Body Corporate 406198 v Argon Construction Ltd
[2023] NZHC 3034
•30 October 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001772
[2023] NZHC 3034
IN THE MATTER OF The Bianco Apartments BETWEEN
BODY CORPORATE 406198
Plaintiff
AND
ARGON CONSTRUCTION LIMITED
First Defendant
AUCKLAND COUNCIL
Second Defendant
Hearing: 1-5, 8, 10-11, 15-19, 22-26, 29-31 May and 1, 6-7, 19-20 and
22 June 2023
Appearances:
D R Bigio KC, R D Butler, S C I Jeffs, I J Stephenson, R J H Scott, H Chung and J C Wedlake for Plaintiffs
W A McCartney and D A Cowan for First Defendant
S C Price, M J Ferrier, C M Fairnie and S H Ji for Second DefendantJudgment:
30 October 2023
JUDGMENT OF ANDREW J
This judgment was delivered by Justice Andrew on 30 October 2023 at 3.00 pm
pursuant to r 11.5 of the High Court Rules 2016 Registrar / Deputy Registrar
Date …………………………….
BODY CORPORATE 406198 v ARGON CONSTRUCTION LTD & OR [2023] NZHC 3034 [30 October 2023]
TABLE OF CONTENTS
Introduction [1]
The parties [6]
Factual background [10]
Building consents [14]
Construction [17]
Auckland Council inspections [37]
Discovery of the defects by the plaintiffs [39]
Agreed defects [40]
The history of the claims and pleadings [41]
The pleadings [46]
The issues [47]
Defects and liability framework [50]
Scope and quantum [51]
Expert evidence [54]
The defects at issue [55]
Defect 1 – Cantilevered balconies [57]
Defect 2 – Podium [72]
The damage caused by the defects
Is the damage in respect of defect 1 of such a nature that the requirements of the Building Code are not met – is it actionable damage? [76]
Is the damage in respect of defect 2 actionable damage? [93]
Liability of Argon
Did Argon owe a non-delegable duty of care? [102]
Argon’s responsibilities [115]
Conclusion – Argon’s liability [120]
Liability of the Auckland Council
Standard of care [123]
Defect 1 [129]
Causation [163]
Defect 2 [166]
Conclusion on liability [169]
Reasonable remedial scope
Legal principles [170]
The plaintiffs’ proposed scope of remedial works [180]
Interpretation of ss 17 and 112 of the Building Act 2004 [186]
Is the plaintiffs’ scope reasonable? [203]
Evidence of the façade engineers – cladding [213]Mr Earley’s evidence – Auckland Council [237]
Mr Alexander’s scope of repair [241]
The acoustic matting [254]
What will it cost to repair the defects?
The parties’ positions [261]
Preferred approach [272]
Betterment [281]
Consultants’ costs [283]
Consequential losses [287]
General damages [288]
Standing [296]
Contributory negligence [322]
GST [334]
Affirmative limitation defences [337]
Apportionment between defendants [340]
Other issues
The non-legally represented plaintiffs [343]
Former owners/assignees [345]
Result [351]
Introduction
[1] This is defective building litigation. It involves the 157-unit residential unit title development (comprised of two towers) known as the Bianco Off Queen Apartments (Bianco Off Queen).1
[2] The Body Corporate and individual unit owners sue in negligence. The defendants are the building contractor, Argon Construction Ltd (Argon), and the Auckland Council (i.e. the territorial authority).
[3] The remaining defects at issue are weathertight-related.2 The plaintiffs say the building was built with cantilevered balconies that have defective waterproofing (defect 1). They also say that the waterproofing on the ground level (including the podium common areas) suffers from similar problems (defect 2). The overwhelming majority of the damages sought relate to the cost of remedying defect 1.
[4] The plaintiffs seek total damages of $40,739,870.3 Their remedial scope (i.e. what is reasonably required to remedy the defects) involves wholesale/building-wide repairs including replacement of all cladding, joinery and balcony balustrades.
[5] The defendants deny liability. In particular, the Auckland Council contests virtually every element of the plaintiffs’ claims, including the nature and extent of the defects. A central issue is the reasonable scope of repairs and the costs to carry out those repairs. There is also an issue of standing; the ability of the Body Corporate to sue for the costs of repairs. On the critical issues, the respective positions are very far apart.
The parties
[6] The first plaintiff is Body Corporate 406198. There are 93 second plaintiffs who constitute the current or former proprietors of 132 of the 157 legal units. I note
1 The original name of the building was Turner Waverly.
2 A number of claims against other defendants and third parties were settled on the eve of or during the early part of the trial. This removed the fire and hot water defects from the scope of the remaining claims as well as a significant number of parties.
3 Plaintiffs’ closing submissions – claim summary, dated 22 June 2023.
that there are 178 units in total if dual key units are counted as two units, where the second plaintiffs represented by Lane Neave in these proceedings own 147 of the 178 total units.4 Some of the second plaintiffs own more than one unit.
[7] Two of the second plaintiffs are self-represented. They are Yinling Linda Wu and Haixin Wang. These two plaintiffs seek a discrete award of damages in favour of them individually, although their claims are based wholly on the expert evidence in the case generally advanced by the Body Corporate.
[8] Some of the units are rented out via the Residential Tenancies Act 1986 and some are used for temporary accommodation as part of a serviced accommodation business (Hotel Pool) that operates in the towers. The 147-total units owned by the second plaintiffs are comprised of the following:
(a)67 units are rented out to tenants;
(b)30 units are part of the Hotel Pool;
(c)38 units are owned by Kāinga Ora; and
(d)12 units are owner-occupied.
[9] A number of the second plaintiffs purchased their respective units in either 2016 or 2017. Most of these owners received pre-contract disclosure statements which referred to Body Corporate AGM minutes. Most of these owners also had solicitors acting for and advising them on their respective purchases.
Factual background
[10] Bianco Off Queen is located in central Auckland, between Symonds Street and Queen Street. Tower A consists of 14 storeys and 3 basement levels. Tower B consists
4 As stated, Bianco Off Queen comprises 178 units in total if dual key units are counted as two units. There are 21 dual key units, so if counted as one legal unit, there are 157 legal units. Of the 178 total units, there are 21 studio units, 41 one-bedroom units, 115 two-bedroom units and one three- bedroom unit. 147 of these units are owned by second plaintiffs, of which 31 are one-bedroom units, 96 are two-bedroom units, one is a three-bedroom unit and 19 are studio units.
of 13 storeys, including one mezzanine level, and two basement levels. The basement levels include car parks.
[11] The above-ground units are individual apartments which, as stated, are a mix of rentals, short-term accommodation and owner-occupied units. The only exception is a unit on level 1 which is used as the hotel reception and hotel offices.
[12] A central podium and pedestrian walkway separate the two towers. These areas are covered with ceramic floor tiles over liquid-applied waterproof membrane.
[13] Each tower is served by a staircase and two lifts which extend to all levels, including basement levels. Above ground, the staircases are situated on external walls and are partially exposed to weather.
Building consents
[14] On 1 March 2007, Argon and the original developer, Bianco Limited, entered into a contract for the construction of Bianco Off Queen. The critical consents for the purposes of these proceedings are as follows:
(a)BLD 20041713901 – which concerned the super-structure and building services (this was referred to by the parties and their witnesses as the “901” consent.);
(b)BLD 20041713904 – which concerned a change of cladding.
[15] Argon completed construction around January 2009. The Auckland Council issued the relevant Code Compliant Certificates on 30 January 2009.
[16] The apartments were designed to be affordable and relatively low-cost. They were described by Mr Stephen Alexander, expert building surveyor witness for Argon, as “a low initial cost/high life cycle cost building”.
Construction
[17] The building structure is reinforced concrete with steel frame infill sections to the external walls.
[18] The steel framing of the main structural exterior wall is designed to resist wind loads, hold the interior lining (plasterboard), contain the insulation, and hold the rigid air barrier (RAB). The purpose of the RAB is to prevent uncontrolled air infiltration through the wall and also to deflect any water that gets past the outer portion of the wall.
[19] The majority of the external walls are clad with a rainscreen cladding system, comprising of prefabricated “Moduclad” cladding modules. This system is denoted as a James Hardie ExoTec façade panel rainscreen and RAB (with James Hardie’s rigid air barrier product being called RAB™ Board).
[20] The rainscreen portion (i.e. the outer portion of the wall) consists of narrow steel battens fixed over the outside of the RAB. The exterior cladding of the building is then fixed to these rainscreen battens. The purpose of the rainscreen is to resist water entry into the inner portion of the wall. Water that enters behind the exterior cladding should drain out the bottom of the rainscreen without causing damage to the other parts of the wall.
[21] Attached and marked ‘Appendix A’ is a copy of the structural drawings of the cladding system contained in the consent drawings by the manufacturer Jacobson Façade Systems Ltd.
[22] Each of the 157 units have at least one balcony. The balconies to the apartments above ground-level are cantilevered. The balconies are covered with ceramic tiles, installed over liquid-applied waterproofing membranes and acoustic matting, with metal-framed railings providing fall protection.
[23] The structure and waterproofing of the balconies were designed by ADC Architects and Buller George Engineers Ltd. The initial drawings for the balconies specified that the concrete was to be poured off-site, with screed to be applied on-site
to provide the balconies with a slope towards the building. This included forming a drain into the pre-cast concrete slab prior to installation. However, Argon proposed, and the architects approved, an alternative construction methodology. That alternative provided for the entirety of the structure to be completed off-site using pre-cast concrete and installed on-site by Argon. No screed was applied in the construction of the balconies.
[24] Concretec New Zealand Ltd supplied the pre-cast balconies which Argon subsequently installed. TAL Ltd (TAL), the tiling sub-contractor, waterproofed and tiled the balconies. Argon placed grates (or grills) over the balcony drains. The Auckland Council carried out some inspections of the waterproofing of the balconies throughout the construction.
[25] A diagram showing the design elements of the cantilevered balconies, as they were built, is set out below.
[26] The balconies are constructed with one or more pre-cast concrete slabs. As constructed, the pre-cast slabs extend into the building by approximately 250 mm. The steel holding the balcony to the building is contained in the bottom of the slab (the slab itself is a 200 mm slab). The steel, that does all the work of holding the balcony to the building, is about 50 mm from the bottom. On the slab, there is a raised perimeter nib, also made of concrete. The nib is located on the exterior face of the balconies.
[27] The apartments situated on the corners of the towers have larger balconies. For these balconies, there is more than one pre-cast concrete slab, meaning that multiple slabs butt together to form joins or joints. Those joints are more vulnerable to ingress from moisture. This is one of the areas where there has been water ingress through the balconies.
[28] The waterproofing membrane was to be reinforced with mesh. A cementitious adhesive was to be applied on top of the waterproof membrane, to which the tiles were to be affixed.
[29] Once constructed, the balconies had a fall of 20 mm, with the higher part of the fall being located adjacent to the perimeter nib. Water, once it lands on the tiles of the balconies, runs towards the apartments, where it was designed to be diverted away from the apartments by a channel drain with a downpipe.
[30] A diagram demonstrating the “bottom of wall detail” and where the wall intercepts with the balcony drain on the interior face of the balcony is attached as ‘Appendix B’.
[31] The consented drawings showed “Mapelastic Waterproofing on [Mapefonic] Acoustic System”, a BRANZ-approved proprietary system including a waterproof membrane and an acoustic mat. However, as built on most balconies, the acoustic matting was made of cork. In some instances, a rubber matting was used instead of Mapefonic. Cork is absorbent and biodegradable.
[32] The specified Mapelastic membrane is a cementitious (two-part) liquid-applied membrane system produced by Mapei New Zealand Ltd. The consented drawings show that the membrane was to terminate around the perimeter by “sawcut to seal waterproofing membrane”.5
[33] Changes to the original design, including the dispensing of the sawcut were agreed between Argon, Mapei and the architect. As part of the change process Mapei,
5 In his evidence, Mr Gabriel, general manager for Argon (and site engineer during the construction of Bianco Off Queen), described this as follows “[t]he original design provided that the liquid applied membrane would terminate into the balcony chase, which is a slot cut into the balcony for this purpose” (i.e. a sawcut). He says that following discussions with Mapei it was decided that the liquid-applied membrane could be terminated at the up-stand without the need for a chase.
in an email to Mr Gabriel of Argon on 27 June 2007, stated “[a]s long as the membrane is allowed to turn up onto the up-stand, the sawcut is not a necessary.” That email also stated:
Mapei’s Mapefonic System has been specified by the architects as the under- tile acoustic product. We would very much like this specification to stand. However, if acoustic cork is utilised, we can offer a system of adhesives, waterproof membranes, grouts and sealants that will be covered by a Mapei Product Performance Warranty.
[34] The products that would be covered by that warranty are then listed in the email and included alkali resistant fibreglass mesh “for reinforcing waterproof membrane over acoustic cork”.
[35] As built, none of the balconies investigated by the plaintiffs’ experts had membrane to the inside face of the nib. The membrane terminated on the horizontal surface of the balcony before the nib as shown in the drawing above at [25]. The plaintiffs say that the as-built detail was a high-risk detail.
[36] TAL issued two producer statements for the tiling and waterproofing. One was dated 21 November 2008 and covered tower A and the podium, and the other one was dated 12 December 2008. Mapei was a supplier to TAL. Argon did not have a direct contract with Mapei. Mapei issued a product performance warranty for their Mapelastic product on 29 October 2008.
Auckland Council inspections
[37] Between 6 and 8 November 2008, Mr Pulu from the Auckland Council inspected some of the balconies, including all of the balconies on levels 4, 5, 6, 7 and 8 in tower A. The waterproof membrane was given a pass and the overflow and discharge drain was regarded as “not applicable”. At the time of these inspections, the “grill over [the] deck area[s]” had not been put in place.
[38] There was only one inspection of the podium area by the Auckland Council. That occurred on 12 November 2008 and resulted in a “pass”. It appears that the inspector only inspected “2/3 of the north-west side of the podium area”.
Discovery of the defects by the plaintiffs
[39] The possibility of defects 1 and 2 were first communicated to the unit owners at the 15 February 2017 AGM. A preliminary report from Maynard Marks, building surveyors and remediation specialists, was received by the Body Corporate in May 2017 which advised that there were enough concerns about aspects of the construction of the building, including balcony and podium waterproofing, that further investigation was necessary. The findings of this report and the prospect of litigation was communicated to the unit owners at an Extraordinary General Meeting on 21 June 2017.
Agreed defects
[40] At the experts’ conferral for waterproofing, convened under r 9.44 of the High Court Rules 2016, the experts commenting on the defects to the cantilevered balconies agreed that:
(a)there are failures to the membrane which have allowed water underneath the waterproofing membrane;
(b)water ingress is causing damage to the cork acoustic layer;
(c)in respect of damage to the cork acoustic layer, clauses E2.3.2 and B2 of the Building Code have been breached; and
(d)water has also entered the exterior walls causing damage in some locations, resulting in further breaches of E2.3.2 and B2 of the Building Code.
The history of the claims and pleadings
[41] Maynard Marks Ltd began its investigations in 2016. It raised a lengthy list of matters they considered to be defects or issues with the building. The original statement of claim filed in July 2017 asserted 99 specific defects.
[42] The Maynard Marks building assessment report of November 2018 again raised numerous issues with the building. The report and enclosures comprise 997 pages and included a long list of scope items. An initial, preliminary scope of remedial works was also prepared by Maynard Marks in 2018. An eighth version of that scope, referred to as MMSOW8 was prepared and dated 20 September 2021. This is described by the plaintiffs as a “foundation document” and is an essential component of their claims.
[43] Many of the alleged defects fell away with the plaintiffs’ sixth amended statement of claim of 1 July 2019. The ninth, and current, amended statement of claim dated 21 June 2022 contains four defects. As noted above, two of those have settled, leaving only defects 1 and 2 for me to determine. It is notable that despite the significant reduction in the number of defects pleaded, the plaintiffs’ alleged scope of remedial works has changed very little. Mr Price, on behalf of the Auckland Council, described this as a curiosity and submitted that this case “has all the hallmarks of the plaintiffs and/or Maynard Marks getting in too deep and being unable to find a way out”. A theme of the Auckland Council’s case is that what has happened here is that the plaintiffs have identified a large number of issues of concern and have been advised as to a scope of works to address those concerns, which have now been “shoe-horned” into what has become defects 1 and 2.
[44] The ninth amended statement of claim seeks judgment against the first and second defendants in the sum of $60,024,824.60 (including GST), together with general damages of $1,575,000 and consequential losses of $5,545,000. The damages sought has since been revised. The sum now claimed is $40,739,870.
[45] At the time the plaintiffs served their evidence in relation to scope and quantum, namely in February 2022, the damages claimed were based on an estimated 79–90 weeks duration for the remedial works. Since then, and in part because of the settlement of the fire and hot water claims, the quantum sought by the plaintiffs has reduced considerably. The plaintiffs’ expert programmer, Mr Gould, has also substantially revised his estimated duration of the remedial works to between 36 and 43 weeks. However, it remains the case that the vast majority of the plaintiffs’ quantum now sought relates to assertions that they are entitled to a full re-clad, new
joinery, new balustrades, a better tile system, better drainage and a raft of other upgrades or repairs (that have nothing to do with the membrane issues). The defendants say that even if the pleaded defects are made out, the plaintiffs’ scope is unreasonable and disproportionate; it is not recoverable damage.
The pleadings
[46] In the ninth amended statement of claim of June 2022, the plaintiffs claim that the defendants breached their duties of care in that Bianco Off Queen contains defects 1 and 2, as set out below:
(a)Defect 1 – cantilevered concrete balconies: failure to install or to ensure the balcony membrane was installed in accordance with the design and/or good trade practice, including failure to supervise contractors, failure to provide design details necessary to install proprietary waterproofing, and failure to inspect or call inspections of waterproofing.
(b)Defect 2 – Podium: failure to install or ensure the podium, truck dock, access ramps, and enclosed balconies had a waterproof membrane installed in accordance with the design and/or good trade practice, including failure to supervise contractors, failure to provide design details necessary to install proprietary waterproofing, and failure to inspect or call inspections of waterproofing.
The issues
[47] As noted, the defendants (particularly the Auckland Council) challenge and put the plaintiffs to proof on virtually every element of its claim. There are thus multiple issues. They include each of the elements of the tort of negligence which the plaintiffs carry the burden of proving. This includes: the nature and scope of the duties of care owed (and in Argon’s case, whether it owed non-delegable duties), breaches of the standard of care, damage, causation, the scope of repairs, calculation of quantum, consequential damages and contributory negligence. A further issue is the standing of
the Body Corporate to sue for recovery of the remedial costs and the consequences of my finding on that issue for any proven contributory negligence.
[48] The physical realities of the building are not seriously disputed in the sense that there is no challenge to what the plaintiffs’ building surveying experts (i.e. Maynard Marks) saw and photographed during the investigation of the building. However, the plaintiffs have presented a case based on the existence of systemic defects calling for wholesale/building-wide repairs. The defendants say that their evidence falls well short of establishing such systemic defects. The defendants say that Maynard Marks identified a small number of balconies which leak and then investigated the cause of those leaks; they did not investigate the workmanship on non-leaking balconies. The defendants say that the problems with such an approach are obvious.
[49] I will deal with each of the many issues in accordance with the following road maps.
Defects and liability framework
[50] I adopt the following approach in respect of each alleged defect (i.e. in relation to defect 1 and 2) to determine liability:
(a)What is the alleged defect and does it exist?
(b)Is there a “defect” – does it breach the Building Code and what is the extent of damage?
(c)Did Argon owe non-delegable duties of care in respect of the defect?
(d)Should it have been identified by the Auckland Council?
(e)Would it have been prevented by the Auckland Council?
Scope and quantum
[51] I will approach the scope and quantum issues (if liability is established) in accordance with the following road map:
(a)What is reasonably required to remedy the alleged defect and any damage it has caused?
(b)What are the costs of the reasonable remedial scope?
[52] This assessment includes addressing the issue of whether the reasonable cost of carrying out the remedial works is to adopt the least expensive method. It also involves an interpretation of ss 17 and 112 of the Building Act 2004.
[53] At the conclusion of the judgment, I address a number of subsidiary issues, including the standing of the Body Corporate to sue, GST, general damages and contributory negligence.
Expert evidence
[54]Expert evidence was given by a range of experts, including the following:
(a)Building surveyors – Mr Richard Angell (plaintiffs), Mr Darryl August (plaintiffs) and Mr Stephen Alexander (Argon). Mr Angell and Mr Alexander participated in an expert conferral on waterproofing under r 9.44 of the High Court Rules and signed a Scott Schedule which was filed with the Court.6 Mr Matthew Earley for the Auckland Council also participated in the conferral but was not called as a witness.
6 “Scott Schedules” are frequently used in the Technology and Construction Court (TCC) in the UK. Their aim is to identify the main issues in dispute between the parties; they set out the defects alleged and the defendant’s responses, as well as joint comments setting out points of agreement and disagreement. See Napier City Council v Local Government Mutual Funds Trustee Ltd [2021] NZHC 1477 at [143], n 79; see also Emden’s Construction Law by Crown Office Chambers (online ed, LexisNexis) at [26.75]; and Jones v Onyut [2012] EWCA Civ 1816.
(b)Façade engineers – Mr Andrew Hakin (plaintiffs), Mr Matthew Paget (Argon) and Dr Gerrard Winter (Auckland Council). These witnesses also participated in an expert conferral under r 9.44 and filed a Scott Schedule.
(c)Quantity surveyors – Ms Heidi van Eeden (plaintiffs), Mr Clinton Brock (Argon) and Mr James White (Auckland Council). There was no expert conferral of the quantity surveyors.
(d)Engineering programmers – Mr Christopher Gould (plaintiffs) and Mr David Andrews (Argon). The Auckland Council had no expert programmer witness. There was no joint expert conferral. These witnesses address the estimated duration of the remedial works.
(e)Council practice – Mr Simon Paykel (plaintiffs) and Mr Anthony Hutt (Auckland Council).
(f)Property law/conveyancing expert – Mr Peter Nolan (Auckland Council).
(g)Consequential losses (including loss of rental and alternative accommodation costs) – Mr Bernard Wright (plaintiffs) and Mr Venkatakrishnan Dheenadayalan (Housing New Zealand Ltd).
The defects at issue
[55] The term “defect” is not defined in either the Building Act 2004 or the Building Code. Its meaning was discussed by Downs J in Minister of Education v H Construction North Island Ltd:7
… I use the term in an untechnical way, and as meaning only some error, shortcoming or imperfection in relation to an aspect of construction.
[56] I adopt his Honour’s definition as a reasonable working definition. I accept the Auckland Council’s submission that such definition must be assessed through a
7 Minister of Education v H Construction North Island Ltd [2018] NZHC 871 at [63].
2007–2009 lens (i.e. when the buildings were constructed). I begin by identifying the existence of each defect in accordance with the framework set out at [50] above.
Defect 1 – Cantilevered balconies
[57]In relation to defect 1 (the balconies) the plaintiffs’ plead:
(a)a failure to construct membrane up-stands to the perimeter nib of the balconies;
(b)a failure to ensure that reinforcing mesh was encapsulated within the membrane;
(c)a failure to ensure the membrane was adequately lapped into and over the drainage outlets;
(d)a lack of Mapeband; and
(e)a failure to ensure the membrane was applied with sufficient thickness.
[58] The essence of the plaintiffs’ claim (in relation to both defects 1 and 2) is that there has been the failure of an integrated system designed to keep the building weathertight. That failure is pleaded primarily as a failure in respect of the installation and performance of the membrane.
[59] The factual premise (i.e. the situational facts) of defect 1 is not really at issue. These agreed situational facts include:
(a)the membranes were not dressed into sawcuts and in many cases there was cork matting under the membrane rather than Mapefonic;
(b)the cork has become wet and/or decayed in the locations identified by the plaintiffs;
(c)the consented plans (as a matter of fact) required a chase/sawcut to the inside face of the balcony nib, but as built, there were no sawcuts;
(d)there was no membrane up-stand on the perimeter nib;
(e)on some balconies the membrane was poorly dressed into the outlet and in some cases not pressed into the outlet at all; and
(f)the thickness of the membrane was highly variable and on many balconies the mesh was not encapsulated within the membrane.
[60] However, the defendants do not accept that each of these factual state of affairs constitute an actionable defect; the extent of damage (if any) and whether there has been a breach of the performance and functional requirements of the Building Code are at issue.
[61] In addressing the critical issue of whether the matters pleaded are actionable defects for which the defendants might be liable, the Scott Schedule for the waterproofing defects (covering both defects 1 and 2) is obviously a helpful starting point.8 The participating experts, which included Mr Earley, expert witness for the Auckland Council, agreed that there had been breaches of the Building Code including B2 (durability) and E2 (external moisture). However, in the relation to the truly disputed issues of the extent of damage and reasonable scope of remediation, there are substantial differences between the experts that I need to address.
[62] I generally agree with the submission of the plaintiffs that in addressing their contention that there has been a failure of an integrated system designed to keep the building weathertight, it is important not to focus unduly on individual specific defects in isolation. It is often not possible to determine with 100 per cent precision what contribution they individually have made to the problem of moisture ingress, particularly where the obvious remedial solution is to remove and replace the whole membrane or some equivalent. I also acknowledge that a plaintiff does not have to “wait for physical damage to occur” before it is regarded as having suffered loss or
8 See [40] above.
harm.9 The plaintiffs do not need to show the existence of leaks on every balcony leading to visibly manifested damage within every apartment. However, the plaintiffs do carry the burden of proving actionable damage, namely damage that is more than de minimis. They must also prove that their proposed scope of repairs is a reasonable and proportionate one having regard to the nature and extent of the defects and the damage or likely damage suffered.
[63] The practical application of the burden of proof is also important. As discussed by the Supreme Court in Z v Dental Complaints Assessment Committee, there is a single civil standard, the balance of probabilities, however the cogency of evidence required may depend upon the seriousness of the matters to be proved and the consequences of proving them.10 This principle is of importance here. The plaintiffs’ allegations are serious in the sense that if they establish the existence of the alleged defects and breaches of the Building Code, as well as their alleged remedial scope, then they say that the defendants are liable for tens of millions of dollars in damages. Those are of course serious matters and consequences, and the Court is entitled to expect the plaintiffs to adduce cogent evidence with sufficient probative force to prove them.
[64] Mr Alexander, Argon’s expert building surveyor, was a model witness. His evidence was substantially helpful, presented in a coherent and well-structured manner, and his criticisms of the plaintiffs’ experts was restrained and measured. I agree with his criticism. I accept Mr McCartney’s submission that Mr Alexander’s evidence was unassailable. I acknowledge the significant constraints that the plaintiffs’ expert building surveyors were operating under, but by comparison their evidence falls short of the quality and standard adopted by Mr Alexander. I agree with and accept the problems he identifies, and his analysis of them, as well as his remedial scope.
[65] The plaintiffs’ criticisms of Mr Alexander are misplaced. Mr Alexander is well qualified to speak about concrete balconies over non-habitable spaces and to place
9 Body Corporate 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 [Spencer on Byron] at [45].
10 Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 at [112].
some emphasis on that fact in diagnosing the problems and proposing a solution. He has substantial and relevant experience in the New Zealand building industry. His company, Alexander & Co Ltd, has been investigating building failure and assisting with dispute resolutions since the beginning of 2000.
[66] I agree and accept Mr Alexander’s analysis that there were two problems that arose with the balconies:
(a)Some of the downpipe connections leak where the downpipe connected to the channel drain in the balconies. Due to the downpipe being located very close to the exterior wall, this allowed some water to enter the wall.
(b)Many of the balcony joints allowed water to pass through due to voids in the concrete that had not flowed well into the joints. As the joint extended over the top of the exterior wall, some water damage has occurred in that local area, but this only happens on balconies that have joints.
[67] The plaintiffs’ expert witnesses focus on the failure of the membrane as the main mechanism of failure. However, I agree with Mr Alexander that that is not entirely correct. As Mr Alexander stated, pre-cast concrete balconies on the outside of a building should not need any waterproofing membrane at all (except where that is required to protect an acoustic mat from water). The real problem is the fault under the membrane.
[68] In addressing (below) the critical issues of extent of damage and what might be a reasonable scope of repair, it is important to focus on these two specific pathways for water to get into the apartments (i.e. moisture ingress around the outlet pipes and the concrete joint between two sections of balconies). I note that Mr Angell in cross- examination accepted that these are the only two avenues for water to get in behind the cladding.
[69] Mr Alexander’s evidence, which I accept and adopt, does however provide substantial support for the plaintiffs’ contention that the matters pleaded are actionable defects and sufficiently widespread to be described as systemic. This includes a failure to use a Mapeband tape. Mr Alexander notes that the application of the membrane was not uniform across all 179 balconies but that the application was “typically” of poor quality. As with Mr Angell, he did not observe any Mapeband tape on any of the balconies that he investigated. I find that it is reasonable to infer from the technical literature that the use of Mapeband tape is an integral part of the waterproofing product.
[70] The Auckland Council responsibly accepts that the following matters are “patently defects”: missing membranes over some outlet flanges, a lack of thickness with the membrane,11 and the reinforcing mesh not being encapsulated within the membrane in accordance with the requirements of the technical literature. What of course is in dispute is whether these matters are ultimately of any consequence – are they systemic and what is the extent of any damage that has resulted? I discuss this below in the second stage of my analysis.
[71] I also find that, as pleaded, the failure to construct membrane up-stands to the perimeter nib of the balconies (or to construct an equivalent sawcut/chase) was a defect. As Mr Angell noted, for a waterproofing system to be effective it must be terminated in a way that prevents moisture from entering behind and under the membrane system. That is widely acknowledged in the contemporaneous literature, including the Mapei Mapelastic technical literature and the BRANZ Appraisal Certificate No 485 (2005).12 I note also that Mapei, in its email to Mr Gabriel of Argon of 27 June 2007, expressly stated “[a]s long as the membrane is allowed to turn up onto the up-stand, the sawcut is not a necessary”. There may have been a meeting subsequent to that fact and a design change, however that does not affect my finding that this was a defect.
11 The Mapei Mapelastic technical literature and the BRANZ appraisal require the membrane to be a minimum of 2 mm thick. The undisputed evidence of Mr Keesing concluded that the thickness was highly variable, and only 2 out of the 28 membrane samples had a minimum thickness exceeding 2 mm across the entire membrane.
12 The Mapei Mapelastic technical literature notes that “special care” must be taken when waterproofing check joints and fillet joints between horizontal and vertical surfaces. In those locations either Mapeband or other specified products must be used.
Defect 2 – Podium
[72] It is agreed defect 2 was and is a much less significant issue than defect 1. The parties also agree that logically my findings in relation to defect 1 will be applicable to the conclusions that I reach in relation to defect 2.
[73] Defect 2 relates to defective waterproofing on the ground level, including ground floor balconies, the exterior podium, the adjoining walkways and stairs, vehicle access ramps, and the truck dock. The plaintiffs plead that there is moisture ingress beneath the waterproof membrane applied to these areas.
[74]There are two areas of alleged damage in relation to defect 2:
(a)At the podium or ground level, which is exposed, there are common walkways, a truck dock and a series of enclosed balconies. These balconies are distinct from those captured in defect 1 as they are at ground/street level and are “enclosed”. They are not cantilevered as with defect 1.
(b)Below the podium level are two basement levels, “B2” and “B3”, which are carparks. It is said that water has travelled beneath the podium levels (balconies, stairways and walkways) and into the basement levels.
[75] I accept that the plaintiffs have established the existence of defect 2. As with defect 1, however, the key issue in dispute is the extent of this defect and whether it is actionable damage. I, once again, will address this in the second step of my analysis.
The damage caused by the defects
Is the damage in respect of defect 1 of such a nature that the requirements of the Building Code are not met – is it actionable damage?
[76]As Gwyn J held in Bates v Auckland Council:13
13 Bates v Auckland Council [2021] NZHC 2558 at [177]; citing Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC).
[177] The plaintiff has the legal burden of proof as to alleged damage and also, as a matter of fact, has the power to investigate and prove damage. In Sunset Terraces [High Court decision] Heath J said:
… evidence must be weighed according to the proof which it was within the power of one side to have produced and in the power of the other to have contradicted.
[77] I also adopt the following principles set out by Downs J in Minister of Education v H Construction North Island Ltd:14
(a)Clause E2.3.2 provides that roofs and exterior walls must prevent the penetration of water that “could” cause damage to building elements. Anticipation and prohibition of potential damage makes clear actual damage is not required for a breach of the Code.
(b)As Tipping J held in Spencer on Byron:15
… A duty of care should be recognised in respect of pre-emptive expenditure as well as expenditure necessary to reinstate or repair physical damage which has actually occurred.
(c)The Code does not contemplate “reasonable” damage in consequence of water ingress. Rather, it seeks to prevent damage.
(d)The Building Code is clearly concerned with undue dampness and potential undue dampness. Consequently, not every instance of water ingress will breach the Code. Some water may be able to harmlessly escape. Or evaporate. However, the Code does not envisage dampness arising from leakage. Rather, and as with damage, it seeks to prevent just that.
(e)The relevant objective of the Building Code is to “safeguard people from illness or injury that could result from external moisture entering the building”.16 As Tipping J held in Spencer on Byron, the “primary statutory purpose” of the Building Act 1991 was “the construction of
14 Minister of Education v H Construction North Island Ltd, above n 7, at [116]–[121].
15 Spencer on Byron, above n 9, at [45].
16 Building Regulations 1992, sch 1 cl E2.1 [Building Code].
buildings that do not pose health and safety risks to their occupants”.17 That purpose is reflected in s 3 of the Building Act 2004.
[78] The question of whether there has been a breach of the requirements of the Building Code is ultimately a matter for me to determine. However, the agreed approach of the building surveyor experts is helpful in addressing that issue. They concluded that where there was water under the waterproofing membrane on the balconies inspected that this was a breach of cl B2 (durability) with respect to damage to the cork acoustic mat. They also agreed that there was a breach of cl E2.3.2 to the extent that water has entered and damaged the cork (being a building element) and also to the extent that water had entered the exterior walls causing damage in some locations.
[79] I find that the following breaches of the Building Code have been established: a breach of cl B2 with respect to damage to the cork acoustic mat, breaches of cl E2.3.2 to the extent that water has entered the exterior walls and caused damage in some locations and a breach of cl E2.3.7 where the balconies and membrane were constructed in a way that did not make due allowance for the consequences of failure. On the latter point, I agree with the submission of Mr Bigio KC that the location of the downpipe, being located in some instances very close to the exterior wall, created a risk that if it was not sealed and constructed properly and consequently failed, it could cause a breach of E2.
[80] Clause B2.3.1 of the Building Code sets out the required durability of building elements. “Building element” is defined broadly in cl A2 of the Code to be any structural or non-structural component and assembly incorporated into or associated with a building. I find that this definition encompasses cork acoustic matting. The required durability is either 5, 15 or 50 years depending on the characteristics of the particular building element, in particular how difficult it is to access or replace and whether the failure of the element would be detected during the normal use or maintenance of the building.
17 Spencer on Byron, above n 9, at [50].
[81] Clause B2.3.1(b) provides that building elements must satisfy the performance requirements of the Building Code for at least 15 years where such elements are moderately difficult to access or replace, or failure to comply with the Code would go undetected during normal use of the building (but would be easily detected during normal maintenance). Clause 1.2.1 of Acceptable Solution B2/AS1 sets out some guidelines to evaluating the durability requirements of building elements and states that “moderately difficult to access or replace” applies to building elements where access or replacement involves the removal or alteration of other building elements.18 To replace the cork acoustic matting, it would be necessary to remove the membranes and other parts of the balconies. Clause 1.3.1 refers to Table 1, which contains a list of nominated building elements and their durability requirements; the durability requirement for “surface mounted” acoustic elements is deemed to be 15 years.
[82] Based on this, I find that the cork acoustic matting has a durability period of 15 years (at minimum). On the evidence, this requirement has clearly been breached.
[83] Strictly speaking, a balcony is not a roof or an exterior wall for the purposes of cl E2.3.2. However, given the nature of the construction here, the balconies do, to some extent, perform a roof and exterior wall function.19 Furthermore, it logically makes no sense to exclude balconies from the operation of cl E2.3.2 when, as here, the construction of the balcony and in particular the waterproof membrane system has failed to prevent penetration of water that could cause damage or undue dampness. Although ‘balconies’ are not expressly referred to, the failure of the waterproofing of the balconies has, at least to some extent, led to the penetration of water into the exterior walls (which is, of course, expressly referred to). There is no other subclause within cl E2 that deals specifically with balconies, and I find that the balconies here were constructed in breach of E2.3.2. In reaching that conclusion, it is important to have regard to the overall objective in cl E2.1 (i.e. safeguarding people from injury
18 See Bates v Auckland Council, above n 13, at [48], n 2: Acceptable solutions are documents that set out methods of complying with the Building Code. Anyone who complies exactly with the methods described in the acceptable solution for a Building Code clause is deemed to comply with the Building Code (see s 19(1)(b) of the Building Act 2004).
19 Mr Alexander noted that the pre-cast balcony, built off-site, is incorporated on-site into the structure of the building. When the concrete floor is cured the balcony “becomes integral with the main structure”. This is demonstrated at figure 05 of his evidence at [10.2] of his Brief of Evidence dated 28 October 2022.
that could result from external moisture entering the building) and the overall functional requirement in cl E2.2 of adequate resistance to penetration of water.
[84] In reaching those conclusions as to breaches of the requirements of the Building Code, I find that the damage at issue is more than de minimis. As noted above, actual damage is not required for a breach of the Code.
[85] There is, however, a real issue as to the extent to which the plaintiffs have established actionable damage (beyond the threshold of de minimis) and, in particular, in and behind the cladding. On that critical issue I agree with and adopt the findings reached by Mr Alexander, namely that water penetration “into and through the façade wall assembly” has been limited. I agree with Mr Alexander that to the extent that water has entered the inner part of the wall assembly then that would represent a breach of cl E2 (external moisture). I also find that there is some merit to his statement that water entry into the rainscreen cavity is not necessarily a breach of E2 because the purpose of the cavity is to collect rainwater and drain it back to the exterior (to protect the inner portion of the wall). However, in applying the principle of anticipation and prohibition of potential damage, where actual damage is not required, I ultimately consider that there has been a breach of E2.
[86] One of the fundamental difficulties with the plaintiffs’ expert building surveyor evidence is their failure to provide an adequate scientific and reasoned basis to reach the conclusions for which the plaintiffs contend, namely that there has been significant water penetration, or the very real risk of it, into and through the façade wall assembly.
[87] I acknowledge that an assessment of the extent of damage, and in particular latent damage, can be a difficult exercise. I agree that a 100 per cent scientifically accurate approach, particularly with a building of Bianco’s kind, cannot be achieved. I also accept Mr Bigio’s submission that the standard destructive testing required in a case like this cannot be at such a level that it would effectively create an obligation on owners to repair first and sue later. In principle, Mr Bigio is correct that one will only ever know what the actual loss is after the remedial work is completed.
[88] I acknowledge that the extensive photographs taken by Mr Angell are a helpful starting point. However, it is not good enough simply to rely upon the photographs; some expert analysis, as carried out by Mr Alexander, needs to be done to squarely address the issue of extent of damage, including likely future damage if remedial action is not taken. Furthermore, as noted above, the cogency of the evidence required depends upon the seriousness of matters to be proved and the consequences of proving them.20 Here, the allegations are very serious; the plaintiffs seek tens of millions of dollars in damages.
[89] In cross-examination, Mr Angell properly accepted that there was very limited evidence of corrosion to the steel battens. In my view, there is substantial merit to the criticism Mr Alexander makes of the plaintiffs’ witnesses, including a failure to adequately appreciate that Bianco Off Queen, unlike other leaky buildings, was constructed with concrete cantilevered decks above non-habitable spaces, where there is in fact a cavity and where there is no untreated timber framing. I also agree with the general tenor of Mr Price’s submission that if there is the degree of damage for which the plaintiffs contend, then after the extensive investigations undertaken and monies spent on these (beginning in 2016) the plaintiffs would surely have been able to provide more substantive and probative evidence as to moisture ingress.
[90]I accept and adopt the following findings made by Mr Alexander:
(a)a failure of both the waterproofing membrane and the sealant between pipe and concrete must happen at the same location for leaking to occur;
(b)the gutters do not drain large quantities of water;
(c)evidence of water damage to date is minimal; and
(d)the most vulnerable area is the rainscreen portion of the wall.
[91] The Auckland Council was correct in pointing out that the failures associated with concrete joins are not pleaded defects. However, that is somewhat beside the
20 Z v Dental Complaints Assessment Committee, above n 10, at [112].
point. The membrane was supposed to protect the joins in the concrete as well as the internal gutter. The sealant that was applied to the underside of the concrete joins was purely cosmetic. Water got into these joins because, amongst other things, the membrane directly above the joins failed. The pleadings understandably focus on the failure with the membranes.
[92] In conclusion on the issue of defects and damage, I find that the plaintiffs have established actionable damage in respect of defect 1. However, to date, water penetration into and through the façade wall assembly has been limited. The plaintiffs’ building surveyor experts overstate the risk of future water penetration. The consequence of these findings, namely the measure of the damage/loss established, is addressed below.
Is the damage in respect of defect 2 actionable damage?
[93] As set out above, the alleged damage in relation to defect 2 concerns two areas; the podium level (comprised of common walkways, a truck dock and a series of enclosed balconies) and the basement levels below.
[94] The Scott Schedule in relation to defect 2 records the agreement of Mr Angell and Mr Alexander that there has been moisture ingress from the podium to the carpark below and that this has caused breaches of cls B2 and E2.3.2 of the Building Code. However, Mr Alexander considered that any breaches are confined to fire collars and air-conditioning ducts.
[95] Messrs Angell and Alexander disagreed as to the primary cause of the water ingress. Mr Angell said it was one of a number of causes, all of which relate to the negligent installation of the membrane. Mr Alexander’s view on the other hand is that the primary cause of damage was the inadequate use of waterproofing membrane associated with the services pipe, fire collars and ducting. He considered damage was localised to areas where pipes and ducts penetrate into the basement carpark. Mr Angell’s view is that the membrane, as applied across the podium area, has failed and has led to damage beyond that associated with pipe and duct penetration.
[96] For the reasons given above, I prefer and accept the evidence of Mr Alexander on these issues.
[97] Mr Alexander investigated every penetration through the podium and identified which of them were leaking. In cross-examination, Mr August accepted that none of the plaintiffs’ experts have carried out an exercise similar to Mr Alexander’s investigation of the podium leaks. Mr August acknowledged that it “could be true” that Mr Alexander’s solution of simply fixing the penetrations that are leaking would work.
[98] I note also that Mr Alexander was the only witness who established that the largest cause of leaking into the carpark was via the services duct.
[99] I find that the plaintiffs have established the following actionable damage with respect to the podium and the areas covered by alleged defect 2. My findings are based in large part upon the evidence of Mr Alexander:
(a)There is water leaking down the walls on either side of the external stairs between the podium of building A and building B into a cupboard below, partially due to the use of an unreinforced and very thin membrane on the stairs.
(b)Of the 35 podium drainage outlets across both towers, 11 were found to be leaking. These outlets are leaking for the same reasons as with defect 1, namely a poor connection between the concrete/membrane and the PVC drainpipe.
(c)As to the apartments at ground level with enclosed balconies, there was insufficient membrane to outlets in drainage pipes.
[100] I agree with Mr Alexander that it is also important to place the defects in context. The carpark was designed as a wet space. The perimeter walls that retain the earth have not been waterproofed. Some below-ground structures are waterproofed with the intention that groundwater will never enter the space, but that was not the
intention with this design. The exterior retaining walls of the carpark allow groundwater to enter and on the bottom level there are drains to collect water. This is a common and acceptable design choice.
[101] I also agree with Mr Alexander that efflorescence on the block work does not necessarily constitute damage. As Mr Alexander notes, efflorescence does not indicate any diminution of structural capacity and is a visual nuisance rather than damage. On the other hand, severe efflorescent left untreated for a long period would constitute damage, but that threshold has not been reached. I also agree that cars are not building elements and are therefore not protected by the provisions of the Building Code. Although it might have been arguable that any damage to cars is a reasonably foreseeable consequence of the actionable defects that I have identified, no such claim has been made and such damage cannot be established on the evidence before the Court.
Liability of Argon
Did Argon owe a non-delegable duty of care?
[102] The plaintiffs sue in negligence. They must establish on the balance of probabilities that the defendants owed them a duty of care, that the duty of care was breached (i.e. the standard of care was not met), that the breach(es) caused damage, and that the damages resulted in a loss to the plaintiff.21
[103] The case law is settled; builders and local authorities in the performance of their statutory functions relating to building work owe duties of care to owners and subsequent purchasers of buildings.22 As the Privy Council held in the well-known case of Invercargill City Council v Hamlin:23
In a succession of cases in New Zealand over the last 20 years it has been decided that community standards and expectations demand the imposition of a duty of care on local authorities and builders alike to ensure compliance with local bylaws.
21 Johns v Hamilton City Council [2022] NZHC 379 at [69].
22 Johns v Hamilton City Council, above n 21, at [70].
23 Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) at 521.
[104] Builders owe a duty to take reasonable care to prevent damage to persons reasonably expected to be affected by their work, including purchasers.24 The scope of this duty is to ensure compliance with the Building Code,25 good trade practice,26 and other relevant statutory requirements.27
[105] Argon does not dispute they owed duties of care to the plaintiffs. However, its primary defence is that it did not breach any duty of care. Argon contends:
(a)it was never its job to install the membrane, that was the job of the specialist sub-contractor, TAL;
(b)Argon had no duty to ensure TAL installed the membrane correctly because it did not have a non-delegable duty;
(c)as the principal, it had no vicarious/secondary responsibility for any negligence of the independent contractor, TAL;
(d)Argon had no duty to supervise TAL;
(e)the architect was inspecting TAL’s work as it was done;
(f)TAL was a specialist water-proofer and Argon reasonably believed TAL to be competent in its specialist field; and
(g)Argon was also entitled to believe that the Mapei product would be fit for purpose.
[106] The critical issue for me to address is whether Argon owed non-delegable duties of care.
24 Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA) at 406 and 413; Minister of Education v Econicorp Holdings Ltd [2011] NZCA 450; [2012] 1 NZLR 36 at [55].
25 Hotchin v New Zealand Guardian Trust Co Ltd [2016] NZSC 24, [2016] 1 NZLR 906 at [198].
26 Boyd v McGregor HC Auckland CIV-2009-404-5332, 17 February 2010 at [60].
27 Findlay (trustees of the Lee Findlay Family Trust) v Auckland City Council HC Auckland CIV- 2009-404-6497, 16 September 2010 at [33].
[107]Todd on Torts describes non-delegable duties as follows:28
The concept of a non-delegable duty is problematic… However, the category is well established, if indeterminate, and is generally associated with relationships which give rise to a duty of care “of a special and ‘more stringent’ kind, namely a ‘duty to ensure that reasonable care is taken’”.
(emphasis added)
[108] The classic case and the starting point for the analysis is Mount Albert Borough Council v Johnson. There, the Court of Appeal imposed, for the first time, a non- delegable duty of care on a development company.29 Since then, it has been held in some cases that a builder (i.e. a construction company), as head contractor, has a non- delegable duty of care.30 Where a principal owes a non-delegable duty of care they will also be liable for breaches by independent contractors they have hired.31 A head contractor who had a primary duty of care would, therefore, be liable for the acts of sub-contractors.
[109] The nature of the builder’s role and responsibilities are key to determining whether it owes a non-delegable duty, as opposed to being liable solely for its own independent acts and/or omissions. Whether non-delegable duties are owed must be decided on the facts of each individual case. It is necessary to address whether the builder is in substance the “head contractor” and the extent to which it controlled and supervised the building work. The label is not always helpful. It is also apparent from Mount Albert Borough Council v Johnson, that public policy factors inform the ultimate conclusion.32
[110] In Morton v Douglas Homes Ltd, Hardie Boys J framed the duty of care owed by a builder to purchasers as a duty to “observe the bylaws and the permit conditions, and to take reasonable care to prevent loss or damage from defective construction”.33
28 Stephen Todd “Vicarious Liability” in Stephen Todd (ed) Todd on Torts (9th ed, Thomson Reuters, Wellington, 2023) at [21.9.2] (footnotes omitted).
29 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA).
30 Body Corporate 346799 v KNZ International Co Ltd [2017] NZHC 511 at [79]; citing Carrington v Easton [2013] NZHC 2023 at [80]; Lee v Ryang HC Auckland CIV-2011-404-2779, 28 September 2011 at [20].
31 Body Corporate 346799 v KNZ International Co Ltd, above n 30, at [80]; citing Cashfield House Ltd v David and Heather Sinclair Ltd [1995] 1 NZLR 452 (HC) at 463–464.
32 Mount Albert Borough Council v Johnson, above n 29.
33 Morton v Douglas Homes [1984] 2 NZLR 548 (HC) at 589.
His Honour held that the builder’s duty to observe the bylaws and the permit was a non-delegable duty and the fact that the company engaged someone else to assist it in discharging this duty could not excuse it for noncompliance.34
[111] In Carrington v Easton, the responsibility of two sub-contractors, who carried out defective building work under the head contractor, was in issue. While Venning J considered that the sub-contractors may have, in fact, carried out some of the defective work, his Honour found they did not owe the homeowners a duty of care. Venning J considered the head contractor to be in control of the site; the sub-contractors were working under his direction and supervision.35 It was the head contractor who directly contracted with the homeowners, and it was his obligation to observe the relevant building codes, regulations and plans and specifications. In reliance on Morton v Douglas Homes Ltd, Venning J considered this to be a non-delegable duty.36
[112] In Body Corporate 346799 v KNZ International Co Ltd (Victopia Apartments), the developer (KNZ) entered into a contract with Multiplex (a construction company) for it to “design, construct, complete, deliver and remedy defects” in the works described in the contract.37 The special conditions required Mulitplex to exercise reasonable skill, care and diligence in the construction. Multiplex was also required to “provide all necessary supervision during the contract” and all work was to be carried out under the supervision of Multiplex’s representative. Multiplex engaged various consultants to provide specialist design services, including fire engineering design, and a contractor to supply and install the cladding systems.
[113] Thomas J held that Multiplex was solely in control of the aspects of design and construction in respect of which the defects occurred.38 Her Honour noted that Multiplex made the stage two and stage three building consent applications on behalf of the developer and had issued a producer statement to the Council in respect of the building work undertaken. As a result of its role and responsibilities as described,
34 Morton v Douglas Homes, above n 33, at 592.
35 Carrington v Easton, above n 30, at [79].
36 At [80]; citing Morton v Douglas Homes, above n 33, at 592.
37 Body Corporate 346799 v KNZ International Co Ltd, above n 30, at [83].
38 Body Corporate 346799 v KNZ International Co Ltd, above n 30, at [86].
Thomas J held that Multiplex owed a non-delegable duty of care in respect of the defects.39
[114] Gilbert J’s decision in Body Corporate 326421 v Auckland Council (Nautilus) is particularly relevant.40 His Honour concluded that the head contractor was liable in tort for the creation and existence of all defects within the building despite not having designed or built all of them itself.41 This included the waterproofing carried out by a sub-contractor. The head contractor was jointly liable with the waterproofing company for the failure to comply with the manufacturer’s technical specifications, specifically a failure to allow the waterproofing membrane to cure sufficiently.42 The same finding was made in relation to membrane which had not been dressed into outlets and for a failure to ensure the membrane was continuous at balcony nibs. Gilbert J considered the head contractor to have “overall responsibility for the works”,43 including the responsibility of ensuring that the works met the requirements of the code.44
Argon’s responsibilities
[115] Argon was the head contractor and the builder at the centre of the construction work. It had project management functions. It was a key party with significant control over and capacity to influence the quality of the construction and its adherence to Building Code standards. It entered into the construction contract, dated 1 March 2007, with the developer, Turn & Wave Ltd, to “construct, complete, deliver and remedy defects” in the contract works and do all things described in the contract documents (Construction Contract). Argon further agreed, as a matter of contract, to be responsible for the acts or omissions of sub-contractors or sub-contractor’s agents under cl 4.4 of the special conditions.
[116] The terms of the Construction Contract are significant; the “contract price” is described as $28,726,987. Under cl 2.2.7 of the special conditions (attached as the
39 At [89].
40 Body Corporate 326421 v Auckland Council [2015] NZHC 862 [Nautilus].
41 At [316]; see Thomas J’s description in Body Corporate 346799 v KNZ International Co Ltd, above n 30, at [90].
42 Nautilus, above n 40, at [183].
43 At [206].
44 At [227].
first schedule), Argon agreed to review certain aspects of the design or specification of the contract works. The purpose of that review was “to reduce the construction cost and increase efficiency of the construction”. Under cl 5.1.5, Argon took full responsibility for the “adequacy, stability and safety of all [s]ite operations and methods of construction”. Under cl 5.4.1, Argon was responsible for programming the contract works and in accordance with cl 5.17.1 was required to provide a documented quality management system. Under cl 6.1 of Appendix 2: Scope of Contract Works, Argon was also responsible for “complying with all necessary permits, consents and approvals under the Building Act 2004 for the construction of the Contract Works.”
[117] Argon was responsible for engaging TAL and was privy to all relevant communications between the architects (ADC), the engineers, Mapei and TAL. It identified issues with the consented plans and played a role in the design change to dispense with the sawcut. Argon was also responsible for the last step of the building- related work that took place on the balconies, giving it an opportunity to observe the work that had been carried out by TAL (Argon placed a grate, or grill, over the internal gutters on each of the balconies).
[118] I acknowledge that the design change that Mr Gabriel was involved with did result in an improved design. However, there were still defects, as I have identified. I also note that Mr Gabriel himself conceded that the termination of the membrane at the base of the exterior nib was not a design that he had seen before.
[119] The terms of the sub-contractor’s agreement between Argon and TAL are also informative; the sub-contractor, TAL, was required to comply with all instructions from the contractor [Argon] and was specifically prohibited from having any direct communications with or taking instructions from the architect. Furthermore, TAL indemnified Argon against any loss or liability arising out of TAL’s failure to comply with cl 19.1. That clause required TAL to comply with the provisions of all legislation and bylaws, which must include the Building Code. The sub-contract expressly contemplated that Argon might be liable for the acts or omissions of TAL with respect to the Building Code.
Conclusion – Argon’s liability
[120] In considering the particular role of Argon in the construction of Bianco Off Queen and having regard to the relevant contractual documents, I conclude that Argon did owe non-delegable duties of care to the plaintiffs (as subsequent purchasers). Argon’s claim that it is not liable for the acts or omissions of TAL is rejected. I find that Argon is liable for each of the pleaded defects (i.e. defects 1 and 2). The fact that the architect and/or TAL might also bear some responsibility for the defects does not absolve Argon from its liability as head contractor and builder. There are also important public policy reasons of accountability and loss distribution which point firmly in favour of the imposition of a non-delegable duty of care in this case.
[121] In relation to defect 1, Argon breached the standard of care required of a builder/head contractor to construct Bianco Off Queen in a code-compliant manner and in accordance with good trade practice. It is responsible for the failures with the installation and performance of the balcony membranes and associated defects. The negligent acts and omissions of Argon have caused the plaintiffs’ loss. The issue of loss, including its measure and calculation, is addressed below.
[122] I also find that Argon is liable in negligence for the defects I have identified in relation to alleged defect 2. As I have held above, Argon owed non-delegable duties of care to the plaintiffs. Its contention that it is not responsible for poor design or poor workmanship by others is rejected. Argon cannot, in law, rely on having engaged a specialist water-proofer or upon the Auckland Council inspecting the water-proofer’s work or the water-proofer issuing a PS3.
Liability of the Auckland Council
Standard of care
[123] It is well settled law that local authorities owe a duty of care to building owners when performing their inspection and certification functions under the Building Act.45 The Supreme Court has held that this duty of care “marches in step” with,46 and is
45 North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158, [2011] 2 NZLR 289 [Sunset Terraces] at [51]; Spencer on Byron, above n 9, at [6] and [73]–[97].
46 Spencer on Byron, above n 9, at [71].
limited to, a local authority’s statutory functions under the Act.47 All building work must comply with the Building Code.48 Therefore, the duty imposes no higher obligation than the exercise of reasonable care with a view to ensuring compliance with the Code.49 Heath J, in the High Court Sunset Terraces decision, held as follows:50
[183] In carrying out its inspection role, it is plain that the Council ought not to be regarded as a clerk of works or as a project manager. Even before the Building Act was passed, the Council’s duty to third parties was “to exercise reasonable care, not an absolute duty to ensure compliance”. The Council’s role is to provide an appropriate degree of oversight for public policy reasons. Its 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 [Building] Code.
[124] The standard of care to be applied is that of a reasonable skilled Council at the time “but common industry practice is not determinative.”51 A court might appropriately conclude that the standards of a Council at the relevant time fell below the standard required by law.52
[125] The test for, or standard of, a reasonable inspector has been referred to in many decisions dealing with leaky buildings. Ronald Young J held in Body Corporate 90247 v Wellington City Council:53
[156] I accept, in part, the Council’s criticism of his [one of the plaintiff’s experts’] evidence. Mr Wutzler sets a “gold” standard in the identification of building trouble spots. Mr Wutzler’s expectation of what a competent building inspector should see is, I consider, set at his own standard of knowledge of leaky buildings in 2013. Council building inspectors could not be expected to have reached this advanced level of knowledge in 2000/2001. Any assessment of what a building inspector could be expected to identify is to be tempered by taking into account reasonable standards of the day. I stress the word “reasonable”.
[157] 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,
47 At [146] and [193].
48 Building Act 2004, s 17.
49 Section 18(1); and Spencer on Byron, above n 9, at [193].
50 Body Corporate 188529 v North Shore City Council, above n 13.
51 Johns v Hamilton City Council, above n 21, at [74].
52 At [74]; citing McLaren Maycroft & Co v Fletcher Development Co Ltd [1973] 2 NZLR 100 (CA) at 102 and 108; Body Corporate 90247 v Wellington City Council [2014] NZHC 295 at [157]; and Dicks v Hobson Swan Construction Ltd (in liq) (2006) 7 NZCPR 881 at [76].
53 Body Corporate 90247 v Wellington City Council, above n 52.
judged by a reasonable standard of the day, then it is no excuse to simply say “that’s how we did it then”. There was a significant element of this approach in Mr Tait’s evidence as to his inspections of the building work.
[126] Ultimately it is for the Court to determine the question of negligence as a matter of fact in all the circumstances of the case.54 As the Court of Appeal held in McLaren Maycroft & Co v Fletcher Development Co Ltd, the Court may come to the conclusion that the standards deposed to by witnesses as to general practice of a profession do not reach the standard required by law.55
[127] Equally, it is important to have regard to s 94 of the Building Act 2004. Section 94(1) provides that a building consent authority must issue a code compliance certificate if it is satisfied on reasonable grounds that the building work complies with the building consent (s 94(1)(a)). I agree with the submission of the Auckland Council that 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. As Whata J held in Body Corporate 160361 v BC 2004 Ltd and BC 2009 Ltd (Fleetwood Apartments), the Council’s obligations under the Building Act 2004 are not materially different from those under the 1991 Act,56 therefore the authorities referred to above that were decided under the 1991 Act continue to apply.
[128] I further note that inspection is defined in s 90(3) of the 2004 Act to mean the “taking of all reasonable steps to ensure that building work is being carried out in accordance with a building consent”.
Defect 1
[129] The evidence and dispute in this case in relation to defect 1 focused very much on the inspections carried out by the Auckland Council and whether there was, indeed, an obligation to inspect the balconies at all. There is also an issue as to whether the Auckland Council was entitled to rely on the PS3 statement from TAL.
54 McLaren Maycroft & Co v Fletcher Development Co Ltd, above n 52, at 107–108.
55 At 107–108; citing Sulco Ltd v Redit & Co Ltd [1959] NZLR 45. See also Auckland Council v Ryang HC Auckland CIV-2011-470-2570, 28 September 2011 at [24]; and Northern Farm Services Ltd v Codylan Farms Ltd [2015] NZCA 567 at [16]–[18].
56 Body Corporate 160361 v BC 2004 Ltd and BC 2009 Ltd [2015] NZHC 1803 [Fleetwood Apartments] at [142]; citing Spencer on Byron, above n 9, at [217].
[130] There were substantial differences between the expert witnesses on these issues. The focus of Mr Paykel’s evidence on behalf of the plaintiffs was on specific defects with the waterproofing membrane that Mr Paykel says the Auckland Council inspectors should have identified during their inspection(s). Mr Hutt, for the Auckland Council, on the other hand, gave evidence of a more generalised kind; he obviously lacks the familiarity with the Bianco Off Queen apartments that Mr Paykel has. The ultimate test in assessing the admissibility and probative value of expert opinion evidence is whether it offers “substantial help” in determining matters at issue.57
[131] I accept and agree in principle with Mr Hutt’s view that the Bianco Off Queen balconies, being concrete and over non-habitable areas, could properly be regarded as less risky than other types of construction and, in particular, cantilevered balconies with timber framing over habitable spaces. However, I reject the Auckland Council’s contention that there was no obligation to inspect the balconies at Bianco Off Queen. The Auckland Council did in fact inspect the balconies; it assumed a responsibility to do so. The notifiable inspection schedule issued by the Auckland Council as part of the building consent (where a total of 300 inspections were estimated) expressly contemplated an inspection of the membranes on the decks. This was a significant inner-city high-rise apartment block and at the relevant time, there was a heightened awareness of general problems and failures with waterproofing membranes generally, as shown in the Council’s practice note from the relevant time on external and internal membranes.58 The Auckland Council itself appears to have set a higher standard of inspections than Mr Hutt would have personally.
[132] I also note that the BRANZ Appraisal Certificate No 485 (2005), which relates to Mapelastic external waterproofing membranes (as well as Mapegum WPS), expressly contemplated that there would be inspections of the membrane installations using the Mapelastic product. Clause 17(1) of the appraisal certificate states that the technical literature must be referred to during the inspection of membrane installations
57 Evidence Act 2006, s 25.
58 See Auckland Council’s Practice Note on external and internal membranes – alternative solutions (BLD-142-PN). Auckland Council’s technical objections to the admissibility of that practice note (including its relevance) are overstated. This is, after all, an internal Council document which expressly deals with membrane failures on decks. The general heightened awareness of problems with waterproofing membranes cannot credibly be denied. Furthermore, the practice note does not make a clear distinction between timber and concrete substrate.
by building consent authorities and territorial authorities. Clause 17(2) notes that critical areas of inspection for waterproofing systems include installation of the membrane to the correct thickness (according to manufacturer’s instructions) and membrane curing and integrity prior to the installation of tiles.
[133] I accept that Mr Hutt has significantly more experience as a Council officer than Mr Paykel. However, the Auckland Council’s criticism of Mr Paykel’s evidence, contending that he lacks expertise, is misplaced. Mr Paykel may have been a Council officer for a relatively short period of time, but he has substantial experience as a building surveyor and generally in the construction industry. He has previously given evidence as an expert witness for the Auckland Council on matters of Council practice. Generally, I found his evidence to be substantially helpful.
[134] Mr Hutt was also a professional witness. However, in my view he tended to downplay the responsibility of territorial authorities in the discharge of their regulatory functions. His perspective is inevitably informed by his very long period of employment with the Christchurch City Council. That does not, of course, disqualify him as an expert witness but it is a factor here which goes to the weight that I attach to his evidence.
[135] Mr Hutt noted that the Building Code is a minimum standard, “often lower than the industry recommendations (e.g. BRANZ) or what is considered best (or even good) trade practice, or indeed even the published Acceptable Solutions”. He noted that the benchmark that the Council must apply is the Building Code, “nothing more”. I agree that the Building Code, a performance-based code, imposes minimum standards, but the differences between this and good trade practice should not be overstated. In this case, poor and unacceptable workmanship is a principal cause of the systemic membrane failure and the key reason why there have been breaches of the Building Code. I accept that the Council inspectors are not “clerks of works” or specialists of every element of building construction. However, 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
[314] However, this finding on standing is not determinative of whether the Auckland Council can raise an affirmative defence of contributory negligence. Unit owners may, as in this case, have claims that fall outside the Body Corporate’s s 138 repair responsibility, including such costs as alternative accommodation while remedial work is carried out and general damages for mental distress. In respect of heads of damage of that kind, and for which the Body Corporate has no claim, in principle damages in favour of unit owners could be reduced on account of contributory negligence. A critical and more difficult question is whether contributory negligence defences can be advanced, and consequential quantum deductions offset, in relation to damage to units that falls within the scope of s 138(1)(d).
[315] That question is answered, in my view, by analysing the nature of the duties of care, the type of loss at issue and the scheme of the 2010 Act, in the context of the broad discretion that arises under s 3(1) of the Contributory Negligence Act 1947.
[316] As van Bohemen J held in Body Corporate 199380 v Cook, s 3 of the UTA 2010 makes clear that the basic legal structure of unit title developments set out in the UTA 1972 is retained; so too, is the fundamental theme identified by Heath J in Fraser v Body Corporate S63621 of the distinction between individual units owned by unit
130 Body Corporate S37668 v Otway, above n 121, at [45].
owners and common property for which the body corporate is responsible.131 However, as noted by the Court of Appeal in Wheeldon, the rights of unit owners are derived from the statute and are of a limited kind.132 They are not akin to the ownership of fee simple in land. The unit owners do not enjoy a right to undertake repairs and maintenance and the rights conferred on them by ss 79(d) and 79(e) are limited.
[317] On the other hand, the scheme of the UTA 2010 and in particular ss 142 and 143, indicate that the legislation does not intend to cut across the general law of tort or to impact on general duties of care except to the extent expressly provided for.
[318] Against that background, I am of the view that the defendants owed concurrent duties of care to both the Body Corporate and the individual owners. The Body Corporate has sufficient interest in the units and is required to repair and maintain damage that falls within the scope of s 138, even if the individual owner does not agree. Its interest is more than contractual. It is only the Body Corporate which can undertake the necessary remedial action to which s 138 applies. Its pocket is damaged as a result of the negligence of the defendants, even if it can recoup expenses from the individual owners.133 In principle, the affirmative defence of contributory negligence is available, and deductions can legitimately be made for contributory fault of either the Body Corporate or individual owners from any quantum sum awarded to the Body Corporate.
[319] The discretion under s 3(1) of the Contributory Negligence Act 1947 is, however, a wide one. The person suffering the damage can include both the body corporate and the individual unit owner. The ultimate test, once fault is determined, is what is just and equitable. This wide provision gives the Court sufficient flexibility to make the necessary adjustments in any individual case.
[320] In reaching the conclusion that the defendants owed concurrent duties of care, I reject the Auckland Council’s submission that there is not the necessary element of
131 Body Corporate 199380 v Cook, above n 118, at [64]; citing Fraser v Body Corporate S63621
(2009) 10 NZCPR 674 (HC) at [34].
132 Wheeldon v Body Corporate 342525, above n 127, at [36].
133 See Sunset Terraces, above n 45, at [53].
reliance by the Body Corporate to support the imposition of a duty of care. Although the Body Corporate is a statutory construct, at its inception and the commencement of its s 138 responsibilities, it does rely, as do the individual owners, on the diligence and skill of those involved in the construction of the building and the certification of its status as code compliant. There are also sound policy reasons for the imposition of a concurrent duty of care. There is a clear level of efficiency in such an approach, but it also allows, in the exercise of the Court’s broad discretion, to have regard to fault by individual owners.
[321] I do, however, accept that it does matter to the tortfeasor whether the plaintiff is the Body Corporate or a unit owner. I respectfully disagree with the contrary view referred to above, as expressed by Associate Judge Bell in Body Corporate 324525 v Stent (No 2).134 The status of the plaintiff does matter because not only are there potential GST implications, as well as the contributory negligence issue and issues of limitation and the like, but also what the Auckland Council describe as the risk of “double jeopardy” for defendants. The Council gives the example of where an owner sells their unit at a loss (due to impending remedial costs regarding defects for which the Council might be liable), allowing them to pursue a claim for that loss, yet (based on the plaintiffs’ proposed approach) the Body Corporate could also sue for those impending remedial costs.
Contributory negligence
[322] Section 3(1) of the Contributory Negligence Act, as referred to above, provides for the apportionment of liability in cases of contributory negligence. It provides:
Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage: …
[323] “Fault” is defined to mean “negligence, … or other act or omission which gives rise to a liability in tort …”.135 This has been interpreted as a failure by the plaintiff
134 Body Corporate 324525 v Stent (No 2), above n 122, at [150].
135 Contributory Negligence Act 1947, s 2.
to take ordinary care to look after itself and its property.136 The question is whether the plaintiff acted reasonably in all of the circumstances in safeguarding his or her own interests.137 The assessment of fault “requires an objective test but expressed in terms of the person’s own general characteristics”.138
[324] The damage that may be apportioned must be the foreseeable consequence of a lack of care on the part of the plaintiff and caused by such lack of care. As stated by the Court of Appeal in Johnson v Auckland Council:139
[87] There is no dispute that in making the apportionment, it is necessary to consider both relative blameworthiness and causative potency. The question of the appropriate apportionment is a question of fact involving matters of impression and not some sort of “mathematical computation”…
[325] Given the nature of the apportionment exercise, comparisons with the figures in other cases are not particularly helpful.140 As stated in Todd on Torts, it is sufficient that the plaintiff’s conduct should contribute to the damage that he or she suffers. It is not essential that it should contribute to the event that causes the damage.141 In the context of a building that is not weathertight, this means the plaintiff is not required to have contributed to the construction of the building itself for there to be contributory negligence.142
[326] There are 16 units in respect of which the Auckland Council asserts contributory negligence.143 The Auckland Council says that the second plaintiff
136 Invercargill City Council v Southland Indoor Leisure Centre Charitable [2017] NZCA 68, [2017] 2 NZLR 650 at [136]; citing Helson v McKenzies (Cuba Street) Ltd [1950] NZLR 878 (CA) at 920; Johnson v Auckland Council [2013] NZHC 165 at [13]; and O’Hagan v Body Corporate 189855, above n 109, at [76]–[77].
137 Nautlius, above n 40, at [294].
138 O’Hagan v Body Corporate 189855, above n 109, at [79]; cited in Lee v Auckland Council [2016] NZHC 2377 at [67].
139 Johnson v Auckland Council, above n 71 (footnotes omitted).
140 Johnson v Auckland Council, above n 71, at [88].
141 Stephen Todd “Defences” in Stephen Todd (ed) Todd on Torts (9th ed, Thomson Reuters, Wellington, 2023) at [20.2.3].
142 Johnson v Auckland Council, above n 136, at [12(a)].
143 The units and their respective owners are set out in Appendix 7 to the Auckland Council’s submissions. This includes J Bodle 101 Ltd (in liquidation). The plaintiffs’ instructing solicitors, Lane Neave, have confirmed that they do not have instructions from the liquidator to advance this claim. However, the plaintiffs continue to include this unit in their claim and quantum schedules appended to their opening submissions. The Auckland Council says that out of an abundance of caution it has included this unit in the assessment but maintains that a claim cannot be advanced without the consent of the liquidator.
owners of these units fell short of the standard of a reasonable purchaser. The Auckland Council contends that these second plaintiffs signed their agreements for sale and purchase without obtaining and/or reviewing the Body Corporate’s annual general meetings (AGM) minutes for the past two to three years. The Council says that if they had done so, they would have been placed on alert that Bianco Off Queen was suffering from defects, or that there was a risk that it had defects requiring repair and that litigation was anticipated. This would have allowed them to avoid the purchase or, at the very least, allowed them to negotiate a suitable reduction in price.
[327] On an alternative basis the Auckland Council contends that if these owners did in fact obtain the minutes of the Body Corporate AGM, they knew prior to purchase that Bianco Off Queen had defects (or risks of defects) requiring repair and that litigation was anticipated. Accordingly, the Auckland Council contends that those second plaintiffs either:
(a)voluntarily assumed the risk that Bianco Off Queen had defects and that repairs were required;
(b)agreed to buy the unit based on their own judgement of the value of the abatement of the purchase price for those defects and associated risks; or
(c)did not safeguard their own interests by avoiding the purchase or seeking a reduction in the purchase price.
[328] Expert evidence was given on behalf of the Auckland Council by Mr Peter Nolan, retired lawyer, on the contributory negligence issue. Mr Nolan is a very experienced property and conveyancing solicitor. I find his evidence to be unassailable; he is extremely well qualified and presented his evidence in a professional and measured fashion. It was substantially helpful, and I adopt his conclusions.
[329] Of the 16 second plaintiffs in which the Auckland Council asserts contributory negligence against, 12 purchased their units after the 2016 AGM minutes became
available (but prior to the 2017 AGM minutes becoming available) and four purchased their unit after the date of the 2017 AGM minutes. The agreements to purchase these units were not conditional on obtaining Body Corporate minutes, except for unit 6A’s agreement which contained a further term (cl 20) specifically drawing the second plaintiff’s attention to the 2016 AGM minutes, with the owner accepting as read all matters contained therein. However, most of these owners received pre-contract disclosure statements which referred to or attached the relevant AGM minutes
[330] In his evidence, Mr Nolan provided a detailed review of the 2016 and 2017 AGM minutes. In respect of the 2016 minutes, Mr Nolan identified a number of “red flags” including the fact that the Body Corporate was obtaining a building condition report requiring consultant input from multiple disciplines. Mr Nolan was of the view that the minutes disclosed anticipated litigation.
[331] Mr Nolan was also of the view that the following “red flags” were raised in the 2017 AGM minutes:
(a)Maynard Marks had been engaged and attended the AGM to provide a progress update on the current building audit;
(b)Maynard Marks was looking at issues with the internal plumbing;
(c)Maynard Marks had identified issues in terms of general claddings e.g., corrosions, fixings and poppings;
(d)leaks were identified in the concrete deck;
(e)there were leaks through some glazed atrium rooves;
(f)there was corrosion to some decorative steel; and
(g)there was a need for additional consultants.
[332] Several second plaintiffs said that they had not been advised by either their lawyer (after having reviewed the 2016 AGM minutes) and/or by the real estate agent
that there were leaks, issues or defects at Bianco Off Queen. Mr Nolan was surprised that a lawyer would have come to that decision. He also noted that a real estate agent represents the vendor, but if they did have duties to the purchaser, he would have expected the agent to elaborate on the whole section on the building condition report contained in the minutes.
[333] In reviewing all this evidence, I conclude that there was a degree of carelessness by the second named plaintiffs which has contributed in some way to their loss. In the circumstances here, I find that the moral blameworthiness can properly be considered to be low, particularly in relation to those who purchased their unit after the date of the 2016 AGM minutes, but before the 2017 AGM minutes.144 In the circumstances, I find that there should be a deduction of the sum of $7,500 from any award of general damages to those of the second plaintiffs who purchased their unit after the 2016 AGM minutes but before the 2017 AGM minutes. In respect of those second plaintiffs who purchased after the 2017 AGM minutes I find that there should be no award of general damages to them. In the circumstances and having regard to the broad discretion in s 3(1) of the Contributory Negligence Act, in particular the just and equitable threshold, I conclude that there should be no further deductions. That would be disproportionate to the level of fault I have identified. It would also not be just and equitable in this case to make any further deduction, given the nature and extent of the loss and the fact that it falls on the general body of owners.
GST
[334] The parties agree that any award to the Body Corporate should be on a GST exclusive basis.
[335] I record the parties’ agreement that owners that 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. Neither personal use nor residential tenancies are taxable activities. However, given my determination on the standing of
144 I note that the plaintiffs accept as a general proposition that the failure to obtain Body Corporate minutes may in some circumstances amount to contributory negligence; O’Hagan v Body Corporate 189855, above n 109, at [137]. It is also accepted that some reduction should be made to the claims of the four second plaintiffs who entered into agreements to purchase their unit after the 2017 AGM minutes were available.
the Body Corporate and my conclusion that the cost of repairs damages should be awarded to it, I apprehend that this is no longer a live issue.
[336] GST is not payable in respect of the general damages that I have awarded above.145
Affirmative limitation defences
[337] The defendants plead that the plaintiffs’ claims are time-barred under s 4 of the Limitation Act 1950 to the extent that the alleged defects which are the subject of those claims were discovered or reasonably discoverable more than six years from the date on which the proceedings were commenced. The defendants also allege that pursuant to s 393(2) of the Building Act 2004, to the extent that any of the plaintiffs’ claims are based upon acts or omissions which took place more than ten years before, these claims are also statute barred.
[338] Neither of these defences were pursued with any vigour by the defendants. Neither of them addressed limitation issues in their closing submissions.
[339] I find that the plaintiffs’ claims are not time barred. No limitation defence has been made out.
Apportionment between defendants
[340] I accept the submission of the Auckland Council that the appropriate apportionment of liability between the defendants is 85 per cent for Argon and 15 per cent for the Auckland Council.
[341] It cannot be disputed that Argon had the primary responsibility to ensure that Bianco Off Queen was constructed without defects and was compliant with the
145 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]: Inland Revenue policy IS3387 expressly details that payments for general damages do not constitute taxable supplies. It states: “When a payment is made under a court award or out of court settlement and it is consideration for a taxable supply (or an adjustment to a consideration for a taxable supply) this will be taxable. If the payment is made for compensation or damages it is not taxable.” See also Case S77 (1996) 17 NZTC 7,483 (TRA).
relevant sections of the Building Code. The Auckland Council’s role was secondary to Argon’s primary acts and/or omissions.
[342] My conclusion on this issue is consistent with that of Thomas J in Victopia Apartments,146 and Body Corporate 324371 v Clark Brown Architects Ltd.147
Other issues
The non-legally represented plaintiffs
[343] It follows from my finding on standing above, that the two non-legally represented second plaintiffs, Yinling Linda Wu (unit 4E/8 White Street) and Haixin Wang (unit 1A/8 White Street), are not entitled to a separate award of damages for the cost of repairs.
[344] These two plaintiffs are entitled to an award of general damages in accordance with my findings above.
Former owners/assignees
[345]There are six second plaintiffs who have assigned their causes of action.
[346] At a very late stage in the proceedings, the plaintiffs sought the following orders:148
(a)an order substituting the second plaintiff associated with unit 2A2 from Sarin Enterprises Ltd to Usar Investments Ltd;
(b)an order adding five new parties, being assignees who have purchased a unit and taken an assignment of the claim from former owners/second plaintiffs;
146 Body Corporate 346799 v KNZ International Co Ltd, above n 30, at [168].
147 Body Corporate 324371 v Clark Brown Architects Ltd [2021] NZHC 2379 at [96].
148 See memorandum of counsel for the plaintiffs seeking receipt of documents into evidence and addition/substitution of plaintiffs dated 18 June 2023.
(c)a direction that certain documents related to the assignment of claims be received into evidence; and
(d)leave under r 1.9 of the High Court Rules 2016 to amend Schedules A and E of the ninth amended statement of claim to add these new plaintiffs pursuant to these orders.
[347] The plaintiffs contend that the proposed assignee second plaintiffs are entitled to recover repair costs and consequential losses. No general damages are claimed for these proposed plaintiffs.
[348] The Auckland Council filed a memorandum (with my leave) subsequent to the hearing addressing the issue of assignment and addition/substitution of plaintiffs.149 Those submissions raise complex issues which the plaintiffs have not adequately addressed.
[349] I wish to hear further argument from the parties on the issue of assignment, should that be necessary. It may be, in light of my findings on the standing of the Body Corporate, that I do not need to determine the assignment issue given that the repair costs are recoverable by the Body Corporate.150 Again, however, I require further analysis of that issue before reaching a conclusion.
[350] The Court apprehends that the dollar value at issue in relation to the assignment issue is not significant. If the parties cannot resolve the issue, I reserve leave for the parties to address this issue further.
Result
[351] I enter judgment for the plaintiffs against the first defendant, Argon Construction Ltd, on liability in respect of the first cause of action (negligence).
[352] I enter judgment for the plaintiffs against the second defendant, the Auckland Council, on liability in respect of the second cause of action (negligence).
149 Second defendant’s submissions in response to the plaintiffs’ application seeking receipt of documents into evidence in addition/substitution of plaintiffs dated 26 June 2023.
150 The Auckland Council submitted that if I decide that the claim is in the hands of owners (i.e. it is the unit owners who can recover losses for breach of duties owed by the Council to them) there will need to be an analysis of the relevant unit ownership interests.
[353] The two defendants are jointly and severally liable for damages. Those damages are to be calculated as follows:
(a)based on the factual findings already made in this judgment; and
(b)upon receipt of further submissions (if necessary) from the parties addressing the quantification of such damages based on the starting point of Mr Brock’s estimate, based on Mr Alexander’s scope of repairs.
[354] Liability is apportioned 85 per cent to the first defendant, Argon, and 15 per cent to the second defendant, the Auckland Council.
[355] I order that the defendants are to pay to the respective second plaintiffs general damages calculated in accordance with the determinations made at [294] above, with adjustments made as required based on my determination on the contributory negligence issue at [333]. Leave is reserved to apply for further directions and final orders as to the quantification of general damages and the named individual second plaintiffs to whom those awards are to be made.151
[356] I order that the first defendant, Argon, is to pay damages in the sum of $111,628 to the first plaintiff for the acoustic matting.
[357] I dismiss the plaintiffs’ claims for consequential losses relating to alternative accommodation, loss of rent and moving and storage costs, except to the limited extent allowed for in the calculation process referred to in [278] and [287] above.
[358] Costs are reserved. The parties are to confer and to propose a timetable for the determination of costs. A memorandum is to be filed and served within 21 days.
Andrew J
151 This is a matter I expect the parties to be able to reach agreement on without the need for further court involvement.
APPENDIX ‘A’
APPENDIX ‘B’
7
17
1