Share this page:

Case Cracker - What does this decision mean for claims handlers?

Brookfield Multiplex Ltd v Owners Corporation Strata 61288


Builders, plumbers, electricians, architects, engineers, project managers, construction managers etc. It has less application to insureds where they are governed by a statutory scheme, eg, the State based Building Acts etc.


  • Claims by subsequent purchasers.
  • Claims by builders (or other parties) who are seeking recovery against an insured to recover amounts it has paid to a subsequent purchaser.

Examples of claims might include:

  • Files where claims have been made against insureds by subsequent purchasers.
  • Files where a builder is seeking recovery against an insured where the builder is trying to recover amounts it has paid to a subsequent purchaser.
  • Files where you/insurer is seeking to recover amounts paid to a subsequent purchaser on behalf of an insured.


This decision only relates to claims for Pure Economic Loss. It does not relate to claims for Property Damage. The distinction between a claim for Pure Economic Loss and a claim for Property Damage is not always clear. In simple terms, a claim for Pure Economic Loss will commonly involve loss of value to the property due to a defect or the cost of carrying out the rectification works.


If a claim is made against an insured builder, plumber, architect or other building related entity ('the insured') by a purchaser of a building ('the claimant') for loss of value due to a defect or the cost of rectification, and the claimant is not the original owner of the building, you will need to establish whether the insured owed a duty to the claimant. If the answer is no, the claim against the insured must fail. In order to establish whether a duty of care is owed to the claimant, you need to consider:

1. Is the claimant entitled to statutory warranties?

If the answer is yes, you do not need to consider this decision at all. The claimant will be entitled to whatever protection they are provided by the warranties.

If the answer is no, you need to ask the next question.

2. Is the claimant "sophisticated"?

A sophisticated claimant is someone who is in a position to obtain protections from the builder, or the person from whom they purchased the building. Conversely, a claimant is not considered to be sophisticated if they are not in a position where they could extract protections from the builder/original purchaser.

If the claimant is sophisticated, it is unlikely that the insured will owe a duty of care to the claimant (all of the obligations will be covered by the purchase contract).

If the claimant is not sophisticated, a Court may find that a duty of care is owed by the insured to the claimant. The question then becomes what the scope of the duty is, whether the insured breached the duty, and what damages flow from the breach.

3. How do you establish if a claimant is "sophisticated"?

Although quite a rough method, one thing to do is see whether it is a commercial or residential building. 
If a commercial building, it is very likely that the claimant will have been a "sophisticated" buyer.

If a residential building, it is still possible that the claimant will be "sophisticated" buyer, however, it may be that the buyer is not considered to be sophisticated.

Ultimately though, it will come down to the sale documents, and how the claimant was in influencing the protections that were written into that document at the time the document was drafted.

The same analysis will apply where a claimant has made a claim against a builder (who is not insured with you), and the builder is seeking recovery from an insured entity (plumber, architect, other trade or professional etc). The builder must convince you that they owed a duty of care to the claimant before you can be satisfied that the amount they are seeking to recover from the insured is claimable (and even if it is claimable, they still have to establish the insured owed them a contractual or tortious duty of care). (Note: there is an exception for this if the insured is a Victorian plumber, as a separate statutory scheme exists).

For a discussion of the Court's findings please click on our "Update" link here.


Shona Wilde, Sydney
Peter Jones, Adelaide
Darren Miller, Perth
Peter Forbes-Smith, Tasmania
Chris Osborne, Darwin

Disclaimer: The information contained in this e-alert/update is not advice and should not be relied upon as legal advice. Hunt & Hunt recommends that if you have a matter that is legal, or has legal implications, you consult with your legal adviser.

Sydney     |    North Ryde     |    Melbourne     |    Brisbane     |    Perth     |    Darwin     |    Shanghai     |     Interlaw
© 2006 - 2016 Hunt & Hunt    |