Body Corporate 205055 v Prodesigners Architects Limited

[2012] NZHC 2721

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2007-404-001625 [2012] NZHC 2721

BETWEEN  BODY CORPORATE 205055

First Plaintiff

ANDLESLIE IVAN BROWN & BROWN TRUSTEES LIMITED & ORS Second Plaintiffs

ANDPRODESIGNERS ARCHITECTS LIMITED

First Defendant

ANDFAR NORTH DISTRICT COUNCIL Second Defendant

ANDERNEST HEMSHAW Third Defendant

ANDW R MILLER Fourth Defendant

Hearing:         On the papers

Counsel:         G D R Shand for plaintiffs

D Goddard QC and M Cavanaugh for second defendant

Judgment:      17 October 2012

JUDGMENT OF LANG J

[on costs as between the plaintiffs and the second defendant]

This judgment was delivered by me on 17 October 2012 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

BODY CORPORATE 205055 V PRODESIGNERS ARCHITECTS LIMITED HC AK CIV-2007-404-001625 [17 October 2012]

[1]      On 31 May 2012, Associate Judge Abbott granted an application by the Far

North District Council (“the Council”) for summary judgment against the plaintiffs.[1]

The Associate Judge also found that the plaintiffs could not establish a tenable legal basis for their claims against the Council.   For that reason he would also have granted the Council’s alternative application for an order striking out the proceeding.

[1] Body Corporate 205055 & Ors v Prodesigners Architects Ltd & Ors HC Auckland CIV-2007-404-

001625, 31 May 2010.

[2]      The Associate Judge observed[2] that he had determined the essential issues in both applications in line with previous authority in both this Court and the Court of Appeal.   For that reason he did not see any need to award costs other than on a Category 2 Band B basis.  He left the issue of costs to counsel in the first instance. He made provision, however, for counsel to file memoranda as to costs in the event that they could not reach agreement.

[2] Ibid, at [71].

[3]      Counsel have been unable to reach agreement, and I have now been asked to determine the issue of costs based on the memoranda they have filed.

Background

[4]      The plaintiffs are the owners of a multiple unit resort property located in Northland.   Their building suffers from construction defects and related damage arising out of building work carried out by a previous owner.

[5]      The Council is the local territorial authority in Northland.  It issued a building consent for the building work, and also carried out inspections as work progressed. When the work was completed, the Council issued a code compliance certificate.

[6]      The plaintiffs sued the Council in negligence.   By the time of the hearing before the Associate Judge, the plaintiffs had amended their claim on four occasions. In its final form, the statement of claim contained causes of action grounded in negligent misstatement and an alleged breach of a duty of care to protect the health

and safety of the plaintiffs as the owners of the units.

[7]      The Associate Judge found that, in terms of the authorities as they then existed, the Council did not owe a duty of care to the plaintiffs.  This was because, although the plaintiffs’ units were to be used for residential purposes, that fact was not known to the Council.  In this regard the Judge said:

[59]      I find that at the time that any duty of care would have to have arisen (between the time of processing the building consent and the time of issue of the code compliance certificate), the intended use of the building was not stated to be residential nor was it known by Council to be for that end purpose, as contemplated by the Hamlin exception.  The designation of the building as “apartments” was not enough to characterise the development as residential.   The intended use, as appearing from the contemporaneous documents, was commercial.

[8]      This  conclusion  persuaded  the  Associate  Judge  that,  in  line  with  the authorities as they then stood, the plaintiffs’ claim could not succeed.

Issues

[9]      There is no dispute that, as the successful party, the Council is entitled to costs against the plaintiffs. Two issues need to be determined. They are:

(a)      Should  the proceeding  be categorised  for the  purpose of  costs  as

Category 2 or 3?

(b)      Is the Council entitled to increased costs?

Costs category 2 or 3?

[10]     The Associate  Judge  categorised  the  proceeding  as  being  a  Category  2 proceeding  at  the  first  case  management  conference  held  on  24  May  2007. Thereafter, no party asked him to revisit that conclusion.

[11]     The Council now contends that the proceeding should be categorised as a

Category 3 proceeding as has been done in other comparable cases.

[12]     Having perused the file, however, I do not consider that re-categorisation is warranted.   The issues raised in the case were no more complex than those to be

found in any “leaky building” proceeding, and there is no rule or principle to the effect that all leaky building claims should be categorised for costs purposes as Category 3.  The fact that the pleadings were modified on several occasions did not result in any increase of the complexity of the essential issues.

[13]     I  therefore  decline  to  re-categorise  the  proceeding  as  a  Category  3 proceeding.

Should the Council receive increased costs?

[14]     The Council contends that the plaintiffs’ claims had no prospect of success. Its solicitors wrote to the plaintiffs on several occasions pointing out the obstacles they faced, and inviting them to discontinue the proceeding.  The plaintiffs declined to do so.  The Council submits that the plaintiffs therefore elected to continue the proceeding in circumstances where they ought to have appreciated that their claims were hopeless and could not succeed.  For that reason the Council seeks an award of increased costs under r 14.6(3)(b)(ii) of the High Court Rules.

[15]     It  is  fair  to  say that,  as  they stood  when  the Associate Judge heard the Council’s applications, the authorities were against the plaintiffs.  The courts were not prepared at that time to recognise a duty of care on the part of territorial authorities to the owners of buildings intended for commercial, as distinct from

residential, use.[3]

[3] See eg Te Mata Properties Ltd v Hastings District Council, [2009] 1 NZLR 460 and Queenstown

Lakes District Council v Charterhall Trustees Ltd [2009] 3 NZLR 786.

[16]     The law in this area can fairly be described, however, as having been in a developing and dynamic state until very recently.  That this is so is reflected in the fact that counsel were obliged to file supplementary submissions to address the effect of three cases decided by this Court and the Court of Appeal during that period after

the Associate Judge had reserved his decision.[4]

[4] Queenstown Lakes District Council v Charterhall Trustees Ltd & Anor, n 3; Body Corporate 207624

& Ors v North Shore City Council & Ors HC Auckland CIV-2007-404-004837, 11 November 2009, Potter J (Spencer on Byron); North Shore City Council & Ors v Body Corporate 188529 2010 NZCA

64 (Sunset Terraces).

[17]     Until last week, however, the issue of whether or not a territorial authority owed a duty of care in respect of buildings intended for commercial use had never been determined by the Supreme Court.  The irony of the present situation is that, had the plaintiffs’ claims still been on foot, they would now be tenable by virtue of the very recent decision of the majority of the Supreme Court in Body Corporate No.

207624 v The North Shore City Council.[5]     This demonstrates that the plaintiffs’

claims were not completely hopeless.

[5] Body Corporate No. 207624 v The North Shore City Council [2012] NZSC 83.

[18]     As the Associate Judge noted,[6]  the issue he was required to determine was also rendered more difficult by the fact that the plaintiffs’ building was “neither clearly a residential building, as one is commonly understood, nor exclusively a commercial building”.  Whilst it operated as short stay accommodation for visitors, individual unit owners were also entitled to stay in their units at a discounted rate.

[6] Body Corporate 205055 & Ors v Prodesigners Architects Ltd & Ors, n 1 at [42].

[19]     These  factors  persuade  me  that,  although  the  plaintiffs  had  summary judgment entered against them, their claims were not so devoid of merit that they should attract an award of increased costs.

[20]     It is clear, however, that both parties were required to undertake considerable preparation for the hearing.   The bundles of documents and authorities were also voluminous. The costs payable under Band B and Band C in respect of preparing for the hearing of an interlocutory application are 1.5 and 3 times the daily recovery rate respectively.  The costs payable in respect of preparing the bundles for hearing are .6 of a day and 1 day respectively.

[21]     I  consider  that  costs  in  respect  of  preparing  for  the  hearing  should  be increased to four times the daily recovery rate.   Costs in respect of preparing the bundles should be increased to twice the daily recovery rate.  All other steps in the

proceeding are adequately dealt with under Category 2 Band B.

Result

[22]     The Council is entitled to an award of costs on a Category 2 Band B basis in respect of all steps in the proceeding other than those relating to preparing written submissions, for the hearing on 8 June 2009, and preparing the bundles for hearing. It is entitled to costs calculated at four times the daily recovery rate for preparing written submissions and two times the daily recovery rate for preparing the bundles.

It is also entitled to disbursements as fixed by the Registrar.

Lang J

Solicitors:

Grimshaw & Co, Auckland

Heaney & Co, Auckland