| IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE |
| CIV-2014-404-000716 [2024] NZHC 32 |
| IN THE MATTER OF | The GORE STREET APARTMENTS also known as “HARBOUR OAKS” |
| BETWEEN | BODY CORPORATE 366567 First Plaintiff AMER LIMITED & ORS |
| AND | AUCKLAND COUNCIL First Defendant CLARK BROWN ARCHITECTS LIMITED (see over for further Defendants) |
| Hearing: | 2-6; 9-13; 16-17; 23-27 & 30-31 May 2022 1-3; 6-10; 13-17; 20-21; 23-24 & 27-30 June 2022 |
Appearances: | G M Illingworth KC, D Powell, G Lewis, M Greenhalgh, S Zellman and N Prachankhet for the Plaintiffs C M Meechan KC, S Price, A Lloyd, C Fairnie, M Ferrier, I Kim, E Powell and G Duthie for the First Defendant Q Davies and E-J Tucker for the Fourth Defendant |
Judgment: | 30 January 2024 |
Reissued: 26 March 2024
JUDGMENT OF WALKER J
This judgment was delivered by me on 30 January 2024 at 11.30 am Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
BODY CORPORATE 366567 v AUCKLAND COUNCIL [2024] NZHC 32 [30 January 2024]
PM DEVELOPMENTS LIMITED
(Struck off) Third Defendant
EQUUS INDUSTRIES LIMITED
Fourth DefendantMAPEI NEW ZEALAND LIMITED
(In liquidation) Fifth Defendant
AQUASTOP LIMITED
Sixth DefendantCHARLES NORAGER & SON LIMITED
(In Liquidation) Seventh Defendant
HOLMES FIRE & SAFETY LIMITED
Eighth DefendantFIREPEL KIDD LIMITED
Ninth DefendantMACDONALD BARNETT PARTNERS LIMITED
(Discontinued) Tenth Defendant
HOLMES STRUCTURES LIMITED
(Discontinued) Eleventh Defendant
CHENERY CONTRACTING LIMITED
Twelfth Defendant
ZURICH AUSTRALIAN INSURANCE LIMITED
(Claim discontinued)
BROOKFIELD MULTIPLEX CONSTRUCTIONS (NZ) LIMITED
(In Liquidation) First Third Party
DE BOER WATERPROOFING SOLUTIONS NV
(Discontinued) Second Third Party
SUMMARY OF FINDINGS
1.This summary is intended only as an aid to readers and is not part of the formal judgment.
Preliminary
1.The Body Corporate has standing to claim the reasonable cost of repair in respect of claimed defects 1 to 12. The second plaintiffs are the proper plaintiffs in respect of claimed defect 13 which is limited to unit property and does not otherwise fall within s 138 of the Unit Titles Act 2010.
1.Subject to [2] I find that second plaintiff assignees are entitled to claim the cost of repair for which they will be liable and for which the previous owners from whom they purchased will not be liable.
Claimed fire defects
1.In relation to claimed defect 1, I find in favour of the plaintiffs against Auckland Council and Holmes Fire & Safety Limited (“Holmes”) jointly and severally in respect of the unprotected steel elements beams B4 and B5 only. I dismiss the claim against Clark Brown Architects Limited (in liquidation) (“Clark Brown”).
1.In relation to claimed defects 2 and 3, I find against the plaintiffs on the basis that they have not established that these are actionable defects for which there is any liability.
1.In relation to claimed defect 7, I find in favour of the plaintiffs against Auckland Council and Holmes jointly and severally. I find for the plaintiffs against Chenery Contracting Limited (“Chenery”) only to the extent of the firestopping which it installed (and will hear further submissions as to that extent).
Claimed structural defects
1.In relation to claimed defect 4, I find that Auckland Council breached its duty of care but the claim is time-barred under s 393 of the Building Act 2004.
1.In relation to claimed defect 5, I find that the plaintiffs have not established that it is an actionable structural defect for which there is any liability. (Refer claimed defect 8).
1.In relation to claimed defect 6, I find that the absence of grouting of bar sleeves on levels 19 and 22 only is an actionable defect but Auckland Council did not breach any duty of care. I therefore find against the plaintiffs in relation to claimed defect 6. I further find that this claim is time-barred under s 393 of the Building Act 2004.
Claimed external moisture defects
1.In relation to claimed defect 8, I find in favour of the plaintiffs against Auckland Council, Clark Brown and Mapei New Zealand Limited (in liquidation) (“Mapei”) jointly and severally to the extent of and limited to the membrane weatherproofing aspect on:
a.corner balconies;
a.narrow balconies with beam to column junctions where there is no waterproofing membrane in the beam to column gaps.
a.In relation to claimed defect 8, I further find in favour of the plaintiffs against Mapei in respect of the waterproofing on the level 38 deck.
a.In relation to claimed defect 9, I find that the plaintiffs have not established that it is an actionable defect so Auckland Council is not answerable for it.
a.In relation to claimed defect 10, I:
b.find in favour of the plaintiffs against Auckland Council and Clark Brown jointly and severally;
a.dismiss the plaintiffs’ claim against Equus Industries Limited (“Equus”) and Mapei;
a.dismiss Mapei’s crossclaim against Equus and the Council’s crossclaim against Equus.
a.In relation to claimed defect 11, I find in favour of the plaintiffs against Auckland Council and Clark Brown jointly and severally.
a.In relation to claimed defect 11 I find against the plaintiffs in respect of their claim against Equus and against Auckland Council’s crossclaim against Equus.
Internal moisture defects
a.In relation to claimed defect 12:
a.I find that Auckland Council and Clark Brown breached their respective duties of care in respect of the bath edge detail but the claim is time-barred under s 4 of the Limitation Act 1950.
a.The non-conforming shower screen issue is not an actionable defect.
a.In relation to claimed defect 13, I find in favour of the plaintiffs:
a.against Auckland Council and Mapei jointly and severally in respect of the lack of membrane upstands at the door architraves; and
a.against Auckland Council in respect of floors without a fall to the waste in those bathrooms with a shower over the bath and in all bathrooms where the floor falls to the door threshold.
b.In relation to claimed defect 13, I find against the plaintiffs in respect of the height of the membrane upstands.
Affirmative defences
a.I dismiss the limitation defence pleaded under s 4 of the Limitation Act 1950 in relation to claimed defect 10.
a.I uphold the limitation defence pleaded under s 4 of the Limitation Act 1950 in respect of claimed defect 12 and find that claimed defect 12 is time-barred.
a.I dismiss the limitation defence pleaded under s 393 of the Building Act 2004 in respect of claimed defects 1, 2 and 9.
a.I uphold the limitation defence pleaded under s 393 of the Building Act 2004 in respect of claimed defects 3, 4 and 6.
a.The claims against Equus Industries Limited or Holmes Fire & Safety are not time-barred.
a.Other than the cross claims expressly dealt with, I reserve for further submission any extant cross claim.
Remediation and quantum
a.The plaintiffs approached the question of remediation and reasonable cost of repair on a global project basis rather than a defect by defect remediation basis. The Court’s findings on liability mean that approach is inutile. The remedial costs claim requires adjustment to reflect the partial success only and consequent impact on the scope of interrelated repair work for which liability is found. This requires further submissions from the parties.
a.I make findings on the following contested aspects of remediation and quantum:
b.The plaintiffs are entitled to rely on, as admissible hearsay, the evidence of the tender submitted by the contractor.
a.A contingency of 10 percent in the assessment of overall cost is appropriate.
a.Prolongation is a separate consideration but care must be taken to avoid “double-dipping”. The proved defects and their nature will inform the appropriate prolongation factor on which further submissions are required.
a.An ANARP (as near as reasonably practicable) approach to remediation of claimed defect 7 is rejected.
a.A professional fee sum of 15 percent on the as yet to be determined remediation cost of repair in respect of proven defects is appropriate.
a.The hotel lost profit claims by Harbour Residences is dismissed.
a.The three second plaintiffs who claimed compensation for loss suffered on the sale of their unit succeed in their claimed head of damages.
a.The second plaintiffs who are natural persons are entitled to general damages in accordance with the plaintiffs’ closing submissions, according to whether they are joint or sole owner occupiers or absentee owners. Second plaintiff assignees are not entitled to general damages. Owners of more than one unit are only entitled to one award. GST is not payable in respect of general damages.
a.No betterment is established in respect of the replacement of the joinery at the podium and adjacent to the balconies.
a.There is some betterment in relation to the level 3 canopy roof in respect of some but not all aspects of the proposed remediation. The
level of betterment is to be determined after hearing further from the parties.
a.Any damages payable to the Body Corporate are on a GST exclusive basis.
a.Any damages payable to the second plaintiffs in respect of claimed defect 13 and who use their apartment for short stay accommodation is net of GST. Damages payable to other second plaintiffs are on a GST inclusive basis save in respect of general damages.
a.The affirmative defence of failure to mitigate in relation to claimed defect 10 fails.
a.Some allowance for contributory negligence of purchasers of units after the March 2010 AGM minutes will be determined after hearing further from the parties for the reasons identified in the judgment. Provisional indications are given in the judgment in Part VI.
PART I — PRELIMINARY MATTERS [1]
Scheme of this judgment [6]
Parties [10]
Plaintiffs [10]
Defendants [14]
Gore Street [28]
Construction timeline [36]
Building consents [43]
Construction [54]
Inspections [56]
Code compliance certificates [59]
Brief history of the claims and proceedings [60]
The claimed defects [64]
Observations on the evidence [65]
What is a defect? [74]
The statutory framework [76]
Deemed compliance and the Building Acts [80]
Standard of care [84]
Consent stage [95]
Inspection stage [97]
Role of producer statements [103]
Who is the right plaintiff? [108]
Do the claimed defects fall within s 138(1)(d) of the 2010 Act? [128]
Conclusion on standing [131]
Is the Body Corporate owed a duty of care in relation to Gore Street? [135] Does s 54 of the 2010 Act entitle the Body Corporate to claim in respect of the common property in its own right, on an unimpaired basis, rather than as representative of the Owners? [141]
What is the impact of assignments? [142]
PART II — FIRE DEFECTS [164]
Fire safety clauses of Building Code [166]
Experts [177]
Context [179]
Acceptable Solution and Alternative Solutions in fire safety [184]
Penetrations [196]
What is the problem? [202]
Who is said to be responsible? [203]
The respective cases in a nutshell [209]
Steelwork and fire separation walls [209]
Staircase welds [215]
Penetrations [216]
Council’s affirmative defences [218]
Claim against Holmes [219]
Claim against Clark Brown [221]
Claim against Chenery [222]
What is the state of affairs? [223]
Load-bearing steel-framed elements and the heads of fire separation walls [223]
Welding issues [235]
Fire stopping [236]
How did it come about? [240]
A new alternative solution design — March 2005 [261]
An actionable breach — does the physical condition of the steel beams in the Core and fire separation walls breach the Building Code? [277]
Future performance claim [277]
Expert agreement [282]
Claimed defects 1 and 2 — reduction in performance? [289] Does any reduced performance result in breach of the Building Code? [297] Sub-issues in relation to claimed defects 1 and 2 [299] Whether the “whole of building” performance-based approach undertaken by the plaintiffs is wrong [300]
The Hyland/Olsson modelling evidence [305]
Challenge to Dr Hyland’s modelling [335] Whether the inputs to Dr Hyland’s modelling from analyses by Mr Olsson are unrealistic or unduly onerous [336]
Olsson/FRG fire engineering advice reports [341] Sensitivity of the fire inputs [358]
Is use of C/VM2 appropriate? [362]
Conclusions as to Mr Olsson’s fire analysis [369]
Structural modelling [388]
Dr Abu’s own modelling [401]
What is the significance of Mr Feeney’s analysis of the “as-built” construction?[415]
Conclusion in relation to claimed defects 1 and 2 — have the plaintiffs established loss/damage by showing that the construction does not comply with the Building Code? [418]
Claimed defect 3 — defective welds leading to breach of the Building Code? [425] Claimed defect 7 — do the defective penetrations breach the Building Code? [428] Conclusion on penetrations and the Building Code [449]
Did the Council breach its duty of care in the issue of building consent? [452]
Was the Council negligent at the inspection/CCC stage? [469]
Claimed defect 1 — fire protection of steel beams [469]
Claimed defect 2 — heads of fire separation walls [481] Claimed defect 3 – inadequate steel framed connections within Core [487] Claimed defect 7 — inspection and issue of CCC [492]
Gaps below the doors [507]
Claim against Holmes — claimed defects 1 and 2 [510]
Holmes’ affirmative defences [520]
Conclusion as to liability of Holmes [524]
Claim against Chenery — claimed defect 7 [526]
Claim against Clark Brown – claimed defects 1, 2, 3 and 7 [528]
Summary of conclusions in relation to claimed fire defects and the Council’s
liability [537]
PART III – EARTHQUAKE DEFECTS [541]
Context [541]
Pleaded defects [545]
What is the problem? [548]
Who is said to be responsible? [549]
The respective cases in a nutshell [553]
Scissor stairs [553]
Clearances between solid balustrades and adjacent columns [556] Inadequate or defective grouting of bar sleeves and tendon ducts [564] Other defences [566]
What is the state of affairs? [567]
Scissor stairs [567]
Clearances between solid balustrades and adjacent columns [571]
Inadequate or defective grouting of bar sleeves and tendon ducts [581]
Are the claimed defects actionable defects? [587]
Scissor stairs [587]
Integrity of the fire separation wall between the stairs [617]
Clearances between solid balustrades and adjacent columns [624] Inadequate or defective grouting of bar sleeves and tendon ducts [625] The investigative method — bar sleeves [631]
Tendon Ducts [647]
How did the relevant state of affairs come about and is the Council responsible?
[658]
Scissor stairs [658]
Consent 301 (piling and foundation) [660]
Consent 302 (structural) [663]Consent 303 (architectural and building services) [667]
Consent 304 (post-tensioned floor) [668]
Consent 305 [670]
Consent 306 [678]
Consent 307 [680]
Discussion [681]
Balustrade to column gaps [696]Grouting of bar sleeves and tendon ducts [701] Does the Council have responsibility to determine the level of monitoring? [713] Was construction monitoring at the CM3 level inadequate for the Gore Street project? [718]
Would observation at CM4 level have made any difference? [728]
What was the actual level of monitoring in any event? [733] Should the Council have issued the CCC when the Buller George PS4 was only to CM3 level? [734]
Summary of conclusions on claimed seismic defects 4, 5 and 6 subject to
affirmative defences [738]
PART IV - EXTERNAL MOISTURE DEFECTS [740]
Defects 8 and 9 — What is the problem? [745]
Who is said to be responsible? [759]
Respective cases in a nutshell [764]
What is the state of affairs? [772]
Narrow balconies [772]
Corner balconies [776]
Level 1 and 2 terrace decks [778]
Level 38 deck [781]
What do the experts agree? [784]
Beam to column construction joints – claimed defect 9 [787]
Are claimed defects 8 and 9 actionable defects and if so, in respect of which balconies? [791]
Preliminary matters — durability provisions of the Building Code [793]
Corner balconies and evidence of damage [801]
What role does Mapetex have? [806]
Cracks in membrane [812]
The chamfered edge [821]
Narrow balconies [831]
Level 1 and 2 terrace decks [841]
Level 38 deck [845]
Beam to column junction — claimed defect 9 [849]
How did the state of affairs come about? [863]
The relevant consents and consented designs [863]
The changed design to the beam to column joint [870]
Is the Council responsible for the relevant state of affairs? [873] Should the Council have consented the use of Mapei Mapelastic membrane? [877] Did the Council’s omission at the consent stage have causal potency? [889] Inspection and code compliance stages [898]
Claimed defect 9 – Council responsibility [931]
Claim against Mapei [938]
Claim against Clark Brown [949]
Claimed defects 10 and 11 [953]
What is the problem? [960]
What is the state of affairs? [964]
Who is said to be responsible? [967]
Respective cases in a nutshell [976]
Is there an actionable defect or defects? [983]
How did the relevant state of affairs come about and is the Council responsible?
[1004]
Whether the relevant consented designs were issued under the 1991 Act or 2004
Act [1004]Was there sufficient detail in the plans? [1007] Was the Council required to inspect the installation of the membrane? [1025] Did the Council’s failure to inspect have any actionable consequence? [1026]
Is Equus responsible? [1034]
Claim against Equus [1037]
Issues for determination [1045]
What was Equus’ involvement? [1046]
Are the sub-defects claimed against Equus actionable defects? [1049] What did the Equus Producer Statements cover and what was the scope of Equus’ duty? [1050]
Podium Statement [1055]
Is Equus responsible for the junction at the pool gate? [1078] Whether any lack of maintenance on the part of the plaintiffs may break causation, and amount to failure to mitigate and/or contributory negligence [1080]
Was the Council negligent at the CCC stage? [1083]
Council’s crossclaim against Equus [1086]
Claim against Mapei [1087]
Claim against Clark Brown [1091]
Is claimed defect 10 time barred? [1096]
Summary in relation to claimed defect 10 [1097]
Claimed defect 11 – Level 3 Canopy Roof [1101]
What is the problem? [1105]
Who is said to be responsible? [1111]
The respective cases in a nutshell [1115]
What is the state of affairs? [1121]
Is there an actionable defect? [1123]
How did the relevant state of affairs come about and is the Council responsible?
[1126]
Claim against Equus [1136]
Consequences of Council breach [1153]
Claim against Clark Brown in respect of claimed defect 11 [1155]
Other [1158]
PART V — INTERNAL MOISTURE DEFECTS [1159]
Context and framework [1161]
Clause E3 of the Building Code [1162]
Floor wastes [1170]
Requirement for membranes [1176]
An alternative solution? [1181]
What is the problem? [1182]
Who is said to be responsible? [1185]
Claim against Clark Brown [1188]
Claim against Mapei [1190]
What is the state of affairs? [1191]
Respective cases in a nutshell [1195]
How did the state of affairs come about? [1203]
Bath edge detail [1204]
Shower screen on bath [1206]
Fall to floor wastes [1207]
Membrane upstands [1211]
Conditions in consent [1213]
The specifications [1219]
What else do the experts agree on? [1228]
Are claimed defects 12 and 13 actionable defects — compliance with the
Building Code? [1231]
Floor to waste [1235]
Did the Council breach its duty of care in issuing the building consent? [1239]
Was the Council negligent at the inspection or CCC stage? [1245]
Inspection / CCC stage [1245]
Conclusion in relation to claimed defects 12 and 13 and Council liability [1260]
Affirmative limitation defence [1265]
Claim against Clark Brown [1266]
Claim against Mapei [1267]
PART VI – AFFIRMATIVE DEFENCES [1268]
Is claimed defect 10 time barred under s 4 of the Limitation Act 1950? [1268] Is claimed defect 12 time barred under s 4 of the Limitation Act 1950? [1284] Longstop limitation [1295]
Introduction [1295]
Summary of the contentions [1302]
Issue one — what is the meaning of s 393(2)? [1306]
Survey of existing cases and history of the provision [1312]
Discussion [1333]
A brief pleading history [1341]
What constitutes a fresh cause of action — legal principles [1349]Analysis of defects [1365]
Defects 1 and 2 [1369]
Defect 3 [1374]
Defect 4 [1376]
Defect 6 [1378]
Defect 9 [1379]
Defect 12 [1382]
Equus’ reliance on the longstop defence [1384]
Holmes and the longstop defence [1389]
Affirmative defence of contributory negligence/voluntary assumption of risk
[1391]
Evidence of second plaintiffs [1398]
Legal principles relating to contributory negligence [1401]Whether a failure to obtain legal advice before signing an agreement for sale and purchase amounts to contributory negligence [1416] Whether a failure to obtain Body Corporate minutes amounts to contributory negligence [1418]
Is any failure to obtain such minutes causative of loss and, if so, from which point in time? [1424]
AGM minutes dated 25 June 2009 [1432]
AGM minutes dated 17 March 2010 [1434]
AGM minutes dated 23 March 2011 [1439]
AGM minutes dated 7 December 2011 [1442]
AGM minutes dated 7 June 2012 [1444]AGM minutes dated 31 January 2013 [1445] What is the appropriate range of deductions for the 160 unit owners for contributory negligence, if any? [1452]
Alleged failure to mitigate [1453]
PART VII — REMEDIATION AND QUANTUM [1460]
Measure of loss claimed [1460]
Consequences of a global approach to remedial scope [1462]
What can be addressed in this judgment? [1464]
General principles [1465]Remediation design and tender process [1468]
Anticipated work programme [1476]
Costings [1478]
Is the Brosnan tender admissible for the purpose relied on by the plaintiffs? [1492]
Contingency [1498]
Prolongation [1499]
Impact of construction programme and cost escalation [1502]
Section 112 of the 2004 Act — is the principle of “as near as reasonably
practicable or ANARP” an appropriate approach? [1503]
Should the 272 fire doors be remediated by replacement or by retrofitting seals?[1517]
Remedial scope for defect 10 [1519]
What is the contest between experts? [1523]
Conclusions as to the podium remediation [1531]
Defect 11 [1538]
What is required to address this defect? [1538]
Conclusions as to defect 11 remediation [1542]
Remediation quantum — defects 10 and 11 [1543]
Costing the repair of defect 11 [1549]
Professional fees [1552]
Consequential losses [1553]
Loss of rental and alternative accommodation costs, moving and storage [1556]
Construction noise [1559]
Hotel lost profits [1580]
Are hotel lost profits a loss recognised at law in these circumstances? [1588] Is the loss claimed too remote? [1595]
Are hotel profits foreseeable if they relate to an unlawful hotel operation?[1600]
Is there cogent and reliable evidence on which claimed loss can be calculated?
[1601]
Diminution in value of units [1606]
Are the second plaintiffs entitled to general damages? [1609]
Has any betterment been established? [1618] Are any defendants entitled to contribution from any other defendant? [1630] Is Goods and Services Tax (GST) payable? [1631]
SUMMARY OF DETERMINED CLAIMS [1640]
PART I — PRELIMINARY MATTERS
a.This colossal case concerns a 40 level apartment building in Gore Street, Auckland Central. The building has undergone many name changes in its lifetime. In this judgment I refer to the building as “Gore Street”.1 It was constructed between June 2004 and September 2006. At the time of its construction it was the tallest residential building in New Zealand. The owners of units in Gore Street say that while they thought they were buying into a well-constructed building of solid concrete construction, it suffers in fact from extensive building defects. As a result, they have been confronted with never ending problems, potential health and safety risks and now face enormous costs to remediate the building.
a.The Body Corporate, unit owners (present and some past) and a hotel management company which manages a serviced accommodation business sue Auckland Council (“the Council”) and parties involved in its construction. They sue in negligence. They say the defendants must meet the cost of repairs along with their consequential losses. The total quantum of the claim has been revised many times. At closing the total quantum was just over $157 million with most of that sum comprising the anticipated cost of remedial works.2
a.The simplicity of the plaintiffs’ proposition belies the complexity of a case which commenced in 2014 and was finally heard eight years later over the course of a five month hearing. Over 55 experts provided evidence comprising thousands of pages of technical material. In addition, there are just over five thousand pages of notes of evidence. The experts included fire and structural engineers, quantity and building surveyors, acoustic engineers, software modelling experts, conveyancing and accounting experts. A palpable feature of this case, relative even to other building defect cases, is the breadth of divergence between the parties’ respective experts which persisted even after the experts caucused in a bid to reach common ground.
1The names by which this building has been known include “Harbour Oaks, “Harbour City Residences” and “Harbour City Oaks”.
2 That quantum does not include Goods and Services Tax, if payable.
a.There are 13 claimed defects, each pleaded at a high level of generality. These claimed defects are not limited to weathertightness issues but encompass alleged significant shortcomings in the fire safety and structural elements of the building. Broadly, the plaintiffs’ experts say:
a.If a significant fire develops in the tower of Gore Street there is likely to be damage to fire separation walls, rapid spread of fire and smoke and structural failures including in the staircases.
a.The structural elements including staircases, weld connections, post-tensioned floors and solid balustrades are not designed and constructed to perform as they should in earthquake events. If a significant earthquake does occur there is a risk of structural failures, harm to occupants and significant damage to property.
a.The claimed waterproofing failures are both external and internal, throughout Gore Street. The plaintiffs say:
a.The corner apartment balconies are leaking into units below and the narrow apartment balconies are leaking into the concrete structure.
a.The level 1 podium allows leaks into the concrete structure and carpark below and the level 3 canopy roof leaks at the junction with the balconies at the base of the tower causing decay damage to timber framing below.
a.In the bathrooms, water discharges from baths onto and behind wall linings causing mould and other damage. In addition, the bathrooms do not adequately contain water resulting in damage to bathroom door thresholds, and flooring and carpets outside the bathrooms.
Scheme of this judgment
a.In this introductory part I introduce the parties and their place in the proceedings. I also discuss the legal framework including an important gateway issue
as to which plaintiffs have standing to sue and the nature of the duties owed by a council as part of its regulatory function.
a.I then turn to the claimed defects which are grouped as follows:
a.Part II — fire defects.
a.Part III — earthquake defects.
a.Part IV — external moisture defects.
a.Part V — internal moisture defects.
a.The roadmap to dealing with the claimed defects generally proceeds in this way:
a.Introduction and context.
a.What is the alleged problem?
a.Who is said to be responsible?
a.Summary of respective cases in a nutshell.
a.What is the physical state of affairs?
a.How did the physical state of affairs come about?
a.Is the claimed defect actionable?
a.Did the Council breach its duty of care?
a.Did any other defendant breach its duty of care?
a.In Part VI I turn to the affirmative defences pleaded and finally remediation scope and quantum issues in Part VII.
Parties
Plaintiffs
a.The first plaintiff is the Body Corporate. It has a duty to carry out repairs under s 138 of the Unit Titles Act 2010. It has led this litigation on behalf of the second plaintiff owners, engaging remediation building consultants to investigate Gore Street and prepare remedial designs. It also engaged quantity surveyors to undertake a procurement and tender process for proposed remedial works for which the Council granted building consent in January 2021. A contractor is appointed and is ready to commence work on 6 months’ notice. The plaintiffs intend to proceed with remedial works as soon as funds permit. The Body Corporate has obtained the High Court’s approval for a remediation scheme under s 74 of the Unit Titles Act.
a.The second plaintiffs are the present or past owners of 400 units. They include owner occupiers, investors, the Auckland Sailor’s Home charitable trust, and a hotel management company. The investor owners mainly reside in New Zealand but some live overseas. The Owners served 621 briefs of evidence. In their briefs they record the purchase of their units, their GST status, a list of chattels and, in the case of natural owners, the distress and anxiety they have suffered as a result of the claimed building defects. By consent of the parties, a cohort of Owners gave evidence and were cross-examined in a parallel process before the Deputy Registrar of the High Court. Their evidence was audio-visually recorded for the benefit of the Court.
a.In addition to claiming damages representing the cost of remedial work, the Owners seek consequential loss damages (including alternative accommodation costs) and general damages to reflect the distress and inconvenience they have faced as a result of the claimed defects. The claim to general damages is $4.62 million. Additionally, the hotel management company which manages a pool of units on behalf of owners, claims anticipated loss of profits it says it will suffer during the planned remediation.
a.The Owners purchased their apartments at different times. This is relevant to the pleaded affirmative defences. Some purchased in the period between July 2009 and July 2011, at a time when few purchasers obtained Body Corporate minutes before
purchase. After June 2011 Body Corporate AGM minutes were generally given to purchasers with pre-contract disclosure statements.3 The plaintiffs say that it was only in 2013 that the minutes recorded anything of any significance. This is hotly contested by the Council. Owners who purchased after the court proceedings commenced bought with knowledge of the claimed defects. They took assignments of the vendor’s claims. The Council disputes the effect of these assignments.4
Defendants
a.With the exception of the Council, the defendants were all involved in the construction of Gore Street as designers, architects and engineers sub-contracted by the principal contractor, Multiplex Construction New Zealand Limited (“Multiplex”) or as suppliers of product to sub-contractors.
a.Multiplex is not a defendant in the proceeding.5 It went into liquidation before the proceeding was commenced. Claims against some of the defendants have been settled and/or discontinued for the same or other reasons.6 By the time of trial three defendant parties actively defended the claims — the Council, Equus Industries Limited (“Equus”) and MacDonald Barnett Partners Limited (“MacDonald Barnett”). The claim against MacDonald Barnett (and crossclaim by the Council) settled during trial.
a.The plaintiffs pressed claims against parties which filed a defence but did not actively defend the proceedings. This includes Holmes Fire & Safety Limited (“Holmes”), Mapei New Zealand Limited (in liquidation) (“Mapei”), Clark Brown Architects Limited (in liquidation) (“Clark Brown”) and Chenery Contracting Limited (“Chenery”). The plaintiffs seek judgment by way of formal proof against those inactive defendants. As statements of defence were filed, the relevant rule is r 10.7 of the High Court Rules 2016. The plaintiffs must prove the cause of action so far as the burden of proof lies on the plaintiffs.
3 This was required under s 146 of the Unit Titles At 2010.
4In closing, the second plaintiffs provided a 95 page unit Owner analysis setting out the dates of purchase and documents seen by the purchasers.
5 Multiplex became Brookfield Multiplex Constructions (NZ) Limited.
6The third and sixth defendants have been removed from the Companies Register. The claim against the seventh defendant was stayed upon liquidation on 31 July 2015. The claims against the ninth, 10th, 11th and 13th defendants were discontinued.
a.Due to the absence of many parties, particularly Multiplex, there are significant evidential gaps. Those gaps have consequences. For the most part, the factual narrative, and some assumptions underpinning expert opinion, required a retrospective piecing together of contemporaneous material. That material was far from complete given the passage of time but also because of an apparent lack of record keeping.
a.The plaintiffs sue the Council in negligence alleging a failure to exercise reasonable skill and care in performing its three regulatory functions — consenting, inspection and compliance — under the Building Act 1991 (“1991 Act”) and Building Act 2004 (“2004 Act”).7 The claim against the Council spans all claimed defects but not all stages of the regulatory process are in issue in respect of each claimed defect.
a.The Council accepts that it owed a duty of care to the second plaintiffs but denies that duty was breached in any respect. Save for that admission, it otherwise contests or puts the plaintiffs to proof on virtually all aspects of the claims. It does not seek to disprove the plaintiffs’ case because it says that is not the role of a defendant. It does not accept that each pleaded “defect” exists and that the physical state of affairs at Gore Street results in a building that does not comply with the Building Code. It challenges the ability of the Body Corporate to sue for the cost of repairs, the reasonableness of the proposed scope of repairs and the estimated cost to carry out repairs. It argues that many claims were not brought in time and are therefore time barred under legislation. Other affirmative defences such as contributory negligence and failure to mitigate loss are also raised.
a.The plaintiffs sue the architect, Clark Brown, for alleged negligent preparation of plans and specifications at the design stage in relation to six claimed defects. It sues Clark Brown for alleged negligence in the course of construction observation in relation to ten claimed defects. They claim the cost of remedial work, losses on sale (pro-rated), consequential losses (pro-rated), fees and general damages. Clark Brown filed a statement of defence in which it pleaded, among other things, a contractual limitation of liability.
7 Auckland Council is sued as successor to the liabilities of the Auckland City Council.
a.Equus is an importer and supplier of waterproofing products. It supplied torch-on membranes applied to the pool area/planter box on the level 1 podium and the level 3 canopy roof. It issued producer statements in relation to the installation of the membranes. The plaintiffs say that Equus undertook quality and assurance checks of the membrane installed by one of its approved applicators, Aquastop. The plaintiffs allege that Equus breached its duty of care by failing to identify the pool deck podium defects, issuing a producer statement in the terms it did and issuing producer statements for the level 3 canopy roof in light of the defective construction. The claims against Equus thus relate only to two claimed defects and their proposed remediation.
a.Equus accepts that it owed a duty of care to the plaintiffs but disputes the scope of that duty and any breach. It actively defended the claims against it and pleaded affirmative defences including limitation.
a.Chenery was engaged by Multiplex to undertake plumbing work including the fire sealing of penetrations. The claim against Chenery relates to one claimed defect only. Notwithstanding it faces one claim, the losses claimed against Chenery are in excess of $57 million.
a.Mapei manufactures and supplies waterproofing products. It supplied product for the Gore Street balconies, the main terrace on the level 1 podium and the bathroom and shower floors. It also reviewed the installation of these membranes. The plaintiffs say that Mapei’s breaches are causative of three claimed defects. They claim remediation costs of around $79 million in addition to consequential losses. Mapei is also in liquidation.8
a.The eighth defendant, Holmes, was the fire engineer engaged in relation to the design and construction of Gore Street. It was involved with the project between 2004 and 2006. Holmes ceased trading on 1 April 2012 and was removed from the Companies Register on 3 October 2014. It was restored in 2018. The plaintiffs claim that Holmes failed to exercise due skill and care in preparing the fire designs, carrying out construction inspection and when issuing ‘certification’ in letter form (the import of which is contested). They sue Holmes in respect of the claimed fire defects.
8 The Court granted leave to continue the claims against Mapei on 6 May 2022.
a.The plaintiffs reached a settlement with underwriters of an insurance policy held by Holmes. That did not however finally resolve the claims against Holmes. Holmes did not take any active role at trial although a principal of Holmes was called by the Council to give evidence and an expert fire engineer engaged by Holmes prior to that settlement also gave evidence on behalf of the Council. Crossclaims against Holmes were not pressed at trial.
a.The 13th defendant, Zurich Australian Limited, was granted leave to withdraw on the first day of trial after settling the claims and crossclaims by and against it and the crossclaims against its insured, Clark Brown. That did not resolve the plaintiffs’ claim against Clark Brown.
Gore Street
a.Gore Street is a 406 unit mixed residential and commercial building. An aerial photograph of the building identifies some of its key features. The building’s Core protrudes on its eastern face (being the lift/stair end of the Core) but does not protrude on the western elevation (the apartment end of the Core).
a.There are 393 apartments and 13 commercial units. The commercial units are on the ground floor. There is a gymnasium, pool, lounge (“the Sailor’s Lounge”) and podium on level 1. The Auckland Sailor’s Home charitable trust owns 43 apartments and the Sailor’s Lounge. A hotel management company owns one of the commercial units and manages about 85 apartments as part of a serviced accommodation business (“Hotel Pool”). The number of apartments in the Hotel Pool at any one time fluctuates.
b.The tower of Gore Street has a narrow rectangular aspect running from north to south. Along with the tower’s reinforced concrete central Core, there are parallel reinforced concrete shear walls at the northern and southern ends. The shear walls develop into reinforced concrete frames from level 15 upwards. The eastern and western faces are constructed of reinforced concrete frames which include columns with alternating slopes tied horizontally into the concrete floor beams. This construction, in conjunction with concrete balconies in alternating bays, creates a honeycomb type appearance to the exterior of the eastern and western elevations.
a.The concrete frame of the tower is commonly referred to as an “exoskeletal” structure, which means the structural beams and columns are also part of the weathertightness envelope of the building.
a.Within the Core of Gore Street there is one apartment on each level together with the two staircases and lifts. The two staircases are within one stairwell and intertwine so that each stair flight is above and below a stair flight from the other staircase.
a.The floor on each level of the Core comprises a concrete slab formed on proprietary galvanised steel decking supported by steel beams. The steel beams are connected by site welded steel cleats attached to steel embedded items in the concrete walls. The stairs are formed with a proprietary galvanised steel permanent formwork system called Stairform that is filled with concrete and reinforcing steel. The stairs have a common mid-height landing supported by two steel beams, two posts and the concrete wall.
a.On either side of the Core there are apartments supported by post-tensioned floor slabs. These floor slabs are supported in the middle by two rectangular reinforced concrete fin columns which run the full height of the building. At the perimeter of the building the floor slabs are supported by the northern and southern walls/frames, the reinforced concrete beams and columns on the eastern and western elevations and the concrete walls of the Core.
b.From street level to level 1 there is a podium structure which extends over the site and surrounds the tower on the southern, eastern and western elevations. The podium structure includes carparks, retail premises, a swimming pool, gymnasium and deck.
Construction timeline
a.In 2003 and early 2004 the developer, First City Trust (“First City”), engaged Clark Brown, Holmes and structural engineers, Buller George Engineers Ltd (“Buller George”) to produce plans and specifications for the construction of Gore Street.
a.In early 2004 First City engaged Multiplex to apply for building consents and build Gore Street. On 10 June 2004 First City entered into a formal contract with Multiplex for the design and construction.
a.On 2 August 2004 First City entered into a formal contract with Buller George by which Buller George was to provide structural design services, construction monitoring and provide producer statements (design and construction) in relation to Gore Street. First City novated Buller George’s contract to Multiplex.
a.On 14 December 2004 First City entered into a formal contract with Clark Brown whereby Clark Brown was to undertake design work, contract administration and site observations of Gore Street. First City novated Clark Brown’s contract to Multiplex.
a.In January 2005 First City entered into a contract with the structural engineers Holmes Consulting Group Ltd (Holmes Consulting) pursuant to which Holmes Consulting was to peer review the structural designs and calculations and provide a producer statement (peer review).9 First City novated Holmes Consulting’s contract to Multiplex.
9 I am told by counsel that Holmes Consulting has no relationship to Holmes Fire & Safety.
a.On 10 February 2005 First City entered into a contract with Holmes by which it was to prepare fire designs, a scope of works and fire safety reports and liaise with the territorial authority and peer reviewer during the consent process. First City novated Holmes’ contract to Multiplex.
a.Multiplex (or other parties contracted to Multiplex) engaged various parties including:
a.MacDonald Barnett as peer review fire engineers;
a.VSL Australia Pty Limited (“VSL”), post-tensioned floor design consultants, to assist Buller George with the post-tensioning strand design;
a.Post-Tensioning and Grouting Ltd (“PTG”) as the post-tension floor contractors;
a.Mapei as the suppliers of waterproofing systems for the bathrooms, balconies and podium;
a.Equus as supplier and reviewer of waterproofing systems for the podium and level 3 canopy roof;
a.Firepel Kidd Ltd (“Firepel”), as passive fire installation contractors; and
a.Chenery to provide plumbing and drainage services and fire sealing of all penetrations.
Building consents
a.In 2004/2005 Multiplex applied to the Council for building consents to construct Gore Street. The Council issued the following building consents:10
10 For convenience I refer to the consents by the last three numbers of the “BLD” number only.
a.Consent 301 — concerning the piling works, on 6 July 2004.
a.Consent 302 — concerning the foundations, structure and underslab services, on 11 October 2004.
a.Consent 303 — concerning the architectural and building services, on 15 March 2005.
a.Consent 304 — concerning the post-tensioned floor slabs to tower, on 24 December 2004.
a.Consents numbered 301 to 304 inclusive were issued under the 1991 Act. The relevant parts of the 2004 Act took effect on 31 March 2005. The transitional provisions in s 436 applied.
a.After 31 March 2005 Multiplex submitted updated structural and architectural designs to the Council. These were under cover of a letter with the subject line “applications to amend consents 302 and 303”. There is a factual dispute about the intention and effect of this letter and the status of the updated designs.
a.Updated drawings were submitted on 7 June and 26 August 2005. These were stamped with Consent 305. On 24 November 2005 the Council issued Consent 305 with the notation “Amendment – update of architectural drawings”.
a.On 14 October 2005 further updated drawings were submitted and stamped with Consent 306. On 12 December 2005 the Council issued Consent 306 relating to the addition of two floors and the reconfiguration of the plant room.
a.On 28 October 2005 further updated drawings were submitted and stamped with Consent 307. On 25 January 2006 the Council issued Consent 307 relating to the addition of “Winter Gardens” to the level 2 apartments.
a.On 25 November 2005 Multiplex submitted additional information to the Council.
b.In April 2006, the Council issued two further consents:
a.Consent 601 — concerning the addition of a new floor, steel fins to the north and south sides of Gore Street and changes to the level 1 toilet areas.
a.Consent 308 — concerning reconfiguration of level 38 from four apartments to one single penthouse.
a.The consents straddled the 1991 and 2004 Acts. Consents numbered 305 and onwards were issued under the 2004 Act. Section 436 of the 2004 Act provides that the issuing of Code Compliance Certificates (“CCC”) in respect of consents under the 1991 Act is to be treated as if the 2004 Act had not been passed.
a.There were disagreements about which building consent and which Act applies to each area of work. However, in closing, the plaintiffs submit that for present purposes it does not matter whether the allegedly defective work was undertaken pursuant to building consents issued under the 1991 or 2004 Acts.
a.On 28 September 2006, the engineer to the contract issued a practical completion certificate for the building work.
Construction
a.In the period from June 2004 until September 2006, Multiplex and sub-contractors constructed Gore Street in stages.
a.Various consultants and contractors provided producer statements in respect of their work including Buller George, MacDonald Barnett, VSL, Firepel Kidd, Equus and Chenery. Mapei provided performance warranties. On 29 August 2006 Holmes provided a form of “sign-off” letter to Multiplex.
Inspections
a.Between July 2004 and September 2006 various council officers inspected some but not all aspects of the construction. Conditions in various consents stipulated that inspection was to be carried out by a third party. For example, Condition 35 of Consent 303:
The installations of the cladding systems are to be inspected by the System manufacturer or other suitably qualified agent. These inspections are to be in addition to the inspections that will be required by Auckland City Environments and are to be of a frequency, which will enable the following Producer Statements to be provided:
·A Producer Statement: - Construction is to be provided by the installer covering the installation, weathertightness and the interface with other component including joinery.
·A Producer Statement - Construction Review is to be provided by manufacturer or other suitably qualified agent covering the installation, including [weathertightness] and the interface with other component including joinery.
The Producer Statements are to be in an approved Auckland City Producer Statement format and are to be provided to the Building Inspector prior to the issue of the CCC.
a.Condition 30 reads:
Where membranes are being installed in wet areas, an inspection is required before applying the covering materials, i.e tiles, shower trays. Adequate curing time is to be allowed where these materials are to be covered over, in accordance with the manufacturer’s specifications.
Particular care is to be taken to ensure that all membranes are installed correctly with adequate upstands behind linings.
a.The Council’s records suggest that there were 477 inspections by different council officers.11 Areas inspected included foundations, beams, columns, walls, bathroom waterproofing, floors, doors and wastes.
11 One of the Council inspectors served a brief of evidence stating that he had very little recall of the inspection process given the passage of time. He was not called to give evidence and his brief was admitted by consent.
Code compliance certificates
a.On 5 October 2006 the Council issued CCCs for the construction of Gore Street.
Brief history of the claims and proceedings
a.There is a long and complex history to this proceeding. In a judgment which is already unavoidably lengthy, describing its gestation and course would serve little purpose. I therefore set out the context shorn of unnecessary detail. The procedural background is well captured in earlier judgments.12
a.In March 2014 the plaintiffs issued these Court proceedings. There have been five iterations of the statement of claim between 26 March 2014 and 29 August 2019. While the thrust of the case has not changed, the claimed “defects” have undergone significant revision. Some have been removed. Others have been added. I return to this point later in this judgment when dealing with the longstop limitation provisions of the building legislation.
a.There have been multiple interlocutory judgments and pre-trial skirmishes. The Court has been called on to resolve evidential disputes pre-trial and even issues around expert caucusing. Three substantive trial dates have had to be vacated due to lack of readiness to proceed.
a.At the end of the first week of the trial I conducted a site visit accompanied by counsel and in accordance with an agreed protocol.
The claimed defects
a.There are 13 claimed defects in the current iteration of the pleading. These are pleaded in a conclusory way at a high level of generality. Parsing the evidence and submissions it becomes apparent that each relies on the cumulative effect of alleged “sub-defects” although these are not expressly pleaded. The claimed defects are:
12 Body Corporate 366567 v Auckland Council [2021] NZHC 491; Body Corporate 366567 v Auckland Council [2021] NZHC 1481; Body Corporate 366567 v Auckland Council [2021] NZHC 3578; and Body Corporate 366567 v Auckland Council [2022] NZCA 80.
a.Claimed defect 1: Load-bearing steel-framed elements do not have adequate fire protection in breach of cls B1, B2, C2, C3 and C4 of the Building Code.
a.Claimed defect 2: Heads of fire separation walls not constructed to maintain the integrity of walls in a fire event in breach of cls B1, B2, C2, C3 and C4 of the Building Code.
a.Claimed defect 3: Inadequate steel-framed connections within the Core in breach of cls B1, B2 and C4 of the Building Code.
a.Claimed defect 4: Scissor staircases do not have sufficient allowance for movement or ductile performance and scissor staircases/fire separation walls do not have sufficient isolation in breach of cls B1, B2, C2 and C3 of the Building Code.
a.Claimed defect 5: Inadequate clearance between solid balustrades and adjacent columns in breach of cls B1, B2 and E2 of the Building Code.
a.Claimed defect 6: Junctions of post-tensioned floors to building perimeter beams and wall structure defective in that the bars to tie the perimeter wall frames to the post-tensioned floor slab and tendon ducts have not been grouted in places in breach of cls B1, B2 and E2 of the Building Code.
a.Claimed defect 7: Penetrations and openings through fire separations and construction of fire separation walls do not maintain integrity of fire separations in breach of cls B2, C2 and C3 of the Building Code.
a.Claimed defect 8: Inadequate balcony waterproofing in breach of cls B1, B2 and E2 of the Building Code.
a.Claimed defect 9: Column to beam junctions on exterior allow excessive movement and have no weathertight seal in breach of cls B1, B2 and E2 of the Building Code.
b.Claimed defect 10: Inadequate application of membranes on level 1 podium in breach of cls B2 and E2 of the Building Code.
a.Claimed defect 11: Defective membrane to level 3 canopy roof in breach of cls B2 and E2 of the Building Code.
a.Claimed defect 12: Junctions between baths and tiles not waterproof and glazed screens do not contain water in breach of cls B2 and E2 of the Building Code.
a.Claimed defect 13: Inadequate containment of water in bathrooms in breach of cls B2 and E3 of the Building Code.
Observations on the evidence
a.I heard factual evidence from Hayden Ash, Chairman of the Body Corporate, Paula Beaton, Secretary of the Body Corporate and Harpreet Singh, the Facilities and Maintenance Manager at Gore Street. I also heard evidence from Edward (Ted) Jones, the Council officer responsible for processing the building consents and from Martin Feeney, the principal fire engineer at Holmes. A small number of briefs covering factual investigation matters were admitted under s 9 of the Evidence Act 2006.
a.With those exceptions, the witnesses were primarily expert witnesses giving opinion evidence, often based on reconstructed timelines from contemporaneous material. An onlooker could be forgiven for thinking that this was “trial by expert”. Of course, the experts’ duty is to assist the Court and not to supplant the Court’s decision making and it is for this Court to determine the issues between the parties.
a.The expert evidence broadly fell into the following categories:
a.Fire engineering.
a.Structural engineering.
a.Building and quantity surveying.
b.Materials science.
a.Remedial project management.
a.Acoustics.
a.Accounting, valuation and tax.
a.Architectural drafting and regulatory practice.
a.A persistent theme throughout the course of the trial (and pre-trial) was the Council’s criticism of the plaintiffs’ experts’ briefs. It contended that the experts for the plaintiffs did not comply with their obligations in schedule 4 of the High Court Rules 2016. In particular, the obligation to state the facts and assumptions on which their opinion was based, the reasons for the opinions expressed, the examinations, tests and other investigations on which the expert has relied and any other material used or relied on. Pre-trial those challenges had been largely unsuccessful. This was not necessarily because they did not have merit but because of the difficulties in assessing such evidence out of context and in a pre-trial setting.
a.Unsurprisingly, much of the expert evidence was technical and dense. Some was frankly impenetrable. No party sought to have an assessor appointed to assist the Court. It was clear that, by the time the case came to trial, the potential to appoint an assessor or prospect that the parties could agree on the choice of an assessor was dim. The parties ultimately agreed that the experts should not present their evidence concurrently, despite early encouragement from the Court that concurrent evidence was preferable.13 As it transpired, the lack of concurrency impeded the Court’s understanding of technical matters.
a.At the outset of the trial it was agreed that evidential challenges would be signalled but not ruled on until the witnesses’ evidence-in-chief had been given. In short, it would be admitted de bene esse until cross-examination. The challenges were
13The plaintiffs sought such a direction pre-trial but did not press this in the face of the Council’s opposition. Pre-trial conference Minute of Lang J dated 27 April 2022.
generally advanced on the basis the evidence was not substantially helpful — a fundamental requirement of expert evidence and/or did not comply with the “tripartite basis” rule required by the Code of Conduct of Experts under the High Court Rules. I issued rulings in respect of challenges to aspects of the evidence of Per Ake Olsson and Dr Gregory Baker, the plaintiffs’ fire engineering experts.14
a.The Council also challenged significant chunks of Dr Hyland’s brief of evidence (among others) in keeping with their signals and various applications pre-trial. In response to my early rulings, the Council thereafter proceeded pragmatically on the basis that challenges to the evidence would be noted for the record and dealt with as matters going to weight. This was a sensible course which was agreed to by the plaintiffs.
a.The plaintiffs’ intended primary expert witness on regulatory matters and council practices was to be Peter Jordan. Mr Jordan was an inspector and then Manager of Environmental Health and Building Control employed by Auckland City Council. Mr Jordan provided a brief of evidence expressing his expert opinion on the performance of the Council.
a.Regrettably, Mr Jordan was unable to give evidence at the trial due to ill health. Paul Moodie, a 40 year veteran of the building industry and former Team Leader of building inspections for North Shore City Council and Northern Compliance and Inspection Manager for Auckland Council stepped in to replace Mr Jordan. Mr Jordan’s brief of evidence was converted to an affidavit. Mr Moodie gave evidence in chief confirming the correctness of Mr Jordan’s evidence and was cross-examined.15
What is a defect?
a.I begin with nomenclature. As Andrew J recently explained in Body Corporate 406198 v Argon Construction Limited [Bianco Apartments]16 “defect” is not a term of
14 Oral ruling (No 3) of Walker J dated 10 May 2022; Oral ruling (No 4) of Walker J dated 13 May 2022; and Reasons of Walker J in relation to rulings No 3 and 4 dated 16 May 2022. Other challenges to the evidence of Mr Olsson were reserved to be addressed as matters of weight in closing submissions.
15 This matter was addressed at a pre-trial conference before Lang J.
16 Body Corporate 406198 v Argon Construction Limited [2023] NZHC 3034 at [55].
art. It is not defined in either the 1991 or 2004 Act. As the Council submitted before this Court (and Andrew J accepted in Bianco Apartments) one approach is to use the term in an untechnical way to mean “some error, shortcoming or imperfection in relation to an aspect of construction”.17 The qualification I add is that any “error” or “shortcoming” must be assessed through the appropriate temporal lens.18
a.Materially, the existence of a shortcoming or an error is only the first step in the requisite analysis. Just because a defect in this sense exists does not mean that the physical state of affairs is not compliant with the Building Code, against which it must ultimately be measured before the plaintiffs can succeed in their claim. The physical state of affairs may not comply with consented documents and thus be a defect in one sense but still meet the requirements of the Building Code. If so, the defect is not actionable for reasons which will emerge.
The statutory framework
a.The statutory obligations under the 1991 and 2004 Acts provide a framework for assessment of the common law duties. The scheme of the legislation is that building work is to comply with the Building Code to achieve the purposes of the Act. As Elias CJ stated in Body Corporate 207624 v North Shore City Council (Spencer on Byron) the scheme of the Act is to provide the owner with assurance of compliance with the Building Code.19 This was affirmed by the majority of the Supreme Court in Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council.20 The statutory scheme is that the consented plans and specifications demonstrate compliance with the Building Code. The Building Code is a schedule to the Building Regulations 1992 which have survived the enactment of the 2004 Act.
a.Section 49(1) of the 1991 Act authorised the Building Industry Authority (“BIA”) to issue approved documents establishing compliance with the provisions of
17Adopting the working definition suggested in Minister of Education v H Construction North Island Limited [2018] NZHC 871 at [62].
18Body Corporate 406198 v Argon Construction Limited [2023] NZHC 3034 [Bianco Apartments] at [56].
19Body Corporate 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 [Spencer on Byron] at [14]–[16].
20Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council [2017] NZSC 190, [2018] 1 NZLR 278 at [60] and [81].
the Building Code. The BIA published acceptable solutions and verification methods under that section.
a.The primary legislation, namely the respective Building Acts, the Building Regulations and the approved documents should be read as an internally consistent scheme. The Building Code itself sets the objectives (the social objective the building must achieve), functional requirements (what the building must do to satisfy the social objective) and performance criteria (qualitative or quantitative criteria which the building must meet in order to comply).
a.Sections 49 and 50(1)(d) of the 1991 Act and ss 19 and 22 to 25A of the 2004 Act provide that where acceptable solutions and verification methods are followed, there is deemed compliance with the Building Code.21 Acceptable Solutions set out common methods of design and construction and provide practical information on one way to meet the requirements of the Building Code. Verification methods set out methods to be applied in the formulation of more complex design solutions. Both often cite recognised industry standards which then become known as “cited standards”.
Deemed compliance and the Building Acts
a.The plaintiffs and the Council fundamentally disagreed on the extent to which full compliance with an approved document is required before there is deemed compliance with the Building Code. The plaintiffs contend that it is not possible to “cherry pick” aspects of a design from an acceptable solution and claim that a design or construction using that feature complies with the Code on a deemed to comply basis.
a.This overstates the position. I prefer the Council’s argument that departure from an acceptable solution requires assessment as to whether the departure will result in the relevant performance based criteria not being met. The acceptable solution remains the key touchstone of compliance. This is a more coherent and practical approach. I accept that the performance in functional terms of a proposed alternative
21In this judgment I refer to acceptable solutions (lower case) other than when referring to a specific Acceptable Solutions
solution can be compared with the performance principles in the Acceptable Solution to show that the alternative solution will comply with the Building Code. One does not have to comply with an entire acceptable solution to achieve compliance on a deemed to comply basis. Rather, one can use parts of an overall Acceptable Solution and it is only that part that moves away from the acceptable solution that becomes an alternative solution. An acceptable solution or Verification Method can be used to demonstrate how proposed building work will comply as an alternative solution.
a.This is supported by the guidance documents on the Ministry of Business, Innovation and Employment’s website. That guidance provides:22
Different ways to comply with the Building Code: states that “flexibility is a key advantage of performance based Building Code. The Building Code states, in general terms, how the completed building must perform in its intended use. It does not tell you how to do it. You can demonstrate Building Code compliance through different means. One means of demonstrating compliance is to follow an Acceptable Solution… MBIE publishes Acceptable Solutions… but it is not mandatory to use them.
a.And, regarding alternative solutions, it states:23
An alternative solution is all or part of a building design that demonstrates compliance with the Building Code, but differs completely or partially from the Acceptable Solution …
In many cases, Acceptable Solutions … provide good guidance for assessing an alternative solution.
Standard of care
a.Councils control all aspects of building work to ensure that it complies with the Building Code.24 It is well established that councils owe a duty of care when performing their statutory functions of inspection and certification under the building legislation.25 The Council does not deny that it owed a duty of care to the second
22 Ministry of Business, Innovation and Employment “Different ways to comply with the Building Code” (21 March 2015) Building Performance <www.building.govt.nz>.
23 Ministry of Business, Innovation and Employment “Alternative solutions for compliance with the Building Code” (21 March 2016) Building Performance < >.
24 It is Building Consent Authorities including councils under the 2004 Act and territorial authorities under the 1991 Act. For convenience I do not distinguish in this judgment but use the shorthand “councils”.
25 North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289 [Sunset Terraces SC Judgment] at [51].
plaintiffs to act with reasonable care and skill in carrying out its functions. But the precise scope of that duty is one of the issues in this case.
a.I accept the following established principles:
a.The Council is not a “clerk of works”. Its duty is to exercise reasonable care, not an absolute duty to ensure compliance.26
a.The council’s performance must be judged against the standards of the day and knowledge of the quality (or otherwise) of particular products used in the construction process. It does not take on any responsibility for ensuring, in fact, that all completed work complies with the Code.27
a.The duty can be no higher than expressed in the legislation, namely, “[t]o be satisfied on reasonable grounds that a building consent should issue, to take reasonable steps in carrying out inspections and to be satisfied on reasonable grounds that code compliance should be certified”.28
a.Even if a council has acted with reasonable skill and care, it does not follow that there will be no defects in a building. That is a corollary to the nature of a council’s duty.
a.Councils frequently and appropriately may rely on producer statements where council officers are not qualified to make an assessment as to whether a design or work will comply with the Building Code. That must be particularly so where the subject matter is complex and the council reasonably does not have the expertise to make the requisite assessment.
26Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 [Sunset Terraces] at [183].
27 At [183].
28 At [221].
a.The standard of care to be applied is that of a reasonably skilled council at the time. Common industry practice is not necessarily determinative. The Court is entitled to conclude that the standards of councils at the relevant time fell below the standard required by the law. As Young J stated in Body Corporate 90247 v Wellington City Council [Glenmore Street]:29
However, it is not enough for an inspector to simply say “that’s how we did it in those days”. If what the inspectors were doing was inadequate, judged by a reasonable standard of the day, then it is no excuse to simply say “that’s how we did it then”…
a.In Sunset Terraces, Heath J said that territorial authorities were entitled to assume the work will be done in conformity with the consent by a competent builder and tradespeople familiar with the relevant technical literature. He added that questions of degree remained as to the extent to which it is proper to leave detail to a tradesperson to complete.30 I respectfully concur that this assumption is generally appropriate as a starting point. But the assumption is at a high level of generality and it has to be tempered by context.
a.The leaky building crisis, the Hunn Report and a BIA technical review of Auckland City’s building control services are relevant to the decision making matrix. The decisions that building control officers have to make are not abstract or academic exercises. They involve judgement. The contextual matters inform the degree of care required. Mr Flay, an expert on regulatory matters for the Council, agreed that councils needed to take greater care in undertaking their statutory obligations in view of what was going on in the building industry.31 This accords with common sense.
a.Also relevant is the fact that this is a 40 storey apartment complex. Section 47 of the 1991 Act required the territorial authority in exercising its powers to have due regard to certain matters including the size and complexity of the building, its intended use and life and the reasonable practicality of any work proposed. On the other side
29 Body Corporate 90247 v Wellington City Council [2014] NZHC 295 [Glenmore Street] at [157].
30Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 [Sunset Terraces] at [252], [399] and [403].
31Mr Flay’s evidence was that the Council was cautious in this instance, asking for a quality assurance system from Multiplex.
of the coin, the Building Code is a performance based code which imposes minimum standards. As Andrew J put it in Bianco Apartments:32
…it is essential that the regulatory regime has integrity, and that the inspection regime is sufficiently robust so that public confidence in its effectiveness is maintained. One of the public policy reasons for the Council providing an appropriate degree of oversight is to promote good trade practices with a view to avoiding breaches of the requirements of the Building Code.
a.All of which leads to the conclusion that there must be sufficient detail accompanying an application for consent as is reasonably required by the territorial authority.33
a.A preliminary question (albeit one which dissolved by the end of trial) is whether the 2004 Act has brought about any change to the scope or nature of a council’s duty. The position under the 1991 Act is well settled. The duty in tort “marches hand-in-hand with its statutory obligations” and is not any higher.34 The duty at the code compliance stage was to act with reasonable care and skill to ensure compliance with the Building Code.
a.In my assessment, the 2004 Act re-emphasises the consent phase of the building control process but does not change the nature of the primary obligation which is to ensure compliance with the building consent issued so as to achieve compliance with the Building Code. This is despite the difference in wording between s 64 of the 2004 Act and s 43 of the 1991 Act. The 2004 Act provides that councils are to issue a CCC if satisfied on reasonable grounds that work complies with the building consent whereas the 1991 Act provided that councils are to issue a CCC if satisfied on reasonable grounds that work complies with the Building Code.
a.Mr Lewis adopted the homely analogy that, under both Acts, the Building Code is the destination, and the consent is the vehicle for getting there. The Supreme Court’s
32Body Corporate 406198 v Argon Construction Limited [2023] NZHC 3034 [Bianco Apartments] at [135].
33 Building Act 2004, s 33(2). Section 34(2) of the 1991 Act empowered the territorial authority to require further reasonable information in respect of an application for consent.
34 Body Corporate No. 207624 v North Shore City Council [2012] NZSC 83 [Spencer on Byron] at [194]. The Supreme Court commented in relation to the 2004 Act that it did not apprehend any material difference but noted it did not have the benefit of argument, it was not strictly in issue and it did not make any determination.
statement in Spencer on Byron that the Council’s common law duty under the building regime “marches hand in hand with” its statutory obligations remains apposite. The difference in wording in s 94(1) has not materially altered the march. The overarching goal of a council’s regulatory function remains to ensure compliance with the Building Code to achieve the legislative purpose rather than any higher standard.35 The scheme of the 2004 Act, including s 94 was not intended to bring about a change in the territorial authority’s role and responsibilities.36
a.The Council is statutorily obliged to issue a CCC if the building work complies with the building consent. It may also exercise a statutory power to certify code compliance even if there are departures from a building consent if the ‘as-built’ construction complies with the Building Code. This aligns with the statutory purposes of the legislation which, at its heart, is about building performance.
Consent stage
a.Many factors will inform the extent of the duty at the consenting stage including the complexity of the development project and its particular characteristics, the extent of detail and clarity of the plans and specifications, whether the designs are acceptable solutions, and consistency with available technical literature. For instance, if the design proposes bespoke or novel systems one would expect greater detail in the plans and specifications so that a council has sufficient information to be satisfied on reasonable grounds that the requirements of the Building Code would be met. 37
a.A council may not have the expertise to review an aspect of design. In that instance, a qualified expert may have to provide an independent assessment because a council must have a proper informational basis to grant building consent. As Gilbert J said in Body Corporate 326421 v Auckland Council [Nautilus]:38
35As Chambers J stated in Body Corporate No 207624 v North Shore City Council [2012] NZSC 83 [Spencer on Byron] at [193] “…No one can be party to the construction of a building which does not comply with the building code. The duty in tort imposes no higher duty than that: for example the inspecting authority is not responsible for ensuring the building is constructed in accordance with the plans and specifications, which will inevitably go beyond building code requirements.”
36 Body Corporate 406198 v Argon Construction Limited [2023] NZHC 3034 at [127]; and Body Corporate 160361 v BC 2004 Ltd and BC 2009 Ltd [2015] NZHC 1803 [Fleetwood Apartments] at [142].
37 See Body Corporate 326421 v Auckland Council [2015] NZHC 862 [Nautilus] at [152]–[153].
38 At [19].
[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 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.
Inspection stage
a.Section 76 of the 1991 Act and s 90 of the 2004 Act deal with inspections by territorial authorities in the case of the former Act and by building consent authorities in the case of the latter Act. The meaning of inspection is not materially different between the two Acts. It is the taking of all reasonable steps to ensure that building work is in accordance with a building consent.39 The reference to the consent reflects the point that the consent is the means to achieve the standards set by the Building Code.
a.The Act requires that owners of a building apply to the Council for a CCC certifying that the building work was carried out in accordance with the building consent granted for that building work under the 2004 Act and (previously) certifying that the work complies with the Building Code under the 1991 Act.40
a.There is an intrinsic relationship between the consent and inspection processes. As Venning J discussed in Body Corporate 189855 v North Shore City Council [Byron Avenue], the less detail the Council required at the consent stage the greater the onus on the inspector to ensure compliance at the inspection stage.41
a.It is fundamental that councils need to put in place inspection systems which have the objective of giving effect to the Building Code. They should determine as part of the consenting process whether council inspectors or a third party will be
39 Palmer v Hewitt Building Limited [2021] NZHC 1460 at [72].
40 Building Act 2004, s 64; and Building Act 1991, s 94.
41Body Corporate 189855 v North Shore City Council HC Auckland CIV-2005-404-005561, 25 July 2008 [Byron Avenue] at [97].
inspecting the work because this will inform the schedule of council inspections. Conditions attaching to consents may require a producer statement from a third party. In the absence of a consent condition requiring a producer statement it is up to a council to set up its own inspection regime.42 That regime must meet the needs of a particular development, informed by the criticality of the particular build aspect at issue, for instance waterproofing and timing imperatives.43 It should be individualised rather than generic, just as the extent of the duty at the consent phase is determined by the characteristics of the development project.44 As Heath J stated in Sunset Terraces:45
…
[1572] Mr Finley sought to explain why he ignored NZS 6803/1999 in his evidence-in-chief. He distinguished the community protection aim of NZS 6803/1999 and the individual protection focus of AS/NZS 2107/2016. With respect, the explanation was not persuasive. Occupants and users are part of the community.
[1573] Mr Finley also says that the fact the remedial works will be taking place inside the building rather than a neighbouring building generating 55 dBA into Gore Street is important; I understand this to be a utilitarian argument. Though a noise limit of 55 dB is higher than a healthy, comfortable, productive living space experiences, it is reasonable to expect people to bear it when its source is from an exterior source because there will be less people bearing it. However, where the source of the noise
is indoors, more people experience it. Mr Finley seems to be saying, in that case the noise limit should be lower to account for this.
[1574] I do not accept this argument. The guideline sets out some factors that will affect the acceptability of construction noise. Nothing in the acoustic guidelines suggest that where more people are likely to be affected by the noise, the noise limit should be lower.
[1575] I accept that NZS 6803/1999 is the more appropriate standard to apply where construction is being undertaken within a building to set noise limits. Its scope of use is for construction works, unlike AS/NZS 2107/2016 which is used to determine other types of noise limits. As stated in cl 2, AS/NZS 2107/2016 is used for the design of spaces to ensure appropriate noise levels for day-to-day use under normal circumstances.
[1576] NZS 6803 is also consistent with the Auckland Unitary Plan which states that the external noise limit on Mondays to Fridays should be 75 dB and:518
Where external measurement of construction noise is impractical or inappropriate, the upper limits for the noise measured inside the building will be 20dB less than the relevant levels in Table E25.6.28.1
[1577] I prefer the evidence of Mr Day that the correct adjustment to exterior noise limits is the 20 dB as set out NZS 6803/1999519 rather than 27 dB as the sound reduction measured by Mr Finley.
[1578] In conclusion, there is a higher noise limit for construction noise under NZS 6803/1999 and the Auckland Unitary Plan principally due to the temporary nature of construction. It is the more appropriate standard to use when setting noise limits and determining how many levels must vacate the building for construction happening in Gore Street. It applies even where the construction is happening within the building.
518 Auckland Unitary Plan, Table E25.6.28.
519 NZS 6803/1999, cl 7.2.7
[1579] I therefore prefer the evidence of Mr Day on the question of the vacancy requirement during remedial work. However, AS/NZS 2107/2016 still has some relevance to the issue of impact on rental arising from construction noise.
Hotel lost profits
[1580] Harbour Residences owns unit GB which functions as an office space from which the hotel operates. The hotel business provides accommodation for short term and long term stays in units which are part of the hotel pool. The number of units in the hotel pool fluctuates but as at trial, numbered about 86 units.
[1581] Harbour Residences and the owners of units have entered into letting agreements. The hotel operator agrees to manage the letting on behalf of owners. It also uses unit GB as the office site for building management services for Gore Street on behalf of the Body Corporate.
[1582] The claim is not only for the share of the cost of the remedial works on behalf of Harbour Residences as second plaintiff but income loss consequent on the vacancy of hotel units for a period during the remedial work. It also claims the cost of moving furniture from those units to a storage facility and storage costs for the period of remedial work undertaken. Finally, it claims for the cost of alternative premises to run the business.
[1583] I pause to interpolate that it appears to me there is inconsistency between needing to pay for alternative premises to run the business if in fact no business may be run during the period of remediation. I accept that it may be necessary to continue to provide building management services during remediation however this was not satisfactorily explained in the evidence before the Court.
[1584] The assessed value of the hotel lost profits claim is just over $3 million.520 The alternative accommodation costs, moving, storage, redelivery and cleaning costs are approximately $88,000.521
520 The sum actually claimed is $3,106,371.
521The actual costs claimed are $88,607.84 amended statement of claim dated 11 March 2021, para 60(c)(i)(ii) and sch 4, unit GB.
[1585] The claim is quantified by an independent accountant, Bruce Watt based on information provided by Graham Baskett, managing director of Harbour Residences. Mr Baskett provided to Mr Watt:
(details of the hotel’s operation between 2014 and 2019, the budgeting profit/loss, forecasts and balance sheets for 2019 and 2020; and
(the Harbour Residences’ earnings before interest, tax, depreciation and amortisation (EBITDA), summary information for 2016-2019 and 2020 full year forecast; and
(the plaintiffs’ experts’ estimated programme summary.
[1586] Mr Baskett impressed me as an honest and forthright witness faced with a particularly difficult task of assessing consequential impact of the remediation in circumstances where the Covid-19 crisis created massive uncertainty in the hospitality industry. Mr Baskett readily accepted the difficulty of the exercise and conceded appropriately the various uncertain elements on cross-examination.
[1587] The claim for hotel lost profits faces a number of obstacles. I distil these to the following:
(whether the asserted lost profits is a loss recognised as recoverable and within the scope of the duty owed to unit owners by the Council exercising its building control function;
(even if the law recognises the recoverability of such losses on a conceptual basis, whether the particular loss would be too remote in the present circumstances;
(whether losses relating to the operation of a hotel which was not a consented use and will not be a consented use pending remediation, are nonetheless foreseeable; and
(whether Harbour Residences has sufficiently proven the calculated loss.
Are hotel lost profits a loss recognised at law in these circumstances?
[1588] The plaintiffs argue that claims for consequential losses arising out of damage to property are orthodox in this field. They cite cases in which damages have been awarded to owners of a hotel for loss on sale and loss of profits arising out of negligent stormwater works carried out by a council which led to flooding of a hotel.522 They also refer to a case in which the owner of a greenhouse was entitled to damages for future development losses. Damages were awarded against a government department who engaged a contractor who sprayed too close to the greenhouse and destroyed crops.
[1589] The plaintiffs accept that the type or kind of damage resulting from the wrong must be reasonably foreseeable to justify recovery but the extent of that damage need not be foreseeable.
[1590] The plaintiffs argue it was foreseeable to the builder and Council that at some stage, whether from the outset or thereafter, a commercial entity would operate a business from any unit, whether in relation to management of accommodation or otherwise. They say that this is conceptually no different from other commercial units on the lower floors of the building or from apartment owners who rent out their apartments as a business activity. They also argue that Harbour Residences derive business earnings out of the ownership of its ground floor office and note that Harbour Residences is a beneficial owner of the common property in accordance with s 54 of the 2010 Unit Titles Act. That common property which includes the gymnasium and swimming pool are an important feature of the hotel operations. The plaintiffs lean heavily on the scope of the duty owed by councils in respect of both residential and commercial buildings as outlined in Spencer on Byron.
[1591] Clearly the loss to Harbour Residences flows directly from the physical damage to Gore Street. In one sense the hotel’s losses flow from the Council’s
522 Taupo Borough Council v Birnie [1978] 2 NZLR 396 (CA).
negligent performance of its building control functions and the subsequent need to vacate the building for repairs. However, this is not sufficient. The Council owes a duty of care to the owner of the property, not a non-owner or tenant. As Tipping J stated in Sunset Terraces:523
Protection of a non-owner occupant such as a tenant, can be achieved only through a duty owed to an owner, as it is only the owner whose pocket is damaged as a result of the negligence of the building inspector. It is only the owner who can undertake the necessary remedial action.
[1592] The claim for loss of profits is economic loss unrelated to damage to unit GB owned by Harbour Residences. In legal terms, the loss does not flow “naturally and directly” from damage to its own unit but rather from damage to other unit Owners’ property within the hotel pool. As the Council argues, this is a form of “parasitic” damages annexing a head of damage to a recoverable claim does not make it recoverable in law.524
[1593] Even the interest in common property or part of it under the legislation does not make an interest sufficient to constitute ownership or enforceable property rights such that the interests of Harbour Residences falls within the ambit of the duty of care owed by the Council.525 In this Court, Heath J held that Blue Sky was not owed any duty of care as a lessee of units in a defective development. Blue Sky came before the Court in various capacities, including as a previous owner of the reversion of the lease and assignee of the current owner of the reversions which complicates the factual context. The Court of Appeal upheld Heath J’s findings as to Blue Sky’s claim as lessee but found that it had an entitlement to claim as previous owner and assignee of the current owners’ claims.526
[1594] In sum, I conclude that the answer to the first question is that hotel profits are not claimable within the scope of the duty owed by the Council in this case.
523North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [Sunset Terraces SC Judgment] at [53], [2011] 2 NZLR 289, per Tipping J.
524 Spartan Steel & Alloys Ltd v Martin & Co Ltd [1973] QB 27 at 35.
525Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC) [Sunset Terraces] at [360] and [374]–[377].
526 Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC).
Is the loss claimed too remote?
[1595] It is strictly unnecessary to turn to the other issues as the answer to the first issue is the whole answer to the claim. Nevertheless, I go on to discuss briefly the other obstacles.
[1596] Economic loss not sufficiently related to any physical damage cannot be recovered on ordinary principles.527 Clearly, Harbour Residences is owed a duty of care in relation to the unit it owns. It also has a claim to consequential loss flowing directly from damage to that unit provided it is foreseeable. That would include a claim for lost rental income in respect of that unit, alternative accommodation costs, moving, storage, redelivery and cleaning costs related to that unit. The remedial work consequences do not flow naturally and directly from damage to its own unit however. It is claimed as a result of damage to the other units, owned by other owners and second plaintiffs.
[1597] Practically speaking, Harbour Residences is seeking to claim loss derived from a contractual relationship with the other owners. This is analogous, as the Council argues, to the principle of relational contractual loss.528
[1598] In Strathboss Kiwifruit Limited v Attorney-General, the second plaintiff was declined relief in a claim relating to kiwifruit post-harvest operations.529 The underlying claim was loss caused to kiwifruit growers by the Crown’s negligence. The second plaintiff’s losses were under a contract with the party who was owed the duty. They were not owed the duty themselves. Their losses arose in respect of downstream contractual rights. This Court in Strathboss recognised parallels to building defect cases. It observed:530
In building cases the plaintiffs own the property directly impacted by the negligence if the property is constructed defectively. Although the law now views the loss as economic, rather than property damage, the loss is intimately tied to the property rights. Indeed the defective construction sooner or later
527 Stephen Todd (ed) Todd on Torts (9th ed, Thomson Reuters, 2023) at 59.5.4.1.
528 Cattle v Stockton Waterworks Co (1875) LR 10 QB 453; Simpson & Co v Thompson [1877] 3 At pp CAS 279; Société Anonyme de Remorquage à Hélice v Bennetts [1911] 1 KB 243 (KB); Tait & Lyle Industries Limited v Greater London Council [1983] 2 AC 509 (HL); and Esso Petroleum Co Limited v Haul Russell & Co Limited [1989] AC 643 (HL).
529 Strathboss Kiwifruit Ltd v Attorney-General [2018] NZHC 1559.
530 At [424]–[429].
will likely lead to property damage (defective foundations lead to cracks and partial or total building collapses and leaky homes lead to mould and saturation which is ultimately likely to affect the building’s soundness as well as affecting the health of its occupants). Similarly, kiwifruit orchardists who own the vines or their crop have property which is directly impacted if they are infected because risk goods, containing a pathogen, are used in the vicinity of their vines (from which the pathogen can spread). In contrast, the [post-harvest operators] do not own the property directly affected by the negligence.
…
For these reasons I consider the alleged duty of care under the first cause of action is supported by the New Zealand cases in relation to those who had “property rights” in the kiwifruit vines or crops affected by PSA3 (either because they were infected or because they were at the risk of infection and were therefore treated as if they were infected). I consider the alleged duty of care under the first cause of action is not supported by the New Zealand cases for those who did not have “property rights” in the kiwifruit vines or crops affected by PSA3.
[1599] On this issue too, I accept the Council’s argument with the result that the claim by Harbour Residences for loss of profits is not available.
Are hotel profits foreseeable if they relate to an unlawful hotel operation?
[1600] Harbour Residences accepts that it Gore Street was not originally designated a hotel. However, it argues it would be vastly disproportionate to deny relief by reference to what is, at most, a technical breach of local government planning regulations. It distinguishes between the circumstances in those cases cited by the Council dealing with illegality. It makes the point that a change of use can be made at any time. While that may be so, there was no evidence led as to how straightforward a change of use application would be, the time at which it could be made, or attendant conditions. I apprehend that additional work would be possibly required in terms of the legal framework for providing accommodation services, such as disabled access and the like. I make no definitive finding to this effect as evidence was not led. I would not be inclined to reject a claim to loss of profits on the basis that Council consent would be required to operate as a hotel. I agree that the cases of illegality are distinguishable.
Is there cogent and reliable evidence on which claimed loss can be calculated?
[1601] The plaintiffs’ evidence was challenged by expert witnesses called by the Council, Michael Clark and William Apps. The evidence of Mr Clark was not challenged. The evidence of Mr Apps was not undermined on cross-examination.
[1602] Much of the challenge to Mr Baskett’s evidence was focussed on when the hotel would see a return to pre-Covid levels of occupancy. That challenge has been diluted somewhat by the passage of time since the losses were calculated.
[1603] I accept the opinion evidence of Mr Apps which undermined the methodology for the preparation of the financial data Mr Baskett provided to Mr Watt. In particular:
(The focus on occupancy rates alone without reference to tariffs undermines the financial data.
(Mr Watt’s evidence was entirely reliant on the data provided to him by Mr Baskett.
(There was insufficient analysis of the likely economic environment, market dynamics, competitive environment or analysis of the tourism sector (acknowledging how difficult that was at the relevant time).
[1604] The Council makes good on its argument that the loss assessment only went as far as what might happen if the expected financial performance was to mirror that forecasted for the 2020 year rather than what would happen.
[1605] It follows that even if a claim for hotel lost profits was available, it has not been adequately established on the evidence presented to the Court. On that basis alone, it would fail.
Diminution in value of units
[1606] Three second plaintiffs seek compensation for loss suffered on the sale of their units. As the Council recognises, the sums sought are very small relative to the overall claim. Valuation experts called by the parties agree as to the “unaffected” market
valuation of the units at issue. The plaintiffs approach the issue in a simplistic manner, assuming that the shortfall between “unaffected” market value and the sale price was entirely caused by alleged defects at Gore Street. It is not difficult to accept that the knowledge of defects had a critical role in underselling. In each sale the defects were either expressly disclosed or disclosed by providing AGM minutes for the years 2013, 2014 and 2015. A reasonable inference is available that the purchase prices, being lower than the unchallenged ‘unaffected’ values were impacted by the building defects.
[1607] The difficulty that arises is assessment where not all identified defects have been established or sheeted home to the Council or other defendants. The plaintiffs relied on the combined effect of the defects as causative of loss. The Council has not been found liable for all of the defects. It argues that it cannot be liable for the full extent of any loss suffered and that there is insufficient evidence from the second plaintiffs to establish that awareness of claimed defects was causative of loss. That is, while those second plaintiffs have given evidence of the fact of sale, their evidence does not touch on their knowledge of value at the time or their negotiations. Thus, there is nothing tangible on which to connect any diminution with the defects for which the defendants are responsible.531
[1608] The inference of sale at less than market value is not only available but strong. I find that it is unnecessary to attribute impact to specific defects. What matters is whether there is a causal relationship between the established defects for which the defendants are liable and loss in broad terms. I find there is a causal relationship on any common sense approach. The following second plaintiffs are therefore entitled to judgment for losses on sale:
(Unit 6B – Kar Ming (Jody) Leung - $19,000;
(Unit 7M – Onewa Limited - $15,000; and
(Unit 26D – SHP Investments Limited - $75,000.
531 The owner of unit 6B was called for cross-examination. The other two unit owners were not.
Are the second plaintiffs entitled to general damages?
[1609] The second plaintiffs who are natural persons claim general damages for distress, anxiety and mental suffering. They point to the recovery by apartment owners in Victopia Apartments and suggest that the awards made in that case would be appropriate with an uplift of $5,000 for inflation.532
[1610] Those awards distinguish between single resident owners, joint resident owners, single non-resident owners and joint non-resident owners.
[1611] Since then, Andrews J delivered his judgment in Bianco Apartments.533 He adopted the same “holistic assessment” based on the approach in Victopia Apartments. He reduced the general damages on the basis that none of the unit owners would have to move out for the remedial works save for a limited number for a short period. In the present case apartment residents will have to move out for a period of time which is not yet determined given the liability findings in this judgment.
[1612] There is general agreement that an award of general damages requires three things:
(claimants have suffered a certain type of damage;
(the consequences must have been reasonably foreseeable; and
(there must not be any public policy concerns which prevent recovery.
[1613] The plaintiffs acknowledge that assignee plaintiffs are not entitled to general damages. They also agree that owners who own more than one unit only receive one award of general damages and trustees who have no personal economic interest in the unit are not entitled to general damages.
532 Body Corporate 346799 v KNZ International Co Ltd [2017] NZHC 511 [Victopia] at [112]–[127].
533 Body Corporate 406198 v Argon Construction [2023] NZHC 3034 [Bianco Apartments].
[1614] The distress caused by the litigation itself is not compensable by an award of general damages. Nor is the distress caused by defects for which there has been no finding of liability.
[1615] The second plaintiffs in this case face a situation much like the apartment owners in Victopia Apartments. The remedial cost they have faced even in respect of the claimed defects for which liability has been established is substantial. It is agreed that Owners will need to vacate their units. I am satisfied that there is evidence of hardship and distress which warrants an award of general damages. The precise period of time that they will be required to vacate Gore Street more directly impacts consequential losses rather than general damages and does not need to await resolution of those issues. A common sense approach is needed and such damages are generally appropriate in a case like the present. I also accept that the awards in Victopia Apartments are instructive and that inflationary impact should be recognised.
[1616] I consider that the amounts claimed by the second plaintiffs under this head of damage, graduated according to whether they are owner occupiers or absentee owners, are appropriate. I record that second plaintiff assignees are not entitled to general damages and owners of more than one unit are only entitled to one award. Trustees who have no personal economic interest in a unit are not entitled to general damages.
[1617] I direct that GST is not payable in respect of the general damages award.534
Has any betterment been established?
[1618] The concept of betterment addresses the potential for an award of remedial costs to over-compensate plaintiffs beyond their actual economic loss suffered. It has been described by Miller J in the Court of Appeal:535
The object of damages is to restore the plaintiff to the position it would have occupied but for the defendant’s wrongdoing. Betterment is a tool used to achieve that objective where, as here, the defendant’s negligence forces the plaintiff to replace property with something of greater value. Any deduction
534 Body Corporate 406198 v Argon Construction Limited [2023] NZHC 3034 [Bianco Apartments] at [336] citing Grant Pearson, Mark Keating and Craig Macalister Taxation – GST – A to Z of New Zealand Law (online ed, Thomson Reuters) at [57.G.36.8.5].
535 Invercargill City Council v Southland Indoor Leisure Centre Charitable Trust [2017] NZCA 68, [2017] 2 NZLR 650 at [151].
for betterment is net of an allowance for any disadvantages associated with the untimely and unavoidable nature of the plaintiff’s investment.
[1619] In the light of the intrinsic connection between betterment and the remedial scope (and therefore costs) ultimately awarded, it is not possible to finally determine claimed betterment at this stage. It may even be that some of the betterment ‘sub-issues’ fall away as a result of the liability findings in this judgment. Nonetheless, I set out the relevant principles as guidance to the approach I intend to take once in receipt of further submissions.
[1620] The Council argues that there are two limbs to betterment in this case:
(Where remediation will result in the plaintiffs receiving new building elements in lieu of elements which are now two decades old. It points to the balcony joinery replacement in the remedial scope for claimed defect 8, the podium joinery replacement for claimed defect 10, the level 3 canopy roof (claimed defect 11) and bathrooms/kitchens for claimed defects 12 and 13.
(Where remediation of one defect for which liability is established will indirectly remedy another defect for which liability is not established.536
[1621] The plaintiffs argue that in any remedial works undertaken in relation to a building defects claim, some of the works will include a new-for-old replacement where the plaintiffs had no choice but to replace property. They contend it does not immediately follow that those replacements constitute betterment.
[1622] They also say that the calculation of any reduction for betterment needs to address the disadvantages associated with the untimely and unavoidable nature of the plaintiffs’ investment. Pressed to explain why that would be so when the plaintiffs are not making any investment themselves but requiring funds from liable defendants, counsel had no ready answer.
536 The Council argues this can be viewed as either a damages/causation issue or a betterment issue.
[1623] I reject the plaintiffs’ proposition. I consider that it misconstrues the purpose and nature of adjustments for early expenditure. While it is an orthodox consideration in cases where the plaintiffs have carried out remediation before liability is established, it does not apply in the present case.
[1624] I also reject the proposition that betterment in this case encompasses indirect benefit where remediation of one defect coincidentally remedies another defect for which liability is not established. No authority was advanced. The issue is more relevant to the question of whether the remediation scope for the established defect is reasonable in respect of the established liability. That in my view is the only appropriate enquiry.
[1625] It is for the Council to establish any alleged betterment. It says that has not been possible to quantify betterment because of the plaintiffs’ “fundamentally flawed” approach to quantifying anticipated remedial costs.
[1626] I accept the plaintiffs’ expert evidence that the joinery adjacent to the balconies and podium must be replaced when the remediation takes place. The Council’s experts do not dispute this. There is no evidence that replacement of joinery results in an increase in value of the Gore Street apartments. No pecuniary benefit is shown. No present leak in the joinery as installed has been identified. There is no evidence as to the duration over which the joinery might remain in situ without leaking. I am not satisfied that there is any requirement to bring the joinery up to the present Building Code standard but for the removal and replacement imperative associated with remediation. In those circumstances, the Council fails to establish that any betterment attaches to the replacement of the joinery at Gore Street.
[1627] The Council contends that replacement of a new level 3 canopy roof in lieu of an existing roof which has surpassed its Building Code durability period is a classic instance of betterment. I make four points:
(The fact that the membrane has passed its durability period of 15 years does not necessarily mean that it is due to be replaced because that
conflates the Building Code’s durability requirement with the likely lifespan of a membrane.
(The actual life of a membrane depends on many factors including maintenance and condition.
(There is cogent evidence that the maintenance has not been at a recommended level.
(The fact that the Body Corporate intends to undertake replacement of the Sailor’s Lounge roof at the same time may be a choice to incur early expenditure (opportunistic if another party is responsible for replacing the adjacent membrane) but also tells in favour of the desirability of replacement. In turn that supports the Council’s argument that there is some betterment if the membrane is replaced.
[1628] Those factors led me to a provisional view that there is some betterment in relation to the level 3 canopy roof but nowhere near the level where the plaintiffs would be required to meet the full cost. Provisionally, and subject to hearing further from the parties, I consider the level of betterment is in the range of ten to thirty percent but only in relation to some and not all aspects of the proposed remediation. The same considerations apply to the replacement of the membrane on the podium.
[1629] The betterment issues in relation to the bathrooms are too interwoven with proposed remedial work in respect of other defects to proffer even a provisional view. Mr Klosser signalled that the works associated with the remediation of the bathrooms and adjacent kitchens are impacted by other defects. However, Mr Woodworth’s evidence that refurbishment of bathrooms, kitchens and interiors for large multi-unit developments usually take place on a 10 yearly cycle suggests that the betterment element will need careful consideration and may be relatively significant.
Are any defendants entitled to contribution from any other defendant?
[1630] Potential issues under s 17 of the Law Reform Act 1936 were not addressed in closing submissions.537 I will need to hear further from the parties with due regard to the solvency of joint tortfeasors.
Is Goods and Services Tax (GST) payable?
[1631] It is common ground that any damages representing remedial costs awarded to the Body Corporate are on a GST exclusive basis. This is because the Body Corporate is registered for GST and therefore entitled to a GST input tax credit on the costs of the remedial work.
[1632] Given my determination in respect of the standing of the Body Corporate to recover cost of repairs damages, most of the arguments around GST are moot. I apprehend that the only remaining GST issue lies in respect of the repair cost for claimed defect 13. These damages are payable to the second plaintiffs rather than the Body Corporate.
[1633] It is not disputed that second plaintiffs who use their units either for personal use or for residential tenancy purposes cannot receive GST input tax credits in respect of expenditure for their unit. This is because neither personal use nor residential tenancies are taxable activities. GST is also not payable on general damages.
[1634] In the usual course, an award of compensation directly to second plaintiffs in respect of the remedial costs of claimed defect 13 will lead to the Body Corporate levying owners on a GST inclusive basis for those costs. Whether owners are entitled to claim back the GST portion of their levies will depend on whether they are GST registered and whether they use their units in a taxable activity.
[1635] Commercial uses of units are taxable activities. Second plaintiffs whose units are in the hotel pool or who rent their unit via Air BnB or similar are engaged in taxable
537There was no need to address such as between Equus and the Council by agreement of those parties.
activities and liable to be registered for GST where the total value of supply meets the thresholds set out in the Goods and Services Tax Act 1985 (GST Act).538
[1636] The second plaintiffs argue therefore that any compensation made directly to second plaintiffs who are GST registered and use their apartment for taxable activity should be on a net GST basis. Compensation to all other second plaintiffs should be on a GST inclusive basis.
[1637] The Council’s response is that it is not only those second plaintiffs who are GST registered to whom payment should be on a net GST basis but also those second plaintiffs who are not GST registered but are liable to be GST registered. In short, that second plaintiffs should also have to prove that they are not liable to be GST registered before they can claim the GST component as part of an award of damages.
[1638] Mr Powell took the Court to valuation evidence which, while not directed to this point, provided some information on the likely total income derived from a unit rented on AirBnB. This suggested that owners of a single unit in Gore Street in short stay accommodation will not reach the threshold for GST registration. That analysis does not however take the matter very far since the registration threshold relates to the total value of taxable supplies made by the owner from carrying on all of their taxable activities.
[1639] I accept the Council’s argument that it was for the second plaintiffs to prove that they are neither GST registered nor liable to be GST registered. It follows that compensation to all second plaintiffs who use their apartment for short stay accommodation should be net of GST. Compensation to other second plaintiffs should be on a GST inclusive basis.
SUMMARY OF DETERMINED CLAIMS
[1640] The Council is jointly and severally liable to the Body Corporate for damages in relation to claimed defects 1 (limited to beams B4 and B5), 7, 8 (limited to the types
538 Goods and Services Tax Act 1985, s 51
of balconies defined in the judgment), 10, 11 and to the second plaintiffs in relation to claimed defect 13 (in the respects defined in the judgment) to be assessed:
(based on the factual findings in this judgment; and
(following further submissions addressing a consequentially revised remedial scope.
[1641] Mapei is jointly and severally liable to the Body Corporate for damages in relation to claimed defect 8 (limited to the types of balconies defined in the judgment) to be assessed:
(based on the factual findings in this judgment; and
(following further submissions addressing the remedial scope.
[1642] Holmes is jointly and severally liable to the Body Corporate for damages in relation to claimed defects 1 (limited to beams B4 and B5) and 7 to be assessed:
(based on the factual findings in this judgment; and
(following further submissions addressing the remedial scope.
[1643] Clark Brown is jointly and severally liable to the Body Corporate for damages in relation to claimed defects 8 (limited to the types of balconies defined in the judgment), 10 and 11 to be assessed:
(based on the factual findings in this judgment; and
( following further submissions addressing the remedial scope. [1644] The plaintiffs’ claims against Equus fail.
[1645] Chenery is jointly and severally liable to the Body Corporate for damages in relation to that part of claimed defect 7 attributable to its installation of fire stopping (and I will hear further submissions as to that extent).
[1646] The following claimed defects are time-barred: defects 3, 4, 6 and 12.
[1647] I dismiss the affirmative limitation defences to claimed defects 1, 2, 9 and 10.
[1648] The second plaintiffs are entitled to awards of general damages in accordance with their claims set out in paragraph [2075] of their written closing submissions. I will hear further from the parties as to whether any contributory negligence offsets should be deducted from the award of general damages.
[1649] I will hear from the parties as to the form of orders and terms of judgment to be entered.
[1650] The remaining issues, including as to any apportionment between defendants, will be determined after receipt of further submissions and/or hearing to be convened as early as possible.
[1651] I direct the Registrar to allocate a case management conference in person before me on the first available date after 15 March 2024. At least two hours should be allocated. Memoranda are to be filed and served no later than five working days before the allocated conference date.
[1652] Leave is reserved to apply for further directions. [1653] Costs are reserved pending further submissions.
[1654] Finally, it remains for me to thank counsel for their assistance and patience in this extraordinarily complex litigation.
............................................................
Walker J
- AGLC
- Body Corporate 366567 v Auckland Council [2024] NZHC 32
- Case
- [2024] NZHC 32
- Decision Date
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