New Zealand: The BIA and leaky buildings - all care, no responsibility?

It's final. The (now defunct) Building Industry Authority carried little or no legal liability for the 'leaky building' crisis.¹

In a split decision, the Supreme Court has closed down one litigation gambit in the leaky buildings saga. But it also identifies weaknesses in the building regulatory regime, and highlights ongoing uncertainties at the heart of the law of negligence in New Zealand.

The case

The North Shore City Council claimed that the BIA had been negligent in giving the Council's inspection processes a 'clean bill of health' in 1995, only to be highly critical of those same practices when a similar review was undertaken in 2003 (after the leaky building crisis had emerged).

The Council argued that, had those criticisms been identified in 1995, it would have improved its inspection regime and many of the defects which caused leaks in the houses at issue would have been detected and corrected during construction.

It also argued that, regardless of whether the 1995 report was negligently prepared, the BIA should have revisited and corrected its 1995 conclusions sometime after 1998, when it became aware of emerging weathertightness problems in the marketplace.

A final claim was that the BIA owed a duty of care directly to homeowners to take steps to mitigate the risk of leaky buildings after the BIA became aware of the problem.

The Council applied to the Supreme Court after failing in the Court of Appeal. The Court of Appeal had taken a similar position on the BIA's responsibilities in the Sacramento decision in 2005. The fact that the Supreme Court has now reinforced this interpretation should mean that the question is settled.

The Court's findings

All members of the Court accepted that it was arguably foreseeable that either the Council or homeowners would suffer loss if the BIA made a poor job of discharging its functions. But foreseeability is not enough. There must also have been sufficient 'proximity' to justify a duty.

The majority found that there was insufficient proximity between the BIA and the Council or homeowners to justify a duty of care. Of most interest are the differences between the reasons given for this conclusion and those supporting the contrary one reached by Chief Justice Elias in her dissenting judgment.

All members of the Court applied much the same methodology, asking two questions:

• Does the statutory context create a sufficient relationship of proximity between the BIA and the Council to give rise to a duty of care?
• Or alternatively, did the BIA, through its actions, enter into a relationship with the Council sufficient to establish the proximity needed?

Statutory context

The BIA was established under the Building Act 1991 (the Act) as the "one source of referral and review of the building control system".² Its functions included advising the Minister of Internal Affairs on matters of building control, disseminating information and providing educational programmes for territorial authorities. It had the ability to determine issues referred to it by territorial authorities or homeowners, and could issue product accreditations.

The majority found insufficient proximity because the BIA was not obliged, under the Act, to review the Council's processes and report to the Council. The BIA was not an advisor to the Council.

The purpose of the review and report was to advise the Minister if a territorial authority was not performing properly. The BIA had no general monitoring function, nor powers to intervene in the Council's affairs. These limited functions in themselves were not sufficient to justify a duty of care.

In contrast, Elias CJ's view was that it was practically inevitable that any report produced by the BIA would be provided to the territorial authority concerned. The majority concede this point, and that such disclosure was not inconsistent with the Act. But the mere fact of disclosure was not, in the majority's view, enough to overcome the fact that it was not the report's purpose to provide guidance to the Council.

This was despite the fact that the BIA's report to the Council stated it was to "be made available to the Territorial Authorities to...assist with the achievement of national uniformity".³ One could have some sympathy for a Council that took comfort from a favourable report in these circumstances, and for Elias CJ's difficulty with this point.

Similarly, it is at least arguable that the BIA did not need powers to intervene, or a duty to monitor, in order to justify a duty of care.

Under the Act, the BIA had powers to provide information, review the operations of territorial authorities and approve documents for use in establishing compliance with the building code. It also had the power to issue accreditations for products and to determine disputes, both of which were binding on territorial authorities. Again, in these circumstances it does not seem unreasonable for a territorial authority to regard the BIA as 'top dog', and take comfort from its words of approval.

Finally, and possibly most crucially, the majority considered that there was no real link between the defects in any particular house and the BIA's review of the Council. The BIA operated at too high a level. It was not established to check individual buildings for defects. That was the Council's job. Ultimately, if defects in a particular house were not detected during the approval process, that was the Council's problem, not the BIA's.

This is a key point where the Chief Justice differs. The point of the whole regulatory regime was to ensure a minimum performance standard for buildings in New Zealand.

If the BIA could completely absolve itself of responsibility for defective houses, then what was the point of the BIA? Was it not set up in part to guard against the risk of ineffective inspection processes resulting in Councils not detecting defects? The BIA was a crucial part of a regulatory regime designed to provide "interlocking assurance".⁴ Against that background, there was no reason why the BIA should not owe a duty of care in undertaking its role in that framework.

It was also important to the Chief Justice that if the BIA failed, the Council may have been deprived of the ability to do its job properly. For example, local authorities were able to ask for a determination from the BIA on the issuance of a CCC or building consent. Once the BIA made a determination, the Council was immune from civil proceedings if it followed that determination. If the Council was not alerted to the fact that there may be risks involved with certain methods of construction, the Council may not have considered applying for a determination, which would bring immunity. In this context, it did not make sense that the Council could be liable, but that the BIA did not also owe a duty to the Council to ensure that it did its own job with care.

A fine balance

But of more general importance is the difference of views in the Supreme Court over the interpretation and consequences of the statutory framework linking the BIA, the territorial authorities and homeowners. The differences between the majority and the Chief Justice demonstrate how contestable duty of care arguments can be in the regulatory context, and how fine the distinctions on which liability can turn.

As the legislative pendulum swings in favour of greater regulation in many sectors of the New Zealand economy, this point alone means that this decision has resonance well beyond the perennial 'blame game' of leaky building litigation.

Footnotes

¹North Shore City Council v The Attorney-General as Successor to the Assets and Liabilities of the Building Industry Authority [2012] NZSC 49
²Building Industry Commission. Reform of Building Control: Volume 1 – Report To The Minister Of Internal Affairs (Building Industry Commission, Wellington, 1990) at i and ii.
³NSCC v The Attorney-General as Successor to the Assets and Liabilities of the Building Industry Authority, Elias CJ at [60]
⁴NSCC v The Attorney-General as Successor to the Assets and Liabilities of the Building Industry Authority, Elias CJ at [63]

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.