Malkhasian v Wood
[2024] NZHC 1252
•20 May 2024
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2023-470-000027
[2024] NZHC 1252
UNDER District Court Act 2016 IN THE MATTER OF
An appeal against a decision of the District Court at Hamilton
BETWEEN
ANDREW SHAUNT MALKHASIAN and JEAN ANN MALKHASIAN
Appellants / Cross-respondents
AND
STUART JOHN WOOD
Respondent / Cross-appellant
Hearing: 13 February 2024 Appearances:
V A Whitfield and M J Meier for Appellants R L Scott and D S Howell for Respondent
Judgment:
20 May 2024
JUDGMENT OF ANDREW J
This judgment was delivered by Justice Andrew on 20 May 2024 at 3.30 pm
pursuant to r 11.5 of the High Court Rules 2016 Registrar / Deputy Registrar
Date …………………………..
MALKHASIAN v WOOD [2024] NZHC 1252 [20 May 2024]
Introduction
[1] This is an appeal from a decision of the District Court.1 It involves a residential construction dispute. In the District Court, the appellant homeowners, the Malkhasians, sued the respondent project manager, Mr Wood, in deceit. They alleged that he had overcharged them for building materials, labour, and associated sub-contractor services. While the Malkhasians were successful with their other claims against Mr Wood, namely negligence and breach of the Fair Trading Act 1986 (FTA), all but one of the causes of action in deceit for overcharging, were dismissed.
[2] A central issue in this appeal is whether the District Court Judge was correct in finding that the Malkhasians had not established the necessary mental element of the tort of deceit, which requires proof of a lack of honest belief in the truth of the statements at issue, or, where there is a conscious indifference to the truth, recklessness.2 The learned District Court Judge concluded that Mr Wood’s management of invoices generally was careless and potentially reckless. However, he held that the evidence did not establish a conscious indifference to the truth on the part of Mr Wood.
[3] The appellants say that all their tort of deceit claims should have been upheld and resulted in a substantial award of exemplary damages to them. They do not seek any additional compensatory damages.
[4] There is a cross-appeal by Mr Wood against findings by the District Court Judge that he is personally liable in negligence and for breaching the FTA (misleading and/or deceptive conduct) for the total sum of $35,273.51. Mr Wood denies that the invoices, said to be the basis of the overcharging, were actionable representations and says that they were not misleading.
Factual background3
[5] In 2014, the Malkhasians purchased a property in Whakamārama, near Tauranga. They contracted with a building company, Stonewood Homes Ltd, to build a residential dwelling on the property. Plans were drawn up and consented, but before
1 Malkhasian v Home Builders BOP Ltd (in liq) [2023] NZDC 2999.
2 Amaltal Corporation Ltd v Maruha Corporation [2007] 1 NZLR 608 (CA) at [50].
3 Malkhasian v Home Builders BOP Ltd (in liq) at [14]–[20].
construction could commence, the Stonewood group of companies went into liquidation.
[6] As a result, the Malkhasians engaged Home Builders BOP Ltd (HB BOP) (the first defendant in the District Court), which subsequently changed its name to Hi Build Ltd. A written contract between HB BOP and the Malkhasians was entered into in January 2015.
[7] Mr Wood was a director of HB BOP and was the person who the appellants engaged on behalf of that company. Mr Wood was not involved in undertaking any of the construction work himself. Rather, he was the project manager and supervisor of the building project. His duties included the collating and issuing of invoices to the Malkhasians.
[8] The Malkhasians’ contract with HB BOP was a charge-out contract. HB BOP was entitled to charge the appellants:
(a)A contract price based on an hourly charge-out rate of $55 per hour (including GST);
(b)Mr Wood’s travel costs related to the project (at a fixed mileage rate);
(c)The on-charging of costs incurred by HB BOP in fulfilling its obligations, including in supplying contractors; and
(d)The cost of materials supplied in furtherance of the works, with a 10 per cent margin to be applied (in most cases).
[9] Issues subsequently arose between the Malkhasians and Mr Wood which included invoicing and charging concerns.
[10] The construction of the dwelling commenced and proceeded to the point where the roof was in place and the exterior cladding complete. There remained a considerable amount of work to be completed, such as the installation of GIB board and other finishing work which was required to reach the point where a code of compliance certificate (CCC) could be issued for the dwelling to be inhabited.
[11] The relationship between the parties became difficult and deteriorated markedly as time went on. By October 2015, when the roof was in place and the exterior cladding was complete, a dispute arose as to whether the contract was abandoned (the Malkhasians’ argument) or mutually terminated (Mr Wood’s argument). After the dispute arose, Mr Wood had nothing further to do with the construction or completion of the dwelling and the Malkhasians arranged for others to complete the work. The CCC was ultimately issued.
[12] HB BOP was placed in voluntary liquidation on 15 August 2018. Mr Wood incorporated a further company, Eastern Builders Ltd. That company was a party to the District Court proceedings.
[13] Oregon Building Supplies Limited (Oregon ITM), which had been HB BOP’s principal trade supplier for general construction and carpentry supplies, and had poured the concrete slab for the dwelling, was also named as a defendant in the proceedings.
[14] In total, the Malkhasians sued five defendants in the District Court. The causes of action included negligence, deceit, breach of contract, and breach of s 9 of the FTA. The appellants sought damages for negligence in the total sum of $247,547.96. This included a claim for exemplary damages in the sum of $50,000, and $15,000 each for general damages. The total claim for the deceit causes of action amounted to
$54,708.91.
The District Court decision
[15] The learned Judge noted that the only parties remaining active for the purposes of the proceeding were the Malkhasians, Mr Wood, and Eastern Builders Ltd (fifth defendant).
[16] No leave of the High Court had been sought or granted for the Malkhasians to continue their proceedings by or against HB BOP. Accordingly, the District Court stayed the proceeding against that company.
[17] The proceedings against the third defendant, Steve’s Plumbing & Gas Company Ltd, and the fourth defendant, Oregon ITM, were discontinued.
[18] The Judge upheld the Malkhasians’ claims against Mr Wood in negligence and for breach of the FTA. He dismissed all of the tort of deceit claims, except for the claim of overcharging for Oregon ITM transactions.4 The Malkhasians were awarded damages of $4,622.21 in relation to that claim.
[19]The total amount of damages awarded by the Judge against Mr Wood, namely
$35,273.51, included general damages of $7,000. The Judge dismissed the Malkhasians’ claim for exemplary damages.
[20] The Judge held that a significant portion of the plaintiffs’ claim alleged overcharging.5 He described the plaintiffs’ case as follows:6
In broad terms the plaintiffs, and Mrs Malkhasian in particular, prepared a detailed schedule of the amounts claimed through the contract and her analysis produces the discrepancies that have been characterised as overcharging.
[21] The Judge also referred to the leading Court of Appeal decision Amaltal Corporation Ltd v Maruha Corporation:7
The critical features of the tort [deceit] are therefore that the representor must have lacked an honest belief in the truth of his statement; “carelessness” is not to be equated with “dishonesty”; and even recklessness in the sense of gross negligence will not suffice, unless there is a conscious indifference to the truth.
[22] His Honour noted that Mr Wood was cross-examined extensively about the claim generally. He found that while there may be valid criticisms of Mr Wood’s accounting to the plaintiffs and his efficiency as a record-keeper, he was not satisfied that there was evidence of the type of dishonest or deceitful conduct as alleged by the plaintiffs (except in relation to the overcharging for Oregon ITM transactions).8
[23] In relation to the deceit claim based on overcharging for roofing, his Honour concluded as follows:9
4 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [208]–[209].
5 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [132].
6 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [132].
7 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [195], citing Amaltal Corporation Ltd v Maruha Corporation, above n 2, at [50].
8 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [193].
9 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [196].
Whether because of inattention, overwork or other reasons, Mr Wood was clearly not on top of the invoicing for the plaintiffs. His management in respect of invoices generally and the roofing invoice in question in particular was certainly careless and potentially reckless. However, the evidence does not establish on the part of Mr Wood conscious indifference to the truth and the claim in deceit cannot succeed accordingly.
Relevant legal principles
[24] This is a general appeal, to be conducted by way of a rehearing.10 This Court is permitted, and required, to arrive at its own conclusion on the merits of the case, in respect of matters of both facts and law.11 Although an appellate court may rightly hesitate to interfere where the first instance court enjoys an advantage, such as in assessing credibility,12 and can recognise the limitations of the record as a means of re-visiting factual findings,13 it is not required, nor permitted, to intuitively defer to the court below’s evaluation as to the weight to be afforded to the evidence.14
Analysis and decision
[25] I deal first with the Malkhasians’ appeal and will then address the cross-appeal by Mr Wood.
Issue (a) – Should the five deceit claims have been dismissed?
[26] As noted, the principal ground of appeal is that the District Court Judge was in error in concluding that Mr Wood did not have the necessary intent to deceive in relation to the deceit claims that were dismissed. Ms Whitfield, on the appellants’ behalf, contended that the Judge was “circumspect” about making findings of deceit. She submitted that he erroneously focused on an absence of direct evidence of an intention to deceive and failed to properly recognise the need to approach circumstantial evidence as “a rope composed of several cords”.15 The intention of Mr Wood “always needed to be determined by inferences based on circumstantial
10 High Court Rules 2016, r 20.18.
11 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
12 Austin, Nichols & Co Inc v Stichting Lodestar, above n 11, at [5].
13 R v Bertrand (1867) LR 1 PC 520 (PC), adopted by Emmerston v A Professional Conduct Committee Appointed By the Medical Council of New Zealand [2017] NZHC 2847 at [77].
14 Austin, Nichols & Co Inc v Stichting Lodestar, above n 11, at [16].
15 Thomas v R [1972] NZLR 34 (CA) at 38; see also Attorney-General v Strathboss Kiwifruit Ltd
[2020] NZCA 98, [2020] 3 NZLR 247 at [469].
evidence.” The Malkhasians say that all elements of the tort of deceit were proven against Mr Wood on the balance of probabilities.
[27] Ms Scott, for Mr Wood, submitted that there was no error in the approach of the Judge. He had the advantage of seeing and hearing the witnesses, including the cross-examination of Mr Wood over three days. She submitted that the evidence does not establish to the standard of balance of probabilities that the inherently less likely explanation for the overcharging, namely deceit, was the more probable explanation. The Judge was entitled to conclude, she argued, that if any overcharging occurred, it was the result of negligence.
Deceit claim 1 – Overcharging in relation to the roofing – $6,325
[28] The Malkhasians paid $48,404.3516 for roofing work done by Roofing Systems Ltd, as well as a 10 per cent margin to HB BOP.
[29] The Judge held that Mr Wood’s management of invoices was careless and potentially reckless, but that the evidence did not establish a conscious indifference to the truth on behalf of Mr Wood. Mr Wood was found liable to the Malkhasians in the sum of $3,162.50 for misleading and deceptive conduct.
[30] The Malkhasians say that the District Court Judge failed properly to draw the inference that Mr Wood charged an extra $2,500 plus GST after an agreement with the roofer “to fleece the Malkhasians for $5,000 plus GST”, with each participant receiving an extra $2,500 plus GST (and HB BOP adding a 10 per cent margin as well).
[31] The Malkhasians rely on inferences to be drawn from the following primary facts:
(a)Mr Wood received a quotation from Roofing Systems Ltd on 24 April 2015 for the sum of $37,090.74 plus GST (the 24 April quote).
(b)Sometime between 24 April and 11 May 2015, a period of less than three weeks, there was a telephone call from Mr Wood to “Dave” of
16 Comprised of $31,672.59, $2,500 and $7,918.15 plus GST.
Roofing Systems Ltd. A Companies Office search confirms that Mr Dave Washer is the director and shareholder of the company and the Court is asked to take judicial notice of this.
(c)On 11 May 2015, Mr Wood received an email with two quotations from Roofing Systems Ltd for the same materials and services as the 24 April quote and:
(i)one was labelled “Valid Roof Quote” and was for the sum of
$39,590.74 plus GST (exactly $2,500 plus GST more expensive than the 24 April quote). This is the amount HB BOP would and did pay to the roofer (valid quote); and
(ii)the other, also dated 11 May 2015, was labelled “Extra Roof Quote” and was for $42,090.74 plus GST, adding exactly
$2,500 plus GST to the “Valid Roof Quote”. This is the quote which was presented to the Malkhasians and which they say elicited an extra payment of $2,500 plus GST more than the valid quote from the Malkhasians to HB BOP, which is what they actually paid (extra quote).17
(d)On 11 May 2015, Mr Wood sent the extra quote, the most expensive quotation, to the Malkhasians as the quotation for the roof.
(e)The payment of the valid quote was made by HB BOP to the subcontractor, but the extra quote was used to charge the appellants.
(f)When the appellants questioned the roofing charges, Mr Wood advised that he had paid a deposit of $2,500 for the roof and that the greater quotation was accurate.
(g)Mr Wood wrote on the Roofing Systems Ltd invoice “plus roof deposit
$2,500” (the Malkhasians say this was to support “this excuse”).
(h)No deposit was required by, or paid to, Roofing Systems Ltd because:
17 The email relied upon has in the attachments section the following narration: Valid Roof Quote.pdf, Extra Roof Quote.pdf.
(i)there was no separate invoice, request, quotation or any other document or communication by Roofing Systems Ltd seeking a deposit; and
(ii)the deposit was not paid by HB BOP in May or at any other time.
(i)Mr Wood knew that the difference between what HB BOP paid to the roofer and what the roofer invoiced was not due to a deposit. He received the same two quotations on the same day and, on the same day, represented that the most expensive one would be charged to the Malkhasians, while only paying the lesser one.
(j)At the time of invoicing, Mr Wood would have seen from the invoices from Roofing Systems Ltd that no deposit was payable and that the total amount to be charged by the roofer was different than what he had represented.
(k)Mr Wood failed to explain the true situation when he had an opportunity.
(l)During cross-examination, Mr Wood provided a new excuse, and stated that he accepted the higher extra quote because the valid quote was for the same product, but it was made in Korea not in New Zealand. This excuse was never raised in his evidence in chief and, after seven years, was raised for the first time in cross-examination.
(m)This answer can be easily dismissed, and Mr Wood proven to be telling mistruths, because the amount of the valid quote was paid and not the amount of the extra quote by HB BOP. Likewise, 100 per cent of the progress payments in the supply invoices equalled the valid quote, not the extra quote.
[32] The Malkhasians say that these facts represent various strands or cords in a rope that, when combined, lead to no other conclusion than that Mr Wood deliberately deceived the Malkhasians as to the correct price for the roof.
[33] The Malkhasians submit that the various strands of evidence considered together do not lead to the conclusion that this was simply an accounting error or that Mr Wood was careless or even reckless. They submit that an accounting error or careless mistake does not explain the following:
(a)The existence of the three quotes for identical works within a period of three weeks.
(b)The title of the quotes being “valid quote” and “extra quote”.
(c)Mr Wood lying and saying that a deposit had been paid when it had not.
(d)Mr Wood changing his story and saying that one of the quotes was for product from Korea.
[34] I accept that, on the face of the documents, there is some force in the submission of the Malkhasians. However, I find that there was no error in the approach or finding of the District Court Judge. His Honour correctly acknowledged that the Malkhasians relied upon inferences to support their claim. The Judge noted that the allegations were serious ones and, in substance, alleged a conspiracy on the part of Mr Wood and the roofing supplier. He correctly acknowledged that the cogency of the evidence required may depend upon the seriousness of the matters to be proved and the consequences of proving them.18 Furthermore, he correctly applied the test of conscious indifference to the truth, as set out by the Court of Appeal in Amaltal Corporation Ltd v Marhua Corporation.19
[35] Mr Wood was extensively cross-examined about this claim at trial. The Judge had, of course, the benefit of seeing and hearing Mr Wood and was best placed to assess his credibility. The Judge noted that Mr Wood’s explanation in relation to the initial invoice was incorrect because it subsequently became clear that there was in fact no deposit paid.
[36] The Judge was careful in the manner in which his conclusions were expressed. He acknowledged that Mr Wood’s invoicing was certainly careless and was
18 Z v Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 at [112].
19 Amaltal Corporation Ltd v Maruha Corporation, above n 2, at [50].
“potentially reckless”. However, that is insufficient and not the same as “conscious indifference to the truth”. In finding that Mr Wood was clearly not on top of the invoicing, his Honour referred to possible inattention, overwork, or “other reasons”.
[37] On the issue of a conspiracy, which the Judge correctly noted arose from the Malkhasians’ allegation, his Honour was “far from persuaded” that a conspiracy allegation had been made out. I note also that, at the beginning of the judgment, his Honour stated that the Court’s role did not include adjudicating on character assassination.
[38] The question of whether the Malkhasians had established the necessary mental element is ultimately a question of fact. In a case such as this, the advantages possessed by the trial Judge in determining questions of fact, based on credibility findings, are manifest. As the Court of Appeal noted in Rae v International Insurance Brokers,20 the trial Judge perceives first-hand the probabilities inherent in the circumstances traversed in the evidence and, as a result, can obtain a superior impression of those probabilities.
[39] In reaching these conclusions, I acknowledge that the judgment of the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar21 marked a shift away from the considerable deference which had, in many instances in the past, been paid to the factual findings of first instance judges.22 However, an appellate court must still recognise and allow for the advantages that a trial Judge has in assessing oral evidence. This is not a case where, after allowing for those advantages, I am of the view that the factual findings were wrong. Furthermore, the objective contemporaneous evidence in this case (i.e. the emails and the like) cannot be understood in isolation from the oral evidence explaining the context.
[40] For all these reasons, I conclude that, on this claim, the decision of the District Court Judge should not be disturbed.
20 Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 199. See also Allison v KPMG Peat Marwick CA146/98, 17 December 1999 at [71].
21 Austin, Nichols & Co Inc v Stichting Lodestar, above n 11.
22 Deng v Zheng [2022] NZSC 76, [2022] 1 NZLR 151 at [71].
Deceit claim 2 – Overcharging of concrete slab work – $13,234.70.
[41] As the Judge noted, the Malkhasians contend that some of the work for which they were charged (i.e. concrete slab work) was undertaken under a different arrangement for which a credit should have been allowed to them. An original quotation was obtained from Oregon ITM for all of the concrete slab work. A separate contractor was engaged to undertake some of the work covered in the contract, but the Malkhasians contend that they were charged for both the original quote and the additional contractor, with the excess being $13,234.70. The invoices sent by Oregon ITM to HB BOP provided credit for the work undertaken by the other contractor, but those credits were not passed on to the Malkhasians.
[42] The Judge found that there had been inaccurate accounting and noted that there had been an acknowledged overcharging of $7,669.89. He also noted that there was no evidence that such amount had ever been refunded.
[43] I find there was no error in the approach or the conclusion of the District Court Judge. This is again a finding where the Judge had the benefit of extensive cross-examination of Mr Wood and also of Mr Read of Proslab Contracting, which was a division of Oregon ITM at the time. This included the acknowledgment from Mr Read that the “false invoice” could not be explained.
[44] Again, the documents, and the timing of them, do, on their face, raise suspicions about the state of mind of Mr Wood. However, the Malkhasians had to meet the burden of proof, namely the civil standard, and, in coming to the conclusion that it had not been met, the Judge correctly took into account all of the evidence.
[45] Ms Whitfield, for the Malkhasians, contended that Mr Wood’s evidence on this issue “bore the hallmarks of a prevaricator by giving vague and conflicting accounts of events”. However, the Judge had the benefit of seeing Mr Wood giving evidence. He noted that the cross-examination was extensive. I do not have that advantage. I note also that the case was heard over seven days. This was not a short trial. It is the very sort of case where, as “the evidence unfolds the trial Judge gains an impression
from the evidence which is not necessarily or usually apparent from the cold type face of the transcript of that evidence on appeal”.23
[46] I accept that the Judge did find that one claim of deceit was made out, namely the overcharging for the Oregon ITM transactions ($4,622.21).24 In respect of that claim, his Honour found that the necessary element of conscious indifference to the truth had been established. In principle, Ms Whitfield is correct in submitting that, if there were other incidents of deliberate overcharging (established here in relation to at least one claim), then that becomes another piece of circumstantial evidence. However, the Judge was careful to consider each claim separately (as he was required to do) and I am satisfied that, in coming to his conclusions, he properly had regard to all of the evidence.
Deceit claim 3 – Overcharging in relation to plumbing
[47] This claim alleges an overpayment of $1,265, made up of $1,000 plus 10 per cent margin plus GST. The Malkhasians claim this amount is the difference between what was charged to them in relation to certain plumbing and the invoice from the contractor, Steve’s Plumbing & Gas Ltd. The account related to under-floor drainage.25
[48] The Malkhasians again challenge the finding of the District Court Judge that this was a simple accounting error. They say that that does not explain the following:
(a)Mr Wood’s failure to include the plumbing invoice, despite providing the Malkhasians with other invoices at the same time.
(b)Mr Wood’s refusal to provide the plumbing invoice to the Malkhasians, despite being repeatedly asked.
(c)Mr Wood’s “obvious mistruths” by claiming that there was a separate hire of a digger, when there was no correlating invoice or payment to support this.
23 Rae v International Insurance Brokers (Nelson Marlborough) Ltd, above n 20, at 199.
24 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [208].
25 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [141].
(d)Mr Wood’s consistent refusal to accept that he had overcharged the Malkhasians by $1,000 plus margin plus GST.
[49] I accept that there is some force in these submissions. The evidence supports a finding of recklessness on behalf of Mr Wood (i.e. in the sense of gross negligence).26 His record-keeping was woefully inadequate. However, again the issue is whether the threshold of lack of honest belief or conscious indifference to the truth has been made out. The Judge, with the benefit of seeing and hearing all of the evidence, was best placed to assess Mr Wood’s credibility and I consider that his assessment was thorough, measured, and reasonable. I therefore find no basis for disturbing his finding.
Deceit claim 4 – Overcharging of subcontracted labour – $23,297.53
[50] HB BOP was limited to a margin of 10 per cent for costs it incurred and then on-charged to the Malkhasians.
[51] There was an exception in relation to rates for carpenters or labourers who regularly worked under contract for HB BOP, with a relationship similar to that of an employer and employee.
[52] The contract listed Mr Wood as the person supervising the contract rate of $55 per hour including GST and Mr Colin Bryan as the person carrying out the work as an employee, or similar to an employee. The Malkhasians never met Mr Bryan and he had no involvement in the build.
[53] Mr Wood was the only employee of HB BOP but he did not personally undertake the carpentry work. Rather, Mr Wood arranged for all of the carpentry works to be subcontracted to another building company, Q1 Builders Ltd. The Malkhasians say that none of the carpenters or labourers undertaking work were under a contract to HB BOP similar to that characteristic of an employer/employee relationship – they could not be, given that HB BOP subcontracted to an independent company.
26 Amaltal Corporation Ltd v Maruha Corporation, above n 2, at [50].
[54] The District Court held that a claim in deceit was not made out as it was a contractual interpretation issue. However, the Malkhasians say that contract is not a shield against an action in deceit. Rather, they say, an action of deceit can be successful when the false representation is about a contractual term.
[55] The contractual interpretation dispute was whether a subcontractor company was in a relationship with HB BOP similar to that of an employer and employee.
[56] The Malkhasians contend that it is not genuinely arguable that the subcontractor company, Q1 Builders Ltd, was in a relationship similar to an employment relationship where the evidence was that:
(a)Q1 Builders Ltd is an independent company;
(b)Q1 Builders Ltd issued invoices for their work;
(c)Q1 Builders Ltd’s log showed the carpentry workers split time between multiple projects not related to HB BOP;
(d)The MYOB report for HB BOP showed HB BOP paying Q1 Builders Ltd’s invoices as a subcontractor rather than paid as PAYE employee;
(e)The MYOB report for HB BOP showed the last entry to Q1 Builders Ltd was on 4 December 2015 and no further payments were made. That is said to support the contention that Q1 Builders Ltd was not engaged similar to an employee on a fulltime basis, but had a one-off contract with HB BOP;
(f)Mr Wood confirmed that, in his 34 years in construction, he only once “had a guy on wages”; and
(g)Mr Wood did not know that the carpenters were going on holiday (which he would have had to approve if they were engaged similar to an employee) and the individual carpenters were working on other non-HB BOP projects at the time.
[57] The Malkhasians say that HB BOP ought to have charged them the invoices from Q1 Builders Ltd (exclusive of GST) plus 10 per cent margin plus GST, rather
than at a rate of $55 per hour. They say that Mr Wood ignored the terms of the contract and charged the Malkhasians a rate of $55 per hour for Q1 Builders Ltd’s labour.
[58] The Malkhasians say that Mr Wood received subcontract invoices from Q1 Builders Ltd but, rather than passing them on with a margin to the Malkhasians, he personally decided to charge a higher hourly rate for Q1 Builders Ltd’s labour time, knowing that it would mean that the Malkhasians would pay more. It is said that he knew that the invoices that charged Q1 Builders Ltd’s labour as akin to the labour of an employee of HB BOP were false – or, at the very least, he was reckless to that fact.
[59] In principle, it may be that a contract is not a shield against an action in deceit. However, the critical issue is the mental element and, again, I find no error in the conclusion of the District Court Judge that the Malkhasians had failed to establish the necessary mental intent. Mr Wood could have been wrong in law, but the critical question here was whether the Malkhasians had discharged the burden of proof that Mr Wood lacked an honest belief in the truth of the statements and/or was reckless in the sense of an unconscious indifference to the truth.
Deceit claim 5 – Overcharging in respect of butyl waterproofing – $1,461.07
[60] The Judge held that he was not required to resolve this claim because the second of two invoices was never paid.
[61] However, I accept the submission of the Malkhasians that the Judge erred in finding that no determination was required. The appellants contend that that was a misunderstanding and counsel for the respondents have not challenged that contention.
[62] I agree with the Malkhasians that, in the circumstances, I must look at this matter afresh.
[63] It is not disputed that the second invoice was never paid. However, that is irrelevant. What is at issue is the invoice for $1,461.07 ($1,150 plus 10 per cent margin plus GST) which was in fact paid by the Malkhasians. They say they were overcharged and that Mr Wood is liable to them in deceit because:
(a)He falsely presented an invoice on behalf of HB BOP as being the amount that HB BOP had incurred in relation to their subcontractor, “Pacific Waterproofing”;
(b)Mr Wood personally prepared the invoice to the Malkhasians and alleged that the subcontractor’s invoice was paid when this was false;
(c)Mr Wood would have known that HB BOP paid the subcontractor’s invoice because he was the person who received such invoice and had to decide whether or not to pay it;
(d)Mr Wood knowingly made the false representation in the invoice to the Malkhasians that HB BOP was owed $1,461.07 more than it was; and
(e)The Malkhasians paid $1,461.07 more than they should have because of Mr Wood’s false representation.
[64] I find the Malkhasians have not established, on the balance of probabilities, that this claim is made out. They have not established the necessary mental element, namely recklessness in circumstances amounting to conscious indifference to the truth. In reaching that conclusion, I accept the findings of the District Court Judge in relation to the other claims, and his conclusion that Mr Wood’s invoices were careless, and Mr Wood was clearly “not on top of the invoicing”. Mr Wood should have known that HB BOP had paid the subcontractor’s invoice but given the circumstances, it is far from clear that he did in fact know that.
Cross-appeal by Mr Wood
[65] The cross-appeal by Mr Wood is extensive. He disputes all liability. His main grounds of the cross-appeal are as follows:
(a)The Judge erred in finding him liable in negligence for the steel lintel because that defect was not in breach of the requirements of the Building Code.
(b)The Judge erred in finding him liable in negligence for the brick defects because that defect was not in breach of the Building Code requirements and was not attributable to Mr Wood.
(c)Mr Wood says that the Judge erred in finding him liable in deceit (the one claim made out) because the onus of proof was reversed, and the Judge’s credibility findings were not sufficient to hold him liable.
(d)Mr Wood says that the Judge erred in finding him liable for breach of the FTA because:
(i)there was no representation made by him;
(ii)the Malkhasians were not misled; and/or
(iii)the Malkhasians did not suffer any loss.
(e)The Judge erred by allowing the Malkhasians to double-recover for the overcharging by Mr Wood.
(f)The Judge erred in awarding general damages (none should have been awarded) and the quantum is disproportionate to the Malkhasians’ proven loss.
[66] I find that, in the main, these cross-appeal contentions are makeweight arguments and a distraction. As the Judge noted, a significant portion of the Malkhasians’ claims alleged overcharging.27 The evidence from the Malkhasians in support of the claim of overcharging was compelling because, as the Judge concluded, Mr Wood was “clearly not on top of the invoicing”. There were many invoices that were inaccurate and misleading. The truly critical issue the Judge had to determine (as analysed above in relation to the main appeal) was whether there was the necessary conscious indifference to truth (i.e. whether the deceit claims were made out).
[67] I will address each of the grounds of the cross-appeal arguments in turn. However, in the circumstances, I do not intend to address the arguments in detail but rather, will focus on the key points.
27 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [132].
Negligence – the lintel
[68] Mr Wood challenged the District Court Judge’s finding that there were compliance issues regarding the steel lintel to be installed above the meter box. He contended that the lintel was secured by building ties, making it Building Code compliant.
[69]There were two issues that the Judge had to determine:
(a)What was installed?
(b)Was it a breach of the Building Code?
[70] The parties accepted that the lintel was not installed. The issue was whether brick ties were used instead. Mr Wood was not present when the work was done and he accepted that he never actually observed the brick ties. One of two experts, Mr Moyle, confirmed that an infrared scanner established that the brick ties had not been installed.
[71] The experts differed on whether the lack of brick ties was non-compliant with the Building Code. Mr Jellyman considered that there was no issue of compliance, and no remedial work was required. Mr Moyle disagreed and recommended remedial work.
[72] The Judge held that there were issues of compliance with the Building Code and that Mr Wood was personally liable for the lack of a lintel to hold up the bricks over the meter box.28 There is clear evidence to support the findings of the District Court Judge and it was open to him to accept and prefer the evidence of Mr Moyle on the issue of whether the requirements of the Building Code were met.
[73]I find that there is no merit to this ground of the cross-appeal.
Negligence – the brick staining defects
[74] The Malkhasians’ pleadings alleged that the “mortar stains were not cleaned off the bricks during construction or afterwards, resulting in the staining to an area of the brick”.
28 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [112]–[113].
[75] The District Court Judge held that the brickwork was not undertaken to the required standard and that remedial work was required. He held that the installation was a contractual matter and not an issue for which Mr Wood personally was liable in negligence.29
[76] However, the Judge held that there was a further issue with delay. He accepted that the mortar staining was harder to remove the longer it was left uncleaned. The Judge held that this was an issue where Mr Wood had a duty of care, that he caused the delay and, in doing so, breached the duty of care. The Judge further held that the Malkhasians were contributorily negligent for half of the loss they suffered.30
[77] There is clear evidence to support the findings of the Judge. As his Honour noted, there was “extensive evidence” as to the interactions between the parties and the brick distributor as to what steps were appropriate and who should be responsible. I find that the Judge did not err in concluding that Mr Wood’s interference and direct instructions to not clean the mortar stains on the bricks caused the stains to be baked on. Mr Wood’s negligence was the materially substantial cause of the need for the remedial works to the bricks.
[78]There is no merit to this ground of the cross-appeal.
Deceit – the Oregon ITM invoices
[79] Mr Wood challenges the one finding of deceit made against him (all other deceit claims were, of course, dismissed).
[80] As the District Court Judge noted, this deceit claim is based upon the Malkhasians’ assertion that a reconciliation of invoices indicates that a number of credits allowed by Oregon ITM were not passed on to them. The Malkhasians also claim that certain products, namely sheets of plywood, were charged to them but were not in fact used on the jobs.31
[81] In concluding that Mr Wood was liable in deceit, the Judge did not reverse the burden of proof and nor did he find that Mr Wood was only liable because of the
29 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [101]–[102].
30 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [103]–[104].
31 Malkhasian v Home Builders BOP Ltd (in liq), above n 1, at [151].
absence of a credible explanation. His Honour had regard to all of the evidence, including the fact that the use of the plywood was not required by the plans, did not comply with common practice (according to the expert’s evidence), and was not evident from any photographs of the dwelling under construction. There is clear evidential support for the finding of a conscious indifference to the truth. On the evidence and having the advantage of seeing and hearing the witnesses, the Judge, in my view, was entitled to make an adverse credibility finding against Mr Wood.
[82] I also find that there is no basis to disturb the Judge’s conclusion (based on Mrs Malkhasians’ detailed reconciliation of invoices) that Oregon ITM credits had not been passed on to the Malkhasians.
The FTA causes of action
[83] The Judge held that Mr Wood was liable under s 9 of the FTA for overcharging on HB BOP’s invoices. He made the following findings:
(a)Mr Wood was acting “in trade”, was liable personally, and was not a mere conduit.
(b)The invoices supplied during the course of the contract were representations (and not mere expressions of opinion) upon which the Malkhasians were entitled to rely.
(c)To the extent any invoices were inaccurate, they were misleading and likely to deceive the Malkhasians.
[84] The scatter-gun approach that Mr Wood takes to challenging these findings is not helpful (i.e. he challenges each and every determination). In the circumstances, I only address the key issues.
[85] The contention that the invoices supplied were not representations is plainly wrong. Previous decisions of this Court have determined that invoice/progress payments in similar circumstances are representations.32
32 Glanz v JL Management Ltd [2020] NZHC 342.
[86] By legislation, taxable supply information (formerly known as a tax invoice) requires a statement of, among other things, a description of the goods delivered and services provided, the amount of tax charged, and the amount due.33 It is relied on by both payer, payee, and the Inland Revenue Department as a representation of the amount of taxable supply of goods and services provided, the tax payable, and the amount due. To suggest that an invoice is a document giving Mr Wood’s opinion rather than representing the facts of the goods and services for which the payer is obliged to pay, is quite wrong. As held by the Court of Appeal in Shell New Zealand Holding Co Ltd v Commissioner of Inland Revenue:34
Invoices are rendered in commercial transactions where goods are supplied or work is done by one party for another. Invoices record what was done and the charge.
[87] In plain speak, an invoice says: “This is a claim for payment because I did this, and you owe me this amount for what I did”. In no way is an invoice an expression of opinion.
[88] I also find that there is clear evidence to support the conclusion that Mr Wood was liable under s 43 of the FTA. He was acting “in trade”, as required by s 9. He was the direct mind of HB BOP and the only employee of HB BOP. He was the only person on behalf of HB BOP with whom the Malkhasians had contact.
[89] As to the issue of overcharging, the Malkhasians, under each heading of defects, provided evidence of the overcharging and that the amounts and the invoices prepared by Mr Wood were false. The Judge, under each heading, reviewed the evidence and was satisfied that there were overcharges in several instances. There was no error in either the approach or the conclusions reached by the Judge on the issue of overcharging.
Double-dipping – Oregon ITM
[90] Mr Wood alleges that part of the $13,324.70 entered as judgment against him included $11,000 paid by Oregon ITM to the Malkhasians in compensation and as part of the settlement.
33 Goods and Services Tax Act 1985, ss 19K and 19E(2).
34 Shell New Zealand Holding Co Ltd v Commissioner of Inland Revenue [1994] 3 NZLR 276 (CA) at 283.
[91] The Malkhasians made claims against Oregon ITM (as fourth defendant) under the FTA for incorrect invoices that Mr Wood used to substantiate wrong charges to the Malkhasians. The Malkhasians also claimed that Mr Wood was jointly and severally liable for the loss suffered due to those invoices being used to substantiate false invoice charges to the Malkhasians.
[92] The claim that Oregon ITM did not deliver the concrete and materials that it charged for was a separate matter and a separate claim.
[93] On 17 June 2021, the Malkhasians agreed to discontinue their claim against Oregon ITM in return for a contribution towards the legal costs incurred. Their claim had been for $11,000 to settle the distinct matter relating to the concrete and material not delivered by Oregon ITM.
[94] The payment of $11,000 removed the claim for the undelivered concrete and materials. The Malkhasians removed this as part of their proceedings. Mrs Malkhasians’ table in her brief of evidence shows that the $11,000 was removed. That was explained and confirmed by Mrs Malkhasian in questioning.
[95] I accept the submission of the Malkhasians as follows. The intention and arrangement of the settlement of Oregon ITM was that the Malkhasians reserved the right to claim the incorrect invoices from Mr Wood without it being double-dipping because Oregon ITM’s payment was not in respect of the same loss.
General damages
[96] Mr Wood alleges that the award of general damages of $7,000 was excessive. It is said that the award was not proportionate to the economic loss awarded.
[97] I find there is no merit to this claim. The amount of $7,000 was a modest award and, generally, awards of general damages which necessarily involve an assessment of witnesses are best left to the Judge at the trial. The discretion of a Judge in such cases is not to be lightly interfered with and it is trite that an appellate court will not be inclined to reverse the finding of a trial Judge as to the amount of damages merely because the appellate court would have given a different sum itself.35
35 Stieller v Porirua City Council [1986] 1 NZLR 84 (CA).
Result
[98]The appeal is dismissed.
[99]The cross-appeal is dismissed.
[100] As to costs, I find that there should be no order for costs in relation to the appeal by the Malkhasians. The better approach, which I adopt, is to order that Mr Wood, the unsuccessful party on the cross-appeal, should pay costs to the Malkhasians (the successful party on the cross-appeal) on a 1A basis plus disbursements.
[101] My reasons for not awarding costs on the appeal and for awarding relatively modest costs to the Malkhasians on the cross-appeal are as follows. Although the Malkhasians were unsuccessful with their appeal and I ultimately concluded that the findings of the Judge at first instance should not be disturbed, their complaints and arguments had real substance. On the other hand, the significant and detailed arguments advanced in support of a cross-appeal, in my view, lacked any real merit. In the circumstances, and as a matter of discretion, that is the fair and just outcome.
Andrew J
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