A construction contract does not set out all of the obligations of the contractor and principal – there are other duties imposed by the law. The Court of Appeal's decision in Andrews Property Services Limited v Body Corporate 160361 demonstrates that contractors may find themselves having to take additional steps, even if they have no express contractual obligation to do so. However, the decision pulls back from the wider 'duty to warn' established by the High Court and recognises the role of the engineer to the contract as the representative of the principal and the role of a contractor in a build-only contract.
Owners of the Fleetwood Apartments, a central Auckland 40-unit apartment building constructed in 1994, discovered weathertightness issues with the building in 2003. Babbage Consulting Limited (Babbage) was engaged as engineer/architect and prepared tender documentation for the substantial required remediation works. Andrews Property Services Limited (APS) was the successful tenderer. The agreed remediation involved an overclad using new exterior Eterpan cladding over the existing steel framing and underlying cladding. The works were completed by 2006, but significant cracking in 2011 revealed problems with the overclad system – not only had the Eterpan panels been incorrectly installed, but Babbage had not completed an adequate survey/inspection of the building prior to the remediation works.
The owners made various claims against Babbage, APS and the Auckland Council in the High Court in relation to the costs of remediation works. When all three were found liable, APS appealed. The legal issue that is of interest was whether APS had a duty to warn the owners of the building that Babbage had not completed an adequate survey/inspection.
Survey required, but by whom? The importance of tags
The tender documentation prepared by Babbage had envisaged that the successful tenderer would, in conjunction with Babbage, "[…] inspect all external and associated walls to establish moisture content". However, the tender from APS noted that its proposal was reliant on the initial Babbage survey. The Notes and Conditions in the APS tender stated that "[…] all repairs are reliant on the initial Babbage Consultant survey […]". Because of this qualification in the tender from APS, the Court of Appeal found that responsibility to carry out the survey/inspection had shifted to Babbage.
This was important for the Court's subsequent finding on the 'duty to warn' issue commented on below. However, it also demonstrates the importance of analysing properly the extent and implications of qualifications or "tags" in tender responses in re-allocating risk between the parties.
A duty to warn exists, but not here
Since the Court had decided that Babbage, rather than APS, had the contractual obligation to undertake the survey/inspection, the apartment owners argued that APS had a 'duty to warn' which required APS to contact them directly about the potential issues with the Babbage survey/inspection.
The Court of Appeal confirmed that a 'duty to warn' did exist in New Zealand construction law, but disagreed with the High Court that a duty existed in this particular instance. Of central importance to the Court of Appeal's reasoning was that APS was, as the contractor, in a "legally subservient" position to Babbage, the architect and engineer to the contract. As such, APS was required to act on Babbage's instructions and was only required to undertake repair work which Babbage directed it to (which excluded the survey/inspection, as per the tag in the tender). In such a "legally subservient" position, said the Court, APS could not have a duty to second-guess Babbage's work and warn the owners directly.
Although APS succeeded on this issue, the Court of Appeal went on to find that APS was liable for installing the Eterpan sheets incorrectly. Until the parties resolve issues of legal causation, this means that the decision is an interim one. But in the absence of further appeal to the Supreme Court, the decision does confirm that typically contractors are subject to a duty to warn, as part of a broader duty of care, that is owed to the principal. However, the decision illustrates that the extent of that duty is dependent on the particular circumstances and also recognises the role of the engineer to the contract.
Please contact our team if you would like advice on construction contracts or any of the other issues raised in this update.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.