Victorian Building Surveyors and Conflict of Interest Obligations
From the get-go, it should be noted that key provisions of the Act do not apply if a Building Surveyor has not assumed functions as an RBS – that’s fairly obvious. However, there has, since January 2021 been in force a Building Surveyor Code of Conduct, which does not confine itself to RBS functions, but rather a broader concept of “building surveying services”. This means the code of conduct also applies to those who only provide consultancy services, for example.
In this piece, the focus shall be on those who assume functions under Part 6 (amongst other Parts) of the Act as an RBS.
What is the policy reason behind conflict of interest provisions and why is this important?
When one considers why an RBS is subject to obligations to carry out their functions in the absence of conflicts of interests, it is important to go back to first principles and contemplate the policy justifications framing the obligations under Part 6 of the Act.
If one harks their mind back to the time before the early 1990s reforms, which our firm’s Principal, Professor Kim Lovegrove, was instrumental in, it will be recalled that the certification of buildings was carried out by the public sector.
There are a range of meritorious reasons for the introduction of private building surveying – this piece will not discuss them. What can be said as a matter of fact, though, is that the introduction of market-driven and private building surveying heralded new potential matters of conflict that may arise. This is not to say that those under the employ of government do not experience conflicts of interest, but rather to say that the introduction of a commercial component to Building Surveying meant that there were additional sources of what could be described as a potentially increased tension between public interests and potential commercial interests.
Thus, it was necessary to ensure that the impartiality of those who certify buildings was maintained. As the legislature often decides, this was to be achieved by way of express statutory obligation and an offence provision.
The whole purpose of conflict-of-interest provisions under the Act is to ensure that tension between commercial and public interests are categorically resolved in favour of the latter, being the public interest. This is to ensure that an RBS makes proper decisions in respect of exercising their statutory functions under the Act. Building Surveyors that assume functions under the Act should be ever-mindful of this overarching policy justification, as it sheds a great deal of light on what the correct the answer will be when something falls into what seems to be a bit of a “grey area”.
What the Building Act 1993 has to say
Accordingly, Part 6 of the Act in Section 79 sets out a range of circumstances in which a Building Surveyor who assumes functions under Section 76 or 77 of the Act must not act.
Section 79 provides:
(1) Subject to subsection (2), a private building surveyor must not carry out any functions set out in section 76 or 77 in relation to a building or building work if the private building surveyor or a related person—
a. prepared the design of the building or building work; or
b. is, or within the prescribed period was, employed or engaged by the person or body which prepared the design of the building or building work other than an appointment to carry out a function set out in section 76; or
c. has a direct or indirect pecuniary interest in the body which prepared the design of the building or building work; or
d. has a direct or indirect pecuniary interest in the building or building work or in any body carrying out the building work.
Penalty: 500 penalty units, in the case of a natural person; 2500 penalty units, in the case of a body corporate.
(1A) A private building surveyor must not carry out any function as a private building surveyor in relation to which the private building surveyor or a related person has a conflict of interest.
(2) The Authority, on the application of a private building surveyor, may exempt the private building surveyor from all or any of the requirements of subsection (1) or (1A) in respect of any particular building or building work. An exemption must be in writing.
(2A) A private building surveyor must not carry out any functions set out in section 76 or 77 in relation to a building or building work if the private building surveyor—
(a) is also an officer or employee of a council and the building is situated in or the building work is to be carried out in the municipal district of that council; or
(b) is engaged by a council under section 215 to carry out the functions of municipal building surveyor and the building is situated in or the building work is to be carried out in that municipal district.
Penalty: 500 penalty units.
(3) Except as provided in this Part, a private building surveyor must not accept an appointment to complete any functions set out in section 76 in respect of a building or building work if another private building surveyor or a municipal building surveyor has already commenced to carry out functions set out in that section in respect of that building or building work.
(4) In this section— related person, in relation to a private building surveyor, means—
(a) if the private building surveyor is a member of a partnership, another partner in the partnership; or
(b) if the private building surveyor is a body corporate, a director of the body corporate or any related body corporate of the body corporate; or
(c) any employer of the private building surveyor; or
(d) any employee or contractor of the private building surveyor; or
(e) the spouse or domestic partner or a sibling, parent or child of the private building surveyor; or
(f) any person with whom the private building surveyor has a contractual arrangement that might reasonably be seen to give rise to a conflict between the private building surveyor’s functions as a private building surveyor and the private building surveyor’s interests under the arrangement.
Section 79 provides a very broad ambit of situations in which an RBS must not act. But precisely how broad is a matter that is perhaps purposely ambiguous, particularly with subsection (1A) specifying generally that “A private building surveyor must not carry out any function as a private building surveyor in relation to which the private building surveyor or a related person has a conflict of interest”. That subsection is much alike a catch-all provision.
Accordingly, we have to turn to the case law to shed some light on what is contemplated by the legislature as giving rise to a conflict of interest and contravention of Section 79 of the Act.
The 150 Queen Street Cases
For our purposes I will review a chain of cases, which involved a major and very heated dispute concerning a site many will be familiar with, being the 150 Queen Street site on the corner of Queen Street and Bourke Street in the Melbourne CBD. It may be recalled that this site lay dormant for many years boarded up and essentially derelict. The dispute highlighted the severity of matters that can arise under Part 7 of the Building Act, and drew in, in several circumstances, major arguments as to Building Surveyor independence and avoiding conflicts of interest under Section 79 of the Act.
In a very short summary, what these cases involved was protection work involved with the proposed construction of a major skyscraper at 150 Queen Street, and objections to that protection work by the adjoining owner with concerns regarding safety and building structural integrity during the then-proposed demolition works and subsequent building works.
The details of the case are not that important for our purposes, save to say that there were a series of matters involving the appointment of private building surveyors. Including, the transfer of functions from an original RBS to a subsequent RBS, to whom the decisions refer to as Mr Leonard. A third transfer occurred after the earlier fairly challenging series of cases between the Owner and Adjoining Owner, and involving the VBA and the BAB, amongst others.
Some important dicta on Section 79 is contained in a decision involving the concerned adjoining Owner and the third appointed RBS, wherein the concerns of the adjoining owner were dismissed by the Supreme Court as “an apprehension of an apprehension”. In Colonial Range Pty Ltd v Akritidis [2017] VSC 337, Justice Mukhtar stated that:
[10] Section 79 is concerned with conflicts of interest or situations where the surveyor has a special or other interest personal to the surveyor which creates the possibility of deviation from proper decision making, thus creating an incompatibility of roles. Section 79 is a penal provision that disqualifies a private building surveyor with such an interest from accepting an appointment, and I would think that the regulating authority is the one with standing to enforce such a penal provision.
[14] Under the Building Act there is an unavoidable association of sorts between the owner as permit applicant and the building surveyor as its appointee. The disqualification provisions of s 79 are an incipient means of preventing the appointment of those with a disqualifying interest.
The key words in paragraph [10] were “interest” creating “the possibility of deviation from proper decision making, thus creating an incompatibility of roles.” In essence, what is being said that where the public interest is not placed at the forefront of decision making, there will be an incompatibility of roles.
What are qualifying conflicts of interest?
Perhaps one of the simplest ways of looking at what qualifies as a conflict of interest is to simply as “does it pass the pub test”. If there is a gut feeling that something is teetering on the verge of a conflict of interest, the chance is it probably is. If it is a grey area, avoid it.
In the 150 Queen Street Cases, the contravention of Section 79 of the Act by Mr Leonard was that the RBS had assumed Part 6 functions in circumstances where they had previously given evidence against the adjoining owner’s interests in an earlier appeal regarding protection works determinations by the earlier RBS who assumed functions in relation to the same site, and whose functions were subsequently transferred. In the related proceeding Colonial Range Pty Ltd v VBA, it was noted at [97] that:
Mr Leonard already had a relationship with the owner CES Queen beyond the statutory role and had been engaged to give evidence against the adjoining owner Colonial. In these circumstances, the adjoining owner and the public could not be satisfied that he will act independently and impartially in their respective interests against the owner if it became necessary to do so in the course of the demolition works, for example, by stopping the demolition if the approved conditions for the works were not adhered to.
It follows that where there is some kind of commercial relationship between an Owner, Developer, Builder, Architect, Engineer or other design practitioner, and an RBS, the RBS may have a conflict of interest.
RBSs have to be careful about any sort of industry relationships they may have with any other building practitioner involved in a project in respect of which they have assumed statutory functions. Because whilst this may not fall into the ambit of a “contractual relationship”, the catch all provision in subsection (1A) which simply states the RBS must avoid “conflicts of interest” may be enlivened if there is shown a sufficiently close private relationship between an RBS and another industry participant, whether that be through repeated referrals of work or other things.
If an RBS engages in any design advice, as distinct from determining and assessing compliance, that is an express head for a contravention of Section 79, under subsection (1). The provision is not live as to distinguishing the extent of preparation of, or engagement in relation to, design work. It would be a very tenuous argument to suggest that “minor” design advice is permitted. An RBS’s function is to assess compliance and issue a Building Permit, not provide design advice in order to enable a client to obtain a Building Permit. If an Owner, or other party, asks for design advice, an RBS should decline to proffer same, and refer the person to relevant professionals not carrying out statutory functions. This kind of situation is extremely likely to arise where a Building Surveyor is appointed as a consultant and then assumes RBS functions.
The Building Surveyor Code of Conduct provides steps that should be taken if a Building Surveyor forms the opinion there is an actual or potential conflict of interest, and also measures to minimise chances of conflicts of interest. Principally, what is suggested is not accepting and not continuing to act in such circumstances.
Consequences: An Active Decision Required under Section 79
The case law on point outlines that what is required by Section 79 is an active decision and consideration by a PBS each and every time they assume functions under Part 6 of the Act. That decision requires an active assessment by the PBS prior to accepting appoint as to their satisfaction of compliance with s 79 of the Act. In circumstances where a subsequent reviewable decision is made, the Building Appeals Board may invalidate a decision on the basis of a PBS’s error in relation to the required active assessment under Section 79. In effect, essentially an RBS’s assessment under Section 79 is a reviewable decision by the Board.
This reality was outlined in CES Queen Pty Ltd v Thomas [2014] VSC 602:
[70] In my opinion, this legislative scheme makes it incumbent on a private building surveyor, prior to accepting an appointment as a relevant building surveyor, to satisfy himself or herself and make a decision that he or she does not fall within the prohibitions in s 79.
[74] the Board could exercise Mr Leonard’s power to consider whether he could not make a protection work determination because his appointment was invalid, even though Mr Leonard did not himself reach that conclusion. Those powers are directly related to the decision under appeal, being Mr Leonard’s determination, and hence could be exercised by the Board.
[75] Further, the making of a determination as to compliance with s 79 of the Act, which involves a factual determination of limited compass, is well within the capacity of an expert tribunal constituted by the Board.
[76] For these reasons, the Board had the power to consider and determine the validity of Mr Leonard’s appointment under s 79 of the Act.
[83] … an appointment accepted in contravention of s 79(1)(b) of the Act is invalid, and any actions purportedly taken by an invalidly appointed relevant building surveyor are also invalid.
It is therefore essential, that a PBS turns their mind to whether a conflict of interest arises under Section 79 prior to their assuming functions under the Act. If functions are assumed in contravention of Section 79, their Section 78 appointment may be rendered invalid and thus any subsequent determination by them. This may have severe financial consequences for those other industry participants who rely on an appropriately appointed RBS to carry out their statutory functions with due care and skill.
Consequences: Disciplinary Proceedings and Censure
The other obvious consequence of a failure to comply with Section 79 is that a Building Surveyor may either have disciplinary action taken against them in relation to their licence, and a fine issued up to the statutory threshold, or may in more severe cases be actually prosecuted.
Conclusion
The conflict of interest provisions under the Building Act 1993 are exacting, and rightfully so. It is essential that Building Surveyors adhere to these provisions as they are an important defence of the public interest.
The consequences of failing to adhere to Section 79 of the Act and heeding the requirements of the Code of Conduct may be very severe for stakeholders of a building project, the public at large, and also the Private Building Surveyor themselves.
This is an area where immense caution and conservatism should be deployed, and if a Private Building Surveyor has doubts about their legal standing in respect of conflicts of interest under the Act, they should seek legal advice.
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 construction law firm. Lovegrove & Cotton Lawyers and our experienced lawyers will assist you based on the facts and circumstances of your case.
Lovegrove & Cotton Lawyers to the building industry
For thirty years, Lovegrove & Cotton have represented property owners, builders, building surveyors, and building practitioners in Melbourne, Canberra, Sydney and Queensland. Lovegrove & Cotton can help property owners and building practitioners resolve any type of building dispute. If you wish to engage the firm, feel free to contact us via our website, by emailing enquiries@lclawyers.com.au, or via phone at (03) 9600 4077.
Written by Jordan Davies, Former Lawyer at Lovegrove and Cotton
