Saturday, October 10th, 2009

Building disputes — claims against local authorities.

Although Central Otago has been somewhat lucky in that there have been very few leaky homes cases, there are lessons to be learned from these cases.

In many instances, homeowners have taken action against local authorities, architects, engineers, builders, project managers, suppliers and personnel working on the job.  Sometimes, all of these people are involved in the same proceedings.

Plaintiffs adopt a scattergun approach in the hope that some shops at least will hit a target.

Sometimes, I suspect, proceedings are issued on tenuous grounds in the hope that a party will compromise rather than go through the time and expense of litigation.

Sometimes, and to be fair more often than not, plaintiffs are driven to look wherever they can for remedies because everybody ducks for cover and disavows responsibility — or the means to satisfy any liability.

I propose posting a series of articles about potential liability of building companies, directors, employer’s and other people associated with the construction of a building.

It will become quite apparent that the Courts will not hesitate to impose liability on people responsible for any defects where those defects lead to property damage or danger to life or limb.

The courts will go behind the corporate structures of development companies or builders trading as an incorporated company and focus on who may be responsible.

Builders and those involved in the industry should be aware of the extent to which aggrieved leaky homeowners have been forced to pursue whatever remedies are available against whosoever may be solvent.  The legal principles apply to defective building work causing property damage or danger — not just to leaky homes.

There is another clear message.  Litigation is an extremely expensive way of resolving building disputes.  If there are problems, address them early.  Get the parties together and try to solve the problem.

Call in a mediator if there are communication problems.  There are few cases where a builder or homeowner can safely say that they are on to a sure thing by taking the matter to court.

My focus on this article is on the position of the territorial authority.  This is an opportune time to do that for two reasons.

Firstly, there have been a number of cases recently where the liability of a territorial authority in negligence has been addressed.  The most recent involved QLDC and Charterhall Trustees Ltd, trading as Blanket Bay Lodge near Glenorchy.

The second reason is that some builders seem to be under the misapprehension that the territorial authority is under some obligation to the builder to monitor the builder’s performance and point out any deficiencies.  The suggestion is that the territorial authority is, ultimately, responsible for quality control.

If any builders are under that impression, particularly in the case of commercial buildings, they are in for a very rude awakening as the series of articles will disclose.

Blanket Bay Lodge was damaged by fire in 2003.  Its owner sued the council and the architect.  It claimed that the design of the tower which encased the exhaust flues from the fire was defective.

The company sued the architect claiming that the architect was negligent in preparing the detailed drawings.  It sued the council because the council issued a building consent without first considering the detailed drawings with care, skill and due regard to the requirements of the code.

The company also alleged that the council should have recognised the inherent fire risk, failed to conduct adequate inspections and improperly issued a code compliance certificate.

The council tried to get the High Court to strike out the claim against it but was unsuccessful.  The council appealed to the Court of Appeal.  The Court of Appeal found that there was no prospect of the claim succeeding and dismissed the claim.

Of particular significance is the Court’s consideration of the circumstances in which it will hold a local authority liable in the case of defective building work.

In New Zealand, there is a long line of cases involving actions against local authorities seeking to recover the costs of repairing defective construction work.  The early cases involved deficient foundations.  Later cases have involved leaky homes.

NZ Courts have held local authorities accountable to homeowners as a matter of policy.  The policy is based on the Court’s perception of six distinctive features of housing in the New Zealand.  They are:

  1. The high proportion of occupier-owned housing
  2. A high proportion of housing construction undertaken by small-scale cottage-builders for individual purchasers
  3. The nature and extent of government financial support for private house building and home ownership
  4. The surge in house building in the 1950s and 1960s
  5. The high level of central and local government support for private home building (building standards, bylaws etc)
  6. The fact that it was not common practice for new house-buyers to commission building surveys or seek other expert assistance.  Rather, local authorities were expected to provide a degree of expert oversight.

There have been a number of attempts to have council’s responsibilities extended to commercial properties.  However, the Courts have declined to do so.

A recent case against Hastings District Council involving a leaky motel was unsuccessful.

In another case, Mt Albert Grammar School unsuccessfully sued the Auckland City Council for damages resulting from the construction of school buildings which has suffered leaky home syndrome.

In each case, the Court refused to extend the duty of care owed by a territorial authority beyond the scope of an existing homeowner.

Charterhall was equally unsuccessful.

There is a strong policy reason for not extending the circumstances in which a territorial authority will be liable in negligence.  A commercial entity is capable of protecting its own interests.  It is not reliant on the territorial authority.  In this case, Charterhall retained two firms of architects as well as various other specialist advisers including fire protection engineers.

Although there was some attempt to argue that health and safety were involved, the Court of Appeal noted that Charterhall was not suing as a property occupier whose health and safety was at risk but as a commercial property owner suffering economic loss.

The New Zealand legal system does not see local authorities as carrying the ultimate burden for non-compliance  with appropriate building standards.  Local authorities can be liable to homeowners but only because the courts have recognised special policy considerations prompting liability.  Even so, the focus will be on the people primarily responsible for the defective workmanship.

In the next article, I will address the issue of personal liability of builders even though they are trading as incorporated companies.

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