Developer borrows money, engages builder and quantity
Greystanes Projects Pty Limited (developer) wished to develop a
property at Greystanes, NSW. It borrowed $23 million from LM
Investments Management Limited (financier) to finance the project
and engaged Toro Constructions Pty Ltd (builder) to build it. The
loan agreement provided for the financier to release funds as work
was completed by the builder.
The financier engaged BMT & Assoc Pty Ltd as quantity
surveyors to assess each of the builder's progress claims
independently and advise if works were complete to the extent
During the project, claims were made by the builder, assessments
were made by the quantity surveyor and loan funds were released by
the financier. However, for various reasons, the project ran into
difficulties: there were defaults under the loan agreement, the
developer went into liquidation and the financier ended up out of
Financier sues quantity surveyor alleging assessments
overvalued work completion level
The financier sued the quantity surveyor, claiming that it had a
duty of care (in tort) to avoid economic loss from the advice it
gave the financier, an implied duty (in contract) to act with
reasonable care and skill; and a statutory duty to avoid misleading
and deceptive conduct in trade or commerce.
The financier alleged that it was out of pocket because the
quantity surveyor's assessments had overvalued the level of
completion of the work, in breach of the above duties, and
consequently the financier had advanced loan funds beyond what it
Quantity surveyor found to have incorrectly assessed
builder's payment claims
The Court found that the quantity surveyor was liable to the
financier. The quantity surveyor's incorrect assessment of the
builder's payment claims was held to constitute negligence,
breach of contract and/or misleading and deceptive conduct under
the Trade Practices Act 1974 (now replaced
by the Australian Consumer Law).
Importantly, expert evidence confirmed that the quantity
surveyor failed to comply with widely accepted competent
professional practice in the valuation of the original budget when
giving progress recommendations. The quantity surveyor's site
inspections were satisfactory, but its process of converting site
information into a reasonable recommended payment was not.
Proportionate liability defence fails, as well as other
attempts to reduce liability
The quantity surveyor claimed that the financier's loss was
caused by a range of other factors, including the developer's
failure to repay the loan, the builder's failure to complete
the works, the financier's own decision to abandon the works in
the face of the global financial crisis and the financier's
decision to advance loan funds despite loan defaults.
None of the quantity surveyor's attempts to reduce its
liability prevailed. Significantly, the developer's failure to
repay the loan involved an action for debt rather than a failure to
take reasonable care (and accordingly the developer and quantity
surveyor were not held to be concurrent wrongdoers in the same
appropriable claim for the purpose of a proportionate liability
defence. For more about this topic, refer to our previous article
Proportionate liability in construction, engineering, building and
Accordingly, the Court applied established principles to find
that the financier was entitled to recover from the quantity
surveyor the difference between what it lent and what it would have
lent but for the incorrect valuations.
Tips for managing liability include keeping record of
Quantity surveyors should check that they have adequate measures
to manage their liability to financiers and developers. This should
include appropriate quality assurance/quality control systems and
processes, terms of engagement (including limitations on
liability), and qualifications in respect of their valuations. As
well as ensuring that they have appropriate insurances in place,
quantity surveyors should keep a careful record of contributory
negligence or failures to mitigate by other parties.
Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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