Marina Holdings Ltd (in rec) v Thames-Coromandel District Council HC Auckland CIV 2009-419-699
[2010] NZHC 1561
•6 September 2010
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV 2009-419-000699
BETWEEN MARINA HOLDINGS LIMITED (IN RECEIVERSHIP)
Plaintiff
ANDTHAMES - COROMANDEL DISTRICT COUNCIL
Defendant
Hearing: 23 February 2010 (Heard at Auckland)
Counsel: G Hall/S Willetts for plaintiff
R Scott for defendant
Judgment: 6 September 2010 at 3:00pm
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 6 September 2010 at 3:00pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Buddle Findlay, PO Box 1433, Auckland 1140 for plaintiffMcElroys, PO Box 835, Auckland 1140 for defendant
MARINA HOLDINGS LIMITED (IN RECEIVERSHIP) V THAMES - COROMANDEL DISTRICT COUNCIL HC HAM CIV 2009-419-000699 6 September 2010
[1] The plaintiff, Marina Holdings Limited (now in receivership) (Marina), was the developer of residential apartments in Whitianga. The defendant, Thames- Coromandel District Council (the Council), is the local territorial authority for Whitianga. Marina sold apartments “off the plans” under agreements that had a sunset clause permitting the purchasers to cancel if settlement did not take place by
30 September 2007. Settlement was to follow issue of a valid code compliance certificate by the Council.
[2] The Council issued a code compliance certificate well before the date of expiry of the sunset clause, but that certificate was challenged by the purchasers before Marina called for settlement. The certificate was subsequently overturned, after expiry of the sunset clause. The purchasers cancelled the agreements before a valid code compliance certificate was issued. Marina went into receivership. The receiver subsequently resold the apartments at a substantially lower price.
[3] Marina seeks to recover the losses suffered as a result of the cancellation of the agreements. It sues for negligence and negligent misstatement, contending that the Council owed it common law duties of care which it has breached by failing to inspect the development properly and by issuing the first code compliance certificate (it made but is no longer pursuing a claim for breach of statutory duty). It also says that the issue of the first code compliance certificate constituted misleading and deceptive conduct under the Fair Trading Act 1986.
[4] The Council has applied to strike out all causes of action on the grounds that they cannot succeed. It says that it does not owe Marina a duty of care in respect of the exercise of its statutory responsibilities. It also says that a claim under the Fair Trading Act cannot succeed as the Council is not acting “in trade” when performing its statutory responsibilities.
[5] Marina opposes the application. It says that its claims are reasonably arguable, and should be determined on proven rather than hypothetical facts.
The material facts
[6] The facts have been pleaded relatively extensively in the current statement of claim (an amended statement of claim dated 20 August 2009). The following facts are drawn from the statement of claim, and must be assumed to be correct for the purpose of this application.
[7] Marina obtained land use consent for development of its Whitianga property in 2004. It applied to the Council for building consent for a 14 unit residential apartment complex in April 2005. From late 2004 to mid 2005 it entered into agreements for sale and purchase of 10 of the units. Each agreement contained the following terms and conditions:
a) Marina was to build the units properly and in accordance with regulatory requirements;
b)Settlement was to take place 7 business days after the later of the purchaser’s receipt of a certificate of practical completion, or notice of issue of the certificate of title, or issue of the code compliance certificate;
c) A sunset clause (clause 5.5) under which the purchaser had the right to cancel if Marina had not completed the unit and settlement within
24 months of the date of agreement (clause 5.5 was amended in August 2005 to provide for a fixed date of 30 September 2007 as the date for completion and settlement).
[8] The Council issued a building consent to Marina for the development in January 2006. Construction started that month. The Council commenced inspections of the work in late January 2006, and conducted periodic inspections until about 1 February 2007 when it undertook a final inspection and noted its records “building completed passed”. The engineer to the construction contract issued a certificate of practical completion on 15 February 2007.
[9] The Council issued a code compliance certificate for the development on
4 April 2007. On 8 June 2007 it issued a certificate under s 224(c) of the Resource Management Act 1991 that all conditions of the subdivision consents had been complied with. New certificates of title for the individual units were issued on 21
June 2007.
[10] On 11 July 2007 the purchasers of the units that had been sold applied to the Department of Building and Housing for a determination, pursuant to Part 3 of the Building Act 2004, as to whether the Council’s decision to issue the code compliance certificate was correct, and as to whether a notice to fix should be issued requiring Marina to undertake remedial work to ensure that the building work complied with the Building Code. The Council opposed the application, and was supported in that opposition by Marina.
[11] On 7 August 2007 Marina’s solicitors gave notice to the purchasers under the agreements for sale and purchase that the development was complete, thus setting the settlement date at 16 August 2007. On 16 August 2007 the purchasers purported to cancel the agreements on the basis that Marina had failed to comply with its obligation to build the units properly and in accordance with regulatory requirements. Marina treated the purported cancellation as a wrongful repudiation and subsequently, on 25 September 2007, gave the purchasers notice that it was ready to settle.
[12] On 24 October 2007 the Department of Building and Housing issued a draft determination reversing the Council’s decision to issue the code compliance certificate, and directing it to issue a notice to fix in relation to certain defects. The Council and Marina requested a formal hearing on the draft determination.
[13] On 23 November 2007 the purchasers again purported to cancel the agreements. The grounds included the Department of Building and Housing’s reversal of the code compliance certificate and the defects that had been identified in the draft determination. Marina challenged this further cancellation on the basis that the determination was not final, the code compliance certificate remained in place, and the plaintiffs remained ready to settle.
[14] The purchasers’ application was heard by the Department of Building and Housing between 13 and 15 February 2008. The Department issued a final determination on 5 May 2008. The final determination held:
a) The building work did not comply with the building consent;
b)During its inspection process the Council should have seen and considered the differences between the building work as constructed and the consented building work;
c) The building as constructed did not comply with the Building Code at the time the code compliance certificate was issued, and this was apparent or should have been apparent to the Council at the time of issue.
d)The Council should issue a notice to fix requiring the owner to bring the building up to compliance with the Building Code;
e) The Council’s decision to issue the code compliance certificate was reversed.
[15] The effect of the reversal of the code compliance certificate was that Marina had not completed construction of the building and was not in a position to call on the purchasers to settle, as at September 2007 (as no code compliance certificate had been validly issued prior to that date), and the purchasers were able to cancel the agreements validly pursuant to the sunset clause.
[16] Following that final determination, the Council issued Marina with a notice to fix pursuant to ss 164 and 165 of the Building Act 2004. After remedial work was completed, the Council issued a new code compliance certificate to Marina on
25 June 2008.
[17] On 9 July 2008 Marina was placed into receivership. The receiver issued notices to Marina under the Property Law Act 2007 and, when those notices expired unremedied, sold all 14 units in the development for $4.5 million. The total of the sale prices of the 10 cancelled agreements was $7.5 million.
The court’s approach on strike out
[18] The Council’s application is brought under r 15.1(1) and (2) of the High Court Rules under which the court may strike out all or part of a pleading in four prescribed circumstances:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b) is likely to cause prejudice or delay; or
(c) is frivolous or vexatious; or
(d) is otherwise an abuse of the process of the court.
(2) If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
[19] The Council relies on the first of these circumstances, namely that the pleading discloses no reasonably arguable cause of action or case appropriate to the nature of the pleading. The general principles that the court applies when determining such applications may be found in the often cited passage from
Attorney-General v Prince and Gardner.[1] They have been confirmed by many
[1] Attorney-General v Prince & Gardner [1998] 1 NZLR 262,267.
subsequent decisions of the Court of Appeal, and have been reviewed and amplified by the Supreme Court in its recent decision in Couch v Attorney-General.[2] They may be summarised as follows:
[2] Couch v Attorney-General [2008] 3 NZLR 725.
a) The court usually assumes the facts pleaded are true, but it is not required to do so if the pleaded allegations are entirely speculative and without foundation;
b)The causes of action must be so untenable that they cannot possibly succeed;
c) The jurisdiction is to be exercised sparingly, and only in clear cases, where the court is satisfied it has the requisite material; and
d)The jurisdiction is not excluded where the application raises difficult questions of law, requiring extensive argument.
[20] In particular, the need for caution when exercising summary jurisdiction has been emphasised by the minority judgment of the Supreme Court in Couch v Attorney-General,[3] where it was said that the court had to be certain that the claim cannot succeed.
[3] Couch, above n2 at [32] and [33].
[21] The courts are especially slow to strike out claims in negligence which assert novel duties of care (recognising “the factually sensitive nature of the inquiry”) but they must also take into account the competing consideration that a defendant ought not to be subjected to the substantial (and often unrecoverable) cost of defending
untenable claims, particularly in public law negligence cases.[4]
The claim for breach of common law duty of care
[4] Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95 at [50]-[51].
[22] Leaving aside the factual allegations out of which the claim arises (which have been traversed above), the pleading of the claim for breach of duty of care lies in the following paragraphs of the statement of claim:
37.The effect of the reversal of the Code Compliance Certificate ... was that:
(a)The conditions in clauses 4.1 and 8.2 of the Agreements for Sale and Purchase had not been satisfied by the Plaintiff as at 30 September 2007, as no Code Compliance Certificate had been validly issued at least 7 business days prior to that date; and
(b) The Purchasers were accordingly able to validly cancel the Agreements for Sale and Purchase pursuant to clause 5.5. of the Agreement for Sale and Purchase (as varied).
....
44. The defendant owed the plaintiff a duty of care to, inter alia:
(a)adequately inspect the Marina Development so as to ensure that the building complied with the provisions of the Building Act 2004, the Building Code and other relevant standards;
(b)issue a notice to fix in respect of the Marina Development if it considered on reasonable grounds that the building did not comply with the Building Act 2004, Building Code and/or other relevant standards;
(c) issue a Code Compliance Certificate in respect of the Marina Development only if satisfied on reasonable grounds that the building complied with the Building Act 2004, Building Code and/or other relevant standards.
45.The duty of care referred to in paragraph 44 above was breached by the defendant in that it:
(a)failed to adequately inspect the Marina Development so as to ensure that the building complied with the Building Act
2004, the Building Code and/or other relevant standards;
(b)determined that the building was completed and passed a final inspection by the defendant on or about 1 February
2007 whereas it should have issued a notice to fix and subsequently a valid code compliance certificate;
(c) issued the Code Compliance Certificate on or about 4 April
2007 that was subsequently found to be invalid and was reversed by the DBH for the reasons set out in the Final
Determination.
46.The breach referred to in paragraph 45 above has caused the plaintiff to suffer loss.
Particulars
(a)As a consequence of the defendants’ conduct the purchasers were entitled to validly cancel the Agreements for Sale and Purchase as described in [37] above;
(b) Accordingly, the loss suffered by the plaintiff is the difference between the sale price that would have been obtained on sale of the units in the Marina Development had a notice to fix and a valid Code Compliance Certificate been issued prior to 20 September 2007, and the sale price that was in fact achieved on the Marina Development by way of the sale on 21 November 2008.
(c) The loss will be further particularised prior to trial.
[23] In its second cause of action (for negligent misstatement) Marina pleads that in issuing the code compliance certificate the Council represented that it was satisfied, on reasonable grounds, that the building work complied with the building consent and that the certificate was, accordingly, validly issued. It then pleads in relation to the alleged duty:
49. In making the Representations the defendant:
(a) owed the plaintiff a duty of care to exercise care to ensure that such representations were accurate;
(b)knew or ought to have known that the plaintiff was going to place reliance upon the defendant in respect of such representations for the purpose for which they were used; and
(c) assumed responsibility for the accuracy of such representations.
Particulars
(ii) In the circumstances described in paragraphs 5 to 21 above it was reasonable for the plaintiff to rely upon the Representations for the purpose of demonstrating compliance with the Building Act 2004/Building Code to enable settlement of the Agreements for Sale and Purchase to Proceed; and
(ii) The defendant knew or ought to have known that the plaintiff would rely upon those representations for the purpose to which they were put, given that the apartment complex was a new build and that it is standard practice for a subsequent purchaser to require a Code Compliance Certificate and/or it is an offence under s364 of the Building Act 2004 for a residential property developer to transfer a household unit without a Code Compliance Certificate.
[24] The Council contends that the essence of these claims is that the Council, in carrying out its building inspection and certification functions under the Building Act 2004, owes Marina a duty of care to protect it from suffering a loss of profits. It says that this a claim for economic loss, and that there is clear authority[5] that the Council (as a body carrying out regulatory functions under a statute which has some other purpose) does not owe a duty of care to protect a person from suffering
financial losses as a result of the performance of those regulatory functions. The Council acknowledges that the Hamlin[6]line of authority permits claims for economic loss arising out of, or in respect of, the exercise of its building inspection and certification functions, but says that the present claim cannot come within that exception to the general principle because such claims are limited to losses suffered by owners of defective residential buildings.[7]
[5] Attorney-General v Carter [2003] 2 NZLR 160.
[6] Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC).
[7] Te Mata Properties Ltd v Hastings District Council [2009] 1 NZLR 460.
[25] Marina opposes the application on the basis that in the particular circumstances of this case, it is reasonably arguable, both in fact and in law, that the Council owes it duties of care in respect of its inspection of the apartments and its decision to issue the code compliance certificate. It contends that the claim does not fall squarely under the proscriptive ruling of Attorney-General v Carter, but that in any event this is a case of a novel duty of care, which should be decided on proven rather than hypothetical facts (particularly in relation to policy considerations bearing upon the determination of a duty of care).
Is this a novel duty of care?
[26] The first issue to consider, therefore, is the Council’s argument that this is a claim for economic loss which cannot succeed in light of the authority of Attorney- General v Carter. For the reasons I will now give, I am not persuaded that it is appropriate to distinguish that decision as counsel for Marina contended.
[27] In Attorney-General v Carter the plaintiffs had purchased a vessel which turned out not to be seaworthy and had to be scrapped. At the time of purchase it
was the subject of survey certificates issued under the Shipping Seamen Act 1952. The plaintiffs allege that the certificates were erroneous and had been issued negligently. The plaintiffs sued the crown agencies responsible for issuing the certificates (the Ministry of Transport and a company on which the Ministry’s survey responsibilities devolved) to recover various financial losses.
[28] The Court of Appeal struck out claims for breach of common law duty of care and for breach of statutory duty. In coming to that decision it examined the purpose of the Shipping and Seamen Act 1952, found that the purpose of the survey requirement was safety and seaworthiness of ships, and found:
[16] ... There is nothing in the legislative scheme, or in the individual sections, suggesting that survey certificates were intended to be issued or relied on for economic purposes.
...
[18] ... There is no suggestion anywhere in any of the relevant legislation that survey certificates were intended by Parliament to be relied on by anyone, let alone the owners (actual or prospective) of ships, when making commercial decisions concerning a particular vessel. The protection of commercial interests is not a purpose of the legislation.
[29] The Court of Appeal then turned to consider whether this was an appropriate case for imposing a duty of care under the generally accepted two stage inquiry:
[30] ... The ultimate inquiry is whether it is fair, just and reasonable to require the defendant to take reasonable care to avoid causing the plaintiff loss or damage of the kind for which compensation is being sought. Each case will have its own particular combination of circumstances against which the necessary judgment must be made.
...
[31] In cases of negligent misstatement, as we have seen, the concepts of assumption of responsibility and foreseeable and reasonable reliance have been adopted to assist in reaching a principled and reasonably predictable answer to the proximity inquiry.
[30] In that statutory context, and having regard to those principles, the Court of
Appeal concluded that:
[34] It cannot reasonably be said that the MOT and M&I assumed or should be deemed to have assumed responsibility to the plaintiffs to take care in issuing the certificates not to harm their economic interests in the
Nivanga. Hence the necessary proximity between the parties is absent. There are essentially two reasons for that conclusion, one more fundamental than the other; albeit each is fatal to the plaintiffs’ case. The first and more fundamental problem the plaintiffs face is that, as we have discussed, the statutory environment is such that the purpose of the certificate was entirely different from the purpose for which the plaintiffs claim to be entitled to place reliance on it. The second is that in none of the capacities in which the plaintiffs claim to have suffered loss were they the person or within the class of persons who were entitled to rely on the certificates. They do not sue as passengers on the vessel or as crew or as other seafarers, damaged in a material way by the allegedly negligent certificates. In a sense the second problem can be viewed as a manifestation of the first. We mention it simply to exemplify the plaintiffs’ essential difficulty in another way. For these reasons we hold that there was no relevant proximity between the parties so as to satisfy that criterion for the imposition of a duty of care.
[31] Counsel for Marina argued that Attorney-General v Carter was not directly on point, and did not therefore preclude an argument based on the Council’s responsibilities in this case. He argued that the two factors which counted against the plaintiffs in Attorney-General v Carter (the purpose of the certificates and the class of persons entitled to rely on them) did not apply in this case. He submitted that the obligation placed on Marina by s 364 of the Building Act 2004, to obtain a code compliance certificate before sale of the units, supported an argument that at least one of the purposes of the Act was to permit the vendor of a newly built residential property to settle an agreement for sale and purchase by provision of a code compliance certificate, and it also brought Marina within the class of persons entitled to rely on the certificate (the duty of care asserted was not inconsistent with the statutory purposes).
[32] I am not persuaded that Attorney-General v Carter can be distinguished in this way. The Court of Appeal was being asked to consider a novel duty of care. It held that the scope of any duty of care was determined by reference to the purposes of the statutory function in question. The Court of Appeal had no doubt in that case that the statutory purpose did not extend to protecting the economic interests of the purchaser of the vessel for which the certificates were issued. I see no difference in principle from the present case. The objective or purpose of the code compliance certificates was to ensure that the buildings complied with the Building Act, in the same way as the objective or purpose of the survey certificates was to ensure compliance with standards of safety and seaworthiness. The economic interests of Marina do not come within the objectives of the Building Act any more than the
economic interests of the purchaser of the vessel came within the purposes of the
Shipping and Seamen Act.
[33] Section 364 does not assist. It is one of the number of miscellaneous provisions aimed at ensuring compliance with the purposes of the Building Act. As the Court of Appeal made clear in Te Mata Properties Ltd v Hastings District Council[8] and Queenstown Lakes District Council v Charterhall Trustees Ltd,[9] the underlying legislative purpose of the Building Act is health and safety, not protection of economic interests. Marina’s claim for the protection of its economic interests is
manifestly outside the scope and purpose of the regulatory functions imposed on the
Council under the Building Act.
[8] Te Mata above n7, at [62].
[9] Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] 3 NZLR 786 at [31].
[34] I find that Marina’s claim cannot succeed, as it is precluded by the decision in the Attorney-General v Carter. The principle applies both to its cause of action in negligence and to the claim of action in negligent misstatement.
[35] Although I consider that the finding just made disposes of this application, for the sake of completeness I will also address briefly the second aspect to Marina’s opposition, namely that this is a case of novel duty of care which should not be determined summarily.
Is the novel duty of care arguable?
[36] It was common ground that if this case did not fall squarely under previous authority, the task of the court on this application was to determine whether or not there was an arguable basis for the proximity and policy factors needed for a duty of care.
[37] Marina is arguing for a “situational” duty of care – reasoning backwards from the alleged negligence.[10] It has identified alleged faults on the part of the Council and is structuring the asserted duty of care around those faults. In that respect, it is
[10] Attorney-General v Body Corporate 200200 above n4, at [43].
necessary to keep in mind the caution expressed by the Court of Appeal in Attorney- General v Body Corporate 200200:[11]
[11] Attorney-General v Body Corporate 200200 above n4, at [46].
[46] ... where a plaintiff’s case proceeds on the basis of an alleged situational duty (that is, closely focused on particular circumstances of risk which are said to have existed), the Court should:
(a) during the proximity phase of the inquiry, be careful to ensure that the narrow duty alleged can credibly be regarded as discrete from a broad (and untenable) duty of care in relation to the relevant statutory functions; and
(b) in assessing policy considerations, analyse carefully the implications, in terms of the scheme and structure of the relevant statute, of recognising even a situational duty.
[38] The statutory or regulatory framework in which the Council is operating is relevant, therefore, to both the proximity and policy considerations. As I have already mentioned, the purpose of the Building Act 2004 is the regulation of building work to ensure that people can use buildings safely, and without endangering their health. This purpose can be found in ss 3 and 4, and in the range of provisions which require compliance with the Building Code (including the consent, inspection and certification requirements, and various mechanisms for enforcing those requirements). As already noted, there is nothing in the stated purposes or functions to suggest a purpose of protecting economic interests of a property developer, or the need to reorganise this duty
[39] Counsel for Marina sought to answer this by pointing to authority which supported imposition of a duty in relation to operational functions. He argued that the Council was providing a service. I do not accept this argument: the Council’s role in this respect is simply carrying out a statutory function. Further the Act provides mechanisms for challenging the performance of these functions.
[40] Counsel for Marina argued that this case was only a small step from the Hamlin cases, pointing to the fact that Marina was the owner at relevant times, and these were residential buildings. It has been recognised that a relationship between a commercial developer and a Council could be sufficiently direct and close to
constitute the necessary relationship, depending on the facts of the case.[12] He argued that it was reasonably foreseeable that negligent inspection or issue of an erroneous certificate could cause a developer to suffer loss. However, although foreseeability is a factor in the consideration of proximity, it is not determinative. The court must still balance the competing moral claims: a plaintiff’s moral claim to compensation for avoidable harm and the defendant’s moral claim to be protected from an undue burden of legal responsibility.[13] It will look at the nexus between the alleged negligence and the loss and degree of harm to the plaintiff. This involves consideration of the burden on the defendant of taking precautions against the risk involved, and whether the consequences to the defendant may be disproportionate to its fault (the indeterminacy of its exposure).[14]
[12] Three Meade Street Ltd v Rotorua District Council [2005] 1 NZLR 504 (no duty was found in that case for policy reasons).
[13] South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282 at 306.
[14] Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 at [60].
[41] Put into the present context, a claim for the costs of remedying a design or manufacturing defect so as to avoid health or safety risks has reasonably circumscribed boundaries. However, a claim for loss of profits is not. The Council would be unable to assess what losses could be incurred for breach of such a duty. It has no way of knowing what financial arrangements Marina may have with potentially affected parties. The indeterminacy of the loss, therefore, must count strongly against imposition of a duty.
[42] I accept the submission of counsel for the Council that this is an appropriate case to heed the admonition of the Court of Appeal in Attorney-General v Carter that there is a legitimate public interest in regulatory bodies being free to perform their role without the chilling effect of undue vulnerability to actions for negligence.[15]
[15] Attorney-General v Carter above n5, at 171.
[43] A further significant factor is the vulnerability of the plaintiff. This was identified in Rolls Royce as involving an inquiry as to whether a defendant with special skills has power over a vulnerable plaintiff,[16] and whether there were steps
that the plaintiff could reasonably take to look after its interests (involving a consideration of bargaining power and market reality in commercial cases).[17]
[16] Rolls Royce New Zealand Ltd above n14, at [61].
[17] Rolls Royce New Zealand Ltd above n14, at [62].
[44] It is difficult to see how Marina could be taken to be a vulnerable plaintiff. It was able to choose its contractors (and subcontractors) and arrange for appropriate oversight of the project. If it did that properly it would face no or little risk of negligent issue of a code compliance certificate for a non-compliant building. As the Court of Appeal stated in Queenstown Lakes v Charterhall Trustees, the owner (Charterhall) was the party best placed to protect its interests in the design and
construction of the building in that case:[18]
(b)... As a matter of principle, we see no justification for requiring councils (in effect) to act as insurers for building owners against the negligence of their contractors, or against the possibility that those contractors will become insolvent, so that the owner cannot recover from them. Mr Parker pointed out that there was no contractual relationship between Charterhall and Blair & Co, the latter having been retained by the overseas architects. But that does not meet the point. Charterhall was able to protect its position in relation to the work performed by its architects.
[18] Queenstown Lakes District Council above n9, at [45].
[45] Marina’s undoubted ability to have controlled the building process is a factor against imposition of duty in this case.
[46] The fact that the claim is for economic loss only also weighs heavily against imposition of a duty.[19]
[19] Rolls Royce New Zealand Ltd above n14, at [63].
[47] It is also relevant to take into account whether and, to what extent, the Council may be said to have assumed responsibility for inspection and certifying compliance with the Building Code. Whilst it can be accepted that a Council must pursue some responsibility to ensure that the building complies with health and safety requirements, that is a long way from saying that the Council must also assume responsibility to professional developers for their commercial interests.
Negligent misstatement claim
[48] I accept the submission of counsel for the Council that the duty in this case is the same as in the claim for negligence save that it applies only to the issue of the code compliance certificate (and I did not understand counsel for Marina to contend otherwise). The approach and outcome must be the same (Attorney-General v Carter was also a negligent misstatement claim). Further, on the basis of the previous analysis it cannot be said that the Council assumed a responsibility to Marine when issuing the certificate.
[49] This view is supported by the decision in Body Corporate 207624 v North Shore City Council[20] where a similar claim was made, and struck out. Counsel for Marina sought to distinguish that decision on the ground that the code compliance certificate was issued under the Building Act 1991, which did not have an equivalent provision to s 364. As already stated, I do not accept that that section makes any material difference to the analysis.
The Fair Trading Act claim
[20] Body Corporate 207624 v Chen HC Auckland CIV-2007-404-4037, 11 November 2009.
[50] In its final cause of action Marina claims that Council’s issue of the erroneous code compliance certificate was misleading or deceptive conduct. The Council challenges that contention generally, but for the purpose of the present application says that the claim cannot succeed because Council was not acting “in trade” when carrying out the regulatory functions associated with issue of the code compliance certificate. It was common ground that Marina has to show that Council was “acting in trade”. Marina contends that authorities relied on by the Council can be distinguished, and that it is at least arguable that when carrying out operational functions (which could include conducting inspections and issue of code compliance certificates) as against more general policy functions, Council was acting in trade. Counsel submitted that this issue required careful assessment of the relevant facts at trial, and should not be determined in a strike out application.
[51] “Trade” is defined in s 2 of the Fair Trading Act 1986 as:
Trade means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.
[52] In Glaxo New Zealand Ltd v Attorney-General[21] the Court of Appeal had to consider the same expression (acting in trade) in relation to the actions of the Minister of Health under s 99 of the Social Security Act 1964. The plaintiff had pleaded that the Minister of Health was engaging in trade, which for the purpose of that case was defined in s 2 of the Commerce Act, (in almost identical terms to the definition in the Fair Trading Act 1986). The Social Security Act 1964 conferred powers on the Minister in relation to availability, pricing and reimbursement of pharmaceutical benefits. Section 99 permitted the Minister to specify (inter alia) the persons entitled to claim benefits, any terms and conditions that must be complied with before any payments were made by the Department, and the prices to be paid. The Court of Appeal found that the Minister was not engaging in trade when
[21] Glaxo New Zealand Ltd v Attorney-General [1991] 3 NZLR 129.
exercising those powers:[22]
[22] Ibid at 139.
It is clear that the Minister was not engaging in trade as such, or in any business, industry, profession or occupation. Nor, in spite of Mr Finlayson's submission, could her decision-making process be described as "an activity of commerce". It certainly has commercial effects, but the activity itself is the exercise of regulatory functions under the Act in order to achieve its social welfare purposes. The only part of the definition of "trade" which might seem to apply to her conduct is the expression "any undertaking relating to the supply of goods or services", with "services" understood in its extended meaning as any benefits to be provided in trade - here, the part payment of pharmaceutical costs.
However, we do not think the word "undertaking" - broad as it may be - is apt to describe the Minister's actions in deciding whether or not to specify a drug and impose conditions under s 99. That word reflects the idea of settled activity or enterprise. ...
[53] The phrase “acting in trade” was considered again, this time in relation to actions of a local authority under the Resource Management Act, and in relation to s 9 of the Fair Trading Act 1986, in Chisholm v Auckland City Council.[23] The conduct in that case was pleaded far more widely than in the present case, but
[23] Chisholm v Auckland City Council HC Auckland CP 559/98, 19 December 2001.
essentially related to the exercise of the Council’s regulatory responsibilities under the Resource Management Act 1991. The Court followed Glaxo New Zealand Ltd v Attorney-General in finding that the Council was not “acting in trade” when it did any of the four matters pleaded, because it was simply exercising regulatory functions.[24] The Court was not persuaded that a case to the contrary, Gregory v
Rangitikei District Council,[25] had any bearing on the matter both because Rangitikei
District Council had not challenged that its conduct (dealing in tenders for sale of land) was “in trade”, and because in the other case the facts were quite different (the fact that it was a local authority was irrelevant to the claim, whereas in the case before the Court there was no question that the Council was acting as a local authority with statutory responsibilities).
[24] Glaxo New Zealand Ltd above n 21, at [178]
[25] Gregory v Rangitikei District Council [1995] 2 NZLR 208.
[54] The Council was clearly exercising its regulatory functions under the Building Act when it issued the code compliance certificate. The authorities just cited make it clear that in doing so it is not acting “in trade”. Counsel for Marina argued that it was still open to argue that in issuing building consents, undertaking inspections and issuing code compliance certificates the Council was providing a service. He submitted that if this was undertaken by a separate certifier (as was permitted by the Act) the certifier would be acting in trade and hence it was arguable that the Council was too. He said that this would apply where there was a commercial aspect overlaying the operational matters.
[55] I do not accept the comparison with the private building certifier. That is clearly a commercial activity per se, which simply removes one aspect of the Council regulatory functions. This case is quite different to that before the Court in Gregory v Rangitikei District Council where the complaint related to Council’s actions in relation to a tender process for sale of land rather than performance of statutory functions prescribed by statute. This is not a case of the Council providing services.
[56] Counsel for Marina also sought to draw support for its argument from the decision of this Court in Arms v New Plymouth District Council,[26] involving a dispute under leases. The plaintiffs allege that a number of communications of the Council misled them in relation to their rights under the leases. The Court struck out this claim on other grounds but also commented that there was not any relevant act “in trade” for the purpose of a valid claim under the Fair Trading Act. Counsel for
Marina sought to argue that because the focus in that case was on policy matters, rather than operational matters, it left open an argument on the operational matters. I do not see that the case can be taken that far. The decisions in Glaxo and Chisholm determine this point.
[26] Arms v New Plymouth District Council HC New Plymouth CIV-2006-043-000399, 14 May 2008.
[57] The Council also says that this claim cannot succeed because there is no causal nexus between the allegedly misleading conduct (issue of the code compliance certificate) and the alleged losses,[27] and that Marina, as a professional developer, could not show that it would be reasonably misled by the Council’s certificate,[28] one of the critical requirements for successful claim. I do not need to make a finding on these points but note that they would not be met by the current pleadings.
Decision
[27] Saville v NZI Finance [1990] 3 NZLR 135.
[28] AMP Finance NZ Ltd v Heaven (1997) 8 TCLR 144.
[58] Counsel for Marina ended his argument by submitting that the issues in this case needed to be determined against a greater background of fact than was available in the current pleading. I am not persuaded that that is the case. The obstacles facing Marina in this case will not be resolved by any greater investigation into the background. Marina will not be able to succeed on its claim for a duty of care in light of the authority of Attorney-General v Carter. Further, even if it could still mount an argument for a novel duty, the factors to which I have referred count so heavily against any possible duty that it would be unreasonable to put the Council to the cost of defending that claim.
[59] Finally, as just mentioned, no further investigation will assist Marina in its claim under the Fair Trading Act. The Council was clearly not acting “in trade”.
[60] For these reasons I am satisfied that Marina’s claims cannot succeed. Its claim is stuck out.
[61] As the successful party the Council is entitled to its costs on a 2B basis together with disbursements as fixed by the Registrar.
Associate Judge Abbott
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