Body Corporate 336323 v Selwyn District Council

[2015] NZHC 1522

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-000089 [2015] NZHC 1522

BETWEEN

BODY CORPORATE 336323

First Plaintiff

ANTHONY VERNON SMITH & ORS Second Plaintiff

BODY CORPORATE 349497
Third Plaintiff

ALFRED WILLIAM TAYLOR & ORS Fourth Plaintiff

AND

SELWYN DISTRICT COUNCIL First Defendant

C LUND & SON LIMITED Second Defendant

TERRACE DOWNS LIMITED Third Defendant

ST JOHN DEVELOPMENTS LIMITED Fourth Defendant

GRAHAM BOND LIMITED First Third Party

ALUTECH WINDOWS & DOORS LIMITED

Second Third Party

HERBERT LAWRENCE JOHN GOVAN Fourth Third Party

CHRISTOPHER JOHN PREBBLE Fifth Third Party

CHRIS PREBBLE ARCHITECTS LIMITED

Sixth Third Party

A & H TILING LIMITED Seventh Third Party

BODY CORPORATE 336323 v SELWYN DISTRICT COUNCIL [2015] NZHC 1522 [2 July 2015]

BEHAVDDIN HOOMAN SHOLEPAK Eighth Third Party

RYAN COATING SERVICES LIMITED Ninth Third Party

BENJAMIN WILLIAM RYAN Tenth Third Party

GRAHAM DOUGLAS ARMITAGE Eleventh Third Party

Hearing:	18 June 2015
Appearances:	M J Wallace and K L Maclean for Applicant/Second Defendant P H Bremer and M R C Wolff for Respondents/Plaintiff and Second Plaintiffs
Judgment:	2 July 2015

INTERIM JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

Introduction

[1]      Terrace Downs is a golf course and accommodation complex in Coleridge Road, near the Rakaia Gorge in Canterbury.   Among other buildings, there are a number of apartments, which were erected in Stages.  The first plaintiff is the body corporate, under the Unit Titles Act 1972, for the apartments known as Stage 2 of Terrace Downs Apartments (“the apartments”), and the third plaintiff is the body corporate for Stage 3.  The second and fourth plaintiffs are the current owners of the apartments in these Stages, respectively.

[2]      The  first   defendant   is   the   Local  Authority  in   the   area,   which   had responsibilities in relation to the building work on the property under the Building Act 1991, the second defendant is the building contractor for Stages 2 and 3, and the third and fourth defendants were responsible for the development.

[3]      The plaintiffs allege that the apartments were constructed with a number of defects and as a result there has been moisture ingress through the exterior envelopes of  the  buildings  in  which  the  apartments  are  contained,  and  into  the  structure, timbers, stone veneer of the chimneys, internal linings, electrical fittings, floor coverings and curtains.  The plaintiffs say that extensive repairs will be required to rectify the defects and damage, and that in addition to incurring this loss, they have suffered consequential losses by way of loss of rental income (as the apartments are used as part of a commercial accommodation complex), the cost of alternative accommodation, and other related costs.  They also say that as a result of the defects identified  in  the buildings  they have lost  part  of the  value  of their apartments, presently estimated at five per cent.

[4]      The plaintiffs lay responsibility for this at the door of the Council in relation to its issuing of building consents, its inspection of the works during construction, and its issue of code compliance certificates, and on the developers.  They also lay responsibility at the door of the second defendant (Lund), pleading a duty to exercise reasonable skill and care in constructing the works, and breaches of that duty in specified ways.

[5]      Lund applies for an order striking out the claims against it on the ground that they were filed outside the time limits set for the issuing of proceedings by the Limitation Act 1950.   The sole issue in this application is whether the causes of action in relation to Stage 2 and in relation to Stage 3 accrued more than six years before the respective dates on which this proceeding was commenced in relation to each of those Stages.1   These dates are 24 February 2014, in relation to Stage 2 and

9 July 2014 in relation to Stage 3.

Principles of law relating to striking out proceedings

[6]      The principles to be applied on an application to strike out under r 15.1 of the

High Court Rules are well-established.2   Pleaded facts, whether or not admitted, are assumed to be true apart from allegations which are entirely speculative and without

1      Separate proceedings issued in respect of each Stage have been consolidated.

2      Attorney-General v Prince [1998] 1 NZLR 262 (CA); Couch v Attorney-General [2008] NZSC

45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J.

foundation.   The cause of action pleaded must be clearly untenable.   In Couch v

Attorney-General, Elias CJ and Anderson J said:3

It is inappropriate to strike out a claim summarily unless the Court can be certain that it cannot succeed.

[7]      The principles to be applied on an application to strike out a claim on the basis that it is statute barred was enunciated in these terms in Murray v Morel & Co Ltd:4

I consider the proper approach, based essentially on  [Matai Industries v Jensen [1989] 1 NZLR 525] is that in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process. If the defendant demonstrates that the plaintiff’s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out that cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.

[8]      Thus the jurisdiction is to be exercised sparingly and only in clear cases, reflecting reluctance on the part of the Court to determine a claim or defence short of trial.   For all that, the jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument.5

Summary of the pleading

[9]      The current pleading in this case is the first consolidated statement of claim dated 9 March 2015.   The plaintiffs say that building consent for Stage 2 of the development was granted on 29 August 2003, and for Stage 3 on 9 March 2004.  On an unspecified date, the developers (the third and fourth defendants) engaged Lund to “construct and/or supervise and/or project manage” the construction of the apartments in Stages 2 and 3.  It did so between August 2003 and May 2005.  The first defendant issued a code compliance certificate for Stage 2 on 2 September

2004, and further code compliance certificates on 10 May 2005 and 18 July 2005, respectively, for two different groups of apartments within Stage 3.  Unit titles were

issued for all the apartments resulting in the creation of a body corporate for each of

3 At [33].

4      Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33] per Tipping J.

5      Couch v Attorney-General, above n 2.

Stages 2 and 3.  As noted above, these are the first and third plaintiffs in this case. From time to time units have been transferred to other owners, and the present owners are the second plaintiffs (Stage 2) and the fourth plaintiffs (Stage 3).

[10]     It is pleaded that the apartments were constructed with a number of defects, summarised in 19 paragraphs in the statement of claim, and further particularised in a schedule extending to some 30 pages.  All the defects alleged in the statement of claim relate to identified reasons for rain water entering the buildings.

[11]     As well, it is said that between 2009 and 2011 Lund attempted to address weathertightness issues by, amongst other methods, replacing a membrane surface of the decks of upstairs apartments within the apartment blocks.  It is said that this work was undertaken without a building consent, that various errors were made during the process, and that the works failed to comply with specified requirements of the Building Code and Building Act. These works are referred to as prevention works.

[12]     The cause of action against Lund is in negligence.   It is pleaded that in undertaking the building and/or project management of the building work, it owed the plaintiffs a duty to exercise reasonable skill and care up until the issue of code compliance certificates.   Particulars are given of the tasks in respect of which reasonable skill and care was to be exercised.

[13]     It is then said that in breach of its duties of care,  Lund constructed the apartments and/or project managed their construction, and/or supervised some contractors and other trades in such a way that the apartments were built with the defects identified, and failed to comply with the Building Code.

[14]     This pleading is followed by reference to the prevention works carried out between 2009 and 2011 which are also said to have been undertaken in breach of the pleaded duty of care. The losses I have referred to are said to have been suffered as a result of all the breaches of duty.

Principles relating to accrual of cause of action

[15]     A cause of action accrues when every fact exists which plaintiffs must prove in order to support a right to the judgment of the Court.6   The tort of negligence, as pleaded in this case, is actionable only on proof of damage.   In Invercargill City Council v Hamlin, the Privy Council decided that the loss to a plaintiff may not occur when the damage to a property occurs, but at a later point.  This was described by the Privy Council in the following passage:7

Once it is appreciated that the loss in respect of which the plaintiff in the present case is suing is loss to his pocket, and not for physical damage to the house or foundations, then most, if not all the difficulties surrounding the limitation question fall away.   The plaintiff’s loss occurs when the market value of the house is depreciated by reason of the defective foundations, and not  before.    If  he  resells  the  house  at  full  value  before  the  defect  is discovered,  he  has  suffered  no  loss.    Thus  in  the  common  case  the occurrence of the loss and the discovery of the loss will coincide.

But the plaintiff cannot postpone the start of the limitation period by shutting his eyes to the obvious.  In Dennis v Charnwood Borough Council, a case decided in the Court of Appeal before Pirelli reached the House of Lords, Templeman LJ said at p 420 that time would begin to run in favour of a local authority:

… if the building suffers damage or an event occurs which reveals the breach of duty by the local authority or which would cause a prudent owner-occupier to  make investigations which, if properly carried out, would reveal the breach of duty by that local authority.

In other words, the cause of action accrues when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert.  Since the defects would then be obvious to a potential buyer, or his expert, that marks the moment when the market value of the building is depreciated,  and  therefore  the  moment  when  the  economic  loss  occurs. Their Lordships do not think it is possible to define the moment more accurately.  The measure of the loss will then be the cost of repairs, if it is reasonable to repair, or the depreciation in the market value if it is not: see Ruxley Electronics and Constructions Ltd v Forsyth [1995] 3 WLR 118.

[16]     Counsel referred to a number of other cases since Hamlin where the principle established in that case has been applied to various fact situations.  Pullar v R is a case where the defects in the building were found to be evident very shortly after the

completion of the building.8

6      Invercargill City Council v Hamlin [1996] 1 NZLR 513 at 526; Hunt v New Plymouth District

Council [2011] NZCA 406 at [72].

7      Invercargill City Council v Hamlin, above n 6, at 526.

8      Pullar v R [2007] NZCA 389.

[17]   In this case, approximately a year after an administration building was completed for a school, the architects retained by the Ministry of Education wrote to the building company requesting repair of leaking windows, plaster, paintwork to the exterior and damage which had been caused by delamination of a wall.  The next year the Ministry commissioned and obtained a report from an external advisor on all defects which had emerged in the building.  By this point it was December 1998. Remedial  work  was  not  carried  out  by  the  building  company,  so  the  Ministry engaged  a different  contractor.    In  May 2005,  it  filed a proceeding against  the original building contractor claiming, in a cause of action in negligence, the cost of remedial work.

[18]     The building company applied to strike out the claim.  This application was dismissed in the High Court.  The Court of Appeal allowed the Ministry’s appeal.  It noted the passage I have cited from Hamlin, which applies to a case where the damage to a building has a latent cause, rather than an obvious cause, and found that the case before it did not involve latent defects.  The defects were readily apparent as early as 1997, if not before.  The Court noted that in October that year the building contractor had been asked to return to the site and fix the leaking windows and other

specified damage.  In respect of damage of this kind, the Court said:9

It is now well established that, where through negligent construction, design, or inspection, damage occurs in a building, its cause being obvious, any cause  of  action  which  may  exist  accrues  when  the  damage  becomes manifest.   That is because from that point economic loss occurs, as the market value of the building would then be affected.

[19]     After making that finding, the Court then said that even if its conclusion about the damage not being latent was incorrect, there was no doubt that the cause of action had accrued by the time of the independent inspection and report of December

1998. As the Court observed, it did not need to ask, in terms of Hamlin, whether any reasonable building owner would or should have called in an expert by then, because the Ministry had already done so.   The defects were obvious and so too was the

remedial action required.10

9 At [13].

10 At [16].

[20]     After referring to the judgment under appeal, the Court of Appeal said:11

It is not necessary, in order for time to start running, to be able to pinpoint with precision the exact cause of every defect.  Indeed that would frequently mean  that  time  could  not  start  running  until  the  remedial  work  was underway!  That in turn would mean that the building owner could not sue the builder in advance of the repair work as no cause of action would have by then accrued.   That is not and never has been the law.   What one is concerned  to  ascertain  is  when  economic  loss  occurred:  when  was  the market value of the building affected?  We suspect the market value of this building was affected back in 1997.  But it was clearly affected by the time the Barnett Report was prepared in December 1998.

[21]     Resolution of the issue before the Court on the present application requires consideration of the relevant pleadings and the facts before the Court, in light of these principles.

Relevant facts before the Court

[22]     In the first consolidated statement of claim, the pleadings in relation to the defects in the apartments specifically allege that they were constructed with those defects, which prima facie put the relevant work and the damage into a period prior to the issue of code compliance certificates in May (Stage 2) and July (Stage 3)

2005.   For issue of this proceeding to have been inside the limitation period, the causes of action must have accrued after 24 February 2008 (Stage 2) and 9 July 2008 (Stage 3).  Therefore, unless the defects were latent, and the causes of action did not accrue at the time of construction for reasons recognised in Hamlin, each of the proceedings was filed well after the limitation period expired.

[23]     Given the provisions of the Limitation Act and the principles enunciated in Hamlin and Pullar, the first consolidated amended statement of claim might have been expected to contain a pleading setting out facts to support the plaintiffs’ contention that their respective causes of action accrued within six years of filing. That is not the case.   The issue is, however, canvassed in affidavits filed for the plaintiffs and for Lund.

[24]     Two  witnesses  for  Lund,  Mr  A  MacGregor,  a  director,  and  Mr  W  G Radburnd, a quantity surveyor and shareholder in Lund (the latter also being the

11 At [19].

quantity surveyor engaged on the construction of Stages 2 and 3) produce emails and correspondence to which I will refer shortly.  Mr MacGregor says that discovery of the alleged leaks in Stages 2 and 3 was communicated to Lund around July 2006, and he says the body corporate was aware of most of the major defects which are the subject of this proceeding from at least 13 July 2006 onwards.  He says that as well, one  apartment  owner,  Mr  Wilkins,  who  is  a  member  of  the  body  corporate committee, was also aware of them, though he does not specify when this became the position.

[25]     The evidence for the plaintiffs is given by Mr N A Idour.  He is a director of Idour Investments Limited which owns an apartment in Stage 3, and is one of the fourth plaintiffs.   He was the chairperson of the body corporate for Stage 3 at all material times since June 2006.   His company bought the apartment in 2005.   He gives evidence regarding joint meetings of the body corporate committees in relation to Stages 2 and 3 and also produces some communications and records to which I will refer.  In relation to the knowledge of owners of apartments between 2006 and

2009, Mr Idour says that the knowledge he obtained of the defects in the buildings, and steps being taken in relation to them, was as a committee member of the body corporate committee for Stage 3.   He expects the members of the body corporate committee for Stage 2 to have the same knowledge, which he says is reflected in the committee meeting minutes.  He then says that it was not the usual practice of the committees to send information or copies of these minutes to the owners, so it is unlikely that any of the information to which he refers (discussed below) was provided to them.  However, he does not recall if any of the information discussed at committee meetings was sent to owners.  He says that from the documents he has reviewed, there does not appear to be any record of the meeting minutes or any other information being sent to the apartment owners before 4 April 2008.

[26]    Mr Idour says that between 2009 and 2011, or later, Lund was on site undertaking remedial works.   He understood that it was fixing problems in the apartments, and that owners were led to believe that they did not need to concern themselves with any problems, which were portrayed as being minor.  He produces the minutes of a joint committee meeting held on 31 January 2011, which record that

a  representative  of  Lund  and  others  were  to  meet  on  site  to  arrange  for  all outstanding remedial works to be completed before the end of that summer.

[27]     Mr Idour says that in his capacity as an owner he firmly believed that the problems identified were minor and that Lund had agreed to remediate the problems at its own cost, $5,000 per apartment at most.  Further, Mr Idour believed that there was no need to call for further specialist advice because the repairs were being undertaken by the building company which built the villas and which was, therefore, most familiar with the buildings and the minor problems identified, and that the problems would not adversely affect the market value of the apartments.  Mr Idour does not specifically state the date at which he held this view, but I infer from his affidavit that this was the view he held whilst a body corporate committee member, which was until 2010 or 2011.

[28]     I now describe the relevant exhibits produced by these witnesses.  The first is an email dated 13 July 2006 from Mr David Cox, who is described as a building service contractor, to Mr Bert Govan who is described as a member of the Building Maintenance Committee.  Mr Cox advised Mr Govan that six of the apartments “all have serious leaks in them”.  On 31 July 2006, Mr Cox emailed Lund asking “when will someone be onto the maintenance items/leaks on the villas?”.  Mr MacGregor emailed back on 2 August advising that Lund had been organising tiles and flashings and that two men would be on site the following week and the week after “to do the work”.

[29]     It seems that there were problems with tiles lifting off upstairs decks.  This is specifically referred to in the next email from Mr Cox sent on 25 October 2006 to Lund.  He referred to four apartments having either lifting or broken tiles, to all the “rain heads” in Stage 2 leaking, and to a leak by the fireplace in one of the villas. Mr Cox said that these items had been previously identified and that he wished to have them remedied.

[30]     Lund replied to this on 15 November 2006.  Each item is referred to and it is clear from the email that Lund intended to do remedial work, which it specified. Lund pointed out, however, that the maintenance periods for the two Stages of the

development had expired and said that some of the items raised were matters of general wear and tear and maintenance.   Lund asked for confirmation that if the specified items were remedied, then Lund would have met its obligations under the contract and any further issues would not be its care.

[31]     Mr Cox replied on 22 November 2006, again referring to the same list of items.   However, whilst Mr Cox agreed that the maintenance period was over, he said the issues raised were due to poor workmanship, or in some cases, design.  He expressed the view that the problem was “leaky house syndrome” though he did not say what he meant by this.  He noted that there had been a bad leak in one apartment since one of Lund’s men was on site the previous week, and also noted that the source of the leak had not been identified.  He said that although there needed to be a cut-off point for maintenance, “these issues have been there since day 1”.

[32]     There is no record on any of these emails or the letter from Lund indicating their having been distributed to any owners of apartments.

[33]     On 13 April 2007, Mr Cox sent an email to Mr Govan and to Mr Littlefair, who is described in the committee meeting minutes as the resort manager.  Mr Cox referred to attached email correspondence between himself and Lund, but in the copy of the email produced in evidence this attached correspondence is not identified. However,  in  this  email  Mr  Cox  made  it  clear  that  there  were  still  several maintenance items, which were being dealt with.  He said there were three or four faults in the buildings which continued to cause problems and which Lund has been continually trying to fix.  He said it seemed this had been done with a “band-aid” rather than a long term  solution.   The main problems were leaking around the exhaust vent in the roof, around flashings of chimneys, from rear decks near to the point where stairs join the building, and tiles lifting on the rear decks.  He said this was not happening in all the apartments, and that Lund was “working on it”.   He questioned whether Lund’s work would “last the test of time”.

[34]     On 31 May 2007, Mr Govan sent an email to Mr Brett Stuart, who was the maintenance superintendent for the building services contractor for the development. Mr Govan said that Lund had told him that it had had a staff member on site for a

few weeks completing the remedial work outlined in earlier emails.  He understood the only outstanding issue was one of leaking tiles, and Lund was awaiting written confirmation from the adhesives supplier on appropriate remedial action.  Mr Govan noted that the body corporate had raised the issues which were outstanding and he said that he would report progress to them.

[35]     In reply, Mr Stuart confirmed to Mr Govan that Lund had been on site for a few weeks on and off and that it was still trying to find the leak in one of the villas. He also noted that he had received a report from a Mr Grant Coombs of Alan Reay Consultants “about the cracks etc” and asked whether Mr Govan had received a copy.

[36]     The report from Alan Reay Consultants was not produced in evidence.

[37]     On 7 June 2007, Lund wrote to Mr Stuart, with a copy to Mr Govan.  The letter comprises an update on remedial work on Stages 2 and 3.   It deals with a number of issues, including areas where the buildings are leaking, and I need not set this out in detail.   There is a description of the problems with roof extract vents which are leaking, and leaks in two units in particular.   Lund reported that considerable time and effort had gone into identifying the source of the leaks in these units since they were first identified, and whilst it had appeared on occasions that the problems had been resolved, they had returned during periods of particularly heavy rain.   Lund said that despite extensive efforts to identify the exact source of these leaks, minor leaking may still be occurring.  It said that it may prove necessary to entirely remove the tiles and membranes on the decks above these units to identify the source of the leaks.  It expressed reluctance to do so at that time because of the need to identify a completely reliable and warrantable system to replace the current water proofing system given constraints designed into the structure, minimal falls and set downs.   A second reason given was the approach of winter.   Lund also referred to tiles which were lifting on a number of decks.  The letter makes it plain that Lund was continuing to work on all the problems identified in the letter.

[38]     This letter seems to have been produced at a meeting the following day of the body corporate committees of the body corporates for both Stages 2 and 3.  Present

at the meeting were the Chairs of the body corporates for Stages 1, 2 and 3, and a committee member of the body corporate committee for Stage 3.  Also present was the secretary and treasurer of the body corporate for Stage 1 who is also the non- voting  treasurer  for  Stage  2,  as  well  as  Mr  Stuart  to  whom  I  have  referred. Mr Govan is described as being present by invitation.  The Lund report to which I have referred was tabled, and parts were read out. The minutes record:

The meeting noted the remedial works partly completed to date by Lund and that the Body Corporate Committee will continue to work with Lund to finalise outstanding minor building defects.

[39]     Mr Idour, to whom I have referred, was at the time the chairperson of the body corporate for Stage 3, a position to which he was elected in June 2006.   In addition to producing the minutes to which I have referred, he also produces handwritten notes which he says were taken at the meeting.   He does not identify who made the notes.  He observes, however, that the note taker has written “Don’t forward to owners” in the portion of the notes relating to the exterior balcony tiles, leaking, and Lund getting in touch with “adhesive contractor”.

[40]   The next document produced, in sequence, is the minutes of the same committees, on 7 September 2007.  Mr Idour is not recorded as being present at that meeting.   The only reference to the matters which are the subject of the present proceeding is a reference to the tiling on the apartments in Stage 2.  It is recorded that the meeting discussed work still to be completed by the builder including repairs to external tiling which should involve taking up tiles, laying a new waterproof membrane and relaying new tiles.  It is recorded that Lund had agreed to return to the site to do repairs.

[41]     The minutes of a meeting of the same groups on 28 March 2008 (which was the next meeting of this group) also refer to balcony tile repairs for the apartments in Stages 2 and 3.   This time there is reference to insufficient run-off slope being a probable cause of water entry, and to Lund offering to take up the tiles and install a new flexible waterproof membrane of a similar matching colour with a five year warranty, at an all up cost of around $4,000 per balcony.  Evidently a sample of this work had been completed on one unit and was working satisfactorily.  It is recorded that the building sub-committee had negotiated with all parties and considered all

options, with the intention of completing necessary remedial work “before this winter”.    After  some  discussion,  the  meeting  agreed  that  all  owners  must  be informed, with a report on the building tiling details, a timeline for remedial work and the options available.   It was intended that these issues be resolved at the forthcoming annual general meetings of the body corporates, by all proprietors.

[42]     The following meeting of the same committees was held on 4 August 2008. The minutes record that all proprietors would be written to and advised that the work offered by Lund to treat the balconies had been accepted and all apartments in Stages

2 and 3 were likely to be affected by water entry into their third bedrooms until this work was complete.  It is also noted that the water entry around the stone chimneys was continuing, but Lund was expected to reseal these areas soon.

Discussion of the pleading against Lund

[43]     I am satisfied that the pleading against Lund as it stands does not disclose a cause of action arising within the limitation period, for the following reasons.

[44]     Paragraph 44 of the first consolidated statement of claim dated 9 March 2015 is in the following terms:

In performing its obligations and/or undertaking the work described above C Lund owed the plaintiffs a duty to exercise reasonable skill and care in constructing the dwelling, and work associated with and/or ancillary to that role, up until the CCC was issued, including, inter alia:

(a)   Overseeing the construction and project management aspects;

(b)   Having   responsibility   for   the   management   and   control   of   the construction;

(c)   Supervision of subcontractors; (d)   Compliance and quality control;

(e)   Selection and proper installation of materials, fixtures, and fittings; (f) Ensuring the work was carried out in accordance with:

(i)     The building consents;

(ii)     The consented plans and specifications;

(iii)    The manufacturers’ specifications and instructions;

(iv)    Acceptable building standards;

(v) The requirements of the Building Act 2004, and the Building

Code, in particular, the performance requirements of B2 and E2.

(g)   In  all  respects  constructing  the  Terrace  Downs  Apartments  to  the standards  to  be  expected  of  a  reasonably  prudent  head  contractor, builder and project manager.

[45]     It will be noted that it is pleaded that the duty was owed up until the code compliance certificate was issued.  There were three such certificates, and they were issued on 2 September 2004, for Stage 2, and on 10 May 2005 and 18 July 2005, for two parts of the buildings within Stage 3.

[46]     In paragraph 45, breaches of this duty of care are pleaded, thus:

In breach of its duties of care C Lund:

(a)     Constructed the Terrace Downs Apartments and/or project managed and/or supervised the subcontractors and other trades in such a way that the Terrace Downs Apartments were built with the defects and failed to comply with the Building Code; and

(b)     Failed to discharge the duty summarised in paragraph 44 above.

It was agreed by counsel that the reference in (b) to paragraph 42 should be a reference to paragraph 44 and I proceed on that basis.

[47]     The breaches specifically refer to the construction of the apartments and/or project management and/or supervision of sub-contractors and other trades, at the time the apartments were built with the defects identified, and otherwise and in compliance with the building code.  This work was all carried out up to and in 2005. Thus both the duty of care, and breaches of it, are said to have occurred during the construction phase which ended in 2005.

[48]     After a reference to the prevention works, which I will mention shortly, the plaintiffs plead that as a result of Lund’s breaches of its duty of care, they have suffered and/or will suffer losses to the common property and to their apartments (paragraphs 47 and 48).  In these paragraphs, cross-reference is made to the losses pleaded in paragraphs 33 to 35.  Neither within these paragraphs, nor in the pleading of the cause of action against Lund, is there any pleading that defects in the buildings caused by the alleged breaches of the duty of care were latent and were unknown to the plaintiffs until any date later than the dates on which they are said to have occurred, that is, at the time of building.  Therefore on its face there is a pleading of

a breach of a duty said to exist up to a date in 2005, by actions which took place at the same time, and damage which was incurred at the same time, and which is therefore, ostensibly, outside the limitation period.

[49]     If that were the end of the matter, the proceeding would be struck out.

[50]     A further paragraph pleaded under the heading of the cause of action by the plaintiffs against Lund refers to the prevention works, to which I have referred. These are the works that Lund is said to have carried out between 2009 and 2011, and therefore within the limitation period. The pleading is in these terms:

[46]  As builder, head contractor and/or project manager C Lund also undertook and/or was responsible for the prevention works.   The prevention works:

(a)     Were undertaken without obtaining a building consent;

(b)     Were constructed and/or project managed in such a way so as to fail to comply with the Building Code and the Act; and/or

(c)     C Lund failed to discharge the duty summarised in paragraph 44 above.

Again, the reference to paragraph 42 is agreed to be a reference to paragraph 44, and again I proceed on that basis.

[51]     This work is said to have been undertaken in breach of Lund’s duty of care. This is problematic, first because the duty of care is only said to have existed up until the issue of the code compliance certificates, as I have said, yet this work was undertaken some years later.  Perhaps this problem can be overcome by amending the dates at which the duty of care is said to have been owed, but that leaves a second problem, which is that the losses said to have been suffered as a result of this breach of duty are the same losses as are said to have been suffered as a result of the breaches of duty up until 2005.   In other words, it is not said that the prevention works have caused any separate damage, and therefore loss.  There is no separate cause of action based on the preventtion works.

[52]     As well, as can be seen from paragraph 44, the duty on the part of Lund is

said to have been owed “in performing its obligations and/or undertaking the work

described above”.   The pleadings relating to the prevention work precede this pleading, so the prevention work is presumably part of “the work described above”. However, later in the same sentence in paragraph 44, the duty is prescribed by the dates on which the code compliance certificates were issued, so the reference to “the work described above” cannot apply to the prevention works.

[53]     It follows, therefore, that the pleadings in relation to the prevention works do not disclose any cause of action within six years of the issue of this proceeding.

[54]     The  plaintiffs  do  not  plead  a  continuing  duty  on  the  part  of  Lund commencing when they started construction work and continuing to the present time, or for that matter to any date within the limitation period in this case.   To the contrary, they plead that the duty existed up to the time of issue of the code compliance certificates.  It is arguable that where the exact point at which an act or omission  leading  to  damages  cannot  be  discerned,  a  duty to  remedy a  fault  in

building work may continue.  In Johnson v Watson, Tipping J said:12

Indeed in a case like the present where the Johnsons could not be expected to point to an exact day on which the act or omission took place, there may be an  argument  for  saying  that  where  original  building  work  is  faulty  the builder is under a continuing duty to remedy it right through until the date of completion, and there is a continuing “omission” until that date.   On that basis the Johnsons would have had until December 2000 within which to sue without falling foul of s 91(2) [of the Building Act 1991].

[55]     Based on that observation the plaintiffs argue that as Lund has known of the defects in its initial construction work throughout the period since that work was undertaken, it continues to owe a duty to them in respect of its work.  However, the passage quoted is not authority for this proposition, because the continuing duty referred to is only said to exist until the date of completion, which in that case was December 2000 – the date on which the building was substantially complete and possession was given and taken.  In the present case, that occurred in 2008.  Johnson v Watson is not authority for a proposition that the duty continues until the defective works  are  remedied  by  the  builder,  nor  does  that  proposition  have  any  other

foundation.   If that were the case, there would be no limitation period for a claim

12     Johnson v Watson [2003] 1 NZLR 626 at [27].

against a builder who fails to remedy defects which occurred in initial construction. That, of course, is not the position.

[56]     For these reasons I conclude that the pleadings against Lund do not disclose a cause of action which is not statute-barred.

Can the pleading be cured by amendment?

[57]     As a general rule if a pleading which does not disclose a reasonably arguable cause of action, as I have found to be the position here, can be cured by amendment, an opportunity for amendment should be given rather than an order made striking the pleading out.13     In this case the plaintiffs did not propose an amendment to the statement of claim, in the event the Court should find that on the pleading as it stands the cause of action against Lund is statute-barred.

[58]     The key plank of the response to this application is that none of the plaintiffs, either the body corporates or the respective apartment owners, had sufficient knowledge of the state of the buildings before July 2008 for the causes of action to have accrued, in terms of the principle enunciated in Hamlin.  It was for this reason that the evidence that I have summarised in paragraphs [22] to [42] of this judgment was introduced.   A review of that evidence amply demonstrates how skeletal the evidentiary basis for this key proposition is.  With the exception of Mr Idour, none of the plaintiffs gives evidence.  Mr Idour’s evidence on his personal knowledge of the position is summarised above.  It establishes that between 2006 and 2009 he had the same knowledge of the defects in the buildings as the committees  of the body corporates did, and it seems that whatever knowledge the committee members had, it may not have been disseminated to apartment owners.   However, I cannot draw any firmer conclusion from Mr Idour’s evidence on whether any of the other plaintiffs actually had the knowledge Mr Idour and the body corporate committees had.

[59]     The review of the documents which I have made shows that by August 2008 water leaks were continuing, and that despite remedial work of various kinds by

Lund, no-one seems to have come to grips with exactly what was causing this

13     Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC).

position.   However, the body corporate committees were content with what Lund was doing, and with its intended work on the balconies, and were confident it would remedy the problem without expense to the owners.

[60]     It is certainly arguable, in my view, that at that point the defects in the buildings  were  so  obvious  “that  any  reasonable  home  owner  would  call  in  an expert”, as the Privy Council put it in Hamlin.14    The defects had existed for three years.  Ongoing attempts to remedy them had failed.  Arguably, the time had come by August 2008 when an independent assessment of the properties should have been undertaken by a suitably qualified expert, followed by analysis of what should be

done about the position, and steps taken accordingly.   If that is the position as at August 2008, that is the time when, in terms of Hamlin, the cause of action accrued. However, it is entirely possible that on a much more detailed examination of the facts, at trial, it will be established that this point was reached before August 2008. Equally it may be shown that it was not, in fact, reached at that point.  In my view, the facts disclosed on this application do not enable the Court to reach the degree of certainty on this point which would be required for the claim against Lund to be struck out.  In short, I am not certain it cannot succeed.  But it cannot succeed on the pleading as it stands.

[61]     If the claim against Lund is not to be struck out, the plaintiffs must plead with precision the facts on which each of the first to fourth plaintiffs relies to establish that their respective causes of action accrued within six years of their respective claims being filed.   Although counsel did not argue the question of whether an opportunity should be given for the plaintiffs to replead their cases, the law clearly provides that an opportunity should be given to cure a defect if that is possible. Moreover, evidence was led on the issue of when the cause of action accrued which would not have been necessary or relevant if this application was intended to be decided solely on the pleading as it stands.  Rather, that evidence canvassed the very point in issue in relation to curing the identified defect: when did the cause of action

accrue?

14     Invercargill City Council v Hamlin, above n 6, at 526.

[62]     I do not think it desirable to lay down specific directions on how the claim should be repleaded; this is for the plaintiffs.   However, it will be plain from the findings in this judgment that it will be necessary for each of the first to fourth plaintiffs to specifically plead when they say they had knowledge of the damage they say they have suffered, to the extent identified in Hamlin.  It also seems to me that Lund is entitled to sufficient particulars of this to show how each of the first to fourth plaintiffs is said to have derived that knowledge at that time, but not before, because, as counsel argued on this application, there are issues of agency and imputation of knowledge.   For example, Mr Idour had certain knowledge as a result of being in attendance at some of the joint meetings of the body corporate committees, but it is not clear on the pleadings whether the plaintiffs say that despite what was being reported to their committees, each of the individual plaintiffs was in the dark about the position.   Further, it is unclear whether they say that the body corporates themselves did not have the knowledge of the members of the body corporate committees, or in the case of the Stage 3 body corporate, its chairman, Mr Idour.

[63]     This is complicated further by the lack of clarity in the current pleading on whether some of the alleged defects relate to common property, or the principal apartments, or both.  This may be relevant, because the body corporate can sue for damage  to  the  common  property  for  the  losses  suffered  by the  owners  of  that common  property,  but  that  principle  does  not  apply  to  damage  to  principal apartments.     The  knowledge  of  the  body  corporate  committees  may  be  the knowledge of the body corporate, but not of the individual apartment owners.

[64]     It has not been necessary in this judgment to reach a concluded view in relation to the issues concerning agency which were argued, because of the view I have reached in relation to the pleading as it stands, and the time or times at which the causes of action may arguably have accrued.15   As an opportunity is being given to the plaintiffs to replead their case, and as a result the case may proceed to trial, it is preferable for those issues to be deferred.  Plainly though, the plaintiffs need to

review their claim against Lund in light of those further identified issues.

15 [56] and [60] above.

Outcome

[65]     The application to strike out should be adjourned to give the plaintiffs an opportunity to amend their pleading.

[66]     I therefore order:

(a)     The application is adjourned to the List on 20 August 2015. (b)          If the plaintiffs elect to amend their pleading against Lund:

(i)     they are to file and  serve an  amended  statement of claim by

4 August 2015; and

(ii)    Lund is to file and serve a memorandum by 18 August advising the Court whether it wishes to proceed with its application to strike out, or whether it can be dismissed; and

(iii)    procedural directions will be made at the call on 20 August.

(c)     If the plaintiffs do not file an amended statement of claim by 5 pm on

4 August,  their  claim  against  Lund  will  be  struck  out  at  that  time without further order, and the call on 20 August 2015 will be vacated.

(d)Costs are reserved  for  the time being.    An award of costs will be considered once the application is finally determined.

J G Matthews

Associate Judge

Solicitors:

Tavendale & Partners, Christchurch. Grimshaw & Co, Wellington.