New Zealand: Do councils now owe a duty of care to building developers?

Between 1999 and 2000 the Southland Indoor Leisure Centre Charitable Trust (Trust) built a sports and leisure stadium in Invercargill (incidentally, on land owned by the Invercargill City Council). The stadium comprised of a foyer, amenities area, squash courts, two main events courts and five community courts. The Trust engaged all its own specialist consultants and contractors for the project.

During construction, it became apparent that the roof trusses over the community courts were sagging. After receiving advice from an independent structural engineer, the Trust organized remedial work on the trusses in early 2000. The Trust then applied for a code compliance certificate for the remedial work. The Invercargill City Council (Council) did not inspect any of this work and instead relied on the Trust's engineer to inspect and certify.

Before receiving the Trust's engineer's certification (known as a PS4), and without referral to its chief building inspector, the Council issued a code compliance certificate for the remedial work in November 2000.

The Trust's engineer eventually provided a PS4 to the Council on 22 January 2001 which said the remedial work had been "generally" constructed in accordance with the relevant drawings and associated specifications. The Council's chief building inspector repeatedly requested further information and calculations from the Trust's engineer. Eventually, some of the Trust's engineer's measurements were provided to the Council, but not those specifically requested by the Council's chief building inspector. However, the Council never withdrew the certificate nor (it appears) continued to request the specific information required.

The Council issued a final code of compliance certificate for the last stage of construction on 9 April 2003.

The remedial work on the trusses did not follow the independent structural engineer's specifications and the roof construction was defective. The roof flexed, leaked and had moved up to six inches under wind load. In 2006, the Trust asked an independent engineer to assess the roof design. That engineer advised the Trust that the roof trusses were adequate, but gave recommendations for improvement, and recommended a visual inspection of the roof truss welds and support fixings be carried out to assess any deterioration or fatigue.

The Trust undertook repairs to address the leaks, but otherwise did not carry out any of the engineer's recommendations. It transpired on the evidence that had those recommendations been carried out, the roof construction problems would have become apparent (and could have been properly remedied).

On 18 September 2010, because of the inadequate construction, the roof collapsed under heavy snowfall. Fortunately, the eight people in the building at the time managed to escape unharmed.

The Trust brought proceedings against the Council in negligence and negligent misstatement for issuing a code compliance certificate for the building, seeking the costs to repair the damaged building. The Trust was successful in the High Court. The Council successfully appealed to the Court of Appeal, with that Court being of the view that the Trust never relied on the code compliance certificate (as confirmation the building complied with the Building Code) and that its own contractors had in fact caused the loss. The Court of Appeal also held that the Trust was contributorily negligent in failing to carry out the engineer's recommendations.

Supreme Court decision1

The Council had argued that the Trust's claim against the Council was for negligent misstatement in issuing the code compliance certificate. To establish this claim, the Trust had to show reliance on the issue of the certificate, but the Council argued the Trust was not reliant, having commissioned its own experts to ensure that the building was built in accordance with the Building Code and that the Trust was aware of the issues identified with the roof at the time the certificate was issued.

In its decision delivered on 14 December 2017, the Supreme Court did not accept these arguments. Earlier cases had confirmed that a Council's duty of care stemmed from its regulatory obligations, and its power and control under the Building Acts, and a building owner commissioning and relying on its own experts cannot displace that duty. The Supreme Court in this case was not prepared to depart from these earlier decisions. It therefore held that the Council owed a duty of care to the Trust in (or despite) the circumstances, and breached that duty of care by negligently issuing a code compliance certificate. While a building owner's specialist consultants may be negligent, this does not by itself absolve the council of liability.

The Supreme Court also held, by majority, that in ignoring its independent engineer's recommendation to have the trusses and welds inspected, or failing to make any further inquiry on that issue (which was a safety aspect over which the Trust was already concerned), the Trust was contributorily negligent. Damages were reduced by 50%.

Implications

The case is of interest in that it appears to entrench the courts' expansion of a duty of care owed by councils to all forms of building owners; whether residential homeowners, owner/occupiers, commercial building owners and now 'developers'.

In coming to this decision, and following earlier authorities, the Supreme Court likely had at the forefront of its mind the rights of future owners of buildings, who necessarily rely on code compliance certificates, who would have no knowledge of the basis on which certificates may have been issued and/or the extent to which the council, or the previous building owner, relied on specialist consultants.

It is likely that as a result of this decision, insurers of councils may well demand tighter processes for issuing code compliance certificates, including increased inspections. If so, this would inevitably increase the time required to issue certificates; but in order to better ensure the safety and compliance of a building, this is not necessarily undesirable.

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Footnote

1Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council [2017] NZSC 190

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Authors
Jonathan Pow (formerly with Wynn Williams Lawyers)
 
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