Brown v Dream Homes SA Pty Ltd

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SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

BROWN v DREAM HOMES SA PTY LTD

[2008] SASC 295

Judgment of The Full Court

(The Honourable Chief Justice Doyle, The Honourable Justice Layton and The Honourable Justice Kourakis)

4 November 2008

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS

TORTS - NEGLIGENCE - MISCELLANEOUS FORMS OF NEGLIGENT CONDUCT

Appellant engaged respondent to conduct a pre-purchase property inspection - respondent erroneously concluded that a patched crack on an external wall was not caused by footing movement - report did not record the existence of the patched crack - respondent correctly reported that house was structurally sound - appellant purchased property in reliance on pre-purchase report - appellant sold house 18 months after purchase - appellant brought proceedings against respondent in Magistrates Court claiming damages for breach of duties arising in tort and contract - Magistrate found that respondent was liable and that appellant would have cooled off from purchase if no breach of duty - Appeal Judge overturned findings of liability - appellant appealed to the Full Court.

Held (Doyle CJ and Kourakis J): It was an implied term of the contract that the respondent would exercise reasonable care and skill to identify and report on any defects that were likely to affect the appellant's decision to purchase the house - the respondent breached that term - the respondent should have reported the existence of the patched crack - the respondent did not have the relevant expertise to provide an unqualified opinion as to structural soundness - the respondent should have recommended an engineer's report - the finding that the appellant would have cooled off but for the breach should not have been overturned on appeal - the appellant would have purchased another house had she exercised her right to cool off - appeal allowed.

Per (Layton J dissent): the respondent had the relevant expertise to express an opinion on structural soundness - the respondent was in error but not negligent in failing to identify the patched crack as a sign of footing movement - the Appeal Judge was correct in determining that the appellant would not have cooled off if an engineer's report was recommended.

DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - PARTICULAR CONTRACTS

Whether assessment of damages should take into account amount obtained by appellant upon re-sale of property – application by appellant to reopen case as to damages and introduce fresh evidence regarding property price increases.

Held (Doyle CJ, Layton and Kourakis JJ):  Correct measure of damages is to put the appellant in the position she would have occupied had she not purchased the property – amount received by appellant on re-sale of property is to be brought into account in damages assessment.

Held (Doyle CJ and Kourakis J, Layton J dissenting): Appellant’s application to adduce new evidence as to damages remitted to Appeal Judge for determination.

Development Act 1993 (SA) s 4; Development Regulations 1993 (SA)…

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Details
Case
[2008] SASC 295
Decision Date

CaseChat Overview and Summary

In the case of Brown v Dream Homes SA Pty Ltd, the appellant, Brown, engaged the respondent, Dream Homes SA Pty Ltd, to conduct a pre-purchase property inspection of a house in Hope Valley. The respondent failed to identify and report a patched crack on an external wall, which was later determined to be caused by footing movement. Brown purchased the property in reliance on the pre-purchase report and later sold it at a profit. However, she brought proceedings against the respondent for damages, claiming breach of duties arising in tort and contract. The Magistrate found the respondent liable, but the Appeal Judge overturned this decision. Brown appealed to the Full Court.

The legal issues before the Full Court included whether the respondent breached an implied term of the contract to exercise reasonable care and skill in identifying and reporting on defects, and whether the respondent should have recommended an engineer's report. The court also considered the measure and remoteness of damages in actions for breach of contract, specifically whether the amount obtained by the appellant upon re-sale of the property should be taken into account in assessing damages.

The Full Court held that the respondent breached the implied term of the contract to exercise reasonable care and skill by failing to report the existence of the patched crack. The court found that the respondent did not have the relevant expertise to provide an unqualified opinion as to structural soundness and should have recommended an engineer's report. The court also held that the finding that the appellant would have cooled off from the purchase but for the breach should not have been overturned on appeal. The Full Court allowed the appeal and held that the respondent was liable.

Regarding damages, the Full Court held that the correct measure of damages is to put the appellant in the position she would have occupied had she not purchased the property. The amount received by the appellant on re-sale of the property is to be brought into account in assessing damages.

Orders

Orders of the court

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Background

Background to the litigation

The appellant now appeals against the decision of the Judge on liability and the respondent has filed a Notice of Alternative Contention in relation to the finding by the Judge that, if liability had been proved, the appellant had suffered loss or damage.Background On 25 May 2003 the appellant and her partner inspected a property at 16 Mataro Road, Hope Valley, (“the house property”) and on that same day made an offer to purchase it for $180,000. That offer was rejected and the following day the appellant increased the offer to $195,000. This increased offer was accepted. A contract for the sale and purchase of the house property was signed on 26 May 2003. The contract was subject to a “cooling off” period, which expired on 28 May 2003.[3][3] In accordance with s 5 Land and Business (Sale and Conveyancing) Act 1994 (SA). The appellant wished to obtain a building inspection report prior to the expiration of the cooling off period. The agent recommended Mr Duckworth. Mr Duckworth undertook his inspection of the house property, including a roof inspection, over a period of 1¾ hours in the afternoon of 28 May 2003.[4] Whilst performing the inspection, Mr Duckworth progressively wrote up the nine-page Duckworth report. The Duckworth report was then provided to the appellant and her partner at the conclusion of the inspection. At that time Mr Duckworth spoke with the appellant and drew her attention to the final page of the report (page nine) entitled “Part 3 - SUMMARY”. I set out the relevant extract below.[4] T 164.34 at AB 194.3.1 Matters requiring urgent attention 1. Remove rear garden bed & replace with path/pavers.2. Get full white ant treatment done.3. Refix front eave back into position.4. Clean the gutters out.5. Get Origin Energy to test for gas leaks.6. Replace rear verandah gutter.7. Service and adjust internal doors.8. Fit approved type smoke detector.3.1 [sic] General House is structurally sound. Mr Duckworth agreed that during his discussion with the appellant and her partner he verbally confirmed his assessment that the house property was “structurally sound”. The appellant, after only reading page nine of the report, telephoned the agent and advised that she did not wish to exercise her cooling off rights. The purchase and sale of the house property was settled on 26 June 2003. The appellant and her partner moved into the house property on 27 June 2003. After they took possession, the appellant observed that certain windows jammed and some of the window locks did not work. She also noted cracking in a number of areas, including a repaired crack to the exterior of the western wall of the master bedroom near the front door of the house property. This repaired crack was the major focus of the appeal and I will therefore further describe it at this point. The repaired crack was on the top portion of the external western wall and was originally approximately 10 mm in width.[5] It stepped down diagonally following the perpendicular and horizontal mortar lines of the bricks from ceiling height through nine courses of bricks to the southern edge of the window.[6] I will refer to this crack hereafter as “the repaired crack”.[5] Exhibit D6 at AB 615.[6] Exhibit P1 at AB 352 and Exhibit D3 (No 19) at AB 595.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

The primary findings and conclusion of the Magistrate in his detailed reasons included the following:·Mr Duckworth is vastly experienced, conscientious, knowledgeable and honest. The Duckworth report was thorough and well-balanced.[14]·The conclusion by Mr Duckworth that the building was “structurally sound” was more than likely correct. This was confirmed by Mr Goldfinch and Mr Jankovic did not express an opinion.[15]·The Hignett report was superficial and caused unnecessary concern to the appellant.[16]·The Jankovic report was overly critical of the house property.[17]·The Duckworth report failed to identify “movement in the house”.[18]·The respondent should have identified signs of movement in the house property, and recommended an engineering report.[19]·The respondent’s failure to report the signs of movement and to recommend an engineering inspection was a breach of duty of care.[20]·If the appellant had been informed of any signs of movement in the house property, and the respondent had recommended an engineering report, the appellant would have exercised her right to cool-off.[21]·The appellant had suffered no loss as there was a profit on the re-sale of the house property, which should be set-off against the claim for damages for $29,924.80.[22] Therefore no damages had been proved.[14] Brown v Dream Homes SA Pty Ltd, Judgment of Mr J G Fahey SM, 1 June 2007 [24].[15] Ibid [22].[16] Ibid [22] and [26].[17] Ibid [26].[18] Ibid [27].[19] Ibid.[20] Ibid.[21] Ibid.[22] Ibid [31].Appellate Judge’s decision The Judge made the following findings: ·It was within the competence of Mr Duckworth to express an opinion about structural soundness of the house property.[23]·The house property was “structurally sound” as found by the Magistrate.[24]·Contrary to the finding by the Magistrate, Mr Duckworth had recognised there was some movement in the house property but did not consider it to be significant.[25]·As the building was structurally sound, it was not negligent of the respondent to not recommend an engineer’s report.[26]·The fact that a building exhibits some cracks and movement does not require a building inspector to automatically recommend an engineer’s report.[27]·The appellant was primarily concerned with whether the building was structurally sound.[28] The evidence of the appellant that she would have cooled-off if an engineer’s report had been recommended was an afterthought.[29]·The respondent was neither negligent, nor in breach of duty of care.[30]·If liability had been found, the application by the Magistrate of the case of Manwelland Pty Ltd v Dames and Moore Pty Ltd[31] was incorrect and the appellant’s damages had been proved at $27,313.81.[32][23] Brown v Dream Homes SA Pty Ltd [2007] SASC 443 [51], [52] and [57].[24] Ibid [41] and [49].[25] Ibid [51].[26] Ibid [49].[27] Ibid [51].[28] Ibid [49].[29] Ibid [64]-[66].[30] Ibid [57].[31] (2001) ATPR 41-845.[32] Brown v Dream Homes SA Pty Ltd [2007] SASC 443 [93]-[94].Issues on appeal

Ratio Decidendi

Legal Principle Established

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