Huikau Charitable Trust v Donovan Enterprises Limited
[2024] NZHC 1032
•1 May 2024
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV 2023-488-43
[2024] NZHC 1032
BETWEEN HUIKAU CHARITABLE TRUST
Appellant
AND
DONOVAN ENTERPRISES LIMITED
Respondent
Hearing:
Further submissions:
30 October 2023
10 November 2023
Appearances:
J A Browne for the appellant
D M Grindle for the respondent
Judgment:
1 May 2024
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 1 May 2024 at 11.00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
HUIKAU CHARITABLE TRUST v DONOVAN ENTERPRISES LIMITED [2024] NZHC 1032 [1 May 2024]
[1] The appellant, the Huikau Charitable Trust (the Trust), is an incorporated charitable trust. It owns a property at 984 Whananaki South Road, Whananaki. The property fronts the Whananaki estuary. In late 2017, the Trust contracted the respondent, Donovan Enterprises Ltd (Donovans), to carry out work at the property. The work included building a seawall where the property fronts the estuary and preparing a site for a new dwelling.
[2] Disputes arose between the parties as to whether Donovans had completed the work in accordance with the contract. The Trust refused to pay some of Donovans’ invoices. Donovans sued the Trust in the Whāngarei District Court for payment. The Trust responded with a counterclaim seeking damages for what it alleged was defective work by Donovans.
[3] In a judgment dated 17 April 2023,1 Judge D J McDonald allowed Donovans’ claim for $5,663.75 for additional earthworks in preparing the site and rejected the Trust’s claim that Donovans had not built the seawall in accordance with the requirements of the contract. The Trust appeals from those two decisions.
Factual outline
[4] Denise Hart is the driving force behind the Trust. Ms Hart previously owned the Whananaki property. In 2016, Ms Hart set up the Trust and transferred the property to it.
[5] The aim of the Trust is to provide a safe holiday location with free accommodation for special needs and underprivileged children and their carers. To meet that aim, the Trust wished to develop the property. This included the construction of a seawall and estuary access ramp and preparing a site for a new dwelling.
[6] Before settling the Trust, Ms Hart engaged a company now called RS Engineering Ltd (RS Eng) to prepare reports and building plans for the proposed work
1 Donovan Enterprises Ltd v Hart [2023] NZDC 7175. In the District Court, the trustees of the Trust were named as defendants. In this Court, it was recognised that the Trust, as a separate legal entity, was the correct appellant.
at the property. RS Eng produced two reports. One was a Proposed Seawall Report. This included plans for the proposed seawall. The other was a Suitability Report. This included plans for the site of the proposed dwelling and the approximate extent of soil to be removed from that site.
[7] The Trust sought quotes from two Whangārei contractors. One was Donovans. The principal of Donovans is Peter Donovan. Ms Hart gave Mr Donovan copies of the two reports prepared by RS Eng.
[8]Donovans submitted a quote to the Trust on 24 November 2017. The total was
$178,309 (excluding GST). The amount for the seawall was $35,565.2 The Trust
accepted Donovans’ quote on 28 November 2017.
[9] Donovans carried out the work from about January to March 2018. It submitted three invoices. The Trust paid the first invoice in full, the second in large part, but refused to pay any of the third. The unpaid balance was $32,775.81. The Trust considered it was not liable to pay any of this amount to Donovans.
Claims in the proceeding in issue on this appeal
[10] Donovans commenced this proceeding in May 2019, claiming the unpaid balance of $32,775.81. The Trust denied liability and brought six counterclaims. Only one aspect of Donovans’ claim, and one of the Trust’s counterclaims, are in issue on this appeal.
[11] First, Donovans’ claim included $5,663.75 for what it said were additional earthworks (outside the scope of the contract) requested by the Trust after work commenced. The Trust denied liability for this amount, saying that these earthworks were within the original scope of the contract.
[12] Secondly, the Trust’s first counterclaim was that it was a term of the contract that Donovans would construct the seawall in accordance with the plans prepared by RS Eng. The Trust claimed that Donovans failed to do so in five respects. The Trust
2 This excludes the amount allowed for the associated concrete estuary access ramp, which is not in issue on the appeal.
sought damages, in the amount of $170,200, for the cost of reconstructing the seawall in accordance with the plans.
The District Court decision
[13] The Judge recorded that it was agreed in the pleadings that it was a term of the contract that the construction work would be carried out in accordance with the RS Eng plans.3
Allegedly additional earthworks
[14] Donovans’ claim for $5,663.75 for allegedly additional earthworks was for the removal of a one-metre rise near the site of the proposed new dwelling. The Judge said that the contract required the work to be done in accordance with the plans provided by RS Eng, and said that the relevant plan prepared by RS Eng “in black and white set out the area to be levelled for the building site”.4 The Judge also noted that Donovans followed and cut the area set out by surveyors engaged by the Trust. The Judge then referred to an email exchange in early March 2018 between Ms Hart and Chris Wanoa (an operations engineer employed by Donovans to oversee the work). In that exchange, Ms Hart asked Mr Wanoa to remove the one-metre rise so that it was “the same height as the building site”.
[15] The Judge concluded that the one-metre rise was outside the area to be levelled shown in the RS Eng plan. Ms Hart had asked for additional earthworks to be done. This meant Donovans was entitled to claim the additional cost of $5,663.75.5
3 Donovan Enterprises Ltd v Hart [2023] NZDC 7175 at [33]–[34].
4 At [59]–[60].
5 At [65].
Seawall
[16]
Judge McDonald said that the contract required the seawall to be constructed in accordance with the RS Eng plans.6 He reproduced relevant plans. These included a cross-section plan:
[17]The Judge said that the cross-section plan required:
[98] … The existing rock batter that of the old seawall was to remain to be covered with compact granular hardfill. The wall itself was to be constructed of 250-400mm basalt rock in two layers on Bidim A29 Geotextile underlay. The slope was to be uniform 2:1. Although it is not detailed in the top plan it was accepted that there would be a rock toe with Bidim A29 Geotextile underlay. That is the same type of rock toe that was to be constructed at the end of the ramp. The rock toe was to extend 50cm into the tidal flat.7
[18] Judge McDonald held that the requirements of the contract had been varied in one respect for the seawall. He accepted Mr Wanoa’s evidence that Ms Hart had requested that the slope of the seawall be steeper than the 2:1 shown in the plans, in order to maximise the grassed area at the top of the wall.8
[19] The Judge found that the seawall was not constructed in accordance with the plans.9 It was accepted by Donovans that some of the rocks used in the seawall were outside the 250 mm to 400 mm dimension set out in RS Eng’s plans. Instead, they ranged from 70 mm to 900 mm. The Judge said Donovans breached the contract by using such rocks.10 The Judge did not make a clear finding on the Trust’s allegation
6 At [67] and [81].
7 To be clear, the plan showed that the toe was to extend 50 cm down into the tidal flat.
8 At [104].
9 At [99].
10 At [131].
that the toe of the seawall failed to match the plans. He said the toe of the wall “might not have been constructed in accordance with the plan” but that the way that Donovans did construct it, “with Geotech underlay along almost all of its length”, was sufficient.11 While the slope of the seawall was greater than shown in the plans, there had been a variation in that respect.
[20] Notwithstanding his finding that Donovans failed to construct the seawall in accordance with the plans, the Judge concluded that Donovans’ construction of the seawall did not breach the contract.12 The Judge came to this conclusion because he found that the seawall “was and is fit for purpose”.13
The Trust’s appeal
[21] The Trust says the Judge was wrong to find that the removal of the one-metre rise was not part of the original contract but was a variation for which Donovans could charge an additional amount. The Trust says the one-metre rise was within the area to be levelled shown in the RS Eng plans and therefore part of the original contract.
[22] The Trust says that while the Judge correctly found that the seawall had not been built in accordance with the RS Eng plans by reason of Donovans using rocks outside the specified size, the Judge should have found that Donovans deviated from the plans in two other respects. First, the Trust says the Judge should have found that the rock toe of the seawall had not been built in accordance with the plans. Secondly, the Trust says the Judge erred in finding the contract had been varied to allow a slope on the seawall of greater than 2:1.
[23] The Trust says that, in any case, given the Judge’s finding that the seawall had not been built in accordance with the plans, the Judge erred in finding that Donovans had not breached the contract. The Trust says these two findings are inconsistent.
[24]The Trust says it has suffered loss from Donovans’ breach of the contract and
that the proper measure of loss is the cost of repairing the seawall to the contract
11 At [128].
12 At [133].
13 At [131].
standard. The Trust says it should be awarded damages of $170,200, being the estimated cost of repair.
The issues
[25]The following issues arise on the appeal:
(a)Did the Judge err in finding that the removal of the one-metre rise was not part of the original contract?
(b)Did the Judge err in failing to find that the rock toe of the seawall had not been built in accordance with the RS Eng plans?
(c)Did the Judge err in finding the contract had been varied to allow a slope on the seawall of greater than 2:1?
(d)Did the Judge err in finding that Donovans had not breached the contract in respect of the seawall?
(e)If Donovans breached the contract in respect of the seawall, should the Trust be awarded damages, and if so in what amount?
Did the Judge err in finding that the removal of the one-metre rise was not part of the original contract?
[26] It was a term of the contract that the construction work had to be carried out in accordance with the RS Eng plans. In respect of the removal of the one-metre rise, the relevant plans were found in the Suitability Report prepared by RS Eng. The body of that report, at 4.2, said that the Trust proposed to undertake earthworks to create a level building platform and that it was proposed “that the top of the ridge be removed to 9.5m OTP Datum to create a suitable, level building platform for Dwelling 1”. The Reoprt said that, provided the dwelling was constructed in the proposed position and that its recommendations as to removal of earth were met, the risk of instability to the building work was low. At 4.5 of the report, RS Eng noted that a concrete pool was to be constructed at the proposed dwelling site. RS Eng recommended that the base of the pool “be keyed into the weathered rock a minimum depth of 0.5m”.
[27] The Suitability Report attached a plan showing, among other things, the sites of the proposed dwelling and pool:
[28] On the site of the pool is a survey point “BH1”. Across one end of the pool is a line “A-A”. This survey point and line were used on a plan in the next page:
[29] At the trial, Mr Wanoa accepted that the survey point BH1 was roughly where the one-metre rise was located. He also accepted that the RS Eng plans specified that this area was to be cut flat to the same level as the proposed dwelling. Mr Browne, counsel for the Trust, submitted therefore that the plans were clear that the one-metre rise was to be removed and that its removal was part of the original contract. Mr Browne submitted that the Judge was wrong to rely on post-contract events (such as the email exchange between Ms Hart and Mr Wanoa) to determine the proper scope of the contract.
[30] I accept that the post-contract events that occurred in this case are of no assistance in determining what the contract required of Donovans. But Mr Wanoa’s subjective view of what the RS Eng plans specified is also of no assistance. I do not accept Mr Browne’s submission that the plans required the one-metre rise to be removed. The Suitability Report needs to be read as a whole. The body of the report described the work that was to be done. This referred to removal of a ridge to create a level building platform for the proposed dwelling. A distinction was drawn between the proposed dwelling and the pool. The quote from Donovans included an allowance for excavating the “House Site”. There is no suggestion that Donovans was engaged to do work for the site of the proposed pool.14
[31] I therefore find that the Judge correctly held that the removal of the one-metre rise was not part of the original contract.
Did the Judge err in failing to find that the rock toe of the seawall had not been built in accordance with the RS Eng plans?
[32] The RS Eng plans showed that the seawall was to include a rock toe underlaid by geotextile. The toe was to extend 1,000 mm out from the base of the seawall and be keyed (buried) 500 mm into the tidal flat. The Trust says the Judge should have found that the toe was not built as specified: it was not buried into the tidal flat and geotextile was not laid underneath all of it.
14 The Trust had obtained plans for the pool. The Judge found, at [19], that these plans were not sent to Donovans until after the contract was entered into.
[33] At trial, the Trust led expert evidence from Dean Scanlen, a chartered professional engineer with extensive experience in assessing seawalls. Mr Scanlen inspected the seawall built by Donovans. He produced a report in which he said the seawall had not been keyed into the ground at its toe and that although there was geotextile under most of the wall, it was not in all the locations he inspected. These alleged problems were put to Mr Donovan in cross-examination. He was taken to a photograph of part of the toe being built. This showed large boulders sitting on top of the tidal flat. Mr Donovan accepted that the toe of the seawall had not been buried. On that photograph, there was clearly no geotextile under the toe. Another photograph showed geotextile under a different part of the toe.
[34] The Judge did not make a clear finding on this alleged breach. He said the toe of the seawall “might not have been” constructed in accordance with the RS Eng plans but that the way that Donovans did construct it, “with Geotech underlay along almost all of its length”, was sufficient.15
[35] I consider, with respect, that the Judge should have found that the rock toe had not been built in accordance with the RS Eng plans. Mr Donovan accepted the toe was not buried. That was not in accordance with the plans. The evidence showed, and the Judge found, that the geotextile was under some but not all of the toe. That also was not in accordance with the plans.
Did the Judge err in finding the contract had been varied to allow a slope on the seawall of greater than 2:1?
[36] The RS Eng plans showed, and the contract therefore required, that the slope of the seawall be 2:1. As built, the seawall was steeper. At trial, there was a dispute as to whether, as contended by Donovans, Ms Hart had orally requested the seawall to be steeper so as to maximise the grassed area behind the seawall.
[37] There was contested evidence on this issue. Mr Wanoa’s evidence was that Ms Hart had made such a request. Ms Hart disagreed when the proposition was put to her in cross-examination.
15 At [128].
[38] The Judge found that Mr Wanoa gave truthful evidence on this point. The Judge noted that Mr Wanoa was no longer employed by Donovans, did not provide Donovans with a brief of evidence and gave honest and forthright answers to questions put to him. The Judge therefore found that Ms Hart had requested the steeper slope.
[39] Having read the relevant parts of the oral evidence, I see no basis for interfering with the Judge’s finding on this point. This was a matter of credibility on which a trial Judge has an advantage over an appellate Court. Further, Mr Wanoa’s evidence on this issue was not challenged in cross-examination.
Did the Judge err in finding that Donovans had not breached the contract in respect of the seawall?
[40] The Judge found that Donovans had used rocks outside the size specified in the RS Eng plans, and that the seawall was therefore not constructed in accordance with the plans. The Judge said Donovans breached the contract by using rocks of the wrong size. He nonetheless ultimately concluded that Donovans’ construction of the seawall did not breach the contract. The reason for this conclusion was that the Judge considered the seawall was fit for purpose.
[41] I consider that the Judge erred in this conclusion. It was common ground (on the pleadings) that it was a term of the contract that Donovans was to build the seawall in accordance with the RS Eng plans. The seawall was not built in accordance with those plans (both because rocks of the wrong size were used, and because, as the Judge should have found, the rock toe was not buried and was not completely underlaid by geotextile). Donovans therefore breached the contract.
[42] It was not to the point that the seawall might have been fit for purpose.16 Donovans’ contractual obligation was not (or not merely) to build a seawall that was fit for purpose. It was, as the parties agreed and as the Judge said elsewhere in his judgment, an obligation to build a seawall in accordance with the RS Eng plans.
16 It is therefore not necessary for me to address the Trust’s argument that the Judge erred in finding that the seawall was fit for purpose.
[43] In a building contract, there will often be an implied term that the building work will be reasonably fit for a purpose that has expressly or impliedly been made known by the employer to the builder. This is analogous to the implied term that arises in many contracts for the sale of goods. Where there is such an implied term it supplements, but does not supplant, the other terms of the contract. If a homeowner contracts to have a swimming pool built with a maximum depth of 2.2 m, that is what the homeowner is entitled to (as well as likely being entitled to a swimming pool otherwise fit for purpose). If the contractor builds a pool with a maximum depth of
1.8 m, it is no answer to the homeowner’s claim for breach of contract for the contractor to say that the pool is reasonably fit for purpose (though the contractor’s point may be relevant to the measure of loss and therefore damages).17
If Donovans breached the contract in respect of the seawall, should the Trust be awarded damages, and if so in what amount?
[44] Given the view that the Judge took of the seawall claim, he did not address the damages to which the Trust might have been entitled. I have to decide that matter.
[45] The Trust originally sought damages for the diminution in value (unquantified) between the seawall as specified in the contract and the seawall as built. The Trust then amended its counterclaim to seek damages for the cost of reconstructing the seawall. It quantified this cost as $170,200. The Trust relied on a quotation in that amount dated 24 March 2021. The quotation described the work to be done as removal of the seawall as built and reconstruction in accordance with the RS Eng plans. No evidence was led at trial as to the diminution in value, if any, that might have resulted from Donovans’ breach of the contract in respect of the seawall.
[46] In Leisure Investments the Court of Appeal, after a review of relevant authorities, summarised the principles relating to the proper measure of damages. The principles included, as relevant to this appeal:18
17 The example is adapted from Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344, in which it was accepted that the contractor was in breach, and the issue concerned the measure of damages for that breach.
18 Leisure Investments NZ Ltd Partnership v Grace [2023] NZCA 89, [2023] 2 NZLR 724 at [184]. The Court of Appeal was dealing with the measure of damages in tort, but it is clear (from the Court’s reference to various decisions dealing with the measure of damages in contract) that the principles stated were of application to both contract and tort.
…
(c) Damages should reflect the extent of the loss actually and reasonably suffered by the claimant.
(d) Where a court is required to choose between alternative measures of damages (such as cost of repairs and diminution in value), the court must decide whether in the circumstances of the particular case, the higher yielding measure is reasonable.
(e) One of the key factors in determining reasonableness is whether the plaintiff genuinely intends or desires to pursue the course which involves the higher cost.
(f) The absence of such an intention or desire is likely to undermine the reasonableness of the higher cost measure.
(g) Compelling circumstances will be required before the higher cost measure will be awarded in the absence of such an intention.
[47] In short, and as the Court also said in Leisure Investments,19 the prima facie approach is that in the absence of an intention to repair or rebuild, the plaintiff is not entitled to damages measured by the cost of repair or rebuilding.
[48] The written submissions prepared for the appeal hearing did not address whether the Trust held an intention to repair or rebuild the seawall. I gave the parties the opportunity to file brief memoranda after the hearing identifying any evidence relating to the Trust’s intention to repair or rebuild. The only evidence that Mr Browne (who was not counsel in the District Court) could refer me to was:
(a)Ms Hart said that the Trust claimed for the cost of rectifying the various defects and that the Trust had sought quotations for the work.
(b)Emails from the Trust’s solicitors sought quotations for the repair work, in which they said that the Trust was “looking to have the following [work] completed”.
[49] Mr Browne submitted that I could infer from this evidence, together with the nature and purpose of the seawall (which he said had a continuing need for soundness), that the Trust intended to rebuild the seawall. Mr Grindle, counsel for Donovans,
19 At [184](b).
agreed that was the extent of the evidence but submitted that it did not provide a basis for finding that the Trust intended to rebuild.
[50] The onus was on the Trust to establish that the cost of repairing the seawall was a reasonable measure of its loss. A key factor in determining that was whether the Trust intended to rebuild the seawall. Ms Hart did not say that the Trust intended to rebuild. That the Trust claimed the cost of rebuilding is neither here nor there. That the Trust sought quotations does not, of itself, give rise to an inference of an intention to rebuild. It is explained equally by a desire to obtain evidence. Given that the Trust initially claimed damages measured by diminution in value, I would have expected an explanation of the Trust’s intention to rebuild. There was none.
[51] For these reasons, the Trust has not satisfied me that it intended to rebuild the seawall. This means compelling circumstances are required before damages measured by the cost of rebuilding will be awarded. No compelling circumstances were identified.
[52] The Trust did not claim, and therefore did not attempt to prove, that there was a diminution in value of the seawall (or of the property) as a result of Donovans’ breach of contract.
[53] Mr Browne invited me, in the event that I came to this view, to remit the proceeding back to the District Court for the hearing of further evidence on the Trust’s intention to rebuild or on diminution in value. I decline to do so. The time for the Trust to offer such evidence was at the original hearing.
[54] Mr Browne submitted that in any event the Trust should be awarded nominal damages for Donovans’ breach of contract. I consider he is correct. All breaches of contract are actionable. Whether one views this case as one where the Trust has not proved loss or as one where the Trust has proved loss but has not sufficiently proved the amount of its loss, nominal damages should be awarded.20 I award $10.
20 See James Edelman McGregor on Damages (21st ed, Sweet & Maxwell, London, 2021) at 12- 002 and 12-004.
Costs
[55] The Trust has been vindicated in its claim that Donovans breached the contract by failing to build the seawall in accordance with the RS Eng plans. This was the main point of the appeal. While the Trust has not succeeded in establishing an entitlement to damages for that breach, success has been shared equally and costs on the appeal should lie where they fall.
[56] Costs in the District Court should not be revisited, as Judge McDonald made several decisions additional to those that were the subject of this appeal.
Result
[57]I allow the Trust’s appeal to the following extent:
(a)I set aside Judge McDonald’s decision that Donovans did not breach
the contract in building the seawall.
(b)I award the Trust nominal damages of $10 for Donovans’ breach of
contract in building the seawall.
[58]I otherwise dismiss the appeal.
[59]The costs of the appeal are to lie where they fall.
Campbell J
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