Issues surrounding Duty of Care by a Building Surveyor [Part 1]
In the Supreme Court of Victoria Court of Appeal of Decision in Moorabool Shire Council and Wally Mellis v. Justin Taitapanui and Lisa Taitapanui and HIA Insurance Services Pty Ltd (trading as Home Owners Warranty) and Watson Construction Pty Ltd (in Liquidation) [2006] 14 V.R. 55, the question of the extent of the duty of care owed by the relevant building surveyor was examined closely.
In the Taitapanui Case, the First Appellant was the employer (council) surveyor and the Second Appellant was the employee municipal surveyor employed in relation to the construction of a house at Torquay owned by Mr. and Mrs. Taitapanui. The house had been originally been constructed in 1996 when it was owned by someone else. The house was built by Watson Construction Pty Ltd which subsequently went into liquidation. Homer Owners Warranty was the statutory warranty insurer for the builder.
The original owners applied to Mr. Mellis for a building permit for a two storey residence estimated to be worth $112,000.00 in August 1996. The application form contained Moorabool Shire Council’s insignia indicating that at all material times, Mr. Mellis was acting as an employee of the corporate surveying entity.
In late August 1996, Mellis issued a building permit to the original owners which attached a number of plans for the proposed dwelling. The document contained the words “relevant building surveyor” in its foot but also referred to the Moorabool Shire Council as Mellis’ employer. Mellis received the princely sum of $805 for the issue of the building permit.
Watson Construction built the house later in 1996. In January 1997, Mr. Mellis issued an occupancy permit in the form prescribed by the building regulations. It again stated that he was “relevant building surveyor” and his postal address was that of the Moorabool Shire Council. VCAT, the First Instance Supreme Court Judge and the Court of Appeal all concluded that Moorabool Shire Council was Mr. Mellis’ day-to-day employer and that Moorabool was vicariously liable for any negligent act or omissions on Mellis’ part.
In fact, the original owners were the directors of the corporate builder they employed to construct the house in 1996.
On-selling a property – new owners become aware of structural defects
In July 1997, the Watsons sold the property to a Mr. and Mrs. Pozmin who in turn sold the property in 1999 to Mr. and Mrs. Taitapanui. Later in 1999, Mr. and Mrs. Taitapanui became aware of substantial structural defects in the Torquay house. They obtained an opinion from a structural engineer who advised that the wrong footing system had been installed which could not support the external walls. The unsuitable footings had resulted in excessive settling of a number of stumps. The house has been built on land with a considerable slope. Watson construction had not only built the house but also was responsible for the design of the footing systems. It was a design and construction contract.
Proceedings against a Council – in default by issuing faulty building permit – Trial Judge ruled that building plans completely inadequate
Eventually, the Taitapanuis issued proceedings at VCAT against Moorabool Shire Council, Mr. Mellis, Watson Construction (in Liquidation) and against Home Owners Warranty. VCAT held that Mr. Mellis has been in substantial default by issuing the building permit because, contrary to the regulations, no specifications had been provided describing building materials and methods to be used. The plans did not identify the particular external wall material. VCAT concluded that Mellis had failed in his basic functions of insuring that the building permit application contains sufficient information to ensure compliance with the regulations. VCAT described his conduct as amounting to gross carelessness and incompetence. On appeal to the Victoria Supreme Court’s Trial Division, the trial judge concluded that the building plans were completely in-adequate and appeared to have been drafted by a thumbnail dipped in tar. The trial judge noted that there were many construction defects in the finished house which Mr. Mellis should have picked up in the course of his statutory inspections – particularly for frame – relating to subfloor defects in the bearers and joists, defects in the roof framing, shortcomings in the flashings and the failure to provide the correct safety glass for certain window and door panels.
VCAT concluded that to satisfactorily rectify the house so that it could comply with the Building Act and Regulations, it needed to be demolished and completely rebuilt. The trial division of the Supreme Court of Victoria dismissed the appeal by the employer surveyor and by Mr. Mellis and reaffirmed VCAT’s original decision.
The employer surveyor and the employee surveyor then appealed to the Supreme Court of Victoria’s Court of Appeal. The grounds of the appeal were, that as a matter of law, the building surveyor did not owe a duty of care to a subsequent owner – subsequent in the sense of a successor-in-title to the owner for whom the building permit was issued. The amount of compensation ordered to be paid to Mr and Mrs Taitapanui was the sum of $117,000.00 from Home Owners Warranty and approximately $120,000.00 from Moorabool Shire Council and from Mr. Mellis. Having regard to an eight day hearing in VCAT, a three day hearing before the Supreme Court trial judge, and a three day hearing in the Supreme Court of Victoria Court of Appeal, Mr. and Mrs. Taitapanui would not have received very much in their pocket after they had paid their own lawyers even with standard costs orders made in their favour.
Court of Appeal judges pay close examination to extent of the duty of care owed by the building surveyor
All three judges of the Court of Appeal (Maxwell P, and Ormiston, Ashley, JJ.A.) unanimously agreed to dismiss the appeal and again reaffirming VCAT’s original decision. In so doing, however, the Court of Appeal closely examined the extent of the duty of care owed by the building surveyor under Victorian law.
The Court of Appeal initially approached the question cautiously. The Court reminded the parties that:
The effect of a decision should not let a Defendant (such as Moorabool and Mellis) be open to claims which are indeterminant as to the class or number of potential claimants, time or amount;
That the effect of a decision should not be unduly hinder ordinary commercial transactions; and
A decision should not have the effect of intruding into any other area of law.
The Court of Appeal noted that the statutory scheme, and the obligations which it imposed on a surveyor in Mr. Mellis’ position, were of central significance. The Court of Appeal noted that the relevant statue formed the foundation upon which the common law could build a cause of action against the building surveyor.
Analysis of Building Act and Building Regulations – Builders to choose a Private Building Surveyor – conduct regulated by Building Control Commission
The Court began its analysis of the relevant statutory scheme in the Building Act and the Building Regulations by examining the Second Reading Speech by the Minister for Planning when the Act reformed Victoria’s system of building standards and regulations. The Court of Appeal approved the following Ministerial statements about the new statutory scheme as ultimately enacted:
“The major reforms are in areas of liability for the provision of a privatised option for building approval and of a one-stop shop approach to dispute resolution.”
“The Bill introduces the option for building permits to be issued by private surveyors, which will expedite the issuing of building permits.”
“When the Bill becomes law, builders will be able to choose to engage a private building surveyor to carry out the building permit, inspection and occupancy permit functions and responsibilities or, where available, they may choose to use the system provided by local councils.”
“The private building surveyor will be required to work in a professional and impartial manner. His or her conduct will be regulated by the scrutiny of the Building Control Commission, and the proposed legislation includes significant penalties. Building surveyors whose work falls short of standards required can be deregistered or fined. Those formal powers will be complemented by the peer group scrutiny of other builders and building surveyors, and the scrutiny of the insurer. Without a good professional record and an acceptable standard of professional practice, insurers will not maintain the insurance cover required by a building surveyor on an ongoing basis.”
All building practitioners to be required to carry professional indemnity cover
“The Bill introduces a more vigilant approach to the insurance aspects of approval practices than currently exists. All building surveyors will be required to carry compulsory insurance cover as a prerequisite to practising.”
“All building practitioners will be required to carry professional indemnity cover to financially guarantee their professional obligations, except in the case of residential builders who already provide the consumer with an indemnity under the Housing Guarantee Fund Limited.”
“No defendant will be liable for more than his individual apportionment. This means that architects, engineers, local government officers and building surveyors will not have to assume liability for the mistakes of other defendants.”
“The Building Bill defines a clear starting date – the date of issue of an occupancy permit – and a clear conclusion date of 10 years from the date of issue. This will remove the existing ambiguity surrounding the time during which the building owner retains the right to issue legal proceedings. This will provide property owners with additional protection in terms of years beyond the very short number of years that now exists.”
The 10-year cap applies to property damage resulting from defects in the design, construction approval and inspection of buildings. It does not, however, extend to claims for personal injury or death which may result from the damage.”
The Court then examined the relevant sections of the Act. The Court noted that the Act revealed the clear intent that a building should be well and safely constructed. After examining Section 16, 18, 19, 24, 31 and 32 of the Building Act and the interrelated building regulations, the Court of Appeal noted the importance which the Building Act attaches to the building permit and the critical importance of the role of the surveyor in that connection. Apart from the surveyor’s role in inspecting buildings under construction, the surveyor must not issue a permit unless he or she is satisfied that the building work will comply with the Act and the Regulations including the Building Code of Australia. The Justices of Appeal noted the documents which had to be provided with a permit application and the power the surveyor has to require additional information or documentation. The building permit granted under the hand of a surveyor was the written certification which authorised building work and declared that the building works described in the application would comply with the Act and the Regulations.
The Court of Appeal also noted that the surveyor has multiple roles in respect of building work once appointed as the relevant surveyor. The following sections provide for multiple duties and roles:
To make mandatory inspections and to conduct other inspections under sections 34 & 35 and part 7 of the Regulations.
Broad powers while conducting inspections under sections 36 & 37 and part 7 of the Regulations.
If a building permit states that an occupancy permit is required, to not allow the building to be occupied unless the permit has been issued by the surveyor under Sections 21, 39, 41, 42, 43 and part 9 of the Regulations.
Not to issue an occupancy certificate unless the building is fit for occupancy under Sections 44 and 46.
Occupancy Certificate – building suitable for occupation but not evidence it complies with the Act or Regulations
The occupancy certificate is only evidence that the building is suitable for occupation and not evidence that it complies with the Act or Regulations. The same situation applies if a certificate of final inspection is issued which occurs when an occupancy permit is not required. Although an occupancy permit gives no assurance other than the building the subject of the work is suitable for occupation, such a permit can only be granted when a building permit has been issued earlier. Indirectly, then, any person such as a future purchaser and occupier would be reassured when seeing an occupancy certificate that the building work authorised by the building permit was work which the surveyor had been satisfied would comply with the Act and Regulations.
The Court of Appeal specifically noted that a building surveyor was a person required under the Act to be skilled by study and experience and to hold professional indemnity insurance. In the Taitapanui decision, Mr. Mellis was categorised as the relevant building surveyor although he was the municipal surveyor for Moorabool. The Court of Appeal next dealt with the Statutory Immunity provided under Section 128 and Section 238 which provides that the surveyor is able in certain circumstances to rely upon certifications given by other building practitioners so to absolve those surveyors from potential liability in respect of their work. Examples might be certifications given by structural or geotechnical engineers.
In disposing of the appeal by the employer surveyor and by the employee surveyor, the Court of Appeal concluded that the infliction of damage in the sense of pure economic loss to a subsequent house purchaser should have been reasonably foreseeable to someone in Mr. Mellis’ position.
Position of Building Inspector – assumption to consider all relevant documents before issuing permit
The Court of Appeal decided that what was of critical importance was that Mr. Mellis was a person who had voluntarily agreed to perform important statutory functions and duties upon the premises which was to be constructed. The performance of these duties would impact not only upon the owners of the premises at the time of construction but also upon any subsequent owners in the seven year period after the permit was issued. Once Mr. Mellis assumed the role of building inspector with respect to the subject premises, no discretion existed whether or not to perform his statutory obligations. Mr. Mellis was obliged to consider the application for the building permit and if the papers were in order to issue such a permit. If the material was not in order, he was obliged to not issue the permit. Once he issued the permit, certain inspections were mandated. Once the premises were built, Mr. Mellis was obliged either to issue or refuse to issue an occupancy permit.
Contributory negligence of owners – failure to obtain pre-purchase inspection
The Court of Appeal also considered whether or not the duties owed by a building surveyor could be reduced or impacted upon by the contributory negligence of owners. An example might be where an owner had failed to obtain a pre-purchase inspection of the premises which might have revealed structural deficiencies. The Court of Appeal rejected such an argument advanced by the surveyors. The Tribunal and First Instance Justice all concluded that any pre – purchase investigation report would not have alerted Mr. and Mrs. Taitapanui of the very serious structural defects that existed in the premises in Torquay. The Court of Appeal also noted that a subsequent purchaser was in a more vulnerable position than the original building owner and was therefore much less likely to be the subject of a finding of contributory negligence in not obtaining such an inspection.
The Court of Appeal summarised its findings as follows:
First, Mr. Mellis assumed a powerful position. By taking on the task of certification, Mr. Mellis assumed relevant responsibility. He should have been aware that the building permit would be disclosed to later prospective purchasers who could be assumed to rely upon it;
The owners as subsequent purchasers were particularly vulnerable;
Third, Mr. Mellis must have been aware of the risk of economic harm being suffered by later purchasers in the event that he neglected his statutory obligations;
By imposing a relevant duty of care upon Mr. Mellis, his freedom of action was not impaired;
To impose a relevant duty upon Mr. Mellis, there was no risk of indeterminacy – in other words, there was no prospect of Mr. Mellis being sued by a large number of prospective applicants; and
Mr. Mellis was a “gate keeper”, a person with sole authority in determining whether or not a building permit would be issued and whether a subsequent purchaser would suffer loss by reason of defective design.
Legal duty owed by corporate surveyors and employee surveyors
An earlier decision of the Supreme Court of Victoria in Toomey v. Scolaro’s Concrete Constructions Pty Ltd (in Liquidation) & Ors [2000] VSC 279 has also considered the legal duty owed by corporate surveyors and by employee surveyors. Toomey v. Scolaro involved personal injures when the Plaintiff fell over a balustrade within a stairwell in a block of flats. The issue was whether or not the height of the balustrade breached the Building Code of Australia. Both the corporate employer surveyor and the individual building surveyor were sued by the injured Plaintiff. The presiding judge, Eames, J. considered the surveyor’s statutory immunity under the Building Act. The trial judge considered that the surveyor could delegate the task of inspection falling due at the mandatory notification stage under Sections 34 and 35 of the Building Act 1993. The power to give directions provided under Section 37 granted to the surveyor was also able to be performed through a delegate. Eames, J. noted Section 238 provided that the surveyor when carrying out functions under the Act and Regulations could rely upon a certificate of another registered building practitioner. The extent of the immunity was provided under Section 128 being that the surveyor was not liable for anything done or omitted to being done in good faith in reliance on a certificate given by a registered building practitioner. Surprisingly, however, Eames, J. concluded that the statutory immunity applied only to the individual actually discharging functions under the Act as surveyor. The immunity was not expressed as applying to the corporate surveyor. Potentially, therefore, the employer surveyor has no statutory immunity if sued for a breach of the duties imposed by the Building Act.
Toomey v. Scolaro is only a decision of a single judge of the Supreme Court of Victoria. It does not have the precedent weight of Taitapanui, a decision of the Court of Appeal. Furthermore, Eames, J. was influenced by the fact that the immunity provision did not apply to the employee surveyor upon the basis that the certificate presented by the delegate inspector in relation to the mandatory inspections was completed in a minimalist manner and there was no good faith accompanying the reliance upon it. Eames, J. also noted that the delegating surveyor was meant to be an expert as to the legislative provisions and more highly qualified than the delegated inspector. It was, therefore, reasonable that the inspector’s opinion as set out in the certificate should be checked by the surveyor before acting upon the certificate. After all, remarked the trial judge, what service is it for which the surveyor charges his fee – and a much larger fee than that of the inspector? The fee charged is for the performance of the duty which under the legislation remained the surveyor’s own obligation not-withstanding the mechanical task of inspection may be delegated. In other words, Eames, J. limited a surveyor’s ability to rely upon the immunities provide by Section 128 only if the surveyor acted in good faith in so doing.
Toomey v. Scolaro therefore stands for the following propositions:
The statutory immunities potentially protect only employee surveyors and not their corporate employers.
The immunity can only be relied upon provided that the delegating surveyor has not acted recklessly or even negligently.
Conclusion
Irrespective of your professional standing mistakes do occur, particularly with respect to building work the consequences of which can be onerous. In all such cases contact LAC Lawyers immediately for comprehensive legal advice and assistance.
Michael Henry Pickering
Barrister & Solicitor
Victorian State Manager
LAC Lawyers Pty Ltd
Suite 16, 233 Cardigan Street
Carlton VIC 3053
PO Box 466, Carlton South VIC 3053
Ph: 03 9347 1511
Fx: 03 9347 1522
E: mpickering@lac.com.au
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
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