North Shore City Council v Body Corporate

• Jurisdiction: New Zealand
• Judge: Harrison J,Ellen France,Randerson JJ
• Judgment Date: 21 April 2011
• Neutral Citation: [2011] NZCA 164
• Docket Number: CA760/2009
• Court: Court of Appeal
• Date: 21 April 2011

BETWEEN

North Shore City Council

Appellant

and

Body Corporate 207624

First Respondent

And

Chia Lu Sylvia Chen, Peter Frederick Smith and Robyn Denise Grace and Others

Second Respondents

And

Adc Architects Limited

Third Respondent

And

Multiplex Constructions (Nz) Limited

Fourth Respondent

And

Charco Limited

Fifth Respondent

And

J F Speedy

Sixth Respondent

And

M Brannigan

Seventh Respondent

BETWEEN

Body Corporate 207624

First Appellant

And

John Gilbert Hawksley and Others

Second Appellant

and

North Shore City Council

Respondent

[2011] NZCA 164

Court:

Ellen France, Randerson and Harrison JJ

CA760/2009

CA70/2010

IN THE COURT OF APPEAL OF NEW ZEALAND

Counsel:

D J Goddard QC and S B Mitchell for Appellant in CA760/2009 and Respondent in CA70/2010

M C Josephson and D J Powell for Appellants in CA70/2010 and Respondents in CA760/2009

JUDGMENT OF THE COURT

• A The appeals by John Hawksley and others and by Body Corporate 207624 in CA70/2010 are dismissed.

• B The cross-appeal by the North Shore City Council in CA760/2009 is allowed and summary judgment is entered in its favour.

• C The North Shore City Council is entitled to costs for a complex appeal on a Band A basis together with usual disbursements. We certify for second counsel.

REASONS

Harrison J (dissenting in part)	[1]
Ellen France and Randerson JJ	[95]

Harrison J

Table of Contents

Introduction	[1]
Background	[6]
(1) Negligence	15]
Owners' case	[15]
High Court	[19]
Common ground	[25]
Sunset Terraces	[26]
Analysis	[30]
(a) Primary argument	[31]
(i) Hotel unit owners	[35]
(ii) Apartment owners	[42]
(b) Subsidiary argument	[56]
(c) Conclusion	[60]

(2) Negligent misstatement	[64]
Owners' case	[64]
High Court	[67]
Legal principles	[68]
Analysis	[72]
(a) Building Act	[72]
(b) Owners' arguments	[80]
(c) Conclusion	[90]
Result	[92]

Introduction

1 These related appeals and cross-appeals raise again the question of whether and to what extent owners of properties damaged by moisture ingress, colloquially known as the leaky building syndrome, can recover their losses from a local authority. In a series of decisions starting with Invercargill City Council v Hamlin, 1 this Court has held that, when performing their statutory functions of issuing building consents, inspection and approval, territorial authorities owe duties of care to owners of residential properties whether they are stand alone or within a larger block. 2 But the Court has expressly rejected similar duties claimed by owners of commercial properties. 3

2 This case raises new factual dimensions, giving rise to a novel issue of law. The subject properties are in the Spencer on Byron, a multi-storey building in Takapuna, Auckland. It is called and run as a hotel with all the associated amenities. While its 249 rooms are individually owned, they are rented almost exclusively to paying guests. Significantly, the complex also includes six residential apartments.

3 The plaintiffs comprise three classes or groupings. Collectively they sue for the cost of rectifying physical damage to the building as a whole together with lost rental income. The predominant group are the owners of hotel units. The smaller

group are three of the apartment owners. Where necessary to distinguish their interests, we shall refer to them respectively as “the hotel unit owners” or “the apartment owners”. Otherwise we shall describe them compendiously as “the owners”. The Body Corporate also sues for its losses.

4 The specific issue for determination is whether it is arguable on the facts as pleaded or agreed that the North Shore City Council owed a duty of care to any or all of the owners or the Body Corporate. In the High Court, Potter J struck out the hotel unit owners' alternative claims in negligence and for negligent misstatement but not the three apartment owners' claims in negligence. 4 The Body Corporate and the hotel unit owners appeal; Council cross-appeals against the Judge's refusal to strike out the apartment owners claims and to enter summary judgment against all plaintiffs.

5 We are unanimous in dismissing the appeals by the hotel unit owners and, except to a very limited extent, by the Body Corporate. However, we disagree on Council's cross-appeal. The majority (Ellen France and Randerson JJ) conclude that it should be allowed; Harrison J would dismiss it and consequently allow the Body Corporate's appeal in small part. To accommodate this division, separate reasons will be delivered on that discrete issue (see below at [42]–[57] and [95]–[111]).

Background

6 In summary, the relevant facts as pleaded are as follows. Charco Ltd owned the freehold title to a property at 9-17 Byron Avenue, Takapuna. The company engaged Multiplex Constructions (NZ) Ltd to design and construct the Spencer on Byron Hotel on the site. Multiplex contracted with ADC Architects Ltd to provide architectural services, including preparation of plans and specifications for building consents and for construction of the hotel, observation of the works and practical completion and certification.

7 In 2000 Charco applied to Council for the building consents necessary to construct the Spencer on Byron. Council issued four consents between January and June 2000. Sequentially, they were for demolition of the existing building; piling, founding and retaining and draining; construction of a podium and tower structure to 20 levels; and architectural and building services and the balance of the structure above level 20.

8 Multiplex constructed the Spencer on Byron between January and July 2001. ADC undertook architectural services in July 2001 and issued practical completion certificates. Another company carried out cladding works before Council inspected the building work. On 13 July 2001 Council issued a series of code compliance certificates pursuant to the Building Act 1991 for the four building consents issued in 2000.

9 As constructed, the Spencer on Byron is a multi-level building of 23 floors. It comprises, on the ground and first floors, a hotel lobby and foyer, administrative, entertainment and catering areas (“the podium”); on the second floor, a recreation area including a tennis court, gymnasium and swimming pool; on the second to nineteenth floors, a total of 249 studio and one bedroom units (each having its own unit title issued pursuant to the Unit Titles Act 1972), which are used as hotel rooms and hotel suites; on the twentieth and twenty-first floors, six penthouse apartments (again each having its own title); a basement car park area; and common property as defined by s 9 of the Unit Titles Act.

10 The plaintiffs did not plead two undisputed facts highlighted by Mr Goddard QC for Council. First, in 1997 the developer applied to Council for resource consent. The application referred to the “Byron Avenue Hotel”, described as a “Hotel/Apartment Building” with 232 hotel rooms and hotel suites and four apartments. The site was then zoned Commercial 3D in the Transitional District Plan. Residential units were a non-complying activity. Commissioners appointed by Council granted the developer's application on 31 July 1998.

11 The developer anticipated that in its first year of operation the hotel would draw $20.3 million into the area. Council knew that the building when constructed would include some apartments on the upper floors. Each building consent issued during construction in 2000 described the building as “New Commercial/Industrial”.

12 Second, Charco granted 10 year leases for each unit to a hotel management company, NZ Castle Resorts and Hotels Ltd. The leases entitle the lessee to rent the units to members of the public. Charco sold the units to purchasers subject to the 10 year leases to the management company. Spencer on Byron has at all material times been operated as a hotel.

13 The leases allow the unit owners to use the units on notice for a maximum of 15 days each per year. Alternative accommodation is to be provided if a unit is unavailable. An owner could not legally assume residence of his or her unit on expiry of the lease without obtaining a resource consent from Council.

14 These facts provide the evidential foundation for the plaintiffs' case. We shall separately address each of their alternative claims in negligence and for negligent misstatement.

(1) Negligence

Owners' case

15 The owners purchased their properties in 2001 except for four who acquired them between 2002 and 2007. The properties later manifested physical defects allegedly due to lack of weathertightness. The Body Corporate and the owners claim that a number of parties involved in the design, construction and approval of the hotel are responsible. In addition to Council, they have sued ADC, the engineer, Multiplex, Charco and the insurer of a cladding company.

16 We are concerned only with Council's liability. The owners and the Body Corporate plead that Council owed them a duty to exercise reasonable skill and care when performing its functions under the Building Act 1991 (since repealed and replaced by the Building Act 2004) — principally in issuing the building consents, inspecting the building work and issuing code compliance certificates.

17 Council allegedly breached its duty and was negligent in:

• (a) Issuing the building consents notwithstanding that the plans and specifications submitted for consent did not contain adequate details to satisfy it on reasonable grounds that the building work would comply with the Building Code. 5

• (b) Failing to carry out its inspections of the building work competently in that it failed to identify certain defects which would have been reasonably apparent to a competent inspector. (Those defects are...