A recent Court of Appeal decision has confirmed QCL’s continual advice to our clients that once you sell your property which was subject to a claim, you have crystallised your loss as being the change in value, not the cost of repair.
The parties in Xu v IAG learnt this the hard way as the Court of Appeal held that the purchasers to a property subject to an earthquake claim cold only claim the indemnity value under the insurance, and not the costs of reinstating the property. (A copy of the case can be seen here)
The same legal principals apply to a leaky building claim. When a vendor sells a leaky building unit or house, the losses suffered for the owner are restricted to any undervalued sale. The loss will be the difference between the actual sale price of the unit/house and the price of the unit/house had it not been leaky. The owner cannot claim losses for repairing the unit/house because the house has been sold. The purchaser (even through an assignment) can only claim through the original vendor and thus the losses have been capped to the sale value. The rights to any damages for the repair costs have been waived. Moreover, the purchaser can only ever continue a claim against the defendants under the names of the vendor who will need to continue assisting in the litigation claim by providing discovery and briefs of evidence. If the vendor stops assisting, the purchaser’s claim will be diminished. The purchaser will therefore be very much reliant on the vendors to continue helping for an indefinite period of time as it may be years.
Purchasers who buy a leaky unit/house will need to be careful to understand this very important point. Vendors will also need to understand that even though they sold this to “get out” of the stress of litigation, they have not actually escaped. Many purchasers think they are getting a bargain as they have bought a unit/house under market value and think they will recover this by getting a big payment from the relevant defendants once there is a mediation/judgment. However they may find that any such prospects have been severely undermined due to the limitations set out above.
For legal advice on these issues, please feel free to contact Tina Hwang our construction law and litigant specialist.