Raymond v Lewis [2024] QCA 43

Andrew Orford  |  Laura Berry  |  Tara Vele

Key takeouts

A duty of care will not be owed by a builder to a subsequent purchaser of a building, unless the purchaser is vulnerable at the time of purchase.  Vulnerability will exist if the subsequent purchaser is incapable of protecting themselves from pure economic loss in the event of latent defects caused by poor construction.

Whether defects are discoverable at the time of purchase is relevant in determining whether a purchaser is vulnerable.  A subsequent purchaser will have difficulty establishing vulnerability, and therefore a duty of care, if the defects in question were discoverable prior to settlement. A subsequent purchaser who possesses the means to expend a considerable sum of money for the purchase of a property should, with reasonable diligence, take steps to protect themselves prior to the purchase. This includes obtaining their own independent building and pest inspection reports.

Facts

In 2017 Ms Lewis (Lewis) purchased a residential property from Mr King (King) for $1.6 million at auction. The house was constructed between 2005-2006.  At the time of construction, the property was owned by Tycoon Developments Pty Ltd (Tycoon), of which Mr Raymond (Raymond) was a director and shareholder. Raymond was the registered builder of the property. Tycoon subsequently sold the property to King.

Lewis’ evidence

Lewis and her husband inspected the residence twice before auction. They reviewed building and pest reports (reports) provided by King. On the second inspection, Lewis noticed a hatch leading to the subfloor space underneath the house. Lewis opened the hatch, however, there was no light and all she could see was a step leading down. Neither she nor her husband entered this area.

In the reports there was a section dealing with the subfloor space. There was a photograph illustrating the rusting box section of several steel columns. These were characterised in the report as minor defects. The report also disclosed the method for fixing the problem and explained that the minor defects were ‘generally of an ongoing maintenance nature’ and ‘not in most cases affecting the overall functionality of the residence’. The pest report noted no visible and accessible borer indicators, damp wood termites, wood decay fungi or termite indicators, but noted that did not mean there were no termite indicators or damage as the level of inspection was visual and non-invasive and had many limitations. Lewis purchased the property without obtaining her own independent building and inspection reports.

Post-purchase, a pest controller engaged by Lewis refused to treat the house due to major problems identified in the subfloor area. Lewis hired Mr Waddell (building inspector) and Morgan Consulting Engineers Pty Ltd (engineer), a structural engineering firm to inspect the property. They both found numerous defects. Lewis stated in her evidence that if she had been aware of the state of the defects at the time of the auction, she would not have purchased the house. Lewis confirmed that she ‘basically trusted that the report that was provided by the real estate agent was… done properly… picking up any defects’.

Nature and discoverability of the latent defects

Throughout 2017 the building inspector did a number of inspections, taking a series of photographs which confirmed the defects were of a type that were in existence and observable prior to Lewis’ purchase of the property.

The engineer carried out two inspections on 30 May 2017 and 12 September 2017. Its report noted:

‘in our opinion, the Building Inspection Report does not accurately represent the condition of the residence. While no single major defect was identified during our investigation, it is our opinion that the frequency of minor defects is uncommonly high. These defects relate to poor or inappropriate construction and poor repair works. Furthermore, many of these defects may impact the structural condition and maintenance of the structure in the future.’

Decision  

First instance decision – the builder owed a duty of care

The District Court found that Raymond, as the builder, owed Lewis, as a subsequent purchaser, a duty of care as following Bryan v Maloney (1995) 182 CLR 609 on the basis of her ‘vulnerability and reliance which was proved by her evidence [at trial]’ and that part 5 of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) had not replaced the duty expressed in Bryan v Maloney.

Appellate decision – Court of Appeal overturns decision

Raymond appealed on the basis that the trial judge erred in finding that:

1. Lewis was relevantly vulnerable in that the finding was unsupported by reasoning or findings of primary fact and unsupported by the evidence;
2. there was reliance by Lewis on Raymond in that the finding was unsupported by reasoning or findings of primary fact, and unsupported by the evidence;
3. Lewis was vulnerable, and that a duty was owed, in circumstances where the statutory insurance scheme under the QBCC Act only extended protection for six years and six months after construction; and
4. Raymond owed Lewis a duty of care.

Raymond’s appeal was allowed with costs, and the judgment of the District Court was set aside.

Discoverability of the latent defects

On appeal, Lewis submitted that the defects were hidden and undetectable prior to the auction. However, the court found that the relative speed and ease with which the defects were identified soon after settlement indicated that they were discoverable before the auction had Lewis had engaged a qualified person to do pre-purchase inspections. The evidence adduced at trial did not support the trial judge’s finding that Lewis was vulnerable at the time of her purchase. She had the capacity to procure an appropriately qualified or experienced person to perform the inspection that would have revealed the existing defects in the residence before the auction.

Reliance

In Bryan v Maloney the subsequent purchaser’s reliance on the builder was established (in part) by the fact that the defects did not manifest until after the purchase of the property when cracks began to appear in the walls. Lewis, however, was satisfied to proceed with purchase based on the vendor reports, despite their limitations. She chose not to obtain the services of an independent building inspector, which would have revealed the existence of the defects. The evidence at trial therefore did not support the inference that Lewis relied on the builder of the property to have built the property free from such defects.

As Raymond succeeded in showing the trial judge erred in finding Lewis was vulnerable at the time of the purchase and that she relied on the builder when she purchased the property, the trial judge’s conclusion that Raymond owed a duty of care owed to Lewis in respect of the construction of the property was also in error.

Statutory Insurance Scheme – did it apply?

Given that the circumstances of Lewis’ purchase did not fall within the authority of Bryan v Maloney, the court did not consider Raymond’s argument that the existence of the statutory insurance scheme further confined the application of Bryan v Maloney.