It is well-settled law that a territorial authority owes a duty of care to present and future owners in respect of inspection and certification for building code compliance in the case of residential properties. However, until recently, the law has been uncertain regarding the position in respect of buildings for commercial use. The Supreme Court decision of Body Corporate 207624 & Ors v North Shore City Council [2012] NZSC 83 reduces this uncertainty.

The majority of the Supreme Court overturned the Court of Appeal's decision that the tortious liability of territorial authorities recognised in the decision of Invercargill City Council v Hamlin did not extend to claims in respect of buildings for commercial use. The Supreme Court's decision is restricted to work done by councils while the Building Act 1991 was in force (although the Court commented that it is likely that its conclusions would similarly apply under the 2004 Act).

The Supreme Court majority considered that recognising a duty of care in respect of commercial buildings would not be contrary to previous authority in New Zealand or to the Building Act 1991. They held that previous Court of Appeal decisions did not purport to limit the duty of care recognised according to the type of building or its use. Further, in the Court's view, the Building Act itself makes it impossible to maintain any distinction between commercial and residential buildings.

The Court found that the Building Act provides for a sufficiently proximate relationship between councils and building owners. The nature of the relationship does not differ according to the use to which the building is put and it would be highly anomalous if proximity were held to exist in residential cases but not in those involving non-residential buildings. In each case a fee is paid to the council. It is accepted that when a person pays a fee to a public body for a service, the parties will normally be in a proximate relationship.

The council argued that the duty of care should be excluded for policy reasons. However, the Court disagreed and found that many of the policy factors actually supported the imposition of a duty of care. Such factors include:

  • Efficiency: Tipping J phrased this as "do it once, do it right"
  • Control: councils control all aspects of building work to ensure that it complies with the building code, for which they are paid
  • Economic loss: even if such cases resulted solely in economic loss there is no reason to deny a duty of care as there is no risk of indeterminate liability; only a current owner can sue
  • Quality: there is no commercial uncertainty as to what the duty requires. The imposition of the duty leads to total clarity as to where the risk falls
  • Caution: recognition of the duty of care may make councils more cautious when performing their statutory functions. However, in the Court's view this was preferable to the "laxness" which has contributed to the leaky building disaster.

It remains to be seen whether the decision will result in an increase in claims by commercial building owners against local authorities.