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Standing 40 storeys tall with 406 units, the Gore Street building in downtown Auckland (formerly known as “Harbour Oaks”) is presently the subject of New Zealand’s largest claim for residential building defects. In its 469-page judgment, the High Court describes a “colossal case” with a 5-month hearing, thousands of pages of evidence and more than 55 expert witnesses.
Harbour Oaks was built by Brookfield Multiplex between 2004 and 2006. Claims have been made by the Body Corporate, 400 unit owners and a hotel operating from the building. Auckland Council is the primary defendant, with the head contractor gone and many consultants and subcontractors in liquidation.
The judgment grouped defect claims into four categories: fire safety systems; seismic capacity (structural defects); and external and internal moisture ingress relating to balconies and bathrooms. The plaintiffs succeeded in part:
- The Council and fire engineer (in liquidation) are liable for some fire-related defects.
- A subcontractor is also responsible for the installation of some firestopping.
- The Council, the architect (in liquidation) and a subcontractor (in liquidation) are liable for some water ingress issues, although other claims are out of time.
- The claim for structural defects failed (no breach or out of time).
- The hotel operator’s claim for anticipated lost profits failed (no duty, too remote, loss not proven).
The plaintiffs assessed quantum on a global project basis rather than by defect. Their partial success means quantum must be recalculated and a further hearing will be required. In the meantime, all parties have appealed.
While the judgment is fact specific, various issues may have wider application.
Who can sue?
The Court held the Body Corporate had standing to sue the Council for the cost of repairing defects that fell within s 138(1) of the Unit Titles Act 2010. This included not only the common property, but also any building elements or infrastructure that related to or serviced more than one unit. Most defects were systemic and could only sensibly be repaired on a building-wide basis.
The Body Corporate could not sue for bathroom defects confined within a unit, and those claims had to be made by the unit owner. Claims for consequential losses, such as alternative accommodation costs, and general damages for distress, anxiety and mental suffering, could also only be brought by the owners.
The Court declined to follow an earlier judgment (Bianco Apartments), which found that defendants owe concurrent duties of care to Bodies Corporate and owners. The judge found that the duty was owed to individual owners only. The Body Corporate sues for remedial costs in a statutory capacity and the amounts it recovers will be reduced to reflect any contributory negligence on the part of the owners and/or the Body Corporate.
Some owners purchased units with an assignment of the vendors’ claims in the litigation. The Court held the assignments were not restricted to losses suffered by the vendors (i.e. any reduction in the value of the unit at the time of sale). The assignees were entitled to claim for the cost of repairing defects in the units, but were not entitled to general damages.
Claims against Councils
The Court reviewed the scope of a Council’s duty of care in tort and noted it was no higher than its statutory duty under the Building Act. The Court held the nature of those duties was the same under the 1991 and 2004 Acts. The Council must be satisfied on reasonable grounds that compliance with the Building Code should be certified. It does not warrant compliance has been achieved.
The Court emphasised that while a departure from the consented documents may be an error or shortcoming in construction, it will not be a defect in a legal sense if it nevertheless meets the requirements of the Building Code. The Council may rely on a producer statement as verification of compliance but it cannot do so uncritically. The Council should (among other things) consider the skill, experience and reputation of the person providing the producer statement and whether they have a commercial interest in the outcome.
Councils are required to accept that compliance with an acceptable solution or verification method published by the Ministry of Business, Innovation and Employment (MBIE) complies with the Building Code. The plaintiffs argued that these “deemed compliance” pathways do not apply if there is any departure from the published solution or method. The Court disagreed; an acceptable solution only becomes an alternative solution to the extent of the departure. The Council must be reasonably satisfied that the departure complies with the Building Code, but the deemed compliance pathway otherwise still applies.
Expert evidence
There were more than 55 experts involved in the trial. As the judge put it, an onlooker might be forgiven for thinking it was “trial by expert”. The judgment provides a reminder that expert opinion evidence is admissible only if it provides substantial help to the Court in understanding other evidence or ascertaining facts.
Many of the claimed defects did not involve physical damage; anticipated damage had yet to occur or would only do so in the event of a fire or earthquake. While the Court accepted that modelling was appropriate to assess the building’s likely performance, it criticised the conservatism of the plaintiffs’ modelling and the impenetrability of some of its evidence, which prevented analysis by the defendants’ experts and/or the Court. Some experts strayed outside their areas of expertise, which led to their evidence being disregarded. Experts were not heard concurrently which – in a 5 month trial – impeded the Court’s understanding of technical evidence.
Limitation
As is common in building defect litigation, the pleaded defects changed over time (some were added, some were removed). The plaintiffs argued the 10-year longstop period under s 393 of the Building Act is satisfied when proceedings are issued, so that time stops running on amendments to the claim. The Court disagreed; the use of the term ‘proceedings’ in s 393 encapsulates more than the filing of a statement of claim and notice of proceeding in Court. The question is whether a particular cause of action is brought within time.
The Court noted that catch-all claims (where the claim refers to ‘widespread building defects’) are too abstract to stop time running. A cause of action must provide particulars of the basis for the claim and the relief sought. The addition of a defect to a pleading will not amount to a new cause of action if it is a further particular of a claim that has already been made. However, if the defect is essentially different, or requires investigation of matters of a new or different nature, it is a new cause of action and must be pleaded prior to the expiry of the limitation period.
The defendants argued successfully that claims for various defects were out of time. Although quantum has yet to be assessed, the value of the excluded defects may make a significant difference to the claim.
As noted, this litigation still has some distance to run and we will keep it under review.
If you have any questions about this judgment, or defects claims more generally, please get in touch with our Construction Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
