Can the tort of negligence be built on shaky foundations?
Identifying the appropriate test for finding a duty of care in novel situations is a matter which has exercised the minds of the judiciary across many jurisdictions since Lord Atkin’s famous formulation of the ‘neighbour’ principle in Donoghue v Stevenson. Almost 40 years after Donoghue the English Court of Appeal, in Dutton v Bognor Regis Urban District Council, applied the ‘neighbour’ test and held that a local council could be liable to both the original and subsequent owners of a house where damage was suffered as a result of the council’s surveyor having negligently approved the foundations during the construction of the property. Prior to that decision it had not been considered that a territorial authority would owe such a duty of care to original owners and subsequent purchasers of a property.
The decision in Dutton marked the beginnings of judicial divergences across jurisdictions which continue to resonate over 40 years later. In New Zealand the cases dealing with the liability of territorial authorities for negligently constructed buildings have been intricately linked with the development of the jurisprudence in the tort of negligence generally and the recent decision of the Supreme Court in Body Corporate No. 207624 v North Shore City Council (Spencer on Byron) has highlighted what many consider to be the idiosyncratic approach of the New Zealand courts in this area.
This article will examine the development of the New Zealand jurisprudence in the defective buildings cases and contrast the approach of the courts here with those in other jurisdictions. In the case of North Shore City Council and Body Corporate 207624, it was agreed that the appeal be granted to the respondent. Both the directives, which had been issued, in the court of appeal and high court were set aside.
Besides, the claim of the appellants was granted an opportunity of being heard, in the court of appeal. This was followed by an agreement that the appellants were entitled to the expenses accrued, in the two courts. The judges provided for the fixation of costs, which was to occur, in the absence of the parties’ agreement for a quantum. This provision was extended to be practiced, in the two courts.
Further, the judges concurred that the appellants’ expenses were to be paid by the respondent, the North Shore City Council. In this agreement, a sum of $40000 was to be paid by the respondent alongside disbursements, which could be fixed by the registrar. Following these rulings, the court can be considered as being right, in its judgement.
Developments in the 1970s
In 1978, the House of Lords, dealing with a similar set of facts in Anns v Merton London Borough,5 confirmed the decision of the Court of Appeal decision in Dutton.6 Lord Wilberforce, who delivered the leading speech,7 considered that although, as a public body discharging functions under statute, the powers and duties of a territorial authority were defined in terms of public law, there may nevertheless be other parallel private law duties arising out of the exercise of those functions which would enable individuals to sue for damages in a civil court.
In defining the circumstances in which those private law duties might be imposed, his Lordship drew a distinction between the policy, or discretionary, decisions and the operational decisions respectively which a council could be required to make in carrying out its statutory functions. Lord Wilberforce acknowledged that the distinction between the policy and the operational was one of degree but considered that generally policy decisions would be ones for the authority to make rather than the courts but the more “operational” a power or duty may be the easier it was to superimpose on it a common law duty of care.
In relation to the factual matrix present in Anns, Lord Wilberforce10 considered that, while there would be a duty on the council to give proper consideration to the question whether it should inspect or not, the decision on the amount of resource to allocate to the inspection of foundations of residential buildings was essentially a policy decision which would be difficult to attack. However, if inspections were undertaken – the “operational” aspect – there was, in principle, a duty to exercise reasonable care.
The standard of care had to be related to the duty to be performed – namely, to ensure compliance with the bylaws – and that should take into account not only the fact that the inspector’s function was supervisory but also the fact that once the inspector had passed the foundations they were covered up, with no subsequent opportunity for inspection by present or future owners. Lord Wilberforce considered that, in that situation, a cause of action arose when the state of the building was such that there was an imminent danger to the health or safety of persons occupying it.
There are two points to be noted at this juncture. First, both the majority of the Court of Appeal in Dutton11 and a majority of the House in Anns characterised the loss to the plaintiff as being physical damage to the property itself rather than pure economic loss. Secondly, in reaching his decision in Anns Lord Wilberforce set out his well-known two stage approach for determining whether, on any particular set of facts, a duty of care exists between the parties:
First, one has to ask whether as between the alleged wrongdoer and the person who has suffered damage there is a constant relationship or proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter – in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negate or reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise.
In 1977 the New Zealand Court of Appeal followed the reasoning in Dutton in Bowen v Paramount Builders (Hamilton) Ltd14. The case raised the question of whether a builder was responsible in negligence to a subsequent purchaser of a building for damage caused to that property by his carelessness in construction. Although Richardson P dissented and found that on the particular facts there had been no negligence on the part of the builder, all members of the Court considered that the situation was covered by Dutton and treated the damage not as pure economic loss but as economic loss associated with physical damage to the property itself. This characterisation of the loss was subsequently applied by the Court of Appeal in Mount Albert Borough Council v Johnson16without further examination of the basis for recovery of such loss under the tort of negligence.
Anns had been decided between the first instance decision and the Court of Appeal hearing in Mount Albert and the Court of Appeal had already taken an earlier opportunity to approve the approach taken by the House of Lords. In Scott Group Ltd v McFarlane Woodhouse J had described the two-step test propounded by Lord Wilberforce as “a valuable and logical guide to the way in which a decision should be made as to whether a duty of care exists in an apparently novel situation”. In Mount Albert the Court of Appeal endorsed that earlier recognition considering that “an essentially pragmatic approach is currently appropriate in the field of negligence”.
Developments in the 1980s
There was a mixed reaction to the decision in Anns and the mid-1980s witnessed a flurry of activity in the courts across the UK, Australian, Canadian and New Zealand jurisdictions where the two-stage approach to finding a duty of care was closely scrutinised. In the UK, where initially there had been favourable reaction to Lord Wilberforce’s formulation, the House of Lords began the process of reining in what it saw as the expansionist tendencies of the approach.
Lord Keith of Kinkel in Governors of the Peabody Donation Fund v Sir Lindsay Parkinson Ltd had warned against the “temptation” of treating the statements in Anns as being of a “definitive character”, preferring instead to consider whether it was “just and reasonable” to impose a duty of care of particular scope upon the defendant. The High Court of Australia in Sutherland Shire Council v Heyman had declined to follow the two-stage approach, advocating “that the law should develop novel categories of negligence incrementally and by analogy with established categories”.24 On the other hand, the principle in Anns was applied by the Supreme Court of Canada in City of Kamloops v Nielsen.
In New Zealand’s Court of Appeal in 1986 there was a trilogy of cases which considered the question of the liability in negligence of local authorities. In Brown v Heathcote County Council27 the Court considered the “major overseas decisions” in “a developing and difficult field of law”. Cooke P opined that while New Zealand’s law of negligence was “significantly indigenous in its origins and development”, the New Zealand courts had found it “helpful to think in a broad way” along the lines of the two-stage approach in Anns and that Lord Wilberforce’s analysis was “helpful” in determining whether it was “just and reasonable that a duty of care of a particular scope was incumbent upon the defendant”. The learned judge also stated that while, “if the loss in question is merely economic, that may tell against a duty”, it would not be “automatically fatal to a duty of care”.
In Stieller v Porirua City Council the Court of Appeal considered that the construction of houses with good materials and in a workmanlike manner was a matter within the Council’s control and that both the Council and its residents benefited from regulations which made for the economic and social well-being of the community and the creation of a pleasant environment. Accordingly, the Court held that the council’s liability was not confined to those defects which affected health and safety or to those which damaged or threatened other parts of the structure, and it awarded the plaintiff $10,000 for the replacement of weatherboards on the house and $1,000 for discomfort and inconvenience.
Developments in the 1990s
In 1990 two decisions of the House of Lords spelt the death knell for the Anns approach in the UK. In Caparo Industries plc v Dickman the House supported Lord Keith of Kinkel’s view that it was not possible for any single general principle to provide a practical test which could be applied to every situation to determine whether a duty of care was owed and the scope of any such duty. In fact, Caparo itself is notable for seeming to embrace two different approaches to finding a duty of care: first, a majority of the House expressed a preference for the incremental approach which had been propounded by Brennan J in the High Court of Australia in Sutherland Shire Council v Heyman; secondly, Caparo has been generally regarded as introducing a tripartite test for the determination of the duty of care which asks whether the harm was foreseeable, whether there was sufficient proximity between the parties and whether the imposition of a duty of care would be fair, just and reasonable.
The second case, which was directly significant for the particular issue of the liability of territorial authorities, was the House of Lords’ decision in Murphy v Brentwood District Council. Following a number of cases where the House of Lords had shown a marked inclination to confine the Anns doctrine within narrow limits, Murphy was concerned with the liability of a District Council which had negligently approved plans resulting in a residential property being built on defective foundations and consequently directly raised the question of whether Anns had been correctly decided.
The House of Lords considered that Lord Wilberforce in Anns had been wrong to characterise the loss as physical damage. Rather it was pure economic loss and, on the basis of the law as it stood at the time of the decision in Anns, pure economic loss was not within the scope of any duty of care owed to the plaintiffs by the local authority. Lord Keith of Kinkel criticised Anns for introducing “a new species of liability governed by a principle indeterminate in character but having the potentiality of covering a wide range of situations, involving chattels as well as real property”.
He considered that it was an unsatisfactory principle and expressed a preference for the incremental approach to finding a duty of care advocated by Brennan J in Sutherland Shire Council. The decision in Murphy was that Anns had been wrongly decided as regards the scope of any private law duty of care resting upon local authorities in relation to their function of taking steps to secure compliance with building bylaws or regulations.
The House of Lords recognised that the decision in Anns had been relied on for 13 years, but nevertheless concluded that departing from it would re-establish a degree of certainty into this area of the tort of negligence. As a result Dutton and all the cases decided in reliance on Anns were overruled.
In Murphy the House of Lords had questioned the approach of the New Zealand Court of Appeal in Bowen so the question was whether the New Zealand courts would continue to apply the Anns principle following the decision in Murphy. In South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd a full bench of the Court of Appeal was unanimous in agreeing that the decision in Murphy should not lead to any changed approach to negligence law in New Zealand. In support of Lord Wilberforce’s two-stage approach, Cooke P said:
A broad two-stage approach or any other approach is only a framework, a more or less methodical way of tackling a problem. How it is formulated should not matter in the end. Ultimately the exercise can only be a balancing one and the important object is that all relevant factors be weighed. There is no escape from the truth that, whatever formula be used, the outcome in a grey area case has to be determined by judicial judgment. Formulae can help to organise thinking but they cannot provide answers.
Subsequently, in 1994 in Invercargill City Council v Hamlin the Court of Appeal was asked to consider the specific question of whether the established New Zealand law on the liability of a territorial authority to house owners and subsequent owners should be altered in the light Murphy and other House of Lords’ decisions. Again a full bench of the Court of Appeal was unanimous in holding that the approach of the New Zealand courts to the issue should not be changed…
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