A builder's duty of care - When should it apply to the directors and employees of companies involved in the creation of defective buildings?

Abstract

This thesis considers the issue of when a tortious duty of care to prevent economic loss should be imposed on the company directors and employees who stand behind the complex structure of companies and contracts involved in the creation of a defective building. Set against the background of the leaky building crisis, and what are (it is argued) unfair litigation outcomes, the thesis traverses the emergence and development of the principles that underpin liability for negligence and negligent misstatement in respect of defective buildings. A review of the cases confirms that the concepts of control and general reliance are the basis of New Zealand law in this area. There follows a discussion of the difficult relationship between company law principles and negligence principles, and the role of assumption of responsibility in the law of negligence and negligent misstatement, including a discussion of developments in the leaky building litigation. The thesis advanced is that, in respect of the creation of defective buildings, the approach to the issue of whether to impose a duty of care on company directors and employees would benefit from placing significant weight on the factor of de facto control of the inputs that dictate the outcome of a building project, and on the lower level factor of a direct or indirect financial interest in the outcome of the project.

It is argued that the approach to imposing a duty of care should be the same for directors and employees and in respect of statements and actions. In cases where the evidence establishes that the financial interest factor is not present, this should give rise to an inference that the company director or employee does not have control of the inputs that dictate the outcome of the project, so that no duty of care arises. This would enable a director or employee to exit litigation by way of an application for summary judgment. This is intended to discourage the practice of joining minor parties to litigation for the purpose of extracting a precautionary settlement. If control of the inputs that dictate the outcome of a project can be established by inference from the existence of the financial interest factor, or by the other evidence, then the two stage approach to the imposition of a duty of care would require a consideration of other factors that might negate the duty, such as the contractual matrix.