By: Kirstie Wyss
The Courts have recently looked at the issue of whether a Council owes a duty to take reasonable care in issuing a section 224 certificate and ensuring registration of a consent notice under the Resource Management Act 1991.  The outcome of these proceedings may have important consequences for local authorities.

In 2006, Christoni Properties Limited ("CPL") was granted a resource consent for a three-stage subdivision.  Buller District Council ("BDC") imposed a condition on the subdivision consent requiring compliance with specified standards in relation to earthworks, earth fill and flood mitigation ("the earth fill conditions").  The earth fill conditions required that the standards be complied with before the completion of Stage 1 of the subdivision. 

In 2008, CPL requested a section 224 certificate from BDC.  A section 224 certificate is issued when a territorial authority is satisfied that the conditions on a subdivision consent have been complied with.  Where conditions have not been complied with a local authority must also issue a consent notice in respect of on-going compliance.  That consent notice must also be lodged for registration with the Registrar-General of Land so that it appears on the titles to the land which has been subdivided. A consent notice has the effect of a covenant running with the land. 

CPL had not complied with the earth fill conditions.  BDC issued a section 224 certificate stating that some of the consent conditions had been complied with and also executed a consent notice that there was non-compliance with the earth fill conditions.  This consent notice was only registered in relation to Stage 1 of the subdivision.  Accordingly, there was non-compliance with the earth fill conditions in respect of Stage 2 and 3 of the subdivision, but no consent notice was lodged for registration against these lots. 

Subsequently, a property developer, Swordfish Co Limited ("SCL") purchased land within Stage 2 and 3 of the proposed subdivision, without any notice of non-compliance with the earth fill conditions.  SCL brought proceedings against BDC alleging that BDC owed a duty to take reasonable care:
  1. in issuing the section 224 certificate;
  2. in issuing and ensuring registration of the consent notice; and
  3. to warn potential purchasers and future owners of the Stage 2 and Stage 3 land of non-completion of the earth fill conditions. 
SCL alleged that such duties of care were owed to potential purchasers and future owners of the land, and that BDC breached these duties.

On an application by BDC to strike out SCL's statement of claim, the High Court considered it highly unlikely that such duties of care would arise in the circumstances of this case.1  The Court came to this conclusion based on:
  1. A lack of analogy to other situations where duties of care have been established.  For example, a local authority's roles and actions under the RMA are different to those under the Building Act, where local authorities have been subject to duties of care to purchasers.
  2. The local authority was entitled to expect that an intending commercial developer of land will engage and act upon the advice in relevant professional disciplines.
  3. The loss claimed was purely economic.
  4. There was no contractual relationship between the parties, which suggests insufficient proximity to impose a duty of care on BDC.
  5. Nothing in the RMA supports the imposition of a duty of care in relation to the exercise of a council's functions under s 224.
However, the Court refused to strike out SCL's claim due to the limitations inherent in summary consideration of a novel duty, and considered that extra evidence may assist in determining whether such duty of care exists.  This decision was later reviewed in the High Court by Justice Whata.2
On review, Justice Whata declined to reverse the previous decision of the Court.  Justice Whata was concerned about striking out SCL's application without full assessment of all evidence.  While his Honour expressed considerable doubt about SCL's claim based on a "duty to warn", his Honour was more amenable to the existence of a duty of care in issuing the section 224 certificate and consent notice. 

His Honour considered that it was reasonably foreseeable that SCL could have been led to believe that the Stage 2 and 3 land was ready for development. Further, BDC must have foreseen the future cost of achieving compliance with the unfulfilled conditions throughout the section 224 process. Therefore, there was prima facie proximity between BDC and SCL, as subsequent owners might reasonably rely on the Council carrying out its duties under section 224.  In his Honour's view, this proximity was supported by the statutory purpose of the RMA, which includes avoiding, remedying and mitigating adverse effects on the environment, including people, and the avoidance or mitigation of natural hazards. 

Factors which pointed against the existence of a duty of care included: lack of control exercised by Councils throughout the section 224 process (i.e. reliance on consent holders to demonstrate compliance with conditions); large potential liability for Councils, compared to a lack of vulnerability on behalf of large developers; a risk that Councils will adopt a risk averse approach that is not conducive to the sustainable management of resources; and, further delay of assessment processes.

Ultimately, whether the imposition of a duty of care is fair, just and reasonable in the present circumstances will be best left to the trial judge, with full assessment of all relevant evidence.  Due to the potential ramifications this decision could have on local authorities, the outcome will be eagerly anticipated. 

1 Swordfish Co Limited v Buller District Council [2012] NZHC 1081.
2 Swordfish Co Limited v Buller District Council [2012] NZHC 2339.

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