North Shore City Council v The Attorney-General as Successor to The Assets and Liabilities of The Building Industry Authority

• Jurisdiction: New Zealand
• Judge: Elias CJ
• Judgment Date: 27 June 2012
• Neutral Citation: [2012] NZSC 49
• Docket Number: SC 77/2010
• Court: Supreme Court
• Date: 27 June 2012

BETWEEN

North Shore City Council

Appellant

and

The Attorney-General As Successor To The Assets and Liabilities of The Building Industry Authority

Respondent

[2012] NZSC 49

Court:

Elias CJ, Blanchard, Tipping, McGrath and William Young JJ

SC 77/2010

IN THE SUPREME COURT OF NEW ZEALAND

Leaky Building, Local Government, Property, Tort — Appeal from a decision of the Court of Appeal which held the Building Industry Authority (“BIA”) did not owe a duty of care to the appellant in the exercise of its statutory duties — respondent held liable for issuing Code Compliance Certificate for leaky building The Grange — appellant alleged BIA owed a duty of care which it breached by not identifying deficiencies in appellant's procedures in a 1995 report into whether processes were adequate to assess compliance with the then current building code — whether the BIA owed a duty of care to building owners — whether there was sufficient proximity — whether Attorney General v Body Corporate 200200 (Sacramento) should be followed — whether the claims were time barred under s393(2) Building Act 2004.

Counsel:

D J Goddard QC, S B Mitchell and N K Caldwell for Appellant

D B Collins QC Solicitor-General, M T Scholtens QC, T G H Smith

and S J Leslie for Respondent

• A The appeal is dismissed.

• B The appellant is to pay the respondent costs of $40,000 and reasonable disbursements in connection with this appeal, as fixed by the Registrar if necessary.

REASONS

	Para No
Elias CJ	[1]
Blanchard, McGrath and William Young JJ	[92]
Tipping J	[214]

JUDGMENT OF THE COURT

Elias CJ

1 The Building Industry Authority was established by the Building Act 1991 to provide general supervision of the regulatory system for building work. The appeal is brought from a decision of the Court of Appeal, on summary application before trial, holding that the Building Industry Authority did not owe duties of care in the exercise of its statutory responsibilities either to territorial authorities or to building owners. 1 The claimed liability of the Building Industry Authority arose in respect of failures to meet the standards for moisture control set by the building code, which have led to leaks and consequential damage. Such failures have been so widespread as to raise questions about systemic error in the regulatory system, in which the Building Industry Authority's statutory role was key. They have also presented substantial challenges to the New Zealand legal system.

2 The Grange apartments were developed under a building consent granted by the North Shore City Council on 28 April 1999. The design of the building entailed face-fixed monolithic cladding over untreated timber frames. That method of construction is now known to have been used in very many buildings which failed to meet the performance standard specified by standard E2 of the code. 2 As a result, there have been a significant number of cases where moisture ingress has led to rot in buildings, especially where ventilation was inadequate.

3 During construction of The Grange, the North Shore City Council inspected the building work for code compliance. It granted the owner a certificate of code

compliance on 6 April 2000, on completion of the building work. When the building was later found to have suffered substantial damage through leaks, the owners brought proceedings for damages against the Council, alleging negligence in its inspections and certification. The Council joined the Building Industry Authority as third party claiming indemnity or contribution from it

4 The Council claimed that the Authority had breached duties of care arising out of its functions under the Act when it reported in 1995 that the Council's processes were adequate to assess compliance with the building code adopted under the Act. This report (the result of a review by the Building Industry Authority under its statutory responsibilities) is said to have led the territorial authority to believe, wrongly, that its procedures were adequate at the time it issued the building consent and compliance certificates for The Grange.

5 The Building Industry Authority carried out its functions of review by a rolling survey of territorial authorities. The North Shore City Council was not reviewed again until 2001 (when the report was similar to that received in 1995) and then 2003, after public reports about the incidence of leaks in new buildings (when the report was highly critical of the Council). On its reviews, the Building Industry Authority consultants inspected a relatively small sample of building projects. No complaint is made of this method of proceeding. Rather, the complaint is that the review undertaken in 1995 should have identified the deficiencies in the North Shore City Council's procedures as the subsequent review in 2003 (undertaken after the extent of the problem with leaky buildings had become public knowledge) was to do. The Council seeks under the first three causes of action to recover damages to cover its liability to the building owners but at the hearing in this Court accepts that its claim at trial would be abated to the extent of its own contributory negligence.

6 The first two causes of action claim negligence by the Building Industry Authority in preparing the 1995 report and negligent misstatement in it. They proceed on the basis that the Council's procedures were not adequate to identify failure to attain the performance measure specified in E2 of the building code and that the Building Industry Authority would have reported the deficiencies had it discharged its duties of care. In that event, the Council would have modified its approach (as it did following the report in 2003 critical of the Council's procedures) so that it would have identified the failures in code compliance in respect of The Grange.

7 In a third cause of action it is claimed that the Building Industry Authority had become aware by 1998 of the risks associated with the type of construction used in The Grange and the fact that the failure to meet code standards was widespread (suggesting existing inspection and certification procedures had been inadequate) but failed to alert the Council, which continued to rely on the 1995 report in believing that its system was adequate to identify non-compliance with the building code. The third cause of action differs from the first two in the claim of knowledge on the part of the Building Industry Authority. It is an alternative claim in which the additional circumstance of knowledge is evidently put forward to meet possibilities on which the first two causes of action may fail. Two such are if the combination of the statutory scheme and the 1995 report are held insufficient foundation for a duty of care without more; and if the Council should be unsuccessful in establishing breach of duty (perhaps because the Authority in 1995 could not reasonably be expected to have discovered the deficiencies in the system the Council employed). If the first two causes of action fail on the grounds of insufficient proximity between the Authority and the Council, the additional circumstance of knowledge of risk is then relied on in combination with the statutory responsibilities of the Building Industry Authority and the report earlier provided to establish sufficient relationship of proximity to justify a duty of care. Similarly if the claim fails on the first two causes of action because the Authority is not shown to have acted in breach of duty, then actual knowledge of risk in 1998 may well be significant in establishing breach under the third cause of action.

8 A fourth cause of action is based, not on duties of care claimed to have been owed by the Building Industry Authority to the Council, but on a duty of care the Authority is said to owe directly to owners of buildings. In this cause of action it is claimed that the Building Industry Authority's knowledge of the risk of failure to achieve the standards set by the code and its statutory functions gave rise to a duty of care to owners to take steps under its statutory powers to address the risk (which included the provision of information), but that it failed to do so. In respect of this

claim, the Council seeks contribution from the Building Industry Authority as a joint tortfeasor under the provisions of the Law Reform Act 1936.

9 The North Shore City Council has accepted liability and paid compensation to the owners of The Grange in settlement of their claims. The appeal concerns the Council's third party claims against the Authority.

10 The Building Industry Authority was abolished when the 1991 Act was replaced with the Building Act 2004. Under s 419 of the 2004 Act, the rights, assets, liabilities and debts of the Authority have devolved upon the Crown. The Attorney-General was accordingly named as defendant in the Council's claims. He applied to strike out all claims. The application was unsuccessful in relation to the first three causes of action in the High Court (where Andrews J considered that the claims were not untenable 3), although succeeded in the fourth cause of action 4 (where Andrews J considered that she was bound by Attorney-General v Body Corporate 200200 ( Sacramento) 5). All four causes of action were struck out in the Court of Appeal. 6

11 It is established by the line of authority affirmed by this Court in North Shore City Council v Body Corporate 188529 ( Sunset Terraces) that territorial authorities may owe duties of care to owners in the discharge of their statutory responsibilities in respect of building consents and inspections. 7 Whether duties of care were owed in turn in the exercise of its functions by the Building Industry Authority to territorial authorities (as is claimed in the first three causes of action) has not before arisen for determination. Whether the Building Industry Authority owed duties of...