Chan v Acres  NSWSC 1885
The Supreme Court in Chan v. Acres has found Ku-ring-gai Council, acting as Principal Certifying Authority (PCA) under the Environmental Planning and Assessment Act 1979, liable in negligence to a purchaser of home which was found to contain structural defects.
The plaintiffs purchased a house in Wahroonga from the first defendant (the Previous Owner) in 2010. The Previous Owner had significantly renovated the house and constructed extensions as an owner-builder. The Previous Owner had engaged the fourth defendant (the Council), as the PCA for the work. The Previous Owner had also engaged the third defendant (the Engineer), a firm of engineers, to prepare structural drawings and carry out inspections of the structural work.
At the time of purchasing the property, the plaintiffs were aware of some defects in the house, and had acquired a pre-purchase inspection report from the second defendant, a building consultant. The claim against the building consultant had been settled before the hearing. After the plaintiffs moved in, further structural and other defects manifested in the work that was allegedly carried out by the Previous Owner.
The plaintiffs sued the Previous Owner for a breach of the statutory warranties contained in Part 2C of the Home Building Act 1989; and the Council and the Engineer for a breach of their common law duty of care. The Council and the Engineer denied liability, and if found liable, they contended that others should be held responsible in whole or in part.
Issues at Trial
The claim against the Previous Owner, as an owner-builder, was successfully made out by the plaintiffs, to the extent that the defects had been proved, and the Previous Owner had carried out the work.
The claim against the Council and the Engineer raised, for consideration, principles concerning claims in negligence by a successor-in-title, which had most recently been considered by the High Court in Brookfield Multiplex Ltd v Owners – Strata Plan No. 61288 (2014) 88 ALJR 911. Following the decision in Brookfield, claims in negligence by a successor-in-title against a builder (and others) engaged by a previous owner were considered almost extinguished, or at the very least such claims faced “formidable obstacles” (see The Owners – SP69567 v Landson Alliance Australia  NSWSC 1592 (7 November 2014) at paragraphs , ).
The Court considered the principles concerning the common law duty of care and analysed the various authorities. In summary:
- Whether a defendant owes a plaintiff a duty of care to prevent a plaintiff’s economic loss, depends in the first instance on whether the plaintiff is relevantly vulnerable to the defendant’s acts and omissions, including whether the plaintiff could protect itself from the risk of harm.
- The Court was required to consider the detailed features of the relationship between the plaintiffs and the Council and Engineer to determine the “vulnerability” of the plaintiffs.
- An important feature of the relationship was whether the Council or the Engineer had assumed responsibility, and whether the Council or Engineer were aware (by inference or otherwise) that the plaintiffs would rely on them.
- The absence of an anterior duty of care between the Previous Owner and the Council and Engineer was not fatal to a claim in negligence (but the Court was satisfied, in any event, that such an anterior duty of care existed anyway).
The claim against the Engineer
It was alleged against the Engineer that it had failed in its duty of care in relation to two inspections of the house during construction, at which time it was alleged the Engineer should have observed non-conformances and deficiencies in the work, and given directions in relation to the work.
The Court was not satisfied that the Engineer owed a duty of care to the plaintiffs. The plaintiffs provided no direct evidence that the Engineer had assumed responsibility, or in relation to reliance by them on the Engineer. The Court was not prepared to draw any inference in favour of the plaintiffs in the circumstances of the case. The absence of known reliance was, in the opinion of the Court, a “very significant indicator that the plaintiffs were not vulnerable to the conduct of the [Engineer]” (at paragraph ).
Other factors taken into account relevant to the question of vulnerability included:
- That the plaintiffs were under no compulsion to buy the house; and had in fact obtained a pre-purchased inspection report and had accepted terms in the purchase contract relating to the existence of defects. The Court, however, appeared to give this little weight, distinguishing the plaintiffs’ purchase of a residential home as “very different” to a commercial purchaser, and “experienced investors…equipped to make decisions as to risk” (at ).
- The Court recognised the limitations on pre-purchase inspection reports, which were “unlikely to reveal problems with hidden structural elements in the building” (at ).
- The availability of the protection afforded to the plaintiffs by reason of the statutory warranties under the Home Building Act 1989.
Even if the Court found that the Engineer owed a duty of care to the plaintiffs, the Court was not satisfied that the Engineer had breached the duty of care in respect of all the matters alleged against it, and further, that it had caused the loss. The Court held that, “on the balance of probabilities, that the defective work would not have been rectified even if [the Engineer] had given directions that the plaintiffs say it should have given” [at ).
The Claim against the Council
The difficulties with the claim against the Engineer were not present with the claim in negligence against the Council.
The plaintiffs alleged that the Council, as the PCA, had not carried out critical stage inspections of the house in a proper and workmanlike manner on two occasions. It was alleged that the Council had failed to identify non-conformities and deficiencies in the building work at these inspections; had failed to require the Previous Owner to address the non-conformities and deficiencies; and had permitted the Previous Owner to obtain an occupation certificate.
The Court found that the Council owed a duty of care. Having regard to the relationship between the plaintiffs and the Council, the Court took into account:
- the Council was performing functions under a statutory scheme;
- the Council was being relied upon by the plaintiffs (and it was reasonable for them to do so), and had at least inferred, or more likely actual knowledge, of assumption of responsibility towards such purchasers;
- the critical stage inspections were intended to ensure that the work was properly carried out in accordance with the relevant drawings. The work to be inspected was “critical“; and
- the PCA was in a position that unless satisfied that the work was carried out in accordance with the consent, it could refrain from issuing an occupation certificate; and require the Previous Owner to carry out work.
The Council submitted that the plaintiffs were not owed a duty of care because the plaintiffs had inspected the house; obtained a pre-purchase inspection report; negotiated a purchase contract and had assumed the burden of latent defects. Further, the plaintiffs were protected by the statutory warranties in the Home Building Act 1989, a matter given significant weight in Owners Corporation Strata Plan 72535 v Brookfield  NSWSC 712 in respect of the existence of duty of care owed by a builder to an owners corporation.
Nonetheless, the Court was of the view this consideration was not sufficient to outweigh “…the logical and principled development, by analogy, of what has been said in the High Court cases…” (at ).
The Council also relied upon the statutory defences contained in ss 43(2) and 43A(3) of the Civil Liability Act 2002 (NSW). Those defences provided that unless the Council’s act or omission, or the exercise of a special statutory power, was so unreasonable that no authority having the functions could consider the act or omission to be a reasonable exercise of its functions, the Council would not be liable. The Court rejected those defences, stating unequivocally that “the facts are such that no reasonable certifier, in the position of the Council, could have acted as the certifier in this case did” (at ).
Having found the existence of duty of care, the Court considered whether the Council had breached it and whether it had caused the loss. Not all of the allegations of breach were made out against the Council (the Council was not held liable for the waterproofing membrane). The Court did not hesitate in finding the Council had caused the loss, since it had the power to require the non-compliances to be rectified, and to halt the work (something which the Engineer could not do in this case).
Following the determination of liability, the Court considered the issue of apportionment of responsibility. The Previous Owner had cross-claimed against the Engineer and the Council, and successfully obtained an indemnity from the Engineer and the Council, and the Court apportioned responsibility between them for the Previous Owner’s liability to the plaintiffs.
The decision provides some measure of hope and guidance for purchasers of residential dwellings in making claims against certifiers involved in the construction of dwellings, following the decision of Brookfield in the High Court which cast a shadow over the existence of such claims.
What is clear, however, is that the existence of a duty of care will turn on the facts of each case, with a detailed analysis required of the relationship between the parties to determine a plaintiff’s vulnerability. It will continue to be difficult for legal advisors to provide advice to clients in respect of the prospects of success of such claims.
The claim against the Engineer failed in this case, in part due to the lack of evidence regarding the issue of known reliance by the plaintiffs on the work done by the Engineer, and any assumed responsibility by the Engineer. In the ordinary scenario of a purchase of a residential dwelling, it is unlikely that a purchaser will make sufficient or detailed enquiries in relation to any building work undertaken prior to purchase. In most, if not all cases, the purchaser will rely only on an occupation certificate, and where applicable, the existence of insurance under the Home Building Compensation Fund (formerly Home Owners Warranty Insurance). Purchasers who are aware of structural building work having been undertaken should consider obtaining a copy of all structural certifications; guarantees and warranties in relation to that work prior to purchase.
What is the position of a residential owners corporation in light of this decision? There remains a difficulty with an owners corporation establishing known reliance on the acts or omissions of a certifier or engineer. However, those factors may not be essential to the existence of a duty of care, and further, the Court has demonstrated a willingness to allow “…the logical and principled development, by analogy, of what has been said in the High Court cases…” (at ).