Leaky Buildings - Summary judgment - Individuals behind Developer companies

Bergin & Bergin v North Shore City Council & Ors

Written June 2007

This High Court decision concerned a town house in Long Bay, Auckland. The Second Defendants had brought a claim for summary judgment against the Plaintiffs and said that the two causes of action alleged against them could not succeed. In response the Plaintiffs argued that they had arguable causes of action, and that these could only be tested at trial and after cross-examination.

The first cause of action against the Second Defendants alleged that as developers, they purchased the land with the intention of subdividing it and building three townhouses. The Plaintiffs alleged that the Second Defendants owed them a duty of care to ensure that the house was built to the minimum standard set by the Building Act 1991, and that it was carried out to a workmanlike standard.

The second cause of action alleged that the Second Defendants, as directors, shareholders and employees of Hibiscus Coast, owed the Bergins a duty of care to ensure that the townhouse was constructed to a workmanlike standard. The claims are unusual in that they not only name the developer company Hibiscus Coast as a defendant, but they also name the directors of that company as Second Defendants.

The burden that the Second Defendant had to reach in order to succeed against the Plaintiffs was to establish to the balance of probabilities, that Mr and Mrs Bergin could not succeed on either of the causes of action against them.

Dealing with the first cause of action, the Court held that there was an arguable case that the Second Defendants were both legal and beneficial owners of the property up to the time it was transferred to Hibiscus Coast, immediately prior to its transfer to the Bergins. The Court also held that there was sufficient evidence of the Second Defendants having involvement in the subdivision, building consent and construction phases to establish an arguable case for them being held liable as developers. Accordingly the Court concluded that it could not conclude that Mr and Mrs Bergin's first cause of action against the Second Defendants would fail.

As regards the liability of the directors of Hibiscus Coast in the summary judgment context, the Court felt no need to decide upon this point because it had decided that the Second Defendants would be kept in as parties to this litigation anyway, on the basis of the first cause of action.

This case once again shows the Court's willingness to find a liability for individuals of developer companies, where they have had active involvement in the development process. By analogy, and has been found in other cases (see Dicks v Hobson Swan Construction Ltd & Ors), individuals of construction companies that actively get involved in the construction process, similarly will attract personal liability. That having been said, it should be remembered that these conclusions were only made at summary judgment level. It still may transpire that the Second Defendants attract no personal liability should a full trial take place.