NBS, negligent misstatement and a duty of care

By Stuart Robertson, partner, Andrea Lim, solicitor, and Marlan Praba, law graduate, at Dentons Kensington Swan

The NBS Rating System (NBS) is an evaluation procedure used by engineers as a means of assessing the ability of existing buildings to withstand earthquake loads from a life safety perspective. The NBS and its complex nature, however, has resulted in owners (and insurers) misunderstanding what the evaluation actually measures. Consequently, due to this confusion, the NBS has found itself at the centre of claims in negligent misstatement.

The key features of a negligent misstatement claim are:

  • a false or misleading statement;
  • made in a circumstance where a duty of care is owed to the plaintiff;
  • reasonable reliance on the statement by the plaintiff; and
  • resulting loss to the plaintiff.

For a duty of care to exist, there must be a relationship where the advice was required for a known purpose, the adviser knew that this would be communicated to a known recipient, and there would be expected reliance on the advice.

Recently, the issue of NBS and negligent misstatement was touched on by the Court of Appeal (CA) in MSC Consulting Group Ltd versus Oyster Management Limited. MSC was engaged to provide NBS and seismic reports to the building owners. They in turn provided the reports to Oyster, as part of due diligence investigations. The reports included NBS assessments which were incorrect. Oyster claimed that they relied on the reports in purchasing the building.

The CA held that the key features of negligent misstatement were not adequately illustrated, particularly:

  • that MSC did not know prospective buyers were going to use and rely on its reports; and
  • the only purpose made known to MSC for the NBS assessment was the purpose of tenanting the building (not for the purpose of sale).

The CA, however, acknowledged that there remains open a tenable basis to make-out a negligent misstatement claim if Oyster amended their statement of claim to one based on a tenanting decision.

Oyster Management provides a timely reminder for consultants that:

  • potential liability under negligent misstatement for NBS assessments remains alive and well; and
  • a duty of care may be owed to parties beyond your original clients.

Disclaimer: This article is not a substitute for specific professional advice on any matter. No warranty or guarantee whatsoever is given as to the accuracy of any information contained in the article, nor is any liability accepted for any actions taken based on this information.

Dentons Kensington Swan has New Zealand’s largest team of construction lawyers and we have worked on many of New Zealand’s largest construction projects. We are experts in both front end and back end construction matters.  

The information and opinions within this column are not necessarily the views or opinions of Xpress Engineer NZ, NZ Engineering News or the parent company, Hayley Media.