CHARLOTTE JANE BAXTER AND THE BUILDING INSPECTION COMPANY LIMITED CHRISTOPHER EARNEST WESTENENG ELIZABETH MARY EATON
[2024] NZHC 2652
•13 September 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-653 [2024] NZHC 2652
BETWEEN CHARLOTTE JANE BAXTER
Plaintiff
AND
THE BUILDING INSPECTION COMPANY LIMITED
First Defendant
CHRISTOPHER EARNEST WESTENENG
Second Defendant
ELIZABETH MARY EATON
Third Defendant
Hearing: 29 August 2024 Appearances:
G R Grant for Plaintiff
K R Shanks and L E Glasson for First and Second Defendants G D Stringer for Third Defendant
Judgment:
13 September 2024
JUDGMENT OF ASSOCIATE JUDGE LESTER
BAXTER v THE BUILDING INSPECTION COMPANY LIMITED [2024] NZHC 2652 [13 September 2024]
[1] The plaintiff, Charlotte Baxter (Charlotte), purchased a property in Christchurch from the third defendant, Elizabeth Eaton (Elizabeth), at an auction held in October 2014 with the purchase settling on 5 December 2014.
[2] When Elizabeth purchased the property in 2009 she was aware of weathertightness issues with the property. When Elizabeth decided to sell the property, she commissioned a report from Property Check Limited (Property Check), which provided a report at the end of July 2014 identifying weathertightness issues and risks. Elizabeth, intending to address those issues, engaged Citywide Builders Limited (Citywide) to carry out remedial work. Citywide provided a report dated 11 August 2014 describing the work they carried out between 1 August 2014 and 25 August 2014. Citywide was liquidated on 9 November 2016 and removed from the Companies Office Registrar in 2019.
[3] Elizabeth then commissioned a report from The Building Inspection Company Limited (BIC), which is the first defendant. The third defendant being the sole director and shareholder of BIC and the author of the Report.
[4] The real estate agents appointed by Elizabeth prepared an Information Pack for the property, which included the original Property Check Report from July 2014, part of Citywide’s Report as to the work it undertook and the full BIC Report. The real estate agents also prepared what was called an “Auction Pack” which did not include the Property Check or Citywide Reports, but it is not disputed that Charlotte received all of the Reports by way of the Information Pack, albeit the Citywide Report was missing a page.
[5] In July 2021, Charlotte identified defects in the property, in particular cracking in the plaster cladding. Charlotte issued proceedings against the defendants by statement of claim dated 1 December 2023.
[6] Elizabeth applies on limitation grounds to strike out or for summary judgment in respect of Charlotte’s claim.
Charlotte’s cause of action against Elizabeth
[7] In the sale and purchase agreement dated 29 October 2024, Elizabeth warranted that if she had done or caused to be permitted to be done any work on the property, then any building consent required for that work was obtained and that, to her knowledge, the works were completed in compliance with such building consent and where appropriate, a Code Compliance Certificate (CCC) was issued.
[8] Charlotte pleads the work Elizabeth commissioned Citywide to carry out in August 2014 to address the weathertightness issues identified in the Property Check Report required a building consent which was not obtained.
[9] Accordingly, Charlotte’s claim against Elizabeth is in contract for breach of warranty and damages are sought for the repair costs to the property.
Elizabeth’s limitation defence
[10]The limitation defence is pleaded as follows:
19.The Plaintiff’s claim has been filed more than six years after the act of or omission on which the claim is based. The act or omission being the alleged breach of contractual warranty, specifically the breach of 8.2(5) in the ASP. The purchase of the Property settled on 5 December 2014, the claim for the breach of contractual warranty ran from 5 December 2014 to 5 December 2020 under the Limitations Act 2010. The Plaintiff’s claim was filed on 1 December 2023.
20.In addition to filing outside of the claim’s primary period, the Plaintiff did not have late knowledge of the claim, as she was on notice of all the elements of the alleged breach of warranty claim prior to settlement of the sale.
21.The Plaintiff was provided with the Information Pack on 7 October 2014. The Information Pack contained the Land Information Memorandum from the Christchurch City Council dated 27 June 2014 (“LIM”).
22.Clause 7 of the LIM recorded weathertightness issues and staged:
“This property is subject to a weathertightness Homes [R]esolution Services claim WHRS #05934 under WHRS Act 2006. An Application for an assessors’ report was accepted on 6/04/2009. The claim for this property was decided ineligible by the chief executive on 29/11/2009. If a building consent was obtained for any repairs, it will be recorded in this LIM. The property file may also contain other repair information. The claim was closed on 21/01/10.”
23.The Information Pack provided the Plaintiff with sufficient knowledge so that she knew or ought to have known there was no building consent obtained and therefore when she settlement took place she knew or ought to have known that the Third Defendant was in breach of clause 8.2(5) of the ASP.
Section 11 of the Limitation Act 2010 (the Act) provides:
Defence to money claim filed after applicable period
(1)It is a defence to a money claim if the defendant proves that the date on which the claim is filed is at least 6 years after the date of the act or omission on which the claim is based (the claim’s primary period).
(2)However, subsection (3) applies to a money claim instead of subsection (1) (whether or not a defence to the claim has been raised or established under subsection (1)) if—
(a)the claimant has late knowledge of the claim, and so the claim has a late knowledge date (see section 14); and
(b)the claim is made after its primary period.
(3)It is a defence to a money claim to which this subsection applies if the defendant proves that the date on which the claim is filed is at least—
(a)3 years after the late knowledge date (the claim’s late knowledge period); or
(b)15 years after the date of the act or omission on which the claim is based (the claim’s longstop period).
[12] It is common ground that the primary period in s 11(1) of the Act has expired. However, Charlotte relies on s 14 of the Act which provides:
14 Late knowledge date (when claimant has late knowledge) defined
(1)A claim’s late knowledge date is the date (after the close of the start date of the claim’s primary period) on which the claimant gained knowledge (or, if earlier, the date on which the claimant ought reasonably to have gained knowledge) of all of the following facts:
(a)the fact that the act or omission on which the claim is based had occurred:
(b)the fact that the act or omission on which the claim is based was attributable (wholly or in part) to, or involved, the defendant:
(c)if the defendant’s liability or alleged liability is dependent on the claimant suffering damage or loss, the fact that the claimant had suffered damage or loss:
(d)if the defendant’s liability or alleged liability is dependent on the claimant not having consented to the act or omission on which the claim is based, the fact that the claimant did not consent to that act or omission:
(e)if the defendant’s liability or alleged liability is dependent on the act or omission on which the claim is based having been induced by fraud or, as the case may be, by a mistaken belief, the fact that the act or omission on which the claim is based is one that was induced by fraud or, as the case may be, by a mistaken belief.
(2)A claimant does not have late knowledge of a claim unless the claimant proves that, at the close of the start date of the claim’s primary period, the claimant neither knew, nor ought reasonably to have known, all of the facts specified in subsection (1)(a) to (e).
(3)The fact that a claimant did not know (or had not gained knowledge), nor ought reasonably to have known (or to have gained knowledge), of a particular fact may be attributable to causes that are or include fraud or a mistake of fact or law (other than a mistake of law as to the effect of this Act).
Principles applying to a summary judgment application
[13] The principles are not in dispute. Ms Grant, counsel for Charlotte, agreed with the summary of principles of Mr Stringer, counsel for Elizabeth.
[14] The application is made pursuant to r 12.2(2) of the High Court Rules 2016, which provides:
The court may give judgement against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[15] The correct approach to summary judgment applications is contained in the Court of Appeal’s decision in Krukziener v Hanover Finance Ltd:1
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: McLaren v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court must take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp v Patel (1987) 1 PRNZ 84 (CA).
(footnotes omitted)
[16]These principles are also appliable to a defendant’s application.
Strike out principles
[17] In Rea v Auckland Council, the Court identified the principles applying to strike out applications.2 It noted the Supreme Court’s observations in Murray v Morel & Co Ltd as follows:3
… in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process. If the defendant demonstrates that the plaintiff’s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out that cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back in time.
[18]Ms Grant highlighted the following three principles in her submissions:
(a)where there are legitimate evidential disputes that will need to be resolved by the Court, summary judgment and strike out are inappropriate;
(b)the Court will be slow to grant such an application where there is a legal question in a developing area of law;4
(c)the applicant bears the heavy onus of proving that the plaintiff’s claim against her is untenable and discloses no reasonably arguable cause of action whatsoever. Recently, the Supreme Court held that:5
2 Rea v Auckland Council [2024] NZCA 31, at [16].
3 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33].
4 Attorney-General v Prince [1998] 1 NZLR 262 (CA).
5 Smith v Fonterra Co-operative Group Ltd [2024] NZSC 5, (2024) 25 ELRNZ 607, at [85].
Pre-emptive elimination [of a claim] is only appropriate where it can be said that whatever the facts provided, or arguments and policy considerations advanced at trial, a case is bound to fail.
[19] In this application, I do not consider the outcome is dependent on which application is considered. The key issue is the same in each.
When ought Charlotte reasonably to have gained knowledge of the act or omission on which her claim is based?
[20] Mr Stringer placed considerable weight on Rea, a decision of the Court of Appeal from 15 July 2024.6 There, the Auckland Council applied to have a claim in negligence against it, concerning its issue of a Code Compliance Certificate, struck out on limitation grounds. The application was successful in the High Court and the plaintiffs appealed. The Court of Appeal traced the origins of the current Limitation Act through the various Law Commission Reports from 1988 through to the enactment of the 2010 Act. As to the words in s 14(1) of the Act, “the act or omission on which the claim is based”, the Court noted the same phrase appears in the analogous context of the limitation provision in the Building Act 1991.7 The Court accepted the submission from the Auckland Council that the phrase carries the same meaning in both statutes so that s 14(1) of the Act should be construed accordingly.
[21] The Court of Appeal said in relation to Klinac v Lehmann where s 91 of the Building Act 1991 was in issue:8
… The claim was based on an oral representation as to the fitness of building work and a written warranty that previous building work had complied with the Building Act. The Judge held that the acts on which the proceeding was based were the misrepresentation and entry into the agreement, not the faulty building work, which was relevant only because it went to prove the alleged misrepresentation or breach of contract.
(footnotes omitted)
6 Rea v Auckland Council, above n 2.
7 At [45]. Section 91 of the repealed Building Act replaced by s 393 of the Building Act 2004.
8 At [46], referring to Klinac v Lehmann (2002) 4 NZ ConvC 193,547 (HC).
[22]Glazebrook J in Klinac said:9
For contractual claims … the relevant act or omission will be the breach of contract (that is the same point as under the Limitation Act 1950).
[23] A similar result was reached in Gedye v South where a claim had been brought in relation to a warranty given in a sale and purchase agreement as to compliance with the Building Act 1991.10 The claim in Gedye therefore mirrors the present one. The vendors in Gedye unsuccessfully applied for summary judgment on the basis that the claim was time barred by the longstop provision in the Building Act and appealed to the Court of Appeal with the issue being whether the act or omission on which the proceeding was based was the faulty building work or completion of the sale and purchase agreement containing the warranty.11
[24] Their appeal was dismissed and they sought leave to appeal to the Supreme Court which was declined, with the Court saying:12
[3] The High Court and the Court of Appeal have refused summary judgment, holding that the act or omission on which the proceedings are based is not the carrying out of the building works but the breach of warranty in 2003 (and thus within the six-year limitation period in the Limitation Act 1950 which applies by virtue of s 91(1)).
[4] We consider that this view is undoubtedly correct. The act or omission is the breach of contract.
(footnotes omitted)
[25] The breach of contract alleged here is the breach of warranty, with that warranty applying as at settlement.
[26] No doubt it is for this reason that Charlotte acknowledged the primary limitation period has expired because the breach of contract occurred at the date of settlement as on Charlotte’s case, Elizabeth had commissioned work for which a building consent was required but was not obtained.
9 Klinac v Lehman, above n 8, at [59].
10 Gedye v South [2010] NZSC 97, [2010] 3 NZLR 271 [Gedye SC decision].
11 Gedye v South [2010] NZCA 207, [2010] 3 NZLR 271.
12 Gedye SC decision, above n 10, NZLR 283 at [3] and [4].
[27] Elizabeth’s application for strike out is based on the proposition that the materials provided to Charlotte before she purchased the property at auction were such as to put her on notice of factors that should have led her to make enquiries from which she would have discovered the absence of a building consent for the works completed in August 2014 and therefore she cannot rely on late notice.
[28] It is therefore necessary to examine in detail the information provided to Charlotte and whether it can be said that she ought reasonably have been alerted to a need to make enquiries from which she would have learnt of the breach of warranty, essentially as at settlement.
How the information provided is to be assessed
[29]As held in Rea:13
[67] For the purposes of s 14(1), a claimant will have constructive knowledge of the requisite facts if they have information which would lead a reasonable person to begin investigating whether a right to claim exists. They cannot close their eyes to the obvious. They cannot postpone taking action if a reasonable person in their circumstances would take action.
[30] The Court of Appeal in Rea, referring to Haward v Fawcetts (a firm), took in the following passage from the judgment of Lord Nicholls:14
… knowledge does not mean knowing for certain and beyond possibility of contradiction. It means knowing with sufficient confidence to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to the proposed defendant, taking advice, and collecting evidence: “[s]uspicion, particularly if it is vague and unsupported, will indeed not be enough, but reasonable belief will normally suffice.” In other words, the claimant must know enough for it to be reasonable to begin to investigate further.
[31] The Court of Appeal confirmed that s 14(1) requires more than just “discovery (or knowledge) or injury, loss or damage, and nothing more”.15
[32] The essence of Mr Stringer’s submission is that the material provided to Charlotte before the auction of the property was such that it would have put
13 Rea v Auckland Council, above n 2.
14 At [66], citing Haward v Fawcetts (a firm) [2006] UKHL 9, [2006] 1 WLR 682, at [9].
15 Rea v Auckland Council, above n 2 at [41].
a reasonable person on a course of inquiry which would have led them to discover a building consent had not been sought for the August 2014 work.
[33] I am not convinced that Elizabeth has satisfied me that Charlotte’s claim is so clearly statute barred that her claim can properly be regarded as frivolous, vexatious or an abuse of process.16
[34] I will now explain why, on my view of the facts, I am not satisfied that Charlotte’s claim is untenable, that is, I am not satisfied it is beyond argument that the material provided to Charlotte would have led a reasonable person on a course of enquiry that would have inevitably discovered the breach of warranty.
A comment on Charlotte’s claim being for breach of warranty
[35] While knowledge of damage of itself is not enough for the purposes of s 14(1) of the Act as noted at [31] above, the presence of damage is a factor which in the circumstances may mean a reasonable person must begin investigating whether a right to claim exists.
[36]I consider it is also relevant that the present claim is for breach of warranty.
[37] Burrows Finn and Todd on the Law of Contract in New Zealand, notes in respect of pre-contractual representations:17
No one is entitled to make a statement which on the face of it conveys a false impression and then excuse themself on the ground that the person to whom he made it had available a means of correction.
[38] Similarly, I consider the nature of the warranty given by Elizabeth to be relevant: “The essential purpose of contractual warranties is risk allocation.”18
16 Murray v Morel & Co Ltd, above n 3, at [33].
17 Stephen Todd and Matthew Barber Burrows Finn and Todd on the Law of Contract in New Zealand (7th ed, Lexis Nexis, Wellington, 2022) at [11.24(c)], referring to Redgrave v Hurd (1881) 20 Ch D 1.
18 Chief Executive of the Department of Corrections v Fujitsu New Zealand Ltd [2023] NZHC 3598 at [120]. Warranties are a technique which contractually shifts a risk, or alters the nature of the risk as part of the contractual bargain.
[39] The maker of a warranty undertakes strict liability for what he or she warrants and a warrantor assumes the risk that his or her belief about the matter warranted might be mistaken. From the innocent party’s perspective, the purpose in seeking a warranty is to protect against error.19
[40]Elizabeth’s application amounts to saying:
Even though I promised you I obtained a building consent if one was required, the very material I provided to reassure you in respect of weathertightness issues should have prompted you to make investigations from which you would have discovered that I would be breaking my warranty at the time of settlement.
A reasonable person is entitled to rely on an express warranty.
Analysis of the material provided
28 July 2014 — Property Check Report
[41]The scope of the Property Check Report provided was described as being a:
Visual inspection of the property for the purpose of weather tightness risk assessment in accordance with NZS 4306 Residential Property Inspections.
[42]The conclusions which are part of the Executive Summary provide:
Conclusions
General:
The house is located on the east side of Devonport Lane and is orientated on the section so that the living areas are generally facing north/west/east.
The following weathertightness issues are apparent that require invasive testing to determine the extent of leaks and damage as the defects may be leading to gradual deterioration and may require significant repairs:
1. Inadequate ground clearances for the lower edge of the cladding (isolated location side of garage door)
2. Spouting/facia penetrations to the cladding where gaps are likely to allow moisture ingress
19 Singh v Rutherford [2012] NZHC 380, [2012] NZAR 323 at [32], referred to Chief Executive of the Department of Corrections v Fujitsu New Zealand Ltd, above n 18, at [122].
3. Poorly constructed and detailed water diverters located at the ends of apron flashings
4. Parapet roof to wall junction flashings butt jointed and with reliance on sealants.
5. Balcony handrail supports penetrate the balcony membrane floor coverings.
1. Due to the high risk design and construction methods there are weathertightness risks associated with the building and further invasive investigations are required to determine the cause, the extent of moisture ingress and damage.
2. Visual signs of leaks and damages were identified.
3. High moisture readings confirm the presence of moisture.
The repairs and remedial work will require the services of both designer/architect and a builder experienced in weathertightness issues.
[43] In relation to the exterior walls the Property Check Report identified that there were weathertightness issues in the following locations:
There are weathertightness issues at the following locations:
· Roof to wall/parapet junctions where water diverters are either poorly formed, with a reliance on sealants or have not been installed
· At parapet/wall junctions where metal capping have a reliance on sealants and are built joined to walls
· Where ends of spouting penetrate the texture coating system or are tightly fitted to cladding
· At balcony junctions that are poorly detailed and have balustrade railings penetrating the balcony water-proofing membrane
· Hairline cracks in the texture coating round window still junctions (isolated locations)
Moisture testing using existing drill holes recorded:
· Left side of underside of balcony – 11%
· Above garage door underside of soffit below parapet/wall junction – 68%
[44] The points in [43] above are listed under the heading “Weather tightness issues at the following locations” and are the same as those summarised at 1–5 under the heading “Conclusions” set out at para [42].
[45] Generally, the Property Check Report, as it goes through the various elements of the building, records no significant weathertightness issues apparent. The exception is the integral garage/laundry where it is commented that:
There is visible evidence of water damage which is causing swelling in timber skirting boards on the rear wall. Moisture testing using pin probes both in skirting boards and the plasterboard linings recorded very high readings (92%). Elevated moisture readings were also noted to the left of the rear garage door in wall linings (27%). Further investigations will be required.
[46] The high water reading referred to in discussing the interior walls relates to the same area that is above the garage door.
[47]In respect of the balcony, a comment is made in the Property Check Report:
Risks from moisture penetration are evident where metal balustrade rails have been topped fixed through metal flashings and the floors waterproofing membrane.
[48] In respect of Bedroom 2, which is located over the garage, there is the comment in the Property Check Report:
There is visible evidence of moisture damage which is affecting timber skirting boards to the external wall that faces the flat roof covered with a rubber membrane. Moisture testing shows normal readings.
[49] Under the heading “Weathertightness Risk Assessment” in the Property Check Report there appears the following:
A: Wind zone Medium risk: Medium wind zone as described by NZS 3604 B:
Number of storeys
High risk
Two storeys
C:
Roof/wall intersection
Very high risk
Roof elements finish within the boundaries of exterior walls
D:
Eaves with (1)
Very high
0 - 100 mm at 1st floor, or 100 – 450mm at 2nd floor, or 450 – 600mm at 3rd floor level (2)
E:
Envelope complexity
Low risk
Simple rectangular, L, T or boomerang shape, with single cladding type
F:
Deck design
High risk
Enclosed deck exposed in plan or cantilevered at 1st floor level
NOTE:
(1)Eaves width measured from external face of wall cladding to outer edge of overhang, including gutters and fascia
(2) Balustrades and parapets count as 0mm eaves
Citywide Report
[50] While the Citywide Report is apparently three pages in length, only two pages were provided to Charlotte. It is not suggested that the missing page is material.
[51] Under the heading, “Works Completed”, the Citywide Report refers to works undertaken between 11 August 2014 and 25 August 2014. It is this work that Charlotte says required a building consent. While lengthy, I set out the Report in full:
CITYWIDE BUILDERS LTD 03 341 8150 WORKS COMPLETED Name: Liz Eaton Address: [address omitted]
St Albans Christchurch
11 Aug 2014 – 24 Aug 2014
WEATHERTIGHTNESS WORKS Spouting and Fascia Penetrations: In isolated areas where the spouting meets the external cladding directly, a flashing was inserted and spouting refitted to defect water away from the plaster cladding.
Water Diverters: In different locations around the outside of the house mainly around the garage area extra flashings were inserted to defect away from the external plaster cladding.
Above garage door: At 90% angle along the exterior of the bedroom above the garage the plaster was removed and a back flashing inserted. This area was then replastered and this wall along the window side and above the garage roof was painted to match the existing colour of the house.
Garage: Along the back wall of the garage beside the back door the gib board was removed to check for moisture behind it and in the timber framing. The timber bottom plate was removed and replaced along with some studs which showed signs of moisture. All moisture effected timber was removed until good timber was showing. This wall was leak tested then new gib and skirting was fixed, and this wall was plastered and painted to match the existing.
To the left of the back door the gib was also removed to check for moisture ingress, however no signs were apparent and the gib was replaced made good to match existing.
On the exterior a new flashing was made to fit underneath the existing spouting to deflect water away from the house and cladding. Then existing spouting was refitted.
On the butynol roof above the garage timber was placed under the existing butynol as this roof showed 0% fall and this would help water to flow out of the corners and away from any cladding.
Relocate screws for gas cylinders: Where screws were previously in the exterior wall, these were removed and refitted so as no water could enter the plaster cladding. Any holes were made good to match the existing plaster cladding.
Water diversion to chimney breasts: New flashings were fitted to deflect water away from the cladding and down the spouting. Bubbles in the plant work were also addressed and made good to match the existing plaster cladding.
Moisture investigation: The soffit lining above the garage door was taken down for investigation and a small amount of moisture was present due to a leak in the butynol above which was repaired. The timber was dry and leak tested before the soffit was replaced and painted to match the existing.
Bedroom wall: (above garage) Part of the gib board was removed and a new timber bottom plate was fitted, along with new building paper, gib board and skirting. This wall was then plastered and painted to match the existing.
Front door: The front door was revarnished.
Drainage: A channel was cut along the front door and new drainage inserted to defect water away from the bottom of the exterior cladding and prevent water pooling in this area.
[52] This work addressed the items at paras 1-5 of the Property Check Report set out at [42] above, other than the issues with the balconies.20 It will be seen that much of the work concerned the garage and the bedroom above the garage, being the areas that the Property Check Report expressed the most concern about.
The BIC Report
[53] The BIC Report is dated “20:21 21 October, 2014” and is headed “Pre Sale Building Inspection Report”. The Report records that it is carried out in accordance with NZS 4306, as was the Property Check Report. The areas of the property listed as having been inspected include the exterior, the roof exterior and the roof space.
[54] The BIC Report uses defined terms to describe the quality of the inspected items. The highest rating is “Acceptable” which is defined as meaning: “Functional with no obvious signs of defect.” In respect of items that were inspected, the next level down is: “Marginal”, defined as “Item is not fully functional and requires repair or servicing” and with the lowest level being “Defective” defined as “Item needs immediate repair or replacement. It is unable to perform its intended function.”
[55] Save for two irrelevant matters, all items in the BIC Report are listed as “Acceptable”. There are also one or two comments made in respect of some items which are not relevant to the present proceeding, such as identification of minor cracking in internal plasterboards, issues with grout cracking in tiles and dents in a garage door.
20 The Property Check Report notes the balustrade railings penetrating the balcony water-proofing membrane [43] above. The Citywide Report does not refer to work on this issue. This issue appears not to have been addressed as it is noted by BIC — see [59] below where BIC of this issue say “While it is not ideal, there being no sign of moisture ingress”.
[56] There are two items which are described as “Marginal”. They concern the insulation around downlights and bathroom fan venting. Again, they are not relevant to the present proceeding.
[57]In relation to downpipes, there is the comment:
Downpipes: Plastic – Recommend fitting an extension to the downpipe in the corner to prevent slash back beneath the cladding.
[58]In respect of the “Exterior Surface”, this is rated as:
Acceptable Type: Monolithic Style Plaster Over Polystyrene (No Cavity)
– Generally the cladding has good ground clearance but a few areas need to have the ground level lowered.
Some areas of typical minor plaster cracking but no sign of moisture ingress at time of inspection.
[59] In respect of the balcony, the BIC Report identifies the same issue identified by the Property Check Report, which is described as follows:
Balcony: Although common at time of construction it is not ideal having the hand rail fixed through the top of the rubber membrane balcony although no sign of moisture ingress as a result at time of inspection.
[60] The BIC Report contains a section called “Final Comments”. It refers to moisture readings having been taken and includes the following: “All moisture readings taken inside the property at time of inspection were regarded as dry”.
[61]The Conclusion, however, notes that:
Some areas of moisture ingress may go undetected due to the limitations of the tools used as well as the nature of some leaks.
This would appear to be a standard comment.
[62] Mr Stringer emphasised the following from the Terms and Conditions of the Report which appear in smaller print at the commencement of the Report:
5.0 Water Damage
The B.I.C. does not use an Invasive water meter when inspecting the building. The B.I.C. has no liability for buildings constructed without a wall/framing
cavity. Signs of water ingress and potential problem areas such as Timber floors, Window frames and around showers are checked. Rotted Timber framing can only be detected by invasive testing and that would require the removal of internal and exterior wall linings. This would only be carried out with written permission from the owner of the property. No Liability can be assessed for any defect relating to the Leaky building syndrome.
[63] It must be kept in mind that 5.0 above is part of BIC standard form terms. It can be assumed these terms are included in every BIC report. They are not a warning specifically about the property in issue in this proceeding.
Charlotte’s email of 8 October 2014
[64] Recall the auction was on 29 October 2014. On 8 October 2014, Charlotte sent an email to Mr Milligan of Harcourts, the real estate agent handling the sale. The email reads:
Hi Grant,
I have had a good read through these reports – my biggest concern is over the leaky homes/weather tightness.. Has the current owner been quoted how much it would cost to have this repaired? Is there any insurance payout etc covering this? If you could let me know the details around this that would be great.
Thank you, Cheers Charlotte
[65]Charlotte says in her evidence that Mr Milligan’s response was as follows:
10.Mr Millgan contacted me in response to my email and pointed out the other reports, towards the end of the Information Pack, from:
(a)Property Check in July 2014 which identified some weathertightness problems and leaks; and
(b)Citywide Builders in August 2014, which explained the remedial work they had done to address the issues identified by Property Check.
[66] While Mr Stringer raised credibility issues about this evidence, for the purposes of this application, I have no basis not to accept what Charlotte says she was told by Mr Milligan.
The 27 June 2014 Land Information Memorandum (LIM)
[67] Being a sale by auction, there was no LIM condition. Elizabeth provided a LIM report that she had obtained dated 27 June 2014, that is, it predates the work done by Citywide in August 2014. Implicit in Elizabeth’s application is that the enquiries Charlotte should have made would have led her to discover no building consent had been obtained for the August 2014 work, most likely through obtaining an updated LIM.
[68] Mr Stringer submits that a reasonable person in Charlotte’s position would have begun investigating whether a right to claim existed when she received the above information, particularly when combined with her expression of concern in her email of 8 October 2014. In particular, Mr Stringer relies on the 8 October 2014 email. Mr Stringer submits that at that time, Charlotte should have:
(a)taken legal advice about the potential claim before proceeding with the purchase;
(b)instructed a building expert to carry out invasive tests on the property;
(c)obtained an updated LIM to consider whether Elizabeth should have obtained a building consent for the Citywide works, and what the Council’s attitude to these works were; and
(d)made enquiries regarding the WHRS claim that is noted on the LIM, and investigated the background to that claim.21
[69] With respect to Mr Stringer’s submissions, there is an artificiality about this analysis. Charlotte had no claim against Elizabeth prior to settlement as the warranty only applied from settlement.
21 The 27 June 2014 LIM referred to a claim having been made with the WHRs in April 2009 which was held to be ineligible in November 2009 and closed in January 2010. No other details about the claim are in the LIM.
[70] Point (a) in [68] above, in my view, is circular. Charlotte could not take advice about a breach of warranty claim that had not arisen and point (a) assumes that the steps in points (b)-(d) should have been taken and would have disclosed the absence of a building consent. Point (b) ignores that a buyer has no right to demand that invasive testing be done. Whether Elizabeth would have consented to invasive testing must be subject to doubt given she considered she had addressed the watertightness issues and the potential for invasive testing to disrupt the marketing process for the auction. Charlotte only became aware of the property being on the market on 6 October 2014 and the auction was on 29 October 2014. That Charlotte only became aware of the property on 6 October 2014 puts in context her email of 8 October 2014 and arguably makes the response she said received from the agent more significant. The timing was short. Arguably, the agent was reassuring Charlotte that she could rely on the Reports.
[71] Further, whether invasive testing would have been recommended by a building consultant given the Reports that had been received at that time and what such testing may have disclosed is unknown. Further, whether the results of such testing, had it been carried out, would have led Charlotte to discover that no building consent for the August 2014 work had been obtained is also not certain.
[72] As to point (c) in [68] above, the updated LIM, as I have said, the point of a warranty is to shift risk in respect of the warranty issued to the warrantor. None of the Reports referred to above refer to whether a building consent was obtained or not. Mr Stringer’s focus was to say that the material provided in the Information Pack gave concern in regard to weathertightness issues and further enquiries/investigations in respect of weathertightness issues would have led to the discovery that no building consent had been obtained for the August 2014 works. However, I am not convinced Mr Stringer’s submission is correct, that is, I cannot be confident beyond any real doubt that the Reports meant firstly, that a reasonable person should have undertaken further weathertightness enquiries and secondly, that such weathertightness enquiries would have led to discovering the August 2014 work was not consented (assuming a consent was required).
[73] Mr Stringer’s analysis of the above Reports amounts to saying that a reasonable reader would be put on notice that there may well be undiscovered weathertightness issues or, that at the very least, they should make further enquiries. However, that ignores that a reasonable purchaser is entitled to rely on the material provided to them by a vendor. The BIC Report in particular was put forward by Elizabeth to reassure purchasers that the issues identified by Property Check had been addressed by Citywide. Arguably, the whole point of this disclosure was to reassure, not to put a purchaser on notice that further enquiries/checks should be undertaken.
[74] The idea that Charlotte ought to have known Elizabeth would be breaching her warranty on settlement is, in my view, unreal. Charlotte says that Elizabeth, through her agent, in substance told Charlotte that Citywide had undertaken the remedial work to address the issues identified by Property Check. Having given that advice through her agent in response to an expression of concern about weathertightness, arguably it does not lie with Elizabeth to deny that Charlotte should not have relied on the advice.
[75] Nor is the reliance on the provisos and tags in the Reports convincing. It is arguable, as Ms Grant submitted, that the issues identified at 1-3 in the Executive Summary of the Property Check Report set out at [42] above, in fact refer to the matters listed at 1–5 above, items 1–3 and are addressed by the Report and subsequent remedial work. Elizabeth did not think further invasive testing or a more comprehensive report was required to give purchasers confidence the issues identified by Property Check had been identified. The property was not sold “as is where is”, which was a common occurrence in post-earthquake Christchurch in 2014.
[76] What was there in the Information Pack material to make Charlotte “… start asking questions about…”22 whether Elizabeth obtained a consent for the August 2014 works? Nothing in the Reports in the Information Pack suggest any defects with that work or refer to building consents.
[77] In Rea, the issue was whether the plaintiffs knew of defects that were potentially breaches of the Building Code. The purchasers knew the Council had issued a consent in 2013 when they purchased in 2014. The purchasers knew from
22 Rea v Auckland Council, above n 2, at [55].
a report they obtained in March 2016 that the house had defects which were potentially breaches of the Building Code and that repairs would be required. The Court accepted the submissions of the Council that the purchasers had:23
… either actual or constructive knowledge of all the relevant facts, namely that: the CCC had been issued on 18 October 2013; the Council had issued the CCC; there was damage to the property that was more than minor; and repairs would be required including, with some specificity, what those repairs would be. We consider it beyond argument that this information would have led a reasonable person to begin investigations, including taking legal advice. Had they sought legal advice, there can hardly be any doubt that they would have learned that the matter required urgent attention because of the limitation period.
(emphasis added)
[78] I do not consider it “beyond argument” that the information provided by Elizabeth would have led a reasonable person to begin investigations including taking legal advice from which they would have learnt that Elizabeth was going to breach her warranty as at the date of settlement. Elizabeth’s position is that the information provided pre-settlement was such that a reasonable person would have been able to discover that the breach of warranty was going to occur.
[79] Again, the point of Elizabeth making the disclosure she did was to be open about the history of weathertightness concerns at the property to show she had commissioned builders to address those concerns with the BIC Report to confirm the concerns had been addressed. That the Reports were intended to reassure is arguably confirmed by the advice Charlotte says she received from Mr Milligan set out at [65] above.
[80] It does not sit well with providing the Information Pack to reassure purchasers in the way I have described for Elizabeth to nonetheless say that the same material would have put a reasonable person on notice that the steps set out at [68] including undertaking invasive tests et cetera, would have been taken by a reasonable person.
[81] Accordingly, as I have said, I am not satisfied that it is beyond argument a reasonable person in Charlotte’s position should have discovered Elizabeth had not
23 Rea v Auckland Council, above n 2, at [69].
obtained a building consent for the August 2014 remedial work when the essence of the material provided was to reassure Charlotte that work had been carried out satisfactorily.
Costs
[82]There is no reason why costs should not follow the event on a 2B basis and
I so order together with reasonable disbursements as fixed by the Registrar.
Associate Judge Lester
Solicitors:
Grant & Co, Auckland (for Plaintiff)
Wotton Kearney, Auckland (for First and Second Defendants) Cooney Lees Morgan, Tauranga (for Third Defendant)
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