Australia: Council as certifier found liable to subsequent owner in Chan v Acres

Last Updated: 30 March 2016
Article by Joanne Perdriau

In brief - Supreme Court case shows process involved in ascertaining a duty of care

Although the leading decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 found that no duty of care exists, a 2015 NSW Supreme Court decision shows that proving whether a person is relevantly vulnerable depends on a close examination of all relevant features of the relationship between them and that the case will turn on the individual facts.

Brookfield case examined in Chan v Acres

In the 2014 decision of Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288, the High Court held that a builder was not liable to compensate a subsequent owner for latent defects which had gone undiscovered for a period of about nine years.

In Chan v Acres [2015] NSWSC 1885, the Supreme Court of NSW has examined the Brookfield case in relation to a dwelling house which new purchasers discovered had significant and substantial defects caused by the previous owner and his subcontractors. This case delivered a judgment which revisited the debate on the difficult question of whether a duty of care exists between a subsequent owner and subcontractors who carried out work for the previous owner.

Pre-purchase inspection report only describes cosmetic and superficial defects

The plaintiffs (the new owners) purchased a house in Wahroonga from the first defendant (the previous owner). The previous owner had:

  • significantly renovated the house and constructed extensions as an owner/builder
  • engaged the local council to be the certifier of the works
  • engaged a firm of engineers to prepare the structural drawings and carry out inspections of the structural work

At the time of purchasing the property, the new owners were aware of some cosmetic and superficial defects which were described in the pre-purchase inspection report. This report did not contain any information about structural or significant defects.

New owners sue for breach of statutory warranties and common law duty of care

After the new owners had moved in, they discovered that the house suffered from significant structural defects which were caused by the previous owner's renovations to the house, including:

  • defective construction of lower ground floor slab
  • defective construction of lower ground floor block walls and vertical bond beams
  • defective construction of the ground floor structural framing and horizontal bond beam, external walls, structural steel framing
  • defective construction of roof framing

The new owners sued the previous owner for a breach of the statutory warranties contained in part 2(c) of the Home Building Act 1989. They also sued the company that prepared the pre-inspection report, the council that certified the works and the engineers for breach of common law duty of care.

Council and engineers' relationship with new owners examined in determining duty of care

Unremarkably, the Court found that the previous owner was liable for the statutory warranties which were imposed on him under the Home Building Act, as he was an owner builder who carried out renovations on the house.

The claim against the company that did the pre-inspection report settled before trial.

As for the council and engineers, the Court examined their relationship with the new owners to determine whether the new owners were relevantly vulnerable to the actions of these parties and if these relationships gave rise to a duty of care.

Court finds that engineers did not owe duty of care

The new owners claimed that the structural engineers should have identified and noted over the course of two critical site inspections that the lower ground slab, supporting block walls on the lower ground floor bond beams, drainage outlets, balconies, brickwork, balustrade, steel beams, ground floor structural steel framing and roof framing were all defective.

The structural engineers were retained by the previous owner to prepare the structural drawings and inspect the works as requested from time to time. This included reviewing the underpinning requirements of the house.

To determine whether the new owners were vulnerable to the actions of the engineers, the Court considered the following:

  • The engineers knew that the house would change hands from time to time in the future. This fact linked the engineers to the new owners. However, there was no evidence to show that the engineers assumed any responsibility to the new owners or that the new owners relied upon anything that the structural engineers had done. Critically, the Court found that the relevant assumption of responsibility or reliance could not be inferred.
  • A purchaser would find it hard to detect structural defects at the time of purchase. A purchaser may know that the building had structural defects when defects become manifest, for example, major cracks start showing up.
  • After the engineers prepared their structural drawings and did their inspections, the work was handed over to the contractors at the site. Once this happened, the engineers had no real control over the works or the contractors on site.
  • It is common for the structural elements of a building to be covered up during the course of construction. The engineers were only retained to prepare the structural engineering drawings and inspect the structural work as requested "from time to time". The scope of this retainer made it difficult for the engineers to check the structural adequacy of the house without invasive testing.
  • The construction work was carried out by contractors at the site who did not comply with the engineering drawings or the engineers' directions and built what was convenient to build, not what was required by the drawings.

Based on these circumstances, the court found that these matters were insufficient to establish that the new owners had been vulnerable to the actions of the engineers or that they suffered any real loss which had been caused by the engineers. Also, of particular significance were:

  • the steps the purchasers took to protect their interests
  • the purchasers' willingness to accept certain risks
  • the availability of protection by statutory warranties
  • the absence of any pressure (at least on the part of the engineers)

Accordingly, no duty of care was owed by the engineers to the new owners.

Certifying council did not inspect house professionally or appropriately

The council, as certifier, had a statutory duty under the Environmental Planning and Assessment Act 1979 to certify the works, including inspecting the works and issuing an occupation certificate if the works were satisfactory.

The certifier issued a final occupation certificate which was based on site inspections and compliance certificates.

The Court found that the new owners' relationship with the council (as the certifier) was vastly different to the engineers' relationship because it was predicated by the following facts:

  • The certifier had the power to reinspect the works and to ensure that any defective or incomplete work had been rectified or completed.
  • The certifier had the power to hold up any works until its directions had been followed.
  • The new owners were more likely to be affected and suffer loss if the certifier carried out inspections negligently, failed to detect defective work and wrongly certify that a building riddled with structural defects was fit for use and occupation.
  • Because the house was structurally defective, it ought never to have been certified as fit for use in the final occupation certificate by the certifier.

In the circumstances described above, the Court found that the new owners had relied upon the occupation certificate when they purchased the house. As such, the new owners were vulnerable to the actions of the certifier because the certifier was required to use reasonable care in performing its inspections of the critical works, and issue an accurate and correct final occupation certificate.

The council ultimately admitted that, except for two items of work carried out, it had not inspected the house in an appropriate and professional way. The Court found this was a gross departure from the duty to exercise reasonable care. Accordingly, the Court held that there was a duty of care owed by the certifying council.

Establishing existence of duty of care will turn on individual facts

The existence of vulnerability in a relationship will attract the Court's attention on the question of whether a duty of care exists. As demonstrated in this case, proving whether a person is relevantly vulnerable depends on a close examination of all relevant features of the relationship between them.

A major difference between the engineers' and the certifier's roles was that the new owners relied upon the occupation certificate when deciding to purchase the house. Given the defects, an occupation certificate should not have been issued by the certifier. By contrast, the structural drawings issued by the engineers were ignored by the contractors at the site which defeated the argument that the engineers owed a duty of care to the new owners.

This case demonstrates the process involved in ascertaining a duty of care. It requires the Court to examine the nuances in relationships between subsequent owners and consultants, certifiers and subcontractors or builders who carry out work for previous owners. Although the leading decision of Brookfield found that no duty of care exists, Chan v Acres suggests that the issue is still open for determination and will turn on the individual facts of a case.

Joanne Perdriau
Construction disputes
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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