Chee v Stareast Investment Limited HC Auckland CIV 2010-404-7804

[2011] NZHC 532

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-7804

CIV 2010-092-5026

UNDER  the Weathertight Homes Resolution

Services Act 2006

IN THE MATTER OF     an appeal pursuant to s.39 of the Weathertight Homes Resolution Services Act 2006

BETWEEN  JOSEPH CHEE AND MARGARET CHEE Appellants

ANDSTAREAST INVESTMENT LIMITED First Respondent

ANDAUCKLAND COUNCIL Second Respondent

Hearing:         26 and 27 May 2011

Counsel:         WA Endean for fourth respondent/cross appellant

TJ Rainey and JP Wood for appellants/cross respondent and cross appeal

Judgment:      2 June 2011 at 9:30 AM

JUDGMENT OF FAIRE J

Solicitors:           Dawsons, PO Box 38 143, Manukau 2145

Rainey Law, PO Box 1648, Auckland 1140

CHEE V STAREAST INVESTMENT LIMITED HC AK CIV 2010-404-7804 2 June 2011

ANDBRIAN CHARLES TAYLOR Fourth Respondent

ANDCSR BUILDING PRODUCTS (NZ) LIMITED

Fifth Respondent

[1]      The fourth respondent appeals against the determination of the adjudicator, PA McConnell,  delivered  on  1  November  2010  under  the  Weathertight  Homes Resolution Services Act 2006.

[2]      This appeal was called with the appellants’ appeal.  The fourth respondent’s appeal was filed originally in the District Court. All counsel agreed, at the time, that it should be transferred to the High Court and treated as a cross-appeal.  An order to that effect was made.

[3]      The appellant’s appeal has been adjourned to the duty judge list at 10am on

21 September 2011 for reasons that are set out in a minute issued on 30 May 2011.

[4]      Counsel requested that I determine the part of this cross-appeal that is a challenge against the finding of liability against the fourth respondent in favour of the appellants.   If the fourth respondent is successful in this challenge, it has the effect of removing the fourth respondent from the proceeding.   If the fourth respondent is unsuccessful, the fourth respondent will be bound in the same way as the other parties are by the main appeal which, as I have recorded, currently stands adjourned.  It is with the above understanding that I proceed to give judgment on the cross-appeal.

[5]      I further record that  although the first, second  and third respondents  are affected by the outcome of this cross-appeal, none wished to make submissions in relation to it.

[6]      The cross appellant, Mr Taylor, was found liable to the appellants by the Weathertight  Homes  Tribunal  and,  in  particular,  the  decision  of  the  adjudicator, PA McConnell, delivered on 1 November 2010 for his role in the construction of

131B Bucklands  Beach  Road, Bucklands  Beach, Auckland.   It is the finding of liability that Mr Taylor seeks to overturn in this appeal.  If he is unable to persuade the Court that he has no liability, then he seeks to lessen the amount for which he is liable.

[7]      Counsel confirmed that the cross-appeal, which requires a determination of four issues, namely:

(a)      Is  there  evidential  support  for  the  proposition  that  Mr Taylor  is responsible for the work undertaken by his company, TQ Construction Ltd?

(b)Is  there  any  evidential  foundation  for  concluding  that  leaks  and damage  to  131B Bucklands  Beach  Road,  Bucklands  Beach  were caused by either/or:

(i)       Lack of clearances between the cladding the tiles on a deck;

(ii)The lack of slope on the top of the balustrade to the same deck; and/or

(iii)     The lack of fall on the same deck?

(c)      Has  there  been  a  novus  actus  interveniens  by  virtue  of  the  work carried out the deck in January 2004?

(d)Is there a foundation for quantum of targeted repairs ordered against Mr Taylor or should there be a reduction in the repair costs for which the adjudicator has found Mr Taylor liable?

[8]      Understandably,  counsel’s  submissions  focussed  on  the  issues  I  have summarised  in  [7](b)(i),  (ii) and  (iii).   An  answer  in  Mr Taylor’s  favour would remove him from responsibility for the damage that has clearly been sustained to the Bucklands Beach property.

[9]      Unfortunately, this is the fourth hearing of a claim made by the appellants in respect of their home.   The claim was originally heard by the Weathertight Homes Tribunal in June 2009.   An appeal was filed against the determination.   The High Court referred the matter back to the Tribunal to be reheard.  This appeal relates to the decision of the Tribunal and, in particular, the adjudicator given on the rehearing of the case.

[10]     The adjudicator records the way the rehearing proceeded and said:1

[14]     … A case conference was convened to set a timetable for the re- hearing and the parties agreed that even if a new adjudicator was assigned not all evidence would need to be reheard. It was accepted that the audio recording and transcript of the first Tribunal hearing could be relied on for some witnesses if there were no further questions parties wished to put to those witnesses.

[15]      In  reaching  my  decision  on  this  claim  I have  therefore  had  the benefit of both the audio recording and transcript of the earlier hearing, the evidence filed at that hearing and also the new evidence produced  for  the  current  hearing.  By  agreement  some  of  the witnesses who gave evidence at the first hearing did not need to re- appear at the current hearing. All parties however gave evidence and the experts all gave evidence on a panel. They were questioned on a number of issues in relation to the defects and evidence of damage, the remedial scope and the remedial costs. Mr Chee sought to summons five further witnesses to give evidence at the hearing. Four summonses were issued but one was unable to be served. The summons for the fifth witness, the designer, was not issued as she was unable to be located. It was thought she might be residing in England.

[16]      All parties had the opportunity to make both written and oral closing submissions on 15 September 2010. The claimants then sought to file further submissions on 20 September 2010 which were accepted. They then instructed Raineylaw who sought leave to file further legal submissions. The Tribunal agreed to accept further legal submissions  but  I  have  given  little  weight  to  the  factual  and evidential submissions filed by Mr Rainey. Mr Rainey did not attend either hearing where evidence was given and some of the factual submissions he made are incorrect or based on a misinterpretation caused by statements made being taken out of context.

[11]     A short summary of the background will help to identify the position of each party.  Mr and Mrs Hung, through their company, T&P Developments Ltd, entered into  a  contract  to  purchase  131B  Buckands  Beach  Road,  Bucklands  Beach, Auckland.  Mr Hung applied for a building consent to erect a residential dwelling on the property in September 2000.   Shortly thereafter Stareast Investment Ltd was incorporated.  It was nominated as the purchaser.  It settled the purchase and took title to the property.  It entered into contracts for the construction of the dwelling and the building works commenced in late 2000.  They were inspected by the Manukau City Council. A code of compliance certificate was issued by the council on 26 June

2001.

[12]     The dwelling is a two-storey detached building with a pitched concrete tile roof.  The external walls are comprised of light timber framing with a direct fixed monolithic external cladding system.  A textured coating system has been applied to that external cladding system.

[13]     Mr and Mrs Chee and their children arrived in Auckland in October 2001. They entered into an agreement to purchase the property.  The purchase was settled in November 2001 and Mr and Mrs Chee and their family moved into the dwelling in May 2002.

[14]     In August 2003 leaks from an upstairs balcony resulted in water damage to a living room below.  Other leaks were subsequently discovered.

[15]     On 1 November 2007 Mr and Mrs Chee applied for an assessor’s report in respect  of  their  home.    The  report  was  completed  on  29 November  2007.    It concluded that the criteria set out in s 14 of the Weathertight Homes Resolution Services Act 2006 had been met.

[16]     Mr and Mrs Chee sought adjudication of their claims against various parties.

[17]     Stareast  Investment  Ltd  apparently  did  all  things  necessary  to  have  the dwelling built.   It entered into a labour-only contract with TQ Construction Ltd. Mr Taylor is a shareholder in, and a director of, TQ Construction Ltd.  In the first determination there was no finding of liability against TQ Construction Ltd with the

result that Mr Taylor, its director, could not be liable.2

[18]     At the second hearing, the Tribunal found that most of the problems were not the responsibility of TQ Construction Ltd or its director, Mr Taylor.  The Tribunal found:3

[29]      At the experts’ conference all experts agreed that there was damage to the balustrades and deck caused primarily by the manner in which the handrails had been installed. At the hearing they also agreed there was leaking from the deck outlet. Mr Browne was of the view that lack of cladding clearances also compromised the integrity of

2      Chee v Stareast Investment Ltd TRI 2008-100-91/DBH 05577 at [55].

3      Above, n 1.

the cladding on the balustrades. He had not destructively tested the cladding in the area of those junctions as his other investigations had established the cladding needed to be replaced in this area.

[30]      The defects with the deck have caused water ingress and consequent damage to the ceiling and walls of the room below. The experts also agreed that there is advanced decay to the balustrade and associated cladding but there is no evidence of damage to the joists. Mr Smith and Mr Browne were of the opinion that the joists will need to be replaced as the deck was built with insufficient fall. They however agreed with the other experts that any lack of fall was not in itself contributing to leaking or damage. This may be due to the butynol membrane having been taken up behind the cladding.

[19]     For  Mr Taylor  it  was  submitted  that  there  was  no  evidence  before  the Tribunal that cladding clearances had caused the damage and as that was the only work done by Mr Taylor and his company, there was no justification for any finding of liability against TQ Construction Ltd and, accordingly, against Mr Taylor.

[20]     The parties involved in this proceeding have already had the benefit of the High Court’s summary of the appropriate approach to the right of appeal granted by s 93 of the Weathertight Homes Resolution Services Act 2006.  That was provided in the judgment of Wylie J, delivered on 1 April 2010 in relation to the appeal against the first determination of the Weathertight Homes Tribunal.  What His Honour said, however, is important and I adopt it both as a correct statement of law and applicable to the position which I must examine in this cross-appeal.  For completeness’ sake I

now set out His Honour’s summary of the position:4

[29]     The appeals were sought pursuant to s 93 of WHRSA.  Section 93(1)

provides as follows:

A party to a claim that has been determined by the tribunal may appeal on a question of law or fact that arises from the determination.

[30]     Pursuant to s 93(2), the appeals were brought in this Court because Mr and Mrs Chee argue that a full re-clad is necessary, and that the damages  which  should  be  awarded  to  them  are  considerably  in excess of $200,000.

[31]      The WHRSA does not say that appeals from the Tribunal proceed by way of rehearing.  The Court is, however, given wide powers in s 95 of WHRSA.  It is implicit that such appeals should proceed by way of a rehearing under r 20.18 of the High Court Rules, and it follows

that the approach outlined by the Supreme Court in Austin, Nichols

& Co Inc v Stichting Lodestar5 is apposite.  The following principles can be derived from that decision:

a)the appellant bears the onus of satisfying the appeal court that it should differ from the decision under appeal;

b)it is only if the appellate court considers that the appealed decision is wrong that it is justified in interfering with it;

c)the appeal court has the responsibility of arriving at its own assessment on the merits of the case;

d)no deference is required beyond the customary caution appropriate   when   seeing   the   witnesses   provides   an advantage because, for example, credibility is important; and

e)the appellate Judge is entitled to use the reasons of the first instance decision-maker to assist him or her in reaching his or her own conclusions, but the weight the Judge places on them is a matter for the Court.

[32]     The position is summed up in the judgment of Elias CJ at [16] as follows:

Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

[33]      The Austin, Nichols approach has been adopted in relation to appeals under s 93 — see for example, Burns v Argon Construction Ltd;6

Cameron v Stevenson;7   Auckland City Council v Unit Owners in Stonemason Apartment 27 Falcon Street, Parnell;8  Boyd v McGregor.9

[34]      In Hartley v Balemi,10 Stevens J held that a Court should be cautious before overturning findings of fact made by an adjudicator.  Some of the counsel before me referred to this finding in support of their submissions.    I  note  that  this  case  was  decided  before  Austin, Nichols.

5 [2008] 2 NZLR 141 (SC) at [4]-[5], [13] and [17].

6      HC Auckland CIV-2008-404-7316 18 May 2009.

7      HC Napier CIV 2009-441-437 5 November 2009.

8      HC Auckland CIV-2009-404-3118 11 December 2009.

9      HC Auckland CIV 2009-404-404-5332 17 February 2010.

10 HC Auckland CIV-2006-404-2589 29 March 2007 at [53].

[21]     To that I simply add that the Supreme Court has confirmed the approach to general appeals in Austin, Nichols & Company Inc v Stichting Lodestar11 in K v B.12

It is appropriate that I record that this appeal is not an appeal dealing with the exercise of discretion.  What is involved is simply the question of whether there is a proper foundation for the Tribunal’s conclusion that TQ Construction Ltd’s work, and the work of Mr Taylor in relation to the deck, were the cause of the damage to the house.

Were  Mr Taylor  and  TQ  Construction  Ltd  a  cause  of  the  damage  which occurred?

[22]     This appeal relates solely to the question of whether there is a foundation for a conclusion that the building work carried out by Mr Taylor and  his company caused or contributed to damage justifying an order that Mr Taylor, or his company, be made responsible for the rebuilding of the deck.

[23]     I  refer  to  the  adjudicator’s  discussion  of  Mr Taylor’s  responsibility.    It

appears in several parts of the decision.  The first is contained in paragraphs 29 and

30 which I have set out in [18] of this judgment.  Then in paragraphs 97 and 98 the adjudicator finds:

[97]     However Mr Taylor was involved in the construction of the deck.

The main issue with the deck was with the installation of the metal balustrades  and  the  deficiencies  with  the  outlet.  It  is  likely  that neither of these matters were primarily the responsibility of the builder although Mr Taylor is responsible for the lack of clearances between the decking and the tiles, the lack of slope on the top of the balustrade and the lack of fall. I accept Mr Browne’s evidence that the deck clearance has contributed to the leaks from the deck and the resulting damage. On that basis I conclude that Mr Taylor has breached the duty of care owed to the claimants in relation to the construction of the deck only. I have already concluded that if this had been the only defect then it could have been remedied by a targeted repair.

[98]     I therefore conclude that Mr Taylor is liable for the costs of the remedial work in relation to the deck only.

11     Above, n 5.

12     K v B [2010] NZSC 112 at [31]-[32].

[24]     The above summary shows that the metal balustrades and the deficiencies with  the  outlet  were  the  main  causes  of  damage  which  flowed  from  the  deck. Neither of those matters were the responsibility of Mr Taylor or his company.

[25]     The only remaining matter in the decision that is said to cause leaks from the deck, resulting in damage, is the lack of clearance between the decking and the tiles. The lack of fall on the deck itself was found by the tribunal to not contribute to leaking or damage.13    There is no finding that the lack of slope on the top of the balustrade caused leaking and damage.  Indeed, I can find nothing in the evidence that would support such a finding.

[26]     Accordingly, it is necessary to consider the evidence to see what foundation there is for the proposition that the lack of clearance between the tiles on the floor of the deck and the cladding on the sides of the deck is responsible for leaking and the damage that resulted from that water ingress into the property.  The adjudicator relies on the evidence of Mr Browne for her conclusion that the lack of clearance between tiles and cladding is a cause of leaking and damage.

[27]     Mr Browne was contracted by the Chief Executive of the Department of Building and Housing to provide a report.  His report is dated 29 November 2007. At paragraph 12.3.1.3 the report provides:

The following design features and deficiencies are considered to have the potential to enable damage to be caused to the  dwellinghouse by water penetrating it, during the specified intended life of the building element, as mandated in Clause B2 of the NZBC (Appendix D14):

Claddings taken down to deck level

[28]     Mr Browne   describes   the   investigation   process   that   he   followed   in completing his report.   He describes the invasive testing that he undertook, which involved drilling holes through the cladding and inserting proprietary probes into the concealed structure to record moisture content readings.  Locations were selected by him from areas that he regarded as high risk and then non-invasive surface readings were obtained.   Once the testing was carried out the holes were then filled with sealant.

[29]     He then sets out what interpretation is to be placed on the readings which are obtained from the moisture meter used in the non-invasive surface readings and at

9.5 of the report said:

For the purpose of clarity, it is interpreted that once moisture meter readings are in excess of 30% they are to be considered indicative of significant dampness being present, and it is inevitable that timber decay will initiate, unless the moisture is dried rapidly.  Furthermore, BRANZ Bulletin No. 338 (December 1995) states “… Timber that has a moisture content of less than

20% will not rot, even if it is untreated.  However, timber that has been dried to 20% or less and which is then subjected to moisture consistently over 20%

will rot.”

[30]     The deck that is the subject of this part of the inquiry is on the south side of the house.  Access to it comes from a bedroom on the first floor.  The balcony is directly above the downstairs living area, where there was evidence of leak and damage.  The balcony has around it a permanent balustrade that is constructed with cladding on both the outside and inside of the framing, with a cladding cap.  To that is fixed a wrought iron balustrade.  The east and west bottom plates of the permanent balustrade show low moisture contents, as recorded by Mr Browne, of nine per cent and 10 per cent.  The top of the permanent balustrade, that is, the most southern part of the balcony, had a moisture reading of 95 per cent.   That, however, is not in a position where the moisture content could have been caused by the tile to cladding clearance.

[31]     In his report, it is noticeable that Mr Browne refers to the potential to enable damage in relation to the cladding taken down to the deck level only.  The moisture readings to which I have made reference do not indicate that actual damage has occurred because of the fact that the cladding was taken down to the deck level.

[32]     At the second hearing Mr Browne said:14

I agree with what’s been said regarding the damage at the balustrade, the outlet and in a lounge below.   I allow to replace the joist for compliance reasons and I believe that the cladding taken down to deck level was a defect,  although  not  primarily  causing  the  water  entry,  but  certainly absorbing water and creating issues with the cladding.

The matter was subject to further questions, both by Mr Endean for Mr Taylor, and

the adjudicator. At page 161 of the notes of evidence the following was recorded:

MR ENDEAN:               Thank  you,  I  wanted  to  ask  the  panel  is  there consensus among you all that the issue cladding in relation to – the level of the cladding in relation to the tiles is not something that is causing damage?

ADJUDICATOR:           Mr Browne, I think you …

MR BROWNE:             Yes, I think it’s an issue because the lack of adequate clearance allows water absorbence into the cladding and that type of material absorbs the water and does cause degradation to the product.

ADJUDICATOR:           So  is  there  evidence  in  this  property  that  that’s

happening?

MR BROWNE:             It’s  really  a  generalisation  of  what  I’ve  found

previously rather than specifically on that.

ADJUDICATOR:           So you can’t point to anything specific on this but you  believe  that’s  what  happening.     So  Mr  Bayley  you  agree  with Mr Endean. Mr Light?

MR BAYLEY:               Yes, I think it’s fair to say that there didn’t seem to be any evidence that the cladding to tile junction had caused any problems on the deck itself.  While it might have directed water down further because of other defects, nevertheless it didn’t, in my view, cause any problem.

ADJUDICATOR:           To the deck.  But could it have caused problems to other building elements?

MR BAYLEY:               No, I don’t believe so.   There wasn’t any apparent evidence of that  and  in  fact  I don’t  know that  – yes,  there  wasn’t any apparent evidence of that.

MR LIGHT:                  There’s no evidence of damage, I think the reason why, it should be understood is that the membrane is taking – the Butynol membrane is taken up behind the cladding and it has the effect of acting like a DPC, protecting the damp – cladding, the cladding could be damp at the bottom  if  it  is  immersed  in  water.    But  that  Butynol  has  the  effect  of protecting the framing directly behind it, so we often see that environment not contributing to any damage because of the – because the deck membrane is protecting it.

Mr Bayley referred to in the notes of evidence is Mr Geoff Bayley, the Council’s

expert.  Mr Light is an expert called on behalf of Mr Taylor.

[33]     Then at page 163, Mr Smith, who was the expert called for the appellants said:

MR SMITH:                 I would agree with Mr Browne in so much that he, or no one, has cut a hole there to actually establish whether there is any damage at that point.

Questioned further, Mr Smith acknowledged that he was making an assumption and had no factual foundation to suggest that there was any damage caused at the tile to cladding junction.

[34]     Mr Rainey drew attention to paragraph 12.3.3.3 of the assessor’s report:

A cutout was made on the southeast corner of the balustrade (photo 12). The building paper was disintegrating, and the timber looked in poor condition. The building paper was wrapped over the balustrade, with no additional waterproofing applied. A sample with elevated moisture levels was taken for testing (S4).  The lab found advanced recently active brown rot throughout the sample and recommended replacement.

[35]     I cannot find anywhere in the report that suggests this condition has any connection with the tile to cladding clearance question.  The inference that one can draw from the photo provided in the report is that the water has come from the wrought iron fixing on the top of the balustrade and that is the reason for the condition which is described by the assessor in his report.

[36]     Indeed,  I  draw  that  inference  because  both  Mr Browne  and  Mr Smith acknowledged that the area had not been destructively tested.  Indeed, their position was based more on what they perceived to be the risk caused by the way the tiles met the cladding.

[37]     In summary, the position is that the experts all agree that the primary causes of  water  ingress  and  damage  was  via  the  method  of  fixing  the  wrought  iron balustrade to the permanent balustrade and also the lack of proper sealing around the outlet pipe, which was allowing water to run back into the building.  Those causes were relatively clear.  Other causes simply are not established.  I therefore conclude there is no proper foundation for the proposition that the tile to cladding clearance was a cause of water penetration and damage.

[38]     Having  reached  that  conclusion,  which  incidentally  was  the  conclusion reached  at  the  first  hearing,  the  basis  for  the  finding  of  liability  against  TQ

Construction Ltd, Mr Taylor’s company, simply does not exist.   That by itself is sufficient to support a conclusion that there is no basis for TQ Construction Ltd’s responsibility; and therefore no basis of responsibility for the damage for its director, Mr Taylor.  This finding makes it unnecessary to make any final determination of the issues raised in paragraph 7(a), (c) and (d).

[39]     Whilst the consequence to Mr Taylor and his company are clear from the conclusion I have reached, the overall effect of the adjudicator’s determination as signalled  by paragraph  156  of the decision  must  await  a final  determination  in relation to the appellant’s appeal.  For the avoidance of doubt, I simply record that I make no specific adjustment to the table in paragraph 156 of the decision of the adjudicator other than to record that there is, in fact, no obligation on Mr Taylor to pay $36,610 to the appellants.

[40]     For the reasons set out in this judgment, Mr Taylor’s appeal is allowed with

the consequence that I have recorded.

[41]     Counsel did not address on the question of costs.  My present view is that this is a Category 2 Band B appeal.  If counsel are unable to agree and my ruling on the question of costs is required, memoranda in support, opposition and reply shall be filed and served at seven-day intervals.  The memoranda shall then be referred to me

for final determination on the question of costs on this cross-appeal.

JA Faire J