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High Court of New Zealand Decisions |
Last Updated: 4 September 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-7973 [2012] NZHC 2089
UNDER the Weathertight Homes Resolution
Services Act 2006
IN THE MATTER OF an Appeal pursuant to s 93 of the Weathertight Homes Resolution Services Act 2006
BETWEEN BRICHRIS HOLDINGS LIMITED Appellant
AND AUCKLAND COUNCIL First Respondent
AND ALLAN FORSTER IRWIN Second Respondent
AND DEAN CHANDLER Third Respondent
AND WAYNE JOHN MCDONNELL Fourth Respondent
AND BRENT MICHAEL BARRETT Fifth Respondent
AND IGOR ARAKELIAN Sixth Respondent
AND JAN PONICHTERA Seventh Respondent
Hearing: 17 July 2012
Counsel: D K Wilson for Appellant
F Divich for Auckland Council
Judgment: 16 August 2012
JUDGMENT OF MILLER J
BRICHRIS HOLDINGS LIMITED V AUCKLAND COUNCIL HC AK CIV-2011-404-7973 [16 August 2012]
[1] Brichris Holdings Limited brings this appeal from a decision of the Weathertight Homes Tribunal removing the Auckland Council as a respondent to its claim for compensation concerning its two leaky townhouses.
[2] The Tribunal reasoned that Brichris was the developer of the townhouses and a local authority owes no duty of care to a developer.1 Brichris says that the Tribunal was wrong to characterise it as a developer, and argues that its claim ought not to have been struck out in limine.
The procedural setting
[3] The Tribunal’s decision responded to an application by the Council under s
112 of the Weathertight Homes Resolution Services Act 2006. That section provides that the Tribunal may remove a party from proceedings if the Tribunal thinks it fair and appropriate in all the circumstances to do so.
[4] The parties agree that the question is whether the claim against the Council is untenable, and that when answering that question the Tribunal might consider not only the pleadings but also other documents filed and evidence for and against the removal application.2
[5] In this case the record included assessors’ reports and several affidavits. For the Council, Malcolm McCluskey swore an affidavit attaching substantial parts of the Council’s file and reciting the hearsay claims of other respondents about the role played by one of Brichris’s directors, Brian Davis. For the claimant, affidavits were sworn by Mr Davis and Keith MacKinlay and Pamela Clews. The latter witnesses deposed that Mr Davis is a jeweller rather than a builder or developer, and Mr Davis explained how the townhouses came to be developed and what role he played.
[6] The Tribunal had all of this material before it but the application was decided on the papers, so allegations in the affidavits could not be tested. Counsel agree that
1 Brichris Holdings Limited v Auckland Council & Ors WHT TRI 2011-100-16, 14 November
2011.
2 Yun v Waitakere City Council HC Auckland CIV-2010-404-5944, 15 February 2011.
oral evidence and cross-examination will probably be required at the substantive hearing in the Tribunal.
[7] The Tribunal’s decision was a final determination under the Act, and an
appeal lies on law or fact.3
The narrative
[8] The following narrative is drawn from the affidavits, principally that of Mr Davis. Counsel agree that the Tribunal might accept his evidence at the hearing. Put another way, it was not suggested that I should discount his evidence on the ground that it is inconsistent with contemporaneous documents or otherwise lacks credibility.
[9] In September 1997 Brian and Christine Davis signed an agreement to buy
419 Beach Road, Mairangi Bay, from New Zealand Post. The site contains a former Post Office. Mr Davis is a jeweller and Mrs Davis a clothing retailer. Both had existing businesses at Mairangi Bay. They bought 419 Beach Road because they wished to fit out and operate the existing building as a fashion boutique. For that purpose, according to Mr Davis, they formed the appellant, which took title to the property in November 1997. Brichris is an amalgam of their forenames.
[10] However, the Davis’s soon decided to build townhouses on the property, intending that they and members of their family would live there. They have an adult daughter, Jody, who is severally handicapped and needs 24-hour care, and another daughter, Lisa, who assists Christine when required with caregiving and the boutique. The Davis’s envisaged that they and Jody would live in one apartment, while Lisa and her husband might live in the other.
[11] Mr Davis says that they engaged Peter Neeve, a planner, who handled the consent application and all communications with the Council. At his suggestion they
sought permission to build four residential units, anticipating that the Council would
3 Weathertight Homes Resolution Service Act 2004, s 93; and Fenton v Building Code
Consultants Ltd HC Auckland CIV-2009-404-6348, 15 March 2010 at [2].
decline that application but look favourably on two townhouses, which was all they ever intended to build. That is what happened. The property was accordingly subdivided into three; that is, the original building and the two townhouses.
[12] Mr Davis next says that Brichris engaged a builder, Dean Chandler, who had built an extension to a previous family home. That project supplied the couple’s only previous building experience. Mr Chandler recommended a larger firm, Irmac Builders Limited (now in liquidation), which in turn engaged Mr Chandler as its lead tradesman. Gascoigne and Associates, Architects, designed the townhouses and prepared the application for building consent, but they did not manage the construction. Mr Davis maintains that he did not manage it either, although he visited the site regularly. He accepts that he engaged various contractors, including a tiler, but others were subcontractors to the builder.
[13] The Council issued a code compliance certificate for the townhouses on 4
April 2001. At about that time, Mr Davis says, the family decided not to live in them. He explains that they found the living areas too small and realised that because the townhouses are separated from the boutique Jody would be isolated from Christine throughout the day. At about the same time they learned that the District Plan was about to change, allowing an increase in the permissible building height: that meant they could build an apartment over the boutique. They seized the opportunity. When the apartment was completed in 2002 they moved into it and have lived there ever since. I understand they have never lived in the townhouses.
[14] Brichris retains ownership of the townhouses, which are tenanted. The Davis’s say they still have no intention of selling; rather, their daughters will inherit the townhouses in due course.
[15] Brichris lodged its claims with the Weathertight Homes Resolution Services in February 2010. It has been established that the townhouses are leaky buildings. They exhibit defects in roof and balcony edge parapets, window flashings, threshold heights above balconies, and rain head scuppers. The parties include individual builders and various subcontractors, including I am told the tiler engaged by Mr Davis.
The Tribunal decision
[16] The Council moved on 30 August 2011 for an order removing it from the proceeding. The application was dealt with on the papers. The Council asserted that it owes no duty of care to a developer and Brichris Holdings was a developer as that term is used in the authorities. It conceded that Brichris still owns the townhouses, but what mattered was that Brichris bought the property, subdivided it, arranged the development, sought financial gain from the development, and actually received such gain through tenanting the townhouses.
[17] The Tribunal accepted these submissions. It cited Mount Albert Borough Council v Johnson4 for the proposition that a developer owes a non-delegable duty to an intended owner of a home to properly supervise the construction, and Body Corporate No 188273 v Leuschke Group Architects Ltd5 for the proposition that a developer directs a project, invariably for its financial benefit, deciding on the contractors and taking responsibility for implementing and completing the development. It held that “a developer is a developer due to the aspects of its involvement in acquiring the land, changing its landscape, designing and commissioning the build of residential units for return”.6
[18] The Tribunal did not discuss the evidence, concluding simply that Brichris was a developer because it acquired the land and changed its configuration, and designed and caused the building and renovation of a complex of buildings, all for a financial return.
[19] The Tribunal went on to hold that the Council owes no duty of care to a developer. For that proposition it cited Bell v Hughes,7 Three Meade Street Limited v
Rotorua District Council,8 and Zhang, Liu and Boston Trustees 2949 Limited v
4 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA).
5 Body Corporate 188273 v Leuschke Group Architects Ltd (2007) 8 NZCPR 194.
6 Brichris Holdings Limited v Auckland Council & Ors WHT TRI 2011-100-16, 14 November
2011 at [27].
7 Bell v Hughes HC Hamilton A110/80, 10 October 1984.
8 Three Meade Street Limited v Rotorua District Council [2005] 1 NZLR 504.
Waitakere City Council,9 together with the Tribunal’s own decision in Clearwater
Cove Apartments Body Corporate 170989 v Auckland Council.10
Difficulties with the Tribunal’s findings of fact
[20] The Tribunal evidently approached its decision on the assumption that it might not merely consider affidavit evidence but also resolve factual controversies. At the same time it did not explain why it discounted Mr Davis’s evidence, as it must have done to decide that the townhouses formed part of a single development undertaken for financial gain. The Tribunal may have considered mistakenly that its findings were common ground or overlooked the significance of some of the evidence. Whatever the cause, the Tribunal’s conclusion did not confront Mr Davis’s evidence.
[21] Ms Divich pointed out that the overall development involved not only a subdivision but also no fewer than three resource consents, respectively for the boutique fitout, the townhouses and the apartment. But she could not dispute that on the evidence the three stages may have been separate, and in particular, that Brichris may have developed the two townhouses as a discrete project, intending that the family would live in them. That being so, the prospect of financial gain may have lent no greater impetus to the townhouse project than it does for any homeowner who builds a residence intending to live in it and hoping that its value will grow over time.
May the Council owe Brichris a duty of care?
[22] Ms Divich nonetheless maintained that the Council owes no duty of care to Brichris, for territorial authorities owe no duty to developers and Brichris is a developer. In my opinion both premises of this syllogism suffer from the flaw that they assume “developer” has the meaning adopted by the Tribunal. The term
requires more rigorous definition under more recent authorities. Even under the
authorities cited by the Tribunal Brichris could not reliably be characterised as a residential property developer at this stage of proceedings. The question whether a duty of care is owed to this particular plaintiff must be answered on the facts.
[23] Having stated my conclusion, I will explain it as shortly as possible. It is necessary, as counsel recognised, to trace a path through the authorities.
[24] A developer, in ordinary usage, develops land to realise its potential, usually by having something built on it.11 This definition captures anyone who has a home built, whether or not for sale. A narrower concept is needed if courts are to distinguish persons who may be excluded as a class from any duty of care that territorial authorities owe to homeowners.
[25] It is best to take the authorities in chronological order. Mt Albert Borough Council v Johnson was decided in 1979. It concerned a block of flats erected on filled ground in the mid-1960s.12 The foundations did not reach solid ground. The developer had engaged a building contractor, with whom it had a close working relationship, but the trial Judge found that it knew the nature of the ground and held that it should have commissioned test bores to ensure the foundations would be adequate. The plaintiff, a subsequent owner, sued the Council and the developer. The Court of Appeal held both defendants liable, the developer as to 80 per cent.
When addressing the developer’s argument that it ought to be excused because it had engaged a building contractor, Cooke J held that its duty of care was non-delegable, referring to the developer’s commercial objective and the enduring nature of its product:13
In the instant type of case a development company acquires land, subdivides it, and has homes built on the lots for sale to members of the general public. The company’s interest is primarily a business one. For that purpose it has buildings put up which are intended to last for many years and it makes extensive and abiding changes to the landscape. It is not a case of a landowner having a house built for his own occupation initially....
12 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234.
13 At 240-241.
[26] Three Meade Street Limited v Rotorua District Council was decided in 2004. It concerned a commercial building, a motel.14 The plaintiff and owner had also acted as developer and through its director and shareholder it had actually built the motel. Venning J held that the Council’s duty of care did not extend to commercial buildings, but he added that a territorial authority owes no duty of care to a builder whose own defective work caused the damage.
[27] The Building Act 2004 came into force, for the most part, on 31 March 2005. It does not govern the case, but it may nonetheless inform judicial policy choices. In the Act the legislature has identified residential property developers as a class to whom certain obligations attach. Notably, the Act implies into their agreements for sale warranties that the building work will be carried out in a proper and competent manner and with reasonable care and skill, and in accordance with the relevant consent, and where it is apparent that the buyer relies on the developer’s expertise,
that the building and its materials will be reasonably fit for purpose.15 For the Act’s
purposes a residential property developer is a person who, in trade, does any of the following about a household unit for the purpose of selling it: having it built, arranging for it to be built, or buying it from someone who did either of those things. This definition requires not only that a developer build a home or have it built, but also that it do so in trade and for the purpose of sale.16
[28] Returning to the authorities, in Body Corporate 187820 v Auckland City Council (the Trimac case), a 2005 case, Trimac financed a six-unit development and took title as security.17 When the apartments were sold in due course the proceeds were applied to Trimac’s debt. The plaintiffs sued Trimac as the developer, and moved for summary judgment, which Doogue AJ granted. He reviewed the authorities, and held that a developer may owe a duty of care if it was directly involved in, or controlled, the building process, and was in the business of
developing dwellings for other people for profit.
14 Three Meade Street Limited v Rotorua District Council [2005] 1 NZLR 504.
15 Section 397.
16 There was no corresponding definition in the Building Act 1991.
17 Body Corporate 187820 v Auckland City Council [2005] NZHC 65; (2005) 6 NZCPR 536.
[29] Body Corporate No 188273 v Leuschke Group Architects, a 2007 judgment, concerned a set of apartments.18 The owners sued, among others, two men who were the shareholders and directors of the development company, which had gone into liquidation. The question was whether one of them (the other having settled) could be held liable in his personal capacity as the developer. When rejecting that argument Harrison J held that:19
The word ‘developer’ is not a term of art or a label of ready identification like a local authority, builder, architect or engineer, whose functions are well understood and settled within the hierarchy of involvement. It is a loose description, applied to the legal entity which by virtue of its ownership of the property and control of the consent, design, construction, approval and marketing process qualifies for the imposition of liability in appropriate circumstances.
The developer, and I accept there can be more than one, is the party sitting at the centre of and directing the project, invariably for its own financial benefit. It is the entity which decides on and engages the builder and any professional advisors. It is responsible for the implementation and completion of the development process. It has the power to make all important decisions. Policy demands that the developer owes actionable duties to owners of the buildings it develops.
It will be seen that this definition focuses on the developer’s role in directing the development, predictably so given the issue in that case, but it also refers to the developer’s commercial purpose.
[30] Finally, Keven Investments Ltd v Montgomery, a 2012 judgment, is the first of the authorities to refer to the definition of residential property developer in the Building Act 2004. The case concerned a couple whose family trust owned a property on which was a commercial building.20 They built a home intending to live there, but later sold the property. They were sued as the developer. The Tribunal held that they had done no more than build a home for themselves. Woodhouse J agreed. He discounted the notion that liability depends on whether the developer was directly involved in the planning and construction, and identified one essential
requirement for liability as a developer: the person concerned must be in the business
of having buildings erected for the primary purpose of sale to other people.
18 Body Corporate 188273 v Leuschke Group Architects Limited (2007) 8 NZCPR 914.
19 At [31] and [32].
20 Keven Investments Limited v Montgomery [2012] NZHC 1596.
[31] These definitions span a long period of time over which the law governing liability for building defects has evolved substantially. Still, they point to several good reasons why a court might refuse to recognise a duty of care to a person who develops residential property in trade for the purpose of sale; that is, commercially.
[32] First, as a general proposition the risk of defects is inseparable from the quality of the building, which lies within the developer’s control. The developer determines quality in its private interest. Because it controls the design and choice of materials and construction techniques, and because it knows the project in detail, the developer and its agents can normally avoid defects at least cost. By contrast, a territorial authority confers a benefit on the community at large by establishing and policing building standards, and it exercises oversight, not control, of any given building project. It can be said to cause defects only in the secondary sense that it failed, in the exercise of its regulatory responsibility, to detect them.
[33] Two points follow: a developer who claims against a territorial authority may well be seeking compensation for defects the developer itself caused, or at least had a better opportunity to avoid; and courts should deploy tortious liability to ensure the developer experiences an incentive to avoid those defects in the first place. To adapt
a phrase used in Bell v Hughes,21 a territorial authority should not be asked to
compensate a developer for failing to prevent it from doing that which it did badly. Where the plaintiff is a subsequent purchaser, that objective may be achieved by ordering that the developer must pay all or most of the damages, as was done in Mt Albert Borough Council v Johnston.22 In a case such as this, it may be achieved by denying the developer recovery against the territorial authority.
[34] Second, a developer typically employs contractors (architects, builders and tradesmen) and can protect itself by purchasing warranties from them, in contract.23
To hold a territorial authority liable to a developer for economic loss would be to
21 Bell v Hughes HC Hamilton A110/80, 10 October 1984.
22 Mount Albert Borough Council v Johnston [1979] 2 NZLR 234.
23 In Invercargill City Council v Hamlin [1994] 3 NZLR 513 at 520, Cooke P observed that the Court might hold that as among those involved in industrial construction “the network of contractual relationships normally provides sufficient avenues of redress to make the imposition of supervening tort duties not demanded.” See also Three Meade Street v Rotorua District Council [2005] 1 NZLR 504 at [50]-[53].
create substantial asymmetry of risk and reward; the developer would take the gains from the development, while the territorial authority would acquire an obligation tantamount to a warranty, without having been paid adequately for the risk that the court has assigned to it or even knowing the full measure of that risk.24
[35] Third, a person who develops homes in trade for the purpose of selling them is in the business of development. Appellate judgments establish that the territorial authority’s duty of care does not extend to commercial buildings, latterly finding contextual support for that proposition in the Building Acts of 1991 and 2004.25
There is no obvious reason to treat commercial developers of residential buildings differently; they are no less able than owners of commercial premises to look after themselves, which is the most compelling reason for drawing the commercial/non- commercial distinction.
[36] Fourth, it follows that there is no room for a presumption that those who develop property in trade for the purpose of selling it are vulnerable vis-a vis either territorial authorities or their own contractors.
[37] So there are good reasons for denying a residential property developer recovery against a territorial authority. However, Mr Wilson urged me to consider whether “developer”, as used in some authorities and by the Tribunal here, requires modification following the 2010 Supreme Court judgment in Sunset Terraces.26 That judgment reviewed the duty owed by territorial authorities to homeowners including, importantly for present purposes, those who build homes or have them built.
[38] The Supreme Court affirmed that in New Zealand law territorial authorities owe a duty of care to homeowners for economic loss from faulty building work that was negligently passed by authority inspectors. The duty can be traced to the health
and safety responsibilities of territorial authorities for physical injury or harm27 and a
24 A similar point was made in Three Meade Street Limited v Rotorua District Council [2005] 1
NZLR 504 at [50].
25 Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374; Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446; and North Shore City Council v Body Corporate 207624 [2011] NZCA 164.
26 North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158.
27 Dutton v Bognor Regis Urban District Council [1972] 1 QB 373.
presumption that homeowners are vulnerable to latent defects,28 but it was long ago extended to observable defects and economic loss. In Invercargill City Council v Hamlin the Court of Appeal rationalised it by citing homeowners’ presumed reliance upon the expert oversight of territorial authorities; Richardson J referred to the prevalence of single dwellings erected for individual homeowners by “small-scale cottage builders in the 1970s and 1980s, and buyers’ practice of not commissioning independent building surveys before purchase.29
[39] Since then residential apartment complexes such as the 21-unit building in Sunset Terraces have become common. Presumably their construction is not left to small-scale cottage builders. Confronted with such a building, the Supreme Court held that the territorial authority’s duty of care is not confined to traditional single- unit dwellings that are owner-occupied. The duty extends to every building designed, according to plans lodged with the territorial authority, as a home. The Court characterised as arbitrary suggested distinctions based on “ownership structure, size, configuration, value or other facets of premises designed to be used as a home”. Provided the property was designed as a home the owner’s end use is also immaterial: so the duty extends, for example, to those who “have residential
premises built for commercial reasons or who purchase them for such reasons”. 30
The latter passage might be taken to suggest that the duty may extend to those who develop residential property for sale, although Mr Wilson did not go so far. In my opinion the context indicates that the Court had in mind investor owners who purchase for sale or rent.
[40] Nor is the duty confined to subsequent owners who may purchase a property not knowing of some latent defect and without benefit of any warranties that the original owner may have secured from the builder. It appears that an owner for whom the home was constructed may sue the local authority for economic loss despite having engaged architects and builders and other professionals and
tradesmen and having had the opportunity to secure protection in contract. (The
28 Te Mata Properties Limited v Hastings District Council [2008] NZCA 446 at [84], per O’Regan
and Robertson JJ.
29 Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA) at 524-525.
owner and his or her agents may be found contributorily negligent to the extent that they caused the loss or damage.) Finally, the duty now has a broader foundation. It rests not upon the presumed vulnerability of homeowners but upon long-settled community expectations about the responsibilities of territorial authorities.
[41] The question in Sunset Terraces was whether “owners of apartments in substantial complexes built under the Building Act 1991” enjoy the same right to sue a local authority in negligence as was available under Hamlin to the owner of “a modest house”.31 The courts all answered that question in the affirmative, rejecting as practically unworkable a commercial/residential distinction based on a given buyer’s end use for the dwelling. The Supreme Court expressly left for future consideration the question whether the duty may extend to commercial buildings, the
Chief Justice hinting in her separate judgment not that the duty may be extended but that the principles adopted in Sunset Terraces may need limiting to ensure it does not reach so far.32 Commercial character also underpins the developer cases discussed above, some of which the Court would presumably have examined had it intended to change settled law by extending the duty to residential property developers.33
[42] In the High Court Heath J was required to decide whether the developer was liable to later owners. His affirmative decision was not appealed. He held by reference to definitions of dwellinghouse in the Weathertight Homes Resolution Services Acts of 2002 and 2006 that when a building consent is sought the proposed construction can be seen as commercial in nature, and reasoned that a commercial developer differs from a homeowner in its capacity to insure or to protect itself in
contract.34 The distinction which Heath J drew is consistent with the obligations
imposed on residential property developers under the Building Act 2004 and the authorities governing the common law rights of commercial building owners. It is
also workable.
31 North Shore City Council v Body Corporate 188529 [2010] NZCA 64 at [4].
33 Mt Albert Borough Council v Johnson was examined, but not from this perspective.
34 Body Corporate 188529 & Ors v North Shore City Council [2008] 3 NZLR 479 (HC) at [180]
and [198].
[43] This survey of the authorities confirms that a territorial authority still owes no duty of care to a residential property developer, but following Sunset Terraces it is necessary to define that term with some care. It does not include those who build a home, or have one built, hoping to profit from rent or capital appreciation over time. It does include those who build homes, or have them built, in trade and for the purpose of sale.
[44] Of course it is necessary to bear in mind why there is utility in a definition; it is a way of classifying persons, residential property developers, of whom it can be said that the territorial authority owes them no duty of care and that, having put a building into the marketplace, they owe a duty of their own to subsequent purchasers. Classification has its limits. Cases at the margin may turn on considerations such as the plaintiff’s actual reliance on the territorial authority, as evidenced by the plaintiff’s own expertise or its use of professionals.
It cannot presently be said that the Council owes no duty of care to Brichris
[45] It can now be seen that the Tribunal applied an over-inclusive test in this case, focusing too much on Brichris’s role in the subdivision and construction and too little on its original objective for the townhouses. It is a necessary but not sufficient condition that Brichis bought the land, subdivided it, and arranged the construction, and it cannot suffice that Brichris initially hoped to profit through capital gain over time and eventually got an income from rent. The Tribunal ought to have asked whether Brichris developed the townhouses in trade for the purpose of selling them.
[46] For the reasons given at [20]-[21] above the Tribunal was in no position to answer that question summarily. Perhaps Brichris was a residential property developer, but that conclusion depends on facts yet to be found.
Decision
[47] The appeal is allowed. The Tribunal’s decision to remove the Council as a party is set aside.
[48] Brichris will have costs of the appeal on a 2B basis, to be fixed by the
Registrar.
Miller J
Solicitors:
Raymond S Walker, Solicitors, Auckland for Appellant
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