Overview

This claim before the High Court was an appeal of a decision in the Weathertight Homes Tribunal. The Appellants (the owners) purchased a house in Papakowhai (“the house”) from the Woodleys (the vendors) in 2002. Soon after, they discovered dampness in certain areas of the house.

A claim was filed with the Tribunal against the vendors, the Porirua City Council, the builder, the architect, and the engineer.  Prior to the hearing by the Tribunal, the architect and the engineer were removed from the proceedings.  The Tribunal concluded that the defects to the house were not caused by any negligence of the builder and/or the Council.  The Tribunal also found that the Woodleys had not breached the warranties given to the Appellants, pursuant to the sale and purchase agreement (“the agreement”).  This decision was appealed to the High Court.

The issues before the High Court were:

• Whether the builder was negligent for failing to construct the house in a proper workmanlike manner;
• Whether the Woodleys breached the warranty in the agreement;
• Whether the Council was liable in negligence on the basis that it failed to exercise the requisite skill and care:
  • To ensure that the building plans and specifications complied with the Building Code when it issued the building consent;
  • When it carried out inspections and issued the Code Compliance Certificate; and
  • When it failed to “establish and enforce an inspection system that would give effect to the Building Code”.

Breach of Warranty by Vendor

The Appellants argued that the fact the house leaked was a breach of clause E2 of the Building Code because the house within at least 50 years of construction had not provided adequate resistance to penetration by water ingress.

The High Court found that the house was built in accordance with the Act and Code at the time of its construction.  It concluded that the warranty in clause 6.2(5)(d) of the agreement did not impose an obligation on the vendor to warrant a standard of construction that did not exist at the time of the warranty.  The fact that it subsequently turned out that the house may not have been watertight because of unpredictable product failure, and/or the use of building techniques subsequently found to be inadequate, and/or subsequent events outside of the vendors’ control, did not constitute a breach of warranty.  The claim against the vendors failed.

Claim against the Council

The Appellants alleged that parts of the plans and specifications prepared by the architect were inadequate and in breach of the Building Code, and therefore the Council was negligent in failing to pick up on these inadequacies at the consent stage. The architect was previously removed from this claim as it was found that the architect was not negligent in drawing up the plans and specifications. Whilst the Appellant was not prevented from claiming against the Plaintiff for reasons of issue estoppel, it was ruled that it was an abuse of process by the Appellant to now claim that the Council was negligent in issuing the building consent based on plans and specifications that were previously found adequate by the Tribunal.

The High Court then considered the inspections carried out by Council.  It analysed each of the defects and found that the Council was not negligent for a number of reasons which included:

(a)    the house was built in accordance with the plans and specifications and there was no reason to doubt the efficacy of the plans and specifications;

(b)   there was no breach of the relevant BRANZ guide, or the manufacturer’s specifications at the time; or

(c)    the defects would not have been obvious to the Council inspector during inspections.

Claim against the Builder

The High Court upheld the Tribunal’s decision that the builder was not negligent as the house was constructed in accordance with the Building Code at the time and that the architect’s plans and specifications were followed.

Conclusion

This decision illustrates the point that in order to succeed in a claim against the Council and/or other parties involved in the construction process, it is not sufficient to establish that the house leaked.  It has to be shown that there was the requisite breach of the duty of care creating a construction defect from which loss/damage flows.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

Tim Bates of Auckland law firm Legal Vision further examines duties of care in the Lake v Bacic case where a Weathertightness Homes Tribunal decision was successfully appealed

The Bacics, recent immigrants to New Zealand, purchased a unit at the plan stage, in a group of eight that were constructed between 1998 and 2000. They moved into the unit prior to the completion of construction and before a Code Compliance Certificate was issued.
The Bacics experienced problems with the property from the day they moved in. They lodged a claim with the Weathertight Homes Resolution Service and, ultimately, their adjudication claim was heard on 13, 14 and 15 May 2009. A final determination was entered on 11 June 2009.
The unit was on three levels and was constructed of kiln-dried, untreated timber framing, with exterior walls lined with Harditex fibre cement sheets.
The adjudicator decided that the major contributing factors to the dwelling leaking were:
• flat tops and top-dash mounted balustrades,
• poorly installed parapet caps,
• unsealed fibre cement behind the metal flashings, and
• the lack of flashings in the west wall windows.
The council was found liable for negligent inspections, and was ordered to be severally liable to pay 100% of the $232,000 ordered in favour of the Bacics.
A finding of liability was made against Mr Lake on the basis that he was negligent in assisting and/or supervising the installation in the west wall without any flashings, and in failing to ensure that they were installed so that they were weathertight.
On this basis, he was held to be liable for one-third of the remedial costs and 27% of the consequential losses and general damages.
It was this part of the decision that Mr Lake brought the appeal on. In reply, the council brought a cross-appeal alleging that instead of Mr Lake being found partially responsible, the correct decision was to find him 100% liable for the $232,000 award.

High Court decision on appeal and cross appeal
This appeal was heard by Justice Asher. First, he considered whether, in fact, Mr Lake owed a duty of care to the Bacics. In order to determine this he had to consider the role of Mr Lake, which he concluded to be that of a co-ordinator, facilitator and, where necessary, a labourer.
He was not a man who was applying any building knowledge or expertise to work on the site. He was a former registered psychiatric nurse that had moved on from that occupation into managing rest homes.
It was these skills he applied to the construction process — those being management rather than building expertise.
It was held that there was not sufficient proximity for a conclusion that he owed the Bacics a duty of care. It was, therefore, concluded that Mr Lake was not responsible for defects to the deck and the more minor defects. The cross-appeal failed in its entirety.
The appeal related to the finding that Mr Lake was responsible for damage to the west wall. The adjudicator, despite finding he had not assumed responsibility for the construction work, thought he did have responsibility in relation to the windows that were installed in the west wall.
Justice Asher was concerned at this finding, and went back to examine the evidence that was heard at the adjudication.
It was his overwhelming conclusion that Mr Lake’s involvement was as a helper, co-ordinator and labourer.
“His attendance on site was incidental from the Bacics’ point of view. It could have been any person who arrived to put in the windows.”
Justice Asher concluded there was not the requisite assumption of responsibility for weatherproofing issues in respect of these windows, such that a duty of care was owed to the Bacics.

Adjudicator’s decision wrong
Further, there was no indication of any breach of the standard of care by Mr Lake. He concluded that the adjudicator’s decision to find Mr Lake negligent was wrong.
He states at para 54: “The adjudicator’s finding of responsibility in relation to the windows in the west wall cannot be reconciled with her earlier finding (which I have concluded was correct), that Mr Lake did not have responsibility for ensuring that work was done in accordance with good standards.
“The essential nature of his role did not change between the time when he did the main body of work, and when he helped in the installation of the windows. He owed no duty of care and was not negligent.” The appeal was allowed.
This case is interesting in its careful analysis of what activity on a construction site will establish a duty of care. It will not simply be enough to be on site carrying out basic labouring work.
There is a necessary element of assumption of responsibility for weathertighness that is required for such a person to be found liable in a leaky building case.
So, in some ways, this decision provides protection to labourers on site with no real building expertise, so long as they do not purport to “punch above their weight” in their on-site role, and take on responsibility for construction decisions.

SUNSET TERRACES IS A RESIDENTIAL COMPLEX SITUATED IN SUNSET ROAD, MAIRANGI BAY. IT IS A LINEAR UNIT TITLE DEVELOPMENT COMPRISING 21 TOWNHOUSES, EACH OF TWO STOREYS. THE DWELLINGS WERE BUILT IN 1997 AND 1998 USING UNTREATED TIMBER FRAMING AND MONOLITHIC CLADDING.

The proceedings were brought against the Developers, the Council and the Designer. The Court was asked to decide upon many issues.

Firstly, the Court was asked to rule upon whether the Body Corporate could sue for all damage to the whole complex both common property and unit property, including the damage to the units of the three owners who did not participate in the case. It was ruled, that the Body Corporate could only sue in respect of common property. This was due to the Unit Titles Act 1972. It was however conceded that the position would have been different had it been a proceeding brought under the Weathertight Homes Resolution Services Act 2006.

The Court was asked to consider whether in fact a Council owed a duty of care to owners of residential units in a multi-unit complex, the argument for Council being that it ought not to owe a duty because it is a commercial development. The Court ruled in emphatic terms that the Council owes a duty of care to anyone who acquires a unit, the intended use of which has been disclosed as residential in the plans and specifications. In particular the Court found that the Council owes a duty to take reasonable care in performing the three regulatory functions in issue:-

deciding whether to grant or refuse a building consent application;

inspecting the premises to ensure compliance with the building consent;

certification of compliance with the Code.

Four of the individual unit claims were successful. These were Units Owners which had no knowledge of water ingress issues prior to purchasing. One of these four Unit Owners was only partially successful in that he had transferred his Unit to a company after becoming aware of water ingress issues, and so his damages were likely to be limited to the reduction in value he received for the Unit from the company, ($40,000).

Twelve of the Units were owned by individuals under complicated ?Blue Chip? arrangements. The structure was that a Blue Chip company purchased the Units, sold them to individuals who then leased them back to Blue Sky, which then subleased to tenants and contracted with Owners to manage them. In relation to these Units, the Council argued no duty of care was owed to Blue Sky because it was a commercial entity. This argument failed because the Units were intended to be residences at the time Council carried out its responsibilities (see earlier finding).

But the Court did go onto find that the Council owed no duty to Blue Sky because it was only a lessee, not a homeowner leasing for profit. The individual owners however had assigned their cause of action to Blue Sky in November 2005. The Court held that the Council owed a duty of care to Blue Sky as assignee but that the 12 claims failed because there was a break in the chain of causation. There was no evidence of the 12 individual Unit Owners relying upon the Council in their decision to purchase. Their reliance was on the Blue Chip scheme instead.

Other findings made in this decision were:-

Council argument rejected that because they did not charge much for inspections they did not have a duty to carry out more inspections or do a more thorough inspection. It was held instead that Council had power to set its own fees at a level commensurate with the risks it assumed.

As regards a lack of detail being said to have led to problems with wing and parapet walls of the complex, it was held to be enough that the relevant Harditex technical information was around at the time which filled in the details.

It is generally acceptable for the Council to rely upon producer statements instead of actually inspecting construction work, but not in this case because developer had shown himself to be unpredictable and untrustworthy. In particular the Council should have gone further to check out the waterproofing of the decks.

Developer was found to owe a duty of care to all or most of the Plaintiffs. As regards the 4 successful Unit Owners against Council, the apportionment of liability between Developer and Council was ruled to be 85% Developer, and 15% to Council.

The claims against the designer failed.