Timothy Bates and Sabine Boyd of Auckland law firm Legal Vision discuss a case dealing with negligent misstatement in a report concerning the earthquake strength of a commercial building.
This article reviews the recent High Court decision of Oyster Management Ltd and Another v MSC Consulting Group Ltd.
This was a strike out/summary judgment application, on the plaintiffs’ cause of action against MSC, for a report it provided on the earthquake strength of a building.
• In 2003-04, MSC was engaged as a consulting structural engineer to assist in designing and observing construction of a commercial building in Auckland.
• In 2012, as a consequence of the Canterbury earthquakes, many commercial building owners began obtaining seismic assessment of their buildings to assure themselves and their occupants that the buildings were sufficiently earthquake-safe.
The owner of the building in 2012 (Corinthian) commissioned MSC to undertake a seismic assessment of the building, the purpose of which was to assure tenants of the safety of the building, and to assist with tenanting it (or keeping it tenanted).
In 2014, MSC gave the building an NBS earthquake rating of 87% after a detailed assessment.
This was used by Corinthian to assure tenants and prospective tenants that the building was safe.
It is to be noted that MSC provided this assessment with a limitation to the effect that the report was for Corinthian only, and not intended for use by others.
In 2014, Corinthian entered into an agreement for sale and purchase with Oyster Management Ltd (Oyster). Oyster was provided with the MSC report during due diligence.
In 2017, ANZ, a tenant of the building, engaged Beca Ltd to carry out a high-level review of the two reports provided by MSC. Beca concluded that the correct NBS rating was less than 20%.
Ultimately, MSC reviewed its assessment down from 87% to 23%, which meant the building fell well below the 80% threshold of earthquake strength for new builders.
A claim followed thereafter, issued by Oyster against MSC in negligent misstatement, and negligence simpliciter. MSC sought to strike out both claims on the basis that they had no hope of success.
The key elements in a negligent misstatement cause of action are a false and misleading statement:
• Made in circumstances where a duty of care is owed to the plaintiff.
• Reasonable reliance on the statement by the plaintiff.
• Resulting in loss to the plaintiff.
MSC argued that the facts were not capable of establishing a duty of care.
The court ruled that the test it must apply in determining whether the claim should be struck out is whether it is satisfied that the cause of action cannot succeed because the facts cannot ground a duty of care.
The court ruled on the evidence before it, that Oyster’s reliance on the reports of MSC was not so sufficiently unforeseeable to negate any possibility of a duty at this stage.
Commercial buildings are bought and sold, earthquake strength is an important factor, and these reports will be of interest to potential purchasers.
It ruled that a trial was necessary to fully determine questions of proximity. Furthermore, it considered the limitation clause restricting the report’s application, as ambiguous.
In terms of striking out the negligence cause of action, MSC relied upon a limitation defence, namely section 393 of the Building Act 2004, which bars claims being brought for acts or omissions committed more than 10 years before the action was brought.
MSC argued that the engineering work where the error had occurred originated in 2004 and, whilst the 2012 reports replicated the same work, the limitation period continued to run from the original act or omission in 2004.
The court ruled that reports were not deemed to be a continuation of the original work. The claim in negligence was deemed to be statute barred.
As regards the negligence cause of action, there appeared to be a further argument available to Oyster, that the 2014 reports involved new acts or omissions, triggering a further 10-years’ worth of limitation period from this point. It is not clear whether this was argued in or considered by the High Court.
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 or Building Today to anyone who relies on the information contained in this article.