1300 660 884A recent decision by the Queensland Court of Appeal has confirmed there are very limited circumstances in which a builder will owe a duty of care to subsequent purchasers of property they built.
May 15, 2024
A recent decision by the Queensland Court of Appeal has confirmed there are very limited circumstances in which a builder will owe a duty of care to subsequent purchasers of property they built.
In the decision of Raymond v Lewis [2024] QCA 43, the Court found that a builder will not owe a duty of care to a subsequent purchaser of the building unless the subsequent purchaser is 'relevantly vulnerable' at the time of purchasing. Factors such as a buyer’s failure to diligently inspect the property for defects prior to purchase significantly diminish their ability to successfully pursue a negligence claim against the builder.
The decision marks a victory for builders. It confirms:
Background
Between 2005 and 2006, Mr Raymond, a registered builder, constructed a multi-storey house located in Paddington, Queensland. Upon completing construction of the house, Mr Raymond’s company (Tycoon Developments Pty Ltd) sold the property to Mr King. Mr King remained the owner of that property until 2017, when he sold it to Ms Lewis at auction for $1.6Mil.
Shortly after Ms Lewis and her family moved into the property, Ms Lewis ascertained that there were defects in the construction of the house. The defects included problems with the timber subfloor and the props and joists used to support the driveway and garage floor. Importantly, Ms Lewis did not engage her own expert to carry out an inspection of the property prior to her purchase, and instead relied solely on a building and pest inspections report procured by Mr King (the vendor).
Ms Lewis elected not to pursue a defective works claim under the statutory insurance scheme and instead commenced proceedings against Mr Raymond, the builder of the house, for negligence in the District Court of Queensland. In that proceeding, Ms Lewis claimed damages against Mr Raymond for the economic loss she had suffered, effectively being the loss in the value of the property consequent of its defects. Ms Lewis succeeded in the District Court proceeding and was awarded damages in the sum of $229,100 with interest and indemnity costs.
Mr Raymond appealed the decision to the Court of Appeal of the Supreme Court of Queensland. Broadly speaking, the primary question on appeal was whether the trial judge erred in finding that Mr Raymond owed Ms Lewis, as a subsequent purchaser of the house, a duty of care.
Court of Appeal's decision
The Court of Appeal did not agree with the District Court’s decision – ruling that Mr Raymond did not owe Ms Lewis a duty of care, and therefore was not liable to pay damages for negligence.
The Court of Appeal looked closely at the High Court's decision of Bryan v Maloney (1995) 182 CLR 609. In that case, the High Court found that where a duty of care was owed by a builder to a previous purchaser, by extension, that duty of care should also be owed to subsequent owners in certain circumstances. One of the key factors in determining whether or not a builder's duty of care should extend to subsequent owners was whether the subsequent owner was sufficiently 'vulnerable'.
The Court of Appeal had regard to the fact that:
However, the Court still found that Ms Lewis was not sufficiently 'vulnerable' for Mr Raymond to owe her a duty of care.
In arriving at their decision, the Court noted that the defects were discoverable at the time Ms Lewis purchased the house, and it was open to Ms Lewis to obtain her own expert opinion on the state of the house before outlaying some $1.6 million to purchase the home, but she chose not to do so.
Key takeaways
The decision of Raymond v Lewis [2024] QCA 43 further clarifies the circumstances under which a subsequent property owner can seek compensation for economic loss stemming from defects in their property. The threshold for such a claim is high – requiring the subsequent buyer to demonstrate a level of vulnerability where they were unable to shield themselves from economic loss due to building defects at the time of purchase. In assessing the purchaser’s ability to protect themselves, factors such as the discoverability of defects at the time of purchase and the purchaser’s level of sophistication are taken into account.
It also seems that there is almost no scenario in Queensland where a builder will be liable in negligence for economic loss sustained by a subsequent purchaser of a commercial building given the purchasers of commercial properties are invariably more sophisticated than residential purchasers.
It is, however, important to note that builders may still be liable to subsequent homeowners under the statutory insurance scheme, which covers homeowners (including subsequent homeowners) in respect of residential construction work valued at over $3,300.
Practically speaking, the decision highlights the importance of prospective buyers performing a thorough inspection of any house or other dwelling before purchasing it (which may, for example, involve obtaining your own expert opinions).
Unless the property is being purchased directly from the builder, purchasers are unlikely to have any recourse in negligence against the builder for economic loss suffered because of defects.
If you have any questions about the implications of this case, or in respect of ongoing obligations of builders, Call Winterkorn Legal Group on 1300 660 884 to speak with an experienced building and construction lawyer today.