In a previous blog series, we discussed the legal avenues that define compliance around risks. Now we will look at how enforcement is carried out. Failure to manage risk is often quoted as one of the key reasons that businesses fail in the construction industry. Here are examples of court decisions that changed how professionals in the construction industry had to behave in relation to risk.
During 2015, Kevin James, Principal Director of Goodman Law, has given presentations to groups within the ACT building and construction industry on the topic of risk and the law within the context of the construction industry. In this four part blog series, you will find the majority of the content disseminated to both the Master Builders Association and Engineers Australia.
Kevin James, Principal Director
By law, a building professional delivering a service has a duty to exercise a reasonable degree of skill and care and a responsibility to deliver a service that is in accordance with accepted professional practice. When that professional fails to do so and a person suffers a loss, then they could receive compensation for that loss. That loss, whether a financial or injury-related loss, must be directly related to that professional’s negligence. The person also has to prove that they have become worse off as a result of that negligence.
A claim of negligence therefore must have three components to be successful:
- Duty of care
- Breach of that duty
- Damages suffered as a consequence
Subordinate issues are proximity and reasonableness. In this four part blog series, we will review four cases which incorporate issues of risk for a building professional.
- The first case, here in part 1, will look at:
CASE 1 – Negligence in a residential construction
- Part 2 will cover:
CASE 2 – A similar claim in a subsequent commercial setting
- Part 3 will discuss:
CASE 3 – A body corporate claim
- Part 4 includes:
CASE 4 – An architect’s paperwork
Let’s say you have been the engineer, the architect, the builder on domestic residence. A decade after the build you receive a letter from a lawyer. You recognise the address but not the people involved. It turns out you are getting a letter from the people who are the third owners of the property. Surely that’s not right? You had a contract with the original owner!
This landmark case changed the responsibility that professionals have on a residential construction.
Bryan v Maloney  HCA (“Bryan v Maloney”)
In Bryan v Maloney, the builder, Mr Bryan, had constructed a house for Mrs Manion on land that she owned in 1979. The house was constructed negligently with inadequate footings. Later she sold the land and the house to another couple who, seven years after the house was built, sold it to the plaintiff, Mrs Maloney. The inadequate footings then became apparent and the value of the house was significantly reduced. Mrs Maloney succeeded in showing that the builder owed her a duty of care in respect of the economic loss suffered as a consequence.
The High Court held that the requisite degree of proximity existed in that the builder of a domestic dwelling owes a duty to a subsequent owner to take reasonable care to avoid reasonably foreseeable decreases in its value arising from the consequences of latent defects caused by the defective construction of the home. In finding that a duty of care existed, the Court emphasised the fact that the plaintiff was a consumer in no position to determine whether the footings were adequate.
What became clear from Bryan v Maloney was that reliance was not an essential element of an action for economic loss resulting from negligence. The High Court reasoned that the relationship between the builder and subsequent owner with respect to this particular kind of economic loss is, like that between the builder and the first owner, marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to economic loss. In ordinary circumstances, the builder of a house undertakes the responsibility of erecting a structure on the basis that its foundations will be adequate to support it for a period during which it is likely that there will be one or more subsequent owners. Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to inspect and test the foundations of the house than the first owner. Such a subsequent owner is likely to be unskilled in the niceties of real property investment. Accordingly, any builder should be aware that such a subsequent owner will be likely, if the inadequacy of the foundations has not become manifest, to assume that the house has been competently built and that the foundations are, in fact, adequate.
- This case started when Mrs. Maloney sued the builder of the house, Allan Bryan, in the Supreme Court of Tasmania, for negligence. It went through the Full Court to end up at the High Court of Appeal in Canberra.
- The decision in Bryan v Maloney has now been superseded in most states and territories by statutory schemes for protection of successive owners of dwellings. It created a new prescription.
The courts are littered with evidence of businesses in the construction industry affected by assumptions of risks and compliance with risk assessments. Some court decision will become the basis of legislation or regulations that the construction industry will rely on into the future. The four cases discussed in this blog series bring key issues of risk and the building industry to light.
Goodman Law can assist you with building and construction matters
At Goodman Law, we have a thorough understanding of the law which governs building and construction in the ACT and NSW. We are one of Canberra’s leading law firms in building and construction law. Our lawyers offer a depth of knowledge which evolves from many years of experience in the fields of construction and property development around Australia, and we fully understand the complexities of decisions on which our clients need advice. Do you need legal assistance with a building matter? Please call us on 02 6206 9900 or email.
Prior to becoming a lawyer, Steven operated a successful construction firm in Sydney. He has been named the Master Builders (ACT) “Professional of the Year, 2012” and Goodman Law has been named the Construction Law Firm of the Year, 2015 by Global Law Experts. Please see here for further details of Steven’s bio.
* This content is not intended to be exhaustive, but rather a summation of the two presentations that Steven gave in 2015 for business owners and related professionals within the construction industry.