Producer statements and liability to subsequent purchasers

A case recently heard at the High Court of Auckland, Judge v Dempsey [2014] NZHC 2864, highlights that parties issuing Producer Statements in relation to building work may find themselves liable to a subsequent purchaser of the building for latent defects.

The judgment, released 18 November, echoes the sentiment seen in 2012 Supreme Court case Spencer on Byron, that no one can be party to the construction of a building that does not comply with the building code, whether they created the defects or merely certified the work.

Judge v Dempsey concerns neighbouring properties in St Heliers, built simultaneously by a developer. The subsequent purchasers sought damages from those parties involved in the construction, certification and sale of the properties. Defendant MSC Consulting Group Ltd, who were the engineers for design and construction, undertook periodic reviews during construction and ultimately issued a Producer Statement to the Auckland City Council, sought summary judgment against the plaintiffs.

Under the Building Act 1991, territorial authorities could accept Producer Statements as establishing compliance with the building code for the purposes of issuing building consent and/or code compliance certificates.

MSC argued that :

  1. Any actions undertaken prior to the issuing of the Producer Statement were out of time due to the ten year longstop for claims under the Building Act.
  2. In relation to the Producer Statement, there was no duty of care to a subsequent purchaser; no reliance on the Producer Statement in purchasing the properties; and no causative connection between the issue of the statement and any loss suffered by the plaintiffs.

MSC relied on previous authority Pacific Independent Insurance Ltd v Webber, which held that a defendant inspector and his company owed no duty to a subsequent purchaser. In that case, Lang J found the relationship was too remote for a duty of care to arise, as there was no direct contractual relationship and the inspector did not physically create the defects. Further, the position of an independent inspector differed from that of a territorial authority, as there is a ‘community expectation’ that territorial authorities carry out their duties to a certain standard for the benefit of all homeowners, including subsequent purchasers. In the absence of general reliance or community expectation, Lang J noted actual reliance is required.

Here, both plaintiffs gave evidence that they had relied on the code compliance certificates issued on the back of the Producer Statements in purchasing the properties. One party had perused the council file, which included the Producer Statement, and said that he concluded on the basis of this inspection that there was nothing wrong with the building. Accordingly, Associate Judge Osborne found it arguable that the plaintiffs relied on the Producer Statement, and refused summary judgment. As summary judgment will only be granted if all causes of action are incapable of succeeding, the defendant’s limitation argument was not explored.

The judgment shows that the law regarding duties of care in relation to leaky buildings continues to develop, and that those furnishing Producer Statements should turn their minds to what purpose the statement is being provided for, and who might reasonably rely on its contents in the future.

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