Body Corporate 182040 v Coleridge Limited HC Auckland CIV 2002-404-1665

[2010] NZHC 1151

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2002-404-1665

BETWEEN  BODY CORPORATE 182040

First Plaintiff

ANDSCHIEHALLION NOMINEES LIMITED Second Plaintiff

ANDCOLERIDGE LIMITED First Defendant

ANDMALCOLM BROWN MURRAY DAY ARCHITECTS LIMITED

Second Defendant

ANDAUCKLAND CITY COUNCIL Third Defendant

ANDCONNELL WAGNER LIMITED Fourth Defendant

Hearing:         15 June 2010

Appearances: G J Kohler and S Loveys for plaintiffs

S Thodey and S Mitchell for third defendant

Judgment:      5 July 2010

JUDGMENT OF ALLAN J

Solicitors/counsel :

Price Baker Berridge, Henderson

G J Kohler, PO Box 438, Auckland

Heaney & Co, Auckland [email protected]

This judgment was delivered by

The Hon. Justice Allan on

5 July 2010 at 4:00pm

pursuant to Rule 11.5 of the High Court Rules

BODY CORPORATE 182040 AND ANOR V COLERIDGE LIMITED AND ORS HC AK CIV 2002-404-1665

5 July 2010

[1]      This is a so-called “leaky homes” case which concerns a claim by the Body Corporate and the owners of 116 units within a 125 unit development known as the Quest on Hobson, and situated at 363 Queen Street, Auckland.   The case is eight years old.   A settlement conference has been scheduled for 30 July 2010.   The proceeding is the subject of a back up fixture for October 2010.

[2]      Most outstanding interlocutory issues have been resolved between the parties. The present application by the third defendant seeks the provision of further particulars and further discovery by the plaintiffs.

Particulars

[3]      The plaintiffs sought particulars in terms of a request first made in a notice of particulars dated 29 March 2010.   The particulars concerned are to be found at paragraph 3 of the schedule attached to that notice.  Paragraph 3 reads:

3.        Paragraph 20 of the claim alleges that the plaintiffs listed in the first and second schedules have had to meet the costs of and incidental to the remedial works in accordance with their unit title proportions as set out in the fifth schedule and in respect of those plaintiffs who have sold the levies they paid during the period of ownership.

The third defendant requests the following particulars:

(a)      By reference to each of the plaintiffs identified in schedules

1 and 2 the dates upon which they have paid levies and the amounts paid.

(b)      By reference to each of the plaintiffs identified in schedules

1 and 2 which of them are expected to pay levies in respect of future works.

[4]      As the argument proceeded a degree of consensus emerged in respect of particulars.  Since the notice of particulars was given, the plaintiffs have filed a fifth amended statement of claim dated 3 May 2010.  Mr Kohler advises the Court that much of what the third defendant seeks is to be found in the schedules to the fifth amended statement of claim.

[5]      Ms Thodey sought the following directions:

a)       The plaintiffs are within five working days to provide to the third defendant particulars of the amounts paid by individual unit owners for repair costs to date.  The particulars are to identify separate unit numbers, and the dates and amounts of each payment.

b)The plaintiffs are within five working days to provide to the third defendant confirmation that future repair costs will be paid by individual second plaintiffs in accordance with their respective unit entitlements.  Such confirmation may be provided by counsel for the plaintiffs.

[6]      As to these directions, Mr Kohler indicates that the relevant information will be supplied on a without prejudice basis.  He contends that it is in truth evidence, and that it is already available to the third defendant because it may be extracted from base documents already produced to the third defendant.  He refers in particular to a large three page spread sheet, a copy of which is to be supplied to counsel for the third defendant.

[7]      In a post-hearing memorandum dated 16 June 2010, Ms Thodey confirmed that the particulars now provided are sufficient and that no orders are now required.

Discovery

[8]      Again, following discussion, the issues for determination in respect of the third defendant’s discovery application have been very much confined.   Two questions require resolution.   The first concerns documents passing between the Body Corporate and the owners, and any documents created by the owners themselves.   As I understand it, Abbott AJ earlier indicated that such documents were to be supplied, but compliance has been incomplete.   The Court is told that there are some undiscovered documents in this category.  Ms Thodey indicates that the Council will be satisfied by the provision of these documents on an informal basis, but bound and paginated if there are more than 30 such documents.  There will be an order accordingly.

[9]      The remaining question  for the Court at the present time is whether the plaintiffs must discover individual conveyancing files for the purchase by the plaintiffs of their units and, in certain instances, conveyancing files relating to on- sales.

[10]     The question of conveyancing file discovery has already been before the Court.  In his judgment of 23 December 2008, Abbott AJ dealt with the issue at [95]- [97], which I reproduce for convenience:

[95]     There was more of an issue over discovery by the second plaintiffs. There are two aspects to it.  The first is whether the second plaintiffs have to provide the whole of their conveyancing files.   The second is whether the individual second plaintiffs need to provide individual affidavits of documents.

[96]     To date the continuing plaintiffs have given discovery of individual agreements for sale and purchase, any pre-purchase building inspection reports, and any certificates under s 36 of the Unit Titles Act 1972.   The defendants do not accept this selected discovery is sufficient.  They say that it will not necessarily disclose everything which bears on whether the individual plaintiffs had knowledge, of defects, or whether they took steps to protect themselves (and, if so, what steps).

[97]      I accept that documents indicating knowledge of defects, or relating to steps that an individual owner may have taken in response to such knowledge, are potentially relevant.  The issue is how such discovery should be given.  Although the conveyancing files may well contain a substantial number of documents which are not relevant, I am mindful of the entreaty by counsel for the plaintiffs to allow discovery to be given in a cost effective manner (a matter I will come back to).   I consider that the whole conveyancing file is discoverable under the principle in Compagnie Financiere  et  Commerciale  du  Pacifique  v  Peruvian  Guano  Co  (1882)

11 QBD 55 (CA). There may well be documents in the file which put the defendants on to a train of inquiry relevant to their defence. I anticipate that

the   work   involved   in   reviewing   and   extracting   potentially   relevant documents may be more than the work involved in producing the whole file

with pages numbered.  Unless counsel can agree I consider that the whole file should be produced, with each document separately numbered rather than individual listed.

[11]     The present application for discovery ought technically, perhaps, to have been an application for enforcement of the earlier discovery order.  But counsel were agreed that in all the circumstances of the case the appropriate course is to treat the present application as an application for further discovery.

[12]   The plaintiffs have made considerable efforts to obtain the relevant conveyancing files.  Mr Kohler provided significant detail in respect of progress to date in complying with the December 2008 discovery order.  He told the Court that

69 of the 115 apartments are still owned by the original owners.   From them 36 conveyancing purchase files have been received;   19 have been confirmed lost or destroyed, and in nine cases, owners who have not provided conveyancing files have provided  their  own  copies  of  purchase  documents.    In  the  case  of  non-original owners, a certain number have not produced conveyancing files.   Inquiries are continuing in respect of those persons.  The Court has over time been provided with on-going advice as to compliance progress.

[13]     Ms Thodey paints a somewhat different picture.   She says that the latest amended statement of claim lists some 76 original owners;  that 12 files have been discovered in respect of those owners, and a further 15 have been confirmed as being lost or destroyed.  That leaves a balance of 49 files of which five are now said to be available.   She says that the third defendant also understands that in the case of a further seven original owners who have not supplied conveyancing files, copies of at least some documents have been promised during the course of the briefing process.

[14]     On Ms Thodey’s analysis, some 37 original owners have neither produced any documents nor accounted for the whereabouts of their documents and files.

[15]     A second category consists of subsequent owners.  Ms Thodey says there are

39 such owners;   14 files have been received from them and a further three have been confirmed as lost or destroyed.   Of the remaining 22 owners, some nine conveyancing filed are said to be available, and some documents are likely to be forthcoming from a further two owners.   That leaves 11 subsequent owners unaccounted for.

[16]     Of those 11 owners, Ms Thodey understands that five may not wish to pursue the claim, they having sold their units, but there is no adequate information in respect of the remaining six subsequent owners.

[17]     A third category identified by the third defendant consists of both original and subsequent owners who have sold their units and seek to recover losses said to be consequent upon the sale of their units.  On Ms Thodey’s analysis there are 19 in this category, but no files have been discovered for them.

[18]     In summary, a number of files have been obtained and some have been lost or destroyed.   In addition, during the course of briefing various documents are being located, copies of which might well have formed part of missing conveyancing files.

[19]     There is an element of significant disagreement between counsel as to the precise numbers of files hitherto discovered, but overall the position is that a substantial number have already been discovered.  Some have been noted as lost or destroyed, and there are on-going efforts to endeavour to locate the remainder.

[20]     Mr Kohler says that as further documents and files emerge they will be made available on a without prejudice basis, but he contends that overall they are no longer relevant, and that having regard to the further expense and delay that will arise if yet further efforts are made to locate them, the taking of further steps to do so would be pointless or unjustly burdensome.  In other words he now questions the relevance of the  conveyancing files.    In  support  of  that  contention  he  says  that  the  primary justification  for  the  earlier  discovery order  has  disappeared  by reason  of  recent decisions of the Court of Appeal which have clarified the proper approach to the determination of whether a duty of care is to be imposed on parties such as the third defendant.

[21]     In the course of argument counsel referred to a number of recent decisions, but in particular to the decisions of the Court of Appeal in Re Sunset Terraces1 and Re Byron Avenue.2   In Sunset Terraces the Court of Appeal laid down guidelines concerning the liability of local authorities in the context of leaky building claims. The Court upheld the “bright line” approach adopted by Heath J in this Court, and

indicated that it was the Court’s obligation to apply and develop legal principles in

1 Re Sunset Terraces [2010] NZCA at 64

2 Re Byron Avenue [2010] NZCA at 65.

such a manner as to best facilitate outcomes which are as orderly, predictable and cost effective as possible (William Young J at [135]).

[22]     At [170] William Young J held that a simple bright line approach pointed to the imposition of a Hamlin duty in relation to residential developments.  At [173] he held also that the duty extended to investors and second and subsequent purchasers. At [185] he held that there was no need for investors to give evidence of personal reliance, because the Hamlin duty rests on notions of general, rather than particular, reliance.

[23]     At the heart of the judgment lies a direction as to how a determination is to be made in respect of the intended use of an affected building.  Baragwanath J said, at [69]:

[69]     Those who own but do not occupy are not precisely covered by Hamlin. But having considered a broad spectrum of cases I am satisfied that it would be wholly impracticable to have the duty come and go as the owner moves in and out of the apartment for shorter and longer periods. I can see no principled basis not to adopt the bright line selected by Heath J and permit claims by owners, whether or not they are in occupation, provided the intended use of the building was stated as residential in the plans and specifications submitted with the building consent application, or was known to the Council to be for that end purpose.

[24]     The Court is advised that there is a pending application for leave to appeal to the Supreme Court in respect of the Court of Appeal’s findings as to the “bright line” test, but for present purposes this Court must proceed on the basis of the law as it currently stands.

[25]     There is evidence that the application to the third defendant for building consent in this case specified the intended use of the building as being for “car parking & apartments”.   Both the interim and final code compliance certificates likewise specify the intended use of the building as being for apartments and car parking.  On the Sunset Terraces test that would arguably be conclusive.

[26]     Ms Thodey contends, however, that there is a body of evidence in this case that suggests the use to which the building was actually put was as a hotel rather than residential apartments.   I accept her submission that it does not follow that local

authorities will be irretrievably bound in every leaky building case by a description which happens to be used in the course of consent applications and other formal documents.   Such descriptions may occasionally mask the reality of the situation. For  example,  in  Body  Corporate  205055  v  Prodesigners  Architects  Ltd3   (the “Blue Pacific”  case), Abbott AJ  looked beyond the description of a  building as “apartments” in the application for building consent and the project information

memorandum, to other supporting documents and correspondence with the local authority.  He concluded that that was the proper approach, despite the judgment in Sunset Terraces, and ultimately found the intended use of the building to be as a hotel/motel complex.

[27]     Having said that, I do not see how an insistence on the discovery in the present proceeding of each and every conveyancing file would assist the third defendant in arguing for an intended building use which might fall outside the ambit of its duty of care.  That is because the duty as discussed in Sunset Terraces is owed to all owners, regardless of their individual occupancy intentions.  The principle is that  of  deemed  general  community reliance,  so  it  is  unnecessary for  individual owners to establish their actual reliance on the third defendant.

[28]     A determination of the use to which the building is to be put will accordingly not be made on the basis of the use to which individual owners propose to put their units.  Rather, it must be assessed simply by reference to what passed between the building developers on the one hand and the Council on the other, and possibly by reference to the intention of original owners as a body.

[29]     It is difficult to see how any documents of relevance to that determination would be likely to be found on the conveyancing files of individual owners, and in particular those who were not original owners.  Having said that, I understand it to be common ground that the great majority of the owners bought their apartments subject to hotel leases.  All of the original agreements for sale and purchase and the leases were discovered and copies produced to the third defendant some considerable time ago.

3 Body Corporate 205055 v Prodesigners Architects Ltd High Court Auckland, CIV-2007-404-1625,

31 May 2010.

[30]     The Council might well wish to rely upon that aspect of the arrangements between the developers and the purchasers, for the purpose of constructing an argument that no Hamlin duty arises on the particular facts of this case.

[31]     Counsel for the third defendant already have copies of the agreements for sale and purchase and the leases associated with this building.  Nothing of relevance about the intended use of the building is likely be found on the outstanding conveyancing files, given the approach mandated by the Court of Appeal.   The Council already has access to many such files.  Mr Kohler has indicated that, on a without prejudice basis, he is willing to make available to counsel for the third defendant all of the files recently obtained, and those which may be located in the future, but the plaintiffs are not willing to list them in the ordinary way by reason of the cost and delay entailed.  I do not consider the third defendant to be entitled to more than that insofar as the intended use of the building is concerned, because I am not persuaded that the files are relevant to that topic.

[32]     But  Ms  Thodey seeks  discovery of the  conveyancing files  on  two  quite separate additional grounds.   The first concerns the possibility of contributory negligence.   As I understand it, the argument is that the conveyancing files might contain copies of pre-purchase inspection or LIM reports.   If any such documents exist, then they may go some distance towards establishing that individual plaintiffs may have purchased in reliance on such reports, rather than on the code compliance certificates, she argues.

[33]     It is difficult to see how this ground could possibly be applicable to those plaintiffs (about 60%) who were original purchasers, and who signed agreements for sale and purchase before the building was constructed.  As Mr Kohler submits, it is obvious there could have been no inspection of that which is not there.  Neither is there  any  basis   for   an   assumption   that   one  or   more  plaintiffs   may  have commissioned a private inspection report in respect of an entirely new building.

[34]     I cannot discern a proper basis for directing discovery on this ground of conveyancing files in respect of those plaintiffs who purchased prior to May 2002, which Ms Thodey says is the latest time at which defects were still being discovered.

[35]     The position would appear to be somewhat different however, in respect of those plaintiffs (Ms Thodey says there are at least 29) who bought their units after May 2002.   A mere opportunity for an immediate inspection is unlikely to count against such a purchaser:  William Young J at [166] of Sunset Terraces.  But if any purchaser commissioned an independent report, that may be relevant in my view both to causation and to contributory negligence.

[36]     To the extent that it has not already occurred, post May 2002 purchaser plaintiffs should therefore:

a)        discover  their  conveyancing  files  (by  simply  producing  them  for inspection by solicitors or counsel for the third defendant);  or

b)if no files are available, produce a copy of any inspection report or confirm through their solicitors or counsel that no such report exists.

[37]     The final  ground upon  which the third defendant seeks discovery of the conveyancing files concerns claims for losses upon resale.  Ms Thodey argues that the Council must have the conveyancing files to enable it to determine whether any unit was sold to a purchaser with knowledge of the building’s defects.

[38]     Mr Kohler’s response is to advise the Court that there will be valuation evidence going to loss of market value by reason of stigma considerations.  Plainly, the Council will be entitled to details of any on-sale relied upon by a plaintiff.  If the on-sale figure is higher than the value assessed by the valuation evidence, then of course the plaintiff concerned will be entitled only to the loss actually suffered.  By the same token, it seems to me, no plaintiff will be able to recover more than the assessed diminution in value fixed in accordance with the valuation evidence.

[39]     Ms Thodey’s argument, as I understand it, is that the Council is entitled to have access to all relevant conveyancing files in order to assess for itself whether a given sale was to a purchaser with knowledge of the defects, so that a depressed sale price was actually referable to building stigma, rather than to some other cause (such as forced sale for financial reasons).  In my view, as Mr Kohler submits, to extend

the plaintiffs’ discovery obligations on these grounds would be to assist something of a fishing expedition.  A particular plaintiff’s reasons for reselling will not govern the amount (if any) recovered for loss on resale, because a plaintiff who sells for less than the value assessed by expert evidence will be able to recover only the losses referable to that evidence.   Further, the files are unlikely to contain anything that might  reveal  that  a  purchaser  was  unaware of  the  building’s  problems  and  has purchased at a reduced price for reasons other than building stigma.

[40]     So the prospect of finding anything on any conveyancing file that might support the Council’s proper inquiry is negligible.   It would not be appropriate to require discovery of conveyancing files on this ground.

Summary

[41]     To the extent that discovery has not already been made, post-May 2002 purchaser plaintiffs must:

a)        discover  their  conveyancing  files  (by  simply  producing  them  for inspection by solicitors or counsel for the third defendant);  or

b)if no files are available, produce a copy of any inspection report or confirm through their solicitors or counsel that no such report exists.

[42] There will be an order by consent directing the production by the plaintiffs to the third defendant of the documents referred to in para [8].

[43]     I decline to direct more extensive discovery than that.

[44]     In the event that counsel believe I have overlooked some aspect of the third defendant’s application, leave is reserved to counsel to file further memoranda.  In particular, I have stipulated no time for compliance with the discovery orders now made;   it may be that the third defendant  seeks an order fixing an appropriate compliance date.

Costs

[45]     Counsel  were  agreed  that  costs  should  in  the  first  instance  be  reserved. Counsel for the third defendant are to file and serve a memorandum as to costs within 10 working days after the date of delivery of this judgment.  Counsel for the plaintiffs are to file and serve a memorandum within a further five working days thereafter.

C J Allan J