Actual knowledge of building defects defeats statutory warranty claim

Bonarrigo v DSF Pty Ltd trading as LaRosa Tiling Company (Domestic Building) [2012] VCAT 1404, 19 September 2012, Member M. Farrelly

This is the first case note of two cases in which owners of a home have brought proceedings in respect of defects which are said to have arisen after purchase of the home. The Tribunal considered the issue of whether knowledge by the purchasers of the defects prior to purchase affected their claims. In Bonarrigo, the Tribunal found that the owners had actual knowledge of the defects and ‘sufficient knowledge to appreciate the significance of the problem’. Accordingly, their claim failed.

The facts

Mr and Mrs Murdoch were the original owners of a home in Warrandyte, which was 30 years old. The home had a large tiled deck which sat above a living area, including a powder room, a toilet and a kitchen. Water started leaking into the living areas, and in 2005, the Murdochs engaged the respondent company to re-tile the deck. As a result of the re-tiling works the water leaks stopped until they re-emerged in 2008, when water started leaking into the powder room.

A representative of the respondent company attended in 2008 to test the deck and discovered that the roofing at the northern end of the deck was leaking. Mr Murdoch gave evidence that the respondent re-worked a joint in the deck above the powder room and said that it would return to carry out further investigations, but it never returned.

The home was sold to the Bonarrigos (the Owners) in 2009. Prior to purchase, the Murdochs told the Owners about the history of the leaks, the attendances by the respondent to repair the leaks, that the leak was re-emerging in the powder room, and that the respondent was coming back to fix the leak. Mr Bonarrigo admitted knowing about the leaks when the house was purchased, however he said that ‘it was covered by the contract of repair‘ (a reference to the contract between Mr Murdoch and the respondent). 

After the Owners moved in, the leak started spreading to other areas under the deck including the garage and kitchen. In 2010, the Owners contacted the respondent and told it of the worsening water leaks. The Owners’ “home and contents” insurer obtained several reports indicating a failure of the waterproof membrane under the deck tiles. In 2011 the Owners applied a waterproof membrane to the entire deck which stopped the leaks.

The claim

The Owners alleged that the respondent had breached the warranties under s8 of the Domestic Building Contracts Act 1995 (Vic) and had breached a duty of care owed to them as subsequent purchasers. The Owners  claimed $117,546 for costs of rectification.

The decision

Member Farrelly found that at the time the Owners purchased the property, they knew that the home had a history of water leaks, that the problem had re-emerged and that they ‘Had sufficient knowledge to appreciate the significance of the problem’. As a result, the Owners failed to establish any loss as a result of a breach of warranty, and the claim therefore failed.

In his reasons, Member Farrelly referred to a passage in the judgment of Ipp JA in Allianz v Waterbrook [2009] NSWCA 224 at [110], part of which read: ‘…a successor in title who acquires a building in full knowledge

of its defects, suffers no loss from the existence of those defects.’

Member Farrelly expressed the view that it was not always necessary that a successor in title have actual knowledge of an existing defect before it can be said that there is no loss arising from a breach of the statutory warranty. Member Farrelly agreed with Deputy President Aird’s comments in Beamish v Rosvoll [2006] VCAT 440 at [19] which included the following passage: When I find that a defect was reasonably observable to Mrs Beamish at the time of purchase, whether or not she actually noticed the defect, no allowance will be made.’

In relation to the negligence claim, Member Farrelly appeared to reject the existence of a duty of care, noting that the Respondent’s submission that the purchasers could have protected themselves by obtaining a pre-purchase inspection report and/or negotiating a purchase price to negate any potential loss had ’merit’. The Member commented that the owners’ knowledge of the leaks removed their vulnerability, one of the salient features in the assessment of whether the Respondent owed the owners a duty of care.

Further, Member Farrelly held that even if there was a duty of care, there was no causal connection between the alleged breach of the duty of care and the loss by reason of the Owners’ knowledge of the water leak problem. By reason of this, Member Farrelly held that the Owners also failed to establish loss arising from any alleged breach of the duty of care.

Discussion

This decision is important as it suggests that a purchaser may not be entitled to compensation in respect of defects which were patent at the time of purchase, notwithstanding that the purchaser may not have actually observed them or, if the purchaser had observed them, had not appreciated their significance.

Andrew Downie – CommBar Profile

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