A recent ruling by the Queensland Court of Appeal underscores the narrow conditions under which a builder is obligated to exercise care towards subsequent property purchasers. In the case of Raymond v Lewis [2024] QCA 43, it was established that unless a subsequent buyer is considered ‘relevantly vulnerable’ at the time of acquisition, a builder is not bound by a duty of care towards them. Factors such as a buyer’s failure to diligently inspect the property for defects prior to purchase significantly diminish their standing in any negligence claim against the builder.

This verdict marks a victory for builders, affirming that homeowners must demonstrate their inability to safeguard against economic loss during the property transaction for the builder to be held liable for negligence. Consequently, the ruling delineates the limited circumstances in which subsequent purchasers can pursue legal recourse against builders beyond the purview of the Queensland Building and Construction Commission’s statutory insurance scheme.

Case Background

Between 2005 and 2006, Mr Raymond, a registered builder, constructed a multi level house in Paddington, Queensland. Tycoon Developments Pty Ltd, of which Mr Raymond was a director, sold the property to Mr King. Mr King owned the property until 2017, when he sold it to Ms Lewis for $1.6 million at auction.

After moving in, Ms Lewis discovered defects in the construction, including issues with the timber subfloor and driveway and garage floor supports. Notably, Ms Lewis didn’t conduct her own inspection before purchase but relied solely on a report commissioned by the previous owner, Mr King. Instead of claiming under the statutory insurance scheme, Ms Lewis sued Mr Raymond for negligence in the District Court of Queensland, seeking damages for the property’s diminished value due to defects. She won the case and was awarded $229,100 plus interest and costs. Mr Raymond appealed to the Court of Appeal, questioning whether he owed Ms Lewis, as a subsequent buyer, a duty of care.

Decision in Court of Appeal

The Court of Appeal overturned the District Court’s decision, ruling that Mr Raymond didn’t owe Ms Lewis a duty of care and therefore wasn’t liable for negligence damages. In reaching this conclusion, the Court considered the High Court’s precedent in Bryan v Maloney (1995) 182 CLR 609, which established that a builder’s duty of care to a previous buyer might extend to subsequent owners under certain conditions, particularly if the subsequent owner was sufficiently ‘vulnerable’.

Despite factors such as Ms Lewis being a first-time homebuyer, pregnant with her third child, and lacking building expertise, the Court found her not sufficiently ‘vulnerable’ for Mr Raymond to owe her a duty of care. It emphasized that the defects were detectable at the time of purchase, and Ms Lewis had the opportunity to seek her own expert opinion before buying the property for $1.6 million, which she chose not to do.

The Court’s rationale underscored that a builder’s duty of care to a subsequent purchaser only arises when the purchaser is incapable of protecting themselves from economic loss due to defects in the building at the time of purchase. The presence and discoverability of defects during purchase are crucial factors in determining this incapacity.

Implications for builders & purchasers

The decision in Raymond v Lewis [2024] QCA 43, along with previous High Court precedent like Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185, suggests that in Queensland, builders are seldom liable for economic loss sustained by subsequent purchasers of commercial properties, given the typically higher sophistication of commercial property buyers compared to residential purchasers. It’s worth noting that builders may still be accountable to subsequent residential property owners under the statutory insurance scheme, which provides coverage for residential construction work exceeding $3,300 in value.

This ruling further clarifies the circumstances under which a subsequent property owner can seek compensation for economic loss stemming from defects in their property. The threshold for such claims is notably high, requiring the subsequent buyer to demonstrate a level of vulnerability where they were unable to shield themselves from economic loss due to building defects at the time of purchase. In assessing the purchaser’s ability to protect themselves, factors such as the discoverability of defects at the time of purchase and the purchaser’s level of sophistication are taken into account.

If you have any questions about the implications of this case, or in respect of ongoing obligations of builders, Call Rose Litigation Lawyers to speak with an experienced building and construction lawyer today!

The content of this publication is intended to provide a summary and commentary only. It is not intended to be comprehensive nor does it constitute legal advice, and has been prepared based on applicable legislation and case authority at the date of publication. You should seek legal advice on specific circumstances before taking any action.