Aziz v My Property Inspections Pty Ltd

[2021] NSWCATCD 146

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Aziz v My Property Inspections Pty Ltd [2021] NSWCATCD 146

Hearing dates:

12 August 2021; 7 September 2021; 7 October 2021

Date of orders:

23 November 2021

Decision date:

23 November 2021

Jurisdiction:

Consumer and Commercial Division

Before:

M McCue, General Member

Decision:

The application is dismissed.

Catchwords:

CONTRACTS — Breach of contract — Pre-purchase inspection report

Legislation Cited:

Civil and Administrative Tribunal Act 2013 (NSW)

Civil and Administrative Legislation (Repeal and Amendment) Act 2013

Competition and Consumer Act 2010 (Cth)
Fair Trading Act 1987 (NSW)
Fair Trading Amendment (Australian Consumer Law) Act 2010 (NSW)

Conveyancing Act 1919 (NSW)

Fair Trading Act 1987 (NSW)

Cases Cited:

Dalton v Dama Pty Ltd (1984) BCLRS 143

Gates v City Mutual Life Assurance (1986) 160 CLR 1 at 13

Hansons Properties Pty Ltd v Geraghty BC9101302 (unreported, 20 December 1991, Wood J)

HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640

Kyogle Shire Council v Francis (1998) 13 NSWLR 396

Kyriakou v Hughes (1984) Aust Torts Reports 80-646

L Shaddock and Associates Pty Ltd v Parramatta City Council [1981] HCA 59; (1981) 150 CLR 225

Livingstone v Mitchell [2007] NSWSC 1477 (18 December 2007)

Perry v Sidney Phillips & Son [1982] 1 WLR 1297

Philips v Ward [1956] 1 WLR 471, 478

Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417

Robinson v Harman [1848] EngR 135; (1848) 1 Exch 850 at 855; [1848] EngR 135; 154 ER 363 at 365

Sacks v Hammoud [2016] NSW CATAP 225

Steward v Rapley [1989] 1 EGLR 159

Sved v Council of the Municipality of Woollahra (1995) 86 LGERA 222; Aust Torts Reports 81-328; NSW ConvR 55-736

Watts v Morrow [1991] EWCA Civ 9; [1991] 1 WLR 1421

Texts Cited:

Nil

Category:

Principal judgment

Parties:

Ijaz Aziz (First Applicant)
Haseena Hamid (Second Applicant)
My Property Inspections Pty Ltd (Respondent)

Representation:

First Applicant (Self-represented)
Second Applicant (Self-represented)
A Saleh (Respondent)

File Number(s):

GEN 21/17880

Publication restriction:

Nil

REASONS FOR DECISION

Application

1. The applicants, Ijaz Aziz and Haseena Hamid, bring proceedings in relation to the supply of services, more specifically, a pre-purchase property inspection report that the respondent, My Property Inspections Pty Ltd, supplied to them prior to the purchase of a property in Woodpark, New South Wales.

2. The Tribunal gave leave for the applicant to amend the claim, to rely not only upon the terms of the contractual provisions of an agreement entered into between the parties in early November 2020, but also to seek relief that may be available pursuant to the Australian Consumer Law (ACL) as well as any breach of duty of care founded upon the tort of negligence.

3. The respondent did not oppose the amendments to the application.

4. The Tribunal heard evidence on two occasions and the matter was referred for a determination on the papers after receipt of final written submissions. The Tribunal considered that the preparation of the written submissions was necessary as one of the applicants, Ijaz Aziz, was unable to attend the entirety of the hearing on 7 September 2021 due to a business meeting scheduled on that day. Mrs Haseena Hamid took over the baton, so to speak, mid-way through the hearing.

5. On the first day of the hearing, the matter was adjourned to allow the applicants to provide to the Tribunal, and the other party, a copy of the contract for sale of land dated 2 November 2020 confirming the applicants’ purchase of the property at Woodpark, in the state of New South Wales.

6. The applicants seek an order for the payment of $ 40,000, being the costs of remediation of certain defects allegedly present at the time of the respondent’s inspection of the premises on 4 November 2020. The alleged defects included:

1. Cracks in the walls that needed to be fixed

2. Floors that needed to be levelled

3. Brick piers under the house that needed to be replaced

4. Five down pipes that needed to be connected to the storm water lines

5. Windows and doors that needed to be aligned to open and close properly.

Appearances

7. The applicants, Ijaz Aziz and Haseena Hamid, appeared in person.

8. Mr Adam Omar Saleh appeared for the respondent, My Property Inspections Pty Ltd.

9. Each party took an oath or affirmation prior to giving evidence.

Jurisdiction

10. On the establishment date, 1 January 2014, the Civil and Administrative Legislation (Repeal and Amendment) Act 2013 amended certain statutes which previously conferred jurisdiction on now “abolished” Tribunals.

11. From 1 January 2014, Fair Trading Act 1987 was amended. The definition of "Tribunal" was changed in that Act from the CTTT to NCAT - see cl 4.34 item [2] in Schedule 4 to the Civil and Administrative Legislation (Repeal and Amendment) Act.

12. NCAT has jurisdiction to hear and determine relevant matters in place of the “abolished” Tribunals.

13. Section 79 D Fair Trading Act 1987 (FTA) provides that a consumer means any person to which a supplier has supplied goods or services whether under a contract or not.

14. Section 79E FTA provides that a consumer claim includes a claim by a consumer for the payment of a specified amount of money that arises from the supply of goods or services by a supplier to the consumer.

15. The limitation period for the making of the claim is 3 years from the date the cause of action arises.

16. The Tribunal is satisfied that NCAT has jurisdiction to hear the application.

The cause of action

17. In Sacks v Hammoud [2016] NSW CATAP 225 (11 October 2016) the Appeal Panel considered some necessary elements that give rise to a right of action, given that the consumer legislation does not expressly specify or create causes of action that may underpin a consumer claim.

Consumer claims may be brought in reliance upon common law causes of action such as negligence or breach of contract or on statutory causes of action on the basis of misleading and deceptive conduct or a failure to comply with a statutory guarantee in part 3 – 2 of the ACL NSW.

18. The applicants relied upon an alleged breach of the terms of the contract entered into with the respondent, in around 3 November 2020, for the supply of a pre-purchase inspection report.

19. Although the Tribunal granted leave for the applicants to amend the claim to include other causes of action founded upon the tort of negligence, or, in the alternative, a breach of statutory guarantee pursuant to the Australian Consumer Law, the matter proceeded as a consumer claim founded upon a breach of contract by reference to the Australian Standard – AS 4349 – 2007, as they apply to a pre-purchase inspection report.

Background

20. On 1 November 2020, the applicants, Ijaz Aziz and Haseena Hamid, made an offer to purchase residential premises located at XX Warren Rd Woodpark (“the property”).

21. The Tribunal was unfamiliar with the suburb though Mr Aziz said that Woodpark was a suburb near Greystanes. The Tribunal was familiar with that general area.

22. Mr Aziz said that he and his wife had been looking for a property and attended the Woodpark property for an ”open for inspection” shortly prior to making an offer to purchase the property on 1 November 2020.

23. Mr Aziz gave evidence that the property suited the budget range of the young couple, i.e., between $ 800,000 and $ 900,000. Mr Aziz said that the couple was looking for a house with “a bit of land” with 3-4 bedrooms: something on a quiet street. Mr Aziz said that this property appeared “to tick all the boxes.”

The initial inspection

24. The couple arrived at the initial inspection in late October 2020 and only had about 10 -15 minutes to inspect the property. Mr Aziz conceded that this was not a lot of time for the inspection. Mr Aziz said that the couple spent 2-3 minutes in every room. Mr Aziz further said that the living area seemed fine; the kitchen “looked pretty good.” Mr Aziz said that the kitchen was renovated some 5-10 years ago and did not need much work: “it was OK.”

25. Mr Aziz commented that: “the yard was a really good size.” There was some front yard, as well as some side yards that Mr Aziz described as: “a decent space.” Mr Aziz commented that the property looked very appealing because of the yard space.

26. Mr Aziz thought the house was somewhere between 20-25 years old. Later in the evidence, it transpired that the property was somewhere between 40-50 years old. Mr Aziz said that he had attended several properties open for inspection during the course of his search for a property to purchase.

27. Mr Aziz said that “to be honest” he did not recall looking at everything in detail, though looked at the main living areas; the bathrooms and kitchen areas. Mr Aziz said that his focus was on the layout of the property.

28. Mr Aziz said that in the lounge room, he noticed a few cracks near the sofa and one in the dining area. He commented that every room had furnishings and this made it was difficult to fully appreciate the premises. However, that evening, after the inspection, he contacted the agent at Laing and Simmons to make an offer to purchase the property. He recalls saying to the agent: “was the vendor open to offers.” “what price is the vendor willing to agree on.” It looked as though the vendors’ expectation on price was within the budget range of between $ 800,000 and $ 900,000.

29. Mr Aziz had spoken to his wife, Haseena Hamid, after speaking to the agent and the couple agreed to pursue the purchase of the property by putting in an offer of $ 835,000 that was accepted by the vendors.

30. Mr Aziz and Ms Hamid went through the contract with their
    conveyancer. It was only a matter of days between Mr Aziz speaking to the agent at Laing and Simmons, the acceptance of the applicants’ offer to purchase and the signing of the contract.

The “cooling off” period

31. The contract provided for a “cooling off” period of 2 weeks [if not 5 business days]. As the Tribunal indicated, initially, Mr Aziz had not provided the Tribunal with a copy of the contract for sale of land evidencing some matters critical to the applicants’ case.

32. The purchaser’s rights disclosed in the contract included an entitlement to a “cooling off” period notwithstanding that the contract was dated 2 November 2020. The contract further provided that the purchasers may rescind the contract any time before 5 pm on the fifth business day after the day on which the contract was made pursuant to the provisions of Section 66 U Conveyancing Act, subject to forfeiture of .25% of the purchase price. If Mr Aziz proceeded with the purchase, he was required to pay the balance of the 10 % deposit at the end of the “cooling off” period.

The pre-purchase report

33. Mr Aziz said that he did an internet search seeking a pre-purchase report. He received a quote from the respondent, My Property Inspections Pty Ltd (“MPI”).

34. The e-mail exchange set out in the applicants’ evidence was to the effect that the respondent was offering services under its standard pre-purchase inspection report terms. The fee for service was as agreed at $ 595 and the inspection of the property was scheduled to take place on 4 November 2020 at 2.30 pm.

35. There was no controversy that the parties had entered into an agreement for Mr Saleh from MPI to conduct a pre-purchase inspection of the property noting that the contract for sale of land was subject to a “cooling-off” period.

36. Mr Aziz said this was not the first time he had engaged a service to provide a pre-purchase report. Mr Aziz commented that he was fairly familiar with the standard provisions of the pre-purchase inspection terms.

37. Mr Saleh from MPI attended the property on 4 November 2020 and after the inspection was completed prepared the pre-purchase report. Mr Aziz received the MPI report on around 6 November 2020.

38. The Tribunal asked Mr Aziz whether he had read the report. Mr Aziz said that he had, and he said that there were no major issues: no cracks were noted. The report concluded that the property was in standard or average condition.

39. Mr Aziz commented that the sub-floor areas were unable to be inspected and took the Tribunal through the report prepared by Mr Saleh for MPI in some
    detail. Mr Aziz said that he was surprised at the age of the premises, about 45 years old, and looked at the property more holistically, though took into consideration the age of the premises.

40. There was no apparent cracking reported in the respondent’s report prepared pursuant to certain Australian Standard in terms of its scope of works.

41. After considering the MPI report, Mr Aziz said that in his own mind his position was that:

we’ll be prepared to spend $ 5,000 or thereabouts just to put the premises in some reasonable [condition] after the move in.

The Australian Standard - AS 4349-2007

42. The MPI report noted that:

Inspection and report is limited to appendix C - the Australian Standard - AS 4349-2007

43. The MPI report further noted that:

1. [the report] does not include an estimate for rectification of the defects;

2. the overall condition of this building has been compared to similarly constructed and reasonably maintained buildings of approximately the same age.

What the standard seeks to provide

44. The MPI report set out what the standard seeks to provide, and included:

an appropriate balance between the reliability of outcome, economic contrasts and the flexibility required to address numerous different types of residential buildings.

45. The MPI report said that the inspection is not intended to include rigorous assessment of all building elements in a property. The MPI report further noted that:

the conclusion shall give comment on the overall condition of the property…..

should provide to the initiator an opinion regarding the average condition of similar buildings of the same age that have been reasonably well maintained.

46. The MPI report said the decks were built such that this prohibited easy access to the underfloor areas and the underfloor areas were not inspected.

47. The Tribunal notes that the report disclosed that the property was around 45-50 years old. Mr Aziz instructed the real estate agent that the purchase was going ahead on terms set out in the contract of sale of land dated 2 November 2020. Mr Aziz did not attempt to have any further negotiations about the purchase price, $ 835,000, notwithstanding that there was a right of rescission with minimal penalty if Mr Aziz chose to rescind that contract.

48. The applicants' evidence was that there were no further negotiations contemplated, notwithstanding that the building was a much older build than the applicants had indicated. The bargain was struck at the end of the “cooling-off” period

49. On several occasions, Mr Aziz impressed upon the Tribunal that he was a first home buyer. Nonetheless, Mr Aziz said that he had inspected other properties and arranged pre-inspection reports for those properties.

Further inspections

50. Mr Aziz’s evidence was that he had no further inspections of the property before the settlement. It transpired that was not necessarily the position. When the Tribunal raised the issue of a final inspection available pursuant to the terms of the contract, Mr Aziz said that the tenants were still in occupation up until the day of settlement though Mr Aziz then said that the tenants had left the property on 13 December 2020

51. Mr Aziz had the opportunity to inspect the property on the day of settlement in the company of the other applicant, Ms Hamid. Mr Aziz commented that he noticed some cracks just before the matter was due to settle on 14 December, 2020. Mr Aziz allegedly had a conversation with his conveyancer about those matters. The conveyancer appeared to indicate that it was OK to settle. Mr Aziz gave instructions to his conveyancer to settle later that day.

52. Mr Aziz’s position at the date of the inspection on 14 December 2020 was that the property was virtually in the same condition as it was at the date of Mr Aziz’s initial inspection in late October 2020.

53. Mr Aziz recollection was that he noticed the cracks at the time of settlement though his conveyancer said it was OK to settle. Mr Aziz said of the cracks that:

I vaguely noticed them before I gave the instructions to settle.

54. Mr Aziz position was that he was not paying attention to the cracks at his inspection on 14 December. Mr Aziz further said that:

I was not looking at the ceiling.

The move in on 21 December 2020

55. Mr Aziz said that the first time he really noticed the cracks on the walls, the subject of his complaint, was on 21 December 2020 when the couple moved into the property. Mr Aziz said that he started to see the cracks on the walls and further said:

We did not notice the cracks on the 14^th …. did not pay too much attention.

There were some cracks – did not think much about it.

56. Mr Aziz commented that he was able to remove the hatch in the timber decking that allowed access to the under-house area. Mr Aziz said that the spacing made it difficult for a bigger person to have easier access to the under-floor area.

57. Mr Aziz said that he noticed the piers were somewhat irregular and some of the piers were higher than others. Mr Aziz’s view was that the reason for the cracks appearing was that the piers in the under-house area were sinking.

The contract for sale of land

58. As the Tribunal mentioned, the applicants had not provided a copy of the contract of sale of land as part of their evidence on the first hearing date.

The warranties in the contract for sale of land

59. The contract for sale of land included a number of special conditions. At clause 3.3. of the special conditions, the purchaser acknowledged to the vendors, inter alia:

1. It had ample opportunity before entering this contract to inspect and to obtain building pest and other reports on the condition of the property;

2. It understands that the property is sold in its present condition and the price paid under the contract reflects the condition of the property;

3. It is satisfied as to the nature, quality, condition and state of the property; and

4. It accepts the property as it is and subject to all defects, latent and patent, infestations or dilapidations, and any encroachments by or upon the property and non-compliance with the Local Government Act 1993....;

5. and

6. it is satisfied, and it accepts the property in its current condition including damage or depreciation resulting from fair wear and tear occurring between the contract date and settlement; and

7. It was not induced to enter into this contract and did not rely on any representations and warranties;

8. Additionally, it is not entitled to make any objection, requisition or claim in relation to the condition or state of repair of the property;

9. It is not entitled to delay settlement of the contract or refuse to settle the contract or refuse to pay any part of the price due to any dispute of whatsoever nature relating to any inclusions or chattels;

10. The purchaser shall not be entitled to require the vendor to remove any/all hooks, nails or brackets from the walls and ceilings of the property nor shall the purchaser require the vendor to patch, cover, repair and/or repaint such surfaces following the removal of the vendor’s pictures television, and/or hanging items.

60. On the second day of the hearing, Mr Aziz gave further short evidence. Initially, the applicants sourced a “building inspection report” from Jim’s Building Inspections prepared in March 2021. The scope of work in the building inspection report was characteristically in contradistinction to the scope of works as set out in a pre-purchase inspection report, prepared pursuant to the MPI’s - Inspection and report limited to appendix C - the Australian Standard - AS 4349-2007

61. In order to remedy that position, in May 2021, Jim metamorphosed the March building inspection report to comply with the ASA guidelines for the preparation of a pre-purchase inspection report. This created a “fiction” of sorts to retrospectively re-enact what Jim would have done if an inspection was undertaken for the purpose of providing a pre-purchase report.

Jim’s reports

62. Mr Aziz’s evidence was that he had not noticed the extent of the cracking until he moved into the property on 21 December 2020. Prior to settling on the purchase, Mr Aziz said that he had noticed some “cracking” at the time of his final inspection on 14 December 2020 but the cracking was not a cause of concern to him.

63. Mr Aziz referred to Jim’s initial building report that showed extensive cracking that appeared to be the subject of some remedial patching. The Tribunal remarked the patchwork appeared to be recent, somewhat vulgar in appearance and very noticeable. The cracking was evidenced more particularly at pages 72-74 – 76; 77 and 83 of Jim’s report.

64. In reliance upon Jim’s later report, Mr Aziz submitted that there were “multiple rooms” and “all areas” of the house affected by the cracking. The report provides that:

1. The floors are not level

2. There is a dip in the kitchen

3. There is a crack in the tiles in the bathroom

4. The stormwater drainage not connected

The piers

65. Mr Aziz said that he had an engineer inspect the under-house area. Mr Aziz’s evidence was that the cracks are usually caused by movement in that part of the floor. Mr Aziz’s view was that the piers needed to be fixed or replaced.

The caveat in Jim’s report

66. Jim’s redrafted report, modified to conform to the scope of works set out in a pre-inspection report, contained the following caveat:

The report may be conditional on information provided by the person; agent; or employees of the person requesting the report. Apparent concealment of possible defects and a range of other factors.

67. The report further provided that this report must be read in conjunction with the conclusion – assessment of the overall condition of the property. The conclusion was as follows:

The report must be read in full to clearly understand all items identified as defects in the report

In summary the building compared to others of similar age and construction is in fair condition with some major and minor defects found [as at the date of Jim’s inspection in March 2021]

The areas identified for inspection in the report were as follows:

1. Interiors

2. Wall exterior

3. Roof exterior

4. Part fencing

5. Gardens

6. Tree

7. Landscaping

8. Timbers

9. Outbuildings

The exclusions in the pre-purchase report

68. Jim’s later report excludes inspection of areas which are affected by obstructions or where access is limited or unsafe. The report goes onto say:

We do not move obstructions and building defects may not be obvious unless objects are removed to provide access.

The inaccessible areas identified in Jim’s report

69. The report identified that the following areas, inter alia, were inaccessible

1. Roof void – due to lack of access

2. Ceiling cavity

3. Roof exterior

4. Sub-floor – due to lack of access.

Warning

70. Jim’s report further provided that:

Areas inaccessible at the time of inspection present a high risk for undetected building defects.

The client is strongly advised to make arrangements to access inaccessible areas.

Major defects

71. In a summary page, Jim’s report identified and defined a “Major defect” as follows:

A defect of sufficient magnitude where rectification has to be carried out in order to avoid unsafe conditions, loss of utility or further deterioration of the property.

72. In contrast, a minor defect was defined as a defect other than a major defect.

The terms of preparation of Jim’s report

73. The terms of Jim’s report were as follows:

This report has been prepared in accordance with and subject to the pre-inspection agreement in place between the parties which forms part of this report.

74. Jim comments that the property was only in fair condition [subject to his inspection in around March 2021].

75. In appendix E to the report, clause 2.2 “cracking” is referenced as in the building element, an appearance defect, where in the opinion of the inspector the only expected consequence of the cracking is that the appearance of the element is “blemished.”

The photographs in Jim’s report prepared in March 2021 and revised in May 2021

76. Jim’s report contained photographs of what appeared to be cracks that had been very poorly-repaired evidencing endeavours made to remediate the cracks rather than for the cracks to appear in their “raw” state as surface cracks. Jim’s report, as far as the Tribunal is aware, did not make reference to “remediation” of the cracks.

Jim’s credentials

77. There was no reference to the inspector’s credentials in either report.

The respondent’s position

78. Mr Saleh gave his evidence under oath. Mr Saleh prepared a report on behalf of the respondent dated 6 November 2021. The report and the attendant inspection photographs were tendered as part of the respondent’s case, in reply.

79. Mr Saleh described the respondent as a small family business carrying out pre-purchase property inspections.

80. Mr Saleh’s report included details of his credentials. The Tribunal summarises these as follows:

1. 25 years in the building industry

2. Bachelor of Building and Construction Management [Hons)

3. Bachelor of Housing

4. Accredited building certifier

5. Member of Master Builders Association.

The terms of the agreement – the purpose of the inspection

81. The respondent’s pre-purchase report identified the purpose of the inspection in the following terms:

to identify the major defects and safety hazards associated with the property at the time of the inspection

The inspection on 4 November 2020

82. Mr Saleh remarked that the residential premises were tenanted at the time of his inspection. A family of 6 persons was living in the main house and a person was living separately in the granny flat.

83. At first instance, the Tribunal considered the reference to the “granny” flat may have been a “copy, cut and paste error” in the terms of the contract. Not so, given Mr Saleh’s evidence. The applicants did not allude to the presence of the granny flat at all during the course of giving their evidence. This may have made the property particularly appealing for a young couple with the prospect of a ready source of income separate and apart from their personal exertion income.

84. Mr Saleh commented that the main house was heavily furnished and contained stored items. The subfloor area was not accessible for the purposes of the inspection.

85. Mr Saleh identified some major defects in the bathroom associated with dampness and waterproofing deterioration as a result of the effluxion of time.

86. Mr Saleh commented that the overall condition is consistent with dwellings of approximately, the same age and construction: 45 years old or thereabouts

87. Mr Saleh further remarked that:

There will be areas requiring repairs or maintenance.

88. The Tribunal remarks that the residence was quite a stylish colonial brick veneer, triple fronted in a sense, though represented quiet substantial housing for a young couple.

The complaints provision in the terms of the agreement

89. Mr Saleh noted that there was a complaints provision in the terms of the agreement, the window of opportunity for complaint being 28 days.

90. Mr Saleh’s evidence was that 171 days had elapsed after the date the report was issued, when the claimants made an application to NCAT around 26 April 2021. A letter of demand seeking payment of $ 40,000 was also issued on that day.

91. Mr Saleh commented the original of Jim’s report prepared on 18 March 2021 was a building inspection report in stark contrast to the scope of a pre-purchase report. Jim’s report was modified later to take into account the different expectations in the scope of a pre-purchase inspection report.

Mr Saleh’s observations as set out in his report

92. Mr Saleh commented that minor cracks are usually not part of the reporting process. Mr Saleh said invariably there are some minor defects in most properties and these constitute “blemishes” that would form a normal part of property maintenance. These include:

1. corrosion and cracking,

2. weathering and general deterioration,

3. unevenness and physical damage to material and finishes

93. Mr Saleh’s evidence was that at the time of his inspection any “cracks” appeared to be very fine and did not replicate the nature or extent of the cracks represented in the photographs attendant to Jim’s report.

94. Mr Saleh proffered some reasons for the cracks that Mr Aziz first observed on the move-in date, 21 December 2021, as being storm related during the intervening period.

95. Mr Saleh’s evidence was that at the time of his inspection on 4 November 2020, he did not see any cracks of a significant nature. The photographs attendant to the respondent’s report supports that observation. Mr Saleh further said that he did not inspect the underfloor area because of the access issues specifically excluded under the terms of the pre-inspection agreement, mirroring the Australian Standards for the preparation of the report: no access – no inspection.

Principles in assessing damages if there is a finding of a breach - the diminution in value or reinstatement approach

96. In Livingstone v Mitchell [2007] SWSC 1477 (18 December 2007) the learned judge reviewed a number of authorities reviewing the applicable method of assessment of damages if there is a finding of breach. The court referred to Robinson v Harman [1848] EngR 135; (1848) 1 Exch 850 at 855; [1848] EngR 135; 154 ER 363 at 365, Parke B said:

“[W]here a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

Where a solicitor has been negligent in the way the defendants admit they were here, in order to recover other than nominal damages, the former clients must prove the failure to advise properly has caused loss. Here, the plaintiffs have an onus of proving that if properly advised, they would have acted differently, such as by rescinding the contract, or insisting on the vendors obtaining a policy before settlement.

If I find they would have acted differently, I must assess the value of the lost opportunity to act differently.

97. The Court made reference to Philips v Ward [1956] 1 WLR 471, being a claim against a surveyor for negligently advising on the state of a building noting that Denning LJ (as he then was) said (at 473) the method of damages where a court finds a plaintiff would not have bought a property if properly advised.

The proper measure of damages is ... the difference between the value in its assumed good condition and the value in the bad condition which should have been reported to the client.”

98. Livingstone v Mitchell cited the following further authorities:

In Watts v Morrow [1991] EWCA Civ 9; [1991] 1 WLR 1421, a decision of the United Kingdom Court of Appeal, Ralph Gibson LJ said (at 1435):

The cost of doing repairs to put right defects negligently not reported may be relevant to the proof of the market price of the house in its true condition (see Steward v Rapley [1989] 1 EGLR 159); and the cost of doing repairs and the diminution in value may be shown to be the same. If, however, the cost of repairs would exceed the diminution in value, then the ruling in Philips v Ward, where it is applicable, prohibits recovery of the excess because it would give to the plaintiff more than his loss. It would put the plaintiff in the position of recovering damages for breach of a warranty that the condition of the house was correctly described by the surveyor and, in the ordinary case, as here, no such warranty has been given.

It is clear, and it was not argued to the contrary, that the ruling in Philips v Ward may be applicable to the case where the buyer has, after purchase, extricated himself from the transaction by selling the property. In the absence of any point on mitigation, the buyer will recover the diminution in value together with costs and expenses thrown away in moving in and out and of resale: see per Romer LJ in Philips v Ward [1956] 1 WLR 471, 478. I will not here try to state the nature or extent of any additional recoverable items of damage.

Watts v Morrow goes onto say that:

It is also clear, and again there was no argument for [the plaintiffs] to the contrary, that, if the plaintiff would have bought the house anyway, if correctly advised, the ruling in Philips v Ward is applicable: the fact that after purchase he discovers that the unreported defects will cost more than the diminution in value does not entitle him to recover the excess. That is, again, because, if the contract had been performed properly, he would have negotiated and, absent proof of a different outcome, would have done no better than reduction to the market value in true condition.” (My emphasis)

99. In Dalton v Dama Pty Ltd (1984) BCLRS 143, Davies J, sitting as an additional judge of the Supreme Court of the Australian Capital Territory, said (at 148):

In a case where negligent advice is given and has been acted upon in the purchase of a home, the ordinary principle is that the plaintiff is entitled to the difference between the value of the house in its reported condition and its value in its true state, that is to say, ordinarily the difference between the price paid for the home and its true value. Especially is this appropriate in a case where the repairs, if done, will improve the home and put it into a state better than it appeared to be in when acquired.”

100. In Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417 a house after purchase was found to be riddled with termites, despite there having been an inspection and a report by the defendant, before purchase, saying there were no termites. The house could not be repaired. The diminution of value method was held to be appropriate. An issue arose as to the date values should be assessed. Usually it is the date of purchase. But this is not universal. At 432 Meagher JA observed:

[O]ne certainly finds that in England a subrule has emerged to the effect that in the case of damages against the provider of a negligent report or valuation, the normal measure of damages is the diminution in value of the property in question as at the date of breach. This was decided by the English Court of Appeal in Perry v Sidney Phillips & Son [1982] 1 WLR 1297; [1982] 3 All ER 705; see per Lord Denning MR (at 1302; 708) per Oliver LJ (at 1303-1304; 709-710) and per Kerr LJ (at 1305-1306; 711-712).

101. Meagher JA goes onto say:

The matter is not directly covered by Australian authority. However, presumably the logical basis of the subrule is that on the plaintiff’s discovery of the breach he is in a position to sell the property in question and re-purchase another, claiming any diminution in value from the defendant. However, in the present case, that logic would not have worked. The plaintiff did not have the money to re-purchase another block of land, and was not confident of her ability to borrow sufficient money to enable her to do so; moreover, she could have no confidence in the defendant’s reimbursing her with compensation for the diminution in value of her land, since until the actual morning of the trial it stoutly maintained its denial of liability. In these circumstances, it seems to me not unreasonable for her to ask for the diminution in value of the property to be assessed as at the date of the hearing.”

102. Hansons Properties Pty Ltd v Geraghty BC9101302 (unreported, 20 December 1991, Wood J) was a claim against a solicitor whose negligent advice caused the client to take as mortgage security property whose value was well short of what the client was entitled to have. There was a difference in outcome between the diminution in value and what his Honour called the “reinstatement” approach. At 56-57 his Honour said:

While the "diminution in value" approach often achieves an identical result to the "reinstatement" approach, particularly in "sale" cases, it will not always produce a just result in other cases. A good example of the "diminution in value" approach in a simple "sale" case is Ford v White and Co, where it was held that the plaintiffs were entitled to the difference between the true market value of land and the price they had paid for it (which turned out to be nil).

103. L Shaddock and Associates Pty Ltd v Parramatta City Council [1981] HCA 59; (1981) 150 CLR 225 is an example of the "reinstatement" approach ….the High Court assessed the plaintiff's damages on the basis that if the correct advice had been given, it would not have bought the land (being development land) at all. It was therefore entitled to the reinstatement of its purchase money, and also its expenses of acquiring and retaining the land, which would not have been incurred if it had not bought it.

It is clear from the authorities on the "reinstatement" approach that the question of what the plaintiff would have done if the tort or breach had not been committed is a question of fact which must be established by evidence. (See Gates v City Mutual Life Assurance (1986) 160 CLR 1 at 13; Kyogle Shire Council v Francis (1998) 13 NSWLR 396 at 417 per Clarke JA).

104. In Kyogle SC, Kirby A-CJ was prepared to infer in the absence of evidence that the plaintiff would have bought other land to subdivide and sell, but Clarke JA, with whom Mahoney JA agreed, said that evidence was required.

In "sale" cases, the "diminution in value" approach and the "reinstatement" approach can often have the same result. If the correct advice had been given, the plaintiff would have bought the property for a lower price, or perhaps not bought it at all. Awarding him the diminution in value will put him in the position he would have been in, had the tort not occurred, in either case, because he is free to resell it at the reduced value. However, the "diminution in value" approach will not always achieve a just result where the facts become a little more complicated. In Kyogle SC, the plaintiff bought land with the intention of subdividing it and selling it for a profit, relying on negligent advice that it was subdivisible.

105. In Sved v Council of the Municipality of Woollahra (1995) 86 LGERA 222; Aust Torts Reports 81-328; NSW ConvR 55-736, Giles J awarded the cost of reinstatement, which was less than the sum which would have been derived from the diminution in value rule. 35 His Honour said (at 236; 62,228; 55,693-55,694):

The inescapable fact is that they purchased the properties, and it may be that in the particular circumstances restoration of their positions is possible, and more appropriate, by damages such as the cost of rectification.

106. Justice GiIes further concluded that:

I do not think that there is an inflexible rule that in cases such as the present the damages are measured by the difference between the price paid for the property and its true value. That there may be a different basis of assessment of damages if the circumstances so warrant is, it seems to me, recognised in cases such as L Shaddock and Associates Pty Ltd v Parramatta City Council (No 1), Kyogle Shire Council v Francis (1988) 13 NSWLR 396, Hansons Properties Pty Ltd v Geraghty (Wood J, 20 December 1991, unreported) and Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417.”

107. In Kyriakou v Hughes (1984) Aust Torts Reports 80-646, the diminution in value method as explained in Ford v White was applied.

108. In HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640; Kyriakou at 68,724; Thomas at [20]. 37 ……….where the plaintiffs establish they would, but for the negligence, have not bought the property:

(a) the usual method of assessment of damages is the “diminution in value” method;
(b) where there is evidence the purchaser intended to subdivide and sell blocks or buildings at a profit, but cannot do so, the “reinstatement” method may be appropriate; and

(c) where the purchaser has limited funds and intends at the time of purchase to live in the property in the long term, the “reinstatement” approach may be appropriate.

No further negotiations

109. The applicants' evidence was that there were no further negotiations contemplated after receipt of the respondent’s report notwithstanding that the building was a much older build than the applicants had thought: 45 years old rather than built in the last 25 years.

109. Mr Aziz did not avail himself of the opportunity to rescind the original contract and renegotiate a purchase price if there was anything untoward in the pre-purchase inspection report. The bargain was struck at the end of the “cooling-off” period.

The quotes provided – the reinstatement method

111. The applicants’ evidence was confined to an assessment of damage founded upon the re-instatement method if there was a finding of breach.

112. The applicants provided quotations for the repairs to the cracked walls and ceilings, the foundations, as well as for repairs to drainage and downpipes.

113. Jim’s report remarks that the roof plumbing is not adequately connected to storm water drainage on site, though had also remarked that:

1. The stormwater drainage was not connected

114. Rather, the position appears to be that there was a “disconnection” that negatively impacted upon the functional capacity of the roof plumbing. Jim further recommends that a plumber be appointed to further inspect the area and to install adequate drainage equipment where necessary.

115. The costs of “revamping” of the downpipe on the right-hand side of the house and installation of 90 mm PVC downpipes and connect all to run to the existing drainages was $ 5,115. Mr Aziz said that this was the main outgoing, so far.

116. The Tribunal notes that there is a provision in the contract for sale of land that effectively says that the purchaser will not raise any requisition in relation to stormwater connections.

117. Mr Aziz claims additional costs of $ 13,750 for the underpinning works proposed, as well as the cost of replastering of cracked walls and ceilings around $ 2,750.

Findings

118. At the time of the applicants’ first inspection in late October 2020 when they inspected the premises shortly before the exchange of contacts on
     2 November 2020, cracks, the subject of the complaints, were not noticeable at that time. The applicants did not raise any specific concerns to enhance the usual terms of the respondent's brief arising for the inspection.

119. At the later inspection on 14 December 2020, Mr Aziz said that:

We did not notice the cracks on the 14^th …. did not pay too much attention.

There were some cracks – did not think much about it.

120. Mr Aziz at the time further said of the “cracks”:

I vaguely noticed them before I gave the instructions to settle.

121. Jim’s report contained photographs of what appeared to be cracks that had been very poorly-repaired evidencing some endeavours made to remediate the cracks rather than for the cracks to appear in their “raw” state as surface cracks. Jim’s report, as far as the Tribunal is aware, did not make reference to any “remediation” of the cracks as was apparent in the photographs tendered.

122. The appearance of the “cracks” as set out in the photographs attendant to Jim’s report in March 2021, did not accord with the applicants’ evidence to support a finding that at time of the respondent's inspection the cracks were evident and reportable in accordance with the Australian Standards.

123. As to the “plumbing” issue, the Tribunal makes a finding that there was a “disconnection” that negatively impacted upon the functional capacity of the roof plumbing to the existing storm water connection, rather than an absence of connection.

124. The Tribunal accepts Mr Saleh’s evidence given on behalf of the
     respondent. At the time of his inspection of the property in early November, any “cracks” appeared to be very fine blemishes and did not replicate the nature or extent of the cracks represented in Jim’s report.

125. The Tribunal is satisfied that the respondent applied the Australian Standard in the preparation of the pre-purchase inspection report. The intent of the inspection was to give an overview about the general condition of the building that excluded inaccessible areas, such as the sub-floor area. The exclusion of the sub-floor area accords with a similar limitation in the scope of the inspection as set out in Jim’s revised report, given access issues.

126. There is no finding that the respondent is in breach of its contractual obligations as set out in the terms of the pre-purchase inspection agreement.

Order

127. The matter is dismissed.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 24 February 2022