QCAT Lifts the Corporate Veil on Defective Building Works

A recent QCAT decision appears to have changed the game for building contractors trading through a company to limit their personal liability in negligence.

In this case, Olindaridge Pty Ltd and Ors v Tracey and Anor [2016] QCATA 23, a QBCC licensed company entered into a residential building contract in its name for the construction of a house. The home owners later alleged the building works were defective and filed a claim for compensation in QCAT against the company and each of its directors personally.

While a company is usually viewed as a separate legal entity responsible for its own negligent acts and omissions, QCAT decided the directors were personally liable for the company’s negligence. One of the directors appealed this decision.

On appeal QCAT stated the director was: “answerable for his own defaults and cannot escape them by pointing to the company’s separate legal personality.”

The directors were found to have owed a duty of care to the home owners despite never having entered into a contract with them because of the character of their relationship. QCAT considered the following aspects of their relationship:

• the kind of loss caused (i.e. depreciation in property value);
• the nature of the property (i.e. a family home);
• the home owners’ reliance on the builder and the builder’s assumed responsibility for the works; and
• an unequal level of knowledge, skill and experience in housing and construction between the parties.

This decision must now be followed by QCAT when dealing with similar matters at first instance. It remains to be seen whether the courts will follow suit.

Directors of residential building companies should be aware of the duties they owe to home owners and their potential exposure to personal liability, in QCAT at least. Residential building contracts should be drafted to protect directors of a company from personal liability.

For any queries contact John Carey of our office.