New Zealand: Does your construction contract prevent you being sued in negligence?

The Court of Appeal has recently considered this question, albeit at a very preliminary level.¹

In 2006, the Grey District Council built an aquatic centre in Greymouth. Unfortunately, the roof of the centre was built with deficiencies. Untreated timber was used for the roof beams and at the point where aluminium and steel fixings were attached to the beams, the steel nails had corroded.

The council sued its engineering company, a second engineering company (engaged by the first engineers to peer review the construction design), and an employee of the second engineering company who issued a producer statement for design to the council (the "defendants").

The council sued the defendants in tort for the cost of the repairs. That is, the council alleged that the defendants owed the council a duty to exercise reasonable skill and care in the design and construction of the aquatic centre and that the defendants were negligent in not performing that duty, because of the roof defects. The defendants weren't sued for breach of any contract.

The council didn't sue the builder with whom it had a construction contract. That contract incorporated the Conditions of Contract for Building and Civil Engineering Construction (NZS 3910:2003), commonly used in commercial construction contracts.

The defendants, though, joined the builder to the proceedings. They alleged that the builder also owed the council a duty to exercise reasonable skill and care during the construction, in addition to the builder's obligations under the contract. The reason the defendants joined the builder to the proceedings was that if they were all found to have breached that duty and were negligent, then liability would be shared between the defendants and the builder.²

The builder objected before the High Court to being joined and the High Court agreed with the builder.³ The defendants appealed that decision to the Court of Appeal.

It's important to bear in mind that the joinder application didn't require the Court to decide whether the builder was in fact negligent, i.e. whether it did in fact owe the particular duty of care in tort, outside of, or in addition to, the terms of its contract with the council. Such a decision could only be made at a full trial at a later stage. At this stage, the court simply needed to decide whether there was an arguable case so the court only had limited information before them for that purpose.

The Court of Appeal believed that it was possible that the builder could owe the council a duty in tort to exercise reasonable skill and care in the building's construction.⁴ The Court then looked closely at the terms of the builder's contract with the council to see if they excluded such a duty. Remember that the terms of contract are common in the construction industry.

The contract did not specifically exclude the builder's liability in negligence. The Court found that the builder's potential liability under the contract was really no less than an obligation to exercise reasonable skill and care. The contract required the builder to act in a 'tradesman-like' manner. This was consistent with its tortious duty.

The contract did contain some provisions which protected the builder, including that the builder was not responsible for the design and was required to follow engineer instructions. But the Court could not say that those protections would be eroded by imposing a duty of care in tort. This was because the builder's conduct, which the defendants alleged was negligent, did not strictly relate to any design or engineer instruction issues.

The Court of Appeal therefore upheld the appeal and directed that the builder should be joined to the proceedings as a third party.

While the decision is only a preliminary one, the Court of Appeal's analysis of the standard form construction contract makes for important reading. The outcome at trial (unless the parties reach an out of court settlement) will be an interesting one for the construction industry for the apportionment of liability between the parties responsible for design and construction, and the treatment of the contract and tortious duties.

Footnotes

¹Blain v Evan Jones Construction Limited [2013] NZCA 680

²At law, if the council sued the builder in contract for the same loss (i.e. the cost to repair the roof), the builder would not have to contribute to the liability of the defendants, who were sued by the council in tort, so the cost of the defendants' liability as between themselves (not to the council) wouldn't be able to be reduced.

³Grey District Council v Blain [2013] NZHC 522

⁴The Court referred to the recent Supreme Court decision in Body Corporate No 207624 v North Shore City Council (Spencer on Byron) [2012] NZSC 83 that unsettled the previously long-held view that, at law, a builder of a commercial building (perhaps such as the aquatic centre) did not owe a tortious duty of care to the building owner.

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