A recent decision by the Queensland Court of Appeal has confirmed that there are very limited circumstances in which a builder will owe a duty of care to subsequent purchasers of property they built.  

In the recent decision of Raymond v Lewis [2024] QCA 43, the Court found that a builder will not owe a duty of care to a subsequent purchaser of the building unless the subsequent purchaser is 'relevantly vulnerable' at the time of purchasing. Factors like a subsequent purchaser's failure to completely and diligently inspect the building for defects before purchasing will weigh heavily against the purchaser in any negligence claim brought against a builder.

Ultimately, the decision serves as a win for builders as it confirms that the homeowner must prove they were incapable of protecting themselves from economic loss when purchasing the property in order for the builder to be liable in negligence. It follows from the decision that there are only very limited circumstances in which a subsequent purchaser can pursue a claim against a builder outside of the Queensland Building and Construction Commission's statutory insurance scheme.

Background

Between 2005 and 2006, Mr Raymond, a registered builder, constructed a multi-storey house located in Paddington, Queensland. Upon completing construction of the house, Tycoon Developments Pty Ltd (of which Mr Raymond was a director) sold the property to Mr King.  Mr King remained the owner of that property until 2017, when he sold it to Ms Lewis at auction for $1.6 million.

Shortly after Ms Lewis and her family moved into the property, Ms Lewis ascertained that there were defects in the construction of the house. Among other things, the defects included problems with the timber subfloor and the props and joists used to support the driveway and garage floor. Importantly, Ms Lewis did not engage her own expert to carry out an inspection of the property prior to her purchase, and instead relied solely on a building and pest inspections report procured by Mr King (the vendor).  

Ms Lewis elected not to pursue a defective works claim under the statutory insurance scheme and instead commenced proceedings against Mr Raymond, the builder of the house, in the District Court of Queensland for negligence. In that proceeding, Ms Lewis claimed damages against Mr Raymond for the economic loss she had suffered, effectively being the loss in the value of the property consequent of its defects. Ms Lewis succeeded in the District Court proceeding and was awarded damages in the sum of $229,100 with interest and indemnity costs.

Mr Raymond appealed the decision to the Court of Appeal of the Supreme Court of Queensland. Broadly speaking, the primary question on appeal was whether the trial judge erred in finding that Mr Raymond owed Ms Lewis, as a subsequent purchaser of the house, a duty of care.

Court of Appeal's decision

The Court of Appeal held that Mr Raymond did not owe Ms Lewis a duty of care, and therefore was not liable to pay damages for negligence. Accordingly, the District Court decision was overturned.

In coming to that decision, the Court of Appeal considered the High Court's decision of Bryan v Maloney (1995) 182 CLR 609. In that case, the High Court found that where a duty of care was owed by a builder to a previous purchaser, by extension, that duty of care should also be owed to subsequent owners in certain circumstances. One of the key factors in determining whether or not a builder's duty of care should extend to subsequent owners was whether the subsequent owner was sufficiently 'vulnerable'.

Despite the fact that:

• Ms Lewis and her husband were purchasing their first house;
• Ms Lewis was pregnant with a third child; and
• neither Mr Lewis nor her husband had any building qualifications,

the Court of Appeal held that Ms Lewis was not sufficiently 'vulnerable' for Mr Raymond to owe her a duty of care.  

To that end, the Court noted that the defects were discoverable at the time Ms Lewis purchased the house, and it was open to Ms Lewis to obtain her own expert opinion on the state of the house before outlaying some $1.6 million to purchase the home, but she chose not to do so.

In particular, the Court made the following observation in its reasons:

[42] …the duty of care will not be owed by the builder to a subsequent purchaser of the building unless there is relevant vulnerability on the part of the purchaser at the time of the purchase of the building. That vulnerability will exist when the subsequent purchaser is incapable of protecting himself or herself from pure economic loss sustained as a result of defects in the building at the time of purchase. The nature and discoverability of the defects in the construction at the time of purchase are relevant to whether there is such incapacity on the part of the purchaser.

Effect of the decision

The decision has further refined the scope of when a subsequent owner can claim for economic loss (e.g. loss of value in property) from the builder for defects in their property.  

The threshold is self-evidently high – the subsequent purchaser must be so vulnerable that they were incapable of protecting themself from pure economic loss sustained as a result of defects in the building at the time of purchase.  

In determining whether a subsequent purchaser was capable of protecting themself, the Court will consider, among other things, whether the defects were discoverable at the time of purchase and how sophisticated the purchaser was.

It would also appear that, in light of Raymond v Lewis [2024] QCA 43 and earlier High Court authority of Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185, there is almost no scenario in Queensland where a builder will be liable in negligence for economic loss sustained by a subsequent purchaser of a commercial building given the purchasers of commercial properties are invariably more sophisticated than residential purchasers.

It is, however, important to note that builders may still be liable to subsequent homeowners under the statutory insurance scheme, which covers homeowners (including subsequent homeowners) in respect of residential construction work valued at over $3,300.

Key takeaway

It will now be even more difficult for a subsequent purchaser to succeed in a negligence claim against the builder for defects that were present at the time of purchase.  

The decision highlights the importance of prospective buyers performing a thorough inspection of any house or other dwelling before purchasing it (which may, for example, involve obtaining your own expert opinions).  

Unless the property is being purchased directly from the builder, purchasers are unlikely to have any recourse in negligence against the builder for economic loss suffered because of defects.

Authors

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Edward Sheppard | Law Graduate