Introduction

May21 Pty Ltd and FEC May22 Pty Ltd (collectively, Developer) entered an amended AS4300-1995 ‘design and construct’ contract with Multiplex Constructions Pty Ltd (Builder) for Towers 3 and 4 (Stage 2 Works) of West Side Place at 250 Spencer Street, Melbourne (Project). The contract sum for the whole of the Stage 2 Works was approximately $660 million plus GST (Contract Sum).

The Developer engaged the second defendant, the relevant building surveyor (RBS) to assess the application for a staged building permit to carry out the Stage 2 Works. The RBS adopted the entire GST inclusive Contract Sum as its estimation of the cost of the of the building works for the Stage 2 Works. In doing so, the RBS relied on guidance from the Victorian Building Authority to this effect.

The Developer disputed the RBS’s cost estimate of the whole of the building work, specifically, the RBS’s adoption of the whole Contract Sum as the ‘estimate’ for the purposes of calculating the applicable levy. The dispute was the subject of an application by the Developer in the Building Appeals Board (Board).

Proceeding in the Building Appeals Board

The Board determined that where a party applies for a staged permit under the Act and there is a contract for the whole of the building work, the RBS must estimate the cost of the whole of the building work (including the cost of labour and materials) for the purpose of section 205I(2)(a)(i) of the Act by reference only to the Contract Sum (Determination). The Plaintiffs sought judicial review of this determination in the Supreme Court of Victoria.

Judicial Review in the Supreme Court of Victoria

The Supreme Court of Victoria (Court) was asked to decide on the proper construction of section 205I(2)(a)(i) of the Act, and specifically whether the RBS’ task in ‘estimating’ the cost of building work was limited to adopting the Contract Sum.

The Court quashed the Board’s determination.

The Developer submitted that the whole Contract Sum was the price for both building work and non-building work under the Act, and while the RBS must have regard to the Contract Sum for the whole of the building work, it was not confined to that figure alone when performing the task required by the Act.

The Court agreed with the Developer’s submissions and found that is the Determination contained an error of law on the face of the record; namely, the Board misconstrued section 205I(2)(a)(i) of the Act.

The Court in coming to its decision held that the purpose of section 205I of the Act is to provide for the calculation and notification of the building permit levy. The purpose of section 205I(2)(a) is to require (in the case of an application for a staged permit) a cost estimate to be prepared by the relevant building surveyor and given to the Authority. The Authority must then calculate the amount of the levy payable pursuant to section 205G. Under section 205G of the Act, the levy is calculated by reference to the cost of building work for which a building permit is required.

In that context, the Court held that the RBS’ estimate must bear an “intelligible relationship” to the building work (as defined by the Act) but is not confined to solely the contract price in performing this estimate. Accordingly, an ‘estimate’ prepared by the RBS may take into consideration other information in its possession describing the building work (and, non-building work) beyond the contract price. The Court held that this process under the Act facilitates the verification of the relationship between the contract price and the extent of building work that falls within it. In rejecting the submissions of the Victorian Building Authority, the Court held that an ‘estimate’ that is simply a restatement of the contract price does not satisfy the requirements of the Act.

Accordingly, the Court held that, on the proper construction of section 205I(2)(a)(i), if there is a contract for the whole of the building work, the relevant building surveyor must have regard to the contract price specified, but the RBS is not confined to that figure when estimating the cost of the whole of the building work.

Conclusion

This decision has wide ranging consequences for Victorian developers, particularly of major mixed-use projects. The decision is also highly relevant for relevant building surveyors who are charged with the relevant task of ‘estimating’ the cost of building work under the Act. In view of this decision, both developers and building surveyors are encouraged to seek advice on this issue. The matter is now remitted back to the Board for determination in accordance with law.

Further information / assistance regarding the issues raised in this article is available from the authors, Bill Papastergiadis, Melbourne Managing Partner, Nathan Cutts, Partner, Phillip Vassiliadis, Partner or your usual contact at Moray & Agnew.