Introduction/Summary

Straw Homes Limited (S) was employed to build a home for Mr Jefferson and Ms Wilson (J). There were delays and cost overruns in the work completed by S, which J refused to pay for. J purported to cancel the contract, employing other contractors to complete the works.

S brought a claim for its unpaid invoices and J subsequently made a counterclaim against S and its principal (the second respondent, Mr Neill), alleging negligence. J claimed that this was a fixed fee contract and sought damages for the costs of completing the new house.

The District Court found this was not a fixed fee contract. It found that S was negligent in failing to advise J of the cost implications of building a larger house but found that J had not suffered any loss, and therefore dismissed the claim.

The Facts

On 30 September 2008, J signed a building contract with S. The contract price was not stated, there was no description of the contract works, and there was no completion date. J had limited funds to spend on the new build, and had set themselves an upper limit of $600,000 to complete the build.  S was made aware of this.

J engaged an architect who drew up plans for them, one design having a floor area of 414m2, and the other design having a floor area of 375m2. The size of the upstairs area and the overall design was not settled when Mr Neill obtained prices for the estimate he provided to J.

An estimate of the house given by S was $646,060.53 excluding GST for a house with the floor area of 278m2 and recorded that this was “a price estimate for the [appellants’] home”.  A second version of this estimate was prepared which included the use of the words “this is a fixed price estimate of $646,060.63 etc”, which J requested be inserted into a copy of the signed contract as the “contract price”.  No other changes were made to the copy of the contract.  It continued to describe the contract as “managed labour only”, no other plans or description of work was attached to the contract. It was this version of the contract that was supplied to J’s Bank.

Following the granting of consent, work commenced in May 2009. During the building process, many changes were made to the design of the house, as suggested by Mr Neill and agreed by J.

In February 2010, J enquired as to the total costs required to finish the project. S responded saying that there was still approximately $100,000 required to finish the build, excluding GST, electrical work and installation of the kitchen. The relationship between J and S quickly deteriorated because of concerns surrounding the cost of the build, and the increasing number of unpaid invoices.

The District Court proceeding

S issued proceedings against J to recover the unpaid balance of their invoices, being $149,218.62.

J counterclaimed for a total of $190,728.26, being the cost they incurred with another contractor in completing the build after cancelling the contract with S, less the balance owing if the contract had a fixed price.  They alleged breach of contract, negligence, breach of Consumer Guarantees Act 1993, misrepresentation and breach of section 9 of the Fair Trading Act 1986 (misleading and deceptive conduct). J further claimed personally against Mr Neill (the second respondent) for negligence and misleading and deceptive conduct.

The District Court held that S was entitled to recover the unpaid invoices and that Mr Neill was negligent in one aspect as to price escalation, but no loss could be proven as a result of his negligence.

Issue 1: was this a fixed price contract

The High Court decision

The Court held the words ‘contract price’ could not be read in isolation, and the contractual matrix as a whole needed to be examined. The question was ‘what a reasonable and properly informed third party would consider the words of the contract to mean’, otherwise known as the ‘objective intention’ test.

In assessing what a reasonable and properly informed third party would consider the intended words to mean, the High Court concluded that the words ‘contract price’ meant an estimate. A reasonable third party would be aware that S/Mr Neill was not in a position to provide a fixed price. Further, if the parties had agreed to a fixed price, J would have been expected to protest the moment the price exceeded the ‘contract price’. Instead, J was concerned with the number of hours that were still left to complete the build rather than the price still to be paid.

Therefore, the District Court did not err in their decision.

Issue 2: had the appellants proven loss caused by negligence

The negligence claim

On appeal, it is apparent that neither J nor S was challenging the District Court finding that S owed J a duty of care to provide accurate cost estimates before the work was commenced or variation work was undertaken so that J was given the opportunity to make decisions so as to remain within their financial limits.

Whilst J argued that the District Court finding that J had suffered no loss was wrong, the High Court agreed with the District Court.  It said it was incumbent upon J to establish to the balance of probabilities that it had suffered a loss as a result of breach of the duty.  Whilst evidence was given that the building works had cost more than J had anticipated, the simple fact was that J had received the benefit of these building works in the substantial completion of their house.  No evidence was adduced that the works paid for, were not worth the value that was paid for them.  Whilst there was a last minute attempt to introduce this type of evidence, it was not allowed.

Result

The appeal to the High Court was dismissed. This decision establishes that if a party to a construction contract wishes to succeed in an argument that it is a fixed price contract, clear and unequivocal language must be used.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

It is to be noted that a claim may be struck out if it discloses no reasonable cause of action, or partially, if the result will be a genuine reduction in the scope of the case. 

Factual background. 

• The Plaintiffs owned a house which they reclad in 2008 with a cladding system imported into NZ by Mico, known as Anthra Zinc.
• Before installing it, Metal Design Solutions (MDS) advised that there could be some white staining which would appear naturally, but in time would gradually be incorporated into the colouring of the cladding.
• The install occurred between 1 May 2008 and 25 July 2009.  The cladding MDS installed had been supplied by Mico.
• Ultimately the white staining appeared on the cladding surface and never disappeared, contrary to what had been represented. Several techniques were used to remove the white staining, firstly by applying oil and secondly by using a heated water blaster.  Neither of the two techniques worked and the Plaintiffs were left with a badly white stained cladding surface.

Legal issues.

Central to the legal debate in this proceedings, was the fact that the Plaintiffs had brought the claim as against Mico more than 6 years after the date of the supply of the cladding system, so potentially the claims were statute barred by operation of section 4 of the Limitation Act 1950. 

Negligence. 

The 6 year limitation period imposed by the Limitation Act 1950 does not commence until all elements of the cause of action in negligence have accrued, namely duty, breach of duty and damage/loss.  It was argued for Mico that as at delivery date the cause of action accrued as it was a defective product.  However the counter argument pursued by the Plaintiffs, was that their cause of action in negligence did not accrue until the defect became reasonably discoverable.  In particular the Plaintiffs argued that until visible staining appeared they could have sold the house for market value, unaffected by latent defects. 

Her Honour Associate Judge Sargisson was attracted by this argument, and ruled that it was  not so clearly the case that the cause of action based in negligence accrued at the date of delivery of the cladding product, that she should strike out the claim. 

Her Honour was also unwilling to entertain an argument that the claims available to the Plaintiffs as against Mico were limited to contract and the Consumer Guarantees Act 1993.  She cited the Court of Appeal judgment in Carter Hold Harvey Limited vMinistry of Education as being authority for the proposition that despite a clear contractual chain being in place as between supplier, installer and end user of the product, a duty of care may still be owed.  In particular she cited from the detailed analysis provided by Justice Asher in the Carter Holt Harvey decision. 

Consumer Guarantees Act 1993.

The Plaintiffs argued that in order to establish breach of a guarantee as to acceptable quality, a principle akin to the test of reasonable discoverability, must be applied in terms of  limitation.  In this way it was argued that the 6 year limitation period as prescribed by section 4 of the Limitation Act 1950, ought to be extended out to the date of discovery of the cladding problem.  Her Honour took note of the fact that for a successful claim to be brought pursuant to the Consumer Guarantees Act 1993, then a remedy will only be provided by section 27 where loss has occurred. 

Ultimately she held that it was not sufficiently certain that that the cause of action under the Consumer Guarantees Act 1993 accrued as at date of delivery of the cladding material, such that she could strike out that cause of action. 

I note there was no detailed examination of section 4 of the Limitation Act 1950 within the judgment, and whether it could be said to apply to claims brought pursuant to the Consumer Guarantees Act 1993.  The 6 year limitation imposed by section 4 is mainly directed at claims brought in contract and tort.  The Consumer Guarantees Act 1993 cause of action brought in the decision of Carter v Metal Design Solutions Limited & Ors is neither of these, although arguably it isan“ action to recover any sum recoverable by virtue of any enactment” which would also have a 6 year limitation period imposed by section 4 of the Limitation Act 1950.  I note the Consumer Guarantees Act 1993 provides no specific direction on the application of the Limitation Act 1950.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

In this month’s article I wish to review a 2014 High Court decision which considered relative responsibilities of Council, Builder and a Building Consultant for the losses arising from a failed leaky building repair.

Background.

Fleetwood Apartments suffered from systemic leaky building syndrome.  The Body Corporate called in a building consultancy company to provide remediation advice.  An “overclad” rain shield cavity system was recommended by the Consultant and approved by the Body Corporate.  The Council granted a building consent for its installation, and the building company installed the Overclad with assistance from the Building Consultant and a specialist cladding company.

Ultimately a CCC was issued by Council in September 2006.  However by August 2011 cracks were appearing in the Overclad sheets.  Prendos were then engaged who identified more underlying weathertightness damage.  It recommended complete removal of the Overclad system and the original cladding, before recladding.  As at the date of judgment in mid-2015, the second set of repairs were near completion.

Incidentally, the claim for the original defects that had brought about the need for the Overclad were settled with Council in 2007.

Findings as against the Building Consultant. 

The claim brought against the Building Consultant was based in contract (breach of an implied term to take reasonable skill and care), in tort (a duty to exercise reasonable skill and care), and pursuant to section 28 of the Consumer Guarantees Act 1993 (a statutory guarantee to exercise reasonable skill and care whilst providing services).

Justice Whata found against the Building Consultant as follows:-

(a)        It had failed to ensure that a proper survey of the building was undertaken in accordance with the specification or alternatively advise the Owner that it was not going to complete a full survey.  There appears to be some importance placed upon this failure by the Consultant within the judgment which may have had some influence on the relatively high apportionment of liability upon the Building Consultant;

(b)        Failed to ensure that the installation works were undertaken generally in accordance with the design specification;

(c)        Failed to properly assess the suitability of the substructure to accommodate the Overclad (linked to (a) above); and

(d)        Failed to check that there were adequate clearances between the cladding and timber framing to the deck columns on the northern elevation and the horizontal decks surfaces.

He also went onto find that the following losses flowed from its’ actions/inactions:-

(a)        The majority of the wasted remediation costs in installation of the Overclad;

(b)        Significantly damaged building elements (now) could have been removed back in 2005 in a much less damaged state;

(c)        Purchasers subsequent to the Overclad repairs would not have paid an inflated price for their units;

(d)        Vendors after discovery of the cracking of the Overclad, would not have sold their units at deflated prices;

(e)        The northern elevation would not have had to have been repaired twice.

Summary on liability finding. 

The Court found that the Building Consultant had breached the implied contractual duty to exercise reasonable skill and care, failed to properly supervise the remedial works so that they were undertaken in a tradesman like manner and/or with reasonable skill and care.  For these reasons, he held it also breached the implied guarantee set out in section 28 of the Consumer Guarantees Act 1993.

Liability apportionment. 

Cross-claims were brought by the Council, the Building Consultant and APS in respect of each other, as joint tortfeasors.  Justice Whata was charged with deciding a just and equitable apportionment of liability as between these three parties, having regards to their responsibility for the damage as prescribed by section 17(2) of the Law Reform Act 1936.

Whilst noting that the normal apportionment in defective building cases is 80%  builder/architect, 20% Council, he concluded that such an apportionment would not fairly reflect the relative responsibility in this instance.

He concluded instead that the proper apportionment was Building Consultant 60%, Builder 20% and Council 20%.

This decision perhaps highlights how heavily the Courts will apportion liability where paid consultants fail to address the problems they were specifically engaged to address. 

In this month’s article, I wish to summarise the key findings contained in the aforementioned Court of Appeal decision. 

Facts.

Many schools located around New Zealand owned or administered by the Ministry of Education have been affected by weathertightness.  The Ministry filed a product liability claim in the High Court against four manufacturers of products used for the construction of the school buildings including Carter Holt Harvey Ltd (CHH). 

Plywood cladding sheets (Shadowclad) were used in the construction of these schools.  It was claimed by the Ministry of Education that this cladding system was inherently defective, and has caused damage because Shadowclad allows water to enter, particularly when it is installed without a cavity behind it.

These proceedings concern an unsuccessful attempt by CHH to strike out claims based upon negligence, negligent misstatement and the Consumer Guarantees Act 1993 in the High Court.  This was appealed to the Court of Appeal. 

CHH’s liability for negligence. 

It was alleged by the Ministry that CHH owed it a duty of care in designing, manufacturing and supplying the cladding sheets and cladding systems which were used on the school buildings.  CHH denied a duty was owed. 

The Court of Appeal applied a 2 stage test, firstly looking at factual and policy aspects of the relationship between the parties, following which the second stage looked at external considerations. 

As part of the stage 1 process the Court of Appeal agreed with this statement of Asher J:-

“A manufacturer such as Carter Holt can be taken to have forseen Shadowclad would be used on buildings.  If Shadowclad or the cladding system were defective, such that they have failed to fulfil their weathertightness function or caused water to enter buildings, that could lead in due course to a weakening and rotting of the component structures and the growth of fungi in those buildings capable of damaging human health”.

Forseeabilility of damage/loss was deemed established by the Court of Appeal.  It then went onto consider proximity.  Important in this assessment was the dismissal of CHH’s main argument that the chain of contracts resulting in the supply of the Shadowclad, ought to control the allocation of risk for damage, rather than any tortious obligation imposed.  In particular CHH was relying upon the decision of Rolls Royce NZ Limited v CHH.  The Court of Appeal was not attracted to such an argument and concluded that the Rolls Royce decision was distinguishable and the contractual chain argument would not in this instance preclude CHH owing a duty to an end-consumer to manufacture its product carefully. 

The Court of Appeal also rejected CHH’s other main argument to the effect that since CHH as a building product manufacturer was not subject to the impact of regulation by the Building Act 2004, its predecessors and the Building Codes issued thereunder, the absence of legislative contemplation of duties upon a manufacturer in this area, weighed against the requisite proximity existing for a duty of care to apply in negligence.  Whilst the Court of Appeal agreed it was a factor to weigh up in assessing whether a duty of care ought to be imposed, it ruled it was not decisive. 

Overall the Court ruled that the claim against CHH based in negligence ought not to be struck out.  Furthermore it also ruled the cause of action based upon an alleged failure of CHH to warn of dangerous features in the Shadowclad also survived the strike out application, as did the causes of action brought pursuant to the Consumer Guarantees Act 1993. 

However, the cause of action based upon negligent misstatement by CHH as to inaccurate statements made about the cladding system, was struck out by the Court of Appeal because the Ministry was not able to establish reliance upon these statements by the Ministry.  This was the only cause of action struck out on appeal. 

The decision is also notable for describing as “unclear” the distinction often made by Judges/lawyers alike as to recoverability in negligence for damage to property as opposed to pure economic loss.  The Court of Appeal ruled that it was arguable that both types of loss is recoverable in negligence as is the cost of measures taken to prevent future damage. 

The decision is finally also notable for ruling that causes of action brought against building product manufacturers and suppliers, were not subject to the long stop limitation period (ten years) as stipulated in section 393(2) of the Building Act 2004. 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.