Cth: High Court clarifies builders’ duty of care to developers and owners for economic loss

In brief

Earlier this month, the High Court of Australia delivered its judgement, unanimously overturning the NSW Court of Appeal, in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36. The High Court held that the builder of an apartment complex did not owe a common law duty of care to the Owners Corporation to avoid causing it economic loss resulting from latent defects in the building’s common property.

Background

Brookfield Multiplex Ltd (Builder) was engaged by a developer to design and construct an apartment complex on land in Chatswood, NSW, which the developer owned. The developer sold the lots in the building to various purchasers who, upon registration of the relevant strata plan, collectively became the Owners Corporation. Following formation of the Owners Corporation and sometime after the building was completed, latent defects were discovered in the common property.

The Owners Corporation brought a claim against the Builder in an effort to recover the losses it had incurred rectifying the various latent defects. Despite detailed provisions relating to quality and defects liability in the design and construct contract, the Builder’s liability for latent defects was excluded (following Final Completion). As such, the Owners Corporation confined its claim to common law negligence alleging that the Builder owed the Owners Corporation a duty to avoid causing it economic loss. 

Almost a year ago, the NSW Court of Appeal found in favour of the Owners Corporation on the basis that the Builder owed a duty of care to avoid causing loss resulting from latent defects in the common property which were structural or constituted a danger to persons or property in the vicinity or made the apartments uninhabitable. 

Decision

Earlier this month, the High Court overturned that decision. After highlighting the distinction between claims for economic loss (as in this case) and claims for damage to persons or property, French CJ noted that the relevant test for economic loss claims involves an assessment of whether the suing party was vulnerable to suffering the loss the subject of the claim. 

French CJ held that the complex contractual arrangements (that clearly considered the risk of defects) between the Builder and developer as well as the developer and the purchasers (for whom the Owners Corporation acted) evinced a lack of vulnerability on the part of the developer and, consequently, the Owners Corporation. Hayne and Kiefel JJ reached a similar conclusion and further added that it was open to the purchasers (and, by extension, the Owners Corporation) to have bargained for contractual protections against loss caused by latent defects. The High Court held that the lack of vulnerability on the part of the Owners Corporation’s was fatal to its case and that the Builder did not owe the claimed duty of care.

Implications

While this decision is an important step towards clarifying this area of law, whether or not a particular relationship will give rise to a duty of care will depend on the salient features of the parties’ relationship, and in particular any contracts between the parties and any statutory overlay.

A fundamental reason for the High Court’s decision in this case was the fact that neither the developer nor the subsequent purchasers were vulnerable. They were able to protect their interests via their contractual arrangements and a failure to take that chance was not something to be repaired by the common law. 

For further information, please contact Jay Leary, Partner, Roger Allingham, Solicitor, Brisbane, or your usual Herbert Smith Freehills contact.

The Liberian mining law reform and the impact of the Ebola crisis

Despite its relatively small size (approximately 110,000km with a population of four million people), Liberia, the oldest republic in Africa, is a resource-rich country with significant deposits of iron ore, gold and diamonds.

The West African mining industry is facing significant headwinds from the combined effect of:

• the Ebola virus outbreak, which has caused the death of 3,439 people, including 2,069 in Liberia, as of 30 September 2014 according to the World Health Organization,
• the depressed iron ore price, which has decreased by more than 30% over the last year, and 
• the increased pressure on the financing and refinancing of greenfield projects in developing countries.

This has caused:

• a reduction of growth projections for the region: the Liberian government and the World Bank have halved growth estimates for the mining sector and the overall economy for this year and medium term prospects are likely to be worse if the crisis is not quickly contained, and
• various challenges for a number of iron ore and gold companies and contractors operating in the region, which has led a number of them to declare force majeure.

Despite these difficulties, Liberia's mining potential is considered to be very promising given that:

• Liberian soil is yet to be fully explored,
• the country is still recovering from a 14-year long civil war that ended in 2003 (before the civil war, Liberia was the number one iron producer in Africa and the fifth largest exporter of iron ore in the world), and
• its mining industry is still transitioning from artisanal to industrial mining. 

In line with a number of resource-rich West African countries, Liberia has been planning to revise its 24-section long 2000 Minerals and Mining Law (2000 Mining Law) since 2012 in order to boost the state's share of resource profits, as well as transparency and accountability.

The 2000 Mining Law was enacted during the presidency of Charles Taylor and replaced the Natural Resources Law of 1956. Although it was amended in 2004 to include a new chapter on the 2003 United Nations' Kimberley Process Certification Scheme and was supplemented by comprehensive Exploration Regulations in 2010, it has often been described as out-dated, unclear and not very detailed in certain respects (e.g. the differences between class A, B and C mining licenses).

Despite the Ebola crisis, which has hit Liberia the hardest because it has spread to the densely populated zones of Monrovia, this mining reform appears to remain on the Government's agenda.

The main objectives of this reform are to:

• harmonise the 2000 Mining Law with a number of laws, including the 2010 Public Procurement and Concession Act Law and the 2000 Revenue Code (as amended in 2011) and the 2009 Liberia Extractive Industries Transparency Initiative (LEITI) Law,
• switch from a concession-based system to a license-based system and reduce carve outs from the prevailing legislation that are currently available under the 2000 Mining Law on the basis of negotiated mineral development agreements for major projects,
• increase local content requirements, and
• improve cooperation between the various governmental departments and agencies involved in the mining sector.

This reform is supported by the German International Cooperation agency (GIZ) and the World Bank and is based, inter alia, on the following policies and documents:

• the 2013 LEITI post award process audit,
• the 2010 Mineral Policy guidelines,
• the 2009 African Union's Africa Mining Vision guidelines, and 
• various recommendations from the World Bank's Extractive Industries Technical Advisory Facility.

This reform is driven by an Inter-Ministerial Steering Committee chaired by the Ministry of Lands, Mines and Energy, and largely managed by Deputy Minister Sam Russ, and includes representatives from the Ministries of Justice, Finance, Planning and Economic Affairs, Labour and Internal Affairs and of the Environmental Protection Agency, the Public Procurement and Concession Commission, the National Bureau of Concessions, the Law Reform Commission and the National Investment Commission.

Pre-drafting consultations were conducted in 2013 in order to seek the views of various stakeholders including local authorities, local communities, political parties, the private sector, donors and development partners.

The first draft of the proposed new mining law was produced by two external experts (Philip James Kelly, lawyer, and Patrick William Gorman, mining engineer) together with a team of local experts and was circulated to operators for comments in late 2013.

Further consultations are likely following the production of the second draft.

This extensive consultation process is a positive step in the implementation of the reform.

One of the key issues that the new mining law will need to cover is the transitional and, possibly, grandfathering regime that will apply upon the new law entering into force – companies currently operating in Liberia will be particularly interested in any guarantee that mining rights granted prior to the new law will be maintained, especially if a mineral development agreement was entered into with the state.

The timeframe for the next steps and, possibly, the content of the new law itself, may be impacted by the development of the Ebola crisis. It will be interesting to compare the final version of this new law with the mining laws recently enacted by Liberia's three neighbouring countries over the past five years (Sierra Leone in 2009, Guinea in 2011 and 2013 and Ivory Coast in 2014).

For further information please contact Yann Alix, Senior Associate, London or your usual Herbert Smith Freehills contact.