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Construction and Projects Disputes Update – September 2016

Home Insights Construction and Projects Disputes Update – September 2016

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Contributed by: Polly Pope, Marika Eastwick-Field, and Michelle Mau

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Published on: September 29, 2016

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Points of interest

  • The Ministry of Education’s claim against Carter Holt Harvey reaches the Supreme Court
  • “Reasonable discoverability” may apply to actions against a cladding distributor under the Consumer Guarantees Act 1993
  • The Supreme Court considers the test for contractual implied terms

RECENT CASES

Building product manufacturers may owe a duty of care to end-consumers, and claims against them are not subject to the 10-year Building Act 2004 limitation

Carter Holt Harvey Limited’s application to strike out claims brought against it by the Ministry of Education relating to the supply of allegedly defective cladding has been dismissed by the Supreme Court. 

The Supreme Court unanimously held that:

  • all the claims against Carter Holt Harvey (including the negligent misstatement claim, which had been struck out by the Court of Appeal) are arguable and require consideration in light of full factual context; and
  • the 10-year “longstop” limitation provision (in section 393 of the Building Act 2004) does not apply to the claims against Carter Holt Harvey, because the claims against it were not claims relating to “building work” for the purposes of the provision.

The Court ruled that the (possibly standard) terms of supply applying between Carter Holt Harvey and merchants, and between merchants and building contractors, might not exclude a tortious duty of care. There was not the tailored and comprehensive contractual matrix as had featured in Rolls-Royce NZ Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA). The Court noted that, in any event, it will need to be determined at trial how much of the analysis in Rolls-Royce continues to apply after its decision in Spencer on Bryon.

Carter Holt Harvey Limited v Minister of Education [2016] NZSC 95


“Reasonable discoverability” may apply to actions under the Consumer Guarantees Act 1993

The High Court dismissed an application made by the defendant cladding distributor to strike out, as time barred, claims brought against it in negligence and under the Consumer Guarantees Act 1993. The issue was when the causes of action accrued. Was it when the allegedly defective goods were supplied, or (as argued by the plaintiffs) when the defect became reasonably discoverable? The Court held that the plaintiff’s position was “by a very fine margin” arguable, and declined to strike out its claims.

Carter v Metal Designs Solutions Ltd [2016] NZHC 1162


Uncertainty in the test for implied terms

What is the proper test for implying a term into a contract? In Mobil Oil New Zealand Limited v Development Auckland Limited the Supreme Court has acknowledged some uncertainty, without resolving it.

In particular, the extent to which New Zealand will follow recent developments in the United Kingdom is unresolved. In Marks & Spencer plc v BNP Paribas Securities Services [2015], the majority of the United Kingdom Supreme Court characterised as “inspired discussion rather than authoritative guidance”, Lord Hoffmann’s suggestion in Attorney General of Belize v Belize Telecom Ltd (that the process of implying terms was part of the exercise of the interpretation of the contract). In so doing, they re-affirmed the older five-step test from BP Refinery (Westernport) Pty Ltd v Shire of Hastings (emphasising the importance of business necessity).

The New Zealand Supreme Court noted that it has previously referred to Lord Hoffman’s approach with approval, but that Marks & Spencer meant there was now “scope for argument whether adoption of the undiluted version of Lord Hoffmann’s interpretation approach is appropriate”. On the facts of the case, however, it was not necessary to resolve that argument. 

As things stand, therefore, both tests are potentially relevant in New Zealand. To determine whether there is an implied term, parties need to consider whether the proposed term:

  • is what the instrument, read as a whole against the relevant background, would reasonably be understood to mean (pursuant to the Belize approach); and
  • meets all the following conditions (from BP Refinery, asemphasised in Marks & Spencer):
    • reasonable and equitable;
    • necessary to give business efficacy to the contract;
    • so obvious that “it goes without saying”;
    • capable of clear expression; and
    • not in contradiction with any express term of the contract.

Mobil Oil New Zealand Limited v Development Auckland Limited [2016] NZSC 89


Unit owners must allow the body corporate to carry out work to building elements or infrastructure which relates to or serves more than one unit

Five apartment owners in an apartment complex sought declarations and injunctive relief to prevent building-wide remedial works from proceeding, on the grounds that (i) cheaper, targeted repairs would suffice and (ii) section 80(1)(g) of the Unit Titles Act 2010 (UTA) placed the primary obligation for necessary works on the relevant unit owners.

Section 138(1)(d) of the UTA authorises a body corporate to undertake work on individual units where that work is necessary to maintain building elements and infrastructure that relate to or serve more than one unit. However, the owners argued that this was not engaged, as the decks and panels, to which repairs were to be carried out, were located entirely within individual units and could be maintained by their respective unit owners.

The Court of Appeal agreed with the High Court that a building element or infrastructure relates to or serves more than one unit if it:

  • naturally attaches to another unit, or
  • is causally relevant to, or referable to, or concerned with, another unit whether physically or economically.

Applying this test, the Court held that the panels were a building element which relates to or serves more than one unit because they are necessary to the structural integrity of the building and contribute aesthetically to the development. It noted that building-wide repairs which have implications for the structural integrity and aesthetics of the development require coordinated and professional management, which cannot be achieved if unit owners seek to arrange the work themselves. The owners’ appeal was therefore dismissed.

Leave to appeal to the Supreme Court has been refused.

Wheeldon v Body Corporate 342525 [2016] NZCA 247


New claimants represented in a new Weathertight Homes Resolution Services Act 2006 claim benefit from the existing claimants’ preserved position on limitation

The issue before the Supreme Court was whether various claimants in a new multi-unit complex claim were time barred. The result turned on the proper interpretation of a transitional provision under s 141 of the Weathertight Homes Resolution Services Act 2006 (2006 Act).

The 2006 Act repealed and replaced the Weathertight Homes Resolution Services Act 2002 (2002 Act). Section 141 provides that claimants with existing claims under the 2002 Act which are yet to reach adjudication can withdraw those claims and, within one year, join a new claim (under the 2006 Act). If they do so, the “stop-the-clock” date for the new claim, for the purposes of the Limitation Act 2010, is the date their withdrawn claim was brought. 

The key issue raised in Auckland Council v Weathertight Homes Tribunal [2016] NZCA 256 was whether the “stop-the-clock” date applied only for the benefit of the transitioning claimants, or for all claimants represented in the new 2006 Act multi-unit complex claim.

The Court of Appeal held that it applied to all claimants. It reached the conclusion both on the wording of the provisions, and the purpose of the 2006 Act; that purpose being to deal with weathertightness issues arising in the whole of a building complex, and to fix them in a speedy and cost-effective manner. The Supreme Court subsequently did not grant leave for a further appeal.

Auckland Council v Weathertight Homes Tribunal [2016] NZCA 256


Application for an assessor’s report does not stop the clock for all proceedings

In a recent leaky building case, the Court of Appeal confirmed that:

  • The ten-year long stop provision under section 393(2) of the Building Act (broadly, barring claims brought more than 10 years after the completion of building work) operates in addition to the six-year limitation period under the Limitation Act (which can run from the later point of reasonable discoverability). A claimant bringing their claim after the expiry of either period will be time barred; and
  • An application for an assessor’s report stops the clock for limitation purposes of proceedings under the Weathertight Homes Resolution Service Act 2006 (pursuant to section 37), but not for other proceedings, even if they relate to the same damage.   

On 3 August 2016, the Supreme Court granted leave to appeal the second point.

Lee v Whangarei District Council [2016] NZCA 258
Lee v Whangarei District Council [2016] NZSC 98

 


NEWS

Amended code of ethics for engineers came into force on 1 July 2016

The Institution of Professional Engineers New Zealand (IPENZ) and the Chartered Professional Engineers of New Zealand have amended their respective codes of ethics following the Canterbury Earthquakes Royal Commission’s recommendation that they clarify their codes in relation to reporting risks to public health and safety. This revision means that the two codes are now aligned.

The revised codes contain two key changes:

  • engineers have a new obligation to report potential adverse consequences for public health and safety and for the environment. This means that they must take action if they observe an engineering matter of concern. The action will depend on the circumstances but could include reporting the situation to the relevant regulatory body.
  • engineers are now required to report significant breaches of the Code by other engineers.

A copy of the IPENZ Code can be found here.

A copy of the Chartered Professional Engineers of New Zealand Rules (No 2) 2002 can be found here.


Supreme Court grants leave to appeal Prattley Enterprises Limited v Vero Insurance New Zealand Limited

Leave to appeal Prattley Enterprises Limited v Vero Insurance New Zealand Limited has been granted by the Supreme Court. In that case, the Court of Appeal held that the depreciated replacement cost – rather than market value – is the appropriate measure of indemnity under an indemnity-only policy following destruction of a building.

A brief overview of Prattley Enterprises Limited v Vero Insurance New Zealand Limited [2016] NZCA 67 can be found in the May edition of this newsletter.


This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.

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