Hamlin Survives Round One By Michael Thornton, Barrister & Solicitor

Transcription

1 HAMLIN SURVIVES ROUND ONE Page 1 Hamlin Survives Round One By Michael Thornton, Barrister & Solicitor The Court of Appeal has emphatically rejected an attempt by territorial authorities to limit or reduce their ongoing exposure to leaky building claims. In 2008, the North Shore City Council was held liable in two High Court decisions (Body Corporate and Ors v North Shore City Council and Ors (High Court, Auckland CIV , 30 April 2008, Justice Heath) and Body Corporate No and Anor v North Shore City Council and Ors (High Court, Auckland CIV , 25 July 2008, Justice Venning)) for breaching its duties to homeowners in carrying out its statutory functions pursuant to the Building Act 1991 (Act) in respect of two multi-unit apartment complexes on Auckland s North Shore. In its appeals against these decisions, the Council sought to persuade the Court to overturn the finding in those cases that it owed a duty of care, by arguing that it should only owe a duty of care to owner/occupiers of modest standalone properties, not to investors, nor in respect of a complex high-rise development. The Court, in its decisions in Sunset Terraces [2010] NZCA 64 and Byron Avenue [2010] NZCA 65, delivered together in March, rejected that argument, which centred on a submission that losses associated with such a complex development were claims for economic loss, and so unrecoverable in the law of torts. Essentially, the Court confirmed that Invercargill City Council v Hamlin [1996] 1 NZLR 513 was a sui generis exception to the rule that economic loss was unrecoverable, and that there was little distinction between the owner of a leaky apartment and the owner of a standalone leaky home. Michael Thornton, The Court adopted the analysis of Justice Heath in the High Court, at first instance, and held that a territorial authority would owe a duty of care where the intended use of the building was stated as residential in plans and specifications submitted with the building consent application, or was otherwise known by the Council to be for that end purpose. This test avoided the difficulties associated with using occupation of the property by an owner as a benchmark for determining when the Council would owe a duty of care, as discussed by Justice Williams in Te Mata Properties and Anor v Hastings District Council and Ors (High Court, Napier CIV , 23 February 2010). As I pointed out when I spoke at the LexisNexis Building and Construction Conference in 2009, the logic of the bright line adopted by Justice Heath seems hard to fault, and for this reason, the Court s decision was, perhaps, predictable; even more so, as the Court being bound by the Privy Council s decision in Hamlin, it could, at best, only be persuaded to depart from it. No doubt, territorial authorities and their indemnifiers see The Court of Appeal has emphatically rejected an attempt by territorial authorities to limit or reduce their ongoing exposure to leaky building claims.

2 HAMLIN SURVIVES ROUND ONE Page 2 the next round of the fight before the Supreme Court as their best (and final) chance of persuading the Supreme Court that the Court of Appeal s duty of care analysis in Hamlin in 1996, dealing as it did with events which occurred in a vastly different New Zealand, in 1972, should not apply at the beginning of the twenty-first century. Duty of Care The Council acknowledged that the Court was bound by the Privy Council decision in Hamlin. But it sought to persuade the Court to construe Hamlin narrowly and effectively confine it to its own facts. It did so by way of a primary submission that no duty of care ought to be owed for a substantial development such as Sunset Terraces, compared to the modest, standalone dwelling with which Hamlin was concerned. It supported this with an analysis of the Act and common law principles, also pointing to the widespread changes in New Zealand society in relation to home ownership between the 1970s (when the dwelling in Hamlin was constructed) and now. In considering this submission, the Court carried out a detailed review of the Act, the Building Industry Commission s Reform of Building Controls report on which the Act was largely based, and made the point that New Zealand courts had in earlier decisions (Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA), and Mt Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA)), elected to depart from English jurisprudence, which was moving away from finding that local authorities owed duties of care to homeowners. The Court concluded that when looking at the individual apartment owners in the case before it, and in Byron Avenue, the policy behind Hamlin applied even more so to such owners, compared to standalone house owners, so that they ought to be covered by the same principle. Owners of leaky apartments were more likely to have fewer resources than owners of standalone homes. In relation to the argument that owner/occupiers should not be owed a duty, Justice Baragwanath said at [69]: The Council acknowledged that the Court was bound by the Privy Council decision in Hamlin. But it sought to persuade the Court to construe Hamlin narrowly and effectively confine it to its own facts. The Court concluded that when looking at the individual apartment owners in the case before it, and in Byron Avenue, the policy behind Hamlin applied even more so to such owners Those who own but do not occupy are not precisely covered by Hamlin. But having considered a board spectrum of cases I am satisfied that it would be wholly impracticable to have the duty come and go as the owner moves in and out of the apartment for shorter and longer periods. I can see no principled basis not to adopt the bright line selected by [Justice] Heath and permit claims by owners, whether or not they are in occupation, provided the intended use of the building was stated as residential in the plans and specifications submitted with the building consent application or was known to the Council to be for that end purpose. The Council also sought, unsuccessfully, to argue that the enactment of section 44A of the Local Government Official Information and Meetings Act 1987 (LGOIMA), which enacted the Land Information Memorandum (LIM) procedure, meant that purchasers made a decision on the merits of a property without any general reliance on the Council. The Court pointed

3 HAMLIN SURVIVES ROUND ONE Page 3 out that the term general reliance referred to general expectations in the community, rather than any individual expectations as to the behaviour of a local authority. While a failure to obtain a LIM may support a finding of contributory negligence, it could have no impact where due to the Council s own negligence, the LIM would not have disclosed that an apartment was a leaky building. In upholding the Justice Heath bright line test, the Court also rejected a submission that because a multi-unit development is likely to have involved engineers and architects in its construction, this should mean that Council owed no duty of care. Accrual of cause of action The Council sought to argue that, because Hamlin held that a cause of action accrues when a latent (i.e. hidden) defect is discovered or is reasonably discoverable, once that occurs, the accrual is complete and it cannot recur, for example, in the name of a subsequent owner. The Court noted that New Zealand law had long since rejected the argument that a cause of action may accrue and a case become statutebarred, although a plaintiff had no reason to know of it. It was frequently the case that an original owner knew nothing about deficiencies in construction of the house, but even if they did, that should not affect the rights of later buyers, who may not have known about defects until long after they had purchased the property. Having rejected the Council s argument on the duty of care issue, the Court then considered the individual appeals against the decisions in favour of the successful claimants in the High Court It dismissed all of the Council s appeals Individual owners cases Having rejected the Council s argument on the duty of care issue, the Court then considered the individual appeals against the decisions in favour of the successful claimants in the High Court. It dismissed all of the Council s appeals against the findings in respect of those owners. It upheld a cross-appeal regarding units owned by Blue Sky (a Blue Chipassociated company), on the basis that Council owed the Blue Sky company a duty of care. The Court dismissed an appeal by the owners against the finding by Justice Heath that the architect was not negligent in preparing plans and specifications for the development, but held the architect liable to one owner for negligently preparing a practical completion certificate which the owner had relied on. Byron Avenue appeal The Court s finding in Sunset Terraces as to when the Council would owe a duty of care effectively dealt with the question of liability of the Council in Byron Avenue for careless performance of its duties. The latter appeal also raised four other separate questions: whether a Council which had not issued a Code Compliance Certificate could be sued; how should contributory negligence be dealt with; whether the Body Corporate could sue for damage to common property; and whether section 41 of LGOIMA meant the Council could not be liable in relation to any claim alleging misstatement in a LIM. The Court also appears to have settled the tariff

4 HAMLIN SURVIVES ROUND ONE Page 4 in relation to general damages for leaky homes ($15,000 for owner/non occupiers, $25,000 for owner/occupiers). Non-issue of Code Compliance Certificate The Court having analysed the Act, concluded that it contemplated liability on the part of a territorial authority, not only in relation to the issue of building consents and Code Compliance Certificates, but also in relation to inspections. As the effect of negligent inspections would be to lock in a defective condition which could then not be detected by purchasers, they should be able to sue a Council in respect of negligent inspections, even where no Code Compliance Certificate had been issued. Contributory negligence/attribution of knowledge of an agent The Court reviewed and upheld the findings of contributory negligence in the High Court. One owner s fact situation raised a difficult issue: could the negligence of her solicitor, in failing to advise the owner to obtain a LIM which would have drawn problems to her attention, be attributed to her for the purposes of contributory negligence? After considering relevant authorities in detail, the Court concluded (at [189]) that, unusually, the solicitor s negligence would be attributed to the owner, leaving the owner free to sue the solicitor separately in respect of any finding of contributory negligence against her in this proceeding. This may give rise to increased claims against solicitors, particularly in the Weathertight Homes Tribunal. Claim by the Body Corporate The Court of Appeal confirmed that a Body Corporate may sue for any damage to common property, subject to a pro-rata reduction in any judgment in its favour, in proportion to the amount of any finding of contributory negligence on the part of an individual proprietor. LGOIMA The Court did not determine the issue of whether or not section 41 of LGOIMA meant that a Council could have no liability in relation to any claim alleging negligent misstatement in a LIM, as this issue is shortly due to be considered by the Supreme Court. As the effect of negligent inspections would be to lock in a defective condition which could then not be detected by purchasers, they should be able to sue a Council in respect of negligent inspections, even where no Code Compliance Certificate had been issued. One owner s fact situation raised a difficult issue:. could the negligence of her solicitor, in failing to advise the owner to obtain a LIM which would have drawn problems to her attention, be attributed to her for the purposes of contributory negligence? Conclusion The Court s concluding comments confirm its view that a solution to the leaky building crisis must come from government, not the courts. An earlier article in NZLawyer ( Comprehensive solution needed for leaky homes crisis, issue 133, 1 April 2010) referred to Justice Arnold s comments that litigation cannot offer a sufficient solution to a systemic

5 HAMLIN SURVIVES ROUND ONE Page 5 failure as it will not result in legal liability being imposed on all the entities which have had some part to play in the failure, even though they bear some responsibility (in a moral sense) for what has occurred. It remains to be seen whether or not the government will heed this advice, and provide a mechanism for these problems to be solved in a non-litigious way. In the interim, the Court s judgments in these two cases have provided much needed clarity for leaky home owners and their advisers in bringing claims, at least until the outcome of the forthcoming appeal to the Supreme Court by the Council. The Court s analysis on the duty of care issue seems sound and well reasoned, so it seems unlikely (though it cannot be ruled out) that the Supreme Court will impose a different view. The Court s judgments in these two cases have provided much needed clarity for leaky home owners and their advisers Conveyancing lawyers may also need to review their practice in relation to advising respective purchasers to obtain a LIM, as the Court s view appears to be that failing to do so may be negligent.

6 HAMLIN SURVIVES ROUND ONE Page 6 CONTRIBUTIONS: Contributions to BuildLaw are welcome. BuildLaw is published four times a year in March, June, September and December. Readers are invited to submit material to be considered for publication by to the editor at editor@buildingdisputestribunal.co.nz. Contributions may consist of articles, case notes, book reviews, news of forthcoming events and other matters of interest to readers. Contributors are entirely responsible for the accuracy of case names and citations, quotations and other references, spelling etc. All contributions should be in final form and in word format. DISCLAIMER: BuildLaw is published by Building Disputes Tribunal. BuildLaw is a newsletter and does not purport to provide a comprehensive analysis of the subjects covered or to constitute legal advice. BuildLaw is intended to promote and engender discussion, debate, and consideration of all matters in relation to the development and application of construction law, the resolution of building and construction disputes, and the processes that are used for the resolution of those disputes. Articles, commentaries and opinions are intended to raise questions rather than to be emphatic statements on the subjects covered and the views expressed are the views of the author and are not necessarily those of the directors, servants and agents of the Tribunal. Information published is not guaranteed to be correct, current or comprehensive and the Tribunal accepts no responsibility for the accuracy of any information published in BuildLaw and no person should act in reliance on any statement or information contained in BuildLaw. Readers are specifically advised that specialist legal advice should be sought in relation to all matters in relation to, or in connection with, the subjects covered and articles published in BuildLaw. COPYRIGHT: This issue of BuildLaw and all material and information contained herein are subject to the full protection given by the Copyright Act In many cases the copyright of individual articles remains the property of the author and articles and commentaries should not be reproduced without first obtaining the express authorisation of the relevant third party copyright owner concerned. If you are in any doubt as to whether a proposed use is covered by this licence please consult the Editor. Building Disputes Tribunal (NZ) Limited. All rights reserved BuildLaw : Reaches you first with the construction law news you need to know Gives you access to important judgments when they are delivered Gives you expert commentary and analysis of key legal developments and issues affecting your business Explains complex issues clearly and simply