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By Justin Cotton, Director, Lovegrove & Cotton – Construction and Planning Lawyers

There is a common thread of questioning in construction law about the extent of the duty, if any, owed by a building certifier or building surveyor to subsequent owners of property after the building work is completed.  This is a line of inquiry running across the Australian States and Territories.

When a final approval for the building works is given by a certifying authority, what is the scope of the final approval document issued, in the form of an “Occupation Certificate” (or similar terminology)?  Is the function of the document merely to certify that the completed building is safe and fit for occupation, and how much is its purpose to warn about non-compliance with the Building Code and the Regulations?

Clearly when there are latent building defects that could be structural in nature, questions about fitness for occupation of the building in accordance with its intended purpose, and even health and safety, must come to the fore.  But against that, it has long been recognised that the certifying authority is not a clerk of works, site supervisor, or responsible for the quality of the design and building works (refer to the Lewis v Threadwell decision in Victoria).  Rather the function is of general oversight of holistic compliance with the building regulations, in regard to structural sufficiency and health and safety.

To a degree, in a 2017 decision the NSW Court of Appeal has ruled that the extent of what an Occupation Certificate is certifying is limited in scope, and more focussed on fitness for occupation on a health and safety level, rather than serving to give a certification that Building Code breaches do not exist.

In the case of Ku-ring-gai Council v Chan [2017] NSWCA 226 (7 September 2017) it was also found that the subsequent owners of a renovated home (a 2 level extension at the back of an existing house) did not have a sufficient degree of reliance on the Council diligently carrying out its role as the certifying authority such that the Council owed a duty of care to them.

In brief, this was because the new owners buying the property after the works were done, could have protected themselves in other ways (for example by contracting to have sums deducted for rectification works), they had the benefit of the builder warranty insurance for a fixed sum in regard to builder defects, and were also owed the statutory building warranties by the Owner Builder.

Consequently there was not a position of “vulnerability” for the new Owners when seen in the context of their relationship with the Council, in order to substantiate that a duty of care was owed to them by Council.

The relevant case concerned an Occupation Certificate issued by the Council as the Principal Certifying Authority (“PCA”) after the renovation and extension works had been completed.  The final Occupation Certificate certified that:

• Council has been appointed as the PCA under the EP&A Act 1979;
• A Development Consent is in force with respect to the building work;
• A Construction Certificate has been approved for the building work;
• The completed building is suitable for occupation and use.

In regard to the certification of suitability for occupation and use, that means suitability in accordance with the building’s classification (as to type of structure) under the Building Code, for example, a Class 1A dwelling house.

Less than 1 year later the home as renovated and extended was sold by the original Owner Builders (Mr and Mrs Acres) to new purchasers, being Ms Chan and Mr Cox.  Pursuant to the contract of sale there was a special condition that the purchasers acknowledged they were aware of the contents of the final Occupation Certificate, insurance certificate, building certificate and “this special condition”, and would not be entitled to any requisition or claim or entitled to rescind the contract in respect of the accuracy or contents of any of those documents.

By that special condition the new Owners basically agreed that they would seek no compensation against the vendors in regard to the accuracy or otherwise of the final Occupation Certificate.  While this was one relevant factor it would not of course over-ride any statutory warranties owed by the certifying authority, if there was found to be a breach of such warranties.

Nevertheless, the existence of the special condition served to illustrate that there were contractual rights and remedies available to assist the new purchasers as subsequent owners, in relation to protection against defective works.  However these protections most likely could best be availed against the Owner Builder, and not the Principal Certifying Authority.

For example, apart from any contractual rights under the sale contract, there were the statutory building warranties owed by the Owner Builder to Chan and Cox under the Home Building Act 1989 (NSW).  In addition, there was an insurance certificate for defective structural workmanship for a fixed period, that could be called up in certain circumstances (such as the Owner Builder’s insolvency or disappearance).

At Court, the claim by the new Owners against the Council as the PCA included that:

• As a result of failing to require the Owner Builder to produce adequate certification, the Council approved or certified works that had been carried out otherwise than in a proper and workmanlike manner, as described in building reports later obtained by the plaintiffs (the new Owners);
• Both in regard to not obtaining adequate certification and due to inadequate inspections, the Council breached its common law and statutory duties to the new Owners and issued a final Occupation Certificate. Had the final Occupation Certificate not been approved the home could not have been sold and the plaintiffs would not have suffered any loss.

For its part, the Council did admit that the relevant Council inspector had failed to carry out the two critical stage inspections raised by the plaintiffs in a proper and workmanlike manner, with the result that the Council did not discover structural defects and then issued an Occupation Certificate when the renovated home was not fit for occupation and use.  Nevertheless, the Council denied that it owed any common law duty, or a statutory duty (under the EPA Act 1979) to the new Owners of the land.

In the lower Court the trial Judge found against the Council.  His Honour concluded in the primary judgment that:

“It follows that there was no basis for the Council, acting as PCA, to certify, as it did in the final occupation certificate, that the extension was fit for occupation and use as a dwelling house.  The evidence shows that it was plainly unfit for such occupation and use, because it was structurally defective, and because those structural defects presented and present a very real threat to personal safety and property.”

 

In this way the Judge in the lower Court found that the Council as the certifying authority did in fact owe a duty of care in its role as certifier and that duty was owed to the subsequent owners of the dwelling.  This was a duty to avoid economic loss to the new owners arising out of the defective building work, and did not relate to the risk of physical harm or injury to owners or occupiers of the new building.

In taking a contrary view about the existence or not of a duty of care, the Court of Appeal examined the nature of “vulnerability” as an essential ingredient to demonstrate a duty of care, and combined this with the statutory context in which an Occupation Certificate is approved in NSW.

In this sense “vulnerability” refers to the inability of a plaintiff to protect itself from the consequences of a defendant’s lack of reasonable care.  This was important because the absence of vulnerability can be a deciding factor against any duty of care being implied.

This was a case where both the Owner Builder and also the Council had been sued by the new Owners as co-defendants. With regard to the Council, the Court of Appeal found that the new Owners lacked sufficient vulnerability even though the Council may not have taken reasonable care in issuing the final approval.

As between the two parties (the new Owners on the one hand and the Council on the other), the Court concluded that there was no specific reliance and no assumption of responsibility, in order to create a duty to the new Owners to exercise reasonable care in the issue of the Occupation Certificate.

Furthermore, this conclusion was assisted by the limited statutory context for the issue of a final Occupation Certificate in NSW, and the Court of Appeal had this to say on that [at paragraph 88]:

“…the occupation certificate does not in terms or effect certify that the building work does not, or is not likely to, contain latent defects (whether structural or otherwise) or that the works comply with the relevant plans and specifications or the conditions of the development consent.  Nor is it directed to the economic incidents of property ownership, as distinct from the occupation and use of buildings by those entitled to do so or their invitees.  That subject matter is necessarily narrower than the subject matter of the statutory warranties, which indemnify against any non-compliance or inadequacy of the building work.”

 

Finally, it was also found by the Court that the Council as the certifying authority did not owe any duty of care to the previous Owner (the first defendant Owner Builder), in the absence of any specific duty to supervise the quality of his workmanship.  If the Council had not approved and issued the Occupation Certificate, the defects in his work would still have existed.

It should be noted that this case decision should be read in the light of the specific facts of the nature of the relationships between the parties, and in particular whether the ingredients of “vulnerability” were established in these circumstances, and the statutory context of Occupation Certificates in NSW.  Given that the trial judge had reached an opposite conclusion, it appears that the law is not precisely settled as to the extent of the duty owed by certifying authorities when issuing final approvals.

For more advice on matters pertaining to building regulation, dispute resolution, practitioner advocacy and front end assistance in construction, you should contact construction lawyers with expertise in the relevant field.

Lovegrove & Cotton Lawyers to the building industry

For thirty years, Lovegrove & Cotton have represented builders, building surveyors and building practitioners in Melbourne, Canberra, Sydney and Queensland. Doyles Guide ranks Kim Lovegrove as one of the leading construction lawyers in Australia. Justin Cotton, likewise, is a leading Australian construction lawyer and widely respected in the building fraternity as evidenced by his recent elevation to Chairperson of the HIA Industrial Relations and Legal Services Committee, and member of the Regional Executive Committee, for HIA Victorian Chapter. Lovegrove & Cotton can help practitioners resolve any type of building dispute and are preeminent in the area of building practitioner advocacy. If you wish to engage the firm, feel free to contact us via our website or by emailing enquiries@lclawyers.com.au.

Disclaimer

This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact Lovegrove & Cotton Lawyers and our experienced lawyers will assist you based on the facts and circumstances of your case.