Liability in demolition related damage

In this recent High Court decision, the Court considered how to apportion liability between landowners and its contractor (and subcontractors) arising from a demolition project where a subcontractor negligently caused damage to a neighbouring apartment building.

Key Findings

Landowners are strictly liable in nuisance for authorising activities on their land that unreasonably interfere with neighbouring land.

The Court confirmed that liability in nuisance is strict (not fault-based).  A landowner who authorises and permits an activity on its land will be liable where that activity causes a substantial and unreasonable interference with the use and enjoyment of neighbouring land, regardless of fault.  Demolition of the carpark and its effects on neighbours, constituted such an activity.

Landowners may owe a non‑delegable duty of care for exceptionally hazardous activities carried out on their land.

Where a landowner authorises an inherently dangerous activity giving rise to a foreseeable risk of direct physical damage to neighbouring land, the landowner may owe a non‑delegable duty of care. This duty arises independently of negligence and reflects the principle that a party who authorises and economically benefits from a hazardous activity must internalise its risks.‍

Head contractors are not automatically subject to a non‑delegable duty, but may remain liable where they negligently supervise subcontractors.

The Court declined to impose a non‑delegable duty on the head contractor to adjoining landowners in this case. However, the head contractor remained liable to the principal, including due to its own failure to properly supervise the subcontractor and respond to obvious risks during the works.  The head contractor had to contribute to the landowner’s liability (as a joint tortfeasor).

Damages will not extend to remedying pre‑existing defects or resulting in betterment.

Recoverable damages are confined to loss actually and reasonably caused by the defendants’ conduct. The Court rejected any measure of loss that would place the plaintiffs in a better position than prior to the damage, limiting recovery to targeted repairs rather than demolition and replacement where pre‑existing defects substantially contributed to the condition of the property.

Background

This proceeding arose from damage caused to a residential apartment during the demolition of a neighbouring multi storey carpark in central Wellington.

The carpark building sustained earthquake damage and was assessed at 34.1% New Building Standard following repair and strengthening works. A further strengthening project was abandoned before demolition was undertaken. Courtney Car Park Limited (Principal) engaged Naylor Love Limited (Head Contractor) to undertake demolition of the carpark building. The Head Contractor, in turn, engaged Ceres New Zealand LLC (Subcontractor), a specialist demolition subcontractor, to conduct the demolition .

The carpark building was neighboured by buildings on three sides, including an apartment building on Tory Street. Despite protective measures (including the use of a 100 tonne crane and a debris screen), the demolition caused multiple incidents of falling debris, including:

• on 22 February 2017, a piece of concrete debris fell past the screen and penetrated the exterior balcony at the front of the Tory Street building. Notwithstanding the damage, demolition works continued without investigation nor pause; and
• the following day, a beam and column unit collided with the debris screen, smashing through the roof of apartment 29, owned by the Gibson Sheat Shelf Company No. 28 Limited (GSSC), in the Tory Street apartment building causing significant structural damage to the apartment.

In response to the damage, the Head Contractor undertook preliminary measures intended to reduce the risk of water ingress through the damaged roof of the damaged unit. Despite those efforts, a storm in January 2018 resulted in substantial flooding to the interior of the apartment, causing further significant damage. The plaintiffs, GSSC (as the owner of the damaged unit) together with the body corporate of the Tory Street apartment building brought proceedings against the Principal, the Head Contractor and the Subcontractor.

Another feature of the case was the existence of historical defects in the Tory Street apartment building. In particular, the building had not received a code compliance certificate and had not been constructed in accordance with the building plans approved by Wellington City Council. These matters had implications for issues of causation, responsibility, and the extent of recoverable loss.

Key issues before the court

1. Whether each defendant was liable to the plaintiffs in tort for the damage caused
2. The appropriate measure of loss
3. The allocation of liability (if any) between defendants

Liabiltiy in Tort (negligence)

Subcontractor’s liability: The Subcontractor was the probable cause of the accident and negligent

The Subcontractor owed the plaintiffs a duty to exercise reasonable skill and care not to cause avoidable damage to the plaintiffs’ property during the provision of the demolition work. The elements which resulted in the finding of negligence include:

• the operator’s lack of experience with high reach equipment when experienced personnel were available;
• rushed demolition despite being ahead of the programme;
• absence of a fatigue management plan despite the known risks;
• the Subcontractor’s failure to pause, investigate the cause of the damage and alter the methodology after the initial (and subsequent) damage; and
• the provisional sum, an estimate of the expectation of the level of damage likely to arise from the exercise of reasonable care, recognises that the risk that eventuated was not anticipated by the Subcontractor.

Head Contractor’s liability: Not liable to plaintiffs directly but was liable to the Principal and had to contribute to the loss (as a joint tortfeasor with the Subcontractor)

The Head Contractor assumed responsibility in the contract to supervise and ensure works were conducted in a tradesman-like manner and to ensure all reasonable steps were taken to prevent damage to property. The Court held that the Head Contractor breached those duties by relying on the Subcontractor’s compliance with the technical methodology and day-to-day operation of the works.

Although the Head Contractor was not held liable to the plaintiff directly, the Court held it was liable as joint tortfeasor with the Subcontractor due to its supervisory failures, including the Head Contractor’s failure to:

• address the operator’s competence with high reach equipment;
• ensure a fatigue management plan had been implemented or ensure the fatigue risks were effectively managed;
• monitor damage to adjacent properties and ensure that such risk was minimised; and
• pause the works and investigate the cause of the damage on 22 February 2017.

Principal’s liability: breach of non-delegable duty of care via nuisance

A property owner will be liable, in respect of non-delegable duty of care, where harm is caused to a neighbouring landowner by direct damage. Such duty may be imposed where:

• the geographical proximity between tortfeasor and victim;
• the susceptibility of the victim to the harm or their inability to protect against it; and
• physical loss or damage to property.

The party that authorises and derives the commercial benefit from an activity is required to internalise the costs of carrying it out. The Principal both authorised the demolition and understood that the works carried a material risk of causing damage to adjacent buildings.  While a party may delegate the performance of works, it cannot delegate responsibility for them.

Loss

While the plaintiffs sought full reinstatement of the building,  the Court declined that approach. Extensive pre existing defects, non compliance, and weathertightness issues meant that reinstatement would amount to betterment. The defendants are not responsible for the Body Corporate’s failure to remediate the defects to the building. Recovery was therefore limited to targeted repairs directly attributable to the demolition damage.

Liability between the Defendants

The Head Contractor and Subcontractor had sought indemnities from the Principal. However, as the Subcontractor was negligent, such indemnities were ineffective. Instead:

• the Principal was entitled to an indemnity from the Head Contractor; and
• the Head Contractor entitled to an indemnity from the Subcontractor however, such indemnity was limited to the Head Contractor’s liability to the Principal for the Subcontractor’s negligence.

The loss was ultimately split between the Subcontractor and the Head Contractor. The Court apportioned 80% of the loss to the Subcontractor (being the party primarily responsible for the loss) and the remaining 20% to the Head Contractor.

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Disclaimer: The content of this article is general in nature, does not constitute legal advice and should not be relied upon for that purpose.  Parties should seek specific legal advice tailored to their circumstances before acting on any of the matters discussed.