Billingham v Schluter[2017] QCAT 367

REASONS FOR DECISION

1. [1]
   Simon and Nadine Billingham (“the Billinghams”) claim the sum of $27,140 as damages and costs of $2,150 from Derek Schluter trading as Better Building Inspections Qld for breach of contract and/or negligence in the conduct of a pre-purchase building inspection.  
2. [2]
   The Billinghams allege that the pre-purchase inspection report failed to alert them to actual or potential deterioration of a retaining wall on the western boundary of their property, which they have subsequently had to replace.
3. [3]
   The Billinghams signed a contract to purchase a house at 7-9 Ringtail Court, Narangba on 8 April 2014.
4. [4]
   A contact was in the standard residential format and was expressed to be conditional on the Billingham’s obtaining within 14 days, a building report “on terms satisfactory to the buyer”.^[1]  If the terms of the report were not satisfactory to the Billinghams they could, acting reasonably, terminate the contract.^[2]
5. [5]
   On or about 12 April 2014, the Billinghams engaged Mr Schluter to conduct the building inspection, which he did on 14 April 2014.  Later that day Mr Schluter emailed the Billinghams a completed pre-purchase building inspection report, an incomplete agreement between the Billinghams and himself and a tax invoice.
6. [6]
   Despite the inspection being carried out and a report provided before the terms of agreement between Mr Schluter and the Billinghams were accepted by the Billinghams, both parties agree that the inspection was to be conducted in accordance with the applicable Australian Standard, which the parties’ experts agree was AS4349.1-2007- Inspection of buildings, Part 1: Pre-purchase Inspections – Residential Buildings (“the Australian Standard”).
7. [7]
   On the basis of that report, the Billinghams notified the seller of the property that the building report condition was satisfied.
8. [8]
   It is common ground that the report made no mention of the retaining wall on the western boundary.
9. [9]
   In July 2015, the Billinghams became aware of an “outward rotation” in the retaining wall.^[3]  This followed two heavy rain events in November 2014 and March 2015. They then discovered a significant deterioration of the retaining wall which required its replacement.
10. [10]
    The Tribunal was assisted by two experts, Mr Donald Dixon briefed by the respondent and Mr Chris Boyle briefed by the applicants.  Mr Dixon prepared a report which was filed in the Tribunal on 11 March 2017.  Mr Boyle’s first report was filed in the Tribunal on 23 August 2016 and a second report titled “statement of reasons” was filed on 21 October 2016.
11. [11]
    The experts participated in an experts conclave on 28 February 2017 and a joint experts report was filed on 11 March 2017.  Both were called as witnesses in the proceeding.

The Australian Standard

12. [12]
    The Australian Standard “sets out minimum requirements for the inspection of and preparation of an associated report on a residential property carried out by a suitably qualified inspector in order to provide advice to a prospective purchaser or similar interested party”.^[4]
13. [13]
    Such a report is “not a warranty against problems developing with the building in the future”.^[5]
14. [14]
    The standard contemplates a “visual assessment of the property”.^[6]  The inspection is carried out “without dismantling”.^[7] It is an inspection of “all accessible areas”.^[8]
15. [15]
    The phrase “accessible area” is defined as “an area of the site where sufficient safe and reasonable access is available to allow inspection within the scope of the inspection”.^[9]
16. [16]
    The Australian Standard requires the inspector to inspect accessible parts of the building and appurtenances including retaining walls more than 700mm high.^[10]
17. [17]
    The joint experts report confirms that the retaining wall on the western boundary was between 200mm and 950mm high although that could not reasonably be detected at the time of the inspection.
18. [18]
    It is Mr Schluter’s uncontested evidence that at the time of the inspection the only part of the retaining wall which was visible was the timber capping, which was not a structural element of the wall.  The capping itself was not defective.
19. [19]
    It is also Mr Schluter’s evidence, supported by a photograph on page 7 of the joint experts report, that at the time of the inspection the boundary fence gave no indication of any failure of the retaining wall.
20. [20]
    There is no direct evidence of the condition of the wall at the time of inspection.  Mr Dixon was of the view that the damage to the retaining wall was caused by the significant rain events which occurred after the inspection.  Neither he nor Mr Boyle could say with any certainty that deterioration of the wall was a major defect at the time of the inspection by Mr Schluter.
21. [21]
    The only indirect evidence on the point comes from the Billinghams.  They say that inquiries with their real estate agent indicated that the sellers of the property had, prior to contracting to sell, removed some deteriorated original hardwood walers from the upper section of the wall and replaced them with treated pine sleepers, leaving the lower deteriorated hardwood sleepers in place. The treated pine capping was then affixed to the top of the sleepers.^[11]
22. [22]
    It is acknowledged by the Billinghams that any deterioration of the retaining wall could not be detected by visual inspection without, at the very least, removing the capping on the retaining wall.  Rather it is their complaint that Mr Schluter failed to comply with the Australia Standard, and accordingly his contractual obligations by failing to identify in his report:

    1. an “apparent concealment of possible defects”;^[12] or
    2. “any area or item within the scope of an inspection that was not inspected and the factor that prevented inspection”.^[13]
23. [23]
    In respect of the first of those, Section 4.2.7 of the Australian Standard does not impose any obligation on the inspector to report an apparent concealment of a possible defect.  It merely permits the report to be made conditional upon such apparent concealment.
24. [24]
    In any event I am not satisfied that the capping itself makes the concealment of a defect “apparent”.  As Mr Dixon points out, the capping could serve other practical and cosmetic functions.
25. [25]
    I am satisfied that the Australian Standard required an inspection of the western retaining wall as it was over 700mm high.
26. [26]
    Mr Schluter could not visually inspect the structural elements of that retaining wall because they were below ground on one side, obscured by a timber fence on the other and by the capping at ground level.
27. [27]
    Commentary within the Australian Standard provides:

…in many cases, the actual structural elements of a building will be obscured by finishes and other non-structural building elements, and the inspector may be unable to assess directly the state of the structural member.  In such case, the inspector has to infer the performance of the structure by observing the effect of the structure on the non-structural building elements.  For example, the inspector normal will be unable to inspect the footings of a house as they are buried beneath the ground; however, cracking in non-structural masonry walls above the ground may indicate that a defect existences within the footing system.

28. [28]
    I accept Mr Schluter’s evidence that he did that.  There was no evidence such as a leaning fence which suggested that the structure below was failing.
29. [29]
    In those circumstances, I am satisfied that the inspection he carried out was in accordance with the Australian Standard.
30. [30]
    His obligation however to report any limitations is quite a separate obligation.
31. [31]
    The inability to carry out a full or proper inspection of the structural elements of the retaining wall quite clearly constitutes a limitation for the purposes of the Australian Standard.^[14]
32. [32]
    Section 4.2.5 of the Australian Standards provides (note excluded):

The report shall identify any area or item within the scope of an inspection that was not inspected and the factor that prevented inspection.

Identification of inaccessible areas (such as enclosed patios, concrete slab-on-ground floors, fireplace hearths, double brick cavity, roof space in low pitch or flat roofs), with recommendations to gain access where practicable and considered necessary, shall be included in the report.

33. [33]
    The requirement that the report identify inaccessible areas is mandatory.  It is not in dispute that the report fails to identify that the structural elements of the retaining wall could not be inspected.
34. [34]
    In those circumstances, even though Mr Schluter’s inspection of the property was not negligent or in breach of his obligations under his contract with the Billinghams  he was however, in breach of the Australian Standard and accordingly the contract  in failing to report the limitation in respect of his inspection of the western retaining wall.

What consequences flow from that?

35. [35]
    The Billinghams refer me to a decision of the Consumer and Commercial Tribunal in Nickel v Kellow,^[15] where the Tribunal ordered a building inspector to pay damages equivalent to the rectification costs of certain items which he had negligently, and in breach of his contract, failed to identify in his report.
36. [36]
    That is different from the current circumstances.  I have found that Mr Schluter was not negligent in carrying out the inspection.  I have found that he is in breach of his contractual obligations only in that he failed to notify a limitation in the inspection. The correct measure of the Billinghams’ damages, if any, is the loss that flows from that failure and the onus is on them to prove that loss.
37. [37]
    Even assuming that a major defect existed at the date of inspection I am not satisfied that a notation in the report that the retaining wall could not be visually inspected  would give the Billinghams, acting reasonably, a right to terminate the contract or a realistic expectation of renegotiating the contract price by an amount equivalent to the cost of replacing it.
38. [38]
    To determine that a defect sufficiently serious to justify termination in fact existed, further invasive testing was required. It would require the Billinghams to obtain the consent of the sellers to excavate their property to expose the retaining wall or the consent of the owners of the adjoining property and their tenants to dismantling to some extent the boundary fence and if such consent was forthcoming bearing the cost of that inspection and restoration costs.
39. [39]
    The report noted in respect of the eastern retaining wall which was capable of visual inspection:

Wet rot decay was noted to the retaining wall. Repairs and or replacement of damaged timber will be required. The wall also has a forward lean.

40. [40]
    There is no evidence that the Billinghams received or even sought a reduction of the purchase price as a result of this defect. They certainly did not terminate the contract. I am not satisfied that even if the limitation had been noted in the report they could or would have terminated the contract or renegotiated the contract price.
41. [41]
    I am not satisfied that the Billingham’s have established to the required standard that they have suffered any loss from Mr Schluter’s failure to note the limitation in his report. In those circumstances the application is dismissed.