Chan v Acres  NSWSC 1885
The Supreme Court of NSW recently found that Ku-ring-gai Council (the “Council”) as the principal certifying authority (“PCA”) who issued a certificate that authorised the use and occupation of a dwelling “riddled with structural defects” breached a duty of care it owed to the subsequent owners of that dwelling. The Court found that the subsequent owners relied on the Council as the PCA and were sufficiently vulnerable to the conduct of the Council. The Council breached its duty of care to the subsequent owners and accordingly, was liable in damages.
This case has potentially significant ramifications on the liability of certifiers in building defects claims involving owners corporations and other subsequent owners. Those involved in current or potential building defects cases should seek legal advice in relation to the potential liability of the PCA who certified their building.
However it should also be noted that each case turns upon its own particular facts and circumstances. It is also yet to be seen whether the decision is appealed (and if so, whether it will be overturned on appeal).
The first defendant (“Acres”) was an owner–builder who constructed a dwelling in Wahroonga. Acres engaged a number of contractors and professionals to assist in the construction of the dwelling. One of those professionals was the third defendant (“MHE”) who was engaged as a structural engineer to prepare certain structural drawings and to carry out inspections of the structural work as requested from time to time: .
Acres engaged the Council as the PCA to carry out critical stage inspections and certify the building works.
The plaintiffs purchased the dwelling knowing of some defects in the construction (discovered by way of a pre-purchase report) but after moving into the property discovered some serious structural and other defects: .
The plaintiffs commenced proceedings against:
- Acres for breach of the statutory warranties under section 18B of the Home Building Act 1989;
- MHE for breach of a common law duty of care alleged to be owed by it in respect of inspections of elements of the structural work; and
- the Council for breach of its alleged common law duty of care and statutory duties in its role as PCA in respect of inspections it carried out and the issuance of the final occupation certificate: .
Finding by the Court:
The Court found that MHE did not owe the plaintiffs a duty of care: . The plaintiffs did not demonstrate that they had relied on anything done or omitted to be done by MHE. MHE were engaged to provided limited professional services to Acres in the form of certain structural drawings and the inspection of works only in response to requests by Acres: . Even in the event that such a duty could be found to be owed and breached, the Court found that factual causation was proven in relation to the action: 
The Court, however, did find that the Council owed the plaintiffs a duty of care in its role as the PCA. The Court considered that it would have been clear to the Council that the negligent performance of its functions as PCA could well injure the economic interests of subsequent purchasers: . In particular, it was reasonable for purchasers (including the plaintiffs) to rely on the Council to properly discharge its functions based on the independence of the Council, the statutory scheme pursuant to which it acted and because it was not reasonably practicable for the purchasers to undertake the kind of testing that would be necessary to uncover the defects that the Council should have picked up, but did not: .
The Court held that the Council breached its duty of care when it carried out its inspections negligently, failed to detect non-compliant work and as a result wrongly certified that a building “riddled with structural defects” was fit for use and occupation as a dwelling house: .
A recent decision of the High Court of Australia in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288  HCA 36 determined that the builder (in that case) did not owe a duty of care to the owners corporation of the building to take reasonable care to avoid the existence of defects in common property. Further, recent amendments to the Home Building Act 1989 are widely considered to have reduced the consumer protection mechanisms afforded by that legislation. It is in that context that this decision may be welcomed by plaintiffs to building defect litigation given that it highlights another potential avenue for subsequent owners seeking compensation for defects in their property.
Katherine Flynn, Scott Chambers and Daniel Russell
The information provided in publications of Chambers Russell Lawyers, including this publication, is commentary and general information only. This information is not legal advice and should not be relied upon as such. It is our recommendation that formal legal advice be obtained that is specifically relevant to your matter.
More Strata Resources
Important Decision on NCAT Jurisdiction for Common Property Claims On 15 January 2020, the Appeal Panel of the New South Wales Civil and Administrative Tribunal (“NCAT”) published a joint decision in two cases: The Owners—Strata Plan No 74835 v Pullicin (“Pullicin”); and The Owners—Strata Plan No 80412 v Vickery  NSWCATAP 5 (“Vickery”). Published by on January 16, 2020
Lot owner derivative actions In Tan v The Owners - Strata Plan No 22014 (No 2)  the Supreme Court opened the door to lot owners taking derivative actions on behalf of owners corporations. In this case note we analyse the reasoning of the Court that entitled the lot owner in that case to take such action and be indemnified for their costs in doing so. Published by on June 1, 2016
Beneficiaries of policies issued under the Home Building Compensation Fund In the case of Gardez Nominees Pty Ltd v NSW Self Insurance Corporation  the Supreme Court made determinations as to whether the plaintiff mortgagee in that matter was a beneficiary of a policy of insurance issued under to the Home Building Compensation Fund. The decision potentially has wide ranging implications given the interpretation given to a number of key provisions in the Home Building Act 1989. Published by on June 1, 2016