Key facts. 

• This proceeding concerns Botany Downs Secondary College,  a large co-educational school in east Auckland.
• H Construction built the school buildings between 2003-2009.
• 9 of the school buildings are leaky according to the Plaintiffs.  They also contend it will cost $17m to remediate the school.
• They contend the buildings leak due to a host of construction defects.
• H Construction contend that whilst the buildings suffer from defects and related poor workmanship, they comply with the Building Code.
• H Construction also contends that its contractual relationship with the Plaintiffs prevents liability in negligence in any event.
• H Construction also relies on limitation defences and contributory negligence of the Plaintiff as a defence.

Legal principles

1. Whilst H Construction partially defended the claim on the basis that the construction defects had arisen due to design failings, it did not join the architect as a third party.  The Court was not willing to apportion blame to a party that was named in the proceeding.

2. Whilst a plethora of expert witnesses were called to give contradictory evidence on whether the roof leaked, the most probative evidence called was from those that worked at the School on a daily basis.

3. Councils owe a duty of care of care to owners of commercial buildings, similarly building companies/builders do as well.  There is no longer a distinction between residential and commercial buildings.  The Building Act 2004 supports such an interpretation.

4. It is very rare occasions that this duty can be excluded by contract.  It must be expressly and clearly done and rarely could the exclusion of tortious liability be implied.  H Construction argued that the contract conditions required it to:-

• To perform the works diligently to the architect’s satisfaction;
• It was not to be liable for loss or damage caused by a design defect;
• The architect was to inspect defective works during the defects liability period;
• The contract included an indemnity for damage due to any act or omission of the Ministry, architect or contractor employed by the Ministry. 

H Construction argued that these terms of contract placed the principle obligation on the Architect, to ensure compliance with the Building Code.  It argued that the imposition of a tortious duty would be directly contrary to the intent of the parties set out in the contract.

Justice Downs disagreed.  He ruled that H Construction could have negotiated an express exclusion of tortious liability but chose not to.  Instead it entered into a standard form contract with a “modest suite of special conditions”.  It was ultimately ruled that tortious liability was not excluded.

5. The duty of H Construction was a duty to ensure compliance with the Building Code which was an endorsement of the finding on the confines of the duty of care as espoused by Tipping J in Spencer on Byron. 

6. It endorsed the principle outlined in Pullar v R as regards when a defect is construed as being discovered rather than latent.  In the context of the gymnasium floor the Court ruled that once it was identified that the floor was leaking, then the defect had been discovered even if the fact that wooden packers had been used rather than the aluminium packers as specified, was discovered some time after.  Accordingly the 6 year limitation period imposed by the Limitation Act 1950, ran from the discovery of the leaky floor rather than the discovery of the packers not being wooden.

7. The guiding principle in relation to tortious damages is for the Court to put the Plaintiff in the position he or she would have been in if the wrong had not occurred.  It follows from this general statement of principle that if a Plaintiff finds itself having to remediate a building to a higher building standard, due to changes to the Building Code, after a building was constructed but in application at the time it is to be repaired, then all of the costs of building are recoverable.  It follows that the betterment defence based upon a higher standard of building code compliance being required at repair stage, was rejected as a partial defence.

Ultimately H Construction was ordered to pay the Plaintiffs the sum of $13.5 million to pay the majority of the construction defects.

Author note. 

At the time of writing, the Football World Cup is at quarter finals stage.  I predict France to win the 2018 Football World Cup.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

Factual background. 

• In 1999 the Southland Indoor Leisure Centre Charitable Trust (“the Trust”) was granted consents by the Council to construct an indoor sports and leisure complex in Southland.  The building consents contained structural plans from the Consulting Engineer. 
• During construction it became apparent that several of the steel strusses which spanned the roof of the community courts section, were visibly sagging. 
• In November 1999 the Trust engaged Mr Harris and HCL, to peer review the original design of the community court trusses to ensure that the structure following remedial work was sound and within acceptable design standards. 
• In December 1999 HCL provided a structural report which identified defects in the design of the trusses.  The Consulting Engineer prepared a structural steel modification drawing which provided for modifications to be made to the community courts trusses. 
• On 4 January 2000 HCL provided a producer statement – PS2 Design Review which incorporated remedial detail in line with the modification work to the community courts trusses.  It also included a letter which contained the proposed remedial detail. 
• On 14 January 2000 the Council issued a building consent for the modification work to be completed in accordance with the revised design prepared by the Consulting Engineer.  A condition of the consent was that it incorporated the remedial detail prepared by HCL. 
• The modification work was carried out in January 2000 in accordance with the revised design.  A CCC was issued by the Council on 20 November 2000, and on 17 January 2001 the Consulting Engineer provided a further producer statement. 
• In April 2006 the Council became aware of movement in the roofline where the trusses spanned over the community courts.  As a result on 12 April 2006 the Trust engaged Mr Harris and his firm HCL, to review the roof structure to ensure that the building was safe in the event of snowfall on the roof.  On 9 June HCL provided a report which confirmed the ability of the trusses over the community courts to withstand the loading changes of wind and snow, but did recommend inspections of the truss weldings and support fixings. 
• On 18 September 2010 the roof collapsed on the Indoor Leisure Centre following a heavy snowstorm.  As a result of the loss suffered by the Trust, High Court proceedings were issued against the Council.  The Council denied liability and issued proceedings (albeit it third party proceedings) as against Mr Harris and his firm HCL (the Third Parties).  The Council’s third party proceedings were ultimately resolved out of Court.  The Trust’s claim was successful against the Council in the High Court.  This outcome was overturned by the Court of Appeal on the basis that the only cause of action that was available against Council (other causes of action were statute barred because of limitation defences) was in negligent misstatement based upon the wrongly issued Code Compliance Certificate.  The Court of Appeal ruled that there had been no reliance by the Trust upon this document. 

There were two issues taken on appeal from the Court of Appeal to the Supreme Court.  The first of these was the issue of whether in fact there was available to the Appellants (the Trust), a cause of action in negligence simpliciter as against the Council.  The Council had argued successfully at Court of Appeal level that the only cause of action available to the Appellant was negligent misstatement based upon the issue of the Code Compliance Certificate.

The Supreme Court considered the statutory framework set out in the Building Act 1991 in considering whether a cause of action based upon negligence simpliciter, existed against the Council in this instance.  The Supreme Court unanimously ruled that a duty of care was owed by Council in all the regulatory functions that it delivers.  It originated from its regulatory role which was directed at ensuring buildings comply with the relevant building code.  This meant that the duty was not obviated by another party’s negligence.  Furthermore, there was no distinction between a Council issuing a consent, inspecting construction work or issuing the Code Compliance Certificate.  Reasonable care must be exercised in carrying out these roles, otherwise its key regulatory function would not be achievable.  Accordingly, the Court of Appeal was wrong to consider this as only a negligent misstatement case and the Council had breached its duty of care by negligently issuing a CCC when the building was not code compliant.  Actual reliance was therefore not a necessary constituent of a successful claim in negligence against the Council, and the finding of liability against the Council by the High Court was reinstated.

On the other issue of contributory negligence, the majority affirmed the Court of Appeal’s decision in this regard and ruled the damages apportionment found against Council ought to be reduced by 50%.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

The background

MT HA,jgaard A/S (MTH) designed and installed foundational structures for two windfarms, which failed shortly after the completion of the project. The question posed was whether MTH were liable for this failure.  This was an appeal by E.ON Group (“E.ON”).

The relevant provisions of the Technical Requirements and J101

In May 2006 the appellants, E.ON Group sent documents to MTH, which included Employer’s Requirements, and Technical Requirements (“TR”), and set out the “general description of works and scope of supply, and the key functional requirements”. These included designs which could withstand operational and environmental conditions for a lifetime of 20 years without any aspect having to be replaced.

Subsequent events

MTH completed the construction of the foundation structures for the two wind farms.  This work was completed by February 2009.  However later in 2009 a problem arose with the wind farms’ foundations.  In determining who would pay for the remedial works, MTH argued they had exercised reasonable skill and care and had complied with its contractual obligations so should not bear the costs; E.ON said that MTH had been negligent and had breached the contract. The cost of the remedial work amounted to 26.25m pounds.

Put simply, the reason for the failure of the foundations was the use of grouted connections rather than shear keys, which were not of sufficient strength to manage the structures.  In particular, whilst the TR requirements enabled MTH to make its own decisions on using grouted connections rather than shear keys, it transpired that the strength of the grouted connections had been over estimated in the specific Engineer’s calculation by a factor of about ten, which meant that its strength was substantially over estimated.  It follows that shear keys ought to have been used in the foundations rather than the grouted connections.

The meaning of design warranty of 20 years. 

The question for the Court was whether, in light of the design warranty, MTH was in breach of contract, despite the fact that it had complied with the design specification.  When the natural meaning of the design warranty was considered, it involved MTH guaranteeing that the foundations would have a lifetime of 20 years.  

In deciding this question, the Court had to apply ordinary principles of contractual interpretation to the provisions of the particular contract and its commercial context. Several cases were discussed.

The Courts generally give effect to the requirement that a work is produced to the requested standard on the basis that even if the customer has specified the design, it is the contractor who will take the risk if he agreed to comply with a specific design which would make it incapable of meeting the performance criteria to which he agreed.  If the design specification was not able to meet the design performance criteria, MTH would be liable for the failure to comply with the required criteria, as it needed to identify the improvements needed to meet the design performance criteria.

The Court said that it is no excuse to say a contract was poorly drafted, the intention of the parties can be construed from the interpretation of the language, and the relevant factual matrix.  In this case, when interpreting the design warranty, it uses natural words as to the 20-year design life of the works, and imposes a clear duty on MTH. Further, it is difficult to argue that a contractual provision should not be given its natural meaning.

In addition, the Supreme Court ruled that where a contract imposes two different standards/requirements, rather than the Court concluding that they are inconsistent, the Court ought to impose the more rigorous standard upon the contracting party.

In conclusion then, this English decision says it is not enough for a contractor to slavishly follow a design specification, and if due consideration is not given by a contractor as to whether the design specification will meet the design performance criteria, then the contractor will be liable for the works not reaching the said performance criteria.  This decision (whilst English) will still be highly persuasive authority for any NZ Court charged with deciding upon this issue.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

Introduction/Summary

Straw Homes Limited (S) was employed to build a home for Mr Jefferson and Ms Wilson (J). There were delays and cost overruns in the work completed by S, which J refused to pay for. J purported to cancel the contract, employing other contractors to complete the works.

S brought a claim for its unpaid invoices and J subsequently made a counterclaim against S and its principal (the second respondent, Mr Neill), alleging negligence. J claimed that this was a fixed fee contract and sought damages for the costs of completing the new house.

The District Court found this was not a fixed fee contract. It found that S was negligent in failing to advise J of the cost implications of building a larger house but found that J had not suffered any loss, and therefore dismissed the claim.

The Facts

On 30 September 2008, J signed a building contract with S. The contract price was not stated, there was no description of the contract works, and there was no completion date. J had limited funds to spend on the new build, and had set themselves an upper limit of $600,000 to complete the build.  S was made aware of this.

J engaged an architect who drew up plans for them, one design having a floor area of 414m2, and the other design having a floor area of 375m2. The size of the upstairs area and the overall design was not settled when Mr Neill obtained prices for the estimate he provided to J.

An estimate of the house given by S was $646,060.53 excluding GST for a house with the floor area of 278m2 and recorded that this was “a price estimate for the [appellants’] home”.  A second version of this estimate was prepared which included the use of the words “this is a fixed price estimate of $646,060.63 etc”, which J requested be inserted into a copy of the signed contract as the “contract price”.  No other changes were made to the copy of the contract.  It continued to describe the contract as “managed labour only”, no other plans or description of work was attached to the contract. It was this version of the contract that was supplied to J’s Bank.

Following the granting of consent, work commenced in May 2009. During the building process, many changes were made to the design of the house, as suggested by Mr Neill and agreed by J.

In February 2010, J enquired as to the total costs required to finish the project. S responded saying that there was still approximately $100,000 required to finish the build, excluding GST, electrical work and installation of the kitchen. The relationship between J and S quickly deteriorated because of concerns surrounding the cost of the build, and the increasing number of unpaid invoices.

The District Court proceeding

S issued proceedings against J to recover the unpaid balance of their invoices, being $149,218.62.

J counterclaimed for a total of $190,728.26, being the cost they incurred with another contractor in completing the build after cancelling the contract with S, less the balance owing if the contract had a fixed price.  They alleged breach of contract, negligence, breach of Consumer Guarantees Act 1993, misrepresentation and breach of section 9 of the Fair Trading Act 1986 (misleading and deceptive conduct). J further claimed personally against Mr Neill (the second respondent) for negligence and misleading and deceptive conduct.

The District Court held that S was entitled to recover the unpaid invoices and that Mr Neill was negligent in one aspect as to price escalation, but no loss could be proven as a result of his negligence.

Issue 1: was this a fixed price contract

The High Court decision

The Court held the words ‘contract price’ could not be read in isolation, and the contractual matrix as a whole needed to be examined. The question was ‘what a reasonable and properly informed third party would consider the words of the contract to mean’, otherwise known as the ‘objective intention’ test.

In assessing what a reasonable and properly informed third party would consider the intended words to mean, the High Court concluded that the words ‘contract price’ meant an estimate. A reasonable third party would be aware that S/Mr Neill was not in a position to provide a fixed price. Further, if the parties had agreed to a fixed price, J would have been expected to protest the moment the price exceeded the ‘contract price’. Instead, J was concerned with the number of hours that were still left to complete the build rather than the price still to be paid.

Therefore, the District Court did not err in their decision.

Issue 2: had the appellants proven loss caused by negligence

The negligence claim

On appeal, it is apparent that neither J nor S was challenging the District Court finding that S owed J a duty of care to provide accurate cost estimates before the work was commenced or variation work was undertaken so that J was given the opportunity to make decisions so as to remain within their financial limits.

Whilst J argued that the District Court finding that J had suffered no loss was wrong, the High Court agreed with the District Court.  It said it was incumbent upon J to establish to the balance of probabilities that it had suffered a loss as a result of breach of the duty.  Whilst evidence was given that the building works had cost more than J had anticipated, the simple fact was that J had received the benefit of these building works in the substantial completion of their house.  No evidence was adduced that the works paid for, were not worth the value that was paid for them.  Whilst there was a last minute attempt to introduce this type of evidence, it was not allowed.

Result

The appeal to the High Court was dismissed. This decision establishes that if a party to a construction contract wishes to succeed in an argument that it is a fixed price contract, clear and unequivocal language must be used.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

It was a decision of Justice Henry and concerned a block of flats located at No. 59 Sarsfield Street, Herne Bay, Auckland.  The architect had contracted to design the 11 flats and supervise construction.  The fixed price quoted to construct these units was a mere $38,910.

Ultimately the flats were constructed, however some defects were identified by the Principal being Olsen.  The key defect identified was the squeaky floor boards on the top storey.  It was alleged by Olsen that the distance between the floor joists on the upper storey exceeded the specifications, the floor joists having been laid at 20 inch centres not 18 inch centres.  Furthermore Olsen claimed that the manner in which the floor had been constructed on the upper level resulted in an irritating squeaky noise, for the tenants below.  As a result of this defect plus some other identified defects, the Architect refused to issue his final certificate which ultimately would have triggered Olsen’s requirement to meet the final invoice rendered by the building company.

It was the building company that brought proceedings against the Principal in the first instance seeking payment of its final invoice.  Olsen in turn issued a counterclaim which represented the estimated cost to remedy the defects, and in response the Builder issued a third party claim against the Architect seeking that he indemnify it for any liability apportioned to it.  In time the Principal brought its own direct claim against the Architect.  It was alleged the Architect was negligent in failing to supervise the construction with reasonable professional skill or permitting the builder to construct the building in a manner that was not proper and workmanlike or according to appropriate standards of good building practice.  There was also a more specific allegation that the Architect had failed to provide for flashings thus allowing water to drip from the upper storey onto the doorways/windows of the flats on the lower floor.  The Court ruled that it was not negligent of the architect to provide flashings in the circumstances.  There was evidence that a design change was made at the request of the Council which had ultimately resulted in this defect.

As regards the upper floor defect, Justice Henry concluded that the Architect was not called upon to design more than a reasonable and functional wooden structure properly constructed with proper materials, based upon the applicable budget.  He had done that and the squeaky floor resulted from either poor materials or poor workmanship.  He went onto find that the Architect could not be held liable for the state of the floor.  Relying upon English authority he said the Architect had no responsibility to advise the builder how it was to carry out its building operations.  The Architect was under no obligation to tell the builder promptly that it was building something incorrectly.  He was well within his contractual rights to draw the squeaky floor boards to the attention of the builder when Olsen discovered it (near the end of the construction contract).  The Architect was not in breach of his duty by failing to discover the cause of the squeaking at the time construction of the upper floor was being completed.  The position may have been different had he ever passed the said work.  The function of the Architect (as agent of the Principal) was to make sure that in the end when the work was completed, the Principal had a building properly constructed, in accordance with the contract, plans, specification, drawings and any supplementary instructions given by the Architect.

I note the judgment remains silent on whether the said duty could have been owed to the Principal, although the judgment is dismissive generally as to any claim existing as between Principal and Architect.

It followed that the Architect was well within its rights to fail to withhold its final certificate pending the defects being remedied.  In conclusion, the Architect was completely exculpated from any liability, whereas the building company was found liable to the Principal for the upper floor defect.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

• GIL was the developer and head contractor of this house which was constructed in 2002/2003;
• The consent plans detailed a solid plaster house, however the Council approved amended plans showing a cladding change from solid plaster on baton to Insulclad;
• Insulclad was ultimately not used but instead Styroplast was installed;
• Construction commenced in May 2002 but Council was not called to site for an inspection until 18 October 2002.  At this inspection various checks were made as to weathertightness;
• A failed inspection took place on 22 April 2003 at which point the Council issued a field memorandum which noted a number of items requiring attention.  The recheck failed on 5 June 2003;
• A final building recheck was undertaken on 13 November 2003 and it failed for reasons unrelated to the cladding;
• On 16 December 2003 Council sent a letter addressed to the consent-holder at the property address, noting that any type of monolithic cladding without a cavity that had no specific inspections to deal with weathertightness issues would be reviewed on a case by case basis before determining whether a CCC could be issued;
• The property was sold on 24 December 2003 to J Ratcliffe followed by two subsequent sales;
• On 4 March 2004 the Council wrote to Mr Kim and advised that it would not issue a CCC on the house due to its inability to verify compliance with E2 (external moisture);
• Mr and Mrs Lee purchased the property from a friend on December 2004, no LIM was requested;
• Council had not issued a CCC in respect of it for, among other reasons, concerns about weathertightness;
• On or about 3 August 2012 Mr and Mrs Lee became aware that this house was a leaky building.

Whilst Mr and Mrs Lee were successful in the WHT as against the developer GIL, they failed entirely in their claim against the Council.  The issues on appeal upon which I want to focus were as follows:-

(a)  Whether the Council’s inspections and/or inspection process fell short of the standard of reasonable care;

(b)  Whether the Council’s failure to issue a Notice to Rectify (NTR) caused Mr and Mrs Lee’s loss.

(a)  Council inspection process. 

The Court ruled that there was no evidence that the Council ever inspected the cladding, so it was not incumbent upon it to have discovered that an unconsented cladding material had been used, namely the Styroplast.  Having just approved the use of Insulclad, and having required the production of a PS3 (Producer Statement) in respect of its correct install, it was entitled to assume that Insulclad was being installed.

In terms of the allegation that the Council ought to have specifically directed inspections to the installation of the cladding, the Court ruled that acceptance of a producer statement (PS3) was a reasonable step to take in lieu of specific inspections, in terms of satisfying itself that the cladding system specified was in compliance with the Building Code.  This was especially so in this particular instance because the Council had required a PS3 from the installers that carried out the construction works that the installation accorded with manufacturer specifications, together with certification by Plaster Systems being the system manufacturer.

(b)  Did failure to issue NTR cause Mr and Mrs Lee’s loss.

The Court agreed with the WHT finding that the Council breached its mandatory duty to issue a NTR on 4 March 2004, at the time it wrote to Mr Kim stating that it would not be issuing a CCC because of the cladding system used with no cavity.  In short a NTR ought to have been issued contemporaneously.

The more vexed issue was whether this had caused loss to Mr and Mrs Lee.  The Court ruled that the Council was liable for all reasonably foreseeable losses to an injured party caused by the careless breach of its duty to issue a NTR.  Once it was established that the Council negligently omitted to issue a NTR to the builder and current owner back on 4 March 2004, it was liable to Mr and Mrs Lee for any foreseeable losses, namely in this instance purchasing a leaky building without knowledge.

Accordingly, both GIL (Developer) and the Council were found liable to Mr and Mrs Lee albeit it that a contributory negligence deduction of 50% was applied against them for choosing to purchase without a LIM.

To be noted.

On the strength of this decision, expect to see Council always issue a NTR where it declines to issue a CCC, to limit exposure to liability.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

In this month’s article, I wish to summarise the key findings contained in the aforementioned Court of Appeal decision. 

Facts.

Many schools located around New Zealand owned or administered by the Ministry of Education have been affected by weathertightness.  The Ministry filed a product liability claim in the High Court against four manufacturers of products used for the construction of the school buildings including Carter Holt Harvey Ltd (CHH). 

Plywood cladding sheets (Shadowclad) were used in the construction of these schools.  It was claimed by the Ministry of Education that this cladding system was inherently defective, and has caused damage because Shadowclad allows water to enter, particularly when it is installed without a cavity behind it.

These proceedings concern an unsuccessful attempt by CHH to strike out claims based upon negligence, negligent misstatement and the Consumer Guarantees Act 1993 in the High Court.  This was appealed to the Court of Appeal. 

CHH’s liability for negligence. 

It was alleged by the Ministry that CHH owed it a duty of care in designing, manufacturing and supplying the cladding sheets and cladding systems which were used on the school buildings.  CHH denied a duty was owed. 

The Court of Appeal applied a 2 stage test, firstly looking at factual and policy aspects of the relationship between the parties, following which the second stage looked at external considerations. 

As part of the stage 1 process the Court of Appeal agreed with this statement of Asher J:-

“A manufacturer such as Carter Holt can be taken to have forseen Shadowclad would be used on buildings.  If Shadowclad or the cladding system were defective, such that they have failed to fulfil their weathertightness function or caused water to enter buildings, that could lead in due course to a weakening and rotting of the component structures and the growth of fungi in those buildings capable of damaging human health”.

Forseeabilility of damage/loss was deemed established by the Court of Appeal.  It then went onto consider proximity.  Important in this assessment was the dismissal of CHH’s main argument that the chain of contracts resulting in the supply of the Shadowclad, ought to control the allocation of risk for damage, rather than any tortious obligation imposed.  In particular CHH was relying upon the decision of Rolls Royce NZ Limited v CHH.  The Court of Appeal was not attracted to such an argument and concluded that the Rolls Royce decision was distinguishable and the contractual chain argument would not in this instance preclude CHH owing a duty to an end-consumer to manufacture its product carefully. 

The Court of Appeal also rejected CHH’s other main argument to the effect that since CHH as a building product manufacturer was not subject to the impact of regulation by the Building Act 2004, its predecessors and the Building Codes issued thereunder, the absence of legislative contemplation of duties upon a manufacturer in this area, weighed against the requisite proximity existing for a duty of care to apply in negligence.  Whilst the Court of Appeal agreed it was a factor to weigh up in assessing whether a duty of care ought to be imposed, it ruled it was not decisive. 

Overall the Court ruled that the claim against CHH based in negligence ought not to be struck out.  Furthermore it also ruled the cause of action based upon an alleged failure of CHH to warn of dangerous features in the Shadowclad also survived the strike out application, as did the causes of action brought pursuant to the Consumer Guarantees Act 1993. 

However, the cause of action based upon negligent misstatement by CHH as to inaccurate statements made about the cladding system, was struck out by the Court of Appeal because the Ministry was not able to establish reliance upon these statements by the Ministry.  This was the only cause of action struck out on appeal. 

The decision is also notable for describing as “unclear” the distinction often made by Judges/lawyers alike as to recoverability in negligence for damage to property as opposed to pure economic loss.  The Court of Appeal ruled that it was arguable that both types of loss is recoverable in negligence as is the cost of measures taken to prevent future damage. 

The decision is finally also notable for ruling that causes of action brought against building product manufacturers and suppliers, were not subject to the long stop limitation period (ten years) as stipulated in section 393(2) of the Building Act 2004. 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

In this recent case the High Court was asked to consider whether the Ministry of Business Innovation and Employment (“MBIE”) or its predecessor the Building Industry Authority (“BIA”) owed a statutory duty/duty of care to the Body Corporate or to the Council. 

The property that was the subject matter of the proceedings was the Scholar Hotel and Apartments in Auckland.  These had been constructed in 2003/2004 as a unit title development and had developed weathertightness issues.  The Body Corporate and the individual owners of the apartments filed proceedings in the High Court as against the Council and the builder Argon Construction Limited.  The Council joined in a number of third parties including the MBIE, as the statutory body that had assumed the liabilities of the BIA. 

This decision addresses an application by the MBIE to strike out the claims brought against it on the basis that none of the claims brought against it, were reasonably arguable. 

The claims brought by the Council. 

The basis behind the claims by Council as against the BIA relate to Compass Building Certification Limited.  Compass was an independent certifier under the Building Act 1991 engaged to oversee and certify the various steps in the construction process.  Compass was approved to operate as an independent certifier by the BIA, which had the statutory responsibility of approving certifiers pursuant to section 53 of the Building Act 1991. 

The Scholar Apartment owners (“the owners”) claim that Compass was negligent in certifying that the apartments complied with the building code.  They also claim that Compass was not authorised to certify unit title developments such as the Scholar Apartments during the relevant period.  However Compass no longer exists as an entity, and instead these claims have translated into claims as against Council.  The claim against Council is that it ought to have refused the certificates issued by Compass as being outside of their authority, and had it done so, the developers would have been forced to find an alternative certifier or used the Council itself. 

This claim is vigorously denied by Council and is so defended.  Nevertheless Council (in an attempt to cover all bases) says if all its other defences fail, then it says fairness and justice require that the BIA ultimately bears any losses it suffers. 

There were two general claims by the Council as against the BIA.  Firstly it claimed the BIA owed the Council/the owners, a common law duty/statutory duty, to investigate queries as to the activities of Compass, and it breached this duty by failing to investigate Compass.  Secondly, it says the BIA owed the Council/the owners, a common law duty/statutory duty, to regulate the activities of Compass, and it breached that duty where Compass acted outside of its authority.  Put another way the BIA owed a duty to the Council/the owners to notify them in a timely manner when Compass’ scope of authority was modified. 

A further cause of action was to the effect that the BIA had made negligent misrepresentations that Compass was entitled to regulate building works such as the Scholar Apartments. 

The High Court ruled (applying the principles set out in Sacramento) that any alleged duty on the BIA to investigate Compass was so untenable it ought to be struck out.  In particular the High Court was attracted by aspects of the Supreme Court’s decision in theGrange, where it observed that the BIA’s role under the Building Act 1991 was tightly constrained, whereas the Council was a much larger and better resourced organisation, and thus better able to protect itself from liability risks. 

Similarly, the High Court ruled that a claim based upon a breach by the BIA of its duty to notify the owners/the Council that Compass’s authority had been modified, was so untenable it ought to be struck out.  Logically if it was established that the BIA was in breach of this duty, then that would also exculpate Council from any potential liability to the owners for not passing this information on to the relevant parties. 

Finally, the Court ruled that a claim in negligent misstatement was so untenable as against the BIA it also ought to be struck out.  In particular the Court ruled that neither the general statutory framework nor the specific statutory context supported the view that there was any assumption of responsibility by the BIA for the correctness of its interpretation as to Compass’ scope of approval. 

Note. 

Council’s recent attempt to open up again the possible liability of the BIA or its successor has failed comprehensively, and the Court of Appeal decision in Sacramento and the Supreme Court decision in the Grange remain good law. 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

In this 2012 decision the Court was asked to rule on whether a third party claim issued by the Solicitors against a builder ought to be struck out. 

Facts. 

The trust owned a property with a homestead in Queenstown.  Davenports was a professional trustee for the trust and was its solicitor.  The homestead suffered extensive fire damage in the course of renovation by the builders.  NZI was the insurer of the homestead whose policy contained an exclusion for construction works.  Relying on this exclusion NZI declined the insurance claim that the trustees made in respect of the fire damage.  The declinature was upheld by the High Court.

The trustees therefore commenced a proceeding whereby they sued the solicitors in contract and tort for breach of their professional obligations by failing to ensure that there was adequate insurance in place to cover the risks of construction.  The trust suffered loss in that the trust property was not insured against fire during construction, and was therefore not insured for the ensuing losses.  The cost of rebuilding the homestead was $1.73m but on top of that the trust sued for the cost expended in issuing proceedings against NZI seeking cover under the policy.  These costs amounted to $164,000. 

The Solicitor’s claim as against the Builder. 

Davenports brought a third party claim as against the builder on the basis that the builder was responsible for the fire, and that it was entitled to a contribution from the builder on the basis the builders’ negligence also caused the loss that the trust claims against Davenports (the joint tortfeasor principle – section 17 of the Law Reform Act 1936).

Alternatively, it was claimed that the builder was liable in equity as the builders had a liability to the trust that is co-ordinate with the liability of Davenports, in that any amount paid by the builders to the trust as damages operated to reduce the damages payable by Davenports. 

Materially, section 17(1) of the Law Reform Act 1936 states:-

1. Where damage is suffered by any person as a result of a tort…

(c)        Any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued in time have been, liable in respect of the same damage, whether as joint tortfeasor or otherwise….”

The meaning of the words “liable in respect of the same damage”. 

The High Court following the House of Lords in the Royal Brompton NHS Trust v Hammond decision ruled that a narrow approach/interpretation ought to be given to these words, rather than an expansive interpretation.  The High Court went onto rule that  the damage suffered by the trustees at the hands of Davenports was the inability to claim insurance for their destroyed homestead.  The damage caused by the negligence of the builders was the destruction of the homestead by fire.  The High Court concluded that Davenports and the builder were not liable in respect of the same damage.  Accordingly Davenports could not claim contribution from the builder via its third party notice. 

The claim for equitable contribution from the builder also failed on the same basis.  Ultimately contribution under section 17 of in equity is based on the same notion that two parties are liable for the “same damage” or “same loss”.  It cannot be said that equity widens the scope of the test upon which an order for contribution will be deemed appropriate.  In other words, a claim for contribution which fails under section 17 cannot succeed in equity. 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

Facts. 

A claim was brought by the owners of a leaky home owner against the Wellington City Council seeking the sum of $774,000 being the work required to rectify the house plus additional claims for consequential losses and general damages.  The Council in turn joined into the proceeding two subcontractors involved with the construction of the house.  It also joined in the managing director (MD) of the construction company that had built the house.  The High Court decision makes no comment upon the status of the building company concerned and why it was not joined into these proceedings by the Council.

The Council settled the claim with the Plaintiffs prior to the matter proceeding to a hearing, and obtained contributions from the two subcontractors.  The MD did not settle with Council and chose to defend the claim brought against him by the Council.  He was successful in defending the claim.

Before summarising the findings of the High Court judge it is important to summarise the core responsibilities of the MD (in this instance) recorded by the Court :-

a)      to liase with clients;

b)      to market and sell houses and land packages;

c)       to negotiate building contracts;

d)      to act as a point of contact for banks who contacted the building company regarding packages for their customers.

The MD was an experienced builder in his own right (qualified in 1975) yet injury prevented him from continuing to work as a builder (on the tools), thus he set up a company in 1991 to market fixed price house and land packages.

The factual thrust of the claim brought by Council, was that at the point when there was a difficulty for the former owner obtaining a CCC for the house, the MD had actively made written/oral representations about the state of the construction work completed which the Council relied upon in order to issue a CCC.

The claim brought against the MD was threefold:-

a)      The MD had made negligent representations to the Council at or around the time of the issue of the CCC which made it a joint tortfeasor (with the Council) being liable to the Plaintiffs for the same damage;

b)      The MD had made negligent representations to the WCC which caused the Council to suffer loss in turn, so a direct claim existed from Council against the MD;

c)       The MD had breached the Fair Trading Act 1986 when responding to queries raised by WCC prior to issuing the CCC.

The High Court Judge considered the respective authorities on directors of building companies being personally liable.  He concluded that in claims of negligent misstatement, that in order for a director to be liable for his or her statements there needs to be a personal assumption of responsibility as to the accuracy of the representation made.  Further the representation must be relied upon, and it must be reasonable for the sufferer of the loss to have relied upon it.

The Judge ruled that a claim of contribution could not be made out as regards the MD, because there was simply no evidence that the Plaintiffs relied upon any representations made by the MD.  The claim in a) failed.

Whilst the Court was willing to find that the MD had assumed personal responsibility for some of the representations made to the Council, that the Council relied upon some of those representations, it held that it was either not reasonable for the Council to rely upon these representations, or alternatively the representations were not shown to have been wrong.

By way of specific example, the MD had written a letter as “a registered master builder” commenting positively on a window repair and that the structural integrity and durability of the house had not been impaired due to the historical leak.  The Court held that this statement within this letter was one that the MD had assumed personal responsibility for, and that he must have anticipated the Council would rely upon.  The Court also held that it was reasonable for the Council to rely upon it, however in doing so the Council had to appreciate its limitations.  In particular the MD was not saying he was an expert in leaky windows, nor that he had received independent expert advice about this matter; nor that he was giving an assurance that the windows were weathertight.

The claims in b) and c) failed.

Conclusion.

The claim brought by the Council personally as against the MD failed and is good authority for a principal of a building company (in a purely administrative role) to rely upon, where confronted with personal claims.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.