Victorian Civil and Administrative Tribunal|2012-05-24|Before: Ms J, Mr P

The Application against the First Respondent is dismissed.
Order the Second Respondent, Metro Building Surveying Services Pty Ltd, to pay to the Applicants $4,999.50.

The First and Second Applicants and the Third and Fourth Applicants are the owners of adjoining units in Northcote ("the Units"). The Units were constructed by Civil Image Pty Ltd ("the Builder"), a company which has since been deregistered. The Applicants bought their respective Units from a company associated with the Builder, Civil Image Holdings Pty Ltd ("the Developer") which is also deregistered.
The directors of both of these companies were the First Respondent Mr Motalli and a Mr Angelo Koutkos who is now deceased.
The building surveyor for the construction was the Second Respondent, Metro Building Surveying Services Pty Ltd ("the Building Surveyor") and on 13 December 2001 it issued an Occupancy Permit for both units. Those permits were relied upon by the Applicants when they purchased their respective Units.

There is a fundamental defect in each Unit ("the Defect"). The study in each case is roofed with corrugated iron having a pitch of less than 1o. According to the documentary evidence, a corrugated iron roof has to have a minimum fall of 5 o to ensure adequate water run-off. That was not disputed during the hearing.
Water penetration was noted in both properties in November 2003. In the Unit owned by the First and Second Applicants the carpet became damp and musty, water appeared to be running down the wall on the south side of the Unit and pooling on the floor under the carpet. In the Third and Fourth Applicant's Unit water started running down the light fitting and pooling in the light fixture in the front study. The light was dismantled and dried out a number of times and this continued into 2004.
In early February 2005 there was a storm and there was extensive water penetration to both Units. An electrician's bill dated 4 February 2005 identifies water damage to a smoke detector due to a leaking roof.

On 14 February 2005 leaking was observed at the front of the Unit owned by the Third and Fourth Applicants. They submitted a claim to the domestic building insurer, Australian International Insurance Ltd ("the Insurer").A similar claim was made by the First and Second Applicants.
According to their claim form the First and Second Applicants first became aware of the problem in the front room on 3 February 2005 but the dampness and mustiness in the carpet was apparent to them in November 2003. I assume from this that the cause of it was not apparent to them at that time.
The Units were inspected by the Insurer's agent, Building Assist, on 20 April 2005. The inspector found that the pitch of the study roof in each case was only 0.38 o approximately and identified that to be a defect. He also noted that the Builder had fitted a ridge capping at the lower end of the study roof limiting the flow of water off the roof. He said that it would be necessary to rectify the source of water ingress to the ceiling and ensure that the roof plumbing complied with the Building Code of Australia. He recommended that the item be accepted by the Insurer.
The Insurer by its agent Building Assist informed the Applicants that their claims were accepted as noted in the inspector's report and that they had directed the Builder to rectify the work.
Following the acceptance by the Insurer of the claims Mr Koutkos asked the Applicants to obtain a quote for rectification work. The Applicants obtained quotes from three plumbers and sent them to the Builder. A cheque for the lowest of these quotes was then sent by the Builder to the Applicants and they instructed the plumber to carry out the work.
After the plumber finished the work he stated in a letter that he had done the flashing work that he had quoted for and only time would tell if it were a success. He did not rectify the Defect, that is, the insufficient fall which was the problem the inspector had identified and the plumber's letter contains criticism of the initial installation. According to the Applicants' evidence he refused to provide a compliance certificate because he had not rectified the Defect.
The direction given by the Insurer to the Builder in this case was presumably intended to satisfy its obligations pursuant to Clause 2.1 of the policy which required it to indemnify the Applicants. By Clause 3.2.3 of the policy the Applicants were required to permit a builder nominated or approved by the Insurer or the Insurer's agent to have access to the domestic building work subject to a right to refuse access on reasonable grounds. By Clause 3.2.4 of the policy the Applicants were required to comply with reasonable directions of the Insurer in regard to completion of all rectification of the domestic building work. As a consequence they had to accept the Insurer's decision to provide indemnity in this way.
Having accepted the claim the Insurer was required to provide indemnity. If the Builder returns under this policy at the direction of the Insurer to rectify deficiencies in the work, then it does so on behalf of the Insurer not on behalf of the Applicants. If whatever the Builder does fails to provide indemnity to the owners for the defective work then the Insurer has not provided indemnity under the policy.

The work done did not rectify the Defect, which was the problem identified by the Insurer's inspector, in that nothing was done about the inadequate fall on either roof. Further leaking occurred.
Following the further report the owners contacted the Insurer again seeking indemnity under the claims that had been accepted.
By letter dated 31 May 2006 the Insurer purported to reject the claim. This is curious because the claim had already been accepted and the same claim number is referred to throughout the correspondence. The ground for the rejection was an allegation that Section 3 of the policy wording stated:

3.1 The indemnities referred to and contained in Section 2.1, shall only apply if the builder dies, becomes insolvent or disappears".

The policy issued to each of the Applicants does not contain this condition. Section 3.1 of each of their policies is in entirely different terms.
The purported rejection of the claims after the Insurer had already accepted liability and directed the Builder to rectify is therefore not sustainable on the single ground advanced. In any event, the claim had already been accepted and the acceptance had been acted upon by the Insurer electing to provide indemnity by directing the Builder to rectify the defective work.
The roof continued to leak and the Applicants pursued the claim again with the Insurer. The correspondence was with Wesfarmers General Insurance Limited. How that change occurred does not appear from the evidence.
On 8 November 2010 the Third Applicant sent an email to a Mr Martin of that company asking that the problem with the roof be rectified. Mr Martin responded on 9 November 2010 in an email in which he purports to recite the history of the matter and then continues:

"On 31.05.2006 a letter was sent to you reversing the acceptance of the claim and the claim was formally declined".

Since the builder returned and organised rectification of the defect using a scope of works which was not disputed by you at the time of the claim - and, that according to our file notes you agreed that the matter was between yourself and the builder, the claim was then formally declined following these events - I would now consider it to be extremely unlikely that since the policy has now expired that your claim can be re-opened and re-investigated".

The Applicants were not seeking to re-open their claims. They were seeking the indemnity that the Insurer should have already given them. If the Insurer elects to provide indemnity by directing the Builder to return and rectify, indemnity is not provided and the Insurer's obligation to indemnify are not discharged until the rectification takes place. It is also not for the Insurer to require a lay person to decide what needs to be done. It is for the Insurer to provide indemnity. If it pays money to the owner to satisfy a claim then it is for the owner to decide how to spend it. However if the Insurer elects to provide indemnity by directing the Builder to return and rectify, it is for the Insurer to ensure that rectification occurs, not the Applicants.
The Third and Fourth Applicants requested the Insurer, which was then apparently represented by Lumley Insurance, to review this decision and, by letter dated 10 November 2010 the Third and Fourth Applicants were informed by that company:

"We have read the Building Assist report where comments were made regarding the pitch of your roof; however they did not attribute the water ingress to this therefore under the policy there was no loss.

They did identify other defects in the scope of works was produced, and accepted by you and Jason Keogh Plumbing completed the works asserted by the successor.

Your policy coverage has expired and it is over 5 years since the repairs and this is the First notification you have given Lumley of any concerns regarding your homes.

After consideration of the above facts we are unable to accept any further liability in this matter."

There does not seem to be any doubt on the material that the primary cause of the leaking study roof was the Defect and it is impossible to understand how the author of the letter could say that there was no loss under the policy. Further, although the period of the policy had expired by then, it was in force when the claims were made and those claims were accepted.
The Applicants are now in a situation where the Insurer, after accepting the claim and purporting to give indemnity by directing the Builder to rectify the Defect, has now purported to deny any liability after the Builder failed to do so.
For the above reasons it seems to me that the conduct of the Insurer cannot be justified. However the Insurer is not a party to this proceeding and these conclusions are based solely on the evidence presented by the Applicants. I can make no finding or determination affecting the Insurer without hearing argument and any further evidence that it might wish to submit in any subsequent proceeding that the Applicants might choose to bring against it. Having expressed these views it would be undesirable for me to hear any such proceeding.

Since Mr Motalli was not the Builder there is no cause of action against him and so the claim against him must be dismissed. According to his evidence, although he was a director of the Builder he was not the registered builder who had charge of this construction. That was Mr Koutkos, who is now deceased.
In any event, a director of a building company owes duties to the company of which he is a director not, generally, to the persons with whom the company contracts (see Korfiatis v Tremaine Developments Pty Ltd [2008] VCAT 403 and the cases there cited). The claim against Mr Motalli is therefore dismissed.

Mr Flanagan submitted first, that the Occupancy Permit was not a certificate that the Unit was free from defects but simply that it was suitable for occupation. I accept that submission, although if a unit has a roof that is so constructed that it will leak it is questionable whether it is suitable for occupation. A building surveyor does not and cannot guarantee to anyone that a building is free from defects and he is not required to do so. However he does have duties to perform and his performance of those duties are considered below.
Mr Flanagan said that there was no evidence as to the maintenance of the roofs. There is sufficient evidence of the existence of the Defect and the causative nature of it and no evidence of any lack of maintenance.
Mr Flanagan said that the existence of the Defect became apparent more than six years before the commencement of the proceeding and so the claim was statute barred, pursuant to s.5(1)(a) of the Limitation of Actions Act 1958. That subsection reads as follows:

(1). The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued-

(a) Subject to subsections (1AAA), (1AA) and (1A), actions founded on simple contract (including contract implied in law) or actions founded on tort including actions for damages for breach of a statutory duty;"

Notwithstanding that provision, in the case of a "building action" within the meaning of s.134 of the Building Act 1993, a ten year limitation period is prescribed. That section provides as follows:

"134. Limitation on time when building action may be brought

Despite any thing to the contrary in the Limitation of Actions Act 1958 or in any other Act or law, a building action cannot be brought more than 10 years after the date of issue of the occupancy permit in respect of the building work (whether or not the occupancy permit is subsequently cancelled or varied) or, if an occupancy permit is not issued, the date of issue under Part 4 of the certificate of final inspection of the building work."

There has been some controversy as to whether s.134 of the Building Act replaces s.5 of the Limitation of Actions Act altogether in the case of a building action ("the replacement view") or whether it merely supplements it, so that, even if the six year period under s.5 has not expired, a building action will nonetheless be statute barred if the period in s.134 has expired ("the long stop view). The replacement view has been adopted in earlier decisions of this tribunal (see Hardiman v. Gory [2008] VCAT 267; Trieu v. Kok Khim Lim Pty Ltd [2004] VCAT 2538). As was pointed out in Hardiman, the Second Reading speech makes it clear that the replacement view was intended by the Minister.
I think the replacement view should be preferred. The opening words of s.134 show a clear intention to override s.5 of the earlier Act. Not only the limitation period but also the trigger point for the commencement of the period are quite different. I think that Parliament's intention is clear; that there is to be a special limitation regime in the case of a "building action", despite anything to the contrary in the Limitation of Actions Act.
The term "building action" is defined in s.129 of the Building Act as meaning:

"...an action (including a counterclaim) for damages for loss or damage arising out of or concerning defective building work."

This is such an action. The defence taken under the Limitation of Actions Act therefore fails because that section is not applicable in this case.

The Occupancy Permit for each unit was issued on 13 December 2001. Any proceeding against the Building Surveyor therefore had to be commenced before the expiration of ten years from that date. The present application was filed with the Principal Registrar and the fee was paid on 9 August 2011. It is therefore within time.

Mr Flanagan said that construction of the two Units was a commercial development of a speculative nature by the Developer and that no duty of care was owed by the Building Surveyor to the Applicants. In that regard, he referred to the High Court decision in Woolcock Street Investment Pty Ltd v C.D.G. Pty Ltd and Anor [2004] HCA 16; (2004) 205 ALR 522.
The duty of a building surveyor is not as limited as Mr Flanagan's submission suggested. In determining whether and to what extent a duty is owed by a building surveyor to subsequent owner of a building in a particular case, regard should be had to the legislative framework and what the courts have said about it.

In Moorabool Shire Council & Anor v. Taitapanui & ors [2006] VSCA 30, the Court of Appeal said of the granting of a building permit under the Building Act:

"A permit, when granted under the hand of the surveyor, is a written certification which both authorizes building work and declares that the building work as described in the application will comply with the Act and the Regulations."

Mr Flanagan said that the Building Surveyor was entitled to rely upon the design of the roof. The plans were not tendered but, in any case, if the design was not in accordance with the Building Code of Australia, the Building Surveyor should not have issued the Building Permit. Regulation 302 of the Building Regulations 2006 requires the permit applicant to provide copies of the plans to a building surveyor with the permit application and it is for the building surveyor to determine whether the work as described in those plans will comply with the Act and the Regulations.

In the case of The Council of the Shire of Sutherland v Heyman [1985] HCA 41; [1985] 157 CLR 424, the High Court had to consider the liability of a Council and its officers for negligent inspection. Gibbs CJ said that the powers of inspection conferred upon the council:

"...were intended to ensure that buildings are properly constructed in the interests of health and safety and, I should think, also in the interest of achieving or maintaining a standard of building appropriate to the municipality or area of the municipality concerned."

Private building surveyors are registered pursuant to Part 11 of the Building Act 1993. In introducing the amendments to that Act allowing for private building surveyors, the Minister said in the Second reading speech:

"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."

Regulation 1502 of the Building Regulations 2006 provides:

"A registered building practitioner must perform his or her work in a competent manner and to a professional standard."

The Court of Appeal in Taitapanui also pointed out that an Occupancy Permit under the Act

"...is evidence that the building is suitable for occupation. It is not evidence that the building to which it applies complies with the ACT or the regulations. The same is the situation if a certificate of final inspection is issued, which happens where an occupancy permit is not required."

39. The court nonetheless held that a person seeing an occupancy permit would be reassured that the building surveyor had been satisfied at least that the building work authorised by the building permit was work which would comply with the ACT and the regulations, that the surveyor had at least conducted the mandatory inspections. In paragraph 148 of the joint judgment of Ormiston and Ashley JJA, their Honours set out a number of factors favouring the erection of a duty of care to the subsequent owners. When one reads these they would generally be found to apply to most situations encountered in these cases.

In refusing leave to appeal from the Court of Appeal decision, the High Court (Hayne J) noted that:

"In important respects the decision of the Court of Appeal turns on the particular nature of the obligations owed under applicable Victorian statutes by a building surveyor who issued certain permits required by that legislation in connection with the construction and occupation of a new dwelling for the predecessors in title of the plaintiffs, certificates which it was necessary for the plaintiff's predecessor in title to produce upon sale of the land to the plaintiffs........An appeal in the present matter would enjoy insufficient prospects of success to warrant a grant of special leave.". (Moorabool Shire Council & Anor v. Taitapanui & ors [2006] HCA Trans 328 - 16 June 2006)

41. Accordingly, a building surveyor will generally owe a duty of care to the owner and to subsequent owners in the issue of the building permit, the occupancy permit and for the required inspections.

In the present case the Applicants relied upon the existence of the Occupancy Permits in purchasing their respective Units. They said that in each case it was a significant document in the decision to purchase. Such reliance should have been anticipated by the Building Surveyor. Before issuing the Occupancy Permits the Building Surveyor should have conducted an inspection of the completed Units in a competent manner and to a professional standard. I find that if it had done so it would have been apparent to its inspector that the roof lacked the required fall. This was not a concealed defect. It was visible to anyone who cared to look at the roofs. The Building Surveyor therefore breached the duty of care that it owed to the Applicants.
Had this breach not occurred, the Builder would not have been able to obtain an Occupancy Permit without first rectifying the Defect and the Developer would not have been able to sell the Units to the Applicants with the Defect. What would have happened if there had been no breach of duty is to some degree hypothetical. However, I think that it is more likely than not that, if the breach of duty had not occurred, the Applicants would have purchased the Units without the Defect or they would have purchased equivalent units without an equivalent defect. The measure of damages in those circumstances is therefore the cost of rectifying the Defect and any consequential damage.
The Applicants have obtained a quotation of $9,749.00 to re-construct the roofs with the correct fall. In addition, there was an insurance excess of $250.00 paid on the cost of repair for the damage to the interior of the Units. The balance of that loss was borne by an insurance company and is not sought in this proceeding. The total of these two figures, $9,999.00, is what is sought as damages by the Applicants in their application and I find that sum proven.

Mr Flanagan said that the Building Surveyor was not wholly at fault and sought to limit its liability pursuant to s. 24AI of the Wrongs Act 1958. That section provides as follows:

"24AI. Proportionate liability for apportionable claims

(1) In any proceeding involving an apportionable claim-

(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant's responsibility for the loss or damage; and

(b) judgment must not be given against the defendant for more than that amount in relation to that claim.

...............................................................................................

(3) In apportioning responsibility between defendants in the proceeding the court must not have regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or, if the person is a corporation, the corporation has been wound-up."

By ss.24AE and 24 AF of the Wrongs Act an "apportionable claim" is: defined (where relevant) as:

"(a) a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care;"

By ss.24AH a "concurrent wrongdoer" is defined in the following terms:

"(1) A concurrent wrongdoer, in relation to a claim, is a person who is one of two or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.

(2) For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died."

The purpose of this scheme is to avoid one or more of several joint and several tortfeasors having to bear the whole loss when they were only partly responsible. That was considered to be unfair. Under this legislation, provided all those responsible and still in existence are parties to the proceeding, responsibility can be fairly divided between them according to their respective degrees of fault. Just how that is to be done is not explained in the legislation, save that it is to be that proportion that the court considers just. The term "court" includes this Tribunal (s.24AE).
Both the Builder and the Building Surveyor failed to take reasonable care. It seems to me to be unfair that the Building Surveyor should bear the whole loss where its negligence was the failure to detect the carelessness of the Builder and cause it to be corrected.

Mr Flanagan said that the Building Surveyor's share of any blame was minimal. He blamed the designer who, he says, is now deceased, but there is no evidence that the design was defective. If it was, it may be that the Building Surveyor should not have issued the permit. Mr Flanagan said that the roofs were constructed by a roofing contractor but I have no evidence of who that was and he is not a party to the proceeding.
The only relevant concurrent wrongdoer apart from the Building Surveyor is the Builder. The Builder is not a party to this proceeding but since it is now dissolved it need not be for its liability to be taken into account (s.24AI(3)).
In regard to both the Builder or the Building Surveyor, they are both causative of the same loss in that, had they not been negligent the loss would not have occurred. There nothing in the evidence to show that one is more blameworthy than the other and so I think that it is just that the burden of the damages should be apportioned equally between them.
The liability of the Building Surveyor is therefore reduced by half because the Builder should bear the other half. Of course, that is no comfort to the Applicants because the Builder is now dissolved and so they will be able to recover nothing from it. However that is the effect of the legislation. The Building Surveyor, being only one of the concurrent wrongdoers whose negligence has contributed to the loss, is entitled to the benefit of the limitation.
There will be an order that the Building Surveyor pay to the Applicants $4,999.50.

Building Regulations 2006

Jacobi & Ors v Motalli & Anor (Domestic Building) [2012] VCAT 659 (24 May 2012)

Jacobi & Ors v Motalli & Anor

At a glance

Court

Decision date

Before

Source

Judgment (57 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (2)

Jacobi & Ors v Motalli & Anor (Domestic Building) [2012] VCAT 659 (24 May 2012)