As insurers involved in residential building disputes know, a building claim typically brings a cast of thousands to the courtroom. While owners, builders and engineers typically take centre stage, local Councils and certifiers can unwittingly become involved as bit players due to their role in “signing off” on a project, and perhaps more importantly, because they usually have insurance cover.
The recent decision of Ku-ring-gai Council v Chan  NSWCA 226 will give some comfort to certifiers, building professionals and their insurers in relation to claims for pure economic loss brought by subsequent purchasers. It will also make claimants think twice when deciding whether to join “just one more” party to a building dispute.
An owner-builder undertook renovations to his home in Wahroonga, NSW. The owner-builder engaged Ku-ring-gai Council as the principal certifying authority (PCA).
During the renovations, the Council performed several critical stage inspections, but failed to identify several structural defects and non-compliances with the engineer’s approved plans. The Council subsequently issued an occupation certificate confirming that the building was “suitable for occupation or use in accordance with its classification under the Building Code of Australia”.
The owner-builder then sold the house to Ms. Chan and Mr. Cox (Claimants) who commenced proceedings against the owner-builder, the Council, and the engineer to recover the loss suffered in rectification and relocation costs.
The primary judge held that the owner-builder was liable to the Claimants for breaching the warranties implied by the Home Building Act (1989), noting that because the claim against the Council was for pure economic loss, mere foreseeability of that loss was insufficient to establish a duty of care. Rather, the Court must look to the presence or absence of features or factors beyond this base of foreseeability when ascribing a duty of care.
The primary judge held that because the Claimants relied on the Council to exercise care in issuing the occupation certificate, and because they were vulnerable in the sense that they were unable to protect themselves from the consequences of the Council’s want of care, they were indeed owed a duty by Council.
The Court of Appeal agreed with the primary judge that the Claimants must point to factors beyond foreseeability to impute a duty in claims for pure economic loss.
The Court of Appeal singled out two factors relevant to this particular decision beyond foreseeability:
- Reliance on the purported duty, and the Council’s assumption of this responsibility; and
- Vulnerability (or, the inability of the purchasers to protect themselves from the consequences of the Council’s failure to uphold their duty).
The Court found that there was no reliance by the Claimants on the Council beyond a general expectation: the Claimants did not demonstrate a reliance on any specific part of the certificate. Further, the Court held that the occupation certificate provided no assurances about underlying defects or flaws, and that the Council did not agree to assume this mantle. Rather, the responsibility for complying with the statutory requirements in the Home Building Act lay with the owner-builder.
The Court also saw cracks in the primary judge’s finding that the Claimants were vulnerable during their purchase, determining that they had several protections available to them throughout the transaction. These included the benefit of statutory warranties under the Home Building Act; insurance that the owner-builder was required to take out; and the ability to negotiate the terms of the purchase, further attenuating their supposed vulnerability.
In light of this reasoning, the Court of Appeal set aside the decision of the primary judge and unanimously allowed the appeal.
Implications for insurers
Ku-ring-gai Council v Chan is significant for insurers of certifiers and local councils, as it narrows the scope of potential claims against their insureds by subsequent purchasers of residential homes. As claims for pure economic loss become a more challenging prospect to bring against certifiers, we may now see claimants think twice before joining certifiers to the already over-subscribed numbers of participants in building disputes in NSW courtrooms.