Roberts v Jules Consultancy Ltd
[2019] NZHC 3342
•17 December 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2017-485-130
[2019] NZHC 3342
UNDER the Fair Trading Act 1986 BETWEEN
MICHAEL DOUGLAS ROBERTS
Plaintiff
AND
JULES CONSULTANCY LIMITED
First Defendant
JULES LELOIR
Second Defendant
Hearing: 26 and 27 November 2019 Counsel:
B M Easton and H E T Thomson for Plaintiff J K Mahuta-Coyle for Defendants
Judgment:
17 December 2019
JUDGMENT OF THOMAS J (QUANTUM)
Table of contents
Introduction [1]
The pleadings [3]
Assessment of loss [9]
Did Mr Roberts contribute to his loss? [14] Was Mr Roberts at fault in not obtaining a building report? [15] Background [15]
Evidence at quantum hearing [16]
Was it likely that a building report would have identified the defects in the Sirocco Apartments? [36]
Was Mr Roberts at fault in not obtaining further information such as the building management reports or Body Corporate committee minutes before
confirming the SPA unconditional? [49]
Conclusion on fault [56]
ROBERTS v JULES CONSULTANCY LIMITED [2019] NZHC 3342 [17 December 2019]
What reduction should be made to reflect Mr Roberts’ contribution to the
loss? [57]
How should damages be assessed? [62]
Market value of the Apartment [69]
Unaffected Market Value [72]
As Is Market Value [75]
Market value of the Apartment at the time the Representations were made [91]
Purchase price [92]
2014 As Is Market Value [93]
General damages [108]
Other claims [111]
Result [112]
Introduction
[1] In March 2014, the defendants made false and misleading representations concerning the characteristics of the Sirocco Apartments in Wellington (the Representations) in connection with the sale of Unit 812 (the Apartment). In my judgment of 25 March 2019, I concluded the defendants breached s 14 of the Fair Trading Act 1986 (the Act).1 They were therefore liable to the plaintiff for his loss. This decision addresses the quantum of that liability and is to be read in conjunction with my judgment on liability.
[2] The Representations were that, while the Sirocco Apartments had weathertightness issues, they related only to the walkways and had been rectified.
The pleadings
[3] Jules Consultancy Limited is effectively the alter ego of Jules Leloir.2 Mrs Leloir represented the defendants at the hearing into liability. I gave the defendants leave to file an amended statement of defence to include the affirmative defence of contributory negligence. This resulted in the defendants pleading:3
36.The first and second defendants plead that with respect to any damages that may be awarded against them, that the plaintiff’s contributory negligence be taken into account:-
1 Roberts v Jules Consultancy Ltd [2019] NZHC 555.
2 At [121].
3 The amended statement of defence also pleaded that the plaintiff and his legal representative misinterpreted Mrs Leloir’s responses. Given my findings on liability, Mr Mahuta-Coyle accepted that issue could not be pursued at the quantum hearing.
1.In that he made a deliberate decision not to obtain a pre- inspection report (building report) before purchasing his apartment.
2.The Plaintiff failed to request his legal representative to request and obtain further information, such as Building Management Reports or Body Corporate Committee Minutes, from the Body Corporate Secretary Manager which may have alerted the Plaintiff to supposed weathertightness issues which may have affected his decision to purchase.
…
[4] The plaintiff has amended his claim a number of times in relation to damages. As at the date of the hearing into liability, the third amended statement of claim applied. The claim was based then on the plaintiff’s share of the estimated cost of remedial works at $456,916 (plus other related matters). As at the date of the liability hearing, the evidence from the defendants was that any loss the plaintiff may have suffered had not yet crystallised.4 The Body Corporate had not determined what, if any, action it would take in relation to the defects in the Sirocco Apartments and the options included demolition of the building.
[5]Since the liability hearing, the estimated cost of repair has increased to
$26,105,000 (GST inclusive). This results in what Timothy Truebridge, a registered valuer called by the plaintiff to give evidence, describes as “a negative outcome of
$2,868,000”. In other words, it would be uneconomic to repair the Sirocco Apartments. This was recognised at an extraordinary general meeting of the Body Corporate on 10 September 2019. However, as yet, the Body Corporate has not made any decisions regarding the future of the Sirocco Apartments.
[6] As a result, the fourth amended statement of claim seeks, as an alternative to remedial losses, damages calculated on the basis of a loss in value of the Apartment, claiming $671,830 loss in value, $11,460.62 for the special levies paid by the plaintiff to investigate the defects, moving costs of $2,702.50 and conveyancing costs on the sale of the Apartment of $1,500.5 The total claimed is $687,493.12. The plaintiff also
4 Roberts v Jules Consultancy Ltd, above n 1, at [5].
5 The fourth amended statement of claim does not amend the plaintiff’s share of repair costs based on the increased estimated repair cost.
claims general damages of $30,000 for stress, anxiety, inconvenience and loss of enjoyment.
[7] The defendants agree that diminution in value is the correct measure of damages in the circumstances. The defendants say, however, that any loss should be determined by reference to the price paid by Mr Roberts for the Apartment less its “true” market value in light of the weathertightness issues as at 20 February 2014, when Mr Roberts entered into the agreement to purchase the Apartment (SPA). The defendants also say the special levies to investigate the defects are too remote from the Representations and Mr Roberts has not suffered any loss in relation to moving or conveyancing fees.
[8] Mr Roberts disputes that damages should be reduced because of any failure on his part, contending he acted reasonably in the circumstances by relying on the defendants’ Representations. Alternatively, he says a pre-purchase building report (building report) would not necessarily have identified the defects in the Sirocco Apartments.
Assessment of loss
[9] Section 43 of the Act provides that, where the Court finds a person (Person A) has suffered, or is likely to suffer, loss or damage by conduct of another person (Person B), that constitutes a breach of the relevant provisions of the Act, the Court may make an order directing Person B to pay Person A the amount of the loss or damage.
[10] The Supreme Court described the discretion under s 43 as ultimately “a matter of doing justice to the parties in the circumstances of the particular case and in terms of the policy of the Act”.6
[11] The Supreme Court also said that, in applying s 43, the Court must ask itself whether the claimant’s carelessness (if there were any) should be regarded as the sole or a contributory operative cause of the loss.7
6 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [31].
7 At [30].
[12] This consideration is assisted by the law on contributory negligence. The Contributory Negligence Act 1947 provides:
3 Apportionment of liability in case of contributory negligence
(1)Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage:
provided that—
(a)this subsection shall not operate to defeat any defence arising under a contract:
(b)where any contract or enactment providing for the limitation of liability is applicable to the claim, the amount of damages recoverable by the claimant by virtue of this subsection shall not exceed the maximum limit so applicable.
[13] The test is an objective one, although expressed in terms of the person’s own general characteristics.8 The focus is on the causal potency of the act/omission in question, and moral blameworthiness/the degree of departure from the standard of the reasonable person.9
Did Mr Roberts contribute to his loss?
[14] I begin by addressing the question whether Mr Roberts contributed to his loss as this includes the factual narrative which is important to the overall assessment of loss.
Was Mr Roberts at fault in not obtaining a building report?
Background
[15] In order to provide context to this part of the decision, I include an extract from my judgment on liability:10
8 O’Hagan v Body Corporate 189855 [2010] NZCA 65, [2010] 3 NZLR 445 at [79].
9 At [67].
10 Roberts v Jules Consultancy Ltd, above n 1; this extract is not to be read as a summary of the judgment, which needs to be read in its entirety to understand why I made the findings on liability I did.
[38] On 22 January 2014, Mrs Leloir, as Body Corporate Secretary Manager for the Sirocco Apartments, issued the pre-contract disclosure statement,11 for prospective buyers of the Apartment. As required,12 the disclosure statement addressed whether the Apartment or common property was or had been the subject of a claim or proceedings in respect of water penetration. The statement said:
10.The unit or the common property is not currently, and has never been, the subject of a claim under the Weathertight Homes Resolution Services Act 2006 or any other civil proceedings in relation to water penetration of the buildings in the unit title development.
[39] The pre-contract disclosure included copies of the minutes of the Body Corporate AGMs for the years 2011 to 2013 inclusive. In respect of a motion to approve the annual accounts for the year ending 31 March 2013, the 2013 AGM minutes record an owner querying what was covered under general repairs. Mrs Leloir is reported as explaining that the budget line included “interior apartment repairs as a result of leaks from other apartments”.
[40] On 20 February 2014, Mr Roberts signed a conditional agreement to purchase the Apartment (the SPA). The purchase price was $397,000. The SPA specified that the purchaser did not require a building report. The SPA was conditional upon purchaser financing, approval of title, and the provision of a LIM [Land Information Memorandum] satisfactory in all respects to Mr Roberts within 12 working days. It was also conditional upon the purchaser reviewing to his entire satisfaction Body Corporate information, including “the Body Corporate minutes”, the vendor being obliged to provide them within five working days.
[41] A Body Corporate Committee meeting attended by Mrs Leloir took place on 26 February 2014. The minutes record the following:
Leak into Apartment 807
The whole balcony of Apartment 806 has been lifted, the tiles removed and it has been rebuilt and resealed which should resolve any more issues with water ingress into the apartment below. It is important to note that as this balcony forms the whole of the roof of an apartment below, that any remedial issues become the responsibility and the cost of the Body Corporate under the Unit Titles Act 2010. Under the previous Act, all balconies were deemed to form part of the interest of the apartment and therefore the responsibility of the owner of the apartment.
[42] On 27 February 2014, the legal executive at the firm of solicitors acting for Mr Roberts (Ms Samson) emailed Mrs Leloir at Jules Consultancy with some queries in respect of the Long Term Maintenance Plan for the Sirocco Apartments, a copy of which had been supplied to Mr Roberts. A note to the Long Term Maintenance Plan stated that the rebuilding of the level 8 and level 6 walkways was not included in the original Long Term Maintenance Plan. It described the work as beginning in late-2009 and carrying on until
11 As required under the Unit Titles Act 2010, s 146.
12 Unit Titles Regulations 2011, reg 33.
anticipated completion in March 2012 at a cost of approximately $105,000. Ms Samson asked:
- What caused the walkways to breakdown and be repaired? Was it a design defect or a maintenance issue and is the Body Corporate satisfied that the matter is now rectified and no further expenditure will be required?
[43] Ms Samson also requested a copy of the Chairperson’s report, referred to in the 2013 AGM minutes. That was supplied. It referred to “small bathroom and deck leaks”.
[44] Ms Samson’s inquiry was discussed in a telephone conversation between her and Mrs Leloir. Ms Samson then emailed Mr Roberts on 27 February 2014 (the February email) saying:
The Body Corporate Secretary just called me to discuss the requests we put to her. …
She also mentioned that she can not guarantee that there will never be any further issues with the walkways, but they were completely replaced and it was not just a cheap and basic patch up so hopefully there will be no further problems. Apparently the original design was ridiculous - the two walkways are apparently open air on the sides, but they were carpeted so every time it rained the carpet was soaked. As the carpet was wet for such long periods of time it rotted and the water broke down the membranes underneath which caused leaking issues. This issue has now hopefully been rectified and the walkways replaced so there should not be any further issues, but you never know what may happen in the future.
[45] Ms Samson then received the LIM. Under the heading “Weathertightness”, the LIM recorded that this section of the LIM would be completed only when the Council had received formal notification of possible water ingress issues at the property from one of five sources, including “written notification from the owner of the property or their agent”. The LIM then said:
If you have any concerns we recommend that you seek independent advice from a suitably qualified person such as a building surveyor, and/ or speak to the owners of the property.
Wellington City Council has been advised by the Body Corporate that it sought professional advice and undertook the necessary work to remedy any potential weathertight issues. The Council had no involvement in this remediation and is unable to comment on the scope of remedial work completed in respect of any potential weathertight issues. We would suggest you seek advice to your (and the Body Corporate's) satisfaction regarding this matter.
[46] Ms Samson sent the LIM to Mr Roberts and, in her email dated 7 March, said:
The LIM report has arrived from the Council and a copy is attached. I do not see any significant issues, but I do comment as follows:
1.The Council noted they had been advised by the Body Corporate of a possible weather tightness issue. The LIM
goes on to say the issue was rectified by the Body Corporate and the Council was not involved, so they have no further information. I suspect this will be the issues with the walkways which have now been fixed, but I recommend we sent a note to the Body Corporate to confirm that this is what the Council is referring to.
[47] Both Ms Samson and Mr Roberts reviewed the LIM. Mr Roberts emailed Ms Samson on 10 March, saying:
Thanks for your review of the LIM. I've checked it out too.
I agree with your suggestion in point 1 that we enquire about the weather tightness issue. I suspect there isn’t much to it given that the BC's preliminary disclosure statement says there are no issues but worth checking.
[48] Following a discussion with Mrs Leloir that morning, Ms Samson then sent the March email to Mr Roberts, which said:
I have spoken to the Body Corporate Secretary. She said the only issue she could think of that the Council would be referring to is the walkways which have now been prepared [sic]. She also stated that it was not Body Corporate who originally notified the Council of the issue with the walkways, but that is the only possible weather tightness issue that she is aware of within the building.
I sent a copy of the information through to Jules so that she could see the reference and confirm that she was not aware of anything else that the Council could be referring to.
[49] Although Ms Samson intimated that she would seek confirmation from Mrs Leloir of what Ms Samson maintained was discussed in the telephone call, she simply sent her a copy of the LIM. Mrs Leloir made no note of that telephone conversation.
[50] Later that same day, Mr Roberts’ purchase of the Apartment was declared unconditional. Settlement took place on 3 April 2014.
Evidence at quantum hearing
[16]Mr Roberts explained as follows:
8. I decided not to make the Agreement conditional on a pre-purchase building report. As I explained at the Hearing, my father is a retired building consents officer in Christchurch, and a former quantity surveyor. As a result, I am familiar with the limitations of pre- purchase building inspections. I am aware that obtaining a pre- purchase report is no guarantee of discovering issues with a building, particularly in the case of apartments. It is my understanding that building inspectors conducting pre-purchase inspections are typically limited to the interior of the unit itself, external elements of the Unit that can be inspected from the ground or decks, and a few common areas, such as walkways and ground floor areas. An inspector would not, for example, have access to other apartments in the building, such
as the unit above mine, which has been found to have defective rainheads and issues with the cladding.
…
10. Instead of getting a building report, I opted to make the Agreement conditional on my satisfaction with a LIM report and Body Corporate minutes. I felt confident that any problems with the building would be identified through these documents.
[17] Mr Roberts then referred to the LIM notation and advice he received following Ms Samson’s inquiries with Mrs Leloir. He said:
13.I was satisfied with the explanation provided by Mrs Leloir. My thinking at the time was that Mrs Leloir, as Body Corporate Secretary, was in the best position to know about the condition of the Sirocco, and that if there had been other weathertightness issues or leaks in the building (aside from the walkways) she would have mentioned these when Ms Samson queried her about the notation on the LIM, if not before then. It was only because of Mrs Leloir’s assurances that any weathertightness issues with Sirocco had been remedied that I felt comfortable proceeding with the purchase and confirming with the vendor that the Agreement was unconditional, which I did on 10 March 2014 …
14.If Mrs Leloir had advised Ms Samson of the history of leaks with the Sirocco I would have chosen not to proceed with buying the Unit.
[18] Mr Roberts also referred to a building report obtained in relation to unit 615 of the Sirocco Apartments on 23 July 2013, less than a year prior to Mr Roberts’ purchase. That report, issued by Habit New Zealand Limited, did not refer to any signs of moisture ingress or moisture damage, or other significant building defects, concluding the unit overall was in reasonable to good condition.
[19] Notably, Mr Roberts did not have access to this report prior to his own purchase. He produced it in order to demonstrate what he considers to be the general poor standard of building reports, to show that even had he obtained a building report, it would not necessarily have revealed the defects.
[20] In cross-examination, Mr Roberts accepted he was aware of the “leaky building” problem before his purchase and of the need to protect his position. He accepted it was up to him to make his own investigations and said that was why the SPA was conditional upon the LIM and inquiries of the Body Corporate.
[21] Mr Roberts does not recall any advice from his lawyers about getting a building report. He did accept that he was advised to seek professional advice in respect of weathertightness issues, this being specifically noted on the standard form SPA used in this transaction.
[22] In the interests of context, I again incorporate a section from my judgment on liability. This reflects the evidence given at the liability hearing about the defects:13
[54] The Maynard Marks report summarised the main weathertightness defects in the Sirocco Apartments as follows:
1.3Main Weathertightness Defects Identified
The main weathertightness defects resulting in moisture ingress and visible decay damage, include, but are not limited to, the following summary:
• Inadequately weatherproofed roof to wall junctions, including to projecting fire spandrels
• Steel framed balcony penetrations to fire spandrels and balcony to wall junctions
• Inadequate cladding clearance above external surfaces, including a lack of drainage at cladding base details
• Unprotected fibre-cement cladding sheets to the horizontal surfaces of the balustrade and inter-tenancy walls
• Poorly formed cappings to the balustrade walls adjoining the enclosed rooftop balconies
• Unprotected retaining wall junctions with inter-tenancy balustrade walls to lower level apartments on the west elevation
• Inadequately weatherproofed joinery openings, including a lack of visible jamb and sill flashings
[55] The damage relating to the defects was described as including, but potentially not limited to:
• Raised moisture levels and visible decay damage to the timber wall framing throughout the elevations, lightwells, the main roof and the external balconies.
• Localised corrosion of some additional areas of structural steel framing.
[56]As to remedial works required, the report said:
Considering the deficiencies that exist with the installation of the external cladding, the roof coverings and the balconies, the damage found throughout the building and the risk of future likely moisture ingress and decay damage, we believe the only repair option viable to achieve long term weathertightness and compliance with the New
13 Roberts v Jules Consultancy Ltd, above n 1.
Zealand Building Code, is to undertake a full reclad of the development, including roofs and balconies.
[57] Maynard Marks also strongly recommended that design changes should be considered as part of the proposed remediation to remove “significant and numerous high risk weathertightness features”.
[58] The costs to carry out the work on a like-for-like basis were estimated, at that time, as $10,102,691.35 including GST.
[59] Patrick Hanlon, quantity surveyor and director of The QH Limited, a quantity surveying firm, has considered the Maynard Marks and other reports. He gave evidence and estimated the cost of repairing the Sirocco Apartments based on price levels in November 2018 as $20,471,150. On the basis the Sirocco Apartments are unoccupied during the repair, he considered it will take 19 months to carry out the works, including demolition.
[60] Andrew Gray, building surveyor and director of the building consultancy firm GBC Group, has reviewed the relevant documents, including the Maynard Marks report. He has visited the Sirocco Apartments, visually inspected the exterior, carried out moisture testing and destructive testing to the Apartment, viewed areas where previous investigations have been carried out and identified weathertightness defects. In his evidence, he described the Sirocco Apartments as one of the more complex designed buildings he has come across in his experience as a building surveyor. He said it displays countless high risk weathertightness features and junctions. He considered the defects discussed in the Maynard Marks report and commented on other defects he identified whilst onsite. He said:
56.In my experience, all of the above defects especially when installed/constructed in conjunction with a direct fixed monolithic cladding have a history of systemic failure.
57.Based on:
(a)my training as a registered building surveyor;
(b)experience investigating hundreds of leaking buildings throughout New Zealand (with the same claddings with the similar or the same junctions) and
(c)my visual inspection
The Sirocco Apartments have all of the hallmarks commonly associated with a leaky building.
58.After carrying out testing to Unit 812 and reviewing Maynard Marks’ report I am in no doubt that a full re clad is required.
[23] Realsure, the house inspectors, inspected and provided a building report on the Apartment on 18 May 2006. Realsure inspected and provided a building report on unit 618 on 9 December 2010.14
14 Mrs Leloir gave evidence that she was not made aware of either Realsure report at the time.
[24] At the time of the 2006 building report on the Apartment, the Sirocco Apartments were only seven to eight years old. Even at that stage, a number of the defects were identified, for example, insufficient gap between the cladding and membrane upstand on the balcony ledge; lack of cladding clearances between the cladding and exterior landing; cracks in the exterior cladding which can allow moisture penetration; roof issues. The client summary noted:
Weather tightness:
Some of the cladding on this building is a texture cladding and part of its maintenance is to periodically monitor the exterior for any signs of cracking, discolouration, fungus and mould. It should be kept clean and clear of any surface and vegetation, and well-sealed, depending on the manufacturers specification. It is not recommended this product is water-blasted.
We have identified some weather tightness areas of risk with the exterior of the home, as identified by BRANZ Weathertightness, Identification of Risk. These are identified in the Photo Gallery and Exterior Sections of the report.
[25] By 2010, Realsure was reporting more significant concerns with the Sirocco Apartments. The report into unit 618 stated in large font in the client summary under the heading “Overall condition”:
Concerns are held with regards to the exterior cladding systems durability and weathertightness.
[26] Items requiring further investigation and general maintenance were identified in red type in the report. This included, in respect of comments on the exterior:
There is widespread cracking in the exterior cladding. Cracks can allow moisture ingress and this does need to be further investigated by a cladding specialist, to determine the cause of the cracking and to obtain a quote for the necessary repair. The cost could vary considerably depending on the cause of the cracking.
The texture is peeling in places. This needs to be further investigated by a cladding specialist, to determine the cause of the defect and to obtain a quote for the necessary repair. The cost could vary considerably depending on the cause of the peeling.
Steel supports have been imbedded in the wall cladding and we are unable to determine how these areas have been made water tight. This is considered a weathertightness risk detail and we recommend it is modified to lower the risk.
There is evidence of repairs to some of the exterior cladding, some of which is not directly associated with this unit. Any repairs undertaken to the cladding system should have been undertaken by a cladding specialist, we recommend
you request further information from the body corporate as to who undertook the repairs the reason for the repairs and is there a warranty.
[27] Under the heading, “Balconies and Decks”, the report noted a weathertightness risk in respect of the balconies, foundation and cladding clearance. The report noted insufficient gap in areas between the cladding and the roof surface.
[28] Mr Roberts said that, had he obtained a report on the Apartment which contained comments like this, he would have taken it into account as well as the defendants’ representations. However, in questions from me regarding the comments on cladding, Mr Roberts conceded that the comments would have been “an extremely serious concern” to him and likely prohibited him from making the purchase, depending on further advice. Mr Roberts pointed out that unit 618 was on the north facing wall and, in 2005, had been subject to extensive leaking from the apartment above caused by a breakdown of its deck membrane. Those circumstances did not apply to the Apartment. That, however, is not the issue. I do not accept that concerns expressed regarding the cladding of the Sirocco Apartments from a reasonably competent building report writer would have been any different were it any other unit in the Sirocco Apartments.
[29] Mr Roberts was then asked about the LIM notation and its recommendation of seeking independent advice from a suitably qualified person such as a building surveyor and/or speaking to the owners of the property. Mr Roberts appeared to contend that the defendants were independent. He did concede, however, that, when he received the LIM, he was still in the due diligence phase and could have obtained a building report.
[30] Timothy Jones is a lawyer practising in Auckland. Since 1980, he has worked primarily in the area of residential and commercial property work. He was involved in the review of the Unit Titles Act in 1972 and did advisory work for the Department of Building and Housing in the drafting of the Unit Titles Act 2010 and the Unit Titles Regulations 2011. He has served on various committees of the New Zealand Law Society and had extensive involvement in property law matters for the Auckland District Law Society. He has developed a practice of advisory work on unit title matters for bodies corporate and unit title owners.
[31] Based on his experience, Mr Jones offered expert opinion evidence as to the behaviour expected of a typical purchaser of a unit title property in Wellington. That assumed a purchaser aware of the weathertightness issues in relation to unit title developments and who would take appropriate steps to protect themselves when looking to purchase in a unit title development. In his opinion, such a purchaser would make the sale and purchase agreement conditional upon receipt of a satisfactory building report.
[32] Mr Jones gave a brief history of the publicity and concern around the “leaky building crisis”, particularly following publication of the Hunn Report in 2002.15 In Mr Jones’ opinion, the publicity following the Hunn Report meant that, by 2014, any prudent purchaser of a unit title property would have been alert to the crisis and the need to protect themselves. I do not believe there was any dispute with that proposition and indeed Mr Roberts effectively accepted it.
[33] In 2003, Mr Jones acted for the Real Estate Institute of New Zealand to assist in the drafting of a building report clause for use in agreements for sale and purchase, given there was demand for it. A standard building report condition was included in the standard form Agreement for Sale and Purchase of Real Estate approved by the Auckland District Law Society and Real Estate Institute of New Zealand, 9th ed (2), 2012. This was the form used for the SPA.
[34]Mr Jones said:
66.Given the prevalence of the leaky building crisis in the media after 2002, I would expect any purchaser of a unit title property to obtain a building report before completing the purchase of the property. Similarly, by 2014, I would expect a reasonably competent and prudent property lawyer to advise a client buying into a unit title development to make the agreement conditional upon a satisfactory building report.
[35] Mr Jones accepted that, when presenting at an ADLS seminar entitled “Conveyancing Pot Pourri II” in November 2013, he did not contend that obtaining a building report was essential. In saying that, he described “basic due diligence” as including a building report. He included a specific section of his presentation on the
15 Report of the Overview Group of the Weathertightness of Buildings to the Building Industry Authority (Building Industry Authority, 31 August 2002).
building report condition, noting the importance of selecting a building inspector suitable for the type of building being inspected.
Was it likely that a building report would have identified the defects in the Sirocco Apartments?
[36] At the hearing into liability, Andrew Gray, building surveyor and director of the building consultancy firm GBC Group Ltd, gave evidence. He had reviewed the Maynard Marks report and visited the Sirocco Apartments. In cross-examination, he was asked whether, had a pre-purchase building inspection been carried out, the issue of weathertightness would have been identified. He said the state of knowledge in 2014 was that the type of construction of the Sirocco Apartments was no longer considered an acceptable solution under the Building Code and that the monolithic cladding system was a high-risk cladding system or a cladding system with a history of failure. A reasonably competent pre-purchase building report writer would note that.
[37] Bruce Symon is the founder and manager of Realsure Limited and director of Inspection Franchising and Licensing Limited, companies providing building inspections throughout the main centres and regions of the North Island. He has been involved with the research and development of the pre-purchase property inspection industry since early 1999.
[38] In March 2005, the New Zealand Inspection Standard NZS 4306:2005 (the Standard) was introduced. Mr Symon was asked to give evidence about:
(a)what weathertightness defects may, in the course of a pre-purchase building inspection report carried out in accordance with the Standard, be observed in relation to the Apartment now; and
(b)what weathertightness defects may, in the course of a pre-purchase building inspection report carried out in accordance with the Standard, have been capable of observation and identification in or around the time of Mr Roberts’ purchase in 2014.
[39] In August 2019, Mr Symon carried out a pre-purchase inspection of the Apartment in accordance with the Standard. He identified multiple weathertightness concerns. In respect of weathertightness, his report said:
The design, being a multi storey building, with complex cladding wall junctions, flat tops to parapets, textured tops to parapets, incorrect cladding clearances, use of a direct fixed monolithic cladding and the high wind zone (BRANZ Maps) location of this Apartment and building would in our opinion put it at a higher risk for weathertightness.
The moisture meter did indicate high moisture readings with the Apartment. The condition and treatment type of any internal timbers is not known.
We have identified some weathertightness areas of risk with the exterior of the apartment, as identified by BRANZ Weathertightness, Identification of Risk.
…
The Body Corporate minutes and records should be checked for any weathertightness related issues the entire complex has, not just this Apartment.
Given the risk category, the condition of the exterior and our findings, we recommend a further full weathertightness specialist report be undertaken by a suitably skilled Registered Building Surveyor or Architect Weathertightness Specialist, before proceeding further.
…
We have surveyed this apartment in the past (2006). In reviewing this report, we note the weathertightness risks were evident, although there was no evidence of moisture ingress. However, in reviewing our files, we note we have surveyed another apartment within the complex in 2010 and in reviewing the report there was evident weathertightness risk and failure. Given the evident weathertightness risks and evidence of failure, we would recommend you investigate further the extent of weathertightness risks and issues with the complex, as the cost to remediate could be significant.
[40] Mr Symon acknowledged this report was carried out five and a half years after Mr Roberts’ purchase. He said, although cosmetically the Apartment might have presented differently in 2014, the position was not different as far as weathertightness risk was concerned. He accepted his report was more comprehensive than the earlier ones carried out on other units in the Sirocco Apartments discussed above. He said the comments could be considered more negative because there were visual signs of leaking. He noted that the Realsure 2006 report was less comprehensive than the Realsure 2010 report, which recommended a full weathertightness survey.
[41] Mr Symon agreed that use of the Standard was not mandatory and that, while the majority of building report inspectors claimed to use it, many did not. He was implicitly critical of the report on unit 615 discussed above.
[42] Mr Symon acknowledged that the Realsure 2006 report did not recommend a specialist report and references to the cladding suggested it was capable of repair. He noted, however, that the design risks were identified in the 2006 and 2010 reports, as were the defects. The 2010 report related to a different unit but reported internal high moisture reading.
[43] In Mr Symon’s opinion, the defects observable in 2006, 2010 and 2019 would have been observable in 2014 and, had a building report been obtained in 2014, if prepared competently, it would have identified weathertightness defects. I accept that evidence.
[44] Mr Jones addressed the circumstances surrounding Mr Roberts’ due diligence. He referred to the LIM notation that, in the event of concerns, independent advice should be sought. He noted both Mr Roberts and his lawyers failed to consider the possibility of obtaining an independent, suitably qualified inspector to inspect the Sirocco Apartments, saying it was particularly important for Mr Roberts to obtain independent advice from a building specialist such as a building surveyor. He said the information Mr Roberts had received about the walkway and LIM report could have been put before a suitably qualified inspector and there was time prior to the date for satisfaction of the conditions to allow that.
[45]Mr Jones then said:
132. It is my view, an analysis of the minutes for the three years provided together with the reference in the LIM report were sufficient to have put the plaintiff on notice that the building was suspect in some aspects. For example, there were leaks from one apartment to the other, and there were some significant design defects with the walkways as identified by the walkway remediation for levels 6 and
8. Those matters alone should have led the plaintiff to seek a building report from an appropriate building inspector. In turn, it is my understanding that an inspector in February 2014 would have identified significant systemic defects with the Sirocco Apartments.
[46]I agree with Mr Jones’ conclusion that:
135. … On the contrary, an inspection report carried out by an inspector with information from the annual general meeting minutes that were available to the plaintiff and the notes from the discussions between the defendant and the plaintiff’s legal executive together with the LIM report would have caused the building inspector to have addressed those particular issues in detail as part of the inspection …
[47] I accept Mr Jones’ evidence that Mr Roberts’ conduct was not typical of what would be expected of a purchaser of an apartment building in Wellington in February 2014.16
[48] Although contributory negligence is put on the basis that Mr Roberts should have obtained a building report, I also accept Mr Jones’ analysis about that. Given the issues raised in the LIM, a prudent purchaser would have commissioned a specialist report and armed the inspector with information from the LIM and AGM Minutes, supplemented by further information from the committee minutes, which should have been obtained. That would, in my assessment, make it almost inconceivable that the weathertightness risks of the Sirocco Apartments would not have been identified.
Was Mr Roberts at fault in not obtaining further information such as the building management reports or Body Corporate committee minutes before confirming the SPA unconditional?
[49] Mr Roberts accepted that, had he obtained the minutes of the Body Corporate committee meetings, it would have revealed problems with leaks. He noted that he had obtained minutes of the AGMs (AGM Minutes) for three years, which he considered should have been a true record of the state of the Sirocco Apartments. He said any matters arising from the committee minutes should have been reflected in the AGM Minutes.
[50] Mr Roberts was taken to the AGM Minutes with which he was supplied prior to his purchase. There were some references to matters which the defendants say should have put him on notice, including the 2011 AGM Minutes’ references to “other repairs to the building”, and the 2013 AGM Minutes’ discussion about work to the building and reference to “interior apartment repairs as a result of leaks from other apartments”.
16 There is no claim against his lawyers before me.
[51] Mr Roberts did not accept that these were references to weathertightness issues as opposed to leaks between apartments and said, in any event, the inquiry made of the defendants was whether there were any other weathertightness issues other than the walkways.
[52] Mr Jones’ expert evidence was that, in his experience, a typical purchaser of a unit title property would make their purchase conditional upon satisfactory body corporate general meeting minutes for at least the last two to three years. Although he recommended that it was essential to analyse body corporate minutes and reports,17 saying the committee had a responsibility to provide them to each owner so purchasers should be able to obtain them, he accepted when giving evidence that many did not.
[53] I accept Mr Jones’ evidence that it is the committee minutes and supporting documents which detail the real work of the body corporate. Mr Jones acknowledged, however, that AGM minutes often summarise committee reports and are “more bland in detail”. Mr Jones was obviously right when he said that it was important any purchaser understands the issues facing a unit title development and how those issues will impact on owners financially. As he said, however, this information can only properly be obtained from reviewing minutes and associated reports because the mandatory disclosure under the Unit Titles Act will not necessarily reveal enough information. I accept his opinion that the supporting documentation is sometimes just as important as the minutes themselves and must be reviewed to understand properly the minutes and obtain a full picture of the body corporate affairs.
[54] All that said, Mr Jones acknowledged that it was not standard practice to go beyond the AGM minutes.
[55] The point in this case, however, is that the AGM Minutes did contain some reference to leaks and repairs of which an alert purchaser would take notice. Were those the only matters of note, then it would not, in my assessment, be sufficient to find an element of fault in Mr Roberts’ due diligence. Those references are highlighted, however, when considered alongside the LIM notation.18 In my
17 For example, when presenting a seminar for the Auckland District Law Society in November 2013.
18 See [15] above quoting [45]–[47] of Roberts v Jules Consultancy Ltd, above n 1.
assessment, on receipt of the LIM, a reasonably prudent purchaser would have sought further detail of works carried out by the Body Corporate and repairs or building issues of which it was aware by requesting committee meeting minutes.
Conclusion on fault
[56] I accept Mr Roberts did carry out due diligence. I am, however, satisfied that he contributed to the loss. A reasonably prudent purchaser in his position would have obtained a building report or a report from a suitably qualified specialist which, in the circumstances of the information identified in the LIM report, would have identified the design features of the Sirocco Apartments which put it at risk of weathertightness problems. Allied to this, a reasonably prudent purchaser in Mr Roberts’ position would have required further information from the Body Corporate secretary, in particular the Body Corporate committee meeting minutes. These would have revealed a systemic problem with water ingress into the building.19
What reduction should be made to reflect Mr Roberts’ contribution to the loss?
[57] The issue is the reduction in damages to be awarded to Mr Roberts to the extent just and equitable, having regard to his share in the responsibility for his loss. The Court of Appeal has observed that this requires consideration of relative blameworthiness and causative potency.20
[58] My judgment on liability contained a number of observations as to the defendants’ blameworthiness. I found the Representations demonstrably untrue and misleading.21 I concluded that an analysis of the Body Corporate records would have inevitably led to the conclusion there was a systemic problem with water ingress into the Sirocco Apartments.22 Mrs Leloir had seen the letter from the previous Body Corporate manager to the Council notifying it of leaks through structural areas and which resulted in the LIM notation.23 She was therefore aware the water ingress issues
19 Roberts v Jules Consultancy Ltd, above n 1, at [82].
20 Johnson v Auckland Council [2013] NZCA 662 at [87].
21 Roberts v Jules Consultancy Ltd, above n 1, at [75].
22 At [82].
23 At [25]
were not limited to the walkways.24 She had diminished weathertightness issues on other occasions.25
[59] The various analogous cases show reductions in damages awards ranging between 20 and 40 per cent.26
[60] I consider this case most analogous to, although not as serious as, the cases where a 25 per cent reduction has been applied. For example, in Body Corporate 189855 v North Shore City Council damages were reduced by 25 per cent in circumstances where purchasers knew the building had defects and the Council had refused to issue a code compliance certificate27 and where a purchaser knew remedial work had been carried out but did not inquire whether a code compliance certificate had been issued.28 Mr Roberts’ failures cannot be considered as serious as those in Johnson v Auckland Council where the Court of Appeal assessed the purchasers’ responsibility at 40 per cent on the basis they “deliberately courted” the risk as they knew the house might be leaky but went ahead anyway without looking after their own interests.29 His contribution was not at the level of 70 per cent, as sought by the defendants. Mr Roberts was on notice of problems and made limited but insufficient inquiries. A reasonable person would have made further inquiry.30
[61] When I consider all the relevant factors, I conclude the appropriate reduction in the circumstances is 15 per cent.
How should damages be assessed?
[62] The Court of Appeal has said that the prima facie, but not inflexible, rule is that the primary concern of the Court should be to ascertain the amount required to rectify the defects as the measure of loss in a building defect case.31 As the Court noted,
24 At [93].
25 At [94].
26 Body Corporate 189855 v North Shore City Council HC Auckland CIV-2005-404-5561, 25 July 2008 at [337], [349], [354], [362] and [429]; Crosswell v Auckland City Council WHT TRI-2008- 100-107, 17 August 2009 at [51]; Finn v Wang [2011] NZWHT Auckland 40 at [95]; Johnson v Auckland Council, above n 20, at [94]; Hamid v England (2011) 12 NZCPR 844 (HC) at [138].
27 Body Corporate 189855 v North Shore City Council, above n 26, at [348]–[349].
28 At [334]–[337].29 Johnson v Auckland Council, above n 20, at [93].
30 At [54].31 Warren & Mahoney v Dynes CA49/88, 26 October 1988, at 22.
however, that is not the invariable measure. In the context of an award under the Act, the question must be what does justice to the parties in the particular circumstances and in terms of the policy of the Act.32
[63] McGregor on Damages suggests that the normal measure of damages is the difference between the purchase price paid and the value of the property as properly described.33 This has been adopted in cases involving claims against surveyors for negligent building reports and is suggested as the approach for cases of negligent lawyers acting on property transactions.34 I agree with Mr Mahuta-Coyle’s submission that, although this is a case of breach of statutory duty under the Act, it has direct parallels with negligence cases and is consistent with the policy of the Act.35
[64] Although the relatively recent Court of Appeal decision in Johnson v Auckland Council adopted the cost of repair in contrast to the approach taken in the High Court, the Court of Appeal noted it was not suggested that the house at issue in that case could potentially be demolished.36 I also note that was not a case under the Act.
[65] This case has parallels with the decision in Body Corporate 90247 v Wellington City Council where Ronald Young J found that diminution in value was the correct measure rather than estimated cost of repair.37 This was for a number of reasons, including that it was possible for the plaintiffs to continue to live in the properties in their unrepaired state, repairs had not begun and there was uncertainty over the cost of repairs.
[66] In the present case, there is even more uncertainty about the cost of repairs and whether they will be incurred. On the evidence before me, it seems highly unlikely that the Sirocco Apartments will be repaired (except perhaps by a developer). The professional advice of Mr Truebridge (discussed further below) is that remedial costs will exceed the value of the units post repair, and this appears to have been accepted by the Body Corporate.
32 Goldsboro v Walker [1993] 1 NZLR 394 (CA) at 404.
33 Harvey McGregor QC McGregor on Damages (18th ed, Sweet and Maxwell, London, 2009) at [29-044].
34 At [29-044]–[29-045]; see also Ford v White & Co [1964] 1 WLR 885 and Perry v Sidney Phillips & Son [1982] 1 WLR 1297 (CA).
35 Red Eagle Corporation Ltd v Ellis, above n 6, at [31].
36 Johnson v Auckland Council, above n 20, at [113].
37 Body Corporate 90247 v Wellington City Council [2014] NZHC 295 at [357]–[359].
[67] Although potentially expectation loss could be claimed under the Act, that could only be where loss was pleaded in that way.38
[68] There was in fact no dispute between the parties as to the way in which damages should be assessed. Mr Roberts’ loss is to be assessed by considering the difference between the market value of the Apartment, assuming it was unaffected by the defects, and its ‘as is’ market value. That is the appropriate measure of damages in the circumstances of this case.
Market value of the Apartment
[69] Mr Truebridge is a registered valuer and director of Truebridge Partners Limited, a company specialising in valuation and property consultancy services. He is appropriately qualified to give expert evidence in this case.
[70] Mr Truebridge was instructed by Mr Roberts to assess the market value of the Apartment on two bases:
(a)the market value if the Apartment were unaffected by leakage or structural defects (the Unaffected Market Value); and
(b)the market value of the Apartment affected by leakage and structural issues (the As Is Market Value).
[71] Gwendolyn Callaghan is a registered valuer and partner of Colliers International (Wellington Valuation) Ltd. She is appropriately qualified to give expert evidence in this case. She was instructed to undertake a desktop review of Mr Truebridge’s evidence and offered her expert opinion in respect of the As Is Market Value of the Apartment.
Unaffected Market Value
[72] Mr Truebridge’s assessment was primarily based on a direct comparison of apartments sold in 2018 and 2019 within similar complexes around central Wellington.
38 Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 (CA) at 22.
He focused on purpose-built apartment complexes as opposed to converted buildings. A schedule of sales was provided, comprising apartments in College Street, Cuba Street, Ebor Street, Tory Street, Vivian Street, Jessie Street, Lorne Street, Taranaki Street and Tennyson Street.
[73] Mr Truebridge divided the floor area of the relevant apartments by the sale price to arrive at a value rate and then averaged the value rate over the apartments in each street location. The average value rate ranged from $7,290 (presumably per square metre) to $9,920.
[74] Mr Truebridge then assessed the unaffected market value of the whole of the Sirocco Apartments at $31,676,000 (including GST) and the value of the Apartment as $721,000 (including GST). Alternatively, applying an ownership interest ratio of 0.02228 for the Apartment, he reached a value of $706,000 (including GST).
As Is Market Value
[75] Mr Truebridge noted the most recent estimate of repair cost, $26,105,000, as at April 2019 and the estimated cost of demolition, $2,208,000, as at March 2018. Both sums are GST inclusive. He then assessed the As Is Market Value on two bases. The first deducted all costs in remediating the Sirocco Apartments from the unaffected market value of $31,676,000 including GST. However, the most recent remediation cost estimate resulted in a “zero outcome”. Unsurprisingly, this led him to consider an alternative means of assessment.
[76] Mr Truebridge then took a land value approach, that is by considering the market value of the underlying land as if cleared, less the cost of clearance or demolition. As a comparator he used recent land sales between 2012 and 2016 around Te Aro, Wellington.39 He used a figure of $2,500 per square metre to calculate land value. This resulted in a land value for the Sirocco Apartments of $2,218,000 with the ownership interest of the Apartment at $49,170.
39 Ghuznee Street, Victoria Street (x2), Willis Street, Dixon Street, Victoria Street/Ghuznee Street corner, Webb Street/Cuba Street corner, Kent Terrace and Taranaki Street.
[77] Mr Truebridge therefore assessed the land value approach as representing the highest and best use of the overall property and adopted it as his valuation of the Apartment.
[78] In Ms Callaghan’s opinion, on the basis of the recent sales information, a reasonable land value rate per square metre ranged between $3,250 and $3,500 per square metre (plus GST). This resulted in a value for the Apartment of $81,670.
[79] The defendants’ case, however, was that the best evidence of the As Is Market Value was sales of apartments in the Sirocco Apartments since Mr Roberts’ purchase. The following chart was produced:
DETAILS OF SALES WITHIN 8 CHURCH STREET SINCE APRIL 2016
Complex Unit Sale Date Sale Price Carpark Area m² Analysed Net Rate per sqm Sirocco Apartments, 8 Church Street 42 May-19 $135,000
(incl
1 180/3bd $528 carpark) 7 Mar-19 $150,000 0 130/3bd $1,154 7 Mar-19 $70,000 0 130/3 bd $538 31 Apr-16 $197,000
(incl carpark)
1 140/3bd $1,121 For Sale 20 Sep-19 Asking price
$168,000
0 130/3bd $1,292 or less
[80]The Apartment measures 140 square metres and has a carpark.
[81] Mr Truebridge accepted that his assessment of As Is Market Value could well be too low in light of this sales data. He made the point that the data does not reveal how well-informed purchasers were and whether they knew the full cost of remediation. He sought to cast some doubt on the sales, saying they were relevant only if the transactions involved a willing buyer and willing seller. He referred to unit 7, which sold twice in March 2019, first for $70,000 and then for $150,000. As there is no evidence about the circumstances of each of those transactions, they must be accepted on their face value.
[82] On that evidence, Mr Truebridge accepted the Apartment could be valued (on an arm’s length basis) at somewhere between $90,000 and $110,000 as at today’s date.
[83] None of the sales are at a price anywhere near Mr Truebridge’s assessment of 2019 Unaffected Market Value of $721,000.40 It is clear, therefore, that the purchasers must have had at least some knowledge of the problems. The weathertightness issues are referred to in the AGM Minutes, copies of which are part of the Body Corporate’s pre-contract disclosure pursuant to the Unit Titles Regulations. The 12 November 2014 AGM Minutes referred to possible “extensive cladding issues” and a special levy was raised to fund investigative work. The extraordinary general meeting of 18 August 2015 was called to discuss the report on weathertightness issues produced by Maynard Marks. It appears a minimum repair cost of $250,000 per apartment was discussed. The 18 August 2015 AGM Minutes referred to the weathertightness review report and a per-apartment remediation cost based on $9.5 million. The AGM Minutes for 2016 to 2018 have not been produced. The 2019 AGM Minutes referred to remediation cost of $26.1 million including GST if “full” seismic work is required and approximately $19 million including GST if none of it is required.
[84]Since that table was produced, unit 20 (also known as unit 606) sold for
$159,250. The marketing material was produced. It is headlined, “15% - 15.9% net yield - 3 Bedroom Apartment”. It then says:
The apartment building is currently in the process of planning remediation work. Due to this, it is only suitable to ’cash buyers’. …
Those thinking of investing this property offers GOOD RENTAL RETURNS for the price you are buying at. It is currently rented at $650 per week BUT the NEW RENTAL APPRAISAL shows that you can get more! New rental appraisal is at $660 - $690 per week. Therefore the Net Yield is approx 15%
- 15.9% (based on 52 weeks).
[85] Unit 20 had sold in December 2010 for $340,000. It has therefore reduced in value by approximately 54% since 2010.
[86] Mr Truebridge accepted that unit 20 was apparently sold on the basis of its rental return. He agreed that an analysis of the rental return was potentially another way of calculating the market value of the Apartment and that one of the options for
40 It is unclear whether this calculation includes or excludes the Apartment’s carpark.
the apartment owners is to continue living in the Sirocco Apartments until they are uninhabitable. While Mr Truebridge said that approach had caused him to reflect upon his assessment of the As Is Market Value, he did not take it any further.
[87] Mr Truebridge then referred to the relatively wide range of net rate per square metre shown by the table above. He described the 2016 apartment sale as clearly out of date. He noted that value rate per square metre ranged from $528 for unit 42 in May 2019 to just under $1,292 for unit 20 in November 2019.
[88] Ms Callaghan was of the opinion that the As Is Market Value should best be considered by reference to recent sales, noting that the systemic weathertightness problem is known, as is the requirement for further earthquake strengthening. On the basis of sales, she is of the opinion that, if offered to market now, the Apartment would be likely to fetch within the range of $90,000 to $110,000 plus approximately $40,000 for the carpark. Ms Callaghan explained the recent sales show how properties like the Apartment can be viewed. That is, driven by their cash return knowing remediation is anticipated. She pointed out that a number of sales had occurred within the Sirocco Apartments since the problems have become known.
[89]Between the date Mr Roberts purchased the Apartment on 10 March 2014 for
$397,000 and the earliest sale shown in the table above, being the sale of unit 31 in April 2016, the following sales took place:
612 March 2014 160 m2 $390,000 608 30 May 2014 160 m2 $391,000 804 1 July 2014 140 m2 $397,000 817 21 April 2015 140 m2 $287,000
[90] As Mr Truebridge accepted, the sales data reflects fairly steady prices until 2015, with a reduction in 2015 and then a steep decline from 2016 onwards. There was no significant decline observed until after 2015. Mr Truebridge agreed that was likely explained by the emergence of information about the scope of the weathertightness problems in the Sirocco Apartments.
Market value of the Apartment at the time the Representations were made
[91] Despite this evidence about 2019 values, there does not seem to be any real dispute that the diminution assessment should assess the different values of the Apartment at the time the Representations were made. The normal measure of damages is the difference between the purchase price paid and the value of the property as properly described.41 The direct parallels this case has with negligence cases justifies this approach, which is consistent with the policy of the Act.42
Purchase price
[92] Mr Roberts paid $397,000 for the Apartment believing it had weathertightness issues restricted only to the walkways which had been fixed.
2014 As Is Market Value
[93] There was no expert evidence from either party on the As Is Market Value at the time of the Representations.
[94] Mr Truebridge, in questions supplemental to his written brief of evidence, was asked about the state of the market in early 2014. He replied it was still suffering the effects of the global financial crisis and the upturn started in 2015.
[95] Mr Easton, for Mr Roberts, submitted that the recent sales in the Sirocco Apartments as set out in the table above do not provide reliable evidence. With the exception of the most recent sale, there is no evidence as what information the purchasers had available to them, he said. The two sales of unit 7 within the same month show a wildly different result.
[96] Mr Easton observed that the 2014 sales were at a time when the estimated cost of remediation was far below current estimates. In August 2015, the estimated remedial cost was $9.5 million, whereas it now exceeds $22 million.
41 McGregor, above n 33, at [29-044]–[29-049]; Perry v Sidney Phillips & Son, above n 34; Johnson v Auckland Council [2013] NZHC 165 at [151]–[152] and [176]; the Court of Appeal in Johnson v Auckland Council, above n 20, departed from the approach to damages but did not comment on Woodhouse J’s analysis of diminution.
42 Red Eagle Corporation Ltd v Ellis, above n 6, at [31].
[97] In Mr Easton’s submission, the current cost of repairs should be taken into account. He referred to McGregor on Damages which says that the cost of repairs can be used as material evidence in assessing the proper price for a property.43 It cites the case of Steward v Rapley, where the English Court of Appeal considered the costs of repairs to be the most reliable method of market valuation.44
[98] In 2015, Giles Ingham assessed the remediation cost as $10,102,691.35 (including GST). Taking the Apartment’s ownership share ($225,087) and deducting it from the 2014 market value of $397,000 leaves $171,902. The most recent estimate is $26,105,000 (GST inclusive) as at April 2019 and, as discussed, the Apartment’s share results in a negative value for the Apartment.
[99] While I can accept that the cost of repair is a relevant consideration in assessing market value, I cannot accept that, when assessing 2014 market value, the repair cost as estimated in 2019 should be taken into account. I accept Mr Mahuta-Coyle’s submission that any assessment of the 2014 value must exclude the conclusions of the Maynard Marks report and its recommendations, which were not received until 2015.
[100] The genesis of the Maynard Marks report appears to be a letter from Le Celebre Ltd, dated 3 May 2014. The letter was as a result of work being carried out around the rainhead of the deck to unit 806 which revealed rotten timber underneath. A Body Corporate meeting then took place on 4 May 2014, where it was agreed that experts should be engaged to investigate the issues. The Body Corporate November 2014 AGM Minutes record:
In May 2014, the Body Corporate Committee discovered possible issues with the stability of the eyebrow decks and within a month the Committee was made aware of what could possibly be some extensive cladding issues.
[101] The Minutes then record that the committee engaged appropriate contractors and the results were inconclusive but “definitely pointed to a building wide problem”. A special levy of $500,000 was raised to fund investigative work. The Maynard Marks report was commissioned on 6 February 2015 and the report produced in July 2015.
43 McGregor, above n 33, at [29-049].
44 Steward v Rapley [1989] 1 EGLR 159 (CA).
[102] It can be assumed that the sales of units in the Sirocco Apartments in May and July 2014 occurred in ignorance of the problem. The first impact was shown in the sale of unit 817 in April 2015 for a price of $287,000. The more significant reductions did not occur until after the date of the Maynard Marks report.
[103] In Mr Mahuta-Coyle’s submission, all a purchaser would have known in 2014 was that the Body Corporate was engaged in the management of ongoing leaks from the exterior into unit 807, likely caused by the balcony above and that the Body Corporate had previously been involved in the repair of a range of leaks between apartments. There had, however, been no diagnosis of the kind reached by Maynard Marks in July 2015 or identification of the need for a reclad of the Sirocco Apartments. On that basis, Mr Mahuta-Coyle submitted that the market value of the Apartment as at February 2014 would have been little more than 10 to 15 per cent less than what Mr Roberts actually paid. This was supported in his submission by the other sales around the time.
[104] I do not accept Mr Mahuta-Coyle’s characterisation of what a purchaser in Mr Roberts’ position would have concluded in the absence of the Representations. Had the Representations not been made, it is inconceivable that a purchaser put on notice as a result of the LIM and actively making inquiries via the Body Corporate secretary, would have proceeded with the purchase absent being further informed by answers to inquiries. In my assessment, on the balance of probabilities, a purchaser would have requested minutes of the Body Corporate committee meetings, and referred them and the LIM, to a suitably qualified expert45. I accept that the full extent of the problem was not known in February 2014, nor was there any estimate of cost. It would have been a matter for a purchaser to factor into the purchase price the risk of proceeding with the purchase in the absence of full details of the problem and the cost of rectification. Expert evidence as to how that risk would have been assessed was not before the Court.
[105] The best that can be said is that in April 2015, unit 817 (140 square metres and the same size as the Apartment) sold for $287,000. That would represent a 28 per cent
45 A suitably qualified expert might have gone to the extent of obtaining the letter to the Council which led to the LIM notation.
reduction in price from that paid by Mr Roberts. By that stage, the information in the November 2014 AGM Minutes was available to purchasers.
[106] Given the proximity of the Representations to the 3 May 2014 letter from Le Celebre, it is fair to conclude on the balance of probabilities that any expert report would have identified at least the possibility of the type of issues referred to in that letter. The fact of the monolithic cladding and associated risks would have been addressed. Some testing might well have been required in order for the expert to advise the prospective purchaser. In other words, the information would have been similar to that available to the purchaser of unit 817 on 21 April 2015.
[107] The best evidence before me as to 2014 As Is Market Value is the April 2015 sale of unit 817 which occurred before the Maynard Marks report was available. I therefore adopt $287,000 as the 2014 As Is Market Value. The measure of Mr Roberts’ loss is the difference between the Apartment’s 2014 Market Value of $397,000 and its 2014 As Is Market Value of $287,000. The difference is $110,000.
General damages
[108] Mr Roberts is entitled to general damages. There is nothing to suggest that they should not be available in a claim under the Act.46
[109] The purpose of general damages is to compensate for losses that cannot objectively be quantified in monetary terms. They cover matters such as pain and suffering, indignity, humiliation and mental distress. The assessment of general damages depends upon the circumstances of the case. In leaky building decisions, they often include stress associated with having to live through the repairs. That will not be a factor in this case. Awards in this type of case are around the level of
$25,000.47
46 Sinclair v Webb & McCormack ltd (1989) 2 NZBLC 103,605 (CA) at 103,612; AMP Finance NZ Ltd v Heaven (1997) 8 TCLR 144 at 158; Smythe v Bayleys Real Estate (1993) 5 TCLR 454 at 476; Mouat v Clark Boyce [l992] 2 NZLR 559.
47 Body Corporate 346799 v KNZ International Co Ltd [2017] NZHC 511 at [112]–[127]; O’Hagan v Body Corporate 189855, above n 8 at [27]–[29]; and Findlay v Auckland City Council HC Auckland CIV-2009-404-6497, 16 September 2010 at [96].
[110] I accept Mr Roberts’ evidence of the distress and emotional exhaustion suffered by him since discovering the true position as opposed to that conveyed to him by the defendants in the Representations. That evidence was not challenged. He has lived with this for five years and there is no resolution in sight. $25,000 is an appropriate award of general damages.
Other claims
[111] Mr Roberts is not entitled to the additional losses he claims in respect of special levies to investigate the defects, moving costs and conveyancing costs. These losses are all attributable to the remediation of the Sirocco Apartments and a claim based on the cost of remediation. For the reasons set out above, that is not the appropriate measure of damages in this case.
Result
[112]For the reasons given, Mr Roberts is awarded $93,500 (diminution in value of
$110,000 less contributory negligence at 15 per cent), plus $25,000 general damages. Mr Roberts is also awarded interest and costs. In the absence of agreement, a memorandum on costs is to be provided within 28 days, with any response 14 days thereafter. Costs will be decided on the papers.
Thomas J
Solicitors:
Grimshaw and Co, Auckland for Plaintiff
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