Neil Gibson v John Edwin Eastgate

[2008] NSWCA 81

New South Wales

Court of Appeal

CITATION:	NEIL GIBSON v JOHN EDWIN EASTGATE & ANOR [2008] NSWCA 81
HEARING DATE(S):	28 April 2008
JUDGMENT OF:	Basten JA at 26; Bell JA at 27; Handley AJA at 2
EX TEMPORE JUDGMENT DATE:	28 April 2008
DECISION:	(1) Leave to appeal granted. (2) Filing and service of notice of appeal dispensed with. (3) Appeal dismissed with costs.
CATCHWORDS:	BUILDER - Owner -Builder - Passive co-owner owed no duty of care to later purchasers - NEGLIGENCE - duty of care - to avoid causing economic loss - Owner-builder - Passive co-owner owed no duty of care to purchasers
LEGISLATION CITED:	Building Services Corporation Act 1989
CATEGORY:	Principal judgment
CASES CITED:	Bryan v Maloney (1995) 182 CLR 609 Woolcock Street Investments Pty Limited v CDG Pty Limited (2004) 216 CLR 515
PARTIES:	Neil Gibson (Appellant) John Edwin Eastgate & Anor (Respondents)
FILE NUMBER(S):	CA 40556/07
COUNSEL:	D Ronzani (Appellant) S Cairns (Respondents)
SOLICITORS:	Southern Districts Legal (Appellant) Peter Merity (Respondents)
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	5226/07
LOWER COURT JUDICIAL OFFICER:	Truss DCJ
LOWER COURT DATE OF DECISION:	3 May 2007

CA 40556/07

BASTEN JA
BELL JA
HANDLEY AJA

28 April 2008

NEIL GIBSON v JOHN EDWIN EASTGATE & ANOR

BUILDER – Owner – Builder – Passive co-owner owed no duty of care to later purchasers

NEGLIGENCE – Duty of care - To avoid causing economic loss – Owner-builder – passive co-owner owed no duty of care to purchasers

HEADNOTE

The second defendant and her husband owned a block of land. They obtained development consent and building approval for the construction of a residence on the block. The husband then applied for and obtained an owner-builder permit in his name under ss 30 and 31 of the Building Services Corporation Act 1989. The wife was not a joint applicant and did not otherwise apply for or obtain such a permit. The house was constructed pursuant to the husband’s permit and later sold to a purchaser who on-sold to the plaintiffs. The plaintiffs suffered economic loss as a result of latent defects in the foundations. They sued the second defendant and her husband for damages for breach of a duty of care to avoid causing them economic loss. The plaintiffs recovered against the husband but the trial judge dismissed their claim against the wife holding that, as a passive co-owner she owed no duty of care to the plaintiffs as purchasers to avoid causing them economic loss. The plaintiffs applied for leave to appeal against the dismissal of their claim against the wife.

Leave to appeal should be granted but the appeal should be dismissed. The wife, as a passive co-owner, who did not hold an owner-builder’s permit, and was prohibited from carrying out building work did not owe a duty of care to the plaintiffs as purchasers of the house.

ORDERS

(1) Leave to appeal granted.

(2) Filing and service of notice of appeal dispensed with.

(3) Appeal dismissed with costs.

CA 40556/07

BASTEN JA
BELL JA
HANDLEY AJA

28 April 2008

NEIL GIBSON v JOHN EDWIN EASTGATE & ANOR

Judgment

1 BASTEN JA: Handley AJA will deliver the first judgment.

2 HANDLEY AJA: This is an application by the claimants for leave to appeal from that part of the decision of Truss DCJ on 3 May 2007 which dismissed their claim against the second defendant.

3 The claimants, who are the current owners of a three level house at 32 Valley Road, Gymea, brought the proceedings against the former owners, who are husband and wife. The husband had admittedly undertaken the construction of the house as an owner-builder in 1992 and was sued on that basis. His wife, who was a co-owner, was also sued as an owner- builder.

4 The claimants purchased the property for $490,000 on 18 February 2000. On 18 May 2003, following a long period of heavy rain, the house suffered structural damage when a boulder which had been supporting a brick pier on its north-eastern corner shifted. The site sloped to the south with an overall gradient of three in one. The front of the house was on a level bench at the rear on the bottom of the site.

5 The defendants purchased the property as a vacant lot on 27 February 1992. On 3 July that year the Sutherland Shire Council granted both defendants development approval for the construction of a dwelling house. On 9 July the Council granted both defendants building approval for the construction of the three level residence. Application for the building approval had been made by both defendants as the owners of the site.

6 Mr Ronzani, who appeared for the claimants, relied on the fact that the development consent and building approval had been granted to both defendants. In my judgment, the form of the applications and the form of the development consent and building approval in favour of both owners is entirely neutral on the questions raised in this application.

7 The building application is in evidence and required the owners to identify themselves, as they did, as the owners of the property. The form also required identification of the builder. Against that part of the form an asterisk appeared which referred the reader to a note below which read:

“Where a builder has not been engaged at the time of submitting this application insert the word ‘tender’ or ‘owner’ as the case may be. Council must be notified of the builder’s name prior to commencement of work.”

8 The defendants inserted in the space on the form for identifying the builder the word “owner”. In my judgment the description of both defendants as the builder in the application for the building permit does not establish or help to establish that the second defendant, Mrs Eastgate, was relevantly a builder for any purpose relevant to the issues in this application.

9 On 17 July 1992 the first defendant, the husband, applied to the Building Services Corporation under s 30 of the Building Services Corporation Act 1989 for an owner-builder permit. His wife did not join in that application and the permit, which issued the same day, was granted to the first defendant alone. He alone was the insured under the DSC Insurance scheme.

10 Section 12 of the Act prohibited an individual from carrying out residential building work unless that individual held a relevant licence or permit. The second defendant did not hold a relevant licence or permit and was therefore prohibited from carrying out residential building work on the property she jointly owned with her husband.

11 The unchallenged evidence of the first defendant was that his wife took no part in the construction of the house. Mr Ronzani relied on some evidence given by the husband which is set out in the statement under the former Part 51 r 4B(3). This established that there had been previous occasions when the defendants had constructed a dwelling house on property they owned. The relevant part of the evidence reads:

“Q. But how many as owner builders by you?
A. Look, I would have to guess, maybe five or six.

Q. Was it that in each case like 32 Valley Way you and your wife owned those properties?
A. Yes.

Q. Do you recall that in making … the application to Sutherland Shire Council to build and to be given approval … it was done by both you and your wife?
A. In all cases, yes.”

12 In my judgment this evidence falls short of establishing that, in any relevant sense, the second defendant was an owner-builder. The decisive fact is that she did not hold an owner-builder’s permit and her husband did. Another relevant fact is that she did not carry out any of the physical work during the construction. An owner-builder who carried out unlawful building work may come under a duty of care in accordance with the principles of Bryan v Maloney (1995) 182 CLR 609, but an owner who does not carry out building work and is prohibited by law from doing so is in a very different position.

13 The building work was completed in early 1995 and the Council was satisfied on the final inspection that it had been completed in a satisfactory manner and the building certificate was issued. The defendants sold the property to Mr and Mrs Roger Hill on 23 February 1996, who sold it to the claimants on 18 February 2000.

14 The claimants alleged that both defendants owed them a duty to take reasonable care to prevent them suffering economic loss in rectifying what had been latent structural defects in the building. The trial Judge was satisfied there was such a defect in that, contrary to geophysical advice obtained by the defendants, as required by the Council, the piers supporting the upper level of the house were not taken down to bedrock. The trial judge found that this was a breach of the duty of care owed by the first defendant as an owner-builder and awarded the plaintiffs damages of $81,299.

15 The claim against the second defendant was dismissed because the judge held that she did not owe a duty of care to the plaintiffs. The trial judge must have been satisfied that the first defendant was either personally implicated in, or knew about, the failure of the piers supporting the upper level of the house to reach bedrock. There was no such evidence in respect of the second defendant. The first defendant has not challenged the judgment against him and the plaintiffs have accepted the Judge’s assessment of their damages.

16 The trial Judge is to be congratulated for her clear and concise findings in what was undoubtedly a heavy and complex case. She noted that first defendant conceded that as an owner builder he owed a duty of care to later purchasers of the property. Her Honour acted on that concession. She followed Bryan v Maloney (above) where the High Court held that a professional builder of a private dwelling house owed such a duty. Her Honour extended the principle to an owner-builder in the position of the first defendant.

17 The defendant in Bryan v Maloney was held to owe a duty of care to the building owner with whom he had a direct contractual relationship. That relationship, as Mason CJ, Deane and Gaudron JJ said at 624, was one of proximity involving an assumption of responsibility by the builder to the owner and known reliance on this by the owner. At p 627 the justices applied their analysis to the relationship between the builder and a later purchaser, finding a relevant assumption of responsibility by the builder and “known reliance” by the later purchaser.

18 This assumption and reliance as between the builder and the later purchaser were, of course, imputed. There were no direct dealings or relationship between the parties. The builder did not actually intend to assume any responsibility to a remote party. The purchaser knew there had been a builder but knew nothing about him and his reliance was never communicated.

19 In Woolcock Street Investments Pty Limited v CDG Pty Limited (2004) 216 CLR 515, Gleeson CJ, Gummow, Hayne and Heydon JJ, said of Bryan v Maloney at [14] that the decision:

“… depended upon conclusions that were reached about the relationship between the first owner and the builder.”

20 In the instant case there was no such relationship because the first defendant was an owner-builder. He and his wife were engaged in a joint enterprise which did not involve a contractual relationship with a builder. The relationship between the defendants may well have excluded any assumption of responsibility to the wife or known reliance by her intended to have legal consequences.

21 There is no need to express any concluded view on these questions because even if the trial Judge was justified in extending the Bryan v Maloney principle to an owner-builder this would not justify the imposition of a duty of care on an owner who was not a builder.

22 There was no suggestion in Bryan v Maloney that the original building owner owed or might owe a duty of care to subsequent owners. There is no ground for imputing any such duty in a relationship characterised by the principle of caveat emptor – buyer beware. If there is no basis for imposing a duty of care on an owner who is in a contractual relationship with the builder there is even less justification for doing so in the case of an owner who was not in such a relationship and was not the builder.

23 In my judgment, given that the wife was not an applicant for or a recipient of an owner-builder’s permit and took no part in the building work, there is no basis for imputing any assumption of responsibility by her and even less for imputing known reliance by the claimants on her role as a passive co-owner.

24 The trial judge was correct when she said par 47:

“The duty of care in Bryan v Maloney is clearly imposed upon builders of residential dwellings. Given that the second defendant was not authorised by the Building Services Corporation Act to carry out the work referred to in the development application and given that she took no part in the construction, I do not consider that there is a proper basis for the finding that she was relevantly a builder.”

25 For those reasons the second defendant did not owe a duty of care to the plaintiffs. I would propose the following orders:

(1) Leave to appeal granted.
(2) Filing and service of notice of appeal dispensed with.
(3) Appeal dismissed with costs.

26 BASTEN JA: I agree with Handley AJA.

27 BELL JA: I also agree.

**********