Attorney-General v Body Corporate 200200 Ca30/05
[2005] NZCA 296
•1 December 2005
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IN THE COURT OF APPEAL OF NEW ZEALAND
CA30/05
BETWEENTHE ATTORNEY GENERAL
Appellant
ANDBODY CORPORATE NO. 200200 AND OTHERS
Respondents
Hearing:25, 26 and 27 October 2005
Court:Glazebrook, William Young, O'Regan, Robertson and Panckhurst JJ
Counsel:M T Scholtens QC and A S Butler for Appellant
J R F Fardell QC and P R Grimshaw for Respondents
Judgment:1 December 2005
JUDGMENT OF THE COURT
AThe appeal is allowed and all causes of action against the Attorney‑General are struck out.
BCosts are reserved. If costs are sought, a memorandum should be filed within seven days with the reply memorandum to be filed seven days later.
REASONS
(Given by William Young J)
Table of Contents
Para No
Introduction [1]
THE BUILDING ACT 1991 – OVERVIEW
Background [5]
Scheme and purpose provisions in the 1991 Act [9]
Key provisions in the 1991 Act [11]
Civil proceedings [15]
THE POSITION OF THE BIA UNDER THE 1991 ACT
General functions [18]
Revenue [21]
Building code [22]
Approval of building certifiers and associated insurance [25]
arrangements
Leaky building syndrome and legislative responses [26]
The body corporate’s case [32]
LEGAL CONSIDERATIONS
The general approach to the imposition of a duty of care [35]
Proximity [37]
Policy - general [38]
The imposition of a duty of care on public bodies [39]
Reasoning backwards from the alleged negligence [43]
- situational duties
Overlap with public law principles [47]
STRIKE OUT PRINCIPLES AS APPLIED IN PUBLIC LAW NEGLIGENCE [50]
CONTEXTSThe issues raised by the case [52]
THE FACE FIXED MONOLITHIC CLADDING CLAIM
General [53]
THE APPROACH TAKEN IN THE HIGH COURT [55]
The alleged overarching duty [58]
The alleged duty associated with preparation of documents
establishing compliance with the building code [63]
The alleged situational duty [67]
THE ABC APPROVAL CLAIM
Overview [72]
The approach in the High Court [76]
Discussion [78]
THE INSURANCE COVER CLAIM
Overview [82]
The approach in the High Court [89]
Discussion [90]
Conclusion [94]
Introduction
[1] A substantial residential development (the Sacramento complex) suffers from leaky building syndrome. The first plaintiff (the body corporate constituted for the complex under the Unit Titles Act 1972) and the second plaintiffs (the individual proprietors of the 153 units that make up the complex) now seek substantial damages from a large number of defendants. We will refer to the plaintiffs (who are the first and second respondents in this Court) collectively as the body corporate.
[2] One of the defendants is the Attorney-General who is sued on behalf of the Crown as the statutory successor to the liabilities of the Building Industry Authority (“BIA”). For ease of reference we will treat the BIA as being the relevant defendant (and appellant in this Court).
[3] In a judgment delivered on 2 February 2005 (Body Corporate 200200 & Anor v Approved Building Certifiers Ltd & Ors HC AK CIV 2003 404 512 2 February 2005), Williams J struck out an aspect of the claims advanced by the body corporate against the BIA but otherwise dismissed a strike out application by the BIA.
[4] The BIA now appeals to this Court.
The Building Act 1991 – overview
Background
[5] This case raises issues which cannot be understood without detailed reference to the scheme of the Building Act 1991 (“the 1991 Act”).
[6] The pre-1991 Act regulatory scheme involved a mix of local and national requirements and is discussed in detail in the judgment of Richardson J in Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA). That decision was upheld by the Privy Council, see [1996] 1 NZLR 513.
[7] The 1991 Act largely implemented a 1990 report (Reform of Building Controls) by the Building Industry Commission to the Minister of Internal Affairs. This report recommended the introduction of a performance-orientated scheme to replace the existing regulatory scheme which the Commission saw as overly prescriptive and stifling of innovation. The report is permeated with a high level of confidence that a combination of light-handed regulation and the mechanisms of the market would produce better outcomes than the existing scheme. By way of example, the Commission considered that judicial decisions in the 1970s and 1980s holding local authorities liable for building defects had incentivised local authorities to impose increasingly onerous requirements on those engaged in building works and had thereby produced costs which were higher than “the private owner would have chosen” (see 123 of the report). Further, a key recommendation of the Commission was the breaking down of what it saw as the monopoly position of territorial local authorities as to certifying compliance. In this respect the Commission recommended that independent “approved certifiers” should have the right to vouch for building code compliance and that territorial local authorities should be required to accept the certificates of such certifiers.
[8] The Commission recognised that a corollary of the implementation of this recommendation would be that building certifiers would have a liability in tort in relation to building defects which corresponded to that of local authorities but, of course, would not have corresponding financial resources to meet resulting claims. The Commission addressed this problem as follows:
4.86The potential for liability of an Approved Certifier must be capable of realisation. This can only occur if there is adequate insurance indemnification. It would be the responsibility of an applicant to satisfy BIA that appropriate cover was available.
4.87Insurance indemnification is based upon the likelihood of a claim or claims, and this risk cannot be evaluated without an appreciation of the time scale within which a claim could be launched. The Law Commission’s recommendations for replacing the Limitation Act 1950 have not as yet been considered by Parliament. Until this has occurred, it is not possible for the insurance industry or the Commission to suggest a formula for providing a generally applicable basis for ensuring that Approved Certifiers will be able to meet a claim for which they may be held liable. In the meantime, the Commission recommends that BIA be given the discretion of approving applications for certification it if is satisfied in any particular case that insurance cover will be available to provide for claims lodged within the present statutory period.
4.88The Commission’s working group on insurance has advised that indemnification cover for Approved Certifiers would be available for up to 10 years within the building professions. Premiums are unlikely to be appreciably higher than present professional indemnification for producers of equal qualifications and experience, because the likelihood of a claim is lessened by having the original producer’s work checked independently.
…
4.92When a building producer is at fault – be that the architect, engineer, builder or any other member of the building team – the owner has a right of action for damages or for breach of contract. If the fault lies with the builder in common with the [territorial local authority] and/or the Approved Certifier, there is no reason why liability should not fall upon any one or more of them where it belongs, in accordance with the general law.
4.93A builder can evade liability by bankruptcy or winding up, but a [territorial local authority] cannot. The purpose of insisting upon an Approved Certifier having adequate insurance cover is to protect the owner from any exercise of this means of avoiding liability.
…
6.26The alternative procedure of certification for all or part of the work by Approved Certifiers will be slow to develop unless indemnity insurance for potential liability to be carried by Approved Certifiers is available at reasonable cost. This will be reflected in the charges and readiness of people to offer these expert services and the cost advantage to the owner for a particular project.
6.27Such insurance would have to cover defects discovered some time after a negligent act, and the Commission has considered the level of insurance cover required for Approved Certifiers in relation to the open-ended cover afforded by [territorial local authorities].
6.28Owners choosing the alternative certification route are in a position to weigh the risk of their future loss in the event of negligent certification and damage not covered by the Approved Certifier’s liability insurance. The qualifications of Approved Certifiers are to be approved by BIA. Possible loss to the owner would be limited by the fact that in general, an Approved Certifier will certify only part of the building: air conditioning, structure, or fire systems, for example, although these could in some cases have consequential effects on other parts. The owner can be expected to choose the producers with some care. It is up to the owner, then, to decide whether the advantages of the Approved Certifier route for that particular project outweigh the residual risk of future claims based on negligent certification not being covered, taking into account other arrangements the owner could make for property protection insurance.
6.29The position of second and subsequent owners must also be considered if the alternative certification procedure was chosen by the first owner. The purchaser would have the first owner’s occupancy consent, together with the names of the Approved Certifiers. Some time for latent defects to appear would have already elapsed. The purchaser’s interest would not be limited to Code deficiencies but would extend to deficiencies in meeting their own requirements as well, so they could be expected to carry out inspections on their own behalf and to weigh their risks accordingly. Finally, latent defect insurance could be available to them if they required it. The cost of this insurance would be a factor in determining the purchase price.
6.30It is proposed that the type and minimum amount of professional indemnity insurance to be carried by Approved Certifiers should be laid down from time to time by the BIA. The Commission suggests that the public interest would be satisfied if the indemnity insurance provided forward cover for a period of 10 years from construction completion and issue of an occupancy consent, of not less than $200,000 for small buildings, including housing, and not less than $400,000 for other buildings.
Scheme and purpose provisions in the 1991 Act
[9] Section 6(1) provided that the purposes of the Act were to provide for, inter alia:
Necessary controls relating to building work and the use of buildings, and for ensuring that buildings are safe and sanitary … .
Section 6(2) provided that “particular regard” was to be had to the need to:
Safeguard people from possible injury, illness, or loss of amenity in the course of the use of any building … .
[10] Although considerations of building durability and suitability for purpose are encompassed, to some extent, by the broad language of s 6(1)(a) and (2)(a), the section did not explicitly provide for the protection of the economic investments of building owners. In saying this we recognise that the scheme of the 1991 Act (and the building code promulgated under it) was intended to result in buildings being durable. As well, where building defects became apparent (at least providing that this occurred within the relevant limitation period) the 1991 Act (and those who promoted it) envisaged that there would be rights of action for building owners. But the Commission’s 1990 report recognised that building owners would necessarily face a “residual risk of future claims based on negligent certification not being covered”, see para 6.28 cited in [8] above.
Key provisions in the 1991 Act
[11] The 1991 Act provided for the Governor-General in Council to make regulations to be known as the building code prescribing functional requirements for buildings and the performance criteria with which buildings must comply (s 48). Such regulations were required to be made on the advice of the Minister following recommendations from the BIA (s 48(3)) and an associated consultative process (s 48(4)). All building work was required to comply with the building code (s 7).
[12] We interpolate here that the building code was promulgated as part of the Building Regulations 1991.
[13] Territorial authorities had primary responsibility for the administration of the building code (see s 24(a) and (e)). Thus all building works required authorisation by a building consent issued by the relevant territorial local authority (s 32). Such consent was required to be given if the local authority was satisfied on reasonable grounds that the provisions of the building code would be met if the building work was properly completed in accordance with the plans and specifications which were submitted (s 34(3)). Likewise territorial authorities were responsible for issuing code compliance certificates in respect of completed building works (s 43).
[14] In all of this, the role of building certifiers was extremely important. The 1991 Act provided for a register of building certifiers who were approved as such by the BIA (see s 51). Territorial authorities were required to act on certificates from building certifiers when issuing building consents and code compliance certificates (see ss 34, 43 and 50(1)(a)). So, if a building certifier certified code compliance, there was no second guessing of that by the relevant local authority.
Civil proceedings
[15] The 1991 Act precluded civil actions against, inter alia, members and employees of the BIA (s 89). Civil proceedings against building certifiers were required to be bought in tort and not in contract (see s 90). Section 91 provided for a limitation period of ten years from the date of the relevant “act or omission” in respect of proceedings associated with the construction of buildings and the exercise of related statutory functions.
[16] Section 91(3) and (4) provided:
91 Limitation defences
…
(3) For the purposes of subsection (2) of this section if—
(a) Civil proceedings are brought against a territorial authority, a building certifier, or the Authority; and
(b) The proceedings arise out of the issue of a building consent, a building certificate, a code compliance certificate, or an Authority determination—
the date of the act or omission is the date of issue of the consent or certificate or determination.
(4) For the purposes of subsection (2) of this section, if civil proceedings are brought against the Authority and the proceedings arise out of the issue of an accreditation certificate, the date of the act or omission is the date at which the accreditation certificate was relied on.
[17] A significant number of the building defect cases that succeeded against local authorities in relation to the pre-1991 Act regulatory regime would have fallen foul of a ten year limitation period commencing as provided for in s 91(3). In the Hamlin case for instance the limitation period would have expired in 1982, seven years before the relevant building defects became apparent. A case such as Hamlin would thus have failed under the regime introduced by the 1991 Act. So the way in which the limitation provisions were structured necessarily increased the likelihood that losses caused by negligent building certification might be irrecoverable.
The position of the BIA under the 1991 Act
General functions
[18] Section 12 provided for the functions of the BIA:
12 Functions of Authority
(1) The Authority shall have the following functions under this Act:
(a) After consultation with appropriate persons and organisations, advising the Minister on matters relating to building control:
(b) Approving documents for use in establishing compliance with the provisions of the building code:
(c) Determining matters of doubt or dispute in relation to building control:
(d) Undertaking reviews of the operation of territorial authorities and building certifiers in relation to their functions under this Act:
(e) Approving building certifiers:
(f) Granting accreditations of building products and processes:
(g) Disseminating information and providing educational programmes on matters relating to building control:
(h) Generally taking all such steps as may be necessary or desirable to achieve the purposes of this Act:
(i) Any other functions specified in this Act.
[19] Under s 14 the Authority was required to comply with directions as to Government policy given to it by the Minister of Internal Affairs. Section 15 provided for the BIA to undertake reviews of the way in which territorial authorities carried out their functions under the Act.
[20] Section 17 provided:
17 Matters of doubt or dispute relating to building control
(1) If any doubt or dispute arises in respect of—
(a) Whether particular matters comply with the provisions of the building code; or
(b) The territorial authority's decision in relation to—
(i) The issuing of or the refusal to issue, or the cancellation of, any building consent, notice to rectify, code compliance certificate, or compliance schedule, or any amendment thereto; or
(ii) Any condition attached to a building consent, notice to rectify, code compliance certificate, or compliance schedule, or any amendment to any such condition; or
(iii) The granting or refusal of any waivers or modifications under section 34(4) of this Act; or
(c) The issuing of, or the refusal to issue, a code compliance certificate under section 43 of this Act or a building certificate under section 56 of this Act; or
(d) The exercise by a territorial authority of its powers under sections [38] and 46 of this Act, and the issuing of a certificate under section 224(f) of the Resource Management Act 1991—
any of the parties may apply to the Authority for a determination in respect of the doubt or dispute.
…
(3) Except as provided in section 81 of this Act, if any dispute or doubt arises which can be the subject of a determination, no proceedings, other than injunctive proceedings, shall be instituted in the District Court or the High Court unless the applicant in the Court, or any other party entitled to do so, has already applied for a determination of that dispute or doubt, and the Authority has made its determination.
A right of appeal to the High Court on questions of law was provided in relation to any such determination (see s 86).
Revenue
[21] The BIA’s funding came from building levies provided for by the 1991 Act but was subject to the control of the Ministers of Internal Affairs and Finance as to its expenditure (see s 23K).
Building code
[22] Under s 48, the BIA was necessarily heavily involved in the promulgation and amendment of the building code; this subject to the BIA complying with a consultation process provided for by s 48(4).
[23] Pursuant to s 49 the BIA was entitled to approve documents for use in establishing compliance with the provisions of the building code and again a consultation process was provided for, see s 49(9).
[24] Sections 58 to 63 provided for the accreditation of building products and processes by the BIA. The BIA’s accreditation of such a product or process in effect certified that the particular product or process complied with the specified provisions of the building code.
Approval of building certifiers and associated insurance arrangements
[25] Part VII of the Act made provision for the approval by the BIA of building certifiers. This approval process required building certifiers to carry insurance on terms that met the requirements of the BIA.
Leaky building syndrome and legislative responses
[26] Leaky building syndrome emerged as a problem in the late 1990s and the early years of the current century. The syndrome is associated with the ingress of water through the external membrane of a building and inadequate water management. This results in the building’s timber framing retaining sufficient moisture to permit fungal activity. This fungal activity causes decay to the timber framing and also, in itself, poses health risks for those who use the building.
[27] During the 1990s increasingly diverse building systems came into common use (including the use of face fixed monolithic cladding) and a number of design practices, building techniques and consumer preferences emerged which are relevant in the present context. These include; flat roof structures, buildings without eaves, the replacement of flashings with sealants, balconies and decks, and an increasing focus on energy efficiency at the expense of natural ventilation.
[28] Prior to the mid-1990s, radiata pine used for framing was usually treated to protect against insect attack. This treatment also provided a measure of resistance to fungal decay. In 1995, the Standards Association of New Zealand published NZS 3602:1995 which permitted the use of untreated timber for framing. Para 105.5 of this document is in these terms:
Radiata pine framing members that have been kiln dried at 74 ºC or above, to 18% moisture content or less and have been planer gauged do not require preservative treatment, provided they are not exposed to ground atmosphere or in any position where the timber moisture content will exceed 18%.
[29] In February 1998, the BIA issued “Acceptable Solution B2/AS1” which recorded:
3.2 Timber
3.2.1NZS 3602: Part I is an acceptable solution for meeting the durability requirements of timber building elements.
[30] Primarily (although not exclusively) implicated in leaky building syndrome is the use of face fixed monolithic cladding systems directly over untreated pinus radiata timber. It is now clear that where such systems are used over untreated pinus radiata, careful design and workmanship are required to limit water ingress and particular provision must be made for ventilation and general water management.
[31] The incidence of leaky building syndrome in buildings erected under the regulatory regime provided for by the 1991 Act has been so high as to suggest systemic failure within the building industry. Insurance for building certifiers became impossible (or practically impossible) to arrange. By the early years of this century all building certifiers who had operated under the 1991 Act were out of business. So the system envisaged by the 1991 Act had largely broken down. This resulted in legislative responses, particularly the Weathertight Homes Resolution Services Act 2002 and, more recently the Building Act 2004. The latter Act provides for a regulatory scheme which differs appreciably from the 1991 Act.
The body corporate’s case
[32] The Sacramento complex was built in 1999 and 2000 using face fixed monolithic cladding over untreated pinus radiata framing. It is common ground that the complex suffers from leaky building syndrome which became manifest as early as 2002. Some of the units appear to be unsalvageable and the total losses associated with the current state of the building are very large, in the order of $20m.
[33] The main aspects of the claims against the defendants other than the BIA are as follows:
(a)Approved Building Certifiers Ltd (“ABC”), the building certifier who had certified compliance with the building code, was negligent (and in breach of its statutory duty under the 1991 Act as well as breaching the Fair Trading Act 1986) in relation to its code compliance certificates.
(b)The builders negligently constructed the complex and were in breach of the Fair Trading Act.
(c)The architect was negligent in the preparation of plans, designs, drawings, and specifications and also in breach of the Fair Trading Act.
(d)The suppliers of the cladding systems were guilty of negligence, in breach of the Fair Trading Act and liable under the Consumer Guarantees Act 1993.
(e)The project manager is liable in negligence and under the Fair Trading Act 1986 in relation to the way it managed the project.
(f)BRANZ Ltd, an independent assessor of building products, was negligent in its approval of one of the cladding systems and liable for associated negligent misstatement and for breach of the Fair Trading Act.
(g)The developers are liable for breach of contract, under the Consumer Guarantees Act and in negligence.
(h)The supplier of concrete tiles and lead flashings was negligent in relation to a number of pleaded roofing defects.
(i)Insurance companies who indemnified some of the other defendants are liable under s 9 of the Law Reform Act 1936.
A number of the defendants are insolvent and a number of insurers have declined cover. Most relevantly, ABC is now in liquidation and its insurer has declined cover, alleging non-disclosure in respect of an unrelated claim. In any event ABC’s insurer’s potential liability is limited to $2m, approximately 10% of the total loss alleged.
[34] As against the BIA, the body corporate alleges:
(a)The BIA owed a duty (or duties) of care associated with, or encompassing, the use of face fixed monolithic cladding systems over untreated timber. We will refer to this head of claim as “the face fixed monolithic cladding claim”, although, as will be seen, there are in fact some distinct components to it.
(b)The BIA was negligent in its supervision (involving review and approval) of ABC. We will refer to this head of claim as “the ABC approval claim”. The alleged duty of care can be taken as owed to (or encompassing) the clients of ABC and subsequent purchasers of buildings in respect of which ABC had certified code compliance.
(c)The BIA was negligent in its approval of insurance cover arrangements for ABC. We will refer to this head of claim as “the insurance cover claim”. This alleged duty of care can be taken as owed to (or encompassing) the clients of all building certifiers and subsequent purchasers of buildings in respect of which such certifiers had certified code compliance.
Legal considerations
The general approach to the imposition of a duty of care
[35] This has been discussed in many decisions, most recently in the judgment of this Court in Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 325.
[36] In determining whether a duty of care exists, the ultimate question for the Court is whether it is just and reasonable that such a duty be imposed. The courts look to the proximity or relationship between the parties and also to any wider policy considerations that bear on whether a duty of care should be imposed.
Proximity
[37] Foreseeability is a necessary precondition for the imposition of a duty. But a conclusion that harm was foreseeable does not in itself warrant the conclusion that there is sufficient proximity to justify the imposition of a duty of care. Relevant to this assessment are:
(a)Whether duties of care have been imposed in analogous situations.
(b)The substantiality of the nexus between the defendant’s alleged negligence and the plaintiff’s loss (a factor which may to some extent overlap considerations of remoteness and causation).
(c)General considerations of vulnerability on the part of the plaintiff and the potential burden on the defendant (or others similarly placed) of taking precautions against the risk in issue (see for instance Woolcock Street Investments Pty LtdvCDG Pty Ltd (2004) 205 ALR 522 at [23]). This necessarily raises the question whether the plaintiff (and others similarly placed) or the defendant (and others similarly placed) are better placed to take steps to avoid or minimise the relevant risk.
(d)The nature of the relevant risk. The courts are most likely to find proximity where the underlying risk is associated with health, personal injury or death and more likely to do so where there is a risk of property damage than where the loss is purely economic. Of course, in building defect cases it is not always easy to distinguish between property and economic loss. Also relevant is the size of the class affected by the risk. The larger that class (and thus the more indeterminate the alleged duty), the less likely it is that a duty will be imposed.
Policy - general
[38] In this case, the policy issues that arise are primarily associated with the particular statutory context in which the BIA operated and thus fall to be considered in terms of the principles which apply when an attempt is made to impose a duty of care on a public body.
The imposition of a duty of care on public bodies
[39] The primary policy issue that must be addressed is whether the imposition of a duty of care would be consistent with the terms and policies of the statute which governed the functions of the defendant. A duty of care will not be imposed if the effect would be inconsistent with the scheme and policy of the Act, see for instance Attorney-General v Prince and Gardner [1998] 1 NZLR 262. Reference can usefully be made to X (Minors) v Bedfordshire County Council [1995] 2 AC 633, Fleming v Securities Commission [1995] 2 NZLR 514, Oceania Aviation Ltd v The Director of Civil Aviation CA163/00 13 March 2001 and Graham Barclay Oysters Pty Ltd & Anor v Ryan & Others (2002) 211 CLR 540.
[40] We have, of course, not been asked to focus on what might be regarded as the advantages of the regime introduced by the 1991 Act. It may not be fair to judge the policies that underpinned the 1991 Act primarily by reference to the leaky building syndrome problem. In any event, that sort of evaluation would be irrelevant to our task as it would not be right for us to approach this case on the basis that the policies which were given effect to by the 1991 Act were misguided (even if that was what we thought). Instead, we must take, and give effect to, those policies as we find them.
[41] Statutory functions that involve quasi-judicial or legislative powers are not appropriately the subject of duties of care, see for instance Cooper v Hobart (2001) 206 DLR (4th) 193, Kimpton v Attorney-General (2002) 9 BCLR (4th) 139, Welbridge Holdings Ltd v Metropolitan Corporation of Greater Winnipeg (1970) 22 DLR (3d) 740 and Yuen Kun Yeu v Attorney-General of Hong Kong [1988] 1 AC 175.
[42] The Courts are slower to impose duties of care in relation to omissions to act (non-feasance) as opposed to the positive exercise of statutory powers (misfeaseance), see Stovin v Wise [1996] AC 923. As well, the more policy‑orientated and less operational the power in question is, the less likely a duty is to be imposed (albeit that the policy/operational test is not always altogether easy to apply, cf Stovin v Wise at 951). The further removed the public body is from day to day physical control over the activity which directly caused the loss, the less likely the Courts are to impose a duty of care, see for instance Yuen Kun Yeu at 196 per Lord Keith of Kinkel.
Reasoning backwards from the alleged negligence – situational duties
[43] In cases of this sort, it is customary for a plaintiff to focus on what is alleged to be the negligence of the defendant and to formulate the proposed duty of care by reference to that alleged negligence. Such a duty of care may fairly be described as situational. This approach, if adopted by the Court, is likely to favour a plaintiff; this because it requires a primary focus on what is alleged to be the fault of the defendant and the limited nature of the asserted duty (with its narrow scope) is less likely than a more broadly expressed duty to engage countervailing policy arguments. This has been very much the argument of the body corporate in this case; identifying what it claims to have been the faults of the BIA and then to structure the asserted duties of care around those faults.
[44] It is not difficult to find cases in which Courts have reasoned backwards from apparent negligence to a conclusion that in the context of the particular risk which eventually crystallised, there was a duty of care, addressed to the amelioration of that particular risk. An example is Pyrenees Shire Council v Day (1998) 192 CLR 330 as explained in Graham Barclay Oysters Pty Ltd at 576 and 581 by McHugh J. Reference can also be made to the speech of Lord Pearson in Home Office v Dorset Yacht Club Ltd [1970] AC 1004 at 1052 which was adopted by this Court in Wilson & Horton Ltd v Attorney-General [1997] 2 NZLR 513 at 517. It would be wrong, therefore, to suggest that this is an illegitimate reasoning process.
[45] On the other hand, such reasoning is not without its difficulties. In this context, Fleming v Securities Commission is relevant and important. The plaintiffs had lost money in an investment scheme which had been illegitimately marketed. Although the scheme had come to the attention of the Commission, the steps it took in relation to it were both limited and ineffectual. The plaintiffs sued in negligence alleging a situational duty of care addressed to the particular circumstance that the Commission had been on notice of the illegitimate nature of the marketing of the scheme. The proceedings were struck out in the High Court. On appeal to this Court, Cooke P focused on the possible existence of a duty on the part of the Commission to take appropriate action if alerted to apparent breaches of the Act and was thus reasonably receptive to the argument that there was a duty of care (see 519 – 520). On the other hand, Richardson J, with whom the other judges (Casey Gault and Ellis JJ) agreed, was not prepared to approach the case on this basis. If there was a duty of care, it would have to be much broader than that asserted by the plaintiffs and there were many policy arguments which militated against the existence of such a duty (see 529 – 531 per Richardson J). Reference can also be made to the dissenting judgment of Hayne J in Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at [301].
[46] The majority’s approach in Fleming suggests that where a plaintiff’s case proceeds on the basis of an alleged situational duty (ie closely focused on particular circumstances of risk which are said to have existed), the Court should:
(a)During the proximity phase of the inquiry, be careful to ensure that the narrow duty alleged can credibly be regarded as discrete from a broad (and untenable) duty of care in relation to the relevant statutory functions; and
(b)In assessing policy considerations, analyse carefully the implications, in terms of the scheme and structure of the relevant statute, of recognising even a situational duty.
Overlap with public law principles
[47] It has been suggested that public law considerations have a role to play in determining whether a duty of care should be imposed. This emerges, for instance, from the speech of Lord Hoffmann in Stovin v Wise at 953:
In summary, therefore, I think that the minimum pre-conditions for basing a duty of care upon the existence of a statutory power, if it can be done at all, are, first, that it would in the circumstances have been irrational not to have exercised the power, so that there was in effect a public law duty to act, and secondly, that there are exceptional grounds for holding that the policy of the statute requires compensation to be paid to persons who suffer loss because the power was not exercised.
Such approach would avoid conflict between the imposition of a duty of care and the due performance by public bodies of their statutory function by confining the imposition of a duty of care to circumstances in which the public body has acted in a way which was not contemplated by the legislature.
[48] The public law approach, however, is problematical. It would introduce into the law of negligence public law principles which have been developed for different purposes. As well, it does not provide a convincing explanation for the existing pattern of authorities. For instance, many situations in which duties of care have been imposed (eg in respect of building inspectors or in the child welfare context) do not have a significant public law overlay whereas statutory powers which are most commonly subject to judicial review tend to involve the sort of quasi-judicial or quasi-legislative functions which are off-limits in terms of the imposition of a duty of care.
[49] On this point, we respectfully adopt the approach taken by McHugh J in Crimmins at 21:
With great respect … I am unable to accept that determination of a duty of care should depend on public law concepts. Public law concepts of duty and private law notions of duty are informed by differing rationales. On the current state of the authorities, the negligent exercise of a statutory power is not immune from liability simply because it was within power, nor is it actionable in negligence simply because it is ultra vires. …
Reference can also be made to X (Minors) & Ors v Bedfordshire County Council at 736 per Lord Browne-Wilkinson, Barrett v Enfield London Borough Council [2001] 1 AC 550 at 571 – 572 per Lord Slynn and Bailey and Bowman “Public Authority Negligence Revisited” [2000] 59 CLJ 85 at 113 and following.
Strike out principles as applied in public law negligence contexts
[50] In all cases the threshold for a strike out application is rigorous and the courts are especially slow to strike out claims in negligence which assert novel duties of care; this in recognition of the factually sensitive nature of the inquiry and what will often be the need for evidence, including expert evidence, and the testing of such evidence in a trial setting. In a proper case, however, a determination may be made on the existence of a duty of care on a strike out application. The difficulty of the associated legal issues does not preclude the granting of the application. As to these considerations see the remarks of Richardson P in Attorney-General v Princeand Gardner at 267.
[51] Such cases throw up competing considerations of policy. On the one hand, the courts should not lightly deny plaintiffs the opportunity to proceed to trial on novel issues of law. Moreover, a trial will present a more favourable forum to assess the issues involved in establishing a duty of care. On the other hand, however, defendants ought not to be subjected to the substantial costs, much of which is usually unrecoverable, in defending untenable claims.
The issues raised by the case
[52] We propose to discuss the issues raised by the case by reference to the three heads of claim which are in issue, namely:
(a)The face fixed monolithic cladding claim;
(b)The ABC approval claim; and
(c)The insurance cover claim.
The face fixed monolithic cladding claim
General
[53] The face fixed monolithic cladding claim was expressed, at the time of the hearing in the High Court (albeit informally as part of a memorandum of 22 September 2004), in these terms:
69.The [BIA] owed a duty of care to the plaintiffs as owners of homes with face fixed monolithic cladding systems to exercise reasonable care in connection with its responsibilities and, in particular to:
(a)Take reasonable care to take all reasonable steps to collect and address available information relating to any serious construction problems arising overseas arising from the use of face-fixed monolithic cladding systems over untreated timber, particularly those creating a risk of serious and severe consequences for the health and safety of occupants and the enjoyment by occupants of their homes;
(b)When it became aware of such serious construction problems arising overseas to promptly and carefully consider the consequences for New Zealand and to promptly set in train processes to ameliorate the problems in New Zealand;
(c)When it became aware of such serious construction problems arising in New Zealand to promptly and carefully consider the consequences and to promptly set in train processes to ameliorate the problems in New Zealand;
(d)Exercise reasonable care in relation to its preparation/approval of documents for establishing compliance with the building code in so far as they related to the use of face-fixed monolithic cladding systems over untreated timber;
(e)Warn the minister, people within the building industry (including territorial authorities and building certifiers and the public) concerning potential serious and severe implications for the health and safety of occupants; and the enjoyment of their homes.
[54] There are three aspects to the alleged duty:
(a)First, what might be regarded as a broad and overarching duty owed by the BIA to all building owners (see particular (e) above).
(b)Secondly, a duty associated with preparation of documents establishing compliance with the building code (see particular (d) above).
(c)Thirdly, a situational duty to respond to what is said to be mounting evidence of the problems associated with the use of face fixed monolithic cladding systems (see particulars (a), (b) and (c) above).
The approach taken in the High Court
[55] The nature of this claim was summarised by Williams J in the High Court in this way:
[151] The nub of those claims is that having regard to BIA’s responsibilities under the Act and the Code, it was under a responsibility to collect and process overseas information concerning use of the cladding systems over untreated timber and the information furnished to it as to experience with such systems in New Zealand and take steps as part of its power to control the building industry to warn those involved in the industry, including prospective home owners, about the possible consequences of using such systems, or to amend the Code, or revoke Acceptable Solution B2/AS1 to ensure use of the cladding systems over untreated timber ceased.
[56] The Judge thus addressed this cause of action as being primarily focused on two particulars of negligence, failure to amend the building code and failure to revoke Acceptable Solution B2/AS1. The Judge took the view that there was no tenable claim by the plaintiffs in relation to the suggestion that the building code ought to have been amended but that there was a tenable claim in relation to Acceptable Solution B2/AS1. He struck out the claim only to the extent to which it relied on the non-amendment of the building code.
[57] In this respect the Judge’s approach has led to some difficulty in this Court:
(a)The body corporate did not specifically allege, in the particulars of negligence, a failure on the part of the BIA to promote an amendment to the building code. Promotion of such an amendment was one of a number of steps which may have been open to the BIA to “ameliorate” leaky building syndrome problems in New Zealand (in terms of particulars (b) and (c) of the pleading). But there were other steps open to the BIA, for instance the dissemination of information pursuant to s 12(1)(g) of the 1991 Act.
(b)The structure of the Judge’s final order (by which he confined the strike out order to what he perceived to be a complaint about failure to amend the code) means that significant aspects of the body corporate’s claim, as pleaded, were not addressed by the judgment.
(c)The body corporate did not specifically allege a failure to revoke Acceptable Solution B2/AS1 as a particular of negligence (albeit that item (d) of the particulars asserts a related complaint). Indeed a revocation of Acceptable Solution B2/AS1 would not in itself have necessarily resulted in a “cessation of the use of cladding systems over untreated timber”, as the Judge would appear to have thought.
The alleged overarching duty
[58] In the late 1990s, the BIA could have foreseen that adoption by the building industry of defective building systems had the potential to cause substantial economic loss. Further, it would have been open to the BIA (in the sense of being within its functions as provided for by s 12) to investigate practices within the building industry, and to take steps which would have been effective to put an end to (or at least limit) practices which were producing outcomes which did not conform to the building code. It could have achieved this in various ways, either by use of its specific statutory powers (for instance by promoting an amendment to the building code, under its s 17 jurisdiction to determine disputes or perhaps by way of review of the operation of building certifiers) or alternatively by disseminating information under its general s 12(g) power.
[59] Further, if there was a duty of care, it is at least arguable (on the basis of what we have seen) that the BIA was negligent. Similar widespread leaky building problems occurred in North America in the 1990s. As well, some in the New Zealand building industry were, by the late 1990s, predicting (accurately as it turned out) that the then current building techniques and systems would result in widespread building failure. It may well be that the BIA could and should have acted more promptly on these concerns. Give the timing of events, it would have been sufficient for the body corporate if such action had been taken as late as 2000.
[60] We are, however, satisfied that there was no such duty.
[61] We deal first with proximity:
(a)The relationship between the BIA and building owners was extremely limited. The only direct links between the BIA and the body corporate was that the BIA approved ABC as a building certifier and the building systems used for the Sacramento complex involved the use of untreated pinus radiata (the use of which had been approved by Approved Solution B2/AS1). But ABC was plainly not the only building certifier prepared to issue code compliance certificates in relation to monolithic cladding systems over untreated pinus radiata timber framing. If ABC had not been the building certifier, some other certifier (or perhaps the Manukau City Council) may have certified code compliance. Further, and very importantly, the way in which untreated pinus radiata timber framing was used in the construction of the Sacramento complex was not as approved in Acceptable Solution B2/AS1. Although such issues may be material in terms of remoteness and causation (should a duty of care exist) they are also relevant to the insubstantiality of the link between the actions of the BIA and the losses suffered by the body corporate.
(b)In contradistinction, responsibility for the durability of the Sacramento complex might be thought to rest far more directly on the developers, designers, builders and code compliance certifiers than on the BIA.
(c)The report of the Building Commission (on which the 1991 Act was based) envisaged building owners taking responsibility for the condition of the homes they bought. Some of the views expressed in that report might seem a little unrealistic. We have in mind particularly some the remarks made in paras 6.28 and 6.29 of the report (see [8] above). For instance we doubt if many owners take out latent defect insurance protection. We also doubt if many owners would have acted in the way suggested in para 6.29. On the other hand, it is difficult to see building owners as being particularly vulnerable to inaction on the part of the BIA. Inaction on the part of the BIA in relation to a particular building system could not fairly be taken as amounting to a warranty that that building system produced code compliant outcomes. Where such a warranty (in substance) was to be given, specific statutory processes (as to approved solutions or accreditation) were provided for.
(d)Analogous cases are, on the whole, against the imposition of a duty of care. Perhaps the closest of the analogous cases of high authority is Graham Barclays Oysters and the drift of judgments in that case are very much against the body corporate. The only generally comparable case in which a regulator was held to be liable is Crimmins but that case is readily distinguishable as involving physical injury, a high level of control by the regulator over the activities of the plaintiff (including directing him to work in circumstances which were dangerous) and a relationship between regulator and plaintiff which was akin to that of employer and employee.
[62] Policy considerations (to some extent overlapping) point in the same direction:
(a)Many of the roles provided under the 1991 Act for the BIA are of a quasi-legislative or quasi-judicial nature and aspects of the complaints made by body corporate against the BIA are associated, directly or indirectly, with some of these roles. Thus, while it would have been open to the BIA to address the causes of leaky building syndrome by way of the dissemination of information under s 12 (g), the BIA could also have done so more directly in terms of recommendations as to the building code, under its s 17 jurisdiction or by way of a review of the operations of building certifiers. Since the exercise of quasi-legislative and quasi-judicial functions is largely off-limits in terms of imposing duties of care, the nature and extent of the BIA’s quasi-legislative and quasi-judicial roles are a strong pointer against the imposition of a duty of care. In saying this we recognise that broadly similar arguments did not prevail in Crimmins but, for reasons which we have given, that was a much stronger case for the plaintiff.
(b)The 1991 Act is very clear in its delimitation of responsibilities. In cases where building certifiers were involved, their certificates were conclusive. There is no indication in the 1991 Act, or in its precursor report, to suggest that the BIA had a long-stop liability where building certifiers had negligently certified compliance. The imposition of such long stop liability would have incentivised the BIA to adopt a vigilant approach to the approval of certifiers and their insurance arrangements which may have made it impracticable for building certifiers to operate. Such a consequence would have been contrary to the purpose of the Act.
(c)The primary complaint is of a lack of action on the part of the BIA. A positive duty of care extending to general superintendance over the building industry in New Zealand would have significant resource implications which would, in all probability, require the courts to review the reasonableness of the resources allocated to the BIA by the responsible ministers, cf Fleming at 529 - 530 per Richardson J and Graham Barclay Oysters at 554 per Gleeson CJ.
The alleged duty associated with preparation of documents establishing compliance with the building code
[63] This aspect of the case focuses on Acceptable Solution B2/AS1. But this, we are satisfied, is a red herring.
[64] It is important to recognise that the building system used for the Sacramento complex did not conform to the BIA’s “Acceptable Solution B2/AS1” as it did not ensure that the moisture content of the timber framing was less than 18%. Further the body corporate accepts that untreated pinus radiata is suitable for framing timber, providing it is used within the constraints provided for in NZS 3602:1995.
[65] The body corporate is not seeking to show that Acceptable Solution B2/AS1 was intrinsically false or wrong. Indeed, the body corporate’s reliance on Acceptable Solution B2/AS1 is very indirect. The claim is that when the BIA issued Acceptable Solution B2/AS1 in February 1998, it knew (or ought to have known) that untreated timber was being used with faced fixed monolithic cladding systems in circumstances where the requirements stipulated in NZS 3602.1995 were not being achieved.
[66] These considerations highlight the reality that an “Acceptable Solution B2/AS1” claim cannot sensibly be looked at on a stand-alone basis. Rather the arguments as to this document simply form a subset of the arguments which relate to the contention that the BIA ought to have been warning the industry and public of the dangers of monolithic cladding systems over untreated pinus radiata framing or taking other steps to ameliorate the risks of building failure associated with this particular building practice.
The alleged situational duty
[67] On the case advanced by the body corporate, the BIA was, from at least April 1998, on notice that serious difficulties were likely to result from the use of face fixed monolithic cladding systems over untreated timber framing. Accordingly, on the body corporate case, the BIA came under a duty to investigate the situation and to take reasonable steps to address the problem.
[68] If the BIA was on notice as alleged but just sat on its hands (which is very much what the body corporate alleges), this would have involved a significant error of judgment and a major departure from legitimate expectations as to how even a light handed regulator might be expected to behave. It is tempting therefore to conclude that the conduct attributed to the BIA was so far outside the scope of what the legislature intended that to impose a duty of care would not be inconsistent with the legislative policy of the 1991 Act (cf the public law approach to negligence by public bodies discussed in [47] - [49] above). It is also tempting to pray in aid the cases which support the view that it is legitimate to reason backwards from negligence to the imposition of a duty of care, see [43] - [46] above.
[69] It is, however, trite that maladministration by a public body is not in itself a ground for awarding damages. Importantly, the proximity considerations referred to in [62] above are as applicable to the alleged situational duty as they are to the alleged overarching duty. Further, it would not necessarily be right to regard the use of face fixed monolithic cladding over untreated timber framing as a special case. Presumably similar arguments as to situational duties could be raised in relation to any building system (or product, builder, territorial local authority or building certifier for that matter) about which (or whom) complaint had been made to the BIA. As well, the ability of the BIA to respond to concerns about the use of face fixed monolithic cladding systems over untreated timber framing was limited and would have required decisions to be made as to the allocation of resources.
[70] In this context we see Fleming as involving a very similar situation, and the majority judgment in that case is directly against the body corporate.
[71] Accordingly we see the argument of the body corporate as to the situational duty alleged as untenable.
The ABC approval claim
Overview
[72] The body corporate claims that the BIA owed a duty to exercise reasonable skill and care in reviewing the operations of ABC as a building certifier in July 1999 and in renewing ABC’s approval in December 1999. More particularly, the body corporate alleges that in July 1999, the BIA knew that ABC was issuing code compliance certificates for homes with monolithic cladding over untreated timber and thus breaching the building code. The body corporate also argues that the BIA ought to have prevented ABC from issuing further certificates for buildings with such cladding systems.
[73] The body corporate relies on the powers of the BIA to sanction a certifier or cancel its approval of that certifier.
[74] The statutory basis for approving a certifier was s 53 which provided:
51 Applications for approval as building certifiers—
(1) Any person may apply to the Authority for approval as a building certifier.
(2) Every application shall be in the prescribed form and shall specify the provisions of the building code in respect of which the applicant wishes to be approved as a building certifier.
(3) Except as provided by subsection (5) of this section, each application shall include—
(a) Information that will enable the Authority to decide whether or not the applicant has appropriate qualifications, adequate relevant experience and sufficient knowledge of the building code, and, if so,—
(i) The specific provisions of the building code in respect of which the applicant should be approved; and
(ii) Any limitations which should be placed on such approval:
(b) Evidence that a scheme of insurance approved by the Authority will apply in respect of any insurable civil liability of the applicant that might arise out of the issuing by the applicant of a code compliance certificate under section 43 of this Act or a building certificate under section 56 of this Act.
…
(5) In the case of an applicant who is or has been a building certifier and who is applying for continuation or renewal of approval in respect of the same provisions of the building code, the application need not be accompanied by the documentation required by subsection (3)(a) of this section but instead shall be accompanied by—
(a) A list of any additional qualifications that the applicant has acquired since that person's previous application; and
(b) A request for any changes to any limitations imposed on the previous approval, with reasons for the request.
[75] Section 54 provided for the BIA to consider complaints about the conduct or ability of building certifiers and s 55 provided for the procedure to be followed where the BIA elected to conduct an inquiry into the conduct or ability of a building certifier and, in appropriate cases, for the imposition of sanctions. Under s 86(1)(b) a right of appeal lay to the High Court in relation to any decision made by the BIA to decline an application for approval or any order made under s 55.
The approach in the High Court
[76] Williams J described the cause of action in this way at [139]:
Here, the prime allegation is that, by the time BIA had, through its agent, completed its review of ABC’s operating procedures in July 1999, BIA was aware that ABC had issued Code Compliance Certificates for dwellings clad with the cladding systems over untreated timber framing. Further, by that date, BIA was aware from material it had obtained from North America and from a firm of New Zealand building consultants that rot problems may arise from the use of the cladding systems over untreated timber with inadequate ventilation or drainage. As in any striking-out application, those dual allegations must be regarded as capable of proof. The claim then asserts that BIA should have informed ABC that it must not issue Code Compliance Certificates for use of the cladding systems over untreated timber because such construction did not comply with the Code and Acceptable Solution B2/AS1 and did nothing in that regard.
[77] The Judge considered that there was a relationship of proximity sufficient to give rise to a tortious duty on the BIA’s part to take steps to prevent pure economic loss to the plaintiffs by “countermanding ABC’s power to issue Code Compliance and Building Certificates for buildings using the cladding systems over untreated timber” (see [140]). Moreover, the Judge held that the case was “not too far distant from the actions which, in the building inspector cases, were held to give rise to a duty of care” (see [141]).
Discussion
[78] Many of the factors already referred to in relation to the overarching duty claim are relevant here. As well, there is a sense in which the body corporate seeks to rely on situational duty considerations (in particular its allegation that BIA knew or ought to have known that ABC was issuing compliance certificates for buildings which did not conform to the building code). The primary consideration, however, which points against, and in our view excludes, the imposition of a duty of care is the quasi-judicial role of the BIA.
[79] In this respect we regard the following passage from the judgment of the Supreme Court of Canada in Cooper v Hobart at [52] as being relevant:
The decision of whether to suspend a broker involves both policy and quasi-judicial elements. The decision requires the Registrar to balance the public and private interests. The Registrar is not simply carrying out a predetermined government policy, but deciding, as an agent of the executive branch of government, what that policy should be. Moreover, the decision is quasi-judicial. The Registrar must act fairly or judicially in removing a broker’s licence. These requirements are inconsistent with a duty of care to investors. Such a duty would undermine these obligations, imposed by the Legislature on the Registrar. …
[80] In any event, the statutory scheme is inconsistent with the intensity of scrutiny that a duty of care would presuppose. Once a certifier had been approved, the amount of information to be provided to the BIA for a continuation of approval was relatively limited. On the body corporate’s view of the law, the BIA was in an invidious position. Failure to identify negligent certifiers and strip them of the ability to practise would occasion liability in negligence sounding in damages. But by taking action, based on a limited statutory ability to gather information and constrained by budgetary limitations, the BIA would expose itself to challenge on administrative law grounds. Further, it would have jeopardised the purpose of the statute if it had adopted an overly cautious approach by reason of the prospect of litigation from developers or home owners looking for recovery of economic losses.
[81] From the point of view of public policy, the imposition of a duty of care along the lines pleaded would require the BIA to “assume the role of Code policeman,” to adopt the words of Ms Scholtens QC. That is inconsistent with the limited role for the BIA established by Parliament. Moreover, it is inconsistent with the established line of authorities which hold that regulatory authorities are not liable in negligence to the public for failing to identify incompetent persons and firms who fall within their supervisory role.
The insurance cover claim
Overview
[82] The plaintiffs claim that the BIA owed them a duty of care in the performance of its statutory functions under s 52 of the Building Act 1991. This involved a general duty in relation to its approval of a scheme of insurance to apply to private building certifiers and specifically in relation to the insurance arrangements of ABC.
[83] The key statutory provision is s 52(6)(c) which provided that the BIA should grant approval if it is satisfied that, among other matters:
That a scheme of insurance approved by the Authority will apply in respect of any insurable civil liability of the applicant that might arise out of the issuing by the applicant of a code compliance certificate under section 43 of this Act or a building certificate under section 56 of this Act.
Section 51(3)(c) required applicants seeking approval as building certifiers to provide evidence as to their insurance arrangements and in particular that a scheme of insurance approved by the BIA would apply in relation to “any insurable civil liability”.
[84] A good deal of evidence was lead in the High Court as to the evolution of the insurance arrangements proposed by the BIA. That material makes it clear that the Building Industry Commission was over-sanguine in the 1990 report as to the ability of building certifiers to obtain insurance cover. The sort of ten year cover postulated by the Commission in para 4.88 of the report (see [8] above) proved to be unavailable. The only insurance available was on a claims-made basis. The BIA sought to put in place a system which would ensure (although “ensure” is too strong a word) that building certifiers who went out of business would maintain run‑off cover. Another interesting aspect of this part of the case is the assumption by both the Commission (see for instance para 4.88 of the report) and the BIA in its assessment of the extent of cover required as to the relevance of pre-1991 insurance practices and claims histories of engineers, architects and local authorities. With the benefit of hindsight, it would appear that the insurance practices and claims histories associated with the heavily regulated pre-1991 building industry were not a sure guide to the insurance arrangements which would be both:
(a)Available to a new professional group operating in a comparatively deregulated environment; and
(b)Sufficient to provide a real likelihood of substantial recovery for plaintiff building owners in cases such as the present.
[85] The BIA initially issued a performance specification for insurance cover for building certifiers. Such cover was to be “on the basis that one year’s premium buys cover for each certificate issued during that year whenever the claim under the certificate is made” up to the ten year limitation in s 91. Because such cover was not available, the BIA modified its requirements and, in about March 1995, the BIA published a revised insurance performance specification which provided the basis for the insurance cover taken out by ABC.
[86] The primary complaints made by the body corporate as to the scheme of insurance approved by the BIA are that this scheme permitted insurers to decline liability on grounds of material non-disclosure and provided for the limited cover, in the present case, $2m.
[87] It is clear that the BIA recognised that this specification would not make building certifiers as judgment worthy as territorial authorities.
[88] There are two issues raised by the claim:
(a)Whether the scheme of insurance approved by the BIA conformed to the requirements of the 1991 Act given that it did not provide for full indemnity in relation to all possible civil liabilities of ABC; and
(b)Whether the BIA was negligent in relation to its approval of that scheme.
The approach in the High Court
[89] Williams J refused to strike out this aspect of the claim.
[147] …[This] cause of action pivots on the correct interpretation to be given to ss 51(3)(b) and 52(6)(c) and in particular the phrase “any insurable civil liability”. … [T]here are at least two logically arguable constructions to be given to the subsections and, in particular, to that phrase. Despite counsel's submissions, it would not be right at this stage for the Court to attempt a definitive ruling on what Parliament intended by its phrasing of ss 51(3)(b) and 52(6)(c). Although a number of what are likely to become the major documents in relation to this cause of action have been put in evidence, it is unlikely the Court has all the relevant documents before it and, in any case, it does not have the benefit of evidence from those involved in BIA’s investigation into what might amount to a scheme of insurance it could approve in terms of the Act. It has no expert evidence as to the state of the insurance market at the time and in particular whether it was possible for there to be set in place a scheme of insurance which would have fully protected Body Corporate 200200 or debarred insurers from disclaiming liability for prior non-disclosure. In addition, it has no evidence as to the appropriate extent or ambit of cover which might have satisfied ss 51(3)(b) and 52(6)(c). And there is no evidence of any Hansard comments on the topic as aids to what Parliament may have intended. There thus seems to be a wealth of evidence and documentary material not yet before the Court.
[148] Of course, at trial it may perhaps turn out to be the case that Mr Mathieson’s submissions are correct and that the terms of the scheme of insurance which BIA said it would accept were the best achievable and satisfied ss 51(3)(c) and 52(6)(c) and accordingly this cause of action will fail. But, equally, on the present state of the pleadings and evidence, the Court could not confidently come to such a conclusion.
[149] Therefore, without needing to consider matters of proximity and policy, BIA’s application to strike out this cause of action must fail given the need for further evidence and submissions to decide the pivotal point, namely whether the insurance effected by ABC in accordance with the terms of the scheme which BIA said it would approve satisfied ss 51(3)(c) and 52(6)(c). This is not, of course, to give any indication this cause of action will succeed - it, too, may face substantial hurdles in causation and liability - but what the Court is holding is that BIA has failed to show the cause of action is incapable of success.
Discussion
[90] Mr Fardell QC for the body corporate sought to persuade us that the scheme approved by the BIA did not conform to the requirements of the 1991 Act. His contention initially seemed to be that the insurance cover contemplated by that Act had to be effective to provide complete cover in relation to all possible liabilities of ABC, something which, as the circumstances of this case shows, was not achieved.
[91] We do not construe the 1991 Act as requiring a scheme which would guarantee that all building certifiers carried insurance sufficient to indemnify them against any possible claim for damages associated with their certification activities and irrespective of non-disclosure and/or misrepresentation by building certifiers in their insurance proposals. In the end, Mr Fardell shrank from asserting that there was such a statutory requirement.
[92] We recognise that the scheme of insurance arranged by the BIA was not as comprehensive as envisaged by the Commission in its 1990 report. An example is the inability of the BIA to arrange ten year cover as envisaged by the Commission. More generally, both the Commission and the BIA would appear to have had a higher level of confidence in the ability of insurance arrangements between building certifiers and insurance companies to provide protection for third party building owners than was justified. But the difficulty for the body corporate is that once the absolutist approach is recognised as unsustainable (and plainly it is), the appropriateness of the relevant insurance arrangements was, ultimately, a question of evaluation for the BIA. In this context there was the important policy consideration which the BIA had to square up to: if it imposed insurance requirements more onerous than could be met by building certifiers “at reasonable cost” (see para 6.26 of the 1990 report) there would be no building certifiers and an important element of the reforms introduced by the 1991 Act would not be able to be implemented.
[93] Once again, a number of the considerations referred to in relation to the overarching duty claim are relevant here. There are, however, two particular reasons why it seems to us that there can be no duty of care in relation to insurance arrangements:
(a)Approval of insurance arrangements is part and parcel of the approval process for building certifiers, a process which itself was subject to a right of appeal to the High Court. This makes it part of a quasi‑judicial process.
(b)Perhaps more importantly, the existence of a duty of care on the BIA in relation to insurance would have had the tendency to produce the sort of official over-vigilance that the 1991 Act was intended to avoid. If liable for insurance failures, the BIA could be fairly expected to insist upon building certifiers obtaining insurance to an extent which would have impacted adversely on the ability of building certifiers to operate (and may in fact have precluded their operations) and thus with the tendency to frustrate the underlying purposes of the Act.
Conclusion
[94] For the reasons given we are satisfied that none of the causes of action are sustainable. Accordingly, the claims against the BIA are struck out.
[95] We reserve all questions of costs. If costs are sought, a memorandum should be filed within seven days with the reply memorandum to be filed seven days later.
Solicitors:
Crown Law Office, Wellington for Appellant
Cairns Slane, Auckland for Respondents
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