Davern v QBE Insurance (Australia) Limited
[2023] NZHC 2146
•11 August 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-390
[2023] NZHC 2146
BETWEEN JOHN TIMOTHY DAVERN AND MARITA DAVERN
First Plaintiffs
IAG NEW ZEALAND LIMITED
Second PlaintiffAND
QBE INSURANCE (AUSTRALIA) LIMITED
Defendant
Hearing: 13–17, 20–22 February 2023, 24 March 2023 Counsel:
D J Cooper KC, V A Ma and J M Kim for Plaintiffs
D H McLellan KC, S D Galloway and A J Peat for Defendant
Judgment:
11 August 2023
Reissued:
26 September 2023
JUDGMENT OF OSBORNE J
This judgment was delivered by me on 11 August 2023 at 2.15 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
DAVERN v QBE INSURANCE (AUSTRALIA) LIMITED [2023] NZHC 2146 [11 August 2023]
TABLE OF CONTENTS
Overview [1]
The Required Retaining Wall [8]
The sequencing issue [10]
The plaintiffs’ claims outlined [13]
The parties [19]
The Daverns’ property damage and rebuild [20]
The Daverns’ IAG policy [35]
The RSMA
The RSMA’s history [37]
Sleight: The contractual relationship between Hawkins and IAG [43]
Sleight: Hawkins’ responsibilities to a homeowner [50]
The RSMA as amended and restated in 2014 [52]
Obligations under the RSMA [57]
Indemnity and limitation of liability provisions [65]
Operational documents [69]
The Daverns’ Rebuild Solution [71]
The Daverns’ contracts
The Building Contract [81]
MWA – 16 September 2014 [90]
Detailed background: the rebuilding and repair works
The Geoconsult report [97]
Demolition [102]
The EDC Report [107]
The HFC amended foundation layout [116]
The issuing of resource and building consents [117]
The datum issue [118]
The progress of the rebuild from late 2015 [120]
Problems with Penny Homes [135]
Cook Costello’s investigation [137]
The Hawkins handover [154]
The work of Crawford, Cube and Cook Costello [155]
The IAG/Davern settlement [168]
Work in relation to the Required Retaining Wall [169]
Duty Issue 1: the relevance of industry practice to Hawkins’
contractual duties [184]
Duty Issue 2: the nature of Hawkins’ relevant contractual duties (under the RSMA)
The pleaded duties [186]
Interpreting the contractual provisions [188]
The operational documents [189]
The required standard of performance: cl 3.2 RSMA [190]
Pleaded contractual duties: 1 — (inspection and) certification/
avoiding defects: sch 2 cl 5.6 RSMA [194]
Pleaded contractual duties: 2A — the scoping of works: sch 2 cl 2 RSMA
—initial scoping [199]
Pleaded contractual duties: 2B — the scoping of works: sch 2 cl 2 RSMA
—updated scoping [209]
Pleaded contractual duties: 2C — the correct sequencing of works [233]
Pleaded contractual duties: 3 — monitoring or supervising the Rebuild
Works: sch 2 cl 5 RSMA [235]
Pleaded contractual duties: 4 — arranging a building contract: sch 2
cl 4 RSMA [254]
Duty Issue 3: Hawkins’ duty to IAG in tort [255]
Duty Issue 4: Hawkins’ duties to the Daverns under the CGA
The pleadings [257]
The law — the CGA [263]
Submissions for the Daverns [266]
Discussion [277]
Duty Issue 5 — Hawkins’ duty to the Daverns in tort
The pleadings [282]
The Daverns’ case as presented [283]
Conclusion [284]
QBE’s liability to the Daverns and to IAG under Law Reform Act [285]
Submissions [293]
Discussion [299]
QBE’s affirmative defences
AThe Building Contract limitation provision [304]
BLimitation of liability under cl 18 of the RSMA [306]
CLimitation in relation to failure to achieve the Rebuild Programme
or any individual Rebuild Solution [311]
DMaximum liability of Hawkins — cl 18.1 of the RSMA [319]
EFailure to mitigate loss [326]
Causation
The plaintiffs’ case [349]
The legal test [350]
Discussion [352]
Submissions — IAG’s actions mid-2016 [353]
Causation — IAG’s decision to replace the HFC wall and adopt a new
retaining design [355]
Contributory negligence [378]
The overall claim — quantification [382]
The retaining wall claim — quantification
The claim [383]
The principles of assessment [395]
Criticisms of Mr Gorinski’s calculation of actual costs [398]
Issue 1: lack of contemporaneous assessment of costs [400]
Issue 2: costs to be limited to the area identified by IAG in July 2016 [404]
Issue 3: failure to calculate the costs relating to the replacement of the
HFC wall and associated consequences [408]
Issue 4: failure to account for wasted costs and delays in relation to Cook Costello’s first design [421]
Issue 5: failure to calculate the cost of alternatives based on cost
calculations in 2016 [423]
Issue 6: a failure to take into account the contractual risk allocation [426]
Loss of rent
The claim [429]
Subrogation in relation to the rent claim [433]
Outcome [439]
Plaintiffs’ recoverable damages [442]
Interest [443]
Costs [444]
Orders [445]
Overview
[1] The home of John and Marita Davern on an excavated sloping site in Redcliffs, Christchurch (the property), was severely damaged in the Canterbury earthquake sequence (the earthquakes). It had to be demolished and replaced. In the course of construction of the new house, retaining walls had to be constructed. The Daverns say that, by the end of construction, they had incurred additional costs of $1,804,829.32 as a result of what they call the “sequencing error” in the retaining walls’ construction.
[2] The Daverns’ home insurance was with their co-plaintiff, IAG New Zealand Ltd (IAG). IAG as an insurer received over 100,000 claims arising out of the earthquakes. To deal with that volume IAG engaged companies in the Hawkins construction group to assist under a contract called the “Rebuild Solutions Master Agreement” (RSMA). Under the RSMA, arrangements were made for approved builders to price and enter into contracts with the insured. The plaintiffs assert the Hawkins companies failed in duties owed to them contractually (in the case of IAG) and under the Consumer Guarantees Act 1993 (CGA) (in the case of the Daverns). They also make parallel allegations of negligence. The plaintiffs sue QBE Insurance (Australia) Ltd (QBE) as the insurer of the Hawkins companies, the relevant Hawkins companies now being in liquidation.
[3] QBE asserts the Hawkins companies’ duties under the RSMA were considerably narrower than the plaintiffs suggest.
[4] The scope of the Hawkins companies’ duties has been extensively considered by this Court in Sleight v Beckia Holdings Ltd (Sleight HC),1 and by the Court of Appeal in IAG New Zealand Ltd v QBE Insurance (Australia) Ltd (Sleight CA).2 The Sleights claimed losses arising from payments made to the builder for defective repairs. The Sleight decisions establish that the Hawkins companies, under the RSMA, had a primary role of administration and co-ordination, with a very limited quality assessment function.3 The Hawkins companies (and thereby QBE) were, however,
1 Sleight v Beckia Holdings Ltd [2020] NZHC 2851 [Sleight HC].
2 IAG New Zealand Ltd v QBE Insurance (Australia) Ltd [2022] NZCA 208 [Sleight CA]. (Application for recall declined: IAG New Zealand Ltd v QBE Insurance (Australia) Ltd [2022] NZCA 636).
3 See below at [43].
liable for damages for certifying defects that were both visible to the naked eye and of significance to structural integrity.4
[5] Although this case involves a different issue — what the plaintiffs call the “sequencing error” in the retaining wall construction, as against the negligent certification of completion of work — the plaintiffs say their claim is in relation to matters within the scope of the Hawkins companies’ duties for similar reasons to those that led to the award of damages in the Sleight case.
[6] The precise scope of the Hawkins companies’ duties under the RSMA and to the Daverns under the CGA and/or in negligence is a fundamental issue in this case. Other issues turn on the Court’s determination as to the evidence and scope of duties.
[7]Factually, the key issues are:
(a)whether Hawkins fulfilled its legal responsibilities;
(b)whether costs incurred in relation to the Required Retaining Wall (below at [8]) were unnecessarily incurred; and
(c)if Hawkins failed to meet its legal responsibilities did it nevertheless have no liability or limited liability for the particular conduct?
The Required Retaining Wall
[8] The Daverns’ residence had to be rebuilt, along with some associated works. During the rebuild, it became apparent additional retaining wall work was required. The work included the construction of a particular retaining wall (the Required Retaining Wall) which was the focus of this litigation.
[9] Because of the uphill slope on the southwestern side of the house, the Required Retaining Wall had to be constructed close to the house under construction.
4 Sleight CA, above n 2, at [98].
Substantial cost was incurred in preparation for and construction of the Required Retaining Wall.
The sequencing issue
[10] The plaintiffs assert the way in which the building works proceeded involved a “sequencing error”. Their pleading (in their third amended statement of claim (3ASOC)) is that:5
The failure to construct the Required Retaining Wall prior to June 2016 was a sequencing error because access needed to construct the Required Retaining Wall is blocked by the rebuilt house (the Sequencing Error).
[11]I will refer to the subject matter of this pleading as the “sequencing issue”.
[12] While Mr Cooper KC for the plaintiffs conceded Hawkins was not generally responsible for the “sequencing” of builders’ work, he summarised the basis of the plaintiffs’ legal claims as being that a failure by Hawkins to fulfil its scoping obligations would self-evidently lead to a sequencing error if the logically prior works were omitted from the scope of works — the builder would not build that which was not scoped.
The plaintiffs’ claims outlined
[13] The Daverns did not enter into a contractual relationship with Hawkins. They claim against Hawkins under the CGA and in negligence. They assert Hawkins was, in terms of the CGA, providing “services” to them, a matter denied by QBE.
[14] QBE denies Hawkins owed duties under the CGA or a tortious duty of care to the Daverns, or that Hawkins was negligent or breached any responsibility or duty of care. QBE, in relation to the Daverns’ negligence claim, invokes limitation clauses in the building contract entered into by the Daverns.
[15] IAG principally claims for breach of the RSMA. It alleges Hawkins failed to meet a required standard of diligence and “industry best practice”. IAG asserts
5 Third Amended Statement of Claim [3ASOC] at [40].
Hawkins’ conduct in relation to the need for and timing of construction of a retaining wall was a sequencing error, causing additional costs.
[16] IAG invokes the provisions of an indemnity clause (17.2) in the RSMA and a guarantee provided in the RSMA (cl 1.1, sch 5).
[17] IAG alternatively pleads a claim in negligence but accepts any tortious duties owed to IAG are no broader than the contractual duties under the RSMA.
[18] QBE, as insurer of the Hawkins companies, invokes provisions of the QBE policies which provide exclusions and impose excesses.
The parties
[19] There are four central entities (or sets of entities), one of which is not a party. The entities are:
(a)the first plaintiffs (the Daverns);
(b)the second plaintiff, IAG (the Daverns’ insurer);
(c)companies from the Hawkins construction group (all now in liquidation); and
(d)the defendant, QBE, insurer of the Hawkins companies, sued under the Law Reform Act 1936.
(e)Another significant entity was Penny Homes Ltd (Penny Homes), the builder which entered into a contract with the Daverns for their rebuild. Penny Homes was subsequently put into liquidation, on 21 February 2016.
The Daverns’ property damage and rebuild
[20] The Daverns’ property is at 9 Crest Lane, Redcliffs, Christchurch. IAG insured it under an insurance contract described as ASB Bank “Home, Contents, Private Motor Vehicle and Pleasure Craft Insurance” (the Policy).
[21] As a result of the earthquakes, the house required rebuilding. Other remedial work on the property (not covered by the Earthquake Commission (EQC)) was also needed.
[22] The Daverns made a claim under the Policy, which IAG accepted. The Policy referred to a reinstatement standard for the Daverns’ home “to a condition as nearly as possible equal to its condition when new” following loss or damage. If the Daverns restored the property to that standard, the policy required that IAG pay that cost.
[23] The Daverns and IAG, as co-plaintiffs in this case, base their claims on the sequencing issue. The plaintiffs say the sequencing issue necessitated further works and those in turn involved further costs. The costs included the costs of negotiating and purchasing land and rights of access over a neighbouring property. IAG has settled the Daverns’ insurance claims and is subrogated to the Daverns.6
[24] The neighbouring property — 8 Crest Lane — is situated to the southwest of the Daverns’ property. It is owned by Ann Fass. A steep bank rises between the two properties, the Fass residence situated above and the Davern residence below. At the time of the earthquakes, retaining walls were in place at the bank.
[25]QBE is sued as insurer for two companies in the Hawkins group:
(a)Orange H Management Ltd (in rec and liq) (previously called Hawkins Management Ltd) (Hawkins); and
6 The availability of subrogation as a remedy in this situation is explained in Peter Blanchard (ed) Civil Remedies in New Zealand (online ed, Thomson Reuters) at [51.10.5]. See also the deed of settlement between the Daverns and IAG dated 18 July 2018, summarised below at [34].
(b)Orange H Group Ltd (in rec and in liq) (previously called Hawkins Group Ltd) (Hawkins Group).
[26] Hawkins had monitored the Daverns’ building works on IAG’s behalf under the RSMA. Among other things, the RSMA detailed the services Hawkins was to provide.
[27] The RSMA in issue has also been referred to in other litigation as the “2012 RSMA”, to distinguish it from an earlier version (the 2010 RSMA) that conferred more onerous obligations on Hawkins. The RSMA (as further discussed below) was in 2014 “restated” with some amendments. Most of the events relevant in this proceeding occurred when the IAG/Hawkins relationship was governed by the “restated” RSMA. As used by counsel at the hearing, I will refer to that document in the paragraphs that immediately follow ([28]–[34]) as the 2012 RSMA. Notably, in Sleight HC,7 this Court ruled on the nature and scope of obligations of Hawkins, as a matter of contract under the RSMA and more generally. On appeal the Court of Appeal revisited those matters in Sleight CA.8
[28] The Daverns agreed to have their home rebuilt under the managed repair programme implemented under the 2012 RSMA. That involved two steps:
(a)first, the builder, Penny Homes, pre-qualified by Hawkins, was identified for the house rebuild. The Daverns entered into a building contract (prepared by Hawkins and approved by IAG) with Penny Homes (Building Contract). Under the Building Contract, Hawkins was given rights normally exercised by the owner under a building contract (such as in relation to the issuing of instructions); and
(b)secondly, Hawkins would monitor the building repair works on IAG’s behalf, pursuant to the terms of the RSMA and as acknowledged in the Building Contract.
7 Sleight HC, above n 1.
8 Sleight CA, above n 2.
[29] A separate contractor, RJ Civil Limited (RJ Civil), was identified for retaining wall works. The Daverns entered into a minor works agreement with RJ Civil (the RJ Civil contract), in which Hawkins was referred to as the Daverns’ appointed “Project Manager” for the contract.
[30] Penny Homes undertook demolition of the existing house in September 2014. Further work followed in relation to retaining wall scoping and foundation requirements. More excavation work, including the demolition of the southwestern retaining walls, was carried out in 2015.
[31] Construction of the new house began in November 2015. A retaining wall (the HFC wall) was constructed along part of the southwestern boundary.
[32] In July 2016, Cook Costello (engineers and surveyors) reported to IAG that a full retaining wall at the southwestern boundary should have been built before construction of the house — thus identifying the sequencing issue. The plaintiffs say the sequencing issue should have been obvious to anyone on the site from October 2015 — and in particular to those responsible for preparing and updating the scope of works and for monitoring works — that:
(a)a retaining wall (not yet scoped) was required; and
(b)the Required Retaining Wall had to be built before the house was built.
[33] Thereafter time was taken in obtaining reports on and designs for a retaining wall system, the surveying of boundary adjustments, negotiation of a contract with Mrs Fass, and the work to complete the Required Retaining Wall. That work was largely completed by late 2022.
[34] The Daverns and IAG executed a deed of settlement and assignment on 18 July 2018. By the deed the parties acknowledged the existence of the sequencing issue and that costs would increase. The parties agreed to settle the retaining wall issue, the remaining construction works and matters arising from them on the terms
set out in the deed. They agreed IAG was subrogated to the Daverns’ rights, interests, claims and remedies.
The Daverns’ IAG policy
[35] The Policy had covered the Daverns for the costs of rebuilding the house and associated improvements.
[36] The Policy also required IAG to pay the Daverns’ reasonable additional living expenses (up to $11,250) for the time it would normally take to have the property fit to be lived in.
The RSMA
The RSMA’s history
[37] The RSMA’s history was the subject of extensive evidence and judicial consideration in the context of the test case, involving IAG and QBE, that took place in Sleight. The history as identified in Sleight applies in this case.
[38] IAG, as the largest residential insurer in New Zealand, had to deal with thousands of repairs and rebuilds required as a result of the Canterbury earthquakes.9 IAG, like other insurers at the time, established what was described as a “Managed Repair Programme”.10
[39] For the purposes of the Managed Repair Programme, IAG entered into RSMAs with Hawkins group companies.11
[40] The 2010 RSMA had been executed following the September 2010 earthquake.12
[41]The Court of Appeal explained in Sleight:
9 Sleight HC, above n 1, at [38].
10 At [8].
11 At [40]–[42].
12 At [42].
[62] The 2010 RSMA had been developed in response to the September 2010 Christchurch earthquake. It placed express obligations on Hawkins to “[monitor] the delivery of each Rebuild Solution to ensure the quality, timeliness and cost efficiency of the work undertaken by the relevant Builder”. The RSMA at the centre of this case was however negotiated against the different background of the 2011 earthquakes which were of far greater severity than the one in 2010. The damage caused by the 2011 earthquakes was far greater and more widespread.
[42] Negotiations between IAG and Hawkins following the 2011 earthquakes led to the execution of a new RSMA in August 2012.13 That was the version of the RSMA that was considered in Sleight. That version was in turn amended in 2014 (as discussed below from [52]).
Sleight: The contractual relationship between Hawkins and IAG
[43] The Court of Appeal, in Sleight, identified a narrowing of the role of Hawkins as between the 2010 RSMA and the 2012 RSMA:
[61] In our view, the wording of the RSMA and the circumstances in which it came into existence fully support the conclusion that Hawkins was only to have a very limited quality assessment function. Its primary role under the RSMA was one of administration and co-ordination.
[44] The Court relied in part on the record of negotiation as evidencing the IAG/Hawkins joint intention to move the responsibility for ensuring the quality of building work from Hawkins (under the 2010 RSMA) to the builder. The Court observed:
[64] Early drafts submitted by IAG imposed obligations on Hawkins that included a warranty it had inspected the rebuild solution and that it had been completed to an acceptable trade standard. During the negotiations, Hawkins expressed strong opposition to this and other provisions that might make it liable for the quality, timeliness or cost efficiency of the builders. Its position throughout the negotiations was that because of the scale of the repair programme, it could no longer carry the risk of ensuring the quality of building work and did not have sufficient resources to be able to supervise the quality of the repair work. Responsibility for the quality of the building work needed to rest with the builder. IAG responded by removing those draft provisions.
13 Sleight CA, above n 2, at [63]–[65].
[45] The Court, in determining the joint intention of IAG/Hawkins, compared the 2010 and 2012 RSMAs. The Court identified significant differences such as the lack of reference in the 2012 RSMA to Hawkins being a project manager.14
[46] The Court concluded also it would not have made commercial sense for Hawkins to have agreed to obligations that mirrored the obligations it had under the 2010 RSMA for the significantly less remuneration it was to receive under the 2012 RSMA.15
[47] A central complaint of the plaintiffs in Sleight was that defective repair work undertaken by the builder under the Managed Repair Programme would have been visible to the naked eye and that Hawkins, in certifying completion of that work, was in breach of its monitoring and certification obligations under the RSMA.
[48] The High Court in Sleight applied a “naked eye” test — it was found that Hawkins had to provide a suitably qualified person to undertake a reasonable naked eye observation of the work and be satisfied the work in question was in place and generally carried out properly, although workmanship and quality issues might still need to be addressed by the building later through a snag list or otherwise if they arose.16
[49] In allowing QBE’s cross-appeal, the Court of Appeal found this aspect of Hawkins’ responsibility in relation to defects was subject to the dual requirement that the defects be both visible to the naked eye and significant. The Court identified:17
It was a breach of Hawkins’ monitoring and certification obligations under the RSMA to certify completion of work if that work contained defects that were both visible to the naked eye and of a significant nature in terms of the integrity of the building as a whole and the extent of the repairs necessary to rectify them.
That was the Court of Appeal’s conclusion in relation to the contractual responsibility of Hawkins to IAG under the RSMA.
14 Sleight CA, above n 2, at [70].
15 At [97].
16 Sleight HC, above n 1, at [474]–[475] and [496]; Sleight CA, above n 2, at [40].
17 Sleight CA, above n 2, at [98](a).
Sleight: Hawkins’ responsibilities to a homeowner
[50] The Court of Appeal identified that Hawkins’ responsibilities to the Sleights themselves — whether founded in negligence or under the CGA — could be broader, as shown by the different findings reached by Gendall J in the High Court. The Court of Appeal observed:
[90] The different findings were of course based on different legal pathways and it is well-established that liability arising out of the same act to different people may be concurrent but not necessarily co-extensive. The liability of Hawkins to the Sleights was founded in the tort of negligence and the Consumer Guarantees Act (ie imposed as a matter of law), whereas as between IAG and Hawkins it was exclusively a contract issue. Of itself the fact of different duties is not heretical.
[51] The Court of Appeal identified as relevant a May 2012 letter written by Hawkins’ lawyer in the course of the negotiations of the 2012 RSMA — there the lawyer had drawn the distinction between the contractual duties arising between Hawkins and IAG on the one hand and tortious duties which might arise between Hawkins and the homeowner on the other.18 That distinction was successfully relied on by Hawkins in the negotiations to stipulate for a modified indemnity provision (becoming cl 17.1 of the RSMA) (set out below at [65]) by which IAG indemnified Hawkins in relation to third party claims.
The RSMA as amended and restated in 2014
[52] The RSMA was “amended and restated” on 17 November 2014. In 2014 the end date of the RSMA (30 June 2016) was in contemplation. IAG and Hawkins acknowledged in the 2014 document that it was of critical importance to aim to complete all Rebuild Solutions by the end of 2015.
[53] In closing, Mr Cooper submitted one of the 2014 amendments was material. The restated agreement required Hawkins to provide 41 “additional personnel” (with remuneration accordingly adjusted). The stated purpose was to allow Hawkins to “lead builder management in terms of progress, quality, and [Health and Safety]”. Mr
18 Sleight CA, above n 2, at [93].
Cooper submitted this must have implied a requirement that Hawkins’ “service standard” was increased.
[54] I find such an implied amendment is not justified. Previously defined duties arrived at after careful negotiation were not expressly amended. Nor is an implied amendment justified by the nature or structure of the 2014 amendments or the rationale for those amendments. The looming end-date of the RSMA provides the explanation for the increased personnel numbers, as was explained in the evidence of Murray James, IAG’s corporate manager. Mr James identified, by reference to records of IAG/Hawkins’ discussions, the intention that 41 additional personnel would lead to more site visits and greater progress to enable IAG to finalise its build programme by December 2015. The outcomes in relation to quality and health and safety requirements would flow from the increased regularity of site visits, not from a change in the nature of Hawkins’ duties. It is clear nothing in relation to the content of those duties changed — Hawkins was being better resourced to carry out its existing duties.
[55] The 2014 amendments do not impact on the findings of the High Court and Court of Appeal in Sleight — those findings, notwithstanding they were made in relation to the RSMA, apply equally to the RSMA as restated and amended in 2014.
[56] All references that now follow to the “RSMA” relate to the 2012 RSMA as restated and amended in 2014.
Obligations under the RSMA
[57]The term of the RSMA was the four-year period expiring on 30 June 2016.
[58] The RSMA contains repeated references to the “Rebuild Solution”, a term defined as “the works required to make good the damage to the property …”. I adopt that term hereafter.
[59] Clause 3.1 required Hawkins to perform the services listed in sch 2. The five groups of services there listed are under five headings: “Pre-qualification” (relating to checking the builder’s credentials); “Scoping” (the work to be done); “Costing”; “Customer/Builder Alignment” and “Construction Coordination”.
[60] The services particularly relied upon by the plaintiffs in this case are to be found in three clauses of sch 2 to the RSMA:
2SCOPING: Hawkins will provide to IAG NZ a scope of works for each Rebuild Solution which shall include the following:
2.1Scope or procure that the Builder scopes in detail the works to be undertaken for each Rebuild Solution.
2.2Provide to IAG NZ and its Loss Adjusters the detailed scope of works for each Rebuild Solution.
2.3Where applicable, procure that the appropriate industry specialists are engaged to provide appropriate input into each scope of works.
…
2.5 Update or procure that the Builder updates each scope of works to account for any variations to the initial scope of works.
…
3COSTING: Hawkins will cost the scope of works for each Rebuild Solution, which shall include the following:
3.1Provide to IAG NZ for approval a Solution Budget for each Rebuild Solution that is consistent with IAG NZ’s costing methodology in place at such time (as provided to Hawkins by IAG NZ).
3.2Update every Solution Budget when required in accordance with clauses 4.5 and 4.6 of the Agreement and IAG NZ’s costing methodology in place at such time (as provided to Hawkins by IAG NZ).
…
4CUSTOMER/BUILDER ALIGNMENT: Hawkins will, for each Rebuild Solution, arrange a Builder to enter into a Customer Building Contract with the Customer, which shall include the following:
4.1Recommend to the Customer a Builder that meets the Pre- qualification Standards … and is approved by IAG NZ.
4.2As appropriate to the particular Silo, provide to IAG NZ for approval the Builder’s rates for materials, supplies and trades/services in respect of each Rebuild Solution.
4.3Ensure that a Customer Building Contract and such other contracts as may be required for each Rebuild Solution (including an architect’s appointment in relation to Rebuild Solutions incorporating an architecturally designed home) are entered into in such forms as may be approved by IAG NZ (such approval not to be unreasonably withheld or delayed).
4.4Ensure that no work on any Rebuild Solution will commence until the Customer Building Contract and any other relevant contracts in respect of such Rebuild Solution have been executed and that the Builder and any other relevant contractors have appropriate insurance in place.
5CONSTRUCTION COORDINATION: Hawkins will monitor the delivery of each Rebuild Solution, which shall include the following:
5.1Monitor all Builders in accordance with the processes and procedures agreed between the parties including ensuring that builder reports are updated on a regular basis and promptly notify IAG NZ where it believes that any Builder no longer meets the Pre-Qualification Standards (as may be updated and amended by parties).
5.2Use reasonable endeavours to assist IAG NZ’s Loss Adjusters to ensure that the Rebuild Solution, when completed, complies with the scope of works for that Rebuild Solution (as may be updated to account for any variations).
5.3Ensuring the implementation and completion of and monitoring the delivery of each Rebuild Solution in accordance with its Rebuild Priority and within its Solution Budget (as updated in accordance with clauses 4.5 and 4.6(b) of the Agreement).
5.4Provide evidence to IAG NZ and its Loss Adjusters that the Builder has obtained all permits and consents in respect of the Rebuild Solution (including a Code Compliance Certificate).
5.5Immediately notify IAG NZ and its Loss Adjusters upon becoming aware that a Code Compliance Certificate may not be able to be obtained for any Rebuild Solution.
5.6Inspect the progress of each Rebuild Solution in order to certify completion of each Solution Milestone.
5.7Agree with IAG NZ standard inspection and sign-off processes and procedures to be carried out at the completion of each Rebuild Solution (including in relation to any defects).
5.8Carry out a final inspection and sign-off of the Rebuild Solution with the Customer in accordance with the processes and procedures agreed with IAG NZ under paragraph 5.6 above.
[61] Accordingly, for scoping the insured’s building works (under sch 2 cl 2) Hawkins was to itself provide a scope or was to ensure the builder provided a scope (with appropriate specialist input). Hawkins was to cost the scope of works and to obtain IAG’s approval of the resulting Solution Budget (under sch 2 cl 3). If the initial scope of works was varied, Hawkins was to update or procure that the builder update the scope of works (under sch 2 cl 2.5) and update the Solution Budget (under sch 2 cl 3.2).
[62] Under cl 4.7 of the RSMA itself, the parties were as soon as reasonably practicable to agree, among other things, a set of protocols for managing sub-standard performance by a builder and establishing circumstances when Hawkins would terminate a building contract.
[63] Under cl 12.1, Hawkins was required to ensure its personnel assigned to the project were of high calibre, suitably qualified to undertake the roles assigned to them and would act at all times in accordance with industry best practices.
[64] Although the RSMA did not identify a role of “rebuild solution manager” (RSM) there was in practice during the term of the RSMA a person designated by Hawkins to be the RSM for each Rebuild Solution. There were also Senior RSMs to whom the RSMs reported.
Indemnity and limitation of liability provisions
[65] By cl 17 of the RSMA the parties indemnified one another in relation to specified claims. IAG provided an indemnity to Hawkins:
17.1 IAG NZ indemnity: IAG NZ indemnifies Hawkins to the maximum extent permitted by law for all claims (including third party claims), liability, costs (including reasonably incurred legal costs on a solicitor-client basis), losses, penalties and damages (including arising in tort, including negligence) incurred by Hawkins arising from or in connection with this Agreement, except to the extent caused by a breach of this Agreement or by any reckless, fraudulent or wilful act or omission by Hawkins or any of its Personnel or Hawkins or its Personnel acting outside the scope of their responsibilities under this Agreement.
[66] Given the reference to “third party claims”, the cl 17.1 indemnity has application where homeowners, such as the Daverns, make claims against Hawkins.
[67] These indemnity provisions of the 2012 RSMA are to be contrasted with the provisions in the 2010 RSMA by which Hawkins assumed a significant potential liability on each project.
[68] Clause 18 of the RSMA contains limitation provisions in relation to the parties’ respective liabilities. Hawkins invokes cls 18.1, 18.2(b) and 18.3 which relevantly provide:
18.1Maximum liability: The maximum liability of Hawkins to IAG NZ in relation to this Agreement including under the indemnity set out in clause 17.2 is set out in the Contract Details. This limitation will not apply in relation to any fraud or wilful default.
18.2Limitation of liability: Neither party will be liable for:
(a)…
(b)any indirect, consequential or punitive losses or damages of any party and any amounts for loss of income or profits.
18.3Failure to achieve Rebuild Programme: Subject to clause 3.2(d) IAG NZ shall (other than in the event of fraud or the wilful default by Hawkins) have no recourse to Hawkins and Hawkins shall have no liability to IAG NZ for any loss, costs, damages or otherwise whatsoever as a result of any failure to achieve the Rebuild Programme or for any delays in implementing the Rebuild Programme or any Individual Rebuild Solution.
Operational documents
[69] The RSMA, as noted at [62] above, envisaged further recording of agreed procedures and processes. The plaintiffs refer to a number of documents adapted and used in the course of the Managed Repair Programme:
(a)the non-EQC silo Solution flowchart (also referred to as a “Swim-lanes Chart”);
(b)a New Home Rebuild Procedure Booklet;
(c)a Master Sheet for retaining walls; and
(d) monthly Site Status Reports (Form 592) from Hawkins to IAG. (collectively the “operational documents”)
[70] The Court of Appeal in Sleight (as had Gendall J in the High Court) adopted the terminology of “operational documents”. As such documents were created after
the RSMA was signed, the Court of Appeal held the operational documents relied on in Sleight did not have contractual status and could not be read as part of the RSMA.19
The Daverns’ Rebuild Solution
[71] Under the RSMA, the Daverns’ Rebuild Solution was to be carried out in two silos — the New Home Rebuild Silo (the new home silo) for the house itself and the Non-EQC Works Silo (the non-EQC silo) for the non-EQC remedial works, including retaining walls.
[72] On 20 June 2011, IAG obtained a report from a structural engineering firm, Aurecon New Zealand Ltd (Aurecon). Aurecon recommended the Daverns’ house be demolished.
[73] A Hawkins RSM became responsible for each silo of the Daverns’ Rebuild Solution, with the identity of the RSM changing as the project proceeded. As the Daverns’ Rebuild Solution began to take shape in 2013, Simon Granger of Hawkins was the RSM with responsibility in relation to the new home silo while James Ferguson of Hawkins was the (senior) non-EQC silo RSM. Within the non-EQC silo, Hawkins maintained distinct groups dealing with different aspects such as driveways and retaining walls, each under its own RSM. One such RSM – Sam Deery – worked in the non-EQC silo from 2014 to mid-2016, and gave evidence at this trial. As arranged by Hawkins, the Daverns, in 2013, appointed RJ Civil for minor works (in particular retaining wall work).
[74] The Daverns were advised by IAG that Hawkins would arrange the demolition and rebuild, with Mr Granger as their RSM. Mr Granger offered the Daverns a choice between two builders pre-qualified by Hawkins, from which the Daverns chose Penny Homes.
[75] The scope of works for the new house was to be based on a structural design completed by engineers HFC Civil & Structural Ltd (HFC). The HFC design
19 Sleight CA, above n 2, at [81], [83]. See also Sleight HC, above n 1, at [76]–[77]: the operational documents relied upon by the plaintiffs in Sleight included the Swimlane document and Site Inspection Reports.
contemplated that the basement walls of the new house would retain the surrounding hillside (as had the original house walls). The Building Contract was subsequently executed by the Daverns and Penny Homes on 27 June 2014. The Building Contract is further discussed from [81] below).
[76] Hawkins, in 2013, commissioned a further report from Aurecon specifically in relation to the replacement or repair of retaining walls.
[77] The resulting Aurecon report dated 10 June 2013 (the Aurecon report) contained a scope of repairs for the retaining walls. Its recommendations were subsequently adopted in the minor works agreement (MWA) entered into with RJ Civil (below at [90]). The Aurecon report contained an aerial photograph of the property on to which lines had been drawn where the retaining walls existed, with each wall given a number. Regarding the 14 identified walls Aurecon recommended (amongst other items):
(a)one retaining wall on the southeastern side of the property (Aurecon wall 2) be replaced;
(b)certain other retaining walls, including Aurecon wall 6 (at the southern end of the southwestern side of the property), be repaired; and
(c)otherwise walls be neither repaired nor replaced.
[78] Table A below is a plan redrawn from the aerial photograph to show the Aurecon walls that are referred to later in this judgment.20
20 The extent of walls 6 and 7 has been amended from that shown in the Aurecon report, to take account of an agreement in the evidence of Philip Cook and Clinton Smith.
TABLE A
[79] The Aurecon report recorded that a detailed structural assessment of wall strength had not been undertaken, the report being limited by the time available to carry out inspections. Aurecon strongly recommended the client obtain such an assessment. Such an assessment was not obtained until December 2014 (see [107] below).
[80] The scope of work for retaining walls identified in the Aurecon report was costed and the resulting solution budget was signed off by IAG in November 2013. This scope was incorporated into the MWA (below at [90]), which the Daverns entered into with RJ Civil. Hawkins placed this work in its Non-EQC works silo. The provisions of the MWA are discussed from [90] below.
The Daverns’ contracts
The Building Contract
[81] The Building Contract dated 27 June 2014 was a lump sum, design and build contract on a form approved by IAG.
[82] The structure of the Building Contract is parallel to that of the building contract in Sleight. It comprises:
(a)a two-page “Contract Agreement” including the recitals;
(b)a further 11 pages of “General Conditions”; and
(c)a further 57 pages of schedules, being:
(i)Schedule 1: contract details;
(ii)Schedule 2: schedule of payments;
(iii)Schedule 3: plans and specifications; and
(iv)Schedule 4: form of notice of practical completion.
[83] In parallel with the Sleight case, the Building Contract is stated to be between the Daverns as owner and Penny Homes as contractor.21 Only they have signed it. However, as in the Sleight case, the contract confers on Hawkins (acting on behalf of IAG) and on IAG directly most of the rights and obligations that would normally be conferred on the owner/principal.22 Under cl 77 the parties agree the contract provisions intended for the benefit of Hawkins are enforceable by Hawkins under the Contracts (Privity) Act 1982.
[84] As in Sleight, the recitals refer to relevant relationships.23 Recital B records the Daverns and Penny Homes enter into the contract to rebuild and make good the damage to the property that falls within the scope of cover provided under the Daverns’ insurance policy with IAG (defined as the “rebuild solution”). Recital D identifies Hawkins’ role:
Hawkins Management Ltd (“Hawkins”) has been appointed by IAG NZ to provide certain services for the purposes of the Rebuild Solution.
21 Sleight HC, above n 1, at [66].
22 At [66].
23 At [67].
[85] Clause 1 established Penny Homes’ duty to undertake the “Works” and included:
The Contractor will carry out and complete the works (“Works”) in accordance with this Building Contract (including the Plans and Specifications attached as Schedule 3 to this Building Contract and any addendum to such Plans and Specifications) and in a proper and tradesman like manner using high quality goods and materials and in accordance with all statutes, regulations and bylaws of government, territorial and other public authorities applicable to the Works.
[86] By their pleadings, the plaintiffs referred to the “Rebuild Works” as all the demolition, building and construction work on the Daverns’ property which IAG appointed Hawkins to undertake under the RSMA. That concept of “Rebuild Works” accordingly covered the work under both the Building Contract and the MWA.
Specific provisions of the Building Contract relating to Hawkins include:
(a)cl 4.1 — requiring Penny Homes to comply with all reasonable instructions issued by Hawkins in writing;
(b)cl 6.2 — requiring Hawkins’ approval to any additional payment;
(c)cl 11 — requiring Penny Homes to submit payment claims to Hawkins and to “comply with all payment claim requirements of Hawkins”, with Hawkins to then process payment claims;
(d)cl 21 — conferring on Hawkins rights of access to the land “to inspect the Works”;
(e)cl 25 — conferring on Hawkins the power to authorise additional work required by unforeseen physical conditions on the building site;
(f)cl 28 — requiring Penny Homes to provide Hawkins (on request) with “all design information including all plans, specifications, producer statements, engineering calculations, drawings and specifications…”;
(g)cl 34 — requiring Penny Homes to provide the Daverns and Hawkins with a construction programme prior to the commencement of work; and
(h)cl 40 — conferring on Hawkins the power to approve any variations.
[88] The work to be completed by Penny Homes under the Building Contract did not include any retaining wall work. The initially anticipated retaining wall work was that covered under the MWA entered into between the Daverns and RJ Civil in September 2014. (The Required Retaining Wall came to be addressed subsequently).
[89] The Building Contract contained a number of provisions under the heading “Limitation of Liability”. Relevantly, the Building Contract provided:
Limitation of Liability
70The parties acknowledge that Hawkins is appointed by IAG NZ and the role of Hawkins in relation to the Rebuild Solution is limited to the assessment of the scope of works required to effect the Rebuild Solution and the processing of payment claims in relation to the Rebuild Solution on behalf of IAG NZ.
71. Neither Hawkins nor IAG NZ make any representation or give any warranty or undertaking (whether expressed or implied) concerning the Rebuild Solution including as to the performance of any person (whether a party to this contract or otherwise) of any contractual or other obligation in relation to the Rebuild Solution.
…
73. The liability of Hawkins to the Owner for all claims whether in tort, including negligence or otherwise, shall be limited to the direct loss that the Owner sustains as a result of the actions or omissions of Hawkins and which occur within two years from the date of Practical Completion and limited to a maximum aggregate amount of
$10,000.00.
MWA – 16 September 2014
[90] The MWA was entered into by Mrs Davern and RJ Civil on 16 September 2014.
[91] It dealt with a modest set of retaining wall works (priced at $17,142). It was on another standard form of contract provided by Hawkins and consisted of:
(a)a one-page “MINOR WORKS AGREEMENT (NON-EQC)”, identifying the project as “Retaining Wall Works” and referring to the scope and nature of the works as being “as per engineers [sic] report and scope”, being a reference to the Aurecon report;
(b)two pages of “General Conditions”;
(c)four pages of “Special Conditions” and
(d)a schedule identifying the total contract price ($17,142).
[92]Recital C of the Special Conditions recorded:
The Owner has accepted this rebuild solution and signed a Project Management Agreement appointing Hawkins Construction Ltd as “Project Manager” for the Rebuild Solution.
[93] Despite the reference in Recital C to “Hawkins Construction Ltd”, the MWA was arranged by Hawkins (that is, the company at the time called Hawkins Management Ltd) and not by Hawkins Construction Ltd. Hawkins Construction Ltd had a role under the superseded 2010 RSMA, which conferred on it broader responsibilities including of project management.24 It is clear (as responsibly accepted by counsel) that Hawkins, in having the MWA executed in 2014, must have accidentally used the superseded form designed under the original 2010 RSMA with its reference to Hawkins Construction Ltd.
[94] That said, the MWA was treated, by the parties to the MWA and by Hawkins, as having conferred on Hawkins the powers of the so-called “Project Manager”. As with the Building Contract, that included most of the rights and obligations that would normally be conferred on the owner/principal.
24 The broader responsibilities owed to IAG under the 2010 RMA are identified in Sleight CA, above n 2, at [68].
[95] After setting out (in Recital D) that Hawkins had arranged this MWA on behalf of the Daverns, the Special Conditions provided:
1.Appointment of Project Manager
1.1The Contractor acknowledges that the Owner has appointed the Project Manager as Project Manager for the purposes of this Minor Works Agreement (Non EQC). The Contractor will treat and comply with all directions, instructions, waivers and actions of the Project Manager as directions, instructions, waivers and actions of the Owner to the exclusion of any directions, instructions, waivers and actions of the Owner until notice of termination is delivered to the Contractor by the Project Manager.
1.2The Contractor shall forward to the Project Manager and Owner all certificates, notices, invoices, claims and other information and correspondence under this Minor Works Agreement (Non EQC) and no such certificates, notices, invoices, claims, information or correspondence shall give rise to any obligation or liability until received by the Project Manager on behalf of the Owner. The Project Manager’s contact details are as follows:
…
[96]Other specific provisions of the MWA relating to Hawkins include:
(a)cl 3.3 — making RJ Civil’s access to the site subject to the direction of both the Daverns and Hawkins at all times;
(b)cl 4 — in relation to price, making additional payments subject to agreement in writing between the parties and Hawkins and requiring RJ Civil to comply with all payment claim requirements of Hawkins;
(c)cl 5 — identifying the obligations of RJ Civil, including RJ Civil’s requirement to comply with all reasonable directions of Hawkins;
(d)cl 8 — conferring on Hawkins the entitlement to terminate the MWA upon any default by RJ Civil by giving notice to RJ Civil and copies to the Daverns;
(e)cl 9 — making the provisions in the MWA expressed to be for the benefit of and enforceable by Hawkins under the Contracts (Privity) Act.
Detailed background: the rebuilding and repair works
The Geoconsult report
[97] The day after the MWA was signed, Hawkins received a further engineering report from Geoconsult Geotechnical Engineers (the Geoconsult report). The Geoconsult report, although dated 28 August 2014, was in fact emailed to Jonathan Peet in Hawkins’ new homes silo on 17 September 2014. The Geoconsult report was based on the findings of a geotechnical investigation carried out on the property to determine (amongst other matters) site stability and to provide remedial work recommendations.
[98] Geoconsult considered the site generally stable under static conditions but prone to failure under seismic conditions. It concluded the site was adequately stable provided the existing retaining walls were replaced with new walls designed in accordance with the report.
[99] The report then recommended, in relation to retaining walls, that the existing walls be replaced with new walls, all designed in accordance with stated parameters for both static and seismic conditions. It was recommended that all retaining walls be structurally isolated from the building.
[100] There is no record of Mr Peet or anyone else in Hawkins’ new homes silo referring the Geoconsult report to Mr Deery (working in the non-EQC silo) who, in evidence, said he had no recollection of seeing it.
[101] No steps were taken to have the MWA (relating to retaining walls) amended. In relation to the Geoconsult recommendation as to isolating retaining walls from the house structure, HFC was requested to redesign their original construction methodology. HFC’s proposed new foundation layout, accounting for the Geoconsult recommendations, was provided in February 2015 (below at [116]).
Demolition
[102] Penny Homes undertook the demolition of the existing house in September 2014. The retaining walls on the southwestern side (Aurecon walls 6 and
7) remained in place, as intended.
[103] In November 2014, Ross Weymouth, the quantity surveyor working in the Hawkins retaining walls team, wrote to Jason Lemmon, the senior RSM in the non- EQC silo. He advised that “[O]ne wall never scoped for replacement has now been undermined and looks unsafe following the demolition.” The next day Rob Smith, who had taken over from Simon Granger as Hawkins’ new homes RSM, sent an email to Mr Granger, who had by then moved to Penny Homes. Mr Smith noted the undermining of the wall (through demolition), referring to “Wall 6” but, in fact, meaning Aurecon wall 7. Mr Smith stated “[o]ur RTW team are contemplating replacement”. In the meantime, Mr Deery, the Retaining Walls RSM, had forwarded to Mr Weymouth a set of photos showing the compromised state of Aurecon wall 7. Mr Deery explained in his evidence that he provided the photographs to Mr Weymouth so when the pricing came in, Mr Weymouth would know what was involved.
[104] In late November 2014, John Airey of RJ Civil sent information and photographs to Mr Weymouth showing Aurecon walls 2 and 3 and the southeastern turning bay. The walls and turning bay were partly built on a neighbour’s property.
[105] On 9 December, Mr Deery met on site with Ryan Hennessy (IAG’s loss adjuster). Mr Hennessy made an entry that day in the HiViz software (for maintaining process visibility) as to the compromising that day of a retaining wall (Aurecon wall
7) by demolition. Mr Hennessy recorded “RTW RSM having this wall and others on site priced so that work can go ahead. Engineer working on damage/[d]esigns”. Mr Hennessy further noted there was a “second RTW issue” concern. This was a reference to Aurecon walls 2 and 3, and the southeastern turning bay.
[106] Mr Hennessy was not called as a witness. Mr Deery gave evidence that he was unsure what Mr Hennessy meant on 9 December by “having walls priced” and “Engineer working on damage/[d]esigns”. Mr Deery said the first step would have been for an engineer to consider and report on the walls (subsequently achieved
through the EDC report) and the EDC report may have been the engineering work Mr Hennessy was referring to.
The EDC Report
[107] Hawkins, through Site Solutions Ltd (Site Solutions), requested a further engineering report on retaining walls from Engineering Design Consultants Ltd (EDC). EDC, on 19 December 2014, provided its report to Site Solutions, entitled “Retaining Wall Scoping Report” (the EDC report). The report was in turn provided to Hawkins on 7 January 2015.
[108] The EDC report was intended to form an addendum to the Aurecon report as a re-scoping assessment of retaining walls. It recommended the replacement of Aurecon wall 7:
…this wall should be replaced. The new wall should be built after the new site layout and levels have been determined and support has been added to provide passive assessment at the front of the wall. Alternatively the wall can be designed for both its retained height and the 2.3 m height of the cut face.
[109] On 14 January 2015 the Daverns sent an email to Mr Smith — they noted that they had not heard much about what was happening with their retaining walls and went on to note that Penny Homes were waiting to start, so “these retaining walls need to be sorted as soon as possible”.
[110] On 15 January 2015 Mr Deery (having earlier received the EDC report) emailed IAG’s loss adjuster, Mr Hennessy, asking him to call. In a separate email, he forwarded the EDC report and requested that Mr Hennessy let him know how Mr Hennessy wanted Hawkins to proceed. On the same day, Mr Smith advised the Daverns that Mr Hennessy would be giving them a call to talk through the retaining wall issues.
[111] Mr Deery, with IAG’s approval, arranged for a contractor to price the marking out of the boundaries.
[112] On 20 January 2015 Mr Deery emailed the Daverns. He apologised for not making contact earlier. He stated he had been assured by their (IAG) loss adjuster, Mr
Hennessy, that he was keeping the Daverns in the loop. Mr Deery noted that the surveyors were marking out the boundaries “so we can [keep] the wall within [the] boundary” and he was “waiting to hear back from [Mr Hennessy] on a few other walls that I have tried to add to [the] budget”. Mr Deery said in his evidence he never received an instruction from IAG to add additional walls to the budget.
[113] Mr Davern gave reply evidence in response to what Mr Deery had said as to awaiting instructions from IAG. Mr Davern rejected Mr Deery’s suggestion that the work being discussed from early-December 2014 related to the southwestern boundary walls. He referred to the Daverns’ own correspondence at the time which indicated their immediate focus was on getting the turning bay area (and therefore Aurecon walls 1 and 2) designed and approved so Penny Homes’ building work could proceed on site.
[114] I accept the Daverns’ immediate focus in the December/January discussions was on the walls in the southeastern turning bay area, to enable building work to progress on site. Penny Homes was ready to start work at the time. However, the subject-matter under discussion from the EDC report was broader than that, extending to all the walls (including Aurecon wall 7) that needed addition or replacement. Mr Deery’s reference to “other walls” (that is, other than the southeastern/turning bay walls) was clearly a reference to the other walls required in terms of the EDC report, being the first wall referred to in Mr Hennessy’s HiViz report. Mr Hennessy had referred to the compromising of Aurecon wall 7 as having been “possibly avoidable”, a situation that would have led to a need for discussions with IAG as to whether the cost of making good the damage should be included in the Building Contract as a variation.
[115] Mr Deery, at a site meeting on 23 January 2015 with the Daverns and an IAG representative reviewing boundary survey issues and retaining wall placements, undertook to arrange a site survey and to contact RJ Civil as the retaining walls contractor. This was clearly a reference to the marking out of the boundary for wall 2, a matter Mr Deery arranged with surveyors in early-February. He emailed RJ Civil to start work on wall 2 in early-March 2015.
The HFC amended foundation layout
[116] In February 2015, HFC provided drawings for an amended foundation layout, whereby a timber pole retaining wall would be constructed in the sub-floor area under the building and would then run outside the building and form a 2.2 m partial timber retaining wall to run adjacent to the garage wall. The relevant part of the amended drawing is shown in Table B. The designed timber pole wall can be seen as an extended line running under and out of the house with the poles shown as circles.
TABLE B
The issuing of resource and building consents
[117] HFC finalised its civil structural drawings, incorporating the amended foundation layout, in mid-2015. The resource consent issued on 17 June 2015 and the building consent on 9 July 2015.
The datum issue
[118] A datum issue was identified by Hawkins in August 2015. By October 2015 it was determined the ground level in the area of the garage was 680 mm lower than shown on the topography plans. Hawkins and IAG decided to address the datum issue by lowering the height of the foundation slab (and accordingly the height of the entire
house). The resulting excavation of an additional 700 mm material increased the height of the unretained bank along the southwestern boundary.
[119] Penny Homes excavated the site in October 2015. During that process Penny Homes removed the retaining walls on the southwestern boundary (including Aurecon walls 6 and 7), without building consent to do so.
The progress of the rebuild from late 2015
[120]The foundation slab was prepared and poured in December 2015/January 2016.
[121] On 3 December 2015, Penny Homes advised Hawkins that concerns had been raised about the southwestern hillside retaining wall. Hawkins reported to IAG that the hillside was “starting to collapse”. IAG personnel undertook an inspection with Jacobs New Zealand Ltd (Jacobs) (geotechnical engineers) and were advised the uphill face was not collapsing. Steps were nevertheless taken to cover the area in question with polythene.
[122] In January 2016, Jacobs undertook a review of the surcharge from above Aurecon wall 7, because of the concerns raised in December 2015. As a result of the advice provided by Jacobs, HFC finalised a redesign of its 2015 design to now provide for a 3.3 m partial timber wall (instead of the 2.2 m version) on the southwestern side of the house. This became the HFC wall. The Building Contract was varied accordingly in March 2016. Penny Homes arranged for a sub-contractor, Francis Ward Ltd, to construct the HFC wall.
[123] By late March, there was discussion of the need for instructions to be given to an engineer to discuss the retaining walls (other than the HFC wall) required to retain the slope. Hawkins’ personnel put together the material necessary for the engineering firm to be involved, Cook Costello.
[124] In the meantime, the construction of the dwelling’s garage wall was delayed to allow for the construction of the HFC wall by Francis Ward Ltd. That work commenced in April 2016.
[125] On 10 May 2016, Mr Deery (as Hawkins’ non-EQC silo RSM) emailed asking for confirmation that Penny Homes were completing the remaining retaining walls (that is in addition to the HFC wall). IAG’s Brett Derry subsequently confirmed (in June) that IAG would have Penny Homes attend to the further work.
[126] During May, Penny Homes came to appreciate that further re-design work was required for the HFC wall, involving the digging out of the footing to a greater depth.
[127] On 26 May 2016, the Daverns emailed IAG. They expressed concern with Hawkins’ involvement. They noted “Our retaining walls are a huge issue, majority have been removed”. They asked whether Hawkins could be removed. Mr Davern, in his evidence, explained the couple had become frustrated. It appeared to them Hawkins was holding up the process with the retaining walls. He said there was an example where IAG had given the go-ahead but it sat on a Hawkins’ desk for three to four weeks.25 In his email, Mr Davern recorded:
… Because the house has moved back toward the boundary the retaining wall can not go in the same place. I feel we need someone (landscape designer? Engineer?) to design all these retaining walls and they can be approved so we all know what is happening and can move ahead. …
The “retaining wall” being referred to was the Required Retaining Wall. It appears the Daverns met on site that day (26 May) with Mr Derry (IAG’s loss adjuster).
[128] The term of the RSMA was to have expired on 30 June 2016. IAG and Hawkins agreed to extend the term to 31 December 2016.
[129] On 14 June 2016, the Daverns reported to IAG they had met with Mr and Mrs Fass that day. Cracking in the ground on the Fasses’ property had been observed. The Daverns hoped Liam Dillane, the Hawkins’ new home silo senior RSM, and Mr Derry (IAG’s loss adjuster) had a “plan” in progress.
[130] On 16 June 2016, there were email exchanges between Hawkins personnel as to the silo in which the Required Retaining Wall would be handled. It was understood
25 Mr Davern did not provide further explanation (in the email or in his evidence) as to when this incident occurred or to what action it related. There was no direct evidence led at the trial as to what Mr Davern referred to as “the go-ahead”.
Penny Homes (under the new homes silo) had initially wanted to do the work, but had then changed their mind. More recently, Mr Derry had come back “saying Penny Homes ARE going to do it”. Mr Reekers (the Senior RSM) confirmed to RJ Civil that day (16 June 2016) that the remaining (retaining wall) work would be completed by Penny Homes.
[131] The HFC wall was finished around 28 June 2016. The photograph at Table C, taken on 28 June 2016, shows:
(a)the completed HFC timber retaining wall to the left, with exposed southwestern slope above and to its right;
(b)the blockwork of the garage now starting to be installed; and
(c)the floor of what was to become the ground floor of the house and some of that floor’s wall framing.
TABLE C
[132] The photograph indicates the southwestern slope was unretained apart from by the HFC wall.
[133] On 29 June 2016, Mr Dillane in an update email informed the Daverns Hawkins were planning to have a meeting with an engineer to discuss the additional retaining walls required.
[134] Shortly afterwards, on the same day (29 June 2016) Mr Derry provided Hawkins’ material to another member of the IAG loss adjusting team (Pieter van Zyl) stating:
I have another job for you and an engineer to have a look at.
I have some RTW’s at the rear of a house I am rebuilding that need new designs.
I am wanting to have a meeting on site with the customers and yourselves to go over what can and can’t be done.
Are you available next week anytime?
Problems with Penny Homes
[135]The RSMA extension was to 31 December 2016.
[136] In the meantime IAG and Hawkins had been experiencing difficulties with the performance of Penny Homes’ duties under the Building Contract. Whether Penny Homes would be allowed to continue as contractor was actively under review.
Cook Costello’s investigation
[137] Instructions for the design of the retaining walls were given to Cook Costello on 4 July 2016. Stuart Airey of Cook Costello attended the site on 8 July.
[138] Mr Dillane arranged a site visit which took place on 19 July 2016. Mr Dillane attended with Mo Blake (an IAG loss adjuster), Regan Howley (the Penny Homes project manager) and the Daverns. General progress of the rebuild was discussed. In relation to current work in progress, Mr Dillane recorded:
Blockwork completed and GF Frames/FF Floor and majority of the FF frames have been erected, the structural steel will be installed shortly to allow the upper floors to progress. Further scaffolding is due to be erected onsite to allow access to the lower and upper Trusses/Frames. The additional RTW’s are currently being designed by Cook Costello and a copy will be provided once completed.
[139] The same day, following a request from Mr Airey, Mr Blake sent through a “crude drawing” of where IAG wanted “new walls” to be designed — shown as yellow lines extending either end of the HFC wall on the southwestern side of the house.
[140] Design discussions took place in writing between Mr Airey and Mr Blake through July.
[141]Mr Airey then visited the site again in the company of Mr Howley.
[142] On 27 July 2016, Mr Airey provided an initial report to Mr Blake by email. The relevant part of the report reads:
We would like to note that this section should have been retained before construction of the dwelling commenced providing a safe and stable building platform as council consent requires. With the dwelling already in existence and due to the close proximity of the newly constructed house to the upslope cut the construction/excavation for any future wall will need to take place from above the non-retained cut, as such this will be more complicated and expensive. Because of this, and the due to the slope angle above the cut, along with the proximity to the large existing retaining wall further upslope, a retaining wall contractor should visit the site to assess the feasibility, logistics and safety of building the proposed wall.
[143] Mr Airey recommended steps be taken temporarily to make the unretained slope safe.
[144] The witnesses called did not dispute the correctness of Mr Airey’s observation that the Required Retaining Wall should have been built before construction of the dwelling, having regard to the proximity of the slope.
[145] A different issue arises in relation to whether the Required Retaining Wall could have been built at the early stage of house construction as it stood at the time of Mr Airey’s initial (27 July 2016) report.
[146] Mr Airey requested that Mr Blake organise a contractor to review the site and the feasibility of construction, following which (based on those conclusions) Cook Costello would commence onsite ground investigations and produce designs for the Required Retaining Wall.
[147] Mr Blake arranged for the unretained slope to be fenced off. He decided to engage a contractor once the wall placements were agreed with the Daverns. On 19 August 2016, Mr Blake reported to Mr Airey he had met both the Daverns and a contractor. He reported the contractor believed they could access the area for the Required Retaining Wall from two ends and from below, but not from above.
[148] There was a meeting onsite on 25 August 2016 attended by the Daverns, Mr Airey and Mr Blake. Provisional agreement was reached on the placement of retaining walls with a view to then devising a strategy, based on engineering input, to achieve plans which could be put out for tender.
[149] Mr Dillane completed a Hawkins’ Site Status Report on 30 August 2016. He recorded under “Current Work in Progress”:
First Floor frames have been completed but the trusses are yet to be installed, the engineer is currently designing the RTW required for the rear of the property. The builder has been informed to push on with his work and not to delay the build under any circumstances.
[150] During September 2016, Cook Costello obtained from HFC the plans of the HFC wall and commissioned onsite ground investigations. In October 2016, Cook Costello was able to begin modelling and designing the remaining retaining walls.
[151] On 13 October 2016, Mr Dillane completed a further site visit in the presence of Mr Blake (IAG) and Colin Hosking (now the Penny Homes project manager).
[152] Mr Dillane recorded in his Site Status Report in relation to current work in progress:
Progress has been made with the dwelling, the Rab board being installed and the majority of the windows/doors being also fitted. Regarding the RTW the engineer is aware this is urgent and they intend to get the design completed by the 28th October, following this you will have the opportunity to review the design and if satisfied the design will go out to the contractors to quote. Internally the sub trades will begin the first fix required to be completed for preline inspection.
[153] On 22 November 2016, Mr Dillane completed another site visit. He reported Penny Homes was behind programme. In his site Status Report he advised IAG in relation to current work in progress:
Exterior cladding battens underway, internal first fix plumbing and electrical complete. Scaffolding was being rectified. Retaining wall still under design by Cook Costello engineers under IAG’s directive, design was to be completed a number of weeks ago but has been delayed numerous times. Retaining walls will need to commence once the exterior cladding has been completed, Consent will be required revised construction programme required from Penny Homes.
The Hawkins handover
[154] With the (extended) term of the RSMA shortly to expire, IAG and Hawkins had agreed upon a transition from Hawkins to other contractors. With effect from 23 November 2016 CNZ Group Ltd (Crawford) replaced Hawkins (and the IAG loss adjuster) to provide loss adjusting and project monitoring services in relation to the Daverns’ project. Crawford in turn appointed Cube Contracting Ltd (Cube) to provide some services.
The work of Crawford, Cube and Cook Costello
[155] In early December 2016 the Daverns attended a site handover meeting with personnel from Crawford, Cube, Hawkins and Penny Homes. It was agreed Cube would obtain an engineered design for the Required Retaining Wall, tender and have the work consented under a separate contract in conjunction with Penny Homes. There was then a Cube/Cook Costello meeting, leading to an expectation that the Cook Costello design would now be completed in January 2017.
[156] On 2 December 2016 Crawford and Cube provided a report in relation to the previous day’s handover meeting. It referred to progress on the dwelling, before discussing the retaining wall:
The retaining wall to the south of the dwelling was discussed. The wall was originally intended to be completed prior to construction of the dwelling, however this was never completed. The retaining will be required in order to obtain CoC The retaining is to be dealt with under a separate contract and consent. In order to mitigate time and cost related to this element, Cube is to obtain an engineered design for the wall, tender and consent the works under a separate contract in conjunction with Penny Homes drain layer and
construction schedule. A further meeting has been undertaken with Penny Homes to discuss time and cost implications as well as schedule coordination.
[157] Design discussions followed between Cube and Cook Costello. Matthew Gorinski was, at that time, the Cube project director. In a report dated 21 February 2017, Mr Gorinski noted a considerable amount of time had been spent with Cook Costello in order to determine a retaining wall design that could be constructed with the house in situ, taking into account the slab foundation, boundary line and close proximity of the house to the cut face. He identified five “options” that had been investigated:
–Masonry retaining wall: …
– Using the house foundation to support the retaining wall …
– Slope sculpt and shotcrete (sprayed concrete over mesh) …
– Ground anchors drilled into the bank/slope, in order to support a
vertical wall: …
–Timber retaining wall with augered piles: …
(collectively the “February 2017 five options”)
[158]In relation to these “options”, Mr Gorinski recorded:
When all of these designs have been assessed, the most practical, economic and least invasive option is Option 5, a timber retaining wall with augered piles. This option relies upon the neighbour on the southern boundary providing access to through their property for drilling and construction of the wall and is likely rely upon an agreement to compensation for loss of land.
[159]An issue had arisen in relation to the HFC wall. Mr Gorinski recorded:
The Cook Costello engineers have also identified a potential design flaw in the new retaining walls that have already been constructed along the southern elevation [ie the HFC wall], as the design documents refer to a flat slope above with no loadings whereas, in reality, there is an uphill slope and loadings of the neighbouring house on the uphill slope above. This requires further investigation to confirm an action plan, however, it has implications on the ability to connect any new wall to this existing structure.
Mr Gorinski noted a boundary survey was to be obtained to establish the “southern boundary”, this being a reference to the southwestern boundary.
[160] As it transpired — as confirmed by the evidence of the experts called on both sides in this case —the HFC wall had indeed been inadequately designed, a matter to which I return at [177] below.
[161] Cook Costello issued a preliminary design dated 2 May 2017 for the Required Retaining Wall.
[162] On 1 June 2017, there was a meeting onsite between Cube, Cook Costello personnel and the Daverns to discuss the Cook Costello design and other matters relating to the retaining wall. It was agreed the Cook Costello design would be reissued as “draft”. Mr Gorinski was to discuss with the loss adjuster providing the retaining plans to Mr and Mrs Fass urgently.
[163] In the meantime, between May and July 2016, a surveying firm, Clark Fortune McDonald & Associates (Clark Fortune), prepared proposed boundary adjustment plans for the Fass/Davern boundary.
[164] On 15 June 2017, Mr Gorinski, and Greg Bray, of Cube, produced a “Report on Retaining Wall Issue”. The report reproduced the February 2017 five options (above at [157]) and then recorded:
When each of these designs have been assessed, the most practical, economic and least invasive option is Option 5, augered piles and timber retaining.
The report noted the completion of the Clark Fortune survey and the identification of the parcel of (Fass) land that potentially had to be purchased. The likely difference between the cost of the proposed retaining walls and the retaining wall that could have been built had the sequencing issue not occurred was estimated be in the range
$250,000 to $350,000.
[165] On 23 June 2017 IAG, by its solicitors Duncan Cotterill, notified Hawkins of a claim for costs arising from the “sequencing error” (estimated in the letter to be between $280,000 to $380,000, together with additional costs in relation to the sewer line, landscaping, legal fees, design costs and the like).
[166] On 18 July 2017, Clark Fortune presented their proposed boundary adjustment plans. The plans provided for 15 m2 of land to be transferred from the Fass property to the Davern property. Discussions began with Mr and Mrs Fass around this time. Cube sought valuation advice from Ford Baker Valuation Ltd (Ford Baker).
[167] Responsibly on the part of counsel involved in this case, little evidence was directed to the detail of steps taken in relation to the Required Retaining Wall over the following two years. It is clear planning work was evolving alongside extensive negotiations with Mrs Fass.
The IAG/Davern settlement
[168] The Daverns and IAG in July 2018 entered into the deed of settlement and assignment referred to at [34] above.
Work in relation to the Required Retaining Wall
[169] In November 2018, Ford Baker advised Cube the land for transfer was valued at $10,000.
[170] On 7 November 2018, Cook Costello issued a “Design Features Report” with a retaining wall design (the Cook Costello 2018 design). Included was a draft plan which provided for the construction of retaining walls (RW1, RW2 and RW3) and retained as “Existing retaining wall” the HFC wall. The relevant part of the draft plan is reproduced below as Table D.
TABLE D
[171] Karnan Shanmugasundaram, a Cook Costello engineer, signed a producer statement — PS1-Design — certifying compliance of the drawings with the relevant provisions of the Building Code, subject to site verification of geotechnical design assumptions.
[172] Discussions continued with Mrs Fass in 2019 including over matters such as landscaping.
[173] On 5 April 2019, Cube produced a programme of works and methodology in relation to the intended retaining walls. The programme began with the design of the retaining wall, land acquisition and followed through the amendments needed to the Building Contract. Cube discussed the access that would be required over the Fass property to undertake construction work (from above the Davern property). By this time it was also anticipated that the Fass land to be acquired would be 43 m2 (compared to the previously proposed 15 m2). On 17 April 2019, Ford Baker advised the 43 m2 land was valued at $20,000.
[174] During 2019, Crawford and Cube undertook further work on costs to be taken into account in the land acquisition. Negotiations proceeded through this period between solicitors, Duncan Cotterill (for IAG) and Rhodes & Co (for Mr and Mrs Fass).
[175] A deed (entitled Deed of Physical Works, Subdivision and Sale) (the Davern/Fass Deed) was entered into on 20 February 2020. The parties were the Daverns, Mrs Fass (recently widowed), IAG and the Daverns’ bank which held a mortgage over the property. Mrs Fass, for a provisional purchase price of $50,000 together with provision for retaining and landscaping works and the payment of her legal and engineering costs, sold 43 m2 of land to the Daverns and granted them rights of access over her property for construction purposes. Restrictions under COVID-19 requirements led to delays in the works which were addressed in a supplementary deed on 5 March 2021, when provision was also made for additional anchoring work. The Cook Costello 2018 design (above at [170]) formed a Schedule to the Davern/Fass deed.
[176] On 19 June 2020, Cook Costello completed a further “Design Summary Report”, entitled “Retaining walls and alteration to main dwelling and decking 9 Crest Lane” (the Cook Costello final design). The Cook Costello final design set out a fresh design for the Daverns’ property, reproduced as Table E.
TABLE E
[177] The fresh design involved the removal of the HFC wall — analysis had now confirmed it had been defectively designed and not strong or high enough. The fresh design provided for a combination of timber pole retaining walls and a reinforced concrete retaining wall along the southwestern boundary. As shown in Table E, Cook Costello labelled the southwestern walls RW3, RW4, RW5 and RW6, with RW4 being the concrete wall.
74 Mr Gorinski’s Appendix 1 also referred to the Daverns’ loss of rent, now itemised as a distinct claim.
35 per cent of the costs of RTW 6 to the sequencing issue. Mr Gorinski accordingly brought into account 35 per cent of the total cost of wall 6.
[389] Mr Gorinski recorded costs he had excluded from his calculations, including site landscaping that did not relate specifically to the Required Retaining Wall area.
[390] Mr Gorinski explained the basis of his Appendix 2 — what he referred to as the “hypothetical costs”.
[391] Cook Costello had, in October 2022, prepared a hypothetical retaining wall design (produced by Mr Cook as Appendix 3 to his brief of evidence), explained in the following terms:
This is a hypothetical design for new retaining walls, to replace the original retaining walls which were removed at some point during the house re-build. Our design is based on these replacement retaining walls having been constructed prior to construction beginning on the house, so no access issues due to the house. …
We have selected timber pole walls as the most appropriate solution for the given wall heights, and considering proximity to the property boundary and the dwelling on this site.
[392] Mr Gorinski adopted costings prepared using the standard set of rates developed by Hawkins for 2013/2014. He applied a 30 per cent reduction in 2020 rates to timber, concrete and fixing rates, which he conservatively estimated as the net price increase across all those materials from 2014 (when the property was being built). He made an assumption that the works would have been completed under the Hawkins retaining wall programme using a prequalified contractor, with no main contractor margin involved. He also assumed demolition would have been completed and the works would have been conducted on the basis of a clear site.
[393] Mr Gorinski was the only witness briefed to quantify the costs actually incurred by IAG in relation to the construction of the Required Retaining Wall and the extent to which those exceeded the costs that would have been incurred had the Required Retaining Wall been built before the construction of the house.
[394] Ms van Eeden was the quantity surveyor called by QBE. She was briefed to provide her opinion on the cost of constructing the Required Retaining Wall as at 2016; the cost of a limited building deconstruction to allow that work to occur; and the “actual cost” of undertaking the retaining wall works identified by Mr Gorinski if completed in 2016. In her evidence she did not provide an equivalent version to Mr Gorinski’s Appendix 1 and Appendix 2.
The principles of assessment
[395] Mr McLellan, as a useful test in assessing the true value of the loss suffered by IAG as a result of Hawkins actions, referred to the well-recognised tests of remoteness of damage, the classic exposition being the formulation of Asquith LJ in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd.75
[396] In cases of breach of contract, the aggrieved party is entitled to recover only such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach.
[397] In this case, in relation to IAG’s claim for damages for breach of contract, as between IAG and QBE IAG is precluded (under cl 18.2(b) of the RSMA) from recovering any indirect or consequential losses. As a matter of contract, IAG may recover only direct losses.
Criticisms of Mr Gorinski’s calculation of actual costs
[398] Mr McLellan, for QBE, identified what he said were six specific difficulties with Mr Gorinski’s approach to actual costs. In addition, he submitted the acknowledged need to replace the HFC wall, which has resulted in costs included in Mr Gorinski’s calculations, was not caused in any material way by any breach on the part of Hawkins.
[399] I now examine each of the issues raised by QBE in relation to Mr Gorinski’s calculations.
75 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, [1949] 1 All ER 997 at 539.
Issue 1: lack of contemporaneous assessment of costs
[400] QBE submits there is no evidence of any contemporaneous assessment of the costs that were incurred in relation to the design of the various walls for the Cook Costello first design (covering walls 3, 4, 5 and 6) or the design and build for the second design (which included 12 walls). The point being that the second design comprehensively covered all retaining walls on the property, not just those four (3, 4, 5 and 6) representing the Required Retaining Wall.
[401] Mr Gorinski was cross-examined upon the basis that design work for other than walls 3, 4, 5 and 6 had been wrongly included in his costs. He explained, in re-examination, that he understood that “the majority, if not all of the work that Cook Costello did prior to the construction contract was in relation to the four required walls”.
[402] Mr Cook was also cross-examined in relation to the Cook Costello invoices (for the period before the Required Retaining Wall was constructed, spanning 15 August 2016 to 20 August 2021). Those fees, excluding non-retaining wall services, totalled $136,400.39 (exclusive of GST). Mr Cook was also cross-examined in relation to those fees, in light of Mr Gorinski’s answer. Mr Cook explained that the remaining walls, with standard wall design, would have involved fees in the range of
$4,000 to $5,000.
[403] On this basis, Mr Gorinski’s total calculation of costs should be reduced by the (GST inclusive) figure of $5,750.
Issue 2: costs to be limited to the area identified by IAG in July 2016
[404] Mr McLellan submitted there had been no rigour applied to Mr Gorinski’s analysis of actual costs because it included costs other than those associated with the area IAG had identified for consideration by July 2016, following Mr Airey’s initial report to Mr Blake (of IAG) as to the need for the retaining wall (above at [142]).
[405] Mr McLellan developed his submission as to a lack of rigour by reference to the previous issue relating to walls other than walls 3, 4, 5, and 6 that were the walls
covered in the Cook Costello 2018 design. But Mr McLellan then continued by suggesting a lack of rigour in the “totality of [Mr Gorinski’s] assessment” through simply “collecting invoices and making telephone enquiries as to the extent of work involved”.
[406] Mr McLellan referred to two particular assessments made by Mr Gorinski whereby he treated 86 per cent of Cook Costello’s invoiced sums as relating to the Daverns’ project and 80 per cent of Crawford’s invoiced sums as relating to the Daverns’ project. In each case Mr Gorinski explained, in response to questioning, that he had spoken to a representative of the relevant organisation (Mr Cook in the case of Cook Costello and Mr Rae in the case of Crawford). Mr Gorinski had, on the basis of the invoices, arrived at his own calculations and obtained confirmation of the appropriateness of his calculation from Mr Cook and Mr Rae respectively.
[407] The process adopted by Mr Gorinski, as an expert, cannot be criticised as lacking rigour. His experience in quantity surveying and estimation equips him to assess at least approximate apportionments. His process of checking with relevant personnel at the organisation in question was an appropriate means of cross-checking.
Issue 3: failure to calculate the costs relating to the replacement of the HFC wall and associated consequences
[408] QBE asserted the plaintiffs had made no attempt to calculate which elements of the plaintiffs’ incurred costs related to the replacement of the HFC wall; the associated consequences involving subdivision and purchase of the Mrs Fass’s land; and the delay in construction, including loss of rent.
[409] As identified above, at [177] and [360]–[362], I am satisfied the HFC wall had to be replaced in order to provide an appropriate retaining wall solution given the state of the site from mid-2016.
[410] QBE alternatively asserted, through Mr McLellan’s submissions, that some of the costs incurred by the plaintiffs in dealing with Mrs Fass in order to be able to construct the Required Retaining Wall would have been incurred in any event had replacement retaining walls been constructed prior to construction of the house.
[411] Mr McLellan referred in particular to a passage in the 11 October 2022 report of Mr Cook in which Mr Cook explained his hypothetical retaining wall design (for a retaining wall construction before the house rebuild).
[412]As one of his “design assumptions”, Mr Cook had recorded:
Soil anchors crossing the property boundary are not permitted, but excavation across the boundary to enable assumed ok, as this has occurred for the actual works.
[413] No cross-examination was directed to Mr Cook (or any other witness) as to his assumption that agreement would have been obtained from Mr and Mrs Fass for the use of soil anchors (across the boundary) if the hypothetical design had been effected. I find, having regard to the evidence of subsequent events that the agreement of Mr and Mrs Fass (or Mrs Fass alone) would have been obtained to the less significant intrusion of soil anchors.
[414] Mr McLellan also referred to the fact, shown on Mr Cook’s slope stability analysis in September 2021, that excavations across the existing boundary line would have been needed ahead of the construction of the concrete portion of the retaining wall. Mr McLellan noted an arrangement would have been required with Mrs Fass in that regard also.
[415] I accept, as with the soil anchors, the agreement of Mrs Fass would have had to be obtained. But the nature of the excavation (and subsequent backfilling) would have been of a temporary intrusion, ultimately establishing a sound, high retaining wall for the benefit of both properties. As a matter of probability, Mrs Fass’s consent would have been obtained.
[416] That said, the history of dealings between Mr and Mrs Fass and QBE would strongly suggest, even without the need for the plaintiffs to pursue a subdivision and the purchase of additional land, Mrs Fass through her solicitors would have demanded a level of compensation for interruption and for restoration of her land, including landscaping, together with payment of her legal fees involved in the negotiation and agreement.
[417] No evidence was led by either party as to the precise components that would likely have been negotiated between the parties. It is likely to have involved discussion of the elements I have just referred to. The Court must do the best it can with the evidence, informed by the total cost incurred in securing Mrs Fass’s agreement to the arrangements over her property and having regard to the fact the actual negotiation with Mr and Mrs Fass included the need for a subdivision and the purchase of part of their land. The Court’s calculation must also take into account the burden of establishing the plaintiffs’ loss is on the plaintiffs.
[418] The total cost to the plaintiffs of having to deal with Mr and Mrs Fass to secure the ability to construct the Required Retaining Wall was $622,379.11 (including GST), comprising:
Construction vibration monitoring $41,140.00
Deed of Purchase $43,478.26
Retaining walls works $146,688.30
Retaining walls variation $62,659.55Landscaping $141,850.72
Remediating damage to 8 and 9 (50%) $14,875.00 Davis Ogilvie $13,767.40
Rhodes and Co $76,740.00
Subtotal (excl GST) $541,199.23
GST $81,179.88
Total (incl GST) $622,379.11
[419] On my assessment, the realistic allowance the plaintiffs would have had to make for obtaining the much more limited rights to insert soil anchors, to undertake excavations, to have the necessary access, and to document that arrangement with Mrs Fass without requirements for subdivision and property purchase, would have been at most 25 per cent of the total figure of $622,379.11, namely $155,594.78.
[420] Mr McLellan raised, in relation to this third issue, a failure by Mr Gorinski to take into account the extent to which the Daverns lost rent through the delay in construction. That failure does not represent a difficulty in Mr Gorinski’s approach to quantum — the time taken to finalise a sound design for the Required Retaining Wall and to put in place all arrangements necessary to achieve its construction were matters
largely beyond the control of the plaintiffs. I have not found any conduct on the part of the plaintiffs amounted to a failure in their duty of mitigation.
Issue 4: failure to account for wasted costs and delays in relation to Cook Costello’s first design
[421] QBE asserted that Mr Gorinski’s analysis of costs ought to have excluded the “costs and delays in relation to the creation and pursuit of the Cook Costello 2018 design”.
[422] I do not find there was any error in the plaintiffs’ approach to quantum in that regard. The plaintiffs, when they were faced with the circumstances on site in mid- 2016, appropriately took professional advice as to the way forward. That advice initially suggested a solution, in the form of the Cook Costello 2018 design. That was a cost properly incurred by the plaintiffs by way of exploring a solution to Hawkins’ failure to provide or have provided a scope of works in relation to all retaining walls for the site.
Issue 5: failure to calculate the cost of alternatives based on cost calculations in 2016
[423] QBE asserted the plaintiffs should have calculated the cost of any alternatives that could have been adopted in mid-2016.
[424] There is no basis to relate the plaintiffs’ damages to the hypothetical construction of walls according to an earlier design. I have found the plaintiffs acted appropriately in not proceeding upon the basis of the Cook Costello 2018 design and, instead, in having the Required Retaining Wall built as it ultimately was.
[425] Mr Gorinski’s approach to calculating those actual costs is correct, subject to specific adjustments I make on other accounts.
Issue 6: a failure to take into account the contractual risk allocation
[426] QBE asserted Mr Gorinski’s “failure to de-escalate costs to the 2016 position” ignores the contractual risk allocation in the RSMA. QBE asserts that the plaintiffs’
approach would render Hawkins liable for indirect or consequential losses and losses relating to delay.
[427] The allocation of risk under the RSMA was made in express terms. Each of the relevant terms was the subject of pleading and submission and is dealt with in this judgment.
[428] The plaintiffs’ claims are for direct losses. The “losses relating to delays” do not relate to construction delays by the builder or delays in implementation of a contractual programme. The delay to which QBE is implicitly referring is the delay the plaintiffs incurred in being able to achieve completion of the Required Retaining Wall. Nothing in the contractual arrangements between the parties precluded the plaintiffs from recovering their full measure of contractual damages or damages under the CGA merely because addressing the damage suffered took the time it did (in circumstances where the Court has found that there was not a failure to mitigate).
Loss of rent
The claim
[429] The Daverns were unable to live at 9 Crest Lane because of the delays caused by the sequencing issue. They (and IAG) claim as damages the rental they would have earned had they been able to move into 9 Crest Lane without the impact of the sequencing issue.
[430] The period covered by the claim is from 1 June 2017 to 30 May 2023, a total of 313 weeks.
[431] The undisputed evidence, provided by Ngaire Baker, a property manager, was that the realistic rental value of the property in the period was in the range of $520–
$580.
[432] The plaintiffs’ total claim is $172,150 (being a GST exempt figure), based on the averaged figure of $550.76
76 Pursuant to Goods and Services Tax Act 1985, s 14(1)(c) and (ca).
Subrogation in relation to the rent claim
[433] Through the terms of the Davern/IAG settlement deed of 18 July 2018 (above at [34]) IAG agreed to cover the Daverns’ loss of rent at an agreed figure of $550 per week ($172,150 in total). The Daverns and IAG expressly agreed IAG was subrogated to the Daverns’ rights, interests, claims and remedies.
[434]IAG sues QBE pursuant to its right of subrogation.
[435] By its statement of defence, QBE pleaded that “[U]nder the Daverns’ policy of insurance with IAG, the Daverns’ cover for loss of rent was limited to $11,250.
[436] The insurance policy limit was in fact $22,500 (there being separate amounts payable in respect of house and contents).
[437] In any event, the fact IAG may not have been contractually bound to indemnify the Daverns in relation to rental losses does not cut across subrogation rights in the present situation — a right of subrogation arises in the situation of an insurer’s ex gratia settlement, where an insurer meets a loss incurred by the insured notwithstanding the payment was not strictly required under the insurance policy. As explained by the authors of Colinvaux’s Law of Insurance in New Zealand, “subrogation is simply the right of a consensual indemnifier to take over the rights of the party indemnified”.77
[438] The Daverns also retain their right of recovery notwithstanding that they may have been insured for (part of) the relevant loss.78
Outcome
[439] Mr McLellan in closing did not address a submission specifically to the claim for loss of rental.
77 Robert Merkin and Chris Nicholl Colinvaux’s Law of Insurance in New Zealand (2nd ed, Thomson Reuters, Wellington 2017) at [9.1.6(6)].
78 Sleight HC, above n 1, at [391–396]. See also Stephen Todd Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [25.2.04].
[440] The loss sustained by the Daverns, the subject of IAG’s subsequent payment to them, was as much a loss caused by Hawkins’ breach of contract as the other head of direct damage.
[441] The plaintiffs’ approach to quantifying this head of loss was not impugned either in the evidence or in the defendant’s submissions. On the evidence, the sum of
$172,150 claimed represents an appropriate calculation of the value of the lost rental.
Plaintiffs’ recoverable damages
[442] The plaintiffs’ recoverable damages, including GST where appropriate, arising from the above findings total $1,593,484.54, calculated as follows:
|
REQUIRED RETAINING WALL COSTS $1,421,334.54 PLUS:
Loss of rent $172,150.0083
TOTAL $1,593,484.54
Interest
[443] I will be reserving questions of interest. The plaintiffs’ 3ASOC simply recorded the plaintiffs sought judgment for “Interest”. Submissions were not directed to that prayer. It does not appear to comply with the strict requirements of s 25 Interest on Money Claims Act 2016. It is appropriate the parties have the opportunity to present submissions in that regard.
79 Above at [382](a).
80 Above at [303].
81 Above at [419].
82 Above at [403].
83 Above at [441].
Costs
[444] The plaintiffs’ 3ASOC recorded the plaintiffs seek an award of solicitor/client costs or alternatively scale costs. The parties through counsel in June 2021 recorded the proceeding was appropriately categorised as a “2B” proceeding. As submissions have not been addressed to the question of costs, I will be reserving them to be dealt with (if not resolved by the parties) on the papers on the basis of memoranda filed. I record my tentative view this is not a case in which either increased or indemnity costs (under r 14.6 High Court Rules 2016) would be justified.
Orders
[445]I order:
(a)there is judgment for the plaintiffs in the sum of $1,593,484.54;
(b)the determination of the plaintiffs’ claims for interest and costs are reserved.
Osborne J
Solicitors:
Hazelton Law, Wellington Counsel: D J Cooper KC Duncan Cotterill, Auckland Counsel: D H McLellan KC
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