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High Court of New Zealand Decisions |
Last Updated: 3 September 2019
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2013-404-4646
[2019] NZHC 1738 |
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IN THE MATTER
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of Imperial Gardens Apartments
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BETWEEN
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BODY CORPORATE 348047
First Plaintiff
CHRISTIAN WAN AND ORS
Second Plaintiffs
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AND
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AUCKLAND COUNCIL
First Defendant
DOWNER NEW ZEALAND LTD
Third Defendant
ALUMINIUM TECHNOLOGY LTD
First Third Party and Others
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Hearing:
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12 June 2019
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Counsel:
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P R Grimshaw and A K Hough for Plaintiffs S Price and J Wilson for First
Defendant
No appearances for other parties
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Judgment:
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23 July 2019
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JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 23 July 2019 at 3.30 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Grimshaw & Co, Auckland
Minter Ellison Rudd Watts, Auckland Ronayne Hollister-Jones Lellman, Tauranga Bell Gully, Auckland
Hazelton Law, Wellington K3 Legal Ltd, Auckland Holland Beckett, Auckland
BODY CORPORATE 348047 v AUCKLAND COUNCIL [2019] NZHC 1738 [23 July 2019]
Introduction
[1] This building defects case has a 12-week fixture beginning 10 February 2020. The plaintiffs apply for an adjournment. They do not want a hearing until they have completed repairs to the building, and that will be after February 2020. The Auckland Council opposes. The issue is whether the plaintiffs should be able to prove their damages by referring to actual repair costs incurred or whether they should be required to go to trial before they have carried out their repairs and prove their damages by estimates only. The Council says that is to be decided in the circumstances of this case, where the plaintiffs have delayed, it is not certain when the repair works will be carried out and any adjournment will prejudice it.
[2] I grant the adjournment, vacate the fixture and give a new hearing to start on 11 July 2022. Allowing the plaintiffs to prove their case on actual costs will give a more just outcome and outweighs the council’s reasons for keeping the current fixture.
[3] The plaintiffs are the body corporate and owners of Imperial Gardens, a 287-unit block at 135 Hobson Street, Auckland built between October 2003 and May 2005. The plaintiffs say there are defects to the podium, decks, bathrooms, ACM cladding, joinery, fire protection, structure and roof. According to the current statement of claim filed in April 2019, the costs of repairs are estimated at
$36,898,550.02 including GST. That includes an allowance of $4,651,000 for contingencies. The consequential losses are estimated at $8,886,000. The owners also claim general damages for distress, inconvenience, anxiety and loss of enjoyment.
[4] The building contractor was originally a defendant but has gone into liquidation and has been removed from the register. The current defendants are the council, sued as the local authority responsible for building controls, and Downer New Zealand Ltd, which supplied and installed waterproofing membranes. The council has joined sub-contractors as third parties. They have not taken an active part in the adjournment application. The sixth third party is in liquidation. The seventh and eighth third parties have taken no steps at all.
[5] Downer New Zealand Ltd did not appear but filed a memorandum advising that it abided the court’s decision. It was concerned that delay because of an
adjournment may exacerbate evidential difficulties. At trial, it may raise delays by the plaintiffs as a defence if the delays have led to increased costs and losses.
Principles on adjournment applications
[6] The plaintiffs apply for the adjournment under r 10.2 of the High Court Rules 2016:
The court may, before or at the trial, if it is in the interests of justice, postpone or adjourn the trial for any time, to any place, and upon any terms it thinks just.
In McKay Builders Ltd (in liq) v McKay, Dunningham J summarised the approach under the rule:1
[25] Rule 10.2 of the High Court Rules confers the Court a very wide discretion to grant adjournments. The Court may, before or at the trial, if it is in the interest of justice, postpone or adjourn the trial for any time, to any place, and upon any terms it thinks just. Recently in Cygnet Farms Ltd v ANZ Bank New Zealand Ltd, Palmer J held:
“In assessing the interest of justice I consider justice to all litigants — not only the parties here but the parties in the two similar cases which may be influenced by the outcome of this case as well the parties in cases in the queue that will suffer further delays and the public interest in achieving the most efficient use of court resources.”
[26] Palmer J further cited O’Malley v Southern Lakes Helicopters Ltd, where Tipping J held:
“... the essential question which the Court always has to consider when asked for an adjournment is whether or not that is necessary in order to do justice between the parties. One must not overlook that not only is it necessary to do justice to the party who is seeking the adjournment but also justice to the party who wishes to retain the benefit of the fixture. It is essentially a balancing exercise.”
[27] Furthermore, in Gray v Thom Penlington J said:
“I recognise, as did the learned Judge, that the administration of justice is a relevant factor. An adjournment affects not only the party opposing the adjournment, but also the other patient litigants waiting in the queue. The opponent of an adjournment is inevitably delayed in getting a resolution of the matter to which he or she is a party. Likewise, waiting litigants are deprived of the opportunity of using the Court time because of inadequate lead time to get ready for trial. An adjournment disrupts the Court programme. It sometimes leads to a wastage of a scare resource, judicial time.”
1 McKay Builders Ltd (in liq) v McKay [2017] NZHC 934 (footnotes omitted).
[28] Therefore, in guiding my discretion to grant an adjournment, I must consider whether it is in the interests of justice to do so, taking into account any prejudicial effect the decision may have on the party applying for adjournment and on the party wishing to retain the benefits of the fixture. I must also take into account the scarce resource of judicial time, the court programme, and the other litigants in the queue waiting for their cases to be heard.
[7] Both sides agree that an adjournment decision involves a balancing exercise, although they differ on how to weigh competing considerations. Each case must turn on its own circumstances.
[8] In this case there is no concern about wasting judicial time. The adjournment application has been made well before the fixture and if the case is adjourned there will be other cases to fill the gap.
[9] The court may consider an adjournment application at any time. Whether or not the party seeking the adjournment initially agreed to the fixture and whether or not it sought a review of the fixture decision do not create any kind of issue estoppel or bar a party from later applying for an adjournment. Lang J allocated the fixture for February 2020 in a telephone conference minute of 3 October 2017 where he said:
Whether or not that fixture can be maintained will largely depend on whether the plaintiffs elect to repair the complex or to proceed to trial on the basis of tender estimates. The answer to that question will not be known until approximately April 2018 after tenders have been received.
He recognised that the fixture might be adjourned if the plaintiffs elected to repair the complex before trial. The parties had already made their positions known: the plaintiffs urging for trial after repairs have been carried out and the defendants opposing. He left the matter open for review later.
[10] The plaintiffs will not be able to prove their actual repair costs if the hearing starts in February 2020. The council’s resistance to the adjournment is based on requiring the plaintiffs to prove their case before repairs are carried out.
[11] The question is how damages can be proved – by reference to actual costs or estimated costs. For that to be a live issue at trial means that the plaintiffs will establish that the Auckland Council is liable. Although the defendants have contested liability,
liability arguments are not relevant to the adjournment decision. The defendants will keep all their rights to defend the case on liability as well as on quantum. During the hearing there was a question whether the plaintiffs would be able to claim for new defects that came to light during repairs. The parties cited authorities.2 That is an issue for later, if new defects are found. It is not relevant to this decision.
[12] The parties agree that if liability is established, the plaintiffs’ damages may include the costs of repair. That is, damages will not be assessed according to the loss of value caused by the defects. It is standard in building defects litigation for damages to include the costs of repair (as well as other heads of loss). It is, after all, desirable for building defects to be remedied so that the building can be restored to its original purpose; damages should be fixed accordingly. That is all the more so in claims for damage to unit title developments under the Unit Titles Act 2010. Bodies corporate have repair responsibilities not only for common property but also for building elements and infrastructure that relate to or serve more than one unit.3 Their repair responsibilities include seeking recovery from those who have damaged property for which they are responsible and applying any recoveries to repairs. The same policy of applying recoveries to repairs can be seen in the requirement for money paid under an insurance policy to be applied to reinstatement (subject to the rider that the body corporate may decide otherwise by special resolution). 4
[13] The adjournment application must be considered on the basis that the plaintiffs will get only one chance to prove their losses. If the case is decided on estimated costs rather than actual costs and the plaintiffs later find that the repairs costs are much more than the damages awarded to them, they will not be able to have the damages reassessed. The judgment will be final, subject of course to any rights of appeal.5 They will not be able to ask for a rehearing if the damages are not enough to cover the actual costs. Similarly, any negotiated settlement will invariably provide for a full and final settlement and the release of the defendants from all claims.
3 Unit Titles Act 2010, ss 84(1)(p) and 138(1).
4 Unit Titles Act 2010, s 136(4).
5 For the importance of finality, see Lyon v R [2019] NZCA 311 at [10]- [11].
[14] During the hearing I wondered whether this difficulty could be avoided by an application for interim payment under Part 7, sub-part 5 of the High Court Rules. On reflection, it seemed that it would be more trouble than it was worth. It would be hard to keep an application for interim payment under r 7.69 within manageable proportions. It could blow out into a full hearing as to liability. The same contested matters could be traversed twice. Neither side wanted to take up the suggestion.
Repairs before or after the hearing?
[15] It is standard in building defects litigation for plaintiffs to choose whether they will go to hearing on estimated costs of repair and carry out repairs afterwards or repair first and go to hearing on actual costs. Proceedings can be case managed to allow for either course. At an early stage, I ask plaintiffs whether they will repair first. Plaintiffs’ decisions whether to repair first seem to turn on practical considerations such as the availability of funds for repairs and the urgency of repairs.6 Often the proceeds of the litigation are required to start repairs. As a general observation of cases I have managed, those who repair first are in the minority but are not insignificant. That is probably because it is more difficult to fund and carry out the repairs before going to trial. But that does not mean that plaintiffs who elect to repair first should be considered unorthodox. The council recognises that plaintiffs may repair first; its objection turns on the circumstances of this case.
[16] There is a recognised risk in claiming on estimated repair costs and carrying out repairs afterwards. The actual costs may be much higher than the estimates. The plaintiffs’ evidence shows horror stories involving repairs to unit title developments where settlements were negotiated before the repairs: one in Flat Bush, South Auckland where new defects relating to fire safety and drainage added to costs and delayed the repairs; a case in the Auckland CBD, where extra costs were incurred because the council changed its requirements to prove the efficacy of a cladding solution; another case in the Auckland CBD where structural elements were assessed to have inadequate strength and additional top-up levies were required. There are press reports of the Parnell Terraces complex where repair costs went from $11.7m to
$24m. A quantity surveyor retained by the plaintiffs notes the difficulties of costs estimates at the early stages of the design and investigative phase of a remedial project. There can be changes to the scope of works. A quantity surveyor cannot meaningfully understand what work is required, what design detail might entail and what materials are required without a detailed description of the extent of the works and the specification of products and materials to be used in the project. If that detail is missing, the quantity surveyor needs to include sufficient contingencies to allow for the unexpected. If there is a general lack of information there are real risks of costs estimates being inaccurate.
[17] Because of these uncertainties, the plaintiffs do not want to take the risk of going to trial on estimates alone. They would prefer the court to assess the damages according to the actual costs. Their aim is to reduce uncertainty. The director of their body corporate secretary, who has had experience of leaky building litigation but is not an expert, says that repairing first has these advantages:
(a) it provides certainty as to the amount of the claim;
(b) carrying out the works before the hearing assists the parties with establishing the extent of defects, what damage has resulted and whether the appropriate remedial solution has been applied;
(c) there can be efficiency because there are lower costs in inspecting an opened-up complex rather than trying to ascertain defects by examination before opening up;
(d) the opening up reduces the areas for debate;
(e) latent defects can be discovered; and
(f) the council’s impact in regulating the building work can be properly identified and taken into account.
[18] At an extraordinary general meeting on 29 August 2018 the body corporate and owners resolved to undertake the repairs before trial. The key milestones of the plaintiffs’ current programme are:
(a) Tender works: July-August 2019.
(b) Negotiate contract: August-September 2019.
(c) Obtain building consent: September 2019.
(d) Start works: November 2019.
(e) Obtain code compliance certificate: June 2021.
[19] For authorities the parties referred to dicta in minutes and judgments in other body corporate building defects cases. In the Gore Street Apartments litigation, when deciding whether to give a fixture under r 7.6 of the High Court Rules, Fogarty J said:7
Essentially a plaintiff in these proceedings has to choose between going to trial, seeking the remedy of general damages, or going to trial after all the work is remediated and seeking special damages (the actual cost).”
In the same case, in a later minute adjourning the hearing, Lang J said:8
They (the defendants) contend it is still possible to proceed to trial in July 2019 provided the plaintiffs are prepared to establish quantum through a quantity surveyor rather than through obtaining tenders and building consent.
I have concluded it is not for the Court or the defendant to dictate the manner in which the plaintiffs’ experts go about their business. It must be for the experts to guide the plaintiffs as to the most appropriate way in which to advance their claim before the Court.
The overriding principle is that of the need to obtain justice between the parties. The plaintiffs are entitled to present their case in the way that they consider maximises the chance of obtaining an accurate award of damages.
7 Body Corporate 366567 v Auckland Council [2017] NZHC 1520 at [23].
The council distinguished that case. The plaintiffs wanted to prove anticipated repair costs by tenders rather than quantity surveyors’ estimates. The Gore Street owners do not have the funds to repair first.
[20] In the Tremont Residences proceeding, Lang J said after allocating a fixture:9
I recognise that that may be too soon if the plaintiffs wish to carry out repairs before proceeding to trial.
[21] In the Pacific Apartments case, Downs J required the plaintiffs to go to trial on estimates of repair costs rather than actual costs of repair.10 The Court of Appeal has given leave to appeal.11 Given Downs J’s decision, there is not a clear consensus for allowing plaintiffs in all cases to repair first. It is better to decide the adjournment according to the circumstances of this case.
[22] The council was concerned to scotch any idea that the plaintiffs had a “right” to carry out repairs before trial. This was by way of emphasising that there was a balancing test. In a reductio ad absurdum, Mr Price asked rhetorically, “What if a plaintiff proposed to carry out the repairs in 10 to 15 years’ time?” For this case, the plaintiffs did not take up that challenge. They did not argue that they had a “right” but accepted that there was a balancing test under r 10.2 (with the merits favouring their position).
[23] The plaintiffs have a legitimate concern that if they go to trial on estimates only they will be short-changed when they carry out the repairs. The council dismissively says:
(a) the plaintiffs’ concern is speculative;
(b) the plaintiffs have spent so long investigating defects that they must now have a good idea what work is required;
11 Body Corporate 417948 v Watts & Hughes Construction Ltd [2019] NZCA 113.
(c) any uncertainty can be addressed by allowing for contingencies; and
(d) uncertainty is a fact of life and the plaintiffs have to live with it.
[24] Knowing the actual cost of the repair works is likely to result in a more just resolution. Calculating damages will be much easier if the plaintiffs have repaired first. The full extent of defects will be known once the building is opened up. Any betterment will be identified more easily, as will the necessity for repairs. The actual costs will be known instead of estimates. Instead of guessing how the repairs might progress, the parties will know for sure. Knowing the actual costs will assist not only the court in deciding the amount of damages, but also the parties in negotiating a resolution. It is a common negotiating strategy for plaintiffs to flag away consequential losses but to make sure that they have enough for the costs of repair.12
[25] The council downplays the risks of going to trial on cost estimates by saying that the plaintiffs’ concerns are speculative. It says that no specific area of risk has been identified. That misses the point. It is useful to draw the Rumsfeld distinction between known unknowns and unknown unknowns.13 Here we are dealing with known unknowns. The plaintiffs have identified the general risk of uncertainty how the actual repairs will unfold, although they cannot say specifically what might happen during the repair work. New defects may come to light; there may be delays from council requisitions; work may stop as fresh building consents are obtained; costs may escalate; and works may take longer than forecast. No-one can give any assurance that these contingencies will not occur.
[26] The council’s submission that the plaintiffs have had so much time to investigate that they must know all the risks is speculative and is not backed up by evidence. The plaintiffs’ quantity surveyor gives good reason to be concerned that any estimates now could be well off the mark.
12 Small v Body Corporate 324525 [2018] NZHC 19 at [32].
13 In a Defence Department briefing in February 2002, the US Secretary of State for Defence, Mr Rumsfeld, said, “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know.”
[27] One response to uncertainty is to allow for contingencies. For example, in their damages, the plaintiffs have allowed 20 per cent for the estimated costs as a contingency. I do not know enough about quantity surveying to say how a quantity surveyor would calculate an allowance for contingencies – to allow for the worst possible case or to take a middle path of assuming that some contingencies may occur but others may not and aim for an average. The council points out that the law often must give monetary remedies of fixed amounts where there are contingencies. I think it had in mind damages for loss of a chance, as in Chaplin v Hicks,14 where compensation is assessed according to the probability that the plaintiff would have obtained a benefit. Another example is the role of trustees in bankruptcy and liquidators in quantifying contingent claims when the contingency has not occurred.15 It involves estimation of a hypothetical, because the contingency will not occur. It will never be known for certain what would have happened.
[28] But assessing the costs before the start of repairs is different. It is not hypothetical because the plaintiff will repair. Instead, the court has to predict and may be proved right or wrong when the work is done. If it is wrong and the costs are higher than the court predicted, the plaintiffs carry the loss. Why should they? After all, they are the victims and have not caused the loss. After having established liability and damage, are they not allowed full recovery for their costs in fixing the damage? If the law were to take this risk seriously, it would fix the damages so that the plaintiffs do not carry the risk. The defendants would instead. That would mean that to avoid undercompensating the plaintiffs, they may be overcompensated instead. Damages would be increased to allow for the risk. If some of the plaintiffs’ examples are to be believed, that might mean a 100 per cent loading on the estimated repair costs. As far as I am aware, the courts do not fix damages for repair costs that way. If they were to do so, defendants would object furiously and would press for plaintiffs to repair first before liability is determined. This contingency aspect, therefore, points to what is really going on. The uncertainty in going to trial on estimates of repair costs plays into the hands of defendants. They know that they will get a better deal if they can
14 Chaplin v Hicks [1911] 2 KB 786 (CA); Schilling v Kidd Garrett [1977] 1 NZLR 243 (CA); Takaro Properties Ltd v Rowling [1986] NZCA 27; [1986] 1 NZLR 22 (CA); Aquaculture Corp v NZ Green Mussel Co Ltd [1990] 3 NZLR 299 (CA); Martelli McKegg Wells & Cormack v Commbank International NV (1996) 10 PRNZ 153 (CA).
15 Insolvency Act 2006, s 251; Companies Act s 306l Stein v Blake [1995] UKHL 11; [1996] AC 243 (HL) at 252-253.
argue about estimated costs rather than go to trial knowing actual costs. The uncertainty goes against plaintiffs.
[29] The council says that uncertainty is a fact of life and plaintiffs have to put up with it, or as the Player in “Rosencrantz and Guildenstern are Dead” says: “Uncertainty is the normal state. You’re nobody special.”16 There is a significant downside if plaintiffs in leaky building cases have to carry the risks of the uncertainty of repair costs. That can be seen in the examples in the plaintiffs’ evidence. Ms Singh of Richmond Terraces in Flat Bush has also drawn attention to the problem. In proceedings she has protested against levies imposed to complete repairs when a settlement sum was insufficient.17 She had to pay shortfall levies of $232,000. This month she was adjudicated bankrupt.18 In the bankruptcy lists, I see similar cases. In Auckland, non-payment of body corporate levies can lead to bankruptcy. There are enough to be noticeable. The ones involving levies for repair costs stand out: the debts are in the six figures. Bankruptcy may result because the unit owner cannot pay the levy and often cannot quit the unit economically because of the debts against it.19 Not every insolvency case reaches the courts. I infer that there are other cases where the uncertainty in estimating repair costs for unit title building defects claims is causing real social misery.
[30] The risk of unknown contingencies occurring during the repairs is real. Just because it is not possible to say now what those contingencies are does not take away the risk. Because they are unknown, their impact cannot be estimated easily in dollars and cents. The risks variously include finding out the true extent of defects after opening up, finding new defects (whether actionable or not), the need to call in consultants to work out how to deal with new defects, obtaining fresh building consents, delays and escalations. The impact of these contingencies could run to millions of dollars. In short, millions of dollars may be riding on this decision.
16 “Rosencrantz and Guildenstern Are Dead” (1967) Tom Stoppard, Act 2.
17 For background see Singh v Boutique Body Corporates Ltd [2018] NZHC 3233 at [9]- [24].
18 Body Corporate 207650 v Singh [2019] NZHC 1547.
[31] The council says however that notwithstanding any detriment to the plaintiffs from uncertainty about repair costs, the fixture should be maintained to avoid prejudice to it.
Delay
[32] The council says that the plaintiffs have delayed in prosecuting their claim. They did not start it until October 2013 and there have been inexcusable delays in getting the case on for hearing.
[33] Nearly six years have passed since the start of the proceeding. Undoubtedly investigating building defects in a large apartment complex is time-consuming and exacting. Experts and consultants who specialise in this area are few and they have other commitments. Investigations by one expert may trigger investigations by another expert and peer review may be required. All the same, it is hard to understand how it could take so long for the plaintiffs to investigate all the defects alleged in their statement of claim and to plan repairs.
[34] As already noted, the building work was completed in May 2005 when the Auckland City Council issued the final code compliance certificates. The plaintiffs did not begin this proceeding until October 2013. That was within the 10-year limitation period under s 393 of the Building Act 2004, even if it was outside the normal six-year periods under the Limitation Acts 1950 and 2010.
[35] The first statement of claim was a rushed job. The pleading was defective because the plaintiffs’ consultants had not given enough advice on which a sound statement of claim could be pleaded. The plaintiffs did not serve it immediately. An amended statement of claim was filed in August 2014 and the defendants were served shortly afterwards. The council applied for strike out. Faire J held that the first statement of claim was a nullity but allowed the proceeding to continue on the amended pleading.20
20 Body Corporate 348047 v Auckland Council [2014] NZHC 2971.
[36] The plaintiffs say that between 2015 and 2017 experts investigated Imperial Gardens. There is, however, no direct evidence to that effect. The council notes that under case management directions the defendants were to be advised of any inspections, but it was not told of any.
[37] In June 2016, the plaintiffs advised they wanted to have their remedial plans completed and a building consent submitted before trial, and it would take six months before they could apply for a building consent. In September 2017, the plaintiffs advised that by mid-2018 they expected to have selected a contractor and agreed a contract price for repairs. At the same time, they made it clear they wanted to go to trial after the repairs had been carried out. In March 2018, the plaintiffs advised that structural engineers had identified potentially serious seismic deficiencies. There would be further testing and the engineers’ work would be peer reviewed. There would be a delay in obtaining a building consent until the extent of the seismic problem was fully understood.21 In April 2018, a project manager for the plaintiffs advised that the projected dates for key steps were:
(a) Concrete scanning complete: early May 2018.
(b) Peer review of the engineer’s modelling: mid-August 2018.
(c) Detailed structural assessment complete: late October 2018.
(d) Apply for building consent: late January 2019.
(e) Start works: late May 2019.
That, however, has not happened – see the current programme in paragraph [18] above.
[38] On the face of it, the plaintiffs have delayed. It has taken much longer for this case to be got ready. The investigation of defects and working out remedial plans seems to have taken much longer than most building defects claims for unit title
21 The seismicity problems are not part of the plaintiffs’ claim.
complexes, although I note that these cases do require significant time.22 The plaintiffs’ evidence does not explain why this case has taken so long. The defendants are not required to account for the plaintiffs’ preparation of their case. Given the time the case has been running and the absence of adequate explanation by the plaintiffs, I find that they have delayed. The evidence also shows that the plaintiffs have not always been able to keep to their forecasts. The question is whether the plaintiffs’ slow progress and the uncertainty when building work will be completed counts against the plaintiffs having a hearing only after the repairs have been carried out.
[39] The defendants have not applied for dismissal for want of prosecution under r
15.2 of the High Court Rules. Under that rule, a proceeding may be dismissed if there has been an inordinate and inexcusable delay and the defendant has been seriously prejudiced. If those tests are satisfied, the court must still consider whether justice can be done despite the delay.23 While the defendants have frequently voiced their displeasure at the plaintiffs’ delays, they must have recognised that a court is likely to rule that justice can still be done notwithstanding the delays. To a large extent that is because of the way the case will be run. It will not turn on the testimony of council inspectors and other staff who dealt with the building consents, inspected the construction and issued code compliance certificates. They have gone. If a trial were held today, the council would not be able to call its former staff. Instead, both sides will give circumstantial evidence plus information obtained on discovery.24 Both sides will call evidence from experts and consultants who will have inspected the defects and damage and considered records.
[40] As a fair trial is still possible, it is not clear why delay should be used to bar the plaintiffs from proving their case. Why as a matter of procedural law should the delays be used to restrict the plaintiffs’ wishes to prove their case by reference to actual repair costs? While parties are required to use due diligence in prosecuting their cases to trial and most plaintiffs are motivated to do so, curtailing their ability to prove their case to their best advantage is punitive and does not seem warranted.
23 Lovie v Medical Assurance Society [1992] 2 NZLR 244 (HC) at 248 and 253.
24 Helicopter Finance Ltd v Tokoeka Properties Ltd [2012] NZHC 686 at [21]- [22].
[41] There is another way delay can be addressed – allowing it to be considered substantively. That is Downer New Zealand Ltd’s position. At trial, it will run defences based on failure to mitigate by carrying out repairs earlier. Presumably it will call quantity surveying evidence to show the differences between costs incurred and those that would have been incurred if the repairs had been carried out earlier. There is nothing to prevent the Auckland Council running a similar defence. Here I have only shown how delays may be addressed. This paragraph is not to be cited as saying that I have found that the plaintiffs have failed to mitigate. That is for trial.
Uncertainty as to completion
[42] Part of the council’s case is that there is no certainty when the repairs will be completed. It refers to the plaintiffs’ poor record in making progress and missing targets. A building surveyor retained by the council says that there is room for further slippage:
In large complex remedial projects of this nature, it is very common for slippages in the construction programme to occur. Based on my experience, and a review of the (limited) documentation, I provide a few examples...25
For the council it was submitted that the plaintiffs had not reached a point of no return with their repair plans. Given the uncertainty there was no assurance when the work would be completed. Therefore the current fixture should be maintained.
[43] The plaintiffs referred to the resolution at the general meeting in August 2018 to go ahead with the repairs. They said that gave an assurance that funds are being raised for the repairs. I accept that it shows the plaintiffs’ intentions. But like the council I am sceptical whether the programme in paragraph [18] above will be the last word or will be achieved. After all, that is part of the uncertainty the plaintiffs face in carrying out repairs. The council’s objection is that it should not have to share that uncertainty. That is a reason for not accepting this part of the council’s case. Its aversion to sharing risks with the plaintiffs is part of its strategy to force the plaintiffs to take a lower award.
25 That also supports the plaintiffs’ concerns as to uncertainty of repair costs.
[44] At the same time case management directions can give a greater assurance that the case will not be allowed to drift. If a hearing is set for a time after repairs are expected to be completed and after allowing for slippages, the plaintiffs will have a time to work towards, knowing that it will be harder to apply later for another adjournment.
Other prejudice
[45] The council referred to other heads of prejudice from putting the trial off until after the repairs are carried out:
(a) The council will incur ongoing costs. Council consultants will need to attend the site during the repairs and review the plaintiffs’ ongoing discovery.
(b) Work carried out to date will to a large extent be wasted because fresh assessments will be required and old assessments will need to be reviewed.
(c) There is a risk of loss of institutional knowledge, as there may be personnel changes in the council, its consultants and its lawyers. It points to the case having started in 2014 and says that the same people cannot be expected to stay on the case all that time.
[46] When plaintiffs elect to repair before trial, it is standard for defence consultants to inspect the defects, damage and repairs. That is because the works may show a different picture from inspections made before opening up and earlier assessments will be reviewed. That involves extra work on both sides. The plaintiffs’ consultants need to do the same. In fact, the plaintiffs would likely be put to that cost in any case. Even if the consultants do not give evidence because repair costs are estimated before trial, they will need to deal with the defects as they are found during repairs. So the council’s objection under this head comes back to its reluctance to share the same costs and risks as the plaintiffs. Allowing it means going along with its strategy of making the plaintiffs carry the risk of errors in estimating repair costs. The council did not say
why it is fair that it should be spared the costs of assessing defects and damage as repairs are carried out, when the plaintiffs will not be.
[47] There is a risk of loss of institutional knowledge. Some of it is inherent in any major building defects case. Many cases take a long time to come to hearing,26 especially the larger unit title developments. But it needs to be kept in perspective. No doubt the parties and their consultants have kept records of inspections. Much of the older information may not be needed at trial because of new information that will come to light during the repair work. This aspect applies to both sides.
Weighing up all matters
[48] There are advantages in deciding damages according to actual repair costs. It gives a more just outcome. It avoids the difficulty for the parties and the court in predicting repair costs before repairs are started. Estimating costs carries risks. However the law measures damages based on estimates, the risk of error will fall on one side or another. Under present practice it falls on plaintiffs, but a change to make defendants carry the risk instead would also cause an injustice. There is not a good reason for plaintiffs to carry that risk. Error in estimating costs stands to cause significant losses, in this case potentially in the millions of dollars. Because plaintiffs currently carry the risk, errors in estimating repair costs can cause hardship to unit owners required to pay heavy shortfall levies. A hearing which allows the plaintiffs to prove actual costs of repair is preferable to a hearing where they will not be able to. The current fixture for the first quarter of 2020 will not allow the plaintiffs to prove the actual costs because the repairs will not be finished by then.
[49] In the absence of evidence explaining what has been done since 2013 the plaintiffs have delayed in bringing this proceeding. Notwithstanding that, a fair trial is possible. The delay should not count against the adjournment notwithstanding the objective of a speedy determination.27 It would be inappropriate to use the delay to rule punitively against the plaintiffs proving actual costs. Instead the defendants may
be able to use the delay substantively by showing a failure to mitigate from not repairing earlier.
[50] The other matters of prejudice the council relies on, uncertainty when repairs will be carried out, extra work and costs because the case will go to hearing on actual costs, and loss of institutional knowledge apply to both sides. While the plaintiffs will have to bear these matters even if the adjournment is not granted, the council uses its costs saving to resist the adjournment. That is not compelling.
[51] There is time available for a 12-week hearing beginning 11 July 2022. If the plaintiffs can keep to their programme in paragraph [18] above and even if there is some slippage, the case should be able to be heard then. Fixing that date gives an assurance that the case will not drift. The plaintiffs will appreciate their difficulties in asking for a further adjournment.
[52] Overall, I am satisfied that the hearing for 10 February 2020 should be adjourned. The matter favouring the adjournment, the desirability of fixing damages according to actual costs of repair, far outweighs the matters raised by the council for keeping the fixture.
[53] I grant the application for an adjournment. The fixture for 10 February 2020 is vacated. The case will be heard for 12 weeks beginning 11 July 2022.
[54] I invite the parties to confer as to costs. If they cannot agree, memoranda may be filed and I will decide costs on the papers.
[55] The Registrar is to arrange a case management conference for further directions. Leave is reserved to apply further.
................................. Associate Judge Bell
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URL: http://www.nzlii.org/nz/cases/NZHC/2019/1738.html