Ms C Phillips, property manager GR McCartney & Sons;

Mr T Evans, structural engineer of PJ Yttrup & Assoc. Pty Ltd;

Mr R Hamill, building surveyor of Ray Hamill Pty Ltd;

Mr P Setford, building consultant of Coghlan Lorich Assoc. Pty Ltd;

Ms L Lea, valuer of Land Link Property Group Pty Ltd;

Mr Aghion of Counsel, instructed by Richmond Bennison, and he called as a witness:

Mr J Browning, building consultant of Accuform Pty Ltd.

1. The first respondent will pay the applicants the sum of $99,250.00 on the claim.

2. The second and third respondents will pay the applicants the sum of $96,596.00 on the claim.

3. A directions hearing is set down at 9.30 am on 28 April 2003, when the parties should address me as to when the sums awarded should be paid and any other submissions the parties wish to make.

1.1. This proceeding was brought by subsequent owners, Mr J and Ms L Taitapanui ("the owners"), of the dwelling at No. 6 The Mews, Torquay, against the domestic building insurer, HIA Insurances Services Pty Ltd t/as Home Owners Warranty ("the insurer"), as the first respondent and against the Moorabool Shire Council and Mr W Mellis ("the private building surveyor") as the second and third respondents respectively; the owners seek damages for defective building work to the dwelling on the property. The Shire of Moorabool acknowledges that if Mr Mellis is found liable it is responsible for that liability; accordingly, the Shire and Mr Mellis are treated as a single respondent as to any findings in this decision. The insurer indemnifies the performance of the builders' obligations to the owners as successors in title to the owners named in the Certificate of Insurance, issued on 13 July 1998.

1.2. I note from the Tribunal's file in this proceeding that an order was made by His Honour Mr Justice Nettle on 11 October 2002 joining Watson Constructions Pty Ltd as a respondent to this proceeding pursuant to s. 60 of the Victorian Civil and Administrative Tribunal Act 1998. According to the information provided to me at the hearing, Watson Constructions Pty Ltd is in liquidation. None of the parties addressed me specifically in relation to Watson Constructions. I consider it is unnecessary to separately and specifically consider Watson Constructions position because the insurer under the insurance policy, will be liable to the owners under s. 131 of the Building Act for any assessed liability to Watson Constructions.

1.3. The precise identity of the builder of the dwelling was not clear. The registered domestic building practitioner was Mr Steven Watson, who also controlled and, I infer, was owner of Watson Constructions Pty Ltd. Mr Watson did not appear at the hearing and no party was precise as to his whereabouts or his current financial status. Likewise, Mr Mellis did not appear at the hearing. As a result, the reasons for many of the procedures involving the issue of the required building certificates, the form of the building and the existence of defects could not be addressed with any certainty. However, in the light of the evidence that was adduced, I do not consider that their evidence would do more than confirm a sorry state of affairs.

1.4. As I have touched upon, the carrying out of the domestic building works in question and the documentation that accompanied it is acknowledged by all parties to be in error. The factual circumstances of this case raise a number of complex legal issues.

1.5. In my decision I propose to first to set out the issues between the parties and then to address the factual context relevant to those issues. Given the paucity of the precise facts as to the administration and carrying out of the building work there are, if any, few factual disputes. I will identify these in the issues and I will then address the factual situation together with the applicable principles of law to reach a decision in relation to the issues.

2.1. The owners, as successors in title to Kathleen and Joseph Pozman, seek damages against the insurer on the basis of the Certificate of Insurance dated 13 July 1998, for the defective work of the builder. Under a letter from the insurer's solicitor, Richmond and Bennison, to the solicitors for the owners of 21 December 2001, the insurer accepts liability in respect of the owner's claim. The letter also contained an open offer of $56,100.00. The only issue between these parties is the scope of the claim and the quantum of damage. In regard to the scope of the claim, the insurer submits that it is not liable for the garage works as there was no reference to the garage in the building permit on the endorsed plans.

2.2. In relation to quantum of damage, the insurer maintains that the external cladding can be changed to a fibre reinforced cement plank, "Hardieplank" or similar, leaving the footing system as it is; and, thereby, not having to demolish and rebuild the premises. Further, the insurer claims that rebuilding is not necessary as the current dwelling does not comply with the restrictive covenant. The garage works and the appropriate rectification works are issues that I will deal with below.

2.3. The claim against the private building surveyor is put on a number of the bases; first, breach of statutory duty, the statutory duty alleged being the functions of a private building surveyor under the Act. Secondly, breach of a common law duty of care in negligence, the owners alleging that the private building surveyor was negligent in carrying out his statutory functions under the building legislation. Finally, the owners claim against the private building surveyor on the basis of a breach of the statutory warranties in the Domestic Building Contracts Act, alleging an agreement between the owner, the specific owner was not identified, and the private building surveyor on the basis that the builder, the builder was not specifically identified, was acting as agent for the owner. This claim was withdrawn during the owner's final submissions.

2.4. The private building surveyor denied that there was any breach of a statutory duty or that he owed a common law duty of care in carrying out his statutory functions to the current owners. Following the view and the discussions that took place during the view, the private building surveyor did not call any evidence. The private building surveyor did not dispute the quantum, other than to submit that on the papers it was clear that the scope of works under the building permit, for which he could be liable, did not include the garage.

2.5. Arising out of these claims and responses I see the following issues arising for my decision;

(a) what is the effect of the building documentation;

(c) is there any common law duty of care in the tort of negligence, the private building surveyor acknowledging that if there is a duty, there has been a significant breach;

(d) what is the appropriate method of rectification, either rectification of specific defects or demolition and rebuilding;

(f) how should any quantum be apportioned between the respondents?

2.6. In relation to the evidence, there were no real disputes of fact and I accept the evidence as given by the witnesses for the owners and the witness for the insurers. Where there are disputes in relation to quantum between the building experts, I will assess that evidence during my assessment of the quantum.

3.1. The subject property is on the Victoria's southern surf coast near Jan Juc and in the municipality of the Surf Coast Shire. The land slopes north-west to south-east with a slope of approximately 1 in 20. There is a substantial uphill catchment with an open area above the subject property resulting in substantial overland flow that will come down the hill on the subject property and though the house site. A soil report was prepared by Provincial Soil Services Pty Ltd who identified the soils as clays resulting from tertiary sediments. The soil was classified, under AS2870-1996: Residential Slabs and Footings, as Class H with respect to likely surface movement due to soil moisture changes. Class H means that the soil is highly susceptible to changes in volume, thereby generating relatively large surface movements with changes in soil moisture regime.

3.2. During the preparation for this hearing there had been some disagreement between the parties as to what was the appropriate soil class; by the time of the hearing all the parties had agreed that it should be Class H. This led to some difficulty with Mr Browning's report where he had assumed Class M as the appropriate soil class in preparing his proposal for rectification works and its costing. I will deal with this when the decision addresses the issue of damages.

3.3. The property was created in 1995 as Lot 9 on Plan of Subdivision 343212V. The plan of subdivision was subject to a restrictive covenant for the benefit of the lots in the plan of subdivision, the owners covenanted that they would not, to paraphrase:

(a) construct more than one dwelling house per lot;

(b) construct any dwelling house unless at least 75% of the external walls thereof (excluding windows and doors) were built of brick, brick veneer (which shall include bagged or painted brick and cement rendered brick finish), conite, or masonry or,...;

(c) construct any multi-level building unless the external walls thereof commence at ground level and conform with the above covenants.

3.4. The house constructed by the builder was a two-storey house. The footings were stump and pad footing system. The external walls were clad in CSR "Powerpanel", which according to the manufacturers literature is 75mm thick reinforced panel manufactured from CSR 'Hebel' autoclaved aerated concrete. The Powerpanels were a veneer over a wooden frame with plasterboard internal lining. The external walls on a majority of the first floor are timber and blue board which was painted. It is agreed between all the parties that there are substantial defects in the property and these will be addressed below. At the time of the construction of the dwelling Mr and Mrs Watson were the owners of the property.

3.5. The application for and approval of the required building certificates under the building legislation are confused and incorrect. To understand their shortcomings I consider it is best at this stage to look at the requirements of the building legislation with respect to domestic building. The statutory control for building control, including domestic building, in Victoria is via the Building Act 1993 ("the Act") and the Building Regulations 1994 ("the regulations"). Matters specific to domestic building contracts are set out in the Domestic Building Contracts Act. The functions of a private building surveyor are set out in the Act and regulations. The statutory structure for building control under the Act and regulations play an important part in this decision, I will set them out at this juncture so that later the performance of the private building surveyor can be assessed against his functions within the statutory structure.

3.6. The Act was introduced in 1993, following a major review of the prior legislation, the Building Control Act, and the structure introduced by the Act was aimed to free up the regulatory process and produce legislation that would be compatible with the current and future requirements of the construction industry; these aims are set out in the Second Reading Speech of the Minister for Planning in the Assembly on 11 November 1993. The purpose of the Act at s. 1 is; "...to provide for the regulation of building and building standards".

3.7. In the light of this purpose, the objects of the are set out at s. 4. The objects which are relevant to this decision are:

"The objects of this Act are--

(a) to establish, maintain and improve standards for the construction and maintenance of buildings;

(c) to enhance the amenity of buildings and to protect the safety and health of people who use buildings and places of public entertainment;

(d) to facilitate and promote the cost effective construction of buildings and the construction of environmentally and energy efficient buildings;

(e) to provide an efficient and effective system for issuing building and occupancy permits and administering and enforcing related building and safety matters and resolving building disputes;

(f) to regulate building practitioners and plumbers;"

3.8. All building practitioners, including private building surveyors, are be required to be registered: s. 169 of the Act and Part 15 of the Regulations 1994. To facilitate the registration of building practitioners the Act at Part 11 created the Building Practitioners Board.

3.9. The second reading speech notes that, for the first time, this Act allows for the issue of building permits by private building surveyors which the Minister anticipated would expedite the issuing of building permits. The new provisions enabled the private building surveyors to compete with municipal building surveyors for business. The Minister expected that this new competitive environment would lead to improvements in skill levels of building surveyors as well as the faster issue of building permits: see Second Reading Speech.

3.10. The Minister observed in the second reading speech that the private building surveyors would be required to work in a professional and impartial manner and their conduct would be regulated by the scrutiny of the Building Control Commission, now the Building Commission, and the legislation included significant penalties. The Minister further noted that the formal powers will be complimented by 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, the Minister did not expect that insurers would maintain the insurance cover required by a building surveyor.

3.11. Municipal building surveyors remain and have exclusive jurisdictions eg. the issue of emergency orders, the power to amend or cancel a permit, where the owner fails to carry out work required by a building notice it may be carried out by the municipal building surveyor, etc.; as well as having the power to carry out the functions of a private building surveyor. Unlike the unlimited power of the municipal building surveyor within his municipality, private building surveyors may only issue building notices and building orders where they have been appointed to carry out building surveying functions under the Act for that property: see s. 107.

3.12. The functions of a private building surveyor are set out at s. 76 of the Act:

(b) the carrying out of inspections of buildings and building work under Part 4;

(c) the issuing of occupancy permits and temporary approvals under Part 5."

Under s. 79 a private building surveyor may not act in relation to any of the functions of s. 76 in relation to a building if the building surveyor was in anyway involved in the design of the building or took reward as a result of the design of the building; or, he is an employee of the municipality or has been appointed to carry out the functions of the municipal building surveyor within whose municipal district the building is to take place. Under s. 80 the building surveyor must inform the relevant municipality of his appointment as the private building surveyor and under s. 30 he must provide copies of the permit and other prescribed documents.

3.13. The Act requires that all building surveyors carry compulsory insurance cover as a pre-requisite to practicing. The Minister submitted that this new compliance regime would help ensure that building surveyors act with a high degree of professionalism and integrity and that the public would be better protected in the event of building standards not being met.

3.14. In relation to practitioner insurance, the Act also introduced reforms to update liability insurance arrangements in the building permit industry. As the Minister noted, building practitioners would be required to carry professional indemnity cover to financially guarantee their professional obligations except in the case of residential builders who already provided such an indemnity to owners, ie the Certificate of Insurance: see Second Reading Speech. The Minister considered that the introduction of compulsory insurance would put all building practitioners on the same footing and would provide building owners with more certainty.

3.15. I consider this demonstrates that the legislature was setting out to provide a comprehensive scheme of overall building regulation with the registration of building practitioners and the need for professional indemnity insurance for practitioners such as building surveyors.

3.16. To complement the insurance scheme and ensure that the contribution to damages awards was equitable and did not involve an uncertain risk for the insurers, s. 131 of the Act, introduced a limitation on the liability of persons jointly and separately liable in building actions, parties would only be liable for their apportioned share of the liability ie. 'proportionate liability'. Section 131, is in the following terms:

"(1) After determining an award of damages in a building action, the court must give judgment against each defendant to that action who is found to be jointly or severally liable for damages for such proportion of the total amount of damages as the court considers to be just and equitable having regard to the extent of that defendant's responsibility for the loss or damage.

(2) Despite any Act or rule of law to the contrary, the liability for damages of a person found to be jointly or severally liable for damages in a building action is limited to the amount for which judgment is given against that person by the court.

"court" includes the Victorian Civil and Administrative Tribunal."

Any apportion of damages in this decision will have to be carried out in accordance with this section as is discussed below.

3.17. Further, s. 134 of the Act introduced an absolute time limit on the period under which building actions may be brought. Section 134 of the Act is in the following terms:

"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."

3.18. Regulation 15.3 describes the qualifications for registration of the categories of building practitioner, at sub-regulation (1)(a) the category of building surveyor requires a degree or diploma in building surveying and four years practical experience.

3.19. The performance obligations and standards required of a registered building practitioner, under the statutory structure for building control introduced by the 1993 Act and the 1994 Regulations, are set out at Regulation 15.2 "Professional Standards":-

(a) perform his or her work as a building practitioner in a competent manner and to a professional standard; and

(b) immediately inform the client in writing if a conflict of interest arises or appears likely to arise between his or her interest as a building practitioner and that of his or her client; and

(c) receive remuneration for his or her services as a building practitioner solely by the professional fee or other benefits specified in the contract of engagement or by the salary and other benefits payable by the building practitioner's employer."

3.20. The first of the specific functions of a private building surveyor under s. 76 is the issuing building permits. An application for a building permit should be made in accordance with s. 17 of the Act. In dealing with an application a private building surveyor may in accordance with s. 19 of the Act:-

"(1) The relevant building surveyor must decide an application for a building permit by:-

(2) The regulations may prescribe a time within which the relevant building surveyor must decide an application for a building permit.

(3) The relevant building surveyor is deemed to have refused a building permit if the application is not decided within the prescribed time."

3.21. At s. 24 - "Refusal of Building Permit", the sub-section relevant to these circumstances is:-

"(1) Subject to Division 4, the relevant building surveyor must not issue a building permit unless he or she is satisfied that--

(a) the building work and the building permit will comply with this Act and the building regulations; and"

Division 4 in this part is "Special Provisions" and it has no relevance in this decision.

3.22. The private building inspectors functions in relation to inspection are set out at Part 4 of the Act - "Inspection of Building Works". Section 34 requires the private building surveyor to carry out inspections at mandatory notification stages. Mandatory notification stages are defined in the regulations at Regulation 7.1 "Inspection of Building Work as":-

"(1) For the purposes of Part 4 of the Act the mandatory notification stages are--

(c) prior to pouring an insitu reinforced concrete member nominated by the relevant building surveyor; and

(2) The relevant building surveyor may vary a stage set out in sub-regulation (1) in relation to building work if it is inappropriate to the building work.

(3) The mandatory notification stages for building work determined in accordance with sub-regulation (1) or (2) must be set out in the building permit for that building work."

3.23. A building permit application must be accompanied by the information required in Regulation 2.1 and this includes:-

(b) contain sufficient information to show that the building work would comply with these Regulations; and

(c) comply with the relevant provisions of this Part.

(2) An application for a building permit to construct a building must be accompanied by the following documents and any additional copies of those documents that the relevant building surveyor reasonably requires--

(a) copies of drawings showing the plan at each floor level, elevations, sections, dimensions, the sizes and locations of structural members to a scale of not less than 1:100, together with any details that are necessary to show compliance to a scale of not less than 1:20, or other approved scales; and

(b) specifications describing materials and methods to be used in the construction; and

(c) allotment plans to a scale of not less than 1:500 or other approved scale showing--

(i) the boundaries and dimensions of the allotment and any relevant easements; and

(ii) the distance to the nearest intersecting street; and

(iii) the position and dimensions of the proposed building and its relationship to--

(C) any part of a building or land on an adjoining allotment where necessary to show compliance with these Regulations; and

(iv) a statement of the use or intended use of all buildings shown on the allotment plan; and

(v) the levels of the allotment, the floors of the building, street drainage channel and stormwater drain; and

(vi) the layout of drains to the point of discharge on the allotment together with details necessary to show compliance with these Regulations; and

(vii) the location, dimensions and area of impermeable surfaces covering the allotment if necessary for the purposes of regulation 4.12; and

(viii) the location and dimensions of car parking spaces for the purposes of regulation 4.13; and

(ix) the location, dimensions and area of private open space for the purposes of regulation 4.21; and

(d) computations or reports necessary to demonstrate that the building would, if constructed in accordance with the computations and reports, comply with these Regulations.

(3) Without limiting any of his or her powers under the Act, the relevant building surveyor may also require the following additional information to be submitted in relation to an application other than for demolition or removal of a building including--

(a) details of measures for the protection of the public under regulation 5.3; and

(b) documentary evidence to support the use of a material, form of construction or design in a form referred to in clause A2.2 of Volume One of the BCA or clause 1.2.2 of Volume Two of the BCA; and

(c) a survey plan of existing site conditions prepared by a licensed surveyor; and

(d) if the allotment is under the Transfer of Land Act 1958, a copy of the certificate of title of the allotment; and

(e) evidence of ownership of the allotment or evidence that a contract has been entered into pursuant to section 9AA of the Sale of Land Act 1962 in respect of the allotment; and

(g) evidence that each building practitioner to be engaged in the building work holds a building practitioners certificate issued by the Building Practitioners Board under the Act or is an architect registered under the Architects Act 1991."

3.24. Under Division 3 "Insurance" of Part 9 "Liability" of the Act, domestic building is required to be covered by insurance to the benefit of the owners. Under s. 135 of the Act domestic builders are required to take out insurance in respect of any major domestic building contract and to provide a copy of that insurance to the owners. Where the builders are owner builders they are required, upon putting their dwelling up for sale, to provide a report from a qualified building practitioner as to the standard of the building and other matters as directed by the Minister and to provide the required domestic building insurance and provide a certificate of such insurance to the purchaser.

Issue of the Building Permit and Construction of Dwelling

3.25. I will now address the issue of the building permit and the construction of the dwelling. An application was made for a building permit to Wally Mellis, as private building surveyor, on 21 August 1996, the application was noted to be from Steven Watson as owner and the builder was noted as Steven J Watson of the same address as the owner. The application form was on the Shire of Moorabool letterhead and addressee was "To: Wally Mellis - Building Surveyor". The application stated the building was a two-storey residence. The building practitioners name, category and registration number was struck through and no information was provided. There was no indication of the nature of the building work, eg. new building, alterations etc. In the section used to denote "owner builder" on a yes/no basis neither category was indicated.

3.26. In conformity with s. 80, Mr Mellis informed the Surf Coast Shire, the municipal building surveyor, by notice on 20 August 1996 under the letterhead of the Moorabool Shire Council that he had been appointed as the private building surveyor to carry out the functions pursuant to s. 76 of the Act for the erection of a dwelling at Lot 9, The Mews, Torquay and he lodged the documents required by s. 30 of the Act with Surf Coast Shire.

3.27. There is a receipt from Mr Mellis for his fees for acting as the private building surveyor; the payee (sic) is marked as Steven Watson, there is no evidence whether Watson paid in respect of his own name or that of Watson Constructions Pty Ltd.

3.28. On the same day, 21 August 1996, a building permit was issued by Mr Mellis, in the business name of the Moorabool Shire Council, being permit number B482/96. It was issued to Steven Watson, as owner, with Steven Watson being nominated as engaged in the building work in the class of domestic builder but no registration number was given. The building classification was 1(A) with a description as a two-storey dwelling. The inspection requirements were noted as "the mandatory notification stages are stump hole - foundation - frame and final."

3.29. Other than an indication that the "Ground floor material" was 'timber', the permit did not specify the materials for the "Roof Cladding Material" "Frame Material" and "External Wall Material", the section for each material being marked as three dashes.

3.30. Presumably at the same time as issuing the building permit, Mr Mellis approved four plans from which the dwelling was to be constructed. Those plans were marked "Design and Construct: Watson Constructions Pty Ltd:", there are no drawing numbers. The plans appear rough and undetailed, a critique of their shortcomings is set out below.

3.31. Mr Mellis' inspection card shows that he approved the stump holes on 23 August 1996, he approved the frame construction on 18 December 1996 and he made the final inspection 22 January 1997. Mr Mellis issued an occupancy permit under Regulation 9.5 of the regulations on 28 January 1997.

3.32. An application for domestic building insurance, naming Mr Steven Watson as the building practitioner, signed and dated 18 August 1996, was produced in evidence; this showed an estimated commencement time for the dwelling construction of 20 August 1996 and an estimated completion time of 20 February 1997. The application named the builder as Watson Constructions.

3.33. Ms Kay Pozman gave evidence that both she and her husband had purchased the property with the dwelling construction complete from the Watsons in mid 1997. At the time of the purchase a garage had been constructed adjoining the south side of the house, the garage was open and had no door. The sale took place in mid 1997 and as "Special Conditions" to that sale; the vendors, being the Watsons, agreed to provide certain works to the house as a condition of the sale, this included a concrete floor to the garage, a roller door to the garage and balustrading to the front decking and various other items.

3.34. The contract of sale was entered into on 23 June 1997. On 13 July 1998 a Certificate of Insurance No. 63997 of Home Owners Warranty was issued in respect of a single dwelling at Lot 9 The Mews, Torquay for Kathleen and Joseph Pozman for work carried out by Watson Constructions Pty Ltd. The certificate noted that the building contract was for a fixed price contract of 10 July 1998. The certificate was issued under s. 135 being insurance issued in the name of the building owner upon the application of the domestic builder.

3.35. On 7 January 1999, the Pozman's accepted an offer from the Taitapanuis for the purchase of the subject property and settlement took place on 1 April 1999. Ms Pozman gave evidence that during the Pozman's occupation there had been an ongoing water leak in the roof directly above the meals area from the upstairs balcony, they had contacted Mr Watson, who after a number of attempts appeared to have rectified this leak.

3.36. After taking possession in April 1999 Mrs Taitapanui gave evidence of the increasing identification of defective works, she was at home during this period with a relatively young baby. Initially, she noticed water leaking from the extremities of the ensuite shower recess, with the tiles lifting and the dishwasher leaked. Tradesmen, who came in to rectify these problems, noted substantial nonconforming plumbing work. In September 1999 there was a major water entry from above the French doors in the master bedroom and the balcony was pooling water and the kitchen tiles were lifting.

3.37. Towards the end of 1999 significant water started entering from the balcony and upstairs areas into the downstairs meals, living and kitchen areas, problems continued and eventually in May 2000, the owners contacted Mr R Hamill, a private building surveyor. Mr Hamill had worked as a municipal building surveyor for Surf Coast Shire and knew Mr Watson and Mr Mellis professionally. Mr Hamill produced a report which indicated there were a number of serious defects in the construction of the house.

3.38. Mr Hamill arranged for an inspection by a CSR Hebel representative, Mr Nunn, who found the exterior Powerpanel work to be unsatisfactory. Mr Hamill advised the owners to obtain the advice of a structural engineer, Mr T Evans. Mr Evans' report identifies very serious structural inadequacies with the dwelling, starting with the incorrect footing system ie. stumps, which are too flexible and susceptible to settlement in a Class H soil to satisfactorily support the "Powerpanel" external wall. He referred to the "CSR Powerpanel" Users Guide at Clause 3.5, which requires:-

"Footings for the Powerpanel and Powerwall systems should comply with conventional masonry veneer construction as specified in Australian Standard: AS 2870.1 - 1998 "Residential Slabs and Footings ". This is a minimum requirement."

Under AS 2870.1 - 1988 at Fig. 4.5, a reinforced concrete strip footing was the minimum requirement for masonry veneer where the soil was Class H; there was a similar requirement in the standard in force at the time of construction ie. AS 2870 - 1996. Therefore, a stump footing system was entirely inappropriate to support the Powerpanel walls.

3.39. Mr Evans also identified the stump which had settled excessively in the meals area, when excavated it had surface soil and loose material beneath the sole plate and this is a serious defect.

3.40. The structural support for the garage was completely inadequate with the north side of its roof being supported by brackets attached to the Powerpanel. This is completely unacceptable as Powerpanel is not designed as a load bearing element of the structure.

3.41. The owners sought advice from Mr Setford, who confirmed Mr Hamill's and Mr Evans' opinion. Mr Setford, a building consultant, advised that due to the wrong type of footing system being used the dwelling structure was so compromised it was cheaper to demolish and rebuild it rather than to try to rectify is inadequacies and defects.

3.42. Mr Browning, for the insurer, largely agreed with Mr Setford as to the identity and extent of the items of defective works. He agreed they would be very costly to rectify. However, he considered it was unnecessary to demolish and rebuild as the Powerpanel cladding could be replaced with 'Hardieplank' a form of faux weatherboard fibre reinforced cement plank. He acknowledged that this was not masonry and such a method of rectification would breach the restrictive covenant requirement of 75% masonry.

3.43. All parties accept that there are very serious short comings in the construction of the house. As discussed above, the most substantial defect is the inadequate type of footing, it is inappropriate to provide a sufficiently inflexible support system for the external Powerpanel cladding used on the premises. All the experts agree that given soil Class H, the expected surface soil movement is between 40 to 70mm and the differential settlement between the individual stumps would result in an unacceptable deformation to the Powerpanel, resulting in cracking of joints and unacceptable deterioration of the panels to the stage where they would permit water penetration through the walls and render the house uninhabitable. From the expert reports, the Powerpanels already exhibit significant cracking at their joints, differential displacement and deterioration; as I understand comments made at the view these defects are gradually becoming worse with time.

3.44. There has also been a large amount of water penetration of the house, notwithstanding the defective footings; this is especially so in the meals area below the balcony, it allows gross water penetration through defective tanking. There has been a large amount of water penetration in other areas and the house is suffering continuing deterioration from this water penetration. At the view on 22 October 2002 the general condition of the house and in particular the suitability of the existing footing system were discussed, I stated that my initial opinion was, and it was not my concluded view, that the purpose of the statutory structure for building control under the Act and regulations was to ensure that houses were habitable for the occupiers and they should remain so, and be seen to be capable of remaining so, over the expected life of the domestic dwelling. It was my understanding that a dwelling should have an expected life of approximately 50 years and no shorter than 40 years. Therefore, in carrying out an assessment of whether work was defective under the Act and regulations I would need to be reasonably confident that the structure of the house would perform in accordance with the regulations for its design life. For example, an aspect relevant here is water penetration of the external wall due to cracking and deterioration of the Powerpanels; under clause F1.4 of the Building Code of Australia a roof and external wall (including openings around windows and doors) must prevent the penetration of water that would cause:-

(a) unhealthy or dangerous conditions, or loss of amenity for the occupants; and

(b) undue dampness or deterioration of building elements.

The Building Code Australia is applicable Australia wide and is incorporated into the Building Regulations 1994 by direct reference at Regulation 1.7. At the next day of hearing, the Counsel for the private building surveyor informed me that they would not be calling any of the expert evidence they had proposed to call in relation to the rectification of the defects, the private building surveyor would rely on his legal arguments.

Mr Mellis Performance as Private Building Surveyor

3.45. Mr Hamill, Mr Evans and Mr Browning agreed there were substantial deficiencies in the issue of the permit. Firstly, there was no specification describing materials and methods to be used in construction as required by Regulation 2.1(b), presumably this would have informed Mr Mellis that he was issuing a permit with a footing system entirely inappropriate for the materials to be used on the external walls. The deficiencies on the fact of the permit has been described above.

3.46. The plans also carry the defect of not identifying the external wall material; although Mr Hamill gave evidence, which I accept, that the ground floor walls on the plans showed a wall thickness of 250mm which is the normal thickness for masonry veneer with a 50mm cavity. If the external wall material was to be a weatherboard or some other form of flexible cladding that was suitable for stump foundations, the ground floor walls would have be shown with an indicative thickness of 100mm; this was the thickness shown for the first floor walls. The differences in wall thickness should have alerted Mr Mellis that a masonry product was the most likely type of material for the ground floor external wall. Mr Hamill gave evidence, that was not questioned, that Mr Mellis was Mr Watson's private building surveyor of choice and Mr Watson was well known in the municipality for building in Powerpanel.

3.47. The owners also claimed that the approval of the foundations prior to the stumps being installed was defective as one of the stumps in the meals area had undergone a large settlement and when the ground around it was excavated it was found that surface soil and loose material was under the poured concrete sole plate on which the stump sat. Another stump was excavated and it was observed that its sole plate was properly bedded on a sound undisturbed foundation material. I do not consider this claim can be made out; foundation inspection is carried out after all preparations have been made to construct the footings but prior to their construction. Once the inspection has taken place the building inspector does not have to wait to inspect the installation of the footing system and normally doesn't. It is the builder's responsibility to construct the footing system before there is any deterioration or contamination of the foundation material. The most likely occurrence in this case is that the builder left the installation of the defective stump or was careless in the pouring of the concrete sole plate, so that before the concrete was poured surface soil and loose material was accidentally pushed into the open stump hole. I do not consider this can be held to be a responsibility of the building surveyor.

3.48. There was no Form 13 from an engineer approving the unorthodox footing system.

3.49. Mr Browning in his report identified approximately 20 defects that he considered Mr Mellis should have picked up in his inspections. I agree that the subfloor defects in the bearers and joists together with subfloor ventilation should have been identified by Mr Mellis; as should numerous defects in the roof framing. I also consider that the more blatant shortcomings in the flashings should have been picked up, as should the failure to provide the correct safety glass in the lower panels to windows and doors.

3.50. Mr Mellis failed his basis function under the statutory structure as set out at Regulation 2.1(1)(b) requiring that an application must contain sufficient information to show the building work would comply with the Regulations; to the extent of gross carelessness and incompetence.

4.1. The documentation required by the Act, the regulations and the Domestic Building Contracts Act in this case are substantially defective. As well as being defective, the building documentation that does exist, being the building permit, the endorsed drawings, the application for a building permit, the application for a domestic building insurance and the certificate of domestic building insurance show inconsistencies and are in may ways incompatible with each other as well as being defective. In these circumstances I consider that where ambiguities and inconsistencies arise in the building documentation I should construe such ambiguities and inconsistencies in favour of the owners on the basis of the contra proferentum rule; where the terms of any insurance contract show an ambiguity they are to be interpreted in the insured's favour: Western Australian Bank v Royal Insurance Co [1908] HCA 11; (1908) 5 CLR 533 at 544.

4.2. The major area of incompatibility is the identity of the builder. The building permit is defective in that it nominates the same person as the builder and owner yet the application fails to identify whether the owner is an owner/builder. The plans are completely inadequate and appear in effect to have been done by a thumbnail dipped in tar. The plans nominate Watson Constructions as the designer and constructor.

4.3. The application for insurance of 18 August 1996 has a signature on the builder's declaration, there is no signature on the client declaration, the application states that Watson Construction is the builder.

4.4. The Certificate of Insurance nominates Watson Constructions as the builder and gives as the owners Kathleen and Joseph Pozman, under a fixed priced contract dated 10 July 1998. No major domestic building contract between the Pozmans and Watson Constructions was produced. The Certificate of Insurance was issued on 13 July 1998.

4.5. On the basis of the plans, the application for insurance and the insurance certificate I consider that the most likely identity of the builder was Watson Constructions Pty Ltd.

4.6. On the basis that the Certificate of Insurance was issued on 13 July 1998, after the contract between the Pozman's and Watsons was signed I consider that the garage is covered by the Certificate of Insurance. If there had been no building permit applied for or issued and a Certificate of Insurance issued for building work that was actually carried out and was obviously intended to be a domestic dwelling, I cannot see why the Certificate of Insurance would not require the insurer to indemnify the owner for any defective works, notwithstanding that there was no building permit. I am reinforced in this belief by the entry on the application for insurance at the item marked "Garage/Carport/Verandah" of '15m2'. The insurer submits this is the front verandah, but I consider it is ambiguous and could be a reference to the garage or the verandah, construing the ambiguity against its creator, I consider that the builder was anticipating that a garage would be built.

4.7. There was nothing in the documentation to indicate that the garage was built under the scope of works as outlined in the building permit application and the permit itself. The garage was not shown on the approved plans. There is no evidence that the garage was built during the erection of the dwelling and it would be purely conjecture to find that it was erected as an amendment to the building works during the original construction of the dwelling, which amendment was not approved by the private building surveyor as required by the regulations. Therefore, I do not consider that it can be found that the private building surveyor has any liability for the defects in the garage.

5.1. A breach of statutory duty is where it has been held that a statutory duty gives a private right of action in tort for its breach. The question of whether a specific statutory duty also creates a private right of action is determined as a matter of construction of the relevant legislation: O'Connor v SP Bray [1937] HCA 18; (1937) 56 CLR 464 at 477-9. The inference of such statutory duty by the court has more often been found in cases of the breach of industrial safety provisions in both statutes and regulations and where the relationship between the parties is that of employer and employee: see s14-2 of Torts Law in Principle by D Baker and Ors, 2002.

5.2. In Toomey v Scolaro's Concrete Constructions Pty Ltd (in liq) and Ors (No. 2) [2001] VSC 279 (17 August 2001) at para 135, Eames J, found that Clause 2.16 of the Building Code of Australia, ie. that a balustrade shall not be constructed to a height less than one metre above the floor, created private right of action for the plaintiff against the owner and the builder. In Toomey's case the plaintiff fell from a first floor balcony and suffered severe permanent injury.

5.3. In their second amended points of claim, dated 2 September 2002, at para 29, the owners do not identify a specific section of the Act or a regulation from which a private right of action is said to flow. The claim is couched in terms that the Act and regulations generally create a private right of action. Nor, in the allegations of breach of statutory duty, at para 30, do the owners identify any specific section of the Act or regulations that gives rise to a private right of action as a statutory duty.

5.4. This is not an action involving personal injury as was Toomey's case and it is not legislation specific for the protection of industrial employees. Accordingly, I find that there was no private right of action given generally in the Act or the regulations and the claim for breach of statutory duty must fail.

6.1. The building surveyor submits that no common law duty of care can be found to exist on the direct authority of the Shire of Sutherland v Heyman [1985] HCA 41; (1985) 157 CLR 424 and on the recent High Court decisions in relation to the existence of a common law duty of care where the damage suffered is pure economic loss. I agree that the damage suffered here is pure economic loss, as it is presently defined: Bryan v Maloney (1995) 128 ALR 163.

6.2. The current owners only cause of action against the private building surveyor must be a claim in tort. There was no contractual relationship between the private building surveyor and the current owners.

6.3. The relationship between the building owner and the building surveyor at the time the dwelling was erected is unknown. We do not know whether the building surveyor was engaged by Watson in his own right or by Watson Constructions. There is no evidence whatsoever as to the actual relationship between Mr Watson, as building owner, and Mr Mellis, as the private building surveyor. Normally, in domestic building, where the builder designs and produces the plans the builder engages the private building surveyor. For reasons that will become apparent, I don't consider that the relationship between the building owner and the private building surveyor is significant in my decision.

6.4. Counsel for the private building surveyor put their case in terms of whether the private building surveyor owed a duty of care to prospective purchasers. I do not consider that this is an accurate description of the potential duty relationship between the current owners and the private building surveyor. I consider the description of the relationship to be whether the private building surveyor owes a duty to subsequent owners, who were in possession when substantial defects allegedly due to the private building surveyor's default became apparent.

6.5. In commencing my assessment of whether a duty is owed, I consider that first it must be established whether a duty of care is owed by the private building surveyor to the building owner; by building owner I mean the owner of the subject property at the time that the dwelling was erected. The creation of the role of a private building surveyor in the 1993 Building Act took away from the municipal building surveyors the sole jurisdiction of carrying out the functions of issuing building permits and the inspections of buildings.

6.6. The High Court in Heyman declined to follow the House of Lords in Anns v Merton London Borough Council [1977] UKHL 4; [1978] AC 728 and held that a municipal building surveyor was not under a general duty to carry out his or her statutory functions satisfactorily. In Heyman the Judges in their decisions proposed different tests to assess whether the municipal building surveyor was under a duty of care for pure economic loss. Deane J considered proximity in detail and Mason J developed the test of "general reliance".

6.7. Over the intervening period since the that case, the High Court has considered a number of methods of analysis and different tests to assess whether a particular category of circumstance will give rise to a duty in respect of pure economic loss. General reliance was rejected as a concept in Pyrenees Shire Council v Day and Or [1998] HCA 3; (1998) 151 ALR 147 and proximity seems to have been discarded as the acceptable test for the requirement additional to forseeability in Perre and Ors v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180, see McHugh J's judgment at p208.

6.8. There is no specific comprehensive test that has been adopted by the High Court, the three stage test proposed by the House of Lords in Caparo Industries PLC v Dickman [1990] UKHL 2; [1990] 2 AC 605 at 617 was specifically rejected by the High Court in the decision of Sullivan v Moody [2001] HCA 59; (2001) 183 ALR 404.

6.9. Considering the High Court's comments and findings, including the recent decision of Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54 (5 December 2002), I consider that the correct method to use in carrying out an assessment of whether a duty of care is owed in respect of pure economic loss commences with Brennan J's view in Heyman at page 481:

"That the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable "considerations which ought to reduce or limit the scope of the duty or the class of the person to whom it is owed.""

To assist in assessing categories of negligence I consider the correct approach is to look a the "salient features" of the relationship between the parties, as first identified by Stephen J in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR 529 at page 576. What may constitute the salient features of a relationship have been recently set out by Callinan J in Barclay Oysters at para 321:

"vulnerability, power, control, generality or the particularity of the class, the resources of, and the demands upon the authority, may each be, in a given case, a relevant circumstance"; and,

Gillard J in Johnson Tiles Pty Ltd and or v Esso Australia Pty Ltd and ors [2003] VSC 27 (20 Feb 2003) at para 755, to paraphrase, reliance, undertaking of responsibility, a chain of contracts between the parties, a statutory regime regulating the supply of a service, whether imposing the duty would result in indeterminate liability or be inconsistent with normal business standards, the knowledge of the tortfeasor and vulnerability.

6.10. It is obvious that not all of these salient features will be of equal significance in each case, Callinan J in Barclay Oysters at para. 321; nor that each is required to be present in some degree to establish a duty, for example actual reliance between the plaintiff and respondent does not have to be present for a duty to exist: Gummow J in Pyrenees at para 170. In the manner of its use by Gummow J, I take 'reliance' to mean some form of direct, or reasonably direct, contact between the plaintiff and defendant.

6.11. I accept the advice of McHugh J, in Crimmins v Stevedoring Committee [1999] HCA 59; (1999) 200 CLR 1, of the need to carefully analyze and assess each relevant feature and to assess its significance and weight in the process of assessment; see also Gillard J. in Johnson Tiles at para.756.

6.12. I also think I should stand back and look at why the courts take such care in this area. I note the observations of Hayne J in Perre at para 329 that:

"Two threads, then, can be seen as important in the development of the principles governing liability for negligently caused pure economic loss. First is the desire to avoid "liability for an indeterminate amount for an indeterminate time to an indeterminate class": Ultramares Corporation v Touche (1931) 225 NY 170 at 179, Chief Judge Cardozo. Second is the concern not to establish a rule that will render "ordinary" business conduct tortuous. The decisions in the area of pure economic loss reflect the search for some further mechanism of controlling liability (further, in the sense of additional to the foreseeability of injury)";

together with the observation by Brennan J in Heyman at page 494 that:

"A private purchaser in the market place cannot look to public funds to underwrite the information on which he makes his purchase, except in circumstances which may attract the operation of the principle in Shaddock & Associates Pty Ltd v Parramatta City Council [1981] HCA 59; (1981) 150 CLR 225."

In assessing the salient features, I consider I should keep these observations as touchstones in assessing the significance and weight of a salient feature.

6.13. I consider that the purpose for which the legislature enacted the statutory structure for building control in 1993 as set out in the Act and its regulations is one of the most important salient features. The private building surveyor also considered the statutory framework of the Act and regulations to be important, submitting that it demonstrated that no duty should be found; I will make my assessment on this feature below. GillardJ. in Johnston Tiles at para.755 considered the statutory regime to be a salient feature.

6.14. Looking at the decision of Heyman on its facts, I do conclude that the decision is not necessarily on all fours with the facts of this case. In Heyman the allegation was that the municipal building surveyor had defectively inspected or failed to inspect the foundation material immediately underneath the footings prior to the footing construction, a similar allegation to that made against Mr Mellis in this case. Under the statutory structure for building control then in force in NSW the only mandatory statutory inspection was one required at the end of the building work and prior to occupation. Gibb CJ, with whom Wilson J agreed, found, in Heyman, that there was no statutory duty to carry out an inspection of the foundation material prior to footing construction and Mason J noted it was not an inspection required by the ordinances. The situation in Victoria is different. Under the functions of the private building surveyor he has a mandatory requirement to inspect the foundations prior to any footings being constructed; therefore, a decision involving the Victorian Act and regulations, in similar circumstances to Heyman's case, may have resulted in a different decision.

6.15. Notwithstanding this, I accept that the reasoning in Heyman applies, except where it has been overridden by subsequent decisions of the High Court. As we have seen from the second reading speech, the structure of the 1993 legislation was to provide better protection for home builders in ensuring that if any building work was done defectively they would have recourse to any defaulting building practitioner's professional insurance to rectify their property and ensure it complies with the Act and regulations, including the Building Code of Australia.

6.16. The statutory functions of the private building surveyor are set out in the Act and regulations, as exhibited previously in this decision; do these indicate that the private building surveyor is under a common law duty to the building owner? By building owner, I mean the owner of the subject property at the time the dwelling was constructed.

6.17. This is where I consider there is a significant difference between the way the private building surveyor addressed his case and what I consider is the case. One of the reasons that I consider that the authority of Heyman is significantly weakened in this case is that in Heyman the court was dealing with a municipal building surveyor and here we are dealing with a private building surveyor.

6.18. Any authority or person empowered with statutory authority can owe a duty of care, see Caledonian Collieries Ltd v Speirs [1957] 97 CLR at 202:

"On the assumption stated, the well-settled principle applies that when statutory powers are conferred they must be exercised with reasonable care, so that if those who exercise them could by reasonable precaution have prevented an injury which has been occasioned, and was likely to be occasioned, by their exercise, damages for negligence may be recovered "

As a statement of principle, I consider this would apply equally to a private building surveyor or a municipal building surveyor.

6.19. The statutory structure for building control requires all building practitioners, including private building surveyors, to be registered and to have professional insurance. Under Regulation 15.2 all building practitioners must carry out their duties competently and to a professional standard. Thus, this statutory structure involves all building practitioners and all building, including domestic building. Private building surveyors need insurance to indemnify the quality of their work , presumably to the standard required in Regulation 15.2 and to ensure that building owners receive an acceptable product.

6.20. Where a private building surveyor has incompetently and unprofessionally carried out his functions under the Act and regulations what avenues does the building owner have against such private building surveyor? If the building owner engaged the private building surveyor they have a cause of action in contact; otherwise, it must be in tort. Therefore, I consider it a significant feature that if it was held no duty existed, a building owner would have no redress against a private building surveyor in circumstances where the statutory structure required that private building surveyors to have professional insurance to cover the eventuality of the private building surveyor failing to perform his functions satisfactorily competently. Under s. 131 of the Act with a respondent only required to pay its apportioned liability, the building owner could not recover for the private building surveyor's degree of liability unless a duty is established. Therefore, to ensure that the 1993 statutory structure for building control operates satisfactorily for all owners, including those whose claims are in negligence, it is necessary that private building surveyors be under a duty to building owners.

6.21. What are the indications that a duty of care should not be found? From the perspective of the caution against indeterminate liability raised by Hayne J in Perre at para 329, the liability cannot be in an indeterminate amount as under s. 131 of the Act a respondent can only be required to pay their apportioned amount of liability. Secondly, as we have seen, it is not for an indeterminate time, under s. 134 of the Building Act a building action must be brought within ten years of the date of the issue of the occupancy permit. Further, the class is not indeterminate, it can only be the class of persons noted on the Register as owners of the property. On the basis of normal community behaviour, there is not a high turnover of the ownership of private dwellings and I do not consider the class could be regarded as large or indeterminate over a ten year period.

6.22. In relation to the need to ensure that ordinary business conduct was not rendered tortious, the statutory structure for building control demonstrates that it is to protect home builders and to ensure they could achieve a satisfactory standard of house construction. Therefore, finding a duty exists should enhance ordinary building conduct; in that incompetent private building surveyors will not escape the liability of their incompetence. Should it be held there is not duty; either the homeowner will be unable to recover the defaulting private building surveyor's proportion, or, such proportion, will have to be carried as an unwarranted imposte by the other building practitioners who have some liability.

6.23. In relation to Brennan J's observation in Heyman that private purchasers cannot look to private funds to underwrite the consequences of the incorrect and faulty information upon which they based their purchase I do not consider this is now relevant. The statutory structure requires that all that class building practitioners have insurance to indemnify the performance of their obligations; public funds will not be called upon to make up the owners' loss due to the failure of performance of the private building surveyor.

6.24. Another objection may be that there would be different liability between a private building surveyor and a municipal building surveyor who on the authorities of Heyman and Barclay Oysters would not be liable for carrying out the functions of a private building surveyor. I do not consider that this would act as a bar to finding that a duty existed for the private building surveyor although I acknowledge it would be inconvenient and appear inconsistent. However, it should be remembered that where the municipal building surveyor carries out the functions of a private building surveyor it is competing with a private building surveyor in the economy and under s. 216 of the Act must charge commercial rates. In this case and in the light of the statutory structure, it may be that a municipal building surveyor would be found liable in tort for carrying out the functions of a private building surveyor; however, where the municipal building surveyor was carrying functions exclusive to himself, eg. issuing emergency orders, etc. then the considerations raised in Heyman, Pyrenees and Barclay Oysters may apply and no duty would be held to exist.

6.25. As private building surveyors charge professional fees and are not in any way financially linked to municipalities, I do not consider that the allocation of municipal resources has any bearing on whether a private building surveyor should be under a duty of care to a dwelling owner.

Vulnerability, Control and Professional Competence

6.26. I consider that vulnerability as identified in Pyrenees and Perre, control as identified in Brodie v Singleton Shire Council [2001] HCA 29; (2001) 206 CLR 512 at 518 and professional negligence as discussed in Hill v Van Erp (1997) 188 CLR 159 by Gummow J at page 238 where he held that a defaulting solicitor should be held to have a duty for exercising a lack of professional skill, tend to establish the same thing; ie. the additional element to foreseeability that indicates that it is appropriate that the respondent be under a duty to make up the applicant's loss if he breaches that duty.

6.27. The enactment of the building scheme in the 1993 Act created for the profession of "private building surveyor"; up until that time the functions now exercised by private building surveyors were exercised exclusively by the municipal building surveyor and the building departments of municipalities. In an effort to promote competition and a more economic use of resources: see second reading speech, the legislature created the profession of the private building surveyor.

6.28. Regulation 15.2 requires building practitioners, and this includes private building surveyors, to perform their work in a competent manner and to a professional standard. Regulation 15.3 requires a building surveyor to have a tertiary qualification in building surveying and above four years practical experience in order to qualify for registration as a building surveyor.

6.29. The building surveyor is to exercise specific professional skills in examining plans and specifications and in carrying out inspections to ensure that the building work for which he has been appointed the building surveyor is in conformity with the requirements of the Act and regulations and this is his sole function. This requires a certain amount of skill and knowledge, the building surveyor does this for a commercial fee.

6.30. The homeowners have no knowledge as to whether the building work complies with the Act and regulations, and they are required to hire a professional private building surveyor for which they pay the appropriate fee.

6.31. Where the private building surveyor has the professional knowledge and understands his functions, he is the only party that can ensure that the builder carries out his obligations in accordance with the Act and the regulation. I consider these circumstances to be a strong indicator that a duty should exist. I endorse the observations of Gummow J at para 132 of Perre:-

"But where the defendant has actual knowledge of the risk and its consequences for an ascertainable class and is not legitimately pursuing or protecting its interests, I see no reason why that actual knowledge should not be an important factor in deciding the duty issue. Furthermore, because fault remains the basis of negligence liability, I see no reason why recklessness or gross carelessness should not be a relevant factor in determining whether a duty of care was owed."

Further, in the circumstances of this case no party disagreed that the private building surveyors falling short of the professional competence required of him was gross; however, I do not consider that this feature, of fault ie. degree can be more than a gloss in the assessment, it cannot be decisive.

6.32. Notwithstanding that the private building surveyor exercises a statutory functions so as to ensure that the objects and purposes of the Act and regulations are achieved, I can see no reason, in the light of the above, why a private building surveyor, given his or her functions, should not be liable for professional negligence to third parties similar to other professionals, such as lawyers in Hill v Van Erp and Hawkins and Clayton (1988) 164 CLR 539.

6.33. If it was to be held that private building surveyors had no duty to building owners then for the sake of economy in building and to minimize the time and effort in carrying out domestic building work it would be preferable that the role of the private building surveyor, as presently structured under the Act and regulations, be abolished. Possibly, it could be made compulsory that the building owner engaged the private building surveyor so there was always a contractual relationship; this, however, may leave subsequent owners out in the cold.

6.34. Up until now I have been assessing whether the home owner at the time of building was owed a duty of care by the private building surveyor where the building owner had no contract with the building surveyor. Looking now at subsequent purchases are there any differences or alterations in the relationship between any subsequent owner and the building surveyor that would indicate that if a duty existed to the building home owner that it should not be held to exist for a subsequent owner? This may occur if the building owner had a contract with the private building surveyor. Any duty should not extend past what were the terms of the contract between the building surveyor and the building home owner, this problem was discussed with regard to the builder and subsequent owner in Bryan v Maloney.

6.35. Prima facie, at law the duty of a builder to a subsequent owner cannot extend past the terms of the contract under which he built the house; this is difficult to ascertain when the terms of the original building contract are unknown, as in this case; this was a criticism of the majority decision in Bryan v Maloney, see the dissenting judgment of Brennan J in Bryan. However, the same problem does not arise where the private building surveyor was in a contractual relationship with the building owner and we are trying to ascertain whether he owes a duty to a subsequent owner; the reason being that the private building surveyor can only have the functions set out by the Act and regulations, that has to be the scope of his contract with the building owner. Therefore, the width of the duty and the scope of the contract are the same as they are set by the functions under the Act and the requirements of the regulations and there cannot be any substantial differences between the scope of the terms of the contract with any building owner and the width of the duty owed to any subsequent purchaser.

6.36. I do not see anything that changes the extent of the duty when subsequent purchasers are considered, except to the extent that vulnerability may change. The private building surveyor submitted that subsequent purchasers could obtain a pre-purchase inspection and report and in obtaining such a report the prospective purchasers had some control over the quality of the item they were purchasing and were thereby not vulnerable as discussed in Perre or having no control as discussed in Hill v Van Erp.

6.37. I do not consider that the ability to obtain a prepurchase report weakens the need for finding a duty exists. I accept that on its face it appears to make a subsequent purchase less vulnerable than the building owner and gives them more control. Against that, I consider that the availability of prepurchase inspectors and the number that are carried out show home purchaser's suspicions that domestic dwellings do not meet the regulations. A cause of this, must in part, be a failure of private building surveyors to competently carry out their functions, I consider this indicates that as a matter of policy a duty should be found to exist.

6.38. Further, when considered carefully, it is apparent that subsequent owners are more vulnerable. The elements of the building work that cause the most substantial and lasting damage if defective, are the structural elements such as foundation material, footings, framing, etc; all of these elements are covered once built and are not available for inspection by subsequent purchasers without intrusive and expensive investigation. This is the reason for the mandatory statutory inspections, except for the final inspection, it is all the building elements vital to the structure's stability that will be covered once built and unavailable for inspection. Therefore, in relation to the existence of structural defects, I consider that a subsequent purchaser is in a more vulnerable position than the building owner.

6.39. The private building surveyor submitted that as the current owners did not give any evidence that they had relied upon the council there was no nexus between the current owners at the time of their purchase and the council such as would ground a duty for pure economic loss. So that in the search of salient features there is no nexus establishing the reliance needed between the municipal building surveyor and a subsequent purchaser, similar to Heyman. The private building surveyor submitted that there is no difference, and nor should there be, between the functions performed by a private building surveyor and municipal building surveyor.

6.40. I do not consider that this is so, it should be looked at in the light of the practical functioning of domestic building in Victoria. If the municipal building surveyor had issued the building permit then the assessment would be on the council's building file. However, if the building permit was issued by a private building surveyor any prospective purchaser has no right to approach that private building surveyor and request that he make available his method of assessment to them. Furthermore, they could not find out the name of that private building surveyor unless they had access to the municipalities building file and they could only do this with the direct written authority of the then owner ie. the vendor. I consider that the impracticality of obtaining information from the municipalities building records is one of the reasons that has led to the substantial increase in the demand for pre-purchase inspections.

6.41. The building surveyor submitted that actual reliance is essential to ground a duty and this requires there be some direct contact between the parties. I note that this was not so in Hill and Van Erp where the beneficiary had no contract with the solicitor, who was held to owe the beneficiary a duty of care to properly prepare the will. Also has been noted in Pyrenees by Gummow J at para (70) that actual reliance need not exist for a defendant to be required to act and thereby a duty of care to exist.

6.42. Having considered the salient features it is now the time to weigh them and assess if a duty is owed. It is at this time that Brennan J's words in Heyman of incremental movement from established categories should be taken into account. As we are trying to assess the frontier of tortious liability for pure economic loss, or to put it more succinctly, the boundary of the set that contains those categories of cases in which a duty has been held to exist, I consider that it is beneficial to look over the boundary to categories of cases where the duty has been found not to exist. The most applicable category where a duty has been held to exist is for professional negligence; as discussed above I can see no reason why the tort of professional negligence should not include the performance of a private building surveyor in carrying out his statutory functions.

6.43. The nearest and most appropriate category of cases where no duty has been held to exist, is that of a municipal building surveyor to a subsequent owner, as per Heyman. Should the boundary be moved to include a new category of a duty, that of a private building surveyor to a subsequent owner of the dwelling?

6.44. Weighing all of the salient features and acknowledging that private building surveyors have been liable to have a duty of care where personal injury is involved: Toomey, I consider that such a duty extends to pure economic loss in the domestic building field with the main salient features being the comprehensiveness of the statutory structure for building control set up under the Act and regulations in 1993. This legislation was designed to protect domestic building owners as the quality of the building work and that this structure also created a new profession of private building surveyor as part of that comprehensive residential building scheme. I do not consider that just because the private building surveyor carries out statutory functions there can be no duty and I do not consider that Heyman is binding on me for the reasons given. Therefore, I find that the private building surveyor owed a duty of care to the current owners of the property.

6.45. The private building surveyor conceded that there had been serious and substantial breaches of this duty if it was found to exist. I will move to the aspect of damages.

7.1. The major issue in the assessment of damages is that both the insurer and the private building surveyor maintained that the property did not need to be demolished and rebuilt, as claimed by the owners, but could be re-clad in a flexible cladding such as Hardieplank, which would not necessitate the removal of the perimeter stumps and their replacement by reinforced concrete strip footings to support a masonry external wall.

7.2. Ostensibly this method of rectification may have been reasonable, however, it would breach the restrictive covenant which requires that 75% of the external walls be masonry. The insurer submitted that Hebel Powerpanel could not be regarded as masonry; however, its expert Mr Browning disagreed, he considered it did qualify as a masonry product. On the other side, Mr P Setford for the owners did not consider that the Powerpanel was a masonry product.

7.3. Masonry is defined in the Shorter Oxford dictionary as "the art or work of building in stone, stonework". This is not the definition used and understood in the building industry and the community as masonry; clearly in the industry and community brick construction is regarded as masonry. I consider a definition closer to the commonly accepted current use of masonry is set out in the AS 2870 - 1996 "Residential Slabs and Footings - Construction" where at clause 1.7.31 'masonry' is defined as "stone, brick, terracotta block, concrete block, or others similar building unit, single or in combination, assembled together unit by unit". I consider that Powerpanel which is a Hebel aerated concrete panel which is assembled unit by unit would qualify as masonry in accordance with the normal meaning of the word and as used in the restrictive covenant.

7.4. Secondly, the insurer submitted that in any case the house as it exists did not have 75% of its external walls in Powerpanel ie. masonry, thereby complying with the restrictive covenant. Mr Browning had measured the areas of the various different external claddings and he had calculated the percentage of Powerpanel forming the external cladding was approximately 50%. In carrying this calculation Mr Browning had excluded the net window and door opening areas and the gable ends to the ground floor.

7.5. In carrying out this calculation I consider there are a number of shortcomings in Mr Browning's assessment as follows:

(a) if gable ends are not taken into account on the ground floor I do not see why they should be taken into account on the first floor, I agree that gable ends would not normally be regarded as walls and are normally are given a different material treatment to the external walls to provide an architectural feature;

(b) I consider that both the window and door surrounds should be ignored, the restrictive covenant allowed that windows and doors would be excluded. One does not construct window and door surrounds from masonry elements. So these items should also be excluded;

(c) I consider that the area of wall below the floor should be considered as masonry, I acknowledge that it is currently constructed out of cement fibre sheet or timber, but if the builder and the building surveyor had provided the proper footing system then this area would have comprised part of the footing system and been in masonry.

I carried out an assessment of the proportion of Hebel comprising the external wall based on the above assumptions. I calculated that it was approximately 73% and I informed the parties of that at the hearing. With this proportion of external wall being masonry I do not consider that anyone could seek an injunction for a breach of the restrictive covenant. Therefore, I consider that the insurer's submission that the restrictive covenant has already been breached has not been made out.

7.6. Even if I am wrong in this, and, allowing that the existing dwelling breaches the restrictive covenant, I do not see how the Tribunal can order rectification works which would be in breach of the restrictive covenant.

7.7. Further, at the time the property was constructed Mr Watson at least should have been aware of the existence and the requirements of the restrictive covenant and pass those on to the builder; which he controlled. Therefore, I consider that the builder was aware of the requirements of the restrictive covenant and should have ensured that the restrictive covenant was met. Therefore, I consider that the builder is liable for rectification that complies with the restrictive covenant. Further, under the statutory warranties at s. 8(e) of the Domestic Building Contracts Act, the builder warranted to carry out all of the building work in compliance with all legal requirements and this includes compliance with the restrictive covenant.

7.8. The private building surveyor could have protected himself by requesting a copy of the title to be lodged with the building application as he is empowered to do by Regulation 2.1(3)(d). This would have disclosed the existence of the restrictive covenant. That he failed to do so demonstrates another breach of his duty to the current homeowners.

7.9. Mr Hamill considered that the construction of reinforced concrete strip footings on the existing house would be too costly and would be too risky, and given the amount of water penetration as well, he recommended that the existing house be demolished and rebuilt. Mr Setford also considered that the house should be demolished and rebuilt. Mr Browning considered that the existing house could be rectified; however, he did not allow that where the soil class is Class H, the first row of stumps in from the perimeter stumps must be not less than 2.4m in from the perimeter to comply with AS 2870-1996. This is to spread any differential settlement over a longer span so that any problems from the deflection of the floor are minimized. Mr Browning had failed to allow for this in his rectification works as he had taken the soil as Class M, he had to calculate the cost of this rectification in the witness box, I do not accept his methodology for this rectification and I do not accept his estimate of the likely cost as accurate.

7.10. In assessing the appropriate method of rectification I have to be confident, as I discussed at the view, that the method adopted will provide the owners with a residence that complies with the Act and regulations and should do so with proper care and maintenance for 40 years. The stumps have already shown significant differential movement leading to the cracking of joints between the Powerpanels and some deterioration of the Powerpanels. Given the adoption of a completely wrong building method at the start and the slapdash approach to footings and flashings, allowing gross water penetration, notwithstanding the incorrect footing system, I would only be confident if the house is demolished and rebuilt.

7.11. To satisfactorily rectify the house so that it complies with the Act and regulations and the restrictive covenant, I consider that it needs to be demolished and rebuilt. The owners obtained a quotation of 14 June 2002 from Mr Vince Sanzaro of Vinmar Homes which gave price to construct a new dwelling of $180,200 with a price to construct the garage of $14,000 including GST. Mr Sanzaro's quote was put into evidence but none of the respondents wished to cross-examine him. I accept Mr Sanzaro's evidence as to quantum.

7.12. Counsel for the owners informed me at the commencement of the hearing that the relief the owners sought was as set out in the report of Mr P Setford for replacement of the dwelling. At attachment B of his report Mr Setford sets out the claim for the rebuilding of the dwelling and ancillary matters as follows:-

Looking at the Vinmar quote, preliminaries and demolition should already be in the Vinmar quote and they can be ignored. Obviously Mr Setford's figure for the new residence and house would be deleted and Mr Sanzaro's quotes substituted for Mr Setford's cost of rebuilding.

7.13. In his closing submission Counsel for the owners informed me that the owners were not seeking any sums for various items not in the Sanzaro quote, I include the hot water service in this.

7.14. The period to demolish and rebuild the house was put by the owners at 35 weeks and this was not disputed by Mr Browning. Therefore, I will allow this figure. However, I will make a deduction at the start for the preparation of plans and arranging of the new building permit of five weeks. I find that the owners will need to vacate the existing house and the new house will not be ready for their occupation for a period of 30 weeks. Mr Setford's accommodation estimate includes storage of the household effects during reconstruction. The owners obtained a quote from Geelong Removals for the storage of their household effects which was not queried by the respondents. Allowing for a deduction of $140 for 4 weeks storage from the quote and adding 30 weeks at $35 per week, gives an estimate for storage of $3,993.

7.15. In relation to the costs of alternative accommodation, Ms C Phillips, property manager of GR McCartney & Son, estimated that the rental of appropriate accommodation could be between $280 and $350 per week, her evidence was not challenged and I accept $300 per week. For 30 weeks, this would result in a cost of alternative accommodation of $9,000.

7.16. The owners submitted the damages assessed against the insurer would be on the basis of contractual damages as they are indemnifying the performance of the builder, I agree.

7.17. The owners submit that as the liability of the building surveyor is in tort the basis for the assessment of damages should be the normal rule in tort which is diminution in value, I am not so sure this is correct especially where the damaged item is the applicant's residence. Paragraph 8.1.4 of Hudsons Building and Engineering Contracts, 11th Ed. 1995 notes that some cases allege a prima facie rule in tort "that the measure of damages is the diminution in value". But the paragraph goes on to point out that there are cases that have emphasized that there is no prima facie rule; the paragraph then states:-

"It is submitted, as appears has been recognized since the 12th Edition of MacGregor on Damages that there is probably little real basis in the older authorities for any rigid prima facie rule of this kind, and that cost of replacement is only likely to be rejected in tort if it is out of all proportion to the injuries suffered by the plaintiff, the key question in that event being the reasonableness of the plaintiffs desire to reinstate the property. It is submitted that there is no valid reason for making any distinction between contract and tort, save that in a construction contract, since the contractor will have undertaken to produce a request or offered results for a price, the presumption, unless there is compelling reasons to the contrary, will be that the owner will be entitled to benefit of even an idiosyncratic bargain, unless this would be wholly unfair to the respondent."

7.18. The author then observes that whether the plaintiffs have an intention to rebuild is not an important criteria in deciding whether replacement value is the appropriate measure: Belgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 620.

7.19. Where the damage involves a domestic residence the cost of reinstatement and restoration has been held to be the appropriate measure: Evans v Balog [1976] 1 NSWLR at 36, Parramatta City Council v Lutz (1988) 12 NSWLR 293. In a more recent case, the High Court held in a short judgment that the appropriate measure of damages in negligence for a house purchased from a builder who had recently erected it was the cost of demolition and rebuilding; upholding the decision of the Judge at first instance that "the only proper and reasonable measure of damages is to the cost of demolition and rebuilding": Carosella & Or v Ginos & Gilbert Pty Ltd & Ors (1983) 57 ALJR 315. Therefore, I consider that the appropriate measure of damages, to put the owners back in the position as if the incompetence of the private building surveyor had not occurred, is the reasonable cost of demolition and rebuilding.

7.20. In the light of the evidence of Ms L Lea, valuer, that the diminution in value is $170,000.00 it is apparent that the damages sought by the owners for rebuilding based on Mr V Sanzaro's quote are reasonable in the total sum of $207,193.00 including rebuilding of the garage.

7.21. The owners did not press their claim for inconvenience and distress and no evidence specific to this head of damage was given, therefore, I will not consider this head; other than to say, in monetary terms the awards of damage under this head; are generally less than the legal costs incurred in obtaining them: see Clarke & Or v Shire of Gisborne (1984) VR 171 and Boncristiano v Lohmann & Or [1998] 4 VR 82.

8.1. Section 131 is set out earlier in this decision under the statutory framework of the building control, it does away with the normal rule of joint and several liability and substitutes 'proportionate liability', which requires that each respondent is only liable to contribute to the plaintiff its apportioned share of the damage.

8.2. If a party fails to say its apportioned share of the quantum the plaintiffs do not recover that amount of the quantum. There are no cases in relation to the apportionment of damage under s. 131 and there are few decisions from similar types of sections in other jurisdictions. Counsel for the insurer produced two authorities Proprietors Unit Plan 95/98 v Jiniess Pty Ltd (Riley J, Supreme Court of Northern Territory, 31 October 2000) and Ginos and Associates Pty Ltd v NBD Bank NA and South Italy Tiling (SA) Pty Ltd trading as Brianni Construction (1998) 197 LSJS 106, a decision of the Full Court of the Supreme Court of South Australia of 5 May 1998. Also I have received some assistance from the decision as to apportionment in Toomey v Scolaro's Concrete Constructions Pty Ltd (in liq) and Ors [2001] VSC 447, (11 December 2001), otherwise the cases were of little assistance to me.

8.3. Under s. 131 the Tribunal must give judgment for such proportion of the total amount of damages as the court considers just and equitable having regard to the extent of that defendant's responsibility for the loss or damage. This indicates an apportionment based on percentages of perceived degrees of responsibility. Generally, I do not consider that such an assessment can be too fine; I consider I should stand back and look at both parties with respect to the obligations they undertook when assessed against what are major shortcomings in the design and construction that resulted in the damage. Assessed from this viewpoint it is obvious that the crucial default is the preparation of the design without nominating the exterior wall material and with the stump footings by the builder, followed by the subsequent approval of the defective plans by the private building surveyor.

8.4. There were many errors in construction resulting in significant defects carried out by the builder during the construction and as described above, I have accepted Mr Browning's evidence that a number of these should have been identified by the private building surveyor during his mandatory inspections.

8.5. An argument can be made that the builder has the primary obligation to satisfactorily design and construct the dwelling in accordance with the assumed terms of any building contract and definitely in accordance with the statutory warranties under s. 8 of the Domestic Building Contracts Act; and, the failure to do so is the substantial cause of the damage.

8.6. However, equally, the view can be taken that the private building surveyor's sole participation in the design and construction of this property is a statutory role set out under the Act and regulations to ensure that the Act and regulations are complied with, for this he takes a professional fee. The private building surveyor failed in both his roles of issuing the building permit and carrying out the mandatory inspections.

8.7. In both the case of the builder and private building surveyor they fell far short of the competence required of them. Given their areas of responsibility and the importance of both their roles I consider they are equally liable for the damage sustained by the owners.

8.8. As the insurer is indemnifying the builder's liability for the owners under the policy of insurance it is the insurer who will be liable for the builder's proportion of the damages.

9.1. From the damages I have found above and my finding that the insurer is liable for 50% of those damages assessed on a contractual basis, with the garage included, this would come to a sum of $104,346.00. This is in excess of the limit of the policy of $100,000; so that taking into account the owners excess of $750, I will order that the insurer pay the owners the sum of $99,250 on the claim.

9.2. Allowing the private building surveyor's proportion of the damage at 50% for the costs of rebuilding, and consequential damages, excluding the garage, I order that the second and third respondents, the private building surveyor, pay the applicants, the owners, the sum of $96,596.00 on the claim.

9.3. I will have the registry set this matter down for a directions hearing at 9.30 am on 28 April 2003 in respect of any further submissions that the parties may wish to make to me.