Cole v Xiang

[2012] NZHC 3146

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-002699 [2012] NZHC 3146

BETWEEN  MICHAEL COLE

ANDADELE COLE Appellants

ANDJACK XIANG First Respondent

ANDREALTY INSIGHT LIMITED Second Respondent

ANDTHEOTESTO REYES Third Respondent

ANDRAY RANGI Fourth Respondent

Hearing:         11 September 2012

Appearances: C J R Baird and R R Griffin for the Appellants

S W M Piggin for the First and Second Respondents
No appearance for the Third and Fourth Respondents

Judgment:      23 November 2012

JUDGMENT OF GILBERT J

This judgment was delivered by me on 23 November 2012 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:

Counsel:            C J R Baird, Auckland:  [email protected]

S W M Piggin, Auckland:  [email protected]

Solicitors:           Quinn law, Auckland

COLE V XIANG HC AK CIV 2012-404-002699 [23 November 2012]

Introduction

[1]      The Coles purchased a new house in Glenfield, Auckland on 8 October 2006 for $555,000.  They were aware of the leaky building problems affecting some types of housing but they thought that by purchasing a new home with a code compliance certificate they would avoid these types of problems.  The Coles proceeded with the purchase after being advised by their solicitors that they did not need to obtain a pre-purchase building report.

[2]      Unfortunately, the house turned out to have been poorly constructed and the drainage at the property was substandard.  These defects caused the house to flood during periods of heavy rainfall.

[3]      The Coles brought claims in the Weathertight Homes Tribunal against the North Shore City Council and the builder.  The Council and the builder applied to join a number of other parties including the vendor’s real estate agent Mr Xiang, Realty Insight, the architect, Mr Reyes, and the drainlayer, Mr Rangi on the basis that they had also breached obligations to the Coles and had contributed to their loss.

[4]      The  Coles  settled  at  mediation  with  the  Council  and  the  builder  in September 2009.   The terms of this settlement precluded them from making any claim against their solicitors.  The Coles therefore sought to recover the balance of their loss from Mr Xiang, Realty Insight, Mr Reyes and Mr Rangi.

[5]      The claims against Mr Reyes and Mr Rangi were framed in negligence.

[6]      The  claims  against  Mr  Xiang  and  Realty  Insight  were  for  breaches  of sections 9  and  14  of  the  Fair  Trading  Act  1996  (the  Act)  and  for  negligent misstatement.  These claims were based on statements Mr Xiang made to the Coles on  23 August 2006,  immediately  prior  to  them  signing  an  earlier  agreement  to purchase the same property.  The Tribunal found that Mr Xiang made three relevant statements at that time.  The first was that a code compliance certificate had been issued by the Council for the property.  The second was that the Coles did not need to obtain a pre-purchase building report because the house was new and had a code

compliance certificate.  The third statement was that the Coles would not have any problems with the property.

[7]      The   Coles   cancelled   the   23   August   2006   purchase   agreement   on

30 August 2006 after their solicitors advised them that the house did not have a code compliance certificate, contrary to what Mr Xiang had told them.  Despite knowing that Mr Xiang had misled them about the code compliance certificate, the Coles claim that they continued to rely on  his other statements when they signed the second purchase agreement on 8 October 2006.

[8]      The Coles sought damages of $295,422 for repair and reinstatement costs and

$58,500 for stigma giving a total of $353,922.  Alternatively, they claimed $292,436 for diminution in the value of the property.  They also sought general damages of

$60,000.

[9]      Neither Mr Reyes nor Mr Rangi took any steps to defend the claims and they did not attend the hearing.   The claims against them proceeded by way of formal proof. Mr Xiang and Realty Insight contested the claims against them.

[10]   Following a four day hearing in late 2011, the Tribunal issued a final determination in April 2012 dismissing all of the claims.  The Tribunal found that Mr Xiang’s statement that it was not necessary to obtain a pre-purchase building report was misleading and deceptive in breach of s 9 and a negligent misstatement. The Tribunal doubted that this statement contravened s 14 of the Act but did not finally determine this.   Critically, the Tribunal found that the Coles relied on their solicitors’ advice in signing the second agreement and not on anything Mr Xiang had said prior to them signing the initial agreement. Accordingly, the Tribunal found that Mr Xiang’s incorrect statement did not cause the Coles’ loss.  The Tribunal found that the claims against Mr Reyes and Mr Rangi were also not proved.

[11]     The Coles now appeal from this determination.

Grounds of appeal

[12]     The Coles argue that the Tribunal erred in the following respects:

(a)      in rejecting their claim that Mr Xiang’s statement that they would not

have any problems with the property was misleading or deceptive;

(b)in  not  finding  that  Mr  Xiang’s  statement  about  the  need  for  a pre-purchase building report was a false or misleading representation concerning the characteristics of the land and/or the use to which it was capable of being put in breach of s 14(1)(b) of the Act;

(c)      in finding that Mr Xiang’s statements did not cause their loss;

(d)in not inviting submissions as to an award of costs against Mr Xiang and Realty Insight despite dismissing the claims against them; and

(e)      in finding that the claims against Mr Reyes and Mr Rangi were not proved.

Approach on appeal

[13]     An  appeal  under  s  93  of  the  Weathertight  Homes  Resolution  Services Act 2006 is by way of rehearing.   The Court has power under s 95 of that Act to confirm, modify, or reverse the determination or any part of the Tribunal’s determination.

[14]     The proper approach to such an appeal was set out by the Supreme Court in

Austin Nichols & Co Inc v Stichting Lodestar:1

Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment.   If the appellate Court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.

1Austin Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141 (SC) at [16].

In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

Was Mr Xiang’s statement that the Coles would not have any problems with the property misleading or deceptive?

[15]     As  noted,  Realty  Insight  and  Mr  Xiang  were  joined  to  the  proceeding following an application by the North Shore City Council.  This application and the order joining these parties relied solely on Mr Xiang’s statement that there was no need for the Coles to obtain a pre-purchase report on the property.   Mr Xiang’s statement that they would not have any problems with the property was not referred to  in  the application  or  in  the order.   The Tribunal  nonetheless  dealt  with  this additional limb of the Coles’ claim.

[16]      Mr Cole’s evidence was that he asked Mr Xiang at the meeting, immediately prior to signing the first agreement on 23 August 2006, whether or not he should get a pre-purchase report on the property.  Mr Xiang said he knew the builder, Mr Lee, and  he  telephoned  him  in  the  Coles’ presence.    Following  this  telephone  call Mr Xiang told the Coles that they did not need to obtain a property inspection report because:

(a)      the house was  new;

(b)      a code compliance certificate had been issued;

(c)       Mr Lee would promptly fix any issues with the condition or quality of the property; and

(d)      if there were any issues with the condition or quality of the property

Mr Xiang would ensure that Mr Lee promptly remedied them.

[17]     Mr Cole was unable to recall precisely what Mr Xiang said at this meeting, which took place over five years before he gave his evidence.   However, his recollection was that Mr Xiang said something to the effect “I can assure you there will not be a problem.  I guarantee to you that there will be no problems with the

house”.  The Tribunal found that Mr Xiang assured the Coles that there would be no

problems with the property.2

[18]     The Coles characterise this representation as a “promise and guarantee” and

submit that:

… in addition to the express meanings the words above carry, the implied meanings   of,   and   what   the   Coles   understood   from,   Mr   Xiang’s representations at the 23 August 2006 meeting were that Mr Xiang was personally underwriting and guaranteeing the quality and standard of the house  and  compliance  issues  because  Mr Lee  was  his  friend,  with  the consequence that Mr Xiang was personally prepared to back the deal to make the sale happen.

[19]     Mr Baird, for the Coles, relied on the observations of Wylie J in Singh v

Rutherford that:3

Where somebody warrants something, the person giving the warranty binds himself or herself to it.  A warranty is a statement of something which the party undertakes should be part of the contract, and if a representation is made  in  the  course  of  dealings  for  a  contract  for  the  very  purpose  of inducing the other party to act on it, and it actually induces the other party to act  on  it  by  entering  into  the  contract,  that  is  prima  facie  grounds  for inferring that the representation was intended as a warranty.

In general, the maker of a warranty undertakes strict liability for what he or she warrants and a warrantor assumes the risk that his or her belief about the matter warranted might be mistaken.  From the innocent party’s perspective, the purpose in seeking a warranty is to protect against error.

Mr Baird submits that, like the vendor in Singh, Mr Xiang should be held to his “promise and guarantee” representation and warranty, particularly bearing in mind the consumer protection policy and purpose of the Fair Trading Act.

[20]     Mr Baird argues that the Tribunal ought to have found that Mr Xiang did not intend to make good on this promise and guarantee at the time he made it.  He relies on the following matters to support this submission:

(a)      The Tribunal found that Mr Xiang’s evidence was “unreliable and

self-serving”.

2 Final Determination dated 19 April 2012 at [51].

3Singh v Rutherford (2012) 10 NZBLC 99-702 (HC) at [31] and [32].

(b)      Mr Xiang denied that the 23 August 2006 meeting took place.

(c)      Mr Xiang was found guilty in 2006 of serious misconduct by the Real Estate Agents Licensing Board for falsifying trust account records and supporting documents.

(d)      Mr Xiang failed to fix the problems after the Coles’ property flooded

in March 2007.

[21]     The critical issue, given the way Mr Baird argued the Coles’ case, is whether Mr Xiang’s statement that there would be no problems with the property meant that he was personally guaranteeing and underwriting the standard and quality of the house and its compliance with code requirements.   I do not consider that he was. The present case is distinguishable from  Singh.   That case involved an express warranty in an agreement for sale and purchase which Mr Singh was bound to honour.  In my view, Singh has no application to the present case.

[22]     Mr  Xiang’s  statement  was  a  statement  of  his  belief,  not  an  enforceable promise requiring him to rectify any problems that might eventuate.  The statement did not carry the implied meanings suggested  by Mr Baird that Mr Xiang was personally underwriting and guaranteeing the quality and standard of the house and its compliance with code requirements.  Mr Xiang was merely saying that he did not believe that there would be any problems with the house but, if there were, Mr Lee would fix them.

[23]     This is consistent with the special conditions which were inserted for the

Coles’ benefit in the 23 August 2006 agreement which they then signed:

14  This  contract  is  conditional  upon  the  Purchaser’s  satisfaction,  within

5 working  days  of  the  acceptance  of  this  agreement,  of  the  information disclosed in these records held at the North Shore City Council.  Should all

information disclosed in these records be satisfactory to the Purchaser, the

Purchaser is to notify the Vendor or the Vendor’s Solicitor by 5pm on the

said  date  that  his  condition  has  been  satisfied,  or  the  agreement  will terminate. The Vendor shall have the right to remedy any defect arising from the record research at his own cost and prior to Possession Date herein.  This condition is inserted for the sole benefit of the Purchaser.

15 This agreement is conditional upon a 5 year STRUCTURAL warranty from the Vendor, and all suppliers warranties passed on.  This clause is inserted for the sole benefit of the purchaser.

16 Any defects or other faults in the house which arise from faulty materials and/or workmanship or from materials and workmanship not being in accordance with the plans and specifications, and which are notified to the Vendor in writing within 90 days after the Purchaser takes possession of the house shall be made good by the Vendor at the Vendor’s expense within reasonable time of receiving such notification.  “Reasonable time” shall not exceed six weeks from date of notification.

[24]     The  Tribunal  appears  to  have  proceeded  on  the  basis  that  Mr  Xiang’s statement amounted to a personal guarantee.   If it did, I respectfully disagree.   I consider that Mr Xiang’s statement was no more than a statement of his opinion that there would not be any problems with the house but that, if there were, Mr Lee would fix them promptly.

[25]     The Tribunal found that Mr Xiang’s evidence was unreliable and self-serving. However, there was no evidence to suggest that Mr Xiang expected, contrary to what he told the Coles, that there would be problems with the house.  Nor was there any evidence to show that Mr Xiang knew, again contrary to what he told the Coles, that Mr Lee would not fix any problems that did arise.   Mr Xiang was aware that the vendor was standing behind the quality and condition of the house by giving the five year structural warranty and the commitment to rectify, within six weeks, any defects or other faults notified by the Coles within 90 days of them taking possession.

[26]     My analysis of this issue differs from that of the Tribunal.  However, for the reasons I have given, I agree with its conclusion that Mr Xiang’s statement that there would not be any problems with the property was not misleading and deceptive. It was a statement of opinion, not a personal guarantee.  The opinion was not shown to have been dishonest and there was a reasonable basis for Mr Xiang’s belief in the circumstances that then existed.  Accordingly, this first ground of the Coles’ appeal must be dismissed.

Was Mr Xiang’s statement about the need for a pre-purchase building report a false or misleading representation concerning the characteristics of the land and/or the use to which it was capable of being put in beach of s 14(1)(b) of the Act?

[27]     The Tribunal found that Mr Xiang’s statement that the Coles did not need to obtain a pre-purchase building report was misleading conduct in breach of s 9 of the Act.4    This was because a code compliance certificate did not necessarily provide assurance  that  the  building  did  not  have  defects  or  weathertightness  problems.5

However, the Tribunal expressed reservations about whether this representation concerned the characteristics of the land in terms of s 14 of the Act.6    It made no final determination on this issue, presumably because it had already found that the representation was misleading and in breach of s 9.  Mr Baird submits that this was an error.

[28]     In my view, Mr Xiang’s statement concerned the scope and purpose of a code compliance certificate as compared with a pre-purchase building report. It was not a statement concerning the characteristics of the land or the use to which it could be put.  The representation did not breach s 14.  In any event, it was not necessary for the Tribunal to determine whether the misleading conduct breached s 14 given that it had found that it breached s 9.   This ground of the Coles’ appeal must also be dismissed.

Did Mr Xiang’s statements cause the Coles’ loss?

[29]     The Tribunal concluded that Mr Xiang’s misleading statement did not cause the Coles’ loss.   It concluded that the Coles relied solely on the advice of their solicitors when entering into the second agreement on 8 October 2006 and not on anything  Mr  Xiang  had  said  prior  to  them  signing  the  first  agreement  on

23 August 2006.

[30]     Mr Baird submits that  the Tribunal made three errors in  arriving at this conclusion:

(a)      it did not apply the appropriate test for causation under s 43 of the

Act;

(b)it ought to have found that Mr Xiang’s misleading conduct was an operating or an effective cause of the Coles’ loss and that its causal potency was not displaced by their solicitors’ subsequent negligent advice; and

(c)      it ought to have found that Mr Xiang’s negligent misstatements were a material and substantial cause of the Coles’ loss.

[31]     For all practical purposes the second and third alleged errors are the same. Mr Baird advanced the same reasons in support of each and they therefore do not need to be considered separately.

Did the Tribunal apply the appropriate test?

[32]     The Tribunal accepted the Coles’ submission that the appropriate test for causation in this case was that set out by the Supreme Court in Red Eagle Corporation Limited v Ellis.7 The Supreme Court stated that this approach should be applied in relatively simple cases where there was no doubt about what was said or about its meaning and where the loss arose from the same event and did not have different components.8   In considering whether causation was established under s 43, the Court stated:9

Then, with breach proved and moving to s 43, the Court must look to see whether it is proved that the claimant has suffered loss or damage “by” the conduct of the defendant.  The language of s 43 has been said to require a “common law practical or common-sense concept of causation”.  The Court must first ask itself whether the particular claimant was actually misled or deceived by the defendant’s conduct.  It does not follow from the fact that a reasonable person would have been misled or deceived (the capacity of the

conduct) that the particular claimant was actually misled or deceived.  If the Court takes the view, usually by drawing an inference from the evidence as a whole, that the claimant was indeed misled or deceived, it needs then to ask whether the defendant’s conduct in breach of s 9 was an operating cause of the claimant’s loss or damage.  Put another way, was the defendant’s breach the effective cause or an an effective cause?  Richardson J in Goldsbro spoke of the need for, or, as he put it, the sufficiency of, a “clear nexus” between the conduct and the loss or damage. The impugned conduct, in breach of s 9, does not have to be the sole cause, but it must be an effective cause not merely something which was, in the end, immaterial to the suffering of the loss or damage.   The claimant may, for instance, have been materially influenced exclusively by some other matter, such as advice from a third party.

[33]     The Supreme Court noted that the Court has a discretion under s 43.   The discretion should be exercised to do justice between the parties in the circumstances of the particular case and having regard to the policy of the Act.10

[34]     It  is  clear  that  the  Tribunal  followed  this  approach  in  concluding  that Mr Xiang’s  statement  to  the  Coles  on  23 August  2006  was  immaterial  to  their decision to sign the agreement on 8 October 2006 and therefore not an effective or operating cause of their loss which flowed from that agreement.   This is apparent from the following paragraphs of the Tribunal’s decision:11

However, I reject that submission and conclude that Mr Xiang’s misleading conduct was not an effective cause of the claimants’ loss. At the critical time of signing the second agreement [8 October 2006], the representations made by Mr Xiang on 23 August 2006 were mere background factors of no real legal consequence.   In reality the claimants were relying on the advice of their own solicitors when they entered into the second agreement and not on anything that Mr Xiang had said.

…

… While in the minds of the claimants the origins of the advice about there being no need for a pre-purchase inspection report were Mr Xiang, it was the solicitor’s advice on this issue that was the decisive and critical step in their concluding  the  unconditional  agreement  for  sale  and  purchase.     The solicitor’s advice was given immediately prior to the signing of the second agreement and it was that advice (not Mr Xiang’s misleading conduct), that was the causally potent factor.

…

In my view, the plainly wrong advice of the claimants’ own solicitors did not and  could  not  bring  Mr  Xiang’s  misleading  conduct  back  into  play.

Mr Xiang’s misleading conduct was spent and no longer legally operative. The fact that reference was made by the claimants’ solicitors to Mr Xiang’s advice/representation is simply incidental.

[35]     The Tribunal applied the correct test.   In my view there is nothing in the

Coles’ submission to the contrary.

Did Mr Xiang’s misleading statement/negligent misstatement cause the Coles’ loss?

[36]     The Coles’ evidence was that they relied on Mr Xiang’s statements when entering into the 23 August 2006 agreement without requiring a condition regarding a satisfactory pre-purchase inspection report.  However, their solicitors wrote to them on 29 August 2006 advising that no code compliance certificate had been issued and that there were significant concerns regarding the construction of the house including unauthorised departures from consented plans and various drainage issues.   The following extracts from the Coles’ solicitors’ letter illustrate the nature of Council’s concerns about the property at that stage:

A brief overview of the North Shore City Council information shows that no Code Compliance Certificate has issued for the dwelling which is contrary to the representation made to you by the real estate agent before signing the agreement. …

Further we note council information shows unauthorised works at the property and that these require further design works to protect the public drain and that the council will withhold the Code Compliance Certificate until authorised by a council development engineer.

Council information also shows that there have been changes since the building consent 1114811 was applied for in late 2004.  Some issues raised by council include changes to building plans, to the dwelling cladding, various conditions required by council for the issue of the building consent, queries as to the current registration details of the tradesman responsible for the  work under  the  building consent, removal  of  vegetation, stormwater quality and control issues at the property, retaining wall issues at the rear of the property as well as the installation of a detention tank which requires annual inspections and cleaning at the owners cost.

[37]     The solicitors advised the Coles to consult a building expert to advise on the information available in the Council records and on the dwelling that had been built. They gave the name and contact details of a reputable building expert who could assist them and they recommended that the Coles discuss matters with the Council and the building inspector before signing any variation to the agreement.

[38]     Immediately after receiving this advice, the Coles elected to cancel the first agreement.  In the cancellation letter dated 30 August 2006, their solicitors advised that the Coles were “aggrieved” and considered that Mr Xiang’s “misrepresentation” was  a  “serious  breach”  whether  or  not  a  code  compliance  certificate  could  be obtained prior to the settlement date.

[39]     When the Coles later learned, in early October 2006, that a code compliance certificate had been issued, they expressed renewed interest in the house.  However, they were not prepared to sign any further purchase agreement without speaking to their solicitors.  Their solicitors confirmed that they could proceed with the purchase without obtaining a pre-purchase building report.  The Coles were entitled to rely on this advice and did so.

[40]     This agreement did not contain the special condition in clause 14 of the earlier agreement which gave the Coles five working days to satisfy themselves about the information disclosed by Council records.   They had already inspected those records by the time this agreement was signed.  The agreement included the other two warranties that were in the earlier agreement being the five year structural warranty and the vendor’s promise to remedy any defects in the house arising from faulty materials or workmanship and notified within 90 days of the Coles taking possession of the property.

[41]     The Coles accept that they relied on their solicitors’ advice in entering into the 8 October 2006 agreement.  However, they claim that they continued to rely on the statements Mr Xiang made at the meeting on 23 August 2006.  I consider that the Tribunal was justified in rejecting this claim.   The Coles were understandably concerned to discover that Mr Xiang’s statement that the code compliance certificate had issued was incorrect.  They advised through their solicitors at the time that they were “aggrieved” by Mr Xiang’s “misrepresentation”, which they considered amounted to a “serious breach”.  Not only had no code compliance certificate issued, the Coles also discovered from their solicitors’ letter that there were serious issues with the construction of the house and its drainage.   They were advised to obtain advice from a specialist building consultant.  It is clear that by this stage, the Coles

were being guided by their solicitors, not by what Mr Xiang, as the vendor’s agent,

had told them over six weeks earlier.

[42]     I agree with the Tribunal’s conclusion on the evidence that the Coles placed sole reliance on their solicitors’ advice in signing the second agreement and not on what  Mr Xiang  had  told  them  prior  to  them  signing  the  first  agreement.    This conclusion accords with commonsense having regard to all the circumstances.  It is consistent with the fact that the Coles did not initially pursue any claim against Mr Xiang or his agency and only did so after these parties were joined on the Council’s application.

[43]     Accordingly, this aspect of the Coles’ appeal must also be dismissed

Should the Tribunal have invited submissions on costs against Mr Xiang and

Realty Insight despite dismissing the claims against them?

[44]     The Tribunal did not invite submissions on costs and made no order as to costs.  As Mr Baird points out, the Tribunal had a wide discretion in relation to costs and could have awarded costs to the Coles even though they had not succeeded. This is clear from s 91 of the Weathertight Homes Resolution Services Act which provides:

91       Costs of adjudication proceedings

(1)       The tribunal may determine that costs and expenses must be met by any of the parties to the adjudication (whether those parties are or are not, on the whole, successful in the adjudication) if it considers that the party has caused those costs and expenses to be incurred unnecessarily by –

(a)      bad faith on the part of that party; or

(b)      allegations  or  objections  by  that  party  that  are  without substantial merit.

(2)       If the tribunal does not make a determination under subsection (1), the parties to the adjudication must meet their own costs and expenses.

[45]     Mr Baird submitted that the Coles are entitled to an award of costs even though their claims against Mr Xiang and Realty Insight failed.  The Coles allege

that Mr Xiang and Realty Insight acted in bad faith by giving false and dishonest

evidence.   The Coles refer in particular to Mr Xiang’s evidence denying that the

23 August 2006 meeting took place.   The Tribunal rejected Mr Xiang’s evidence

about this as unreliable and self-serving.12

[46]     The  Tribunal  has  a  broad  discretion  on  costs.    However,  costs  should normally follow the event.  Section 91 enables the Tribunal to require a party to pay particular costs and expenses unnecessarily incurred as a result of bad faith on the part of that party.   Although the Tribunal  found that Mr Xiang’s evidence was unreliable, it does not follow that it was given in bad faith.  It must be remembered that Mr Xiang was giving evidence in late 2011 concerning events that occurred over five years earlier, in August 2006.  The Tribunal did not find that Mr Xiang gave untruthful evidence.  In the absence of such a finding, there is no basis for the Coles’ costs claim which is predicated on their contention that Mr Xiang gave false and dishonest evidence.

[47]     This ground of the Coles’ appeal also fails.

Was the claim against Mr Reyes proved?

[48]     Mr Reyes is the architect who prepared the plans for the house.  The Council applied successfully to join Mr Reyes as a party on the following bases:

(a)      Mr  Reyes  was  the  architect  who  drew  the  plans  required  for  the building consent;

(b)the plans were deficient in that they showed cladding taken down to the ground thereby allowing water ingress due to capillary action;

(c)      the plans were also deficient in that there was inadequate detailing for retaining  wall  drainage  and  tanking  which  was  identified  by  the WHRS assessor as a likely cause of flooding in the lower basement level of the house; and

(d)the plans  were also  deficient  in  various  respects  leading to  water ponding against the lower level basement floor slab and consequent water ingress and damage.

[49]        The Coles claimed that Mr Reyes was also responsible for their losses. They  claimed  that  the  plans  and  specifications  were  negligently  deficient  in numerous respects and that he failed to ensure that the building work met the requirements of the Building Code.

[50]     Mr Reyes took no steps to defend the Coles’ claim against him.  He did not attend the adjudication hearing.  The claim against Mr Reyes therefore proceeded by way of formal proof.

[51]     The Coles called an independent expert architect, Mr Grigg.   The Tribunal accepted his evidence that the plans and specifications prepared by Mr Reyes fell below the standard expected of a reasonably competent architect.  Despite this, the Coles’ claim against Mr Reyes failed because the Tribunal was not satisfied that the deficiencies in the plans caused the Coles’ loss:13

I accept the unchallenged evidence of Mr Grigg that the plans prepared by Mr Reyes were deficient the manner he has described – in particular they were generic and non-site specific.   However, there is a lack of reliable evidence to support a finding that these deficiencies with the plans caused the claimants loss.  There is no reliable evidence on the critical issue of what those builders on site did or did not do, faced with generic and non site specific plans – and what role, if any, Mr Reyes placed in relation to any of those decisions.

[52]     Because Mr Reyes took no steps to defend the claim against him, liability did not need to be proved.  Mr Reyes is taken to have accepted the validity of the claim on liability.  All the Coles needed to do was to prove the loss consequent on this liability.   Although  there  are  no  specific  provisions  in  the Weathertight  Homes Resolution Services Act 2006 or any rules promulgated under that Act dealing with this issue, s 125(3) provides that in the absence of such rules, the rules regulating civil proceedings under the District Courts Act 1947 shall apply with all necessary modifications.  Rule 12.28 of the District Courts Rules 2009 provides that where a

proceeding is undefended and the relief claimed is not a liquidated sum, the proceeding must be tried for the purpose of assessing damages.

[53]     I accept Mr Baird’s submission that the Tribunal erred in not finding the claim against Mr Reyes proved.  The Tribunal should have proceeded on the basis that liability was not an issue and that Mr Reyes was negligent in the respects claimed.

[54]     Accordingly, this aspect of the Coles’ appeal succeeds.  The Coles seek an order remitting the matter back to the Tribunal for it to determine the quantum and apportionment of loss and to deal with the issue of costs in respect of the claim against Mr Reyes.  I agree that this is the appropriate course.

Was the claim against Mr Rangi proved?

[55]     Mr Rangi is the drainlayer who carried out the drainage work at the property. Mr Rangi was joined to the proceeding on the application of the builder.  The claim was that Mr Rangi failed to exercise reasonable skill and care in ensuring that the drainage system met the requirements of the Building Code, the Building Act and other relevant standards.

[56]     Mr  Rangi  took  no  steps  to  defend  the  claim  against  him.   Accordingly, liability was not an issue.  The Coles simply needed to prove the loss consequent on this liability.

[57]       This ground of the Coles’ appeal also succeeds.  I agree with them that the appropriate course is to remit the matter back to the Tribunal for it to determine the quantum and apportionment of loss and costs issues.

Result

[58]     The appeal against the Tribunal’s determination in respect of Mr Xiang and

Realty Insight is dismissed.

[59]     The parties agreed  that  costs  on  a 2B basis  should  follow  the event.    I therefore make an order requiring the Coles to pay costs on a 2B basis to Mr Xiang and Realty Insight in relation to this appeal.

[60]     The appeals in relation to Mr Reyes and Mr Rangi are allowed.  The Coles’ claims against these respondents are remitted back to the Tribunal for it to determine the quantum of loss attributable to their negligence and any apportionment issues. The Coles are entitled to 2B costs against these respondents for this appeal.   The

Tribunal should determine the issue of costs for the hearings before it.

M A Gilbert J