Brown v Dream Homes SA Pty Ltd - [2007] SASC 443

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
BROWN v DREAM HOMES SA PTY LTD
[2007] SASC 443
Judgment of The Honourable Justice Sulan
17 December 2007
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - PERFORMANCE
TORTS - NEGLIGENCE - MISCELLANEOUS FORMS OF NEGLIGENT CONDUCT
DAMAGES - GENERAL PRINCIPLES - GENERAL AND SPECIAL DAMAGES
Defendant prepared pre-purchase report relating to a residential building - plaintiff elected not to cool off in reliance upon the report - report identified several items that needed to be fixed, but concluded that the building was structurally sound - plaintiff later found problems with the building - plaintiff's solicitors commissioned further report which recommended obtaining an engineer's report on the structural soundness of the building - plaintiff claimed, inter alia, that by failing to recommend an engineer's report in the pre-purchase report the defendant was in breach of duties arising from tort, contract and legislation - engineer's report indicated building was structurally sound - Magistrate found that defendant had acted in breach of duty but found that no loss was caused to plaintiff - plaintiff appealed - defendant filed notice of contention on question of breach - held, allowing both appeal and notice of contention, defendant prepared report in exercise of skill and judgment - nothing about building necessitated the recommendation of an engineer's report - nevertheless, Magistrate erred in determining damages - if liability had been established, plaintiff would have been entitled to costs associated with and referable to purchase.
Fair Trading Act 1987 (SA); Land and Business (Sale and Conveyancing) Act 1994 (SA) s 5; Misrepresentation Act 1972 (SA), referred to.
Hussey v Eels [1990] 2 QB 227; Shaddock & Associates Pty Ltd v Paramatta City Council (1980-1981) 150 CLR 225; Tay v Koh (Unreported, Supreme Court of Western Australia, Full Court, Malcolm CJ, Walsh and Ipp JJ, 28 May 1998), applied.
Manwelland Pty Ltd v Dames & Moore Pty Ltd (2001) ATPR 41-845, distinguished.

BROWN v DREAM HOMES SA PTY LTD
[2007] SASC 443
Magistrates Appeal

SULAN J: This appeal is from a decision of a Magistrate, who dismissed the appellant’s claim for damages. The appellant, Ms Marian Brown, to whom I shall refer as “the plaintiff”, commenced proceedings in the District Court against the respondent, Dream Homes Pty Ltd, which I shall refer to as “the defendant”, seeking damages for breach of contract, negligence, misrepresentation pursuant to the Misrepresentation Act 1972 and misleading and deceptive conduct, pursuant to the Fair Trading Act 1987. Shortly stated, the issues arising at trial, and in this appeal, were first, whether the pre-purchase report provided by the respondent to Ms Brown as a prospective purchaser of a residential property, was adequate, having regard to principles of tort and contract and relevant legislative provisions, and secondly, the quantum of damages owed if the report were not adequate. The original claim was for $59,924.80. After commencing the proceedings, the plaintiff reduced her claim to $29,924.80. The action was transferred to the Magistrates Court and amended Particulars of Claim were filed. I shall return to the pleadings later in my reasons.
Factual background
It is necessary to deal with the events forming the basis of the dispute.
On 25 May 2003, the plaintiff and her partner inspected a residential property which was advertised for sale. On that day, she made an offer to purchase the property for $180,000. The offer was rejected and the following day she increased it to $195,000, which offer was accepted. A contract for the sale and purchase of the property was entered into on 26 May 2003. The contract was subject to a ‘cooling off’ period, which expired at midnight on 28 May 2003.[1]
[1] Land and Business (Sale and Conveyancing) Act 1994, s 5.
The plaintiff indicated that she required a building inspection report prior to the expiration of the cooling off period. The agent recommended Mr Duckworth, who was the proprietor of the defendant, who conducted the inspection during the afternoon of 28 May 2003. Mr Duckworth, on behalf of the defendant, prepared an inspection report. I shall refer to this report as “the Duckworth report”.
The report specified that it had been carried out in accordance with the Australian Standard AS 4349.1, dealing with inspection of buildings. The Standard stipulates that it was prepared primarily for pre-purchase property inspection. Clause 2.2 of the Standard provides that the inspection should encompass the condition of the interior of the building, the exterior of the building, the roof space, the underfloor space, the roof exterior and the site.
Clause 2.3 specifies interior and exterior areas which should be inspected. Clause 3.3 provides:[2]
[2] Exhibit P16.
A building report should not be seen as an all-encompassing report dealing with a building from every aspect. Rather it should be seen as a reasonable attempt to identify any significant defects visible at the time of the inspection. Whether or not a defect should be regarded as significant, depends to a large extent upon the age and type of building being inspected.
It is unrealistic for the consultant to comment on minor defects and imperfections in the standard property report, although this may be required for a special-purpose property report (see Section 4).
A standard property report provided by the consultant should include the following:
(a)A statement of who requested the report and the purpose for which it was requested or is intended.
(b)The date or dates of inspection.
(c)The scope of the inspection.
(d)Any area or item which was not inspected and the reasons which prevented an inspection, and if appropriate, a recommendation for further investigation.
(e)A summary which includes an opinion as to the overall condition of the residential dwelling in the context of its age, type and general expectations of similar properties.
(f)A list of any significant matters which requires [sic] attention or rectification.
(g)If necessary, a recommendation that a further inspection or assessment be carried out by a suitably accredited specialist, e.g. pest inspector, electrical authority, water authority, structural engineer, geotechnical engineer, surveyor or solicitor.
The summary is possibly the most important part of the report. The important points should be extracted from the body of the report to provide the reader with a brief summary of the major faults found in the building. The summary should also put the overall condition of the building in the context of the average condition of similar buildings approximately the same age.
The Standard also provides that a standard property report should not contain any assessment or any opinion in relation to a matter which is not within the consultant’s expertise.
When he had completed his inspection and report, Mr Duckworth met the plaintiff and her partner at the property. At that time, he handed her the inspection report. The plaintiff’s attention was drawn to the last page of the report, which was entitled ‘Summary’. That page listed eight matters requiring urgent attention. They were:[3]
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]    Exhibit P3.
The last entry on the report under the heading ‘General’ reported that “House is structurally sound”.
The plaintiff discussed the last page of the report with Mr Duckworth and then advised the agent by telephone that she did not intend to cool off. The plaintiff had an opportunity to read the report, but chose to read only the summary. The significance of that fact will become apparent later in these reasons.
Settlement of the contract occurred on 26 June 2003. The plaintiff and her partner moved in on 27 June 2003. After they took possession, the plaintiff observed that the window locks did not work, some of the windows jammed, and there was cracking in a number of areas. The plaintiff engaged Mr Hignett, an architect, to inspect the windows. He concluded that the building exhibited movement across the frontage, including wall cracks, moving cornices and non-opening windows, and that this was caused by inadequate site drainage, resulting in footing movement. He recommended replacement of the paving/draining before new windows were installed.[4]
[4] Exhibit P5.
The plaintiff sought legal advice. The plaintiff’s solicitors engaged Mr Peter Jankovic, a building inspector, to inspect the property and prepare a report in the format of a pre-purchase inspection report. I shall refer to his report as “the Jankovic report”.
Mr Jankovic concluded that the building was in poor condition and required maintenance to almost all of the building. He then detailed the extensive repairs which he recommended. He concluded:[5]
This building needs lots of work. Prior to the work the causes of the severe cracking which has occurred requires to be assessed by a structural engineer and a rectification specification drawn up.
[5] Exhibit P4.
After considering the Jankovic report, solicitors for the plaintiff wrote to Steve Duckworth and Associates Building Consultants, which is a division of the defendant company. They stated:[6]
Upon you completing your inspection and report a conversation occurred at the roadside kerb and you explained the report to our client and her partner.
Our client asked if the home was structurally sound and you replied, “yes it is”. Our client’s partner mentioned to you that the garage was leaning and you responded that you had not noticed it but it was not part of your inspection.
…
Our clients in reliance upon your report and your verbal representations proceeded to the real estate agents [sic] office and paid the deposit.
[6] Exhibit P21.
The letter particularised a number of defects which it was claimed were not recorded in Mr Duckworth’s report. The solicitors stated that they had engaged an architect, Mr Hignett, who reported that the building exhibited movement across the front.
The letter alleged that Mr Duckworth, on behalf of Steve Duckworth and Associates, had breached an implied term of the contract that he would exercise all reasonable skill, care, diligence and competence in carrying out the inspection and report. The letter then referred to the Jankovic report and the defects which had been identified in the report.
The trial before the Magistrate
The plaintiff in her Statement of Claim pleaded that the defendant had represented to her in the Duckworth report, inter alia, that:
10.1   the property was structurally sound;
…
10.3   that cracking to the masonry walls was negligible to very slight;
10.4   that the masonry was in good condition for its age;
10.5   that there was evidence of minor movement and settlement which was normal;
…
10.8   that there was no need for the Plaintiff to have the home assessed by an Engineer.
The plaintiff claimed that she had proceeded with the purchase in reliance on the Duckworth report.
The Statement of Claim alleged the following problems with the property:
12.1   The property exhibited movement across the frontage including cracks in the walls, moving cornices and jammed windows, in addition all tiles were falling off. The damage to the front of the property was caused by inadequate drainage resulting in footing movement.
12.2   The cracking required assessment by a structural engineer.
12.3   The roof frame requires re-strutting to the front elevation.
12.4   Almost all building elements require maintenance.
12.5   Internal doors were misaligned due to movement in the building.
12.6   Flushing to the internal plasterboard and patching to cracking masonry walls was poor.
12.7   The roof eaves were damaged to the south eastern corner.
12.8   Wiring to the power points is incorrect and the power points are not earthed correctly.
12.9   The southern window in the master bedroom is jammed shut and the window frame broken.
12.10 A large crack was noted to the western exterior wall of the master bedroom, associated with which was the fact that the brickwork was out of alignment to the extent that the eastern window was out of square the flyscreen no longer fitted and the window difficult to open.
12.11 Many of the internal window latches did not work and most pins to the locks were out of alignment with their respective holes and were therefore ineffective.
12.12 Tiles on external window edges were loose.
The Statement of Claim pleaded that the defendant was in breach of its duties in contract and tort by reason of the following omissions:
13.1   The Defendant failed to inspect and report on the structural adequacy of the house and footings.
13.2   The Defendant failed to inspect and report on any distinct problems with the property.
13.3   The Defendant failed to inspect and report on any potential future problems or concerns the Plaintiff might have with respect to the property.
13.4   The Defendant failed to inspect and report on any work the Plaintiff might have to incur in the future to rectify any existing or potential problems in the property.
13.5   The Defendant failed to carry out the inspection and report in accordance with AS4349.1, namely:
13.5.1The Defendant failed to inspect and report on those items set out in paragraphs 12.1-12.12.
13.5.2The Defendant failed to inspect and report on the major cracking on the western exterior wall of the master bedroom;
13.5.3The Defendant failed to inspect and report that the southern window in the master bedroom was jammed shut and the window frame broken;
13.5.4The Defendant not being qualified to advise upon the structural adequacy of the house and footings failed to advise the Plaintiff to have the home assessed by an Engineer;
13.5.5The Defendant failed to advise the Plaintiff that the structural stability of the home was a matter not within his expertise and that accordingly:
13.5.5.1the report was so limited;
13.5.5.2that in the Defendant’s assessment or opinion that the home was structurally sound was not an opinion upon which the Defendant had expertise and not an opinion upon which they should rely; or
13.5.5.3that the Plaintiff should have a structural engineer assess the home if she wanted to know its structural soundness.
As noted above, the Statement of Claim also pleaded misrepresentation and misleading and deceptive conduct. I observe that the text shown in bold in the Statement of Claim filed in the Magistrates Court emphasises the pleadings which were additional to those filed in the District Court.
The plaintiff alleged that had Mr Duckworth recommended an engineer’s report, she would have cooled off. She further alleged that, because Mr Duckworth reported that the house was structurally sound, she proceeded with the purchase and, as a consequence, suffered loss and damage. The plaintiff contended that the structural soundness of the house was not the critical issue. In her contention, the real issue was that she would have exercised her cooling off rights had she been told there was a need for an engineering report. She claimed that she was concerned to know of any defects in the building, in particular any possible defects which might be inferred from an inspection of the building. Signs of movement in the building was one such defect.
The plaintiff gave evidence that if she had seen the Jankovic report at the time she was given the Duckworth report, she would not have proceeded with the contract. She said she would have been concerned about the electrical powerpoints, the severe cracking and Mr Jankovic’s recommendation for future electrical and engineering inspection.
The defendant’s case was that the plaintiff’s claim that she would not have purchased the house had she been advised to obtain a report from an engineer was a recent invention. Counsel for the defendant pointed to the fact that in the letter from the plaintiff’s solicitor, the plaintiff was interested in the structural condition of the property. There was no reference to an engineer’s report, nor to the claim that a recommendation to obtain an engineer’s report would have led the plaintiff to cool off. That claim was first made in the Magistrates Court. Counsel contended the claim was only made after receipt of the Jankovic report. The defendant contends that the plaintiff failed to prove the house was not structurally sound.
Evidence relating to structural soundness and need for engineer’s report
During cross-examination, the plaintiff accepted that, prior to indicating to the agent that she did not intend to cool off, she had only read the summary page of the Duckworth report. She discussed the summary with Mr Duckworth. She accepted that she had had time to read the detailed report before she told the agent she was not intending to cool off.
The plaintiff was asked:[7]
[7] T 35-6.
Q.And say ‘Can I have some extra time I need to read this report.’
A.I was happy with the fact that Mr Duckworth said it was structurally sound.
Q.So it didn’t really matter what else was in the report provided that it was structurally sound.
A.It was structurally sound was the main thing for me.
Q.In all of these other matters that you have referred to earlier today, the electrical things and all the rest of it on their own wouldn’t have caused you to cool-off.
A.Yes, they would.
Q.You didn’t ask Mr Duckworth to check the electrical things.
A.No, I didn’t.
Q.You didn’t even know whether he was qualified to do so.
A.That’s right.
Q.You didn’t ask Mr Jankovic, did you, to check the electrical installations.
A.I didn’t speak to Mr Jankovic.
Q.And you don’t know whether he’s ever been electrically qualified.
A.I don’t believe he is. His report said that the electrics needed checking.
Q.If in fact the only matter which you were concerned about in relation to the report of Mr Duckworth was the structural soundness of the building then can I suggest to you it wasn’t necessary for you to go beyond p.9 because on p.9 Mr Duckworth said the house is structurally sound.
A.Yes.
Q.He then went further and told you that verbally because you specifically asked him about that.
A.Yes.
Q.If you had been concerned about any of the other matters on p.9 under the heading ‘Summary’ presumably you would have cooled-off.
A.Yes.
Q.It may be confusing I will put it to you again. The matters listed from one to eight presumably, I suggest, did not concern you to the extent that you wouldn’t have cooled-off because of them.
A.That’s right.
In my view, the plaintiff’s contention that the critical issue was the failure of the defendant to recommend an engineer’s report, rather than the structural soundness of the building, is misplaced. A failure to recommend an engineer’s report could only constitute a breach of duty if such a recommendation was appropriate, having regard to the condition of the house at the time of inspection. The plaintiff’s case may, therefore, be expressed in simple terms as being that there was some aspect of the structural condition of the building at the time of inspection which created a duty on the part of the defendant to recommend an engineer’s report.
The Duckworth report

The Duckworth report stated “Minor facia movement has caused front eaves to drop and sag”. In handwriting on the left-hand side of the page next to that comment, Mr Duckworth has written, “Evidence of minor movement and settlement all considered normal”.
Mr Duckworth, in cross-examination said that, in his opinion, the cracks were not sufficiently severe to warrant a recommendation to obtain an engineer’s report. He said: [8]
Where internal cracking mostly appears is above window door openings. The cracks that I had observed above the window and door opening were of a very slight nature as recorded in my report and very, very common in all of these houses that were built in the 50s, 60s and 70s. I didn’t see any cause of concern. I put the cracking down to as normal as would expect in houses of this age.
[8] T 288.
The Magistrate observed that Mr Duckworth conceded in his evidence, in retrospect, that he should have recognised the signs of movement. He should have reported this and he should have recommended an inspection by an engineer.
It is true that Mr Duckworth, at one point, accepted that the report was “wrong” in not identifying the cause of the cracking he observed as being settlement of the footings.[9] However, that concession must be taken in light of his repeated assertions that he had not recommended an engineer’s report because he did not consider the cracking he observed to be abnormal in a house of the age. For example, he was asked in cross-examination:[10]
Q.So Mr Goldfinch as an engineer says looking at this house and looking at all of those elements my conclusion is there has been a past history of movement and cracking. Obviously you accept his opinion because you have put it forward.
A.Yes.
Q.Don’t you accept that as a consultant in a preinspection report, having observed all of the things that he refers to there, except the sill movement, that it was an appropriate thing for you to do to refer this issue to someone like Mr Goldfinch to give advice to Ms Brown.
A.No.
Q.Why not.
A.Because I didn’t see the cracks, the crack as particularly severe warranting an opinion of an engineer.
[9] T 267.
[10] T 248.
It should also be noted that the preamble to the report identified in general terms the potential causes and cures for movement. Under the heading “Movement”, the preamble states:[11]
The extent of movement in the building depends on the type and adequacy of the footing system, articulation and control joints used, the moisture content of the soil surrounding the structure and close proximity of trees. Good site management including stormwater disposal, drainage and managing the water requirements of trees and placement of paths around the house will assist in reducing movement and cracking.
[11] Exhibit P3.
The Jankovic report
Mr Jankovic, in his report, described the cracking as ‘severe’. He was of the opinion that it required an assessment by a structural engineer and a rectification specification to be drawn up.
The Magistrate’s conclusion that Mr Duckworth should have recommended an engineer’s report could only have been based upon the Jankovic report, which was prepared some months after the Duckworth report. However, the Magistrate concluded that Mr Jankovic was overly critical about the house. In this regard the Magistrate considered that Mr Jankovic had been influenced to some extent by the fact that his report had been requested by a solicitor.
The Goldfinch report
An engineer, Mr Goldfinch, provided a report. I shall refer to that report as “the Goldfinch report”. The Goldfinch report contained the following conclusion:[12]
I therefore conclude that while this dwelling exhibits varying degrees of what I regard as normal dilapidation of building elements in a circa 1966 construction, these issues relate to maintenance items commensurate with the dwelling’s age and original methods of construction. It is my considered opinion that the dwelling is, and was at the time of Mr Duckworth’s inspection on 28 May 2003, structurally sound as stated in Item 3.1 on page 9 of 9 of his report. I would add that it is also regarded by me as being structurally sound at the time of my inspection on 12 May 2004. I can see no reason why the status quo in this regard would not be maintained into the future, particularly if, and when, the recommendations I have made to modify the environment are implemented.
[12] Exhibit D6.
Those modifications included the removal of a significant tree in the area, a recommendation that a row of shrubs growing along the eastern boundary in the front yard area be removed, and the removal of a large eucalyptus citriadora in the rear yard, followed by adherence to normal gardening patterns.
Mr Goldfinch considered the structural soundness of the property. He defined structural soundness as relating to the performance over the long term of the building’s structural components, giving due consideration to the time at which the building was constructed and the soil and environmental conditions that exist beneath and surrounding the dwelling. He observed that it was a 1966 dwelling. He had regard to the footing system, the walls and, in particular, the walls which serve to transfer roof loads, the self-weight of walls to the footings and the soundness of the walls to resist wind and earthquake loads. He also had regard to the roof framing.
Mr Goldfinch concluded that at 28 May 2003 the building was structurally sound. He reported that cracking and movement was due to a tree which had since been removed, and he considered the cracking was due mainly to environmental factors which could, to a large degree, be rectified. Mr Duckworth’s views about the soundness of the house were thus confirmed by Mr Goldfinch.
The Magistrate had the advantage of observing the witnesses first-hand. I accept the Magistrate’s findings as to the reliability of the witnesses Duckworth, Goldfinch and Jankovic, which are not challenged.
It may therefore be seen that the Duckworth report correctly concluded that the house was structurally sound. The report specifically excluded items from inspection, including electrical installations, footings and plumbing. A number of other items are excluded. The preamble to the report stated:[13]
Minor defects are common to most properties and may include minor blemishes, corrosion, cracking, weathering, general deterioration, unevenness and physical damage to materials and finishes.
[13] Exhibit P3.
Findings of the Magistrate
The Magistrate concluded that the building was structurally sound. He concluded that the plaintiff was concerned about evidence of movement in the house, and that her understanding of ‘structural soundness’ was not in accordance with the technical understanding of that term, as defined in the Goldfinch report. He did not accept the evidence of Mr Hignett. The Magistrate concluded that Mr Hignett’s opinion regarding the cause and the cure for the movement which he identified was wrong and caused unnecessary concern for the plaintiff about the stability of the house and the cost of repairs. No issue was taken with the Magistrate’s conclusions on appeal.
The Magistrate concluded that the Duckworth report was thorough and well balanced. The Magistrate concluded that Mr Duckworth was a satisfactory witness. He considered that he was vastly experienced, conscientious, knowledgeable and honest. Nevertheless, the Magistrate concluded that, if Mr Duckworth had recognised movement and had recommended an engineering report, the plaintiff would have cooled off.
The Magistrate made the following findings:[14]
[14] Brown v Dream Homes SA Pty Ltd (Mr J G Fahey SM, 1 June 2007, unreported), 7-8.
1.I find that there was a contract between the plaintiff and the defendant for the defendant to undertake a pre-purchase inspection of the property at 16 Mataro Road, Hope Valley and report the results to the plaintiff so that the plaintiff could consider whether to proceed with the purchase of the property or cool-off.
2.I find that the defendant was under a duty of care to exercise all reasonable care, skill, diligence and competence in carrying out the inspection and report and to report all defects visible in the property and all other signs and matters which may be suggestive of the possible existence of defects and the measures required to remedy those defects.
3.I find that the pre-purchase inspection report did identify work the plaintiff might have to incur in the future to rectify any existing or potential problems in the property.
4.I find the pre-purchase inspection report failed to identify movement in the house.
5.I find that the plaintiff relied on the contents of the inspection report and elected to proceed with the contract to purchase the property.
6.I find that the defendants [sic] should have identified signs of movement in the house and recommended an engineering report.
7.I find that the defendant’s failure to report the signs of movement and to recommend an engineering inspection, was a breach of his duty of care.
8.I find that if the plaintiff had have been informed of any signs of movement in the house and the defendant had recommended an engineering report, the plaintiff would have exercised her right to cool-off.
9.I find that the defendant breached its duty of care to exercise all reasonable care, skill, diligence and competence in carrying out the inspection and report.
The appeal before this Court
The Notice of Appeal of the plaintiff challenges the quantum of damages awarded. I will address that question later in these reasons.
The defendant has filed a Notice of Alternative Contentions in which it challenges the Magistrate’s findings on the question of liability. The defendant asserts that the Magistrate was in error in concluding that the defendant was in breach of its duty of care.
First, the defendant asserts that the Magistrate should have found the Duckworth report did identify movement in the house. The defendant further asserts that the Magistrate erred in finding that the plaintiff was concerned about more than the structural soundness of the property, and that the Magistrate should have found that the plaintiff’s concern was whether the house was structurally sound. As the Magistrate concluded that the house was structurally sound, the defendant was, therefore, not liable for breach of duty. The defendant also contends that the Magistrate was in error in concluding that if the plaintiff had been informed that an engineering report was required, she would have cooled off and that her assertion that she would not have purchased the property had she been aware that it was necessary to obtain an engineer’s report was a recent invention. It is further contended that the Magistrate should have concluded that the plaintiff was an unreliable witness.
Was the plaintiff merely concerned with structural soundness?
Counsel for the plaintiff submits that the Magistrate was correct in his conclusion that the plaintiff’s concern when she engaged Mr Duckworth went beyond the structural soundness of the house.
That conclusion is not supported by the evidence. The plaintiff paid no regard to the details in the report. The plaintiff did not in fact read the complete report, which included comments on signs of movement. She considered only the last page summary, which set out a number of requirements which Mr Duckworth considered needed attention and the conclusion that the house was structurally sound.
I accept the defendant’s submission that the plaintiff was primarily concerned with whether the building was structurally sound. As it transpired, Mr Duckworth was correct. It was structurally sound. Consequently, following from the summary of the plaintiff’s case I have set out above, it cannot be said that the defendant was negligent in failing to recommend an engineer’s report, as the condition of the house was not such as to necessitate such a recommendation. However, in the event that I am wrong in that conclusion, I will now turn to the other aspects of the plaintiff’s case.
Defendant’s failure to report signs of movement and recommend engineer’s report
The Magistrate concluded that the defendant’s failure to report the signs of movement and to recommend an engineer’s inspection was a breach of his duty of care. In my view, the conclusion is not supported by the evidence. In my opinion, the Magistrate was wrong in concluding that Mr Duckworth conceded that he should have recognised signs of movement and should have recommended an inspection by an engineer.
Mr Duckworth did recognise some movement. He did not consider it to be significant. He concluded the construction was structurally sound and there was no requirement to investigate further. The fact that a building has cracks and, therefore, there has been movement does not require an inspector to recommend an engineer’s report. Mr Duckworth had years of experience. It was a matter for his judgment. He provided a thorough, well-prepared report. It does not follow that, because cracking was observed, therefore there must be an engineer’s report. Mr Duckworth was correct in his assessment that the building was structurally sound. In so forming his opinion, he fulfilled his duty to exercise reasonable care and skill.
I have noted above the Magistrate’s findings about the report and testimony of Mr Duckworth. He accepted that Mr Duckworth may well have been correct about the structural soundness of the house. The Magistrate concluded that Mr Duckworth was wrong to express an opinion about matters which were outside the scope of the relevant Australian Standard, and was wrong to express an opinion about something which was beyond the level of his competence. It is not clear in the Magistrates reasons which matters he considered to be outside the scope of Mr Duckworth’s competence. Mr Duckworth had many years of experience in the building industry. He was well qualified to make assessments about the structural soundness of a building. He was also well qualified to observe and report upon deficiencies in a building and work that may be required to remedy those deficiencies. He did no more than report upon matters which were well within his competence and expertise. The Magistrate, having referred to the Goldfinch report, which concluded that the house was structurally sound, then said:[15]
On this definition, the plaintiff’s house was structurally sound. I doubt this was what the plaintiff understood by structural soundness. What she was interested in was evidence of movement in the house.
[15] Brown v Dream Homes SA Pty Ltd (Mr J G Fahey SM, 1 June 2007, unreported), 7.
He then referred to the failure of Mr Duckworth to recognise movement and recommend an engineer’s report. That appears to be the reason for the Magistrate’s conclusion that the defendant was in breach of duty.
However, as I have earlier observed, the Duckworth report did refer to movement. Counsel for the plaintiff submitted that there was evidence which supported the Magistrate’s conclusions.
Mr Duckworth readily conceded that a number of opinions expressed by Mr Goldfinch were beyond Mr Duckworth’s expertise. Nevertheless, Mr Duckworth made it clear that he did not consider an engineer’s report was required.
Although Mr Jankovic may have so recommended, that does not establish that a decision not to recommend an engineer’s report was in breach of duty. This is particularly so given the findings of the Magistrate regarding the reliability of the respective reports and evidence of Mr Duckworth and Mr Jankovic.
In summary, the defendant did identify signs of movement in the house, and its failure to recommend an engineer’s report was an exercise of Mr Duckworth’s skill and judgment that has been supported by the evidence of an engineer. For these reasons, it is my view that the plaintiff has not proven that the defendant breached any of its duties in the preparation of the Duckworth report. I shall now turn to the final aspect of the defendant’s contention, which is that the plaintiff’s claim in respect of the engineer’s report is a recent invention.
Is the claim relating to the engineer’s report a recent invention?
The Magistrate concluded that the plaintiff would have cooled off if the defendant had recommended obtaining an engineer’s report. Counsel for the defendant challenged this conclusion. He submitted that the plaintiff’s only concern related to the structural soundness of the house. He submitted that the plaintiff’s assertion that she would have cooled off because she had been advised it was recommended that she obtain an engineer’s report was not supported by the evidence.
On 19 August 2004, the plaintiff’s solicitors wrote to Mr Duckworth. I have noted above the content of that letter. There was no reference in the letter to Mr Duckworth’s failure to recommend an engineer’s report.
Proceedings were commenced in the District Court on 10 November 2004. In the Statement of Claim, reference was made to various problems that the plaintiff observed after she had moved in to the property. It was not part of the plaintiff’s allegations that the defendant had failed to recommend an engineer’s report. The allegation of failure of the defendant to advise the plaintiff that she should have an engineer’s report was first raised in the Statement of Claim in the Magistrates Court on 7 December 2005.
In her evidence, the plaintiff agreed that she and her partner had inspected the property and agreed to make an offer. She accepted that she only considered the summary page of the Duckworth report. She conceded that none of the items requiring urgent attention would have caused her to cool off.
The plaintiff submitted that the Magistrate’s findings of a breach of duty of care were open on the evidence, and there is no reason to disturb his findings. The plaintiff rejects the criticism of the defendant that her claim in respect of the engineer’s report is a recent invention. Counsel submitted that the defendant pleaded in para 3.2 of its defence in the Magistrates Court, filed on 15 December 2005, that:
It carried out the report at the level of the standards required by the relevant Australian Standard, namely, AS 43491.1 - 1995 “Property Inspections – Residential Builders [sic]”.
It was only when that plea was made that the plaintiff was concerned that there might have been a recommendation for an engineer’s report. The plaintiff submits that the issue of the obligation to recommend an engineer’s report only arose because of the plea that the report was prepared in accordance with the Standard.
I do not accept the submission. The initial complaints by the plaintiff were particularised in the letter from her solicitor. No mention was made that she would have cooled off if an engineer’s report had been recommended. The letter referred to the Australian Standard and mentioned, in particular, the plaintiff’s request of Mr Duckworth about whether the property was “structurally sound”. The letter mentioned various defects. The letter referred to the Jankovic report. No mention was made of the requirement for an engineer’s report, even though Mr Jankovic in his report specifically stated that, in his opinion:[16]
The severe cracking which has occurred requires an assessment of a structural engineer and a rectification specification drawn up.
[16] Exhibit P4.
The report was dated 20 January 2004 yet, in the solicitor’s letter of claim, there was no allegation that the plaintiff would have cooled off if she had been informed that an engineer’s report should be obtained. The Statement of Claim in the District Court was dated 10 November 2004, some 18 months after the Duckworth report and 10 months after the Jankovic report. No engineer’s report was commissioned by the plaintiff. The defendant obtained an engineer’s report which was sought in May 2005, after the action had been instituted.

I do not accept the plaintiff’s submission that the issue of the engineer’s report only arose after the defendant filed its defence. The plaintiff was aware of the opinion of Mr Jankovic in January 2004. Her complaint was an after‑thought. In my view, the plaintiff failed to establish her causes of action.
I would therefore uphold the defendant’s Notice of Contention.
If I am wrong in my conclusions, I now turn to the question of damages.
Damages
The Magistrate concluded that the plaintiff had not suffered any loss or damage, and he dismissed the plaintiff’s claim.
The plaintiff’s solicitors sought a valuation of the property. Mr Darcy Bruce prepared a valuation as at 6 July 2004.[17] I shall refer to that document as “the Bruce report”. Mr Bruce had been provided with the Duckworth and the Jankovic reports. Mr Bruce concluded that if the property was placed on the market and prospective purchasers could be found, he would consider a re-development may be possible, thereby attributing a greater value to the vacant land. He considered that even if a prospective purchaser intended to maintain the land for the purpose of a single residence, the above-average size of the land would be reflected in the value of the property. He described the land as a “fine piece of land that could be re-developed”. He concluded that the property’s hypothetical current market value without defects would be $225,000. He considered that the value of the property in its current state, as at 6 July 2004, was $195,000. Mr Bruce concluded that the diminution in value, as at 6 July 2004, was $30,000
[17] Exhibit P7.
The grounds of appeal are:
1.The learned Magistrate erred as a matter of law in allowing the Defendant to assert that there should be a set off of the net proceeds of sale of the subject property which the Plaintiff received against the costs associated with the purchase and subsequent sale when the Defendant had not made that allegation in its defence. The learned Magistrate should have refused to entertain the submission as the Defence failed to give the Plaintiff fair notice of the case she had to meet on this issue.
2.The learned Magistrate erred as a matter of law in finding at Reasons [31] that the Plaintiff was obliged to plead as part of her Claim that she was no better off at the time she sold the subject property because of increases in the price of similar properties over the period in question. The learned Magistrate should have found that this was a matter to be pleaded by her in any Reply to the Defence once the issue was clearly raised in the Defence.
3.The learned Magistrate erred as a matter of law in following the decision in Manwelland Pty Ltd v Dames & Moore Pty Ltd [2001] QCA 436 having regard to the conflicting line of authority in Tay v Koh [2000] WASCA 356 and the cases which follow it. The learned Magistrate should have invited further submissions from the parties on this matter given the Manwelland case was not raised in closing addresses.
4.At the hearing on the appeal the Plaintiff will seek to lead further evidence pursuant to SCR 6R 292(3)(a) from the Plaintiff and her expert valuer Mr Darcy Bruce to establish her contention that over the period in question any property which she would have sought to purchase would have increased in value by at least the same amount as the property the subject of the action had increased.
The plaintiff seeks orders that the order of the Magistrate be set aside and that judgment be entered for the plaintiff in the sum of $29,924.80. The plaintiff also seeks costs of the action and of the appeal.
The plaintiff calculated her loss initially as $30,000 on diminution in value, plus $29,924.80 for costs associated with the purchase and the costs associated with engaging experts. That figure was amended at trial to $27,313.81 as, by that stage, the actual costs of re-sale had been established. The break down of the costs is as follows:
1.     $12,947.05 in costs to purchase the property.
2.     $1,823.58 in costs of occupation of the property.
3.     $9,704.40 in costs to sell the property.
4.     $490.30 in moving from the property to a new home.
5.     $2,385 in experts’ reports.
Subsequently the plaintiff amended her claim by reducing the total claim by $30,000. She did so after she had contracted to sell the house in December 2004 for $225,000. Settlement occurred on 28 February 2005. Her initial claim was based on the Bruce report. Counsel for the defendant objected to the tender of the Bruce report on the basis of irrelevance. As the plaintiff eventually sold the property for $225,000 about six months after the valuation, she abandoned her claim based upon diminution of value. Counsel therefore did not pursue the application contemplated in ground 4.
I note that the principle in assessing damages in a case of this nature is to determine the difference between the value at the time of purchase and the actual amount paid, plus any other associated costs. In other words, it is necessary to value the property as at the date of purchase, having regard to the defects identified in the reports. The plaintiff is also entitled to recover consequential damages.
It has been accepted by the plaintiff that there was no loss due to diminution of value. The only issue is the question of whether the plaintiff is entitled to recover damages for consequential loss, and whether there should be any set-off resulting from the profit made on the sale of the house some 18 months after purchase.
The principles have been stated in Shaddock & Associates Pty Ltd v Parramatta City Council.[18] Gibbs CJ stated the position as follows:[19]
The appellants are entitled to be put, so far as money can do, in the same position as if they had not made the purchase. If the purchase had not been made the appellants would have kept the money paid to the vendor and would not have made the other payments in question. The award of $133,000, when added to the actual value of the land bought, recompensed the appellants for the payment out of the purchase money, but did not recompense them for other expenses that they had to meet. It is true that the rates, tax, insurance, stamp duty and costs would have been payable if the land had not been affected by the road widening proposals, but it was so affected, and the payments would not have been made if the Council had not made the negligent mis-statement on which the action is founded. Of course the appellants were bound to mitigate their loss, but the learned trial judge was entitled to find that it was reasonable for the plaintiffs to continue to hold the land until the end of 1974, while they were exploring what could be done with the land and endeavouring to salvage what they could from the disastrous purchase.
[18] (1980-1981) 150 CLR 225.
[19] Ibid 237.
Mason J expressed the position as follows:[20]
Consequently, the appellants’ loss includes, not merely the diminution in value of the land, but also the expenses of acquisition and retention for a reasonable time, expenses which would not have been incurred had the respondent not been negligent.
[20] Ibid 255.
In this case, if the purchase had not been made, the plaintiff would not have incurred any of the costs set out above. The only question that arises is whether, in assessing damages, the amount of out-of-pocket expenses referred to earlier should be set off against the profit of $30,000 made by the plaintiff on re-sale of the property.
The Magistrate concluded that it was an appropriate case to set off from the loss of $27,313.81 the profit of $30,000 made on the re-sale of the property and, therefore, the plaintiff had suffered no loss.
The Magistrate relied on the decision of Manwelland Pty Ltd v Dames & Moore Pty Ltd.[21] In that case, the plaintiffs purchased land in the business district of Mackay in North Queensland. It had formerly belonged to the Gasworks Corporation of Queensland. It had been contaminated. The plaintiffs’ directors considered that it was an investment opportunity, with a view to cleaning up the land and constructing a large shopping centre or re‑selling the land after it was cleaned up. The plaintiffs were advised by the defendant, which was a company claiming expertise in the remediation of contaminated land, that a full clean up of the subject land could be achieved at a cost in the order of $300,000. The plaintiffs then purchased the land for $810,000.
[21] (2001) ATPR ¶41-845.
As it transpired, the cost of remediation work was far in excess of the $300,000 estimated, and more in the vicinity of $500,000 to $963,500. The court at first instance concluded that the defendant had engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). It had also been negligent at common law, and was in breach of its contract with the plaintiffs to use the proper skill and care in giving its advice.
The appeal turned on the question of damages. The plaintiffs submitted that the appropriate measure of damages was the difference between the price paid by the plaintiffs of $810,000 and the market value of the land at the date it was acquired which, on the evidence of the valuer called by the plaintiff, was $300,000.
The trial Judge concluded, however, that the injured party should receive a sum that would put it in a position that it would have occupied if the contract had been performed. The Court held that the plaintiff was bound to bring into account in the damages assessed the proceeds of re-sale of part of the land which it had subsequently developed and disposed of, less the expense of bringing it to a saleable condition.
The plaintiff had decontaminated some of the land, and had constructed a shopping complex and then sold it for some $3.7 million. After expenses associated with the construction, including the purchase price of the land, which totalled approximately $3.6 million and, having regard to other expenses, the judge assessed the overall loss at $10,259.43. The plaintiff appealed.
McPherson JA discussed the principles relating to the assessment of damages. He said:[22]
The plaintiff is entitled to recover compensation for its loss, which means it is to receive the amount needed to restore it to the position it would have occupied had it not been induced to enter into the transaction, meaning by that the purchase and acquisition of the subject land.
[22] Ibid [17].
He then reasoned that if the plaintiff had not acquired the land, it would have retained the $810,000, together with amounts of other outlays that were incurred and paid, such as conveyancing costs, stamp duty, interest on borrowed monies and the like. He reasoned that if it had not acquired the land, it would not have received the re-sale price of $3.7 million. He took into account the expenses incurred in developing and selling the land, which it would not have incurred, apart from the actionable inducement. He concluded that the overall loss was $10,259.43 and dismissed the appeal.
In Hussey v Eels,[23] the plaintiffs had purchased a bungalow in reliance on a negligently false representation from the vendor’s solicitors that the building had not suffered subsidence. When the plaintiffs discovered the true facts, they obtained planning permission to demolish the bungalow and erect two new buildings on the land. They then sold the land, with the benefit of that planning permission, for a considerable profit over and above the price they had originally paid for it. The Court of Appeal held that they were not required to bring to account the amount of capital profit they had received on re-sale. McPherson JA, in considering the decision, observed:[24]
According to the headnote, the ratio of the decision is that the plaintiffs owed the defendants no duty to mitigate their damages by securing planning permission and re‑selling the land, “so that it could not be said that the negligence which caused damage to the plaintiffs had also caused whatever profit they had made on resale”.
[23] [1990] 2 QB 227.
[24] Manwelland Pty Ltd v Dames & Moore Pty Ltd (2001) ATPR ¶41-845 [18].
In Hussey, Mustill LJ held that the subsequent sale and development was not part of a continuous transaction of which the purchase of land and bungalow was the inception. McPherson JA observed that the decision in Hussey v Eels had recently been applied by the Full Court of Western Australia in Tay v Koh.[25] He observed that he had some difficulty in accepting it as sound law, or as being applicable to the present case. In considering Hussey, he said:[26]
One would expect that, in arriving at the “true” or market value, account would in a case like Hussey v Eels be taken of the potential of the property to be dealt with in exactly the way it was in that instance; that is, by demolishing the bungalow and obtaining planning permission to erect two new buildings on it. The potential for redevelopment, at least if foreseeable, is similar to fluctuations in market value, which, as McHugh J has said, “will ordinarily be factored into the assessment of the true value of the property as at the date of valuation”.
[25] (Unreported, Supreme Court of Western Australia, Full Court, Malcolm CJ, Walsh and Ipp JJ, 28 May 1998).
[26] Manwelland Pty Ltd v Dames & Moore Pty Ltd (2001) ATPR ¶41-845 [19]; see Kenny & Good Pty Ltd & Anor v MGICA(1992) Ltd (1999) 199 CLR 413, 436.
He said in that way the two methods of ascertaining the amount of damages ought in theory to produce the same or much the same result. He said at [21] that even if his reservations about Hussey v Eels were misplaced, the question to be determined is whether the subdivision of the subject land and its development for sale is to be regarded as not being “part of a continuous transaction in which the purchase of land was the inception”.
He observed that the principal activity of the plaintiff was real estate development, and it was always intended to develop the subject land. Therefore, even applying Hussey v Eels, as accepted in Tay, the result would have been the same.
Manwelland is distinguishable from the facts of this case. In Manwelland, the plaintiff was a developer who purchased land for the purpose of development. In assessing damages, the court had regard to events that had taken place subsequent to the purchase of the land because it had been purchased with a view to developing it and making a profit from the on-sale of the development. As McPherson JA observed, the real grievance of the plaintiff and its directors in bringing the action seems, in the end, to be that if they had not been induced by the defendant’s conduct to purchase the land in question, they could successfully have applied their efforts and resources to some more profitable venture or opportunity elsewhere. He observed, however, that the remedy for that state of affairs is not to distort the measure of damages recoverable in tort, contract or under the statute, but to make use of the relief that the law affords. He observed that they could have formulated a claim based on loss of prospective profit, or loss of opportunity denied to the plaintiff and, if the plaintiff had proved that at trial, then the award might have been different.
In this case, the plaintiff gave evidence that she purchased the property with the intention of securing a position in the property market in South Australia. She had made no decision to on-sell, nor had she purchased it for the purposes of re-development, nor for any other purpose than to live in it. The Magistrate made no findings to the contrary. It cannot be said that the re-sale of the property later was part of the transaction when purchasing the property. The decision in Manwelland has no application to the facts in this case.
If, therefore, I am incorrect in upholding the defendant’s notice of contention, then I conclude that the plaintiff’s damages have been proved in the sum of $27,313.81.
Conclusion
For the reasons expressed, I uphold the alternative contentions of the defendant. I disagree with the Magistrate’s finding that the defendant was liable for breach of duty. It follows from my reasons that the plaintiff has failed to establish a breach of contract or of duties imposed by legislative provisions, as pleaded.
The appeal is therefore dismissed.