On 30 October 2023, the High Court released its decision in Body Corporate 406198 v Argon Construction Ltd & Auckland Council in relation to alleged defects and damage to the Bianco Apartments in Auckland.

This decision addresses several matters that frequently arise in defective building disputes, including:

• The plaintiffs’ burden of proof and the cogency of evidence required.
• The appropriate measure of loss in relation to the repair of defects/damage.
• The extent to which a builder/head contractor owes a non-delegable duty of care. 
• The application of section 17 of the Building Act and the definition of “building work”.
• The standing of bodies corporate to sue for defects and damage to property they repair.

MinterEllisonRuddWatts represented the Council in an eight-week trial before Andrew J concluding in June 2023.  

Background

The Body Corporate and its individual unit owners (plaintiffs) sued Argon and the Council in negligence in relation to the 157-unit development known as Bianco Off Queen Apartments. The original statement of claim was filed in 2017 and alleged 99 specific defects. The ninth (and final) statement of claim was filed in June 2022 alleging just four defects, two of which settled in the early stages of the trial. The two remaining defects determined at trial alleged defective waterproofing to the 179 balconies and to the podium at ground level.

The plaintiffs’ claim was in negligence for breach of duties of care. Shortly before trial they were seeking damages against both defendants of nearly $70 million, largely made up of the cost of proposed works to repair the defects and associated damage. The scope was extensive, involving replacement of all cladding, joinery and balustrades even though these were unrelated to the defective membranes. By the end of trial, the claim had reduced to a still substantial $40.7 million because some unrelated defects were settled.

The High Court concluded that both Argon and the Council were liable as concurrent tortfeasors for the two defects. However, whilst the final quantum of damages is still to be determined following further submissions (based on the factual findings in the judgment), the plaintiffs will be awarded damages based on a much narrower scope of works estimated to cost in the region of $4.5-$4.7 million (with some modest uplifts).

Liability was apportioned 85% to Argon and 15% to the Council.

Burden and standard of proof

One of the critical issues in the trial – and in many claims – was whether the plaintiffs had met their burden of proving the existence of defects and damage to the building. The decision reiterates that there is one civil standard of proof, the balance of probabilities, but also that the cogency of evidence required to meet this will depend upon the seriousness of the matters to be proved and the consequences of proving them [1].

The Court accepted the submission that the plaintiffs’ allegations were serious in the sense that, if they were to establish the alleged defects and breaches of the building code, as well as their proposed remedial scope, they were seeking judgment against the defendants for tens of millions of dollars in damages (noting that “these are of course serious matters and consequences, and the Court is entitled to expect the plaintiffs to adduce cogent evidence with sufficient probative force to prove them”) [2].

In that context, the Court found that there were real issues as to the extent to which the plaintiffs had established actionable damage (beyond the de minimis threshold), observing that their building surveyors’ evidence failed to provide an adequate scientific and reasoned basis to reach the conclusions for which the plaintiffs contended [3]. Ultimately, it was the expert evidence adduced by Argon as a defendant that the Judge accepted and adopted as establishing that the defects existed and were widespread.

Appropriate measure of loss for repairs

In relation to the damages for repair costs, the Court:

• Held that the appropriate measure of loss is the reasonable cost of bringing the defective work up to building code compliance (i.e. the reasonable cost of carrying out the remedial works reasonably required to repair the specific defects for which a party is liable) [4].
• Held that the plaintiffs’ proposed scope would involve substantial expense and inconvenience to the residents and was a wholly disproportionate and unreasonable response to the defects for which the defendants might properly be held to be responsible [5].
• Adopted the scope proposed by Argon (addressing the two very specific points of leaking) as a viable and realistic means of repair [6] that would not require any of the plaintiffs to move out of the apartments for the remedial works to be carried out (except possibly to a very limited extent) [7].

Head contractor’s non-delegable duty of care 

Argon accepted that it owed a duty to take reasonable care to prevent damage to persons reasonably expected to be affected by its work, including purchasers, and the critical issue was whether this duty was “non-delegable”. That was because Argon argued that it did not breach its duty on the basis that the membranes were installed by a specialist subcontractor and Argon was not responsible for its work.

A non-delegable duty is a “well established, if indeterminate” concept “generally associated with relationships which give rise to a duty of care ‘of a special and ‘more stringent’ kind, namely a ‘duty to ensure that reasonable care is taken’” even where the work in question is carried out by others. [8] Whether non-delegable duties are owed must be decided on the facts of each case and it was necessary to consider whether Argon was, in substance, the “head contractor” and the extent to which it controlled and supervised the work [9].

Argon was found to have owed the plaintiffs a non-delegable duty of care. In reaching that view, the Court: [10]

• Noted that Argon had “project management functions” in relation to the development and was “a key party with significant control over and capacity to influence the quality of the construction and its adherence to Building Code Standards”.
• Relied on a detailed review of the contract terms, both between Argon and the developer, and Argon and the sub-contractor, as well as the fact that Argon was responsible for engaging the sub-contractor and privy to all relevant communications between them and others.
• Considered that there are important public policy reasons of accountability and loss distribution which pointed firmly in favour of a non-delegable duty of care in this case.

Building Act 2004: building work vs ancillary work

The parties were agreed that, to access the membranes for repair on the plaintiffs’ scope of works, the joinery, balustrades and some cladding sheets needed to be removed. The plaintiffs argued that the removal and reinstatement of these elements constitutes “building work” for the purposes of the Building Act 2004. Section 17 of the Act requires all building work to comply with the building code and, in practical terms, the plaintiffs said this meant that they were entitled to new joinery, balustrades and cladding.

The Court did not accept this interpretation. It found that the replacement of the balcony membrane and the repair of the associated damage was the “building work” that must comply with the code. The removal and reinstatement of the balustrades, joinery and cladding sheets for access to carry out this work was incidental, and these elements could be reinstated as “part[s] of an existing building” in accordance with s 112 of the Act provided they would continue to comply with the code at least to the same extent as before removal.

Body Corporate standing

When the (now repealed) Unit Titles Act 1972 was in force, unit owners were found to be owed a duty of care and could sue for the losses that they suffered as owners of their units (including their share of the cost to repair defects and damage to common property). The body corporate could sue as the owners’ statutory agent but only in respect of common property (with the Supreme Court confirming in the Sunset Terraces decision that bodies corporate were not owed duties of care per se and could not sue in their own right) [11].

Under s 138 of the Unit Titles Act 2010, the body corporate has a duty to repair and maintain building elements and infrastructure that relate to or serve more than one unit. The Court held that this duty distinguishes the 2010 Act from the 1972 Act and provided a basis on which a body corporate was owed a duty and could sue in its own right to recover loss in relation to defects and damage to such property (including unit balconies), even though the loss is ultimately borne by the unit owners who are levied the repair costs.

This continues to be an area of contention involving complicated issues and different judicial approaches (as noted in another recent judgment from Gordon J in another proceeding we successfully acted on, relating to the Merchant Quarter complex in New Lynn – Body Corporate 455529 v Auckland Council [2023] NZHC 3047). We anticipate future judgments needing to grapple with, and further develop, the law in this area.

Footnotes

1. Body Corporate 406198 v Argon Construction Ltd & Or [2023] NZHC 3034 at [63].
2. At [63].
3. At [86].
4. At [174].
5. At [203].
6. At [245].
7. At [287].
8. Stephen Todd “Vicarious Liability” in Stephen Todd (ed) Todd on Torts (9th ed, Thomson Reuters, Wellington, 2023) at [21.9.2].
9. At [109] - [115].
10.  At [115] - [112].
11.  North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289.