Am I my brother's keeper? - A duty to warn about the failure of others?

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Andrews Property Services Ltd v Body Corporate 160361 [2016] NZCA 644

Facts

Andrews Property Services (APS), a building company, successfully tendered to repair a leaky apartment complex.  The tender documents provided that architectural consultants were to conduct a survey of the existing cladding for damage and then direct APS as to any repairs required.  Although they advised APS of some rust, the architects did not survey the cladding for damage per the tender documentation.  Later, the ‘overclad’ that had been attached to the existing cladding cracked and significant damage to the existing cladding and apartment interiors was also discovered.  The owners then sued APS for negligence, breach of contract, breach of the Fair Trading Act 1986 and breach of the Consumers Guarantees Act 1993.  APS, along with the Auckland Council and the architects, was held liable in the High Court.  APS appealed the decision.

The issue before the Court of Appeal was whether APS had a duty to warn the building owners that the architects had not conducted a survey in line with the tender documents.

Does a contractor have a duty to warn its principal?

The Supreme Court has recently found there can be a duty to warn in the context of construction contracts in Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95.  The presence of this duty will depend on the circumstances of the individual case and the facts proved at trial.  More generally, Tipping J observed in Brownie Wills v Shrimpton [1998] 2 NZLR 320 (CA) that a duty will arise between two parties when there is an existing legal relationship between them, including a contractual relationship,  as there was between APS and the owners of the apartment complex.  The Court qualified this by saying that “the court should not hold a contractor to be under a duty towards his client unless it is reasonable to do so”

The Court’s decision - Did APS have a duty to warn the owners?

The Court of Appeal found it would not be reasonable to hold APS to such a duty.   APS had specifically declined to assume a joint obligation to undertake the inspection in their tender and thus had no contractual obligation to do so. In addition, the only repair work APS was required to undertake was that directed by the architects - it was the architects’ role to decide on the appropriate remedial treatment of the building, and it was on the basis of their directions that APS carried out its work.

It is also of note that although the tender specification stated that APS, as the general contractor, was to be responsible for weather tightness of the work and guarantee the weather tightness of the complete building for three years, the APS tender contained an exclusion that no weather tightness guarantee is provided because the systems used were not BRANZ approved. 

The Court of Appeal held APS owed no duty to ensure the survey was conducted, nor draw the absence of the survey to the attention of the owners.  That duty belonged to the architects alone.  The Court further held that under the Building Act 2004, APS did not have a duty to undertake work that fell outside its contract (to provide remedial work as directed by the architects), nor did it have a duty to ensure the entirety of the building would be code compliant. 

Comment

Matt Atkinson from Fee Langstone says that this is an important case for professional indemnity insurers as the Court of Appeal looked at the question of when do professionals and building contractors owe a duty to warn others about potential defects and dangers which have not been created by the professional or the contractor.  While APS did not have a duty to warn in this case, the Court indicated a willingness to follow English authorities which have expanded the circumstances in which professionals will be held to owe a duty to warn others.