Carr v Ambler Homes Limited HC Auckland CIV-2009-404-000093
[2010] NZHC 2414
•1 December 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-000093
BETWEEN ERROL CARR AND PATTI CARR Appellants
ANDAMBLER HOMES LIMITED Respondent
Hearing: 3 December 2009, 17 and 18 February 2010
Appearances: D M Law and J Fredrickson for the Appellants
R J Hooker and C G Taylor for the Respondent
Judgment: 1 December 2010
JUDGMENT OF DUFFY J
This judgment was delivered by Justice Duffy on 1 December 2010 at 11.00 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Vallant Hooker and Partners P O Box 47088 (DX CP30015) Ponsonby
Auckland 1144 for the Appellants
Wood Ruck Manukau P O Box 76014 (DX EP75504) Manukau City
Manukau 2241 for the Respondent
CARR AND CARR V AMBLER HOMES LTD HC AK CIV-2009-404-000093 1 December 2010
[1] This is an appeal against a judgment of the District Court at Manuakau in favour of the respondent, Ambler Homes Ltd. The appellants, Mr and Mrs Carr, were the defendants in a civil proceeding before the District Court brought by Ambler Homes Ltd to recover payment of the sum of $19,323.75. Mr and Mrs Carr defended the claim, as well as making a counterclaim for $40,000.
[2] The claim and counterclaim arose from a building dispute between the Carrs and Ambler Homes Ltd regarding a house in Whitford, which Ambler Homes Ltd had built for the Carrs. Ambler Homes Ltd was the head contractor for the construction of the house.
[3] Ambler Homes Ltd claimed that the sum of $19,323.75 was the outstanding amount it was owed for completing the house. The Carrs defended the claim on the basis that Ambler Homes Ltd had not discharged its obligations under the building contract, and so was not entitled to the $19,323.75. The Carrs also claimed that in order to finish the construction of the house to an appropriate standard, they had to spend $40,000 for the services of a different builder.
[4] The District Court found for Ambler Homes Ltd and awarded it the
$19,323.75, plus interest from 18 December 2003; the Carrs’ counterclaim failed and was dismissed.
[5] The appeal raises a number of issues, including technical issues regarding:
a) The way in which Ambler Homes Ltd pleaded its statement of claim;
b) The way in which the District Court applied the statement of claim;
and
c) The way in which the District Court dealt with the evidence it heard.
Background facts
[6] During 2000 and 2001, Mr and Mrs Carr were living in an architecturally designed home in Whitford. They owned an adjoining vacant piece of land, at
15 Mott Lane Whitford, on which they wanted to build a high quality house to be their new home. They had seen a show home located at Kilkenny Drive, Dannemora, which Ambler Homes Ltd had built and owned. The Carrs viewed and inspected the Kilkenny Drive house a number of times. They considered employing an architect and builder to build something like it on their piece of land, but ultimately they decided to engage Ambler Homes Ltd to construct the new house.
[7] There were email exchanges and other communications before the written contract to build the house was signed. No one has suggested that these had any bearing on the legal relationship between the parties. In May 2002, Ambler Homes Ltd provided the Carrs with a written quotation for the design and building of a new home, dated 2 May 2002, and a written building agreement dated the same date. Mr Carr signed his acceptance of the written contract on 3 May 2002. On the same date, he prepared a letter which he and Mrs Carr sent to Ambler Homes Ltd, together with the signed building contract.
[8] The letter starts off by confirming the Carrs’ acceptance of Ambler Homes Ltd’s offer to build a new house at 15 Mott Lane. It explains that Mr Carr may be difficult to contact due to his frequent visits to Korea. The letter sets out the Carrs’ expectations for how the building contract would operate; the letter goes on to say that where any doubt exists, the Carrs expect Ambler Homes Ltd to build the new house to the “requirements of the Kilkenny show home as a default mechanism”. Later in the same paragraph, there is reference to the Kilkenny house being the “standard” or “benchmark”.
[9] Construction of the house at 15 Mott Lane commenced. The friendly relationship which the Carrs initially had with Peter Ambler, the driving force behind Ambler Homes Ltd, began to break down. On 12 May 2003, the Carrs made a final payment under the contract, less a retention sum of $20,000. By this time they were disenchanted with Ambler Homes Ltd. Under the building contract, there was a 31 day maintenance period for items requiring attention to be remedied. The retention sum was to be paid on the expiry of this period; this did not happen. The Carrs would say this was because the items requiring attention were not fixed.
[10] Once certain credits were made, the retention sum was reduced to
$19,323.75. As at December 2003, this sum remained outstanding. Ambler Homes Ltd wanted full payment, whereas the Carrs were withholding the final payment on the grounds of poor performance and incomplete construction.
[11] There was a meeting on 8 December 2003 between Mr Carr and Peter Ambler, along with the Carrs’ project manager (Brent Johnson) and a representative of the roofing contractor, Tamaki Roofing Ltd (Ian Sprosen). The legal outcome of this meeting was one of the issues the District Court was required to determine. To put the matter neutrally, the meeting can be seen as an attempt to remove the impasse which the parties were then facing. Unfortunately, it did not achieve this end, hence the civil proceedings in the District Court, and now this appeal.
[12] The building contract contained an arbitration clause. Given the nature of the dispute between the parties, it might have been thought that arbitration was the way to achieve a resolution of each party’s complaint against the other. However, Ambler Homes Ltd considered that the Carrs’ failure to pay was simply a matter of debt recovery under the building contract, so it brought summary judgment proceedings to recover the balance of the contract price. This proceeding failed. The Carrs’ refusal to pay the debt was due to their belief that the poor perfomance of Ambler Homes Ltd disqualified it from obtaining any further payment, which made the case against the Carrs unsuitable for summary judgment.
The claim in the District Court
[13] For reasons which remain unexplained, Ambler Homes Ltd chose not to sue on the building contract. Instead, it sued upon an alleged oral contract that was said to have arisen at, or following, the meeting on 8 December 2003. The statement of claim alleged at paragraph 7 that:
7.On or about 8 May 2003, the defendants [the Carrs], representatives of the plaintiff [Ambler Homes Ltd] and Tamaki Roofing Ltd, the roofing contractor, met at the property and entered into an oral; agreement (“the oral agreement”) in the following terms:
a)Ambler Homes Ltd would complete the following maintenance items, even though some of the items were not notified to it within 31 days of completion of the works:
i) Additional work to the roof finishing detail;
ii) Remove wallpaper glue below bedroom window; iii) Install left hand dummy handle for french door; iv) Adjust bottom of front door (sticking);
v) Supply additional front door key;
vi) Replace cracked mirror in WIR (again);
vii) Paint touch up to WIR door;
viii) Paint touch up to bedroom ceiling wall joint;
ix) Paint touch up to architrave in study;
x) Re-adjust spouting level to left hand side of garage. b) The maintenance items relating to the roof were to be
completed by 18 December 2003, failing which the roofing contractor, Tamaki Roofing Ltd, would give the [Carrs] a 10 per cent rebate on the value of the roof.
c)Subject to paragraph 7(b), on completion of the maintenance items the [Carrs] would pay the outstanding sum to Ambler Homes Ltd.
[14] The statement of claim went on to plead that Tamaki Roofing Ltd completed the maintenance work to the roof by 18 December 2003; that Ambler Homes Ltd completed the balance of the maintenance items set out at paragraph 7(a), but that despite demand being made, in breach of the oral agreement, the Carrs had neglected or refused to pay the balance due of $19,323.75.
[15] In their statement of defence, the Carrs admitted the existence of the building contract dated 3 May 2002. They pleaded and relied on the entire terms and conditions set out in the written contract, particularly clauses 2, 7, 13, 22(d)(ii) and
22(d)(iii). They alleged that they did not take possession of the house until September 2003. They pleaded that on 12 May 2003, they had paid to Ambler Homes Ltd $50,000 towards the final account which had a balance of
$69,800. They alleged that the balance (being $19,800) would be paid on
completion of the roof, fireplace, and other items that had been agreed to in a meeting on Friday, 10 May 2003.
[16] The Carrs admitted that on 8 December 2003, there was a meeting between them and Ambler Homes Ltd, but denied the other allegations regarding this meeting. Save for admitting that demand for payment had been made by Ambler Homes Ltd, they denied the remainder of the statement of claim.
[17] In their statement of defence, the Carrs alleged certain defaults on the part of Ambler Homes Ltd in terms of its failure to carry out and complete the work in conformity with the plans and specifications to the satisfaction of the Carrs. Other issues were that the work did not meet the requirements of the Building Act, the building code and the building consent, and it was not carried out with all reasonable speed. They alleged that Ambler Homes Ltd had failed to obtain a code compliance certificate, and had failed to construct the home in a proper and workmanlike manner. As a result, allowing for reasonable deductions for inferior workmanship and materials, they said no further money was owed to Ambler Homes Ltd. By separate document, they filed a counterclaim, which I will deal with later.
[18] In this case, the parties filed written submissions after the completion of the defended hearing. The order of closing submissions was Ambler Homes, the Carrs in response, with Ambler Homes filing a reply to the Carrs’ submissions.
[19] A main plank of the Carrs’ defence in the District Court was that there was no separate oral contract having the terms which Ambler Homes Ltd alleged. Ambler Homes Ltd was fully aware of this defence by the time it filed its closing submissions.
[20] In its closing submissions, Ambler Homes submitted that the statement of claim pleaded a simple claim for the balance due under a building agreement and, in addition, an oral contract entered into on 8 December 2003 in which Ambler Homes Ltd had agreed to attend to remedial and maintenance items (including those which had not been notified in accordance with the building contract) and, in return, it was to receive the balance of the money owed under the building contract.
[21] Ambler Homes Ltd contended that the Carrs’ argument about the non- existence of the oral contract could be met in the following way:
a) The statement of claim made it clear that the amount outstanding was due under the original building contract; and
b)Even if the Carrs were correct about the meeting on 8 December 2003 not resulting in a discrete oral contract, and there being no pleading of a variation of the original building contract, the District Court could cure this state of affairs by permitting an amendment of the statement of claim under r 11(2) of the District Court Rules.
[22] In support of the argument for the application of r 11(2), Ambler Homes Ltd submitted that it was in the interests of justice for the Court to permit an amendment, it would not significantly prejudice the Carrs, and it would not cause significant delay. Ambler Homes Ltd went on to argue that it was in no one’s interests for the claim to fail simply through a failure to establish an oral contract, as this would only result in a second hearing. The purpose of pleading an oral contract was to identify once and for all the maintenance items required by the Carrs, and to attend to those items so that payment would then be forthcoming. Ambler Homes Ltd requested the District Court to grant leave to amend the claim to include a “claim for the balance of the contract sum”, but this request was prefaced on the basis of “in the event it is necessary to do so”.
[23] The Carrs’ closing submissions are characterised by a close and detailed analysis of the law regarding the formation of a contract, and the facts in the proceeding which, on the Carrs’ view, meant that the essential legal requirements for the formation of an oral contract were not proved. The Carrs contended that since Ambler Homes Ltd elected to mount its claim on the alleged existence of the oral contract, the failure to establish it means the claim must fail.
[24] The Carrs also submitted that the statement of claim precluded Ambler Homes Ltd from arguing that the discussions on 8 December 2003 could be characterised as a variation of the original building contract. The Carrs’ argument
here was that since no such variation was pleaded, Ambler Homes Ltd could not support its claim for payment on this ground.
[25] In its reply submissions, Ambler Homes Ltd altered its stance from its original closing submission. Instead of relying on the Court approving an amendment of the statement of claim if needed, Ambler Homes Ltd now argued that the existing statement of claim supported a claim based on an oral variation of the original contract. The reply submissions argue that “it is clear from the pleadings the oral agreement was a variation to the building agreement”. The reply submissions went on to argue that the agreement concluded at the meeting on 8 December 2003 “in fact effected a variation to the building agreement”. Ambler Homes Ltd then argued that the case law on variation of contracts bound the District Court.
[26] Ambler Homes Ltd contended that it had performed its part of the “oral variation” by carrying out the agreed maintenance items.
[27] Regarding Tamaki Roofing Ltd, Ambler Homes Ltd argued that it did not need to be a party to the proceedings, and that any agreement that had been reached about the outstanding work which Tamaki Roofing Ltd was to perform was enforceable by Ambler Homes Ltd. The submissions then proceeded to address certain factual issues regarding the workmanship of Tamaki Roofing Ltd.
[28] The reply submissions also addressed the Carrs’ counterclaim. As I have already noted, this issue is to be dealt with later in the judgment.
[29] The District Court found that there was an oral agreement arising from the meeting on 8 December 2003. The District Court’s understanding of the evidence of Ambler Homes Ltd was that the meeting on 8 December 2003 had resulted in an oral agreement by which Ambler Homes Ltd was to attend to outstanding work and, in return, it would be paid the outstanding sum of $19,327.75. The District Court’s understanding of Mr Carr’s evidence about the meeting was that items to be attended to were identified and, on completing this work, final payment was to be negotiated.
[30] When it came to determining which evidence described what had occurred at the meeting, the District Court preferred the evidence of Ambler Homes Ltd. It found Mr Carr to be an unreliable witness.
[31] The District Court then found that the agreement reached at the meeting on
8 December 2003 effected an oral variation to the building contract. The consideration to support the variation was said to be Ambler Homes Ltd’s agreement to attend to items of work which were outside the maintenance period and, therefore, outside Ambler Homes Ltd’s contractual obligations. The performance of this additional work could, therefore, constitute consideration to support variation of the building contract.
The grounds of appeal
[32] The Carrs contend that the finding of the District Court that the meeting on
8 December 2003 resulted in an oral agreement which varied the original building contract was wrong in fact and law. They argue that it was not open to the District Court to reach this finding when:
a) The statement of claim pleaded a separate oral agreement;
b)Ambler Homes Ltd had not advanced its case at the hearing, or prior to the hearing, of there being an oral variation of the original building contract;
c) Ambler Homes Ltd only raised the possibility of the oral agreement having the effect of varying the original building contract in closing submissions;
d)At the late stage at which Ambler Homes Ltd raised the variation argument, it was in the context of a reply to the Carrs’ closing submissions;
e) The District Court has reached a view on the variation without first hearing from the Carrs, and without considering the prejudice to the
Carrs of permitting Ambler Homes Ltd to change its stance in this way; and
f) The circumstances were such that it was not open to the District Court to find that the original contract had been varied by an oral agreement.
[33] I do not propose to traverse the other grounds of appeal. The grounds set out above are enough to deal with the appeal so far as it relates to the judgment entered against the Carrs on the statement of claim.
Discussion
[34] It is regrettable that a building contract dispute over a relatively modest sum, which could readily have been dealt with by an arbitrator with residential construction experience assessing the merits of the construction issues, has instead become the subject of technical legal analysis. Nonetheless, this is how the parties have chosen to approach their dispute. This case is a good example of how the legal complexity of a case can often bear no relation to the modesty of the sums of money in issue. Generally, pragmatism prevails when such cases arise. Here it has not.
[35] The starting point with all civil proceedings is the statement of claim. The importance of this document cannot be overlooked. In Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998, at 13, the Court of Appeal had this to say on the importance of pleadings:
It has become fashionable in some quarters to regard the pleadings as being of little importance. There was an echo of that approach in the implicit suggestion floated in this case that exchange of briefs of evidence before trial might be seen as curing any lack of particularity in the pleadings. Any such view is misguided. Pleadings which are properly drawn and particularised are, in a case of any complexity, if not in all cases, an essential road map for the Court and the parties. They are the documents against which the briefs of evidence are or should be prepared. They are the documents which establish parameters of the case, not the briefs of evidence.
We are not casting aspersions on the pleadings in this case which, leaving aside issues about necessary particularity, are well drawn on each side. Nor are we advocating a pedantic approach to the topic. Pleadings should be read as conveying what they would reasonably convey, in the context of the case, to a sensible legal mind. Even less are we advocating prolixity of pleadings, or the raising of every conceivable cause of action irrespective of its
potential for success; this type of pleading often contains the additional flaw of overlooking R114 which requires each cause of action to be separately pleaded. What we are saying is that both the Court and opposite parties are entitled to be advised of the essential basis of a claim or defence, and all necessary ingredients of it, so that subsequent processes and the trial itself can be conducted against recognisable boundaries. Neither the Court nor opposite parties should be placed in the position of having to deal with a proposition of whose substance adequate notice has not been given in the pleadings.
[36] This passage from Price Waterhouse sets out what should occur; in this case it did not occur. Instead, there was a dispute about the basis of the claim. The dispute has continued in this appeal. The parties are at odds over whether the claim pleads a discrete oral contract, which proceeds and is collateral to the original building contract, or an oral variation to the original building contract. This dispute has drawn attention away from the real issues troubling the parties; it has meant that the parties have spent time and energy, in effect, arguing about what the basis of their dispute is, instead of arguing about how it should be resolved. The shift away from the real issue to be determined has, in turn, confused the District Court Judge and caused him to err in the conclusions he reached.
[37] There is no excuse for the muddled state of the statement of claim. The law allows for alternative claims to be pleaded. Hence, it was open to Ambler Homes Ltd to file a statement of claim pleading in the alternative that the meeting on
8 December 2003 gave rise to either a discrete oral contract, or an oral variation to the original building contract. For good measure, Ambler Homes Ltd could also have added a further alternative claim which was based on the original building contract. In this way, the Court and the Carrs would have known the full extent of the claims they were facing, and, for the Carrs, the extent of the defences they needed to mount.
Did the meeting on 8 December 2003 effect a variation of the original building contract?
[38] I have given careful consideration to the findings of the District Court and to the arguments Ambler Homes Ltd made, both in that Court and in this Court, as to how the statement of claim should be read. The finding in the District Court that the meeting of 8 December 2003 effected an oral variation to the original building
contract shows that the District Court Judge considered the statement of claim was pleaded in a way that allowed for such a finding. With respect, I find that I cannot read the statement of claim in that way.
[39] Paragraph 7 is the key paragraph in the statement of claim. The earlier paragraphs simply set out the historical context in which the oral agreement is alleged to have arisen. Paragraphs two to six describe the formation of the original building contract, its performance and the payments made under it. Paragraph six notes that the sum of $19,323.95 remains outstanding. Then in paragraph seven (see [13] herein) Ambler Homes Ltd alleges the formation of and the terms of an oral contract arising from the meeting on 8 December 2003. Paragraphs eight and nine allege that Ambler Homes Ltd and Tamaki Roofing Ltd (which earlier in paragraph seven is described as a party to the oral agreement have performed the agreed work. Then in paragraph 10, Ambler Homes Ltd pleads that the Carrs’ failure to pay the sum of $19,323.75 is in breach of the oral agreement. Nothing is said in the statement of claim about the oral agreement constituting a variation of the original building contract.
[40] When regard is had to the terms of the original building contract, the problems with the statement of claim become apparent. Clause 10 of the original building contract required any alteration to the contract to be in writing by both parties. It read as follows:
10. Additions or alterations
Any additions or alterations to this agreement or to the plans and specifications including any variation carried out under clause 8 or 9 shall be in writing by both parties to this agreement.
Thus, if an oral discussion between the parties was to have any chance of constituting a variation of the original building contract, it needed to include their agreement to depart from the requirements of clause 10.
[41] However, the statement of claim does not plead that the alleged oral agreement varied clause 10 of the original contract. Nor does the statement of claim plead that the parties varied the origninal contract by their conduct, or that, by
implication, clause 10 has been varied. There is nothing in the statement of claim, nor was there any evidence, that might suggest clause 10 had become ineffective.
[42] It is not clear to me whether the Carrs addressed what effect clause 10 might have on there being an oral variation to the original building contract. Their stance during the hearing was to deny the formation of a collateral oral contract, and to argue that the statement of claim did not allow Ambler Homes Ltd to present a case based on an oral variation of the original building contract. Given the approach the Carrs took, it is understandable that their defence did not focus on the barrier that clause 10 posed to any oral variation of the original building contract.
[43] The District Court Judge did not turn his mind to the effect of clause 10 on the issue of whether the parties’ discussion on 8 December 2003 constituted an oral variation of the original building contract. Since the Carrs do not appear to have addressed this issue, the Judge’s omission to do so is understandable. Indeed, he took the opposite course and found (at [33]) that: “A contract can always be varied by agreement between the parties. As long as there is agreement and the terms are clear the original contract can be varied”.
[44] Later, at [36] of his judgment, the District Court Judge concluded that there was an oral agreement which varied the original contract:
I find therefore that the oral agreement of 8 December 2003 effectively varied the building Agreement. Therefore AHL (Ambler Homes Ltd) in my judgment is entitled to be paid the sum owing of $19,323.75 as at
8 December 2003.
[45] The District Court Judge gave no reasons for why he concluded that the oral agreement could constitute a variation of the original building contract. Nor did he give reasons for why he considered such a finding was open to him to make on the statement of claim as it was pleaded. His judgment says nothing about the need for an amendment to the statement of claim to allow for an allegation that was consistent with him finding there was an oral variation to the original building contract.
[46] I consider that the finding of the District Court Judge is wrong. First, insofar as the finding is on a question of fact, the finding is contrary to the way in which
Ambler Homes Ltd pleaded its claim. There was neither an application to amend the claim to allow for this allegation, nor was there a reasoned decision by the District Court Judge on whether he had made such an amendement of his own volition. Ambler Homes Ltd had submitted that the Judge could make this amendment if he considered it necessary, but then Ambler Homes Ltd had gone on to submit that an amendment of that type was not necessary. This type of submission is unsatisfactory. Given the stance taken by the Carrs, it was for Ambler Homes Ltd to elect whether or not to amend its statement of claim, and then, if the decision was in the affirmative, to make such an application.
[47] Secondly, insofar as the finding is on a question of law, it fails to address clause 10 of the original building contract. I cannot see how there could be an oral variation to the original building contract without either adherence to the terms of clause 10, or some act that demonstrated the parties had agreed to depart from the requirments of clause 10. The discussion which occurred at the meeting on 8
December 2003 is not sufficient to achieve the removal of clause 10’s requirements. All that the parties’ conduct at that meeting reveals is that they failed to turn their mind to clause 10’s requirements.
[48] It follows that the District Court Judge was wrong to find that the meeting on
8 December 2003 effected a variation of the original building contract.
[49] The next question is whether or not the deficiencies in the statement of claim can be cured at this late stage by permitting an amendment of the statement of claim: see BNZ Finance Ltd v Smith & Leuchars [1991] 3 NZLR 659 (CA).
[50] Had the Carrs been faced with a statement of claim that made it clear they were facing a claim based on a variation to the original building contract, they may well have raised arguments in their defence that were based on clause 10. But since the claim based on variation of the original building contract was raised improperly (not pleaded) and very late in the hearing (it was not fully developed until Ambler Homes Ltd filed its reply submissions), the Carrs did not meet it head on.
[51] The stance the Carrs took to the statement of claim is relevant to assessing the prejudice they have suffered. Given the form of the statement of claim, the Carrs’ stance was a legitimate one to take. However, it was also one which meant they did not adequately address the merits of the argument for seeing the
8 December 2003 meeting as effecting an oral variation of the original building contract. This means that they would suffer significant prejudice if this Court were to use the powers available to it to amend the statement of claim.
[52] Additionally, Ambler Homes Ltd had sufficient opportunity during the hearing in the District Court to apply to amend the statement of claim. The Carrs’ stance was made known to Ambler Homes Ltd through the statement of defence, and the Carrs’ submissions to the District Court. Yet Ambler Homes Ltd persisted with its passive approach of leaving it up to the District Court Judge to determine if an amendment was necessary.
[53] This is not one of those cases where an amendment of the statement of claim at this late stage would simply bring the pleading into line with what had actually been addressed in the District Court in evidence and/or by legal argument. Unless the Carrs are given the opportunity to address the issues raised by amending the statement of claim, they will not have had a proper opportunity to be heard in their defence. But to give the Carrs this opportunity would entail re-opening the entire case. It is too late for this to occur. The Carrs should not have to go through a re-run of Ambler Homes Ltd’s claim against them, especially when they are not responsible for the circumstances creating the need for a re-run. It would be oppressive to place the Carrs in that position. It follows that the harm the Carrs would suffer if the statement of claim was allowed to be amended is contrary to the interests of justice.
[54] Thus, insofar as the claim of Ambler Homes Ltd is based on a variation of the original building contract, the claim must fail.
Was a discrete oral contract formed at the meeting on 8 December 2003?
[55] I now turn to consider whether or not the discussions which occurred on
8 December 2003 are capable of constituting a discrete oral agreement that was collateral to the original building contract.
[56] The District Court found that what had emerged from the meeting on
8 December 2003 was an oral agreement by which Ambler Homes Ltd and Tamaki Roofing Ltd would attend to the items described in paragraph 7(a) of the statement of claim, and the Carrs would, in return, pay the sum of $19,323.75. The District Court Judge looked at the question of whether there was consideration to support the formation of an oral contract. He found that at the meeting on
8 December 2003, Ambler Homes Ltd agreed to attend to various items listed by the Carrs, which did not fall within the maintenance period of the original contract. This was enough to satisfy him that there was consideration to support the formation of an oral contract: At [35] he stated:
AHL agreed on 8 December 2003 to attend to the various items in the list which include items which they were not obliged under the contract to attend to after the expiry of the maintenance period. This is consideration enough.
[57] It was implicit in Ambler Homes Ltd’s argument in the District Court that if the Carrs had not identified any defective work under the original building contract within the maintenance period, then it was too late for them to withhold payment under the original building contract. This argument led the District Court Judge to conclude that an assumed liability to address defects that were notified outside the maintenance period could constitute consideration to support an oral agreement. The conclusion is wrong.
[58] This is because the District Court Judge took no account of the original building contract, which was where the maintenance period was to be found. What Ambler Homes Ltd referred to throughout the hearing in both Courts as the maintenance clause is to be found in clause 25 of the original building contract. Clause 25 imposed an obligation on Ambler Homes Ltd to remedy faults. The clause provided:
25. Builder to remedy faults
Providing the owner should have made all payments due to the owner under this contract the builder shall immediately repair and make good, at the builder’s own costs, any defects appearing that:
a)Are notified to the builder within 31 days of completion of the work; and
b)Arise from fault materials, fault workmanship, or materials or workmanship not in accordance with plans and specifications.
[59] Clause 25 is a standard clause that is often found in building contracts. Such clauses do not of themselves preclude the builder from continuing to be liable after the expiry of the 31 day period for any defective work. The general principle is that unless the building contract provides to the contrary, the contractor’s liability for defective work continues until barred by the Limitation Act 1950. The principle is well explained in Stephen Furst and Sir Vivian Ramsey Keating on Construction
Contracts (8th ed, Sweet & Maxwell, London, 2006) at [10-024]:
In the absence of words to the contrary, the contractor’s liability for not completing the works in accordance with the contract continues until barred by the Limitation Act 1980 [England and Wales] and thus extends for the period of six years for a simple contract, and 12 years for a deed from the date when the cause of action against him arose. A cause of action for ordinary failure to build in accordance with the contract normally arises at practical completion. A cause of action for failure to comply with the defects liability obligations normally arises at such later date after practical completion as the contract prescribes for carrying out those obligations …
Where there is a defects clause and at the end of the defects liability period, a binding and conclusive final certificate of satisfaction is given by the architect then, in the absence of fraud or other special circumstances, the contractor’s liability in contract for any defects which may appear thereafter comes to an end, and this notwithstanding that the certificate may have been granted after the commencement of legal proceedings in respect of the defects in question.
[60] The statement in Keating accords with accepted principle and common sense. Statements to similar effect can be found in I N Duncan Wallace Hudson’s Building and Construction Contracts (11th ed, Sweet & Maxwell, London, 1995) at [5.051].
[61] Given the time period for suing for breach of contract in the Limitation Act, it is difficult to see how simply by inserting a clause requiring Ambler Homes Ltd to remedy those defaults that are notified within 31 days of completion, the building
contract could deprive the Carrs of the right to make a claim for defaults arising from the original contract works that were not notified within the 31 day timeframe. There is nothing in the parties’ original building contract that could establish an exception to the general principle.
[62] The terms of the original building contract are consistent with the Carrs being able to enjoy deductions from the contract price for inferior or defective work. Clause 13 of the original building contract required Ambler Homes Ltd to perform work in a workmanlike manner, and allowed for reasonable deductions when that obligation was not discharged. No time limit was placed on when the Carrs might exercise this right. Clause 13 provided:
13. Work to be performed in workmanlike manner
The builder shall perform all work in a proper and workmanlike manner and accept all responsibility and reasonable deductions in payment for inferior workmanship and materials.
[63] Apart from clause 13, the law allows a party to a contract who has received less than what he or she has bargained for to claim a reduction in the contract price to compensate for the inferior performance. The reduction takes the form of unliquidated damages, which are then set off against the contract price. Clause 25 could not impose a time restraint on the exercise of those rights. Much stronger language would be required before those rights were lost.
[64] Looked at overall, there is nothing in the original building contract which might cause it to be read as preventing the Carrs from exercising their rights under clause 13, or under the law, outside of the 31 day maintenance period. As is recognised in Keating, there would need to be a clear express provision prohibiting claims for defective or inferior workmanship outside the 31 day period before the original building contract could be interpreted as having that effect.
[65] Thus, the willingness of Ambler Homes Ltd and Tamaki Roofing Ltd to attend to items which fell outside the 31 day maintenance period cannot necessarily be understood to be an assumption of a liability outside the terms of the original building contract and, therefore, consideration for an oral contract having formed on
8 December 2003. Since this is how the District Court Judge reached his finding on this issue, it follows that the finding is based on erroneous reasoning.
[66] Before the willingness of Ambler Homes Ltd and Tamaki Roofing Ltd can be understood to be an assumption of an additional liability outside of that provided for in the original building contract, the character of the items they agreed to attend to has to be identified. This was not done in the District Court. Nor was my attention drawn to evidence that would suggest that the items of work identified in paragraph 7(a) of the statement of claim were items outside the terms of the original building contract. If they had fallen outside the terms of that contract, then a discussion about attending to them, and the payment to be made for them, may have provided enough certainty for an oral contract to arise. But if parties to an already existing contract meet to discuss how it can be brought to completion, with one side identifying the work it considers still outstanding, and the other side identifying the payment it considers appropriate (which can happen with contracts that allow for reasonable deductions for inferior workmanship), the law would not generally see those discussions as leading to a separate collateral contract. In principle, those types of discussions may result in agreed additions or variations to the original contract, but for the reasons I have already stated, this way of looking at the
8 December 2003 meeting is not open. With this case, the only remaining way that any agreement on 8 December 2003 could give rise to enforceable contractual obligations was if it resulted in the formation of a separate oral contract.
[67] I consider that there are obstacles to the notion that the meeting of
8 December 2003 gave rise to a separate collateral contract. First, as I have mentioned in [66], neither the statement of claim nor the evidence makes it clear to me that the work described in paragraph 7(a) of the statement of claim was work that fell outside the terms of the original building contract. Indeed, I have the strong impression that the work was part of the original building contract. If Ambler Homes Ltd wanted to contend otherwise, it was for Ambler Homes Ltd to prove that was so because it carries the burden of proof.
[68] Secondly, unless the items of work in paragraph 7(a) are separate from the work under the original building contract (which they probably are not), any
agreement to perform this work cannot be consideration for a new separate contract. The general principle is that:
There is no consideration if all that the plaintiff does is to perform, or to promise to perform, an obligation already imposed on him or her by a previous contract between him or her and the defendant:
see John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand
(3rd ed, Lexis Nexis, Wellington, 2007) at [4.6.2].
[69] Thirdly, unless the items of work in paragraph 7(a) are distinguished from the work under the orignal building contract (which they have not been), any attempt to describe the discussions at the meeting on 8 December 2003 as a separate contract runs into the problem of what might be the effect on the original building contract. If the parties had also decided on 8 December 2003 to end the original building contract, they could then have proceeded to form a new contract for work that came under the original building contract. For example, in Mudford v TNT Building Developments Ltd HC Hamilton CIV 2005-419-1753, 30 May 2006, the parties were in dispute over payment for building works carried out on a motel. The builder alleged it was owed approximately $110,000 plus GST. The parties attempted to resolve their difficulties. First, they agreed that “the implied contract in existence for work at the Southern Cross Motor Inn, Hamilton is at an end effective from this date”. Then, eight days later, they set out in writing an itemised account listing work done and the payment for that work. The outcome provided for in the document had been reached using the services of an independent person who had sought to achieve a measure of agreement between the parties. The parties signed this document. The Court found that the builder was entitled to summary judgment for payment as agreed in the written document. The Court refused to read into the agreement an implied term regarding the standard of workmanship. What is significant about Mudford for the purpose of the present case is that the agreement that was sued on was clearly intended to be a replacement agreement for an earlier implied agreement. The parties had specifically turned their minds to the first agreement and they had agreed to treat it as being at an end.
[70] In this case, there is no evidence that the parties had decided to end the original building contract. Nor has that event been pleaded in the statement of claim. But for as long as the original building contract remained alive, any later agreement which covered work that was already part of the original building contract could not result in something different from the original building contract, without also effecting a variation to that contract. For the reasons already stated, there are barriers in this case to seeing the 8 December 2003 meeting as effecting a variation to the contract.
[71] There is another reason why the status of the original building contract affects how the discussions of the meeting on 8 December 2003 are viewed. This runs into the fourth obstacle to seeing those discussions as forming a separate oral contract. This obstacle is that, viewed objectively, the agreement reached on
8 December 2003 does not look as if it was intended to give rise to legal consequences over and above those already found in the original building contract.
[72] In Verissimo v Walker [2006] 1 NZLR 760 at [29]-[30], the Court of Appeal distinguished between parties reaching an agreement in the colloquial sense and them reaching the state where, when objectively viewed, they could be said to have assumed an immediate legal committment. In Verissimo, the Court of Appeal used as a helpful test, to determine the legal consequences of what had occurred, three questions posed by Mahoney JA in Air Great Lakes Pty Ltd v K S Easter (Holdings) Ltd Pty Ltd (1985) 2 NSWLR 309 at 326:
The only question considered by the [trial Judge] was whether there was a binding contract between the parties. In considering this question ... it is of assistance to distinguish between three questions: did the parties arrive at a consensus?; (if they did) was it such a consensus as was capable of forming a binding contract?; and (If it was) did the parties intend that the consensus at which they arrived should constitute a binding contract?
At [30] of Verissimo, the Court of Appeal equated the word “agreement” in ordinary
New Zealand parlance with the first of Mahoney JA’s three questions.
[73] In this case, the District Court Judge failed to address those three questions. Whilst the District Court Judge was satisfied that an oral agreement arose from the discussions on 8 May 2003, he failed to distinguish between agreement in the
colloquial sense and a legally binding agreement. This is understandable. The District Court Judge was led astray by the argument that the oral contract he found to exist was a variation to the original building contract. I have already found that, in the way in which the case was presented to him, it was not open to him to make that finding.
[74] Any assessment of the legal consequences flowing from the discussions on 8
May 2003 requires the status of the original building contract to be taken into account. If the oral agreement was for work that was outside the terms of the original building contract, the new contract would stand apart from the earlier contract. But if the work and payment discussed on 8 May 2003 fell within the original building contract, then unless the parties agreed during their discussions on
8 May 2003 to bring the original building contract to an end, I cannot see how the discussions can be seen to fulfill the requirements of Mahoney JA’s three questions. This is because the obligations for the performance and payment for the work that was discussed at that meeting are already found in the original building contract. The better view of this type of discussion is that the parties are simply attempting to arrive at a consensus on how they should each discharge the existing contractual obligations, which they owe to each other. Such discussion needs to be contrasted with what occurred in Mudford where the parties did first turn their minds to their primary contract and decided it should cease to exist.
[75] I am aware that in their counterclaim, the Carrs have pleaded the existence of an oral contract arising from the meeting on 8 December 2003. But this oral contract is pleaded as having different terms from the one which Ambler Homes Ltd has pleaded. Thus, there is no question of the Carrs pleading in their counterclaim something which would amount to an admission of the oral contract which Ambler Homes Ltd has alleged.
[76] I have given consideration to whether or not what occurred on 8 December
2003 could be described as a compromise of the claims each side may then have had against the other. The law of compromise and accord and satisfaction is set out in H G Beale Chitty on Contracts Volume 1 General Principles (13th ed, Thompson Reuters, London, 2008) at [22-012]-[22-014]. However, looking at the 8 December
2003 meeting in this way raises many of the same problems I have already identified, namely the essential elements of a compromise have not been pleaded, nor do they seem to be present in the evidence. At 22-013 Chitty states:
In order to establish a valid compromise, it must be shown that there has been an agreement (accord) which is complete and certain in its terms and that consideration (satisfaction) has been given or promised in return for the promised or actual forbearance to pursue the claim.
[77] Chitty defines the terms accord and satisfaction in the following way (22-
012):
Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is a consideration which makes the agreement operative.
[78] In the present case, there is no evidence to show that the items of work identified in paragraph 7(a) of the statement of claim go beyond what Ambler Homes Ltd was obliged to perform under the original building contract. It is also difficult to see from the evidence of what occurred at that meeting an intent on the part of all the parties to finally end any claim each might have against the other. There is simply not enough before the Court to enable it to conclude that what occurred on 8 December 2003 could be shaped into a compromise based on the principles of accord and satisfaction.
Outcome
[79] For the reasons stated herein, Ambler Homes Ltd has failed to establish its claim against the Carrs. In an appeal from a decision of the District Court, it is open to this Court to direct the matter be referred back to the District Court for rehearing. It will often be in the interests of justice to order a rehearing where it is clear that the District Court has reasoned to a wrong conclusion. Here, the District Court has erred due to the flawed and muddled way in which Ambler Homes Ltd presented its case to the District Court. The opportunity to rectify the claim was present throughout the hearing in the District Court. However, the claim remained in its original state.
[80] The only way in which the claim Ambler Homes Ltd makes could properly be considered at any rehearing would be if Ambler Homes Ltd were to start again and re-plead its case. Given the time and expense to which the Carrs have been put, I consider that it would be oppressive and contrary to the interests of justice to permit Ambler Homes Ltd an opportunity, at this very late stage, to reorganise its case.
[81] This may mean that Ambler Homes Ltd has lost the opportunity to pursue its claim for payment of $19,323.75 against the Carrs. Before the District Court, Ambler Homes Ltd argued that if its claim for an oral contract formed at the meeting on 8 December 2003 failed, it could bring new proceedings which sued on the original building contract. However, given what has occurred to date, it may well be that any fresh attempt by Ambler Homes Ltd to recover payment by suing on the original building contract will be met with defences based on issue estoppel and abuse of process.
[82] In NZ Social Credit Political League v O’Brien [1984] 1 NZLR 84 (CA) at
95, the Court of Appeal discussed the concepts of estoppel per rem judicatum, issue estoppel and abuse of process, which it described as:
… exemplifying similar concepts – that a matter once determined may not be again litigated, that a matter which could and should have been raised in proceedings which have been determined should not be allowed to be raised subsequently, and that a collateral attack upon a final decision in other proceedings will not be permitted. The dual objects are finality of litigation and fair use of curial procedures.
[83] I have taken these principles into account and their potential effect on Ambler Homes Ltd when deciding what the outcome should be in this appeal. Whilst it is regrettable that there may now be no merits based assessment of the payment claim Ambler Homes Ltd makes, the responsibility for this lies with Ambler Homes Ltd.
[84] The appeal by the Carrs against the judgment entered against them in the
District Court is allowed.
Counterclaim
[85] I now turn to deal with the appeal against the rejection of the counterclaim. At [124] of the judgment, the District Court Judge expressed his criticisms of the way in which the Carrs had run their case (before defence and counterclaim). However, the view the District Court Judge reached on the Carrs is likely to have been influenced by the impressions he formed of their defence. On more than one occasion in the judgment (see [129]), the District Court Judge referred to what he described as “the unsatisfactory flip-flop nature of Mr Carr’s evidence”. When this was said at [129], the District Court Judge was being critical of Mr Carr’s refusal to accept questions put to him in cross-examination suggesting that there must have been an oral contract formed on 8 December 2003, because why else would Ambler Homes Ltd agree to perform work that was notified outside the 31 day maintenance period. The logic behind this question would only follow if outside the
31 day period Ambler Homes Ltd had no contractual obligation to perform this work. I have already made findings in that respect. The District Court Judge was under the misapprehension that a failure to notify defective inferior work within the
31 day period meant that it could not subsequently be the subject of a claim. This meant that he erred in accepting the arguments of Ambler Homes Ltd, and wrongly formed an adverse view of Mr Carr’s reliability as a witness. The result has been the rejection of Mr Carr’s evidence in circumstances where that may not have been warranted.
[86] Insofar as the issues raised in the counterclaim are factual, I only have a paper record of the evidence that was heard in the District Court. I am in no position, therefore, to determine who is a reliable witness and who is an unreliable witness. This would have been a reason to refer the counterclaim back to the District Court for rehearing. However, the counterclaim is defectively pleaded. Unlike some counterclaims which are attached to a statement of defence, and which refer to and repeat the matters pleaded in the statement of defence, this counterclaim stands alone. Ordinarily, this would not be significant. But unfortunately here, whilst the statement of defence pleads the original building contract, the counterclaim makes no reference to it. Instead, the counterclaim refers to the
meeting on 8 December 2003 and pleads it resulted in an oral agreement, though with different terms from the one for which Ambler Homes Ltd contends. Since the counterclaim makes no reference to the allegations pleaded in the statement of defence, it is not possible to read these allegations into the counterclaim.
[87] The relevant parts of the counterclaim are paragraphs 5, 6 and 7. They plead:
5.That the parties met on 8 December 2003 and entered into an oral agreement (the oral agreement).
6.That the oral agreement was that when plaintiff when remedied defects to an acceptable standard and completed unfinished work, the parties would discuss and reach agreement on the sum to be paid by the defendants to the plaintiff after allowing for compensation for the defects which had not been remedied by the plaintiff, incomplete and/or inadequate work, and/or delay by the plaintiff in completing the work.
7.Despite agreement that rectification work was to be done, the plaintiff has filed to complete the work, remedy the incomplete and/or inadequate work and the defendants have incurred loss in completing the rectification work themselves.
[88] Nowhere in the counterclaim is there any reference to the terms of the original building contract. Ambler Homes Ltd sought particulars of the counterclaim, and they were provided in a document described as “defendants’ reply to notice by plaintiff to provide further and better particulars of statement of counterclaim”. Reading the particulars, it becomes apparent that the items which are the subject of the counterclaim fall largely, if not entirely, within the original building contract, but the counterclaim does not plead this. It appears to rely entirely on the alleged oral agreement of 8 December 2003.
[89] Although the terms of the oral agreement the Carrs plead as having arisen on
8 December 2003 vary from that of Ambler Homes Ltd, their attempt to create a legally binding oral agreement arising from that meeting encounters the same obstacles which Ambler Homes Ltd faced. For the reasons I have already given herein, it is simply not possible to elevate what occurred on 8 December 2003 to a legally enforceable contract. Consequently, there is no basis for the claims made in the counterclaim.
[90] Had the Carrs sued on the original building contract, it would have been a matter of assessing the evidence to determine whether or not the claims were made out. That would have been an entirely factual exercise, and one which would have resulted in the counterclaim being referred back to the District Court for rehearing. However, given the defects in the counterclaim, the only way in which any rehearing of it could occur would be if the Carrs were permitted to re-plead it. I have already found that Ambler Homes Ltd should not be permitted, at this late stage, to re-plead its claim against the Carrs. It seems to me that the same reasons which caused me to find that Ambler Homes Ltd should not be given an opportunity to bring its case again apply equally to the Carrs. Since the attempt to claim the matters listed in the counterclaim is based entirely on an alleged oral contract arising from the meeting on 8 December 2003, for that reason alone, the claim must fail. It follows that the Carrs’ appeal against the District Court’s rejection of its counterclaim should be dismissed.
General
[91] Section 76 of the District Courts Act 1947 gives this Court broad powers on appeal to enable the real merits of a dispute to be determined. However, such powers can only be exercised if the parties have had a proper opportunity to be heard on the “real merits”. Here, the only way the “real merits” could be before the Court would be if both parties had the opportunity to re-fashion the claims which each of them has made against the other. For the reasons I have already expressed, I do not consider it is in the interests of justice to give either party that opportunity. No one should be able to use a defended hearing in the District Court, and an appeal hearing in this Court, for what has been no more than a poor rehearsal of their claims against each other. It leads to an unnecessary waste of time and resources for them, and for the courts.
Result
[92] The Carrs’ appeal against the District Court entering judgment against them on Ambler Homes Ltd’s statement of claim is allowed. The Carrs’ appeal against
the District Court’s rejection of their counterclaim against Ambler Homes Ltd is dismissed.
Duffy J
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