Weaver v HML Nominees Limited [2015] NZHC 2080 (28 August 2015)

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BETWEEN	ANN-LOUISE EVELYN CHANTAL WEAVER and GRAHAM WILLIAM ANDERSON Plaintiffs
AND	HML NOMINEES LIMITED First Defendant HELEN MARTHA MOORE Second Defendant _Continued...

Hearing:	9, 10, 11, 12, 13, 16, 17, 18, 24 and 25 March 2015
Counsel:	T J Rainey and J Heard for plaintiffs D R Bigio and C I Hadlee for first and second defendants D J Barr and S Meares for third defendant No appearance for first and tenth third party N J Scampion and C Campbell for seventh third party No appearance for eighth third party H Rice for ninth third party
_Judgment:	_{28 August 2015}

This judgment was delivered by me on 28 August 2015 at 4:30pm Pursuant to Rule 11.5 High Court Rules

Solicitors: Rainey Law, Auckland LeeSalmonLong, Auckland Simpson Grierson, Auckland Wilson Harle, Auckland

Introduction ..........................................................................................................[1]

What are the defects?...........................................................................................[7] Stone cladding [7] Garage cladding [23] Garage roof ]29] The chimney flashing [35] Main entrance to the house [36] Flu vent [47] Summary/conclusion on defects [49]

Is HML Nominees’ liable for the defects? ........................................................[54] The scope of the vendor warranties [55] Were the vendor warranties breached in relation to the stone cladding

defects? [68] Were the vendor warranties breached in relation to the chimney flashing

and flu defects? [70] Did HML Nominees make misrepresentations regarding the property? [71]

Is Ms Moore liable for any of the defects? .......................................................[80]

Is the Council liable in respect of its issue of building consents?...................[86]

compliance certificates? .....................................................................................[89]

Relevant legal principles [89] The stone cladding defects [92] Chimney flashing and flu defects [96]

Estoppel issues ....................................................................................................[97] Relevant legal principles [98] Was the Chief Executive’s decision a judicial decision? [101] Are the parties the same? [111] Did the Chief Executive determine an identical issue to one that is

The Council’s third party claim against Stonescapes ...................................[131] The Council’s third party claim against Flexco ............................................[136] HML Nominees’ third party claim against Flexco ........................................[139]

HML Nominees’ cross claim against the Council ..........................................[166] General damages ..............................................................................................[174] Quantum ...........................................................................................................[182] Summary and conclusion ................................................................................[185] Result .................................................................................................................[197]

[1] The plaintiffs, Ann-Louise Weaver and Graham Anderson, own a property in Seymour St, St Mary’s Bay, Auckland. They seek to recover losses they have allegedly suffered as a result of the failure of remedial work that was undertaken by the previous owner of the property, HML Nominees Limited, in 2005 and 2006. HML Nominees is the corporate trustee of Helen Moore’s family trust. The house was originally built as a family home for Ms Moore in 1997.

[2] In 2004 Ms Moore discovered that the house was leaky. She arranged for extensive remedial work to be undertaken. Significant re-cladding was required. The chosen design involved attaching Niwala stone slips to the exterior cladding. Two building consents were obtained from the Council for the remedial works. HML Nominees hired Point Construction Limited as builder and project manager. Ted Jordan, the principal of Point Construction, did not undertake stonework, so Ms Moore engaged Stonescapes Limited, on the stone supplier’s recommendation.

2006. Not long afterward, in early 2007, some of the stone slips delaminated and fell off the house. Further remedial works were then undertaken to the areas that had delaminated. At about this time Ms Moore’s personal circumstances changed and she decided to sell the property. It was purchased by the plaintiffs in June 2007, with settlement taking place in September 2007.

[4] About 18 months after settlement further stone slips started falling off the house. The plaintiffs undertook various investigations of the problem, including obtaining a report from a building surveyor, Neil Alvey. Mr Alvey identified various defects in the stone cladding as well as a number of other (more minor) defects in the property. It is not in dispute that a full re-clad of the stone cladding was required. This was undertaken in 2012. The plaintiffs now seek to recover $181,831.07 in respect of the costs incurred (or yet to be incurred) in remedying the various defects identified by Mr Alvey, of which about half relates to the stone cladding. They also seek general damages for the stress they have suffered.

[5] The plaintiffs have elected not to sue any of the tradespeople involved in the actual construction work. Rather, their claims are against HML Nominees (as vendor), Ms Moore (as alleged project manager of aspects of the works) and the Council (as the regulatory authority who issued the building consents and code compliance certificates). The defendants, in turn, joined nine third parties. Only

three of the third parties remained “live” by the conclusion of the trial, namely:¹

(b) Flexco Limited, who distributed the Flexi-Seal waterproofing membrane that was intended to be used in the stone works (but was not) and also the adhesive that was used;

[6] I will first consider each of the alleged defects, before turning to consider the liability of the defendants for any defects I find to be established. I will then consider whether any aspects of the Council’s defence are precluded by issue estoppel, based on a previous determination made by the Chief Executive of the Ministry of Business Innovation and Employment (“MBIE”) under the Building Act

[7] It was not in dispute that a full re-clad of the stone works was necessary. This work was undertaken by the plaintiffs in 2012 at a cost of $89,892.96, plus

[8] In order to determine whether HML Nominees, Ms Moore or the Council are liable to the plaintiffs in relation to the defective stone cladding it is necessary to first determine the causes of its failure. Expert evidence on this issue was given by:

(a) Neil Alvey, a registered building surveyor, who gave evidence for the plaintiffs.

(b) John Harvie of RLA Polymers (the manufacturer of Flexi-Seal products). Mr Harvie is a specialist in waterproofing membranes and adhesives. He gave both factual and expert evidence for Flexco.

[9] The three experts agreed on some issues and disagreed on others.²Further, as is often the case, their views shifted over time both during the pre-trial period and, to some extent, during the course of the trial itself. By the conclusion of trial, however, the experts were broadly in agreement on many of the key issues.

[10] Mr Alvey and Mr Wilson, in addition to their own briefs of evidence, provided a joint “experts’ conference list of issues” (“experts’ conference report”), which comprised a table listing the various alleged defects, their causes, whether they comprised a departure from the building consents, the consequence of the defect and the work required to remedy it. Mr Harvie was not a party to the experts’ conference report as he was overseas at the time of the relevant meeting. He disagreed with some of the views expressed in that document.

[11] The stone cladding design that was proposed by Ms Moore was an “alternative solution” under the building code. As a result it could not be automatically treated by the Council as compliant with the requirements of the code. The alternative solution ultimately approved by the Council, as set out in the building consent documentation, required the use of Eterpan fibre cement board as a

²Mr Harvie’s evidence was limited to the stone cladding defects, whereas Mr Alvey and

waterproofing system (“Flexi-Seal System”). Niwala medium weight slip stone veneers were then to be affixed to the Eterpan with “Flexi Wall ‘n Floor Adhesive”. The exterior of the stone slips was then to be sealed using Aqua Mix Penetrating Sealer.³

[12] There was no dispute between the parties that Eterpan fibre cement board and Niwala stone veneers were used, as required by the building consents. The Flexi-Seal System was not, however, used. Rather, Miracryl 2-Part waterproofing membrane (“Miracryl”) was applied to the Eterpan substrate as the waterproofing membrane.

[13] The adhesive specified in the building consent was “Flexi Wall ‘n Floor Adhesive”. Two adhesives fell within that general description - a general purpose adhesive and a high performance adhesive. The general purpose adhesive was used to affix the stone slips to the Eterpan. The exterior of the stone slips was sealed, as required, using Aqua Mix Penetrating Sealer.

[14] The primary deviation from the building consents was therefore that Miracryl was substituted for the Flexi-Seal System. None of Stonescapes’ employees were licensed Flexi-Seal applicators. Allan Towers, who was a Flexi-Seal licensed applicator, was therefore engaged to undertake the waterproofing work. He arranged for Steve Swart, who was also a licensed Flexi-Seal applicator, to assist him.

simply the generic (and therefore cheaper) version of Flexi-Seal. Mr Harvie’s evidence, however, was that Miracryl and Flexi-Seal are different products. Although Miracryl was the precursor product, Flexi-Seal was a higher quality product developed specifically to meet New Zealand conditions. The products have different ingredients and perform differently. For example, Flexi-Seal has a greater tensile strength than Miracryl and a greater cohesive strength. Mr Harvie’s evidence

_{was that “while Miracryl is fine to use as a general-purpose
waterproofing product,}

³I do not accept, for the reasons set out at [57] to [63] below, the plaintiffs submission that the building consents also included technical literature provided to the Council in support of the building consent application.

⁴For the reasons set out at [85] below I have concluded that Ms Moore was not involved in that decision.

Flexi-Seal would be a much better product to use as a substrate for the vertical fixing of tiles, brick veneers, or natural stone in New Zealand”.

[15] Mr Harvie also said, however, that while Flexi-Seal was a “better product”, both Flexi-Seal and Miracryl, if applied correctly, would have exceeded the performance requirements of the job. That is because there is a significant margin of safety built into the specifications. The system, even substituting Miracryl for Flexi-Seal, “should not have failed”, however, “there were so many factors that were impacting upon the performance of the membrane that it was almost bound to fail”. Miracryl would likely have performed adequately if there had been no other problems with the stone works. However, because it was an inferior product to Flexi-Seal, with a lower safety margin, it was more likely to fail when it came under pressure (as it did in this case).

[16] Of particular significance in this case, the Miracryl was incorrectly installed. An “ash test” conducted on a sample of the waterproofing membrane by RLA Polymers in 2013 identified that either the product was either not Miracryl or, if it was Miracryl, that the product was mixed and applied at such a variance to the specified mix ratio that the performance would undoubtedly have been compromised. (By the time of trial there was no dispute that the product that had been used was Miracryl, not Flexi-Seal). The experts were agreed that the incorrect mixing and installation of the Miracryl membrane was a key contributing factor to the failure of the stone cladding.

[17] One consequence of substituting Miracryl for Flexi-Seal was that the Flexi-Seal System was not followed. Mr Riedstra (the managing director of Flexco) gave evidence that the Flexi-Seal System required applicators to be trained and certified in the use of Flexi-Seal products. When installing a Flexi-Seal membrane the licensed applicator was required to follow three stages. First the substrate had to be prepared so that it was ready for the installation of the waterproofing membrane. Second, the licensed applicator has to clean the substrate, fill any holes and cracks, apply a sealer/primer, allow that application to cure, and apply two coats of waterproofing membrane (allowing both coats to dry). Third, the applicator checks and confirms the membrane is ready for covering. Each stage must be signed off by

the licensed applicator, using a particular form. Satisfactory completion of stages one to three is also confirmed by a secondary signature from the builder or project manager. The licensed applicator then applies a “guarantee” stencil to the membrane and a copy of the paperwork is provided to Flexco, which guarantees the finished product. (The Flexco guarantee does not, however, cover defective workmanship).

[18] Mr Towers’ evidence was that he believed “absolutely” that he had installed the waterproofing membrane correctly (although I note that the evidence was that most of the work was actually undertaken by Mr Swart). It is certainly possible that if Mr Towers and Mr Swart had used Flexi-Seal, as required, they would have had no difficulty in signing the relevant Flexi-Seal paperwork. Nevertheless, a consequence of the change of product was that a carefully developed quality assurance process was not followed. The requirements of the Flexi-Seal system, including that Mr Towers sign off on the three stages of the process and get the builder or project manager to do the same, were not followed. If the Flexi-Seal System had been followed it is possible that Mr Towers and/or Mr Swart may have undertaken the installation of the membrane with a higher degree of care.

[19] The other major contributor to the failure of the stone cladding was that the stone slips were affixed to the Eterpan with spots or blobs of adhesive, rather than the adhesive being applied over most or the entire surface of the stone slips with a notched trowel (complete combed coverage). When considered in isolation, the experts’ conference report described this as a minor issue. Mr Harvie disagreed strongly. His evidence was that poor application of the adhesive was a very significant issue. The partial (rather than full) adhesive coverage very significantly increased the “effective weight” of the stone on the adhesive. Mr Harvie provided compelling evidence illustrating the impact of spot adhesion on the effective weight of the stone cladding. In light of that evidence I accept that the method of application of the adhesive was a significant contributing factor to the failure of the stone cladding.

[20] In addition, it seems likely that the adhesive was incorrectly mixed. I find that this was also a likely contributing factor to the failure of the stone cladding. In particular, I note Albert Clarke’s (the adhesive supplier’s) evidence that:

Stonescapes purchased would indicate to me that an approximate ratio of four bags of General Purpose Adhesive powder to (just over) one pot of adhesive liquid was used on this project. This ratio would likely have produced a relatively rigid, non-flexible adhesive that would not expand or contract as much as a ‘2:1’ kit.

[21] The use of Flexi-Seal general purpose adhesive, rather than high performance adhesive, likely also contributed to the stone cladding failure. Mr Harvie’s evidence, based on his knowledge of the products, was that the general purpose adhesive’s lower level of flexibility would make it less suitable than high performance adhesive for use for the vertical fixing of tiles, brick veneers, or natural stone onto a substrate coated with a waterproofing membrane, because higher levels of stresses would be transferred onto the adhesive/membrane interface.

[22] Several other issues with the stone cladding were identified by the experts, including a lack of control joints, a lack of grouting, and a lack of ventilation/weep holes between the stone slips. The experts’ evidence was that, on their own, these were relatively minor issues that would have not triggered the need to undertake a full reclad. Given the significant number of other issues with the stone cladding, however, these workmanship defects added extra pressure to a stone cladding system already under significant strain due to other factors, contributing to the ultimate failure that occurred.

[23] When the house was constructed in 1998 the garage plaster cladding was face fixed to timber framing. The building consent obtained for the remedial works that took place in 2005 and 2006 appeared to envisage that the east and west walls of the garage would be reclad with solid plaster over a drained and ventilated cavity, although unfortunately this is not entirely clear from the plans (and was a matter of some debate at trial).

[24] The garage walls were not reclad during the remedial works. Mr Jordan’s evidence (which I accept) was that a Council officer told him the garage did not need to be reclad in order to comply with the building code. The plaintiffs say that the

garage should have been reclad and they accordingly seek the costs of now recladding it. This claim accordingly differs from the plaintiffs’ other claims in that it is not a claim in relation to defective workmanship. Rather, it is a claim in relation to work that was not done at all, but which the plaintiffs say should have been done.

[25] The experts’ conference report noted that the plaster cladding to the garage was finished in contact with the adjacent ground, “however this work was original construction from 1998 and not part of the 2006 works”. The consequence of the “defect” was said to be intermittent wetting of the bottom plate timber. The experts concluded, however, that the 1998 cladding “appears to have satisfied its minimum durability requirement as set out by the building code”. Mr Wilson expanded on his views at trial, as follows:

Where the stucco cladding is taken below the adjacent horizontal surfaces it provides the potential for moisture ingress. However, there has been no evidence of damage presented that I have been able to observe.

Accordingly the cladding has performed for longer than its required 15 year durability period under the Building Code. Given there is no evidence of damage, I consider that no repair is required.

[26] Mr Alvey stressed in his evidence at trial that it was only the minimum requirements of the building code that had been met. I note, however, that s 18 of the Building Act explicitly prevents any standard higher than that minimum being enforced.

[27] There is accordingly no evidence that the garage cladding breaches the building code, or that the failure to reclad the garage as part of the remedial works has resulted in any loss or damage to the plaintiffs. The mere fact that a building consent is obtained for certain work does not impose an obligation on the consent holder to actually do that work, if they subsequently change their mind or it proves to be unnecessary (albeit it may be necessary to obtain an amended consent in such circumstances).

[28] It is therefore not necessary to consider the garage cladding issue further. There is no proven “defect” in relation to the failure to reclad the garage in 2006. Similarly, the joinery on the west wall of the garage was not installed as required by

the building consent. The experts also agreed that there were no negative consequences as a result of the failure to undertake this work, and it is also, therefore, not necessary to consider this issue further.

[29] The plaintiffs plead the following defects to the garage roof: (a) lack of cross-fall;

(b) insufficient drainage to the roof space due to enclosing of the guttering during the remedial works;

[30] The experts’ conference report identified the main defect to the garage roof as being the cracking in the roof membrane. The report further noted that “other minor defects exist, such as a lack of fall and internal gutter where the new copper roof was extended over”. These, however, were said to be unlikely to be an issue requiring any remedial work, when considered in isolation. No specific damage was identified as attributable to these minor defects.

[31] The key issue therefore is the cracking in the roof membrane. Mr Alvey’s evidence was that this appears to have resulted in moisture penetration through the surface of the membrane flat roof over the garage and into the underlying timber roof structure to the garage. Mr Wilson, on the other hand, noted that any moisture staining could have been historic, as there was no evidence that it was wet at the time of inspection. Further, there was no evidence of any deterioration to the timber. He concluded that it was therefore equally likely that any leak was historic and attributable to the original works rather than the remedial works. This conclusion ultimately prevailed in the experts’ conference report, which stated:

Unable to confirm whether damage observed is a result of water ingress prior to or subsequent to the overlay in 2006.

[32] Mr Wilson also noted that as the only suggestion of moisture ingress was localised to one part of the roof, the appropriate repair would be a localised repair to any cracks in the membrane. In his view the limited damage (if proven) would not justify the laying of a completely new membrane. The costs of a localised repair have not been quantified or claimed.

[33] Ultimately the plaintiffs have failed to prove, on the balance of probabilities, what the cause of the cracking in the membrane was, or that it has resulted in any damage/loss. Nor have they proved that any of the “minor” garage roof defects identified in the experts’ conference report have caused any identifiable damage or loss. Any claims in relation to this alleged defect must accordingly fail.

[34] I note, for completeness that the plaintiffs advised, at the outset of the trial, that they were not pursuing their claim against the Council in relation to this alleged defect (although they maintained their claims against HML Nominees and Ms Moore in relation to it). The reason for the concession in relation to the Council was that the plaintiffs accepted (based on expert advice) that pursuant to best practice health and safety guidelines the Council cannot inspect a roof without significant steps being taken to ensure the safety of the roof area. It was common ground that, on the facts of this case, a roof inspection would not have been a “reasonable step” to undertake during an inspection.

[35] This is a relatively minor issue. The chimney flashing was re-used during the

2005/2006 remedial works, whereas both experts agreed that it ought to have been replaced. The failure to replace the flashing has compromised the weathertightness of the chimney, allowing water to enter at the corners of the flashing.

[36] The plaintiffs plead the following defect in relation to the main entrance on the ground north floor, north elevation:

Internal floor 70mm below external floor levels, causing water to be trapped at the junction.

[37] It appears that when the house was first built in 1997 the external tiling around the main entrance to the property was installed level with the timber threshold to the door opening. The internal concrete floor slab, however, sat 70mm below the surface of the internal timber flooring. As a result the internal floor levels were slightly lower than the external levels, which could potentially lead to problems with water ingress.

[38] Mr Jordan’s evidence (which I accept) is that this issue was identified by a Council inspector during an inspection while the remedial works were underway. Although there was no requirement in the building consent to install a channel drain outside the main entrance, the Council inspector required this to be done as a means to address the differential between the exterior paving level and interior floor level. Point Construction undertook the requested work, which Mr Jordan said was subsequently approved by the Council inspector. The existing joinery in the front door area was retained.

[39] The purposes of floor to ground clearances are to prevent water from running from the outside of the building into the inside, over the door threshold. The relevant acceptable solution provided that this objective could be met in at least two ways, other than by lowering the external ground levels. One method was to install a concrete nib (small wall or barrier) at the threshold. Another method was to lower the ground level for a small portion just outside the door and install a channel drain, so that water driving towards the door goes into the drain and flows away. Mr Alvey accepted in cross-examination that both of these were acceptable alternative ways of ensuring compliance with clause E2 of the building code, which relates to weathertightness. Compliance with an acceptable solution must be accepted by a building consent authority (such as the Council) as establishing compliance with the building code.

[40] When the plaintiffs replaced the stone cladding in 2012 they also undertook some extensions to their property, some of which were adjacent to the front entrance. During the course of this remedial and extension work in 2012 the plaintiffs’ builder, Gary Purdey, noticed that the outside pavement in the main entrance area was higher than the concrete floor inside. He was very concerned about this, as his

understanding was that the building code required the external ground levels to be lower than the internal floor level. Mr Purdey advised Mr Anderson that there was a “serious problem” and that he would not be prepared to reclad the area until the floor to ground levels were corrected. This required, in Mr Purdey’s view, all of the external paved area at the front of the house to be dug up, the ground level lowered, the paving relaid and a new channel drain installed. This was a major undertaking, costing $32,697.60.

[41] Mr Purdey acknowledged, in cross-examination, that this was the first leaky building remediation he had been involved in. He was clearly incorrect in his view that there was an absolute requirement in the building code that the external ground level be lower than the internal floor levels. The channel drain solution adopted during the course of the remedial works in 2005 and 2006 was an acceptable way to address the issue, provided of course that it was installed correctly. I therefore turn to consider whether the plaintiffs have proved, on the balance of probabilities, that the channel drain was installed incorrectly.

[42] Both Mr Purdey and Mr Anderson saw signs of decay in timber in the main entrance area, which could possibly indicate that the channel drain had not been installed correctly. Although Mr Alvey did not see this in his inspection, I accept the evidence of Messrs Purdey and Anderson that such decay was present. There is no evidence, however, that any decay was the result of defective installation of the channel drain in 2006. In particular there are at least two other possible explanations for any decay in that area.

[43] First, the decay may have pre-dated the 2005/2006 remedial works, having been caused by water ingress during the period 1997 to 2006.⁵Further, Ms Weaver gave evidence of another source of water ingress in the main entrance area that could have also caused or contributed to the decay that was identified in 2012. Her evidence was that:

...I told Helen of a problem we were having with the rimu floor in our front entrance discolouring, especially the nails in the floor which were going

black (ie the putty above the nails). As result she got Ted Jordan, her builder, to come and look at it as we requested this be fixed also. We had determined the cause of the discolouration was a leak through the outer wall due to the total absence of wall board or any waterproofing between the planter box and the internal linings. The planter box had a watering system. In fact the soil had been placed in the planter against the building paper (building wrap). When the watering system in the planter box came on the water would run inside the wall of the house onto the concrete floor inside.

When Ted saw this he said that they had known of some water ingress in the front entrance area for some time but hadn’t been able to locate the cause of it, so he was pleased in a way to find out the cause.

[44] Agreement was reached between the parties regarding the costs of remediation (including replacing the rimu floorboards) and the necessary work was then undertaken.

[45] Taking these matters into account, the plaintiffs have not discharged the burden of proving that the channel drain was installed incorrectly in 2005/2006 and that this has resulted in damage. The evidence indicates that the primary reason why significant works were undertaken by the plaintiffs in the main entrance area was Mr Purdey’s belief that there was an absolute requirement in the building code that the external ground level be lower than the interior floor level. That view was incorrect.

[46] As I have noted above, the channel drain was not required as part of the building consent but rather, was an additional requirement imposed by a building inspector during the course of his inspection of the property. Strictly speaking, he ought to have required HML Nominees to apply for an amended consent to include this additional detail. His failure to do so has not resulted in any loss, however, given that it has not been proved that the channel drain was installed incorrectly resulting in damage to the property.

[47] A copper roof was installed as part of the building works undertaken during 2005/2006. Mr Alvey identified a flu vent through the roof surface which is of aluminium/zinc composition. The building code (E2/AS1) highlights an incompatibility between zinc/aluminium and copper metals. Due to the adverse

chemical reaction that occurs between these metals they cannot be in contact, and additionally, water runoff between the two materials is not permitted. Corrosion has resulted from the interaction between the flu and the installation of the copper roof.

[48] Mr Jordan of Point Construction, who was the project manager for the remedial works (excluding the stoneworks) had no recollection of any flu vent in the roof being installed and queried whether it might have been fitted later. I do not doubt that Mr Jordan genuinely cannot recollect this work. That is perhaps not surprising, given the lapse of time and the fact that much of the work would presumably have been undertaken by the contractors who installed the copper roof, rather than directly by Mr Jordan. Nevertheless, given the short period of time between the copper roof being installed and the house being put on the market, the necessary inference is that this work would have been done when the new roof was installed. I accordingly accept that this defect exists (which was not disputed) and that it occurred during the course of the remedial works that were undertaken in

[49] In summary, I have concluded that there was no single cause of the failure of the stone cladding. Rather a number of factors combined to cause the system to fail, namely:

(a) The substitution of Miracryl for Flexi-Seal, because Miracryl was an inferior product that was more likely to fail when it came under pressure, as it did in this case.

(b) The incorrect mixing and installation of the Miracryl membrane. (c) The failure to follow the Flexi-Seal System.

(d) The use of the spot adhesion method of affixing the stone slips to the Eterpan, rather than following a complete combed coverage technique.

(e) The use of Flexi-Seal general purpose adhesive rather than high performance adhesive.

(g) The failure to install control joints, grouting, and ventilation/weep holes between the stone slips.

[50] Some factors clearly contributed to the failure of the system to a much greater degree than others. In particular, I find that the two major contributing factors were the incorrect mixing and installation of the Miracryl, and the use of the spot adhesion method to adhere the stone slips to the Eterpan. Most of the other factors, in isolation, would not have caused the system to fail. The combined effect of all of these factors, however, is that failure of the stone cladding system was virtually inevitable.

(a) Garage cladding: There is no evidence that the current garage cladding breaches the building code, or that the failure to reclad the garage in 2005/2006 has resulted in any loss or damage to the plaintiffs. Similarly, there were no negative consequences as a result of the failure to undertake the installation of the joinery on the west wall of the garage.

(b) Garage roof: The plaintiffs have failed to prove, on the balance of probabilities, what the cause of the cracking in the garage roof membrane was, or that it has resulted in any damage/loss. Nor have they proved that any of the “minor” garage roof defects identified in the joint experts report have caused any damage or loss.

(c) Chimney flashing: The previous chimney flashing was re-used during the 2005/2006 remedial works, whereas both experts agreed that it ought to have been replaced. The failure to replace the flashing has compromised the weathertightness of the chimney, allowing water to enter at the corners of the flashing.

(d) Main entrance to the house: The installation of a channel drain as part of the 2005/2006 remedial works was an acceptable means of achieving compliance with the building code requirements where the external ground level is greater than the internal floor level. It has not been proven that it was installed incorrectly.

(e) Flu vent: The plaintiffs have established that a zinc/aluminium flu vent was installed through the new copper roof as part of the

2005/2006 remedial works, in breach of the building code. Corrosion has resulted.

[52] The relevant defects for liability purposes are, accordingly, the stone cladding defect and the chimney flashing and flu vent defects. The other pleaded defects were either not proven to be defects, were not causative of loss, were not proven to have resulted in any loss or damage, or were not proven to be the result of work undertaken as part of the 2005/2006 remedial works.

[53] I now turn to consider which, if any, of the defendants are liable for the stone cladding, chimney flashing and flu vent defects.

[54] There are two causes of action pleaded against HML Nominees. The first is for breach of the vendor warranties in the agreement for sale and purchase of the property. The second is for misrepresentation. I will consider each in turn.

[55] Clause 7.2(5) of the agreement for sale and purchase between the plaintiffs and HML Nominees warranted that at the date of giving and taking possession:

(5) Where the vendor has done or caused or permitted to be done on the property any works for which a permit or consent was required by law:

[56] The plaintiffs rely on warranties 7.2(5)(b) and 7.2(5)(d), which I will refer to respectively as the “Consent Warranty” and the “Building Act Warranty”. Turning first to the Consent Warranty, it is relied on as a warranty that the 2005/2006 remedial works were completed in compliance with the relevant building consents. A Consent Warranty is not a general warranty as to the performance or quality of a

[57] There was a dispute between the parties as to exactly what documents comprised the building consent. The plaintiffs submitted that because the approved stone cladding system involved a specific design, the building consent necessarily included any technical literature, guidelines or correspondence provided to the Council during the course of correspondence relating to the proposed design.

[58] In Sunset Terraces, Heath J observed that the Council, in issuing a building consent, was making a predictive assessment about whether there were reasonable grounds to conclude that the work would be carried out in compliance with the building code.⁸In doing so it was entitled to assume that:

(a) the developer would engage competent builders or tradesperson and that their work would be properly co-ordinated;⁹and

(b) a competent tradesperson would follow the instructions in the relevant technical manual.¹⁰

[59] This does not mean, however, that the relevant technical literature is expressly or impliedly incorporated into the consents themselves (whether such

[60] The difficulty with interpreting the building consents as impliedly incorporating all of the documents submitted to the Council during the course of a building consent application is that it would lead to considerable uncertainty regarding the precise scope of building consents. In many cases, including this one, there may be significant correspondence with owners, architects, third party suppliers and others on the Council file, particularly where an alternative solution is proposed. Some of the documents submitted to Council will relate to products or techniques that were ultimately not accepted, or that were superseded as the dialogue developed.

[61] Owners, builders, trades people, the Council and other interested parties require certainty as to the precise scope of a building consent. It would be undesirable to require such persons to trawl through a Council file trying to decide which particular documents or correspondence are impliedly incorporated into a building consent, even if not expressly referred to in the document itself.

[62] A building consent is defined in s 7 of the Act as meaning “a consent to carry out building work granted by a consent authority under s 49”. Section 49 provides that the building consent must be granted if the authority is satisfied on reasonable grounds that the provisions of the building code would be met if the building work was properly completed in accordance with the plans and specifications that accompanied the application. Section 51 provides that a building consent must be issued “in the prescribed form”. That form (Form 5) is set out in the Building Regulations.

[63] It follows, in my view, that the Consent Warranty only warrants compliance with the building consents themselves, the plans and specifications attached to them (which form part of the consents) and any relevant conditions and endorsements that are expressly recorded on the building consents by the Council.¹¹Recommendations set out in technical literature or other “best practice” guidelines are accordingly not

¹¹See also Brebner v Collie, above n 6, at [56] and [57]; Saffioti v Ward [2013] NZHC 2831, (2013)

[64] I turn now to the correct interpretation of the Building Act Warranty. This warranty has been considered in a number of cases which are conveniently summarised in Saffioti v Ward.¹²There is, as noted by Asher J in Saffioti, a difference in the approach taken by the High Court in several of those cases. In particular, Asher J highlighted the difference between the approach of Ronald Young J in Van Huijsduijnen v Woodley¹³and that of McKenzie J in Ford v Ryan.¹⁴

[65] In essence, that difference is over whether the warranty that “all obligations imposed under the Building Act 1991¹⁵were fully complied with” extends to the statutory obligation in the Building Act to carry out all building work to comply with the requirements of the building code.¹⁶

[66] Asher J in Saffiotti limited the effect of the Building Act Warranty to the express duties imposed on the owner of the property under the Building Act.¹⁷

His Honour found that those duties do not include the obligation to carry out all building work in accordance with the building code.¹⁸Although counsel for the plaintiffs submitted that Asher J’s decision on this issue in Saffioti was wrong, the argument was not further developed. In their closing submissions the plaintiffs took the position that it was “a debate that Ms Weaver and Mr Anderson do not need to buy into to prevail in this case”. Rather, the plaintiffs were “happy to advance their breach of warranty claim squarely on the basis that the building work that HML Nominees caused or permitted to be done in 2005/6 was not undertaken in accordance with the building consents which Ms Moore obtained for that work”.

[67] I proceed accordingly. I note, however, that I accept the interpretation of the Building Act Warranty set out by Asher J in Saffioti, for the reasons outlined in

¹⁵Although the vendor warranties incorrectly referred to the Building Act 1991 rather than the Building Act 2004, the defendants did not take any issue with this and I have accordingly treated the warranties as if the reference were to the Building Act 2004.

Were the vendor warranties breached in relation to the stone cladding defects?

[68] I have found that a number of factors contributed to the failure of the stone cladding. One of those factors was the substitution of Miracryl for the Flexi-Seal System, which was the specified product in the building consents. That substitution breached the building consents. The use of general purpose adhesive rather than high performance adhesive did not, however, breach the building consents, as the specified adhesive was simply “Flexi Floor ‘n Wall Adhesive”.

[69] I accordingly find that the stone cladding work was not completed in compliance with the building consents, because Miracryl was substituted for the specified Flexi-Seal System. The substitution of Miracryl for Flexi-Seal was one of a number of factors that ultimately caused the stone cladding to fail (albeit it was one of the lesser contributing factors). It necessarily follows that there has been a breach of the vendor warranties in relation to the stone cladding.

Were the vendor warranties breached in relation to the chimney flashing and flu defects?

[70] It was not proven that either the re-use of the chimney flashing or the use of an aluminium flu was a departure from the express terms of the building consents (including the attached plans and specifications).

[71] I now turn to consider the second cause of action against HML Nominees, namely misrepresentation pursuant to s 6 of the Contractual Remedies Act 1979. This claim requires the plaintiffs to prove that:

(a) a representation (a statement of past or present fact about the property) was made to them;

(statements made by a real estate agent about a property can qualify for such purposes);¹⁹

[72] Ms Weaver gave evidence of various statements allegedly made to her by the real estate agent for the sale of the property, Lindi Miller, including that:

(a) the remedial works had been completed to the highest standards, using the best of materials, and in excess of the standard requirements of a reclad;

(b) Ms Moore had not just fixed the leaky home issues but she had made considerable improvements to the home with the intent of remaining there;

[73] Various other alleged representations were referred to in Ms Weaver’s evidence (albeit not specifically pleaded). The plaintiffs’ position in their closing submissions was that, to a large degree, the alleged representations were subsumed within the express vendor warranties in the agreement for sale and purchase, which I have discussed above. The plaintiffs submitted, however, that one area not covered by the vendor warranties is the representation that the repairs had been completed to the “highest standards” and that Ms Weaver could have confidence in the work done to the property which was now “better than new”. (I note that the other alleged representations generally appear to be variations on this same theme). I will accordingly focus on that representation, although it differs from the pleaded representation, which is that “the property had been remediated in accordance with the building code”.

[74] First, I accept Ms Weaver’s evidence that Lindi Miller (who did not give evidence) made statements along the general lines recalled by Ms Weaver. I also accept that the statements were made by Ms Miller in her capacity as agent for HML Nominees. Determining whether the representation was true or not is a somewhat

more difficult issue. It depends in part on what was meant by the phrase “better than new”. Ms Weaver’s evidence as to what she understood by the phrase was that:

Well when it was new obviously it was a leaky home and it didn’t have Venticlad cavity system which we all knew from publicity was extremely buyer shy for people so yeah it was better than new, it wasn’t leaky and also the improvements that she had stressed were being done which were – had been done which was the copper roofing and all the quality of the goods that had gone into it, yes it was definitely better than new.

[75] To the extent that the representation related to those particular issues identified by Mrs Weaver, it was true. When “new” the house had been a leaky building. As part of the remediation works a cavity system had indeed been installed and the original leaky issues were no longer present (the stone cladding issues do not relate to the prior leaks). Further, considerable improvements had been made to the property. HML Nominees spent $507,010.18 on the remedial works,

$158,316.23 of which related to betterment rather than repairs, including a new copper roof, Alti joinery and imported Spanish stone.

[76] In one major respect, however, the property was not “better than new”. There were deficiencies in the remedial work to the stone cladding. Although an “innocent” misrepresentation is sufficient for the purposes of the Contractual Remedies Act, for the reasons I set out at [143] to [162] below, I am satisfied that at the time of the sale Ms Moore was aware that the property was not “better than new” (although she almost certainly did not relay this to Ms Miller). In particular, she was aware at the time of sale that there were systemic issues with the stone cladding work that had already resulted in some delamination, and which could potentially give rise to further problems in the future.

[77] The final requirement is that the plaintiffs were induced to purchase the property as a result of the representations. By a narrow margin, I have not been persuaded that the requirement of inducement is satisfied. The maker of the statements was a real estate agent who had no building or other relevant expertise in inspecting or assessing the quality of building work. To take a statement by a layperson as to the quality of workmanship as, in effect, a warranty of quality would impose a more stringent standard than that required by the vendor warranties in the

agreement for sale and purchase. As the learned authors of Law of Contract in New

Somewhat akin to the distinction between opinion and fact is the general rule that exaggeration of the virtues of a product do not create any obligation. Eulogistic commendation of the thing for sale is the age-old device of the successful salesperson.

[78] Obviously (as the authors note) there are limits on this principle. Much may depend on the person being addressed, for example, if the purchaser was totally inexperienced a finding of an ‘inducement’ may be more likely. The plaintiffs, however, were not unsophisticated buyers. Further, Mr Anderson conceded in his evidence that it was the LIM and the existence of the code compliance certificate itself (for the repair of a known “leaky home”) that assured him that the works had been carried out “to the highest possible standard”, together with the high quality finish of the property itself, including the quality of the stone, the Alti joinery and the copper roof. Ms Weaver accepted that the LIM and code compliance certificate also assured her that the works had been carried out to a high standard.

[79] In addition, the plaintiffs engaged a builder whom they trusted (Mr Anderson had worked with him for many years) to inspect the property on their behalf and report back to them. His report was positive. They also took comfort from the vendor warranties I have discussed above. In my view it was these matters that, in combination, induced the plaintiffs to purchase the property rather than any comments made to them by the real estate agent. The claim for misrepresentation accordingly fails.

[80] The plaintiffs’ claim against Ms Moore, as pleaded, is that she breached her duty of care to the plaintiffs in her capacity as the alleged project manager of the remedial works. As Potter J observed in Aldridge v Boe the question of the responsibility assumed by a land owner in any particular case is fact specific and

_{turns on what the person actually did in relation to the particular
property.}²¹_The

²⁰_{John Burrows, Jeremy Finn and Stephen Todd The
Law of Contract in New Zealand}

plaintiffs acknowledged at trial that Ms Moore was not in fact the project manager of the remedial works. Rather, in closing, Mr Rainey summarised this aspect of the plaintiffs’ claim as follows:

Here, and having heard all of the evidence on the extent and nature of Ms Moore’s involvement in respect of the remedial works, Ms Weaver and Mr Anderson accept that this cause of action rises or falls on the Court’s findings as to the extent of Ms Moore’s involvement in the decision to change from the Flexi-Seal Waterproofing System that was specified in the building consent to the Miracryl product that was in fact used.

[81] Mr Towers’ evidence was that Ms Moore asked him for a “cheaper deal” in exchange for paying him in cash and that she expressly agreed to the substitution of Miracryl for Flexi-Seal to secure a cheaper cash price. Ms Moore denies instructing Mr Towers to use a different waterproofing product. She said she was told by Mr Jenkins (of Stonescapes) that the waterproofer would only do the job for cash and that she was to drop the cash off to an address in One Tree Hill.

[82] Any suggestion that Ms Moore might “cut corners” or agree to change the product specified in the building consents in order to save a relatively small amount of money rests uneasily with the evidence as a whole. In particular, Ms Moore made high quality product selections in relation to the remedial works generally, consistent with the fact that, at the time, she intended to continue living in the house. Ms Moore also needed to keep a careful paper trail of the costs incurred for her quantity surveyors, because at the time she was involved in litigation in relation to the original weathertightness issues. All other trades people involved in the works appear to have been paid on invoices.

[83] The more plausible explanation for Ms Moore paying Mr Towers in cash is simply because he insisted on it. This appears to have been in large part because he had had difficulty in getting paid for a previous job he had done for Stonescapes, although he acknowledged it may also have been partly for “tax reasons”. Mr Towers’ evidence was that generally if he did a job for cash he would use Miracryl instead of Flexi-Seal. As I have noted previously, his understanding at the time that was that Miracryl was simply the generic (and therefore cheaper) version of Flexi-Seal. Given that belief, Mr Towers is unlikely to have felt that securing Ms Moore’s express consent to the substitution was particularly important.

[84] It is also of note that when problems emerged with the stone cladding in early

2007 Ms Moore contacted Flexco, the distributor of Flexi-Seal, and requested that they come to the site on two occasions (along with others who had been involved in the stone works) to inspect the problems and advise on a solution. This is consistent with Ms Moore believing that Flexi-Seal had been used as the waterproofing membrane.

[85] Taking all of these matters into account I am not satisfied that Ms Moore played any operative role in the decision to substitute Miracryl for Flexi-Seal. Ms Moore’s evidence was more credible than that of Mr Towers’ on this issue and is consistent with other evidence before the Court. It follows that this cause of action must fail.

[86] It is well settled law that Councils owe a duty of care to existing and subsequent owners of premises when performing their building control functions under the Building Act.²²The plaintiffs claim that the Council breached that duty of care in relation to its issue of the building consents, its undertaking of inspections and the issue of the code compliance certificates. As a result of the Council’s negligence, the plaintiffs say, they have suffered loss, being the costs of remedying

the defects. The Council submitted that the claim was in effect, one of breach of statutory duty. I accept Mr Rainey’s submission, however, that the claim against the Council was pleaded (and argued) as an orthodox negligence claim, in accordance with well-established principles.

[87] I am satisfied that the Council did breach its duty of care when issuing the building consents, in that it should have made further inquiries to satisfy itself that the proposed alternative solution in relation to the stone cladding would comply with the building code. Indeed, the Council appeared to accept that it had breached its

²²Hamlin v Invercargill City Council [1994] 3 NZLR 513 (CA), North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158, [2011] 2 NZLR 289; Body Corporate No 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297[Spencer on Byron].

[88] The real issue is therefore one of causation. Was the Council’s failure to make further inquiries about the proposed stone cladding system causative of loss? In my view it was not, as the plaintiffs appeared to accept in their closing submissions. Mr Alvey and Mr Harvie were in agreement that, had the stone cladding system been installed in accordance with the building consent as approved, the cladding system would have worked. Accordingly, perhaps more by good luck than good management, the stone cladding system set out in the building consent documentation was, in fact, adequate to meet the requirements of the building code. Indeed the evidence was that precisely the same system had been used without difficulty in a number of other properties. It follows that if the Council had made the further inquiries that it should have, those inquiries would have established that the proposed cladding system would comply with the building code.

Is the Council liable in respect of its inspections/issue of code compliance certificates?

[89] Upon the completion of all building work, the Building Act requires the owner of a building to apply to a building consent authority (in this case the Council) for a code compliance certificate certifying that the building work was carried out in accordance with the building consent granted for that building work.²³In essence, a code compliance certificate is a formal statement that the building work complies with a specific building consent.²⁴The function of the Council to inspect any building work is one that should be exercised in accordance with the common law duty of care.²⁵In Sunset Terraces Heath J observed that:²⁶

The Council’s inspection processes are required in order for the Council (when acting as certifier) to determine whether building work is being carried out in accordance with the consent. The Council’s obligation is to take all reasonable steps to ensure that that is done. It is not an absolute obligation to ensure the work has been done to that standard.

[90] As has often been stated in defective building cases, the Council’s role is to

_{provide regulatory oversight. It is not to be regarded as an insurer,
project manager}

²⁵_{Invercargill City Council v Hamlin [1996] UKPC 56; [1996] 1 NZLR
513 [1996] 1 All ER 756 (PC).}

or “clerk of works”. In Sunset Terraces Heath J summarised the position as follows:²⁷

In carrying out its inspection role, it is plain that the Council ought not to be regarded as a clerk of works or as a project manager. Even before the Building Act was passed, the Council’s duty to third parties was “to exercise reasonable care, not an absolute duty to ensure compliance”. The Council’s role is to provide an appropriate degree of oversight for public policy reasons. Its performance must be judged against the standards of the day and knowledge of the quality (or otherwise) of particular products used in the construction process. It does not take on any responsibility for ensuring, in fact, that all completed work complies with the Code.

[91] Ultimately the plaintiffs bear the burden of proving, on the balance of probabilities, that there was a departure from the standards to be expected of a reasonably prudent Council inspector.

[92] I have summarised the causes of the failure of the stone cladding at [49] above. Would a reasonably skilled and prudent building inspector have been able to identify any or all of these matters?

[93] There was no evidence to suggest that it should have been possible for the Council to identify the incorrect mixing/installation of the Miracryl waterproofing membrane. Nor could the Council reasonably be expected to have identified that the adhesive had likely been mixed in the incorrect ratio or that spot adhesion, rather than complete combed coverage, had been used to affix the stone slips to the Eterpan. A reasonable council officer could, however, have established that the requirement in the building consent to use the Flexi-Seal System had not been complied with, by requiring a producer statement or a copy of the Flexi-Seal guarantee and associated paperwork. I also accept Mr Wilson’s evidence that a reasonably prudent officer could have identified the absence of control joints

²⁷Sunset Terraces, above n 8, at [183]. See also Van Huisjduijnen v Woodley, above n 13, at [103]; Stieller v Porirua City Council [1983] NZLR 628; Sloper v WH Murray Ltd High Court Dunedin A31/85, 22 November 1988.

[94] It follows that a code compliance certificate should not have issued unless and until the lack of control joints was remedied and either the stone cladding was re-done using the Flexi-Seal System or the Council was satisfied that Miracryl was an appropriate substitute for Flexi-Seal. It is possible, of course, that the Council could have been persuaded of this, but that cannot simply be assumed. For example, if the Council had made inquiries of RLA Polymers, the manufacturer of Miracryl and Flexi-Seal, it would have discovered that Flexi-Seal was a superior product, developed specifically for New Zealand conditions. That could well have given the Council cause for concern and caused them to look more closely at the quality of the stone cladding work as a whole.

[95] It follows that the Council has breached its duty of care both in relation to the inspections it undertook, and in issuing a code compliance certificate for the stone cladding work. This breach of duty is causally connected to the plaintiffs’ loss.

[96] I accept, based on Mr Alvey’s evidence, that the Council ought to have identified these defects and required them to be remedied prior to issuing a code compliance certificate. The claim of negligence against the Council in relation to these defects is accordingly also made out.

2011 and 2012 they sought a determination from the Chief Executive of MBIE regarding whether building consents and code compliance certificates should have been issued for the 2005/2006 remediation works. A determination was made by the Chief Executive’s delegate on 10 June 2013.²⁸The plaintiffs submit that the Chief Executive’s determination gives rise to an issue estoppel against the Council, which precludes this Court from making different findings to those previously made by the

²⁸Ministry of Business, Innovation and Employment, Determination 2013/031: Regarding the issuing of code compliance certificates for the recladding of a house at 7 A Seymour Street, St Mary's Bay, Auckland, 10 June 2013.

[98] The doctrine of issue estoppel seeks to protect the finality of litigation by precluding the re-litigation of issues that have been conclusively determined in a prior proceeding. The key principles are that:

(a) Issue estoppel precludes a party from re-litigating an identical issue (whether of fact or of law) that has previously been raised and determined with certainty between the parties.²⁹

(b) Issue estoppel is concerned with the prior resolution of issues rather than causes of action.³⁰

(c) Issue estoppel can only be founded on findings which are fundamental to the original decision and without which it cannot stand. Other findings cannot support an issue estoppel, however definite the language in which they are expressed.³¹

(d) The purpose of any estoppel is to work justice between the parties. It is therefore open to the courts to recognise that in special circumstances inflexible application of an estoppel may have the opposite result.³²The application of issue estoppel is ultimately a matter at the discretion of the judge in the subsequent proceedings: “A judicial doctrine developed to serve the ends of justice should not be applied mechanically to work an injustice”.³³

[99] The plaintiffs submitted that all of the constituent elements of issue estoppel were met in this case. The Council did not dispute that some of the necessary

_{requirements were met (for example the Chief Executive had jurisdiction
in the}

²⁹Fidelitas Shipping Co Ltd v V/O Exportchleb [1965] 2 All ER 4 at 8 per Lord Denning; Thoday v

matter and the decision was final on the merits). It submitted, however, that the following preconditions were not met:

(b) the parties are not the same (or, more correctly that the Council appeared in different capacities in the two proceedings); and

[100] The Council further submitted that there are strong policy reasons why any issue estoppel should not be recognised in this case. I will consider each issue in turn.

[101] The Council submitted that the Chief Executive’s determination is not a judicial decision. The Council relied on the distinction drawn in Arbuthnot v Chief Executive of the Department of Work and Income between “purely administrative” bodies, and judicial bodies.³⁴In that case the Supreme Court held that decisions of the benefit review committee, a committee located within the Department of Work and Income, were not capable of giving rise to issue estoppel. The Court held that

where decision-making bodies were purely administrative their decisions were not capable of creating an estoppel. The Court stated:³⁵

A [benefit review committee] falls into this category. It does not have sufficient independence to be classified as a judicial body. Although one of its three members is appointed by the Minister to represent the interests of the community, the majority of its membership consists of officers of the Department appointed by the chief executive ... a [benefit review committee’s] function is that of conducting an internal review of officials’ decisions, just as the chief executive might do personally.

[102] The Council submitted that this case was analogous. The Chief Executive’s

_{determination process was said not to be judicial in nature
because the Chief}

³⁴Arbuthnot v Chief Executive of the Department of Work and Income [2007] NZSC 55, [2008]

Executive does not have the necessary independence to be classified as a judicial body. Further, the Council submitted that the nature of a determination is too different from civil proceedings to give rise to an issue estoppel, as the Chief Executive has no restrictions on what type of evidence he can hear and has no power to compel any person to provide evidence. If a party refuses to provide documents, there is no sanction other than the determination may be made in the absence of those documents. Further, the Council submitted that the review and determination process is primarily technical, and in that sense could be seen as administrative. The Determinations Manager (the Chief Executive’s delegate) has an engineering background, and his team primarily assess the technical evidence as to the appropriateness of decisions, rather than focussing on any legal issues relevant to liability.

[103] Determining whether a body constitutes a competent court for the purposes of issue estoppel requires a close fact assessment of the nature and role of the body under scrutiny.³⁶A wide range of bodies other than Courts have been held to be exercising judicial functions for the purposes of issue estoppel. Planning inspectors,³⁷disciplinary tribunals or professional associations,³⁸tribunals,³⁹commons commissioners,⁴⁰registrars such as the chief land registrar,⁴¹

_{and ombudsmen}⁴²_{have all been recognised as
exercising judicial functions in}

[104] In X v Y, one of the features seen as particularly important in determining whether a tribunal was judicial or not was that:⁴³

Subject to appeal, the Committee's proceedings are a self-contained code and its decisions are final. It performs a statutory duty in undertaking inquiries, and determining the legal rights and obligations within its jurisdiction.

³⁶See the fact-specific analysis in Arbuthnot v Chief Executive, above n 34, at [28] and X v Y

³⁷_{Thrasyvoulou v Secretary of State for the Environment
[1990] 2 AC 273 at 289.}

³⁸X v Y, above n 36; R (on the application of Coke-Wallis) v Institute of Chartered Accountants in

³⁹O’Laoire v Jackel International (No 2) [1991] ICR 718 (QB) and R (on the application of

⁴⁰_{Crown Estate Commissioners v Dorset County Council
[1990] Ch 297, [1990] 2 WLR 89.}

⁴²_{Westminster City Council v Haywood (No 2) [1999] EWHC 272; [2000] 2
All ER 634.}

[105] In this case, the Building Act provides for a process through which an interested party may apply to the Chief Executive for a determination in relation to either or both of the following:⁴⁴

(b) the exercise, failure or refusal to exercise, or proposed or purported exercise by an authority (in this case, the Council) of certain powers of decision, including decisions in relation to building consents or code compliance certificates.

(a) confirm, reverse or modify the decision or exercise of a power to which it relates; or

[107] These two alternatives appear to be directly linked back to the two specific matters that may be submitted to the Chief Executive under s 177. If a determination is sought under s 177(1)(a) as to whether particular matters comply with the building code, then a determination by the Chief Executive must “determine the matter to which it relates”, namely whether a particular matter complies with the building code or not. On the other hand, if the application for a determination is sought under s 177(1)(b), and relates to the exercise, failure or refusal to exercise a power of decision, then the Chief Executive is required to confirm, reverse, or modify the relevant decision. This enables all involved to know precisely where they stand moving forwards.

[108] The procedure for the determination process is quasi-judicial in nature. The

Chief Executive can commission independent expert evidence to assist him in making his determination.⁴⁵The Chief Executive can also receive any other relevant

evidence and is required to comply with the principles of natural justice.⁴⁶Any court proceedings relating to the same subject matter are stayed until the outcome of the determination is known.⁴⁷The determination is binding on the parties to it,⁴⁸subject to a right of appeal to the District Court.⁴⁹

[109] The determination process provides a relatively “fast track” and cost effective way of challenging Council decisions, without the need to issue Court proceedings. The process appears to be most commonly used where a property owner disagrees with decisions made by the Council about their property, for example by refusing to issue a building consent or a code compliance certificate. For obvious reasons, it appears to be somewhat unusual for a property owner to seek to set aside a building consent or code compliance certificate in respect of their own property (as occurred in this case).

[110] In my view the statutory framework I have outlined points strongly to the Chief Executive’s decision being a judicial one, and I find accordingly. This case is not analogous to Arbuthnot. The MBIE and the Council are entirely separate entities and the review process is an independent one, not an essentially “internal” review, as in Arbuthnot.

[111] In order for an issue estoppel to arise, the parties must be the same and have been litigating in the same capacity in both sets of proceedings.⁵⁰The Council submitted that it was a party to the determination in its capacity as a regulator and that “it was not in a position where it could act consistently in its role as a regulator and also protect its position as a defendant in civil proceedings”.

[112] This point may well be relevant to whether there are policy grounds for not recognising an estoppel in this case. The parties to the determination

_{(the Council and the plaintiffs) are, however, also parties to
these proceedings.}

Did the Chief Executive determine an identical issue to one that is raised in this case?

[113] As noted above, issue estoppel precludes a party from re-litigating an identical issue (whether of fact or of law) that has previously been raised and determined with certainty between the parties. The relevant finding must have been an essential and fundamental step in the logic of the earlier decision, without which it could not stand. It must be the “immediate foundation” of the decision, not

“no more than the reasoning supporting the decision”.⁵¹It is therefore necessary to

identify the precise determinations made by the Chief Executive, and then the key findings or “fundamental steps in logic”, without which those determinations could not stand.

[114] The plaintiffs sought a determination under s 177(1)(b) only. In particular, they challenged the decisions of the Council to issue the building consents and code compliance certificates for the 2005/2006 remedial work. The Chief Executive was accordingly required by s 188 to confirm, reverse or modify those decisions. His determination was expressed as follows:

• The documentation in the [building consents] did not provide reasonable grounds to be satisfied that the stone veneer cladding proposed for the 2006 alterations would comply with Clause E2

External Moisture and Clause B2 Durability of the Building Code when completed in accordance with the plans and specifications.

• The [Council] incorrectly exercised its powers in issuing code compliance certificates for [the building consents] because the work as built did not accord with the approved building consents.

[115] The first bullet point, in my view, is not a relevant “determination” in terms

_{of s 188. Rather, it is a finding that could have justified a
determination to reverse}

⁵¹K R Handley (ed) Spencer, Bower and Handley’s Res Judicata (4^thed, LexisNexis, London,

the building consents, but no such determination was actually made. Ultimately whether to reverse a building consent is a matter within the discretion of the Chief Executive and there are a range of matters that may impact on that decision.⁵²In short, reversing a previously issued building consent could cause significant prejudice to a current owner. Whether the finding set out in the first bullet point above is a determination or not is somewhat academic in any event, given that I have independently reached the same conclusion as the Chief Executive on this issue, as set out at [87] above. I will accordingly focus on the second bullet point, being the

[116] The reason given by the Chief Executive for his decision to revoke the code compliance certificates is that the “work as built did not accord with the approved building consents”. The Chief Executive’s reasoning in respect of this decision was fairly brief (four paragraphs). The key paragraph simply states that, “taking account of the expert’s report I consider that the building work did not comply with the building consents in respect of the following ...”. There is then a bullet point list of “defects” that the expert had concluded were present.

[117] One significant difference between my findings and those of the Chief Executive is that he appears to have assumed (without any underlying analysis) that any defect that is identified will automatically constitute a breach of the building consents. I have found, on the other hand, that only some of the identified defects reflect a failure to comply with the building consents. Nor is there any analysis of whether a prudent building inspector could reasonably be expected to identify each of the defects at the building inspection stage. Rather, the determination tends to reason backwards, stating that “the recorded failure of the cladding after the work had been completed provided clear evidence that compliance had not been

⁵²Cooper v Tasman District Council DC Nelson CIV-2009-042-116, 21 July 2010, referred to in Determination 2011/14 The District Court’s referral of Determination 2009/15 to the Department, in respect of the issue of a building consent for a 16-year old house, 25 February

2011 (which determination helpfully summarises the reasons why it may not be appropriate to reverse a building consent).

[118] Nevertheless, in my view, the list of defects that are said to breach the building consents comprises a fundamental step in the logic of the decision (that the code compliance certificates should be revoked). Accordingly, if I were to hold that an issue estoppel arises, the Council would be precluded from arguing, as it has done in this Court, that some of the relevant defects did not breach the building consents, or that some of the defects could not have been identified by a reasonable and prudent building inspector. This could potentially impact on my findings, although issues such as whether any breaches or failures were causative of loss would still need to be proven by the plaintiffs, regardless of any issue estoppel that may arise.

[119] By a narrow margin, I have found that the preconditions to issue estoppel are made out. In particular, the parties are the same (and acting in the same capacity), the decision was a judicial one, and there are some factual findings by the Chief Executive that could potentially impact on my assessment of the Council’s liability in this case.

[120] As I have noted at [98](d) above, however, the purpose of estoppel is to work justice between the parties. Finality is an important aspect of that fairness, but litigation must be fair to all parties involved in a dispute. In Arbuthnot v Chief Executive of the Department of Work and Income, the Supreme Court noted that care must be taken not to allow the doctrine of issue estoppel, designed to prevent injustice to one litigant, from causing greater injustice to the other.⁵³Similarly, in the seminal English House of Lords decision of Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) Lord Upjohn said that all estoppels must be applied to work justice and not injustice and that the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind.⁵⁴

⁵³Arbuthnot v Chief Executive of the Department of Work and Income (SC) at [29] citing Joseph

that “a judicial doctrine developed to serve the ends of justice should not be applied

[121] Obviously, the determination itself, namely that the code compliance certificates have been revoked, is binding on the parties. This arises by operation of statute.⁵⁶Accordingly, it is not open to either party to assert that there are currently code compliance certificates for the 2005/2006 remedial works (and neither party has done so).

[122] I am satisfied, however, that no issue estoppel broader in scope than that should be recognised in this case. Recognising an issue estoppel based on factual findings of the Chief Executive in the course of considering whether to revoke the code compliance certificates would likely produce unfairness that is disproportionate to the object of achieving finality in litigation.

[123] The MBIE determination process provides an efficient and cost effective mechanism for appealing or reviewing certain decisions made by Councils (or other building consent authorities). The process involved is at least partly inquisitorial in nature. Some of the procedural processes or safeguards present in more complex litigation are absent. For example, there is no requirement for discovery, no ability to compel the attendance of witnesses or the production of documents, and no particular burden or standard or proof. This reflects in part the limited nature of the process. A determination does not give rise to any civil liability in damages. It simply provides the parties with certainty on a particular regulatory issue, such as whether a building consent should be issued, or whether certain work complies with the building code.

[124] Given this particular statutory context, the Council (in common with many decision makers whose decisions are subject to appeal or review) did not take an adversarial position in the determination process. In effect, it abided the decision of the Chief Executive. Although it was entitled to call expert evidence, make submissions and so on, it chose not to do so. From a brief review of other

determinations under the Building Act, building consent authorities regularly appear to take a minimalist (albeit co-operative) approach to the determination process, rather than an adversarial approach.

[125] The streamlined determination process under the Building Act can be contrasted with the much more in-depth factual and legal review undertaken in civil proceedings in the District or High Court. This case for example, involved multiple parties, a lengthy hearing and 17 witnesses. Not surprisingly, when the Council is sued for negligence, it does not abide the decision of the court, but takes a proactive and adversarial role.

[126] Unfairness can arise if findings made in one context, in which a party may have played a fairly passive role, are then found to be binding in an entirely different context. This was recognised by the Supreme Court of Canada in Penner v Niagara Regional Police Services Board.⁵⁷The Court observed in that case that unfairness can arise in two ways. One is where the earlier proceedings were themselves unfair. However, even if prior proceedings was conducted fairly and properly, it may nonetheless be unfair to use the results for the purposes of barring a civil claim (or, in this case, defence) where the purposes, processes or stakes involved in two

proceedings are significantly different. The Court noted, for example, that where little is at stake for a litigant in the prior proceeding, there may be little incentive to participate in it with full vigour:⁵⁸

There is also a general policy concern linked to the purpose of the legislative scheme which governs the prior proceeding. To apply issue estoppel based on a proceedings in which a party reasonably expected that little was at stake risks inducing future litigants to either avoid the proceedings altogether or to participate more actively and vigorously that would otherwise make sense. This could undermine the expeditiousness and efficiency of administrative regimes and therefore undermine the purpose of creating the tribunal.

[127] In this case I am satisfied that it would be unfair for an issue estoppel to be recognised, given the very different nature, scope and purposes of the initial determination process and the subsequent civil proceedings in this Court. Factual

findings made during an MBIE determination process, for a fairly narrow and limited purpose, should not automatically preclude a deeper and more extensive factual analysis being subsequently undertaken by a court faced with determining different legal issues, albeit arising out of some of the same broad factual context. Indeed the plaintiffs implicitly recognised this when they abandoned their claim against the Council in relation to the garage roof defects (in light of their own expert’s evidence) rather than simply relying on the determination as setting up an issue estoppel on the matter.

[128] I accept the Council’s submission that if determinations under the Building Act were held to give rise to an issue estoppel in subsequent leaky building litigation, the Council would have no option to take a much more litigious and adversarial approach to the determination process. This would undermine the efficacy of what was intended to be a cost effective and relatively informal process. Indeed, taking the argument a step further, if a Building Act determination were to give rise to issue estoppel in subsequent civil litigation, parties could well be incentivised to seek a determination for that very purpose. The process could, in effect, be used by interested parties (including the Council) to provide “immunity” against possible future legal action. That would, in turn, raise interesting issues regarding the Chief Executive’s potential liability in negligence for “wrongly” determining a particular issue.

[129] A further complication is that only the Council and the plaintiffs could be bound by any issue estoppel. The result is that, if an issue estoppel arose against the Council, this could result in different findings and legal outcomes between the three defendants on essentially the same issue. Such difficulties would also flow through to the third party claims. The Council’s third party claims only arise for consideration in the event that the Council is found liable. What, however, if the Council is found liable as a result of an issue estoppel but, on the basis of my own factual findings on the same issues (which would be apparent from my findings in relation to the other two defendants) it would not have been found liable?

[130] Taking all of these matters into account I have concluded that recognising an issue estoppel that is any broader than that required by the statutory scheme itself

(i.e. that there are currently no code compliance certificates for the 2005/2006 remedial works) is not appropriate. It would likely produce unfairness that is disproportionate to the object of achieving finality in litigation.

[131] Both the Council and HML Nominees filed third party claims against Stonescapes. Stonescapes went into liquidation the Friday before the hearing was due to commence. The Council sought leave to continue against Stonescapes at the outset of the hearing and I granted that application.⁵⁹Stonescapes was not, however, represented at the hearing and took no active part in it. Mr Jenkins of Stonescapes did give evidence, however, as one of the other parties called him as a witness.

[132] The primary cause of the plaintiffs’ loss is clearly defective workmanship on the part of Stonescapes and also the membrane installers, Mr Towers and Mr Swart. In relation to Stonescapes, as set out at [19] to [22] above, I have found that the adhesive was applied to the stone slips in spots or blobs, rather than by way of complete combed coverage, and the necessary control joints, grouting and ventilation/weep holes between the stone slips were not installed.

[133] In Mount Albert Borough Council v Johnson the Court of Appeal, dealing with the question of apportionment, held that the Council as a gatekeeper should be apportioned no more than 20 per cent of the liability, and that the people who had actually contributed to the inadequate building work should be apportioned 80 per cent of the liability.⁶⁰That approach has been followed by the High Court in a

number of subsequent decisions, including Byron Ave.⁶¹The Council submitted that

a similar approach is appropriate in this case as between the construction parties/product suppliers and the Council.

[134] One of the difficulties with the apportionment exercise in this case is that not all of the construction parties whose work contributed to the stone cladding failure

_{are before the Court. In particular, I have found that a key cause of
the stone}

⁶⁰_{Mount Albert Borough Council v Johnson [1979] NZCA 46; [1979] 2
NZLR 234 (CA) at 242.}

⁶¹Body Corporate No 189855 v North Shore City Council HC Auckland CIV-2005-404-5561,

cladding failure was the incorrect installation of the membrane. Mr Towers, who undertook the relevant work, is not a party to these proceedings. It is not appropriate, in my view, to simply attribute what might otherwise have been his share of the liability to Stonescapes. That would, however, be the effect of an 80/20 apportionment of liability.

[135] In my view, an appropriate apportionment of liability between the Council and Stonescapes would be for the Council to carry 40 per cent of the liability for the defective stone cladding work and Stonescapes 60 per cent. I suspect that the Council, however, is likely to be left with the sole liability for the loss due to the insolvency of Stonescapes, unless insurance cover is available.

[136] The Council's claim against Flexco is in negligent misstatement, in relation to a statement provided by Flexco to support the application for building consent. The stone supplier arranged for a letter to be provided by Flexco that explained how the Niwala stone slips could be adhered to the exterior cladding using its products. Flexco’s letter was provided to the Council in support of the building consent application. The Council alleges that the letter, in effect, certified that the membrane and cladding system would comply with the requirements of the building code.

[137] Mr Alvey and Mr Harvie were in agreement that, had the stone cladding system been installed in accordance with the building consent as approved (including the use of the Flexi-Seal System) the stone cladding would not have failed. The evidence was that precisely the same system had been used without difficulty in a number of other properties. The Flexi-Seal System, if installed correctly, would have met the requirements of the building code.

[138] It necessarily follows that Flexco were not negligent in relation to the statements that it made to the Council, and the Council’s third party claim against it must fail.

[139] HML Nominees have claimed against Flexco in negligence. In particular it is pleaded that, at a meeting attended by Ms Moore and others on 30 April 2007, Flexco breached a duty of care that it owed to HML Nominees to:

(a) identify whether Flexi-Seal membrane and Flexi-Seal adhesive had been applied as required by the building consents; and

(b) identify what work should be undertaken to ensure that there would be no further loosening of the stone veneer.

[140] As a result of these breaches HML Nominees is said to have suffered loss to the extent of its liability to the plaintiffs under the vendor warranties (in relation to the membrane defects).

[141] In its closing submissions HML Nominees also alleged breaches of a duty of care at an earlier February 2007 meeting. That was not pleaded, however, and I accordingly put it to one side. The February 2007 meeting does, however, form part of the background to the April 2007 meeting and I will consider it in that context.

[142] In essence, HML Nominees’ claim is that it invited Flexco to attend the property in April 2007 to examine the problems with the stone cladding and give expert advice. Having accepted that invitation, and holding itself out as an expert in its own products, Flexco owed a duty of care to HML in giving the advice and recommendations that it did. It is said to have breached that duty. In order to consider both whether a duty existed, and whether it was breached, it is necessary to consider the February and April 2007 meetings in some detail.

[143] In February 2007, shortly after the remedial works were completed, problems started to emerge with the stone cladding. Sections of the stone cladding

started coming away from the Eterpan substrate. A meeting was then held on site on 16 February 2012.

[144] What happened at that meeting was a matter of some dispute at trial. By way of background, it appears that Ms Moore did not initially recall the meeting when proceedings were issued. It is not mentioned in HML Nominees/Ms Moore’s third party claim against Flexco. Flexco, however, referred to the meeting, and the fact that Mr Riedstra had attended it, in its statement of defence. It pleaded that the meeting attendees were Ms Moore and Messrs Clarke, Mills and Riedstra. In her reply, Ms Moore denied that assertion. She acknowledged a meeting on that date but said that the only attendee was Mr Mills. At trial, however, Ms Moore gave evidence that Mr Riedstra also attended the February meeting, but she could not recall Mr Clarke being there. Mr Riedstra and Mr Clarke both gave evidence of being at the meeting and I accept that evidence.

[145] There was considerable dispute at trial about what occurred at the February meeting, including in particular whether Ms Moore was told about the potential for wider problems with the stone cladding. To the extent that there are inconsistencies between Ms Moore’s recollection of what occurred at the meeting and Mr Riedstra’s, I prefer Mr Riedstra’s evidence. Mr Riedstra had a clear recollection of the meeting and what occurred at it, whereas Ms Moore’s recall was poor, as evidenced by the fact that she appears not to have remembered it at all initially and subsequently (in August 2014 when she filed her reply) denied that Mr Riedstra attended. My impression was that Ms Moore felt somewhat defensive about the meeting and as a result, tended to minimise what took place. This may have been because the timing of the meeting, shortly before Ms Moore placed her house on the market, raises some difficult questions. I also note that Mr Riedstra’s evidence was corroborated in some respects by the (limited) contemporaneous records and subsequent follow up actions that were taken. What he claimed to have said and done at the February

2007 meeting is also consistent with what subsequently occurred at the April 2007 meeting.

Ms Moore at the property on 16 February 2007. Mr Riedstra was “shocked” at what

he saw of the stonework. The stones had been fixed tightly together, without control joints. Ms Moore showed him two areas that had delaminated. Mr Riedstra asked what the waterproofing product was, what the weight of stone was per square metre, and who had done the waterproofing. No-one could tell him. Ms Moore said she would need to look it up. Mr Riedstra told Ms Moore that the waterproofing did not look like Flexi-Seal, and that, if it was, there would be paperwork (as required by the Flexi-Seal System). Mr Riedstra also expressed concern that the stones had been applied with spot adhesion and the stones were free-hanging, not starting from a solid foundation.

[147] Mr Riedstra pointed out the errors he had noticed to Mr Mills, Mr Clarke and Ms Moore. He told Mr Mills that he would need to re-adhere the stones that had delaminated, placing a solid foundation or angle iron along the bottom and with

100 per cent coverage of adhesive. Mr Riedstra walked around the house, but did not see any other signs of delamination. However, he told those present that further delamination could not be ruled out and the house should be thoroughly checked. Agreement was reached between those present as to the remedial work required to reattach the stone that had fallen off. The agreed repairs were undertaken by Stonescapes following the meeting.

[148] Shortly afterwards, on 12 March 2007, Mrs Moore purchased a new home. She then listed the Seymour St property for sale through Barfoot & Thompson. I accept Ms Moore’s evidence that she had a genuine reason for selling the property, due to a change in family circumstances. The fact that she had already purchased another property, however, meant that she was a highly motivated vendor. Barfoot & Thompson undertook a significant marketing campaign for the property in March and April 2007.

[149] During the marketing campaign to sell the house further problems arose with delamination of the stone cladding. Mr Jordan’s diary notes indicate that he was contacted regarding this on 24 April 2007. His diary entry recorded that:

Helen Rang. Another area of stonework falling off Seymore St. Spoke to land agent – pulling house off market until made good – arranging meeting with engineer Friday who said system would work & Mark (Stonemason) and waterproofing firm etc – (unreadable)

[150] Ms Moore was so concerned about the issue that she immediately withdrew the property from the market, telling the agent from Barfoot & Thompson that the house would be pulled from the market until the problem had been fixed.

[151] Ms Moore called all of the parties involved in the stone cladding to a meeting at the property on 30 April 2007. There was some dispute as to precisely who the attendees were. A letter sent by Mr Riedstra to Mr Jenkins some months after the meeting, however, listed the attendees as Ms Moore, Mr Jordan of Point Construction, Mr Mills of Stonescapes, Mr Clarke of Adhesive Supplies, Mr Riedstra of Flexco, Mr Harvie (as an adviser to Mr Riedstra) and Mr Dittmer from the engineers, Jackson Clapperton. I accept that to be an accurate record of the meeting attendees. Ms Moore could not recall Mr Harvie being at the meeting and thought that Mark Jenkins of Stonescapes was also there. Her recollection appears to be faulty, however, in light of the contemporaneous record and the evidence of the other meeting attendees.

[152] What occurred at the meeting was the subject of significant dispute at trial. In particular, there was a difference between the evidence of Ms Moore and (to an extent) Mr Jordan on the one hand and Messrs Riedstra, Clarke and Harvie on the other. The essential difference is whether Ms Moore was told that there was likely to be a wider systemic problem with the stone cladding.

[153] Ms Moore’s evidence was that she was not advised at this meeting that there might be a wider issue affecting all of the stone cladding. Ms Moore’s recollection was that the focus of the meeting was on the lack of control joints in the stone cladding. Her understanding was that a limited amount of remedial work was required to be carried out to the property to reattach the stone that had come away and to install control joints and a metal lintel to the front door entrance. She said that at no time during the meeting did anyone tell her that there could be a widespread issue and that all the stones should be taken off and re-adhered.

[154] Mr Jordan’s recollection was that they had met on site to inspect the affected areas and then walked around the rest of the house to check if any similar problems were happening with the stone anywhere else. They were unable to identify any

other areas of stone coming loose. The solution that was devised included re-adhering the loose stone, making the existing control joints wider and inserting a lintel over the front door. He could not recall any discussion about the problem being a generalised one.

[155] Mr Riedstra’s evidence was that he told Ms Moore that the waterproofing did not look like Flexi-Seal, because it was the wrong colour, although he could not say with certainty at that time that it was not Flexi-Seal. He said that the group agreed that the adhesive should have been applied to 100 per cent of the surface of the stones and that stones should have been attached from a solid horizontal foundation. Further, the lack of control joints was identified as a problem. Mr Riedstra recalled Mr Harvie mentioning that the problem could be more widespread, so all the stone needed to be thoroughly checked. It was agreed that Stonescapes would do this. Everyone also agreed that a horizontal wooden lintel should be installed above the front door for safety reasons. This was to help support the weight of stone in that area, as falling stones could pose a safety risk, even though there were no current signs of delamination in that area. It was also agreed that screws with silicone should be inserted through the bottom rows of stone to ensure they remained in place. Ms Moore said something like “and who is going to pay for all of that?” Everyone agreed to contribute to remedying the problems.

[156] Mr Harvie’s evidence was that one of the very first things he said to Ms Moore was that the waterproofing membrane was not Flexi-Seal, because Flexi- Seal is a different colour and, if Flexi-Seal had been applied, the surface of the Eterpan would have appeared grey. Mr Harvie also said that, if it was Flexi-Seal, there would be paperwork prepared when it was applied. Ms Moore said that paperwork would be somewhere but she could not find it. Mr Harvie said further that:

42. After looking thoroughly over the job and discussing the issues with the group, Rob and I explained that it was our opinion that the whole job was likely to fail over time as a result of the many sub-standard installation practices that had been employed.

43. I recall being drawn to the stonework above the front entrance door. I suggested it was dangerous because falling stones could injure someone and Rob Riedstra suggested that a timber lintel be installed to support the stones

in this area and that some of the stones be screwed in place (with some silicone on the screw thread) to mitigate this risk. These means of repair were intended only as a ‘stop-gap’ measure (due to the fact that they did not look that great) and for safety reasons - we felt that the whole job should really be done from waterproofing up.

44. Rob and I talked to Ms Moore prior to leaving the site and told her (directly) what we felt needed to be done to repair the job: essentially we felt the stone needed to be removed and the waterproofing cleaned off and re- applied prior to re-installation of the stone. Ms Moore’s response was something like: “well who’s going to pay for that, because I’m not”.

[157] Again, to the extent that there are inconsistencies, I prefer the evidence of Messrs Riedstra and Harvie to that of Ms Moore. Ms Moore’s memory of the meeting was less clear, as evidenced by the fact that she could not correctly recall the various attendees. Indeed it is perhaps not surprising that she cannot recall what Mr Harvie said to her, as she cannot recall him being at the meeting at all. It is clear from other evidence, however, that he was.

[158] I found Mr Harvie to be an impressive witness with a good recollection of the relevant events and no apparent “agenda” to promote. He made concessions where appropriate. Key aspects of his evidence are inherently credible. For example, he said that he was able to immediately identify that it was unlikely that the membrane was Flexi-Seal, because Flexi-Seal would have been a grey colour. Given Mr Harvie’s background and expertise this assertion is entirely credible. Mr Harvie holds a Bachelor of Science from Auckland University (majoring in Organic Chemistry) as well as a Diploma in Surface Coatings Technology from the Auckland Institute of Technology. He has over 30 years of industry experience and is the general manager of RLA Polymers, the manufacturer of Flexi-Seal. Given that the very reason that Mr Harvie was at the meeting was that Ms Moore believed that Flexi-Seal had been used, his claim to have pointed out to her his doubts on this issue are credible. It is also inherently credible that he would have informed Ms Moore that, if the product was indeed Flexi-Seal (as she then believed) there would be records to prove this. There would be no point in Mr Harvie keeping such information to himself.

[159] Obviously, given the size of the group and the fact that people were walking around the property looking at the stone work, Ms Moore would not have been privy

to all of the discussions that took place. I am satisfied, however, that although only two or three specific areas of delamination had been identified as at April 2007, Ms Moore was alerted to the fact that the underlying issues were systemic. Indeed that can be the only explanation for the decision to install a wooden lintel above the door for safety reasons, despite the fact that there was no current evidence of delamination in that area.

[160] Ms Moore may well have been hopeful that the problem would not become widespread, but she must have known that there was a risk that it would. There was nothing to suggest that the stone in the areas that had delaminated had been installed in a different manner to the rest of the stone cladding. There was simply no logical basis for concluding that the problems were localised. On the contrary, the various issues identified by the meeting attendees, including the spot adhesion, the lack of control joints, the lack of support for the weight of the stone, and the fact that the membrane did not appear to be Flexi-Seal, were all systemic issues that applied to the entirety of the stone works.

[161] After the April 2007 meeting Stonescapes re-adhered the loose stones and enlarged the control joints and Point Construction installed the lintel over the front door area. This remedial work was a reasonably significant undertaking, taking

[162] On 8 May 2007, a little more than a week after the meeting on 30 April 2007, Ms Moore relisted the property for sale with a different real estate agency – Apex Real Estate Limited, which is a part of the Harvey’s’ group.

[163] There is no basis for a claim in negligence against Flexco on the facts as I have found them. Flexco was invited to attend a meeting on the basis of Ms Moore’s belief that products it distributed had been used in the stone cladding work. The only Flexco product that had actually been used, however, was the Flexi-Seal general purpose adhesive. The Flexi-Seal System had not been used as the waterproofing membrane. Messrs Harvie and Riedstra immediately queried whether the waterproofing membrane was in fact Flexi-Seal, indicating that in their view it

probably was not, based on its colour. The pointed out to Ms Moore that if the product was Flexi-Seal then paperwork would have been completed as part of the Flexi-Seal System, so she should have a record of this. Ms Moore said that she had not been able to find the relevant paperwork.

[164] In relation to the adhesive, Mr Harvie correctly identified that there was a workmanship issue in the way that it had been applied (spot adhesion rather than complete combed coverage) and suggested that the stones that had fallen off be re-affixed using complete combed coverage. Although, in my view, he had no duty to do so, I accept Mr Harvie’s evidence that he also alerted Ms Moore to the fact that the issues identified were systemic and that the only way to ensure that there would be no further delamination was, in effect, to do the job again.

[165] In my view Flexco, as a distributor of products (only one of which was actually used in the stone cladding work, being the adhesive) did not owe HML Nominees the pleaded duties of care. Even if it did, however, it has clearly not breached them on the facts as I have found them. It is difficult to see what more Flexco could have done to alert Ms Moore to the fact that there were serious systemic problems with the stone cladding work, or that the waterproofing membrane that was used may well not be Flexi-Seal.

[166] HML Nominees cross claims against the Council in negligence. It relies on Riddell v Porteous⁶²in support of the proposition that where a homeowner is found liable under the vendor warranties an agreement for sale and purchase relating to compliance with the Building Act, they may be entitled to an indemnity from the Council.

[167] The Council, on the other hand, relied on Altimarloch, in which the Supreme

Court held that there is no right to contribution from another defendant where the nature of the claim brought against parties differs significantly.⁶³In particular in that

⁶³Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012]

case, a vendor held liable for misrepresentation was not entitled to contribution from the council which was liable in tort.

[168] As against HML Nominees, I have found that the Consent Warranty was breached because the Flexi-Seal System was not used, as required by the building consents, and the substitution of Miracryl for Flexi-Seal was one of a significant number of factors that contributed to the failure of the stone cladding. As against the Council, I have found that, if it had acted reasonably and prudently, it should have identified that the Flexi-Seal System was not used, as required by the consents.

[169] I am satisfied that the Council owed the pleaded duties of care to HML Nominees, including in particular a duty to ensure that no significant departures were made from the plans and specifications approved by the building consents, and not to issue a code compliance certificate unless and until it was satisfied on reasonable grounds that there were no such departures. I am also satisfied that that duty was breached, in relation to the substitution of Miracryl for the Flexi-Seal System (but not in relation to most of the other factors that contributed to the failure of the stone cladding, which could not reasonably have been identified by the Council).

[170] I am not persuaded, however, that there is the necessary causal nexus between the Council’s breach of its duty of care and HML Nominees’ liability to the plaintiffs under the Consent Warranty. HML Nominees’ submitted, in closing, that the relevant causative link arose because HML Nominees gave the vendor warranties in reliance on the Council’s inspections and its issue of the code compliance certificates. Accordingly, it submitted, HML Nominees is entitled to an indemnity from the Council to the extent that HML Nominees is found liable for breach of the warranties.

[171] The evidence I have outlined at [143] to [162] above indicates that by the time it entered into the sale and purchase agreement with the plaintiffs HML Nominees was well aware (through Ms Moore) that there were potentially serious problems with the stone cladding. It is also of note that on 8 May 2007, a little more than a week after the meeting with the various parties involved in the stone cladding on 30 April 2007, Ms Moore relisted the property for sale with a different real estate

agency – Apex Real Estate Limited, which is a part of the Harvey’s group. Although the agency agreement required that the vendor provide the agent with full disclosure of information regarding the property, there is no evidence that Apex (Lindi Miller) was informed of the issues that had by then arisen with the stone cladding.

[172] No credible explanation was offered by Ms Moore as to why she changed real estate agents when she decided to re-list the property. In cross examination she said that she had not “warmed” to the Barfoot & Thompson agent, Mr Parish. However, she also acknowledged in cross-examination (albeit somewhat reluctantly) that she had subsequently used Mr Parish to market her current property. Mr Parish was aware that the Seymour Street property had been taken off the market due to problems with the stone cladding. The necessary inference, in my view, is that Ms Moore changed real estate agents because her preference was to market the property through an agent who was not aware of the problems that had arisen with the stone cladding. Disclosure of such an issue was obviously likely to impact on the property’s sale, in circumstances where Ms Moore was highly motivated to sell.

[173] At the time the house was sold HML Nominees was squarely on notice, as a result of the February and April 2007 meetings, that the building consents may not have been complied with, including in particular the requirement to use the Flexi- Seal System. It could not have reasonably relied on the Council’s inspections or the code compliance certificates in such circumstances. Rather, HML took a calculated risk in providing vendor warranties. Any negligence on the part of the Council in relation to either its inspections or the issue of code compliance certificates was not causative of HML Nominees’ loss. HML Nominees’ cross-claim against the Council accordingly fails.

[174] The plaintiffs seek general damages in contract against HML Nominees and in tort against the Council.

[175] General damages are damages obtainable for non-pecuniary loss, such as distress or anxiety, or loss of amenity. The Court of Appeal in Byron Avenue confirmed the availability of general damages for negligence in leaky building cases

and gave general guidance to the effect that the usual award should be $25,000 per unit for occupiers.⁶⁴

[176] In a contract context, the ability to claim for non-pecuniary loss tends to be somewhat more limited. The learned authors of Law of Contract in New Zealand note, however, that:⁶⁵

It is apparent that damages for mere upset sometimes may be recoverable where a breach of contract causes discomfort or inconvenience resulting in mental distress. The cases are often founded in tort, but the principle involved is the same. So it has been held that the purchaser of defective premises can recover for distress resulting from the pressures of having to live in the premises or deal with the problem.

[177] Courtney J in Mikitasov v Collins gave general damages for a breach of a vendor warranty, stating that:⁶⁶

Mr Mikitasov also seeks general damages. He has given evidence about the stress and upset that he and his family have suffered as a result of the defects to the house and the work required to rectify them. In recent times this Court has recognised through an award of general damages the distress and anxiety suffered by occupants of leaky homes, with awards of $20,000-25,000.

[178] It is accordingly clear that, in principle, general damages are available against both HML Nominees and the Council.

[179] Both Ms Weaver and Ms Anderson gave evidence of the stress caused to them as a result of the defective stone cladding. They have had to borrow money to fund the repairs, cannot sell their home, and have lived with high levels of anxiety that the stone falling off the house could cause an injury to them or others. Mr Anderson in particular has expended a very significant amount of time in investigating the problems, sourcing solutions and overseeing the remedial works.

_{He says that this has impacted on his ability to pursue other business
opportunities.}

⁶⁵_{John Burrows,
Jeremy Finn and Stephen Todd Law of Contract in New
Zealand}

⁶⁶Mikitasov v Collins (No 4) (2011) 11 NZCPR 617 (HC) at [34]. See also Smith v Singh

[180] I am satisfied that an award of general damages is appropriate in this case. It must necessarily reflect, however, that the only significant defect I have found either HML Nominees or the Council liable in respect of is the failure of the stone cladding. Accordingly any stress associated with other building works, such as the significant work undertaken to the main entrance of the property, does not sound in damages. Nor is a damages award appropriate for the stress of the litigation, which from Mr Anderson’s evidence was clearly a major factor. I also note that this is not in fact a leaky building case, although it arises out of repairs to a previously leaky building. There was no suggestion of water ingress through the stone cladding causing damp, mould or unhealthy living conditions. Any damage was external only and the re-clad did not require the plaintiffs to move out of the property.

$20,000 in respect of general damages is appropriate. In terms of relative culpability this should be borne equally between HML Nominees and the Council and I accordingly award $10,000 in general damages against each of those parties.

[182] The plaintiffs called a quantity surveyor, James White, to give evidence on quantum. Mr White’s evidence was largely accepted, save that both HML Nominees and the Council took issue with the calculation of interest. The difficulties arose out of the fact that no evidence was provided as to when the invoices for the stone cladding work had actually been paid. Mr Bigio, for HML Nominees, submitted that the most appropriate course in such circumstances would be for interest to run from the date that proceedings were filed. I accept that submission. Interest will accordingly be payable at the Judicature Act 1908 rate from the date that proceedings were filed to the date of judgment.

[183] Based on Mr White’s evidence, the relevant quantum of the plaintiffs’ loss is

Area of work	Description of cost	Amount
Stone cladding	Stone cladding remedial costs (incurred)	$89,892.96
Stone cladding	Professional and Council fees (on a pro rata basis)	$ 6,513.26
Chimney cap flashing and new flu vent	Remedial costs (estimated)	$ 2,118.98
TOTAL		$98,525.20

[184] HML Nominees is liable in contract in respect of the stone cladding defects only. The Council is liable, in negligence, in respect of both the stone cladding and the chimney cap flashing and new flu vent. If the parties were joint tortfeasors I would likely have apportioned liability on a 50/50 basis. They are not, however, and there is no apparent legal basis for apportionment of liability between the Council and HML Nominees. Obviously, however, the plaintiffs cannot recover more than their total loss, as set out in the above table (together with interest and costs).

[185] In summary, there was no single cause of the failure of the stone cladding. Rather, a number of factors combined to cause the system to fail. I have summarised the relevant factors at [49] above. The two major contributing factors were the incorrect mixing and installation of the Miracryl and the use of the spot adhesion method to adhere the stone slips to the Eterpan. Most of the other factors, in isolation, would not have caused the system to fail. The combined effect of all of the factors I have identified, however, was that failure of the stone cladding system was virtually inevitable.

[186] I have summarised my findings in relation to the other pleaded defects at [51] above. I have found that the relevant defects for liability purposes are the failure of the stone cladding and the defects relating to the chimney flashing and flu vent. The other pleaded defects were either not proven to be defects, were not causative of loss, were not proven to have resulted in any loss or damage, or were not proven to be the

result of work undertaken as part of the remedial works undertaken in 2005 and 2006 (which the claims, as pleaded, relate to).

[187] HML Nominees has breached the vendor warranties in relation to the stone cladding (only) for the reasons outlined at [68] to [69] above. The claim against HML Nominees for misrepresentation fails, for the reasons outlined at [77] to [79] above.

[188] The plaintiffs claim against Ms Moore fails. It has not been established that Ms Moore played any operative role in the decision to substitute Miracryl for Flexi-Seal, as set out at [81] to [85] above.

[189] The Council breached its duty of care when issuing the building consents, as set out at [87] above. In particular, it should have made further inquiries to satisfy itself that the proposed alternative solution in relation to the stone cladding would comply with the building code. This was not causative of loss, however, for the reasons set out at [88] to [88] above. In particular, the experts agreed that, had the stone cladding system been installed in accordance with the building consent as approved, the cladding system would have worked.

[190] The Council breached its duty of care in relation to inspections and the issue of a code compliance certificates for the reasons set out at [93] to [94] above. In particular, it failed to take the necessary steps to establish whether the Flexi-Seal System had been used, by requiring a producer statement or a copy of the Flexi-Seal guarantee and associated paperwork. A reasonably prudent building inspector could also have identified the absence of control joints and the lack of grouting and weep holes. There is a causative link between these breaches and the plaintiffs’ loss, although these matters were not the major causes of the stone cladding failure.

determination under the Building Act, for the reasons set out at [119] to [130] above.

[192] The Council’s third party claim against Stonescapes succeeds for the reasons outlined at [131] to [135] above. Stonescapes is apportioned 60 per cent of the

liability in respect of the stone works and the Council 40 per cent (although it seems doubtful that the Council will be able to recover any contribution, given that Stonescapes is in liquidation).

[193] The Council’s third party claim against Flexco fails for the reasons outlined

[194] HML Nominees’ third party claim against Flexco also fails, for the reasons set out at [163] to [165] above. In particular Flexco, as a distributor of products (only one of which, the adhesive, was actually used in the stone cladding work) did not owe HML Nominees the pleaded duties of care. Even if it did, however, it has not breached them on the facts as I have found them. Indeed it is difficult to see what more Flexco could have done to alert Ms Moore to the fact that there were serious systemic problems with the stone cladding work, or that the waterproofing membrane that was used may well not have been Flexi-Seal.

[195] HML Nominees’ cross claim against the Council fails for the reasons outlined at [170] to [173] above. In particular, at the time the house was sold to the plaintiffs HML Nominees had actual knowledge that the Flexi-Seal system specified in the consents may well not have been used and that there were systemic problems with the stone cladding. It could not have reasonably relied on the Council’s inspections or the code compliance certificates in giving the vendor warranties in such circumstances.

[196] In light of my findings at [30] to [33] above it was not necessary to consider the third party claim against Mohan Roofing.

[197] HML Nominees is liable to the plaintiffs, for breach of the vendor warranties, in the sum of $96,406.22 (for the costs of remediating the stone cladding, including associated fees) as set out in the table at [183] above. HML Nominees is also ordered to pay the plaintiffs $10,000 by way of general damages. The total damages payable by HML Nominees to the plaintiffs are accordingly $106,406.22.

[198] The Council is liable to the plaintiffs in negligence in the sum of $96,406.22 (for the costs of remediating the stone cladding, including associated fees) plus

$2118.98 in respect of the estimated costs of remediating the chimney cap flashing and installing a new flu vent, as set out in the table at [183] above. The Council is also ordered to pay the plaintiffs $10,000 by way of general damages. The total damages payable by the Council to the plaintiffs are accordingly $108,525.20. The Council is entitled to a contribution of 60 per cent from Stonescapes in respect of that sum.

[199] At the risk of stating the obvious, although both HML Nominees and the Council are liable (in contract and tort respectively) in respect of the costs of remediating the stone cladding ($96,406.22) the plaintiffs cannot recover, in total, more than that sum in respect of the stone cladding costs.

[200] I also award interest to the plaintiffs, at the Judicature Act 1908 rate, from the date that proceedings were filed to the date of judgment.

[201] If costs cannot be agreed between the parties, then the plaintiffs are to file a

25 September 2015 and the third parties’ memoranda by 2 October 2015. Costs will then be determined on the papers. In the event that there is any dispute as to the quantum of interest, leave is reserved for counsel to also address that issue in their

High Court of New Zealand Decisions

Weaver v HML Nominees Limited [2015] NZHC 2080 (28 August 2015)