Early Xmas presents - for some!
New Zealand appellate courts delivered significant judgments just before Xmas in the never-ending leaky building saga.
This Court of Appeal decision delivered 22 December 2016 is a useful reminder of how important contractual arrangements are and the need to be careful when issuing producer statements, clarifies the standard of care parties involved in construction must meet in negligence claims, and makes interesting observations on when a party may owe a duty to warn. A cross-appeal on a causation point not argued in this appeal has yet to be heard.
Andrews Property Services (APS) successfully tendered for the repair of the ‘leaky’ Fleetwood Apartments. Rather than remove the existing cladding, an ‘overclad’ was to be installed by affixing fibre cement sheeting (Eterpan) to a grid attached to the existing cladding (the substrate). The tender documents provided that the substrate would be surveyed for damage and APS contracted with the owners on the basis that the survey was to be conducted by the architectural consultants, from whom APS would take direction as to any repairs required. Apart from responding to APS’ queries regarding rust whilst installing the overclad system, the architect did not survey the substrate. The Eterpan sheets later cracked and significant damage to the substrate and apartment interiors was also discovered, necessitating removal of the overclad and replacement of the original cladding.
The owners thus “…suffered the dual misfortune of weathertightness issues and a defective remediation undertaken in 2005.” They sued the architect (which did not participate), APS (in contract, negligence and for breaches of the Consumer Guarantees Act 1993 and the Fair Trading Act 1986) and Auckland Council. All three were held liable in the High Court, but only the builder (APS) appealed.
High Court decision
The High Court held it was solely the architect’s contractual obligation to carry out a survey of damage, but APS ought to have ensured that either the architect actually did so or drawn the lack of a survey to the owners’ attention. Whata J emphasised what he perceived to be the obligation imposed on APS by s.112 of the Building Act 2004 to ensure the alterations complied with the building code.
The court also held that the Eterpan sheets had been incorrectly affixed – in particular, the wrong sized holes were drilled for the screws. The plans and specifications had very limited relevant details. APS had sought some advice, but not enough, then screwed the sheets in without allowing for in plane movement due to moisture which later caused them to crack. Nevertheless, Whata J found this breach did not cause the owners’ loss because the substrate was so defective/damaged that it would always have been necessary to replace the cladding and the overclad had to be removed accordingly.
APS’s producer statement was held to be misleading and erroneous: it gave the impression a survey to identify damage to the substrate had been completed prior to the overclad and that the Eterpan sheets had been correctly installed.
Court of Appeal decision
APS’s appeal to the Court of Appeal partially succeeded, though for practical purposes it is a slam dunk – at least until the cross-appeal is determined.
The court concluded that the architect alone bore the contractual obligation to carry out the survey. The standard of care in negligence is to ensure compliance with the building code, not to ensure compliance with the contract (often containing higher standards). Furthermore, although the Building Act 2004 did not apply for other reasons, a contractor such as APS engaged to do discrete remedial work did not owe a duty to ensure a whole building will be code compliant. As for advising the owners about the lack of a survey, after reviewing NZ and UK authorities the court found that in New Zealand law a contractor, not just a professional adviser, can owe a duty to warn its principal of defective work in certain circumstances. Here, however, the obligation to conduct a survey was the architect’s and it was not the contractor’s place to ‘second guess’ the architect’s role. Thus, APS owed no duty to ensure that a survey was completed or to draw its absence to the owners’ attention.
The court did, however, uphold the High Court’s finding that APS had incorrectly installed the Eterpan sheets and to that extent its producer statement was misleading and erroneous.
In an interesting quirk, it appears that only very late in the process did the council and owners consider what might happen if the Court of Appeal overturned the High Court’s finding that APS owed a duty regarding the absence of any survey of damage, but upheld that part of the High Court decision finding APS did improperly install the Eterpan overclad system. This mattered because the High Court had also held that installation failure did not cause the loss claimed. The respondents then urgently applied for leave to cross-appeal the High Court decision on the causation point, which was granted in the interests of justice. That cross-appeal awaits a hearing.
If the cross-appeal is unsuccessful and there are no further appeals to the Supreme Court, APS could escape liability entirely. Council would therefore bear the entire judgment because it will be unable to obtain any contribution from APS or the liable but (presumably) insolvent architect.
On the same day as the Court of Appeal delivered its decision in Andrews Property Services Ltd v Body Corporate 160361, the Supreme Court removed a long standing anomaly of the Weathertight Homes legislation (Weathertight Homes Resolution Services Act 2006 (“the Act”)).
The Act and its 2002 predecessor, had sections (s 55 and s 37) providing that the making of an application for an assessor’s report had the effect as to the filing of proceedings in the court. Many practitioners at the time the 2002 Act came into force (including the writer) had assumed that the effect of this section was to stop the clock for limitation purposes, not just for a subsequent adjudication claim filed in the Weathertight Homes Tribunal (WHT), but for proceedings in the courts. The High Court roundly rejected this view in a decision in which the writer acted: Bunting v Auckland City Council CIV 2007-4042317, 13 August 2008, Duffy J.
Ms Lee owned a leaky building and the Supreme Court commented that her attempts to seek recompense had “…been tortuous and fraught with procedural difficulties.”
Ms Lee had applied for an assessor’s report, but her builder commenced arbitration proceedings. So her adjudication claim in the WHT was struck out. She subsequently issued proceedings in the High Court, more than six years after she had discovered her home was a leaky building. The High Court struck these proceedings out. The Court of Appeal affirmed this decision.
The Supreme Court reviewed the relevant sections and also the scheme and purpose of the Act and had no hesitation in accepting the submission that “…the purpose of s 37(1) is to “stop the clock” on limitation while the dwelling is assessed, allowing homeowners to make informed decisions about their options, without in the meantime any legal claim that they may have becoming time barred”. To interpret s 37(1) more narrowly risks those with leaky homes falling into procedural traps.” The Supreme Court succinctly explained the procedural traps as follows:
 On the Council’s interpretation of s 37(1), leaky-home sufferers could face difficult choices. They would have to keep an eye on the passage of time to make sure that they did not let the limitation period for court proceedings expire. When approaching the time limit, they would have to make an assessment of whether or not any processes they were involved in with any potential defendants, including court proceedings, mediation or adjudication, were likely to produce an acceptable outcome. If they were concerned, they would have to ask the Tribunal to transfer the matter to a court (assuming a matter was before the Tribunal) and/or issue court proceedings themselves, which would terminate any Tribunal proceedings or not allow them to be filed until after the court proceedings ended. Where there are delays in any other processes embarked on or in the adjudication process for whatever reasons, complexity would be increased for consumers and they would be forced into make difficult choices, with what appear irrationally different consequences if the Council’s interpretation of s 37(1) were correct.
The Supreme Court rejected arguments that when the 2006 WHRS Act was enacted Parliament’s Select Committee made it clear that s 37(1) was limited to adjudication proceedings in the WHT: or, that open-ended liability would result if Ms Lee’s interpretation was preferred. It said that the only issue facing council if it preferred Ms Lee’s interpretation of s 37(1) would be where the council faced the claim i.e. in the court or in the tribunal, not whether it faced the claim.
It held that the clock was stopped for limitation purposes when Ms Lee applied for an assessor’s report, so her proceedings filed in the High Court against the council were not time barred.
Finally, the Supreme Court, after stating that Ms Lee’s “…procedural quagmire” “was not of her making”, said that in her case,“…the WHRS Act has not lived up to its purpose of providing “speedy, flexible, cost effective or indeed even readily understandable procedures for the resolution of her leaky home.” That it has taken nearly 10 years for this anomaly to be removed suggests the cause of the problem was not a failure of draftsmanship, when the words of both sections were on their face so abundantly clear.
 Andrews Property Services Ltd v Body Corporate 160361  NZCA644 [22 December 2016]
 Lee v Whangarei District Council  NZSC 98, [3 August 2016]