Body Corporate 326421 v Auckland Council
[2015] NZHC 862
•29 April 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2009-404-008136 [2015] NZHC 862
BETWEEN BODY CORPORATE 326421
First Plaintiff
WILLIAM MILLER AND RAEWYN MILLER & ORS
Second Plaintiffs
AND
AUCKLAND COUNCIL First Defendant
BROOKFIELD MULTIPLEX CONSTRUCTIONS (NZ) LIMITED (in liquidation)
Second Defendant
WALKER ARCHITECTS LIMITED (in liquidation)
Third Defendant
cont:…/2
Hearing: 4 August - 12 September 2014 Appearances:
C M Meechan QC, T J Rainey, G R Grant and J Heatlie for the
Plaintiffs
S A Thodey, L J Douglas, S B Mitchell and K M Parker for the
First Defendant
D T Broadmore for the Second Defendant
No appearance for the Third to Sixth Defendants
S C Price, D M Cross and N J Brazendale for the First Third
Party
M G Ring QC, A S McIntyre, M J Francis, M Cusak and
A C Cupples for the Second Third PartyJudgment:
29 April 2015
JUDGMENT OF GILBERT J
This judgment is delivered by me on 29 April 2015 at 3.30 pm pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
BODY CORPORATE 326421 v AUCKLAND COUNCIL [2015] NZHC 862 [29 April 2015]
DOWNER EDI WORKS LIMITED Fourth Defendant (Discontinued)
FAÇADE TECHNOLOGIES LIMITED (in liquidation)
Fifth Defendant
CHARLES NORAGER & SONS LIMITED
Sixth Defendant
ANDBOSTIK NEW ZEALAND LIMITED First Third Party
ZURICH INSURANCE PLC AS LEAD UNDERWRITER AND ON BEHALF OF ALL UNDERWRITERS SEVERALLY SUBSCRIBED TO POLICY
B 0901LB0810824
Second Third Party
Table of Contents
Introduction ..........................................................................................................[1] The issues ............................................................................................................[16] Roof
What are the defects? ...................................................................................[18]
Who is liable for the defects? .......................................................................[20]
What is required to repair the defects? ........................................................[36]
Roof edge
What are the defects? ...................................................................................[43]
Cladding
What are the defects? ...................................................................................[57]
Who is liable for these defects? ...................................................................[76] Council ..................................................................................................[76] Brookfield Multiplex...........................................................................[128] Walker Architects ................................................................................[132] What is required to repair the defects? ......................................................[139]
Decks
What are the defects? .................................................................................[141]
Insufficient step-down at the threshold ...............................................[142] Failure of Membrane to cure ...............................................................[146] Membrane not dressed into outlets......................................................[149] Discontinuity of membrane at the nib .................................................[152] Corner overflows not adequately formed ............................................[155] Waterproof membrane under grout fill at the threshold ......................[160]
Who is liable for these defects?
Insufficient step-down .........................................................................[165] Failure of membrane to cure ...............................................................[173] Membrane not dressed into outlets......................................................[186] Membrane not continuous at the nib ...................................................[190] Corner overflows not adequately formed ............................................[202] Waterproof membrane under grout fill at threshold ............................[208] What is required to repair these defects? ...................................................[210]
Balustrades
What are the defects? ................................................................................. [211]
Who is responsible for these defects?.........................................................[222]
What is required to repair these defects? ...................................................[229]
Podium
What are the defects? .................................................................................[233]
Who is responsible for these defects?.........................................................[235] What is required to repair these defects? ...................................................[245] What will it cost to repair the defects? ..........................................................[246] Storage allowance ………………………………………………………..[250] Allowance for wall straightening and reinstatement .................................[251] Allowance to remediate corrosion to structural steel ...............................[254]
Wall cladding .............................................................................................[256] Timber soffit framing ..................................................................................[258] Overcladding of planter walls ....................................................................[261] Contingency sum ........................................................................................[264] Design and contract administration fees .………………………………..[266]
Proportional deductions .............................................................................[267] Has an appropriate allowance been made for betterment? .........................[268] Internal redecoration .................................................................................[269] Allowance for carpet depreciation ............................................................[271]
Are plaintiffs with assigned claims entitled to recover? ...............................[272] Are the plaintiffs entitled to the cost of temporary repairs? ........................[287] Are the plaintiffs entitled to consequential losses?........................................[288] Are the plaintiffs entitled to general damages? .............................................[290] Did any of the plaintiffs fail to mitigate their loss? .......................................[291] Did any of the plaintiffs contribute to their own losses? ..............................[292] What damages are the plaintiffs entitled to against each defendant? ......... [311] Council .......................................................................................................[313] Brookfield Multiplex ...................................................................................[316] Walker Architects ........................................................................................[317] Charles Norager.........................................................................................[318] What contribution is each defendant entitled to from other defendants? ..[319]
Is Brookfield Multiplex entitled to indemnity for part or all of its liability under the professional indemnity insurance policy? ....................................[325]
Decks ..........................................................................................................[348] Cladding .....................................................................................................[352] Roof ............................................................................................................[356] Roof edge ....................................................................................................[359] Balustrades .................................................................................................[360]
Podium .......................................................................................................[362]
Result .................................................................................................................[369]
Introduction
[1] The plaintiffs are the body corporate and owners of residential units in a building called the Nautilus situated near Orewa Beach, north of Auckland. They claim that the Nautilus, which was constructed at a cost of some $35 million between October 2002 and June 2004, suffers from such fundamental design and construction defects that it will cost over $23 million to repair. The plaintiffs claim that each of the defendants is responsible for some or all of these defects. They seek compensation for their proportionate share of the remediation costs, the costs of temporary repairs, compensation for loss of use of the units while they are
remediated and general damages for inconvenience.1
[2] The Nautilus comprises 12 levels and is a mixed use development. There are shops and a café on the ground level where the main entrance to the tower is located. The next two levels are taken up with car parks. These three levels comprise the base of the building and have a wider footprint than the tower above. The podium above is split into two levels. A swimming pool and recreational facilities are on the lower podium which is landscaped with planter boxes and has a perimeter wall. The upper podium is immediately adjacent to the tower and features landscaped areas with planter boxes and gardens. The decks to the units located on the first level of the tower, level 4, are on the upper podium. The residential units are located on this level and the eight levels above.
[3] The plaintiffs claim that the Nautilus is not watertight and does not comply with the building code because of the following alleged defects:
(a) Roof – the plant room was designed as an open air structure. Water has penetrated through the floor where plant has been installed and entered the building causing damage to the internal linings and
structure of the building. Water is also penetrating around
1 Not all of the owners of units in the Nautilus have participated in the proceeding. The second plaintiffs together hold 93.5 per cent of the total unit entitlement in the building.
inadequately sealed skylights causing damage to timber trims and plasterboard linings.
(b)Roof edge – the joints between the aluminium composite panels forming the roof edge have failed allowing water to enter the building damaging internal linings and wall framing.
(c) The decks –
(i)The deck screed and waterproof membranes were incorrectly designed and installed allowing water to enter the soffit on the level below and cause damage to various structural and other elements of the building.
(ii)Corner overflows on some of the decks were inadequately designed, formed and waterproofed causing similar damage.
(iii)The waterproof membrane under the joinery at the threshold between the unit and the deck was incorrectly designed and installed allowing moisture to enter the joinery by capillary action and cause corrosion and carpet damage.
(d) Balustrades –
(i)The full height glass balustrades were fixed in a structurally inadequate manner giving rise to the risk to safety from falling.2
(ii)The balustrade fixing channels are poorly sealed at the top and are not drained, allowing moisture to penetrate through screws fixing the channel to the concrete nib and cause damage to the
timber packer as well as corrosion of the tray deck.
2 Not all units have full height glass balustrades; some are half height.
(e) Cladding – the design, fabrication and installation of the cladding system was defective. As a result, water has penetrated through the joints between the aluminium composite panels causing damage to timber framed external walls and internal linings.
(f) Podium –
(i)Incompatible waterproofing materials were used on the lower podium and the steps leading to the upper podium allowing water entry at the junction. This has caused corrosion of the concrete reinforcing steel.
(ii)The perimeter walls have no capping allowing water to penetrate and cause corrosion and cracking.
[4] Rodney District Council issued the building consents for the Nautilus. At the time, it was the territorial authority responsible for performing the building control functions under the Building Act 1991 in this region. It also carried out inspections during the course of construction and issued code compliance certificates confirming that it was satisfied on reasonable grounds that the building work complied with the requirements of the building code. The first defendant, Auckland Council, is the successor to the liabilities of the former Rodney District Council. I will refer to Rodney District Council and Auckland Council as “Council”.
[5] The plaintiffs claim that Council was negligent in issuing the relevant building consents for the Nautilus, in carrying out its inspections and in issuing the code compliance certificates. The plaintiffs claim that Council is liable for all of the costs associated with the defects other than those relating to the skylights.
[6] The second defendant, Brookfield Multiplex Construction (NZ) Ltd (now in liquidation), contracted with the developer, Tamariki Ltd (also now in liquidation), to build the Nautilus as the head contractor. Tamariki subsequently assigned to the body corporate the benefit of all contractual rights, warranties and guarantees held by it as developer, including its rights against Brookfield Multiplex under the head
contract. The plaintiffs claim that Brookfield Multiplex is liable for all of the defects. The plaintiffs seek to enforce Tamariki’s contractual rights under the head contract relying on the assignment. They advance an alternative claim against Brookfield Multiplex in negligence.
[7] The third defendant, Walker Architects Ltd (also now in liquidation), undertook design work in relation to the Nautilus under a consultant agreement with Tamariki entered into in April 2002. This agreement was on standard terms prepared by the New Zealand Institute of Architects and specified the scope of services to be provided.3 These included preparing plans and specifications in sufficient detail for consent and construction purposes, contract administration including coordinating with contractors, observation of works on site, issuing certificates for payment and practical completion and arranging for the rectification of defects during the defects
liability period.
[8] Walker Architects prepared the original plans and specifications that were submitted to Council by Tamariki in support of its applications for building consents, including the application in August 2002 seeking consent for stage three, being the construction of the tower.
[9] In April 2003, soon after the head construction contract was signed, Tamariki, Brookfield Multiplex and Walker Architects, entered into a deed of novation in terms of which Brookfield Multiplex assumed Tamariki’s position as the employer under the consultant agreement. However, Brookfield Multiplex did not assume liability for the design of the Nautilus. That responsibility was to remain with Tamariki save for minor errors and omissions in the design development which an experienced contractor would be reasonably expected to foresee and for design changes introduced for the benefit of Brookfield Multiplex.
[10] The plaintiffs claim that Walker Architects is liable to them in negligence for the losses arising out of all of the defects other than the skylights.
3 NZIA Agreement for Architect Services AAS2 2000.
[11] The plaintiffs discontinued their claim against the fourth defendant, Downer New Zealand Ltd, having reached a settlement relating to the waterproofing work undertaken by that company on the roof and the podium. The costs associated with that work have been removed from the claim against the remaining defendants and all parties consented to the discontinuance.
[12] The fifth defendant, Façade Technologies Ltd, manufactured and installed the exterior cladding. This company is also now in liquidation and the claim against it is stayed. The plaintiffs have not sought leave to continue against this defendant.
[13] The sixth defendant, Charles Norager & Sons Ltd, applied the waterproof membrane and installed the tiles on the decks. The plaintiffs claim that this company is liable to them in negligence for the costs of remediating the decks and for part of the works required on the podium.
[14] Council joined Bostik New Zealand Ltd as first third party, contending that the liquid membrane it supplied for use on the decks was defective. Council abandoned this claim during the course of the trial.
[15] The second third party, Zurich Insurance Plc, is the lead underwriter under a professional indemnity insurance policy provided to Brookfield Multiplex. Brookfield Multiplex seeks indemnity under this policy for the claims it faces in this proceeding. I will refer to the second third party as the “Underwriters.”
The issues
[16] The issues I need to determine are: (a) What are the defects?
(b) Who is liable for the defects?
(c) What is required to repair the defects? (d) What will it cost to repair the defects?
(e) Has an appropriate allowance been made for betterment? (f) Are plaintiffs with assigned claims entitled to recover?
(g) Are the plaintiffs entitled to the cost of temporary repairs? (h) Are the plaintiffs entitled to consequential losses?
(i) Are the plaintiffs entitled to general damages?
(j) Did any of the plaintiffs fail to mitigate their loss?
(k) Did any of the plaintiffs contribute to their own losses?
(l)What damages are the plaintiffs entitled to against each of the defendants?
(m)What contribution is each defendant entitled to from other defendants?
(n)Is Brookfield Multiplex entitled to indemnity for part or all of its liability under the professional indemnity insurance policy?
[17] It is convenient to consider the liability and quantum issues arising out of each category of defect separately:
(a) roof;
(b) roof edge; (c) cladding; (d) decks;
(e) balustrades; and
(f) podium.
Roof
What are the defects?
[18] It is common ground that there are penetrations through the membrane where plant has been installed on the roof and that this is allowing water to enter the building causing damage to internal linings and the structure of the building.
[19] It is also common ground that the mitred corners of the aluminium extrusion forming the edge of the skylights are poorly formed and allow water to penetrate causing damage to timber trims and plaster board linings.
Who is liable for the defects?
[20] It is settled law that councils owe a duty of care to existing and subsequent owners of premises when performing their building control functions under the Building Act.4 Council accepts that it ought to have identified the defects in the plant room when inspecting the building during construction and that it is liable for the cost of remediating these defects.
[21] The plaintiffs accept that Council cannot be held responsible for the skylight defects.
[22] The plant and the skylights were installed as part of the head contract works. Brookfield Multiplex breached its contractual obligations to Tamariki by carrying these works out in a defective manner. The body corporate has taken an assignment of Tamariki’s rights under the head contract and is therefore entitled to recover the losses it has suffered as a result of this breach.
[23] Brookfield Multiplex also owed a duty of care to the plaintiffs as unit owners to ensure that these works were completed competently. The expert witnesses who
4 North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158, [2011]
2 NZLR 289; Body Corporate No 207624 v North Shore City Council [Spencer on Byron]
[2012] NZSC 83, [2012] BCL 498.
gave evidence about these defects all agree that Brookfield Multiplex breached this duty. On the basis of that evidence, I find that Brookfield Multiplex is liable to the plaintiffs for the losses caused by these defects.
[24] The plaintiffs claim that Walker Architects is liable for the defects in the plant room but accept that it is not liable for the defective skylights.
[25] The plaintiffs rely in part on the evidence of Sean Cavan, a building surveyor with 37 years’ experience in the building industry, including the design and construction of multi-storey buildings. He is a consultant with Prendos New Zealand Ltd, a building consultancy with specialist expertise in investigating weathertightness defects in buildings and designing remedial solutions. Prendos has been assisting the plaintiffs in relation to the defects at the Nautilus since September 2008.
[26] Mr Cavan explained that the fans and other large machinery on the roof were designed to sit on raised plinths to keep the machinery away from areas where water can collect. He says that particular care is required to ensure that all penetrations, including for fixings, cabling and ducts, are properly sealed. He says that provision also needs to be made to ensure that water drains away effectively.
[27] Mr Cavan criticises the plans that were prepared by Walker Architects in June 2003 showing the penetration and plinth layout for mechanical services on the roof. He says that although these show the dimensions and locations of the plinths and penetrations, they do not show where the feet of the machines were to be positioned. He says the plans are also deficient because they do not include sufficient waterproofing details and do not provide for any slope or other means of directing the water away.
[28] However, these plans were not followed. Mr Cavan established that the machinery was not installed as shown on these plans and the plinths and the holes are in different locations. He says that this indicates that the proposed machinery was modified or altered at a very late stage before installation. This inevitably would have made it difficult to co-ordinate contractors so that everything was done
in the correct sequence. Mr Cavan says that proper sequencing is required to achieve a weathertight solution. For example, the mechanical engineer needs to specify where the bolts are going to appear and direct the builder where to locate the plinths. The waterproofing contractors have to know where the bolts are so that these can be dressed before the membrane is laid and the fixings sealed and covered.
[29] Mr Cavan says there were additional fixings through the membrane and some of the machinery was laid on timber sections that were then silicon sealed onto the mastic asphalt. He says that it is very difficult to maintain a weathertight seal in these circumstances because the timber swells when wet and contracts as it dries. This process stretches the membrane causing further problems. Mr Cavan considers that the defects in the plant room are obvious and Walker Architects ought to have identified them when it inspected the works.
[30] The plaintiffs also called Lindsay Mackie, an architect with over 35 years’ experience in the design and construction of a wide range of buildings including residential, commercial and office buildings, educational facilities, hotels, restaurants and healthcare facilities. Mr Mackie agreed with Mr Cavan that the plant room defects were obvious and that Walker Architects should have detected them.
[31] Council called Mark Powell, a building surveyor with 23 years’ experience. He emphasised the importance of appropriate design details showing how all penetrations through the membrane on the roof such as ducts, pipes, fixings for supports and anti-vibration equipment are to be waterproofed. In his view, these were not properly considered or detailed and he criticises the reliance placed on surface applied sealants in locations such as this which are prone to ponding. Mr Powell was in general agreement with Mr Cavan’s evidence relating to the defects in the plant room. He considers that poor construction sequencing and workmanship contributed to the problem.
[32] Walker Architects did not participate in the trial but its liability was contested by the Underwriters. This was because of the plaintiffs’ contention, supported by Council, that Brookfield Multiplex is liable for Walker Architects’ defective design
work and that claims arising out of this are indemnified under Walker Architects’
professional indemnity policy.
[33] The Underwriters retained Kevin Clarke, an architect with 45 years’ experience, to review and comment on the adequacy of Walker Architects’ work. Mr Clarke has had considerable experience with a wide range of residential, commercial and industrial developments. He says that it is common practice to design plant rooms as open air structures and that water would not normally penetrate into the building if the plant has been properly installed. He says that the design for plant installation on the roof of a building such as the Nautilus would not typically be detailed and that the problems experienced at the Nautilus were caused by poor workmanship. However, Mr Clarke agrees that the layout of the plant and the details as to how penetrations are going to be positioned and waterproofed require careful thought at the design stage. He says that pipe penetrations, by way of example, are “a difficult and fiddly detail to make watertight”. Mr Clarke focused on the plans and did not address the plaintiffs’ claim that Walker Architects ought to have detected the defects during the course of its inspections.
[34] I accept Mr Clarke’s evidence that the fact that the plant room was designed as an open air structure was not of itself a defect and if the work had been carried out properly, a weathertight solution was achievable but I do not accept that the plan prepared by Walker Architects shows adequate waterproofing details; there are virtually none. The plan does not even show the location of all of the penetrations, such as for pipes, let alone how they were to be waterproofed. However, this plan was not followed in any event. It appears that Numecon Contracting Ltd installed the plant and prepared the most recent drawings for the installation. There is therefore no causal link between Walker Architects’ deficient design and the defective installation.
[35] Walker Architects is nevertheless liable for the plant room defects because these would have been obvious to any qualified observer and ought to have been noted by Walker Architects during the course of its inspections.
What is required to repair the defects?
[36] Prendos has prepared remedial design plans covering all of the defects and consequent damage. The proposal for the plant room is to construct a roof over the plant. Mr Powell agrees that this is the simplest and most cost effective solution.
[37] Mr Clarke does not consider that a roof over the plant room is required. He suggests that the plant could be lifted using jacks while the waterproofing works are undertaken. He estimates that this work could be completed in a day or so at a cost of approximately $25,000. However, he has not prepared any detailed plan or specification or obtained any market pricing for the work.
[38] Mr Cavan considers that there are many practical problems associated with the repair solution suggested by Mr Clarke. He says that it would be necessary to have a crane or other lifting mechanism on the roof to lift the machinery to enable the waterproofing work to be carried out. He points out that a number of services would need to be maintained to support the building while the works were in progress, for example the extractor fan for the stairwell and hallways, and the hot water tanks and califonts. The membrane would need to be lifted and new plinths formed to accommodate the position of all fixing points. The bolts would need to be precisely located in the plinths to align with the machinery which he anticipates would need to be moved offsite. He says that a further concrete pour would be required to allow for adequate drainage from the plant area. A new membrane would then have to be laid with all of the penetrations properly waterproofed. Mr Cavan estimates that the cost would be between $180,000 and $200,000 assuming that no problems are encountered. He maintains that building a roof over the existing plant and leaving it all in place and operational carries far less risk and is the preferable solution.
[39] I accept Mr Cavan’s evidence about this. The weathertightness issues caused by the plant room defects are serious. Considerable damage has been caused by water entering the building from the plant room. This damage extends as far down as the car parks, many levels below. An enduring solution is required. The plaintiffs should not have to accept makeshift repairs and be left with the risk that this will not
be effective or durable. This is particularly so in this case where the remedial works promoted by the Underwriters have not been designed or costed and no guarantee or assurance is offered that they will be effective.
[40] Baragwanath J made a similar point in Dicks v Hobson Swan Construction
Limited (In Liquidation):5
I am satisfied that Mrs Dicks should not have to bear the worry and risk that the council’s estimate should be inadequate; indeed general damages would have to make allowance for the resulting anxiety. It was open to the council to offer a guarantee that its estimate would be correct but it did not accept that option. Mrs Dicks is entitled to the peace of mind that results from a firm price ...
[41] I accept the remedial solution proposed by the plaintiffs and accepted as appropriate by Council.
[42] There was no challenge to the proposed works to remediate the skylights. Only Brookfield Multiplex is liable for this defect.
Roof edge
What are the defects?
[43] The overall shape of the Nautilus was designed to resemble a fish. The eastern side facing the sea has a curved front. The building tapers to a “tail” at the western end which is formed by triangular decks. Aluminium composite panels have been shaped to form the perimeter of the roof creating a “bull nose” effect. These panels are laid over a timber nib on the main roof and are supported by a series of steel beams where they wrap around to a near horizontal plane before intersecting with the main façade of the building. The underside of these panels serves as a soffit covering the decks of the units on level 12.
[44] The roof edge was formed using the same type of aluminium composite panel
that was used to clad the rest of the exterior of the building. There is an “L’ shaped
fixing flange on each side of the panels. The flanges are designed to overlap to
5 Dicks v Hobson Swan Construction Limited (In Liquidation) (2006) 7 NZCPR 881 (HC) at
[122].
create a “U" shaped channel between the panels. The panels are secured to the
underlying timber joinery with screws fixed through these channels.
[45] The seal between the panels is created using a polyurethane foam backing rod pressed into the channel after the panel has been fixed. Sealant is then applied over the top. The backing rod serves as a “bond breaker” between the base of the fixing channels and the sealant ensuring that the sealant adheres solely to the vertical faces of the fixing channels and not to the base. This enables the sealant to stretch and compress as required to accommodate the movement that can be expected to occur between the panels.
[46] The final design did not incorporate mechanical flashings over or beneath the joints and there is no mechanism to drain any water that may accumulate behind the panels.
[47] The plaintiffs claim that the joints between these panels have failed allowing water to track down the inside of the soffits and enter the building above the external joinery causing damage to internal linings and wall framing in the units on level 12.
[48] The plaintiffs called Jacob Woolgar, another experienced building surveyor at Prendos, to assist the Court in relation to this and other defects at the Nautilus. Mr Woolgar has had a central role in investigating the defects and determining the extent of remedial works required. He explained that the specified joint width at the Nautilus was 12 millimetres. In general, the recommended width to depth ratio is two to one and the minimum sealant depth is 6 millimetres. This means that the specified width of 12 millimetres was only just sufficient to allow for the minimum recommended depth.
[49] Mr Woolgar says that the dimensions of the sealant joints varied throughout the cladding system, including at the roof edge. He measured these joints in multiple places around the building and found that they were generally 18 to 20 millimetres deep and 12 millimetres wide. However, the width of the joints ranged from
2 millimetres to 40 millimetres.
[50] Mr Woolgar noted corrosion on the steelwork inside the roof edge and white rust on the galvanised purlins. He observed tracks showing that water had been running down and entering the building where the soffit intersects the head of the external door leading onto the deck.
[51] Mr Woolgar also observed damage at the junction between the joinery and the external walls during a visual survey of units on level 12. He was present when soffit cladding panels were removed from the unit on the eastern side of the building and noted that water had accumulated in the void above the soffit in a location corresponding to where moisture had tracked over the joinery and onto the ceiling lining in the unit.
[52] Mr Woolgar produced photographs showing this defect in other places on level 12. One of these shows staining where water has seeped through the joints on the underside of the soffit. Another shows panels above the door leading from one of the units onto the deck on the northern side of the building. Mr Woolgar says that these panels had filled with water that had drained from the soffit. The water had then travelled over the window heads and into the wall cavities. He produced another photograph showing water damage to the internal wall and ceiling linings including cracked and swollen plasterboard linings, deformation of paint surfaces and swollen timber trims. Mr Woolgar says that he also observed damage to carpets and carpet bars caused by water draining down the inside of the windows.
[53] The external walls of the units protrude to the edge of the curve of the bull nose at the northern and southern corners of the fishtail. Mr Woolgar produced a photograph showing similar water damage to the unit at one of these corners.
[54] Another photograph, taken from within the void beneath the panels on the northern side of the roof edge, shows that there is no packing between the supporting structure and the screw fixings so that the panels are secured by only part of the screw thread. Mr Woolgar found a number of other instances where the screws went from one panel to another without going into any of the timber structure. He concluded that there is inadequate support for the roof edge panels, particularly given the exposed location and height of the building and consequent high wind
loading. He says that this is likely to have contributed to the seals on some of the joints failing.
[55] Mr Powell inspected the joints in the cladding panels forming the roof edge by inspecting these from the main roof and from the level 12 decks. He agrees that the panel joints have failed at the roof edge. He observed numerous joints on the top surface of the panels that had split exposing the foam backing rod beneath and providing a direct path for water entry. Mr Powell noted that in some places where the joints had failed the sealant had minimal thickness, typically only a few millimetres. He observed water dripping out of the panel joints on the underside of the soffit to a unit on the eastern side of the building in close proximity to several failed joints above.
[56] It is clear from the experts’ evidence that water is penetrating through the joints in the aluminium composite panels on the roof edge causing the damage that Mr Woolgar described. However, the experts disagree about who is responsible for these defects and the extent of the remedial works required. Because the same aluminium composite panels were used to clad the building and there is considerable overlap between the plaintiffs’ claims relating to the roof edge and those relating to the cladding on the rest of the building, I will address the liability and quantum issues in respect of these claims together.
Cladding
What are the defects?
[57] The plaintiffs claim that the design, manufacture and installation of the cladding system were defective and as a result the cladding is not weathertight. They claim that water has entered the building through the joints in the panels causing damage to timber framed external walls and internal linings.
[58] The cladding system at the Nautilus is a face-sealed system which means that it is wholly dependent upon the integrity of the external finish and the efficacy of the joints to keep water out. There is no mechanism to deal with water that penetrates the seal. Mr Woolgar says that it is difficult to achieve a perfect face-sealed system,
particularly on a building such as the Nautilus which has complex shapes including curved and triangular edges to decks which also change in level.
[59] To accommodate these challenging design features, the cladding panels were folded and cut. In many cases, because the panels did not fit properly when they were installed, the fixing flanges were trimmed or removed altogether resulting in the cladding not being properly fixed to the framing. Without any fixing channel, there was no backing rod to support the seal. The integrity of the waterproofing of these joints is dependent on the sealant which has only the limited surface of the edge of the panels to adhere to.
[60] An example of where this defect has commonly occurred is on the decks with the half-height balustrades in the middle section of the building. These balustrades are flanked by external windows. The panels on the outside base of these balustrades were modified to clad a double step where the panel abuts the fixing channel for the glass section of the balustrade. At the ends of these balustrades, the panels were further modified to allow for a change in the profile of the wall to accommodate the adjoining window joinery. Mr Woolgar says that the fixing flanges were removed from the panels in these locations creating holes immediately behind the sealant joints.
[61] Fixing flanges were also removed from panels installed beneath windows. Again, the result is that the cladding is not fixed to the wall framing along this joint and there is no backing to support the backing rod and sealant joint. In at least one case, Mr Woolgar found that a hole had been cut in the cladding at this junction and filled with sealant.
[62] In some of the more complex junctions, such as where the cladding has been installed in acute angled corners of decks, the joints have been poorly formed creating gaps that have not been adequately sealed. The generally large and unsupported joints at these junctions have been finished using a variety of methods, most commonly by filling the gap with large quantities of sealant. Mr Woolgar says that in some cases rags, cardboard or multiple backing rods have been used to provide backing.
[63] Apart from the specific problems that have occurred at the complex junctions referred to, Mr Woolgar found that the width of the sealant joints on the exterior cladding of the building varied considerably, ranging from less than 2 millimetres in places to more than 60 millimetres in others. This has also contributed to the widespread joint failure.
[64] Waterproofing issues caused by failed sealant joints are particularly prevalent at the fishtail on the southwest and northwest corners of the building. In these locations the cladding intersects the joinery at an acute angle making it a challenging junction to perfect and seal.
[65] The joint failure, which has occurred on all levels of the tower, has led to water damage to timber framing, internal wall linings, ceilings and other building elements. In some of the units, the leaks have been so serious that it has caused the carpet to rot in the vicinity of the junctions.
[66] Gregory O’Sullivan, a director of Prendos, was responsible for directing and reviewing the investigations carried out at the Nautilus by Prendos’ employees, including Messrs Woolgar and Cavan. Mr O’Sullivan has been involved in the building industry since 1971. He formed Prendos 26 years ago and for the past
17 years has had significant involvement in investigating weathertightness defects and designing remedial solutions. He is extremely critical of the cladding at the Nautilus. He considers that a face-sealed system as designed for the Nautilus could not have been weathertight unless the panels had been installed perfectly. He believes that this standard of workmanship could not realistically have been achieved on a building of the size and complexity of the Nautilus. Mr O’Sullivan says that the panels were incorrectly fitted and the joints were so poorly formed and backed that the cladding could never be weathertight.
[67] Mr Powell agrees that the complex shape of the Nautilus, particularly the curves, triangles and acute angles, adds significantly to the complexity of the cladding system. He also agrees that the cladding was poorly installed with panels being adapted inappropriately and fixings incorrectly installed through the face of the cladding in some instances. He says that in many cases the width of the cladding
joint is insufficient to allow the appropriate width to depth ratio. He considers that the smaller sealant joints have typically failed because they were required to perform beyond their elastic limit. Mr Powell says there was insufficient cladding material for the sealant to adhere to, particularly where the fixing flanges were removed.
[68] Mr Powell summarised the various deficiencies in the cladding joints that he observed as follows: lack of backing rod behind the sealant; backing rod present but insufficient support to keep it in position; lack of support to sides of sealant joint as a result of removal of fixing flanges; insufficient width between cladding panels with sealant joints only one to 2 millimetres wide in places; incorrect sealant thickness; sealant applied over the face of adjacent cladding panels to give the appearance of a consistent and appropriate joint width; unsealed fixings penetrating the outer face of cladding panels; and distorted cladding fixing flanges resulting in insufficient sealant cover.
[69] Mr Powell found evidence of sealant joint failure in 15 of the 24 units he inspected. He observed water damage in 10 units including damage to carpets, timber skirting, painted plasterboard wall linings and ceiling linings. Mr Powell also found several cases where the cladding panels themselves were beginning to fail with short splits radiating from the corners where the panels have been folded.
[70] Mr Powell carried out water testing which confirmed that water was able to enter the building where sealant joints had failed. He found some damage to the timber framing to which the cladding was fixed. Fungi were detected in all nine samples analysed and timber decay was evident in seven of these. The five most severely decayed samples were found to have been exposed to consistently high levels of moisture for at least three years, possibly five.
[71] In addition to the decayed timber framing, Mr Powell observed water damage resulting from the failed sealant joints including damage to paint and plasterboard internal wall linings, corroded interior steel angle used to form plasterboard corners, timber skirting, carpet backing, carpet gripping bars including rotten timber and corroded fixings, surface corrosion on structural steel members and
tray decking under concrete floors, corroded building wrap staples and mould deposits on building wrap.
[72] Council engaged Rico Bonaldi, an architect with over 65 years’ experience, to assist the Court in relation to the cladding issues. Mr Bonaldi has extensive experience in the design and implementation of façade buildings such as the Nautilus. He explained that joint width is of primary importance in enabling an effective seal and must allow for the natural movement that occurs as a result of thermal effects and building movement. He emphasised that the flanges are essential.
[73] Mr Bonaldi considers that the cladding failure at the Nautilus resulted from errors in the fabrication, application and sealing of the aluminium composite panels. He too observed that the width of some of the joints was as small as 2 millimetres in places. He found joints with a wholly inadequate depth of only 2.5 millimetres compared to the minimum required depth of 6 millimetres and in some instances undersized backing rods had been used causing a lack of control over sealant depth. He also noted that the flanges had been removed from many of the panels.
[74] The Underwriters engaged Peter Lalas, who has been involved in the design, testing, manufacture and installation of windows, doors and cladding systems on buildings like the Nautilus for more than 30 years. Mr Lalas was principally engaged to express his opinion on whether the defects at the Nautilus were caused by defective design or defective installation because this is relevant to whether Brookfield Multiplex’s professional indemnity insurance policy responds to any of the claims. He agrees that the cladding has the defects described by the other experts but maintains that this was the result of poor workmanship rather than design.
[75] There was no real challenge to the evidence of the plaintiffs’ experts as to the nature and extent of the defects in the cladding. I accept their evidence about these fundamental and widespread defects.
Who is liable for these defects?
Council
[76] Section 34(3) of the Building Act required territorial authorities to grant a building consent if it was satisfied on reasonable grounds that the provisions of the building code would be met if the building work was properly completed in accordance with the plans and specifications submitted with the application. The plans and specifications would therefore need to include sufficient detail to enable this to be assessed. For that reason, s 33(2) of the Act provided that every application for a building consent was to be accompanied by such plans and specifications and other information as the territorial authority reasonably required. The territorial authority was empowered by s 34(2) to require further reasonable information in respect of the application. In exercising its powers under these provisions it was required by s 47 to have due regard to various matters including the size and complexity of the building, its intended use and life and the reasonable practicality of any work proposed.
[77] The plaintiffs claim that Council should not have issued the building consent for the Nautilus tower because there was insufficient detail in relation to the proposed cladding system to enable it to be satisfied on reasonable grounds that the performance requirements of the building code would be met.
[78] The plaintiffs rely on the evidence of Ronald Hanley, a specialist in the design and specification of windows, curtain walls and cladding systems. Mr Hanley has had significant involvement in reviewing designs of cladding systems for building consent purposes and reviewing the construction of such systems to determine whether building consent conditions have been complied with. Mr Hanley explained the important difference between a rain screen system which allows for drainage of any water that may penetrate and a face-sealed system which must exclude water entry altogether. Both systems must be coordinated with other elements of the façade such as windows and doors. Mr Hanley says that the specification approved by Council on 26 February 2003 did not make clear which type of system was proposed for the Nautilus.
[79] Further, Mr Hanley says that although the specification makes reference to Australian and New Zealand standards, no detail was provided as to how those standards would be met. The specification merely sets out a process for assessment by the architect of a design yet to be developed. This included the provision of:
(a) sample panels for assessment before commencing fabrication; (b) shop drawings and installation details for evaluation;
(c) shop drawings for review before commencing manufacture showing: design calculations; fully dimensioned elevations of all elements; complete details of constructions, connections and all support systems; dimensions of all typical elements and of all special sizes and shapes; provision for the exclusion and/or drainage of moisture; jointing details and method of fixing between individual elements and between the installation and adjacent work; adjustment of fixings to ensure accurate alignment of composite cladding; sealant types and full size sections of all sealants and backing rods; provision for thermal movement; provision for seismic movement and movement under wind loads; sequence of installation; coordination requirements with other work; and a full schedule of materials, finishes, componentry, hardware and fittings; and
(d)complete laboratory testing of a prototype of the building façade in accordance with the relevant Australian and New Zealand standard.
[80] These are requirements that the design must meet but Mr Hanley says that he has not seen any developed design for the cladding system other than basic shop drawings. He is not aware of any prototype having been approved by Walker Architects or of any test results demonstrating compliance with the stipulated standards. The shop drawings do not carry the Council approved stamp and Mr Hanley understands that they were not submitted to Council.
[81] Mr Hanley considers that the information supplied to Council was inadequate and did not permit the required assessment of whether code compliance would be achieved. Council received a prescription for the proposed assessment and testing regime that would be followed in the course of developing a fully completed design but it received only limited details of what that design would entail and how it would meet the performance requirements of the building code. Mr Hanley notes by way of example that complex junction details were not developed and no detail was provided showing the terminations of the aluminium composite cladding panels and flashings. These details were critical to ensuring the weathertightness of the building.
[82] Mr Mackie agrees with Mr Hanley that the original building consent documentation was insufficient, particularly for a complex high rise building located in a coastal wind zone that would be subject to high wind pressures.
[83] Mr Bonaldi says that he has not seen any design document illustrating the build-up of the critically important sealant joint between the aluminium composite panels. Nor has he been able to find any drawing or specification identifying the diameter of the screws that were to be used to attach the panels to the building substrate or the spacing between these screws. These were basic and fundamentally important details. Mr Bonaldi expressed the position bluntly:
A fact of life is that this job has been so badly documented to begin with that
even now after about 10 years we still don’t know really what they built.
[84] The plaintiffs called Robert Tidd who has 40 years’ experience in the residential and commercial building industry. For much of his career he worked for various city or district councils and has had extensive experience with building consents, building inspections and code compliance certificates. Mr Tidd also considers that Council had insufficient information to enable it to be satisfied on reasonable grounds that the proposed cladding design would comply with the building code and that the building consent should not have been issued. He says that a prudent council officer processing the application would have requested additional information to support the design, probably in the form of a report from an independent façade engineer or similarly qualified person to confirm that the
proposed works would comply with the building code if installed as designed. He also suggests that advice could have been sought from one of the larger councils given that Rodney District Council had limited experience with buildings of this type.
[85] The building consent was granted by Kelvin Goode who has had over
25 years’ experience working for local government, principally in the area of processing consents. In response to the suggestion that he ought to have obtained an independent review of the proposed cladding system before issuing the consent, he said that he did not consider this necessary because the application was made by an experienced development company and, as far as he was aware, by an experienced architect. Further, he knew that aluminium composite panels had been used on other buildings on the North Shore and in Auckland City and there was no information available in the market to suggest that these types of cladding systems were inherently flawed.
[86] However, the complaint is not that aluminium composite panel cladding systems are inherently flawed but that insufficient details were supplied regarding the particular system proposed for the Nautilus to enable any useful assessment to be made as to whether it would meet code requirements. It would have been apparent to Council that no developed design existed.
[87] Council endeavoured to answer the plaintiffs’ criticisms about the lack of adequate documentation with the evidence of Stephen Flay, a qualified builder who joined Rodney District Council as a building inspector in November 1996. Mr Flay left the Council in 2001 to set up his own consulting business as a building surveyor specialising in weathertightness issues in commercial and residential buildings and has worked for North Shore City, Manukau City and Franklin District Councils. He says that at the time the Nautilus was built, council officers would not normally have sought an independent report from a façade engineer. He says that this would be unusual even today because until recently there has been no evidence that aluminium composite cladding systems might be the subject of weathertightness issues. Mr Flay considers that Council had sufficient information to justify issuing the consent.
[88] Council also led evidence from Stephen Cody, who has worked for Wellington City Council more or less continuously since April 2001. Mr Cody has had various roles for the council including as a building officer and as manager of compliance building consents and licensing services. He considers that the application for building consent was “well detailed” and that there was enough information to justify issuing the consent.
[89] I accept the evidence of Messrs Hanley, Mackie, Bonaldi and Tidd on this issue. The critical feature of this type of cladding system is the joints but these were not specified or detailed and the design of complex junctions had not been developed. These were the very areas where weathertightness problems were likely to occur and in fact did occur.
[90] Council knew that the cladding system proposed was a bespoke system that had not been used or proven on any other development. Having regard to the complexity of the building, its height and exposed location, Council ought to have insisted on greater detail showing how the critically important cladding system would meet the performance requirements of the building code. In the absence of these details, Council did not have sufficient information to enable it to be satisfied on reasonable grounds that the requirements of the building code would be met if the building work was properly completed in accordance with the plans and specifications submitted with the application in terms of s 34(3) of the Act. Having issued the building consent without these details, there was no design against which inspections could be carried out by Council or anyone else.
[91] However, the original design concept prepared by Walker Architects for building consent purposes was significantly modified after the consent was granted and before construction of the tower commenced. I will briefly explain why this happened before relating the events that led to an amended consent application being lodged with Council in November 2003, long after construction had commenced.
[92] On 7 October 2002, Brookfield Multiplex submitted a tender for the construction of the Nautilus with a guaranteed maximum price of approximately
$29.9 million. This tender excluded various items including design fees and design
management and assumed that the basic scope of works was the minimum required to satisfy the terms and conditions of the standard sale and purchase agreement and council consent.
[93] On 27 November 2002, Brookfield Multiplex wrote to the building consultants appointed by the developer stating, amongst other things:
The $29.9 + GST GMP1 put up early to assist the Mezzanine Funding Phase was tagged to be conditional upon us delivering the bare minimum required to satisfy the standard Sales Agreement. As discussed, if need be we would “rape and pillage” the design to the bone to protect ourselves on this GMP1.
[94] Brookfield Multiplex submitted a revised provisional price of approximately
$36.4 million on 21 December 2002. Negotiations followed over the next three months before the head contract was signed on 18 March 2003. Construction of the Nautilus was already well underway by this time. The eventual contract price was approximately $34.1 million. Mr O’Sullivan says that a number of material changes were made to the design to achieve this cost reduction including the removal of drainage points and the plywood backing which formed a cavity behind the cladding. These features formed part of the original design and were intended to deal with any water that might penetrate the face of the cladding.
[351] It follows that the plaintiffs’ claim against Brookfield Multiplex in relation to the decks is excluded from cover under the policy. Poor workmanship was at least a
material cause of the loss claimed.
31 This relates to defect (d) in the statement of claim. There were four separate aspects to this defect as noted in [139].
32 Defect (e).
33 Defect (f).
Cladding
[352] The next most significant defect in terms of repair cost is the cladding. It is indisputable that poor workmanship is a material contributing factor.
[353] The schedule of defects attributable to Brookfield Multiplex in the statement of claim pleads, among other causes, that this defect was caused by “poor sealant practice including excessively wide joints, lack of adequate backing to joints and reliance upon adherence to insufficient surfaces”. These all relate to poor workmanship, an allegation I have found proved.
[354] In the “Workmanship” column, the plaintiffs’ pleading includes an allegation of “poor application of cladding and sealant”. The evidence left me in no doubt that this was the case. Mr Woolgar described the poor workmanship in relation to the cladding as “endemic and widespread around the building”. He said that in terms of a face-sealed system, it was “the worst” he had ever seen in his career. The other experts were similarly critical of the standard of workmanship in installing the cladding.
[355] This claim is quite clearly excluded from cover.
Roof
[356] The “Workmanship” column in the schedule of defects attached to the claim includes the allegation that “construction sequencing meant that penetrations were formed late and not controlled by membrane applicator”. These are construction defects, not design defects, and are excluded from cover.
[357] While the plaintiffs criticised the plant room design as an open air structure, this allegation was not established. The design lacked detail but was not followed in any event. There is no evidence as to who made the decision to install the plant in the way it has been. Brookfield Multiplex has therefore not discharged the onus on it of proving that the design of the plant room was undertaken by, or under the supervision of, a person falling within the definition of Professional Activities and
Duties in the policy. In any event, the claim is excluded from cover because defective workmanship was clearly a material contributing factor.
[358] The defects in the skylights were caused by poor installation. It was not contended that cover is available for this defect.
Roof edge
[359] This falls into the same category as the cladding. There is no doubt that the defects in the cladding at the roof edge are at least partly caused by defective workmanship. The claim in relation to this defect is excluded for the same reasons as for the cladding.
Balustrades
[360] The schedule in the statement of claim alleges inadequate design and installation giving rise to the risk to safety from falling. However, as noted, this allegation was not pursued. In any event, the claim was that defective installation, being defective workmanship, materially contributed to the loss claimed. This claim is therefore excluded.
[361] The second claim in relation to the balustrades concerns the manner in which they have been fixed to the timber packer over the concrete nib on the full height balustrades or to the timber framing in relation to the half height balustrades. In the schedule, the plaintiffs attribute this defect to poor design. However, there is no evidence as to who was responsible for the design. It was clear from the evidence that Walker Architects was not responsible. In the absence of such evidence, Brookfield Multiplex has not proved that the “Professional Activities and Duties” requirement in the insuring clause is met. In any event, the losses relating to the balustrades were accepted to be collateral damage in the sense that they were caused by the deck defects. For that reason as well, the claim in relation to this defect is not covered because defective workmanship was a material contributing factor to the loss claimed.
Podium
[362] The plaintiffs’ schedule attached to the statement of claim contains the allegation that the water entry at the junction of dissimilar membranes at the bottom of the steps linking the upper and lower podiums was the result of “inadequately designed and constructed junction with poor application of membranes”.
[363] The most recent design for this junction was prepared by Walker Architects on 6 March 2004. This showed the Neuchatel membrane being laid underneath and on top of the steps. There would have been no problem had the works been carried out in accordance with this design.
[364] There is no evidence as to who made the decision to depart from this design and form the waterproofing junction as it is. There is therefore no evidence to satisfy the Professional Activities and Duties requirement of the insuring clause.
[365] The change was made partly as a result of a construction sequencing decision to install the precast stairs before the waterproof membrane was laid on the lower podium. This is a construction issue, not a design issue. Poor workmanship was a material contributing factor in relation to this defect.
[366] It follows that Brookfield Multiplex’s liability for this defect is not covered
by its professional indemnity policy.
[367] The second defect relating to the podiums relates to the departure from the original design of the perimeter block walls by removing the capping that was designed to shed water. Walker Architects opposed the removal of the capping and warned Brookfield Multiplex that this would be likely to cause “serious waterproofing problems.” There is no evidence that anyone coming within the requirements of the Professional Activities and Duties definition was responsible for this design change. Brookfield Multiplex has not proved that the claim comes within the insuring clause.
[368] The schedule of Brookfield Multiplex defects in the statement of claim refers to poor membrane installation on adjacent services as contributing to the damage
arising out of this defect. This allegation was supported by Mr Cavan’s evidence. Exclusion 9 would have excluded the claim relating to this defect from cover even if it had come within the insuring clause, which it does not.
Result
[369] The plaintiffs are entitled to judgment against each of the defendants for the amounts calculated in accordance with the judgment. I reserve leave to apply should any issue arise as to the calculation of the judgment sums required to give effect to the judgment.
[370] Council and Charles Norager are liable for the same damage in relation to the decks. Liability for this damage is apportioned 80 per cent to Charles Norager and
20 per cent to Council.
[371] Brookfield Multiplex’s claim for a declaration that it is entitled to be indemnified in respect of the judgment entered against it in this proceeding in terms of (a) of the prayer for relief in its statement of claim dated 19 June 2013 is dismissed. I make no determination in respect of the relief sought at (b) of the statement of claim in accordance with the joint memorandum of counsel dated
10 September 2014.
[372] Memoranda should be filed if costs cannot be agreed.
M A Gilbert J
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