Sleight v Beckia Holdings Ltd

[2020] NZHC 2851

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2017-409-000818

[2020] NZHC 2851

BETWEEN

JOAN MARGARET FRASER SLEIGHT and ALAN LEITHFIELD SLEIGHT
Plaintiffs

AND

BECKIA HOLDINGS LIMITED

(PREVIOUSLY FR 2012 LIMITED and FARRELL RESIDENTIAL LIMITED
First Defendant

ORANGE H MANAGEMENT LIMITED (PREVIOUSLY HAWKINS
MANAGEMENT LIMITED)

(In Receivership and In Liquidation) Second Defendant

IAG NEW ZEALAND LIMITED
Third Defendant

QBE INSURANCE (AUSTRALIA) LIMITED

Fourth Defendant

Hearing:

2 – 19 June 2020 and 20 – 22 July 2020

Appearances:

D J Cooper and M J Borcoski for Plaintiffs

N S Gedye QC, O V Collette-Moxon and M K Booth for Third Defendant

D H McLellan QC, S D Galloway and L Green for Fourth Defendant

Judgment:

30 October 2020

JUDGMENT OF GENDALL J

SLEIGHT v BECKIA HOLDINGS LTD [2020] NZHC 2851 [30 October 2020]

This judgment was delivered by me on 30 October 2020 at 3:00 p.m. pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date

Table of Contents

Para
Introduction	[1]
Background	[23]
The Policy	[23]
Initial events involving the Sleights and IAG following the CES	[28]
Situation facing Canterbury after the CES	[36]
IAG’s Managed Repair Programme and the 2012 RSMA	[40]
Subsequent events leading to the Building Contract	[55]
Building Contract	[65]
Operational documents and forms subsidiary to the 2012 RSMA	[76]
Inadequately repaired and unscoped earthquake damage to the property	[79]
(a) Scoping issues	[80]
(b) Defects in the repair works	[81]
Roles adopted by the Sleights, Farrells, IAG, Hawkins and its Rebuild Solution Managers (RSMs)	[86]
Termination of the Building Contract	[90]
Building expert reports	[96]
QBE position – Hawkins’ Negligence (PI) Policy	[100]
Sleights’ causes of action	[101]
Sleights’ claims for breach of contract, negligence and under the CGA against Farrells	[102]
Sleights’ claim for breach of the Policy contract against IAG	[108]

A proper interpretation of the Policy	[112]
The Sleights’ four “Pathways”(Paths One, Two, Three and Four)	[154]
Sleights’ Path One Policy claim – Does IAG remain obliged to meet the cost of further repair work to restore the home to its “when new” condition?	[161]
Being a “to pay” policy – what is it that IAG promises to pay?	[163]
Conclusion on this Path One Policy claim	[194]
The Sleights’ Path Four Policy Claim against IAG – implied term	[196]
IAG’s affirmative defences to the Policy claims	[206]
Declarations sought by the Sleights regarding the enforceability of certain exclusion clauses?	[210]
Sleights’ claim under the Consumer Guarantees Act against IAG	[246]
Sleights’ negligence claim against IAG	[296]
Sleights’ estoppel claim against IAG	[319]
Slights’ claims in summary against Hawkins	[327]
Sleights’ claim under the CGA against Hawkins	[328]
Sleights’ negligence claim against Hawkins	[361]
Hawkins’ additional defences	[390]
IAG’s cross-claim against Hawkins	[401]
The 2012 RSMA claim	[401]
Operational documents and forms	[416]
-     100K Manual	[417]
-     Milestone Payment Change Procedure	[419]
-     Swimlane Document	[424]
-     RSM Site Inspection Report	[428]
-     MIV Inspection Report	[430]
-     Milestone Payment Inspection form	[432]
Interpreting the 2012 RSMA	[437]
Pre-qualification breach?	[478]
Scoping breach?	[481]
Monitoring obligations breach?	[489]
Milestone payments certification breach?	[496]
Foundations/sub-floor work payment certifications	[498]
Final Building Contract payment certifications	[509]
QBE’s potential liability to the Sleights and to IAG?	[522]

IAG’s cross-claim against Hawkins/QBE for contribution	[547]
QBE’s cross-claim against IAG	[556]
Repair works required – defects and damages	[566]
Scoping defects	[582]
-     Removal and replacement of external window joinery	[584]
-     Removal and replacement of the conservatories	[589]
-     Removal and replacement of the entrance butyl membrane roofing and plywood substrate	[590]
-     Bracing	[594]
-     Timber weatherboards – bay window on north-west elevations	[595]
Key defects	[596]
-     Exterior cladding and windows	[597]
-     Structural defects	[607]
Remaining defects	[609]
-     Upper storey deck	[610]
-     Concrete front entry steps, tiled rear entry steps and tiled steps to dining area	[611]
-     Foundation plaster	[612]
-     Profiled metal roof	[613]
-     Sub-floor area (non-structural)	[616]
-     Interior	[618]
Defences	[626]
Quantum – the cost of repairs	[639]
Quantum – my assessment	[646]
Accommodation costs claim – declaration?	[670]
Landscaping	[678]
General damages	[683]
Outcome	[709]
Judgment	[716]
Interest	[720]
Costs	[722]

Introduction

[1]                 This case concerns a claim by insureds for what are alleged to be defective and inadequate repairs of their earthquake damaged house in Christchurch carried out as part of the insurer’s “Managed Repair Programme”.

[2]                 For almost 50 years the plaintiffs, Joan and Alan Sleight, who are now retired, lived and had their home at 24 Kinnaird Place, Hillmorton, Christchurch (the property).

[3]                 The Sleights’ property was damaged significantly by earthquakes in the 2010/2011  Canterbury  Earthquake  Sequence  (CES)   on   4   September   2010,  22 February 2011 and 13 June 2011.

[4]                 The Sleights had their property insured with the third defendant, IAG New Zealand Limited (IAG), (trading under the brand name “State”) under an insurance contract described as a State “Home Comprehensive” insurance policy” (the Policy). The Policy referred to a reinstatement standard for the Sleights’ damaged home “…to a condition as similar as possible to when it was new…”

[5]                 The Sleights made a claim under the Policy, which IAG accepted. It was common ground that the earthquake damage to the property was repairable.

[6]                 All this occurred in what were the extreme circumstances of the major natural disaster that hit Christchurch – the CES. The devastating impact of the CES on Christchurch, Canterbury and this country generally was quite unprecedented. The physical and emotional impact on many people was huge. At a practical property level, hundreds of thousands of earthquake damage insurance claims were made and it is fair to say that the insurance industry and the construction related industries generally struggled to cope with the magnitude of those claims and the building and repair work required.

[7]                 Recently, insurance law commentator, Professor Rob Merkin QC, put this last aspect into perspective:1

The number of damaged properties [as a result of the CES] has been out of proportion to the capacity of New Zealand’s professional infrastructure. Insurers and loss adjusters struggled to make the necessary assessments. Architects, project managers and builders faced unprecedented demand, and new entrants were attracted into the market. The inevitable consequence of these shortages was, regrettably, many instances of substandard repair work. The problem has, to date, not reached the epidemic levels of the “leaky building” scandal, but there are significant numbers of policyholders whose repairs have proved to be defective and who have sought corrective work.

[8]                 In response, IAG, like other insurers at the time, established what was described as a “Managed Repair Programme”.2 Like all their policy claimants, IAG encouraged the Sleights to arrange for their property damage to be repaired under its Managed Repair Programme. IAG achieved this in two ways. First, it arranged for one of its designated builders in a case like the present to be “assigned” to the job. Here, this was to be the first defendant, Beckia Holdings Limited (now in liquidation), previously Farrell Residential Limited (Farrells). They were to carry out the repair work to the Sleights’ home. And, secondly, it confirmed that the second defendant, Orange H Management Limited (now in receivership and in liquidation) (previously known as Hawkins Management Limited) (Hawkins), would act as project manager, to monitor the building repair works on IAG’s behalf. IAG devised its Managed Repair Programme in response to the huge number of policy claims from insureds it was receiving and the overall situation following the CES. It was being widely used at the time.

[9]                 Documentation under the Managed Repair Programme was entered into by the parties to confirm the arrangements. So far as the building repair work was concerned, a standard form building contract dated 14 October 2013 (the Building Contract) naming Farrells as builder, and the Sleights as owners, was signed. Unbeknown to the Sleights at the time, a second contract, described as a “Rebuild Solution Master

1      Rob Merkin QC, “Insurers’ Liability for Defective Repairs” (2019) 25 NZBLQ 133 at 133. (Footnotes omitted.)

2      IAG, in a 29 June 2015 letter to the Sleights, twice use the phrase “IAG Managed Repair Programme” as their “Rebuild Programme” and separately referred to Farrells’ repair work on the house as “an IAG Managed Repair”. Recently, however, IAG has chosen to refer to the Programme as the “Hawkins Managed Repair Programme”, but in any event this carries much the same meaning here.

Agreement”, had been entered into between IAG and Hawkins on 13 August 2012 (the 2012 RSMA). This related, amongst other things, to Hawkins’ role described in part as being to monitor the delivery of the building repair work.

[10]             Repair works to the property were carried out by Farrells in 2014 and 2015. The Sleights say that these works were incomplete and defective with the result that the earthquake damage to their property still remains unrepaired. Their position is that supplementary and remedial works are required to complete the repairs to the “when new” standard required by the Policy.

[11]             The Sleights say they were required by IAG to sign the Building Contract with Farrells, which they did at the time without seeking advice. They allege, first, that the repairs required to their property were not scoped or completed to the standard required by the Policy, and secondly, that Farrells did not carry out the remedial works in a proper and tradesmanlike manner.

[12]             They claim that IAG is liable under the Policy to pay the cost of the work that now proves to be necessary to undertake the required repairs to the policy standard. This is to include remedying the previous defective work. They claim also that IAG is liable to them in negligence, under the Consumer Guarantees Act 1993 (CGA) and in estoppel.

[13]             Both the builder, Farrells, and the project manager, Hawkins, are now in liquidation. Notwithstanding this, the Sleights advance causes of action here against Farrells for breach of the Building Contract and under the CGA and against Hawkins in negligence and under the CGA.

[14]             At the time, the fourth defendant, QBE Insurance (Australia) Limited (QBE), indemnified Hawkins under contracts of insurance Hawkins had maintained with QBE before it went into liquidation. The Sleights in turn claim against QBE that:

(a)Hawkins is liable to them as project manager for negligence and also under the CGA; and

(b)QBE is liable for Hawkins’ liability, by virtue of a charge over the insurance monies under s 9(1) of the Law Reform Act 1936. This gives rise to contribution arguments between IAG and QBE under s 17(1)(c) of the Law Reform Act and/or in equity.

[15]             In addition to the Sleights’ claims against IAG, Farrells, Hawkins and QBE, in this proceeding IAG brings a cross-claim against QBE. This cross-claim is a contract claim under cl 17.2 of the 2012 RSMA. This clause is an indemnity provision that specifies if owners (such as the Sleights) bring a claim against IAG and IAG incurs any liability to those owners as a result of any breach by Hawkins of its obligations under the 2012 RSMA, then Hawkins must indemnify IAG for such liability. The indemnity extends to all reasonably incurred legal costs and expert costs incurred by IAG.

[16]             Thus, if and to the extent that the Sleights succeed in obtaining judgment against IAG under any of their causes of action, IAG claims from QBE that sum, plus its costs under cl 17.2 of the 2012 RSMA. Alternatively, if the Sleights do not succeed against IAG then it will still claim for reimbursement under the indemnity, its experts’, legal and related costs arising from the Sleights’ claims. This is on the basis that it has incurred these costs as a result of the Sleights bringing their claims against IAG and the need to defend them. This aspect of the indemnity claim, therefore, remains regardless of the outcome of the Sleights’ claims against IAG.

[17] Finally, IAG brings contribution claims against QBE. Those contribution claims only engage in relation to any of IAG’s liability to the Sleights which is not recoverable from Hawkins or QBE under the 2012 RSMA indemnity cause of action. The primary case advanced by IAG is that the 2012 RSMA claim responds to any liability IAG may be found to have to the Sleights. In this sense, the contribution claims are backup claims. Nevertheless if, for any reason, it is established that IAG cannot recover fully from Hawkins/QBE under the 2012 RSMA, then the contribution claims represent a second pathway of potential liability for a claim brought by IAG against QBE. IAG claims this contribution from QBE under two heads, first, under s 17(1)(c) Law Reform Act as a contribution claim from a joint tortfeasor and, secondly, in equity.

[18]             Lastly, QBE itself brings a cross-claim against IAG pursuant to another indemnity provision in the 2012 RSMA. Under this provision (cl 17.1) IAG agreed to indemnify Hawkins for all claims and costs incurred by Hawkins arising from or in connection with the 2012 RSMA except to the extent caused by Hawkins’ breaches or by any reckless, fraudulent or wilful acts or omissions by Hawkins. This cross- indemnity QBE says was specifically negotiated and drafted so that Hawkins would be protected from the kinds of claim that the Sleights have brought against it in this proceeding.

[19]             Generally, IAG has described this proceeding as an important “test case”. This is in the sense that it may be the first case to determine IAG’s potential liability for the costs of completing earthquake repair work where the original repairs carried out under IAG’s Managed Repair Programme were defective. In other words, this proceeding is said to be the first to determine whether IAG remains liable under its standard insurance policy if there are defective repairs. Also, the claims brought against IAG both in tort, under the CGA and alleging estoppel, are said to be novel, in that they have not previously been before the courts.

[20]             In addition, it is suggested this proceeding is also likely to establish potential issues of liability as between IAG and QBE which will be relevant for other cases. In these respects, in an earlier judgment in this Court issued in this proceeding, Associate Judge Lester noted:3

[46]  While this is not a representative claim,  I accept IAG’s submission  that it does involve extensive and complex test case issues…whether the issues are called “novel”, “pivotal” or otherwise is not the point. The fact is this proceeding raises a number of issues that have not been before a New Zealand Court before.

And:

[48] Other litigants have structured their proceedings in part on the basis  that this claim was going to be heard in June 2020. Other litigants will be assisted by rulings in this Court on the novel issues in this case…

3      Sleight v Beckia Holdings Ltd (in liq) [2020] NZHC 571.

[21]             Causes of action seeking declarations under the Declaratory Judgments Act 1908 are also pleaded here by the Sleights. The first is a cause of action against IAG seeking a declaration that certain exclusion clauses in the Building Contract defined in their statement of claim are voided as unconscionable. The second is a claim for a further declaration under the Declaratory Judgments Act against Hawkins in relation to other limitation of liability and exclusion clauses. This is in addition to those claims noted above the Sleights have brought directly against Hawkins (for whom QBE is insurer) in negligence and under the CGA.

[22]             And, finally, the contractual relationships between Hawkins and IAG, in particular under their 2012 RSMA, and between the Sleights and the builder Farrells, are also potentially relevant here to the claims that IAG and Hawkins owed duties of care to the Sleights, in addition to the duties owed under the respective contracts.

Background

The Policy

[23]             The Sleights’ Policy takes the form of what is standard “State” policy wording which was issued originally in April 2007. It purports to be a plain language policy.

[24]Relevant parts of the Policy provide:

(a)An insuring promise to the insured that “You’re covered for sudden accidental loss (physical loss or physical damage) to the home that happens during the period of cover.”

(b)Under the heading “Our other responsibilities to you” IAG makes a general promise to:

…Provide you with information and advice to help you understand your insurance and its terms and exclusions.

(c)On that same page in a section described as “Making a Claim” IAG explains, under the heading “What we’ll do”, that it will

if required “…arrange for a loss adjuster to inspect the damage and explain the procedure that will be followed…”

and it will:

…give you all the information you need on how we’ll settle your claim…

(d)Under the heading “Getting our permission first” the insured must not:

…incur any expenses in connection with a claim under this policy without the insurer’s prior consent.

This section also goes on to advise:

It is best that you allow us to manage your claim on your behalf. We’ll let you know how you can help us when we talk to you about your claim.

[25]             It is useful also to set out in full important Policy provisions at page 7 which follow the heading “What you get if we accept your claim”:

(a)This section begins with an explanation box with a border incorporating an exclamation mark (!) icon (which is defined at the start of the Policy “This icon denotes important information”). The explanation states:

This section explains when we’ll repair or rebuild the home and when we’ll pay you cash for your loss, if we accept your claim. Please make sure you read this section carefully.

(b)The section then goes on in its operative section to state:

Repair, rebuild or pay cash?

If you have a loss that is covered by this policy and you repair or rebuild the home, we’ll pay:

1.the cost of repairing or rebuilding the home to a condition as similar as possible to when it was new, using current materials and methods, and

2.any cost of compliance with Government or local authority bylaws or regulations, as long as:

(a)we pay the cost of compliance only for that part of the home that has suffered loss covered by this policy, and

(b)the home complied with all requirements that existed at the time it was originally built and at the time of any alteration.

We won’t pay these costs if you’ve been given notice of non-compliance before the loss happened.

3.the following costs, as long as they were necessarily and reasonably incurred:

(a)architects’, engineers’, surveyors’, building consultants’, legal and council fees,

(b)costs of demolition and of removing debris and contents,

(c)costs of up to $2,500 to restore or reconstruct any part of the garden or lawn within the boundary of the home that was damaged or destroyed while the home was being repaired or rebuilt.

If you don’t repair or rebuild the home, we’ll pay you the fair value of the loss based on the present value of the home.

“Present value” means the market value of the home, excluding the value of the land.

Rebuilding on a different site

If the home is totally destroyed, you may rebuild the home at a different site, as long as we agree (we won’t unreasonably withhold our agreement). However, we won’t pay more than we would have paid if the home was rebuilt to its original specifications on the original site.

[26]             The Policy, under the heading “Exclusions that apply to the whole policy”, also provides:

Faults and defects

You’re not covered for the cost of fixing faulty design or faulty construction.

[27]             The Policy was current for the period from 18 July 2010 to 18 July 2011. This covers the period of the major CES for which the Sleights’ claims relate. The policy schedule which was attached described the “sum insured” as “Home – Actual

replacement” and gave a floor area of the home including all levels and any attached garage as “230 m2”.

Initial events involving the Sleights and IAG following the CES

[28]             Following the CES, at various times the Sleights lodged claims with IAG under the Policy.

[29]             On 26 May 2011, Neil Fazackerley, a loss adjuster representing IAG, first visited the property. He provided a report in which he checked a box categorising the damage to the home as “Obvious repair over $100K”. The report recorded brief details about the damage and the following “Agreed Actions” which were stated as:

Advised insured of: Land report, accommodation allowance, that Hawkins will probably project manage as repairs likely to be over EQC cap.

(emphasis added)

[30]             IAG/Hawkins instructed Farrells to obtain geotechnical, and structural engineering reports on the property and IAG/Hawkins “assigned” Farrells to the job.

[31]             On 12 November 2012 IAG obtained the geotechnical report on the property. It also completed a home assessment summary on 29 November 2012.

[32]             Jane Workman of IAG on 12 December 2012 then wrote to the Sleights reporting that the damage to their home was economic to repair. This was the first written communication from IAG to the Sleights setting out information as to their rights under the Policy. The letter enclosed a standard-form IAG document at the time described as a “Residential green zone options” fact sheet. This was a one-page document which succinctly set out the options available to the Sleights. It is unclear whether another common document also used by IAG, described as an “IAG Earthquake Information Pack” may have been provided to the Sleights at this time. It appears this was probably not the case. Nevertheless, the document represents a customer communication widely used then by IAG. Some of its contents may remain relevant here to the approach adopted by IAG to repair claims generally and the actions taken by its staff at that time.

[33]             In IAG’s Residential green zone options fact sheet, the option to repair (as opposed to a cash settlement or rebuild) was described in these terms:

Option 1: Repair your house

We will complete the repairs to your house.

Our Project Management partner Hawkins can coordinate the repair process for you.

(emphasis added)

[34]             Also attached to that 12 December 2012 letter was a “Commonly Used Terms” document. This set out further information for homeowners generally. Consistent with the fact sheet, IAG described the repair Option 1 under the Policy as an “…option under which State Insurance and Hawkins undertake the building work for you…” (emphasis added).

[35]             In addition, IAG explained Hawkins’ involvement in that “Commonly Used Terms” document provided to the Sleights in this way:

Hawkins is State Insurance’s Project Management partner, providing project management expertise to help repair or rebuild your earthquake damaged property. Hawkins has been operating in New Zealand for over 65 years and is the largest construction firm in the South Island.

(emphasis added)

Situation facing Canterbury after the CES

[36]             At this point, it is useful to mention in a contextual sense evidence before me that related to the unprecedented situation facing Canterbury and Christchurch following the September 2010 and February 2011 earthquakes.

[37]             Aspects of this from the insurance industry’s perspective were described in the brief of evidence of Murray James, IAG’s General Manager for the Canterbury Rebuild Programme delivery at the time, in this way:

After the September 2010 earthquake, [IAG] received many thousands of claims. In total there were over 100,000 ranging from minor to severe damage. IAG attempted to use its own internal loss adjusters, as well as engaging external loss adjusters, to administer the many claims for earthquake

damage to houses. This was how we had handled claims before the earthquakes.

It quickly became apparent that IAG’s own resources, and those of our external loss-adjusting partners, were nowhere near enough to manage the volume of claims that we received. We also decided to get a partner to assist, Hawkins.

February 2011 earthquake

Our initial response

The February 2011 earthquake caused severe and widespread damage to buildings across Canterbury. IAG’s priority was to assist our most vulnerable customers.

The scale of the work required following the February 2011 earthquake was much greater than it had been following the September 2010 earthquakes. To put some broad figures around that, after September 2010 IAG’s expectation was that the reinstatement programme would cost in the region of

$800 million. But after February 2011 that estimate increased to approximately $4 billion. It subsequently went up from there.

Clearly IAG needed to obtain much greater resources in order to provide our customers with the same quality of claim service that we had provided before the earthquakes. IAG did this in four main ways: (1) by upscaling our claims team, (2) by entering into a commercial agreement with two Hawkins group companies for them to provide services exclusively for us and our customers,

(3)  by strategic relationships with building companies to provide construction services exclusively for our customers, and (4) by using external loss adjusting resources.

[38]             In addition, David Wood, who from April 2014 to December 2017 was General Manager of Hawkins’ Canterbury Recovery Project, gave evidence in part relating to the nature of the Christchurch Rebuild. He said:

Christchurch Rebuild

It is stating the obvious to say that the repair works carried out at 24 Kinnaird Place did not take place in the ‘business as usual’ environment.

IAG, as the largest residential insurer in New Zealand, had to deal with thousands of repairs and rebuilds.

The majority of insurers chose to explore a managed response to the crisis and established their own PMO or Project Management Officers. My involvement with Fletcher Construction [for whom he worked from 2010 to 2014], for example, was in relation to the EQC programme.

The reason for this was to secure and rationally manage limited contractor [sic], building materials and consultant resources. Experience from events overseas showed that rampant cost escalation occurred where claimants were left to fend for themselves. This was known as ‘demand surge’ and could only

be avoided if participants were locked in to a pre-agreed and structured response defining their roles and compensation.

A balance needed to be sought by insurers between the number of rebuild solutions that needed to be achieved and the availability, capability and cost of the necessary resources.

In New Zealand there are a certain number of construction professionals who respond to normal demand. The nature of the Christchurch earthquakes and the extent of damage meant that the demand for construction professionals and builders was far in excess of normal demand.

Individual homeowners would have had a very difficult time in finding builders, agreeing contractual terms with them, engaging architects and engineers and obtaining the necessary consents. If they did do this, the process would have been very inefficient and expensive for them and their insurers. There was a risk for homeowners if they cash settled with their insurer that the amount they received would turn out to be insufficient to carry out the repair works because of differences in scope, escalation of costs and the discovery of further necessary work.

There were a number of ways to deal with the problem. Insurers and builders could import resources from overseas. Insurers could flatten the demand surge by extending the date for completion of the programme. They could accept that certain roles would be filled by people with administrative, but not necessarily construction expertise and experience. They could define the roles of those construction professionals so that they eliminated duplication of roles and focused on activities most crucial to completion of the programme. All of these solutions were adopted by insurers in Christchurch and by IAG in respect of the Hawkins PMO.

The shortage of construction professionals also impacted the way in which quality of building work could be managed. Many of the building companies, particularly tier 1 builders, employed their own project managers and site foremen. There was not enough resource available in Canterbury for insurers or their PMOs to employ building surveyors or licensed building practitioners to also inspect and ensure the quality of building works on each rebuild. The PMO schemes therefore needed to be devised on the basis that management activities would be carried out by people with a range of skills but not necessarily building experience and skills. Reliance had to be placed on the skills and diligence of the builders and consultants employed in relation to each rebuild.

These solutions might, together or separately, have implications for particular repair jobs, but were necessary for a programme of work of this size and complexity. Hawkins was involved in the completion of 1000 major repairs and over 1300 new builds for IAG along [with] many more thousands of claims that went through the initial assessment phases.

[39]             With these matters in mind, it is also useful to refer generally to IAG’s own particular Managed Repair Programme here. As I have noted, this was IAG’s response to the unprecedented number of claims it received following the CES.

IAG’s Managed Repair Programme and the 2012 RSMA

[40]             In this case, as I have noted, the repair works undertaken to the Sleights’ home were carried out under IAG’s Managed Repair Programme. This was the arrangement which had been set up at the time by IAG with Hawkins and a number of builders, including Farrells.

[41]             IAG’s Managed Repair Programme was a similar response to that of other insurance companies resulting from the CES. In Parkin v Vero Insurance New Zealand Limited,4 Mander J in this Court referred to a similar scheme instituted by Vero Insurance New Zealand Limited:

[63]      The evidence discloses that Vero did introduce a claims management process to handle the unprecedented large number of claims arising from the damage to the properties caused by the Canterbury earthquake sequence…

[64]      Part of Vero’s response, as with other insurance companies, was to enter into business relationships with construction companies to manage the assessment and costing of reinstatement of damaged properties. [The] evidence showed that the programme was established to help manage the reinstatement process for its clients, notwithstanding that under most of its policies, including Mr Parkin’s, Vero was not required to directly undertake the repair work. Mr Parkin did not dispute that it was open to Vero to offer additional settlement options to homeowners…

…

[69] …It is also apparent that both Mr Parkin, his broker and Vero were dealing with Mr Parkins’ claim within the framework of the processes provided to policyholders by the Vero/MWHM joint venture. In following that course, there were advantages and disadvantages to both parties. Importantly, however, the adoption of that process did not alter the terms and conditions of the contractual relationship between Mr Parkin and Vero…

…

[81]   …it was apparent on the evidence that the process developed by Vero to manage the large wave of earthquake claims was the framework within which Mr Parkin and Vero worked to progress Mr Parkin’s claim. I have not found, however, that the express terms of the policy were displaced. The contractual relationship between the parties continues to be governed by the express terms of the insurance policy.

[42]             A key document which established IAG’s Managed Repair Programme was the 2012 RSMA. As I have noted, this had been entered into in 2012 between IAG

4      Parkin v Vero Insurance New Zealand Limited [2015] NZHC 1675.

and Hawkins. Originally, an earlier Rebuild Solution Master Agreement had been executed by IAG and Hawkins following the September 2010 earthquake (known as the 2010 RSMA). Following the February 2011 earthquake, and given the vastly increased number of Christchurch residential properties affected by this event, IAG and Hawkins entered into the new 2012 RSMA on 13 August 2012. This replaced the earlier agreement.

[43]             IAG’s Managed Repair Programme was widely used and promoted in Christchurch following the CES. Of note, in the 2012 RSMA, IAG contracted with Hawkins that it would encourage its policyholders to engage in the Managed Repair Programme. This was provided for in cl 4.1 of the 2012 RSMA expressed in these terms:

4.1  Promotion of Rebuild Solutions: IAG NZ will promote the Project and the Rebuild Solution to its Customers. Hawkins acknowledges that Customers have a choice as to whether to engage the Rebuild Solution and that IAG NZ gives no warranty or representation as to the number of Rebuild Solutions to be undertaken or the aggregate cost of the Rebuild Solutions undertaken.

[44]             The essence of the entire Managed Repair Programme was that Hawkins on behalf of IAG was generally to scope, cost and project manage earthquake repairs (described as “Rebuild Solutions”) undertaken for homeowners insured by IAG. Hawkins was to do so by “monitoring” the delivery of work of builders (such as Farrells) who had  been  pre-selected  (“pre-qualified”  in  the  language  of  the  2012 RSMA) by Hawkins and approved by IAG. A “Rebuild Solution” was relevantly defined in the 2012 RSMA to mean:

…the works required to make good the damage to the property of a Customer as a result of the Canterbury Earthquakes that falls within the scope of cover provided under the Customer’s Policy…

(emphasis added)

[45]             Hawkins and IAG were to agree “a set of standard communications to be sent to customers in respect of the Project” and a “set of protocols for managing sub- standard performance by a builder and establishing the circumstances when Hawkins will terminate a Customer Building Contract.” They were also to agree on the terms of the Customer Building Contract itself.

[46]             Importantly, a part of this arrangement concerned certification of the work undertaken by builders before they were paid by IAG. Hawkins was required to “certify completion of the relevant Solution Milestone and/or Rebuild Solution…under the relevant Customer Building Contract …”

[47]             “Solution Milestones” was also relevantly defined in the 2012 RSMA to mean “… the milestones in respect of the relevant Rebuild Solution triggering payment of Rebuild Solution Payment Claims.”

[48]             I turn now to the overall “Services” to be provided by Hawkins under the 2012 RSMA. These are set out in Schedule 2. In providing these “Services”, in cl 3.2(b) Hawkins promised under the heading “Standard of performance” to “act diligently, efficiently and in accordance with industry best practices.”

[49]             To achieve that, in part, Hawkins promised to ensure that its personnel “are 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.”

[50]The “Services” to be provided by Hawkins included:

(a)Pre-qualification of builders against a set of standards to be agreed between IAG and Hawkins, and then, in conjunction with IAG, “assigning” a builder to an individual repair project.

(b)Procuring the builder to obtain geotechnical and structural engineering reports, and a Scope of Works, ensuring it is appropriate to effect the repairs and providing that to IAG for approval. The builder was then to obtain any necessary building consent for the work.

(c)Arranging for the homeowner/customer and builder to enter into a customer building contract on terms approved by IAG.

(d)Monitoring the delivery of the rebuild solution (the earthquake repairs). This included inspecting the work of the builder and certifying completion of each “Solution Milestone” and final completion.

(e)Over the period of the repair work, arranging weekly meetings between IAG, Hawkins and the builder to discuss progress of the repairs. The owner was not involved in those meetings.

[51]             Although Hawkins undertook to perform those Services on IAG’s behalf, IAG itself retained close control in many respects. At cl 3.2(a) of the 2012 RSMA, Hawkins was obliged at all times to “comply with all reasonable directions of IAG”. In addition, IAG was entitled to “review the calibre” of personnel employed by Hawkins and could require any particular employee to be removed or reassigned, including because the employee was not “suitably qualified to undertake the roles assigned to them”. IAG could also control the number of Hawkins employees working on the project and it needed to approve all builders selected by Hawkins. IAG had rights to inspect all records and to access all personnel, premises, facilities, data of any builder involved in the project. Hawkins was to procure this.

[52]             In terms of the Building Contract, builders were required to communicate with the owner only through the Hawkins RSM. The owner, too, had no obligation to pay the builder and no involvement in the payment process. IAG agreed to pay the builder directly, as I have noted, on the basis of various “Milestones” to be certified to IAG by Hawkins.

[53]             And, if material changes were required to the Scope of Works and payment terms under a Building Contract (as happened here with the Sleights’ repairs), IAG agreed these directly with the builder, again without any involvement of the owners. Both in the present case with the Sleights and typically, substantial variations which materially changed the Scope of Works and increased the contract price (in this case by over $100,000) were agreed by IAG and builders like the Farrells. IAG also changed the payment terms and milestones, again without discussion with the Sleights.

[54]             Finally, cls 17 and 18 of the 2012 RSMA as between IAG and Hawkins address indemnities and liability limitations. They read as follows:

17.INDEMNITIES

17.1IAG NZ Indemnity: IAG NZ indemnifies Hawkins to the maximum extent permitted by law for all claims (including third party claims), liability, costs (including reasonably incurred legal costs on a solicitor-client basis), losses, penalties and damages (including arising in tort, including negligence) incurred by Hawkins arising from or in connection with this Agreement, except to the extent caused by a breach of this Agreement or by any reckless, fraudulent or wilful act or omission by Hawkins or any of its Personnel or Hawkins or its Personnel acting outside the scope of their responsibilities under this Agreement.

17.2Hawkins Indemnity: Hawkins indemnifies IAG NZ to the maximum extent permitted by law for all claims (including third party claims), liability, costs (including reasonably incurred legal costs on a solicitor-client basis), losses and damages incurred by IAG NZ as a result of any breach by Hawkins of its obligations under this Agreement or any reckless, fraudulent or wilful act or omission by Hawkins or any of its Personnel.

18.LIABILITY

18.1Maximum Liability: The maximum liability of Hawkins to IAG NZ in relation to this Agreement including under the indemnity set out in clause 17.2 is set out in the Contract Details [which form part of the 2012 RSMA as Schedule 1].5 This limitation will not apply in relation to any fraud or wilful default (being a deliberate act or omission which results in a breach of this Agreement).

18.2Limitation of Liability: Neither party will be liable for:

(a)any breach of this Agreement to the extent the breach is attributable to the breach or misconduct of the other party, or its agents, employees or subcontractors (provided that, for these purposes, Hawkins and Hawkins’ Personnel shall not be agents or subcontractors of IAG NZ); or

(b)any indirect, consequential or punitive losses or damages of any party and any amounts for loss of income or profits.

18.3Failure to Achieve Programme: Notwithstanding any provision of this Agreement, IAG NZ shall (other than in the event of fraud or the wilful default by Hawkins) have no recourse to Hawkins and Hawkins shall have no liability to IAG NZ for any loss, costs, damages or otherwise whatsoever

5      “Hawkins Maximum Liability” is defined in Schedule 1 as “$2,000,000 for each and every event or series of related events (excluding breaches of clauses 19 and 20 only) up to a maximum liability of $20,000,000 per annum in total.”

as a result of any failure to achieve the Programme or for any delays in implementing the Programme or any individual Rebuild Solution.

(footnote added)

Subsequent events leading to the Building Contract

[55]             Around 12 December 2012, evidence has been advanced for IAG that, one of their consultants phoned Mr Sleight and noted in an IAG file “Claim has been selected to proceed with repairs in Q1 next year. No dates. Insureds are going away and no preferred builder”.

[56]             Mr Sleight says in his evidence that he had “absolutely no recollection” of this telephone call. Mrs Sleight, similarly, gave evidence that she was not aware at any time that she and her husband were asked whether they had a preferred builder to carry out the repairs. Nevertheless, this is ultimately of little importance. IAG and its witnesses before me confirmed that the Managed Repair Programme throughout was promoted to all IAG’s customers, including the Sleights. They were encouraged to participate and, as part of the Programme, to accept what were described as the project management services of Hawkins. And, all the evidence before me seems to confirm that the Sleights had no wish to undertake or manage their house repairs themselves.

[57]             As to the Programme, the Sleights signed the Building Contract with Farrells on 14 October 2013. It would seem, too, that at least by 12 December 2013 when IAG confirmed with the Sleights that work on their home was scheduled to begin in quarter one of 2014, their repair process was set in train.

[58]             A meeting at the property had taken place earlier on 19 February 2013. This was attended by the Sleights and their daughter, Anna Maxey. Nigel Wiblin attended for IAG and Ray Brill for Farrells.

[59]             Uncontradicted evidence was given by the Sleights and by Mrs Maxey that, as this was the Sleights’ first contact with anyone from Farrells, Mr Wiblin of IAG introduced them to Mr Brill from Farrells and explained that Farrells were to be the builders. Mr Wiblin went on to assure the Sleights that Hawkins would be project managers and they would ensure that Farrells carried out the work properly.

[60]             Subsequently, Farrells, Hawkins and IAG agreed among themselves a “Scope of Works” for repairs to the property. On 28 June 2013 Wade Cook of IAG sent a copy of this to Mrs Maxey.

[61]             In late July 2013 a further meeting was arranged at the property. This was attended by the Sleights, Mrs Maxey, Mr Cook of IAG and Mr Brill from Farrells. Discussion took place at this meeting of options for exterior cladding.

[62]Then, in September 2013, a number of things occurred:

(a)IAG gave approval for Farrells to lodge building consents for the repairs and paid for doing so.

(b)IAG, Hawkins and Farrells agreed what was described as a “Solution Budget” for the repairs. This showed a total cost of $378,800. Although this excluded certain costs, it did include what was described as “Hawkins Construction Project Management Fees”.

(c)The Building Contract for the repair work on the standard form used by IAG was prepared. It is unclear who may have prepared this, but it seems it was either one of Hawkins or Farrells. Earlier, this standard form Building Contract had been agreed between IAG and Hawkins.

(d)On 26 September 2013, Farrells emailed Mrs Maxey, attaching a copy of the Building Contract (which ran to some 50 pages), and indicated this was to be signed in the coming weeks.

[63]             On 14 October 2013, the Sleights, along with Mrs Maxey, went to Farrells’ offices in Christchurch to sign the Building Contract. Evidence before me indicated there was no discussion about the terms of the Building Contract. The Sleights’ uncontested evidence is that they had no advice on the contract, nor did they read it before they signed the contract. The next day, Farrells emailed a copy of the Building Contract to IAG, Hawkins and Mrs Maxey.  That email notified a start date for the

work of 27 January 2014 and a finish date of 20 June 2014 with “accommodation confirmed” for that period. Farrells asked IAG to organise contract works insurance.

[64]             Also, on 14 October 2013, IAG wrote to the Sleights confirming that reinstatement work was about to commence at the property. This letter stated:

As discussed, IAG is responsible for all earthquake reinstatement work in excess of the amount covered by EQC…

Please find attached an invoice showing the number of claims lodged for each earthquake event, the settlement paid to you by EQC (nett of excess) and the applicable excess for each. We require these funds from you prior to any work being started.

Once we have received clear funds, we will instruct Hawkins to proceed.

Building Contract

[65]             Next, I turn to consider the 14 October 2013 Building Contract terms. As I have noted, the contract was in a standard form. It consisted of:

(a)a two-page “Contract Agreement” including the recitals which I will refer to below;

(b)a further 13 pages of “General Conditions”; and

(c)a further 34 pages of Schedules, the most relevant parts of which are the “Milestone Payments Schedule” in Schedule 2 and the “Scope of Works” in Schedule 3. Schedule 3 is itself in two parts:

(i)a detailed list of the works to be completed outlined in the Form 720 builder’s quote report; and

(ii)a Specification document agreed between IAG and Hawkins “For work to be done and materials to be used in the completion of Earthquake Repairs for IAG” (the Specification).6

6      In this judgment, clauses cited as being “of the Building Contract” refer to the “General Conditions” unless otherwise stated.

[66]             Its cover page states that it is a contract between the Sleights as owner and Farrells as the Contractor. It is signed only by or on behalf of the Sleights and Farrells. In substance, however, as will appear later, I am satisfied the Contract confers on Hawkins (acting on behalf of IAG) and on IAG directly, most of the rights and obligations which would normally be conferred on the owner/principal.

[67]             I turn now to the recitals on the opening page of the Building Contract. Recital C records that the Sleights as Owners and Farrells as Contractor enter into the contract:

…to set out the terms on which the Contractor will carry out work to the Owner’s property that falls within the scope of cover provided under the Owner’s insurance policy with IAG NZ (“Insurance Works”).

And Recital D goes on to record Hawkins’ role:

Hawkins Management Limited (“Hawkins”) has been appointed by IAG NZ to provide certain services for the purposes of the Insurance Works. These services include:

·assessment of the Scope of Works required to effect the Insurance Works;

·the processing and certification of payments to the Contractor on behalf of IAG NZ;

·monitoring the delivery of the Insurance Works on behalf of IAG NZ; and

·providing coordination assistance between IAG NZ, its loss adjusters, the Contractor and the Owner (where applicable).

[68]             Addressing quality and workmanship obligations, cls 1 of the Building Contract contains a standard clause as to Farrells’ general obligations as builder, including the obligation to “…carry out and complete the Insurance Works…in a proper and tradesman like manner”.

[69]             Similar obligations feature in paragraph 15 of the Specification attached to and forming part of the Building Contract as Schedule 3.

[70]Paragraph 3.1 of the Specification states:

The whole of the work in all trades shall comply in every respect with the requirements of all relevant Local and Government authorities, the

New Zealand  Building  Code,  New  Zealand  Standards  and  with   the New Zealand Standard Building Codes and the relevant Overseas Standards where no NZ Standard exist.

[71]And, paragraph 15.4 of the Specification states in part:

15.4This is an IAG customers [sic] home and the standard of workmanship and finish achieved shall be of sufficient standard as would be expected in this type of dwelling. Substandard workmanship or finish that does not meet this standard will not be tolerated and will be rejected. Any substandard or unacceptable work or workmanship shall be rectified at the Builders [sic] cost, with any additional cost incurred by the Customer being the responsibility of the Builder also.

…The workmanship shall be in accordance with best trade practice…Defective work, if any, and work not in accordance with the high standard required of all work in this contract shall be removed or made good by each Subcontractor.

[72]Other relevant provisions outlined in the Specification include:

…

7.2 Any formal communication with the  Owner  is  to  be  conducted through [Hawkins] Rebuild Solution Manager.

…

11.3 The Rebuild Solution Manager may request the Builder to remove and replace any person employed by the Builder who in the opinion of the Rebuild Solution Manager misconducts, is incompetent, negligent or endangers the safety of others.

…

13.2 The Project Manager, working as Owner’s agent, will lodge with the Territorial Authority such Resource and Building Consents (relating to permanent works) as are required by the Building Act 2004 for the works to lawfully commence. The Rebuild Solution Manager will arrange payment of all charges due to lodge such Resource and Building Consents including inspection fees.

…

15.2 All materials and products shall be handled, stored, and installed or fixed in accordance with the manufacturer’s or supplier’s latest recommendations in the absence of any other instructions. Where there is conflict with the Specification the Builder shall seek direction from the Rebuild Solution Manager.

…

16       INSPECTION

16.1

Adequate notice shall be given to the lead Consultant or Rebuild Solution Manager to enable him to make all necessary inspections wherever required.

16.2

The Rebuild Solution Manager will generally only be available to undertake their duties between 8.00 a.m. and

5.00 p.m. Monday to Friday, excluding public holidays.

16.3

Refer also to Statutory Inspection requirements.

…

19.2

The Builder must take all necessary precautions to protect and maintain surface finishes and completed work from damage, marking or disfigurements during the progress of the works. In the event of such damage, the Builder shall repair, replace or make good the damaged part of the work to the satisfaction of the Rebuild Solution Manager.

…

24CONTRACT ADMINISTRATION

24.1All instructions from the Rebuild Solution Manager will be in writing on a standard form.

…

And:

1.5 The Builder shall co-ordinate with  the  Rebuild  Solution Manager where works are carried out within occupied areas of an existing building…

4.2 Conflicting dimensions on the drawings  or  in  the works shall be referred to the Project Manager for a ruling.

[73]             As to questions of the degree of control exerted by Hawkins and IAG under the Building Contract, it will be apparent from some of the provisions I have outlined above, that this contract confers on Hawkins (acting on behalf of IAG) certain powers which I consider would normally be conferred on the owner/principal of a property to be repaired, for example:

(a)All formal communications with the Owner were to be conducted through the [Hawkins] Rebuild Solution Manager (RSM).

(b)Hawkins had the power to require Farrells to replace any Farrells employee who Hawkins considered for example, incompetent or negligent, etc.

(c)Hawkins had rights to inspect the property.

(d)Hawkins could require Farrells to prepare and design construction drawings and had rights of access to all design information, plans, drawings, consents and similar.

(e)Hawkins had to approve any additional work, substituted materials, or any provisional sum beyond agreed limits.

(f)Hawkins (and the Owner) had to approve any subcontractor.

(g)Hawkins had power to suspend the contract work.

[74]             It is important to note, too, that under the Building Contract it was Hawkins and IAG and not the Sleights who controlled the payment process. The initial contract price for the Sleights’ repairs was the same as the insurance budget of $318,938.81. Farrells was to submit progress payment claims to Hawkins in accordance with the “Milestone Schedule of Payments” in Schedule 2. Hawkins was to review and approve those payment claims. IAG was then to pay Farrells the amounts approved by Hawkins. The Sleights played no part in any of this. Further, and significantly, as I have noted, that initial contract price was increased by over $100,000 by variations as the repairs progressed. These variations were agreed only between Farrells, Hawkins and IAG without any reference to the Sleights.

[75]             Lastly, it is appropriate now to consider exclusion clauses which were included in the Building Contract. The “General Conditions”, again which were drafted by IAG and Hawkins, included these clauses. They purported to limit the Sleights’ rights against the non-parties, IAG and Hawkins. These exclusion clauses relevantly specify:

Limitation of Liability

86.Neither Hawkins nor IAG NZ make any representation or give any warranty or undertaking (whether expressed or implied) concerning the Works including as to the performance of any person (whether a party to this contract or otherwise) of any contractual or other obligation in relation to the Works.

87.The Owner acknowledges and agrees that the liability of IAG NZ to the Owner is as set out in the Owner’s insurance policy with IAG NZ and IAG NZ shall have no additional liability to the Owner under any claim whether in tort, including negligence, or otherwise, including in relation to the quality, workmanship or timing of the Works, the creditworthiness of the Contractor and/or any other services being carried out by any other person in relation to the Works.

88.The role of Hawkins in relation to the Works is limited as set out in paragraph D of the background. The parties agree that the liability of Hawkins for all claims whether in tort, including negligence, or otherwise shall be limited to the direct loss sustained as a result of the actions or omissions of Hawkins and which occur within two years from the date the Works are completed and are limited in a maximum aggregate amount of $10,000.

89.The Contractor acknowledges and agrees that the only liability of IAG NZ to the Contractor is to pay amounts under this Building Contract when due.

Operational documents and forms subsidiary to the 2012 RSMA

[76]             Before the Court are several subsidiary documents and forms agreed between IAG and Hawkins. It seems these documents were drafted to spell out process or operational detail of how both Hawkins and IAG would perform their respective obligations under the 2012 RSMA.

[77]             The operational documents and forms include first, a 95 page document headed “Project Canterbury: Repairs $100K” (referred to by the parties and in this judgment as the “100K Manual”), secondly, a four-page document dated 2 July 2014 headed “Milestone Payment Change Procedure” (Milestone Payment Change Procedure), thirdly, a process document which the parties refer to as the “Swimlane document” (Swimlane document) setting out in boxed form certain processes to be followed, fourthly, an “RSM Site Inspection Report” (RSM Site Inspection Report) being a document used by Hawkins’ RSMs which is said to include quality assessment box entries, fifthly, a “Man in the Van Inspection Report” (MIV Inspection Report) and,

sixthly, a “Milestone Payment Inspection Report” (Milestone Payment Inspection Report).

[78]             I will further consider these subsidiary documents and forms, where relevant, below.

Inadequately repaired and unscoped earthquake damage to the property

[79]Two issues arise here:

(a)Scoping issues (where the Scope of Works assessed under the Policy was inadequate to repair the house to the required standard outlined in the Policy);

(b)Defects in construction (the works fell below the standard required).

(a) Scoping issues

[80]             As to the Scope of Works concluded in 2013 (and later varied) for the repairs provided to their house, the Sleights claim that this was deficient and should have included:

(a)Removal and replacement of the conservatories of their home.

(b)Removal and replacement of external joinery.

(c)Removal and replacement of the entrance butyl membrane roofing and plywood substrate.

(d)Checking of the bracing to the house and (if necessary) rebracing carried out to ensure the bracing had adequate capacity.

(b) Defects in the repair works

[81]             In their claim that the repair works that were carried out, in any event, were defective, the Sleights advance the following reasons:

(a)The work did not comply with the Building Act 2004 and the relevant New Zealand standards.

(b)The work did not comply with the building consent.

(c)The work was not carried out to a reasonable and workmanlike standard.

(d)The work was not completed in accordance with the standards in the Building Contract (which are normally industry standards) in that:

(i)As noted, it was not carried out in a proper and tradesmanlike manner.

(ii)It was not carried out in accordance with good trade practice.

(iii)As noted, it was not carried out in accordance with the building consent.

(iv)It did not comply with  the  Building  Code7  and  relevant  New Zealand standards.

(v)Materials and products were not fixed in accordance with the manufacturers’ recommendations.

(vi)The workmanship was not in accordance with best trade practice.

(vii)The painting was not of a “first class finish” (as cl 3.1 of the specification “painting and wall coverings” required).

7      Building Regulations 1992, Sch 1.

[82]             The Sleights claim work needs to be carried out in order to remediate the defective works and the scoping deficiencies. This is to ensure that their house is repaired to the standard required under the Policy.

[83]             In response to this issue of defects in the works undertaken, IAG accepts that inadequacies in relation to the Scope of Works and defective workmanship on the part of Farrells are to be treated conceptually as the same for the purposes of the Sleights’ present claim. IAG suggests that if proven, both will constitute defective performance by Farrells as builder and/or Hawkins as project manager during the course of the repair process.

[84]             So far as defects are concerned, before me IAG relied on the evidence of its building expert, Kenneth McGunnigle, together with the evidence of its expert engineer,  Philip  Cook,  and  its  quantity  surveyor,  Gunther   Hanne.   On  this,   Mr McGunnigle disagrees with a number of defect issues which the Sleights’ expert, Thomas Wutzler, had identified. A summary of these by way of a schedule is to follow.

[85]In a broad sense, IAG’s position simply is that it:

(a)Accepts that some of the alleged construction “defects” are seen as significant defects here.

(b)But it does not accept that all of the alleged defects in combination require the Sleights’ house, first, to be completely re-clad (at what would be considerable expense) and, secondly, require a full replacement of the 40-year-old windows in the house (that IAG says leaked before the CES and which were not damaged by the earthquakes) to be undertaken.

(c)Instead, IAG’s position is that the remaining defects in this house are to some extent limited and each can be rectified in isolation without affecting other areas. This, IAG says, would leave the repair works compliant with the Building Code and the house substantially the same

as it was “when new” (save for the obvious aesthetic change to the cladding which IAG says the plaintiffs agreed to).

Roles adopted by the Sleights, Farrells, IAG, Hawkins and its Rebuild Solution Managers (RSMs)

[86]             The Sleights, as homeowners and the insured under their IAG policy, it is fair to say, made the final decision to enter into the Building Contract with Farrells. From the evidence of both Mr Sleight and Mrs Sleight, however, a number of things are apparent. First, Mr Sleight is 87 and Mrs Sleight is in her early eighties. Secondly, Mr Sleight has had a number of heart attacks, has spent some time in and out of hospital in recent years, and might be seen as somewhat frail. And thirdly, their evidence (which IAG rejects) is that they do not remember being given any choice about the builder that was to be used to fix their house. The only option they say discussed with them by IAG’s representatives was to get the repair work done by Farrells who had already been “assigned” through IAG’s Managed Repair Programme. IAG disputes this and says at the outset discussions took place with the Sleights as to whether they wished to select their own nominated builder, but they said they had no builder in mind and were happy to proceed with Farrells. In any event, the Sleights say they were told, too, that Farrells was a tier 1 builder, and they contend that Farrells was effectively chosen by IAG to do the work and not them. They say they were assured, too, that Farrells were IAG’s top builders and, finally, that Hawkins and IAG would make sure the repair work on their house was done properly throughout.

[87]             As to the role of Farrells, this was to complete the repairs in a tradesmanlike manner and in accordance with the Building Contract, the building consent, the Scope of Works and the specifications. They were then to obtain a code compliance certificate from the Council when all the work was completed.

[88]             Turning to the position of IAG, as insurer in terms of the Policy it was to pay the cost of having the house repaired to the policy standard. This was to be to a “when new” condition. So far as Hawkins is concerned, IAG says they were appointed as “project managers” for the repairs under the Managed Repair Programme. To an extent Hawkins endeavours to dispute here that its role was one that could be described

as “project manager”. The full extent of what a “project management” role might entail here depended to some extent upon the 2012 RSMA, but it may be that general understandings of the construction industry have some application in this case. Hawkins say their obligation was not to manage or monitor quality – this rested with the builder Farrells alone. Hawkins’ position is that they were only there to certify for milestone payments when they were due and simply to check that the work had been, broadly speaking, carried out. There was insufficient time and personnel available, Hawkins says, to ensure that work had been carried out in a proper and tradesmanlike manner at all times. Hawkins maintains first, that this is entirely in accordance with what the 2012 RSMA stated, secondly, it followed the clear thrust of all the lead-up negotiations and, thirdly, that all this differed markedly from the 2010 RSMA.

[89]             And last, so far as Hawkins’ RSMs are concerned, these were employees of Hawkins who carried out what IAG says is the Project Management inspection role. Shane Geraghty was an RSM (being a structural engineer from Ireland who came to New Zealand around the time of the CES). He gave evidence concerning this role. What became clear from all the evidence before the Court was that at the operative times, Hawkins’ RSMs were extremely busy, often with huge workloads, and on many occasions they had little time to carry out property inspections other than for Milestone Payment certifications.

Termination of the Building Contract

[90]             Once Nigel Maxey, the son-in-law of Mr and Mrs Sleight, in mid-2014 became involved in the problems which were arising concerning repairs to the Sleights’ house, regular meetings and the like took place.

[91]             Finally, this resulted in Mr and Mrs Maxey on behalf of the Sleights on 1 May 2015 writing to Farrells giving notice that the Building Contract had been terminated because of breaches on the part of Farrells as builder.

[92]             This followed quite a long period of complaints regarding repair work not being properly undertaken.

[93]             After this, it seems for a time Farrells did not accept that the Building Contract had been properly terminated. Indeed, Farrells continued to carry out certain matters concerning the Sleights’ property and made several approaches to the Christchurch City Council in an endeavour to obtain a code compliance certificate. This did not eventuate.

[94]             In the meantime, a range of reports were obtained with respect to the problems with the repair work to the property. I address these in the next section.

[95]             Notwithstanding, first, that these experts’ reports all identified significant problems with the repairs, and, secondly, the fact that the Sleights had purported to cancel the Building Contract, at some time later Hawkins chose to certify for additional payments of about $100,000 under the Building Contract as being properly payable to Farrells, and IAG chose to make the payments.

Building expert reports

[96]             A range of expert reports are before the Court giving opinions as to the scope, workmanship and other defects in the remedial work which had been carried out to the Sleights’ house.

[97]             These reports represent a Watkins Consultancy Report, an R M Hadley Ltd Report regarding cladding assessment, an Axis Building Consultants Report, detailed reports from Helfen and a James Hardie Technical Specification Report.

[98]             The upshot of these reports leaves little doubt that some scope issues and a significant range of defects and deficiencies in the work undertaken by Farrells occurred here.

[99]             The expert reports generally reach agreement on the range of defects and deficiencies which have occurred, although there is some disagreement regarding the full extent of the problems and, in particular, the remedial work required. I will address these matters later in this judgment.

QBE position – Hawkins’ Negligence (PI) Policy

[100]         Hawkins held certain insurance policies, including a Professional Negligence Indemnity Policy, with QBE. For QBE to be liable under s 9 Law Reform Act 1936 to either the Sleights or to IAG, the relevant liabilities must fall within the terms of Hawkins’ insurance policies. Under the Hawkins Negligence Policy with QBE there is a $50,000 excess for each claim (whether to the Sleights or to IAG).

Sleights’ causes of action

[101]         By way of overview, a summary of all the causes of action pleaded by the Sleights here is:

(a)Against Farrells for breach of contract, negligence and under the CGA;

(b)Against Hawkins for negligence and under the CGA. The Sleights also seek declarations that the limitation provisions in the Building Contract purporting to limit the liability of Hawkins are unenforceable.

(c)Against IAG for breach of contract, negligence, under the CGA and estoppel. The Sleights also seek declarations that (to the extent they might otherwise apply) the limitation provisions in the Building Contract purporting to exclude or limit the liability of IAG are unenforceable.

(d)Against QBE on the basis of a charge over the insurance monies in contracts of insurance entered into between QBE and Hawkins. In this sense the claims against Hawkins are brought indirectly against QBE.

Sleights’ claims for breach of contract, negligence and under the CGA against Farrells

[102]As I have noted above, Farrells is in liquidation.

[103]         Notwithstanding this, the Sleights, in their statement of claim, bring claims for breach of contract, negligence and under the CGA against Farrells. The principal

claim is one against Farrells for breach of contract for defective and inadequate work carried out under the Building Contract.

[104]         Farrells have taken no part in this proceeding, nor have they filed any statement of defence to the claims they face.

[105]         Essentially, as I see it, there seems to be little disagreement between the experts in the reports they have provided to the Court that Farrells failed to meet their performance and quality obligations under the Building Contract and, indeed, could also be considered liable to the Sleights here in negligence and under the CGA. The Sleights’ earthquake damage repairs remain to be completed and the Christchurch City Council has both declined to issue a code compliance certificate and warned that a “notice to fix” will be issued unless significant repair work is completed.

[106]         Insofar as it may be appropriate, judgment is to follow in favour of the Sleights on their claim against Farrells.

[107]         It is convenient to turn to consider next the Sleights’ causes of action against IAG under the Policy and otherwise as noted at [101][101](c) above, which I now do.

Sleights’ claim for breach of the Policy contract against IAG

[108]         In summary, there are four different ways in which the Sleights say that contractual liability applies here:

(a)IAG remains obliged under the Policy terms to meet the cost of the further repair work required to restore the plaintiffs’ home to its “when new” condition because the repairs have not yet achieved that result (“the first path”).

(b)Pursuant to a right under the Policy, IAG arranged and controlled the repair work and is, therefore, liable for the costs of the further repair work now required to achieve the “as when new” standard (“the second path”).

(c)As an alternative to the second path, IAG in fact controlled the repair process and is, therefore, liable for the costs of the further repair work now required to achieve the “as when new” standard (“the third path”).

(d)IAG implicitly agreed that repair works it arranged and paid for would achieve the “as when new” standard which did not occur (the “fourth path”).

[109]         Essentially, the Sleights contend that IAG’s refusal to rectify or to meet the costs of repairing the defective or deficient repairs to their property was in breach of either the insuring clause under the Policy (by one of the three pathways to liability noted at para [108][108](a) - [108](c) above) or by the implied term noted above at [108][108](d).

[110]         First, and generally, the Sleights say that IAG’s obligation to “pay…the cost of repairing” is an insurance obligation to either pay to reinstate the property to the described standard or, here, to properly carry out the repair work required itself. Neither of these things have occurred.

[111]         As an initial enquiry, this requires a consideration of how the Policy itself is to be interpreted. Linked to this, perhaps, is also the question of what type of policy it is. I turn now to address those questions.

A proper interpretation of the Policy

[112]         Insurance contracts are interpreted according to the ordinary principles of contract interpretation. 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”.8 Evidence

8      Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60], citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 per Lord Hoffman; and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 101 at [14] per: Lord Hoffman.

of subsequent conduct is admissible if it tends to establish a fact or circumstance capable of demonstrating objective intention.9

[113]         Any ambiguity in the Policy is to be resolved against IAG, whose document it is.10 Moreover, in cases of ambiguity, exclusion clauses in insurance policies should be read down, in favour of cover.11

[114]         A duty of good faith on the part of the insured and the insurer is implied in insurance contracts. In Blanshard v National Mutual Life Association of Australasia Limited,12 Harrison J said:

[53] A contract of insurance obliges both parties to observe the duty of utmost good faith throughout their relationship. This principle applies most prominently in two distinct situations – formation and renewal of the relationship, and submission of claims for indemnity. An insurer alleging bad faith by an insured in the latter circumstances must prove dishonesty.

[115]         This duty generally extends beyond a duty of continued disclosure and, as a minimum, in appropriate cases requires an insurer to:13

(a)disclose all material information that the insurer knows or ought to have known, including, but not limited to, the initial formation of the contract and during and after the lodgement of a claim;

(b)act reasonably, fairly and transparently, including but not limited to, the initial formation of the contract and during and after the lodgement of a claim; and

(c)process the claim in a reasonable time.

9      Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [30] – [31]; and Gibbons Holdings Ltd v Wholesale Distributors Limited [2008] NZSC 37, [2008] 1 NZLR 277 at [52] – [53].

10 Tower Insurance Ltd v Skyward Aviation 2008 Ltd [2014] NZSC 185, [2015] 1 NZLR 341 at [32].

11    Fund Managers Canterbury Ltd v AIG Insurance New Zealand Ltd  [2017] NZCA 325 at [39], 19 ANZ Ins Cas 62-146 at [39].

12 Blanshard v National Mutual Life Association of Australasia Ltd (2004) 13 ANZ Insurance Cases 61-621 (HC).

13 Young v Tower Insurance Ltd [2016] NZHC 2956, [2018] 2 NZLR 291 at [163]; and Dodds v Southern Response Earthquake Insurance Services Ltd [2019] NZHC 2016, [2019] 3 NZLR 826 at [152] – [170].

[116]         In a recent judgment of the Court of Appeal, Southern Response Earthquake Services Limited v Dodds14 the Court noted:

[194]   We  would however observe that it does not follow from the fact that a contract of insurance can be described as a contract of good faith that there is an implied term of good faith in every insurance contract, that applies across the board to all aspects of the parties’ dealings in connection with the contract. To the contrary, the authorities suggest that the obligations that one party owes the other are context-specific. For example, an insured must not act dishonestly in connection with the making of a claim. We consider that it is likely to be more productive to consider what obligations are implied by law, or can be implied as a matter of fact, in relation to particular aspects of the dealings between the parties. That was the approach recently adopted by this Court in Taylor v Asteron Life [Taylor v Asteron Life Ltd [2020] NZCA 354].

[117]         On all of this, the plaintiffs rely to some extent on a decision  of  the  Supreme Court of New South Wales, University of Newcastle v GIO General Ltd.15 In that case the Court found that, under policy wording somewhat similar to that in the Policy here, the insurer, GIO, had a right of election either to itself effect repairs to, or reinstate the insured University’s earthquake-damaged building, or to pay the cost of reinstatement. Despite this, the insurer GIO in that case chose to pay the cost of reinstatement.

[118]         Buildings at the University of Newcastle had been insured with GIO. One of the buildings was damaged in an earthquake. The parties settled on the basis of reinstatement by restoration of the damaged property to the policy standard, being a condition substantially the same but not better or more extensive than its condition when new. With the approval of GIO, the University entered into a contract with a builder for the carrying out of reinstatement works on the building. GIO made progress payments to the builder for the performance of the contract work. The University claimed the works did not reinstate the building to the required condition and further works were needed in order to effect proper reinstatement. GIO denied the University’s entitlement to the costs of rectification and maintained that the payments made by it satisfied its contractual obligations.

14     Southern Response Earthquake Services Limited v Dodds & Ors [2020] NZCA 395 at [194].

15     The University of Newcastle v GIO General Ltd (1995) 8 ANZ Insurance Cases 61-281 (NSWSC).

[119]         Under the terms of the policy in that case, GIO had agreed to indemnify their policyholder in the following way:16

…In the event of any Physical Loss, Destruction or Damage…to The Property of the Insured…GIO will…indemnify the Insured in accordance with the applicable Basis of Settlement.

Contingency allowance (10 per cent)

[660]           In Mr Jenkinson’s assessment this was itemised at a figure of $38,000. That 10 per cent contingency allowance figure, with the adjustments for the figures I have noted above, is now $27,969.00. I adopt that figure.

GST

[661]GST on these amended items now totals $46,149.00 and is to be included.

[662]           The total amount for construction works, therefore, which was shown in     Mr Jenkinson’s assessment at $472,650 is now $353,808.00.

Options

New decks

[663]           Mr Jenkinson assesses the cost of the new deck  at  a  figure  of  $10,000 (plus GST). As I understand it, there is no argument from any expert with this assessment and it is to apply here.

Addendum interior works

[664]           Mr Jenkinson’s assessment under this heading of $18,000 (plus GST) is made up of a range of generally smaller items but includes approximately $4,000 for floor finishings and $4,300 for wall finishes.

[665]           Some small reduction adjustment of $1,000 for these items is appropriate, as I see it. This, plus a corresponding adjustment for preliminary and general and a margin

of $200 is appropriate here. This brings this total $18,000 figure down to a new figure of $16,800.

Good and Services Tax

[666]The figure for GST on these option items in Mr Jenkinson’s assessment is

$4,200. With the small adjustment to the interior works addendum item, the new GST figure is to be $4,020.00

[667]           Totalling these amounts under this “Options” heading, Mr Jenkinson’s total budget estimate figure of $32,200 now reduces to the figure of $30,820.00.

Total repair costs damages

[668]           From these revised figures, therefore, I find that the reasonable measure of damages for that repair cost based on the estimated cost to rectify the defects on a “cost to fix basis” is, therefore, $384,628.00 (including GST).

[669] For ease of reference, it is useful here to provide in a revised schedule details of these new total breakdown figures in the order they were shown at [639] above.

CONSTRUCTION WORK
Demolition	$22,400.00
Exterior Works	$171,790.00
Interior Works	$39,500.00
Building Consent	$6,000.00
Consultants Fees	$40,000.00
Contingency Allowance (10%)	$27,969.00
Goods and Services Tax	$46,149.00
TOTAL BUDGET ESTIMATE	$353,808.00
OPTIONS
New Deck	$10,000.00
Addendum Interior Works	$16,800.00
Goods and Services Tax	$4,020.00
TOTAL BUDGET ESTIMATE	$30,820.00
(TOTAL)	($384,628.00)

Accommodation costs claim – declaration?

[670]           The Sleights seek a declaration on this. It is to the effect that, as they will have to pay alternative accommodation costs for the period in which they will need to vacate

their property to carry out the remedial works, they will at that point be entitled to an award of damages for this consequential loss at a weekly rental rate of between $500 and $875 per week.

[671]           The Sleights’ policy does provide for alternative accommodation costs. Under the heading “What your policy covers” and the subheading “Alternative accommodation” the Policy stated:

If you can’t live in the home because of a loss covered by this policy, we’ll pay the reasonable costs of alternative accommodation (of a similar standard to the home) for you and your domestic pets.

(emphasis original)

[672]The Policy says the most IAG is to pay for this alternative accommodation is

$20,000 for any event.

[673]           Notwithstanding this, I am satisfied, first, that, in any event, it would be unreasonable to expect the Sleights to remain in the home while the remedial works are undertaken and, secondly, that this claim for accommodation costs for the period the Sleights will need to vacate their property is an appropriate loss claim here. It is also a loss specifically covered by the Policy.

[674]           On these aspects, the uncontradicted evidence of Mr Maxey before me confirmed that the present market rental rate for a two to three-bedroom house in the general area where the Sleights have resided was between $500 and $875 per week.

[675]           No real objection of any kind was taken to this evidence on behalf of IAG or Hawkins/QBE.

[676]           As a reasonable compromise here, I, therefore, adopt a midpoint rental rate between these two figures of $685 per week. In my view, this is an appropriate market rental rate to adopt in the circumstances of this case.

[677]           A declaration is made, therefore, that the Sleights are entitled to an award of damages for their accommodation costs in renting alternative accommodation, when

this does occur, for the reasonable period during which they are required to be out of their house for the remedial work, calculated at a rental rate of $685 per week.

Landscaping

[678]           The Policy provides that if the Sleights have a loss covered by the Policy and they repair their home, amongst other things, IAG will pay “costs of up to $2,500 to restore or reconstruct any part of the garden or lawn within the boundary of the home that was damaged or destroyed while the home was being repaired or rebuilt”.

[679]           As I understand the position, IAG has properly accepted that, at the very least, this $2,500 allowance in the Policy for landscaping costs is payable here. As yet, however, this amount has not been paid to the Sleights.

[680]           Before me, Mr Maxey also provided evidence of a quote that had been obtained for $5,220 (including GST) to reinstate the lawns at the Sleights’ home which were damaged as a result of the earlier building repairs. That reinstatement has occurred and I am told this $5,220 cost has been paid by Mr and Mrs Maxey on behalf of the Sleights. Before me there was no real dispute from any other party regarding these landscaping and lawn reinstatement costs.

[681]           I am satisfied this $5,220 represents on a cost to fix basis a reasonable measure of the costs required by the Sleights to rectify defective and damaging work here.

[682]           It follows that this $5,220 is to be included as part of the damages amount to which the Sleights are entitled.

General damages

[683]           The Sleights seek an unquantified sum for general damages for what is described as “stress and inconvenience” against all of the defendants, Farrells, Hawkins, IAG and QBE.

[684]Two aspects arise:

(a)The first concerns the issue as to whether general damages are recoverable against IAG in this case for its breach of the Policy as insurer.

(b)The second relates to the more broad issue as to whether general damages are recoverable, in this case for those losses the Sleights may have suffered, that cannot be objectively quantified in money terms, such as pain and suffering, indignity and humiliation, and mental distress.

[685]           I turn now to consider the first issue noted above as to whether the Sleights might recover general damages against IAG here for its breach of the Policy.

[686]           On this aspect, the Sleights draw some support for their claim from the recent decision in this Court of Mallon J in Bruce v IAG New Zealand Ltd.83 In that case, Mallon J found that post-CES the plaintiffs were entitled to an award of general damages for IAG’s breach of its obligation to repair their house to an “as when new” condition. In her decision, Mallon J determined that general damages were available to the plaintiffs under three heads:

(a)Physical inconvenience and discomfort of having to live in a house with defects which had not been remedied;

(b)Stress and mental anguish for loss of amenity and the stress of having to live in a house with the defects yet to be rectified; and

(c)Disappointment and loss of amenity, for no longer having a “gold standard” of workmanship available.

[687]           No final view was reached in that case, however, on the quantum for general damages, although Mallon J said there were some general damages examples from

83     Bruce v IAG New Zealand Ltd, above n 25 at [169].

other cases in the $20,000 to $25,000 range. I leave the decision in Bruce to one side at this point. I will return to it shortly.

[688]           At this point, I note that in two other relatively recent insurance decisions where general damages claims were advanced against insurers relating to the CES, this Court refused any such awards. These decisions are:

(a)O’Loughlin v Tower Insurance Ltd:84 In that case this Court said that, when considering a claim for general damages as a result of an insurer’s failure to tender an appropriate sum in settlement of the claim:

…general damages will only be payable if there has been a breach of contract by Tower.

and:

(b)Parkin v Vero Insurance New Zealand Ltd.85 In this case, Mander J stated:

I have not found that Vero breached the insurance policy…there is therefore no foundation upon which an award of general damages could be made.

[689]           It remains open therefore that where a contractual breach of a policy has been established against an insurer, subject to appropriate proof and context, general damages might be available.

[690]           Recently, the issue of general damages under an insurance context came before me for consideration in a case where there was alleged to be a breach on the part of an insurer of its implied duty of good faith. In Dodds v Southern Response Earthquake Services Ltd, the plaintiff’s claim for general damages failed and I went on to note in my decision that the threshold for such claims was a high one.86 The plaintiff homeowners had claimed $15,000 each for inconvenience, stress and anxiety as a

84     O’Loughlin v Tower Insurance Ltd [2013] NZHC 670 at [186].

85     Parkin, above n 4.

86     Dodds, above n 14.

result of Southern Response representing as the total cost of rebuilding their damaged house a scope and costing that excluded particular items.

[691]In rejecting the Dodds’ claim for general damages I noted:87

[222]    Overall then, it is the Dodds’ position that they have each suffered stress, inconvenience and anxiety relating to the misrepresentation by Southern Response and its breach of good faith under their insurance contract.

[223]    Whilst I clearly have some sympathy for the position which the Dodds have found themselves in relating to this matter, it is my view that the reasonably high threshold which exists for general damages claims in cases such as the present has not been reached here. The Dodds were effectively cash settled ultimately to enable them to buy a replacement home of their choice. Their policy claim did not involve what is often seen as a long drawn out repair versus rebuild case. There was some evidence before me of reasonable physical inconvenience but I need to say that there was no major evidence that the Court could consider of significant mental distress here. And as I see the position, the present case differs somewhat from the position that prevailed in Young v Tower Insurance where an award of nominal damages was made.

[692]           Likewise, in another case which also came before me, Kilduff v Tower Insurance Ltd88 I also rejected a claim by the plaintiffs for general damages. This was despite the plaintiffs’ contention that Tower had caused unreasonable delay and acted inappropriately in making offers of settlement that, following judgment, were found to be seriously inadequate. In that case I found that while Tower was not entirely blameless, overall it was acting in good faith on the basis of the information available to it at the time, and I rejected the general damages claim.89

[693]           Other than the decision in Bruce v IAG New Zealand Ltd which I will return to shortly, there has been only one other recently decided case in this Court in which general damages have been awarded in all the decisions arising from the CES.90 That case, Young v Tower Insurance Ltd, referred to in my decision in the Dodds case noted at [691] above, involved a deliberate withholding by the insurer, Tower, at an early stage in the claim process of a report that recommended the plaintiffs’ home be rebuilt, when Tower throughout wrongly claimed that the home was repairable.91 General

87     At [222] and [223].

88     Kilduff v Tower Insurance Ltd [2018] NZHC 704.

89     At [102] – [126].

90     Bruce, above n 25.

91     Young, above n 13.

damages were awarded there but only for what was a relatively nominal sum of

$5,000.

[694]           I return now to the decision of Mallon J in Bruce v IAG New Zealand Ltd, which I refer to at para [686] above.92 According to IAG this decision is clearly distinguishable here. Bruce involved a reinstatement policy under which IAG had elected to repair the property. At [167] of the decision, Mallon J alluded to the situation where an insurer obliged to reinstate fails to do so, either adequately or at all. She held that in those circumstances the insured is prima facie entitled to damages. IAG’s position in the present case, with which I agree however, is that the legal relationship in that situation is one that is analogous to a building contract. On this, the authors of MacGillivray on Insurance Law describe this situation in the following way:93

In short, the insurance policy becomes a building contract or a repair contract and is enforceable as such. Thus, if the insurer fails to perform the contract adequately or at all, he will be liable for damages, although he will not be compelled to perform the contract specifically.

[695]           IAG’s position, therefore, is that in the present case there is no prima facie entitlement to general damages relating to the insurance policy. This is because this case involves a “will pay” policy under which, from a strictly legal point of view, the Sleights elected to repair their property themselves and for this purpose they entered into the Building Contract with Farrells.

[696]Generally, I agree with this assessment advanced on behalf of IAG.

[697]           And I find, too, that, although I do not in any way underestimate the frustrations and personal stress the Sleights have experienced as a result not only of the CES, but also from the earthquake damage caused to their home, and issues too with Farrells and others over their defective repairs, in the circumstances of the present case IAG have not acted in such an unreasonable way as to justify an award of general

92     Above n 25.

93     John Birds, Ben Lynch and Simon Paul, MacGillivray on Insurance Law (14th ed) Sweet & Maxwell, London, 2019 at 708.

damages against them for breach of the Policy. The high threshold for a possible general damages claim against IAG as insurer here has not been met.

[698]           I turn now to the second aspect of the Sleights’ general damages claim. As I note above, this relates to the broader issue as to whether general damages are recoverable in the present case for those losses the Sleights’ may have suffered outside the Policy that cannot be objectively quantified in money terms, such as for pain and suffering, indignity and humiliation and mental distress.

[699]           Again, on this aspect, in their pleadings the Sleights have sought an unquantified sum for general damages for what they describe as “stress and inconvenience”. This wider claim is against all defendants, Farrells, Hawkins, IAG and QBE.

[700]           Awards of general damages have been made for discomfort and inconvenience in cases where special damages have been claimed for damage to property. In Gabolinscy v Hamilton City Corporation it was noted that general damages may be awarded upon the basis of annoyance, frustration, discomfort and inconvenience.94 However, it is clear that such awards are not made on a liberal basis unless it is shown that actual damage to health or the like has been involved.95

[701]           Awards of general damages have been made in a number of cases involving leaky homes in decisions such as Ridgway Empire Ltd v Grant,96 Body Corporate 185960 v North Shore City Council97 and White v Rodney District Council.98

[702]           In Day v Black general damages were sought by the plaintiffs when their house was constructed in an alleged breach of a restrictive covenant.99 In his decision, Rodney Hansen J noted that general damages are appropriate in a case such as that which involved interference with property rights, where true distress and anxiety have been caused.

94     Gabolinscy v Hamilton City Corporation [1975] 1 NZLR 150 at 163-164.

95     Young v Tomlinson [1979] 2 NZLR 441 at [462].

96     Ridgway Empire Ltd v Grant [2019] NZSC 85.

97     Body Corporate 185960 v North Shore City Council [2008] 2 NZTR 18/032.

98     White v Rodney District Council (HC) Auckland 19 November 2009.

99     Day v Black (HC) Rotorua CIV-2004-463-179, 1 July 2004.

[703]           And, in Sloper v W H Murray Ltd, original construction of the plaintiff’s house was defective, causing problems which developed over years.100 This included, in particular, a fracture to the sewer under the house. Hardie Boys J in that case accepted that the problems caused a great deal of anxiety to the plaintiff. He also noted the disruption caused to the plaintiff by having to move out of the house for its reinstatement. And, in his decision given over 30 years ago, his Honour also acknowledged there had been some liberalisation in attitude towards general damages in such property damage cases.

[704]           Before me, both Mr and Mrs Sleight and Mr and Mrs Maxey gave evidence as to the grief and stress the Sleights have suffered as a result (both directly and indirectly) of their IAG claim, the defective repairs to their house and this lengthy litigation. I acknowledge that both Mr and Mrs Sleight are elderly and Mr Sleight, in particular, has significant health difficulties. Notwithstanding this, there was no specific medical or expert evidence before me regarding the impact of these matters upon them. I do not, however, for a moment underestimate the difficulties that arose for the Sleights as this matter and the present litigation has developed.

[705]           I accept, too, that the nature of “general” damages is often such that there is often difficulty in specifically proving or calculating these. Differentiating between grief, stress and inconvenience which may be suffered as a result of a series of disasters like the CES itself, normal insurance claim issues, the repair process, delays, litigation stress, physical illness and treatment is often difficult to discern.

[706]           So far as IAG and Hawkins in particular are concerned, like the Sleights, they encountered an extremely difficult situation following the CES and the multitude of claims and repair/rebuild events they faced. Notwithstanding this, as I have found above, in many respects neither of them could be said to have acted satisfactorily here, even if they may have had good intentions throughout. Overall however, and by a reasonably fine margin, I do not find IAG or Hawkins to have acted so unreasonably, in all the circumstances which arose in this case, and particularly as a result of the CES

100   Sloper v W H Murray Ltd (HC) Dunedin A31/85, 22 November 1988.

events and the problems they caused, such that an award of general damages should lie against them or either of them.

[707]           But, so far as Farrells is concerned, there can be no doubt that it significantly breached the Building Contract terms it had reached with the Sleights and, in all the circumstances, some award of general damages may properly lie against it here. Given, however, that Farrells is in liquidation and, as I understand it, has no realisable assets, an award of general damages against Farrells would serve no purpose.

[708]           Overall, for these reasons, I dismiss the Sleights’ claim for general damages against all of the defendants.

Outcome

The Sleights’ claims

[709]The Sleights have largely succeeded in their claims against:

(a)IAG under the Policy and the CGA;

(b)Farrells under the Building Contract, in negligence and under the CGA; and

(c)Hawkins under the CGA;

and they are entitled to an initial sum for the reasonable measure of damages here (represented by the “costs to fix”), being the estimated cost to rectify the repair defects which, as I accept, totals $389,848. This amount is calculated as follows:

(i)	Cost of repairs (including GST)	$384,628
(ii)	Landscaping costs (including GST)	$5,220
Total	$389,848

[710] The Sleights have also largely succeeded in their claim against QBE under s 9 of the Law Reform Act 1936, in that Hawkins’ joint and several liability to the Sleights as outlined at [709] above (at $389,848) less the QBE policy excess of $50,000 results

in QBE now being also jointly and severally liable to the Sleights for a $339,848 part of this initial damages sum, within the terms of the Hawkins PI policy.

[711]           As to the Sleights’ claim for a declaration as to damages for the cost of alternative accommodation, this succeeds:

(a)A declaration is to be made that IAG, Farrells, Hawkins and QBE are jointly and severally liable to pay to the Sleights an award of damages for their accommodation costs at a rate of $685 per week for renting alternative accommodation (when this does occur) for the reasonable period they are required to be out of their house for the remedial work to be undertaken to rectify the repair defects (this amount being referred to hereafter as “the Sleights’ alternative accommodation damages”).

(b)A further declaration is to be made that, first, IAG is to indemnify QBE pursuant to cl 17.2 of the 2012 RSMA for 79.64 per cent of the ultimate Sleights’ alternative accommodation damages amount and, secondly, QBE is to indemnify IAG pursuant to cl 17.1 of the 2012 RSMA for

20.36 per cent of the ultimate Sleights’ alternative accommodation damages amount, to the end and intent that, assuming Farrells and Hawkins as companies in liquidation will make no contribution towards this alternative accommodation damages figure, IAG will meet 79.64 per cent and QBE will meet 20.36 per cent of this amount.

[712]           As to the Sleights’ claim for a declaration relating to the IAG and Hawkins exclusion and limitation clauses, a declaration is now made pursuant to s 3 Declaratory Judgments Act 1908 that, other than for the purposes of the Sleights’ various claims under the CGA, the provisions in  cl  86,  87  and  88  of  the  Building Contract general conditions are not voided and the Sleights are bound by those clauses.

[713]           The Sleights, however, have failed in their claim for general damages against IAG, Hawkins, QBE and Farrells and this claim is dismissed.

IAG’s indemnity cross-claim against QBE

[714] IAG has succeeded, but only to a limited extent, in its claim that QBE is liable to indemnify IAG pursuant to cl 17.2 of the 2012 RSMA against a part only of IAG’s liability here to the Sleights. An order is to follow that QBE is liable to indemnify IAG but only for the sum of $80,468.96 (being the total Hawkins liability to IAG, I have noted at [521] above, of $130,468.96, minus the accepted Hawkins PI policy excess of $50,000).

QBE’s indemnity cross-claim against IAG

[715] QBE has largely succeeded in its claim that, pursuant to cl 17.1 of the 2012 RSMA, IAG is liable to indemnify QBE against its liability to the Sleights for the amount QBE is to pay the Sleights in this judgment, as noted at [710] above, being

$339,848, excluding the sum of $80,468.96 referred to at [709] above This leaves a net indemnity amount of $259,379.04. An order to this effect is to follow.

Judgment

[716]           The Sleights are entitled to judgment for an initial amount which is now entered on their damages claims:

(a)against IAG, Farrells and Hawkins being the sum of $389,848 as noted at [709] above; and

(b)against QBE as to part only of this initial amount of $389,848 as noted at [710] above, being the sum of $339,848;

in all cases jointly and severally.

[717]           A declaration is made that the Sleights are entitled to an award of damages against IAG, Farrells, Hawkins and QBE (jointly and severally) for the Sleights’ accommodation costs in renting alternative accommodation (when this does occur) for the reasonable period during which they are required to be out of their house for the remedial work to rectify the defective repairs calculated at a rental rate of $685 per week (the Sleights’ alternative accommodation damages).

[718]           As between IAG and QBE, a further declaration is made that, first, IAG is to indemnify QBE, pursuant to cl 17.2 of the 2012 RSMA for 79.64 per cent of the ultimate Sleights’ alternative accommodation damages amount and, secondly, QBE is to indemnify IAG pursuant to cl 17.1 of the 2012 RSMA for 20.36 per cent of the ultimate Sleights’ alternative accommodation damages amount.

[719]And, as between IAG and QBE:

(a)IAG is entitled to judgment against QBE pursuant to the indemnity in cl 17.2 of the 2012 RSMA for the sum of $80,468.96 as noted at [714] above.

(b)QBE is entitled to judgment against IAG pursuant to the indemnity in cl 17.1 of the 2012 RSMA for the sum of $259,379.04 as noted at [715] above.

(c)The net apportionment of the amounts noted above to be paid to the Sleights’ under the overall judgment in this proceeding of $389,848 (plus the Sleights’ alternative accommodation damages noted at [717] above) is for IAG to meet $309,379.04 (plus 79.64 per cent of the Sleights’ alternative accommodation damages amount) and for QBE to meet $80,468.96 (plus 20.36 per cent of the Sleights’ alternative accommodation damages amount).

(d)A declaration is made pursuant to s 3 of the Declaratory Judgments Act 1908 that, other than for the purposes of the Sleights’ various claims under the CGA, the provisions in cls 86, 87 and 88 of the Building Contract general conditions are not voided and the Sleights are bound by these clauses.

Interest

[720]           The Interest on Money Claims Act 2016 came into force on 1 January 2018. Under s 5, it applies to every civil proceeding commenced after that date. The Sleights brought the present proceeding with their first statement of claim filed 6 October 2017.

It would seem, therefore, that the Interest on Money Claims Act has no application here. In each of the Sleights’ various statements of claim filed in this proceeding, in addition to damages, an award of interest was sought. However, generally, not all counsel addressed me on the question of interest and I should hear from all parties before determining an appropriate award of interest in favour of the Sleights.

[721]           As it would be preferable for counsel to make further written submissions on the question of interest on the basis of this judgment if they might wish to do so, I now direct as follows:

(a)Submissions on the question of interest on behalf of the Sleights are to be filed and served within 15 working days of the date of this judgment.

(b)Submissions on the question of interest on behalf of IAG are to be filed and served within a further 10 working days of that date.

(c)Submissions on the question of interest on behalf of QBE are to be filed and served within a further 10 working days of that further date.

(d)All submissions are then to be referred to me and, in the absence of any party indicating they wished to be heard on the issue, I will decide the question of interest to be paid based upon the submissions filed and all the other material before the Court.

Costs

[722]           So far as costs are concerned again, generally, I heard no detailed submissions from counsel addressed to costs.

[723]Costs are therefore reserved.

[724]           In the event that counsel are unable to settle the issue of costs between themselves, then they may file memoranda (sequentially) on this issue and again, in the absence of any party indicating they wished to be heard on the costs question, I

will decide the issue of costs based upon the memoranda filed and all the other material before the Court.

...................................................

Gendall J

Solicitors:

Saunders Robinson Brown, Christchurch for Plaintiffs Clark Boyce, Christchurch for First Defendants

Hazelton Law, Wellington for Second and Fourth Defendants DLA Piper, Wellington for Third Defendant

Copies to:

Nathan Gedye QC, Barrister, Auckland for Third Defendant Oliver Collette-Moxon, Barrister, Auckland for Third Defendant Daniel McLellan QC, Barrister, Auckland for Fourth Defendant