Invercargill City Council v Southland Indoor Leisure Centre Charitable Trust
[2016] NZCA 68
•21 March 2017 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA528/2015 [2017] NZCA68 |
| BETWEEN | INVERCARGILL CITY COUNCIL |
| AND | SOUTHLAND INDOOR LEISURE CENTRE CHARITABLE TRUST |
| Hearing: | 10 and 11 August 2016 |
Court: | Harrison, Miller and Cooper JJ |
Counsel: | D J Heaney QC and K B Dillon for Appellant |
Judgment: | 21 March 2017 at 3.00 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed.
BThe award of damages is set aside and judgment is entered for the Council on the Trust’s claim.
CThe cross-appeal is dismissed, with leave reserved to appeal to this Court on the issue of GST if the Trust should succeed on further appeal.
DThe respondent must pay the appellant costs for a complex appeal on a band B basis with usual disbursements including disbursements on the cross-appeal. We certify for second counsel.
ECosts in the High Court are to be fixed there if counsel cannot agree.
____________________________________________________________________
REASONS
Miller J [ 1]
Harrison and Cooper JJ [161]
REASONS OF MILLER J
TABLE OF CONTENTS
Introduction [1]
Narrative [10]
The stadium project [10]
Remedial work needed during construction [16]
Building consent for the remedial work [22]
Defective remedial work went undetected [25]
A PS4 and code compliance certificate eventually issued for the remedial work [28]
Poor roof performance noted but not remedied [37]
Collapse attributable to defective remedial work [42]
The project agreement and lease [43]
The claim and defences [47]
The duty of care issue [50]
The rule in Spencer on Byron [53]
Does the rule in Spencer on Byron apply here? [65]
Did the Council owe the Trust a duty of care for the remedial work? [85]
Breach of duty [100]
Causation [101]
Did the Trust rely on the code compliance certificate? [111]
Would the recommended inspection have revealed the defects? [119]
Having learned of the defects, would the Trust have attended to them? [131]
Conclusions on causation [132]
The Trust’s attempt to support the judgment on other grounds [134]
Contributory negligence [136]
The Council’s claim to an indemnity in contract [141]
Betterment [146]
Result [158]
Introduction
Stadium Southland was erected in 1999–2000 to provide indoor sporting and recreation facilities for “all members of the Southland community”. It was a complex comprising a foyer, amenities area and squash courts, two main events courts, and five community courts. It was erected under a project agreement and lease between the appellant, the Invercargill City Council, which owns the land on which it stood, and the respondent, the Southland Indoor Leisure Centre Charitable Trust, which owned the building. The Trust, as we will call it, was established by six community organisations, one of them the Council, to build and operate the stadium.
During construction the long and shallow mono-pitch roof over the community courts was seen to sag. The Trust’s consulting engineer, Anthony Major, had erred when designing the steel trusses that supported the roof and, apparently with his approval, the Trust had opted for lighter gauge steel than his design called for. The Trust arranged for remedial work, which was competently designed by an independent engineer, Maurice Harris, and approved by Mr Major.
The Council insisted that the Trust seek a building consent for the remedial work and it consented Mr Harris’s design, requiring of the Trust that Mr Major should certify by producer statement that the completed work met specifications set by Mr Harris. Those specifications included a small upward camber for the trusses when props were removed after the remedial work was completed. The trusses were to exhibit at their mid-points a precamber, as the measurement is known, of 85 mm.
The steel fabricators did not complete the remedial work as Mr Harris had designed it. Mr Major did not detect the defects, because he did not inspect their work. Nor did the Council, because it relied on Mr Major.
The Council issued a code compliance certificate for the remedial work on 20 November 2000, before it received Mr Major’s producer statement. He supplied a producer statement on 22 January 2001, but it omitted the required measurements. The Council pursued him. On 28 November 2001 he eventually supplied measurements, not of the trusses’ precamber but of their heights from the floor. The Council did not check the height measurements. Had it done so it would have noticed that the trusses’ heights varied by as much as 139 mm. The Council did not insist on precamber measurements either. Had it done so it would have learned that some of the trusses exhibited no precamber but actually sagged.
In 2006 the Trust took advice from Mr Harris about the roof, worried about its flexibility under wind load and presciently concerned that it might collapse under heavy snow. He recommended an inspection that was to include welds and precamber measurements. The Trust did not follow his advice.
On 18 September 2010 Invercargill experienced a heavy snowstorm. Because the remedial work was defective the roof over the community courts collapsed under the weight of snow. Fortunately, those inside escaped unharmed. A new and improved complex has been erected in its place.
The Trust claims that the Council is liable in negligence and negligent misstatement for issuing the code compliance certificate on 20 November 2000. It also says that the Council had earlier failed in the exercise of an alleged inspection function for the remedial work, but a direct claim for these failings would be time‑barred. It won in the High Court before Dunningham J, recovering $15,126,665.35, being the agreed cost of rebuilding the original structure, less $750,000 for betterment.[1]
[1]Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council [2015] NZHC 1983 [High Court judgment]. Dunningham J also awarded $85,862 for agreed loss of rental income and $2,035,764.31 in interest at 5 per cent per annum. The final judgment sum, $16,998,225.66, was less a negotiated $1,000,000 contribution from Mr Major.
The Council appeals, saying that it owed the Trust no duty in tort in the circumstances, the rule in Spencer on Byron notwithstanding.[2] It also asserts that the lease excludes liability, and it denies causation and alleges contributory negligence. The Trust cross-appeals, challenging Dunningham J’s betterment deduction and her treatment of GST.
Narrative
The stadium project
[2]Body Corporate No 207624 v North Shore City Council (Spencer on Byron) [2012] NZSC 83, [2013] 2 NZLR 297.
The six community organisations which decided to build the stadium were the Invercargill Licensing Trust (which administers an alcohol monopoly in the city), the Council, the Southland District Council (which is the territorial local authority for most of the Southland region excluding Invercargill City), the Community Trust of Southland, the Southland Building Society, and Sport Southland. They chose to establish the Trust as an incorporated charitable trust to plan, build and run the stadium, with each organisation appointing one trustee and the appointees being permitted to elect up to six more trustees if they thought it desirable to redress any imbalance of skill, knowledge, and representation of various community interests. The trustees serve as unpaid volunteers.
The chosen location was on Council-owned land at 550 Tay Street, Invercargill. The Council and the Trust entered a project agreement on 23 December 1999 under which the Council agreed to lease the land to the Trust and contribute to the project by undertaking the ground works. That was to be the full extent of the Council’s financial exposure and it was capped at $760,000. For its part, the Trust agreed to build and run the stadium. At the end of the lease, which had a 33-year term with one right of renewal, the stadium would revert to the Council without compensation for improvements.
The Trust was what I will call a commissioning owner; it commissioned the building, contracting the architect, McCulloch Architects Ltd, the engineer, Mr Major, and the builder, Amalgamated Builders Ltd.
Construction began in June 1999 and was substantially completed by 25 March 2000, when the then Prime Minister opened the building. In its regulatory capacity the Council issued a series of building consents for phases of the construction. It undertook some 44 inspections during the original building work and it issued a number of code compliance certificates for parts of the work. In doing so it relied on producer statements provided by the Trust’s engineer, Mr Major. Under the Building Act 1991 (1991 Act), a producer statement was a statement supplied for an applicant for building consent to the effect that certain work had been or would be done in accordance with certain technical specifications, and a local authority might rely on it when issuing a consent or a code compliance certificate.[3] More will be said about this later.
[3]Building Act 1991 [1991 Act], s 43(3) and (8).
We are concerned with the stage 4 building consent, which covered structural design. The application for consent was supported by a PS1 from Mr Major. A PS1 is a producer statement — design, certifying that the design complies with applicable requirements of the building code. A PS2 is a producer statement — design review, a PS3 is a producer statement — construction, and a PS4 is a producer statement — construction review.[4]
[4]As noted at [81] below, the term “producer statement” was defined in s 2 of the 1991 Act. The categories of producer statement that we list here have evolved as a matter of professional practice in the building industry. A description of the terms may now be found in a practice note: Institute of Professional Engineers New Zealand (IPENZ) Practice Note 1: Guidelines on Producer Statements (version 3, January 2014) at 6–8.
The drawing at the end of the judgment illustrates the community courts’ roof design sufficiently for my purposes. It will be seen that the roof had a long span and a shallow pitch. The design of the welded steel trusses used to support the roof across its span is also shown, as is the planned remedial work that I now go on to discuss.
Remedial work needed during construction
During construction a Council inspector noted that the steel trusses sagged and drew the matter to the architect’s attention. The Trust was naturally alarmed. The Chairman at the time, Ray Harper, wrote on 24 November 1999 to the architect, who also served as project manager, asking for written advice about the problem and the solution, and seeking assurances from the architect and Mr Major that the resulting structure was safe and complied with design standards and that both had adequate professional indemnity cover. He also insisted that an independent structural engineer be engaged to certify that the structure would be sound and would comply with acceptable design standards.
Maurice Harris was appointed to review the designs. He corresponded with the architect and the Trust, which wrote to him on 7 December 1999, repeating its instructions and directing that he report to the Trust. It is evident that the Trust was concerned that the architect might share responsibility for the defects. Mr Harris met with one of the trustees, Greg Mulvey, and agreed that his report would extend to checking any items considered critical to the integrity and safety of the building.
Mr Harris issued a report dated December 1999 in which he confirmed that Mr Major had erred when calculating loads acting on the trusses. He characterised the faults as design problems attributable to lack of checking, failure to carry out sufficient seismic analysis, insufficiently detailed design input interconnections and member slenderness, failure to follow design codes, and pressure to reduce structural costs without detailed re-analysis. In the result, the six trusses over the community courts had been designed for approximately half the live load. (“Live” load means the load in use, affected by wind and other environmental conditions.) Foundations were satisfactory, but precast columns had been designed for the lighter loads. Further, 6 mm steel, a lighter gauge than designed, had been used in some chords (the square steel beams along the top and bottom of the trusses) as a cost‑cutting exercise by the Trust.
Mr Harris proposed that the trusses should be strengthened by propping them up, cutting them at three points and precambering them at prescribed levels before joining them and removing the supporting props. The objective of precambering was that under load the roof would assume its designed profile. The work involved cutting each of the top trusses’ chords at three points, lifting them and adding spacer plates to achieve the designed precamber, re-welding them, and welding strengthening plates along the sides of the top and bottom chords at mid-span. Notably, the strengthening plates were to cover the middle of the three points where each of the top chords had been cut and re-welded. Beams and columns also needed strengthening, and truss connections to concrete columns needed modifying. Mr Major endorsed this solution.
On 24 December 1999 the Council advised the architect that a building consent amendment must be sought, and it must be accompanied by a producer statement that addressed cause and remedy and included a peer reviewer’s comments. The Council warned that it might ask that an independent engineer review the consulting engineer’s report. The Council’s Manager of Building Services, Simon Tonkin, also wrote directly to Mr Major, seeking an explanation and warning that after receiving his response the Council would review how it handled his producer statements. The Council followed up by letter of 2 February 2000. Mr Major responded with a detailed explanation of how the design errors had come about, admitting that he had made some mistakes and detailing how the remedial work would address them.
The Council sought assurances from Mr Major about his quality control procedures, asking for a written account. He responded on 28 February, explaining that he handled as many as 300 projects a year and that these projects were problem‑free almost without exception. He assured the Council that he now intended to accept only commissions that allowed adequate time for design and documentation, to be more pedantic where savings in structural content were requested, to prepare calculations to a standard that would allow independent checking, and to engage an independent engineer to peer review his design philosophy and arithmetic for major or difficult or novel projects. The Council accepted these assurances by letter of 2 March 2000.
Building consent for the remedial work
In the meantime, on 7 January 2000 the Trust had sought a building consent for the remedial work. Its application attached a letter dated 4 January 2000 from Mr Harris, in which he explained how the work was to be done and specified the precamber measurements together with the permissible range of movement under live load, as follows:
(a)The trusses were to be cut and set at an initial precamber measurement of 225 mm at midspan, meaning that they should be elevated by that much at that point.
(b)When props were removed so that the roof was carrying its full self‑weight, the precamber should be 85 mm.
(c)Under live load in normal conditions the trusses should exhibit a net precamber of approximately 85 mm and under full live load a sag of 38mm. Future live load and snow load deflections should not exceed 123 mm and 99 mm respectively.
Mr Harris also specified that the contractor and supervising engineer should have copies of a drawing number 97139, which had been prepared by Mr Major, and his letter of 4 January.[5]
[5]It is this drawing that is attached to the judgment.
The application was accompanied by a PS1 from Mr Major, in which he certified that the remedial work provided for in the drawing complied with the building code. Mr Harris supplied a PS2, which the Council treated as a peer review, noting that he was a registered engineer. On 14 January, the Council issued a building consent known as amendment number 1 to stage 4 building consent. There is no suggestion that the Council was negligent when issuing the consent, or that the design of the remedial work was inadequate.
The consent specified that as consulting engineer Mr Major was to confirm in writing to the Council that the precamber on the six community court trusses was in line with Mr Harris’s letter of 4 January 2000. Individual trusses measurements were to be included in the record. Mr Major was also required to provide a producer statement construction review or PS4 for the remedial work. It is not clear why Mr Major was nominated, presumably by the Trust, for this role.
Defective remedial work went undetected
The remedial work was carried out between January and February 2000. The Council did not inspect the work, relying on Mr Major to inspect and certify it in accordance with the consent, although it did insist on written confirmation that the defects had been remedied and it did carry out inspections for stage 4 as a whole. When doing this latter work the inspectors drew the architect’s attention to any issues they happened to notice with the building works.
In order to issue the PS4 Mr Major would have had to inspect the work as it was being done. He did not inspect it. It seems that he accepted the steel fabricators’ assurance that the work had been done properly.
The remedial work was not carried out in accordance with Mr Harris’s advice or the conditions of consent. Notably, cuts made in the chords to insert packers and achieve precamber ought to have been spliced with welds around all four sides, but the tops were not welded at all. Strengthening plates along the sides of the trusses ought to have covered the centre splices but did not, and stitch welds used to fix the strengthening plates to the chords were inadequate. Welds to the box section and packers had not penetrated adequately.
A PS4 and code compliance certificate eventually issued for the remedial work
On 17 February 2000 Mr Tonkin wrote to the architect, recording his understanding that the remedial work was complete and asking the architect for Mr Major’s PS4. He reminded the architect to include written confirmation that the precamber was in line with Mr Harris’s letter, along with individual trusses measurements. There was no response. On 17 March Mr Watson, the Council building inspector, carried out a final inspection for stage 4, and the Council then issued an interim code compliance certificate, with a number of outstanding issues noted. The issues did not include the remedial work, and they did not stop the Trust opening the stadium on 25 March 2000, as it was very anxious to do.
In the meantime, the Trust pursued recovery of the cost of remedial work from the architect. The evidence includes a summary of the minutes of Trust meetings (but not the actual minutes). At a meeting on 6 March 2000, the Trust was advised that apart from some small issues still to be resolved the remedial work had been completed to a satisfactory level. The Trust was told at a meeting on 3 July 2000 that the architect and engineer had lodged insurance claims, and a settlement was achieved some months later.
The Trust did not obtain code compliance certificates from the Council in connection with the decisions just mentioned. It had requested certificates in March, but without providing Mr Major’s PS4 or following up when the Council did not respond. It again requested them in October 2000, apparently because it needed them to get a liquor licence for the premises.
The Trust’s inquiry appears to have led the Council to repeat its request for Mr Major’s PS4 and trusses measurements. On 20 November 2000, before receiving the PS4, the Council issued a code compliance certificate for amendment No 1. It is not now in dispute that this certificate was issued negligently, for the Council had no way of knowing that the work was in fact code-compliant. It became apparent at trial that a clerk issued it without reference to Mr Tonkin.
When checking outstanding requirements on 17 January 2001 a Council inspector followed up the request for the PS4. On 22 January 2001 Mr Major finally supplied a PS4, certifying that the modifications has been generally constructed in accordance with the drawing 97139 and associated specifications. He also supplied a covering letter explaining how the remedial work had been carried out. He stated that:
Re-alignment of the Community Court trusses was done by propping Truss No 1 at mid-span and quarter points, cutting the top chord at the prop locations, and jacking at mid-span to achieve the maximum precamber consistent with avoiding any excessive strain on the bolted purlin connections. Prior to plating, and making good the top chord, the quarter point props were adjusted to achieve an acceptably uniform truss profile. Once the truss had been fully welded and un-propped, the alignment was checked by viewing from the south boundary to confirm that the result was visually acceptable. The remaining trusses were similarly adjusted in sequence with the overall appearance of the roof from the south being the criterion for acceptability. The only measurements made were those required to check that the induced initial precamber was in each truss was the same as for Truss No 1.
It will be seen that Mr Major did not specify that the precamber for the six community court trusses was in line with Mr Harris’s letter of 4 January 2000. Instead, he said that measurements were taken to ensure the induced initial precamber was the same as for truss 1, with a visual check to ensure that the result was acceptable once the trusses were welded and the props removed.
The Council noted the omission. By letter of 30 January, Mr Tonkin reminded Mr Major that he was to confirm that the precamber was in line with Mr Harris’s letter, and that individual truss measurements were to be included in the records. Mr Major was asked to resubmit his PS4. He did not. The Council followed up in September and a meeting was held with Mr Major, at which it was agreed that he would follow up with the structural steel company for datum heights for the trusses. On 23 July 2001 Mr Tonkin wrote asking for the “datum heights of the community court trusses”, and this request was repeated on 12 September. The Judge found that it seemed the very precise requirements of Mr Harris’s letter of 4 January 2000 had evolved into a mere request for trusses heights as “a benchmark against which future deflections could be checked”.[6]
[6]High Court judgment, above n 1, at [55].
Mr Major eventually complied with this request. On 28 November the Council received a plan showing measured floor to trusses heights. The Council appears to have filed this plan without examining it. The plan disclosed what the Judge described as considerable variation (as much as 139 mm) in the finished heights.[7]
[7]At [56].
In the result, Mr Major never supplied any precamber measurements. It is common ground that the actual precamber did not comply with Mr Harris’s design. For example, truss two had a sag of 54 mm rather than the upward precamber of 85 mm that it ought to have exhibited under normal live load conditions. Only truss one came close to meeting the required precamber.
On 9 April 2003 a code compliance certificate was issued for the entirety of stage 4, on the basis that all outstanding items affecting structural design had been resolved.
Poor roof performance noted but not remedied
The stadium roof leaked persistently, and it also moved extensively — up to six inches — under wind loads. The Southland District Council’s representative on the Trust volunteered the time of one of its engineers, Graham Jones, to assess the leaks. It was thought that movement in the roof might be a cause of the leaks. Following publicity about a stadium collapse in Poland, the Trust also became concerned whether the roof could withstand snowfall. At a meeting of the Stadium’s management board on 28 March 2006 the manager reported that advice was being sought from Mr Harris, who had peer-reviewed the original design. It was resolved that due to “ongoing issues concerning the roof”, management should order that the stadium be vacated if at any time they had safety concerns. At about the same time, the Trust received a report from Mr Jones, in which he expressed concern about the roof’s flexibility. Mr Jones is reported as having said that while “the structure does meet all the building code requirements” there remained a problem to be corrected, which might involve steps to strengthen the trusses. The trustees resolved to refer the matter back to the architects in the expectation that “they would go back to their original consulting engineer and obtain recommendations on what would need to be done in order to reduce the level of flexibility in the roof structure that would lead towards solving the leakage problem”.
Acton Smith, the then deputy chairman of the Trust, then wrote to Mr Harris himself on 12 April 2006, as follows:
Ray Harper and I have been working on the Stadium Southland extension and we are becoming increasingly concerned with the movement that is occurring in the roofline on the spans over the community courts.
Following the collapse of roofs in Eastern Europe in this last year where a lot of people were killed and injured, we are concerned that a major snowfall, which Southland has not experienced for 12 years, is due. Having become aware that the roof is moving up to six inches under considerable wind loads, we have asked ourselves what the effect would be of a heavy snowfall that did not melt and its weight on the building.
Currently Tony Major is looking at how he can prevent the uplift occurring. Ray and I are more concerned with the loading on the roof through snow and the prevention of any accidents to people using the facilities. Would you give your assessment of the roof your attention, for we want to be certain that the building is totally safe?
Mr Harris responded on 9 June 2006, confirming by reference to his design that the strength of the trusses over the community courts was adequate to support the design loads specified in the relevant codes, but advising that the Trust should investigate what was happening. After confirming that his design calculations were correct, Mr Harris said that:
The strengthened trusses were precambered to ensure that the truss deflections due to the self weight of the roof did not result in any visible sag. This needs to be checked.
He noted that the reported wind deflection of 106 mm (this appears to be an error; the Trust had reported deflections of six inches or approximately 150 mm) was higher than recommended and could contribute to potential maintenance issues. He recommended that the Trust should investigate the following items:
1.Confirm where roof leaks are occurring or have occurred in the past and review roof fastening details particularly if the end bays are causing the problem;
2.Confirming that the roof light glazing has been installed with adequate clearance to the aluminium mullions;
3.Check that the community court roof trusses have an upward camber at mid-span when carrying the roof self weight only;
4.That a visual inspection of the trust welds and support fixings is carried out by a suitably qualified person to determine if there are any signs of deterioration or fatigue;
5.That suitable ties or props are installed at mid-span of the trusses only if the roof movement is causing a problem with patrons and it is confirmed that maintenance issues are indeed caused by the roof deflection;
6.That thermal effect on the roofing is checked to ensure these are not contributing to the maintenance issues.
Finally, Mr Harris offered to review any further work thought necessary after each of these recommendations had been investigated.
The Trust did not act on these recommendations. The contemporaneous evidence indicates that Mr Harris’s recommendations 3 and 4 were ignored. The minutes of a trustees’ meeting of 2 August 2006 refer to a need to address water ingress but state that Mr Harris had said flexibility in the roof structure was acceptable and make no reference to his recommendations. The Trust’s stance now is that it had no need to act, for Mr Harris had assured it that the roof was safe so long as it had been built according to his design and the Council and Mr Major had both certified the work.
Collapse attributable to defective remedial work
It is not now in dispute that the collapse on 18 September 2010 commenced with the failure of truss one at the mid-span of the top chord, triggering a collapse sequence on trusses one to five. Although it was far from the only flaw in the remedial work, the evidence is that but for the missing weld atop the mid-span of truss one the roof would have withstood the snow load.
The project agreement and lease
The agreement, which was executed on 23 December 1999, recited that the Trust wished to “erect, construct, build” a leisure centre on Council land, and the Council had agreed to support the project by completing certain ground works and granting the Trust a lease in the form attached, subject to the Trust satisfying it that the Trust was able to complete the “project and arrangements” in Schedule 3. Schedule 3 stated that the Trust was “able to erect and build” an indoor leisure centre in accordance with plans and specifications provided in a resource management consent. The Trust also agreed to accommodate specified sports, namely softball, tennis, netball and soccer.
The Trust and Council undertook to carry out the works respectively assigned to them under the agreement. The Trust declared that it was “fully able” to complete the works, and it agreed to comply with all statutes, regulations and bylaws affecting the land and “in carrying out works in … Schedule 3 made or imposed on it by any authority.” The Trust indemnified the Council against any damage or injury resulting from the Trust building the stadium.
The memorandum of lease attached to the project agreement had been executed on 7 July 1999. It contained an indemnity in similar terms at cl 23:
The Lessee [Trust] shall indemnify and keep indemnified the Lessor [Council] from and against all actions, suits, claims, demands, proceedings, losses, damages, compensation, costs, charges and expenses whatsoever which may arise during construction, erection or operation of any authorised building or works or activity (clause 4), including permitted alterations, maintenance and additions and including but not limited to accidents or injuries of whatsoever nature or kind and howsoever sustained or occasioned (and whether resulting in the destruction of any property or not) escape of fire, leakage of water, inflammable liquid or other liquid AND notwithstanding that any such actions, suits, claims, demands, proceedings, losses, damages, compensation, sums of money, costs, charges and expenses shall have resulted from any act or thing which the Lessee may be authorised or obliged to do under these presents and notwithstanding that any time waiver or other indulgence has been given to the Lessee in respect of any obligation of the Lessee under this Lease PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED AND DECLARED that the obligations of the Lessee under this clause shall continue after the expiration or other determination of this Lease in respect of any act, deed, matter or thing happening before such expiration or determination.
The evidence is that the Council was already making a significant contribution by way of land and improvements and did not want to incur any additional liabilities for the construction.
The land was a designated reserve which could be used only for limited purposes. For that reason the lease was limited to 33 years with one right of renewal and specified that the Trust could not acquire the fee simple. It further provided that the Trust was to insure the property and the Council could decide whether destroyed or damaged buildings would be reinstated, that the Trust was to take out public liability insurance for itself and the Council and, as noted earlier, that the property reverted to the Council on termination with no compensation for improvements.
The claim and defences
The Trust sued the Council in negligence and in negligent misstatement. It pleaded that the Council owed it a duty of care when issuing building consents, when inspecting the works, when ensuring compliance with the consents and building code, and when issuing code compliance certificates. The misstatement claim rested on the code compliance certificate of 20 November 2000, alleging that the Council owed a duty to exercise reasonable care and skill when issuing it.[8] The Trust was said in both causes of action to have relied on the Council, which acted negligently, and to have suffered loss as a result.
[8]Neither the claim nor the defence invoked the later certificate of 9 April 2003, though steps taken by the Council before issuing that certificate assumed significance in the causation inquiry, as explained at [119]–[130] below.
The Council’s defence put the Trust to proof and denied, among other things, that it owed a duty of care and that the Trust relied on the Council. It advanced other defences, some of which do not now concern us. Several are of moment, however:
(a)It pleaded limitation. It is common ground that limitation applied to all of the Council’s actions before the issue of the code compliance certificate on 20 November 2000. The claim was filed on 19 November 2010, just within the statutory long-stop limitation period of 10 years.
(b)It sought a declaration that because it had indemnified the Council the Trust could not recover its losses, relying on cl 23 of the lease. It did not invoke cl 3.3 of the project agreement.
(c)It denied causation and pleaded contributory negligence, saying that the Trust’s failure to follow Mr Harris’ recommendations of 9 June 2006 caused its loss, because the inspection he recommended would have identified the welding defects.
(d)Finally, it pleaded betterment. At trial it quantified this sum at $1,542,002.
Mr Major was also sued. He agreed to contribute $1 million and took no part in the trial. He has been struck off the roll of professional engineers.
The duty of care issue
In the High Court the Council argued that Spencer on Byron could be distinguished on its facts because the Trust was effectively a developer; it controlled the project, relying on its own experts and supervising the project itself.[9]
[9]High Court judgment, above n 1, at [83].
Dunningham J concluded shortly that the Council owed the Trust a duty of care, reasoning that Spencer on Byron had recognised a duty for all buildings subject to the 1991 Act’s regulatory regime, regardless of their type.[10] Characteristics of the Trust as owner, such as its control over the construction process and relative lack of vulnerability, were irrelevant, as was the absence of any fee to the Council for inspecting and certifying the work.[11] The Judge noted that the trustees were volunteers reliant on grants and donations to fund the project, which placed them in a more vulnerable position than commercial building owners.[12]
[10]At [96].
[11]At [97].
[12]At [98].
Counsel addressed the Spencer on Byron duty in written submissions, but shortly before the hearing Mr Heaney filed a memorandum accepting that we were bound to apply it and reserving his challenge for further appeal. He sought instead to have us distinguish Spencer on Byron. We asked counsel to argue the duty, however, taking the view that we had to examine the duty in order to respond to the invitation to distinguish it. The duty question was argued accordingly.
The rule in Spencer on Byron
Actions are normally brought in negligence and in negligent misstatement, but the latter usually brings no additional relief because the local authority’s negligent inspections are actionable in negligence,[13] which does not require proof either that the Council knew its work would likely be relied on without independent inquiry or that the plaintiff actually relied on it.[14] The authorities accordingly focus on negligence without distinguishing the negligent misstatement cause of action.
[13]Spencer on Byron, above n 2, at [220] per McGrath and Chambers JJ.
[14]Both of which are requirements in a misstatement claim: Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78 at [80]–[85]; North Shore City Council v Attorney-General [The Grange] [2012] NZSC 49, [2012] 3 NZLR 341 at [189]; and Caparo Industries plc v Dickman [1990] 2 AC 605 (HL) at 638.
The leading authorities are the Supreme Court judgments in Sunset Terraces and Spencer on Byron, which must be read together. In Sunset Terraces the Court affirmed and restated local authorities’ duty of care to homeowners, both original and subsequent, for negligent consenting and inspection.[15] The plaintiffs owned apartments in two residential apartment blocks. They had not commissioned construction, although some had purchased from the developer. The Court rejected the Council’s argument that the longstanding Hamlin duty should be abandoned in light of changed circumstances or confined to traditional stand-alone dwellings.[16]
[15]North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289 [Sunset Terraces].
[16]Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA). The result and reasons were upheld in Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC).
In Spencer on Byron the Court extended the duty of care to all premises regardless of nature.[17] The plaintiffs owned hotel rooms or apartments in a 23-storey building. The narrow question was whether the duty of care ought to be applied to premises containing a mixture of hotel and residential apartments.[18] The Council’s alleged negligence was said to engage consenting, inspecting and certifying functions.
[17]Spencer on Byron, above n 2, at [215]–[216] per McGrath and Chambers JJ. Elias CJ and Tipping J agreed at [22] and [26] respectively.
[18]At [63] and [67].
The two judgments focused on building type because the defendant wanted to limit liability on that ground, among others, but the duty that emerges from these judgments is owed to owners. The plaintiffs in both cases were owners (including bodies corporate), and their economic loss was the cost of repairing the defects. In Sunset Terraces the principal judgment stated that a non-owner occupant can only be protected through a duty to the owner, who suffered the loss and can undertake the remedial action.[19]
[19]Sunset Terraces, above n 15, at [53]. See also Spencer on Byron, above n 2, at [187].
The Court in Spencer on Byron obliquely addressed the position of owners who commission construction, when addressing the Council’s argument that to impose a duty of care was tantamount to a contractual warranty for which owners need not pay.[20] McGrath and Chambers JJ reasoned that New Zealand law has never drawn a distinction between first and subsequent owners.[21] They had in mind the opportunity that an owner who commissions construction has to contract with the inspecting authority for a fee.[22] The Court was not required to address the rights, as against a local authority, of an owner or contractor whose own carelessness was the direct cause of the loss. It did not examine authorities in which courts have excluded liability to such persons.[23]
[20]Spencer on Byron, above n 2, at [188]–[190].
[21]At [191]. It may be noted that the plaintiff in Invercargill City Council v Hamlin, above n 16, was a commissioning owner.
[22]Spencer on Byron, above n 2, at [191]. Tipping J also referred at [27] to the commissioning owner’s payment of a fee to the Council, finding that it confirmed proximity.
[23]Three Meade Street Ltd v Rotorua District Council [2005] 1 NZLR 504 (HC) at [39]–[57]; Brichris Holdings Ltd v Auckland Council [2012] NZHC 2089 at [33]–[36] and [42]–[43]; and J W Harris & Son Ltd v Demolition & Roading Contractors (NZ) Ltd [1979] 2 NZLR 166 (SC) at 177–178. Compare Ingles v Tutkaluk Construction Ltd [2000] 1 SCR 298 at [39], in which it was held the negligence of an owner-builder does not absolve a council of its duties in respect of its powers of inspection.
The majority in Spencer on Byron readily found that a local authority is in a proximate relationship to a building owner.[24] Policy considerations were neutral or favoured a duty.[25] In particular, the duty is not generally inconsistent with contractual obligations, essentially because the building code establishes a baseline; no one can contract to erect a building that is not code-compliant.[26]
[24]Spencer on Byron, above n 2, at [10] per Elias CJ, [27]–[28] per Tipping J and [185] per McGrath and Chambers JJ.
[25]William Young J, dissenting, doubted whether the authorities established proximity and preferred to focus on the policy considerations: at [292].
[26]At [39] per Tipping J and [193]–[194] per McGrath and Chambers JJ.
For the majority, the duty rests primarily on the Council’s statutory control of construction processes and building standards.[27] Tipping J explained that:[28]
It would be highly anomalous if proximity were held to exist in residential cases but not in those involving non-residential buildings. In each case the council controls the building process to ensure that it conforms with the building code. In each case the person involved pays a fee to the council for the inspection and other work it does under the relevant legislation. In each case it is eminently foreseeable that carelessness on the part of the council may cause loss to both the present owner and to subsequent owners. And although the cause of action is in tort, the relationship between the parties in each case is close to a contractual one.
[27]At [34]–[38] per Tipping J, and at [97] per McGrath and Chambers JJ.
[28]At [27]. McGrath and Chambers JJ referred at [185] generally to Sunset Terraces, above n 15, in which control was emphasised in the principal judgment delivered by Tipping J at [32] and [50].
William Young J, dissenting, accepted that local authorities exercise control, but he saw that as a facet of foreseeability rather than the determinant of a duty, noting that in other settings regulatory control is not usually enough to sustain a duty to prevent foreseeable loss.[29]
[29]Spencer on Byron, above n 2, at [247].
Reliance was discounted as a determinant of the duty, the Court finding general reliance on the state of the law sufficient.[30] The term “general reliance” is something of a misnomer, because the Court’s real point was that community expectations have reached the point where, as McGrath and Chambers JJ put it, “[a] plaintiff does not have to prove reliance as an element in the tort” and so need not show, for example, that the local authority’s records were checked before the property purchase.[31]
[30]At [35] and [38] per Tipping J, and at [199]–[201] per Chambers and McGrath JJ. See also Sunset Terraces, above n 15, at [48] and [50] per Tipping J.
[31]Spencer on Byron, above n 2, at [201] and [220].
It is important to emphasise at this point that the Court analysed the case in negligence, finding it unnecessary to distinguish the claim in negligent misstatement. It recognised that in negligent misstatement the plaintiff must prove reliance-in-fact, which was termed “specific” or “actual” reliance.[32] For example, Tipping J held that “in misstatement cases reliance is necessary before there can be causation. That is not necessarily so in other cases of negligence such as the present.”[33]
[32]These terms were used by McGrath and Chambers JJ at [199] and [220].
[33]At [34].
The Court also discounted vulnerability. Tipping J characterised the concept as problematic,[34] and McGrath and Chambers JJ considered it an unreliable foundation for policy.[35] They treated vulnerability as a characteristic of the individual, pointing out that some home owners may be sophisticated and wealthy, while some commercial building owners may not. They held that vulnerability should not be introduced into New Zealand law.[36]
[34]At [38].
[35]At [197]–[198].
[36]At [156].
The local authority’s duty has long rested on a corrective justice rationale,[37] and that was affirmed in Spencer on Byron, Tipping J stating that the cost of liability for councils should incentivise them to take care.[38] The Court also relied on a distributive justice rationale, reasoning that losses are appropriately borne by ratepayers because the whole community benefits if buildings are made safe and healthy.[39]
Does the rule in Spencer on Byron apply here?
[37]Invercargill City Council v Hamlin, above n 16, at 524–525 and 527.
[38]Spencer on Byron, above n 2, at [50] and [105].
[39]At [52] and [203]. See Invercargill City Council v Hamlin, above n 16, at 525; and Stieller v Porirua City Council [1986] 1 NZLR 84 (CA) at 94.
We are asked to distinguish Spencer on Byron and disapply the rule that a local authority owes a duty of care to a commercial building owner.
By way of introduction, I observe that Spencer on Byron, like Sunset Terraces, was decided on a strike-out application, so the facts were assumed, not found.[40] As a result, the facts recorded were quite limited and abstract. For example, the Supreme Court did not describe the network of contracts under which the building was constructed and the apartments sold to the plaintiffs. This matters because, of course, the doctrine of stare decisis holds that an inferior court called upon to distinguish a precedent must decide, by reference to the facts before it, what were the precedent’s salient facts and whether they differ materially.
[40]Summary judgment had also been entered for the Council in this Court’s judgment under appeal in Spencer on Byron, above n 2: North Shore City Council v Body Corporate 207624 [2011] NZCA 164, [2011] 2 NZLR 744.
Also by way of introduction, Spencer on Byron states a rule, meaning that the Court made an ex ante decision about what consequences will follow once certain facts are found. It is a characteristic of rules that the facts necessary to trigger them may be limited deliberately, the rule-maker reasoning that predictability and efficiency justify excluding other facts that might be thought relevant in any given case. This rationale was undoubtedly at work in Sunset Terraces and Spencer on Byron; it was one of the principal reasons for refusing to limit the duty by reference to considerations such as building type, size, configuration or value, or ownership type or structure.[41] It rests on an assumption, empirical in nature, that the rule is generally accurate; put another way, that in operation it is not likely to produce many, or egregious, departures from what courts seised of the facts of later cases would do. As I see it, fidelity to the rule accordingly requires that an inferior court should employ a materiality threshold when deciding whether to distinguish Spencer on Byron on the facts.
[41]In Sunset Terraces, above n 15, the Court declined to limit the duty by reference to these considerations, reasoning both that there was no principled reason for doing so and (at [49]) that the “duty must be capable of reasonably clear and consistent administration”. In that case, the intended use of the building was described at [54] as a “reasonably workable” test which best satisfied the “need for clarity of application”. In Spencer on Byron, above n 2, the same difficulty in drawing workable distinctions arose; the narrow issue was whether the duty ought to be applied to buildings containing a mix of hotel and residential apartments. William Young J at [298]–[299] also explained that Sunset Terraces was based on reliance but for reasons of practicality liability does not depend on the level of reliance that each separate plaintiff can establish. The Court’s reluctance to adopt vulnerability, as the Court interpreted that quality, may also be attributable to reluctance to have cases turn on the personal characteristics of plaintiffs.
The facts that the Supreme Court found necessary to trigger the rule are few and plain; the plaintiff must be a building owner and the defendant local authority must have performed a statutory function in connection with the building’s construction. As I explain below, under the 1991 Act the applicable functions were consenting and certifying.
The first potential point of distinction, for purposes of this case, is that the Supreme Court was not dealing in either Sunset Terraces or Spencer on Byron with plaintiffs who were commissioning owners. It is clear that a local authority cannot defend a subsequent owner’s claim by arguing that the commissioning owner could have secured protection, for itself and subsequent owners, in its contracts with professional advisers and other third parties; rather, courts require them to bear an appropriate share of the liability.[42] Contrary to Mr Ring’s submission, the Supreme Court did not hold in Sunset Terraces that professional involvement is always irrelevant; put another way, that such involvement may never qualify the local authority’s duty of care to the commissioning owner who engaged the advisers.[43]
[42]Sunset Terraces, above n 15, at [50]. The Court’s reasoning was adopted in Spencer on Byron, above n 2, at [9], [67] and [195].
[43]This point was made by William Young J in his judgment in this Court in North Shore City Council v Body Corporate 188529 [Sunset Terraces] [2010] NZCA 64, [2010] 3 NZLR 486 at [150].
Second, some of the judgments reason that a local authority’s tortious liability will not clash with the contractual liability of contractors and advisers to the owner because no one can be party to a contract that does not comply with the building code. The point being made — a policy consideration — was that conflict between contract and tort could be discounted because the building code sets the same minimum standard for both. As a matter of fact, people can and sometimes do enter into particular contracts that do not oblige a supplier or subcontractor to achieve code compliance,[44] and this may not matter from a policy perspective so long as responsibility for code compliance is assigned to someone in the matrix, such as a head contractor or engineer. What matters for present purposes is that the Court was engaging in a policy discussion, not denying the possibility that contract and tort may clash on the facts in particular cases. On our facts, which are very unusual, the Council claims that its contract with the Trust exempts it from tortious liability for failing to police the building code. I deal with the Council’s claim to an indemnity from [141] below. For present purposes, its significance is that whether or not that claim succeeds, the contract arguably may qualify or exclude anticipated or actual reliance and so affect any duty of care in negligent misstatement.
[44]This possibility is discussed in the judgment of William Young J in Spencer on Byron, above n 2, at [302]–[305], instancing a subcontractor assigned to build concrete foundations to a specified design that happened to be inadequate. For examples, see Koria v Hardy [2013] NZHC 3178; and Auckland City Council v Grgicevich HC Auckland CIV-2007-404-6712, 17 December 2010.
Third, it will be recalled that the Trust brought its claim in negligent misstatement and in negligence but, as noted at [48] above, limitation applied to the Council’s actions before 20 November 2000. Dunningham J accordingly proceeded on the basis — not in dispute on appeal — that the Trust’s claim rested on the negligent issue of the code compliance certificate on that date and not upon any earlier acts or omissions, such as inspections.[45] (Antecedent negligence may be taken into account when deciding whether the code compliance certificate was carelessly issued, but that is a different point.)
[45]High Court judgment, above n 1, at [81].
It follows that this is a negligent misstatement case, meaning that specific reliance must be proved. Here I follow Spencer on Byron, in which the Supreme Court assumed that a claim on a code compliance certificate must be brought in negligent misstatement: McGrath and Chambers JJ discussed code compliance certificates under the misstatement heading and Tipping J cited the Court’s judgment in Marlborough District Council v Altimarloch, in which it was held that a claim may be brought in negligent misstatement upon a Land Information Memorandum (LIM).[46] The same premise is evident in Sunset Terraces, in which a code compliance certificate was never issued but the Court held that a local authority may be liable, independently of the certificate and in negligence, for inspections.[47]
[46]Spencer on Byron, above n 2, at [219]–[222]; and Marlborough District Council v Altimarloch [2012] NZSC 11, [2012] 2 NZLR 726, cited in Spencer on Byron, above n 2, at [49].
[47]Sunset Terraces, above n 15, at [60]–[62].
Perhaps courts might characterise a code compliance certificate as an act rather than a statement: it is a formal step supported by rights for information and of inspection, it may be a prerequisite to sale and some uses, and liability in negligence simpliciter may introduce no risk of indeterminacy. But we did not hear argument on this point and we lack the information needed to assess its wider implications. By way of illustration, an important theme of the Supreme Court judgments in Sunset Terraces and Spencer on Byron is that the Court was imposing on local authorities a liability for economic loss no more extensive than that borne by other participants, and if that principle is to be maintained their position must be considered too.[48] As just noted, Tipping J also drew a parallel with claims on LIMs. I proceed accordingly on the basis that a claim on a code compliance certificate alone — that is, a claim not founded on any antecedent inspections — must lie in negligent misstatement.[49]
[48]Spencer on Byron, above n 2, at [302].
[49]At [49] and [219].
Fourth, the Supreme Court discounted vulnerability as noted above, Tipping J describing it as problematic and unnecessary (since control justified the duty), and McGrath and Chambers JJ holding that it should not be introduced into New Zealand law. In this respect the Court departed from the approach taken in, for example, Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd (Rolls Royce) and Ministry of Education v Econicorp Holdings Ltd, in which this Court had treated vulnerability as a dimension of proximity.[50] The Supreme Court has since cautiously qualified its view of vulnerability in Carter Holt Harvey Ltd v Minister of Education (Carter Holt).[51] The Court there doubted whether it is realistic to expect those entering building contracts to secure full warranties and noted that, although the Minister of Education is a sophisticated property owner, she could not be expected to know of the latent defects in issue.[52] What matters for our purposes is that in that case the Court treated vulnerability as a relevant consideration and a question of fact for trial. It also recognised that the contractual matrix might preclude proximity, while not being persuaded that the point could be decided summarily — the case was another strike-out application — for the defendants.[53] It implicitly accepted that a “specifically designed” contractual regime, such as that in Rolls Royce, might exclude proximity.[54]
[50]Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [61]; and Ministry of Education v Econicorp Holdings Ltd [2011] NZCA 450, [2012] 1 NZLR 36 at [27], [44]–[45] and [91]–[96].
[51]Carter Holt Harvey Ltd v Minister of Education, above n 14.
[52]At [54]–[55].
[53]At [26]–[28].
[54]At [25].
Following Carter Holt the New Zealand position appears now to be that vulnerability is a relevant consideration when deciding whether a duty was owed to a building owner. Subsequent owners, and other owners who did not have a practical opportunity to protect themselves in contract, will likely be considered vulnerable as a class.[55] For those who commission construction, vulnerability is a question of fact to be decided at trial by reference to the contractual matrix.
[55]Vulnerability is to be assessed in terms of a class: Carter Holt Harvey v Minister of Education, above n 14, at [54]; and Spencer on Byron, above n 2, at [197]–[198].
As I see it, this approach is reconcilable with Spencer on Byron, in which the principal judgment recognised that duty in “grey area” cases is always a question of judicial judgment.[56] Cases in which a court is dealing with a commissioning owner may turn out to exhibit features, such as a particular contractual matrix, that put them into the marginal or “grey area” category.
[56]Spencer on Byron, above n 2, at [184] citing South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd [1992] 2 NZLR 282 (CA) at 294 and The Grange, above n 14, at [161].
I accept, of course, that we are here dealing with a local authority and an owner, not, as in Carter Holt, the parties to a building contract. It is less likely that a local authority can exclude the relationship of proximity that ordinarily flows from its exercise of statutory functions, but vulnerability remains a relevant consideration. Notably, there may be circumstances in which the commissioning owner has through contract assumed specific control of the relevant risk, choosing not to rely on the local authority. The Council says this is such a case. By recognising that for some owners the duty may turn on contractual considerations, Carter Holt may introduce such an owner’s control-in-fact over the relevant aspect of construction, pursuant to contracts actually entered, as a relevant consideration when considering whether a duty was owed to that owner.
Finally, this case involves producer statements. In both Spencer on Byron and Sunset Terraces the local authority had handled the permitting, inspection and certifying functions itself. William Young J did remark upon producer statements when making a point that local authorities might respond to the duty of care by withdrawing some of their services:[57]
Producer statements may permit a territorial authority to conclude that a building consent or code compliance certificate should be issued on a basis which does not depend on the building judgments of its own staff. In this way, practices around producer statements may enable territorial authorities to design approval systems which reduce the need for their front-line staff to engage in the sort of direct assessment exercises which carry substantial litigation risk. If this happens, it would represent the sort of partial withdrawal of services which an economist might see as a likely consequence of the imposition of liability.
(Footnotes omitted.)
[57]Spencer on Byron, above n 2, at [313].
The Spencer on Byron duty is closely linked to the relevant legislation, the Building Acts of 1991 and 2004.[58] Under s 24 of the 1991 Act, territorial authorities’ functions included approving or refusing applications for building consents, enforcing the building code and regulations, and issuing project information memoranda, code compliance certificates, and compliance schedules. As the Supreme Court noted in Spencer on Byron, this supported the duty of care because territorial authorities had not previously been under a statutory obligation to issue permits and code compliance certificates.[59]
[58]At [29] and [105].
[59]At [105].
A local authority was obliged to issue a consent or code compliance certificate if satisfied on reasonable grounds that the provisions of the building code respectively would be or had been met.[60] It was relieved of the obligation to satisfy itself of these things if provided with a building certificate or code compliance certificate issued by a building certifier under ss 43 or 56 of the 1991 Act, and it could not be held liable for anything done in good faith in reliance on such a document.[61] The idea, as the Supreme Court explained in Spencer on Byron, was to establish a competitive market for building certification.[62] To that end, the legislature sought to place building certifiers on the same footing as territorial authorities by providing (in s 90) that civil proceedings against a certifier for issuing a building or code compliance certificate were to be brought in tort and not in contract. This was intended to ensure that building certifiers could not contract out of their obligations.[63]
[60]1991 Act, ss 34(3) and 43(3).
[61]Section 50.
[62]Spencer on Byron, above n 2, at [98].
[63]Section 57(2).
The 1991 Act also provided for producer statements, which were defined as:[64]
… any statement supplied by or on behalf of an applicant for a building consent or by or on behalf of a person who has been granted a building consent that certain work will be or has been carried out in accordance with certain technical specifications.
A territorial authority was authorised, at its discretion, to accept a producer statement “establishing compliance with all or any of the provisions of the building code”.[65] Unlike a certificate issued by a building certifier, a producer statement did not relieve the authority of its obligation to satisfy itself on reasonable grounds that, for a consent, the building code would be complied with if the work was properly completed in accordance with the plans and specifications or, for a code compliance certificate, the completed work complied with the building code.
[64]Section 2.
[65]Sections 33(5) and 43(8), the latter being inserted in 1992.
We were not referred to any authority in which a court has had to decide when a local authority may rely on a producer statement to relieve it of the need to inspect building work before issuing a code compliance certificate.[66] If they are to mean anything, the statutory provisions allowing a local authority to accept a producer statement “establishing compliance” must envisage that such statement might afford reasonable grounds for the local authority to be satisfied that the code had been complied with. That gives a producer statement the status of evidence, on which the local authority might lawfully rely when deciding whether the work complied. For reasons given at [135] below, it is not necessary or appropriate in this case to catalogue what a local authority must do before relying on a producer statement.
[66]Body Corporate 326421 v Auckland Council [2015] NZHC 862 suggested that it depends on the circumstances. Some cases address the liability in tort of the maker of the producer statement: Kwak v Park [2016] NZHC 530; Pacific Independent Insurance Ltd v Webber HC Auckland CIV-2009-404-4168, 24 November 2010; and Judge v Dempsey [2014] NZHC 2864.
The cases often speak of the defendant local authority’s consenting, inspecting and certifying functions. That is so because the older cases often turned on negligent inspections following the issue of building permits. Under the 1991 Act, however, inspection was not a statutory obligation in itself; rather, inspections might be necessary if the local authority was to perform other functions competently. The distinction matters in this case. A PS4 evidencing code compliance might relieve a local authority of the need to inspect the work itself at appropriate junctures before issuing a code compliance certificate.
For these reasons, I am satisfied that Spencer on Byron may be distinguished in the circumstances of this case. I turn to consider from first principles whether a duty of care was owed in fact.
Did the Council owe the Trust a duty of care for the remedial work?
The elements of the cause of action in negligent misstatement may be framed in this way:[67]
(a)Proximity: the parties must be in a relationship of proximity, or a “special relationship”. This requires that the adviser knew for what purpose the advice was wanted, knew the advice would go to the plaintiff or an ascertainable class that included the plaintiff, and knew the advice would likely be acted on without independent inquiry. Knowledge may be imputed, the court having found that the adviser ought in the circumstances to have known or foreseen what would likely happen.[68]
(b)Policy: wider policy reasons must not exclude a duty of care in the circumstances.[69] For example, a court may exclude a duty for risk of indeterminacy, or for conflict with some other duty or the public interest.[70]
(c)The ultimate question: whether, having regard to (a) and (b), a duty is fair, just and reasonable.[71]
(d)Specific reliance and loss: the plaintiff actually relied on the advice and suffered loss in consequence.[72]
The second limb is not always isolated from the first when analysing claims — for example, the Supreme Court did not do so in Carter Holt[73] — but it may be appropriate when considerations external to the parties’ relationship affect the decision. As Blanchard J explained in The Grange,[74] it is also convenient when, as is usual in building cases, the claim is brought in both negligence and negligent misstatement; that was so in The Grange, where the Supreme Court did not distinguish between the causes of action when answering the duty question for strike-out purposes. I observe also that reliance arises at two points in this framework: the defendant’s expectation of reliance forms an element of the duty and the plaintiff’s actual reliance affects causation. Sometimes the two are combined, with actual reliance being treated as part of the duty analysis, but for reasons that will become apparent I prefer to separate them here.[75]
[67]Caparo Industries plc v Dickman, above n 14, at 638; The Grange, above n 14, at [189]; and Carter Holt Harvey Ltd v Minister of Education, above n 14, at [80]–[85].
[68]Carter Holt Harvey Ltd v Minister of Education, above n 14, at [80]; The Grange, above n 14, at [189]; and Caparo Industries plc v Dickman, above n 14, at 638.
[69]Carter Holt Harvey Ltd v Minister of Education [2015] NZCA 321, (2015) 14 TCLR 106 at [115].
[70]Cherie Booth and Daniel Squires The Negligence Liability of Public Authorities (Oxford University Press, Oxford, 2006) at [3.31], [3.39] and [3.64].
[71]The Grange, above n 14, at [160].
[72]Spencer on Byron, above n 2, at [34] and [199]. See also Boyd Knight v Purdue [1999] 2 NZLR 278 (CA) at [58]–[60]; and Price Waterhouse v Kwan [2000] 3 NZLR 39 (CA) at [30].
[73]Carter Holt Harvey Ltd v Minister of Education, above n 14, at [78]–[85].
[74]The Grange, above n 14, at [156].
[75]Caparo Industries plc v Dickman, above n 14, at 638.
When examining the duty I focus, as Dunningham J did, on the particular consent for the remedial work and the code compliance certificate that is said to have caused the Trust’s losses.[76] Put another way, the circumstances of the remedial work may be sufficiently distinctive to exclude a duty owed for other work, such as the foundations, that the Council inspected and certified in the usual way.
[76]High Court judgment, above n 1, at [139].
I turn to the circumstances, beginning with proximity. The Council’s knowledge of the code compliance certificate’s purpose and audience is not contentious. It chose to assume a degree of responsibility, having insisted the Trust seek consent for the remedial work. But anticipated reliance is in issue. The Trust’s engineer, Mr Major, was being relied upon to supply the evidence needed to certify the work as code-compliant. Accordingly, the Council expected that the Trust would have the work inspected for code compliance by an engineer who was independent of the Council. To that extent, this is analogous to a “reasonable opportunity for intermediate inspection” case.[77] The Council also knew that the Trust had been told in the conditions of consent that the Council was relying on a PS4, so would not inspect the work itself. However, the Council must be taken to have known that the Trust expected it to insist on Mr Major supplying a PS4 confirming that the work was code-compliant and to insist on evidence that the conditions of consent had been met.
[77]Sunset Terraces, above n 15, at [76].
Next, the Trust was not vulnerable, as between itself and the Council. It is true that, as Dunningham J found, the trustees were volunteers and the Trust was not in the business of building.[78] However, that is to focus exclusively on personal characteristics. The correct question is a practical one: could the Trust reasonably be expected to control its risk by contract? As to that:
(a)The Trust was not in the business of building, but in the project agreement it had stated that it was capable of completing the project. Whether or not the indemnity that it granted the Council extends to liability for negligence in the performance of statutory functions, the agreement confirms that as between the parties the Trust knew it was responsible for completing the building, meaning that it should engage such assistance as it required to ensure the work was done properly.
(b)The remedial work was a very specific project of narrow scope, undertaken in circumstances where the Trust knew something had gone wrong. So it was realistic to expect the Trust, with the assistance of its advisers, to identify and manage the risk that the work might be badly designed or executed.
(c)The Trust did identify those risks and it addressed them in targeted contractual arrangements. Realising that its own agents might have been negligent, it engaged Mr Harris to design the work. Knowing what had gone wrong, it engaged Mr Major to certify the work in a producer statement. Anticipating a risk of further trouble, it relied on assurances that those concerned (including Mr Harris) held adequate insurance cover.
[78]High Court judgment, above n 1, at [98].
Next, the Trust was the commissioning owner, party to the principal contracts with the architect and engineer and builder. As just explained, it used its position to assert control over the remedial work.
Next, the Council relied on a PS4 tendered by Mr Major. As noted above, that does not preclude a duty. Responsibility for issuing the consent and the code compliance certificate remained with the Council. However, a producer statement supplied by the owner’s suitably qualified agent might nonetheless count against a duty where, as in this case, it was made clear that the local authority would not inspect the work itself but would rely on the producer statement.
The Council charged a fee of $245 for the consent, but it did not charge for inspection or the code compliance certificate. A fee evidences proximity.[79] Its absence for the relevant work here is consistent with the evidence that, to the Trust’s knowledge, the Council relied on Mr Major to certify that the work had been done correctly.
[79]Spencer on Byron, above n 2, at [28].
I turn to wider policy considerations. They overlap analysis of the parties’ relationship and I will not repeat what I have already said. No direct conflict arises between tortious liability and the contractual allocation of risk between the Trust and its contractors, because the Council was not a party to those contracts and the remedial work was intended to achieve code compliance; the Trust did not contract for something less, or more, than that.[80] (I say “direct” because the local authority’s duty of care may affect the contractual allocation of risk by relieving owners of the need to pay for appropriately intensive supervision.[81]) That being so, tortious liability of the Council to the Trust can coexist with those contracts. Nor is the standard of care difficult to fix on the facts, for the requirements of Mr Harris’s design were very specific.
[80]This distinguishes Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd, above n 50; and Ministry of Education v Econicorp Holdings Ltd, above n 50, as the Court noted in the latter case at [61(b)]. Note that I deal at [141] below with the contractual relationship between the Council and the Trust.
[81]Spencer on Byron, above n 2, at [305] per William Young J.
Under the 1991 Act the commissioning owner bore a responsibility for code compliance.[82] The authorities establish that this responsibility is not in itself a defence for a local authority, though it may sound in an allowance for the owner’s contributory negligence.[83] However, efficiency is a relevant consideration, as Tipping J explained (“do it once, do it right”) in Spencer on Byron.[84] It may affect the duty in that, as between the Council and a commissioning owner, the owner ought to be able to avoid the risk at least cost by imposing quality control mechanisms in its contracts with the builders, architects and engineers whom it must engage in any event.[85] Local authorities experience an incentive to manage potential liability by imposing additional costs on building owners as a class, as William Young J pointed out.[86] It is also open to local authorities to disengage so far as the legislation allows, opting, for example, to rely on producer statements from professionals engaged by the owner. That is what happened in this case, albeit because the Council lacked the skill to evaluate the work rather than for liability reasons. Mr Ring’s submission that if the Council lacked the necessary skills it ought to have engaged its own expert nicely illustrates the potential for duplication of effort, at the expense of the applicant owner or of applicants or ratepayers generally.
[82]This is implicit in ss 7 (all building work, as defined, to comply with the code whether or not a consent was required), 33 (owner must seek consent), 34 (authority must be satisfied on reasonable grounds that code would be met), 42 (owner could be given notice to rectify for code compliance) and 43(1) (owner must advise the authority that building work has been completed) of the 1991 Act. See also Spencer on Byron, above n 2, at [304], although William Young J may have had the Building Act 2004 in mind.
[83]In respect of overlapping liabilities, see Spencer on Byron, above n 2, at [9]; The Grange, above n 14, at [62]; and City of Kamloops v Nielsen [1984] 2 SCR 2 at 15. In respect of the contributory negligence point, see Johnson v Auckland City Council [2013] NZCA 662 at [25] and [68]; and Sunset Terraces, above n 15, at [61] and [79].
[84]Spencer on Byron, above n 2, at [32].
[85]In respect of overlapping liabilities, see Spencer on Byron, above n 2, at [9]; The Grange, above n 14, at [62]; and City of Kamloops v Nielsen, above n 83, at 15. In respect of the contributory negligence point, see Johnson v Auckland City Council, above n 83, at [25] and [68]; and Sunset Terraces, above n 15, at [61] and [79].
[86]Spencer on Byron, above n 2, at [310].
Of course, this point about efficiency applies only to a commissioning owner. Subsequent owners — including those who buy, sometimes off the plans, from a developer — lack the same opportunity to control construction quality, and for them the alternative to local authority liability may involve insuperable transaction costs, in the form of investigations (of the design and construction) and negotiations (to secure protection, ultimately from the commissioning owner or head contractor or designer). These difficulties were mentioned in Spencer on Byron.[87]
[87]At [32].
Corrective justice considerations justify a duty of care here, but unusually, distributive justice considerations do not. Because the Southland District Council was involved, the Trust appears to be more representative of the community served by the stadium than is the appellant Council. The City’s ratepayers are not alone in using the stadium and benefiting from code compliance.
I turn finally to consider whether it is fair and reasonable to impose a duty. Mr Heaney focused his argument on this ultimate question, conceding that on the authorities a finding of proximity is almost inevitable.[88]
[88]It has been so considered in Spencer on Byron, above n 2, at [54] and [232]; The Grange, above n 14, at [218]; and Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd, above n 50, at [58].
A local authority ordinarily owes a duty of care to an owner, and, as Mr Ring submitted, the Council insisted on a building consent. Its relationship to the Trust was proximate, and having regard to the discussion of Spencer on Byron above, good reason would be needed to displace a duty.[89] I accept that by insisting on a consent, the Council assumed an obligation to satisfy itself that Mr Harris’s design complied with the building code, meaning that the work would be code-compliant if completed in accordance with the plans. There is no dispute that it complied with that duty, reasonably relying on the producer statements provided by Mr Harris and Mr Major.
[89]Spencer on Byron, above n 2, at [25].
In my opinion, the Council should not be taken to have assumed a duty to inspect the work to ensure that it complied, as built, with the code; to the Trust’s knowledge it relied on the Trust’s agent, Mr Major, as the legislation allowed. The Trust accordingly knew that the Council could not certify of its own knowledge that the work actually complied with the building code. Rather, the Council assumed a different and lesser responsibility, that of checking that an appropriately qualified person had supplied adequate evidence that the consent conditions had been met. There is nothing unfair or unreasonable about the imposition of a duty to do that much. I consider that the Council owed the Trust a duty to take care to that extent.
In some cases this narrow duty formulation would excuse the local authority on the facts. In this one, as I now go on to explain, it does not.
Breach of duty
It is not now in dispute that the Council negligently issued the code compliance certificate of 20 November 2000. In the absence of Mr Major’s PS4 it had no way of knowing that the work complied with the conditions of consent. This was to breach the limited duty of care that the Council owed to the Trust for the remedial work. It had the consequence, as I now go on to discuss, that the Trust lost an opportunity to investigate the work and decide what to do next.
Causation
The Council is not primarily to blame for the collapse on 18 September 2010. That distinction belongs to Mr Major and the contractors who actually did the remedial work and created the defects. The Council’s liability rests on the proposition that but for its negligence, the Trust would have identified and remedied deficiencies in the work.[90]
[90]Ministry of Education v Econicorp Holdings Ltd, above n 50, at [38].
The Trust’s theory of causation is accordingly that the Council’s negligent statement that the remedial work complied with the building code was an effective cause because it caused the Trust to not take action to avoid the loss. Specifically, the Trust placed both general and specific reliance on the certificate, the certificate was false because the remedial work was substandard, and this want of compliance was a substantial cause of the collapse.
The Council’s theory of causation is that the Trust must prove that had the Council refused to certify the building without the measurements an inspection that revealed the defects would have followed. The Trust did not prove these things: no witness deposed that Mr Harris (the most likely candidate) would have inspected the work, or that such inspection would have revealed the critical missing weld at the mid-span of the top chord on truss one. The Council does not say that the Trust’s failure to have the trusses inspected in 2006 was so egregious as to break the chain of causation.[91]
[91]The plaintiff’s own conduct may become the real cause of the damage: Sunset Terraces, above n 15, at [83]; Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786 at [40]; and Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA) at 412–413.
At trial, and before us, the Trust characterised the Council’s defence as a claim that the loss would have happened anyway, regardless of its negligence. It argued that a defendant who advances such a claim must prove it, citing Davis v Garrett and Fletcher Construction Company Ltd v Webster.[92] These cases are authority that a defendant cannot answer a claim for damages by raising a bare possibility that the loss would have happened anyway.
[92]Davis v Garrett (1830) 130 ER 1456 (Comm Pleas) at 1459; and Fletcher Construction Company Ltd v Webster [1948] NZLR 514 (SC) at 518–519. The Trust also referred to Atlas Properties Ltd v Kapiti Coast District Council CA30/02, 20 June 2002 at [9];and Easton Agriculture Ltd v Manawatu-Wanganui Regional Council [2013] NZCA 79 at [121].
Such a result would not be fair, just or reasonable. In our view, the claim must fail on this policy ground alone. However, the issue of proximity cannot be left to one side if the alleged duty of care is to be comprehensively addressed. While Mr Heaney conceded the proximity point in regard to general negligence, we are well placed to review the relationship between the Trust and the Council in light of the evidence adduced in the High Court.
Special relationship
We are satisfied that the same result is independently justified by applying the settled principles governing a specific claim for negligent misstatement, which were authoritatively reviewed in The Grange. The majority approached the proximity inquiry by examining first whether the complex statutory structure was sufficient to give rise to a duty, concluding that inquiry in the negative.[159] This case is different in that we accept s 43(3) effectively deems a relationship of proximity in the general sense. Mr Ring emphasised the Chief Justice’s statement in Spencer on Byron that a code compliance certificate is a council’s assurance of the owner’s compliance with the building code and the conditions of consent; where that assurance fails, “the owner is entitled to look to the Council for his loss”.[160]
[159]The Grange, above n 14, at [170]–[186] per Blanchard, McGrath and William Young JJ.
[160]Spencer on Byron, above n 2, at [14] per Elias CJ.
But that authoritative statement was, we emphasise, made within the general reliance context and does not answer the critical question of whether in the circumstances of this particular relationship, where specific reliance is in issue, the certificate was issued to protect the Trust against the harm which it later suffered, or whether it was entitled to rely on the certificate to protect itself against the negligence of its agents. We accept that the Council negligently certified to the Trust on 20 November 2000 its satisfaction on reasonable grounds that the remedial building work for amendment 1 complied with the building code. On its face, as Mr Ring emphasised, the document certified to the Trust the Council’s assurance of compliance. But that factor of itself is not enough to justify imposing a duty of care. The statutory proximity must be sufficient in the particular circumstances to give rise to a special relationship of the type alleged.
The Grange and the Supreme Court’s later decision in Carter Holt affirm the elements of that special relationship:[161] it must be of such a nature that (a) the Council knows inferentially that the Trust will use the certificate for the purpose of satisfying itself that the stadium complied with the code; (b) the certificate would likely be acted upon by the Trust for that purpose without independent inquiry; and (c) the Trust must in fact have acted in that way. The test is whether it was objectively reasonable for the Trust to rely on the certificate as it now says it did.[162] As we have foreshadowed, the question is whether the statutory duty assumed by the Council under s 43(3) extended to avoid causing the Trust damage of the kind which it has sustained. Or, to put it another way, what was the scope of the duty embraced by s 43(3)?
[161]Carter Holt Harvey v Minister of Education, above n 14, at [80] applying The Grange, above n 14, at [189] and Caparo Industries plc v Dickman, above n 14, at 638.
[162]Compare The Grange, above n 14, at [190]–[196] per Blanchard, McGrath and William Young JJ and see [220] per Tipping J.
To answer the latter question first, the purpose of a code compliance certificate is beyond doubt.[163] It is notice to all interested parties — including the owner — of the Council’s reasonable satisfaction that the building has been constructed in accordance with the building code, reflecting a territorial authority’s ultimate control over the building process. Its primary objective is to protect the health and safety of those who use the certified building. It also exists for the secondary purpose of protecting financial interests, particularly subsequent and prospective owners, insurers and financiers. The logic for extending an actionable duty to both physical and economic categories is that in neither situation will such parties have any control over the construction process nor any means of protecting their interests.
[163]See Spencer on Byron, above n 2, at [187] and [222] per McGrath and Chambers JJ.
However, that rationale does not extend to protecting the economic interests of a commissioning owner which has chosen to protect itself against physical damage and economic loss by engaging professional advisers and contractors. The Trust’s engineer designed the remedial work which its specialist contractor was engaged to carry out. The Trust employed another engineer to oversee the work and authorised him to confirm to the Council the Trust’s satisfaction of the building consent conditions, including provision of a PS4 to be accepted by the Council pursuant to s 43(8). By engaging these third parties, the owner has assumed direct control over the design and construction functions. Control is the effective corollary of reliance; the owner relies for all intents and purposes on those whom it appoints to control the construction process.
Mr Ring sought to counter Mr Heaney’s emphasis on this point by reference to the Supreme Court’s decision in Sunset Terraces: in giving judgment for the majority, Tipping J affirmed that the likelihood of an owner’s engagement of building professionals did not negate the existence of a duty of care where general reliance was in issue.[164] However, the context of that observation — in yet another Supreme Court decision on an application to strike out — was the protection of purchasers who would place general reliance on the Council’s independent inspection role. It was not aimed at situations in which a commissioning owner seeks damages in circumstances where it was clearly not relying on the Council to protect it against the claimed loss. In a negligent misstatement case, which has proceeded to trial and on which evidence has been heard, the proper inquiry is whether it was reasonable and foreseeable that the other party would rely and whether there was in fact specific reliance.[165]
[164]Sunset Terraces, above n 15, at [50]–[51].
[165]The Grange, above n 14, at [219]–[220] and [227]–[230] per Tipping J.
The Trust knew the Council was not continuously present on site. Its agents controlled the day-to-day performance and oversight of the remedial work. It knew that the Council relied largely on its agents’ advice about the nature and quality of that work. The Council cannot be taken to have understood that the Trust would either use the certificate for satisfying itself that the stadium complied with the code or act upon it for the alleged purpose without independent inquiry. In negligent misstatement terms, it was objectively unreasonable for the Trust to rely on the certificate for the purpose it now seeks. Moreover, as the evidence discloses, the Trust itself continued through its agents to participate in an ongoing process designed to satisfy outstanding compliance issues after the certificate had been issued.
Blanchard J made the same point in The Grange: within the traditional two‑stage inquiry, he described the concept of proximity as a means of identifying whether the defendant was someone most appropriately placed to take care to avoid the plaintiff’s loss.[166] By engaging specialist agents, the Trust was the party most appropriately placed for this purpose. As Richardson J had earlier highlighted in this Court, a balance is required between the plaintiff’s claim for compensation for avoidable harm and the defendant’s claim to be protected from an undue burden of legal responsibility.[167] This factor is of particular concern where a finding of liability will create disproportion between the defendant’s negligence and the plaintiff’s form of loss.[168]
[166]At [158] paraphrasing Stephen Todd (ed) Law of Torts in New Zealand (5th ed, Brookers, Wellington, 2009) at 143.
[167]Fleming v Securities Commission [1995] 2 NZLR 514 (CA) at 532 and South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd, above n 56, at 306.
[168]The Grange, above n 14, at [159] per Blanchard, McGrath and William Young JJ.
This case starkly illustrates the possible extent of such disproportionality. For an entitlement to charge relatively nominal fees, the Council has been visited with liability for more than $16 million. The effect of the High Court judgment is that the Council has warranted or underwritten the cost of remedying the damage created by the negligence of the Trust’s agents. In Spencer on Byron the majority rejected arguments about economic consequences when deciding that a duty of care was arguably owed in general negligence to all owners.[169] In the defining context of a strike‑out application, it did not accept that owners of commercial property should be barred from recovery for the reason that they were likely to be able to guard against the adverse financial consequences of a third party’s negligence.
[169]Spencer on Byron, above n 2, at [187]–[195] and [202]–[204] per McGrath and Chambers JJ but contrast [302]–[304] per William Young J (dissenting).
However, that approach must yield where the evidence given at trial establishes that the commissioning owner entered into contracts with its agents for the very purpose of guarding itself against these adverse consequences by what it considered was an appropriate allocation of risk to those who should accept responsibility for it. Mr Ring emphasised Dunningham J’s finding that the Trust was comprised of volunteers, was reliant on grants and donations and was thus a more deserving candidate for a duty than a commercial building owner carrying losses associated with defective construction as a business risk.[170] While that statement is true, it cannot be advanced as a proposition of vulnerability. The Trust’s current chairman, Acton Smith, who had been a trustee since 1996, deposed that the trustees were community and business leaders — representatives from banks, retail, local government and the Community Trust of Southland. Mr Smith is himself a prominent and successful business leader. Another trustee was Warwick Cambridge, a leading commercial lawyer in Invercargill. The Trust also had access to independent legal advice. With the benefit of this relatively sophisticated governance, the Trust was a party to complex construction agreements with its agents for the purpose, among other things, of allocating risk.[171]
[170]High Court judgment, above n 1, at [98]–[99].
[171]The Grange, above n 14, at [180] per Blanchard, McGrath and William Young JJ.
It is not in dispute that the Trust had and exercised rights of recourse against its engineer. It had similar rights against the contractor and, in all likelihood, the architect. It was in a position to require the engineer and other parties to carry sufficient insurance cover to indemnify them against the full extent of their liabilities. It was also able to buy material damage insurance. The Trust would, of course, have had to pay for this cover. The premiums would have been substantial, reflecting the risks associated with a complex construction project. But if the Trust has failed to protect itself in this way, the consequences should not be transferred to the Council and its ratepayers.
In our judgment the Trust has, with the benefit of hindsight, sought to reallocate the risk of its major project to the Council. The Trust is the party primarily responsible for the damage, which should bear the financial consequences. That is a powerful ground, whether in the proximity or policy inquiry, for rejecting the claim.
When all those factors are considered together, the requirement of proximity is not established here. While the damage may have been foreseeable to the Council, foreseeability is no more than a screening process and does not answer the more difficult question of whether there was a special relationship, one which was sufficiently proximate to justify imposition of a duty.[172] We are not satisfied that such a relationship existed here.
Reliance
[172]At [158] per Blanchard, McGrath and William Young JJ.
If the Council did owe a duty of care of the type pleaded, we are not satisfied that the Trust has proved specific reliance on the certificate. The factual narrative establishes that it was throughout indifferent to whether a final certificate was issued or not. It elected to open the stadium to the general public without obtaining a code compliance certificate for the remedial work. The terms of the building consent for amendment 1 remained unsatisfied. If the Trust was indifferent to the primary purpose of building safety, it is implausible to assert that it relied on the certificate for an extraordinary or ancillary purpose.
The evidence shows that the Trust’s primary, indeed sole, reliance was placed in its own experts — its architect, engineer and contractors – whom it entrusted to carry out and control all the work. The Trust did not rely on the Council for anything material when it decided to open the stadium for public use on 25 March 2000 other than for the interim certificates, which expressly did not certify compliance with the building consent for the relevant remedial work.
Mr Ring emphasised that the remedial work warranted special attention. That was because the Council was putting its trust for the proper completion in the hands of the person whose mistakes made the remedial work necessary, despite further doubts about his construction monitoring which prompted letters of reassurance. His submission rather exposes the irony in the Trust’s position which itself elected to place primary reliance on Mr Major for the same purpose — even though his preceding negligence had already caused the Trust considerable cost and inconvenience. And the Trust alone made the decision not to engage Mr Harris to oversee the remedial works, despite his unquestioned expertise.
Mr Ring also emphasised Mr Smith’s evidence. He was apparently involved throughout the construction process. He confirmed the trustees’ concern following discovery in late 1999 of Mr Major’s defective engineering design. Mr Smith said this in his brief of evidence:
20.The trustees wanted an assurance from Mr McCulloch and Mr Major that the current structure had integrity, was safe, complied with acceptable design standards, and would remain intact for the expected life of the building. We also asked that an independent engineer certify that the structure, following the remedial action, would be sound, would comply with acceptable design standards and could be safely accepted by the trustees. I suggested that Mr McCulloch engage Maurice Harris as I had used him previously on an unrelated job and thought he did good work.
Mr Smith’s evidence detailed the steps taken by the Trust to ensure the necessary remedial work on the trusses was properly designed, constructed and overseen by its own agents. Mr Smith said:
34.From the Trust’s perspective, we were concerned to ensure that the appropriate regulatory and expert approval was given to the work and was delivered. From my point of view I was satisfied that Harris’ review had been thorough, that he had peer reviewed the design of the truss modification and found it satisfactory, and that his and Mr Major’s certificates were conclusive on that point. Similarly, the Council certified that the construction, including the community court trusses, complied with the New Zealand building code and sent this to the Trust. I, and the other trustees, had no reason to look behind those certificates and assurances, and we believe that we had a stadium which had been properly designed and constructed.
Mr Smith referred to the stadium’s opening on 25 March 2000 and his assumption that it was accordingly ready and able for use given the Trust’s receipt from the Council of 10 interim code compliance certificates relating to various discrete aspects of the code, as well as a building statement of fitness. He concluded by noting that:
37.… We were at all times reliant on the advice we received from the contractors and advisers we engaged. When we received the appropriate assurances and certificates from those experts and from the Council, we relied on them as establishing that the building had been properly constructed. That was especially so because of the scrutiny I knew had been brought to bear on the original design mistakes. Accordingly, when the stadium opened, I believe that the stadium was sound, safe, and compliant with the relevant conditions.
(Our emphasis.)
In our judgment Mr Smith’s evidence is significant in confirming the Trust’s election to open formally and immediately begin using the stadium on 25 March 2000 without obtaining certification for the defective trusses. His evidence confirms that the Trust had engaged the steel fabricator to ensure the remedial work was expertly carried out, as well as Mr Major (who was responsible for issuing the PS4) to inspect the work, ensure compliance with Mr Harris’ remedial design and confirm completion to the Council accordingly. But it decided to open and operate without certificates from the Council for the relevant remedial works. The Trust cannot plausibly assert that it relied on the certificate for the particular purpose of protection from the financial consequences of defects at the time the stadium was opened.
The evidence supports these additional findings on reliance:
(a)The Trust and its agents were indifferent throughout to compliance with its obligations under the certification process. In particular, after the Council issued the interim certificate of code compliance with the conditions of consent for building work other than the remedial work on 24 March 2000, the Trust lost interest in obtaining the Council’s final certification for amendment 1. The Trust opened and operated the stadium as a public facility for at least six months without obtaining the relevant certificate of code compliance and was apparently content to treat the interim certification process, which excluded the remedial work, as sufficient for its purposes. The Trust took no steps to satisfy the Council’s requisitions subsequent to 25 March 2000. Instead, it was the Council which in fact continually reminded the Trust of its failure to comply. The Trust’s request for a final certificate was simply generated by its desire to satisfy liquor licensing purposes.
(b)The Trust and the Council did not treat what purported to be the final certificate as final in fact. Both parties treated it as a further interim or pro forma step. The Trust knew of its continuing failure to comply with the conditions of the building consent despite the certificate being issued. And we infer that it did not rely on the document in any meaningful way. The Trust then followed the same desultory practices as before. Contrary to its pleaded case, we are satisfied that the Trust did not place any actionable reliance on the certificate but simply treated it as an immaterial part of a technical continuum.
(c)When applying for the certificate on 1 March 2000, the Trust had wrongly advised that the building work had been completed “to the extent required by [the] building consent … [for the remedial work]”. Not only was the work not completed to that standard (as the subsequent collapse proved) but the Trust also knew that it had failed continually to satisfy the conditions of consent, including Mr Major’s obligation to confirm the precamber alignment and provide a PS4 for the remedial work.
Together these findings of fact lead us to the conclusion that the Trust did not rely in fact on the Council’s certificate for the purpose of avoiding financial loss resulting from the building defects caused by its agents’ negligence.
Contributory negligence, indemnity and betterment
We add two points on contributory negligence. First, it is surprising that the Council did not plead a defence of contributory negligence relating to the Trust’s claim based on its provision of the certificate. In the event that the Council was held to owe a duty of care to the Trust, it would have been entitled to argue that the Trust contributed substantially to its own damage through its agent’s negligence — their fault was attributable to the Trust on the principles we have earlier discussed. In terms of causal potency and relative blameworthiness, which engage the same factors which we have addressed within our duty and reliance analysis, the Trust would have been exposed to a contribution finding in excess of 50 per cent.
Second, we agree with Miller J for the reasons he gives that, if the Council was liable, an award of damages should be reduced by 50 per cent on account of the Trust’s contributory negligence to its own damage in 2006.[173]
[173]See [140] above.
Finally, in the event that we are wrong on liability, we agree with Miller J that the Council’s claim to contractual indemnity is unsustainable and that the Trust’s cross‑appeal against Dunningham J’s allowance for betterment should be dismissed.[174]
Result
[174]See [141]–[157] above.
For these reasons we agree that the appeal and cross-appeal should be determined as set out in the judgment of Miller J with the consequences he has described.[175]
[175]See [158]–[160] above.
Solicitors:
Heaney & Partners, Auckland for Appellant
Young Hunter, Christchurch for Respondent
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