Conflict of Interest Changes for Building Certifiers upon Implementation of the Building and Development Certifiers Act 2018
By Justin Cotton, Director, and Jordan Davies, Senior Paralegal, Lovegrove & Cotton – Construction and Planning Lawyers
For New South Wales readership
Key changes to the regulation of private certification in New South Wales will occur on 1 July 2020, the date upon which the Building and Development Certifiers Act 2018 (NSW) (‘the Act’) and Building and Development Certifiers Regulation 2020 (NSW) (‘the Regulations’) come into force. The Act was put up for community consultation in 2018, and was given Royal Assent in October that year.
There are a range of changes that have been made. For instance, ‘accredited certifiers’ are no longer to be referred to as ‘accredited’, but instead as ‘registered’. Amongst the numerous changes, those pertaining to conflicts of interest bear great significance for private certifiers and were key considerations during the drafting process in light of community concerns regarding the private certification industry in New South Wales.
Most notably, the Act broadens the scope of what falls within a conflict of interest for certifiers carrying out certification in relation to a development. This article focuses primarily on the significance of having a ‘business relationship’, within the meaning contemplated by Section 29(2)(f) of the Act, with a person who carries out other services in relation to a project, but the reasoning can apply to the various other kinds of relationships specified in that subsection.
It should be noted from the outset that, as this legislation is new, the case law surrounding the meaning of business relationship under the Act has not yet developed. Every statute must be analysed within its specific context, as must the circumstances of a particular case. It thus follows that this article treads carefully in analysing this new legislation’s conflict of interest provisions, and cannot be taken as legal advice.
The Pre-Existing Conflict of Interest Provisions in the Building Professionals Act 2005
There were already Conflict of Interest provisions in the Building Professionals Act 2005 (NSW) (‘the BP Act’) in Part 6 Division 3. ‘Employment relationship’ was already prohibited as giving rise to a conflict in Section 68 of the BP Act. In the new Act, however, there are a number of significant changes.
Firstly, the ambit of ‘employment relationship’ has broadened. Unlike the BP Act, the new provisions do not narrow down or specify the scope of ‘employment relationship’. In fact, the meaning of conflict has expanded to include ‘any private interest’ and the meaning of ‘related person’ has expanded to include those with whom a private building certifier has a ‘business relationship’.
The significance of this change towards broader language cannot be understated. It signals intent on the part of the legislature to clamp down on a broader range of private interests extending further beyond that captured under the BP Act.
Section 29 of the Building and Development Certifiers Act 2018 (NSW)
The relevant section of the Act is Section 29 and particular regard should be had to subsection (2)(f). For ease of reference for our readers, we copy the section below verbatim:-
Section 29 – Meaning of “conflict of interest”
(1) For the purposes of this Division, a registered certifier has a conflict of interest in certification work—
(a) if a reasonable person would conclude that—
(i) the registered certifier has a private interest with respect to the certification work, and
(ii) the private interest comes into conflict with, and may affect, the duty of a registered certifier to act in the public interest when undertaking the certification work, or
(b) in any other circumstances prescribed by the regulations.
(2) Without limiting subsection (1) (a), a registered certifier has a private interest with respect to certification work if the registered certifier is any of the following—
(a) a person who is obtaining the benefit of the certification work,
(b) a person who has a pecuniary interest in the development or building to which the certification work relates,
(c) a person who has provided professional services (other than services that are certification work) with respect to the construction or design of the development or building to which the certification work relates,
(d) a person who has provided professional services (other than services that are certification work) with respect to a development application for the development or building to which the certification work relates,
(e) if the certification work is to be carried out in the area of a local council other than on behalf of the local council—a person who is a councillor or an employee of the local council,
(f) a person who has a relationship (whether family, personal, employment, or business) with a person referred to in paragraph (a), (b), (c), (d) or (e),
(g) any person prescribed by the regulations.
The Meaning of ‘Business Relationship’ and ‘Employment Relationship’
For certifiers practising in the New South Wales jurisdiction, the meaning of ‘business relationship’ now bears significance. The precise meaning of language in a new piece of legislation can be difficult to ascertain when there is room for interpretation and there is limited case law on point.
In the present case, one is not assisted by the fact that the legislation does not define ‘relationship’ or ‘business relationship’ or ‘employment relationship’ in its definitions section (Section 4 of the Act).
Plain and Ordinary Meaning
In accordance with the ordinary rules of statutory construction, regard must be had to the plain and ordinary meaning of the words along with the objects and purpose of the Act.
The plain and ordinary meaning of ‘employment relationship’ encompasses ‘an official arrangement in which a business pays someone to work for them’. Whether a conflict would arise out a relationship of this character may be dependent on whether a certifier employs a person who provides design or development application services. Whether an employment relationship can be made out may be dependent on the corporate structure of a company.
The plain and ordinary meaning of ‘business relationship’ is much broader and encompasses an ‘association between individuals or companies entered into for commercial purposes and sometimes formalized with legal contracts or agreements’. This is a potentially troubling provision for certifiers who have worked alongside builders, designers and engineering firms for some time and have formed what could be considered an organic familiarity with such firms.
Both of these terms have ‘wriggle room’, as it were, with regards to interpretation – they could be construed either broadly or narrowly. In light of that fact, the intention of the legislature ought to be discerned.
The NSW Parliament’s Intention
The comparison with the previous BP Act and the new Act is significant. The change to a broader use of language indicates that the legislature intended a broader construction of ‘business’ and ‘employment’ as compared to the narrower provisions in the BP act.
Pursuant to Section 33 of the Interpretation Act 1987 (NSW), where there is ambiguity as to the precise meaning of a word in a statute, “a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object”.
The Objects and Purposes of the Act
Accordingly, Section 3 of the Act outlines objects and purposes of the Act including the following (emphasis has been added):-
“(b) to recognise that certification work is an important public function with potential impacts on public health, safety and amenity and to ensure that it is carried out impartially, ethically and in the public interest”;
“(d) to ensure appropriate scrutiny and review of actions taken by persons exercising functions under this Act and the certification legislation”;
“(e) to provide a framework to permit the continuous improvement of the carrying out of certification work.”
These provisions emphasise a concern on the part of the legislature to ensure that actors within the certification industry in New South Wales act in an independent manner with primary regard to the public interest. Mindful of such primary regard, one would be reluctant to construe the scope of ‘business relationship’ or ‘employment relationship’ narrowly, such as construing it to apply only where there are formal contractual interests between the parties.
Extrinsic Materials Shedding Light on Parliament’s Intention
Regard may also be had, according to the NSW Interpretation Act 1987 in interpreting the meaning of words in statute (such as ‘business’ relationship), to extrinsic materials including explanatory notes, and speeches made by the Minister moving the Bill in the House of Parliament.
On point, in his speech on the movement of the Second Reading of the Building and Development Certifiers Bill 2018 in the Legislative Assembly, the responsible Minister noted that there had been issues with other building practitioners (the Minister specifically stated ‘contractor licence holders’) influencing the appointment of certifiers. Such concern may be one of the reasons for including the broad term ‘business relationship’ in Section 29 of the Act, so as to prohibit any influence by other parties involved in the design and construction process on the appointment of a registered certifier. This concern also led to a change in the Home Building Act to prohibit undue influence relating to the appointment of certifiers.
The Minister focused on improving public confidence in private certification and the primacy of acting in the public interest.
Nothing in the Minister’s speech indicates that ‘business relationship’ should be construed narrowly or to exclude circumstances where, for instance, two or more related corporate entities are engaged in the provision of services relating to the same development where one entity provides certification services and the other provides a kind of design service or services relating to development applications.
The explanatory memorandum, likewise, does not indicate that a narrow view be taken with regards to the interpretation of ‘business relationship’ in Section 29(2)(f).
These factors encourage one to consider that ‘business relationship’ was intended to be construed broadly. It is likely that the provision was included to prevent businesses involved in the design and construction or process of development application from establishing relationships with certifiers or certifier body corporates that would lead to them preferentially encouraging (as opposed to ‘influencing’) the appointment of said certifiers by developers or owners. This dynamic could exist regardless of whether the businesses were formally related (i.e. by corporate structure or common directorship) or not.
The Other Kinds of Relationships Specified – ‘Family’ & ‘Personal’
The same statutory context of course applies to the other words in Section 29(2)(f). Again, what falls within the ambit of ‘family’ or ‘personal’ relationship will bear significance for certifiers engaging in certification work on projects after 1 July 2020.
Like ‘business relationship’, ‘family relationship’ may be broadly construed by a Court or statutory authority, rather than narrowly construed to say ‘immediate family’. This is supported by the fact that the legislature inserted ‘personal’ relationship, which has a much broader connotation than ‘family relationship’.
It is also supported by way of comparison between the provisions under the BP Act and the new Act. As with ‘employment relationship’ under the BP Act, the scope ‘family relationship’ was outlined in Section 68. That scope extended to “a spouse, de facto partner, sibling, parent or child”. It follows that the absence of that specified scope under the new legislation is significant. It indicates that where the interest is sufficient, ‘family relationship’ for purposes of a conflict of interest will extend beyond the scope of the relationships specified in the BP Act to the likes of extended family members.
Personal relationship, however, may be more narrowly construed in accordance with the particular purpose of Section 28 and 29 of the Act. It would appear this would include close personal friends or those with whom one has a romantic relationship with. It is very likely that the legislature did not intend ‘personal relationship’ to extend to mere acquaintanceship. Again, the purpose of the provisions in ensuring ‘independence’ must be kept in mind in construing such a term.
The conflict of interest requirements for building certifiers in New South Wales have been broadened. They impose greater restrictions on the circumstances under which registered certifiers may provide certification services on building developments.
Needless to say, the precise circumstances need to be closely and carefully analysed when determining whether a conflict may or may not crystallise under these new provisions. In light of the very broad connotations of some of the new provisions, and their terms, pertaining to conflict of interest in the Building and Development Certifiers Act 2018 (NSW), building certifiers should exercise caution and in the event of any doubt seek legal advice from an experienced construction lawyer prior to the coming into force of the provisions on 1 July 2020.
 Plain dictionary definition sourced from Cambridge Dictionary, accessed at <https://dictionary.cambridge.org/dictionary/english/employment-relationship>
 Plain dictionary definition sourced from businessdictionary.com, accessed at <http://www.businessdictionary.com/definition/business-relationship.html>
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