Builder Liable for Negligence to Subsequent Owners of Home for Pure Economic Loss

Builder Liable for Negligence to Subsequent Owners of Home for Pure Economic Loss



Builder Liable for Negligence to Subsequent Owners of Home for Pure Economic Loss

The case of Bryan v Maloney involved a professional negligence action by the owner of a home against the builder. The respondent in the appeal was the third subsequent owner of the home and shortly after purchasing it, was faced with significant defects such as cracks in the walls due to the builder’s failure to adequately build footings that would withstand the changes to the foundations caused by the effects of climate changes to the clay soil. The question to be determined in this case was whether, under the law of negligence, a builder owes a duty of care to exercise reasonable care to a subsequent owner of a house, to avoid such foreseeable damage as what was sustained in this case. That damage being the overall diminution in value of the house due to the defects caused by the builder’s professional negligence.

The Issue of Proximity

The concern with this case, because of the type of loss (purely economic) as well as the fact that it was a subsequent owner and not the owner with whom the original contract existed, was that the court did not want to set up a precedent for economic loss which gave rise to a liability for an “indeterminate amount for an indeterminate time to an indeterminate class”. Sufficient proximity between the negligent act and the damage sustained is required for a case in negligence. The court noted that there was sufficient proximity between the builder and the first owner of the home for a duty of care and subsequent liability in negligence to exist. The question then became whether there was also sufficient proximity between the builder and the respondent as a subsequent owner.

It was stated on appeal that the most likely connection between the builder and a subsequent owner would be the house itself. This being significant in itself as it is most likely the “most significant investment which the subsequent owner will make during his or her lifetime” in this country. Further the court found that it would be reasonably foreseeable by a builder that inadequate footings would be likely to cause the kind of loss suffered in this instance to the owner of the house at the time when those defects become noticeable. Therefore, provided there is no intervening negligence or other event, the causal proximity between the loss and the builder’s professional negligence would be sufficient to uphold the duty of care.

The Issue of Pure Economic Loss

If damage or injury to Mrs Maloney’s property or person had occurred, the builder would have been liable in tort for the inadequate footings, regardless of who was the owner of the home. The issue in this case was the fact that the nature of the loss incurred was purely economic, which is not usually recognised as grounds for damages in negligence. However the court held that the builder’s duty of care would have extended to protecting the original owner from such economic loss, so it was then necessary to determine whether that would extend further to subsequent owners of the house.

While the floodgate argument (quoted above) for not recognising liability for economic loss was highlighted by the court, it was stated that the type of economic loss sustained by Mrs Maloney in this case was possibly even more foreseeable than personal injuries that may occur due to part of the house itself collapsing (for which the builder would be liable). Further, as it was reasonable to assume that a sufficient degree of proximity would exist between the builder and first owner of the home for liability for such loss, there would be no grounds to believe that extending that liability to subsequent owners would make it more likely to give rise to liability “for an indeterminate time…to an indeterminate class.”  This was noted as being particularly true where the liability would otherwise depend simply on when the original owner chose to sell the house, before or after the defect became apparent. Also, while the time span for liability to subsequent owners could arguably be for an “indeterminate time”, it was noted that this element would come down to reasonableness in regards to foreseeability and the content of the duty of care.

The court stated that this duty would be:

“…the builder of a house undertakes the responsibility of erecting a structure on the basis that its footings are adequate to support it for a period during which it is likely that there will be one or more subsequent owners. Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to inspect and test the footings of the house than the first owner. Such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment. Any builder should be aware that such a subsequent owner will be likely, if inadequacy of the footings has not become manifest, to assume that the house has been competently built and that the footings are in fact adequate.”

In other words, it is foreseeable enough that a builder should know such economic loss would be caused due to inadequately built footings and that the owner of the home would place reliance on the builder to protect them from such damage. Whether this damage is caused to the original owner or the subsequent owner is irrelevant given that reliance would be had by whatever owner is in possession at the time the defect manifests and the builder would therefore be liable to that owner providing no other intervening negligence or causative event occurs. This is not taking into consideration the fact that as time goes on, in other circumstances, it may become harder to prove a defect was due to the initial construction and not due to wear and tear.

For these reasons the appeal by the builder was dismissed.

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