The recent High Court decision of Swordfish Co Limited v Buller District Council [2012] NZHC 2339 confirms that the RMA may not preclude council liability for negligent failure to take reasonable care when:

  • Issuing a section 224 certificate for a subdivision, and
  • Issuing and ensuring registration of consent notices,

where the result of such dereliction is a foreseeable loss to a proximate plaintiff.

Factual background

Buller District Council (Council) granted resource consent for a three stage subdivision.  Conditions required that earthworks, fill and flood mitigation works for all three stages of the subdivision be completed before the completion of Stage 1.

The Council subsequently released a section 224 certificate together with a consent notice which was sent to the District Land Registrar and registered.  The section 224 certificate confirmed that the "conditions of the subdivision consent had been complied with to the satisfaction of the Buller District Council and that a consent notice has been issued in respect of those conditions that have not been complied with".  A consent notice was registered against the lots for Stage 1 only, stating that the land may contain unconsolidated fill, that engineered designed foundations may be required for any building, and that scala penetrometer testing of the building site would be required.

Swordfish Co Limited (Swordfish) bought sections from Stages 2 and 3 which did not have any consent notice registered.  It was only after the purchase that Swordfish became aware that the earthworks, fill and flood mitigation conditions had not been completed for Stages 2 and 3.

Swordfish filed a claim alleging that the Council owed it a duty to take reasonable care when issuing a section 224 certificate, and when issuing and ensuring registration of a consent notice.

The Council applied to strike out Swordfish's claim.  While the Associate Judge was doubtful that the claim would succeed, he considered he must approach the case with extreme caution and resolved that evidence might assist in determining whether it is fair, just and reasonable to hold that a duty of care exists.  Thus, the strike out application failed.

The Council subsequently filed judicial review proceedings in the High Court to review the legality of the strike out decision.

Is there a duty of care?

On review, Whata J considered that overall the question to be resolved was whether the Council is, or might be, subject to a duty to prospective purchasers to take reasonable care in the exercise of functions under section 224 of the RMA.

Whata J canvassed the requirements for an action in negligence.  He noted that negligence required a duty of care, and whether a duty of care was present depended on an assessment of the following factors:

  • Whether the damage was foreseeable?
  • Whether the relationship between the Council and Swordfish was sufficiently proximate so that the Council assumed a responsibility to take care to avoid damage to Swordfish?
  • Whether it is fair, just and reasonable to impose a duty?

Foreseeability

With regards to foreseeability, Whata J considered that it is reasonably arguable that any of the Council's functions relating to the issue of consent notices, completion certificates, survey plan approvals and section 224 certifications under sections 221 to 224 of the RMA "could foreseeably result in damage to a potential purchaser of subdivided land".  These documents "signal to the world the readiness of the subdivision for development".  It was reasonably foreseeable that Swordfish could have been led to believe that Stages 2 and 3 were ready for development as they had section 224 certification without any completion certificate or consent notice signalling that conditions remained to be satisfied.  Furthermore, the future cost of achieving compliance with the unfulfilled conditions must have been foreseen by the Council as conditions continue to bind subsequent owners of approved subdivisions.  Accordingly, Swordfish passed the foreseeability test.

Proximity

In assessing proximity, Whata J considered that the combination of statutory duties and discretions is directed to securing performance of the subdivision consent conditions, and to providing the Council with surety that the conditions are either complied with prior to registration of an approved survey plan, or will be complied with at a future date after registration.  The conditions themselves were imposed to further the sustainable management purpose of the RMA.  Taken together, Whata J considered that:

  • The clear purpose of the sections 221-224 duties in this case is to provide a mechanism to enable people and communities to provide for their wellbeing via the subdivision of residential land, while at the same time avoiding or mitigating the effects of natural hazards
  • The Council must act in a precautionary way by securing compliance with, or the ability to comply with, the conditions of consent prior to registration of an approved plan
  • There is a prima facie nexus or proximity between the Council and any subsequent owner, because the latter might reasonably expect that subdivided lots will not issue without compliance with conditions having already being secured by the Council.

Is it fair, just and reasonable to impose a duty?

Having established foreseeability and proximity, Whata J considered whether the imposition of a duty on councils is fair, just and reasonable.  Whata J concluded that a strike out hearing is not the most appropriate place to make the assessment.  Instead it should be assessed against the full context of the facts specific to this case and the general experience of councils in processing subdivision applications through to certification.  Accordingly, Whata J declined to reverse the Associate Judge's decision, thereby enabling Swordfish's claim to proceed to a full trial.

Whata J commented on a number of factors that could be relevant when assessing whether the imposition of a duty on councils is fair, just and reasonable (assuming Swordfish continues to a full trial).  Relevant factors include:

  • The degree of control exercised by councils through the sections 221-224 approval process
  • The extent to which councils are reliant on developers to demonstrate compliance
  • The extent to which councils have the financial and technical capacity to substantively process information and assess compliance
  • The commercial scale of subdivisions, which suggest a lack of developer vulnerability, while exposing councils to significant potential liability.

Implications of decision

This decision confirms that consent authorities may be exposed to claims in negligence arising from the issue of consent notices, completion certificates, survey plan approvals and section 224 certifications under sections 221 to 224 of the RMA.  Accordingly, consent authorities will need to take reasonable care when issuing these documents to ensure that the statutory requirements are met.  Consent authorities should have systems in place to ensure that they can be reasonably satisfied that (for example) all subdivision consent conditions have been fulfilled and/or their future fulfilment secured by consent notices before a section 224(c) certificate is issued.

Applicants and developers suffering loss as a consequence of erroneously issued consent notices, completion certificates, survey plan approvals and section 224 certifications might have a claim for compensation against the issuing consent authority. 

Further judicial guidance on duty of care and liability issues can be expected should Swordfish proceed to trial and seek a final decision, and we will issue a further update should that circumstance eventuate.