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Engineers and other building professionals beware of potential liability to third parties that are not privy to a contract when issuing erroneous certifications!

Mario Rashid-Ring ||

The case of Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd [2020] NSWCA 223 highlights that third-party professionals in building disputes can found be liable for causing loss if their conduct was a material cause of the loss. In this case, the Court held a design engineer liable for loss suffered by a property developer by relying on an erroneous certification of a structurally defective raft slab, although the design engineer was not directly contracted by the developer.

Background

In 2009, Mistrina Pty Ltd (Developer) entered into a contract with Jabbcorp Management Pty Ltd (Builder) for the construction of a 10-storey development in Brighton-Le-Sands (Development) funded by a loan facility from Bankwest (Bank). The Developer, Builder and Bank entered into a tripartite deed, which allowed the Bank the right to assume the Developer’s obligation under the building contract following ‘Event of Default’.

The Builder engaged Australian Consulting Engineers Pty Ltd (Engineer) as its structural engineers who provided certification that the raft slab used for the development complied with the Building Code of Australia. After a year into construction, when the project was well advanced, it was found that contrary to the certification provided by Engineer, the raft slab used was defective, which resulted in the suspension of works. This subsequently led to the Developer defaulting under its loan facility initiating the Bank to exercise its rights to sell the partially completed development.

As prior to the suspension, the Developer was expecting to complete the Development within the stipulated time and at a profit, the Developer commenced proceedings against the engineer to recover its losses.

Supreme Court decision

Because the Developer had no contract with the Engineer, it decided to bring a claim of misleading and deceptive conduct under section 52 of the Trade Practices Act 1974 (Cth) (now section 18 of the Competition and Consumer Act 2010 (Cth)) against the Engineer. Whilst the primary judge found that the certificate issued by the Engineer amounted to misleading and deceptive conduct, the claim was dismissed as it was held that the Developer failed to establish causation that the Bank acted on its security because of the structural defect.

Court of Appeal decision

The Developer succeeded on appeal, on the basis that there was a causal link between the Engineer’s misleading conduct and Developer’s loss of opportunity. In reaching its decision, the Court of Appeal found that:

  • cessation of building work due to the defective raft slab was a material cause of the Bank’s decision to call on the security; and
  • the loss suffered by the Developer was a reasonably foreseeable consequence of the misleading and deceptive conduct.

The Court awarded the Developer with $2,265,556 and its director/ guarantor with $1,105,000 in damages.

Key takeaways

This case serves as a reminder that developers, builders, and third-party professionals must be aware that liability in building disputes is no longer confined to the contractual relationship but can extend to a third-party outside of the direct chain of contracting.  

If you require any assistance or if you have any questions relating to the above, please do not hesitate to contact a member of Coleman Greig’s Building & Construction team.

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