Body Corporate 341188 v Kelly [2014] NZHC 1454 (26 June 2014)

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UNDER	THE UNIT TITLES ACT 2010
BETWEEN	BODY CORPORATE 341188 First Plaintiff DARREN COTTINGHAM AND MICHAEL ELLIOTT as trustees of the LINCOLN TRUST Second Plaintiffs
AND	STEPHEN ROBERT KELLY AND THE FINAL HARGREAVES TRUST COMPANY LIMITED First Defendant ALLENBY GROUP NZ LTD Second Defendant SOCIAL IMPACT STRATEGIES LIMITED _{Third Defendant}

Hearing:	17 June 2014
Appearances:	P K McGrath & T M Bates for plaintiff applicants T Bowler for the first and third defendant repondents
_Judgment:	_{26 June 2014}

[1] The respondents are building on the roof of an existing apartment building in Hargreaves Street, St Mary’s Bay, converting “future development units”¹they own into residential apartments. Beneath the development site are four floors of residential apartments. The first applicant is the body corporate for the apartment building, and the second applicants are the registered proprietors of one unit in the apartment building. The applicants say the respondents’ construction work has

caused damage to the building, allowing water to enter the structure of the building when it rains, and some of the apartments beneath the construction zone. The applicants allege that the respondents should have taken steps to ensure the building remained watertight before they began building, and that their failure to do so is negligent, a nuisance and a breach of their obligations under the Unit Titles Act

[2] As a result of the water ingress, the applicants say that the body corporate’s insurer has now excluded all cover for water damage claims, and for any claims arising from the respondents’ construction work. It has also signalled its intention to withdraw all cover from 30 June 2014 if the building is not watertight by then. The applicants also allege that the leaks caused by the respondents have caused physical damage to the building and to some apartments.

1. Restraining the respondents from carrying out any construction work to any part of the apartment building until the trial of this action.

2. Restraining the respondents from transferring any interest in future development units to any other party, as such a transfer may defeat the restraint of work.

¹In terms of the Unit Titles Act 2010, a future development unit is a unit proposed for development at a later stage of the development, that is shown on a stage unit plan as a future development unit.

[4] There is some procedural history that must be traversed to make sense of the point now reached in this proceeding. The application for injunction was initially called before Andrews J on 22 May 2014. At that time she made an order restraining any party other than Supercity Interiors from carrying out work on the buildings. Supercity Interiors was the respondents’ builder on site. The Judge was satisfied that the builder had a public liability policy in place which would respond in the event of any unforeseen circumstance, so that it should be able to continue work. She also restrained the respondents from transferring any interest in the respondents’ units.

28 May 2014. At that time the respondents’ position was that although there had

been leaks in the past, these had been addressed with temporary waterproofing.²

They argued they should be allowed to continue work on the roof because it was in everybody’s interests that they close the roof in to waterproof the building. Once the roof was closed in, there was no need to construct a waterproof membrane above the construction site. The applicants responded with evidence that the leaks were ongoing and that a roof on its own would not waterproof the site. In submissions counsel for the applicants doubted the respondents’ ability to complete the roof as quickly as they estimated — they said previous time indications given by the respondents had been very inaccurate.

[6] After discussion with counsel it was agreed I would appoint an expert to report to me on the following questions:

1. Does construction on level 5 allow water ingress into the structure of the building, and/or the units below? It is common ground that water ingress has occurred in the past. The issue is whether there is ongoing potential for water ingress.

2. Is there adequate waterproofing on the construction on level 5 to prevent water ingress into the building at any level?

(b) to allow any existing damage caused by water ingress to be assessed and addressed?

4. What is the best way to make the building weather tight as soon as possible (noting that the applicants’ case is that construction of a waterproof membrane over the site is necessary, and it is the respondents’ case that the roof needs to proceed as quickly as possible);

5. Is there any other step the expert recommends to protect the building from water ingress during the course of construction?

[7] With the consent of the parties I appointed Mr Neil Alvey from Kaizon Ltd and adjourned the proceeding to the next day 29 May 2014 to await his report.

[8] In brief, Mr Alvey reported that the construction on level 5 continued to allow water in to the structure of the building and had allowed water into apartments. He identified the main areas of concern as follows:

- areas of the roof membrane that had been penetrated in order to provide fixings to secure temporary weather proofing;

- damage to seals and joints within parapet cap flashings which had been altered to accommodate the new structure;

- retained timbers following removal of previous construction being not fully protected by shrinkwrap;

- new construction above retained construction where shrinkwrap is provided between the two elements;

- exposed ply sections inadequately sealed where investigation of the structure below has occurred;

- abutment of new construction and retained internal linings where protected by building wrap;

- abutment of new construction and retained construction where protected by a tarpaulin and polythene with duct tape;

- where insufficient, damp proof material was provided beneath new construction built directly off retained construction;

- to the location of new timber construction directly in front of the retained parapet where previous handrails were cut off;

- exposed building wrap and voids between the external cladding to the outer face of the previous parapet;

- the exposed void between the retained timber parapet and the vertical cladding face following the removal of the cap flashings; and

- retained timbers with void between left exposed and unprotected following removal of previous construction.

He detected high non-invasive moisture readings from the external lounge wall of one of the apartments, and elevated non-invasive moisture readings obtained from previously repaired ceilings.

[9] Mr Alvey concluded there was not adequate waterproofing on level 5 to prevent water entering into the building. He said construction needed to stop to enable inspection of existing water ingress issues to take place, and damage to be assessed and addressed. He said that the best solution for the issue was a shrinkwrap

membrane, placed around scaffolding, which would encapsulate the existing construction area. He provided specifications for the necessary shrinkwrap.

[10] Following receipt of Mr Alvey’s reports, the parties were able to negotiate and agree the form of orders which should be made. On that basis I made the following consent orders on 30 May 2014:

1. That the first and third respondents will ensure that by 5 pm on Tuesday 3 June temporary protection via tarpaulins is provided to all areas currently allowing water ingress including the deck areas where cut outs and/or penetrations have been made in the course of the respondents’ work on Level 5 of the building at 21 Hargreaves Street, St Mary’s bay, Auckland (“the Building”) to the satisfaction of the Court appointed expert, Mr Neil Alvey. On 4 June, Mr Alvey is to report to the Court as to whether or not he approves of the tarpaulin installation;

2. The first and third respondents will obtain quotes for a comprehensive shrinkwrapping and scaffolding contract based upon the plan at Appendix B to Mr Alvey’s evidential report of 29 May

Shrinkwrap Plan is to be provided to the quoting contractors. The quotes are to include structural and engineering design for uplift, and specify lead time (to commencement of works), and contract duration to completion of works. The quote should provide aforementioned information for a particular scope of works which requires shrinkwrap to be bought up to the (to be built) roofline (“the Reduced Shrinkwrap Plan”). The first and third respondents may continue with the install of the roof/s until 5 pm on 11 June 2014;

3. Pending further order of the Court, no work is to be carried out to the external envelope on level 5 of the Building other than installation of the roof/s. The roofing work (if still incomplete) is to cease by 5pm on Wednesday 11 June. Any roof that is not complete is to be protected by shrinkwrap in accordance with the Shrinkwrap Plan. The order made on 22 May 2014 by Justice Andrews that only Super City Interiors Limited may carry out work on the respondents’ units is rescinded;

4. By 5pm on Monday 9 June Mr Alvey will recommend at least two shrink wrap quotes, one of which must be accepted by the first respondents who must engage a shrinkwrap contractor as per the relevant quote by 5pm Wednesday 11 June and provide a copy of the contract/terms of engagement to the applicants contemporaneously;

5. During the shrinkwrapping, Mr Alvey will visit the site and report to the Court at weekly intervals as to whether the weather protection is proceeding to his satisfaction/in accordance with the program, and will provide a further report at the end of the works as to whether it has been properly completed;

6. The first and third respondents must pay all contractors involved in the completion of the Shrinkwrap Plan by the due date in accordance with the contractors’ terms and provide proof of payment to the applicants within 24 hours of the due date;

7. Before the works are completed, Mr Alvey will provide a report as to what (if any) water ingress issues and/or damage exist at levels 4 and

8. Following receipt of Mr Alvey’s report, the proceeding will be brought back for mention before Her Honour to decide what further orders may be necessary. Until then the proceeding is adjourned and the respondents are not to carry out any work on the external envelope apart from the roofing and shrinkwrap work referred to in these orders;

9. Mr Alvey’s costs for investigating and reporting as to water ingress and damage are to be paid 50/50 by the applicants and the first/third respondents severally in the first instance, and these costs will then become costs in the proceeding;

10. The interim order made on 22 May 2014 restraining the respondents from transferring any ownership interests in the respondents’ units pending further order of the Court, remains in place, but it is noted that the order does not restrict the respondents’ ability to refinance;

[11] Following the making of these orders, there have been significant developments that have caused the applicants to renew their original application for an interim injunction pursuant to the leave reserved to apply. They say that the respondents have breached the consent orders. Although the respondents undertook the initial temporary waterproofing, it is not disputed they failed to meet the timetable for the provision of quotes for shrinkwrapping for the building and that this has delayed the implementation of the shrinkwrap waterproofing solution. It is also not in dispute that there have been further leaks in the intervening period. Counsel for the respondents say that the respondents’ delay was due to confusion as to whose responsibility it was to obtain quotes. I do not accept this explanation. Mr Kelly, the first respondent, and a director of the second respondent was actively involved in negotiating the consent orders. It is clear to me he was aware of his obligations under them.

[12] The respondents also say that the leaks are not attributable to anything they have done since the temporary waterproofing was put in place. They say that although they installed the temporary waterproofing stipulated by Mr Alvey, it blew off in the strong winds that hit Auckland during an extreme weather event. They point to the deterioration of the roofing membrane on the roof of the apartment blocks, away from the construction zone.

[13] The applicants say that the leaks are entirely due to the fact of the construction work. They say that in the course of the respondents’ race to finish the roof, they removed the temporary waterproofing. Although the applicants accept there were leaks through the existing roof membrane in an area outside the construction zone, they say that the foot traffic caused by the construction work, and other damage inflicted by the workmen, caused the leaks.

[14] The respondents also sought to vary the consent orders to enable them further time to complete the roof. The respondents said in support of that application that the extreme weather event had caused delay in the roofing programme. Following a telephone conference to discuss developments I declined the respondents’ application for variation and directed that the applicants’ renewed application for injunction be listed before me on 17 June 2014. I asked Mr Alvey to attend at the hearing to assist me with issues that arose.

[15] During the course of the 17 June hearing the respondents offered to consent to orders that they stop work on the exterior of the building, and to shrinkwrap promptly the building in accordance with a detailed quote obtained. This quote accorded in nearly every respect with Mr Alvey’s specifications but allowed them to continue with the roof. They also offered to retain suitable project management skills on the site. The applicants were not content with the proposed consent orders. They maintained their application for an order restraining the respondents from undertaking any further work on the site pending the substantive hearing. They also maintained their application for an order that they be authorised to conduct the shrinkwrap work themselves.

[16] In support of this position Mr McGrath expressed the concern that the work on site was not being conducted in an adequate fashion, citing as evidence of the lack of competence the evidence of ongoing leaks which suggested that contractors were not adequately mindful of the need to maintain water tightness of the existing apartment buildings. He also pointed to what he said was an example of unsafe work practices. One of the apartment owners filed an affidavit recounting an incident on 12 June 2014 when a large piece of 6 x 2 landed on his terrace. This was a serious incident. It could have seriously injured, perhaps killed, someone standing on the terrace. Fortunately nobody was on the terrace when the piece of wood fell.

[17] Ultimately I was satisfied the consent orders offered by the respondents were adequate to respond to the legitimate concerns of the applicants. Because the applicants were not prepared to agree to the resolution offered by the respondents, I set out my reasons for making the orders I made on the day, and for not making the order sought by the applicants restraining the respondents from further work on-site until the substantive hearing, and allowing the applicants to engage, pay for and supervise the shrinkwrappers.

[18] The framework for analysis of an application for interim injunction is as follows:

(3) Having regard to the earlier two factors, where does the overall justice lie?

[19] In Roseneath Holdings Ltd v Grieve the Court of Appeal discussed the object of an interim injunction as follows:⁴

The object of an interim injunction is to protect the plaintiff from harm occasioned by any breach of rights, that is the subject of current litigation,

³American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 (HL); and Klissers Farmhouse Bakeries

for which the plaintiff might not be adequately compensated by an award of damages by the court, if successful at the trial. Against that object it is necessary to weigh the consequences to defendants of preventing them from acting in ways which the trial may determine are in accordance with their rights. The well established two stage approach to addressing applications for interim injunctions involves first, ascertaining whether there is a serious question to be tried and secondly, considering the balance of convenience if the relief sought is granted.

[21] The applicants say that the respondents have breached each of s 80(1)(g), (h) (i) and (j) of the Unit Titles Act 2010. Sections 80(1)(g)–(k) of the Unit Titles Act

(g) must repair and maintain the unit and keep it in good order to ensure that no damage or harm, whether physical, economic, or otherwise, is, or has the potential to be, caused to the common property, any building element, any infrastructure, or any other unit in the building:

(h) must notify the body corporate of his or her intention to carry out any additions or structural alterations before the commencement of any work:

(i) must not make any additions or structural alterations to the unit that materially affect any other unit or the common property without the written consent of the body corporate:

(k) must not do anything that breaches or in any way undermines any policy of insurance in the name of the body corporate.

[22] The applicants say s 80(2) extends the application of s 80(1) to the respondents because the future development units on the 5th floor are “in use as a place of residence or business or otherwise”.

[23] The respondents say that s 80(1) does not apply because “otherwise” does not include occupation by builders, relying upon a determination in Mr Kelly’s favour in the Tenancy Tribunal that the word “otherwise” in s 121 of the Unit Titles Act did not encompass occupation for building purposes.

(a) it was reasonably foreseeable that the applicants and other owners would suffer harm if the respondents were careless;

(b) the relationship between the applicants/other owners and the respondents was sufficiently proximate to give rise to a duty of care;

(d) the duty of care has been breached as set out in affidavits supplied by the expert retained by the applicants, Mr Wiemann.⁵

[25] The applicants submit that the respondents have carried out the building work in a manner which has created an unreasonable interference with the applicants’ right to use or enjoy their interest in the property. This is a case where physical damage to property has been caused, as opposed to mere discomfort or inconvenience. The applicants emphasise the strict liability nature of the tort of nuisance and in particular that it is no excuse for the defendant to say that reasonable precautions were taken. They also note that an injunction is the usual remedy in a case of nuisance.

[26] The respondents reply to the nuisance and negligence causes of action that the onus is on the applicants to establish that they have a case in nuisance and/or negligence and that they cannot meet the test because the Council has inspected and signed off the works. They say that in a case where a mandatory injunction is sought, as here, the applicants must show a strong case.

[27] As to whether or not there is a serious question to be tried, Fisher J in Peters v Collinge stated: ⁶

The plaintiff need not finally prove his case today but his evidence must take matters to the point that a seriously arguable case has been demonstrated. This requires a consideration of the affidavit evidence and then by application of the law.

[28] In this case it is not seriously disputed by the respondents that the respondents’ works have allowed water to enter the fabric of the building and some of the existing apartments in the apartment block. On the evidence before me it is not capable of credible dispute that this is an ongoing problem. The respondents have attempted to argue that these incidents have been caused by two extreme weather events and that temporary measures have met the concern. However the applicants’ evidence, not rebutted by the respondents, demonstrates ongoing leaks, occurring outside the time frame of extreme weather events. This is corroborated by Mr Alvey’s investigations. It is true that the temporary weather protection designed by the Court appointed expert would likely have prevented leaks from the construction area. However during the course of the hearing on 17 June, Mr Alvey was invited to give evidence (with the consent of both parties). He said he had inspected the site following the last extreme weather event, and his assessment was that the respondents had removed some of that temporary weather protection in their rush to complete the roofing and that this had allowed further leaks.

[29] As to the legal principles, I also have no difficulty in finding that there is a serious question to be tried in connection with the negligence and nuisance causes of action. The evidence establishes there is a seriously arguable case that work being undertaken by the respondents on the roof of the apartment building caused the leaks which in turn caused both physical damage. Although issues of foreseeability, duty and breach can only be determined at trial there seems to be a good argument that there is sufficient proximity for the purposes of a negligence cause of action, and no public policy reasons which would undermine the imposition of a duty. The case for

nuisance may be simpler to establish because of the strict liability aspects of that cause of action.

[30] I also consider that there is a serious question to be tried that the duties imposed by s 80(1) do apply to the respondents. The interpretation applied by the Tenancy Tribunal adjudication to the words “or otherwise” may not be simply transferable to s 80(2), as the respondents would have it. These expressions sit in different parts of the Act, within provisions that have different purposes. There is at least a serious question whether “otherwise” in s 80(2) encompasses use for construction work. If it does then s 80(1) applies. For these reasons the first question, of whether there is a serious question to be tried, is answered in the affirmative.

[31] As to what is meant by the balance of convenience, May LJ observed in Cayne v Global Natural Resources pl⁷that although the phrase may well be substantially less elegant, a better description of the process is a consideration of the “balance of the risk of doing an injustice”. Relevant considerations include the adequacy of damages for the applicant or respondent, consequences for third parties, a consideration of the steps most likely to preserve the status quo, the conduct of the parties and the relevant strength of each party’s case as revealed by the affidavit evidence.

[32] Particular considerations come into play where, as here, a mandatory injunction is sought. A mandatory injunction is one that requires a person to do a particular act or thing. Special circumstances are usually required before a mandatory interim injunction will be granted. This is particularly so where the mandatory interim injunction will deprive the unsuccessful party of all the normal safeguards that will ensure a fair hearing. The Courts are reluctant to grant mandatory injunctions where the form of obligations imposed are imprecise, and

⁸Morton v Eltham Borough [1961] NZLR 1 (SC); and Co-op Insurance Society v Argyll Stores

[33] Damages are not an adequate remedy for the applicants in this case. The apartment owners should be able to enjoy their residential units free of leaks and the ensuing damp environment. The applicants’ evidence also establishes that the issue of watertightness must be addressed to ensure that the applicants’ insurance position is not detrimentally affected.

[34] Conversely, if the respondents’ building works are delayed for a month, they will incur financing costs, but these can be met with an award of damages.

[35] The erection of a shrinkwrap waterproof membrane is clearly consistent with the maintenance of the status quo. Allowing ongoing leaks into the building could cause further damage to the apartments, and damage to the fabric of the building itself. It is the opinion of Mr Alvey that the best way to make the building weathertight as soon as possible is to erect a shrinkwrap cover.

[36] During the course of the hearing Mr Alvey agreed that the construction needed to stop to allow further identification of water ingress issues and addressing of the causes and the damage. The evidence suggests that a stop work for these purposes is necessary to maintain the status quo.

[37] The respondents have agreed that they should stop work while that shrinkwrap is being put in place, and also until Mr Alvey has had the opportunity to undertake a further inspection of the site to identify ongoing water ingress issues, and to identify damage that needs to be rectified. However the applicants are not content with this proposal, and persist in their application to have construction on the site stopped pending substantive hearing. I asked counsel for the applicants to articulate the basis on which the applicants can have a legitimate interest in a stop work until hearing if watertightness issues are addressed. He says it is on the basis that the work being done by the respondents is sub-standard, and that the applicants have health and safety concerns given the incident with the falling piece of wood.

[38] The evidence before me does not raise a serious issue that the buildings themselves will be leaky once work has finished. The evidence is not directed to that. I note the evidence that the Auckland City Council has been involved in signing off work along the course of the construction. The respondents have agreed to retain a project manager with suitable construction experience.

[39] I also take into account, as I must, that a long term stop work is a substantial interference with the respondents’ rights. The respondents’ evidence is that it will cause them substantial loss, and imperil the finance for the project.

[40] The applicants wish to undertake the shrinkwrapping themselves. However the orders I made contain sufficient safeguards to ensure the respondents move quickly to get the work needed underway. Should there be further delay the applicants will have a strong argument for this further incursion into the respondents’ rights, but I am satisfied at this point the orders I made strike an appropriate balance.

[41] There was also a suggestion during the hearing that the respondents should be required to cover the roof membrane outside the construction zone with shrinkwrap, because their actions had caused the membrane to deteriorate. I have considered the evidence of Mr Wiemann the applicants’ expert, and the views expressed by Mr Alvey. Although some deterioration is no doubt the respondents’ responsibility, it is clear on the evidence available at this point that the membrane is past its useful life. The applicants would need to address this whether or not the respondents were doing the work. I do not consider the obligation to shrinkwrap this area should be imposed on the respondents. The applicants do not need the Court’s permission to waterproof the zone. They are free to do so, and who should bear the cost can be determined at the substantive hearing.

[42] The respondents raise delay on the part of the applicants as a factor weighing against the grant of injunctive relief. From the narrative emerging from the affidavits, I am not satisfied there has been any unjustified delay on the part of the applicant. Any delay in their bringing this issue to court has been caused by their attempts to resolve reasonably issues with the respondents. It is to their credit that

they took such steps before bringing the matter before the Court. In any case, there is no evidence that delay has in any way prejudiced the respondents.

[43] Taking a step back and looking at the overall justice of the situation, I consider the overall justice favours the grant of the orders as made, and not the more extensive orders the applicants seek. On the evidence before me the applicants have strongly arguable causes of action against the respondents — the respondents should have taken steps to waterproof the building site before commencing construction, and their failure to do so has caused harm to the applicants. I have no hesitation in concluding that injunctive relief should be granted to require the respondents to create a shrinkwrap solution for the building.

June 2014) remedial work to the temporary waterproofing to reinstate the waterproofing which Mr Alvey previously directed.

2. (a) The respondents are to engage Scaf-Wrap to undertake the programme of works to create shrinkwrapping of the property in Hargreaves Street. That engagement is to be on the basis that the programme is to be in accordance with the Scaf-Wrap quotation (noting it will not commence until toward the end of the week commencing 16 June, and to be completed by 27 July 2014 – weather permitting) and in accordance with the Millic Auckland Ltd detail 1 and 2 provided in support of that quotation.

(b) The respondents are to pay the shrinkwrap contractors by the due date and provide proof of payment to the applicants within 24 hours of the due date.

3. The stop work on all work on the site is to continue in force, with the exception of the remedial work to temporary waterproofing, until further order of the Court.

4. Following completion of the shrinkwrapping the respondent is to engage the shrinkwrapping company Scaf-Wrap to attend at site twice weekly, Tuesdays and Fridays, to ensure that the shrinkwrapping protection remains adequately in place.

5. Once the respondents advise that the shrinkwrap is complete, Mr Alvey is to return to the site to check completion of the shrinkwrapping and investigate the new water ingress issues that have occurred since his last report. He is to report as to:

(a) Whether he is satisfied that the shrinkwrapping has been completed in accordance with specifications.

6. The respondents are to engage a project manager with suitable building qualifications in time to take charge of any resumed work by the respondents on the site.

7. The interim order restraining the respondents from transferring any ownership interests pending further order of the Court remains in place, with the proviso that the respondents may grant security interests in their ownership interests for the purpose of refinancing.

[46] On receipt of confirmation of the appointment of a project manager, and receipt of Mr Alvey’s report, I will release the respondents to continue the construction work if satisfied at that point as to weathertightness issues.

[47] I record that if Mr Alvey is not available to undertake the investigations and prepare the report mentioned in these orders, his assistant Mr Brooks may undertake that inspection work on his behalf. He will do that in accordance with Mr Alvey’s directions. This is necessary as Mr Alvey has signalled that he will be absent from New Zealand for a period of time in the near future.

[48] The costs of the shrinkwrapping are to be costs of the respondents initially. Which party should ultimately bear those costs will be determined in the proceeding.

[49] The ongoing costs of Mr Alvey’s and his assistant attending on site to check that the shrinkwrapping is completed appropriately and to check for any water ingress cause and identify remedial steps, are initially to be borne 50/50 between the applicants and respondents but ultimately to be costs in the proceeding. Each of the applicants and respondents are to pay by 5.00 pm 2 July $9,000 security for those costs, and also as security for the costs of Mr Alvey’s earlier work in relation to identifying causes of water ingress and the necessary remedial steps.

High Court of New Zealand Decisions

Body Corporate 341188 v Kelly [2014] NZHC 1454 (26 June 2014)