The power of paperwork – a conveyancer’s duty to a property purchaser

16 April 2024

A conveyancer was liable to a residential purchaser for failure to disclose the existence of illegal structures and the cooling off period in a contract, however, the relevant building inspector was 70% proportionately liable for rectification costs.

In issue

  • whether Ms Mamou (t/as De Novo Conveyancing) (defendant) disclosed the special condition concerning unauthorised works in the contract for the sale and purchase of a property to the purchasers, Mr Patterson and Ms McGregor (together, plaintiffs).
  • what was the scope of duty of care owed by the defendant?
  • whether the defendant breached the duty under the Civil Liability Act 2002 (NSW) (CL Act).
  • whether the plaintiffs suffered any harm.
  • allocation of liability between the defendant and a building inspector (who was not a party to the proceedings).

The background

In 2018, the plaintiffs were first-home buyers. When the plaintiffs found a property they wanted to purchase, they engaged the defendant for the conveyancing works.

The contract for the sale and purchase of the property provided for a cooling off period, and special condition 14, which stated:

The vendor discloses and the purchaser acknowledges that the following buildings have been carried out without approval having been obtained from Blacktown City Council (the Council):
(a) conversion of garage to living area (by a previous owner) which has since been converted to a kitchen;
(b) conversion of rear awning; and
(c) construction of sunroom (the Works).
The purchaser accepts the property including the Works in their present condition and state of repair and shall not make any objection, requisition claim for compensation or purport to rescind this Contract due to this disclosure or any matter arising out of this disclosure. The purchaser shall not be entitled to require any rectification works to be carried out to the Works. The purchaser shall be obliged to comply with any notices which may arise from the Council or any competent Authority in relation to the Works or associated matters.

The plaintiffs contended that the cooling off period and special condition 14 were not disclosed to them by the defendant. There was no written evidence that the defendant advised the plaintiffs of these clauses.

After the contract was signed by the plaintiffs and the vendor, the defendant advised the plaintiffs, by way of a letter, to obtain a pre-purchase report on the property. This letter included a disclaimer that the defendant would not assume responsibility for 'the content of any report'. The defendant ordered a pre-purchase report on the plaintiffs’ instructions. The pre-purchase report provided that the property was free from major and minor defects. However it included certain terms and conditions, which in effect excluded latent defects and the scope of the inspection of the exterior of the property was limited.

Settlement took place on 31 August 2018, and the plaintiffs moved into the property. Soon after, they discovered some defects to the residential dwelling, being unauthorised works (the front and rear verandas) and structural defects.

The plaintiffs then commenced proceedings against the building inspector that produced the pre-purchase report, in the NSW Civil and Administrative Tribunal (NCAT Proceedings). They settled in March 2021.

On 5 November 2021, the plaintiffs initiated proceedings against the defendant in the NSW District Court.

The decision at trial

Abadee DCJ found that the plaintiffs made out their case for damages.

Abadee DJC found that the defendant owed a duty to inform the plaintiffs of the special condition and its implications (including having to demolish the unauthorised works, or loss of value when they resold the property with those unauthorised works). His Honour further decided that the defendant ought to have advised the plaintiffs to rescind the contract prior to the expiration of the cooling off period or encourage them to try to re-negotiate the purchase price with the vendor. Merely advising the plaintiffs to obtain a pre-purchase report was insufficient as they were unaware of special condition 14, and informing them of it could have led them to instruct the building inspector themselves. In terms of the engagement of the building inspector, it was found that the defendant ought to have informed the building inspector of the unauthorised works and given instructions to report specifically on the soundness of the works, including compliances with building standards.

The key factual question in the case was whether or not the defendant disclosed special condition 14 to the plaintiffs. Abadee DCJ found that the defendant did not do so, because the defendant’s recollection of the events was not reliable given the passage of time and lack of written corroborating evidence. Also, his Honour was persuaded by the plaintiffs’ version of the events given the gravity of the transaction for them as first home buyers.

The defendant contested the elements of factual causation under section 5D(1)(a) of the CL Act and scope of liability under section 5D(1)(b).

In terms of ‘factual causation’, the relevant question was whether or not the negligence, being the failure to disclose special condition 14, was a necessary condition of the occurrence of the harm. Abadee DCJ found that on the balance of probabilities (the plaintiffs’ financials post the purchase of the property was provided as evidence), the plaintiffs would not have proceeded with the purchase had they been aware of special condition 14 and its implications. In other words, the failure to disclose by the defendant directly contributed to the harm.

As to the ‘scope of liability’ element, Abadee DCJ found that the defendant’s negligence extended to the harm suffered by the plaintiffs. Abadee DCJ noted that the presence of unauthorised or illegal works on the property signaled a heightened risk of them being unsafe. Further, while there may be a theoretical distinction between physical harm and the loss of property value, in this case, his Honour considered they were intertwined. The property’s decreased value was not just due to unauthorised works, but also because they were unsafe and defective. Also, it was found that the pre-purchase report did not absolve the defendant of her liability.

As the claim was for economic loss or property damage, there was no dispute that the plaintiffs’ claim was an apportionable one.

In determining whether the building inspector was a concurrent wrongdoer, the defendant was required to establish that the building inspector was legally liable to the plaintiffs, and that the damage caused by the building inspector was the same as that caused by the defendant. In this case, Abadee DCJ was satisfied that the building inspector was a concurrent wrongdoer.

In determining the appropriate apportionment of liability under section 35 of the CL Act, Abadee DJC considered the plaintiffs’ evidence in the NCAT Proceedings, regarding their reliance on the pre-purchase report. While it was acknowledged that the plaintiffs may have also relied on the defendant, his Honour noted that the presence of defects, which should have been included in the pre-purchase report, would have had an impact on the plaintiffs’ decision to proceed with the purchase. Also, the building inspector was in a superior position to the defendant, to advise the plaintiffs on the real condition of the property overall. In this regard, the disclaimer in the letter significantly reduced the defendant’s liability.

Based on these considerations, Abadee DCJ found the building inspector to be liable for 70% and the defendant at 30%.

The plaintiffs argued that the damages should cover the cost of rectification to restore the value of the property. The court agreed and stated that the damages should reflect the principle of placing the plaintiffs 'in the position they would have been in if the tortious conduct had not occurred'.

Implications for you

This case provides a useful reminder that conveyancers should be particularly mindful when providing advice to their purchaser clients. Keeping a paper trail of file notes and records of the discussions and advice provided – which a conveyancer is obliged to do under the Conveyancing Licensing Regulation 2015 (NSW) – can be critical in providing a shield to claims which might emerge.

Patterson & Anor v Mamou (t/as De Novo Conveyancing) [2024] NSWDC 47

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