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The prohibition against conflict of interest for private certifiers in New South Wales was stringent enough prior to July 2020.  Following the commencement of new legislation it has become more stringent but in some ways less specific and broader in its reach.

On 1 July 2020 the Building and Development Certifiers Act 2018 came into force in NSW, effectively superseding the breadth of the conflict of interest provisions in the Building Professionals Act 2005.  This earlier legislation in itself had firmed up the rules against certifiers “muddying the waters” in terms of their relationships that could conflict with the regulatory duties of a private certifier.  With the newer B&DC Act however, there is now a broader range of private interests that could be said to conflict with the certifier’s impartiality, and which the practitioner must guard against.

Key concepts that have now arisen in the new legislation relate to “private interest” and also “business relationship”.  Of course, the terminology has now changed too in the new legislation, with the term “accredited certifier” being replaced with “registered certifier”.

Under the Building Professionals Act 2005 (“the BP Act”), section 68 set out that having an “employment relationship” with another party involved in the design of a project or having any pecuniary interest in the outcome could lead to a conflict for the private certifier. This was something that ‘put paid’ to earlier notions of Chinese Walls and similar where certifiers could work in the same business enterprise as another department in the company that was involved in design or consultancy work for the same project, provided that information barriers exist between departments.

This was already quite prohibitive, but under the B&DC Act the ambit of what is meant by “employment relationship” has broadened simply because this new Act does not narrow down or specify the scope of that term (“employment relationship”), or related concepts.

There is now an expansion of the potential scope of conflict of interest to capture any “private interest” that could lead to a temptation for a certifier to alter their judgment, while the meaning of “related person” would now include anyone that the private certifier has a “business relationship” with.

The use of broader and less specific language on the part of the legislature is of course likely to be intentional and signals a desire by lawmakers to clamp down on a broader range of private interests that could lead to at least a perceived conflict of interest on the part of registered certifiers. This is of course likely to be the case given recent media coverage in NSW and other parts of Australia about poor building quality control and a concern about the role of the “regulatory gatekeeper” in certifying new work.

Key terms introduced in the B&DC Act 2018 include “private interest” and also “business relationship”, while the term “employment relationship” was previously covered in the BP Act. Section 29 of the new Act is illustrative of the new definition of conflict of interest and close regard ought to be had to it by registered certifiers.

If one turns to the interpretation or definitions section of the new Act, one does not get much further guidance, because in section 4 of the Act there is no definition given for “relationship”, “business relationship” or “employment relationship”.  This being the case, one has to have regard to common understanding of the intention and spirit of the new laws in terms of key objectives. 

It will be apparent from that approach that a conservative interpretation is to be preferred, or in other words that understanding which is most likely to promote the main intention of the conflict of interest prohibition in the new Act.

Section 29(1) of the Act states that a registered certifier has a conflict of interest in certification work if a “reasonable person” would conclude that:

• The registered certifier has a “private interest” with respect to the certification work; and
• 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 there would be a conflict of interest “in any other circumstances prescribed by the regulations” (section 29(1(b)).

Once again, the test is what a “reasonable person” would conclude if that third party observer was dispassionately examining all circumstances and if that party had knowledge of the duties of a private certifier. I say “once again” because this objective test is commonly used in misconduct legislation in NSW and other jurisdictions. 

It is also necessary that there be a private interest with respect to the project where the certification is taking place, but also that the private interest must come into conflict with or could affect the duty of the certifier to act in the public interest.

The code of conduct for certifiers will give some level of guidance on what acting in the public interest means. However, it should be clear to all that the certifier acting in the public interest must involve dispassionately upholding compliance with building regulations (including the Building Code) and the certifier acting in an impartial manner unswayed by private imperatives from the developer who pays the accounts.

Section 29(2) defines “private interest” and says that a registered certifier has a private interest with respect to certification work if the registered certifier is any of the following:

• A person who is obtaining the benefit of the certification work;
• A person who has a pecuniary interest in the development or building to which the certification work relates;
• 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;
• 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;
• 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;
• A person who has a relationship (whether family, personal, employment, or business) with a person referred to in any of the above criteria at (i) to (v);
• Any person prescribed by the regulations.

Notably, the focus in section 29(2) is not so much on who the person is that the certifier has a relationship with, rather it is on the type of other activities or interests that the certifier may have with regard to the same project, but which is not certification work.

Also, as per the criteria in (vi) above, the concept of a “business” relationship is introduced under section 29(2) of the new Act.   That said, as discussed the legislation itself does not clearly define what is a “business relationship”, and begs the question whether it means something over and above an “employment relationship” as covered by the conflict of interest provisions in the BP Act.

This being so, it is necessary to seek guidance from other materials, such as for instance:

• Section 33 of the Interpretation Act 1987 (NSW), which establishes that where there is any ambiguity about the precise meaning of a word or phrase in a statute, the interpretation that best promotes the underlying purpose or object of that Act is to be preferred;
• Section 3 of the BD&C Act outlines the purpose of the Act overall and it is to include the recognition 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”;
• Section 3 states that other key objectives are to ensure appropriate scrutiny and review of actions by those conducting certification work, and to provide a framework to “permit the continuous improvement of the carrying out of certification work”;
• Changes in other construction industry laws, such as with a recent change to the Home Building Act 1989 (NSW) to prevent undue influence relating to the appointment of certifiers.

Part of the concern about conflict of interest may not be so much that the certifier will be unduly influenced from acting impartially in discharge of certification tasks (though that is clearly a primary concern), but that as well there should not be a situation where certifiers will be engaged by developers in the expectation that they will act favourably toward that developer. 

Hence one objective of including the term “business relationship”, which is broader in scope than “employment relationship”, is to put a halt to influence by those involved in the design and construction of a project on the appointment of a particular registered certifier.

One objective is to prevent design or construction businesses from establishing relationships with certifiers or certifier body corporates, which could lead to preferential encouragement to developers / owners to engage those certifiers.  It is thought also that this can eventually lead to a compromise on regulatory oversight and hence building quality control, and health and safety.

Certifiers also need to be aware of staying clear of “personal” or “family” relationships that could influence the certifier’s decision making on a project, given the prohibition on this in section 29(2)(f).  This states that a registered certifier has a private interest with respect to certification work if the registered certifier is “a person who has a relationship (whether family, personal, employment, or business) with any person described at section 29(2)(a) to (e).

The scope of “family relationship” was previously delineated in section 68 of the BP Act, with the meaning extended to “a spouse, de facto partner, sibling, parent or child”.  However, the new legislation does not define this term or the other term “personal relationship”.  This suggests that “family relationship” may extend to more than just immediate family.  It also suggests that “personal relationship” means more than just a familial tie and can include any type of personal connection such as close personal friends, or something more than a mere acquaintance.

The key concept is whether or not the personal relationship would be potentially problematic in influencing the outcome of the certifier’s decision making in their certification role on a project.  The key aim of the legislation is to preserve the independence of the certifier at all times.

For more advice and assistance on the rights and responsibilities of private certifiers in NSW, including regulatory advice, do not hesitate to seek swift advice from construction law practitioners well versed in the relevant laws.

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 Justin Cotton