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”.[1]

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”.[2]