The High Court decision of Keys & Others v Patterson & Others [2025] NZHC 2676 was a leaky building case highlighting issues for councils involved in litigation for building defects claims. By Sarah Macky, Partner of Heaney & Partners
The plaintiffs, the trustees of the Richard Keys Family Trust, purchased a property in St Heliers, Auckland from the defendant Tracey Patterson in 2016.
The house on the property was originally constructed in 1995–1996. The defendant had owned the property since prior to 2008 when she had the membrane to one of the roof gutters replaced as a result of weathertightness concerns.
A year later, the defendant obtained a report from a moisture detection company that showed the house had significant problems with moisture ingress. The defendant then decided to reclad the house in 2012 and applied to the Auckland Council for a building consent which was granted. The reclad was carried out in 2013–2014.
The plaintiff trustees, having purchased in 2016, began noticing issues with the property in 2017. In 2022 they issued proceedings against the defendant claiming misrepresentation and breach of the warranties contained in the sale and purchase agreement because the house was a leaky building.
The plaintiff trustees carried out extensive remedial work to the property in 2024–2025.
In the claim a number of defects were alleged, spanning the roof membranes and gutters, a floating deck, aluminium window joinery, electrical meter box, door support and decayed timber framing left in situ when the house was reclad in 2013–2014.
The losses claimed amounted to $1,040,208. which included $972,961 (incl GST) for remedial costs.
In turn, the defendant sued the building company and building company director as well as the Auckland Council as third parties.
It is apparent from the Court’s decision that the Council settled the claim against it prior to the trial going ahead. That course of action has obvious benefits, as the cost associated with defending a claim that had a two-and-a-half-week trial was able to be avoided. In addition, reaching a settlement before trial secures certainty, as a positive decision following a trial can always be appealed by the opposite party.
Further, the Council’s decision to settle the claim before trial was a good one because it was only sued by the defendant as a third party. This means the plaintiff trustees did not have a direct claim against the Council.
By comparison to other claims, councils are often sued as defendants which makes it more difficult to settle separately from the other parties involved prior to trial.
Turning back to the plaintiff trustees’ claim against the defendant, that claim did succeed in part for breach by the defendant of the warranties in the sale and purchase agreement. However, the defendant was not found liable for all of the defects alleged. The Court found the defendant’s liability was limited to approximately one third of the losses claimed. The full claim was for more than $1million.
We do not know what the Council paid to settle the claim because that is appropriately redacted for confidentiality reasons. The settlement amount was however made known to the trial judge as that is necessary to ensure the plaintiffs do not make a windfall by settling with some parties and pursuing others to trial.
The Court found that while the defendant was legally liable to the plaintiff trustees, the Court could not award damages against the defendant in the plaintiff trustees’ favour. That was because the plaintiff trustees had already been compensated by way of the settlement reached with the Council for the amount the defendant was liable to them for.
So, it was a completely hollow victory for the plaintiffs in this case.
Another notable aspect of the claim was that the Court found the Council had been negligent for the way it approved a change in the reclad remedial work during construction. The Council did not require the builder to submit an application to the Council for a minor variation.
The Court found “it was negligent for the Council not to follow the process for minor variations laid down in legislation and to informally approve work that did not comply with the building consent”.
Had the Council participated in the trial then this issue would likely have been the subject of evidence and the Court’s finding may well have been different. Accordingly, the weight that can be placed on the Court’s conclusion for future cases is lessened for this reason.
Nevertheless, it is an adverse finding that has been made and is an example of a small disadvantage of settling a claim that goes to trial in favour of the clear advantage for cost and time reasons of resolving the claim by settling before trial.
Guide for designing governance
It is often said to newly elected members that the most important decision they will make while in office is who to employ as their chief executive, says Dr Mike Reid, the Principal Advisor at LGNZ, which has published a new Guide to help councils evaluate different governance and decision-making models.
Too often new councils simply adopt the governance structures of their predecessors without considering whether they are fit for purpose or whether they are consistent with their own values and the way they wish to work, he says. “The wrong structure can leave members frustrated, powerless, and feeling largely ineffective.”
Many of the governance failures that have occurred over recent decades have been caused, or exacerbated, by poorly designed governance structures. “As an example of what may go wrong, the governance review of Wellington City Council, undertaken by Winder and Associates in 2021, concluded that the council was too focused on internal matters to the extent that it ‘crowded out’ the important external leadership role that the council needed to play on behalf of the city and its inhabitants.” The review recommended, among other things, that the council re-establish a committee structure to enable members to better focus on the important.
There is no ‘one size fits all’, says Mike. “Governance and decision-making structures need to be designed to reflect the circumstances of each council and the values of those elected. Structures that work well in a small and homogenous community are unlikely to meet the needs of a large and diverse urban population.”
The LGNZ guide, called Designing governance and decision-making structures: a guide for councils sets out the relevant principles, the different options that are available for councils, and a series of steps that councillors can use to design the structure that will work best for them and their communities.
“The approaches discussed in the Guide range from the “governing alone” approach (in which the governing body makes all decisions, except those delegated to the CEO), to a fully devolved approach with standing committees and sub-municipal bodies, all with delegated responsibilities,” says Mike, adding that the pros and cons of the possible configurations are also discussed. The guide can be downloaded from the LGNZ website.