First - Home - Buyers

Does a Council owe a duty of care to a purchaser when issuing a final Occupation Certificate?

The case of Ku-ring-gai Council v Chan [2017] NSWCA 226 provides some guidance.

The Facts

This case essentially involved an action by a purchaser of a house against the vendor and Ku-ring-gai Council.

Originally, the vendor owned a house in Wahroonga, NSW, upon which he carried out a renovation and extension by way of a two-level extension at the back of the existing house (“the works”).

Ku-ring-gai Council was the principal certifying authority of the works. The vendor retained an engineering firm to prepare the structural drawings and undertake inspections of the works as they proceeded.

The Council issued a final occupation certificate wherein it certified that the building was suitable for occupation and use, despite there being structural defects, and the works not complying with the structural drawings or the approved plans and specifications.

Thereafter, the purchasers bought the property. In doing so, the purchasers relied on a building inspection report (which identified only minor defects). The structural defects could not have been discovered on visual inspection by the building inspector.

Following the purchase, the structural defects became apparent, and the purchasers were forced to make corrective repairs at considerable expense. In addition, they had to bear the costs of relocation and alternative accommodation while the repairs were being completed.

The Original Decision

The purchasers succeeded against the vendor on a claim for breach of the statutory warranties. This claim totalled over $500,000.

The vendor was successful in obtaining a verdict against the Council for the Council to indemnify the vendor for its liability to the purchasers.

The Appeal

The Council appealed arguing that it did not owe a duty of care to the purchasers.

The Court of Appeal found in favour of the Council, concluding that:

to establish that a council owed a duty of care to a purchaser to avoid the purchaser suffering economic loss, the purchaser needs to establish that the purchaser had an inability to protect itself from the consequences of the council’s failure to exercise reasonable care (negligence), and therefore were of a class that was particularly vulnerable.

In this case, the Court of Appeal found that the purchasers were not particularly vulnerable for reasons, including:

  1. they had the benefit of statutory warranties under the Home Building Act;
  2. they were free to negotiate the terms of the sale contract, including the purchase price, to protect against the risk of loss because of latent defects.

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