THE ATTORNEY-GENERAL AS SUCCESSOR TO THE ASSETS & LIABILITIES OF THE BUILDING INDUSTRY AUTHORITY V NORTH SHORE CITY COUNCIL AND ORS CA682/2008

THE ATTORNEY-GENERAL AS SUCCESSOR TO THE ASSETS & LIABILITIES OF THE BUILDING INDUSTRY AUTHORITY V NORTH SHORE CITY COUNCIL AND ORS CA682/2008 26 July 2010IN THE COURT OF APPEAL OF NEW ZEALAND CA682/2008 [2010] NZCA 324BETWEEN THE ATTORNEY-GENERAL AS SUCCESSOR TO THE ASSETS & LIABILITIES OF THE BUILDING INDUSTRY AUTHORITY Appellant AND NORTH SHORE CITY COUNCIL First Respondent AND BODY CORPORATE NO. 195843 Second Respondent AND DAVID GLEN WILLIAMS AND OTHERS Third Respondent AND TARADALE PROPERTIES LIMITED Fourth Respondent AND STAN POWLEY ARCHITECTS LIMITED Fifth Respondent AND ELLERSLIE PARK HOLDINGS LIMITED Sixth Respondent AND ROWABA HOLDINGS LIMITED (FORMERLY TERRACON HOLDINGS LIMITED) Seventh Respondent AND CENTREWAY 28A LIMITED (FORMERLY R & R PAINTERS LIMITED) Eighth Respondent AND WATTYL NZ LIMITED Ninth RespondentAND VERO INSURANCE NZ LIMITED Tenth Respondent AND RONALD WILLIAM SMITH Eleventh Respondent AND EQUUS INDUSTRIES LIMITED Twelfth Respondent AND QBE (INSURANCE) INTERNATIONAL LIMITED Thirteenth Respondent Hearing: 2 and 3 February 2010 Court: Hammond, Arnold and Randerson JJ Counsel: M T Scholtens QC and B Orr for Appellant D G Goddard QC and S Mitchell for Respondents Judgment: 26 July 2010 at 2.30 pmJUDGMENT OF THE COURTA The appeal is allowed. B The first respondent's third party notice against the appellant is set aside. C The first respondent must pay the appellant costs for a standard appeal on a band B basis and usual disbursements. We certify for two counsel.REASONS OF THE COURT(Given by Arnold J)Table of ContentsPara No.Introduction [1]Background [8](a) The Building Act 1991 [9](b) The BIA's reviews and leaky building syndrome [18]Relevant principles [29]High Court decision [34]Discussion [35](a) Situational duties [35](b) Proximity [41](c) Policy [53](d) Conclusion [59]Decision [60]Introduction[1] This is yet another appeal concerning leaky buildings. In a sense it is a sequel to Attorney-General v Body Corporate 2002001 (Sacramento). That case concerned a residential complex known as Sacramento which suffered from leaky building syndrome. The 153 unit owners, together with their body corporate, sued the Attorney-General on behalf of the Crown as the statutory successor to the liabilities of the Building Industry Authority (the BIA), 2 along with other defendants. [2] Their claims against the BIA were based in negligence. It was alleged that the BIA: (a) Owed a duty of care in relation to the use of face-fixed monolithic cladding systems; (b) Was negligent in its supervision of the private sector building certifier who issued the relevant code compliance certificates; and (c) Was negligent in its approval of insurance cover for the building certifier.1 Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95 (CA) [Sacramento].2 For convenience, we will refer to the BIA throughout, rather than to the Attorney-General sued on behalf of the Crown as successor to the liabilities of the BIA.A full Bench of this Court struck these claims out in a decision from which there has been no appeal. The Court relevantly held that the BIA owed no duty of care to the unit owners to exercise reasonable care and skill when performing its statutory responsibilities. [3] The present case concerns a development known as the Grange in North Shore City. It also suffers from leaky building syndrome, associated with the use of face-fixed monolithic cladding over untreated timber framing. The body corporate and the individual unit owners have sued various defendants involved in the development, including the North Shore City Council (the Council). [4] The claims against the Council are based on the duty of care recognised by this Court and the Judicial Committee of the Privy Council in Invercargill City Council v Hamlin, 3 which is based on homeowners' general reliance on territorial authorities (TAs) to perform their responsibilities under the building legislation with reasonable care and skill. The body corporate and the individual unit owners allege that the Council breached its duties to them by: (a) Issuing the building consent without identifying defects in the building's plans and specifications which meant it could not be reasonably satisfied that the development would comply with the provisions of the Building Code. 4(b) Carrying out inadequate inspections, with the result that there has been non-compliance with the Building Code and the manufacturers' technical data, together with other defects. (c) Issuing a code compliance certificate when the development did not comply with the Building Code.3 Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA); [1996] 1 NZLR 513 (PC).4 Contained in the Building Regulations 1992, sch 1.The essence of these allegations is that the Council was negligent in failing to take reasonable steps to ensure that the construction of the Grange development complied with the Building Code. 5[5] The Council denies that it was negligent in any of the respects alleged. But it has joined the BIA as a third party, alleging that the BIA breached its duty of care to the Council in three respects.6 They are: (a) Negligent review: The BIA was negligent in performing its statutory function of reviewing the performance of the Council's technical operations in relation to the issuing of building consents and reporting to the Council in 1995. It was alleged that the BIA failed to identify any concerns about the Council's approach to consents and inspections in relation to monolithic cladding and weathertightness. If reasonable care and skill had been exercised, issues about the Council's approach would have been drawn to the Council's attention and it would have addressed them. (b) Negligent misstatement: In its 1995 report to the Council on the 1995 review, the BIA led the Council to believe that it was performing its functions properly. These statements (described as "the clean bill of health statements") were negligently made. In reliance on them, the Council continued to act as it had previously. (c) Negligent failure to correct misstatement: The BIA failed to correct the "clean bill of health" statements even though it acquired actual knowledge of the weathertightness risks associated with monolithic face-fixed cladding during the period 1998 – 2000. [6] As can be seen, these causes of action depend crucially on a review carried out by the BIA of the Council's operations in 1995 as part of its statutory functions,5 See the Building Act 1991, s 34(3). This Act has been repealed and replaced by the Building Act 2004.6 There is also a fourth cause of action. It was not pursued in the High Court or in this Court, although Mr Goddard QC reserved his position should the matter go on appeal to the Supreme Court.although subsequent reviews in 2001 and 2003 are also relevant. The essential allegation is that the BIA was negligent in failing to warn the Council of what is known as "leaky building syndrome" and its implications for its processes in the 1995 review. Rather, the BIA gave the Council a clean bill of health. And, having done that, it negligently failed to correct the position subsequently. The Council claims as damages any sums for which it is found liable to the plaintiffs. 7[7] The BIA applied to set aside the Council's third party notice, 8 on the ground that the notice disclosed no reasonable cause of action against it. Andrews J declined the application. 9 The BIA now appeals.Background[8] To understand the Council's allegations against the BIA it is necessary to understand the statutory background, in particular the Building Act 1991 (the Act), and the reviews which the BIA performed during the period when face-fixed monolithic cladding became popular as a construction technique and the problems associated with it emerged.(a) The Building Act 1991[9] It is unnecessary to go in detail into the background to the Act. That has been explained in other decisions of this Court.10 It is sufficient to emphasise two features of the regime introduced by the Act: 11(a) The previous highly prescriptive building code was replaced by one which was performance-based. The focus was on identifying the7 The relief sought against the BIA in the pleadings is that it "reimburse, contribute towards or indemnify the Council for any judgment which the plaintiffs may obtain against it." The Council now accepts that the remedy should be a claim for damages, the measure of loss being the amount that it is required to pay the plaintiffs.8 High Court Rules, r 160 (now r 4.16).9 Body Corporate No 195843 v North Shore City Council HC Auckland CIV-2006-404-1055, 1 October 2008.10 See Sacramento at [5] and following; Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA) at 526-528.11 See the discussion in Building Industry Commission Reform of Building Controls(January 1990).standards of performance to be achieved rather than prescribing the particular building techniques necessary to achieve them. The performance standards focussed particularly on the preservation of the health and safety of building occupants. It was hoped that this performance-based approach would encourage greater innovation and efficiency in building techniques. (b) TAs were to be subjected to competitive disciplines in their approval, inspection and certification roles. Private sector building certifiers could issue building certificates (on the basis of which TAs were obliged, for example, to issue building consents), perform inspection functions and grant code compliance certificates. The BIA was to approve building certifiers, monitor their performance and sanction them. [10] Turning to the more significant provisions of the Act, under s 11 the BIA was to comprise not more than eight members appointed by the Minister of Internal Affairs. When considering appointments, the Minister was required to consider the need to ensure that the BIA had a mix of knowledge and experience in areas such as building construction, architecture, engineering, commercial and business affairs, consumer affairs and local government. Clearly, then, the BIA was intended to be an expert body. [11] Its functions were set out in s 12(1) of the Act, as follows:(1) The Authority shall have the following functions under this Act: (a) After consultation with appropriate persons and organisations, advising the Minster on matters relating to building control: (b) Approving documents for use in establishing compliance with the provisions of the building code: (c) Determining matters of doubt or dispute in relation to building control: (d) Undertaking reviews of the operation of territorial authorities and building certifiers in relation to their functions under this Act:(e) Approving building certifiers: (f) Granting accreditations of building products and processes: (g) Disseminating information and providing educational programmes on matters relating to building control: (h) Generally taking all such steps as may be necessary or desirable to achieve the purposes of this Act: (i) Any other functions specified in this Act.[12] When the Act is considered as a whole, it is apparent that in fulfilling some of its functions, the BIA acted in quasi-legislative (including policy-oriented) and quasi-judicial roles. For example, the Building Code was promulgated by regulation. The regulations were made by the Governor-General on the advice of the Minister following a recommendation from the BIA. 12 When making a recommendation to the Minister in this context the BIA effectively acted in a quasi- legislative role. The BIA acted in a similar role when it approved documents for use in establishing compliance with the provisions of the Building Code. 13 By contrast, when exercising its power to determine disputes between TAs, building certifiers, property owners and such like, the BIA performed a quasi-judicial role. 14 So also when exercising its disciplinary powers in respect of building certifiers. 15 As this Court said in Sacramento, such roles do not readily lend themselves to the imposition of duties of care. 16[13] Mr Goddard QC for the Council acknowledged this but gave particular emphasis to four of the BIA's statutory functions which, he submitted, did not fall into these categories. The first, and most important to his argument, was that of undertaking reviews of the operation of TAs and building certifiers in relation to their functions under the Act. 17 Such reviews could be undertaken at the request of the Minister or on the BIA's own motion.18 The BIA was required to give the relevant TA the opportunity to make written submissions, and to report to the12 Building Act 1991, s 48.13 Section 49.14 Section 17.15 Section 55.16 At [62].17 Building Act 1991, s 12(1)(d).18 Section 15(1).Minister if it believed that the TA was not fulfilling its functions under the Act. 19The BIA had special powers to facilitate the performance of its monitoring function of TAs and building certifiers. 20 Finally, the Minister had the power to appoint others to perform a TA's functions under the Act if he or she considered that the TA was not performing those functions to the extent that the Minister thought necessary to achieve the purposes of the Act. 21[14] The next two functions emphasised were approving documents for use in establishing Building Code compliance 22 and granting accreditations of building products and processes. 23 Mr Goddard noted that a TA was obliged to accept such documents and accreditation certificates as establishing compliance with the provisions of the Building Code 24 and was protected from civil liability for anything done in good faith in reliance on them. 25 The final relevant function was that of disseminating information and providing educational programmes on matters relating to building control. 26 We return to these below. [15] The provisions in the Act dealing with civil proceedings are also relevant. Members and employees of the BIA and TAs were protected from civil liability for acts done in good faith. 27 In addition, civil proceedings against a building certifier arising out of the certifier's statutory function in issuing a building certificate or code compliance certificate had to be brought in tort and not in contract. 28[16] Finally, s 91 relevantly provided:91 Limitation defences(1) Except to the extent provided in subsection 2 of this section, the provisions of the Limitation Act 1950 apply to civil proceedings against any person where those proceedings arise from–19 Section 15(2) and (3).20 Section 79.21 Section 29.22 Section 12(1)(b).23 Section 12(1)(f).24 Section 50(1)(c) and (d).25 Section 50(3).26 Section 12(1)(g).27 Section 89.28 Section 90.(a) Any building work associated with the design, construction, alteration, demolition, or removal of any building; or (b) The exercise of any function under this Act or any previous enactment relating to the construction, alteration, demolition, or removal of that building. (2) Civil proceedings relating to any building work may not be brought against any person 10 years or more after the date of the act or omission on which the proceedings are based. (3) For the purposes of subsection (2) of this section if– (a) Civil proceedings are brought against a territorial authority, a building certifier, or the Authority; and (b) The proceedings arise out of the issue of a building consent, a building certificate, a code compliance certificate, or an Authority determination– the date of the act or omission is the date of issue of the consent or certificate or determination. (4) For the purposes of subsection (2) of this section, if civil proceedings are brought against the Authority and the proceedings arise out of the issue of an accreditation certificate, the date of the act or omission is the date at which the accreditation certificate was relied on. ...As can be seen, s 91 contemplated the possibility of civil proceedings being brought against the BIA. Mr Goddard did not argue that this necessarily showed that a TA could sue the BIA in negligence. Rather, he submitted that it indicated that Parliament had left the scope of the BIA's negligence liability to be determined by the courts on ordinary principles. [17] There are other provisions of the Act which are relevant to the issues raised in the appeal. We will deal with them in the course of our substantive discussion.(b) The BIA's reviews and leaky building syndrome[18] It is important to begin by recording that the Council accepts that in the 1998 – 2000 period, when the building consent for the Grange development was granted and the construction work was undertaken and completed, it was not aware of the weathertightness risks that have subsequently affected the development. Such riskswere not expressly identified in its checklists and the other documentation used in its consent and inspection processes. [19] The Council denies that it was negligent in this respect. However, it says that if it was negligent, the BIA must also have been negligent in failing to understand those same risks and in failing to advise the Council that its checklists and processes did not address them. [20] The BIA carried out reviews of the Council's operations on three occasions: in 1995, 2001 and 2003. In 1995 it reviewed the technical operations of seven TAs, including the Council, in relation to the issue of building consents (there were approximately 70 TAs in all at this point). By this stage, construction by way of face-fixed monolithic cladding was becoming common, particularly in Auckland. The BIA commissioned Joyce Group Ltd to carry out the review. Its purpose was described as follows:To review procedures within the selected Territorial Authorities to establish how they are coping with the Building Act requirements so that the Authority can advise on operating methods and consider any legislative changes that might be helpful. It was also proposed results and conclusions of the review work would be made available to the Territorial Authorities to assist them in evaluating their own internal procedures and to assist with the achievement of national uniformity and the increased efficiency envisaged by the Building Control Reforms.[21] In conducting the review, the review team took a sample of buildings, which they inspected for code compliance. In relation to the Council, the sample comprised four houses, an industrial building and an apartment block, one of which (as it happened) was constructed with face-fixed monolithic cladding. The review team also examined the standard documentation used by the Council and interviewed key personnel. At the time of the review, the Council had recently introduced a new operational system, with which Council staff were still becoming familiar. This created some challenges for the reviewers. [22] The review team reported to the Council in October 1995. It made ten recommendations. The first four were as follows:1. An internal reviewing system be implemented to monitor performance with respect to compliance with the NZ Building Code (officers used on review should not have been involved with projects). 2. The monitoring of both the vetting and field inspection processes, during the implementation of the new scheme, be continued to establish if the staffing structures are adequate to provide effective code compliance and field inspections service delivery. If performance is not considered satisfactory additional resources may be required. The field inspection group appears to be short of resource. 3. During on site inspection more careful attention should be paid to installation details of materials to the manufacturer's recommendations with particular reference to durability. 4. Field inspectors must ensure that the as built construction on site is as per the approved documents. Where there is an approved change made by decisions on site, amended details should be provided and the agreed change should be noted on the filed inspection records.None of the recommendations dealt specifically with monolithic cladding or weathertightness issues. [23] In February 1998 the BIA issued Acceptable Solution B2/AS1.29 The background to this is explained in Sacramento:[27] During the 1990s increasingly diverse building systems came into common use (including the use of face-fixed monolithic cladding) and a number of design practices, building techniques and consumer preferences emerged which are relevant in the present context. These include: flat roof structures, buildings without eaves, the replacement of flashings with sealants, balconies and decks, and an increasing focus on energy efficiency at the expense of natural ventilation. [28] Prior to the mid-1990s, radiata pine used for framing was usually treated to protect against insect attack. This treatment also provided a measure of resistance to fungal decay. In 1995, the Standards Association of New Zealand published NZS 3602:1995, which permitted the use of untreated timber for framing. Para 105.5 of this document is in these terms: "Radiata pine framing members that have been kiln dried at 74°C or above, to 18% moisture content or less and have been planer gauged do not require preservative treatment, provided they are not exposed to ground atmosphere or in any position where the timber moisture content will exceed 18%." [29] In February 1998, the BIA issued "Acceptable Solution B2/AS1", which recorded:29 See Building Act 1991, s 49."3.2 Timber3.2.1 NZS 3602: Part I is an acceptable solution for meeting the durability requirements of timber building elements." [30] Primarily (although not exclusively) implicated in leaky building syndrome is the use of the face-fixed monolithic cladding systems directly over untreated pinus radiata timber. Careful design and workmanship are required to limit water ingress and particular provision must be made for ventilation and general water management.[24] In April 1998 Prendos Ltd, which provides (among other things) building survey services, wrote to the BIA expressing concern about the use of face-fixed monolithic cladding over untreated timber framing. The Grange development, which involved the construction of 105 units using monolithic cladding over untreated timber, was undertaken over the 1998 – 2000 period. [25] The BIA's 2001 review concerned five TAs, including the Council. It was carried out by Opus, an international consultancy firm, for the BIA and had four purposes: 30(a) To assess whether buildings being constructed under building consents issued by territorial authorities comply with the New Zealand Building Code (the code) insofar as they are required to do so under the Building Act 1991 (the Act). (b) To investigate whether the processes and procedures employed by territorial authorities to enable them to satisfy the requirements of the Building Act with respect to the issuing of building consents and code compliance certificates and to ensure the continued compliance of buildings via an annual building warrant of fitness. (c) To evaluate the performance of TAs against common assessment criteria. (d) To encourage and assist each TA to consider improvements to the process and procedures that they employ, as far as is possible, in order to establish a uniform 'best practice' approach to building controls throughout New Zealand.[26] Mr Goddard submitted that this review had also failed to identify concerns in relation to weathertightness generally, or the Council's approach to it.30 Opus North Shore City Council: Technical Review of the Building Control Group for the Building Industry Authority (August 2001) at [1.1].[27] Finally, the 2003 report dealt with a review that was conducted over a five day time frame. It provided a "snapshot" of the Council's building control operation. As part of the review, the BIA investigated the Council's performance in respect of weathertightness issues and identified several concerns about the Council's performance in that respect. 31 Mr Goddard said that this is what a competently conducted review would have concluded in 1995. [28] In his written submissions Mr Goddard said of the reviews:These were detailed, hands-on reviews intended to give the reviewers a good understanding of how the council went about granting consents, carrying out inspections and issuing code compliance certificates, and of how the council went about assessing code compliance at each stage of this process. One of the central purposes of this exercise was to assist and inform councils, and to identify any serious defects or failures in their processes and procedures with a view drawing those to the council's attention, so it could take steps to remedy them.Relevant principles[29] This is an application to set aside a third party notice on the ground that the claims cannot in law succeed. Strike out principles apply. 32 As Elias CJ and Anderson J said in Couch v Attorney-General, the question is whether the circumstances relied on by the plaintiff are capable of giving rise to a duty of care. 33If the duty cannot confidently be excluded, the claim must be allowed to proceed. Ms Scholtens QC did not dispute that caution was required in summarily dismissing claims alleging novel duties of care. She did, however, emphasise that defendants should not be subjected to substantial costs, unlikely to be fully recovered, in defending untenable claims. 3431 Building Industry Authority Technical Review of North Shore City Council (July 2003) at 4 and 6.32 See McGechan on Procedure at HR4.16.01.33 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [2]; see also Attorney- General v Prince [1998] 1 NZLR 262 (CA) at 267.34 See Sacramento at [51].[30] Whether a duty of care is owed will be determined on the basis of "whether it is fair, just and reasonable to impose it". 35 In Attorney-General v Carter this Court said: 36Whether it is fair, just and reasonable to hold that a duty of care is owed by defendant to plaintiff in a situation not covered by authority is conventionally addressed in terms of proximity and policy: ... Generally speaking, proximity is concerned with the nature of the relationship between the parties whereas policy is concerned with the wider legal and other issues involved in deciding for or against a duty of care. In cases of negligent misstatement, the proximity inquiry generally focuses on the interdependent concepts of assumption of responsibility and foreseeable and reasonable reliance.In Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd this Court said that the policy analysis concerned "the effect of the recognition of a duty on other legal duties and, more generally, on society". 37[31] In Couch Tipping J, delivering the majority judgment of himself, Blanchard and McGrath JJ, said:38The law has traditionally been cautious about imposing a duty of care in cases of omission as opposed to commission; in cases where a public authority is performing a role for the benefit of the community as a whole; and in cases where it is the actions of a third party rather than those of the defendant that are the immediate cause of the loss or harm suffered by the plaintiff.Tipping J also emphasised that a claim in respect of which it may be possible to establish proximity should only be struck out on the ground that policy militates against a duty "if, at this stage of the proceedings, it can be said that this is undoubtedly so". 39 The test is "whether it is necessary or desirable for the case to go to trial to enable a fair and fully informed policy determination to be made".40[32] In Sacramento, this Court said that the primary policy issue to be addressed where the imposition of a duty of care on a public body is being considered is35 Couch v Attorney-General at [78], per Tipping, Blanchard and McGrath JJ.36 Attorney-General v Carter [2003] 2 NZLR 160 at [22].37 Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [58].38 At [80].39 At [126].40 Ibid.whether imposing a duty would be consistent with the terms and policies of the statute which governs the functions of the relevant public body. 41 In addition: (a) Statutory functions that involve quasi-judicial or quasi-legislative powers are not the appropriate subject of duties of care. 42(b) Courts are slower to impose duties of care in relation to omissions to act as opposed to the positive exercise of statutory powers. 43(c) The more policy-oriented and less operational a power is, the less likely it is that a duty will be imposed in respect of it, although this is not always easy to apply. 44(d) The further removed the public body is from the day-to-day physical control over the activity which directly caused the loss, the less likely it is that the Courts will impose a duty of care. 45[33] Finally, we reiterate that in Sacramento this Court addressed two causes of action against the BIA that are of particular relevance in the present context. The first was described as the "face-fixed monolithic cladding claim" and the second as the "[the building certifier] approval claim". 46 As part of the face-fixed monolithic cladding claim, the plaintiffs in Sacramento alleged that the BIA had a duty to: 47Warn the Minister, people within the building industry (including territorial authorities and building certifiers and the public) concerning the potential serious and severe implications for the health and safety of occupants; and the enjoyment of their homes.The Court referred to this as a "broad and overarching duty owed by the BIA to all building owners". 48 In relation to the building certifier approval claim, the plaintiffs alleged that the BIA had a duty to exercise reasonable care and skill in reviewing the41 At [39].42 At [41].43 At [42].44 Ibid.45 Ibid.46 At [52](a) and (b).47 At [53].48 At [54](a).operations of the building certifier (the BIA had carried out a review in July 1999). We return below to these aspects of the claims in Sacramento.High Court decision[34] The key features of Andrews J's decision refusing to strike out the Council's claim against the BIA can be summarised as follows: (a) In relation to proximity, the Judge considered that because the BIA dealt directly with the Council in carrying out the 1995 review and providing its report, and checked during its 2001 review that the recommendations from the 1995 review had been implemented, foreseeability was arguable. 49 For the same reasons, assumption of responsibility was also arguable. 50(b) Analogous cases did not point clearly towards either imposing or declining to impose a duty of care. 51(c) While there were strong policy arguments against imposing a duty of care, the Court was unable to conclude with the necessary certainty that policy considerations precluded the imposition of a duty. 52Discussion(a) Situational duties[35] In Sacramento, William Young P, delivering the judgment of the Court, referred to what he described as situational duties.53 By "situational", the President meant the common practice of plaintiffs focussing on the conduct constituting the alleged negligence and formulating the duty by reference to that allegedly negligent49 Body Corporate No 195843 v North Shore City Council HC Auckland CIV-2006-404-1055, 1 October 2008, at [52].50 At [53].51 At [62].52 At [76].53 At [43] and following.conduct, that is, reasoning backwards. The Court identified the dangers of such an approach: 54This approach, if adopted by the Court, is likely to favour a plaintiff; this is because it requires a primary focus on what is alleged to be the fault of the defendant and the limited nature of the asserted duty (with its narrow scope) is less likely than a more broadly expressed duty to engage countervailing policy arguments.[36] While the Court accepted that this was a legitimate reasoning process, 55 it said that the approach had its difficulties. 56 It concluded that where such a situational duty was alleged the Court should: 57(a) during the proximity phase of the inquiry, be careful to ensure that the narrow duty alleged can credibly be regarded as discrete from a broad (and untenable) duty of care in relation to the relevant statutory functions; and (b) in assessing policy considerations, analyse carefully the implications, in terms of the scheme and structure of the relevant statute, of recognising even a situational duty.[37] In addressing the situational duty alleged in that case (that is, that once on notice of the serious difficulties likely to result from the use of face-fixed monolithic cladding over untreated timber, the BIA had a duty to take reasonable steps to investigate and address the problem), the Court said: 58Further, it would not necessarily be right to regard the use of face-fixed monolithic cladding over untreated timber framing as a special case. Presumably, similar arguments as to situational duties could be raised in relation to any building system (or product, builder, territorial local authority or building certifier for that matter) about which (or whom) complaint had been made to the BIA.[38] In their joint judgment in Couch, Elias CJ and Anderson J said that this form of reasoning backwards was "largely inevitable" when determining liability for harm negligently caused. 59 They considered that it was artificial to divide up the elements of negligence as the factors bearing on duty of care, breach of duty and54 Ibid.55 At [44].56 At [45].57 At [46].58 At [69].59 At [42].consequential harm overlap.60 As a consequence, they said, only high level and generalised legal policies may be suitable for consideration in relation to duty of care on strike out.61[39] When delivering the majority's judgment, Tipping J said that it was conventional to examine whether a duty of care existed and its scope without reference to questions of breach, although this approach should not be applied rigidly. 62 Tipping J went on to warn against the "wisdom of hindsight" when assessing whether there was a special and distinct risk sufficient to establish proximity, saying that the assessment should be made prospectively. 63[40] We accept that some "reasoning backwards" may occur in this context, but acknowledge the dangers in it. Whether the duty alleged can logically be limited to the particular circumstances at issue, or must be seen as part of a broader duty or as opening the way to the imposition of duties in other, analogous situations, is something a court must consider.(b) Proximity[41] As we have said, the 1995 review is at the heart of the Council's claims against the BIA. In considering the issue of proximity in that context, several points should be borne in mind. [42] First, it is well established that foreseeability of harm is necessary, but not sufficient, to establish proximity. 64 Accordingly, while it was arguably foreseeable that, if the BIA was negligent in the way it monitored or reported on the operations of a TA, the TA might suffer loss as a consequence, that is not of itself sufficient.60 At [41].61 At [43].62 At [83].63 At [118].64 See Sacramento at [37] and Couch at [85] per Tipping J.[43] Second, the degree of control that (in this case) the BIA had over the Council in terms of preventing the harm that eventuated is relevant. 65 It is certainly arguable that there was a significant relationship between the TAs and the BIA given the BIA's statutory function of monitoring their performance, although it was not necessarily the case that the BIA would monitor the performance of all TAs by way of reviews, or even monitor the performance of particular TAs in great depth, given its limited resources. More importantly, however, the BIA's powers in relation to TAs were limited. The BIA had an obligation to report to the Minister if it considered that a particular TA was not fulfilling its functions under the Act. 66 The Minister could then decide what, if any, action to take. 67 By contrast, the BIA had much greater control over the operations of building certifiers as it had to approve them, monitor their performance and could discipline them.68[44] The statutory scheme highlights the point that the BIA's role in relation to TAs was essentially regulatory or supervisory in nature. The primary objective of the BIA's review function in relation to TAs was not to assist TAs but to assist the Minister in performing his or her statutory role, although assisting TAs was an obvious by-product of that. Moreover, despite the fact that the BIA had greater control over building certifiers than it did over TAs, this Court held in Sacramentothat the quasi-judicial nature of the BIA's role in relation to building certifiers pointed strongly against the imposition of a duty of care. 69 Presumably that would be so whether the plaintiff was a building owner or the negligent building certifier itself. It would be surprising if no duty arose in the context of the BIA's review function in relation to building certifiers but a duty did arise in the context of its review function in relation to TAs. We return to this point in the policy section of this judgment. [45] Third, it is also relevant to consider whether the Council was in any sense vulnerable. In Couch, Elias CJ and Anderson J said:7065 See Couch at [82] per Tipping J.66 Building Act 1991, s 15(3).67 Section 29.68 Sections 51–55.69 At [80].70 At [65].We accept that proximity between a statutory body and a plaintiff who has suffered harm is not readily to be assumed whenever statutory duties and powers could reasonably have been used to avoid foreseeable loss. But the statutory obligation is we think highly relevant to the judgment of sufficient proximity between plaintiff and statutory authority to give rise to an actionable duty of care. And in some cases, particularly those where individuals cannot reasonably protect themselves from risk which a statutory body has a duty to abate or manage, we consider that sufficient proximity may well follow from the statutory obligations.[46] It might be said that the TAs were vulnerable in the sense that they were reliant on advice from the BIA in relation to the implementation of the Building Code. But importantly, TAs had the statutory responsibility for the administration of the Act and the regulations, and the enforcement of the Building Code, within their districts, not the BIA. 71 The TAs had the statutory powers necessary for this, such as the power to issue building consents, to require owners to take steps to achieve code compliance and to issue code compliance certificates, or notices to rectify, depending on whether they considered particular buildings were, or were not, code compliant. Even where their competitors, building certifiers, were engaged, the TAs retained some responsibility for code compliance. Although the BIA had the statutory responsibility of approving building certifiers and dealing with complaints about them, building certifiers were obliged to report to the relevant TA where they were engaged to inspect specified items while building work was underway, in particular in relation to contraventions of the Building Code and the TA was obliged to step in where a building certifier was unable to complete its work. 72 Finally, TAs had a statutory duty to "gather such information, and undertake or commission such research, as is necessary to carry out effectively [their] functions under this Act". 73[47] In summary, then, TAs had day-to-day operational responsibility for the implementation of the Building Code within their relevant areas, subject to the fact that building certifiers were also able to perform inspection and certification functions but were obliged to report to the relevant TA. [48] In our view, the Council was well able to protect itself from the risk of its own negligence in performing its statutory functions. As this Court said in71 Building Act 1991, ss 24(a) and (e).72 Section 57(3).73 Section 26.Sacramento, responsibility for the defects in a complex such as the Grange rests more directly with those who developed, designed, built, inspected and certified it than with the BIA. 74 Many of the defects in the Grange that form the basis of the claims of the unit owners and the body corporate seem far removed from matters for which responsibility could be sensibly attributed to the BIA. Examples are inappropriately installed deck membranes and lack of adequate waterproofing at particular locations. [49] In this context, Mr Goddard argued that the BIA should be treated as having assumed responsibility to carry out the 1995 review carefully given its specialist expertise, its knowledge of the purposes for which the resulting report was provided to the Council and the Council's reliance on it. He relied on the observations of this Court in Attorney-General v Carter to the effect that the law will deem a defendant to have assumed responsibility, and so find proximity, if the defendant, when making the statement(s) at issue, foresees or ought to foresee that the plaintiff will reasonably place reliance on what is said. 75 Importantly, however, the Court went on to say that whether it is reasonable for the plaintiff to rely on what is said will depend on the purpose for which the statement is made and the purpose for which the plaintiff relies on it. 76[50] The 1995 report was produced by the BIA in the course of performing its statutory monitoring function, which, as we have said, was essentially a regulatory or supervisory function. In the context of the Act, the principal purpose of reviews was to enable the BIA to oversee the operation of the Act and to provide appropriate advice to the Minister, both generally and in relation to TAs that it considered were not fulfilling their functions under the Act. Clearly, the BIA expected that the Council (and other TAs) would derive assistance from the review process, and the Council says that it did derive such assistance. But given its statutory responsibilities, the Council was not entitled to treat the outcome of the review as, in effect, a quality assurance certificate in respect of its processes, which is what it seeks to do. The effect of Mr Goddard's argument is that in carrying out the 199574 At [61](b).75 Attorney-General v Carter at [23]–[26].76 At [26].review the BIA must be treated as having accepted a broad responsibility to the Council for losses that might arise in the future as a result of the Council's negligence in carrying out its statutory responsibilities (however manifested) in relation to buildings yet to be constructed (assuming, of course, relevant negligence on the part of the BIA). Potentially, then, the scope of liability is very wide. As a consequence, the losses for which the BIA would be liable may be far removed from its allegedly negligent conduct, that is, too remote. This points to a lack of proximity. [51] This Court noted in Sacramento that analogous cases were against the imposition of a duty of care in the circumstances of that case. 77 We consider that the same is true here. Mr Goddard relied on various decisions which have held that "innocent" partners may have claims against an auditor arising out of the fraudulent actions of another partner, 78 and placed particular reliance on the decision of this Court in Bank of New Zealand Ltd v Deloitte Touche Tohmatsu.79 However, the latter case is, in our view, readily distinguishable. A critical consideration in that case was that the "regulator", New Zealand Exchange Ltd (NZX), was not a body which acted solely on the basis of its view of the public interest and the common good. Rather, NZX was a corporate entity with a commercial focus, a feature which put it in a different category from a traditional regulator, at least at the strike out stage. 80 Overall, we consider that analogous cases are largely against the imposition of a duty of care on a public body performing a regulatory or supervisory function in the public interest. 81[52] In Sacramento this Court held that there was no sufficient proximity between the BIA and the unit holders whose units suffered the effects of leaky building syndrome. In the present case, the nexus between the BIA and the TAs is more immediate given the reviews. But that connection occurred in a regulatory or supervisory context, and the loss that the Council seeks to recover is the amount that77 At [61](d).78 For example, Dairy Containers Ltd v NZI Bank Ltd [1995] 2 NZLR 30 (HC) and Stringer v Peat Marwick Mitchell [2000] 1 NZLR 450 (HC).79 Bank of New Zealand Ltd v Deloitte Touche Tohmatsu [2008] NZCA 25, [2009] 1 NZLR 53.80 At [90].81 See, for example, Yuen Kun Yeu v Attorney-General of Hong Kong [1988] AC 175 (PC) at 195;Davis v Radcliffe [1990] 1 WLR 821 (PC) at 827; Fleming v Securities Commission [1995] 2 NZLR 514 (CA) at 530 and 534; and Attorney-General v Carter at [35].it is required to pay to unit owners as a result of its negligence in the performance of its statutory functions. This raises issues of policy, to which we now come.(c) Policy[53] Although Mr Goddard sought to distinguish the BIA's review role from the quasi-legislative and quasi-judicial roles that are inappropriate for imposition of a duty of care, we note that this Court in Sacramento treated the BIA's power to review the operations of building certifiers as being quasi-judicial. 82 It was treated as an aspect of the BIA's overall regulatory or supervisory role. It is difficult to see why the BIA's review function in relation TAs should be treated differently. Indeed, we consider that the policy considerations in favour of not imposing a duty of care in relation to TA review are even more powerful. The BIA had an obligation to report to the Minister if it considered that a TA was not fulfilling its functions under the Act. Arguably, imposing a duty of care on the BIA to TAs in the performance of the BIA's statutory review function would create an impediment to the free flow of advice to the Minister either by making the BIA too cautious in its assessments or by rendering it unwilling to carry out reviews of its own motion. The BIA had an obligation to give a TA the opportunity to be heard in the review process. There is no obvious justification for going beyond that and imposing a duty of care on the BIA to the TA in respect of the way that it performed that review function. [54] Furthermore, the Court in Sacramento identified the following policy considerations as telling against the imposition of the broad, over-arching duty alleged in the context of the face-fixed, monolithic cladding claim: 83(b) The 1991 Act is very clear in its delimitation of responsibilities. In cases where building certifiers were involved, their certificates were conclusive. There is no indication in the 1991 Act, or in its precursor report, to suggest that the BIA had a long-stop liability where building certifiers had negligently certified compliance. The imposition of such long-stop liability would have incentivised the BIA to adopt a vigilant approach to the approval of certifiers and their insurance arrangements which may have made it impracticable for building certifiers to operate. Such a consequence would have been contrary to the purpose of the Act.82 At [62](b).83 At [62].(c) The primary complaint is of a lack of action on the part of the BIA. A positive duty of care extending to general superintendence over the building industry in New Zealand would have significant resource implications which would, in all probability, require the Courts to review the reasonableness of the resources allocated to the BIA by the responsible ministers ...[55] As we see it, these considerations apply with equal force in respect of a claim by a TA against the BIA. It was not consistent with the statutory policy to incentivise the BIA to refuse or neglect to monitor TAs out of a concern about incurring liability in negligence to them in the process. This would have limited the BIA's supervisory role and the assistance that the Minister could have obtained from the BIA. Equally, it was not consistent with the statutory policy to incentivise the BIA to take a detailed, hands-on approach to the operational work of TAs. Given that the BIA was a small organisation with limited resources, this would have had significant resource implications. Moreover, the broad objective of the regime introduced by the Act was to loosen, not tighten, regulatory constraints. [56] In this context, it is important to recall the relative responsibilities of the BIA and the TAs under the Act. As we have said, the Council was responsible for administering the Act and regulations, and enforcing the Building Code, within its district and had specific powers to enable it to fulfil those responsibilities. 84 It was under a statutory duty to gather information and undertake or commission research to the extent necessary to carry out its functions under the Act effectively. 85 To impose duties of care of the type alleged by the Council on the BIA would run the risk of undermining these statutory obligations. Instead of taking responsibility for their own processes, and undertaking their own research and information gathering in their districts, TAs might have been encouraged to rely on the BIA to perfect their processes or to gather relevant information. [57] By contrast, the BIA's responsibility in relation to TAs was of a broad, oversight nature. It had a discretion whether or not to conduct reviews (absent a direction from the Minister), and its limited resources imposed constraints on what it could sensibly be expected to achieve in that respect. The review function was of a84 See [46] above.85 Building Act 1991, s 26.regulatory or supervisory nature and was carried out by the BIA for the benefit of the public rather than for the benefit of TAs. The duties alleged are inconsistent with that. [58] Mr Goddard argued that the duty which the Council alleged arose in an operational context – the Council carried out a review in 1995 and the Council's complaint is that it did so carelessly. The complaint, he said, was not that more reviews should have been carried out, or that their scope should have been broader. But this is very much a situational approach of the type we discussed earlier. 86 In assessing whether a duty should be imposed in such circumstances we must be conscious of the implications of accepting it. In our view, it must inevitably lead to the possibility of liability on the part of the BIA in a wide variety of situations involving defective building techniques. There is no reason to limit the duty to weathertightness defects resulting from the use of face-fixed monolithic cladding. The breadth of the potential liability tells against imposing liability in the present case. 87(d) Conclusion[59] Sacramento is a recent, and unanimous, decision of a full Bench of this Court. Given its reasoning, which we consider we must adopt, we have reached the view that the Council's claims against the BIA have no prospect of success. In those circumstances, we consider that they must (in effect) be struck out.Decision[60] We allow the appeal. We set aside the Council's third party notice against the BIA. The Council must pay the BIA costs for a standard appeal on a band B basis and usual disbursements. We certify for two counsel.Solicitors: Crown Law Office, Wellington for Appellant Heany & Co, Auckland for Respondents86 See [35]–[40] above.87 See Fleming v Securities Commission at 534, per Casey J.