Body Corporate 321655 v Albert Park Holdings Limited (formerly Clearwater Construction Limited) (in liquidation) [2014] NZHC 2478 (9 October 2014)

Last Updated: 31 October 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-007624 [2014] NZHC 2478

BETWEEN	BODY CORPORATE 321655 First Plaintiff SONG PROPERTIES LIMITED & ORS Second Plaintiffs
AND	ALBERT PARK HOLDINGS LIMITED (formerly CLEARWATER CONSTRUCTION LIMITED) (In liquidation) First Defendant MALCOLM BROWN MURRAY DAY ARCHITECTS LIMITED Second Defendant (Discontinued) MALCOLM DONALD BROWN Third Defendant (Discontinued) Cont ...

Hearing:	6 October 2014
Appearances:	R F Harvey and S L Tomlinson for Plaintiffs No appearance for Albert Park Holdings Limited (In liquidation)
Judgment:	9 October 2014

_{JUDGMENT OF WOOLFORD J}

This judgment was delivered by me on Thursday, 9 October 2014 at 3.30 pm pursuant to r 11.5 of the High Court Rules.

_{Registrar/Deputy Registrar}

BODY CORPORATE 321655 v ALBERT PARK HOLDINGS LIMITED (formerly CLEARWATER CONSTRUCTION LIMITED) (In liquidation) [2014] NZHC 2478 [1 October 2014]

Cont ...

_{CIV-2012-404-003027}

BETWEEN	BODY CORPORATE 321655 First Plaintiff NEDELJKA MILNOVIC & ORS Second Plaintiffs
AND	ALBERT PARK HOLDINGS LIMITED (formerly CLEARWATER CONSTRUCTION LIMITED) (in liquidation) Defendant

Solicitors: Grimshaw & Co, Auckland

Introduction

[1] This is a leaky building claim. The body corporate and the owners of commercial and residential units at 160 Symonds Street, Auckland, known as Madison Apartments, seek judgment against the builder of the apartment complex, Albert Park Holdings Limited (in liquidation), which was formerly known as Clearwater Construction Limited (Clearwater). The plaintiffs allege Clearwater was negligent in the construction of the building and seek damages as a consequence of its alleged breach of duty to them.

[2] Two sets of proceedings against Clearwater were initially issued – one by the body corporate and the owners of the nine commercial units in 2011 and the other by the same body corporate and the owners of the 62 residential units in 2012. The proceedings were subsequently consolidated. The architect who designed the apartment complex together with his firm were also originally parties to the proceedings relating to the nine commercial units, but the plaintiffs settled against them, leaving Clearwater as the sole remaining defendant.

[3] The consolidated proceedings were set down for an eight week hearing commencing in the High Court at Auckland on 6 October 2014. However, on

1 September 2014, Clearwater was placed into voluntary liquidation. The proceedings were therefore stayed by operation of s 248(1)(c) Companies Act 1993 unless leave was granted by the Court. However, the liquidator of Clearwater did not oppose the plaintiffs’ application to continue the proceedings against the company and Venning J accordingly granted leave to continue the proceedings and directed a formal proof hearing on 6 October 2014. On that date, counsel for the plaintiffs appeared in support of their claim. There was no appearance on behalf of Clearwater.

Formal proof

[4] The plaintiffs seek to proceed by way of formal proof. Clearwater did file statements of defence, out of time, to earlier statements of claim, but it has not filed statements of defence to the latest versions of the statements of claim filed on 17

July 2014. Clearwater further took no part in the hearing and it is plain it no longer

proposes to defend the claim. I proceed to deal with this application on a formal proof basis, and on the basis the plaintiffs do not need to prove the allegations that were admitted by Clearwater in its earlier statements of defence.

Facts

[5] On 12 June 2002, Madison Custodians Limited applied for a building consent

to construct a “retail/residential development” at 160 Symonds Street, Auckland. On

28 June 2002 the Auckland City Council issued building consent AC/02/4159. Compass Building Certification Limited was engaged to ensure compliance with the building plans and specifications and to undertake building inspections before issuing a code compliance certificate after completion of the development. Between mid-2002 and mid-2003, Clearwater built the apartment complex known as Madison Apartments. The documents provided by Clearwater in discovery show that Clearwater was the builder involved in supervising construction including selecting, engaging and supervising sub-contractors, giving site instructions, attending site meetings and liaising with Compass Building Certification Limited. On 31 July

2003, Compass Building Certification Limited issued a code compliance certificate for building consent AC/02/4159.

[6] Both Madison Custodians Limited and Compass Building Certification Limited were subsequently struck off the Register of Companies. The plaintiffs were accordingly unable to issue proceedings against them as the developer and certifier of the apartment complex.

[7] In support of their application for formal proof of their negligence claim against Clearwater, the plaintiffs have filed extensive affidavit evidence from the following persons:

(a) Paul Pegram – a building consultant who investigated the defects in both the commercial and residential units. In his seven volume affidavit, Mr Pegram identifies the defects, the resulting damage, the breaches of the Building Code applicable at the time and the repairs which are necessary.

(b) Chris Phayer – a building surveyor who provides evidence of the negligence of Clearwater by reviewing, in his four volume affidavit, each defect identified by Mr Pegram against the requirements at the time of construction. Mr Phayer concludes that Clearwater’s poor workmanship and failure to ensure that the units were built in accordance with the Building Code caused the defects and damage identified by Mr Pegram.

(c) Neale Faulkner – a land surveyor who describes the delineation between the common and unit property at Madison Apartments for both the commercial and residential units.

(d) Patrick Hanlon – a quantity surveyor who calculates the quantum of the remedial works required to the commercial units.

(e) Brian Dunsdon – a quantity surveyor who calculates the quantum of the remedial works required to the residential units.

(f) Kareen McKay – the body corporate account manager for Madison Apartments. Ms McKay gives evidence on the ownership of the units at Madison Apartments, the Body Corporate operational rules and the unit plan.

[8] Having carefully reviewed the evidence, in particular of Mr Pegram and Mr Phayer, and in the absence of any contrary evidence, I am satisfied, on the balance of probabilities, that the apartment complex was constructed with the following defects:

(a) Commercial units

(i) Parapet cap flashings have minimal or insufficient fall, are insufficiently lapped, loose in many areas and no flashings are installed at the junction of the fire exit corridor wall where it meets the residential block.

(ii) Parapet cladding sheets are installed poorly as the fibre cement cladding beneath the parapet cap flashing is uncoated/unsealed, the bottom edges of the cladding sheets are unprimed/unsealed and no capillary gap or inseal strip has been provided between the rear face of the cladding and the upstand of the roof apron flashing.

(iii) Polystyrene mouldings are inadequately installed.

(iv) Wall cladding has been incorrectly installed over openings. (v) Wall cladding has excessively spaced control joints.

(vi) There is insufficient ground cladding clearances.

(vii) Cladding penetrations have been incorrectly constructed and rely solely on sealant to achieve weathertightness.

(viii) Joints between concrete panel/timber framing and concrete block/timber framing, being dissimilar materials which react differently to any thermal changes, have been poorly constructed.

(ix) There is a lack of vertical filler strip to the external face of the concrete walls.

(x) There are numerous joinery defects, including inadequate and incorrect weatherproofing of cladding to joinery junctions, the anti-capillary gap between the head flashings and base of the texture coated fibre cement has been filled or is inadequate and there is insufficient projection of the window and door head flashings.

(xi) The roof to wall junction with the residential block was constructed without adequate weatherproofing.

(b) Residential units

(i) There is a lack of adequate fall to the tiled deck surfaces.

(ii) The membrane installation on the decks is inadequate as the membrane terminates at the junction with the concrete nib and there is inadequate sealing of the membrane to drain outlets.

(iii) There is a lack of clearance or insufficient clearance between the base of the timber frame and/or fibre cement sheet and the external deck surfaces.

(iv) Internal floor levels are lower than the tiled surfaces of the decks.

(v) Membranes installed in the bathrooms have been inadequately installed as they do not extend sufficiently up the perimeter wall, there is no covering at the perimeter wall to floor junctions and the membrane is not lapped onto the flange of the drainage outlet.

(vi) There is also insufficient drainage in the bathrooms as the drainage outlets have been incorrectly positioned and are installed too high, providing a reverse fall to the floor away from the drainage outlet.

(vii) The external wall precast panels are incorrectly spaced and the joints of the precast concrete panels have also been incorrectly sealed.

(viii) There are a number of roof defects including fixings incorrectly installed, inadequate fall to the roof of the lift shaft and poor application of membrane.

(ix) Tiled footpaths at the podium level are inadequately waterproofed.

[9] The evidence filed in respect of these defects has been extensive and has included numerous photographs which well illustrate the manifest and various problems of water ingress. I am accordingly satisfied that the above defects have resulted in the apartment complex failing to comply with the performance requirements of the New Zealand Building Code, in particular, clauses E2 (External moisture), E3 (surface water), B1 (Structure) and B2 (Durability). The defects have resulted in moisture entering the apartment complex causing damage and decay to the building substratum including decay to the timber framing, corrosion to steel beams and damage to internal linings. These defects are clearly not the result of poor maintenance by the plaintiffs, as suggested by Clearwater in its earlier statements of defence.

[10] As a result of the defects the plaintiffs are now required to undertake extensive remedial works involving a full reclad of the commercial units, replacement or treatment of decayed timbers and substantial repairs to the residential units, which includes extensive remedial works to decks and bathrooms. This work is required to repair the damage and make the units weathertight and compliant with the Building Code.

Quantum

[11] The plaintiffs instructed quantity surveyors to calculate the costs of the remedial works required to rectify the defects and damage to both the commercial and residential units. Mr Patrick Hanlon has estimated the cost of repairing the commercial units as $1,427,150 (including GST). Mr Brian Dunsdon has estimated that the cost of repairing the residential units is $3,319,351.95 (including GST). The total remedial costs claimed by the plaintiffs are therefore $4,746,501.95 (including GST). I am advised that all owners of both the commercial units and residential units will be levied to pay for the remedial work required.

Discussion

[12] A builder owes a duty of care in tort to owners or subsequent owners to ensure buildings are free from defects.¹ Madison Apartments is made up of nine commercial units and 62 residential units. All are part of the same body corporate. The building consent and the code compliance certificate issued in this case applied to both the commercial units and the residential units. The duty owed by a builder in relation to residential properties is clear and settled law. However, counsel

acknowledges that it is arguable that the duty in relation to commercial properties is less settled.

[13] I am of the view, however, that the reasoning behind the leading New Zealand cases² is supportive of a duty of care being owed in respect of all buildings regardless whether they are used as residences or for commercial purposes.³ In Spencer,⁴ McGrath and Chambers JJ observed that it would be possible for the Supreme Court to determine that, notwithstanding the general reasoning which has

found favour in New Zealand, the duty of care, should, for policy reasons, be restricted to residential homes.⁵ Elias CJ made similar comments, suggesting there is no issue in principle in extending liability for buildings used for commercial purposes.⁶

[14] In Blain v Evan Jones Construction Limited,⁷ the Court of Appeal regarded the question of whether a builder owed a duty to the owner of a commercial building as unsettled law better left for trial.⁸ That case did, however, involve a strike-out

_application.

¹ _{Bowen v Paramount Builders [1977] 1 NZLR 394 (CA).}

2. Bowen v Paramount Builders; Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA), [1996] 1 NZLR 513 (PC); North Shore City Council v Body Corporate 188529 (Sunset Terraces)

_{& Ors [2011] 2 NZLR 289, [2010] NZSC 158.}

³ Body Corporate 207624 & Ors v North Shore City Council (Spencer) [2012] NZSC 83, [2013] 2

_{NZLR 297 at [87] and [182].}

⁴ _{At [182].}

⁵ _{At [182].}

⁶ _{At [9].}

⁷ Blain v Evan Jones Construction Limited [2013] NZCA 680.

[15] In a more recent oral judgment, again by way of formal proof,⁹ Venning J

states:

[8] A builder owes a non-delegable duty of care in tort to owners or subsequent owners of buildings to ensure buildings are constructed free from defects. The Supreme Court have confirmed in Body Corporate No. 207624 v North Shore City Council (Spencer on Byron) that Bowen is not restricted to residential dwellings. The Court confirmed there is no distinction between commercial buildings and other non-residential premises.

[16] In that case, Venning J held that the builder owed a duty of care in relation to a commercial building.¹⁰

[17] In this case, I note that Madison Apartments is made up of two buildings governed by a single body corporate. Almost 90 per cent of the body corporate is made up of residential units. The entire body corporate is subject to the same rules and management. At no time was a distinction between the commercial and residential units drawn during the construction process. All construction of Madison Apartments was completed under one building consent and there is accordingly only one code compliance certificate.

[18] In accordance with the principles outlined in Spencer by the Supreme Court, I am of the view that the relationship between the plaintiffs and Clearwater is sufficiently proximate and there is no good reason to draw a distinction between the commercial and residential units. Additionally, there are no factors external to the relationship, which would render the proposed duty unfair or unreasonable. In the circumstances, Clearwater owed a duty of care to all owners at Madison Apartments, which on my review of the evidence it has clearly breached.

[19] In the present case, it is unnecessary for me to determine whether the body corporate may sue in respect of the common property as agent for the members of the body corporate on the basis that Clearwater owed a duty of care to the owners or whether the body corporate may sue in its own right on the basis that Clearwater

_{owed a duty of care to the body corporate as owner of the common property.}

⁹ Minister for Education & Ors v WQT Ltd [2014] NZHC 2198 at [8].

Whichever approach is taken, the body corporate either as agent or in its own right is entitled to claim the cost of repair to all of the common property.

Result

[20] The plaintiffs have proved Clearwater was negligent and are entitled to judgment. In CIV 2011-404-7624 the plaintiffs will have judgment against Albert Park Holdings Limited (formerly Clearwater Construction Limited) (in liquidation) for the sum of $1,427,150.00 (including GST) together with interest on that sum from the date of judgment at the Judicature Act rate. In addition, the plaintiffs are to have costs on a 2B basis of $42,810.00 together with disbursements of $1,768.00 in respect of the filing fees for the statements of claim and $2,862.50, being half the filing fees for two interlocutory applications and half the hearing fee.

[21] In CIV 2012-404-3027 the plaintiffs will have judgment against Albert Park Holdings Limited (formerly Clearwater Construction Limited) (in liquidation) for the sum of $3,319,351.95 (including GST) together with interest on that sum from the date of judgment at the Judicature Act rate. In addition, the plaintiffs are to have costs on a 2B basis of $68,325.00 together with disbursements of $1,549.20 in respect of filing fees for the statements of claim and $2,862.50, being half the filing fees for two interlocutory applications and half the hearing fee.

.....................................

Woolford J