T and P Developments Limited v Yu HC Auckland Cp18-Sd99
[2001] NZHC 280
•11 April 2001
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP18-SD99
BETWEEN T & P DEVELOPMENTS LIMITED
Plaintiff
AND SAN KEUNG YU and KIT FUN KAREN YU
Defendant
AND PATRICK CHI KING HUNG and THERESA HUNG
Third Party
Date of Trial: 6 - 20 November 2000
Counsel: D K Wilson for the Plaintiff and Third Party
D G Smith and V H Mar for the Defendant
Date of Judgment: 11 April 2001
RESERVED JUDGMENT OF GLAZEBROOK J
TABLE OF CONTENTS
Paragraph No.
1 - 2 Introduction
3 - 17 The Facts
18 - 22 The Evidence
23 - 24 Issues
[a] Cancellation
[b] Damages
[c] Additions and Variations
[d] Deceit and Fair Trading Act
Cancellation
25 - 26 Cancellation of the Contract : The Law
27 - 30 Defendants’ Arguments on Cancellation
31 - 68 First Ground of Cancellation
32 - 44 Correspondence Leading to Cancellation - Alleged Breaches
45 - 48 Findings on Repudiation
49 - 68 Breach of Stipulation
69 - 92 Second Ground of Cancellation : Misrepresentation
90 - 92 Amendment to Pleadings : Misrepresentation
93 - 111 Third Ground for Cancellation : Luxury Manor
Damages
112 - 143 Damages
Additions and Variations
144 - 156 Additions and Variations : Principles
157 - 181 Findings on Additions and Variations
Deceit and Fair Trading Act
182 - 185 Third Party Liability : Deceit
186 - 202 Fair Trading Act
Decision
203 - 206 Decision
207 Costs
Appendices
Table A Joyce Report : Defects
Table B Variation Claim Adjustments
Introduction
[1] This is a building dispute. Behind this dispute sadly is the story of the ending of a friendship between two families - the Hungs and the Yus. The dispute itself concerns a house that the Hungs’ company contracted to build for the Yus’ family trust.
[2] In essence, the Yus consider that they did not get the luxury manor that they wanted and they want the house demolished and their money back. The Hungs say that their company was wrongfully stopped from completing the house and that it should be paid the rest of the contract price, including the price of agreed extras.
The Facts
[3] Mr and Mrs Hung met Mr Yu and his daughter Karen in early 1997 when the Yus (through a real estate agent) purchased a property that the Hungs had built in Anaheim Boulevard. When they moved into that property Mr Hung came to the property, introduced himself as the vendor and brought flowers and a card. Mr Hung over the next few months helped the Yus with some maintenance and repairs to the property. A friendship developed between the two families. From the Yus’ perspective this friendship was very close to the extent that by late 1997 the Yus regarded the Hungs as their brother and sister.
[4] In early September 1997 Mr Yu purchased a property at Ocean Pointe. He said in evidence that he asked Mr Hung to design him a house on that property. This is confirmed by his diary entry of 5 September 1997. Mr Hung agreed to do this. There is a conflict of evidence as to how keen Mr Hung was on the project. Mr Hung says he was somewhat reluctant. Mr Yu says Mr Hung was very enthusiastic.
[5] The Yus assert that the plaintiff (and its directors and shareholders) represented to them that they had the expertise to complete the project and that they suggested that they should be entrusted with the job rather than a “kiwi”. Mr Yu agreed that he was aware at the time he asked Mr Hung to build the house that the Hungs had been involved in two projects - the building of the house at Anaheim Boulevard and three townhouses in Epsom - and that they were starting on another project in Santa Cruz Drive. Mr Yu was also aware that Mr Hung had been a merchant banker in Hong Kong and that he had only relatively recently arrived in New Zealand (Notes of Evidence, pp 170-171).
[6] There is no dispute between the parties that the written contractual documents in relation to the house project are:
[a] a letter dated 10 November 1997
[b] attachment “B” to letter of 10 November 1997 headed “General Specifications”
[c] a letter dated 27 March 1998
[d] a letter dated 27 March 1998 re swimming pool
[e] a letter dated 1 June 1998 re airconditioning
[f] a letter dated 1 June re under-carpet heating
[g] a letter dated 1 June 1998 re indoor sauna
[h] a letter dated 6 July 1998 re billiard table
[i] a letter dated 16 September 1998 re Chubb safe
[7] The plaintiff is also asserting that there were oral agreements from Mr Yu in respect of payment for certain further additions and variations. In some cases Mr Yu has stated in evidence that he did agree to pay extra for the items. In other cases he said that they had never been discussed with him.
[8] The 10 November 1997 letter is the most important of the contractual documents and must be the starting point for analysing any agreement as to what was to be provided. The letter began by referring to discussions that had been held regarding the construction of a new “luxury manor” and went on to offer a contract price based on NZ $150 per square foot on the terms and conditions set out below.
[9] The letter then set out some more explicit terms as to what would be built and the payment schedule. It stated that the house as defined in the attached drawings (Attachment A) and outline specifications (Attachment B) would be built. It was then stated that the house was to be a high quality house of approximately 10,000 ft including the swimming pool.
[10] The means of measuring the house for the purpose of costing was set out. The square footage was stated to include “void, portico, balconies and decks”. These areas would not normally be part of the calculation for the area of a house. This is agreed by both the defendants’ and the plaintiff’s experts.
[11] There is a doubt as to whether the drawings referred to as Attachment A were in fact attached to the 10 November 1997 letter but Mr Yu did acknowledge that he had been given a copy of the full architect’s plans for the property similar to those produced as Exhibit 2. These had been given to him sometime before the second letter of 27 March 1998 and he apparently still has them at home (p.189 Notes of Evidence). It is also clear that Mr Yu had seen at least one of the earlier architect’s sketches (similar to Exhibit 8, p.155 and p.174 Notes of Evidence) and had suggested some modifications to those plans (such as the addition of a kitchenette) but he says only the final architect’s plans were left with him. The final plans therefore can be seen as forming part of the written contractual documents that we need to consider.
[12] There was material provided for the purpose of applying for building consents. Mr Yu says he did not see a copy of this material so for present purposes I do not take this material as forming part of the contract between the parties.
[13] All of the experts, whether called on behalf of the plaintiff or the defendants, consider that the contractual material is scant. Mr Dean (called by the plaintiff) indicated, however, that this was not necessarily unusual. He did, however, say (pp. 78-79 Notes of Evidence) that, although Attachment B to the letter of 10 November 1997 was not a builder’s specification, it was a reasonably full list of the items an owner would be interested in, being finishes and visible work.
[14] The relationship between the two families and the building process continued without incident until around mid-September 1998 when something happened which led Mr Yu to begin to doubt that the Hungs felt as strong a friendship for the Yus and particularly for Karen as they had thought. The incident may seem trivial to outsiders - turning up late to take the Yus to an exhibition at a gallery - but it was an exhibition Karen particularly wished to see. About the same time concerns about the house began to surface and the relationship between the two families deteriorated even further over the coming months.
[15] By early in 1999 the defendants had put matters in the hands of their solicitors and a series of letters were exchanged culminating on 12 March 1999 (after a change in solicitors on the part of the defendants) with a letter of purported cancellation of the contract by the defendants.
[16] After the cancellation the defendants contracted with the Joyce Group to inspect the property. This resulted in a report being prepared detailing the alleged faults with the property (“Joyce Report”). Two architects were also consulted about completion of the project and both gave evidence in this proceeding.
[17] The plaintiff has affirmed the contract and maintains that it is still ready, willing and able to complete its obligations. It maintains that position even though the defendants have indicated that they will under no circumstances allow the plaintiff to complete the project.
The Evidence
[18] There is in some cases a total conflict in the evidence of the main protagonists in this case - Mr Hung as one of the two shareholders and directors of the plaintiff and Mr Yu. In most cases the conflict of evidence is of little significance to the result and thus does not need to be resolved. Most of the differences arise to an extent from a difference in perspective of these two parties.
[19] From Mr Hung’s perspective the building contract was a business deal which was distinct from the friendship between the two families. He had some justification for his belief that Mr Yu thought the same. Mr Yu and his daughter did not contract personally but contracted through their family trust. Mr Yu is also clearly an intelligent businessman. He trained as a chemical engineer in Canada and spent a number of years there in his youth. His work in Hong Kong was in the family commercial rental business and therefore he cannot have been a stranger to property matters, at least in terms of a Hong Kong rental business.
[20] Mr Yu’s perspective arose from his family circumstances. He and his daughter were new in New Zealand and did not have many contacts, even among the Chinese community. At the time they were entering into the arrangements for their house Mr Yu’s eldest brother was very ill and subsequently died. His brother’s death is obviously still very painful for Mr Yu. Against this background the friendship with the Hungs took on a great significance for Mr Yu and his daughter. They considered the relationship with the Hungs to be one of very close friendship, akin to being brothers and sisters and creating a climate of absolute trust. Mr Yu’s perspective is also coloured by his clear love for his daughter, his concern to ensure her happiness in even the smallest things, and a perception that the Hungs felt the same.
[21] Mr Yu also had justification for his point of view. The Hungs have the same cultural heritage and therefore it could be expected that the Hungs would understand the strong sense of family, the trauma involved in his brother’s death and the meaning of the assertions of friendship by the Yus and in particular those by Karen as to her view of Mrs Hung as a sister. The Hungs also accepted expensive presents from the Yus and took great pains to reciprocate within their means, in particular by entertaining the Yus with their favourite foods.
[22] It is this difference in perspective that has led to the total breakdown in the friendship between the two parties which forms the background to this case. The Court must, however, concern itself with the legal position under the contractual arrangements between the parties, as well as the claims under the Fair Trading Act and the tort of deceit.
Issues
[23] The dispute is a building dispute, as said earlier, and concerns the building of a house at 19 Quedley Court, Ocean Pointe, Bucklands Beach. The dispute covers the following areas and each will be covered in turn:
[a] Cancellation:
Before the building was completed the contract was cancelled by the defendants. The plaintiff says that this was a wrongful cancellation. The defendants disagree.
[b] Damages:
The plaintiff says that, apart from some defects which it was always ready willing and able to rectify and some finishing work, the house is in accordance with the contract and that it should be paid. The defendants say that they contracted for the building of a luxury manor. The house as it is, is not, and never can be a luxury manor. As such they have received nothing for their money paid to date and this should be refunded.
[c] Additions and Variations:
The plaintiff says that the defendants agreed to pay for a number of additions and variations that have been completed and that it should be paid for those as well. The defendants maintain that various of the extras should have been included in the contract price (and thus that any agreement to pay extra should not be enforced) and that they never agreed to pay extra for many of the other items.
[d] Deceit and Fair Trading Act:
The defendant says that the third parties (being the directors and shareholders of the plaintiff) are guilty of deceit and breaches of the Fair Trading Act in that they misrepresented their ability to complete the project to the required standard. The third parties disagree. The Fair Trading Act is also relied upon in relation to the plaintiff.
[24] Mr Yu stated in evidence that he did not read the letter of 10 November 1999 or the specifications before signing it - or indeed any of the other documents. Despite this the defendants are not putting forward (and indeed could not succeed in) any type of non est factum argument. Even though Mr Yu in his evidence made much of the trust that he reposed in Mr and Mrs Hung there is also no suggestion that there was in any legal sense duress, undue influence, an unconscionable bargain or any kind of fiduciary relationship between the parties importing duties or liability outside the contractual documents.
Cancellation of the Contract : The Law
[25] The first issue to be discussed is whether the defendants were justified in cancelling the contract with the plaintiffs.
[26] The Contractual Remedies Act 1979 gives a party the right to cancel a contract in the following circumstances:
[a] Repudiation by the other party - section 7(2);
[b] When a misrepresentation has induced the party to enter into the contract or a stipulation in the contract is broken or it is clear that it will be - section 7(3); and
[i] The parties have expressly or impliedly agreed that the truth of the representation or the performance of the stipulation was essential to the party seeking to cancel (section 7(4)(a)); or
[ii] The effect of the breach is to substantially reduce the benefit or increase the burden or make the benefit or burden substantially different for the cancelling party (section 7(4)(b)).
Defendants’ Arguments on Cancellation
[27] The defendants argue that they were justified in cancelling the contract on 12 March 1999. The basis for this submission is threefold, if I understand the defendants’ arguments correctly.
[28] The first ground is that either the plaintiff would not remedy the defects in the building or that it could not do so. This means that it would be unable to comply with the implied term that all work be completed in a proper, thorough and workmanlike manner. This first ground is probably a mixture of an argument that the plaintiff had repudiated the contract and that it had breached a stipulation and these are dealt with separately below.
[29] The second ground is that the defendants were induced to enter into the contract by the representation made by Patrick and Theresa Hung that they had all the skill and knowledge necessary to enable a luxury manor to be erected. The defendants say this representation was not correct. It was submitted that it can be inferred that the truth of that representation must have been essential to the defendants.
[30] There was also possibly a third ground for cancellation put forward - breach of the term of the contract that required the building of a luxury manor.
First Ground of Cancellation
[31] The first ground of cancellation was essentially that set out in the letter of cancellation of 12 March from Cairns Slane addressed directly to the plaintiff and marked for some reason “‘without prejudice”. That letter referred to the correspondence that had been exchanged between the solicitors for the plaintiff and the defendants’ previous solicitors, Kensington Swan. It then went on to say that to date the plaintiff had failed to remedy the breaches of contract that had been brought to its attention and that there was other work on the property that had not been completed in a proper, thorough and workmanlike manner or in compliance with the agreed specifications. The contract was then cancelled as at 12 March and the plaintiff was warned that it was no longer entitled to enter on the property and that a trespass notice would be issued if the plaintiff, its employees, contractors or agents attempted to enter onto the property.
Correspondence Leading to Cancellation : Alleged Breaches
[32] It is necessary first to examine the sequence of correspondence to identify the alleged breaches of contract that had been drawn to the plaintiff’s attention.
[33] The first issue that had been raised (apparently towards the end of 1998) was the issue of the cracked concrete floor. The defendants commissioned various reports as to the causes of the cracking and the remedial work required to remedy the problems. These reports were enclosed by Kensington Swan in a letter to the plaintiff of 27 January 1999. The letter stated that the costs of the remedial work and the costs of the reports would be to the plaintiff’s account. It was also proposed that $20,000 be retained for a two year period as a maintenance retention in respect of any future remedial work required on the concrete. The letter also referred to the fact that there were no periphery sealants on the aluminium joinery.
[34] Mr Ellis’ letter in reply on behalf of the plaintiff dated 5 February 1999 agreed to pay for reasonable engineer’s fees and the remedial work in relation to the concrete. It did so on the basis that it refused to accept that the cracking was in breach of the agreement. It also rejected the claim to a $20,000 retention. In relation to the periphery sealants it stated that the work was still to be completed. By letter dated 5 February Mr Ellis on behalf of his client asked that arrangements for the remedial work on the concrete be carried out as soon as possible.
[35] The next letter in the sequence was from Kensington Swan dated 10 February 1999. That letter stated that its clients would not be pursuing a claim in relation to the sealants provided they were installed to a satisfactory standard. The 10 February 1999 letter also reiterated its request for the retention of the sum of $20,000 in relation to the concrete cracking.
[36] There was then a further letter from Kensington Swan on 17 February 1999 noting that it had not received a reply to its 10 February 1999 letter, again reiterating its request for the $20,000 retention and seeking further assurance that the plaintiff was still willing to pay the costs of remedial work. According to the letter Mr Hung had apparently suggested that he would carry out the work himself but this was stated not to be acceptable to the defendants on the basis that it was specialist work.
[37] On 18 February 1999 Mr Ellis wrote confirming the offer to pay for remedial work (but still with no admission of liability) and asked for the legal authority for the retention request.
[38] The next letter was on 19 February 1999 from Kensington Swan. This drew attention to two further matters. The first related to the particle board flooring stating that it looked as though areas of the floor had suffered weather damage and also recommending that the total first floor level be tested for fixity to floor joints to ensure that there was not a squeaky floor. The second matter related to a request for a warranty from the plaintiff and its suppliers that the aluminium joinery was adequate for the weather conditions to which the house would be subject.
[39] There was a reply on 24 February 1999 from Mr Ellis confirming that the defendants’ consultant could have access to the first floor to check that the board flooring is adequately fixed. The letter also indicated that both the plaintiff and the suppliers would be happy to give the warranty asked for.
[40] Kensington Swan replied on 24 February 1999 to say that the remedial concrete work would be occurring shortly and that they would advise their client’s expectations in regard to the joinery shortly.
[41] There was then a letter of 3 March 1999 from Mr Ellis enquiring as to whether the testing of the main floor was satisfactory and stating that the plaintiff wished to lay the carpet the following week. This seems to have crossed with a letter by Kensington Swan sent the same day enclosing a report recommending additional and remedial work in relation to the floors. The letter asked Mr Ellis to discuss the report and advise what was proposed in terms of the remedial work recommendations.
[42] This was followed by a further letter from Kensington Swan dated 8 March which raised the issue of the unsatisfactory nature of the finish to the panelling in the study and asking that the kitchenette off the master bedroom should be tiled rather than carpeted. It is to be noted that an expectation that the kitchenette be tiled appears to conflict with the under-carpet heating contract which extended to the kitchenette.
[43] There was a further letter of 11 March 1999 noting that there had not yet been a response to the letters of 3 and 8 March and also asking for confirmation that the under-floor and under-carpet heating would be installed as contracted for (mentioning specifically the kitchenette as regards the under-carpet heating contract).
[44] The letter of cancellation, as indicated above, was sent by the defendants’ new solicitors the next day. Mr Ellis replied to this on 15 March indicating that the plaintiff considered the purported cancellation invalid and suggesting arbitration. The letter at the same time replied to the letter of 3 March in relation to the fixing of the particle board. It stated that the plaintiff had appointed an expert adviser to report on the floor and his report was about to be received. This was in fact forwarded to Cairns Slane on 17 March with an indication that the additional fixing recommended by the report would be done free of charge by the builder.
Findings on Repudiation
[45] When looking at the series of letters exchanged there is nothing to suggest that the plaintiff was refusing to remedy defects as alleged by the defendants and thus that there had been a repudiation of the contract.
[46] In fact in relation to the concrete the opposite could be alleged - ie that the plaintiff was too eager to attempt to remedy rather than leaving it to the defendants’ experts. Nothing turns on the refusal to accept liability in relation to the cracked concrete as the plaintiff had agreed to pay for the remedial work.
[47] It is true that there had been no reply to the request in the letter of 3 March in respect of the remedial work to the floor. This was only a 9 day delay. It was totally reasonable for the plaintiff to engage an expert to advise on the flooring point and this of course contributed to the delay. There had also been no reply to the letter of 8 March relating to the study and the kitchenette. This was a delay of only four days. No timeframes for reply had been set in those letters. In addition the letter of 11 March relating to the underfloor and undercarpet heating, while noting that there had been no reply to the earlier letters, even then did not set any deadline for replies. There is no basis in this sequence of correspondence for concluding that the plaintiff was refusing to remedy any defects found.
[48] As such the defendants had no right to cancel the contract under s 7(2) Contractual Remedies Act.
Breach of Stipulation
[49] The defendants argue for an implied term that the house be finished in a proper, thorough and workmanlike manner and in accordance with the specifications. The plaintiff agrees that such a term can be implied into the contract.
[50] There is no evidence, however, that the parties expressly agreed that this term was essential in the sense that any breach of this term, however minor and whenever occurring, would justify cancellation. The plaintiff would not have agreed to such a term, and such agreement is necessary. In addition it would not have been a usual commercial term. Defects would of course be required to be remedied. They would not, however, justify cancellation unless they were serious.
[51] Therefore, even if there had been breaches of the implied term relating to workmanship this does not provide justification for cancellation under s 7(3)(a) of the Contractual Remedies Act.
[52] This leaves the question of whether the specific items set out in the correspondence would in themselves or even taken in aggregate have justified cancellation of the contract under s 7(3)(b) Contractual Remedies Act.
[53] In relation to the concrete, while certainly a defect that required remedy, it appears from the evidence that the cracking does not denote a structural problem and one witness even described the problem as being rather one of aesthetics (see p.300 Notes of Evidence). The plaintiff submits further that in respect of the concrete issue, there could not have been grounds for cancellation because there had been express affirmation as to how the matter was to be resolved and the defendants’ conduct shows that they proceeded with the contract. This must be correct.
[54] In relation to the sealants Kensington Swan expressly stated that it would not be pursuing a claim, provided that the work was completed satisfactorily. This then cannot provide grounds for cancellation. The problems with the floor set out in the letter of 19 February were not as extensive as suggested and capable of rectification as was the panelling in the study.
[55] The cancellation letter did, however, also refer to other work on the property that had not been completed in a proper thorough and workmanlike manner or in accordance with the agreed specifications. These matters were not specified. The question is thus whether these other matters could justify cancellation under s 7(3)(b).
[56] The defendants accept that it is not possible to justify cancellation of a contract through reference to matters which you learn later and cite Mercurius Ventures Ltd v Waitakere City Council [1996] 2 NZLR 495 for this proposition. They thus accept that it is not possible to rely on the Joyce Report as giving grounds for cancellation to the extent that it raises matters not known at the time of the cancellation.
[57] It was submitted, however, that it would be open to a party who gives a reason for cancellation to obtain objective, independent evidence at a subsequent date to prove that the reasons given were valid. Thus the submission was that the Joyce Report could be brought in to back up the statement that other work had not been completed in a proper fashion.
[58] This would clearly be bringing in the Joyce Report by the back door. Apart from Mr Yu’s evidence and his diary there is no way of knowing what matters that the defendants had in mind and thus which parts of the Joyce Report merely confirm the defendants’ view at the time and which introduce new grounds.
[59] It was clear that Mr Yu is very reliant on his experts. When questioned as to defects in cross-examination he said on a number of occasions that he had difficulty answering the question and his experts would provide evidence on these matters (see for example, p.185 Notes of Evidence).
[60] There were, however, a number of concerns mentioned in his diary towards the end of 1998 (and summarised in his brief of evidence). Many of these (such as Mr Yu’s concerns about the garage and the insides of the wardrobes being painted rather than wallpapered) had been remedied. Others were concerns about attempts to extract payment for services such as security after a break-in. The main item mention was a concern with the hot water cylinders. The hot water cylinders set out in the specifications were replaced after consultation with Enerco and the suppliers. There is a conflict of evidence as to how effective that solution was but that is dealt with later. There was also mention of a number of minor defects along with allegations that Mr Hung was trying to blame others for them. All of these items were already dealt with, were minor, or were capable of rectification, and thus cannot provide extra justification for the cancellation.
[61] The defendants suggested that, as the contract is still on foot, they could now cancel it on the basis of the Joyce Report. This has not been done. However, even if the Joyce Report could be relied upon, it would be doubtful if it would provide grounds for cancellation. It is true that there were clearly a large number of items that needed to be rectified.
[62] There were also some major concerns with safety with regard to the electrical work. However, these problems were with safety during the installation rather than safety of the ultimate electrical installation. Most of the faults identified were on the whole easily rectifiable - see Notes of Evidence p.269.
[63] The defendants’ costings put the cost of rectification of all the defects they allege at $268,449.70. Of these the plaintiff alleges some $10,000 should be regarded as finishing work rather than defects. The largest item in the defect list, $84,675.94, relates to window flashings. There is, however, evidence that sealants are normal practice in the industry and disagreement from the plaintiff’s expert as to the extent of change to flashings that is needed. Another large item, $14,181.75, relating to the replacement of the front fence has now been agreed to be unnecessary (although some repairs are necessary). A number of other alleged defects are disputed. The actual figure therefore is not as high as the defendants allege. Much of the other work, while cumulatively costly to repair, is relatively minor.
[64] In addition, we are dealing with a contract that was not complete at the stage of the purported cancellation (or indeed now). Thus there were clearly numerous items that had not been completed at all and various defects that the plaintiff acknowledges did need to be rectified before completion. Mr Dean said (p.71 Notes of Evidence) that it is not uncommon for a contractor with a lot of subcontractors on site to have a big “sort-out” before completion with extensive “snagging lists”. The defendants’ experts stated that with very good builders this would not happen (and the list is certainly very large) but the fact that we are not dealing with a completed project must have major significance.
[65] It was suggested that the plaintiff in fact thought it had completed the project and thus that the defects had to be examined as if the project was finished. This is not accepted. The defendant argues that the plaintiff represented that the property was practically complete at the time of rendering an account which was only due at practical completion. Mr Hung says that the payment was made early as Mr Yu preferred to pay the progress payment rather than paying for the additions and variations at that stage. Mr Yu admitted that he did not think that the house was completed at the time he made the payment and said that Patrick Hung had told them that, even though the house was not finished, there was so much work to do on the outside that the plaintiff needed the payment (p.214 Notes of Evidence). This backs up Mr Hung’s account in some measure. It is thus clear that Mr Hung was not representing that the house was practically complete at the time he provided the invoice for the amount due at practical completion.
[66] It was also noted that at the time of the 3 March letter from Brian Ellis the plaintiff stated that the carpets would be laid the following week implying again that the plaintiff considered it had completed the work at that stage. Even the plaintiff’s expert, Mr Dean, said that the carpets were three to four weeks away from 3 March.
The statement about the carpet, however, appears to me to be made more to put pressure on the defendant to complete the work on the concrete as soon as possible rather than a representation as to completion.
[67] The most important point overall is that, apart from a very few of the defects, all can be remedied. The Joyce Report has not been able to point to any aspect that raises a structural concern with any of the defects (although of course it can never be certain that such defects are not latent). As such the breaches (either in themselves or in aggregate) are unlikely to be seen as substantially reducing the benefit of the contract or making it substantially different as required by s 7(4)(b).
[68] I therefore conclude that the first ground advanced by the defendant does not justify cancellation.
Second Ground of Cancellation : Misrepresentation
[69] The second ground of cancellation relied on by the defendants is misrepresentation. The defendants submit that it is established that the defendants were induced to enter into the contract by representations made by Patrick and Theresa Hung that they had the skill and knowledge necessary to enable a luxury manor to be erected. Mr Yu’s evidence, however, was not explicit in terms of the exact representations that he alleges were made or indeed when such representations were made.
[70] There is no doubt that Mr Hung thought that he had acquired the expertise, through the Epsom townhouse and the Anaheim and Santa Cruz projects, to manage the Ocean Pointe project. Indeed, he still thinks that is the case and he appears to accept that he made such a representation to that effect (on behalf of the plaintiff).
[71] There are therefore two points that need to be decided. The first is whether this was a misrepresentation. The second is whether, if so, it induced the Yus to enter into the contract.
[72] Taking the second point first, the defendants may have some problems arguing that the representation induced them to enter into the contract. On Mr Yu’s own evidence, he had asked Mr Hung to design the property for him. He also indicated that he liked the general layout and kind of finish at Anaheim Boulevard and that this was one of the reasons he had asked Patrick Hung to help design the luxury manor (p.183 Notes of Evidence). While it is not necessary for a misrepresentation to be the sole inducing factor, this evidence does create some doubt as to whether anything said by Mr Hung induced the Yus to enter into the contract.
[73] I move now on to the first issue of whether there was in fact a misrepresentation. The representations that the Hungs and therefore the plaintiff had the necessary skills, knowledge and experience to carry out the contract was, in the defendants’ submission, incorrect on the basis of:
[a] the large number of defects there were at the purported cancellation;
[b] concerns about the lack of co-ordination of the various tradesmen and suppliers;
[c] the lack of documentation and the vagueness of the specifications set out in the 10 November letter;
[d] the fact alleged by the defendants that the tradesmen were not competent and were engaged on price only.
[74] There were certainly a large number of defects at the date of the purported cancellation. Even for an incomplete project these defects appear too numerous to be in accordance with best practice. The defects, however, were on the whole capable of rectification. Many were minor, and, at the time of cancellation, the project was incomplete. Thus I am not prepared to hold that the large number of defects can support the defendants’ contention as to there having been a misrepresentation.
[75] In terms of the lack of co-ordination there is no doubt that the plaintiff’s management style was to choose subcontractors on the basis of past experience with those subcontractors or referrals and then put faith in them to do the work properly. Mr Hung on behalf of the plaintiff was, however, on site most of the time and thus did provide supervision to the extent of his knowledge (and the extent of his knowledge and relative inexperience was known to the Yus).
[76] Mr Hung also seems to have relied upon the certifiers to point to any defects that would contravene the building code. Again this is not necessarily best practice but there is nothing to suggest that he would not have caused the plaintiff to remedy any defects pointed out by the certifiers.
[77] Specific problems arising out of lack of co-ordination have been alleged by the defendants. This is especially in the area of services. Many of the problems with the airconditioning, for example, arose because of the late stage the airconditioning contractors were called in and the lack of co-ordination with the builder and architect. Mr Hung confirmed in his evidence (p.35 Notes of Evidence) that there was never a plan completed showing the airconditioning throughout the house. Discussions about airconditioning started in early April 1998 and at that point the house was at a stage where it would have been possible to have planned so that the type of problems that were encountered later could have been mitigated if not eliminated. This shows the inexperience of Mr Hung.
[78] Some of the problems with the concrete also point to inexperience. The fact that there was underfloor heating meant that the builder did not wish to put the usual sawcuts in the concrete because of concerns about interfering with the underfloor heating system. While the sawcuts in the concrete would not necessarily have eliminated the random cracking problems that arose with the concrete they would certainly have mitigated them. Proper co-ordination and planning would have ensured the sawcuts could have been completed.
[79] I consider that Mr Hung did not have had the experience necessary to deal with the co-ordination of the type of services that were required in the house. Co-ordination between the airconditioning, the heating and the building services was necessary in order to ensure that they worked properly together.
[80] On the other hand, at the time of the entry into the contract and 10 November letter and thus around the time of the alleged misrepresentation, airconditioning and most of the heating was not included in the contract. Mr Yu has said that he always expected it to be included. If he had read the 10 November letter with its specifications he would have realised at that stage that there had been a misunderstanding and been able to correct it. As it was, the correction only came in early April. While this would not necessarily have been too late to have alleviated some of the problems, nevertheless at the time that Mr Hung was indicating that he was capable of building the house there was no airconditioning included and no extensive underfloor heating.
[81] In terms of documentation it is clear that this was scanty. This extends to documentation regarding subcontractors (and some of the defects may have arisen through inadequate definition of the work required). Documentation, however, does not of itself prevent bad workmanship.
[82] There is no doubt that the lack of detailed documentation is not best practice. As Mr Dean says, however, it is not necessarily unusual. It does point to inexperience but not to the extent necessary to support the defendants’ contention.
[83] Mr Morrison on behalf of the defendants also criticised the vagueness of the contract between the parties indicating that on the basis of the documentation and the drawings it would have been very difficult for the Yus to understand what they were to receive. He said that it would be normal practice for three dimensional drawings or models to be provided along with samples of colours and materials (p.230 Notes of Evidence).
[84] Again, while this may be best practice, it was not the basis on which the parties contracted. Mr Yu was (and clearly expected to be) involved in the choice of many of the items (such as the kitchen fittings, the curtains and the wallpaper) as the project proceeded. His background would indicate a certain familiarity with building plans and he indicated he was happy with those when he saw them at the beginning (p.174 Notes of Evidence).
[85] The final point alleged is that the tradesmen employed were not competent. Apart possibly from the electrical contractor, this was not borne out by the evidence. Most of the plaintiffs’ contractors do seem to have performed to a reasonable standard (even taking account of the defects) and some to an excellent standard.
[86] The conclusion, therefore, is that the representation as to skill was not a misrepresentation. The plaintiff argues that, even if it were a misrepresentation, a representation as to skill should be seen as a representation of opinion and not fact. While this would not always be true, in a case such as this where the underlying experience was fully disclosed to a person of education and experience, the submission gains much force.
[87] There is no allegation that Mr Hung or the plaintiff misrepresented either his own, his wife’s or his company’s experience. He seems to have told Mr Yu of the Epsom project and shown him this work from the outside. Mr Yu knew of the Santa Cruz Project and of course they had met through the Anaheim project. Mr Hung does not appear to have suggested to the Yus that he had been involved in any other projects either in Hong Kong or New Zealand.
[88] Any representation Mr Hung made as to his skills to conduct the building project must be considered in the light of that past experience which Mr Yu was very familiar with. They must also be considered in the light of Mr Yu’s experience. He was not familiar with New Zealand practice but he is an educated man, an engineer, who has lived in Canada and a person who has been involved in a property business in Hong Kong.
[89] In my view any representation must be read as being qualified by a reference to the actual experience of the plaintiff which was well known to the defendants. It must also be assessed in the light of Mr Yu’s background and experience. This gave him the ability to assess that representation as to skill. The representation can thus be assumed to be a representation that the plaintiff was able to manage a building project similar to the projects already managed and in terms of his experience with those projects. If this is done it is clear the defendants cannot succeed on this point.
Amendment to Pleadings : Misrepresentation
[90] The plaintiff objected to the defendants endeavouring to justify cancellation on the ground of misrepresentation on the basis that this was not relied upon in the letter of cancellation and was not pleaded (until during trial the defendants sought leave to file an amended statement of defence by adding particulars to paragraph 7).
[91] The defendants argued that the change sought to the pleadings was merely one of expansion rather than the introduction of new grounds and that the plaintiff was in no way prejudiced by this as it would have to deal with this point in any event (given the allegation of deceit against the Hungs and breaches of the Fair Trading Act against the plaintiff and the Hungs).
[92] While this may be the case it is not necessary to decide this pleading point as the misrepresentation argument would have failed in any event as discussed above.
Third Ground for Cancellation : Luxury Manor
[93] The defendants also argued for a total failure of consideration. The 10 November letter referred to the building of a luxury manor. The defendants argue that what was built was not and can never be a luxury manor. As such they were entitled to cancel the contract and seek a refund of all the money paid to date.
[94] The defendants contend that the term “luxury manor” imports into the contract something other than a large house with average fittings and fixtures. Their experts deposed that this was all that had been provided and it was not possible to create a luxury manor from the present building.
[95] Mr Morrison’s view was that there was nothing positive he could say about the building. The other architectural experts called for the defendants gave similar evidence. Mr Morrison and the other architects were, I consider, influenced by the number of defects (and clearly the number of defects would have been unacceptable in a completed property and create some concerns even in the property at the state of completion as it was), as well as the fact (and this was probably the most important for them) that they considered the house was not well designed.
[96] There are many features of the house that were in fact required by Mr Yu. Mr Yu’s main concern seems to have been with the quality of the finish and the quality of some of the fixtures rather than with the design. For example, the impressed concrete which clearly was not to the taste of any of the architects or, in their view, in any way in keeping with their view of the term luxury manor, was a specific request of Mr Yu.
[97] It is clear that, even now, Mr Yu has some difficulty articulating exactly what a luxury manor is and exactly how the Quedley Court property does not reach the standard as defined by him at the time the contract was entered into. He says that size does not define a luxury manor. He did not ask for Quedley Court to be double the size of Anaheim, but he does say that he specified the number of rooms they wanted and the recreational facilities (p.153 Notes of Evidence). It is difficult to see how a house with these features could be small.
[98] When asked exactly what he had specified for the luxury manor he mentioned that he had wanted all of the bedrooms to have their own ensuite and also the recreational facilities (p.172 Notes of Evidence). He agreed that he wanted the luxury manor to have a grand and impressive front facing the street and stonework to the exterior as well as a large main lounge with a double height ceiling (as it does). He also wanted an impressive central staircase, a large kitchen, formal lounge, family room, kitchen and four-car garaging. He also specified concrete all around the house as he did not like cobblestones and did not wish to have lawn (p.173 Notes of Evidence).
[99] Mr Yu was also shown his first diary entry about the plans on 7 October 1997 where it was said that Mr and Mrs Hung came over to discuss the building plan and Mr Yu said in his diary that the plan was beautifully designed. Mr Yu agreed that he considered at that time that the plans fitted with his idea at that stage of what a luxury manor was (p.174 Notes of Evidence). Mr Yu also confirmed that the front elevation of the house gave him the grandeur that he wanted and that he was happy with the frontage from the road. He also indicated that the fence was the type he wanted for his luxury manor but that the workmanship had left something to be desired (p.175 Notes of Evidence).
[100] Mr Yu confirmed that he was happy with the entry portico and that generally he was happy with the outside appearance of the luxury manor apart from the Harditex board at the rear of the house where the master ensuite is (p.176 Notes of Evidence). It is certainly true that this looks somewhat out of keeping with the Hinuera stone.
[101] In terms of the swimming pool Mr Yu indicated he had reservations but these appeared to relate only to the size of the sauna and the changing rooms (p.177 Notes of Evidence) and this might be explained to a degree by the problems experienced with site coverage.
[102] He also had concerns about the kitchen. It appears in fact that Mr Yu just does not like the kitchen, was annoyed he did not have a second visit to approve the plans, but he was unable to describe what it was about the kitchen that he did not like (p.178 Notes of Evidence). He also does not like the mantelpiece in the lounge thinking that it is not grand enough for a luxury manor. However, he had been shown a rough sketch of the mantelpiece and was happy with it at this time (p.178 Notes of Evidence).
[103] Mr Yu did express concerns about the workmanship at Quedley Court and said that the quality of the finishing and fittings at Anaheim was superior to that of Quedley Court. When asked exactly what areas he was concerned about Mr Yu indicated that he should leave this to his experts. He did, however, mention the door handles, the vanities in the ensuites, and the mirrors (p.185 Notes of Evidence).
[104] As indicated above, the defendants argue that it is an impossibility to create luxury manor from what now exists and thus that there has been a total failure of consideration. The defendants submit they are entitled to seek return of all their funds plus the net cost of demolition as set out in the pleadings.
[105] Mr Hung contends that the brief was to provide a property similar to the Anaheim property (which Mr Yu at that stage liked very much) with the addition of the features set out in the plans and the specifications (many of which were not present in the Anaheim property, such as the recreational facilities and the Hinuera stone cladding).
[106] Mr Yu denies that there had been an agreement that the Quedley Court property was to be similar to Anaheim. As he said, with some justification, what would have been the point of having another house similar to the one they were living in (p.153 Notes of Evidence). There is nothing in the contractual documentation referring to the Anaheim property so I prefer the evidence of Mr Yu on this point.
[107] The plaintiff’s main argument on the luxury manor point is that the parties agreed to build the house which is defined on the plans and specifications. Both parties had the opinion or concept at the time that the house so described was a luxury manor. This was a subjective description but the obligation of the plaintiff was to build the house so defined in the contractual documents and this had been done.
[108] In addition the plaintiff’s position is that the house is in any event of high quality. Mr Dean’s evidence was that, apart from what he called some very irritating blemishes, the property had reasonable workmanship throughout with some very high quality workmanship in places, especially in the finishes, as well as some high quality building materials. Some of the materials were not necessarily high cost, such as, for instance, the roofing material, but did have high durability. As such he considered that, if the defects were rectified, he would advise a client to complete the payment for the property.
[109] In my view the phrase “luxury manor” at best carries an implication that the finished product, both in the sense of workmanship and in the sense of the materials used, will be of above-average quality. The term can and should be construed in the light of the rest of the contract. The plans and specifications attached to the letter of 10 November are sufficient, in my opinion, to give meaning to the parties’ use of “luxury manor”. The parties were contracting for the construction of something called a “luxury manor”. They also contracted for the building of a house to the plans and specifications included in the contract. It follows, therefore, as a matter of interpretation, that the plans and specifications further define what the parties meant when using the phrase “luxury manor”.
[110] The contract was thus to provide the house as defined in the plans and Attachment B. The term luxury cannot be used (as the defendants appear to be attempting to do) to argue that a completely different house should have been built, ignoring what had been agreed between the parties. As indicated above Mr Yu has difficulty in articulating what it is that he wanted in a luxury manor but has admitted that many of the features present in this property are (apart from workmanship) in accordance with his specifications. He has testified that he was happy with the plans at the time he entered into the contract. The house appears to have been built in accordance with those plans and the specifications. His concerns as to finishing and workmanship can be addressed by rectifying the defects. As such the submission of total failure of consideration cannot be sustained.
[111] Given the above the third ground put forward also fails to allow the defendants to cancel the contract.
Damages
[112] The next issue is the question of damages, given the above finding on wrongful cancellation by the defendants. The plaintiff has not accepted the defendants’ repudiation. It has instead affirmed the contract. Section 9 of the Contractual Remedies Act therefore has no application, given that the contract is still on foot.
[113] It is uncontestable that the basic rule for assessing damages upon breach of contract is that the plaintiff should be put in a position as close as possible to that they would have occupied had the contract been performed: Robinson v Harman (1848) 154 ER 363 at 365.
[114] According to McGregor on Damages (16th ed., 1997) at paragraph 1154, the measure of damages, working from general principles, ought to be the contract price, less the cost to the builder of completing the project. The effect of this is to give the builder its projected net profit on the project.
[115] The plaintiff claims that $138,900, being the final progress payment under the contract, should be paid to it but acknowledges that proper allowance has to be made against this for what may be regarded as completion work, being items which the plaintiff has not been required to complete because of the defendants’ cancellation. It accepts most of the evidence on this in the Joyce Report where there is a schedule listing items requiring completion. The Joyce Report total is given as $97,840.49. The plaintiff submitted that this has been overstated and that the actual figure due was $60,715.49.
[116] The items that the plaintiff submitted should be deducted from the Joyce Group total were three gas heaters that the Joyce Group had costed at $4,950 each. This was on the basis that the gas heaters were nowhere included in the specifications and no other grounds were made out by the defendants for their inclusion in the contract price. The next matter that the plaintiff submitted should be deleted were curtains at $22,275. It was clear from the evidence that the curtains had been completed and were available for installation. The plaintiff has maintained all along that it will make these curtains available to the defendant. The plaintiff’s submissions and its figure for completion work are accepted.
[117] The other sums that are claimed by the plaintiff are the price under the swimming pool contract, being $24,577.31, and the price of the airconditioning contract being $18,431.90. The claim in respect of the under-carpet heating system has been withdrawn by the plaintiff. The evidence appears to be that the swimming pool is completed apart from the ozone system. As such the outstanding balance of the swimming pool contract should be paid. In respect of the airconditioning this is not completed but an allowance is made for this when the defect position is considered below so payment is ordered in full.
[118] This leaves the question of whether an allowance should be made for the rectification of the defects. The plaintiff’s position is that, if the cancellation was invalid, there should be no allowance for the rectification of defects as the plaintiff had been wrongfully prevented from rectifying those defects. It was argued that in many instances the defects would have been rectified free of charge to the plaintiff by the subcontractors.
[119] Obviously it is the plaintiff that contracted with the defendants and thus the defendants would have been entitled to require the plaintiff to remedy the defects, whether or not the subcontractors agreed to do so. However, in this case, the plaintiff has been prevented from being able to exercise its rights against its subcontractors. It cannot be expected to meet the cost of third parties doing work which it was entitled to have done by its subcontractors without additional cost.
[120] Mr Morrison made the point in his evidence that for many of these defects it would cost the same amount to require a third party to remedy the defects as it would for the plaintiff to do so (p.237 Notes of Evidence). As such the defendants argue that the rectification of these defects should be put in the same category as the completion work and the plaintiff has of course agreed to a deduction for completion work.
[121] I consider that, where it is likely that the defects would have been rectified by a subcontractor free of charge then, given that the cancellation was invalid, the plaintiff need not deduct amounts from the contract price to rectify those defects. Where, however, the position appears to be as set out by Mr Morrison or where it is otherwise appropriate, the amount required to rectify the defect should be deducted from the amount payable to the plaintiff.
[122] This approach is supported by the recent decision of the English Court of Appeal in Pierce & High Ltd v Baxter and Baxter [1999] BLR 101. The case was somewhat different on the facts, as it concerned defects which became apparent after practical completion and the taking of possession by the owner. However, the contractor had an express obligation to remedy such defects at his own expense. Contingent on this was an implied contractual right to return to the property for this purpose. The owner prevented the contractor from doing so. Evans LJ stated at 104:
“The cost of employing a third party is likely to be higher than the cost to the contractor of doing the work himself would have been. So the right to return in order to repair the defect is valuable to him. The question arises whether, if he is denied that right, the employer is entitled to employ another party and to recover the full cost of doing so as damages for the contractor’s original breach.
In my judgement, the contractor is not liable for the full cost of repairs in those circumstances. The employer cannot recover more than the amount which it would have cost the contractor himself to remedy the defects.” (emphasis added)
[123] This is analogous to the situation in this case where the plaintiff has been unjustifiably denied his implied right of access to the site to complete the works.
[124] All of the alleged defects are set out in Table A attached to this judgment. Column 1 lists the defects as set out in the Joyce Report. The next column lists the Joyce Group costing. The third column lists the plaintiff’s position on the defect, the next column lists, where applicable, the plaintiff’s costing, and the last column lists the Court decision. Where the finding is that a subcontractor would in all likelihood have paid for the item this is set out in the final column and no amount allowed for. Where the plaintiffs position is that the item involved is completion work (being items 14, 17, 19, 21, 24, 25, 26, 28, 29, 38, 40, 41, 43, 44, 45, 46, 48, 49, 56, 57 and 61) the plaintiff has agreed the deduction of these sums. The court’s decision and the reasons for that decision on the remainder of the items is set out below
[125] Item 4 relates to the replacement of the upper windows in the family room. The defendants contend (and this is accepted) that a ladder would be needed to open these windows. They also contend (and this is accepted) that this is unacceptable in this standard of residence. There is some dispute as to whether Mr Yu was shown plans of the windows and how they opened. Whether or not this is the case the plaintiff was the builder and therefore is responsible for having a suitable design - see Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454 (HL). Windows that can only be opened by using a ladder do not fall into this category. As such a deduction for rectification has been allowed.
[126] The same type of reasoning applies to item 10, recessing the curtain opening gear behind the wall surface, item 12 relating to the removal of the desk unit in the guest room, item 22 in respect of the removal of the dressing table, item 27 in respect of the vanity units in the master bedroom, item 34, the replacement of a desk unit in bedroom 2, item 58 relating to the removal of the enclosure around the airconditioning plant and the items relating to the concealment of piping, items 50 to 53 inclusive. These items were not satisfactory for the type of residence and a deduction for rectification is allowed.
[127] Much evidence has been given in respect of the timber panelling in the study (item 32). Both parties agree that the timber panelling that is there now is unsuitable for this type of residence. There was evidence to the effect that the panelling was satisfactory when it was first installed. Mr Yu apparently asked for that to be changed, he says to achieve the two-tone effect of a sample he had been given. Mr Hung says Mr Yu requested a change from a matt finish to gloss. Whatever the truth of this, it is quite clear that the plaintiff realised that it was going to be impossible to accommodate Mr Yu’s request and achieve a satisfactory standard. Although the plaintiff says that Mr Yu was warned of this and expressly agreed to take the risk, again it is the plaintiff who is the supposed expert and the change should not have been attempted. As such rectification of this item is allowed as a deduction.
[128] The same applies to item 35 in terms of replacing the small showers to bedroom 2 and 4 ensuites. The evidence of the defendants was that these showers as constituted were too small to use effectively. This evidence is accepted and the item allowed.
[129] In respect of item 6 which relates to the kitchen, there were two complaints about the kitchen. The first related to what was allegedly shoddy work in respect of the installation of the kitchen and defects in the opening mechanisms in respect of some of the cupboards. As the successor to the subcontractor agreed that it would fix the defects no allowance has been made in respect of this. The costings also allowed for rectification of an item that was of concern to the defendants, being what they alleged were different coloured shelving in the units. The doors of the units and the rim of the cupboard were all in cherrywood. Obviously the bottom rim of the cupboard also serves as a shelf. The interior shelving was in white. The defendants wished the bottom shelving (being the rim of the cupboard) also to be in white to match the interior shelving and the Joyce Group costing allows for this. As the bottom rim of the cupboard is visible under the cupboard door, the replacement of the cherrywood rim with white shelving would create a visible white rim at the bottom of the cupboard which is unlikely to be aesthetically pleasing. As such this item is not allowed.
[130] Item 13 relates to raising the level of the spa bath to the ensuite. This amount needs to be deducted. The drainage is set below the level of the main drainage which could cause major problems in the case of a blockage. Although the level of the spa bath was set to Mr Yus’ instructions (given that he wished to have a spa bath that was easy to enter in the event that he became infirm) the plaintiff was the builder and should not have attempted the impossible.
[131] In respect of item 66, being the plumbing rectification work, there does appear to be a measure of rectification work needed in this area but it is unclear whether there has been a double counting in respect of the spa bath. As such the Joyce costing has been reduced by the amount of item 13 and the sum of $8,087.07 only is allowed.
[132] In respect of recessing the upstanding jets around the pool (item 16), this was agreed to be a defect by the plaintiff. It seems unlikely in this case that such recessing would be a subcontractor’s responsibility and consequently the amount is allowed.
[133] In respect of defect 37 the defendants’ evidence that the airconditioning grille to bedroom 3 ensuite needs to be repositioned is accepted and the deduction allowed.
[134] Another deduction allowed relates to electrical rectification work which has already been carried out (item 65). This work was done to make the property safe. While it is clear from the evidence of the electrician, Mr Dixon, that he had not finished the work in question, it is also clear from the evidence of all the experts that Mr Dixon had breached a number of important electrical regulations and that he had put other workers on the property and the property itself at risk through this. As such the electrical rectification work is allowed as a deduction in full.
[135] Item 67 is a claim for $44,550 in respect of mechanical services rectification work. This appears to cover both the hot water system and the airconditioning system. There is, however, a discrepancy in that the Smith Report on mechanical services produced on behalf of the defendants only refers to $36,900. It is thus uncertain what the remainder of this sum covers.
[136] Evidence was given on behalf of the plaintiff that the hot water system installed in the property was a system that was used in small motels with a larger number of water outlets than contained in this property. Given this, the finding of the court is that the hot water system is adequate and no deduction is made in respect of the suggested changes in this respect. In relation to the hot water system there was a suggestion (not denied by the plaintiff) that there was not a tempering device in respect of the hot water which is a requirement. It was unclear, however, what portion of the mechanical services fee was in relation to that matter. As such $3,000 only is allowed.
[137] In relation to the airconditioning work there were obviously difficulties for the airconditioning contractors caused by their being called in at a late stage and also through instructions from the builder which meant that the system was not installed in the way they would have wished. However the point remains that the airconditioning system does not appear to reach the standard that would be expected of this type of residence. As such a deduction of $22,400, being the amount set out in the Smith Report for rectification of the airconditioning, is allowed. This is not to be taken as a finding adverse to the airconditioning contractors. The airconditioning contractors appear to have done the best they could, given the constraints that were put upon them.
[138] The defendants also argue for a contingency of $10,000. There were a large number of defects that were found by the Joyce Report and the evidence from the defendants is that it is uncertain whether all of the defects have in fact been discovered. It is also clear in respect of the remedial work on the concrete that this may not produce a satisfactory result in the long term. As such the Court holds that the deduction of $10,000 as a contingency is appropriate.
[139] Finally the defendants claim professional fees of $34,000 in connection with the rectification work. This, I understand, relates to the Joyce Report. If the contract had not been cancelled, given the difficulties between the parties, it is likely that such a report would have been necessary. As such a large number of defects were found at least part of it can be seen as a justified cost. As such half of the fee is allowed as a deduction.
[140] There are a number of defects agreed by the plaintiff as defects but where the plaintiff’s costings differ from the Joyce Group Report costings. In respect of defect 39, altering the floor to bedroom 5 and studio to remove the hogs in the floor, this was agreed by the plaintiff to be a defect. It obviously needs rectifying. The plaintiff’s costing, however, was a great deal less than the Joyce costing. The plaintiff’s costing is accepted and the amount of $850 allowed as a deduction.
[141] Item 60 relates to defects in the stone-faced fence to the street frontage. Initially the Joyce Report suggested that there should be a total rebuilding of that fence. Mr Dean suggested that there did need to be some work but that an amount in the order of $1,000 was the total that would be needed. Mr Morrison, after revisiting the property during the hearing, now agrees that total rebuilding is not necessary and the plaintiff’s figure of a $1,000 deduction is accepted.
[142] The next area of agreed defects where the costing differs relates to the screw fixing of the particle board and the replacement of marble tiles in the kitchen area. In this case the higher of the plaintiff’s costings are accepted and deductions of $650 and $2,760 respectively are held to be payable.
[143] The final aspect where costings differ related to the provision of window flashings, item 59. The allegation of the defendants was that the flashings and sealant to the windows and doors did not fully comply with building regulations. This is because the site is a high wind zone. It appears from the stage that the council inspections had reached that the council was happy with the sealant as against the flashings and evidence is given on behalf of the plaintiff that sealants were considered satisfactory by many in the building trade. In addition there had been questions raised as to sealants on windows and the correspondence from Kensington Swan, the defendants’ former solicitors, there was no mention of the flashings question. The plaintiff’s experts agree, however, that there should be flashings but there is disagreement as to the extent. The Court’s finding is that a deduction should be allowed in respect of flashings to the extent the plaintiff’s experts consider them necessary. The higher of the plaintiff’s estimates of $12,055 is therefore deducted.
Additions and Variations : Principles
[144] The judgment now moves on to discuss the additions and variations. It was submitted on behalf of the defendants that, where a claim for additions and variations was validly made, it was up to the plaintiff to show clear oral agreement in respect of the various variations and additions claimed. I agree with this submission. Unless the plaintiff is able to prove clear agreement to pay for the variations or additions in question then its claim must fail.
[145] It is to be noted that there were a number of written contracts for variations (such as the swimming pool, the billiard table and the airconditioning) that the plaintiff had had signed. There must be some question as to why the plaintiff did not ensure that there was a written record in respect of the other items. Mr Hung says this was because of the trust that there was between the parties at that time. This did not stop the signing of the other agreements in writing.
[146] The plaintiff argues that it would not have performed the other work if there had not been a clear agreement to pay for it. For some items I am prepared to draw that inference - in particular where the variation was one requested by the defendants. For others I am not prepared to do so. The plaintiff may well have thought that, by agreeing to a variation or addition, the defendants were also agreeing to pay extra. The defendants seem to have thought that many of the variations would be included in the contract price. In some cases it seems that there was rather a hope on the part of the plaintiff that the variations would be paid for. This is not enough. There must have been clear oral agreement to do so.
[147] Even where there was clear oral agreement counsel for the defendants argued this was not sufficient for the plaintiff to have a valid claim. It was submitted that such agreement could not constitute a contractual obligation in cases where the items were ones covered in the written contract between the parties. The defendant referred to the parol evidence rule as meaning that oral evidence could not be given to contradict, vary, add to or subtract from the written terms of a contract.
[148] For example it was submitted that there could be no valid variation claim in relation to the curtains as these were covered in the original specifications (Attachment B to letter of 10 November 1997) under “quality standard drapes throughout”. As there was no limitation in price set in the specifications and quotes for the curtains were not obtained until after the 10 November letter it was submitted that it was misleading and deceptive for Mr Hung to say that he had a budget of $20,000 and that Mr Yu had to pay extra if the price of the curtains he wanted exceeded that figure. Although Mr Yu did agree to pay extra it was submitted that his agreement was obtained improperly and therefore was not an agreement at all.
[149] This submission appears to cover a number of arguments. The argument over the alleged misleading and deceptive conduct is best left to the section dealing with the Fair Trading Act. There can also be no suggestion of the legal requirements being met for mistake, duress, undue influence etc (which in any event were not pleaded).
[150] The only argument in a contractual setting is that, as the items were covered in the original contract, while there may have been an offer and acceptance, there was no consideration for the agreement to pay extra as the plaintiff was only agreeing to provide what it was contractually bound to provide in any event.
[151] It cannot, however, be suggested that, because there was no limitation in price set for individual items in the contract of 10 November 1997, this meant that the defendants could therefore choose what they liked no matter what the price. All they were entitled to in terms of the contract were “quality standard drapes”. It is not even clear from the contract document itself that the defendants had a right to be consulted as to the drapes (although in practice the parties did consult and the plaintiff acknowledges that it saw itself as having an obligation to consult Mr Yu on finishings).
[152] Evidence was given from the suppliers of the curtains that the quotation of $20,000 referred to above had been given on the basis of the costings for the window coverings at the Santa Cruz property (adjusted for the different size of the properties) and covered “basic window coverings” (para 1 of brief of evidence of Marion Woolford).
[153] There could well be some debate as to whether “basic window coverings” come within the term “quality standard drapes”. It is possible that Howick Furnishings’ concept of basic window coverings could still be seen as quality drapes (and it must be noted that the term used was quality not high quality). This does not need to be decided. What is clear is that there is nothing to suggest that “quality” necessarily entitled the defendants to choose fabric that was nearly three times the price of a basic fabric (which is what they did).
[154] What is clear from the evidence is that Mr Yu was taken to Howick Furnishings to be shown fabrics for the curtains. He was shown basic priced fabrics (p.109 Notes of Evidence - Marion Woolford) which presumably would have come within the budget of $20,000. He did not like these. In the words of Mrs Woolford he “had an eye for quality”.
[155] Mr Yu admits that he specifically agreed to pay the extra for the curtains he had chosen. He does not seem to have raised the question of whether the fabric he had chosen came within the specifications or indeed indicated that the basic fabric he was shown did not come within the specifications of being quality drapes. Nor does he seem to have challenged at that time the budget figures he was given. Mr Yu must be bound by his agreement.
[156] A supplementary argument of the defendants appeared to be that the variations should be priced at cost plus margin as is usual trade practice and that no evidence had been tendered as to the cost of the items claimed in this case (apart from the plaintiff’s ledger book which was tendered without supporting invoices and at the last minute). This argument must fail. There is nowhere in the documentation that states that variations are costed in this way. There was a price given by Mr Hung on behalf of the plaintiff and Mr Yu was free to accept or reject that price and the variation or addition involved. The cost to the plaintiff is irrelevant.
Findings on Additions and Variations
[157] Attached to this judgement as Table B is a table showing the list of variations and the position of the Joyce Group, the plaintiff’s position, the position of Mr Yu and the decision of this Court.
[158] Obviously where the Joyce Group (on behalf of the defendants) accepts the extra involved then this is held by the Court to be payable. This applies to Items 1, 9, 15, 16, 19, 23 and 27 in Table B.
[159] Some of the Joyce Group figures (although the variation is accepted) differ from the claims. In respect of Item 26 the figure allowed by the Joyce Group is $6,682.50 as against the $8,437.50 claimed. The Joyce Group figure was on the basis of under floor heating being included in the contract except for the swimming pool area. This was a misreading of the contract. In the original specification under floor heating was not allowed for in the swimming pool and was also not allowed for in the eating room as well as the gallery on the lower floor. It has been provided in all those areas. As such the higher figure claimed is payable.
[160] In respect of item 29 the lower Joyce Group figure is taken for the alterations to showers 2,3 and 4. Alterations were done at the request of the client to change from the Englefield shower trays specified originally. The Joyce Group, however, considered that the showers in room 2 and 4, having been rebuilt in a triangular form, were too small and unusable. This is accepted and thus the lower Joyce Group figure is taken.
[161] In relation to Item 5 the specifications attached to the 10 November letter stated that the panelling in the study should be to 900mm high. The variation claimed was to bring the panelling to full height. The Joyce Group Report accepted this as an extra. Although Mr Yu said that this should always have been included in the 10 November specifications (p.200 of Notes of Evidence) it was not and there was thus no obligation on the plaintiff to supply it.
[162] The Joyce Group figure for the extra panelling is less than the figure claimed by the plaintiff. The plaintiff has not been able to point to an express agreement by the Yus to pay the figure claimed by it. As such the lower Joyce Group figure is taken.
[163] The next category of variations and additions are those where there was clear agreement from Mr Yu that he would pay for the item. These are held to be payable for the reasons set out above in the previous section.
[164] This obviously applies to item 17, the curtains, which is discussed above. By far the most costly of the items also coming within this category are the decks - items 2 and 3 on Table B annexed. The plaintiff submitted that Item 2 at $62,850 is entirely in accordance with the letters of contract of 10 November 1997 and 27 March 1998. Those letters specified the rate of $150 per square foot and expressly stated that the rate was to be applied to the deck on the lower floor at the back of the house to be constructed at a later date. The total area was to be advised.
[165] This submission is accepted. I find as a matter of fact that the concrete terrace was the deck (as modified at the request of the defendants) referred to in the letters of contract. Mr Morrison suggested that the deck referred to could have been another timber deck that was to be outside the kitchen but Mr Yu gave no evidence that would support this conclusion. As such the rate of $150 per square foot is the proper rate to be applied in relation to the concrete terrace. This means that the figure claimed by the plaintiff is payable.
[166] In relation to the deck outside the swimming pool (item 3 in Table B) this was also claimed at the $150 per square foot rate. The Joyce Report allowed the claim but only at an assessed rate of $10,716.75 (being, presumably, its assessment of a fair price).
[167] Mr Yu admits that he agreed to pay for the deck outside the swimming pool, and at the $150 per square foot rate, but maintains that he was tricked into it. He says that Mr Hung approached his daughter Karen first and she agreed to the deck without knowing the costing. He then agreed through love of his daughter to honour the bargain she had made but after the costing had been disclosed. Mr Yu’s diary at the time diary records the price for the two decks as adding in the vicinity of $120,000 to the building costs.
[168] Given the clear contractual terms in relation to Item 2 and the clear agreement in respect of Item 3 (with a knowledge of the price being asked) I hold that the amount claimed for the decks is payable. It is really irrelevant why Mr Yu agreed to the item (ie because of his love for his daughter). As the plaintiff correctly submits, this goes to motive rather than what was actually agreed. What was actually agreed is clear from the contract letters, Mr Yu’s diary and his evidence in court.
[169] Mr Yu has agreed through his counsel and in his evidence (Notes of Evidence p.159) that he will pay for the Phoenix palm (Item No 12 on Table B). Mr Yu also accepted “without reservation” (see p.203 of Notes of Evidence) that he agreed to pay for Item 8, the cedar sarking. He also said that he had no objection to item 25 and agreed to pay for this, being the shifting of the Telecom pedestal.
[170] In respect of Item 14, Mr Yu appears to have agreed to the payment for the additional swimming pool tiles (p.205 of Notes of Evidence and Item 14), although he now says that he has reservations about it. It is noted that the specifications did not provide for wall tiles in this room at all. Mr Hung’s evidence is that he realised that the room should be partially tiled and that he did so at his own cost in areas where water damage was likely. This extra claimed is for only the additional tiling requested by Mr Yu on top of what had already been provided at the plaintiffs’ cost. Mr Yu agreed to this additional work, and the sum is therefore payable.
[171] Item 21 relates to additional wallpaper for the formal lounge area and upper floor gallery. This, according to the plaintiff, arose because the defendants originally agreed that the walls would be painted with a dado. The plaintiff says that the defendants then changed their minds part way through the process and asked for wallpaper. It was admitted by Mr Yu that he and his daughter did choose a dado. He also admitted that they did agree to pay extra for the wallpaper they wanted (albeit reluctantly - Notes of Evidence p.194). As Mr Yu pointed out, however, the price given by the plaintiff in the list of variations given on 13 November 1998 was different from that now claimed. The plaintiff has not been able to point to any agreement to pay the higher price. As such it is the amount that is set out in that letter that is held to be payable.
[172] In regard to the hot water heating system (Item 22), Mr Yu maintains that the two Infinity Water Heaters systems set out in the specifications were inadequate for a house with the number of water outlets contained in the Ocean Pointe house. The plaintiff’s evidence appears to accord with this. Mr Yu thus considers that the Bosch water heater should have been provided free of charge. He does admit, however, that he agreed to pay for the hiflow at $1,725.00. He says that the circular pipes should have been installed before that point and thus says he should not pay for these (p.211 Notes of Evidence). As the plaintiff has not been able to point to a clear oral agreement to pay the whole of the amount claimed the figure of $1,725.00 only should be allowed.
[173] Mr Yu also said in evidence that he had agreed to pay for Item 7, the theatre wiring. As such it is payable. He did note, however, that the plaintiff had only been charged $900 for the job according to the quotations and thus it was an unfair price. If this was so, Mr Yu’s annoyance is understandable, but the question in law is what was agreed between the parties.
[174] The next category of items relates to changes asked for by Mr Yu. Mr Yu said that he had specifically asked for three changes - the first was the positioning of the wash basins in the master bedroom ensuite to avoid people bumping into each other when using the facility (Item 10). The second change was the kitchenette (Item 4) and the last change was in the shape of the staircase (Item 20).
[175] In relation to Item 10 the Joyce Group rejected the variation even though the variation was one asked for by the client on the basis that it was a design fault as the configuration of the wash basins in a L configuration did not allow for two people to use the basins at the same time. I agree this is a design fault and therefore the fault of the plaintiff. As such this amount is not payable.
[176] Mr Yu says that he was never asked and did not agree to pay extra for the kitchenette (p.199 of the Notes of Evidence and Item 4). Mr Hung says that there was an express oral agreement to pay extra. Given that this was a change expressly asked for by Mr Yu and Karen I would accept Mr Hung’s evidence in this regard. This extra should be allowed. For the same reason the extra in relation to the stairs (Item 20) is also payable.
[177] The final category of items claimed are those where no clear oral agreement could be shown. Item 6 relates to a comprehensive wardrobe system for the house. Mr Hung’s evidence is that he asked for the contractor to prepare two sets of plans - a basic plan and a more comprehensive one. The plans were shown to the Yus who chose the more comprehensive on and agreed to pay the extra. Mr Yu denies ever seeing the plans or agreeing to pay extra. Given the conflict of evidence, the fact that a wardrobe system was supposed to be included in the contract (and probably a higher standard than the basic one offered to the Yus) the finding is that the plaintiff has failed to show a clear oral agreement in relation to this item and thus that it is held not payable.
[178] In respect of Item 13 Mr Yu said in evidence that he had reservations about this item (p.203 Notes of Evidence). The Joyce Group had rejected it on the basis that an alarm system had been specified in the contract letters and the alarm system originally installed was not adequate for the building. There are also I understand some major problems with the fact that at least part of the system relies on wireless and battery operation and this is unsatisfactory. The plaintiff has not been able to point to a clear oral agreement to pay. As such this item is not payable.
[179] In relation to the kitchen (Item 18) there is again a conflict of evidence as to what happened. Mr Yu says that he had been taken to the kitchen shop and it appears that he had chosen a kitchen design that was to be imported from Italy. He was given a brochure to take away and had seen a sample kitchen of the chosen design set up in the kitchen shop. He was, however, expecting a second visit to discuss the actual design that was to be done on computer. The computer point was confirmed by the supplier. Mr Hung’s evidence is that the plaintiff had allowed for a good quality New Zealand kitchen and that Mr Yu agreed to pay extra for the Italian one. As there is a conflict of evidence and it is not clear that Mr Yu ever approved the final design, the plaintiff has failed to show a clear oral agreement to pay and this extra is not allowed.
[180] The plaintiff has not been able to prove a clear oral agreement in respect of Items 24, 28, 31-38 and 40 inclusive. In addition, many of these items one would have expected to be included in the contract price in any event. As such these items are held not to be payable.
[181] The total of the additions and variations claim that I therefore hold to be payable is $211,144.46. From this is to be deducted the amounts set out at the last page of Table B, being credits for items budgeted for but not provided. There does not seem to be a dispute about these credits.
Third Party Liability : Deceit
[182] The defendants also claim that the Hungs are liable to them in deceit. In fact Mr Yu indicated in cross-examination that Theresa Hung had said very little in relation to the property (p.220 Notes of Evidence). Consequently allegations against Theresa Hung cannot stand. It remains to examine whether the allegations against her husband are sustained.
[183] The tort of deceit is an intentional one. The defendants take the formulation of Hammond J in Gloken Holdings Ltd v The CDE Company Limited (1997) 6 NZBLC 102,272 as stating the law on deceit. At 102,278 Hammond J said that the tort of deceit is an intentional one.
“The essential elements are that the plaintiff must prove that the defendant:
(i) made to the plaintiff a representation; (ii) of existing fact; (iii) which judged objectively was false at the time it was made; (iv) upon the truth of which the plaintiff relied with resulting harm; (v) and that such representation was made (i) knowingly; or (ii) without belief in its truth; or (iii) recklessly careless as to whether it was true or false”
[184] Even if (i) to (iv) were in fact the case (v) could not be made out. The defendants admit that no representation was made knowing it was false or without belief in its truth, given that they agree that Mr Hung still believes that he was in fact competent. However, the argument is that he must have been reckless or careless as to whether it was true or false, as, judged objectively, the representation was false at the time it was made. This appears to be trying by the back door to impose an objective test.
[185] It is very difficult to see that a representation made with a continuing belief in its truth can possibly have been made recklessly. As the tort is an intentional one it is not merely that the representation is false and that an objective person would have been able to see this. It is the subjective state of mind of Mr Hung that must be proved, ie, that he was reckless as to whether the statement was true or false. Where a person (as here) genuinely believes something is true then he cannot possibly be reckless as to whether it was true or false.
Fair Trading Act
[186] The Fair Trading Act is relied upon by the defendants both in respect of the plaintiff and the third parties. The defendants rely on the alleged misrepresentation as to competence to establish liability under the Act.
[187] The first point is the basis on which that Act is stated to apply to the third parties. As indicated earlier it was admitted by Mr Yu that Theresa Hung was not involved with any representations so any claim against her must fail. In relation to Mr Hung it is submitted that he is in trade (being a director of the plaintiff) and thus liable for any misleading conduct (via the alleged misrepresentations) made by him in his capacity as a director of the plaintiff (whether made on behalf of the plaintiff or not).
[188] It is a precondition of liability, or at least principal liability, under the Fair Trading Act that the alleged miscreant be acting “in trade” when engaging in the allegedly misleading or deceptive conduct: see s 9. “Trade” is defined very broadly in s 2 as:
“. . .any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.”
[189] The defendants submit that Mr Hung is in trade and rely as authority for this on a statement in Gloken at 102,278 where Hammond J held that a director was personally liable under s 9 Fair Trading Act. He said:
“This is a case in which Mr Spark was very clearly the alter ego of the company. He was the manager and a director; he made the representations; he had run the business of the first defendant. It was him who engaged in selling the hotel. To say that he was not engaged “in trade” would in my view be quite unrealistic.”
[190] In Cornfields Ltd v Gourmet Burger Co Ltd (unreported, HC Palmerston North, CP1/99, 1 December 2000), McGechan J stated at [37] that there is room for a view in principle that a director of a company, which company is in trade, is not him or herself thereby “in trade”, despite the broad definition of trade in s 2. For the purposes of the case, however, he adopted the approach taken in Gloken.
[191] I note also that the Gloken approach was taken in Megavitamin Laboratories & Stewart v CC (1995) 6 TCLR 231. In that case, the appellant Stewart was a director, principal shareholder and “guiding mind” of Megavitamin as well as an employee of the company. On the question of whether he was “in trade,” Tipping J had this to say, at 244:
“Dr Stewart was a shareholder in the company. That capacity does not of itself put him in trade. He was, however, in addition an employee of the company and its agent. In carrying out those roles I do not think there can be any doubt that for the purposes of the Fair Trading Act, Dr Stewart must be regarded as being in trade. An employed solicitor can properly be regarded as being in law just as much as a principal. The definition of the word “trade” in the Act is a deliberately wide one, including as it does concepts of trade, business, industry, profession, occupation, activity of commerce and so on. The fact that someone is paid a wage or a dividend for what they do does not prevent them from being engaged in trade or in business or in an activity of commerce. It is what they do which matters.”
[192] Based on these comments, and on the broad wording of the definition of “trade,” I believe it is certainly arguable that Mr Hung can be regarded, for the purposes of the Fair Trading Act, as being “in trade.”
[193] This is not, however, the only requirement for liability. I note at this point that I am concerned with principal liability under s 9. This is what is pleaded. Section 9 requires that the conduct complained of must be the conduct of the person charged. It is therefore necessary in my view that the representations which the defendants complain of must have been the representations of Mr Hung.
[194] It is on this ground that Mr Hung mounts his defence to the counterclaim. He argues that the representations were not made by him in his personal capacity, but are the representations of the company and the company alone. This is based on the fact that the contracting party was at all times the plaintiff, T&P Developments Ltd.
[195] It is trite that a company and its shareholders are separate persons. However, in choosing to trade and enter into transactions through the mechanism of a limited liability company, a person sends a message to those dealing with him or her that they will, in general, have recourse only against that company. This is a long-established commercial device, and one encouraged by legislation. That much is made clear by the Court of Appeal in Trevor Ivory v Anderson [1992] 2 NZLR 517, which is relied on by Mr Hung.
[196] It must be remembered, however, that Trevor Ivory is a case involving a claim in negligence. Needless to say, the policy of the Fair Trading Act differs greatly from that governing the law of negligence. As McGeehan J observes in Cornfields at [37], the policy of the Act extends well beyond the bounds of ordinary contract and corporate law. He notes that liability may fall on a director pursuant to s 43(1) irrespective of whether the director is in trade or not and at [38] irrespective of whether the director was functioning as a director or corporate officer, rather than in a personal capacity and irrespective of whether there was acceptance of personal responsibility.
[197] Section 43(1) provides as follows:
“Where, in any proceedings under the Part of this Act, or on the application of any person the Court finds that a person, whether or not that person is a party to the proceedings, has suffered, or is likely to suffer, loss or damage by conduct of any other person that constitutes or would constitute -
(a) A contravention of any of the provisions of Parts I to IV of this Act; or
(b) Aiding, abetting, counselling, or procuring the contravention of such a provision; or
(c) Inducing by threats, promises, or otherwise the contravention of such a provision; or
(d) Being in any way directly or indirectly knowingly concerned in, or party to, the contravention of such a provision; or
(e) Conspiring with any other person in the contravention of such a provision -
the Court may (whether or not it grants an injunction or makes any other order under this Part of this Act) make all or any of the orders referred to in subsection (2) of this section.”
[198] Section 43 was not raised explicity in argument in the Cornfields case but McGechan J appears to use the existence of s 43 as a justification for saying that the question of the adoption of personal responsibility, as raised in Trevor Ivory, is meaningless, even for liability under s 9. It may be equally possible, however, to say that, by preserving the distinction between principal liability and derivative liability in enacting both s 9 and s 43, the question of whether a director was acting as an agent or as the alter-ego of the company retains some meaning. This will, of course, be largely theoretical where both s 9 and s 43 are pleaded as alternatives. It is possible, though, that the question of direct or indirect liability may affect the exercise of the s 43 remedial discretion. As noted above, in this case the defendants did not plead s 43 in their statement of counterclaim. Where there is a potential issue over whether a director’s liability under the Fair Trading Act is direct or indirect, it may be wise (and arguably necessary) to do so.
[199] There is a suggestion in the evidence that Mr Hung was making the representations in a personal capacity in that he represented that reliance could be placed on him personally and that the involvement of the plaintiff was a mere formality. Mr Hung does not accept this. If the defendants’ suggestions are true, this could mean that Mr Hung had himself engaged in the conduct complained of and thus would potentially have liability under s 9, whichever view is taken of the scope of that provision. It is not, however, necessary to decide the point, given the decision come to below.
[200] Moving to the substantive allegations under the Fair Trading Act, the misleading conduct pleaded and addressed in the submissions relates to the same alleged misrepresentation as to competence that was dealt with earlier. It has already been decided that there was no misrepresentation. While different considerations may arise in a Fair Trading Act context, they do not in this case. As such the Fair Trading Act cause of action on this point fails.
[201 ] In the course of argument a number of other aspects of misleading conduct were referred to. While these are probably not covered by the pleadings they are worth dealing with here. The first aspect of misleading conduct relates to the whole question of the luxury manor. The argument here would have to be that the defendants had, through the conduct of the plaintiff and/or Mr Hung had led the Yus to believe that what was set out in the plans and the specifications was a luxury manor and, as it was not, this was misleading conduct.
[202] The next aspect alleged related to the “budget” figures stated by Mr Hung for certain items (eg the curtains) and the requirement of extra payment for amounts above that “budget”, such budget figures never having been discussed at the outset with the Yus.
[203] The final aspect relates to the costings generally, including a proper builder’s margin and the unconventional method of calculating square footage (including voids and decks).
[204] In respect of the luxury manor point the argument appears to be that what is built (even if built without defects) cannot be a luxury manor. This evidence cannot be given in isolation and without consideration of Mr Yu’s requirements (which have been dealt with above). There was no misleading conduct in this regard.
[205] In addition there was no misleading conduct in respect of the budget figures given. There is no doubt the plaintiff had a budget for certain items at the time the discussions took place with Mr Yu. The budgets would probably not have been in place at the time of entry into the contract but it was not suggested that the plaintiff or Mr Hung said they were.
[206] Dealing now with the final aspect relating to costing, the defendants seemed to be arguing that the contract should in fact be rewritten as they have paid too much in respect of the property. Mr Yu appeared to be under the impression that the Fair Trading Act should protect him from, for example, paying for the decks at what is clearly an inflated price when compared with actual construction costs. It is true that the costing of the decks in this manner would not be in accordance with normal trade practice in New Zealand.
[207] The deck outside the family room, it has already been held, was part of the original contract. It was quite clear in that contract that the $150 per square foot price included decks and voids and that the deck outside the family room was included in this. While measuring decks and voids would not be the normal way of measuring the square footage of a house it was the method agreed between the parties. From the evidence it is clear that the construction of the deck would not have been $150 per square foot. On the other hand there were other areas of the house which, the evidence says, would have cost more than that so the $150 per square foot figure is in effect averaged out over the property. There is nothing misleading about this.
[208] In respect of the deck outside the swimming pool, this clearly did not cost the plaintiff $150 per square foot for the plaintiff. However, there does not appear to be any allegation that the actual construction cost was misrepresented. Mr Yu was merely presented with a price he was free to accept or reject.
[209] The Fair Trading Act is not designed to enforce normal trade practice or to protect parties from bad bargains but is designed to protect them from misleading and deceptive conduct. There is no evidence here that the plaintiff or Mr or Mrs Hung made any representations to the defendants that their costings were based on the construction costs for the decks.
[210] There were also allegations that the actual construction costs of property mean that the plaintiff had an unacceptably high builder’s margin. It is difficult on the evidence to come to a view on this. Again, however, the purpose of the Fair Trading Act is not to protect parties from bad bargains. Mr Yu was always free to test the price he was given with quotes from other builders.
[211] The defendants’ claim under the Fair Trading Act fails accordingly.
Decision
[212] The purported cancellation of the building contract by the defendants was not justified. The plaintiff has affirmed the contract but has been prevented from completion by the defendants. The plaintiff is therefore entitled to the sum calculated below as damages.
| Final Contract Payment $138,900.00 |
| Swimming Pool Contract $24,577.31 |
| Airconditioning Contract $18,431.90 |
| Additions and Variations $211,144.46 |
| Less |
| Credits (additions and variations) ($24,355.12) |
| Completion Work ($60,715.49) |
| Rectification of Defects ($120,933.02) |
| Amount payable to Plaintiff $187,050.04 |
[204] The plaintiff is also entitled to interest. It should file on or before 30 April 2001 a brief memorandum (with supporting affidavits if necessary) as to the rate and the period for which it should run. The defendant should file any memorandum and affidavits in reply on or before 14 May 2001. A memorandum dealing with any matters arising from the defendant’s memorandum should be filed by the plaintiff on or before 21 May 2001.
[205] The curtains are to be made available for collection by the defendants.
[206] The claims by the defendants against the third party are dismissed as is the claim against the plaintiff under the Fair Trading Act.
Costs
[207] Costs on scale 2B are awarded to the plaintiff and the third party.
TABLE A
JOYCE REPORT: DEFECTS
| Defects | Joyce costing | Plaintiff’s Position | Plaintiff’s costing | Court Decision |
| 1. Repairing split window head to family room | $99.00 | Agreed defect | Likely subcontractor responsibility | |
| 2. Scribing fireplace to wall | $105.19 | Agreed defect | Likely subcontractor responsibility | |
| 3. Removal of glue from corner of window | $20.00 | Agreed defect | Likely subcontractor responsibility | |
| 4. Replacement of windows with vertical sliders to facilitate opening to family room | $1,138.50 | Disputed | Opening impractical, should be changed $1,138.50 | |
| 5. Replacement of chipped tile around kitchen power point | $49.50 | Agreed defect | Likely subcontractor responsibility | |
| 6. Replacement of different colour laminates, shelving units, fixing door to fridge/freezer, refining cabinet to south east corner and renewing split capping to kitchen fittings | $1,064.25 | Disputed | Subcontractor has agreed to fix defects. Frames of cupboard should not be replaced with white shelving | |
| 7. Remove steel base plate protruding from wall in dining room | $210.38 | Agreed defect | Likely subcontractor responsibility | |
| 8. Removal of projecting reinforcing rod from cupboard under stair | $55.69 | Agreed defect | Likely subcontractor responsibility | |
| 9. Remedial work to welding to main staircase handrail | $482.63 | Agreed defect | Likely subcontractor responsibility |
| Defects | Joyce costing | Plaintiff’s position | Plaintiff’s costing | Court Decision |
| 10. Recessing curtains opening gear below wall surface | $909.56 | Disputed | Should be done $909.56 | |
| 11. Replacement of one external leaf of bifolding door and adjustment of remaining doors to lounge | $1,144.69 | Agreed defect | $1,144.69 | Likely subcontractor’s agreed to remedy (Dean evidence) |
| 12. Removal of desk unit to guest room | $120.00 | Disputed | Should be done - unsuitable design $120.00 | |
| 13. Raising level of spa bath to en suite | $2,567.81 | Disputed | Needs to be done - unlikely subcontractor liable as explicit instructions to install in this fashion | |
| 14. Movement control joints to garage floor | $1,955.25 | Completion work | $1,955.25 | Plaintiff agrees $1,955.25 |
| 15. Adjustment of Velux skylight to swimming pool | $198.00 | Agreed defect | Likely subcontractor responsibility | |
| 16. Recessing upstanding jets around pool | $891.00 | Agreed defect | $891.00 | |
| 17. Sealing tiles around vacuum cleaner pump and decorative corner tiles | $173.25 | Completion work | $173.25 | $173.25 |
| Defects | Joyce costing | Plaintiff’s position | Plaintiff’s costing | Court Decision |
| 18. Replacing faulty handle to sauna door | $55.69 | Agreed defect | Likely subcontractor/ supplier responsibility | |
| 19. Discharging fans to changing room 1 and 2 to outside | $501.19 | Completion work | $501.19 | $501.19 |
| 20. Making good chipped door handles to master bedroom entrance doors | $43.31 | Agreed defect | Likely subcontractor responsibility | |
| 21. Provision of cabin hooks to exterior doors to master bedroom | $198.00 | Completion work | $198.00 | $198.00 |
| 22. Removal of dressing table to robe 1 | $120.00 | Disputed | Unsuitable design - should be done $120.00 | |
| 23. Making good damaged wallpaper to robe 1 | $68.06 | Agreed defect | Likely subcontractor responsibility | |
| 24. Discharging fan to first floor kitchen to outside wall or soffit | $488.81 | Completion work | $488.81 | $488.81 |
| 25. Re-tightening tap connection to first floor kitchen | $20.00 | Completion work | $20.00 | $20.00 |
| 26. Sealing tiles to bench upstand to first floor kitchen | $61.88 | Completion work | $61.88 | $61.88 |
| Defects | Joyce costing | Plaintiff’s position | Plaintiff’s costing | Court Decision |
| 27. Re-spraying vanity units to master bedroom en suite to suitable colour to match tiling | Disputed | Unsuitable colour matching - plaintiff s expert should have pointed this out $872.44 | ||
| 28. Discharging fan to master bedroom en suite to outside | $433.13 | Completion work | $433.13 | $433.13 |
| 29. Removing sign from window and cleaning out spa bath to master en suite | $37.13 | Completion work | $37.13 | $37.13 |
| 30. Re-gluing paper dado to passage | $24.75 | Agreed defect | Likely subcontractor’s responsibility | |
| 31. Modified fixing to secondary stair handrails | $185.63 | Agreed defect | Likely subcontractor responsibility | |
| 32. Replacement of timber paneling to study | $6,713.44 | Disputed | Should not have been attempted whatever Yus’ request $6,713.44 | |
| 33. Replacing doors to wardrobe, bedroom 3 with bifolding doors to provide suitable access | $2,159.44 | Disputed | Subcontractor agreed would fix wardrobe design | |
| 34. Replacement of desk unit to bedroom 2 | $1,113.75 | Disputed | Should be done - unsuitable design $1,113.75 |
| Defects | Joyce costing | Plaintiff’s position | Plaintiff’s costing | Court Decision |
| 35. Replacing small showers to bedroom 2 and 4 en suites | $5,321.25 | Disputed | Would need to be done by plaintiff. Showers too small $5,321.25 | |
| 36. Provision of appropriate underlay to floor tiling in en suite to bedrooms 2, 3 and 4 | $3,732.30 | Disputed | Done by plaintiff allegedly - not payable | |
| 37. Repositioning air conditioning grille to bedroom 3 en suite including making good ceiling framing | $371.25 | Disputed | Should be done $371.25 | |
| 38. Discharging fan to extract WC to outside | $253.69 | Completion work | $253.69 | $253.69 |
| 39. Altering floor to bedroom 5 and studio to remove hog | $2,301.75 | Agreed defect | (Dean) $850.00 (Green) $848.00 | $850.00 |
| 40. Discharging fan extract to bedroom en suite to outside | $253.69 | Completion work | $253.69 | $253.69 |
| 41. Door stop to bedroom 5 en suite door | $49.50 | Completion work | $49.50 | $49.50 |
| 42. Provision of appropriate underlay to floor tiling in en suite to bedroom 5 | $1,410.75 | Disputed | Provided - not payable | |
| 43. Removal of rubbish and debris from roof space | $618.75 | Completion work | $618.75 | $618.75 |
| Defects | Joyce costing | Plaintiff’s position | Plaintiff’s costing | Court Decision |
| 44. Securing building paper under roof tiling and completion of ceiling installation | $1,076.63 | Completion work | $1,076.63 | $1,076.63 |
| 45. Structural upgrading to bottom cord of roof truss in two locations when cut to accommodate A/C pipe | $482.63 | Completion work | $482.63 | $482.63 |
| 46. Curved head trim to entrance doors, sealing stone facing/beam to portico roof and work to concrete to right hand window at ground level | $1,051.88 | Completion work | $1,051.88 | $1,051.88 |
| 47. Repairs to butynol flashings south lower roof and repairs to polystyrene etc | $730.13 | Disputed | Likely subcontractor responsibility | |
| 48. Connecting extract to hole in safety to right of entry and providing grille | $470.25 | Completion work | $470.25 | $470.25 |
| 49. Making good hole in stonework to north wall | $297.00 | Completion work | $297.00 | $297.00 |
| 50. Concealing exposed waste pipework to south west corner of building | $847.69 | Disputed | Should be done - unsuitable in house such as this $847.69 | |
| 51. Concealing ducting from upper games room roof | $198.00 | Agreed defect | $198.00 |
| Defects | Joyce costing | Plaintiff’s position | Plaintiff’s costing | Court Decision |
| 52. Providing access around pool equipment to east side of building | $3,953.81 | Disputed | Should be done - unsuitable in house such as this $3,953.81 | |
| 53. Concealing pipework outside kitchen | $544.50 | Disputed | Should be done - unsuitable in house such as this $544.50 | |
| 54. Works to balustrade to master bedroom balcony handrail | $1,051.88 | Disputed | Likely subcontractors responsibility | |
| 55. Cutting back plaster to give 20mm gap at base to avoid capillary action | $426.94 | Agreed defect | Likely subcontractor’s responsibility | |
| 56. Replacement of cracked roofing tiles and pointing to ridge tiles | $767.25 | Completion work | $767.25 | $767.25 |
| 57. Provision of downpipe spreaders lifting downpipe discharge pipe to balcony slab and making good tiling | $816.75 | Completion work | $816.75 | $816.75 |
| 58. Removal of enclosure around air conditioning plant | $300.00 | Disputed | Should be done - unsuitable for residence $300.00 |
| Defects | Joyce costing | Plaintiff’s position | Plaintiff’s costing | Court Decision |
| 59. Removal of windows and external doors refixing with appropriate flashings to jambs and sill in place re-pointing, provision of associated trim and reveal liners and making good | $84,675.94 | Agreed defect | (Dean) $11,500.00 (Green) $12,055.00 | High wind area: Plaintiffs expert’s advice should be followed $12,055.00 |
| 60. Re-building stone faced fence post to street frontage | $14,181.75 (based on total rebuilding) | Disputed | (Dean) $1,000.00 | Joyce Group now considers total rebuilding not necessary Court accepts plaintiff’s figures $1,000.00 |
| 61. Structural repair and strengthening to entry gates | $915.75 | Completion work | $915.75 | $915.75 |
| 62. Screw fixing particle board | $4,922.78 | Agreed defect | (Dean) $650.00 (Green) $647.00 | $650.00 |
| 63. Replacing marble tiles to kitchen area | $3,502.13 | Agreed defect | (Dean) $1,400.00 (Green $2,760.00 | $2,760.00 |
| 64. Replacement of mirrors with heated mirrors | $3,211.31 | Disputed | Joyce Group agrees mirrors are heated |
| Defects | Joyce costing | Plaintiff’s position | Plaintiff’s costing | Court Decision |
| 65. Electrical rectification work (already carried out) | $6,225.54 | Disputed | Work did need to be done to make property safe. Mr Dixon worked in an unsafe manner. $6,225.54 | |
| 66. Plumbing rectification work | $10,654.88 | Disputed | Uncertain scope of work - may include double counting re spa bath $8,087.07 | |
| 67. Mechanical services rectification work | $44,550.00 Note: amount in Smith Report only $36,900: unsure what rest covers | Disputed | Hot water heater installed as used in small motels - need not be replaced. Airconditioning work should be undertaken $25,400 | |
| 68. Professional fee in connection with rectification work | $34,000.00 | Disputed | Whole of fee may not have been necessary if waited until completion. Half allowed $17,000.00 | |
| 69. Contingency | $10,000.00 | Disputed | Payable - evidence shows there a large number of defects and that concrete remedial work may not be satisfactory in future. $10,000.00 | |
| $268,449.70 | $120,933.02 |
TABLE B
VARIATION CLAIM ADJUSTMENTS
| Additions | Amount Claimed | Joyce Group Amount | Defendants’ Position | Court Decision | Withdrawn by Plaintiff |
| 1. Cornice to ground floor study | $314.75 | $314.75 | Accepted | $314.74 | |
| 2. Concrete deck terrace outside family room | $62,850.00 | NCA (no cost adjustment) | Agreed to pay in accordance with contract | $62,850.00 | |
| 3. Timber deck outside swimming pool | $51,600.00 | $10,716.75 | Knew price Agreed to pay | $51,600.00 | |
| 4. Kitchenette to master bedroom | $3,006.00 | NCA | Requested by Yus - thought included | $3,006.00 | |
| 5. Extra timber panelled walls to study | $4,794.53 | $3,814.59 | Should have been included in contract price | $3,814.59 | |
| 6. Wardrobe Systems | $6,160.00 | NCA | Never saw plans or agreed | Not payable | |
| 7. Wiring to theatre and/or sound system in lounge, etc. | $1,350.00 | NCA | Agreed to pay | $1,350.00 | |
| 8. Cedar sarking to pool area | $6,412.50 | NCA | Agreed to pay | $6,412.50 | |
| 9. Additional wiring for Sky TV | $2,025.00 | $2,025.00 | Accepted | $2,025.00 | |
| 10. Alterations to piping in master ensuite | $337.50 | NCA | Variation requested because of design fault | Not payable |
| Additions | Amount Claimed | Joyce Group Amount | Defendants’ Position | Court Decision | Withdrawn by Plaintiff |
| 11. Automatic gates | $5,512.50 | NCA | Not payable | Not payable | $5,512.50 |
| 12. Phoenix palm | $8,605.25 | NCA | Agreed to pay | $8,605.25 | |
| 13. Alarm system upgrading | $1,500.00 | NCA | Has reservations | Not payable | |
| 14. Tiling to swimming pool | $3,768.19 | NCA | Agreed to pay | $3,768.19 | |
| 15. Additional imprinted concrete paving | $14,292.00 | $14,292.00 | Accepted | $14,292.00 | |
| 16. Panasonic CCTV | $225.00 | $225.00 | Accepted | $225.00 | |
| 17. Curtains, venetians | $18,188.55 | NCA | Agreed to pay | $18,188.55 | |
| 18. Kitchen fittings | $8,741.25 | NCA | Not shown final design | Not payable | |
| 19. Carpet to gym | $1,274.00 | $1,274.00 | Accepted | $1,274.00 | |
| 20. Alteration to main stairs | $562.50 | NCA | Specific request | $562.50 | |
| 21. Wallpaper | $10,524.81 | NCA | Agreed to pay. Amount set out in 13 November letter different from claim | $9,084.25 | |
| 22. Hot water cylinders | $6,640.00 | NCA | Agreed to pay for hi-flow | $1,725.00 | |
| 23. Television and wall mounted bracket | $1,414.38 | $1,414.39 | Accepted | $1,414.39 | |
| 24. Shower slides | NCA | Not payable | Not payable | ||
| 25. Shifting Telecom pedestal | $829.13 | NCA | No objection to paying | $829.13 |
| Additions | Amount Claimed | Joyce Group Amount | Defendants’ Position | Court Decision | Withdrawn by Plaintiff |
| 26. Underfloor heating around pool | $8,437.50 | $6,682.50 | Accepted | $8,437.50 | |
| 27. Additional Hinuera stone | $3,937.50 | $3,937.50 | Accepted | $3,937.50 | |
| 28. Entrance Gates | $3,375.00 | NCA | Not payable | Not payable | |
| 29. Shower alterations (parts 2 & 3 NCA) | $12,687.75 | $7,428.37 | Accepted | $7,428.37 | |
| 30. Wrought iron stair balustrades | $15,750.00 | NCA | Not payable | Not payable | $15,750.00 |
| 31. Fibreglass heads to eaves etc | $2,643.75 | NCA | Not payable | Not payable | |
| 32. Master en suite fan | $630.00 | NCA | Not payable | Not payable | |
| 33. Alterations to power points | $393.75 | NCA | Not payable | Not payable | |
| 34. Cabinet to dogs’ bath | $506.25 | NCA | Not payable | Not payable | |
| 35. Transportation of safes | $562.50 | NCA | Not payable | Not payable | |
| 36. Shed housing boiler, etc | $843.75 | NCA | Not payable | Not payable | |
| 37. Pedestrian gate | $3,003.53 | NCA | Not payable | Not payable | |
| 38. Antennae and booster | $472.50 | NCA | Not payable | Not payable |
| Additions | Amount Claimed | Joyce Group Amount | Defendants’ Position | Court Decision | Withdrawn by Plaintiff |
| 39. Shower doors to pool toilets | $1,462.50 | NCA | Not payable | $1,462.50 | |
| 40. Lighting to main stair | $784.13 | NCA | Not payable | ||
| Totals | $276,970.50 | $52,124.85 | $211,144.46 | $22,725.00 |
| Credits | Credits | Court Decision |
| 1. Hansa Jet | ($138.04) | ($138.04) |
| 2. Chandeliers | ($15,903.61) | ($15,903.61) |
| 3. Barbecue stands | ($1,125.00) | ($1,125.00) |
| 4. Bar to family room | ($2,812.00) | ($2,812.00) |
| 5. Sub-floor cracking repairs | ($4,376.47) | ($4,376.47) |
| Totals | ($24,355.12) | ($24,355.12) |
SUMMARY
Plaintiff’s Figures
Claim by plaintiff $276,970.50
Less amounts withdrawn $22,725.00
$254,245.50
Less Credits ($24,355.12)
Total variations claim by plaintiff $229,890.38
Court Figures
Amount allowed by Court $211,144.46
Less credits ($24,355.12)
Total variations claim allowed $186,789.34
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