Reeves v Lakes Environmental Limited
[2014] NZHC 2760
•6 November 2014
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV-2013-425-000117 [2014] NZHC 2760
BETWEEN TREVOR AND MARIA REEVES
Plaintiffs
AND
LAKES ENVIRONMENTAL LIMITED Defendant
Hearing: 13, 14, 15 May, 30 June and 1 July 2014 Appearances:
B C Nevell for the Plaintiffs
M E Parker and A J Nash for the DefendantJudgment:
6 November 2014
RESERVED JUDGMENT OF DUNNINGHAM J
Contents
Introduction ..........................................................................................................[1] Procedural Issues .................................................................................................[4] Application for leave to admit further evidence by affidavit [4] Further submissions on diary entries [11] Background.........................................................................................................[19] Was Lakes Environmental negligent? ..............................................................[47] Was the inspection done at all? [47] Was the inspection negligent? [53] Was Lakes Environmental’s negligence causative of the plaintiffs’ loss? [67]
Is the plaintiffs’ claim time-barred under s 4 of the Limitation Act 1950?...[72] When did the plaintiffs discover their cause of action? [78] Was the claim reasonably discoverable at an earlier date? [83] Conclusion [91] Were the plaintiffs contributorily negligent? ..................................................[95] Did the plaintiffs fail to mitigate their loss?................................................... [111] Failure to pursue the builder [117]
Failure to remedy the defects and/or protect the building against the effects of
the elements and the effluxion of time [123] Failure to obtain appropriate professional advice [129] Failure to obtain legal advice in a timely manner [133] Increased costs through delay [137]
REEVES v LAKES ENVIRONMENTAL LIMITED [2014] NZHC 2760 [6 November 2014]
What is the quantum of the plaintiffs’ claim? ...............................................[140] Demolition and rebuild costs [146] Wasted expenditure costs [150] Consultants’ fees [153] Architect’s and Council Fees [156] Repairs to existing house [160] General damages [162] Outcome ............................................................................................................[167]
Introduction
[1] This is a claim by Mr and Mrs Reeves, for damages they say they have suffered as a result of a negligent pre-pour inspection by the Queenstown Lakes District Council’s regulatory services company, Civic Corporation Limited (Civic Corp), before the foundation slab was laid for their new home at Wanaka.
[2] The defendant, now called Lakes Environmental Limited (Lakes Environmental), admits it owed the Reeves a duty of care when carrying out the pre- pour inspection. It does not admit the inspection was carried out negligently. More importantly, Lakes Environmental raises three affirmative defences. It says:
(a) the cause of action is statute barred, as the claim was filed on
27 March 2013, when the allegedly negligent inspection took place on
8 February 2007;
(b) the Reeves were contributorily negligent; and
(c) the Reeves failed to take reasonable steps to mitigate their loss.
[3] Mr and Mrs Reeves’ builder, Mr Andy Brown, acknowledged he had not laid the foundations in accordance with the consented plans, but he took no steps to rectify the situation. Regrettably, he then died in February 2012. Lakes Environmental is, therefore, the sole defendant in respect of the Reeves’ claim for losses totalling $305,651.74 including GST, plus general damages of $70,000.
Procedural Issues
Application for leave to admit further evidence by affidavit
[4] A procedural issue arose in the course of the hearing where, during cross-examination of Mr Laurenson, Mr Laurenson suggested that Mr Faris had misinterpreted the plans and therefore assumed that the truss system at the second floor level, with the Hebel sound floor above, could not free span the total width of the building and avoid bearing onto the Hebel load bearing walls below.
[5] As that had not been put to Mr Faris, I indicated I would allow the witness, Mr Faris, the opportunity to respond to that point and clarify it in writing.
[6] In fact, what was subsequently filed was an affidavit responding not just to that point, but giving evidence in reply to Mr Laurenson’s evidence on various other issues. Lakes Environmental objected to the admission of that further evidence. I required a formal application for leave to be made and an application dated
30 June 2014 was duly filed, with opposition from the defendant following.
[7] While Mr Nevell, for the Reeves, acknowledged he “misunderstood” the scope of further evidence to be provided, he submitted leave should be granted because it “provided the Court with fuller evidence” on those matters and there was “no risk of ongoing evidence being produced because there is only one expert witness giving evidence in this case”.
[8] Mr Parker opposed the application saying the Court had not permitted the Reeves to adduce further written evidence to be taken as read and, pursuant to High Court Rule 9.56(2), such evidence cannot be read where the other party wishes to cross-examine him but where he cannot be produced. His submissions also objected to the further evidence, arguing that the relevant paragraphs were either unhelpful, repetitive of evidence given earlier, derived from hearsay evidence, or expanding on answers which Mr Faris had the opportunity to give at hearing.
[9] While I accept that Mr Faris is the only witness able to give independent expert evidence on relevant issues such as remediation options, I am satisfied it
would be unfair to allow his further evidence in without the opportunity for him to be cross-examined on it. In any event, it does not materially advance the evidence on the critical issues.
[10] As a result, the only evidence I will allow to be read is that anticipated by my earlier direction, which is the evidence contained in paragraphs [11] – [25] of his affidavit on whether Mr Faris had proceeded on a misunderstanding of the design of the truss span system. The balance of that affidavit evidence is not admissible and has been disregarded.
Further submissions on diary entries
[11] A second procedural issue which arose in the course of the hearing was that it transpired that Mrs Reeves had comprehensive diaries of the family’s activities throughout the relevant period, but had not provided them in discovery.
[12] In the case of the hearing I required full discovery to be made of these, but redacting confidential and irrelevant material relating to her patients. That redaction exercise was to be undertaken with the supervision of her lawyer.
[13] However, when the diary was produced in advance of the resumption of the hearing on 30 June 2014, it had significant additional redactions of what were described as “personal” or “unrelated” diary entries.
[14] This necessitated further instructions from the Court to eliminate such redactions, as the family’s personal circumstances were relied on to counter the allegation that they had failed to mitigate their loss. The amended redacted version of the diary was to be produced following the hearing and I directed a timetable for exchange of further submissions relevant to the diary entries.
[15] Regrettably, it appears that when those copies of the diary were received, it demonstrated that some entries directly relevant to the build process had not been disclosed in the first version of the diary entries. Lakes Environmental also complained that the Reeves had also redacted “bank passwords, keys for Companies Office information and IRD passwords”, saying such redactions fail to
comply with my directions which confined redactions to matters of medical confidentiality and legal privilege.
[16] While technically correct, the reality is that no party identified that other categories of information which may warrant redaction would be in the diary. Such information is clearly not relevant to the issues in dispute and, for the avoidance of doubt, I confirm it is appropriate that such information is redacted.
[17] The further submissions received from Lakes Environmental focused on the diary entries related to the building process in early 2007 to suggest these shed doubt on whether the foundation problem was not discovered until 2 April 2007. My findings on those issues are discussed in the substantive decision below.
[18] The second thrust of the submissions is that the absence of entries relating to the family’s medical problems until 2010 suggests that they were not as serious as Mrs Reeves suggested in evidence. However, the Reeves’ submissions point to entries which are consistent with Mr Reeves’ health issues arising in early 2008 and their son starting treatment for Crohn’s disease in mid 2009. I am satisfied that nothing in the diary demonstrates that Mrs Reeves’ evidence is unreliable in this regard.
Background
[19] Mr and Mrs Reeves, and their three children, lived in an older style house on a small rural block at Hawea Flat, Wanaka. They had owned the property since October 1992, but only lived in it intermittently, because Mrs Reeves’ occupation, as a locum general practitioner, often took her to other parts of the country. Her husband supported her in that occupation and they home schooled their children to accommodate their somewhat nomadic lifestyle.
[20] In 2006 they decided the old house on the property was too small for the needs of their growing family and they would build a new house.
[21] On 27 November 2006 they applied for a land use resource consent, and shortly afterwards, on 30 November 2006, they applied for a building consent to
build the new house. They chose to construct the house using Hebel, a proprietary lightweight concrete block product. They had lived in a Hebel house in Twizel, and liked the solid masonry look of it, and its excellent thermal insulation and soundproofing properties.
[22] They instructed Central Architecture Limited to produce preliminary plans for a four bedroom house with upstairs attic space and those plans were submitted to Civic Corp with the application for building consent. On 9 January 2007, Civic Corp wrote to Mr and Mrs Reeves requesting 12 additional pieces of information before the building consent could issue. Relevantly, the second item on that list specified that “[t]he location of slab thickenings is to be shown on the foundation plan”.
[23] The preliminary plans and specifications for the house included references to a requirement for a thicker foundation slab under all internal load bearing walls. This requirement could be found in the specifications for Hebel blocks, which required the foundation design to be in compliance with NZS 4429:1997 for Concrete Masonry Buildings, and in the reference to NZS 3604:1999 which also requires thicker foundations for load bearing walls. A cut away diagram of the thicker foundation design to go beneath the internal load bearing walls was shown on page CD09 of the preliminary plans. However, the foundation plan itself did not show any requirement for a thicker foundation under internal walls.
[24] The Civic Corp review of the plans identified that the foundation and drainage plan on page CD03 of the plans omitted to show the thickened foundation slab under the internal walls. Civic Corp therefore, in its 9 January 2007 letter, required the foundation plan to be amended to show these slab thickenings before a building consent could issue.
[25] Mrs Reeves made contact with both the architect and the builder over the various requests for further information made by Civic Corp. As a consequence of her discussions with them, it was agreed that the architect rather than the builder would respond to all the requests, except for one relating to information about the proposed wood burner which was dealt with by Mrs Reeves.
[26] As required, the architect prepared an amended foundation plan which showed the foundation slab thickening under all the internal walls. The amended plans also provided a more detailed amended cut away diagram on page CD09 to show how the tie rods which went through the Hebel brick walls were to be embedded within the thicker sections of the foundation.
[27] Once all 12 requests for further information were responded to satisfactorily, including provision of the amended foundation plan, the building consent was issued by Civic Corp on 31 January 2007.
[28] The builder engaged by the Reeves was Mr Andy Brown. He had been recommended to them as having expertise in building Hebel houses. He provided a quote to build the house for $399,021. On 22 January 2007 the Reeves let him start on preparatory work for the foundation pour. This was before the building consent issued on 31 January 2007 or the resource consent issued on 7 February. However, Mrs Reeves said that was on the understanding, having spoken to a Council planner, that this would be in order as long as they did not pour any concrete before they had the resource consent. They also had their architect’s support for getting the builder underway.
[29] It is undisputed that the initial work undertaken by Mr Brown was done using the plans marked “preliminary” which did not have the amended foundation plan showing the thickening of the foundation slab under the internal walls.
[30] When the building consent arrived, along with the approved amended plans stamped by Civic Corp, Mrs Reeves took them out to the builder, but she said “he did not ask to see them. He told me to put them away in a safe place. I did this”. Mrs Reeves took Mr Brown’s instructions literally, storing the approved plans in her bedroom. She explained that “I assumed he knew what he was doing and I assumed that they needed to be protected and not lost. It didn’t even occur to me at the time that they would look different. Certainly I did not know the status and importance of
‘stamped plans’ ”.
[31] By Thursday, 8 February 2007, Mr Brown had the foundations set out and ready for inspection before pouring. The Reeves were not at home on that date. Mr Russell, the Civic Corp building inspector, was contacted by telephone to undertake the inspection early so the concrete could be poured.
[32] Mr Russell’s evidence was that he did the inspection that day after the builder had left the site. He admits that he checked the foundations against the plans left on site by the builder, which were stamped ‘preliminary’, and not against the approved plans which the builder did not have available on site.
[33] If the inspection was done (and that is contested) it appears he must have done it late on that day, as the concrete pour took place the following day. However, his diary has the inspection scheduled in for 13 February, and he entered his time for carrying out the inspection into the Council’s computer records against that date. The formal inspection record was also dated 13 February 2007, but, as will be discussed further on, it does not appear to have been written up until after November
2009, some two and a half years later.
[34] When the slab was poured on 9 February 2007, it was constructed with a thicker perimeter as required, but under the internal walls (as confirmed by the testing of Mr Faris),1 the slab was only 100 millimetres thick, not 200 millimetres thick which it should have been. Furthermore, the vertical starter rods required for the vertical reinforcing of the internal walls, which should have been embedded
150 millimetres deep into the foundation slab, were only embedded to 80 millimetres because the slab was only 100 millimetres thick under those walls.2
[35] After the concrete for the foundation was poured with Mr Russell’s authorisation, the Hebel walls started to be erected. Mrs Reeves explained that during the latter part of the Hebel wall build she wanted to explore the suggestion of changing the location of a door, but was told by the architect it was not possible because the wall was a “load bearing” wall. When her eldest son heard that he said
to her that his understanding was that none of the internal walls were load bearing.
1 The expert building surveyor called by the plaintiffs.
2 As identified by the Batchelar McDougall Consulting letter dated 18 March 2013.
This apparent contradiction troubled her and, on 2 April 2007, she took out the set of preliminary plans which she had and looked them over. The plans showed a diagram for the footings for load bearing internal walls, but no diagram for the footings for non load bearing walls.
[36] She went out to her builder to ask him about it. His response was that none of the internal walls were load bearing. She then telephoned the architect who told her that all the internal walls were load bearing and that there should have been lots of anchor rods sticking up from the concrete after it was poured in the location of every internal wall. When she told him there were none, he was confused. At that point she went out and spoke to the builder and relayed what the architect had said. He came in “looking grey” and asked to see the plans Civic Corp had sent. Mrs Reeves says “this was the first time he looked at the approved plans”. When he saw there were lots of thickenings on the foundation floor plan where the internal walls were to be located, she said he raised his hand in the air and said “I put my hand up”, which she took to be him admitting fault.
[37] Building work on the Hebel walls stopped shortly after that and the builder walked off the job. No further construction work has been done on the site since that happened.
[38] Attempts over the next seven years to resolve issues appear to have progressed in fits and starts, partly due to Mrs Reeves’ itinerant career, partly due to Mrs and Mrs Reeves’ reluctance to spend significant funds on professional assistance before they knew who was accepting liability for the error, and partly due to some serious health crises within the Reeves’ family.
[39] A substantial volume of evidence was traversed as to what was done, or not done, over this period. The efforts to find a way forward can be summarised as follows.
[40] The suppliers of the Hebel blocks, while sympathetic to the situation the Reeves were in, were clear that the problem was not theirs, even though they had given Mr Brown’s name as a suitable builder. Their engineer, a Mr Geoff Brown
who resided overseas, gave some initial advice by email about possible solutions, but could not find any clear cut option. The Hebel suppliers did, however, offer to provide replacement Hebel blocks at cost price if the Reeves had to pull down the walls and start again. This meant the cost of the blocks would be approximately
$32,000 rather than $70,000. This offer was made on 2 May 2007, and the Reeves say that, with the passage of time, they now no longer know who the representatives at Hebel are, or whether they would offer a comparable deal.
[41] In respect of their builder, Mr Brown, the Reeves seemed torn between having personal sympathy for his circumstances, and their view that he was at least
50 per cent to blame for the predicament they were in. They believed that he had been adjudicated bankrupt once before (although no record can be found of that occurring) and that he did not have the financial resources to assist them. They also knew by that stage that he carried no insurance. It was not until 2010, through the assistance of a friend, that they resumed contact with Mr Brown, and apparently got agreement that he would assist with labour. Unfortunately, shortly afterwards, he collapsed on a building site and subsequently died of a brain tumour.
[42] In respect of Lakes Environmental,3 Mr Reeves initiated numerous communications with its representatives, including Mr Peter Laurenson, the Manager – Building at Lakes Environmental, and also with the general manager and the mayor of Queenstown Lakes District Council. The Council representatives provided information about the building inspection and sought information from the Reeves about the costs and options for addressing the problem. It quickly became clear that Lakes Environmental had to hand the matter to its insurers. The insurers and Mr Reeves then engaged in a protracted, and unsatisfactory, chain of correspondence. Mr Reeves sought meetings to discuss what Lakes Environmental’s insurers would contribute financially to rectify the problem. Lakes Environmental’s insurers, on the other hand, asked the Reeves for their expert’s report on remedial options and costs and would only agree to a meeting once they had concrete
information of that sort in front of them.
3 Civic Corp was renamed this in June 2007.
[43] In short, a chicken and egg situation ensued, where the Reeves thought Lakes Environmental’s insurers were being difficult by not simply acknowledging liability and offering a sum of money, after which the Reeves would decide on the appropriate remedial action, whereas the insurers felt a meeting would only be productive with specific remedial options and costings before them to discuss. Furthermore, the insurers were of the view that the builder should shoulder the majority share of any cost and were dismayed by the Reeves’ reluctance to involve their builder.
[44] The Reeves’ personal lives also contributed to slow progress on resolution. Mrs Reeves’ job again took her away for long periods. In May to October 2007 she worked on Great Barrier and Chatham Islands with her family joining her in June of that year, and, from April to October 2008, the family was again living out of Wanaka because of Mrs Reeves’ work. By late 2008 Mr Reeves’ health was failing, with an intracranial condition seriously affecting his health. Again in April to October 2009 the family lived away from Wanaka because of Mrs Reeves’ work commitments. In July 2009 their oldest son was diagnosed with a severe form of Crohn’s disease and in December 2009 the Reeves’ second oldest son was also diagnosed with Crohn’s disease. In March 2010 their eldest son was admitted to hospital with a perforated bowel. In April to October 2010 the family was again away for Mrs Reeves’ work. In October 2010 Mr Reeves’ health deteriorated significantly, requiring hospital admission and then, in February 2011, Mr Reeves required surgery. He had four operations and suffered two intracranial infections. Understandably, Mrs Reeves says, “our house construction took a distant second priority during this time”.
[45] The Reeves revived action on the house once Mr Reeves starting recuperating in August 2011. They made contact with the deputy mayor who recommended some builders and they made contact with a new builder, Mr Dean Fluit, in October 2011. In March to October 2012 Mr Reeves says the family was away for her work again as she “needed a period of solid earnings to keep us financially afloat”.
[46] In December 2012 and January 2013 Mrs Reeves went to Australia to care for her sick mother and it was only in March 2013, after again seeking a meeting with
Lakes Environmental’s insurers, who still insisted on receiving a report and costings from the engineer first, that the Reeves realised that their six year period for filing a claim was running out. They then instructed a lawyer to draft and file the present claim.
Was Lakes Environmental negligent?
Was the inspection done at all?
[47] Perhaps the most surprising aspect of this case was the evidence which emerged through the discovery process, about Lakes Environmental’s record keeping.
[48] The Reeves obtained documents which showed:
(a) the inspector’s diary recorded the inspection was scheduled for
Tuesday 13 February 2007;
(b)the Lakes Environmental electronic time recording system, Time Trak, showed the inspector recorded he had spent 1.3 hours on undertaking the foundation and slab inspection on 13 February 2007. That time could not have been entered any later than by the end of that week, as the evidence was that the time recording system closes off at the end of each week and it is not possible to enter further time retrospectively; and
(c) the inspection record itself was not written up until at least 20 months after that. This was evident because it was written up on an inspection record sheet with Lakes Environmental letterhead, when that name change did not occur until June 2007. More importantly, the inspection records are written up on consecutively numbered dockets, and the Reeves’ inspection was written up after records for inspections which were dated September and October 2009. The inspector, Mr Russell, conceded it was written up at least 20 months
after the inspection was done and could have been written up even later than that.
[49] Given the inconsistencies between the date the inspector recorded the inspection was done (13 February 2007) and the date the builder understood it was done (being 8 February 2007), and the extraordinary finding that the inspection was not written up until at least 20 months later, it is understandable that the Reeves queried whether the inspection had been carried out at all.
[50] The building inspector, Mr Russell, explained that the builder made contact with him to undertake the inspection sooner than it was scheduled, as he was “worried about the weather later in the week”. However, as the Reeves’ lawyer pointed out, that explanation seems unusual when the call was made on a Thursday. A concern about weather changing “later in the week” is more consistent with a call being made in the first half of the week. The Reeves asserted that it was more likely that no inspection was done at all. Instead the inspector simply verbally advised Mr Brown, the builder, to go ahead with the pour on Friday, and then filled in his timesheets in the following week based on when he had scheduled to do the inspection in his diary.
[51] The only factor which persuades me that the inspection was actually done, is that the hand-drawn cross section of the foundation included on the inspection record has details which one would only expect to have the inspector to have known if he had visited the site. It appears accurate and reflects what was constructed, including the variation as to height of the footing because of the ground level slope.
[52] Given the standard of proof required is on the balance of probabilities, I accept that an inspection was carried out on 8 February 2013, even though all the relevant record keeping relates to the wrong date, and the inspection record was written up more than two and a half years later, most probably because the inspection had, by then, become problematic for Lakes Environmental.
Was the inspection negligent?
[53] The Reeves’ case here is straightforward. Lakes Environmental admits it owes a duty of care when carrying out a pre pour inspection to ensure the inspection is carried out using reasonable skill and care.
[54] The inspector, in his inspection record, recorded that the work was “all as per unstamped plans on site”. The Reeves say this was negligent because:
(a) even the preliminary plans and specifications, if read in totality, required slabs thickenings below the internal walls, even though they were not shown on the foundation plan; and
(b)in any event, the inspector’s primary task was to ensure that the building work had been carried out in accordance with the building consent and that required him to inspect it against the approved plans which he did not do.
[55] Lake Environmental’s position is to deny that the foundations were not constructed in compliance with the Building Act 2004 (which it asserts is the inspector’s primary duty), although its main focus is to say that the Reeves and their builders were entirely causative of the Reeves’ loss.
[56] The evidence given by Mr Laurenson, the acting Chief Executive of Lakes Environmental, was to the effect that an inspection was not negligent simply because what was inspected did not comply with the consented plans. The gist of that evidence was that as long as what was inspected could support a building that could ultimately comply with the Building Code, it really did not matter whether it complied with the consented plans.
[57] Mr Laurenson was questioned thoroughly on how his building inspector could, on this occasion, be satisfied it would comply with the Building Code when it did not comply with the consented plans. He did not answer that satisfactorily. He simply said that a building officer, such as Mr Russell, “has the expertise to make an
assessment of [whether] what has been built, albeit not complying with the plans, complies with the Building Code”.
[58] When the point was put to Mr Russell, on whose expertise Mr Laurenson put so much faith, he acknowledged that he noticed the absence of slab thickenings and chose not to investigate it because there was nothing shown on the plans. He confirmed he was relying on the plans that the builder was working from even though they were stamped in red with the word “preliminary” on them. He also acknowledged that it was his job to “stop construction” if the work was not in accordance with the consented plans and that Lakes Environmental has now “put an end to” inspecting off preliminary plans rather than consented plans.
[59] Mr Russell also accepted that a major amendment to the building consent would be required if it was to be constructed without the slab thickenings. He agreed that such change to the design would involve an engineer, and such engineering work should be done before the construction work proceeded. It should only occur afterwards if there had been some “failure” in the building process.
[60] There was no evidence to demonstrate that Mr Russell had satisfied himself that the foundations, as built, would comply with the Building Code. Instead, all Mr Russell did was compare what was being constructed with the preliminary plans the builder was using, and confirm that they were being built in accordance with those preliminary plans.
[61] In my view, Lakes Environmental’s submission that the inspection was not negligent, because the work was not in breach of the Building Code even if it was in breach of the building consent, was a technical argument that never had any real basis in reality. Mr Russell had not undertaken any assessment of whether the house could be constructed in compliance with the Building Code with the non-complying foundations. He had simply relied on the preliminary plans.
[62] Lakes Environmental’s argument also turns a blind eye to the centrality of the building consent process to the statutory regime of the Building Act 2004. While compliance with the Building Code is the goal of the Act, the building consent is the
statutory mechanism by which this is achieved. This is underscored by the number of provisions within the Act which emphasise the critical role of the building consent.
[63] It begins with the requirement, at s 40, that “a person must not carry out any building work except in accordance with a building consent”. Once a building consent has been obtained which demonstrates how the Building Code will be complied with, there are a number of other provisions giving primacy to the building consent. For example:
(a) if the building work complies with the building consent, then a code compliance certificate must issue (s 94);
(b)if a licensed building practitioner becomes aware work is being carried out without a building consent he or she must notify the building consent authority of the breaches (s 89);
(c) if a building consent has not been obtained or is not being complied with, then the building consent authority can require a building consent to be obtained and work to cease in the interim (s 165)
(d)every building consent is subject to the condition that building inspectors are entitled to inspect the building work (s 90), and inspection under s 90 means “the taking of all reasonable steps to ensure that building work is being carried out in accordance with the building consent”.
[64] It is clear from s 90 that the express purpose of an inspection is to ensure that the building work being inspected complies with the building consent. That ensures that, at each stage of the building process, the building consent has been implemented, allowing a code compliance certificate to issue when the work is completed.
[65] Given the clear purpose of an inspection, it is difficult to imagine circumstances where a failure to pick up a material departure from the consented plans would not be negligent. If the works do not comply with the building consent, the Act expects steps to be taken to draw that to the builder and the owner’s attention, and that the consent authority will require either rectification of the work, or an application for an amended building consent. Despite the recent introduction of provision for “minor variations to building consents” under s 45A of the Act, it remains the position that a change to any significant element of the building prescribed by the building consent, such as the foundations, needs to be authorised by an amendment to the building consent.
[66] In the Reeves’ case the building inspector failed to perform the most basic duty of his inspection, which was to ensure the work inspected complied with the building consent. The inspection was, therefore, negligent.
Was Lakes Environmental’s negligence causative of the plaintiffs’ loss?
[67] Lakes Environmental seeks to avoid liability by arguing that the Reeves and/or their builder were “wholly causative of the Reeves’ loss”. Lakes Environmental says the builder caused the loss by failing to construct the house in accordance with the approved plans with the result it lacked internal wall slab thickenings specified in those plans. Furthermore, he was aware of his mistake, because he needed to cut down the starter rods to ensure they could be accommodated within the inadequately thick foundation slab.
[68] If the builder’s actions and omissions were not wholly causative of the Reeves’ loss, then Lakes Environmental says the Reeves’ own conduct, by providing the builder with unapproved plans, instructing him to commence work, failing to ensure he had ready access to the approved plans, failing to ensure the builder was constructing a house in accordance with the consented plans, and failing to ensure the builder obtained insurance for the build, meant that they caused their own loss or substantially contributed to it.
[69] However, these issues are ones that need to be considered in the subsequent debate over whether the Reeves were contributorily negligent. The issue of
causation is preliminary to that, and a finding of contributory negligence is not a matter which is generally capable of negating the duty owed by the local authority.4
[70] In a case such as this, where it is alleged that there are negligent acts by two or more persons, the question is whether the conduct by Lakes Environmental is a contributory cause. Here, the Reeves allege that both the builder and the Lakes Environmental inspector were negligent but, for reasons already explained, they are only pursuing Lakes Environmental. That approach is unexceptional. There are numerous New Zealand cases which acknowledge that both the builder and the inspector can be fully liable, because, “but for” the negligence of that party, the defective house would not have been constructed.
[71] In this case, the building inspector’s negligence was a substantial and material cause of loss suffered by the Reeves, as, “but for that negligence, the losses would not have been suffered”. 5 Instead the builder would have been alerted to the fact he had made no provision for slab thickenings under the internal walls, and he could have then re-profiled the foundation excavations to provide for them before the concrete was poured and the vertical reinforcing rods installed. The causation point is therefore satisfied.
Is the plaintiffs’ claim time-barred under s 4 of the Limitation Act 1950?
[72] Lakes Environmental’s third affirmative defence was under the Limitation Act 1950. However I consider it first, as if the claim is statute-barred, it must fail in its entirety.
[73] Lakes Environmental says that, given the Reeves’ involvement in the building project and their awareness of the changed plans, the problem with the foundations was not a latent defect, but one that was obvious from the outset. The defect arose no later than 8 February 2007 when the foundation was inspected prior to the concrete pour. Alternatively, Lakes Environmental says that the defect was reasonably discoverable by 8 February 2007 and the Reeves were in fact aware of
the problem by 20 March 2007.
4 Riddell v Porteous [1999] 1 NZLR 1 (CA).
5 Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC) at [450].
[74] The Reeves’ position is that the defect was not apparent until 2 April 2007, when Mrs Reeves brought the builder in from the building site to resolve the query about whether the internal walls were load bearing or not. Once he had reviewed the consented plans, he admitted that he had not constructed the foundations with the slab thickenings required for the internal load bearing walls. That was the first time the Reeves appreciated there was a problem with the building.
[75] The limitation period for an action in tort runs from the date on which the cause of action accrues and that is measured from the point in time when every fact exists which it would be necessary for the Reeves to prove to support his or her claim. In the case of torts which are actionable only on proof of damage, as in this case, the cause of action accrues from the date of damage.6
[76] Where the complaint is of building defects, the date of damage will not necessarily be the date the defective work was undertaken, rather it may be when the defects “became apparent or manifest”.7 The rationale for this is because, until the defect becomes apparent, the owner might resell the building at its full market value and therefore suffer no loss. Thus the decision in Hamlin recognised that there may be a latent defect or undetected physical damage in a building, but loss will only
accrue when that damage is “reasonably discoverable”. The only qualification to that is that “the plaintiff could not postpone the start of the limitation period by shutting his eyes to the obvious”.8
[77] In the present circumstances, Lakes Environmental seeks to characterise the damage, not as a latent defect, but one that was obvious from the moment the foundations were laid out or, even if it was a latent defect, one that should have been reasonably discoverable from a point well before 28 March 2007, which is the date
six years before the Reeves filed their claim.
6 Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) at 526.
7 Mt Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA).
8 At 526.
When did the plaintiffs discover their cause of action?
[78] The Reeves say it was only when they spoke to their builder and had him review the consented plans on 2 April 2007, that they became aware he had failed to build the foundations in accordance with the consented plans. Mrs Reeves’ evidence on that point was compelling. She recalled the shock of discovering that there was a problem, and that they did not discuss it the following day, being 3 April 2007, because that day was the commencement of the Passover in the Jewish calendar, and they observed that religious festival. Instead discussions picked up with the builder in the subsequent days about how the problem might be rectified.
[79] Through belated discovery of Mrs Reeves’ diary, Lakes Environmental identified that on 16 March 2007, Mrs Reeves had noted a query about “load bearing walls” and had written “check with engineer and architect”, suggesting that she may have made or intended to make some kind of inquiry of these individuals about the load bearing walls. On 20 March 2007 she had recorded “insurance can’t get house under construction”.
[80] Lakes Environmental says that, as the Reeves claim it was only after the defects were discovered that they became aware the builder had not obtained the building insurance he had quoted for, this diary entry demonstrates the discovery of the defect must have been earlier.
[81] However, Mrs Reeves’ evidence was that the first diary entry was about checking a change to a small outside window and was not the enquiry which lead to the foundation problem being discovered. She also explained that the second diary entry did not relate to the builder’s professional indemnity insurance, but to her enquiry about insurance for construction works, which the builder had not taken out, and which she found she could not get either because building work had already commenced. Nothing in the diary entries negated her evidence that the date she realised there was a major deficiency in the foundations was 2 April when the builder admitted he had not built the foundations as required by the consented plans.
[82] I am satisfied that the Reeves did not discover their cause of action until
2 April 2007.
Was the claim reasonably discoverable at an earlier date?
[83] Even if the problem was not discovered until 2 April 2007, Lakes Environmental argued that the defect in the foundations was reasonably discoverable at any point in time from when the builder commenced work, up to 9
February 2007 when the slab was poured concealing the defective work. This was because:
(a) the Reeves were integrally involved in the building project; (b) the Reeves were aware of the changed plans;
(c) the Reeves required the builder to commence work using the unapproved plans; and
(d)the Reeves failed to properly bring the approved plans to the builder’s attention and ensure he constructed the house in accordance with those plans.
[84] Lakes Environmental made a great deal of the Reeves’ involvement in the building work, noting that the Reeves themselves made the application for resource consent and building consent, they liaised with the architect, the builder and council staff on responding to the request for additional information, they were living on site in the adjacent old house, the Hebel supplier referred to them as the “project manager/main contractor”, and they had sufficient knowledge and involvement in the project to identify other concerns about possible defects in the construction of the project.
[85] I do not accept that those factors establish that the Reeves had a project management role in the building work, let alone should have been alive to the error in the foundation work. It is clear from the quote their builder provided them, that he was charging a 10 per cent management fee to undertake the project management role himself. They were also living away from the site frequently so it would not have been practicable for them to have taken on this role.
[86] The Reeves’ role was no more than that which any capable and interested home owner would take when embarking on their first home building project, particularly when they lived on the construction site. They were obviously capable people in many respects, but were novices when it came to the technical details of house construction and management of the building process. They relied on their architect and builder for those roles.
[87] Thus, while the letter from Lakes Environmental listing the further information required was sent to the Reeves, Mrs Reeves simply acted as the go between, handing those requests on to her builder and architect. It was the builder and architect who between them decided it was the architect who needed to address the bulk of the enquiries. There was nothing to suggest that the Reeves personally took responsibility for, or understood the significance or relevance of, the technical information requested.
[88] Lakes Environmental’s next point is that the Reeves were aware of the changes to the plans, and by implication, should have noticed that what was being built did not accord with the changed plans. However, as already stated, while Mrs Reeves acted as the conduit for the request for further information, her evidence was that she did not “understand their importance, or even in some cases the meaning of the items”. While she acknowledged that she knew this meant a change had to be made to one of the plans, her assertion that she did not appreciate the significance of that was entirely credible. Furthermore, there was no evidence to suggest she knew what was required by way of physical set out of the foundations to meet the technical requirements of the plans. It is clear she trusted the builder to do what the plans required.
[89] Lakes Environmental also asserted that the Reeves provided the unapproved plans to the builder and “required” him to commence work in accordance with these plans. However, that overstates the position. Having checked with council planning staff, and with her architect, Mrs Reeves satisfied herself it was safe for the builder to start work setting out the foundations, but she ensured that no permanent building work, such as the concrete pour, was undertaken until she had the building and resource consents and the required inspection had been undertaken. There is nothing
to suggest that the Reeves authorised work to proceed that would not be consistent with the building consent.
[90] Finally, Lakes Environmental argued that the Reeves failed to bring the approved plans to the builder’s attention and ensure he constructed the house in accordance with those plans. However, even if that was correct, that does not answer the question of whether the defect in the foundations was reasonably discoverable. That turns on whether a reasonable home owner in the Reeves’ shoes should have understood the significance of the requested change to the foundation plan, then monitored the preparatory foundation work, and realised that it was incorrectly done. I do not consider that is a realistic expectation of first time home builders, even comparatively capable ones such as the Reeves. I am satisfied that the Reeves were genuine when they said they did not appreciate the significance of the requested change and certainly had no awareness that the work the builder undertook in setting out the foundations was not in accordance with the consented plans.
Conclusion
[91] This is not a claim for physical damage to the property (although physical damage has since occurred because of the effects of weather and movement on the inadequately braced and supported walls). Like most defective building claims it is for financial loss,9 which in this case comprises the cost of remedying the defect so that a code-compliant house can be built. That financial loss does not occur until a reasonably prudent owner would have discovered the defects (subject of course to
the 10 year long stop period now provided for in s 393(2) of the Building Act 2004).
[92] Cases on reasonable discoverability tend to focus on obvious physical defects, such as visible cracks, which would alert a reasonable home owner to the existence of a problem. Such evidence of a latent defect does not require technical skill or knowledge, but simply ordinary skills of observation.
[93] In the present circumstances I do not consider that the damage suffered by the
Reeves accrued until they became aware of the problem with the foundation
9 Hamlin, above n 6.
construction. Up until that point, they would have proceeded with the house build, oblivious to the problem, and could have sold it for full market value. It was only once the problem was discovered that damage ensued, because at that point they could no longer complete the house and obtain a code compliance certificate without undertaking costly remedial work.
[94] Accordingly, I am satisfied that the cause of action arose on 2 April 2007 and, by filing a claim on 28 March 2013, the Reeves’ claim was not statute barred.
Were the plaintiffs contributorily negligent?
[95] Lakes Environmental allege that the Reeves were contributorily negligent because they:
(a) failed to take any notice of the requirements of the building consent, in particular the requirement relating to the location of the slab thickenings;
(b)failed to bring the issue of the slab thickenings to the attention of the builder;
(c) failed to make any adequate enquiries and make inspections to ensure their home was being built in accordance with the building consent;
(d)failed to ensure that the conditions detailed in the building consent were conveyed to the builder;
(e) failed to provide the approved plans to the builder and/or the inspector.
[96] The Contributory Negligence Act 1947 provides, in s 3:
Where any person suffers damages as a result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced
to such extent as the Court thinks just and equitable having regard to the claimants share and the responsibility for the damage.
[97] “Fault” is designed in s 2 of that Act as meaning:
Negligence, breach of statutory duty or other act or omission which gives rise to a liability and tort or would, apart from the Act, give rise to the defence of contributory negligence.
[98] In summary, this means that a plaintiff who has been contributorily negligent will have his or her entitlement to damages reduced in a way that reflects the extent of his or her responsibility. As was said in Froom v Butcher:10
Negligence depends on a breach of duty, whereas contributory negligence does not. Negligence is a man’s carelessness in breach of duty to others. Contributory negligence is a man’s carelessness in looking after his own safety. He is guilty of contributory negligence if he ought reasonably to have foreseen that, if he did not act as a reasonable prudent man, he might be hurt himself. (emphasis in original)
[99] In judging the standard of care to be expected of the plaintiff, the views of Glanville Williams,11 which have been endorsed in the New Zealand Courts,12 are that a higher degree of fault would be required to establish contributory negligence by a plaintiff, when failing to properly look after his or her own interests, than the degree of fault necessary to render a tortfeasor liable. Whether the conduct constitutes contributory negligence is a question of fact and turns on whether the plaintiff acted reasonably in all the circumstances.13
[100] The actions or inactions said to have contributed to the Reeves’ loss are identified in para [95] above. To support the claim of contributory negligence, those actions or inactions must represent a departure from the standard of a reasonable person in the circumstances the Reeves were facing, and be causative of the damage suffered.
[101] The first allegation is the failure to take notice of the requirements of the building consent in relation to slab thickenings. However, I do not consider that this
10 Froom v Butcher [1975] 3 All ER 520 at 523, [1976] QB 286 at 291.
11 Glanville Williams Joint Torts and Contributory Negligence (Stevens, London, 1951) at 353.
12 O’Hagan v Body Corporate 189855 [2010] NZCA 65 (CA) (“Byron Ave”) at [76].
13 Hooker v Stewart [1989] 3 NZLR 543 (CA).
represents a departure from the standard of a reasonable and prudent home owner engaging professionals to build their home. Such persons cannot be expected to have the technical knowledge to interpret building plans and specifications, or to identify the relative significance of their requirements.
[102] For the same reason, I do not consider that a reasonably prudent home owner should be required to bring any details of the plans and specifications to the attention of the builder. That is to ascribe to them a supervisory role which could only be expected of professional project managers. In any event, in respect of the requirement to amend the plans to show the slab thickenings under internal walls, there is uncontested evidence that Mrs Reeves did refer this to both the builder and architect and, between them, it was agreed that the architect would amend the plans to reflect that requirement.
[103] Similarly, there can be no implied duty or obligation on the reasonably prudent home owner to make enquiries or to inspect to ensure their home was being built in accordance with the building consent. The builder was being paid to be a project manager, the requirement to build in accordance with a building consent was fundamental to his obligations, and the Reeves reasonably relied on the building inspector to carry out inspections to ensure the home was being built in accordance with the building consent.
[104] The fourth and fifth allegations supporting Lakes Environmental’s claim that the Reeves were contributory negligent, were that the Reeves failed to ensure that the conditions detailed in the building consent were conveyed to the builder and failed to provide the approved plans to the builder and/or the inspector.
[105] I am satisfied that there was no obligation to provide the approved plans to the inspector. He was employed by the organisation which issued the building consent and the approved plans, and his primary function, as I have already found, was to inspect the building to ensure compliance with the building consent including the approved plans. There is no reason why the Reeves should be charged with an obligation to ensure he had the plans.
[106] The next assertion was that the Reeves had to ensure that the approved plans, and the conditions detailed in the building consent were provided to the builder.
[107] The Reeves were aware of the significance of the building consent as they knew no substantive building work could proceed until it was granted. When the building consent arrived Mrs Reeves took them out to the builder and he responded by saying he was glad to hear that the consent had been granted. However, his instruction to “put them all away in a safe place” did not seem strange to her;
... because I assumed he knew what he was doing and I assumed that they needed to be protected and not lost. It did not even occur to me at the time that they would look different, such was the lack of personal involvement that I had in the whole process. ...
Also he knew about the changes that had been required before the plans were consented, so I had no reason to question his actions.
Her reaction to his instruction was therefore understandable in the circumstances.
[108] The consent documents specified (albeit in the context of a list of 31 small print conditions) that “the owner or his authorised agent are reminded of their responsibilities to ensure that any conditions detailed are conveyed to the appropriate parties engaged to carry out works associated with this consent”. Lakes Environmental relied on this instruction as placing an onus on the Reeves to ensure their builder used the approved plans. However, that statement in the consent simply requires the Reeves to draw their builder’s attention to the conditions of the building consent. None of the 31 conditions then listed referred to the foundation plans, so even if that instruction was carried out, there is no evidence it would have changed the outcome.
[109] Having drawn the builder’s attention to the consent, as Mrs Reeves did, and where he then asked for them to be stored somewhere safely on the building site, it was reasonable for the Reeves to assume that the builder had sufficient understanding of what the documents required, that they could follow those instructions. They could also assume that he would ask to refer to those documents if he needed them. That is particularly so given there had been some toing and froing over who had the responsibility to respond to the 12 queries by the consent
authority so the Reeves could expect the builder to be aware of the changes made to the preliminary plans.
[110] I do not consider that the Reeves were negligent and therefore causative of the subsequent losses.
Did the plaintiffs fail to mitigate their loss?
[111] The next affirmative defence raised by Lakes Environmental was the failure of the Reeves to take steps to mitigate their loss.
[112] In its statement of defence, Lakes Environmental identified those failures as:
(a) failing to take any steps to have the builder rectify his defective building work or to make a claim against him or his estate; and
(b)failing to take timely steps to remedy the defects, either by themselves or through the agency of the builder or other building professionals to complete and/or protect the building against the effects of the elements and the effluxion of time.
[113] In opening, the failures alleged by Lakes Environmental had evolved somewhat to encompass the:
(a) failure to pursue Mr Brown, the builder;
(b)failure to engage professional advice on the best way to rectify their problems; and
(c) failure to obtain legal advice in a timely manner.
[114] In pleading a failure to mitigate, Lakes Environmental relies on the principle articulated in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd:14
The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.
[115] In the words of James L J in Dunkirk Colliery Co v Lever:15
The person who has broken the contract is not to be exposed to additional costs by reason of the plaintiffs not doing what they ought to have done as reasonable men ...
[116] However, as the Reeves point out:16
The onus is on the defendant to establish what reasonable steps could and should have been taken by the plaintiff and that these steps were not taken. The onus on the defendant includes an onus to demonstrate how the steps the defendants says should have been taken would have reduced the damage.
The Reeves say Lakes Environmental has not done this.
Failure to pursue the builder
[117] Lakes Environmental claims that the Reeves had an obligation to bring a claim against the builder as “a claim against the builder would have been more straightforward to prove than a claim against the Council”, and there was nothing precluding the plaintiffs from bringing a claim against the builder (or his estate) before the proceeding became time-barred.
[118] However, that is to circumvent the rule that the plaintiff has a choice about whether to sue one, some, or all, of the tortfeasors who are said to have caused its loss. Where a defendant considers other parties are also liable then the onus is on them to cross claim against or seek contribution from those parties. Of course, now the builder is deceased, and his estate (whatever that may have been) distributed, that opportunity has been lost to Lakes Environmental. Clearly that is to
Lakes Environmental’s disadvantage, but that is a conclusion which is reached with
14 British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 at 689.
15 Dunkirk Colliery Co v Lever (1878) 9 CH D 20 at 25.
16 White v Rodney District Council (2009) 11 NZCPR 1 (HC) at [26].
the benefit of hindsight. I do not consider that a duty to mitigate can encompass a duty to sue all relevant tortfeasors. They are quite different concepts.
[119] I distinguish this from cases such as Walker v Geo H Medlicott & Son,17 where the Court held that a claimant beneficiary had failed to mitigate his loss by not commencing proceedings for rectification of a will before commencing proceedings against the solicitors who drafted it. That was not a circumstance requiring litigation against joint tortfeasors, but taking a step which involved an application to the Court to resolve the problem, before embarking on a claim in negligence.
[120] More difficult is the question of whether the builder should have been requested to put his work right, given his tacit admission that he had made an error. That, however, requires a factual enquiry into what he could have done and whether he had the resources to do it. Despite attempts by Lakes Environmental through cross-examination to suggest that other, less costly, remedial options were available, the most logical repair option available on the evidence, was removal of the erected Hebel walls and the foundations and starting the building project again. That was a significant undertaking which involved, not just the builder’s labour, but significant cost in removing and dumping the existing materials, purchasing replacement blocks, tie rods, reinforcing steel and concrete, and then starting the building project again.
[121] The Reeves’ evidence was that they had expended approximately $150,000 on labour and materials to build the house to that point. They understood (rightly or wrongly), that Mr Brown had been through a bankruptcy and a marriage breakup and did not have the financial resources to address the problem. They also knew by then that he did not have insurance for such eventualities. The fact he walked off the job and did not make contact with them again for several years reinforces their assumption that he was not in a position to assist.
[122] At this point, it is mere speculation as to what he might have been prepared and able to do to reduce the losses that the Reeves have suffered. There is no
evidence to suggest he could have provided the time and money required to rectify
17 Walker v Geo H Medlicott & Son [1999] 1 WLR 727.
the situation. I am therefore not prepared to find that their failure to pursue him was a failure to mitigate their losses, when it cannot be demonstrated what reduction in their losses that would have achieved.
Failure to remedy the defects and/or protect the building against the effects of the elements and the effluxion of time
[123] Building work stopped on 2 April 2007 when the first floor Hebel walls were erected, but little else had been done. Since then, through a combination of wind, weathering, and two earthquake events occurring on 8 August 2007 and
16 October 2007, and because the wall junctions are unsupported and there is no bond beam connection, damage has occurred to all wall sections.
[124] The options for remediation that I heard expert evidence on (other than complete demolition and rebuild) were:
(a) cutting the existing concrete slab at the internal block wall positions, removing the cut sections and reconstructing them in accordance with the Batchelar McDougall Consulting Design report; or
(b)cutting the concrete slab at the internal block wall positions, reforming the thickening positions and re-pouring a full
100 millimetre thickness concrete slab above the existing slab with reinforcing connections at the perimeter foundation edge between the existing and new slab;
[125] Mr Faris’s evidence, which I accept, is that there would be little difference in costs between undertaking the remediation options described by Batchelar McDougall Consulting Design or simply removing the entire existing floor slab and starting again. The latter was also the most robust and effective way to address the problem.
[126] Lakes Environmental, via Mr Laurenson’s evidence, endeavoured to suggest that there were more affordable options for repair which were not fully explored. These included converting to a timber frame construction or simply laying an
additional thickness of slab over the existing slab. However, none of
Lakes Environmental’s witnesses satisfactorily explained:
(a) how the failure to install the vertical reinforcing starters to the appropriate depths would be remedied;
(b) how even a timber framed house could comply with NZS 3604:1999;
and
(c) what reduction in cost there would have been if either of these options were capable of being implemented.
[127] Furthermore, in respect of the timber framed option, the evidence from both Mrs Reeves and Mr Faris was that such a building was not comparable, either in look or in performance, to a house constructed entirely in Hebel blocks. I am therefore not persuaded that there was an alternative option for remedying the defect that would have been significantly cheaper than complete demolition and which would have resulted in an equivalent house being built.
[128] Accordingly, while there is no doubt that the structure on site has deteriorated in the seven years which have passed since the problem was discovered, Lakes Environmental has not discharged the onus of demonstrating that there was a practicable step which could have been taken in the interim, and which would have reduced the Reeve’s loss in a quantifiable way. All of them required removal of the Hebel walls in any event, and so Lakes Environmental had not demonstrated that protection of the building would have reduced the damages suffered.
Failure to obtain appropriate professional advice
[129] In closing submissions Lakes Environmental was also critical of the Reeves for failing to engage the services of professionals to come up with fully developed options for rectifying the problem.
[130] I accept the professional advice sought by the Reeves has generally been preliminary in nature and has not, as Lakes Environmental would have liked,
provided detailed remedial options accompanied by quotes for the costs of implementing them. As already suggested, this was a source of frustration for Lakes Environmental in trying to progress matters with the Reeves and I have no doubt that, had this been done sooner, negotiations would have advanced in a more constructive and amicable way.
[131] However, I consider Lakes Environmental has overstated the Reeves’ failure. For example, Lakes Environmental describes as “inexcusable” the Reeves’ failure to undertake invasive testing to check whether the building work was actually defective. That seems an unfair criticism, when their own inspector confirmed in his report that the foundations were built in accordance with the unstamped plans on site, and therefore must have been defective.
[132] While the Reeves’ failure to provide the promised technical advice to Lakes Environmental certainly stymied the chance of a negotiated resolution, given my finding that the remedial option of starting construction again was the most robust, and was unlikely to cost more than other remedial options supported by Mr Faris, Lakes Environmental cannot show the Reeves have failed to mitigate their loss by this inaction.
Failure to obtain legal advice in a timely manner
[133] This allegation was not advanced in Lakes Environmental’s pleadings and for that reason alone, I decline to give it weight. In any event, I consider it falls into the same category as failing to complete professional advice on remedial options.
[134] While the Reeves sought ad hoc legal advice at a couple of junctures in their negotiations with Lakes Environmental’s insurers, they did not engage lawyers to assist them fully with their claim until early 2013, when they filed the claim to avoid the claim being time barred.
[135] Again, the failure to seek comprehensive legal advice did contribute to the lack of progress made on their claim in the six years prior to filing their proceedings. Had they obtained comprehensive legal advice earlier they would have understood why it was unrealistic to expect an admission of liability from Lakes Environmental
and a payment which was not supported by professional advice about the options and costs of remediation.
[136] However, this, like other claimed failures to mitigate, cannot be shown to have affected the Reeves’ core claim for damages, being the cost to demolish and reconstruct the house and is not an example of failure to mitigate their loss.
Increased costs through delay
[137] Underlying many of the arguments about a failure to progress the claim was a concern that the delay has led to increased costs to repair the house. However, as was explained in White v Rodney District Council:18
The onus on the defendant is not met simply by demonstrating that it would have cost less in nominal terms to do repairs at an earlier date. ... the defendants in this case must show, amongst other things, that delay in carrying out repairs has increased the damage. For example, it would not be sufficient for a defendant to have proved only that damage which existed in 2002 would cost $40,000 to repair in 2009, whereas the same damage could have been repaired in 2002 for $20,000.
[138] Furthermore, in White it was accepted that it may be reasonable for a plaintiff to postpone repair work because of a refusal by another party to accept liability, when that other party was ultimately found to be liable.19
[139] In the present case, while the evidence disclosed that the Reeves had the financial means to implement the repair work, and borrow to complete the build, I do not think it was necessary for them to do so. They were only prepared to build something which was within their means, and which did not involve them incurring a large debt. Without significant contribution from the builder or Lakes Environmental to a full repair, they were considering building a less substantial home. Mrs Reeves says she wanted from Lakes Environmental “an acceptance of liability” saying “it was impossible to find a solution until we knew what our budget was and then we could cut our cloth appropriately” and “we need to know how much money we have so we can know which [option] we were going to
pursue. We were actually prepared to go with the wooden house when everything
18 White v Rodney District Council (2009) 11 NZCPR 1 (HC).
19 At [32].
else looked like it was falling to pieces”. As counsel for the Reeves said, “the Reeves may have taken some time to establish how best to proceed, but their trepidation at launching into more remedial construction can be understood and should be borne in mind when assessing whether their actions were unreasonable”.
What is the quantum of the plaintiffs’ claim?
[140] The Reeves seek damages totalling $305,651.74 including GST calculated as follows:
(a) $225,180.65 being the cost of remedying the defective construction and rebuilding to the same point construction was at in April 2007 (including architect and Council fees);
(b)$52,037.81 being the increased cost to complete construction of the house beyond the point where construction was at in April 2007;
(c) $9,808.64 being the cost of consultants engaged to advise how to remedy the defective construction;
(d) $12,720.52 being the cost of lost materials purchased prior to
April 2007 that can no longer be used;
(e) $5,904.12 being the cost to renovate the old house while waiting for construction on the new house to resume.
[141] They also claim general damages in the amount of $70,000, being $35,000 per plaintiff, for stress and anxiety and to account for the negative impacts on the health and wellbeing of the Reeves and their children, and also to account for the annoyance and discomfort suffered as a result of having to live in an old and unsatisfactory house for seven years.
[142] The Reeves’ claim was supported by evidence from Mr Mark Burrows, a quantity surveyor, who gave evidence of the costs the Reeves will incur in removing the construction completed to date, and rebuilding it to the same stage (bond beam
level), along with the increased cost of completing the house six years later in 2013. There was no competing evidence on the quantum of costs.
[143] His evidence was that the cost to demolish the existing structure and rebuild it up to bond beam level is $207,458.98, and the additional difference in costs of completing the house in 2013 compared with the cost in 2006 was $52,037.81. This, combined with new design fees and council consent costs of $13,129.31, gave a total cost to demolish and rebuild to the existing stage, plus the increased cost to complete the house in 2013, of $277,218.46.
[144] On top of that sum, the Reeves are claiming:
(a) wasted costs for products and services which were purchased for the house which are now unusable and/or otherwise wasted expenditure totalling $12,720.52;
(b)costs of consultants and lawyers who have been engaged to provide advice on the problem totalling $9,808.64;
(c) $5,904.12 for money spent on their old house to maintain it in a liveable standard, when they had not expected to do this because the house was to have been demolished;
(d)architect’s fees and council fees incurred in relation to the defective house, which they say are wasted costs, totalling $12,290.50; and
(e) general damages of $70,000 for stress and anxiety, and for the negative impacts on their health and wellbeing caused by the problem.
[145] Lakes Environmental has made various challenges to the items claimed.
Demolition and rebuild costs
[146] As I have found that demolition and reconstruction is the appropriate remedial option, as it will remedy the defect fully and is unlikely to cost more than
the other options proposed by Mr Faris, then logically all additional costs that flow from that are recoverable.
[147] In closing Lakes Environmental claimed that reimbursement was being sought for work which would have had to have been done in any event (Mini Manoeuvres, Bobcat, Workable Earth, Hirequip) to excavate the foundations, the benefit of which has not been lost. However, I do not accept that is correct. Those are costs used to quantify the existing expenditure of $128,000, and are not costs the quantity surveyor has included in the costs of demolishing the existing structure and slab and rebuilding it up to bond beam stage.
[148] I also do not accept Lake Environmental’s submission that the Reeves cannot claim for replacement Hebel blocks. It is implicit in the supplier’s offer of cost price Hebel blocks back in 2007, that the existing blocks could not be reused. In any event, I have accepted that the walls need to be demolished to implement the remediation and could not, even if the blocks had been protected against weather and earthquakes, have been retained.
[149] The claim for demolition and rebuild costs is therefore allowed at
$264,089.15. This variation from the Reeves’ figure is because I have not allowed
new design fees and council costs as will be explained below.
Wasted expenditure costs
[150] I accept that some of the items which have subsequently become unusable or wasted expenditure can be claimed. For example, I accept that the aluminium window extrusions purchased have become obsolete and cannot be used to manufacture the windows required.
[151] However, I agree with Lakes Environmental’s submission that the cost of replacing the trusses should not be borne by it. The trusses were the property of the Reeves, albeit stored on the truss company’s premises. Mrs Reeves acknowledged that the truss company said “they will be fit for purpose” last time she spoke to their representative and she had asked the truss company to properly protect them. If they
are no longer usable, that appears to me to be a matter between the Reeves and the truss company.
[152] The wasted expenditure claim is therefore allowed, but is reduced from
$12,720.52 to $9,281.25.
Consultants’ fees
[153] The next head of costs claimed relates to consultants’ fees. However, the claim for legal advice from Mr Shiels is a legal cost associated with this claim, and should be subsumed in the consideration of any costs award to the Reeves.
[154] Similarly, the costs of the second quantity surveyor were acknowledged by Mrs Reeves to be for the purpose of preparing evidence for this hearing and again will be addressed in any costs award made in the Reeves’ favour. The costs of Constructive QS, are not claimable, as it was the Reeves’ decision not to use this consultant’s advice because she “had no faith in him”. That additional cost cannot reasonably be claimed from Lakes Environmental.
[155] The claim for consultants costs is therefore allowed but reduced from
$9,808.04 to $4,442.74.
Architect’s and Council Fees
[156] The Reeves claim architects’ fees of $7,176 for drawing up new plans plus anticipated Council fees of $5,953.
[157] There is no plausible explanation for why the Reeves need new architectural plans. Mrs Reeves could not explain why this was to occur, except that she understood that they had to “start from scratch”. Lakes Environmental says the consented plans can still be used.
[158] I am also satisfied, based on the assertion of Lakes Environmental’s lawyer, that the existing building consent, can still be used, and there remains $4,000 held in the Reeves’ name, to use for inspections. It would be extraordinary in the
circumstances if Lakes Environmental was to charge the Reeves any additional fee for completing the house using the current building consent.
[159] This head of claim is therefore disallowed on the basis that Lakes Environmental will charge no further fee for carrying out its regulatory functions in relation to the rebuild. They are also not allowed in the rebuild cost, as the original money spent on these items is not wasted.
Repairs to existing house
[160] The Reeves claim $5,904.12 for the cost to renovate the existing house they have been living in.
[161] This is not a head of claim I am prepared to allow. The costs are not shown to be beyond the range of costs normally incurred in maintaining a property. By staving off the construction of the new house, they will also defer the time when the new house starts to require maintenance. Overall, I am not satisfied they have suffered a recoverable loss in this regard.
General damages
[162] The Reeves seek general damages of $70,000, comprising $35,000 for
Mr and Mrs Reeves respectively. The basis of this claim is that:
(a) they have had to live in an old house on the property which would otherwise have been demolished;
(b)one of the Reeves and two of their children have suffered serious medical issues during the seven years since construction ceased;
(c) the Reeves have had to deal with the stress of dealing with consultants, engineers, builders, the defendant, insurance companies and their lawyers to resolve the building issues;
(d)the additional stress caused by the building issues have had a significant impact on the mental and physical wellbeing of the entire family, and have exacerbated the illnesses they have suffered.
[163] While there was evidence from Mrs Reeves about the impact of their stress levels and the effect of having to continue to live in an old house which was scheduled for demolition, there was no evidence to support the suggestion that the building dispute had exacerbated the illnesses the Reeves family had suffered.
[164] I also found it contradictory to suggest that Mrs Reeves had “to take time off work to deal with all the people and issues involved” when, on the other hand, she asserted that she was unable to progress the matter, because for the majority of the year she was away on work.
[165] Another feature of this case is the evidence which came out in cross-examination, that the Reeves had around $250,000 saved to fund the building project and that further contribution could readily come from Mrs Reeves’ six figure income and/or borrowing. The Reeves have had the benefit of interest on the unspent balance of their savings, plus seven more years to add to those savings, and thus avoid borrowing, but no account of that benefit has been recognised in the Reeves’ claim.
[166] For these reasons, I do not consider this is a case where a significant award for general damages should be made. While the Reeves have had to wait seven years for resolution of their claim, that to some extent is because of the choices they have made about how to progress their claim, and they have not taken into account potential benefits on interest earned on the funds held for the building project. Accordingly, I award $15,000 each for general damages, making a total award under this head of claim of $30,000.
Outcome
[167] The Reeves have been largely successful in their claim. They are awarded a total of $307,813.14 in damages, which includes the general damages awarded of
$30,000.
[168] They are also entitled to costs, awarded on a 2B basis, plus disbursements fixed by the Registrar.
Solicitors:
B Nevell, Dunedin
M E Parker, Queenstown
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