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  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.
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.
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.
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:
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.
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
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Vickery v The Owners – Strata Plan No 80412  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  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  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.
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Suecha Pty Ltd v VSD Glass & Timber Pty Ltd (No 2)  NSWCATAP 229
APPEALS – COSTS-costs follow the event-mixed success for each party.
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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.