Going Out on a LIM - Leaky Homes and Council Liability

by Jon Parker - Morrison Kent

The recent decision of the High Court in Lee v Auckland City Council has helped shed some light on the liability of Councils in leaky homes cases.

The facts

The Lees purchased a house from their friends in 2004. The Agreement for Sale and Purchase was not conditional on the Lees obtaining and approving a LIM report, and they did not request a LIM report prior to purchase. Had they done so, they would have discovered that the Council had not issued a Code Compliance Certificate (“CCC”) due to concerns about weathertightness. After discovering that the house did not have a CCC in 2012 and the reasons why, they applied for an assessor’s report under the Weathertight Homes Resolution Services Act 2006 (“the Act”). The report found that their house was a leaky home. The estimated cost of repairs was $380,000.

Weathertight Homes Tribunal (“WHT”)

The Lees issued proceedings in the WHT against the Auckland City Council, claiming that its inspection regime was inadequate to ensure that the house was built without defects, and in particular that its failure to issue notices to rectify caused them loss. They also claimed against the developer, GIL (2008) Limited (“GIL”) for breaching its duty of care to them as future purchasers to ensure the house was built properly.

The WHT awarded costs of $269,619 against GIL, being $385,170 for loss of value and general damages, reduced by 30% for contributory negligence in failing to obtain a LIM. The WHT dismissed the Lees’ claim against the Council, finding that the inspection regime was not negligent and the failure to issue a notice to rectify (“NTR”) was not causative of the Lees’ loss because they could not prove that the NTR would have been brought to their attention.

Appeal to High Court

The Lees appealed the WHT decision to dismiss the claim against the Council. In turn the Council cross-appealed against the level of contributory negligence and the appropriate calculation of unaffected value. There are three particular points of interest to take away from the High Court’s decision:

Council’s reliance on producer statements

First, the High Court endorsed the WHT finding that the Council process was not negligent. The Court decided that it was reasonable for the Council in this context to rely upon the producer statement process without needing to inspect for code compliance purposes. The cladding system was well known and BRANZ approved. It could only be installed by trained and accredited installers with access to the manufacturer’s specifications, and the Council could reasonably assume that any material departures from those specifications would result in the installer’s refusal to issue a producer statement. The Council’s reliance upon the producer statement process did not mean that the Council was automatically negligent when defects were later discovered.

Failure to issue NTR

Second, the High Court held the Council was obliged to issue an NTR in the circumstances, and it should be liable for all reasonably foreseeable losses flowing from its failure to do so. Its failure to issue an NTR continued to expose the public to a non-compliant building. Unlike the WHT, the High Court found that this failure was a material cause of the Lees’ loss. It did not reduce the Council’s liability on account of the fact that the Lees did not take adequate steps to become aware of the failure to notify. Nor on the basis that the Lees would not have been aware of the notice regardless of whether it was issued.

Contributory negligence

The final point to note from the decision is that the High Court increased the contributory negligence finding against the Lees from 30% to 50%. The Lees’ failure to make prudent inquiry reduced their claim by half, and presents a timely reminder of the importance of putting in place adequate conditions and conducting due diligence when purchasing a home.

If you would like any further information or advice please contact either the article author Jon Parker or the Morrison Kent Wellington office (04) 472-0020.



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