No duty of care to subsequent home owners. Consultants in the clear?Author : Andrew Brennan (Special Counsel), Benjamin Hine (Associate)

Financial Lines

Ku-ring-gai Council v Chan [2017] NSWCA 226

WHAT YOU NEED TO KNOW

The New South Wales Court of Appeal has delivered a decision that creates significant difficulties for subsequent purchasers of domestic properties who seek recovery from building consultants for defective works when recourse against the builder under statutory home warranty schemes is available. This decision is significant for Building Surveyors (RBS) and Principal Certifying Authorities (PCA) as well as other building consultants such as architects and engineers, and their insurers.

Whilst the decision arguably does not sit comfortably with the High Court’s decision of Bryan v Maloney, where a builder of a domestic dwelling was found to owe a duty of care to a subsequent owner, this inconsistency can potentially be explained by the fact that the statutory home warranty schemes in place today were not operative at the time of that decision.

KEY IMPLICATIONS

  • In order to establish a duty of care in cases involving defective building works, subsequent purchasers must show “vulnerability” arising from an inability to protect themselves from the consequences of a defendant’s want of care.
  • The ability of a subsequent purchaser to negotiate the terms of a property purchase and the existence of the statutory warranties strongly dilutes any suggestion of “vulnerability”.
  • Certifiers such as RBSs and PCAs will not be found to owe a duty of care to subsequent purchasers unless they specifically undertake to supervise compliance of relevant legislation, consents and approvals.
  • Subsequent purchasers will find it extremely difficult to establish that building consultants owe them a duty of care when statutory home warranty protections apply.

WHAT HAPPENED

  • Mr Acres, an owner-builder, renovated his Wahroonga property. Mr Acres obtained an occupation certificate from the Ku-ring-gai Council (Council), which he had retained as the PCA.
  • Mr Acres’ renovations contained structural defects and the property did not comply with the approved plans and specifications. Negligently, the Council did not identify these defects when conducting its inspections as PCA and proceeded to issue an occupancy certificate to Mr Acres.
  • Mr Acres sold the property to Ms Chan and Mr Cox (together, the Purchasers).
  • After buying the property, the Purchasers discovered the defects and sued Mr Acres, the Council, and the engineer that prepared the structural drawings for Mr Acres.

THE JUDGMENT

At first instance

At first instance, the Supreme Court held that Council owed a duty of care to the Purchasers to take reasonable care acting as PCA assessing whether to issue the occupation certificate. The claim against the engineer was dismissed on the basis that the engineer did not owe the Purchasers a duty of care.

The Court held that the Purchasers were relevantly “vulnerable” because it was reasonably foreseeable to the Council that a purchaser would suffer loss if defects were not identified and rectified before sale. The Court determined that the Council was liable to indemnify Mr Acres in contract and at common law.

On appeal

The Council appealed. The Court of Appeal unanimously allowed the appeal and held that:

  • To establish a duty of care owed by the Council, the Purchasers needed to establish that the relationship between them and Council satisfied the usual test enabling damages for pure economic loss, the key features being “vulnerability” and “reliance”.
  • Whilst not determinative, the Purchasers were able to protect themselves by negotiating terms in the contract of sale with Mr Acres, and they had the benefit of the statutory warranties for defective building works, that run with the property.
  • Mr Acres, as owner-builder, was responsible for complying with the statutory requirements and approvals. Council did not agree to undertake that role, and should therefore not be liable for defects and non-compliance with the statutory requirements and approvals.
  • The cause of the defects was not Council issuing the occupation certificate, but rather the defective construction works performed by Mr Acres. If the Council had not issued the certificate, the latent structural defects would have existed and remained unrectified, meaning that Mr Acres would not have suffered any loss that the Council would be liable to indemnify him for.
  • For those reasons, the Council did not owe a duty of care to the Purchasers.

 

Citations:

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36
Bryan v Maloney [1995] HCA 17
Chan v Acres [2015] NSWSC 1885
Ku-ring-gai Council v Chan [2017] NSWCA 226
Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16

21/09/2017