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North Shore City Council v Body Corporate 207624 [2011] NZCA 164; [2011] 2 NZLR 744 (21 April 2011)

Last Updated: 25 January 2018

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IN THE COURT OF APPEAL OF NEW ZEALAND
CA760/2009
[2011] NZCA 164
BETWEEN NORTH SHORE CITY COUNCIL
Appellant
AND BODY CORPORATE 207624
First Respondent
AND CHIA LU SYLVIA CHEN, PETER FREDERICK SMITH AND ROBYN DENISE GRACE AND OTHERS
Second Respondents
AND ADC ARCHITECTS LIMITED
Third Respondent
AND MULTIPLEX CONSTRUCTIONS (NZ) LIMITED
Fourth Respondent
AND CHARCO LIMITED
Fifth Respondent
AND J F SPEEDY
Sixth Respondent
AND M BRANNIGAN
Seventh Respondent


CA70/2010
AND BETWEEN BODY CORPORATE 207624
First Appellant
AND JOHN GILBERT HAWKSLEY AND OTHERS
Second Appellant
AND NORTH SHORE CITY COUNCIL
Respondent
Hearing: 17 and 18 November 2010
Court: Ellen France, Randerson and Harrison JJ
Counsel: D J Goddard QC and S B Mitchell for Appellant in CA760/2009 and Respondent in CA70/2010
M C Josephson and D J Powell for Appellants in CA70/2010 and Respondents in CA760/2009
Judgment: 21 April 2011 at 10 am

JUDGMENT OF THE COURT

  1. The appeals by John Hawksley and others and by Body Corporate 207624 in CA70/2010 are dismissed.
  2. The cross-appeal by the North Shore City Council in CA760/2009 is allowed and summary judgment is entered in its favour.
  1. The North Shore City Council is entitled to costs for a complex appeal on a Band A basis together with usual disbursements. We certify for second counsel.

REASONS

Harrison J (dissenting in part) [1]
Ellen France and Randerson JJ [95]

HARRISON J

Table of Contents

Background [6]
(1) Negligence [15]
Owners’ case [15]
High Court [19]
Common ground [25]
Sunset Terraces [26]
Analysis [30]
(a) Primary argument [31]
(i) Hotel unit owners [35]
(ii) Apartment owners [42]
(b) Subsidiary argument [56]
(c) Conclusion [60]
(2) Negligent misstatement [64]
Owners’ case [64]
High Court [67]
Legal principles [68]
Analysis [72]
(a) Building Act [72]
(b) Owners’ arguments [80]
(c) Conclusion [90]

Introduction

[1] These related appeals and cross-appeals raise again the question of whether and to what extent owners of properties damaged by moisture ingress, colloquially known as the leaky building syndrome, can recover their losses from a local authority. In a series of decisions starting with Invercargill City Council v Hamlin,[1] this Court has held that, when performing their statutory functions of issuing building consents, inspection and approval, territorial authorities owe duties of care to owners of residential properties whether they are stand alone or within a larger block.[2] But the Court has expressly rejected similar duties claimed by owners of commercial properties.[3]
[2] This case raises new factual dimensions, giving rise to a novel issue of law. The subject properties are in the Spencer on Byron, a multi-storey building in Takapuna, Auckland. It is called and run as a hotel with all the associated amenities. While its 249 rooms are individually owned, they are rented almost exclusively to paying guests. Significantly, the complex also includes six residential apartments.
[3] The plaintiffs comprise three classes or groupings. Collectively they sue for the cost of rectifying physical damage to the building as a whole together with lost rental income. The predominant group are the owners of hotel units. The smaller group are three of the apartment owners. Where necessary to distinguish their interests, we shall refer to them respectively as “the hotel unit owners” or “the apartment owners”. Otherwise we shall describe them compendiously as “the owners”. The Body Corporate also sues for its losses.
[4] The specific issue for determination is whether it is arguable on the facts as pleaded or agreed that the North Shore City Council owed a duty of care to any or all of the owners or the Body Corporate. In the High Court, Potter J struck out the hotel unit owners’ alternative claims in negligence and for negligent misstatement but not the three apartment owners’ claims in negligence.[4] The Body Corporate and the hotel unit owners appeal; Council cross-appeals against the Judge’s refusal to strike out the apartment owners claims and to enter summary judgment against all plaintiffs.
[5] We are unanimous in dismissing the appeals by the hotel unit owners and, except to a very limited extent, by the Body Corporate. However, we disagree on Council’s cross-appeal. The majority (Ellen France and Randerson JJ) conclude that it should be allowed; Harrison J would dismiss it and consequently allow the Body Corporate’s appeal in small part. To accommodate this division, separate reasons will be delivered on that discrete issue (see below at [42]–[57] and [95]–[111]).

Background

[6] In summary, the relevant facts as pleaded are as follows. Charco Ltd owned the freehold title to a property at 9-17 Byron Avenue, Takapuna. The company engaged Multiplex Constructions (NZ) Ltd to design and construct the Spencer on Byron Hotel on the site. Multiplex contracted with ADC Architects Ltd to provide architectural services, including preparation of plans and specifications for building consents and for construction of the hotel, observation of the works and practical completion and certification.
[7] In 2000 Charco applied to Council for the building consents necessary to construct the Spencer on Byron. Council issued four consents between January and June 2000. Sequentially, they were for demolition of the existing building; piling, founding and retaining and draining; construction of a podium and tower structure to 20 levels; and architectural and building services and the balance of the structure above level 20.
[8] Multiplex constructed the Spencer on Byron between January and July 2001. ADC undertook architectural services in July 2001 and issued practical completion certificates. Another company carried out cladding works before Council inspected the building work. On 13 July 2001 Council issued a series of code compliance certificates pursuant to the Building Act 1991 for the four building consents issued in 2000.
[9] As constructed, the Spencer on Byron is a multi-level building of 23 floors. It comprises, on the ground and first floors, a hotel lobby and foyer, administrative, entertainment and catering areas (“the podium”); on the second floor, a recreation area including a tennis court, gymnasium and swimming pool; on the second to nineteenth floors, a total of 249 studio and one bedroom units (each having its own unit title issued pursuant to the Unit Titles Act 1972), which are used as hotel rooms and hotel suites; on the twentieth and twenty-first floors, six penthouse apartments (again each having its own title); a basement car park area; and common property as defined by s 9 of the Unit Titles Act.
[10] The plaintiffs did not plead two undisputed facts highlighted by
Mr Goddard QC for Council. First, in 1997 the developer applied to Council for resource consent. The application referred to the “Byron Avenue Hotel”, described as a “Hotel/Apartment Building” with 232 hotel rooms and hotel suites and four apartments. The site was then zoned Commercial 3D in the Transitional District Plan. Residential units were a non-complying activity. Commissioners appointed by Council granted the developer’s application on 31 July 1998.
[11] The developer anticipated that in its first year of operation the hotel would draw $20.3 million into the area. Council knew that the building when constructed would include some apartments on the upper floors. Each building consent issued during construction in 2000 described the building as “New Commercial/Industrial”.
[12] Second, Charco granted 10 year leases for each unit to a hotel management company, NZ Castle Resorts and Hotels Ltd. The leases entitle the lessee to rent the units to members of the public. Charco sold the units to purchasers subject to the 10 year leases to the management company. Spencer on Byron has at all material times been operated as a hotel.
[13] The leases allow the unit owners to use the units on notice for a maximum of 15 days each per year. Alternative accommodation is to be provided if a unit is unavailable. An owner could not legally assume residence of his or her unit on expiry of the lease without obtaining a resource consent from Council.
[14] These facts provide the evidential foundation for the plaintiffs’ case. We shall separately address each of their alternative claims in negligence and for negligent misstatement.

(1) Negligence

Owners’ case

[15] The owners purchased their properties in 2001 except for four who acquired them between 2002 and 2007. The properties later manifested physical defects allegedly due to lack of weathertightness. The Body Corporate and the owners claim that a number of parties involved in the design, construction and approval of the hotel are responsible. In addition to Council, they have sued ADC, the engineer, Multiplex, Charco and the insurer of a cladding company.
[16] We are concerned only with Council’s liability. The owners and the Body Corporate plead that Council owed them a duty to exercise reasonable skill and care when performing its functions under the Building Act 1991 (since repealed and replaced by the Building Act 2004) – principally in issuing the building consents, inspecting the building work and issuing code compliance certificates.
[17] Council allegedly breached its duty and was negligent in:

(a) Issuing the building consents notwithstanding that the plans and specifications submitted for consent did not contain adequate details to satisfy it on reasonable grounds that the building work would comply with the Building Code.[5]

(b) Failing to carry out its inspections of the building work competently in that it failed to identify certain defects which would have been reasonably apparent to a competent inspector. (Those defects are particularised as constituting breaches of the Building Act and of durability and external moisture provisions of the Building Code (cls B2 and E3).)

(c) Failing to identify or advise that the building work did not meet the performance requirements of certain provisions of the Building Code.

(d) Issuing the code compliance certificates when reasonable grounds did not exist on which Council could be satisfied that the building work complied with the Building Code by reason of the defects.

(e) Failing to take steps to have the defects remedied.

[18] As a result of Council’s alleged negligence, the Spencer on Byron complex is said to be suffering from widespread defects in particular in the roof, roof edge, decks and balustrades, cladding and joinery. Extensive remedial work is required. The total estimated cost of repair for the building including all hotel units and apartments is $19.416 million. The owners claim this amount collectively without apportionment between individual hotel units or apartments. Lost rental income or alternative accommodation costs of $2.369 million and general damages of $4.37 million are also claimed (in individual sums of between $15,000 and $25,000).

High Court

[19] Proceedings were issued in the High Court in 2007. Following receipt of a second amended statement of claim in October 2008, Council applied to strike out the proceeding or alternatively for summary judgment. Notices of opposition and further amended statements of claim followed.
[20] In July 2009 Council filed an amended notice of application for strike out orders and for summary judgment. Central to both applications was an argument that Council could not arguably owe the plaintiffs either of the pleaded duties of care. Later that month the plaintiffs filed a notice of opposition.
[21] Potter J’s judgment carefully reviewed the leading authorities – in particular, this Court’s decisions in Te Mata Properties Ltd v Hastings District Council,[6] Queenstown Lakes District Council v Charterhall Trustees Ltd[7] and Hamlin. The Judge concluded that:

(a) An essential element for a local authority’s liability in negligence is that the defective property is the owner’s private dwelling but not necessarily occupied by him or her.[8]

(b) The duty owed by a local authority does not extend to owners of commercial properties.[9]

(c) As a matter of fact, the Spencer on Byron is a multi-storeyed hotel which was developed and operated as a commercial building.[10] The ownership structure is irrelevant.[11]

[22] Specifically, Potter J found:

[97] Nor, in my view, can the possibility that in future some of the units may be used for residential purposes create or impact upon any duty of care by the Council to the plaintiffs. The duties and obligations of the Council under the Building Act 1991 arose at the time the consents and code compliance certificates were issued. The intended use of the building was clearly identified as New Commercial/Industrial in the applications to Council and in the certificates issued, and “Spencer on Byron” was constructed as, and operates as, a hotel. This was its intended, and is its actual, use (with a reservation in respect of the penthouses to which I shall subsequently refer). That there may be potential in future (following expiration of the leases in favour of the hotel management company after ten years or any subsequent term, and dependent upon changes in resource consents), for the units or some of them to be used for residential purposes, cannot impact on any duty of care the Council might have arising from the issue of building consents and code compliance certificates. After all, changes in use of buildings from commercial/industrial to residential and vice versa, are far from uncommon. The potential for changed use, is not a factor which varies the nature of the property in issue here, which is clearly commercial.

[23] Accordingly, Potter J struck out the negligence claims brought by the hotel unit owners and the Body Corporate.
[24] However, the Judge declined to strike out the apartment owners’ negligence claims on the grounds that:

[108] The penthouses were apparently purchased as residential units and are not subject to ten year leases in favour of the hotel management company as are the units on the lower floors. While I am satisfied that the existence of these residential units on the top two floors of the twenty-three level “Spencer on Byron” building, cannot and does not affect the designation of the building as a commercial building, the possibility cannot reasonably be excluded that the three plaintiffs who are the owners of the penthouses, may succeed in establishing against the Council a duty of care based on the Hamlin principle.

[109] While the fourth amended statement of claim pleads at paragraph 42(a) that “Spencer on Byron” “Includes residential units intended for habitation by members of the public”, it would seem to be the situation that the penthouses have at all times been treated differently from the hotel units and have not been under hotel management or operated as part of the hotel.

[110] If the “bright line” approach in [Body Corporate 188529 v North Shore City Council;[12] affirmed in North Shore City Council v Body Corporate 188529 [Sunset Terraces][13]] is the appropriate test, then any claim against the Council by the penthouse owners would fail because the description of the building in consent applications and certificates was “New Commercial/Industrial”. It is fair to say, on that description, the Council could reasonably proceed on the basis that it did not owe a duty of care to any owner or owners in relation to the building generally.

[111] These plaintiffs may also be in difficulty in relation to the “vulnerability” factor and the absence of any expertise vacuum, in relation to which they are in the same situation as all unit holders. Nevertheless, if the penthouses are the private dwellings of the three plaintiffs who own them (and it cannot be fatal to such a claim that ownership is in the name of a company or a trust for, particularly in the case of trusts, that would be so with many private dwellings), I consider the situation in respect of any duty of care to be at least arguable. It would therefore be inappropriate to strike out the claims of these three plaintiffs except under the health and safety head of claim (which cannot succeed on the authority of Charterhall).

Common ground

[25] Before analysing the competing propositions, we record what was common ground between counsel in argument before us:

(a) The Court’s jurisdiction to strike out a proceeding should not be exercised unless it is satisfied that on the facts as pleaded the plaintiffs’ claim is untenable and could not arguably succeed at trial.

(b) Council’s application to strike out must be determined according to the Hamlin line of authority. Its guiding principle is that a local authority owes a duty to owners of residential property to exercise reasonable care and skill when carrying out inspection and approval functions during construction and is liable for loss or damage caused as a result of a breach.

(c) Likewise, the decisions in Charterhall and Te Mata represent good law and local authorities do not owe the Hamlin duty of care to owners of commercial properties.

(d) Significantly, Potter J erred in considering it arguable that Council owed a duty to one group of owners. Each counsel submits effectively that the result must be all or nothing – that is, duties were owed to all owners and the Body Corporate or none. Implicit in that common position is an acceptance that Potter J’s decision cannot stand in its entirety, regardless of which side prevails.

(e) Council will be entitled to summary judgment against all the appellants in CA70/2010 and respondents in CA760/2009 if it establishes that neither of the causes of action in the current amended statement of claim filed by those parties can succeed.[14]

Sunset Terraces

[26] Since we heard argument, the Supreme Court has delivered its judgment in North Shore City Council v Body Corporate 188529 (Sunset Terraces) (Sunset Terraces (SC)).[15] Appeals from two recent decisions of this Court which followed Hamlin were dismissed. In the first case, North Shore City Council v Body Corporate 188529 [Sunset Terraces] (Sunset Terraces (CA)),[16] Council issued a consent to a company to build a 21 unit residential apartment block in Mairangi Bay. All units suffered damage caused by water ingress. In the High Court, Heath J found Council liable to the owners of four units. He dismissed claims by another 12 and the body corporate.[17] This Court upheld the High Court on the four units but allowed a cross-appeal by the other 12 owners and the body corporate.[18]
[27] In the second case, O’Hagan v Body Corporate 189855 [Byron Avenue], Council issued a consent to a company to build a 14 unit block of residential apartments in Byron Avenue (not far from the Spencer on Byron). Some units suffered damage from water ingress. In the High Court, Venning J found for the unit owners.[19] This Court dismissed an appeal by the local authority.[20]
[28] Some relative context to the decision in Sunset Terraces (SC) is necessary. Council advanced both appeals on two broad fronts. The first challenge was to the correctness of Hamlin itself on the premise that a local authority did not owe a duty of care of to homeowners when performing its statutory obligations. The second or fallback argument was that any duty if owed was limited in scope to owner occupiers of low cost individual residential dwellings, necessarily excluding investor owned residential properties.[21] Both challenges were rejected. But it is material to note that Sunset Terraces (SC) was not concerned with the novel issue of mixed use buildings arising on these appeals.
[29] Sunset Terraces (SC) affirms that the scope of the Hamlin duty extends to all residential properties – that is, to properties designed for residential use.[22] In particular it held that:

[48] There is no principled basis for making the Hamlin duty dependent on whether the dwelling in question is stand-alone or part of a block of dwellings, or on how many dwelling units there are in the block. Any such limitation would, in any event, be inconsistent with the rationale for the duty. That rationale is based on the control which councils have over building projects and on the general reliance which people acquiring premises to be used as a home place on the council to have exercised its independent powers of control and inspection with reasonable skill and care and, in particular, to have exercised with reasonable skill and care its powers of inspection of features that will be covered up.

[49] The duty affirmed in Hamlin is designed to protect the interests citizens have in their homes. As a matter of principle and logic that duty should extend to all homes, whatever form the home takes. Distinctions based on the ownership structure, size, configuration, value or other facets of premises intended to be used as a home are apt to produce arbitrary consequences. Furthermore, the Hamlin duty must be capable of reasonably clear and consistent administration.

...

[51] For these reasons we agree with the Court of Appeal that a building’s intended use, in accordance with the plans lodged with the council, is the most appropriate determinant of the scope of the Hamlin duty. Councils owe a duty of care, in their inspection role, to owners, both original and subsequent, of premises designed to be used as homes. This is as far as the Court needs to go for the purpose of deciding the present appeals. Whether, and if so to what extent, a council may owe the same duties of care in relation to other premises should be left to a case in which the issue directly arises.

...

[53] The consequence of the Hamlin duty being formulated in this way is that the Council’s contention that “investor” owners of residential property should not be within the scope of the duty must be rejected. By parity of reasoning the so-called Blue Sky units in Sunset Terraces are not excluded from the duty. The focus is on the use of the premises, not on what relationship their owners have to the premises. The cases of [Bowen v Paramount Builders (Hamilton) Ltd[23]] and [Mt Albert Borough Council v Johnson[24]] are inconsistent with the exclusion from the Hamlin duty of those who have residential premises built for commercial reasons or who purchase them for such reasons. The proposed exclusion would not be consistent with the policy reasons for the duty. Protection of a non-owner occupant, such as a tenant, can be achieved only through a duty owed to the owner, as it is only the owner whose pocket is damaged as a result of the negligence of the building inspector. It is only the owner who can undertake the necessary remedial action.

[54] Nor would the proposed distinction be straightforward to administer in cases where the owner was building or buying for both personal residential purposes and to let or sell other units. As Professor Stephen Todd acknowledges in The Law of Torts in New Zealand the intended use of a building provides a reasonably workable test, at least for most cases.[25] We would add that this criterion best satisfies the purpose of the duty and the need for clarity of application.

(Our emphasis, original footnotes omitted.)

Analysis

[30] The argument before us on the negligence cause of action ranged widely. However, Sunset Terraces (SC) has significantly narrowed the scope of our inquiry by settling a number of the issues which remained in contention before us. For example, it is unnecessary for us to revisit the criteria for determining whether a duty exists or to examine the relevant statutory framework, which occupied a good deal of Mr Josephson’s detailed argument for the owners. As a result, we are able to isolate what appears to be the main point of difference between the parties.

(a) Primary argument

[31] When distilled to its essence, Mr Josephson’s primary argument is that Potter J erred by failing to recognise that the Spencer on Byron has its own unique characteristics. His central premise is that the building is and always was part residential. As a duty would normally be owed to the owners of the residential apartments, he says, the same duty should be owed to the owners of all property units within the same physical structure. In order to restore the hotel unit owners to the position which they would have occupied but for the Council’s breach of duty, it is necessary to repair the entire building. Implicit in this submission, as earlier noted (see above at [25](c)) is Mr Josephson’s acceptance that Council does not owe a duty of care to owners of commercial properties.
[32] In principle, Mr Josephson submits, it is impractical to treat residential and non-residential units differently if they are within the one structure; and illogical that a duty should be owed for part of the building only. He submits that the weathertightness of the entire building is interlinked and indivisible. Mr Goddard endorses that proposition but differs on the result.
[33] It is at this juncture that our reasoning diverges. We are, however, unanimous that Council does not arguably owe a duty of care to the hotel unit owners. While counsel agree on an all or nothing approach – that is, the interests of the two groups of owners are indivisible for the purposes of assessing whether a duty was owed (see above at [25] (d)) – I propose to consider Mr Josephson’s submission by reference to those groups separately. That is because the effect of his global approach is to link the fate of the apartment owners to the hotel unit owners: his purpose is to use the status of the former to dictate the rights of latter.
[34] However, if that argument fails, the apartment owners will be doomed. I am troubled that Mr Josephson’s approach appears to place the interests of the two groups in conflict; and that no principled attempt was made in argument to uphold Potter J’s judgment or reasoning in favour of the apartment owners. For that reason, the question must be examined more closely.

(i) Hotel unit owners

[35] The starting point, on my approach, is to identify the nature of the properties and related ownership interests within the Spencer on Byron complex. They fall into two distinct categories, divided by intended use. The hotel unit owners must be considered first. Whether a duty was owed to them is to be determined, in my judgment, by asking this question: what was the intended use of their individual properties as communicated to Council when carrying out its statutory functions – that is, when issuing building consents, inspecting and issuing code compliance certificates between January 2000 and July 2001?
[36] This test modifies Potter J’s approach of considering the intended use of the building as a whole.[26] When the Supreme Court spoke in Sunset Terraces (SC) of the building’s intended use as the most appropriate determinant of the scope of the Hamlin duty,[27] it was in the context of deciding whether the scope of that duty extended to owners of properties in multi-unit residential buildings irrespective of whether they were investor-owners or owner-occupiers. A different criterion, focussing on the intended use of the component properties themselves, is, I think, required when considering a mixed use structure. Adoption of this test would answer Mr Goddard’s concerns about the inconsistent consequences of applying a test for liability based on the intended use of the building as a whole where different categories of use are considered separately.
[37] Whether on my approach or the approach favoured by the majority, the core facts are incontrovertible, and decisive against the hotel unit owners. The Spencer on Byron itself was designed for a predominantly commercial purpose. The developer communicated to Council that it was to be used primarily as a hotel. Consistently with that designation, each hotel unit was to be rented to fee paying guests for indefinite periods. A resource consent was required, and was granted, to operate the building as a hotel/apartment complex.
[38] Significantly, in this context, Mr Josephson does not argue that the hotel units were designed for residential use. He is not saying that the hotel units fell within the orthodox categorisation of homes. Instead, he is saying that, if one other property within the structure was intended for residential use, then Council would owe a duty to all.
[39] However, we are satisfied that the six apartments are no more than incidental to the hotel units or the commercial nature of the building as a whole. The apartments’ presence within the Spencer on Byron Hotel does not convert its essential character into a residential complex. Nor does it change the nature of the hotel unit owners’ interests from commercial to residential. The scope of Council’s liability cannot be expanded to include a class which is not entitled to protection by the expedient of an argument that a duty owed to one owner in the building equates to an obligation to all. In Mr Goddard’s words, “the apartment tail should not wag the hotel dog”.
[40] Mr Josephson relies also on subsequent events. He refers to Council’s grants of resource consents in 2006 and 2007 to change the use of some hotel units to residential; and to recent applications by the owners of another 87 hotel units for the same consents.
[41] We agree with Potter J.[28] Events post-dating Council’s allegedly negligent performance of its statutory duties are irrelevant if they do not relate to the hotel units’ intended use as communicated to Council in 2000 and 2001. Assessment of the existence of a duty is to be undertaken by reference to the period of Council’s performance of its statutory functions. Otherwise, as Mr Goddard submits, it would be unable to ascertain when embarking on those functions whether or not the circumstances giving rise to a duty then exist. To the extent that supervening facts may be relevant here, the leasing arrangement between Charco and the hotel management company, incorporating the latter’s right to rent the hotel units for hire to members of the general public, confirms the commercial nature of the unit ownership.

(ii) Apartment owners

[42] I consider, contrary to the majority, that the apartment owners warrant separate consideration in the duty analysis. Mr Goddard does not deny that the apartments are of a residential nature. The plans submitted to Council showed the proposed penthouses. Hamlin and Sunset Terraces (SC) reaffirm the liability of local authorities to home owners for failing to perform statutory functions of inspection and approval with proper skill and care. The duty is absolute and its articulation in Sunset Terraces (SC) does not seem to allow for exceptions. It is designed to protect the interests which owners have in their homes; it is owed to all home owners alike without distinctions based on structure, size, value or the nature of ownership.[29] Both the proximity and policy prerequisites of a common law duty of care are satisfied, “embodying what is essentially a social value judgment”.[30]
[43] So, if the apartments were the only properties in the Spencer on Byron complex, Council would plainly owe a duty. What policy reasons might possibly negate its existence in the circumstances of this case? In summary, the available contrary factors are: (1) the presence of commercial properties within the same structure, a mixed use building, to whose owners Council does not owe a duty; (2) the predominantly commercial nature of the building as a whole; and (3) Council’s performance of its statutory functions of investigation, approval and issuing code compliance certificates in relation to the building as a whole.
[44] In my judgment these factors cannot operate individually or collectively at a policy level to displace Council’s liability to the apartment owners. I appreciate that Council performed the same statutory functions relating to the one building throughout the unitary process leading to issuing the code compliance certificates. In logic, as Mr Josephson observes, all the affected owners – even if they form part of two separate groups divided according to different ownership interests – should be entitled to equal protection (or no protection at all). In this case negligent performance of Council’s statutory functions would likely have similar financial consequences for both classes.
[45] However, strict logic does not necessarily prevail over settled principles in the law of negligence. Our law recognises that a breach of a territorial authority’s statutory functions through the oversight and approval phase is actionable by home owners: it does not, however, recognise an actionable right in commercial property owners even though the authority is performing the same type of statutory functions. At an abstract level the distinction defies logical justification. But there is an answer.
[46] The rationale for a duty owed to home owners is the combination of two related proximity elements – general reliance by the owners and the authority’s control over the process.[31] The second element is common to both groups of owners in this case. Critically, the first is absent – or more particularly is not recognised by law – for commercial property owners.[32] Mr Goddard’s submission that the first element is also absent for the apartment owners, because they were no more vulnerable or reasonably reliant on Council than the hotel unit owners, does not survive Sunset Terraces (SC). In this context, proof of actual reliance is unnecessary to the formation of a bilateral jural relationship. Instead, the concept of general reliance by a home owner is generated by community expectations that a territorial authority vested with wide statutory powers to control building work will act with skill and care. The law imposes legal responsibility based upon knowledge of general dependence.[33]
[47] Once this premise of a distinction between the two classes of ownership in the proximity analysis is acknowledged, the abstract logical difficulties go. The consequence is acceptance of a duty to the apartment owners but not to the hotel unit owners. This result has two associated benefits. First, it ensures that the policy rationale underlying Hamlin and Sunset Terraces (SC) is not defeated because a residential dwelling happens to be within a structure comprised of predominantly commercial properties. That would make the existence of a duty conditional upon arbitrary or variable factors and would be unfair.[34] Moreover, this approach does not extend the present scope of a territorial authority’s liability to a new group of owners; it simply applies settled principles to confirm that liability to an existing category, albeit in a novel factual setting.
[48] Second, Sunset Terraces (SC) affirms another important policy objective.[35] The principles in this difficult area of law should be settled and capable of clear and consistent administration. Mixed use buildings are not uncommon. While the overwhelmingly predominant use of the Spencer on Byron is commercial, marginal cases may arise where drawing the line would be difficult and possibly arbitrary. If predominant use, as Mr Goddard submits, is the criterion, there would be uncertainty and unfairness; the anticipated benefit of my approach is predictability.
[49] I appreciate the unusual features of this case arising from the nature of the physical structure, the nature of the damage to the building, the physical location of the apartments, the cost of reinstatement and the ownership structure. In my judgment none of these factors operates to disqualify the existence of a duty; they do not throw into question the residential nature of the apartments. Instead, they are to be taken into account if at all within the related enquiries into causation of loss and damages.
[50] In this respect, the owners’ claim as a whole is for the cost of reinstating damage caused by water ingress to a multi-storey building. The major items of repair are for replacement of the exterior cladding and the roof (it is unclear whether moisture seepage has caused significant internal damage). There is no claim for structural damage.
[51] Mr Josephson may be correct that the weathertightness of the entire building is interlinked and indivisible. But that question is not relevant to the existence of a duty to the owners of properties on the penthouse floors. Plainly each apartment can be made weathertight by repairing damage to or replacing the roof and the immediate exterior cladding. According to a surveyor called for the owners, the exterior face of the wall of each apartment together with a portion of the wall is common property; the interior face together with the balance of the wall, is unit property. This division of ownership does not affect the ability to carry out physical repair or reinstatement; it will simply be reflected in an allocation of loss.
[52] I do not accept Mr Josephson’s submission that the nature of shared ownership under the Unit Titles Act prohibits separation of an owner’s private interests from those as a whole, thereby somehow excluding a separate duty to each owner. An apartment owner will be entitled to be compensated for damage to his or her property, for which each holds a specific certificate of title issued under s 8 of the Unit Titles Act. What is plain is that an apartment owner cannot recover more than either the cost of reinstatement or the diminution in value to his or her unit attributable to Council’s negligence. In an extreme case, the measure of loss may reflect that the apartment is rendered valueless by damage to other parts of the building.
[53] Finally, I understand, no questions arise about imposing differing standards of performance upon Council, to be determined according to whether property is commercial or residential. It is common ground that the same weathertightness standards apply regardless of the nature of intended use of a property.
[54] This is an application to strike out a proceeding. The question is whether a duty is arguable on the facts as pleaded (and expanded). I am unaware of any policy basis for concluding that imposition of a duty in these circumstances would be unfair, unreasonable or disproportionate given the law’s unequivocal recognition of a territorial authority’s duty to a home owner. In my view, great care should be exercised before concluding a duty is not arguable where it prima facie exists, and where further evidence at trial may assist given the paucity of attention paid to the apartment owners’ claim to date.[36]
[55] So, contrary to Mr Josephson’s concession, I am satisfied that Council arguably owed an independent duty of care to the apartment owners. Their claim would, however, require amendment. As noted, all the owners as a single entity presently seek to recover for the total cost of reinstatement of the building as whole. If the apartment owners went to trial, they would have to identify the physical damage to their properties attributable to Council’s negligence and quantify losses accordingly.

(b) Subsidiary argument

[56] Mr Josephson advances a separate argument, based on an analogy between the hotel unit owners in the Spencer on Byron and Blue Sky Ltd, the lessee of 12 units (for 182 week terms) in the Sunset Terraces development. In that case Blue Sky sued Council in its capacity as lessee and assignee of the claims of owners of the leasehold reversion. In the High Court the company failed on the discrete point of whether as lessee it had status to sue. However, this Court allowed Blue Sky’s cross-appeal; it was satisfied that the company held a full ownership interest in the subject residential units and should not be disqualified because it was a commercial investor.[37]
[57] Mr Josephson reasons that the only difference between Blue Sky’s case and this case is the purpose for which the hotel units were leased. In Blue Sky’s case the use was residential throughout. In this case, Mr Josephson says, the hotel unit owners are claiming “in respect of the freehold title after the [10 year] lease has ended”. Therefore, for the purposes of this analysis, the hotel units are residential.
[58] It is difficult to follow this argument, not the least because it contradicts the acceptance implicit in Mr Josephson’s primary argument that the hotel units are not residential. In any event, it was apparently common ground in the Sunset Terraces litigation that the 12 Blue Sky units were residential. There, Council’s unsuccessful defence was based upon the company’s commercial interest in the units as an investor. Sunset Terraces (SC) confirms that the focus is on the use of the premises, not on the legal relationship of the owner to the unit or the ownership structure.[38]
[59] Thus the Hamlin duty is not excluded for those who have residential premises built or who purchase them for commercial reasons. Blue Sky’s 12 units were designed and constructed as residential premises, and Council owed a duty accordingly. In decisive contrast, the hotel units in Spencer on Byron were designed as hotel, not residential, premises.

(c) Conclusion

[60] It follows that we are satisfied Potter J correctly struck out the claims in negligence by all hotel unit owners.
[61] I differ from the majority, however, in concluding that Potter J correctly dismissed Council’s application to strike out the apartment owners’ claims in negligence. Her finding of arguability was based on the grounds that the apartments have always been in private ownership for purely residential purposes and have never been under hotel management or operated as part of the hotel.[39] While neither counsel relied on that reasoning, I am satisfied that the Judge’s conclusion is sustainable on other grounds.
[62] Mr Josephson accepts that the Body Corporate’s claim stands or falls with the owners’ claims. A claim by a body corporate relating to common property is brought on behalf of owners as their agent. It is thus subject to all the limits and defences which are available against the owners as principals.[40] The Body Corporate’s claim must normally suffer the same fate as the owners’ claims.
[63] However, given my conclusion that a duty was owed to the apartment owners, the Body Corporate would have a claim to the limited extent of damage to common areas which can be allocated to apartment owners as a proportion of the total claim. Mr Josephson points to expert surveying evidence that both sides of the exterior wall of each penthouse together with a portion of the wall is common property. That entitlement is likely to be very modest but in my view it is nevertheless recoverable. To that limited extent, I would allow the Body Corporate’s appeal.

(2) Negligent misstatement

Owners’ case

[64] We now consider the separate claims by some 200 original purchasers on the alternative but related cause of action of negligent misstatement, based upon the four code compliance certificates issued by Council on 13 July 2001 (see at [8] above). On this issue we are unanimous.
[65] In particular, the owners allege that:

(a) each code compliance certificate was a statement by Council that as at its date of issue it was satisfied on reasonable grounds that the construction authorised by the building consents complied with the building code;

(b) Council owed them a duty to exercise reasonable care and skill in issuing the certificates;

(c) in breach of its duty, Council issued the certificates without reasonable grounds for satisfaction that the building complied with the Building Code;

(d) the certificates constituted negligent misstatements by Council; and

(e) they relied on the certificates in proceeding to purchase their properties and have suffered loss as a result.

[66] Eight owners expanded on this pleading by affidavits, apparently filed in a representative capacity. Each refers to a provision in the standard form agreement for sale and purchase whereby Charco undertook to provide on settlement an interim code compliance certificate for each unit; and within a reasonable time thereafter to provide a copy of the final certificate “issued by the relevant authority for the building”. None of the deponents has, however, claimed actual reliance on the certificates. Each says words to the effect that when signing the agreement he or she trusted Council or believed that it had properly discharged its obligations. We will return to this particular point.

High Court

[67] Potter J was satisfied, following Attorney-General v Carter,[41] that the owners’ claim for negligent misstatement could not possibly succeed.[42] She held that the owners would be unable to establish an essential element of their case – that is, that they reasonably relied on the certificates to claim protection against economic loss. That purpose is different from that for which the certificate was issued under the Building Act.

Legal principles

[68] In Carter this Court struck out a claim brought by a boat owner. He alleged that he had purchased his vessel in reliance on an interim certificate of survey issued by the Ministry of Transport according to its statutory obligations. The ratio of the Carter decision is as follows:

[26] In most cases, however, there will be no voluntary assumption of responsibility. The law will, however, deem the defendant to have assumed responsibility and find proximity accordingly if, when making the statement in question, the defendant foresees or ought to foresee that the plaintiff will reasonably place reliance on what is said. Whether it is reasonable for the plaintiff to place reliance on what the defendant says will depend on the purpose for which the statement is made and the purpose for which the plaintiff relies on it. If a statement is made for a particular purpose, it will not usually be reasonable for the plaintiff to rely on it for another purpose. Similarly, if the statement is made to and for the benefit of a particular person or class of persons, and the plaintiff is not that person or within that class, it will not usually be reasonable for the plaintiff to place reliance on it so as to oblige the defendant to assume responsibility for carelessness in its making.

[27] Hence, before the law of torts will impose on the author of a statement a duty to take care the plaintiff must show that it is appropriate, on the foregoing basis, to hold that the author has or must be taken to have assumed responsibility to the plaintiff to take reasonable care in making the statement. If that is shown, the necessary proximity will have been established, leading to a prima facie duty of care. The second inquiry is of course whether policy considerations negate or confirm that prima facie duty. When, as in the present case, the environment which brings the parties together is legislative, the terms and purpose of the legislation will play a major part in deciding the issues which arise. It is the legislation which creates and is at the heart of the relationship between the parties. It will often contain policy signals bearing on that aspect of the inquiry.

[69] Carter’s focus on the reasonableness of reliance, determined by the touchstone of the purpose of the statement, adopts in substance – but without discussing – the test formulated by Richmond P in Scott Group Ltd v McFarlane.[43] The President’s dissenting judgment in Scott Group was expressly approved and applied by Lord Bridge in Caparo Industries plc v Dickman.[44] In the same case Lord Oliver examined the statutory purpose of an annual audit and reports prepared as a consequence,[45] before summarising the necessary prerequisites of a claim for negligent misstatement as follows:[46]

What can be deduced from the [Hedley Byrne & Co Ltd v Heller & Partners Ltd[47]] case, therefore, is that the necessary relationship between the maker of a statement or giver of advice (“the adviser”) and the recipient who acts in reliance upon it (“the advisee”) may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment. That is not, of course, to suggest that these conditions are either conclusive or exclusive, but merely that the actual decision in the case does not warrant any broader propositions.

[70] We add that the torts of negligence simpliciter and negligent misstatement share common elements of proximity, in particular reliance. However, in this discrete area of local authority liability, the law exempts a home owner suing in negligence from the requirement to establish actual reliance. It recognises that purchasers of residential premises rely in a general sense on local authorities to act carefully when fulfilling their statutory duties and reliance is assumed without proof.
[71] By contrast, the discrete tort of negligent misstatement requires proof both of actual reliance and of its reasonableness. The latter is designed to limit the scope of potential liability, consistent with the underlying policy touchstone of what is fair, just and reasonable. This limitation – introduced through the mechanism of foreseeability – emerged as a dominant feature in Caparo. The purpose for which the impugned statement was prepared controls the reasonableness of reliance. And direct dealing between the parties or their representatives is normally required to satisfy the separate proximity component of actual reliance if a Court is to find a special relationship of the type justifying liability on one party to another for want of care in making a statement. Then the maker may be said to have assumed a responsibility to the recipient for the statement’s accuracy, truth or reliability.

Analysis

(a) Building Act

[72] A brief survey of the Building Act 1991[48] shows that Council issued the certificates for a purpose unrelated to that asserted by the owners. The statute’s purpose was to consolidate and reform the law relating to building and provide for its better regulation and control. In accordance with that description, its purpose was to provide for:[49]

(a) Necessary controls relating to building work and the use of buildings, and for ensuring that buildings are safe and sanitary and have safe means of escape from fire; and

(b) The co-ordination of those controls with other controls relating to the building use and the management of natural and physical resources.

[73] In order to achieve that purpose, particular regard was required to the need to safeguard people from possible injury, illness or loss of amenity in the course of using any building.[50] Furthermore, all building work was to comply with the Building Code.[51] Territorial authorities assumed specific functions and duties. Among them were receipt and consideration of applications for building consents and issuing code compliance certificates.[52]
[74] Building work was prohibited except in accordance with a consent which an owner was to apply for to a territorial authority before carrying out any building work.[53] A detailed process was provided.[54] Upon completion of the building work, the owner was bound to apply for a code compliance certificate, which could be issued by either a building certifier or the relevant authority.[55] If the certificate was sought, the authority was bound to issue it if satisfied on reasonable grounds that the building work to which the certificate related complied with the building code.[56]
[75] The code compliance certificate itself is a two page, functional document. The first page briefly recites the building consent number, the project location, project description, legal description and the building’s intended life. The second page describes the type of work and provides for a number of one line requirements of a technical nature.
[76] The Building Code sought to give practical effect to the statutory purpose. The relevant objectives are similarly framed; for example, cl B1 containing structural provisions, states that its objective is to:

(a) Safeguard people from injury caused by structural failure,

(b) Safeguard people from loss of amenity caused by structural behaviour, and

(c) Protect other property from physical damage caused by structural failure.

[77] The objective of the external moisture provisions, cl E2, is:

... to safeguard people from illness or injury which could result from external moisture entering the building.

[78] The functional requirement, provided by cl E2.2, is that:

Buildings shall be constructed to provide adequate resistance to penetration by, and the accumulation of, moisture from the outside.

[79] Based on this survey, as Potter J found, following Charterhall,[57] the legislative purpose behind the Building Act 1991 was to protect health and safety, not economic interests. Nevertheless, Mr Josephson advances a number of arguments to the contrary.

(b) Owners’ arguments

[80] First, Mr Josephson contends that Potter J erred in applying Carter. He submits that Carter is distinguishable because the owners’ claims do not seek to recover pure economic loss. He says it is within the Building Act’s purposes to allow a building owner to seek correction of non-compliance with the Building Code, being an interest the statute was intended to protect.
[81] We agree with Mr Goddard’s answer. There is no link between a remedy for non-compliance with the Building Code, for which there are specific mechanisms under the Building Act, and an award of compensation for the owners. Moreover, the owners seek to recover for all their losses, not for particular defects resulting from non-compliance with the Building Code. Council’s duty to issue code compliance certificates was not, we repeat, for the purpose of sparing or excusing an owner the cost of rectifying defects. It was to protect the users of the building against risks to health and safety.
[82] Second, Mr Josephson seeks support from the Byron Avenue case,[58] citing this passage from Venning J’s judgment at first instance:[59]

In issuing this statement, knowing that it could be used by the existing owner of the property and indeed could be relied on by that owner and any subsequent owner the Council was in a position of special relationship with the existing and subsequent owners of unit 3. The Council had special skill and knowledge about building controls relating to the construction of Byron Avenue under the Building Act 1991 and the Building Code. It assumed responsibility for its statement about unit 3 which was provided to Mr Kennett and Ms Blackie as interested purchasers.

(Our emphasis.)

[83] Mr Josephson submits that the “statement” referred to by Venning J was council’s “certificate confirming ... approval”. In fact, as this Court confirmed on appeal, the statement was a letter written by Council to the vendor’s solicitor in response to the purchasers’ direct inquiry. The letter affirmed the vendor’s completion of work according to the approved plans and the imminent issue of a final code of compliance certificate.[60] Mr Kennett and Ms Blackie, unlike other purchasers, relied directly on Council’s assurance. It was a classical Hedley Byrne case of negligent misstatement, where Council gave specific advice in answer to a specific request with the intention that it be acted upon. Byron Avenue is remote from these facts.
[84] Third, Mr Josephson cites Vining Realty Group Ltd v Moorhouse,[61] where a local authority was found liable in negligence to a party which purchased a property intending to pursue a viticulture venture. The buyer placed specific reliance on a Land Information Memorandum (LIM) issued under s 44 of the Local Government Official Information and Meetings 1987. This Court examined the statutory purpose of a LIM[62] and accepted that the local authority issuing a LIM owed a duty of care to the purchaser. In particular, it recognised the practice of purchasers to obtain and rely on LIMs and the associated direct dealing between the requesting party and the territorial authority.[63] Significantly, the LIM was issued in response to an express application, establishing the necessary degree of reliance.
[85] Despite Vining Realty’s distinguishing features, Mr Josephson draws a direct analogy between a code compliance certificate and a LIM. He says that, for these purposes, the two are interchangeable. So, if a purchaser requires a warranty that a certificate has been issued before committing to the purchase, he or she should have a right of recovery if it later transpires that the certificate should not have been issued. Mr Josephson’s proposition is that local authorities are or should be aware that agreements for sale and purchase frequently make settlement conditional upon delivery of a certificate. In itself, he submits, this factor is sufficient to establish specific reliance.
[86] We do not accept Mr Josephson’s submission. A LIM, as its name suggests, is prepared on request by an authority to convey information to a third party. As we have explained, a code compliance certificate fulfils a very different statutory purpose. Council’s knowledge that agreements for sale and purchase are often conditional on provision on a certificate is irrelevant. Moreover, this factor only goes to reasonableness of reliance, not the separate component of actual reliance.
[87] In this respect, Mr Josephson’s argument exposes an independent flaw in the owners’ negligent misstatement claim. As noted, none of the eight owners who swore affidavits asserts specific or actual reliance. Instead, such reliance as can be inferred is of a passive or indirect nature.
[88] Mr Goddard submits, and we agree, that general reliance on the existence of a statement is insufficient to found liability.[64] Something further is required. There must be specific reliance on the features of the statement. The owners do not suggest that their decisions to enter into the agreements for sale and purchase were influenced in any way by the contents of the certificates. To succeed, the owners must show that they took into account and relied upon the information contained in documents before agreeing to purchase. That element is singularly absent in the evidence adduced to date.
[89] Moreover, we note, the agreements simply suggest that settlement was subject to the formality of Charco supplying copies of the certificates. An owner had no right, for example, to avoid a contract if he or she was dissatisfied with a certificate’s contents; provision of copies, regardless of content, was sufficient to oblige an owner to settle.

(c) Conclusion

[90] In summary, the owners’ claims in negligent misstatement must fail. On the pleaded facts they are unable to prove that: (1) the information contained in code compliance certificates issued by Council on 13 July 2001 was given for the purpose of enabling them to enter into or complete agreements for sale and purchase; (2) that Council knew either actually or inferentially that the information would be communicated to the owners for that purpose; (3) that Council knew the information was likely to be acted on for that purpose without independent inquiry; and (4) that the owners relied upon the particular information contained in the certificates – not just the certificates themselves – to their detriment in deciding to sign the agreements.
[91] Council issued the code compliance certificates for a specific statutory purpose. Charco’s contractual obligation to provide copies did not create an independent duty on Council to the owners relating to the accuracy of the certificates. Accordingly, we are satisfied that Council did not assume a responsibility to the owners when issuing its code compliance certificates. We agree with Potter J that the owners’ alternative claim for negligent misstatement is unsustainable and was properly struck out.

Result

[92] The appeals by John Hawksley and others and by Body Corporate 207624 in CA70/2010 are dismissed.
[93] The cross-appeal by the North Shore City Council in CA760/2009 is allowed and summary judgment is entered in its favour.
[94] The North Shore City Council is entitled to costs for a complex appeal on a Band A basis together with usual disbursements. We certify for second counsel.

ELLEN FRANCE AND RANDERSON JJ

[95] We are indebted to Harrison J for his succinct and helpful statement of the facts and issues relevant to these appeals. We agree with him that the cause of action for negligent misstatement was properly struck out but we do not, with respect, agree with his conclusion that it is arguable that the Council owed the owners of the residential apartments a duty of care.
[96] As Harrison J observes, it is now indisputable that the Hamlin duty of care is owed to the owners of premises intended for use as a home, whatever form the home takes.[65] The intended use is to be established on the basis of the plans lodged with the Council.[66] It is also common ground that the Hamlin duty of care is not owed to the owners of commercial premises for the reasons discussed by this Court in Te Mata Properties Ltd v Hastings District Council[67] and Queenstown Lakes District Council v Charterhall Trustees Ltd.[68] We were not asked to revisit the principles established in those cases.
[97] To date, the courts have not been called upon to consider the duties of councils in terms of Hamlin in a case where the building at issue has both commercial and residential elements. The proposition advanced for the appellant unit owners in the present case is that if a small number of the units in a multi-level hotel are intended for residential use, then the Council owes the Hamlin duty of care to the owners of every unit in the building even though the intended use of the vast majority of them are admittedly commercial in nature.
[98] We agree with Harrison J that this proposition must be rejected. However, we disagree with his view that, in the circumstances of this case, it is arguable that the Council owed a Hamlin duty to the owners of the residential apartments alone and that their claims could arguably be severed from those of the owners of the hotel units.
[99] For present purposes, the key facts stated in the pleadings or which are undisputed are:
[100] Counsel agreed that this was an “all or nothing” case. Mr Josephson contended for the appellant unit owners that the Hamlin duty applied to the owners of all the units irrespective of whether they were used for commercial or residential purposes. Mr Goddard QC submitted for the Council that no duty of care was owed by the Council for any of the units. Neither counsel suggested it was feasible to approach the case by viewing separately the residential and commercial components and allowing the claim to remain only so far as it related to the residential component.
[101] Mr Josephson submitted, without contradiction by Mr Goddard, that:
[102] We agree with Harrison J’s conclusions as expressed at [39]. For convenience, we repeat those conclusions here:

... we are satisfied that the six apartments are no more than incidental to the hotel units or the commercial nature of the building as a whole. The apartments’ presence within the Spencer on Byron Hotel does not convert its essential character into a residential complex. Nor does it change the nature of the hotel unit owners’ interests from commercial to residential. The scope of Council’s liability cannot be expanded to include a class which is not entitled to protection by the expedient of an argument that a duty owed to one owner in the building equates to an obligation to all. In Mr Goddard’s words, “the apartment tail should not wag the hotel dog”.

[103] Where we part company with Harrison J is with his conclusion that it is appropriate in the circumstances of this case to impose a duty of care on the Council solely in relation to the owners of the residential apartments. As we see it, the ultimate question is whether it is fair, just and reasonable to impose a duty of care upon the Council in the exercise of its regulatory functions under the Building Act in respect of a major commercial building which happens to have a minor residential component. This question entails consideration of whether there is sufficient proximity for a duty of care to be imposed and whether policy considerations support the imposition of a duty.[70]
[104] The Supreme Court has clarified in Sunset Terraces[71] that the rationale for the Hamlin duty is based upon the control which councils have over building projects and on the general reliance which people place on councils when acquiring premises to be used as a home. The issue of council control is a neutral factor here since councils have control over the issue of building consents for both commercial and residential building components. As to general reliance, we do not consider the Council ought reasonably to have foreseen that purchasers of the residential apartments would place reliance on the Council in a situation where they were effectively buying into an entire complex in which the residential component represented only a small fraction of a building functioning as a substantial hotel. In those circumstances, the law should not deem the Council to have assumed responsibility.[72] It would follow that the necessary degree of proximity is not established.
[105] We also consider that the practical implications of finding a duty of care in respect of the residential component deserve substantial, if not decisive, weight. In the circumstances of this case, the parties agree that it is simply not feasible to isolate the waterproofing issues by reference to the residential and commercial components in the building. The building has been constructed as an integrated whole and the water ingress problems are said to be widespread throughout the building. The pleaded allegations focus on water ingress through the roof, exterior cladding, decks, balustrades and joinery. The exterior cladding is the common property of the owners of both the commercial and residential components and, we would assume, similarly for the roof. As Mr Josephson accepted, in order to restore the position of the owners of the residential apartments, the entire building must be repaired.
[106] To impose a duty of care solely in respect of the residential component in the circumstances of this case would not be fair, just and reasonable. To do so would be to impose different tortious duties on the Council in respect of the residential and commercial components of the building, with no logical justification given the acceptance by the parties of the integrated nature of the building and the indivisibility of the watertightness issues affecting the entire building. Nothing in the statutory scheme requires that.
[107] It also needs to be kept in mind that the requirements of the Building Code in relation to some building issues differ depending on the nature of the building’s use. This fact tends to suggest that, at least in some cases, material differences in the Code’s requirements would militate against differing duties of care being imposed in a building with both commercial and residential components.
[108] We accept the general desirability of a test which has clarity of application, a point emphasised by the Supreme Court in Sunset Terraces.[73] This was a factor supporting the Supreme Court’s conclusion that the Hamlin duty of care should extend in principle to all buildings designed to be used as homes, whatever form the home takes and whether they are acquired for personal occupation or for investment purposes. But the Supreme Court’s comments were not made in the context of a building with mixed use components as in the present case. Any duty imposed on councils in this context must be reasonably workable as the Supreme Court also stated.[74] Here, the parties agreed that it would not be workable to impose the Hamlin duty in relation to the minor residential component of a large commercial hotel.
[109] There may be cases where it is feasible for watertightness purposes to separate out a residential component in a commercial building. But, even then, we consider that an assessment needs to be made of the extent and nature of any such residential component. We would adopt the language used by Harrison J at [39] of his judgment. If the residential component is no more than incidental to the commercial component of a building and does not change its essential character as a commercial building, then the Hamlin duty should not be imposed on a council. On the other hand, if the residential component is more than incidental to the commercial component and is a substantial component in its own right, different questions may arise and it is possible that the Hamlin duty may then be imposed.
[110] We appreciate that this approach does not produce a “bright line” distinction which would be simpler to administer. But we do not consider it is fair, just and reasonable in the case of mixed use buildings to impose the Hamlin duty on councils in relation to any residential component irrespective of its extent and nature and regardless of the practicability of separating the watertightness issues between residential and other components. Equally, we do not consider it appropriate to impose a Hamlin duty on councils in relation to an entire building in which a residential component is but a minor element.

Conclusion

[111] We conclude that the appeal by the Council (CA760/2009) must be allowed and summary judgment entered in favour of the Council (as counsel agreed should be the consequence if the Council’s appeal succeeded). It also follows from our conclusion that the appeals by the Body Corporate and by the individual unit owners (CA70/2010) must be dismissed.


Solicitors:
Heaney & Co, Auckland, for appellants in CA760/2009 and respondent in CA70/2010
Grimshaw & Co, Auckland, for respondents in CA760/2009 and appellants in CA70/2010

[1] Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA); affirmed in Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC); North Shore City Council v Body Corporate 188529 [Sunset Terraces] [2010] NZCA 64, [2010] 3 NZLR 486; O’Hagan v Body Corporate 189855 [Byron Avenue] [2010] NZCA 65, [2010] 3 NZLR 445.

[2] Since these appeals were argued, the Supreme Court has affirmed the Hamlin line of authority: see North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158.

[3] Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460; Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786.

[4] Body Corporate No 207624 v North Shore City Council HC Auckland CIV-2007-404-4037, 11 November 2009.
[5] The operative Building Code was the first schedule to the Building Regulations 1992.

[6] Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460.

[7] Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786.

[8] At [92].

[9] At [93] and [94].

[10] At [95].

[11] At [96].
[12] Body Corporate 188529 v North Shore City Council [2008] NZHC 2300; [2008] 3 NZLR 479 (HC).

[13] North Shore City Council v Body Corporate 188529 [Sunset Terraces] [2010] NZCA 64, [2010] 3 NZLR 486.

[14] High Court Rules, r 12.2.

[15] North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158 [Sunset Terraces (SC)].

[16] North Shore City Council v Body Corporate 188529 [Sunset Terraces] [2010] NZCA 64; [2010] 3 NZLR 486 [Sunset Terraces (CA)].

[17] Body Corporate 185529 v North Shore City Council [2008] NZHC 2300; [2008] 3 NZLR 479 (HC).

[18] Sunset Terraces (CA).

[19] Body Corporate 189855 v North Shore City Council HC Auckland CIV-2005-404-5561, 25 July 2008.

[20] O’Hagan v Body Corporate 189855 [Byron Avenue] [2010] NZCA 65, [2010] 3 NZLR 445.

[21] Sunset Terraces (SC) at [27]–[54].

[22] At [46].
[23] Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA).
[24] Mt Albert Borough Council v Johnson [1979] NZCA 46; [1979] 2 NZLR 234 (CA).

[25] Stephen Todd (ed) The Law of Torts in New Zealand (5th ed, Brookers Ltd, Wellington, 2009) at 282–283.

[26] At [97] and [110]; see above at [22] and [24].

[27] Sunset Terraces (SC) at [51]; reproduced above at [28].

[28] At [97]; see above at [22].

[29] Sunset Terraces (SC) at [49].

[30] Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA) at 528, referred to in Sunset Terraces (SC) at [20].

[31] Sunset Terraces (SC) at [48].

[32] Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786 at [39] and [45].

[33] Williams v Mt Eden Borough Council [1986] 1 NZBLC 102,544 (CA) at 551 per Casey J, approved in Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) at 517; Invercargill City Council v Hamlin [1994] 3 NZLR 513 at 525–527 per Richardson J; Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424 at 464 per Mason J.

[34] Sunset Terraces (SC) at [48].

[35] Sunset Terraces (SC) at [49]; see also Sunset Terraces (CA) at [147] and [216].

[36] Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [124], [126] and [130].

[37] Sunset Terraces (CA) at [179]–[186].

[38] Sunset Terraces (SC) at [53].

[39] At [109].

[40] Sunset Terraces (CA) at [101]–[105] and [182].

[41] Attorney-General v Carter [2003] NZCA 48; [2003] 2 NZLR 160 (CA).

[42] At [102]–[107].

[43] Scott Group Ltd v McFarlane [1977] NZCA 8; [1978] 1 NZLR 553 (CA) at 566.

[44] Caparo Industries plc v Dickman [1990] UKHL 2; [1990] 2 AC 605 (HL) at 623–624; see also Boyd Knight v Purdue [1999] 2 NZLR 278 (CA) at [45].

[45] At 629–632.

[46] At 638.
[47] Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] 1 AC 465 (HL).

[48] Repealed as from 31 March 2005 by the Building Act 2004.

[49] Section 6(1).

[50] Section 6(2).

[51] Section 7.

[52] Sections 24(b) and 24(f).

[53] Sections 32 and 33.

[54] Section 34.
[55] Sections 43(3) and 56(3).

[56] Section 43(3).

[57] Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786 (CA) at [42]–[45].

[58] Body Corporate 189855 v North Shore City Council HC Auckland CIV-2005-404-5561, 25 July 2008.

[59] At [174].

[60] O’Hagen v Body Corporate 189855 [Byron Avenue] [2010] NZCA 65, [2010] 3 NZLR 445 (CA) at [20]–[22].

[61] Vining Realty Group Ltd v Moorhouse [2010] NZCA 104 at [94], [96] and [97].

[62] At [72]–[91].

[63] At [94].

[64] Purdue v Boyd Knight [1999] 2 NZLR 278 (CA) at [58]–[60].
[65] North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158 at [49].
[66] Sunset Terraces at [51].
[67] Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460.

[68] Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786.

[69] Citing in support of this submission two cases in relation to body corporates: Body Corporate 172108 v Meader HC Auckland CIV-2009-404-6868, 3 March 2010 per Heath J at [21]–[26]; and Simons v Body Corporate Strata Plan No 5181 [1980] VicRp 12; [1980] VR 103 (VSC) per Lush J at [108].

[70] Attorney-General v Carter [2003] NZCA 48; [2003] 2 NZLR 160 (CA); Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2004] NZCA 97; [2005] 1 NZLR 324 (CA); Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95 (CA); and Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [78].
[71] At [48].

[72] The Supreme Court in Sunset Terraces at n 70 observed that the Privy Council in Hamlin at 521 confirmed the importance of the “twin concepts of assumption of responsibility and reliance by the subsequent purchaser”.
[73] At [54].
[74] At [54].

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