Introduction

Owners corporations in New South Wales have a bit of a pickle when it comes to getting money back from developers to sort out building defects. Developers often use clever corporate structures to shield their assets, making it tougher for these corporations to claim funds to fix issues in their buildings. This sneaky strategy is pretty common among developers, putting a real strain on owners who just want their buildings to be up to scratch. Unfortunately, navigating through these legal mazes can make you feel like you’re in a thriller with plot turns at every corner. If you’re in this boat, understanding these tricky tactics and their impact could save you a whole lot of hassle. Why let the developers have the upper hand when you can outsmart the game yourself?

However, a recent case in the NSW Supreme Court marks a significant win for owners corporations. In this matter, the Supreme Court granted a freezing order against a developer, Aqualand Constructions Pty Ltd, preventing the disposal of assets in a building defects claim. This article will explore the details of this case and what it means for owners corporations and developers in NSW.

Understanding the Defect Problem and Developer Asset Protection

The Challenge of Recovering Defect Rectification Costs

In recent years, the property development industry has become more sophisticated. As a result, developers often implement corporate structures designed to safeguard their assets. This practice can create a significant challenge for owners corporations when building defects emerge. Owners corporations may find themselves in a position where they are unable to recover sufficient compensation from developers to cover the necessary costs of rectifying these defects. This difficulty arises because the intended asset protection strategies employed by developers can effectively shield them from liability, leaving owners corporations to bear the financial burden of defect rectification.

How Developers Use Corporate Structures to Protect Assets

Developers frequently use special purpose vehicles (SPVs) as part of their corporate structure. A developer company might be established specifically as an SPV for a particular development project within a larger group. The purpose of using an SPV is to limit financial and legal liability to that specific project. Consider a scenario where a developer undertakes a new building project using an SPV. If defects are discovered in the building, and the owners corporation pursues a claim for rectification costs, the developer may argue that the SPV, with limited assets beyond the development itself, is responsible. This can restrict the owners corporation’s ability to recover costs from the broader, more financially robust developer group, as assets are strategically protected within separate corporate entities.

Case Background: The Owners – Strata Plan No. 102081 v Aqualand Constructions Pty Ltd

The Milsons Point Building and the Defect Claim

The case (The Owners – Strata Plan No. 102081 v Aqualand Constructions Pty Ltd [2025] NSWSC 31) concerns a mixed-use building located in Milsons Point, Sydney. This property comprises 125 residential lots and 2 commercial lots. Construction of the unit block was completed in July 2021.

Defects were discovered in the building, leading the owners corporation to take legal action. The owners corporation lodged a claim in the Supreme Court of NSW against the developer, Aqualand Constructions Pty Ltd, seeking $10.6 million to cover the cost of rectifying the defects. The estimated cost was supported by evidence from a quantity surveyor.

Aqualand Constructions: The Developer as a Special Purpose Vehicle

Aqualand Constructions Pty Ltd was the developer of the Milsons Point building. It is important to note that Aqualand Constructions Pty Ltd is a special purpose vehicle (SPV) within the larger Aqualand group. Developers often use SPVs for specific projects like this development. This type of corporate structure is frequently used in the property development industry.

The Owners Corporation’s Legal Strategy: Seeking a Freezing Order

Concern Over Developer Asset Dissipation

The owners corporation became concerned about how they would recover the significant costs to rectify the building defects. Their primary concern was the risk of the developer dissipating its remaining assets. The developer still owned four residential lots within the building, and these represented effectively the developer’s only assets. The owners corporation worried that once these lots were sold, the proceeds would be distributed, leaving the developer without funds to cover the defect rectification costs. This situation would make pursuing the court case against the developer pointless, as there would be no assets from which to recover any awarded damages.

Supreme Court Application for Asset Freezing

To protect their interests, the owners corporation took proactive legal action. In November 2024, they applied to the Supreme Court of NSW for a freezing order. This application sought to prevent the developer from disposing of assets up to the value of their $10.6 million claim for building defects. The purpose of the freezing order was to ensure that assets would be available to satisfy any judgment obtained against the developer. The owners corporation aimed to prevent the developer from selling the remaining residential lots and distributing the profits, which would leave them unable to recover the costs for rectifying the defects.

The Supreme Court Decision: A Win for Owners Corporations

Court Grants Freezing Order to Protect Owners

On 6 February 2025, the Supreme Court of NSW ruled in favour of the owners corporation. The court decided to grant the freezing order against the developer, Aqualand Constructions Pty Ltd. This decision marks a win for owners corporations in NSW facing similar situations with developers. The Supreme Court’s order prevents the developer from disposing of assets up to the value of the owners corporation’s claim of $10.6 million.

Preventing Asset Disposal and Ensuring Compensation

The Court concluded there was a real risk that the developer would dispose of its remaining assets, which were the four residential lots still owned by the developer in the building. The court was persuaded that the developer was likely to sell these remaining lots and distribute the profits within its corporate group. This distribution could be through dividends or loans to other entities within the meaning of the Aqualand group. The purpose of the freezing order is to prevent this asset dissipation. By securing the freezing order, the owners corporation aims to ensure that funds will be available to satisfy any judgment if they win their building defect claim against the developer.

Implications and Lessons from the Aqualand Case

A Victory for Owners Corporations Facing Recalcitrant Developers

This case sets a positive precedent for owners corporations in NSW. It demonstrates that owners corporations concerned about developers dissipating assets have legal avenues to protect their financial interests. Freezing orders are available from the Supreme Court to safeguard owners corporations at risk of developers avoiding defect liabilities. Owners corporations facing developers who may attempt to evade their responsibilities can take proactive steps to ensure developers are held accountable for building defects.

Warning for Developers: SPVs and Asset Protection Limitations

Developers should take note that using special purpose vehicles (SPVs) may not provide the asset protection they anticipate. The Aqualand case serves as a warning that the Supreme Court is willing to intervene to protect owners corporations with legitimate defect claims. If an owners corporation has a valid claim and expresses concerns about asset dissipation, developers may find it difficult to resist applications for freezing orders. Developers resisting such applications may also be ordered to pay the legal costs, as seen in this case.

Conclusion

This case represents a significant win for owners corporations in NSW, demonstrating that they are not powerless when facing developers who may attempt to avoid defect liabilities. The Supreme Court’s decision to grant a freezing order against the developer in the Aqualand case highlights that owners corporations can take proactive legal action to protect their financial interests. Freezing orders are a valuable tool available from the Supreme Court, ensuring developers are held accountable for building defects and preventing them from dissipating assets to evade their responsibilities.

Owners corporations concerned about similar risks should seek legal advice early to understand their options and protect their rights. For expert guidance on strata law, building defects, and freezing order applications in NSW, contact our experienced strata lawyers at PBL Law Group today to discuss your situation and explore how we can assist you.

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