What's the worst case scenario if there is an erroneous engineer's certification on a project?
On 24 September 2020, the NSW Court of Appeal in Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd [2020] NSWCA 223 unanimously allowed an appeal awarding a developer damages for loss of opportunity to make a profit from a development arising from the misleading or deceptive conduct of an engineer.
The engineer had erroneously certified the structural design of the slab. The non-compliant slab was discovered whilst the construction was at an advanced stage and the work was subsequently suspended. This suspension caused the developer to suffer substantial loss, in particular loss of opportunity after the project financier exercised its rights under the loan facility and sold the partially complete development and another property.
Facts
The developer and the builder entered into a contract for the construction of a mixed-use development, funded by a loan facility from the bank. The loan, repayable by 2 August 2010, was secured by mortgages over the development and another unrelated property. As is typical in building projects, the developer, builder and the bank entered into a tripartite deed. This deed gave the bank the right to assume the developer's obligations under the building contract following an 'Event of Default'.
The builder retained the engineer to certify the structural design of the raft slab, pursuant to which the builder commenced construction of the development. By April 2010, construction had reached the 9th floor of the building. At this point, it was discovered that the raft slab did not comply with the Building Code of Australia in addition to other standards and posed a risk to the integrity of the neighbouring property. It became apparent that the engineer's certification was erroneous.
The development was suspended following the issue of a "Stop Work Order". Prior to the suspension, the developer had intended to complete the project on time and with a profit. Subsequently, the developer defaulted under its loan facility leading the bank to exercise its rights under the security documents to sell the partially completed development and the other unrelated property. The developer commenced proceedings against the engineer to recover its losses.
Primary judgment
The developer claimed that loss of opportunity to complete the project in time and make a profit had arisen from the engineer's misleading and deceptive conduct in providing the erroneous certificate that caused the development to halt.
There was no dispute that by providing the certificate, the engineer engaged in misleading or deceptive conduct. However to succeed in its claim, it was necessary for the developer to establish a causal connection between the defective foundation design and the damage claimed (i.e. loss of opportunity) resulting from the bank stepping in.
The Court at first instance held that the developer failed to establish causation, with direct evidence, that is, that the structural defect and erroneous certification was material to the bank acting on its rights under the security documents.
On appeal
The developer appealed on two grounds, in effect asserting the primary judge erred as to the causal link between the misleading and deceptive conduct and loss suffered. The engineer filed a notice of contention arguing that the loss was too remote and a cross appeal arguing, among other things, that the judge erred as to the 15% discount if there was a finding of loss of opportunity.
The developer succeeded on appeal.
The Court of Appeal found that notwithstanding the absence of direct evidence to establish the basis for the bank stepping in, there was an overwhelming inference that the cessation of the building works due to the structural design defect (and the subsequent uncertainty around the development's completion date) was a material cause of the decision of the bank to step in and exercise its rights under the security documents.
The Court held that it was more than conjecture, rather, it was "the most obvious (and probable) inference to be drawn" from the facts, as:
- the evidence demonstrated that the bank was concerned about the suspension of works and the consequent "blow outs" in time and cost
- there were no other relevant material changes at around the time that the bank issued the demand
- the discovery of the building's serious structural defects and likely delay in construction were matters capable of falling within the "Event of Default" clause under the security documents.
In relation to the notice of contention and the cross appeal, it was held that the loss of opportunity was, at the very least, foreseeable in a general way and that the evidence provided ample basis for the conclusion reached in relation to a 15% discount, albeit that the damages decision was discretionary.
Implications
The decision emphasises the reach of claims brought for misleading and deceptive conduct in this space. It should also be noted that a consistent position may have been reached if brought under the new duty of care under the Design and Building Practitioners Act 2020 (NSW)
In the media
Opal Tower builder Icon claims victory in $42m stoush
over costs
Icon has claimed victory over the $42 million it has spent
to date on rehousing, relocating and providing services to Opal
Tower tenants after the federal court found insurers Liberty Mutual
and QBE should share those costs under the builder's
third-party liability insurance policies (11 November 2020).
More...
Opportunity for small and regional unaccredited builders
to have their say about the WHS Accreditation scheme
The Federal Safety Commissioner (FSC) is committed to a
safer Australian building and construction industry (09 November
2020) . More...
Are signs of stability emerging in construction
markets?
The steep fall in construction activity seen earlier in
2020 eased significantly in the last quarter, despite ongoing
economic uncertainty, according our latest Global Construction
Monitor (05 November 2020). More...
New home deposit guarantee will help first home
buyers
The HIA welcomes the news that banks will start accepting
loan applications for the New Home Guarantee under the First Home
Loan Deposit Scheme. The release of new fact sheets that outline
the price caps, the time to take up the guarantee and the time to
build, will help first home buyers move into a new home (03
November 2020). More...
Loans for Construction of a new home set new
record
The number of loans for the construction of a new dwelling
increased by 27.1 per cent in the month of September 2020, to the
highest result since the ABS commenced collection of this data in
2002,"stated HIA's Chief Economist, Tim Reardon. The ABS
also released its building approvals data, which is a more lagged
indicator of future building work (02 November 2020). More...
World first real-time silica detector helps clear the
air
The NSW Government has launched a trial of world-first
technology to accurately monitor silica dust levels in the air that
has the potential to protect NSW's workers from contracting the
deadly lung disease silicosis (10 November 2020). More...
New campaign to reduce risk electrical work
Ensuring electricians are operating safely will form a
vital part of a new NSW Government compliance campaign targeting
electrical safety issues on construction sites (09 November 2020).
More...
Registration of Engineers in NSW developments
The NSW Government expects to start public consultation on
the draft Regulations after 16 November 2020. However, the NSW
Government has advised that it will limit application of the Act to
engineers working on Class 2 apartments only and to extend it to
the whole building sector over time (03 November 2020). More...
New mandatory standards for building certification
The NSW Government has released a comprehensive practice
standard that outlines how building certifiers must undertake their
role to ensure compliance with the law (02 November 2020).
More...
Published - articles, papers, reports
ABCC Industry update -11 November 2020 edition
In the November edition of Industry Update, we take a look
into the extension of JobKeeper, the Supporting Apprentices and
Trainees wage subsidy, the increase in the building and
construction minimum wage and much more. More...
Practice and courts
New National Dictionary to help decode building and
plumbing terms
The National Dictionary of Building and Plumbing
Terms combines terminology and definitions from the
National Construction Code (NCC), Australian Standards,
Australian/New Zealand Standards and Handbook 50:2004
Glossary of Building Terms.Future enhancements to the online
dictionary will incorporate additional reference material and
relevant terminology used in state and territory building
legislation (October 2020).
Adoption of NCC 2022 to be delayed
The delayed adoption will also see adjustments to key
dates in the amendment cycle process for NCC 2022 to allow
stakeholders time to participate. These adjusted dates
include:
May - July 2021: NCC 2022 Public Comment Draft released for public
consultation
May 2022: NCC 2022 Preview published at ncc.abcb.gov.au
If you have any questions regarding the delayed adoption of NCC
2022, please submit anonline enquiry.
ABCB: Warm water systems handbook available now
Handbook now available for download (02 November 2020).
More...
Discussion paper: Building Design Acceptance - A
response to the Building Confidence Report
In 2017, Building Minsters authorised an assessment of the
effectiveness of compliance and enforcement systems for the
building and construction industry across Australia. Amongst other
recommendations the resulting Building Confidence Report (BCR)
recommended that there be a statutory duty. Opens 16 November 2020.
More...
2020 National Housing Research Program commences
Research is underway for the suite of projects funded by
AHURI as part of the 2020 National Housing Research Program (NHRP).
The research will be undertaken by collaborative teams from
AHURI's eight national university research partners. For more
details of the 2020 NHRP projects please click here. More...
NSW
New mandatory standards for building rectification
The standard helps all registered certifiers turn the
requirements under the Building and Development Certifiers
Act and the Environmental Planning Assessment
Act into practice. The Guide is already being used to
assist certifiers working on projects that are being audited under
the new powers that were under the Residential Apartment Buildings (compliance and
enforcement powers) Act 2020. The standard will be reviewed and
updated prior to the 1 July 2021 commencement of the
Government's game changing building reform agenda underpinned
by the Design and Building Practitioners Act 2020.
The first Practice Standard will initially apply to certifiers
working on residential apartment buildings, where the majority of
problems and complaints have been received. The Practice Standard for registered
certifiers is available on the Fair Trading NSW
website.
Design and Building Practitioners Act 2020:
Consultation
The NSW Design and Building Practitioners Act
2020 was enacted in June 2020, introducing statutory
registration for professional engineers. The provisions
of the Act will commence on 1 July 2021. The NSW Government expects
to start public consultation on the draft Regulations in
mid-November 2020. The Government will finalise the Regulations in
early 2021, ready to be implemented on 1 July 2021. More....
Developers must provide advance notice of building
completion
Building developers must provide an
expected date that they will apply for an occupation
certificate. This notice must be provided at least
6 months in advance and no later than
12 months. If building developers do not
provide notice, fines may apply and/or a prohibition
order may be made that stops or delays
an occupation certificate being issued. Notice can
be given through the NSW Planning Portal or online via ">nsw.gov.au/construct-nsw. Reminder: A
transitional period applies to
developers with residential apartment buildings due for
completion?within the first six months
of?the Act starting?1 September 2020. In these
cases, notice must be given within two weeks of the new legislation
coming into effect.
NSW Revenue: HomeBuilder program
HomeBuilder will provide eligible owner-occupiers
(including first home buyers) with a grant of $25,000 to build a
new home or substantially renovate an existing home where the
contract is signed between 4 June 2020 and 31 December 2020.
Construction must commence within three months of the contract
date. More...
Cases
NSW
TORT - breach of statutory duty - statute authorised lot owner to
recover damages for breach of statutory duty - consideration of
nature of lot owner's cause of action.
Home Building Act 1989 (NSW), s 48K
Ashton v Stevenson; Stevenson v
Ashton [2020] NSWCATAP
233
BUILDING AND CONSTRUCTION - Home Building Act 1989 (NSW) -
major defect - major element - caused or likely to cause the
inability to inhabit the building or part of the building or the
destruction of the building or part of the building or a threat of
collapse of the building or part of the building. - meaning of
waterproofing - evidence relevant to determination of whether
defect likely to cause prescribed consequences APPEALS - leave to
appeal - substantial miscarriage of justice - new evidence
following completion of work subsequent to determination of
claim
White Constructions Pty Ltd v PBS
Holdings Pty Ltd [2020] NSWCA
277
APPEAL - whether or not decision of primary judge based in
part on demeanour findings - significance for standard of appellate
review and intervention - where primary judge's decision was
supported by contemporaneous documents - no basis for appellate
interference with primary judge's findings of fact. CONTRACT -
contractual interpretation - whether warranties in a multi-party
deed were made in favour of all parties to the deed or only one
party.
This appeal related to a claim for damages allegedly suffered by
the appellant, White Constructions Pty Ltd (White), in connection
with the sewerage design for a development of a multi-lot
subdivision in Kiama, NSW
Suecha Pty Ltd v VSD Glass &
Timber Pty Ltd (No 2) [2020] NSWCATAP
229
APPEALS - COSTS-costs follow the event-mixed success for
each party.
On appeal, the appellant succeeded in reducing by almost one half
the amount it was required to pay the respondent. We decided that
it was obliged to pay the respondent $55,840.00 instead of an
amount of $99,450.00. However, for the appellant this was partial
success only because it had sought to establish on appeal that it
was not liable to pay any amount to the respondent
Legislation
Regulations and other miscellaneous instruments
Environmental Planning and Assessment Amendment
(Western Harbour Tunnel and Warringah Freeway Upgrade Project)
Order 2020 (2020-663) - published LW 13 November
2020
Environmental Planning and Assessment Amendment
Regulation 2020 (2020-662) - published LW 13 November 2020
- Clause 92 Additional matters that consent authority must consider
- Insert instead "Low Rise
Housing Diversity Design
Guide for Development Applications
published by the Department in July 2020"
Bills introduced - Government - 13 November 2020
Bushfires Legislation Amendment Bill
2020
Electricity Infrastructure Investment Bill
2020
Regulations and other miscellaneous instruments -
reminder
Home Building Amendment (Medical Gas Work)
Regulation 2020 (2020-643) - This Regulation commences on
1 November 2020 and is required to be published onthe NSW
legislation website.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.