Swordfish Co Limited v Buller District Council

[2012] NZHC 2339

IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY

CIV 2011-418-000143 [2012] NZHC 2339

BETWEEN  SWORDFISH CO LIMITED Plaintiff

ANDBULLER DISTRICT COUNCIL Defendant

Hearing:         6 August 2012

(Heard at Christchurch)

Counsel:         G M Downing for Plaintiff

N Till QC and A Prebble for Defendant

Judgment:      12 September 2012

JUDGMENT OF WHATA J

Introduction

[1]      The Buller District Council (“BDC”) sought to strike out the statement of claim by Swordfish Co Limited.  Swordfish alleges that BDC owed it a duty to take reasonable care in issuing a certification under s 224 of the Resource Management Act 1991 (“RMA”) and  a duty to take reasonable care in issuing and  ensuring registration of a consent notice.  In a second cause of action, Swordfish also alleges that BDC owes it a statutory duty and has breached that statutory duty in the same way as it is said to have breached a duty of care.

[2]      Associate Judge Matthews was doubtful that the claims would succeed, but considered  he must approach  the case with extreme caution;1  and resolved that evidence might assist in determining whether it is fair, just and reasonable to hold

that a duty of care existed.

1      Swordfish Co Limited v Buller District Council [2012] NZHC 1081 at [62].

SWORDFISH CO LIMITED V BULLER DISTRICT COUNCIL HC GRY CIV 2011-418-000143 [12

September 2012]

[3]      I  must  assess  whether  the  Judge  approached  the  threshold  assessment correctly, and if not, I must still determine whether a duty of care exists or might exist, assuming the facts alleged are true.

The background facts2

[4]      On 12 June 2006, Christoni Properties Limited was granted resource consent for a three-stage subdivision.  Under s 108 of the RMA the BDC imposed a number of conditions, including:

(a)      Condition  1.1.5  requiring  that  all  works  and  certifications  for earthworks, earth fill and flood mitigation for all stages of the subdivision (including conditions 4.1 and 4.8) are to be completed and complied with before completion of Stage 1 of the subdivision.

(b)Condition 4.1 requiring all subdivision earth fill to be undertaken in accordance with NZS 4404:2004 and NZS 4431:1989.

(c)      Condition  4.5  requiring  that  certification  is  provided  from  the Subdivision Engineer that all lots and land within the entire subdivision have been filled and developed to provide protection from a 2% AEP flood event, plus 0.15 metres freeboard.

[5]      A  report  dated  October  2007  had  identified  various  issues  with  non- compliance with the requirements of NZS 4431 relating to fill.  However, Appendix A to the same report suggests that there has been compliance.   In April 2008 a surveyor  for  Christoni  Properties  Limited  wrote  to  the  senior  planner  of  BDC advising that certain conditions on the resource consent had been complied with.  A request for a s 224(c) certificate was made and the senior planner was asked to release the s 224(c).  It appears that it was issued at 2.42 pm on 17 April 2008 for Stage 1.

[6]      The relevant certificate states:

2      Ibid, at [9]-[17].

Pursuant to Section 224(c) Resource Management Act 1991 I hereby certify that some of the conditions of the subdivision consent have been complied with to the satisfaction of the Buller District Council and that a consent notice has been issued in respect of those conditions that have not been complied with.

[7]      A consent notice in relation to Stage 1 (only) of the subdivision was also executed on that day stating:

(a)       This site has been subject  to  earth  disturbance and may contain unconsolidated fill.

(b)      Engineered designed foundations may be required for any building on this lot, subject to a site-specific assessment.

(c)       Prior to applying for building consent, scala penetrometer testing of the building site is required in accordance with NZS 3604; 1999

Timber Framed Buildings.

[8]      It then happens that Swordfish purchased the land comprised within Stages 2 and 3 of the proposed subdivision in late 2010 without notice of any non compliance.

The pleadings

[9]      The frame for this debate is set by the claims as pleaded. Given their central importance I set out the most salient parts of them:

First Cause of Action:  Negligence

16.The Defendant owed a duty to take reasonable care in issuing the s224 Certificate.

17.The Defendant owed a duty to take reasonable care in issuing and ensuring registration of the Consent Notice.

18.The Defendant owed a duty to take reasonable care to warn potential purchasers and future owners of the Stage 2 and Stage 3 land of:

(a)      the inadequate fill;

(b)      the lack of flood protection;

(c)      the non completion of the Subdivision Consent conditions for fill and flood protection

(“the inadequate land fill and flood protection problems”).

19.Such duties were owed to potential purchasers and future owners of the Stage 1 land and the Stage 2 and Stage 3 land.

20.      The Defendant breached such duties of care.

Particulars:

(i)        Issuing the s224 Certificate for Stage 1 when the Earth Fill and Flood Protection Conditions for the Stage 2 and Stage 3 land had not been completed nor complied with, and in breach of Condition 1.1.5 of the Resource Consent; and/or

(ii)      Failing to obtain Engineer’s Certification that the property had been raised to the level required to meet the Flood Protection Condition; and/or

(iii)      Failing  to  amend  the  Resource  Consent  conditions  by deleting condition  1.1.5  Resource  Consent  as  part of  the issue of the s224 Certificate for Stage 1; and/or

(iv)      Issuing a Consent Notice for the Stage 1 properties when the earth fill and flood protection work for the Stage 2 and Stage

3 land had not been completed; and/or

(v)       Failing to require or issue a Consent Notice over the Stage 2 and Stage 3 land relating to the Earth Fill and Flood Protection Conditions not having been met at Stage 1 on such Stage 2 and Stage 3 land; and/or

(vi)      Failing to take reasonable steps which would have alerted a potential purchaser or future owner of the Stage 2 and Stage

3  land  of  the  inadequate  land  fill  and  flood  protection problems with the Stage 2 and Stage 3 land.

[10]     The second cause of action, helpfully succinct, simply pleads:

Second Cause of Action: Breach of Statutory Duty

The Plaintiff repeats the above paragraphs and says:

23.      The Plaintiff’s actions amount to a breach of statutory duty. Particulars:

(i)       Section 224 Resource Management Act; and/or

(ii)      Section 221 Resource Management Act.

24.As a result of such breaches the Plaintiff has suffered the losses set out above.

[11]     A further  claim  based  on  negligent  misstatement  is  not  challenged  and therefore I do not consider it further.

The judgment under review

[12]     Associate   Judge   Matthews   adopted   the   orthodox   principle   that   the jurisdiction to summarily dismiss an action is to be sparingly employed.3

[13]     The Judge stated that the question of whether it is fair, just and reasonable to hold that a duty of care is owed is conventionally addressed in terms of proximity and policy.  After identifying the relevant facts, the Judge adopted the classification of factors identified in Harbourcity Developments Ltd v Owen4  for the proximity assessment.   He observed that it is strongly arguable that there is insufficient proximity between the applicant and the respondent for a duty of care to the respondent to be found to exist.  He relied on:

(a)      A lack  of  analogy  to  other  situations  where  proximity  has  been established;

(b)The expectation that intending commercial developers in land acted upon advice from relevant professional disciplines and that burden should  not  be  shifted  to  the  local  authorities,  who  are  reliant  on consent holders to provide the relevant information;

(c)       The nature of the claim is economic;

(d)The statutory and contractual background defining relationships does not support a finding of strong proximity.

[14]     In terms of the policy issues, the Judge observed that nothing in the RMA

supports the imposition of a duty of care in relation to the exercise of the applicant’s

function under s 224.5

3      Relying on Attorney-General v Prince [1998] 1 NZLR 262 (CA) and Couch v Attorney-General

[2008] NZSC 45, [2008] 3 NZLR 725.

4      Harbourcity Developments Ltd v Owen HC Auckland CIV 2006-404-1400, 30 March 2007. The factors are: analogy, vulnerability, nature of loss and statutory background.

5      Swordfish Co Limited v Buller District Council, above n 1, at [57].

[15]     Notwithstanding  his  misgivings,  the Associate  Judge  considered  he  must approach the case with extreme caution.6   The Judge identified distinct points from which more evidence would give a Court at trial a much firmer basis upon which to make a finding as to whether it is fair, just and reasonable to find a duty of care, given proximity and policy considerations.  In particular he identified the following matters as requiring evidence:

(a)      The process followed by the local authority upon application for a certificate under s 224(c) – he noted that the assessment of whether a duty of care exists should not proceed on an assumption about the role played by councils through this process;7

(b)Whether  it  is  usual  practice  to  require  full,  or  virtually  full, compliance with conditions before issuing a s 224 certificate and to leave only minor conditions subject to a consent notice;

(c)      The potential cost to local authorities of discharging a duty of care and whether a condition laying that cost on applicants could be imposed by councils.

[16]     The Judge concluded that  on  balance,  and  notwithstanding the views  he expressed  in  relation  to  the  likelihood  of  the  claim  succeeding,  the  limitations inherent in summary consideration of a novel duty of care compelled him to decline the application to strike out.8

Grounds for review

[17]     The essential grounds of review are (in summary):

(a)       The Judge applied the wrong threshold test of “extreme caution”;

6 Ibid, at [62].

7      Ibid.

8 Ibid, at [67].

(b)The  matters  identified  by  the  Judge  for  further  investigation  are irrelevant to whether a duty of care exists;

(c)       The Judge failed to have regard to the negative aspects of going to trial.

[18]     Overall the question to be resolved is whether BDC is subject to a duty to prospective purchasers of subdivisions to take reasonable care in the exercise of functions under s 224 of the RMA.

Jurisdiction

[19]     This is an application to review the Judge’s decision.  It is not an appeal.  But the primary challenge is to the legality of the Judge’s decision on assumed facts and that is amenable to my direct consideration.  However, if I agree with the Judge that there is an arguable case in law in favour of a duty of care, then due deference should be accorded to the residual discretionary assessment to allow the matter to proceed to full trial and for the reasons given.

Submissions for BDC

[20]     I am grateful to BDC for its fulsome submissions, including the statements of applicable principle.9     But BDC’s argument can be fairly reduced to some core propositions:

(a)       First, the certification procedure under s 224 is designed to further the sustainable  management  purpose,  not  to  protect  the  commercial

developers from economic loss.10

9      Including the following propositions:

(a) A Council does not owe a duty of care to protect a person from suffering financial losse s as a result of the performance of regulatory functions (refer Tepko Pty Ltd v Water Board [2001] HCA 19 at 25-26);

(b) Nor is there a duty of care in interpreting plans or making planning decision (refer Morrison v Upper Hutt City Council [1998] 2 NZLR 331 at 338 (CA));

(c) There can be no liability for mere illegality, or for acts or omissions made during a quasi- judicial process (refer Baker v New Plymouth District Council [1996] DCR 709; Smaill v Buller District Council [1998] 1 NZLR 190 (HC) at 206).

10     Relying on Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [44];  see also Bella Vista

(b)Second, to the extent that existing case law is relevant,11  the duty of care is directed to protecting ordinary homeowners, not to persons in the business of subdividing land.12

(c)      Third,  there  are  strong  policy  considerations  which  negative  the potential existence of a duty in this class of case, including the limited function performed by Councils, and the vulnerability of Councils to actions of developers who carry the responsibility of complying with

conditions of consent.13

(d)Fourth, the matters identified by Associate Judge Matthews for further consideration address policy considerations that might militate against the imposition of a duty; they do not address or overcome the absence of proximity.

Submissions for Swordfish

[21]     The Swordfish submissions are equally fulsome and helpful.    In essence, Swordfish submits:

(a)      Associate Judge Matthews adopted the correct threshold tests for the purposes of strikeout, and the three points for further enquiry are policy  considerations  relevant  to  the  existence  of  a  duty  of  care, breach and damages.

(b)The Building Act cases relied upon by BDC to reject a duty of care are  not  apposite,14   except  to  the  extent  that  they  demonstrate  the

Resort Ltd v Western Bay of Plenty District Council [2007] 3 NZLR 429 (CA) at [25].

11     Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC); Shaddock & Associates Pty Ltd v

Parramatta City Council (No 1) (1981) 150 CLR 225 (HCA).

12     Three Meade Street Ltd v Rotorua District Council [2005] 1 NZLR 504 (HC); Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA); Te Mata Properties Ltd v Hastings  District  Council  [2008]  NZCA  446;  Marina  Holdings  Ltd  (in  rec)  v  Thames-

Coromandel District Council (2010) 12 NZCPR 277 (HC);  Queenstown Lakes District Council

v Charterhall Trustees Ltd [2009] 3 NZLR 786 (CA).

13     Attorney-General v Carter, above n 9.

14     Brown v Heathcote County Council [1986] 1 NZLR 76 (CA); Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC); North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158; Marina Holdings Ltd (in rec) v Thames-Coromandel District Council (2010)

potential  for  a  duty  of  care  to  be  imposed  in  the  context  of  the exercise of statutory functions.   Unlike the Building Act context, it was entirely open to the Council to refuse any s 224 certificate and/or to impose consent notices.

(c)      An analogy may be drawn to cases based on the negligent failure to provide an accurate land information memorandum (LIM), citing Marlborough  District  Council  v  Altimarloch  Joint  Venture  Ltd.15

Purchasers of subdivisions or subdivided lots are reliant on Council performing an essentially administrative function under s 224 and to accurately notify non compliances in much the same way that they rely on accurate LIMs.

(d)The policy matters affecting the imposition of a duty of care involve discretionary assessments best determined at the substantive hearing. The Council is much better placed to assess whether or not the subdivision complies with consent conditions. And in fact, Swordfish did extensive research and checks in relation to the property at source, but was unable to uncover the errors notwithstanding such due diligence.

(e)      An imposition of a duty of care to prospective purchasers is consonant with   the   attainment   of   the   sustainable   management   purpose; including, among other things, enabling people and communities to provide for their economic wellbeing, together with the management of adverse effects on the environment.

(f)      The  private   residential   landowner/commercial   owner  dichotomy derives  from  a  concern  about  the  vulnerability  of  the  owner  in

question.16     In  this  particular  case  the  plaintiff  is  said  to  be

12 NZCPR 277 (HC);  Queenstown Lakes District Council v Charterhall Trustees Ltd [2009]

3 NZLR 786 (CA); Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA); Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446; Three Meade Street Ltd v Rotorua District Council [2005] 1 NZLR 504 (HC).

15     Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11.

16     This is said to align with a central component to the decision in   Couch v Attorney-General

significantly  more  vulnerable  than  the  Council.     Secondly,  the proposed subdivision was a residential subdivision.

[22]    Overall the plaintiff submits that the policy considerations identified by Associate Judge Matthews are necessary to decide whether it is fair, just and reasonable to find a new duty of care.   They are directly relevant  to  issues of vulnerability and reliance, the scope and effect of any such duty and the capacity of Councils to discharge that duty.

[23]     Finally,  it  is  submitted  that  a  holistic  assessment  is  required  given  the complexity of the issues confronting the Court, which calls for a substantive hearing on the matters.

Assessment

Strike out principles

[24]     The principles applying to strike out applications are well settled and there is little dispute between the parties about them.  In short, as BDC submits:

(a)      The Court usually assumes that facts pleaded are true, but it is not required to do so if the allegations in the pleadings are entirely speculative and without foundation;

(b)The causes of action must be so untenable that they cannot possibly succeed;

(c)      The jurisdiction is to be exercised sparingly, and only in clear cases, where the Court is satisfied it has the requisite material; and

(d)The jurisdiction is not excluded where the application raises difficult questions of law, requiring extensive argument.

[2008] 3 NZLR 725 (SC) where the Court resolved to impose a duty of care in circumstances where individuals cannot take steps for their own protection or where social conditions have led individuals to rely on performance of statutory responsibilities.

[25]     I also accept the BDC’s submission that:17

The Courts are especially slow to strike out claims in negligence which assert novel duties of care (recognising “the factually sensitive nature of the inquiry”) but they must also take into account the competing consideration that a defendant ought not be subjected to the substantial (and often unrecoverable) cost of defending untenable claims, particularly in public law negligence cases.

[26]     While the Judge referred to “extreme caution,” given that he relied on leading authority,18  I am not prepared to proceed on the basis that he applied an unduly anxious approach to the threshold test.  I therefore turn simply to consider whether on the facts as pleaded, there is or might be the alleged duty(s) to take care.

[27]     I turn now to consider whether the causes of action are so untenable that they cannot possibly succeed.

Duty of care methodology

[28]     I can see no obvious error in the methodology adopted by the Judge to determine whether there is or might be a duty of care in this case.   It could be described as orthodox; and the precise steps employed to find whether a duty of care exists are not important.19    Nevertheless, given the way matters were argued before me, I propose to separately examine whether there is or might be a duty of care, applying a methodology I think best fits the present context.

[29]     As the majority said in North Shore City Council v Attorney-General (“The Grange”),20 it is of utmost importance to identify and examine the salient features of the claim to determine whether the relational conditions exist to establish a duty to take care. If so, I must then decide whether it is fair, just and reasonable to impose a

legal liability for its breach.21

17     Citing Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95 (CA) at [50]-[51].

18     Couch v Attorney-General [2008] 3 NZLR 725 (SC).

19     Couch v Attorney-General [2008] 3 NZLR 725 (SC); Attorney-General v Carter, above n 10, at

[30].

20     North Shore City Council v Attorney-General (“The Grange”) [2012] NZSC 49.

21 Ibid, at [156].

[30]     In a novel claim such as the present, foreseeability of damage is simply a screening mechanism to exclude claims which must obviously fail because no reasonable person could have foreseen the loss.22   If damage was foreseeable, I must then assess whether the relationship was sufficiently proximate; that is, whether there was a sufficient connection between the parties so that the defendant assumed a responsibility to take care to secure the avoidance of damage to the plaintiff.23

[31]     Most relevant to this case, where the sole basis for proximity or connection is the performance of a statutory function, conflicting public duties may preclude the requisite proximity. But:24

.... where the asserted basis for proximity is grounded in specific conduct and interactions, ruling a claim out at the proximity stage may be difficult. So long as there is a reasonable prospect that the asserted interactions could, if true, result in a finding of sufficient proximity, and the statute does not exclude  that  possibility,  the  matter  must  be  allowed  to  proceed to  trial, subject to any policy considerations that may negate the prima facie duty of care at the second stage of the analysis.

[32]     The final, essentially normative stage of the assessment, brings into account externalities or bigger picture considerations - “the effect on non-parties and on the structure of the law and on society generally.”25

[33]     I also agree that consistent with the common law method, the use of analogy is a valuable tool in the assessment; but that cannot supplant the context specific assessment mentioned above.

The salient features

[34]     The core features of the claim are (in summary):

(a)      The grant of consent for a three-stage residential subdivision;

22 Ibid, at [157].

23     Ibid, at [158] and [188]; and at [220] (per Tipping J).

24     R v Imperial Tobacco Canada Ltd [2011] 3 SCR 45 at [47], per McLachlin CJ for the Court, cited with apparent approval in The Grange at [166].

25     North Shore City Council v Attorney-General (“The Grange”) [2012] NZSC 49 at [ 156] and see also [159].

(b)The  imposition   of  conditions   of  subdivision  consent   requiring compliance with specified standards in terms of fill and flood protection (“Earth Fill and Flood Protection Conditions”);

(c)      The requirement that those conditions must be complied with before completion of Stage 1 of the subdivision;

(d)Certification by the Council under s 224(c) that the “conditions of the subdivision consent have been complied ... with and that a consent notice has been issued in respect of those conditions that have not been complied with”;

(e)      A consent notice was registered against the lots for Stage 1 only, stating that: the land may contain unconsolidated fill; that engineered designed foundations may be required for any building; and that scala penetrometer testing of the building site would be required.

(f)       The plaintiff purchased Stage 2 and Stage 3 land.

(g)After the purchase, the plaintiff became aware that the Earth Fill and Flood Protection Conditions had not been satisfied for Stage 2 and Stage 3 land.

(h)      The plaintiff is a “property developer”.

[35] The alleged duties are stated at [9]. Given their central importance, they are worth repeating:

16.The Defendant owed a duty to take reasonable care in issuing the s224 Certificate.

17.The Defendant owed a duty to take reasonable care in issuing and ensuring registration of the Consent Notice.

18.The Defendant owed a duty to take reasonable care to warn potential purchasers and future owners of the Stage 2 and Stage 3 land of:

(a)      the inadequate fill;

(b)      the lack of flood protection;

(c)       the non completion of the Subdivision Consent conditions for fill and flood protection

(“the inadequate land fill and flood protection problems”).

[36]     The wider context to this is that no subdivision may occur unless expressly allowed by a rule in a District Plan and in a proposed plan (if there is one), or by way of resource consent, and then only pursuant to an approved survey plan.26     For present purposes, no survey plan may be issued unless pursuant to s 224(c), that is:

224      Restrictions upon deposit of survey plan

No survey plan shall be deposited for the purposes of section 11(1)(a)(i) or

(iii) unless-

...

(c)       There is lodged  with  the Registrar-General of  Land  a  certificate signed by the chief executive or other authorised officer of the territorial  authority  stating  that,  it  has  approved  the  survey  plan under section 223 (which approval states the date of the approval), and all or any of the conditions of the subdivision consent have been complied with to the satisfaction of the territorial authority and that in respect of such conditions that have not been complied with-

(i)        A completion certificate has been issued in relation to such of the conditions to which section 222 applies:

(ii)      A consent notice has been issued in relation to such of the conditions to which section 221 applies:

(iii)      A bond has been entered into by the subdividing owner in compliance with any condition of a subdivision consent imposed under section [108(2)(b)]; and

...

[37]     The link to ss 221, 222 and 223 is significant, as these sections provide the jurisdictional bases for issuance of consent notices, completion certificates and certification of survey plans.  Section 221(1) states:

221      Territorial authority to issue a consent notice

(1)       Where a subdivision consent is granted subject to a condition to be complied  with  on  a  continuing  basis  by  the  subdividing  owner  and subsequent owners after the deposit of a survey plan (not being a condition

26     Resource Management Act 1991, s 11.

in respect of which a bond is required to be entered into by the subdividing owner, or a completion certificate is capable of being or has been issued), the territorial authority shall, for the purposes of section 224, issue a consent notice specifying any such condition.

...

[38]     Any consent notices must be registered on the titles of the subdivision, and have the effect of a covenant running with the land.  They can only be modified via a formal variation procedure, potentially involving public notification.27

[39]     Section 222(1) then provides:

222      Completion certificates

(1)       Where under this Part, compliance with a condition of a subdivision consent is dependent on the completion by the owner of any work required by the territorial authority or on the making of a financial contribution (as defined in section 108(9)), the territorial authority may, for the purposes of section 224, issue a certificate to the effect that the owner has entered into a bond binding the owner to carry out and complete the work or make the financial contribution (as the case may be) to the satisfaction of the territorial authority within such period as the territorial authority may specify.

...

[40]     Section 223(1) and (2) completes the umbrella of relevant provisions dealing with the notice and certification process in the following terms:

223      Approval of survey plan by territorial authority

(1)       An owner of any land may submit to a territorial authority for its approval, a survey plan in respect of that land if-

(a)       A subdivision consent has been obtained for the subdivision to which the survey plan relates, and that consent has not lapsed; or

(b)      A certificate of compliance has been obtained, and that certificate has not lapsed.

(1A)     Within 10 working days after receiving a survey plan submitted to it under subsection (1), a territorial authority must either-

(a)      approve the survey plan; or

(b)      decline the survey plan.

27     Ibid, s 221(3)-(5).

(2)       Subject  to  sections  237,  237A,  240,  241,  and  243,  a  territorial authority shall approve a survey plan submitted to it under subsection (1) if it is satisfied that,-

(a)       Where a subdivision consent has been obtained, the survey plan conforms with the subdivision consent; or

(b)       Where a certificate of compliance has been obtained, the survey plan conforms with the certificate of compliance.

...

[41]     Relevant to this case, it is evident therefore that a territorial authority may approve or decline a survey plan, but must do so where the survey plan conforms to the subdivision consent.   Certification of the survey plan however does not affect “any obligation  of the  subdividing owner under any condition  of  a subdivision

consent.”28    Nevertheless, the authority must certify under s 224(c) that conditions

not complied with are subject to a bond under s 222, or, in terms of conditions requiring ongoing compliance beyond the survey approval stage, are subject to a consent notice under s 221.29

[42]     This collection of provisions marks the end point in a chain of provisions carefully  prescribing  the  method  by  which  subdivision  of  land  may  occur,30 including the promulgation of district plan rules controlling subdivision under s 75, in furtherance of specified functions recorded at s 31.  Those functions include for the purposes of this case:

31       Functions of territorial authorities under this Act

(1)       Every territorial authority shall have the following functions for the purpose of giving effect to this Act in its district:

...

(b)      the control of any actual or potential effects of the use, development, or protection of land, including for the purpose of-

(i)       the avoidance or mitigation of natural hazards; and

...

28     Ibid, s 223(6).

29     There is no bond condition, so s 224(c)(iii) does not apply.

30     Resource Management Act 1991, ss 11, 31, 74, 75, 104, 108, and 220.

[43]     In giving effect to the Act as required by s 31 (and s 75), regard must be had to the statutory purpose of sustainable management and in seeking to achieve that purpose, the matters set out in Part 2.   Sustainable management is a notoriously broad concept:

5         Purpose

(1)       The purpose of this Act is to promote the sustainable management of natural and physical resources.

(2)       In  this Act,  sustainable  management  means  managing  the  use, development, and protection of natural and physical resources in a way, or at a rate, which enables people and communities to provide for their social, economic, and cultural wellbeing and for their health and safety while-

(a)       Sustaining the potential of natural and physical resources (excluding  minerals)  to  meet  the  reasonably  foreseeable needs of future generations; and

(b)       Safeguarding the life-supporting capacity of air, water, soil, and ecosystems; and

(c)       Avoiding, remedying, or mitigating any adverse effects of activities on the environment.

[44]     All of this sets the frame for an assessment of the nature of a territorial authority’s  functions  and  duties  in  respect  of  subdivisions.  I  deal  with  the implications of this when I assess the issue of proximity.

Foreseeability?

[45]     In my view, it is reasonably arguable that failure to discharge any one of the functions specified at ss 221-224 could foreseeably result in damage to a potential purchaser of subdivided land.  Consent notices, completion certificates, survey plan approvals and s 224 certifications signal to the world the readiness of the subdivision for development.  By dint of the interlocking operation of those sections, registration of approved plans without issuance of consent notices or compliance certificates implies that the subdivision is complete and complies with all subdivision consent conditions.   Conversely, the issuance of a consent notice and/or a completion certificate signals to the world that conditions remain to be satisfied; more so in

respect of consent notices which are registered on the title and are deemed to be a registered interest in land and a covenant running with the land.31

[46]     In the present case, in my view it was reasonably foreseeable that Swordfish could have been led to believe that the Stages 2 and 3 land was ready for residential development, there being no completion certificate or consent notice in respect of those stages. The future cost of achieving compliance with the unfulfilled conditions must have been a matter foreseen by the Council throughout the s 224 process, bearing in mind that the conditions continued to bind subsequent owners of approved subdivisions.  Accordingly Swordfish passes the basic foreseeability screening test.

Proximity – duty from statute?

[47]     The Council’s specific functions are detailed at [35]-[39]. [48]           Specific duties are expressed:

(a)      At s 221(1), to “issue a consent notice specifying [a] condition” to be complied with on a continuing basis by the subdividing owner and subsequent owner after the deposit of a survey plan; and

(b)At s 223, to approve a survey plan (within 10 days of the application for approval) where the survey plan conforms with the subdivision consent; and

(c)      At  s  224(c),  to  certify  that  in  respect  of  any  conditions  of  the subdivision  consent  that  have  not  been  complied  with,  a  consent notice or a completion certificate has been issued (in relation to such conditions to which ss 221 and 222 apply).

(d)      At s 224(d) to lodge “for registration with the Registrar-General of

Land a consent notice” issued under s 221;

31     Resource Management Act 1991, s 221(4).

[49]     As noted, where work required under a condition of consent has not been carried out, s 222 confers a power on the Council to issue a certificate confirming that “the owner has entered into a bond binding the owner to carry out and complete the work.”

[50]     In my view this combination of duties and discretions is directed to securing the performance of the conditions of the subdivision consent and to providing the Council with surety that the conditions are in fact complied with prior to registration of  an  approved  survey  plan,  or  will  be  complied  with  at  a  future  date  after registration.

[51]   The conditions themselves must be imposed to further a sustainable management purpose, including managing the development of land in a way which enables  people  to  provide  for  their  wellbeing  while  avoiding,  remedying  or mitigating any adverse effects of activities on the environment.  The definition of the

environment includes people.32    One of the overarching functions of the Council is

then to control the effects of the use and development of land, and of particular

relevance to this case, “the avoidance or mitigation of natural hazards.”

[52]     Taken together the clear purpose of the duties expressed at ss 221-224 in this context is to provide a mechanism to enable people and communities to provide for their wellbeing via (in this case) the subdivision of residential land, while at the same time avoiding or mitigating the effects of natural hazards.  The Council must act in a precautionary way by securing compliance with, or the ability to comply with, the conditions of consent prior to registration of an approved plan.

[53]     All of this, in my view, establishes a prima facie nexus or proximity between the  Council,  as  the  regulatory  authority  responsible  for  granting  consent  for residential subdivisions, and any “subsequent owner” – the language expressly used at s 221 – because subsequent owners might reasonably expect that subdivided lots will not issue without compliance with conditions having already been secured by

the Council. Borrowing from the language used in the negligent building cases,

32     Ibid, s 2(1).

general reliance by subsequent owners on the Council carrying out its duties under ss 221-224 is both foreseeable and reasonable.33

[54]     In reaching this view I consider that the proximity finding is prima facie consistent with the statutory purpose of sustainable management and the council function of control of effects, including the avoidance or mitigation of natural hazards. I am reinforced in this view by the scheme of provisions designed to secure notice of conditions requiring ongoing compliance that might affect subsequent owners, and enforceability of those conditions as registered interests in land. Conversely, the absence of notice provisions relating to conditions that must be complied with prior to registration reinforces the reliance placed on councils to secure performance of them.

[55]     Strong factors relating to the control (or lack thereof) exercised by councils through this phase of the approval process however demand caution, namely:

(a)      The extent to which councils are reliant on developers/consent holders to demonstrate compliance with consent conditions;

(b)The extent to which councils have the financial and technical capacity to substantively process information and assess compliance;

(c)     The commercial scale of large subdivisions, suggesting lack of owner/developer vulnerability, while at the same time exposing councils to significant potential liability.

[56]     Each of these factors is also relevant to whether, as a matter of statutory interpretation, the imposition of a duty of care is compatible with the exercise of public functions under the RMA.  There is the risk that councils burdened with the overlay of a duty of care might adopt a risk adverse approach to their tasks that is not consonant  with  the  attainment  of  sustainable  management  of  resources.  Indeed, undue concern about potential liability could seriously undermine the achievement

of  sustainable  management  as  councils  engage  in  disproportionately  cautious

33     Refer North Shore City Council v Attorney-General (“The Grange”) [2012] NZSC 49 at [220].

assessments of compliance and in a context where resource consenting processes are notoriously delayed by already onerous assessment processes.

[57]     But it seems to me that in a strike out context it is dangerous to make assumptions about the factors and concerns expressed at [54] and [55].  I certainly have no empirical basis for assuming councils are unduly reliant on or vulnerable to developers to demonstrate compliance, or that their technical capacities are limited. Indeed enforcement of conditions of consent, some of them far more complex than the conditions in this case, is a quotidian task for urban or rural councils.  As to risk aversion, I consider that the trial Judge would be assisted by hearing evidence from experienced planners or engineers about the methods employed by councils when processing survey plan approvals.  This is relevant to the critical issue of the control exercised by councils in this context.  Whether the potential for undue risk aversion is real might then be better addressed.  While all of this will involve a judgment call, the evidence would in my view provide a firmer basis to make the important assessment of control, vulnerability and proximity.

Fair, just and reasonable?

[58]     The abovementioned factors also shade into the bigger picture assessment of whether the imposition of a duty of care is fair, just and reasonable.   For reasons already expressed, I consider that strike out is not the most appropriate place to make this assessment.  The permeable nature of such an assessment needs, in my view, a firm factual base from which to draw defendable conclusions.

[59]     One important factor, emphasised by BDC, is that the claim is made by a commercial developer for economic loss only.  This links also to the apparent lack of vulnerability   of   the   owner/developer   and   subsequent   owners   who   are   also commercial developers.  I accept that there is strong authority in the building claim context that claims in respect of commercial property for pure economic loss are not actionable under the tort of negligence.  Ironically perhaps the law in that context has focused on the nature of the proposed use at the time of the relevant application,

rather than the applicant.34    Here the proposed use has always been for residential lots.  Approaching the case law literally, this matter would fall into the permissible category for claim.

[60]     I have some concerns in any event about adopting this case law in any rote way.  Firstly I understand that the Supreme Court is about to consider whether, if it has not done so already, the asserted dichotomy is appropriate.35   I would not want to foreclose the opportunity to proceed on the basis of the application of a principle which did not find favour in the Supreme Court.  Secondly, the juristic basis for the distinction was tied specifically to the processes employed in relation to the Building

Act, and the assessment of the reasonableness of reliance in that context.   In the present case, we are dealing with a different context, where it might be said that the nature of the reliance by prospective purchasers is even greater, given that title is conditional on the certification process and/or a consent notice procedure.  In short, I think I can safely say that in this country, clear title means something.   Thirdly, where the argument is essentially about the reasonableness of the reliance, I consider that the trial Judge is better placed, with full evidence as to the processes employed by councils and the steps taken by the Council and the plaintiff in this case, to make the assessment of whether reliance by commercial developers is reasonable.

[61]     I am not sanguine about exposing the public purse to claims by property developers who should be well placed to protect their own interests.  But the facts in this case, as pleaded, suggest that the plaintiff took steps to protect its interests and then, in addition to the claim of breach of duty of care, were mislead by council staff. It seems therefore that to deny a claim based on the plaintiff’s commercial status is prima facie unjust, especially given that the ordinary defences of contribution or supervening act might be available to the Council.  Moreover, in my view, the final

resolution of the issues of fairness and justness are matters that should be assessed

34     North Shore City Council v Body Corporate 188529 (“Sunset Terraces”) [2011] 2 NZLR 289 (SC) at [53].

35     Body Corporate No 207624 v North Shore City Council [2011] NZSC 82. The approved ground is whether and to what extent the respondent local authority owed a duty of care to the body corporate and/or all or some of the appellant unit owners in exercising its regulatory functions under the Building Act 1991 in relation to the construction of the Spencer on Byron building which contains a mixture of non-residential and residential apartments.

against the full context of the facts specific to this case, and the general experience of councils in processing subdivision applications through to certification.

[62]     Given the foregoing, I decline to review the decision of the Associate Judge.

A duty to warn?

[63]     I wish to express a cautionary note about “a duty to take reasonable care to warn” as framed.  Section 221 imposes a discrete duty to register a consent notice or to  secure  a  compliance  notice.    From  this  an  arguable  relationship  of  reliance emerges, as discussed.  But the scheme of the Act dealing with subdivisions does not otherwise impose a general, overarching duty to warn and any such duty is likely to be discordant with that detailed scheme dealing with subdivisions.  It seems to me therefore that the trial judge will need to be persuaded that a general “duty to warn” is functionally compatible with the very specific functions imposed by statute.

Second cause of action

[64]     As I have not heard detailed argument on the second cause of action, I prefer not to interfere with the discretion exercised by the Associate Judge in allowing this matter to be considered at trial.  For my part I am also doubtful that a cause of action based purely on the failure to perform the s 274(c) function is actionable in light of the purpose and scheme of the RMA.  In reality, a territorial authority has numerous functions under the RMA including purely evaluative functions and purely enforcement functions and then a combination of both. As BDC states, there is clear authority that failure to perform a planning function for example does not give rise to an actionable claim.  Moreover, given the purpose, complexity and importance of the functions served by councils under the RMA, an action for simple failure to perform a RMA function is something that one might have expected Parliament to turn its mind to had it contemplated an actionable claim for breach of statutory duty simpliciter.  This, however, can be contrasted with an action for negligent breach of a duty of care, arising via common law as a consequence of foreseeability of harm and proximity.  The complexity just mentioned might, in the final analysis, mean that the imposition of a duty of care is not appropriate.   But I do not think it is safe to

presume that Parliament sought via the scheme of the RMA to preclude liability for negligent failure to take care in the exercise of statutory function where the result of such dereliction is foreseeable loss to a proximate plaintiff.

Result

[65]     I decline to reverse the decision of the Associate Judge. I confirm that the matters identified by him for further consideration remain apposite, overlaid by my comments at [54]-[56].   Ultimately what the parties consider relevant to the final assessment of what is fair, just and reasonable is for them.   I nevertheless express considerable doubt about claims based on a general “duty to warn” and on simple non-performance of statutory function.

Solicitors:

McFadden McMeeken Phillips, Nelson, for Plaintiff (Counsel Acting: G Downing) Cavell Leitch Pringle & Boyle, Christchurch, for Defendant (Counsel Acting: N Till QC)