Supreme Court finds council owes duty of care in non-residential buildings

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Originally, the owners brought the proceedings in the High Court. Their claims were struck out in the Court of Appeal, and summary judgment was entered in favour of the council on the basis that the duty of care owed by the council was owed to the owners of wholly-residential properties only.
The Court of Appeal decision was appealed to the Supreme Court, and this article reviews the Supreme Court decision. The central issue for the Supreme Court was whether the duty of care owed by the council extended to non-residential buildings. 

Overview
This case involved claims arising out of the construction of a 23-storey building in Byron Avenue on Auckland’s North Shore. The building was primarily to be a hotel with six penthouse apartments (not forming part of the hotel). Therefore, the building was not a purely residential building.
The Court of Appeal, when deciding to strike out the owners’ claims as the building was not purely residential, considered itself bound by two earlier Court of Appeal decisions which provided that local authorities do not owe a duty of care to owners of commercial properties.
Since the present appeal was in the Supreme Court, the Supreme Court could examine whether the Court of Appeal cases were wrongly decided.

The claim and decision
The Supreme Court embarked on “two broad fields of inquiry” in terms of establishing if a duty of care was owed, which can be summarised as:
• proximity (which included the concept of foreseeability of harm), and 
• analysing policy factors which worked for or against imposing a duty of care on the council in this instance.

Proximity/Foreseeability
It was held that there was sufficient proximity as between the council and the unit owners. Central to this conclusion was the fact that it was clearly foreseeable that carelessness on its part may cause loss to the building owners (whether residential or not).
In a lengthy judgment, Judges Chambers and McGrath considered the imposition of similar duties of care in other jurisdictions, and concluded that no other jurisdiction had considered whether a building was used for commercial or residential use, as the dividing line in terms of establishing a duty of care.
Once proximity/foreseeability was established, the Supreme Court examined the policy factors to consider in determining whether to impose the claimed duty of care.

Policy factors
The council ran many policy arguments as to why it was not just and fair to impose a duty of care in this instance, as below:
• The focus of the council’s regulatory role was to protect the health and safety of building users, not to protect the financial interests of the building owners.
• The council should not be providing free warranties as to the standard of building work.
• To impose a duty of care in this instance would cut across contractual relationships that the builder has in place. Commercial building owners engage consultants to manage risks.
• Commercial building owners were not vulnerable to the errors/omissions of the council, and did not rely upon them.
• To impose a duty of care in this instance would transfer the substantial burden of council liability onto ratepayers.
• To impose a duty of care in this instance would result in excessive caution by the council when performing its statutory function.
• It would be difficult to work out, especially in the instance of a mixed-use building, whether a building should be classified as a residential building or a commercial building (where, on the council’s argument, a duty of care would not lie).

The majority of the Supreme Court rejected all of the above policy arguments and concluded that it was just and reasonable to impose a duty of care on the council to commercial building owners.
It was noted that the Building Act 1991 made no distinction between commercial and residential buildings, and that the policy arguments were loaded with assumptions.

Concluding comments
The practical effect of this decision is that commercial building owners can now bring claims in negligence against councils, which is a major development in New Zealand tort law.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.