the duty owed to the original purchaser, and so a very clear, negotiated contractual allocation of risk seems an extremely sensible measure for attempting to limit future liability. It may, depending on judicial development and specific facts, result in no duty of care being found to a subsequent owner – even if that subsequent owner is ‘vulnerable’. Suggested contract terms To this end then, a “Contractual Allocation of Risk, and Limitation of Liability” heading could be considered, with a term limiting the builder’s post-completion duty to rectifying defects within the warranty period, and excluding liability at any time for any other damages or losses including consequential losses, whether brought in contract, tort, or otherwise. The term could make clear that the builder will have no liability to rectify or compensate for defects, whether patent or latent, beyond the warranty period (this will, in the case of a regulated domestic building contract in Queensland, have to be a minimum of six years (possibly plus six months) for structural defects, and one year for non-structural defects)22. It could further state that the post-completion warranty and exclusion of liability (and thus, logically, the duty owed to the original owner) have been discussed and negotiated, and that this negotiated contractual allocation of risk was an important factor in setting the contract price agreed by the parties. To further emphasise the negotiated nature of these provisions, consideration could be given to offering, for a price, optional warranty extensions which would cover both patent and latent defects for a longer period, with the options chosen noted and separately initialled. Such terms would appear to engage the main thrust of the Joint Judgment, but perhaps even more could be done, particularly for domestic builders. For example, given that the scale of residential projects does not typically support a full-time supervisor on site, the risk to a residential builder that a defect could be incorporated into the job whilst no supervisor is present is not insignificant. That risk could also be negotiated and contractually allocated, by offering, for a price, supervision ‘upgrades’, so that the client is made aware that this service costs money and that more money can be spent by them to lessen risk of defects. The same could be done for site investigation. In addition to contractually allocating risks, the suggested provisions also arguably weigh against any notion of excessive assumption of responsibility by the builder, as discussed in Woolcock St,23 and indeed in Bryan itself.24 If clients choose to save money by limiting their warranty and/or selecting the lesser services, the assumption of responsibility by the builder, and the resulting standard of care to which it might be held, should arguably be lower than it might otherwise be.25 Conclusion In an industry in which clients are content to commission minimal-cost construction of houses under a subcontract system which often involves limited on-site supervision and slim margins, the effective imposition of a time-unlimited warranty on builders appears unfairly onerous. While the Queensland Parliament has legislated a six-year structural warranty as an appropriate warranty period for domestic construction,26 it unfortunately did not rule out actions in negligence beyond that time.27 Builders are entitled to minimise their exposure to long-term negligence claims, and some measures they can take which may assist have been discussed. However, these are measures that can only be taken at contract time. Once a building contract has been signed, no further opportunities along these lines are available. 28 Although ‘vulnerability’ of subsequent owners is still uncontrolled and uncontrollable, Kirby J’s observation from 2004 is relevant still today: “...the law on this subject remains in a state of active development”. 29 There appears to be a noticeable trend of High Court jurisprudence towards the primacy of contractual risk allocation over rights in tort, and it may develop further – but as it can only be engaged up front, now is the time to act. In a residential context, the options suggested could be positioned as an optional additional service, one not offered by competitors – a chance to upgrade quality (through increased supervision and more reliable foundations), and a chance to extend a warranty. Commercial contracts, while probably safe from direct Bryan authority, will also more easily engage Brookfield and Woolcock St reasoning if similar terms are included. These two later ‘pro-builder’ cases will often be factually distinguishable, so it seems prudent to take all steps possible in all types of construction contracts, not just contracts for domestic dwellings. Although contractual provisions cannot directly protect builders in Queensland against decisions to issue ‘directions to rectify’ by the Queensland Building and Construction Commission,30 they could also be relevant to those decisions,31 and to reviews of such decisions.32 Early career lawyers This article appears courtesy of the Queensland Law Society Early Career Lawyers Committee Proctor working group, chaired by Frances Stewart (Frances.Stewart@hyneslegal.com.au) and Adam Moschella (AMoschella@PottsLawyers.com.au). Harry Knowlman is a Brisbane barrister, a registered professional engineer Queensland (RPEQ), and holds an open builder’s licence from the Queensland Building and Construction Commission. Inclusion of contractual terms along the lines suggested should not be viewed as guaranteeing immunity from a successful action, nor a definite increase in prospects of success.