Buyer Beware

Introduction

Fifteen years ago, in Bryan v Maloney, the High Court of Australia held that a builder of a house could be liable in negligence to a subsequent owner.  This decision of the High Court has been followed and applied on many occasions by Courts across most states and territories in Australia.

In a recent decision of the Supreme Court of South Australia, the Court was asked to decide whether the builder would be liable to the subsequent owner even if the defects complained about would have been apparent at the time of purchase from the original owner.

The Background

In Roberts v Parletta Constructions Pty Ltd [2010] SASC 248, Ms Roberts purchased, in February 2006, a two storey apartment which had been constructed by Parletta in 1999.

Parletta built the apartment for a developer, who sold it to a subsequent owner, who then sold it to Ms Roberts.  Ms Roberts did not obtain a building inspection prior to purchasing the apartment.

Shortly after moving into the apartment, Ms Roberts noticed water leaking from the patio deck to the carport below and over time, the volume of water increased.  The patio deck was also the roof of the carport.

Ms Roberts sought advice from an engineer who found that the method used by Parletta for damp proofing the patio was incomplete and unsatisfactory and that the entire decking needed to be replaced. Ms Roberts decided to hire Los Angeles top rated deck builders for residential properties, to come replace her patio.

Ms Roberts claimed from Parletta the costs of replacing the framework of the patio deck.

The legal issues

As more than 5 years had elapsed since the completion of the construction of the unit, Ms Roberts could not rely on the statutory warranties contained in the Building Work Contractors Act 1995 (SA).

Ms Roberts issued a claim in theMagistrates Courtseeking compensation.

At the trial, Ms Roberts said that the High Court decision in Bryan v Maloney was directly on point in this case and that Parletta, as the original builder, therefore owed a duty of care to Ms Roberts as a subsequent owner.  Ms Roberts argued Parletta had breached that duty by carrying out defective building works.

Ms Roberts also argued that there was a contract in place between her and Parletta and that the contract had been breached by Parletta.

The decision of the Trial Magistrate

After hearing evidence and legal submissions at the trial, the Magistrate immediately dismissed any suggestion that there was a contract between Parletta and Ms Roberts.  The Magistrate also held that the High Court decision in Bryan did not apply to this case as, in this matter, there was not a latent defect.

Although the Magistrate found that the patio decking was constructed by Parletta using cost saving methods at the original owner’s direction, it was nevertheless structurally sound and waterproof when it was constructed.

It is significant in this case that the developer had asked Parletta to construct the patio as economically as possible.  Due to the economic construction, the Magistrate found that the patio would have required ongoing and adequate maintenance to remain waterproof.

To the extent there was defective workmanship, the Magistrate held that a competent building inspection at the time of Ms Roberts’ purchase would have revealed the need for maintenance of the patio deck.  He said Ms Roberts appeared to have largely ignored the slight leaking which was apparent shortly after she purchased the property in 2006 and instead she waited until the leak became more pronounced over time.

Essentially, the Magistrate said that the facts of the case were able to be distinguished from Bryan because the cost cutting construction of the deck would have been apparent to Ms Roberts on a proper inspection at the time of purchase.  On the other hand, in Bryan, the case concerned inadequate footings which could not have been discovered by any inspection. The Magistrate held that Ms Roberts was not entitled to any damages.

The decision on appeal

Ms Roberts appealed the Magistrate’s decision to the Supreme Court of South Australia.

The Supreme Court agreed with the Magistrate that there was no contract between Parletta and Ms Roberts.  It is difficult to see how such a claim could ever have succeeded.

The Supreme Court agreed with the Magistrate’s determination that the High Court decision in Bryan v Maloney was not applicable.  The Court said that the structure and condition of the patio deck would have been apparent on any proper inspection at the time of purchase and there was no evidence at trial that Ms Roberts had organised any such inspection.

The Court said that it was an important part of the reasoning of the High Court in Bryan v Maloney that the defect which caused the loss was latent.  That is, it was not something which the new owner could have discovered at the time of purchase and the defect was only first identified at a later date.

The Supreme Court dismissed her appeal and agreed with the findings of the Magistrate.

Conclusion

By reason of the High Court decision in Bryan v Maloney, a builder can be liable in negligence to a subsequent owner.

However, the recent Supreme Court decision of Roberts v Parletta makes it clear that the principle set out in Bryan will not be applied if the defect should have been apparent to the purchaser at or before the time of purchase.

Note that by reason of the Development Act 1993 (SA), no action can be brought for the costs of rectification work once the period of 10 years has elapsed from the date of completion of the work (although exceptions to the 10 year rule apply to claims for damages for personal injury or death).  Accordingly, this update has no relevance to defects in houses that have been completed for more than 10 years.

The Roberts decision reinforces the commercial wisdom of obtaining a pre purchase inspection by an experienced building inspector when proposing to purchase a home that is less than 10 years old.

If a purchaser fails to make enquiries about the condition of the property and to obtain a proper building inspection, they are likely to be precluded from bringing a negligence claim against the original builder of the property.

It is a case of “buyer beware” – if the buyer does not take steps to identify any defects, they cannot subsequently look to the builder for compensation for rectification of the defects.

This amounts to a sensible limitation on the principle set out by the High Court in Bryan.

A purchaser cannot simply fail to protect their own interests by declining a building inspection and then try to recover damages from a builder in respect of a problem they should have identified.

Contributors: Kerry Colmer and Tom Grace

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