New Zealand: Leaky Buildings – Sue The Building Company, The Director Or Both?

Who is legally responsible if your home is found to be a "leaky building"? In this article, Belinda Barclay, an associate with the Christchurch Lawlink firm of Wynn Williams & Co who specialises in insurance litigation, considers the question.

In the last 15 years in New Zealand there is increasing concern about the number of homes built that have signs of water damage. There has accordingly been an increase in the number of claims made against builders and developers for that damage.

More people are looking to make not only the building and/or development companies, but the directors behind them, legally responsible for their economic loss including remedial works, building consultants’ fees, accommodation costs, travelling costs and other consequential costs of the remedial works.

When considering bringing action against a builder/developer in relation to a leaky home there are a number of preliminary steps required, which include:

  • identifying the cause of the damage;
  • determining the responsibility for the building defect;
  • determining the responsible party and identifying that person.

The latter point is the one that can be quite tricky. Many builders conduct their work through companies and at the moment, there appears to be a perception by many that individual developers and builders are able to hide behind shell companies they establish in order to avoid legal liability in relation to being sued for leaky homes.

There are currently two lines of authority in relation to pursuing the directors of building and development companies.

One line of authority is that even though an individual builder is a corporate agent for the company the individual builder enjoys immunity from all claims when acting on behalf of a company. On the rare occasion that a plaintiff was to succeed in establishing personal liability against a director, the plaintiff would need to establish the particular director specifically assumed responsibility to the plaintiff. This is otherwise known as the "personal assumption of responsibility test".

The second line of authority is that the individual builder cannot shelter behind the company because, even though the individual builder is a corporate agent, it is necessary to adopt an objective test in determining whether or not the builder is individually liable. That objective test may or may not allow a finding of negligence against the director. In other words, based on the objective facts, a court may deem a director to have assumed responsibility but does not first make it a prerequisite that the director has done so before liability is established.

It is the latter doctrine that seems to find increasing favour with a number of academics but is being applied in a limited fashion by the New Zealand courts. In fact, at the moment there does not seem to be a uniform approach by the New Zealand courts as to how to determine a director’s personal liability to a third party in latent defect cases which makes it a minefield for would-be litigants.

To illustrate this point it is useful to examine each line of authority more closely applying what can be gleaned from them as a practical guide for would-be plaintiffs contemplating pursuing building/development companies and also the directors behind them.

Trevor Ivory Limited v Anderson [1992] 2 NZLR 517 ("Trevor Ivory") – The First Line of Authority
The alleged immunity of directors can be traced back to a judgment in the New Zealand Court of Appeal in Trevor Ivory Limited.

Trevor Ivory Limited had contracted to provide horticultural advice to the Andersons who were orchardists. The advice was provided by Mr Trevor Ivory, the sole director and shareholder of Trevor Ivory Limited. The advice was negligent and caused the loss of the Andersons’ raspberry crop. The Andersons sought damage not only from the company but from Mr Ivory, suing him in the tort of negligent misstatement.

The Court unanimously dismissed the claim against Mr Ivory. The rationale, of all three judgments in the Court of Appeal, was that Mr Ivory was not liable because he had not assumed personal responsibility to the Andersons – an essential ingredient in the tort of negligent misstatement.

A recent High Court case focused on latent defects in buildings and director’s personal liability in Drillien v Tubberty, Chand and Auckland City Council (High Court, Auckland, 15 February 2005). That was a successful strike out application by the director of a building company that had contracted with the plaintiffs to construct their home.

In that case, Kenview Homes Limited constructed two town houses in Auckland and one of the directors of that company, Mr Tubberty, was actively on site and engaged in a number of the construction works.

The Drilliens claimed that a number of defects in the cladding of the building, external joinery, the roof and the structural timbers meant water had entered the building causing damage. They claimed that Mr Tubberty, the director of Kenview Homes, was involved in those works directly and therefore personally responsible to them and therefore liable.

Associate Judge Faire considered the case of Trevor Ivory and its subsequent application in New Zealand.

He made two points in relation to the personal assumption of responsibility requirement:

"First, where the liability of directors for breach of a personal duty of care in negligence is at issue, whether there has been a personal assumption of responsibility has particular prominence as the focus of the enquiry…..
Secondly, the case law subsequent to Trevor Ivory …. has affirmed personal assumption of responsibility as a requirement of directors’ personal liability in respect of a variety of duties of care."

In other words the requirement of personal assumption of liability by a director applies to all tort causes of action against directors, not just negligent misstatement.

Having thoroughly considered the specific facts, Associate Judge Faire found that the matters complained of by the plaintiffs were not matters the director assumed responsibility for because on the evidence he did not engage in or was not responsible for the works that attributed to the alleged loss. Therefore he could not be found liable.

In this case, it is difficult to see how the director could have had any liability on the facts, even with an assumption of responsibility for his actions. The Court would have to find some sort of vicarious liability for the acts of the company.

Morton v Douglas Homes Limited [1984] 2 NZLR 548 ("Morton Douglas") - The Second Line of Authority
Contrary to the above position, there is much academic and some judicial support for the view that a personal assumption of risk is not required in all negligence cases against builders/developers. Generally the proponents of the second doctrine find the Trevor Ivory decision unsatisfactory.

They say the Court in Trevor Ivory appears to have upheld or accepted the idea that the conduct of a person acting for a company ought in some circumstances to be regarded as the act of the company alone. This company liability divorced from personal responsibility on the part of anyone, is not easy to understand. Rather, it is necessary to start with the liable human and move from there to the liable company, not vice versa. Courts give no convincing reason as to why identification with a company is presumptively inconsistent with concurrent personal liability. On the contrary, liability of the individual would seem to be the basic premise.

Applying this to the potential tort liabilities of developers and builders for creating latent defects in buildings, it is well established that a builder owes a duty of care to the immediate and any subsequent purchaser to take reasonable care to ensure that the building work was undertaken in accordance with good workmanlike practices and in accordance with the requirements of the New Zealand Building Code. The fact that a developer delegates the task of building to others does not relieve the developer of this duty (Mount Albert Borough Council v Johnson [1979] 2 NZLR 234, 240-241).

Neil Campbell1, an academic who supports this view, provides a useful illustration of this point. He says:

" liability for defect buildings is no different from liability of a careless user of a motor vehicle. A director, employee, or other agent of a carrying company cannot receive immunity from liability for a motor vehicle accident by saying that ‘my careless driving was on company business’. Likewise, the individuals behind the building and development companies receive no immunity by saying ‘I built that shoddy house on behalf of my company’".

This reasoning has been adopted by a number of cases, including Morton v Douglas Homes Limited [1984] 2 NZLR 548.

In the case of Morton v Douglas Justice Hardie-Boys said that liability depended on the control the individuals exercised over the building work, and emphasised there were no special rules for directors:

"It is not the fact that he is a director that creates the control, but rather that the fact of control, however derived, may create the duty. There is therefore no essential difference in respect between a director and a general manager or indeed a more humble employee of the company".

The more recent case of Carter v Auckland City Council & Ors (High Court, Auckland, 14 October 2004) would tend to suggest that this approach is gaining support amongst the judiciary.

In that case Associate Judge Christiansen denied a strike out application by the individual builder because the director could and may attract liability to the extent of his involvement in the building project such that it caused loss. He said that the proper enquiry was the extent to which the builder did, or partly did or refrained from doing things that ultimately lead to defects of the dwelling.

He points out that it would be incorrect to assume liability could not attach simply because a director discharged his duties on behalf of a company which has a past reputation for good faith dealings. He notes that a case will require an analysis of the director’s action vis-à-vis his company to determine if a breach of duty arises and if it does whether it is attributed to his actions. This enquiry will involve an objective assessment on the facts.

Neil Campbell condones the approach of Justice Hardie-Boys (and arguably Associate Judge Christiansen) and says their judgments are admirable in their clarity. And he may have a point.

Campbell illustrates the unnecessary complexity and flaw in the Trevor Ivory reasoning by reviewing two cases against directors, one for the equitable wrong of dishonest assistance and the other, a claim in conversion. He notes in both the "personal assumption of responsibility" test of Trevor Ivory was applied, and in both instances, successfully allowed the directors to avoid liability. Both courts found the directors not liable because they had not assumed a personal assumption of risk to the relevant plaintiff. But as Campbell points out, when has personal assumption of responsibility ever been an element of either the equitable wrong of dishonest assistance or a claim in conversion?

Counsel purportedly answered that question in the Drillien case, where Campbell’s analysis was reviewed in the judgment. Counsel for the director, Mr Fardell, says Campbell’s analysis goes too far to try to restrict the relevance of the "assumption of responsibility" test because the phrase is used in more than one sense. He says it is relevant to the broader proximity enquiry in the wider class of negligence cases where a duty of care is asserted against some party other than the party with whom the plaintiff had primarily been dealing with.

This then begs the question, are these differences in opinion merely a case of confusion of nomenclature? Is the "assumption of responsibility test" really the proximity test already in existence in some negligence cases?

If that is the case, it seems judges are artificially imposing the "assumption of personal responsibility test" in instances where the proximity test would suffice. Is it not simply a matter of looking at what the director did or said and determining as a result whether his or her relationship with the relevant third party was sufficient to establish a duty of care in the circumstances? Putting it another way, is there sufficient evidence to show that the third party is too far removed from the director to establish the proximity required for a duty of care to exist?

Some academics may support this view. Todd, editor of the text "The Law of Torts in New Zealand" (second edition) says that the reasoning of Trevor Ivory is unnecessarily confusing and "to avoid the confusion and the points raised in cases like Trevor Ivory it is better to ask whether the Defendant has excluded liability rather than relying upon uncertain or unhelpful pointers to a supposed "assumption of responsibility". The onus ought to lie on the Defendant to establish this defence, not on the Plaintiff to show an intended liability". In light of the above he may well have a valid point.

In conclusion, what seems to be required at the moment is a clear decision by the New Zealand courts involving analysis or an account of the sort of involvement that triggers the duty of care to avoid latent defects, particularly where the building company and builder are one and the same. A judgment needs to specify that if a duty is imposed on a builder of a house, who in the sense of that legal rule as spelt out in Trevor Ivory is a "builder"? Arguably in the current state of law it could be an employer who affixes the cladding, the person who supervises the affixing of the cladding or the manager who chooses the cladding material and system. And what is the test to be applied, is it the "assumption of personal responsibility test" or is it merely the proximity test? If it is the former how far does that test extend or should it extend?

Practical Application

In light of the above, guiding prospective plaintiffs hoping to pursue a building/development company or their directors for latent defects is not easy. However, the following, although not exhaustive, are some suggestions that may assist whether you are taking a WHRS adjudication claim or pursuing court proceedings:

1. If you have discovered defects in your house, retain a building consultant or expert to assist you in identifying them.

2. Make sure you adequately identify the cause of the defect. In other words what was done or what was not done that caused it. A building consultant should assist.

3. Importantly ask the following questions:
Is there any evidence of a personal assumption of responsibility of the director? In order to answer this question certain facts need to be established such as:

  • what was the individual director responsible for?
  • what was the director partly responsible for?
  • was the director responsible for supervising the work?
  • was the director involved in choosing the relevant materials?

If the answer to any of the questions above is yes, then it would seem that some level of personal involvement or assumption of risk has been assumed by the director.

4. Try to obtain written or other evidence of the director’s involvement or responsibility for either the materials used or work carried out in relation to the defect which can be used to satisfy the objective test supported by the second line of authority


1. See Neil Campbell “Leaking Homes, Leaking Companies?” [2002] Company & Securities Law Bulletin, 101

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.