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Incorrect Building Certification

by Jonathan Fenwick, Ebsworth & Ebsworth

Released April 2004

INTRODUCTION

This paper briefly addresses some of the issues relating to the building certification system which have been the subject of recent changes to the law, including:

• the functions of building certifiers;

• the accreditation and licensing system;

• responses to failures to execute building certification functions in accordance with the law; and

• other changes imposed by the Building Legislation Amendments Regulation.

Background

A recent National Competition Policy review ("the NCPR") of the adequacy of the building certification system has resulted in amendments to the Standard Building Regulation by the Building Legislation Amendment Regulation (No 1) 2003 ("the Amendments"). The Amendments commenced on 14 November 2003.

The Amendments are stated to have the objective of ensuring the building certification system operates to the highest standard, in a competitive environment, with adequate protection of the public interest. To this end, the Amendments place a higher degree of responsibility upon building certifiers to ensure:

• the profession is comprised of individuals of suitable character, competence and expertise;

• inspections of building work are conducted at appropriate times by suitably qualified individuals;

• planning and decisions are made only after due consideration of all relevant material; and

• adequate documentation of the manner of execution of building certification functions.

A problem to be addressed

Insufficient empirical data has been gathered in Queensland to demonstrate that the building certification system (established by amendments to the Integrated Planning Act ("IPA")) in 1998 is dysfunctional.

However, submissions from the various stakeholders lead the NCPR to conclude that the level of dysfunctionality in the system was higher than indicated by the low number of reported complaints. It was perceived that the common law and legislative requirements on building certifiers to act in the public interest may occasionally defer to the commercial pressures arising from the competitive environment in which certifiers operate.

The NCPR considered there were structural inadequacies in the system which allowed unsatisfactory performance of building certification work to go underreported. These structural problems include:

• inadequate monitoring by the Government;

• lack of public awareness of the nature of building certification; and

• in the event unsatisfactory performance was reported, difficulty in assessing the certifier’s performance after the fact due to inadequate record keeping.

The Amendments are part of a common trend toward increasing accountability following initial deregulation and is exemplified in the evolution of the law of negligence.

While, there are no reported cases in Queensland which consider the responsibilities of building certifiers, the conduct of individual private certifiers is facing increasing scrutiny in circumstances of personal injury, property damage or other financial loss which may in any arise out of substandard performance of building work. Where matters end up in Court, the building certifier is usually one of a multitude of third party defendants joined to the proceedings and blame is argued in percentages between professional indemnity insurers. However, with the greater responsibility imposed by the Amendments, it is more likely that cases will arise where the building certifier is a primary defendant attacked for failing to meet the ever increasing standards required of the profession. The indirect cost will be more expensive premiums for building certifiers which will be passed onto the market place.

The success of the changes will ultimately depend on:

• the Government’s commitment to provide additional resources to overstretched agencies to enable them to fulfil the additional requirements imposed upon them; and

• the anti-competitive effects of increased insurance premiums and litigious behaviour thinning the ranks of the profession.

THE FUNCTIONS OF BUILDING CERTIFIERS

The functions of building certifiers under the Standard Building Regulation ("SBR"), Building Act ("BA") and IPA are:

• assessing and deciding development applications;

• inspecting and accepting certification for compliance of building and demolition work with the BA;

• issuing certificates of classification;

• taking enforcement action by way of issuing show cause and enforcement notices; and

• (potentially) prosecuting individuals for failure to comply with an enforcement notice.

Is there a common law duty to commence enforcement proceedings?

Given the resources required to undertake even simple court proceedings as well as the adverse costs consequences of an unsuccessful prosecution, private certifiers are concerned about the possibility that they may in some circumstances be required to commence prosecutions.

As to the potential role of building certifiers in prosecutions, notwithstanding that there is some ambiguity as to whether building certifiers may (or must) in certain situations commence prosecutions, the Department of Local Government and Planning Enforcement Guidelines Queensland Building Work Enforcement Guidelines: Achieving compliance of building work with the provisions of the Building Act 1975 and the Integrated Planning Act 1997 (25/06/02 B/467252/1) and the commentary to the IPA See commentary to s5.3.6. state that a building certifier has full power to commence a prosecution for a failure to comply with an enforcement notice issued by the building certifier.

Aside from the policy issues arising out of the Government delegating the expense and risk of public law enforcement to a private profession, there is a slight degree of ambiguity as to whether building certifiers have such a power to commence prosecutions which alone mitigate against certifiers assuming such a role.

The power to commence proceedings for a failure to comply with an Enforcement Notice (IPA 4.3.15) is reserved to an "assessing authority" (s4.3.18(3)) which following the 2000 amendment to the dictionary in schedule 10, may mean "the private certifier or the local government" for "assessable development for which a private certifier has been engaged to perform the functions of a private certifier under Chapter, 5 part 3" of the IPA. This appears to empower certifiers to undertake prosecutions.

Ambiguity as to the meaning of the legislation arises in circumstances where:

• in contrast to the explanatory note to the amendment which allowed private certifiers to issue show cause and enforcement notices Building and Integrated Planning Amendment Bill 1997 Explanatory Notes (the Bill was passed as Act13/98), the explanatory notes to the amendment which supposedly conferred the power to prosecute Local Government and Other Legislation Amendment Bill 2000 (Act4/00); See 4.3.18 makes no comment as to what would be a significant conferral of power;

• s5.3.6 specifically provides that a private certifier is an assessing authority for the purposes of Chapter 4, Part 3, Division 2 (issuing Show Cause Notice) and Division 3 (issuing Enforcement Notice and doing things required by an Enforcement Notice). This section has not been amended to specifically provide a power to commence prosecution proceedings (contained in Division 4);

• the explanatory note to amending Act No 4/00 says of the definition of "assessing authority" that "assessing authorities may, within their jurisdiction, issue enforcement notices with respect to the stated development", again omitting reference to a power to prosecute; and

• an "assessing authority" may be the local government or the private certifier, possibly indicating a legislative intent that local government perform onerous law enforcement role of prosecutions.

As a matter of statutory construction, it may be argued that the specific grant of power to issue show cause and enforcement notices impliedly limits the scope of private certifiers’ powers to issuing such notices, by omitting reference to a power to commence prosecution proceedings.

The ambiguity as to whether the profession has such power is of concern given the High Court decision in Pyrenees Shire Council v Day [1998] HCA 3, in which the Court found a local authority had breached an affirmative duty of care requiring it to exercise a statutory power which was invested to protect the community from a particular risk and the authority was aware of a specific risk to a specific individual. The principle espoused was that where the legislature invests the power for the purpose of protecting the community, it clearly intends that the power be exercised in appropriate circumstances. A failure to exercise the power may constitute negligence.

In the context of building certification, while it is unlikely that circumstances would arise in which the commencement of a prosecution is a reasonable step to take to protect a person from a known risk, there is no reason in principle (as distinct to policy), why a building certifier invested with a power to commence a prosecution to protect an identifiable individual or group from a particular risk, may not bear a duty of care to take that step if it would avoid the risk. This is the view of the DLGP. Op cit no 1 at 3.2

The building certification profession is concerned about the expense and drain on resources created by a quasi-statutory obligation to commence proceedings. Unfortunately, the Government missed the opportunity to use the Amendments to also clarify the Government’s position as to the responsibility of building certifiers to prosecute individuals for failing to comply with an enforcement notice issued in respect of work for which they were retained.

The Amendments merely provide that where there is a failure to comply with an enforcement notice, the building certifier need merely inform the local government and BSA of that fact.

Even if such a power does exist, the outsourcing of a law enforcement function to private certifiers may not serve the public interest given that:

• the role of enforcing public law is traditionally the responsibility of the Government;

• private certifiers have no competence to conduct legal proceedings, and have no access to subsidised legal or financial assistance to assist in the conduct of prosecutions;

• even a successful enforcement proceeding would be result in a private certifier incurring unrecoverable expense given the high degree of unrecoverable costs under the Magistrates Court scale;

• an unsuccessful prosecution by a private certifier would ordinarily result in the private certifier incurring his own and the other party’s costs; and

• the exercise of statutory powers, whether by government or private certifiers, should be subject to administrative review.

ACCREDITATION, LICENSING & ENDORSEMENT OF LICENCES

Accreditation

The accreditation standards body (the Australian Institution of Building Surveyors) is responsible for:

• setting the educational and experience standards necessary for each level of licensing;

• ensuring those standards comply with the national accreditation framework approved by the Australian Building Codes Board; and

• establishing an approved professional development scheme for ongoing training and education which addresses inadequacies and incompetencies of the building certifier profession.

The two tier licensing regime

The BSA is responsible for licensing accredited building surveyors as building certifiers.

There are two levels of licence:

• The normal licence, granted to persons of suitable character and qualifications, which authorises performance of standard building certification functions.

• The endorsed licence, issued by the BSA to private certifiers with appropriate competencies and insurance (as prescribed in the Amendments), authorising the assessment of development permits for building work against local planning laws.

The competencies required to be endorsed are set out very generally in the Amendments, and include an ability to ascertain what other approvals are necessary preconditions for issuing a development permit.

Penalties of up to $12,375 apply if a person performs certification functions without the appropriate licence.

RECOURSE AGAINST CERTIFIERS

Two tier statutory disciplinary system

Any person may make a written complaint to the BSA about the work or conduct of a building certifier.

The BSA, upon receipt of a written complaint, may recommend it be dealt with by mediation. If mediation is unsuitable or unsuccessful, a BSA auditor must investigate the complaint.

Following investigation, the BSA decides what type of disciplinary action should be taken.

Some aspects of the disciplinary system following the Amendments are:

• disciplinary action may be taken against past as well as present building certifiers;

• the type of disciplinary action depends upon whether the conduct is "professional misconduct" or the lesser infringement of "unsatisfactory conduct";

• the BSA is responsible for disciplining unsatisfactory conduct;

• the CCT is responsible for proceedings prosecuted by the BSA in respect of professional misconduct; and

• the CCT may make monetary compensation orders against past and present certifiers for professional misconduct.

Unsatisfactory conduct/professional misconduct

Professional misconduct is conduct:

• that would be regarded as disgraceful or dishonourable by one’s peers;

• warrants severe disciplinary action; and

• includes conduct that compromises the health or safety of a person or amenity of a person's property.

Unsatisfactory conduct is conduct which:

• shows an error of professional judgment, such as incompetent work; and

• does not warrant severe disciplinary action.

Several instances of unsatisfactory conduct considered together may amount to professional misconduct.

If the CCT is satisfied a building certifier has engaged in professional misconduct, it may:

• suspend or cancel a building certifier’s licence;

• direct a building certifier, in respect of defective or incomplete work as a result of professional misconduct, to arrange rectification or make payment for rectification of the work;

• issue fines ranging from $6,000 (for a first offence) up to $12,000 (for a third offence); and

• make any other order the CCT considers appropriate.

If the building certifier’s employer, be it a private company or a local government, should reasonably have prevented the professional misconduct, it may be subject to the CCT's orders as if it were itself guilty of the charge.

Suspension or cancellation of building certifier’s licence

The Amendments increase the BSA’s powers to regulate the profession by providing:

• the BSA may cancel or suspend or change the Building Certifier’s level of licensing, at any time (rules of procedural fairness must be observed); and

• the BSA must cancel a building certifier’s licence to act as a private certifier if the private certifier does not hold the necessary insurance.

PRIVATE COMMON LAW/STATUTORY CAUSES OF ACTION AGAINST CERTIFIERS

Aside from the disciplinary remedies available against private certifiers, loss arising as a result of a building certifier’s conduct may be recoverable pursuant to a cause of action under statute or common law.

Contract

A certifier may breach an express term of the contract to provide services using reasonable care and skill, which may be expressed in the agreement or implied by law. If the certifier is a corporation, it will be implied by s74 of the Trade Practices Act.

Recovery under contract depends upon the person suffering the loss being a party to the agreement, as well as the loss being referable to the breach of the term.

Trade Practices Act ("TPA")

Aside from implied contractual terms, a (corporate) building certifier may breach s52 of the TPA if it engages in conduct that is misleading and deceptive, for example where:

• a certifier represents itself as possessing a level of competency or licence beyond that actually possessed, which is relied upon by another to their detriment;

• a building certifier acting in conflict of interest; or

• where a building certifier certifies work as compliant in circumstances where it is not and the representation is relied upon by another to their detriment.

Negligence

Quite independently of the express or implied contractual duties, building certifiers have a tortious duty of care to exercise reasonable care and skill in the performance of the building certification functions. Voli v Inglewood Shire Council (1962-63) 110 CLR 74 This duty is all but legislatively confirmed and amplified by the duty imposed on private certifiers to act in the public interest. IPA, s5.3.8

This duty of care may be breached where personal injury or economic loss is suffered as a result of breach of contract or the legislation, including where:

• the certifier issues a development permit before all necessary approvals are obtained;

• the certifier carelessly certifies work as compliant when it is not;

• the certifier issues a certificate of classification of a building or structure that does not meet the requirements of the Building Code; or

• fails to notify the local government or BSA or possibly to take enforcement action.

Negligent certification: the significance of deemed-to-satisfy provisions of the BCA

The deemed to satisfy provisions under the BCA were discussed in Toomey v Scolaro's Concrete Construction and others Toomey v Scolaro’s Concrete Construction and ors (No 2) [2001] VSC 279 ("Toomey"). In that case a building certifier was held negligent for personal injuries suffered by a man who fell over a balustrade railing. The certifier negligently certified the balustrade railing as compliant when it did not meet the BCA90 requirement that it restrict accidental falls. The railing was 933 mm high, whereas the deemed-to-satisfy provisions of the BCA90 provided that the railing would be deemed to satisfy the requirements of the BCA if it was 1,000 mm high.

As to the significance of the deemed-to-satisfy provision of the BCA, the Court held that:

• while compliance with the BCA is not determinative of discharge of the private certifier’s duty of care, it would be highly relevant evidence to the issue of discharge of duty of care given that the BCA represents the collective expert opinion of a panel of industry professionals;

• a balustrade railing of less than 1,000 mm in height (even without approval or dispensation of the relevant appeals board) may still comply with the code if it restricts accidental falls;

• a railing 933.5 mm high did no less to restrict accidental falls than the thousands of rails of 900 mm in height which were built under previous regulations and which the BCA did not require to be replaced;

• once it was found the balustrade did not meet the deemed to satisfy requirements of the BCA, the question of compliance with the performance requirements of the BCA became a question of fact to be determined on the balance of probabilities;

• while a hypothetical balustrade rail of 990 mm might satisfy the BCA requirement to restrict accidental falls, the only way to place beyond argument that compliance had been achieved would be by satisfying the deemed to satisfy provision which stipulates compliance at 1,000 mm; and

• the balustrade did not satisfy the BCA requirement to restrict accidental falls.

Checking plans

In Toomey, the certifier was required under his contract of retainer to check the architect’s plans to ensure they were compliant with the requirements of the BCA90. The architect’s plans were negligently drawn and contained an ambiguity which the building certifier negligently failed to identify and have corrected. The Court said of this function that a building surveyor "charged with statutory and contractual responsibility for examining plans for compliance, and being well paid to do so, is being called on to apply expertise which condescends to examine the minutiae of plans, so as to detect error, ambiguity which might reasonably produce error by those who will subsequently rely on those plans."

It was held that:

• the certifier was responsible for checking the architect’s plans in minute detail for errors and ambiguities and failed to do so;

• there was an ambiguity in the drawing which was such that, had it been noticed, queries should have been made and the plan should not have been approved; and

• it was irrelevant to the issue of liability that such dire consequences arose from a seemingly minute detail.

Damage other than personal injury: liability to a subsequent owner for pure economic loss

Given the nature of building certifiers’ functions, as well as the duty to act in the public interest, certifiers can be sued for personal injury to any member of the public arising out of negligent performance of their duties.

Further, it seems clear that there is sufficient closeness or proximity in the relationship between a private certifier and the owner of the building or structure in respect of which building certification functions are performed, to allow the certifier to be sued in negligence for any economic loss sustained.

The situation is less clear as regards economic loss suffered by subsequent purchasers of buildings.

In particular, whether a building certifier may be sued for pure economic loss suffered by a subsequent owner of a building in respect of which the certifier performed functions depends on whether the premises are a residential or commercial premises.

For pure economic loss to be recoverable by subsequent owners, they must establish a special relationship with the certifier to give rise to a duty of care on the certifier to avoid such loss.

It appears that sufficient proximity exists in cases where an unsophisticated subsequent purchaser of residential premises suffers diminution in value of the premises caused by the negligence of the designer. Bryan v Maloney (1994-1995) 182 CLR 609 In principle, a building certifier could bear a very similar duty of care as a designer and may be liable for such loss.

However, the Courts have quarantined the ability of subsequent purchasers to recover pure economic loss to specific circumstances. The Queensland Court of Appeal has held that a designer of a commercial building had no duty of care to a avoid the risk to a subsequent purchaser of pure economic loss caused by dangerous defects arising from negligent design, even where there was a partial collapse of the building. Fangrove Pty Ltd v Tod Group Holdings Pty Ltd (1999) 2 Qd R 236

The Court of Appeal expressed the following views:

• The special treatment afforded to subsequent owners of residential dwellings by the High Court was founded in complex policy considerations such as the likelihood that subsequent purchasers of residential dwellings are likely to be less skilled in building matters and property investment than subsequent purchasers of commercial premises.

• The fact that subsisting defects were likely to lead to injury or damage to other property was not a sufficient reason to expand the duty of care.

• Any further extension [of the categories of recoverable loss] should lie within the province of the High Court.

While the Court’s logic has merit in preventing the consequences of opening the floodgate on claims against designers and related professionals, it seems not to properly accommodate circumstances where:

• a commercial premises is purchased by someone who lacks commercial or building savvy;

• a domestic purchaser has significant building and commercial savvy; or

• the building has a mixed commercial and residential use.

It is understandable that the Court viewed the matter as best left to the High Court to resolve. See also Proprietors Units Plan No 95/98 v Jiniess Pty Ltd [2000] NTSC 89

BUILDING LEGISLATION AMENDMENT REGULATION (NO 1) 2003

The Amendments amend the Integrated Planning Regulation, the SBR and the State Penalties Enforcement Regulation. Several of the significant changes have been discussed in the foregoing text.

The amendments to the Standard Building Regulation also affect significant changes to the obligations of private certifiers to ensure that individual certifiers are ultimately accountable against more prescriptive criteria for the building certification work performed.

The stated objective of the Amendments are to implement the NCPR to ensure the Building Certification System operates to the highest possible standard and that public interest is properly protected through:

• greater scrutiny in the licensing of Building Certifiers to ensure the profession possesses minimum competencies and behaves according to an enforceable code of conduct;

• increasing the requirement upon building certifiers to fully document each decision made, including reasons and setting out the material considered;

• introducing more rigorous inspection procedures and constraints on use of "competent persons" for inspections;

• on the spot fines for various infringements; and

• implementing a legislative framework which will enable the adoption of the Queensland Development Code ("QDC") once it is completed by the Government.

Documentation requirements

Building certifiers are now required to create and retain significant amounts of additional documentation in respect of the performance of building certification functions which:

• will enable the assessment of the performance of functions and decision making processes;

• facilitate the conduct of disciplinary (and other legal) proceedings; and

• must be retained for a period of at least 5 years.

The explanatory memorandum to the Amendments states "Building Certifiers should be able to demonstrate that they have acted in the public interest when forming an opinion or making a decision".

The Amendments create the same administrative onus on certifiers as the amendments to the Workplace Health & Safety Act have placed upon employers. As such, whenever something goes awry and the manner in which certification functions have been performed is questioned, it will be a matter for the certifier to prove that all obligations were met.

Inspection requirements: competent persons

It is common for a building certifier to have a competent third party perform inspections on their behalf. Prior to the Amendments, the certificate of a competent person could be relied upon in good faith without checking. This afforded a degree of protection in the event the inspection certificate was found to be incorrect.

However, the extent to which a certificate may be relied upon in good faith, without checking, was severely compromised by the decision in Toomey’s case. In Toomey, the building certifier sought to use the Victorian equivalent of s86 of the SBR (as it was prior to the Amendments) as a form of statutory immunity from an action in negligence.

While the certifier had incorrectly certified the railing as compliant in reliance upon a certificate provided by an independent contractor retained to perform inspections, the certifier argued he had relied upon the erroneous inspection certificate in good faith and hence was immune from liability. However, the Court found that the good faith requirement was not satisfied in circumstances where the certifier had failed to adequately supervise the inspector in the performance of the inspections.

Perhaps in response to the Toomey case, the Amendments to the definition of "competent person" now require the competence of the "competent person" to be assessed against specific (and less subjective) criteria, which may be prescribed (eg in relation to fire engineering).

Further, the inspection of the final stage of work may be made by a "competent person" other than the building certifier only if the person is also a building certifier licensed to perform building certifying functions for the work.

Where work is inspected and is noncompliant and the builder does not make the work compliant, the building certifier must take enforcement action by issuing a show cause and, if necessary, enforcement notice to the builder.

The Building Certifier is required to keep a documentary record of all information relied upon in assessing the competence of the person providing the certificate, including a statement of reasons for considering the person providing the certificate to be competent (to be kept at least 5 years). This will enable the decision to use a "competent person" to be vetted.

Increased consultation

Wherever:

• a decision is made in the course of performing building certification functions;

• an inspection occurs;

• a certificate is issued;

• a builder fails to comply with the requirements of the Amendments to provide notices of inspection at the times set out in the Amendments;

• an enforcement notice is issued; or

• an enforcement notice is not complied with,

• the certifier must notify, or provide a copy of specific documentation, to the local government and/or the BSA, and in some instances to the owner.

This level of consultation will enable the Government to take action more promptly in respect of breaches of the SBR and also to better monitor the performance of building certifiers.

Where ever local governments have been placed on notice by a certifier as to any inadequacy posing a risk to health and safety, it will be incumbent upon them to exercise their powers in appropriate circumstances.

CONCLUSION

The Amendments:

• increase the level of regulation and accountability of the building certification profession;

• are designed to be proactive by prescribing requirements in respect to the manner in which building certification functions are executed;

• are designed to be reactive by facilitating disciplinary and other proceedings in respect of failures to perform building certification functions in accordance with the legislation and the common law; and

• are designed to further facilitate the enlargement of the role of the building certification system, by increasing the powers and responsibilities of the professional and the regulator.