Body Corporate 160361 v BC 2004 Ltd

[2015] NZHC 1803

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-4890 [2015] NZHC 1803

BETWEEN

BODY CORPORATE 160361

First Plaintiff

BODY CORPORATE 160362
Second Plaintiff

FONG HONG YUEN & OTHERS Third Plaintiffs

AND

BC 2004 LIMITED AND BC 2009
LIMITED
First Defendants

continued over…./

Hearing:

9, 10, 11, 12, 13, 16, 17, 18, 19, 20, 23, 24, 25, 26, 27 February,

2, 3, 10, 11, 12, 13 March 2015
Further submissions filed 7, 11, 21 and 29 May 2015

Appearances:

M C Josephson, G B Lewis, M L Gibson for First, Second and
Third Plaintiffs
D A Cowan and J D McBride for Second Defendant (Andrews
Property Services Ltd)
S A Thodey, K M Parker and T C Wood for Third Defendants
(Auckland Council)
Fourth Third Party in Person

Judgment:

31 July 2015

JUDGMENT OF WHATA J

This judgment was delivered by Justice Whata on

31 July 2015 at 4.00 p.m., pursuant to r 540(4) of the High Court Rules

Registrar/Deputy Registrar

Date:

BODY CORPORATE 160361 v BC 2004 LIMITED AND BC 2009 LIMITED [2015] NZHC 1803 [31 July

2015]

ANDREWS PROPERTY SERVICES LIMITED

Second Defendant

AUCKLAND COUNCIL Third Defendant

PBS DISTRIBUTORS LIMITED First Third Party (In Liquidation)

FAÇADE DESIGN SERVICES LIMITED

Second Third Party

RONALD CHARLES HANLEY Third Third Party

JOHN LUKASZEWICZ Fourth Third Party

Solicitors:

Grimshaw & Co., Auckland
Rainey Law, Auckland

Heaney & Partners, Auckland

Copy to:
J Lukaszewicz, Blockhouse Bay, Auckland

Table of Contents

Para No

PART ONE: INTRODUCTION  [1] The defects  [3] The live issues  [5]

PART TWO: BACKGROUND  [8] Investigation, tender and recommendation  [9] Onsite works commence and approach to rust  [19] Application for building consent  [20] Processing of application  [21] Consent granted  [25] The Overclad installation  [30] Only limited repairs undertaken  [33] Inspections  [34] Code compliance process  [35] Settlement of original claim with the Council  [41] Prendos review  [45]

PART THREE: LIABILITY  [48] The Claims against Babbage  [48] Who is Babbage?  [50]

Was the Overclad solution conceptually sound?  [51] Were the design details inadequate?  [53] Was Babbage obliged to survey the building for water damage prior to the

installation of the Overclad?  [54] Did Babbage fail to secure the proper survey of the building?  [56] Did Babbage undertake to repair and or remove all damaged elements?  [61] Did Babbage properly assess the suitability of the structure?  [62] Was there structural failure?  [64] Was the Prendos remedial solution justified?  [67] Did Babbage fail to secure the proper installation of cladding on the Northern Elevation?                  [75] Summary of findings on supervision  [76] What are the losses attributable to Babbage’s failures?  [84] Result on Babbage’s liability  [86]

The Claims against APS  [87] A preliminary pleading issue  [89] The nature of APS’s duty of care to the Plaintiffs  [92] Did APS install an appropriate remedial system?  [107] Did APS undertake to BC1 to identify and remove all damaged elements?         [108] Did APS fail to identify or fail to advise Babbage of any obvious defects?          [110] Was APS obliged under the Building Act 2004 to require a survey of the building

in accordance with SW1-A-1?  [114] Did APS install the Overclad with the incorrect screw fixings?  [120] Did APS fail to comply with SW6-A-10?  [121] Did APS breach an implied duty to install the cladding in a proper

workmanlike manner?  [124] Did the failure to comply with SW6-A-10 (if any) make a material difference?      [126] Did APS issue a flawed producer statement?  [129] Is APS liable for the poor workmanship on northern columns?  [133] What losses are attributable to APS’s failures?  [134] Result on APS’s liability  [138]

The Claims against the Council  [139] What was the nature and content of the Council’s duty to the Plaintiff?             [141] Did the Council have a proper basis to issue building consent?  [145] Was a survey of existing damage required by the building consent as granted?     [154] Did the Council have the power to impose a condition requiring survey?           [162] Were the works properly inspected before the Council was satisfied that the

work was Code compliant?  [164] Was it reasonable to rely on the producer statement process?  [165] Did the Council have sufficient information to issue code compliance?             [166]

Did the Council’s failures materially contribute to the Plaintiffs’ losses?               [174]

Summary of outcome of claims against the Council  [176] The Cross and Other Claims  [177] Joint/concurrent tortfeasor  [180]

The direct claim by Council: the flawed producer statements from APS             [182] Negligent Misstatement and the FTA framework  [184] Were the statements misleading?  [190] Did Ms Watkinson in fact rely on the statement?  [191] Were the statements causative of the claimed loss?  [193] What is the proper apportionment of the losses for misleading conduct?            [195] Did Mr Lukaszewicz mislead the Council?  [198] The limitation issue  [203]

The Council’s affirmative defences  [210] Was there accord and satisfaction?  [212] Is the present claim time barred?  [215] Contributory negligence  [216] Mr Dobson E3  [219] Mr Petersen G5  [220] Ms Seto E5  [221] Discount on sale  [222]

PART FOUR: QUANTUM  [225] General damages   [227] Consequential losses  [228] Compensatory damages   [230] The proper measure of compensatory damages  [232]

The 2005/2006 owners: standing to sue  [236] Quantum of loss    [237] Compensatory damages [237]

The wasted costs  [238] The repair bill  [241] The increased costs  [245] The net sum  [246] Northern column and elevation repair  [247] Body corporate fees  [248] General damages  [249] Losses on units A3, C4 and D4  [250] The purchasers’ losses  [252] Consequential losses  [254]

PART FIVE: OUTCOME  [255] Babbage liability  [256] APS liability  [260]

The Council  [264] Mr Lukaszewicz [268]

Final quantum  [269]

Costs  [272]

Annexure A – Observations at 3 September 2014
Annexure B – The Eterpan Literature
Annexure C – Plan A601

PART ONE: INTRODUCTION

[1]      The Fleetwood Apartments leaked.   On the advice of Babbage Consulting Limited1   (Babbage)  the  owners  approved  the  installation  of  an  “Overclad”  rain shield cavity system to protect the apartments from water damage. Andrew Property Services Limited (APS) was retained to undertake the works.  The Auckland City Council (as it then was) granted building consent for the installation.   APS then installed the Overclad, with assistance from Babbage and Cladding Systems Limited

(CSL).  Messrs Lukaszewicz and Hanley were then directors of CSL.   Mr Hanley was  also  a  director  of  Façade  Design  Limited.    They provided  advice  that  the Overclad system complied with building code.   The Council granted code of compliance in September 2006.  By August 2011 cracks in the Overclad sheets were noted and a report from Prendos identified underlying weather tightness damage.  It recommended complete removal of the Overclad, pre-existing cladding and steel framing. The remediation works are just about to be completed.

[2]      The Bodies Corporate 160361 and 160362 (BC1 and BC2) together with the past and present owners of the apartments (the Plaintiffs) sue Babbage, APS and the Auckland Council for the full cost of the latest round of remediation together with general damages.

The defects

[3]      The pleadings allege specified defects in the following terms:

16.      The Remedial Works to the Fleet Street apartments were constructed with deficiencies including but not limited to the following:

(a)       the use of the overclad fibre cement cladding system as a repair solution was inappropriate as:

(i)       The  overclad  system  was  not  suitable  for  use  over  an unsound lightweight substrate;

1      In the period 2005 – 2010, Babbage was formally incorporated under the name BC 2004 Limited and then BC 2009 Limited from 31 March 2005. In 2010 Babbage was incorporated simply as Babbage Consultants Limited.

(ii)      The repair solution did not fully identify and remediate the existing damage.

(b)       The  fixing  of  the  overclad  fibre  cement  cladding  system  was inadequate in that:

(i)       There were an insufficient number of fixings.

(ii)      The  rails  distorted  upon  the  installation  of  sheet  screw fixings.

(iii)     The rails deflected excessively between supports.

(iv)     The method of fixing caused the Eterpan sheets to crack.2

(c)       The direct fixed fibre cement cladding to the deck columns on the northern elevation was installed in contact with or having inadequate clearance from horizontal deck surfaces.

(“The defects”)

[4]      “Remedial Works” refers to the Overclad fibre cement cladding system used to remediate the apartments.

The live issues

[5]      By the conclusion of the hearing the live defects issues were:

(a)      Whether  the  Overclad  system  should  have  been  recommended, approved,  installed and  certified  given the severely corroded steel substrate;

(b)      Whether the Overclad Eterpan sheets were correctly affixed by APS.

[6]      I will address these issues in terms of the respective claims against each defendant and the third party, Mr Lukaszewicz.

[7]      The balance of the defects claims can be dispensed summarily:

2 This particular was inserted by amendment at the conclusion of the hearing. I address the application for leave to amend at [89].

(a)      The pleaded defects about the number of fixings, rail deflection and rail distortion were only minor contributors to any cracking and were not causative of the Plaintiffs losses;3 and

(b)The  fibre  cement  cladding  to  the  deck  columns  on  the  northern elevation was not installed with appropriate clearance to the decks.4

PART TWO: BACKGROUND

[8]      In order to properly understand the nature of the claims it is necessary to narrate the background facts in detail.

Investigation, tender and recommendation

[9]      The Fleetwood Apartments comprise 40 units overlooking the north-western motorway.  In 2003 water damage was identified. Babbage was retained to provide a review of the building and advised that substantial remediation works were required to repair the water damage.  Babbage was then engaged to recommend a remediation plan and issue a tender for the remediation works.

[10]     The tender specification included three options, including the Overclad rain shield system that would overlay the existing structure.   It referred to BC1 as the “Principal”.  Babbage is referred to as the “Architect”.  The specification anticipates that a building consent may be required.   Any conditions of consent  are to be referred to the “Principal/Architect” and “(n)o such condition shall become a Variation unless confirmed in writing by the Principal/Architect”.  It states that the Contractor “shall be responsible for ensuring that all work and materials executed are in accordance with requirements.”  The specification then included the following clause:

SW1-A-1 SCOPE OF WORK

The work in this contract includes:-

3      The Plaintiffs’ engineering expert, Thomas Donald, conceded under cross examination that the

pleaded defects were only minor contributors to the damage to the Overclad cladding.

4      Mr McBride conceded in closing that the failure to ensure adequate separation caused the water damage to these columns.

1.0      Exterior Walls

In  conjunction  with  Babbage  Consultants  Limited  inspect  all external and associated walls to establish moisture content.   A moisture content of 18% or less is required.   Remove areas of the exterior cladding to front and block ends to access effected timbers/steel studs to determine level of deterioration.   The deep balcony side facing Dominion Road, shows no signs of deterioration due to protection.   If timbers have started to decay, then they will need to be replaced with H3.2 treated timbers for studs and H3.2 treated timbers for bottom plates.  Steel studs need to be treated for rust and primed.  Significant rusting may require replacement.  This operation may pop nails out of the internal Gibraltar board lining. The other timbers should be treated with a 20% bleach solution to neutralize mould spores, reducing the risk of future mould. Treat the existing exposed timbers with Protim Timber Saver.   Reline with matching Gibraltar board for fire rating and fibre cements sheets and install ‘overclad’ system with 9mm fibre cement sheets and paint to match existing colour schemes.   Extent of new painting shall be whole  walls  that  are  effected  by  builders  works,  to  the  nearest corner.

[11]     Clause SW1-A-11 also stipulated that the intent of the contract is to rectify all construction that leaks.   Particular specifications dealing with the fixing of the Overclad included:

(a)      Clause SW6-12.3 – Specific directions given for framing and masonry anchors.  Other materials to be “fixed as detailed on the drawings or as recommended by the manufacturers of the product.”

(b)Clause SW6-17 – “Fix exterior cladding types scheduled, as specified in the Particular Section.”

(c)       SW6-A-10 – “Pre-drill, allow screw fixings for counter sunk screws.

The compressed sheets shall be fixed in accordance with Cladding

Systems Specification.”

[12]     APS  won the tender  and  BC1  approved  the installation  of the Overclad system on Babbage’s recommendation.  Notably, APS’ tender proposal included the following comments:

3.        Full survey on structural repairs needed.

4.Open up failed areas from survey, remove insulation, treat/repair timber.

[13]     Further, in a section headed “Notes and Conditions that apply to our tender

costing”, the APS tender proposal records:

10.      For the cladding system option, the following is noted:

·Existing cladding is not removed and all repairs are reliant on the initial Babbage consultant’s survey when the scaffold is erected. However, additional repairs found or needed, can be achieved from the interior once the cladding is in place at extra cost.

·Fire rating is to be retained due to the existing cladding remaining and any repairs will have original cladding reinstated.

[14]     It also notes:

·Details provided on this system do not show how the cladding is fixed to the grid. We have assumed screw fixing using stainless steel screws. Two options are possible:

(a)  Countersunk screws, flush top and paint over.

(b) Capped screws sitting proud of the surface and therefore an architectural detail.

The disadvantages of Option A are that you possibly could see stop patches in certain light and the sheets will have to be damaged to remove.

There is no difference in cost for both options as Option B requires more labour and set out and cap screws are more expensive.

[15]     A further note records;

A three year workmanship warranty is provided for all work only.   No weather tightness guarantee is provided as two systems are unproven and all three  are  not  BRANZ  approved.  (note  -  all  work  will  be  inspected  by Babbage Consultants as well as product suppliers for materials warranties along with photographic data collection so chances of failure are small).

[16]     The tender document concludes with APS claiming extensive experience in the required work and that they “have full knowledge of all systems and alternatives available.”

[17]     The APS tender cost for the Overclad system was $752,315.

[18]     Formal confirmation of instructions is recorded in a letter from Babbage dated 15 November 2004.  In particular this letter notes:

On behalf of the Fleet Street Body Corporate No.160361, the tender dated

14 July 2004 is accepted amounting to $752,315 plus GST.  This is based on

the  Babbage  plan’s  details  and  the  methodology  noted.    Babbage  has received a building consent from Auckland City Council.   The Body Corporate  has  a  number  of  construction  issues  and  the  costs  may  be increased, as they are proposing to carry the remedial works out in stages. Would you please provide us with your insurance details and I will obtain a copy of the Body Corporate insurance for remedial works for your records. We look forward to working with you on this project.

Onsite works commence and approach to rust

[19]     The exact start date of the remedial works is not clear.  The works were due to commence in March 2005, but it appears did not get underway in earnest until early April.  In any event, in a letter dated 19 April, Mr Boyle project manager for APS wrote to John Dale seeking clarification as to how he would like APS to treat rust discovered on the bottom plates of window sills of the steel framing.  Mr Dale responded:

Following a visit to the above property to inspect the extent of rusting to the lightweight steel framing, the rusting is obviously indicating that moisture has  entered through  the existing  cladding sheets.   Once  the  moisture is eliminated no further rusting will occur. Therefore the areas that are exposed at present need to be sanded back and a rust inhibitor applied to all visible metal surfaces.

Application for building consent

[20]     An  application  for  building  consents  had  by  this  stage  been  lodged  on

23 March 2005.  The project details are described as “Overclad existing structures, replace roof cladding like for like and repaint entire façade”.   The drawings, specifications and other documents according to which the building is to be constructed were attached to the application (at least according to the application’s terms).  The plans included a site plan, elevations and alternative cladding details. The specifications included SW 1-A-1.

Processing of application

[21]     The  application  for  building  consent  was  processed  by  Mr  Campbell Thatcher.    Having  considered  the  documentation  supplied  with  the  application, Mr Thatcher wrote to Babbage with a number of queries.  Of particular relevance the following matters were raised:

1.The drawings show the existing cladding still in place.  The cladding should be removed to inspect the existing framing and to treat the framing if the existing is found to be chem. free.  Any decay or rust found in specifically designed members should be inspected by an engineer.     The  ventilated  cavity  should  be  open  to  allow  air movement around the framing.

….

12.The eterpan manufacturers are to provide a producer statement to approve the use of their product with the overclad system.   The manufacturer is also to approve methods of fixing and means of achieving durability.

[22]     Mr Dale responded to the letter on 25 May 2005.  The response included the following:

1.As stated the existing cladding is to remain in place and the new aluminium frame is to be attached directly over the top, therefore there  is  no  need  to  remove  the  existing  cladding.   The  existing framing is lightweight steel framing throughout with concrete intermediate floors.  Where rusting is found at the underside of the sill areas, these will be sanded back and a rust inhibitor applied.

…

12.Etepan [sic] was tested with the overclad system, find attached a copy of the Producer statement from PBS.   All fixing are to be stainless steel screws at 25mm centres, with the sheets predrilled and countersunk.  Once the sheets have been fixed the fixing are filled with epoxy filler prior to painting.   Refer to producer statement attached.

[23]     The producer statement attached to Mr Dale’s letter was signed by Mr Hanley

of Façade Design Services Ltd.  It is addressed to PBS Distributors Ltd.  It stated:

To:      PBS Distributors Ltd

In relation to:   Overclad – cladding system; mounting of eterpan 9mm MD

board on the overclad grid.

In respect to:    Requirements of clause B1, B2, E2 of the first schedule of the building regulations 1992

Verification:     This   design   has   been   verified   in   accordance   with AS/NZ4284 “Testing of building façades” WEC report No.1375.

Documents:     Work  must  be  carried  out  in  accordance  with  Cladding

Systems Ltd. Drawings & specification.

As a designer I have taken all reasonable steps to verify design assumptions. I am satisfied on reasonable grounds that in relation to the building work specified above the provisions of the building code would be met if the building work were properly completed in accordance with the drawings specifications and other documents according to which the building is proposed to be constructed.

[24]     The WEC report referred to in the producer statement appears to have been received at the same time.  I deal with the significance of this report below at [145]- [153].

Consent granted

[25]     On 16 June 2005 the Council issued a building consent for the remedial works numbered BLD2005-0323801.  The building consent authorised the following building work:

Overclad existing structure, replace roof with like and repaint entire façade.

[26]     The conditions of consent included:

3.        CONSTRUCTION REQUIREMENTS

The proposed work in this consent has been designed to a specific design, and must be constructed accordingly.  Any variations in the specific design must be notified to council for assessment prior to being undertaken.

4.        INSULATION REQUIREMENTS

All   insulation   must   be   re-instated   if   it   is   removed   during construction.

5.        CLADDING

Provide the following documentation for the cladding elements.

-	Producer Statement Construction Review from R.C. Handley of Façade Design Services Ltd.  The construction review is to ensure that the construction is carried out in accordance with the design and that the building work will meet the requirements of clause B1, B2, E2 of the first schedule of the New Zealand Building Regulations 1992.
-	Producer Statement Construction Review from an ACE registered cladding expert (e.g. R.C. Handley) for the existing gutters, flashing, and rain water systems.  These systems are not part of the consent but there[sic] durability could affect the weather tightness of the building.
-	Producer  Statement  Construction  Review  of  the  existing  joinery from the window manufacturer, or a suitably qualified person.  This person is to review the condition of the existing exterior joinery and its elements. Although the upgrade of the window joinery is not part of this consent, it does form a part of the cladding system.
-	Producer Statement Construction from the main contractor for the installation  of  the  cladding  and  all  other  associated  cladding elements.  This is to include all sub-contractors.  All sub-contractors to provide separate Producer Statements of Construction.
6.	FLASHINGS AND MEMBRANES
Particular care is to[sic] taken to ensure that all flashings and membranes are installed correctly.   Special care should be shown when installing flashings or membranes that the upstands behind cladding materials are adequate.  This will assist in ensuring that the building will be weathertight.  These areas are to be inspected prior to installing any covering materials.
7.	INSPECTIONS
Council is required to inspect all work before being covered up.  It is the building owner’s responsibility to call for inspection.
[27]	The	certified    plans    included   annotations,    including    annotations	by

Mr Thatcher.    For  example,  he  noted  on  drawing A601  -  Revision A “existing exterior joinery to be reviewed as condition of consent” in respect of the exterior wall. Mr Thatcher also handwrote on the specification the following items:

(a)       In respect of clause 1 exterior walls “steel framing”;  and

(b)      In respect of clause 2 joinery “flashings over existing”.

[28]     The following notation was stamped over clauses 1 and 2 of SW1-A-1:

Revised – endorsements on superseded plans transferred to this document.

[29]     A copy of annotated version of Plan A601 is attached as Annexure C.

The Overclad installation

[30]     CSL contracted with APS to supply and deliver the Overclad extrusions, brackets, bracket to Overclad fixings for over cladding selected external elevations and parapet as shown on a sketch dated 10 July 2004. A quote was also provided for optional  extras  including  for  detailing  grid  layout,  to  elevations  and  relevant sectional details. The proposal was accepted excluding the optional extras.

[31]     The installation was completed over three stages.   CSL supplied the grid components,  while APS  sourced  the  Eterpan  cladding  sheets  directly  from  the manufacture, PBS.  The plans supplied by Babbage provided some details as to the fixing of the Eterpan sheets to the grid.   The grid layout was based on drawings obtained from another Overclad system installed at the Embassy Apartments.  The Eterpan sheets were fixed to the grid using a combination of pan-head screws on the perimeter and countersunk screws through the middle of the sheets.

[32]     A builder, Mr Thompson, who contracted with CSL from time to time, was also retained in the final stage of works to assist in installing the Overclad at Fleetwood, though not under contract with CSL.  Mr Lukaszewicz also attended the site while delivering components.   He also undertook three inspections of the installation  in  May,  August  and  September  2005.    From  these  inspections  he provided one page reports on matters he noted from his inspections.   He was not formally retained for these inspections or the reports.   I come back to their significance below.

Only limited repairs undertaken

[33]     No detailed  survey of  underlying  existing water damage was  undertaken during the installation of the Overclad. Rather, Jon Dale appears to have only examined specific areas cut out for the installation of the grid.  Furthermore APS, under specific instruction from Babbage, largely limited its repair works to rust treatment to areas exposed under sills.  There is some evidence that areas of steel

framing were removed and replaced, though that is not accepted by the Plaintiffs. APS however recommended removing and replacing the cladding and framing on the northern columns, and this was done as a variation to the existing contract.

Inspections

[34]     The Council inspectors were not called to site until six weeks after grant of consent. It appears that they did not inspect any of the areas cut out by APS (though that is not accepted by APS).   In any event, there is no record produced by an inspector of any significant water damage or repair, or that a survey report of damage was produced to them at any time.

Code compliance process

[35]     A request to issue a Code Compliance Certificate (CCC) was made in late April 2006.  Ms Christine Watkinson processed the application for code compliance. She  was  not  satisfied  with  the  information  on  file  about  the  Overclad  system. Further information was sought about the cladding and the compliance with consent conditions. In response APS supplied a producer statement recording that the Overclad was installed in accordance with:

(a) The standards specified in the contract documents;

(b) All   standards   and   specification   from   the   suppliers   (cladding systems);

(c) A good workman like manager (sic);

(d) All building acts and regulations current.

[36]     APS also supplied a letter from CSL dated 3 August 2005 recording among other things that Mr Lukaszewicz had inspected the construction and identified various matters that needed to be addressed. The letter noted:

The following is not meant to be QA of the whole job and applies to those areas randomly inspected, the comments are meant to aid APS in the use of Overclad.

[37]     The Council was not satisfied with this material.   Babbage then lodged a second  application  for  code  compliance  certification  on  about  15 August  2006

following a discussion with Council officers about what was required to achieve code compliance certification. Additional information was supplied, including:

(a)      correspondence from Babbage recording that it had performed a supervisory role and that the cladding had been installed as per the manufactures technical information;  and

(b)a report from Mr Hanley that the new cladding work meets the requirements of B1, B2 and E2 of the Building Code.

[38]     A subsequent request from the Council that Mr Hanley provide a construction review producer statement was refused by him.  This triggered a further information request.    In  response  Babbage  produced,  among  other  things,  the WEC  report, approximately 40 construction photographs, an updated producer statement from APS,  three  faxes  from  CSL recording  that  inspections  had  been  undertaken  by Mr Lukaszewicz and a letter from him recording:

Further to receipt of a letter 25/9/06 from Craig Boyle of APS (attached) confirming all defects listed in my correspondence have been attended to, we can confirm that the installation of the Overclad as inspected by the undersigned on the 13/5/05, 3/8/05 and 5/9/05 is installed to our recommendations.

Overclad complies with B1, B2 & E2 of the first schedule of the NZ building regulations 1992.

Overclad has been tested to AS/NZS 4284 in an IANZ accredited laboratory

(report attached).

If you have any queries please do not hesitate to contact the undersigned or

Ron Hanley.

[39]     A copy of a letter from APS letter confirming that APS undertook to correct the defects identified by Mr Lukaszewicz was attached.

[40]     Ms  Watkinson  was  satisfied  that  this  information  collectively  meant  she could issue a CCC and did so on 27 September 2006.

Settlement of original claim with the Council

[41]     In early 2007 BC 1 and the owners of the apartments commenced proceeding against the Council.   The original proceedings alleged that the Council had been negligent  in the issue of a permit permitting the construction of the Fleetwood apartments.  However, it appears that there was no CCC issued as the building works were undertaken under the pre 1991 Act regime.   The then Plaintiffs nevertheless alleged  the  Council  had  failed  to  detect  a  number  of  defects  that  had  led  to significant moisture ingress resulting in the need to carry out significant remedial work.   The second amended statement of claim set out detailed particulars of the remedial works.  There is no mention of removal of cladding or steel framing, except cladding around windows and door openings in conjunction with balconies and in relation to the non structural columns on the northern elevation.

[42]     The then Plaintiffs also pleaded that if the provisions of the Building Act

1991 and the building code applied to the construction of Fleet Street, then the Council failed to ensure that the building work complied with building code, and in particular clause E2.2, E2.3.2 and clause B2.2 and B2.3.1 dealing with moisture ingress and durability of the building.  The total amount of the claim was in excess of $2.4 million.

[43]     The claim was settled following mediation on 5 April 2007.  The agreement records:

D.       The parties have agreed to settle the proceedings and any and all claims arising directly or indirectly out of the proceedings.

[44]     The Council paid the owners $250,000 under the agreement.

Prendos review

[45]     In about August 2011 BC 1 and BC 2 engaged Prendos to investigate the

Fleetwood apartments, and in particular cracking to the Eterpan sheets.

[46]     Prendos identified widespread cracking to the Overclad sheets and significant damage to the underlying lightweight steel framing on the southern elevation and

return walls on the northern elevation.   Prendos recommended a rebuild of these elevations.   Prendos also identified the columns to the northern elevation did not have sufficient clearance between the base of the cladding and the concrete decks and recommended that these be re-clad.

[47]     In 2012 the Body’s Corporate engaged Prendos to prepare designs for the necessary remedial work, obtain building consent and to seek tenders from contractors  for the work.   The proposed  remedial work including removing the Overclad, the pre-existing cladding and steel framing.  Ultimately Prendos undertook negotiations with the preferred tenderer, Teak Construction Ltd who were retained to undertake the remediation works.  Consent for the works was then issued on 18 June

2013. As at mid-February 2015 the remedial works were largely complete.

PART THREE: LIABILITY The Claims against Babbage

[48]     The  primary  claim  against  Babbage  is  that  it  breached  a  duty  to  take reasonable care, in contract, tort and under the Consumer Guarantees Act 1993 (CGA) when it:5

(a)       Recommended  a  repair  solution  that  was  not  fully  designed  and tested;

(b)      Failed to obtain a suitable appraisal of the Overclad system;

(c)       Failed to ensure that the existing damage was identified and removed;

and/ or

(d)      Failed to supply necessary design details to APS. [49] This claim triggers the following issues:

(a)       Who is Babbage?

5 The Plaintiffs’ claim based on Building Act 2004 warranties was withdrawn.

(b)      Was the Overclad system conceptually sound? (c)      Were the design details adequate?

(d)Was  Babbage  obliged  to  survey  the  existing  structure  for  water damage prior to the installation of the Overclad?

(e)       Did Babbage fail to secure the proper survey of the building?

(f)       Did  Babbage  undertake  to  repair  and  or  remove  all  damaged elements?

(g)      Did Babbage properly assess the suitability of the structure? (h)        Was there structural failure?

(i)       Was the Prendos remedial solution justified?

(j)       Did Babbage fail to secure the proper installation of cladding on the

Northern Elevation?

(k)      What losses are attributable to Babbage’s failures (if any)?

Who is Babbage?

[50]     A confirmation  of  instruction  dated  14  July 2003  to  conduct  a  building review for moisture damage was  issued  by “Babbage Consultants  Limited”.    It appears that at that time Babbage was formally incorporated as BC 2004 Ltd and described as a multi disciplinary architectural and engineering company. BC 2004

Ltd ceased trading business on 31 March 2005 and was replaced by BC 2009 Ltd until 31 March 2010.   Babbage has since then operated as Babbage Consultants Limited.    In  this  judgment  the  first  two  entities  are  collectively  referred  to  as Babbage.

Was the Overclad solution conceptually sound?

[51]     The “Overclad” system is a proprietary external building cladding system designed to create a drained, vented (pressure equalised cavity) behind the cavity line.  The drained and ventilated cavity is designed to allow water penetrating the outer building skin to be drained to the exterior and allow controlled air movement in the cavity.  The Overclad aluminium railings form a support grid for the cladding and manage air and water movement at the panel joints.  As the name suggests, the “Overclad” aluminium support grid is affixed to an existing structure and acts like a rain shield preventing further water ingress into that structure.

[52]     The Plaintiffs contend that Babbage should never have recommended the Overclad system for the Fleetwood Apartments.   But the independent façade and engineering experts ultimately agreed that the Overclad was an appropriate system for remediation, assuming the substrate was in good condition.   Furthermore, the conceptual soundness of the Overclad system was confirmed by Mr Gerald Winter, an expert façade engineer of at least 25 years specialist experience called by APS. Similarly, Mr Peter Lalas, an expert in façade engineering of more than 34 years specialist experience called by the Council, opined that the Overclad was an appropriate  method  for  eliminating  the  water  penetration  problem  from  the Fleetwood apartments, provided that the substrate wall was in good condition.

Were the design details inadequate?

[53]     Yes. The design details  for the purpose of construction were inadequate, especially as they related to the fixing of the Eterpan sheets to the Overclad grid. Both the specification (at clauses SW6-12.3, 6-17 and 6-A-10) and Mr Hanley’s producer statement referred to the need to install the Overclad system and the mounting of the sheets in accordance with manufacturer and CSL design specifications.  The conditions of the building consent envisage active involvement of Mr Hanley in  the construction  phase,  further emphasising the importance of correct design.  While it appears that the plans supplied by Babbage were based on CSL drawings, it is not clear that they were obtained directly from CSL for the Fleetwood project. In any event, those drawings provide no or sparse detailing as to, among other things, method of screw fixing the Eterpan sheets to the Overclad grid.

It also appears that no additional manufacturer’s detailing was supplied with the Eterpan sheets for the specific purpose of fixing the cladding to the Overclad grid. Furthermore, APS did not accept CSL’s proposal to supply specifications for the Fleet St project.  Instead, APS obtained CSL design drawings from another project and relied on ad hoc recommendations from Mr Lukaszewicz.  As a consequence, the  express  requirements  for  compliance  CSL  design  specification  were  not

adequately met or secured by Babbage.6

Was Babbage obliged to survey the building for water damage prior to the installation of the Overclad?

[54]     Yes. Babbage agreed with BC1 to supervise the remediation works, including the survey of existing water damage prior to the installation of the Overclad system in accordance with clause SW1-A-1 of the specification.7    This gave rise to a reasonable expectation in contract that the survey will be undertaken with reasonable care and skill.  Babbage also assumed responsibility in tort to BC1 and the existing and future owners of the apartments in a broader sense to supervise the remediation

project to the same standard.  My reasons are:

(a)      Babbage  is  an  engineering  consultancy  specialising  in  repair  of buildings affected by water damage;

(b)Babbage was retained to identify moisture damage at the Fleetwood Apartments and having done so, to provide advice about remediation of that damage;

(c)      Babbage produced three reports identifying extensive water damage to various elements of the Fleet Street building;

6      The cross examination of Mr Lalas reinforced this basic proposition – he observed: “Q: Because without seeing those  drawings and  specifications, [there  is]  just  no  way  of  independently verifying whether or not the requirements of the Building Code are met or not? A: Well if I only had this document and the WEC report then I don’t have enough information for myself about the system unless I am familiar with the system, which I was, knowing what PBS do, but I would want to see those drawings and specifications in any event.”

7 APS disputes that breach of SW1-A-1 is pleaded against APS. I address that below at [77].

(d)Babbage issued a tender for remedial works,  including a specification requiring a survey and repair of  water damage to the cladding and the framing;

(e)       The specification included an “Overclad” option;8

(f)       Babbage was the designated architect under the specification;

(g)      John Dale of Babbage provided a recommendation that the tender by

APS should be accepted by BC1;

(h)Babbage issued the formal instruction to APS to undertake the remediation works and installation of the Overclad;

(i)Babbage  assumed  managerial  responsibility  for  the  remediation works, including obtaining building consent, supervising the remediation works from time to time, liaising with the Council and managing the works and payment programme;

(j)Babbage must have known that BC1, the current and future owners would rely on Babbage to secure the performance of the remediation works in accordance with the specification, including a survey of the water damage as specified at SW1-A-1.

[55]     I am also satisfied that BC 1 reasonably expected that a detailed survey of existing  damage  would  be  undertaken  prior  to  the  full  cost  of  the  Overclad installation having been incurred:

(a)      The APS tender was considered by BC 1 prior to the approval of the tender.

8      The evidence on this was sparse, but Mr Boyle, project manager for APS testified that the Overclad option was not promoted by APS. Mr Grigg also noted that the Babbage plans were based on CSL drawings.

(b)The APS tender refers to “full survey of structure repairs needed” and “open up failed areas from survey, remove insulation, treat/repair timber.”

(c)      The APS tender expressly stated that APS would not undertake the survey, but it nevertheless proceeded on the basis that it would be done by Babbage.

(d)      BC 1 accepted Mr Dale’s recommendation to approve the APS tender.

(e)      The recommendation noted that existing damage would be removed as the Overclad was installed.

Did Babbage fail to secure the proper survey of the building?

[56]     Yes. While Babbage undertook some moisture investigation as part of its review process, a detailed survey was not undertaken in accordance with clause 1 of SW1-A-1. It is reasonably clear from the available evidence that Mr Dale made a unilateral decision to depart from the strict requirements of SW1-A-1 and not require a detailed survey of the building. Instead, Mr Dale assumed that that the rust process would stop once the Overclad was installed and no further repair was required beyond those areas exposed for the purpose of the installation of the Overclad.

[57]     The extent of Babbage’s “survey” is at best illustrated by a photographic essay of the building spanning the period July 2003 to August 2007 produced by Mr Grigg, a director of Babbage.  These illustrate that specific areas of existing water damage under sills, cut-outs at floor level, around the entrance door and around the base of balustrades and in some unidentified areas were “surveyed”. These specific areas largely coincide with the locations for fixing the grid and flashings.  This may have involved up to 47 cut outs under the sills. But there is only meagre evidence of a substantive survey or assessment into the required repairs beyond the cut outs

under the sills.9   Mr Grigg also conceded that Babbage did not perform a full survey

of damage in terms of SW1-A-1.  Mr Boyle (project manager for APS) and Mr Peri

(an onsite foreman) also noted under cross examination that they could not recall any detailed survey of damage having been undertaken by APS or Babbage.

[58]     Unfortunately the owners were not made aware of the fact that a detailed survey foreshadowed in the specification was not undertaken.   Indeed, a record of BC1 minutes of a meeting dated 12 September 2005 states:

The question was asked what damage did you (Mr Dale) find behind the cladding.  Corrosion was found this was treated and new cladding installed.

[59]     It is now clear that had the survey been done properly, additional extensive areas of moderate to severe corrosion would have been identified, together with damp and mouldy gib lining.  An elevation illustrating the extent of severe corrosion is attached as Annexure A. The accuracy of this elevation was accepted by the engineering and cladding experts.    Mr Marshall also produced extensive photographic evidence of the water damage, including severe rusting to the steel frame and water staining to fire rated plasterboard.

[60]     Accordingly, I am satisfied on the balance of probabilities that Babbage was obliged to, but did not secure the proper survey of the underlying damage prior to installation of the Overclad in accordance with SW1-A-1.

Did Babbage undertake to repair and or remove all damaged elements?

[61]     No. Babbage did not undertake to ensure removal of “all damaged building elements” as pleaded.  The promise to remove was conditional on the outcome of the survey and an assessment of what was necessary to remove in order to remediate the building to a suitable standard.  Notably SW1-A-1 only refers to “significant rusting may require replacement”.  Furthermore, the cost of any repair was not included in the APS tender and needed to be invoiced separately.   BC1 could not therefore reasonably expect that all rusted elements would be removed or that all water damaged components replaced without further cost.  However, it could reasonably expect that Babbage would exercise all reasonable care to ensure that damaged elements were properly identified and that any significant damage would be repaired or removed prior to the installation of the Overclad.  It transpires that BC1 was only invoiced for partial repairs and rust treatment.  As noted, Mr Dale appears to have

concluded that no significant repairs were required once it was confirmed that the substrate comprised steel framing.

Did Babbage properly assess the suitability of the structure?

[62]     No. The façade and engineering experts agreed that:

(a)       It was necessary to assess the sufficiency of the existing structure in terms of its ability to support the Overclad;  and

(b)The condition of the existing structure should have been checked by means of an engineering survey prior to acceptance of the design.

[63]     No such detailed structural assessment or engineering survey was done, as my findings on compliance with SW1-A-1 reveal.  Rather, a judgment was made that the existing steel frame could remain in place without a comprehensive survey of the structure  and  with  relatively  minor  rust  treatment  and  (at  most)  piecemeal replacement  of  some  framing.  Mr  Grigg  also  suggested  that  it  was  not  needed because the Overclad was to be bolted to concrete floors and by its very nature concrete is a sound substrate.

Was there structural failure?

[64]     No. The engineering experts agreed that:

(a)       The    underlying    substructure    had    no    material    effect   on    the performance of the Overclad;10 and

(b)“At  the  present  time,  the  corrosion  has  a  minimal  effect  on  the structure”.

[65]     Three (of four) experts (Messrs Winter, Brown and Lalas) also agreed that extent of the compromise to the structural adequacy of the gib-lining is minimal. Mr Donald  (the  structural  engineer  called  by  the  Plaintiffs)  considered  that  the

compromise to the gib lining is moderate, though when pressed on the issue of the overall  structural  integrity he  identified  a  potential  only for  failure  at  specified locations.     Mr  Brown,  a  structural  engineer  with  35  years  experience,  also maintained that the panel with the linings acts as a sandwich panel so that the effect of corrosion is reduced.

[66]     That being the case, I am unable to find on the balance of probabilities that the existing corrosion had caused material structural failure prior to the Prendos remediation.

Was the Prendos remedial solution justified?

[67]     The façade and engineering experts are divided on whether Prendos’ remedial solution was justified.  Mr Brown and Mr Winter maintain that it was not necessary given  that  the  existing  corrosion  was  having  only  a  minimal  effect  on  the performance of the Overclad and that the Overclad has in fact kept the building weather tight. Mr Brown also opined that further structural testing was required before removing the Overclad and steel substructure.

[68]     By contrast, Mr Donald and Mr Lalas consider that the condition of the substrate, including the gib lining, warranted the Prendos solution.   Mr Donald observed that the nature of the damage was such that the structure could not satisfy code requirements in terms of structural safety and durability.   Mr Lalas also concluded that when it became clear that the substructure was extensively damaged by rust, mould and other water damage, the full re-clad option was the practical solution.

[69]     I prefer the evidence of Messrs Donald11  and Lalas (and Marshall). 12    The relevant threshold requirements for present purposes are clauses B1 and B2 of the

11     I observe for completeness that Mr Donald was forced to concede that he was wrong about the effect that the rusted steel frame was having on the Overclad in light of the evidence of the other special cladding experts. But I consider that his concessions were appropriate having regard to their specialist input and did not undermine my confidence in his residual expert opinion about the remedial requirements in light of the evidence of rust and gib board damage.

12     Mr Marshall addressed the relevant provisions of clauses B1 and B2 in his brief of evidence dated 20 February 2015. I endorse his assessment, including the requirement to take a holistic view of the damage.

building code dealing with structural integrity and durability.  The stated objective of clause B1 is:

(a)       Safeguard people from injury caused by structural failure;

(b)      Safeguard  people  from  loss  of  amenity  caused  by  structural behaviour;  and

(c)       Protect other property from physical damage caused by structural failure.

[70]     This objective is achieved via the functional requirement at B1.2:

Buildings, building elements and sitework shall withstand the combination of loads that they are likely to experience during construction or alteration and throughout their lives.

[71]     Clause B2 records the following objective:

To ensure that a building will throughout its life continue to satisfy the other objectives of this Code.

[72]     The corresponding functional requirement is:

Building   materials,   components   and   construction   methods   shall   be sufficiently durable to ensure that the building without reconstruction or major renovation satisfies the other functional requirements of this code throughout the life of the building.

[73]     There is now extensive photographic evidence of perforation and other severe rust  damage  at  various  locations.    There  is  also  evidence  of  widespread  water damage to the gib lining.  A Council properly informed of this water damage could not be reasonably sure that substructure conformed to these requirements without a comprehensive engineering survey.  Even with the level of the analysis undertaken for the purpose of these proceedings, the façade and engineering experts limited their agreement about the effect of the corrosion to a “present time” assessment and concluded that the single load test undertaken by Mr Brown was valid only for mild/moderate corrosion and that future testing was required.  A corollary of all of this is that the Council property files would need to alert prospective purchasers about  the  underlying  damage,  effectively  blighting  the  apartments  for  resale purposes.

[74]     In these circumstances, Prendos was justified in taking a prudent and cautious approach to a remedial solution for a building that had already been subject to large scale remedial works.13

Did Babbage fail to secure the proper installation of cladding on  the Northern

Elevation?

[75]     Yes. The fibre cement cladding and supporting timber framing to the deck columns on the northern elevation were installed in contact with the horizontal deck surfaces.  Babbage failed to identify this simple error.

Summary of findings on supervision

[76]    In light of the foregoing, I am satisfied that Babbage failed to exercise reasonable care and skill in the supervision of the works for the following reasons:

(a)      Babbage failed to ensure that a proper survey of the building was undertaken in accordance with the specification clause 1 of SW1-A-1 (or advise BC1 that it was not undertaking a comprehensive survey);

(b)Babbage failed to ensure that the installation works were undertaken generally in accordance with the correct design specifications;

(c)      Babbage failed to properly assess the suitability of the substructure to accommodate the Overclad;  and

13     The underlying issue, not explored at any depth by the parties, is whether the Prendos remediation package broke the chain of causation. As stated by the Court of Appeal in Sherwin Chan & Walshe Ltd (in Liq) v Jones [2012] NZCA 474; [2013] 1 NZLR 166 at [59]: "[t]he inquiry must be directed towards the conduct of the wronged party which is forced to take remedial steps in consequence of the wrongdoer’s negligence. While it will frequently seek and act on advice in an area of specialist knowledge, the test remains whether the wronged party itself has foreseeably taken an unreasonable risk at the wrongdoer’s cost. If so, the loss is not the natural and probable result of the wrongdoer’s originating negligence; if not, the chain of causation remains unbroken" (citations omitted). The matter was not argued on an attribution basis, i.e. that Prendos' error (if any) is attributable to the Plaintiffs (in contrast to O’Hagan v Body Corporate 189855 [Byron Avenue] [2010] NZCA 65, [2010] 3 NZLR 445 at [99]), but rather, simply on the basis that the remediation package was not reasonable. In case there is any doubt about this, the evidence fell well short of showing that the Plaintiffs actions were unreasonable.

(d)Babbage failed to check that there were adequate clearances between the cladding and timber framing to the deck columns on the northern elevation and the horizontal decks surfaces.

[77]     For completeness, I reject Mr McBride’s contentions for APS that:

(a)       Breach of SW1-A-1 was not specifically pleaded;

(b)The decision not to survey the building was not unreasonable and or in breach of duty (assuming it existed) given that the building frame remained structurally sound; and

(c)       The repairs were not needed for consent purposes given the effect of s

112 of the Building Act – I come back to this below at [162].

[78]     First, the pith and substance of the claim by BC1, BC2 and the owners is that Babbage was engaged to supervise the remedial works in accordance with the specification approved by BC1.  Babbage failed to secure the performance of those works  in  accordance  with  SW1-A-1  (among  others)  of  the  specification.    The framing of the cause of action in terms of breach of an implied duty to supervise with due care fairly covered this failure, including the pleaded failure to “identify” all damaged elements.

[79]     Second, all of the experts agreed that structural investigations should have been undertaken prior to recommending the Overclad system.  The failure to do so prior to the repair was not properly explained in the evidence.

[80]     Third,  the  installation  of  the  Overclad  was  premised  on  the  survey contemplated at SW1-A-1, reflecting a prudent approach to the significant water damage highlighted in the previous reports.14

[81]     Fourth, the expert agreement about the structural soundness of the building

frame   does   not   vindicate   Babbage’s   unilateral   departure   from   the   express

14     A conclusion also reached by Mr Sean Marshall of Prendos.

requirements of SW1-A-1.   In my view that outcome is simply fortuitous.   The failure by Babbage to undertake a comprehensive survey or assessment as to structural soundness not only breached SW1-A-1, it carried the unacceptable risk of potential structural failure and long term non-compliance with, among other things, the durability requirements of the Code.   It also carried the risk that subsequent assessment might result in a different view, namely that the steel framing did need replacement, as happened when Prendos investigated the building.

[82]     Fifth, Babbage took an inattentive approach to the Fleetwood Apartments project.  This is aptly illustrated by the post construction scramble by Babbage and APS  to  provide  sufficient  information  to  persuade  the  Council  to  issue  CCC. Babbage endeavoured to shore up the gaps in information by recording the following to its letter to APS of 15 August 2006 when it stated:

Following a conversation on the 15 August 2006 with you and Auckland City Council, regarding the Code Compliance Certificate for the re-cladding of the above works.

We undertook a supervisory role in the re-cladding project have undertaken several site inspections while the works were undertaken, we are satisfied that the cladding has been installed as per the manufacturers technical information.   This has also been reviewed on site by the cladding manufacture.

[83]   But the cladding was not installed “as per the manufacturer’s technical information”.  Mr Hanley refused to give a construction review producer statement as required by the consent and Mr Lukaszewicz only provided a qualified approval of the installation for code compliance purposes (discussed further below at [120]). Ultimately, Babbage fell well short of achieving compliance with the specifications approved by BC1.

What are the losses attributable to Babbage’s failures?

[84]     It is clear that Babbage's failures caused the following losses:

(a)      The owners at the time of the remediation works would not have incurred  the  majority  of  the  expense  of  the  installation  of  the Overclad;

(b)Significantly damaged elements would have been removed in 2005 not in 2014;

(c)      The purchasers of the units after the remediation works would not have paid an inflated value for them (i.e. on the assumption that the units were safe and healthy);

(d)The vendors of the units after the Overclad cracking was identified would  not  have  sold  their  units  at  a  deflated  value  (i.e.  had  the remedial works been properly undertaken prior to the installation of the Overclad); and

(e)      The costs of repairing the northern elevations twice would not have been incurred.

[85]     I do not accept however that the full cost of repair of pre-existing damage per se is attributable to Babbage’s failures.  Contrary to the claim made by the Plaintiffs, Babbage did not undertake to repair and replace the damaged elements without further cost to BC1. Rather the tender approved by BC1 stipulated that the cost of repairs would need to be invoiced separately.

Result on Babbage’s liability

[86] In the result, Babbage breached an implied contractual duty and negligently failed to properly supervise the remedial works so that they were undertaken in a tradesman like manner and or with reasonable care and skill. For these reasons, Babbage also breached the guarantee affirmed by s 28 of the Consumer Guarantees Act 1993 (the CGA) to exercise reasonable care and skill. The specific failures are noted at [76]. These failures are materially attributable to the wasted costs incurred with the installation of the Overclad, any additional cost incurred by deferring the removal and repair of significantly damaged elements to 2014 and any loss arising from the inflated purchase price or deflated sale price of units. This leaves the questions of concurrent liability, contributory negligence and quantum of damages to be resolved. I address these issues commencing at [177].

The Claims against APS

[87]     The Plaintiffs claim that APS breached a duty to take reasonable care, in contract, tort and under the Consumer Guarantees Act 1993 (CGA) when it:15

(a)       Installed the Overclad system which was not an appropriate repair solution;

(b)      Failed to identify and remove all damaged building elements; (c)           Constructed the remedial works with the Defects;  and

(d)Issued a producer statement dated 27 September 2006 when it did not have reasonable grounds to do so.

[88]     I will address the claim against APS in terms of the following issues: (a)     A preliminary pleading issue;

(b)      The nature and content of APS’ duty to the Plaintiffs;

(c)       Did APS install an inappropriate remedial system?

(d)Did APS  undertook  to  BC1  to  identify  and  remove  all  damaged elements?

(e)       Did APS fail to identify or fail to advise Babbage of any obvious defects?

(f) Was APS obliged under the Building Act 2004 to require a survey of the building in accordance with SW1-A-1?

(g)      Did APS install the Overclad with incorrect screw fixings?

15 The plaintiff withdrew their claim based on the Building Act 2004 warranties and APS did not pursue a contributory negligence defence.

(h)      Did APS fail to comply with SW6-A-10?

(i)Did APS  breach  of  an  implied  duty  to  install  the  cladding  in  a workmanlike manner?

(j)Did the failure to comply with SW6-A-10 (if any) make a material difference;

(k)      Did APS issued a flawed producer statement?

(l)       Is APS liable for the poor workmanship on the northern columns?

and

(m)     What losses are attributable to APS’s failures (if any)?

A preliminary pleading issue

[89]     At the close of the evidence the Plaintiffs sought to amend the statement of claim to include the following in the list of pleaded defects:

The fixing of the overclad fibre cement cladding system was inadequate in that:

...

(iv)     The method of the fixing caused the Eterpan sheets to crack.

[90]     Mr McBride objects to this amendment on the basis that it is too late and prejudicial to APS.   He says that had the issue been raised earlier he would have marshalled evidence to respond to it, including as the whether there was a viable counterfactual alternative to mitigate the effects of the cracking at the time.  He notes that he challenged the Plaintiffs to amend their pleading to properly reflect their evidence prior to trial, but the Plaintiffs were content to proceed with the claim as then framed.

[91]     I have some sympathy for APS. Prior to the hearing APS raised concern about the inadequacy of the pleading but the Plaintiffs remained steadfast that an amendment was not necessary.  Nevertheless, while the request was late, the defect

issue was raised in the experts’ evidence exchanged as early as March 2014. Indeed, APS’s expert Mr Brown highlighted the issue about the screw fixing in his evidence. Mr Lalas for the Council also raised this aspect in a detailed way in his evidence, including the opinion that the Eterpan  literature should have been used.16     The central claim by the Plaintiffs was always that “the fixing of the Overclad fibre system was inadequate” and the latest particular emerged through the evidence more

than 12 months out from the hearings.   I therefore see no prejudice to any of the defendants in this amendment.17 They have had ample time to respond to it. APS saw it coming, because it commenced its own claim against the manufacturer of the cladding, PBS, for failure to provide appropriate guidance on the screw fixing. That claim was effectively discontinued on the liquidation of PBS, but the defect issue remained to be resolved.

The nature of APS’s duty of care to the Plaintiffs

[92]     APS accepts that it was required to undertake the Overclad installation with due care and skill/good workmanship.  But it does not accept that this extended to works  beyond  the  express  terms  of  the  tender  proposal  accepted  by  BC1  and Babbage.  A central issue then is whether APS is subject to a duty in contract, tort or pursuant to the CGA to take care in relation to matters that extend beyond its tender proposal.

[93]     APS tender proposal included the “Cladding system” or Overclad option based  on  the  specifications  supplied  by Babbage.    The APS  tender  specifically excluded however the survey work contemplated by SW1-A-1 and repair work, except on an additional instruction and invoice basis. This is recorded in the “Notes” to the APS tender proposal which state:

10.      For the cladding system option, the following is noted:

·Existing cladding is not removed and all repairs are reliant on the initial Babbage consultant’s survey when the  scaffold is erected. However, additional repairs found or needed, can be achieved from the interior once the cladding is in place at extra cost.

16 I come back to their evidence below at [123].

17     Carter Holt Harvey v Genesis & Rolls Royce Auckland HC CIV-2001-404-001974, 29 August

2008 at [21] and [31]; Steen Bros. Ltd v Youth Hostels Association of New Zealand Incorporated
CA3/86 17 April 1986 at 8.

[94]     Against  this  background,  Mr  McBride  contends  that APS’s  duty of  care (whether in contract or tort) does not extend to responsibility for design of Overclad or the survey and  repair  of damaged  elements  (unless  specifically instructed to repair), subject to a duty to warn (in this case) BC1 or Babbage  about instances of obvious unsuitability.18   As to the duty to warn, Mr McBride contends that this was not pleaded, Babbage was aware of the condition of the building, there were no glaringly obvious deficiencies, APS did in fact warn Babbage of the rust issue, and in any event the underlying substrate was suitable.

[95]     Mr Lewis responds that the real question is whether an ordinary reasonable and competent builder ought to have appreciated that there would be a real risk of danger if he proceeded on the basis of the design provided to him.19   He cited various authorities for the basic proposition that a competent builder will operate in accordance with good building practice rather than slavish adherence to plans.20

[96]     Regrettably, as counsel engaged on this key issue by reference to different authority (and conversely did not appear to respond directly to opposing counsel’s argument), I have found it necessary to examine APS’ duties by reference to first principles.

[97]     A builder must do the building work in a good workman like manner, must take care to use good materials,21  and that the nature of contractual duties between owner and builder cannot limit the duty of care owed to third parties.22 But this does not address the a priori issue raised in these proceedings, namely the effect of the

express allocation of risk by APS to Babbage in terms of the survey of the building.

18     Citing Hudsons Building and Engineering Contracts (12th ed, Sweet & Maxwell, London, 2010)

at [3-095].

19     Citing Bowen v Paramount Builders (Hamilton) Ltd [1997] 1 NZLR 394 (CA).

20     Citing Boyd v McGregor And Ors HC Auckland CIV-2009-404-005332, 17 February 2010;

Findlay Family Trust v Auckland Council & Anor HC Auckland CIV-2009-404-6497, 16
September 2010. Mr Lewis also cited Auckland City Council v Grgicevich HC Auckland CIV

2007-404-6712, 17 December 2010 where Brewer J rejected a claim against the defendant for failure to repair defects that were not within his contract. Mr Lewis sought to distinguish this case on the basis that APS’s role specifically included remediation. He further emphasised that APS held itself out as having specialist expertise in the repair of water damaged buildings.

21     Stieller v Porirua City Council [1986] 1 NZLR 84.

22     Bowen v Paramount Builders, above n 19. See also discussion in Stephen Todd (ed) The Law of

Torts in New Zealand (6th ed, Brookers Ltd, Wellington, 2013) at 312 –313.

[98]     Glazebrook  J  stated  in  Rolls  Royce  New  Zealand  Limited  v Carter  Holt Harvey Ltd that the ultimate question when deciding whether a duty of care should be recognised in New Zealand is whether, in light of all the circumstances of the case, it is just and reasonable that such a duty be imposed. 23  This involves a two staged inquiry, first as to the degree of proximity or relationship between the parties and second whether there are other policy considerations that tend to negative or

restrict or strengthen the existence of the duty in the particular class of case. In that case, the terms of the contract between the Electricity Corporation of New Zealand (a head contractor) and Rolls Royce (a subcontractor) was said to point clearly against any duty to Carter Holt (the owner) being recognised.24 Relevant to this case, Glazebrook J observed:25

The presence of a limitation clause in the contract between a head contractor and   subcontractor   signifies   clearly,   if   known   to   the   owner,   the subcontractor’s unwillingness to do the job otherwise than subject to the limitation. The owner’s acquiescence can then be deemed an acceptance of the terms under which alone the subcontractor is prepared to enter into a relationship defining its duty to the owner – see John Fleming “Tort in a Contractual Matrix” (1995) 33 Osgoode Hall LJ 661, at p 665. As Jane Stapleton says in “Duty of Care and Economic Loss: A Wider Agenda” (1991)  107  LQR  249,  at  p  286,  a  plaintiff  should  not  be  allowed  to circumvent either a contractual bargain between the plaintiff and defendant or  even  a non-contractual but clear understanding between  parties  as to where the risk would lie.

[99]     The Court in Rolls Royce recognised that the clauses limiting contractual liability did not exclude liability in tort, but they were significant in that the “allocation of risk” was with the knowledge of the Carter Holt. In that context, and given the commercial character of the parties, the Court found that there was no duty of care to Carter Holt to take reasonable care to perform the contract.

[100]      The two step proximity/policy inquiry was adopted by the Supreme Court in North Shore City Council v Attorney General (The Grange).26 APS was plainly sufficiently proximate to the Plaintiffs to be subject to a duty to take reasonable care in the installation of the Overclad. The remaining threshold issue is whether it is just

and reasonable to extend the duty of care to works that were specifically assigned to

23     Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [58].

24 At [103].

25 At [110].

26     North Shore City Council v Attorney General (The Grange) [2012] NZSC 49 at [156].

Babbage to perform and or were conditional on Babbage’s advice, namely the survey

of existing damage.

[101]   The  clearest  statement  of  the  effect  of  contractual  terms  was  made  by Chambers J in Body Corporate No 207624 v North Shore City Council (Spencer on Byron) namely:27

No one can be a party to the construction of a building that does not comply with the building code.

[102]   Tipping J also observed:28

I accept that in circumstances where the parties have allocated, or have had the opportunity to allocate, risks by contract, tort law should be slow to impose a different allocation from that expressly or implicitly adopted by the parties.  But  because  of  the  way  the  Act  is  framed  I  do  not  see  that proposition as being a significant feature of the present case.

[103]   While Spencer on Byron concerned the liability of inspecting authorities, as noted in Todd:29

It could hardly be right that a council is potentially liable as regards the negligent exercise of its inspection and approval functions but that those responsible for the actual creation of any defects are not.

[104]   But in Spencer on Byron the Council’s duty in tort was in focus, and this “marche[d] hand in hand with its statutory obligation”, namely to ensure that the entirety the works were code compliant.30     There was no room for exclusion of liability by way of contract.  By contrast, the scope of any works undertaken by APS is informed, as a matter of fact, by the scope of the contracted works and the detailed features of the relationship between Babbage, BC1 and APS and the works in fact undertaken by APS.   I have come to the view therefore that whether it is just and reasonable to impose a duty on APS to take care in relation to specific works is

determined by reference to the precise nature of their relationship with BC1 and

Babbage and the role played by them.

27     Body Corporate No 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 [Spencer on Byron] at [193] per Chambers J delivering majority judgment on behalf of McGrath J and himself.

28 At [40].

29     Todd, above n 22 at 316.

30     Spencer on Byron above n 27 at [194].

[105]   Given the foregoing, I proceed on the basis that:

(a)      The terms of the contract (if there is one) provide the initial frame for the  obligations  of  the  builder  in  terms  of  the  scope  of  expected works;31

(b)The builder must always perform the contracted works in accordance with accepted work practices and in a proper workman like manner;32

(c)      The builder must advise the architect or principal of any obvious problems or defects with the design or the building;33

(d)The standard of care in relation to building works is, as a minimum, compliance with the Building Code. 34

(e)      Whether  APS  assumed  responsibility  to  take  care  in  respect  of specific works depends on a precise nature of the relationship with Babbage and BC1 and the role played by it in the installation of the Overclad.

[106]   I will now examine the substantive issues arising in light of this frame.

Did APS install an appropriate remedial system?

[107]   Yes. The Overclad was conceptually sound for the purpose of providing a rain shield, assuming the substrate was in good condition – refer [51] – [52]. Furthermore, APS reasonably relied on Babbage as specialist engineers in water damage remediation to determine whether the Overclad system was appropriate for the Fleetwood Apartments.  While APS held itself out to be very experienced with remedial works,35  they were not the designers or architects of the remedial system

and, at the time of the installation, Babbage was recognised as a specialist in the

31     Rolls Royce, above n 23. See also Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) at [1.5.3], citing Riddell v Porteous [1999] 1 NZLR 1 (CA) at 9.

32     Bowen v Paramount Builders, above n 19.

33     Hudsons Building and Engineering Contracts, above n 18.

34     Spencer on Byron, above n 27 at [193].

35     Refer [95] above.

field.  Overclad was also promoted by recognised cladding specialists, Mr Hanley in conjunction with Mr Lukaszewicz, with the former providing a producer statement in support of the system.

Did APS undertake to BC1 to identify and remove all damaged elements?

[108] No. The salient facts are recorded at [61]. APS transferred the burden of securing a survey of damage pursuant to clause 1, SW1-A-1 to Babbage and then offered to repair damage on an as needed basis. BC 1 was aware of the terms of the APS tender proposal, with email correspondence recording that they had reviewed it and taken advice from Babbage about it.

[109]   Contrary to Mr Lewis’ contention, Babbage’s letter of confirmation did not change the basis of APS’s involvement.  The letter accepted the tender proposal and the tender price.36    The letter refers to Babbage’s plan’s details and methodology. But this can be read consistently with the APS’ tender conditions, namely that the repair is reliant on Babbage’s survey.  An implied contractual duty to identify and remove the damage without further instruction from Babbage is not available on these facts.

Did APS fail to identify or fail to advise Babbage of any obvious defects?

[110]   Mr  Marshall  (an  experienced  building  surveyor  called  by  the  Plaintiffs) opined that a prudent builder in APS’s position would have been concerned to ensure that potentially affected elements were identified and remediated, especially on discovering corroded framing beneath window sills. Mr Powell (another experienced building surveyor) also expressed the view that APS should have insisted on further investigation, given that the prospect of significant damage to the framing and cladding, including fire gib, should have been evident to APS. Reference is also made to the fact that APS sought further instructions as to how to remediate the water damage to the northern columns.  This is said to show what a prudent builder should do irrespective of the strict contractual terms. Mr Grigg also suggested that

APS should have advised Babbage of the extent of the damage and sought further instructions.

[111] But much of this, as Mr McBride suggests, belies the contractual arrangements. APS stated that “all repairs are reliant on the initial Babbage consultant’s survey when the scaffold is erected.” This is not a case where the contract is silent on the scope of works to be undertaken by the builder. Rather it is a case of express exclusion by APS of responsibility for identifying the damaged elements needing repair. Furthermore, APS sought instruction from Babbage, a specialist engineer in remediation of water damage, as to how it should manage rust. It was given a clear direction from Mr Dale to sand back and treat rust in exposed areas – refer to [22]. There is also evidence that Mr Dale was regularly on site and was well placed to provide further instructions to APS if he considered that was necessary. In reality, by the time of the installation, Babbage was aware that there was no timber framing and Mr Dale had clearly formed the view that the Overclad

rain-shield would stop the rust process.37   It also transpires that in terms of structural

soundness for the purpose of affixing the Overclad, Mr Dale’s direction was not obviously  flawed.    All  experts  agree  that  the  rust  process  stopped  with  the installation of the Overclad.   There was therefore no obvious reason for APS to undertake its own survey or to advise Babbage of obvious defects.

[112]   I also do not accept the further contention that the advice given by APS in relation to the northern columns illustrates what APS should have done with the balance of the works.   In contrast to the installation of the Overclad, APS simply assumed additional responsibility for that part of the repair by identifying the repairs needed and providing a scope of works which was ultimately accepted by Babbage.

[113]   Given the foregoing I am not satisfied that APS failed to properly identify or to advise Babbage of any defects.

37     Mr Grigg (who supervised Mr Dale) presented the same basic opinion in his evidence (though he

did not endorse or know about Mr Dale’s coarse approach to rust remediation).

Was APS obliged under the Building Act 2004 to require a survey of the building in accordance with SW1-A-1?

[114]   I have come to the view that APS was nevertheless obliged to be satisfied that a proper survey of the building had, in fact, been undertaken prior to or during the installation of the Overclad.   APS was the builder responsible for the Overclad installation works. It had extensive experience in remediation projects. APS should have known that Overclad could not be installed in a manner that did not comply with the Building Code and with the building consent, including the relevant plans

and specifications.38 Relevantly, it was also obliged under the contract for tender to

ensure that all work was executed in accordance with requirements. It also knew that a full survey needed to be undertaken – refer [10]. It therefore needed to be satisfied that a proper survey had, in fact, been undertaken in accordance with SWI-A-1, in order to achieve compliance with the Building Act 2004. Significantly, this requirement does not alter or materially affect the allocation of risk to Babbage to perform a proper survey. Rather APS simply needed to ensure Babbage performed that task when the scaffolding was erected (as it anticipated in its tender proposal).

(c) Limitation – the claims in respect of the substrate are time barred by virtue of s 4 Limitation Act 1950 (six years) and the long stop in the Building Act 2004;

(d)Discount on sale – owners of 3 apartments (Mr Mair of A5, Mr Lim of C4 and D4) have not shown that there is a causal link between the Council’s actions and their loss, that they have failed to mitigate their loss and the quantum should reflect the lesser of costs of repairs or loss on sale;

(e)      BC’s right to sue – claims are only as good as the owners, and as the owners of A3,C4 and D4 cannot make a claim as they bought those units on notice of the defects; and

(f)      Betterment – the repairs include replacement of existing windows and doors and internal wall finishes/repaint and any compensation should reflect the benefit to the owners of this.

[211]   I can deal with each defence briefly.

Was there accord and satisfaction?

[212]   There is no accord and satisfaction defence as the loss suffered by or on behalf of owners of the units at the time of the remediation works does not relate to the existing damage per se, but to the additional costs incurred as a result of flawed installation of the Overclad.  Furthermore the claim by subsequent purchasers is not time barred because the cause of action in respect of their losses only arose on the acts of negligence in 2005 and 2006.

[213]   If I am wrong about this, and the loss is properly characterised as the cost of repair of existing damage per se, then that loss must be subject to the settlement reached in 2007 (absent fraud or misrepresentation which is not pleaded).  The then owners agreed to settle on the following basis:

D.       The parties have agreed to settle the proceedings and any and all claims arising directly or indirectly out of the proceedings.

[214]   The proceedings claimed $2.4m in damages relating to the existing water damage.  In any event, I see little room for a claim in relation to the same damage now, particularly as the experts concluded that the water damage has not worsened since the installation of the Overclad.

Is the present claim time barred?

[215] As to limitation, the Council’s failures contributed to the owners’ misapprehension  that  the  existing  damage  was  repaired  during  the  remediation works.   These are fresh acts of negligence and had there been no settlement in relation to the existing damage, I would have inquired into the extent to which these

acts contributed to the owner’s continuing and or fresh losses.79

79     As stated in Johnson v Watson, above n 39, the Plaintiffs would have had the onus of showing

Contributory negligence

[216]   I  preface  this  discussion  expressing  a  preference  for  the  evidence  of Mr Eades  to  that  of Mr Jones  (both  very experienced  property lawyers) on  the reasonableness of the conduct of the purchasers under scrutiny. In particular I agree with Mr Eades that a LIM would not have revealed adverse information.   I also adopt the following passage from Mr Eades’ evidence:

[46]     The repairs to Fleet Street were undertaken in 2005/2006 at a time when Councils could be expected to have become familiar with leaky building problems and the repairs necessary to rectify them. Since then, many purchasers and their lawyers would be satisfied that the Council had issued the code compliance certificate for the remedial work and would not see the need to obtain a building report which would necessarily involve an investigation that could be seen as inferior to the Council’s consent, inspection and certification process.

[217]   And I also agree that lawyers and their clients are not (ordinarily) building experts  and  could  not  be  expected  necessarily  to  construe  minutes  referring  to isolated incidents of water damage as indicating that  Fleet Street  generally had significant problems.

[218]   Against these general observations, I turn to the individual apartments under challenge.

Mr Dobson E3

[219]   I do not accept that Mr Dobson contributed to his loss.   He purchased his apartment on 25 November 2009.  He took several steps by way of due diligence, including obtaining a LIM, a building report a moisture detection report and securing the minutes of previous body corporate meetings.   There was nothing in that information that put him on notice of ongoing weathertightness defects.  The LIM identified that building consent had been issued for the installation of the Overclad and  the  two  building  inspections  did  not  identify any ongoing  weathertightness issues.  One of the minutes refers to water damage in two apartments in relation to a

different part of the building.  It was a minor reference only with nothing to suggest

how much of their loss is attributable to the Council’s failures in relation to the Overclad is

attributable to their total loss as distinct to the non actionable original construction defects.

a major more widespread water damage issue. A reasonable person in the shoes of

Mr Dobson would not have suspected an ongoing weathertightness issue.

Mr Petersen G5

[220]   I do not consider that Mr Peterson materially contributed to his losses.  He purchased his apartment in December 2009.  He did not undertake any due diligence of his building.   But I do not think such due diligence would have revealed any material water damage or leaky building risk.  Mr Dobson’s thorough investigation only two or so weeks prior did not expose any ongoing weathertightness issue and

the prospect of a different evaluation must have been very small at the time.80

Ms Seto E5

[221]   I consider that Ms Seto contributed to her loss by taking no steps to protect her position.  Her unit was under agreement dated 28 September 2010 and settled on

8 October 2010.  Mr Lalas’ evidence was that the cracking would have been evident by this time.  She is therefore not in precisely the same position as Messrs Anderson and Dobson.  Balanced against this, she purchased the apartment from her parents without any evidence of weathertightness damage at the time of purchase and as noted the LIM and the minutes of the body corporate meeting would not have alerted her to any significant issues.   I also note that it is not clear that the cracks in the cladding would have resulted in further investigation.  In these circumstances, I find that Ms Seto contributed to her losses in a minor way and by no more than 15 per cent.

Discount on sale

[222]   By the close of the hearing the parties agreed that the loss on sale for the owners of A3, C4 and D4 was $175,000, $127,500, and 127,500 respectively. The Plaintiffs have also signalled that only 52.66 per cent of the remedial work costs is claimed against the Council, with the result that they have modified their claim so that it is now based on a pro rata cost basis resulting losses of  $92,155, $67,142 and

$67,142 respectively.

80     A similar result was reached in similar circumstances in Byron Avenue, above n 13 at [15], [16]

and [25].

[223]   The Council objects to these losses essentially on the basis that:

(a)      In relation to A3, that Mr Mair had no reason to sell at a discount that is three times the cost of repair.   But this is benefit of hindsight reasoning. I accept that (a) he was not clear on how much would have been required to repair the damage and (b) his decision to sell, and not incur further debt, was reasonable.

(b)In relation to C3 and C4, Mr Lim only had limited information upon which to make his decision to sell the apartments (namely his daughter’s advice that it would costs about $120,000 per apartment) and that in light of the actual repair cost ($60,000 per apartment), the loss on sale was unreasonably incurred.   But this too is benefit of hindsight  reasoning.    Given the information  available to  Mr  Lim, there was nothing unreasonable with his decision to sell.

[224]   Subject to what I have to say about the proper quantification of the losses, I consider that a pro rata claim based on the actual loss suffered is an appropriate approach to quantum in this case.

PART FOUR: QUANTUM

[225]   There are three types of damages claimed: (a)  General damages;

(b)      Consequential losses;

(c)       Compensatory damages.

[226]   I propose to first address the prima facie measure for each category and then to examine the proper quantum payable to each class of plaintiff. In this regard, the Plaintiffs fall into three camps:

(a)       BC1 and BC 2 and the unit owners at the time of the remediation

works and remains owners of the units (“the 2005/2006 owners”);

(b)      The owners who sold their units with knowledge of the defects, who

seek compensation on a loss of sale value approach (“the vendors”);

(c)       The purchasers who purchased their units without knowledge of the

defects (“the purchasers”).

General damages

[227]   The claim in relation to general damages can be dealt with summarily. The Plaintiffs claim general damages for each of the Plaintiffs.   Helpfully the parties provided a detailed schedule identifying the basis for the general damages claim in relation to each plaintiff.  It is unnecessary to burden this judgment by repeating its contents here.  The distress caused by the need to remedy the defective works was

substantial. Applying guiding authority,81 I am satisfied that the owner-occupiers are

entitled to $25,000 for the distress caused by the negligence.  I am also satisfied that the other owners are entitled to $15,000 for the distress caused to them.

Consequential losses

[228]   The  amount  claimed  for  consequential  losses  is  $358,160.48.    Of  this,

$143,349.48 is attributable to delays in the completion of the works.  The Council submits that this latter amount should not be included as it should be recovered from the contractor not the defendants.   But I agree with Mr Lewis that the defendants carry the burden of showing that wasted expenditure should not be recovered by the

Plaintiffs.82   On the scant information available to me additional costs were incurred

because of delays.  The Plaintiffs are entitled to recover those costs unless they have acted unreasonably. The Council has not pointed to any particular unreasonable conduct, other than the capacity for the Plaintiffs to sue the contractor.   But that provides  only  a  speculative  basis  for  recovery  of  losses  deriving  from  the

defendant’s wrongdoing.

81     Byron Avenue, above n 13 at [110]-[115], [127]-[129].

82     See Blanchard, above n 31 at 89.

[229]   The individual claims in respect of consequential losses were not seriously challenged and I accept that they are reasonable.

Compensatory damages

[230]   Mr Lewis submits that claim that the Plaintiffs are entitled to expectation losses as the contract measure and costs arising from the additional set of repairs in

2013/14 with adjustment for collateral benefit in 2005/2006 as the tort measure.  The collateral benefit is said to be the difference between what the full works would have cost in 2005/2006 dollars ($1,263,375.32) and the actual cost in 2005/2006 dollars ($1,208,414.29).  The $54,961.13 difference is to be further reduced by 65.8 per cent to take into account that 14 of the Plaintiffs bought after the 2005/2006 works.  No authority is cited in support of such an approach in relation to tort damages.  The Plaintiffs also submit that a wasted costs approach would not properly compensate purchasers of units after 2005/2006.

[231]   By contrast, the Council contends that the existing owners as at 2005/2006 may recover their wasted costs and subsequent purchasers may claim their proven reliance losses.83

The proper measure of compensatory damages

[232]   The guiding principle for contractual damages is the quantum necessary to place the aggrieved party in the position he or she would have been had the contract been performed.84    In building contract cases, the cost of reinstatement is the presumptive measure, provided this is necessary to produce conformity with the contract and it is reasonable for the owner to undertake it.85   The orthodox measure for compensatory tort damages is the sum required to put the plaintiff in the position

he or she would have been had the wrong not occurred.86

83   Babbage and APS did not engage on the issue of quantum. APS however submitted that the proper approach was a wasted costs approach based causation principles.

84     Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 at 94; Blanchard, above n 30 at

20.

85     Blanchard, above n 31 at 31, citing Bevan Investments Ltd v Blackhall and Struthers (No2)

[1978] 2 NZLR 97 at 129.

86     Todd, above n 22 at 113; Blanchard, above n 31 at 91, citing Attorney General v Geothermal

Produce NZ Ltd [1987] 2 NZLR 348 (CA).

[233]   Relevant  to  both  types  of  measure,  the  APS  tender  approved  by  BC1 anticipated remediation of existing damage and a weather-tight building, but clearly states that the costs of the repair of the exiting damage will be additional to the cost of installing the Overclad.  BC1 (and the existing owners as at 2005/2006) could not have reasonably expected to be put in a situation where the repairs were (or would be) undertaken without incurring the cost of those repairs.  Therefore the prima facie measure of their loss is a wasted cost measure  as framed by James White (an expert quantity surveyor called by the Council), namely:

(a)       The wasted cost of the installation of the Overclad; (b)          The cost of the removal of the Overclad;

(c)       The increased cost of securing a safe weather-tight building in 2014.

[234]   The vendors who subsequently sold their units at a discount occupy the same position  as  the  2005/2006  owners.  As  foreshadowed  at  [84],  their  loss  is  the difference in value they would have achieved had the remediation works been effective and the sale price less the costs of repair they would have had to incur in any event.

[235]   The purchasers who were not aware of the existing defects at the time of purchase are in a different position, to the extent that they purchased the units on the assumption that they were safe and habitable.  They are prima facie entitled to be compensated for the loss of value on purchase price and or the cost of repair.

The 2005/2006 owners: standing to sue

[236]   There is a residual issue as to the status of BC1 and BC2 to sue.  The parties appear to agree that the Unit Titles Act 2010 did not affect the affect the standing of a body corporate to sue.87    Mr Thodey submitted however that it would be helpful to address this issue. But that would add unduly to an already lengthy judgment.   I simply observe that the bodies corporate own the common property (s 54(1)) and the

owners of the units are beneficially entitled to the common property as tenants in common  shares  proportional  to  their  ownership  interests  (s 54(2)).    The  bodies corporate have all the powers of a natural person (s 72).  This logically includes the right to sue in respect of damage to common property.  These factors in combination support the basic proposition that the bodies corporate stand in the shoes of the unit owners for the purpose of these proceedings about the common property.

Quantum of loss

Compensatory damages

[237]   Unfortunately  only  Mr  White  assessed  the  quantum  of  compensatory damages on the basis of a wasted costs analysis.  Ms Thodey also sought leave to provide further submissions and evidence in the event that I get to this point.   I propose to grant leave to the parties to address me on final quantum, but on the basis that I endorse the Mr White’s methodology and subject to my findings in subsequent paragraphs.  My expectation is that any final quantification should be a matter for expert agreement.

The wasted costs

[238]   The cost wasted on installing the Overclad was $1,208,414.29.

[239]   The cost of the removal of the Overclad was $14,710.97.   Mr White based this figure on a 50 per cent discount on actual costs, given the assumption that the Plaintiffs would have always had to remove the cladding.  I agree with this logic.

[240]   The total amount wasted therefore was $1,223,125.26.

The repair bill

[241]   Turning then to the assessment of the repair bill, the experts helpfully agree that the cost of the building repairs (including repair/removal of existing damage and re-cladding) less betterment is $1,725,617.88    From this figure I propose to subtract

the sum representing the unit entitlements for the loss on sale of the three units, A3, C4 and D4.  The parties agree this amount should be 7.768 per cent.  Their claim is addressed separately below.

[242]   The Council also claims that the sum of $93,819.41 for external windows and doors, internal wall finishes and repaint under ceiling should be subtracted from the repair bill.  Mr Ewen and Mr White are quantity surveyors called by the Council. They opine that the external windows and doors were half way through their life when replaced so their cost should be depreciated by 50 per cent.  They also say that the painting is an improvement.   Mr Woolgar is a quantity surveyor called by the Plaintiffs does not respond to approach taken by Messrs Ewen and White to the external windows and doors, but disputes that the painting is an improvement.

[243]   The relevant test for betterment is whether the after completion of the works, the property would be more valuable than a property that complied with the contract.89   The measure of this value must however take into account the loss on the

use of money to the extent that any improvement is a premature investment.90

[244]   I am not satisfied on the evidence that the painting was an improvement on the contract.   I accept however that the external window and door joinery is an improvement, adding value to the property.  There is however no evidence on the use of  money  cost.  The  parties  will  need  to  address  this  issue  for  the  purpose  of finalising quantum.

The increased costs

[245]   The increased costs are measured by the difference in the actual costs in 2014 and the cost of the same works in 2005.  Mr White assessed this at $1,263,375 by applying  a  deflating  percentage  of  24.66  per  cent  based  on  a  starting  point  of

$1,718,726.  I see no reason to doubt this formula. But given the agreement reached by the experts on the repair cost less betterment, the start point is no longer apposite. A revised figure will need to be provided by the experts based on the agreed repair

bill and adjusted to take into account deductions noted at [241] and [244].

89     See La Grouw v Cairns (2004) 5 NZCPR 434 (HC) at [48].

90     J & B Caldwell v Logan House Retirement Home [1999] 2 NZLR 99 (HC) at 107.

The net sum

[246]   The net sum payable to the 2005/2006 owners by way of compensatory damages is the combination of the wasted costs assessed at [238] and the increased costs referred to at [245].

Northern column and elevation repair

[247]   The quantum of the costs for the northern column and elevation repair is: (a)           Northern column: $106,430.67; and

(b)      Northern elevation: $77,317.74.

Body corporate fees

[248]   The parties agree that the amount that ought to be paid for body corporate fees is $6,925.

General damages

[249]   The owner-occupiers are entitled to general damages in the sum of $25,000 and the other owners are entitled to $15,000.

Losses on units A3, C4 and D4

[250]    The  agreed  adjusted  loss  on  sale  of  the  three  units  is  (in  terms  of  the

Council’s liability):91

(a)       A3:  $92,155 (b)           C4:  $67,142

(c)       D4:  $67,142

91     This is based on the Plaintiffs noting that only 52.66 per cent of the remedial work cost is claimed against the Council. A reference is made in the agreed memorandum as to quantum that the percentage of remedial work cost claimed against Babbage and APS are 58.27 per cent and

55.91 per cent respectively.  The significance of this will need to be addressed in submissions dealing with final quantum.

[251]   I assume that these amounts do not factor in an adjustment to take into account the wasted costs measure.   This will need to be addressed in fixing final quantum.

The purchasers’ losses

[252]  Fourteen Plaintiffs who purchased their units after the issuance of code compliance are entitled to a pro rata sum derived from the repair bill referred to at [241] – [244].

[253]   There must be a 15 per cent deduction from the amount payable to the owners of E5 for contributory negligence.

Consequential losses

[254]   The  Plaintiffs  are  entitled  to  consequential  losses  of  $358,160.48  to  be allocated as per the schedule provided by the Council and the Plaintiffs.

PART FIVE: OUTCOME

[255]   I make the following findings as to liability and quantum.

Babbage liability

[256] I am satisfied that BC2004 Limited and BC2009 Limited are jointly and severally liable for the Plaintiffs’ losses. The specific failures are summarised at [76].

[257] As between the Babbage entities, APS and the Council, the entities are plainly the primary tortfeasors. They should be liable for 60 per cent of the losses suffered in respect of the installation of the Overclad. My reasons are summarised at [180].

[258]   Babbage and APS are equally liable in relation to the cost of the northern column and elevation repairs.

[259]   Babbage misled the Council and is separately liable for 60 per cent of the sum payable by the Council to purchasers of units after the issuance of the CCC.  My reasons are summarised at [195] – [196].

APS liability

[260] I am also satisfied that APS is liable to the Plaintiffs directly for their losses. My reasons are summarised at [138].

[261]   As between the defendants, APS is liable for 20 per cent of the Plaintiffs’

losses. My reasons are summarised at [180].

[262]   APS and Babbage are equally liable in relation to the cost of the northern column and elevation repairs.

[263]   APS also mislead the Council and is separately liable for 20 per cent of the sum owed by the Council to the purchasers of units after the issuance of the CCC. My reasons are summarised at [195] – [196].

The Council

[264] The Council is also liable for the Plaintiffs’ losses, except in relation to the northern columns and elevation repairs. My reasons are summarised at [176].

[265]   As between the Council, the Babbage companies and APS, the Council is liable for 20 per cent of the losses.

[266]   As foreshadowed at [195], Babbage and APS are separately liable to the

Council for their misleading conduct.

[267]   By way of clarification, the Council is not entitled to double payment for the liability arising in respect of the same loss.

Mr Lukaszewicz

[268]   The  Council’s  claim   against  Mr  Lukaszewicz  failed  for  the  reasons

commencing at [198].

Final quantum

[269]   The final quantification of the losses will now need to be assessed using the wasted cost framework employed by Mr White,  taking into account the agreements reached between the experts as to the cost of repair, and any adjustments to reflect my findings.  Final schedules allocating the damages to the Plaintiffs, including in respect of general damages and consequential losses should be updated at the same time.

[270]   As anticipated by the parties in their joint memorandum on quantum, the parties will also need to address the interest payable on the remedial costs (including in respect of the payments made on the wasted costs), expert remedial costs and other consequential losses.

[271]   If the parties cannot agree these matters, leave is reserved to seek further assistance of the Court.  Leave is also reserved to the parties to submit to the Court on the issue of apportionment in the event that it transpires that the Babbage companies or APS is insolvent.

Costs

[272]   The parties may file memoranda as to costs.

Annexure A – Observations at 3 September 2014

Annexure B – The Eterpan Literature

Annexure C – Plan A601