10 July 2026
8 min read
#Construction, Infrastructure & Projects
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In our experience, the hardest asset management disputes are rarely about obvious defects at handover. They arise years later, and repeated failures start to look less like maintenance issues and more like an inherited design or construction problem. Common examples include balcony or podium leaks that return after patch repairs, façade movement across multiple elevations, plant that underperforms well before the expected design life, and compliance issues associated with combustible cladding.
The commercial difference between ordinary deterioration and a systemic defect is significant. If the issue is no more than the expected ageing of sealants, membranes, coatings, plant or finishes, it is usually a matter for planned maintenance and lifecycle budgeting.
If the recurring failure can be traced to a design assumption, a non-compliant or unsuitable product, or poor workmanship repeated across multiple locations, the dispute quickly shifts to questions of contractual risk allocation, rectification responsibility, recoverable loss and limitation.
The difference between wear and tear and systemic defect is often the difference between routine asset management and years of avoidable litigation.
The distinction is straightforward in principle. Wear and tear is the ordinary deterioration that follows from age, use and exposure, whereas a systemic defect points to a problem inherent in the asset. Examples include inadequate waterproofing detail, poor design, a façade system that does not accommodate movement, or a product or assembly that cannot lawfully or safely perform its intended function.
The challenge is proving which explanation best describes the failure. A recurring leak may appear to be a maintenance issue, particularly if debris, blocked drainage or delayed repairs are present. But premature failure, repeated leakage in corresponding locations and inadequate detailing at penetrations or interfaces will often point to a systemic issue.
For this reason, these disputes are usually expert-heavy. The key questions to consider are:
In practice, three features usually justify a deeper inquiry:
When those features appear together, it becomes much harder to characterise the issue as ordinary wear and tear.
By contrast, where the component is nearing the end of its design life, maintenance has been poor, loading or use has changed, or repairs have been delayed for years, the case for wear and tear becomes stronger. Many disputes involve both: an underlying design or workmanship defect that is then intensified by maintenance decisions, operational change or delayed intervention.
Asset managers should not simply ask, ‘who caused this?’ Instead, they should ask, ‘what does the failure pattern tell us, and what records will prove it?’ Preserving the design basis, shop drawings, product data, commissioning records, maintenance logs and patch repair history will often decide causation years later.
Where owners assume that a recurring defect can simply be pursued as negligence, the High Court authorities are a useful corrective.
In Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, the High Court held that a subsequent purchaser of a commercial warehouse and office complex could not recover pure economic loss in negligence against the consulting engineers on the pleaded facts. The Court emphasised the purchaser’s ability to protect itself by contractual warranty or assignment and the importance of vulnerability in pure economic loss cases.
The same theme appears in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36. The High Court held that the builder of a serviced apartment development did not owe the owners corporation a duty of care to avoid pure economic loss from latent defects in common property, particularly where the project contracts and sale documents already allocated rights concerning defects.
Those decisions do not insulate contractors from liability. Rather, they demonstrate that in commercial and mixed-use projects, the real battleground is usually contractual and statutory. The outcome often turns on whether the contractor assumed design responsibility, whether the standard is reasonable skill and care or fitness for purpose, what the defect and warranty clauses cover, what notice and rectification procedures apply, and whether the contract excludes or caps downstream losses.
Modern statutory regimes can materially alter the traditional position. In Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49, the High Court held that claims under the Design and Building Practitioners Act 2020 (NSW) for breach of the statutory duty to avoid economic loss caused by defects are not subject to the ordinary proportionate liability regime. That outcome materially affects exposure and settlement dynamics in NSW residential defect litigation.
Timing can be decisive. The challenge with latent defects is that by the time the problem has recurred often enough, or been investigated thoroughly enough, to establish that it is likely systemic rather than a maintenance issue, significant time may already have passed.
This creates a particular challenge when limitation periods are considered. In Queensland, claims for breach of contract or negligence will generally need to be commenced within six years of the cause of action accruing. However, when that six-year period begins depends on the claim. A breach of contract usually accrues when the breach occurs, while negligence generally accrues when loss is suffered.
In latent defect matters, this can create real difficulty because the defect may not be discovered, or its systemic nature may not be understood, until years after completion. In many Australian jurisdictions, building-specific ‘longstop’ periods may also prevent proceedings being commenced more than 10 years after completion of the works or the issue of an occupancy certificate, depending on the applicable legislation.
Given the risks, owners, asset managers and contractors should treat recurring failures as time-sensitive. Early investigation, preservation of records and careful engagement of experts may be critical to preserving rights. For more detail on the importance of early expert engagement and maintaining privilege over defect investigations, see Partner Kirsty Smith’s article, Defects, experts and maintaining privilege – the importance of engaging early.
These timing pressures can also drive defensive behaviour. Owners may commence proceedings before investigations are complete to preserve rights, while contractors may resist early admissions until the technical picture is clearer. By the time the true nature of the problem is understood, project records may have dispersed, the original design assumptions may be harder to reconstruct, and the dispute may already have progressed into litigation.
For that reason, managing recurring defects is as much about evidence and timing as it is about technical analysis.
In many defect disputes, establishing that a defect exist is only the beginning. The more difficult question is often what it will reasonably take to fix the problem and the resulting costs down the track.
The High Court’s decision in Bellgrove v Eldridge (1954) 90 CLR 613 remains the starting point. The Court held that where rectification work is necessary and reasonable to bring the asset into conformity, the cost of that work may be recoverable. The practical point is that a claimant is not confined to a token allowance if proper conformity requires intrusive work.
The same remedial logic appears in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8. Although not a construction defect case, the High Court held that the landlord was entitled to recover reinstatement costs, rather than merely diminution in value, where restoration was the proper contractual measure.
In defect disputes, that reasoning is useful by analogy: façade, waterproofing, fire-safety or structural defects may require the removal of surrounding work, access systems, temporary weatherproofing, decanting and reinstatement of unaffected but connected elements. The recoverable claim may therefore be much larger than the direct cost of replacing the defective element itself.
First, investigate repeated failures before they become embedded as ‘maintenance issues’. Repetition is a warning sign.
Secondly, read the contract as an operating document, not just a closing document. Owners, contractors and asset managers should understand from the outset who carries the design risk, what the relevant standard is, how notice and rectification rights are triggered and what categories of loss are excluded or preserved.
Thirdly, preserve the records that will later decide causation. In these disputes, the crucial documents are often created years before the problem becomes visible.
Finally, use independent technical expertise early and strategically. A well-scoped expert review can help determine whether the issue is isolated or systemic, what immediate mitigation is required, and which legal pathway is most likely to matter.
Ultimately, prevention remains the best strategy. But early engagement is only effective if parties understand what this requires in practice.
The most expensive asset management disputes are rarely those where the defect is technically impossible to diagnose. They are the ones where the issue is recognised late, the records are incomplete, the applicable contract or statutory pathway is misunderstood, and the parties entrench themselves before the technical cause and remedial scope are properly framed.
The earlier that issues are identified, documented and properly framed, the better the prospects of resolving the dispute commercially and avoiding years of avoidable litigation.
If you would like to discuss strategies to reduce, mitigate or avoid asset management disputes, please contact us here.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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