Body Corporate 346930 v Argon Construction Limited
[2015] NZHC 129
•10 February 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-1046 [2015] NZHC 129
BETWEEN BODY CORPORATE 346930
First Plaintiff
YUAN CHENG INTERNATIONAL INVESTMENT GROUP LIMITED
Second Plaintiff
AND
ARGON CONSTRUCTION LIMITED First Defendant
AUCKLAND COUNCIL Second Defendant
Cont’d…
Hearing: 6 November 2014 Counsel:
M Andrews and M Conway for applicant sixth third party
S Thodey and K M Parker for respondent second defendantJudgment:
10 February 2015
JUDGMENT OF KATZ J
This judgment was delivered by me on 10 February 2015 at 4:00 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Heaney & Partners, Auckland
Crown Law, Wellington
BODY CORPORATE 346930 v ARGON CONSTRUCTION LIMITED [2015] NZHC 129 [10 February 2015]
H W COYLE LIMITED First Third Party
ENTERPRIZE STEEL LIMITED Second Third Party
R A STANBOROUGH & SON LIMITED Third Third Party
MIKE CHURCH CONTRACTING LIMITED
Fourth Third Party
SUMMIT ALUMINIUM LIMITED Fifth Third Party
THE MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT AS SUCCESSOR TO THE ASSETS AND LIABILITIES OF THE BUILDING INDUSTRY AUTHORITY
Sixth Third Party
ALASTAIR JOHN COUPER Seventh Third Party
MAURICE HERBERT HINTON Eighth Third Party
RAINEY DAVIDSON BROWN Ninth Third Party
GRAHAM HENRY WILLIAM WHITE Tenth Third Party
Introduction
[1] These proceedings concern the Scholar Hotel and Apartments in Auckland. The Scholar Apartments, which were constructed in 2003 and 2004 as a unit title development, have developed weathertightness issues. The Body Corporate and the owners of the individual apartments (together “the Scholar owners”) allege that the defendants are responsible, directly or indirectly, for the costs of repairing the building and any consequential losses they have suffered.
[2] The second defendant, Auckland Council, has joined a number of third parties to the proceedings, including the Ministry of Business, Innovation and Employment, as successor to the Building Industry Authority (“BIA”). The Council has pleaded four causes of action against the BIA. The BIA says that none of the causes of action pleaded against it are reasonably arguable. It has therefore applied to set aside the Council’s third party notice and strike out the Council’s claims against it.
Strike out principles
[3] The general approach to strike out applications as summarised by the Court of Appeal in Attorney-General v Prince and Gardner1 applies:
(a) Pleaded facts, whether or not admitted, are assumed to be true. (b) The cause of action must be clearly untenable.
(c) The jurisdiction is to be exercised sparingly, and only in clear cases.
(d)The fact that applications to strike out raise difficult questions of law and require extensive argument does not exclude jurisdiction.
[4] The following additional principles are also relevant in this case:
1 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267.
(a) The Court should take particular care in areas where “the law is confused or developing”.2
(b)The requirement to assume pleaded facts are true does not extent to pleaded allegations that are entirely speculative and without foundation,3 or “manifestly incapable of being proven”.4
The respective claims made by the Scholar owners and the Council
[5] The builder of the Scholar Apartments engaged Compass Building Certification Limited (“Compass”) as an independent certifier under the Building Act 1991, to oversee and certify that various steps in the construction process complied with the building code. Compass was approved to operate as an independent certifier by the BIA, which had the statutory responsibility of approving independent certifiers pursuant to s 53 of the Building Act.
[6] The Scholar owners claim that Compass was negligent in certifying that the Scholar Apartments complied with the building code. They also allege that Compass was not authorised to certify unit title developments such as the Scholar Apartments during the relevant period.
[7] The Scholar owners cannot sue Compass because it no longer exists, having been struck off the register of companies. Accordingly, the sole defendants are the builder and Auckland Council. The direct cause of the Scholar owners’ losses is Compass’ negligence (if any) in approving a building that did not comply with the building code, rather than the fact that Compass may have been working outside the scope of its authority. The Scholar owners do not, however, argue that the Council is vicariously liable for Compass’ negligence. Their argument on causation appears to be that if the Council had refused to accept certificates from Compass (on the grounds that it was acting outside the scope of its authority) then the building’s
developers would have had to engage a different private certifier, or the Council
2 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and
Anderson J.
3 Collier v Pankhurst CA136/97, 6 September 1999 at [19].
4 North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341 at [146] per Blanchard, McGrath and William Young JJ [The Grange], approving R v Imperial Tobacco Canada Ltd [2011] SCC 45, [2011] 3 SCR 46 at [21].
itself. Assuming that the alternative certifier did not make the same errors as
Compass, the relevant losses would have been avoided.
[8] The Council denies the Scholar owners’ claims and is vigorously defending them. Amongst other things, it says that Compass was authorised to certify unit title developments. If it is established at trial that Compass was not so authorised, then the Council says that it was not negligent for failing to realise that fact, as both the BIA and its own external legal advisers had advised it that Compass was entitled to certify unit title developments.
[9] If the Council’s various defences fail and it is ultimately found to be liable to the Scholar owners, then the Council says that fairness and justice require that the BIA should ultimately bear any losses. It has accordingly issued a third party notice against the BIA, supported by a statement of claim which pleads four causes of action against it. The Council’s claims against the BIA largely turn on the extent to which the BIA’s role under the Building Act in respect of private certifiers could give rise to civil liability to the Council and/or to the Scholar owners.
[10] Underpinning the Council’s first three causes of action against the BIA (breach of statutory duty, negligence and concurrent tortfeasor) are two alleged duties. First, the Council pleads that the BIA owed the Council and/or the Scholar owners a common law duty of care and/or a statutory duty to investigate queries as to the activities of certifiers (“duty to investigate”) and that it breached that duty by failing to investigate Compass.
[11] Second, the Council pleads that the BIA owed it and/or the Scholar owners a common law duty of care and/or a statutory duty to “regulate the activities of certifiers”, and it breached that duty if Compass acted outside the scope of its authority at any time. This claim was significantly developed and refined in the Council’s written and oral submissions. Ultimately, it was articulated as a claim that the BIA owed a duty of care to the Council and/or the owners of the Scholar to notify them in a timely manner when Compass’s scope of authority was modified. I will therefore refer to it as the “duty to notify” claim.
[12] The third duty pleaded is that the BIA owed the Council and/or the Body Corporate and owners a common law duty of care to “properly approve certifiers to regulate building works,” and breached that duty of care if Compass acted outside the scope of its authority at any time. This argument was not pursued at the hearing. On the current pleadings the alleged “duty to approve” is so generic as to be effectively meaningless and is accordingly untenable.
[13] The parties’ submissions did not distinguish to any significant degree between the breach of statutory duty and negligence causes of action (which are both underpinned by the same pleaded duties). The key focus of argument was on the negligence claims, on the basis that both the negligence and statutory duty causes of action would stand or fall together. I will approach my analysis in essentially the same way.
[14] The BIA says that the Council’s claims against it do not disclose a reasonably arguable cause of action. It notes that in two previous cases appellate Courts have held that the BIA did not owe privately enforceable duties to either building owners or territorial authorities.5 The Council submits that those cases are distinguishable as there were significant factual differences between those cases and this case, and different duties of care were alleged.
Factual and legislative background
[15] Sweeping regulatory reforms took place in New Zealand from the mid-1980s through to the early 1990s. These reforms included significant restructuring of local government, the sale or corporatisation of many state owned assets and significant environmental and resource management reforms. A review of New Zealand’s building regulatory regime also occurred during this period. A 1986 review by the Building Industry Commission had concluded that the current system was inefficient, imposed high compliance costs and provided “little scope for
builders and developers to use cost-effective alternatives”.6 A further report by the
5 The Grange, above n 4 and Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95 (CA) [Sacramento].
6 Cited in Don Hunn, Ian Bond and David Kernohan Addendum to the Report of the Overview Group on the Weathertightness of Buildings to the Building Industry Authority (31 October 2002) at 10 [the Hunn Report].
Building Industry Commission in 1990 (Reform of Building Controls) culminated in the passage of the Building Act 1991. As William Young J observed in Attorney-General v Body-Corporate 200200 (Sacramento):7
[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- oriented 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....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 “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.
[16] Under the Building Act 1991 day-to-day responsibility for the regulation of building activity was delegated to local authorities. The BIA, which was established as a new Crown agency, had various responsibilities, which were generally fairly high level. These were set out in s 12 of the Act and included advising the responsible Minister on matters in relation to building control, approving documents for use in establishing compliance with the provisions of the building code, determining disputes in relation to building control, undertaking reviews of the operation of territorial authorities and building certifiers, and approving building certifiers.
[17] Section 53 of the Building Act required the BIA to establish and maintain a register of the independent building certifiers it had approved. Whenever the BIA approved a person as a building certifier, it was required to enter on the register various information including the date of the approval, the name and address of the person approved, the specific provisions of the building code in respect of which the person was approved, any limitations on the matters in respect of or in connection with which the person may certify compliance, and the date of the expiry of the
approval (generally on the first anniversary of the date of approval).
7 Sacramento, above n 6.
[18] Prospective independent building certifiers were required to satisfy the BIA that they had appropriate qualifications, relevant experience and sufficient knowledge of the building code.8 Further, they had to provide evidence to the BIA that they had appropriate insurance cover. In the early 1990s independent certifiers were able to obtain appropriate insurance cover fairly readily. However, the emergence of what became known as the ‘leaky building crisis’ from the mid-1990s onwards impacted heavily on the insurance market for independent building certifiers. Significant restrictions were placed on the availability of insurance and,
ultimately, the insurance market for independent certifiers appears to have dried up altogether.
[19] The restrictions placed by insurers on insurance cover for independent certifiers impacted on the scope of work that the BIA was prepared to authorise those certifiers to undertake. In particular, the BIA endeavoured to ensure that the scope of an independent certifier’s authority to certify building works mirrored the scope of their insurance cover.
[20] Against this background, Compass was initially approved (during the period
27 May 1998 to 30 May 2003) to certify residential buildings without any relevant restrictions. Then, on 31 May 2003, the BIA restricted Compass’ scope of approval to reflect an amendment that had been made to Compass’ insurance cover. Those, or similar, restrictions continued throughout the relevant period, with Compass’ scope of approval being further amended on 31 May 2004, 13 August 2004, 13 October
2004 and 20 March 2005. The limitations on Compass’ scope of approval were recorded in the register of building certifiers.
[21] Meanwhile, on 1 May 2003, Compass (on behalf of the builder) applied for consent to carry out the construction of the Scholar Apartments. At the time of that application there were no restrictions on Compass’ ability to certify residential buildings. By the time the Council issued the building consent for the Scholar Apartments on 24 July 2003, however, limitations had been placed on Compass’
scope of approval.
8 Building Act 1991, s 51(3)(a).
[22] The correct interpretation of the limitations placed on Compass on 31 May
2003, as recorded in the register (and similar limitations subsequently recorded in the register) is squarely in issue in these proceedings. The Scholar owners’ view is that the correct interpretation of the relevant documents is that Compass could no longer certify unit title developments after 31 May 2003. The Council and the BIA both dispute that interpretation and say that Compass was still entitled to certify certain types of unit title developments after that date (including the Scholar Apartments).
[23] The Council does not plead when it became aware of the limitations placed on Compass’ scope of approval on 31 May 2003, nor is this addressed in evidence. There is, however, evidence that by early September 2004 the Council was aware of the limitations placed on Compass on 13 August 2004. That is apparent from an affidavit filed on behalf of the Council by Mr Bill Smeed, a Council Building Investigator, in Body Corporate 331094 v The Landings Parnell Ltd and Esfahan
Ltd.9 In those proceedings the Council sought, unsuccessfully, to strike out claims
against it that are almost identical to the Scholar owners’ claims against it in this case. The BIA put a copy of Mr Smeed’s affidavit in evidence in these proceedings. The Council did not object to its admissibility or dispute the truth of its contents, but noted that it is not necessarily a complete record of the relevant interactions between the Council and the BIA.
[24] Mr Smeed wrote to the BIA on 6 September 2004 seeking confirmation as to the extent to which Compass was certified to carry out work in respect of unit titles. He referred to earlier verbal communications between the Council and BIA on the topic and informed the BIA that the Council’s view was that Compass was not authorised to carry out work in respect of unit title developments. He asked the BIA to confirm in writing that the Council’s interpretation was correct.
[25] A couple of days later, on about 8 September 2004, the Council also wrote to Buddle Findlay, its external legal adviser, asking for advice as to the correct interpretation of Compass’ scope of approval. On 13 September 2004 Buddle
Findlay responded, advising that Compass appeared to be permitted to certify unit
9 Body Corporate 331094 v The Landings Parnell Ltd and Esfahan Ltd [2013] NZHC 3560.
titles, provided proven materials were used. Given that there was some uncertainty, however, Buddle Findlay suggested that clarification be sought from the BIA.
[26] The Chief Executive of the BIA responded to the Council’s letter of
6 September 2004 on 6 October 2004. His letter was prefaced as follows:
Ultimately the BIA’s scope of certification for Compass must speak for itself.
Although the BIA, having issued the certification, has no authority to deliver binding rulings on the meaning of the certification, I am happy to answer your questions on the basis that these are the views of the BIA on the meaning of the certification but these views are not binding, and in particular not binding on Compass.
[27] The letter then went on to confirm that, in essence, the BIA’s view was that in certain circumstances Compass would be entitled to regulate unit title developments. Although there was no specific reference to the Scholar Apartments (the letter was expressed in general terms) it seems likely that the Scholar Apartments would fall within the type of unit title developments that in the BIA’s view Compass would be entitled to regulate. The BIA’s letter concluded:
Please contact me if you require any further explanation of the BIA’s views. I reiterate that the BIA’s views are not binding as only the Courts can give binding answers on these matters.
If you are still concerned that Compass may be acting outside its scope you may like to consider making a formal complaint pursuant to section 54 of the Building Act 1991.
[28] Compass’ scope of approval was further amended on 13 October 2004, in an apparent attempt to provide further clarity. Buddle Findlay reviewed the amended scope of approval on behalf of the Council. They confirmed that, in their view, the amendments had clarified the scope of Compass’ approval, “although we still do not believe the approval is particularly well worded”. Nevertheless, Buddle Findlay advised that on the face of the amended approval Compass was approved to certify all building work, except building work in respect of boarding houses or specialised accommodation which was not in a new building.
[29] Against this background, the key issues raised by the BIA’s strike out application are:
Duties of care
(a) Is it reasonably arguable that the BIA owed a common law and/or statutory duty of care to the Council and/or the Scholar owners to investigate the conduct or ability of Compass (including in particular whether Compass was acting within its scope of authority)?
(b)Is it reasonably arguable that the BIA owed a common law and/or statutory duty of care to the Council and/or the Scholar owners to notify them when Compass’s scope of authority was modified, in a timely manner?
Concurrent tortfeasor
(c) If the BIA could owe the duties of care set out above, is it reasonably arguable that it would have a common liability to both the Council and the owners of the Scholar so as to support a concurrent tortfeasor claim?
Negligent misstatement
(d)Could the alleged representations by the BIA that Compass was entitled to certify unit title developments such as the Scholar Apartments amount to a voluntary or deemed assumption of responsibility by the BIA?
(e) Could the Council have reasonably relied on the BIA’s alleged representations?
[30] I will consider each issue in turn.
Is it reasonably arguable that the BIA owed a common law and/or statutory duty to the Council and/or the Scholar owners to investigate the conduct or ability of Compass?
The duty alleged by the Council
[31] The Council’s submissions focussed primarily on this alleged duty.
[32] In its pleading, the Council alleges that the BIA owed it and/or the Scholar owners a duty to investigate. In particular, the Council pleads that the BIA had a statutory and/or common law duty, in the event it was given “cause to query the conduct or ability of a certifier”, to investigate that query as soon as practicable. The Council further pleads that the BIA breached this duty by failing to “properly investigate queries as to the activities of Compass”.
[33] The Council’s pleading is expressed at a very high level of generality and is unparticularised. No specific facts are pleaded that are said to have given rise to any cause to query the conduct or ability of Compass, thereby triggering a duty to investigate. The pleading is deficient on that basis alone. The Council has failed to plead any facts that, even if assumed to be true, would support a finding that a duty to investigate (if one is found to exist) could have been triggered.
[34] Nevertheless, consistent with the general principle that a Court will not strike out a pleading that could possibly be cured by amendment, I will consider this claim in light of the further arguments advanced in submissions and the undisputed (but possibly incomplete) evidence before the Court, as set out in Mr Smeed’s affidavit.
Discussion
[35] The alleged duty to investigate is based on sections 54 and 55 of the Building
Act. Those sections:
(a) provide that if the BIA receives any complaint about, or has cause to query the conduct or ability of, a building certifier, the BIA shall
appoint a person, not being a member of the BIA, to investigate the complaint or query;
(b)set out a procedure for the investigator to follow (including obtaining relevant information from the complainant and the building certifier);
(c) require the investigator to make a recommendation to the BIA that it either take no further action or conduct an inquiry;
(d)require the BIA to then notify the complainant and the building certifier of the investigator’s recommendation and when it will be considered by the BIA;
(e) set out the procedure to be followed if the BIA decided to conduct an inquiry into the conduct or ability of a building certifier;
(f) set out the powers the BIA may exercise (which included suspension or cancellation of approval) if it concluded that the building certifier has been negligent, incompetent, or should not continue to act as a building certifier;
(g)require the Authority to pay the building certifier’s actual and reasonable costs if the BIA’s finding is favourable to him or her.
[36] The appointment of an independent investigator under s 54 can be triggered in either of two ways:
(a) a person makes a complaint about the conduct or ability of a building certifier; or
(b)the BIA has “cause to query” the conduct or ability of a building certifier.
[37] The Council accepts that no complaint was made regarding Compass’
conduct or ability, despite the BIA’s express invitation to the Council in its letter of
6 October 2014 to do so if the Council was “still concerned that Compass may be acting outside its scope”. Rather, the Council rely on the second ground in s 54, namely that the BIA had “cause to query” the conduct or ability of Compass and should therefore have appointed an investigator of its own volition. In particular, the Council submit that the Council’s letter to the BIA of 6 September 2004, and possibly other (as yet unspecified and unpleaded) communications between the BIA and Council should have triggered an investigation by the BIA into whether Compass was acting within the scope of its authority.
[38] A similar, but not identical, duty to that alleged in this case was considered by the Court of Appeal in Sacramento.10 That case involved a claim by the body corporate and owners of a leaky building that the BIA owed a duty of care in relation to its continuing approval of a building certifier and the approval of insurance cover arrangements for that certifier. In particular, the building owners alleged that the BIA knew that the building certifier was issuing code compliance certificates in
breach of the building code and that it should have prevented the building certifier from issuing further certificates. The plaintiffs relied on the BIA’s powers to approve a building certifier or to remove its approval, under sections 51 and 54 of the Building Act.
[39] The Court of Appeal held that the BIA did not owe a duty of care to building owners in those circumstances, primarily because the BIA’s role was quasi-judicial and imposing a duty of care would be inconsistent with the purpose of the Building Act. In particular, the Court concluded that:
[78] ... 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 Hoban at para [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
10 Sacramento, above n 5.
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 homeowners 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.
[40] The Court of Appeal also made the following general observations:11
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 longstop liability where building certifiers had negligently certified compliance. The imposition of such longstop 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 1991 Act.
...
The primary complaint is of a lack of action on the part of the BIA. A positive duty of care extending to general superintendence 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...
[41] The duty of care pleaded against the BIA in this case is not precisely the same as in Sacramento. In Sacramento the allegation was that the building certifier was
11 At [62] (b) and (c).
certifying buildings in breach of the building code, whereas the allegation here is that the building certifier was certifying buildings that were outside the ambit of its scope of approval. The overarching duty alleged in Sacramento, however, was that the BIA was “negligent in its supervision (including review and approval) of [the certifier]”.12 That is not markedly different to the underlying allegation made against the BIA in this case.
[42] I see no reason why the policy issues identified by the Court of Appeal in Sacramento would not be equally applicable to the claim in this case that the BIA should (in effect) have ensured that building certifiers do not act outside their scope of authority. As the Court of Appeal observed in Sacramento, the statutory scheme is inconsistent with the intensity of scrutiny that such a duty of care would presuppose. The Building Act introduced a light handed regulatory regime under which the BIA, which had limited resources and staffing, had fairly high level responsibilities. These did not extent to general supervision of the building industry in New Zealand.
[43] The regulatory framework provided the Council, rather than the BIA, with day to day visibility of the work actually being undertaken by independent certifiers. If the Council had concerns about the conduct or ability of an independent certifier, there was a statutory mechanism through which it could complain to the BIA. The Council was accordingly not dependent on the BIA initiating an investigation of its own volition, if it believed there was cause for concern. I note that in this case the Council did not appear to be sufficiently concerned to trigger an investigation itself. It nevertheless says that the BIA should have done so of its own volition despite the fact that, due to its different statutory role, the BIA would have had significantly less information available to it regarding Compass’ activities (including whether it was certifying unit title developments) than the Council did.
[44] I have not overlooked the Council’s submission that the claim that was struck out in Sacramento was that the BIA owed a duty of care to the property owners, rather than the Council. Nothing turns on that, in my view, particularly given that the Council’s claim in this case is a third party claim. The parties who have
allegedly suffered loss or damage in both Sacramento and this case are the property
12 At [34] (b).
owners. The third party notice is simply aimed at determining whether the Council or the BIA should ultimately bear that loss. If the BIA does not owe a direct duty of care to the owner of a building (as found in Sacramento) there is no reason why it should owe a comparable duty to the Council.
[45] This conclusion is also supported, to some extent, by aspects of the Supreme Court’s decision in The Grange, including in particular the observations made in that case to the effect that the BIA’s role under the Building Act is tightly constrained, whereas the Council is a much larger and better resourced organisation and thus better able to protect itself from liability risks.13
[46] The Council referred to Elias CJ’s criticism of the Court of Appeal decision in Sacramento, in her minority decision in The Grange. I note, however, that the majority of the Supreme Court did not appear to share the Chief Justice’s concerns. The Court of Appeal had relied on Sacramento in striking out the Council’s claim. The majority of the Supreme Court, while not expressly approving Sacramento, upheld the Court of Appeal’s decision to strike out the claim.
[47] The Council also referred to Couch, in which the Supreme Court urged caution in striking out claims on a summary basis, particularly in areas where the law is confused or developing.14 A cautious approach to striking out claims summarily has long been mandated in the case law (as noted at [3] above). Only claims that are clearly untenable can be struck out summarily. The jurisdiction is to be exercised sparingly, and only in clear cut cases. Couch reinforced the particular importance of
caution in cases involving novel duties of care. The present case, however, is far less novel than Couch. The scope of the Building Act and the respective roles of the BIA, the territorial authorities, and private certifiers have previously been extensively considered in both Sacramento and The Grange. Issues such as the nature of the BIA’s role, its funding, its expertise and its resourcing have been well
canvassed in previous cases.
13 The Grange, above n 4, at [180].
14 Couch v Attorney-General, above n 2, at [33].
[48] I also accept the BIA’s further submission that the pleading does not, on its face, contain any allegations that (if assumed to be true) could reasonably have triggered an investigation of Compass by the BIA. Nor is there anything in the Smeed affidavit that suggests that the pleading could be readily amended to cure this deficiency. For example, the BIA’s own interpretation of Compass’ scope of authority was that it was entitled to certify unit title developments. Accordingly, even if the BIA were aware that Compass was certifying unit title developments, this would presumably not have given rise to any cause to query Compass’ conduct or ability.
[49] In conclusion, although the BIA’s alleged duty to investigate is not identical to the comparable duty identified in Sacramento, I am satisfied that they are sufficiently similar that, following the reasoning of the Court of Appeal in that case, the alleged duty to investigate is untenable and should be struck out.
Is it reasonably arguable that the BIA owed a common law and/or statutory duty of care to the Council and/or the Scholar owners to notify them when Compass’s scope of authority was modified, in a timely manner?
The duty alleged by the Council
[50] The second key duty underpinning both the negligence and breach of statutory duty causes of action is described as a duty to regulate.
[51] The Council pleads that the BIA owed the Council and/or the Scholar owners a common law duty of care and/or a statutory duty to regulate the activities of certifiers. The BIA is said to have breached that duty if Compass acted outside the scope of its authority at any time. No supporting facts are pleaded and no particulars given.
[52] On the basis of the current pleading it is not clear what specific duty is relied on. A mere duty to regulate is so generic as to be effectively meaningless. Nor is there any meaningful pleading as to how the relevant duty has been breached, or how any such breach has caused loss. The current pleading is therefore deficient on its face and, in my view, does not disclose an arguable cause of action.
[53] In the course of its submissions, however, the Council developed an argument (said to fall under the broad duty to regulate umbrella) to the effect that the BIA owed a duty of care to the Council and/or the Scholar owners to notify them when Compass’s scope of authority was modified, in a timely manner. It was submitted that this duty may have been breached, as it is currently “unclear” when the Council became aware of the 31 May 2003 amendment to Compass’ scope of approval. Accordingly, when the Council issued a building consent for the Scholar Apartments on 24 July 2003 and took subsequent regulatory steps, it may not have been aware of the restrictions on Compass’ scope of approval.
[54] There is currently no pleading that the register of independent certifiers (which included any limitations on their scope of approval) was not kept up to date, or that the Council was not otherwise informed of the changes to Compass’ scope of approval in a timely manner. These are not therefore facts that I am required to assume to be true in accordance with the usual strike out principles. Further, the BIA could possibly object to any significant amendments to the pleadings along these lines, on the basis that any such amendments would essentially raise a new cause of action which is time barred. It is not necessary, however, for me to determine such issues now. Rather, they will need to be considered if and when they arise.
[55] For present purposes, on the basis that a Court will not usually strike out a claim that may be able to be cured by amendment, I will simply assume that the Council would be able to amend its pleading to allege a specific duty to notify. I will further assume that any amended pleading would include an allegation that any such duty was breached because the BIA did not update its register, or otherwise notify the Council of the 31 May 2003 amendment, in a timely fashion. I will consider whether, if such allegations were pleaded, they could establish a tenable cause of action.
Discussion
[56] Whether the failure to update the register in a timely manner gives rise to a privately enforceable duty of care is an issue that does not appear to have been
previously considered by the Courts, either in a Building Act context or any other regulatory context.
[57] Arguments similar to those advanced by the Council in this case could presumably be advanced against any statutory body (such as the Law Society) that is required to keep an up to date public register of persons entitled to practise in a particular area. If the relevant register is inaccurate or not up to date for any reason (for example, because a member has not paid their current practising fees) will the professional body potentially be liable for any losses incurred if the relevant practitioner is negligent? It could be argued (as it is in this case) that “but for” the relevant register being inaccurate, the relevant practitioner may never have been engaged and the loss never incurred. On the other hand, there would be strong policy reasons weighing against making regulatory bodies, in effect, the guarantors of the work of unregistered practitioners (regardless of the reasons why a practitioner was not entitled to be registered).
[58] In my view, the issue of whether it is reasonably arguable that the BIA had a privately enforceable duty of care to notify (in this case, by updating the register in a timely fashion) is somewhat more finely balanced than the alleged duty to investigate. The reasoning of the Court of Appeal in Sacramento (as set out at [39] to [40] above) would, however, weigh fairly strongly against the imposition of such a duty.
[59] In any event, even if the alleged duty was arguable, it is my view that a claim based on it would necessarily fail in the particular circumstances of this case. That is because of the lack of causal nexus between the Scholar owners’ claim against the Council, and the Council’s (as yet unpleaded) third party duty to notify claim against the BIA.
[60] In McAllister v Peat Marwick Management Consultants Ltd Master Hansen referred to the “common trap” of simply equating the damages claimed by plaintiff against defendant with what the defendant claims against the third party.15 His
Honour observed in that case:
15 McAllister v Peat Marwick Management Consultants Ltd HC Dunedin CP148/88, 26 February
1991 at 6.
That, of course, in itself is insufficient. There must be similarity of facts, and the third party claim must be designed to determine whether the defendant or the third party should ultimately bear the plaintiff’s loss. Although superficially there would appear to be a similarity of facts, different matters would have to be considered between plaintiff and defendant and proposed third party.
Those observations apply equally in this case.
[61] The Scholar owners allege that the Council knew, or ought to have known, that Compass could not certify unit title developments. It therefore should not have accepted any certificates from Compass in respect of the Scholar Apartments. In order to succeed in this aspect of its negligence claim against the Council, the Scholar owners must establish:
(a) that, correctly interpreted, Compass’ scope of approval did not allow
it to certify unit title developments; and
(b)that the Council either knew this or could have found it out by exercising reasonable diligence (for example by looking at the register).
[62] The Council says, however, that it could not have known that Compass was not entitled to certify unit title developments, because the BIA breached its duty to notify by not keeping the register of independent certifiers up to date. If that is proven to be true, then this particular claim by the Scholar owners’ claim against the Council must presumably fail.16 The Council will not have breached a duty of care to the Scholar owners if it did not know, and could not with reasonable diligence have discovered, that Compass was not authorised to certify unit title developments. The third party claim by the Council against the BIA would, in such circumstances, be moot.
[63] It is only if the Council did know that Compass could not certify unit title developments (or could have reasonably found that information out) that it could be
liable in negligence to the Scholar owners in respect of this aspect of the claim. In
16 The Scholar owners could potentially have a direct claim against the BIA in such circumstances.
that event, however, the third party claim against the BIA must again fail, as the Council will have failed to establish a key element of its third party claim, namely that the BIA did not update the register (or otherwise provide the Council with the relevant information) in a timely manner.
[64] Accordingly there is no causal link between any breach of duty by the BIA and any potential loss on the part of the Council. In short, if the BIA was negligent in the manner alleged by the Council (by failing to update the register in a timely fashion) then the Council will have a defence to the Scholar owners’ claim. In such circumstances the Council could not have reasonably known that Compass was acting outside the scope of its authority. Although there is an underlying similarity of facts, if the Council is liable (because it did know of the limitations on Compass’ scope of approval) then the BIA cannot be. There is therefore no scope for a successful third party claim in relation to this particular duty.
[65] In conclusion, as currently pleaded, the duty to regulate claim is pleaded at such a high level of generality that it does not found a reasonably arguable cause of action. No facts are pleaded which, if assumed to be true, would render the BIA potentially liable in negligence or for breach of statutory duty.
[66] Given the deficiencies in the pleading I have considered whether an amendment to the claim, along the lines advanced in the Council’s submissions, could potentially salvage this particular cause of action. I have concluded, however, that the duty to notify claim as developed in argument is untenable. Accordingly the existing pleadings, to the extent that they rely on an alleged duty to regulate, should be struck out.
Concurrent tortfeasor claim
[67] As the BIA noted in its submissions, the concurrent tortfeasor claim is “parasitic” on the existence of one or more tenable duties of care. It cannot survive independently and must accordingly be struck out if the pleaded duties of care are found to be untenable.
Negligent misstatement - Could the alleged representations by the BIA amount to a voluntary or deemed assumption of responsibility by the BIA?
Overview of the parties’ respective positions
[68] In its fourth cause of action (negligent misstatement) the Council makes a general allegation that the BIA made representations following 31 May 2003 to the effect that Compass was entitled to regulate building works such as the Scholar Apartments. No specific representations are pleaded. The Council claims that it acted in reliance on the BIA’s representations in various ways, including by issuing the building consent for the Scholar Apartments and not inspecting the building works itself during the construction period.
[69] If the Scholar owners establish that Compass was not entitled to certify unit title developments such as the Scholar apartments and that the Council is liable in negligence for allowing it to do so, then the Council says that such liability has arisen as a result of its reliance on representations made by the BIA as to Compass’ scope of authority.
[70] The BIA argues that the Council’s claim in negligent misstatement is untenable for two reasons:
(a) There was no voluntary or deemed assumption of responsibility by the BIA in relation to its alleged representations that Compass was entitled to certify works such as the Scholar, an issue going to proximity.
(b)Even if it is arguable that the BIA owed the Council a duty of care in relation to any representations it made as to the scope of Compass’ authority, the Council could not have reasonably relied on the alleged representations.
[71] As these two issues are inter-related, I will consider them together.
Legal principles
[72] The Court of Appeal considered differing analytical methods for ascertaining whether a duty of care is owed in relation to statements or representations in Attorney-General v Carter.17 The Court held that the correct approach was that set out by the Court of Appeal in South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd.18 Further, in response to criticisms of an apparent confusion in the case law as to the correct analytical approach to negligent misstatement claims, the Court stated:19
The outcome of the duty of care issue should not depend on what analytical method is employed. The ultimate inquiry is whether it is fair, just and reasonable to require the defendant to take reasonable care to avoid causing the plaintiff loss or damage of the kind for which compensation is being sought. Each case will have its own particular combination of circumstances against which the necessary judgment must be made. To assist in answering the ultimate question, a two-stage approach, under the headings of
‘proximity’ and ‘policy’, has been found helpful and is now firmly established in our law.
[73] It is well established in the case law that the maker of the relevant statement must have assumed (or be deemed to have assumed) responsibility for the statement before a duty of care can be said to arise. This goes to the issue of proximity and is sometimes referred to as the requirement for a “voluntary assumption of responsibility”. What exactly is meant by that phrase is not, however, always clear. The concept of “voluntarily” assuming obligations or responsibilities is more usually associated with contract, rather than tort law. A person owes a duty of care in tort because of what he or she has said or done, not because that person somehow
decides to assume legal responsibility.20
[74] The Court of Appeal, in Attorney General v Carter, acknowledged this conceptual difficulty, but nevertheless felt that the concept of “assumption of responsibility” had a role to play in relation to negligent misstatements.21 Tipping J
noted that in some relatively rare cases a defendant’s assumption of responsibility
17 Attorney-General v Carter [2003] 2 NZLR 160 (CA).
18 South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd
[1992] 2 NZLR 282 (CA).
19 Attorney-General v Carter, above n 17, at [30].
20 Stephen Todd “Negligence: The Duty of Care” in Stephen Todd (ed) The Law of Torts in
New Zealand (Brookers, Wellington, 2013) 145 at 224.
21 Attorney General v Carter, above n 17 at [23].
could be said to be voluntary, in that he or she was found to have undertaken to exercise reasonable care. In most cases, however, there is no evidence of a “voluntary” assumption of responsibility. Rather, the law will deem the defendant to have assumed responsibility, and find proximity accordingly, if, when making the statement in question, the defendant saw or ought to have foreseen that the claimant
would reasonably place reliance upon what was said.22
[75] The question of foreseeable reliance is therefore closely linked to the question of whether there has been an assumption of responsibility. Further, any actual reliance must, in the circumstances of the case, be reasonable. Whether reliance is reasonable will depend in part on the purpose for which the statement was made, and the purpose for which the plaintiff relied on it.
Discussion
[76] Although there are significant factual differences between this case and The Grange, the Supreme Court’s decision in that case nevertheless provides helpful guidance, as it concerned an alleged negligent misstatement made by the BIA in a Building Act context.
[77] The North Shore City Council claimed in The Grange that the BIA had assumed a responsibility to use reasonable skill and care in preparing a report for the Minister on the Council’s performance of its functions under the Building Act.23 A copy of that report had been provided to the Council, which claimed that it had relied on it, to its detriment.
[78] The Supreme Court approved the general approach to ascertaining the existence of a duty of care set out in the Court of Appeal’s decision in Attorney General v Carter24 and the House of Lords’ decision in Caparo Industries v
Dickman.25
22 At [26].
23 The Grange at [188].
24 Attorney-General v Carter, above n 17.
25 Caparo Industries v Dickman [1990] 2 AC 605 (HL).
[79] On the issue of whether the BIA had assumed a responsibility to the Council in relation to the report, and the related issue of whether it was reasonable for the Council to rely on the report, the Court stated that:26
In order to test whether it was objectively reasonable for the Council to rely upon the BIA’s report, as it pleads it did, it is necessary to have regard again to the statutory framework which led to the report and to the content of the report itself. As we have seen, the statutory framework is not helpful to the Council. The case for the Council is addressed to interactions between it and another public body (the BIA) both of whom were exercising functions, including regulatory functions, under a single statutory scheme. Any expectation which one could reasonably have of the other was a product of their respective statutory roles. Imposition of a common law duty of care, where the statute itself did not give rise to any duty, would amount to a substantial addition to the relationship between the parties found in the statute and would appreciably alter the ways in which each could be expected to perform its functions. Therefore, if the terms of the report do not plainly support an assumption of responsibility by the BIA - that is, something that could reasonably be relied upon by the Council- the first two heads of claim must fail.
[80] Similarly, in this case, neither the general statutory framework (including the limited functions and budget of the BIA) nor the specific statutory context (as set out in sections 51 to 56 of the Building Act) support the view that there was any assumption of responsibility by the BIA for the correctness of its interpretation as to Compass’ scope of approval. The statute did not provide for the BIA to give binding rulings as to the correct interpretation of entries in the register of building certifiers, as the BIA made clear in its 6 October 2004 letter to the Council.
[81] Rather, as in The Grange, any assertion of an assumption of liability by the Council, and any claim that the Council could have reasonably relied on the BIA’s interpretation of Compass’ scope of approval, is contradicted by the terms of the BIA’s 6 October 2004 letter itself.
[82] As the learned authors of The Law of Torts in New Zealand observe, the maker of a statement is at liberty to make it clear that he or she assumes no responsibility for his or her words or that he or she is not in any event liable for them.27 Indeed in the ground-breaking decision of Hedley Byrne & Co Ltd v Heller
& Partners, which confirmed that a duty of care could be owed in relation to
26 The Grange at [190].
27 Above n 20, at 237.
statements as opposed to acts, the plaintiff ’s claim ultimately failed because the defendants had expressly disclaimed responsibility for the views they had provided in a letter to the plaintiffs’ bankers. Lord Reid said in that case that:28
A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without the reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.
[83] This case, like Hedley Byrne itself, falls within Lord Reid’s second category. Although the BIA was willing to share its own interpretation of Compass’ scope of authority with the Council (despite having no statutory obligation to do so) it heavily qualified the comments it made, as I have outlined at [26] to [27] above. In particular, the BIA’s letter made it clear that:
(a) ultimately the BIA’s scope of certification for Compass must speak for itself;
(b)the BIA, having issued the certification, had no authority to deliver binding rulings on its meaning;
(c) the BIA’s views of the meaning of Compass’ scope of approval were expressly provided on the basis that its views were not binding;
(d)only the Courts could give a binding answer to the interpretation questions raised by the Council;
(e) if the Council was still concerned that Compass may be acting outside its scope it could make a formal complaint pursuant to s 54 of the
Building Act 1991.
28 Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465, at 583.
[84] The BIA’s representations were accordingly very heavily qualified, indeed significantly more so than the representations sought to be relied on by the North Shore City Council in The Grange. In such circumstances it is not reasonably arguable, in my view, that there can be any voluntary or deemed assumption of responsibility by the BIA for the interpretation it offered of Compass’ scope of approval. Objectively, the BIA could not have foreseen that the Council would rely on its interpretation as being, in effect, binding. In The Grange the Supreme Court concluded that it would not have been reasonable for the Council to rely upon the relevant BIA report, for that would be to ignore the cautions and criticisms expressed
in the report.29 Those observations apply equally in this case, given the express
qualifications set out in the 6 October 2004 letter.
[85] I have not overlooked the Council’s submission that there may have been other representations during the relevant period that have not yet been identified or pleaded. It was incumbent on the Council as plaintiff, however, to plead the particular representations on which it relied or, at the very least, to point to evidence before the Court of such representations (which could later be included in an amended pleading).
[86] While Courts often give plaintiffs considerable latitude in relation to pleadings in a strike out context it is not appropriate, in my view, to refrain from striking out a pleading simply because further facts may yet come to light (as yet unpleaded) which could support the claim. The BIA’s strike out application must proceed on the basis of the current proceeding and the undisputed (but possibly incomplete) evidence before the Court. There was ample opportunity to file an amended pleading prior to the strike out hearing if the Council had wished to do so.
[87] In any event, it seems unlikely that the Council would be able to establish reliance in relation to any other (as yet unpleaded) representations that may have preceded the 6 October 2004 letter, for the following reasons:
(a) If the BIA made representations to the Council between 31 May 2003 and 2004, the Council did not appear to rely on those representations
29 At [190].
because, when Mr Smeed was engaged in 2004, he was tasked with making enquiries to clarify the scope of Compass’ authority in relation to unit titles. This indicates that the Council was still uncertain about Compass’ authority at that date and was not acting in reliance on any representations that may have been made by the BIA.
(b)As at 6 September 2004, the Council’s view was that Compass was not authorised to certify new unit titles and it wrote to the BIA expressing this view. It is therefore unlikely that prior to this date the Council had relied on any prior representations by the BIA that Compass was authorized to certify new unit titles.
[88] For the reasons I have outlined, it is my view that the negligent misstatement cause of action is untenable and should be struck out.
Limitation issues
[89] Given my various findings above, it is not necessary for me to address the various limitation issues raised by the parties.
Summary and conclusion
[90] Underpinning the Council’s first three causes of action against the BIA (breach of statutory duty, negligence and concurrent tortfeasor) are three alleged duties, only two of which the Council still relied on by the conclusion of the strike out hearing, being:
(a) a duty to investigate queries as to the activities of certifiers; and
(b)a duty to regulate the activities of certifiers, which was ultimately articulated as a claim that the BIA owed a duty of care to the Council and/or the owners of the Scholar to notify them when Compass’s scope of authority was modified, in a timely manner.
[91] In relation to the first three causes of action:
(a) Applying the reasoning of the Court of Appeal in Sacramento, it is not reasonably arguable that the BIA owed a common law and/or statutory duty of care to the Council and/or the Scholar owners to investigate the conduct or ability of Compass (including in particular whether Compass was acting within its scope of authority). I also accept the BIA’s further submission that the pleading does not, on its face, contain any allegations that (if assumed to be true) could reasonably have triggered an investigation of Compass by the BIA.
(b)The alleged duty to regulate, as currently pleaded, is so generic as to be effectively meaningless. Nor is there any meaningful pleading as to how the relevant duty has been breached, or how any such breach has caused loss. The current pleading is therefore deficient on its face and does not disclose an arguable cause of action.
(c) Even if the Council were to amend its duty to regulate pleading along the lines developed in argument, namely that the BIA owed a duty of care to the Council and/or the Scholar owners to notify them when Compass’s scope of authority was modified, in a timely manner, that would not save the pleading.
(d)Further, even if the alleged duty to notify was arguable, any claim based on such a duty would necessarily fail in the particular circumstances of this case, due to the lack of a sufficient causal nexus between the Scholar owners’ claim against the Council and the BIA’s alleged duty to notify.
(e) The concurrent tortfeasor claim is untenable as it depends on the establishment of a tenable duty of care in either the first or second causes of action.
[92] The consequence of these findings is that the first three causes of action are all untenable and should be struck out.
[93] In relation to the fourth cause of action, negligent misstatement, I have found that there was no assumption of responsibility by the BIA in relation to the views it expressed as to Compass’ scope of authority, following the reasoning of the Supreme Court in The Grange. Further, the Council could not have reasonably relied on the alleged representations, given that they were very heavily qualified, making it clear the BIA was not able to offer a binding interpretation of Compass’ scope of authority.
Result
[94] I order that:
(a) Auckland Council’s third party notice against the BIA dated
13 February 2014 be set aside; and
(b)Auckland Council’s four causes of action against the BIA (breach of statutory duty, negligence, concurrent tortfeasor and negligent misstatement) as set out at paragraphs 26 to 47 of its statement of claim dated 13 February 2014, be struck out.
[95] The parties are encouraged to endeavour to resolve costs issues between themselves. If agreement cannot be reached then leave is reserved to file memoranda. Any memorandum on behalf of the BIA is to be filed and served by
28 February 2015. Any memorandum on behalf of Auckland Council is to be filed
and served by 14 March 2015.
Katz J
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