BROWN v DREAM HOMES SA PTY LTD

This is a case that was heard in the Supreme Court here in SA in November 2008.  It was originally heard in the Magistrates Court and then there was an appeal to a single judge and a further appeal to the full court of the supreme court with 3 judges. Two of them basically agreed and the other was dissenting.  I will only talk about the  majority view which decided the case. (In the end the matter was sent back to a single judge to decide about the issue of damages but the judges indicated how the issue of damages should be treated.)

In May 2003 Mrs Brown bought a house at Hope Valley for $195,000.  She and her partner had moved from Victoria and wanted to get into the Adelaide housing market.  Mrs Brown was a cautious purchaser so during the cooling off period she engaged a Mr Duckworth who was a building inspector to provide a pre purchase property inspection and Mr Duckworth did that in accordance with the Australian Standard for such reports. 

Mr Duckworth carried out his inspection on the last day of the cooling off period. He reported among other things that he had found some 12 hairline or fine cracks in the walls of the house but that they did not require any repair. He said that the house was structurally sound.

Ms Brown did not exercise her right to cool off after receiving Mr Duckworth’s report.

However Mr Duckworth’s report did not mention a large crack that proceeded through the mortar joints in about nine courses of brick on the exterior wall to the main bedroom at the front of the house. The crack had been patched but before that repair it must have been about 10 millimetres wide.

 Ms Brown had not seen the patched crack when she inspected the property, probably because the vendors had placed a large shrub in front of it.

Ms Brown saw the patched crack for the first time after settlement and after she had moved into the house. She also noticed that the aluminium window built into the affected wall appeared to be twisted and that the locking mechanism could not be operated because the bolt on the window was not aligned with the hole in the windowsill. She engaged an architect and a building consultant. She was advised that the patched crack was the result of footing movement.

Mr Duckworth gave evidence that he had seen the crack. He explained that he did not mention it in his report because he had concluded that the patched crack was caused by building work that had been carried out on a pergola that had once abutted the affected wall and not by movement of the house footings.

The court ultimately established that the patched crack had been caused by footing movement and not by work on a pergola.

Mrs Brown became so disheartened with the house that she decided to sell it. In November 2004 it was put on the market and sold for $225,000.  that was 18 months after she had bought it.

Mrs Brown engaged a very experienced civil engineer Mr Goldfinch for the court case and he later confirmed that even though the patched crack was caused by footing movement, the house was indeed structurally sound.

Also Mr Goldfinch’s said that because the cause of the patched crack was footing movement an expert assessment of the structural soundness of the house should be left to an engineer.

The Court found that Mr Duckworth breached his contractual duty to Ms Brown because he to failed to report the existence of the patched crack and to give an accompanying warning that it may have been caused by footing movement and to advise  her that only an engineer could properly advise on the cause and significance of the crack.  That is Mr Duckworth could not reasonably give an unqualified opinion as to the structural soundness of the house.

The court accepted that Mrs Brown would have cooled off if the patched crack and its significance had been brought to her attention. Even thought the house was structurally sound.  She was a cautious purchaser whose decision whether to purchase would have been affected by such a significant issue.

The property actually re-sold for more that Mrs Brown had to pay for it.  And the Court had to work out what damages were owed to Mrs Brown. 

The measure of damages is generally the amount necessary to restore the injured party to his or her former position.

Generally any appreciation in the value of the Mataro Road house would be offset against the transaction costs because, if it is not, Ms Brown would be left in a better position than she would have been in if the contract had been properly performed. However, the appreciation in value of the Mataro house reflected no more than a general rise in the market so it was simpler to just ignore the increase in market value.

Ms Brown claimed the transaction costs which she incurred in purchasing and then selling the house because she did not want to make it her home.  She would not have purchased  it had the patched crack and its significance been brought to her attention.  Those costs, included stamp duty, conveyancing fees incurred when she purchased the property and the land agent’s commission she paid on the sale.

The transaction costs which Mrs Brown claimed were about $27,000.

To read the case: [2008] SASC 295