Te Mata Properties Limited v Hastings District Council HC Napier CIV 2004-441-151
[2007] NZHC 2013
•17 August 2007
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV 2004-441-151
BETWEEN TE MATA PROPERTIES LIMITED First Plaintiff
ANDROBERT WARWICK SIMPSON Second Plaintiff
ANDHASTINGS DISTRICT COUNCIL First Defendant
ANDCROWN HOUSES (NEW ZEALAND) LIMITED
Second Defendant
ANDGARY ERLE HARDING Third Defendant
ANDTE MATA LODGE HOLDINGS LIMITED
Fourth Defendant
ANDG C DESIGN STUDIO LIMITED Fifth Defendant
ANDEXMAC CONSTRUCTION LIMITED Sixth Defendant
ANDPETER JOHN WILBY Seventh Defendant
ANDSTEPHEN LOBB AND WILLIAM (BILL) CARTER
Eighth Defendants
ANDGUNAC HAWKES BAY (1994) LIMITED
Ninth Defendant
AND BETWEEN TE MATA PROPERTIES LIMITED First Plaintiff
TE MATA PROPERTIES V HASTINGS DISTRICT COUNCIL AND ORS HC NAP CIV 2004-441-151 17
August 2007
ANDVILLAGE PROPERTIES LIMITED Second Plaintiff
ANDHASTING DISTRICT COUNCIL First Defendant
ANDCROWN HOUSES (NEW ZEALAND) LIMITED
Second Defendant
ANDGARY ERLE HARDING Third Defendant
ANDWILLIAM S MASSEY TRADING AS PROPERTY SERVICES HAWKES BAY Fourth Defendant
ANDG C DESIGN STUDIO LIMITED Fifth Defendant
ANDDEAN BREWER AND DEAN TREAVES Sixth Defendant
ANDDEAN & DEAN BUILDERS LIMITED Seventh Defendant
ANDGUNAC HAWKES BAY (1994) LIMITED
Eighth Defendant
Hearing: 10 July 2007
Counsel: Michael C Black for plaintiffs to oppose
David Goddard QC and Georgina Grant for the first defendant in support
Bruce Gilmour and Rebecca Craighead for Gunac Hawkes Bay
(1994) Ltd in support
Matthew B Lawson and Emily Fackney for W S Massey in support
Judgment: 17 August 2007 at 2:15pm
RESERVED JUDGMENT OF WILLIAMS J
2
This judgment was delivered by
Hon. Justice Williams on
17 August 2007 at 2:15pm
Pursuant to Rule 540(4) of the High Court Rules
……………………………………………..
Registrar/Deputy Registrar
Date:………………………
AAll the plaintiffs’ claims against the Hastings District Council in both proceedings are struck out.
BThe plaintiffs’ claim against Mr Massey in proceeding 569 based on claimed breach of the Consumer Guarantees Act 1993 is struck out.
CApart from what appears in (a) and (b), the striking-out applications brought by Mr Massey in proceeding 569 and by Gunac in both proceedings are dismissed.
DCosts are to be dealt with in accordance with para [117] [d] of this judgment.
TABLE OF CONTENTS
Paragraph Issue [1] Striking-out principles [12]
Submissions
(1) HDC [13]
(2) Mr Massey [30] (3) Gunac [39] (4) Plaintiffs’ submissions on all applications [46]
Discussion
(1) General [65]
(2) HDCs application [80] (3) Mr Massey’s application [99] (4) Gunac’s applications [108]
Result [117]
Issue
[1] This judgment deals with three applications by various defendants in these associated claims to be struck out of the proceedings on the grounds later discussed.
[2] The claims concern two Havelock North motels:
a) Te Mata Lodge at 21 Porter Drive; and b) Village Motel at 16 Te Aute Road.
[3] Te Mata Properties Limited, the principal plaintiff in proceeding 151 owns Te Mata Lodge. Te Mata Properties agreed to buy Village Motel but nominated the second plaintiff in proceeding 569, Village Properties Limited, as purchaser. That company is now the registered proprietor.
[4] The claim in proceeding 151 asserts that an application for building consent was lodged with the first defendant, Hastings District Council (“HDC”), for Te Mata Lodge in 1998-1999. The complex contains two separate blocks each of two storeys containing four motels. There are 20 units in all. Crown Houses (New Zealand) Limited and its managing director, Mr Harding, the second and third defendants in proceeding 151 built Te Mata Lodge. At the conclusion of the construction work the HDC issued a code compliance certificate. The property was then transferred to the fourth defendant in claim 151, Te Mata Lodge Holdings Limited, which, on 1 April
1999, leased the complex for 21 years to Te Mata Lodge Havelock North Limited. On 12 February 2002 an agreement for sale and purchase for Te Mata Lodge was entered into pursuant to which Te Mata Properties became the registered proprietor of Te Mata Lodge.
[5] The claim in proceeding 569 shows a similar course of action for Village Motel. Applications for building consent for the two stages of the motel complex were lodged in 2001 and 2002. There is a two storey building containing 16 motels
and manager’s accommodation and a single storey building containing four motels. Mr Massey, the fourth defendant in proceeding 569, is pleaded to be a property inspection expert who provided a report for the plaintiffs on 1 October 2002 on the “durability and serviceability of the motel complex to be purchased” by them. HDC issued code compliance certificates on 21 December 2001 and 8 September 2002 and a building warrant of fitness on 14 October 2002. Te Mata Properties bought the complex by contract dated 24 September 2002 and nominated Village Properties as purchaser. It would appear the complex was bought subject to a 25 year lease dated
2 September 2005 to Village Motel Limited.
[6] In late 2002 as far as Te Mata Lodge is concerned and early 2003 as far as Village Motels is concerned, the plaintiffs say they noticed construction problems and water and moisture entering the motel units. The claims particularise these alleged defects though it is unnecessary for present purposes to recount that detail save to note that Te Mata Lodge and Village Motel are alleged to have been built respectively contrary to the New Zealand Building Code and to a 1995 Appraisal Certificate, a BRANZ publication and a 1998 Harditex technical publication. Both motels are alleged to be likely to suffer ongoing and increasing consequences of the allegedly defective work including disruption to the lessees’ businesses.
[7] The damages sought in each case include reimbursement for remedial works already carried out and for the cost of future remedial works and any diminution in the complexes’ value.
[8] Both claims against HDC are brought in negligence asserting it owed the plaintiffs a duty of care to ensure that the plans for both complexes complied with the Building Code and Building Act 1991 before approving the building consents coupled with a duty under the Act to ensure the requisite building standards were met. It is alleged HDC failed to inspect the units during the course of construction and failed to ensure they complied with the Building Act and with the Building Code. It is asserted there was a duty on HDC to satisfy itself as to durability, water penetration and structural integrity of the building including health and safety issues and to satisfy itself that all units complied with the Building Code before issuing
Code Compliance Certificates. Particulars of all those alleged duties of care are lengthy.
[9] The fourth defendant, Mr Massey, is sued in breach of contract, negligence and under the Fair Trading Act 1986 and the Consumer Guarantees Act 1993.
[10] It is alleged he contracted with the plaintiffs in proceeding 569 to provide an accurate report concerning the conditions of the motels so as to enable the plaintiffs to buy the same on the basis they were free of defect. The claim alleges the report was incorrect by failing to identify the defects earlier summarised but says the plaintiffs relied on the report in settling the purchase of Village Motels. The existence of a duty of care and its breach is alleged on the same basis. Mr Massey’s report was said to have been deceptive or likely to mislead the plaintiffs for the same reasons.
[11] The claims against Gunac Hawke’s Bay (1994) Ltd in both claims are effectively identical. They assert Gunac was the waterproofing contractor on both motels, including applying waterproofing membranes to ensure the units would be free of water ingress problems and defects under the Building Act and Building Code and was negligent in applying a waterproofing system by failing to follow specifications.
Striking-out principles
[12] The approach to the jurisdiction to striking out a pleading under R
186(a) or a proceeding under R 477(a) is well-settled. All allegations in the statement of claim are assumed to be admitted or be capable of proof. The pleading is then considered against the test of deciding whether, on material which can be properly considered, it has been shown to be so clearly untenable in fact and law as to be incapable of success. That test has been set by the Courts as being deliberately difficult to attain to preserve citizens’ access to the Courts. The jurisdiction is to be exercised sparingly and in clear cases only. Pleadings or proceedings may be struck out even though such applications raise difficult questions of law requiring extensive argument
provided the Court can be persuaded that the claim is unsound, the pleading cannot be amended satisfactorily and such an order will obviate the necessity for trial (Peerless Bakery Ltd v Watts [1955] NZLR 339; McKendrick Glass Manufacturing Co Ltd v Wilkinson [1965] NZLR 717; R Lucas & Son (Nelson Mail) Ltd v O’Brien [1978] 2 NZLR 289; Takaro Properties Ltd v Rowling [1978] 2 NZLR 314; Gartside v Sheffield Young & Ellis [1983] NZLR 37; South Pacific Manufacturing Co Ltd v NZ Security Consultants & Investigations Ltd [1992] 2 NZLR 282).
Submissions
(1) HDC
[13] Mr Goddard QC, senior counsel for HDC, summarised the basis of the Council’s striking-out application as being that the motels were originally constructed for commercial or investment purposes not as residential dwellings. The original owners could, and did, employ expert advisers in respect of the design and construction of the building, as did subsequent owners in proceeding 569 who employed Mr Massey to carry out the pre-purchase inspection of the Village Motels. None of the plaintiffs or original owners had any direct contractual relationship with the sub-contractors including Gunac.
[14] He submitted that Invercargill City Council v Hamlin [1996] 1 NZLR 513, dealing with a domestic dwelling as the Privy Council did in that case, provided no mandate to impose a duty of care on HDC in the circumstances giving rise to the present claims. Caveats expressed by the Court of Appeal in that case (Invercargill City Council v Hamlin [1994] 3 NZLR 513) as to the justification for the commercial/residential divide have been echoed since (Riddell v Porteous [1991]
1 NZLR 1, 12 (CA) and Rolls-Royce v Carter Holt Harvey Ltd [2005] 1 NZLR 324,
343-344 paras [71]-[74] (CA)). Mr Goddard particularly relied on the decision in Three Meade Street Ltd v Rotorua District Council [2005] 1 NZLR 504 where Venning J held the District Council owed no duty of care to a commercial motel owner absent particular vulnerability or reliance, something not pleaded in these cases.
[15] Mr Goddard submitted the statutory scheme of the Building Act 1991, the statute in force at the time, focused local body responsibility on health and safety issues, not protecting building value, and gave no indication that local bodies should be liable, effectively as insurers, to commercial building owners for economic loss through building defects.
[16] He submitted that in the normal run of commercial cases it was neither fair, just, nor reasonable to impose a duty of care on local bodies since property owners were able to protect their own position through advice and insurance.
[17] A finding that there was no duty of care in these cases would accord not just with New Zealand authority but with authority in Australia and Britain, though acknowledging Canadian Courts have imposed obligations on local authorities and builders to take reasonable care to avoid dangerous defects in commercial buildings resulting in economic loss. That gloss, Mr Goddard submitted, distinguished those cases from the present.
[18] He said HDC supported Gunac’s striking-out application which, if successful, would mean the Council’s cross-claims would not be pursued. Both striking-out applications should succeed, he submitted, or neither should
[19] Whilst accepting that, for the purposes of the striking-out applications the claims must be regarded as provable, Mr Goddard dealt with the affidavit evidence filed in relation to the applications – admitted in such applications only if non- controversial – acknowledging the current form of the pleadings had been drafted to reflect the duty of care established in Hamlin for domestic dwellings.
[20] The loss sought to be recovered was, he stressed, confined to remedial work, loss of value and consequential costs, plus general damages of $50,000 in proceeding
569 and $20,000 in proceeding 151. There was no allegation of harm to anybody and although the plaintiffs may intend to amend their claim to allege lack of weathertightness caused by construction defects, no such amendments have yet been made despite the fact these claims have been on foot for well over three years and the present claims were filed nearly two years ago. Remedying the defects would
avoid any possible risk to health or safety. These, he emphasised are, at bottom, commercial cases.
[21] Of the numerous candidates for the tests to be applied for the criteria leading to the imposition of a duty of care, Mr Goddard relied on Attorney-General v Carter [2003] 2 NZLR 160, 168-9 at [22], [24], [26]-[28], [30]:
[22] Whether it is fair, just and reasonable to hold that a duty of care is owed by defendant to plaintiff in a situation not covered by authority is conventionally addressed in terms of proximity and policy: see for example Price Waterhouse v Kwan at p 41, para [6], and of course South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282. Generally speaking, proximity is concerned with the nature of the relationship between the parties whereas policy is concerned with the wider legal and other issues involved in deciding for or against a duty of care. In cases of negligent misstatement, the proximity inquiry generally focuses on the interdependent concepts of assumption of responsibility and foreseeable and reasonable reliance.
…
[24] If the defendant has, or is deemed to have, assumed responsibility to the plaintiff to be careful in what is said or written, thereby creating proximity, it will usually, subject to policy considerations, be fair, just and reasonable to hold the defendant liable for want of care. Assumption of responsibility can be viewed as the rationale for liability for negligent misstatement and the underpinning of the tort at the highest level of generality. Indeed it can be said that whether the defendant should in any situation be required to assume responsibility to the plaintiff for negligently caused loss is simply another way of expressing the conventional inquiry whether it is fair, just and reasonable to impose a duty of care.
[26] In most cases, however, there will be no voluntary assumption of responsibility. The law will, however, deem the defendant to have assumed responsibility and find proximity accordingly if, when making the statement in question, the defendant foresees or ought to foresee that the plaintiff will reasonably place reliance on what is said. Whether it is reasonable for the plaintiff to place reliance on what the defendant says will depend on the purpose for which the statement is made and the purpose for which the plaintiff relies on it. If a statement is made for a particular purpose, it will not usually be reasonable for the plaintiff to rely on it for another purpose. Similarly, if the statement is made to and for the benefit of a particular person or class of persons, and the plaintiff is not that person or within that class, it will not usually be reasonable for the plaintiff to place reliance on it so as to oblige the defendant to assume responsibility for carelessness in its making.
[27] Hence, before the law of torts will impose on the author of a statement a duty to take care the plaintiff must show that it is appropriate, on the foregoing basis, to hold that the author has or must be taken to have assumed responsibility to the plaintiff to take reasonable care in making the
statement. If that is shown, the necessary proximity will have been established, leading to a prima facie duty of care. The second inquiry is of course whether policy considerations negate or confirm that prima facie duty. When, as in the present case, the environment which brings the parties together is legislative, the terms and purpose of the legislation will play a major part in deciding the issues which arise. It is the legislation which creates and is at the heart of the relationship between the parties. It will often contain policy signals bearing on that aspect of the inquiry.
[28] It is as well to indicate that no new criteria are involved in the foregoing discussion. Our purpose is simply to set out a structure within which the necessary analysis can take place.
[30] The outcome of a duty of care issue should not depend on what analytical method is employed. The ultimate inquiry is whether it is fair, just and reasonable to require the defendant to take reasonable care to avoid causing the plaintiff loss or damage of the kind for which compensation is being sought. Each case will have its own particular combination of circumstances against which the necessary judgment must be made. To assist in answering the ultimate question, a two-stage approach, under the headings of proximity and policy, has been found helpful and is now firmly established in our law.
and a similar observation in Rolls-Royce (at 340-342 paras [58]-[65]) which relevantly reads:
Test to be applied
[58] Should there be a duty of care in a case such as this? The ultimate question when deciding whether a duty of care should be recognised in New Zealand is whether, in the light of all the circumstances of the case, it is just and reasonable that such a duty be imposed. The focus is on two broad fields of inquiry but these provide only a framework rather than a straitjacket. The first area of inquiry is as to the degree of proximity or relationship between the parties. The second is whether there are other wider policy considerations that tend to negative or restrict or strengthen the existence of a duty in the particular class of case. At this second stage, the Court’s inquiry is concerned with the effect of the recognition of a duty on other legal duties and, more generally, on society. …
[59] The inquiry into proximity is concerned with the nature of the relationship between the parties and is more than a simple question of foreseeability. It involves consideration of the degree of analogy with cases in which duties are already established. This is because Courts should only move gradually into new areas of liability and also because the examination of factors that have influenced earlier decisions ensures that any development of the law occurs in a principled and cohesive manner. …
[60] The proximity inquiry can be seen as reflecting a balancing of the plaintiff’s moral claim to compensation for avoidable harm and the defendant’s moral claim to be protected from undue restrictions on its freedom of action and from an undue burden of legal responsibility. That necessarily involves a consideration of how close the nexus is between the
defendant’s alleged negligence and the plaintiff’s loss and the degree of harm to the plaintiff. It also involves considering the burden on the defendant of taking precautions against the risk and also whether the consequences to the defendant may be out of proportion to its fault. …
[61] The extent to which those in the plaintiff’s position are vulnerable can also be taken into account. The inquiry may in this case concentrate on whether a defendant with special skills has power over a vulnerable plaintiff.
… That vulnerability is a key factor in determining liability was recently noted by the High Court of Australia in Woolcock Street Investments Pty Ltd
v CDG Pty Ltd [2004] HCA 16. …
[62] Whether there are or could realistically have been other remedies for a plaintiff is relevant to the assessment of vulnerability. If there are, then this may point to there having been adequate means for the plaintiff to protect itself and to there being adequate deterrence for the defendant. … Professor Todd considers that the focus should be on what steps a person could reasonably have taken to look after his or her interests and, in commercial cases, includes the consideration of bargaining power and market reality –
…
[63] The nature of the loss can also be taken into account. The Courts have been less willing to impose a duty of care in cases of economic loss than where there is physical damage to property or, in jurisdictions other than New Zealand with its accident compensation regime, physical injury.
…
[64] The statutory and contractual background may also be relevant in defining the relationship between the parties and can point, depending on the circumstances, both towards and away from a finding of proximity. The statutory and contractual background can raise wider policy issues and thus the boundary between proximity and policy can merge. The two-stage approach is, however, only a framework and no presumptions, rebuttable or otherwise, arise at any stage of the inquiry. This means that the important object is that all relevant factors are properly weighed, not the stage of the inquiry at which they are taken into account . …
[65] For example, in Price Waterhouse v Kwan, at p 41, para [6] Tipping J considered the relevant legislative environment to be of considerable relevance to the issues of both proximity and policy and, in South Pacific Manufacturing, all of the Judges considered that the existence of contractual remedies against the insurer militated against there being a duty of care. Casey J, at p 314, treated this factor as being a factor pointing against there being the requisite degree of proximity. Hardie Boys J, at pp 318 – 319, said that the existence of alternative remedies was a factor that could point against proximity being present but in fact dealt with the contractual remedy against the insurer as a policy consideration weighing against the imposition of a duty, as did all the other Judges. Cooke P, however (at p 301), also referred to the contractual structure in his discussion of proximity, approving of the reasoning in Simaan [General Contracting Co v Pilkington Glass Ltd (No. 2) [1988] 1 QB 758.
[22] In terms of proximity, Mr Goddard stressed the lack of contract between the plaintiffs and HDC with the latter’s obligations being confined to its statutory
functions under the Building Act 1991. He contrasted that position with the direct relationship with the contractors, architects and others. It was their performance which was pleaded to have given rise to the defects with Council being at least one stage removed from the source of the claimed damage.
[23] In addition, there was no dependence on HDC as to work quality, that being the province of original expert advisers with greater expertise than that of HDC and its staff. The plaintiffs and original owners had been able to manage their risk through contracting for appropriate warranties, guarantees and other contractual provisions. If they chose not to protect themselves, that was their choice and it was not plausible to suggest the plaintiffs looked to Council to manage their commercial risk and protect their investment value. That applied with additional force to the plaintiffs who were owners subsequent to those who constructed the complexes. They, too, could have protected themselves by similar means and could not say they were reasonably dependent on Council for fulfilment of its statutory functions during construction.
[24] As to the case law on proximity, Mr Goddard submitted that Hamlin confined its duty of care to domestic dwellings of relatively low value where architects, engineers and pre-purchase expert inspections had not been features. Following a careful analysis of Hamlin, Riddell, Rolls-Royce and, in particular, Three Meade Street – an exercise undertaken later in this judgment – he submitted that New Zealand precedent provides no authoritative support for the claimed duty of care in the circumstances pleaded in the present cases. Indeed, the cases show the
reverse.
[25] Mr Goddard adopted the doubts expressed in the cases as to whether a proper distinction can be made between commercial and residential use. The crux here, he suggested, was vulnerability and reliance, both being factors which were absent in the construction of valuable commercial buildings. It was reasonable to expect original owners to lay off their risk by appropriate contractual arrangements and the retention of experts and competent contractors. It was illogical to suggest subsequent owners were
more vulnerable than the original owners. Subsequent owners had, too, the same risk limitation strategies available. How, he asked rhetorically, could Council have no duty to the initial owner but a duty to subsequent buyers?
[26] In these cases, Mr Goddard submitted the starting point was that Council owed the plaintiffs no duty of care unless they could point to some special vulnerability or reliance that, as an exception to the general rule, would justify its imposition. Nothing in that area was pleaded.
[27] Turning to policy, Mr Goddard submitted the scheme of the Building Act 1991 was that local body responsibilities were essentially in the health and safety area, not in the value of buildings. He particularly relied on the purposes and principles (s 6), the requirement for building work to comply with the Building Code (s 7), the functions and duties of local bodies (s 24), the building consent sections (ss 33 and 34), the matters local authorities were required to take into account in relation to the change of use in buildings (s 47), and the provisions for the National Building Code (ss 48-50). He also made the point that fees charged by local authorities for discharging those functions were low, well short of insurance premiums for defects in commercial buildings (s 28).
[28] Mr Goddard relied on the rejection of Council’s duty of care for commercial buildings in Australia (Woolcock Street Investments Pty Ltd v C D G Pty Ltd [2003] 216 CLR 515 and in the United Kingdom (Murphy v Brentwood District Council [1991] 1 AC 398) and submitted there was no reason for the law in this country to differ. Whilst Canada has held that local authorities have a duty to take reasonable care to avoid dangerous defects in a commercial building, they, too, have rejected the existence of a duty of care generally for pure economic loss (City of Kamloops v Nielsen [1984] 1 SCR 2; The Winnipeg Condominium Corporation No.36 v Bird Construction Co [1995] 1
SCR 85).
[29] Mr Goddard submitted the distinction between dangerous and other building defects not causing harm to persons or property is difficult to apply and has attracted little support in the cases (Murphy at 470-471 per Lord Keith. 475 and 477 per Lord Bridge, 488-489 per Lord Oliver; Rolls-Royce at
345 para [79]. Drawing on Carter, Mr Goddard sought to draw a distinction between responsibility for types of defects rather than a duty to take care to avoid causing the type of loss for which compensation was sought. A local body’s obligations to prevent dangerous defects in buildings did not equate with a duty of care to avoid causing commercial loss resulting from these defects. A public law responsibility to avoid injury or harm to persons or property could not equate with a private law responsibility in damages to commercial building owners required to spend money to remedy defects.
(2) Mr Massey
[30] For Mr Massey, Mr Lawson stressed his client’s denial of any deficiency in the service provided but accepted such would have to be an issue at trial in the event the striking-out application did not succeed.
[31] In relation to the pleadings he made the point that Te Mata Properties has never suffered a loss since it has never owned or paid for Village Motels and has not been required to undertake any remedial work. He submitted that any contract entered into by Mr Massey was with a Mr Harris for, but not of, the plaintiffs but, again as remarked during the hearing, that is a factual matter which, if the present application fails, remains for trial.
[32] Mr Lawson suggested that the only way the plaintiffs could claim against Mr Massey was pursuant to the Contracts (Privity) Act 1982. Such was not pleaded and there was no person designated as the recipient of the benefit of the report as required by s 4. The contract into which Mr Massey entered was formed a fortnight before Village Properties existed.
[33] He next submitted the plaintiffs had suffered no loss so as to found the negligence claim against Mr Massey. The plaintiffs plead he entered into an
agreement with them to provide a report on the building’s condition and, there being no tort of taking reasonable care to perform a contract (Rolls-Royce at 342 para [66], at 355 para [127] the negligence claim must fail.
[34] Even if such were not the case, Mr Lawson submitted the plaintiffs could not establish the necessary degree of proximity to found a duty of care as the plaintiffs were not within the class of persons who would reasonably to rely on Mr Massey’s report. They were attempting in this litigation to use it for a purpose different from that for which it was supplied (Carter at 168 para [26]-[28]).
[35] Mr Massey entered into a contract with Mr Harris to supply a building report on a limited basis and was not assuming responsibility to either plaintiff or any other purchaser, and could not foresee that such would reasonably place reliance on his report, particularly when Mr Harris’ affidavit said the ownership structure was required by the Bank. The plaintiffs had accordingly structured their affairs for their own particular purposes, amalgamating or discriminating between themselves for best advantage in the litigation and taking legal and other expert advice throughout.
[36] As a matter of policy, Mr Lawson submitted that by preparing his report Mr Massey should not be held to have assumed responsibility for any subsequent purchaser of the property to whom the report might be made available.
[37] The cause of action under the Consumer Guarantees Act 1993 s 28 was, Mr Lawson submitted, untenable since “consumer” is defined by s 2 as a “person” who acquires goods or services “of a kind ordinarily acquired for personal domestic or household use or consumption” and not for re-supplying them, using them in manufacture or for trade repairs. On its face, the definition of “consumer” was inapplicable to the present litigation.
[38] Mr Lawson submitted that the cause of action under the Fair Trading Act
1986 s 9 was a superfluous distraction, relying on Allison v KPMG Peat Marwick [2000] 1 NZLR 560, 579 para [82] where the Court of Appeal upheld the first instance Judge’s view that if the “appellants ‘could not get home’ in negligence they would not ‘get home’ under the [Fair Trading] Act because liability under the Act
would depend on the existence of misleading or deceptive conduct”. The Fair Trading Act cause of action was an “unnecessary complication”. Here Mr Lawson submitted that if the plaintiffs could not succeed under any of the other causes of action in this litigation they could not succeed under the Fair Trading Act claim.
(3) Gunac
[39] Mr Gilmour emphasised that Gunac’s position as regards both motels was as sub-contractor to Crown Houses which was building the motels for Te Mata Lodge Holdings in proceeding 151 and Village Land Holdings in proceeding 569 and without any direct contractual link at any time on either complex with the plaintiffs.
[40] Placing Rolls-Royce at the core of his submissions, Mr Gilmour noted the lack of a direct contractual link between Carter Holt Harvey and Rolls-Royce in that case, emphasised the divide noted by the Court of Appeal between commercial property owners’ ability to protect themselves by contrast with home owners and, with Mr Goddard, also noted the conformity with that principle in overseas comparator jurisdictions.
[41] He stressed Glazebrook J’s observation in Rolls-Royce (at 347 para [90]) that “something more is needed for there to be liability than merely being a nominated skilled contractor” and the Court of Appeal holding (at 349 paras [99], [100]):
[99] Assumption of responsibility for a statement or a task does not usually entail a voluntary assumption of legal responsibility to a plaintiff, except in cases where the defendant is found to have undertaken to exercise reasonable care in circumstances which are analogous to, but short of, contract, and it is foreseeable that the plaintiff will rely on that undertaking. If that is the case then, subject to any countervailing policy factors, a duty of care will arise. In other cases, the law will deem the defendant to have assumed responsibility where it is fair, just and reasonable to do so: Attorney–General v Carter, at pp 168 – 169 (paras [23] – [27]). Whether it is fair, just and reasonable to deem an assumption of responsibility and then a duty of care will depend on a combination of factors, including the assumption of responsibility for the task, any vulnerability of the plaintiff, any special skill of the defendant, the need for deterrence and promotion of professional standards, lack of alternative means of protection and so on – that is, essentially the matters discussed above at paras [58] – [65]. Wider policy factors will also need to be taken into account.
[100] Finally, we note that assumption of responsibility for the task cannot be sufficient in itself, at least insofar as the negligent construction cases are
concerned. If it were, then the result in Simaan [General Contracting Co v Pilkington Glass Ltd (No.2) [1988] 1 QB 758] (which has been so widely approved) could not be justified, as the subcontractor in that case had clearly assumed responsibility for the task of supplying glass that accorded with the contractual specifications. The question in Simaan was whether the subcontractor had assumed responsibility to the plaintiffs and the answer given in the case, although not expressed in that manner, was that it had not. Any assumption of responsibility was only to the direct contracting party. ‡
[42] He submitted the adoption, in the decision consequential on Rolls-Royce, of
Carter Holt Harvey Ltd v Genesis Power Ltd (HC AKL Civ.2001-404-1974,
24 October 2006 para [50]) of the speech of Lord Goff in Henderson v Merrett
Syndicates Ltd [1995] 2 AC 145, 195-196 was apposite in the present context:
I wish however to add that I strongly suspect that the situation which arises in the present case is most unusual; and that in many cases in which a contractual chain comparable to that in the present case is constructed it may well prove to be inconsistent with an assumption of responsibility which has the effect of, so to speak, short circuiting the contractual structure so put in place by the parties. It cannot therefore be inferred from the present case that other sub-agents will be held directly liable to the agent’s principal in tort. Let me take the analogy of the common case of an ordinary building contract, under which main contractors contract with the building owner for the construction of the relevant building, and the main contractor sub- contracts with sub-contractors or suppliers (often nominated by the building owner) for the performance of work or the supply of material in accordance with the standards and subject to terms established in the sub-contract. I put on one side cases in which the sub-contractor causes physical damage to property of the building owner, where the claim does not depend on an assumption of responsibility by the sub-contractor to the building owner; though the sub-contractor may be protected from liability by a contractual exemption clause authorised by the building owner. But if the sub- contracted work or materials do not in the result conform to the required standard, it will not ordinarily be open to the building owner to sue the sub- contractor or supplier direct under the Hedley Byrne principle, claiming damages from him on the basis that he has been negligent in relation to the performance of his functions. For there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility.
[43] Mr Gilmour also relied drew attention to what he submitted was a case similar to the present: Body Corporate No.114424 v Glossop Chan Partnership Architects Ltd (HC AKL CP612/93, 22 September 1997). That litigation stemmed from the construction of the 15-storey luxury Shangri La apartment tower by a developer. The construction was co-ordinated by a Project Manager, there was a head contractor, the Glossop Chan Partnership was architect and there were a
number of sub-contractors, including Carter Holt Harvey Aluminium which supplied the aluminium joinery. Defects were alleged in the windows and doors. Potter J dismissed the claim for the aluminium supplied, saying that to “permit an action in tort could result in legitimate contractual provisions being circumvented” and imposing a duty on a sub-contractor would be to “fix him with an obligation of which he had insufficient knowledge” in the sense of obligations under the head contract and the common obligations of other parties. Mr Gilmour submitted Gunac was also significantly distant from the plaintiffs particularly given that Village Land Holdings was struck off the company register on 16 July 2003 and Te Mata Lodge Holdings has taken no part in proceeding 151, is insolvent and would also have been struck off had the plaintiffs not intervened. The plaintiffs’ reliance could have been no more than expecting Gunac to complete its work according to the appropriate contract including manufacturers’ standards.
[44] Mr Gilmour, too, made the point that the plaintiffs bought Village Motels after obtaining an independent inspection concerning the building and its materials and components.
[45] Mr Gilmour adopted the observations in Rolls-Royce (at 116-119) concerning the underlying thrust of the Building Act and associated himself with Mr Goddard’s submissions in that regard.
(4) Plaintiffs’ submissions on all applications
[46] For the plaintiffs, Mr Black submitted the striking-out applications were brought prematurely as the correct legal positions between the parties required determination on factual matters at trial.
[47] Mr Black submitted that the claims, particularly that against Gunac, raised broad issues of concurrent liability in tort and contract including a duty owed by a builder to subsequent owners. Gunac’s contractual position was not in dispute but he submitted Rolls-Royce and Three Meade Street were distinguishable. A duty of care could be owed by a sub-contractor to a subsequent owner and the fact that a
subsequent owner might be a commercial claimant did not mean that duty could not be owed.
[48] For the proposition that a duty of care could be owed by a contractor to a subsequent owner, Mr Black relied on Junior Books Ltd v Veitchi Co Ltd [1983] AC
520. Though doubted, the decision had not been overturned in subsequent cases such as Murphy and Henderson. He sought to distinguish the critical remarks about Junior Books in Rolls-Royce because of the different defects with which the cases were respectively concerned. His submissions appeared to overlook the observation in Rolls Royce (at 355 para [127]) that Junior Books does not reflect the law in New Zealand.
[49] Mr Black submitted the extent of the duty owed to commercial claimants doubted in Three Meade Street did not apply to builders or sub-contractors. It had never, he submitted, been established in New Zealand that a duty is never owed by a builder or a Council to a subsequent commercial purchaser. All depended on fact.
[50] Mr Black relied heavily on three early New Zealand decisions holding a negligent builder or inspector could be liable to a subsequent purchaser: Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394, Mt Albert Borough Council v Johnson [1979] 2 NZLR 234 and Stieller v Porirua City Council [1986]
1 NZLR 84. He said the Privy Council’s decision in Hamlin confirmed the principle that owners of defective property can sue builders and others in negligence for the cost of making good defects.
[51] In support of his submission that the duties and obligations relevant to these claims are not yet settled in law and should accordingly await trial, Mr Black relied on the discussions of the topic in Burrows, Finn & Todd: Law of Contract in New Zealand (3rd ed 2007 para 15.2.7(b)(i) p 489 ff) and Todd et al: The Law of Torts in New Zealand (4th ed 2005 para 6.4 p 230-245) though he was constrained to acknowledged that, in the former, the learned authors say (at 490):
In Canada, the duty in tort extends to reasonable standards of safe construction, whereas in New Zealand the duty is to build a reasonably sound structure, using good materials and workmanlike practices (Stieller v Porirua CC [1986] 1 NZLR 84 at 94). It is a duty to take care, not a duty to
comply with the contract. Accordingly, its bounds are not determined by reference to the terms of the contract pursuant to which the work was done. The builder is not liable at the suit of a subsequent owner for failure to comply with contractual stipulations for special materials or features unrelated to the basic integrity of the building, for that would be to allow the owner to sue on a contract to which he or she was not a party.
[52] Though they say the tort deserves to be supported, there is doubt as to how far it extends, particularly in relation to commercial property and difficulties in the application of that divide. The learned authors’ view is that (at 491):
It is reasonably arguable that parties to commercial dealing normally have a better chance of protecting themselves than purchasers of houses. So, on this view, commercial purchasers must look after themselves and negotiate in contract for the right to a remedy or take other self-protective steps. Yet if there is to be no duty in commercial cases the Courts must decide where to draw the line. In Woolcock the joint majority judgment thought that any line sought to be drawn between dwellings and other buildings would be far from bright, straight, clearly defined or even clearly definable. An obvious instance of difficulty would be where a building has both commercial and residential purposes. Seemingly the question would have to be whether the builder, architect, or engineer should foresee harm to a vulnerable plaintiff who could not reasonably be expected to protect himself or herself from economic loss in acquiring a defective building. Yet this would mean that the question would be at large in every case. Whether the particular plaintiff was or could be expected to be vulnerable could be argued in relation to a residence, an office, a factory, a corner dairy, or any other building. And the answer could hardly turn on whether the particular plaintiff happened to be rich or poor.
Very arguably, if we allow a claim by the owner of a defective house, there is no good stopping point in distinguishing between different kinds of buildings.
[53] The learned authors of Todd take a similar view, saying (at 243) that -
The Hamlin remedy rests heavily on the vulnerability of members of the public in acquiring homes, whereas parties to commercial dealings had better means of protecting themselves. Allowing a tort action in a commercial context tends to undermine the contractual negotiation of risks and liabilities, particularly where there is a closely negotiated network of contracts. So, on this view, commercial purchasers must look after themselves and negotiate in contract for the right to a remedy.
[54] Recognising the difficulty in drawing the line, the authors say (ibid):
Seemingly the question must be whether the builder (or architect, or engineer, or inspector) should foresee harm to a vulnerable plaintiff who could not reasonably be expected to protect himself or herself from economic loss in acquiring a defective building. Perhaps the application of
this general test, coupled with the standard of care which is related to the habitability or possibly the safety of the building, can provide sufficient certainty and adequate guidance.
[55] Mr Black then highlighted some of the difficulties in deciding whether motels were commercial or residential, making the point they can be both at various times. He suggested that current New Zealand law permits tortious claims by owners of defective houses and apartments against builders and there was no difference in principle in that regard between motels and other structures. There was no danger of claims of an indeterminate amount against an indeterminate class as Councils and sub-contractors are defined and could insure against third party risk. Were these claims to be struck out, the owners would be left without remedy against the applicants. Although they could seek an assignment from the original owner of any rights of action, that, however, was too uncertain a remedy from the point of view of subsequent purchasers. Unless the claims under challenge enured, there was a high risk the plaintiffs would be left without remedy.
[56] The claim under the Consumer Guarantees Act against Gunac was maintainable, he submitted, because it was a claim for the supply of defective product.
[57] After detailed consideration of the judgment, Mr Black sought to distinguish Rolls-Royce on the basis that the contractual context was crucial in holding no duty of care existed whereas in these claims there was no opportunity for the plaintiffs and subsequent purchasers to have protected themselves in relation to HDC and Gunac since they were not within the initial group of the parties involved in construction of the motels.
[58] Were Woolcock Street to be adopted, he submitted the law would be that a builder could limit or exclude its duty to subsequent owners through its contract with the original owner. Such would leave the present plaintiffs without recourse.
[59] Riddell, he submitted, was a more appropriate precedent. There, the Riddells contracted with Mr Porteous, a builder, to construct a deck which required waterproofing as there was accommodation below. The deck leaked, but before that
was discovered Mr and Mrs Riddell sold the property. The buyers successfully sued them for the cost of repairing the leaks. The Riddells then sued Mr Porteous in contract and in tort and also sued, in tort, the Council which had issued the building consent. The Court of Appeal held the builder owed a duty of care to the Riddells to ensure the work was performed in accordance with the specifications and that relationship was not significantly affected by the sale since it was always possible negligent work might only come to light afterwards. There were no policy reasons to negate the imposition of a duty because the loss was always going to be suffered by whomever was the current owner, the parties were limited and the builder and Council were more able to insure against loss. Mr Black relied on the following passages (at 9-11):
Should it make a difference that because the title to the house passed to a third party before the damage was discoverable no loss was directly suffered by the Riddells? We think not. Applying the test of Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, which this Court continues to affirm (South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282 and Attorney- General v Prince and Gardner [1998] 1 NZLR 262 at p 268), there are two inquiries directed to determine whether a duty of care should be imposed in particular circumstances. First, is there a sufficient degree of proximity or closeness of relationship between the alleged tortfeasor and the plaintiff who claims to have suffered damage? Obviously there would have been if the damage had emerged when the Riddells were still the owners. We do not think that the relationship was significantly distanced or reduced by the subsequent sale. All the acts and omissions of the alleged tortfeasor happened when the proximity was very close. It was the Riddells’ house on which the work was done by Mr Porteous under contract to the Riddells (which contractual liability continued after the sale) and which the council was supposed to inspect competently. The building permit was issued by the council to the builder employed by the Riddells. The warranty was related to the compliance of the work with a permit. It was always on the cards that any negligence might not come to light until after the Riddells sold the house.
…
Two concerns underlie this line of cases: (a) the need to avoid indeterminate liability; and (b) the need for a certain test for the recovery of economic loss. Some weight is also given to: (c) the relative abilities of the plaintiff and defendant to protect themselves against the loss.
…
In contrast, in the instant case the plaintiff was the only possible “transferred loss” claimant. Where there is no possibility of indeterminate liability in a case involving negligent damaging of property this Court will place most of the emphasis on proximity.
[60] Mr Black submitted Three Meade Street was distinguishable on its particular facts. The builder was Three Meade Street’s sole director and shareholder so the company was the developer and owner of the commercial building and able to protect itself by its contractual arrangements. It would not be fair and just to permit it to sue the Council when the company’s officer was responsible for the negligent work. The thrust of the Building Act in focusing on safety and health interests sets the present litigation apart since that was only one of a number of factors to be determined at trial. One of the factors to be considered was, he suggested, that the inspection report obtained for Village Motels should not extinguish Council’s separate liability. In any event Venning J in Three Meade Street did not hold that a Council could never owe a duty to a commercial or industrial property owner because of the different types of structure.
[61] Mr Massey’s application raised, he submitted, factual matters determinable only at trial, not least whether the contract was with Mr Harris personally or on behalf of the purchaser plaintiffs and whether Mr Massey should have known his report would be relied on by buyers.
[62] In extensive further submissions, Mr Black elaborated on his earlier points, particularly as regards the submissions made on Mr Massey’s behalf. He raised the possibility of Mr Harris being if not an express agent then an implied one, and the possibility of the pleadings being amended to invoke the Contracts (Privity) Act
1982, drawing on cases where the Act has been both successfully and unsuccessfully pleaded.
[63] He performed a similar exercise concerning the submissions as to whether the claims under the Fair Trading Act could lie.
[64] Finally, and, it must be said, somewhat boldly in the circumstances of this case, Mr Black submitted that Gunac and HDC should remain potentially liable to the plaintiffs for “putting into circulation property that is not built according to reasonable standards of sound construction, safety and sanitary, assessed on an objective basis and independently of the terms of any contract.”
Discussion
(1) General
[65] As is now embedded in the law of New Zealand and other countries, the test for whether a duty of care arises is whether it would be fair, just and reasonable to hold that such exists. That, in its turn, is conventionally determined by considerations of questions of proximity - that is the nature of the relationship between the parties - and policy - that is the wider and other issues bearing on the question.
[66] As a prelude to consideration of those questions, it is pertinent to define clearly the essence of the claims against the three applicants as it is to be seen against authority. The salient aspects are:
a) Both claims are brought by plaintiffs which had no contractual or other involvement in the design or construction of either of the motel complexes. They are the present owners of Te Mata Lodge Motels and Village Motels. They do not occupy any part of either complex, each being leased to entities which are not parties to the claims.
b)Other than, perhaps, the as yet unquantified (and perhaps duplicated) claims for loss of or diminution in, the value of the property in proceeding 151 and the expenditure of a modest $21,730.60 plus GST in proceeding 569, none of the plaintiffs have, as yet, suffered any loss. The whole of the balance of both claims is for recovery of the prospective cost of completing remedial works and consequential costs (the claims for modest amounts of general damages - including whether they lie in present circumstances – are put aside for the purposes of determining these applications).
c) Following on from that, it is noteworthy that there are no claims suggesting, by way of example, that the motel units have been unable to be let as a result of the alleged deficiencies, or that the deficiencies
have affected the sanitary nature of the premises or the safety or health of their users.
[67] Already mentioned, and requiring further discussion, is the division appearing in authority between commercial and industrial premises on the one hand and residential and other premises on the other. A number of Courts have expressed disquiet at the unsatisfactory nature of that divide and difficulties in definition of on which side of it the defective buildings in question in the particular litigation fall.
[68] These cases may perhaps be seen as highlighting that difficulty and of confirming that the use to which premises are put may be a helpful indicator in relation to each stage of considering whether it is fair, just and reasonable to impose a duty of care and of that test, but should not be regarded as a test in itself.
[69] A motel complex would normally be regarded as a commercial enterprise. Is it to be any the less so because its managers are accommodated on the property? How is a commercial enterprise, say a dairy with accommodation above, to be characterised? The occupants of many blocks of apartments are a mix of owner- occupiers and tenants. Is this to affect their participation in a duty of care should the block be constructed negligently? And should the result differ according to whether the block is administered by a body corporate or each apartment has a unit title? How should the business of running a residential rest home be defined? Should a time share be regarded as residential when owners are enjoying their occupation rights but commercial for the balance of the year? And on what might be thought the other side of the divide, many residences are now large, highly sophisticated constructions of a value which can equal that of a small commercial building with owners who are at pains, and have the financial means to protect themselves against defects. What classification is to be applied to such a construction? And why should the classification of a home vary according to whether it is used solely as a residence or its owners use it in part to run their Internet business? And, given the flexibility of retro fitting – commercial buildings refurbished as apartments, houses used as offices – should the availability of a duty of care alter during the life of a building?
[70] Those examples – which could easily be multiplied – indicate strongly how unsatisfactory is the test of usage of the building in question in deciding whether a duty of care should be held to exist for defective construction and why that consideration should better be regarded as a factor in deciding on the fairness, justice and reasonableness of imposing such a duty.
[71] After the enunciation of principle in Rolls-Royce earlier cited, the Court of Appeal carefully discussed both precedent and academic comment in the area – particularly the unsatisfactoriness and illogical distinction between commercial and residential building before reaching the views earlier cited (paras [99]-[100]):
[72] There was then extended discussion of the proximity question, largely by reference to factors principally relevant to the particular case. Policy considerations were then discussed including (at 353-354 paras [118]-[119]):
[118] The main policy factor militating against a duty of care is the need for commercial certainty. Commercial parties are normally entitled to expect that the risk allocation they have negotiated (and paid for) will not be disturbed by the Courts. It is also to be expected that commercial parties are capable of looking after their own interests, including, especially in an industry where insolvency is a major risk, the risk of insolvency of an intermediate party. On the other hand, it is not necessarily the case that private individuals are in a position to be able to protect themselves and this can justify a difference in treatment. As Jane Stapleton says in “Duty of Care: Peripheral Parties and Alternative Opportunities for Deterrence”, at p
344:
“In application, the adequate opportunities for deterrence principle will present a formidable barrier to claims by commercial plaintiffs who often (though not always) operate in contexts where they are able to protect themselves both from the risk itself and, via contractual arrangements, from the loss – particularly from economic loss. In contrast, private individuals typically operating in mass markets and facing uniform standard terms, will not have this ability. …
[119] In addition, there have been numerous comments in the New Zealand cases suggesting that tort liability with regard to defects in quality will not extend to commercial construction cases, as well as a number of cases specifically approving the reasoning in Simaan. The position taken by the Courts in this regard should not lightly be departed from. …
[73] The Court of Appeal then went on to hold that it was not fair, just and reasonable to impose a duty, principally because of the contractual structure unique
to the case, and struck out the claim to the extent it was pleaded as a duty to take reasonable care to perform the contract.
[74] As one of the latest, and certainly one of the most detailed and authoritative decisions on when a duty of care is said to arise, Rolls-Royce is deserving of significant weight in the determination of the present applications.
[75] However, because of its closer factual similarity to the present claims than Rolls-Royce, it is also instructive to analyse the decision in Three Meade Street, coincidentally heard, but not decided, before Woolcock Street was delivered – though that decision was able to be taken into account – and delivered the same month as Rolls-Royce.
[76] The broad facts were earlier sufficiently summarised. Venning J noted (at
510 paras [21]-[22]) the submissions as to whether he should follow Hamlin, but, after noting the differing views as to whether that case applied to commercial structures, concluded (at 513 paras [39]-[40]):
[39] The current position in New Zealand is this. Hamlin is authority for the proposition that a council owes a duty of care to houseowners and subsequent owners and will be liable to them for economic loss arising out of defects caused by a council’s negligence in the course of the building process. However, in my judgment, because of the particular circumstances of the housing and building industry in New Zealand noted in Hamlin the principle does not automatically extend further so that a duty of care will inevitably be owed by councils to industrial and/or commercial property owners.
[40] However, nor can it be said that under no circumstances will a council owe a duty to commercial and/or industrial property owners. …
[77] Then, after referring to some of the factual differences between types of buildings earlier discussed, the Judge held (ibid paras [41]-[42]):
[41] In situations where other than a domestic dwelling, as contemplated by Hamlin is involved, it will be for the Court to determine on the facts of the particular case before it whether a duty of care is owed or not. To that extent I reject Mr Clark’s submission that the present case is simply one of application of the existing law established by Hamlin, on the basis there is no distinction to be made between the owner of a residential and a commercial property. Nor am I able to accept his submission that the council is attempting to utilise novel defences to get around its legal responsibilities. In my judgment a council does not automatically owe a
duty of care to a commercial property owner through the application of principles in Hamlin.
[42] In the present case the building in issue is a motel. It was developed for commercial investment purposes. Hamlin does not automatically apply. Rather the position is that if a duty of care is to be owed in these circumstances then the Court needs to be satisfied that the duty should extend to the owner of a commercial premises such as a motel and more particularly on the facts of this case a duty should extend to the first plaintiff.
[78] The Judge held the impact on the value of the motel building of its defects would create sufficient proximity between Three Meade Street and the Council but held policy issues were of greater weight and excluded the duty of care, to a considerable extent because (at 514 para [48]) “… it was primarily concerned with the broad policy goals of promoting public safety and health rather than the protection of economic interests.” He said (ibid para [49]) that:
To the extent that the Council has a role under the Building Act 1991 in relation to the consent and inspection process the emphasis of the Building Act 1991 is on safety and sanitary issues.
[79] The parties and the plaintiffs, including subsequent purchasers, could protect themselves contractually or through insurance or warranties and commercial building owners should look first to those directly contractually involved for professional fees before being entitled to sue the Council with its modest returns for building consents. The Judge noted (at 515 para [51]) that where expert architects and engineers are involved in a commercial/industrial development “councils’ inspectors will realistically lack the expertise to meaningfully supervise the detail of the construction work involved in a major building project.”
(2) HDC’s application
[80] It is appropriate to commence a consideration of HDC’s application by reference to its statutory role under the Building Act 1991.
[81] As mentioned earlier, a local body’s role under that Act was, in terms of the purposes and principles set out in s 6, focused on controls relating to building work, ensuring buildings were safe and sanitary, with particular regard required to be paid to safeguarding building users from injury or illness, protecting against fire and
hazardous substances and, perhaps of particular interest in that it relates to “other property”, protecting other property, not the subject property, from damage resulting from construction of buildings (s 6(2)(d)).
[82] True, s 7 required all building work to comply with the Building Code and failure by HDC in that respect forms part of the present pleadings but duties to enforce Code provisions were not listed as prime objects amongst territorial authorities’ functions in s 24. Primacy was afforded to the building consent process. The expected low level of fees chargeable by local authorities was covered by s 28(2). While the building consent process prescribed by Part V was detailed, the Building Code provisions in Part VI were very general with the National Building Code being promulgated by Order-in-Council on the recommendation of the Building Industry Authority. In that regard it is noteworthy that the Court of Appeal in Attorney-General v Body Corporate No.200200 [2007] 1 NZLR 95,101 made the following observations:
Scheme and purpose provisions in the 1991 Act
[9] Section 6(1) provided that the purposes of the Act were to provide for, inter alia:
Necessary controls relating to building work and the use of buildings, and for ensuring that buildings are safe and sanitary … .
Section 6(2) provided that “particular regard” was to be had to the need to: Safeguard people from possible injury, illness, or loss of amenity in
the course of the use of any building … .
[10] Although considerations of building durability and suitability for purpose are encompassed, to some extent, by the broad language of s 6(1)(a) and (2)(a), the section did not explicitly provide for the protection of the economic investments of building owners. In saying this we recognise that the scheme of the 1991 Act (and the building code promulgated under it) was intended to result in buildings being durable. As well, where building defects became apparent (at least providing that this occurred within the relevant limitation period) the 1991 Act (and those who promoted it) envisaged that there would be rights of action for building owners. But the Commission’s 1990 report recognised that building owners would necessarily face a “residual risk of future claims based on negligent certification not being covered”, …
[83] The Court of Appeal struck out all claims in that “leaky building” case against the BIA – a body admittedly at one further remove from the construction
process than local bodies – by application of the well tried tests outlined above. In relation to HDC, however, the following observations are of assistance (at 106-108):
Proximity
[37] Foreseeability is a necessary precondition for the imposition of a duty. But a conclusion that harm was foreseeable does not in itself warrant the conclusion that there is sufficient proximity to justify the imposition of a duty of care. Relevant to this assessment are:
…
(b)The substantiality of the nexus between the defendant’s alleged negligence and the plaintiff’s loss (a factor which may to some extent overlap considerations of remoteness and causation).
(c)General considerations of vulnerability on the part of the plaintiff and the potential burden on the defendant (or others similarly placed) of taking precautions against the risk in issue … This necessarily raises the question whether the plaintiff (and others similarly placed) or the defendant (and others similarly placed) are better placed to take steps to avoid or minimise the relevant risk.
(d) The nature of the relevant risk. The courts are most likely to find proximity where the underlying risk is associated with health, personal injury or death and more likely to do so where there is a risk of property damage than where the loss is purely economic. Of course, in building defect cases it is not always easy to distinguish between property and economic loss. Also relevant is the size of the class affected by the risk. The larger that class (and thus the more indeterminate the alleged duty), the less likely it is that a duty will be imposed.
…
The imposition of a duty of care on public bodies
[39] The primary policy issue that must be addressed is whether the imposition of a duty of care would be consistent with the terms and policies of the statute which governed the functions of the defendant. A duty of care will not be imposed if the effect would be inconsistent with the scheme and policy of the Act …
…
[41] Statutory functions that involve quasi-judicial or legislative powers are not appropriately the subject of duties of care …
[42] … the more policy-orientated and less operational the power in question is, the less likely a duty is to be imposed (albeit that the policy/operational test is not always altogether easy to apply, cf Stovin v
Wise [[1996] AC 923] at 951). The further removed the public body is from day to day physical control over the activity which directly caused the loss, the less likely the Courts are to impose a duty of care …
Reasoning backwards from the alleged negligence – situational duties
[43] In cases of this sort, it is customary for a plaintiff to focus on what is alleged to be the negligence of the defendant and to formulate the proposed duty of care by reference to that alleged negligence. Such a duty of care may fairly be described as situational. This approach, if adopted by the Court, is likely to favour a plaintiff; this because it requires a primary focus on what is alleged to be the fault of the defendant and the limited nature of the asserted duty (with its narrow scope) is less likely than a more broadly expressed duty to engage countervailing policy arguments. …
[44] It is not difficult to find cases in which Courts have reasoned backwards from apparent negligence to a conclusion that in the context of the particular risk … It would be wrong, therefore, to suggest that this is an illegitimate reasoning process.
[45] On the other hand, such reasoning is not without its difficulties. In this context, Fleming v Securities Commission [[1995] 2 NZLR 514] is relevant and important. …
[46] The majority’s approach in Fleming suggests that where a plaintiff’s case proceeds on the basis of an alleged situational duty (ie closely focused on particular circumstances of risk which are said to have existed), the Court should:
(a) During the proximity phase of the inquiry, be careful to ensure that the narrow duty alleged can credibly be regarded as discrete from a broad (and untenable) duty of care in relation to the relevant statutory functions; and
(b)In assessing policy considerations, analyse carefully the implications, in terms of the scheme and structure of the relevant statute, of recognising even a situational duty.
[84] The National Building Code, promulgated as part of the Building Regulations
1991, was very broadly worded by contrast with its highly prescriptive predecessor. (See the example cited in Body Corporate 200200 v Approved Building Certifiers Ltd & Ors HC AKL Civ.2003 404 512, 2 February 2005, Williams J para [44]).
[85] Seen against that background, it is difficult to see the proximity test as being satisfied between HDC and these plaintiffs. The Council was a public body exercising limited functions in connection with the construction of the motel complexes within statutory powers and obligations principally limited to matters of health and safety and compliance with a generally-phrased Building Code. It
undertook its functions through officers with probably less expertise than those contractually involved in the construction and was paid modest fees for what it did. In terms of Body Corporate 200200 (at 106 para [46]), it is necessary therefore to exercise care before holding that HDCs narrow statutory functions are broadened into the much wider duty of care for which the plaintiffs contend.
[86] Even if the Council may be thought to have been in a proximate role, albeit a limited one, to those originally involved in the construction of the motels, it is difficult to see that proximate relationship enuring in favour of the present plaintiffs. Therefore, whilst it may arguably have been foreseeable that those originally involved in the construction may have had a right of recourse against HDC, especially in approving buildings now said not to comply with the Code, foreseeability becomes attenuated when claims are brought by subsequent owners, not in possession of the properties, seeking to recover economic loss and where health and safety of users does not currently appear to be jeopardised.
[87] It is similarly difficult to conclude HDC assumed responsibility in discharging its statutory functions in favour of all subsequent owners and lessors (at least in relation to rectifying defects discovered during the limitation period). And, when comparisons are made with other cases, with respect, the reasoning adopted by Venning J in the case most nearly comparable factually, Three Meade Street, is compelling.
[88] That is not to disregard the obligations defined in Hamlin, but the distinction there drawn between domestic and commercial buildings has been found wanting in a number of New Zealand decisions and texts since Hamlin was decided and, with respect, for the reasons earlier outlined, must now be regarded as suspect. Riddell, too, can properly be seen as a case granting a remedy to domestic owners, vulnerable in the sense of being less able than others to protect themselves against the cost of rectifying defects discovered years after their ownership ceased.
[89] The commercial/residential divide would appear to resolve itself, as earlier mentioned, into questions of vulnerability of owners (and subsequent owners) in the sense of the likelihood and capacity of such persons to fund and take steps to protect
their interests. Here, not only are those originally involved in the construction likely to have adopted the usual means to lay off their risk by way of retention of experts, reports, insurance, contractual indemnities, warranties and the like, the present plaintiffs had similar options available to them and could, presumably, have met the cost. In proceeding 569, they retained Mr Massey to provide an expert report on the durability and serviceability of the buildings and their materials.
[90] Finally, it needs to be observed that should HDC’s striking-out application be granted, that does not leave present plaintiffs without a remedy. There are a number of other defendants. There are parties who have not been impleaded to date. And even if the original developers are insolvent or in liquidation, that hardly provides a principled reason for holding a duty of care exists on the part of HDC as far as the present plaintiffs are concerned. Inability to meet debts or claims is a fact of commercial life, not a reason to permit claims to proceed against a public body which would otherwise not lie in the hope of finding a judgment-worthy defendant.
[91] However, even assuming – contrary to the observations to date – that the present plaintiffs can satisfy the proximity test, it is much more difficult to conclude that their claims against HDC should enure once wider policy factors are considered.
[92] Some of those also bear on the proximity question. HDC is a public body charging fees for building inspections which are likely not to cover its full costs of the service. Its statutory obligations are limited and, as far as the National Building Code is concerned, the assumption that the allegations are provable needs to be set against the generally-phrased terms of the Code. While HDC was presumably able to insure itself against risk of claims such as the present, its actions which led to it being impleaded in these claims were statutory obligations, not optional functions, and, if its cover is insufficient, its only recourse is to its ratepayers.
[93] As earlier mentioned, the damages claimed are, apart from the general damages, wholly economic and would, were the claims against Council to succeed, result in it being obliged to indemnify the plaintiffs against negligent actions or actions in breach of a contract over which it had no control, other than the limited powers of enforcement given Council under the Building Act.
[94] Undertaking the exercise mandated by the Court of Appeal in Body Corporate 200200 (at 106 para [46][a]), it is most difficult to separate out the duty of care alleged from Council’s statutory obligations.
[95] In terms of Rolls-Royce (at 353 para [118]) all those involved in construction of the motels had defined roles. Council’s is a role limited by its statutory powers. Policy and precedent suggests its discharge of its functions should not be pressed into the creation of potential liability such as that alleged against it in these claims.
[96] And again, although liability to subsequent purchasers has not been held to be a bar to claims against original constructors (Riddell) the plaintiffs’ complete lack of involvement in the process at the time Council is involved was a strong pointer in favour of HDC’s applications.
[97] Finally, once again, the reasoning of Venning J in Three Meade Street in striking-out a claim against the Council in a comparable case is entirely persuasive.
[98] Having regard to all those factors, the appropriate conclusion is to grant HDC’s applications and strike out all causes of action against it in both claims. It may be noteworthy that counsel did not refer to any other “leaky building” cases where local bodies have been sued.
Mr Massey’s application
[99] Mr Massey’s striking-out application in proceeding 569 is capable of
determination with much greater brevity.
[100] His first point was that Te Mata Properties has suffered no loss.
[101] Such, on the present pleadings, would appear to be the case but the question could easily be addressed by amendment thus precluding striking-out. The plaintiffs may have to obtain common contractual arrangements or mutual arrangements with the original developer to give both plaintiffs a right of action in that respect.
[102] The claim in contract is based on an oral contract. The affidavits of those who formed the contract, Messrs Harris and Massey, show that its terms, the identity of the principals and the performance of the contract are all in dispute. As Mr Lawson acknowledged, such disputes cannot be resolved on affidavits alone sworn in an interlocutory context. They require to be ventilated by oral evidence at trial. That ground for striking-out accordingly passes from consideration.
[103] The negligence claim also requires determination at trial, not least to determine the terms of the contract, its purpose and who was entitled to rely on it, including entities in the plaintiffs’ position. It is also possible that at trial the plaintiffs may be shown to be endeavouring to utilise Mr Massey’s report for a purpose for which it is not intended or that they are in essence only suing Mr Massey for not taking care in performing his contract. Evidence may show that there was that “something more” in Mr Massey’s situation to warrant the imposition of a duty of care (Rolls Royce at 347, para [90]). But those are not issues which can be determined at this juncture. This ground for striking-out is accordingly also not made out.
[104] Similarly, it could not be concluded at this stage that the claim against Mr Massey under the Fair Trading Act was a “superfluous distraction” because, should the plaintiffs be successful in the factual allegations, there must be a possibility of Mr Massey being liable for misleading and deceptive conduct. That aspect of the striking out application accordingly also fails.
[105] The application is, however, on rather sounder ground in relation to the cause of action based on the Consumer Guarantees Act 1993.
[106] The s 2 definition of “consumer” was earlier summarised. While Mr Massey’s report may well amount to “services” as defined in s 2, it does not seem possible to conclude that an expert’s report on the “durability and serviceability of the building, materials and components” could come within the statutory qualification that the services required by a “consumer” must also be “ordinarily acquired for personal, domestic, or household use or consumption”.
[107] Mr Massey’s application should be granted to that extent and the cause of action against him under the Consumer Guarantees Act 1993 struck out.
(4) Gunac’s applications
[108] Many of the observations made in relation to HDC’s applications apply to those by Gunac.
[109] In terms of proximity, it is clear the only reason Gunac is sued in tort is because there can be no possible contractual claim by the present plaintiffs against them, unless they take action to acquire whatever may have been the original developer’s rights, something not yet undertaken.
[110] However, apart from that, the nexus between the present plaintiffs and Gunac and the proximity is rather closer than with HDC given that Gunac applied the waterproofing membranes which are alleged to have failed, permitting the entry of water and the failure to comply with the Building Act and Code. Presumably Gunac’s contractual obligation was so to apply the proprietary membrane in accordance with specifications as to have precluded the entry of water. Failing to apply such membrane as to preclude water entry would have been in breach of each of contract, the manufacturer’s specification, and the Building Code. Gunac’s possible liability in tort is accordingly co-extensive with what would have been its contractual liability to the original developers.
[111] Further, not only does it seem likely Gunac would have assumed responsibility by contract to the original developers, it should have foreseen that subsequent purchasers might take action against them should their workmanship be later found deficient and that purchasers might arguably have relied on the availability of recourse in such circumstances. Gunac’s position plainly differs from that of a local body and accordingly the findings in Three Meade Street are not as closely analogous.
[112] In Gunac’s favour, however, is that, apart from assuming the allegations against it are provable, the claims against Gunac may be seen as quality issues, a
factor pointing against imposition of a duty of care (Rolls-Royce at 347 para [90]). Also to be placed in the mix is that it was open to the plaintiffs to protect themselves, not just by insurance and warranties but by stipulating for pre-settlement reports (as they obtained in relation to the Village Motels the subject of proceeding 569) and to decline to proceed with the purchase in the event the waterproofing defects were discovered. In that regard, it may be noteworthy that the plaintiffs contracted to buy Te Mata Lodge and Village Motels on 12 February 2002 and 24 September 2002 respectively and plead they noticed water entry problems in late 2002 and what must have been early 2003 respectively. It therefore seems likely the defects appeared shortly after, and may well have been discoverable prior to, settlement.
[113] To sum up, in terms of proximity, Gunac’s position is significantly different from that of HDC and its position as the sub-contractor makes the nexus between it and the original developer much more direct. Though the nexus of its arrangements with the plaintiffs is more attenuated, its liability in tort co-extensive with that in contract and its position as a commercial party paid in full for its work means there are fewer policy concerns pointing against the imposition of a duty of care.
[114] Perhaps the most important factor in considering Gunac’s applications are the parties’ respective capacities to protect themselves: the plaintiffs, by pre-settlement reports or investigations and Gunac’s by contract or insurance. True, Gunac’s position is not dissimilar from that of CHH Aluminium in Body Corporate No.114424 where the constructor of the windows which leaked was ultimately exonerated, but that was a decision reached at the end of a concluded hearing, not a striking-out application.
[115] For all that is presently known, Gunac may ultimately be successful in its defence of the plaintiffs’ claims, but the conclusion must be that it has failed to demonstrate that the claims against it are so untenable as to justify striking them out at this juncture.
[116] Gunac’s applications are accordingly dismissed.
Result
[117] In the result:
a) All the plaintiffs’ claims against the Hastings District Council in both proceedings are struck out.
b)The plaintiffs’ claim against Mr Massey in proceeding 569 based on claimed breach of the Consumer Guarantees Act 1993 is struck out.
c) Apart from what appears in (a) and (b), the striking-out applications brought by Mr Massey in proceeding 569 and by Gunac in both proceedings are dismissed.
d)If counsel are unable to agree on costs, memoranda may be filed (maximum five pages) with those from HDC and, if pursued, from Mr Massey in relation to his partial success and from the plaintiffs in relation to the balance of the striking-out application by Mr
Massey and the striking-out application by Gunac may be filed
within 35 days of delivery of this judgment and with that from the opposing parties within 42 days of delivery and with counsel certifying, if they consider it appropriate so to do, that all issues of costs may be determined by the Court without a further hearing.
………………………………..
WILLIAMS J
Solicitors
Walker Associates, P O Box 2077 Auckland for plaintiffs
Heaney & Co (Georgina Grant), P O Box 105 391 Auckland, for 1st defendant Willis Toomey Robinson (M B Lawson) Private Bag 6018 Napier, for 4th defendant Bannister & von Dadelszen (B W Gilmour) P O Box 745 Hastings, for 8th defendants
Counsel:
Michael C Black, P O Box 1984 Shortland Street, Auckland, for plaintiffs
David Goddard QC, P O Box 12 016 Wellington, for 1st defendant
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