Tauranga City Council v Harrison Grierson Holdings Limited
[2024] NZHC 714
•28 March 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-002282
[2024] NZHC 714
BETWEEN TAURANGA CITY COUNCIL
Plaintiff
AND
HARRISON GRIERSON HOLDINGS LIMITED
First Defendant
CONSTRUCTURE AUCKLAND LIMITED
Second Defendant
Hearing: 1 - 4 May 2023 Appearances:
A R B Barker KC, J L Libbey & N Speir for the Plaintiff C T Walker KC & L G Cox for the First Defendant
D S McGill & K J Rowe for the Second Defendant
Judgment:
28 March 2024
JUDGMENT OF TAHANA J
This judgment was delivered by me on 28 March 2024 at 5.30pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Rice Speir, Auckland
Andrew Barker KC, Barrister (Shortland Chambers), Auckland Morgan Coakle, Auckland
Campbell Walker KC, Barrister, Auckland Duncan Cotterill, Auckland
TAURANGA CITY COUNCIL v HARRISON GRIERSON HOLDINGS LIMITED [2024] NZHC 714 [28
March 2024]
TABLE OF CONTENTS
[Para No.]
PRELIMINARY ISSUES 1
Questions to be answered 10
Background 12
Engagement of Harrison Grierson 12
Engagement of Constructure 23
Preparation of design 28
Construction of the carpark 39
PART ONE: LIABILITY FOR BREACH OF A DUTY UNDER THE BA04 55
Does the BA04 give rise to any duty on each defendant? 55
Pleaded duties 57
Duty of care prior to the BA91 65
Building Act 1991 78
Duty of care under the BA91 93
Spencer on Byron 97
Relevance of statutory framework 102
Undermining contract 115
Class of building owners 128
Economic consequences and societal interests 130
Special role of territorial authorities 139
Dissenting judgment 145
Application to the BA04 151
Summary of findings 154
Building Act 2004 165
Purposes 168
Building code compliance 177
Responsibilities 179
Duty of care under the BA04 185
Is design work building work? 208
Conclusion — does the BA04 give rise to any duty on each defendant? 222
When is a contract illegal under the CCLA? 224
Is each limitation clause contrary to the duty and therefore in breach of the BA04? 229
Limitation clauses 229
Relevant legal principles 232
Do the findings in Spencer on Byron determine the issue? 236
Statutory framework under the BA04 250
Purposes 250
Responsibilities of parties 251
Consumer protection regime 259
Market evidence — limitations of liability 275
Does the object of s 17 of the BA04 clearly so require illegality? 294
Overall conclusion — liability under the BA04 301
PART TWO: LIABILITY UNDER THE FAIR TRADING ACT 1986 310
Is each limitation clause enforceable under the FTA? 310
Relevant provisions of FTA 310
Is there a contract, arrangement or understanding in writing? 314
Are the parties in trade? 323
Did the parties agree to contract out of s 9? 325Is it fair and reasonable that the parties are bound by the limitation clause? 333
Conclusion — liability under the FTA 339
PART THREE: LIABILITY FOR NEGLIGENT MISSTATEMENT 340
Is each limitation clause enforceable as a defence to the claim for negligent
misstatement? 340
OVERALL CONCLUSION 346
Costs 354
PRELIMINARY ISSUES
[1] What was meant to be a transport hub for 550 cars and 250 bicycles in the centre of Tauranga was sold by Tauranga City Council (TCC) for $1 after the partially built structure defected. TCC says it lost over $20 million, which it now claims from the defendants.1 The first defendant, Harrison Grierson Holdings Ltd (Harrison Grierson) designed the structure, and the second defendant, Constructure Auckland Ltd (Constructure) was engaged to review the structural design.
[2] The parties agree that the Court should determine as preliminary issues prior to trial, whether the liability of each defendant pursuant to any of the five pleaded causes of action2 is limited by reason of limitations of liability contained in each defendant’s terms of engagement with TCC and contained in producer statements issued by each defendant (the limitation clauses). The limitation clauses purport to limit each defendant’s liability to a specified amount (the liability cap).
[3] Three of the causes of action (breach of a duty at common law, breach of a statutory duty under the Building Act 2004 (BA04) and breach of a contractual duty) allege a duty relating to compliance with the building code.3 TCC says that the duty arises from the statutory requirements of the BA04 which include a requirement that building work comply with the building code.4 That parties cannot contract out of the BA04 and the limitation clauses are therefore in breach of the BA04 and are illegal under the Contract and Commercial Law Act 2017 (CCLA).
[4] TCC also claims that statements by each defendant that the carpark as designed will comply with the relevant provisions of the building code were false; that the defendants therefore breached s 9 of the Fair Trading Act 1986 (the FTA) and engaged in negligent misstatement; and that the limitation clauses do not comply with the
1 TCC quantifies its loss as including wasted costs of $20,598,807.31 plus GST, loss of land value of $5,350,000, investigation costs, and consequential losses as set out at [68] of its amended statement of claim dated 1 April 2021.
2 The Council pleads five causes of action: breach of a duty of care (negligence); breach of a statutory duty under the Building Act 2004 [BA04]; breach of a duty of care (negligent misstatement); breach of s 9 of the Fair Trading Act 1986 [FTA]; and breach of contract.
3 The nature of each duty as pleaded by TCC is set out at [57] to [61] of this judgment.
4 BA04, s 17.
requirements for contracting out of the FTA. TCC says it is entitled to rely on the producer statements and the limitation clauses contained therein do not apply.
[5] In their defence, each defendant relies on the relevant limitation clauses to limit their respective liability. The preliminary issues therefore require that I determine whether the limitation clauses are enforceable as a defence to each cause of action.
[6] TCC relies on the Supreme Court’s decision in Body Corporate 207624 v North Shore City Council (Spencer on Byron) and says the Court has already made findings that support a party not being able to contract contrary to the statutory requirement that building work comply with the building code.5 That case concerned building work subject to the Building Act 1991 (BA91) which also included a statutory requirement that building work comply with the building code.6
[7] TCC says the findings in Spencer on Byron apply to building work subject to the BA04 because it contains the same statutory requirement and purposes; and that limiting liability for breach of the duty arising from the statutory requirement is therefore in breach of the BA04 and is illegal and/or unenforceable under the CCLA.
[8] In response, the defendants say Spencer on Byron was not concerned with the enforceability of limitations of liability; that no Court has since held that an engineer cannot limit liability; and that for this Court to determine that the limitation clauses are unenforceable would therefore amount to a “revolution.”
[9] The findings in Spencer on Byron are therefore pivotal to this case. I must determine whether those findings apply to building work that is subject to the BA04 and if so, whether they are relevant when determining whether the limitation clauses are illegal or unenforceable under the CCLA.
Questions to be answered
[10]In summary, I must determine the following issues:
5 Body Corporate 207624 v North Shore City Council [2012] NZSC 83; [2013] 2 NZLR 297 [Spencer on Byron] at [193].
6 BA91, s 7.
(a)Liability for breach of a duty at common law, breach of a statutory duty and/or breach of a contractual duty by reason of a duty arising under the BA04:
(i)Does the BA04 give rise to any duty on each defendant?
(ii)If yes, is each limitation clause contrary to that duty and therefore in breach of the BA04?
(iii)If yes, does the object of the BA04 clearly so require that each limitation clause is illegal and/or unenforceable?
(iv)Alternatively, is each limitation clause contrary to public policy?
(b)Liability under the FTA: is each limitation clause enforceable under s 5D of the FTA such that liability under the FTA is limited?
(c)Liability for negligent misstatement: is each limitation clause enforceable as a defence to the claim for negligent misstatement?
[11] Before answering each of the above questions, I set out the relevant factual background.
Background
Engagement of Harrison Grierson
[12] On 10 March 2017, TCC invited two structural engineers to tender for the structural design of the carparking hub.
[13] On 14 March 2017, Harrison Grierson submitted its response and proposed that it engage with TCC on the terms of a standard short form agreement issued by the Association of Consulting and Engineering New Zealand (ACENZ) and the Institute of Professional Engineers New Zealand (IPENZ) (now Engineering NZ Te Ao Rangahau) (the SFA).
[14] After discussion between TCC and Harrison Grierson, Harrison Grierson agreed to engage on the terms of the long form agreement issued by Engineering NZ entitled “Conditions of Contract for Consultancy Services, 2009 3rd ed” (CCCS Terms). The CCCS Terms specify general conditions and include appendices and special conditions.
[15] On or about 28 March 2017, TCC approved the award of the contract to Harrison Grierson. The parties discussed the scope of the services and TCC’s agent sent a copy of the draft special conditions and the general conditions of the CCCS Terms.
[16] The final agreement (the HG Contract) was not signed by TCC but it is accepted that the design work from April 2017 onwards took place on the basis of the HG Contract as executed by Harrison Grierson.
[17] The scope of the services to be provided by Harrison Grierson included that it produce a structural design and provide structural design services; prepare design drawings and specifications suitable for submission to TCC for consent purposes; and provide PS1 and PS4 (producer statements) for the project.7
[18] Harrison Grierson was required to use the degree of skill, care and diligence reasonably expected of a professional consultant providing similar service.8
[19] The general conditions provide for a limitation of liability to be specified in the special conditions as follows:9
6.2 Limitation of Liability
The maximum aggregate amount payable, whether in contract, tort or otherwise, in relation to claims, damages, liabilities, losses or expenses, is as specified in the Special Conditions.
[20] The special conditions specify the amount of the limitation of liability as follows:10
7 Appendix A, cl 2.2, 2.5 and 2.6.
8 General conditions, cl 2.2.
9 General conditions, cl 6.2.
10 Special Conditions, Part A, cl 6.2
6.2 Limitation of Liability*
The maximum amount payable shall be:
Professional Liability: five times the fee with a minimum limit of $500,000 and a maximum limit of $2,000,000
Public Liability: $10,000,000 in aggregate
[21] The general conditions at cl 6.6 required that Harrison Grierson provide a certificate of insurance, which it did, specifying an indemnity limit of $2 million. That reflects the amount of the limitation of liability at cl 6.2.
[22] The agreed fee for Harrison Grierson’s services was $250,000 excluding GST. The fees ultimately charged exceeded $400,000 so the liability limit of $2 million applies.
Engagement of Constructure
[23] On 17 November 2017, Constructure provided a fee proposal to TCC for a structural peer review of the proposed transport hub. Constructure proposed a fee of
$15,000 plus GST and engagement conditions based on the SFA issued by ACENZ/IPENZ. The SFA contained one page of terms and conditions and a summary sheet which referred to the fee proposal for the scope of the services.
[24]The fee proposal described the scope of the services as:
1. Peer review of proposed car park structure.
2. Provision of Producer Statement – PS2 – and associated documentation (stamped drawings and peer review communications/queries log).
[25]The SFA terms include a limitation of liability as follows:11
The maximum amount payable, whether in contract, tort or otherwise, in relation to claims, damages, liabilities, losses or expenses, shall be five times the fee (exclusive of GST and disbursements) with a maximum limit of
$NZ500,000.
[26]The SFA terms also required that:12
11 SFA at [11].
12 SFA at [4].
In providing the Services the Consultant shall exercise the degree of skill, care and diligence normally expected of a competent professional.
[27] TCC accepted the SFA terms, and the parties engaged on that basis (the Constructure Contract).
Preparation of design
[28] Between 20 March and November 2017, Harrison Grierson prepared the structural design and specifications for the carpark.
[29] On or about 24 November 2017, Harrison Grierson issued a “Detailed Design Features Report for the Harrington Street Carpark.” At the same time, it issued its first producer statement (PS1) to TCC as owner to be provided to TCC as building consent authority.
[30] The PS1 was on a form copyrighted to ACENZ, IPENZ and NZIA and was issued to TCC as owner to be supplied to TCC as building consent authority in respect of the structural design of the carpark. The PS1 identified B1/VM1 and B2 as the relevant building code clauses.
[31]The PS1 contained the following statement:
I believe on reasonable grounds that: a) the building, if constructed in accordance with the drawings, specifications, and other documents provided or listed in the attached schedule, will comply with the relevant provisions of the Building Code and that b), the persons who have undertaken the design have the necessary competency to do so. I also recommend the following level of construction monitoring/observation:
[32] The PS1 attached a letter indicating that Harrison Grierson was unable to provide a PS1 for clause B2 of the building code (structural durability) because “there is no effective verification method for B2 contained within the Building Code.” However, Harrison Grierson confirmed the timber, concrete and mild steel structural elements.
[33]The PS1 also included a disclaimer and limitation of liability as follows:
Note: This statement shall only be relied upon by the Building Consent Authority named above. Liability under this statement accrues to the Design Firm only. The total maximum amount of damages payable arising from the statement and all other statements provided to the Building Consent Authority in relation to this building work, whether in contract, tort or otherwise (including negligence), is limited to the sum of $200,000.
[34] On or about 28 November 2017, Harrison Grierson issued the building consent drawings for the carpark structure.
[35]On 30 January 2018, TCC applied for building consent.
[36] On 13 March 2018 Constructure issued a producer statement (PS2) confirming compliance with B1/VM1 of the building code. Constructure advised TCC it was unable to provide a PS2 for B2 of the building code and provided a B2 compliance statement. The PS2 included the disclaimer and limitation of liability on the same terms as set out in the PS1 issued by Harrison Grierson.
[37] On or about 25 May 2018, Harrison Grierson issued the structural drawings for construction.
[38] On 10 July 2018, TCC, as building consent authority, issued a building consent. This was subsequently amended, on TCC’s application.
Construction of the carpark
[39]TCC engaged Watts & Hughes to construct the carpark.
[40] On 22 January 2019, Watts & Hughes emailed Harrison Grierson, concerned about part of the design relating to the pouring of concrete floors. Watts & Hughes queried the methodology due to “the steel beams not deflecting and ensuring minimal topping thickness” and asked Harrison Grierson to confirm the concrete pour methodology. Harrison Grierson confirmed that temporary support works/props were not needed for the pour.
[41] On 11 March 2019, Harrison Grierson issued a PS1 to TCC in respect of the “[s]tructural design of amendment to design including cranked foundation beams,
retaining walls, cantilever slab and wall panels to entry.” This contained a limitation of liability in the same terms as for the 24 November 2017 PS1. This PS1 confirmed compliance with B1/VM1, VM4 and B2 of the building code and attached a B2 compliance statement. The next day Harrison Grierson issued a PS2 confirming compliance with B1/VM1 and VM4 of the building code and attaching a B2 compliance statement.
[42] On 12 March 2019, Constructure issued a further PS2 to TCC containing the same disclaimer and limitation of liability.
[43] On 29 March 2019, Watts & Hughes noticed that a structural beam had twisted following a concrete pour and informed Harrison Grierson attaching photographs of the twisted beam. Harrison Grierson then visited the site, reviewed the twisted beam, and ultimately advised that the twisted beam would need to be cut out and the remaining beams should be propped to stop the problem from reoccurring.
[44] This incident prompted a wider investigation into the suitability of the design. In May 2019, Harrison Grierson internally reviewed its design and identified an earthquake resistance flaw. They provided revised drawings to TCC and issued another PS1 and another PS2. The revised design required a consent amendment which was provided on 15 May 2019.
[45] TCC engaged Holmes Consulting Ltd (Holmes Consulting) to carry out a high- level structural design review of the redesigned carpark.
[46] On 31 May 2019, Harrison Grierson issued a PS1 to TCC in respect of the “structural design of amendment to design including ramp sliding joints, beam and connections and slab”, for the purpose of an amended building consent application. It included a disclaimer and limitation of liability in the same terms as for the 24 November 2017 PS1.
[47] On 5 June 2019, Constructure issued a further PS2 in respect of Harrison Grierson’s design containing the same disclaimer and limitation of liability.
[48]On 17 July 2019, Holmes Consulting reported design deficiencies to TCC.
[49] In September 2019, TCC instructed Watts & Hughes to cease construction because of the defective design. The basement level was almost complete, and the above ground structure was partially complete.
[50] That same month TCC appointed a team of expert consultants to identify and quantify the defective design. The team included technical advisor Kestrel Group Ltd (Kestrel Group) and Holmes Consulting.
[51] On or about 3 October 2019, TCC engaged an independent engineering peer reviewer, Aurecon New Zealand Ltd (Aurecon) to consider Harrison Grierson’s remedial designs. Between October 2019 and June 2020, Harrison Grierson’s design team (in conjunction with Aurecon) and TCC’s team of consultants explored various remedial solutions.
[52]Arrangements to carry out remedial work continued into 2020.
[53] On 4 June 2020, TCC abandoned construction. The land was sold on 1 April 2021 for $1. TCC says the land effectively had no value because of the cost of demolishing the partly built structure.
[54] Having set out the relevant background, I now turn to each of the questions posed at [10] above.
PART ONE: LIABILITY FOR BREACH OF A DUTY UNDER THE BA04
Does the BA04 give rise to any duty on each defendant?
[55] As set out at [3] above, three of the causes of action allege a duty regarding compliance with the building code as required by the BA04. The defendants do not deny that a common law duty of care applies, but deny that any statutory duty arises by reason of the BA04 or that any common law duty arises which precludes the defendants from limiting their liability for breach of that duty.
[56] A key issue is therefore the nature of the duty that is owed by each defendant to TCC and whether that duty arises by reason of the BA04. That is relevant to whether a contract that may authorise a breach of that duty is an illegal contract under the CCLA. I therefore set out the pleaded duties and then consider whether the BA04 gives rise to any duty on each of the defendants.
Pleaded duties
[57] TCC generally pleads the same type of duty owed by each defendant. To the extent that the pleaded duty against Constructure is different to that pleaded against Harrison Grierson, this is specified.
[58]TCC pleads a common law duty of care as follows:13
70.Harrison Grierson, as structural engineer, [Constructure, as structural engineer peer reviewer] owed the council a duty of care to exercise reasonable skill and care in carrying out the HG Services [CAL Services]:
a.to ensure that reasonable skill and care was exercised in carrying out the HG services [CAL Services];
[in respect of Constructure only, to ensure that reasonable skill and care was exercised in the provision of the Producer Statement – PS2s and associated documentation ...]
b.to ensure that the Transport Hub was designed in accordance with and complied with the Design Standards14 (in particular but not limited to the Building Code); and
c.to ensure that any remedial design to the Transport Hub was undertaken to a reasonable standard of skill and care and complied with the Design Standards (in particular but not limited to the Building Code).
71.The above duty of care arises out of the following circumstances:
a.the council owned and was responsible for the Transport Hub;
bthe Transport Hub was designed and/or monitored under the control of Harrison Grierson as structural engineer; [the structural design of the Transport Hub was peer reviewed
13 Amended statement of claim at [70], [71], [95] and [96].
14 Amended statement of claim at [53] defines the Design Standards as: the functional and performance requirements of clauses B1 and B2 of the Building Code; the NZCIC guidelines; the specifications; and/or good trade practice including reasonable standards of skill and care.
under the control of Constructure as a structural engineer peer reviewer];
c.Harrison Grierson [Constructure] carried out its functions, including the HG Services [CAL Services], through its employees, subcontractors or agents;
d.Harrison Grierson [Constructure] was required to carry out the HG Services [CAL Services], in accordance with the Design Standards (in particular but not limited to [in the case of Harrison Grierson only, the NZCIC guidelines] and the Building Code); and
eHarrison Grierson [Constructure] knew that the Transport Hub was to be used as a public facility and knew, or ought to have known, that any failure to carry out the HG Services [CAL Services] with reasonable skill and care and in accordance with the Design Standards (in particular but not limited to the Building Code) could require repairs and/or cause loss to the council.
[59]TCC also pleads a statutory duty under the BA04, as follows:15
77.Harrison Grierson, as structural engineer, [Constructure, as structural engineer peer reviewer] owed a statutory duty to the council in carrying out the HG Services [CAL Services]:
a.to ensure that the Transport Hub was designed in accordance with and complied with the Building Code; and
[in respect of Constructure only, to ensure that the provision of the PS2s complied with the Building Code.]
b.[in respect of Harrison Grierson only] to ensure, by monitoring, that the Transport Hub was constructed in accordance with and complied with the Building Code; and/or
c.[in respect of Harrison Grierson only] to ensure that any remedial design to the Transport Hub complied with the Building Code.
78.The above duty to ensure that the structural design and/or monitoring complies with the Building Code [in the carrying out of the CAL Services] arises out of the Building Act 2004, including, but not limited to, the following provisions:
a.Section 14D of the Building Act 2004 records that a designer is responsible for ensuring plans and specifications are sufficient to result in building work that complies with the Building Code; and
15 Amended statement of claim at [77], [78], [102] and [103].
b.Section 17 of the Building Act 2004 requires that all building work must comply with the Building Code to the extent required by the Act; and
c.Section 18(1) of the Building Act 2004 requires that a person who carries out building work must achieve performance as prescribed in the Building Code (and no more).
[60] TCC also claims that Harrison Grierson breached the HG Contract and that Constructure breached the Constructure Contract (as applicable) as follows:16
92. In breach of the terms pleaded above, Harrison Grierson [or Constructure] caused the Transport Hub to be designed and/or constructed otherwise than in accordance with the Contract [and in respect of Harrison Grierson only, the Design Standards (in particular but not limited to the building code)], including but not limited to being designed and/or constructed with the defective design.
[61] TCC pleads that the HG Contract contains terms including that Harrison Grierson is responsible for ensuring the design’s compliance with the building code and relevant standards and codes of practice.17 In respect of Constructure, TCC pleads that the Constructure Contract contains terms including that Constructure is responsible for peer reviewing the proposed transport hub structure, providing a producer statement and taking out insurance.18
[62] Constructure adopted the submissions of Harrison Grierson on the nature of the duty owed by each defendant. Mr Walker KC for Harrison Grierson submitted that the Courts have never recognised a statutory duty under the BA04 owed by engineers to non-residential building owners as pleaded by TCC. The only duty is therefore a duty at common law to exercise reasonable skill and care as recognised in 1977 by the Court of Appeal in Bowen v Paramount Builders Ltd.19
[63] Mr Barker KC for TCC acknowledged that the Courts have not crafted the duty as a statutory duty to ensure building code compliance as set out at [59] but asserts that the caselaw supports each defendant owing a duty to exercise reasonable skill and
16 Amended statement of claim dated 1 April 2021 at [92] and [118].
17 Amended statement of claim at [91].
18 I note that the pleading does not include any contractual terms as to the standard of care required of Constructure in reviewing the structure and issuing producer statements.
19 Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA) [Bowen].
care with a view to ensuring the design (and review of the design) complies with the building code.
[64] For the reasons set out at in this part of the judgment, I agree with Mr Barker that the caselaw supports each defendant owing a duty to TCC to exercise reasonable skill and care with a view to ensuing the design (or review of the design) complies with the building code. I set out my analysis of the courts’ findings as from Bowen (when building controls were mandated by local councils in by-laws) to after New Zealand nationalised building controls under the BA91 and then the BA04. This part therefore considers the nature of the duty prior to the BA91, after BA91 and after the BA04.
Duty of care prior to the BA91
[65] The Court of Appeal in Bowen determined that a builder owed a duty to use reasonable care to prevent damage to a subsequent purchaser of a home. The subsequent purchaser brought a claim in negligence against the builder in respect of defective foundations. The house was built on peaty ground. The trust which sold the land to the commissioning owner had agreed to provide sub-foundations necessary for the owner’s building plans. The commissioning owner and builder agreed that the builder would construct the house as per specifications which provided for normal foundations. The sand pad installed by the trust proved to be inadequate and the house subsided.
[66] In finding a duty of care, Richmond P considered that the duty was directed at preventing damage to persons whom they should reasonably expect to be affected by their work:20
Quite clearly English law has now developed to the point where contractors, architects and engineers are all subject to a duty to use reasonable care to prevent damage to persons whom they should reasonably expect to be affected by their work.
...
[F]or the purposes of the present case I go no further than to recognise that a builder is liable for the negligent creation of a hidden defect which is a source
20 At 406.
of danger to third persons whom he ought reasonably to foresee as likely to suffer damage either in the form of personal injury or injury to their property.
[67] The duty arose as a matter of law so that the existence of a contract between the commissioning owner and builder did not negate a duty of care owed by the builder to a subsequent purchaser.21 The question being “whether an ordinary reasonably competent and prudent builder ought to have appreciated that there would be a real risk of danger if he proceeded with the design and erection of the building on the basis requested by [the commissioning owner].”22
[68] In Bowen, the Court acknowledged that the contract between the builder and commissioning owner may have “considerable relevance” in deciding whether the builder was negligent.23 For example, the contract may dictate the scope of the work the builder had agreed to undertake.24 The Court was not concerned with the enforceability of the contract as between the commissioning owner and builder nor with whether that contract was in breach of any statutory requirement so, it is not directly relevant to the issue this Court must ultimately determine.
[69] The duty in Bowen was not said to arise because of any statutory or regulatory requirement. It arose as a matter of common law in circumstances where a builder ought to reasonably foresee that a subsequent purchaser was likely to suffer damage to their property if they did not exercise reasonable care to prevent damage.
[70] The relevance of building controls was then considered by the Court of Appeal in Mount Albert Borough Council v Johnson.25 The Court held that a developer owed a duty of care to a subsequent purchaser in relation to inadequate foundations and the Council also owed a duty of care in relation to its supervisory functions. The lower Court had held that the developer and Council were equally liable to the subsequent purchaser. The Council appealed.
21 At 419.
22 At 408.
23 At 407.
24 At 407.
25 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA) [Mt Albert].
[71] The Court noted that it was the builder’s responsibility under the by-law to go down to a solid bottom.26 The developer had engaged a builder as an independent contractor. The Court considered that the developer had a duty to see that proper care and skill were exercised in the building of the houses and that it could not be avoided by delegation to an independent contractor.27
[72] Turning to the Council, the Court referred to the observation in Anns v Merton London Borough Council28 that the person responsible for construction in accordance with the by-laws is the builder, and that the inspector’s function is supervisory.29 Further, that it would be unreasonable to impose liability on the Council, if the builder, “whose primary fault it was”, should be immune from liability.30
[73] The Court held that the Council was negligent in failing to exercise reasonable care to observe the inadequacy of the foundations upon inspection.31 The Court did not consider that the Council’s fault should be put on a par with the developer. The Court apportioned liability four-fifths to the developer and one-fifth to the developer.32 That observation suggests that if a duty of care is owed by a council, a duty is also likely to be owed by the party undertaking the building work.
[74] The relevance of by-laws to any duty of care was also considered in Stieller v Porirua City Council.33 The Council appealed and the Stiellers cross-appealed a decision holding the Council liable in negligence. The lower Court had found the Council liable because the building inspector ought to have seen and recognised the weatherboards did not meet the grading standards required by the by-laws and should also have discovered the defects in the drainage and guttering and ensured that they were remedied before the building was completed.
[75] The Court of Appeal noted that the English cases had been decided in the context of the statutory provisions in the Local Government Act 1963 (UK) which
26 At 241.
27 At 241.
28 Anns v Merton London Borough Council [1978] AC 728, [1977] 2 All ER 492, 501.
29 Mt Albert at 241.
30 At 241.
31 At 241.
32 At 241.
33 Stieller v Porirua City Council [1986] 1 NZLR 84 (CA) [Stieller].
related to matters of public health. In contrast, in New Zealand, the statutory provisions covering the issue of building permits did not relate solely to matters of health or the safety of occupiers of premises and included defects to the exterior of the home.34 The Court considered that the by-law making power conferred on councils was wide enough to cover the construction of soundly built houses and to safeguard persons who might occupy those houses against the risk of acquiring a substandard residence.35 The construction of houses with good materials and in a “workmanlike manner” was a matter within the council’s control and a council might therefore be liable for defects in exterior cladding even though questions of health and safety did not arise.36
[76] Stieller confirms that the Court was willing to enforce the standards imposed in by-laws by recognising a duty of care in negligence owed by territorial authorities to building owners when exercising their supervisory functions under those by-laws. This suggests that those actually undertaking the building work are also likely to owe a duty of care to building owners in relation to requirements imposed by building controls.
[77] The building control regime then changed with the introduction of the BA91, which applied to all building work in New Zealand.
Building Act 1991
[78] It is necessary to set out the history of the BA91 as this is the legislation relevant to the Supreme Court’s finding in Spencer on Byron. It is also the predecessor to the BA04 so provides the whakapapa (history and links) to what became the BA04.
[79] The BA91 followed a decade of research and study which culminated in the 1990 Report of the Building Industry Commission to the Minister of Internal Affairs, “Reform of Building Controls” (the 1990 Report).37 In considering the need for reform, the 1990 Report noted that while the building control regime was effective in
34 At 93.
35 At 94.
36 At 94.
37 Reform of Building Controls: Volume I: Report to the Minister of Internal Affairs (Building Industry Commission, January 1990) [1990 Report].
producing buildings that did not endanger health and safety, it lacked innovation and efficiency and imposed heavy costs on consumers:
2.9This complex system of control authorities, agencies and documents has ensured that buildings which endanger the health and safety of users are rare in New Zealand. All buildings have a potential for causing illness, injury, loss of life and damage to neighbouring property, yet the incidence of these events throughout the country is very low.
2.10Concerns with the present system stem from other areas: requirements are complex and prescriptive; the system is unresponsive to technological change and inhibits innovation, and it absorbs large amounts of resources by central and local government in its administration, and by building producers in compliance, imposing heavy costs on the consumer.
[80] The above commentary highlights the tension between health and safety on the one hand and innovation and efficiency on the other. While the 1990 Report considered the former had been achieved under the building controls regime, the latter arguably had not, and reforms were considered necessary to achieve those additional objectives.
[81] Despite a desire to make building controls more efficient, the 1990 Report noted that controls remained necessary so that commercial objectives did not outweigh social objectives or defeat the purpose of achieving innovation. Insurance was considered important to protect against losses caused by negligence:
2.48 The Commission has concluded that insurance does not remove the need for regulatory building controls. Some regulatory controls are required to ensure that commercial objectives do not outweigh social objectives of building control – or defeat the purpose of reform by conservative attitudes to innovation. Insurance does, however, have a significant place in the overall control system by providing indemnification cover in the event of negligence and accident and property insurance.
…
2.70 The first criterion is that the regulatory control system must be limited to requirements that are essential to protect the people affected that cannot be assured by private arrangements.
2.71 Other criteria must also be used to assess the behaviour and effectiveness of the proposed system:
…
· Building producers and owners need reasonable certainty as to whether or not their activities comply with control requirements.
Equally, the general public requires reasonable certainty that control provisions are being complied with.
[82] The terms of reference to the 1990 Report are helpful in understanding the objective of the Government in reforming building controls. The terms acknowledged that building control should not be left to the laws of contract alone to regulate and that standards to protect safety are necessary:38
Buildings have a number of features, however, which would be likely to result in undesirable decisions in some instances if the normal laws of contract were the only rules applied. …
…
There is a risk, therefore, that builders or owners, in order to save costs, would construct and operate buildings which were of lower standards in terms of safety or general amenities than would be desirable (taking into account both the costs of improved safety and the interests of all of the potential users). To prevent this requires that developers somehow be held financially (or criminally) responsible for the costs or risks they impose on others, or that there are some other forms of more direct restraints on their actions.
[83] The above passage indicates that holding parties financially (and potentially criminally) responsible was a mechanism that would assist in protecting against lower standards in terms of safety. The consequence of the 1990 Report was the introduction of the BA91.
[84] To the extent that the BA91 and BA04 share the same statutory framework and purposes, the background and purpose of the BA91 are relevant to whether any court findings regarding the BA91 apply when interpreting the provisions of the BA04. I therefore outline the key provisions of the BA91.
[85] The purposes of the BA91 were directed at imposing controls to achieve safety for building uses as set out in s 6:
6.Purposes and principles—
(1)The purposes of this Act are to provide for—
38 1990 Report, Appendix 1, Terms of Reference for the Building Industry Commission: Economic Framework: Aligning Private Incentives with Community Interests at [3].
(a)Necessary controls relating to building work and the use of buildings, and for ensuring that buildings are safe and sanitary and have means of escape from fire; and
(b)The co-ordination of those controls with other controls relating to building use and the management of natural and physical resources.
(2)To achieve the purposes of this Act, particular regard shall be had to the need to—
(a)Safeguard people from possible injury, illness, or loss of amenity in the course of the use of any building, including the reasonable expectations of any person who is authorised by law to enter the building for the purpose of rescue operations and fire fighting in response to fire:
(b)Provide protection to limit the extent and effects of the spread of fire, particularly with regard to—
(i)Household units and other residential units (whether on the same land or on other property); and
(ii)Other property:
(c)Make provision in a building used for the storage or processing of significant quantities of hazardous substances to prevent significant adverse effects on the environment (whether within the immediate locality or otherwise) arising from an emergency involving fire within that building:
(d)Provide for the protection of other property from physical damage resulting from the construction, use, and demolition of any building:
(e)Provide, both to and within buildings to which section 25 of the Disabled Persons Community Welfare Act 1975 applies, means of access and facilities that meet the requirements of that Act to ensure that reasonable and adequate provision is made for people with disabilities to enter and carry out normal activities and processes in those buildings:
(f)Facilitate the efficient use of energy, in the case of new buildings, during the intended life of those buildings.
(3)In determining the extent to which the matters provided for in subsection (1) of this section shall be the subject of control, due regard shall be had to the national costs and benefits of any control, including (but not by way of limitation) safety, health, and environmental costs and benefits.
[86] Section 7 specified the standard for building work which required compliance with the building code as required by the BA91:
7.All building work to comply with building code—
(1)All building work shall comply with the building code to the extent required by this Act, whether or not a building consent is required in respect of that building work.
(2)Except as specifically provided to the contrary in any Act, no person, in undertaking any building work, shall be required to achieve performance criteria additional to or more restrictive in relation to that building work than the performance criteria specified in the building code.
[87] Under s 24(e), the functions of a territorial authority included to “enforce the provisions of the building code and regulations.”39 The BA91 also provided for private building certifiers, who could issue a building certificate and a code of compliance if satisfied on reasonable grounds that the work complied with the provisions of the building code on the date of certification.40
[88]Building certifiers were prohibited from limiting their liability:41
A building certifier shall not, in the terms of engagement, limit any civil liability which might arise from the issue of a building certificate or code compliance certificate by that building certifier.
[89] Civil proceedings against building certifiers were to be brought in tort and not in contract.42
[90] The BA91 also introduced a 10-year long-stop limitation for civil liability arising from the construction of any building or the exercise of any function under the BA91.43
[91] The BA91 comprised significant reform. It nationalised the performance standards into one building code and imposed a statutory requirement that all building work comply with the building code to the extent required by the BA91. The BA91 sought to incentivise innovation, efficiency and lower building costs while protecting the health and safety of building users.
39 BA91, s 24(e).
40 Subsections 56(2) and 56(3).
41 Section 57(2).
42 Section 90.
43 Section 91.
[92] Harrison Grierson submits that the BA91 did not change the underlying common law duty and parties are able to contract contrary to that duty. TCC in contrast says that the courts have acknowledged that any duty at common law marches in step with the statutory framework such that a breach of that duty may in turn be a breach of the statute. It is therefore necessary to consider how the courts have approached the requirements of the BA91 in recognising any duty of care.
Duty of care under the BA91
[93] In Invercargill City Council v Hamlin44 the Privy Council upheld the Court of Appeal’s decision45 that local authorities owe a duty of care to homeowners. While the case was not concerned with building work subject to the BA91, the Court of Appeal considered that the history to the BA91 and its provisions supported those involved in the building industry and in building controls owing a duty of care:46
Importantly there is nothing in the legislation to preclude private damages claims in accordance with the existing New Zealand law for losses arising out of the negligent exercise of building control functions. On the contrary that may properly be regarded as part of the accountability at which the legislation is directed. More specifically s 91, which imposes a longstop limitation period of civil proceedings, recognises that those involved in the building industry and in building controls, including territorial authorities, will be liable for carelessly created or carelessly overlooked latent building defects.
[94] The Privy Council in upholding the Court of Appeal’s decision considered that there was nothing in the BA91 to abrogate or amend the existing common law, as developed by New Zealand judges, so as to bring it into line with Murphy v Brentwood District Council.47 In Murphy, the House of Lords had determined that local authorities did not owe any duty to homeowners. In circumstances where the BA91 contemplated private law claims for damages against local authorities, the common law duty of care should continue.48
[95] Whether the BA91 supported a duty applying to non-residential buildings was rejected in Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd49 and in that
44 Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) [Hamlin (PC)].
45 Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA) [Hamlin (CA)].
46 At 526.
47 Murphy v Brentwood District Council [1991] 1 AC 398 (HL) as referred to in Hamlin (PC) at 522.
48 Hamlin (PC) at 522.
49 Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) [Rolls-Royce].
context, the Court of Appeal also rejected any separate duty being owed by Rolls- Royce to Carter Holt Harvey Ltd (CHH) by reason of the contract terms owed by Rolls-Royce to the head contractor. CHH could not rely on the terms of a contract (to which it was not a party) to establish a common law duty of care to enforce contract terms. Tort law did not recognise such a duty of care.50
[96] Despite being referred to by counsel, I do not consider that Rolls-Royce is directly relevant to the issues I need to determine. Spencer on Byron subsequently held that the BA91 did not draw a distinction between types of buildings and TCC is not relying on contract to support a duty of care. Further Rolls-Royce does not address contracting out of statutory requirements because it did not consider that the BA91 supported any duty of care being owed in relation to non-residential buildings.
Spencer on Byron
[97] Spencer on Byron is pivotal to this case because TCC argues that the Supreme Court’s findings determine the issues, and I am bound by those findings. The defendants say that the Supreme Court was not concerned with the enforceability of a limitation of liability and that the findings regarding territorial authorities arise by reason of the control they exercised over the building process. I therefore consider the findings in Spencer on Byron to determine whether they are potentially relevant to building work that is subject to the BA04 regardless of whether the duty holder is the party responsible for that work or the territorial authority.
[98] The majority of the Supreme Court (William Young J dissenting) held that a territorial authority owes a duty of care to present and future owners when inspecting and issuing code compliance certificates in respect of commercial and other non- residential premises.51 Reasons were provided by Elias CJ, Tipping J, Chambers J (for McGrath and Chambers JJ), and William Young J (dissenting).
[99] The Spencer on Byron was a 23-floor building constructed in the early 2000s. It was initially to be used as a hotel. Each of the 249 units was individually owned
50 At [66].
51 I refer to commercial and non-residential building work as simply non-residential building work.
and to be leased to the hotel for a minimum term of 10 years. There were a further six penthouse apartments that did not form part of the hotel. The Council (North Shore Council) granted the necessary consents for the building and issued a series of code compliance certificates under the BA91. The building subsequently leaked. The body corporate and the majority of the unit owners brought an action in negligence against North Shore Council. Some unit owners also alleged negligent misstatement.52
[100] North Shore Council applied to have both claims struck out on the basis that it did not owe a duty of care to the plaintiffs.53 The High Court struck out the claims by the body corporate and the owners of the hotel units but permitted the claims of the three penthouse apartment owners to continue.54 Both sides appealed. The Court of Appeal struck out both causes of action and entered summary judgment in North Shore Council’s favour.55 The Supreme Court granted leave to appeal.56
[101] The Supreme Court considered the relevance of the BA91 in considering whether North Shore Council owed a duty of care to the plaintiffs.
Relevance of statutory framework
[102] Elias CJ considered s 7 of the BA91 (requiring that all building work comply with the building code to the extent required by the BA91) and considered that it was both a standalone purpose and a purpose directed at ensuring the health and safety purposes of the BA91:
[14] It is impossible to conclude on what is known at present that failure to meet the code standards in relation to water exclusion does not impact directly on the safety and sanitariness of the building. They are the conditions of the building affecting the health and hygiene of occupants which the owner is obliged to remedy if not compliant with the code. The scheme of the Act is to provide the owner with assurance of compliance. If, through want of care on the part of the Council, that system of assurance fails, then the owner is entitled to look to the Council for his loss.
[15] In any event, the concern of s 6(1) is not simply with ensuring that buildings are “safe and sanitary”. As is relevant, s 6(1)(a) provides:
52 Spencer on Byron at [59].
53 At [60].
54 At [61].
55 At [62].
56 At [63].
6 Purposes and principles —
(1)The purposes of this Act are to provide for —
(a) Necessary controls relating to building work and the use of buildings, and for ensuring that buildings are safe and sanitary and have means of escape from fire; and …
The “necessary controls relating to building work” are expressed as a distinct concern from ensuring that buildings are safe and sanitary. Again, such “necessary controls” are I think defined by s 7 and the requirement of code compliance (but no more than code compliance).
(footnote omitted)
[103] The defendants in this case say that Elias CJ’s comments regarding s 7 of the BA91 do not suggest that s 7 has the meaning contended by TCC namely, that liability cannot be limited. I agree that in considering s 7 in the passage above, Elias CJ was not concerned with whether it constrained contract but with whether a duty of care arose by reason of the obligation it imposed. Elias CJ went on to find that the effect of s 7 was to impose a minimum standard so building work contrary to that standard was contrary to the BA91:
[16] The code, with which the Council certified compliance, is a minimum standard, as the legislation makes clear. Building work which is not code- compliant is contrary to the Act. The Act sets up an interlocking system of assurance under which all undertaking building work or certifying compliance with the code are obliged to observe the standards set in it. …
(footnotes omitted)
[104] The above passage does not shed any light on whether a limitation of liability can be construed as a contracting out of the statutory requirement for building code compliance.
[105] Elias CJ noted the observation in Hamlin that Parliament had not taken the opportunity in the BA91 to change the common law and remove a duty of care on local authorities exercising supervisory functions over building work. Elias CJ also observed that the BA91 adopted tortious responsibility as an element of “the system of assurance of code compliance” which replaced the earlier and more open-ended responsibilities of councils to regulate the construction of buildings.57 The statutory
57 At [8].
framework of the BA91 therefore supported a duty of care at common law continuing and replaced the open-ended responsibilities on territorial authorities with assurance of code compliance. The BA91 therefore confirmed a duty of care on territorial authorities which required the exercise of reasonable care to ensure code compliance.
[106] While the provisions of the BA91 governing territorial authorities are not relevant to the defendants, the Supreme Court’s observations as to the interpretation of s 7 is relevant because s 7 applies to all building work.
[107] Tipping J also considered that the provisions of the BA91 were relevant when determining whether a duty in relation to non-residential buildings applied and said, “[t]he question whether the asserted duty is owed is profoundly influenced by the terms of the legislation”.58 Turning to s 7, Tipping J observed that the underlying premise of s 7 is that non-compliance with the building code has a health and safety connotation59 and the fundamental policy goal of the BA91 was to ensure that all buildings are code compliant.60 The BA91 therefore supported a common law duty to enforce that statutory requirement to achieve the purposes.
[108] Chambers J (writing for the majority) also considered the BA91 confirmed the existence of a duty at common law:61
The Act was confirmatory of existing common law. We accept that the Act did not impose “a wider duty” than had previously been recognised. The appellants’ argument does not depend, however, on our finding that the 1991 Act did “widen” the nature of the duty. The flaw in the Council’s submission is, in our respectful view, the premise that the duty of care at common law at that time was limited to councils’ supervision of the construction of houses and that they had no responsibilities at common law with respect to their approval of and supervision of the construction of other buildings.
(emphasis added)
[109] The defendants rely on the above passage and say the Supreme Court did not widen the common law duty, so the duty was unchanged by the BA91. The above comment was made in the context of considering whether the BA91 introduced a
58 At [29] (footnote omitted and emphasis added).
59 At [44].
60 At [48].
61 At [106].
change that extended obligations to non-residential buildings that did not previously exist. It had not, so to that extent, it did not widen the duty.
[110] Chambers J considered that the rationale for the duty is to encourage compliance with the BA91, which applies to all those responsible for construction of buildings, not just territorial authorities:62
The underpinning rationale of the duty of care in this area is the need to provide encouragement to those responsible for the construction of buildings to use reasonable care in their respective tasks within that overall undertaking. Councils, operating under the Building Act 1991, were under a statutory duty to enforce the provisions of the building code. The law of negligence stands behind this statutory duty by providing compensation should the Council contribute to breaches of the building code through careless acts or omissions in supervising construction.
(emphasis added)
[111] The majority also considered the underlying purpose of the BA91 in explaining why the duty of care also applies to non-residential buildings:63
If a building is constructed other than in compliance with the building code, it will almost certainly not be a safe and healthy building. … The national building code, which replaced individual councils’ by-laws, was pared back to what Parliament considered to be the essential requirements for health and safety.
…
A building which is constructed otherwise than in accordance with the building code will, arising from that fact, not be safe and healthy (as we are using that term) or, at the least, be at risk from a safety and health viewpoint. Because of the owner’s responsibility towards users of the building, the owner is bound to repair. If the cause of the non-compliance can be attributed to the negligence of one or more of those responsible for the construction of the building, then it is appropriate they (including a council, if responsible) should contribute to the cost of repair. This Court settled this point in Sunset Terraces. This reasoning applies with as much force to the owners of commercial buildings as it does to the owners of residential homes.
(footnote omitted and emphasis added)
[112] The statutory framework of the BA91 was therefore an important policy factor in the Supreme Court finding a duty of care:
62 At [162].
63 At [171] and [187].
[64] Whether the courts should recognise a duty of care in new circumstances is ultimately a matter for judicial evaluation of competing policy factors. Often an important policy factor is the relevant statutory framework within which the potential duty-bearer is working. The law in this area moves incrementally.
(footnote omitted)
[113] This Court cannot therefore ignore the statutory framework (in this case, the BA04). The findings in Spencer on Byron indicate that to the extent the BA04 adopts a similar statutory framework, it is likely to support a duty of care on each defendant if design work is building work under the BA04.
[114] The Supreme Court also considered whether finding a duty of care would undermine contract and that analysis may assist in understanding the intersection between contract, tort and statutory requirements.
Undermining contract
[115] Tipping J did not consider that finding a duty of care undermined contract because of the framing of the BA91: first, because of the prohibition against private certifiers limiting their liability under s 57(2); and second, because of the requirement under s 7 that building work comply with the building code:64
It is suggested that to recognise a duty of care for all buildings would tend to undermine relevant contractual relationships and loss allocation mechanisms or opportunities thereby provided. I regard this as an overstated problem. In the first place, private certifiers were unable under the 1991 Act to limit or contract out of liability. The position must implicitly have been the same for councils when they were performing the same functions. In the second place, those performing functions under the Act or within the scope of the Act owed statutory duties not to breach the building code. So to that extent there was no capacity for anyone involved to limit their liability by contract.
I accept that in circumstances where the parties have allocated, or have had the opportunity to allocate, risks by contract, tort law should be slow to impose a different allocation from that expressly or implicitly adopted by the parties. But because of the way the Act is framed I do not see that proposition as being a significant feature of the present case.
(footnote omitted and emphasis added)
64 At [39] and [40].
[116] The above passage refers to those performing functions “within the scope of the Act” which would include all those undertaking building work. Tipping J describes the responsibilities as “statutory duties” not to breach the building code. It is that responsibility that then gives rise to his view that “there was no capacity for anyone involved to limit their liability by contract.”65
[117] Tipping J acknowledges that ordinarily tort law should not undermine contract (which allows parties to negotiate as they see fit) but “because of the way the Act is framed” that is not a feature of the case. The “framing of the Act” must be a reference to s 57(2) and s 7 of the BA91 as Tipping J expressly referred to those statutory provisions immediately prior to referring to the way the BA91 is framed.
[118] The defendants say that Tipping J acknowledged that a private party could limit liability by contract and refer to the following observation:
[32] The next point can be summarised as: do it once, do it right. If the owner of commercial premises cannot obtain redress when the council fails to do its job properly, then such owner, in order to obtain the necessary protection, will have to engage a suitable professional to do exactly what the council is charged with doing under the Act. The owner will then be paying two sets of fees, one to the council, with no prospect of redress if the council is negligent, and the other to the professional who will be liable for negligence, absent any limitation or exemption. …
(emphasis added)
[119] The above observation was made in the context of considering the consequences of not recognising a duty of care and before Tipping J’s subsequent consideration of the effect of ss 7 and 57(2), so the observation needs to be viewed in that context. While it does suggest that a party can limit liability, Tipping J then made observations to the contrary at [39] of his judgment.
[120] Whether liability can be limited may be clearer when considering the scope of the duty arising from the requirement for building code compliance:66
The standard the duty requires is compliance with the building code. That is as clear and precise as the subject matter allows. There is no quality or commercial uncertainty as to what the duty requires. The parties cannot
65 At [39] (emphasis added).
66 At [47].
bargain for a standard below code compliance in return for a lesser price.
The imposition of the duty leads to total clarity as to where the risk falls. (emphasis added)
[121] The above passage suggests that a contract for a lower standard than building code compliance would be contrary to the BA91 so to the extent a limitation of liability has this effect, it may be contrary to the BA91.
[122] Tipping J’s observations also need to be considered alongside Elias CJ’s comments that the BA91 is concerned with the minimum standard of code compliance, imposed by statute and that building work which is not code compliant is contrary to the BA91. 67 Those observations too suggest that contracting contrary to the statutory minimum standard may be in breach of the BA91. That however, does not provide any guidance on whether limiting liability amounts to contracting out.
[123] The majority also considered that contract was not undermined because of the requirement in the BA91 that building work comply with the building code. The tortious duty was simply enforcing the statutory standard by imposing a duty to take reasonable care to ensure compliance with it:
[193] It is said that recognising a duty of care in the case of commercial buildings, which are likely to be much more complicated structures than residential homes, would cut across contractual relationships the developer has put in place. We disagree. Recognising a duty in tort does not in any way cut across contractual obligations the inspecting authority assumed towards the first owner who employed their services. No one can be party to the construction of a building which does not comply with the building code. The duty in tort imposes no higher duty than that: for example, the inspecting authority is not responsible for ensuring the building is constructed in accordance with the plans and specifications, which will inevitably go beyond building code requirements. Obligations in tort, whether of the inspecting authority or of any supervising architect or engineer, will be limited to the exercise of reasonable care with a view to ensuring compliance with the building code.
(emphasis added)
[124] The finding that “no one can be party to the construction of a building which does not comply with the building code” indicates the majority were also of the view that any contract that authorised non-compliance with the building code was contrary
67 BA91, s 7.
to the BA91. While that was not an issue that the Supreme Court was required to determine, it was a significant reason for it finding that a duty of care was owed by the North Shore Council.
[125] The Supreme Court also considered the Court of Appeal’s analysis in Rolls- Royce but the majority did not consider it relevant because the issue in Rolls-Royce was whether there was a duty in tort to perform a contract. That was obviously not relevant to inspecting authorities:
[194] Thus, these cases do not give rise to the kinds of issues which arose in Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd, a case cited by Mr Goddard. That was a case in which Carter Holt was attempting to argue that Rolls-Royce was under a duty to it in tort to take reasonable care to perform a contract between Rolls-Royce and the Electricity Corporation of New Zealand Ltd, a proposition the Court of Appeal rejected. The obligation falling on inspecting authorities is quite different. It marches hand-in-hand with its statutory obligation and requires of the inspecting authority no more than Parliament has imposed.
(footnote omitted)
[126] Tipping J did not consider Rolls-Royce supported finding against a duty because the standard required by the BA91 was clear:
[47] In Rolls-Royce, the Court of Appeal was concerned about how quality standards would be set if a duty were to be recognised. That may be a valid concern if the tort duty would be unclear as to the precise standard required. But in the present context there is no difficulty in this respect. The standard the duty requires is compliance with the building code. That is as clear and precise as the subject matter allows. There is no quality or commercial uncertainty as to what the duty requires. The parties cannot bargain for a standard below code compliance in return for a lesser price. The imposition of the duty leads to total clarity as to where the risk falls.
(footnote omitted)
[127] The Supreme Court’s findings therefore indicate that the requirements of the BA91, which included s 7, supported a duty of care owed by territorial authorities and did not undermine contract because Parliament had mandated a minimum standard. To the extent that the BA04 maintains the same statutory requirement, the Supreme Court’s findings as to the effect of that statutory requirement will be directly relevant. Those findings may assist in determining whether a limitation of liability can be said to be contrary to that statutory requirement.
Class of building owners
[128] The Supreme Court rejected arguments that commercial building owners should be treated differently to residential building owners for the purposes of recognising a duty of care:68
It does not make much sense for the law to assume all home owners are vulnerable and naïve and to assume the owners of commercial buildings are wealthy and sophisticated...The assumptions have too many exceptions to make them safe assumptions on which to build legal policy.
[129] The Court therefore accepted that no distinction should be drawn between types of building owners in deciding that a duty of care was owed by the Council. This finding suggests that potential plaintiffs should be viewed as a class unless there is a principled basis for treating them otherwise.
Economic consequences and societal interests
[130] The Court’s observations as to why adverse economic consequences were not a reason for rejecting a duty may be relevant to the defendants’ submissions that they will suffer adverse economic consequences if liability cannot be limited. I therefore briefly set them out.
[131] The Supreme Court considered that the economic consequences of finding a duty would be appropriately mitigated by insurance. Tipping J considered that premiums for insurance would incentivise councils to fulfil their statutory responsibilities and help fulfil the primary statutory purpose, namely the construction of buildings that do not pose health and safety risks to their occupants.69
[132] Tipping J acknowledged that there may be some retrospective effect but that any losses would fall on rate payers. The majority considered whether recognising a duty of care on councils would result in a shift of millions (if not billions) of dollars of losses from commercial building owners to ratepayers. Chambers J considered that this submission, was loaded with assumptions including that commercial building owners are wealthy and sophisticated, and that local authorities could not rely on
68 At [198].
69 At [50].
insurance and the income generated from their inspection work. Rates would only be a last resort if insurance and income were insufficient. The Supreme Court was not concerned with ratepayers potentially bearing those costs in circumstances where everyone uses buildings and everyone gains the benefit if, by imposition of a duty in tort, buildings are rendered safer and healthier.70
[133] The Court acknowledged that in policy terms, those who cause loss should be required to compensate. The Court also stated that it should not deny a cause of action unless the wider interest of society mandates that denial.71
[134] The above observations indicate that adverse economic consequences may be tolerated where there is a wider interest of society that requires protection such as safer and healthier buildings.
[135] The majority also considered that any adverse economic consequences would likely be shared because local authorities will usually be sharing liability with others.72 This would include those involved in providing building work. The fact of multiple co-defendants indicated a further sharing of adverse economic consequences.
[136] Despite this potential sharing of liability, the Court also acknowledged that in some cases others involved in the construction process have gone bankrupt or into liquidation by the time defects manifest themselves, but that this is not always the case. The Court said, “[t]he policy of the law in this area should not be determined from an assumption that the local authority stands alone as defendant.”73 The Court considered that if this was a concern, then legislative action to create a form of builders guarantee scheme might be a solution.74
[137] In summary, the Court considered: that insurance would provide protection against losses and incentivise compliance; that commercial building owners are not necessarily wealthy and sophisticated; that safer and healthier buildings were of wide
70 At [203].
71 At [54].
72 At [204].
73 At [204].
74 At [204].
societal interest; and councils would be sharing liability with others involved in building work so the economic consequences for councils did not dictate against finding a duty of care.
[138] I accept Mr Barker’s submission that the Court’s reasoning is likely to apply when considering the potential adverse economic effects for engineers if they cannot limit liability but I also accept that the Court was not concerned with engineers as a class of defendants so did not consider any potential adverse market consequences for the provision of engineering services. So while helpful, the findings do not address all potential consequences that may arise when dealing with a different class of defendant, who do not share the same statutory functions as territorial authorities.
Special role of territorial authorities
[139] The defendants say that the findings in Spencer on Byron turn on the special role of territorial authorities. That is, the control that they exercise over the building process, as prescribed by the BA91. I accept that some of the Court’s reasoning was directed to the statutory functions of territorial authorities under the BA91, but other aspects turned on the statutory requirement that building work comply with the building code. That latter requirement is not limited to the functions of territorial authorities. Should parties choose to engage in building work then the Court’s findings as to the interpretation of s 7 of the BA91 are applicable.
[140] The similarity in function between territorial authorities and private certifiers was a reason for Tipping J’s comments that liability could not be limited because of s 57(2) of the BA91. The similarity in function does not however, apply to engineers or suggest that s 57(2) was directed to all those engaged in building work. This view is consistent with the 1990 report which noted that if territorial authorities could not limit liability neither should an approved certifier:75
4.92 When a building producer is at fault - be that the architect, engineer, builder or any other member of the building team - the owner has a right of action for damages or for breach of contract. If the fault lies with the builder in common with the TA [Territorial Authority] and/or the Approved Certifier, there is no reason why liability should not fall upon any one or more of them where it belongs, in accordance with the general law.
75 1990 Report.
4.93 A builder can evade liability by bankruptcy or winding up, but a TA cannot. The purpose of insisting upon an Approved Certifier having adequate insurance cover is to protect the owner from any exercise of this means of avoiding liability.
[141] The reason for s 57(2) appears to have been because building owners should not be disadvantaged by the privatisation of certification functions to approved certifiers. The above passage expressly acknowledges that claims against building producers may be for breach of contract but does not comment on contract as a means to “evade liability.” The inference is that only private certifiers should be prohibited from limiting their liability because they were in effect, undertaking a public function.
[142] However, the Court’s findings regarding s 7 are directly applicable to building producers and were a reason for the Court’s observation that no one can contract contrary to the statutory requirement. That the Court considered its findings applied to all building work is supported by the following observations:76
The Act sets up an interlocking system of assurance under which all undertaking building work or certifying compliance with the code are obliged to observe the standards set in it.
…
those performing functions under the Act or within the scope of the Act owed statutory duties not to breach the building code. So to that extent there was no capacity for anyone involved to limit their liability by contract.
…
No one can be party to the construction of a building which does not comply with the building code.
(footnote omitted and emphasis added)
[143] I accept the defendants’ submission that one limb of the Court’s reasoning related to the special role of territorial authorities and private certifiers and does not therefore apply to the defendants. But the other limb of the Court’s reasoning relied on the interpretation of s 7 of the BA91. That statutory requirement was not limited to territorial authorities and applied to all building work, so the Court’s reasoning is likely to be relevant.
76 Spencer on Byron at [16], [39] and [193].
[144] It is helpful to also consider the dissenting judgment of William Young J because it discloses the issues that were known to, and considered by, the Court but ultimately rejected by the majority. The dissent raises the same issues that the defendants seek to raise in this case and illustrates that the Court had to consider whether contract was undermined by finding a duty, that being a significant reason for the Court both finding for (and against) a duty of care.
Dissenting judgment
[145] William Young J considered health and safety carried less weight in relation to commercial or industrial buildings because of the statutory powers of territorial authorities to address insanitary or dangerous buildings.77 Occupational health and safety requirements also applied to commercial and industrial buildings so that there were other mechanisms to enforce those requirements outside of the BA91.78
[146] William Young J also noted that the legislature in the BA04 had now provided for different types of building consents and had differentiated between simple residential building consents and commercial building consents (ss 52G-52Y of the BA04 as introduced by s 17 of the Building Amendment Act 2012 but not yet in force).79
[147] William Young J was reluctant to impose a duty on territorial authorities because he considered it would offend the important principle that contractual undertakings should not be infringed. To find a duty of care on territorial authorities would require corresponding duties on others and this would undermine contract:
[302] It has always been recognised that it would be neither just nor practical to impose duties of care on territorial authorities which are not matched by corresponding duties of care imposed on others involved in the construction process. The courts must of course, be careful to ensure that such duties are not imposed in a way which cuts across the underlying contractual undertakings. In practical terms, the more complex the building (and thus the greater the responsible participants in the construction process), the greater the risk that the imposition of tort liability will infringe this principle.
[280] The evidence of both Mr Park and Mr Walton indicates that limitations of liability are widely used. While limitations of liability may be negotiated, the evidence is that they are not routinely negotiated although this is changing. The evidence also indicates that the value of any liability cap is linked to the insurance cover held by the engineer so there is a direct link between limitations of liability and insurance.
[281] Mr Park’s evidence is that if liability could not be limited, it is likely that there would be increased insurance premiums with the cost passed on to clients and insurers
refusing to provide cover for certain types of building work. Mr Park also said professional indemnity premiums have increased significantly over the past few years.
[282] Mr Walton’s evidence is that the construction industry is already exposed to unlimited liability so that this risk is already insured.
[283] Two insurance brokers, Mr Nigel Grantham (for Harrison Grierson) and Mr Deane Moyle (for TCC), also gave expert evidence. The brokers generally agreed that limitations of liability are a material consideration for insurers when considering whether to provide professional indemnity insurance. Alternative ways of insuring against professional negligence, such as project-based insurance and project specific limits, are costly and have limited availability in New Zealand. This suggests that there is no, or a very limited, market for building owners to obtain insurance in place of engineers’ professional indemnity insurance.
[284] The brokers generally agreed that the potential consequences if liability could not be limited include increased premiums, limited insurance cover and/or a withdrawal of insurance.
[285]Mr Park opines that the potential ramifications for engineers are:
(a)engineers avoiding certain types of work, particularly for more complex or high value projects, where the risk to their business is considered too great;
(b)lack of innovation as engineers seek to avoid liability by relying on approved solutions or by producing very conservative designs; and
(c)engineers using special purpose vehicles for projects, rather than contracting through their main operating companies as is currently the standard position.
[286] In circumstances where engineers already face exposure to unlimited liability (to subsequent purchasers), I do not consider it likely that insurance would be withdrawn. I accept that insurance costs would likely increase as more engineers
would seek to increase their insurance cover. That in turn could impact pricing for engineering services and increase the barriers to entry to the market. It may also lead to a lack of innovation to avoid the risk of liability.
[287] The evidence is relevant to understanding the purpose of limitations of liability and whether they can be said to authorise design work that does not meet building code compliance so as to breach s 17 of the BA04. The evidence indicates that their purpose is to set the level of insurance cover for negligence. They are not negotiated with regard to compliance with the building code but with regard to the consequences of non-compliance and how risk is to be allocated should that non-compliance eventuate.
[288] Building owners could negotiate an increased liability cap (and in turn, engineers would likely increase their insurance cover and prices). That suggests that it is the way the market is operating and not the use of limitations of liability, that is causing what in Mr Walton’s view appears to be under insurance.
[289] The practical effect of each limitation clause is that each defendant’s conduct is still to be assessed against the same standard (exercise of reasonable care with a view to ensuring building code compliance). The parties have not agreed a lower price for a lower standard but arguably a lower price for lower insurance cover.
[290] The allocation of risk (and in turn, the insurance cover available if the risk is realised), is not the mischief s 17 of the BA04 is directed at removing. Section 17 is directed at the standard (building code compliance) and not the consequences for breaching that standard. Parliament has also now indicated that only building owners subject to consumer protection regimes (whether under the BA04 or under the CGA) are to be afforded statutory protection against contracts that restrict their rights. That suggests that Parliament considers that the level of insurance available is a private matter as between non-residential building owners and building providers.
[291] I acknowledge Mr Barker’s argument that a limitation of liability may reduce the deterrent effect of civil damages in incentivising compliance with the building code. This is because those who are responsible for compliance do not bear the full
consequences of the losses. The argument assumes that only unlimited liability will incentivise compliance. That same argument would suggest there is no incentive on any contracting party to comply with its terms if there is a limitation of liability. That proposition is not supported by the fact of their common use which is aimed at setting the insurance level and not at the standard of performance.
[292] By agreeing to a liability cap, the non-residential building owner is in effect agreeing to share the financial consequences (above the value of the liability cap) if the building provider is negligent. Those consequences include ensuring the building ultimately meets the statutory standard. This is consistent with s 17 which is silent as to who is responsible for compliance.
[293] I therefore do not consider that the limitation clauses agreed by TCC can be said to be in breach of the BA04. If I am wrong, I consider whether the object of the BA04 clearly so requires that the limitation clauses be illegal and/or unenforceable.
Does the object of s 17 of the BA04 clearly so require illegality?
[294] It is settled law that any duty of care in relation to building code compliance arises by reason of s 17 of the BA04. For a limitation of liability to be illegal, the object of s 17 of the BA04 must clearly so require that it is illegal or unenforceable.
[295] The objects of the BA04 include to ensure people who use buildings can do so safely without endangering their health and to promote the accountability of designers who have responsibilities for ensuring that building work complies with the building code.149
[296] The Supreme Court in Spencer on Byron held that the statutory requirement of building code compliance is directed at the object of ensuring safe and healthy buildings. I accept that the statutory requirement also now seeks to promote the accountability of designers who have responsibilities under s 17.
149 BA04, s 3.
[297] Whether the objects of s 17 clearly so require that liability not be limited to achieve the health and safety and accountability objectives must be assessed taking into account the other provisions of the BA04. Those other provisions indicate either expressly or impliedly the extent to which Parliament considers designers should be held to account for building work.
[298] The introduction of the consumer protection regime and the application of the CGA to design work implies that Parliament intends that different classes of building owner be treated differently when considering their rights and remedies under the BA04. This implies that Parliament is less concerned with accountability to those building owners who are not subject to the statutory protections in the consumer protection regimes if those building owners have agreed to restrict their rights. The purpose of promoting accountability does not therefore clearly so require that limitations of liability be prohibited.
[299] A limitation of liability does not undermine the objective of safe and healthy buildings because the building owner is in effect agreeing to be financially responsible for remediating the building (to the extent recovery of damages to the value of the liability cap is insufficient to meet building code compliance).
[300] I therefore do not consider that the objects of s 17 of the BA04 clearly so require that the limitation clauses are illegal or unenforceable.
Overall conclusion — liability under the BA04
[301] The Supreme Court in Spencer on Byron was concerned with determining whether territorial authorities owe a duty of care to non-residential building owners. It determined that they did. In reaching that conclusion, the Court held that the statutory requirement that building work comply with the building code imposes a minimum standard that applies to both residential and non-residential buildings. That the purpose of that minimum standard was to protect against unsafe and unhealthy buildings. The statutory regime therefore supported territorial authorities owing a duty of care to all building owners to exercise reasonable skill and care with a view to ensuring that building work complies with the building code. Building owners are entitled to recover civil damages for breach of that duty.
[302] In reaching the above conclusions, the Supreme Court observed that parties could not contract contrary to the statutory standard because to do so would undermine that standard and put the object of safe and healthy buildings at risk. The statutory standard and purpose therefore supported recognition of a duty of care.
[303] The statutory requirement that building work comply with the building code remains in s 17 of the BA04. The purpose of ensuring safe and healthy buildings remains in s 3 of the BA04. The courts have accepted that providers of building work owe a duty to non-residential building owners to exercise reasonable skill and care with a view to ensuring building work complies with the building code. The scope of the duty of care has not changed. I am satisfied that design work is included within building work such that the defendants are also subject to s 17 of the BA04 and therefore the duty of care as defined.
[304] There has been a change in the statutory framework as to the rights and remedies of building owners. Unlike the BA91, the BA04 contains provisions providing guidance on the responsibilities of those involved in building work. The BA04 also prescribes a consumer protection regime while acknowledging the consumer protection regime under the CGA is not affected.
[305] Limitations of liability are aimed at setting the level of “insurance” (by prescribing a liability cap) available to the building owner if the s 17 duty (and therefore the minimum standard) is breached. The limitation clauses are not aimed at undermining the requirement for building code compliance. That standard remains by virtue of s 17 applying to all building work.
[306] The effect of a limitation of liability is that the building owner shares the financial responsibility (above the value of the liability cap) for remediating the building, so the building ultimately meets building code compliance. The level of “insurance” (liability cap) is a matter to be negotiated between the engineer and the building owner. A limitation of liability does not therefore undermine the minimum standard.
[307] Section 72 of the CCLA requires that in the absence of an express prohibition, the object of the BA04 must clearly so require that a limitation of liability is unenforceable or illegal. I do not consider that I can so find when there is an inference by the introduction of a consumer protection regime that Parliament did not intend to afford any statutory protection to a non-residential building owner if it agrees to restrict its right to civil damages. The fact of the consumer regimes prescribed by Part 4A and the CGA to protect consumers of engineering work indicates that Parliament considers that non-residential building owners are not deserving of the same protection.
[308] For the reasons set out above, I am not satisfied that the limitation clauses are in breach of s 17 and/or that the object of s 17 clearly so requires that they are illegal or unenforceable. The liability of each defendant for breach of a duty to exercise reasonable skill and care with a view to ensuring building work (which includes design work) complies with the building code would therefore be limited to the amounts specified in the limitation clauses in each of the HG Contract and the Constructure Contract.
[309] For the same reasons as apply to illegality, I do not consider that the limitation clauses are contrary to public policy.
PART TWO: LIABILITY UNDER THE FAIR TRADING ACT 1986
Is each limitation clause enforceable under the FTA?
Relevant provisions of FTA
[310] The FTA contains a general rule of no contracting out, as set out in s 5C of the FTA:
5C No contracting out: general rule
(1)The provisions of this Act have effect despite anything to the contrary in any agreement.
(2)A provision of an agreement that has the effect of overriding a provision of this Act (whether directly or indirectly) is unenforceable.
(3)Subsections (1) and (2) are subject to subsection (4) and section 5D.
(4)Nothing in subsection (1) or (2) applies in respect of a provision that—
(a)imposes a stricter duty on the supplier than would be imposed under this Act; or
(b)provides a more advantageous remedy against the supplier than would be provided under this Act.
(5)In this section and section 5D, agreement includes any contract, arrangement, or understanding.
[311] For the purposes of s 5D, an agreement therefore includes a contract, arrangement or understanding.
[312] Section 5D prescribes the exception to the general rule against contracting out, as follows:
5D No contracting out: exception for parties in trade
(1)Despite section 5C(1) and (2), if the requirements of subsection (3) are satisfied, parties to an agreement may include a provision in their agreement that will, or may (whether directly or indirectly), allow those parties to engage in conduct, or to make representations, that would otherwise contravene section 9, 12A, 13, or 14(1); and in that case,—
(a)the provision is enforceable; and
(b)no proceedings may be brought by any party to the agreement for an order under section 43 in relation to such a contravention of section 9, 12A, 13, or 14(1).
(2)A provision of the kind referred to in subsection (1) includes, for example,—
(a)a clause commonly known as an entire agreement clause:
(b)a clause that acknowledges that a party to the agreement does not rely on the representations or other conduct of another party to the agreement, whether during negotiations prior to the agreement being entered into, or at any subsequent time.
(3)The requirements referred to in subsection (1) are that—
(a)the agreement is in writing; and
(b)the goods, services, or interest in land are both supplied and acquired in trade; and
(c)all parties to the agreement—
(i) are in trade; and
(ii) agree to contract out of section 9, 12A, 13, or 14(1); and
(d)it is fair and reasonable that the parties are bound by the provision in the agreement.
(4)If, in any case, a court is required to decide what is fair and reasonable for the purposes of subsection (3)(d), the court must take account of all the circumstances of the agreement, including—
(a)the subject matter of the agreement; and
(b)the value of the goods, services, or interest in land; and
(c)the respective bargaining power of the parties, including—
(i)the extent to which a party was able to negotiate the terms of the agreement; and
(ii)whether a party was required to either accept or reject the agreement on the terms and conditions presented by the other party; and
(d)whether the party seeking to rely on the effectiveness of a provision of the kind referred to in subsection (1) knew that a representation made in connection with the agreement would, but for that provision, have breached section 12A, 13, or 14(1); and
(e)whether all or any of the parties received advice from, or were represented by, a lawyer, either at the time of the negotiations leading to the agreement or at any other relevant time.
(5)To avoid doubt, nothing in this section—
(a)prevents the Commission from bringing proceedings for an offence under this Act (including an offence under section 12A, 13, or 14(1)) against a party to the agreement referred to in subsection (1):
(b)limits the application of subpart 3 of Part 2 of the Contract and Commercial Law Act 2017.
[313]For each limitation clause and disclaimer to meet the requirements of s 5D(3):
(a)there must be a contract, arrangement or understanding in writing;
(b)the parties must be in trade;
(c)the parties must agree to contract out of s 9; and
(d)it is fair and reasonable that the parties are bound by each limitation clause.
Is there a contract, arrangement or understanding in writing?
[314] The HG Contract and the Constructure Contract are both in writing, so this requirement is met for each limitation clause contained in those contracts.
[315] Harrison Grierson says that the limitation clause in each producer statement is enforceable by way of contract because TCC agreed under cl 2.6 in Appendix A of the HG Contract that Harrison Grierson will:
Provide all necessary Certificates and Producer Statements including a coordination statement to fulfil Council requirements. Provide a PS1 and PS4 for the project.
[316] Harrison Grierson argues that the reference to PS1 and PS4 in the HG contract should be interpreted to refer to producer statements issued on the IPENZ/ACENZ standard form. Those standard form producer statements contain the limitation clause so by referring to the standard form, Harrison Grierson says that TCC agreed that each producer statement would contain the limitation clause.
[317] Mr Park gave evidence on the history of the PS standard forms. The forms have, since inception, been known as PS1 (Design) and PS4 (Construction Review). The forms were revised in 2007 and 2013 and the form of the limitation clause remains unchanged from 2007. Witnesses for Harrison Grierson (Mr Bradley Cooper and Mr David Napier) confirmed that they understood PS1 and PS4 to be referring to the IPENZ/ACENZ standard form.
[318] Mr Jason Addison, architectural designer at Xigo New Zealand Ltd (Xigo) acted as project manager for TCC and gave evidence that the standard form agreement was used “without any discussion at any time about the amount of the limitation of liability or the level of insurance.” There is no evidence that Harrison Grierson discussed the reference to PS1 and PS4 with TCC, nor any evidence that TCC understood that by referring to PS1 and PS4 in cl 2.6 of Appendix A it had agreed to
the limitation clause notwithstanding that the HG Contract contained its own limitation clause.
[319] I do not consider that I should infer that TCC agreed (or understood that it had agreed) to the limitation clause in the producer statements simply because the HG Contract refers to “PS1 and PS4” without more. In circumstances where the limitation clause in the HG Contract has a different liability cap ($2 million) to the liability cap ($200,000) in the producer statement, I do not consider it can be inferred that TCC understood that any liability of Harrison Grierson under the FTA would be limited to an amount that differed to what was specified in the HG Contract.
[320] For the same reasons as set out above, I am not satisfied that there was any contract, arrangement or understanding that any liability of Constructure under s 9 of the FTA would be subject to a liability cap that is less than that specified in the Constructure Contract.
[321] I am satisfied that the limitation clauses in the HG Contract and Constructure Contract meet the requirement of an agreement in writing.
[322] I am not satisfied that the limitation clauses in the producer statements amount to a contract, arrangement or understanding between TCC and each of the defendants. It is not therefore necessary to consider the other requirements under s 5D(3) in relation to the limitation clauses in the producer statements.
Are the parties in trade?
[323] TCC says that it is not in trade and that the producer statements cannot be characterised as a good or service that was acquired in trade. Trade means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.150
150 Fair Trading Act 1986, s 2.
[324] In engaging each defendant, TCC was acquiring a service (a structural design service and peer review of a structural design). The terms of the HG Contract required Harrison Grierson to issue any necessary certificate including a coordination statement to fulfil Council requirements and Constructure’s proposal (included in the Constructure Contract) required it to provide producer statements and associated documents.151 The producer statements were therefore issued pursuant to those contracts as part of the services provided by Harrison Grierson and Constructure to TCC. The acquisition of engineering design services is an activity of commerce and is in trade. I therefore consider that this requirement is met.
Did the parties agree to contract out of s 9?
[325] Constructure argues that s 5C(2) does not apply because the limitation clause does not seek to override Constructure’s obligations under s 9 nor allow it to otherwise engage in misleading or deceptive conduct. Constructure says that the limitation of liability is relevant to the Court’s exercise of discretion under s 43 of the FTA and can be considered when granting relief.
[326] Harrison Grierson says that the limitation clause in the HG Contract indirectly allows the parties to engage in conduct, or to make representations, in contravention of the relevant sections of the FTA, by limiting their liability in the event they do. The same argument would support a limitation of liability being contrary to s 17 of the BA04. For the reasons set out above, I do not consider that a limitation clause authorises conduct contrary to the statutory requirement. Rather it authorises recovery of losses that are contrary to the rights that arise from the statutory requirement. While it may be a contracting out, it is only a contracting out in relation to the rights of recovery and not as to the required conduct.
[327] I consider how the courts have interpreted limitations of liability and the extent to which they amount to a contracting out of the FTA or are more appropriately considered under s 43.
151 Clause 2.6 of Appendix A of the HG Contract, and cl 1 of the Constructure Contract.
[328] In Adventurer Hobson Ltd v Cockery the Court held that a limitation clause was relevant when awarding damages under s 43.152 In that case, the party seeking to rely on the clause was not a party to the contract within which the clause was contained so could not rely on s 5D.
[329] In About Image Ltd v Advaro Ltd, the Court noted that the relevant clause must allow the conduct either expressly or by implication.153 In considering whether there was ‘agreement’ the Court noted that simply allowing conduct without more does not necessarily indicate agreement:154
[68] A provision allowing particular conduct, without more, is not necessarily the parties’ agreement to contracting out, merely because the conduct would otherwise be in contravention of the Act. Parties are not to be taken to have agreed to contract out of s 9 simply because conduct allowed by the contract is misleading and deceptive; that would leave subpara (ii) with nothing to do.
[69] On the evidence before me, I cannot construe the MRA’s relevant provisions as the parties’ agreement to contract out of s 9, and the provisions say nothing at all about allowing misleading or deceptive conduct.
[330] “Subpara (ii)” is a reference to s 5D(3)(c)(ii) which requires that the parties agree to contract out of s 9.
[331] In Tadd Management Ltd v Weine while finding that the conduct was not misleading or deceptive, Gwyn J considered the effect of the limitation of liability clause in the standard IPENZ/ACENZ short form agreement.155 The Court found that the broad wording of the limitation clause captured a claim under the FTA:
[359] Although cl 11 does not specifically mention the FTA, the wording of the clause is very broad, capturing an extensive range of potential claims, damages, liabilities and losses against [the engineer]. The ordinary and natural meaning of the words “whether in contract, tort or otherwise” is in my view broad enough to capture a claim under the FTA, and limits NZCEL’s liability to five times the amount paid by the Trust under the Agreement.
152 Adventurer Hobson Ltd v Cockery [2020] NZHC 675, [2020] 2 NZLR 544.
153 About Image Ltd v Advaro Ltd [2018] NZHC 3002 at [67].
154 About Image Ltd v Advaro Ltd [2018] NZHC 3002.
155 Tadd Management Ltd v Weine (as trustees of the Ruth Weine Family Trust) [2023] NZHC 764, (2023) 24 NZCPR 1.
[332] The above indicates that while the limitation of liability may not necessarily authorise the contravening conduct, it impliedly evidences an agreement that should the conduct occur, liability is to be limited to the value of the liability cap. Tadd Management Ltd therefore supports the limitations of liability indicating an agreement to contract contrary to s 9 because ordinarily liability would not be limited. I am therefore satisfied that the parties have agreed to contract out of s 9.
Is it fair and reasonable that the parties are bound by the limitation clause?
[333] In considering whether it is fair and reasonable, the Court must take account of all the circumstances of the agreement, including the matters specified at s 5D(4)(a) to (e):
(a)the subject matter of the agreement; and
(b)the value of the goods, services, or interest in land; and
(c)the respective bargaining power of the parties, including—
(i)the extent to which a party was able to negotiate the terms of the agreement; and
(ii)whether a party was required to either accept or reject the agreement on the terms and conditions presented by the other party; and
(d)whether the party seeking to rely on the effectiveness of a provision of the kind referred to in subsection (1) knew that a representation made in connection with the agreement would, but for that provision, have breached section 12A, 13, or 14(1); and
(e)whether all or any of the parties received advice from, or were represented by, a lawyer, either at the time of the negotiations leading to the agreement or at any other relevant time.
[334] In About Image Ltd the Court was unable to determine whether it was fair and reasonable because it had insufficient information before it on a preliminary issues basis to consider the s 5D(4) mandatory considerations.156 TCC argues that this Court should also decline to determine the issue at this preliminary stage. I disagree that more evidence is required.
156 About Image Ltd v Advaro Ltd [2018] NZHC 3002.
[335] While the Court in Tadd Management Ltd v Weine found that the engineer was not liable under the FTA, so that its comments on the application of s 5D were obiter, the analysis supports Harrison Grierson’s position as to how the factors are to be considered:157
The Agreement was an established, widely used, standard form contract; Ms Weine was an experienced business person, engaged in the ownership and management of commercial properties; she had engaged NZCEL on the same terms of contract on two other occasions; NZCEL received $2,540 (excluding GST and disbursements) under the Agreement, in contrast to the sale price of
$1,227,000 for the Property received by the defendants.
[363] In my assessment the parties had equal bargaining strength and the defendants were not a relatively vulnerable party in entering into the Agreement. I conclude that it is fair and reasonable that the parties be bound by the limitation of liability clause.
[336] This case does not concern an entire agreement clause and the representation arose in the course of each defendant providing services to TCC, so occurred after the HG Contract and Constructure Contract were executed. I do not consider that the Court needs further evidence to be able to assess the factors in s 5D(4)(a) to (e).
[337] The agreement concerned the procurement of engineering services. The value of the services was reasonably low for Constructure ($15,000) and reasonably high for Harrison Grierson (over $400,000). This is not a case of unequal bargaining power. TCC is a large local council with access to legal advice. TCC did negotiate with Harrison Grierson by proposing use of the CCCS Terms in place of the SFA and proposing some amendments.
[338] Having regard to all the circumstances of the HG Contract and the Constructure Contract, it is fair and reasonable for TCC to be bound by the limitation clauses.
Conclusion — liability under the FTA
[339] I am satisfied that the limitation clauses in each of the HG Contract and Constructure Contract meet the requirements of s 5D of the FTA for contracting out of the FTA. Any liability of each defendant for breach of s 9 of the FTA is therefore
157 Tadd Management Ltd v Weine (as trustees of the Ruth Weine Family Trust) [2023] NZHC 764 at
[362] and [363].
limited to the amount specified in each liability clause in the HG Contract and Constructure Contract.
PART THREE: LIABILITY FOR NEGLIGENT MISSTATEMENT
Is each limitation clause enforceable as a defence to the claim for negligent misstatement?
[340] In finding that each defendant’s issuing of a producer statement is governed by the HG Contract and Constructure Contract respectively, it follows that any liability for negligent misstatement is also subject to each of those contracts and the limitation clauses contained therein.
[341] I reject Mr Walker’s argument that the producer statement constitutes a separate contract between TCC and Harrison Grierson or that the producer statement cannot be relied on unless the limitation clause contained therein also applies.
[342] I agree with TCC that the limitation clause in the producer statement is directed to TCC as the building consent authority and not to TCC as owner. This is because the limitation clauses in the HG Contract and Constructure Contract respectively govern the relationship between TCC as owner and each of the defendants. The limitation in each producer statement cannot restrict TCC’s claim in its capacity as owner.
[343] I also accept that TCC is entitled to rely on the statements contained in the producer statement because each producer statement is expressly addressed to it, in its capacity as owner of the carpark. TCC as owner has engaged each defendant to provide the producer statements and therefore the terms of engagement are directly relevant.
[344] TCC says that the enforceability of the limitation clauses should be determined at trial when the Court has evidence as to the circumstances in which the producer statements were issued. I disagree in circumstances where I have found that each of the HG Contract and Constructure Contract govern the relationship between TCC and
each defendant such that the limitation clause in each producer statement cannot override the limitation clause in the relevant contract.
[345] Liability is therefore limited by each of the limitation clauses in the HG Contract and the Constructure Contract and the limitation clauses in the producer statements are unenforceable against TCC as building owner.
OVERALL CONCLUSION
[346]I thank counsel for their comprehensive, detailed, and helpful submissions.
[347] It is perhaps surprising that this issue has not previously come before the courts for determination given the BA04 has been in force for nearly two decades. Certainly, the evidence indicates that the market has behaved as though limitations of liability are enforceable.
[348] I agree with Mr Barker that the findings and observations in Spencer on Byron support contracts that contravene the statutory requirement for building code compliance being unenforceable. What is less clear from those findings is whether a limitation of liability constitutes contracting out of that statutory requirement.
[349] While there is merit in the arguments advanced by TCC given the findings in Spencer on Byron, I consider that the statutory framework under the BA04 distinguishes between different classes of building owner. The consumer protection regime indicates that Parliament impliedly does not intend that non-residential building owners be afforded statutory protection if they agree to limit their right to recover damages for breach of the s 17 duty. A limitation of liability does not undermine the statutory purpose of ensuring safe and healthy buildings because the building owner will bear the financial responsibility (above the value of the liability cap) to ensure the building is remediated to achieve building code compliance (or the building is abandoned to protect the health and safety of building users). The limitation of liability does not therefore contravene s 17 of the BA04 and the object of the BA04 does not clearly so require that liability be limited. A limitation of liability is not therefore illegal under the CCLA.
[350] I have set out my reasons in part two and part three for finding that the limitation clauses in the HG Contract and Constructure Contract are enforceable so as to limit liability: under the FTA; and for negligent misstatement.
[351] The limitation clauses in the producer statements are unenforceable against TCC as building owner because the relationship between each defendant and TCC is governed by their respective contracts and not by the terms of the producer statements. While TCC was entitled to rely on statements made in the producer statements, it is not bound by the limitation clauses contained therein.
[352] For the reasons set out above, I answer each of the agreed preliminary issues as follows:
(a)Would any liability of Harrison Grierson pursuant to any of the first to fifth causes of action be limited, to a maximum of $2 million in the aggregate, by the pleaded limitation clause pleaded at paragraphs 6(p) and 75 of Harrison Grierson’s amended statement of defence dated 15 November 2021?
The answer is “yes.”
(b)Would any liability of Constructure pursuant to any of the first to fifth causes of action be limited, to a maximum of five times the fee (exclusive of GST and disbursements) with a maximum limit of
$500,000, by the limitation clause pleaded at paragraphs 12.2, 97.2 and 100 of the second defendant’s amended statement of defence dated 15 November 2021?
The answer is “yes.”
(c)Would any liability of Harrison Grierson pursuant to the third and fourth causes of action be limited, to a maximum of $200,000 in respect of each producer statement or in the aggregate in respect of all such
statements, by the limitation pleaded at paragraphs 11(b), 21(b), 33(b) and 78?
The answer is “no.”
(d)Would any liability of Constructure pursuant to the third and fourth causes of action be limited, to a maximum of $200,000 in respect of each producer statement or in the aggregate in respect of all such statements, by the limitation pleaded at paragraphs 20.4, 29.4, 46.4, and 103?
The answer is “no.”
[353] Leave is granted to TCC to amend its claim within 20 working days from the date of this judgment.
Costs
[354] If the parties are unable to agree costs, leave is granted for the parties to file costs memoranda of no more than five pages. The defendants are to file any costs memorandum with TCC then filing a memorandum in response within 10 working days thereafter.
Tahana J
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