Body Corporate 207624 v Grimshaw & Co [2023] NZHC 979 (28 April 2023)

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Hearing:	18 July - 22 July 2022 25 July – 29 July 2022 1 August – 5 August 2022 8, 9, 11, 12 August 2022
Appearances:	D R Bigio QC, A G Holden and A J McCombie for the Plaintiff L Taylor QC, P J L Hunt, R J Scott and J T Neville-Smith for the Defendant
Judgment:	28 April 2023
Reissued:	10 May 2023

re-delivered by me on 10 May 2023 in accordance with High Court Rules 2016, r 11.10

[1] The Spencer on Byron (the Building) stands over 20 storeys tall in Takapuna with views over Te Waitematā harbour and Tikapa Moana (Hauraki Gulf). Despite its majestic location, it was a leaky building and has been embroiled in litigation.

[2] In 2007, the Building’s body corporate (the Body Corporate) claimed the costs to repair the building defects from those involved in its construction (the Building Defects Litigation). Unit owners later joined the claim as second plaintiffs to ensure estimated repair costs for both common and unit property could be claimed.

[3] This case concerns the lawyers, Grimshaw & Co (Grimshaws), who acted for the Body Corporate and second plaintiff unit owners in the Building Defects Litigation from early 2008. There was no written contract, but Grimshaws admit that a term of its retainer was that they would exercise reasonable skill and care.

[4] The settlement was governed by a conduct and distribution agreement between the Body Corporate and second plaintiff unit owners (the CDA). The CDA was drafted by Grimshaws in 2010 and Grimshaws subsequently advised the Body Corporate to approve the CDA in 2013. It had not been signed on behalf of the Body Corporate.

[5] The CDA provided that any settlement proceeds were to be used to repair the Building and then credit would be allocated, on a unit entitlement basis, to the second plaintiff unit owners. Some unit owners did not join the claim so would not be allocated any credit to apply against repair costs. There was no distribution to the Body Corporate.

[6] The Building Defects Litigation finally settled in 2013. Grimshaws advised the Body Corporate as to how the settlement proceeds should be distributed under the CDA.

[7] During the course of the litigation, the Unit Titles Act 2010 (UTA10) came into force. Under the UTA10 ownership of the common property was vested in the Body Corporate. Previously, under the Unit Titles Act 1972 (UTA72), the common property

[8] The Body Corporate claims Grimshaws breached its duty of care¹to the Body Corporate in failing to advise it after the UTA10 came into force that the CDA was invalid and/or ineffective because:

[9] Shortly after settlement, a dispute ensued. Non-plaintiff owners claimed they were entitled to benefit from the settlement in relation to the common property aspect of the claim. On Grimshaws’ recommendation, interpleader proceedings were filed. Other than an interim distribution to the Body Corporate in May 2015, the settlement funds were held in Grimshaws’ trust account until resolution of the interpleader. By April 2016, Grimshaws had distributed all settlement funds to the Body Corporate and second plaintiffs.

[10] Despite the settlement, repairs to the Building did not start until March 2018. The Body Corporate had initially obtained a building consent from the Auckland Council (the Council) in 2013 (2013 Building Consent). The Body Corporate requested tenders based on the 2013 Building Consent and received responses from Arrow Remediate Ltd (Arrow) and Brosnan Construction Ltd (Brosnan). Arrow submitted the lower price. By the time of settlement in 2013, the tenders had expired.

[11] After receipt of the settlement funds, the Body Corporate applied for a new building consent in 2017 and negotiated a letter of intent in December 2017 and then a contract with Brosnan. The Council issued the building consent in early 2018 (2018 Building Consent) and remedial works commenced shortly after.

[12] The Body Corporate says if Grimshaws had not breached its duty of care, interpleader proceedings would not have ensued and the Body Corporate would have contracted with Arrow by late May 2014 based on the 2013 Building Consent. The Body Corporate claims the costs it incurred in the interpleader proceedings and the increase in repair costs, being a total of $11,540,651.58 (less increased construction costs it agreed not to pursue during the trial).²The Body Corporate accepts the amount claimed should be discounted by the amount of interest it earned from the settlement funds, being $948,107.00. The amount claimed is therefore approximately

[13] Grimshaws challenges almost all aspects of the claim and denies any breach of its duty of care to the Body Corporate. Grimshaws says the damages claimed do not fall within the scope of its duty of care. Grimshaws pleads seven affirmative defences comprising the Limitation Act 1950 and the Limitation Act 2010, contributory negligence, failure to mitigate, non-compliance with the terms of the settlement agreement governing the interpleader proceedings (2015 Settlement Agreement), estoppel and betterment. Grimshaws also assert that the Body Corporate has no standing to bring the claim.

²The Body Corporate confirmed in closing submissions that it no longer claims the following:

[15] The Building was designed to operate as a hotel and opened in 2000. On the podium levels are the lobby and hotel facilities. The second level has a pool, tennis court and gym (the Recreation Area). On the second to 19th floors (the Tower Levels) there are 249 units. On the top two floors are six penthouse units.

[16] When built, under the UTA72 each unit had its own unit title, comprised of the unit itself, accessory units (such as carparks) and a proportionate share of the common property.⁴Under s 9 of the UTA72, the ownership of the common property was held by the proprietors of all units as tenants in common in shares proportional to the unit entitlement in respect of their respective units. Unit entitlement was a measure of the relative value of a unit to each of the other units in the development.⁵

[17] The defects in the Building were discovered around 2002. In July 2007 the Body Corporate instructed solicitors (not Grimshaws) and filed the original claim to recover funds to repair the Building. The principal defendants were the building company (Multiplex) and the North Shore City Council, which was subsequently merged with other councils and became part of the Council. The Body Corporate was the only plaintiff. It sued for the estimated repair cost of the whole building including

[18] The Body Corporate decided to change lawyers and in February 2008 instructed Grimshaws.

[19] On 5 March 2008, Grimshaws advised the Body Corporate that unit owners should join the proceeding as second plaintiffs to ensure that claims in relation to both unit and common property were included in the claim. There is no dispute that this was the right thing to do to ensure the claim included unit property.

[20] On 30 April 2008, Grimshaws wrote to the Body Corporate and asked that all owners sign and return an authority to act so they could be included as second plaintiffs.

[21] On 13 June 2008, the Body Corporate wrote to all unit owners referring to Grimshaws’ advice and repeating its recommendation that all owners join the claim as second plaintiffs.

[23] On 25 July 2008, the High Court released its decision in Body Corporate 189855 v North Shore City Council (Byron Ave)⁶, another leaky building case. Mr Josephson and Mr Lewis of Grimshaws acted for the plaintiffs in the Byron Ave case. On 30 July 2008 Grimshaws provided a summary of the case to the Body Corporate which explained that the Body Corporate can bring a claim in relation to the entire common property without individual owners being parties to the claim.

[24] Grimshaws continued to encourage the Body Corporate to invite unit owners to join the claim. 172 owners had joined as second plaintiffs by the Body Corporate’s annual general meeting in November 2009.

[25] On 15 December 2009, Grimshaws wrote to the Body Corporate and set out the reasons why all owners not joined as second plaintiffs should do so, including that:

[26] Between 2009 and 2012 progress slowed as the courts resolved a preliminary issue of whether councils owed a duty of care to commercial plaintiffs, such as the owners of the hotel, or whether such a duty was restricted to owners of residential units. The Supreme Court held that those involved in the construction of a building have a duty of care regardless of the nature of the building.⁷Once that issue was resolved, the claim could proceed to trial.

[27] On 17 March 2010 Mr Josephson attended a meeting of the Body Corporate Committee. He advised of the desirability of a “Conduct and Distribution Agreement.” The minutes of the meeting record:

⁷Body Corporate 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 at [97].

Conduct and Distribution Agreement – What is normally done is to ask everyone to sign and select a number of people to agree on owners’ behalf. There needs to be a mandate from all the people.

Matt Josephson suggests everyone gets “nailed down” to the agreement as it solves problems with distribution [of] funds later.

[28] Mr Josephson also advised that prior to the mediation, there should be “100% agreement on a remedial solution on the property.” It was agreed at the meeting that Grimshaws would provide a draft CDA to the Body Corporate Committee ahead of the proposed mediation with Multiplex.

[29] Grimshaws emailed the draft CDA to Mr Powell, the Chair of the Body Corporate Committee, on 13 April 2010. Neither party was able to find the draft CDA itself, only the covering email. It appears that the draft CDA proposed that funds recovered by way of settlement be divided by unit entitlement because Mr Powell replied to the email saying that “a unit entitlement wont [sic] work as there are areas effected which are not common property.”

[30] Mr Powell also queried whether it was more appropriate to have the Court approve a s 48 scheme (under UTA72) for the division of settlement funds rather than use a CDA. Mr Josephson responded stating:

What the Court would conclude in terms of recovery and how it is split up on settlement are not necessarily the same thing. Common property division does not necessarily have to be taken into account. There can be agreement on how to divide up the spoils as between body corp and individual owners and provided everyone including body corp then that should be OK. BUT, having said that, for somewhere like Spencer where a fair few of the owners aren’t part of the action then maybe a section 48 is a good idea. If Court decrees a divvy up than its [sic] pretty hard to say that any money recovered should be divided in any other proportions.

Section 48 could take time. For the purposes of settlement negotiations if these are imminent, then maybe you are better to do the deal and then agree to the divvy up later (by way of section 48 Court order or some other formula) Anything else may be unworkable given all the circumstances.

Remember for the purposes of doing the deal you only have to agree on how much to accept, not on how to divide it amongst the claimants. I hope this helps a bit.

[31] By May 2010, 209 owners and 4 penthouse owners had become second plaintiffs.

[32] On 8 June 2010, Grimshaws emailed the Body Corporate secretary the final CDA for execution along with a covering letter to be sent to unit owners which informed owners of the mediation and CDA terms.

[33] The Body Corporate circulated the CDA to unit owners on 9 June 2010 with the covering letter written by Grimshaws. The letter said that a mediation would take place with Multiplex on 21 July 2010 and sets out the main purposes of the CDA including:

(c) If the claim is settled the proceeds will be used to clear outstanding professional fees. After that the money will be divided between the owners participating in the litigation on a unit entitlement basis, and put towards the cost of repairs. Deductions will be made for outstanding levies.

[34] The listed parties to the CDA are the Body Corporate and “the Proprietors.” “Proprietors” are defined as “the parties as set out in the schedule hereto, or subsequently added.” The parties in the schedule are only those who joined the proceedings as second plaintiffs. The proceeding is said to relate to the “recovery of losses suffered by the Proprietors following the discovery of defects and damage to their units and the common property of the Body Corporate.”

[35] There is no reference in the CDA to loss suffered by the Body Corporate or non-plaintiff owners in respect of their proportionate shares in the common property. At the time the CDA was drafted, it was not known how many “proprietors” would join the claim.

[36] The CDA allowed the establishment of a settlement committee which would be made up of seven members and have “full and exclusive authority to represent the Proprietors and the Body Corporate in all matters relating to the settlement of Proceeding” (the Settlement Committee). This was also explained in the covering letter attached to the CDA.

[38] By 20 July 2010, the day before the mediation with Multiplex, 202 second plaintiff unit owners had signed a copy of the CDA and four others had provided a verbal undertaking. Sixteen second plaintiffs had not signed the CDA. The mediation with Multiplex did not resolve the dispute.

[39] On 3 March 2011, Multiplex made a settlement offer. On 9 March 2011, Grimshaws provided detailed advice on the merits of the settlement offer, the Body Corporate’s options, and an estimate of what the likely judgment amount might be if the claim proceeded to trial. The Settlement Committee did not accept the offer.

[40] On 20 June 2011, the UTA10 came into force. Under the UTA10, the ownership of the common property changed. It was vested in the Body Corporate itself. The individual unit owners were no longer owners of the common property. Individual unit owners each held beneficial interests in the common property as tenants in common, proportionate to their ownership interest.⁸

[41] A further mediation with Multiplex was scheduled for November 2011. On 6 September 2011, Grimshaws wrote to the Body Corporate saying it urgently needed the remaining second plaintiffs to sign the CDA. Grimshaws said the Settlement Committee could not agree to a settlement on behalf of second plaintiffs who had not signed the CDA. It warned that unless Grimshaws had signed copies of the CDA from all owners it was unlikely that Multiplex would enter into a settlement agreement. Grimshaws asked for a list of remaining owners, and said, “it is likely we will need to make an application to the Court for permission to cease acting for those owners” if they could not be contacted by the end of the month. If this happened, Grimshaws said that the owners would not be part of the settlement and Multiplex would likely apply to strike out their claims and seek costs against them.

[42] On 15 November 2011, Mr Lewis emailed Mr Powell stating that in preparation for the upcoming mediation it had come to his attention that the Body Corporate had not authorised the Settlement Committee to settle the Body Corporate claim for costs to repair the common property. Mr Lewis also stated:

If the Body Corporate has not passed such a resolution this can be rectified in a relatively straightforward fashion by having the body corporate ratify the settlement at a properly constituted meeting after the mediation.

Another point is that any settlement with Multiplex will be on the basis that the body corporate settles all claims that could be brought in respect of common property. The body corporate sues for the cost to repair the common property as agent for the owners, including that part of the common property owned by the 30 non-second plaintiffs, so the body corporate will be putting an end to any common property claim by the non-participants. It is not clear whether any of the non-participants have good common property claims and

we do not imagine that the non-participants are expecting to recover from the settlement, but we thought we should bring this to your attention.

[43] Mr Powell replied saying that the original committee authorisation of the CDA would remain in place and that “all owners where [sic] advised numerous times about the impact of not joining as second plaintiffs and the committee hasn’t been advised by any non-second plaintiff of plans to recover from the settlement.”

[45] Around this time, Grimshaws engaged Rogan Hampson of Hampson & Associates to undertake a rough assessment of the division between unit and common property claims (the Rogan Hampson Report). Mr Hampson was engaged to measure the common versus unit property split of the Tower Levels, not the podium levels or Recreation Area of the building. The area split of the Tower Levels was measured to be 52 per cent unit property and 48 per cent common property.

[46] On 22 November 2011, a solicitor at Grimshaws emailed Mr Lewis and Mr Josephson to update them on a call he had received from Rick Wall of NZ Castle Resorts & Hotels Ltd (the company which operates the hotel at Spencer on Byron). That email states, among other things that:

Anyway, it seems there is a bigger problem. Mr Wall seems to be under the apprehension that because NZ Castle Resorts is part of the body corporate, it can/should recover its lost revenue as part of the building defects claim. However, NZ Castle Resorts isn’t a plaintiff in the claim, so it won’t recover its lost revenue (the common property argument won’t assist). I explained that to Mr Wall, but he didn’t seem to understand.

[47] On 25 November 2011, a solicitor at Grimshaws emailed Mr Powell advising him of the call with Mr Wall. Mocles Holdings Ltd (Mocles) had not joined the proceeding as a second plaintiff. In the email, the solicitor said that because Mocles was not a plaintiff it could not recover lost revenue arising from the closure of its unit property and that it “cannot successfully bring a claim as it would now be out of time, aside from the body corporate claim for common property.”

[48] In July 2011 the Body Corporate instructed Price Baker Berridge (PBB) to prepare an application for approval of a scheme under s 74 of the UTA10 (the successor to a s 48 scheme under the UTA72). A s 74 scheme is a Court endorsed scheme to enable a body corporate to perform necessary repairs to a building and allocate the cost between unit owners.

[49] On 7 September 2011 PBB informed Grimshaws that the Body Corporate had instructed PBB to prepare an application for approval of a s 74 scheme. PBB understood that Grimshaws were acting on claim and provided a copy of the draft affidavit, which was to be filed with the application, and said:

We would be grateful if you could review the affidavit to ensure there is no disclosure of matters that are of a privileged nature in the weathertightness proceeding. We ask that you mark-up any changes (if any) and return the document to us as soon as possible so that we may attend to filing.

[50] Mr Lewis says that he reviewed the affidavit. There is no record that he asked to receive a copy of the application or asked PBB any questions regarding the s 74 scheme.

[52] There was a Body Corporate annual general meeting (AGM) on 8 December 2011 at which it ratified the application for the s 74 scheme. Mr Lewis attended the meeting and provided an update on the mediation with Multiplex. Grimshaws’ advice was to push on towards trial to get a better outcome. The minutes note that, “[t]he body corporate is claiming for common property and the owners in the claim are claiming for unit property repairs (their private property).” As at that date, 219 out of 255 units had joined the claim.

[54] In March 2012, Grimshaws emailed approximately 25 non-plaintiff owners seeking discovery and stated “[d]espite the fact that you are not a claimant, we may be able to recover some costs in respect of your portion of the common property.”

[55] In response to a request from a non-plaintiff owner, Grimshaws sent an email dated 12 March 2012 which included an explanation of the claim regarding common property:

The body corporate has issued a claim on your behalf in respect of your share of the common property. In line with the leading cases in this area, if your claim (had you decided to bring one within the 10 year limitation period) would have been significantly weakened by issues such as any knowledge held by you of the building defects prior to your purchase, then the part of the body corporate’s claim for your share of common property is unlikely to succeed. Alternatively, if you would have had a good claim, your part of the body corporate’s claim in respect of common property will be equally good.

[56] In response to some queries from the non-plaintiff owners, Grimshaws said it was too late for non-plaintiff owners to join the proceeding to recover for damage to unit property because of the limitation period in the Building Act 2004. However, it told some non-plaintiff owners that:

[57] Some of the non-plaintiff owners also asked why they were being levied by the Body Corporate. In response to one of these queries Grimshaws said, “we expect that the payments relate to the common property claim,” and recommended they contact the Body Corporate.

[58] In another email exchange, a non-plaintiff owner said they were told by “the Body Corporate solicitors” that they could not join the claim as a second plaintiff because they had bought the unit with knowledge of the defects, but that they would still remain part of the claim for common property under the Body Corporate.

[59] An amended statement of claim dated 30 November 2012 (Amended Claim) was filed which pleaded that the Body Corporate owns the common property pursuant to s 54 of the UTA10 and is required to maintain and repair the common property pursuant to s 138 of the UTA10. The Amended Claim also included a claim for former owner second plaintiffs for losses on sale.

[60] From October to December 2012, there were discussions between Grimshaws and members of the Body Corporate Committee about the impact of owners discontinuing their claims. Mr Lewis said:

There is an argument that under the new Act, whereby the body corporate owns common property, the body corporate claims in its own right for common property rather than claiming on behalf of individual owners. On the basis of this argument, you could say the body corporate claim should not reduce when an owner discontinuances.

[61] On 12 December 2012, Mr Lewis and an associate from Grimshaws met with Mr Khoo, who had recently taken over from Mr Powell as chair of the Body Corporate Committee. A file note records that Mr Lewis advised that upon settlement, current owner second plaintiffs would get credits issued in their Body Corporate account and former owner plaintiffs would get cash, both according to their unit entitlement.

[62] The notes of the 12 December 2012 meeting record that the Body Corporate owns the common property and that “should not reduce common property if individuals drop out.” The notes also record that “if claiming for all common property, may be new owners/non-plaintiffs should be levied because will benefit (i.e. common property).”

[63] The next day, solicitors at Grimshaws exchanged emails about the meeting on 12 December 2012. They note that common property repairs are not accounted for in the CDA, only pay outs to the second plaintiffs. The solicitors remarked that there will be some surprises when the claim finally settles.

[64] On 31 January 2013, Mr Weatherburn emailed Mr Lewis and asked several questions including whether non-plaintiff owners who will not share in any award should be levied. Mr Weatherburn wanted to know if those unit owners would benefit in any way.

[65] Mr Lewis responded confirming that if the claim settles then only second plaintiffs would be entitled to the proceeds of a settlement pursuant to the CDA. Comparatively, he says that if the matter proceeded to trial, it was likely the Court would order a sum of money be paid to the Body Corporate and separate amounts to second plaintiffs.

[66] Mr Weatherburn responded that all owners have been levied to date and that this could cause “huge problems” at settlement as some non-plaintiff owners may think they will share in the proceeds because they have been paying the legal costs.

[67] Mr Josephson provided similar advice to Mr Powell in an email on 19 February 2013 when he stated:

It would seem reasonable that the second plaintiffs fund the litigation as they are the ones who stand to benefit from any settlement. It is true that if the matter went to trial the Court would make awards to the owners and the body corporate separately, but generally speaking the body corporate award is likely to be on behalf of the owners who have presented claims.

[68] On 26 February 2013, Mr Khoo sent an email to Mr Lewis in anticipation of questions from owners. In response, Mr Lewis confirmed that:

The settlement money is for the second plaintiffs only. The former owner second plaintiffs will be paid their unit entitlement share in cash. The current owner second plaintiffs will receive their unit entitlement share by way of credit in their body corporate account.

[70] On 3 April 2013, Mr Lewis sent the Body Corporate the further amended statement of claim with a cover email which noted:

I will provide a detailed summary shortly, but for now it is worth noting that we have claimed all of the common property repair cost. If the common property cost relating to non-second plaintiffs is removed (which the Court is likely to do), then the claim is reduced by about $4.5m.

[71] Grimshaws did not explain why the Court was likely to remove those costs from the claim.

[72] Mr Lewis followed up on 16 April 2013 with a summary of the amounts claimed in the second amended statement of claim. The summary table recorded that in relation to repair costs:

This claim assumes that the body corporate is entitled to claim for all common property costs. The Court will probably decide only those owners in the proceeding may claim their share of common property costs, in which case

[73] Mr Lewis did not explain why the Court would “probably decide” only plaintiff owners may claim their share of common property costs.

[74] On 25 June 2013, Mr Khoo forwarded Mr Lewis an email from a unit owner regarding levies and common property repairs. The unit owner asked:

Re the 1st Plaintiff being the body corp taking action on behalf of all the unit owners for the common area repairs. I have been given the impression via contact with yourself and Mr Khoo that should that part of the action be successful, my unit will still not be covered for my portion of the common area and I will be billed separately for my portion of repairs to that same common area.

I am paying the special levy and am fine to do this and understand how the body corp need to bill me for it and the provision in the unit tiles [sic] act to do so, but what I don’t understand is this.

Since myself and the previous owner and the previous owner before that all paid their body corp fees for this unit and all paid any special levy fees toward the court action and towards any specialist reports for the court proceedings how can unit 1508 as an entity not be covered for the common area repairs in the event of a win in the court case. What point of law is there that allows my unit to be exempted and charged separately when the 1st plaintiff is actually the body corp on behalf of all.

[75] Mr Lewis replied to the email saying he did not understand the question being asked by the owner and as he did not act for her, he doubted that the Body Corporate would want Grimshaws to bill to answer the question. In response, Mr Khoo indicated that it was an example of what the Body Corporate Committee “is prone to face going forward”. The matter had been covered in the questions the Body Corporate Committee wanted Grimshaws to answer.

[76] On 25 June 2013, the Body Corporate Committee sent Grimshaws a list of questions ahead of a meeting between them. Including, relevantly, whether the Body Corporate is putting itself at risk of possible legal action from non-plaintiff owners whom the Body Corporate is levying legal fees from, given they would not receive anything from a successful claim.

[77] On 1 July 2013, Mr Lewis attended a question and answer session requested by the Body Corporate Committee. Mr Lewis could not locate his notes of that meeting. The minutes of a Body Corporate Committee meeting state that at the 1 July 2013 session, Mr Lewis said that as the non-second plaintiffs received no benefit from the settlement, the legal fees paid by these owners should be refunded in the first instance.

[78] On 5 July 2013, Mr Lewis advised the Body Corporate that it needed to pass a resolution agreeing to be bound by the terms of the CDA before the mediation. He recommended that the Body Corporate hold an EGM. No explanation was given for the need to pass this resolution or why it needed to be passed at an EGM.

[79] Mr Lewis subsequently advised that the resolution did not need to be passed at an EGM and could be passed by the Body Corporate Committee. The Body Corporate Committee passed the resolution as advised on 17 July 2013. The minutes for that meeting record that Mr Lewis had recommended that levies paid by non-plaintiff owners be refunded. The Body Corporate suggested that a second opinion would be needed. There is no evidence that a second opinion was obtained on this issue.

[80] On or about 26 September 2013, the plaintiffs settled with Multiplex’s underwriters for a lump sum.

[81] By October 2013 Grimshaws had served the plaintiffs’ briefs of evidence and had reviewed those of the defendants. On 9 October 2013, Grimshaws wrote to the Body Corporate assessing the value of the claim and identifying the strengths and weaknesses. Grimshaws advised the Body Corporate that the plaintiffs were likely to recover about $20 million at trial, made up of $13 million for repairs, plus $3 million for second plaintiff loss on sale damages, and $4 million for second plaintiff consequential and general damages. Grimshaws recommended that the Body Corporate accept a settlement offer in the range of $15–20 million from the Council.

[82] On 10 October 2013, Grimshaws filed a further amended statement of claim, and the opening submissions. The opening submissions record that common property was owned by the Body Corporate (or previously claimed as agent on behalf of all of its owners) and, as a result, the Body Corporate was claiming for the cost of repair to all of the common property, subject to agreed deductions for unit owners who had discontinued while the UTA72 was in force. The Body Corporate’s common property claim was not reduced to account for owners who had discontinued after the UTA10 came into force.

[83] The opening submissions annexed a summary of the claims of the Body Corporate and owners. That annexed schedule set out each owners’ interest in the common property claim – including non-plaintiff owners and former plaintiff owners for their loss on sale claims.

[84] The start of the trial was delayed to allow settlement discussions to continue.

[85] On 20 October 2013, the Body Corporate signed a settlement agreement with the Council for a lump sum. The total settlement amount between the Council and Multiplex was $20,050,000.

[86] Owners were informed of the settlement on 22 October 2013. Soon after, the Body Corporate began receiving emails from owners concerned about the exclusion of the non-plaintiff owners from the distribution of settlement funds. The Body Corporate forwarded these emails on to Grimshaws for advice. An email from Mr Cooper, a non-plaintiff owner, sent on 28 November 2013 said:

This must mean that non second plaintiffs would carry the cost of remedial work to their individual units, but were covered for the common areas.

This would seem to fly in the face of the intent of the Grimshaw claim, and also the initial basis on which owners did or did not become second plaintiffs.

We seem to be heading into a barn fight even before any mediated settlement. This group of non-2nd plaintiffs are questioning the basis and validity of the Settlement Agreement [CDA].

[88] Mr Lewis was forwarded the emails from non-plaintiff owners and told that they would be the focus of the discussion on 2 December 2013.

[89] On 9 December 2013, Mr Khoo sent Mr Lewis an email saying, “[t]his is the first legal challenge by a non 2nd Plaintiff ... and I am referring it to you for a suitable reply.”

[90] Grimshaws prepared a response to the email. The response confirmed that the unit owner was not entitled to any settlement funds and that if levies had been paid, then a refund was appropriate.

[91] On 11 December 2013, Mr Powell emailed Mr Lewis asking what to say at an upcoming AGM to a group of non-plaintiff owners who believed that the settlement monies should be used to remediate the common property without them being levied further. He informed Mr Lewis that:

As you are aware there is an increasingly vocal group of non-2^ndplaintiff owners who mistakenly believe that as the Body Corporate is the 1^stplaintiff, any settlement should be used to remediate the common property without them being levied.

[92] Mr Lewis gave no substantive advice, he suggested that the Body Corporate “maintain the position that it is premature to discuss distribution at this stage.”

[93] In email correspondence with the solicitor of a non-plaintiff owner who had bought their unit with knowledge of the defects, Grimshaws advised that the levies that owner had paid to fund the litigation need to be refunded.

[94] Grimshaws received $20 million of the settlement funds on 31 January 2014, with the final payment of $50,000 provided on 14 February 2014.

[95] On 19 February 2014, Grimshaws advised the Body Corporate that distribution of the settlement funds is governed by the CDA and set out Grimshaws’ interpretation of cl 4 as follows:

[96] The letter stated that the CDA is clear that the settlement funds are only for the benefit of the second plaintiff unit owners. Therefore, those current unit owners who were not second plaintiffs were not entitled to any settlement funds.

[97] On 25 February 2014, the Body Corporate Committee instructed Grimshaws to distribute the settlement funds according to their interpretation provided in the letter dated 19 February 2014. The distribution did not occur immediately because Grimshaws was resolving uncertainties around the treatment of former owner second plaintiffs. At the same time, Grimshaws drafted a letter for the Body Corporate to send to non-plaintiff owners which recorded that non-plaintiff owners would not receive any distribution from the settlement and recommended that those owners apply for a variation of the s 74 scheme to have the levies they paid reimbursed.

[98] On 4 March 2014, the solicitor for Mocles, a non-plaintiff owner, asserted an interest in the settlement funds and indicated it did not consent to any distribution.

[99] On 5 March 2014, Mr Lewis advised the Body Corporate that based on the CDA, non-plaintiff owners, such as Mocles, did not have any entitlement to the settlement funds. He noted that the letter from Mocles’ solicitor did not set out the basis for the claim, and he suggested a letter be sent asking that they provide a basis for the alleged interest in the funds. Mr Lewis attached a draft letter and requested consent to send it. The email also said that if Mocles continued to assert an entitlement

[100] The Body Corporate Committee approved sending the letter, and on 7 March 2014, Grimshaws sent a letter to Mocles’ solicitors asking them for details of the legal and factual basis of Mocles’ alleged interest in the settlement funds.

[101] On 10 March 2014, Grimshaws recommended that the Body Corporate instruct Gilbert Walker to seek a declaration from the High Court confirming the correct method of distribution. The reasons given for this were:

In light of the amounts at stake, particularly for Mocles, it is inevitable that the Court will be called upon to resolve this matter.

The committee should be seen to be doing the right thing. That means initiating a claim to resolve the issue, rather than the body corporate and/or the committee members being named as defendants in a claim initiated by Mocles and others.

The Guardian decision confirms that committee members can be personally liable for any breaches of duty. If you seek a declaration from the Court before the funds are distributed this risk is removed.

Any attempt to negotiate a resolution with Mocles and the others that differs from the [CDA] will leave the committee members open to criticism by the second plaintiffs.

The sooner you initiate action, the sooner the issue of distribution will be resolved.

[102] Mocles’ solicitors wrote to Grimshaws again on 14 March 2014 and stated:

You have asked for our client’s alleged interest in the settlement funds. Our client is a member of the Body Corporate. The Body Corporate was the first plaintiff in the proceedings. Our client considers that it clearly has an interest in the proceeds of the settlement as a result of its membership of the Body Corporate.

[103] Throughout March 2014, Grimshaws told several of its second plaintiff clients that Mocles’ view had “legal merit” because non-parties “may well have a claim to the settlement funds based on their ownership of a share of the common property.” Another owner was told that Grimshaws understood the challenge:

...would be based on the fact that under the Unit Titles Act every member of the body corporate has an ownership interest in common property, and the common property was a part of the High Court claim. We consider the non- second plaintiff owner’s claim lacks merit, but we cannot be sure about how a Court would view their claim because this issue has not been tested before.

[104] Further, upon being instructed to advise the Body Corporate, on 17 March 2014 Gilbert Walker emailed Grimshaws asking two questions:

First, it appears from my reading of the pleadings that the BC claimed for all of the damage [to] the common property; ie, the claim was not reduced pro tanto to account for the unit entitlements of the owners who did not join the proceedings as second plaintiffs. Can you please confirm this?

Second, how were legal costs shared? The proceeding started in 2007 and the “settlement agreement” among the BC and second plaintiffs came later. Robert Khoo told me that all legal costs were invoiced to the Body Corporate and paid from levies raised in accordance with unit entitlement.

[105] Grimshaws informed Gilbert Walker that the common property claim was not reduced for the unit entitlements of owners who were not joined as second plaintiffs, other than in respect of four plaintiffs where discontinuances were made on the basis the unit entitlement proportion of the common property claim would also be removed. Mr Lewis confirmed that Grimshaws had billed the Body Corporate and understood that all owners had been levied.

[106] On 18 March 2014, a Senior Associate of Grimshaws also advised a second plaintiff owner that:

We have received a response from the solicitors acting for one of the non- parties. Their position is that:

“Our client is a member of the Body Corporate. The Body Corporate was the first plaintiff in the proceedings. Our client considers that it clearly has an interest in the proceeds of the settlement as a result of its membership of the Body Corporate”.

This position has legal merit due to the unusual nature of ownership of property in a Body Corporate. The non-party owners clearly have no claim to

any share of the settlement in respect of their private property but they may well have a claim to the settlement funds based on their ownership of their share of the common property. On the other hand, these owners were not parties to the litigation so it is arguable they should not receive any of the settlement funds.

[107] On 22 May 2014, the Body Corporate requested the transfer of settlement funds to its bank account. Mr Lewis responded:

As we understand it there is a dispute between the owners as to how the settlement funds are to be distributed. In addition to Mocles, we have received correspondence from various solicitors giving notice that their clients (including new purchasers) claim an interest in the settlement proceeds. A portion of the funds are held by us for the former owners.

Another development is that in a recent High Court decision Justice Andrews held that an owner who did not sign the litigation agreement or participate in the claim may have an interest in the settlement funds by virtue of their membership of the body corporate and the new provisions of the Unit Titles Act 2010 (by which the body corporate owns common property).

In the current circumstances, if we were to transfer the funds as instructed by you we could be in breach of trust or breach of our fiduciary duties to parties holding an interest in the funds.

If your instruction stands, we consider that ethically we must make an urgent interpleader application to the High Court. The Court will then confirm what we are to do with the settlement funds and it will put in place a process for the parties claiming an interest in the funds to resolve their differences.

[108] The decision Mr Lewis was referring to in his response was the decision in

[109] In early June 2014, the Body Corporate made a proposal for distribution of settlement proceeds between the Body Corporate and second plaintiffs in accordance with a split between common and unit property based on the Rogan Hampson Report. Non-plaintiff owners and former owner plaintiffs objected to this proposal.

[110] On 30 July 2014, the Body Corporate instructed Grimshaws to file interpleader proceedings. Grimshaws filed the interpleader proceedings in September 2014.

[111] In a minute issued on 3 October 2014, Associate Judge Bell directed that Grimshaws serve the proceeding on all current and former owners.¹⁰He also indicated that the parties could apply for an interim distribution of the settlement funds at the first case management conference scheduled for May 2015.

[112] In a subsequent minute released on 17 October 2014, Associate Judge Bell commented that any non-plaintiffs who wished to be heard should be given an opportunity to do so.¹¹

[113] The parties who wished to be heard in the proceeding filed statements of defence between March and May 2015. The Body Corporate filed a statement of defence on 30 March 2015, similar to its previous distribution proposal, based on the Rogan Hampson Report.

[114] Mocles did not consent to the distribution proposal of the Body Corporate. Its position was set out in its statement of defence as follows:

... the settlement funds should not be distributed until the parties know what the likely cost of repairing the Spencer on Byron will be and how much of that cost relates to the repair of common property verses [sic] unit property.

[116] At the first case management conference in May 2015 the Court ordered by consent that an interim distribution of $650,000 be made to allow the Body Corporate to pay for some of the remedial work.

[117] On 3 September 2015, a scope of works was provided by quantity surveyors Barnes Beagley Doherr (BBD). It estimated that the cost of repairs would be

[118] A mediation between the parties, excluding Grimshaws, took place on 14 December 2015. A settlement was reached whereby 80 per cent of the net settlement amount would be allocated to the Body Corporate, and 20 per cent would be allocated to the second plaintiffs to go towards their claims for loss on sale or remediation of unit property.

[120] The Body Corporate reserved its position on these claims but agreed to payment without prejudice to its rights so that the funds in trust could be released.

[121] On 21 March 2016, the Court ordered the distribution of 80 per cent of the funds. Final distribution orders were made on 18 April 2016.

[123] The Body Corporate engaged Babbage Consultants Ltd (Babbage) (and other consultants) to prepare building consent documentation following investigation, design and procurement in July and August 2012.

[124] In September 2013, the Body Corporate obtained the 2013 Building Consent and two competing tenders to undertake the remedial work. It relied on those tenders as evidence in the Building Defects Litigation of the estimated repair costs. By settlement, those tender prices had expired.

[125] On 26 September 2014 the Council granted an extension of time to 30 October 2015 to commence building work associated with the 2013 Building Consent. On 15 July 2015, the Council granted a further extension to complete those building works by 30 October 2016.

[126] After the settlement, in January 2014, the Body Corporate established a remedial works committee (RWC) to oversee the remedial works.

[127] In February 2014, in a meeting between members of the RWC and external consultants, it was noted that:

[128] The Body Corporate was informed on 5 March 2014, that distribution of the settlement funds was disputed. On 10 March 2014, Grimshaws recommended that the Body Corporate instruct solicitors to apply to the High Court for a declaration confirming the correct method of distribution.

[129] On 6 March 2014, the Body Corporate obtained an estimate from Mr Barnes to provide quantity surveying services associated with identifying a “revised scope of work” on which a new lump sum price could be based.

[130] In April 2014, the façade design engineer provided a report setting out the scope of the work, indicating that it required prototyping and testing. The work included investigations that required removal of cladding, building wrap, sliding doors

[131] The Body Corporate began investigation and prototyping and by 16 May 2014, four units had been identified and the whole façade of one unit had been dismantled for investigative inspection, including by Council representatives.

[132] In October 2014, the Body Corporate received an initial report from the façade design engineer, Mr Hanley, on the outcome of the investigation and prototyping, which indicated that:

[133] The year prior, in October 2013, the Body Corporate had cancelled payment of the final instalment due of the $2 million levy that had been raised for fees in the Building Defects Litigation. A new resolution was passed at the October 2014 AGM to levy $285,000 and enable the Body Corporate to use the funds to meet outstanding invoices for the remedial works and to enable some work to recommence.

[134] In December 2015, Mr Hanley indicated that he would have limited time to progress the next stage of the investigations and prototyping (as identified at [132] above) until February 2015.

[135] In February 2015, the Body Corporate prepared a budget for the further investigation and prototyping, which anticipated a three-month programme. Mr Barnes provided an estimate of $560,000 which included investigation work (punched windows and second mock-up), urgent repair works and consultants’ costs (for aluminium staging, peer review, cost and project management, design and planning, peer review, structural design, revision of consent drawings and Council costs).

[136] In May 2015, the Body Corporate received the interim distribution of $650,000 from the settlement funds and the works identified in the budget commenced.

[137] Between June and September 2015, the second stage of the mock-ups involving the punched windows was completed.

[138] In November 2015, the Body Corporate reported to owners on the outcome of the further investigations and indicating that the “[t]he next stage is to amend the scope and establish amended drawings, all of which will go to Council for consent.”

[139] In November 2015, Babbage provided the Body Corporate with an estimate and scope of work to prepare drawings and work with the façade engineer and peer

[140] By February 2016, the project manager, Mr Ebert, had prepared a programme (Rev 2) setting out tasks and a timeline to commencement of the remedial works.

[141] In December 2015, the Body Corporate noted that the outcomes from the investigations were to be incorporated into a revised consent and then used as the basis of a tender or negotiated contract. The Body Corporate proposed to first negotiate with Brosnan given their involvement in the re-scoping and in the 2013 Building Consent. The Body Corporate would only consider a tender if Brosnan’s prices did not “stack up.”

[142] The Body Corporate received the final distribution of its share of the settlement funds on 19 April 2016.

[143] Members of the RWC and the Body Corporate’s consultants met with the Council on 6 May 2016 to discuss the remedial works.

A meeting was held recently at which we have been advised that a new consent will be required. This is a council requirement, prior to which a Fire Report must be completed.

The remediation process needs to be managed well as the Council have made it clear that they are there to ensure standards are met.

[145] Minutes of a subsequent meeting with the Council on 15 August 2016 record that:

BL [Brendan Leckey of Auckland Council] advised there would be no advantage from a processing time or consent cost perspective to lodge as an amendment.

BL & RW [Robert Woodger of Auckland Council] advised Councils preference is for the application to be a new consent.

[146] The Body Corporate then prepared the documentations required for the new consent with its consultants.

[148] On 14 September 2017, the Body Corporate issued a letter of intent to Brosnan confirming its intention to contract with Brosnan for the repair works based upon their 4 August 2017 tender pricing. Brosnan submitted several revisions of its tender offers.

[151] Building consent was granted on 5 March 2018 and repair works commenced shortly after.

[154] Mr Josephson was a partner at Grimshaws for just under 10 years. Mr Josephson was involved with advising the Body Corporate from when it first instructed Grimshaws in 2008 until late 2011. Mr Lewis took over as the main partner on the file in November 2011. In 2013, both Mr Josephson and Mr Lewis were involved in preparing evidence and the negotiations that led to the settlement of the Building Defects Litigation.

[155] The witnesses broadly agreed that Grimshaws was instructed to advise on the Building Defects Litigation which included preparation of the CDA, settlement of the claims, and implementation of the CDA.

[157] The Court of Appeal in Sherwin Chan & Walshe Ltd (in liq) v Jones¹²approved a composite test for assessing liability in the performance of professional services. Two corresponding elements are relevant: identification of the scope of the duty; and identification of the risk against which the professional had a duty to protect the client.¹³

[158] The Court of Appeal noted that the above approach was influenced by South Australia Asset Management Corp v York Montague Ltd (SAAMCO).¹⁴In SAMMCO

¹²Sherwin Chan & Walshe Ltd (in liq) v Jones [2012] NZCA 474, [2013] 1 NZLR 166.

¹⁴South Australia Asset Management Corp v York Montague Ltd [1996] UKHL 10; [1997] AC 191 (HL) at 214.

[159] Since Sherwin Chan the United Kingdom Supreme Court has considered SAAMCO in two decisions, both issued on the same day in 2021: Manchester Building Society v Grant Thornton UK LLP (Grant Thornton);¹⁷and Khan v Meadows (Khan).¹⁸The United Kingdom Supreme Court proposed six questions to consider when assessing professional negligence claims:¹⁹

¹⁵Sherwin Chan & Walshe Ltd (in liq) v Jones [2012] NZCA 474, [2013] 1 NZLR 166 at [36].

¹⁹Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [6].

[160] While the above approach has not been considered in New Zealand, it is consistent with the established principles of professional liability in New Zealand and provides helpful guidance. Counsel for both parties urged the Court to follow this approach. While I consider the questions are helpful, they fall within the general scope of the questions I have posed at [14] and do not include an initial question of whether a duty of care existed at the relevant time. That is relevant in this case because Grimshaws assert that any duty of care in relation to the drafting of, or advice about, the CDA in 2010, was discharged in 2010 so that the claim is statute barred.

[161] The “duty nexus” and “legal responsibility” questions also involve the same or similar questions and require consideration of defences raised by Grimshaws.

[162] I therefore consider the following questions in the following order to incorporate the inquiries identified in Grant Thornton and Khan:

[163] Grimshaws submit that if the CDA was negligently drafted (which is denied), any breach of duty occurred in 2010 when Grimshaws drafted and advised on the CDA.

[164] After the CDA was drafted, Grimshaws continued to act for the Body Corporate until the Building Defects Litigation was settled and Grimshaws advised the Body Corporate to file interpleader proceedings. Did this ongoing retainer give rise to a duty of care to review the CDA and provide further advice to the Body Corporate as to its terms?

[165] The courts have previously considered the effect of an ongoing retainer on a solicitor’s duty of care. In Capita (Banstead 2011) Ltd v RFIB Group Ltd the Civil Division of the Court of Appeal for England and Wales held that:²⁰

The obtaining and receiving of advice after a mistake has been made (even if the mistake can be easily rectified) cannot to my mind mean that an obligation to correct one’s mistake or negligence continues to accrue and give a fresh cause of action every day after the mistake has been made.

[166] The approach in Capita was recently followed by the High Court of England and Wales in McClean v Thornhill QC where it was stated:²¹

... a continuing failure to correct earlier advice neither constitutes a fresh cause of action accruing day by day, nor is concurrently causative of losses caused by the original acts of negligence.

[167] In New Zealand, the Court of Appeal considered when a cause of action in contract accrued and held that:²²

There is a difference between a continuous breach and the failure to rectify a breach that has already occurred. When a person omits to do something that they have contracted to do, the breach (in their failure to act) is said to be continuous. This can be compared with situations, as here, where a person who is under an ongoing obligation acts in a manner that breaches that

obligation. Here the time of breach is clear and the cause of action accrues at the time that the breach occurred. There is no additional implied contractual obligation to rectify that breach, which, if not fulfilled, would constitute a continuous breach. If the Trust’s argument were to be accepted, then every contractual dispute in which a defendant has failed to rectify a breach (almost every contract claim) would fall within the six year limitation period.

[168] Whether there is an ongoing or new obligation to consider the terms of a contract was also considered in the context of a claim against a law firm for negligence in James v McMahon.²³In that case, the defendant law firm was instructed in 2005 to document a guarantee that ensured that Auckland Trotting Club Inc (Auckland Trotting) would guarantee the lessee’s obligations under commercial leases until 2015. Instead, the guarantee was drafted so that it terminated in September 2006. The lessee fell into arrears and Auckland Trotting was required to honour the guarantee in August 2010.

[169] Between 2005 and 2010, the plaintiffs had sought and obtained assurances from the defendants that Auckland Trotting remained liable on its guarantee. Those assurances were usually given in the context of lease assignments.²⁴The plaintiffs submitted that on each of those occasions, they were expressly or impliedly raising with the law firm the leasing arrangements with Auckland Trotting. The plaintiffs therefore argued that on each occasion a fresh obligation arose for the defendants to check the guarantee to ensure it reflected the plaintiffs’ instructions in 2005.

[170] Allan J held that the defendants were not under a general continuing duty to rectify their error and it did not matter that Mr James, one of the plaintiff trustees, subsequently asked the defendants to confirm that he remained entitled to hold Auckland Trotting liable on its guarantee on more than one occasion.²⁵In making this finding, Allan J stated:

[44] I accept that the position might well be different had Mr James given the defendants explicit instructions which of necessity required them to reconsider the express terms of the Auckland Trotting guarantee, but that did not occur here. Mr James’ evidence is to the effect that he consulted the defendant from time to time in the context of on-going difficulties with the

lessees, for the purpose of getting advice about an appropriate strategy. A claim against Auckland Trotting was no doubt one of the options available to the plaintiffs, but given that there had never been any doubt as to the efficacy of the Auckland Trotting guarantee, the instructions would not have extended to a requirement that the defendants conduct a review of the guarantee in order to ensure that it accurately reflected the instructions given by the plaintiffs in 2005.

[45] For these reasons I consider that Mr James’ subsequent dealings with the defendants in respect of various assignments and lessee defaults did not in the circumstances give rise to a fresh cause of action based upon an allegation that the defendants had failed at some later point in time to check the validity of the Auckland Trotting guarantee.

[171] The decision in James v McMahon indicates the importance of the factual circumstances of the adviser’s retainer. If there were explicit instructions or circumstances that indicate a requirement to review the terms of the relevant document (for example, doubt as to the efficacy of the document) then this may give rise to a new duty of care.

[172] The Court of Appeal has considered the relevance of explicit instructions in the context of a solicitor’s duty of care and noted that:²⁶

Solicitors’ duties are governed by the scope of their retainer, but it would be unreasonable and artificial to define that scope by reference only to the client’s express instructions. Matters which fairly and reasonably arise in the course of carrying out those instructions must be regarded as coming within the scope of the retainer.

[173] Matters that reasonably arise may include hazards of a kind which should be obvious to the solicitor but which the client, as layperson, may not appreciate.²⁷

[174] The UTA10 came into force on 20 June 2011 while Grimshaws’ was retained to advise on the Building Defects Litigation. Both parties’ legal experts, Mr Allan and Mr Gibbons, accepted that a reasonably competent lawyer would consider the terms of the CDA in light of the UTA10 coming into force.

[175] Grimshaws did consider the impact of the UTA10 on the claim without any explicit instructions from the Body Corporate. The statement of claim was then amended in 2012 to reflect the change in ownership of the common property and the new repair obligations of the Body Corporate under the UTA10. The claim included a claim for estimated repair costs to the common property.

[176] By advising the Body Corporate to amend the claim, Grimshaws owed a duty to exercise reasonable skill and care in providing that advice. The CDA governed the settlement of the newly pleaded claim. It logically follows that if the UTA10 was relevant to the claim, it was also relevant to the terms of any CDA that governed settlement of that amended claim.

[177] It was not necessary for the Body Corporate to provide explicit instructions to Grimshaws to review the CDA when the UTA10 came into force. Hazards of a kind which should be obvious to the solicitor but which the client, as a layperson, may not appreciate come within the scope of a solicitor’s retainer.²⁸

[178] This case is different to James v McMahon and Capita. Here, the UTA10 coming into force gave rise to a duty of care to consider the impact of the UTA10 (if any) on the claim (which Grimshaws did competently consider) and then to review the terms of the CDA. A review of the CDA was necessary to check whether its terms were consistent with the amended claim and the UTA10.

[179] Further, on 15 November 2011 and 5 July 2013, Grimshaws advised the Body Corporate to pass a resolution to approve the CDA. By Grimshaws proactively advising the Body Corporate to approve the CDA, it had a duty to exercise reasonable skill and care in providing that advice. That duty of care included considering the terms of the CDA and advising the Body Corporate of any risks to the Body Corporate if it approved and then implemented the CDA.

[180] This is not a case of solicitors reminding themselves of previously negligent advice. Grimshaws had not previously considered the UTA10. Here, Grimshaws continued to advise the Body Corporate on the claim and on the changes required to

[181] Grimshaws owed the Body Corporate a duty of care to review the terms of the CDA as from the date that the UTA10 came into force. I now consider the scope of that duty.

[182] The scope of duty question asks what are the risks of harm to the Body Corporate against which the law imposes on Grimshaws a duty of care to protect against?

[183] The majority in Grant Thornton considered the scope of the duty of care is governed by the purpose of the duty, judged on an objective basis by reference to the reason why the advice is being given.²⁹The majority in Grant Thornton concluded:³⁰

... in the case of negligent advice given by a professional adviser one looks to see what risk the duty was supposed to guard against and then looks to see whether the loss suffered represented the fruition of that risk.

[184] The Court in Grant Thornton also considered SAAMCO and whether there is a difference between an adviser providing advice and an adviser providing information. The majority considered a rigid distinction was not appropriate, and that it is a spectrum:³¹

At one extreme will be pure “advice” cases, in which on analysis the adviser has assumed responsibility for every aspect of a transaction in prospect for his client. At another extreme will be cases where the professional adviser contributes only a small part of the material on which the client relies in deciding how to act. In some cases (such as those involving valuers) it is readily possible to say that the purpose of the advice given is limited and that the adviser has assumed responsibility under a duty the scope of which is

²⁹Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [13].

³⁰Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [17].

³¹Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [18].

delimited by that purpose, which Lord Hoffman called an “information” case. However, Lord Sumption observed (para 44), “[b]etween these extremes, every case is likely to depend on the range of matters for which the defendant assumed responsibility and no more exact rule can be stated.”

[185] Rather than starting with the distinction between advice and information cases, the focus should be on identifying the purpose to be served by the duty of care assumed by the defendant.³²In an “advice” case, the adviser’s duty “is to consider all relevant matters and not only specific factors” (and what counts as a relevant matter for the adviser is determined by the purpose for which the adviser has agreed to give advice).³³ Where the adviser is responsible for guiding the whole decision-making process, the adviser’s responsibility extends to that decision:³⁴

In that circumstance, as Lord Sumption explains (para 40), “[if] the adviser had negligently assessed risk A, the result is that the overall riskiness of the transaction has been understated. If the client would not have entered into the transaction on a careful assessment of its overall merits, the fact that the loss may have resulted from risks B, C or D should not matter.

[186] The majority noted that in contrast, in an “information” case, the adviser contributes a limited part of the material to be relied on, “but the process of identifying the other relevant considerations and the overall assessment of the commercial merits of the transaction are exclusively matters for the client”, and in such a case “the defendant’s legal responsibility does not extend to the decision itself.”³⁵The result is then that the defendant is “liable only for the financial consequences of [the information] being wrong and not for the financial consequences of the claimant entering into the transaction so far as these are greater.”³⁶

[187] In Grant Thornton the majority held that the Building Society looked to Grant Thornton for technical accounting advice on whether it could use hedge accounting to implement its business model within the constraints arising by virtue of the regulatory environment. Grant Thornton advised that it could. That advice was negligent. The effect was that the Building Society adopted the business model, entered into further swap transactions and was exposed to the risk of loss of having to break the swaps

³²Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [19].

³³Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [20].

³⁴Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [20].

³⁵Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [21].

³⁶Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [21]. See also

Sherwin Chan & Walshe Ltd (in liq) v Jones [2012] NZCA 474, [2013] 1 NZLR 166 at [36].

[188] In considering whether the loss fell within the duty, the majority considered it important to have regard to the commercial reason, as appreciated by Grant Thornton, for the advice and why this was fundamental to the Building Society’s decision to engage in the business of matching swaps and mortgages.³⁷The reason was the impact of hedge accounting on the Building Society’s regulatory capital position.

[189] The principles enunciated above therefore require consideration of the following questions:

[190] I first consider the circumstances in which Grimshaws was acting for the Body Corporate and the purpose of the CDA before considering the purpose of advice after the UTA10 came into force.

[191] Grimshaws was instructed to act as the Body Corporate’s legal adviser in the Building Defects Litigation. The Body Corporate was aware this required a specialist law firm with appropriate experience:

With the change of focus from litigation to mediation, it was realised that the services of a specialist mediation law firm was required. Accordingly, Grimshaw & Co who are recognised specialists in this area have been retained by the Body Corporate ...

³⁷Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [38].

Grimshaw & Co are well skilled in mediation and would be instrumental in negotiating an agreement with the parties concerned to affect the necessary repairs to the building. Should the negotiations fail, then we have an experienced legal team to continue the litigation and they have a structure within their firm which will provide a cost effective route to resolution of the building issues.

[192] In cross-examination, Mr Lewis agreed that Grimshaws specialises in dispute resolution and has expertise in leaky building disputes.

[193] Mr Lewis gave evidence that most building defects claims are resolved out of court and that a specialist would need expertise in mediation to try to obtain the best negotiated settlement for their client.

[194] Both Mr Josephson and Mr Lewis had acted for the plaintiffs in the leading case of Byron Ave. On 30 July 2008, Grimshaws provided a summary of the Byron Ave High Court decision to the Body Corporate, the summary stated:

Justice Venning ruled that the duty of care in respect of common property is owed to unit owners as the joint owners of common property, but the effect of section 13 of the Unit Titles Act is that the owners’ rights are vested in the body corporate for administrative convenience. He said that the body corporate can bring a claim in relation to the entire common property without the individual owners being parties to the claim.

Justice Venning said that the claim of the body corporate could be reduced if it was proven that any of its constituent members did not have a valid claim, but that the onus was on the defendants to establish defences to individual owners’ claims.

In the Byron Ave case, 2 owners did not take part in the claim. Justice Venning ruled that as one of those units was retained by the developer there was no valid claim in relation to common property for that unit. There was no evidence of the circumstances of the other unit owner and accordingly no reason to reject that part of the body corporate claim.

[195] Grimshaws were therefore familiar with the nature of claims by body corporates in relation to common property repair costs.

[196] In 2008, Grimshaws was therefore also aware that the underlying statutory regime (UTA72) was relevant to the capacity in which the Body Corporate brought the claim and the obligations on the Body Corporate.

[197] In the above context, prior to the first mediation with Multiplex in 2010, Grimshaws suggested that a CDA be prepared, so everyone gets “nailed down” as it “solves problems with distribution [of] funds later.”

[198] Mr Josephson gave evidence and acknowledged that the purpose of the CDA was to enable an “orderly” distribution of the settlement funds. The distribution mechanism in cl 4.5 of the CDA governed how those funds were to be distributed. Allocation of the benefits of settlement was on a unit entitlement basis to second plaintiffs only. There was no allocation to the Body Corporate. Non-plaintiff owners would not receive any benefit from settlement.

[199] I accept Mr Josephson’s evidence as to the purposes of the CDA. The purposes included to enable orderly distribution of settlement proceeds so that repairs to the building could commence. That repairing the building was the Body Corporate’s underlying commercial objective is clear. That was the whole purpose of bringing the Building Defects Litigation so that funds were available for the remedial works.

[200] Grimshaws argue that the purpose of cl 4.5 was also to provide for the settlement funds to be used for the remedial works and this involved a significant concession on the part of second plaintiffs. Absent the CDA, second plaintiffs would have been entitled to use their share of the settlement funds for whatever purpose they liked. I accept this was a concession by second plaintiffs but in circumstances where the actual repair cost to unit and common property was likely to exceed the amount of the settlement funds, I do not consider that this concession was significant. If the settlement funds were not used for the remedial works, second plaintiff current owners would be levied for repair costs so would be exposed to those costs in any event. It was therefore in the interests of second plaintiffs to have settlement funds allocated to repair costs to reduce their liability for those costs.

[201] What then, was the purpose of advising the Body Corporate after the UTA10 came into force?

[202] The Body Corporate was governed by the UTA10 so was required to act in accordance with its powers and obligations as prescribed by the UTA10. Further, the claim concerned damages to common property and ownership of common property was also governed by the UTA10.

[203] Grimshaws was a specialist in building defects litigation and informed the Body Corporate it could prepare documentation for any application for a s 74 scheme so held itself out as also having expertise in the UTA10.

[204] The UTA10 changed the statutory regime governing the ownership of common property and the Body Corporate’s repair obligations, both of which were relevant to the claim and the subject matter of the CDA. The Body Corporate also had powers and obligations under the UTA10 (and at law) so if the Body Corporate was to approve and then implement the CDA, it needed to be advised as to any risks to it of taking that action.

[205] The CDA was not a transaction about which the Body Corporate had any experience, commercial knowledge, or expertise. Grimshaws’ duty was not limited to providing information about one aspect of the CDA. Grimshaws recommended the CDA, drafted it and drafted communications for the Body Corporate to send to unit owners about the CDA. Grimshaws had a duty to ensure its advice remained valid especially in light of the legislative changes under the UTA10 and any changes to the pleaded claim. Grimshaws advised on all aspects of the CDA and therefore assumed responsibility for the whole of the transaction.

[206] Non-plaintiff owners were members of the Body Corporate. They were beneficially entitled to the common property as tenants in common in shares proportional to their ownership interest.³⁸Communications to non-plaintiff owners had informed them that the Body Corporate was bringing the claim on their behalf for the common property estimated repair costs. Communications had also informed them that they may be able to recover in relation to the common property aspect of the claim.

[207] It should have been obvious to Grimshaws that non-plaintiff owners may seek to challenge the Body Corporate if it agreed to a distribution mechanism that precluded them from benefitting from the settlement.

[208] By mid-2013, Grimshaws was asked directly about the risk of claims by non- plaintiff owners in circumstances where they would not benefit from the settlement given cl 4.5 of the CDA. In June 2013, the Body Corporate asked Grimshaws to advise on whether the Body Corporate was “putting itself at risk from possible legal action” by non-plaintiff owners. The Body Corporate wanted advice on those risks. This was explicit and known to Grimshaws.

[209] Grimshaws submit that the risk of litigation can never be wholly avoided and they cannot be responsible for the risk of litigation claims. The issue however, is whether Grimshaws had a duty of care to advise the Body Corporate of those potential risks and how those risks could be eliminated or mitigated.

[210] It follows that when advising the Body Corporate on 5 July 2013 to pass a resolution to approve the CDA, and on 19 February 2014 to distribute the settlement funds in accordance with the CDA, the purpose of advising the Body Corporate was to advise the Body Corporate as to:

[211] The scope of Grimshaws’ duty of care was to review the CDA after the UTA10 came into force and to advise the Body Corporate of any legal risks to it if it approved and then implemented the CDA. The duty included advising as to how those risks could be eliminated or mitigated so that the Body Corporate could achieve its commercial objective of having settlement funds available so that remedial works could commence without delay.

[212] Grimshaws’ duty of care is at the advice end of the spectrum because Grimshaws was responsible for guiding the whole decision-making process that resulted in the Body Corporate approving and then implementing the terms of the CDA. Consistent with Grant Thornton, Grimshaws’ responsibility extends to the Body Corporate’s decision to approve and then implement the CDA.³⁹

[213] Grimshaws’ liability for the foreseeable consequences of the Body Corporate approving and then implementing the CDA is however, correspondingly limited to such consequences as flowed from matters which made that failure to advise negligent.

[214] Grimshaws owed the Body Corporate a duty of care to protect against the risks that flowed from matters which made the failure to advise negligent, which risks include:

³⁹Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 at [20].

[215] Before considering whether Grimshaws has breached its duty of care, I first set out the applicable legal principles when considering the standard of care against which Grimshaws’ conduct is to be assessed.

[216] Solicitors’ duties are governed by the scope of their retainer. The scope includes matters that fairly and reasonably arise during that retainer.⁴⁰I have found above that Grimshaws’ retainer required it to consider the changes under the UTA10, to review the CDA in light of those changes, and to advise the Body Corporate as to any risks arising from the terms of the CDA. That duty included advising as to how those risks could be eliminated or mitigated.

[217] The standard of care expected of a solicitor is what a reasonably competent practitioner would do having regard to the standards normally and reasonably adopted by their profession.⁴¹

[218] Under this standard, the fact that a solicitor makes a professional judgement that, in retrospect and on a detailed analysis, might be argued to be erroneous, is not sufficient for liability to attach. It will be negligence only if the judgement is one that a reasonably competent solicitor could not make.⁴²

⁴²Antons Trawling Ltd v Dawson & Associates Ltd [2016] NZHC 982 at [186]–[187] applying Simperingham v Martin HC Auckland CP 316/93 19 October 1994 at 18–19; Simperingham v Martin CA 5/95 2 June 1995 at 13; and Saif Ali v Sydney Mitchell & Co [1980] AC 198 (HL) at 221.

[221] Grimshaws did not review the CDA after the UTA10 came into force nor did they provide any advice to the Body Corporate of any risks arising from the terms of the CDA in light of those changes. Grimshaws says it was not required to do so because the provisions of the UTA10 did not make the CDA invalid and/or ineffective.

[222] I have already found above that Grimshaws did owe a duty of care to advise on the terms of the CDA after the UTA10 came into force. I consider below what a reasonably competent practitioner would have advised and assess Grimshaws’ conduct against that standard of care.

[223] Both Mr Allan and Mr Gibbons accepted that the passing of the UTA10 gave rise to a duty on Grimshaws to consider the terms of the CDA. I agree that a reasonably competent lawyer would have reviewed the terms of the CDA after the UTA10 came into force.

[224] Under the UTA10 the Body Corporate owned the common property⁴³and unit owners held a beneficial interest in the common property proportionate to their respective units.⁴⁴This was a change from the UTA72 where common property was owned by the unit owners as tenants in common in accordance with unit entitlements.⁴⁵ The observations in Byron Ave regarding the effect of s 13 of the UTA72, therefore no longer applied. There was no s13 equivalent in the UTA10. The legal ownership of common property had been vested in the Body Corporate.

[225] Under s 84 of the UTA10 the Body Corporate had the powers and duties set out in the UTA10. Those provisions include s 138(1) which requires that a body corporate repair and maintain:⁴⁶

[226] Section 77 authorised the Body Corporate to do anything authorised by the UTA10 or any other Act, but only for the purpose of performing its duties or exercising its powers.⁴⁷

[227] Mr Lewis considered the impact of the UTA10 on the Body Corporate’s claim and advised the Body Corporate to amend the claim. The Amended Claim pleaded that:

[228] The Amended Claim also included a new Schedule 6 specifying the losses for those second plaintiffs who had since sold their unit (loss on sale plaintiffs). The CDA governed the settlement of the Amended Claim (and any subsequent amendment). Grimshaws failed to review the CDA after it recommended the changes set out in the Amended Claim. That failure is a breach of its duty of care.

[229] That failure occurred despite Mr Lewis being aware that the change in ownership of the common property could impact the claim. Mr Lewis considered this issue when second plaintiff owners decided to discontinue, and in October 2012 he advised the Body Corporate that:

There is an argument under the new Act, whereby the body corporate owns common property, the body corporate claims in its own right for common property rather than claiming on behalf of individual owners. On the basis of this argument, you could say the body corporate claim should not reduce when an owner discontinues. However, in practical terms this would make it difficult for anyone to discontinue on a no costs basis, as the defendants would not agree to this if there was no deduction of the common property share, and in addition we think it more likely that the Court will still treat the body corporate common property claims as being brought on behalf of the individual owners anyway. So, could you please confirm that we may advise the defendants upon the discontinuances, the owner’s share of both unit and common property comes off the claim?

[230] Mr Lewis advised again on 28 November 2012 that the Body Corporate owns the common property and may be able to claim for the common property repair costs in its own right. The Body Corporate subsequently instructed Grimshaws not to reduce the quantum of the claim in relation to common property so that the Body Corporate’s position on this issue was reserved. Despite Mr Lewis correctly identifying the potential impact of the change in ownership of common property, Grimshaws failed to advise the Body Corporate of the legal risks to it if it approved and then implemented a CDA that did not include any allocation of settlement funds to the Body Corporate. The Body Corporate was now the legal owner of the common property but would not be receiving any allocation from the settlement funds.

[231] A reasonably competent lawyer would have considered the terms of the CDA given the change in ownership of the common property under the UTA10. That review would have disclosed that cl 4.5 of the CDA did not include any allocation of

[232] Clause 4.5 gave rise to a risk that the Body Corporate as legal owner of the common property, as first plaintiff in the proceeding, and as a party to the CDA, would be deprived of a share of the settlement funds to which it was entitled. Clause 4.5 also gave rise to a risk that there would be less funds available than the Body Corporate was entitled to receive to put towards its repair obligations under s 138 of the UTA10.

[233] The above risk could easily be eliminated if the CDA was amended to provide for an allocation of settlement funds to the Body Corporate. Grimshaws however, failed to advise the Body Corporate of that risk or how that risk could be eliminated. Grimshaws maintained throughout the hearing that they had done nothing wrong and were not required to review the CDA or recommend that it be amended. This is despite the Body Corporate not having formally approved the terms of the CDA until 2013 so it was open to the Body Corporate to propose amendments before formally approving it.

[234] Grimshaws challenges the submission that the CDA was invalid because it did not account for the Body Corporate’s ownership of the common property and submits:

[236] The Body Corporate pleaded that the CDA was invalid because it deprived all current owners who were not second plaintiffs of the benefit of a share of any settlement proceeds received in relation to damage to common property in accordance with their respective ownership interest. The Body Corporate did not plead how the CDA did this, but was it necessary for it to do so?

[238] The statement of claim did disclose the general nature of the claim by pleading that the CDA deprived current owners who were not second plaintiffs the benefit of a share of any settlement/litigation proceeds. Current non-plaintiff owners were members of the Body Corporate and had a beneficial entitlement to common property.⁴⁸

[239] It follows that if the Body Corporate did not receive any settlement proceeds under the CDA, non-plaintiff owners had no mechanism to require the Body Corporate to allocate those funds to repair costs thereby reducing the amount of levies the Body Corporate would raise from unit owners to pay for the remedial works. I consider it is clear how the CDA deprives non-plaintiff current owners, and it was not necessary for the Body Corporate to have pleaded that the failure to include any allocation to the Body Corporate gave rise to this alleged deprivation.

[240] Grimshaws then argue that the ownership of common property is irrelevant because no fresh cause of action could have accrued to the Body Corporate when the UTA10 came into force because the Body Corporate had notice of the defects. The statutory vesting of ownership was not a conscious act of the Body Corporate such that it is akin to a purchaser’s knowledge of building defects. Further, while the underlying ownership changed, the claim itself (by the Body Corporate) for loss relating to repair costs remained the same. The change in ownership of common property is relevant to the capacity in which the Body Corporate was acting in bringing the claim. I do not understand the Body Corporate to be claiming that this change gave rise to a “new” cause of action against the defendants in the Building Defects Litigation.

[241] Grimshaws then submits that because the claim was brought when the UTA72 was in force, it follows that the Body Corporate was acting as agent for unit owners and the Body Corporate did not have a cause of action in its own name. This submission, however, ignores the change in legal ownership of the common property under the UTA10. The Body Corporate no longer had to act as agent and could no longer rely on s 13 of the UTA72 as authorising it to bring the claim. There was no s 13 equivalent in the UTA10. Grimshaws amended the claim to reflect this change and expressly pleaded that the Body Corporate owned the common property.

[242] Grimshaws’ failure to advise the Body Corporate that there was a risk to the Body Corporate if there was no allocation of settlement funds to it under the CDA was a breach of its duty. Grimshaws could not stay silent on this issue.

[243] The Court of Appeal issued its decision in Jewett Investments Ltd v Body Corporate 204096 (Jewett) on 3 June 2011.⁴⁹Grimshaws submit that the distribution mechanism in the CDA was valid, enforceable, intra vires and supported by the Court of Appeal’s decision in Jewett.⁵⁰

[244] The appellant and unit owner, Jewett Investments Ltd (Jewett), challenged the validity of the body corporate’s $4.3 million levy for repair costs on the basis that the body corporate did not require the funds because settlement funds from a building defects claim were available for those repair costs. There was a CDA between the body corporate and unit owners (other than Jewett). Jewett had been a defendant in the building defects claim and a term of the settlement agreement in relation to that claim provided that Jewett was not entitled to benefit from the settlement.

[245] In the CDA, the body corporate and the owners who had joined the claim agreed on a regime to conduct the claim. It was agreed that the claimant owners undertook to fund the claim entirely. The Court of Appeal majority considered that this was a liability distinct from the liability that all owners (including Jewett) had as owners to meet any levy for repair work.⁵¹

[246] The settlement sum held in trust by the body corporate’s solicitors ($9.8 million) was not an asset of the body corporate. It was the fruit of the claim brought by the claimant owners (all the owners except Jewett) to pursue their economic losses. It was not a claim that the body corporate brought, or needed to bring, to recover the past and future costs of repair. It was entitled to, and had, passed those costs on to the owners by levy. It was only a party to the claim because, to recover their economic losses, the claimant owners had to first establish the costs of the body corporate from which their levies derived.⁵²

[247] Nor was the body corporate entitled under the CDA to draw down the settlement sum to meet the cost of remedial work. To do so would have cut across the clear terms of the trust created by the terms of the CDA, the beneficiaries of which were the claimant owners and not Jewett. The cost of repair work, past and future, was, as the agreement contemplated, to be met by a further levy on all members of the body corporate.⁵³

[248] The High Court held the levy was valid. The majority of the Court of Appeal (Keane and Stevens JJ) upheld the High Court’s decision. Fogarty J dissented.

[249] Jewett was decided when the UTA72 was in force so did not consider the UTA10. The Court of Appeal considered a Body Corporate’s obligations in the context of a CDA:⁵⁴

[15] The body corporate, it goes without saying, had to be even handed. It could not prefer some owners to others, unless that was what the Act or the rules called for. In that sense the body corporate was under a fiduciary duty. What that called for was to be assessed against the rights given, the duties imposed and the prescribed processes by which decisions were to be taken. Whether the body corporate had power to join in the claim and enter into the related contracts and what effect those contracts had are matters of conventional interpretation.

[250] Mr Lewis acknowledged in cross-examination that he was aware of Jewett but did not consider it raised any issues in relation to the CDA. The above passage from Jewett indicates that a reasonably competent practitioner would assess the effect of the contract (here the CDA), considering the rights of unit owners given their beneficial entitlement to their share of the common property and persons to whom the Court may award damages if the Building Defects Litigation proceeded to trial. That review would include considering whether the UTA10 or the rules or case law allowed for some owners to benefit from settlement and not others.

[251] The circumstances in Jewett were not the same and this should have been apparent to Grimshaws. The Body Corporate had brought the claim on behalf of all unit owners (not just those unit owners who signed the CDA). The Body Corporate had also become the legal owner of the property so legally, it did not need to be an agent of unit owners although it had an obligation of even-handedness to them. The Body Corporate had also levied for legal costs since 2007 when the claim was filed and it was not until Mr Lewis recommended the Body Corporate refund the levies in 2013 that this became an issue.

[252] The Body Corporate played an active role in the Building Defects Litigation and the Body Corporate Committee appointed members to the Settlement Committee

[253] A reasonably competent practitioner would also have considered the obligation of even-handedness identified in Jewett and considered whether the Body Corporate could agree to a distribution mechanism that did not provide any allocation to the Body Corporate. The distribution mechanism did give rise to a risk that the Body Corporate’s obligation of even-handedness would be contravened.

[254] That this risk existed was supported by the decision in Bryon Ave which confirmed that unit owners did not need to be a party to a claim for damages to be awarded in their favour in relation to the common property claim. While Byron Ave considered the UTA72, even if the “look through principle” continued to apply when the UTA10 came into force, it equally applied to valid claims. In Byron Ave the Body Corporate was able to recover in relation to a unit owner’s share of the common property despite that unit owner not being a plaintiff.⁵⁵Grimshaws was very familiar with Byron Ave.

[255] There was therefore a risk that the Body Corporate, by agreeing to a distribution mechanism that denied non-plaintiff owners any share of the settlement proceeds, was denying non-plaintiff owners with valid claims any recovery, contrary to the “look through principle.” Plaintiff unit owners would receive a benefit from the settlement regardless of the merits of their claims, but non-plaintiff owners would not.

[256] Mr Allan’s evidence was that there was no issue with the distribution mechanism in the CDA because in practice, during settlement negotiations defendants

[257] Mr Allan considered that provided those non-plaintiff owners were given an opportunity to join the claim, the Body Corporate was entitled to compromise the claim.

[258] Mr Lewis acknowledged in cross-examination that the Body Corporate was claiming for all of the common property repair cost on behalf of all unit owners, including non-plaintiff unit owners. He also acknowledged that if the Body Corporate obtained a judgment which included a share of the quantum which was attributable to a non-plaintiff owner’s interest in the common property, the Body Corporate was required to account for that sum of money to the non-plaintiff owner. Despite this acknowledgment, he saw no issue with those same unit owners not benefitting if the claim settled.

[259] Mr Lewis was asked directly whether the Body Corporate had authority to dispose of one owner’s interest in favour of another. In response he said:

Q. Normally, all right. Now, in your view, if the Body Corporate is the agent of all owners in its capacity as first plaintiff, does it have the authority to dispose of one owner’s interest in favour of another?

A. So can you tell me [what] you’re referring to in terms of disposing the interest?

Q. Well does the Body Corporate have the power to agree to relinquish the interest of a plaintiff owner in the common property in favour of another plaintiff owner?

Q. Well we have a situation where there is a claim in this CDA where up until 2010 it appears that Spencer on Byron has a substantial amount of common property according to correspondence from your firm to the Body Corporate and the Body Corporate and the – sorry, and the advice is that common property doesn’t have to be taken into account in the CDA and that the second plaintiffs are essentially entitled to distribute all of the proceeds amongst themselves, including proceeds that might be attributable to non-plaintiff owners. Agreed?

A. I don’t agree with that because as I’ve said before, the way in which defendants approach these settlements is not to allocate funds to non-second plaintiffs because of the uncertainties associated with non-second plaintiff

owner claims. If you took a settlement and distributed it to all owners, you would effectively be transferring funds paid in relation to second plaintiff claims to non-second plaintiffs when there’s been no payment towards their claims.

[260] Mr Lewis’ response is vague. No more context is required to answer the question.

[261] I have no reason to doubt the evidence of Mr Allan, Mr Josephson and Mr Lewis that at that time, the practice during settlement was for defendants to discount claims in relation to common property for the share attributable to non- plaintiff owners. That practice is not in question. The issue is whether that practice shields the Body Corporate from any risk such that Grimshaws was not required to advise on it.

[262] The practice of defendants during settlement is not akin to a legal entitlement. It is a practical approach to resolving a dispute. It does not remove the risk to the Body Corporate of contravening its obligation of even-handedness such that Grimshaws was not required to provide any advice. Grimshaws had a duty to advise the Body Corporate of any legal risks to it by taking the action Grimshaws was recommending it take. It follows that by agreeing to compromise all of the common property claim without non-plaintiff owners being able to benefit from the settlement, Grimshaws was required to advise the Body Corporate of any legal risks to it.

[263] The Body Corporate could only act under the UTA10 for the purpose of performing its duties or exercising its powers. The Body Corporate therefore needed to be satisfied that it had a legal basis to compromise a valid legal claim without any compensation to the persons who were entitled to benefit if the matter was determined by the Court (being those non-plaintiff owners with valid claims in relation to their share of the common property).

[264] Mr Lewis considered non-plaintiff unit owners were clear on the consequences if they did not join the claim:

People who didn’t join and may not want to have any involvement in court proceedings and may not want to bear any risk of costs had the choice of not joining and the consequences were very clear.

[265] Whether the “consequences were very clear” to non-plaintiff owners needs to be assessed in light of Grimshaws’ correspondence during the course of the Building Defects Litigation.

If the body corporate elects to undertake the recommended repairs all unit owners will be levied based on their unit entitlements to pay for the costs of this remedial work. Only those unit owners who are listed as second plaintiffs will be able to recover any funds that may be awarded at the completion of the litigation.

[267] The above advice is inconsistent with the decision in Byron Ave and incorrect because non-plaintiff owners would be able to recover if they had brought their unit from the developer and prior to any notice of the defects.

[268] On 2 December 2009, Grimshaws advised a non-plaintiff, who was asking to join the proceeding, that “all unit owners are being levied for legal costs, whether they are part of the proceedings or not. ... If you are not listed as a second plaintiff, which currently you are not, you will not be entitled to a share in any recovery.” This advice was also inconsistent with Byron Ave.

[269] Less than two weeks later, on 15 December 2009, Grimshaws acknowledged that the absence of unit owners “does not necessarily prejudice” the Body Corporate’s claim and there may be a different approach at settlement:

As the law currently stands, individual owners claim for damage to unit property, whereas the body corporate claims for damage to the common property. The absence of an individual owner does not necessarily prejudice the body corporate’s right to sue for damage to the common property. However, if a unit owner is missing from the proceedings, then any damage suffered by to [sic] the individual unit property of that owner will not form part of the claim. Spencer on Byron has a large percentage of common property.

We understand that all unit owners are being levied the cost of legal fees regardless of whether or not they are plaintiffs. Any money that the body corporate and the unit owners recover pursuant to a settlement is usually split amongst those who are plaintiffs. As all owners are paying for the costs of the litigation, they might as well share in any spoils of litigation.

[270] The above advice indicates that a settlement is “usually” split amongst those who are plaintiffs. It also goes on to say that all owners may as well “share in the spoils of litigation.” Grimshaws did not go on to explain when this was not “usual,” nor the risks of all owners paying for the costs of litigation but not recovering pursuant to a settlement. Grimshaws also did not explain why settlement was different to litigation.

[271] When the CDA was drafted in 2010, Grimshaws advised the Body Corporate that:

[272] In terms of division, Grimshaws advised that it “does not necessarily have to be taken into account.” There was no advice as to the consequences if it was not, nor the consequences if the Body Corporate did not receive any distribution for the common property claim. The communication also flags the possibility that recovery under a settlement is “not necessarily the same thing” as recovery in Court. It did not however, explain the potential differences. The advice was brief, given in general terms and unclear as to any risks that may arise for the Body Corporate if it acted based on Grimshaws’ advice.

[273] Two years later in March 2012, when undertaking discovery, Grimshaws emailed some 25 non-plaintiff unit owners seeking discovery and stating:

Despite the fact that you are not a claimant, we may be able to recover some costs in respect of your portion of the common property.

[274] The above communication was inconsistent with the communications in 2009 but it was correct as a matter of law.

[275] And again, on 12 March 2012, in response to a specific question from a non- plaintiff owner, Grimshaws acknowledged that if they had a good claim “your part of the body corporate’s claim in respect of common property will be equally good.” Non- plaintiff owners were therefore rightly led to believe that they may recover in relation to their share of the common property claim.

[276] On 31 January 2013, in response to a question from the Body Corporate Committee members about who should pay levies and who would be entitled to the proceeds of a successful claim, Mr Lewis advised that only current owner second plaintiffs should be levied. Mr Lewis did not explain to the Body Corporate why this was different to the position if the claim proceeded to trial and the Court issued a judgment.

[277] On 19 February 2013, Mr Josephson communicated to Mr Powell regarding the difference between settlement and litigation, but again, without any clarity as to the difference:

[278] Mr Josephson does not explain why “generally speaking” the Body Corporate award is likely to be on behalf of the owners who have presented claims. This advice did not clarify the look through principle and how this applied to valid claims. Further, unit owners had rightly understood that they were only required to join the claim if they sought to recover repair costs to their unit property.

[279] Mr Remmington gave evidence that Mocles had not elected to bring an individual claim because it understood that it remained part of the Body Corporate:

I understood and rightly or wrongly that there would be an award made for the Body Corporate as the Body Corporate to fix the Body Corporate portion of the building and that there would be another award made for the second plaintiffs’ portion of the case. I don’t believe we anticipated that it would be one award that would have to be divided up amongst owners.

[280] The communications between Grimshaws on the one hand and the Body Corporate and/or non-plaintiff owners on the other were confusing. Those communications said that non-plaintiff owners may recover in relation to their share of the common property if the matter proceeded to trial. Grimshaws’ communications to the Body Corporate said that non-plaintiff owners would not recover if there was a settlement, but did not explain why or identify any risks to the Body Corporate of agreeing to and then implementing a CDA that enabled this outcome.

[281] Grimshaws failed to provide any legal advice on the risks of non-plaintiff owners being able to recover if the matter proceeded to Court but not if the Body Corporate decided to settle the claim. Grimshaws did not provide advice that this was legitimate and consistent with established legal principles and the Body Corporate’s obligations and powers under the UTA10.

[282] Further, solicitors at Grimshaws were alive to the risk when non-plaintiff owners started disputing the settlement. In March 2014, a Grimshaws solicitor acknowledged that there was “legal merit” to the position of non-plaintiff owners:

This position has legal merit due to the unusual nature of ownership of property in a Body Corporate. The non-party owners clearly have no claim to any share of the settlement in respect of their private property but they may well have a claim to the settlement funds based on their ownership of their share of the common property. On the other hand, these owners were not parties to the litigation so it is arguable they should not receive any of the settlement funds.

[283] Mr Allan’s suggestion that by not joining the claim, non-plaintiff unit owners had elected not to receive any settlement proceeds is not supported by the evidence. The communications to non-plaintiff owners suggested they would be entitled to recover in relation to their share of the common property claim. The evidence of Mr Remmington and Mr Cooper was that they understood that, as unit owners, they were entitled to recover but only in relation to the common property part of the claim. It was reasonable for unit owners to understand that they were only required to join the claim if they wished to recover funds for their unit property. The reason for unit owners to join the claim was so that claims could be made for the repair costs for the unit property. Non-plaintiff owners rightly understood that the Body Corporate was the plaintiff in relation to the common property part of the claim and in that capacity,

[284] Review of the CDA would also have identified that cl 4.5 excluded loss on sale plaintiffs because upon sale, those plaintiffs no longer held any unit entitlement. Mr Lewis gave evidence that the CDA was not defective in relation to loss on sale plaintiffs because they would be entitled to their “unit entitlement” as it was when they were a unit owner despite having since sold their unit. This is a strained interpretation of cl 4.5 and also highlights that if unit entitlement was applied in the strict sense then there would be a pool of settlement funds unaccounted for because of non-plaintiff owners’ unit entitlement.

[285] A reasonably competent solicitor would have recommended that the CDA be amended to avoid any confusion as to the distribution of settlement funds to former owner plaintiffs.

[286] I consider that a reasonably competent practitioner would have reviewed the terms of the CDA and identified that:

[287] Having reviewed the CDA, a reasonably competent practitioner would have advised the Body Corporate how to mitigate the risks identified in the advice. That advice would have included advice that the CDA be amended to provide for:

[289] Grimshaws has therefore breached its duty of care to the Body Corporate by failing to provide any of the advice that a reasonably competent solicitor would have provided as set out at [286] to [288].

[290] The factual causation question considers whether the damages claimed are the consequence of Grimshaws’ breach of its duty of care to the Body Corporate. The damages claimed fall into two categories:

[292] The Body Corporate must establish that it would have agreed to an amended CDA, had competent advice been provided. This is a hypothetical question and requires a counterfactual analysis.⁵⁶In Sykes v Midland Bank Executor and Trustee Co Ltd⁵⁷it was accepted that the law firm had acted negligently, but the plaintiffs were

⁵⁶Benton v Miller & Poulgrain (a firm) [2004] NZCA 385; [2005] 1 NZLR 66 (CA) at [46].

[293] In New Zealand in Benton v Miller & Poulgrain (a firm) the majority of the Court of Appeal confirmed that the plaintiff must show it is more likely than not that it would have acted in a particular way in the absence of the breach of the duty.⁵⁸ Where the negligence is an omission (as it is here), causation depends on the answer to a hypothetical question – what would the plaintiff have done if competent advice had been given – and this can only be a matter of inference from all the circumstances:⁵⁹

Although the question is a hypothetical one, it is well established that the plaintiff must prove on the balance of probability that he would have taken action to obtain the benefit or avoid the risk. But again, if he does establish that, there is no discount because the balance is only just tipped in his favour.

Although there is not a great deal of authority, and none in the Court of Appeal, relating to solicitors failing to give advice which is directly in point, I have no doubt that Mr Jackson’s submission is wrong and the second alternative is correct.

⁵⁸Benton v Miller & Poulgrain (a firm) [2004] NZCA 385; [2005] 1 NZLR 66 (CA) at [47].

⁵⁹Allied Maples Group Ltd v Simmons and Simmons [1995] EWCA Civ 17; [1995] 4 All ER 907 at 914–916.

[294] The Supreme Court in Blackwell v Edmonds Judd⁶⁰adopted the following process for determining whether competent advice would have been followed:

[51] The issue in this appeal is whether Ross proved that he would have acted differently had he been properly advised. In order to answer this question we must first assess the advice that Ross should have been given. We then analyse Ross’ objectives in entering into the transactions and the extent to which the transactions met his objectives. Finally, we assess the likely effect of competent advice on the transactions.

[295] The Supreme Court cautioned against too readily finding that “serious failings on the part of a firm” did not lead to loss.⁶¹The Court emphasised that to find that no loss is proved, a court must be of the view that even if competent advice had been given, it would more likely that not have been ignored.⁶²

[296] This case concerns a failure to advise, so whether the Body Corporate would have agreed to an amended CDA is a matter of inference to be determined from all the circumstances. An amended CDA would also have required the agreement of second plaintiffs, so whether they would have agreed is to be determined by considering whether there was a substantial chance (rather than a speculative one) of their agreement.

[297] In considering the above issues, I also need to consider the objectives of the Body Corporate and second plaintiffs and the extent to which an amended CDA would have met those objectives.

[298] A key purpose of the CDA was to provide for the orderly distribution of settlement funds so that repairs to the building could commence. The purpose was also to enable former owner second plaintiffs to receive an allocation from the settlement proceeds for their claims for losses on sale. Amending the CDA as

[299] The objectives of the Body Corporate and current owner second plaintiffs was to ensure distribution of settlement funds as quickly as possible to avoid further losses arising from delays. The objective of former owner second plaintiffs was to secure funds from the settlement without risk of delay. I consider that these shared interests (to avoid delay) support the parties (Body Corporate and second plaintiffs) acting quickly to agree an amended CDA, as recommended.

[300] Mr Woodworth and Mr Plummer, the body corporate experts, agreed on the process for an amended CDA to be considered and agreed to by the Body Corporate and owners. This included an EGM at which legal advice from Grimshaws would be presented, and independent legal advice made available.

[301] Mr Allan acknowledged that realistically clients follow their lawyer’s advice. The Court is entitled to assume rational conduct in the hypothetical. It would be rational for the Body Corporate and second plaintiffs to follow legal advice.

[302] The circumstances of the interpleader are directly relevant to how the Body Corporate is likely to have responded to competent advice. I do not consider it was necessary for the Body Corporate to have provided evidence to that effect. In the interpleader proceedings, a distribution mechanism was agreed within 13 months. That agreement was reached in the context of litigation and in circumstances where the unit owners were in dispute with one another. If competent advice had been provided, it is likely that an amended CDA would have been agreed faster, especially if the EGM process was adopted.

[303] Even if it took 13 months for an amended CDA to be agreed, if Grimshaws had provided competent advice when the UTA10 came into force, or at least by the end of 2011, there was sufficient time (two years) before the eventual settlement of the claim at the end of 2013.

[304] Within about a month of the original CDA being circulated, and without the benefit of any advice on its terms, or the EGM process, over 200 owners (all but 16) returned signed CDAs. The mediation in 2011 proceeded even without those signatures or a resolution of the Body Corporate.

[305] Grimshaws say that the second plaintiff owners would not have agreed to a distribution mechanism even if Grimshaws had provided competent advice because there were many ways to distribute the funds. I consider that the circumstances of the interpleader indicate otherwise. The parties were able to agree a distribution mechanism within 13 months in circumstances where they were in dispute.

[306] Mr Powell and Mr Cooper agreed that distribution could have been based on the claims in the Building Defects Litigation, which would have allocated about a third to the Body Corporate. Grimshaws argue that Mr Cooper and Mr Remmington’s fixed view that the distribution mechanism should reflect the repair costs meant that delays in agreeing an amended CDA were likely.

[307] I do not accept Grimshaws’ inference that a distribution mechanism based on repair costs arose because of a “fixed view” or because Mocles had “substantial resources behind it to pursue its position.” If the owners agreed that settlement proceeds should be allocated to repair costs (as they did in this case), then it is logical that settlement proceeds should be distributed based on the proportion of repair costs allocated to the Body Corporate under the UTA10 for common property on the one hand, and unit owners for unit property on the other. That position was not unreasonable as Grimshaws suggest. Nor would that position have resulted in any more delay than that which actually occurred, which would have meant that come settlement at the end of 2013, the amended CDA would have been finalised.

[308] Grimshaws argue that an amended CDA would not be agreed because its effect was to “strip” second plaintiffs of their entitlements. One of the reasons for amending the CDA was to remove the risk of claims against the Body Corporate because non- plaintiff owners were denied any benefit in the settlement. Providing for those non- plaintiff owners to benefit did not require second plaintiff owners’ to be stripped of

[309] Any settlement funds allocated to the Body Corporate would benefit current owner second plaintiffs because those funds would be applied towards the repair of the common property, thereby reducing the levies required from second-plaintiff current owners to cover those costs. The purpose of the proceeding was to remediate the building and, as Grimshaws has emphasised, the original CDA involved the willingness of second plaintiffs to ignore the individual strengths and weaknesses of their claims in favour of getting the building repaired. The position may well have been different if the repair costs were less than the settlement proceeds, but they were unlikely to be and were in fact not.

[310] Further, in considering whether to amend the CDA, second plaintiffs would need to weigh the risk of retaining the existing CDA against the benefits of amending it. An amended CDA reduced the risk of challenge by non-plaintiffs and therefore provided greater certainty that the remedial works could proceed on settlement. There was cost to all current unit owners if remedial works were delayed.

[311] I consider that if Grimshaws had provided competent advice to amend the CDA, it is more likely than not that an amended CDA would have been agreed and interpleader proceedings avoided prior to any settlement in 2013.

[312] Construction did not commence until March 2018, approximately four years after the Building Defects Litigation settled.

[313] The Body Corporate says the almost four-year delay was caused by the unavailability of the settlement funds. If it had received the settlement funds in March 2014, the Body Corporate claims it would have contracted with Arrow and commenced construction by late May 2014.

[314] The Body Corporate then says its eventual receipt of the settlement funds in April 2016 coincided with the Council changing its approach to consents which in turn required the Body Corporate to provide additional documentation and apply for a new building consent so construction could not start until March 2018.

[315] In the alternative, the Body Corporate’s evidence is that if it had decided to undertake investigations and prototyping prior to contracting with the builder, it would have negotiated a contract price by December 2015 and started construction in early 2016 (comprising an approximately two-year delay).

[316] Grimshaws submit the four-year delay was caused by the Body Corporate’s own actions. Before it knew settlement funds were unavailable, the Body Corporate decided to “rescope” the building works and renegotiate pricing. It is that decision that resulted in the Body Corporate obtaining a new building consent and taking almost four years before starting construction.

[317] In the alternative, Grimshaws say even if the investigations and prototyping were completed in 2014, construction would not have started until March 2017 (comprising an approximately one-year delay).

[318] Determining the period of delay caused by the unavailability of settlement funds is critical to the calculation of damages. Increase in construction and consultant costs due to delay account for a significant proportion of the damages claimed.

[319] The position taken by each of the parties, requires determination of the following issues:

[320] The Body Corporate says it would have contracted with Arrow by late May 2014.

[321] In cross-examination, Mr Barnes was asked whether the Body Corporate would have proceeded to contract with Arrow:

Q. Yes, so if [you’re] calculating loss in this proceeding based on a contract with Arrow in March 2014, that doesn’t appear to be justified on the evidence that we have seen today does it.

[322] Mr Barnes’ concession above is consistent with minutes of the Body Corporate Committee dated 10 April 2014 which record:

The Remedial Works Committee has decided not to contract with Arrow as the main contractor for the remedial works based on market feedback.

That the assignment by Simon Barnes has been reduced to items 1 & 2 of the proposed terms of service.

[323] The aspect of Mr Barnes’ assignment that was removed concerned liaising and negotiating with Arrow to formulate a new lump sum price based on the new scope of work, amended programme and methodology. After that there is no record of the Body Corporate engaging in further discussions with Arrow.

[324] Mr Jones said Arrow pulled out of the remediation market in 2015. Arrow then went into liquidation on 7 December 2018.

[325] Mr Dowling said that it is unlikely Arrow would have contracted on the tendered price and Arrow would not have contracted with the Body Corporate following the Body Corporate’s decision to award the prototyping contract to Brosnan. He also confirmed that the outcome of the prototyping work would have clarified the scope of works and informed the contract price.

[326] Mr Cooper also confirmed that the Body Corporate would not have contracted with Arrow because they went bankrupt.

[327] The evidence indicates that the Body Corporate had determined by April 2014 that it did not wish to proceed with Arrow. The reasons for that decision are recorded and do not have anything to do with the lack of settlement funds. The Body Corporate had genuine concerns as to Arrow’s performance and decided it did not wish to contract with it.

[328] I therefore do not accept that the Body Corporate would have contracted with Arrow in the counterfactual. Would the Body Corporate have nevertheless contracted with Brosnan by the end of May 2014?

[329] The Body Corporate says if it had settlement funds it would have proceeded to contract based on the 2013 Building Consent and the tenders received in 2013. Those tenders provided for the investigation and prototyping works to occur after the contract was awarded. The Body Corporate referred to Babbage’s “Architectural Specification” for the 2013 Building Consent which required that mock-ups and prototyping be undertaken by the contractor and its subcontractors, thereby indicating it would be done post-contract. The Body Corporate says it was unnecessary to wait for completion of the investigations, prototyping and revised documentation to agree a new contract price.

[330] Ms Cook, the delay expert for the Body Corporate, says that delay is the impact of an “event” on the “current programme.” The “event” in this case is the unavailability of funding to the Body Corporate. Ms Cook says examination of the impact must start with the contemporaneous intentions of the parties at the time the event occurred.

[331] It is therefore appropriate to consider the evidence both prior to and after the Body Corporate knew the settlement funds would be unavailable. This will assist in understanding whether this “event” impacted the Body Corporate’s intended programme and if so, how.

[332] The minutes of a Body Corporate Committee meeting on 9 May 2013, record a concern that the proposed solutions may be “too safe”, could be “over the top” and open to rejection based on “betterment.”

[333] By October 2013, the Body Corporate Committee minutes record that “every contract must be re-negotiated in order that the best costs are achieved.” Around this time, Mr Barnes, the quantity surveyor, also recommended a review of the scope of works.

[334] In January 2014, the Body Corporate established the RWC. The RWC first met in February 2014 to discuss rescoping and recorded that:

[335] The above minutes indicate that the Body Corporate’s intention was to revise the scope of works and then negotiate a revised price. This is inconsistent with the Body Corporate immediately proceeding to contract for a new price. This intention

[336] In its fee proposal dated 6 March 2014, BBD stated in relation to the scope of services:

Work with the Body Corporate and the consultants to review the scope of work contained in the current documentation and assist in preparing a revised scope of work to take into account reductions in scope to reflect the outcome of the opinions expressed by Auckland Council (and their experts) and the current opinions of the Spencer on Byron Consultants. This will also involve a review based on the outcome of the findings from the mock-up areas proposed to be opened up earlier.

[337] This fee proposal also refers to liaising and negotiating with Arrow on a new lump sum price based on the “outcome of the findings from the mock-up areas.” This suggests no price would be agreed until the mock-ups were complete. There is no evidence that BBD was aware that there was an issue with the settlement funds when he prepared the above. This was only two days after Grimshaws had received a letter disputing the distribution and prior to any advice from Grimshaws to not distribute.

[338] I accept that the evidence indicates that prior to the Body Corporate knowing that settlement funds would be delayed its intention was to identify the scope of the works and then negotiate a price based on that scope. This intention is also consistent with subsequent documents expressing the reasons for rescoping.

[339] In a report dated 3 May 2014, Mr Khoo of the Body Corporate said in relation to the investigations and prototyping:

The Body Corporate wants this work done as a completely new investigation so that any conclusions are solely based on what has been discovered during the mock-up and not on any assumptions that may have been formed during any previous investigation work. The previous investigation work was done by parties preparing for litigation and this is no longer the case. This mock- up work is now being done for the owners whose primary objective is to have an updated scope of works produced, which accurately identifies what work is required to make the building compliant with the Building Code.

[340] The above observation indicates that the key objective was to have an updated scope of works, which accurately identifies what work is required. It appears that while the Body Corporate was satisfied that the 2013 tenders provided a basis for

[341] Mr Cleary in his evidence described the works as “prototyping and investigation” which was intended to be undertaken to identify construction efficiencies and work that may not be necessary to remediate the building:

It was intended that, once the prototyping work had been completed, any design changes (“re-scoping”) would be submitted to Council as a Consent Amendment, and then final negotiations with the tenderers could be undertaken.

[342] In cross-examination, Mr Cleary accepted that negotiations with the builder would occur concurrently with any consent amendment arising from an updated scope of works. This indicates that the Body Corporate would not have entered a letter of intent or contract until it was in a position to apply for an amendment to the 2013 Building Consent.

[343] Mr Barnes also acknowledged in cross-examination that renegotiation of the contract would be “considerably down the track from March 2014”:

A. ... the expectation was that the next phase of going through, even though we were working through a phase of going through and mock-ups and things like that, the expectation from my perspective is we would be sitting down with Arrow to try and conclude negotiations, albeit with a price that was out of date and we would have to sit down and re-negotiate.

Q. Yes re-negotiate, you would have to have a new scope of works because you were doing all of this work to figure out what the new scope of works would be?

Q. So that re-tender with whoever it was going to be, was going to be considerably down the track from March 2014 wasn’t it?

[345] I accept the evidence of witnesses for the Body Corporate that negotiations with the builder would not take place until the scope of works was known and, consistent with Mr Cleary’s evidence, would have been concurrent with the preparation of an amendment to the 2013 Building Consent.

[346] I reject the Body Corporate’s suggestion that it would have been able to negotiate a letter of intent or contract by May 2014. This is inconsistent with Mr Cleary’s evidence that negotiations would be concurrent with preparation of documentation for a consent amendment. That process took more than six months and it is unlikely a contract price would have been agreed by May 2014.

[347] Further, that the Body Corporate would have waited is also consistent with what happened after the prototyping finished in 2015. In November 2015, Babbage was asked to provide a fee estimate to undertake changes to the 2013 Building Consent documentation for the purpose of applying for an amendment. The work was anticipated to take up to three months before the amendment could be lodged.

[348] Ms Cook’s evidence was that whether it was necessary to complete the design works before contracting for the main works is the pertinent question. Ms Cook said the answer to this is a judgment call for the client (and their advisers) as to whether the risk of contracting before testing buildability with mock-ups and potentially having to manage a significant scope change is riskier than waiting to contract until after testing and potentially losing the preferred tenderer.

[349] The evidence of the Body Corporate’s witnesses and the contemporaneous documents indicate that the Body Corporate did not intend to fix a price until it knew the scope of works. The Body Corporate’s objective had changed since receipt of the

[350] The fact that the 2013 Building Consent allowed for the prototyping and design works to be completed after the contract was concluded needs to be considered in the context of why and when the earlier tenders were called. At that time, the Body Corporate was preparing for a hearing in the context of the Building Defects Litigation. The documentation and evidence of the Body Corporate’s witnesses had identified that it would be appropriate to rescope the works and renegotiate the pricing. The evidence indicates that the investigation works and prototyping would have happened regardless of the interpleader proceedings and negotiations with the builder would not commence until documentation was being prepared for the amendment to the building consent.

[351] In conclusion, the evidence indicates that the Body Corporate is unlikely to have contracted with a builder by late May 2014.

[352] Did the unavailability of settlement funds nevertheless cause delays to the investigation and prototyping works such that remedial works would have commenced sooner in the counterfactual?

[353] Mr El Chikhani’s evidence is that the Body Corporate could not have commenced remedial works before 2018 because of the time required to rescope, complete design, apply for a new building consent and negotiate a contract following the completed designs. Despite this, Mr El Chikhani did note that there was one period which may be a relevant period of delay, being the period from 8 May 2014 to 15 May 2015. Mr Chikhani said that he had not sighted any evidence that suggests the lack of funds caused delays during this period.

[354] Mr Jones notes in his evidence that there is some indication that the Body Corporate put on hold the prototyping and testing process during 2014 due to a lack of funds but that it is unclear to what extent the lack of funds impacted on this stage of the project, if at all.

[355] For the Body Corporate, Mr Cleary’s evidence is that the prototyping and investigation was intended to be undertaken promptly as one project. The work on the punched windows and further work on the swing doors was also intended to take place in 2014 but did not take place until June to September 2015. That was after the Body Corporate had received the interim distribution in May 2015.

[356] I consider the evidence relevant to 8 May 2014 to 15 May 2015 to determine whether the documentation demonstrates any delay due to insufficient funds.

[357] The minutes of the 19 June 2014 Body Corporate Owners’ Committee meeting record that:

If money from the settlement is not released soon, the investigative works will need to stop until either other invoicing of members under S74 Scheme or authority to invoice from another EGM is obtained.

[358] On 17 July 2014, an owners’ update was circulated, which provided an update on the investigation works:

Unfortunately, this investigation work has had to be stopped because the body corporate has no money to pay for this work as it is being denied access to the settlement funds as a result of a legal challenge by some owners. An example of the benefits that can result from this investigation work is that the original scope of works required all window and sliding door joinery to be replaced as it was thought that the joinery wasn’t strong enough to withstand the wind pressures experienced by the building. Removal of the window and sliding door section from a unit and offsite testing has revealed that the joinery will withstand greater wind pressure than required under the current building code. This will result in a saving of approximately $800,000.

Hopefully this example will demonstrate why we don’t have a price to fix the building at this stage and why it is essential that we get access to the settlement funds to be able to complete the investigation work.

The Settlement Committee is exploring a number of options to obtain release of the Settlement Proceeds as soon as possible. This is of utmost importance for the early commencement of Remedial Work.

[359] Mr Powell gave evidence that a special levy ($285,000) was passed at the next AGM in October 2014 to provide further funds for the Body Corporate’s remedial works. This amount was equal to the next instalment due of a $2 million levy that had been raised in March 2013. The previous levy had been for litigation costs, so a new

[360] On 17 October 2014, Mr Downer emailed Mr Hanley indicating that the Body Corporate “had found some funds to restart “the paused” plan.” Mr Hanley then provides a report on 20 October 2014 of the further investigation works required. Mr Hanley then meets with members of the Body Corporate on 3 December 2014 and provides a list of works required to progress “remedial development work at the punched windows.” Mr Hanley indicates he has limited time until February 2015.

[361] Mr Barnes provided an estimate to the Body Corporate in February 2015 to complete the investigation works, prepare design documents, and apply for an amended building consent. That estimate then formed the basis for an application for an interim distribution from the settlement funds.

[362] During the interpleader proceedings, Mr Downer, a member of the RWC, swore an affidavit on 7 April 2015 and relied on Mr Barnes’ estimate in support of the application for an interim distribution. Mr Downer’s affidavit explained the background to the tenders the Body Corporate had received in 2012 and noted that the “current dispute over the settlement funds is now delaying the owners from starting the main remedial programme.” It then went on to explain that:

[363] Mr Downer then went on to explain the Body Corporate’s debt, borrowing and cashflow position and explained that further funds were required to pay down historic debt owing to Babbage. Mr Downer also explained that imposing higher levies had led to a substantial increase in outstanding debtors from the owners’ community, which increased cash flow pressures.

[364] I consider that the lack of settlement funds did cause a delay to the investigation and prototyping works during the period from May 2014 to May 2015.

[365] Mr El Chikhani refers to Mr Cleary’s evidence that the investigation and prototyping was intended to be completed as one project and acknowledges that if this occurred concurrently it would have been completed by 7 October 2014. That is approximately a year earlier than when it did finish, indicating that the lack of settlement funds contributed to a 12-month delay in the progress of that aspect of the investigation and prototyping.

[366] I find that the unavailability of settlement funds did cause delay to the progress of the investigations and prototyping. Absent that delay the investigations and prototyping could have been completed by October 2014, as set out in Mr El Chikhani’s alternative analysis. That is a delay period of 12 months.

[367] I consider whether the delay caused by the unavailability of settlement funds is limited to this 12-month period or whether it resulted in further delay.

[368] Ms Cook’s evidence is that if investigation and prototyping was complete in October 2014, a contract could have been concluded by December 2015 with construction commencing in January 2016.

[369] Ms Cook criticises Mr El Chikhani’s analysis of only a 12-month delay and says:

This duration [26 months for design amendments and consent] has been copied directly from the duration Mr El Chikhani has determined it took for the design to be revised over 2016 and 2017, a period which experienced the

disruption of the cladding product changes and increased scrutiny of the fire- design and other aspects, circumstances which, in my view, led to a disrupted and inefficient process. The duration to prepare the original set of documents for building consent and get them processed and consented by Council was 13 months ... around half the time it took the second time around. Given that it is largely the same scope, the same client and the same building, I believe this would be an allowable comparison under the Protocol for measuring disruption.

[370] Neither of the factual scenarios relied on by each of Mr El Chikhani and Ms Cook are necessarily the same as what would have occurred in the counterfactual.

[371] In Sherwin Chan, the Court of Appeal rejected a counterfactual that assumed the plaintiff would have engaged in the same internal lending arrangement as it did in the factual when there was evidence that it would not have so acted.⁶³In that context, the Court of Appeal noted:⁶⁴

An expert opinion based upon what did occur does not provide a reliable factual foundation for a conclusion premised upon what would not have occurred: a counterfactual founded upon the factual is of no evidential value in this case.

[372] The reason the expert opinion was of no evidential value in Sherwin Chan was because there was evidence it would not have happened. It does not follow that expert opinion based on the factual will not be reliable in all cases. It is only unreliable if there is evidence indicating the counterfactual would not have involved the same circumstances as the factual on which the expert relies.

[373] In determining which expert opinion is to be preferred, I therefore need to consider whether there is evidence that the counterfactual would have been different to the factual scenarios relied on by Ms Cook and Mr El Chikhani.

[374] Ms Cook’s evidence relies on the time taken to prepare documentation for the 2013 Building Consent. That documentation did not include the design required to reflect the outcomes of the investigation and prototyping as would have been the case in the counterfactual. In that regard, it is not a reliable baseline comparison.

⁶³Sherwin Chan & Walshe Ltd (in liq) v Jones [2012] NZCA 474, [2013] 1 NZLR 166 at [77]–[79].

⁶⁴Sherwin Chan & Walshe Ltd (in liq) v Jones [2012] NZCA 474, [2013] 1 NZLR 166 at [79].

[375] Reliance on the time taken for the 2013 Building Consent does however, involve a period where there was no “disruption.” Mr El Chikhani’s evidence explained that “disruption” and “delay” are different. Delay means things that take longer than planned or intended, thereby increasing costs. Disruption means that there has been some interference with the planned work activities that causes delay or inefficiencies. Mr El Chikhani accepted in cross-examination that in his delay analysis he had not considered the Body Corporate becoming aware that settlement funds were not available in March 2014. Nor did Mr El Chikhani consider whether the processes up to receipt of the full settlement funds were disrupted by the Body Corporate’s involvement in the interpleader proceedings.

[376] Ms Cook’s evidence notes that the Body Corporate’s claim relies on the premise that the delays to the documentation and consenting process were a result of pursuing the redesign and consenting at a time when the Council had become stricter in their approach. Ms Cook notes that this appears to be the “most problematic” of the activity streams in the series of programmes in that they had the most changes. Ms Cook’s evidence is that this indicates that the requirements to fulfil consent were frequently changing. The timing of the increased scrutiny of Council is therefore very relevant.

[377] Mr Rawlinson confirmed that the Council’s shift in mindset in mid-2015 resulted in cladding systems on buildings of heights greater than 10 metres being assessed as “subject to specific engineering and weathertightness design” by an expert peer review by a “façade engineer” as part of the building consent application. Even on Ms Cook’s analysis, this would have occurred during Council processing in the counterfactual but after the documentation had been submitted.

[378] In these circumstances, I am satisfied that the increased scrutiny of Council would likely have occurred in the counterfactual. The evidence was clear that this started from mid-2015 and on both experts’ analysis, this falls within the timeframe prior to the issuing of an amended or new building consent but at a later point in time than in the factual.

[379] I reject Ms Cook’s evidence that the timeframe for the 2013 Building Consent is the appropriate comparator for the counterfactual in circumstances where increased Council scrutiny would have occurred by mid-2015. Further, the 2013 Building Consent documentation did not relate to the design arising from the investigations and prototyping, so in that respect, was different.

[380] I also note that as from May 2015, the Body Corporate had received the interim distribution which included funds for preparation of documentation for an amended building consent. The delay in preparation of documentation cannot therefore have been due to the unavailability of settlement funds.

[381] Ms Cook’s evidence also notes that the time periods Mr El Chikhani relies on includes time when the funds were not fully available. Ms Cook considers that this raises questions as to whether the process was inefficient because of a lack of urgency because the Body Corporate knew that it could not contract until all funds were released. Ms Cook also considers that this also raises a question as to whether the RWC was distracted from pursuing execution of the workstreams because members of the RWC were obliged to be simultaneously involved in pursuing the release of funds through the interpleader proceedings. Those funds were finally released by April 2016.

[382] Mr Cleary’s evidence is that Mott MacDonald (who was the engineering peer reviewer in 2013) was no longer available to peer review the façade and issue the PS2 in 2016. Mr El Chikhani’s analysis includes a six-month period described as “time period due to unclear scope and unavailable façade peer reviewer” (January 2015 to July 2015). The peer reviewer would have been available in the counterfactual to the beginning of 2016 and therefore this assumed period of delay likely would not have occurred in the counterfactual.

[383] To summarise, I consider that the evidence indicates that in the counterfactual:

[384] In light of the conclusions set out above, I prefer the evidence of Mr El Chikhani but subject to an adjustment to reflect the fact that in the counterfactual, the documentation preparation process would likely have been more efficient (from October 2014 to July 2015 in the counterfactual) and the peer reviewer would have been available until early 2016. It is therefore appropriate to remove the delay period of almost six months identified by Mr El Chikhani as relating to the “unclear scope and unavailable peer reviewer.” If this time period is removed, then the time taken to complete documentation and process the council consent would have been completed six months earlier, by June 2016 (and not December 2016).

[385] Mr El Chikhani’s analysis does not specify a date by which a contract price would have been finalised. Ms Cook’s evidence is that the price would have been agreed as it was in the factual, which was three months prior to the commencement of construction. Taking into account the adjustment at [384], a contract price would have been known by June 2016.

[386] The next date to determine is the start of construction works. This is relevant to the claim for COVID-19 related costs. Mr El Chikhani relies on a timeframe of

[387] I therefore accept that construction would likely have started in July 2016 in the counterfactual.

[388] I accept the evidence of Mr El Chikhani as to the earliest time by which council processing would occur subject to a six-month adjustment. I determine that the contract price would have been known by June 2016 and construction would have commenced the following month by July 2016. The overall period of delay caused by the unavailability of funds was therefore 18 months.

[389] The duty nexus question asks whether there is a sufficient nexus between the damages claimed and the subject matter of Grimshaws’ duty of care?

[390] The damages claimed are the costs of the interpleader proceedings and the costs arising from delays to construction. The subject matter of Grimshaws’ duty of care was the CDA, and in particular, the risks to the Body Corporate of approving and implementing the CDA. The purpose of the advice was to inform the Body Corporate of those risks and to advise the Body Corporate how to eliminate and mitigate those risks so that the settlement funds could be distributed and used for the repair of the Spencer on Byron.

[391] I consider that there is a sufficient nexus between the costs incurred by the Body Corporate in the interpleader proceedings and the duty of care. Those costs would not have arisen if advice was provided to amend the CDA. Grimshaws were aware that there was a risk of claims by non-plaintiff owners because of the distribution mechanism in the CDA. It had notice of that risk and did not advise the Body Corporate to amend the CDA to eliminate that risk.

[392] I also consider that there is sufficient nexus between the increased construction costs arising from delays but only to the extent that the delays are caused by the unavailability of settlement funds. The unavailability of settlement funds arose by reason of the disputes over the distribution mechanism in the CDA and so there is a sufficient nexus between the damages claimed and the duty of care.

[393] The legal responsibility question asks whether a particular element of the losses claimed is irrecoverable because it is too remote; because there is a different effective cause; because the Body Corporate has mitigated its loss; or because the Body Corporate has failed to avoid loss which it could reasonably have been expected to avoid?

[394] The Body Corporate claims the following costs (plus GST) relating to the interpleader:

[395] It is likely that interpleader proceedings would have been avoided if Grimshaws gave competent advice and an amended CDA was in force. Subject to any defence, the Body Corporate is entitled to claim the above costs. I therefore consider the affirmative defences.

[396] Grimshaws says the Body Corporate is estopped from claiming the costs of commission and Grimshaws’ legal fees associated with the interpleader proceeding because the Court ordered the payments. In consenting to the Court orders, the Body Corporate informed the Court that:

The Body Corporate consents to the applicant [Grimshaws] receiving its costs under rule 4.64. It does so on the basis that its consent is without prejudice to any rights that it or any of its members may have against the applicant in relation to the fees and commission charged. The Body Corporate does not want to hold up distribution of the settlement funds over the applicant’s fees.

[397] It is clear the Body Corporate reserved its rights in relation to the commission and legal fees, so Grimshaws’ reliance on estoppel is surprising and unfounded. It is rejected.

[398] Further, the Body Corporate’s claim is for damages in negligence. The Body Corporate is not seeking to overturn the order of the Court but is claiming damages arising in respect of commission and fees it should never have had to pay.

[399] Grimshaws says the Body Corporate is precluded from claiming against Grimshaws because of the 2015 Settlement Agreement, which provided that:

The settlement agreement is in full and final settlement of the dispute over the distribution of the settlement funds and of the interpleader proceeding and any claim that any party has or may have, whether known or unknown, in relation to the distribution of the funds the subject of that proceeding.

Nothing in this agreement affects any rights that any person has or may have to pursue any claim that he or she or it may have other than in relation to the distribution of the settlement funds.

[400] Grimshaws says the 2015 Settlement Agreement confers a benefit on Grimshaws and precludes the Body Corporate from making any claim in relation to the distribution of the settlement funds.

[401] This proceeding is concerned with Grimshaws’ duty of care to the Body Corporate and its failure to properly advise the Body Corporate. It does not concern the claims that were the subject of the interpleader proceedings or the 2015 Settlement Agreement.

[402] Further, Grimshaws did not attend the mediation and is not a party to the 2015 Settlement Agreement. I do not accept that the 2015 Settlement Agreement conferred a benefit on Grimshaws in circumstances where the settlement was between unit owners (former and current) and the Body Corporate. The settlement did not include settlement of any claims against Grimshaws for negligence and/or breach of contract.

[404] Grimshaws is therefore liable to the Body Corporate for [$306,985.58] (excluding GST) being the costs the Body Corporate incurred in the interpleader proceedings.

[405] The Body Corporate claims the following construction related costs (less interest of $948,107.00 to be deducted from the below):

[407] In determining the quantum of damages that are recoverable, Grimshaws submit that Mr Barnes’ evidence should not be preferred to Grimshaws’ expert evidence because Mr Barnes is not independent. Mr Barnes was involved in the remedial works and acted for the Body Corporate.

[408] I do not consider that Mr Barnes’ evidence should be rejected simply because of his involvement with the Body Corporate. I consider that Mr Barnes was a credible witness and I have taken his evidence into account alongside the expert evidence of Grimshaws’ experts.

[409] Before considering each head of loss claimed, I note that Mr Barnes’ evidence assumed a delay period of four years. Given my finding above that the Body Corporate is only entitled to recover for an 18-month delay period, I reject Mr Barnes’ assessment based on a March 2014 construction start date. Adjustments are required to reflect a June 2016 contract date and July 2016 construction commencement date.

[410] A RAB is designed to stop the flow of air from the exterior entering the building. When used with a ventilated and drained cavity, the outside air pressure is equalised within the cavity and prevents moisture from being driven into the building.

[411] The Body Corporate claims the additional cost ($382,274.00 (plus GST)) of using 9 mm James Hardie Villaboard (9 mm Villaboard) in place of 6 mm Eterpan fibre cement boards (6 mm Eterpan) as specified in the 2013 Building Consent.

[412] The Body Corporate claims these additional costs arose as a result of the delay because the delay meant Eterpan was no longer appropriate and the Body Corporate’s advisors advised the Body Corporate to use 9 mm Villaboard.

[413] Mr Cleary’s evidence is that during the prototyping phase 6 mm Eterpan and 9 mm plywood were trialled. The 9 mm plywood was identified as the preferred product. Mr Cleary said the 9 mm plywood was easier to handle, and in contrast to

[414] On 6 October 2017, the Council confirmed that a combustible plywood was not acceptable because it did not conform to the relevant standard and it was understood that the RAB would be revised to a fibre cement sheet.

[415] Mr Cleary confirmed that he then selected the 9 mm Villaboard. He says this was because James Hardie was the only product supplier that could provide the technical support to demonstrate that their products had been tested to meet requirements.

[416] Mr Cleary says the Council challenged the use of the 9 mm Villaboard and he says this was an example of the “new detailed and difficult approach taken by Council.” Initially, Mr Cleary said the Council would not accept the technical information provided by James Hardie. A meeting was required with the Council and the Council subsequently granted consent.

[417] Mr Cleary says that the Body Corporate would have used 6 mm Eterpan if the remedial works started in 2014. This, however, ignores the results of the prototyping which I have held would have occurred before finalising the contract. The prototyping disclosed issues with the 6 mm Eterpan product. Mr Cleary acknowledged that he selected the 9 mm Villaboard and there is no reason to consider that he would not have done the same in 2016 when the same investigations would have disclosed the flaws with the 6 mm Eterpan product.

[418] The change to 9 mm Villaboard was not therefore caused by Grimshaws’ breach of duty and arose because of another effective cause, namely, the issues that arose during prototyping and Mr Cleary’s advice to change to an alternative product. This head of loss is rejected.

[419] The Body Corporate claims $2,196,733.00 (plus GST) being the increased cost of using 3 mm Reynodual Laminated Aluminium Panel (Reynodual) in place of the Symonite Cladding System Alucobond Plus (Alucobond Plus) aluminium composite panel cladding (ACP).

[420] The Body Corporate says that the use of Reynodual arose because of the Council’s change in approach which influenced Mr Cleary’s decision to specify Reynodual and not Alucobond Plus.

[421] In cross-examination, Mr Cleary explained that Reynodual came on the market in 2016 and he determined in late 2016 to use that product. In cross-examination Mr Cleary accepted that the change to Reynodual was made prior to the application for the 2018 Building Consent and was not a requirement imposed by Council. This indicates that the decision was unrelated to Council’s requirements. That additional cost was not therefore caused by any delay due to unavailability of funds.

[422] The Body Corporate’s losses therefore are limited to the losses arising from the delay in commencing remedial works. The Body Corporate accepts that it would not have used Alucomat if works commenced under the 2013 Building Consent and that it would have replaced that product with Alucobond Plus, likely by way of consent amendment. It therefore claims the difference between the cost of Alucobond Plus in June 2016 and the cost of Alucobond Plus in December 2017.

[423] There is a quotation for Alucobond Plus in October 2016 for $3,070,000.00. This is the best evidence of the likely costs of Alucobond Plus as at June 2016. Mr White then applied a contract inflation rate to that cost to determine the likely cost in December 2017.

[424] Mr Barnes assessed the cost of Alucobond Plus in December 2017 on the assumption that Alucobond Plus increased at the same inflation rate as Reynodual during that period (12.4 per cent).

[425] It is unclear why neither party relied on the actual inflation rate for Alucobond Plus. Presumably this is unavailable.

[426] Mr Barnes’ evidence is that the contract rate adopted by Mr White is based on indices that are derived from the New Zealand Government’s Statistics Department over a full range of products over the whole of New Zealand. It does not take into account regional differences or differentiate between building materials. Mr Barnes says these indices are low and do not reflect the Auckland market.

[427] Mr Barnes notes that the Rider Levett Bucknall (RLB) tender price index (TPI) for the same period was nine per cent which is substantially higher than Mr White’s contract rate. Mr Barnes used the RLB TPI when calculating the general cost increases.

[428] Mr White’s methodology assumes a construction contract is in place when it was not. There is no evidence that a contractor would limit its starting price to prices other than the actual prices at the time. There is no evidence as to the relative market position of Reynodual and Alucobond Plus, but I accept that the increase in the price of Reynodual is likely to be closer to the actual price increase for a similar type of product than a contract inflation rate.

[429] I accept that the Body Corporate is entitled to recover the difference between the cost of Alucobond Plus as set out in the October 2016 quotation ($3,070,000.00) and the cost of Alucobond Plus in December 2017, as assessed by Mr Barnes ($3,450,903.00).

[430] Grimshaws is therefore liable to the Body Corporate for that difference, being

[431] The Body Corporate claims $338,726.00 (plus GST), being the cost of timber nogging supports to be installed within the existing steel stud framing of the building to provide fixing points for the Reynodual cladding support rails. The Body Corporate’s claim relies on the fact that timber nogging pricing was included within Brosnan’s pricing in relation to the 2013 Building Consent.

[432] I have already determined that the Body Corporate would not have proceeded based on the pricing provided for the 2013 Building Consent so that is not the appropriate comparator.

[433] The Body Corporate did not lead evidence as to whether timber nogging would have been required for Alucobond Plus or seek to recover an increase in costs for timber nogging if it is only entitled to the increase in costs for that product. The claim for this head of loss therefore fails.

[434] Shop drawings are prepared by a product supplier in conjunction with the architect, engineer and sometimes the contractor. The Body Corporate claims

[435] Given I have accepted that in the counterfactual, the Council would have been processing the consent amendment after mid-2015, the increased scrutiny of Council is likely to have required shop drawings at the consenting stage. I do not consider that this additional cost was caused by the unavailability of settlement funds.

[437] Construction works were interrupted by the March–May 2020 COVID-19 lockdown. This resulted in a delay to the construction works of 20 working days. The Body Corporate paid Brosnan $75,783.00 (plus GST) due to that disruption.

[438] Ms Cook gave evidence that the duration of the construction works was 46 months. If construction started in July 2016 and the same 46-month period is applied, construction works would have been completed by May 2020, which would have coincided with COVID-19 related delays. This loss would therefore have occurred in the counterfactual.

[440] The Body Corporate claims $1,383,293.00 (plus GST) being the cost saving it would have received if there were competitive contractor negotiations. This amount is the difference between the lower Arrow assessed tender price and the higher Brosnan assessed tender price in 2013.

[441] I have determined that the Body Corporate had decided by April 2014 that it would not progress with Arrow. That decision was unrelated to the unavailability of settlement funds. Mr Dowling of Arrow also gave evidence that Arrow would not have allowed itself to be used to push down the price even if the Body Corporate had no intention of contracting with it. I accept Mr Dowling’s evidence. I also consider that it is more likely than not that the Body Corporate would have proceeded to negotiate only with Brosnan in 2016 (as it did in 2017) and would have relied on Mr Barnes’ cost analysis as a check on Brosnan’s pricing.

[442] The Body Corporate has therefore failed to prove that this loss was caused by the unavailability of settlement funds.

[444] The Body Corporate claims $5,519,946.71 (plus GST) in cost escalation assuming a four-year delay period. I have determined above that the relevant delay period for which the Body Corporate is entitled to claim damages is 18 months, between June 2016 and December 2017. Only cost escalation during that period is recoverable.

[445] The significant discrepancy between the experts (Mr Barnes and Mr White) arises because each expert adopted a different methodology for determining:

[446] Mr White’s analysis assumes that the Body Corporate would have contracted in the counterfactual on the same terms as it contracted with Brosnan in 2017 (2017 Brosnan Contract). The 2017 Brosnan Contract did not provide for any cost escalation so the Body Corporate would not have incurred escalation costs during the period of the contract.

[447] Mr White therefore assessed cost escalation from the date of the originally agreed contract completion date (February 2017) (counterfactual contract end date) to the actual end of contract negotiations (December 2017).

[448] Mr White accepts that because the period from February 2017 to December 2017 is not governed by the 2014 contract or the 2017 contract, the Body Corporate is entitled to claim for cost escalation for this limited period.

[449] The purpose of assessing cost escalation is to determine the contract price the Body Corporate would have paid in the counterfactual (in June 2016) versus the contract price in December 2017.

[450] Mr White’s method conflates cost escalation during the life of the contract with escalation between two notional contract dates. Mr White suggests that Brosnan agreed to a nil costs escalation clause in the 2017 contract and so can be assumed to have done the same in the counterfactual so that it would not have been exposed to cost escalation during the term of the contract. Mr White does not consider the impact of such a term on the contract starting price. Even if cost escalation during both the 2016 and 2017 contracts were assumed to be excluded (which I accept), the Body Corporate would still be exposed to the cost escalation priced in to the 2017 contract.

[451] I therefore reject Mr White’s methodology and consider that the current approach is to assess the contract pricing in 2017 against the contract pricing that the Body Corporate would have been likely to pay in June 2016.

[452] Mr Barnes’ evidence is that the RLB TPI is the appropriate inflation factor to apply in assessing the counterfactual contract price.

[453] In criticising the RLB TPI, Mr White referred to the disclaimer on the RLB website which notes that the results are “indicative only and are to be used as a guide only”. The disclaimer also notes:

The current published rates include the current known impacts on construction costs, associated with on-site productivity, operational issues and general market conditions caused by the continuing impact of the global COVID-19 pandemic.

[454] Mr White then referred to the 2017 contract and noted that it included declared allowances for material price increases, subcontractor price increases, material price cost fluctuations, and the Labour Government minimum wage increase. Mr White calculated those allowances as a percentage of the total contract value, being 1.3 per cent over a 794 working day period, or 0.42 per cent per annum. In calculating inflation for the period from February 2017 to December 2017, that 1.3 per cent was prorated to 0.38 per cent for the adjusted period.

[455] The specific allowances identified by Mr White are those in which Brosnan considered it had additional escalation risk going forward (that is beyond 2017). The pricing received within the tender accounted for cost escalation up to completion of the contract works. Mr White has therefore used only the additional cost escalation risk for specific items beyond what would ordinarily occur in a long-term construction project, and he has ignored the cost escalation allowances already inherent in the contract price. By way of example, Mr White has extrapolated the quantification by Brosnan of the extra risk of a Labour Government increasing minimum wage after 2017 with the overall increase in construction costs between 2014 and 2017. There is no plausible reason for those two figures to be connected to each other.

[456] Mr Barnes’ evidence is that Mr White’s assessment of 0.5 per cent per annum for market increases is inherently implausible and significantly lower than the actual market increases during the relevant time. It is significantly lower than the inflation rate determined by the RLB TPI and an eighth of the capital goods price index during a time where the construction industry was booming.

[457] The estimates of cost escalation as recorded in contemporaneous documents also do not support Mr White’s view. In estimates provided in August 2016, September 2016, June 2017 and December 2017, the estimated cost had increased from $18,490,000.00 in 2013 to $33,675,086.00 in 2017. I therefore reject Mr White’s suggested inflation factor.

[458] Turning to the inflation factor determined by the RLB TPI, Mr Barnes considered this conservative and that actual cost increases were likely to be higher.

[459] Mr Barnes used the current forecast construction value for the remedial works, removed the specific change in scope costs addressed in Mr Cleary’s evidence for those costs that the Body Corporate says would not have been incurred in the counterfactual (calculated as $28,519,724.66), and then discounted that amount by 24 per cent (the RLB TPI rate). Mr White also used that same starting figure (noting that it does not take account of any betterment, further cost adjustments and includes COVID-19 costs) and applied his inflation rate (1.3 per cent prorated to 0.38 per cent). There is therefore no disagreement between the experts on the starting point.

[460] I prefer Mr Barnes’ evidence which adopts the RLB TPI index to determine the inflation factor. This index more closely reflects actual construction cost increases in Auckland and is likely to be closer to actual increases in construction costs, thereby reflecting the likely June 2016 contract price.

[461] The Body Corporate is therefore entitled to recover damages for cost escalation for the period from June 2016 to December 2017 to be calculated as follows (cost escalation damages):

[462] The Body Corporate claims the following increase in consultant fees during the pre-construction phase:

Consultant fees (Period 1 Jan 2016 – 28 Feb 2018)	Amount ($)
BBD Cost Management Services	119,895.00
Ethos Projects	291,908.80
Babbage Architects	232,688.55
MSC Structural Engineers	29,351.04
Fire engineering	35,225.00
Lautrec façade engineering	67,888.54
Total	776,956.93

[463] Mr Barnes assessed the increase in consultant fees based on a review of the actual invoiced costs, the consultant fee agreements relating to this period, and the consultant fee budget reports prepared by Mr Ebert for the project. Mr Barnes excluded the costs up to the end of 2015 (relating to investigation and prototyping works) and included the actual consultant fees from 1 January 2016 until 28 February 2018.

[464] The Body Corporate had not completed the documentation required for an amendment to the Building Consent by the end of 2015. Mr Barnes’ calculation makes no allowance for the costs of consultants’ fees associated with preparing documentation and processing the building consent. This would have happened in the counterfactual and indicates that Mr Barnes’ calculation is inflated.

⁶⁶This is the amount assessed by Mr Barnes as the construction costs less scope change assessments.

[465] Further, I have determined above that the Body Corporate would have encountered the Council’s change in approach in mid-2015 in the counterfactual so the same type of documentation would likely have been required.

[466] The increase in consultant fees also includes the cost of the fire engineering report prepared by Holmes Fire. A fire engineering report had been prepared by Babbage for the 2013 Building Consent (Babbage Report).

[467] Mr Merryweather’s evidence is that the requirement to demonstrate fire compliance was the same in 2013 and 2017, so this requirement remained. Mr Merryweather also considered that the Babbage Report had flaws as it did not state the heat release limitations of cladding, and incorrectly stated that nothing is required as the building is sprinklered. Mr Merryweather was not cross-examined so his evidence is unchallenged.

[468] Mr Merryweather’s evidence indicates that it is likely the Council would have required an updated report to address the flaws in the Babbage Report. Further, the counterfactual documentation would have been processed in the period after mid-2015 when Mr Rawlinson accepts the Council became more rigorous in the documentation it required for passive fire issues. I therefore do not accept that the Holmes Report would not have been required in the counterfactual.

[469] The claim for increased consultant fees for the pre-construction phase should therefore be limited to cost escalation for consultant fees during the delay period (from June 2016 to December 2017). Mr Barnes proposed that the appropriate inflation rate for construction phase consultant fees should be determined by the Reserve Bank wages inflation calculator during that period. I agree that this rate should apply.

[470] The Body Corporate is therefore entitled to recover damages calculated as follows for the increase in pre-construction consultant fees (pre-construction consultant damages):

[472] Between 2013 and 2017 the façade engineering fees increased substantially from an estimate of $25,000.00 to actual costs of $175,000.00. The Body Corporate claims 75 per cent of the actual increase ($112,500.00).

[473] I have already found that the Body Corporate would have encountered the Council’s change in approach in the counterfactual. Any increase in façade engineering fees would likely have occurred in the counterfactual. Damages for increases in façade engineering fees should therefore be limited to cost escalation from June 2016 to December 2017 and calculated using the same methodology as set out at [470].

[474] The Body Corporate is therefore entitled to claim damages for increases in façade engineering fees, to be calculated as follows (Façade engineering damages):

[475] Mr Barnes calculated the increase in construction consultant fees by discounting the 2018 budget Babbage prepared for consultant fees (2018 Budgeted Fees) using the inflation rate determined by the Reserve Bank wage cost calculator (RB Wage Calculator).

[476] Mr White considers any increase should be determined by discounting the 2018 Budgeted Fees by the inflation rate specified in the Body Corporate’s contract with Brosnan.

[477] The Brosnan contract applies as between Brosnan and the Body Corporate. There is no evidence that the same terms would apply as between consultants and the Body Corporate.

[478] The Body Corporate is therefore entitled to claim damages for increases in post-construction consultant fees, to be calculated as follows (post-construction consultant damages):

[479] The Body Corporate claims $52,486.37 as a result of consent costs it says it would not have incurred if it had proceeded to contract in 2014.

[480] The total Council consent fees were $77,486.37. Mr Barnes has assessed the amount that would have been required had the 2013 Building Consent been amended at $25,000.00. He has calculated the difference as being $52,486.00 (plus GST).

[481] Mr Barnes’ estimate is inconsistent with an estimate prepared in November 2015 of likely Council costs of amending the 2013 Building Consent. That estimate of $50,000 was prepared in 2015 and is therefore more likely to reflect the consenting costs in 2016 than the $25,000 adopted by Mr Barnes. I prefer the estimate prepared in 2015 to Mr Barnes’ estimate. The increase in costs should therefore be calculated with an assumption that consent costs in 2016 would have been $50,000.00, as estimated in 2015.

[483] The Body Corporate claims $182,975.00 (plus GST) alleging that this is the amount of the additional insurance premium it was required to pay due to the delay to the remedial works.

[484] Mr Barnes’ evidence is that there was no quotation for contract works insurance in 2013 or 2014. Mr Barnes assesses the likely cost of contract works insurance in 2013 by:

[485] Mr White considered actual insurance quotations or invoices were required to assess the difference in value between the 2017 cost and the estimated 2014 cost. Mr White considered once the value difference was established, it would be necessary to consider increases caused by the delay and those that were not.

[486] I accept that the cost of contract insurance would have increased between the time of the counterfactual contract (June 2016) to the December 2017 contract and Mr Barnes’ proposed methodology is logical, subject to my finding as to the counterfactual contract date being June 2016 and not March 2014. To assess the likely

[487] The Body Corporate is entitled to recover the difference between the estimated 2016 insurance costs and the actual insurance costs of $428,999.00 calculated in accordance with the following methodology (insurance damages):

[488] It is appropriate that any interest the Body Corporate has earned should be offset against the damages awarded.

[489] Mr Barnes assessed the accrued interest the Body Corporate has earned on the original settlement funds as approximately $1,473,523.00 up to June 2019 based on construction commencing in March 2018. That includes interest earned during the period of construction. I accept the methodology adopted by Mr Barnes in estimating the interest the Body Corporate would earn on the settlement funds. That same methodology is to be applied to calculate the interest earned if construction commenced in July 2016 and then that amount is to be deducted from the total amount of damages awarded.

[490] The total amount of damages is to be discounted by the estimated interest the Body Corporate would have earned on the settlement funds if construction commenced in June 2016 adopting the methodology set out in the schedule to Mr Barnes’ brief of evidence dated 26 February 2021 at [201.0244].

[491] I have already determined that the Body Corporate is only entitled to recover those losses that are a consequence of the delay from the unavailability of settlement funds. In assessing the period of delay for which damages are recoverable, I adopted Mr El Chikhani’s analysis subject to a six-month adjustment. It follows from that finding that to the extent that there were other causes of delay, no damages are recoverable for those delays. If however, another cause contributed to the 18 month delay period, then damages may not be recoverable. I therefore consider other potential causes of that delay.

[492] Grimshaws say the Body Corporate contributed to or caused the losses by contracting with Babbage and Mr Cleary, despite consistently questioning Mr Cleary’s competence, which resulted in Mr Clearly causing the delays and scope changes.

[493] Grimshaws refers to the following documents as evidence of the Body Corporate’s concerns as to the performance of Babbage and Mr Cleary:

[494] The Body Corporate agreed a confidential settlement with Babbage. I accept that the Body Corporate had issues with Babbage’s performance and the letter of demand indicates that the Body Corporate considered that Babbage had failed to carry out its services in a timely way, including:

Failing to adequately investigate and design the works in relation to multiple areas of the Building for the purposes of the consent submission to Auckland Council in 2017, such that significant revisions and redrafting were required, meaning that consent was not granted until February 2018.

[495] I have accepted Mr El Chikhani’s delay analysis (except for a short time period of six months) which does not allow the Body Corporate to recover for any delays other than the delay in not being able to complete the prototyping at the same time in 2014 and the delay caused by the absence of the peer reviewer and inefficiencies due to the Body Corporate being involved in interpleader proceedings and not having access to all of the settlement funds to which it was entitled. It follows that if Babbage caused delays (which I do not need to determine), Mr El Chikhani’s analysis does not allow for costs arising from those delays to be recovered.

[496] My findings above regarding delay assume the same amount of time for the counterfactual as was taken for preparation of documentation other than the delay due to the absence of a peer reviewer. I am therefore satisfied that to the extent the engagement of Babbage resulted in delays, those delays have not been included within

[497] Grimshaws says that the Body Corporate caused the losses because it levied non-plaintiff owners. This submission is somewhat surprising in circumstances where Grimshaws was fully aware from the time it was instructed in 2008 that the Body Corporate was levying all unit owners. After the Court of Appeal’s decision in Jewett,⁶⁸there is no evidence that Grimshaws advised the Body Corporate that an alternative regime may be necessary for raising funds to pay the litigation. It was not until the Body Corporate asked Grimshaws whether it should be levying non-plaintiff owners in 2013 that Grimshaws advised it to refund those levies. Minutes of a Body Corporate Committee meeting on 17 July 2013 record that:

Non 2^ndplaintiffs – 49; the opinion given by Gareth [Lewis] at the Q & A Seminar was that as these receive no benefit from the remedial settlement, therefore the legal fees paid by these members should be refunded in the first instance. A second opinion to be obtain[ed] on this matter.

Financial impact and feasibility study to be tabled prior to any refunds being issued.

[498] There is no evidence that Mr Lewis’ advice included any explanation of how the refund could be put into effect or the risks that may arise by reason of the levies having been raised over the course of the previous five years. While Mr Lewis acknowledged that the levies may give rise to an expectation that all owners will benefit from the claim, he did not advise the Body Corporate as to any other potential legal risks or that the risk could be mitigated by providing for the allocation of settlement funds to the Body Corporate. Grimshaws had contributed to the position the Body Corporate found itself in and it was not the levying of legal fees that created the risk to the Body Corporate, it was the failure to provide for any allocation of settlement funds to the Body Corporate.

[499] Mr Plummer says that levying non-plaintiff owners was not prudent body corporate practice. Mr Plummer says if there was disagreement within the Body

[500] In terms of levies, the Body Corporate was required under s 121 of the UTA10 to levy owners in accordance with ownership or utility interest, and under s 15 of the UTA72, to levy in accordance with unit entitlement. The Body Corporate had therefore acted lawfully by levying all unit owners.

[501] The s 74 scheme also expressly authorised the Body Corporate to levy owners for the fees of the Building Defects Litigation. Grimshaws had notice of the s 74 scheme and were asked to review the affidavit to be filed in support of that application. Grimshaws did not ask PBB for a copy of the application or advise the Body Corporate that the s 74 scheme may be relevant to the CDA. The Body Corporate was legally entitled to levy all owners.

[502] If Grimshaws considered that non-plaintiffs should not have been levied, it would have been appropriate to provide this advice when Grimshaws first recommended adding second plaintiffs in 2008. When the claim was filed, only the Body Corporate was a claimant and so all fees were paid by the Body Corporate through levies on all owners. It is the adding of second plaintiffs that altered the framework of the case and gave rise, in Mr Josephson’s view, to the need to change levying practices. That advice was not given to the Body Corporate. I agree with the Body Corporate’s submission that if there is an issue with levying it is an issue of Grimshaws’ making.

[503] Further, the Court has expressly held that there is no discretion under s 131 of the UTA10 to distribute surplus funds other than in the same proportion as the funds were raised,⁶⁹so if Grimshaws was going to refund levies, it would need to refund all the levies. The only other process for raising discriminatory levies is a s 74 scheme, but given non-plaintiffs had an interest in the common property claim as members of the Body Corporate there likely would have been difficulties with that option.

[504] I do not consider that the Body Corporate was negligent in not following Grimshaws’ advice to refund levies or that this was the cause of the losses that the Body Corporate suffered.

[505] Grimshaws say that the Body Corporate is responsible for the delay in filing the interpleader proceedings. Grimshaws recommended the interpleader on 10 March 2014 and proceedings were not filed until 19 September 2014.

[506] When Grimshaws recommended that interpleader proceedings be filed, it also recommended that the Body Corporate obtain independent legal advice and provided the name of a law firm for this purpose. The Body Corporate followed that advice by instructing that law firm and then awaiting the advice.

[507] Following receipt of the advice, the Body Corporate took two months negotiating to try to reach a resolution of the dispute. I do not consider this is lengthy or an unreasonable length of time given the time it had taken to settle the proceedings and the amount of funds involved. In July 2014, the Body Corporate instructed Grimshaws to file the interpleader proceedings. It took Grimshaws over two months to do so.

[508] In the circumstances I do not consider that the Body Corporate caused the delay to the interpleader proceedings or that this caused the costs the Body Corporate incurred in relation to the interpleader proceedings.

[509] I therefore do not consider that there is another effective cause of the 18-month delay, for which the Body Corporate is entitled to recover damages, that prevents the Body Corporate from recovering those damages.

Has the Body Corporate failed to avoid loss it ought reasonably to have avoided?

[510] Grimshaws must prove that the Body Corporate acted unreasonably and in a way that diminishes the impact of delay in release of the settlement proceeds, having regard to the circumstances it was put in by Grimshaws’ breaches of duty.⁷⁰

[511] The enquiry is directed at the conduct of the wronged party who is forced to take remedial steps in consequence of the wrongdoer’s negligence. The inquiry is into whether it has foreseeably taken an unreasonable risk at the wrongdoer’s cost.⁷¹If not, the chain of causation remains unbroken, and the wrongdoer is liable in negligence.

[512] A court will not scrutinise too closely actions taken by the plaintiff reasonably and in good faith to mitigate its loss. Reasonableness is at the heart of the inquiry.⁷² The question is not whether the steps taken were right or wrong, when viewed in hindsight, but whether the additional liability in question is caused or attributable to the negligence.⁷³

[513] Grimshaws say that the Body Corporate caused the delay because it failed to agree a distribution mechanism for the settlement funds sooner. The Body Corporate however, was required to negotiate a new distribution mechanism because of the issues with the CDA. Grimshaws is now saying the Body Corporate took too long to resolve the dispute. A settlement offer was circulated by the Body Corporate on 5 June 2014 but was rejected. I therefore do not accept that the Body Corporate has caused its own delays by reason of the time taken to resolve the interpleader proceedings. The Body Corporate would not have been put in this position if the CDA was amended and provided for an allocation of settlement proceeds to the Body Corporate.

⁷¹Sherwin Chan & Walshe Ltd (in liq) v Jones [2012] NZCA 474, [2013] 1 NZLR 166 at [59].

⁷²Sherwin Chan & Walshe Ltd (in liq) v Jones [2012] NZCA 474, [2013] 1 NZLR 166 at [34].

⁷³Sherwin Chan & Walshe Ltd (in liq) v Jones [2012] NZCA 474, [2013] 1 NZLR 166 at [35].

[514] Grimshaws argue that the Body Corporate failed to obtain interim distributions to enable it to continue with the investigation and prototyping works. Minutes of a meeting of the Settlement Committee indicate some members believed the Body Corporate should “obtain authorisation to use the settlement money to complete the works.” This is what the Body Corporate subsequently sought to do by applying for the interim distribution.

[515] After Grimshaws filed the interpleader, the Body Corporate waited for directions as to service, appearances and defences, and that timetable ran to the end of 2014. The Body Corporate then followed the Court’s direction to seek an interim distribution at the first case management conference. I do not consider the Body Corporate acted negligently in complying with the Court timetable and applying for a distribution in accordance with that timetable.

[516] Grimshaws says the Body Corporate could have levied for the re-scoping works so that there was no delay. A levy was authorised in October 2014 but could have been authorised much earlier if required.

[517] The Body Corporate had already levied over $3,815,000.00 for the litigation (most of which had been paid to Grimshaws) and a further $500,000.00 for urgent remedial work.⁷⁴It was not realistic or reasonable to expect owners to be levied further in those circumstances, even assuming the resolution would pass, particularly where they were aware that a significant sum was in Grimshaws’ trust account awaiting distribution. Mr Remmington confirmed this latter reason as why further levies were not introduced.

[518] I do not accept that it was reasonable to require the Body Corporate to levy for the repair works in circumstances where the funds were being held in Grimshaws’ trust

[519] The Body Corporate is only entitled to claim for losses arising as a consequence of the 18-month delay to remedial works caused by the unavailability of settlement funds. The unavailability of the settlement funds in turn caused delay to the investigation and prototyping so that it was undertaken in two stages (in 2014 and then in 2015) instead of at the same time. This then meant that by 2016 the peer reviewer (Mott MacDonald) was no longer available to complete the documentation and that resulted in further delay.

[520] That 18-month delay period does not include any delays that may have been caused by the time it took Babbage to prepare the documentation for the new building consent. To the extent that Babbage caused delay, those delays are not included within the delay period for which the Body Corporate is entitled to recover damages.

[521] The levying of non-plaintiff owners was done with the knowledge of Grimshaws for almost five years. That levying was lawful and not the cause of the Body Corporate’s losses. If Grimshaws had advised the Body Corporate to amend the CDA to provide for settlement funds to be allocated to the Body Corporate for repair costs, there would have been no legitimate basis for unit owners to dispute the settlement. Levying was not a cause of the loss.

[522] The Body Corporate acted reasonably in attempting to settle the dispute after the settlement and it did not cause the losses it suffered as a result of the interpleader proceedings.

[523] I do not accept that the Body Corporate failed to act reasonably in mitigating its losses. The Body Corporate attempted to settle the dispute, the Body Corporate then applied for an interim distribution and commenced the investigations and prototyping almost immediately after the dispute. The losses did not therefore arise because of the Body Corporate’s failure to mitigate its losses.

[524] I have considered above the factual causation question and the legal responsibility question and concluded that the Body Corporate is only entitled to recover the costs of the interpleader proceedings and the repair costs that arise as a consequence of the 18 month delay. No other heads of loss are recoverable.

[525] Below is a summary table of my conclusions on each head of loss. Some heads of loss require calculations to be undertaken in accordance with the relevant methodology I have determined applies to that specific head of loss:

HEAD OF LOSS	DAMAGES CLAIMED (PLUS GST) ($)	DAMAGES AWARDED (PLUS GST) ($)
Costs of interpleader proceeding
Commission	44,970.13	44,970.13
Other legal fees	185,357.75	185,357.75
Mediation fees	12,937.50	12,937.50
Grimshaws legal fees	63,720.20	63,720.20
Sub-total	306,985.58⁷⁵	306,985.58
Increased construction costs
RAB	382,273.99	-
Cladding system	2,196,733.77	380,903.00
Timber nogging	338,726.71	-
Façade review and shop drawings	21,180.00	-
COVID-19 costs	75,783.00	-
Tender price difference	1,383,293.00	-
Cost escalation	5,519,946.71	Cost escalation damages at [461]
Sub-total	9,917,937.18⁷⁶	To be calculated
Increased consultant fees
Pre-construction	776,956.93	Pre-construction consultant damages at [470]
Post-construction façade engineering fees	112,500.00	Façade engineering damages at [474]
Post-construction other consultant fees	116,520.10	Post-construction consultant damages at [478]
Sub-total	1,005,977.03⁷⁷	To be calculated
Increased consent fees	52,486.37	27,486.00
Increased other construction costs (insurance)	182,975.68	Insurance damages at [487]
Total claimed:	11,466,361.84	To be calculated
Less interest earned	948,107.00	Interest calculation at [490]
TOTAL	10,518,254.84	To be calculated

⁷⁵This is the total amount of the losses claimed for the costs of the interpleader proceeding as specified at [52](a) to (d) of the fourth amended statement of claim.

⁷⁶This amount is the sub-total of the “increased construction cost” as specified at Schedule 1 of the fourth amended statement of claim and as specified at 201.0258 in the claim summary annexed to Mr Barnes’ reply brief of evidence dated 15 June 2021 less the losses not claimed ($160,143.87).

⁷⁷This is the sum specified at 201.0258 in the claim summary annexed to Mr Barnes’ reply brief of evidence dated 15 June 2021.

[526] I have held that Grimshaws owed a duty of care to the Body Corporate to advise on the CDA as from the date that the UTA10 came into force. That duty of care was continuing and was not discharged. The claim is not therefore statute barred.

[527] Grimshaws also relies on contributory negligence as an affirmative defence and pleads that levying non-plaintiff owners, failing to agree a distribution, delaying the interpleader, delaying repairs and rescoping, deciding to contract with Babbage, failing to seek or obtain interim distributions and failing to use its powers under s 74 of the UTA10 to levy for rescoping as causing or contributing to the loss. I have dealt with each of these issues above.

[528] I have already considered estopped at [396] to [398] above. This ground of defence fails.

[530] Before considering each of the above, it is helpful to set out the principles relevant to the defence of betterment as enunciated by Professor Todd:⁷⁸

Where a damaged chattel is repaired with new parts, or a destroyed building is reinstated, the owner may wind up with an item that is more efficient or useful than the original, or has a longer lifespan. In such a case it can be argued that the value of this improvement in the plaintiff’s position should be deducted from the damages payable by the defendant in order to ensure that the plaintiff does not end up better off than before the commission of the tort. On the other hand, deducting the full value of “betterment” ignores the fact that the plaintiff may effectively be compelled to upgrade the property at a time when the plaintiff does not wish to do so and perhaps cannot afford to. Consequently, the courts have traditionally been rather reluctant to make an allowance for betterment, and in the leading English case the plaintiff was allowed to recover the full cost of rebuilding business premises destroyed by fire. The more recent New Zealand decisions have taken a middle course, recognising that betterment should not simply be ignored and that it will often be appropriate for a deduction to be made, while at the same time making allowances for the disadvantage of involuntary investment by the plaintiff. The onus rests on the defendant to prove that the plaintiff has in fact benefited as a result of the reinstatement.

[531] I adopt the above statement of principle in considering each of the grounds advanced in support of betterment.

[532] The Body Corporate used Neuchatel in place of Nuraply but it is not claiming for the difference in price between the two products. Mr White has assessed the difference in price between the products as $56,028.69. It is not therefore clear how the price difference gives rise to betterment when the Body Corporate has funded that difference itself. Betterment does not apply in these circumstances.

[533] Mr White says that he was unable to find any invoices confirming that the building was washed down between 2014 to 2017. He explains that generally the washing regime is every six to 12 months and he expects that the Body Corporate may have deferred maintenance expenditure of up to $100,000.00 ($25,000.00 per annual wash).

[534] In reply, Mr Remmington’s evidence was that no full building washes were undertaken from 2014 to 2017 by the Body Corporate, although the Body Corporate did undertake window cleaning. Mr Remmington referred to two invoices for exterior window cleaning of $4,088.25 (including GST) in 2015, and $4,502.25 (including GST) in 2017.

[535] Mr Remmington also stated that other maintenance expenses and repairs were incurred between 2014 to 2017 and he provided a list of 15 items of work including additional maintenance⁷⁹and interim repair works⁸⁰

[536] Mr Remmington did not provide evidence of the cost of the additional maintenance and repair works referred to in [535] above.

[537] Given the list of maintenance and repair works provided by Mr Remmington, I am not satisfied that Grimshaws has established that the Body Corporate has benefited by $100,000.00 as a result of deferred maintenance expenditure.

[539] Grimshaws refers to the “superior cladding system” used and “other upgrades” that occurred in the remediation and says they increased the value of the building compared to the value in “the event the upgrades had not been carried out.”

leaking – resealed; fixed patched roofing area (Mastic seal); all 08 Rooms needed remediation (from planter above 19th floor); 205 resealed external panelling; 501 / 601 balcony resealing; 307 / 308 sealed tiling; water incursion into gymnasium; sump pumps sealed on tennis court; and external tiling sealed outside rooms 206 – 209.

[540] Mr Bates, who gave valuation evidence for Grimshaws, referred to the following upgrades as relevant to the difference between the two valuation scenarios he undertook:

[541] Mr Bates said he had been instructed to provide an independent valuation opinion for the building as to:

Whether the remedial work being carried out at Spencer on Byron [p]resents betterment because it will result in a building that complies with the fire provisions of the building code such that it is less susceptible to fire; whereas the building work that was proposed in the 2013 Building Consent and/or tenders, would have resulted in a building that did not comply with the fire provisions of the building code such that it is susceptible to fire.

[542] The Body Corporate relies on Minister of Education v H Construction North Island Ltd (Formerly Hawkins Construction North Island Ltd), where this Court considered that as a matter of principle, remedial work to achieve building code should not be considered betterment because such work is involuntary, in the sense that it is the product of another’s wrong.⁸¹In that case, the defendant was arguing that the increase in the cost of the alternative product (Colorsteel versus Zincalume roof cladding) constituted betterment. It was held that it did because there was no evidence that the building code required use of Colorsteel. Here, Grimshaws is relying on the increase in value as a result of the upgrades.

[543] I accept that Mr Bates’ evidence did not use the appropriate comparator. It is accepted that in the counterfactual (if there was no breach of duty) the building would have been reclad using ACP cladding (Alucobond Plus and Eterpan fire cement RAB). The appropriate comparator is therefore the difference in value between using those products versus the actual products used (Reynodual and Eterpan cement RAB). Given I have declined the Body Corporate’s claim for the increased costs of Reynodual, it follows that any increase in value due to the product change arises by reason of the Body Corporate’s own expenditure.

[544] Further, even if the Body Corporate was entitled to claim for the increased costs of using Reynodual I am not satisfied that Mr Bates’ evidence establishes an increased value that is attributable to the difference between the products. Mr Bates accepted in cross-examination that there was a “lot of merit” in the suggestion that the market did not yet value the difference between two cladding systems:

Q. So I put it to you Mr Bates that one day in the future the market may value, may put a value on the difference between the two cladding products which we are discussing here but it’s just not doing it yet. Do you agree with that?

A. I don’t mean to be – I’d like to give you a straightforward answer and the reason why I consider I can’t is because there is a lot of merit in what you appear to be saying from my perspective so if I you correctly you’re saying well they’re not reflecting the market yet.

[546] Grimshaws refer to the significant change in unit ownership since the Building Defects Litigation settled in 2013 and says because the vast majority of those who were owners in September 2014 (when Grimshaws ceased acting) are no longer owners, the Body Corporate no longer has standing to bring the claim. Further, Grimshaws says the Body Corporate was only ever acting as agent for unit owners so it cannot now sue in reliance on the s 74 scheme orders.

[547] The Body Corporate is authorised by the s 74 scheme to enter into a contract for the remedial works. The s 74 scheme orders record that:

1.2 The Body Corporate is appointed the agent of each Owner, jointly and severally, with authority to authorise, commit, and undertake on behalf of each Owner all such matters for the purpose of carrying out to completion the Repairs (including any repairs to the Relevant Private Property) and the Body Corporate is further authorised to collect all costs involved in effecting those Repairs, including all incidental legal and investigatory costs, (together, “the Costs”) from each Owner and in particular including any legal costs incurred in the recovery from liable parties sums to offset the costs of the Repairs.

[548] The Body Corporate entered into the construction contract with Brosnan and now claims the increase in repair costs and 80 per cent of the costs it paid in relation to the interpleader. The Body Corporate was directly exposed to those costs.

[549] I understand Grimshaws’ submission to be that the Court should look behind the Body Corporate to the unit owners. Grimshaws is, in effect, asserting that it does not owe any duty of care to current owners who were not owners when it was acting for the Body Corporate. The key issue is whether the Body Corporate has standing to sue Grimshaws.

[550] In considering whether the Body Corporate has capacity to bring the claim, it is helpful to consider the underlying principles as enunciated in Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) where Lord Brandon said:⁸²

... there is a long line of authority for a principle of law that, in order to enable a person to claim in negligence for a loss caused to him by reason of loss of or damage to property, he must have had either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred, and it is not enough for him to have only had contractual rights in relation to such property which have been adversely affected by the loss of or damage to it.

[551] The Body Corporate has repair and maintenance responsibilities both for common property and for building elements and infrastructure in principal units under the UTA10.⁸³Here, under the s 74 scheme orders, the Body Corporate also has power to contract for the remedial works.

[552] Whether a body corporate has standing to bring a claim against a tortfeasor was addressed in Body Corporate 324525 v Stent.⁸⁴Associate Judge Bell held that a Body Corporate has standing to sue for damage done to unit property and common property. The Associate Judge relied on the Supreme Court’s decision in Sunset Terraces,⁸⁵which provided for the right to sue for common property damages even though (at that time) the common property was not owned by the Body Corporate. Associate Judge Bell held that where a Body Corporate has incurred or will incur expenses for work under s 138, it ought to be able to recoup those expenses from those responsible for causing damages, including by suing tortfeasors.⁸⁶The Associate Judge noted that:⁸⁷

It should matter little to a tortfeasor whether the plaintiff is the body corporate or a unit owner. The body corporate’s interest is more than contractual. Its repair and maintenance responsibilities and insurance obligation give it sufficient interest to have standing to sue for damage to unit property covered by s 138(4).

[553] Here, under the s 74 scheme, the Body Corporate had authority to enter into a contract to remediate all of the building, including both common property and unit property. The Court made orders giving effect to the s 74 Scheme.

[555] Grimshaws rely on Waterhouse v Contractors Bonding Ltd,⁸⁸and say the Court should exercise its “inherent power” to make “whatever orders and directions justice requires”, including an order requiring the disclosure of the terms of the funding agreement that relate to:

⁸⁵North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158.

[556] Grimshaws argue that these terms are relevant to the determination of the issues in this proceeding.

[557] A redacted version of the litigation funding agreement was provided to Grimshaws and they accept that the Body Corporate has satisfied the requirements in Waterhouse to disclose the identity and location of the funder and the funder’s amenability to the jurisdiction of the New Zealand courts.

[558] Grimshaws acknowledge that Waterhouse contemplated that disclosure of a litigation funding agreement could be relevant in applications for security for costs, a stay of proceedings on the grounds of abuse of process, and an application for third party costs, but says Waterhouse contemplated that disclosure of the funding agreement may be required in any application. Grimshaws say that subsequent cases have found that the principal factor in determining whether disclosure would be ordered is whether the terms are relevant to the application being made.

[559] Grimshaws rely on Chongqing Jinzhiran Jiabocheng Building Materials Co Ltd v Huang,⁸⁹and Shanghai Neuhof Trade Co Ltd v Zespri International Ltd.⁹⁰Both of those cases however, concerned costs. The former was an application for disclosure before seeking a costs order so that the defendant could determine whether to make a non-party costs application. The latter concerned an application for security for costs.

[560] Grimshaws also relies on Cain v Mettrick,⁹¹where this Court held that the plaintiff was required to disclose the persons beneficially entitled to the shares in the litigation funder. In that case, the defendant sought the information to enable it to determine whether to bring an application for abuse of process as it had concerns that the true identity of the funder was unclear.

[561] The circumstances in which Grimshaws seeks the litigation funding agreement are not analogous to any of the above cases. Grimshaws has not indicated that it is contemplating an application for abuse of process and costs are not yet in issue.

⁸⁹Chongqing Jinzhiran Jiabocheng Building Materials Co Ltd v Huang [2022] NZHC 1035.

⁹⁰Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2020] NZHC 987.

[562] Grimshaws submission appears to be that the Body Corporate is bringing the claim for the benefit of the litigation funders, who have not suffered any loss and to whom Grimshaws owed no duty of care. Grimshaws want to know who is going to benefit from the litigation so it knows the “true identity” of the parties on whose behalf the Body Corporate is bringing the claim. Grimshaws do however, know the name of the litigation funder and there is no suggestion that the situation is analogous to Cain v Merrick.⁹²

[563] Grimshaws argue that there is a likelihood that there is a disparity between unit owners who paid for the repair costs and then sold their units and those who may stand to benefit from the litigation. This will result in unjust enrichment and a windfall benefit that the “look through principle” was imposed to protect against. It says therefore that for the proper determination of this claim, disclosure of the relevant terms of the funding agreement are required.

[564] The authorities referred to above do not support ordering disclosure of the litigation funding agreement. This is not necessary to determine whether the Body Corporate has standing to bring the claim. I am satisfied that it does. The Body Corporate was Grimshaws’ client. The Body Corporate also had repair obligations and obligations under the s 74 scheme in relation to the remedial works for the whole of the Building.

[565] I have found Grimshaws is liable to the Body Corporate for breach of contract and in negligence and have awarded damages to the Body Corporate.

[566] Grimshaws owed the Body Corporate a duty of care to advise in relation to the CDA as from 20 June 2011, when the UTA10 came into force.

[567] The scope of Grimshaws’ duty of care was to review the CDA after the UTA10 came into force and to advise the Body Corporate of any legal risks to it if it approved and then implemented the CDA. The duty included advising as to how those risks could be eliminated or mitigated so that the Body Corporate could achieve its commercial objective of having settlement funds available so that remedial works could commence without delay.

[568] Grimshaws’ responsibility extends to the Body Corporate’s decision to approve and then implement the CDA.

[569] Grimshaws owed the Body Corporate a duty of care to protect against the risks that flowed from matters which made the failure to advise negligent, which risks include:

[570] Grimshaws breached their duty of care to the Body Corporate by failing to advise the Body Corporate:

[571] If Grimshaws provided competent advice to the Body Corporate, it is likely the Body Corporate and second plaintiffs would have agreed to amend the CDA prior to settlement in 2013. Interpleader proceedings would likely not have ensued if an alternative CDA was in place at that time.

[572] The consequence of Grimshaws’ failure to advise the Body Corporate to amend the CDA was that non-plaintiff owners disputed the distribution of settlement funds because of the distribution mechanism in cl 4.5 of the CDA. As a result of those disputes, the Body Corporate incurred unnecessary costs in relation to the interpleader proceedings.

[574] The costs of the interpleader proceedings and the increased repair costs due to the 18 month delay are the consequence of Grimshaws’ breach of its duty of care to the Body Corporate.

[575] Grimshaws assumed responsibility for the Body Corporate approving the CDA. There is a sufficient nexus between the costs of the interpleader proceedings and Grimshaws’ duty of care to the Body Corporate. Grimshaws had a duty to protect the Body Corporate against the risk of claims by non-plaintiff owners. The interpleader proceedings arose because of non-plaintiff owner claims.

[576] There is also a sufficient nexus between increased repair costs and Grimshaws’ duty of care. Grimshaws knew the settlement funds were required to repair the building. Increased repair costs are a consequence of the unavailability of settlement funds due to the interpleader proceedings.

[577] The following heads of loss claimed are irrecoverable because they were caused by a different effective cause and not Grimshaws’ breach of its duty:

[578] I have determined the damages for which Grimshaws is liable to the Body Corporate subject to calculation in accordance with the methodology I have determined applies to each head of loss. See [591] below.

[579] The claim is not statute barred under the Limitation Act 1950 or the Limitation Act 2010.

[580] The Body Corporate is not estopped from claiming damages by reason of the Court order of Faire J dated 18 April 2016.

[581] The 2015 Settlement Agreement does not preclude the Body Corporate from claiming for losses suffered as a consequence of Grimshaws’ breach of duty. Grimshaws was not a party to that agreement and the settlement did not relate to claims against Grimshaws.

[583] The Body Corporate has not failed to mitigate its losses and did not contribute to and/or cause the damages which have been awarded to the Body Corporate.

[584] I do not require disclosure of the litigation funding agreement to determine the claim. Grimshaws owed a duty of care to the Body Corporate. That duty was breached, and the Body Corporate has suffered loss. The absence of former unit owners from this claim does not deny the Body Corporate standing to bring the claim.

[585] The hope is that the Spencer on Byron ceases to be embroiled in litigation. Time will tell.

[586] The Body Corporate seeks interest on any damages under s 10 of the Interest on Money Claims Act 2016, on an accrual basis, from the date on which the cause of action arose or the date on which the Court specifies that the amount was quantified, if later, until the date of payment.

[587] Where the amount on which interest is to be awarded was not quantified at the day on which the cause of action arose, s 9(1)(a)(ii) requires the Court to specify in the judgment a later day as the date at which the amount was quantified.

[588] The loss suffered as a consequence of the interpleader proceeding was not quantified until the end of the interpleader. The costs claimed are reflected in the Court orders dated 18 April 2016 and therefore were quantified as at that date. I specify 18 April 2016 as the date at which the loss for interpleader costs was quantified.

[589] I agree with the approach adopted by Gault J in Northwest Developments Ltd v Zhang, Jung and So⁹³that s 9 calls for a sensible construction and does not require quantification to match exactly the amount ultimately awarded.

[590] Here, the Body Corporate quantified the Body Corporate’s increased repair costs in its statement of claim dated 28 September 2018. I specify 28 September 2018 as the date at which the loss for increased repair costs was quantified.

[591] The Body Corporate is entitled to judgment against Grimshaws for the following (exclusive of GST):

[592] I make the following directions in relation to the calculation of damages:

addressing the difference in the calculations (and the reasons for those differences) within 20 working days of the date of this judgment.

[593] Unless a hearing is required, I will then make orders on the papers as to the final quantum of damages calculated in accordance with the methodologies specified in this judgment.

[594] The Body Corporate has been successful in its claim. The parties are encouraged to agree costs between themselves. If they cannot, the Body Corporate may file a costs memorandum within 20 working days of this judgment, with any memorandum in response within a further 10 working days. Memoranda as to costs are to be no more than five pages in length.

BETWEEN	BODY CORPORATE 207624 Plaintiff
AND	GRIMSHAW & CO Defendant

High Court of New Zealand Decisions

Body Corporate 207624 v Grimshaw & Co [2023] NZHC 979 (28 April 2023)