Body Corporate 331094 v The Landings Parnell Limited and Esfahan Limited
[2013] NZHC 3560
•20 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-1561 [2013] NZHC 3560
BETWEEN BODY CORPORATE 331094
First Plaintiff
ANNA ELIZABETH DARNBROUGH & ORS
Second Plaintiffs
ANDTHE LANDINGS PARNELL LIMITED AND ESFAHAN LIMITED
First Defendants
PRODESIGNERS ARCHITECTS LIMITED
Second Defendant
Hearing: 21 November 2013
Appearances: Mr S Thodey and Ms C Weaver for applicants
Mr Josephson and Mr Easton for respondents
Judgment: 20 December 2013
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
20.12.13 at 5 p.m., pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
BODY CORPORATE 331094 & Ors v THE LANDINGS PARNELL LIMITED AND ESFAHAN LIMITED & Anor [2013] NZHC 3560 [20 December 2013]
Overview of case
[1] This case involves examination of the difficulties that arose where purchasers of apartments in an apartment complex (“The Landings”) found that the materials and/or the method of construction used had been defective with the result that the building required substantial repairs. Those purchasers, now the plaintiffs in this proceeding, seek remedies from, amongst other entities, the Auckland Council (“the Council”).
[2] The claim is not however straightforward because the process of issuing of permits and the inspection of the building during construction was in this case by a private certifier, and not the Council. The appointment of a private certifier in place of the territorial authority was at that time permitted under the Building Act 1991 (the Act).
[3] Unfortunately, there are indications that the private certifier, Compass, did not properly carry out its tasks. Compass is now in liquidation.
[4] The plaintiffs bring a claim against the Council on the basis that it is said to have owed a duty of care to them to ensure that the private certifier was acting within the limits of its competence when it issued building certificates, granted permits and inspected the building while construction was in progress.
[5] The claim which is therefore brought against the Council follows a less direct route than traditional litigation against territorial authorities generally takes in the case of non-weathertight buildings. In this case the plaintiffs assert that the Council is liable to them because of its careless omissions to make sure that Compass functioned only within the limits of authority which were attached to its certification by the Building Authority (“BA”).
[6] The plaintiffs say that had the Council properly supervised the certifier, Compass, the fact that Compass was not relevantly licensed or authorised to carry out the inspection and permitting of work with regard to The Landings would have been exposed; Compass would have been removed from the role of certifier to be replaced by the Council; the Council would have detected the faults in the
construction and design of the building and through its interventions they, the plaintiffs, would have avoided the loss that they have suffered. That loss is in excess of $10 million.
[7] By way of defence, the Council essentially asserts that no local authority in its position has ever before been found to have been under a duty of care of the type that is postulated here and seeks to have the proceeding struck out.
Strike out applications
[8] The Council’s submissions accurately set out the law relating to strike out applications. Rule 15.1 of the High Court Rules allows the Court to strike out all or part of any claim where it discloses no reasonable cause of action. The principles applicable to strike out applications illustrate that there is a careful balance to be reached between allowing claims involving alleged novel duties of care to proceed to hearing and ensuring that defendants are not required to defend what appear to be untenable claims.
[9] In Prince, the Court of Appeal was required to consider an application to strike out a claim where the plaintiffs sought to establish that the Department of Social Welfare owed duties of care to those whom it placed for adoption.1 It held that all but one of the causes of action should be struck out. In doing so it held that the Courts should apply the following principles to strike out applications:
a) The Court should assume the facts pleaded are true;
b)The causes of action must be so untenable that they cannot possibly succeed; and
c) The jurisdiction is to be exercised sparingly and only where the Court is satisfied that it has the requisite material;
d)The jurisdiction is not excluded where the application raises difficult questions of law, requiring extensive argument.
1 Attorney-General v Prince & Gardiner [1998] 1 NZLR 262 (CA).
[10] The Supreme Court in Couch was required to consider an application to strike out a claim where the plaintiff alleged that the Department of Corrections owed duties of care to her to exercise reasonable care in the supervision of parolees.2
It held that in determining such an application where the issue had not been the subject of New Zealand authority the issue for the Court is whether the Court can confidently exclude the possibility of a duty of care absent a factual assessment. Further, at the strike out stage, whether the circumstances relied on by the plaintiff are capable of giving rise to a duty of care is the question for the Court. If a duty of care cannot confidently be excluded, the claim must be allowed to proceed. It is only if it is clear that the claim cannot succeed as a matter of law that it can be struck
out.3
What the plaintiffs allege in their statement of claim
[11] The essence of the allegations which are made in the fifth amended statement of claim (“the statement of claim”) are that the defendant had a duty to the plaintiffs to take reasonable steps to enforce the statutory regime relating to building work, including the Building Act 1991 and the Building Code.4 It is alleged that the BIA placed restrictions on the types of construction in relation to which Compass was entitled to certify from 31 May 2003 which meant that it was not entitled to carry out inspection and certification work in regard to the building. Further, it is pleaded that the restrictions were recorded on a publicly available register maintained by the BIA
and that such restrictions were notified by newsletter to all territorial authorities.
[12] Then it is pleaded5 that the defendant breached its duty of taking reasonable steps to enforce the statutory regime relating to building work including the BA subsequent to the imposing and notification of restrictions on Compass’s ability to certify from 31 May 2003. The breaches consisted of accepting certificates which Compass issued and issuing building consents which in both cases were outside the
scope of Compass’s authorisation.
2 Couch v Attorney General [2008] NZSC 45, [2008] 3 NZLR 725.
3 At [2].
4 5th Amended Statement of Claim, paragraph 167.5 At paragraph 170.
[13] Particulars of the Council’s knowledge are given and these include receiving a bulletin from the BIA dated 31 May 2003 advising of the restriction on Compass’s authority.
[14] While it is not entirely clear, it would seem that the breaches of duty6 alleged against the twelfth defendant under the grouping of the first cause of action all relate to Compass issuing certificates pursuant to s 56. It would appear that the claim is based upon failure of the twelfth defendant to advert to the fact that these certificates were being issued in respect of work which was beyond the scope of Compass’s authority from 31 May 2003. It is from the latter date that the plaintiffs alleged that Compass’s authority was restricted. There is no pleading that the twelfth defendant breached its obligations in respect of the issue of code compliance certificates which Compass actually issued.
[15] A second duty of care is pleaded in paragraph 74 and following alleging that the Council was negligent and caused loss in that it did not have in place a system which would have enabled it to capture the necessary information in cases such as the one where Compass lost its authority, so that it could then take preventive measures such as reviewing the projects for which the Council had issued consents based upon certificates issued by Compass but which were outside its authority all of which, too, caused the plaintiffs’ loss. That loss came about, in summary, because had the Council not breached its duty of care the building would have been inspected and certified by the Council or by an authorised private certifier and would not have been built with the defects from which it suffers, or such defective construction as
had taken place would have been detected and rectified.7
[16] The second cause of action, unlike the first, apparently extends to code compliance issues.8 But it also, raises negligence in the context of s 56 certificates which were required for building consent.
[17] In overview, , it would appear that the work of Compass as a certifier on this project fell into three broad categories:
6 These are set out at paragraph 171 5 Amended Statement of Claim.
7 At paragraph [176].
8 See for example paragraph 174(g).
a) Preparing and submitting the necessary certificates pursuant to s 56 of the Act to enable the project to receive building consent from the Council;
b)Inspecting the work as it progressed to ensure compliance with the consents and, it is assumed, other criteria such as building codes - which will include requiring it to give any necessary statutory base notices to correct work or stop work etc;
c) Producing a code compliance certificate for completed work and submitting that to the Council.
McNamara v Auckland City Council9
[18] The issue to be decided on this strike out application has similarities to the situation that was the subject matter considered in the Supreme Court decision of McNamara. In that case, a majority decided that there was no claim available to a purchaser of a property against the Council arising out of the provision of a code compliance certificate by a certifier who was not relevantly qualified at the time that the certificate was provided. The Chief Justice in a dissenting judgment considered that the claim ought not to be struck out.
[19] It will be helpful to examine the decision in McNamara with a view to judging whether it is applicable in the circumstances of the present case because if it is, it would obviously be prudent to carefully assess the applicability of the remarks that the Court made when giving its judgment even if it is not strictly binding on this Court in the light of factual differences between the two cases. The Council argues that by analogy with McNamara, they do not owe a duty in this case. They argue that as a Council will not owe a duty of care to assess whether a code compliance certificate issued by a private certifier was issued within the limits of its authority, by analogy a Council will not owe a duty of care to assess whether the certifier was permitted to issue a building certificate for intended building works when processing
an application for building consent. Nor will it be liable for failing to discover that
9 McNamara v Auckland City Council [2012] NZSC 34, [2012] 3 NZLR 701.
the private certifier did not have an existing authority to carry out inspections of the actual construction.
The judgment
[20] In McNamara the Court of Appeal, and subsequently the Supreme Court, dealt with a situation where a purchaser acquired a house which suffered from weather tightness problems. In that case a private certifier, ABC, had been used to give the necessary building certificate to the Council in reliance upon which the Council issued a building consent. It was common ground that the application for building consent was able to proceed by way of a building certificate as a basis for obtaining consent from the Council.
[21] At a later time the certifier’s authorisation was changed and the Council was informed of this. The certifier then submitted a code compliance certificate to the Council which the Council accepted without re-checking the certifier’s authorisation or that the work was within the area prescribed as being that in which the certifier could certify compliance. The McNamaras bought the house, which had weather tightness problems. They sued the Council for breach of duty of care in failing to check that the code compliance certificate was within the authority of the certifier. The Council applied for a strike out order which it obtained and which was upheld by the Court of Appeal in the judgment under appeal.
[22] One fact which was of importance to the McNamara judgment was the terms on which the authority of the certifier in that case was formulated. The description of the authority was that ABC was limited to certifying in respect to “ordinary residential buildings” and its competence expressly did not extend to:
Buildings.. Involving unusual use of materials, or involving unusual methods of design or construction, and Unusually complex buildings.10
[23] On appeal to the Supreme Court, William Young J who gave the judgment for the majority (himself, Blanchard J and McGrath J) dismissed the appeal. The Council did not owe a duty of care and was not required to go behind an apparently valid certifier-issued certificate. The outcome of that case is distinguishable from
the present in that the Supreme Court in McNamara was dealing with a code compliance certificate rather than a building certificate which is a significant difference.
[24] The McNamara judgment in effect concluded that in circumstances such as those that applied in that case, the Council in receiving a code compliance certificate from a private certifier was not issuing certificates or in any way accepting responsibility for the certification process.11 However, it appears that the majority took the view that where it was a case of a Council issuing a building consent, (which is what we are concerned with in the present case) the position may be different.
[25] While the discussion about the building consent was not an essential part of the Court’s reasoning and is therefore not binding on this Court, it would obviously be sensible for this Court to attach considerable weight to the views that were expressed in that case.
[26] In the course of the judgment, the Supreme Court majority actually noted that during the course of the certification of the property, the certifier had issued certification which underlay the issue of the building consent that the territorial authority issued in regard to the property. The Court noted, however, that there would not have been any substantial dispute about the building consent because the certifier was competent to certify in relation to the house at the time the building
consent application was received.12 However, in the course of the judgment the
majority did make remarks which cast light upon the issues that will arise in a case where the negligence alleged against the Council relates to the issue of building certificates leading to the issue of a building consent.
[27] The Court considered what was involved in the processing of building consents pursuant to s 34 of the Act.13 Having considered the legislation the
majority opined:
11 At [160].
12 At[120].
The statutory language thus did not distinguish between building consents based on certifier-issued building certificates and those which depended on assessments made by the territorial authority’ s own staff. It follows that territorial authority had a statutory function to perform when issuing a building consent based on certifier-issued building certificate, albeit that this did not extend to reviewing the accuracy of the building certificate. Checks on the competence of the certifier to issue building certificates in relation to the project would have been a legitimate part of the exercise of this function.
(emphasis added).
[28] The Court considered the scope of the work that the statute directed the territorial authority to carry out. It noted that there was nothing in s 76 of the Act which defined inspections which were to be carried out by the TA:
Which contemplated inspections by territorial authorities to ensure that a
certifier’s certificates were within competence.14
[29] The Court made reference to the 1990 report of the Building Industry Commission which envisaged that territorial authorities might be required to check the validity of certifier-issued certificates in order to:
Discharge its duty of care for the work covered by the certificate by checking the validity of the certificate with respect to:
Work certified as complying with Code requirements within the scope of competence listed for the Approved Certifier...
...
[30] The judgment then continued:
[143] Although there are other passages in the report to a similar effect, there was no attempt by the Commission to work out the implications of its assumption that territorial authorities might have a duty of care in relation to certifier-issued certificates or to correlate that assumption to the provisions of the draft statute which was part of its report and which, in at least general terms, anticipated much of what was to appear in the 1991 Act.
[144] We accept that the relevant staff of a territorial authority could fairly be expected to know whether a particular person or company purporting to act as a certifier was indeed on the BIA register as proposed by the Commission and later provided for by the 1991 Act. They might also fairly
be expected to know the general scope of a certifier's competence, for instance, whether the certifier was confined to residential buildings or could also certify compliance for commercial buildings. We rather think, however, that the Commission would not have had in mind restrictions on competence in the nature of those to which ABC was made subject - limitations of a kind which meant that a decision whether the certificate was within competence might require either an assessment of the certificate's accuracy or correctness or open-textured building judgments. As to insurance, we find it difficult to accept that a territorial authority could be expected to check the currency and terms of a certifier's insurance arrangements every time it accepted a certificate.
(emphasis added).
[31] Significantly, in footnote 161 to paragraph 144 by way of exegesis on the comment apparently concerning the reference to “open textured building judgments” the majority expressed the view that it would be unlikely that the TA would be required to check whether the design or method of construction of the building was in accordance with one of the methods for which the certifier was approved to certify which would involve consideration:
161.As to whether the building involved unusual use of materials or methods of design and construction or was unusually complex
[32] This last remark is a reference back to the limitations imposed upon
Compass’s authority by the BA.
[33] I interpolate that it is relevant in the light of the above extracts from McNamara to recall the restriction on the authority of the certifier in this case which stated as from 31 May 2003, Compass could no longer certify any residential building that was intended to be unit titled unless the building work involved:
Additions and alterations to existing dwelling units (either individually or collectively) under the Unit Titles Act 1972 where the works [we]re contained within an existing building envelope or where they involve[d] alterations and alterations [sic] to the existing building envelope using proven commercial construction materials and techniques compatible with the existing or where they are more than 5 years old.15
15 Affidavit of Peter Jordan, exhibit J – Bundle of Pleadings - Volume 4, page 964.
[34] The McNamara judgment continued:
[145] The considerations we have just mentioned may be of at least some significance in relation to the existence (or otherwise) of a duty of care in respect of the issue of building consents based on certifier-issued building certificates. As we have noted, in such cases, the decision to grant or refuse a consent rested with the territorial authority. They are, however, of more significance in the context of an asserted duty of care to scrutinise certifier- issued code compliance certificates in relation to which the only statutory functions of a territorial authority were of a record-keeping nature.
[35] To this point in their judgment, I understand the majority to say that it is unlikely that the TA would have been under an obligation when processing an application for building consent to enquire into the specifics of the type of construction and the characteristics of the building as part of the enquiry to assess whether or not a certifier was acting within the parameters of its certification. I further read the judgment as concluding that although such matters may have relevance to the alleged negligence in the context of the grant of a building consent, they are not germane where it is a code compliance certificate which is in question.
[36] Further on in the judgment the majority concluded that a territorial authority, when considering a code compliance certificate issued by a private certifier, is not required to go behind the certificate at least in cases where certificates are issued which are not on their face invalid.16
[37] At a later point in the judgment the majority made reference to what had been described by the parties as the “Hamlin” basis of the claim which the plaintiffs brought.17 As I understand the reasoning of the majority, the difficulty with a claimed duty of care which would require the TA to scrutinise the plans and inspect the premises, would involve the Council in duplicating the function of the certifier
itself. Those remarks have force in the circumstances of the present case.
16 At [156].
17 Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC).
Conclusion on McNamara
[38] The McNamara judgment is one of some complexity. It has to be read in the light of its application to the facts that were under consideration and with reference to the point of distinction that it was concerned with the issue of a CCC rather than a building consent. It is correct that the overall tone of the judgment provides little encouragement to the plaintiff to pursue this part of its claim against the twelfth defendant.
[39] On the other hand, the fact that in her dissenting judgment the Chief Justice was able to identify cogent reasons supporting a claim in negligence is a plain indication that the case is not an open and shut one for issue of a strike out order. There are also comments in the majority decision which support the plaintiffs’ case.
[40] Beyond the issue of whether one can discern a theoretical basis for a duty of care, the present case may well involve factual issues about what steps the Council would have had to have taken if it was subject to the duty of care contended for. That in my view points to the obvious danger of deciding a claim which is of critical importance to the owners of the residences in this complex on a strike out basis rather than leaving the matter to be determined for more mature consideration that will be possible at trial. At a trial, the factual issues will be able to receive proper attention so that the Court has a solid factual basis upon which to come to its conclusions.
The relationship between the work on Tower One and Tower Two
[41] Before completing this judgment it might be helpful to say something about another strand in the arguments put forward by the plaintiffs. By way of background, the plaintiffs apparently accept that the issue by Compass of the building certificates with regard to Tower One were not matters which give rise to a claim in negligence because the building certificates were within authority. It follows that the actions of the Council in issuing building consents for Tower One would not give rise to a claim for damages.
[42] There remains however the possibility that after the building consents were issued for Tower One the TA might still be liable for, in effect, accepting that supervision of the construction of Tower One was not a matter of concern when, on the contrary, it was in fact outside the requirements of the statute. That is because of the reduction in the authority of Compass after 31 May 2003.
[43] The reasoning which the plaintiffs rely on is not easy to follow but it would appear to be that as a result of involvement between Compass and the Council with regard to construction of Tower Two, the TA ought to have appreciated that supervision of the construction of Tower One was suspect. It is apparently suggested that the Council should have stepped in. Reference is made to the Council allegedly knowing (or that it should have known) that its obligations under s 57(4) of the Act had been triggered. Further reference is made to the decision of the Court of
Appeal in McNamara18 which referred to the possibility of a duty in a case where a
Council “well knew that the certifier was issuing certificates which it had no right to
do”.
[44] The overall effect of the submission appears to be that because of the Council’s interaction with Compass in regard to Tower Two the Council must have reached a state of knowledge where it well knew that the supervision of Tower One was outside the scope of the authority of Compass. I have expressed this view in tentative terms because as I have indicated the matter is not straightforward.
[45] The question is whether the issues raised in this sub-part of the judgment would affect the overall decision that I would otherwise have come to on the strike out application. As I see it, the position with respect to the issue of building consents and the issue of CCCs and their relationship to the responsibility of the TA and the private certifier were analysed in such terms in McNamara that it is tolerably clear how a trial Court in this matter would be required to proceed in regard to those same steps or procedures in the present case. There is not the same clarity with regard to the issue of continuing supervision which the plaintiffs raise in respect of
Tower One.
18 Auckland City Council v McNamara [2010] NZCA 345, [2010] 3 NZLR 848 at [27].
[46] My conclusion is that it is not possible to disentangle the part of the claim which is under discussion in this sub-part of the judgment with a view to considering whether strike out orders ought to be made for some parts of the claim to which they relate. My conclusion is that there is not the level of clarity about the implications of the plaintiffs’ pleadings and knowledge of the underlying factual position to enable the Court to go that far. The causes of action are not so untenable that they could not possibly succeed.
Discussion
[47] There may also be other issues which would emerge in the present case which were not dealt with in McNamara. Whilst it is true that the issues were examined exhaustively in McNamara, it did not raise the identical question which will have to be dealt with in the present case. It was concerned with the circumstances of the issuing of a code compliance certificate while the present case relates to building consents. That said McNamara cannot be regarded as representing a type of proxy argument of the issues that might arise in this case.
[48] McNamara supports the view that the Council when considering a building certificate may be justified in making enquiries which extend to the question of whether the building certifier is in fact authorised to give the building certificate in question.19 However, even if that is so, difficult questions remain about the range of enquiries which the TA might be expected to undertake. If any step is taken beyond simply reviewing the register of building certifiers, then the danger is that the
Council would have to involve itself in inspections which would be contrary to the purposes of the Act.
[49] It is apparently accepted for the Council for the purposes of argument that the certification work that took place after the date of the change to Compass’s authorisation20 fell within the first part of the exclusion in that certification authority did not exist with respect to any residential property that was “a unit under the Unit
Titles Act 1972”. That being so, it would be necessary for someone trying to assess
19 McNamara, above n 10, at [135].
20 From 31.05.03.
the limits of the authority of the certifier to go on and determine whether the stated exception applied because the building involved:
Using proven construction materials and techniques compatible with the existing [building].
[50] At the point where the TA was considering the issue of said building consent any enquiries that it made would clearly have to cover the issue of whether the proposed building would be compliant with the building code. If however, the TA was required to simultaneously come to a decision about whether the underlying building certificates were within the competence of Compass to issue, the TA would have had to make a further judgment about whether the construction involved:
Using proven construction materials and techniques compatible with the existing [building].
That is not necessarily the same question as whether the proposed building would comply with the building code. It may have been possible for a building to be so compliant where different techniques etc than those described when defining the scope of Compass’s authority.
[51] Presumably, making that judgment would have involved looking at plans and specifications for the contract and contractual specification of particular materials and building processes. To what extent the material necessary for making such assessments was within the position of the TA at the point where necessary certification was provided is unknown.
[52] Subsequently after construction got under way the Council would have had to be assured that the certifier stayed within authority when issuing progress reports. It might be assumed that if the building specifications plans etc descended to sufficient detail that the TA could safely assume that they involved “proven construction techniques” etc. If not, it would seem that the TA would have been obliged to actually inspect the construction in order to be assured.
[53] It would seem that exactly the same enquiry would have had to have been made by the TA before accepting a certificate as being within the competence of the
certifier to issue. That would seem to involve the Council itself making inspections.
But that would involve duplication of the private certifiers’ functions.
[54] In other words it might be impossible to tell whether, notwithstanding the apparent recognition in the register of building certifiers, the work in question which the certifier has certified is within or without the scope of their authority without carrying out checks and even inspections.
[55] McNamara gave prominence to the fact that it was not the policy of the Act for a TA to second-guess private certifiers’ determinations. It was also important that s 50 in effect required the Council to accept the certificate of a private certifier as conclusive. The judgment explored the circumstances in which the TA might be justified in going outside that provision of the Act. They also noted that the certifying competence of the certifier in that case involved questions of degree and potentially difficult issues of judgment, for instance about whether any buildings
were “usual” as opposed to “unusually complex”.21
[56] The further one looks into issues of this kind, the more apparent it becomes that there are concealed within the issues unknown factual questions that will need to be resolved before resolving the question of liability can be undertaken.
[57] Returning to the case of Couch referred to at the beginning of this judgment, while there might be significant doubts on the issue, I cannot accept that the applicant has been able to establish that the circumstances which the applicant has pleaded are not capable of giving rise to a duty of care. The authorities state that the step of striking out a cause of action and preventing a party from going to Court on that matter is a serious one and is not to be taken lightly. In my view a strike out order should not be made in the circumstances of this case.
Conclusion
[58] For all of those reasons, there must be some scepticism about whether the causes of action which the plaintiffs seek to bring against the Council will succeed.
However, I do not think that there is sufficient clarity about the issues and the
21 Paragraph 152 (b).
underlying facts to justify the making of a strike out order. I therefore dismiss the application.
[59] The parties should confer on the question of costs and if they are unable to agree are to file memoranda not exceeding five pages on each side within 15
working days of the date of this judgment.
J.P. Doogue
Associate Judge
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