Engineering firm sued for $15m over 'negligent' seismic risk report

An Albany building owned by Corinthian Investments was found to be severely earthquake-prone despite seismic assessments certifying it as safe. Photo / Google

An engineering firm is being sued for nearly $15 million after a building it certified as seismically safe was found to be severely earthquake-prone and at risk of causing mass casualties.

But the engineering company disputes liability, saying it owed no duty of care to the building's subsequent owners who should not have relied on the advice.

MSC Consulting Group Ltd is accused of negligent misstatement over a seismic assessment report it prepared for a five-storey commercial Albany building on the North Shore. A spokesman declined to comment.

A just-released Court of Appeal decisions says the firm assisted with the building's design and construction in the early 2000s.

Smales Farm Management was responsible for managing the building on behalf of its then owners and overseeing commercial tenanting.

In 2012 Smales engaged MSC to review the building's structural design and assess its seismic performance.

This was done following the Christchurch earthquakes to assure tenants the building was safe, as many commercial tenants require buildings to be at least 80 per cent of new building standards.

An initial review by MSC found the building was 72 per cent of the code, while a more detailed assessment found it was 87 per cent.

At the time, any building that was less than 34 per cent was considered earthquake-prone and "likely to collapse in an earthquake, causing injury or property damage".

The reports contained limited liability clauses stipulating their contents could not be relied on by parties other than Smales.

Smales provided a copy of the detailed assessment report to ANZ bank which signed a nine-year lease for the building in July 2014.

Later that year the building was sold to Oyster Management Ltd, which was also given a copy of the seismic report.

Oyster sought permission to include the seismic report in an investment statement and prospectus but this was declined by MSC.

The building was purchased by Corinthian Trustees Ltd the following year.

In April 2017 ANZ instructed another engineering firm to review the two MSC seismic reports.

"The upshot was a report which assessed the building as a very high-risk earthquake-prone building with an overall new building standard rating of less than 20 per cent."

ANZ immediately vacated the building and sought to terminate the lease.

In June 2017 Oyster commissioned MSC to review its 2012 assessment report in light of the new revelations.

"MSC subsequently accepted that the building had a critical structural weakness. MSC revised its new building standard rating from 87 per cent to 23 per cent."

Oyster and Corinthian issued civil proceedings against MSC in September 2018 alleging negligence and misstatements.

MSC filed documents denying any errors. It also applied to strike out the court action, claiming proceedings against its original design work was time-barred under the Building Act and that it did not owe the respondents any duty of care.

A High Court decision released in April last year struck out the negligence claim against MSC regarding original design work.

But it allowed the claim to proceed relating to the seismic reports.

Oyster said it relied on the reports to determine if the building was suitable for commercial tenants, "and that had it not been for MSC's negligence it would not have bought the building".

The five-storey building is located on Corinthian Drive in Albany. Photo / Google Maps

Oyster also argued that MSC owed a duty of care to prepare seismic reports using reasonable care and good professional standards, which could be relied on by subsequent building owners.

"It was reasonably foreseeable that the [seismic reports] if carried out incorrectly could put the building occupants' lives at risk."

The plaintiff companies sought nearly $15m in damages to cover the cost of strengthening work and lost rental income.

MSC appealed against the High Court decision, arguing it had no duty of care to the subsequent purchasers and had no idea they would be provided with the seismic reports.

However this was declined by the Court of Appeal.

Justice Christine French ruled the key issue was around "reliance by a third party on advice commissioned by someone else".

While the plaintiffs "faced some difficulty" advancing their claim against MSC, the case would rely on evidence of industry practice, and whether seismic reports were routinely shared during commercial building sales.

Justice French also raised questions about why the vendor company was not being sued alongside MSC, and whether purchasers should pay for their own engineering advice to guard against risk.

The judge ordered the plaintiff companies to file amended statements of claim ahead of the matter going to trial.

Oyster and Corinthian could not be reached for comment.