Supreme Court continues to expand scope of Councils' duties to building owners
The Supreme Court has recently explored the limits of a local authority's duty to building owners when issuing code compliance certificates in the case of Invercargill City Council v Southland Indoor Leisure Centre Charitable Trust  NZSC 190.
Previously, Sunset Terraces confirmed that councils owe a duty of care "in their inspection role, to owners, both original and subsequent, of premises designed to be used as homes"(emphasis added) .
Spencer on Byron expanded this 'inspection role' duty to include commercial buildings and non-residential premise .
In Invercargill City Council v Southland Indoor Leisure Centre Charitable Trust the Court confirmed that in issuing Code Compliance Certificates, the Council owes a duty of care in negligence.
When the roof caves in
The Southland Indoor Leisure Centre Charitable Trust (Trust) built the Stadium Southland in the 1990's on land leased from the Invercargill City Council (Council). The Trust engaged its own experts during construction, including an engineer, Mr Major.
During construction, an independent engineer found that Mr Major had miscalculated the loads on the steel trusses, meaning a Building Consent for remedial work was required. A condition of the Consent required that Mr Major provide a Producer Statement for construction review for the remedial work and in particular confirm the truss measurements.
The Council issued a code compliance certificate (CCC) on 20 November 2000 for the remedial work. Significantly, Council did so despite the fact it had not received a Producer Statement from Mr Major, nor any confirmation of the truss details required by the Building Consent. Further, the Council had not inspected the remedial work itself (relying on Mr Major to do so in accordance with the Consent).
The Council issued a CCC for the whole building on 9 April 2003, even though the Producer Statement Mr Major had later provided identified major steel issues and did not confirm the truss measurements, as required by the Building Consent.
The Trust obtained further advice from Mr Harris in 2006 as to the status of the roof, after concerns that the roof of the stadium was leaking, and flexing under heavy wind. As part of this advice, Mr Harris recommended that the Trust arrange for inspection of the trusses to look for degradation. The Trust did not do so.
The underlying faults in the design eventually led to the stadium roof collapsing. The Trust therefore sued the Council in negligence and negligent misstatement.
The High Court considered that the Trust's claim was properly founded in negligence, and held that the Council owed the Trust a duty of care when issuing the CCC for the remedial works.
Dunningham J considered that there was no reason to distinguish Spencer on Byron, and so no reason to find that the Council did not owe a duty to the Trust. Therefore, by issuing the CCC, the Council had breached its duty to the Trust.
The Court considered that there was no contributory negligence by the Trust in failing to inspect the trusses in 2006.
Court of Appeal
The Court of Appeal interpreted Spencer on Byron as limiting causes of action regarding issuing CCCs to negligent misstatement, rather than negligence. Therefore the claim could only be argued in negligent misstatement because the claim was based only upon the issuing of the 20 November 2000 CCC.
In drawing this conclusion, the Court found the Trust had not relied on the CCC being issued when it opened the stadium, reliance being one of the elements necessary to establish negligent misstatement. Harrison and Cooper JJ also considered that it was not fair or reasonable to impose a duty on the Council where the Trust's own contractors had caused the loss.
The Court of Appeal was unanimous in considering that there was contributory negligence on the Trust's part when they failed to inspect the trusses based on Mr Harris' advice in 2006. They fixed the level of contributory negligence at 50%.
The Supreme Court unanimously overturned the Court of Appeal's decision on Council's liability, concluding that the correct cause of action lay in negligence.
The majority considered that there was no valid distinction between the issuing of a CCC, and council's other functions, as the aim remained the same, namely, to ensure buildings comply with the relevant building code. This meant that the duty was not eliminated by another party's negligence or knowledge and, further, the actions and knowledge of independent contractors could not be attributed to the owner. The involvement of other professionals in the construction process did not therefore affect the Council's direct duty.
The Council accepted that, if there was a duty of care owed to the Trust in issuing the CCC, the Council had breached it, and the breach had caused the Trust's loss. The Court agreed that in issuing the CCC without confirming that the information required in the Building Consent (by way of Producer Statement) had been provided, the Council had been negligent.
The Court went on to find that the Trust's actions amounted to contributory negligence, when it failed to inspect the stadium in 2006. The majority agreed with the Court of Appeal's decision to set the level of contributory negligence at 50%.
It is clear from this case that a local authority must take all due care, when issuing CCCs, to ensure that they have confirmed that the works comply with the terms of any Consent granted. While the local authority may rely upon the work of other professionals working on the project when issuing CCCs, this does not obviate their duty to ensure that the terms or conditions of Consent have been fulfilled.
The Supreme Court did not decide the question of whether the Council would be liable if a prima facie compliant Producer Statement had in fact been provided to Council before it issued the CCC, but it was later established that the Producer Statement was false.
This case is an important reminder to Councils to ensure they have robust processes in place to prevent CCCs being issued prematurely. They will also want to ensure they have appropriate insurance cover.