Negligence claim against Council struck out

The recent High Court decision of Te Mata Properties Limited & Or v Hastings District Council & Ors provides useful clarification of the tests that will be applied where local bodies are faced with liability claims for leaky commercial and industrial buildings.

The facts of the case were, at their heart, that applications for building consents were lodged with the Hastings District Council (“the Council”) to construct various motel complexes. At the conclusion of construction work the Council issued code compliance certificates. Subsequently, water and moisture problems became evident in the buildings. The plaintiffs claimed that these problems were a result of defects in the buildings, which had been constructed contrary to the Building Code and various industry standards.

The plaintiffs, who were subsequent purchasers of the buildings, brought a claim against the Council in negligence, asserting that it owed them a duty of care to ensure that the building plans complied with the Building Code and the Building Act 1991 (“the Act”) before approving the building consents. Further, it was claimed that the Council had a duty under the Act to ensure that the requisite building standards were met, and that the Council had failed to do so. The Council sought that the claims be struck out.

The Council’s application for strike out rested largely on case law, from New Zealand and abroad, that holds that a local body owes no duty of care in respect of commercial/industrial buildings. This case law stems from the view that owners of commercial buildings do not depend on local bodies in the same way as residential property owners, because they are likely to have engaged expert advisers with greater expertise than those offered by local bodies.

While the Court acknowledged the authority relied on by the Council it also noted the considerable difficulties that can arise as a consequence of the division between residential and commercial properties, in particular, the difficulty of determining on which side of the division a property falls. In this regard the Court queried how a timeshare arrangement, or a commercial enterprise with accommodation above, would be approached.

In light of these difficulties, the Court found that the use to which the property is put should not be conclusive but merely one factor in determining whether it is reasonable for a duty of care to be imposed. In this regard the Court confirmed that the test for whether a duty of care arises is whether it would be fair, just and reasonable to hold that such a duty exists, which in turn is determined by the nature of the relationship between the parties and issues of policy.

In this case the Court concluded that the relationship between the Council and the plaintiffs was not sufficient to impose a duty of care. Relevant to this was that the Council’s role under the Act, and its limited powers and obligations, were principally related to matters of health and safety and, though compliance with the Building Code was required, this was a generally phrased document. Also critical was that the plaintiffs were subsequent purchasers; the Court concluding:

“...Therefore, while it may arguably have been foreseeable that those originally involved in the construction may have had a right of recourse against HDC [...] foreseeability becomes attenuated when claims are brought by subsequent owners, not in possession of the properties, seeking to recover economic loss and where health and safety of users does not appear to be jeopardised.”

Although this decision was made under the now repealed Building Act 1991, we expect that this decision will be significant in future leaky building cases and may provide useful support for local bodies where the buildings concerned have changed hands and the relationships between parties have weakened.

For more information, please contact our Local Government Team:

Last updated: November 2007

This article is intended to be brief in nature and should be used for information only. It should not be relied on as legal advice.