Body Corporate 203710 v Auckland City Council

[2012] NZHC 3597

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2006-404-7416 [2012] NZHC 3597

BETWEEN  BODY CORPORATE 203710

First Plaintiff

ANDALBERTINE CONSTANCE TUBMAN & ORS

Second Plaintiff

ANDAUCKLAND CITY COUNCIL First Defendant

ANDBRENT FRANCIS HULENA Second Defendant

ANDPROMANCO KENMAN (AUCKLAND) LIMITED

First-named Third Defendant

ANDNIGEL ANTHONY MCKENNA Second-named Third Defendant

ANDBRIAN DAVID WRENCH Third-named Third Defendant

Hearing:         21 August 2012

Appearances: P A Robertson for First Defendant

E Telle for Ninth Third Party

Judgment:      20 December 2012

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 20 December 2012 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Solicitors:

Heaney & Co, Auckland:  [email protected]

Neilsons, Auckland:  [email protected]

BODY CORPORATE 203710 V AUCKLAND CITY COUNCIL HC AK CIV-2006-404-7416 [20 December

2012]

ANDWILLIAM MARK PENNINGTON Fourth-named Fourth Defendant

ANDDOMAIN CONSTRUCTION LIMITED Fourth Defendant

ANDCLARRIE GALBRAITH & SON LIMITED

First Third Party

ANDHOMETECH LIMITED Second Third Party

ANDBARFOOT & THOMPSON LIMITED Third Third Party

ANDJULIE FITZPATRICK Fourth Third Party

ANDSILVIA POLETTI Fifth Third Party

ANDGILLIAN BRODIE Sixth Third Party

ANDKELLAND'S REAL ESTATE LIMITED Seventh Third Party

ANDNICOLA BULL Eighth Third Party

ANDBUILDING CODE CONSULTANTS LIMITED

Ninth Third Party

ANDNIGEL HAILSTONE Tenth Third Party

ANDKELVIN WALLS Eleventh Third Party

ANDBRACEWELL CONSTRUCTION AND DEVELOPMENT LIMITED

Twelfth Third Party

ANDPRENDOS LIMITED First Fourth  Party

[1]      The   ninth   third   party   (“BCCL”)   seeks   an   order   striking   out   the First Defendant’s (“Council”) claim against BCCL and/or summary judgment against the Council. The Council opposes the application.

Background

[2]      The Council  is  the  First  Defendant  in  proceedings  brought  by the  Body Corporate (“Body Corporate”) and registered proprietors of units (together “Plaintiffs”) in a residential unit title development built between 1999 and 2003 (“development”).   The Plaintiffs’ claim against the Council is in negligence and concerns   the  issuing  of  building  consents   for  the  development,  conducting inspections of the building work and the issue of code compliance certificates (“CCC”).  The Plaintiffs allege that the Council’s breach of its duty of care caused loss.  That loss largely consists of the cost of works required to repair deficiencies in construction which have given, or which might give, rise to water ingress.

[3]      The Council has commenced third party proceedings against several third parties, including BCCL.  The Council’s claim against BCCL relates only to units 1 and 14 of the development.  The registered proprietors of units 1 and 14, respectively Ms A C Tubman and the trustees of a family trust to whom I shall refer as “the Reids”, engaged BCCL to report to them regarding weathertightness issues whilst negotiating for the purchase of their units.

[4]      Neither Ms Tubman nor the Reids (together “the purchasers”) have made a claim against BCCL.  BCCL is a party to this proceeding only in its capacity as a third party to the Council’s claim.

Third party claim

[5]      The Council pleads two causes of action against BCCL.

[6]      In its first cause of action, the Council seeks contribution and/or indemnity pursuant to s 17(1)(c) Law Reform Act 1936 (“Act”),1  on the basis that BCCL is a joint  tortfeasor.    The  Council  pleads  that  BCCL  is  or  would  be  liable  to  the purchasers in negligent misstatement, as follows:

(a)      BCCL made oral representations to the purchasers “in response to questions concerning the physical condition of the units”.   No particulars are given as to the questions asked but the representations said to have been made in response are those referred to in [26] below.

(b)BCCL knew or ought to have known that the purchasers would rely upon BCCL’s statements in deciding whether or not to purchase their units.   The Council also alleges that the purchasers would not have purchased the units had they known their true condition.

(c)      BCCL owed duties of care to the purchasers, which duties it breached by making the said representations knowing that they were inaccurate and/or by failing to carry out sufficient enquiries to ascertain whether they were accurate.

[7]      As  counsel  for  BCCL  submitted,  the  Council  has  not  pleaded  that  the purchasers relied on the alleged misrepresentations.   The Council would have to establish such reliance if it were to establish that BCCL was liable in negligent misstatement.  I consider the issue of reliance to be particularly important in respect of the Council’s claim in so far as it relates to Ms Tubman’s purchase of unit 1 of the development.

[8]      In  its second  cause of  action,  the Council seeks  an  order for  “equitable apportionment”.  The basis of this claim for relief is that, at all material times, the Council and BCCL were subject to a co-ordinate liability to the purchasers and that, if both the Council and BCCL were negligent  and caused loss, then both have

breached common law duties of care, causing the same or similar damage.   The

1 Common Bundle at 115: Statement of claim by First Defendant against Third to Eleventh Third

Parties dated October 2011 at [64].

Council seeks an order requiring BCCL to pay so much of any damages awarded against the Council as may have been caused by BCCL’s negligence.

[9]      In pleading its case against BCCL, the Council has relied upon affidavits sworn by each of the purchasers in response to interrogatories served by the Council. I refer to these affidavits further below.

BCCL’s case

[10]     BCCL’s application to strike out the Council’s statement of claim is brought on the ground that it discloses no reasonably arguable cause of action.2     BCCL’s application  for  summary  judgment  is  brought  on  the  ground  that  none  of  the Council’s  causes  of  action  against  BCCL can  succeed.3      In  affidavit  evidence, representatives of BCCL deny making any of the alleged oral representations to the purchasers.   If, which is denied, any such representations were made, then BCCL contends that the evidence discloses that the purchasers did not rely on those representations or that, if they did, such reliance was not reasonable.

[11]     In addition, if BCCL’s  liability to the purchasers were to be established, BCCL submits that the Council would be unable to recover a contribution from BCCL in any event.   That is because s 17(1) of the Act permits a tortfeasor to recover a contribution or indemnity from another tortfeasor “in respect of the same damage”.  BCCL submits that, even if it were to have a liability to the purchasers, that liability would not be in respect of the same damage as that for which the Council may be liable.

[12]     For reasons given below, I propose to grant BCCL’s application for summary judgment.   The reasons for my decision are such that it is unnecessary for me to consider the submissions made by counsel as to whether s 17(1)(c) of the Act would permit the Council to recover a contribution or indemnity from BCCL, if BCCL’s

liability were established.

2 High Court Rules, r 15.1(1)(a).

3 Ibid, r 12.2(2).

Approach to application for summary judgment by Defendant

[13]     The circumstances in which the Court may enter summary judgment for a defendant are provided for in High Court Rules, r 12.2(2) which reads as follows:

12.2Judgment when there is no defence or when no cause of action can succeed

(1)      ...

(2)       The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.

[14]     The  principles  governing  an  application  by  a  defendant  for  summary judgment are set out in Westpac Banking Corp v M M Kembla NZ Ltd4  and it is unnecessary for me to repeat them.

Approach to summary judgment

[15]     In  determining  BCCL’s  application,  I have  received  and  relied  upon  the Plaintiffs’ statement of claim against the Council and other defendants, and the Council’s statement of claim against its third parties; the affidavits of the purchasers to which I have referred in [9] above; and affidavits sworn on behalf of BCCL, those comprising two affidavits sworn by Mr Kelvin Walls and one by Mr Nigel Hailstone. Mr Hailstone carried out inspections of units 1 and 14 for the purchasers and he prepared  BCCL’s  written  reports  to  the  purchasers.    The  affidavits  also  put  in evidence the agreements for sale and purchase of unit 1 and unit 14, the report that BCCL provided to each purchaser and contemporaneous correspondence to and from Ms Tubman’s solicitors on her purchase of unit 1.

Unit 1

[16]     Ms Tubman entered into an agreement to purchase unit 1 on 29 January 2005, with settlement to take place on 21 March 2005.  The agreement was conditional on

satisfaction of the following clause (“clause 14”) by 5 pm on 18 February 2005:

4 Westpac Banking Corp v M N Kembla NZ Ltd [2001] 2 NZLR 298 (CA).

“This Agreement is subject to and conditional upon the Purchaser being satisfied that the property herein defined is suitable for the Purchaser’s requirements in all respects, following the Purchaser carrying out a due diligence verification of all aspects of the  property which the Purchaser considers appropriate, including by way of example and without limitation:

(a)       the value and condition of the property including engineering and structural issues;

(b)       the terms and conditions of all encumbrances, rights and interest registered against the title

(c)       the statutory and regulatory requirements that affect the property, and current compliance with such statutory and regulatory requirements,

(d)       the terms and implications of the zoning of the property and adjacent properties

(e)       the Body Corporate Rules and any variations thereto

(f)       the Sinking Fund and its implication

(g)       Land Information memorandum

(h)       Building reports

(i)        Financial considerations

(j)        Legal advice

(k)       Such  other  matters  as  the  Purchaser,  in  the  Purchaser’s  sole

discretion deems pertinent.

The Vendor shall promptly upon  request provide the  Purchaser  with all relevant material and information which the Vendor has in its actual knowledge, control or possession to assist the Purchaser in her enquiries under this clause (except insofar as the Vendor is legally bound to keep such information confidential).

The Vendor shall provide the Purchaser with an authority to inspect and view records and Documents held by the Local Authority of and in relation to the property.

If the condition set out in this clause is not satisfied or waived by 5.00pm on the 15th Working Day after the date of this agreement, then either party may cancel this Agreement by giving written notice of such cancellation to the other party.

The Parties acknowledge that the condition in this clause is inserted for the sole benefit of the Purchaser and at any time prior to this Agreement being cancelled pursuant to this Clause, may be waived by the Purchaser giving written notice of waiver to the Vendor.

The parties acknowledge that the satisfaction of the condition in this clause shall be at the sole and absolute discretion of the Purchaser and that if the condition is not fulfilled due to the Purchaser not being satisfied with any aspect  of  the  property,  the  Purchaser  shall  not  be  obliged  to  state  any reason/s for the Purchaser’s lack of satisfaction.”

[17]     It is common ground that, pursuant to clause 14, Ms Tubman might have refused to proceed with the purchase had she received a report from an appropriately

qualified person that the unit might be subject to water ingress or might not be weathertight.

BCCL report – unit 1

[18]     Mr Hailstone’s evidence is that he inspected unit 1 on 4 February 2005,5 and that he then prepared BCCL’s written report to Ms Tubman, that report being posted to her and faxed to her solicitors on or about 7 February 2005.6

[19]     The report contained a discussion of the nature of the inspection that had been carried out; BCCL’s findings on inspection; a list of matters considered to be relevant to Ms Tubman as purchaser; a list of the limitations of the report; and a list of recommendations and conclusions.  The report was some three and a half pages in length and concluded with a statement that Ms Tubman should telephone BCCL if she required clarification or further assistance.

[20]     For present purposes the most important aspects of BCCL’s report regarding unit 1 are that BCCL’s inspection of the unit had “focused on any significant or structural issues, rather than fine detail and architectural issues”.   The report also stated that the inspection had assessed “the concerns raised in a report for the Body Corporate  regarding  potential  and  suspected  areas  of  water  ingress”.    It  is  not apparent from the evidence to which report BCCL was referring but clearly water ingress was referred to from the outset.

[21]     BCCL’s report noted that neither unit 1 nor any other unit appeared to have been issued with a CCC; that moisture ingress appeared to be occurring associated with the small tiled decks on the outside of the building; that cracking of the timber above bi-fold doors to the north and south of what was referred to as the living level had been observed and that it appeared that the sealing system employed beneath the tiles on the decks might be the source of the moisture; that the sealant used to seal copper where it “chased into the walls” was breaking down; that discolouration of

painted plaster on the side walls of the north kitchen deck was consistent with water

5 Common Bundle at 184: Report Building Code Consultants Ltd to T Tubman dated 7 February

2005.

6 Ibid.

ingress into the plaster; and that there was a separation of up to 5mm between the window joinery and adjacent wall framing and the deck doors from the east side of the living level.

[22]     In a section of the report headed “Limitations of this Report”, BCCL stated that the report had been “prepared on the basis of a visual inspection of the premises using normal readily available access and without testing of components for the assessment of the overall structural condition of the apartment and associated items, and  without  recourse to  the construction  drawings”.    BCCL also  stated  that  no warranty  could  be  given  as  to  other  defects  that  were  not  apparent  to  visual inspection at the time and that the “conclusions and recommendations given do not necessarily mean that the building will meet the requirements of the current building code”.

[23]     In  a  “Recommendations  and  Conclusions”  section,  BCCL  stated  that Ms Tubman should obtain as much information  from the secretary of  the  Body Corporate as possible.  BCCL also said that it did not know why a CCC had not been issued and that this might be a matter for Ms Tubman to investigate with the Body Corporate; that the lack of a CCC did not necessarily mean that there was a problem with the building itself but that the future opportunity for a CCC might be lessened by the presence of monolithic cladding; that the moisture ingress across the building appeared to be of low magnitude but that, where concerns had been identified, an invasive investigation would be required to ascertain the problem and provide a solution; that the discolouration of paint work beside the north doors appeared to be caused by the ingress of moisture and that such might have originated from cracked sealant where the balustrade met the wall or possibly from moisture travelling up the wall from the deck and that invasive testing might be required to determine the cause of the problem; that moisture penetrating the decks via the grouting or around the edges would indicate a failure in the waterproofing layer and that there might be no option other than to lift and replace the deck surface if that were to be overcome; and that some repairs to damaged internal surfaces could be relatively easily carried out.

[24]     This section of the report concluded by saying that no guarantee could be provided in relation to the weathertightness of the building owing to the presence of monolithic cladding.

[25]     I consider that any reader of BCCL’s report in respect of unit 1 would have been put on notice that water ingress had occurred and that it was likely to be continuing.   The reader would also have realised that this leaking might require further invasive investigation to determine its cause and extent and that remedial works would be required.

Alleged misstatements

[26]     The Council’s claim is based on statements said to have been made after

Ms Tubman’s receipt of the report.  Ms Tubman’s evidence is that:

On or after 7 February 2005, I spoke to Nigel Hailstone of [BCCL] and asked about the report he issued on 7 February 2005.  Mr Hailstone said that the report would not dissuade him from buying this unit if he could.

On or after 7 February 2005, I also spoke to Kelvin Walls of [BCCL]. Mr Walls said that he had been the consulting engineer for the project and that the building was sound.

[27]     This evidence is reproduced in particulars to the Council’s allegation that

BCCL made oral statements to Ms Tubman as to the physical condition of unit 1.7

As I go on to say, BCCL denies the making of the statements.  Even if they were to be proved, however, the Council’s pleading does not state what (erroneous) information these statements conveyed.   For my part,  I have reservations about whether either could be considered any assurance to Ms Tubman as to the “physical condition” of unit 1.

[28]     In his affidavit evidence Mr Hailstone does not rule out the possibility that he spoke to Ms Tubman after sending her the BCCL report.   However, Mr Hailstone denies that he would have made the statement that Ms Tubman attributes to him in

her affidavit.  He denies that he would have conveyed any information inconsistent

7 Common Bundle at 201: Second Amended Statement of Claim by First Defendant against Ninth to

Eleventh Third Parties dated 20 July 2012 at [27].

with the contents of the BCCL report.  The gist of Mr Hailstone’s evidence is that he was well aware of leaky building syndrome at the time he prepared the report and that he exercised caution in the preparation of any report as to weathertightness concerns.   Mr Hailstone says that this was particularly so with unit 1 because there were  many  “unanswered  questions”  as  to  the  unit’s  condition  and  because  the ongoing performance of the unit could not be guaranteed given that it had been built with monolithic cladding and the Council had not issued a CCC.

[29]     In his evidence, Mr Walls denies having any discussion whatsoever with Ms Tubman.  Mr Walls states that he was not, and could not have been, in a position to comment on matters concerning unit 1 as he had not inspected the unit.  Insofar as concerns Ms Tubman’s evidence that Mr Walls said he was the “consulting engineer for the project”, Mr Walls’ evidence is that he had no such role.  He says that, whilst the Body Corporate engaged BCCL in early 2003 to advise on a report from Prendos, in fact nothing had come of the engagement and BCCL was not called upon to give

any such advice.8

[30]     Accordingly,  there  is  a  clear  conflict  on  the  evidence  as  to  whether Ms Tubman had any discussion with Mr Walls and, if she did have a discussion with Mr Hailstone, there is a clear conflict as to what was or is likely to have been said.

Correspondence

[31]     I come now to the contemporaneous correspondence before the Court, that being correspondence sent by or to the solicitors acting for Ms Tubman (“McIntosh Napier”) prior to Ms Tubman notifying the vendor that clause 14 was satisfied and the agreement for sale and purchase was unconditional.   This correspondence is consistent with BCCL’s submission that Ms Tubman purchased the unit otherwise than in reliance on a statement by BCCL that the unit was weathertight or sound.

[32]     On 4 February 2005 Crocker Strata Management (“Crockers”), who were

acting as the secretary to the Body Corporate, emailed McIntosh Napier.  Crockers’

email referred to voicemail messages from Mr McIntosh, confirmed that a CCC had

8 Common Bundle at 174: Affidavit of K L Walls sworn 29 May 2012 at [12.5].

not been issued for “the property” and advised that Crockers had asked the developer to advise why a CCC had not been issued.

[33]     By fax  dated 17  February 2005, McIntosh Napier wrote to the vendor’s

solicitors, Bennett Vollemaere, and said:9

Thank you for your fax of 15 February 2005 enclosing the Minutes etc.

We would advise that we have received a building report and LIM which indicates that a Code Compliance Certificate for the whole development has not been issued.   We note your advice that interim Code Compliance Certificates  have  been  issued  for  the  individual  apartments.    If  you  are holding such a Certificate for [unit 1] we would greatly appreciate receiving a copy.

We have been advised that the reason the Code Compliance Certificate has not issued is because this building suffers from the “leaky building syndrome”.  There doesn’t appear to be anything contained in the Minutes and Accounts supplied as to our client’s liability in connection with the solving of the leaky building syndrome.

We would therefore ask you to advise us what our client’s liability in connection with the solving of this problem is, has an estimate been received by the Body Corporate for this work and how has the Body Corporate decided how the liability for this account will lie, (ie is it with the individual apartments or is it as per unit entitlement)?

We would be pleased if you would advise us the answers to these questions as soon as possible and we would formally request  an extension of time for approval of the due diligence clause for us to consider the answers to these questions and our client to make a decision.

(emphasis added)

[34]     It is apparent from this letter that Ms Tubman or her agents knew that the unit or the development generally suffered from water ingress and that Ms Tubman’s primary concern was to ascertain how costs associated with repair works were to be apportioned between unit holders.

[35]     Bennett Vollemaere replied to McIntosh Napier later that day as follows:10

Thank you for your facsimile of 17 February 2005.

We attach a copy of the interim code compliance certificate which you will note is in respect of Units 1 – 14.

9 Common Bundle at 89: Affidavit of A C Tubman sworn 24 March 2011, Exhibit “B”.

10 Ibid, Exhibit “C”.

In respect of the issue of a final code compliance certificate, both our client and the Real Estate Agent have independently made enquiries of the Auckland City Council.   It would appear that final inspections have been completed, fees paid, but there is outstanding paperwork.  At no stage has the Council indicated that they are refusing to grant a code compliance certificate on the basis that this is a “leaky building” but merely that there is outstanding  paperwork to  be  provided.   You  may  care  to  telephone  the Council, Building Consents, to confirm this position.  We also note that the Minutes disclosed that the cause of the ingress was due to poor construction/design of the rainhead outlets on the guttering, not the general weather-tight integrity of the building/development.

We have asked the Body Corporate Secretary to let us have a copy of the

Minutes  from the  Extraordinary General Meeting held on  10 November

2003. We are still awaiting these.

We further note that the time for fulfilment of the due diligence condition is in actual fact Friday 18 February, not 22 February as indicated in your preliminary correspondence.

[36]     McIntosh  Napier  faxed  Bennett  Vollemaere  later  on  17 February  2005, saying:11

Thank you for your fax of 14.29 hours.

We would advise that we have discussed the contents with our client and have been instructed to declare the above contract unconditional.

The Transfer and Notices of Sale will be following shortly.

[37]     As I have said, and as counsel for BCCL submitted, the Council does not allege that Ms Tubman relied on the oral statements that she alleges were made to her on behalf of BCCL.  Even if such an allegation were to be made, and it would have to be for the Council to succeed against BCCL, I accept BCCL’s submission that  this  correspondence  is  evidence  that  Ms Tubman did  not  rely on  any such statements in proceeding with the purchase of unit 1.

[38]     For that reason, I am satisfied that the Council’s claim against BCCL in respect of unit 1 cannot succeed.  In particular, even if the statements are made out, I am not satisfied that there is any evidence of reliance.  The evidence, such as it is,

tends to establish a lack of reliance.

11 Common Bundle at 250: Second Affidavit of K L Walls sworn 14 August 2012, Exhibit “C”.

Unit 14

[39]     On the evidence before me, I am satisfied that the Council’s claim against BCCL in respect of unit 14 cannot succeed.  That is because, as best as can now be ascertained, the Reids entered into an unconditional contract to purchase unit 14 before the alleged oral statements by BCCL in respect of the unit.  The evidence is to the following effect.

[40]     On 2 June 2004, Mr Reid, one of the trustees, made a written request to BCCL for an inspection of unit 14.  Mr Hailstone inspected the unit on 3 June 2004. Mr Hailstone then prepared BCCL’s written report.  That report is addressed to the Reids and dated 4 June 2004.12   It is unnecessary for me to refer to the content of that report in any detail but it discussed issues as to water ingress in the same broad manner and with the same qualifications as the Tubman report.

[41]     The agreement for sale and purchase (“agreement”) in respect of unit 14 is undated. As I have said, the agreement was unconditional.  In the affidavits that they swore in answer to interrogatories, Mr and Mrs Reid’s evidence is that Mr Reid entered into the agreement “on about 3 June 2004”.  Their evidence is that “on about

4 June 2004 [they] received a report from [BCCL] dated 4 June 2004” and that, prior to settlement and in response to parts of the report, they made enquiries with the real estate agent acting on the sale, with Mr Hailstone and with a third party about “the issues” and that the responses received assured them “that the issues associated with the unit had been fixed”.

[42]     At the hearing, I discussed with counsel that it appeared that the Reids had become bound to purchase unit 14 before the alleged discussion with Mr Hailstone. Matters were left on the basis that counsel would make enquiries to see whether the date on which the Reids had executed the agreement could be ascertained with certainty.  Counsel made enquiries but were unable to take the matter any further.

[43]     To have any prospect of success against BCCL in respect of the statements said to have been made to the Reids, the Council would have to establish that the

12 Common Bundle at 174: Affidavit of K L Walls sworn 29 May 2012 at [15].

statements preceded the Reids becoming bound to purchase unit 14.  As counsel for the Council acknowledged in submissions, there is no prospect of the Council doing so as matters stand at present.   Given that, I am satisfied that the Council’s case against BCCL in respect of unit 14 cannot succeed.  I grant BCCL’s application for summary judgment in respect of that claim accordingly.

Result

[44]     For the reasons given, I enter summary judgment for BCCL in respect of the causes of action pleaded in [26] to [34] inclusive of the second amended statement of claim by the First Defendant against Ninth to Eleventh Third Parties dated 20 July

2012.

[45]     BCCL seeks an order against the Council for costs on the application.  As a general rule, costs follow the event.  I trust the parties will be able to agree matters as to costs in respect of the application and in respect of the Council’s proceedings against BCCL, but they may submit memoranda if they are unable to do so.

..................................................................

M Peters J