By: Emily Walton
In Spencer on Byron1 the Supreme Court held that local authorities owe a duty of care in their inspection role2 to all building owners. This is a huge development, as previously such a duty only recognised residential building owners.  

Spencer on Byron comprises 249 hotel rooms and 6 penthouse apartments, each owned as a separate unit under the Unit Titles Act, and associated hotel facilities. The North Shore City Council granted the necessary building consents and issued a series of code compliance certificates under the Building Act 1991. 

It was later discovered that the building leaked, with remedial work estimated to cost more than $19million.  The unit owners and the Body Corporate sued the Council in negligence for issuing building consents when it was not satisfied that the work would comply with the building code and for failures with its inspection regime.  The Council argued that it owed no duty of care to commercial building owners and was largely successful in the High Court and Court of Appeal.

By a 4:1 majority, the Supreme Court held that there is no logical basis to distinguish between commercial and residential buildings. Local authorities perform the same statutory functions in respect of all buildings, and therefore should owe a duty of care in exercising those functions to all building owners. 

The Supreme Court reviewed case law from other Commonwealth jurisdictions, and found no clear restriction of the duty of care to residential building owners, nor a principled distinction drawn between residential and commercial buildings. It did not find any policy reasons to restrict the duty to residential building owners. The purpose of the Building Act 1991 was to ensure that buildings were built in accordance with the building code, and local authorities were given control of that process. It is therefore consistent that local authorities must exercise reasonable care in their inspection role for all buildings to ensure the purpose of the Building Act is achieved. 

Where to from here?

Now that a duty of care has been recognised, Spencer on Byron will return to the High Court to determine whether that duty was breached. 

The Supreme Court expressly reserved its position as to whether the decision would also apply under the Building Act 2004, but it is unlikely that there would be a different result under that Act. However, as noted in the dissenting judgment of William Young J, the extensive amendments made by the Building Amendment Act 2012 (not all of which are currently in force) may have created a disconnect between judicial and legislative development of the law in this area, which is undesirable.

Although the ten year long stop limitation period still applies, this case significantly increases the number of building claims that may be brought against local authorities for leaky, and otherwise defective, buildings. It is likely that this will remain the case for buildings consented and inspected under the Building Act 2004, at least prior to the 2012 amendments. This case may have real significance for the Christchurch City Council given building defects revealed through post-earthquake inquiry.

If you believe you may have a claim, please contact us for advice. 

1 Body Corporate No.207624 v North Shore City Council (Spencer on Byron) [2012] NZSC 83
2 The term "inspection role" covers local authorities' obligations in granting building consents and issuing Code Compliance Certificates: Spencer on Byron at [218]

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