The Victorian Supreme Court has clarified that building surveyors cannot rely on the construction contract price alone when estimating the cost of the building work for the purposes of calculating building permit levy under section 205I of the Building Act 1993 (Act).

The Building Appeals Board (Board) will be required to reconsider the question before it, which may further require consideration of the meaning of ‘building work’ for the purposes of calculating building permit levy.

Background

This case involved a design and construction contract for the development of two towers at 250 Spencer Street, Melbourne known as the West Side Place development. The contract price was around $660 million. To perform the work under the contract, the builder applied for a staged building permit.

In calculating the building permit levy under section 205I of the Act, the relevant building surveyor (RBS) was required to:

• estimate the cost of the whole of the building work (including the cost of labour and materials), having regard to:
  • the contract price for the whole of the building work; or
  • if no contract price, the information provided to enable the RBS to estimate the cost of the whole of the building work; and
• estimate the cost of the stage of the building work (including the cost of labour and materials) for which the permit is sought, having regard to:
  • the contract price for the building work; or
  • if no contract price, the information provided to enable the RBS to estimate the cost of the building work.

The RBS’ estimate of the cost of the whole of the building work was the same as the contract price. The developer disputed that estimate, alleging that the RBS has not properly carried out the RBS’ function under the Act and that the estimate should have been lower than the contract sum.

The Board held that the RBS was entitled to estimate the cost of the whole of the building work by reference only to the contract price. The developer appealed the decision to the Supreme Court.

Supreme Court’s decision

The Board considered that where a contract price is explicitly provided, that the RBS can limit his or her enquiries only to this amount.

On appeal to the Supreme Court, Justice Stynes did not take such a narrow view and held that the Board had erred in its statutory construction of section 205I(2)(a)(i) of the Act. In doing so, Justice Stynes found that that an RBS can consider a broader range of factors, beyond the contract sum, when estimating the value of the work. That is, the RBS may be required to ‘look behind’ the contract sum itself.

Stynes J held that

“on the proper construction of s 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 they are not confined to that information when estimating the cost of the whole of the building work.’’

His Honour considered established principles of statutory interpretation, including decisions which have provided that

“the concept of ‘estimate’ does not involve arbitrarily seizing upon any figure.
‘estimate’ is a poor choice of word if Parliament had intended to oblige the relevant building surveyor to adopt the specified contract sum where a contract for the building work exists.”

Stynes J stated

“the task imposed by s 205I is to produce an estimate of cost. It is not a task entrusted to the applicant. Rather, it is a task entrusted to the relevant building surveyor, an independent person with the necessary skills to estimate a baseline for the calculation of the levy.”

His Honour did not agree that the task of estimating would be burdensome on building surveyors to undertake on every occasion, noting that there is no prescribed method as to how the RBS is to carry out the function which can be as complex or simple as required, and that RBS’ are often required to carry out the task if there is no contract sum.

Other issues

The issue about the proper construction of section 205I(2)(a)(i) of the Act was a preliminary question to what will be a much broader question the Board may now need to consider. That is, what is ‘building work’ for the purposes of estimating the amount under that section of the Act.

The developer has argued that certain amounts should be excluded from the RBS’ estimate, the result of which would of course reduce the levy payable under the Act. The Court was not required to answer that question on appeal.

Who should be aware of this decision?

Building surveyors (including Municipal Building Surveyors) and Council building teams should note the Court’s interpretation of section 205I of the Act when estimating the cost of building work. Although the Court has not stated the precise process for RBS’ when estimating the cost of the whole of the building work, it has made clear the exercise is not as simple as merely applying the contract sum.

Owners and developers will be interested in the Board’s subsequent decision, assuming the Board will need to consider whether certain work or certain amounts under a construction contract are excluded from the estimate of the RBS. The decision could have a significant impact on owners and developers as well as State Government and the Victorian Building Authority to whom building permit levy is paid.