QBE Insurance (Australia) Limited v Davern
[2025] NZCA 310
•10 July 2025 at 9.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA524/2023 [2024] NZCA 310 |
| BETWEEN | QBE INSURANCE (AUSTRALIA) LIMITED |
| AND | JOHN TIMOTHY DAVERN AND |
| Hearing: | 18 and 19 June 2024 |
Court: | Katz, Brewer and Downs JJ |
Counsel: | D H McLellan KC, A J Peat and S D Galloway for Appellant |
Judgment: | 10 July 2025 at 9.30 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant must pay one set of costs to the first and second respondents for a standard appeal on a band A basis together with usual disbursements. We certify for two counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Katz J)
| Table of Contents | Para No. |
| Introduction | [1] |
| Factual background | [6] |
| The background to the 2012 Agreement | [6] |
| Hawkins’ role under the 2012 Agreement | [11] |
| The damage to the Daverns’ property | [15] |
| Hawkins’ Silos | [19] |
| The Penny Homes Contract | [20] |
| The RJ Civil Contract | [22] |
| The Geoconsult Report | [23] |
| Demolition of the original house | [26] |
| The EDC Report | [29] |
| The Daverns express concern | [32] |
| Construction of the house and retaining walls | [34] |
| The datum issue | [35] |
| Events between November 2015 and June 2016 | [37] |
| Engagement of Cook Costello by IAG | [41] |
| The High Court decision | [44] |
| The purpose of the scoping provisions in the 2012 Agreement | [46] |
| Did the Judge impose a general sequencing obligation on Hawkins? | [52] |
| Did the Judge err in finding that Hawkins had breached its initial scoping obligation? | [57] |
| The High Court decision | [58] |
| QBE’s submissions on appeal | [61] |
| Our view | [62] |
| Did the Judge err in finding that Hawkins had an independent obligation to update the scope? | [67] |
| The High Court decision | [68] |
| QBE’s submissions on appeal | [70] |
| Our view | [74] |
| Did the Judge err in finding that Hawkins breached its obligation to provide an updated scope? | [89] |
| The High Court decision | [90] |
| Our view | [91] |
| Result | [98] |
Introduction
John and Marita Davern’s property in Redcliffs, Christchurch, was severely damaged in the Canterbury earthquake sequence. As a result, it had to be demolished and rebuilt. Unfortunately, the house was rebuilt prior to a retaining wall being constructed on a steep slope behind the house (the Required Retaining Wall). The access issues this sequencing error created significantly increased the costs of constructing the Required Retaining Wall. Issues arose as to who was responsible for meeting those increased costs.
The property was insured with IAG New Zealand Ltd (IAG). IAG contracted Hawkins Management Ltd (Hawkins), under an agreement known as the 2012 Rebuild Solutions Master Agreement (the 2012 Agreement), to administer a large number of repair and rebuild projects arising from the Canterbury earthquakes, including the repair and rebuild of the Daverns’ home. Hawkins is now in liquidation. The Daverns and IAG therefore brought proceedings against Hawkins’ insurer, QBE Insurance (Australia) Ltd (QBE), alleging that Hawkins had breached certain obligations under the 2012 Agreement.
In the High Court, Osborne J found that Hawkins had breached both its initial scoping obligation under the 2012 Agreement and its subsequent obligation to “[u]pdate or procure that the Builder updates each scope of works to account for any variations” (the updated scoping obligation).[1] He found that Hawkins’ scoping failures were the primary cause of the sequencing error and hence the increased costs of constructing the Required Retaining Wall.[2] Judgment was entered for IAG and the Daverns in the sum of $1,593,484.54.[3]
[1]Davern v QBE Insurance (Australia) Ltd [2023] NZHC 2146 [judgment under appeal] at [207] and [231]
[2]At [231].
[3]At [442] and [445].
QBE now appeals. It argues that the Judge misinterpreted Hawkins’ scoping obligations under the 2012 Agreement and, as a result, erred in finding Hawkins liable for the sequencing error. QBE asserts that any failure to address sequencing issues were primarily due to deficiencies in the builder’s actions, for which Hawkins should not be held liable. The respondents (the Daverns and IAG) support the High Court judgment and contend the Judge was correct to find that Hawkins had breached the 2012 Agreement and that this was causative of the losses arising from the sequencing error.
The Daverns and IAG entered into a deed of settlement and assignment in 2018, pursuant to which IAG was subrogated to the Daverns’ rights, interests, claims, and remedies. Hence, the present contest is essentially between IAG (as the Daverns’ insurer) and QBE (as Hawkins’ insurer).
Factual background
The background to the 2012 Agreement
The Supreme Court summarised the correct approach to contractual interpretation in Firm PI 1 Ltd v Zurich Australian Insurance Ltd, as follows:[4]
… the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
[4]Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60] (footnotes omitted). See also Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [43].
The context in which the 2012 Agreement was negotiated is explained in some detail in earlier decisions of this Court and the High Court arising out of the repair of another earthquake damaged home (the Sleight decisions).[5] The principal issue between IAG and Hawkins in those proceedings concerned an allegation that Hawkins had breached its obligation in the 2012 Agreement to “[i]nspect the progress of each Rebuild Solution[6] in order to certify completion of each Solution Milestone[7]” by certifying as “complete” building work that was defective.[8] IAG did not contend (on appeal at least) that Hawkins had also breached its scoping obligations.[9] The Sleight decisions do not therefore provide any direct assistance on the correct interpretation of Hawkins’ scoping obligations under the 2012 Agreement. Nevertheless, the decisions provide helpful background as to the genesis of the 2012 Agreement, which is potentially relevant to the interpretation issues in this appeal.
[5]IAG New Zealand Ltd v QBE Insurance (Australia) Ltd [2022] NZCA 208; and Sleight v Beckia Holdings Ltd [2020] NZHC 2851.
[6]Clause 1.1 of the 2012 Agreement defines “Rebuild Solution” as:
… the works required to make good the damage to the property of a Customer or the demolition work to such property as a result of the Canterbury Earthquakes that falls within the scope of cover provided under the Customer’s insurance policy with IAG NZ (as may be varied in accordance with clauses 4.5 and 4.6).
[7]Clause 1.1 of the 2012 Agreement defines “Solutions Milestones” as “the milestones in respect of the relevant Rebuild Solution triggering payment of Rebuild Solution Payment Claims”.
[8]IAG New Zealand Ltd v QBE Insurance (Australia) Ltd, above n 5, at [53].
[9]At [29].
The original agreement between IAG and Hawkins was negotiated and entered into following the September 2010 Christchurch earthquake (the 2010 Agreement). Under the 2010 Agreement, Hawkins was the project manager for building contracts entered into by IAG customers. Its project management responsibilities included “monitoring the delivery of each Rebuild Solution[10] to ensure the quality, timeliness and cost efficiency of the work undertaken by the relevant Builder”.
[10]Clause 1.1 of the 2010 Agreement defines “Rebuild Solution” as “the works required to be undertaken to the property of a Customer as a result of the [4 September 2010] Canterbury Earthquake”.
Following the 2011 Canterbury earthquake, which caused far greater and more widespread damage than the 2010 earthquake, IAG faced a massive increase in claims. Hawkins did not wish to continue to provide project management services, given the scale of the required repair program relative to Hawkins’ resources. IAG and Hawkins therefore renegotiated the 2010 Agreement to provide for Hawkins to have a more limited role going forwards. Amongst other things, responsibility for the quality of the building work was shifted to the builders who were contracted to undertake such work. The 2012 Agreement introduced a system of builder pre‑qualification as a means to ensure the quality of building work, rather than relying on Hawkins’ project management and supervision of each rebuild project.[11] Hawkins was no longer described as the “Project Manager” but had a more limited role.
[11]The contract in force for most of the relevant period was an “amended and restated” version of the 2012 Agreement, entered into on 17 November 2014. That is the document referred to in the judgment under appeal (and in this judgment) as the 2012 Agreement.
This Court found in Sleight that Hawkins’ primary role under the 2012 Agreement was “one of administration and co-ordination” with only a “very limited quality assessment function”.[12] This limited quality assessment function did not equate, however, to no quality assessment function. Rather, this Court held (in the context of Hawkins’ obligation to certify work as complete) that “the concept of completion carries with it an element of qualitative assessment”,[13] which required Hawkins not to certify work as complete “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”.[14] Applying that test to the facts, the Court found Hawkins had breached its quality assessment duty in respect of some, but not all, of the defective work at issue in Sleight.[15]
Hawkins’ role under the 2012 Agreement
[12]IAG New Zealand Ltd v QBE Insurance (Australia) Ltd, above n 5, at [61].
[13]At [79].
[14]At [98(a)]. See also at [85].
[15]At [98(b)].
Under the 2012 Agreement, Hawkins was required to provide five main categories of services to IAG in relation to Rebuild Solutions. In providing those services, Hawkins was required, under cl 3.2(b), to “act diligently, efficiently, and in accordance with industry best practices”. Hawkins was also required, under cl 12.1, to ensure that its personnel assigned to provide services under the 2012 Agreement were “of a high calibre, are suitably qualified to undertake the roles assigned to them and act at all times in accordance with industry best practices”.
Hawkins’ responsibilities spanned the full lifecycle of each project, starting with the pre-qualification of builders to ensure they met agreed minimum standards in terms of licensing, experience, and insurance. One of Hawkins’ key responsibilities was the preparation of scopes of work for each Rebuild Solution. The relevant scoping provisions are set out at [47] below.
For each rebuild project Hawkins was also responsible for “Customer / Builder Alignment”, under sch 2, cl 4, which included arranging for one (or more) of the pre‑qualified builders to enter into a building contract with the customer and ensuring all necessary insurances and consents were in place before work commenced. Hawkins was also required to provide IAG with costings for each rebuild and to provide a Solution Budget[16] to IAG for approval. Hawkins was required to update the Solution Budget as necessary.
[16]Clause 1.1 of the 2012 Agreement defines “Solution Budget” as “the total amount that IAG NZ will pay for the completion of the relevant Rebuild Solution” (excluding certain fees), as amended to reflect any customer changes or variations.
The final category of services Hawkins was required to provide is described in sch 2, cl 5 as “Construction Coordination”. Specifically, Hawkins was required to “monitor the delivery of each Rebuild Solution” including:
(a)Monitoring builders “in accordance with the processes and procedures” agreed between the parties” including ensuring that builder reports are updated on a regular basis and notifying IAG if it believed that any builder no longer met the pre-qualification standard.
(b)Assisting IAG’s loss adjusters to ensure that the Rebuild Solution, when completed, complied with the relevant scope of works (updated for any variations).
(c)Ensuring the implementation and completion of, and monitoring the delivery of, each Rebuild Solution within its Solution Budget.
(d)Compliance oversight — confirming that builders obtained all necessary permits and consents, including Code Compliance Certificates, and promptly notifying IAG if a certificate could not be secured.
(e)Milestone certification — conducting inspections to certify the completion of various construction milestones.
(f)Customer engagement — maintaining regular contact with customers, including site visits, and carrying out a final inspection and sign-off of the Rebuild Solution with the customer.
The damage to the Daverns’ property
The Daverns’ house suffered severe earthquake damage and was rendered uninhabitable by the earthquakes. A post-earthquake assessment report from the engineering firm Aurecon New Zealand Ltd (the initial Aurecon Report), dated 20 June 2011, recommended that the house be demolished due to the nature and extent of ground movement and structural damage.
There were also a number of retaining walls on the Daverns’ property at the time of the earthquakes. The neighbouring property to the southwest of the Daverns’ property was owned by Mrs Fass. A steep slope separated the two properties, with Mrs Fass’ home positioned above and the Daverns residence below. The Daverns’ original dwelling was built directly next to the southwestern slope and the rear wall of the garage therefore operated as a retaining wall for the lower part of the slope. A retaining wall known as “Wall 7” retained the slope above that. Wall 7 is the key pre‑existing retaining wall for the purposes of this appeal.
A second Aurecon report dated 10 June 2013 (the Aurecon Report) undertook a preliminary assessment of the retaining walls on the property. That report identified damage to some of the 14 retaining walls on the property and recommended that these be replaced or repaired. The Aurecon Report did not, however, recommend the replacement of Wall 7.
The photo below, which was taken in October 2015 (after the demolition of the original dwelling in September 2014) shows the location of Wall 7, which was subsequently removed by Penny Homes (Christchurch) Ltd (Penny Homes) in late October 2015. Beneath part of Wall 7 (to the right of Wall 5) is the area of slope that was previously retained by the garage of the original dwelling. Following the removal of Wall 7 the unretained earth slope was treated as two different sections:
(a)the lower area (including the area previously retained by the garage wall), where the HFC Wall (refer [34], [37] and [38] below) was constructed; and
(b)and middle and upper area of the slope — where the Required Retaining Wall needed to be built.
Hawkins’ Silos
Although the damage to the Daverns’ house was covered by the Earthquake Commission (EQC), the damage to the retaining walls on the property was not. The Daverns’ Rebuild Solution was therefore administered through two different “silos” within Hawkins. One silo (the New Homes Silo) was responsible for the house rebuild. The other silo (the Non-EQC Silo) was responsible for the retaining walls. These silos comprised separate teams within Hawkins, each with its own leadership, Rebuild Solution Managers (RSMs), and quantity surveyors. Each silo had its own contracts, scope of works and budget, reflecting the different types of work being managed. The obligations for scoping under sch 2, cl 2 of the 2012 Agreement (see below at [47]) applied equally, however, to the services provided by both silos.
The Penny Homes Contract
Of the two pre-qualified building contractors recommended to the Daverns by the New Homes Silo, they chose Penny Homes. A building contract for the house rebuild, prepared by Hawkins and approved by IAG, was entered into on 27 June 2014 (the Penny Homes Contract). Hawkins is not a party to that contract. Indeed, cl 70 expressly refers to Hawkins’ role as being “limited to the assessment of the scope of works required … and the processing of payment claims in relation to the Rebuild Solution on behalf of IAG”. Despite this statement, however, the Penny Homes Contract makes a number of references to Hawkins’ role and confers significant powers on Hawkins, including an obligation on the contractor in cl 4.1 to “comply with all reasonable instructions issued by Hawkins in writing”.
Of particular significance to this appeal, the Penny Homes Contract did not include any retaining wall work. On the contrary, “retaining” was expressly recorded as being work that was excluded from Penny Homes’ scope of work.
The RJ Civil Contract
On 16 September 2014, the Non-EQC Silo facilitated a contract being entered into between the Daverns and RJ Civil Construction Ltd (RJ Civil) for repair or replacement of various retaining walls on the property (the RJ Civil Contract). The contract described the relevant “Project” as “Retaining Wall Works” and identified Hawkins as the designated “Project Manager” for the work. The R J Civil Contract required RJ Civil to comply with all “directions, instructions, waivers and actions” of Hawkins as if they were the “directions, instructions, waivers and actions” of the property owner. The relevant scope of works was specified “as per engineers report and scope”. It was common ground that this is a reference to the Aurecon Report.[17]
The Geoconsult Report
[17]Judgment under appeal, above n 1, at [91(a)].
In or about August 2014, the New Homes Silo commissioned Geoconsult — Geotechnical Engineers (Geoconsult) to undertake a geotechnical assessment of the property to determine site stability and provide remedial work recommendations.
The Geoconsult Report found the site to be generally stable under static conditions but prone to failure under seismic conditions. It recommended that all of the existing separate retaining walls be replaced with new retaining walls, designed to meet specific parameters for both static and seismic conditions. The report further recommended that all retaining walls be structurally isolated from the dwelling. Accordingly, if these recommendations were accepted:
(a)The lower part of the southwestern slope, which had been retained by the garage wall of the original house, would not be retained by the rear wall of the new house. Instead, a new standalone retaining wall (or walls) would be necessary in that location.
(b)Wall 7 (along with all other retaining walls on the property) would have to be demolished and rebuilt.
The Geoconsult Report was emailed to Jonathan Peet, an RSM in the New Homes Silo, on 17 September 2014. This was only one day after the RJ Civil Contract for the retaining walls, based on the Aurecon Report (which did not recommend the replacement of Wall 7) had been signed. There is no evidence, however, that anyone in the New Homes Silo forwarded a copy of the Geoconsult Report to the Non-EQC Silo. The evidence of Sam Deery, an RSM in the Non‑EQC Silo, was that he had no recollection of ever seeing the Geoconsult Report.
Demolition of the original house
At about this time (September 2014) Penny Homes demolished the existing house. The removal of the original house eliminated the support it had provided to the lower part of the southwestern slope.
Subsequently, on 2 November 2014, Ross Weymouth, a Hawkins’ Quantity Surveyor, emailed Jason Lemmon, the Senior RSM and Team Manager for the Non‑EQC Silo, expressing concern that:
One wall never scoped for replacement [Wall 7] has now been undermined and looks unsafe following the demolition. The wall is very close to the house which could have been classed as a consequential loss due to the nature of the demolition, but it should not have been left in its current state.
One day later, on 27 November 2014, Hawkins sent an email to Penny Homes noting that Wall 7 had been undermined and that the Hawkins retaining wall team was contemplating replacement, but that decision depended on the location of the new house.[18] The Non-EQC Silo RSM forwarded photographs showing the compromised state of Wall 7 to Hawkins’ Quantity Surveyor, to enable him to understand what was involved in pricing a replacement wall.
The EDC Report
[18]The email refers to Wall 6, but this appears to be a typographical error. Mr Smith’s expert evidence was that the email was likely referring to Wall 7, which is the wall that had been undermined.
On December 9, 2014, IAG’s loss adjuster made an electronic note about the compromising of Wall 7 by demolition of the house, recording that the Non-EQC Silo RSM was “having this wall and others on site priced so that work can go ahead. Engineer working on damage/[d]esigns”. This was a reference to the Non-EQC Silo engaging Engineering Design Consultants Ltd (EDC) to undertake a rescoping of all of the retaining walls on the site in December 2014.
The EDC Report, titled “Retaining Wall Scoping Report”, was provided to Hawkins on 7 January 2015. It identified that part of Wall 7 had been undermined due to the removal of the original dwelling and recommended that:
… this wall should be replaced. The new wall should be built after the new site layout and levels have been determined and support has been added to provide passive resistance at the front of the wall. Alternatively the wall can be designed for both its retained height and the 2.3m height of the cut face.
Hawkins sent a copy of the EDC Report to IAG but did not make any recommendation as to an updated scope to address EDC’s recommendation regarding Wall 7 (as Mr Deery confirmed in his evidence). Rather, the focus of dialogue between Hawkins and IAG at the time appears to have been on EDC’s recommendations in relation to another retaining wall, Wall 2, which were seen as being of greater urgency.
The Daverns express concern
By this time the Daverns were becoming increasingly concerned about issues with the retaining walls on site. On January 14, 2015, Mr Davern emailed Bob Smith (an RSM in the New Homes Silo), expressing concern about the retaining walls and stating that Penny Homes was waiting to start the rebuild, so “these retaining walls need to be sorted as soon as possible”.
Subsequently, on 23 January 2015, Mr Deery met on site with the Daverns and an IAG representative to review the boundary and placement of retaining walls, with Mr Deery to arrange a site survey and further meeting with the retaining walls contractor (RJ Civil).
Construction of the house and retaining walls
Following receipt of the Geoconsult Report, the New Homes Silo requested HFC Civil & Structural (South) Ltd (HFC), the structural engineers engaged for the house rebuild, to redesign the foundation layout to isolate the rear retaining wall from the house structure. HFC provided a new foundation layout in February 2015. As recommended by Geconsult, the new design did not rely on the basement wall for retaining the lower part of the southwestern slope. Rather, HFC designed a standalone 2.2 m retaining wall to support that area (the HFC Wall).
The datum issue
A datum issue (a discrepancy between the surveyed or planned ground levels and the actual physical measurements on site) was identified in August 2015. Specifically, the site was found to be approximately 680 mm lower than it should have been, based on the topography plans supplied by Aurecon for the design. James West, an RSM in the New Homes Silo who was involved in the relevant decision‑making, noted in a contemporaneous email that this was “quite a big difference”.
The datum issue resulted in Penny Homes having to excavate further material, lowering the foundation slab for the house by 700 mm. This resulted in a consequential increase in the height of the unretained bank along the southwestern boundary. This exacerbated the existing retaining wall issues on that slope. To further complicate matters, during the excavations Penny Homes removed Wall 7, sometime between 15 and 30 October 2015.
Events between November 2015 and June 2016
Construction of the new house commenced in November 2015. In December 2015, however, the now unretained southwestern slope started to move. On 3 December 2015, Penny Homes advised Hawkins that concerns had been raised about the southwestern hillside starting to collapse. Hawkins then reported this to IAG, noting that the house above was in “potential danger of suffering damage”. Hawkins advised, however, that steps had been taken to stabilise things, and Geoconsult and engineers had been contacted for a solution. It noted that a retaining wall in this area was “yet to be replaced”.
The HFC Wall was later redesigned to a height of 3.3 m. This was addressed through a variation to the Penny Homes Contract. However, the comprehensive need for retaining the entire southwestern bank (including where Wall 7 had previously been located) was not scoped or actioned, for reasons that are not entirely clear on the evidence. Specifically, between December 2015 and June 2016, no expert engineering advice appears to have been sought or obtained in respect of how to most appropriately retain the balance of the southwestern slope that was not being retained by the HFC wall. This is despite it being apparent (and well known) from at least October 2015 onwards that a retaining wall was required on that slope. It was not until 29 June 2016 that Liam Dillane (an RSM in the New Homes Silo) emailed the Daverns to advise them that Hawkins were planning to have a meeting with an engineer to discuss the additional retaining walls required to retain the bank/soil above their home.
The delays in addressing the issue appear to reflect, at least in part, uncertainty and confusion within Hawkins about which Silo was responsible for arranging and overseeing the design and construction of the Required Retaining Wall. Internal Hawkins’ emails in May and June 2016 indicate indecision on the part of Penny Homes as to whether it was willing to undertake the work, before Mr Dillane confirmed his understanding (based on a discussion he said in his email had taken place with IAG’s loss adjuster) that Penny Homes would undertake the work. Ultimately, however, no agreement was reached for Penny Homes to build the Required Retaining Wall. It is not clear whether this was because Penny Homes changed its mind about its willingness to undertake this work, or whether the decision not to use Penny Homes was driven by Hawkins (or possibly IAG). In any event, as noted above, during this period of indecision no steps were taken to commission the expert advice that was needed to prepare a detailed scope of works for the Required Retaining Wall (regardless of which contractor ultimately agreed to undertake the work).
By May 2016, the Daverns were becoming increasingly frustrated with the ongoing uncertainty and apparent lack of action in scoping the Required Retaining Wall. On 26 May 2016, they emailed IAG directly expressing their concerns. Mr Davern questioned Hawkins’ involvement, and asked if Hawkins could be removed, as (in his view) it appeared Hawkins was delaying progress on the retaining walls. Mr Davern explained that the couple had become frustrated and suggested the need for a landscape designer or engineer to design all the retaining walls behind the house so that the process could move forward.
Engagement of Cook Costello by IAG
Following receipt of Mr Davern’s 26 May 2016 email, IAG appears to have become directly involved in trying to progress resolution of the retaining walls issue. This occurred against the backdrop that Hawkins’ involvement in overseeing claims under the 2012 Agreement was scheduled to come to an end on 23 November 2016. On that date CNZ Group Ltd (Crawford) took over managing IAG’s earthquake-related claims. The 2012 Agreement formally terminated on 31 December 2016.
In July 2016, IAG instructed Cook Costello, an engineering and surveying firm, to design retaining walls for the southwestern slope. On 27 July 2016, Cook Costello reported that a full retaining wall on the southwestern boundary (effectively replacing both Wall 6 and Wall 7) should have been built before the house, thus formally identifying the sequencing issue.
Cook Costello spent considerable time exploring various options for a retaining wall design that could be constructed with the house in place, taking into account various site constraints. It was not until 2020 that a final design was settled upon. The final contract for the Required Retaining Wall, based on the Cook Costello scope, was entered into with Morel Construction Ltd in December 2021. The Required Retaining Wall was largely completed in late-August 2022.
The High Court decision
We address the Judge’s reasoning in respect of the key issues arising on appeal in further detail below. In summary, however, the Judge found that:
(a)Hawkins had breached its initial scoping obligations under the 2012 Agreement in relation to retaining walls by relying on the preliminary and qualified Aurecon Report, which was not suitable for purpose.[19] This initial breach was overtaken by subsequent events, however.[20]
(b)Hawkins also breached its updated scoping obligation under the 2012 Agreement. Specifically, the Judge found that it was evident by mid‑2016 at the latest that a full retaining wall was required to stabilise the southwestern slope.[21] However, that work was not included within an updated scope of works for either Penny Homes or RJ Civil when it became apparent that an updated scope was required.[22] This was in part due to confusion as to which Silo (and associated contractor) should or would undertake the required work.[23]
[19]Judgment under appeal, above n 1, at [199]–[207].
[20]At [208].
[21]At [209]–[226].
[22]At [227]–[232].
[23]At [222].
This breach resulted in the sequencing error and hence caused loss to the Daverns/IAG, being the extra costs incurred in constructing the Required Retaining Wall as a result of access issues created by the fact that the new house had been built prior to the scope of works being updated to include the Required Retaining Wall.[24]
The purpose of the scoping provisions in the 2012 Agreement
[24]At [233]–[253].
We commence our analysis of the correct interpretation of sch 2, cl 2 of the 2012 Agreement (the scoping provision) by considering the objective purpose of the scoping exercise, with reference to the relevant provisions of the 2012 Agreement and the broader contractual context.
We have provided a broad overview of the services Hawkins was required to provide under the 2012 Agreement at [11] to [14] above. Scoping is explicitly listed as one of the five main groups of services Hawkins was required to provide. Hawkins’ scoping obligations are set out in cl 2 of sch 2 as follows:
2. SCOPING: Hawkins will provide to IAG NZ a scope of works for each Rebuild Solution which shall include the following:
2.1 Scope or procure that the Builder scopes in detail the works to be undertaken for each Rebuild Solution.
2.2Provide to IAG NZ and its Loss Adjusters the detailed scope of works for each Rebuild Solution.
2.3Where applicable, procure that the appropriate industry specialists are engaged to provide appropriate input into each scope of works.
2.4As appropriate to the particular Silo, use reasonable endeavours to ensure that each scope of works requires the Rebuild Solution to be completed using equivalent building materials and techniques that are currently approved and available in the market in order for the Customer’s property to be returned to the position it was in when it was new (or as close as possible to such position taking into account any Customer changes under clause 4.5 of the Agreement).
2.5 Update or procure that the Builder updates each scope of works to account for any variations to the initial scope of works.
2.6 Provide IAG NZ and its Loss Adjusters with an updated scope of works that accounts for each and every variation to the initial scope of works.
Mr McLellan KC (counsel for QBE) submitted that the primary purpose of the scoping exercise was to facilitate IAG’s financial management of each rebuild project. While we accept that this was an important secondary purpose, we accept Mr Cooper KC’s (counsel for IAG) submission that it was not the sole purpose, or even the primary purpose. Rather, the primary purpose of the scoping exercise was to ensure that IAG met its obligations to its customers under their insurance policies.
The Daverns’ insurance policy provided for reinstatement. IAG was contractually obliged to pay the costs of reinstating the Daverns’ property “to a condition as nearly as possible equal to its condition when new”. Under the 2012 Agreement Hawkins was required to prepare a scope of works for an appropriate Rebuild Solution for the Daverns’ property. “Rebuild Solution” is defined as follows:
“Rebuild Solution” means the works required to make good the damage to the property of a Customer or the demolition work to such property as a result of the Canterbury Earthquakes that falls within the scope of cover provided under the Customer’s insurance policy with IAG NZ (as may be varied in accordance with clauses 4.5 and 4.6).
Hence, the Rebuild Solution that Hawkins was required to scope for the Daverns’ property had to include all the works required to make good the damage to the Daverns’ property, to a condition as nearly as possible equal to its condition when new. If the relevant scopes of work (namely the Penny Homes and RJ Civil scopes) did not, in totality, include all the necessary works then IAG would fail to meet its obligations to its customer. Hence the scoping exercise played a critical role in ensuring that IAG met its contractual obligations as insurer.
Facilitating sound financial management of rebuild projects was an important, but secondary, purpose of the scoping exercise. A complete and comprehensive scope of works (updated as required) was essential to ensure that the “works required to make good the damage to the property” could be accurately costed and an appropriate Solutions Budget provided to IAG and updated as necessary.
Did the Judge impose a general sequencing obligation on Hawkins?
Underpinning many of QBE’s submissions on appeal was the proposition that the Judge had wrongly interpreted the 2012 Agreement as imposing a general obligation on Hawkins to manage the sequencing of a builder’s work. Specifically, Mr McLellan submitted that:
(a)The removal of Hawkins’ general project management function from the 2012 Agreement required that Hawkins’ express scoping obligations be read down or interpreted very narrowly.
(b)The Judge erroneously interpreted cl 2 as imposing a contractual obligation on Hawkins to prepare, supervise, and police a timeline for the sequencing of individual construction works, which is the responsibility of the builder not Hawkins. This is fundamentally inconsistent with the change in Hawkins’ role from a general project management role under the 2010 Agreement to a more narrowly defined administration and supervisory role under the 2012 Agreement.
We are not persuaded by these submissions. The Judge expressly acknowledged that Hawkins’ role under the 2012 Agreement was narrower than under the 2010 Agreement and that Hawkins did not have a general project management function under the 2012 Agreement.[25] He determined, however, that the removal of general project management responsibilities did not negate the specific, express obligations retained or introduced in sch 2 regarding scoping.[26] QBE’s submission misunderstands and/or mischaracterises the Judge’s reasoning. As Mr Cooper noted, the Judge did not find that Hawkins was generally responsible under the 2012 Agreement for the sequence in which a builder undertakes works. On the contrary, the sequencing of any works that have been included within a builder’s scope of works is the responsibility of the builder. The Judge did not find otherwise. Indeed, he expressly recorded that:[27]
[234] … Mr Cooper disavowed any reliance on a proposition that Hawkins (rather than the builder) was responsible for the sequencing of works. The essence of the plaintiffs’ reliance on a sequencing error lies in the proposition that Hawkins, by not providing IAG with a scope of works for the Required Retaining Wall before June 2016, brought about the circumstances in which the Required Retaining Wall was not constructed before the dwelling was rebuilt …
[25]At [4], [43] and [55].
[26]At [246].
[27]See also similar comments at [12], [224] and [242].
The Judge’s analysis simply reflects that a builder is only required to build that which is included in their scope. The Judge did not find that Hawkins had a general sequencing obligation. Rather, he found that the sequencing error that arose in this case resulted from Hawkins’ failure to ensure the Required Retaining Wall was included in any scope of works, thereby resulting in the sequencing issue once the omission was identified. As the Required Retaining Wall was not included in the scope of works for either Penny Homes or RJ Civil, neither of them was responsible for undertaking this work at all, let alone determining how it should be sequenced relative to other work that was within their respective scopes.
Although the parties agreed that Hawkins would no longer undertake a project management role under the 2012 Agreement, they also expressly agreed that Hawkins would provide the more limited services set out in cl 2 of sch 2. These included scoping services. Scoping and project management may at times be inter-related responsibilities, but they are discrete. The entity or person that scopes a project will not necessarily also be responsible for project management of the scoped works, and vice versa.
For the reasons we have outlined at [50] above, scoping was a critical aspect of the services that Hawkins agreed to provide to IAG. Providing a detailed and accurate scope of works was critical to ensuring that IAG met its reinstatement obligations to its customers under their insurance policies. The fact that Hawkins no longer had an overall project management role under the 2012 Agreement did not reduce the ambit of its initial scoping obligation. If anything, the builder’s increased project management responsibilities, and the reduced oversight and management role of Hawkins under the 2012 Agreement, made it imperative that the builder was provided with a complete, accurate and comprehensive scope of works at the outset. Once the initial scope of works was provided, the builder had overall project management responsibility for the rebuild, but this was limited to works that were included within the builder’s scope.
Did the Judge err in finding that Hawkins had breached its initial scoping obligation?
We now turn to consider whether the Judge erred in finding that Hawkins breached its initial scoping obligation.
The High Court decision
As noted previously, RJ Civil was engaged to undertake the retaining walls work. The Aurecon Report was relied on as providing the initial scope of works. The Judge found that Hawkins had breached its initial scoping obligation, due to the express limitations of the Aurecon Report, including its strong recommendation for a detailed structural capacity assessment:
[206] … the failure of Hawkins to provide or procure a scope of works based on a subsequent, detailed evaluation as Aurecon had suggested, QBE cannot claim Hawkins had acted diligently and efficiently when procuring the initial scope of works. When the Geoconsult report was obtained — precisely the type of report called for by Aurecon — it indicated the tentative proposals in the Aurecon [R]eport were not suitable when the structural capacity of the walls was properly considered.
In a similar vein, the Judge further found that:
[223] The responsibility for scoping work under the [2012 Agreement] lay with Hawkins — to either scope or procure in detail the scope of works to be undertaken to make good the insured damage to the property. While there was an initial scope of works for the retaining walls (as adopted in the [RJ Civil Contract], the express limitations of the Aurecon [R]eport meant it was not a scope of works that would meet the requirements of the Rebuild Solution. The subsequent Geoconsult [R]eport (August 2014) and EDC [R]eport (December 2014) confirmed the need for an updated scope of works to address wall replacement issues.
In the Judge’s view, however, this initial scoping breach by Hawkins was overtaken by subsequent events.[28] Due to those subsequent events (including the demolition of Wall 7, the alteration of the foundation level due to the datum issue, and the redesign/construction of the HFC Wall) any initial scope of works, whether adequate or inadequate, would have had to be replaced by a fresh, comprehensive scope. Accordingly, the inadequacy of the initial scope of works became irrelevant in light of subsequent events.
QBE’s submissions on appeal
[28]At [208].
Mr McLellan submitted that the Judge erred in finding that Hawkins had breached its initial scoping obligation. He argued that Hawkins fulfilled its initial scoping obligation in relation to retaining walls by engaging and relying on professional advice from Aurecon. The subsequent issues, he submitted, arose from the builder’s actions, not because the initial scope was inadequate at the time it was prepared and the Solution Budget approved.
Our view
The relevant provisions are set out at [47] above. The initial scoping requirement required Hawkins to “provide to IAG NZ a scope of works for each Rebuild Solution”. Hawkins was required to either itself provide a scope of works or, alternatively, ensure the builder provided a scope. A requirement that the scope be “detailed” is expressly specified in both cls 2.1 and 2.2 of sch 2. In addition, Hawkins was required, where applicable, to “procure that the appropriate industry specialists [were] engaged to provide appropriate input into each scope of works”. These requirements are consistent with, and reflect, the critical importance of accurate and detailed scoping in ensuring that the proposed Rebuild Solution would ensure that IAG met its contractual obligations to its customers under their insurance policies.
The Aurecon Report was described on its face as “preliminary” and included a number of important qualifications and limitations. This reflected that Aurecon had not undertaken any assessment of the structural stability of the retaining walls at the time of its report. The report expressly noted that no analysis had been done “to determine the residual retaining wall capacity to resist further aftershocks” and “strongly recommended that the client obtain a detailed assessment evaluating the structural capacity of the walls”. Aurecon recommended that this detailed assessment involve consideration of engineering calculations, structural analysis, and reviewing of drawings and design documentation as appropriate.
Given this context, the Judge was correct to find that the Aurecon Report was insufficient to comply with Hawkins’ initial scoping obligation to prepare a detailed scope of works for the retaining walls. Merely engaging a professional is not enough. Given the limitations and qualifications apparent on the face of the Aurecon Report, it was not a suitable document for Hawkins to rely on for scoping purposes. Rather, Hawkins should have waited until the more detailed engineering report recommended by Aurecon had been completed. Indeed, as we have noted previously, the Geoconsult Report was received by Hawkins only a day after the RJ Civil Contract was signed. It recommended the replacement of all existing retaining walls on site, and further recommended that all retaining walls be structurally isolated from the dwelling. If these recommendations had informed the initial scoping exercise for the retaining walls, the replacement of Wall 7 would have been scoped from the outset.
In our view, therefore, there is considerable force in Mr Cooper’s submission that Hawkins’ initial scoping failure did contribute causatively to the sequencing issue. Ultimately, however, nothing turns on this, given our conclusion that the Judge was correct to find that Hawkins also breached its updated scoping obligation (addressed at [74] to [88] below).
In conclusion, for the reasons outlined, the Judge did not err in finding that Hawkins had breached its initial scoping obligation under the 2012 Agreement.
Did the Judge err in finding that Hawkins had an independent obligation to update the scope?
We now turn to consider Hawkins’ updated scoping obligation. We first address QBE’s submission that the Judge erred in his interpretation of that obligation, before turning to consider whether Hawkins breached it.
The High Court decision
We repeat the relevant provisions, for ease of reference. Once an initial scope had been prepared and approved, Hawkins was required to:
2.5 Update or procure that the Builder updates each scope of works to account for any variations to the initial scope of works.
2.6 Provide IAG NZ and its Loss Adjusters with an updated scope of works that accounts for each and every variation to the initial scope of works.
The Judge interpreted these provisions as imposing a positive obligation on Hawkins to update the scope(s) of works, as necessary. Hawkins was required to ensure the scope(s) of works accurately reflected the necessary works for the rebuild, including updating them when required due to changing circumstances or obvious needs on site. This required Hawkins to take active steps to arrange an updated scope if required, rather than simply being reactive, by responding to any variations initiated by the builder or home owner and approved by IAG under cl 4.6 of the 2012 Agreement.[29] While the scope updates were to “account for any variations”, the duty to ensure the scope was updated was an independent obligation on Hawkins, rather than merely an administrative task triggered only after a variation had been initiated by others (either the builder or home owner) and approved.
QBE’s submissions on appeal
[29]At [213], [221], [223], [228], [232], [247] and [248].
Mr McLellan submitted that the Judge erred in finding that Hawkins had an independent obligation to update the scope if it was obvious that an updated scope was needed. Rather, he argued, the mechanism for updating the scope (sch 2, cl 2.5) was intrinsically linked to approved contractual variations. Hawkins’ obligation, he submitted, was simply to update the scope or procure that the builder update it after a variation initiated by the builder or customer had been approved by IAG (on Hawkins’ recommendation). In practical terms, however, the approval of a builder or customer‑initiated variation had the effect of automatically updating the relevant scope of works. Hawkins therefore had no real updated scoping obligation. Updates to scope were self-executing and flowed directly from the approval of a variation. Hawkins’ role was simply to competently administer builder-driven variation requests, including reviewing any consequential changes to the Solutions Budget that might be necessary and seeking IAG’s approval of these.
Mr McLellan submitted that this interpretation of Hawkins’ updated scoping obligation is consistent with, and reflected in, the overall structure of the 2012 Agreement and the associated building contracts. He submitted that Hawkins had no obligation, and indeed no ability, to update the scope of its own initiative once the initial scope had been prepared and approved by IAG. Mr McLellan relied on cl 4.6 of the 2012 Agreement (headed “Solution Budget and the Customer Building Contract”) in support of this submission (discussed in further detail at [75] to [78] below).
This narrow interpretation of Hawkins’ updated scoping obligation, Mr McLellan submitted, is consistent with, and reflects, Hawkins more limited role under the 2012 Agreement. Given that Hawkins no longer had an active project management role, he argued, it cannot have been envisaged that it would have an ongoing obligation to monitor the works and recommend variations to scope if these appeared necessary. That was solely a builder responsibility. Hawkins’ personnel were neither qualified nor expected to identify omissions in the initial scope or initiate changes.
On QBE’s argument, the onus was on Penny Homes, as the lead contractor on the site, to seek a variation to its scope to include the Required Retaining Wall. Mr McLellan acknowledged that retaining walls work was not included in Penny Homes’ initial scope but was instead included within RJ Civil’s scope. He submitted, however, that it was nevertheless incumbent on Penny Homes to initiate a variation to include Wall 7 within its scope, because Penny Homes would not be able to obtain a code compliance certificate for the house rebuild unless and until the southwestern slope was retained.
Our view
We are not persuaded by QBE’s arguments. Rather, in our view the Judge was correct to find that cls 2.5 and 2.6 of sch 2 imposed an independent and ongoing obligation on Hawkins to maintain an accurate scope and to update that scope when required, for example if it became apparent that required reinstatement work had been omitted from the initial scope. Hawkins’ independent scoping obligation did not simply come to an end once an initial scope had been prepared, regardless of how deficient the initial scoping exercise may have been.
Clause 4.6 (“Solution Budget and the Customer Building Contract”) provides as follows:
4.6 Solution Budget and the Customer Building Contract: Hawkins will use its commercially reasonable endeavours to obtain a lump sum or, if a lump sum is not appropriate or obtainable, guaranteed maximum price for the completion of each Rebuild Solution from the relevant Builder. In the event that:
(a) Hawkins fails to get such a price, Hawkins will establish a provisional price within the Solution Budget for the relevant Rebuild Solution;
(b) there are any changes in the provisional price for such Rebuild Solution or variations required or requested to a lump sum or guaranteed maximum price:
(i) Hawkins will notify IAG NZ seeking to agree a change to the relevant Solution Budget with IAG NZ and its Loss Adjusters and setting out the reasons why the price has changed or is the subject of a variation and whether a lump sum or guaranteed maximum price can be obtained for the remainder of the work on such Rebuild Solution;
(ii) where IAG NZ agrees to the proposed change, the Solution Budget will be amended as proposed by Hawkins; and
(iii) where IAG NZ does not agree to the proposed change, the parties will work together with the relevant Builder and Customer to endeavour to resolve the matter; and
(c) there are any requested changes to a lump sum price or guaranteed maximum price for any Rebuild Solution, IAG NZ will have no liability where it is established that such additional cost falls outside the insurance policy cover of the relevant Customer and the parties will work together with the relevant Builder and Customer to ensure that the Customer understands that it will be responsible for such costs.
In our view cl 4.6 is, at most, only marginally relevant to determining the correct ambit of Hawkins’ scoping obligations. Rather, the focus of cl 4.6 is establishing a mechanism for the costing of the scoped works, and making any subsequent adjustments to the costing that might be necessary. It required Hawkins to try and agree a lump sum or guaranteed maximum price with the builder at the outset of each rebuild project, failing which Hawkins was required to itself establish a provisional price for the project. Clause 4.6 then sets out a process for any subsequent price changes. Essentially, if there were any changes in the provisional price set by Hawkins, or variations were “required or requested” to a lump sum or guaranteed maximum price, Hawkins was required to notify IAG of these and provide reasons “why the price has changed or is the subject of a variation”. Hawkins was also required to advise whether a lump sum or guaranteed maximum price could be obtained for the remainder of the work. If IAG agreed to the proposed change, the Solutions Budget for the rebuild project would then be amended accordingly.
The purpose of cl 4.6 is to control and manage project costs and protect IAG from exposure to unexpected, unapproved or unjustified cost increases during the course of the rebuild. The clause does not mention scopes of work at all. Rather, the word “variation” is used in the context of variations or changes to the price of the rebuild project. While variations to a scope of works would likely be the main cause of subsequent price variations, other unforeseen circumstances (including such things as changes in regulatory requirements, or the imposition of tariffs) could also potentially prompt price variation requests. It was clearly in IAG’s interests to maintain ongoing constructive relationships with its pre-approved builders, given the high volume of construction work generated by the Canterbury earthquakes. Hence, while pricing is obviously affected by scope, cl 4.6 regulates the overall budgetary amendment process, not the scoping process itself. We do not read cl 4.6 as somehow limiting Hawkins’ scoping obligations in sch 2, cl 2.
We further observe that while cl 4.6 refers to “variations required or requested to a lump sum or guaranteed maximum price”, it does not specify or limit who may “require” or “request” such variations. Indeed, the use of the word “require” in this context appears to envisage the prospect of variations other than those that are “requested” by either the builder or the homeowner — neither of whom have the contractual power to “require” that variations be made to a builder’s scope of works.
Nor, in our view, do the variation provisions in the Penny Homes Contract or RJ Civil Contract assist QBE. The variation clause in the Penny Homes Contract relates to any variations that might be requested by either the builder or the owner (the two parties to that contract). That clause is primarily directed to ensuring that any variations to scope requested by the builder or owner are appropriately justified and approved by Hawkins, given the potential cost implications of any changes to scope. There is nothing, however, that precludes Hawkins itself from requesting that Penny Homes agree to a variation in its scope of works to include work that had been omitted from the initial scope.
As for the RJ Civil Contract, it simply provides in relation to variations that:
4.There shall be no variations to the Works or the Price for the Works without the prior written agreement of the Owner and [Hawkins].
Again, this simply provided a mechanism for Hawkins to ensure that any variations requested by the owner or builder were appropriately justified and approved, given the potential cost implications of any variations, and the fact that IAG was only required to fund work that fell within its reinstatement obligation. As with the Penny Homes Contract, cl 4 did not preclude Hawkins from requesting that RJ Civil agree to a variation to the scope of works for the retaining walls work, for example following Hawkins’ receipt of the Geoconsult Report or the EDC Report.
As Mr Cooper noted, the contracts between the homeowners and the contractors conferred extensive powers on Hawkins, including the power to give directions to the contractors. Mr Cooper submitted that this contradicts the notion that Hawkins had no power to ensure that necessary variations, once identified, could be processed to update the scope. In any event, even if an existing contractor was unwilling or unable to undertake further scoped work, this would not negate Hawkins’ ongoing scoping obligations. Rather, once an updated overall scope for the rebuild project had been prepared it might have been necessary for a second (or in this case, a third) contractor to be engaged to undertake the necessary further work that had been identified if one of the existing contractors was unwilling or unable to undertake it.
A practical example that the Court put to Mr McLellan at the appeal hearing involved an initial scope for a house rebuild that, due entirely to inadvertence on the part of Hawkins, omitted to include the demolition and rebuild of a standalone garage on an insured property. On QBE’s interpretation of Hawkins’ updated scoping obligation, if Hawkins had identified the omission the day after the rebuild contract had been signed, it would be powerless to do anything to address the oversight. Rather, it would be incumbent on the builder to seek a variation to the scope of works to include the demolition and rebuilding of the garage.
The obvious difficulty with such an interpretation is that the builder has no contractual obligation to seek such a variation. If the builder was: not aware of the need to seek a variation; did not wish to do so (for example, because it was already over-committed); or could not agree a satisfactory price with Hawkins for the extra work, the garage would simply not be built. On QBE’s interpretation, Hawkins would be unable to take any independent action to remedy the breach of its initial scoping obligation, for example by preparing an updated scope for the rebuild including the required work and, if necessary, facilitating the engagement of a second contractor to undertake it. Instead, Hawkins would simply be liable to IAG for damages for the breach of its initial scoping obligation and IAG would, in turn, be liable to its customer for failing to fully reinstate their property.
Turing to the facts of this appeal, on QBE’s interpretation of Hawkins’ updated scoping obligation, when Hawkins received the Geoconsult Report (advising that all of the retaining walls on the property be replaced) the day after the RJ Civil Contract had been signed, it was powerless to take any steps to update the scope to address the recommendations in that report. We note that such an interpretation rests uneasily with Hawkins’ engagement of EDC (after the initial scoping exercise had been undertaken) to undertake a rescoping exercise in respect of all of the retaining walls on the site. The EDC Report, aptly titled “Retaining Wall Scoping Report” was provided to Hawkins on 7 January 2015. If Hawkins was not intended to have any ongoing scoping role following the completion of the initial scoping exercise, it is difficult to see what the purpose of obtaining the EDC Report was.
In our view, QBE’s proposed interpretation of Hawkins’ updated scoping obligation lacks commercial sense and cannot, objectively, have been intended by the parties. There is nothing in the 2012 Agreement, the Penny Homes Contract or the RJ Civil Contract that precluded Hawkins from recommending a variation to scope or advising IAG of the need to rectify an incomplete scope. The 2012 Agreement was designed to deliver complete rebuild solutions for insured homeowners. A scope of works that failed to include all required repair or rebuild work, and could not subsequently be updated on Hawkins’ initiative, would frustrate that purpose.
We further observe that Hawkins’ silo approach to rebuild projects following the Canterbury earthquakes (which was incorporated into, and reflected in, the terms of the 2012 Agreement) further supports the view that the parties must have envisaged that Hawkins’ updated scoping obligation was an active obligation, and not merely a passive or reactive one. In rebuild projects where two different Hawkins’ silos were involved (each of whom had facilitated the engagement of a different contractor) the only entity with full visibility of the overall combined scope of works for the rebuild project was Hawkins. QBE’s assertion that only builders or owners could initiate variations would pose obvious difficulties in practice (and in some cases be unworkable) where no single contractor had visibility over the entire project scope, as was the case here. As Mr Cooper submitted, if only builders could initiate variations, and each was confined to their respective part of the project, necessary changes spanning both scopes might never be proposed. Similarly, a variation to include work that was potentially at the margins of either scope might not be sought. This further demonstrates the impracticality of QBE’s builder-driven interpretation of scope updates.
We accept that, in most cases, updates to scope would likely be the result of builder driven variations. Such variations, however, would usually arise in relation to work that was already within scope, but which may need to be undertaken in a manner different to that initially envisaged (for example, changes to the foundations due to a datum issue, or soil conditions discovered on site once building commenced). The situation is different, however, where a particular category of work has been entirely omitted from the original scope of work for a rebuild project. If it subsequently became apparent that such work was required for IAG to meet its reinstatement obligations to its insured, it was incumbent on Hawkins pursuant to sch 2, cl 2.5 to either itself update the relevant scope of works or procure one of the existing contractors to do so.
In conclusion, the Judge did not err in finding that Hawkins had a positive independent obligation to update the overall scope of works for the rebuild project if it became obvious that required work had not been scoped, irrespective of whether a formal variation had been initiated by the builder or customer.
Did the Judge err in finding that Hawkins breached its obligation to provide an updated scope?
We now turn to consider the final issue on appeal, which is whether the Judge erred in finding that Hawkins had breached its updated scoping obligation.
The High Court decision
The Judge found that Hawkins had breached its obligation to provide an updated scope of works, for the following key reasons:[30]
[223] The responsibility for scoping work under the [2012 Agreement] lay with Hawkins — to either scope or procure in detail the scope of works to be undertaken to make good the insured damage to the property. While there was an initial scope of works for the retaining walls (as adopted in the [RJ Civil Contract]), the express limitations of the Aurecon [R]eport meant it was not a scope of works that would meet the requirements of the Rebuild Solution. The subsequent Geoconsult report (August 2014) and EDC report (December 2014) confirmed the need for an updated scope of works to address wall replacement issues.
….
[228] Against the background of reporting (the Geoconsult report and the EDC report) and the physical alterations on site (the change to foundation level and the demolition of Aurecon walls 6 and 7) an updated scope of works for retaining walls was needed. On the basis of the photographic evidence, as reinforced by the expert evidence called, the design and construction of a significant wall in the nature of the Required Retaining Wall was plainly necessary.
….
[230] In addition to what was made clear in the Geoconsult and EDC reports, it would have been obvious to any professional visiting the property in late-2015/early 2016 that the scope of works for the southwestern bank retaining walls needed to change. I am satisfied on the evidence that the relevant personnel at both Hawkins and IAG appreciated that through the period.
[231] As between Hawkins and IAG the contractual responsibility for scoping and any necessary updating of scoping lay with Hawkins and had not been assumed by IAG. By not taking active steps to arrange an updated scope, including to address the Aurecon wall 7 issue by 2015, Hawkins breached its duty in relation to updating the scope of works.
[232] The plaintiffs’ pleaded case is that Hawkins should have updated the scope of works (that is, either the new home silo or the non-EQC silo scope) before June 2016. The datum issue was identified through August/October 2015 and impacted on the height of the bank on the southwestern boundary. It was as the redesign of the HFC wall was completed and the contractual variation approved (March 2016) that design of the Required Retaining Wall became feasible. It is around that time (March 2016) that Hawkins’ breach of its scoping duty occurred.
Our view
[30]Judgment under appeal, above n 1.
QBE’s central argument regarding Hawkins’ updated scoping obligation was that the Judge erred in finding that Hawkins had an independent obligation to provide an updated scope. Obviously, if we had accepted that Hawkins had no independent updated scoping obligation, it would necessarily follow that the Judge’s finding of breach would have to be set aside. Given, however, that we have rejected QBE’s narrow interpretation of Hawkins’ updated scoping obligation, it is necessary for us to consider whether the Judge’s conclusion that Hawkins breached its updated scoping obligation is correct.
In our view, the Judge’s finding that “it would have been obvious to any professional visiting the property in late-2015/early 2016 that the scope of works for the southwestern bank retaining walls needed to change” is strongly supported by the evidence.[31] Indeed, QBE’s expert, Mr Wilson, conceded in cross-examination that by late 2015/early 2016, it would have been “obvious” to a Hawkins RSM that the scope of works for most of the south-west side (other than the HFC wall) did not include retaining and that the scope “needed to change”. Mr Wilson further clarified that this obviousness did not require professional judgment, merely observation of the site conditions. That conclusion was also supported by extensive other evidence before the High Court, including that set out at [23] to [40] above. In summary:
(a)The Aurecon Report was heavily qualified and the need to update the scope of works for the retaining walls once further expert advice was obtained was obvious.
(b)The August 2014 Geoconsult Report recommended the replacement of all existing retaining walls and their structural isolation from the house. While the recommendation to structurally isolate the retaining walls from the house was actioned by the New Homes Silo (resulting in an updated Penny Homes scope of works to include the HFC Wall), the Geoconsult Report was not forwarded to the Non-EQC Silo. This appears to have resulted in Geoconsult’s recommendation to replace all existing standalone retaining walls (including Wall 7) being overlooked, and the retaining walls scope of works not being updated to reflect that recommendation.
(c)In November 2014, Hawkins’ staff noted Wall 7 had been undermined by the demolition of the original dwelling and was looking unsafe. As a result, Hawkins engaged EDC to undertake a rescoping of all of the retaining walls on the site in December 2014. The EDC Report (received by Hawkins in January 2015) identified that part of Wall 7 had been undermined due to the removal of the original dwelling and recommended that the wall be replaced.
(d)The datum issue identified in August 2015 further exacerbated the (increasingly urgent) need for the Required Retaining Wall on the southwestern slope, as did the demolition of Wall 7 by Penny Homes in October 2015.
(e)By 3 December 2015, Hawkins was informed that the southwestern slope was starting to collapse, and the house above was “in potential danger of suffering damage”. Hawkins advised IAG that steps had been taken to stabilise things, and Geoconsult and engineers had been contacted for a solution. It was noted that a retaining wall in this area was “yet to be replaced”.
(f)Between December 2015 and June 2016, temporary stabilisation works were undertaken on the southwestern slope. In addition, the HFC Wall was constructed on the lower part of the southwestern slope, which had previously been retained by the garage wall of the original dwelling. However, comprehensive retaining works for the entire southwestern slope, including the area where Wall 7 had been, were not scoped or adequately addressed during this period. No engineering or design advice was obtained to determine the full extent of necessary works or to prepare designs for the construction of the Required Retaining Wall. Such work was an essential prerequisite to updating the scope to include the Required Retaining Wall.
[31]At [230].
The evidence therefore overwhelmingly supports the Judge’s finding of breach. Indeed, in our view it should have been apparent to Hawkins that an updated scope was required for the retaining walls well before the late-2015/early 2016 date specified by the Judge. The need to replace all retaining walls was referred to in the Geoconsult Report as early as September 2014. If any lingering doubts remained, these should have been dispelled by receipt of the EDC Report in January 2015, at which time expert input should have been sought and an updated retaining walls scope prepared. Obviously, as matters developed on site, further updates to that scope might have been necessary.
By December 2015, Hawkins was aware that the hillside was at risk of collapse. Even at this late stage, however, there is no evidence of Hawkins obtaining the professional engineering or design advice necessary to enable a detailed scope of works for the Required Retaining Wall to be prepared and costed. It was not until 29 June 2016, six months after concerns had been raised with Hawkins about the potential collapse of the southwestern hillside, that an RSM in the New Homes Silo emailed the Daverns advising that Hawkins were planning to have a meeting with an engineer to discuss the additional retaining walls required to retain the bank/soil above their home.
The lengthy delay in updating the retaining walls scope to include the Required Retaining Wall rendered the sequencing issue inevitable. Clint Smith (a registered building surveyor and quantity surveyor who gave expert evidence for IAG) analysed the considerable number of photos taken on the construction site. These demonstrated that by 16 June 2016 the house build had progressed to a point where access to construct the retaining wall would have been restricted to a point that either the framing and/or the floor would have had to be dismantled, or an alternative method of construction found, in order to build the Required Retaining Wall.
To the extent that QBE appeared to suggest (based in part on the emails referred to at [39] above) that if Hawkins had an independent updated scoping obligation (contrary to QBE’s primary submission) that obligation was assumed by IAG, we reject that submission. As noted at [41] to [42] above, IAG did eventually step in and directly engage Cook Costello in July 2016 to design retaining walls for the southwestern slope. This followed significant frustration and concerns being raised by the Daverns in a direct email to IAG on 26 May 2016 regarding Hawkins’ delay in progressing a solution for the retaining walls issue. By the time Cook Costello was engaged, however, the sequencing issue had already arisen, as a result of Hawkins’ unwarranted delay in updating the retaining walls scope. Further, as the Judge (correctly) found: “QBE has not pleaded (and the evidence does not establish) that IAG assumed responsibility for the scoping obligations that otherwise lay with Hawkins”.[32] Rather, “[a]s between Hawkins and IAG the contractual responsibility for scoping and any necessary updating of scoping lay with Hawkins and had not been assumed by IAG”.[33]
[32]At [213].
[33]At [231].
In conclusion, Hawkins failed to provide or procure an updated scope of works for the Required Retaining Wall on the southwestern slope at any time prior to the house being substantially built (or indeed at any time prior to the 2012 Agreement terminating in December 2016). For the reasons we have outlined, this was a breach of Hawkins’ updated scoping obligation in the 2012 Agreement. The Judge was correct to find that the sequencing error was a direct and inevitable consequence of this breach, and the appeal must therefore be dismissed.
Result
The appeal is dismissed.
The appellant must pay one set of costs to the first and second respondents for a standard appeal on a band A basis together with usual disbursements. We certify for two counsel.
Solicitors:
Hazelton Law, Wellington for Appellant
Duncan Cotterill, Auckland for Respondents
0
5
0