NZILA President's message
Jonathan Scragg

Liability of local authorities

In its decision in Invercargill City Council v Southland Indoor Leisure Centre Charitable Trust [2017] NZCA 66, the NZ Court of Appeal has suggested a narrowing of local authority liability when a claim for issuing a code compliance certificate is made by a building's commissioning owner.

The Appeal Court majority found Invercargill City Council (ICC) did not a owe duty of care to the Southland Indoor Leisure Centre Charitable Trust in issuing a code compliance certificate for remedial works to Stadium Southland's roof.

The trust owns and operates Stadium Southland. Construction was completed in early 2000. During construction, it became apparent the design of the roof trusses was defective, as the roof began to sag even while the stadium was being built. The trust arranged for remedial work to be completed.

ICC required the trust to seek a building consent for the remedial work and, as a condition of the consent, required the responsible engineer to certify by a producer statement that the completed work met the design specifications. Despite not receiving the producer statement, ICC issued a code compliance certificate for the remedial work. After a heavy snowfall almost 10 years later, the stadium roof collapsed.

There was no dispute on how and why the roof failed. In the High Court, it was agreed a "combination of poor quality welding and a failure to follow the plans and specifications for remedial work to the roof trusses meant the roof was unable to carry the snow loadings experienced that day".

The High Court held ICC owed the trust a duty of care when deciding whether to issue a code compliance certificate. It was clear the duty was breached when ICC issued the certificate. The trust was awarded $15,126,665.35 for the agreed cost of rebuilding the original structure, less $750,000 for betterment.

The basis of the claim

The trust could only bring a claim against ICC for issuing the code compliance certificate, as a claim for any act or omission before that was time-barred. The two causes of action against ICC were:

• in negligence, on the basis ICC owed the trust a duty of care when issuing building consents; inspecting works; ensuring compliance with the consents and building code; and issuing code compliance certificates; and
• in negligent misstatement, alleging ICC owed a duty to exercise reasonable care and skill when issuing code compliance certificates.

The Court of Appeal decision

The Court of Appeal found "a claim on a code compliance certificate alone – that is, a claim not founded on any antecedent inspections – must lie in negligent misstatement".

The court considered the trust, as the property's commissioning owner, was party to the principal contracts with experts involved and used its position to assert control over the remedial work and guard itself against adverse consequences.

The majority (Harrison and Cooper JJ) found the defects that caused the stadium roof to collapse were created solely by the trust's agents on whom ICC relied for the producer statements on which the code compliance certificate was based, and it would not be fair, just or reasonable to establish a duty of care as the trust's agents:

"…were directly responsible for the design, construction and oversight of the original and remedial work. They brought about the trust's loss and the consequences of their fault must be attributed to the trust, which cannot assert ICC owed it a separate duty of care to protect it against the same negligence and indemnify it against the same loss."

The Court of Appeal distinguished Body Corporate No 207624 v North Shore City Council [Spencer on Byron] [2012] NZSC 83, [2013] 2 NZLR 297, which provides the rule that, when exercising its statutory function of inspecting construction of a building, a local authority owes the same duty of care to all owners whether commercial or residential.

In Stadium Southland, as a commissioning owner, the trust was not relying on ICC. The Court of Appeal therefore decided ICC did not owe a duty of care to the trust, and was not liable for the stadium damage caused by the defective roof.

The Court of Appeal did note, however, that only applied to a commissioning owner.

Subsequent owners – including those who buy, sometimes off the plans, from a developer – lack the same opportunity to control construction quality and, for them, the alternative to local authority liability may involve insuperable transaction costs, in investigating the design and construction; and negotiating to secure protection, ultimately from the commissioning owner or head contractor or designer.

The judgement also provided useful comments on contributory negligence, betterment, and contractual indemnity.

What are the implications for building owners?

The decision potentially ‘muddies the waters' for building owners who claim a local authority owes a duty of care when issuing a code compliance certificate in circumstances where the owner exercises control over the build.

There may be a fine line between how much control is exercised by the commissioning owner over the work and the local authority's role. Spencer on Byron aimed to simplify the law on imposing a duty of care on local authorities to both residential and commercial building owners. The Court of Appeal's decision suggests a distinction should be observed, at the least in a commercial situation.

Where the cause of action against a local authority arises from a negligent inspection, the inspection may still be actionable on the basis the commissioning owner relied on the local authority to conduct the inspection correctly. The decision, however, does not affect the rights of subsequent owners in bringing claims against local authorities.

It is unknown whether the case will be appealed to the Supreme Court. If it is, that would present a welcome opportunity for the Supreme Court to comment on, and perhaps clarify further, the law on the scope of a duty of care imposed on local authorities.

In the meantime, the case may add complexities for commissioning owners seeking to claim against local authorities.

NZILA annual lecture series: Inherent vice

In March, NZILA hosted its second annual lecture series. The series follows the tradition of the Geoff Masel lecture series, which has been running in Australia since 2005. In 2016 NZILA welcomed Professor Ian Enright to given the inaugural NZILA annual lecture.

In March 2017, the series was given by Neil Campbell QC, of Shortland Chambers. His topic was Inherent vice: limits and tensions. The presentation was warmly received at each of the three stops on the lecture tour. More than 200 people attended.

In 2018, NZILA will welcome Professor Rob Merkin QC back to NZ to give the third annual lecture series. Details of Rob's topic will be available soon.

Look out for registration details to be released soon for NZILA's annual conference, which returns to Te Papa in the capital city, Wellington, on 13-15 September.