Just as the central government moves towards a global solution to leaky homes, yesterday the Court of Appeal delivered yet another blow to Hamlin, and the general theory, if there was one, that New Zealanders were entitled to rely upon local bodies to properly inspect buildings. In Charterhall [yet to be posted on the Courts' website] , the owners of a luxury tourist lodge had sought to sue the local authority for failing to detect defects in the construction of chimney that ultimately led to fire causing damage to the building itself, destroying chattels and resulting in lost income.

In essence the Court of Appeal could find no difference between the sort of loss claimed by the plaintiffs, and that which had been claimed but which had been denied by the Court of Appeal in Te Mata (also a tourist lodge, but one which suffered from leaks). Nor could the Court of Appeal distinguish this case from that of Carter in which the Court of Appeal had refused to all damages for the economic consequences of a supposed failed inspection of a boat by the Maritime Safety Authority:

[40] Further, the loss which Charterhall suffered was not the direct result of the Council's actions, in the sense that the Council did not itself physically damage the lodge. Rather, the allegation is that the Council allowed the lodge to be built with an inherent defect, which, some years after construction, resulted in damage to the lodge and loss to Charterhall (in other words, the Council failed to identify the deficiencies in the work of Charterhall's contractors). Whether or not such loss is properly or usefully characterised as simply economic loss (see Cooke P in Hamlin at 521), it is of the same type as loss resulting from leaky building syndrome or frodefective foundations. That is, it is loss of the same type as was at issue in Te Mata Properties. We do not see the type of physical damage suffered in the present case as justifying a different approach to that taken in Te Mata Properties.

Personally I had some sympathy with the High Court decision in which Fogarty J. had refused to strike out the claim, having accepted that such distinctions might be possible. Further there might be more to the point that the core Council duty was to safeguard the health and safety of those who might use the building and that duty focused on that obligation, might have been more within the spirit of the original building cases, and indeed of the "great" Anns case itself. What appeared to tell against such a possibility which Baragwanath J. had raised in Te Mata , was the New Zealand courts' prior acceptance that economic interests in their own right could be protected by the Hamlin doctrine. Now it seems that if ecomonic interest claims are to be rejected, so will all other claims. This risks lumping all claimed losses together in the rush to retreat from the recovery of economic loss. The judgment might, for instance, be criticised as treating the claims for lost chattels as the same kind of claim as damage to the building itself or lost income as a result of not being able to use the building. Correctly classifying the type of loss is not the real point, the real point has become whose responsibility was it to avoid the damage occuring, and it the Court of Appeal has now said twice that in the case of a commercial operator it is the responsibility of a commercial operator.

What might be of even more significance might be Arnold J's apparent acceptance that Hamlin ought not to be extended to circumstances where plaintiffs are not "vulnerable" and quite capable of employing their own advisers in the building process. Next month the Court of Appeal is to hear the appeal in Sunset Terraces townhouse litigation in which the appellant councils are likely to directly challenge the applicability of Hamlin. Those councils may find some comfort in the way the Court of Appeal discussed the Hamlin doctrine itself :

[23] As will be immediately apparent, the features identified by Richardson J go to residential properties built for typical New Zealand home-owners.

The Sunset Terraces appeal directly raises whether the owners of the townhouses were really in the same position as a typical home owners like the Hamlins and whether more have been expected from them in terms of protecting their own interests. In the end however the Court of Appeal will struggle with by far the greatest difficulty of the leaky homes cases, that while litigation against local authorities was always a flawed way of dealing with the problem of insuring new domestic constructions, it has now been the New Zealand practice for three decades. The game is afoot, whatever the Court has said about what can be expected of commercial operators, retrespectively expecting home owners to have better guarded their own interests, may just not be appropriate.

Geoff McLay

26 August 2009


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