Spiteri v RCR Infrastructure (New Zealand) Limited
[2017] NZHC 438
•14 March 2017
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2015-442-10 [2017] NZHC 438
BETWEEN ADRIAN ALBERT SPITERI AND
VANESSA SPITERI Plaintiffs
AND
RCR INFRASTRUCTURE (NEW ZEALAND) LIMITED
Defendant
Hearing: 20-22 June 2016 Counsel:
L A Andersen for Plaintiffs
M J Dennett for DefendantJudgment:
14 March 2017
JUDGMENT OF CLARK J
Table of contents
A Introduction [1] B The defendant [3] C Background [4] D The terms of the contract [24] Plaintiffs’ position [24] Defendant’s position [26] Analysis [27] E Breach [36] F Limitation Act 1950 [46] Boiler installation [51] Continuing attempts to perform [57] Conclusion [58] G Exclusion Clause in contract [61] Analysis [71] H Remedy [77] Betterment [77] The two options [86] Comparative costings [103] Damages [112] General Damages [119] Cost of investigation report [126] Accommodation costs [135] Result [136]
SPITERI AND SPITERI v RCR INFRASTRUCTURE (NEW ZEALAND) LIMITED [2017] NZHC 438 [14 March 2017]
Introduction
[1] In 2007 the plaintiffs, Mr and Ms Spiteri, commenced building what was to be their dream home in Redwood Valley, Richmond. They had particular requirements for heating as they knew it could be very cold in winter. As well, they had ready access to firewood and wanted to use that as a form of cheap fuel. Mr and Ms Spiteri arranged for a design brief and then the supply and installation of an underfloor heating system. They have experienced problems with the system ever since and sue for breach of contract.
[2] The defendant concedes breach of contract but its case is that the breach was in the design of the heating system. The defendant says its contract with the plaintiffs was breached when it prepared the design for the heating system which was defective but in response to the plaintiffs’ claim the defendant raises affirmative defences:
(a) the proceeding is time-barred;
(b) the defendant’s liability is limited by a clause in the terms of trade
which form part of the contract between the parties.
B The defendant
[3] The design and the installation of the heating system was completed by Norfolk Electrical and Mechanical Ltd, a subsidiary of the named defendant and trading as Climatech. The defendant accepts for the purpose of the proceeding it is one and the same as Climatech. It is to Climatech that the parties referred throughout the hearing and accordingly to which I refer in this judgment.
C Background
[4] In 2007 the plaintiffs approached Climatech to design and install a heating system. Mr Spiteri’s evidence (which was not contested by the defendant) was that he and Ms Spiteri had particular requirements of the heating system for their new home:
(a) They did not want heat pumps or direct sources of heating which was why they were investigating underfloor heating.
(b)They wished to use the firewood from the farm block they had purchased and thereby save money.
(c) Because of the dust and smoke likely to be created by log burners, they did not want log burners in the house.
[5] Discussions with Climatech began in September 2007 and an initial design brief was prepared on 9 October 2007. Heating was to be provided to nominated areas of the house by means of underfloor heating using a low pressure hot water system with the heat being generated from a wood-fired boiler.
[6] Following a meeting with Mike Tunney, Climatech’s Branch Manager,1 a reconfigured design brief was prepared on 7 March 2008. This, the final design brief, reflected Climatech’s advice that total underfloor heating was not the best option and the bedrooms, office and family lounge would have radiators rather than underfloor heating. The final design identified the areas to be heated by underfloor heating and the areas to be heated by radiators. The boiler specifications recommended in the initial design did not change in the final design.
[7] An application to open a customer credit account with Climatech was completed by Mr Spiteri on 8 April 2008. Mr Spiteri signed page one but denies ever seeing page two. He said if he had seen it he would have initialled it. I return to this document later in the judgment as it comprises an important element of the defendant’s limitation of liability defence. For the moment it is sufficient to note that the copy in evidence is not signed or initialled on page two.
[8] The pipework for the central heating in the floor-pad was installed prior to
19 April 2008. Mr Spiteri, who was taking a very great interest in the whole project, noticed that the pipework was not evenly spaced and raised his concerns with
Mike Tunney. He produced in evidence photographs that he took at the time.
1 So described in a Producer Statement to the Tasman District Council in September 2009 but also
designated in Climatech’s Estimate Summary dated 7 March 2008 as sales representative.
[9] The boiler was in situ in early April 2009 but because of problems with the valve the system did not work initially. Climatech was on site on 10 April 2009 and, for several days, tried to address the problem. On 13 April 2009 Climatech discovered that the three port valve had been installed the wrong way and this was the cause of no heating to the front of the house. Mr Spiteri’s evidence was that when this was remedied heat was received at the front of the house but it was the start of ongoing problems.
[10] In June 2009 it was apparent to the Spiteris that there were major problems with the heating system. On 17 June 2009 Ms Spiteri contacted Mr Tunney. By
10 July 2009 when there had been no progress Mr Spiteri escalated the issue to
Climatech’s head office. Mr Tunney then met with Mr Spiteri on 11 September
2009. Mr Tunney’s minutes of the meeting record his apology for the lack of communication partly “due to the situation being an embarrassment to him and ignoring the issue”. The minutes catalogue the issues with the hot water cylinder, the underfloor heating and the boiler. The minutes record Climatech’s proposed action.
[11] By 30 September 2009 Climatech had arranged for Nelson Plumbing to look into the issues. Nelson Plumbing suggested running the hot water pipework direct from the boiler to the hot water system instead of the hot water system being part of the heating network which had resulted in no effective heating of hot water. On
12 November 2009 Climatech suggested pipework changes to implement the proposal.
[12] The Spiteris’ approached consulting engineers, CHP. Their report dated
18 January 2010 addressed the location of the manifold, the hot water heating system, variations in floor temperature and tile cracking (possibly being due to much hotter water entering one end of the circuit at a very low flow rate), boiler temperature and the means by which over-temperature might be controlled or the heat dissipated, size of the pump and flue problems. As well, and on the basis of the design and photos of the pipework layout which Mr Spiteri had taken prior to the “slab pour”, it appeared to CHP that areas of pipe had been laid in a “freeform” layout. Areas where pipe had not been laid in regular coil form indicated to CHP
that the aim in those areas had been to take the chill off the slab rather than provide a formal heating system.
[13] That report was sent to Climatech. Its South Island Regional Manager responded by email on 3 March 2010 noting many of the technical opinions and tending to take little issue with the report except to note that it had been prepared without the benefit of a site visit.
[H]owever we do not disagree with technical opinion offered as there are many different options to achieve the same solution. However, the complexities of this situation and difficulties encountered in even reaching a consensus with yourselves, as to identifying and agreeing on issues and potential solutions, remains the obstacle. The CHP letter does not navigate a way around this and potentially the further technical comment, opinion and observation may only serve to further confuse the situation.
In closing, we are committed to reaching a conclusion with yourselves, and we continue to try and approach this in an objective and clear manner, so that the outcome meets your requirements and also satisfies any contractual (or otherwise) obligations that Climatech have.
[14] By March 2010 there had been no further progress and Mr and Ms Spiteri had become very concerned. There were further meetings and discussions in 2010. In March 2011 the pipe changes suggested in November 2009 were carried out. The buffer tank proposed to enable an even spread of water from the boiler was installed in May 2011. There were further discussions with Climatech and by April 2011 as winter was approaching and the house was becoming cold the Spiteris’ concern was increasing.
[15] Through 2010 and 2011 Mr and Ms Spiteri contended with a disfunctioning and, at times, frightening central heating system. Pipes burst, scalding water came through the ceiling of one of the rooms and there was a concern about the safety of the system. At one stage in April 2011 after the Spiteris had been advised by Climatech that they could light the boiler they had to extinguish the fire after a pressure relief valve discharged steam in the garage due to an airlock.
[16] Repairs were carried out above the guest room where a pipe had burst. A
month later another pipe burst in the ceiling of the guest ensuite. It was agreed that
copper pipes would be run along the ceiling to replace the plastic pipes and this was implemented.
[17] During the winter of 2011 the house was bitterly cold. The Spiteris owned a heat pump that was in a rental property and Climatech installed that pump to provide some heat in the kitchen/dining area. Mr Spiteri said it assisted as an interim solution to keep part of the house warm until the heating situation was resolved, although it looked “ugly” on the wall.
[18] By 11 September 2011 the work that had been carried out had not improved matters. The system was slower to heat up and provided even less heating. Mr Spiteri’s unchallenged evidence was that it took three hours to heat the hot water because the 400 litres of water in the buffer tank that had been installed had to be heated as well as the water in the system. Until the water was heated there could be no heating to the house.
[19] A letter from Mr Spiteri dated 16 December 2011 to the Chair of the Norfolk Group in Sydney was written in “desperation and as a last resort”. Mr Spiteri referred to his meeting with the General Manager in January 2011 the minutes of which recorded that the system had not been engineered properly. Since that meeting work had been undertaken on the system which had led to such a level of deterioration in the system the workmen had apparently ceased work and referred the situation back to the General Manager.
[20] Mr Spiteri’s letter was restrained and factual in its presentation of the effects of the defective heating system on them: as a result of the work undertaken their fuel costs had increased; the home had been flooded and their children had been forced to spend time away from the family home to ensure they could be warm and clean during the winter months and were able to attend school each day. Mr Spiteri expressed his dismay that a meeting apparently scheduled for 19 December 2011 had been cancelled and that there would be no meeting before late January or early February 2012. Mr Spiteri sought the Chair’s intervention and a meeting to reach an appropriate resolution to the “disastrous situation”. Mr Spiteri was prepared to travel to Australia for the purpose of the meeting.
[21] There were apparently further discussions without effect and in 2014 the Spiteris commissioned a report from Opus International Consultants to investigate and report on the heating system. The Opus Report was produced on 21 January
2015.
[22] The Spiteris say they are trapped in relation to their home. They cannot sell the house without heating. And they cannot get a code compliance certificate unless the system is removed or they are able to obtain sufficient money to repair it.
[23] These proceedings were filed on 30 March 2015. The plaintiffs claim general damages of $30,000.00 for pain and suffering. They seek also reimbursement of the costs of investigating the defects and $359,397.95 for the remedial option recommended by the plaintiffs’ expert witness and the cost of alternative accommodation while the work is being carried out.
D The terms of the contract
Plaintiffs’ position
[24] The plaintiffs’ statement of claim pleads:
(a) the contract between the parties is the contract entered into in 2008 whereby the defendant was to design and install a heating system for the plaintiffs’ home in Redwood Valley;
(b) there was no formal written contract.
[25] As to the application to open a customer account, one of the documents upon which the defendant relies as evidence of a written contract, the plaintiffs deny they agreed to be bound by its terms of trade. Further and central to the plaintiffs’ case are oral assurances and representations which Mr Spiteri said Climatech made.
Defendant’s position
[26] The defendant admits it entered into the contract set out at [24](a) above but says the parties entered into a written agreement comprising the following documents:
(a) A document headed Spiteri House – Heating System Technical
Information dated 7 March 2008;
(b) Climatech Estimate Summary dated 7 March 2008 (c) Climatech design drawings dated 7 March 2008;
(d) Schematic drawing of the Spiteri House dated March 2008; (e) Sime Solida Solid Fuel Boilers manual; and
(f) An application to open a customer account with Climatech including the terms of trade dated 8 April 2008.
Analysis
[27] It is clear that there is no one document reflecting all the terms agreed between the parties. Therefore, in order to identify the terms of the contract, it is necessary to consider the documentation relied on as well as the discussions between Climatech and the Spiteris, and the evidence of assurances that are said to have been given and which therefore became contractual terms.
[28] First, I turn to those elements of the agreement between the parties that are not in contention.
Design brief 9 October 2007
(a) Climatech provided to the plaintiffs a single-page design brief dated
9 October 2007. Headed “Spiteri House – Heating System –
Technical Information the first paragraph stated:
Design Brief: To provide Heating to nominated areas of the house by means o[f] Underfloor Heating utilising a Low Pressure Hot Water System with the Heat being generated from a Wood Fired Boiler. The Nominated areas are:-
Master Bed & En-Suite Family and Dining
Lounge/Formal Dining WC, Bath/Bed 2
Media/Office Bed 3
(b) The remainder of the page contained the following information:
(a) Underfloor heating coils the number and layout of which was to be determined by the heat requirement for each space, the coils to be interfaced with a “distribution underfloor heating panel” controlling the flow and temperature of water to the coils.
(b)The distribution underfloor heating panel incorporated a manifold; a pump; actuators for the various zones to be heated; an enclosure cabinet; room thermostats and a “SIME Wood Fired Boiler”;
(c) Technical information for the solid fuel wood burner was contained in data sheets to which the design brief referred. The low pressure hot water produced from the boiler was to be circulated to the distribution underfloor heating panel and provide heat to a hot water cylinder. Control would be such that on demand priority would be given to the hot water cylinder.
(d)The brand of the mains pressure hot water cylinder was stipulated.
(e) Pipework was to be suitable for distributing the low pressure hot water to the areas required.
Modified design brief 7 March 2008
(c) Subsequently, Mr and Ms Spiteri met with Mike Tunney who suggested total underfloor heating was not the best option. He recommended that the bedrooms, office and family area have radiators rather than underfloor heating.
(d) A design brief dated 7 March 2008 provided for radiator heating.
Except in two respects this design brief document is identical to the initial design brief dated 9 October 2007. The first change was in the design brief description which now provided for radiator heating:
Design Brief: To provide Heating to nominated areas of the house by means of Underfloor Heating and Radiators utilising a Low Pressure Hot Water System with the Heat being generated from a Wood Fired Boiler. The Nominated areas are:-
Underfloor heating Radiator Heating Media Room Master Bedroom Formal Dining Family
Lounge Bed 2
Dining Bed 3
En-Suite Office
Bathroom/WC Guest Bed
(e) The only other change from the October 2007 brief was a specific provision for radiators:
Steel Panel Wall mounted Radiators c/w Thermostatic
Control Valve Heads. Outputs [vary] for each Room.
Layout Design
(f) A Climatech document labelled “Heating System Layout SK2 March
08” was accepted by Mr Spiteri as representing the final design or
layout for the underfloor heating system and radiators.
Cost
(g)There was no dispute that an invoice dated 22 May 2008 was for the estimated contract value of $20,932.00.2
Date of agreement
(h)Mr Spiteri accepted that the application to open a customer account which he signed on 8 April 2008 was the effective date of acceptance of Climatech’s design for the heating system.
[29] Mr Spiteri emphasised that a wood-fired boiler was a key specification because of the ready supply of firewood on the adjoining farm block which the couple had purchased and which they were intent on using as their primary fuel source. As well Mr Spiteri said Climatech assured them the system it had designed and was to supply would heat the whole house without any other heating being required. The wood fire boiler in the garage would heat water to provide:
(a) hot water;
(b)underfloor heating for the entrance way, formal dining-room, formal lounge, kitchen/dining-room, media room, bathroom and master ensuite;
(c) heat by way of radiators to the four bedrooms, the office and the family room; and
(d) heat to the towel rails in the bathroom and the two ensuites.
[30] The heated water would be conveyed by pipes from the boiler to the hot water cylinder; to the underfloor heating system through the concrete slab, and to the
radiators and towel rails by pipes through the walls and in the roof cavity. Mr Spiteri
2 In fact, the Spiteris paid $27,995.65 being a total invoiced sum of $24,885.05 as at 23 April 2009 and GST of 12.5 per cent.
said Climatech assured the couple that the boiler would burn overnight and provide heating throughout the house without having to be re-fuelled.
[31] Where, as in this case, there is no written document appearing on its face to be a comprehensive record of the agreement between the parties it is permissible for the court to look at the background circumstances in order to be satisfied of the parties’ intentions. The question becomes: what would the contract convey to a reasonable person?3 What has been described as the “essence of the modern
approach”4 was summed up by Tipping J in Vector Gas Ltd v Bay of Plenty Energy
Ltd:5
… The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed the court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds.
[32] There was no challenge to Mr Spiteri’s evidence of Climatech’s assurances. Mr Tunney was not called to give evidence. Nor was it put to either Mr or Ms Spiteri that the design brief dated 7 March 2008 represented the full extent of the contract.
[33] I consider it is unarguable that the parties intended that Climatech would design and install a heating system which, by providing underfloor and radiator heating to nominated areas of the house, would heat the whole house including the foyer. While the foyer was not specified as a nominated area in the design plan, the layout plan shows pipes under the foyer area. On the defendant’s own case the layout plan is one of the contractual documents. The layout plan was put to Mr Spiteri and he accepted it represented the final layout or design. I accept that the assurances set out at [29]–[30] above were given and formed part of the contract.
[34] I accept as well that the parties intended the underfloor heating would provide a consistent heat across the slab. When Ms Spiteri was cross-examined as to
3 Burrows, Finn and Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington,
2016) at 178.
4 At 178.
5 Vector Gas Ltd v Bay of Plenty Energy [2010] NZSC 5, [2010] 2 NZLR 444 at [19].
the acceptability of the solution which the defendant now proposes by way of remediation she questioned whether it would deliver what Climatech promised. That is, Ms Spiteri wanted to know if the heat would be “a consistent heat across the slab as it should have been”, and whether the solution would “give me exactly what we wanted originally”.
[35] Thus, the contract was for the design, supply and installation of a heating system, reflecting the design brief of 7 March 2008 and which was to meet the agreed requirements set out at [29]–[30] above. The contract was concluded with the opening of a customer account on 8 April 2008.
E Breach
[36] Mr Spiteri catalogued the inadequacies of the heating system and produced photos showing the damage caused by, and the effects of, its failures at different times. Although the Spiteris had been assured the house would be heated through the night without having to put more wood into the boiler in fact it need to be re- stoked every two hours. Even when the system was operational it did not provide the adequate heating which Climatech assured. I have only summarised the extensive problems which Mr and Ms Spiteri have had to confront. Even the pantry is affected. When the system is operating the pantry becomes the warmest place in the house making it completely unsuitable for storing food. Some rooms have no heating, others have patchy heat with warm and cold spots. There is no heating in the foyer apart from the area immediately above the pipes. Consequently the foyer is very cold in winter. The media room was intended to be the Spiteri’s winter living area but cannot be used for that purpose because it does not get warm.
[37] The defendant’s position is that “the heating system was never capable of operating effectively”. On the defendant’s case the installation is irrelevant as the heating system was destined to be defective.6 The specified boiler was simply unable to provide the plaintiffs with the underfloor heating system they had
contracted for.
6 Defendant’s closing submissions at [14].
[38] Mr Dennett submitted that therefore breach occurred in March 2008 when
Climatech provided its design to the plaintiffs.
[39] The issue then is whether the breach was in the design which was completed in March 2008 or, as the plaintiffs argue, whether the breach occurred at the point when there was a failure to provide a heating system in accordance with the contract.
[40] The defendant’s concession that the design was defective is not the end of the inquiry into breach. In a sense it is a self-serving concession which seeks to position the breach beyond the six-year limitation period,7 and consequently beyond the reach of the plaintiffs’ claim.
[41] There is no evidence that Climatech considered at the time it was attempting to tackle the significant issues that they were due to a faulty design. As at September
2009 Climatech was disposed to investigate aspects of the unsatisfactory performance of the heating system and to take action. In fact discussions with Climatech continued into 2011 with numerous and varied remedial responses. In April 2011 a pipe burst in the ceiling of the guest room where a child was staying. Boiling water poured from the ceiling. The heating system could not be used at all during the winter of 2011 and Mr Spiteri described the house as bitterly cold. As at September 2011 the work that had been carried out had still not effected improvement.
[42] Beyond the fact that Climatech continued to try and address the situation at least until some time in 20118 it seems to me that there is a fundamental impediment to the defendant’s contention that the breach was in the preparation of its design brief. If the defendant was in breach at that stage then the breach occurred on
7 March 2008. The problem with this approach is that it has a breach taking place in advance of a concluded contract. There is consensus that the contract was
formalised on 8 April 2008.
7 It is not in dispute that the Limitation Act 1950 governs. Section 4(1) provides that an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.
8 On Mr Spiteri’s evidence which was unchallenged.
(a) The defendant itself contends that the application to open a credit account signed by Mr Spiteri on 8 April 2008 is one of the documents that make up the written contract.
(b)It was put to Mr Spiteri in cross-examination that the application to open the credit account “formed the basis of the contract” with Climatech and that, having agreed to it, Mr Spiteri started to receive invoices. Mr Spiteri agreed.
[43] The defendant admits it received payment of $24,885.05 for the “design supply and installation of the heating system”. As Mr Andersen submitted the defendant’s claim that the design can be severed from the construction is incorrect. The plaintiffs were invoiced for “the supply and installation of central heating” to the home. A Climatech credit note dated 10 September 2009 records a credit invoice for an amount held “pending satisfactory resolution of disputed performance.”
[44] There is no question that the heating system has failed to perform. The issues were identified in the Opus report as arising from a combination of poor design and workmanship in installing the various systems including the underfloor heating coils and other equipment. The fundamental problem is that the existing boiler does not operate according to the contractual expectations of the parties. The boiler does not provide sufficient heat for long periods of time thus preventing the underfloor heating system from reaching the desired surface temperatures. Sufficient heat to reach the hot water cylinder is also an issue.
[45] I find the breach of contract is in the failure of the defendant to deliver the heating system which the defendant contracted to provide. It fails to be a functioning heating system let alone the heating system which conformed to the parties’ contractual terms. If breach did not occur in 2011 when Climatech effectively walked away I find breach occurred no earlier than the installation of all components of the heating system necessary to make it operable even if it did not perform according to the contract. That point was when installation of the boiler was complete, at the earliest, on 10 April 2009. I turn now to the events relevant to the installation of the boiler.
F Limitation Act 1950
[46] The defendant also raises a Limitation Act defence: that even if the plaintiffs prove their pleaded allegations their cause of action is time-barred because it accrued before 30 March 2009.
[47] A cause of action accrues when every fact exists which it will be necessary for a plaintiff to prove in order to support a plaintiff’s right to the judgment of the court.9
[48] In relation to breach of contract claims the limitation period runs from the date of breach and not from the date upon the breach was reasonably discoverable. The question for determination becomes: when did the defendant breach the contract? Or, put another way, when could the plaintiffs have sued (successfully) for breach of contract?
[49] I take as a somewhat obvious starting point that the plaintiffs could not have initiated legal action against the defendant until installation of the heating system was complete. Not before this point could the heating system expose its inadequacies in performance.
[50] The installation was sequential. Radiators were installed and pipes in the concrete slab floor were in place as at November 2008 when Mr and Ms Spiteri moved into their new home. The boiler, however, had not been installed. In fact, Mr Spiteri’s evidence is that the boiler had not even been ordered when they moved in and it was not ordered until possibly December 2008. In any event it was not installed until the first quarter of 2009. The exact date is not documented and the only evidence of installation was from Mr Spiteri himself.
Boiler installation
[51] Mr Spiteri said the boiler installation was completed in early April 2009. It was not disputed that the heating system did not work initially because of problems
with the boiler nor was it disputed that Climatech was on site on 10 April 2009 for
9 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [64] per Tipping J.
several days trying to sort out the issues. Mr Spiteri’s further evidence was that on
13 April 2009 Climatech “discovered” that the three-port valve had been installed incorrectly. When this was remedied heat was received at the front of the house but it was the beginning of other problems that manifested over time because of the inadequacy of the system.
[52] The three-port valve was fundamental to the boiler’s operation which, in turn, was fundamental to the heating system. Without the boiler there could be no source of hot water through the pipes in the walls and floor slab to heat the radiators and pipes under the floor. As well, of course, the wood-fire boiler would heat water to provide for the household hot water, and the heated towel rails in the bathroom and the two ensuites according to the final design.
[53] The installation of the heating system cannot be said to have been achieved if a component part fundamental to its operation was installed in a manner that rendered the boiler inoperable. This is a different point from whether or not the boiler performed well or even in accordance with the contract. Mr Spiteri said the boiler was delivered and turned on in April 2009 and that Climatech was on site on
10 April when the valve was in the incorrect position. Then a letter from Ms Spiteri dated 15 September 2010 was put to him. Ms Spiteri had written to the Managing Director of the Norfolk Group to seek help and support in resolving the heating and hot water system. The letter contains this sentence:
… to complete the installation prior to the onset of the winter as we moved into our new home in December 2008 and the system was not operational until March 2009.
[54] The defendant relies on this letter as demonstrating that the “system was fully operational in March 2009” and that ultimately Mr Spiteri accepted the boiler was installed by March 2009. This is important evidence because it has the potential to impact on whether or not the proceeding is brought within or outside the six year period laid down by the Limitation Act.
[55] I do not accept that Ms Spiteri’s letter supports the gloss which the defendant places on Mr Spiteri’s testimony.
(a) Ms Spiteri’s letter is inaccurate in an important detail although that detail is irrelevant to the proceeding. Ms Spiteri describes moving into the home in December 2008. Yet the evidence was that they moved into the home in November 2008. That date was never in dispute. Given the inaccuracy in describing such a major personal event it is a fair inference that Ms Spiteri may not have accurately remembered whether the system was operational in March 2009 or April 2009, particularly when the letter was written one and a half years after the event.
(b)Mr Spiteri was clearly endeavouring to be completely candid and give evidence to the best of his memory. While he agreed at one point with the proposition put to him in cross-examination that the boiler was in place at the end of March he qualified his answer:
I mean this is a good few years ago …
Mr Spiteri also noted that Ms Spiteri’s letter was some 18 months after the event. And he was firm on the date the valve was installed. That, he maintained, was around 10 April 2009 when Climatech was on site. The valve that was installed incorrectly was picked up “very very soon” so his recollection was that the boiler was on site very close to 10 April.
[56] There is a material distinction between the boiler being in situ and the completion of its installation as a necessary and functioning component of the heating system. I consider the earliest point at which the installation of the heating system could be regarded as complete was when the boiler became operable. That was when the valve position had been corrected which, at the earliest date, was 10
April 2009. A cause of action could not have accrued before this date. Taking 10
April 2009 as the earliest date from which a six-year limitation period ran, the proceeding having been filed on 30 March 2015, it is not time-barred.
Continuing attempts to perform
[57] There is also an argument that time started to run from a much later point. Mr Spiteri’s letter of 16 December 2011 to the Chair of the Norfolk Group refers to the work undertaken on the system since their meeting with the General Manager at their home on 25 January 2011. Although it is not clear from the evidence precisely when Climatech’s attempts to achieve a proper functioning of the system took place there was no dispute that at least from April 2011 copper pipes were installed in the ceiling after which there was no further risk of water exploding from the ceiling at least. But, as Mr Spiteri said in cross-examination, the original pipework which was problematic remained in the walls. Although it is clear that there continued to be engagement with Climatech through 2011, and then with Hayden NZ which had taken over Climatech’s business in 2012, it is obvious that Climatech was taking steps in performance of its obligation to deliver the heating system it contracted in
2008 to provide. Taking April 2011 as the date when Climatech appeared to abandon further effort, the limitation period would not have ended until April 2017.
Conclusion
[58] I consider that 10 April 2009 was the earliest date on which all the elements essential to establishing a breach of contract were present. This was the earliest point at which the boiler, and thus the heating system, were operable. Without the boiler the heating system did not get off the ground and without proper installation of the valve the boiler could not work. I do not accept that the installation of the boiler was irrelevant. If that were the case the plaintiffs could have sued on the contract before complete installation of the heating system.
[59] On this analysis the heating system was installed no earlier than 10 April
2009. The proceeding having been filed on 30 March 2015 it is not time-barred.
[60] An even later point is arguable. Climatech did not walk away immediately following installation. If the steps which Climatech continued to take were in performance of its contractual obligation to deliver a functioning heating system then it may not have failed to meet its contractual obligations until sometime in 2011. I do not need to determine this point as I am confident that the heating system was not
installed before 10 April 2009 and that the contract to design, supply and install the heating system was not breached prior to this date.
G Exclusion Clause in contract
[61] The defendant says the plaintiffs’ claim is a claim for damages and is excluded by cl 8 of its terms of trade. Alternatively the liability of the defendant is limited by cl 8 to the cost of replacement or supply of equivalent goods. Clause 8 provides:
To the extent permitted by law, the vendor makes no warrantees or representations to the Purchasers. The Vendor’s liability for any breach of contract or for any negligent act or omission whatsoever, however it may arise, or breach of statutory warranty (to the extent permitted) or in anyway related to this Agreement is limited to the cost of replacement of Products or supply of equivalent goods (at the Vendor’s option) and in no event shall the vendor be liable for any loss (whether direct or indirect) of profits, revenues, use or production or for corruption or destruction of data or for any indirect, special or consequential loss or damage whatsoever.
[62] The plaintiffs’ case is that Mr Spiteri was not provided with the terms of trade at the time he signed an application to open a customer account. Mr Spiteri’s evidence was that he had never seen the terms of trade.
[63] The application to open a customer account has the appearance of a standard form the first page of which seeks conventional details concerning the applicant such as physical address, postal address, contact numbers and so on. Standard conditions are included on the first page so that, by signing the application, an applicant authorises collection of credit information, disclosure of credit information, receipt of information by the company about the applicant, and such like. A final condition appears immediately above the applicant’s signature:
In signing this application, the applicant acknowledges he/she/it accepts the terms of trade set out on page 2 of this application.
[64] Page two contains, in a font bordering on the microscopic, no less than
30 terms of trade. At the bottom of the page, immediately following the last clause (that is, the 30th term of trade), there is provision for a signature in the following format:
Please retain these Terms of Trade for your reference
Applicants Initials_
The copy in evidence has no signature and Mr Spiteri says he did not see page two with its terms of trade.
[65] In the face of Mr Spiteri’s evidence that he was not provided with the terms of trade and had never seen them the defendant relies on the legal principle articulated by Scrutton LJ in L’Estrange v Graucob:10
When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.
[66] There is no allegation of fraud or misrepresentation and Mr Dennett submits that the terms of trade form part of the terms of the contract between the parties. The consequence is that, although cl 8 limits the defendant’s liability to the cost of replacement or supply of equivalent goods, that is not an appropriate remedy in the circumstances of this case as the heating system was designed to be ineffective. Mr Dennett submitted it would be commercially absurd if the contract required replacement of a defective good with an equivalent defective good. Therefore, if the defendant is found liable cl 8 should be construed to require the defendant to pay damages in the amount of $24,885.05 being reimbursement of monies paid to Climatech for the design and installation of the heating system.
[67] Alternatively, the defendant argues the effect of cl 8 is to limit the defendant’s liability to pay damages equal to the cost of removing the system. That, according to the defendant’s expert witness, would be $41,679.59.
[68] As a further alternative, the defendant submits the effect of cl 8 is to limit the defendant’s liability to the cost of removing the heating system and reimbursing the plaintiffs. That amount is $62,311.88.
[69] On any construction of the contract, the defendant submits, the Court ought not to allow any other head of damage, including general damages, the cost of
10 L’Estrange v Graucob [1934] 2 KB 394 at p 403.
investigating defects or relocation costs as they are excluded by the terms of the contract.
[70] The plaintiffs say that for cl 8 of the terms of trade to have relevance the plaintiffs must have agreed to it and they deny agreeing to any such limitation because the terms were not attached to the application to open the customer account when it was signed by Mr Spiteri.
Analysis
[71] I accept Mr Andersen’s submission that an exclusion clause such as cl 8 which had potentially onerous implications for the plaintiff must have been fairly brought to Mr Spiteri’s notice.11
[72] Mr Spiteri’s evidence under cross-examination was that although he did not remember signing the application to open an account he accepted that it was his signature on page one. He believed he would have signed the document at Climatech’s office. He was never given a copy and said he had never seen page two containing the terms of trade. The space for his initials or signature was empty. Mr Spiteri remained firm under cross-examination. He was clear that only the first page, bearing his signature had ever been shown to him because otherwise he would have initialled it in the space for “Applicants Initials”. Mr Spiteri felt sure that had the second page been attached “Mike [Tunney] would have said ‘Oh, if you’re signing that, just initial the back page’”.
[73] There was no contrary evidence. Mr Spiteri’s explanation is consistent with my sense of his methodical and conscientious approach to business matters and matters of detail in general. By way of example, many of the documents produced by the plaintiffs consisted of photographs taken at the very early stages of excavation of the site where the house was to be constructed, of the pipework between the walls before the gib was in place, of the “footprint” of the house prior to underfloor heating being installed, and of the pipework from different angles including close-
ups of the ties to secure the pipework. As well there were photographs of the
11 See for example Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, [1988] 1 All ER 348.
thermostat taken close up when the boiler was overheating, the pressure valve, and detailed diary entries under the date on which an event occurred. It would seem to be out character, from what I have seen of Mr Spiteri’s approach to matters of detail, that he would overlook initialling a document that sought his initials. It was only a two-page document and the fact Mr Spiteri did not sign it is consistent with his evidence that it was not attached to, or part of, the single page which he did sign.
[74] Further support for Mr Spiteri’s assertion is in the notation at the bottom of page one of the application to the effect that a deposit invoice was to be raised. The notation is initialled and dated 14 May 2008. There was no requirement for Mr Spiteri to annotate the document in this way but it does seem characteristic of his regard for detail.
[75] Even if Mr Spiteri’s recollection is inaccurate and he did in fact sight page two with its terms of trade the fact is there were thirty clauses on that one page. It was suggested that the font would have been bigger than the font on the copy before the court. But that is unlikely as, if the font were any larger, the thirty clauses would not fit on the one A4 page. The font was so small that cl 8 needed to be reproduced in the body of submissions to enable it to be read.
[76] The clause is onerous in this sense. Limitation of liability to cost of replacement of product or supply of equivalent goods is hardly apt in the context of an underfloor heating system, where if the whole system fails due (say) to defective design (which is the defendant’s case) replacement products could not begin to compensate for the breach. Such a clause needed to be brought specifically to Mr Spiteri’s attention. It was not. In the circumstances cl 8 was not incorporated into the contract and the defendant’s liability is neither excluded nor limited by cl 8.
H Remedy
Betterment
[77] Mr Andersen submitted that the loss caused by the breach of contract is the cost to the plaintiffs of putting them in the position they would have been in if the contract had been performed. In reliance on Bevan Investments Ltd v Blackhall &
Struthers12 Mr Andersen submitted that damages for breach of contract should reflect the cost of cure (as opposed to the difference in value) where that is the appropriate course. The question will be: is reinstatement a reasonable way of dealing with the situation?13
[78] The plaintiffs particularise the remedial work required and the damages sought as follows:
(a) $17,266.91: cost of investigating defects
(b) $359,397.95: being the Variotherm option14
or
$205,901.52 being the cost of the option recommended by Mr Cooke. (c) $9,000.00: costs of alternative accommodation for the twenty
weeks the Plaintiffs are required to vacate house
(d) $30,000.00: general damages for pain and suffering.
[79] For the defendant, Mr Dennett submitted that the appropriate measure of damages is “common law damages” rather than the cost of cure. Mr Dennett argued against the plaintiffs’ rectification method as being unreasonable and disproportionate. At an approximate cost of $24,000 to the Spiteris, the heating system amounted to approximately 3.5 per cent of the estimated value of the plaintiffs’ house whereas what the plaintiffs now seek is “approximately 1750 per cent more than the plaintiffs paid for the heating system relative to the estimated value”. (I note that Mr Dennett took as the value of the house the figure of $600,000 which was apparently the cost of building the house.)
[80] Mr Dennett submitted that even accepting the evidence of Mr Cooke, the
defendant’s expert witness, and his rectification method the plaintiffs would be over- compensated because his specifications would result in a heating system that is a
12 Bevan Investments Ltd v Blackhall & Struthers (No 2) [1978] 2 NZLR 97 (CA).
13 Ruxley Electronics Ltd v Forsyth [1996] 1 AC 344.
14 In his closing Mr Andersen submitted a figure of $359,814.26 as the cost of the Variotherm option but the figure I have included at [78](b)] is taken from the calculations and evidence of Rua Sargent, the quantity surveyor called on behalf of the plaintiffs.
significant betterment. In support of this position Mr Dennett cited a view expressed in the Report to the Court by Experts:15
f) The heating plant in Mr Cooke’s rectification report is significantly
better than the one the Spiteris paid for.
[81] In his strong advocacy for a betterment analysis Mr Dennett relied on the following passage from J & B Caldwell Ltd v Logan House Retirement Home Ltd:16
To give the plaintiff a full indemnity for the new or improved substitute over-compensates by giving it more than it would have received under the contract. To give the plaintiff only the depreciated value of the original under-compensates by overlooking the economic burdens of more immediate and more expensive replacement.
…
The logical middle ground is to make a deduction for betterment but only after allowance to the plaintiff for any disadvantages associated with the involuntary nature of any additional investment.
[82] The difficulties I have with the position advanced by the defendant on this aspect of the case is that the heating system does not function let alone meet the terms of the contract as I have found them to be. That failure is reflected in the concession of breach of contract (albeit that the concession is tied to the design of the heating system). It stands to reason that any system that operates at all will be an improvement on the system that was delivered. To suggest such an outcome amounts to betterment and that the measure of damages must therefore be confined to the sum of the initial outlay is to misconceive “betterment”.
[83] Fisher J’s judgment is helpful for its analysis of betterment which the Judge said was “not widely understood”.17 The assessment of damages which I must make is a question of fact and the facts in this case are quite dissimilar to those in Logan House which was essentially a case concerning sale of goods. Before Fisher J was an appeal against the District Court’s assessment of damages for non-delivery of
chattels included in the sale of a rest home. It was necessary for many of the chattels
15 Report to the Court by Experts [Gavin Calder, Alan Cooke and Rua Sargent] dated
17 June 2016.
16 J & B Caldwell Ltd v Logan House Retirement Home Ltd [1999] 2 NZLR 99 at 107 [Logan House].
17 At 108.
to be replaced and issues of replacement cost and deduction for betterment were raised.
[84] Betterment will typically arise where a plaintiff takes steps to mitigate his or her loss from the breach of contract. Neither of two extremes — ignoring potential windfalls and betterment, or failing to recognise “the cost of the unplanned and unwelcome investment of capital forced upon the plaintiff”18 — accord with the fundamental object of damages which is to financially restore the plaintiff to the position he or she would have occupied had the contract been performed. In the
event Fisher J found that the defendant failed to prove the existence and extent of betterment.
[85] Turning to the joint opinion of the experts, that the heating option in the defendant’s rectification report is “significantly better than the one the Spiteris paid for”, the conclusion could hardly be otherwise. The whole focus of the experts’ engagement was on proposals to remedy or rectify the heating system. It will be the case that a remedy will result in a heating system that is “significantly better”. More to the point the opinion of the experts, that the system would be better, is not to be equated with the legal concept of “betterment”.
The two options
[86] There are two proposals before the Court. The plaintiffs originally relied on a proposal to install a heating system that would have involved removing the concrete floor slab in each room where underfloor coils were installed and correct commissioning of the underfloor heating system at a total estimated cost of
$395,814.96 (incl GST). At trial the plaintiffs promoted a different option.
[87] At the risk of gross over-simplification the plaintiffs propose a modular form of underfloor heating that can be understood as a moulded base consisting of gypsum fibre boards in which pipes are embedded. The whole base is closer to the floor surface than the concrete slab. This modular floor heating is the “Variotherm”
option. In the Variotherm booklet produced by Mr Calder, the expert engineer called
18 At 107.
by the Spiteris, the system is described as “[p]erfect for retrofit without a need to remove existing floor construction …”
[88] From the plaintiffs’ perspective the system is not as desirable as the heating system they originally contracted to install because the floor levels in the house would need to be raised by approximately 20mm. The plaintiffs are satisfied however that the Variotherm system would meet their heating needs. The estimated cost is $359,814.26. Mr Andersen described the option as a mitigation because it is cheaper to install and less invasive as the concrete base is left intact.
[89] The defendant says the plaintiffs’ rectification method is unreasonable and disproportionate and the court should not award damages in that magnitude. Rather, the method of rectification proposed by Mr Cooke is the appropriate measure of damages (assuming the defendant’s affirmative defences are rejected). Essentially, Mr Cooke’s proposal is to rectify the existing system by installing additional radiators in the areas that need additional heating.
[90] I propose to assess the options by first considering what each proposal would deliver to the plaintiffs. One is clearly more expensive than the other. But while cost is an important factor, cost alone cannot be determinative of what is required to restore the plaintiffs to the position they would have occupied had the contract been performed.
[91] In developing his rectification method Mr Cooke estimated the output of the heating system and concluded it would be necessary to install additional radiator heating in the following areas:
ensuite / master bedroom kitchen / dining
lounge
formal dining bathroom media room family room
[92] The plaintiffs raised significant doubts about this proposal. The whole heating system is reliant on radiators in rooms which were always envisaged to be
exclusively heated by means of the underfloor heating system. Even when the modified design brief dated 7 March 2008 provided for radiator heating in specific rooms (see [28](d)] above) the contract was one to supply underfloor heating to the very rooms in which it is now proposed to install radiator heating.
[93] Furthermore, Mr Cooke’s proposal does not deliver to the plaintiffs a solution that overcomes the lack of heating in the entranceway and kitchen. Mr Cooke acknowledged this in cross-examination.
[94] There were other difficulties in terms of the assumptions underlying, and acknowledged by Mr Cooke to be important to, his calculations of the heat required in each room. The assumptions were changed between the first and supplementary brief but Mr Cooke did not give any adequate explanation for the changes.
[95] This information is critical because the calculations informed Mr Cooke’s rectification proposal. Mr Cooke was cross-examined about the further analysis he completed of the underfloor heating components of the Spiteris’ house. In his supplementary brief of evidence Mr Cook described his additional analysis as based on a series of calculations in respect of the heat loss in each room in the house. The outcome of his additional analysis was that it confirmed the views set out in his brief of evidence. Essentially, that was to the effect that Mr Cooke was strongly of the opinion that the heating system could be rectified in accordance with his rectification report.
[96] Mr Cooke conceded in cross-examination that the measure of heat loss in watts in his initial assessment should have been the same as in the appendix to his supplementary brief but it was not. The reason was that underlying assumptions had been changed. For example the assumed outdoor temperature had been changed from minus 1.3 degrees centigrade to plus 1 degree centigrade. Further, in the lounge, dining-room/kitchen areas the desired room temperature had been changed from 22 degrees to 21. Clearly, the underlying assumptions affect the amount of heat required to heat a room (from either minus 1.3 or 1 degree) to the desired temperature. Mr Cooke accepted that changing a variable meant the comparison would not be a true comparison.
[97] There were further questions about Mr Cooke’s calculation of the area of the room to be heated. Mr Cooke accepted that the actual area of the kitchen/dining- room was approximately 30 square metres yet he had based his calculation on a floor area of 15.6 square metres. While Mr Cooke explained that these figures were actually the “revised floor useful area” in square metres he agreed that the total area is fundamental to determining the area that needs to be heated. He described his approach as “conservative” in the sense that he might reduce the size of a floor area by making allowances for furniture or a rug occupying part of the floor. But that approach resulted in the heat output for a room being assessed on the basis of a smaller area than the actual dimensions of the room.
[98] The difficulty for the court was that the information upon which Mr Cooke based his calculations was not revealed in the calculations themselves nor did he have them with him in court. Where the base information in some areas has been questionable it is difficult to be confident in the integrity of the results.
[99] The defendant’s criticism of the Variotherm option was primarily directed to the fact that Mr Calder, the plaintiffs’ expert engineer, had only recently become aware of the product and had no actual experience with the system. But when cross- examined Mr Calder was prepared “as an engineer giving expert evidence for the Spiteris [to] stand up and say to the Court that it was an appropriate system”. While he had never been involved in the product’s installation in New Zealand he knew of its installation through colleagues. Mr Calder described it as just another underfloor heating system.
[100] The Variotherm system could be laid in the property without any alteration to the floor slab. While floor tiles would have to be removed, and building work would be required to adjust the doors and skirting boards as a result of the additional height of the tiles, Mr Calder’s evidence was that installation of the Variotherm system avoided any risk to the structural integrity of the house.
[101] Beyond the challenge based on the fact that the heating system is untested by Mr Calder it was not otherwise discredited. No basis was put forward to enable me to form a view that differed from Mr Calder’s opinion. I considered Mr Calder to be
a particularly effective expert witness. He demonstrated his independence by his readiness to agree that Mr Cooke’s method was a workable and logical solution to the issues and that Mr Cooke’s estimates for replacing the heat and pipeworks were fair and reasonable. He also accepted that the Variotherm option was simply one possible solution — there was “more ways to skin a cat”.
[102] In the ultimate analysis there are many ways to heat a home. But the Spiteris planned and designed a home with flooring of polished porcelain tiles. This distinctive aesthetic was enhanced by the purposeful selection of an underfloor heating system. The Spiteris did not only desire warmth, they contracted to have heat and hot water supplied in a very specific way. The Variotherm option is recommended by Mr Calder as likely to meet their contractual expectations. Mr Cooke’s proposal does not. I am persuaded to the view that the Variotherm option is the only option that returns the plaintiffs to the position they would have occupied had the contract been performed. I must, however, consider whether the costs of the Variotherm option are reasonable.
Comparative costings
[103] The assessment to be made at this stage is whether reinstatement is reasonable. The first step in my assessment is to consider the estimated cost of Mr Cooke’s rectification proposal.
[104] Rua Sargent was called as an expert quantity surveyor for the plaintiffs. He disputed Mr Cooke’s costing of $138,476.39 for the solution proposed in his supplementary brief. First, the calculation of $138,476.39 excluded GST. Secondly, Mr Sargent costed the work himself at $205,901.92. He considered, however, the true cost to be greater than that as he had been unable to cost the pipework consequent upon the relocation of the manifold. Mr Sargent did not see how the pipes from the manifold running under the pantry which were a source of unacceptable heat in the pantry could be changed without alteration to the floor slab. If the pipes are not changed then it was not clear to Mr Sargent how they would be joined to the manifold in a way which would not create extra heat within the pantry.
[105] Mr Sargent is an affiliate member of the New Zealand Institute of Quantity Surveyors and a transitional member of the New Zealand Institute of Building Surveyors. Mr Sargent described his specialist areas as including construction estimates, construction tendering, contract documentation, and building surveying and problem analysis.
[106] Mr Cooke was not called as a quantity surveyor. Mr Cooke’s experience as a design engineer is extensive and part of his work does involve, as he put it, quantity surveying in his specialty area of mechanical services. He accepted Mr Sargent’s expertise as a quantity surveyor.
[107] Mr Sargent approached the Variotherm option as a construction contract rather than a heating system rectification project. He supplied detailed costings of all aspects of the project. Mechanical services costs of $88,596.31 were based on the costs provided by Mr Cooke. The supply and installation of the Variotherm pipework system was costed at $36,125.00.
[108] Mr Sargent was firm in his evidence that, being a construction contract with a value in excess of $30,000.00, the contract required to be project-managed but not by the heating contractor. Mr Cooke accepted that, in principle, someone had to take charge of the contract and would charge a margin for that.
[109] Mr Sargent costed the contractor’s margin at around 10 percent of the project. It was put to him in cross-examination that the figure was generous. Mr Sargent was certain that it was not. I accept his evidence. He has a particular knowledge of the residential building market in Nelson. His evidence was that for simple works the margin was between 8 and 15 per cent. This was not a simple project.
You’re draining down systems with water in them. You’re working in someone’s home.…everything is finished, it’s beautifully finished, and you’re going in there with wheelbarrows and Kango hammers. It’s not a low-risk new build and, to be honest,…I wouldn’t be surprised if a reputable builder would put more than 10% on that because they say, “Well, there’s some risk in this”.
[110] Mr Sargent allowed $3,800.00 for the cost of packaging, removing and storing the Spiteri household furniture for eight weeks. Mr Cooke and Mr Sargent
held different opinions about the need for the Spiteris to move out of the home while the contract was being performed. Mr Sargent accepted there would be a slight inconvenience to the Spiteris if they occupied the house while the pipework in the ceiling was being replaced and the walls taken apart and pipes installed. But he believed it would be a struggle to find a contractor who would agree to a room-by- room methodology unless they added minimum charges of $150 (say) to every item of work. He regarded as “ridiculous” an approach that involved, on a room-by-room basis, cutting the wall, doing the pipework, replacing the wall lining then plastering, sanding in between and then applying a primer, an undercoat and top coat of paint. He said that approach was not practical and he did not agree with Mr Cooke’s costings on a room-by-room basis with the furniture being moved to areas where no work was being undertaken. Mr Sargent was adamant that furniture could not be stored in the garage where the boiler system is to be installed: “absolutely not…because that’s going to be a high traffic area and pressurised water”.
[111] It is not necessary to undertake a line by line review of Mr Sargent’s costings. Mr Dennett conducted a thorough cross-examination. Mr Sargent’s evidence was well and truly tested. Mr Sargent was willing to defer to the expertise of Mr Cooke in his costings of the mechanical services. Where the two witnesses have different views about the cost of the remaining aspects of the Variotherm option I prefer the evidence of Mr Sargent. He operates as a quantity surveyor in the areas of residential building construction and the management of such contracts. Mr Cooke, whose undoubted expertise is in business services engineering, specialising in central heating, does not. In the end there is no basis for taking a different view from Mr Sargent’s expert assessment of the items regarded as necessary components of the contract nor his costings.
Damages
[112] The question whether reinstatement at a cost of $350,000.00 is reasonable has caused me some difficulty. But I approach the question from this starting point: the Spiteris contracted for the supply and installation of a heating system that delivered heat consistently and effectively through their home. Their selection of underfloor heating throughout was not a choice based purely on considerations of functionality.
There are many ways to heat a home. The Spiteris actually designed their house to be heated by underfloor heating and its construction was around an underfloor heating system. For a variety of reasons — economic, wellbeing and aesthetics — the Spiteris eschewed all other options.
[113] Ms Spiteri said they desired a tiled floor because Mr Spiteri is Maltese and they wanted to bring “that essence of Malta” with them and have warm tiles to walk on. The fact they later agreed to radiators in bedrooms and the office does not detract from this basic fact. They are entitled to the measure of damages that places them in the position they would have been in had the contract been performed. The quoted cost of the original system is irrelevant to this objective. Damages are not to be measured by the cost of a proposal that does not achieve the purpose of contractual damages in the first place. In the circumstances of this case the cost of cure is appropriate because the plaintiffs’ performance interest under the contract
will not otherwise be recognised in damages.19
[114] When the house was yet to be constructed, and the concrete slab yet to be poured, the installation of the heating system was a relatively simple process. Now there is an element of rectification which, by the very nature of the pipework being under the house, will be expensive. Mr Cooke considered that the wood-fire boiler system Climatech contracted to deliver should have cost somewhere between
$70,000—$80,000, at a minimum. Manifestly, Climatech struck a bad bargain. But upon whom should be placed the economic burden of a replacement system which necessarily is more expensive to install now than when the house was constructed? I am clear that the burden must be borne by the defendant as the party who is in breach.
[115] I consider damages in the particular circumstances of this case should be awarded in the amount that is necessary to install the Variotherm heating system. Mr Sargent’s costings for the work as set out in his detailed schedule total
$359,397.95. It is the only underfloor heating option before the court that will place
the plaintiffs in the position they would be in had their contract been performed. The
19 See for example Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726, at [39].
cost of cure is necessary to put the breach right. It is not disproportionate to the benefit to be obtained. The plaintiffs will achieve no more than a heating system that approximates that for which they bargained.
[116] But the cost of reinstatement must be reasonable.20 I have concluded that the Spiteris are entitled to the cost of cure but there would be an element of gratuitous benefit were they not to pay for the supply and installation of the heating system they contracted to receive. It is not contested that such a system was likely to have cost approximately $80,000.00. Ms Spiteri said that although she thought the original quote was “a bit pricey”, had the cost been $80,000.00 she would have assessed it, asked whether the underfloor heating was worth $80,000.00 to her and “the answer would have been yes”.
[117] It is reasonable that the award of damages should be reduced by the amount the system would have cost the Spiteris to have installed and which they would have been prepared to pay. The $80,000.00 figure should, however, be reduced by the amount the Spiteris have in fact paid, namely, $24,885.05 (plus GST). Working in
round figures, (the calculation of damages being an inexact science21) I deduct
$55,000.00 from the sum of approximately $360,000.00 which the plaintiffs seek. I further deduct the cost of daily cleaning which Mr Sargent has included in his calculations ($1300.00) as I propose to make an allowance for the Spiteris to move out of their home for eight weeks during the period of installation and reconstruction.
[118] There is no suggestion that the plaintiffs do not intend to spend any damages awarded on reinstatement. Damages are awarded in the sum of $303,700.00.
General Damages
[119] The cases establish that damages may be recoverable where “a breach of
contract causes discomfort or inconvenience resulting in mental distress”.22
20 Ruxley Electronics and Construction Ltd v Forsyth [1995] 3 All ER 268; Marlborough District
Council v Altimarloch Joint Venture Ltd, above n 19.
21 Gilrose Finance Ltd v Ellis Gould [2000] 2 NZLR 129 (PC).
22 Burrows, Finn and Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington,
2016) at 833.
[120] Not only has there been significant loss of amenity but Mr and Ms Spiteri have suffered great stress and inconvenience. They have been cold and they have experienced constant worry and uncertainty. These consequences of the breach for the Spiteris were entirely foreseeable.
[121] The house was Mr and Mrs Spiteri’s pride and joy but the relentless nature of the problems with the heating system has prevented the family from enjoying their new home and the life they planned in it when it was built. Mr Spiteri said they are apprehensive every time they light the boiler. He described the effect on their lives as traumatic.
[122] For Ms Spiteri being cold was not the worst effect. She said it was the mental consequences of the burst pipes in the ceiling. She became tearful when she gave this evidence. For two years after the pipe burst in their daughter’s bedroom and scalding water came through the ceiling, the daughter slept with Mr and Mrs Spiteri because she was afraid it would happen again and she would be burned. Ms Spiteri said the 72-hour trial monitored by Opus was particularly stressful because the fire in the boiler was burning through the night.
[123] Added to the anxiety and desperation which they expressed to Climatech there were periods of time when Mr and Ms Spiteri were left to wonder if their requests for help were falling on deaf ears. They received an apology in September
2009 from a Climatech representative for his failure to communicate which he openly acknowledged was due to his embarrassment with the situation.
[124] Mr Dennett conveyed RCR’s apologises and sympathy. He said there was no question the Spiteris had experienced anxiety and inconvenience. But the risk of pipes bursting had been eliminated since they were replaced in 2011. An award was appropriate but $30,000.00, the amount sought, was excessive.
[125] The plaintiffs are entitled to damages in recognition of these consequences — in the main foreseeable consequences — of the defendant’s breach of contract. I make an award in the sum of $20,000.00.
Cost of investigation report
[126] The plaintiffs claim $17,266.91 for the costs of investigating defects. In July
2014 the plaintiffs commissioned Opus to investigate their heating system. The actual scope of the brief is recorded in the Opus report dated 21 January 2015 for which Mr Calder was primarily responsible.
[127] Beyond reviewing the brief supplied to Climatech by the Spiteris Opus was to:
(i)undertake design review of the house and determine heat load, boiler size and associated sizing of equipment and pipework;
(ii)determine via performance monitoring if the underfloor system and boiler were performing as per the design intent, using temperature recording devices. Allow the temperature recording devices to be left on site for a minimum period of two months to give a good representation of the heating system performance through the winter;
(iii)produce a report on the system for the Spiteri family to use in negotiations with Climatech. The report was to be reviewed by an Opus engineer before being provided to the Spiteris.
[128] Mr Dennett submitted that the costs of the Opus report are not payable. Opus proposed an option (costing some $395,000.00) which is not the option now advocated by the Spiteris. Therefore Opus has not assisted the Spiteris in their claim and the costs are not payable.
[129] The Opus report was produced by Mr Calder whose evidence also covered the further testing and investigations he had undertaken since the report in relation to the remedial work proposed by Opus.
[130] It is clear to me that Opus’ involvement was not confined to developing a remedial response to the issues with the heating system. Indeed, most of the report concerned Opus’ comprehensive investigation of all elements of the heating system.
The final three pages of its 39-page report (excluding numerous technical appendices) suggested potential solutions to rectify the heating problems.
[131] Opus identified significant issues such as the location of the manifold beside the pantry and poor workmanship in setting out the underfloor coils. The photographs which Mr Spiteri took at the time of construction showed that the pipework was not evenly distributed with the result that in the affected rooms heat distribution was uneven. Likewise, there were joints in the pipework contrary to good practice. The report addressed in detail all aspects of Opus’ investigation. I do not accept that its primary focus was on a solution which is not now advanced and that therefore the report is of no assistance to the Spiteris.
[132] In my view the Spiteris had little option but to take the step they took in 2014 of commissioning an investigation of their defective heating system so they could understand the nature of the problem and what options might be available to them. Had they simply removed the system and sued it may have been said of them that they failed to take steps in mitigation or they otherwise acted unreasonably.
[133] I have considered also the evidence which Mr Calder gave at the trial. I am satisfied that recovery of the cost of the investigation is not a de facto recovery of expert witness fees. His evidence at trial was primarily directed to Variotherm as a means of reinstatement. Beyond that, while Mr Calder produced the Opus report as an exhibit, the content of the Opus report did not feature in his evidence-in-chief.
[134] The plaintiffs are entitled to reimbursement of the cost of the investigation into the defects in the system. I reduce that amount by $4,000.00 to reflect (albeit not in a scientific way) the proportion of the report that was focussed on a remedial option no longer pursued.
Accommodation costs
[135] The plaintiffs seek $9,000.00 as the cost of alternative accommodation while remedial works are carried out. I agree that it is unreasonable to expect the Spiteris to remain in the home while the construction and installation is undertaken. On the
basis of Mr Sargent’s assessment of eight weeks to complete the work, the sum of
$9,000.00 is not unreasonable for family accommodation.
Result
[136] The plaintiffs have succeeded in their claim for breach of contract.
[137] I find that the breach occurred no earlier than 10 April 2009 and that the claim is not therefore barred by the Limitation Act 1950.
[138] The plaintiffs are entitled to the measure of damages that would place them in the position they would have occupied had the contract been performed. The damages which I award are as follows:
(a) $303,700.00 – being the cost of supplying and installing the Variotherm heating system but after deducting the amounts set out at [117] above.
(b) $20,000.00 – general damages.
(c) $13,266.91 – contribution to the cost of the Opus investigation report. (d) $9,000.00 – as the cost of alternative accommodation while works are
carried out.
[139] The plaintiffs have succeeded and are entitled to costs. If costs are unable to be agreed counsel may submit focussed memoranda.
Karen Clark J
Solicitors:
Albert Alloo & Sons, Dunedin for Plaintiffs
Kennedys, Auckland for Defendant
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