This recent decision of the Court of Appeal has significant implications for Victorian developers and building surveyors, particularly those involved in large scale and mixed-use developments.

The Court of Appeal confirmed the Supreme Court’s earlier decision with respect to the calculation of the amount of the building permit levy payable by developers under the Building Act 1993 (Vic) (Act).[1] The Act requires surveyors to “have regard” to the contract price when estimating the cost of building work for purposes of calculating the applicable building permit levy under s 205I(2)(a)(i) of the Act. The Court of Appeal held that in estimating the cost of building work, there is no prohibition on the relevant building surveyor considering other relevant matters, in addition to the contract price.

Moray & Agnew’s construction team acted for the Developer in this case.

Key Takeaways

• Building surveyors are not restricted to the contract price in estimating the cost of building work for the purposes of calculating the applicable building permit levy under the Building Act 1993 (Vic)
• The cost of building work upon which the levy is calculated may not always be the contract price
• Developers and building surveyors should seek legal advice to effectively navigate their obligations under the Act, particularly in large scale and mixed-use development projects.

Background

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

The Developer engaged the fourth respondent, the relevant building surveyor (RBS) to assess the application for a staged building permit to carry out the Works. The RBS adopted the entire GST inclusive contract price as its “estimate” of the cost of the of the Works. In doing so, the RBS relied on guidance from the Victorian Building Authority (VBA) to this effect.

The Developer disputed the RBS’s adoption of the entire contract price as the “estimate” for the purpose of calculating the applicable levy. Central to the Developer’s position was the submission that there was no prohibition on other relevant information being considered, in addition to the contract price. This could include, for example, trade breakdowns and other material demonstrating that certain items in the contract price were not ‘building work’ within the meaning of the Act, and therefore not leviable.

The Developer was initially unsuccessful in the Building Appeals Board. In the first appeal, the Supreme Court of Victoria found in favour of the Developer. It held that the whole contract price was the price for both building work and non-building work under the Act, and while the RBS must “have regard” to the contract price for estimating the whole of the building work, there was no prohibition on the RBS considering other matters, in addition to the contract price.

The VBA made an application seeking leave to appeal the decision of the Supreme Court of Victoria.

For a summary of the decision of the Supreme Court of Victoria, click here.

Appeal

On application for leave to appeal, the VBA submitted, among other things, that when performing its estimating task, the RBS must have regard to only the contract price and may only use other information where there is no contract price.

The Court of Appeal affirmed the Supreme Court’s decision, and the Developer’s position and refused the VBA’s application for leave to appeal. The Court of Appeal agreed that while the RBS’ estimate “must give weight to the contract price as a fundamental element” in ascertaining the cost of building work for which a building permit is required, the RBS is not prohibited from having regard to other relevant information. 

In reaching its decision, the Court of Appeal agreed with the Court’s earlier conclusion that the RBS’ estimate must bear an “intelligible relationship” to the building work because there is no obligation under the Act to pay a levy with respect to any other cost other than “the cost of building work for which a building permit is required” pursuant to section 205G of the Act.

Conclusion

This decision has industry wide consequences and will change the basis upon which the building permit levy is calculated in the future. The effect of this decision will vary substantially between projects, and developers and surveyors should seek legal advice about their rights and obligations under the Act.