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Residential Focus

20 November 2020

#Property & Real Estate

Published by:

Divya Chaddha, Rebecca Weakley

Residential Focus

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)

Authors: Christine Jones, Divya Chaddha & Rebecca Weakley

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 an online 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

Vickery v The Owners – Strata Plan No 80412 [2020] NSWCA 284
1. Grant the applicant leave to appeal from the decisions of the Appeal Panel given on 15 January and 17 March 2020.
STRATA TITLES – obligation of owners corporation to maintain common property in good repair – owners corporation breached obligation, causing damage to lot owner – NCAT authorised to make orders to “settle” a complaint or dispute about strata scheme – whether NCAT authorised to award damages to lot owner – consideration of nature of lot owner’s cause of action – consideration of conferral of jurisdiction and power upon NCAT – consideration of legislative history – consideration of interaction of jurisdiction of courts and NCAT – appeal allowed, NCAT authorised to award damages.
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.

isclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Divya Chaddha, Rebecca Weakley

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