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

On 7 September 2017 the NSW Court of Appeal handed down its decision in Ku-ring-gai Council v Chan [2017] NSWCA 226. The case is an appeal from Chan v Acres [2015] NSWSC 1885, where the Supreme Court of NSW held that Ku-ring-gai Council (Council) in its capacity as principal certifying authority (PCA) breached its duty of care to new purchasers of a property. On appeal, the Court was required to find whether the appellant Council owed the new owners of the property such a duty to take reasonable care in issuing an occupation certificate to avoid their suffering economic loss as a result of the previous owner-builder’s defective building work.

Facts

The purchasers, Ms Chan and Mr Cox, bought a property in Wahroonga which the previous owner-builder had renovated. 

The Council as PCA undertook inspections of the property in order to ascertain whether an occupation certificate could be issued. The Council did not identify any substantial or structural defects and subsequently issued an occupation certificate. 

The purchasers brought a claim against the owner-builder and the engineer, as well as the Council for breach of statutory duties under the Environmental Planning and Assessment Act 1979 (NSW).

Decision at first instance

The primary judge found the Council as PCA owed a duty of care to the purchasers as:

  • the purchasers were particularly vulnerable as they relied on the Council to perform its functions as a PCA with appropriate care and skill
  • the Council knew the purchasers would rely on the occupation certificate being issued
  • the Council would have reasonably foreseen the purchasers would be likely to suffer economic loss if the occupation certificate was incorrectly issued and the property was in fact not fit for occupation
  • there was known reliance and the purchasers were vulnerably exposed to harm from the Council’s performance of its duties as PCA.

Issues on appeal

The Council raised four issues on appeal:

  1. whether the Council owed a duty of care to the purchasers
  2. whether the Council’s breach of that duty caused by the purchasers’ loss measured as the cost of rectifying the structural defects
  3. whether the Council was liable by way of damages for breach of contract and a duty of care to indemnify the owner-builder against his liability to the new owners for that cost
  4. whether, if the Council was liable to the new owners, that liability should be apportioned as between the Council and the owner-builder under the Civil Liability Act 2002 (NSW).

The Court ultimately found the Council did not owe a duty of care to the purchasers, dismissing the idea that a PCA in the Council’s position ought to have realised that the new purchasers would have relied on the fact an occupation certificate had been issued in deciding to purchase the property. In his judgment, Meagher JA found that the new purchasers would have had the benefit of the owner-builder’s statutory warranties under the Home Building Act 1989 (NSW) as well as the benefit of insurance of at least $300,000 against the risk of the owner-builder’s subsequent insolvency, and therefore it was not reasonable for the purchasers to rely on the occupation certificate.

His Honour also noted that the purchasers had agreed to a special condition in the contract of sale that expressly acknowledged the occupation certificate might be wrong and that they would make no claim for compensation against the owner-builder in respect of the accuracy of the final occupation certificate.

The Court also dismissed the idea that purchasers had a special vulnerability to the conduct of the Council as PCA since they had the benefit of the statutory warranties and “remained able by negotiating the price and non-price terms on which they purchased the property to protect themselves against the risk of economic loss presented by latent defects”.

In allowing the appeal, the Court held the purchasers had not been able to demonstrate any more than a general expectation that the Council had acted properly or reasonably in issuing the occupation certificate. Consequently, there was no “reliance or assumption of responsibility or a combination of the two, which exposed the purchasers to the consequences of the Council’s want of care in issuing the occupation certificate”.


Editorial: Eleanor Grounds

In the media 

PCA: Property Industry Support for Housing Affordability Package
The housing affordability measures before the Parliament are sensible and prudent measures that will help ease Australians entering the housing market. The First Home Saver Super Scheme is a non-inflationary measure that helps people bridge the deposit gap. Importantly, it does not touch the baseline superannuation contributed by members (07 September 2017). More...

Senate Moves to Ban Polyethylene Cladding in Australia
Aluminium cladding containing a flammable polyethylene (PE) core has no place on any building in Australia and should be banned outright, the Senate Committee looking into non-compliant building products in Australia said (07 September 2017). More...

Grenfell-style flammable cladding should be banned, Senate committee says
A Senate committee recommends Australia ban the importation, sale and use of the type of cladding that led to London's deadly Grenfell tower tragedy, prompting a dissenting report from Coalition members (07 September 2017). More...

Senate Inquiry into Non-Conforming Building Products
The Property Council of Australia is considering the comprehensive report by the Senate Committee into Non-Conforming Building Products (NCBPs) and the broader issue of fire safety. Mostly, PE cladding has been used in ways that do not compromise fire safety (eg in signage or decorative features), so to ban an entire product is a big call (07 September 2017). More...

MBA: Response to 4 Corners Report on cladding
Master Builders welcomes the coordinated effort being made through the Building Ministers Forum to improve regulatory settings, including its expert review of current compliance and enforcement arrangements. Some of the responses by government so far include draft amendments to the National Construction Code around fire safety and the online information hub established by the Australian Building Codes Board (05 September 2017). More...

Australian high-rises swathed in flammable cladding despite suppliers knowing of risks
More than a decade before the deadly Grenfell tower fire in London, Australian suppliers of aluminium composite cladding knew the product they were selling was highly flammable (04 September 2017). More...

Industry and government working together on fire safety
Victoria, NSW, South Australia and Western Australia are undertaking reviews of large buildings. The Queensland Government has passed legislation addressing NCBPs last month and the NSW Government has established an inter-agency Fire Safety and External Wall Cladding Taskforce (04 September 2017). More...

Construction jumps but units drag on building approvals
A big one-off item appears to have put a rocket under construction work completed in the June quarter, while the apartment sector looks to be running out of puff (30 August 2017) More...

Experts appointed to review Australia’s building and construction safety issues
In a move to bolster safety standards in the construction industry, the Building Ministers’ Forum (BMF) has announced that that Professor Peter Shergold AC and Bronwyn Weir have been commissioned to assess compliance and enforcement problems within the building and construction systems across the country that are affecting the implementation of the National Construction Code (NCC) (29 August 2017). More...

Amendment to National Construction Code 
Following a Building Ministers’ Direction to the Australian Building Codes Board, the National Construction Code will be amended out-of-cycle to adopt a package of measures for fire safety in high rise buildings. 
The proposed amendments are now available for public comment. The key aspects of the amendments cover: A new Verification Method that adopts the external wall testing standard, AS 5113; Improving the evidence of suitability provisions; Clarifying the DTS Provisions relating to the fire performance of external walls and Referencing an updated sprinkler standard, AS 2118.
The Property Council is seeking industry feedback on the proposed amendment to inform its submission. Individual submissions can also be made directly to the ABCB via its https://www.surveymonkey.com/r/Public-comment-draft-NCC-2016-Volume-One-Amendment-1">consultation page. The opportunity for public comments closes on 10 September 2017.

ABCB Consultations
NCC 2016 Volume One Amendment 1 Public Comment Draft (Comments close on 10 September 2017)The NCC changes are the result of a Building Ministers' directive to expedite completing and adopting actions from a comprehensive package of measures for fire safety in high rise buildings, developed following the Lacrosse Apartments fire.

NSW

Building System Circulars: Building fire safety regulation new and changed requirements
The purpose of this circular is to inform certifiers, councils, industry practitioners, and affected building owners of new and changed fire safety regulation requirements that will soon apply in NSW (from 1 October 2017) (28 August 2017) BS 17-002.

NSW BPB: Fire safety: legislative amendments from 1 October
From 1 October 2017 there will be stricter requirements for the design, approval, inspection and maintenance of fire safety systems in complex buildings. The improved design, installation and maintenance of building fire safety systems is a NSW Government priority being achieved through amendments to the EP&A Regulation. Fire safety: legislative amendments from 1 October.

Cases

Ku-ring-gai Council v Chan [2017] NSWCA 226
Appeal allowed. TORTS – negligence – duty of care – pure economic loss – reliance – vulnerability –where council as principal certifying authority retained by owner-builder issued occupation certificate under Environmental Planning and Assessment Act 1979 (NSW), s 109D(1)(c) in relation to structurally and non-structurally defective building works on residential property – where subsequent purchaser of property enjoyed benefit of statutory warranties against owner-builder under  Home Building Act 1989  (NSW), s 18B – whether council owed subsequent purchaser duty to take reasonable care in issuing occupation certificate – where owner-builder agreed with council that he was responsible for compliance with laws and approvals – whether council liable to indemnify owner-builder due to careless issue of occupation certificate
Building Professionals Act 2005 (NSW) ss 63, 65; Building Professionals Regulation 2007 (NSW), Pt 4, divs 2, 3
Ku-ring-gai Council v Chan [2017] NSWCA 226

BNT Constructions Pty Ltd v Allen [2017] NSWCATAP 186
Appeal allowed. The respondents to pay the appellant’s costs of the appeal on the ordinary basis.
APPEAL – Costs – error of law – failure to consider relevant consideration – re-exercise of discretion – apportionment of costs – no question of principle
Home Building Act 1989  (NSW), s 48MA; Civil and Administrative Tribunal Act 2013 (No 2) (NSW), ss 36, 50(2), 60, 81 BNT Constructions Pty Ltd v Allen [2017] NSWCATAP 186

Deacon v National Strategic Constructions Pty Ltd; National Strategic Constructions Pty Ltd v Deacon [2017] NSWCATAP 185
APPEAL – Assessment of damages – principle in Bellgrove v Elldridge – Assessment of consequential loss – conventional estoppel – waiver
Civil and Administrative Tribunal Act 2013; Civil and Administrative Tribunal Rules 2014;  Home Building Act 1989
Deacon v National Strategic Constructions Pty Ltd; National Strategic Constructions Pty Ltd v Deacon [2017] NSWCATAP 185

Hoque v ARZ Building & Constructions Pty Ltd [2017] NSWCATAP 182
1. Each party is to pay its own costs of 13 May 2016.
2. Otherwise, the respondent is to pay the appellants’ costs of the appeal.
In this matter the Appeal Panel delivered its decision on 29 March 2017 cited as [2017] NSWCATAP 71. The appeal was allowed. The decisions of the Tribunal were set aside and the matters were remitted to the Commercial and Consumer Division of the Tribunal for reconsideration according to law. The parties were ordered to confer as to the costs of the appeal.
Hoque v ARZ Building & Constructions Pty Ltd [2017] NSWCATAP 182

The Owners – Strata Plan 84741 v Nazero Constructions Pty Ltd [2017] NSWSC 1134
Defect rectification costs quantified; parties to calculate final figure due from second defendant to plaintiff
BUILDING AND CONSTRUCTION – whether quantification of defect rectification costs reasonable – whether plaintiff entitled to pre-judgment interest on quantification of defect rectification costs
PRACTICE AND PROCEDURE – whether second defendant should have leave under UCPR r 31.28(3) to rely on expert report served by former cross-defendant – whether exceptional circumstances shown
Home Building Act 1989  (NSW). More...

Stevanovski v CLK Plumbing Pty Ltd [2017] NSWCATAP 180
APPEAL – Procedural fairness – case determined on an issue not addressed at the hearing or raised with the parties. More...

Madikian v Chief Commissioner of State Revenue [2017] NSWCATAD 263
First home owner grant; residency requirement; interest on unpaid duty; penalty tax; costs. More...

Cuaresma v Delta Constructions Australia Pty Ltd and Nasr [2017] NSWCATCD 67
Residential building work, defective work, whether first and/or second respondent liable for defects, agency of apparent or ostensible authority. More...

Langov v Denkov; Denkov v Langov [2017] NSWCATCD 69
BREACH OF STATUTORY WARRANTIES - abandonment of contract – damages for defective work – findings where expert report unopposed. More...

Subedi v AA Concrete Pty Ltd [2017] NSWCATCD 54
Building claim – breach of contract – failure to complete works and delay to works – contract terminated – damages for breach. More...

Owners Corporation SP 82076 v Taricon Pty Ltd [2017] NSWCATCD 61
COSTS: Application dismissed - Jurisdictional issue – Application by respondent for costs. More...

Shaun Reynolds Builder Pty Ltd v Rawlings [2017] NSWCATCD 74
Home Building-Repudiation of contract-Enforceability of written contract-Quantum meruit. More...

Legislation

Regulations and other miscellaneous instruments

Building and Construction Industry Long Service Payments Regulation 2017 (2017-476) — published LW 1 September 2017
Plumbing and Drainage Regulation 2017 (2017-482) — published LW 1 September 2017
Surveying and Spatial Information Regulation 2017 (2017-486) — published LW 1 September 2017

Contacts:

Christine Jones, Partner - Construction & Infrastructure (Dispute Resolution) 
T: +61 2 8083 0477 
E: christine.jones@holdingredlich.com

Cameron Sheather, Partner - Planning, Property & Environment 
T: +61 2 8083 0461 
E: cameron.sheather@holdingredlich.com

Disclaimer

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 publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.

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