Lessons for Certifiers

Owners Corporations often have to wrestle with the possibility that the builder and developer are unable to pay to rectify defects. They are inevitably not insured. If the building is more than 3 storeys, there will not be an HWI policy. Owners Corporations therefore need to look to others who were involved in the constructions, design, and certification of the building. Certifiers usually hold professional indemnity insurance and their responsibility should certainly be considered in any defects claim.

In the matter of Dix Gardner Pty Ltd v The Owners – Strata Plan 82053 [2017] NSWSC 940, the Supreme Court considered an appeal by a certifier (Dix) who had allegedly breached his duty of care to the owners corporation of a townhouse development close to the M2 motorway in Sydney.

On 15 June 2004, development consent was obtained from Ryde Council concerning the development. The development consent was given subject to specific conditions regarding noise.

Consequently, the builder of the development contracted an acoustic consultant to conduct assessments regarding the noise levels and to recommend acoustic treatments that would ensure compliance and that the report be submitted to the certifier.

The subsequent two reports were issued, one that dealt specifically with the acoustic treatments that would be required and the second, which opined that five of the townhouses in the subject development were non-compliant and required work to be conducted to meet compliance. The second report was issued after the interim occupation certificate and immediately prior to the certifier issuing a final occupation certificate. However, despite the second report, the certifier issued a final occupation certificate for the development.

In response, the Owners’ position was that the certifier owed to them a duty to exercise reasonable care, skill, and diligence in carrying out the certification, which was subsequently breached when the occupation certificate was issued despite the issues identified in the acoustic consultant’s second report.

More specifically, the Owners alleged that firstly, as a private certifier, Dix owed a duty to the Owners to exercise reasonable care, skill and diligence in carrying out the certification. Secondly, the occupation certificates for the development were not properly issued because the preconditions to their issue specified in the development consent had not been met and the building was not suitable for occupation. Thirdly, a reasonably competent certifier would not have issued the occupation certificates until he or she was satisfied that the preconditions in the development consent had been met and the building was suitable for occupation. Fourthly, Dix breached his duty to the Owners by failing to exercise the degree of care, skill, and diligence expected of a reasonably competent certifier in issuing the occupation certificate when he did. Fifthly, the breach of duty of care by Dix caused the Owners to suffer economic loss; and finally, quantum of damages.

The Local Court found in favour of the Owners.

On appeal, the certifier claimed that the Local Court were in error finding that there was a duty of care owed to the owners corporation by him on the basis that sections 41 and 43 of the Civil Liability Act 2002 (NSW) (the CLA) in that he was exercising a public function in issuing occupation certificates under the Environmental Planning and Assessment Act 1979 (NSW).

The Supreme Court rejected the assertion on the basis that it is unlikely that the legislature intended for the CLA to be applicable in those matters of which privately employed certifiers were involved in work that required “very difficult decisions” and the fine balancing of a discretion against public policy implications.

The Court further held that the CLA was not relevant given that in their view the work that carried out by the certifier did not involve any exercise of discretion, but rather was concerned with the assessment of mandatory and ascertainable prerequisites against a set standard.

The Court also considered whether Dix owed a duty of care to a subsequent purchaser, given that the owners corporation was not a commercial entity and not a purchaser of a domestic dwelling. The Court held that it was overtly clear that in the circumstances where the certifier signed a final occupation certificate, fully aware that there were significant acoustic issues outstanding, he placed the owners in a position of vulnerability.

In conclusion, despite finding for the owners corporation in respect of the issue of duty of care, the appeal was upheld on other grounds, namely that the court below had not adequately addressed the issue of proportionate liability. The matter was remitted to the Local Court for further determination.