Hsu v Mahoney
[2021] NZHC 1611
•1 July 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2017-409-000100
[2021] NZHC 1611
BETWEEN PI-HUI BEATRICE TSAI HSU
First Plaintiff
AND
KENNETH TSAI
Second Plaintiff
AND
MARGARET ANN MAHONEY and GRAHAM PAUL MCQUEEN
First Defendants (Discontinued)
AND
BUSHNELL INVESTMENTS LIMITED
(formerly named BUSHNELL BUILDERS LIMITED)
Second DefendantAND
CHRISTCHURCH CITY COUNCIL
Third Defendant (Discontinued)
AND
LANCE PHILIP AUSTIN
Fourth Defendant
AND
BUSHNELL BUILDERS LIMITED
Fifth Defendant
Hearing: 15 – 18 March 2021 Appearances:
R G Smedley and T D Grimwood for Plaintiffs
S P Rennie and A Whalan for Second, Fourth and Fifth Defendants
Judgment:
1 July 2021
JUDGMENT OF JUSTICE DOOGUE
(Liability)
HSU v MAHONEY [2021] NZHC 1611
This judgment was delivered by me on 1 July 2021 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Contents
Introduction........................................................................................................... [1]
The Facts............................................................................................................... [8]
Initial engagement between the parties [8]
Unexpected ground conditions [16]
The retaining wall [20]
First reports of water ingress - 2009 [26]
Earliest attempts at remediation of the retaining wall - 2009 to 2010 [32] February 2010 to December 2010 [38]
Complaints to the Master Builders Association - 2011 [46]
Further remediation – the curtain injection method [59]
Further work by BIL [65]
Water testing [70]
Canterbury earthquake sequence [77]
The proceedings to date...................................................................................... [82]
The parties’ respective cases................................................................................ [94]
The credibility of the parties................................................................................ [99]
The experts and their qualifications................................................................... [107]
What constitutes a properly constructed tanking system? [115]
What went wrong in this case?.......................................................................... [117]
Remediation attempts........................................................................................ [125]
Curtain injection method [125]
Appropriateness of the curtain injection method in this case [129] Location of the water ingress................................................................................................................ [139]
The water ingress at the entrance to the house [139] Are there other points of entry for water ingress as a failure to construct the tanking system successfully? [151]
Causes of Action................................................................................................ [162]
First cause of action against BIL - breach of contract [162]
Second cause of action against BIL - negligence [166] Third cause of action against BIL – breach of RW Agreement and CRMBA agreement [172]
Counterclaim by BIL [175]
Cause of action against Mr Austin – negligence [180]The law [182]
Did Mr Austin exert a sufficient degree of control over the relevant acts or omissions? [219]
Did Mr Austin breach that duty of care through negligent acts and omissions?
[220]
What loss have the Tsais suffered as a result of Mr Austin’s negligence? [225] Cause of action against BBL2 – negligence [228] Conclusions on liability [239]
How should the retaining wall be remediated?................................................. [245]
Quantum............................................................................................................ [249]
Remediation [249]
Have the Tsais already been compensated for their loss? [259]
General damages [270]
Result................................................................................................................. [276]
Introduction
[1] The plaintiffs, Ms Hsu and Mr Tsai (the Tsais) are the co-owners of a property (the property) situated at 2 Clearview Lane, Mt Pleasant, Christchurch.
[2] The first defendants, Margaret Mahoney and Graham Paul McQueen, are the executors of the Maurice Mahoney Estate (the executors). Mr Mahoney was a founding member of the highly regarded architectural company Warren and Mahoney. He was contracted by the Tsais to design and supervise the building of their dream retirement home (the house) at the property. Proceedings have been discontinued against his estate and the Christchurch City Council (CCC), the third defendant.
[3] Mr Mahoney recommended the Tsais engage the second defendant, then named Bushnell Builders Limited (1645548) (BBL), to build the house. On or about 23 June 2008 BBL and Ms Hsu signed a building contract (the building contract) for construction of the house.
[4] This case concerns a retaining wall on the south elevation of the house (the retaining wall). It is an essential part of the house as opposed to the property. Under Mr Mahoney’s design specifications, a tanking system was to be constructed behind the retaining wall. Tanking systems are used to prevent water ingress.
[5] The Tsais say BBL and its subcontractor defectively constructed the tanking system behind the retaining wall. They say there is, and has always been, water ingress through the retaining wall. They seek $243,357.05 excluding GST for remediation of the retaining wall and associated costs.
[6] BBL agreed the tanking system was defectively constructed by their subcontractor and that it did not initially prevent water ingress. They agreed to remediate the retaining wall.
[7] Several attempts were made to remediate the retaining wall between 2010 and 2016, initially by BBL and in the later stages by the fifth defendant, Bushnell Builders Limited (4350918) (BBL2), a company incorporated on 26 April 2013. The fourth defendant, Lance Philip Austin, was a director of both BBL and BBL2 at all material
times. BBL changed its name to Bushnell Investments Limited (1645548) in April 2013. For ease of reference I refer to BBL and Bushnell Investments Ltd as BIL.
The Facts
Initial engagement between the parties
[8] Mr Mahoney was contracted by the Tsais to design and supervise the building of the house. He prepared the drawings and architectural specifications. Mr Mahoney recommended that the Tsais engage Buchanan Fletcher Limited (BF) to provide engineering services and BIL to build the house. The Tsais accepted BIL’s revised tender on 3 June 2008.
[9] On or about 23 June 2008 BIL and Ms Hsu signed a contract whereby BIL would construct the house for $780,480 excluding GST (building contract). The building contract incorporated, by reference, the NZIA Standard Conditions of Contract SCC 2007 1st Edition as modified by the specific conditions of contract, the architectural plans and the structural plans.
[10] These conditions included a warranty of five years from the date of practical completion (PC), which stipulated a repair where replacement was out of all proportion to the consequences of the defect.
Mr Mahoney’s role was to:
(a)represent the Tsais;
(b)issue all directions to BIL (including certificates, decisions, determinations and instructions); and
(c)administer the building contract impartially with no authority to relieve BIL of any obligations.
[12] One of Mr Mahoney’s obligations was to determine when contract works had achieved PC. PC was when everything was done except for minor omissions and minor defects. He was also the agent for the Tsais for the purpose of final payment
under the building contract. When Mr Mahoney issued the final payment certificate (FPC) the Tsais were obliged to pay the full contract price.
[13] Mr Hans van der Hoven was the foreman in charge of the construction crew. Mr Matthew Bushnell, the governing director of BIL, signed the building contract and was involved in processes such as the selection of subcontractors. Mr Austin became involved later in the construction, particularly in relation to the remediation of the tanking.
[14] After Ms Hsu had signed the building contract she became concerned that she would not know if BIL was following the architect’s plans. She agreed to pay Mr Mahoney $7,000.00 to supervise the construction on her behalf. He became extremely active in this role. In particular, he visited the site at least eight times while the tanking system was being constructed.
[15] The building consent was issued on 5 August 2008 and excavations began on 20 August 2008.
Unexpected ground conditions
[16] When excavations began at the site the ground conditions were found to be quite different from what had been indicated in the geotechnical advice. The excavations uncovered significant seepage of water from the bank formed by a cut into the site where the house was to be located, such that special tanking and drainage precautions became necessary.
[17]Mr Mahoney wrote to CCC advising them that:
The rear wall is now to be a retaining wall and has been moved back against the bank
…
As a final security against any future failure of the rear wall’s tanking, a void space with a sunken floor has been left between the wall itself and the passage partition. Two floor wastes will be set into the sunken floor and run out to join the terrace field-drain in case any water should ever find its way through the tanked rear wall.
[18] Mr Mahoney provided CCC with revised architectural drawings and engineer’s sketch details for the increased protection required. He applied for building consent for the necessary revisions, which was granted. The revisions plainly anticipated water ingress as an unlikely possibility as a result of uncommon circumstances, and not as a result of routine climatic conditions.
[19] I pause here to describe Mr Mahoney’s specifications for the retaining wall in greater depth as it is crucial to understanding the discussion that follows.
The retaining wall
[20] The wall itself is of unremarkable construction. It is 240 millimetre concrete block, filled and reinforced.
[21] The tanking system was to be installed on the exterior of the concrete block wall. Mr Mahoney stipulated it should be “Swelltite” Bentonite composite tanking membrane over which two to three coats of solid plaster, with a total thickness of 14 to 22 millimetres, would be applied. The membrane was designed to extend along the whole of the retaining wall and to continue around the corners where the retaining wall met the west and east elevations of the house.
[22] Plaster was then to be applied to the exterior of the retaining wall, the concrete steps at the entranceway apron and the letterbox pillar. The plastered surface was to abut against an area of consolidated hardfill above free-draining gravel and concrete drainage. This area would be covered by a riverstone apron.
[23] Between the interior surface of the retaining wall and a passageway at the back of the house was the void space (the void) described by Mr Mahoney at [17] above. The void separates the tanked retaining wall and the interior wall of the house proper.
[24] On 26 September 2008 BIL submitted the proposed tanking quote. It included quotations from Adhesion Sealing and Brown and Andrews Limited (BA). The BA quote noted that the previously specified Volclay product was replaced with an equivalent, Sikaproof Bentonite. Mr Mahoney told BIL to accept BA’s quote and said that Sika was a good product. The retaining wall was inspected by BF on
31 October 2008 and was approved by CCC on 18 December 2008. The record refers to a “block wall below road” and notes “Bentamtic (sic) system used. Approved to proceed.”
[25] There were numerous errors in the construction of the tanking system. They are explained at [117] to [124].
First reports of water ingress - 2009
[26] Ms Hsu first reported water in the void on 9 April 2009. She sent an email to Mr Mahoney which included the following:
I was at the site today and saw lots of water seep through the wall into the void. Hans [BIL’s foreman] told me that is because the concrete at the top is not poured yet and that after it is poured, there will be no problem. But it also means the water proof membrane can get soaky wet too, can’t it?
[27] Mr Mahoney investigated and advised Ms Hsu the water was coming through the incomplete parts of the building and not through the tanking.
[28] On 12 October 2009 Mr Mahoney issued Contract Instruction No. 25 to BIL as follows:
LEAKAGE
The recent heavy rains have produced an ingress of water through the south ground floor wall into the floor of the void space and I understand from Hans there was also a leak through the East ground floor wall. After all the tanking and drainage work done (at great expense to the building owner) to prevent such leakage, this result is unacceptable. Please advise what measures you will be taking to find the sources and causes of these leaks and to overcome them.
[29] By Contract Instruction No 28, on 2 November 2009, Mr Mahoney advised BIL that the Tsais would be withholding payment until the “tanking failure” was fixed and a “leak-proof building has been achieved”. Mr Austin was involved at this point because the contract instruction was directed to him.
[30] BIL provided a producer statement on 4 December 2009 that confirmed the building work had been completed to the extent required under the building consent.
BF also provided a producer statement for construction review on 7 December 2009. CCC undertook a final inspection on 9 December 2009.
[31]On 24 December 2009 Mr Mahoney wrote to BIL as follows:
I cannot issue a certificate of Practical Completion until the present process of sealing the tanking leaks is completed because the Owner cannot obtain any house and contents insurance cover while the house is still leaking and because the contract works insurance ceases (except for defects) once the Practical Completion is certified.
Earliest attempts at remediation of the retaining wall - 2009 to 2010
[32] On 22 December 2009 Mr Bushnell advised Ms Hsu that BA would start to “drill and inject the wall this afternoon”.
[33] At this point Mr Austin was already involved in reviewing whether BA’s remediation of the tanking to the retaining wall was successful. He reported to Ms Hsu on 3 January 2010, noting he had been monitoring the void every two days. He said the retaining wall had remained “bone dry” where it was injected even after considerable rain. Ms Hsu replied on the 6 and 7 January 2010 that there was still water on the wall and floor of the void.
[34] On 7 January 2010 Mr Austin did some water testing using a hose and sprinkler. He reported that after 15 minutes moisture was present “at the top of the void about 3 blocks down from the top”. He told Ms Hsu he was positive he had located the source of the water entry, that he had organised a meeting with BA and Sika and that after the meeting he would keep her informed of the remedial measures required to “eliminate the problem”.
[35] On 12 January 2010 Mr Austin informed Ms Hsu by email that BA had “started [their] remedial work” and “weather permitting will start water testing later on tomorrow”. Between 25 and 26 January 2010 Mr Austin undertook more water testing. He left a sprinkler on overnight and reported no moisture.
[36] Mr Mahoney inspected the house the next day and issued PC on 27 January 2010. He reported to Ms Hsu that Mr Austin considered the “water
problem has been solved” and that he, Mr Mahoney, had found the house to be “perfectly dry”. CCC issued a code of compliance certificate that same day under s 95 of the Building Act 2004.
[37]The Tsais moved into the house on 6 February 2010.
February 2010 to December 2010
[38] On 26 February 2010 Ms Hsu reported water in both corners of the void. BIL inspected the void, saw no evidence of water ingress and informed Ms Hsu it would wait until water ingress occurred again before taking any action. Ms Hsu reported no further water ingress until 25 May, which was the day Mr Mahoney issued the FPC.
[39] On receipt of the FPC Ms Hsu agreed to pay, but advised Mr Mahoney she would prefer BIL first fix the new areas of water ingress she had discovered.
[40] On 26 May Ms Hsu reported more water in the void and provided further photos. On 7 June she reported that the water ingress at the western end of the void remained. On 25 June she reported the eastern end of the void was leaking. On 19 August she reiterated the problem in the void “still needs fixing”.
[41] On 4 September 2010 a magnitude 7.1 earthquake occurred near Darfield, a community based some 40 kilometres west of Christchurch. The earthquake struck at a depth of 10 kilometres. Considerable damage was caused to land and buildings, both on the Canterbury plains and in Christchurch city.
[42] BF inspected the house and recorded on 9 September 2010 there was a “new horizontal crack in the mortar joint (between the block and mortar)” on the retaining wall. The crack was approximately a millimetre wide and several metres long. They said the crack was “very unlikely to be a sign of any serious structural damage” and that it will “probably not have any effect on the water tightness of the wall”. Nonetheless, BF thought it prudent to have the crack injected with epoxy.
[43] On 20 September 2010 Ms Hsu wrote to Mr Austin and reported to him a conversation she had with Application Specialists Limited (ASL), who replaced BA.
They had been retained by BIL to assist in remediating the retaining wall. Ms Hsu said she had been advised by an employee of ASL that they would:
(1) fill in the gaps … found outside the house,
(2) do the necessary injections to stop the leakage and to fill the crack found on the void wall and inspected by the inspector sent by [BIL] and
(3) put on a coating to prevent the excess humidity coming through the concrete bricks.
[44] On 29 December 2010 Ms Hsu wrote to Mr Bushnell and copied in Mr Austin and Mr Mahoney:
Dear Sir,
1. Water was found again on the void wall and ceiling yesterday (28th of Dec. 2010). This was on the eastern end and in the middle. Sam Webster from Application Specialists Ltd has filled up some holes in the western end and middle, but afterward, water still comes in from the middle ceiling and the eastern end wall when it rains. Yesterday, it happened again. Since the problem hasn’t been solved, please continue to work on it.
[45] Notwithstanding this state of affairs Ms Hsu agreed to pay one third of BIL’s outstanding invoice of $27,076.44, on the basis BIL would continue to investigate and fix the water ingress issues.
Complaints to the Master Builders Association - 2011
[46] In February 2011 Ms Hsu lodged a complaint against BIL to the Canterbury Registered Master Builders Association (CRMBA). The complaint was rejected.
[47] In April 2011 Ms Hsu hired a retired building inspector, Mr Richard Ellis, to be her agent and intermediary in her interactions with BIL.
[48] In May 2011 Mr Ellis advised the Tsais to make another complaint to CRMBA. The Tsais sent off a list of defects, which included the water ingress through the retaining wall. CRMBA responded by letter dated 12 May 2011. The letter stated:
… please be aware that the terms of your Master Build Guarantee are at risk of being breached as you have taken possession of the house without making
final payment and risk your policy being cancelled. You would also be unable to make a claim on your guarantee as final payment has not been made.
[49] CRMBA suggested that, as BIL had said it would repair the retaining wall, Ms Hsu should put the outstanding retention monies into a trust account. She did so on 19 May 2011.
[50] Mr Mahoney gave Ms Hsu a copy of a letter he had written to BIL dated 25 May 2011. Mr Mahoney wrote:
…
As a result of advice given in the Association’s response to that complaint, (presumably with your agreement) the Owner has now paid all the retention money into a Trust Account with law firm Cameron & Company.
Now the faults in the house need fixing without further delay so that you can recover that money and leave the house in a satisfactory condition.
As you know, the retaining wall at the back of the lower story has continued to leak whenever there is rain. The attempts to stop this initially seemed to work – at least to the point that I was prepared to issue a final payment certificate - clearly the process was not a permanent solution
…
Besides the water penetration there is efflorescence in numerous places all over the inner face of the wall. Water penetration is mostly in the bottom courses of blockwork, which raises concerns about whether the Novaflow drain is functioning properly. But in any case, the tanking has not proved totally waterproof or there would be no leakage and no efflorescence.
I recall that at a meeting once held in the downstairs passage to investigate the leaks you declared “that if all else fails Bushnells will excavate the backfill and fix the problem from the outside”. The time has come for you to make good that offer and to give me and my client a genuine time as to when you will carry it out.
[51] Mr Bushnell replied to that letter on 7 June 2011 (received by Mr Mahoney on 23 June 2011) as follows:
…
We propose to remedy the remaining leaks to the retaining wall by drilling holes to the interior and injecting a large area of the wall with a Fosroc compound. Our subcontractor is organised to commence this work in the next couple of weeks.
[52] The letter also provided a formula for the repayment of the retention monies as follows:
The monies are to be released only on certification by LSC Consulting as follows:
One month after completion of the works 75% of retentions are to be released.
Two months after completion of the works 15% of retentions are to be released.
Four months after completion of the works the balance of retentions are to be released.
[53] Mr Mahoney responded to Mr Bushnell’s letter. He advised that the proposal to remedy the leaks by further curtain injections would only be acceptable if it were “backed up” by written confirmation of BIL’s previously repeated offers, that if the curtain injections did not stop the leaking then BIL would tackle the problem by excavating the backfill and repairing the tanking from the outside.
[54] Mr Bushnell replied to Mr Mahoney’s letter on 11 July 2011. He said that if injecting the Fosroc product was unsuccessful BIL would carry out alternative remedial works. Interestingly, there was no explanation of precisely what those remedial works would be.
[55] On 23 August 2011 Ms Hsu convened a meeting at the house with Mr Mahoney, Mr Ellis, Mr Bushnell and Mr Tsai in attendance. At that meeting Ms Hsu says:
Matthew agreed to take care of the problems and Richard offered to help him sort out the problems if he could. The meeting ended amiably, and we all felt hopeful.
[56] It was therefore not surprising that Ms Hsu was shocked when she heard from BIL’s lawyers by letter dated 6 October 2011 as follows:
2. Our client has confirmed that it will carry out remedial works to the retaining wall but is not prepared to do so in the absence of an unequivocal commitment for payment of moneys that have been outstanding since May 2010. For the avoidance of doubt, we are instructed that the problems experienced with the retaining wall did not become apparent until after the architect’s final certification. They do not therefore affect your client’s liability for payment of the certified amount.
[57] At Ms Hsu’s request, CRMBA held a meeting at their offices on 4 November 2011. Those present were Mr Bushnell, Mr Ellis, Mr Glen Campbell (a service officer of CRMBA), the Tsais’ son (Tony), Ms Hsu and a notetaker who took minutes. The minutes record that Mr Bushnell, among other things, agreed to “cover damage caused from leak” and “dig up if initial repairs don’t remedy the leak and replant gardens if required”.
[58] After the meeting CRMBA wrote to BIL and Ms Hsu recording their decision that BIL was to complete the remedial works to a standard accepted by an independent party, Mr Cusiel. By 25 November 2011 Ms Hsu and BIL had agreed the way forward. Ms Hsu was to put the retention monies into the trust account of Lane Neave. BIL would complete the remediation and, on certification by Mr Cusiel, the retention monies would be paid out on the agreed basis.
Further remediation – the curtain injection method
[59] In late 2011 BIL and ASL injected the retaining wall with Parchem Poly-Grout 100, a product supplied by Concrete Plus. They used what is known as the curtain injection method. This method is evaluated at [125] to [137].
[60] ASL attended the property on 27 January 2012. The bulk of their work was completed by early 2012, but work continued with the most persistent leaks until mid-2013. BIL made over 570 Poly-Grout injections throughout this period.
[61] On 12 July 2012 the Tsais advised BIL that water was found in the void after snow on 6 June 2012. Mr Austin met Tony, the Tsais’ son, at the property on 29 June 2012. Mr Austin says Tony confirmed the water was not coming through the part of the retaining wall where tanking had been installed but instead was coming over the top of the tanking.
[62] Despite Ms Hsu’s protestations that there was still water ingress through the retaining wall into the void, Mr Cusiel certified on 25 July 2012 that he had inspected the retaining wall and that in his opinion it had been satisfactorily repaired by BIL. He noted on inspection there had been “no sign of water penetration” through the wall
for “over three months” and that the water entry was “unrelated to issues with the retaining wall”.
[63]On 15 August Ms Hsu again found water in the void and sent photos to BIL.
[64] The last injection to the retaining wall by ASL post-dated Mr Cusiel’s certification and took place on 11 September 2012.
Further work by BIL
[65] Ms Hsu continued, in March 2013, to complain about leaks in the void. For the first time BIL responded saying the leaks had been fixed by the curtain injections. On this occasion they advised Ms Hsu that the one remaining leak was a “small leak at the very top of the wall” and that it was as “a result of Earth Quake damage to the concrete apron were it had been dislodged from the house (sic)”.
[66] Despite that being BIL’s position, Ms Hsu continued to complain. BIL continued to attempt to fix the leak between September 2013 and March 2014 and applied waterproof paint under the tanking. That area had been exposed under the riverstone strip behind the retaining wall when the Tsais’ insurers were fixing a slump caused by the 22 February 2011 earthquake. They also poured concrete under the concrete steps next to the entry area and above the site of what BIL considered the remaining source of water ingress.
[67] According to Ms Hsu there was continued water ingress through the retaining wall. She regularly sent emails and photographs to CRMBA and BIL informing them of the ongoing problems. There were a number of unsatisfactory and inconclusive exchanges between Ms Hsu and BIL about the continued water ingress into the void, and the Tsais’ failure to release the retention monies despite Mr Cusiel’s certification that the repairs had been successful. These exchanges meandered along without any resolution throughout the remaining months of 2014 until March 2015.
[68] On 9 March 2015 Mr Bushnell and Mr Cusiel came to the property and asked the Tsais to release the retention monies. Following that meeting, on 16 March 2015, Mr Bushnell sent Ms Hsu an email summarising the meeting from BIL’s point of view.
He said BIL were hopeful they had finally eliminated the leak and were prepared to seal the interior void block walls with a non-porous sealer. Further, he said they would leave the bore packer nozzles in place for a year to ensure there was no further leakage, and that after final release of the retentions BIL would pay the cost of removal of the bore packer nozzles and make good the surface of the wall.
[69]From March 2015 Ms Hsu continued to complain of water ingress.
Water testing
[70] On 19 October 2015 Mr Austin advised the Tsais that a subcontractor, Mr Mark Gebbie, had performed a water test to the entrance area and there was no water ingress into the void.
[71] On 21 October 2015 Mr Bushnell emailed Ms Hsu advising that Mr Austin would come to the property and undertake water testing. If the water testing did not result in any water ingress through the tanking into the void the clock would start ticking on the retention monies on 15 October 2015.
[72] Mr Austin and an associate came to the property on 28 October 2015 to undertake the water testing. There was water ingress into the void after about 20 minutes.
[73] Mr Austin and Mr Tsai came to an arrangement where Mr Tsai would do water testing and send the results through to Mr Austin. On 3 November 2015 Mr Tsai informed Mr Austin that water ingress into the void had appeared 25 to 30 minutes after the water testing. He continued to let Mr Austin know the results of his testing throughout that month.
[74] BIL returned to the property on 2 and 4 December 2015 to do more repair work. Mr Tsai did more water testing after that work and there was still water ingress into the void.
[75] Between December 2015 and November 2016, the Tsais continued to complain to BIL. BIL did not engage. According to the Tsais, water ingress continues to this day after moderate rain.
[76] Ultimately the Tsais lost patience with BIL and BBL and instructed Maynard Marks (MM), a firm of property and building consultants, to investigate the retaining wall. As a result of MM’s conclusions, the Tsais issued these proceedings.
Canterbury earthquake sequence
[77] Throughout this period other events were causing relevant damage to the property and to the house. This was the sequence of earthquakes in Canterbury between 4 September 2010 and late 2016 when these proceedings were filed.
[78] I have already discussed the 4 September 2010 earthquake and BF’s inspection. A further earthquake occurred on 26 December 2010. The Tsais made a claim to EQC in respect of this damage.
[79] On 22 February 2011 a more devastating earthquake struck. Its epicentre was near the Port of Lyttleton and it had a magnitude of 6.2. The Tsais made another claim for damage caused by this earthquake.
[80] On 23 December 2011 there were two further earthquakes that occurred within a period of 90 minutes. They were of 5.8 and 5.9 magnitude respectively. The epicentre was approximately 8 kilometres off the coast of New Brighton, to the east of Christchurch city. The Tsais made a further claim against EQC, although that claim has not been produced to the Court.
[81] On 14 February 2016 another significant earthquake struck Canterbury and the Tsais made another claim against the EQC for earthquake damage.
The proceedings to date
[82]The claims against the executors and CCC have been settled.
[83] BIL and Mr Austin consented to both discontinuances. They did so on the basis that while the claim had originally been for a host of defects, the terms of settlement confined the claim to a single defect which was the defective tanking system. BIL and Mr Austin say the plaintiffs abandoned their claims for other defects. The plaintiffs deny this.
[84] I rely on what is pleaded in the second amended statement of claim (the statement of claim). The statement of claim pleads a single defect:
Maynard Marks have concluded that the House has not been built in accordance with Mr Mahoney’s specifications and/or reasonable trade practice, as at the date of construction and is defective as follows:
(a)the incorrect installation of the south retaining wall and the associated waterproof tanking system causing water entry into the house;
…
[85] Other defects were initially pleaded but were struck off the statement of claim. As a result of the piecemeal way in which the various claims have been resolved and the pleadings consequently amended, some of the most obvious defects have not been pleaded.
[86]In Platt v Porirua City Council, Kós J made the following comment:1
Particulars of pleading are important to:
(a)Inform the defendants as to the case they have to meet;
(b)Limit the scope of matters the plaintiff may put in issue at trial (or in pre-trial settlement discussion);
(c)Enable the defendants to know what witnesses it will need to retain and enable them to start preparing evidence ahead of the formal exchange of evidence; and
(d)Provide an opportunity for a defendant to seek summary determination on the basis that the claim pleaded is untenable.
[87] The plaintiffs have not pleaded defects in the tanking systems associated with the east and west retaining walls. They particularised their claim as relating to the tanking associated with the south retaining wall. An attempt was made to remedy that
1 Platt v Porirua City Council [2012] NZHC 2445 at [19].
state of affairs by reference to the quantum of damages sought in their prayer for relief but that is inappropriate.
[88] The tanking systems associated with the east and west retaining walls were only referred to in the evidence in a relatively minor way and were not the focus of the expert evidence. The defendants were entitled to have the case against them made plain in respect of the east and west retaining walls, including the calling of expert evidence before the closing at trial.
[89] The case the defendants had to meet was restricted to the incorrect construction of the tanking system behind the retaining wall.
[90] The first, second and third causes of action are against BIL for breach of the building contract, negligence, and breach of a subsequent agreement to remediate the retaining wall (including excavating behind the house so as to repair the defective tanking system from the outside) made under the auspices of CRMBA’s intercession.
[91] BIL counterclaim the Tsais are in breach of an agreement they would pay the retention monies when the repairs to the retaining wall were certified. The Tsais did not do so, and BIL say the Tsais cannot enforce an agreement in respect of which they are in breach.
[92] The fourth cause of action is in negligence against Mr Austin for his actions in controlling the remediation attempts. The plaintiffs say he had sufficient control over the building of the house and remediating the defects to owe them a duty of care to deliver construction that complied with the Building Code.
[93] The fifth cause of action is against BBL2 for negligence. The Tsais seek compensation against BBL2 for the full claim. That cannot succeed. BBL2 did not exist at the time the initial defective tanking system was constructed; it was incorporated over five years later. The claim in this regard is limited to any loss attributable to negligent attempts to remediate the defects by BBL2. Importantly, the Tsais have not produced any evidence of loss emanating from the remediation itself.
The parties’ respective cases
[94] No one disputes the fact water is entering the house in the vicinity of the retaining wall. The parties and their experts are unanimous on this critical issue. However, they are at odds as to how the water ingress is occurring.
[95] The Tsais say the water ingress is coming through the tanking system by generalised moisture ingress and at least two active sources.
[96] The defendants say the water ingress is a result of earthquake damage. They say the porch slab at the entrance to the house was dislodged and the water ingress occurs exclusively through a fracture at that point, bypassing the tanking system. They therefore say the cause of the water ingress is not a defective tanking system.
[97] A lot of the evidence in this case was directed to other theories about how the water ingress is occurring. For instance, whether the water was coming through cracks caused by earthquake damage (other than the entrance leak). All the experts agreed this was not the case, that the cracks (both vertical and horizontal) were superficial only and would not have extended continuously through the retaining wall to its exterior. Therefore, although there was extensive evidence about this, I do not intend to traverse it in any detail.
[98] Similarly, the Tsais postulated the tanking may have been defective around the starter bars which penetrate the retaining wall and the tanking. Under cross-examination, on the first day of his evidence, Mr Austin admitted that if the tanking was defective then the area around the starter bars could be a point of entry for water. He then attempted the next day to mitigate this admission by saying he did not think starter bars were installed. My findings do not require me to resolve this issue definitively, so I do not intend to traverse that evidence.
The credibility of the parties
[99] Before I consider the evidence, I need to make some observations about the evidence of Ms Hsu and Mr Austin, the only two parties who were cross-examined at the hearing.
[100] First, Ms Hsu. I acknowledge that English is Ms Hsu’s second language and cultural differences were present. There were times when she did not understand the questions put to her and when she appeared to have difficulty navigating the extensive and highly technical nature of the documentation in this case. Importantly, however, when she did not understand something she said so. Under cross-examination she would not answer until she fully understood what was being put to her, she would either seek clarification or pause to consider the question thoroughly. I am therefore satisfied she was under no disadvantage in giving her evidence.
[101] Ms Hsu is obviously a highly intelligent, educated woman with a meticulous eye for detail. She had a very direct, confrontational and at times obstructive approach to answering questions. At times she gave implausible rationales when she should instead have made simple concessions. For instance, I had a lot of difficulty with her account of the number of times she had made claims to EQC, what they were for, what she received by way of compensation and how that compensation had or had not been applied to the remediation of defects in the construction of the house. She was highly evasive about this under cross- examination by Mr Rennie and resorted to ex post facto interpretation of the EQC documentation which went against the plain meaning of that documentation.
[102] Further, she claimed not to have read Mr Richardson’s expert report, rather she says she gave it to her husband to read and did not discuss it with him. I cannot accept that was the case as she has fiercely and comprehensively driven both the build and this litigation. When it was put to her that her son, Tony, had told Mr Austin no further water ingress was coming through the retaining wall, she denied ever having discussed this with him. Similarly, I do not find that plausible when Tony’s statement was of such importance and undercut her own narrative of events at that time.
[103] I accept that anybody whose dream retirement home has been the cause of so much defective design and construction would want to take advantage of any and every available source of compensation. For this reason, I have been left with a sense Ms Hsu may have inadvertently conflated some of her claims and the compensation she has received already. This will be relevant to the scope and cost of any remediation if any defendant is found liable for the defects.
[104] I turn now to the nature and tenor of Mr Austin’s evidence. He is no doubt as fatigued as Ms Hsu by this long-running and acrimonious litigation. It was not him who agreed to excavate behind the retaining wall and completely replace the tanking system if the water persisted. I detected his frustration with his fellow director, Mr Bushnell, for having made that agreement.
[105] However, this fatigue and frustration manifested itself in his being a truculent and unhelpful witness. He wasted the Court’s time by taking a very long time to make proper concessions on non-controversial matters. I did not find him a credible or reliable witness because he was neither fair nor balanced.
[106] For these reasons I consider it prudent to analyse the cause of the water ingress into the void largely by reference to contemporaneous independent reports and the expert evidence.
The experts and their qualifications
[107] The Tsais relied on the expert evidence of Mr Graeme Calvert and Mr Daniel Kennet. BIL, BB2 and Mr Austin relied on the expert evidence of Mr Alan Richardson.
[108] The experts were cross-examined to impugn their qualifications and expertise. None of the cross-examination caused me to lose any confidence in their respective expertise or in their understanding of the Code of Conduct for Expert Witnesses in the High Court. One obvious hallmark of the latter is that there was unanimous agreement between them on several important facts. Each expert seemed willing to make concessions they felt were reasonable in the circumstances.
[109]I shall address their qualifications in the order in which they were called.
[110] Mr Calvert is an associate director of MM. He has spent 33 years in the building industry and has extensive experience and qualifications in investigation and assessment of buildings, their construction, design and any necessary remediation thereof.
[111] Mr Kennet is also as associate director of MM. He is an engineer. He has spent nine years in the building industry in Australia and four years in the building industry in New Zealand. He demonstrated a sound forensic underpinning to his opinion and the assessment of the issues in this case.
[112] Mr Richardson is a self-employed building consultant with over 50 years’ experience in the building industry, having begun his carpentry apprenticeship in January 1964. Between 1994 to 2018 he was a building consultant at Richardson & Associates, during which time he completed 950 reports on materials and structures. He has been an assessor for the Weathertight Homes Resolution Services and since 2018 he has been a self-employed building consultant.
[113] The experts met and produced a combined report (experts’ report) to the Court dated 16 December 2020. They were asked to consider inter alia the following:
(a) The cause(s) of:
(i)Any humidity in the void; and
(ii)Any water ingress through the retaining wall.
(b) How any established cause/s should be remediated.
[114] The experts’ report confirmed that there was humidity in the void and at times moisture present on the interior surface of the retaining wall. They also agreed there is water ingress into the void.
What constitutes a properly constructed tanking system?
[115] To answer the fundamental issue in this case it is imperative to understand what constitutes a properly constructed tanking system.
[116] A properly constructed tanking system contains many more elements than the simple installation of a sealing mechanism to the exterior of a retaining wall. Where the construction requires a concrete wall to have an associated tanking system it requires the following:
(a)the concrete blocks to be dry before sealing takes place;
(b)the waterproof membrane to be dry when applied to the wall;
(c)the waterproof membrane to be applied in continuous sheets to suit the wall height;
(d)termination bands to be installed top and bottom to secure the membrane in place;
(e)the membrane to be terminated belowground;
(f)waterproof paint to be applied where the membrane has terminated;
(g)the membrane to be covered immediately (in this case plaster was to be immediately applied over the top of the membrane to cover it);
(h)the area behind the plaster to be immediately backfilled (without back support the wall is unprotected); and
(i)the backfill to be comprised of the right materials, namely free-draining aggregates such as AP20 or AP40.
What went wrong in this case?
[117] BIL describes the failure of the tanking in an email to the liquidators of BAL as follows:
Bushnell Builders Ltd contracted Brown & Andrews to install a top of the range tanking system. The product was installed in sections to a poor standard and with a severe lack of supervision. The product took a number of weeks to install. During this time there was a significant number of rain days causing the product to become saturated. Upon completion of the backfilling leaks were evident. Brown & Andrews explained that the leaks would disappear over time as the product expands. This did not happen.
[118] It is clear from this email that BIL accepted that a number of the crucial elements in the construction of a successful tanking system did not occur in this case. Namely:
(a)the membrane itself was not dry;
(b)it was not applied in continuous sheets to the height of the wall; and
(c)it was not immediately backfilled.
[119] The problems in the construction of the tanking system were in fact far more extensive than that, even though the failures listed in the previous paragraph in and of themselves would be enough to establish the tanking as constructed was defective.
[120] First, a photograph taken on 17 December 2008 shows the membrane partially applied and that the concrete blocks of the retaining wall were themselves wet when they should have been dry.
[121] Second, photographs show the Bentonite was applied in sections. The membrane has been laid in two vertically overlapping layers and with a horizontal joining at the medium height of the wall.
[122] Third, there was no waterproof paint applied where the membrane was terminated.
[123] Finally, the backfill was not comprised of free-draining aggregates as required but rather by soil.
[124] Considering all these significant failures it is abundantly clear that the tanking system was not constructed correctly and was in fact wholly defective.
Remediation attempts
Curtain injection method
[125] BIL and its subcontractor, ASL, attempted to remediate the retaining wall by using the curtain injection method.
[126] This is a method whereby holes are drilled in the wall space at regular intervals, approximately 30 to 50 centimetres apart. If the leak or leaks emanate from a vertical
surface, bore packers are then screwed into the wall as the mechanisms through which the sealing product is injected. The bore packers are supposed to be installed in vertical rows, commencing from the bottom and finishing at the top of the surface. The bore packers are then tightened so they can withstand the maximum injection pressures. Injections of the sealing agent are then made into each of the packers. This process is not instant and multiple injections take place over time. If the injections are successful and the leaks are eliminated, then the bore packers are removed and the holes into which they were installed are in turn filled and sealed themselves.
[127] Mr Rennie was critical of Mr Calvert and Mr Kennet’s evidence that the method described above was accurate or necessarily the only effective method for a curtain injection process. However, no independent expert evidence was produced to substantiate this criticism.
[128] The industry documentation about the products and methods used to discredit the work done by BIL and ASL was not directly aligned with the products used in this case. However, I am satisfied that, in respect of the basic principles of the method and the physics relied upon, the method described by Mr Calvert and Mr Kennet was a sound basis on which to assess the efficacy of BIL and ASL’s remediation attempts. I am fortified in reaching this conclusion by their collective expertise on weathertightness issues and their remediation.
Appropriateness of the curtain injection method in this case
[129] It appears the curtain injection method did have positive effects on some of the active leaks in the retaining wall. However, the experts unanimously agreed the method was inappropriate where the tanking system was totally defective, as it was in this case. Adding to that is the fact that the curtain injection method, as described above, was not followed properly by BIL and ASL.
[130] I viewed the site on 12 March 2020 and observed that the bore packers were not installed as they should have been (evenly across the surface of the wall at 30 to 50 centimetre intervals) but rather were haphazard and largely centred on what were sites of existing or past active leaks.
[131] Unless there is even and regular placement of the bore packers then, according to Mr Kennett, there can be no guarantee that a curtain will form on the exterior surface of the wall, in other words no guarantee that there will be total coverage of the wall with the sealing agent. Further, Mr Kennet was of the view that the haphazardly drilled holes in at least one location are so closely spaced that they could have contributed to the cracking in the surface of the interior of the retaining wall.
[132] Mr Calvert also said Parchem Poly-Grout 100 was not a suitable product and that the durability of the product would be unlikely to meet the 50-year requirement of the Building Code. In his report of April 2017 he wrote:
We believe, due to the approximate 3-month delay before back filling, the tanking material hydrated and had no back support to hydrate adequately and so failed to fully protect the wall. The subsequent remedial injection works that have taken place over several attempts mean the wall is protected by a hybrid of systems that give the property owners no guarantee of the wall satisfying the requirements of the New Zealand Building Code Clauses, B1 Structure, and Durability, which is 50 years, and the wall has already failed and continues to fail Clause E2 External Moisture, where the requirement to be satisfied is also 50 years in the situation of a tanking membrane being not designed for ready access and being difficult to replace.
[133] Mr Kennet agreed that Poly-Grout was not an appropriate product to use as it was ideally suited to small confined spaces and not for use to provide a curtain across an extensive surface.
[134] Further, Mr Austin accepted that ASL had not produced any documentation confirming that the method and product used were compatible with SikaProof Bentonite or would be durable for 50 years as required by the Building Code.
[135] Mr Richardson did not consider it within his brief to assess the appropriateness of the method and products used in the curtain injection method. Therefore, the evidence for BIL and Mr Austin on this issue is almost wholly reliant on interested parties to this work.
[136] Even if Mr Kennet is incorrect in his critical observations about the way the method was used by BIL and ASL, those observations are not essential to my findings.
[137] The fact that the three experts are agreed the method itself, no matter how expertly applied and even with correct product, would not remediate a tanking system that was already wholly defective is in my view the uncontroverted answer to this issue. I find the curtain injection method did not sufficiently remediate the negligently constructed tanking system.
[138] Notwithstanding that finding, it is still necessary to consider whether there is only one remaining point of water ingress, as BIL would have it, or whether there are several, as the Tsais assert. I must also consider whether the water ingress is penetrating through the tanking system into the interior of the retaining wall or is coming in over the top of the tanking at the entrance way.
Location of the water ingress
The water ingress at the entrance to the house
[139] BIL maintains there is one remaining point of water ingress and that is a crack at the porch slab at the entrance to the house located above the retaining wall caused by the Canterbury earthquake sequence.
[140] This point of water ingress was clearly an issue before the Canterbury earthquake sequence. Ms Hsu sent Mr Austin an email and photograph of this leak on 25 May 2010, many months before the Canterbury earthquake sequence began.
[141] Mr Richardson had not been appraised of this fact before he provided his expert opinion. I quote from Mr Smedley’s cross-examination of Mr Richardson:
Q Did he tell you this leak that you were looking at in 2019 you were testing had existed since 2010?
A No, the date wasn’t mentioned. That was directly after the earthquake I take it?
Q No, that is was leaking prior to the earthquake?
A. No, I wasn’t aware of that. However when you say that the nib of the injection nozzles were concentrated around that area of the wall and therefore I would suggest it was compromised in the area.
Q What was compromised?
A The tanking.
Q Right. So really what you’re saying is that the cause of the leak particularly since it started before the earthquake was to compromise tanking?
A Yes.
[142] In 2014, when Southern Response was reinstating the riverstone apron near the entrance of the house after having repaired the slump that had occurred in the soil beneath, the Tsais took photographs of the entrance, the retaining wall and the intersection between them. The photographs clearly show there is no tanking system to the sides of the entrance slab where it intersects with the retaining wall. This was accepted by Mr Austin.
[143]Mr Richardson also made a similar observation:
… it is not clear how the tanking is connected to the wall under the entry slab, especially at the edges of the slab.
[144] Accordingly, Mr Richardson’s report appears to highlight the lack of tanking around the entrance slab. Mr Kennett provided evidence that this is a likely source of water ingress.
[145] Mr Kennett also provided evidence that if the tanking system under the entrance slab was not properly constructed this would be a clear source of water ingress through the “cold joint” between the monolithic floor slab and the top of the retaining wall into the void passage. He said if the tanking system under the entrance slab had been properly constructed it would be unlikely to have been compromised if the entrance had suffered earthquake damage due to the tanking membrane’s self-healing properties.
[146] There is no evidence from any party of cracking (which would indicate earthquake damage) to the paved tiles on the porch slab near the entry or to the monolithic floor slab atop the retaining wall.
[147] I find that the water ingress at the entrance to the house is not earthquake related but is instead due to the absence of a tanking system at the intersection of the
entrance slab and the retaining wall. It seems to be the case that the tanking system was not installed as it should have been.
[148] This is not specifically pleaded as a defect, other than where it is asserted in the statement of claim that BIL were informed of the defects during the defects’ liability period. However, it is at least arguable that a failure to install a tanking system at the intersection of the entrance slab and the retaining wall relates to the pleaded particular “the incorrect installation of the south retaining wall and the associated waterproof tanking system”.
[149] Even if ultimately not pleaded, this defect was the subject of extensive evidence and submission. I find no prejudice to the defendants in considering it in any event. Having said that, it is not clear on the evidence before me whether the origin of the failure to install tanking in this location was a design or construction fault.
[150]This ambiguity is, however, not critical to the findings I make on liability later.
Are there other points of entry for water ingress as a failure to construct the tanking system successfully?
[151] Mr Richardson said that the water ingress at the entrance to the house was the only point of water ingress visible to him. He conceded he had confined his testing to that one area. Having confined himself to water testing in the one area he accepted in cross-examination that he did not conduct a comprehensive assessment of water and moisture ingress across the full length and breadth of the interior of the retaining wall.
[152] He also conceded that he could not say what course any water coming through the failed tanking system at the entrance would necessarily take. He acknowledged he could not rule out the possibility the water ingress from that point was coming through the retaining wall and its tanking system at other points.
[153] Mr Calvert co-authored the report by MM that led the Tsais to commence these proceedings. The methodology of that report included “some invasive and destructive testing to determine the presence of moisture ingress”. Additionally, on 5 and 8 June 2020, following a rain event, Mr Calvert and an associate returned to the
property to do further testing on the house. On 5 June Mr Calvert installed four polythene patches at isolated locations, two to the west and two to the east sections of the interior of the retaining wall. The patches were installed in an attempt to decipher the movement of moisture within the void.
[154] Between 5 June 2020 and 8 June 2020, the patch corners were losing adhesion and had to be subsequently re-fixed to the wall. According to Mr Calvert, the loss of adhesion lends itself to the conclusion that moisture was in the void.
[155] When the patches were removed and further testing undertaken, Mr Calvert concluded that the void area continued to be subject to generalised wetting and moisture entry through the retaining wall. While Mr Richardson was critical of this method of testing, he had not himself undertaken any testing of his own on other areas of the interior wall and was therefore not in a position to refute Mr Calvert’s findings.
[156] Both Mr Calvert and Mr Kennet were the subject of an unforgiving cross examination by Mr Rennie. I now set out a section of the relevant cross-examination of Mr Kennett:
[269] For the sake of completeness, the sum of $24,067.95 (being the retentions withheld by the Tsais) will need to be deducted from the sum owing by BIL to the Tsais.
General damages
[270] In addition to the cost of remediation, the Tsais seek general damages for suffering and emotional distress “as the Court sees fit”.
[271]Ms Hsu has given evidence that:
We could not leave the house unattended for more than a few hours because of the amount of water that was coming into the dehumidifiers which were set up in the void and if we were not there to empty the buckets (which had to be emptied twice a day), then the level of dampness would increase significantly.
[272] Moisture has been penetrating into the void passage for more than 11 years. For much of that time Ms Hsu has felt “angry and powerless”. She has constantly
liaised with BIL and says she has had to bear significant uncertainty, humiliation and anxiety as a result of BIL’s continued attempts to remediate the leakage.
[273] In Body Corporate No 189855 v North Shore City Council Venning J reviewed the authorities on general damages for the negligent construction of residential property.30 He found that general damages of $20,000 were appropriate for each of the plaintiffs who had been living in the negligently constructed properties.31 That is in line with the damages awarded in like cases.
[274] The defects in that case were far more substantial than those I have found BIL responsible for here. However, the Tsais have had to live with these defects and the associated remediation attempts for a far longer period. I therefore find that a similar sum is appropriate to recognise their distress. The $20,000 award was made in 2008, almost 13 years ago. The purchasing power of $20,000 today is just over $25,000.
[275] I order general damages in favour of each of Beatrice Hsu and Kenneth Tsai in the sum of $25,000.
Result
[276] BIL is liable in contract and negligence for the failure to construct the tanking system to the standard of compliance with the Building Code.
[277] BIL and Mr Austin are concurrently liable for general damages of $25,000 to each of Ms Hsu and Mr Tsai (a total of $50,000).
[278]Leave is reserved for the parties to:
(a)file a memorandum containing the parties’ agreement as to the costs of remediation of the retaining wall together with submissions on interest and costs, or
30 Body Corporate No 189855 v North Shore City Council HC Auckland CIV-2005-404-5561, 25 July 2008 at [397].
31 At [398].
(b)file a memorandum outlining proposed directions for the filing of further evidence on the cost of remediating the retaining wall.
Doogue J
Solicitors:
Anthony Harper, Christchurch Rhodes & Co, Christchurch
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