BODY CORPORATE NO. 207624 v NORTH SHORE CITY COUNCIL

(Spencer on Byron, Supreme Court, [2012] NZSC 83, Elias CJ, Tipping, McGrath, William Young and Chambers JJ)

In a significant decision released on 11 October 2012, the Supreme Court decided that the Council owes a duty of care in tort to owners of mixed residential and commercial buildings.

This has major implications for leaky homeowners and local Councils.­  The door has been opened for owners of mixed residential and commercial apartments  to sue Councils over their leaky buildings.

Background

This building is principally run as a hotel on the North Shore of Auckland.  Within the hotel there are six residential penthouse apartments.  Many of the owners, of the hotel and penthouses, and the Body Corporate brought proceedings in the High Court against the Council and other parties involved in the construction.  The Council applied for strikeout on the basis that it did not owe a duty of care with respect to mixed residential and commercial building.  The High Court struck out all of the plaintiffs’ claims except those of the penthouse owners.  The Council appealed this decision.

The Court of Appeal accepted the Council’s arguments, struck out the claim against the Council and entered summary judgment in favour of the Council.

The owners appealed the Court of Appeal’s decision.

Issues

The Supreme Court was required to consider whether the Council owed a duty of care when approving plans and inspecting construction of a building which was not purely a residential building.

Conclusion

Majority: Elias CJ, Tipping, McGrath and Chambers JJ

The majority held that the Council owes a duty of care, of the type confirmed in Sunset Terraces [1] regardless of whether the premises are residential or commercial in nature.  The Council owes a duty to take reasonable care that the buildings are constructed in accordance with the building code.  This decision is restricted to premises being built under the Building Act 1991.

Specifically in this case, the majority was satisfied that the relationship was sufficiently proximate between the owners and the Council so as to give rise to a duty of care.  Further, the majority saw no factors external to that relationship which would make the proposed duty of care unfair or unreasonable.  The majority saw no reason to distinguish between people involved in the construction of residential or non-residential buildings.

Minority: William Young J

Even though William Young J dissented from the majority, he still held that the Council owed a duty of care in relation to the residential part of the building.  His Honour disagreed with the majority’s reasoning in deciding that simply because the harm was foreseeable, that satisfies the proximity requirement and, in the absence of countervailing policy grounds, there must be a duty of care.

Comments

Although a decision of great importance for a number of leaky home owners, the owners of Spencer on Byron still have a long way to go.  This decision allows them to continue their claim against the Council and other defendants.  However, to succeed they still need to prove at trial that the Council and other defendants were actually negligent with respect to the property in order to recover any damages.

[1] North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289