Miles v Gadd

[2021] NZHC 1527

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2019-485-349

[2021] NZHC 1527

BETWEEN

DANIEL JOSEPH MILES AND

ELIZABETH CHARLOTTE MILES
Plaintiffs

AND

BRUCE WILLIAM GADD

Defendant

Hearing:	16–18 and 24 November 2020
Appearances:	B M Easton and D J Powell for Plaintiffs K P Sullivan and D Bleier for Defendant
Judgment:	25 June 2021

JUDGMENT OF CLARK J

Introduction[1]

The issues[4]

Factual background[6]
Events prior to sale of apartment 803[29]

Events post-purchase[50]

The statement of claim[67]
Did Mr Gadd breach cl 6.2(5)?[71]
Plaintiffs’ position[71]
Defendant’s position[75]

Analysis[80]

Conclusion[107]
Did Mr Gadd breach cl 8.2(6)?[108]
Plaintiffs’ position[108]
Defendant’s position[110]

Operative principles[111]

Alleged knowledge[118]
What does the evidence show Mr Gadd knew?[124]
Did Mr Gadd’s knowledge fall within cl 8.2(6)?[150]
Summary of scope of cl 8.2(6) and Mr Gadd’s knowledge[177]

Conclusion[180]

Result[181]

MILES AND MILES v GADD [2021] NZHC 1527 [25 June 2021]

Introduction

[1]    Construction of the Sirocco residential apartment building in Church Street, in central Wellington, was completed in 1999. The defendant, Mr Gadd, acquired unit 803 in October 2004 and owned it until 28 June 2013 when he sold the unit to the plaintiffs, Mr and Ms Miles. The sale and purchase agreement contained two warranties by which Mr Gadd, as the vendor, warranted that:

(a)building consent had been obtained in respect of any work done on the property that required building consent; and

(b)he had no knowledge or notice of any fact which might give rise to or indicate the possibility of Mr and Ms Miles incurring liability under the Unit Titles Act 2010 (UTA).

[2]    In May 2014, consulting engineers reported that the monolithic cladding system had failed. In June 2019 the plaintiffs commenced these proceedings. They sue for breach of both warranties. The plaintiffs say Mr Gadd carried out tiling work to the deck of unit 803 without first obtaining building consent. They also contend Sirocco had a chequered history of building defects including weathertightness issues and these problems continued up to the time that Mr Gadd entered into the sale and purchase agreement. It is said that, by virtue of owning the unit for over eight and a half years, and through various Body Corporate documents, Mr Gadd had knowledge or notice of facts indicating the possibility of Mr Gadd or the purchasers incurring liability under the UTA or the possibility of proceedings being issued by or against the Body Corporate.

[3]    The plaintiffs seek damages for the diminution in the value of their apartment or for lost opportunity. They also seek general damages.

The issues

[4]The following issues are raised by the pleadings:

(a)whether the tiling work carried out on Mr Gadd’s balcony required a

building consent under the Building Act 2004;

(b)whether Mr Gadd had knowledge or notice of any fact or circumstance that indicated the possibility that either he or a purchaser may incur liability under the UTA or of proceedings being issued by or against the Body Corporate

(c)whether the plaintiffs have suffered loss as a result of a breach of either of the vendor warranties and if so:

(i)what is their loss; and

(ii)what is the correct date at which to assess that loss.

[5]    Mr Gadd pleaded four affirmative defences two of which were abandoned during closing submissions. The two remaining affirmative defences raise the following issues:

(a)Did the plaintiffs waive cl 8.2(6) of the sale and purchase agreement and consequently waive Mr Gadd’s undertaking that he had no knowledge or notice of facts which might give rise to the plaintiffs incurring liability under the UTA?

(b)Did the plaintiffs fail to mitigate their loss by not repairing their unit at some earlier point in time?

Factual background

[6]    The 11-storey Sirocco apartment building was one of the first high-rise, purpose-built apartment buildings in Wellington. The 11 storeys are formed over split levels with five storeys of parking, above which there are six residential levels containing 44 apartments.

[7]    Sirocco was completed to a relatively complex architectural design. External balconies adjoin all the apartments either as projecting steel-framed balconies or

enclosed roof structures. At the time Sirocco was constructed, it was regarded as being of superior quality in terms of floor areas, fit-out and the extent of the common area development which includes a swimming pool and extensive access walkways.

[8]    Mr Gadd purchased apartment 803 in October 2004 and took occupancy the following month.

[9]    At this point I mention a letter dated 9 June 2005 which was included in the common bundle for this hearing. The letter was from Kerry Duncan who was at the time the Body Corporate Secretary and Building Manager.1 Addressed to the owner of apartment 815, the letter documented the significant damage to the bathrooms in 815, said to be caused by people showering directly on the bathroom floor rather than using the shower facilities. As a result, the bathroom floor tiles had started to lift, the membrane underneath had been damaged and water had travelled through to cause damage to ceilings and wall linings in the apartments directly below namely, apartments 816, 616 and 615. Costs associated with the repairs that were not covered by insurance were to be charged to the owner of apartment 815.

[10]   At   the   Body   Corporate’s   Annual    General    Meeting    (AGM)    on 11 December 2005, Mr Duncan reported that the leaks from apartment 815 were caused by a pipe in the shower wall not being crimped properly when originally installed. It had leaked continuously for six years and consequential repairs had been undertaken in apartments 815, 816, 615 and 616.

[11]   At the December 2005 AGM, Mr Gadd was elected to the Body Corporate Committee (the BC Committee). Mr Gadd then moved to Germany in June 2006 where he was based as acting Consul-General and Trade Commissioner until November 2006. Apartment 803 was vacant during that time.

[12]   At a meeting of the BC Committee in February 2007, there was a discussion about the deck to apartment 815. It had been cleared of its tiles and rebuilt. Retiling and laying of the waterproof membrane was to occur the following week at which point apartment 818 could be “cleaned up”.  The minutes also record that

1      Mr Duncan’s company was Cedar Property Management Services.

Mr Greenwood, a Committee member, suggested the Body Corporate be registered as a leaky building before the cut-off date and that there was a discussion about what was meant by “leaky building”. Mr Gadd did not recall the exact discussion but said in evidence he did not understand the comment had been taken too seriously and that, in any event, the question of registering Sirocco as a leaky building did not seem to have ever been raised again even after Mr Greenwood became the Body Corporate Chair.

[13]   In June 2007 Mr Gadd left New Zealand to take up the position of Consul- General and Trade Commissioner in Milan. His apartment was tenanted and left in the control of a property manager.

[14]   On 21 July 2007 Robin Smith of Robin Works, a commercial and residential building maintenance consultant, wrote to Mr Duncan. Mr Smith had carried out a survey of all balconies within the complex following the major leaks from unit 815. He reported that most of the joints were satisfactory. He had repaired and upgraded the few that were not and he saw no problem occurring in these areas in the foreseeable future.

[15]   On 29 July 2007 Mr Duncan wrote to the owners of apartments 803, 806 and 811 to report on the result of Mr Smith’s investigation. Mr Duncan’s letter included the following extract from Mr Smith’s letter:

Apartment 803: smaller of the four upper decks, has no centre drainage point, seems to fall to the drainage channel at the outside wall.

Apartments 806 & 811: These two decks have a centre drainage point and also have a drainage channel at the outside wall, 806 the falls all seem to work okay, 811 has a problem of water laying around the perimeter of the centre drainage point, someone has cut into the mortar between the tiles to try and get this water to run to the sump, without much success, these three decks have a double layer of tiles starting at the spa/bbq area’s and finishing at the drainage channel.

In my opinion, the owners of apartments 803-806-811 should be advised of the problems that can or possibly will occur if this double tiling breaks down.

The major problem, as I see it, is that these areas that the spa/bbqs sit on is only one layer of tiles and rainwater sits here and slowly works its way between the double layer and they start breaking down, eventually causing moisture to weep into the apartments below (as  what happened to apartment

815, causing thousands of dollars worth of damage). Attention to the above should be considered a priority.

[16]   Mr Duncan relayed Mr Smith’s advice that the areas under the barbecues and spa pools should be retiled with a second layer of tiles and re-sealed to bring the area up to the same level as the rest of the deck. Under the terms of the Body Corporate Rules the repair and maintenance of the decks was the responsibility of the owners. The Body Corporate was prepared to arrange to have the repairs carried out and to charge the costs back to the owners. If they chose to have their own contractors investigate and carry out the repairs, they were asked to advise Mr Duncan within seven days of his letter.

[17]   Mr Gadd did not recall seeing this letter but accepted it was addressed to him at his then work email address at “nzte.govt.nz” during the period he was resident in Milan. Mr Gadd explained that in 2007 email connectivity was not what it is today. At New Zealand Trade and Enterprise, they had only desktop computers and mobile phones that had no internet capacity.

[18]   Jules Leloir was appointed to the role of Body Corporate Secretary and Manager in October 2007. Ms Leloir was a director of Jules Consultancy Ltd which provided body corporate management and consultancy services, including to Sirocco. It transpired after her investigations into the issues presented by apartment 815 that part of the tiled area around the spa on the balcony of apartment 815 had collapsed and water had poured into apartments 817 and 818 below. Prior to her appointment, the Committee had not been advised of the extent of the repairs carried out, nor that the repair work was not up to standard or that the owner of 815 was claiming the cost of the repairs from the Body Corporate.

[19]   At  an  Emergency  General  Meeting  in   May   2008   (by   which  time Mr Greenwood had become the Body Corporate Chair), Ms Leloir was thanked for getting the affairs of the Body Corporate back in order.

[20]The minutes of the July 2008 AGM record that:

The Chairman stressed to the meeting that whilst the design of the building is unique and the walkways allow for some weather to intrude, Sirocco is not a leaky building.

[21]   On 31 January 2009 Regional Property Services Ltd (RPS) sent to Ms Leloir a four-page document constituting a 1–10 year maintenance schedule with a list of priority maintenance items, explanatory notes and photographs. RPS recommended that defects referred to in the report as “minor or otherwise” be attended to promptly. I return to this report but for the moment I note that there were 12 “priority maintenance items” which included items such as replacing mirror glass and redecorating the toilet interior in the pool area and painting selected walls for the purpose of redecoration. Two other priority maintenance items were described as moisture entrapment at level four, and “Harditex System – Weather Tightness”. This item was marked “urgent work”. RPS reported that much of the wall cladding was subject to external moisture because of its positioning to the elements. The report further noted that the porous backing to the system had since been withdrawn from the market.

[22]   In March 2010 while still in Italy, Mr Gadd accepted the role of Director, Rugby World Cup 2011 and later that month gave notice to his tenants. He took the opportunity to spruce up his apartment while it was empty. Mr Gadd returned to New Zealand in mid July 2010.

[23]   Mr Gadd attended the AGM on 31 May 2011 and was elected once again to the BC Committee. The minutes record the Chair’s overview. Relevantly:

(a)Sirocco apartments were “now in good shape”.

(b)Body Corporate levies were not increasing that year.

(c)The major undertaking of the sixth floor walkway rebuild was almost complete and repairs to the apartments impacted by the breakdown of the walkways were almost complete.

[24]   At the BC Committee meeting on 20 March 2012, which Mr Gadd attended, Ms Leloir detailed the works being done on apartment leaks. Major leaks into

apartment 818 were still being managed and there was a leak into the wall of apartment 817 which was also being managed. The leak from the deck of apartment 806 into the living room in apartment 807 had begun again and Ms Leloir was to follow that up. There was also a discussion around exterior maintenance issues. The long term maintenance plan had been written two years earlier and for any major works, “such as painting” there would need to be a major injection of funds either by special levy or increasing the Body Corporate levies which were already high as they had lifted to accommodate increases in insurance premiums.

[25]On 12 June 2012 Mr Gadd attended the AGM the minutes of which note:

The Body Corporate Committee is particularly looking at the long term maintenance plan to ensure it is accurately reflecting the building’s needs and is looking at following up with exterior cladding work and painting.

[26]   In her written report for the AGM, Ms O’Shea, the Chairperson observed the previous year had been challenging for apartment owners in New Zealand: the Christchurch earthquakes had impacted on insurance in particular, and on earthquake strengthening. Sirocco had come off lightly and it had managed “relatively minor water tightness issues within the maintenance budget”. The Chair added:

Sirocco is not a leaky building – rather it is a building with some occasional water ingress!!

[27]   Mr Gadd attended a BC Committee meeting on 18 September 2012. The minutes show there was a general discussion about items raised in the management report, in particular:

(a)The leak into 807 did not appear to be any worse and the owners were happy to wait until the tenants had left early the following year before investigating further;

(b)The major work on the level 6 walkway had been completed but contractors still needed to do some tidying; and

(c)Jim Henderson from Plastercoat would be asked to provide a report to the Committee identifying the work needing to be done to the external

and interior common areas and to meet with Committee members who would explain what work was urgent and how best to progress it before it became a major issue.

[28]   On 28 November 2012 Ms Leloir emailed Committee members to advise that damage to a wall leading down the inside stairs had been discovered. High moisture readings had been taken at the base of the wall and a plumber would be onsite later that morning to discuss improving drainage in the outside area “as it would appear that over the years when there has been heavy rain, the water does not adequately drain away and it has pooled against the exterior wall causing the long term ingress of water and the subsequent damage to the wooden structure”.

Events prior to sale of apartment 803

[29]   In late 2012, Mr Gadd was approached by the Auckland City Council to be its representative at the America’s Cup Challenge in San Francisco in 2013. As that would mean initially moving to Auckland and then living in San Francisco for the duration of the series and the America’s Cup Yacht races, Mr Gadd decided to move to Auckland and put the apartment on the market.

[30]   On 14 December 2012 and at Mr Gadd’s request, Ms Leloir emailed to him the following documents to pass on to his real estate agent:

(a)a pre-contract disclosure statement containing the information required by s 146 of the UTA;

(b)Sirocco Body Corporate Rules;

(c)copies of the minutes of the 2010, 2011 and 2012 AGMs;

(d)end of year financial statements for 2010, 2011 and 2012;

(e)proposed budget and levy schedule 2012–2013;

(f)guidelines for living at Sirocco; and

(g)unregistered Body Corporate operational rules which, while not yet registered, had been passed by special resolution.

[31]   The apartment was listed with agents and placed on the market in January 2013.

[32]   Mr Gadd attended the BC Committee meeting on 13 March 2013. The minutes show: “[Ms Leloir] confirmed that all current leaks were in hand”.

[33]   Around 20 March 2013 the plaintiffs expressed interest in an apartment in Molesworth Street, Wellington, but were told of water ingress problems with the building so did not take their interest any further.

[34]   In April 2013 the plaintiffs confirmed their intention to attend an auction of a property at Kate Sheppard Apartments but it was sold prior to auction. On 17 June 2013 the plaintiffs made an offer to purchase an apartment in the Croxley Mills building in Frederick Street but were advised by the owners the following week that they needed to investigate the cause of a leak above the lounge during which time the apartment would not be marketed.

[35]   On 20 June  2013  Ms  Leloir  emailed  Committee  members  (including  Mr Gadd) reporting a problem with water getting into an apartment from two of the penthouse apartment decks on level 8. A quote for the necessary remedial work on the decks was attached to the email. The email advised:

As the decks are part of the building’s structural element this work is a body corporate cost thus it is our responsibility and we need to carry it out as soon as possible.

This work would need to be financed from the Long Term Maintenance Fund as theoretically this is work that in the long term must be done for the structure of the building to remain sound.

[36]   On 25 June 2013 the plaintiffs expressed interest in apartment 803 at Sirocco and made an appointment to view it. Mr Gadd’s agents provided a pack of information which included the pre-contract disclosure statement and copies of the minutes of the 2010, 2011 and 2012 AGMs.

[37]   Mr Miles said, given the assurances he had received from Ms Leloir and the real estate agent of whom he made a number of inquiries, he was not concerned by anything he read in the minutes including about the walkways. Mr Miles said he was assured that the only concerns ever raised around the building itself were “firstly, carpeted walkways through the atrium which retained water, and secondly, a defective deck on the upper level”. Ms Leloir and the agent explained that the floors to the walkways were no longer carpeted and the defective deck had been fully rectified. Mr Miles gathered from his reading of the minutes that the rust on one side of the building was not a significant issue. He said the minutes recorded Ms Leloir stating that the rust might be explained by the exposure of the south side to salt and wind.

[38]On 28 June 2013 the plaintiffs offered to purchase apartment 803 for

$525,000. The agreement for sale and purchase was in the form approved by the Real Estate Institute of New Zealand Inc and the Auckland District Law Society Inc. The plaintiffs deleted two terms of sale one of which would have made acceptance of the agreement conditional in all respects on a “due diligence investigation of the property including … the standard of repair and maintenance of the property …”, building operating expenses and any other matter about which they may have decided to make enquiry.

[39]   The plaintiffs added their own conditions relating to finance, valuation, a builder’s report and approval of title. In relation to the builder’s report the condition read:

Builder’s report

(c) if the valuation report referred to in clause 1.1(b) above recommends the purchasers obtain a builder’s report, this Agreement is also conditional on the purchasers obtaining a builder’s report from a suitably-qualified building inspector that is in all respects satisfactory to the purchasers;

[40]   On 28 June 2013 Mr Gadd countersigned the agreement at a purchase price of $540,000.

[41]   The plaintiffs engaged CBRE to value the apartment and on 28 June 2013 Mr Miles emailed to the valuer, information provided by their real estate agent, namely:

(a)the pre-contract disclosure statement;

(b)minutes of the 2010, 2011 and 2012 AGMs;

(c)the Body Corporate rules;

(d)the Body Corporate’s financial statements for the year ended 31 March 2013;

(e)an excel spreadsheet entitled “13–14 Proposed Budget + Levy Entitlements”; and

(f)the agenda for the AGM in June 2013.

[42]   The valuation report dated 1 July 2013 was sent to the plaintiffs’ bank but Mr Miles did not remember receiving a copy of it before they settled their purchase of the apartment. The report noted under a heading “Property Risk” that —

The building is designed and constructed in an era and of materials which have become associated with weathertightness issues. Refer: Critical Assumptions”.

…

Critical Assumptions

·      The subject dwelling is of a design and materials that the Market associates with potential weathertightness issues. Any such potential issues are largely built into sales of other properties of similar design and construction.

·      That a builders report would not reveal any weathertightness issues that may impact negatively on the condition or value of the subject property.

…

·      We have been provided with minutes from the 2011 and 2012 AGM’s of the Body Corporate plus information of the financial status and note that this appears to be a well-managed body corporate and that it currently retains a positive fund balance.

[43]   During her valuation the valuer identified a discrepancy in the measurement of the apartment. This led to an agreed reduction in the purchase price from $540,000 to $535,000.

[44]   While Mr Miles did not remember receiving a copy of the valuation report he did remember discussing some aspects of the report with the valuer who commented that if the Sirocco building had stood for around 15 years without any major issues, as they had been told, that was an extremely strong indication it was sound.

[45]   On 5 July 2013 Ms Leloir provided pre-settlement disclosure as required by s 147 of the UTA.

[46]   On 22 July, the day before the proposed settlement date, Ms Miles emailed Tessa Amey at DLA Phillips Fox, Mr Gadd’s solicitors. Ms Miles was herself a solicitor with Chapman Tripp, who were Mr and Ms Miles’ solicitors. Ms Miles was questioned about the inappropriateness of communicating directly with Ms Amey who had made a file note to that effect. Ms Miles explained that “when Chapman Tripp does free staff conveyancing you have to help out as much as you can with that”. Ms Miles accepted she had a limited role in the conveyancing process with regard to the purchase of 803.

[47]   In any event, the point of Ms Miles direct contact with Mr Gadd’s solicitors was to say that following the Kaikoura earthquake the previous night, Ms Miles visited apartment 803 and noticed what she described as “three significant cracks in the ceiling”. The Body Corporate manager advised that repairs would almost certainly be covered under the Body Corporate insurance. Ms Miles had noted also that the pump appeared not to be working in the spa. On the basis of the cracks in the ceiling and the non-working pump the plaintiffs requested that $20,000 be retained in the Chapman Tripp trust account post-settlement to enable them to rectify these issues. In the event the spa pool was shown to be working and the Body Corporate rectified the cracking the $20,000 would be returned to Mr Gadd.

[48]   Mr Gadd did not agree to a retention of $20,000 as, in all likelihood, the cracks in the ceiling would be fixed by the Body Corporate. The pump had been

replaced approximately 30 months previously and had been serviced since. Ultimately, the parties agreed that $10,000 would be retained and settlement proceeded on that basis. Specifically, the purchase price was paid on 24 July 2013.

[49]   The plaintiffs took possession of apartment 803 in late July 2013. The following month Mr Miles joined the BC Committee.

Events post-purchase

[50]   It appears the first Body Corporate Committee meeting following Mr Miles’ appointment was on 4 December 2013. Ms Leloir’s management report included an update on the investigation of the leak into apartment 807. The cause was still unknown but the work on apartments 806 and 811 had been completed.

[51]   In her management report in February 2014 Ms Leloir reported that extensive work had been carried out on the balcony of apartment 806 which had been leaking into 807. All areas of the balcony had been completely rebuilt at the Body Corporate’s expense: “At last the balcony is now watertight”.

[52]   By letter dated 1 May 2014 the Body Corporate’s maintenance contractors, Le Celebre Ltd, advised that while carrying out scheduled exterior work in relation to minor cracks in the facade of the building they had been informed of some damage under the rainhead of the deck in apartment 807. The contractors advised they found rotten timber beneath the rainhead on the south facing wall. Initial thoughts as to the reason for the rot were that the rainhead had leaked into the double cavity system. Le Celebre’s further report on 3 May 2014 recommended the engagement of an architect or an engineer to advise on the best solution for repairing the walls in accordance with building codes. The extent of the rot was unknown as the contractors did not open up the east facing wall. They had used a camera to look inside that wall to a length of approximately 40 cm and observed rot within.

[53]   On 3 May 2014 Ms Leloir emailed the BC Committee attaching the report and photos from Le Celebre, the report from Plastercoat Services and a spreadsheet of special levy contributions. Ms Leloir added:

As you will understand from the reading of these reports, we are faced with a serious issue at Sirocco which could have long lasting effects on the reputation of the building and it is important that the whole committee is involved in any decision making.

You will see from the spreadsheet that I have increased the amount suggested in Jim’s report as inevitably there will be professional fees and GST included. At this stage it would appear that only the apartment part of the building is affected so I have excluded the carparks from the special levy contributions, but of course that may not be correct and they can be added into the mix at any time … this is just to give you some idea of the costs involved for each apartment.

[54]   Consulting engineers, Silvester Clark, visited Sirocco on 5 May 2014. In their report of 6 May they advised that the monolithic cladding system had failed and there was significant corrosion of support steelwork and severely rotten timber. Action was recommended as soon as possible to rectify the issues. Rectification would involve replacement of the timber and replacement or cleaning and painting of the steelwork. Owners were recommended to either prop or not use their decks until they had been checked and cleared.

[55]   It is relevant to mention at this point a document that was put to some witnesses. It is undated and unsigned but there was no dispute that it was created by Ms Leloir. The one-page document is headed “Notes re timing of discovery of possible weathertightness issues at Sirocco”. There are entries under two sub- heading: “January 2014” and “April 2014”. Under the “January 2014” heading the note referred to the suspected leaking from the apartment 806 deck down into apartment 807 and that the owners of 806 had agreed to have the deck resurfaced at their cost by Plastercoat Services.

[56]   Under the “April 2014” heading Ms Leloir recorded that during Plastercoat’s work on the 806 deck, exterior cladding was noticed to be in need of some repair. This was around 20 April 2014. Ms Leloir arranged for scaffolding to be erected in late April and Le Celebre was engaged to check the rainhead  and  cladding.  On  30 April 2014 Le Celebre made an urgent call to Ms Leloir to discuss its concerns. Ms Leloir’s note stated that the phone call to her from Plastercoat on 1 May 2014, following its onsite discussion with Le Celebre on 1 May, was:

… the earliest notification we had that there could be weathertightness issues at Sirocco and I was very concerned and immediately called a committee meeting to discuss this. The meeting was held on Sunday 4th May at 2 p.m.

[57]   In September 2014 Silvester Clark reported that it was possible 40 per cent of the cladding had moisture penetration and deterioration. A more detailed and larger scale inspection was recommended using as a starting point the issues identified in its report.

[58]   At the AGM on 12 November 2014 Mr Miles was again elected to the BC Committee. The Chairperson reported the following to the AGM:

(a)Prior to the 2013 AGM the Body Corporate had been “faced with an insurance premium shock” but Ms Leloir and the BC Committee had worked hard and no increase in operational levies had been required.

(b)Once again, no operational levy increase was required in the current year to meet anticipated operational costs. Apartments in the complex continued to sell and achieve good results for the vendors. The ratio of owner occupiers continued to increase and that resulted in a greater level of responsibility for the building.

(c)In relation to the scaffolding that had been erected at the front of the building for some time the Chairperson reported that:

Unfortunately investigation of what was initially perceived to be a minor leak in one apartment around a window revealed possible issues with the stability of the eyebrow decks. More extensive investigation has indicated that we may have a significant and extensive problem with the building’s cladding.

[59]The report concluded:

The committee has decided as a first step the problems with the eyebrow decks are to be tackled, and that each deck will be individually assessed to ensure it is built in accordance with the original plans as lodged with the WCC and where problems are discovered that are repairable, then repair work will be undertaken.

Tonight you will be asked to approve the raising of a special levy to ensure the deck inspection work can be undertaken. I would like

to assure you that the committee has thoroughly investigated this issue with the assistance of relevant experts and has determined there is no other option and this is the work that is most urgent.

[60]   At the AGM, Ms Leloir explained that the Long Term Maintenance Fund had been used during the year for building repairs so that only $46,000 remained. Up until the date of the AGM the level of contribution to the fund had been adequate to manage the plan. However, that was no longer the case. More extensive investigations of all eyebrow decks was to be undertaken. The BC Committee recommended that a special levy of $500,000 be raised to carry out investigations and, where possible, repairs to eyebrow decks. Ultimately, the Body Corporate was authorised to raise a special levy of $500,000, payable in four equal monthly payments at the beginning of January, February, March and April 2015.

[61]Accordingly, the plaintiffs made four special levy payments of $4,713.08.

[62]   At the BC Committee meeting on 24 March 2015, the management report was approved. Ms Leloir reported that the Body Corporate was running well within the budget of $330,000. A proposal from Maynard Marks, Property and Building Consultants, had been accepted earlier by the Committee and Maynard Marks had been on site with a view to commencing its investigation. The Committee hoped to have Maynard Marks’s report in time for the next AGM in June.

[63]   On 1 July 2015 Maynard Marks reported to the Body Corporate. It identified serious structural defects in the Sirocco Apartments. In light of the deficiencies with the installation of the external cladding, the damage throughout and the risk of future water ingress and damage, Maynard Marks considered the only viable repair option to achieve long-term weathertightness and compliance with the NZ Building Code was to undertake a full reclad of the development. The preliminary estimated costs of remedial work was approximately $8.7m.

[64]Between September 2017 and May 2019 there were further reports:

(a)Alexander & Co reported on its review of the investigations undertaken by Maynard Marks and agreed with its general findings and that a full reclad of the building should be undertaken.

(b)In March 2018, Belly Kelly Beaumont Team Architects Ltd, with the assistance of specialist consultants, reported on remediation options.

(c)In April 2019, Belly Kelly Beaumont provided further addenda with updated costs.

(d)In May 2019, Truebridge Partners provided a market valuation of Sirocco Apartments on two bases: “as if unaffected” by water leakage and any structural issues, and “as is”.

[65]   In June 2019, a memorandum from the Body Corporate Chair advised that it was still intended to present resolutions on which apartment owners would vote. The options seemed to be either to address all known issues or, put colloquially, “rent it to death”. Ms Leloir had resigned following a finding by the High Court that she had breached the Fair Trading Act 1986 by making false and misleading representations in response to questions asked of her in relation to the sale of apartment 812 in March 2014.2

[66]   Mr Miles’ evidence was that shortly after the Body Corporate decided not to repair the building, he and Ms Miles began to consider the idea of selling their apartment. It was placed on the market for a few weeks in early 2020. Marketing paused with the COVID-19 lockdown. On 1 May 2020 they received an offer of

$270,000 and ultimately reached an agreement to sell for $305,000. Settlement occurred on 8 July 2020.

The statement of claim

[67]   The plaintiffs commenced these proceedings in June 2019. In their fourth amended statement of claim dated 12 November 2020, they claim damages in

2      Roberts v Jules Consultancy Ltd [2019] NZHC 555.

relation to two pleaded causes of action. The first relates to the tiling of the deck to unit 803. The plaintiffs say that in breach of cl 6.2(5) of the sale and purchase agreement, the defendant failed to obtain a building consent for the tiling works on his balcony, failed to ensure those works were completed in compliance with a building consent and failed to ensure a code compliance certificate was issued for the tiling works.

[68]   The plaintiffs say that had the defendant complied with cl 6.2(5), the Wellington City Council would have identified some or all of the defects in the Sirocco complex and required remedial works; that prior to their purchase the plaintiffs would have received notice of the tiling works, the defects and the requirement for remedial works and they would not have purchased the apartment if they had notice of these matters.

[69]   The second cause of action is for breach of cl 8 of the sale and purchase agreement. The plaintiffs say the defendant failed to disclose the possibility of the property being levied to cover the remedial works or the possibility of proceedings being instituted by the Body Corporate to recover moneys expended on the remedial works or the building issues. The plaintiffs say that had the defendant complied with cl 8.2(6) then prior to their purchase they would have received notice of building issues dating back to 2004 of which the defendant allegedly was aware. They say they would also have had notice of the need for remedial works and the possibility of proceedings being instituted to recover moneys expended on the remedial works and they would not have purchased the apartment.

[70]   On each of the causes of action the plaintiffs claim special damages of approximately $700,000 and general damages of $30,000.

Did Mr Gadd breach cl 6.2(5)?

Plaintiffs’ position

[71]   The plaintiffs’ case is that a building consent was required for the tiling work for the following reasons:

(a)Retiling the deck falls within the definition of “building work” under the Building Act. Therefore, the starting point is that consent is necessary unless the work comes within an exception to the requirement for building consent.

(b)Evidence suggests that the Sirocco apartment decks were leaking and therefore their construction did not satisfy the requirements of the Building Code. In particular, the letter from Kerry Duncan to Mr Gadd dated 29 July 2007 referred to the lack of a centre drainage point on his balcony and that there were water ingress problems associated with the mixture of single layer and double layers of tiling on some parts of the balcony.3

(c)Mr Duncan wrote to the Wellington City Council on 1 August 2007. He referred to a number of leaks “over the last few years” through structural areas within the main complex including cladding joins, rainheads, and with decks and open walkways. On behalf of the owners Mr Duncan requested “copies and results of all building inspections” carried out by the Council’s inspectors during the construction of the building.

(d)The Maynard Marks Weathertightness Review Report dated 1 July 2015 referred to a significant amount of moisture being held underneath the tiles and grout on the southwestern balcony adjoining level 6.

[72]   The plaintiffs submit that the evidence shows a breach of cl E2 of the Building Code. Clause E2.3.2 provides:

Roofs and exterior walls must prevent the penetration of water that could cause undue dampness, damage to building elements or both.

[73]   Irrespective of whether or not the Building Code was breached the plaintiffs submit the tiling work involved more than just replacing the existing tiles on the deck.

3 This letter is set out above at [15].

[74]   The plaintiffs relied on the expert evidence of Andrew Gray, a building surveyor and director of GBC Group Ltd, a building consultancy firm. Mr Gray’s evidence was that in circumstances where the building work involves repair or replacement of a component that has failed to comply with the Building Code (for example, in relation to moisture requirements) a building consent is required.

Defendant’s position

[75]   Mr Gadd’s evidence is that when he was asked if he would take up the role as Director of the Rugby World Cup 2011, he returned to New Zealand for a week to be briefed on the role before then travelling back to Italy to settle his affairs and returning to Wellington. The tenants had given notice and moved out. While the apartment was empty Mr Gadd took the opportunity to spruce it up. It had been rented for quite a while and was looking a little tired. The interior was painted, the carpets replaced the curtains were dry cleaned and the deck was retiled.

[76]   All that Mr Gadd could recall of the process was that he contracted a tiler introduced to him by his brother-in-law who played in the same football team as the tiler. Mr Gadd arranged for the tiles to be replaced. He could not remember in 2020 the name of the tiler or any of his details. He recalled the tiler’s suggestion that the old tiles be replaced with similar tiles in keeping with the Mediterranean look of the balcony. Mr Gadd’s understanding from the tiler was that as the new tiles were replacing the old ones a building consent was not required. Mr Gadd remembered paying around $4,000 for the filing work. He had been unable to locate any records although a search of his bank records showed an electronic transfer in the amount of approximately $4,300 on 30 July 2010.

[77]   In answer to questions in cross-examination Mr Gadd said extensive inquiries had been made to try and locate the tiler. Those members of the football team who were around were mainly in their seventies. Mr Gadd’s best understanding as a result of inquiries made by his brother-in-law, was that the tiler’s name was Frank and that he moved to Australia some seven years ago.

[78]   Edward Saul gave expert evidence. Mr Saul owns a building consultancy company, Commercial Building Inspection Services Ltd. Mr Saul specialises in

providing a number of services in particular, inspections and reports on Building Code compliance issues especially in relation to the issuing of Code Compliance Certificates. Mr Saul also conducts inspections and prepares reports on weathertightness issues in buildings and construction defects.

[79]Mr Saul concluded:

In the event that the performance of the deck itself was not in question there would be no requirement for a building consent before replacing the tiling with similar tiles. I further note that the work is described as overlaying another layer of tiles over the existing tiles. This means that the removal of the original tiles which were performing adequately as far as is known, and any potential damage to the existing substrate, was avoided.

The lack of failure to the tiling of Unit 803 means that I consider that a building consent was not required for the overlaid tiles to this unit.

Analysis

[80]Clause 6.2(5) of the agreement for sale and purchase states:

6.0      Vendor’s warranties and undertakings

…

6.2The vendor warrants and undertakes that at settlement:

…

(5)Where the vendor has done or caused or permitted to be done on the property any works:

(a)any permit, resource consent required by law was obtained; and

(b)to the vendor’s knowledge, the works were completed in compliance with those permits or consents; and

(c)where appropriate, a code compliance certificate was issued for those works.

[81] Whether or not Mr Gadd breached cl 6.2(5) turns on whether a consent under the Building Act was required for the tiling work carried out on the deck of his apartment. I agree with the plaintiffs’ submission that whether or not Mr Gadd appreciated a consent was required, is irrelevant.

[82]   The parties derive support for their respective positions from the opinion evidence of the expert witness each called.

[83]   Mr Gray offered no concluded view in his written brief as to whether or not the tiling work required consent. Over objections from the defendant, Mr Gray was asked supplementary questions during his evidence-in-chief in the course of which he offered the view that a building consent was required and that it would not have been given. As there was a single layer of tiles on the deck under the barbecue and spa, Mr Gray’s view was that any work involving the installation of a second layer of tiles was not repair, maintenance or replacement. It was installation. As such it constituted new building work which would not fall within the sch 1 exceptions to the requirement for consent. Therefore, the tiling work required a building consent.

[84]   An important consideration in Mr Gray’s assessment of matters was his assumption that Mr Gadd carried out the tiling works “against the backdrop that in 2007 … Kerry Duncan wrote letters to various apartment owners about problems with their balconies”.

[85]   I accept Mr Gadd’s stated motivation for the tiling work. He said he wanted to tidy up the apartment after many years of tenancy and that he wanted the deck to look “fresh and new”, as it appeared when he bought the apartment.   That said,   Mr Gadd’s reasons for retiling the balcony are irrelevant to the key issues which is whether a building consent was required for the tiling work. Similarly, whether or not Mr Gadd saw Mr Duncan’s letter in 2007 is irrelevant to the key issue.

[86] The starting point for determining whether building consent was required for the tiling work is s 40 the Building Act 2004. Section 40 makes it an offence for any person to carry out building work except in accordance with a building consent. Under the Building Act “building work” is work “for, or in connection with, the construction, alteration, demolition, or removal of a building”. The parties did not dispute that the tiling work was building work for the purposes of the Act.

[87] In certain cases, however, building consent is not required. Section 41 of the Building Act creates exceptions to the requirement for a building consent. In

particular, building consent is not required in relation to the types and categories of work set out in sch 1 to the Act. Clause 1 of sch 1 provides:

1        General repair, maintenance, and replacement

(1)The repair and maintenance of any component or assembly incorporated in or associated with a building, provided that comparable materials are used.

(2)Replacement of any component or assembly incorporated in or associated with a building, provided that—

(a)a comparable component or assembly is used; and

(b)the replacement is in the same position.

(3)However, subclauses (1) and (2) do not include the following building work:

(a)complete or substantial replacement of a specified system; or

(b)complete or substantial replacement of any component or assembly contributing to the building’s structural behaviour or fire-safety properties; or

(c)repair or replacement (other than maintenance) of any component or assembly that has failed to satisfy the provisions of the building code for durability, for example, through a failure to comply with the external moisture requirements of the building code; or

(d)sanitary plumbing or drainlaying under the Plumbers, Gasfitters, and Drainlayers Act 2006.

[88]   As Mr Gray summarised the effect of sch 1, building consent will not be required for—

…any lawful repair and maintenance using comparable materials, or replacement with a comparable component or assembly in the same position, of any component or assembly incorporated or associated with a building; except, repair or replacement (other than maintenance) of any component or assembly that has failed to satisfy the provisions of the building code for durability, for example through a failure to comply with the external moisture requirements of the code.

[89]   So the question becomes whether any component of the deck failed to satisfy the Building Code in the ways that both Mr Gray and Mr Saul contemplated, that is, by a failure to comply with moisture requirements.

[90]   Mr Gray’s conclusion that a building consent was required was founded on two propositions. The first was that as there was a single layer of tiles under the barbecue and spa on the deck of 803 the installation of a second layer was not repair, maintenance or replacement. Mr Gray characterised the placement of a second layer of tiles as installation. Therefore, it was new building work and, as such, did not come within the sch 1 exemptions from the requirement for a building consent.

[91]   Secondly, Mr Gray had viewed photos of the balcony. The photos were attached to the brief of evidence of John Lyttle who was called by the  plaintiffs.  Mr Lyttle is a building surveyor who inspected the balcony in May 2020 and took photos. The thrust of Mr Lyttle’s three-paragraph brief was to say a second layer of tiles had been installed on top of the first layer and there was a layer of screed between the two layers of tiles. From the photographs Mr Gray considered there was an issue with cladding clearance. When claddings are hard to the ground they have an ability to absorb moisture and that can become a weathertightness risk. By reference to Mr Lyttle’s photographs Mr Gray concluded a risk was presented by the “low threshold from the top of the tiles to the internal floor levels” which Mr Gray “hazard[ing] a guess” put  at  20–30 mm  instead  of an  acceptable 100 mm.  In  Mr Gray’s view the Council would struggle to be satisfied that the new works complied with the Building Code. Those reasons, in combination with the fact the works were unauthorised works, meant a building consent would not be issued.

[92]   Having given careful consideration to Mr Gray’s detailed evidence, I am left with real doubts about whether a building consent was in fact required for the tiling work.

[93]   First, the plaintiffs have not pleaded any specific defect in relation to apartment 803 or failure of the deck. The plaintiffs’ pleaded case in relation to the tiling work (reflecting Mr Duncan’s letter of 29 July 2007) is that Mr Duncan suggested the owner of 803 should be advised that the lack of a centre drainage point and the apparent fall of the deck to the drainage channel at the outside wall “can or possibly will occur” if the double tiling breaks down.

[94]   Secondly, there was no evidence of any deficiency in the construction of the deck or its performance. Mr Gray accepted that there was no such evidence nor any documents before the Court indicating that the tiles had failed or leaked. Mr Gray had reviewed the Body Corporate records. Beyond Mr Duncan’s letter of 29 July 2007,4 (which identified no actual failure in the deck) the records contained no reference to Mr Gadd or any other owner of apartment 803 having a problem with the deck or tiles.

[95]   My third reason relates to the letter of 21 July 2007 from Robin Smith of Robin Works.5 Mr Gray and Mr Saul agree that the statutory exemptions from the requirement for building consent will not apply where the relevant building work is repair or replacement of a component that has failed. Mr Gray’s opinion that there had been a relevant failure with the deck was based upon the letter from Robin Works, in particular the following statement:

In my opinion, the owners of apartments 803–806–811 should be advised of the problems that can or possibly will occur if this double tiling breaks down.

[96]   Mr Saul did not agree that the letter gave rise to a requirement for building consent for the scope of works that Mr Gadd undertook.

[97]   In relation to the area on the deck having only a single layer of tiles, Mr Saul accepted that adding a second layer was not repair work, or maintenance, or replacement. Nevertheless, overlaying the existing tiles would not have required consent. Overlaying with a second layer avoided the removal of the original tiles “which were preforming adequately as far as is known, and any potential damage to the existing substrate, was avoided”. The letter of 21 July 2007 refers to actual problems with the tiled decks in apartments 602, 605, 806, 811 and 815. By comparison, all that is said of apartment 803 was that it was the “smaller of the four upper decks, has no centre drainage point, seems to fall to the drainage channel at the outside wall”. If the areas under the barbecues and spa pools were retiled with a second layer of tiles, as Robin Works recommended, those areas would be brought up to the same level as the rest of the deck thus assisting any water under the barbecue

4      Discussed above at [15]–[16].

5      Discussed above at [14]–[16].

or spa to run off to the drainage points. In this way potential problems with water getting under the other tiles and breaking down the membrane would be avoided.

[98]   This indication of a potential problem is a far cry from the failure of a building element, such as the membrane.

[99]   Notwithstanding Mr Gray’s indisputable expertise as a building surveyor, ultimately, I have preferred the evidence of Mr Saul on this point.

[100]The stated purpose of Mr Gray’s brief was:

(a)to give evidence on the weathertightness defects in the Sirroco apartments complex;

(b)to give evidence on the scope of remedial work required to repair the known defects with the Sirocco apartments; and,

(c)based on his review of the discovered documents, to comment on the history of leaks within Sirocco.

[101]   Mr Gray did not state that he had been instructed to give evidence about the tiles on the deck of apartment 803 and his evidence on this point came at the end of his brief following his evidence on matters about which he was specifically instructed. As I observed earlier Mr Gray’s primary evidence was elicited in the course of evidence-in-chief through supplementary questions, which I allowed.

[102]   Mr Saul worked as a building officer for eight years with the Wellington City Council and became a Senior Building Consents Officer. In that capacity, he reviewed and processed applications for building consent. The work involved not only reviewing technical documents (such as building plans and specifications) and liaising with builders, architects and engineers but carrying out inspections of sites during the construction process and approving and issuing certificates of code compliance. Mr Saul estimated he had conducted hundreds of inspections.

[103] Mr Saul was instructed to give evidence on matters coming within his area of expertise namely the first schedule of the Building Act and whether the retiling of the deck to apartment 803 required a building consent and, if one were to have been required, the scope of any inspection that would have been carried out.

[104]   I accept Mr Saul’s  opinion  evidence  that  replacement  of  the  tiles  on  Mr Gadd’s deck would only have required a consent had there been a systemic failure of the deck or if the Council had determined that Sirocco was a leaky building and therefore required replacement of all the deck membranes as a result of a building surveyor’s report. There was no evidence of any such defect with the deck and, of course, Sirocco was not known to be a leaky building at that early stage.

[105]   The second part of the plaintiffs’ cause of action based on breach of cl 6.2(5) is that, had Mr Gadd obtained a building consent, the Wellington City Council would have identified the defects in Sirocco and required remedial works and the plaintiffs would have had notice and not purchased the apartment. The plaintiffs have not established that building consent was required. Even if it were, I am satisfied that any inspection would have been limited to the tiling works that were the subject of the consent.

[106]   Mr Saul stated there would have been no opportunity for an inspector to inspect other units. In Mr Saul’s experience it would be unusual for a building inspector to comment on areas outside the scope of their assessment. “If the WCC inspector was there to inspect the works relating to a building consent for a replacement deck that is all they would have inspected and commented on”.

Conclusion

[107]   The plaintiffs have not established on the balance of probabilities that a building consent was required for  the  tiling  work  to  the  deck.  Consequently, Mr Gadd did not breach cl 6.2(5).

Did Mr Gadd breach cl 8.2(6)?

Plaintiffs’ position

[108]   The plaintiffs’ case is that, by virtue of owning the unit for eight and a half years, and through various Body Corporate documents, Mr Gadd had knowledge of facts that might give rise to or indicate the possibility of he himself, or a purchaser, incurring liability under the UTA or of proceedings being issued by or against the Body Corporate.

[109]   The plaintiffs say it is sufficient to show that Mr Gadd was on notice of any such facts. Counsel identified AGM and Committee minutes, reports and correspondence between 2005 and 2013 referring to repairs and leaks in parts of the building and replacement flooring in the main walkways to level 6.

Defendant’s position

[110]    The defendant says he was aware there were parts of the building that required repair but they were not systemic issues and he was not aware of any reason why they would not be addressed under ordinary maintenance and paid for in the ordinary course with funds available to the Body Corporate. Mr Gadd further says that no additional levies were being contemplated and he had no knowledge or notice of proceedings being potentially instituted or even contemplated to recover any monies expended on remedial works when he sold his apartment to the plaintiffs.

Operative principles

[111]Clause 8 of the agreement for sale and purchase states:

8.0Unit title and cross lease provisions

Unit Titles

8.1If the property is a unit title, sections 144 to 153 of the Unit Titles Act 2010 (“the Act”) require the vendor to provide to the purchaser a pre- contract disclosure statement, a pre-settlement disclosure statement and, if so requested by the purchaser, an additional disclosure statement.

8.2If the property is a unit title, the vendor warrants and undertakes as follows:

(1)Apart from regular period contributions, no contributions have been levied or proposed by the body corporate that have not been disclosed in writing to the purchaser.

(2)Not less than five working days before the settlement date the vendor will provide:

(a)   a certificate of insurance for all insurances effected by the body corporate under the provisions of section 135 of the Act; and

(b)   a pre-settlement disclosure statement from the vendor, certified correct by the body corporate, under section 147 of the Act. Any periodic contributions to the operating account shown in that pre-settlement disclosure statement shall be apportioned. There shall be no apportionment of contributions to any long-term maintenance fund, contingency fund or capital improvement fund.

(3)There are no other amounts owing by the owner under any provision of the Act or the Unit Titles Act 1972.

(4)There are no unsatisfied judgments against the body corporate and no proceedings have been instituted against or by the body corporate.

(5)No order or declaration has been made by any Court against the body corporate or the owner under any provision of the Act or the Unit Titles Act 1972.

(6)The vendor has no knowledge or notice of any fact which might give rise to or indicate the possibility of:

(a)   the owner or the purchaser incurring any other liability under any provision of the Act or the Unit Titles Act 1972; or

(b)   any proceedings being instituted by or against the body corporate; or

(c)   any order or declaration being sought against the body corporate or the owner under any provision of the Act or the Unit Titles Act 1972.

(Clause 8.3–8.6 omitted)

[112]    In order to succeed on  this cause of action the plaintiffs must  show that  Mr Gadd had knowledge or notice of any fact or circumstance that indicated the possibility:

(a)that either he or a purchaser may incur liability under the UTA; or

(b)of proceedings being issued by or against the Body Corporate.

[113]    For the plaintiffs, Mr Easton submitted that the High Court decision in Moxon v Cassidy is the leading authority on the interpretation of this particular warranty and

that an objective standard is to be applied when the Court determines whether the vendor had knowledge or notice of the relevant facts.6

[114]    Citing the following passage from Sale of Land, Mr Sullivan submitted that the starting point for the defendant is caveat emptor:7

The basic rule is caveat emptor; the onus lies on the purchaser to ensure that the property being bought meets their requirements. There is no duty of disclosure in respect of quality or use of the land…In the absence of any actual misrepresentation or express or implied warranty, the vendor incurs no contractual liability for failure to disclose defects of quality, whether patent or latent, whether rendering the property dangerous or unfit for occupation, or even if the vendor has created the defect or is aware of its existence…

Because of the basic application of the caveat emptor rule, it is important that the purchaser makes all the necessary enquiries and inspections regarding the quality of the property, including its physical quality…before entering into the contract.

[115]    The quote from D W McMorland recognises that there is no duty of disclosure “in the absence of any … express … warranty”. Clause 8.2(6) is precisely that, an express warranty. Nevertheless, the cases recognise that when considering the nature of an express warranty the caveat emptor principle remains contextually relevant.

[116]    In Kaitaia Timber Co Ltd v Alternative Enterprises Ltd8 the Court was required to determine whether there had been a breach of a warranty under an agreement for sale and purchase whereby the vendors warranted that they had not received any notice or demand and had no knowledge of any requisition or outstanding requirement from any tenant or other party which affected the property and which they had not disclosed in writing. The Court noted that while the warranty was an exception to the caveat emptor principle whereby the purchaser assumes the risk that the property may be subject to some defect and it is up to the purchaser to find out about that, the warranty, nevertheless, is to be considered “against the background that otherwise the purchaser assumes a risk”.9

6      Moxon v Cassidy HC Auckland CIV-2006-404-5380, 27 August 2007.

7      D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [8.16].

8      Kaitaia Timber Co Ltd v Alternative Enterprises Ltd [2012] NZHC 2497.

9      At [56](a).

[117]    I propose to assess the question of whether Mr Gadd had relevant knowledge or notice against the backdrop of the following principles:

(a)Clause 8.2(6) is not to be construed in isolation from the rest of cl 8.0 or other clauses in the agreement for sale and purchase.

(b)The time at which any relevant knowledge is to be fixed is 28 June 2013, the date the parties signed the agreement for sale and purchase. That follows from the wording of cl 8.2(6): “The vendor has no knowledge…”.10

(c)The inquiry is neither entirely objective nor subjective. The relevant knowledge is to be assessed on the basis of a reasonable vendor in the position of the defendant. For example, Mr Gadd had no specialist knowledge of building and construction and he was a career civil servant operating in a completely unrelated field.

Alleged knowledge

[118]    The plaintiffs claim that by reason of one or more or a combination of “building issues” referred to at BC meetings, or recorded in Body Corporate minutes or reports provided to the BC Committee, Mr Gadd had knowledge or notice of facts that gave rise to or indicated the possibility of the apartment 803 property being levied to cover the costs of further investigations into the building issues or the remedial works and proceedings being instituted by the Body Corporate to recover moneys expended on the remedial works or the building issues.

[119]    The plaintiffs’ statement of claim distinguishes between “building issues” and “defects” in the building. It is said that as a result of the defects, remedial works to the complex at a total cost of approximately $21.8m were required and that as a result of the defects the value of apartment 803 was less than without the defects.

10     Walters (t/as Walters Law) v Hyde (2011) 12 NZCPR 940 (HC) at [19].

[120]    The plaintiffs’ pleading of the “building issues” is comprehensive. The alleged building defects at Sirocco span 23 subparagraphs within which there are    67 further subparagraphs in the nature of particulars.

[121]   I do not need to narrate every alleged particular of knowledge. In the plaintiffs’ closing submissions counsel helpfully set out the information which, it is said, “at the least” shows Mr Gadd had or was given during his ownership of apartment 803:

(a)Annual General Meeting (AGM) held on December 2005, the minutes of which refer to the need to paint the building urgently as hairline cracks were appearing, and that paint with an acrylic membrane to seal the cracks should be used.

(b)Committee Meeting held on 19 April 2006, the minutes of which refer to an increase in the insurance excess and that the body corporate/owners had not been able to “claim back some of the leak problems and the Body Corp is having to pay the repairs”.

(c)Minutes of a Committee Meeting held on 28 August 2006, which contained references to a lot of money being spent on leaks in the last few months and a major leak affecting Units 815 and 818; leaks in Units 301 and 401; and to Kerry Duncan’s suggestion that it was time to engage the services of someone with expertise, e.g. the Joyce Group, to investigate the building thoroughly.

(d)Committee Meeting held on 14 February 2007, the minutes of which referred to the problem with the deck to Apartment 815 (and $22,000 having already been spent on it), and to dampness in the ceiling of Unit 818. These minutes also record Bill Greenwood’s suggestion that the Body Corporate needed to register the building as a “leaky building”.

(e)Regional Property Services Limited to  the  body  corporate  dated 31 January 2009 (“RPS Report”). The contents of the RPS Report speak for themselves, particularly sections 4 (Moisture Entrapment), 7 (Water Seepage) and 12 (Harditex System – Weathertightness – Urgent Work), so they are not set out again or summarised here.

(f)Supplementary Notes for AGM – July 2010, which record that the body corporate had “completed the rebuilding of the Level 8 entranceways and walkway” and that “this work was significant and very expensive”.

(g)Management Report dated November 2011, which records that the body corporate had not yet got to the bottom of the leaks from Apartment 815’s balcony into the living room below; and that contractors had recommended lifting the whole deck.

(h)Report prepared by Weathertight Waterproofing Ltd (labelled ‘Sirocco Roof Report – February 2012’). This document refers to further waterproofing works required to the walkways to level 6 and

8. It also contains a photo and commentary about the junctions between the apartments and the balconies/decks. The commentary refers to “excessive movement between the columns and the decks which causes these areas to crack.”

(i)Management Report dated March 2012, which refers to leaks into Apartment 818; and that some parts of the building were in need of urgent plaster repairs.

(j)Committee Meeting held on 20 March 2012, the minutes of which recorded major leaks into Apartment 818 and a leak into the wall of Apartment 817, which were being “managed”. At the meeting, one of the owners mentioned that the leak from the balcony of Apartment 806 down into the living room of Apartment 807 had begun again.

(k)Committee Meeting held on 18 September 2012, the minutes of which refer to a leak in Apartment 807 to be investigated further upon the owners moving back into it.

(l)Emails dated 28 November 2012 from the body corporate manager to the committee members about very high moisture readings outside at the base of the wall around and under the exterior stairs, and reporting that water had “pooled against the exterior wall causing the long term ingress of water and the subsequent damage to the wooden structure”.

(m)Committee Meetings held on 12 December 2012 and 13 March 2013, the minutes of which are almost identical. These minutes refer to “current leaks” being “aligned generally to building movement and slight cracking in the cladding”.

(n)Management Report dated March 2013, which reports extensive damage to the floor of Apartment 613 caused by water getting in under the aluminium doors from the courtyard and tracking under the walkway part of the floor and settling on the floor against the wall (and that the seals under the doors had been letting in water for many months and most probably for years). The writer of the report said she thought it was important to seal around the area of the other eight courtyard apartments where the cladding meets the tiles to prevent this happening again, and that it was the body corporate’s responsibility to ensure that there are effective seals.

(o)Email from Jules Leloir to the Committee members dated 20 June 2013 in which she reported that there had been a problem with water getting apartment from two of the penthouse apartment decks on Level 8 for a number of months; and that repair work to the decks would be at the body corporate’s cost.

(p)AGM held on 12 June 2013, the minutes of which refer to a query about the budget for “General Repairs” and that it included an allowance for “interior apartment repairs as a result of leaks from other apartments”.

(q)Email dated 20 June 2013 from the body corporate manager to the Committee members about water getting into an apartment from two of the penthouse apartments decks on Level 8 for a number of months.

[122]    Mr Easton submitted that on the basis of the foregoing information any reasonable vendor ought to have appreciated there were risks to a purchaser of apartment 803, whether in terms of repair work or otherwise. He contended it was “blatantly obvious” there were serious issues with Sirocco when Mr Gadd signed the sale and purchase agreement and gave the warranty.

[123]    In addition to the above information some further 21 documents created during Mr Gadd’s ownership of apartment 803 were relied upon as containing adverse information about the condition of the Sirocco complex. The documents were minutes of AGMs, the letter from Robin Works dated 21 July 200711 and the related letter from Mr Duncan, minutes of the BC Committee meetings, management reports and the photo appendix to the RPS report.12

What does the evidence show Mr Gadd knew?

[124]   Notwithstanding the extensive particularisation of sources of information that allegedly gave rise to knowledge on Mr Gadd’s part, or allegedly put him on notice of the facts referred to in cl 8.2(6), Mr Gadd was cross-examined on a limited range of documents. I propose, therefore, to focus on Mr Gadd’s evidence bearing on the matters that were specifically put to him.

[125]    In relation to the reports and meetings and minutes about which Mr Gadd was actually aware, his evidence was that he regarded the issues that were brought up over the years as confined to a handful of apartments and were to be expected with a large complex such as Sirocco. He understood that the problems that existed for this handful of apartments was not systemic across the building and that the issues were addressed within the available financial resources of the Body Corporate.

[126]    I turn now to Mr Gadd’s evidence in relation to the specific documents put to him in cross-examination.

11 See above at [14].

12 See above at [21].

[127]    Mr Gadd was taken to the minutes of the BC Committee meeting in February 2007 which record that the deck of  apartment 815 had been rebuilt.  It was put to  Mr Gadd that it would be surprising that a deck in an apartment complex that was so young would require a rebuild. Mr Gadd disclaimed any expertise in building but relied on the explanation given to them at the time: that a lack of maintenance had caused the failure in the deck. When asked if the re-building of the entire deck so early in the life of an apartment complex should give rise to concern for the apartment owner Mr Gadd agreed that the specific apartment owner would reasonably be concerned but as he had no issues with his deck he did not see it as an issue. He viewed it as a localised issue for apartment 815.

[128]    Mr Gadd was asked about Mr Greenwood’s suggestion that Sirocco should be registered as a leaky building.13 Mr Gadd’s understanding was that registration of leaky buildings had to be within a specific time and that Mr Greenwood was looking ahead in case there was a problem. Mr Gadd said it was never mentioned again in his time on the BC Committee.

[129]    Mr Gadd’s evidence on this point is supported by the fact that a year after making the registration suggestion, and in his capacity as Body Corporate Chair,   Mr Greenwood stressed at the 2008 AGM that “Sirocco is not a leaky building”.14 Beyond Mr Greenwood’s suggestion in February 2007 that Sirocco should be registered, the plaintiffs identified no evidence of any similar suggestion during     Mr Gadd’s ownership of apartment 803. What the evidence shows in fact, is that the single suggestion in 2007 was subsequently emphatically negated by two chairpersons: Mr Greenwood himself in 2008 and Ms O’Shea in 2012.15

[130]    Next, Mr Gadd was taken to the minutes of the 2007 AGM. The minutes recorded that a new rainhead from the deck of unit 815 had been fitted and it was agreed at the meeting that Mr Duncan would approach the Wellington City Council in relation to a query raised by someone at the meeting as to whether there might be any “redress” as the Council had signed off on the building. It was accepted that Mr Gadd

13 See above at [12].

14 See above at [20].

15 See above at [26].

was not present at that meeting. Mr Gadd was unable to comment on the minutes, or the discussion at the meeting he did not attend and he had no knowledge of any letter Mr Duncan might have written to the Council.

[131]    Mr Gadd was then taken to the minutes of the BC Committee meeting on  20 March 2012 at which there was a discussion about major leaks into two apartments which Ms Leloir said were being managed and a leak that had begun again from the deck of 806 into the living room of 807.16 Mr Gadd’s understanding at the time was that the issues involved the same group of apartments — 806, 807, 815, 817 and 818 which he saw as a small number in the context of a 44-apartment building. Mr Gadd’s evidence was that if the problems involved maintenance issues, or occupiers had allowed baths or showers to flow over, the costs of repair would be borne by the apartment owners. Where the Body Corporate was to cover the costs of repairs that cost would not be met by special levies but from the funds set aside pursuant to the operating and long-term maintenance plan budgets.

[132]    Of particular importance to the plaintiffs’ case is the maintenance report from RPS dated 31 January 2009.17 Mr Gadd had no recollection of seeing the document. He accepted, however, that he was one of the email recipients of the document in March 2012. On 21 March 2012, Ms Leloir emailed the RPS report to the BC Committee members along with two other documents: a costed “10 Year Long Term Maintenance Plan 2009–2018” including financial projections for the various maintenance items set out in the RPS report and a letter from Weathertight Roofing Ltd dated 22 February 2012 reporting on its recent roof inspection. Ms Leloir’s one- line email stated: “[f]urther to last night’s meeting, I attach the documentation to hand for the long term maintenance of Sirocco”.

[133]    Mr Gadd was cross-examined closely on the RPS report. In relation to the Harditex system the report contained the following statements:

James Hardie (NZ) Limited, reiterated in the 1990s that if this product was to be used above two storeys in height, it was to be installed not simply as per their Specification Manual (1998), but in accordance with a ‘Specific Design’ determined by the Architects and Engineers.

16 See above at [24].

17 See above at [21].

Put quite simply, the system installed here may not have been the subject of ‘Specific Design’. Wellington City Council let a number of buildings – clad in Harditex – through their process about that time without evidence of ‘Specific Design’ seen in the Plans and Specifications.

[134]   It was put to Mr Gadd that even non-building experts could agree that “jointing problems or faulty workmanship in the installation of the cladding … have nothing to do with …  maintenance  failures  by  particular  apartment  owners”.  Mr Gadd agreed with the proposition but pointed out that immediately following the above extracts the RPS report stated:

Should this be the case with Sirocco, it means that the (mainly) jointing problems are at best an ‘inherent defect’, at worst, a demonstration and symptom of the effects of faulty workmanship.

(emphasis added)

[135]   While Mr Gadd could not recall at the trial in 2020 reading the report when it was emailed in 2012, he unhesitatingly accepted that, as a Committee member and apartment owner, it would have made sense to have read such an important document. Mr Gadd was firm however that the report did not state that there were systemic issues with Sirocco itself or issues that would be so costly to repair that special levies would be required.

[136]    The following four significant points emerge from Mr Gadd’s evidence in relation to the RPS report, particularly his evidence in cross-examination.

[137]    First, Mr Gadd did not take from the RPS report that there were systemic issues with Sirocco signifying a risk of liability for costs beyond those costs anticipated by the long term maintenance plan. Mr Gadd took support for his position from the RPS report itself which identified potential issues with Harditex cladding but in relation to Sirocco the report, particularly the words italicised above, did not advise that the cladding had not been properly installed.

[138]    Secondly, the report writer said he noticed “bandaging” with fibreglass and other taping had been carried out and that “most (but not all) of this is still sound”. More bandaging needed to be done. This was called “targeted repair”. Within the

RPS report itself Ms Leloir had added, in red font, commentary by way of an update. For example:

(a)“Done – 2009” appears six times;

(b)“To be carried out in 2012” appears three times;

(c)“To be followed up in 2012” appears once; and

(d)(In relation to bird droppings) “Done twice yearly – long term solution being sought” appears once and “Done with the window cleaning — twice yearly” appears once.

[139]     Ms Leloir had added the following comment after the paragraph about bandaging and targeted repairs:

Checked in 2009, 2010, and 2011 and in good condition – watching brief being kept through Plastercoat Services Ltd.

[140]    Thirdly, the RPS report writer had included a budget allowance of $45,000 for targeted repairs and recommended commissioning an urgent preliminary report. This paragraph concluded with the observation that a member of the Building Surveyors Institute of New Zealand would carry an appropriate level of professional indemnity insurance.

[141]    In relation to this part of the report Ms Leloir had added the following comment:

In 2009 I spoke to Thomas who I have a relationship with on another building and he thinks  we  are  wise  to  remain  keeping  a  watching  brief  with  Jim Henderson and Bill Millar.

[142]    Fourthly, the second half of the report contained explanatory notes. Under the heading “External Walls” the report recommended the use of Resene X200 as a “good weatherproof painting system” which, if executed properly, would normally have a ten-year life.

[143]    In assessing what a reader of the RPS report in Mr Gadd’s position could reasonably be expected to take from the report, it is relevant that it was emailed to BC Committee members the day after their meeting on 20 March 2012. The minutes of that meeting record Ms Leloir reminding the Committee of the “huge amount of work that had been undertaken over the past few years on ‘invisible’ infrastructure and that Sirocco was now in much better shape than previously”.

[144]    Further support for the objective reasonableness of Mr Gadd’s understanding of the position (that the Body Corporate had a maintenance programme and that issues were being managed within the maintenance budget), may be derived from the evidence of the plaintiffs’ expert witness, Mr Gray. Mr Gray agreed that, based on Ms Leloir’s red annotations throughout the RPS report, it appeared the Body Corporate continued a process of targeted repairs.

[145]    Other documents tend to provide support for Mr Gadd’s understanding of the position, which included his belief that the increase of 18 per cent in levies agreed at the June 2012 AGM was sufficient to cover the funding needs Ms Leloir signalled at the March 2012 BC Committee meeting.18 For example, the report of the Chair for the June AGM was reassuring:

This last year has been a really challenging year for apartment owners in Wellington and elsewhere in the country. The Christchurch earthquakes have impacted on insurance in particular and also on earthquake strengthening.

In that regard we at Sirocco have come off lightly. Jules has negotiated a very competitive price on our behalf and we have signalled the necessary increase well in advance. An eighteen percent increase in levies is very modest when you ask around about what many other buildings are facing. At Sirocco we are not facing earthquake-strengthening work either.

Weather tightness is the other big challenge for apartment buildings and again we have managed the relatively minor water tightness issues within the maintenance budget. The walkways are now sealed and any water ingress which appears from time to time has been repaired. Sirocco is not a leaky building - rather it is a building with some occasional water ingress!!

(emphasis added)

18 See above at [24].

[146]    In relation to the email from Ms Leloir in November 201219 and a management report prepared in February 2013 Mr Gadd remained firm in his evidence that of the 44 apartments in Sirocco, the issues that were brought to the Committee’s attention consistently concerned the same handful of apartments. He said in relation to the email:

Yes, but if you put it in context, I mean I think you’re taking isolated issues and kind of expanding onto the whole building. I mean we know that, for example, apartment 815 had a reconstructed deck but then had to be worked on again. So the original work wasn’t actually done properly.

[147]    The February 2013 management report referred to sealing around the area of “eight other courtyard apartments”. The reason was to prevent what had occurred with apartment 613. Water had tracked from the courtyard under the walkway, settled on the floor against the wall and the defective seals had allowed water to seep in and rot the floor of that apartment. Mr Gadd understood the cost of resealing the other courtyard apartments would be borne by the Body Corporate but that it would be from the operational budget as opposed to a specific levy.

[148]    Mr Gadd was asked about an email from Ms Leloir to BC Committee members on 20 June 2013 referring to a problem with water getting into an apartment from two of the decks on level eight. A quote for the necessary remedial work to the decks was attached to the email. The email itself stated that the work would be financed from the Long Term Maintenance Fund. This document did not therefore undermine Mr Gadd’s reasonable belief that such work was consistently carried out and paid for from that budget.

[149]    Coming to the financial statements for the year ending 31 March 2013, it was put to Mr Gadd that the sum of $31,964 held in Long Term Maintenance Fund reserves as at 31 March 2013 was inadequate. Mr Gadd did not agree. That sum was in reserve. The Body Corporate would strike a new budget for the coming year based on what was needed for its long term maintenance plan.

19 See above at [28].

Did Mr Gadd’s knowledge fall within cl 8.2(6)?

[150]    Before the issue of breach of the warranty can be assessed it is essential to understand the precise nature of the obligation cl 8(2)(6) imposes on a vendor. An appreciation of the bare requirements of the UTA in relation to financial and property management assists the analysis of cl 8.2(6).

[151]   Under s 115 of the UTA a Body Corporate must establish and maintain an operating account for the purpose of meeting expenses relating to the management of the unit title development, the provision of services and amenities, costs associated with statutory and regulatory compliance and other expenses listed in s 115(2).

[152]   A long-term maintenance plan must be established and maintained. The plan must cover a period of at least 10 years from the date of the plan or its last review.

The purpose of a long-term maintenance plan is to:20

(a)identify future maintenance requirements and estimate the costs involved; and

(b)support the establishment and management of the funds; and

(c)provide a basis for the levying of owners of principal units; and

(d)provide ongoing guidance to the body corporate to assist it in making its annual maintenance decisions.

[153]   Unless it decides by special resolution not to do so, a Body Corporate must establish and maintain a long-term maintenance fund. The fund is only to be applied towards spending relating to the long-term maintenance plan.21

[154]   A contingency fund to provide for unbudgeted expenditure may be established and maintained. A Body Corporate may also establish a capital improvement fund for spending that adds to or upgrades the development if that spending is not provided for in the long-term maintenance plan. If separate bank accounts are not established for each of the funds, the respective funds are to be kept separate and identifiable in a single account.22

20     Unit Titles Act 2010, s 116(3).

21     Section 117.

22     Sections 118–120.

[155]   A Body Corporate raises the amounts for each fund by imposing levies on the owners of the units. In accordance with s 121(2), the levies are proportionate to each owner’s utility and ownership interests.

[156]   Where a special levy needs to be raised for matters beyond the scope of the general levies, they are proposed and agreed at an extraordinary general meeting or an AGM. That is what happened at the AGM on 12 November 2014 when a special motion was passed authorising the Body Corporate to raise a special levy to carry out investigations.23

[157]For convenience I reproduce cl 8.2(6):

The vendor has no knowledge or notice of any fact which might give rise to or indicate the possibility of:

(a)the owner or the purchaser incurring any other liability under any provision of the Act or the Unit Titles Act 1972; or

(b)any proceedings being instituted by or against the body corporate; or

…

[158]   The first point about cl 8.2(6) is a linguistic point. Under cl 8.2(6)(a) the vendor warrants to have no knowledge or notice of any fact giving rise to, or indicating the possibility of, “the owner or purchaser incurring any other liability” under the UTA or 1972 Act. I have emphasised “other” because it plainly has the effect of limiting the scope of cl 8.2(6).

[159]Subclause (6) is preceded by undertakings and warranties by the vendor that:

(a)apart from regular periodic contributions, no contributions have been levied or proposed by the Body Corporate that have not been disclosed in writing to the purchaser (cl 8.2(1));

(b)the owner owes no other amounts under  any provision of the  UTA (cl 8.2(3));

23 See above at [58].

(c)there are no unsatisfied judgments against the Body Corporate and no proceedings have been instituted by or against the Body Corporate    (s 8.2(4)); and

(d)no order or declaration has been made by any Court against the Body Corporate or the owner under the UTA (cl 8.2(5)).

[160]   In context therefore, the phrase “any other liability” necessarily excludes special levies and other contributions that must be disclosed under cl 8.2(1). The phrase also excludes liabilities that are encompassed by subclauses (3)–(5).

[161]   Timothy Jones gave expert evidence for the defendant. One of the several areas on which Mr Jones was instructed to give evidence was the history of the warranty in cl 8.2(6) of the ninth edition of the agreement for sale and purchase. That is the edition the plaintiffs and the defendant signed. Mr Jones’ practice during his 30 or so years in partnership at Glaister Ennor primarily involved residential and commercial property work. More particularly, Mr Jones was a member of the Auckland District Law Society (ADLS) Property and Business Law Committee for approximately 14 years and a member of the ADLS Forms Committee for a number of years and the convenor of the Property Law Section of the New Zealand Law Society’s Land Titles Committee on the Landonline LINZ project.

[162]   In Mr Jones’ opinion cl 8.2(6) is concerned with any liability of an owner arising from any action by the Body Corporate for repairs or maintenance or levies due by the owner in relation to the owner’s unit. Mr Jones compared the wording of cl 8.2(6) with its predecessor clause (cl 8.1(6)) in the eight edition 2006(3) of the agreement for sale and purchase. Under the predecessor clause, the vendor warranted to having no knowledge or notice of any fact which might give rise to or indicate the possibility of:

(a)the vendor or the purchaser incurring any liability under sections 14, 33 or 34 of the [Unit Titles Act 1972]; or

(b)any proceedings being instituted by or against the body corporate;

(c)or any order or declaration being sought under … of the [Unit Titles Act 1972].

[163]Summarised, ss 14, 33 and 34 of the 1972 Act have the following effect:

(a)s 14 deals with an owner’s liability in tort for actions recoverable as a debt by the Body Corporate;

(b)s 33 enables the Body Corporate to recover monies spent on repair or other work carried out substantially for the benefit of only one unit or some units.

(c)s 34 enables the Body Corporate to recover monies expended for work rendered necessary by any wilful or negligent act on the part of the proprietor or proprietor’s tenant.

[164]   Mr Jones’ observed that cl 8.2(6) appears to be a broader warranty than its predecessor, however:

… it is it is essentially dealing with any owner's liability which might arise as a result of any actions by the body corporate for repairs or maintenance or levies that are due by the owner that relate to their specific unit.

[165]   Clause 8.2(6) does not expressly state that the potential liability to be disclosed is a liability relating only to the owner’s specific unit. That said, these documents are precedent forms to assist parties and their legal advisers in navigating the various requirements and intricacies of the transactions in which they are engaged. It is not to be expected that they will be drafted with the precision required of legislation. Parties to a property transaction may, after all, amend a standard form agreement in any way they choose.

[166]   A sensible reading of cl 8.2(6) in the context of the other warranties in cl 8.2, and alongside the pre-contract and pre-settlement disclosure requirements, which I have not discussed but which involve the provision of extensive information to a purchaser, strongly suggests its scope is limited to actual knowledge or notice of a fact giving rise to the possibility of a liability under either the 1972 Act or the UTA in relation to the owner’s unit. The equivalent provisions in the UTA of ss 14, 33 and 34 in the 1972 Act are, respectively, ss 143(6), 126 and 127.

[167]   In my view the warranty that Mr Gadd gave and which any vendor gives under cl 8.2(6)(a), substantially is to the same effect as the warranty under its predecessor, cl 8.1(6)(a) in the eighth edition.

[168]   When vendors warrant under cl 8.2(6)(a) that they have no knowledge or notice of any fact potentially giving rise to, or indicating the possibility of, the owner or purchaser incurring any other liability under the UTA that is a warranty that they have no knowledge of any potential liability under for example, ss 143(6), 126 and 127 of the UTA or under ss 14, 33 and 34 of the 1972 Act. These provisions are unit specific. Further powerful support for construing cl 8.2(6)(a) as being unit specific is derived from the word “owner” in cl 8.2(6)(a).

[169]   I should not be taken as concluding that ss 143(6), 126 and 127 are the only provisions in the UTA under which an owner of an apartment may incur a liability to the Body Corporate beyond the contributions and levies for which all owners are liable. They may not be the only unit specific provisions.

[170]   Mr Sullivan made the point that not all the documents itemised by the plaintiffs were put to Mr Gadd. In reply, Mr Easton submitted that the plaintiffs did not have to put to Mr Gadd all the documents that are said to prove his knowledge. The documents were set out in the plaintiffs’ evidence and Mr Easton submitted they “largely spoke for themselves” in the way the documents revealed the knowledge of Ms Moxon in Moxon v Cassidy.24

[171]   Putting aside the fact that Mr Gadd had no knowledge of some of the documents while he was resident overseas, the substantive point is that while the documents are most likely to be probative of the fact there were particular issues with particular apartments, the documents did not, either individually or in combination, prove the point the plaintiffs plead. The documents do not prove that Mr Gadd had knowledge of the possibility of special levies being struck to cover the costs of investigating or remediating a leaky building or of possible proceedings by the Body Corporate to recover monies expended on such works.

24     Moxon v Cassidy, above n 6.

[172]   I do not regard Moxon v Cassidy as particularly relevant to the analysis which the pleadings in this case engage. Moxon v Cassidy involved an unsuccessful appeal from a determination by the District Court that Ms Moxon had knowledge of facts which, when viewed objectively, indicated the possibility of proceedings being instituted by or against the Body Corporate.

[173]   In Moxon the real estate agent was specifically asked by the purchaser whether the apartment was a leaky building and was told there were no problems and it was not a leaky building. The reality was that Ms Moxon had registered the apartment with the Weathertight Homes Resolution Service but she had not disclosed that fact. After settling, the purchasers discovered the development and the apartment had been the subject of detailed investigations, invasive testing and two reports showing significant moisture ingress to the structure. The potential cost of remediation was in the order of $30,000 — $50,000 per apartment. Ms Moxon admitted receiving the reports.

[174]   The High Court was satisfied that Ms Moxon had knowledge of matters which might give rise to or indicate the possibility of proceedings being instituted by the Body Corporate against the developer.25

She was aware of two reports which detailed extensive design and construction flaws with the units and she had registered her apartment with the Service. To her knowledge, far less extensive works had been undertaken, and far less money had been expended upon the remedial works than was indicated in the reports. To her knowledge the Body Corporate had resolved to await an inspection of the development and a report from the Service before seeking a response from Cornerstone.

[175]In the context of this finding the Judge observed:26

Clause 7 in effect places a heavy onus of disclosure upon the vendor. If the information might only indicate the possibility of proceedings being issued, she was obliged to disclose the material. She could not substitute her own judgment for that of the purchaser as to the significance of all of the information, and decide to keep the relevant information from [the purchaser].

25 At [44].

26 At [46].

[176]   There is no similarity between Ms Moxon’s decision to keep her knowledge of the design and construction flaws from the purchaser, and Mr Gadd’s knowledge and actions pre-sale.

Summary of scope of cl 8.2(6) and Mr Gadd’s knowledge

[177]   I have concluded that cl 8.2(6)(a) constitutes a unit specific warranty that the vendor has no knowledge or notice of any fact which might give rise to, or indicate the possibility of, liability arising under the UTA or the 1972 Act in relation to the apartment the vendor owns. Sections 13, 33 and 34 of the 1972 Act, and ss 143(6), 126 and 127 of the UTA are examples of provisions under which such a potential liability might arise. Mr Gadd had no such liability before or after sale.

[178]   Even if the warranty has a broader effect, Mr Gadd did not have the knowledge or notice that the plaintiffs claim he possessed. Mr Gadd understood that some apartments had issues with leaking but that those issues had either been addressed or were being addressed. Importantly, he understood that the costs for repairs were borne either by individual owners or, in the normal way, by the Body Corporate and that maintenance costs would be addressed via the annual process of reviewing the budget for the long term maintenance plan. In other words, Mr Gadd did not have notice of any fact that indicated to a reasonable vendor in his position the possibility that he or a purchaser might incur any (relevant) liability under the UTA or 1972 Act.

[179]   In addition to the evidence I have referred to at [144] and [145], the following examples of established facts tend to further support the objective reasonableness of Mr Gadd’s understanding of the state affairs with Sirocco:

(a)The June 2007 AGM minutes record that the extensive work done on apartment 815, which had leaked through to apartments 817 and 818, was due to lack of maintenance by the owners of 815 who had been invoiced for the cost of repairing the deck.

(b)In her written report to the June 2012 AGM, the Chair referred to the “relatively minor water tightness issues” that had been managed within the maintenance budget.27

(c)At the meeting of the BC Committee in March 2013, the month before the parties entered into the agreement for sale and purchase, the building manager confirmed that “all current leaks were in hand”.28

(d)The minutes of the same meeting record Ms Leloir’s statement to the Committee that Sirocco was in better shape than previously.29

(e)Between 2008–2012, two chairpersons had stressed to the Body Corporate that Sirocco was not a leaky building.30

(f)The plaintiffs’ valuer offered the opinion that Sirocco appeared to be a well-managed body corporate and that (as at 1 July 2013, the date of the report) it “currently retains a positive fund balance”.31

(g)The minutes of the November 2014 AGM recorded Ms Leloir’s advice that up until that point “the level of contribution to the Long Term Maintenance Fund had been adequate to manage the plan…”.32

(h)At the November 2014 AGM the Chair reported the possible significant and extensive problem with Sirocco’s cladding. That indication was the result of “extensive investigation” of “what was initially perceived to be a minor leak in one apartment”. Not before 1 May 2014, when that apartment was the subject of investigation, did the Body Corporate have notice of weathertightness issues at Sirocco.33

27 See above at [26].

28 See above at [32].

29 See above at [143].

30 See above at [26].

31 See above at [42].

32 See above at [60].

33 See above at [56].

Conclusion

[180]   The plaintiffs have not established  on  the  balance  of  probabilities  that Mr Gadd had knowledge or notice of any fact which might give rise to or indicate the possibility that he or the plaintiffs might incur any liability under the UTA or the 1972 UTA, or of any proceedings being instituted by or against the Body Corporate.

Result

[181]Not having established that the defendant breached the warranties in clauses

6.2 and 8.2(6) of the agreement for sale and purchase, the plaintiffs have failed on their two causes of action. It is not therefore necessary to address the defendant’s affirmative defences or the plaintiffs’ claim for damages.

[182]   As costs follow the event, the defendant is entitled to costs and reasonable disbursements. I note that the parties agreed the proceeding was appropriately categorised as 2B.

Karen Clark J

Solicitors:

Grimshaw & Co, Auckland for Plaintiffs Succeed Legal, Wellington for Defendant