Bhargav v First Trust Ltd
[2022] NZHC 1710
•20 July 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1260
[2022] NZHC 1710
BETWEEN AMEET BHARGAV and RENU KHAJURIA
Plaintiffs
AND
FIRST TRUST LIMITED
First Defendant
DAVINDER SINGH RAHAL
Second Defendant(continued next page)
Hearing: 9 March 2022 and 16 June 2022 Counsel:
S E Wroe for Plaintiffs
No appearance by or on behalf of Defendants
Judgment:
20 July 2022
JUDGMENT OF HINTON J
This judgment was delivered by me on 20 July 2022 at 10.00 am pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Grant & Co (Auckland) for Plaintiffs
BHARGAV v FIRST TRUST LIMITED [2022] NZHC 1710 [20 July 2022]
AND METSONS (NZ) LIMITED
Third Defendant
VINAY MEHTA
Fourth DefendantLOCAL REALTY LIMITED
Fifth DefendantGURBIR SINGH BAL
Sixth Defendant
Introduction
[1] Ameet Bhargav and Renu Khajuria claim against six defendants in relation to the plaintiffs’ purchase of what it transpires is a leaky home at 1/5 Ribbonwood Crescent, Goodwood Heights, Auckland (the property). The first to fourth defendants were served but did not file a statement of defence. The plaintiffs proceed against them by formal proof.
[2] The claims against the fifth and sixth defendants will be the subject of a four-day defended hearing beginning on 23 February 2023.
Parties
[3]The plaintiffs are the owners of the property.
[4] The first defendant, First Trust Limited (FTL) is the previous owner of the property. It sold the property to the plaintiffs.
[5] The second defendant, Mr Rahal, is a director and shareholder of FTL along with his wife, Jivan Jyoti Rahal.
[6] The third defendant, Metsons (NZ) Limited (Metsons), is a building inspection company and provided a pre-purchase inspection report on the property to the plaintiffs.
[7] The fourth defendant, Mr Mehta, is a building inspector and a director and shareholder of Metsons. He carried out the pre-purchase inspection of the property.
[8] The fifth defendant, Local Realty Limited (Local Realty), is the holder of a Century 21 franchise for its business as a real estate agency. FTL engaged Local Realty as its agent in the sale of the property to the plaintiffs.
[9] The sixth defendant, Mr Bal, is a real estate agent and a director and shareholder of the fifth defendant. Mr Bal was the real estate agent in relation to the sale to the plaintiffs.
Summary of claims
[10]Against FTL, the plaintiffs claim:
(a)breach of contractual warranty for unconsented building work; and
(b)misleading and deceptive conduct in breach of the Fair Trading Act 1986 (FTA), s 9.
[11] In relation to the claim for breach of contractual warranty, the plaintiffs seek by way of damages for breach of contract:
(a)the estimated cost of remedial work ($749,080 GST inclusive) or in the alternative, the diminution in the value of the property and lost capital gain ($480,000);
(b)consequential losses including the cost of expert reports, the cost of alternative accommodation, moving and storage costs and loss of income from boarders ($88,543);
(c)general damages ($30,000);
(d)interest pursuant to the Interest on Money Claims Act 2016; and
(e)costs ($25,693) plus disbursements ($11,274.81).
[12] The claim in relation to misleading and deceptive conduct in breach of the FTA, s 9, is also advanced against the second to fourth defendants.
[13]For the claim in relation to the FTA breaches, the plaintiffs seek:1
(a)damages pursuant to s 43(3)(f) of the FTA ($749,080 for remedial work, and $88,543 for consequential losses);
1 The plaintiffs seek the same in relation to their claims against the fifth and sixth defendants.
(b)general damages ($30,000);
(c)interest; and
(d)costs ($25,693) plus disbursements ($11,274.81).
Background
[14] The first defendant, FTL, purchased the property in July 2019. At that time weathertightness issues and building defects were disclosed to FTL and Mr Rahal by the real estate agent acting on the sale, Vivek Punj.
[15] Between July 2019 and December 2019, FTL and Mr Rahal carried out building work which included:
(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.
(together the building work)
(b)work which concealed evidence of leaks, namely replacing the ceiling gib in the downstairs room.
(covering up the defects)
[16] Around February or March 2020, the plaintiffs were looking to purchase their first home. They approached Mr Bal enquiring about properties in the area within their budget. He invited them to view the property on or around 3 March 2020.
[17] In the course of the viewing Mr Bhargav says he noticed the 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 was “nothing to worry about” (the first representation).2 Mr Bhargav says Mr Bal also told the plaintiffs that the downstairs bedrooms would be suitable for boarders (the second representation).
[18] On 4 March 2020 the plaintiffs entered into a sale and purchase agreement for the property with FTL. The purchase price was $665,000. The agreement was conditional on obtaining finance, a LIM, and a building report.
[19]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
(bto 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.
[20] 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 made the following representations (together the third representation):
(a)If this house were a leaky home, he would not have sold it to them as they were his good friends.
2 Initially the plaintiffs claimed that the first, second and third representations of Mr Bal (the real estate agent and sixth defendant) were made on behalf of FTL and were misleading and deceptive. That was problematic where the representations are denied by Mr Bal and are the subject of the upcoming defended hearing. However, the plaintiffs have since confirmed they do not rely on these representations for purposes of their claim under the FTA in the formal proof proceeding. They rely as against the first defendant solely on the evidence summarised at [50] below. For the sake of thoroughness, I have nonetheless set out the three representations as alleged.
(b)The plaintiffs should trust him and buy the property.
(c)The property had not yet been put on the market and it was a “good deal.
(d)The plaintiffs should not think twice about purchasing the property.
(e)The plaintiffs were not allowed to be present during the pre-purchase inspector's inspection.
[21] Mr Bal gave the plaintiffs the names of two building inspectors. One of them was Mr Mehta of Metsons.
[22] Metsons’ website stated: (a) We specialise in Pre-Sale and Pre-Purchase building inspections and reports; (b) We can correctly identify and isolate issues pertaining to your home so you can buy or sell with confidence; (c) We inspect both the interior and exterior of the property to ensure that we will cover all areas including roofing and cladding, insulation, fixtures and fittings, moisture and weather tightness.
[23] On 13 March 2020 Mr Bhargav asked Mr Mehta to provide a: “weathertightness report (including moisture readings) ... from a NZS 4306:2005 compliant building inspector, confirming that there is no evidence of weather tightness issues.” Mt Mehta confirmed that he could do so.
[24] On or about 16 March 2020 Mr Mehta inspected the house. The third and fourth defendants subsequently provided a written inspection and weathertightness report to the plaintiffs. Under a heading “Moisture” the report stated: “Levels were found to be accepted. [...] Possible causes for moisture - N/A. Further investigations recommended? No”. Under the heading "Summary Continued" the Report stated:
The house is generally in good condition. No moisture detected any place in the house. Moisture readings are under 5-15% at other places. Acceptable limit is 19%.
[…]
External cladding is in good condition… Any Joints with cladding (like pipes) are properly sealed. Chances of water ingress are almost nil.
Ground clearance is more than required.
Thermal imaging shows no risk of any moisture ingress.
[25] The third and fourth defendants provided a “Certificate of Inspection in Accordance with NZS 4308:005”. The certificate stated:
Certification: I hereby certify that I have carried out the inspection of the property site at the above address in accordance with NZS 4306:2005 Residential property inspections - and I am competent to undertake this inspection.
[26] On 18 March 2020, in response to a query from Mr Bhargav by text message seeking confirmation that “there are no present or likelihood of future weathertightness issues”, Mr Mehta stated at 12.28 pm, “no issues for weathertightness. Absolutely no worries” (fourth representation).
[27]The agreement was made unconditional at 2.28 pm on 18 March 2020.
[28] On 1 May 2020, the plaintiffs settled the purchase of the property and became the registered owners.
[29] 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.
[30] When contacted via the respective conveyancing lawyers the first defendant denied any knowledge of leaks and any responsibility for weathertightness issues.
Evidence
[31]The plaintiffs have filed affidavits by:
(a)themselves;
(b)Patrick Henshall, a process server;
(c)Benjamin Matthew Foster, a solicitor;
(d)Vivek Punj, the real estate agent who sold the house to FTL;
(e)Arnold Lal, a previous occupant of the property prior to its purchase by FTL;
(f)Sean Lee, a quantity surveyor from Kwanto Ltd engaged by the plaintiffs; and
(g)John-Paul Biggelaar, a building surveyor engaged by the plaintiffs;
(h)Michael Sprague, a registered valuer engaged by the plaintiffs to value the property.
[32] The plaintiffs’ affidavit canvasses the summary of facts. The signed sale and purchase agreement is attached in full. Also attached is Mr Mehta's building inspection report. Screenshots of a text message exchange confirm the facts at [23] and [26] above. A “pre-purchase” building report from Inspect Services Ltd that was commissioned after the plaintiffs realised the house was leaky is further attached. It identifies numerous issues that could lead to weathertightness problems around the property.
[33] The affidavits of Mr Henshall and Mr Foster confirm that documents were served on the defendants.
[34] Mr Punj’s affidavit confirms that prior to FTL purchasing the house, it was advertised with explicit disclosure of leaking, damp and mould issues. He also states that before settlement, Mr Rahal/FTL engaged Metsons to undertake a building inspection.
[35] Mr Lal’s evidence sets out that his brother and mother owned the property prior to FTL. He refers to leaking problems with one of the downstairs bedrooms that occurred when he was living there.
[36] Mr Lee's affidavit provides an estimate for remedial work. He refers to a report he prepared on 4 June 2021 and an updated version prepared in February 2022 to reflect current market rates to undertake the same remedial scope of works. He estimates the current cost for remedial work on the property is $749,090.10 including GST. He also includes a ballpark estimate for the cost of demolition and rebuild of the property which he places at between $792,350 and $1,059,150.
[37] Mr Biggelaar’s affidavit attaches his building assessment report. He confirms that he has identified the defects set out in the plaintiff's statement of claim, namely:
(a)Cladding on the west elevation had de-laminated away from the building framing;
(b)Joinery does not have appropriate jamb, head and sill flashings, allowing water ingress;
(c)There are insufficient ground clearances at the southwest corner and eastern elevation;
(d)Installation of fencing directly fixed to the cladding creating penetrations where water can ingress;
(e)The lead and butynol interfacing on the parapets and external corners of the roof create entry points for water;
(f)Fascia boards buried into the plaster coating system direct water to the underlying polystyrene;
(g)Metal flashings on the cantilevered joists do not have stop ends;
(h)Metal bolts used as fixings under the balustrade are inadequate for the loads.
[38] Mr Biggelaar confirms that the building work does not comply with the building code contained in Sch 1 of the Building Regulations 1992, that the first
defendant was required to obtain a building consent for such work and that the first defendant did not do so. He further states that in his opinion the pre-purchase inspection report did not comply with the NZS4306:2005 standard and provides commentary on it. The alternative pre-purchase report by Inspect Services Ltd “is the sort of report [he] would expect a pre-purchase inspector to produce”.
[39] Mr Sprague’s affidavit sets out that he was asked to value the property both “as is” with known defects and as at 4 March 2020 as if the property was unaffected by the defects. He concludes the unaffected value would have been between $725,000 to
$775,000 and adopts a mid-point of $750,000. (The plaintiff paid $665,000.) The “as is” market value is assessed as $450,000. He considers that the plaintiffs would not have sufficient funds to buy a comparable home in the same suburb of Auckland if they received $300,000 in damages plus interest of $9,682 and sold the property for land value.
Breach of contractual warranty
Liability of first defendant
[40] The plaintiffs claim breach of contractual warranty against FTL because, as set out above, cl 7.3(6)(a) of the agreement warranted:
(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;
…
[41] Mr Biggelaar deposes that the building work (set out at [15] above) carried out by FTL required a building consent. He says it does not fall under any exemption that would allow it to be done without a building consent. It went beyond any repair and maintenance and was triggered by failures to comply with the Building Code. There is no evidence of a building consent on the Auckland Council property file.
[42] Mr Biggelaar deposes that if the building work had been attended to properly under a building consent, then any repairs in the areas where FTL carried out work
would have had a knock-on effect of requiring timber replacement and an inspection of each elevation. That would have led a competent builder and any council inspectors to require a full reclad of the property. On this basis, if the contract had been performed FTL would have been in the position of selling a property that had already been reclad and did not suffer from the defects.
[43] Instead of that, the house suffers from significant moisture ingress which has caused severe decay and rot to structural members and timber framing throughout the house. For example, the bitumen tape was an inappropriate attempt to address water ingress into the internal lintel and rooms below. A new timber bottom plate was installed over the top of a severely decayed bottom plate during refurbishment of the downstairs bathroom. Timber posts were inappropriately installed to address sagging lintels above the lower sliding doors which is due to severe decay.
[44] I accept that FTL was in breach of cl 7.3(6)(a) of the sale and purchase agreement and that this breach caused the plaintiffs’ loss, the quantum of which I return to.
Breach of s 9 of the FTA for misleading or deceptive conduct
[45] Section 9 of the FTA states “no person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.
[46]In order to establish a breach of s 9 the plaintiffs are required to prove:
(a)The first to fourth defendants were in trade; and
(b)The defendants engaged in conduct that was misleading and deceptive (or likely to mislead or deceive).
[47] “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.3 “Engaging in conduct” includes omissions or making it known that an act will or will not be done.4
[48] “Misleading and deceptive conduct” must be assessed in context.5 In Red Eagle Corp Ltd v Ellis, the Supreme Court said that whether conduct is misleading will:6
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.
Liability of first defendant
[49] Ms Wroe submits that FTL bought, renovated and sold the property “in trade”. It is a company that is registered for GST. The property was not bought for the personal use of the directors and shareholders: Mr Rahal and his wife live further up Ribbonwood Crescent. The plaintiffs believe the property was rented out briefly. Building work was carried out and it was sold nine months later for $115,000 more than FTL had paid for it. I am satisfied that FTL was in trade for the purposes of the FTA.
[50] The plaintiffs claim the following conduct of FTL was misleading and deceptive:
(a)Presenting the house to the plaintiffs as newly renovated — as opposed to a leaky home in need of extensive repair work;
(b)Covering up evidence of defects and damage by replacing ceiling gib boards, refurbishing the bathroom and re-painting the interior;
3 Fair Trading Act 1986, s 2.
4 Section 2.
5 Red Eagle Corp Ltd v Ellis [2010] NZSC 20; and Shabor Ltd v Graham [2021] NZCA 448 at [26].
6 Red Eagle Corp Ltd v Ellis [2010] NZSC 20 at [28].
(c)Carrying out the building work on the house and replaced ceiling gib to mitigate and conceal the effect of the external leaks but without addressing the cause of the leaks; and
(d)Failing to disclose the existence of damage and leaks in and around the property.
[51] I agree that the conduct set out above was misleading or deceptive. It was deliberately undertaken to mask known defects with the property and mislead potential buyers such as the plaintiffs into thinking the property was of good quality and had no issues with leaking. It was quite literally a “cover-up”.
[52] The next issue is whether the plaintiffs were reasonably misled by the conduct. The plaintiffs were a young couple buying their first home. They reasonably concluded that the home was newly renovated and in good condition based on the conduct which was in fact intended to mask the issues with the property.
[53] Finally, did the misleading or deceptive conduct cause loss? It is reasonably obvious that the plaintiffs relied (as they say they did) on the ostensibly good appearance of the property when signing the sale and purchase agreement. If the defects had been obvious they would not have bought the house or at least would have interrogated the findings in the Metsons’ pre-purchase report.
[54] However, clause 21 of the “further terms of sale” in the sale and purchase agreement is a disclaimer. It states:
The Purchaser/s acknowledge that neither the Vendor/s nor the Vendor/s agents have made any statement, representation or warranty to them about the weather tightness, structural integrity or fitness for the purpose (domestic or otherwise) of any building on the property. The Purchaser/s agree that, in choosing to purchase the property, they rely on their own judgment. The Purchaser/s also agree that the Vendor or the Vendor/s agent has bought this clause to their attention and that they understand the nature and meaning of this clause.
[55] Ms Wroe submits that FTL’s conduct in marketing the property was causative of them entering into the agreement to buy it, and clause 21 does not break the chain
of causation, relying on Shabor Ltd v Graham.7 In that case the vendor had represented to the buyer that a farm had a particular carrying capacity which was misleading. The sale and purchase agreement contained a no-reliance clause. The Court of Appeal concluded that the causation question was whether as a matter of fact the purchaser relied on the misrepresentation and whether that reliance caused loss. The no-reliance clause formed part of the body of evidence but was not determinative.
[56] The plaintiffs’ evidence is that they met the real estate agent in a McDonalds where he suggested they make an offer. They agreed to offer $650,000.8 The estate agent then showed them where to sign the agreement and said it was a “standard contract”. They say they felt hurried and pressured to sign the document and none of the clauses were explained except schedules 2 and 3 which refer to fixtures and fittings.
[57] I accept the plaintiffs’ evidence that they were not aware of the disclaimer clause or at least were unaware of its purported effect. They were not commercially savvy parties who would be treated as having known about the clause. Even if they had engaged legal advice and had the clause explained they would have had no reason to worry about it because they were under the impression the house was newly renovated and weathertightness issues were not relevant, that being the result of the deceptive conduct. I consider that the disclaimer clause did not break the chain of causation between the plaintiff’s reliance on FTL’s conduct and their loss.
Liability of second defendant
[58] Ms Wroe submits Mr Rahal was acting in trade in relation to the property. “In trade” should be interpreted widely and can encapsulate directors.9 She also submits that the conduct set out above at [50]is the conduct of both the first defendant and its director, Mr Rahal.
7 Shabor Ltd v Graham [2021] NZCA 448 at [32]–[57].
8 This was subsequently varied to the final purchase price.
9 Body Corporate 202254 v Taylor [2008] NZCA 317; discussed in Roberts v Jules Consultancy Ltd (in liq) (2021) 22 NZCPR 288 (CA).
[59] I agree. Mr Rahal is the alter ego of FTL. He is a businessman who owns commercial and residential properties through FTL and another company. He is the person making decisions about the work being done to the property and selling it on. He signed the agency agreement with Mr Bal and the sale and purchase agreement with the plaintiffs. He had personal knowledge of defects in the property.
[60] Mr Rahal as director of the first defendant was responsible for the renovation, the presentation and marketing of the property and is therefore jointly and severally liable with FTL.
Liability of third and fourth defendants
[61] Ms Wroe submits that at all material times the third defendant, Metsons, was in trade as a building inspection company and the fourth defendant, Mr Mehta, was in trade as a building inspector. Mr Mehta is also the director of Metsons. I accept that the third and fourth defendants are in trade.
[62] Ms Wroe submits that in inspecting the property, providing the report and the certificate and making the fourth representation, the third and fourth defendants gave incorrect and misleading advice to the plaintiffs set out at [22]–[26] above.
[63] I agree that the representations made by the third and fourth defendants were obviously misleading and deceptive. Notable are the representations from the report that “the house is generally in good condition”; “chances of water ingress are almost nil”; “thermal imaging shows no risk of any moisture ingress” and Mr Mehta’s assurance that there were “no issues for weathertightness”.
[64] The sale and purchase agreement was conditional on the building report. The misleading and deceptive conduct is obviously a material strand of reliance for the plaintiff’s loss. They reasonably relied on these representations with the understandable belief that Mr Mehta was a professional and Metsons specialised in pre-purchase building reports that would “cover all areas including … moisture and weather tightness”.
[65] Accordingly I accept that Mr Mehta and Metsons are jointly and severally liable for the plaintiffs’ loss.
Damages
Claim
[66] Although the plaintiffs say they intend to rebuild, not to repair, they claim only the cost of repairs and consequential losses. The only evidence I have is to the effect that repair would require a full reclad, costing $749,080. In the alternative they claim the diminution in value which is approximately $300,000, or $480,000 if lost capital gain is factored in. Alternatively I consider the measure of damages could be calculated as the current cost of a comparable property in the area less the actual value of the property.
Approach
[67] For breach of a contractual term, the usual measure of damages is the difference between the value contracted for and the value gained.10 In other words, damages awarded for breach of contract are designed to return the injured party to the same position he or she would have been in but for the breach in question.11 Assessing loss that results from a breach of warranty with reference to the cost of repair is unusual12 except where the subject matter of the contract is not readily substitutable.
[68] The question of whether damages should be awarded based on likely cost of remedial work or diminution of value of the property was considered by Lang J in Jerard v Auckland Council.13 In Jerard, the plaintiff signed a sale and purchase agreement that warranted that all building work complied with the Building Code 1992. It did not, and the plaintiffs claimed for breach of contract against the vendor. Lang J considered the relevant principles and authorities from the Supreme Court
10 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11 at [27].
11 Jerard v Auckland Council [2014] NZHC 2493, (2014) 15 NZCPR 906 at [29].
12 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11 at [28].
13 Jerard v Auckland Council [2014] NZHC 2493, (2014) 15 NZCPR 906.
decision in Marlborough District Council v Altimarloch Joint Venture Ltd.14 He concluded:15
[41] I consider that the present case lies at the margin in terms of whether it would have been reasonable for the plaintiffs to obtain performance-based damages. Many would consider it unreasonable to spend more than $950,000 to produce an end product having a market value of just $650,000. Having regard to the authorities, however, it is at least arguable that the plaintiffs would be entitled to recover the full cost of rectifying the defects so as to make their property code compliant. The authorities, and in particular the approach taken in Altimarloch, appear to indicate that performance- based damages will usually be justified in cases where the subject-matter of the contract is not readily substitutable for another equivalent alternative. That would clearly be the situation in the present case.
[42] Acceptance of that argument would necessarily involve a major qualification. Before the Court would award performance-based damages, it would need to be satisfied that the plaintiffs were genuinely committed to undertaking the remedial works in respect of which the damages were to be awarded. …
(Emphasis added.)
[69] 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 “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.”16
[70] In Shabor, the Court of Appeal recently discussed damages under the FTA. That case concerned a misrepresentation as to the carrying capacity of a farm. The Court noted that the appropriate measure is the one that will put the wronged party in the position that they would have been in had the breach not occurred. There, that was the difference in value between what the plaintiff paid and what the farm was worth.
[71] However, in Mitchell v Murphy, a case with very similar facts to the present, it was accepted that the cost of repair was the appropriate measure of loss under both the CCLA and FTA claim.17 In that case the vendor had undertaken work to disguise the effects of water ingress and represented the house as not leaky. The purchasers took
14 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11.
15 Jerard v Auckland Council [2014] NZHC 2493, (2014) 15 NZCPR 906.
16 Robert v Jules Consultancy Ltd (in liq) (2021) 22 NZCPR 288, citing Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 403 – 404.
17 Mitchell v Murphy (as trustee of the Victor Sydney Trust) [2019] NZHC 3262.
claims under both the CCLA and the FTA against the vendor. They also brought a claim under s 9 of the FTA against the pre-purchase inspector who presented findings of acceptable moisture levels and described the property as being in good condition.
[72] Ms Wroe submits that in this case the circumstances require an assessment of loss under both the breach of warranty claim and the FTA claim by reference to remediation. This is because the plaintiffs would likely not be able to afford a property in the area if they receive only the diminution in value. They have provided evidence that they have a special attachment to the area and to the particular property and intend to rebuild on the site.
[73] Overall the key purpose of fixing damages is to reflect the loss actually and reasonably suffered by the plaintiff.18
Analysis
[74] The cost of repairs is approximately equal to the valuation of the property without defects (around $750,000). It is reasonably well in excess of diminution loss. This may tend towards unreasonableness.
[75] However, I am satisfied that the property is not readily substitutable for an equivalent alternative. The plaintiffs have unsuccessfully attempted to find a comparable property in the area. I accept their evidence in that regard. I also accept Mr Sprague’s evidence that it would be challenging to find an equivalent property due to current market factors. Also, the plaintiffs wish to remain where they are because they have good connections with their neighbours and like the north facing plot. They state they have been saving money for repair costs and Ms Khajuria had returned to work from maternity leave, although she did not want to, to facilitate this. I am satisfied that the plaintiffs are genuinely committed to retaining the property.
[76] The plaintiffs have been saddled with a leaky home in need of repair or demolition. If they sold, they would likely have insufficient funds to buy a
18 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11 at [156]; and Steel v Spence Consultants Ltd [2017] NZHC 398 at [84].
replacement. They would have real uncertainty if they cannot find a replacement property and it is problematic to effectively require them to do so. Mr Rahal and FTL sold the property to the plaintiffs by employing deceptive conduct so that they would not find themselves in the position of facing the same financial burden. They managed to sell for a lot more than they paid for the property due to their deception. That deception was reinforced and extended by Mr Mehta and Metsons. I note that Mr Mehta and Metsons came at the recommendation of the real estate agent, Mr Bal, and had previously inspected the property when it was sold to FTL/Mr Rahal when the water damage was clearly visible.
[77] In these circumstances it is appropriate for the plaintiffs to obtain performance- based damages, being the cost of repair, for both the breach of warranty and the FTA claims.
[78] The Court does not have to award the full amount of damages under section 43 of the FTA and can make an assessment under that section as to the relative liability or proximity to the loss for each defendant. However in this case I am satisfied that the defendants all contributed equally to the deception that led to the plaintiffs purchasing a leaky home. Accordingly the first to fourth defendants will be liable on a joint and several basis for the repair costs.
Other consequential loss
[79] The plaintiffs claim consequential loss already incurred from the loss of rental income from boarders. They had a couple willing to move in and pay $280 a week. This comes to a total of $27,020 of lost income.
[80] The plaintiffs also claim consequential loss already incurred with regard to the experts commissioned before issuing proceedings. The cost of this work totals
$17,656.01. It consists of the alternative “pre-purchase” report prepared by Inspect Services, the preparation of Arcadia Holdings Ltd’s building assessment report (Mr Biggelaar’s report) and preparation of Kwanto Ltd’s first remedial cost estimate.
[81] Further, the plaintiffs claim expected consequential loss from the time spent “repairing” the house. This sum has not yet been incurred. It relates to 42 weeks’ alternative accommodation ($27,300), 42 weeks’ loss of rental income ($11,760) and removal company costs ($4,807).
[82] The remediation figure comes from the second Kwanto report. That report estimates that repairs will take eight months (or “would” in this case), being approximately 35 weeks. The report states that this is “considered reasonable given the size, type and nature of the works involved”. It is not clear to me where the 42 weeks figure has come from. I consider that based on the Kwanto report, alternative accommodation and loss of rental income should be measured at 35 weeks, which comes to $22,750 and $9,800 respectively. Even if this is wrong, a tenant is never guaranteed to be in place on a continuous basis and incidental costs would likely be incurred. Overall, I consider the figure allowed is ample. That will be taxable in the hands of the plaintiffs.
[83] Otherwise, I accept that the consequential losses claimed, directly and naturally flows from the breach of warranty and the plaintiffs are entitled to $82,033.01 of consequential loss. I note I do not rely for this purpose on the alleged presentation of Mr Bal regarding the property being suitable for boarders.
General damages
[84] The plaintiffs claim general damages for stress, anxiety and inconvenience as a result of being deceived by the first to fourth defendants into buying a leaky home which needs such extensive repairs. The statement of claim seeks $30,000. Ms Wroe submits that the tariff was set by Byron Avenue at $25,000,19 but it has not since moved with inflation. Ms Wroe says that an award of $30,000 reflects both the changes to the consumer price index and the extent of anxiety and stress caused to the plaintiffs as they have had to cope with this situation in the context of the birth of their first child and a pandemic. The inability to have rooms available for boarders as intended has also contributed to financial-based stress.
19 Relying on O’Hagan v Body Corporate [2010] NZCA 65 [Bryon Avenue].
[85] I agree that the plaintiffs are entitled to general damages. It is appropriate that an award of $30,000 be granted to reflect both inflation over the 12 years since Byron Avenue was decided and the high level of stress and anxiety the plaintiffs have endured as a result of occupying the defective property for over two years.
Interest
[86] The plaintiffs claim interest under ss 9 and 10 of the Interest on Money Claims Act 2016. Section 9 provides:
9 Period for mandatory award of interest
(1)When giving a money judgment, a court must award interest under this Act for the period that-
(a)begins either-
(i)on the day on which the cause of action arose; or
(ii)if the amount on which interest is to be awarded was not quantified at the day on which the cause of action arose, on a later day that the court specifies in the judgment as the day at which that amount was quantified; and
(b)ends on the day on which the judgment debt (including all interest payable under this Act) is paid in full.
(2)Subsection (1) applies unless-
(a)this Act expressly provides that interest cannot be awarded under this Act; or
(b)the court, in accordance with this Act, specifies in the judgment any 1 or more shorter periods as the period or periods for which interest is to be awarded under this Act.
(3)Despite subsections (1) and (2), interest under this Act does not accrue after the date of payment on an amount paid,-
(a)after the proceeding has been commenced but before the date of judgment, in or towards satisfying a party's liability; or
(b)after the date of judgment, towards satisfying a judgment debt.
[87] Ms Wroe submits that if damages are to be based on the cost of repair, interest should be calculated from the date when the loss was quantified. That would be the date of the second Kwanto report, 23 February 2022.
[88] I agree that is a reasonable approach and award interest to run from 23 February 2022.
Costs
[89]The plaintiffs claim $25,095 costs plus $8,399.81 disbursements.
[90] I do not consider that the second hearing was necessary. It was convened to clarify points that were not sufficiently clear at the first hearing. One of those points which was of main concern was how this formal proof hearing could rely on representations made that were to be contested by the fifth and sixth defendant in the defended hearing. Subsequent to the second hearing Ms Wroe informed me that the plaintiffs no longer relied on those representations for the purposes of this formal proof. That could have been done much earlier.
[91] Accordingly, I reduce costs for appearances at hearing from 0.75 for a day as claimed, down to 0.5. The total costs awarded are $25,095. Disbursements appear reasonable and I award them in full. The first to fourth defendants are to be jointly and severally liable for costs and disbursements.
[92] Presumably a number of the disbursements will relate also to the defended hearing. I leave that for the trial Judge’s consideration.
Result
[93] The plaintiffs are entitled to judgment against FTL for breach of contractual warranty and against FTL, Mr Rahal, Mr Mehta and Metsons NZ Ltd under s 9 of the FTA. The first to fourth defendants are liable on a joint and several basis for damages of $861,113 plus interest running from 23 February 2022.
[94]The first to fourth defendants are jointly and severally liable for costs of
$25,095 and disbursements of $8,399.81.
Hinton J
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