Hsieh v Dreamhome Construction Group Ltd

[2025] NZHC 1643

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-004-285

[2025] NZHC 1643

IN THE MATTER OF

a breach of contract

BETWEEN

HSIN-TSE HSIEH, CHEN-YIN YANG HSIEH, and CHD TRUSTEES No. 16

LIMITED as Trustees of the HSIEH FAMILY TRUST

Plaintiffs

AND

DREAMHOME CONSTRUCTION GROUP LIMITED

First Defendant

CHENGFAN SUN
Second Defendant

BROTHERS ALUMINIUM LIMITED
First Third Party

C&Y NZ LIMITED
Second Third Party

(Continued Overleaf)

Hearing:	28 – 30 April, 1 – 2 and 5 May 2025
Appearances:	E St John and S P Maloney for the Plaintiffs D T Broadmore and E Lee for the Defendants
Judgment:	19 June 2025

JUDGMENT OF GARDINER J

This judgment was delivered by me on 19 June 2025 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

HSIEH v DREAMHOME CONSTRUCTION GROUP LTD [2025] NZHC 1643 [19 June 2025]

DOORWAYS (2009) LIMITED (DISCONTINUED)

Third Third Party

QUALITY KITCHEN NZ LIMITED
Fourth Third Party

TANK (LAST NAME UNKNOWN)
Fifth Third Party

Introduction

[1]    The plaintiffs are trustees of a family trust (the trustees) wh o engaged the first defendant (Dreamhome), a building company, to construct two residential houses on their property at  40  Venus  Place,  Auckland.  The  second  defendant (Mr Sun) is the sole director and shareholder of the first defendant. The parties entered into separate contracts for the two dwellings (together, the Contracts).

[2]    The build did not go smoothly. Eventually, the trustees cancelled the contracts with Dreamhome on the grounds of delay and defective work. The trustees engaged another building company to complete the houses. The trustees now claim damages from Dreamhome for the difference between the amount it paid the new contractor and what they would have paid Dreamhome. The trustees also claim delay costs. Furthermore, the trustees complain that Dreamhome has not delivered up construction documents that will be required to obtain code compliance certificates for the work. The trustees claim compensation for the final cost of obtaining code compliance certificates. It seeks a separate trial on this point because its losses have not yet crystallised.

[3]    Dreamhome says that the trustees were not entitled to terminate the contracts for delay or defective work.

[4]    Dreamhome counterclaims for unpaid sums and damages for lost profit on the grounds that the trustees were not entitled to cancel the contracts. Alternatively, it seeks to set off the unpaid sums.

[5]Consequently, the issues to determine are:

(a)Were the trustees entitled to cancel the contract(s) for delay?

(b)Were the trustees entitled to cancel the contract(s) because the works were defective?

(c)If the trustees were entitled to cancel, what damages are payable to the trustees?

(d)If the trustees were not entitled to cancel, what damages are payable to Dreamhome?

(e)Did Mr Sun owe the trustees a duty of care? If so, what was the scope of the duty of care and did Mr Sun fail to discharge his duty?

(f)If Mr Sun breached a duty of care, what losses were caused and were they reasonably foreseeable?

(g)Was it an implied term of the Contract(s) that Dreamhome supply all construction documents necessary to obtain code compliance certificates?

(h)Has Dreamhome breached that implied term?

(i)If so, what damages are payable to the trustees?

(j)Can Dreamhome set off the unpaid sums?

Background

[6]    The trustees initially engaged Latham Construction Ltd (Latham) to undertake the construction works, who built the house on Lot 1 to the framing stage. The contract(s) with Latham then came to an end due to a dispute over alleged defective work.

[7]    On 27 February 2017, the trustees and Dreamhome entered into a construction agreement for Dreamhome to complete the dwelling (Lot 1) on part of the Property (Lot 1 Contract). The Lot 1 Contract price was $750,000 including GST, plus a cash component.

[8]    On 7 March 2017, the plaintiffs and Dreamhome entered into a construction agreement for Dreamhome to complete the dwelling (Lot 2) on part of the Property (Lot 2 Contract). The Lot 2 Contract price was $1,350,000 including GST, plus a cash component.

[9]    In mid-2018, the trustees’ representative (and  the  plaintiffs’  daughter),  Tina Hsieh, noticed defects in the works the defendants claimed to have completed. Ms Hsieh engaged a building consultant, Mark Williams of Prendos New Zealand Ltd, who inspected the site and prepared reports identifying the defects and proposing options for remediation.

[10]   In late July 2018, the plaintiffs instructed Dreamhome to stop work on both lots until various issues had been investigated and resolved. Following that instruction, Dreamhome ceased work and expert reports were exchanged.

[11]   In August 2018, the trustees engaged Point Build to inspect the site and prepare a report on the defects. The Point Build report was delivered on 13 August 2018, and it identified significant issues with Lots 1 and 2.

[12]   On 28 August 2018, the solicitor for the trustees wrote to Dreamhome stating if they did not remedy the issues and continue with the works in a competent and timely manner, the trustees would cancel the Contracts.

[13]   The trustees served notices of default on Dreamhome on 10 September 2018. The notices gave Dreamhome 10 working days to remedy the defects; failing that, the trustees would cancel the Contracts.

[14]   During this time, the parties had several meetings, the outcome of which is recorded in the meeting minutes. The parties reached a without prejudice agreement that Ms Hsieh would pay $86,235 to the defendants. In exchange, the defendants agreed that they would undertake remedial works as identified in the minutes and work to a tight revised schedule to complete the dwellings.

[15]   The defendants re-commenced works in January 2019 but progress remained slow. Various site meetings occurred between February and March 2019. During these meetings, Ms Hsieh expressed frustration with the delays and alleged lack of progress from Dreamhome.

[16]   Dreamhome served a letter on 12 April 2019 setting out its position on issues with Lot 2 and proposed that any additional remediation works beyond what Dreamhome considers appropriate be treated as variation.

[17]   The trustees served notices of default on 3 April 2019, which went unremedied. The trustees cancelled the Contracts on 19 April 2019. The defendants did not initially challenge the cancellation and simply left site.

[18]   On 27 May 2019, the trustees engaged Invogue Construction Ltd (Invogue) to complete construction of the dwellings on Lots 1 and 2. The construction contracts with Invogue set out the scope of work to complete Lot 1 and Lot 2. The Lot 1 contract price was $444,085.38 (including GST) and the Lot 2 contract price was $294,256.25 (including GST).

[19]   In February 2020, the trustees filed proceedings and obtained an interlocutory order that Dreamhome deliver up all documents in its possession.

The Contracts

[20]   The Contracts are not standard construction contracts.1 They are bespoke house construction contracts prepared by Dreamhome, on Dreamhome letterhead.

[21]Under the contracts, the trustees and Dreamhome agreed:

The Contractor will complete the Building Works being the matters described in the "Appendix A" (Attached to Scope of works) and in the "Appendix B" (Attached to Schedule payment) and in the "Appendix C" (Attached to Signed draft) at [Lot 1/Lot 2 40 Venus Place Halfmoon bay, Auckland (“the Site”).

The principal will pay the Contractor the sum of [$750,000.00/$1,350,00.00]

[22]Clause 6 provided for liquidated damages:

The Contractor will pay liquidated damages of [$200/$320] per weeks for every week that the Practical Completion is delayed beyond [145 working days – Lot 1; 56 weeks – Lot 2] after excavation jobs or demolition jobs

1      Such as the New Zealand Standard Conditions of Contract for Building and Civil Engineering Construction NZS 3910:2023.

started, provided that no damages shall be payable in respect of any delay arising by reason of:

6.1Any delay caused by the local authority, save by reason of any default by the Contractor;

6.2Weather sufficiently inclement to interfere with the progress of the Scope of Works;

6.3Any strike, lock-out or other industrial action;

6.4Any loss or damage to the contract works or materials;

6.5Flood, volcanic or seismic events;

6.6The net effect of any variation;

6.7Any circumstances not reasonably foreseeable by an experienced contractor at the time of this Agreement and not due to the fault of the Contractor;

Provided that the Contractor has notified the Principal that an extension is claimed on the above grounds within 20 working days after the circumstances arise which are relied on as the grounds for such extension.

[23]The date for Practical Completion was defined at cl 5:

The Contractor further estimates that, based on "Appendix A Signed Plan" and the current description of the Appendix A "Scope of works" the period between the granting of building consent by the local authority and Practical Completion (being the date when the Scope of works are ready for occupancy by the principal, save that a code compliance certificate may not have issued, and that work of a remedial nature may be needed to be carried out) will be [145 working days – Lot 1; 56 weeks – Lot 2] A “working day” for the purposes of this agreement shall be a day excluding a Saturday and a Sunday on which retail banks in Auckland are open for business and shall also exclude the period 24 December 2017 to 14 January 2018 (both dates inclusive).

[24]Clause 2 concerns the Site:

The Principal shall not obstruct the Contractor in the performance of the Building Works under this Agreement when at the site and shall ensure the Principal’s mortgagee does not so obstruct the Contractor.

[25]Clause 3 refers to the Unforeseen Physical Conditions:

3.1 The Contractor shall notify the Principal in writing, as soon as practicable,   of   any   unforeseen   physical    condition    which   the Contractor believes could not reasonably have been foreseen when tendering by an experienced contractor and which will, in the Contractor’s opinion, increase its costs or delay progress of the Building Works or require an extension of time. The Principal agrees

to indemnify the Contractor in respect of any actual increase in the Contractor’s costs resulting from unforeseen physical conditions. Unforeseen physical conditions include artificial obstructions and weather conditions at, or away from, the Site.

[26]The Right of Access is outlined in cl 4:

4.1 The Principal is entitled to have reasonable access to inspect the  Building Works at all reasonable hours in the presence of the Contractor provided that the Contractor shall not be responsible for any damage done to the Building Works by the Principal, and the Principal does not interfere with the progress of the Building Works, and the Owner complies with all requirements of the Health and Safety in Employment Act 1992.

[27]Clause 5 sets forth the conditions relating to subcontractors:

5.1The Contractor may sub-let any portion of the Building Works  but   shall not, without the written consent of the Principal, sub-let the whole of the Building Works. The Contractor shall be responsible for all the work of subcontractors engaged by it on the Building Works, and will be responsible for obtaining any guarantee or operating instructions required from such sub-contractor. The Principal shall not give any instruction or arrange any variation to any sub-contractor of the Contractor.

[28]The Communications of the Principal is defined in cl 6:

6.1 The Principal shall communicate with the Contractor  or  the Contractor’s appointed representative personally. The Principal shall not give directions to the Contractor’s employees or subcontractors and shall not be entitled to rely on any statements made or representations given by the Contractor’s employees or subcontractors. Any variations must be confirmed in writing.

[29]Clause 7 relates to the Building Consent:

7.1The Contractor will lodge all plans and other documents necessary for permission, consent or approval required for the Building Works with the relevant local Council. However, the Principal shall bear all the fees and costs charged by the local Council and associated service providers.

[30]Clause 8 addresses the payment:

8.1If the Contractor does not receive payment of moneys due and payable within a period of five working days from the date the moneys are due, the Principal shall pay penalty interest on such moneys at the rate of 14% per annum on a daily basis from the date the moneys are due, until the full payment of such moneys.

[31]Clause 10 sets out the process by which the parties can vary the works:

10.1Variation by Agreement:

10.1.1Either party may give to the other written notice requesting a variation to the Building Works by way of an increase, decrease or alteration. No variation to the Building Works shall be made unless agreed to in writing and signed by the Principal and the Contractor. The cost of any such variation shall be as follows:

(a)Materials shall be charged at 120% of the retail price charged by builder supplier to the Contractor; and

(b)Labour shall be charged at $65 plus GST per hour.

[32]Clause 17 addresses the entitlement of the principal to take possession:

17.1The Principal shall not be entitled to take possession of the Building Works, nor receive the keys for the Building Works, until:

17.1.1Payment is made to the Contractor of the Contract Sum, together with the cost of any variation to the Building Works;

17.1.2A code compliance certificate has been issued for the Building Works; and

17.1.3The Principal as paid all the fees and costs incurred in relation to the issuing of the code compliance certificate.

17.2If the Principal takes possession before the events set out in clause

17.1 have been satisfied, the Principal will be in breach of the Agreement and will forthwith pay all outstanding moneys without deduction to the Contractor.

[33]Clause 19 pertains to the termination after Notice of Default:

19.3 If a party is in substantial breach of this Contract and:

19.1.1The other party gives a notice to the party in breach specifying the breach and stating the intention of the party giving the notice to determine the Agreement if the breach is not remedied within 10 working days from the giving of the notice; and

19.1.2The breach is not remedied;

then the party giving that notice may determine this Agreement by a further written notice to the party in breach and may recover from the party in breach all damages, loss, cost or expenses occasioned to the party so determining by or in connection with the breach or that

determination may set off such claims against payment otherwise due by the party so determining;

19.2The right to determine under this clause is in addition to any other powers, rights or remedies the determining party may have.

(…)

19.4For the purposes of clause 19.1, substantial breach by the Contractor shall include, but not be limited to:

19.4.1Failure to perform the Building Works competently;

19.4.2Failure to provide materials which comply with this Agreement;

19.4.3Unreasonable failure to perform the Building Works diligently or unreasonable delay, suspension or failure to maintain reasonable progress;

19.4.4Failure to effect or maintain any insurance required by this Agreement.

[34]Clause 21 provides:

21.1Every notice to be given under the Agreement shall be sufficiently given if served at the address for service recorded in the Agreement.

Were the trustees entitled to cancel the Contract(s) for delay?

[35]   The trustees claim that they were entitled to cancel the Contracts in April 2019 because Dreamhome failed to perform the building works diligently and without unreasonable delay. The trustees say that the contractual practical completion dates were 26 January 2018 for Lot 1 and 16 April 2018 for Lot 2. They say that Dreamhome did not notify any extensions of time following the procedure required by the Contracts and that in any case, there were no delays that qualified for an extension of time. By the time the Contracts were cancelled, Dreamhome was over a year behind schedule.

[36]   Dreamhome says that it progressed the building work diligently and that the delays were caused by issues outside its responsibility or control. It says that work could not commence on Lot 1 until it remedied Latham’s defective work, which was outside the scope of the contract. It says further that Ms Hsieh shut down work on both Lots for six months from July 2018. It says that, when work resumed in

January 2019, it was making reasonable progress towards completion. Consequently, Dreamhome says that the trustees were not entitled to cancel the Contracts.

Did the Lot 1 Contract require Dreamhome to remedy Latham’s defective work?

[37]   A key issue in dispute is whether, under the Lot 1 Contract, Dreamhome was required to remedy Latham’s defective work. Dreamhome maintains that, for the following reasons, the time and costs of that remedial work was outside the scope of the Lot 1 Contract:

(a)The Lot 1 Contract makes no reference to any such remedial work.

(b)The Lot 1 Contract was entered into on 21 February 2017, almost contemporaneously with a “Transition Report” prepared by Dreamhome dated 3 March 2017. The Transition Report records the “works to be completed by Latham Construction Limited before next party gets involved”. It also records the main defects caused by Latham and that “the main defect is significant and must be settled between Latham and the owner before next party get involved”.

(c)The trustees’ contract with Latham remained on foot when the Lot 1 Contract was entered into.2 On 1 May 2017, the trustees proposed to make a settlement offer to Latham. The trustees settled the dispute with Latham, without Latham completing its remedial work.

(d)In cross-examination, Ms Hsieh accepted that remedying Latham’s defects was not in the Lot 1 Contract but that it would

2      A letter from the Ms Hsieh’s barrister at the time, Matt Taylor, to Latham dated 21 March 2017 records that Ms Hsieh considered that the contract remained on foot despite Latham’s abandonment of the site. The letter also alleges that Latham’s work was defective, the two main defects being the construction of the main entry door which was not built to plan and the framing not sitting properly on the concrete slab. In this letter, the Ms Hsieh gave notice that the engineer to the contract, Peter Hill, was no longer authorised to be “her” engineer and that she proposed to appoint Eric Li as engineer to the contract.

need to be fixed before Dreamhome commenced work on Lot 1: “it’s not in the contract, it’s additional”.

(e)In September 2017, Dreamhome issued a variation for work required to remedy some of Latham’s defects. Ms Hsieh agreed to that work as a variation, and never suggested that the work was within the scope of the Lot 1 Contract.

(f)Mr Williams’s report of 25 October 2018 confirmed that the existing defects in Latham’s work included the leaks to the lower-level east blockwork and the slab level. Meeting minutes and correspondence in 2019 record that those defects were being remedied by the plaintiffs (consistent with them being outside the scope of Dreamhome’s contract).

[38]   Expanding on this, Mr Broadmore acknowledges that the Lot 1 Contract does not expressly exclude work to remediate Latham’s defects but says that considering the contextual evidence, particularly the Transition Report and the ongoing correspondence between the trustees and Latham, the Lot 1 Contract should be interpreted to exclude the Latham defects from the scope of works.

[39]   I do not accept Dreamhome’s position on this issue. The common law requires a contractor under a fixed price contract to carry out not only the work expressly contracted for but all the work necessary to construct that work.3 Moreover, a builder takes the works as they find them and, in the absence of express terms stating otherwise, the contractor takes the site “as is” and is responsible for all work necessary to complete the contracted work.4

[40]As Keating states:5

3      Nicholas Dennys, Mark Raeside and Robert Clay (eds) Hudson’s Building and Engineering Contracts (12th ed, Thomson Reuters, London, 2010) at [5-002]–[5-006] and [5-025]–[5-026]; and Tómas Kennedy-Grant and Michael Weatherall Kennedy-Grant and Weatherall on Construction Law (online ed, LexisNexis) at [190,110].

4      Hudson’s Building and Engineering Contracts, above n 3, at [4-045].

5      Vivian Ramsey, Simon Hughes and Piers Stansfield (eds) Keating on Construction Contracts

(12th ed, Sweet & Maxwell, 2024) at [4-045].

Where the contractor must complete a whole work, such as a house, for a railway from A to B, for a lump sum, the courts readily infer a promise on his part to provide everything indispensably necessary to complete the whole work. Such necessary works are not extras, for they are impliedly included in the lump sum.

[41]And Hudson’s says:6

Effectively, therefore a Contractor who (as is almost invariably the case) expressly or impliedly undertakes to complete the work or project according to the contract drawings and design, thereby impliedly warrants their ability to do so, and if they cannot will be liable in damages. In consequences, any additional work necessary to achieve completion must be carried out by them at their own expense if they are to discharge their liability under the contract, and will not qualify for additional payment as a variation even if they have been formally instructed to do the work in question. So too any work of reinstatement or repair if the works have been damaged prior to completion by some external cause.”

[42]   Under the Lot 1 Contract, Dreamhome contracted to “complete” the building works for a fixed price. The building works were those described in the scope of works at Appendix A and the signed building plans at Appendix E. Dreamhome assumed responsibility for completing the entirety of the building works according to the building plans and the building consent, except for the works expressly excluded in Appendix D. Necessarily, that involved remedying any defective work completed by Latham, which was not excluded by the contract.

[43]   Dreamhome was aware that it was taking over a partially completed dwelling that contained defects. Mr Sun and his staff inspected the site several times before Mr Sun signed the contract. Adam Wang of Dreamhome prepared a Transition Report which identified Latham’s defective work. In a chapter of the report concerned with “works to be completed by Latham Construction before next party gets involved”, Mr Wang identified cleaning up the site, moving all rubbish and unused materials and fastening bolts. Another section describes “works to be completed by the next party before framing but need information from Latham”. A further chapter identifies the “defects caused by Latham” and another the documentation required from Latham. Mr Wang concludes that the trustees must “resolve the main defect” with Latham. But this does not necessarily mean that Dreamhome expected Latham to remedy the

6      Hudson’s Building and Engineering Contracts, above n 3, at [3-080].

works. More logically, the statement reflected an expectation that the issue of the defective work would form part of the trustees’ settlement with Latham.

[44]   In fact, it seems that is exactly what happened. In the 1 May 2017 correspondence relied on by Dreamhome, the trustees’ barrister proposed a settlement with Latham involving a payment of money from the trustees to terminate the contract and settle their dispute. The proposed payment takes into account the cost to the trustees of remedying Latham’s defective work. There is no provision for Latham to take responsibility for rectifying its own defective work. Nor was this provided for within the “works to be completed by Latham” section of the Transition Report.

[45]   There is no suggestion that the trustees expected to or did engage anyone else to remedy Latham’s defective work.7 The only possible inference is the parties understood that Dreamhome would remedy Latham’s defective work as part of the building works.

[46]Consistent with that, in his brief of evidence, Mr Sun says:

Following entry into the Contracts, Dreamhome was not immediately able to begin any construction work. For the Lot 1 Dwelling, Latham first had to complete various tasks, and then Dreamhome had to identify and remediate defects in Latham's work. For the Lot 2 Dwelling, Tina first had to clear the debris from the site.

[47]   Ms Hsieh’s answer under cross-examination that fixing Latham’s defective works was not “in the official Lot 1 contract” does not alter the construction of the contract. In her evidence-in-chief, Ms Hsieh said that Mr Sun inspected the site before tendering for the contract and assured her that he would remedy the problems caused by Latham.

[48]   Nor do I see the fact that subsequently, in September 2017, Dreamhome issued a variation for $20,214.82 for some of Latham’s defective work as altering the construction of the contract. The variation was issued by Dreamhome’s quantity surveyor, Jessica Chen.  Under cross-examination, Ms Chen did not appear to have a

7      Aside from two discrete items of work Ms Hsieh arranged in January and March 2019: re-tanking the Lot 1 east wall area and grinding the ground floor concrete floor. In relation to the floor, the preceding emails from Max Dao suggest that Dreamhome expected to arrange the floor grinding.

good understanding of the contract. She said that she understood that extensions of time followed automatically from notified variations. She said that she issued variations based on instructions from the company accountant. While she said that generally, Mr Sun approved variations, this variation was not signed by Mr Sun. Nor was it signed or otherwise agreed to by Ms Hsieh, as required by the contract. Admittedly, Ms Hsieh did not object to the variation and paid the invoice.

[49]   It is also telling that aside from this purported variation (for around $20,214.82 relating to some of Latham’s defective work), Dreamhome did not issue any other variations (or requests for extensions of time) for the work required to remedy issues caused by Latham.

[50]   I agree with the trustees that because (a) Dreamhome took over a partially completed build, (b) agreed to complete the works for a fixed price and (c) did not expressly exclude remedying Latham’s defective works (noting that Dreamhome excluded 22 items at Appendix D), the common law regards that remedial works are within the scope of the fixed price as “necessary” to complete the contracted work.

The estimated date of practical completion for Lot 1

[51]   There is a dispute about when the Contracts commenced. This is important to the issue of delay because the estimated date for practical completion is stated to be 145 working days after commencement for Lot 1 and 56 weeks after commencement for Lot 2.

[52]   The trustees say that the Contracts link the start dates to when “excavation jobs or demolition jobs started” on each lot. The trustees says that it is common ground that excavation on Lot 1 had already been completed by Latham. The Contract was signed on 27 February 2017. However, Ms Hsieh’s evidence is that she and Mr Sun agreed that the start date for Lot 1 would be the date that Dreamhome took over the site (1 July 2017).

[53]   Dreamhome’s position is that the Lot 1 Contract did not commence until      1 December 2017, once it remedied issues with Latham’s framing work such that Auckland Council allowed work to proceed.

[54]   I agree with the trustees that any delays caused by Latham’s defects have no bearing on the contractual commencement date for Lot 1. The commencement date is tied to the granting of building consent (cl 5); or, for the purpose of liquidated damages, the start of excavation or demolition (cl 6). Remedying any defective work completed by Latham formed part of the scope of the Dreamhome for Lot 1 contract. Whether Dreamhome was entitled to an extension of time because of unforeseen delays arising out of Latham’s defective work is a separate issue.

[55]   The building consent was already issued for Lot 1 and Latham had completed the excavation and demolition work, foundation work and framing. Ms Hsieh’s evidence is that she and Mr Sun agreed that the start date for Lot 1 would be the date that Dreamhome took over the site (1 July 2017). Mr Sun does not dispute that Dreamhome took control of the site on 1 July 2017. In his brief, he says:

In July 2017, Dreamhome took over control of Lot 1 from Latham. I see that the Council inspection field card for Lot 1 for 3 July 2017 records Dreamhome as the new builder. However, before Dreamhome could advance the construction of Lot 1, the defects in Latham's construction work had to be addressed.

[56]   I note further that Dreamhome issued an invoice on 26 June 2017 for “6 weeks scaffolding rent starting from 15/3/2017” suggesting that it took control of the site even earlier, on 15 March 2017.

[57]   I find that the commencement date for the Lot 1 Contract was 1 July 2017. That means that the estimated date of practical completion for Lot 1 was 16 February 2018 (145 working days from 1 July 2017, excluding 24 December 2017 to 14 January 2018).

The estimated date for practical completion for Lot 2

[58]   The Lot 2 Contract was signed slightly later, on 7 March 2017. Dreamhome’s position is that the Contract did not commence until after unforeseen concrete and other debris were removed from the site. Mr Sun’s evidence-in-chief was that excavation works on Lot 2 could not begin until concrete and other debris was removed from the site, which did not occur until April or May 2017. Under cross-examination, he explained that it was:

… crushed concrete of a swimming pool by Latham and they just a cover by the soil and the clay, so we can’t see that before we sign agreement, so we thought that is unforeseen.

[59]   The trustees say that invoices from the contractor who removed the debris, Super Power Earthmoving Ltd, show that the work on Lot 2 began on 21 March 2017. Consequently, I understand the trustees to say that the commencement date for Lot 2 was on or around 21 March 2017.

[60]   The first invoice from Super Power Earthmoving shows that it carried out work on the site between 21 March 2017 and 1 April 2017. Mr Sun sent this  invoice to Ms Hsieh on 26 April 2017 stating that it was “for clean the rubbish and concrete from underground at Lot 2”.

[61]   A further invoice from Super Power Earthmoving shows that it undertook “excavation, importation and exportation” works from 27 April 2017. This invoice appears to relate to excavation and importation of materials for the building works, rather than further clearing of unforeseen debris form the site.

[62]   In an email from Mr Dao to Ms Hsieh dated 10 July 2018, he states that Dreamhome completed the excavation for Lot 2 on 23 March 2017. In the same email, he calculates the practical completion date from that date.

[63]   On that basis, I find that the commencement date for Lot 2 was 23 March 2017. The estimated date for practical completion was 56 weeks later, 19 April 2018.

First delay to Lot 1 caused by Latham defects

[64]   As noted, Dreamhome claims that work on Lot 1 was delayed because Auckland Council required it to address Latham’s defects before progressing the work. Mr Sun’s evidence is that by early June 2017, the timber framing erected by Latham for the Lot 1 dwelling had remained uncovered for more than 90 days. As a result, the Council required third party testing and a report on the condition of the frames. Dreamhome arranged for Kaizon  Building  Consultants  Ltd  to  test  the  timber.  On 7 July 2017, Kaizon provided Dreamhome with its report, which confirmed that the timber was sound and could be left in place. However, Mr Sun says that

the Council refused to allow work to proceed until further issues with Latham’s work was remedied. Throughout the second half of 2017, Dreamhome worked on remedying those issues. Mr Sun says that it was not until the inspection of 1 December 2017 (the next inspection after 29 August 2017) that Dreamhome obtained a “partial pass” of the framing works that Latham had carried out, permitting Dreamhome to proceed with wrapping Lot 1.

[65]   Dreamhome did not notify the trustees that it was claiming an extension of time due to this issue. Clause 6 of the contract (which deals with liquidated damages) required Dreamhome to notify the trustees “that an extension is claimed on the above grounds within 20 working days after the circumstances arise which are relied on as the grounds for such extension”. Clause 6 does not require notice in writing, but cl 3.1 of the General Terms requires Dreamhome to give notice “in writing, as soon as practicable” of unforeseen physical conditions. Furthermore, variations were required to be agreed in writing. An extension of time is a form of variation to the contract — it is a variation of the estimated date for practical completion. Finally, cl 21 states that every notice to be given under the agreement shall be sufficiently given and served at the address for service recorded in the agreement.

[66]    It is well established that extension of time clauses are strictly construed, and failure by a contractor to comply with the procedure for seeking an extension of time will result in the loss of any right to an extension of time which may otherwise have existed.8 Even if cl 6 enabled an extension of time to be notified orally, there is no evidence that Dreamhome notified Ms Hsieh within the required 20 working days that it was claiming an extension of time for the delay caused by the Council’s position that work could not proceed until certain Latham defects were remedied.

[67]   Furthermore, when Dreamhome issued a variation for the work required to remedy some of Latham’s defects in Lot 1 in September 2017, it did not notify a claim for an extension of time or otherwise discuss how the works might affect the estimated practical completion date.

8      Hudson’s Building and Engineering Contracts, above n 3, at [3-134]–[3-135] and [5-051]; Kennedy-Grant and Weatherall on Construction Law, above n 3, at [210,910]; and Auckland Regional Authority v Codelfa Construction Ltd [1981] 2 NZLR 300 (HC) at 313.

[68]   Plainly therefore, there was no notified extension of time for the delay to      1 December 2017 caused by the Council’s requirement that work not commenced until certain Latham defects were remedied. The contractual estimated date for practical completion was unchanged.

[69]   However, I accept that Dreamhome’s right to notify a claim to an extension of time can be taken into account when assessing whether Dreamhome “unreasonably failed to perform the building works diligently, unreasonably delayed, and failed to maintain reasonable progress”. The question is, what delay was reasonably occasioned by this issue?

[70]   The Council inspection report for 21 June 2017 records that the inspection failed for reasons including that the existing framing which was uncovered had been erected before 90 days. The inspector required a third-party report of the timber treatment and compliance. Dreamhome, an experienced building company, can be expected to have known that framing cannot be left uncovered for extended lengths of time. Dreamhome erected scaffolding on the site in March 2017. Dreamhome has not explained why it did not arrange for the timber to be protected pending inspection by the Council.

[71]   Additionally, the 21 June 2017 site inspection report states that construction can proceed while a third-party report was required in relation to the timber and other items identified by the Council officer were addressed. It was not until the subsequent inspection on 29 August 2017 that the Council said that building work could not proceed until the items noted during the inspection were rectified. Three months later, on 1 December 2017, the construction received a partial pass and Dreamhome was permitted to proceed.

[72]   Remedying Latham’s defects was within Dreamhome’s scope of works. Dreamhome was aware of the defects before it took over the site, as the Transition report records. At best, there was a three-month period between 29 August 2017 and 1 December 2017 when Dreamhome was prevented from progressing construction while it remedied Latham’s defects that should be taken into account when assessing the reasonableness of Dreamhome’s delay.

10 July 2018 email claiming extension of time for Lot 2

[73]   On this date, Mr Dao wrote an email to Ms Hsieh seemingly claiming an extension of time for Lot 2 of 270 days for poor weather and public holidays. Mr Dao stated that Dreamhome had 56 weeks to complete the project from excavation. He said that the 56 weeks excluded “factors outside of the reasonable control of Dreamhome such as weather, variation and public holiday”. He then said excavation was completed on 23 March 2017 and there were 407 calendar days from then until the date the cladding passed inspection on 3 March 2018. He also said that, during that period, there were 238 “rainy days” and 32 “public holidays”. He deducted these 270 days from the 407 days and said that Dreamhome had another 36 weeks to complete the project.

[74]   This claim did not comply with the contract, was not agreed to by Ms Hsieh and does not withstand scrutiny in any event.

[75]   The purported deduction of 32 public holiday days was inconsistent with the terms of the contract. Dreamhome agreed to complete the work within “56 weeks” with no exclusion of public holidays.9 Ms Hsieh did not agree to vary the contract in the way posed by Mr Dao.

[76]   The claim to 238 days that were “sufficiently inclement to interfere with progress of the works” is also lacking in credibility. It did not comply with the requirement that a claim to an extension of time be notified within 20 working days of the event causing the delay. Although sent from assistant site manager, Max Dao, the email had been authored by Ms Chen. Under cross-examination, she accepted that to arrive at this claim she had looked at data on the internet with rainy days in Auckland. She admitted that she counted any day in which there had been rain, regardless of the time or the amount. She was unable to explain how any of the purported 238 rainy days interfered with the critical path or engaged the relevant clauses in the contracts. Ms Chen agreed that she did not have any internal site reports to rely upon. I reject

9      In cl 5, the holiday period of 24 December 2017 to 14 January 2018 was excluded from the definition of “working day” but this definition was superfluous in the Lot 2 contract which defined practical completion with reference to “56 weeks”.

this as a legitimate notice for an extension of time for inclement weather interfering with building work.

Shut down from 26 July 2018–21 January 2019

[77]   By July 2018, work on both Lots was well behind schedule. The agreed estimated date for practical completion for Lot 1 was 14 February 2018. Even allowing for three months in 2017, when Dreamhome had to suspend work to fix the Latham defects, work should have been completed by 14 May 2018. However, Lot 1 was approximately 60 per cent complete.

[78]   Lot 2 should have been completed by 20 April 2018. By late July, Lot 2 was approximately 95 per cent complete.

[79]   Work then paused on both sites for around six months. There is a dispute as to who was responsible for this delay.

[80]   Dreamhome’s position is that Ms Hsieh instructed them to stop work on both dwellings. Dreamhome refers to emails from Ms Hsieh on 19 and 21 July 2018 in which she instructed Dreamhome to stop work. On 2 and 10 August 2018, Mr Sun and Mr Dao sent emails to Ms Hsieh asking for instructions so work could progress. When Mr Williams’s report was shared with Dreamhome for comment, they engaged their own expert and responded on 20 November 2018. Dreamhome recorded that the plaintiffs’ suspension had been unlawful, but confirmed that it remained ready, willing, and able to attend to the defects (which were minor) and complete the work.

[81]   The trustees say that the emails from Ms Hsieh do not support Dreamhome’s assertion that she unlawfully suspended the works in July 2018. They say that on a plain reading of the emails, Ms Hsieh is only asking Dreamhome to hold work and scaffolding on Lot 1 while they remedy the problems with Lot 2. They say that nothing in her emails tells Dreamhome to stop works on Lot 2. Moreover, there is nothing in her emails which justified Dreamhome shutting down work on both Lots for six months and locking Ms Hsieh out of the site.

[82]The sequence of events was as follows.

[83]   In July 2018, Dreamhome was installing the cedar cladding on the Lot 1 dwelling and finishing the interior on the Lot 2 dwelling. In a 19 July 2018 email, Ms Hsieh required Dreamhome to cease installing exterior cladding on the Lot 1 dwelling until issues with the ground floor windows were addressed to her satisfaction. She also requested various information in relation to Lot 2 and said:

Rectify all the bad workmanship that has carried by your work men (please note that no rectify works shall be start until the owner myself is agreed with the methodology and completion date)…

[84]   In a follow up email on 21 July 2018, Ms Hsieh reiterated that Dreamhome was to halt all cladding work on Lot 1 pending resolution of issues with the ground floor windows. On 24 July 2018, Ms Hsieh instructed Dreamhome to remove the scaffolding from Lot 1. On 26 July 2018, Ms Hsieh confirmed that “I am happy to put Lot 1 on hold until everything rectified.”

[85]   On 2 August 2018, Ms Hsieh sent an email to Auckland Council explaining that “the site had been put on hold” because she did not believe Dreamhome was the right contractor for her.

[86]   On 10 August 2018, Mr Sun emailed Ms Hsieh pressing for agreement on solutions and that:

We have acted in accordance with your instructions but reserve all rights in relation to claims for extensions of time and for costs incurred as a result of your instructions to cease work on Lot 1.

[87]   Under cross-examination, Ms Hsieh accepted that she wanted a third party’s opinion on Dreamhome’s proposed solutions but did not have any immediately available.

[88]   On 17 August 2018, Mr Dao emailed Ms Hsieh pressing for details of the remedial works for Lot 2 so that they could be rectified, and Lot 2 could be completed. Ms Hsieh did not respond.

[89]   Then, on 28 August 2018, the trustees’ solicitor David Towle of Bruce Dell Law wrote to Dreamhome enclosing a report from Point Build with an assessment of the allegedly defective works in both Lots 1 and 2. Mr Towle stated that the trustees

were considering their options and whether they would be issuing a notice of default under cl 19 of the agreement. The letter stated that before taking that step, the trustees required a detailed written response from Dreamhome on each of the defective items identified by Point Build.

[90]   In response, Dreamhome  arranged  for  a  report  to  be  obtained  from  Craig Turner of Forensic Building Consultants Ltd. On 17 September 2018, Dreamhome responded to Mr Towle and provided a copy of the Forensic Building Consultants report. This report agreed  with  some  of  the  items  identified  by  Point Build, recorded where remediation could be undertaken and disagreed with some items.

[91]   On 14 September 2018, Mr Sun wrote to Mr Towle stating that there were outstanding invoices for Lots 1 and 2 of $186,235. Mr Sun stated that Dreamhome gave notice of its intention to suspend the building work if payment was not made in full within five working days, pursuant to s 24A of the Construction Contracts Act 2002. Mr Sun also attached a copy of the Forensic Building Consultants report. He stated that the matters raised in the report would be addressed by Dreamhome once the plaintiffs paid the outstanding sum.

[92]   At some time in early October 2018, Dreamhome denied Ms Hsieh access to the worksite because of outstanding stage payments. Ms Hsieh agreed to pay on a ‘without prejudice’ basis $85,000 towards the amount outstanding. Dreamhome agreed to continue work.

[93]   Ms Hsieh engaged a new expert, Mark Williams of Prendos. On 5 October 2018, Ms Hsieh, Mr Dao  and  Mr  Williams  met  on  site.  Minutes  prepared  by Mr Williams record a list of defects in both Lots 1 and 2.

[94]   On 30 October 2018, Mr Towle provided a report from Mr Williams based on the minutes to Mr Sun, asking him to respond by 9 November 2018. Mr Towle required that Dreamhome allow the plaintiffs access to the site.

[95]   On 20 November 2018, Mr Sun responded to the Prendos report. Mr Sun recorded in a schedule of whether he considered each item to be Dreamhome or Latham’s responsibility, as well as Dreamhome’s position on the alleged defects.

[96]   There was  a site meeting on 27 November 2018 attended by  Ms Hsieh,     Mr Williams, Mr Dao, Mr Turner and Frank Xiang from Dreamhome. The issues identified between July and November 2018 were recorded in the minutes.

[97]   There was a further site meeting on 15 January 2019 attended by Ms Hsieh, Mr Williams, Mr Sun and Mr Xiang to agree the defects and actions required to restart work on the site. It was agreed that Lot 2 would be completed, including passing final inspection by the council, by 28 February 2019. It was agreed that the external work on Lot 1 would be completed by 12 April 2019. Mr Xiang agreed to provide a programme of all the activities to completion by 18 January 2019. Work would restart on 19 January 2019. Mr Sun and Ms Hsieh signed the agreed list of defects and addendum to the minutes recording the agreed completion dates.

[98]   In my assessment, allowance must be made for this six-month period when assessing whether Dreamhome unreasonably delayed progressing the works. I consider that, on a plain reading of the emails, Ms Hsieh did instruct Dreamhome to stop work on Lot 1 and to hold on rectifying defects with the Lot 2 works until she agreed a methodology. Ms Hsieh first engaged Point Build to advise her on the defects and remediation options. Dreamhome reasonably engaged its own expert in September 2018 and responded to the issues raised by Point Build. Ms Hsieh then engaged Mr Williams in October 2018. There was then a period of discussion about the list of defects identified by Mr Williams, culminating in the January 2019 agreement and resumption of work.

[99]   Dreamhome did not request an extension of time in relation to this period of delay. I recognise, as set out above, that extension of time clauses are to be construed in a strict manner. However, in circumstances where both parties contributed to the delay, it is reasonable to imply an extension of time here. If Dreamhome had requested a formal extension of time immediately following these events, it is difficult to see how an extension could have been denied when the work was paused initially by

Ms Hsieh and subsequently by mutual agreement while the experts worked through the issues. Accordingly, an adjustment to the practical completion date should be made.

23 January 2019 claim to extension of time for air conditioning

[100]   On 23 January 2019, Ms Chen wrote to Ms Hsieh attaching an unsigned variation request for Lot 1 for the air conditioning units which were to be supplied and installed by a subcontractor. The notice advised that the variation resulted in an extension of seven working days. When pressed, Ms Chen was unable to articulate satisfactorily how variation works carried out by subcontractors would equate to a right to an extension of time by the contractor regardless of the effect on the critical path. I cannot see how installation of heat pumps by a subcontractor would extend the practical completion date by seven days, if at all. I reject this document as a valid extension of time.

Lack of progress between January and April 2019

[101]   The trustees say that, once work resumed in January 2019, Dreamhome failed to maintain reasonable progress. For example, on 16 January 2019, Mr Sun agreed that Lot 2 would be completed, and a final inspection passed by 28 February 2019. That date came and went without explanation from Dreamhome for the delay.

[102]   The trustees say that minutes of site meetings over the period show that the work did not advance, with new defects emerging. The minutes record Mr Williams and Ms Hsieh asking the defendants to better resource the site and Dreamhome representatives, including the independent advisers, saying  they  would  approach Mr Sun to allocate more resources. No further resources were allocated. The trustees say that this lack of progress alone entitled it to cancel the Contracts.

[103]   Dreamhome disagrees and says that it was working towards completion according to the draft work programmes exchanged with Mr Williams over this period. It points to draft work programmes exchanged in February 2019 which provided for completion of Lot 1 by 17 July 2019 and completion of Lot 2 by 24 April 2019. On

cross-examination, Mr Williams confirmed that Dreamhome was working towards completing the dwellings:

In a fashion.    I don't believe they were pushing the work as hard as they could’ve, but they were there and doing some things, yes.

[104]   Dreamhome says that some outstanding items for completion were issues with Latham’s work or Peter Hill’s design, a fact that Mr Williams accepted under cross-examination. It also says that when a site shuts down for a lengthy period, it takes time to bring it back to full speed, another point that Mr Williams accepted under cross-examination. For example, there was a five-to-six-week lead time for the internal staircase.

[105]   Between the 27 November 2018 site meeting and cancellation of the Contracts on 19 April 2019, there were six site meetings.10 Mr Williams prepared and circulated minutes following each site meeting. These minutes provide a contemporaneous record of the defects that required repair and other outstanding items of work to reach practical completion.

[106]   It is self-evident from these minutes that progress between January and April 2019 was slow.

[107]   On 18 January 2019, Mr Xiang provided Mr Williams with Dreamhome’s proposed construction programme for the Lot 1 dwelling. The programme contemplated practical completion by late September 2019. On  22 January 2019,  Mr Xiang provided Mr Williams with Dreamhome's proposed construction programme for the Lot 2 dwelling. The programme contemplated practical completion by late April 2019. Mr Williams responded that he was surprised by the September completion date for Lot 1. He expressed confidence that the timeframes for completion could be reduced.

[108]   On 31 January 2019, Mr Williams circulated amended proposed programmes for Lot 1 and Lot 2. He proposed that the Lot 1 dwelling be completed by the end of

10     16 January 2019, 5 February 2019, 20 February 2019, 8 March 2019, 20 March 2019 and 16 April 2019.

21 June 2019 and that the Lot 2 dwelling be completed by 12 April 2019. Various proposed programmes were subsequently exchanged between the parties over February 2019.

[109]   On 31 January 2019, Mr Williams went past the site and noticed that no progress had been made since the meeting on 15 January 2019. He sent an email to Dreamhome asking if there was a problem. Mr Xiang replied, but he did not explain why no progress had been made in almost two weeks.

[110]   Mr Williams called another site meeting on 5 February 2019. The minutes record that very little progress had been made since the last meeting. The parties agreed that the most urgent issue was the remedial work to the Lot 2 bathrooms.

[111]   There was another meeting on 20 February 2019. Mr Dao and Mr Xiang attended for Dreamhome, with two consultants from Forensic Building Consultants. Tina and Mr Williams attended for the trustees. Mr Sun did not attend. The only progress recorded  was  that  adjustments  to  the  Lot  1  joinery  had  commenced. The minutes record Ms Hsieh and Mr Williams emphasising that Dreamhome needed to get the site back up and running as it seemed that very little progress had been made since 21 January. A long list of action points for Dreamhome followed.

[112]   The next meeting occurred on 8 March 2019. Dreamhome had issued updated work programmes on 6 March 2019. The expected completion date for Lot 2 had moved out to 24 April 2019. Ms Hsieh said this was unacceptable, as they had agreed that 5 April 2019 was a “fixed date” at the meeting on 20 February 2019. Mr Xiang and Mr Dao were unable to explain why the completion date had been pushed out.

[113]   Mr Xiang said that he had only been contracted by Mr Sun for two days per week. Ms Hsieh expressed her frustration with the delays and said that she was on site every day acting as project manager because Dreamhome did not have enough personnel. The minutes record that Mr Xiang and Mr Turner agreed to discuss additional resourcing at supervisor level/ project manager level directly with Mr Sun.

[114]   The minutes conclude with a list of actions that Dreamhome agreed to complete within the next two weeks: six items for Lot 1 and 12 items for Lot 2.

[115]   A further meeting took place on 20 March 2019. The minutes record that the Lot 1 windows had finally been wrapped properly and were watertight, the drainage work was nearing completion, and the east tanking had been passed by the Council, though it still needed to be waterproofed and backfilled. Other than that, little progress had been made since the meeting on 8 March 2019. Of the six items Dreamhome was to have progressed in relation to Lot 1, none were complete. Of the 12 items concerning Lot 2, only two were done. Mr Xiang had not issued programme updates but agreed to do so.

[116]   Resourcing of the site was discussed again. Mr Turner agreed to talk directly to Mr Sun to see if additional support can be given to Mr Xiang, who was only contracted for two days per week to the project.

[117]   On 25 March 2019, Mr Xiang sent through an updated programmes for completion of the works which provided for completion of Lot 1 in 24 July 2019 and Lot 2 in 24 April 2019. Ms Hsieh replied in the afternoon of 25 March 2019 and objected to the delays.

[118]The plaintiffs served default notices on 4 April 2019.

[119]   The final site meeting took place on 16 April 2019. The minutes record that there had been almost no progress on the outstanding issues which Dreamhome had agreed to remedy at the meeting on 20 March 2019:

(a)The leak issues with the deck TPO membrane for Lots 1 and 2 had not been remedied and retested. Until they were, Dreamhome was unable to book a reinspection date with the Council.

(b)The joinery in Lot 2 remained incomplete and water was still leaking past the joinery on the upper level.

(c)No further work had been done on Lot 2 since the meeting on   20 March 2019.

(d)There had been no progress in waterproofing and tiling in the four Lot 2 bathrooms. This is despite  the note  in the minutes of the 20 March 2019 site meeting, which was agreed, that this work was “extremely urgent”.

(e)The Lot 2 tanking still needed to be remediated. All agreed that the tanking needed to be completely exposed in all suspect areas, inspected and passed, and then recovered.

(f)Dreamhome was well behind the most recent programme issued on 25 March 2019 but was unable to issue any further programme updates. Dreamhome acknowledged that it had missed the agreed completion date for Lot 2 of 5 April 2019 under the programme agreed in January 2019. Dreamhome also confirmed that it was unable to meet the revised Lot 2 completion date of 24 April 2019, as shown on the programme issued by Dreamhome on 25 March 2019.

(g)None of the miscellaneous workmanship issues in Lots 1 and 2 (doors and windows incorrectly fitted, poor painting, defective cladding installation, issues with popping nails and defective stopping in the Lot 2 master bedroom and bedroom 3) had been fixed during the last three and a half weeks.

[120]   The last item summarised the agreed remedial work that should have been done by Dreamhome during the last three-and-a-half weeks. Of the six items for Lot 1, only one minor item (the plumbing, electrical and services first fixes) had been done by Dreamhome within the promised timeframe.

[121]   Of the eleven items for Lot 2, only one had been done: the drainage cesspit location confirmed by Hill Design Engineering. Two items had possibly been done

but were unconfirmed: deck drainage connected to in-ground services, and Hill Design Engineering to inspect all relevant areas of both Lots to ensure they can issue a PS4. Therefore, of the 17 tasks assigned to Dreamhome, only two had been completed.

Conclusion

[122]   As noted, the works were substantially behind schedule  even  before  the July 2018 shut down. The agreed estimated date for practical completion for Lot 1 was 16 February 2018. Allowing for three months in 2017 when Dreamhome had to suspend work to fix the Latham defects, work should have been completed by 16 May 2018. However, Lot 1 was approximately 60 per cent complete.

[123]   Lot 2 should have been completed by 20 April 2018. By late July, Lot 2 was approximately 95 per cent complete.

[124]   For the reasons discussed, I consider that an allowance should be made for the six-month shut down between 19 July 2018 and 16 January 2019.

[125]   However, as discussed, progress was slow when work resumed. By 19 April 2019, allowing for the delay to Lot 1 in 2017 and the six-month shut down, Lot 1 was five months behind schedule and Lot 2 was six months behind schedule.

[126]   I conclude that the plaintiffs had the right to cancel the contract because Dreamhome failed to perform the building works diligently, unreasonably delayed the work and failed to make reasonable progress.

Were the trustees entitled to cancel the Contract(s) because the works were defective?

[127]   The plaintiffs claim that they were also entitled to cancel the Contracts under cl 19.1 because Dreamhome had committed a substantial breach by failing to perform the building works competently (cl 19.4.1) and/or failing to provide materials which comply with the contracts (cl 19.4.2).

[128] The plaintiffs particularise the alleged defective works in the statement of claim at [84]. They refer to leaking decks, leaking windows, out of square framing,

incorrectly installed joinery, doors that did not close, poor painting finish and popping nails, damage to items like bathroom vanities and other issues.

[129]   The trustees rely on the site meeting minutes from 2018 to 2019 prepared by Mr Williams to prove that the work was not carried out competently and/or using the materials agreed in the Contracts. In particular, the issues identified at the site meeting on 27 November 2018 and recorded in minutes described as “Experts’ agreed assessment of outstanding issues to be addressed” and signed by Ms Hsieh, Mr Sun, Mr Williams and Mr Turner of Forensic Building Consultants. Mr Turner attended the site meeting on 27 November 2018 and most of the following site meetings on behalf of Dreamhome.

[130]   The trustees say that the Lot 2 bathrooms were a significant problem. They say that Dreamhome substituted a product which was different from that specified in the building consent and applied it incorrectly and too thinly. They say that this is recorded in the meeting minutes and the subject of unchallenged evidence from     Mr Williams, who personally inspected the works and explained why the works were defective with reference to the manufacturer’s specifications.

[131]   Dreamhome does not dispute the matters recorded in the meeting minutes and nor can it. However, it says that many of the issues were not caused by Dreamhome (including  some  significant   items).   For   example,   under   cross-examination, Mr Willaims accepted that the issues described at 1(a) and 1(b) of the 27 November 2018 meeting minutes (relating to the ground floor height) were caused by Latham not Dreamhome. Mr Williams also accepted that these minutes do not distinguish between defects caused by Latham, design issues and issues with Dreamhome’s work, because at the time “there was no reason to distinguish between those aspects”.

[132]   Dreamhome points out that the only materials that may not have complied with the Contract was the Lot 2 bathroom waterproofing. But those materials passed the Auckland Council  inspection.  There  was  a  dispute  between  Dreamhome  and  the trustees as to the appropriate repair methodology for the bathrooms. Dreamhome’s position was that its remedial solution would have been compliant, but it was rejected for aesthetic reasons. Dreamhole was willing to undertake its remedial solution at no

cost to the trustees. On cross-examination, Mr Williams accepted that Dreamhome’s solution would “potentially” have been compliant.

[133]   Dreamhome says that in any event, if defects can be remedied before completion, the builder will be in breach only where they have made clear that they do not intend to rectify. Dreamhome accepts that there were defects in the work but says that it was working to remedy the defects.

[134]   Finally, Dreamhome says that default notices did not specify exactly what was required to remedy the substantial breaches, other than by referring to the site meeting minutes dated 27 November 2018 and 20 March 2019.

Discussion

[135]   There is undisputed evidence that in April 2019, when the notice to terminate was given, there were some items of defective work and many areas of work that were unfinished. The meeting minutes speak for themselves. However, it is also plain that some of the defects were caused by Latham, including some of the significant issues (such as the ground floor height), some were design issues caused by the designer, and some were caused by Dreamhome. Also, many of the issues listed were very minor and were incomplete work rather than complete defective work.

[136]   The trustees place considerable weight on the minutes of the 27 November 2018 site visit which were signed by Dreamhome on 16 January 2019. But it is important to note that this document identifies items that were “correct”, items that were defective and required fixing, and further action items for Dreamhome. It is not simply an agreed list of defective work.

[137]   More importantly, it is equally plain from the minutes that Dreamhome was working towards remedying all the defects and completing the building work. The only controversy was over the appropriate remediation solution for the Lot 2 bathrooms. Otherwise, there is no evidence of Dreamhome refusing to remediate the defective work and take all steps necessary to complete the dwellings. The fact that Dreamhome appointed a building expert who attended the meetings suggests that it was taking the responsibility seriously.

[138]   A breach of a construction contract only arises when the required standard of construction has not been met at the time of completion. Until then, the builder can remedy any temporarily non-conforming work.11 In Yu v T & P Developments Ltd, the Court of Appeal explained that:12

If any defects can be remedied before completion, the builder will be in breach only where he has made it clear he does not intend to rectify.

[139]   The issue really was one of a lack of progress. It is evident from the meeting minutes that Dreamhome intended to complete the work, including fixing any of Latham’s defects or issues with its own work, but the project was under-resourced and very little progress was made from week-to-week.

[140]   In these circumstances, I am not persuaded that the trustees were entitled to terminate the Contracts under cl 19.1 because Dreamhome was in substantial breach by failing to perform the work competently or failing to use the correct materials. The trustees rely on the meeting minutes to prove Dreamhome’s breach, but they have not identified which of the many issues identified in the minutes were works performed by Dreamhome that did not meet these standards; or proved through expert evidence that these items did not meet these standards. It is not enough to simply rely on meeting minutes which, as discussed, record a mix of “correct” work, minor and significant defective work, and work in progress.

[141]   Furthermore, the trustees have not established that Dreamhome did not intend to rectify the defective items of work and complete the dwellings. The evidence suggests that Dreamhome was intent on fixing any defects and completing the project.

[142]   However, as I have said, I consider that the trustees were entitled to cancel the contract because Dreamhome reasonably failed to perform the building works diligently and to make reasonable progress (cl 19.4.3).

11 Van Den Anker Construction Ltd v Wilson McKay Trustee Company Ltd [2024] NZCA 654, citing Oxborough v North Harbour Builders Ltd [2002] 1 NZLR 145 (CA); and Yu v T & P Developments Ltd [2003] 1 NZLR 363 (CA).

12     Yu v T & P Developments Ltd, above n 11, at [56].

Did the trustees comply with the default and determination provisions?

[143]   Clause 19.1 of the Contracts allows any party to cancel the contract if the other party is in substantial breach, provided that:

(a)the notifying party specifies the breach and states their intention to determine the agreement  if the breach is  not  remedied within  10 working days of the notice; and

(b)the breach is not remedied.

[144]   As I have found above, a substantial breach occurred in that Dreamhome failed to perform the building works without unreasonable delay. However, the question remains whether the trustees gave sufficient notice of the reasons for cancellation as required by the Contracts.

[145]   The default notices were served on Dreamhome on 3 April 2019. This put Dreamhome on notice that it was in substantial breach, as the matters for remediation set out in the 16 April 2019 site meeting minutes had not been addressed nor was the forecasted practical completion date achievable as the state of the project then was. When the defects were not remedied within the prescribed 10-working day period (by 18 April 2019), a notice of cancellation was issued the next day.

[146]   The default notice enclosed the following documents which purported to detail the defects and ongoing delays underpinning the breaches: an agreement on defects and timing, a building report, and the minutes of the 20 March 2019 site meeting. The notice of cancellation was appended with the site meeting minutes dated 16 April 2019.

[147]   Had it been relevant, I might have found that the default notice did not adequately inform Dreamhome of the alleged breaches of Dreamhome’s obligation to perform the works completely and using the correct materials. However, in relation to the breach of cl 19.4.3 — failure to perform the works diligently and without unreasonable delay — the notice gave Dreamhome fair notice and was compliant.

What damages are payable to the trustees?

[148]   There is no dispute that, if the trustees validly cancelled the Contracts, Dreamhome is liable for the additional costs incurred to complete the works under the Dreamhome contracts, including to remedy any defective works. The dispute concerns whether all the costs claimed by the trustees relate to work that was within the scope of the Dreamhome contracts or not.

[149]The trustees originally claimed costs of $1,239,418.78. These consist of:

(a)Invogue’s costs of $1,085,819.60 (of a total paid to Invogue of

$1,336,208.92);

(b)Point Build’s costs of $92,419.18;

(c)waterproofing costs of $3,724.50;

(d)$16,410.50 for the glass balustrade; and

(e)air conditioning costs in the sum of $41,045.

[150]   This is compared against an expected total completion cost of $366,235 when Dreamhome left site in April 2019. Therefore, the amount claimed was the difference of $873,183.78.

[151]   On closing, the trustees amended its damages claim to concede that certain Invogue costs were outside the scope of the Dreamhome contracts, amounting to

$215,111.69. This reduces the total in-scope costs claimed to $1,024,307.09 and the damages claim to $658,072.09.

[152]   Dreamhome provided opposing expert evidence from Fulei Zhou, a senior quantity surveyor at Prostone Consulting Ltd. Mr Zhou’s evidence was that only

$732,672.02 was within the scope of Dreamhome’s contracts. This was comprised of the Invogue costs and $2,195 paid to a waterproofing contractor. Mr Zhou considered all of Point Build’s costs to be out of scope. On closing, Dreamhome submitted that

the in-scope work was in fact approximately $630,000 (approximately $100,000 less than as assessed by Mr Zhou).

Invogue costs

[153]   On 27 May 2019, Invogue was engaged to complete the dwellings (other than the Lot 1 eastern block wall and Lot 1 deck membrane). Invogue agreed fixed price contracts for that work, with a total price of $738,341.63.13 Both parties accept that the contract price included stage payments of $227,183.50 that were outside the scope of Dreamhome's contracts.14

[154]   The plaintiffs claim to have paid Invogue $1,336,208.92 ($597,897.29 more than the contract prices). In addition to a portion of the fixed price contract sums, the plaintiffs claim from Dreamhome the additional amounts paid to Invogue (other than the cost for three televisions of $11,206.07). Overall, the trustees claim $870,707.91 they paid to Invogue on the grounds the costs were for remedial works and works to complete Dreamhome’s scope of works.

[155]   Dreamhome says that Invogue’s contract prices included all the work to complete the dwellings and remedy Dreamhome’s defects. There are no written variations of Invogue’s contracts, and Invogue’s invoices do not identify what work was outside the scope of Invogue’s contracts or why it was necessary. Dreamhome says that many of the additional invoices appear to relate to work that should be covered by the stage payments.

[156]   Dreamhome says that by way of important context, Mr Zhou's original evidence was that only $513,456.38 of the fixed contract prices was within scope, and Ms Hsieh agreed with that calculation in her second brief of evidence. The unspecified variations to Invogue appear to increase the in-scope work by approximately $117,000.

[157]   However, Ms Hsieh says that Invogue’s work expanded after the contract was signed, mainly due to Invogue discovering more problems with Dreamhome’s work as it undertook remediation. She says there were no written variations agreed; rather,

13     $444,085.38 (including GST) for Lot 1; and $294,256.25 (including GST) for Lot 2.

14     Lot 1 stage 6 ($103,500) and Lot 2 stages 5–9 ($123,683.50).

the invoices are the record for the variations. She has provided the Invogue invoices. She says that all discussions with Invogue were held in person on site or over the phone.

[158]   As to why the cost of works is significantly higher than the balance remaining under the Dreamhome contracts when they left site, Ms Hsieh says that the new contractors had to fix Dreamhome’s defective work and because construction costs increased significantly between early 2017 (when the Dreamhome contracts were signed) and mid-2019 (when the trustees engaged Invogue).

[159]In their submissions, the trustees add:

… the Court may take judicial notice that there is an element of duplication and increased cost whenever a new contractor takes over. The new contractor must start again, bringing new equipment and new workers, familiarise itself with the works and inspect the work already done. All of that brings increased cost which is difficult to set out.

[160]   In his second brief of evidence, Mr Zhou has assessed the actual costs paid to Invogue and other contractors with reference to each invoice and determined whether the costs were within or without the Dreamhome scope of work. His evidence is that

$732,672 was for work that was inside the Dreamhome scope of work; $691,272.92 was for work that was outside the scope of Dreamhome’s Contracts (or an upgrade variation cost). The balance was for unknown work. A schedule attached to his brief of evidence sets out his conclusions.

[161]   The following specific items of work are disputed, in that Mr Zhou assesses them as out of scope or unknown and the trustees maintain that they are in-scope and recoverable from Dreamhome. It is necessary therefore to address each disputed item. If they are out of scope, they must be deducted from the trustees’ claim for Invogue costs of $870,707.91.

Internal and external stairs ($60,895)

[162]   The trustees claim for the costs incurred in installing the internal and external stairs for both Lots.15 Dreamhome disputes this as the Contracts exclude both; instead, they are recorded as options within appendices to the Contracts titled “Provisional Summary”. Dreamhome’s position is that, because the options for the completion of these works were never exercised, they are out of scope and must be excluded from the claim.

[163]   The trustees say that the option for the stairs was a valuable contractual right which Ms Hsieh would have exercised but for Dreamhome’s breach and damages should be ordered on this basis.16

[164]   I accept the trustees’ position that the option for the stairs in the Contracts entitles them to recover related costs up to the value of the provisional sum. If the Contracts had been performed — in other words, if Dreamhome had not been in breach

— I accept Ms Hsieh’s evidence that she would have exercised the option for the stairs. However, I make two points. First, the invoices provided appear to only relate to the Lot 2 external stairs.  The provisional summary specifies the cost of this as being

$12,000, inclusive of materials and labour. Secondly, Mr Sun’s evidence was that the stairs constructed by Invogue were materially different from provisional options — had Dreamhome constructed the stairs, they would have charged the trustees a similar amount. Therefore, I take the view that the amount recoverable for the stairs is limited to the provisional sum of $12,000 as per the Lot 2 Contract.

Landscaping ($57,448)

[165]   The trustees claim for various invoices from Invogue for landscaping works. Dreamhome opposes paying these costs because Dreamhome’s Contracts excluded landscaping and driveway costs.

15 Invoice 104: partial payment for labour and materials for Lot 2 floating steps and a flight of stairs between Lot 1 and Lot 2 ($7,500); invoice 134: external steel staircase ($34,000); invoice 172: Lot 2 external staining ($16,519.75); and invoice 437: stain cedar staircase ($2,875).

16     Savvy Vineyards 4334 Ltd v Weta Estate Ltd [2020] NZSC 115, [2020] 1 NZLR 714.

[166]   There are several invoices which concern excavation work for the east block wall, for a total of $42,731.95. Dreamhome opposes the inclusion of these costs due to their position that remedying Latham’s works was not within the scope of the contracts. I have found above that these works were in scope. Further, excavation was expressly provided for in the Contracts. Accordingly, these costs are recoverable.

[167]   The trustees also claim for $1,500 for a concrete saw and concrete breaker hire, being in-scope as electric work. Ms Hsieh explains this work was part of the trench service, necessary to connect the dwellings to water, electricity and gas. However, both Contracts explicitly exclude work related to connecting to the power pit and water meter. This amount is not recoverable.

[168]   Dreamhome says the amount claimed in relation to plumbing ($4,825) is out of scope as landscaping work. Plumbing is a specific category in the work that is in scope.

[169]   The plaintiffs also claim for the installation of Lot 2 cesspit and draining channel at the cost of $5,846.35. Mr Zhou concluded this was out of scope based on the definition of landscaping work in the contracts, as this was external work. However, in cross-examination, Mr Zhou admitted that he did not consider the March 2019 meeting minutes in reaching his conclusion. In the minutes, the cesspits are stated as an outstanding item and Dreamhome is asking for confirmation of the location of the cesspit. Consequently, I accept that Dreamhome was progressing with the work as an informal variation necessary to complete the work and this cost is recoverable.

[170]   Finally, there is a claim of $1,500 for high strength concrete around the entrance area. This is explicitly within the scope of works as defined in the Lot 2 Contract.

Ground floor decks (at least $51,415)

[171]   Mr Zhou deducted these costs on the basis that Dreamhome's Contracts did not include any ground floor decks.

[172]   The trustees say that the consented plans annexed to the Contracts show that Dreamhome was required to bring the finished ground level up approximately 400 mm to 500 mm, so that the backyard was level when one stepped out the back doors at ground level. When Dreamhome left site, this work had not been done and  there was a significant drop outside the back doors which was unsafe and in breach of the building consent. The trustees says that the ground floor decks were a reasonable and likely cheaper alternative to bringing the ground level up.

[173]   To that, Dreamhome says that raising the ground level would be landscaping works which were excluded from Dreamhome’s Contracts. Work was not within the scope of Dreamhome’s contract price simply because it would need to be undertaken in due course (for example, the stairs and driveway were excluded). The 16 April 2019 meeting minutes do not contain any suggestion that Dreamhome was required to raise the ground level.

[174]In terms of the cost of the ground floor decks, Mr Zhou has excluded costs of

$51,855 for the Lot 2 ground floor deck. However, Invogue’s costs for the ground floor decks were also included in Lot 1 stages 1 and 4 ($226,792.88), and Lot 2 stages 1 and 3 ($116,945). Mr Zhou says that it is not possible to distinguish the cost of the ground floor decks from other works in those stage payments, but he considers a further adjustment to $50,000 needs to be made. Dreamhome submits that an overall adjustment of $100,000 is appropriate, being the likely costs for completion of the ground floor decks for both Lots.

[175]   Ms Hsieh’s evidence is that only the Lot 1 deck was extended by Point Build to the point where it became “landscaping”. The trustees’ position is that the work for the Lot 2 deck completed by Invogue remains within the scope of Dreamhome’s contract.

[176]   I do not accept this. It may be that raising the ground level, or the alternative option of constructing the ground floor deck, was work that would have been required at a later point in the project. However, as Dreamhome says, that does not bring the work within the scope of the contract price (as reflected in the exclusion of the stairs

and the driveway). If the work was out of scope, Dreamhome would have been entitled to a variation to the contract price.

consent. It may be that practically, the contractor acts as an intermediary between the engineer and the owner but the contractual relationship is between the engineer and the owner.

[276]   Consistent with that, Dreamhome’s contracts expressly excluded engineer design, structural or geotechnical services.

[277]   I am not persuaded therefore that the Contracts contain an implied term that Dreamhome was  obliged to provide the plaintiffs with PS4s from the  engineer.  That position is inconsistent with express terms of the Contracts, the conditions of the building consent and the fact that the engineer is providing an independent certification of the work of the contractor.

[278]   Aside from the PS4s, as with Lot 1, Mr Williams has identified material and workmanship warranties that he says that Dreamhome ought to have provided. However, the following need to be removed:

(a)Items 1 and 2 door operating system and furniture, for the same reasons given above.

(b)Item 4 electric/electronic components, because Mr Sun’s undisputed evidence is that  this  work  was  unfinished  when  the Contracts were terminated.

(c)Items 7 and 8 the heat pump condenser and indoor unit, for the same reasons as above.

[279]   In relation to items 9 to 14 for the HVAC system, Mr Sun’s undisputed evidence is that the subcontractor, A Grade Ltd, was originally engaged by Dreamhome, but the work was not completed at the time the contracts were terminated. Mr Sun’s understanding is that following termination, Ms Hsieh engaged the subcontractor to complete the works.

[280]   In relation to item 18, fabrication for the steel stairs, Mr Sun’s evidence is that this warranty has been provided. Mr Williams accepted under cross-examination that

the document has  been  provided,  but  queries  whether  it  will  be  accepted  by  the Council.

[281]   Mr Williams accepted that item 20, the weathertightness warranty, had been provided by Dreamhome.

[282]   Mr Williams also acknowledges that items 21 (warranty for the self-supporting roof underlay) and 23 (metal roofing warranty) have been provided by Dreamhome but says that the Council requirement is for 30 years rather than 15 years.

[283]   Mr Williams accepts that item 24, the material and workmanship warranties for the waterproofing membrane, has been provided.

Conclusion

[284]   Putting aside the PS4s, therefore, there are some material and workmanship warranties that arguably Dreamhome was obliged to provide because Dreamhome’s subcontractors completed the works:

(a)carpentry warranty (item 22);

(b)window and doors fabrication warranty (item 25); and

(c)glazing warranty (item 26).

Consequences of missing warranties

[285]   I have found that the only construction documents for which Dreamhome was responsible, and which have not been provided, are some material and workmanship warranties. At this stage, it is unclear what (if any) consequences there will be from any missing documentation.

[286]   In the event of a breach of warranty, an agreement to provide that warranty is just as effective as provision of the warranty itself. Accordingly, if there is any future basis to make a claim on the warranty, the claim can be pursued in the same way as if a guarantee or warranty has been produced.

[287]   The trustees claim that they will be unable to obtain code compliance certificates for the dwellings without the missing documentation, or will incur significant costs to investigate the building work, which would not have incurred if the document existed. The trustees apply for a split trial to determine its loss once it has applied for a code compliance certificate and that anticipated loss has crystalised.

[288]   The court may make orders for the decision of any question separately from any other question, before, at, or after any trial.28 However, there is a presumption in favour of determining all matters in issue at one trial and that presumption is not easily displaced.29 This Court has observed that split trial applications are often made where the quantum evidence is disproportionate  compared  to  a  liability  trial  alone.30  The Court of Appeal has also recognised “the public interest in finality in litigation”.31

[289]I refuse to order a split trial for the following reasons.

[290]   Dreamhome left the building site over six years ago. With the assistance of an expert, the trustees identified defects in Dreamhome’s work and engaged a new builder to repair the defects and complete the build. The plaintiffs completed the dwellings over four years ago (with the physical work of Lot 2 being completed on 20 December 2019). Both dwellings were finally completed by early to mid-2021.

[291]   Inexplicably, the trustees did not request a final inspection for the dwellings until February 2025, around two months before the commencement of the trial. Final inspections must be completed before an application can be made for a code compliance certificate. The construction documentation is only required when the application is made for a code compliance certificate.

[292]   As it happened, the final inspection failed because the copies of the building consent documents were not on site for the inspector. The plaintiffs sought to make much of this, confusing the building consent with the construction documents and

28     High Court Rules 2016, r 10.15.

29     Karem v Fairfax New Zealand Ltd [2012] NZHC 1331 at [58(d)].

30     Advance Apiaries Ltd v Waipunga Station Ltd [2017] NZHC 2009 at [37] and [54].

31     Craig v Stringer [2020] NZCA 260, (2020) 25 PRNZ 367 at [16]. This was in the context of a proceeding that was alleged to be an abuse of process.

alleging that an original copy of the building consent needed to be on site. Then, they seemed to allege that it was Dreamhome’s fault the building consent documents were not on site for the final inspection. That is plainly nonsense as Dreamhome left the building site over six years ago and Invogue must have had a copy of the building consent to complete the building works.

[293]   The trustees commenced this litigation against Dreamhome in 2020. The plaintiffs have had ample opportunity to quantify their loss (if any) from the gaps in the construction documents. They could have applied for a final inspection and then a code compliance certificate well before the trial to crystalise any loss for which Dreamhome is responsible. Alternatively, the trustees could have adduced expert evidence of the costs of any investigations or work that might be necessary because of a lack of particular documents.

[294]   Furthermore, there are only a small number of construction documents missing, aside from the PS4s which are not Dreamhome’s responsibility. As noted, these are material and workmanship warranties. The only warranty in the Council’s list of compliance documentation is a waterproofing membrane manufacturer’s warranty. Mr Williams accepted that Dreamhome had provided this for Lot 2.

[295]   On the other hand, there would be significant prejudice to Dreamhome having to continue to defend claims against it at another trial when the trustees have had ample time to prepare for trial.

[296]Therefore, I refuse the application for a split trial.

[297]   As the trustees have not proven any loss or projected loss arising out of the missing warranties, I find that Dreamhome has no liability to the trustees on this aspect of the claim.

Set-off of Dreamhome’s claim for unpaid payment claims

[298]   Dreamhome claims that at termination of the contracts, $151,794.10 was due and owing to Dreamhome comprising:

(a)$37,480.21 for stage payments;

(b)$49,013.89 for variations; and

(c)$65,300 for the unpaid cash component. Ms Hsieh has confirmed that there was a cash component in addition to the fixed price, such that the total contract price for Lot 1 was $850,000 (a $100,000 cash component) and $1,550,000 for Lot 2 (a $225,300 cash component). Ms Hsieh accepted that she has not paid the full cash component.

[299]   Dreamhome says that the amount owed to it under the contracts must be set off against any liability that Dreamhome has to the plaintiffs.

[300]   The trustees says that these claims are only relevant if the defendants can show that the plaintiffs were not entitled to cancel the contracts.

[301]   I agree that Dreamhome is entitled to set off against damages awarded to the plaintiffs any sum to which they can prove their entitlement.32 Dreamhome is entitled to the cost to which they were put in intending to carry the contract through to completion, prior to the trustees’ cancellation.33

Stage payments

[302]   Outstanding stage payments were due under the Lot 1 Contract. By the date of cancellation, only $1,670,984.79 of the $1,708,465 due had been paid. Accordingly, the difference is due.

[303]   The stage payments were only charged to the plaintiffs following completion of the work. There is evidence the work was completed per the stage specifications of the contract. The amount of $37,480.21 was rightfully due and should be set off against the sum due to the trustees.

32     Contract and Commercial Law Act 2017, ss 43 and 45; Kennedy-Grant and Weatherall on Construction Law, above n 3, at [211,260].

33     Contract and Commercial Law Act, s 45(d).

Unpaid variations

[304]   Dreamhome also claims for a range of variations. First, there are outstanding invoices for scaffolding ($12,282). These are for scaffolding hire from between October to December 2018 for both Lots. As above, I am prepared to conclude that the invoices were the written variations required by the Contracts and Ms Hsieh’s payment as agreement that further scaffolding was required to progress the build. These were amounts that were agreed to be due and should be set off.

[305]   Dreamhome claims for the outstanding  amount  from  an  invoice  for  the  air conditioning system ($8,165). Ms Hsieh sought Dreamhome’s assistance in engaging an air conditioning contractor, C & Y Ltd. Dreamhome then issued a variation for air conditioning which included supply and installation.  Following the 8 February 2019 site meeting, it was agreed that 50 per cent of the invoice (being

$8,165) would be paid with the remaining amount to be paid after installation. I found above that Dreamhome supplied the units, but it appears from the invoices that C & Y Ltd completed the installation after termination of the Dreamhome contracts. Dreamhome cannot then claim the balance of the invoice.

[306]   Finally, there is $28,566.89 still unpaid for a variation for cladding material. The trustees say that this invoice was only issued four days prior to the cancellation of the Contracts and there is no evidence to explain why additional cladding was needed, nor any agreement by the plaintiffs to this variation. Ms Chen explains the variation was required as the Lot 1 Contract only included cladding installation (not supply), because Latham had left some cladding material on site. However, as the build progressed, more material was needed, and this was charged as a variation.

[307]   The Contracts require that any variations are notified and agreed in writing.   I am prepared to conclude that invoices can act as the written notices pursuant to these clauses. However, unlike the scaffolding, there was no acceptance from Ms Hsieh that these materials could be purchased. This was not a validly obtained variation that can be claimed as set-off.

Cash payments

[308]   Dreamhome also claims an outstanding $65,300 for the cash payment component additional to the contract price. Ms Hsieh agreed that there would be additional cash components such that the actual contract price for Lot 1 was $850,000 and for Lot 2 was $1,550,000. Dreamhome highlights the handwritten note wherein Ms Hsieh appears to record the payments she has made toward the cash component. This is compelling evidence both of amounts paid and due.

[309]   The trustees say that Dreamhome’s claim to be entitled to an “unpaid cash component” of $65,300 was raised in their opening (being halfway through trial and after the plaintiffs’ case had closed). The trustees say that the claim is not pleaded (so it cannot be raised now) nor is there any evidence that this was ever agreed and/or if agreed remains unpaid. There is no evidence as to what this additional “cash component” was for, and whether it was for work that was completed (and as such would entitle the defendants to payment).

[310]   I acknowledge this was not pleaded by the defendants prior to the hearing. However, this is not unduly prejudicial to the plaintiffs as they have had notice of this aspect of the claim, as set out in Ms Chen’s brief dated 29 November 2024. Further, the evidence to which Dreamhome refers to support this claim is the handwritten note by Ms Hsieh recording the payments and amounts outstanding for Lot 1. This note was also put to Ms Hsieh in cross-examination where she confirmed this was an accurate record.

[311]   It follows Dreamhome is entitled to $65,300 for the unpaid cash component of the Lot 1 Contract. It probably would be more correct to treat this as part of the estimated completion cost for Lot 1 under the Dreamhome contract for the trustees’ damages claim, but ultimately it makes no difference.

[312]   I note for completeness that the defendants had counterclaimed for lost profits. As I found that the trustees’ cancellation of the Contracts was valid, I do not need to consider this claim.

[313]Consequently, I find that Dreamhome has a set-off in the amount of

$115,062.21.

Is Mr Sun liable in negligence?

[314]   The trustees also claim against Mr Sun in tort. They claim that Mr Sun assumed a duty of care by exercising overarching control of the build. He made critical decisions including who to hire and how the build was to be organised and managed, attended site meetings, and directed that the site be shut down in July 2018. The trustees say that Mr Sun breached this duty of care when the works were delayed, defective works were carried out, and Dreamhome’s employees and subcontractors failed to produce the construction documentation. The trustees claim damages for the same loss they claim against Dreamhome under the contract.

[315]   A builder has a personal duty of care to a building owner to meet the standards of a reasonable builder when engaging in building work, whether they are an employee, a director of company or are self-employed.34 If a director of a building company has personal control over the building operation, they could be personally liable.35 In Morton v Douglas Homes Ltd, Hardie Boys J formulated what is now known as the “degree of control” test:36

The relevance of the degree of control which a director has over the operations of the company is that it provides a test of whether or not his personal carelessness may be likely to cause damage to a third party, so that he becomes subject to a duty of care. It is not the fact that he is a director that creates the control, but rather that the fact of control, however derived, may create the duty. There is therefore no essential difference in this respect between a director and a general manager or indeed a more humble employee of the company. Each is under a duty of care, both to those with whom he deals on the company’s behalf and to those with whom the company deals in so far as that dealing is subject to his control.

[316]In Body Corporate 202254 v Taylor, Chambers J adopted this statement:37

The law in New Zealand is clear that if a builder carelessly constructs a residential building and thereby causes damage, the owners of the residential building can sue the builder in negligence. (I ignore for the present what kinds

34     Palmer v Hewitt Building Ltd [2021] NZHC 1460 at [55].

35     Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17 at [125]–[128].

36     Morton v Douglas Homes Ltd [1984] 2 NZLR 548 (HC) at 595.

37     Body Corporate 202254 v Taylor, above n 35, at [125]–[126] (citation omitted).

of damage the builder can be liable for; in the present case, there is no dispute that the damage the appellants have sustained is damage of a kind for which the New Zealand law of negligence will provide compensation.) That is really the long and the short of it. If Mr Taylor were self-employed, no one would have a moment’s doubt about the propriety of the appellants making the above allegations against him. It should make no difference whether or not he was employed at the time he allegedly did these careless things. The only relevance of his being employed is that his employer or employees may be vicariously liable for his tort committed in  the  course  of  employment… He and the employer would be joint tortfeasors.

All of this was stated with admirable clarity by Hardie Boys J in Morton v Douglas Homes Ltd [1984] 2 NZLR 548.

[317]   Subsequently, in Stephens v Barron, the Court of Appeal reiterated that the liability arises from the personal actions of the individual, not from their position as director or employee of the company entering the contract.38

[318]   I do not consider that Mr Sun is liable in tort to the trustees for the following reasons. First, a builder’s duty of care is to meet the standards of a reasonable builder which typically means to conduct building works that comply with the standards set down by the Building Code.39 The nature of the duty reflects the rationale for imposing a personal duty of care on a builder — so that building owners have a remedy when a building is badly built causing prospective or actual damage, and accordingly loss.40

[319]   The duty of care is different to the contractual obligation of the entity obliged to undertake the building work. An action in contract against the entity promising to perform the building work is concerned with a failure to perform the contractual promise. An action in negligence against the individual builder is directed to compensating for loss caused by the builder’s failure to build with reasonable care.41 There is no duty in tort to take reasonable care to perform a contract.42

[320]   Mr Sun did not owe the trustees a duty of care to complete the building works by the contractually agreed practical completion date. That was an obligation owed

38     Stephens v Barron [2014] NZCA 82 at [27]–[32]. See also Dobbe v Taylor [2024] NZHC 3657.

39     Palmer v Hewitt Building Ltd, above n 34, at [73]; Minister of Education v H Construction North Island Ltd [2018] NZHC 871.

40     Palmer v Hewitt Building Ltd, above n 34, at [74].

41 At [55].

42     Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [66].

by Dreamhome under the Contracts. Therefore, he is not personally liable for the losses the trustees sustained because the works were delayed beyond the agreed practical completion dates.

[321]   If Mr Sun owed the trustees a duty of care, it was to take reasonable care to conduct building works that complied with the standards  set  down  by  the  Building Code. But the trustees have not established that Dreamhome’s work did not comply with the Code. As discussed earlier, the only evidence the trustees have adduced to prove that the works  were  defective  works  prior  to  termination  of  the Contracts is the site meeting minutes prepared by Mr Williams. The trustees have not led any expert evidence to prove that Dreamhome’s work did not comply with the Building Code. Mr Williams conceded that the meeting minutes do not distinguish between issues with Dreamhome’s work, historical Latham defects or design issues. Further, many of the issues identified are minor or are simply unfinished work.

[322]   Finally, a builder does not owe a building owner a duty of care to produce construction documents. The duty is to take care not to cause actual or prospective harm to the building owner by constructing substandard works.

Result

[323]Dreamhome is liable to the trustees for $308,286.13 comprised of:

(a)$288,267.13 for breach of contract;

(b)$15,320 as liquidated damages; and

(c)$4,699 for consequential losses.

[324]   To this amount, $115,062.21 must be set off against sums unpaid to Dreamhome. Therefore, the damages payable to the plaintiffs is $193,223.92.

[325]   Agreement is encouraged as to costs. However, if this is not possible, counsel for the plaintiffs are to file a memorandum not exceeding eight pages by 4 July 2025.

Counsel for the defendants are to file a memorandum not exceeding eight pages by

18 July 2025.

Gardiner J

Solicitors:

Heritage Law, Auckland Buddle Findlay, Auckland

E St John, Barrister, Auckland S Maloney, Barrister, Auckland