Building Certifier Not Liable – Appeal allowed in favour of the Building Certifier

18/09/2017

In the Court of Appeal Decision Ku-Ring-Gai Council v Chan decided 7 September 2017.  Ku-Ring-Gai Council as Certifier was held not liable to the Owner Builder or to the subsequent Purchasers. This was even though Council Inspectors inspected the works on several occasions and failed to identify defects or that the building was not in accordance with the approved plan.  The Council issued an Occupation Certificate.  The property has been occupied.

As it happened the subsequent Purchasers Ms Chan and Mr Cox had the benefit of the statutory warranties against Mr Acers the Owner Builder who had undertaken the building works.  The claim related to the cost of rectifying structural defects ($467,448.00) the cost of rectifying remaining defects in breach of the statutory warranties provided under the Home Building Act ($125,110.00).

The subsequent Purchasers Ms Chan and Mr Cox also initially sued the Engineer.  The original Judge Justice McDougall dismissed that claim.

The Council appealed the decision against it in the Court of Appeal of the Supreme Court of New South Wales and the decision was delivered 7 September 2017.

The Court of Appeal considered numerous previous cases which had established that if there is negligence which causes loss, even loss which was reasonably foreseeable, this alone was insufficient as such to obtain a verdict against the person or entity who was negligent.

Additionally it must be established that the Claimant was “vulnerable” in the sense that the Claimant was unable or had an inability to prepare herself for the consequences of the Defendant’s lack of care.

In this case the Court of Appeal decided that the subsequent Purchasers were not vulnerable in that the subsequent Purchasers had the benefit of the statutory warranties and remained able to protect themselves by negotiating the terms of the Contract.  The Supreme Court of Appeal accordingly allowed the appeal against the original decision and the Court of Appeal decided the Council was not subject to the duty.

In the original proceedings the Owner Builder also had a cross claim against the Council.  The case by the Builder against the Council was determined primarily on the basis of the contractual terms of the engagement (PCA Agreement) which included an acknowledgement that the responsibility under the PCA Agreement was that Mr Acers as the Owner Builder was responsible to comply with all relevant Applications, Consents and Approvals.

The Court decided there was no assumption of risk for inspections by the Council.  The Court of Appeal stated that the inspections were not property carried out and the inspector relied upon information provided on behalf of the Builder rather than an actual independent inspection.

Ms Chan and Mr Cox the subsequent Purchasers and Claimants obtained a Judgment/Verdict against the Owner Builder for breaches of the statutory warranties.  If the award is not paid a triggering event could occur which would allow Ms Chan and Mr Cox to make a claim on the Home Owners Warranty.  Each Home Owners Warranty Insurance has a limitation which is in the order of $300,000.

The defences available to the Owner Builder or Builder need to be considered by the Owner before commencing proceedings. There have been changes to the defences that are available in the last few years which allow a Builder a greater range of defences in particular if the Owner engaged the professionals such as the Architect, Engineers and others in the design process.

Even though the decision on cost has not been awarded at this stage it is likely that Ms Chan and Mr Cox the Claimants will be obliged to pay the costs of Council and the Engineer in relation to the original hearing before the original Judge as well as Council’s costs in relation to the appeal.  These amounts will be significant. 

One does not know from the decision as to the likely recovery against the Owner Builder of the amount awarded by the Court for breach of statutory warranties or whether there was in fact Home Owners Warranty or whether the subsequent Owners will be required to enforce the claim against the Owner Builder and/or under the Home Owners Warranty policy.

This is an example where experienced Lawyers such as the experienced building and construction Lawyers at Watson & Watson assist you in making appropriate commercial decisions relating to the important decisions, following what should have been a simple building project which went wrong.  No doubt the parties in the case of Chan v Acers and the subsequent appeal Ku-Ring-Gai Council v Chan would not have expected the costs and outcomes of those decisions.  If you have any concerns or you wish to seek a second opinion please telephone Richard Watson or his Personal Assistant Shereen DaGloria to discuss the matter.