Bhargav v First Trust Limited
[2024] NZHC 1054
•2 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1260
[2024] NZHC 1054
BETWEEN AMEET BHARGAV AND RENU KHAJURIA
Plaintiffs
AND
FIRST TRUST LIMITED
First Defendant
DAVINDER SINGH RAHAL
Second Defendant(continued next page)
Hearing: 9, 10, 13–17 November 2023
Memorandum dated 18 April 2024 as to removal of First Trust Ltd from Companies Register
Counsel:
S Wroe and G Grant for Plaintiffs
G P Blanchard KC and A Grant for First and Second Defendants
Judgment:
2 May 2024
JUDGMENT OF HINTON J
[redacted version]
This judgment was delivered by me on 2 May 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Grant & Co, Auckland
BHARGAV v FIRST TRUST LTD [2024] NZHC 1054 [2 May 2024]
METSONS (NZ) LIMITED (Discontinued) Third Defendant
VINAY MEHTA (Discontinued) Fourth Defendant
LOCAL REALTY LIMITED (Discontinued) Fifth Defendant
GURBIR SINGH BAL (Discontinued) Sixth Defendant
VIVEK PUNJ (Discontinued) First Third Party
HOVERD & CO LIMITED (Discontinued) Second Third Party
SAMAR CONSTRUCTION LIMITED
(Discontinued)Third Third Party
MANPRIT SINGH (Discontinued) Fourth Third Party
[1] In May 2020 Ameet Bhargav and Renu Khajuria purchased a property at 1/5 Ribbonwood Crescent, Goodwood Heights, Auckland (the property). The property transpired to be a leaky home.
[2] First Trust Ltd (FTL), the first defendant, sold the property to the plaintiffs. At all material times Mr Rahal, the second defendant, was director and shareholder of FTL, along with his wife.
[3] The plaintiffs brought claims against the first defendant for breach of contractual warranty (that any work on the property requiring building consent had received the required consent) and against the first and second defendants for misleading or deceptive conduct under s 9 of the Fair Trading Act 1986 (FTA). There were also claims against the other defendants and various third-party actions described below, which were all discontinued prior to the fixture in November 2023.
[4] This judgment was to issue in mid-April 2024, but FTL had been removed from the Companies Register for non-filing of an annual return. I made an order for reinstatement on 30 April 2024 under CIV-2024-404-963 and the company was restored to the Register on 1 May 2024.
Procedural history
[5] On 11 August 2021 the plaintiffs served their statement of claim on six defendants:
(a)FTL;
(b)Mr Rahal;
(c)Metsons (NZ) Ltd (Metsons) (a building inspection company that provided a pre-purchase inspection report on the property);
(d)Mr Vinay Mehta (a building inspector and director-shareholder of Metsons);
(e)Local Realty Ltd (a real estate agency who acted on the sale to the plaintiffs); and
(f)Mr Gurbir Bal (director-shareholder of Local Realty Ltd and the agent involved in the sale).
[6] On 16 September 2021 the fifth and sixth defendants filed a statement of defence in accordance with the High Court Rules 2016. The fourth defendant acknowledged service via text message but did not file a statement of defence, nor did the first to third defendants. They took no steps thereafter.
[7] On 7 October 2021 the plaintiffs and fifth and sixth defendants filed a joint memorandum agreeing that the matter could be listed for trial. A four-day trial for the claims between those parties was set down to commence on 27 February 2023.1
[8] On 20 July 2022, I gave judgment by way of formal proof (the formal proof judgment) against the first to fourth defendants, specifically for:2
(a)breach of contractual warranty by FTL; and
(b)misleading conduct under s 9 of the FTA by FTL, Mr Rahal, Metsons and Mr Mehta.
[9]These defendants were held liable on a joint and several basis for damages of
$861,113, being the estimated cost of repairs of $749,080, consequential losses of
$82,033 and general damages of $30,000.3
[10] Over two months later, on 10 October 2022, the first to fourth defendants applied to set aside the formal proof judgment, in the case of the second defendant on the basis that he had been unwell. Affidavit evidence was filed as to the respective defences. The application to set aside was heard by Tahana J on 7 December 2022 and
1 Bhargav v First Trust Ltd HC Auckland CIV-2021-404-1260, 13 October 2021 (minute of Associate Judge Bell).
2 Bhargav v First Trust Ltd [2022] NZHC 1710.
3 At [93].
granted in material part on 10 February 2023.4 The determination as to FTL’s breach of contractual warranty remained but the finding as to damages consequent on that breach and the findings as to both liability and quantum in relation to the FTA claim were set aside.5 The 27 February 2023 trial of the claims against the fifth and sixth defendants was necessarily vacated.6 Costs were subsequently awarded in favour of the plaintiffs.7
[11]On 24 February 2023 FTL and Mr Rahal filed their statements of defence.
[12] On 10 March 2023, FTL served four notices of third-party claims on Mr Vivek Punj and Hoverd & Co Ltd (the Hoverd parties) and Samar Construction Ltd and Mr Manprit Singh (the Samar parties). Hoverd & Co Ltd was the holder of the Harcourts franchise that acted as the vendor’s agent when FTL purchased the property. Mr Punj is a real estate agent who acted on behalf of the Harcourts branch. FTL claimed that Mr Punj knew and failed to tell FTL that the building was leaky. Samar Construction Ltd was engaged to carry out renovations on the property on behalf of FTL prior to the sale of the property to the plaintiffs and Mr Singh is its director and shareholder. FTL alleged that the Samar parties failed to carry out building work on the property to a reasonable standard and in compliance with the Building Code.
[13] The plaintiffs applied to set aside the notices on the grounds that FTL required leave to issue them and that even if FTL could file the notices as of right, justice required they be set aside. By judgment dated 16 May 2023, I found, in favour of the plaintiffs, that leave was required, but granted leave and dismissed the plaintiffs’ application to set aside the notices.8 Costs were awarded in favour of the plaintiffs on the basis that this was another indulgence for the defendants.9
4 Bhargav v First Trust Ltd [2023] NZHC 174.
5 At [71].
6 Bhargav v First Trust Ltd HC Auckland CIV-2021-404-1260, 15 February 2023 (minute of Lang J).
7 Bhargav v First Trust Ltd [2023] NZHC 1086.
8 Bhargav v First Trust Ltd [2023] NZHC 1150, (2023) 26 PRNZ 281.
9 At [33].
[14] On 29 September 2023, FTL and Mr Rahal discontinued their claims against the Hoverd parties.
[15] On 6 October 2023, claims and cross-claims between Metsons, Mr Mehta, Local Realty Ltd and Mr Bal were discontinued and on 9 October the plaintiffs also discontinued their claim against Metsons and Mr Mehta. As part of the settlement the plaintiffs were to be paid [redacted] by Metsons and Mr Mehta.
[16] On 27 October 2023, Mr Rahal’s solicitors made two settlement offers to the plaintiffs on behalf of the first, second, fifth and sixth defendants and the Samar parties. These involved a cash settlement of $430,000 (inclusive of all amounts the parties had already agreed to pay) or alternatively that Mr Rahal’s interests would buy back the property for $910,000 and the parties would pay an additional $180,000 (again all in). The buyback was on the basis of a deposit of $100,000 and settlement within six months. Both offers were subject to entry into a formal deed. The offers were rejected by the plaintiffs.
[17] On 31 October 2023, Ms Grant advised that the plaintiffs had settled their claims against Local Realty Ltd and Mr Bal and the claims were discontinued on 21 November 2023 following payment of the agreed settlement sum [redacted]. On 3 November 2023, Mr Blanchard KC, counsel for the first and second defendants, advised that the claims and cross-claims between FTL, Mr Rahal, Metsons and Mr Mehta were discontinued. At that point, Metsons and Mr Mehta were no longer parties to the proceeding.
[18] On 4 November 2023, Mr Collecutt, counsel for the Samar parties, advised that FTL and Mr Rahal had discontinued their claims against the Samar parties.
[19] The only claims remaining for trial were therefore the plaintiffs’ claims against FTL and Mr Rahal.
[20] A two-week trial was scheduled to commence on Monday, 6 November 2023. On Sunday, 5 November, FTL and Mr Rahal filed an application and submissions in
support seeking an adjournment of the trial “until such time as Mr Rahal [was] in a position to attend court”, Mr Rahal having been admitted to hospital two days before.
[21] With the agreement of counsel for the plaintiffs, I postponed the commencement of the trial to Wednesday 8 November,10 and directed that if the defendants were to seek a further adjournment on the basis of Mr Rahal’s health, that would require clear affidavit evidence from the medical officer in charge.
[22] On 7 November 2023, a telephone conference took place with the parties. Mr Blanchard advised that he and his co-counsel had instructions only to seek an adjournment. If an adjournment were refused they would need to seek leave to withdraw.11
[23] The following day Mr Blanchard resumed Mr Rahal’s application for an adjournment of the trial in full. I declined that application and determined that the trial would commence on 9 November 2023, i.e., giving one further day’s grace.12 Although Mr Rahal was unwell in hospital, his doctor anticipated that he would be fit to resume work and any other commitments from Thursday, 16 November 2023. The trial was set down until 17 November and was not anticipated to be factually complex nor involve extensive cross-examination. Counsel for the defendants acknowledged they were entirely ready to proceed with the hearing. The available information satisfied me that Mr Rahal was capable of understanding the issues and was able to provide instructions on those matters that might arise. Counsel did not suggest otherwise. Further, Mr Rahal could, if necessary, give evidence after the trial. I advised that if Mr Blanchard still wished to advance his application for leave to withdraw, he should do so at the commencement of the trial.13
[24] The trial commenced at 10 am on Thursday 9 November 2023. Mr Blanchard advised beforehand that he and Mr Grant retained instructions.
[25]The following witnesses gave evidence:
10 Minute dated 6 November 2023 (application to adjourn trial).
11 Minute dated 7 November 2023 (Re: application to adjourn trial and directions).
12 Minute dated 8 November 2023 (Re: application to adjourn trial and directions).
13 At [20].
(a)the plaintiffs;
(b)Pamela Bell (a former neighbour who attended an open home in the period leading up to FTL purchasing the property);
(c)Mr Punj (the real estate agent acting for the previous owners of the property on the sale to FTL);
(d)John-Paul Biggelaar (building surveyor instructed by the plaintiffs);
(e)Michael Sprague (registered valuer instructed by the plaintiffs);
(f)James White (quantity surveyor instructed by the plaintiffs);
(g)Mr Rahal;
(h)Graeme Blissett (building inspector instructed by the defendants);
(i)Peter Bates (registered valuer instructed by the defendants);
(j)David Weir (quantity surveyor instructed by the defendants); and
(k)Ranjay Sikka (an associate of Mr Rahal’s who was involved with the property).
[26] Mr Rahal gave evidence on Wednesday 15 November. He did so via audio visual link from a motel near to Middlemore Hospital as the hospital was unable to provide Mr Rahal with his own room. Mr Grant travelled with Mr Rahal to the motel and was present while Mr Rahal gave evidence. I was satisfied that Mr Rahal was capable of giving evidence. He was lucid and particularly alert to questions of significance to his case.
Background
[27] As noted, when FTL purchased the property in April 2019, the agent acting on the sale was Mr Punj of Harcourts. It is undisputed that the property was at that time, and remains, a leaky home.
[28] Mr Punj was relatively new to real estate when he listed the property. He said he was concerned about how to deal with the “obvious signs of leak and damage in the ceiling of the downstairs room”. He and the vendors agreed to keep the ceiling of the downstairs bedroom open so that the leaking and damage were obvious to buyers. A portion of the gib on the bedroom wall above a ranch slider was also removed to expose water damage to the timber. A damp smell was noticeable in the downstairs room.
[29] Mr Punj did not advertise the property as suffering from weathertightness issues as such. In evidence, he said that real estate agents avoid marketing a home as leaky if they do not know if it is a quick fix or a systemic problem. The property was marketed as a “do up”, but he says he made it clear to people seeking to arrange a viewing that the property had weathertightness issues, both by leaving exposed timber and by statements to those coming to view.
[30] Mrs Bell, an elderly neighbour who attended an open home prior to the sale to FTL, said:
I just went to have a look at it and it was a leaky house,
…
Anybody with enough brains can see what a piece of wood is leaking, and that’s what I saw when I originally saw it …
I saw the original place [before FTL’s renovations], and it was leaking. You could see the water on the God damn framing.
[31]Mrs Bell also said that Mr Punj told her that the property was a leaky home.
[32] In mid-April 2019, Mr Rahal’s son, Moheet, arranged a viewing of the property with Mr Punj. Moheet told Mr Punj he was looking to buy it for a first home. Mr Punj
says that he told Moheet the property was not appropriate for first home buyers because of weathertightness issues.
[33] Later that day Mr Rahal and Moheet viewed the property with Mr Punj. Mr Punj says he told Moheet and Mr Rahal about the property’s weathertightness issues. He says that Mr Rahal climbed up a ladder and examined the open ceiling where water damage was clearly visible but Mr Rahal said that was not a problem as he would fix it and he had done that many times before.
[34] Mr Rahal denies that he saw any indication of weathertightness issues throughout the house. While he accepted that the downstairs area of the property smelt damp and mouldy, he said he thought this was just part of the issues that made the property a “do up”. He denies that Mr Punj told him about weathertightness issues and claims that although Mr Punj mentioned moisture problems, he attributed those to issues with a shower/washing machine or extraction fan. He said in evidence:
If I ever heard the word “leaky” I will run away from that house and if I had any idea that the property had weathertightness issues … I would never have proceeded further”.
[35] While Mr Rahal accepts that he saw the area where gib had been removed in the downstairs bedroom, he denies having climbed up to look at it and says he thought the property was a “do up” and the missing gib was just one of many cosmetic issues in need of remedy.
[36] Later on 18 April, Mr Rahal made an unconditional cash offer of $550,000 which was accepted by the vendor. On 23 April 2019, a sale and purchase agreement was entered into between Mr Rahal and the then owner. Mr Rahal signed the sale and purchase agreement and he and an associate, Mr Sikka, each paid half of the deposit. Mr Rahal said in evidence that Mr Sikka was his business partner. However, this was denied by Mr Sikka who said that throughout he was only assisting Mr Rahal as a “good friend”, Mr Rahal having asked for help because of his bad health.
[37] On 24 April 2019, Mr Rahal viewed the property again, this time with Mr Sikka. Mr Sikka said in evidence he saw moisture marks on the timber in one of the bedrooms during this visit.
[38] Mr Rahal and Mr Sikka sought bank financing. The bank required a building report. Mr Sikka arranged for Mr Singh (a builder), Mr Rahal and himself to meet at the property on 21 May 2019. Mr Rahal claims that he does not remember anyone in the process mentioning weathertightness issues but says that they did discuss recladding and that Mr Singh recommended the property should be reclad. Mr Sikka gave evidence that Mr Rahal showed Mr Singh around the property and asked him what to do.
[39] Also related to the bank financing, on 14 June 2019, Mr Mehta of Metsons conducted a building inspection. His report noted that moisture was above acceptable levels in some areas, that the wall cladding “needs maintenance” and he concluded that the property was in satisfactory condition.
[40] On 20 June 2019, Mr Singh provided a quote of $90,000 for a full reclad of the property. Mr Rahal told Mr Sikka and Mr Singh that he did not want to go ahead with the full reclad. He asked Mr Singh to provide a quote for a reduced scope of work. On 25 August Mr Singh sent Mr Sikka a quote of $26,000 for a partial reclad. Mr Sikka forwarded the quote to Mr Rahal who said “It’s accepted and approved, you may proceed.”
[41] Mr Rahal and Mr Sikka obtained finance from ASB and settlement took place on 9 July 2019. FTL was the nominated purchaser.
[42] Between July and December 2019, FTL and Mr Rahal carried out building work which included:
(a)As set out in the formal proof judgment at [15](a), work for which a building consent was required because it was intended to address issues including failures of structural durability in the house:
(i)installing pillars to support the first floor balcony;
(ii)installing bitumen tape at the base of the cladding where it meets the upper deck; and
(iii)replacement of the downstairs bathroom including opening up the wall and replacing timber, installing a new bottom plate and laying new tiles.
(b)Work which involved replacing the ceiling and wall gib in the downstairs room, renovating the downstairs bathroom, reflooring the upstairs and repainting the interior and exterior.
[43] This work was largely organised by Mr Sikka, but dependent on Mr Rahal’s approval of invoices.
[44] Following completion of the work, Mr Punj says that Moheet contacted him and asked to discuss relisting the property for sale. Mr Punj says he told Moheet that he would need to get a building inspection report confirming there were no leaks before he would list the property. Mr Punj did not hear anything further from Moheet or Mr Rahal and was later advised that Mr Rahal sold the property privately.
[45] In about February 2020 the plaintiffs were looking to purchase their first home. They approached Mr Bal of Local Realty Ltd, (who was a friend of the first-named plaintiff), and explained they were looking for a property in the area. Presumably on instructions from FTL, Mr Bal took the plaintiffs to view the property on or around 3 March 2020.
[46] In the course of the viewing Mr Bhargav says he noticed bitumen tape on the deck and asked Mr Bal about it. He says Mr Bal replied that it was part of the vendor’s renovation and there was “nothing to worry about”. Mr Bhargav says Mr Bal also told the plaintiffs that the downstairs bedrooms would be suitable for boarders, which was of particular relevance to the plaintiffs.
[47] On 4 March 2020 the plaintiffs and FTL entered into a sale and purchase agreement for the property. The purchase price was $665,000. The agreement was signed by Mr Rahal, who also signed an agency agreement with Mr Bal that same day. The sale agreement was conditional on obtaining finance, a LIM and a building report.
[48]Relevantly, cl 7.3(6) of the sale and purchase agreement states:
(6)Where the vendor has done or caused or permitted to be done on the property any works:
(a)any permit, resource consent, or building consent required by law was obtained; and
(b)to the vendor's knowledge, the works were completed in compliance with those permits or consents; and
(c)where appropriate, a code compliance certificate was issued for those works.
[49] On or about 5 March 2020 the plaintiffs became aware that plaster homes, such as the building at the property, may be prone to leaking. They met with Mr Bal who they allege made several representations to the effect that the home was not leaky.
[50] Mr Bhargav instructed Mr Mehta of Metsons, (the name having been provided by Mr Bal), to double check that there was no evidence of weathertightness issues. Mr Mehta advised there were no such concerns.
[51] On 18 March 2020 the sale and purchase agreement between the plaintiffs and FTL was made unconditional.
[52] On 1 May 2020 the plaintiffs settled the purchase of the property and became the registered owners.
[53] On 2 May 2020, the plaintiffs visited the property for the first time since becoming the owners. It was raining heavily and they observed water coming through the joinery of the ranch sliders in the downstairs bedrooms.
[54] When contacted via the respective conveyancing lawyers, FTL through Mr Rahal denied any knowledge of leaks and any responsibility for weathertightness issues.
Summary of issues
[55] As noted, the plaintiffs have judgment against FTL for breach of contractual warranty for unconsented building work; and they claim against both FTL and Mr Rahal for alleged misleading and deceptive conduct in breach of s 9 of the FTA.
[56]In relation to both claims the plaintiffs seek by way of damages:
(a)Their estimated cost of remedial work ($750,196 inclusive of GST), or alternatively diminution in value of the property ($270,000).14
(b)Consequential losses of $115,367.
(c)General damages in the sum of $35,000, or such greater sum as the Court orders.
(d)Interest pursuant to the Interest on Money Claims Act 2016.
(e)Costs.
[57] The plaintiffs advise that the [redacted] settlement sum from Local Realty Ltd is to be deducted from any damages award. As to [redacted] from Metsons, they submit that this sum should be treated as a contribution to their “irrecoverable costs, including the costs of an unsuccessful mediation”.
[58] As to the plaintiffs’ FTA claim, FTL admits liability and Mr Rahal denies liability. FTL says that damages in this regard should be limited to $185,000 being the difference between the purchase price and actual value.
[59] FTL submits that the damages claimed by the plaintiffs for its breach of warranty are too remote. It submits that such damages should be limited to the cost to repair the non-consented work rather than the entirety of the defects. Alternatively, damages for breach of contract should be limited to diminution in value.
14 In the formal proof hearing the plaintiffs claimed diminution in value of $480,000. This figure included approximately $180,000 for “lost capital gain”. For the purposes of this hearing, the plaintiffs accepted that lost capital gain does not form part of the diminution in value calculation.
[60]There was substantial agreement as to other heads of damage.
[61] The defendants submit that the settlement sums of [redacted] and [redacted] from Local Realty Ltd and Metsons must both be subtracted from any damages award. I am unaware of any valid basis for distinguishing between the two sums but in any event seek further submissions from the parties on this point as set out at the conclusion of this judgment.
[62]The issues remaining to be determined are therefore:
(a)Whether Mr Rahal is liable under s 9 of the FTA for misleading and deceptive conduct or whether under s 43(1)(d) of the FTA, he is liable as an accessory for knowingly participating in FTL’s misleading and deceptive conduct?
(b)What is the appropriate measure of damages for the breach of contractual warranty by FTL?
(c)What is the appropriate measure of damages for breach of the FTA?
(d)What other heads of damage are appropriate?
Liability of FTL and Mr Rahal under the FTA
Relevant law and admitted liability of FTL
[63] Section 9 of the FTA states “[n]o person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. A finding of a breach of s 9 requires:
(a)a defendant to have been acting in trade; and
(b)to have engaged in conduct that was misleading and deceptive (or likely to mislead or deceive).
[64] “Trade” is defined as any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.15 “Engaging in conduct” includes omissions or making it known that an act will or will not be done.16
[65] “Misleading and deceptive conduct” must be assessed in context. In Red Eagle Corp Ltd v Ellis, the Supreme Court said that whether conduct is misleading will:17
… naturally depend upon the context, including the characteristics of the person or persons said to be affected. Conduct towards a sophisticated businessman may, for instance, be less likely to be objectively regarded as capable of misleading or deceiving such a person than similar conduct directed towards a consumer or, to take an extreme case, towards an individual known by the defendant to have intellectual difficulties.
[66] Liability under s 9 does not require a misrepresentation to have been made intentionally. However, in order for an omission to provide information to give rise to liability under s 9, the provider of that information must have knowingly provided incomplete information.18 Similarly, accessory liability under s 43(1)(d) requires that a party was “knowingly concerned in, or party to, a contravention of a relevant provision”.
[67] In closing submissions FTL accepted that it was acting in trade and that it engaged in misleading and deceptive conduct in breach of s 9 of the FTA by:
(a)Presenting the property to the plaintiffs as newly renovated as opposed to a leaky home in need of extensive repair work including a reclad.
(b)Covering up evidence of defects, damage and leaks by replacing ceiling gib boards, refurbishing the bathroom and repainting the interior.
15 Fair Trading Act 1986, s 2.
16 Section 2.
17 Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
18 Roberts v Jules Consultancy Ltd [2019] NZHC 555, (2019) 21 NZCPR 163 at [97] citing Rosgo Financial Services Ltd v Matrix Mortgages Ltd HC Auckland CIV-2010-404-6132, 15 February 2010; Steel v Spence Consultants Ltd [2017] NZHC 398, (2017) 18 NZCPR 540.
(c)Carrying out work on the property set out at [42](a) and replacing gib to mitigate and conceal the effect of the external leaks but without addressing the cause of the leaks.
(d)Failing to disclose the existence of damage and leaks in and around the property.
(e)Choosing not to re-engage Harcourts to market and sell the property as Mr Punj had advised that Moheet/Mr Rahal would need to procure a clean building report in order for Harcourts to act on the sale.
[68] FTL accepted that the above conduct was an effective cause of the plaintiffs’ loss.
[69] I consider that those admissions are consistent with the evidence and the law and for the same reasons set out in the formal proof judgment,19 I am satisfied that FTL is liable for misleading and deceptive conduct under s 9 of the FTA and that the conduct is an effective cause of the plaintiffs’ loss.
Liability of Mr Rahal
[70] As to Mr Rahal’s liability, the plaintiffs submit that Mr Rahal knew about the damage and leaks and directed FTL and its contractor(s) to do only limited repair work prior to sale which covered up the true state of the property. They say that accordingly, he is liable either under s 9 of the FTA as principal or as an accessory under s 43(1)(d).
[71] It is well-established that liability for misleading conduct under s 9 can extend to a defendant who was not trading directly on his or her own account, but rather was acting as a director (or senior employee).20 For such a defendant to be found personally liable under s 9 a plaintiff must be able to point to conduct directly attributable to the defendant which was in itself misleading or deceptive.21 The
19 Bhargav v First Trust Ltd, above n 2, at [51]–[57].
20 Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17 at [74].
21 At [77(b)].
conduct or representation must be made by the defendant personally.22 It is not sufficient that a director assisted or procured a company to make the impugned representation.23 Liability of a director as principal of a company is commonly imposed where that director is the “alter ego” of the company and the only person authorised to act on its behalf.24
[72] Mr Rahal accepts that he was acting “in trade”, but says that his involvement in the conduct admitted by FTL is not of a character that makes imposition of personal liability under the FTA appropriate. He says the evidence establishes that Mr Sikka and Mr Singh were “aware of the leaks while acting as FTL’s agent and making the representations” but that he had no knowledge of the defects prior to the sale to the plaintiffs and was not involved in the representations. I disagree.
[73] While I accept the defendants’ submission that it was Mr Sikka who was more directly involved in the renovation work, I find that he was acting on behalf of and under the direction of Mr Rahal. The evidence shows that although quotes for renovations were provided to Mr Sikka, it was Mr Rahal who approved them and who had control. No work was undertaken without Mr Rahal’s authorisation. Whatever the arrangement at the outset over the deposit, that was repaid. I am satisfied that Mr Sikka’s involvement was as a friend trying to help. Mr Sikka was not a “partner” with Mr Rahal in any legal sense, rather he was assisting and acting on behalf of Mr Rahal. He was a mere conduit or agent. I accept Mr Sikka’s evidence and reject that of Mr Rahal. Therefore, for the purposes of the FTA, acts of Mr Sikka (which the defendants accept are misleading and deceptive conduct for the purposes of s 9) should be deemed to have been engaged in also by Mr Rahal.25
[74] The defendants submit that such a conclusion is contrary to the principle of separate corporate personality. They say that if Mr Sikka was acting on behalf of anyone, it was FTL, not Mr Rahal. Again, I disagree. The objectives of the FTA would be frustrated were directors able to avoid personal liability under s 9 by procuring
22 Megavitamin Laboratories (NZ) Ltd and Stewart v Commerce Commission (1995) 6 TCLR 231 (HC) at 244.
23 At 244.
24 See, for example: Kinsman v Cornfields Ltd (2001) 10 TCLR 342 (CA) at [22]; and Roberts v Jules Consultancy Ltd, above n 18, at [121].
25 Fair Trading Act, s 45(4).
third parties, acting under the authority of that director, to engage in misleading and deceptive conduct. The courts have not regarded separate corporate personality as precluding personal liability for directors and I do not consider the corporate veil does so in this context.26
[75] For the reasons discussed below, I am also satisfied that before Mr Rahal made the decision to sell the property and sign the sale and agency agreements, he was personally aware the property was leaky and that therefore his failure to disclose this information constituted misleading conduct for the purposes of s 9.
[76] First, the plaintiffs say, and I agree, that based on the evidence of the other witnesses who viewed the property in 2019, being Mr Punj, Mrs Bell and Mr Sikka, it is inherently implausible that Mr Rahal was not aware of the weathertightness issues at the time FTL purchased the property. It is improbable that Mr Rahal would conclude that gib had been removed from the wall and ceiling in a bedroom because of issues with the showers or washing machine or a faulty extraction fan. It is equally improbable that Mr Punj would have offered that as an explanation for removed gib. I found Mr Punj a particularly credible witness and accept his evidence in totality, including as to the advice he gave Mr Rahal and Moheet and that Mr Rahal climbed up the ladder to inspect the ceiling. It is clear from the evidence that a visual inspection of the property clearly showed that the area had recent issues and leaks. Such is confirmed by Mr Punj, Mrs Bell and Mr Sikka, all of whom I found to be credible witnesses. In all material respects I prefer the evidence of those witnesses over that of Mr Rahal.
[77] I also agree with the plaintiffs that it can be inferred from the defendants’ unexplained failure to call Moheet Rahal (Mr Rahal’s son) as a witness that his evidence would not have been helpful to the defendants.27 He had the first conversations with Mr Punj when Mr Punj says he told him that the house had weathertightness issues.
26 Body Corporate 202254 v Taylor, above n 20, at [19].
27 Ithaca (Custodians) Ltd v Perry Corp [2004] 1 NZLR 731 (CA) at [156].
[78] I am satisfied that Mr Rahal was well aware of and in fact authorised the “cover up” works conducted post-purchase. As discussed above, while Mr Sikka had more direct involvement with works on the property, it was Mr Rahal who maintained the control over those works. Further, Mr Rahal accepted in evidence that it was he who decided to sell the property and signed the agreements with Mr Bal and the plaintiffs. He was aware that the plaintiffs were presented with a false impression of the house.
[79] Even if Mr Rahal was not aware of the full extent of the problem, he was aware that the property suffered weathertightness issues and that those issues had been “covered up”. His failure to disclose that information constituted misleading and deceptive conduct by Mr Rahal personally. As director of FTL, he was responsible for the renovation, presentation and marketing of the property. He is the alter ego of FTL. Mr Rahal is jointly and severally liable with FTL under s 9 of the FTA for the conduct outlined at [67] above.
[80] Even were I not satisfied that Mr Rahal was liable as principal, I would have found him liable as an accessory under s 43(1)(d). He was at the very least knowingly concerned in, or party to, FTL’s contraventions of s 9.
Damages for breach of contractual warranty by FTL
Relevant law
[81] The object of contract-based damages is to place the claimant in the position they would have been in had the contract been performed.28
[82] As a preliminary point, FTL says it should only be liable for the cost to repair the unconsented work, which is relatively minimal. It says any greater liability is too remote. I disagree.
[83] Damages for breach of contract are recoverable for loss which was reasonably foreseeable at the time of the contract as likely to result from the breach.29
28 Stirling v Poulgrain [1980] 2 NZLR 402 (CA) at 407.
29 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, [1949] 1 All ER 997 at 539.
[84] While it is true that the warranty as to the existence of consents for work performed is not a warranty that the home is not leaky,30 that does not prevent recoverability of damage for the plaintiffs’ loss. This case can be distinguished from Newton v Stewart where the work at issue had no utilitarian purpose31 and Zhou v Watson where factual causation was not established.32 The first and second defendants undertook the unconsented works to disguise the fact that the property was a leaky home, or at least suffered from weathertightness issues. There is no dispute that had FTL sought a building consent, it would have been required to undertake a full reclad and remediation of the defects in the house. At the time of the warranty, it would have therefore been within the reasonable contemplation of the parties that the plaintiffs would be required to carry out such remedial work as was necessary to make the work they had completed compliant. There is a sufficient link between the breach of warranty and the defects. The plaintiffs’ loss was reasonably foreseeable.
[85] I turn therefore to the real question in this regard which is whether the measure of damages is the cost of the full scope of repair or diminution in value.
[86] The usual measure of damages for breach of contract for the sale of land is the diminution in value.33 Assessing damage that results from a breach of warranty by reference to the cost of repair is unusual34 but will be appropriate where such a measure reflects the cost of work which is “necessary to produce conformity” with the contract.35
[87] In Marlborough District Council v Altimarloch Joint Venture Ltd, damages were awarded on the basis of remedial costs, being in that case the costs of constructing a dam to provide a promised water right, although that well exceeded the diminution in value. Tipping J explained that where the subject matter of the contract is a marketable commodity and readily substitutable, damages based on loss of value
30 Newton v Stewart [2013] NZHC 970 at [98] citing Ford v Ryan (2007) 8 NZCPR 945 (HC) at [25].
31 At [41].
32 Zhou v Watson [2023] NZHC 2328, (2023) 24 NZCPR 480.
33 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 [Altimarloch] at [24] and [27] per Elias CJ and [191] per McGrath J.
34 At [28] per Elias CJ.
35 At [35] per Elias CJ citing Bellgrove v Eldridge (1954) 90 CLR 613 at 618.
are truly compensatory.36 If however the subject matter is not that kind, damages based on a notional sale and replacement with an item of the contractual standard will not usually be enough and a performance measure may be necessary.37 In the latter category, damages are designed to require the defendant to pay to the plaintiff a sum sufficient to have the contract performed as fully as is reasonable and possible.38
[88] Tipping J said that the rationale for that position is that parties to a contract may have both financial and performance interests and the damages necessary to compensate breaches of those interests may or may not be the same.39 He held that where the subject matter of a contract is not readily substitutable, and provided a plaintiff has a genuine intention to expend damages awarded to protect its performance interest, damages should be calculated as the cost to cure the breach, rather than diminution in value.40
[89] While the Court was divided as to the outcome in Altimarloch, the other members did not appear to disagree with the statements of principle set out above.
[90]The analysis in Altimarloch has been applied in cases similar to the present.
[91] An example of the application of the usual position is Mason v Magee.41 In that case Ms Magee innocently misrepresented to the Masons that a home did not suffer from weathertightness issues. The Masons sought damages on the basis of cost of repair. The Magees said that such costs would be unreasonable as they would exceed the initial price of the house and submitted that diminution in value was the appropriate basis for damages. Williams J considered that, in the circumstances of that case, remediation was unreasonable. While the Masons had been under considerable stress due to the weathertightness issues, the house was readily
36 At [158] per Tipping J.
37 At [157].
38 At [158] citing New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462 (HC) at 466: “... an appropriately calculated sum of money must take the place of the promised benefit which the contract breaker has failed to provide”. And also Bloxham v Robinson (1996) 7 TCLR 122 (CA) at 133 where McKay J said that the plaintiff is not to be put in the position he would have occupied had the contract not been made, but rather in the position he would have occupied if the contract had been performed.
39 At [161].
40 At [161].
41 Mason v Magee [2017] NZHC 51.
substitutable, being a “nice house suitable for a teenage family and close to the beach”, the misrepresentation was innocent, and remediation would exceed the purchase value of the house by a considerable margin.42 In all the circumstances, the Judge considered it would be “oppressive and unreasonable” to require the Magees to pay the costs of repairs.43
[92] In Jerard v Auckland Council, Lang J awarded damages on a diminution basis for breach of contractual warranty (similar to this case) that all building work on a residential property had received the required consents.44 The plaintiffs had expressed an unequivocal intention to sell the property and costs of repair would therefore have well exceeded the true loss suffered by them.45 Had that not been the case, Lang J said it was at least arguable that the plaintiffs would have been entitled to damages on a cost of repair basis in light of Altimarloch and the fact that the subject matter of the contract (a residential property) was “clearly” not readily substitutable.46 Although the cost of repair ($911,542) would have far exceeded the value of the property once those repairs were completed ($650,000), Lang J did not consider this prevented costs of repair being available but said that this did render the case “at the margin” in terms of whether it was reasonable for the plaintiffs to obtain performance-based damages.47
[93] In Mitchell v Murphy Gordon J awarded damages on a cost of repair basis.48 In that case the vendor had undertaken work to disguise the effects of water ingress and represented the house as not leaky. While the breach of warranty in Mitchell was fundamentally different to that here Mitchell is a helpful example of a case where counsel and the Court were agreed that the usual measure of damage (diminution in value) did not apply.
[94] The above cases demonstrate that damages are a question of fact, the overriding objective being to achieve fairness between the parties with any rules
42 At [83].
43 At [85].
44 Jerard v Auckland Council [2014] NZHC 2493, (2014) 15 NZCPR 906. This was a formal proof judgment but the issues were considered at length.
45 At [43].
46 At [41].
47 At [41].
48 Mitchell v Murphy (as trustee of the Victor Sydney Trust) [2019] NZHC 3262.
providing guidance only.49 As stated by Tipping J in Altimarloch the “key purpose when assessing damages is to reflect the extent of the loss actually and reasonably suffered by the plaintiff”.50
[95] In the recent decision of Leisure Investments NZ Ltd Partnership v Grace the Court of Appeal set out principles that may assist in determining the appropriate measure of damages:51
…
(c)Damages should reflect the extent of the loss actually and reasonably suffered by the claimant.
(d)Where a court is required to choose between alternative measures of damages (such as cost of repairs and diminution in value), the court must decide whether in the circumstances of the particular case, the higher yielding measure is reasonable.
(e)One of the key factors in determining reasonableness is whether the plaintiff genuinely intends or desires to pursue the course which involves the higher cost.
(f)The absence of such an intention or desire is likely to undermine the reasonableness of the higher cost measure.
(g)Compelling circumstances will be required before the higher cost measure will be awarded in the absence of such an intention.
[96] In order to assess the appropriate measure of damages in this case, I need to determine the quantum under the two different measures.
Quantum of diminution in value and cost of repairs
[97] As noted above, the parties agree that the diminution in value of the property as a result of the defects is $270,000. This is based on the difference between the value of the property in an unaffected state at the time of purchase ($750,000) and the actual value ($480,000).
[98] In terms of cost of repair, the plaintiffs say that amounts to $750,196 (including GST) while the defendants submit that remedial costs are $579,036. This contrasts
49 Chase v de Groot [1994] 1 NZLR 613 (HC) at 627.
50 Altimarloch, above n 33, at [156].
51 Leisure Investments NZ Ltd Partnership v Grace [2023] NZCA 89, [2023] 2 NZLR 724 at [184].
with the latest assessment of market value of the property in an unaffected state, as at October 2023, of $835,000.
[99] The expert evidence called by both parties establishes that extensive remedial work is required. It is agreed that the property suffers from the following defects:
(a)Cladding on the west elevation has delaminated away from the building.
(b)Joinery does not have appropriate flashings.
(c)Garage door contains no head or jamb flashings.
(d)Bottom plate in bathroom external wall is decayed.
(e)Fascia boards are buried in plaster coating potentially allowing water ingress.
(f)Parapets and external corners have leaked causing damage to these areas.
(g)Bottom plates below the defective joinery flashings are damaged.
[100]The experts differ on the following:
(a)Percentage of timber that requires replacement (50 per cent vs 10-20 per cent).
(b)Percentage of internal linings requiring replacement (60 per cent vs 10 per cent).
(c)Whether the kitchen requires removal.
(d)Extent of deck replacement required.
(e)The time required for the full scope of repairs (26 weeks or 22 weeks).
(f)The rates and quantities of materials required.
[101] Mr Biggelaar is a designer registered with the Ministry of Business, Innovation and Employment and a member of the New Zealand Institute of Building Surveyors with 20 years’ experience. He was engaged by the plaintiffs to prepare a scope of works. He conducted a range of tests including soft rot testing, cut out sampling, and water testing. He did not undertake dye testing but did “an overall test” to identify decayed timber. He said that his testing of the property was similar to his usual practice with other projects and was tailored to the size of the property and visible obvious non-invasive readings. His report concluded that the property was severely compromised.
[102] Mr Biggelaar made an assessment overall of a likely 50 per cent replacement of timber. He estimated that nearly 100 per cent of the timber on the north elevation of the property would require replacement because of identified decay in all of the timber lintels, the cantilevered boundary joists of the deck, bottom plates and the parapet. On the east elevation, while the moisture reading was not at a particularly high level, the timber sample obtained by Mr Biggelaar identified advanced soft rot. He said that the exact level of timber replacement was hard to predict for the east elevation, but he estimated 30 to 40 per cent replacement was required. Overall, Mr Biggelaar predicted that 50 per cent of the timber requires replacement.
[103] In cross-examination Mr Biggelaar was questioned as to whether he had sufficient evidence to support his conclusion on the level of timber replacement required. In response Mr Biggelaar relied heavily on his experience noting that in the middle lintel on the northern elevation the damage was “so bad, [he] didn’t even take a timber sample”. Mr Blanchard suggested that Mr Biggelaar had not made enough cut outs (having made seven on the exterior and two in the interior) or conducted sufficient water testing (which Mr Biggelaar only completed on the eastern elevation) to support his position. Mr Biggelaar denied this, and again relied heavily on his experience as a building surveyor. He said that his number of cut outs in this case was similar to his usual practice and to standard practice across his industry.
[104] Mr Biggelaar assessed all elevations as requiring 60 per cent replacement of internal linings. On the north elevation, he considered that by the time the timber has been taken off, a large portion of the plasterboard will have to come off as well. Mr Biggelaar did not view Mr Blissett’s 10 per cent estimate as realistic and said “I don’t think I’ve ever seen a building with 10% plasterboard replacement”. On the east elevation, Mr Biggelaar considered that 30 to 40 per cent internal linings would require replacement, noting that it was difficult to assess without actually accessing the area, which was “a bit inaccessible”.
[105] When questioned by Mr Blanchard as to the extent of linings required, Mr Biggelaar relied upon his testing for damaged timber as supporting his assessment that 60 per cent of the linings required replacement. He said that “where all the damaged timber is, … all the internal linings will need to be replaced in those areas”. As well as the linings behind the damaged timber, Mr Biggelaar said that the “critical light, bracing elements, sheet joining” also require replacement and that those elements combined will require replacement of approximately 60 per cent of the linings.
[106] Mr Biggelaar said that while it was difficult to say until the cladding was removed, he was expecting limited damage to the timber behind the kitchen. A sample taken from the corner of the kitchen identified advanced soft rot to the timber and, in his view, to adequately repair damage to the kitchen floor and timber, the kitchen must be removed.
[107] Under cross-examination, Mr Biggelaar stated that he was expecting the floor in the southwest corner to be completely rotten, although he had not cut that corner to assess it. When questioned by Mr Blanchard on how he could make that assumption, and whether it was just speculation, Mr Biggelaar replied: “in my experience with this work and doing remedial work, it’s a very common, common defect” and by the time “the joinery comes out … I think it’s going to be nearly 100% on that elevation”.
[108] Mr Biggelaar is of the view that the entire deck would have to be replaced. He says the handrail needs to be removed, deck strengthened and the damaged joist on
the eastern elevation replaced. In order to complete this work, Mr Biggelaar considers the balustrade needs replacing.
[109] Mr Blissett is a registered building inspector with the New Zealand Institute of Building Inspectors. He has worked in the industry for 37 years. He provided an initial report which was based on a desktop review of Mr Biggelaar’s report which he subsequently updated after a visit to the property.
[110] Mr Blissett commented on the fact that Mr Biggelaar only made seven cut outs on the outside of the property to ascertain the likely damage. He says that at least double or three times that amount was required to ascertain both the cause and extent of damage. He says, “you can’t really make an assumption that timber is damaged all the way along the bottom plate for example and you’ve only cut one area out in the corner”. Mr Blissett did not conduct any additional cut outs himself.
[111] He also says that the level of water testing was insufficient and that dye testing would have been an important part of the investigation.
[112] Mr Blissett’s opinion is that 20 per cent of the timber in the north and south elevations and 10 per cent in the east and west elevations requires replacement on the basis that the damage is isolated to the external corners. He said:
I do not believe Mr Biggelaar has done enough exploration in removing of cladding to determine the full extent of temporary replacement. There are a lot of areas that if I was doing that work, I would’ve been cutting further sections of cladding out to understand the degree of damage and decay to the timber frame. He says that Mr Biggelaar’s diagrams actually do not support his assessment of 50 per cent of the timber requiring replacement.
[113] In cross-examination Ms Wroe questioned Mr Blissett on the issue of whether Mr Biggelaar’s testing was sufficient:
Q:… Are you saying that the only decay and damage in that house happened to be where Mr Biggelaar made the cut outs?
A: Well it’s the only damage we can see at the moment.
Q:Are you saying that it is not likely that there’s damage in places where Mr Biggelaar has not made cut outs?
A: No I’m not saying that.
[114] Mr Blissett says that the estimate of 60 per cent replacement plasterboard interior wall linings is “a lot” when Mr Biggelaar only estimates 50 per cent of timber requires replacement. He says it is unnecessary for all the plasterboard to be removed, and that builders can instead “cut the fixings between the plasterboard and the timber, replace the timber and glue and refix the plasterboard back to the new timber”. This would reduce the amount of plasterboard requiring replacement and ultimately only 10 per cent requires replacement.
[115] Mr Blissett is of the view that the chance of damage to the floor joist and flooring in the kitchen is minimal. While he does not disagree with Mr Biggelaar that there was damage to the exterior framing in the kitchen area, he disagrees that the kitchen needs to be removed. He says that the chance that the floor joists and flooring in the kitchen are damaged is minimal and therefore the damaged framing in the kitchen area can be replaced “relatively comfortably without having to take the kitchen out”.
[116] Mr Blissett does not disagree that there is a decayed section of the eastern elevation of the deck. However, he says that repairs can be limited to repairing that section and the damaged joist, rather than requiring a full rebuild and that if the entire deck is not being replaced, there is no need to replace the balustrade.
[117] As to timber and lining replacement I prefer Mr Biggelaar’s evidence. He spent 14 hours on the site analysing the house and its defects, compared to Mr Blissett’s two to three hours. He has more experience with Auckland Council than Mr Blissett. I preferred Mr Biggelaar’s conclusions generally as being thorough without being excessive or exhaustive. I accept that his approach on cut outs was consistent with his standard and industry practice. It was not suggested that either his standard practice had previously been found wanting, nor was he challenged as to his evidence on industry practice. Further, even the defendants’ quantity surveyor identified items missing from Mr Blissett’s scope of repairs (that is the scope on which he was asked to rely). This suggests Mr Blissett’s scope was generally on the “skinny” side and likely to fall short of meeting Council and Code requirements for fixing the problems.
[118] Overall I was persuaded on the basis of Mr Biggelaar’s evidence, and that evidence was not materially dented by the defence, that 50 per cent of the timber requires replacement. The same applies to the extent of the lining replacement but I limit that to 50 per cent, corresponding with the quantity of timber replacement required. On the issues of the kitchen removal and the extent of the deck replacement, there was insufficient evidence to persuade me that the kitchen required removal or that full deck replacement was required. Those items are to be costed on the basis of Mr Blissett’s scope.
[119] On the other differences between the experts, I have decided to take a midpoint (including as to work duration) which the parties acknowledge is open to me, but on the basis that other than as set out above all of Mr White’s scope items are included. I preferred Mr White’s evidence as to costing of the scope of works. As Mr Weir acknowledged, Mr White’s firm has more experience in working on defective building remedial projects. In addition, Mr White impressed me as having taken a meticulous and well-informed approach. However, the defence evidence was not unreasonable and I have decided to err in their favour on these remaining issues, by taking the midpoint approach.
[120] The parties will need to confer and file a memorandum as to the sum reached for cost of repairs based on the above findings, which will fall in the range of $600,000 to $700,000.
Appropriate measure of damages in this case
[121] While below the sum sought by the plaintiffs, the cost of repairs will still be materially more than diminution in value. Nonetheless, I am satisfied there are compelling reasons that justify damages based on the cost of repair. That measure will most accurately reflect the actual loss suffered by the plaintiffs and achieve fairness between the parties.
[122] First, I accept the plaintiffs’ evidence that they do not intend to sell. They wish to retain the property and either repair the house or rebuild, depending on what is affordable for them.52 The latter would seem highly unlikely. It was important to them that the property is suitable for hosting boarders (with a separate living room, bedrooms and entrance) and that it has a north-facing view. They like the location and community. I do not take account of the plaintiffs’ evidence that their particular culture and/or family stay in their first house for a very long time. I accept their evidence was genuine but it was not sufficiently persuasive. I do take account of the fact that, it being now four years since purchase, the plaintiffs have a strong emotional connection to the property, its position, and the community. I accept this can occur despite the plaintiffs suffering materially from the weathertightness issues.
[123] I find for similar reasons that the property is not readily substitutable for an equivalent alternative. I accept Mr Sprague’s evidence that it would be challenging to find an equivalent property due to current market factors and that because of certain features the property has, such as the ability to host boarders, it would be difficult to “reproduce or replicate in terms of finding an equivalent property”. Mr Sprague also said the uninterrupted north-facing view is unusual for the area. As noted, these factors were important to the plaintiffs.
[124] Even if the property was considered to be substitutable, it is not readily so. Both experts agreed it would take up to six months to sell. The plaintiffs would not be in a position to purchase until after a sale. This points against damages on a diminution in value basis. The property is not a truly marketable commodity where damages based on loss of value are likely to be fairly compensatory.53
[125] This is not a case like Mason where an order for repair costs would be oppressive to the defendants. Unlike Mason the breach here was not innocent, it was deliberate. FTL took advantage of the first-home-buyer plaintiffs. Also while arguably uneconomical, the cost of repair does not exceed the value once repairs are
52 At the time of the formal proof the plaintiffs’ affidavit evidence was that they intended to rebuild the property.
53 See Altimarloch, above n 33, at [158] per Tipping J.
completed, unlike Jerard where Lang J nonetheless considered cost of repairs might have been available had the plaintiffs not intended to sell.
[126] As noted above, the ultimate consideration in assessment of damages is fairness between the parties. Fairness is achieved in this case through damages assessed on the basis of cost of repairs.
[127] For the above reasons, I am satisfied that cost of repairs is the appropriate measure of damage for the breach of contractual warranty.
Consequential losses for breach of contract
[128] The plaintiffs have suffered and anticipate suffering consequential losses which they quantify at $115,367, being:
(a)Costs of assessing and quantifying damage to property: $19,100.
(b)Lost rental income until remediation (estimated to commence in September 2024): $64,680.
(c)Anticipated lost rental income during remediation: $7,280. (This is to be reduced for the lesser period of the remedial work.)
(d)Cost of alternative accommodation during remediation: $19,500. (This also requires adjustment.)
(e)Removal costs: $4,807.
[129] The defendants accept that the plaintiffs have properly quantified their consequential losses. They also accept that the plaintiffs are entitled to all of the claimed consequential losses if I conclude that damages should be assessed on the basis of cost of repairs. I agree that these claims are appropriately founded.
[130] I therefore order that for FTL’s breach of contractual warranty, the plaintiffs are entitled to an additional $115,367, adjusted as set out at [128], for consequential losses.
General damages for breach of contract
[131] The plaintiffs claim general damages for stress, anxiety and inconvenience incurred as a result of buying a non-weathertight home and living in damp and mouldy conditions together with a baby for some years. The evidence is clear that the plaintiffs have suffered significantly as a result. The statement of claim seeks $35,000, but the plaintiffs argue that I could award a greater sum. They did not specify what it might be. The defendants accept general damages are appropriate, at a level of $35,000.
[132] As I held in my formal proof judgment, I agree this is a case for general damages.54 I consider it would have been particularly devastating for the plaintiffs to see significant water ingress the day after settlement and to live in the circumstances they have. It is relevant in this regard that they were known to be young first home buyers. I consider general damages should be in the order of $80,000 in a case such as this, given the level of suffering and the fact there are two plaintiffs. Although the sum of $35,000 seems to be the generally accepted award, there are and can be exceptions55 and there was a discussion in court as to my ability to order a greater award.
[133] While general damages of $80,000 are justified in this case, having fixed damages on the higher basis of repair costs for FTL’s breach of contractual warranty, it would not do justice between the parties to allow general damages in full under this head. General damages are fixed at $35,000 for FTL’s breach of contractual warranty.
Damages for breach of s 9 by FTL and Mr Rahal
[134] Under s 43 of the FTA, the Court may make an order for “the amount of the loss or damage”. The power to award damages under the FTA is discretionary, but
54 The amount sought then was $30,000.
55 See, for example Heslop v Cousins [2007] 3 NZLR 679 (HC) where Chisholm J awarded $100,000 in general damages ($50,000 each for two plaintiffs) for stress caused by the respondent’s conduct.
“must be exercised in a manner that does justice to the parties in the circumstances of the particular case in accordance with the policy of the FTA.”56
[135] In the formal proof judgment, I fixed damages under the FTA on the basis of cost of repair. Having now had the benefit of submissions from the defendants including case law that has emerged since my judgment, I reach a different conclusion.
[136] Damages for breach of the FTA are generally assessed on the tort measure.57 Tort-based damages are intended to put the claimant in the position they would have been in had the tort not been committed.58
[137] In Cox & Coxon Ltd v Leipst, the Court of Appeal explained that under the FTA:59
Where there has been an actionable wrong, it is a general and basic principle of law that the remedy by way of monetary award is to put the wronged party in the same position as he or she would have been in but for the wrong. Where the wrong is misrepresentation leading to a contract for purchase of property, the position to be restored is that which would have endured had the misrepresentation not been made. … If [the purchasers] would not have purchased at all, then prima facie their loss would be based on the difference between the value of the property and the price paid or, in some circumstances, the loss of an opportunity to buy a different property. On the other hand, if they still would have purchased, the resulting loss could only be one arising in some collateral way, such as lost opportunity to buy at a reduced price or some other direct out of pocket consequence.
[138] In Roberts v Jules Consultancy Ltd (in liq) the Court of Appeal held that where misleading and deceptive representations had induced the plaintiff to purchase a leaky apartment, the proper measure of damages under the FTA was “the difference between the price paid and the value of the property received in return”.60 This accords with the recent Court of Appeal decision in PGG Wrightson Real Estate Ltd v Routhan
56 Roberts v Jules Consultancy Ltd (in liq) [2021] NZCA 303, (2021) 22 NZCPR 288 at [8] citing
Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 403–404.
57 Shabor Ltd v Graham [2021] NZCA 448, [2021] NZCCLR 26 at [64].
58 Gardiner v Metcalf [1994] 2 NZLR 8 (CA) at 12 quoting Haines v Bendall (1991) 172 CLR 60 at 63.
59 Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 (CA) at 26.
60 Roberts v Jules Consultancy Ltd (in liq), above n 56, at [72].
where the Court held that expectation damages (being damages assessed on the basis of costs incurred to achieve a promised expectation, such as costs of repair):61
… can only be recovered against a contractual counterparty for a breach of warranty under s 35 of the Contract and Commercial Law Act 2017 for a misrepresentation inducing the contract. These types of expectation losses are recoverable in contract but not in tort or for breach of the [FTA].
[139] While the Supreme Court has granted leave to appeal the Court of Appeal’s decision in PGG Wrightson,62 the approach to damages under the FTA is generally well-settled.63 As put by the authors of Burrows, Finn and Todd on the Law of Contract in New Zealand, “the [FTA] does not impose a duty to make a misrepresentation good: the wrong lies in engaging in misleading conduct rather than in failing to honour any expectations arising from it”.64
[140] The appropriate date of valuation is March 2020, the time of purchase and date of breach.65
[141] The defendants submit that damages should be limited to $185,000 being the difference between the purchase price paid of $665,000 and the value of the property, which was only land value of $480,000. However, I consider this is a case where loss of opportunity should also be taken into account and I am prepared to proceed on the basis that the plaintiffs would have been able to similarly purchase a property worth more than they paid, by an amount of $85,000.
[142] The plaintiffs are therefore entitled to damages of $270,000 for FTL and Mr Rahal’s breach of s 9 of the FTA. FTL and Mr Rahal are jointly and severally liable for that amount.
61 PGG Wrightson Real Estate Ltd v Routhan [2023] NZCA 123, [2023] NZCCLR 7 at [122] (emphasis added); citing Cox & Coxon Ltd v Leipst, above n 59, at 26; Harvey Corporation Ltd v Barker [2002] 2 NZLR 213 (CA) at [13]; and Roberts v Jules Consultancy Ltd (in liq), above n 56, at [62].
62 Routhan v PGG Wrightson Real Estate Ltd [2023] NZSC 127.
63 Roberts v Jules Consultancy Ltd (in liq), above n 56, at [64].
64 Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at 401.
65 See Roberts v Jules Consultancy Ltd (in liq), above n 56, where the Court of Appeal dismissed Mr Roberts submission that the High Court Judge erred in carrying out the damages assessment at the time of purchase, at [57] and [73].
[143] The defendants accept and I agree that the plaintiffs are also entitled to lost rental income, again on the basis that it is reasonable to assume that the plaintiffs would otherwise have purchased a home with the potential for boarders. That is, the same loss of opportunity I have relied on above. The plaintiffs calculate, and the defendants accept, that lost rental income from breach until trial amounts to $44,400. This figure requires adjustment for additional lost rental to date of judgment.
[144] As the defendants also accept, the plaintiffs are entitled to general damages for a breach of the FTA. For the reasons given earlier, I fix such damages at $80,000 for purposes of the FTA claims.
[145] I find that the plaintiffs’ rejection of the settlement offers set out at [16] was not, as claimed by the defendants, a failure to mitigate their loss. Those offers required the plaintiffs to sell the property, which is counter to my finding, or to accept a cash offer less than the total damages awarded by this judgment. Even if contractual damages were limited to the diminution in value figure, it was still not unreasonable for the plaintiffs to reject the offers made. The proposed purchase was not to be completed for six months, neither offer took account of interest and costs, nor did they provide for entry of judgment in the event of non-compliance (of importance given the history of this case) and the offers were made very close to the scheduled fixture.
Summary
[146]The following are subject to further orders as set out below.
[147] FTL is liable for breach of contractual warranty. For that breach, the plaintiffs are entitled to:
(a)the cost of repair, calculated in accordance with the findings above;
(b)consequential losses calculated as at [128];
(c)$35,000 in general damages;
(d)interest pursuant to the Interest on Money Claims Act 2016; and
(e)costs.
[148] FTL and Mr Rahal are jointly and severally liable for breach of s 9 of the FTA. For that breach, the plaintiffs are entitled to:
(a)$270,000 for the breach;
(b)consequential losses calculated as at [143];
(c)$80,000 in general damages;
(d)interest pursuant to the Interest on Money Claims Act 2016; and
(e)costs.
[149]The final award against FTL is limited to that set out at [147].
Further orders
[150] I direct that within 14 days the plaintiffs file brief submissions on the following:
(a)The calculation of the cost of repair and consequential losses in light of my findings above.
(b)The treatment of the [redacted] in settlement funds received, or to be received by the plaintiffs given the parties would be jointly and severally liable. The submissions should address whether, if there is to be a “deduction” from the judgment sum, that deduction is only from the greater award, that is the award against FTL. In any event the plaintiffs should submit the form of final orders consistent with this interim judgment.
(c)Costs.
[151] The defendants are to file any memorandum in reply within seven days of filing of the plaintiffs’ memorandum. I expect counsel to confer to minimise differences.
[152]Leave is reserved in the event I have overlooked any material issue.
Hinton J
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