Swordfish Co Limited v Buller District Council
[2012] NZHC 1081
•17 May 2012
IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY
CIV-2011-418-000143 [2012] NZHC 1081
BETWEEN SWORDFISH CO LIMITED Plaintiff
ANDBULLER DISTRICT COUNCIL Defendant
Hearing: 10 May 2012
Appearances: A J Prebble and K M McMullen for Defendant (Applicant) G M Downing for Plaintiff (Respondent)
Judgment: 17 May 2012
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] This is an application to strike out the statement of claim dated 9 September
2011 and to dismiss this proceeding. The applicant relies on r 15.1 of the High Court Rules which provides that the Court may strike out all or part of a pleading if it does not disclose any reasonably arguable cause of action.
[2] In its statement of claim the respondent alleges that the applicant owed it a duty to take reasonable care in issuing a certificate under s 224 of the Resource Management Act 1991, and a duty to take reasonable care in issuing and ensuring registration of a consent notice. The respondent alleges breach of these duties of care in a number of ways, and that it has suffered a financial loss as a result of these breaches. The first issue on this application is whether the applicant owed a duty of care to the respondent as alleged.
[3] In the second cause of action the respondent alleges that the applicant owed it a statutory duty and has breached that duty in the same ways as it is said to have
SWORDFISH CO LIMITED V BULLER DISTRICT COUNCIL HC GRY CIV-2011-418-000143 [17 May
2012]
breached its duty of care, resulting in the same loss. The second issue on this application is whether a statutory duty was owed to the applicant.
[4] Neither of the issues in this proceeding has previously been decided in New Zealand. No case from Australia, Canada or the United Kingdom deciding either issue was cited in argument or located in subsequent research.
Principles to be applied on applications to strike out
[5] The principles to be applied are summarised in McGechan paragraph 15.1.02 by reference to Attorney-General v Prince,1 and Couch v Attorney-General.2 First, pleaded facts, whether or not admitted, are assumed to be true unless shown to be entirely speculative and without foundation. Secondly, the jurisdiction to strike out is not excluded by the need to decide difficult questions of law requiring extensive argument.
[6] Of particular relevance to the present application is the summary of principles in Couch v Attorney-General (per Elias CJ and Anderson J) at [30] to [35] inclusive. After identifying specific deficiencies in the pleadings in that case which led to a lack of focus in the argument presented to the Court on the part of the plaintiff, their Honours noted cases in which deficient pleadings had nonetheless not resulted in proceedings being struck out, and then referred to the decision of Barwick CJ in
General Steel Industries Inc v Commissioner for Railways NSW,3 cited with approval
by Richmond P in Takaro Properties Ltd (in receivership) v Rowling,4 that the jurisdiction summarily to terminate an action where it is so clearly untenable that it cannot succeed is to be “sparingly employed” and is not suitable for use:
... except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion ...
1 Attorney-General v Prince [1998] 1 NZLR 262 (CA).
2 Couch v Attorney-General [2008] NZSC 45; [2008] 3 NZLR 725.
3 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 (HCA).
4 Takaro Properties Ltd (in receivership) v Rowling [1978] 2 NZLR 314 (CA) at 317.
[7] Against that background their Honours in Couch v Attorney-General said:
[32] It is often not easy to decide whether a duty of care not previously recognised by authority is owed to the plaintiff, as Woodhouse J in Takaro acknowledged and as is amply demonstrated on the authorities. It may be unrealistic to expect that the pleadings and arguments to support a claim will always be adequate at an early stage of the proceedings. Caution in disposing of such cases on a summary basis is necessary both to prevent injustice to claimants and to avoid skewing the law with confident propositions of legal principle or assumptions about policy considerations, undisciplined by facts.
[33] It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed. The case must be “so certainly or clearly bad” that it should be precluded from going forward. Particular care is required in areas where the law is confused or developing. And in both X (Minors) v Bedfordshire County Council [1995] 2 AC 633 and Barrett v Enfield London Borough Council [2001] 2 AC 550 liability in negligence for the exercise or non-exercise of a statutory duty or power was identified as just such a confused or developing area of law. Lord Browne-Wilkinson in X thought it of great importance that such cases be considered on the basis of actual facts found at trial, not on hypothetical facts assumed (possibly wrongly) to be true for the purpose of the strike-out. Lord Slynn in Barrett was of the same view:
“... the question whether it is just and reasonable to impose a liability of negligence is not to be decided in the abstract for all acts or omissions of a statutory authority, but is to be decided on the basis of what is proved.”
[34] Proper and necessary limits to liability in negligence do not require blanket immunity through overrestriction of the circumstances in which a duty of care arises. There is particular risk of such overrestriction on summary consideration on strike-out where policy considerations are said to preclude a duty of care. Policy considerations arise and overlap at all three inquiries in a claim for negligence: duty of care, breach, and remoteness of loss (once “but for” causation in fact is established).
[8] Their Honours then discussed instances where policy considerations had been considered in different contexts within the overall assessment of liability, duty of care or standard of care which, although distinct concepts to be separately considered, might nonetheless require consideration of different policy factors when so doing. Their Honours then continued:
[35] Where liability for negligence is determined at trial, it should not much matter whether questions of policy are considered as going to duty of care or its breach. But on strike-out on a threshold question of duty of care, it may matter a great deal. The facts as eventually found may make it clear that the policy consideration was not engaged in what happened and is not a justification for denial of responsibility. This was a reason why Lord
Browne-Wilkinson was not prepared to strike out the claim in Lonrho plc v
Tebbit [1991] 4 All ER 973 at p 985:
“Therefore, far from being able to perform the necessary analysis of all the facts and circumstances, I am asked to decide the question of the existence of a private law duty of care in the absence of even detailed factual allegations, let alone knowledge of the facts themselves. I know nothing of the factors which the defendants either did take into account or should have taken into account. For all I know, the reason for the delay in releasing the undertaking was a purely administrative blunder (eg the papers being wrongly filed), involving no considerations of policy at all.”
Similar concerns led Lord Hutton in Barrett to refuse to strike out on policy grounds a claim in respect of harm suffered by a child taken into care:
“It is not known at this stage what factors the defendant and its officials and social workers did take into account in making decisions relating to the plaintiff and in planning his future. It may be that no matters of policy involving the balancing of competing public interests or the allocation of limited financial resources were involved in the decision and it may be that at trial the judge, in the words of Mason J in the Sutherland Shire Council case, would be called upon: ‘to apply a standard of care to action or inaction that is merely the product of administrative direction, expert or professional opinion, technical standards or general standards of reasonableness’.”
Facts
[9] On 12 June 2006 the applicant granted resource consent to Christoni
Properties Limited for a three-staged subdivision of a property in Westport, to create
44 residential lots. Under s 108 of the Resource Management Act 1991 the applicant imposed a number of conditions. The following three are relevant to this proceeding.
Condition 1.1.5 – That all works and certification for earthworks, earth fill, and flood mitigation required for all stages of the subdivision (including conditions 4.1 and 4.8) are to be completed and complied with before the completion of stage 1.
Condition 4.1 – Requiring all subdivision earth fill to be undertaken in accordance with the relevant New Zealand standards for residential subdivisions.
Condition 4.5 – 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, plus 0.15 metres freeboard.
[10] Condition 1.1.5 as I have reproduced it is in a form after amendment at a later but unspecified date, but is generally to the same effect as the original 1.1.5. It is in any event the text of the condition as it stood when the respondent became involved with this project.
[11] On 7 December 2007 the applicant wrote to Christoni Properties Limited noting that it had received a copy of the subdivision plan and had been asked to issue a certificate under s 224(c) of the Resource Management Act 1991. Section 224 as it was at that time provided that no survey plan could be deposited under the Land Transfer Act 1952 unless certain steps had been taken. Of present relevance, paragraph (c) set out this requirement:
(c) There is lodged with the District Land Registrar or the Registrar of Deeds, as the case may require, 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 being compliance with any condition of a subdivision consent imposed under section 108(2)(b); and ...
The section proceeds to set out a number of other requirements including, of present relevance, the lodgement for registration with the District Land Registrar of a consent notice in respect of any conditions of the kind referred to in paragraph (c)(ii), which are conditions to be complied with on an ongoing basis.
[12] The applicant enclosed with the letter a set of the subdivision conditions against which it had placed a column headed “Compliance” with the following entries next to the conditions in issue:
1.1.5Fill has been completed for part of the area; however there are still some areas in the Site Level As Built Plans which are less than
3.04m. Require some additional filling on Lot 101. Building sites
not identified.
4.1Design plans approved by Operations Department. Fill not undertaken in accordance with NZS 4431:1989. Either ensure compliance or apply for a change of conditions.
4.5The As Built Plans show that most of the site is above the 3.04m mark, however there are parts of Lot 101 which are less than 3.04m.
[13] The applicant produced to the Court copies of various documents from its files including a report dated October 2007 prepared for Christoni Properties Limited by Site Solutions Limited described as an Earthfill Report. In a box headed “Comments” it said:
The filling on all Lots has been placed the manner as described above, but the testing has indicated variability and hence the filling on these lots cannot be certified to the requirements of NZS4431.
The filling of these lots will require specific testing in the locations affected by foundation structures and foundations designed based on the results of this testing.
[14] On another page, in another box headed “Comments”, the following entry
appears:
The fill placed on (certain lot numbers are listed) has been placed to depths greater than 0.25m and has not been placed to the requirements of NZS4431. Foundation testing for residential dwellings on these sites is to be carried out for the specific site proposal.
Confirmation of the cut fill interface should be confirmed and foundations designed to take this into account.
[15] On a page headed “Appendix A Statement of Suitability of Earth Fill for
Residential Development” the following statements appear:
In the opinion of the inspecting engineer the following special limitations should be observed:
The fill placed on all Lots has been placed to depths greater than 0.25m. Filling in these areas is to a variable nature (due to material used).
Foundation testing for residential dwellings on these sites is to be carried out for the specific site proposal.
Foundation design in all filled lots to take into account the location of the cut/fill interface (to be confirmed on site) and design appropriately.
[16] Appendix A concludes with the following statement:
This certification, that the earth fills have been placed in compliance with the terms of NZS 4431, does not remove the necessity for the normal inspection and designer foundations as would be made in natural ground.
[17] The appendix concludes with a signature below which the words
“Professional Engineer 18 October 2007” appear.
[18] It will be seen that there is inconsistency in entries referred to in [13], [14] and [15] in relation to the lots referred to, and that the entry in [16] contradicts the earlier statements that fill placement is not in accordance with NZS 4431.
[19] On the evidence before the Court this appears to be the report from which the table attached to the applicant’s letter of 7 December 2007 was derived. No mention is made of the evident inconsistency between the last sentence in appendix A and the other passages quoted, nor the inconsistencies between each of those passages. On
17 April 2008 Access Land Surveying Limited, the surveyor for Christoni Properties Limited, wrote to the senior planner at the applicant council, advising that certain conditions on the resource consent had been complied with. This was followed with a request that “the Section 244c Certificate” be issued, and there was a reference to urgency. This letter was emailed as an attachment at 13:52. The senior planner was asked to “release the 224c on the basis of this email” and it appears she did. An authorised officer of the applicant signed a certificate at 2.42 pm that day stating:
Pursuant to Section 224c 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.
[20] A consent notice was also executed on that day, addressed to the District Land Registrar of the Nelson Land Registration District. It stated that the land described in the certificate (Lots 1 to 20 and 39 to 42 Deposited Plan 390456) is subject to conditions in relation to a subdivision consent in the following terms:
(a) This site has been subject to earth disturbance and may contain unconsolidated fill.
(b) Engineered design foundations may be required for any building on this lot subject to a site specific assessment.
(c) Prior to applying for building consent Scarla Penetrometer testing of the building site is required in accordance with NZS3604:1999 Timber Framed Buildings.
The District Land Registrar was asked to register this document, and did so. Why the applicant formed the view that the three conditions in issue in this proceeding were within the ambit of s 221 was not explained, and is not self-evident.
[21] The lots referred to in the consent notice are the allotments created in stage 1 of the subdivision together with four other allotments. No reference is made to the remaining 20 intended sections in later stages of the subdivision.
[22] The respondent purchased the land comprised within stage 2 and stage 3 of the proposed subdivision late in 2010, before any further development work had been undertaken by Christoni Properties Limited.
[23] In the statement of claim the respondent pleads:
13. The Plaintiff’s principals, Mr Howard and Mr Forsyth made enquiries, and the Plaintiff subsequently entered into an agreement to purchase the Stage 2 and Stage 3 land. Such enquiries included:
(i) Searching the Defendant’s files;
(ii) Viewing the property;
(iii) Discussions with the Defendant’s engineer and the Defendant’s
planner.
14. After the Stage 2 and Stage 3 land had been purchased, the Plaintiff became aware that the Earth Fill and Flood Mitigation Conditions had not been satisfied for the Stage 2 and Stage 3 land.
Argument for the applicant
[24] Mr Prebble presented a comprehensive review of the circumstances in which duties of care have been imposed by the courts on local authorities, and where the courts have declined to do so. He prefaced his analysis with reference to Prince v
Attorney-General,5 and Attorney-General v Carter.6 In the former, Richardson P for the majority said:
The issue is whether a claim in negligence may lie. The ultimate question is whether in the light of all the circumstances of the case it is just and reasonable to recognise a duty of care by the defendant to the plaintiff. That depends on consideration of all the material facts in combination. It is an intensely practical question. For almost 20 years, and drawing on ..., we have found it helpful to focus on two broad fields of inquiry. The first is the degree of proximity or relationship between the alleged wrongdoer and the person who has suffered damage. That is not a simple question of foreseeability as between parties. It involves consideration of the degree of analogy with cases in which duties are already established and reflects an assessment of the competing moral claims. The second is whether there are other policy considerations which tend to negative or restrict – or strengthen the existence of – a duty in that class of case ...
[25] In the latter Tipping J, delivering the judgment of the Court of Appeal, said:
Whether it is fair, just and reasonable to hold that duty of care is owed by defendant to plaintiff in a situation not covered by authority is conventionally addressed in terms of proximity and policy: see for example Price Waterhouse v Kwan ... and of course South Pacific Manufacturing ... Generally speaking, proximity is concerned with the nature of the relationship between the parties whereas policy is concerned with the wider legal and other issues involved in deciding for or against a duty of care. In cases of negligent misstatement, the proximity inquiry generally focuses on the interdependent concepts of assumption of responsibility and foreseeable and reasonable reliance.
See also Te Mata Properties Ltd v Hastings District Council.7
[26] Counsel then submitted that it is established that local authorities are not liable in negligence for their planning decisions: Baker v New Plymouth District Court,8 and that no duty of care arises for acts or omissions made during quasi judicial processes under the Resource Management Act, as in, for example, Smaill v Buller District Council,9 where the Council was held not liable for allowing a development which led to land instability which threatened the plaintiffs’ homes. In
Morrison v Upper Hutt City Council,10 the Court declined to impose a duty of care
5 Prince v Attorney-General [1998] 1 NZLR 262 (CA) at 268.
6 Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [22].
7 Te Mata Properties Ltd v Hastings District Council [2009] 1 NZLR 460 (CA).
8 Baker v New Plymouth District Court [1996] DCR 709.
9 Smaill v Buller District Council [1998] 1 NZLR 190 (HC) at 206.
10 Morrison v Upper Hutt City Council [1998] 2 NZLR 331 (CA).
on a council in relation to misinterpretation of a District Plan rule. The Court examined the statutory scheme of the Town and Country Planning Act and identified three policy considerations which in its view negated the existence of a private law duty of care on the part of a local authority for the construction of a clause in its ordinance (District Scheme). For reasons which will follow the importance of this case in the present context is the examination by the Court of the policy considerations that arose from the scheme of the statute itself.
[27] Counsel then referred to cases which have identified that protection of a plaintiff’s financial interests is not the responsibility or duty of a local authority. In Tepko Pty Ltd v Water Board,11 an overstatement of the projected cost to provide water for a proposed subdivision resulted in the plaintiff’s bank withdrawing funding, and the subdivision development not therefore proceeding. The Court said:
The speculative nature of the venture and the uncertainty of the political and administrative processes which the appellants set in train serve to emphasise the unreasonableness of any reliance they may have placed on what was said or done by any participant in those processes. Rather, the very nature of the venture required them to carefully examine the detail of the course on which they were embarked and to rely on the professional advice available to them.
[28] Counsel then referred to two areas where local authorities have been held to owe duties of care: first, in relation to statements made to persons who approach a local authority for information before the commencement of any quasi judicial process: Shaddock v Parramatta City Council,12 and secondly, where local authorities have been found to have a duty of care in respect of buildings, starting with Brown v Heathcote County Council,13 and Invercargill City Council v Hamlin.14
[29] Developing an argument that the cases on buildings do not apply, counsel referred to Three Meade Street Ltd v Rotorua District Council.15 At [50] Venning J said (emphasis added):
Although the position of subsequent purchasers is not directly relevant in the present case, given the second plaintiff purchased the shares in the first
11 Tepko Pty Ltd v Water Board [2001] HCA 19 at 25-26.
12 Shaddock & Associates Pty Ltd v Parramata City Council ( No 1) (1981) 150 CLR 225 (HCA);
Court v Dunedin City Council [1999] NZRMA 312 (HC).
13 Brown v Heathcote County Council [1986] 1 NZLR 76 (CA).
14 Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA) and [1996] 1 NZLR 513 (PC).
15 Three Meade Street Ltd v Rotorua District Council [2005] 1 NZLR 504 (HC).
plaintiff, it must be acknowleged that subsequent purchasers can also protect themselves by warranties. It is reasonable to expect a commercial building owner to look first to the builder, its engineers and architects and other parties involved in the construction project that it had a direct contractual relationship with in relation to the building because those parties provide professional services for which they will have charged professional fees as part of the construction process. The council is involved in the process because it is required, as a matter of statute, to satisfy itself principally as to the safety of the building for its occupants and users.
[30] At [53] in the same judgment his Honour said:
The position is somewhat different in the case of a commercial property developer and owner. The initial developer, in this case the first plaintiff, has the opportunity to protect itself by way of contractual arrangements. A subsequent purchaser in a commercial property context will have the opportunity and would be expected to obtain pre-inspection reports for the property as well as obtaining warranties from previous owners. A commercial property owner will have the opportunity to protect itself from the type of economic damage and losses that the first plaintiff seeks to recover in this case.
[31] In Harbour City Developments Ltd v Owen,16 four factors were identified as relevant to consideration of proximity:
• Whether duties of care have been imposed in analogous situations.
• The vulnerability of the plaintiff and the potential burden on the defendant (included in this is a consideration of whether there are other defined remedies available for the plaintiff to pursue).
• The nature of the loss – a greater likelihood of a court finding proximity where there is a risk of property damage than where the loss is purely economic.
• The statutory or contractual background defining the relationship between the parties.
[32] Counsel for the applicant then mounted an argument in relation to each of these criteria. First counsel submitted there are no analogous situations, to guide the
16 Harbourcity Developments Ltd and Anor v Owen HC Auckland CIV-2006-404-1400,
30 March 2007.
Court on this application. Counsel drew a specific distinction between the role of the Council when considering issuing a certificate under s 224(c) of the Resource Management Act, and the issue of a code compliance certificate under the Building Act 2004 which has led to a duty of care being imposed on councils in defined circumstances. Counsel submitted that the complexity of the assessment required prior to the issue of a certificate under each of the Acts is similar, but under the Building Act a council employs its own inspectors and makes its own assessment based on their reports, as well as on the reports and certificates of individual tradesmen such as the electrical contractor involved, whereas under the Resource Management Act the decision to certify is made on the basis of reports from the developers’ consultants, engineers, surveyors and so forth and not by the council’s own expertise.
[33] This places another layer of input and expertise between the local authority and the developer and the council does not have a personal inspection or assessment role. Even if it is not satisfied with the reports submitted to it, local authorities will engage expert assessments at the developers’ expense rather than making any in house assessment of the quality of the work. Thus, counsel submitted, no analogy can be drawn with Building Act cases.
[34] On vulnerability, counsel emphasised (as identified in the Three Meade Street case) that the council charges a fee in the region of $200 to $400 for its function under s 224(c), and noted that condition 4.5 itself required the submission by the developer of an engineer’s certificate. He submitted that there is no requirement or expectation that a local authority undertake an investigative or inspectoral role. It is for a developer itself to reach a point where it has sufficient certainty of its position that it can place this before the council in the expectation that the council will accept and rely on the same advice; to then impose a duty of care in favour of a subsequent purchaser would be to impose a duty of care at one step removed from the initial developer, to whom a duty of care is not owed, as determined in Three Meade Street. This would render the council vulnerable for assessments made not by it but by others.
[35] In contrast the council was entitled to expect the present plaintiff (respondent) to obtain warranties from previous owners as well as pre-inspection reports, and in the absence of such warranties, given the initial developers’ apparent insolvency, to take even more care by way of independent assessment and advice. Counsel submitted that it would be quite unreasonable to transfer the respondent’s need to protect its own financial interests onto a local body which is carrying out a statutory function defined in both the Act and in the conditions imposed on the resource consent. The respondent is well able to protect its own vulnerability.
[36] On the third element, nature of the loss, counsel pointed out that the loss claimed is purely economic and not based on any risk of damage to property or any underlying risk to the health or personal safety of any person.
[37] The fourth issue is the statutory background defining the relationship. Under s 104 of the Resource Management Act 1991 a consent authority is required to take into account a number of specified sources of information and direction. Having done so, and determined that a consent should be granted, a consent authority is entitled to impose conditions under s 108, and on consents for subdivisions, to impose conditions under s 220. This is the course followed in this case. Section 224 of the Act is a restriction upon deposit of a subdivision plan with the Registrar General of Land, the restriction being that it may not be deposited until there is lodged with the Registrar General a certificate from the territorial authority stating, amongst other matters, that all of the conditions of the subdivision consent have been complied with to the authority’s satisfaction, or in relation to those which have not been complied with (but which come within the terms of s 221) that a consent notice has been issued for registration on titles which will be issued for allotments on the subdivision. This requirement is therefore directly related to satisfaction of conditions imposed on the resource consent, which in turn are imposed upon the decision to grant resource consent which are imposed to ensure that the subdivision achieves the overall purpose of the Act, of sustainable management (s 5). Therefore the requirement for a certificate under s 224 is derived by a sequential and logical process from an assessment of the proposal against the purpose of the Act.
[38] Counsel referred to Bella Vista Resort Ltd v Western Bay of Plenty District
Council,17 at [25]:
I am satisfied that the proper conceptualisation of the statutory duty in the present case is that a consent authority must act within its power to issue consents in conformity with the purposes of the Act, namely, the promotion of the sustainable management of natural and physical resources (s 5(1)). In assessing sustainable management, a consent authority is directed to consider the need of communities to provide for their social, economic and cultural well-being as well as environmental protection: (s 5(2)). This direction does not mean that consent authorities are necessarily to be liable for an individual’s economic loss. The Privy Council, in McGuire v Hastings District Council [2002] 2 NZLR 577 at para [21], held that the true interpretation of s 5 does not allow the definition of sustainable management to be broken up into its component parts. The underlying purpose of the consent process is to provide a system whereby proposed activities can be assessed in terms of their impact on the environment and their sustainability. It does not require an assessment of the economic well-being of individual applicants, or subsequent purchasers.
[39] Thus, counsel submitted that the purpose of the consent process is to provide a system whereby activities are assessed and implemented in terms of their impact on the environment. No assessment is made of, nor is protection given to, the economic well-being of the applicant for consent; less so, therefore, can there be a duty to protect the economic wellbeing of a subsequent purchaser of the developed property.
Argument for the respondent
[40] Mr Downing for the respondent commenced his argument with the proposition that as the three important conditions in issue in this case had not been complied with at the time a request was made to issue a s 224(c) certificate, and as there was no obligation on the Council to agree to issue the certificate, it should not have done so given that there was substandard workmanship in relation to compaction of necessary landfill, and a major portion of the land had not been raised to above flood level as required. Having decided wrongly to issue the certificate, the Council failed to properly fulfil the second limb of the process, namely the issuing of a consent notice, as the notice issued related only to the stage 1 land and not the
stage 2 and 3 land, whereas the conditions referred to were all required to be fulfilled
17 Bella Vista Resort Ltd v Western Bay of Plenty District Council [2007] 3 NZLR 429 (CA).
for the entire site at the time stage 1 was completed. Thus the local authority did not take any steps to put on notice any potential purchasers of the stage 2 and 3 land that the landfill and flood protection works had not been completed. He described these as administrative actions of the defendant without any quasi judicial element, unlike the original grant of resource consent which he accepted did not give rise to a duty of care – Smaill v Buller District Council (above at [26]).
[41] Mr Downing submitted that the case also involved Council officers providing incorrect information which may attract liability (Shaddock and Court above at [28]). He accepted that there is not, presently, any pleading of a cause of action for incorrect advice from Council officers and indicated that he would seek to amend the statement of claim accordingly.
[42] Mr Downing submitted that the Building Act cases, by analogy with which this claim could not succeed, were not determinative of the issue because different considerations arise under the Resource Management Act, including different considerations about how potential purchasers of land may protect themselves and how local authorities may protect themselves from liability. He described the law in this area as developing and “somewhat confusing and far from settled”, and pointed out that the onus is on the applicant to convince the Court that there is no possibility whatsoever of this claim ever succeeding. Counsel referred to the need to identify and then consider policy issues which could not be done on a strike-out application.
[43] Counsel sought to distinguish the passage from Three Meade Street, above at [29]-[30], where reference is made to the council in that case having to satisfy itself principally as to the safety of a building for its occupants and users. He submitted that the issues are different under the Resource Management Act and it was open to the council to simply refuse to issue the s 224 certificate. Instead it had voluntarily taken upon itself to do so, when not required.
[44] Turning to vulnerability, Mr Downing submitted that the Council was in control of the process and was in a position to give notice of the true position at large, including to the purchasers, merely by following the correct statutory process, presumably at little or no expense. On the other hand the plaintiff undertook
extensive research including checking the Council’s records and discussing the subdivision with the Council’s planner and engineer, but was never alerted to the problems.
[45] Counsel then referred to the purpose of the Resource Management Act, and its emphasis on sustainable development of resources for future generations, and on avoidance or mitigation of the adverse effects on the environment. The flooding condition was a requirement directed at avoiding the adverse effect of flooding altogether. He submitted that, in contrast, the purpose of the Building Act, to promote the accountability of (amongst others) Building Consent authorities who have responsibility for ensuring that building work complies with the building code, is narrow, but the purpose of the Resource Management Act is broader than that in the Building Act and, accordingly, a duty to the wider community can be found.
[46] Turning to the distinction drawn between residential land owners and commercial owners, Mr Downing relied on Marlborough District Council v Altimarloch Joint Venture Ltd & Ors,18 where the Supreme Court has found that a local authority can be liable to a commercial plaintiff for wrong information in a Land Information Memorandum, even though the information was outside the scope of information it was required to provide.
Discussion: Part 1 - Was a duty of care owed?
[47] In Attorney-General v Carter (above at [25]) the Court stated that in a situation not covered by authority (as here) 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. The very fact that the assessment to be made on whether a duty of care is owed is whether it would be fair, just and reasonable to do so, of itself rings loud warning bells on an application to strike out a proceeding. I return to this in Part 2 of this discussion; for now, I discuss proximity and policy to determine whether it would be fair, just and reasonable to hold that a duty of care is owed in the
circumstances of this case.
18 Marlborough District Council v Altimarloch Joint Venture Ltd & Ors [2012] NZSC 11.
[48] I start by recording relevant facts. The respondent is a commercial enterprise in the position of any other commercial organisation within the business community, contemplating embarking on a business venture and for that purpose requiring information on a crucial aspect of the proposed venture, here the state of any resource consent that might have been granted in relation to the property in contemplation for that business venture. The relationship between the respondent and the applicant in this case is no closer than that between a local authority and any business organisation with a similar intention. The respondent had not engaged the services of the applicant, in one or other of its statutory roles, nor did the applicant hold itself out to the business community as having any specialist knowledge or expertise beyond that of a local authority exercising specific statutory functions. The applicant did not through any of its staff make an assessment of the quality or sufficiency of the workmanship undertaken by the consent holder (as it would have done with an application for a certificate of compliance under the Building Act); rather, it relied entirely on the expertise of the consent holder’s professional advisors and assessors, as the conditions attaching to the resource consent indicated it would. All of the conditions in Part 4 of the conditions imposed on the resource consent require, where relevant, reports and certificates from the subdivision engineer who is defined as a chartered professional engineer with expertise and experience in the matters controlled by the relevant condition.
[49] In relation to proximity, it is convenient to adopt for discussion purposes the classification of factors identified in Harbour City Developments Ltd v Owen, whilst at the same time bearing in mind that ultimately the issue is whether it is fair, just and reasonable to hold that a duty of care is owed.
[50] First, there is not in my view an analogous situation to that arising in the present case. I accept for present purposes that there are distinct differences between the role and actions of a local authority under the Building Act, and its roles and actions under the Resource Management Act, as submitted by counsel for the applicant and summarised at [32]-[33].
[51] Secondly, whilst a party in the respondent’s position (or for that matter any
other member of the public) has a degree of vulnerability if it relies on the actions of
the Council under ss 224(c) and 221, equally that vulnerability can be mitigated or eliminated by obtaining warranties from the developer of the land. Even though these are not necessarily always available, as for example in this case, the vulnerability can still be mitigated or eliminated by the engagement of specialist professional advisors as part of a competently undertaken due diligence process. In my view it is strongly arguable that a territorial authority is entitled to expect that an intending commercial developer of land will engage and act upon the advice in relevant professional disciplines. This was recognised by Venning J in Three Meade Street, [29]-[30] above. Conversely, the potential burden on a local authority of an imposition of liability in the present circumstances would appear to be substantial. Apparent accepted practice, reflected in the terms of the conditions imposed on this consent, is to act on the consent holder’s engineers’ certificates. I use the word “apparent” because the Court did not receive any evidence on this point, a matter of relevance in Part 2 of this discussion. If that is the position, however, the imposition of a duty of care in these circumstances might necessitate the engagement by the local authority of its own advisors, either as staff members or consultants, as is apparently the case under the Building Act.
[52] Thirdly, the nature of the loss claimed is economic; I accept the submission by counsel for the applicant that proximity is less likely to be found where the loss is purely economic.
[53] Fourthly, the statutory or contractual background defining the relationship between the parties does not support the finding of sufficient proximity to impose a duty of care. There is no contractual relationship between the parties. The statutory context is described in [37] above. The respondent was a stranger to the consent process that had been undertaken. Conditions imposed in that process were put in place to avoid, remedy or mitigate adverse effects of the proposal on the environment, and to achieve the purpose of the Act, being sustainable management of natural and physical resources. This suggests that there is insufficient proximity between the consent authority, and a company which later takes into account the result of the local authority’s exercise of its statutory function, for a duty of care to that company to be recognised.
[54] For these reasons 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.
[55] In relation to policy, no evidence was called on wider issues that might be involved in deciding for or against a duty of care, in itself demonstrating the fragility inherent in endeavouring to determine the existence or otherwise of a duty of care on a summary application such as this. Again, I return to this in Part 2 of this discussion. For present purposes I confine my comments to one point – the purpose of the Resource Management Act. In Carter the Court held a claim for economic loss could not succeed given the policy of the Shipping and Seamen Act 1952 of the protection of ships and passenger safety, as distinct from the economic interest of ship owners. The purpose of the Resource Management Act is to promote the sustainable management of natural or physical resources (s 5). Sustainable management is defined as meaning:
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.
[56] Section 104 of the Act requires a consent authority considering an application for resource consent to have regard to any actual and potential effects on the environment of allowing the activity, and any relevant provisions of certain planning documents, together with any other matters the consent authority considers relevant and reasonably necessary to determine the application. This is expressed to be subject to Part 2 of the Act, which contains not only the purpose of the Act as defined in s 5, but also ss 6, 7 and 8 which set out specific matters for consideration, to varying degrees, by those exercising functions and powers under the Act. All these provisions are directed to the environment as broadly defined and, to put it in
general terms, to high level community values. At no point is there any reference to a specific right of an individual, or a commercial enterprise, to be protected from economic loss by the way the local authority goes about exercising its statutory functions in relation to granting resource consents. The process in s 224(c) is derived directly from the consent process, as discussed in [37].
[57] To the extent therefore that it is competent for the Court to comment on policy on an application to strike out, nothing in the Resource Management Act supports the imposition of a duty of care in relation to the exercise of the applicant’s functions under s 224.
[58] For these reasons I think it highly unlikely that a duty of care would be imposed upon the applicant in the circumstances presently alleged by the respondent.
Part 2 – Discussion of Couch v Attorney-General
[59] It is necessary to decide on a principled basis whether my strong misgivings about the existence of a duty of care by the applicant to the respondent in the circumstances of this case leave me satisfied that the plaintiff’s claim cannot succeed, given the clear guidance on this issue in Couch v Attorney-General.
[60] This is a case where a duty of care is alleged which has not been recognised by previous authority. As noted by the Supreme Court in Couch at [32], caution must be exercised to prevent injustice to the respondent, and additionally to avoid “skewing the law with confident propositions of legal principle” when the evidence before me on issues which I consider to be relevant to a decision in relation to proximity and policy, is absent. I am mindful that in Barrett v Enfield London Borough Council, liability in negligence for the exercise or non-exercise of a statutory duty or power was identified as a confused and developing area of the law, leading to Lord Browne-Wilkinson considering it to be of great importance in such cases that findings are made on the basis of actual facts proved at trial, not on hypothetical facts assumed to be true for the purposes of strike-out. Lord Slynn in the same case emphasised that the question of whether it is just and reasonable to
impose a liability of negligence is not to be decided in the abstract; it is to be decided on the basis of that which is proved.
[61] Although the views of Elias CJ and Anderson J were not expressly endorsed by Tipping J for the majority, at [126] of the judgment Tipping J said:
As it is possible there may be proximity between the Department and Ms Couch on the basis just outlined, it is necessary to address the question of policy. The claim should be struck out on the ground that policy militates against a duty of care only if, at this stage of the proceedings, it can be said that this is undoubtedly so. Claims in tort relying on breach of a duty of care have of course been struck out in the past on this basis. But everything depends on the circumstances and, in particular, on whether it is necessary or desirable for the case to go to trial to enable a fair and fully informed policy determination to be made.
[62] Therefore I approach this case with extreme caution. In my view, whilst there are very strong reasons on the material I have to hold grave reservations that a duty of care would be found in the present circumstances, it is possible to identify distinct points upon which more evidence would give a court at trial a much firmer basis upon which to make a finding on whether it is fair, just and reasonable to find a duty of care, given proximity and policy considerations. The first is an examination of the process followed by a local authority upon application for a certificate under s
224(c). In discussion above [51] I have indicated that I have made an assumption on this point for the purpose then under discussion. A decision that as a matter of policy a duty of care should not be imposed cannot be made on an assumption.
[63] Secondly, counsel for the respondent submitted that it is usually the practice of a local authority to require full, or virtually full, compliance with resource consent conditions before releasing a certificate under s 224(c), and to leave only minor, or a minority of, conditions to be the subject of a consent notice. Whilst that may be assumed to be common practice, and is an interpretation open on the scheme of the Act (given the limitation of consent notices in s 221) equally it does not appear to be specifically provided for and again an assumption is not sufficient in this context.
[64] Thirdly, it may be relevant to a consideration of policy issues for a court to have evidence of the cost to local authorities of imposing a condition as sought. Counsel for the applicant submitted that it would be necessary for councils to
employ, or at least externally engage, their own experts to make assessments, just as they employ building inspectors (or engage assessors in that role) for assessments under the Building Act, were a duty of care to be imposed. I do not accept that is necessarily so, but even if it is, consent authorities have power to pass on the direct and reasonable costs of the consent process to applicants, and the potential for incurring additional cost at the stage of issue of a s 224(c) certificate may be a matter which can be dealt with at the consent stage by the imposition of a condition laying that cost at the feet of the applicant. There would appear to be room for debate on whether that would come within the terms of ss 108 and 220 of the Act and whether the imposition of such a condition could be justified as intending to meet the purpose of the Act, that being the issue against which the imposition of conditions must be tested. Given the argument raised by the applicant, I cannot rule out consideration of this issue as an element of a policy decision.
[65] As noted in [55] no evidence was called to guide the Court on whether other policy considerations may be relevant.
[66] Policy considerations are relevant not only to recognition of a duty of care, but also to alleged breach and damages: Couch v Attorney-General.
[67] On balance, and notwithstanding the views I have expressed in relation to the likelihood of this claim succeeding, the limitations inherent in summary consideration of a novel duty of care direct me to decline the application.
Second cause of action
[68] The principal focus of the applicant’s argument was on the alleged duty of care. It submitted that if the Court found a duty of care did not exist, it would be inappropriate to allow the plaintiff to allege breach of statutory duty, relying on Three Meade Street at [67]. Given my decision not to strike out the cause of action based on negligence, this cause of action will remain.
Outcome
[69] The application to strike out is declined. The respondent is entitled to costs on a 2B basis plus disbursements fixed by the Registrar.
Directions
[70] Any amended statement of claim is to be filed and served within 20 working days, standard discovery is to be completed within a further 10 working days, and there will be a final case management conference (by telephone) on Tuesday,
24 July 2012 at 2.30 pm with me. Trial directions will be made at the conference so counsel are to be in a position to advise the Court of the number of witnesses each intends to call, divided between witnesses of fact and experts, and to give the Court a realistic estimate of likely trial duration, as well as an indication of any specific trial requirements. Counsel are asked to confer on these issues with a view to filing a joint memorandum, but if that is not possible, separate memoranda. These are to be
filed a minimum of three clear working days before the conference.
J G Matthews
Associate Judge
Solicitors:
Cavell Leitch Pringle & Boyle, PO Box 799, Christchurch. Email: [email protected]
McFadden McMeeken Phillips, PO Box 656, Nelson. Email: [email protected]
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