IAG New Zealand Limited v QBE Insurance (Australia) Limited
[2022] NZCA 636
•19 December 2022
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA659/2020 [2022] NZCA 636 |
| BETWEEN | IAG NEW ZEALAND LIMITED |
| AND | QBE INSURANCE (AUSTRALIA) LIMITED |
| CA156/2021 | ||
| BETWEEN | IAG NEW ZEALAND LIMITED | |
| AND | JOAN MARGARET FRASER SLEIGHT AND ALAN LEITHFIELD SLEIGHT | |
| AND | QBE INSURANCE (AUSTRALIA) LIMITED | |
| Court: | Kós P, French and Collins JJ |
Counsel: | C F Finlayson KC and O V Collette-Moxon for Appellant in CA659/2020 and CA156/2021 |
Judgment: | 19 December 2022 at 2.30 pm |
JUDGMENT OF THE COURT
AQBE Insurance (Australia) Ltd’s application for a recall of the judgment dated 25 May 2022 is declined.
BQBE Insurance (Australia) Ltd must pay IAG New Zealand Ltd costs for a standard application together with usual disbursements.
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REASONS OF THE COURT
(Given by French J)
Introduction
QBE Insurance (Australia) Ltd (QBE) seeks to recall certain aspects of the judgment we delivered on 25 May 2022 allowing IAG New Zealand Ltd (IAG)’s appeal.[1] IAG opposes the recall application. The recall application does not affect the first respondents in CA156/2021, Mr and Mrs Sleight.
[1]IAG New Zealand Ltd v QBE Insurance (Australia) Ltd [2022] NZCA 208 [Court of Appeal judgment].
The appeal concerned defective repairs to an earthquake damaged home insured by IAG. The defects were numerous. They included defects in the exterior cladding, windows, balconies, foundations, roof and outdoor steps, together with various interior defects.
The homeowners Mr and Mrs Sleight successfully sued the repairer as well as IAG and the project manager monitoring the repairs, a company called Hawkins Management Ltd (Hawkins).[2] Hawkins was insured by QBE.
[2]Hawkins Management Ltd is now named Orange H Management Ltd and is in receivership and in liquidation.
As between IAG and Hawkins/QBE, the key issue was the extent to which Hawkins was liable to IAG under an indemnity clause in the contract between those parties. Critical to the argument was the interpretation of the word “completion” as used in a clause in the contract imposing an obligation on Hawkins to monitor the repair work and certify progress payments on “completion” of the various stages. IAG argued that something that was defective could not properly be described as completed.
The High Court Judge found that correctly interpreted the contract only imposed a limited obligation on Hawkins to assess the quality of the repair work. He further found that of all the building defects, Hawkins was only liable to indemnify IAG for the cost of rectifying the defective foundation and sub-floor repairs. In imposing liability for the foundation/sub-floor defects, the Judge described the defects in question as being immediately apparent on a “cursory naked eye examination” and “obvious on any cursory examination”.[3]
[3]Sleight v Beckia Holdings Ltd [2020] NZHC 2851 [High Court judgment] at [505]–[506].
That finding meant IAG’s claim for indemnity was only partially successful and it accordingly appealed. QBE did not cross-appeal the finding relating to the foundation/sub-floor defects.
On appeal, both IAG and QBE endorsed the Judge’s naked eye test but differed as to its scope and application.
According to IAG, the naked eye test meant that where visibly defective work existed, [the contract] required Hawkins to decline to certify payment to the builder.[4] The Judge’s error thus lay in failing to apply the same test to the other defects all of which were also plainly visible.
[4]IAG New Zealand Ltd v QBE Insurance (Australia) Ltd, above n 1, at [57].
For its part, QBE argued the foundation and sub-floor were in a different category to the other defects and that the Judge was justified in distinguishing between them. QBE emphasised that the contractual standard was completion and that the Judge’s naked eye test involved a naked eye assessment of completion, not freedom from visible defects.[5]
[5]At [60].
We held that that the wording of the contract and the circumstances in which it came into existence fully supported the Judge’s conclusion that Hawkins was only to have a very limited quality assessment function.[6]
[6]At [61].
We further held that as a matter of language the concept of completion carried with it an element of qualitative assessment and so to that extent agreed with IAG that it was not solely a quantitative exercise.[7] However, given the limited quality assessment role assigned to Hawkins under the contract, we rejected the submission that the existence of any defect visible to the naked eye of itself rendered the work incomplete.[8]
[7]At [79].
[8]At [80].
We went on to say:
[85] In our view, properly construed “completion” turns not only on the visibility of the defect but also the nature of the defect, its seriousness in terms of the integrity of the building as a whole and the extent of the repairs necessary to fix it. Finishing details and minor defects would clearly not be an impediment to certification. Unfortunately in applying the naked eye test, the Judge did not articulate the basis of the distinction between the foundations and the other defects including in particular the cladding and the windows. That is so even though the cladding and the windows were both classified as key defects and cost more to remedy than the defective foundations.
At [98] of our judgment we summarised our conclusions:
(a)It was a breach of Hawkins’ monitoring and certification obligations under the [contract] to certify completion of work if that work contained defects that were both visible to the naked eye and of a significant nature in terms of the integrity of the building as a whole and the extent of the repairs necessary to rectify them.
(b)Applying that construction of the [contract] to the facts of this case, viewed globally, the defects as found by the Judge relating to the cladding and the windows including the structural defects of the first‑floor balcony were an impediment to certification.
(c)Those defects were in the same category as the foundations and sub‑floor defects.
(d)All other defects found by the Judge were not an impediment to certification.
IAG and QBE chose not to provide us with all the trial evidence regarding quantum and, at their request, we did not address the monetary consequences of our judgment. Instead, the parties asked for an opportunity following determination of the appeal issues to reach agreement on the sums owing by each to the other in light of our determinations. No orders were therefore made as to quantum.
The application for recall
In its application for recall, QBE asks the Court to amend and reissue its judgment by:
(i)deleting the third and fourth sentences in paragraph [85];
(ii)deleting sub-paragraphs [98(b)] and [98(c)]; and
(iii)amending paragraph [99] so as to replace the order which allows the appeal with an order dismissing it, and a corresponding amendment to order A in the order band.
QBE submits the above changes should be made because in coming to the conclusions we did at [98(a)] and [98(b)] we have misinterpreted or misunderstood the High Court judgment by attributing factual findings to the Judge which he did not in fact make.
First, QBE contends that contrary to what is said in our judgment, the High Court never made a factual finding classifying the defects.
Secondly, QBE submits we were wrong to state that the cladding and the windows were both classified as key defects and cost more to remedy than the defective foundations. QBE contends the High Court found there was nothing fundamentally wrong with the cladding and only permitted $10,000 for spot fixes whereas the cost of repairs to the foundations was held to be $60,000. As for the windows, the Judge found this was a scoping defect in respect of which Hawkins/QBE was not liable.
Thirdly, it is contended that contrary to what is stated in our judgment, the High Court did not hold that the balcony was a structural issue. The Judge simply found there were durability issues. He awarded $10,000 for the balcony and therefore like the cladding this defect did not cost more than the defective foundations.
According to QBE, these alleged errors have resulted in it facing increased liability and because there are many other extant disputes between IAG and Hawkins/QBE over earthquake repairs, that has profound implications. In its submission, the case therefore comes within the Horowhenua County v Nash (No 2) “very special reason” category for recall.[9]
Analysis
[9]Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at 633.
As noted in our judgment, the Judge expressly identified the defects as being generally of three types:[10]
(a)Scoping defects — defects that were not repaired because of omissions in the original scope of works.[11]
(b)Key defects — which the Judge classified as involving the “exterior cladding and windows”[12] and structural defects relating mainly to the foundations and sub-floor together with certain durability issues around connections on the first-floor balcony.[13]
(c)Remaining defects — we termed this a miscellany of matters which the Judge described as minor.[14]
[10]Court of Appeal judgment, above n 1, at [29].
[11]High Court judgment, above n 3, at [582]–[595].
[12]At [596].
[13]At [596]–[608].
[14]At [609]–[625].
We acknowledge that the windows were classified as a scoping defect. However, as the above quote shows the Judge also expressly classified them as a key defect. To further complicate matters, there were other scoping defects that were also significant yet which were not identified as key defects.[15] Regardless of classification, the more important point is that IAG does not seek to recover damages from Hawkins/QBE in relation to the windows.
[15]For example, the removal and replacement of the conservatories and the removal and replacement of the butyl roof.
In our view, recall is therefore not justified on this ground. On any view of it, scoping issues aside, had the windows been in scope, they would in our assessment have been the sort of defect that would undoubtedly satisfy the naked eye test as formulated by our judgment. Further, QBE will not suffer any detriment as a result of our not treating the windows solely as a scoping defect.
As regards the balcony, we note QBE’s submissions but make the point that in a main section of the judgment, the Judge referred to the balcony under the heading “structural defects” which was a sub-heading of “key defects”.[16] Further, whether described as a durability defect or a structural defect, the durability of the balcony was in our assessment significant and self-evidently had structural implications.
[16]At [608].
We turn finally to the issue of comparative costs of repair. The cost of repairing the windows (and exterior doors) was said to be $57,482.00.[17] Counsel have clarified with us that the $60,000 figure for repairing the foundation defects was an agreed figure which included preliminary and general margin, contingency and professional fees. It is unclear whether the other repair figures include those matters.
[17]Another report had the figure at $58,550.00.
However even if we were wrong to say the other key defects cost more than the foundations, we are not persuaded that is grounds for a recall. QBE assumes that the fact they cost less is pivotal to our reasoning. However, the key point is that under our formulation of the naked eye test, the cost of repair, albeit important, is just one indicator of the significance of the defect. That is to say, regardless of comparative cost with the foundations, the cladding, the windows and the balcony were significant defects and their repair costs were still significant enough. They were all visible to the naked eye and of a significant nature in terms of the integrity of the building as a whole and the extent of repairs necessary to rectify them.
In short, in our assessment, the cladding and balcony defects were impediments to certification even if the repairs required to fix them did not cost more than the foundations/sub-floor.
The precedential value of our judgment for the remaining disputes between QBE and IAG is in our formulation of the naked eye test.
For all these reasons we are not persuaded there are grounds to recall the judgment. We therefore decline the application.
Outcome
QBE’s application for a recall of the judgment dated 25 May 2022 is declined.
QBE must pay IAG costs on a standard application together with usual disbursements.
Solicitors:
Wotton + Kearney, Wellington for Appellant in CA659/2020 and CA156/2021
Hazelton Law, Wellington for Respondent in CA659/2020 and Second Respondent in CA156/2021
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