Adkin v Brown HC Auckland Ap166-Sw00 - [2001] NZHC 429

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY AP166-SW00

BETWEEN BRUCE WILLIAM ADKIN
Appellant

AND KEITH BROWN
Respondent

Date: 2 April 2001

Judgment 18 May 2001

Counsel: S P Bryers for appellant
R E Lawn for respondent

JUDGMENT OF O’REGAN J

[1] This is an appeal from judgments of Judge Hole in the District Court in relation to a dispute which dates back to 1980-1981. It is hard to believe that parties could still be engaged in resolving a dispute of this nature involving a relatively small sum 20 years after the events which gave rise to it. The chronology of events makes sad reading.

Background

[2] The saga began in July 1980 when the respondent, Mr Brown, a builder, entered into a building contract with the appellant, Mr Adkin, and Mr Adkin’s then wife, for the construction of a house at Manurewa for a contract price of $50,062. I refer to this as “the contract”. Mr and Mrs Adkin became dissatisfied with the standard of the work being undertaken by Mr Brown, and also the fact that the house was not finished by Christmas 1980. At the end of January 1981, the Adkins withheld a progress payment until specified deficiencies in the work were rectified. Correspondence between solicitors ensued. Eventually the Adkins engaged a building consultant, Mr Hulse, who met with Mr Brown on site at the end of February 1981 to discuss a number of items of remedial work he had identified as being required. There appeared to be agreement that Mr Brown would carry out Mr Hulse’s recommendations and there would be on-going discussions between Mr Brown and Mr Hulse because of the acrimony which had developed between Mr Adkin and Mr Brown.

[3] For reasons which are not apparent from the evidence, Mr and Mrs Adkin changed solicitors at the end of February 1981 and decided to engage another expert to inspect the site. This was a consulting engineer, Mr Lapish. He inspected the property on 16 March 1981. That report identified 16 faults, some of which it characterised as being “of major structural consequence if the building is ever subject to seismic loadings”. It concluded “It should be noted that the cost to remedy these faults is likely to be considerable”.

[4] On 23 March 1981 the new solicitors for the Adkins wrote to Mr Brown cancelling the contract. The letter refers to the Lapish report and the fact it identifies a number of serious faults and says:

“It is our opinion that you have failed to perform an essential stipulation of the contract, namely that the building comply with the building by laws, the contract, the specifications and that the building be structurally safe.”

It notified Mr Brown that the contract was cancelled in accordance with ss 7 and 8 of the Contractual Remedies Act 1979.

[5] The report from Mr Lapish was not copied to Mr Brown or enclosed with the letter, and no details as to the nature of the faults alleged by Mr Lapish was given. The letter gave Mr Brown seven days to remove his belongings from the site and notified him that entry onto the site by him for any purpose other than to collect those belongings would be treated as trespass. Mr Adkin changed the locks on the building - it is not clear from the evidence exactly when he did so.

[6] Mr Adkin then arranged for the building to be completed and the remedial work to be carried out. He began occupying the property towards the end of June 1981 with the rest of his family moving in some time later. Mr Brown issued proceedings in July 1981. According to Mr Adkin’s evidence the remedial work (including work to remedy further defects which became apparent), was completed in 1986.

[7] In 1990 it was agreed that most of the issues raised in the Adkins’ counterclaim would be referred to referees. These referees reported in February 1991 but the Adkins challenged their findings and the matter went on appeal to the High Court, which led to a reference back to the referees to hear further evidence. The matter was not referred back to referees until 1998 and they did not complete their second report until December 1999. In November 2000 the matter went to a hearing in the District Court which led to the judgments under appeal.

[8] Mr and Mrs Adkin separated in 1988. In April 1992, at the time of the Family Court decision relating to their matrimonial property, it was agreed that Mrs Adkin would pay $7,500 to satisfy any claim against her, and from then on Mr Adkin continued the litigation on a solo basis.

Points on appeal

[9] The Notice of Points to be taken on Appeal filed on behalf of Mr Adkin says that the District Court Judge erred in the following respects:

[a] Finding that he was not entitled to cancel the contract and accordingly, finding that Mr Brown was entitled to interest of 14% per annum pursuant to the contract;

[b] Rejecting Mr Adkin’s claim for loss of value over and above the cost of remedial work;

[c] Rejecting Mr Adkin’s claim for $2,689.99 for work done to complete the house;

[d] Failing to award the full amount of Mr Adkin’s claim for $2,152.84 incorrectly stapled sealing tiles;

[e] Failing to allow Mr Adkin’s claim of $900 for rental paid as a result of late completion;

[f] Failing to award Mr Adkin the sum of $6,999 incurred by him with his consulting engineer for advising on Mr Brown’s defective work and appropriate remedial action;

[g] Awarding costs and disbursements of $19,250 to the respondent.

[10] There was also a cross appeal from Mr Brown. The Notice of Points to take on Cross Appeal says that the District Court Judge erred in deducting from the judgment sum $4,659.14 for remedial work, maintenance work and uncompleted work, which were deemed to have been finally approved and completed by the Judge. The basis of this contention was that clause 18 of the contract applied, and this meant that there was no basis for such deduction.

[11] The two most important issues to be determined are the question of cancellation (see paragraph 9(a) above) and the impact of clause 18 of the contract on Mr Adkin’s counterclaims (see para 10 above). I will therefore deal with those issues first, before turning to the more specific matters raised on behalf of Mr Adkin.

Was Mr Adkin entitled to cancel the contract?

[12] It was common ground that the critical issue was cancellation because the findings of the Judge on many of the other points subject to appeal followed from his finding that Mr Adkin was not entitled to cancel the contract.

[13] The Judge found that the Adkins had not been entitled to cancel the contract in March 1981. He found that there had not been a breach of a stipulation which was essential to the defendant as required under s 7(4)(a) of the Contractual Remedies Act because only 10 out of 62 allegations of defective workmanship set out in the Adkins’ counterclaim were found by the referee to have substance and the cost of remedying them was only $3,159.17 (ie 6.31% of the total cost of the works). In addition the contract was not completed and all defects were capable of being remedied. In the circumstances he found that the effect of the breaches on the Adkins was minimal and capable of rectification so that s 7(4)(b) of the Contractual Remedies Act did not apply either.

[14] Mr Bryers, counsel for Mr Adkin, argued that this finding was wrong. In this Court his argument was that there was a breach of three express or implied terms. The first was the requirement in clause 1 of the contract that Mr Brown would “erect, carry out and complete the works in a thorough and workmanlike manner and in strict accordance with the Local By Laws and the said Plans and Specifications.” The second was an implied term that the building would be constructed so as to be structurally safe, and the third was that the house would be completed by Christmas 1980. This last requirement was, according to the evidence of Mr Adkin, a verbal side agreement, but it is notable that no reference is made to it in the Third Amended Statement of Defence and Counterclaim filed in March 1990. (I refer to this as the Counterclaim from now on.)

[15] The fact that the building was not structurally safe was one of the grounds given for cancellation in the letter of 23 March 1981, in which it is referred to as an essential stipulation of the contract. However it is notable that the contract does not specifically refer to the requirement that it be structurally safe and neither does the Counterclaim. Rather, that is based on the alleged failure by Mr Brown to “construct a house free of structural defects” which are then particularised over the next ten pages of the document.

[16] Mr Bryers criticised the Judge for not making a finding as to whether the building was structurally safe, but the Adkins’ pleadings do not appear to allege that it was not. There is certainly reference in the evidence to the building being unsafe in certain circumstances, (para 33 of the brief of Mr Lapish), but not in the pleadings themselves.

[17] Mr Bryers placed particular emphasis on the failure to make the building structurally safe because he argued that this is a stipulation in the contract of the kind described in s 7(4)(a) of the Contractual Remedies Act, that is, that performance was essential and the breach of it entitled the Adkins to cancel the contract. In this respect he relied on Broadbank Corporation Limited v Martin [1988] 1 NZLR 446. In that case Hillyer J found that a contractual provision which “went to the heart of the contract” could be the basis of a cancellation under s 7(4)(a).

[18] In his secondary argument Mr Bryers argued that the failure to build the house in accordance with the plans and specification and the failure to complete it by Christmas 1980 were not essential, but if they are accumulated, their combined effect was to substantially alter the benefit or burden of the contract, in which case the Adkins were entitled to cancel under s 7(4)(b). He relied on MacIndoe v Mainzeal Group Limited [1991] 3 NZLR 273, a decision of the Court of Appeal, in which Richardson J said at page 284:

“Substantiality in that statutory context is a matter of fact, degree and impression. It has the same flavour as ‘significantly’ and ‘considerably’. It is equally incapable of any kind of arithmetical analysis. One must stand back and, assessing the matter objectively, determine whether the effect of the breach will be, to take the most obvious provisions subparas (i) and (ii), substantially to reduce the benefit of the contract to [the plaintiff in that case] or substantially to increase the burden on [the plaintiff] under the contract.”

[19] Mr Lawn on behalf of Mr Brown argued that the building was not “constructed” at the time cancellation took place so that it was impossible for there to be a justification of cancellation either on the basis that there was a breach of clause 1 of the contract, or on the basis that there was a breach of an implied term that the building be constructed so as to be structurally safe. He argued that the most that could be said at the time of cancellation was that the building was “partially constructed”. He pointed out that the evidence showed that in the period immediately before the cancellation, the representative appointed by the Adkins, Mr Hulse, and Mr Brown had been co-operating on ways of remedying the defects identified by Mr Hulse and that the work which was to be undertaken would have allowed for the completion of the building with the defects remedied.

[20] Once cancellation occurred and Mr Brown was prevented from undertaking any remedial work, obviously the opportunity to complete the building was taken away from him. Mr Lawn pointed to the finding of the Judge that the specific allegations made by the Adkins in the Counterclaim as establishing their claim that there was a breach of clause 1 “were capable of inexpensive remedial action” and that the “only reason that the plaintiff did not remedy them was the purported cancellation of the contract and the assumption of possession of the works by the defendant.” He argued that this was a finding of fact that should not be interfered with.

[21] The relevant provisions of s 7 of the Contractual Remedies Act 1979 say:

“7 Cancellation of contract

(1) Except as otherwise expressly provided in this Act, this section shall have effect in place of the rules of the common law and of equity governing the circumstances in which a party to a contract may rescind it, or treat it as discharged, for misrepresentation or repudiation or breach.

(2) Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.

(3) Subject to this Act, but without prejudice to subsection (2) of this section, a party to a contract may cancel it if-

(a) He has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to that contract; or

(b) A stipulation in the contract is broken by another party to that contract; or

(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,-

(a) The parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the stipulation is essential to him; or

(b) The effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,-

(i) Substantially to reduce the benefit of the contract to the cancelling party; or

(ii) Substantially to increase the burden of the cancelling party under the contract; or

(iii) In relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.

(5) A party shall not be entitled to cancel the contract if, with full knowledge of the repudiation or misrepresentation or breach, he has affirmed the contract.”

[22] Mr Lawn’s argument was essentially that, in circumstances where the building was not complete, the only basis for cancellation would be where there had been a breach of s 7(2) of the Contractual Remedies Act, ie, where Mr Brown had repudiated the contract by making it clear that he did not intend to perform his obligations under it or to complete such performance. He pointed out that there is no evidence that Mr Brown did so and indeed, there is no pleading in the Counterclaim that any such repudiation occurred. On the contrary, there was evidence that Mr Brown was co-operating with the Adkins’ consultant, Mr Hulse, before cancellation occurred. Mr Lawn pointed out that even if, at the time of cancellation, the incomplete building was structurally unsafe, there was no reason why any works could not have been upgraded or even demolished and rebuilt to ensure that the contract was properly performed.

[23] Mr Bryers, on the other hand, argued that s 7(3) and (4) allow for repudiation in this case because there was a stipulation in the contract, expressly or impliedly agreed as essential to the Adkins, which was broken by Mr Brown. He relied on the implied requirement that the building be structurally safe and argued that such a stipulation must be an essential element of a building contract. Mr Lawn argued this was not pleaded and, in any event, it was too early to say the building was not structurally safe because it was not completed.

[24] As to the first of those points, I do not believe there is anything in Mr Lawn’s argument. While it is true that the Counterclaim does do not specifically refer to the building being structurally unsafe, the letter of cancellation clearly does, and the counterclaim simply recites the basis on which the Adkins’ claim is made, not the justification for cancellation.

[25] Mr Lawn’s second argument has more substance, however. It is clear that the building was not complete when cancellation occurred, and the evidence was that not only remedial work needed to be done at that stage but also work was required to complete the contract. In this circumstance I consider it was not open to the Adkins to terminate on the basis that there had been a breach of an essential stipulation as to structural safety because, as Mr Lawn argued, it was still possible that Mr Brown would perform the remedial work identified as being required by the experts engaged by the Adkins and, having done so, produce a structurally safe building.

[26] I also accept Mr Lawn’s submission that there is no basis on which cancellation could be justified on the basis of repudiation and this is not alleged in the letter of cancellation from the Adkins’ solicitor. In order to found a case for repudiation in these circumstances, it would have been necessary to give a notice requiring compliance and establish that the circumstances outlined in s 7(2) existed. While Mr Adkin’s evidence was that Mr Brown appeared to be dragging the chain in doing the things he had agreed with Mr Hulse needed to be done, this would not be sufficient to establish that Mr Brown had repudiated the contract by making it clear that he did not intend to perform his obligations. Mr Brown’s evidence was that he was prevented from making progress because he was “locked out”. I will come back to that allegation later.

[27] That leaves me with the second argument made by Mr Bryers, that the cumulative effect of the breach of the requirement to complete the works in a thorough and workmanlike manner and in strict accordance with the local by-laws and plans and specifications, and the failure to complete the property by Christmas 1980, were such that the breach of the provisions substantially reduced the benefit of the contract to Mr and Mrs Adkin, or alternatively that they were essential.

[28] The Judge took the approach of considering all of the failings alleged in the Counterclaim and found that because only 10 out of 62 were found to have substance, and the cost of remedying them was only $3,157.17 (6.31% of the total cost of the work), it could not be said they were essential and, in any event, they were capable of being remedied. Considering whether they could be said to substantially reduce the benefit of the contract to the Adkins, the Judge took the same approach.

[29] Mr Bryers took issue with this approach. He argued that the Judge’s statement that 10 out of 62 allegations were found to have substance was wrong. In fact, 37 out of 62 were justified to some extent and these were categorised into remedial work (nine), remedial (maintenance) work (22), and completion work (six). He produced a schedule setting out these items. Many of these are matters involving very insignificant costs and the total in the schedule produced by Mr Bryers is $3,446.44, which is not significantly different from the Judge’s figure of $3,159.17. In my view the number of items found to have any justification at all is largely irrelevant because many of them are trifling in nature. The real issue is the cumulative cost of remedying them.

[30] Mr Bryers noted that, later in his judgment, the Judge allowed two additional items, one being item (q) for which he allowed $1,076.40 and item (h) for which he allowed $93.17. He also pointed out that, because of the terms on which the referees considered the matter, all amounts were backdated to 23 March 1981, so that the actual amount spent on remedial and completion works was significantly higher than the referee’s award. He also said there was a residual loss of value in the house (about which I will rule later).

[31] An analysis of the extent of the defects based on Mr Bryers’ argument shows they amount to the $3,446.44 identified by the referees, and the additional items of $1,076.40 and $93.17 identified by the Judge, amounting to just over $4,600, in relation to a building for which the contract price was $50,000. It is questionable whether the cumulative effect of those defects was such that the breach of clause 1 of the contract was sufficient to satisfy the test that it substantially reduced the benefit of the contract to the Adkins.

[32] I accept the submission of Mr Lawn that cancellation based on breach of the implied term that the building would be structurally safe or on the breach of clause 1, was premature. The building was not “constructed” and it could not be said with certainty at the time of cancellation that any lack of structural safety or failure to comply with clause 1 could not be remedied.

[33] The evidence shows that the initial approach by Mr and Mrs Adkins to their concerns about the property was to appoint Mr Hulse and then following the discussions between Mr Hulse and Mr Brown, to allow Mr Hulse to act as their representative in arranging for the remedial action which Mr Brown had agreed to complete. What happened next is not entirely clear. Mr Brown said he was locked out, preventing him from doing the work he had agreed to with Mr Hulse. His evidence was a plasterer he had sent to the site, Mr Pointon, could not get in because the locks had been changed. Unfortunately the two people who could provide evidence about the situation, Mr Pointon and Mr Hulse, had both died before the Court hearing, so the position was unclear.

[34] Why the Adkins engaged another expert, Mr Lapish, and then cancelled the contract on the basis of his report without reference to either Mr Hulse or Mr Brown, is somewhat of a mystery. Mr Adkin said he did not even notify Mr Hulse until after the cancellation, yet in the period preceding cancellation Mr Hulse appeared to be acting as his representative and appeared to have matters in hand. Whilst I accept Mr Lapish’s report indicated more serious problems than those noted in the Hulse report, that did not seem to justify the abandonment of the previous approach of rectifying the deficiencies through actions supervised by Mr Hulse, by immediately cancelling.

[35] Mr Bryers argued strongly that it would be unreasonable to require a customer facing the issues faced by Mr and Mrs Adkins to wait until a house was completely constructed before cancellation was permitted. I do not accept this argument is valid in these circumstances. Section 7 of the Contractual Remedies Act deals with a situation where events occur which indicate that a stipulation may be broken but where performance is incomplete, so that the actual breach is not yet able to be established. Section 7(2) applies and it becomes necessary to establish that another party has repudiated the contract by making it clear that he does not intend to perform his obligations under it, or to complete such performance. The usual way of meeting the requirement of s 7(2) is to give notice requiring performance and then specifying that failure to perform by a certain time will be taken as repudiation. Such a notice will specify that time is of the essence. If performance does not occur, then the groundwork for a valid cancellation has been established. None of this occurred here.

[36] The requirement for notice is illustrated in the decision of the Court of Appeal in Morris v Robt Jones Investment Ltd (2 NZ ConvC 95-228). In that case Hardie-Boys J said at p.191,789:

“The effect of non-compliance is to be explained in terms of repudiation or, under s 7, of fundamental breach. Thus in Louinder v Leis (1982) 149 CLR 509 at 526, Mason J said:

‘Unreasonable delay in complying with the stipulation in substance amounting to a repudiation is essential to justify rescission. It is to this end that, following a breach, the innocent party gives notice fixing a reasonable time for performance of the relevant contractual obligation. The result of non-compliance with the notice is that the party in default is guilty of unreasonable delay in complying with the non-essential time stipulation. The unreasonable delay amounts to a repudiation and this justifies rescission.’”

[37] Mr Bryers conceded that if the only ground which Mr and Mrs Adkin had for cancelling the contract was delay, then the failure to give notice and a time period for performance (with time being of the essence), would be fatal to their claim. I believe that concession was correctly made.

[38] It may be arguable that a failure by Mr Brown to perform the agreed remedial action under the supervision of Mr Hulse would amount to repudiation, but Mr Adkin has not established repudiation on the balance of probabilities and indeed, has not argued that it occurred. In the circumstances I do not believe that the grounds for cancellation on the basis that the structure was unsafe or a breach of clause 1 has been made out.

[39] That leaves the issue as to whether failure to build the house by Christmas 1980 was an agreed term, was essential, and was breached. Mr Brown did not dispute that he had agreed this with the Adkins, but whether it had contractual force in the sense of varying the written agreement is unclear and the notice of cancellation made no reference to any delay. I do not think it was established that this stipulation was expressly or impliedly agreed to be essential to Mr and Mrs Adkins. Accordingly, cancellation based on this ground is not justified. Again, the situation demanded a notice requiring performance and making time of the essence, and then a measure of whether that notice had been complied with before cancellation occurred.

[40] Mr Bryers argued that it was necessary for the Adkins to cancel the contract immediately because of the danger that their failure to do so may be interpreted as affirmation in terms of s 7(5) of the Contractual Remedies Act. I do not accept that argument. Giving a notice requiring performance and making time of the essence would clearly have established that the Adkins were not confirming the contract with full knowledge of the breach - quite the contrary. The giving of a notice of that kind would have been just as effective at rebutting the possible application of s 7(5), as the notice of cancellation which was given.

[41] There is a further issue about Mr Bryers relying on the failure to complete the property by Christmas 1980, because that was not raised by the letter of cancellation dated 23 March 1981. The only grounds on which the cancellation is said to be based, was the failure to perform an essential stipulation of the contract, namely clause 1. In Mercurius Ventures Ltd v Waitakere City Council [1996] 2 NZLR 495. Anderson J found that where a contract had been cancelled on an unjustifiable ground, and later it had been ascertained that a valid ground for cancellation existed, the later valid ground could not justify the original invalid cancellation and the aggrieved party’s remedy would be limited to damages. The position is slightly different here, because the failure to complete the contract by Christmas 1980 was known and ascertained at the time of cancellation. It was not “grounds which if known could have been invoked”, which is the way Anderson J described the situation in the Mercurius case (p.504). In this case it appears that the failure to complete on time was known, but not specified in the letter of cancellation. In view of my earlier findings, the point is not critical in this case, but it would certainly have been preferable for Mr Adkin if he was relying on this ground, that the notice had referred to it.

[42] Accordingly I find that Mr and Mrs Adkins were not entitled to cancel the contract.

[43] Mr Lawn argued that ss 7 and 9 of the Contractual Remedies Act do not apply because they are over-ridden by certain provisions in the building contract. This argument is based on s 5 of the Contractual Remedies Act which says:

“5 Remedy provided in contract

If a contract expressly provides for a remedy in respect of misrepresentation or repudiation or breach of contract or makes express provision for any of the other matters to which sections 6 to 10 of this Act relate, those sections shall have effect subject to that provision.”

[44] Mr Lawn argues that clause 18 of the contract overrides s 7 of the Contractual Remedies Act. Clause 18 is lengthy. It provides that the Contractor (Mr Brown), is entitled to retain possession of the works and that the Employers (Mr and Mrs Adkin), are not entitled to take possession until certain formalities have been followed. It then goes on to say:

“And if the Employers shall enter into possession without complying with the provisions of this Clause 18, or without written consent of the Contractor, then the Employers shall be deemed to have finally approved the completion of the works and to have been satisfied therewith and the Contractor shall be entitled to charge interest at the rate of $14 per centum per annum on the balance of moneys owing until payment and demand from the Employers immediate payment of such moneys owing under this contract (subject only to statutory obligations as aforesaid), notwithstanding that the works may not have been completed, provided that nothing hereinbefore contained shall serve to prevent the Employers from inspecting the works from time to time at reasonable hours.”

[45] The District Court Judge found that because the Adkins had entered into possession of the works without complying with clause 18 and without the prior consent of Mr Brown, they were deemed to finally approve the completion of the works and to have been satisfied with them. (Addendum dated 21 November 2000, paragraph [4]). Mr Lawn argued that the “lock-out” of Mr Brown meant that Mr and Mrs Adkin had entered into possession of the works and clause 18 applied.

[46] The response from Mr Bryers was that the change of locks occurred after the notice of cancellation had been given and, since cancellation had occurred, clause 18 no longer applied. I have already found that Mr and Mrs Adkin were not entitled to cancel, so this argument must, as a matter of logic fail, whether the changing of the locks occurred before or after 23 March 1981. Mr Lawn argued that if reliance was being placed on Mr Brown’s failure to undertake work as agreed with Mr Hulse, then the procedure in clause 23 of the contract should have been followed. That required notice of a specified period be given for the contractor to resume work but providing that the Employers could take possession of the works if there was a failure to meet that deadline. This is essentially the same as the process I have found would apply under the Contractual Remedies Act in any event, so no more need to be said about it.

[47] I therefore conclude that my findings as to the entitlement to cancel would be the same, whether or not I accepted Mr Lawn’s argument that clause 18 overrode the Contractual Remedies Act.

Does clause 18 rule out Mr Adkin’s counterclaims?

[48] Mr Brown’s cross appeal raises a further, and more important, issue of the impact of clause 18. In effect he argues that the District Court Judge erred in deducting from the judgment the amounts allowed for remedial work, maintenance work and uncompleted work, because, if clause 18 is applied, Mr and Mrs Adkin were deemed to have been satisfied with the work and therefore there is no basis for any such claims to be allowed.

[49] Mr Lawn said this argument would apply even if cancellation were permitted, because s 8(3) of the Contractual Remedies Act says that cancellation cannot cause any party to be divested of any property transferred pursuant to the contract. In this case he says that possession of the works was property transferred to Mr Brown, pursuant to the contract, and the cancellation could not therefore divest him of it. Although the argument has no practical impact in view of my finding about cancellation, I record that I reject it. The right to possession of the works was simply a contractual right provided under the contract itself and cancellation of the contract would lead to the termination of that right automatically. Mr Lawn’s argument in this respect involves an extremely strained interpretation of s 8(3)(b), which I am not prepared to make.

[50] Mr Bryers argued strongly that it was unfair that Mr Brown should be allowed to argue that clause 18 rules out all of Mr Adkin’s claims because the deeming provision in clause 18 was not pleaded and was not raised in the District Court until the argument immediately before the Judge’s addendum of 21 November 2000, in which the reference to clause 18 is made, ie after the Judge’s substantive decision of 10 November 2000. I have carefully read the Third Amended Statement of Claim and the Reply to the Third Amended Statement of Defence and Counterclaim dated 27 March 1990, and I agree with Mr Bryers that the deeming provision in clause 18 and the impact of that provision as a bar to Mr Adkin’s counterclaims is not pleaded. I accept Mr Bryers’ argument that it is not appropriate therefore for this argument to be made during a High Court appeal which is heard some 20 years after the events leading to the claim and some 11 years after the date of the pleadings.

[51] Mr Lawn argued that clause 18 was pleaded because there was an explicit reference to a claim for interest at the rate of 14% pa in paragraph (ii) of the particulars set out on p 3 of the Third Amended Statement of Claim and a similar reference in paragraph (b) on p 4. However, as Mr Bryers pointed out, those are references to claims for interest which are founded on clause 18 but are not pleadings in respect of the possible impact of the deeming provision in clause 18 on Mr Adkin’s right to claim set-offs against the amount he is said to owe Mr Brown and to make counterclaims.

[52] Although Mr Lawn did not request an amendment to the pleadings to allow him to argue clause 18 in the way proposed in his points on appeal, I have considered whether it would be appropriate to allow this. I do not believe it would be. In particular, I note that the claims made by Mr Adkin were referred to referees by consent on 10 October 1990 and the claims were investigated in detail by the referees. Their report was itself subject to further legal proceedings, including High Court proceedings, and the subject of a renewed report by the referees in 1998. Any attempt to unwind that process now would be extremely unfair to Mr Adkin and inappropriate because it would effectively require a complete re-assessment of the basis on which the case has been argued since before the first reference to the referees over 10 years ago.

[53] Mr Bryers pointed out many of the items which were the subject of claims by Mr Adkin were admitted by Mr Brown in the Reply to the Counterclaim. Mr Lawn’s argument would effectively reverse those admissions. He also pointed out that the basis of the reference to the referees was that their findings would be final and binding except for challenge by way of error of law on the face of the record. If I were to accept Mr Lawn’s argument that would effectively overrule the referees’ findings. Mr Bryers also submitted that the directions made by Judge Hole on 6 March 2000 included a direction that neither party would be permitted to adduce evidence challenging the referees’ findings, and a direction that no claim or counterclaim would be entertained unless it had been pleaded. Neither party objected to these directions, and it would be inappropriate for me to make any findings which allowed the case to be argued in a way which is inconsistent with them. I accept that submission.

[54] Accordingly I find that the cross-appeal must be rejected, because it involves matters which were not pleaded.

Claim for loss of value

[55] The first specific claim by Mr Adkin is that the Judge was wrong to reject the claim which he made for loss of value of the house, over and above the cost of remedying the deemed defects. He claimed $12,000 under this head, based on a valuation prepared by C N Seagar & Associates on 23 February 1983, which found that the property had a fair market value of $92,000 but that it would sell to a purchaser with knowledge of the defects outlined in Mr Lapish’s report at a figure in the vicinity of $80,000. The $12,000 difference was the amount claimed. This was modified from an original claim of $21,000. The original claim was based on a second valuation by Seagar and Partners in October 1987 where the value of the property, assuming proper construction, was assessed at $167,000, while its value to a purchaser having knowledge of the defects was $146,000. Because this report was prepared long after the events of 1981, reliance was (correctly in my view), placed on the earlier report which was closer to the time at which all the defects had been ascertained and most dealt with.

[56] The Judge rejected this claim because:

[a] Since there was no entitlement to cancel the claim must be disallowed;

[b] In any event the evidential basis of the claim was not made out because the valuer’s report on which reliance was made to establish the $12,000 claim was based on an acceptance of the defects referred to in Mr Lapish’s report and the evidence which showed that the defects were not as substantial as that indicated.

[57] The Judge also noted that the second valuation referred to above recorded a gross value of $167,000. In the judgment of Judge Kendall, dealing with the matrimonial property distribution after the dissolution of the marriage of the Adkins, reference was made to the valuation submitted to the Court by Mr Adkin in support of his claim relating to the price to be paid by Mrs Adkin to buy out his interest in the property. That valuation referred to a value of between $160,000 and $167,000. There was no reference to any devaluation as a result of poor workmanship and therefore the Judge in these proceedings found that Mr Adkin could not “have it both ways”, since he had received a payment from Mrs Adkin calculated after taking his evidence into account, and in which there was no reference to the defects.

[58] Mr Bryers submitted that the Judge was wrong in a number of respects. First, he argued that the Judge’s finding that there was no entitlement to cancel the contract did not rule out a claim for damages on the part of Mr Adkin. His argument was that, where breaches of contract have been established, the fact there is no right to cancel does not rule out a right to sue for damages if damage can be proven.

[59] In determining whether damages for loss of value is a sustainable head of damages, Mr Bryers referred me to Paton v Brooks [1974] RTR 169, a decision of the English Court of Appeal. In that case the Court said [obiter] that where there has been damage to goods, the goods have been properly repaired, but the fact they have been damaged and repaired reduces their market value, then an award of damages for loss of value is appropriate. I accept that, if it could be established that Mr Brown’s breach caused such a loss of value here, damages could be awarded.

[60] Mr Bryers also argued that the Judge was wrong to rule out the claim for loss of value because the 1983 valuation was based on the Lapish report and the defects were not as substantial as that indicated. When pressed, he conceded that if it was shown to have overstated the defects, then it would be appropriate to reduce the amount of the claim, but he argued strongly that it would be inappropriate to reject it completely.

[61] Mr Lawn argued that after the completion and remedial work had been done, the property met the requirements of the contract and therefore there should be no difference in value. Where steps had been taken to undertake remedial work, there did not appear to be any consideration of on-going effect on value. For example, he referred me to the evidence of Mr Lapish in determining how to make the block walls comply with the building permit requirements, which was that the two alternatives were to rebuild the wall or build another one next to it and secure the two together. The second alternative was chosen. Mr Lapish had not given consideration to any on-going detrimental effect on valuation of this option or that such an effect would be caused. He also argued that since Mr Brown had been deprived of the opportunity of completing the building to the required standards by the purported cancellation, it was unfair that he should face a claim for loss of value.

[62] He also argued that Mr Adkin had suffered no loss because he had sold the property to Mrs Adkin in 1992 for a value which did not take into account any defects.

[63] The evidence in the District Court from Mr Clark of Seagar & Co was that loss in value attributed to the defects was between $7,000-10,000 in 1983 (although his 1983 valuation referred to a difference of $12,000). There was no valuation evidence called by Mr Brown to challenge this figure, nor was there any valuation evidence from Mr Adkin based on the actual defects and remedial work, as opposed to those outlined n the Lapish report.

[64] Mr Clark’s evidence before the District Court was that in his opinion the “stigma effect” affects the value of the property. He said there is a significant stigma effect from the presence from remedial work which can result in unease by prospective purchasers. His experience shows that purchasers have concerns in relation to the negative aspects in potential properties such as remedial work and its impact. This can take the form of a discount to reflect the property is less than 100%, but also may mean that purchasers will walk away. A LIM report showing previous difficulties with Council inspections would make this apparent to a prospective purchaser.

[65] The reality is that the Judge was left in the position that he had no direct evidence before him as to the actual effect of the proven breaches on the property’s value, and no basis for assessing what actually caused any stigma effect - the breaches by Mr Brown or the actions taken by Mr Adkin, particularly the unlawful cancellation, which escalated matters considerably and made it impossible for Mr Brown to complete the works and fix up the defects to the best possible standard to avoid later stigma effect. To be fair to all involved, the passage of time since the breaches occurred probably meant that it was not possible to have meaningful evidence on the point, and all parties would have justifiably been concerned about the cost of additional valuation evidence, given the small amounts involved.

[66] I accept Mr Bryers’ contention that the fact the valuer’s report before the Judge was based on Mr Lapish’s report does not necessarily justify its outright rejection, but possibly some adjustment to the amount involved. I note that the stigma effect is something based partly on the visible presence of remedial work and partly on Council records showing difficulties, for which remedial work was required. While rebuilding the block wall may have removed some of the stigma effect it is not clear from the evidence whether that would have been significant enough to remove altogether the stigma effect as described by Mr Clark. It is equally unclear whether the stigma effect from the record of difficulties on the Council file can fairly be said to arise from the breaches by Mr Brown, or the breach by the Adkins, or a combination of both.

[67] Even if that difficulty is resolved, there is an issue as to what allowance would need to be made for the fact that not all the defects identified in Mr Lapish’s report were accepted by the referees and some of those accepted were assessed at a lower value. The schedule provided by Mr Bryers shows a significant disparity between the total amount claimed by Mr Adkin and the total amount awarded by the referees - a factor of about one-fifth. This is obviously a major difference. I accept that the stigma effect is not directly referable to the extent of the defects and the cost of remedying them. However, it is clear that Mr Clark assessed the stigma value on the basis that there were serious defects as outlined by Mr Lapish and this must have affected his assessment.

[68] Mr Bryers has asked that I make an appropriate adjustment - I do not do so because I do not consider there is sufficient evidential basis for doing so, or that the Judge would be better placed than I am, given the evidence he had before him, to do so.

[69] On balance, I do not believe there is sufficient clarity in the evidence as to the existence of stigma value based on actual defects, or as to the cause of any such stigma effect, for me to find that the claim is proven. I therefore decline this point on appeal.

[70] I accept the submission made by Mr Bryers that the subsequent sale of the property in 1992 to Mrs Adkin would have not affected the assessment of damages at the time of the breach some 11 years before. In particular, I note that in Samson & Samson v Proctor [1975] 1 NZLR 655, McArthur J said that the fact the defendant had sold the property advantageously was irrelevant to the dispute between the plaintiff and the defendant, and did not affect the defendant’s right to claim damages on the basis outlined in that case. Mr Bryers also referred me to Director of War Service Homes v Harris [1968] QdR 275 at 278 where Gibbs J, delivering the decision of the Full Court made a similar finding. Both of those cases related to claims for completion costs, rather than loss of value, but I accept that the principle is the same. I also accept that the evidence before the Judge did not justify his findings that the events in the Family Court in 1992 illustrated that Mr Adkin was “having it both ways”.

[71] Mr Lawn submitted that any claim for loss of value would need to be reduced by half in any event to reflect that settlement with Mrs Adkin occurred in 1992. As he put it:

[Mr Adkin] could only claim half of it in any event, because that was the limit of his interest in the damages as at the date of the hearing in the District Court, ie the other half was settled by [Mr Brown] with Mrs Adkin in 1992.

[72] Although my previous finding makes this issue moot in the present context it has some importance later in this judgment so I deal with it in some depth.

[73] Mr Bryers argued that in determining rights and obligations between Mr Adkin and Mr Brown, the position of Mrs Adkin should be completely ignored. The claim was initially made by Mr and Mrs Adkin on a joint and several basis. Mrs Adkin paid $7,500 at the time of the Family Court decision relating to the distribution of the Adkins’ matrimonial property and that payment was a full settlement of any obligations she owed to Mr Brown. However, that left Mr Adkin liable for any amount above and beyond that figure, which was owing to Mr Brown, and also left him entitled to exercise on an individual basis any of the rights which he and Mrs Adkin had previously had jointly and severally.

[74] The circumstances of the 1992 agreement need some elaboration. In the course of determining the matrimonial property distribution, Judge B W Kendall considered in some detail the respective interests of Mr and Mrs Adkin in the matrimonial property (including the house built by Mr Brown), and the status of the litigation, particularly the fact that Mr Brown still had a lien on the property. Mrs Adkin made it clear to Judge Kendall that she did not want to have anything more to do with the proceedings, which the Judge described as “a crusade on the part of Mr Adkin”. It appears that Mr Adkin’s determination to pursue the matter and Mrs Adkin’s wish to have it ended was one of the causes, if not the major cause, of their marriage breakdown.

[75] In order to achieve a solution allowing Mrs Adkin to discontinue any involvement in the litigation, the Judge ruled that a sum of $15,000 would be paid into the trust account of the then solicitors for Mr Brown, and that Mr Brown would be asked to discharge the lien on the basis that he received $7,500 of that $15,000 immediately and agreed that that satisfied any claim he had against Mrs Adkin. Where this left Mr Adkin was not entirely clear. The way it was put by Judge Kendall was “Mr Adkin is then free to continue with that litigation with Mr Brown on whatever basis he so wishes, and the sum of $7,500 is to be retained until that litigation is concluded”.

[76] In April 1999 Judge Hubble directed that $6,000 of the funds held in the trust account be paid to the referees to enable them to carry out their second report, which meant that at the time of the District Court hearing, there was a balance of approximately $4,250, representing the original $15,000 plus accrued interest, less the payment of $7,500 to Mr Brown on behalf of Mrs Adkin, and the $6,000 paid to the referees.

[77] In the District Court, counsel for Mr Adkin argued that the nature of the settlement was that it paid half of Mr Brown’s claim inclusive of interest, as at the date of receipt of Mrs Adkin’s $7,500. The Judge rejected that, but accepted the submission from counsel for Mr Brown that Mr and Mrs Adkin had been jointly and severally liable to Mr Brown, and the payment made by Mrs Adkin should be treated as a payment on account of the total amount owing by them to Mr Brown, leaving the plaintiff’s claim against the defendant solely.

[78] Nothing in the evidence before me or in the arguments made to me led me to differ from the conclusion of the District Court Judge on this point. The logical extension of that fielding is that any award made in favour of Mr Adkin would have to be treated as payable in its entirety to him, since his assumption of the full liability of himself and Mrs Adkin must be matched by a right to receive in full any amount awarded to himself and Mrs Adkin.

Interest at 14% per annum

[79] The next point on appeal was Mr Adkin’s contention that the Judge had been wrong to award interest at 14% pa. In view of his finding that Mr and Mrs Adkin were not entitled to cancel the contract, the Judge found that the contract continued to apply and the interest rate specified in clause 18 of the contract should therefore determine the issue. As I have also found that Mr and Mrs Adkin were not entitled to cancel the contract, that is also the starting point for my analysis.

[80] Mr Bryers argued that the matter should be determined by reference to s 8(3) of the Contractual Remedies Act and/or s 62B of the District Courts Act 1947. In view of my finding in relation to cancellation, neither of these provisions applies. Section 8(3) deals with the consequences of cancellation, and s 62B does not apply in relation to any debt upon which interest is payable as of right, by virtue of all agreement.

[81] The only remaining issue is whether my earlier finding about the failure to plead clause 18 affects the position. I find that it does not. As Mr Lawn correctly pointed out to me, the statement of claim explicitly claims interest at the rate of 14% pa.

[82] Accordingly I uphold the Judge’s decision as to the payment of interest.

[83] Mr Bryers raised the possibility that if I were to find that Mr Adkin was entitled to only half the damages for loss of value, then I should also find he was liable for interest only on the amount now payable, ie that the $7,500 paid by Mrs Adkin should be treated as a payment of half the amount claimed, including interest up to the time that payment was made. This point had not been raised in the points on appeal and in view of my finding that Mr Adkin would have been entitled to the full amount of the damages for loss of value, the basis of the argument disappears. I therefore uphold the Judge’s finding in relation to the rate of interest and the method by which it should be calculated.

Cost of completing the house

[84] The next point on appeal related to Mr Adkin’s claim for $2,689.99 for work done to complete the house. In the District Court this claim was rejected for two reasons. Firstly, there was no entitlement to cancel the contract. Accordingly clause 18 remained in force and since this provided that Mr and Mrs Adkin were deemed to have approved the completion of the works and been satisfied with them, there was no basis for the claim. Secondly, there were difficulties with the evidence supporting the claim. The Judge said many invoices had been provided but few receipts, therefore the Court could not be satisfied on the balance of probabilities what items were purchased for what job and what were used to complete a particular job.

[85] Mr Bryers argued that this was wrong because there was an entitlement to cancel. I have already rejected that argument. Alternatively he argued that if a breach by Mr Brown of his contractual obligations caused his failure to furnish the building works, then Mr Brown was obliged to give credit for the work he was relieved from having to carry out to complete the house. I accept that that argument is correct, based on Samson & Samson v Proctor and McGregor on Damages, 16th ed, para 1154. This issue therefore is whether it was Mr Adkin’s purported cancellation, in breach of the contract, which caused the non-completion, or Mr Brown’s breaches as established in the referees’ report and in the District Court.

[86] Mr Lawn argued that it was the purported cancellation and “lock-out” which prevented Mr Brown from completing the works, and it was unfair that he be required to give any credit in that situation, even without resort to clause 18. I find that Mr and Mrs Adkin took possession and prevented Mr Brown from completing the works. It was their breach of contract, rather than his, which caused him not to complete. In those circumstances, I find that this case differs from Samson & Samson, because in that case it was the builder’s breach which led to non-completion.

[87] The Judge also rejected the claim because he found it had not been proved on the balance of probabilities. However, he had before him evidence from Mr Adkin asserting that considerable work was required to complete the building and setting out the amounts of expenditure involved with invoices attached where they existed. No issue was taken with that evidence, either in cross-examination or in the evidence put forward to the Court by Mr Brown, and on that basis it cannot be said that the claim was not proved on the balance of probabilities.

[88] However, I find that Mr Adkin has failed to establish that non-completion occurred as a result of any breach of the contract by Mr Brown, and that this claim therefore fails.

Claim for incorrectly stapled ceiling tiles.

[89] The next point on appeal was the contention made on behalf of Mr Adkin that the Judge was wrong to award only half of the amount of his claim for $2,152.84 for incorrectly stapled ceiling tiles. This was one of the matters which had been determined by the referees who had decided that, while incorrect staples were used, this did not necessitate replacement of the ceiling. The referees had noted that the ceiling tiles were replaced because some were damaged, but that this had not been pleaded. The Judge found that referees were correct in relation to the pleadings.

[90] However, the Judge accepted the submission made to him on behalf of Mr Adkin, that Mr Adkin may have thought he would be given the opportunity of submitting oral evidence to the referees after filing his written statement. He found that Mr Adkin was misled, not through the fault of the referees, but rather his own misinterpretation of the position. However, he considered that, on the allegation of the refusal of the referees to permit him to give oral evidence and to accept evidence from Mr Adkin’s two experts, the Court should have regard not only to the reasons that the evidence was not forthcoming, but also the overall interests of justice.

[91] In relation to the ceiling tiles the Judge found that if Mr Taylor, one of Mr Adkin’s experts, had given oral evidence to the referees, he may have been able to clarify certain matters relating to the need for replacing the tiles, and this may have led the referees to allow at least part of Mr Adkin’s claim for replacing the tiles. The Judge said that in considering the overall justice of the position, replacement of the tiles was occasioned at least partly because of the use of incorrect staples, but also because of the damaged tiles which were used, and allowed 50% of Mr Adkin’s claim, ie $1,076.40.

[92] Mr Bryers argued that the Judge was wrong to consider what the referees may or may not have found, had the relevant evidence been put to them and understood by them. Rather, the Judge should have turned his mind to the issue of whether the amount of the claim was reasonable, and had he done so, the claim would have been allowed in full.

[93] The Judge’s award in this regard forms part of the amount which is the subject of the cross-appeal on behalf of Mr Brown. If had allowed the cross-appeal then this point would have been dealt with in Mr Brown’s favour and no award given.

[94] In the course of arguing the cross-appeal, Mr Lawn made another point which had not been raised as a point on appeal, that the Judge was wrong in entertaining any deduction in addition to those which had been accepted by the referees. That argument was that the pre-trial direction of 6 March 2000 had expressly directed that the Court would not permit either party to adduce evidence challenging the findings of the referees. I have already referred to the reliance which Mr Bryers placed on those directions in the course of his argument in support of the contention that matters which had not previously been pleaded should not be allowed to be argued. I accepted Mr Bryers’ submission in that context and rejected the cross appeal, and I accept Mr Lawn’s submission that the same strict approach should have been applied in relation to the referees’ report.

[95] Mr Lawn did not advance this as one of his points on appeal, so I was not required to consider whether the point supported a submission that the claim in relation to the ceiling tiles should be disallowed altogether. However, I record my view that the Judge’s decision to accept evidence challenging the referees’ findings and to amend those findings in some respects was inconsistent with the direction in those circumstances. It is not appropriate for me to undertake any further examination of the Judge’s decision in that regard and I would not be prepared to accept any increase in the amount which the Judge awarded. The submissions made by Mr Bryers are not accepted and I decline this aspect of the appeal.

Claim for rental paid as a result of late completion

[96] Mr Adkin’s next point on appeal was that the Judge was wrong not to allow his claim of $900 for rental paid as a result of late completion. The Judge’s first basis for rejection was that there was no entitlement to cancel, and I have already found that on the issue of cancellation his finding was correct. However, that is not necessarily fatal to the claim for rental costs.

[97] The second basis of rejection was the indication that the cause of delay was not only default on Mr Brown’s part - the Judge referred to the fact that the Adkins had withheld a progress payment at one stage which led to Mr Brown reducing his efforts in getting the job done. He also said the Adkins’ purported cancellation had created additional delays, for which Mr Brown could not be held responsible. He concluded by saying that the claim failed because the evidential basis for it had not been made out.

[98] In this Court, Mr Bryers argued that the evidence showed that completion was due by Christmas 1980 and that by the date of the purported cancellation, 23 March 1981, the house was still not complete. Mr Adkin was unable to take possession until 20 June 1981. I accept that the evidence shows there was some form of commitment on the part of Mr Brown to complete the project by Christmas 1980, and indeed Mr Brown did not deny this. The claim is for rental from the beginning of March 1981 (by which stage two months had passed since Christmas 1980) until Mr Adkin moved into the house on 20 June 1981. Mr Adkin’s evidence (para 54), refers to the need to continue renting a property for seven months longer than agreed - he then estimated this resulted in a further $900 in rent.

[99] It is difficult to see how this seven month period fits into the chronology of events. The tenancy agreement for the rented property shows that the rental was $120 per fortnight and the rent payment records show payments being made up to 15 May 1981, rather than to 20 June 1981 as indicated in the submissions on behalf of Mr Adkin. From the beginning of March until 15 May 1981, the rental actually paid was $600, rather than $900. In the cross-examination of Mr Adkin in the District Court, he conceded that the rental paid after the date of the purported cancellation was $480, rather than $900.

[100] I have already found that a cancellation based on delay would have required notice to be given to the builder, which was not done in this case, but I do not think that finding can be extended to saying that no basis exists for a claim for damages for late completion, given the concession by Mr Brown in his evidence in the District Court that there was at least a verbal understanding that the property would be completed by Christmas and a further assurance given in writing, received by Mr Adkin on 23 January 1981, that Mr Brown was only 10 working days from finishing the project.

[101] The Judge was correct in saying that the Adkins had delayed in paying a progress payment due on 28 January 1981, but the payment was made on 2 February 1981, so it is difficult to say that this is a significant contributor to delay. However, the breakdown in the relationship between Mr Brown and Mr Adkin at that time probably meant that the non-payment assumed a greater importance than it otherwise may have done. The purported cancellation may well have delayed completion, but by the time it occurred at the end of March, three months had elapsed since the target completion date of Christmas 1980. Given the amount of work still needing to be done to remedy the defects (as subsequently found by the referees) and effect completion, it is clear that even without the cancellation, it would have been some time before completion could have been effected by Mr Brown.

[102] The stance taken by Mr Adkin appeared to have been the cause of some frustration, and it is correct he and Mrs Adkin did not pay the progress payment due on 28 January 1981 until 2 February, but given the findings of the referees that there were a number of defects in Mr Brown’s workmanship and that the building was not finished until well after the Christmas deadline agreed to by Mr Brown, I consider the Judge was in error in finding that the evidential basis of the claim was not made out. However, it is clear the claim for rental does not relate to the period from early March until 20 June, as indicated in submissions made to me, because it was paid only up to 15 May 1981.

[103] I consider the appropriate approach is to allow part of the rental claim, recognising that the Christmas deadline, although acknowledged by Mr Brown in cross-examination, was not a term of the contract, that there was no evidence that Mr and Mrs Adkin gave any form of notice requiring completion at Christmas, that when the Adkins expressed concerns about delay, Mr Brown gave a written assurance of completion by the end of January, and that the purported cancellation by the Adkins was a complete bar to completion of the project by Mr Brown. I find that Mr Adkin is entitled to reimbursement of rental from the end of January until the date of the cancellation, a period of approximately seven weeks, which on the basis of a weekly rental of $60 amounts to $420.

Consulting engineer’s fees

[104] The next point on appeal related to the engineer’s fees incurred by Mr Adkin for the work undertaken on his behalf by Mr Lapish. These amounted to $6,999. Mr Bryers said this claim was pursued in the District Court but was not dealt with in the judgment. This is perhaps surprising because the Judge showed in his addendum of 21 November 2000 that he was prepared to deal with another matter that was overlooked when it was drawn to his attention.

[105] Mr Bryers argued that the claim should be split into two parts, namely the $2,263 referred to in paragraph 24 of the Third Statement of Defence, which relates to accounts rendered by Mr Lapish’s firm (between 22 May 1981 and 22 January 1988), with the remaining $4,736 relating to work undertaken in presenting the case to the referees and the Court.

[106] Mr Bryers submitted that the claim for $2,263 is a legitimate part of the appellant’s claim for damages because the cost of engaging Mr Lapish was caused by the breach of contract by Mr Brown. That claim would be much stronger if I had found that cancellation of the contract was justified, but I did not. It is difficult to substantiate the amounts charged by Mr Lapish for work undertaken after the improper cancellation of the contract. That work involved supervision undertaken by other contractors to remedy defects and complete the building, which Mr Brown may well have undertaken himself if he had been given the opportunity to do so by an appropriate notice requiring performance of the contract. Well over half of the fees claimed in this category were payable in 1986-88, some four years after the purported cancellation of the contract.

[107] In view of my finding on cancellation I do not believe that Mr Adkin has established that the fees payable to Mr Lapish can be correctly characterised as damages occasioned by Mr Brown’s breach of contract. I therefore do not accept this claim.

[108] The remaining $4,736 is in the nature of expert fees relating to the Court proceedings which falls within the next category of items in dispute, namely costs which I will deal with in that context.

Costs and disbursements award

[109] The final ground of appeal raised on behalf of Mr Adkin was the award by the Judge of $15,750 costs and $3,500 disbursements. The Judge dealt with this in his judgment of 27 November 2000. He recorded that Mr Brown claimed full solicitor costs, totalling $21,208.94 and that the defendant’s solicitor-client costs were about $92,893.26. The plaintiff claimed the full amount of his solicitor costs. The defendant submitted that costs should lie where they fall.

[110] The Judge considered the three approaches outlined in Holden v Architectural Finishes Ltd [1997] 3 NZLR 143, namely:

[a] discounting downwards from actual costs;

[b] working upwards from scale;

[c] considering awards in comparable cases.

[111] The Judge found there were no comparable cases, and of the other two approaches, that of discounting downwards from actual costs was preferable. I can see no reason to criticise his decision in that respect. The Judge found that the plaintiff was always going to succeed for the outstanding amount of the contract price, and that the issue was whether the various claims of set-off and counterclaim would succeed. He found that, since the set-offs in which the defendant succeeded totalled $5,739.14, he would consider costs on the basis that the plaintiff had succeeded with the majority of its claim and that the defendant’s counterclaims failed totally. He then considered all of the relevant factors, including:

[a] the time the case took;

[b] the amount of the claim and the fact that the counterclaim was significantly greater;

[c] that the amounts involved in the counterclaim were in many cases minimal, and the defendant went to unjustifiable lengths to pursue them;

[d] the factual issues were complex which meant the time involved in preparation was significant;

[e] the defendant’s key submission (that he was entitled to cancel the contract) failed;

[f] the obduracy of Mr Adkin had been the main reason for a failure to settle, although this was said to be a matter to which the Court would have little regard;

[g] Mr Brown simply wanted what was owed to him, while Mr Adkin insisted on persisting trivial claims to unrealistic extents.

[112] In view of all those factors, the Judge awarded costs of $15,750 in favour of Mr Brown.

[113] Mr Bryers argued that the Judge was incorrect in saying Mr Brown had largely succeeded, given that he had claimed in his letter of 4 February 2000 the sum of $59,292.64 and was successful as to $26,656.75. However, when reference is made to the actual letter of 4 February 2000 it is clear that the figure of $59,292.64 includes legal and engineering costs, and referees’ costs amounting to $22,923.85. Thus the appropriate basis for comparison between what was claimed and what was awarded is the amount claimed net of the legal, engineering and referees’ costs ($36,368.79) as against the amount allowed ($26,657.75). A substantial part of the difference between those two figures is attributable to the fact that, in his claim, Mr Brown calculated interest on the full amount claimed of $14,229.31, before deducting the allowance to reflect the referees’ findings of $3,473, whereas the correct approach was to deduct the $3,473 first and calculate interest on that basis. That was something that could easily have been corrected.

[114] It seems to me a better way of assessing the success or otherwise of Mr Brown’s claim is to take the amount he claimed without any interest or costs, which was $14,229.31, less $3,473 to reflect the referees’ first report and $27 to reflect their second report, leaving a total of $10,729.31, which compares with the award of $8,490.17. Mr Brown’s claim for interest at 14% pa was also accepted, albeit with a different method of calculation. In the circumstances I do not believe the criticism made by Mr Bryers of the Judge’s approach was sustainable.

[115] Mr Bryers’ next argument was that the substantive issue before the Court was the extent to which Mr Adkin’s counterclaim or set-off should succeed and on that issue Mr Adkin was at least partially successful. Again, it is clear from Mr Brown’s letter of 4 February 2000 that he accepted the counterclaims to the extent outlined in the reports of the referees, ie to a total of $3,500. The extent to which Mr Adkin was successful beyond that point was, given the lengths to which he went, relatively small.

[116] Mr Bryers then said the Judge was wrong to have considered the costs on the basis that Mr Adkin pursued trivial claims to an unrealistic extent; or to have found that he failed in this claim, or that his counterclaim failed totally. I have already dealt with this to some extent, but I also note that the schedule attached to the submissions provided to me show that the amount claimed in front of the referees was $18,574.85 and the amount awarded $3,446.44 (this does not quite match up to the figure of $3,473 contained in the referees’ reports which appear to total $3,500, but the overall point is the same - the claims succeeded to a very limited extent). While I accept that it cannot be said that the counterclaims failed totally, it can be said that they failed to a significant extent.

[117] Mr Lawn argued that the Judge had been correct in his characterisation and that it was appropriate to take into account the fact that the lengths to which Mr Adkin went to pursue his claim was disproportionate to the amount of the claim. He argued that the discretion was correctly exercised.

[118] I am reluctant to interfere with the Judge’s discretion in relation to costs. The only basis on which I think there are grounds to do this is his decision to treat Mr Adkin’s counterclaims as having failed totally, although this appears to be in the context of treating the counterclaims as set-offs against Mr Brown’s claim, which explains his reference to Mr Brown having succeeded “with the majority of his claim”. In view of the Judge’s findings it would have been more appropriate to have acknowledged that the counterclaims had succeeded to a small degree and if this had been done an award of approximately two-thirds of the actual solicitor costs ($14,100) would have been appropriate. I rule accordingly.

[119] Mr Bryers also argued that the Judge’s decision to require payment by Mr Adkin to Mr Brown of $3,500 in respect of the referee’s costs was unfair, because it meant that Mr Adkin had to bear $17,000 out of the total cost of $21,000, whereas Mr Brown had to bear only $4000. In view of the findings of the referees in their second report I do not think there is any basis for disturbing that exercise of the Judge’s discretion, and I decline to do so.

[120] As mentioned earlier, Mr Bryers also claimed that Mr Brown should have been required to contribute to the $4,736 of fees payable by Mr Adkin to Mr Lapish in relation to their case presented to the referees and the Court case. I can see no basis for that claim. Essentially it is an addition to the figure of $92,893.26 (being the costs incurred by Mr Adkin) to which the Judge referred in his judgment, and if the $4,736 had been added to that figure, I do not believe the Judge’s discretion would have been exercised any differently, nor do I see any grounds for me to interfere with the exercise of the Judge’s discretion. I therefore decline this aspect of the appeal as well.

Costs on appeal

[121] That leaves the question of costs in relation to this appeal. Mr Adkin has failed in most aspects of his appeal, and Mr Brown has failed in his cross appeal. The legal issues were complex and I believe that justice is best served if costs on this appeal lie where they fall. I rule accordingly.

Conclusion

[122] I therefore allow the appeal only to the extent of a claim for rental of $420. This requires some recalculation of the judgment amount in the District Court. The starting point in that Court was the balance owing to Mr Brown by Mr Adkin of $8490.17. That now reduces to $8070.17. Following the methodology in paragraph 9 of the 27 November 2000 judgment, the calculation of the judgment amount is as follows:

Balance owing to Mr Brown $8,070.17

Interest at 14%pa to 10 June 1992 (11 years 79 days) 12,672.60

Total 20,742.77

Less payment by Mrs Adkin 7,500.00

Balance at 10 June 1992 13,242.77

Interest on $8,070.17 at 14%pa from 10 June 1992 to 27 November 2000 (8 years 170 days) 9.564.81

Total $22, 807.58

[123] Accordingly the judgment of the District Court is vacated and there will be judgment for Mr Brown against Mr Adkin in the sum of $22,807.58 (including interest). The award of costs in the District Court is also vacated, and costs are awarded in favour of Mr Brown against Mr Adkin in the sum of $14,100 together with disbursements of $3,500.

[124] Finally, I express my thanks to counsel. This was a case involving difficult issues and relating to events which occurred a very long time ago. The case for each party was strongly but fairly argued, and I appreciated the assistance which counsel provided to me.