Originally published December 2005

Leaking homes – claims against BIA struck out

On 1 December 2005, the Court of Appeal struck out all causes of action against the Crown as successor to the liabilities of the Building Industry Authority (‘BIA’) in Attorney-General v Body Corporate No. 200200 & Ors CA 30/05. The claim related to a leaky building – the 153 unit Sacramento complex.

Costs of repair were estimated at $20m. Following this decision, the prospects of sheeting home responsibility to the Crown/BIA in the almost 4,000 claims relating to leaky buildings now appear limited.

The unanimous judgment of a five member Court of Appeal overturned the High Court Judgment which had allowed part of the claims against the Crown/BIA to proceed.

In the Sacramento case, the claimants alleged the BIA was negligent in three ways:

  • It failed to take reasonable care to collect information on problems arising from use of face fixed monolithic cladding systems over untreated timber overseas and to ameliorate such problems in New Zealand by, for example, preparation/approval of acceptable solutions and by warning the public and those within the building industry of potential problems.
  • It negligently supervised the operation of the building certifier (ABC Limited) involved in the Sacramento development.
  • It negligently approved the insurance cover obtained by ABC as the cover permitted insurers to decline liability for material non-disclosure and provided only for limited cover up to $2m.

All three allegations were struck out. The Court of Appeal held:

  • The BIA had no duty to the claimants to warn the public/those involved in the building industry or to revoke acceptable solution B2/AS1 (insofar as it permitted the use of untreated timber for framing) because:
  • the relationship between the BIA and the building owners was extremely limited and responsibility for durability of the Sacramento complex rested more directly on the developers, designers, builders and certifiers involved;
  • building owners were not particularly vulnerable to inaction on the part of the BIA;
  • the BIA’s role was quasi legislative/quasi judicial and this pointed against the imposition of a duty of care;
  • there was no indication in the Building Act 1991 that the BIA had liability in these circumstances;
  • the imposition of a positive duty of care would have significant resource implications and would require the Courts to review the reasonableness of the resources allocated to the BIA by responsible ministers;
  • the case as it related to acceptable solution B2/AS1 was a red herring - there was nothing intrinsically false or wrong with acceptable solution B2/AS1.
  • There was no duty of care on the BIA in relation to the approval of building certifiers such as ABC. The quasi judicial role of the BIA excluded such a duty of care. It would have been inconsistent with the BIA’s role under the Building Act 1991 if it was required to assume the role of building code policeman. It would also be inconsistent with established cases holding that regulatory authorities were not liable in negligence to the public for failing to identify incompetent persons or firms who fall within their supervisory role.
  • There was no duty of care owed to the plaintiffs in connection with the approval of the ABC’s insurance arrangements. The 1991 Act did not require that certifiers carry insurance sufficient to indemnify them against any possible claim for damages. The BIA faced the important policy consideration that if it imposed too onerous insurance requirements building certifiers would not be able to operate and an important element of the reforms introduced by the Building Act 1991 would not be implemented. The approval of insurance arrangements was also a quasi judicial process and the existence of a duty of care on the BIA in relation to insurance would have produced the sort of official over-vigilance that the 1991 Act was intended to avoid.

The strike out affects only the claim against the Crown/BIA. The claim by the Body Corporate against the certifier itself and other defendants can proceed. In leaky building claims other defendants can include the builder, subcontractors, the architect, suppliers of various materials, installers of specialist products and coatings, the project manager, the developers and insurers. In the light of the decision it is these sorts of parties who will likely bear the brunt of current and future leaky building claims. Such claims look like they will be with us for some time. Of the 4,000 claims registered with Weathertight Homes Resolution Service since 2002, currently more than 2,500 remain unresolved.

Public authorities’ duties of care

Attorney-General v Body Corporate 200200 & Ors (noted above) is also noteworthy for the comments made by the Court of Appeal on the imposition of duties of care on public bodies.

A finding that a public body owes a duty of care is a vital prerequisite to establishing a claim for damages in negligence against that public body.

The Court noted:

  • The primary policy consideration in such cases is whether the imposition of a duty of care would be consistent with the terms and policies of the statute governing the public body. A duty of care will not be imposed if inconsistent.
  • Statutory functions that involve quasi judicial or legislative powers are not appropriately the subject of duties of care.
  • The Courts are slower to impose duties of care in relation to omissions to act as opposed to the positive exercise of statutory powers. The more policy orientated and less operational the power in question is, the less likely a duty is to be imposed. Also, the further removed the public body is from day to day physical control over the activity which caused the loss, the less likely the Courts are to impose a duty of care.

The Court also rejected UK case law which suggested that public law considerations have a role to play in determining whether a duty of care should be imposed. The ‘public law’ approach was suggested by the House of Lords in Stovin v Wise [1996] AC 923 at 953:

‘In summary, therefore, I think that the minimum pre-conditions for basing a duty of care upon the existence of a statutory power, if it can be done at all, are, first, that it would in the circumstances have been irrational not to have exercised the power, so that there was in effect a public law duty to act, and secondly, that there are exceptional grounds for holding that the policy of the statute requires compensation to be paid to persons who suffer loss because the power was not exercised.’

The Court of Appeal preferred the approach taken by McHugh J in the High Court of Australia in Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at 21:

‘With great respect... I am unable to accept that determination of a duty of care should depend on public law concepts. Public law concepts of duty and private law notions of duty are informed by differing rationales. On the current state of the authorities, the negligent exercise of a statutory power is not immune from liability simply because it was within power, nor is it actionable in negligence simply because it is ultra vires...’

The decision is a useful reminder that the tests to establish breach of a public law obligation and breach of a private law duty of care are different and one does not necessarily follow from the other. This is not to say, however, that the same set of facts will not give rise to breaches of both types of obligation - this may often be the case. For example, breach of the public law obligation to notify a resource consent application can expose the consent authority to an action for damages in a private law context, see Craig v East Coast Bays City Council [1986] 1 NZLR 99.

Amendments to applications at hearing: the test for what’s on and what’s not

The Resource Management Act 1991 does not expressly deal with the scope and limits of consent authorities’ powers to grant consent to planning applications that are amended in the course of hearing.

The Court of Appeal recently grappled with this dilemma in Estate Homes Limited v Waitakere City Council (CA210/04, 11 November 2005, Chambers, Baragwanath and Goddard JJ). The resulting judgment provides some useful guidance on the distinction between permissible and impermissible amendments to planning applications. The facts of the case can be stated simply. Estate Homes (Estate) was the developer of a medium sized subdivision of 68 proposed lots in Ranui, Waitakere City. Part of the land comprising the subdivision was subject to a designation for a district arterial road. In order to allow the application for subdivision consent to proceed on a non-notified basis, Estate included a road of suitable dimensions for an arterial road in its plan of subdivision. Estate also proposed a consent condition whereby the Council would have to compensate it for the cost of forming the area of road beyond that otherwise required under the district plan (as an arterial road, the road was approximately 2m wider than a standard collector road). Ultimately, a dispute arose as to whether the degree of compensation suggested in the condition put forward by Estate was sufficient (as the High Court found: [2005] NZRMA 128), or whether the Council was obliged to bear the cost of the entire area of arterial road, in terms of both land acquisition and road forming expenses (as the Environment Court found: (2004) 3 NZRMA 137).

Delivering the judgment of the majority, Baragwanath J noted that two preliminary questions of law arose, namely:

  • As a matter of jurisdiction: can an applicant for subdivision consent be granted approval to a form of subdivision that has not been applied for?

and:
  • Can a resource consent be made subject to conditions that are more favourable to the consent holder which fall outside the scope of the application?

The first of these issues was not technically before the Court, as there was no proposal to amend the form of Estate’s application. Nevertheless, and despite acknowledging this fact, Baragwanath J set about tracing out the relevant provisions within the RMA dealing with the scope of consent applications. He observed that while those provisions are silent as to the scope of permissible amendments, two general themes are apparent: concern that an application should relate to the effects of a given proposal; and public participation by people actually or potentially affected by a proposed activity.

In the majority’s view, these themes are the twin touchstones against which proposed amendments to applications must be considered. Consequently, the Court’s firm conclusion in response to the first question set out above was:

We answer that question ‘yes’, an applicant for subdivision consent can be granted approval to a form of subdivision that has not been applied for, but only to the extent that no prejudice arose to the applicant, other parties or the public in altering the terms of the application.

It can be inferred from Baragwanath J’s earlier comments that ‘prejudice’ will arise in this context where a proposed amendment to a consent application will result in new or different effects, sufficient to require an increased level of participation in the consent process from existing parties or new participants. Essentially, this formulation combines two strands of caselaw developed in the Environment Court - the one focussing on the effects of an amended proposal, the other on the impact of that proposal on potential submitters: see the discussion in Mills v Queenstown Lakes District Council [2005] NZRMA 227 (EC) – into a single cohesive test.

The Court’s answer to the second question of law posed above flows naturally from the affirmative answer to the first. Again, the absence of prejudice is the key consideration, revealed in the Court’s conclusion that:

A resource consent can be made subject to conditions which are more favourable to the consent holder and which fall outside the scope of the application provided that there is no prejudice to the applicant, other parties or the public and that the conditions comply with the limitations declared in the Newbury principle.

Applying this test to the facts before it, the Court was satisfied that the amended condition sought by Estate was not prejudicial to the Council, as the Council had received notice of it during various earlier stages of the consent, objection and appeal processes. Similarly, because the condition only affected the quantum of compensation for the construction of a road, rather than the form of the road or its effects, no party other than Estate or the Council was deemed to be affected.

Ultimately, the Court of Appeal steered a middle course between the earlier Environment and High Court decisions, choosing to refer the matter back to the Environment Court with instructions to have regard to the Court of Appeal’s observations on various points, including those discussed above.

The Court of Appeal’s decision is a useful endorsement by an appellate court of principles developed at the Environment Court level. It confirms that the relevant inquiry when a consent authority’s jurisdiction to consider an amended proposal is challenged is not merely whether the new effects of the proposed alteration exceed those of the original application in scale and intensity, or are significantly different in character, but also whether they are sufficient to prejudice existing or potential participants in the consent process.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.