MILES v GADD [2022] NZCA 227

MILES v GADD [2022] NZCA 227 [7 June 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA458/2021[2022] NZCA 227BETWEEN DANIEL JOSEPH MILES ANDELIZABETH CHARLOTTE MILESAppellantsAND BRUCE WILLIAM GADDRespondentHearing: 17 February 2022Court: Gilbert, Katz and Edwards JJCounsel: B M Easton and D J Powell for AppellantsK P Sullivan and D A Bleier for RespondentJudgment: 7 June 2022 at 2 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants must pay costs to the respondent for a standard appeal ona band A basis and usual disbursements. We certify for second counsel.____________________________________________________________________REASONS OF THE COURT(Given by Gilbert J)Introduction[1] This is an appeal against a judgment of the High Court1 dismissing a claimalleging a breach of a standard vendor warranty in an agreement for sale and purchase1 Miles v Gadd [2021] NZHC 1527, (2021) 22 NZCPR 248 [High Court judgment].of a unit title property (the agreement).2 The warranty was that the vendor had noknowledge or notice of any fact which might give rise to or indicate the possibility ofthe owner or the purchaser incurring any other liability under any provision ofthe Unit Titles Act 2010 (the Act) or the Unit Titles Act 1972 (the 1972 Act).Eight months after settlement, weathertightness issues were discovered elsewhere inthe multi-unit development. Upon further investigation, it emerged that there werenumerous weathertightness defects throughout the development and that majorremedial works would be required to achieve an enduring solution.[2] Two questions arise on this appeal. First, what does "any other liability" inthe warranty refer to? In particular, does it extend to a possible liability for a levy toaddress unidentified defects outside the particular unit? Secondly, if so, did the vendorhave knowledge or notice of any fact which might give rise to, or indicatethe possibility of, any such liability being incurred?Background[3] By an agreement dated 28 June 2013, the respondent, Mr Gadd, agreed to sellto the appellants, Mr and Mrs Miles, unit 803 (the apartment) in Sirocco Apartmentsfor $540,000. Sirocco is an 11-storey, 44-apartment building situated in centralWellington and completed in March 1999.[4] Mr Gadd had owned the apartment since October 2004 and had been a memberof the body corporate committee at various times. He lived and worked in Europe forextended periods — June to November 2006 and June 2007 to July 2010 — and wasnot a member of the body corporate during the latter three-year period. In late 2012,he decided to put the apartment on the market and relocate to Auckland to take up anew position.[5] The agreement contained the following vendor warranty (the warranty):8.0 Unit title and cross lease provisions2 Real Estate Institute of New Zealand Incorporated and Auckland District Law SocietyIncorporated Agreement for Sale and Purchase of Real Estate (9th ed, 2012) [Standard FormAgreement] at cl 8.2(6)(a).Unit Titles8.2 If the property is a unit title, the vendor warrants and undertakes asfollows:(6) The vendor has no knowledge or notice of any fact whichmight give rise to or indicate the possibility of:(a) the owner or the purchaser incurring any otherliability under any provision of [the Act] or [the 1972Act]; or[6] The Miles did not make the agreement conditional on obtaining a satisfactoryland information memorandum, but it was conditional on solicitor's approval of title,finance, a satisfactory valuation report and, if recommended by the valuer, a buildingreport.[7] The Miles obtained a valuation report from CBRE Valuations Pty Ltd (CBRE)dated 1 July 2013 assessing the current market value of the apartment at $535,000(including chattels). CBRE noted that the valuation was based on a number of criticalassumptions, including:Critical Assumptions• The subject dwelling is of a design and materials that the Marketassociates with potential weathertightness issues. Any such potentialissues are largely built into sales of other properties of similar design andconstruction.• That a builders report would not reveal any weathertightness issues thatmay impact negatively on the condition or value of the subject property.[8] CBRE commented favourably on the condition of the building following theirinspection:Condition & RepairThis building was constructed in an era and of materials that are associatedwith leaking buildings. We have not been provided with a builders reporthowever we understand from the Body Corporate Manager that there havebeen no instances of leaking in the building. The top level decks have beentiled to prevent leaking and the walk ways have been resurfaced. From ouronsite inspection we noted that the exterior appeared in good condition withno obvious signs of cracks or water penetration. The foyer and common areasare clean and well presented. Refer: Critical Assumptions.[9] The Miles were satisfied with this report and did not commission a buildingreport. The agreement settled on 24 July 2013 and Mr Miles was appointed a memberof the body corporate committee the following month.[10] Eight months later, in early April 2014, Plastercoat Services Ltd discoveredrotten timber under the rain head of the deck to another apartment while carrying outscheduled maintenance on minor cracks in the façade of the building. Le Celebre Ltd,a building contracting company that had previously carried out maintenance work onthe building, was called to investigate. After removing the exterior cladding in thisarea, they found the underlying timber was rotten with water damage extending downas far as the car park level. Le Celebre reported these findings to the body corporatesecretary on 1 May 2014.[11] Silvester Clark Ltd, consulting engineers, were engaged to assess the conditionof the external envelope of the building. They reported in September 2014 that it waspossible 40 per cent of the cladding had moisture penetration, with correspondingdeterioration of timber and steelwork. They recommended a larger scale inspectionbe carried out.[12] At the annual general meeting of the body corporate on 12 November 2014,the body corporate committee's recommendation to raise a special levy of $500,000to fund further investigations and some initial repair work was approved.[13] Maynard Marks Ltd, property and building consultants, were engaged toinvestigate the extent of the damage and assess the scope of the requiredremedial works. They reported on 1 July 2015 that there were numerousweathertightness defects in the building and the only viable repair option was to fullyre-clad the entire building, including roofs and balconies. The estimated cost of thiswork was $10.1 million (including GST). The main weathertightness defects weresummarised as follows:• Inadequately weatherproofed roof to wall junctions, including toprojecting fire spandrels• Steel framed balcony penetrations to fire spandrels and balcony to walljunctions• Inadequate cladding clearance above external surfaces, including a lackof draining at cladding base details• Unprotected fibre-cement cladding sheets to the horizontal surfaces ofthe balustrade and inter-tenancy walls• Poorly formed cappings to the balustrade walls adjoining the enclosedrooftop balconies• Unprotected retaining wall junctions with inter-tenancy balustrade wallsto lower level apartments on the west elevation• Inadequately weatherproofed joinery openings, including a lack of visiblejamb and sill flashings[14] Further reports were obtained from other consultants between September 2017and May 2019 which confirmed the extensive repair work required and the escalatingcosts of carrying out this work. The most recent cost estimate to remediate the buildingat the time of the trial in November 2020 was approximately $22 million. The bodycorporate has, so far, decided not to remediate the building.[15] Mr and Mrs Miles commenced proceedings against Mr Gadd in the High Courtat Wellington on 27 June 2019 (immediately prior to the expiry of the limitationperiod) alleging a breach of the warranty.[16] The Miles sold their apartment for $305,000 in May 2020 ($235,000 less thanthey paid for it seven years earlier).The pleadings[17] In their fourth amended statement of claim, the Miles claimed that as a resultof Building Issues (as defined) having been referred to at body corporate meetingsMr Gadd attended and in minutes he received, he had "knowledge or notice of factswhich might have given rise to or indicated the possibility of" the owner of the unitbeing levied to cover the costs of further investigations into the "Building Issues" andto fund any remedial works.3 He therefore breached the warranty. The Miles castthe net widely in their definition of "Building Issues" (particularised in 23 paragraphswith 70 subparagraphs) by referring to minutes, management reports and emailscontaining any reference to a building or maintenance issue over an eight and a halfyear period from 7 December 2004 to 20 June 2013.[18] The Miles said they would not have purchased the apartment if they had noticeof any of these matters. They claimed the apartment would have had a current marketvalue of $992,000 if Sirocco had been constructed without the defects. Working fromthe premise that the warranty was equivalent to an assurance that Sirocco had beenconstructed without defects, they sought recovery of $687,000 ($992,000 less$305,000) plus $18,852.32, being their share of the special levy raised inNovember 2014 to investigate the extent of the defects initially identified inMay 2014. The Miles also claimed general damages of $30,000 for stress, anxiety andinconvenience.[19] Mr Gadd denied breaching the warranty. He acknowledged in his statement ofdefence that he was aware that parts of the building required repair, but said he wasnot aware of any reason why this would not be addressed through normal maintenanceand paid for in the ordinary course with funds available to the body corporate. He saidno additional levies were contemplated at the time of the agreement.High Court judgment[20] Clark J correctly noted that the date for assessment of any relevant knowledgefor the purposes of the warranty was the date of the agreement, 28 June 2013.4The Judge considered that the question, objectively assessed, was what Mr Gadd knewor had notice of, taking into account he was a career civil servant with no specialistknowledge of building and construction.5 Construing the warranty in context,3 The Miles also claimed Mr Gadd breached warranties relating to repair works he had carried outon the balcony of the apartment (cl 6.2(5)) and the warranty in cl 8.2(6)(b) as to his knowledge ofthe possibility of proceedings being instituted by or against the body corporate. The dismissal ofthese claims is not challenged on appeal.4 High Court judgment, above n 1, at [117(b)].5 At [117(c)].the Judge found it was limited to actual knowledge or notice of facts giving rise tothe possibility of a liability under either of the Acts "in relation to the owner's unit":[165] Clause 8.2(6) does not expressly state that the potential liability to bedisclosed is a liability relating only to the owner's specific unit. That said,these documents are precedent forms to assist parties and their legal advisersin navigating the various requirements and intricacies of the transactions inwhich they are engaged. It is not to be expected that they will be drafted withthe precision required of legislation. Parties to a property transaction may,after all, amend a standard form agreement in any way they choose.[166] A sensible reading of cl 8.2(6) in the context of the other warrantiesin cl 8.2, and alongside the pre-contract and pre-settlement disclosurerequirements, which I have not discussed but which involve the provision ofextensive information to a purchaser, strongly suggests its scope is limited toactual knowledge or notice of a fact giving rise to the possibility of a liabilityunder either the 1972 Act or [the Act] in relation to the owner's unit.The equivalent provisions in [the Act] of ss 14, 33 and 34 in the 1972 Act are,respectively, ss [142(6)], 126 and 127.[21] However, the Judge went on to consider whether Mr Gadd had relevantknowledge or notice assuming, contrary to her finding, that the warranty hadthe broader scope contended for by the Miles.6 The Judge noted that, despitethe extensive pleading of sources of information allegedly giving rise to notice on hispart, Mr Gadd was cross-examined on only a limited number of documents.7The Judge therefore focused on these, addressing each in turn.8 She summarisedMr Gadd's evidence regarding these matters, which she accepted, in the followingway:[125] In relation to the reports and meetings and minutes about whichMr Gadd was actually aware, his evidence was that he regarded the issues thatwere brought up over the years as confined to a handful of apartments andwere to be expected with a large complex such as Sirocco. He understood thatthe problems that existed for this handful of apartments [were] not systemicacross the building and that the issues were addressed within the availablefinancial resources of the Body Corporate.[22] In rejecting the claim for breach of the warranty, the Judge made the followingoverall findings:[171] Putting aside the fact that Mr Gadd had no knowledge of some ofthe documents while he was resident overseas, the substantive point is thatwhile the documents are most likely to be probative of the fact there were6 At [118] and [178].7 At [124].8 At [126]–[149].particular issues with particular apartments, the documents did not, eitherindividually or in combination, prove the point the plaintiffs plead.The documents do not prove that Mr Gadd had knowledge of the possibilityof special levies being struck to cover the costs of investigating or remediatinga leaky building or of possible proceedings by the Body Corporate to recovermonies expended on such works.[177] I have concluded that cl 8.2(6)(a) constitutes a unit specific warrantythat the vendor has no knowledge or notice of any fact which might give riseto, or indicate the possibility of, liability arising under [the Act] or the1972 Act in relation to the apartment the vendor owns. Sections [14], 33 and34 of the 1972 Act, and ss [142(6)], 126 and 127 of [the Act] are examples ofprovisions under which such a potential liability might arise. Mr Gadd had nosuch liability before or after sale.[178] Even if the warranty has a broader effect, Mr Gadd did not havethe knowledge or notice that the plaintiffs claim he possessed. Mr Gaddunderstood that some apartments had issues with leaking but that those issueshad either been addressed or were being addressed. Importantly, heunderstood that the costs for repairs were borne either by individual ownersor, in the normal way, by the Body Corporate and that maintenance costswould be addressed via the annual process of reviewing the budget forthe long term maintenance plan. In other words, Mr Gadd did not have noticeof any fact that indicated to a reasonable vendor in his position the possibilitythat he or a purchaser might incur any (relevant) liability under [the Act] or[the] 1972 Act.[23] The Judge gave detailed reasons why she considered Mr Gadd's understandingof the state of affairs at Sirocco was objectively reasonable.9 The Judge concludedthat the Miles had not established on the balance of probabilities that Mr Gadd hadnotice or knowledge of any fact within the terms of the warranty irrespective of howit should be construed.10Grounds of appeal[24] Mr Easton, for the Miles, raises two grounds of appeal. First, he argues thatthe Judge was wrong to limit the warranty in cl 8.2(6)(a) to the possibility of a liabilityunder the Acts "in relation to the owner's unit". He points out there are no suchlimiting words in the warranty. He contends the warranty covers the wholedevelopment and would include knowledge of the possibility of levies being raised toinvestigate and repair ongoing leaks and damage to Sirocco. Secondly, he challenges9 At [179].10 At [178] and [180].the Judge's factual findings that Mr Gadd did not have knowledge or notice of factsthat may have given rise to this prospective liability.First issue — What does "any other liability" in the warranty refer to?[25] The warranty must be construed objectively in the context of the agreement asa whole and in light of its purpose. The Unit Titles legislation forms part of therelevant context. Although not decisive, the plain and ordinary meaning of the wordsin this carefully crafted standard form agreement used widely in real estatetransactions throughout New Zealand is obviously an important guide to its meaning.[26] The warranty is one of a suite of warranties contained in cls 8.1 and 8.2 ofthe standard form agreement that apply to the sale of unit title properties.They abrogate the normal rule of caveat emptor that would otherwise apply. We setthem out in full because they provide the immediate context:118.0 Unit title and cross lease provisionsUnit Titles8.1 If the property is a unit title, sections 144 to 153 of the Unit Titles Act2010 ("the Act") require the vendor to provide to the purchaser apre-contract disclosure statement, a pre-settlement disclosurestatement and, if so requested by the purchaser, an additionaldisclosure statement.8.2 If the property is a unit title, the vendor warrants and undertakes asfollows:(1) Apart from regular periodic contributions, no contributionshave been levied or proposed by the body corporate that havenot been disclosed in writing to the purchaser.(2) Not less than five working days before the settlement datethe vendor will provide:(a) a certificate of insurance for all insurances effected bythe body corporate under the provisions ofsection 135 of the Act; and(b) a pre-settlement disclosure statement fromthe vendor, certified correct by the body corporate,under section 147 of the Act. Any periodiccontributions to the operating account shown in thatpre-settlement disclosure statement shall be11 (Emphasis added).apportioned. There shall be no apportionment ofcontributions to any long-term maintenance fund,contingency fund or capital improvement fund.(3) There are no other amounts owing by the owner under anyprovision of the Act or the Unit Titles Act 1972.(4) There are no unsatisfied judgments against the body corporateand no proceedings have been instituted against or bythe body corporate.(5) No order or declaration has been made by any Court againstthe body corporate or the owner under any provision ofthe Act or the Unit Titles Act 1972.(6) The vendor has no knowledge or notice of any fact whichmight give rise to or indicate the possibility of:(a) the owner or the purchaser incurring any otherliability under any provision of the Act orthe Unit Titles Act 1972; or(b) any proceedings being instituted by or againstthe body corporate; or(c) any order or declaration being sought against thebody corporate or the owner under any provision ofthe Act or the Unit Titles Act 1972.(7) The vendor is not aware of proposals to pass any bodycorporate resolution relating to its rules nor are there anyunregistered changes to the body corporate rules which havenot been disclosed in writing to the purchaser.(8) No lease, licence, easement or special privilege has beengranted by the body corporate in respect of any part ofthe common property which has not been disclosed in writingto the purchaser.(9) No resolution has been passed and no application has beenmade and the vendor has no knowledge of any proposal for:(a) the transfer of the whole or any part of the commonproperty;(b) the addition of any land to the common property;(c) the cancellation of the unit plan; or(d) the deposit of an amendment to the unit plan, aredevelopment plan or a new unit plan in substitutionfor the existing unit plan which has not been disclosedin writing to the purchaser.(10) As at settlement, all contributions and other monies payableby the vendor to the body corporate have been paid in full.[27] We make four preliminary observations. First, the reference in the warranty(cl 8.2(6)(a)) to "any other liability" under any provision of the relevant enactmentscan only refer to a liability not already covered by the more specific warrantiescontained in the preceding provisions of the clause. Secondly, the clause refers to"the possibility" of the owner or purchaser "incurring" a liability. Such a liability mustbe distinguished from existing liabilities already incurred. Thirdly, we notethe breadth of the possible liability — any other liability under any provision ofeither Act. This is not confined to a liability under any other provision of either Act.The wording is broad enough to capture the possibility of the owner (or purchaser)incurring some additional liability under the same provision of either Act, beyond anyactual or prospective liability under that provision that has already been covered by anearlier disclosure obligation or warranty. Fourthly, as the Judge observed, there is noexpress wording in the warranty to the effect that the liability is confined to a liabilityrelating only to the vendor's particular unit.12 The words "any other liability underany provision of [the Acts]" are apt to describe potential liabilities in relation to anypart of the unit title development, including the common areas.[28] We turn now to consider the liabilities covered by the preceding disclosureobligations and warranties in the clause.[29] Clause 8.1 of the agreement simply relates the law. The evident purpose ofthe clause is to draw attention to the pre-contract and pre-settlement disclosurerequirements provided for in ss 144 to 153 of the Act and any additional disclosurerequested by the purchaser.[30] Section 146 of the Act requires a pre-contract disclosure statement containingthe information prescribed by reg 33 of the Unit Titles Regulations 2011(the Regulations). This includes the amount of the contribution levied bythe body corporate under s 121 of the Act in respect of the unit being sold, the periodcovered by such contribution, details of maintenance that the body corporate proposes12 At [165].to carry out on the unit title development in the year following the date ofthe disclosure statement, and how the body corporate proposes to meet the cost of thatmaintenance. The balance of every fund or bank account held or operated by the bodycorporate at the date of the last financial statement must also be disclosed. This mustinclude the operating account maintained under s 115 of the Act, the long-termmaintenance fund required by s 117 and any optional contingency fund or capitalimprovement fund in terms of ss 118 and 119. Other information required to bedisclosed at this stage includes whether the unit or the common property is, or hasbeen, the subject of a claim under the Weathertight Homes Resolution Services Act2006 or any other civil proceedings relating to water penetration of the buildings inthe unit title development.[31] Section 147 of the Act provides for pre-settlement disclosure of informationprescribed by reg 34 of the Regulations. This statement must contain a certificate bythe body corporate certifying that the information contained in it is correct.13The prescribed information includes the amount of the contribution levied by the bodycorporate in respect of the unit being sold, the period covered by that contribution,whether the levy has been paid and whether any legal proceedings have been institutedin relation to any unpaid levy. The statement must also include whether any costsrelating to repairs to building elements or infrastructure contained in the unit areunpaid and whether there are any proceedings pending against the body corporate inany court or tribunal.[32] The purchaser may request additional disclosure under s 148 of the Act.[33] Section 150 requires the vendor to rectify any inaccuracies in any disclosurestatement under any of ss 146, 147 and 148. This includes where information wascorrect when the disclosure statement was given but has since become inaccurate.14[34] Section 153 provides that the purchaser is entitled to rely on the informationgiven under any of these provisions as conclusive evidence of the accuracy of thosematters.13 Unit Titles Act 2010, s 147(3)(b).14 Section 150(1)(b).[35] It can be seen that the Act provides for reasonably comprehensivepre-contractual and pre-settlement disclosure of, among other things, a purchaser'sliability for levies that can be raised under s 121 of the Act. This includes the statusof existing levies in respect of the unit, details of all maintenance proposed to becarried out on the development in the coming year and the balances of the operatingaccount and long-term maintenance fund. Specific disclosure as to whether the unitor the common property is or has been the subject of any claim relating to waterpenetration is also required.[36] We note that the pre-contractual disclosure provided by Mr Gadd also includedcopies of the minutes of the annual general meetings of the body corporate forthe preceding three years. The Miles made no complaint about the pre-contractual andpre-settlement disclosure and they did not exercise their right to request any additionaldisclosure.[37] The statutory disclosure requirements referred to in the agreement aresupplemented by the warranties, including that:(a) "[a]part from regular periodic contributions, no contributions have beenlevied or proposed by the body corporate that have not been disclosedin writing to the purchaser"15 — this is obviously relevant tothe purchaser's liability for levies under s 121 of the Act;(b) "[t]here are no other amounts owing by the vendor under any provisionof the Act or [the 1972 Act]"16 — this could include liability underthe following provisions of the Act:(i) s 121 (outstanding levies);(ii) s 126 (including liability for repair work carried out by the bodycorporate substantially for the benefit of the owner's unit orsome of the units);15 Standard Form Agreement, above n 2, at cl 8.2(1).16 At cl 8.2(3) (emphasis added).(iii) s 127 (liability for repair work rendered necessary by any wilfulor negligent act or omission or any breach of the Act,regulations or body corporate operational rules, by theunit owner, a tenant, lessee, licensee or invitee. This would notnecessarily be confined to liability for repairs to theowner's unit);(iv) s 138(4) (liability for costs incurred by the body corporaterelating to repairs or maintenance of building elements andinfrastructure contained in the owner's unit); and(v) ss 142 and 143 (including liability in tort or for breach ofstatutory duty).(c) "[t]here are no unsatisfied judgments against the body corporate and noproceedings have been instituted [by or against it]";17 and(d) "[n]o order or declaration has been made by any [c]ourt againstthe body corporate or the owner under any provision of the Act or[the 1972 Act]".18[38] As discussed, all these liabilities necessarily fall outside the scope ofthe warranty in cl 8.2(6)(a). Most relate specifically to the owner's unit but not all fallinto this category. The more important point is that, with a few exceptions, theyconcern crystallised liabilities whereas the warranty in cl 8.2(6)(a) is solely concernedwith the possibility of any other liability being incurred. We do not consider theseprospective liabilities are necessarily confined to the owner's unit. For example,damage to common areas caused by the tortious acts of a unit owner, tenant or invitee,could give rise to a liability, not only for the person who was the owner at the time ofthe damage, but also for the person who is the owner of the unit at the time proceedingsare instituted.1917 At cl 8.2(4).18 At cl 8.2(5).19 Unit Titles Act 2010, s 127(2).[39] The warranty in cl 8.2(6)(a) could also include a prospective liability relatingto common areas. So, for example, if the vendor was aware that his or her tenant orinvitee had negligently caused significant damage to structural elements of the carpark (a common area) that might require a special levy (not yet raised or proposed),this would fit within the scope of the warranty in cl 8.2(6)(a). In this scenario,the vendor would have knowledge of a fact which might give rise to the possibility ofthe owner or the purchaser incurring "any other liability" under any provisionof the Act, namely s 127. This would be the case notwithstanding the correctness ofthe vendor's warranty in cl 8.2(3) that there are no other amounts owing by the ownerunder any provision of the Act at the time of the agreement. Another example wouldbe if the vendor was aware that major earthquake strengthening work tothe development was required and the cost was not covered by any existing orproposed levies. This would also fit within the warranty as constituting knowledge ofa fact which might give rise to the possibility of the purchaser incurring any otherliability, namely liability to pay an undisclosed special levy to fund these works.[40] For these reasons, we respectfully take a different view to that of the Judge asto the scope of the warranty. We agree with Mr Easton that it is not confined toprospective liabilities relating to the vendor's particular unit and could extend tothe possible liability arising out of facts of which, he says, Mr Gadd had knowledge.[41] However, nothing turns on this because the Judge did not limit her enquiry towhether Mr Gadd had knowledge of potential defects in his particular apartment.20Indeed, there was no allegation that there were specific defects in the apartment ofwhich he had knowledge. The Judge fully considered the Miles' allegationsconcerning Mr Gadd's alleged knowledge of defects elsewhere in the complex.21The appeal therefore turns on whether Mr Easton can persuade us to depart fromthe Judge's findings that Mr Gadd had no knowledge or notice of facts indicating therewere systemic weathertightness defects in the building, such that additional levies toinvestigate and remediate them were a reasonable prospect.20 High Court judgment, above n 1, at [178].21 At [179].Second issue — Was the Judge wrong to find that Mr Gadd did not haveknowledge or notice of any relevant fact covered by the warranty?[42] It is helpful to commence this part of the analysis by quoting the relevant partof the fourth amended statement of claim:By reason of one or more or a combination of the Building Issues referred toat Body Corporate meetings and/or recorded in Minutes of Body Corporatemeetings and/or Reports provided to the Body Corporate Committee,[Mr Gadd] had knowledge or notice of facts which might have given rise toor indicated the possibility of:(a) [the apartment] being levied to cover the costs of:(i) further investigations into the Building Issues; and/or(ii) the remedial works;(b) proceedings being instituted by the Body Corporate to recover moniesexpended on the remedial works and/or the Building Issues.[43] As noted, "Building Issues" were defined to include all building maintenanceissues raised at body corporate meetings going back to December 2004. By contrast,"remedial works" referred to work required to remediate the "Defects", beingthe defects identified by Maynard Marks in their July 2015 report. It is important tobear in mind there is a distinction, not obvious on a cursory reading of the pleadingquoted above, between "Building Issues" and "Defects". The remedial works were toaddress the latter, not the former. The Building Issues were addressed as and whenthey arose without the need for any special levies. Nevertheless, it was critical tothe Miles' claim to demonstrate that knowledge of the Building Issues gave rise tothe possibility of a special levy being required to fund investigations and remedialworks in respect of the Defects (being the systemic weathertightness defectsdiscovered much later). In summary, the Miles claimed that as at the date ofagreement, 28 June 2013, Mr Gadd had knowledge or notice of facts which might giverise to the possibility of levies to investigate and remediate the Defects, as reported byMaynard Marks in July 2015, two years later.[44] We make the obvious point at the outset that because the assessment ofknowledge must be made at the date of the agreement, information received byMr Gadd concerning the status of the building many years earlier is likely to have littlerelevance. To illustrate, the definition of "Building Issues" includes the reference inthe minutes of the annual general meeting of the body corporate held inDecember 2004 to replacement of flooring on the main walkway on level 6.Remedial work to the walkways on levels 6 and 8 was completed and paid for wellbefore the agreement was signed. There was no possibility of Mr Gadd or the Milesbeing levied to meet these costs. Moreover, the Defects requiring remedial work donot include these walkways. There is therefore a complete disconnect betweenknowledge or notice of this fact in 2004 and the possibility of a levy to investigate andremediate other defects reported by Maynard Marks in 2015.[45] A similar point can be made about many of the other historical Building Issuesgoing back many years before the agreement was entered into. For example, referencewas also made in the claim to the minutes of the annual general meeting held on11 December 2005 recording leaking taps and a toilet in one apartment and a leak inthe shower of another apartment. We cannot see how this could be even remotelyrelevant to the warranty in June 2013. These issues have nothing to do withthe systemic weathertightness defects in other areas of the complex.[46] Mr Gadd was not cross-examined about many of these historical documentsreferenced in the claim and we consider the Judge was right not to attach anysignificance to them.22[47] Mr Gadd was, however, cross-examined about the minutes of a body corporatemeeting in February 2007 which referred to leaks from the deck of apartment 815causing damage (covered by insurance) to apartments 817 and 818. The minutes alsorecorded a suggestion by one of the committee members, Mr Greenwood, that "theBody Corporate needs to register the building as a 'leaky building' before the cut offdate".23 Mr Gadd said he understood, based on the information he received, that theproblem with the deck of apartment 815 was a localised issue caused by a lack ofmaintenance and the "registration" suggestion was made in order to meet the specificdeadline in case there was a problem in the future.24 Mr Gadd said the suggestion wasnot taken further, nor was it mentioned again during the time he was on22 At [127]–[149].23 At [127]–[128].24 At [127][128].the committee.25 Mr Greenwood himself, in his capacity as chair of thebody corporate, stated at the 2008 annual general meeting that "Sirocco [was] not aleaky building".26[48] We do not consider this suggestion, made in early 2007 by a layperson toprotect against the expiry of a limitation period but not pursued, could qualify asknowledge or notice of a "fact" coming within the scope of the warranty given byMr Gadd in June 2013. We agree with the Judge's assessment of this issue.[49] Next, Mr Gadd was cross-examined about the minutes of the annual generalmeeting of the body corporate in June 2007.27 Mr Gadd was not present at this meetingbut the minutes record that one of the owners asked if there was any prospect ofobtaining redress from Wellington City Council to recover costs incurred in addressing"continuing problems with the building" given it had "signed the building off".The minutes recorded that the chairperson was to approach the Council, but Mr Gadddid not know whether this was done and no other evidence on the topic was adduced.[50] It appears that the "continuing problems" with the building related to an earlierdiscussion recorded in the minutes concerning the leak from the deck of apartment815 (also mentioned in the February 2007 minutes referred to above). This leak wassaid to be due to a lack of maintenance by the owners of that apartment and had causedwater damage to apartments 817 and 818. The minutes record that major work hadbeen carried out over the past 12 months to remediate these issues, the cost of whichwas partly covered by insurance (the damage to apartments 817 and 818) andrecompense was to be sought from the owners of apartment 815 for the balance.[51] Costs incurred in 2007 to remediate issues identified then, most of which werecovered by insurance with the balance said to be the responsibility of the particularapartment owner, would not objectively be viewed as giving rise to the possibility ofa levy being raised more than six years later to investigate other issues not identifieduntil a year after that. The issue in apartment 302 appears not to have been referred to25 At [128].26 At [129].27 At [130].in any subsequent minutes or reports, certainly none we were taken to. It seems to usto be irrelevant for present purposes.[52] The Miles placed considerable emphasis on a report prepared byRegional Property Services Ltd dated 31 January 2009 (RPS report), which wascirculated to the body corporate members, including Mr Gadd, by email on21 March 2012. By way of background, RPS was commissioned by the bodycorporate secretary in November 2008 to prepare a 10-year fully-costed maintenanceschedule for the purposes of establishing a more accurate budget for the building'slong-term maintenance plan for the building. RPS provided its report on 31 January2009. The maintenance plan forecast total expenditure of approximately $358,000over the 10-year period allocated across 33 line items, starting with a"General Catchup" in year 1, 2009. Mr Gadd's uncontradicted evidence was that hedid not receive this report at the time it was originally prepared (he was living in Milanat that time). The reason for sending this document to the body corporate members inMarch 2012 was so that they could review the plan and consider future costs andfunding requirements in advance of the upcoming annual general meeting. This waspart of the process that led to the levies being increased by 18 per cent, as we come tobelow.[53] The RPS report divided the maintenance items into two groups — "priority"(specific issues identified such as replacing two tiles, replacing a broken mirror inthe pool area and extending a downpipe outside one of the apartments) and"scheduled" (such as periodic cleaning of exterior walls, decks and spoutings).The last-mentioned, but most significant, priority item concerned the Harditex exteriorwall cladding, particularly the jointing problems being experienced. This wasdescribed as "URGENT WORK". RPS explained that much of the cladding wasexposed to the weather and, despite being a generally inflexible system, was"called upon to 'flex' when there are earthquakes or other external forces". Theypointed out that the manufacturer stipulated that if this product was to be used abovetwo storeys in height, it should be installed in accordance with a "Specific Design"approved by architects and engineers. RPS did not know whether this had been done,but observed:Should this be the case with Sirocco, it means that the (mainly) jointingproblems are at best an 'inherent defect', at worst, a demonstration andsymptom of the effects of faulty workmanship.I notice that some 'bandaging' with fibreglass and/or other taping has beencarried out. Most (but not all) of this is still sound. Much more fibreglassbandaging needs to be done – if this is the approach you wish to take.In the specialist industry of weathertight remediation to Monolithic claddings,this is called 'Targeted Repairs'. As a first step, this is a wise move becauseof the need to 'mitigate' possible moisture damage to the framing andthe substrate. Unfortunately the backing to this system is a porousHarditex Board and it has now been withdrawn from the market[.][54] The version of this report sent to the body corporate committee members inMarch 2012 contained updating commentary in red text from the body corporatesecretary. Her comment immediately beneath this passage read as follows:Checked in 2009, 2010 and 2011 and in good condition – watching brief beingkept through Plastercoat Services Ltd.[55] The RPS report continued:In the Schedule, I have included a Budget Allowance of $45,000.00 andsuggest that you act as soon as practicable. This amount (or more) can bespent on targeted repairs – which may include some structural work(e.g. Photo 30). However, the prudent action initially, would be tocommission an urgent PRELIMINARY REPORT from a weathertightnessexpert, in order to 'sample check' the current status of the framing and obtaincomment on the options as you move forward. This person would mostprobably be a member of the Building Surveyors Institute of New Zealand andwould carry an appropriate amount of Professional Indemnity Insurance.An example of such a person would be Thomas Wutzler of Helfen Ltd –although he is usually booked out for several months ahead.My role in this is simply to discharge my duty by informing you ofthe situation. Unfortunately, without a Weathertightness Specialist's report,and a definitive course of action, no reliable costs can be calculated atthis stage.[56] The body corporate secretary recorded in red text between these last twoparagraphs that she had consulted Mr Wutzler following receipt of the RPS report in2009 and he supported the approach being taken:In 2009 I spoke to Thomas [Wutzler] who I have a relationship with on anotherbuilding and he thinks we are wise to remain keeping a watching brief withJim Henderson [Plastercoat Services Ltd] and Bill Millar [WeathertightWaterproofing Ltd].[57] Mr Gadd said at the trial (in November 2020) that he could not recall readingthis report when it was emailed to him in March 2012. However, he readily acceptedthat he would have read it at the time. The Judge discussed this report in some detailin assessing whether Mr Gadd ought reasonably to have known of the possibility thatspecial levies may be required in the future to remediate systemic defects inthe building.28[58] The Judge noted that the RPS report was sent to the body corporate committeemembers with the secretary's annotations the day after their meeting on20 March 2012. The minutes of that meeting record the body corporate secretaryreported the "huge amount of work that had been undertaken over the past few yearson 'invisible' infrastructure and that Sirocco was now in much better shape thanpreviously".29 This is consistent with the long-term maintenance plan recommendedby RPS, including the significant sum budgeted in year 1 for "General Catchup".[59] The body corporate secretary's comment about the improved state of thebuilding was also supported by her other annotations alongside RPS's variousrecommendations. Of the 12 priority maintenance items, she had marked six of themas "Done – 2009" and two were being done twice yearly. Three items were noted"To be carried out in 2012" — moisture entrapment on level 4 (RPS budget allowanceof $2,700), rust issues on the external stairs and steel support poles (RPS budgetallowance of $9,000), and replacement of a floor tile at the entrance to apartment 404.We have already addressed the remaining item, being the cladding (RPS budgetallowance of $45,000 for targeted repairs). As noted, the body corporate secretary's2012 annotations confirm that the recommended weathertightness specialist had beenconsulted in 2009 and he considered the watching brief being maintained withPlastercoat Services Ltd and Weathertight Waterproofing Ltd was wise. It appearedthat targeted repairs were continuing as planned, in accordance with RPS'srecommended maintenance schedule.[60] The Judge observed that the 18 per cent increase in levies agreed atthe June 2012 annual general meeting supported Mr Gadd's understanding that28 At [132]–[145].29 At [143].the body corporate was adequately funded to meet projected expenditure inaccordance with the long-term maintenance plan.30 The Judge considered that thereport prepared by the chairperson for this annual general meeting was alsoreassuring:31This last year has been a really challenging year for apartment owners inWellington and elsewhere in the country. The Christchurch earthquakes haveimpacted on insurance in particular and also on earthquake strengthening.In that regard we at Sirocco have come off lightly. [The body corporatesecretary] has negotiated a very competitive price on our behalf and we havesignalled the necessary increase well in advance. An eighteen percent increasein levies is very modest when you ask around about what many other buildingsare facing. At Sirocco we are not facing earthquake-strengthening work either.Weather tightness is the other big challenge for apartment buildings and againwe have managed the relatively minor water tightness issues withinthe maintenance budget. The walkways are now sealed and any water ingresswhich appears from time to time has been repaired. Sirocco is not a leakybuilding – rather it is a building with some occasional water ingress!![61] Mr Easton submits it was not objectively reasonable for Mr Gadd to place anyreliance on the body corporate secretary's comments in red text on the RPS report.This was because, like the chairperson, she did not have any relevant weathertightnessqualifications, nor was she a building surveyor. Further, he argues that her commentsdo not adequately address the concerns raised in the RPS report for three reasons.First, the red text contains no commentary about the expertise of Mr Henderson fromPlastercoat Services Ltd or Mr Millar of Weathertight Waterproofing Ltd.Secondly, Mr Easton says a watching brief is not the same as a weathertightnessexpert's report and the body corporate secretary's suggestion that in 2009, 2010 and2011 the cladding was in "good condition" overlooks RPS's warning about jointingproblems in the cladding and potential inherent defects and/or faulty workmanship.Thirdly, Mr Easton points out that the conversation with Mr Wutzler apparently tookplace in 2009, some two to three years before the report was sent to the committeemembers and there was nothing to suggest that he had inspected the building orprepared an expert report as recommended by RPS.30 At [145].31 At [145] (emphasis added).[62] We are not persuaded by these points. The body corporate secretary was notbeing relied on as having specialist expertise as a building surveyor orweathertightness expert. This is no doubt why RPS was engaged, and Mr Wutzlerconsulted on their recommendation. The body corporate secretary was clearlyefficient and attended diligently to any issues with the building as they arose. We donot consider there was any reason for Mr Gadd to discount the information relayed byher that appropriate specialists had been engaged, were monitoring the cladding on anongoing basis and carrying out targeted repairs as necessary funded by existing levies.These specialist contractors had apparently been satisfactorily involved inthe maintenance of the building for some time and Mr Wutzler had specificallyendorsed the wisdom of their engagement to provide ongoing oversight. Mr Gadd wasentitled to expect that Mr Wutzler was appropriately qualified and sufficientlyappraised of the situation at Sirocco to be able to make this recommendation.[63] Mr Easton also pointed to three emails Mr Gadd received after the June 2012annual general meeting, in the period leading up to the agreement being signed.Mr Easton says these emails put Mr Gadd on notice of "further problems".[64] The first of these was dated 28 November 2012 and was sent by the bodycorporate secretary to the committee members reporting very high moisture readingsat the base of a wall:Good morning AllJust letting you know that late yesterday afternoon we discovered damage tothe wall leading down the inside stairs which led to very high moisturereadings outside at the base of the wall around and under the exterior stairs aswell as around the inside stairs.This morning the plumber will be on site with us to discuss improving drainingin the outside area as it would appear that over the years when there has beenheavy rain, the water does not adequately drain away and it has pooled againstthe exterior wall causing the long term ingress of water and the subsequentdamage to the wooden structure.We have removed the gib and you can see how damaged the wood is insidethe wall.Once a solution is found we will proceed to repairing the wall.CheersKind regards[65] We note that despite the comprehensive definition of Building Issues inthe fourth amended statement of claim, this document was not referred to. In any case,it appears that the issue was promptly resolved.[66] In a follow-up email later that day, the body corporate secretary relayed tocommittee members the plumber's assessment and recommendation. She advised thatshe had instructed the plumber to carry out the necessary work:32Further to my earlier email with regard to the flooding problem on level 4,Derek Thompson the plumber reports as follows:-I think a new storm water outlet definitely needs to be installed toallow for the rain water to drain more effectively.Also it would be wise to install an overflow for this area, as if or whenthe storm water outlet blocks, the water floods back towards the stairsresulting in the damage you found with your moisture meter.The overflow would have to discharge close by, to alert people thereis a problem.I have given Derek the go ahead to proceed to getting the work done just assoon as possible – all the debris has been completely removed from the areaand the drain cover has in fact been removed until such time as a larger outletcan be created – bearing in mind we have a couple of days of rain forecast forthe end of this week and over the weekend.Kind regards[67] In her December 2012 management report, the body corporate secretaryprovided a further update on this issue:A combination of the maintenance contractor and plumber have installed anew flashing outside, expanded the stormwater outlet and improvedthe drainage. The area on the inside stairs is still exposed, showing veryblackened wooden structures but it is slowly drying out and will be repairedonce this has happened – hopefully before Christmas.[68] Mr Gadd was entitled to expect from this correspondence that this issue hadbeen satisfactorily addressed and paid for out of the body corporate's existing financialresources prior to the agreement being signed. Further, no such defect was identifiedin Maynard Marks' July 2015 report. We do not consider that a reasonable vendor in32 (Emphasis in the original).Mr Gadd's position would have been alerted by the knowledge of this issue tothe prospect of a levy being raised to remedy other defects reported much later.[69] The second email relied on by Mr Easton was sent by the body corporatesecretary to the committee members on 12 March 2013 and attached the March 2013management report. This report referred to an issue with apartment 613 that had beentraced to the failure of the seals under the aluminium doors leading to a courtyard:After some extensive investigation and removal of the floor and parts ofthe walls, it was discovered that water was getting in up and underthe aluminium doors from the courtyard and tracking under the walkway partof the floor and settling on the floor against the wall. The seals under the doorswere no longer doing their job and they had been letting water in for manymany months and most probably for years.[70] The body corporate secretary advised that she had lodged an insurance claimfor the repair costs amounting to $7,630, but the claim had been declined.She recommended that the seals in the eight other courtyard apartments be checkedimmediately and any necessary costs be paid for out of the long-term maintenancefund:I think it is really important that we now look to seal around the area ofthe other eight courtyard apartments where the cladding meets the tiles toprevent this happening again. As it is part of the cladding it is body corporateresponsibility to ensure there are effective seals rather than individual owners'responsibility. This would need to be funded from the long term maintenancefund.[71] Mr Gadd and the other committee members were specifically told that the workwould be funded from the long-term maintenance fund. We do not consider this wouldhave caused a reasonable vendor in Mr Gadd's position to appreciate the possibility ofa special levy being raised to address this issue, let alone the as-yet unidentified issuesreported by Maynard Marks two years later.[72] The third email was another sent by the body corporate secretary tothe committee members and is in the same category. This email was sent on20 June 2013, a week before the agreement was signed, and advised that water wasgetting into an apartment from two of the penthouse apartment decks. The bodycorporate secretary attached a quote totalling $9,220 (plus GST) from PlastercoatServices Ltd and Le Celebre Ltd to carry out the recommended remedial work and sheasked for approval to get this work done. Again, the committee members were toldthat the work would be funded from the long-term maintenance fund. The bodycorporate secretary explained "this is work that in the long term must be done forthe structure of the building to remain sound".[73] Given the advice that these works were to be funded from the long-termmaintenance fund, the Judge considered this report did not "undermine Mr Gadd'sreasonable belief that such work was consistently carried out and paid for from thatbudget".33 We agree.[74] Mr Easton makes the point that, under s 117(2) of the Act, a body corporatecannot use money held in the long-term maintenance fund for work that is not inthe long-term maintenance plan. He says this quote exceeded the amount budgetedfor miscellaneous expenses and repairs ($3,300 per year) or any other relevantbudgeted expense item. He notes that at the time the agreement was entered into therewas $31,964 in the long-term maintenance fund. Taking account of expenses incurredfor other repairs, Mr Easton submits that it ought to have been apparent to Mr Gaddthat: there may have to be future levying to fund either investigations into and/orrepairs to the weathertightness defects which were an ongoing issuethe Body Corporate was having to deal with right up until the time Mr Gaddentered into the Agreement.[75] The Judge did not address Mr Easton's point about the restrictions on the useof funds in the long-term maintenance fund. Mr Sullivan, for Mr Gadd, says this isbecause the point was not raised in the High Court. Mr Gadd therefore had noopportunity to address the point in evidence. Leaving that objection aside, we considerMr Easton's submission quoted above exposes the flaw in the claim alluded to earlier,namely the important distinction between special levies to meet the cost of "remedialworks" to remediate "the Defects" reported by Maynard Marks in July 2015, andthe various "Building Issues" that had been addressed over the nine-year periodleading up to the agreement and paid for from existing levies. We agree withMr Easton that Mr Gadd knew that maintenance issues would be "ongoing".33 At [148].But, having owned the apartment for nearly nine years, Mr Gadd had good reason tobelieve that these ongoing repairs were appropriately addressed as they arose and paidfor using funds accumulated from normal periodic levies. A reasonable vendor in hisposition in late June 2013 would expect more of the same — ongoing maintenanceand repairs funded by normal periodic levies. The documents Mr Easton relies onsupport that reasonable understanding. Of course, there would have to be "futurelevying" to fund such continuing maintenance. But we agree with the Judge that areasonable vendor in Mr Gadd's position would not have been alerted to the possibilityof a special levy being required to investigate and remediate the major systemicweathertightness issues found much later.[76] We have not been persuaded that the Judge's key factual findings were wrong.We have already set these out, but, for ease of reference, we set them out again here:[171] Putting aside the fact that Mr Gadd had no knowledge of some ofthe documents while he was resident overseas, the substantive point is thatwhile the documents are most likely to be probative of the fact there wereparticular issues with particular apartments, the documents did not, eitherindividually or in combination, prove the point the plaintiffs plead.The documents do not prove that Mr Gadd had knowledge of the possibilityof special levies being struck to cover the costs of investigating or remediatinga leaky building or of possible proceedings by the Body Corporate to recovermonies expended on such works.[178] Even if the warranty has a broader effect, Mr Gadd did not have theknowledge or notice that the plaintiffs claim he possessed. Mr Gaddunderstood that some apartments had issues with leaking but that those issueshad either been addressed or were being addressed. Importantly, heunderstood that the costs for repairs were borne either by individual ownersor, in the normal way, by the Body Corporate and that maintenance costswould be addressed via the annual process of reviewing the budget forthe long term maintenance plan. In other words, Mr Gadd did not have noticeof any fact that indicated to a reasonable vendor in his position the possibilitythat he or a purchaser might incur any (relevant) liability under [the Act] or[the] 1972 Act.[77] For the reasons given, the appeal must be dismissed.Result[78] The appeal is dismissed.[79] The appellants must pay costs to the respondent for a standard appeal on aband A basis and usual disbursements. We certify for second counsel.Solicitors:Grimshaw& Co, Auckland for AppellantsSucceed Legal, Wellington for Respondent