Bu-Rye Lee and Jeom-Youl Lee v Auckland Council

• Jurisdiction: New Zealand
• Judge: Whata J
• Judgment Date: 11 October 2016
• Neutral Citation: [2016] NZHC 2377
• Docket Number: CIV-2016-404-970
• Court: High Court
• Date: 11 October 2016

Between

Bu-Rye Lee and Jeom-Youl Lee

Appellants

and

Auckland Council

Respondent

[2016] NZHC 2377

CIV-2016-404-970

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

Appeal pursuant to s93 Weathertight Homes Resolution Services Act 2006 (WHRSA) in respect of a decision by the Weathertight Homes Tribunal (WHT) that the respondent Council had not been negligent and did not cause loss to the appellants — the appellants had bought their house without requesting a LIM — the Council had not issued a Code Compliance Certificate due to concerns about weathertightness — during the construction a cladding called Styroplast was installed instead of the approved cladding, Insulclad — the appellants argued that the Council inspector had seen this installation and should have issued a notice to rectify (NTR) — Council had been relying on the producer statement process — the WHT had dismissed found that the failure to obtain a LIM amounted to contributory negligence in the amount of 30 per cent — whether the Council's inspections and/or inspection process were negligent as it did not have a “road marp” for the inspections — whether the failure to issue an NTR caused the appellants loss — whether the obligation to issue an NTR under s43(6) Building Act 1991 was mandatory or whether the Council was entitled to rely on its refusal to issue a CCC — whether the appellants failure to obtain a LIM caused more than 30 per cent of their loss — whether the quantum of damages should include the costs of sale — what was the proper measure of unaffected value.

Counsel:

G R Grant for Appellants J R Knight for Respondent

JUDGMENT OF Whata J

1 Bu-Rye and Jeom-Youl Lee (the Lees) purchased a house from a friend. They did not seek a LIM before doing so. It is a leaky home. The Auckland Council (the Council) had not issued a Code Compliance Certificate (CCC) for, among other reasons, concerns about weathertightness.

2 The Weathertight Homes Tribunal (WHT) awarded damages to the Lees against the developer, Goodland Investments Ltd (GIL), but refused to award damages against the Council, finding that:

• (a) The Council's inspections and the inspection process were not negligent; and

• (b) The failure of the Council to issue a notice to rectify (NTR) in respect of weathertightness issues did not cause loss to the Lees because it was not proven that the notice would have been brought to their attention.

3 In fixing the quantum of damages, the WHT adopted a change in value approach with the loss fixed by reference to the unaffected value less the actual value. The WHT also found that the Lees contributed to their loss by failing to obtain a LIM. The damages quantum was reduced by 30 per cent. This resulted in a damages award of $269,619 against GIL in the Lees' favour. The claim against the Council was dismissed.

4 The Lees claim that the WHT erred in fact and law:

• (a) In finding that the Council did not breach its duty of care to the Lees in relation to its inspections of the dwelling during construction;

• (b) In finding that, although the Council breached its duty of care to them by failing to issue a NTR on about 4 March 2004, that breach did not cause loss to the Lees;

• (c) By not including the selling costs in the measure of loss.

5 The Council cross-appeals, claiming that:

• (a) The WHT erred in fact and law in fixing the level of contributory negligence at 30 per cent;

• (b) The Lees were 100 per cent liable for their own loss; and

• (c) The unaffected value of the property should take into account the absence of a CCC and the condition of the home, resulting in a damages quantum of $80,170, which is then to be reduced by 100 per cent to reflect the Lees' negligence.

Issues

6 Against this backdrop I must resolve whether the WHT erred in respect of the following issues:

• (a) Whether the Council's inspections and/or inspection process were negligent;

• (b) Whether the Council's failure to issue an NTR caused the Lees' loss;

• (c) Whether the Lees' failure to obtain a LIM caused more than 30 per cent of their loss;

• (d) Whether the quantum of damages should include the costs of sale; and

• (e) What is the proper measure of unaffected value?

Facts

7 The construction of the house at 38 Joy Street was managed by GIL. It applied for building consent in March 2002. The plans attached to the application include the following notation:

Non-rigid, solid plaster on exterior walls system, consisting of 21 mm plaster, metal lath, building paper 50 x 25 tanalised batons at 600 CRS building paper on timber studs.

8 Building consent was granted requiring, among other things, that details of notations on the approved plans must be strictly followed. The consent also notes:

• (6) The Council will require a minimum of one working day's notice prior to the following inspections:

  • (i) Footing or foundation inspections.

  • (ii) Pre-slab plumbing.

  • (iii) Concrete floor slabs.

  • (iv) Prelining (building and plumbing) prior to fixing linings.

  • (v) Postlining (prior to fixing trim, stopping or painting of linings).

  • (vi) All drainage work before backfilling.

  • (vii) Completion inspection (building and plumbing).

9 Attached to the building consent is a document referring to the inspections required. No inspection is identified in relation to the solid plaster.

10 Building work commenced in May 2002, but the Council was not called for an inspection until 18 October 2002. At this inspection various checks were made in relation to weathertightness, including moisture content in the framing and the checking of ground clearance between cladding and the adjacent ground. The Council also identified a number of actions that needed to be taken, including a requirement to provide amended drawings for changed cladding to be approved by the Council. These plans were provided and on 25 October 2002, the Council approved amended plans showing a change in the cladding from a solid plaster on baton to Insulclad.

11 There remains a dispute as to whether the Council inspector observed the installation of the cladding at any time. The Council inspector's field inspection sheet dated 31 October 2002, includes the following notation:

Cladding inspection requested (Insulclad).

Phoned Justin de Silva – confirmed. Council do not carry out inspection.

I informed installer to provide a PS3 and certificate from Plaster Systems.

12 A postline inspection of the first floor and plumbing and a postline inspection of the ground floor were undertaken by the Council on 18 and 29 November 2002. Both passed. This was followed by a failed inspection on 22 April 2003. A field memorandum was issued which noted a number of items requiring attention. An inspection recheck on 5 June 2003 also failed and a further field memorandum was issued noting nine items requiring completion. One item includes the following reference:

• (7) Provide details when item 3 inspected on F/M 14222.

13 Item 3 on F/M 41222 refers to:

Complete wall and ceiling insulation including block walls.

14 A final building recheck was undertaken on 13 November 2003. It failed for reasons unrelated to the cladding.

15 On 16 December 2003, the Council sent a letter addressed to the consent-holder at 28 Joy Street, noting that any type of monolithic cladding without a cavity that has not had specific inspections to deal with weathertightness issues will be reviewed on a case by case basis before determining whether a CCC can be issued.

16 The property was then sold, on 24 December 2003, by GIL to Jacqueline Ratcliffe and then transferred to Jung Jin Kim, and who then on-transferred to Jong Ho Choi and Hyo Ja Woun. During and following the process of sale, the lack of a CCC was noted by Ms Ratcliffe's solicitor.

17 It transpired that Styroplast, not Insulclad was installed, in breach of the amended building consent. In February 2004 the Council received an application from GIL to amend the plans to change the cladding from Insulclad to Styroplast systems wall cladding. The application was accompanied by a producer statement from CFK Plasterers Limited stating that Styroplast had been installed in accordance with the manufacturer's requirements. This application was rejected by the Council and, on 4 March 2004, the Council wrote to Mr Kim stating:

As your building is face fixed (monolithic) construction with no cavities we are unable to verify that it fully complies with the Building Code requirements, manufacturer's details application at the time and that it will remain durable for the required period.

…

Council cannot be satisfied that the cladding system as installed on the above building will meet the functional requirements of Clause E2 External Moisture of the New Zealand Building Code and is therefore unable to issue a code compliance certificate.

18 The Lees purchased the property from Mr Choi and Ms Woun on 15 December 2004. They then resided in the property until 2006 when they began renting the house to tenants. In February 2012, a tenant expressed interest in the property and obtained a LIM. This identified that the house does not have a CCC. On 3 August 2012, the Lees applied to the Department of Building and Housing to have the property assessed. That assessment revealed water damage and a subsequent itemised assessment of remedial work required estimates the cost of repair at about $338,478, including GST, plus $5,750 for a timber testing analysis.

19 The defects were: 1

• (a) Framing:

  • (i) There is an inadequate clearance between the bottom plate and the ground on the north elevation of the Dwelling; and

  • (ii) The bottom plate was installed proud of, rather than flush, with the slab edge on the north elevation of the Dwelling.

• (b) Cladding:

  • …

  • ...