Body Corporate 207624 v Grimshaw & Co
[2023] NZHC 979
•28 April 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2018-404-002107
[2023] NZHC 979
BETWEEN BODY CORPORATE 207624
Plaintiff
AND
GRIMSHAW & CO
Defendant
Hearing: 18 July - 22 July 2022
25 July – 29 July 2022
1 August – 5 August 2022
8, 9, 11, 12 August 2022Appearances:
D R Bigio QC, A G Holden and A J McCombie for the Plaintiff L Taylor QC, P J L Hunt, R J Scott and J T Neville-Smith for the Defendant
Judgment:
28 April 2023
Reissued:
10 May 2023
JUDGMENT OF TAHANA J
This judgment was delivered by me on 28 April 2023 at 3.00pm and
re-delivered by me on 10 May 2023 in accordance with High Court Rules 2016, r 11.10
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
D R Bigio QC, Auckland Wilson Harle, Auckland McElroys, Auckland
BODY CORPORATE 207624 v GRIMSHAW & CO [2023] NZHC 979 [28 April 2023]
TABLE OF CONTENTS
[Para No.]
INTRODUCTION 1
FACTUAL BACKGROUND 15
Spencer on Byron 15
Building Defects Litigation 17
Instructing Grimshaws 18
Byron Ave – High Court decision 23
Owners joining as second plaintiffs 24
Conduct and distribution agreement 27
First mediation with Multiplex and settlement offer 38
Unit Titles Act 2010 40
Second mediation with Multiplex 41
Communications with non-plaintiff owners 46
Application for s 74 scheme 48
Discovery from non-plaintiff owners 54
Amending the statement of claim 59
Communications with Grimshaws about the CDA 60
Resolution to approve CDA 78
Preparation for trial 81
Settlement 84
Grimshaws advise on distribution 95
Disputes arise over CDA 101
Interpleader proceedings 110
Remedial work 123
2013 Building Consent and tenders 123
Establishment of remedial works committee 126
Investigation and prototyping 131
Extension to building consent 139
Letter of intent with Brosnan 148
Commencement of remedial works 151
EVIDENCE 152
Narrative of events 152
Expert evidence 156
APPROACH TO ASSESSING PROFESSIONAL NEGLIGENCE 157
Legal principles 157
Questions to be asked 162
EXISTENCE OF DUTY QUESTION 163
Legal principles 165
Analysis 174
SCOPE OF DUTY QUESTION 182
Legal principles 183
Analysis 191
Circumstances and purpose of advice 191
Purpose of CDA 197
UTA10 coming into force 201
Risks of claims by non-plaintiff owners 206
Conclusion 211
BREACH OF DUTY QUESTION 215
Standard of care 216
Alleged breaches 219
Failing to advise after the UTA10 came into force 221
Changes under the UTA10 223
Jewett – Court of Appeal decision 243
Practice of defendants during settlement 256
Loss on sale claims 284
Conclusion on breach of duty 286
FACTUAL CAUSATION QUESTION 290
Interpleader proceedings 292
Would an alternative CDA have been agreed? 292
Analysis 298
Delays to construction 312
Body Corporate’s position on delay 313
Grimshaws’ position on delay 316
Contracting with Arrow 320
Rescoping 329
Delay to investigations and prototyping 353
Overall delay 368
Contract pricing and construction start date 385
DUTY NEXUS QUESTION 389
LEGAL RESPONSIBILITY QUESTION 393
Costs of interpleader proceedings 394
Estoppel 396
Settlement agreement 399
Conclusion 404
Construction related costs 405
Overall claim for increased construction related costs 405
Rigid air barrier (RAB) 410
Cladding system 419
Timber nogging 431
Façade review and shop drawings 434
COVID-19 437
Tender price difference 440
Cost escalation 444
Increase in pre-construction consultant fees 462
Increase in construction phase consultant fees 471Building consent costs 479
Contract works insurance 483
Offset for interest earned 488
Is there a different effective cause of loss? 491
Contracting with Babbage 492
Levying non-plaintiff owners 497
Delaying the interpleader 505
Has the Body Corporate failed to avoid loss it ought reasonably to have avoided? 510
Legal principles 510
Failing to agree distribution of settlement funds sooner 513
Failing to seek further distributions from settlement funds 514
Failing to levy for the re-scoping 516
QUANTUM OF DAMAGES QUESTION 524
DEFENCES 526
Is the claim statute barred? 526
Contributory negligence 527
Estoppel 528
Betterment 529
Specific betterment 532
Valuation betterment 538
Standing 546
Litigation funding agreement 555
SUMMARY OF FINDINGS 565
Existence of duty question 566
Scope of duty question 567Breach of duty question 570
Factual causation question 571
Duty nexus question 575
Legal responsibility question 577
Quantum of damages question 578Defences 579
Interest on damages 586
Claim for interpleader costs 588
Claim for increased repair costs 589
Result 591
INTRODUCTION
[1] The Spencer on Byron (the Building) stands over 20 storeys tall in Takapuna with views over Te Waitematā harbour and Tikapa Moana (Hauraki Gulf). Despite its majestic location, it was a leaky building and has been embroiled in litigation.
[2] In 2007, the Building’s body corporate (the Body Corporate) claimed the costs to repair the building defects from those involved in its construction (the Building Defects Litigation). Unit owners later joined the claim as second plaintiffs to ensure estimated repair costs for both common and unit property could be claimed.
[3] This case concerns the lawyers, Grimshaw & Co (Grimshaws), who acted for the Body Corporate and second plaintiff unit owners in the Building Defects Litigation from early 2008. There was no written contract, but Grimshaws admit that a term of its retainer was that they would exercise reasonable skill and care.
[4] The settlement was governed by a conduct and distribution agreement between the Body Corporate and second plaintiff unit owners (the CDA). The CDA was drafted by Grimshaws in 2010 and Grimshaws subsequently advised the Body Corporate to approve the CDA in 2013. It had not been signed on behalf of the Body Corporate.
[5] The CDA provided that any settlement proceeds were to be used to repair the Building and then credit would be allocated, on a unit entitlement basis, to the second plaintiff unit owners. Some unit owners did not join the claim so would not be allocated any credit to apply against repair costs. There was no distribution to the Body Corporate.
[6] The Building Defects Litigation finally settled in 2013. Grimshaws advised the Body Corporate as to how the settlement proceeds should be distributed under the CDA.
[7] During the course of the litigation, the Unit Titles Act 2010 (UTA10) came into force. Under the UTA10 ownership of the common property was vested in the Body Corporate. Previously, under the Unit Titles Act 1972 (UTA72), the common property
was owned by the unit owners as tenants in common. The claim was amended in 2012 to reflect this change.
[8] The Body Corporate claims Grimshaws breached its duty of care1 to the Body Corporate in failing to advise it after the UTA10 came into force that the CDA was invalid and/or ineffective because:
(a)the CDA deprived all current unit owners who were not second plaintiffs (non-plaintiff owners) of the benefit of a share in the settlement; and
(b)second plaintiffs who had sold their units had changed the damages claimed from estimated repair costs to loss of value on sale of their units and the CDA provided for distribution on a unit entitlement basis.
[9] Shortly after settlement, a dispute ensued. Non-plaintiff owners claimed they were entitled to benefit from the settlement in relation to the common property aspect of the claim. On Grimshaws’ recommendation, interpleader proceedings were filed. Other than an interim distribution to the Body Corporate in May 2015, the settlement funds were held in Grimshaws’ trust account until resolution of the interpleader. By April 2016, Grimshaws had distributed all settlement funds to the Body Corporate and second plaintiffs.
[10] Despite the settlement, repairs to the Building did not start until March 2018. The Body Corporate had initially obtained a building consent from the Auckland Council (the Council) in 2013 (2013 Building Consent). The Body Corporate requested tenders based on the 2013 Building Consent and received responses from Arrow Remediate Ltd (Arrow) and Brosnan Construction Ltd (Brosnan). Arrow submitted the lower price. By the time of settlement in 2013, the tenders had expired.
1 The duty of care is alleged to be the same under the contract of retainer and in negligence. That the duty is the same was undisputed. Throughout this judgment in referring to the duty of care owed by Grimshaws, I am therefore referring to the duty of care under the contract of retainer and in negligence.
[11] After receipt of the settlement funds, the Body Corporate applied for a new building consent in 2017 and negotiated a letter of intent in December 2017 and then a contract with Brosnan. The Council issued the building consent in early 2018 (2018 Building Consent) and remedial works commenced shortly after.
[12] The Body Corporate says if Grimshaws had not breached its duty of care, interpleader proceedings would not have ensued and the Body Corporate would have contracted with Arrow by late May 2014 based on the 2013 Building Consent. The Body Corporate claims the costs it incurred in the interpleader proceedings and the increase in repair costs, being a total of $11,540,651.58 (less increased construction costs it agreed not to pursue during the trial).2 The Body Corporate accepts the amount claimed should be discounted by the amount of interest it earned from the settlement funds, being $948,107.00. The amount claimed is therefore approximately
$10.4 million.3
[13] Grimshaws challenges almost all aspects of the claim and denies any breach of its duty of care to the Body Corporate. Grimshaws says the damages claimed do not fall within the scope of its duty of care. Grimshaws pleads seven affirmative defences comprising the Limitation Act 1950 and the Limitation Act 2010, contributory negligence, failure to mitigate, non-compliance with the terms of the settlement agreement governing the interpleader proceedings (2015 Settlement Agreement), estoppel and betterment. Grimshaws also assert that the Body Corporate has no standing to bring the claim.
[14]I therefore need to determine the following issues:
(a)Whether Grimshaws owed a duty of care to the Body Corporate to consider the CDA after the UTA10 came into force?
2 The Body Corporate confirmed in closing submissions that it no longer claims the following:
(a)Vehicle Garage Gate Emergency Override ($5,000 (plus GST)).
(b)Improvements to the smoke alarm detection system on Levels 1 and 2 to meet NZS4541 ($10,000 (plus GST)).
(c)Tenmat VFB Plus Special Fire Barrier ($145,143.87 (plus GST)).
3 $10,592,544.50 (damages less interest) less $160,143.87 (increased construction costs not claimed) is approximately $10,432,390.20.
(b)If yes, what was the scope of Grimshaws’ duty of care to the Body Corporate?
(c)Did Grimshaws breach its duty of care to the Body Corporate?
(d)If yes, did the breach cause the damages claimed by the Body Corporate?
(e)Does Grimshaws have a defence to the claims as alleged?
FACTUAL BACKGROUND
Spencer on Byron
[15] The Building was designed to operate as a hotel and opened in 2000. On the podium levels are the lobby and hotel facilities. The second level has a pool, tennis court and gym (the Recreation Area). On the second to 19th floors (the Tower Levels) there are 249 units. On the top two floors are six penthouse units.
[16] When built, under the UTA72 each unit had its own unit title, comprised of the unit itself, accessory units (such as carparks) and a proportionate share of the common property.4 Under s 9 of the UTA72, the ownership of the common property was held by the proprietors of all units as tenants in common in shares proportional to the unit entitlement in respect of their respective units. Unit entitlement was a measure of the relative value of a unit to each of the other units in the development.5
Building Defects Litigation
[17] The defects in the Building were discovered around 2002. In July 2007 the Body Corporate instructed solicitors (not Grimshaws) and filed the original claim to recover funds to repair the Building. The principal defendants were the building company (Multiplex) and the North Shore City Council, which was subsequently merged with other councils and became part of the Council. The Body Corporate was the only plaintiff. It sued for the estimated repair cost of the whole building including
4 Unit Titles Act 1972, s 9.
5 Unit Titles Act 1972, s 6.
common and unit property. All owners were levied by the Body Corporate in proportion to their unit entitlement to fund the claim.
Instructing Grimshaws
[18] The Body Corporate decided to change lawyers and in February 2008 instructed Grimshaws.
[19] On 5 March 2008, Grimshaws advised the Body Corporate that unit owners should join the proceeding as second plaintiffs to ensure that claims in relation to both unit and common property were included in the claim. There is no dispute that this was the right thing to do to ensure the claim included unit property.
[20] On 30 April 2008, Grimshaws wrote to the Body Corporate and asked that all owners sign and return an authority to act so they could be included as second plaintiffs.
[21] On 13 June 2008, the Body Corporate wrote to all unit owners referring to Grimshaws’ advice and repeating its recommendation that all owners join the claim as second plaintiffs.
[22]By July 2008, 148 owners had joined as second plaintiffs.
Byron Ave – High Court decision
[23] On 25 July 2008, the High Court released its decision in Body Corporate 189855 v North Shore City Council (Byron Ave)6, another leaky building case. Mr Josephson and Mr Lewis of Grimshaws acted for the plaintiffs in the Byron Ave case. On 30 July 2008 Grimshaws provided a summary of the case to the Body Corporate which explained that the Body Corporate can bring a claim in relation to the entire common property without individual owners being parties to the claim.
6 Body Corporate 189855 v North Shore City Council HC Auckland CIV-2005-404-5561, 25 July 2008 [Byron Ave].
Owners joining as second plaintiffs
[24] Grimshaws continued to encourage the Body Corporate to invite unit owners to join the claim. 172 owners had joined as second plaintiffs by the Body Corporate’s annual general meeting in November 2009.
[25] On 15 December 2009, Grimshaws wrote to the Body Corporate and set out the reasons why all owners not joined as second plaintiffs should do so, including that:
(a)individual owners claim for damage to unit property, whereas the Body Corporate claims for damage to the common property;
(b)all unit owners are required to provide discovery, regardless of whether they are second plaintiffs;
(c)a higher percentage of the total repair cost is likely to be recovered if more owners join; and
(d)the limitation period was about to be reached in respect of the work done on the Building by some defendants.
[26] Between 2009 and 2012 progress slowed as the courts resolved a preliminary issue of whether councils owed a duty of care to commercial plaintiffs, such as the owners of the hotel, or whether such a duty was restricted to owners of residential units. The Supreme Court held that those involved in the construction of a building have a duty of care regardless of the nature of the building.7 Once that issue was resolved, the claim could proceed to trial.
Conduct and distribution agreement
[27] On 17 March 2010 Mr Josephson attended a meeting of the Body Corporate Committee. He advised of the desirability of a “Conduct and Distribution Agreement.” The minutes of the meeting record:
7 Body Corporate 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 at [97].
Conduct and Distribution Agreement – What is normally done is to ask everyone to sign and select a number of people to agree on owners’ behalf. There needs to be a mandate from all the people.
Matt Josephson suggests everyone gets “nailed down” to the agreement as it solves problems with distribution [of] funds later.
[28] Mr Josephson also advised that prior to the mediation, there should be “100% agreement on a remedial solution on the property.” It was agreed at the meeting that Grimshaws would provide a draft CDA to the Body Corporate Committee ahead of the proposed mediation with Multiplex.
[29] Grimshaws emailed the draft CDA to Mr Powell, the Chair of the Body Corporate Committee, on 13 April 2010. Neither party was able to find the draft CDA itself, only the covering email. It appears that the draft CDA proposed that funds recovered by way of settlement be divided by unit entitlement because Mr Powell replied to the email saying that “a unit entitlement wont [sic] work as there are areas effected which are not common property.”
[30] Mr Powell also queried whether it was more appropriate to have the Court approve a s 48 scheme (under UTA72) for the division of settlement funds rather than use a CDA. Mr Josephson responded stating:
What the Court would conclude in terms of recovery and how it is split up on settlement are not necessarily the same thing. Common property division does not necessarily have to be taken into account. There can be agreement on how to divide up the spoils as between body corp and individual owners and provided everyone including body corp then that should be OK. BUT, having said that, for somewhere like Spencer where a fair few of the owners aren’t part of the action then maybe a section 48 is a good idea. If Court decrees a divvy up than its [sic] pretty hard to say that any money recovered should be divided in any other proportions.
Section 48 could take time. For the purposes of settlement negotiations if these are imminent, then maybe you are better to do the deal and then agree to the divvy up later (by way of section 48 Court order or some other formula) Anything else may be unworkable given all the circumstances.
Remember for the purposes of doing the deal you only have to agree on how much to accept, not on how to divide it amongst the claimants. I hope this helps a bit.
[31] By May 2010, 209 owners and 4 penthouse owners had become second plaintiffs.
[32] On 8 June 2010, Grimshaws emailed the Body Corporate secretary the final CDA for execution along with a covering letter to be sent to unit owners which informed owners of the mediation and CDA terms.
[33] The Body Corporate circulated the CDA to unit owners on 9 June 2010 with the covering letter written by Grimshaws. The letter said that a mediation would take place with Multiplex on 21 July 2010 and sets out the main purposes of the CDA including:
(c) If the claim is settled the proceeds will be used to clear outstanding professional fees. After that the money will be divided between the owners participating in the litigation on a unit entitlement basis, and put towards the cost of repairs. Deductions will be made for outstanding levies.
[34] The listed parties to the CDA are the Body Corporate and “the Proprietors.” “Proprietors” are defined as “the parties as set out in the schedule hereto, or subsequently added.” The parties in the schedule are only those who joined the proceedings as second plaintiffs. The proceeding is said to relate to the “recovery of losses suffered by the Proprietors following the discovery of defects and damage to their units and the common property of the Body Corporate.”
[35] There is no reference in the CDA to loss suffered by the Body Corporate or non-plaintiff owners in respect of their proportionate shares in the common property. At the time the CDA was drafted, it was not known how many “proprietors” would join the claim.
[36] The CDA allowed the establishment of a settlement committee which would be made up of seven members and have “full and exclusive authority to represent the Proprietors and the Body Corporate in all matters relating to the settlement of Proceeding” (the Settlement Committee). This was also explained in the covering letter attached to the CDA.
[37]The distribution clause of the CDA is as follows:
4.1Any distribution will be subject to the terms of the settlement.
4.2The balance of the settlement proceeds (“the Net Settlement Proceeds”) shall be held in an interest bearing account with a New Zealand bank nominated by the Settlement Committee pending distribution.
4.3Any monies/levies (including penalties and interest) due and owing from any Proprietor and/or plaintiff to the Body Corporate shall be deducted from that Proprietor’s contribution towards the cost of repairs as per the apportionment procedure in clause 4.5, and prior to any distribution in clause 4.6.
4.4All outstanding reasonable legal and experts’ costs incurred in the conduct and settlement of the Proceeding will be paid from the settlement proceeds.
4.5After appropriate deductions, as set out in clauses 4.1, 4.3 and 4.4 above, the Net Settlement Proceeds plus any accrued interest will be apportioned amongst the Proprietors according to the unit entitlements as set out in Deposited Plan 207624 and put towards each Proprietor’s contribution towards the cost of repairs to Spencer on Byron.
4.6In the event that the Net Settlement Proceeds are less than the amount required to repair the development, the balance required to pay for the repairs will be met by the raising of levies by the Body Corporate in accordance with the unit entitlements as set out in Deposited Plan 207624.
4.7In the event that the Net Settlement Proceeds are greater than the amount required to repair the development, the balance remaining after payment of the cost of repairs is to be distributed to the Proprietors in accordance with the unit entitlements as set out in Deposited Plan 207624.
First mediation with Multiplex and settlement offer
[38] By 20 July 2010, the day before the mediation with Multiplex, 202 second plaintiff unit owners had signed a copy of the CDA and four others had provided a verbal undertaking. Sixteen second plaintiffs had not signed the CDA. The mediation with Multiplex did not resolve the dispute.
[39] On 3 March 2011, Multiplex made a settlement offer. On 9 March 2011, Grimshaws provided detailed advice on the merits of the settlement offer, the Body Corporate’s options, and an estimate of what the likely judgment amount might be if the claim proceeded to trial. The Settlement Committee did not accept the offer.
Unit Titles Act 2010
[40] On 20 June 2011, the UTA10 came into force. Under the UTA10, the ownership of the common property changed. It was vested in the Body Corporate itself. The individual unit owners were no longer owners of the common property. Individual unit owners each held beneficial interests in the common property as tenants in common, proportionate to their ownership interest.8
Second mediation with Multiplex
[41] A further mediation with Multiplex was scheduled for November 2011. On 6 September 2011, Grimshaws wrote to the Body Corporate saying it urgently needed the remaining second plaintiffs to sign the CDA. Grimshaws said the Settlement Committee could not agree to a settlement on behalf of second plaintiffs who had not signed the CDA. It warned that unless Grimshaws had signed copies of the CDA from all owners it was unlikely that Multiplex would enter into a settlement agreement. Grimshaws asked for a list of remaining owners, and said, “it is likely we will need to make an application to the Court for permission to cease acting for those owners” if they could not be contacted by the end of the month. If this happened, Grimshaws said that the owners would not be part of the settlement and Multiplex would likely apply to strike out their claims and seek costs against them.
[42] On 15 November 2011, Mr Lewis emailed Mr Powell stating that in preparation for the upcoming mediation it had come to his attention that the Body Corporate had not authorised the Settlement Committee to settle the Body Corporate claim for costs to repair the common property. Mr Lewis also stated:
If the Body Corporate has not passed such a resolution this can be rectified in a relatively straightforward fashion by having the body corporate ratify the settlement at a properly constituted meeting after the mediation.
Another point is that any settlement with Multiplex will be on the basis that the body corporate settles all claims that could be brought in respect of common property. The body corporate sues for the cost to repair the common property as agent for the owners, including that part of the common property owned by the 30 non-second plaintiffs, so the body corporate will be putting an end to any common property claim by the non-participants. It is not clear whether any of the non-participants have good common property claims and
8 Unit Titles Act 2010, ss 54 and 223.
we do not imagine that the non-participants are expecting to recover from the settlement, but we thought we should bring this to your attention.
[43] Mr Powell replied saying that the original committee authorisation of the CDA would remain in place and that “all owners where [sic] advised numerous times about the impact of not joining as second plaintiffs and the committee hasn’t been advised by any non-second plaintiff of plans to recover from the settlement.”
[44]The parties did not settle at the mediation on 21 November 2011.
[45] Around this time, Grimshaws engaged Rogan Hampson of Hampson & Associates to undertake a rough assessment of the division between unit and common property claims (the Rogan Hampson Report). Mr Hampson was engaged to measure the common versus unit property split of the Tower Levels, not the podium levels or Recreation Area of the building. The area split of the Tower Levels was measured to be 52 per cent unit property and 48 per cent common property.
Communications with non-plaintiff owners
[46] On 22 November 2011, a solicitor at Grimshaws emailed Mr Lewis and Mr Josephson to update them on a call he had received from Rick Wall of NZ Castle Resorts & Hotels Ltd (the company which operates the hotel at Spencer on Byron). That email states, among other things that:
Anyway, it seems there is a bigger problem. Mr Wall seems to be under the apprehension that because NZ Castle Resorts is part of the body corporate, it can/should recover its lost revenue as part of the building defects claim. However, NZ Castle Resorts isn’t a plaintiff in the claim, so it won’t recover its lost revenue (the common property argument won’t assist). I explained that to Mr Wall, but he didn’t seem to understand.
[47] On 25 November 2011, a solicitor at Grimshaws emailed Mr Powell advising him of the call with Mr Wall. Mocles Holdings Ltd (Mocles) had not joined the proceeding as a second plaintiff. In the email, the solicitor said that because Mocles was not a plaintiff it could not recover lost revenue arising from the closure of its unit property and that it “cannot successfully bring a claim as it would now be out of time, aside from the body corporate claim for common property.”
Application for s 74 scheme
[48] In July 2011 the Body Corporate instructed Price Baker Berridge (PBB) to prepare an application for approval of a scheme under s 74 of the UTA10 (the successor to a s 48 scheme under the UTA72). A s 74 scheme is a Court endorsed scheme to enable a body corporate to perform necessary repairs to a building and allocate the cost between unit owners.
[49] On 7 September 2011 PBB informed Grimshaws that the Body Corporate had instructed PBB to prepare an application for approval of a s 74 scheme. PBB understood that Grimshaws were acting on claim and provided a copy of the draft affidavit, which was to be filed with the application, and said:
We would be grateful if you could review the affidavit to ensure there is no disclosure of matters that are of a privileged nature in the weathertightness proceeding. We ask that you mark-up any changes (if any) and return the document to us as soon as possible so that we may attend to filing.
If you have any queries regarding this matter then please contact the writer.
[50] Mr Lewis says that he reviewed the affidavit. There is no record that he asked to receive a copy of the application or asked PBB any questions regarding the s 74 scheme.
[51]The s 74 application was filed with the Court on 18 November 2011.
[52] There was a Body Corporate annual general meeting (AGM) on 8 December 2011 at which it ratified the application for the s 74 scheme. Mr Lewis attended the meeting and provided an update on the mediation with Multiplex. Grimshaws’ advice was to push on towards trial to get a better outcome. The minutes note that, “[t]he body corporate is claiming for common property and the owners in the claim are claiming for unit property repairs (their private property).” As at that date, 219 out of 255 units had joined the claim.
[53]The s 74 application was approved by the Court on 26 September 2012.
Discovery from non-plaintiff owners
[54] In March 2012, Grimshaws emailed approximately 25 non-plaintiff owners seeking discovery and stated “[d]espite the fact that you are not a claimant, we may be able to recover some costs in respect of your portion of the common property.”
[55] In response to a request from a non-plaintiff owner, Grimshaws sent an email dated 12 March 2012 which included an explanation of the claim regarding common property:
The body corporate has issued a claim on your behalf in respect of your share of the common property. In line with the leading cases in this area, if your claim (had you decided to bring one within the 10 year limitation period) would have been significantly weakened by issues such as any knowledge held by you of the building defects prior to your purchase, then the part of the body corporate’s claim for your share of common property is unlikely to succeed. Alternatively, if you would have had a good claim, your part of the body corporate’s claim in respect of common property will be equally good.
[56] In response to some queries from the non-plaintiff owners, Grimshaws said it was too late for non-plaintiff owners to join the proceeding to recover for damage to unit property because of the limitation period in the Building Act 2004. However, it told some non-plaintiff owners that:
(a)the “body corporate has issued a claim on your behalf in respect of your share of the common property”; and/or
(b)the “body corporate has issued a claim on behalf of all owners (including yourself) in respect of the common property. Therefore, you are part of the common property claim (which we understand covers about 60% of the exterior of the building).”
[57] Some of the non-plaintiff owners also asked why they were being levied by the Body Corporate. In response to one of these queries Grimshaws said, “we expect that the payments relate to the common property claim,” and recommended they contact the Body Corporate.
[58] In another email exchange, a non-plaintiff owner said they were told by “the Body Corporate solicitors” that they could not join the claim as a second plaintiff because they had bought the unit with knowledge of the defects, but that they would still remain part of the claim for common property under the Body Corporate.
Amending the statement of claim
[59] An amended statement of claim dated 30 November 2012 (Amended Claim) was filed which pleaded that the Body Corporate owns the common property pursuant to s 54 of the UTA10 and is required to maintain and repair the common property pursuant to s 138 of the UTA10. The Amended Claim also included a claim for former owner second plaintiffs for losses on sale.
Communications with Grimshaws about the CDA
[60] From October to December 2012, there were discussions between Grimshaws and members of the Body Corporate Committee about the impact of owners discontinuing their claims. Mr Lewis said:
There is an argument that under the new Act, whereby the body corporate owns common property, the body corporate claims in its own right for common property rather than claiming on behalf of individual owners. On the basis of this argument, you could say the body corporate claim should not reduce when an owner discontinuances.
[61] On 12 December 2012, Mr Lewis and an associate from Grimshaws met with Mr Khoo, who had recently taken over from Mr Powell as chair of the Body Corporate Committee. A file note records that Mr Lewis advised that upon settlement, current owner second plaintiffs would get credits issued in their Body Corporate account and former owner plaintiffs would get cash, both according to their unit entitlement.
[62] The notes of the 12 December 2012 meeting record that the Body Corporate owns the common property and that “should not reduce common property if individuals drop out.” The notes also record that “if claiming for all common property, may be new owners/non-plaintiffs should be levied because will benefit (i.e. common property).”
[63] The next day, solicitors at Grimshaws exchanged emails about the meeting on 12 December 2012. They note that common property repairs are not accounted for in the CDA, only pay outs to the second plaintiffs. The solicitors remarked that there will be some surprises when the claim finally settles.
[64] On 31 January 2013, Mr Weatherburn emailed Mr Lewis and asked several questions including whether non-plaintiff owners who will not share in any award should be levied. Mr Weatherburn wanted to know if those unit owners would benefit in any way.
[65] Mr Lewis responded confirming that if the claim settles then only second plaintiffs would be entitled to the proceeds of a settlement pursuant to the CDA. Comparatively, he says that if the matter proceeded to trial, it was likely the Court would order a sum of money be paid to the Body Corporate and separate amounts to second plaintiffs.
[66] Mr Weatherburn responded that all owners have been levied to date and that this could cause “huge problems” at settlement as some non-plaintiff owners may think they will share in the proceeds because they have been paying the legal costs.
[67] Mr Josephson provided similar advice to Mr Powell in an email on 19 February 2013 when he stated:
It would seem reasonable that the second plaintiffs fund the litigation as they are the ones who stand to benefit from any settlement. It is true that if the matter went to trial the Court would make awards to the owners and the body corporate separately, but generally speaking the body corporate award is likely to be on behalf of the owners who have presented claims.
[68] On 26 February 2013, Mr Khoo sent an email to Mr Lewis in anticipation of questions from owners. In response, Mr Lewis confirmed that:
The settlement money is for the second plaintiffs only. The former owner second plaintiffs will be paid their unit entitlement share in cash. The current owner second plaintiffs will receive their unit entitlement share by way of credit in their body corporate account.
[69]On 28 March 2013, Grimshaws filed a further amended statement of claim.
[70] On 3 April 2013, Mr Lewis sent the Body Corporate the further amended statement of claim with a cover email which noted:
I will provide a detailed summary shortly, but for now it is worth noting that we have claimed all of the common property repair cost. If the common property cost relating to non-second plaintiffs is removed (which the Court is likely to do), then the claim is reduced by about $4.5m.
[71] Grimshaws did not explain why the Court was likely to remove those costs from the claim.
[72] Mr Lewis followed up on 16 April 2013 with a summary of the amounts claimed in the second amended statement of claim. The summary table recorded that in relation to repair costs:
This claim assumes that the body corporate is entitled to claim for all common property costs. The Court will probably decide only those owners in the proceeding may claim their share of common property costs, in which case
$4,282,667 would be deducted.
[73] Mr Lewis did not explain why the Court would “probably decide” only plaintiff owners may claim their share of common property costs.
[74] On 25 June 2013, Mr Khoo forwarded Mr Lewis an email from a unit owner regarding levies and common property repairs. The unit owner asked:
Re the 1st Plaintiff being the body corp taking action on behalf of all the unit owners for the common area repairs. I have been given the impression via contact with yourself and Mr Khoo that should that part of the action be successful, my unit will still not be covered for my portion of the common area and I will be billed separately for my portion of repairs to that same common area.
I am paying the special levy and am fine to do this and understand how the body corp need to bill me for it and the provision in the unit tiles [sic] act to do so, but what I don’t understand is this.
Since myself and the previous owner and the previous owner before that all paid their body corp fees for this unit and all paid any special levy fees toward the court action and towards any specialist reports for the court proceedings how can unit 1508 as an entity not be covered for the common area repairs in the event of a win in the court case. What point of law is there that allows my unit to be exempted and charged separately when the 1st plaintiff is actually the body corp on behalf of all.
[75] Mr Lewis replied to the email saying he did not understand the question being asked by the owner and as he did not act for her, he doubted that the Body Corporate would want Grimshaws to bill to answer the question. In response, Mr Khoo indicated that it was an example of what the Body Corporate Committee “is prone to face going forward”. The matter had been covered in the questions the Body Corporate Committee wanted Grimshaws to answer.
[76] On 25 June 2013, the Body Corporate Committee sent Grimshaws a list of questions ahead of a meeting between them. Including, relevantly, whether the Body Corporate is putting itself at risk of possible legal action from non-plaintiff owners whom the Body Corporate is levying legal fees from, given they would not receive anything from a successful claim.
[77] On 1 July 2013, Mr Lewis attended a question and answer session requested by the Body Corporate Committee. Mr Lewis could not locate his notes of that meeting. The minutes of a Body Corporate Committee meeting state that at the 1 July 2013 session, Mr Lewis said that as the non-second plaintiffs received no benefit from the settlement, the legal fees paid by these owners should be refunded in the first instance.
Resolution to approve CDA
[78] On 5 July 2013, Mr Lewis advised the Body Corporate that it needed to pass a resolution agreeing to be bound by the terms of the CDA before the mediation. He recommended that the Body Corporate hold an EGM. No explanation was given for the need to pass this resolution or why it needed to be passed at an EGM.
[79] Mr Lewis subsequently advised that the resolution did not need to be passed at an EGM and could be passed by the Body Corporate Committee. The Body Corporate Committee passed the resolution as advised on 17 July 2013. The minutes for that meeting record that Mr Lewis had recommended that levies paid by non-plaintiff owners be refunded. The Body Corporate suggested that a second opinion would be needed. There is no evidence that a second opinion was obtained on this issue.
[80] On or about 26 September 2013, the plaintiffs settled with Multiplex’s underwriters for a lump sum.
Preparation for trial
[81] By October 2013 Grimshaws had served the plaintiffs’ briefs of evidence and had reviewed those of the defendants. On 9 October 2013, Grimshaws wrote to the Body Corporate assessing the value of the claim and identifying the strengths and weaknesses. Grimshaws advised the Body Corporate that the plaintiffs were likely to recover about $20 million at trial, made up of $13 million for repairs, plus $3 million for second plaintiff loss on sale damages, and $4 million for second plaintiff consequential and general damages. Grimshaws recommended that the Body Corporate accept a settlement offer in the range of $15–20 million from the Council.
[82] On 10 October 2013, Grimshaws filed a further amended statement of claim, and the opening submissions. The opening submissions record that common property was owned by the Body Corporate (or previously claimed as agent on behalf of all of its owners) and, as a result, the Body Corporate was claiming for the cost of repair to all of the common property, subject to agreed deductions for unit owners who had discontinued while the UTA72 was in force. The Body Corporate’s common property claim was not reduced to account for owners who had discontinued after the UTA10 came into force.
[83] The opening submissions annexed a summary of the claims of the Body Corporate and owners. That annexed schedule set out each owners’ interest in the common property claim – including non-plaintiff owners and former plaintiff owners for their loss on sale claims.
Settlement
[84]The start of the trial was delayed to allow settlement discussions to continue.
[85] On 20 October 2013, the Body Corporate signed a settlement agreement with the Council for a lump sum. The total settlement amount between the Council and Multiplex was $20,050,000.
[86] Owners were informed of the settlement on 22 October 2013. Soon after, the Body Corporate began receiving emails from owners concerned about the exclusion of the non-plaintiff owners from the distribution of settlement funds. The Body Corporate forwarded these emails on to Grimshaws for advice. An email from Mr Cooper, a non-plaintiff owner, sent on 28 November 2013 said:
Are we understanding this correctly?
1.A claim was initially put together by the Body Corp.
2.When it was discovered that only 48% of the building was common areas covered by this claim, individual owners were urged to join as second plaintiff to cover the repairs to their individual units. Some chose to join and some did not.
This must mean that non second plaintiffs would carry the cost of remedial work to their individual units, but were covered for the common areas.
3.Grimshaws put together a claim on this basis, taking out the cost of the repair for individual units (52%) by the non second plaintiffs. (October 10th 2013 Statement of Claim, page 7, item 1 at the bottom of the page). They did not take out the cost of repair for the common areas for the non second plaintiffs, therefore it is part of the claim.
4.We all funded this claim.
5.A settlement is on the table. Somewhere it seems that a decision has been made to ignore the claim of the first plaintiff (the body corp) and divide the money up between second plaintiffs only. Therefore non second plaintiffs pay not the 52% which is their unit, but the entire 100% including the common areas.
This would seem to fly in the face of the intent of the Grimshaw claim, and also the initial basis on which owners did or did not become second plaintiffs.
[87]Mr Khoo sent Mr Lewis an email on 29 November 2013:
Gareth,
We seem to be heading into a barn fight even before any mediated settlement. This group of non-2nd plaintiffs are questioning the basis and validity of the Settlement Agreement [CDA].
Meantime, please comment on the discrepancies below.
I will need to discuss the issue with you on Monday, 2nd Dec …
[88] Mr Lewis was forwarded the emails from non-plaintiff owners and told that they would be the focus of the discussion on 2 December 2013.
[89] On 9 December 2013, Mr Khoo sent Mr Lewis an email saying, “[t]his is the first legal challenge by a non 2nd Plaintiff … and I am referring it to you for a suitable reply.”
[90] Grimshaws prepared a response to the email. The response confirmed that the unit owner was not entitled to any settlement funds and that if levies had been paid, then a refund was appropriate.
[91] On 11 December 2013, Mr Powell emailed Mr Lewis asking what to say at an upcoming AGM to a group of non-plaintiff owners who believed that the settlement monies should be used to remediate the common property without them being levied further. He informed Mr Lewis that:
As you are aware there is an increasingly vocal group of non-2nd plaintiff owners who mistakenly believe that as the Body Corporate is the 1st plaintiff, any settlement should be used to remediate the common property without them being levied.
[92] Mr Lewis gave no substantive advice, he suggested that the Body Corporate “maintain the position that it is premature to discuss distribution at this stage.”
[93] In email correspondence with the solicitor of a non-plaintiff owner who had bought their unit with knowledge of the defects, Grimshaws advised that the levies that owner had paid to fund the litigation need to be refunded.
[94] Grimshaws received $20 million of the settlement funds on 31 January 2014, with the final payment of $50,000 provided on 14 February 2014.
Grimshaws advise on distribution
[95] On 19 February 2014, Grimshaws advised the Body Corporate that distribution of the settlement funds is governed by the CDA and set out Grimshaws’ interpretation of cl 4 as follows:
(a)unit entitlement would be adjusted upwards for each second plaintiff so that the sum total equals 100 per cent (adjusted ownership interest);
(b)the former owner second plaintiffs would be paid out their share of the settlement funds according to their adjusted ownership interest; and
(c)the current owner second plaintiffs would be paid their share of the settlement funds according to their adjusted ownership interest as credit in their body corporate account. When members of the Body Corporate are levied for repair costs to the common property, the credit in the second plaintiffs’ account would be applied.
[96] The letter stated that the CDA is clear that the settlement funds are only for the benefit of the second plaintiff unit owners. Therefore, those current unit owners who were not second plaintiffs were not entitled to any settlement funds.
[97] On 25 February 2014, the Body Corporate Committee instructed Grimshaws to distribute the settlement funds according to their interpretation provided in the letter dated 19 February 2014. The distribution did not occur immediately because Grimshaws was resolving uncertainties around the treatment of former owner second plaintiffs. At the same time, Grimshaws drafted a letter for the Body Corporate to send to non-plaintiff owners which recorded that non-plaintiff owners would not receive any distribution from the settlement and recommended that those owners apply for a variation of the s 74 scheme to have the levies they paid reimbursed.
[98] On 4 March 2014, the solicitor for Mocles, a non-plaintiff owner, asserted an interest in the settlement funds and indicated it did not consent to any distribution.
[99] On 5 March 2014, Mr Lewis advised the Body Corporate that based on the CDA, non-plaintiff owners, such as Mocles, did not have any entitlement to the settlement funds. He noted that the letter from Mocles’ solicitor did not set out the basis for the claim, and he suggested a letter be sent asking that they provide a basis for the alleged interest in the funds. Mr Lewis attached a draft letter and requested consent to send it. The email also said that if Mocles continued to assert an entitlement
in the settlement funds, then Grimshaws may advise the Body Corporate to apply to the Court for a declaration confirming the basis upon which the funds are to be distributed. Mr Lewis said that in the meantime, Grimshaws would not distribute the settlements funds, and recommended that the Body Corporate not write to the non- plaintiff owners about the issue of legal fees.
[100] The Body Corporate Committee approved sending the letter, and on 7 March 2014, Grimshaws sent a letter to Mocles’ solicitors asking them for details of the legal and factual basis of Mocles’ alleged interest in the settlement funds.
Disputes arise over CDA
[101] On 10 March 2014, Grimshaws recommended that the Body Corporate instruct Gilbert Walker to seek a declaration from the High Court confirming the correct method of distribution. The reasons given for this were:
In light of the amounts at stake, particularly for Mocles, it is inevitable that the Court will be called upon to resolve this matter.
The committee should be seen to be doing the right thing. That means initiating a claim to resolve the issue, rather than the body corporate and/or the committee members being named as defendants in a claim initiated by Mocles and others.
The Guardian decision confirms that committee members can be personally liable for any breaches of duty. If you seek a declaration from the Court before the funds are distributed this risk is removed.
Any attempt to negotiate a resolution with Mocles and the others that differs from the [CDA] will leave the committee members open to criticism by the second plaintiffs.
The sooner you initiate action, the sooner the issue of distribution will be resolved.
[102]Mocles’ solicitors wrote to Grimshaws again on 14 March 2014 and stated:
You have asked for our client’s alleged interest in the settlement funds. Our client is a member of the Body Corporate. The Body Corporate was the first plaintiff in the proceedings. Our client considers that it clearly has an interest in the proceeds of the settlement as a result of its membership of the Body Corporate.
[103] Throughout March 2014, Grimshaws told several of its second plaintiff clients that Mocles’ view had “legal merit” because non-parties “may well have a claim to the settlement funds based on their ownership of a share of the common property.” Another owner was told that Grimshaws understood the challenge:
…would be based on the fact that under the Unit Titles Act every member of the body corporate has an ownership interest in common property, and the common property was a part of the High Court claim. We consider the non- second plaintiff owner’s claim lacks merit, but we cannot be sure about how a Court would view their claim because this issue has not been tested before.
[104] Further, upon being instructed to advise the Body Corporate, on 17 March 2014 Gilbert Walker emailed Grimshaws asking two questions:
First, it appears from my reading of the pleadings that the BC claimed for all of the damage [to] the common property; ie, the claim was not reduced pro tanto to account for the unit entitlements of the owners who did not join the proceedings as second plaintiffs. Can you please confirm this?
Second, how were legal costs shared? The proceeding started in 2007 and the “settlement agreement” among the BC and second plaintiffs came later. Robert Khoo told me that all legal costs were invoiced to the Body Corporate and paid from levies raised in accordance with unit entitlement.
[105] Grimshaws informed Gilbert Walker that the common property claim was not reduced for the unit entitlements of owners who were not joined as second plaintiffs, other than in respect of four plaintiffs where discontinuances were made on the basis the unit entitlement proportion of the common property claim would also be removed. Mr Lewis confirmed that Grimshaws had billed the Body Corporate and understood that all owners had been levied.
[106] On 18 March 2014, a Senior Associate of Grimshaws also advised a second plaintiff owner that:
We have received a response from the solicitors acting for one of the non- parties. Their position is that:
“Our client is a member of the Body Corporate. The Body Corporate was the first plaintiff in the proceedings. Our client considers that it clearly has an interest in the proceeds of the settlement as a result of its membership of the Body Corporate”.
This position has legal merit due to the unusual nature of ownership of property in a Body Corporate. The non-party owners clearly have no claim to
any share of the settlement in respect of their private property but they may well have a claim to the settlement funds based on their ownership of their share of the common property. On the other hand, these owners were not parties to the litigation so it is arguable they should not receive any of the settlement funds.
[107] On 22 May 2014, the Body Corporate requested the transfer of settlement funds to its bank account. Mr Lewis responded:
As we understand it there is a dispute between the owners as to how the settlement funds are to be distributed. In addition to Mocles, we have received correspondence from various solicitors giving notice that their clients (including new purchasers) claim an interest in the settlement proceeds. A portion of the funds are held by us for the former owners.
Another development is that in a recent High Court decision Justice Andrews held that an owner who did not sign the litigation agreement or participate in the claim may have an interest in the settlement funds by virtue of their membership of the body corporate and the new provisions of the Unit Titles Act 2010 (by which the body corporate owns common property).
In the current circumstances, if we were to transfer the funds as instructed by you we could be in breach of trust or breach of our fiduciary duties to parties holding an interest in the funds.
If your instruction stands, we consider that ethically we must make an urgent interpleader application to the High Court. The Court will then confirm what we are to do with the settlement funds and it will put in place a process for the parties claiming an interest in the funds to resolve their differences.
[108]The decision Mr Lewis was referring to in his response was the decision in
Body Corporate 172108 v Gundry & Anor9 (Gundry).
[109] In early June 2014, the Body Corporate made a proposal for distribution of settlement proceeds between the Body Corporate and second plaintiffs in accordance with a split between common and unit property based on the Rogan Hampson Report. Non-plaintiff owners and former owner plaintiffs objected to this proposal.
Interpleader proceedings
[110] On 30 July 2014, the Body Corporate instructed Grimshaws to file interpleader proceedings. Grimshaws filed the interpleader proceedings in September 2014.
9 Body Corporate 172108 v Gundry & Anor [2014] NZHC 954.
[111] In a minute issued on 3 October 2014, Associate Judge Bell directed that Grimshaws serve the proceeding on all current and former owners.10 He also indicated that the parties could apply for an interim distribution of the settlement funds at the first case management conference scheduled for May 2015.
[112] In a subsequent minute released on 17 October 2014, Associate Judge Bell commented that any non-plaintiffs who wished to be heard should be given an opportunity to do so.11
[113] The parties who wished to be heard in the proceeding filed statements of defence between March and May 2015. The Body Corporate filed a statement of defence on 30 March 2015, similar to its previous distribution proposal, based on the Rogan Hampson Report.
[114] Mocles did not consent to the distribution proposal of the Body Corporate. Its position was set out in its statement of defence as follows:
… the settlement funds should not be distributed until the parties know what the likely cost of repairing the Spencer on Byron will be and how much of that cost relates to the repair of common property verses [sic] unit property.
[115]A similar position was taken by non-plaintiff owner Mr Cooper.
[116] At the first case management conference in May 2015 the Court ordered by consent that an interim distribution of $650,000 be made to allow the Body Corporate to pay for some of the remedial work.
[117] On 3 September 2015, a scope of works was provided by quantity surveyors Barnes Beagley Doherr (BBD). It estimated that the cost of repairs would be
$18,720,000. Repairs to the common property comprised 85 per cent of the estimated cost, and repairs to the unit property was 15 per cent of the estimated cost.
10 Grimshaw & Co v Body Corporate 207624 HC Auckland CIV-2014-404-2493, 3 October 2014 (Minute of Associate Judge Bell).
11 Grimshaw & Co v Body Corporate 207624 HC Auckland CIV-2014-404-2493, 17 October 2014 (Minute of Associate Judge Bell).
[118] A mediation between the parties, excluding Grimshaws, took place on 14 December 2015. A settlement was reached whereby 80 per cent of the net settlement amount would be allocated to the Body Corporate, and 20 per cent would be allocated to the second plaintiffs to go towards their claims for loss on sale or remediation of unit property.
[119]Grimshaws made two claims on the settlement proceeds:
(a)$79,650.25 in fees for its attendances related to the interpleader proceeding; and
(b)$44,970.13 for commission on the interest earned on the settlement funds while held in Grimshaws’ trust account.
[120] The Body Corporate reserved its position on these claims but agreed to payment without prejudice to its rights so that the funds in trust could be released.
[121] On 21 March 2016, the Court ordered the distribution of 80 per cent of the funds. Final distribution orders were made on 18 April 2016.
[122]The Body Corporate incurred legal fees in the interpleader proceeding of
$185,357.75 (excluding GST) as well as $12,937.60 in mediation fees.
Remedial work
2013 Building Consent and tenders
[123] The Body Corporate engaged Babbage Consultants Ltd (Babbage) (and other consultants) to prepare building consent documentation following investigation, design and procurement in July and August 2012.
[124] In September 2013, the Body Corporate obtained the 2013 Building Consent and two competing tenders to undertake the remedial work. It relied on those tenders as evidence in the Building Defects Litigation of the estimated repair costs. By settlement, those tender prices had expired.
[125] On 26 September 2014 the Council granted an extension of time to 30 October 2015 to commence building work associated with the 2013 Building Consent. On 15 July 2015, the Council granted a further extension to complete those building works by 30 October 2016.
Establishment of remedial works committee
[126] After the settlement, in January 2014, the Body Corporate established a remedial works committee (RWC) to oversee the remedial works.
(a)the risk of claims by non-plaintiff owners against the Body Corporate to the extent that those risks could have been eliminated or mitigated if competent advice was given;
(b)the risk of disruption to the orderly distribution of settlement funds to the extent that disruption could have been eliminated or mitigated if competent advice was given; and
(c)the risk of delay to remedial works as a flow on consequence of the above risks.
Breach of duty question
[570] Grimshaws breached their duty of care to the Body Corporate by failing to advise the Body Corporate:
(a)as to legal risks to the Body Corporate of approving and implementing the CDA (see [286]);
(b)how to mitigate or eliminate those legal risks by putting in place an amended or new CDA (see [287]); and
(c)how to put in place an amended or new CDA.
Factual causation question
[571] If Grimshaws provided competent advice to the Body Corporate, it is likely the Body Corporate and second plaintiffs would have agreed to amend the CDA prior to settlement in 2013. Interpleader proceedings would likely not have ensued if an alternative CDA was in place at that time.
[572] The consequence of Grimshaws’ failure to advise the Body Corporate to amend the CDA was that non-plaintiff owners disputed the distribution of settlement funds because of the distribution mechanism in cl 4.5 of the CDA. As a result of those disputes, the Body Corporate incurred unnecessary costs in relation to the interpleader proceedings.
[573]The consequences of the delay in receipt of settlement funds were:
(a)the investigation and prototyping works were delayed by approximately 12 months and not completed until October 2015;
(b)the delay to the investigation and prototyping works resulted in the Body Corporate commencing design documentation in a period where the peer reviewer (Mott MacDonald) was no longer available and the Body Corporate was engaged in the interpleader proceedings. This caused a further six-month delay; and
(c)the overall delay to the remedial works was 18 months.
[574] The costs of the interpleader proceedings and the increased repair costs due to the 18 month delay are the consequence of Grimshaws’ breach of its duty of care to the Body Corporate.
Duty nexus question
[575] Grimshaws assumed responsibility for the Body Corporate approving the CDA. There is a sufficient nexus between the costs of the interpleader proceedings and Grimshaws’ duty of care to the Body Corporate. Grimshaws had a duty to protect the Body Corporate against the risk of claims by non-plaintiff owners. The interpleader proceedings arose because of non-plaintiff owner claims.
[576] There is also a sufficient nexus between increased repair costs and Grimshaws’ duty of care. Grimshaws knew the settlement funds were required to repair the building. Increased repair costs are a consequence of the unavailability of settlement funds due to the interpleader proceedings.
Legal responsibility question
[577] The following heads of loss claimed are irrecoverable because they were caused by a different effective cause and not Grimshaws’ breach of its duty:
(a)cost of using Reynodual in place of Alucobond Plus;
(b)cost of timber nogging;
(c)cost escalation for construction costs from March 2014 to May 2016;
(d)cost of shop drawings;
(e)costs incurred by reason of the COVID-19 lockdown from March to May 2020; and
(f)cost escalation for consultant fees from March 2014 to May 2016.
Quantum of damages question
[578] I have determined the damages for which Grimshaws is liable to the Body Corporate subject to calculation in accordance with the methodology I have determined applies to each head of loss. See [591] below.
Defences
[579] The claim is not statute barred under the Limitation Act 1950 or the Limitation Act 2010.
[580] The Body Corporate is not estopped from claiming damages by reason of the Court order of Faire J dated 18 April 2016.
[581] The 2015 Settlement Agreement does not preclude the Body Corporate from claiming for losses suffered as a consequence of Grimshaws’ breach of duty. Grimshaws was not a party to that agreement and the settlement did not relate to claims against Grimshaws.
[582]The improved condition of the Building does not constitute betterment.
[583] The Body Corporate has not failed to mitigate its losses and did not contribute to and/or cause the damages which have been awarded to the Body Corporate.
[584] I do not require disclosure of the litigation funding agreement to determine the claim. Grimshaws owed a duty of care to the Body Corporate. That duty was breached, and the Body Corporate has suffered loss. The absence of former unit owners from this claim does not deny the Body Corporate standing to bring the claim.
[585] The hope is that the Spencer on Byron ceases to be embroiled in litigation. Time will tell.
Interest on damages
[586] The Body Corporate seeks interest on any damages under s 10 of the Interest on Money Claims Act 2016, on an accrual basis, from the date on which the cause of action arose or the date on which the Court specifies that the amount was quantified, if later, until the date of payment.
[587] Where the amount on which interest is to be awarded was not quantified at the day on which the cause of action arose, s 9(1)(a)(ii) requires the Court to specify in the judgment a later day as the date at which the amount was quantified.
Claim for interpleader costs
[588] The loss suffered as a consequence of the interpleader proceeding was not quantified until the end of the interpleader. The costs claimed are reflected in the Court orders dated 18 April 2016 and therefore were quantified as at that date. I specify 18 April 2016 as the date at which the loss for interpleader costs was quantified.
Claim for increased repair costs
[589] I agree with the approach adopted by Gault J in Northwest Developments Ltd v Zhang, Jung and So93 that s 9 calls for a sensible construction and does not require quantification to match exactly the amount ultimately awarded.
[590] Here, the Body Corporate quantified the Body Corporate’s increased repair costs in its statement of claim dated 28 September 2018. I specify 28 September 2018 as the date at which the loss for increased repair costs was quantified.
Result
[591] The Body Corporate is entitled to judgment against Grimshaws for the following (exclusive of GST):
(a)damages for interpleader costs of $306,985.58 (interpleader damages);
(b)damages for increased repair costs, as follows:
(i)increased cladding system costs of $380,903.00;
(ii)cost escalation calculated in accordance with the methodology at [461];
(iii)increased pre-construction consultant fees calculated in accordance with the methodology at [470];
93 Northwest Developments Ltd v Zhang, Jung and So [2020] NZHC 1151 at [96].
(iv)increased façade engineering fees calculated in accordance with the methodology at [474];
(v)increased post-construction consultant fees calculated in accordance with the methodology at [478];
(vi)increased contract insurance costs calculated in accordance with the methodology at [487];
(increased repair costs damages)
(c)less interest earned on the settlement funds as calculated in accordance with the methodology at [490] (settlement interest deduction); and
(d)subject to the settlement interest deduction, interest calculated at the relevant interest rates on an accrual basis using the Internet site calculator in accordance with the Interest on Money Claims Act 2016:
(i)on the amount of the interpleader damages from 18 April 2016 until the date of payment; and
(ii)on the amount of the increased repair costs damages from 28 September 2018 until the date of payment.
[592]I make the following directions in relation to the calculation of damages:
(a)the Body Corporate is directed to undertake the calculations of damages in accordance with the methodologies prescribed in this judgment and to confer with Grimshaws. The parties are to then file a joint memorandum within 10 working days of the date of this judgment specifying the outcome of those calculations; and
(b)If the parties are unable to agree on the calculations, leave is granted to each of the parties to file a memorandum and any supporting documents
addressing the difference in the calculations (and the reasons for those differences) within 20 working days of the date of this judgment.
[593] Unless a hearing is required, I will then make orders on the papers as to the final quantum of damages calculated in accordance with the methodologies specified in this judgment.
Costs
[594] The Body Corporate has been successful in its claim. The parties are encouraged to agree costs between themselves. If they cannot, the Body Corporate may file a costs memorandum within 20 working days of this judgment, with any memorandum in response within a further 10 working days. Memoranda as to costs are to be no more than five pages in length.
[595]Unless a hearing is required, costs will be determined on the papers.
Tahana J
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