The case of Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd  NSWCA 223 (Mistrina) considers the current state of the law with regard to proving causation where a party claims loss against a third party based on allegations of misleading and deceptive conduct.
In the building and construction industry, the principles enunciated in this case are particularly important in the context of certification of works and reliance on the advice of building and design professionals.
The decision is authority for the propositions that:
- causation will be proven where the contravening conduct is shown to be a material cause of the loss suffered by the plaintiff; and
- in the absence of direct evidence, an overwhelming inference that the contravening conduct is a material cause of the loss suffered by the plaintiff will establish causation.
The decision also clarifies that building and design professionals may be liable to third parties i.e. with whom they don’t have a contractual relationship where they are found to have engaged in misleading and deceptive conduct which causes economic loss.
Mistrina was a property developer that entered into a contract with a builder to construct a residential apartment building in Brighton Le Sands (Project). For the purpose of the development Mistrina borrowed $7.2 million. As is common practice in the building and construction industry, Mistrina, the builder and the financier entered into a deed whereby the financier was entitled to exercise certain “step in” rights in the event that Mistrina was not able to perform its obligations under the deed.
During construction of the Project, it was discovered that an engineer’s certificate related to the certification of a raft slab was incorrect and the raft slab in question was defective. This defect was a serious structural defect and threatened the structural integrity of a neighbouring property. Upon discovery of the defect, the Project was put on hold until the defect could be rectified. Due to the Project being put on hold, Mistrina and the builder were not able to perform their respective obligations under the deed with the financier. This failure to perform led to the financier exercising its step in rights which eventually resulted in significant economic loss to Mistrina.
The proceedings were brought as a case of loss of opportunity, in other words, the misleading or deceptive conduct of the engineer had caused Mistrina the loss of opportunity to make a profit from the development.
At first instance, it was found that even though it was not disputed that the erroneous certificate provided by the engineer constituted misleading and deceptive conduct, Mistrina had failed to establish that the financier had exercised its step in rights because of the structural defect and erroneous certification.
On appeal Mistrina submitted that the primary judge ought to have held that the engineer’s misleading and deceptive conduct caused the appellants to suffer the loss and damage in question.
Decision on Appeal
The appellate court judge found that the primary judge erred in finding that Mistrina had failed to establish that the conduct complained of played “a material part” in the financier’s decision to exercise its step in rights for Mistrina to have established causation.
The basis for this conclusion of the primary judge was that Mistrina had failed to adduce direct evidence as to the motivation of the financier. The appellate court judge found that the whole of the evidence provided basis to draw an inference that cessation of the building works due to the structural design defect was “a” material cause of the decision of the financier to exercise its step in rights notwithstanding that no direct evidence had been produced by Mistrina.
On a related point, the primary judge found that the submissions Mistrina did make with regard to the financier’s motivation were mere conjecture. On appeal, the appellate court found that it is counter-intuitive to suggest that other issues played a role in the financier’s decision, but the existence of the structural defect did not, when the structural defect was an issue which fell more neatly into an event of default under the deed.
Foreseeability of Damage
An additional point to note is that the appellate court judge found that the losses suffered by Mistrina were a reasonably foreseeable consequence of the misleading and deceptive conduct by the engineer. In deciding this point, the appellate court once again drew an inference, based on the evidence as a whole, that the loss was foreseeable even in a general way. This conclusion was reached on the basis that in a construction project of this size, a secured creditor calling up its loan is an event that could naturally arise from delays, additional costs and the discovery of such significant structural defects.
If you are a building and construction professional you need to be well aware of your rights and obligations when procuring professional advice.
If you would like to discuss this article with us further, please contact Brett Vincent, Managing Partner, or Maddy Manousaridis, Associate on (02) 9261 5900.