North Shore City Council v Body Corporate 188529 [Sunset Terraces]
[2010] NZCA 64
•22 March 2010
For a Court ready (fee required) version please follow this link
IN THE COURT OF APPEAL OF NEW ZEALAND
CA673/2008
[2010] NZCA 64
BETWEENNORTH SHORE CITY COUNCIL
Appellant
ANDBODY CORPORATE 188529
First RespondentANDSTEPHEN ROBERT DEVLIN & OTHERS
Second RespondentsANDROBERT HENRY GRAHAM BARTON AND KAY BARTON
Third RespondentsANDR F COUGHLAN & ASSOCIATES
Fourth Respondent
CA66/2009
AND BETWEEN BODY CORPORATE 188529
First AppellantANDSTEPHEN ROBERT DEVLIN & OTHERS
Second Appellants
ANDNORTH SHORE CITY COUNCIL
First RespondentANDROBERT HENRY GRAHAM BARTON AND KAY BARTON
Second RespondentsANDR F COUGHLAN & ASSOCIATES
Third Respondent
Hearing:7-11 September 2009
Court:William Young P, Arnold and Baragwanath JJ
Counsel:CA673/2008
D J Goddard QC, D J Heaney SC and G R Grant for Appellant
M C Josephson and A K Hough for First and Second Respondents other than Seventh and Eighth Second Respondents
S C Price and D D Watterson for Seventh and Eighth Second Respondents
No appearance for Third Respondents
A G McLean for Fourth Respondent
CA66/2009
M C Josephson and A K Hough for First and Second Appellants other than Seventh and Eighth Second Appellants
S C Price and D D Watterson for Seventh and Eighth Second Appellants
D J Goddard QC, D J Heaney SC and G R Grant for First Respondent
No appearance for Second Respondents
A G McLean for Third Respondent
Judgment:22 March 2010 at 10am
JUDGMENT OF THE COURT
This decision may be cited as Sunset Terraces [2010] NZCA 64.
CA673/2008
A The Council’s appeal is dismissed.
BThe cross-appeal in respect of the Blue Sky claims is allowed. If the parties are unable to agree as to the practical effect of this result they may file memoranda, the second respondents within 15 working days and the Council within a further 15 working days.
CThe respondents are entitled to costs against the Council for a complex appeal on a band B basis and usual disbursements. We certify for three counsel. If any issue arises as to apportionment among respondents we should receive memoranda.
DLeave to apply to this Court for further directions or clarifications is reserved in terms of [132] of the reasons for judgment.
CA66/2009
AThe appeal in respect of the claim by Mr Devlin is allowed.
B In all other respects the appeal is dismissed.
C The Council and RF Coughlan & Associates are ordered to bear equally the amount of Mr Devlin’s award and interest thereon.
D We reserve costs. The appellants in CA66/2009, including Mr Devlin, may file their submissions within 15 working days and the Council and RF Coughlan & Associates may respond within a further 15 working days.
ELeave to apply to this Court for further directions or clarifications is reserved in terms of [132] of the reasons for judgment.
REASONS
Baragwanath J [1]
William Young P [134]
Arnold J [205]BARAGWANATH J
Table of Contents
Para No
A Overview [1]
B DUTY ISSUES [9]
(A) WAS HAMLIN CORRECTLY DECIDED AND, IF SO, DID THE BUILDING ACT
ALTER THAT POSITION? [9]
CONTEXT[9]
CA673/2008: THE OWNER/LESSEE APPEALS [12]
CA66/2009: THE DESIGNER APPEAL [14]
THE COUNCIL’S ARGUMENT [15]
PRIMARY SUBMISSION: NO DUTY OF CARE FOR SUBSTANTIAL DEVELOPMENT [15]
(I) THE GENERAL LAW COMPRISING COMMON LAW PRINCIPLES AND THE
BUILDING ACT CONTRIBUTION[15]
DISCUSSION [21]
MURPHY AND HAMLIN [26]
THE BUILDING ACT [32]
PRIMARY SUBMISSION: NO DUTY OF CARE FOR SUBSTANTIAL DEVELOPMENT
(II) THE BUILDING ACT AND S 44A OF THE LOCAL GOVERNMENT OFFICIAL
INFORMATION AND MEETINGS ACT 1987
CONCLUSION ON PRIMARY SUBMISSION [77]
(B) DOES THE HAMLIN PRINCIPLE EXTEND TO APARTMENTS AND CASES WHERE
EXPERTS (ARCHITECTS AND ENGINEERS) HAVE BEEN ENGAGED? [78]
(C) MAY OWNERS OTHER THAN THE INITIAL OWNERS SUE? [80]
(D) MAY INVESTORS IN SUCH PROPERTIES WHO ARE NOT OCCUPIERS SUE? [83]
(E) MAY A SUBSEQUENT PURCHASER SUE WHEN A PRIOR OWNER HAS
SUFFERED LOSS? [84]
(F) THE LOCAL GOVERNMENT AND OFFICIAL INFORMATION AND MEETINGS
ACT 1987 [85]
C THIS CASECA673/2008 SUMMARY: THE OWNER/LESSEE APPEALS [87]
The successful respondents in CA673/2008: [90]
Mr Devlin/Devlin Properties Ltd [90]
The Misses Turner [93]
Mr Halford [96]MR AND MRS PARKINSON [98]
Decision [101]
The unsuccessful Blue Sky claims [102]
Decision [109]
CA66/2009: Designer appeal [111]
Negligent preparations of the plans [120]
Negligent issue of “certificates of practical completion” [122]
Decision [128]
Contribution [129]
Costs [130]
Leave to apply in both appeals [132]
Postscript [133]A Overview
[1] In the wake of the Building Act 1991 there has arisen a very large number of so-called “leaky building” claims requiring this Court to identify the principles to be applied by trial courts. Important among them are those concerning the liability of local authorities.
[2] To date litigants have accepted the authority of the decisions of this Court and the Privy Council in Hamlin v Invercargill City Council.[1] On this appeal from a judgment against the North Shore City Council (the Council), Mr Goddard QC for the Council appellant recognised that this Court is bound by Hamlin and did not directly seek to persuade us that it was wrongly decided. But he reserved the right to challenge Hamlin in the Supreme Court. The Council’s reason for seeking to limit the scope of Hamlin, which this Court has described as “exceptional” (the description in Te Mata Properties Ltd v Hastings District Council[2]), is the overarching premise that the decision is wrong in principle. The context of that statement in Te Mata is provided below.[3]
[1] Hamlin v Invercargill City Council [1994] 3 NZLR 513 (CA); [1996] 1 NZLR 513 (PC).
[2]Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460 at [57].
[3] At [24].
[3] Although we are bound by Hamlin it is necessary for us to assess whether it should be confined to its facts, as Mr Goddard contends, or treated as stating principles extending beyond the modest house the subject of that case.
[4] Do owners of apartments in substantial complexes built under the Building Act 1991 have the same right to claim damages against a local authority for carelessness in the performance of their function of monitoring construction as Hamlin held was available to the owner of a modest house? That is the major issue on this Sunset Terraces appeal from the judgment of Heath J,[4] and the related Byron Avenue appeal in which we are also giving judgment today.[5] My answer is yes.
[4] Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC).
[5] Byron Avenue [2010] NZCA 65.
[5] The issues considered in this judgment are:
(a)Was Hamlin correctly decided and, if so, did the Building Act alter that position?
(b)Does the Hamlin principle extend to apartments and cases where experts (architects and engineers) have been engaged?
(c)May owners other than the initial owners sue?
(d)May investors in such properties who are not occupiers sue?
(e)May a subsequent purchaser sue when a prior owner has suffered loss?
The judgment deals also with CA66/2009. This is an appeal by the respondents in CA673/2008 against the High Court’s decision that the designer of the development was not negligent in preparation of the plans and in issuing documents described as “certificates of practical completion”.
[6] In the Byron Avenue judgment we consider in addition:
(f)May a council which has not issued a code compliance certificate be sued?
(g)What is the appropriate outcome when there is fault on the part of purchasers, and what is the effect of the attribution of knowledge of problems to purchasers?
(h)May a body corporate under the Unit Titles Act 1972 sue?
(i)What is the effect on claims of the Local Government Official Information Act and Meetings Act 1987?
[7] The present judgment and that in Byron Avenue deal also with the individual cases under appeal.
[8] These reasons for judgment contain my analysis concerning the Sunset Terraces. We agree as to the result. Separate reasons are given by the other members of the Court.
B Duty issues
(a) Was Hamlin correctly decided and, if so, did the Building Act alter that position?
Context
[9] The appellant in CA673/2008, the Council, was the territorial authority responsible for relevant building control functions under the Building Act 1991. Body Corporate 188529 (the Body Corporate), the first respondent, was constituted under the Unit Titles Act 1972 in respect of a 21-unit residential development in Mairangi Bay, Auckland, known as the Sunset Terraces Development. Proceedings were issued by the Body Corporate and, in respect of 17 of the units, by their owners or lessees, the second respondents, alleging negligence by the Council in connection with the performance of its functions under the Building Act.
[10] In the High Court, Heath J held that the Council was liable to owners of four of the units. The claims by the Body Corporate and the other 13 plaintiffs failed. So too did a claim against the designer of the project. The developers were held liable in respect of all claims but are without means.
[11] Heath J held that the Council owed a duty of care to anyone who acquired a property, the intended use of which has been disclosed as residential in the plans and specifications submitted with the building consent application, or was known to the Council to be for that end purpose. The duty is to be satisfied on reasonable grounds that a building consent should issue, to take reasonable steps in carrying out inspections, and to be satisfied on reasonable grounds that code compliance should be certified.
CA673/2008: owner/lessee appeals
[12] In CA673/2008 the Council appeals against the findings of liability against it in favour of the four successful second respondents.
[13] Blue Sky Holdings Ltd, a second respondent which held a 182-week leasehold interest in each of 12 units as trustee of the Auckland Residential Property Trust (ARPT) and was assignee of the rights of the owner of each of those units, cross-appeals against the dismissal of its claims.
CA66/2009: the designer appeal
[14] In CA66/2009 the Body Corporate and the second respondents in CA673/2008 appeal against the decision in favour of the designer in respect of such of their claims as failed in the High Court, and also as to costs. The designer cross-appeals against the finding that he breached a duty of care to the owners and Body Corporate and against the reduced order for costs in his favour.
The Council’s argument
Primary submission: no duty of care for substantial development
(i) the general law comprising common law principles and the Building Act contribution
[15] The Council’s challenges to Heath J’s conclusion are based in large part on the assessment of the English courts, notably in Murphy v Brentwood District Council,[6] that such claims are to be characterised as for merely economic loss and subjected to the common law rule that claims for such loss are generally to be rejected.
[6] Murphy v Brentwood District Council [1991] AC 398 (HL).
[16] The Council further submits that the Hamlin claim was founded essentially on a notion of so-called “general reliance” on councils and that any justification for such reliance cannot survive analysis of the language of the Building Act and accompanying legislation.
[17] To see the case in perspective it is convenient first to consider the general law, with its common law and Building Act contributions, before examining the fine detail of the statute.
[18] Mr Goddard performed a careful analysis of the Hamlin judgments of this Court, and of the Privy Council and of the Building Act, to which each judgment referred in some detail even though the Act had not come into force at the time the cause of action was held to arise. He submitted that neither common law principle nor the language of the Act justified the Hamlin decision nor, a fortiori, a cause of action in respect of all or part of a large development where experts would have been employed, which required a development of Hamlin.
[19] Mr Goddard relied on the principle of the common law applied in Attorney-General v Carter (in which this Court held that purely economic loss resulting from the negligent survey of a ship was not recoverable),[7] Te Mata (the same in respect of a motel),[8] and most recently Queenstown Lakes District Council v Charterhall Trustees Ltd (the same in respect of an upmarket lodge);[9] that a cause of action in negligence does not lie in respect of such damage. Leave to appeal to the Supreme Court has been granted in Charterhall.[10] He argued that such loss to a building constitutes purely economic loss (Murphy), and submitted that the Hamlin exception is anomalous and not to be developed. He contended that in Hamlin this Court and the Privy Council failed properly to analyse changes made by the Building Act to the previous law.
[7] Attorney-General v Carter [2003] 2 NZLR 160 (CA).
[8] Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460.
[9]Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786.
[10] Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZSC 116.
[20] He further submitted that, in any event, there could be no claim after some significant loss had been identified, even if not by an individual plaintiff, and that in the Blue Sky cases[11] the Judge was right to hold that there was no duty and to find that the plaintiff had failed to satisfy its onus of proof (Blue Sky held leasehold interests in several of the units and was assignee of the rights arising from the reversion in respect of those units).
Discussion
[11] See [102] below.
[21] I agree with Mr Goddard that Hamlin is an exception to the rule applied in Carter, Te Mata and Charterhall. But there is good reason for the exception. That is because a claim in respect of a leaky building used as a private habitation may properly be characterised as different in kind from the interests considered in the cases on which the Council relies. In stating the common law of New Zealand our courts have in effect rejected the English “purely economic” classification of Murphy and emphasised the importance of habitation as a primary interest to be recognised. I see no reason to reject that assessment.
[22] Te Mata and Charterhall concerned premises which this Court characterised as commercial. In Te Mata we cited the definition in the Building Act of “household unit” as:[12]
any building or group of buildings, or part of any building or group of buildings, used or intended to be used solely or principally for residential purposes and occupied or intended to be occupied exclusively as the home or residence of not more than one household; but does not include a hostel or boardinghouse or other specialised accommodation:
[12] Building Act 1991, s 2, cited in Te Mata Properties Ltd v Hastings District Council at [8].
[23] Parliament’s policy of excluding specialised accommodation from the paradigm of “household unit” is reflected in the “habitation” concept underlying Hamlin. We referred to the fact that the distinction was maintained in the Building Act 2004, enacted after the losses in these cases and of relevance only as a general policy indicator. The definition is used to prohibit sales without production of a code compliance certificate and to preserve privacy by controlling the entry of officials. We noted in Te Mata that in the Weathertight Homes Resolution Services Acts 2002 and 2006 the term “dwellinghouses” was used to define the classes of property whose owners are to receive the benefit of the resolution service. In the 2006 Act, “dwellinghouse” is defined in s 8(a) as:
... a building, or an apartment, flat, or unit within a building, that is intended to have as its principal use occupation as a private residence.
We recorded the purpose stated in s 3 of the 2006 Act as:
... to provide owners of dwellinghouses that are leaky buildings with access to speedy, flexible, and cost-effective procedures for assessment and resolution of claims relating to those buildings.
We concluded in Te Mata:[13]
So Parliament has treated owners of “household units” and “dwellinghouses” as deserving special treatment: protection in respect of building quality, privacy and procedures for dealing with leaky building claims. And it has also subjected councils to onerous obligations in respect of all buildings in a context where public health is an underlying purpose.
[13] At [12].
[24] The context in which in Te Mata we described the Hamlin cause of action as exceptional was as follows:[14]
The Judges who decided Dutton [v Bognor Regis Urban District Council [1972] 1 QB 373 (CA)], Bowen [v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA)] and Hamlin did not articulate just why the statutory duty of a council in relation to supervision of house construction should be treated differently from statutory duties owed in other contexts (a topic recently discussed in Minister of Fisheries v Pranfield Holdings Ltd[2008] 3 NZLR 649 (CA)). But it is not difficult to identify the interests of habitation and health, with which Dutton began at first instance, as values of such a high order as to warrant special protection. The interest in public health is axiomatic and at the forefront of the policy of the Building Acts. The right to housing is identified in art 25 of the Universal Declaration of Human Rights and art 11 of the International Covenant on Economic, Social and Cultural Rights, to each of which New Zealand is a party. The right to shelter is bound up with those of autonomy and dignity expressed in the adage “an Englishman’s home is his castle”, echoing Sir Edward Coke’s dictum in Semayne’s Case (1604) 5 Co Rep 91a: “the house of every one is to him as his castle and fortress, as well for his defence against injury and violence as for his repose”. Hamlin did not turn on the issue of habitation. Its focus was rather on protection of investment in property. But it can be rationalised as an exceptional and practical response to the position of an average domestic home owner, justified by a presumed economic vulnerability. Given the Dutton genesis of the cause of action, both elements: that of habitation and that of presumed economic vulnerability, could be seen as underlying the decision, albeit it did not distinguish between rich and poor owners of habitations.
[14] At [57].
The rule that economic claims are not generally protected by the law of negligence results from the presumptive hierarchy of interests evolved by the courts over the years. The law has always accorded the highest protection to the physical integrity of the person, a lower protection to property rights, and still less protection to economic interests. That is why the common law has applied the eggshell skull test to claims for personal injury,[15] the simple loss of value test to damage to goods,[16] and a more exacting test for economic loss.[17]
[15] Smith v Leech Brain & Co Ltd [1962] 2 QB 405 (CA).
[16] The London Corp [1935] P 70 (CA).
[17]Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48, [2009] 1 AC 61.
[25] But it is the task of the judges on behalf of their community to evaluate how a new claim is to be assessed and whether changing conditions require an old evaluation to be reviewed. In doing so, careful regard will be paid to developments in states with which we share many values, including the United Kingdom, Australia and Canada. In each of those jurisdictions the courts have discerned a tension between the owner’s economic interest in the value of the house as an asset and what we have called the habitation interest. In Te Mata, we briefly reviewed the history in England, Australia and Canada.[18] The English in Murphy have ended up disregarding the habitation interest, the Australians have not yet reached a settled conclusion, the Canadians have employed a test of danger as the point at which the classification changes from mere economic loss, which is irrecoverable. In New Zealand, by contrast, there is a settled jurisprudence to which both Parliament and the judges have contributed, which applies habitation as the dividing line.
Murphy and Hamlin
[18] At [13] – [15].
[26] In giving judgment in Hamlin after enactment of the Building Act, albeit on a claim predating it, this Court and the Privy Council examined the Act to a degree and found support in it for their decision that the New Zealand courts should decline to follow Murphy. At a time when New Zealand’s final court consisted almost exclusively of members of the House of Lords, it was inevitable that this Court, before departing from expressions of opinion by the Law Lords, should pave the way by setting out in detail differences in local conditions. That was done in Hamlin with a detailing of what Richardson J termed “six distinctive and long-standing features of the New Zealand housing scene” immediately prior to the 1991 Act which demonstrate “the kind of society we are” and our needs.[19] Mr Goddard focused on that list in order to distinguish the present case. It consisted of:
[19] Hamlin v Invercargill City Council (CA) at 524.
(1)the high proportion of occupier-owned housing;
(2)much of the housing construction being undertaken by small-scale cottage builders;
(3)governmental support for private home ownership;
(4)a surge in house construction in recent times;
(5)wider local government (as well as central government) support for private home building;
(6)the fact that new house buyers in New Zealand have not commonly commissioned engineering or architectural examinations.
So, according to Richardson J:[20]
It accorded with the spirit of the times for local authorities to provide a degree of oversight rather than expect every small owner to take full responsibility and engage an expert adviser.
[20] At 524.
[27] Such analysis fitted the particular facts of the Hamlin case where the plaintiff bought a section from a building company and contracted with it to have built a comparatively modest one-storey suburban house, which proved to have foundations which were inadequate for the ground with an unusually low bearing strength (there had been anecdotes of bogged horses, ducks and frogs on the land). Mr Goddard submitted that it does not fit the present case where:
(1)many of the apartments are tenanted;
(2)the 21-unit Sunset Terraces complex falls outside any notion of cottage building;
(3)there is no relevant national government policy;
(4)this is not a house;
(5)there is no relevant local government policy;
(6)in 1991 the bill which introduced the Building Act also introduced what became s 44A of the Local Government Official Information and Meetings Act 1987. It provides for the issue by a council, within 10 days of a request, of a Land Information Memorandum (LIM) which will disclose whether the council has issued a requisition under the Building Act or any other statute (which might include the Building Act 2004). Section 44A is germane to the second part of the Council’s first submission and we discuss it there. It is also of particular relevance to the Byron Avenue case. For present purposes it is material to Mr Goddard’s submission that the Hamlin analysis of the legislation was incomplete.
[28] Further, in this case the developer was furnished with expert advisers. In Brown v Heathcote County Council Cooke P acknowledged the possible argument that this factor could alter a result.[21] So did this Court in Riddell v Porteous.[22] I return to this point. For the moment it is relevant as a facet of the primary argument.
[21] Brown v Heathcote County Council [1986] 1 NZLR 76 (CA) at 82.
[22] Riddell v Porteous [1999] 1 NZLR 1 (CA).
[29] Mr Goddard submitted that we should construe Hamlin narrowly and effectively confine it to its own facts. While his full argument against that decision was reserved for the Supreme Court, it included the proposition that, properly read, the Building Act and Code, which were not essential to the decision, as well as the contemporaneous s 44A of the Local Government Official Information and Meetings Act, demonstrate a statutory purpose of withdrawing from the previous New Zealand legislation.
[30] That prior legislation had been relied on by this Court in Stieller v Porirua City Council[23] as distinguishable from the Public Health Act 1936 (UK) considered in Anns v Merton London Borough Council[24] and the Local Government Act 1963 (UK) discussed in Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd.[25] In Stieller Cooke P stated:[26]
[23] Stieller v Porirua City Council [1986] 1 NZLR 84 (CA) at 93.
[24] Anns v Merton London Borough Council [1978] AC 728 (HL).
[25]Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] AC 210 (HL).
[26] Stieller v Porirua City Council at 93.
In New Zealand, the statutory provisions covering the issue of building permits do not relate solely to matters of health or the safety of occupiers of premises. They have their genesis in Part XLIII of the Local Government Act 1974, which confers on Councils … the power to make bylaws for many purposes including:
“(8) Conserving public health, wellbeing, safety, and convenience, and regulating drainage and sanitation:”
but also:
“(21) The inspection of any land, building or premises for any purpose of this Act;
(22) Regulating and controlling the construction, alteration, and repair of buildings…
While para (8) is clearly directed at matters of public health, paras (21) and (22) are wide enough to cover the construction of soundly built houses and the resultant safeguarding of persons who may occupy those houses against the risk of acquiring a substandard residence. The construction of houses with good materials and in a workmanlike manner is a matter within the Council’s control. Both it and residents in its district benefit from such regulations which make for the economic and social well-being of the community and the creation of a pleasant environment.
[31] Mr Goddard analysed the Building Act and Code.
The Building Act
[32] The 1991 Act was enacted after the New Zealand courts had endorsed the cause of action rejected by the House of Lords in Murphy. Parliament had the opportunity to override the common law development. But it did not do so. Instead, it legislated in a manner both contemplating and dealing with council liability for failure to exercise reasonable care in performing council functions.
[33] By s 6(1) Parliament stated its purpose of the Act as to establish:
Necessary controls relating to building work and the use of buildings and for ensuring that buildings are safe and sanitary …
and directed that:
(2) To achieve the purposes of the Act, particular regard shall be had to the need to –
(a) Safeguard people from possible injury, illness, or loss of amenity in the course of the use of the building …
“Amenity” was defined by s2 as:
an attribute of a building which contributes to the health, physical independence, and well being of the building's users but which is not associated with disease or a specific illness
It was the function of the Council:
To enforce the provisions of the building code [made under s 48] (s 24(e)).
By s 34(3) it was required:
[to] grant the consent if it is satisfied on reasonable grounds the provisions of the building code would be met if the building work was properly completed in accordance with the plans and specifications submitted with the application.
Section 76 defined inspection as the:
... taking of all reasonable steps to ensure–
(a) That any building work is being done in accordance with a building consent; or
...
(c) That buildings remain safe, sanitary…
Section 91(3) contemplated:
Civil proceedings … brought against a [council or], a building certifier …
and that they might:
arise out of the issue of a building consent, a building certificate, a code compliance certificate …
The ten-year limitation period for claims against a council runs from the time of its issuing a building consent or a code compliance certificate.
[34] As was discussed in Dicks v Hobson Swan Construction Ltd:[27]
[27] Dicks v Hobson Swan Construction Ltd (2006) 7 NZCPR 881 (HC).
[69] It was unlawful to carry out any building work except in accordance with a building consent issued by the Council in accordance with the Act [s 32]. An owner intending to carry out any building work was required before the commencement of the work to apply to the Council for a building consent in respect of the work [s 33]. The application was to be accompanied by a charge fixed by the Council:
and by such plans and specifications and other information as the [Council] reasonably requires [s 33].
[70] The Council was required to grant or refuse an application for a building consent within the ten day period. It might within that period require further information, in which event the timetable was suspended until the information was provided [s 24(2)]. By s 34(3):
After considering an application for building consent, the [Council] shall grant the consent if it is satisfied on reasonable grounds that the provisions of the building code would be met if the building work was properly completed in accordance with the plans and specifications submitted with the application.
Consent might be granted subject to conditions; in that event the Council was to have regard to the Building Code [s 34(4) and (5)].
[71] Section 43 provided:
Code compliance certificate
(1) An owner shall as soon as practicable advise the [Council], in the prescribed form, that the building work has been completed to the extent required by the building consent issued in respect of that building work.
…
(3) … the [Council] shall issue to the applicant in the prescribed form, on payment of any charge fixed by the [Council], a code compliance certificate, if it is satisfied on reasonable grounds that–
(a)The building work to which the certificate relates complies with the building code; …
…
(5) Where … a [council] refuses to issue a code compliance certificate, the applicant shall be notified in writing specifying the reasons.
(6) Where a [council] considers on reasonable grounds that it is unable to issue a code compliance certificate in respect of particular building work because the building work does not comply with the building code, or with any waiver or modification of the code, as previously authorised in terms of the building consent to which that work relates, the [Council] shall issue a notice to rectify … [a procedure provided by s 42]
[72] The Council was empowered to take all reasonable steps to ensure that any building work was being been done in accordance with a building consent and to enter to inspect any building or building work. [A procedure provided by s 42]
[73] Proportionality of response was contemplated by s 47:
47Matters for consideration by [councils] in relation to exercise of powers
In the exercise of its [foregoing] powers … the [Council] shall have due regard to …
(a) The size of the building; and
(b) The complexity of the building; and
(c)The location of the building in relation to other buildings, public places, and natural hazards; and
(d) The intended life of the building; and
…
(g) The intended use of the building, including any special traditional and cultural aspects of the intended use; and
(h)The expected useful life of the building and any prolongation of that life; and
…
(k) Any other matter that the [Council] considers to be relevant.
(The relevant provisions of the Building Code as to weather-proofness and durability are cited below.[28])
[28] At [36].
[74] So Parliament conferred on the Council:
(1) The obligation within ten days to grant or refuse a building consent;
(2) The power to charge for the cost of doing so;
(3) The power to defer its decision until necessary information was provided;
(4) The power to take all reasonable steps to ensure that building work was performed in accordance with the consent;
(5) The duty of issuing a certificate of compliance if satisfied on reasonable grounds that the work complied with the Building Code, such compliance including conformity with its weather-proofness and durability provisions; and
(6) The duty in the event of non-compliance to issue a notice to rectify.
[75] In order to be able to be satisfied as to compliance in relation to work that would be covered during ... construction the Council must obviously make periodic inspections. The number and intensity of such inspections would be determined by application of the proportionality provisions of s 47.
That statutory scheme places responsibility firmly on the shoulders of councils.
[35] As Mr Goddard submitted, Parliament left the scope of the cause of action to the common law to determine. But like later parliaments it signalled to the courts that the habitation interest was of particular moment.[29]
[29] See [23] above.
[36] Mr Goddard further submitted that the scope of “amenity” in the Building Act is narrower than that of the bylaws considered in Stieller. I agree. I also note his submission that “amenity” does not appear in that part of the Building Code which deals with external moisture. That Code was brought into force by regulation concurrently with the Act. It states:
CLAUSE B1—STRUCTURE
Provisions
OBJECTIVE
B1.1 The objective of this provision is to:
(a) Safeguard people from injury caused by structural failure,
(b) Safeguard people from loss of amenity caused by structural behaviour, and
(c) Protect other property from physical damage caused by structural failure.
It provides as to durability:
Clause B2—DURABILITY
Provisions
OBJECTIVE
B2.1 The objective of this provision is to ensure that a building will throughout its life continue to satisfy the other objectives of this code.
FUNCTIONAL REQUIREMENT
B2.2 Building materials, components and construction methods shall be sufficiently durable to ensure that the building, without reconstruction or major renovation, satisfies the other functional requirements of this code throughout the life of the building.
The building consent in respect of Sunset Terraces was granted on 11 August 1997 and the final code compliance certificate was issued on 11 September 1998. Until 8 September 1997 the Code stated:
PERFORMANCE
B2.3
From the time a code compliance certificate is issued building elements shall with only normal maintenance continue to satisfy the performances of this code for the lesser of; the specified intended life of the building, if any, or:
(a) For the structure, including building elements such as floors and walls which provide structural stability: the life of the building being not less than 50 years.
...
(a) For linings, renewable protective coatings, fittings and other building elements to which there is ready access: 5 years.
Thereafter it stated:
B2.3.1 Building elements must, with only normal maintenance, continue to satisfy the performance requirements of this code for the lesser of the specified intended life of the building, if stated, or:
Performance B2.3.1 applies from the time of issue of the applicable code compliance certificate. Building elements are not required to satisfy a durability performance which exceeds the specified intended life of the building check
(a) The life of the building, being not less than 50 years, if:
(i) Those building elements (including floors, walls, and fixings) provide structural stability to the building or
(ii) Those building elements are difficult to access or replace or
(iii) Failure of those building elements to comply with the building code would go undetected during both normal use and maintenance of the building
…
(c) 5 years if:
(i) The building elements (including services, linings, renewable protective coatings, and fixtures) are easy to access and replace, and
(ii) Failure of those building elements to comply with the building code would be easily detected during normal use of the building.
B2.3.2 Individual building elements which are components of a building system and are difficult to access or replace must either:
(a) All have the same durability, or
(b) Be installed in a manner that permits the replacement of building elements of lesser durability without removing building elements that have greater durability and are not specifically designed for removal and replacement.
And to ensure protection against the entry of water the Code provided:
Clause E2—EXTERNAL MOISTURE
Provisions
Objective
E2.1 The objective of this provision is to safeguard people from illness or injury that could result from external moisture entering the building.
Functional requirement
E2.2 Buildings must be constructed to provide adequate resistance to penetration by, and the accumulation of, moisture from the outside.
(Emphasis added.)
[37] I repeat the definition of amenity, which appears in the Code as well as in the Act:
an attribute of a building which contributes to the health, physical independence, and well being of the building's users but which is not associated with disease or a specific illness.
Mr Goddard emphasised the contrast between B1, which includes amenity as a standard and E2, which does not.
[38] It is therefore necessary to consider the submission that Hamlin misconstrued the Act, not for the purpose of refusing to follow the decision, by which for practical purposes this Court is bound, but so as to consider whether we should decline to extend an unprincipled decision.
[39] On the submission just mentioned, it is not in my opinion material that the specific “external moisture” objective of the Building Code (Clause E2) is to safeguard people from illness or injury that could result from external moisture entering the building, rather than focused on amenity values. This claim is not for breach of statutory duty but for negligence. The policy of the Code is not to encourage or permit the entry of moisture that will ultimately make the building uninhabitable. It is rather to provide generally for health and safety over a 50-year period. That is consistent with the analysis of the law of tort in New Zealand discussed in the context of the first submission. Nothing in it is incompatible with the respondents’ claim.
[40] Mr Goddard took us to the two-volume report of the Building Industry Commission Reform of Building Controls on which the Act was based.[30] It included the following to which italics and underlining are added. The bold emphasis at [2.16] is original:
[30] Building Industry Commission Reform of Building Controls (January 1990).
Public expectations:
2.14People have certain expectations of the buildings they use, whether that use is public or private. Because buildings may pose a threat to their safety, health or well-being in social and economic terms, people seek assurance through some form of control that all buildings meet certain essential requirements to safeguard them from risk.
2.15Where voluntary private arrangements by building owners and the industry cannot be relied on to provide this assurance to the public, regulatory controls are imposed by Government to define building performance and procedures for compliance with essential user requirements to an extent that will satisfy reasonable community expectations.
2.16The purpose of a building control system should be to ensure that essential provisions to protect people from likely injury and illness and to safeguard their welfare, will be satisfied in the construction, alteration, maintenance in use and demolition of buildings.
2.17The commission fully supports the government view that a regulatory environment which provides incentives for people to take account of the community’s interest in their private dealings, is more likely to produce satisfactory outcomes with the resources available to them than prescriptive building controls imposed by authorities with little or no consideration of their economic impact.
2.18The purpose of the reform is to make better use of both public and private resources to regulate building activities:
· By removing unnecessary controls and costs from the regulatory system
· By encouraging initiative, innovation and progress in the industry
And thereby produce affordable buildings without jeopardising the public interest by exposing people to unacceptable risk.
…
SCOPE OF BUILDING CONTROLS
…
3.4… To satisfy the objectives of the control system as a whole, the New Zealand Building Code requires a rational and consistently applied set of principles to determine whether a user requirement should be regulated or not.
3.5The primary purpose of building control in New Zealand should be to preserve the health and safety of people.
3.6User requirements related to amenity can also have a place, because amenity can be closely associated with health. In situations where discomfort, smell, noise or inconvenience are excessive or frequent, they can eventually have adverse mental and physical consequences.
3.7Protection of the economic interests of people in getting value for money is not a justification for building controls since value and quality can be supplied through forces of the market.
3.8Every building control measure limits choice, and potentially increases the cost to the building owner. Building controls should not prohibit owners from making their own economic decisions, such as accepting higher maintenance or operating costs as a trade off for lower initial building costs, providing essential requirements are not prejudiced. Such choices are routinely made by people in the purchase of any asset.
…
IDENTIFICATION AND ALLOCATION OF CONTROL COSTS
6.11The present distribution of control tasks and costs is not likely to produce an effective response to the reforms in other areas of government activity based on fundamental principles of scrutiny, accountability and improved managerial performance.
6.12An objective of building control reform is to reduce costs in the system, and to distribute the costs and benefits of control more equitably. This will come about in a number of ways by:
· Avoiding duplication by creating a single focus for building controls;
· Reducing the extent of regulatory controls to essential safeguards;
· Providing an avenue for resolution of uncertainty and disputes;
· Clarifying the interface between building controls and other controls;
· Facilitating innovation and the application of new technology;
· Introducing alternative procedures and an element of competition in the control process.
6.13The trend towards “user pays” suggests that there should be no expectation that the practice of providing free or subsidised advice should continue. The commission is strongly of the view that hidden costs should become visible and that the principles of financial management reform should be applied throughout the building control system to assist in an equitable allocation of costs.
[41] The Report focused as well on the topic of liability for non-compliance. It stated:
4.76Qualifications of the parties in a particular case, and their liability for fault or damage in the event of non-compliance, were widely discussed with industry and government during the first phase of the government Review. Consultation by the Commission with the Industry Liaison Group and others in the light of reforms in local government, occupational regulation and changes pending in the Limitation Act 1950, confirm strong support for the principles that have shaped the recommendations on alternative procedures to assure compliance with the Code, namely:
· A statement by the producer that work carried out by or under the direction of the producer (often referred to as “self certification”), is not sufficiently reliable assurance of compliance and therefore procedures for independent review by a control authority or an outside qualified party are required.
· If a control authority is required by statute to accept a certificate from an outside independent party, it cannot remain potentially liable for work covered by the certificate.
· There should be no statutory exemption from legal liability for subsequent damage or defect due to negligence.
4.77The Commission recommends that the procedures for TAs [territorial authorities] to check compliance with the Code and issue consents, provide three options to building owners:
1by the TA checking the building proposal submitted by or on behalf of the owner and the actual work, using inhouse or external consultants;
2by the owner supplying statements from independent qualified persons that they have examined work done by others in their area of expertise and certify to its compliance;
3by a combination of these two methods for part or all of the works.
Potential liability exposure
4.78Applying the principles adopted by the commission, the alternative procedures for certification incorporated in the control system affect the potential legal liability for negligence in checking Code compliance by the parties involved:
· Statements by building producers that personal work, or work carried out under the direction of the producer, complies with the Code, are voluntary. Should the TA choose to accept such statements its potential legal liability remains intact.
· Certification by a qualified independent person (Approved Certifier) that work by others specific to his or her identified field of expertise has been checked for compliance with the Code must be accepted by the TA. The Approved Certifier assumes legal liability for any negligence that may occur in certifying compliance, with corresponding reduction in potential liability of the TA.
· Transfer of all TA duties to check compliance of the work to an independent person or body (Coordinating Certifier) may be authorised by the Minister. The Coordinating Certifier certifies upon completion of the building that within the limits or professional competence, sufficient examinations and inspections have been carried out to ensure that the building complies with the Code. This certificate must be accepted by the TA. The Coordinating Certifier would have the same legal liability in the case of negligence that the TA would have, if it had performed these control duties.
· Accreditation certificates or products and systems issued by BIA based on a technical appraisal of their performance by an independent body, and BIA rulings on type approvals of new solutions, must be accepted by the TA. BIA assumes legal liability for negligent type approvals and accreditation.
[42] While in Attorney-General v Body Corporate 200200[31] (Sacramento) this Court rejected the submission that the Act in fact imposed such liability on the Building Industry Authority, it is clear that the Act did contemplate liability as providing an incentive to achieve compliance with the Code. It was consumer-focused, and consumers who were injured would be able to sue. While the certifiers idea proved misconceived, as after a short period all went out of business, there is no reason to infer that local authorities should after the Act be exempt from the liability to which they had been subject before its enactment and under which certifiers would be liable for negligent performance of the very inspection obligation imposed on councils. The overall thrust of the advice was to accept continuing liability for negligence on councils as well as certifiers.
[31] Attorney-General v Body Corporate 200200 (Sacramento) [2007] 1 NZLR 95 (CA).
[43] So I do not accept Mr Goddard’s argument that the report assists the Council. Rather it favours the respondents. But it is only one of the pointers to be considered.
[44] Mr Goddard picked up the consumer point and argued that, if there is to be any Hamlin liability, it should be confined to consumers: those who buy and occupy the leaky building. He cited definitions of “consumer goods” and “consumer credit” in the Credit (Repossession) Act 1997, the Personal Property Securities Act 1999 and the Credit Contracts and Consumer Finance Act 2003 and also in international instruments, such as the United Nations Convention on the International Sale of Goods[32] as offering a suitable bright line. But for the reasons stated below such a test would be unworkable.[33]
[32] United Nations Convention on the International Sale of Goods (1964) 834 UNTS 107.
[33] At [69].
[45] I accept that the fine detail of the cases points in various directions. It is impossible to unravel the Gordian knot and we must decide where to cut it. The starting point remains the Hamlin decision. There Cooke P contrasted the reasonably stable New Zealand jurisprudence stated in the leading decisions Bowen v Paramount Builders[34] and Mount Albert Borough Council vJohnson[35] with the variable English authority. As to the former he said:[36]
Since Bowen in 1976 it has been accepted that a duty of reasonable care actionable in tort falls on house builders and controlling local authorities …
[34] Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA).
[35] Mount Albert Borough Council vJohnson [1979] 2 NZLR 234 (CA).
[36]At 522.
[46] While Bowen did not involve a local authority, Johnson did. It was a case with some similarity to the present, concerning a block of six flats for which the developer had engaged a designer. Both at first instance and on appeal the Council accepted that the duty of the builder in Bowen was applicable to a local authority.
[47] In Hamlin Cooke P said:[37]
The upheavals in high level precedent in the United Kingdom … have had no counterpart in New Zealand.
[37] At 522.
[48] Those upheavals, outlined in Te Mata,[38] followed (1) an initial position of no council duty,[39] moved via (2) negligent failure to protect the public health,[40] to (3) a simple Donoghue v Stevenson liability for failure to protect the house,[41] to (4) a public law duty not to act ultra vires,[42] to (5) no liability in negligence,[43] reverting to the original common law.
[38]Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460 at [23]ff.
[39] East Suffolk Rivers Catchment Board v Kent [1941] AC 74 (HL).
[40] Dutton v Bognor Regis Urban District Council [1971] 2 All ER 1003 (HC).
[41] Duttonv Bognor Regis Urban District Council [1972] 1 QB 373 (CA).
[42] Anns v Merton London Borough Council [1978] AC 728 (HL).
[43]Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] AC 210 (HL); Murphy v Brentwood District Council [1991] AC 398 (HL).
[49] It may be noted as to the English jurisprudence that Booth and Squires state:[44]
[44]Cherie Booth and Daniel Squires The Negligence Liability of Public Authorities (Oxford University Press, Oxford, 2006) at 305.
The current position is that policy restrictions on common law duties of care being imposed on local authorities have been largely removed …
Their reference is to Phelps v Hillingdon London Borough Council.[45] They continue:[46]
... the restrictions on damages claims for breach of statutory duty are based principally on policy arguments that have been rejected when applied to common law claims, yet without the courts providing an explanation of why they ought to be regarded as inapplicable to one and not the other.
Fairgrieve draws a similar message from Phelps and discerns:[47]
… [a] shift to a more nuanced consideration of policy concerns, and … a sustainable change in perspective on the part of the English judiciary. First, doubt has been cast upon the exclusionary approach, whereby public policy concerns could exclude a whole category of public service activity from scrutiny in public authority liability cases … Secondly, … the House of Lords [in Darker v Chief Constable of the West Midlands Police [2002] 1 AC 435] has demonstrated its attachment to the basic premise that those who have suffered a wrong should have a right to a remedy. Although this tenet may in some ways be seen as somewhat circular, it might perhaps be interpreted as suggesting … a presumption in favour of the justice, fairness, and reasonableness of a duty.
This does not mean that the outcome of litigation is now systematically in favour of the claimant … Instead, once countervailing public policy concerns are invoked, the courts will proceed to a fine balancing of the competing factors, with this balancing act no longer weighted heavily in favour of exclusion rather than inclusion.
[45] Phelps v Hillingdon London Borough Council [2001] 2 AC 619 (HL).
[46] At 305.
[47] Duncan Fairgrieve State Liability in Tort (Oxford University Press, Oxford, 2003) at 78 – 80.
[50] The courts must appraise the potential consequences of their decisions. Harlow and Rawlings state:[48]
The Anns case opened a floodgate. Ganz [“Public Law and the Duty of Care” [1977] PL 306] found that the leading local authority insurer had 350 similar claims costing £1.4 million. Rising claims in negligence against local authorities were ultimately to bankrupt their main insurer. She believed this might be sufficient to inhibit local authorities from exercising important statutory powers. [Ganz’s comment was “… local authorities may be left to foot the bill when development companies are wound up upon completion of the project. The Association [of Metropolitan Authorities] has suggested that developers should be charged fees to cover the cost of insuring against claims for negligent inspection. It is not self-evident that the taxpayer and ratepayer should foot the bill for failure to stop the negligence of private developers…”]. Perhaps this is partly why the House of Lords later resiled from Anns …
But they add:
Of course, there is another side of this argument. First, we must not lose sight of the Diceyan system of accountability. … Secondly, … a case which establishes a manufacturer’s liability for design faults may indirectly affect the rights of consumers …, help to introduce new safety systems and change insurance practice… it is not suggested that such cases are unsuitable for resolution by adjudication. Thirdly, we must remember that government is not necessarily impartial in representing the public interest and does not always admit good claims. The intervention of the court may then be helpful.
[48]Carl Harlow and Richard Rawlings Law and Adminstration (2nd ed, Butterworths, London, 1997) at 627.
[51] New Zealand institutions have now had fifteen years to adapt to Hamlin. It is preferable for the New Zealand courts to maintain their steady course, subject to whatever policy changes Parliament may choose to make, than to reaffix the shackles to the mutable English law that this Court rejected in Hamlin even before the Privy Council left our orbit.
[52] Indeed it is arguable that Murphy misapprehended the authorities it sought to apply. The main thrust of Murphy is the classification of the cause of action as pure economic loss and the consequential application of such cases as Cattle v Stockton Waterworks Co;[49] Simpson & Co v Thomson;[50] Société Anonyme de Remorquage à Hélice v Bennetts;[51] Weller & Co v Foot and Mouth Disease Research Institute;[52] and The Aliakmon.[53] These are the lineal forebears of Carter, Te Mata and Charterhall in New Zealand. That such an approach is not an idiosyncrasy of the common law appears from the similar approach in Austria, Germany and Portugal. Professor Christian von Bar states:[54]
Pure economic loss, i.e. compensation for damage unrelated [to] physical injury, is [not] covered [by the codes of those three states]. These codes recognise no general duty of care towards purely economic interests.
Bar adds that:[55]
The term ‘pure economic loss’, which is often difficult to distinguish from the notion of violation of property, is currently defined only in s 2 § Swedish Statute on damages of 2 June 1972 which reads: “pure pecuniary loss according to this Act is such economic loss as is not in any way connected to personal injury or damage to property”.
[49]Cattle v Stockton Waterworks Co (1875) LR 10 QB 453, discussed in Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180 at 133 – 136.
[50] Simpson & Co v Thomson (1877) 3 App Cas 279 (HL).
[51] Société Anonyme de Remorquage à Hélice v Bennetts [1911] 1 KB 243 (KBD).
[52] Weller & Co v Foot and Mouth Disease Research Institute [1966] 1 QB 569 (QBD).
[53] Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] AC 785 (HL).
[54]Christian von Bar The Common European Law of Torts (Oxford University Press, Oxford, 1999) at 49.
[55] At fn 158.
[53] The judges who decided Hamlin were well aware of the common law authorities. Their reluctance to shoehorn into the Murphy constraints habitation claims involving actual damage to property poses a question as to the true classification of the cause of action. Murphy et al turn on the hierarchy at 0 above which confers the lowest level of protection to “merely” economic interests. That classification is described by the Law Commission of England and Wales as “quite problematic”.[56] What is different about habitation claims based on loss flowing from damage to property is that the physical damage impacts to a greater or lesser extent on the right to shelter.
[56]Administrative Redress: Public Bodies and the Citizen (EWLC Consultation Paper 187 2008) at [3.169].
[54] On any measure shelter is a high-level value. Whether one takes such legal instruments as art 25(1) of the Universal Declaration of Human Rights,[57] art 11.1 of the International Covenant on Civil and Political Rights,[58] arts 30 and 31 of the Revised European Social Charter[59] or such non-legal measures as Abraham Maslow’s “Hierarchy of Needs”,[60] which ranks it with air, food, drink, and sleep, it has a value transcending the economic. New Zealand is no exception. On the contrary, in Replenishing the Earth Belich wrote:[61]
The newlands were to provide decent lives as well as decent livings. … [S]ettler populism … is still with us in the newlands, and rears up in umbrage whenever such cherished perquisites as majority house-ownership, access to the outdoors, or egalitarianism seem threatened. Crossing settlerism can still be dangerous.
[57]Universal Declaration of Human Rights, UNGA Resolution 217A (III) (10 December 1948) A/810.
[58]International Covenant on Civil and Political Rights (1966) 999 UNTS 171.
[59]Revised European Social Charter (1996) ETS 183.
[60]Abraham Maslow “A Theory of Human Motivation” (1943) 50(4) Psychological Review 370.
[61]James Belich Replenishing the Earth (Oxford University Press, Oxford, 2009) at 556-557.
[55] The same point was made at a housing workshop at the Reserve Bank by Kay Saville-Smith:[62]
[62]Kay Saville-Smith “The Prudential Lending Pathway to Decent Housing” (Reserve Bank, 9 July 2009).
There is strong evidence to suggest that the desire for home ownership by individuals and families is a rational response to four key and inter-related issues. Those are:
·The lived experience of social mobility, resource accumulation and household fluidity among New Zealand families.
·Issues of identity, attachment and belonging.
·The dynamics of the rental market in New Zealand.
·The condition and liveability of New Zealand’s rental stock.
For New Zealanders home ownership is demonstrated to be associated with improved life chances. … [T[he egalitarianism and mobility of New Zealand society was driven largely out of inter-generational transfers associated with inheritance of housing assets. Moreover, there is considerable evidence to show that where owner occupation is both normative and the mainstream experience of housing, as it is in New Zealand, that achieving that tenure status is an important part of a sense of identity, attachment and belonging. It is notable that one of the main reasons for planned residential movement in New Zealand is a change of tenure status from tenant to owner occupier.
[56] For that reason it is simplistic to say “the occupant can simply walk away”. While there are notable exceptions, as in the case of investors, in many cases there will be no material difference between owners of leaky apartments and owners of leaky houses, except that the former are likely to have fewer resources. A high proportion of their assets is likely to be locked into the premises which are leaky because of council failure to perform its obligations. That is the essential ratio of Hamlin. The fifty-year life span required by the Building Code[63] emphasises the expectation that their habitation will be sound and for a long time.
[63]Dicks v Hobson Swan Construction Ltd at [47]; Te Mata Properties Ltd v Hastings District Council at [76].
[57] In Bowen Cooke J stated:[64]
I do not see why the law of tort should necessarily stop short of recognising a duty not to put out carelessly a defective thing, nor any reason compelling the courts to withhold relief on tort from a plaintiff misled by the appearance of the thing into paying too much for it … for the purposes of disposing of the present case it is enough to say that the damage is basically physical.
[64]Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA) at 423.
While the economist may choose to describe damage to an apartment as “economic”, and that term is used in Hamlin, a court’s task is to make the characterisation that best fits all relevant values, of which the loss of investment or price of repair is only
one. Whatever may be the proper assessment in England, in New Zealand it is a misnomer to call it “pure economic loss” and an error to go on from that to apply the pure economic loss cases.[58] The arguments in this Court did not engage with the wider debate about the future evolution of public law liability in tort, touched on in Combined Beneficiaries Union Inc v Auckland City COGS Committee.[65] The topic has been discussed by Sir Robert Carnwarth.[66] He concluded:[67]
The law on this subject remains ripe for reform … In principle … where serious harm has been caused to individuals … by failure to carry out legal duties or obligations imposed upon them for the benefit of individuals, justice demands a suitable remedy for breach. For past failures the only effective remedy in most circumstances is monetary compensation. As the European Court of Justice has recognised, failure to afford such a remedy impairs the effectiveness of the law.
[65]Combined Beneficiaries Union Inc v Auckland City COGS Committee [2008] NZCA 423, [2009] 2 NZLR 56.
[66]Sir Robert Carnwarth “The Thornton Heresy Exposed” [1998] PL 407.
[67]At 422.
[59] An enthusiastic proponent of such a remedy, Tom Cornford, acknowledges in Towards a Public Law of Tort that,[68] where public and private law standards diverge, the private law negligence standard cannot usurp the role of public law in regulating the conduct of the authority. A reviewer doubts whether changes could properly be made judicially.[69] But here there is no divergence. Hamlin may be seen as just such a public law remedy. To displace it would require examination of that supplementary justification within the social context and of other perspectives. They include the French faute de service discussed in the authorities cited by Andenas and Fairgrieve in Judicial Review in International Perspective[70] and in Brown and Bell in French Administrative Law.[71] The topic is the subject of Tortious Liability of Statutory Authorities: a Comparative and Economic Analysis of Five English Cases by Markesinis, Auby, Coester-Waltjen and Deakin.[72] They are dons from Oxford and Cambridge, a professor at Paris II and a professor at the Ludwig-Maximilians University of Munich. They answer Lord Hoffmann’s suggestion in Stovin v Wise,[73] that after Anns, local inspectors insisted on “stronger foundations than was necessary”, with what they call:[74]
[68] Tom Cornford Towards a Public Law of Tort (Ashgate, Surrey, 2008) at 145.
[69] SH Bailey [2009] PL 869 at 873.
[70]Mads Andenas and Duncan Fairgrieve Judicial Review in International Perspective (2000) volume II at 336.
[71]Neville L Brown and John S Bell French Administrative Law (5th ed, Oxford University Press, Oxford, 1998) at 190.
[72]Basil Markesinis, Jean-Bernard Auby, Dagmar Coester-Waltjen and Simon Deakin Tortious Liability of Statutory Authorities: a Comparative and Economic Analysis of Five English Cases (Hart, Oxford, 1999).
[73] Stovin v Wise [1996] AC 923 (HL) at 958.
[74] Markesinis et al at 79.
… a counter-hunch, namely, that while it is possible that the post-Anns regime led to unnecessarily strong and expensive foundation, the post-Murphy situation may be encouraging sloppy verification of building calculations…
They recount the evidence from Germany:[75]
[75] At 112 – 113.
… of elaborate and long-standing discussions concerning the economic consequences of [its more demanding] liability rule, some of it empirical in nature
and that:[76]
these German debates … have, in essence, preceded the current English discussions by about one hundred years
and that:[77]
many of the policy arguments advanced in England against the imposition of liability had, again, been considered in Germany and had been rejected, in some cases many years ago … If Lord Hoffmann’s reasoning [in Murphy] were right, the German liability rules would have brought in their wake considerable economic difficulties for all German statutory authorities subject to them. Yet nothing of the sort has happened … [O]ne is forced to doubt the validity of the English fears or, at the very least, set them aside until some figures can be produced to support them.
(Italics in original.)
[76] At 113.
[77] At 113.
[60] Such reasoning applies with stronger force where:
(a)the onus must rest on the council to show cause why the settled law should be departed from;
(b)the experience of the 1991 Act is notorious.
[61] Each warrants elaboration. In Baigent’s Case[78] this Court recognised the need for a remedy for breach of the public law obligations contained in the New Zealand Bill of Rights Act 1990. What has largely escaped attention is that essentially all of the “rights” stated in that measure already existed as interests recognised by the common law. They could and perhaps should long since have given rise to a similar judge-made remedy. But in this sphere, as in others, the control by English law precedent upon the common law of New Zealand inhibited its distinctive development. The establishment of the Permanent Court of Appeal opened the way to change, beginning with Corbett v Social Security Commission.[79] The history is recounted by Jim Evans.[80] Great changes followed. Inevitably a combination of respect for English authority, habit and above all the looming authority of the Privy Council constrained the process. Nevertheless New Zealand jurisprudence has steadily matured and become responsive to our particular conditions, driven by judges with the experience and confidence to strike out in more relevant directions. Hamlin is an outstanding example of that process. It has been accepted by the New Zealand community and is a feature of our law so distinctive that any change to it should be for Parliament and not the courts. Rather than being seen as anomalous, Hamlin should be seen to point the way to a more developed jurisprudence in public law.
[78] Simpson v Attorney-General(Baigent’s Case) [1994] 3 NZLR 667 (CA).
[79] Corbett v Social Security Commission [1962] NZLR 878 (CA).
[80]Jim Evans in “Precedent in New Zealand’s Permanent Court of Appeal” in Rick Bigwood (ed) The Permanent New Zealand Court of Appeal: Essays on the First 50 Years (Hart, Oxford, 2009).
[62] It may be thought that any contemplated departure from the current common law of New Zealand should not repeat the English error of disregarding other experience. In Public Law and Democracy in the United Kingdom and the United States of America Paul Craig wrote:[81]
[81]Paul Craig Public Law and Democracy in the United Kingdom and the United States of America (Clarendon, Oxford, 1990) at 120 – 121.
A way of considering problems may develop in which the agency perceives the issues through blinkers; in which the advantages and disadvantages of certain action are unconsciously thought of in terms of the major client groups; and into which it becomes increasingly difficult to inject new data.
That may explain the failure of the English courts to move past the protection of public sector interests to a more nuanced appreciation of other issues at stake. In New Zealand it was argued in a paper published by the Law Commission:[82]
[82]New Zealand Law Commission Mandatory Orders Against the Crown and Tidying Judicial Review (NZLC Study Paper 10 2001) at [23].
the role of the State, represented by the Crown, is to safeguard and promote the interests of its citizens – as individuals and as social groups. It has no other justification … save to the extent that in serving its citizens’ needs the Crown requires to have superior powers or immunities, the status of citizens before the courts should be no less than that of the Crown as executive.
A footnote in the Commission’s paper adds:[83]
It may be argued that since the function of all state agents is to provide a public service to the community and its members, subject to such exceptions, the Crown as executive should be subordinate to the citizen.
Dicey put the same point another way:[84]
… the principles of private law have been with us so extended as to determine the position of the Crown and of its servants; thus the constitution is the result of the ordinary law of the land.
[83] Footnote 23.
[84]AV Dicey Introduction to the Study of the Law of the Constitution (8th ed, Macmillan, London, 1915) at 199.
Since the Crown’s relevant functions are performed at local level by councils the principle is the same.[85] There is no reason why they should be immune, because of their status, from the responsibility that attached to certifiers performing the same function.
[85] See Ngati Maru Ki Hauraki Inc v Kruithof [2005] NZRMA 1 (HC) at [57].
[63] The argument based on “economic” arguments is demolished by the 1991 Act’s lamentable lesson of what happens if the market is left untrammelled by law. The underlying neo-liberal theory has been influenced by one part of Adam Smith’s economic theories without regard to the important social and moral context on which The Wealth of Nations of 1776 was premised. It is set out in his 1759 essay The Theory of Moral Sentiments.[86] His keen concern for the disadvantaged is a leitmotiv which includes:[87]
... as we sympathise with the sorrow of our fellow-creature whenever we see his distress, so we likewise enter into his abhorrence and aversion for whatever has given occasion to it. Our heart, as it adapts and beats time to his grief, so is it likewise animated with the spirit by which he endeavours to drive away or destroy the cause of it.
[86] Adam Smith The Theory of Moral Sentiments (Penguin, London, 2002).
[87] At 82.
[64] The Hamlin judgments were undoubtedly actuated by a human perception of what is right for New Zealand. As a response to human distress they receive support from the research publication by Howden-Chapman, Bennett and Siebers.[88] It records an assessment that 80,000 houses built with monolithic cladding in the 1990s had leaked or would leak.[89] It advises that leaky buildings that develop mould are a major social and economic problem that remains in need of attention and that there has been a slow pace of policy progress over the past decade.[90] Associate Professor Douwes reports:[91]
There is an increasing body of evidence demonstrating a highly consistent association between home dampness and respiratory symptoms and asthma. Indoor dampness may not only aggravate pre-existing respiratory conditions, but there is (limited) evidence that it may cause new onset symptoms and asthma. Problems of dampness also occur in school buildings, daycare centres, offices and other buildings. The health risks associated with dampness-related exposures in those buildings are likely to be similar to those reported from damp houses.
[88]Philippa Howden-Chapman, Julie Bennett and Rob Siebers (eds) Do Damp and Mould Matter? Health Impacts of Leaky Homes (December 2009).
[89] At 8.
[90] At 16.
[91] At 33.
[65] The evidence in this case and in Byron Avenue provides individual examples of the distressing effect on the lives of those subjected to the phenomenon described by Professor Howden-Chapman and her colleagues. It is not evident why councils which have breached the duty placed firmly upon them by Parliament should be exempt from liability to the victims of their negligence.
[66] It is to be noted as to social context that in England the sharp edge of Murphy is blunted by legislation of which Lord Mackay LC stated:[92]
… I am of the opinion that it is relevant to take into account that [the United Kingdom] Parliament has made provisions in the Defective Premises Act 1972 imposing on builders and others undertaking work in the provision of dwellings obligations relating to the quality of their work and the fitness for habitation of the dwelling. For this House in its judicial capacity to create a large new area of responsibility on local authorities in respect of defective buildings would in my opinion not be a proper exercise of the judicial power.
[92] Murphy v Brentwood District Council at 457.
That legislation does not apply where there is an “approved scheme in place”. The vast majority of new dwellings built in the United Kingdom are accompanied by an insurance-backed warranty lasting for up to ten years.[93] That period coincides approximately with the limitation under the Building Act for claims against councils from the time of issuing a building consent or a code compliance certificate.[94]
[93] Auckland District Law Society Law News Issue 34 (18 September 2008) at 3.
[94] Building Act 1991, s 91.
[67] It is true that in the case of a rentier who sees his tenants as commercial opportunities there is little difference from the investor in a turbine.[95] We have placed an upmarket lodge and a motel in the same class. But the rentier does provide a building which Parliament has classified as:
hav[ing] as its principal use occupation as a private residence
[95] See Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA).
[68] When one looks at the individual claimants in this case and Byron Avenue, the policy behind Hamlin applies a fortiori to those who own and occupy a relatively modest apartment who may not be able to pay the higher price for a Hamlin house. They must be covered by its principle.
[69] Those who own but do not occupy are not precisely covered by Hamlin. But having considered a broad spectrum of cases I am satisfied that it would be wholly impracticable to have the duty come and go as the owner moves in and out of the apartment for shorter and longer periods. I can see no principled basis not to adopt the bright line selected by Heath J and permit claims by owners, whether or not they are in occupation, provided the intended use of the building was stated as residential in the plans and specifications submitted with the building consent application, or was known to the Council to be for that end purpose.
[70] We have heard no argument concerning the recent judgment of Potter J in the “Spencer on Byron” case,[96] which has been provided to us by counsel. For that reason and also in case it comes before this Court I make no comment upon its correctness. I note that the Judge characterised the development as:[97]
… a major multi-storied hotel, clearly a commercial building, developed and operated as such …
and, despite some residential element, applied the Te Mata and Charterhall decisions rather than Hamlin. The decision evidences the fact that, as so commonly in the law, the courts will be called upon to perform the characterising task, discussed by Mance LJ in the conflict of laws case Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC,[98] of deciding which side of the line a case falls. Commenting on that decision the authors of Dicey, Morris and Collins on Conflict of Laws (14ed 2007) conclude:[99]
... the way lies open for courts to see common-sense solutions based on practical considerations.
[96]Body Corporate No 207624 v North Shore City Council HC Auckland CIV 2007-404-4037 11 November 2009.
[97] At [95].
[98]Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC [2001] QB 825 (CA) at [27].
[99]Lawrence Collins (ed) Dicey, Morris and Collins on Conflict of Laws (14th ed, Sweet & Maxwell, London, 2007) at [2-045].
A similar approach will no doubt be required in the present class of case.
[71] It would follow, subject to the second limb of the primary submission, that the Council’s primary argument fails.
[72] That conclusion would lead me to allow the appeals by the reversionary owner in the Blue Sky case.[100] It sued both in its own right under the 182-week lease and as assignee of the rights of the owners who may or may not be occupiers. The whole of the relevant bundle of rights as owner being with Blue Sky, its case cannot be distinguished from that of any other owner and, subject to the Council’s further arguments, its appeal should succeed.
Primary submission: no duty of care for substantial development
(b) the Building Act and s 44A of the Local Government Official Information and Meetings Act 1987
[100] [102] below.
[73] The Council argued that the courts in Hamlin overlooked the effect, not only of the narrowing of the scope of the former bylaws by the terms of the Building Code but also of the enactment of s 44A of the Local Government Official Information and Meetings Act 1987. By giving a prospective purchaser access within 10 days of a request to a Land Information Memorandum (LIM) disclosing material information, it allows a decision to be made on the merits of a property without need for there to be the “general reliance” previously adopted by the common law. So that common law should be discarded and with it the duty of care of a council to a buyer.
[74] The concept of “general reliance” appears in the cases as meaning that a plaintiff does not have to show that there was any actual communication from the council which contributed to the decision to buy. Because it uses the same noun as that of specific reliance it is potentially misleading. In Stovin v Wise Lord Hoffmann stated:[101]
This ground for imposing a duty of care has been called “general reliance.” It has little in common with the ordinary doctrine of reliance; the plaintiff does not need to have relied upon the expectation that the power would be used or even known that it existed. It appears rather to refer to general expectations in the community, which the individual plaintiff may or may not have shared. A widespread assumption that a statutory power will be exercised may affect the general pattern of economic and social behaviour. For example, insurance premiums may take into account the expectation that statutory powers of inspection or accident prevention will ordinarily prevent certain kinds of risk from materialising. Thus the doctrine of general reliance requires an inquiry into the role of a given statutory power in the behaviour of members of the general public, of which an outstanding example is the judgment of Richardson J. in Invercargill City Council v. Hamlin [1994] 3 N.Z.L.R. 513, 526.
[101] Stovin v Wise [1996] AC 923 (HL) at 924.
[75] The availability of a LIM may bear on whether a buyer was careless in failing to secure the information it would have provided. But it can have no relevance to the case where, because of the Council’s breach of its statutory obligations, the LIM would not have disclosed the relevant facts.
[169] On the other hand, the reality, as the facts of the present case show, is that such a restriction would produce very arbitrary results. When a local authority carries out its statutory responsibilities under the building regime, it will not know whether any particular dwelling or unit will be acquired by an owner-occupier or by someone who is buying to lease. The way in which purchasers behave (in terms of the sort of checks which might be carried out) are unlikely to depend on whether the purchaser is an individual owner-occupier, a family trust or company which will make the dwelling available (whether for rent or otherwise) to someone connected with the trust or company, or a landlord. Further, the way in which dwellings are used may vary over time. A dwelling which is initially rented out, perhaps while the purchaser sells an existing home, may shortly afterwards be occupied by the owner.
[170] In those circumstances, I favour a simple bright line approach: the Hamlin duty applies in relation to residential developments.
Resolution of the particular questions thrown up by the appeals
Identification of the issues
[171] I see the issues on appeal as being as follows:
(a)Whether the Council owed a duty of care in relation to the development.
(b)Whether the duty extended to investor and second and subsequent purchasers.
(c)Whether on the facts of the individual cases, the damage which materialised in some cases before purchase excludes liability in relation to the particular purchasers.
(d)The Blue Sky claims.
(e)The position of the designer.
(f)Costs.
Some of these issues are, in substance, answered by what I have said already in this judgment.
(a) Whether the Council owed a duty of care in relation to the development
[172] For the reasons already given, I am of the view that the Council owed a duty of care in relation to the development.
(b) Whether the duty extended to investor and second and subsequent purchasers
[173] Likewise, for the reasons given, I am satisfied that the duty owed by the Council extended to investor and second and subsequent purchasers.
(c) Whether on the facts of the individual cases, the damage which materialised in some cases before purchase excludes liability in relation to the particular purchasers
[174] On the evidence before the Judge the first time that the sale price of a unit was affected by building defects was in June 2004. On the other hand, by either October 2002 (when the second Prendos report was commissioned) and/or January 2003 when it was received, it was clear that there were substantial problems with the development. Further, the first and preliminary Prendos report of March 2000 indicated that, at least the very least, there were problems that were “more than cosmetic and if left unrepaired will affect the structural integrity of the units”.
[175] The successful plaintiffs acquired their units before October 2002. As well, in each case, the Judge was able to conclude that relevant damage to the units they were acquiring was not manifest (at least to them). On his approach this meant that no issues of causation, intermediate inspection or contributory negligence arose.
[176] Before us, Mr Goddard noted that inquiry of the Body Corporate after March 2000 would have revealed the existence and terms of the first Prendos report. This in turn would have alerted a potential purchaser to the existence of problems which had the potential to affect the structural integrity of the units.
[177] For reasons already given, I am of the view that there is no absolute liability rule which is fatal to the claims of the purchaser/plaintiffs. Likewise, for reasons already explained, their opportunities for intermediate inspection did not serve to displace the Hamlin duty owed by the Council and are insufficient to break the chain of causation between the Council’s negligence and their losses.
[178] In reality I see Mr Goddard’s argument as being in substance a complaint that the purchasers were guilty of contributory negligence. But although contributory negligence was relied on in the High Court, the allegations did not (at least on the basis of what the Judge said) encompass the specific complaint about not seeking information from the Body Corporate and, in any event, the Judge’s rejection of contributory negligence was not challenged in argument before us.
(d) The Blue Sky claims
[179] Blue Sky (which acquired 12 units) sued the Council for negligent misrepresentation based on the LIMs which confirmed that code compliance certificates had been issued. The Judge rejected that claim on the basis that the LIMs were accurate and I agree with that conclusion.
[180] Blue Sky’s Hamlin duty claim raised more difficult issues. This claim was dismissed by the Judge for the following reasons:
(a)Blue Sky’s status in relation to the units was as a lessee and it was not within the category of homeowners to whom a Hamlin duty was owed;[133]
(b)In the case of the assigned claims of the Blue Sky investors, there was no evidence of reliance or as to inquiries undertaken by them before they purchased or their knowledge of the state of the building and accordingly causation had not been established.[134]
[133] Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC) at [346] – [362].
[134] At [363] – [377].
[181] There was also an issue which the Judge touched on as to whether Blue Sky, as the assignee of the investors, could only recover losses actually suffered by the investors. This is a potentially important point but not an easy one for us to resolve in what is a comparative vacuum as to factual findings of loss.
[182] On the first point, the Judge’s reasoning appears in the following passage of his judgment (footnotes omitted):
[358] In my view, questions of degree are involved in assessing whether a duty of care is owed to a lessee. If, for example, a unit was leased for 99 or 999 years, one could readily infer that anyone acquiring that type of non-commercial leasehold interest was using the premises as a dwelling or sub-letting it to tenants. On either view, they would have a good reason to protect their long term investment in the property.
[359] Blue Sky’s interest was both as a lessee (providing it with an opportunity of subleasing the unit for residential purposes) and as manager, for which it was paid a management fee by the owners, although Blue Sky promised to pay a rental of $470 per week to each owner and undertook responsibility to meet outgoings and attend to repairs. Its real interest was in making a profit from the management agreement. The lease was not intended to provide a long term investment for Blue Sky.
[360] In my view, the nature of the leasehold interest of Blue Sky was insufficient to place that company into the category of a homeowner of the type to whom the Council owes a duty of care based on Hamlin principles. In my view, the type of interest acquired by Blue Sky was insufficiently proximate to the Council’s obligations in relation to consent, inspection and certification to justify imposition of a duty of care.
[361] The alternative argument advanced by Mr Josephson under this head was that I should devise some basis on which Blue Sky could sue as lessee to avoid the possibility of denying a remedy to that company in circumstances in which a rational legal system ought to permit compensation to be claimed.
[362] I reject that submission. Blue Sky was part of a commercial enterprise well able to take advice on the structure of systems it marketed to individuals and from which it intended to make a profit; including any protections it required. It made a deliberate decision, contrary to the norm, to take responsibility for maintenance and repair costs even though its interest was as a short term lessee with an option to purchase. No doubt that decision was made to provide an incentive for purchasers to enter into the ARPT system, as described by Mr Bryers. None of those circumstances suggest that Blue Sky ought, for policy reasons, to have an actionable claim against the Council in respect of the interest in the land it elected to acquire.
[183] On the second point, the Judge concluded (again with footnotes omitted):
[374] But, Blue Sky’s claim must fail on causation principles. Only the loss of the true owners can be claimed. There is no evidence that any of the original owners relied on the Council’s actions to acquire the units. Rather, they seem to have bought them as part and parcel of the ARPT system described by Mr Bryers. Nor is there any evidence of the inquiries undertaken by the assignors before they purchased, including their knowledge of the state of the building at the time of acquisition.
[184] Collectively Blue Sky and the investors held what could fairly be regarded as full ownership interest in the 12 Blue Sky units. And, although their investment ambitions and strategies were different in degree from those of the investor plaintiffs who succeeded, they were not necessarily really different in kind (at least if analysed at sufficiently high level of generality). All investors were seeking to obtain economic advantages from residential property investment deriving from intermediate rental income and eventual anticipated capital appreciation. Given the importance I place on a bright line, I am not attracted to an approach to duty which depends on a nuanced (and necessarily unpredictable) assessment of the precise nature of the commercial ambitions of investor purchasers. Indeed, there is no logical reason why the Council’s duty which encompassed inspections made before Blue Sky purchased, should be retrospectively negated because of what later happened (in terms of sales of units to a purchaser with a complex business model).
[185] I am also of the view that there was no need for the Blue Sky investors to give evidence of personal reliance, this because the Hamlin duty rests on notions of general rather than particular reliance.
[186] I would accordingly allow the Blue Sky appeals.
(e) The position of the designer
[187] The claim against the designer provides a practical context for my unwillingness to accept that a local authority’s Hamlin duty is displaced where a professional designer is involved and/or liable.
[188] The designer’s retainer was limited and the resulting design was undoubtedly skinny in terms of detail. This is in part because it rested on the assumptions that the builder would conform to manufacturers’ specifications and construct the building in a workmanlike manner. Also material was that the developer was only prepared to pay for the level of detail actually provided (in effect what would be required to secure a building consent). I agree with both Heath and Baragwanath JJ that the designer was not relevantly negligent. In the circumstances of this case, I regard the limited scope of the contract as an answer to any claim in negligence.
[189] I just note, however, that this finding and the factual basis which underpins it are entirely collateral to the merits of the dispute between the end-purchasers and the Council. Those end-purchasers could have had no idea of the extent of the retainer between the developer and the designer in relation to the design. Nor could they have known whether that retainer extended to supervision of construction and, if so, how much supervision. On the other hand, those end-purchasers might be thought to have at least a general awareness of the Council’s regulatory responsibilities which in this case, because a building certifier was not involved, extended to compliance inspections.
[190] I have had rather more difficulty about the second aspect of the alleged liability of the designer, that is the certificate of practical completion which he provided in relation to the unit acquired by Mr Devlin.
[191] Under the agreement for sale and purchase in relation to the unit, the vendors were contractually required to complete the unit:
in a proper and workmanlike manner and to a high standard substantially in accordance with the Plans and Specifications and the provisions of the Building Act 1991 ... .
The settlement date was defined by reference to “the date of Practical Completion”. That expression was defined in this way:
“Practical Completion” means the stage in the construction of the Development when the Unit and the Common Facilities are substantially complete so that they are capable of being used by the Purchaser for the purposes for which they were intended without material inconvenience notwithstanding that there may be items of a comparatively minor nature which may require finishing, alteration or remedial action and notwithstanding the fact that any other unit or part of the Development may not have achieved Practical Completion at that time.”
[192] Also of contextual materiality are the contractual provisions as to settlement:
16.2 At least five days prior to the Settlement Date the Vendor shall invite the Purchaser to carry out an inspection of the Unit. Following such inspection, the Purchaser shall confirm to the Vendor in writing that either:
(a) The Unit is completed in accordance with the Plans and Specifications; or
(b) There are specific outstanding matters to be completed in accordance with the Plans and Specifications (such notice to specify such outstanding matters).
16.3 In the event of any outstanding matters in terms of clause 16.2(b), the Vendor shall use its best endeavours to complete such matters prior to the Settlement Date. In the event that such matters are not completed on or before the settlement date the Vendor warrants to complete such matters as soon as reasonably practicable after the settlement dat. A certificate of completion by the Vendor’s architect will be conclusive evidence of completion of any outstanding matters.
[193] Drawing these threads together:
(a)The vendors were required to complete the unit in a workmanlike manner and in conformity with the Building Act.
(b)The obligation on the purchaser to settle was subject to Practical Completion of the unit in the sense that unless and until the unit was practically complete, the purchaser did not have to settle.
(c)This concept was defined by reference to the stage of construction rather than a formal certificate.
(d)An assertion of Practical Completion in the context of this contract extended to an assertion that the unit could be occupied without “material inconvenience” and that any outstanding items were of no more than a “comparatively minor nature”.
(e)The cls 16.2 and 16.3 processes arose post-Practical Completion and was thus intended to address only deficiencies of a kind which would not be inconsistent with Practical Completion.
[194] The certificate of practical completion was sent to Mr Devlin’s solicitors on 19 May 1998 and this in turn set in train the ultimate settlement of the transaction. In relation to this there was something of a hiccup over the state of completion of the tennis court and swimming pool but Mr Coughlan provided a further certificate of practical completion in relation to the court and pool. On 4 June 1998, Mr Devlin’s solicitor faxed to him the two certificates of practical completion and an interim code compliance certificate and he instructed him to proceed to settlement.
[195] In the High Court, Heath J dismissed Mr Devlin’s claim against the designer:
[551] The only evidence of receipt of a copy of a certificate of practical completion by any of the owners whom I have held can sue is Mr Devlin. He deposes that on 19 May 1998, his solicitor received a facsimile, from the developers’ solicitors enclosing a copy of the certificate. Mr Devlin’s solicitor took issue with the certificate because some common facilities were not completed. On 26 May 1998 Mr Devlin was invited, by the solicitors representing the developer, to undertake a pre-settlement inspection of the unit. He appears to have received a copy of the May 1998 certificate.
[552] Mr Devlin does not say, in explicit terms, that he relied upon the practical completion certificate to complete his acquisition of the unit. I hold that the proximity between Mr Devlin and the designer was insufficient to give rise to a duty and, in any event, that any loss suffered would be too remote to be claimable.
[553] Unlike the Council’s obligations to inspect and to certify code compliance, there can be no community expectation on a designer to certify practical completion. Thus, it is necessary to prove actual reliance in order to establish that any loss has been suffered as a result of negligence of the designer in these circumstances.
[554] Accordingly, the claims against the designer based on negligent preparation of certificates of practical completion fail. It is unnecessary for me to determine whether the certificates were or were not prepared and signed negligently.
[196] I do not agree with this reasoning.
[197] Mr Coughlan’s 19 May 1998 certificate of practical completion certified a state of affairs which did not exist. The unit had not been completed to the point where it could be used without “material inconvenience” and the items which required “finishing, alteration or remedial action” were distinctly not of “a comparatively minor nature”.
[198] Mr Coughlan in fact was not in a position to give conscientiously this certificate because he had had no supervisory involvement with the construction phase of the development. He was thus giving a certificate as to something he did not know.
[199] Mr Coughlan claimed in his brief of evidence that he thought that the certificates were required for the purposes of the developer’s finance company and denied knowing that they were to be shown to purchasers. The certificates he provided were in a form which had been dictated to him by the developer (who, I interpolate, had taken it from the definition of Practical Completion in the contract). Given that the certificate is thus written in form which is referable particularly to the interests of purchasers, Mr Coughlan’s assertion as to his awareness (or unawareness) of its intended use is not particularly plausible. In this regard, I note that in cross-examination he was less emphatic than in his written brief as to his contemporary understanding of the parties who would be shown the certificates. In any event, from my point of view, the critical point is that the certificates were to be shown to (and presumably relied on by) third parties and he knew that.
[200] I have no difficulty concluding that:
(a)The designer owed a duty of care to the third parties to whom the certificates were to be shown (in this case Mr Devlin);
(b)The certificates were false; and
(c)They were given negligently.
There is, however, rather more difficulty with reliance.
[201] In his evidence, Mr Devlin placed rather more significance on the Council’s code compliance certificate rather than the designer’s certificates of practical completion. In the narrative part of his written brief he simply referred to receipt of the 19 May 1998 certificate as part of the chain of events which resulted in settlement. Later, however, he referred to the sequence of events which occurred on 4 June 1998 in terms of his solicitor faxing him the two certificates of practical completion and the code compliance certificate which resulted in him instructing him to proceed with settlement. As well, he said:
I relied on Mr Barton’s representation that he was building a superior development when I entered into the agreement to purchase the Unit. I also thought that I had protected myself by ensuring a Practical Completion Certificate and a Code Compliance Certificate had been issued for the Unit before settling the purchase.
There is also the evidence which Mr Devlin gave in cross-examination which is referred to by Baragwanath J at [127].
[202] I am left with the impression that the Judge overlooked the significance of context provided by the settlement arrangements both as contemplated by the contract and as implemented by the solicitors. He also, on my impression, overlooked the admittedly general assertions of reliance made by Mr Devlin in his evidence.
[203] In my view there was reliance and accordingly I am of the view that the designer is liable to Mr Devlin.
(e) Costs between the plaintiffs as a whole and the Council
[204] We heard argument as to the orders for costs made in the High Court. Those arguments, however, have been substantially overtaken by the respects in which we have differed from Heath J. Issues as to costs in the High Court must therefore be reserved for further consideration.
ARNOLD J
[205] I have read the judgments of William Young P and Baragwanath J in draft. I agree with the conclusions they have reached as to the outcome of the appeals, for the reasons given by William Young P. I will make only four brief additional comments.
[206] First, the present appeals are concerned with one residential development in Auckland that is afflicted by leaky home syndrome. While important to those involved, they represent a small part of a very large problem. Taken with the Byron Avenue appeal, they show why a problem of the size and nature of that resulting from leaky home syndrome is unsuitable for resolution by means of litigation but requires some other, more comprehensive solution.
[207] Although the full impact of leaky home syndrome is not yet clear, there is no doubt that a great many residential properties in New Zealand are or will be seriously affected by it. The majority are in Auckland but there appear to be many in other locations as well.
[208] It is also plain that the leaky home problem is the result of what can fairly be described as systemic failure, occurring at all levels within the building industry, in both the public and private sectors. As has been detailed in my colleagues’ judgments, the Building Industry Commission’s report, Reform of Building Controls,[135] recommended an approach to building controls which moved away from the existing highly prescriptive code to a performance-based code which focused on the preservation of the health and safety of occupants and protection of neighbouring properties rather than on the protection of property owners’ economic interests in the properties being built. The focus on performance would, it was thought, allow for greater innovation in building methods. Market forces would operate to ensure that owners received value for money, and owners could protect their interests in their properties through insurance arrangements if they chose. Territorial authorities would be subjected to the discipline of competition from private sector building certifiers, who would be required to hold public liability insurance to protect the interests of homeowners. These recommendations were made after a lengthy and highly consultative process.
[135] Building Industry Commission Reform of Building Controls (January 1990).
[209] In the Building Act 1991 Parliament accepted the philosophy underlying the Report and largely adopted its recommendations. However, the Act did not produce the outcomes anticipated. Market forces, compliance regimes and insurance arrangements did not in fact operate to protect the interests of homeowners and prevent the construction, on a large scale, of residential properties that are not weather-tight. The sheer size of the problem points to systemic failure rather than simply failures by individual players within the industry.
[210] In this context, litigation, which looks to impose responsibility on particular actors for particular consequences on the basis of legal principles, cannot offer a sufficient solution. Systemic failure of the type that has occurred will not necessarily result in legal liability being imposed on all the entities which have had some part to play in the failure, even though they bear some responsibility (in a moral sense) for what has occurred. By way of illustration, although this Court held in Sacramento[136] that the Building Industry Authority (BIA) owed no duty of care to purchasers of residential properties, it nevertheless accepted that the BIA had the power to intervene to eliminate or reduce practices that produced leaky home syndrome and said that it was at least arguable that the BIA had been negligent in the performance of its role.[137] The policy factors which led the Court to say that the BIA should not be legally liable to home owners may, from a legal perspective, be compelling, but they do not purport to answer the larger question, namely whether the BIA bears some general responsibility for what has occurred.
[136] Attorney-General v Body Corporate 200200 (Sacramento) [2007] 1 NZLR 95 (CA).
[137] At [58] – [59].
[211] If it is accepted first, that a very large number of homeowners are or will be affected by leaky home syndrome and second, that it results from systemic failure across public and private sector elements of the building industry, it becomes clear that this problem has at least some of the characteristics of what Professor Fuller[138] described as a polycentric problem, unsuitable for resolution by adjudication.[139] Professor Fuller’s theory has proved controversial[140] but one does not need to accept it in its entirety to accept that it has force in the present context.
[138] Lon L Fuller “The Forms and Limits of Adjudication” (1978) 92 Harv L Rev 353.
[139]By a polycentric problem, Fuller meant a problem that involved “many affected parties and a somewhat fluid state of affairs”. Where there are many “interacting centres”, a change to one will communicate itself to others in a complex pattern and this renders the dispute unsuitable for adjudication: at 397.
[140]For a useful discussion see John Allison “Fuller’s Analysis of Polycentric Disputes and the Limits of Adjudication” (1994) 53 Camb L J 367.
[212] There is little doubt that litigation is a poor instrument to provide appropriate remedies to people affected by large-scale systemic failure of the type that has occurred. For example:
(a)Generally speaking, courts are confined to determining the specific issues that particular proceedings raise, certainly where private law claims are made. They are unable to undertake a holistic or comprehensive assessment of the underlying problem, much less to impose a comprehensive solution on all involved. In this context, litigation is piecemeal and ill-directed.
(b)Whether individual purchasers will be able to obtain relief depends on factors which have nothing to do with their individual merits. For example, whatever legal remedies may theoretically be available, an innocent purchaser whose property was inspected negligently by a private sector building certifier is likely to be in a far worse position than a similar purchaser whose property was inspected negligently by a territorial authority. It is clear that most building certifiers against whom claims might have been made have gone out of business and their insurance arrangements provided wholly inadequate protection for homeowners. (The same observation applies to most developers, builders, architects and designers.) By way of further example, William Young P has referred to the ten-year long-stop limitation period.[141] Whether a particular purchaser whose property suffers from leaky home syndrome falls within or without the period may well be a matter of chance. In other words, relief through legal proceedings will be available on a haphazard basis, not reflective of underlying merits. It is surely unacceptable that access to relief should be determined by happenstance rather than by merit.
[141] See [163] above.
[213] Against this background the only realistic solution is one which is comprehensive in its coverage and to which all who bear some responsibility for what has happened contribute. Given that many from the private sector have gone out of business, the burden may ultimately fall substantially on central and local government, but each has played a contributing part. This may be the price that we are all, as taxpayers and ratepayers, obliged to pay for remedying the results of a regulatory construct that simply did not work as envisaged.
[214] Second, one of the recommendations from the BIA’s Report that was not implemented concerned the establishment of a Building Guarantee Scheme for newly-built residential accommodation.[142] This was intended to provide indemnification to owners of residential accommodation for building defects, up to a prescribed limit, without the need for recourse to the courts. Had such a scheme been implemented it may have limited the extent of the leaky homes problem (by placing an additional discipline on builders/developers) and would have gone some way to meeting leaky homes problems as they arose by providing prompt indemnification for remedial work, rather than allowing moisture ingress problems to run on and cause further damage, as has occurred.
[142] See Appendix 7 to the Report.
[215] With hindsight, the BIA’s faith in market forces to ensure that owners received value for money seems to have been misplaced for a number of reasons, one being the ability of builders/developers to operate through single project companies that could be wound up on completion of the project and another the failure of insurance arrangements to protect homeowners. But the establishment of a Building Guarantee Scheme would have ameliorated that, at least to some extent. This illustrates, perhaps, the dangers of adopting part only of an integrated set of recommendations for reform.
[216] Third, I agree with William Young P that the Court should endeavour to adopt an approach in this area which is relatively simple and straightforward to apply. Complexity resulting from refined distinctions (based, for example, on purchasers’ intentions) are undesirable and should be avoided if possible. This is of particular importance in relation to the Blue Sky claims. In assessing whether a territorial authority should as a matter of principle be liable for a negligent failure to perform its inspection or other functions in respect of residential properties, it makes little sense to distinguish between different purchasers in the same residential complex.
[217] This brings me to the Blue Sky claims. Heath J held that Blue Sky was not an “owner” within the meaning of s 2 of the Building Act[143] and did not have standing to sue based on its leasehold interest in the units at issue.[144] However, the Judge accepted that Blue Sky had standing to sue as the assignee of the owners’ rights, although he dismissed Blue Sky’s claims on the basis that the owners had not established that they had sustained any recoverable loss. This was because there was no evidence that they had relied on the Council’s actions when acquiring the units.[145] I agree with Heath J that Blue Sky’s standing to sue arises from its position as assignee, rather than from the nature of the leasehold interests that it held or from its being an “owner”, for the reasons he gives. However, like William Young P and Baragwanath J, I consider that the Council is liable to the owners and therefore to Blue Sky.
[143] At [355].
[144] At [360].
[145] At [374] – [377].
[218] Finally, an issue which we address in the related Byron Avenue[146] appeal concerns whether any reduction should be made on account of contributory negligence where a purchaser sells an apartment to a related party after damage from moisture ingress has manifested itself. This occurred in the present case when Mr Devlin sold his apartment to Devlin Properties Ltd after he had become aware of the leaky building issues, and discounted the price by $40,000 to take account of the likely cost of repairs. However, only Mr Devlin sued the Council – Devlin Properties Ltd was not a party to the claim. Accordingly, the particular issue that arises in the Byron Avenue case is not squarely raised in the present case.
[146] Byron Avenue [2010] NZCA 65.
[219] Accordingly I too would dismiss the Council’s appeal and allow the Blue Sky appeal in CA673/2008. I would allow the appeal by Mr Devlin against the designer based on the certificate of practical completion in CA66/2009.
Solicitors:
CA673/2008
Heaney & Co, Auckland for Appellant
Grimshaw & Co, Auckland for 2nd, 3rd, 4th and 9th named Second Respondents
CA66/2009
Grimshaw & Co, Auckland for 2nd, 3rd, 4th and 9th named Second Appellants
Heaney &Co, Auckland for First Respondent
Kidd Tattersfield Maclean, Auckland for Third Respondents
26
6
1