T & T Drainage Limited v Rennell HC Auckland CIV 2009-404-1506
[2010] NZHC 398
•11 March 2010
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2009-404-001506
BETWEEN T & T DRAINAGE LIMITED
Appellant
ANDJOHN ALFRED RENNELL AND JUDITH PENELOPE RENNELL
First Respondent And Cross Appellant
ANDEDWARD RITCHIE MICHELL Second Respondent
Hearing: 17 September 2009
Appearances: B O'Callahan for Appellant
K F Gould for Respondent
Judgment: 11 March 2010 at 4:00 pm
RESERVED JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney
on 11 March 2010 at 4:00 pm pursuant to R 11.5 of the High Court Rules.
Registrar / Deputy Registrar
Date………………………
Solicitors: Rice Craig, P O Box 72-440, Papakura 2244
Fax: (09) 295-1701
Wilson McKay, P O Box 28-347, Remuera, Auckland
Fax: (09) 524-0397
Counsel: B O’Callahan, Carter & Partners, P O Box 2137, Auckland
Fax: (09) 366-1363 – [email protected]
K F Gould, P O Box 1011, Shortland Street, Auckland 1140Fax: (09)358-3093 – [email protected]
T & T DRAINAGE LTD V RENNELL & ANOR HC AK CIV-2009-404-001506 11 March 2010
Tableof Contents
No.
Introduction [1]
Appeal by T & T on Mr and Mrs Rennell’s counterclaim
Were Mr and Mrs Rennell entitled to counterlciam in their
personal capacities? [6] Was T & T liable for work not completed? [13] Did T & T cause damage to the property through negligence
and breach of contract? [24] Betterment / Unnecessary work [50] Defences of contributory negligence and volenti [57] Measure of damages [61]
Cross-appeal by Mr and Mrs Rennell on counterclaim
Personal liability of Mr Michell [77]
Interest on counterclaim [96]
Costs [97]
Appeal by Mr and Mrs Rennell on T & T’s claim
Valueless work [102]
Result [105]
Introduction
[1] In early 2005 Mr and Mrs Rennell engaged T & T Drainage Limited to undertake work on a property in Karaka which they wanted to develop as an equestrian centre. The work involved building an arena and stables area together with the associated drainage and earthworks. T & T ceased work after several months because of non-payment of invoices. Following a hearing before Andree Wiltens DCJ it obtained judgment against Mr and Mrs Rennell for $90,349.52. However, Mr and Mrs Rennell successfully counterclaimed against T & T for $247,064.85 being the cost of completing the contract works and remedying damage T & T had done to the property during the course of its work. A counterclaim against T & T’s director, Mr Michell, failed. T & T and Mr and Mrs Rennell have, respectively, appealed and cross-appealed the decision on the counterclaim. Mr and Mrs Rennell have appealed the decision on T & T’s claim.
[2] On a general appeal such as this the appellate judge has an obligation to consider the matter afresh and reach his or her own view of the evidence.[1] However, many of the grounds of appeal, particularly those raised by T & T, relate to factual findings and turned on the assessment of witnesses. In undertaking my assessment of the evidence I have recognised that the Judge had the benefit of observing the witnesses over several days. In some instances I have, for this reason, deferred to the trial Judge’s factual findings.
[1] Austin Nichols & Co v Stitching Lodestar [2008] 2 NZLR 141
[3] On its appeal against the decision on Mr and Mrs Rennell’s counterclaim, T & T asserts error by the Judge in:
a) Finding that Mr and Mrs Rennell were entitled to sue in their personal capacities for damage to the property;
b)Finding that Mr and Mrs Rennell could recover the cost of completing work T & T had agreed to do but had neither done nor charged for;
c) Finding that T & T was negligent in spilling or leaving stones on the property and/or had a contractual obligation to remove the stones;
d)Failing to make a sufficient deduction for betterment as a result of the remedial works;
e) Applying the wrong measure of damages;
f) Not accepting T & T’s expert witnesses.
[4] On their cross-appeal Mr and Mrs Rennell say that the Judge erred in:
a) Finding that Mr Michell was not personally liable;
b) Reducing the counterclaim for betterment;
c) Selecting the date from which interest would run; and d) Refusing to award costs in their favour.
[5] On their appeal against the decision on T & T’s claim Mr and Mrs Rennell assert that the Judge erred in finding that any money was owed to T & T in light of the finding of negligence and poor workmanship in breach of implied terms of the contract.
Appeal by T & T on Mr and Mrs Rennell’s counterclaim
Were Mr and Mrs Rennell entitled to counterclaim in their personal capacities?
[6] T & T had sued Mr and Mrs Rennell personally, insisting that it had contracted with them in their personal capacities and at trial their counsel conceded that they were personally liable on the contract with T & T. The counterclaim was also brought by Mr and Mrs Rennell in their personal capacities. However, the property was owned by the trustees of the J & P Rennell Family Trust, (Mr and Mrs Rennell and J & P Trustee Co Limited). The evidence showed that Mr Rennell negotiated directly with T & T and, in doing so, gave no indication that he was
acting other than for himself and his wife in their personal capacities. There appears not to have been any specific discussion regarding ownership of the property. Nevertheless, Mr Rennell gave unchallenged evidence that he had acted throughout in his capacity as a trustee and payments to T & T were made by cheques in the name of the family trust.
[7] T & T argued that Mr and Mrs Rennell had not suffered any loss personally and therefore could not recover in respect of damage to the property. It is not clear from the judgment the extent to which this issue was argued at trial, and the Judge did not deal with it directly. At [31] of the judgment the Judge said:
I find that the Defendants did not make known to the Plaintiff that he was dealing with them as trustees of a Family Trust. All relevant documentation was in the name of the Defendants as individuals, save for the cheques used to make the payments that I have listed earlier. Despite such cheques being on behalf of the Trust, I am not prepared to substitute the Defendants as trustees of a Family Trust for them as individuals even though I note that all dealings in relation to the remediation work does appear to have been done with Mr and Mrs Rennell as trustees. I am fortified in reaching that conclusion as, in her final submissions, Ms Meechan conceded that any liability to the Plaintiff must have been incurred by the Mr and Mrs Rennell personally.
[8] In submitting that Mr and Mrs Rennell had not suffered any loss for which they could sue Mr O’Callahan relied on the decision in Panatown Limited v Alford McAlpine Construction Limited[2], a case in which the plaintiff had engaged a contractor to undertake building work on land owned by a third party. Lord Millett said at [154]:
It is impossible on any logical basis to justify the recovery of compensatory damages by a person who has not suffered the loss in respect of which they are awarded unless he is accountable for them to the person who has.
[2] Panatown Limited v Alford Construction Limited [2000] 4 All ER 97 applied in New Zealand in
Santa Barbara Homes Limited v Cozzolino & Anor HC AK CIV-2002-404-002577 12 May 2004
Santa Barbara Homes Limited v Cozzolino HC AK CIV-2002-404-002577 16 September 2004
[9] The general rule that a contracting party cannot recover damages in respect of loss suffered by a third party, however, is subject to certain exceptions, one of which
is a claim by an agent on behalf of an undisclosed principal.[3] The authors of Law of
[3] Woodar Investment Development Limited v Wimpey Construction (UK) Limited [1980] 1 All ER
571; Panatown Limited v Alford McAlpine Construction Limited [2000] 4 All ER 97
Contract in New Zealand state that:[4]
Where an agent, having authority to contract on behalf of another, makes the contract in his or her own name, concealing the fact that he or she is a mere representative, the doctrine of the undisclosed principle comes into play.
[4] Burrows, Finn & Todd, Law of Contract in New Zealand (3rd ed, 2007)
[10] The relevant principles of the doctrine of the undisclosed principal were summarised by the Privy Council in Siu Yin Kwan & Anor v Eastern Insurance Co Limited:[5]
For present purposes the law can be summarised shortly as follows. (1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of the undisclosed principal may also sue and be sued on the contract. Any defence which the third party may have against the agent is available against his principal. (4) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue and his liability to be sued. The contract itself or the circumstances surrounding the contract may show that the agent is the true and only principal.
[5] Siu Yin Kwan & Anor v Eastern Insurance Co Limited [1994] 1 All ER (PC) 213 at 219 (PC)
[11] By the terms of the trust deed the trustees had the power to improve trust property and to act by a majority if they could not agree unanimously. Mr Rennell’s assertion that he acted in his capacity as a trustee was unchallenged either by the other trustees or by T & T. There is no dispute that the trustees paid for both the contracted work and the remedial work. Although not contended for, I am satisfied on the evidence that Mr Rennell both had the authority to, and did, contract with T & T on behalf of the trustees. I conclude that at all material times Mr Rennell was acting as agent for undisclosed principals, namely the trustees of the trust.
[12] The fact that Mr Rennell was acting as agent for the trustees does not preclude personal liability, as is clear from Siu Yin Kwan & Anor v Eastern Insurance Co Limited, so the concession made at trial that Mr and Mrs Rennell were personally liable was properly made. However, they were entitled to recover damages personally (though obliged to account for monies received). Ideally this matter would have been dealt with by having the trustees joined as parties to the
proceeding at an earlier stage. However, their absence did not preclude the Judge dealing with the matter in the way that he did.
Was T & T liable for work not completed?
[13] Mr and Mrs Rennell’s counterclaim included a claim for $44,358.58 for work they claim T & T had originally agreed to undertake but did not, necessitating their engaging another contractor to do so. T & T maintains that the Judge erred in allowing this part of the claim because it resulted in double counting. Before I consider this argument I outline the nature and scope of the work T & T agreed to do.
[14] The property originally comprised about five hectares situated on the southern side of Linwood Road in Karaka. In 2006 it was amalgamated with part of
an adjoining property. Access to the property was by a sealed driveway off Linwood Road which led to an existing dwelling. The property was to be fenced into ten paddocks, with paddock 1 adjacent to the road frontage, paddocks 2, 3 and 4 on the eastern boundary which adjoined a neighbouring property, paddocks 5, 6, 7 and 8 running more or less along the southern boundary. Paddocks 9 and 10 were to be created immediately in front of the house, with an arena and stables situated between them and paddocks 6, 7 and 8.
[15] The scope of the work was not recorded in a formal contract. Nor did T & T commit itself to a quote. The work initially agreed on was recorded in T & T’s undated estimate faxed to Mr Rennell on 18 March 2005, namely:
·Construct 60 x 20 metre horse arena with compacted platform for new stable area;
·40 x 1.5 metre high retaining wall behind and alongside the stable area;
· Supply and install drainage to water course;
·Supply and install driveway access approximately 150 metres long with turning circle for horse trucks;
·Supply and install 1 x 5000 gallon water tank with Grundfos pump and water tap for site supply.
[16] Some extra work was agreed later, namely increasing the width of the arena, removing the knoll in paddock 5 (re-using the top soil to level the lawn and build a haha in front of the house), removing debris and tidying up paddocks 5 and 6 and supplying a sand and rubber mix arena surface.
[17] Although Mr Gould, for Mr and Mrs Rennell, submitted that the Judge had not found that the contract was on a charge-up basis, it is quite clear that this was the finding and that, on the evidence, it was correct:
[76] …The parties entered into their arrangement with the clear understanding that the estimate prepared originally only related generally to the cost of the work then being considered; and all work over and above that would be separately charged for by the Plaintiff and paid by the Defendants – and further that if the actual work required was more difficult or costly that such additional costs would be borne by the Defendants.
[77] A telling factor for me is that despite the Defendants’ claim that the estimate was a “fixed price” they have clearly paid much more than the estimated figure, even taking into account the extras the Defendants have accepted as being properly for them to pay. The only rational explanation for such over-payment is that the final price was still undetermined.
[18] A good deal of the problems between the parties arose as a result of proceeding on a charge-up basis. The scope of the work was ill-defined and it is clear that T & T did not give the kind of careful thought to the likely cost as it would have had it committed itself to a quoted price. The Judge, quite understandably, expressed his astonishment at a businessman of Mr Rennell’s experience entering into such an arrangement.
[19] Mr and Mrs Rennell sought $44,358.53 for work to the stormwater system, yard works, stable access road and arena. The Judge found that:
[93] The second aspect of this is the allegation that not all the agreed work was actually done. In particular there was complaint regarding the lack
of installation of a water tank and a Grundfos pump. The plaintiff accepted that these items were not installed, which I took to be acceptance of a breach
of contract. However, by way of defence it was pointed out that these items were not charged for. The Defendants have had to get another company to
complete this task and have now paid for the installation of such items. As part of their Counter Claim the Defendants seek to recover such payment. The fact that no charge was made for this seems to me to be no answer to this allegation.
[94] The third aspect of this allegation is that the plaintiff did not tidy up the site at the end of the contract. Mr Michell accepts that this was not done; and accepted that the Defendants had a right to expect this to be done. Again it has been pointed out that this has not been charged for. It is effectively part of the Defendants’ Counter Claim as the work has been completed subsequently at the cost of the Defendants. I discount the fact that the Plaintiff was unable to complete this task due to being denied access – it should have been done as part of the agreed work, the Plaintiff had ample time to attend to this and it was later done by others at a cost to the Defendants. The Defendants should in my view be compensated for
something they have effectively paid twice for.
[95] It is plain, as alleged, that when the Plaintiff ceased work at the site
it had not finished off properly the “berms” (the edges of the newly formed accessway). The evidence suggests they could have been better finished although the contrary view was also advanced. The fact that the project was undertaken during winter and the fact that the work to finish the berms was incomplete due to the dispute regarding payment means very little turns on this point. The Plaintiff accepts that this was not completed but says it was not afforded the opportunity to do so. The time and cost involved in completing this aspect is unclear but in the overall scheme of things is not material. In my view, this can be properly considered as part of the clean-up costs.
[96] My conclusion therefore is that the Counter Claim as to breach of contract has been made out in the sense that some of the matters agreed to be done for the estimated cost have not in fact been completed. The Defendants are therefore entitled to claim from the Plaintiff the reasonable costs of making good these matters.
[20] Mr O’Callahan submitted that these findings were inconsistent with the Judge’s finding that the contract was on a charge-up basis rather than being a fixed price. There were certain items not charged for by T & T because it stopped work
for non-payment of earlier invoices. However, Mr O’Callahan submitted that as
T & T had not charged for them it ought not be liable for the cost of them having been done by the other party. There could be no suggestion that Mr and Mrs Rennell were paying twice.
[21] Mr O’Callahan is correct that Mr and Mrs Rennell cannot claim for work contracted to be done on a charge-up basis that was not done where T & T had not
rendered any charge for such work and the cost of having another contractor complete it was comparable to what T & T would have charged. Whilst T & T might be in breach of its contractual obligation to do the work that it would have been entitled to charge for, Mr and Mrs Rennell cannot have suffered any loss by paying someone else to complete the work.
[22] It is, however, difficult on the basis of the evidence and submissions before me to ascertain what that figure is. The Judge awarded a global figure in respect of the counterclaim of $247,064.85 which included both the significant cost of remedying damage done to the site by T & T, as well as the cost of uncompleted work. The Judge calculated the figure as follows:
Paid to Ace Construction Limited & Jesmond
Construction Limited (primarily) $340,485.73
Less (i) $ 10,501.00
Less (ii) $ 49,846.00
Less (iii) $ 2,756.25
Less (iv) $ 1,202.63
Less (v) $ 29,115.00
Total $247,064.85
[23] Of the disallowed items, however, only $2,756.25 for the access-way drain and $1,202.63 for the cesspit in the stables seem to correlate to the items and amounts claimed by Mr and Mrs Rennell as work T & T did not do. I invite the parties to address this issue further in memoranda, if they are unable to agree on the amount that ought to be deducted as a result of the Judge’s error on this point.
Did T & T cause damage to the property through negligence and breach of contract?
[24] I turn next to what was the major issue at trial, namely whether T & T was liable either for breach of contract or in tort for negligence for damage done to the property as a result of its work. There were two main complaints. The first was that there had been stone contamination and loss of topsoil in the paddocks which left the paddocks in a condition that was unsuitable for agisting horses. The second was that
some of the drainage work was poorly done and had to be rectified. Mr and Mrs Rennell expended a substantial sum to restore the site to its expected condition and sought to recover those costs.
[25] The specific aspects of damage alleged to have been done or work not completed properly were:
·Stone damage in all the paddocks such as to render them unsuitable for horses;
·Hard fill, stones, rocks and clay being left in the race beside paddock 8;
·Stone damage to the races on the eastern side of paddocks 1-4 and between 4 and 5;
· Deterioration or elimination of the depth of topsoil in paddocks 6-10;
· Clay fill being dumped or being pushed on to paddocks 8-6 resulting
in poorly formed and steep contoured paddocks;
·Poor method used to bury defective/condemned hard fill in paddock 1;
·Novacoil drain in paddock 6 being incorrectly installed through the use of inappropriate metal as a surround and insufficient gradient;
·Novacoil drain in paddock 1 being incorrectly installed through not being laid to sufficient depth, being laid with an insufficient gradient and with inappropriate metal used as a surround.
[26] The Judge found that it was an implied term of the contract that T & T would exercise reasonable skill and care in the execution of the contract works. This finding is not challenged. Mr and Mrs Rennell pleaded a similar duty in tort and there was no challenge to the existence of that duty either. The Judge determined
this aspect of the counterclaim primarily on the basis of the tortious duty but making
it clear that the same conduct breached the implied term.
[27] The initial question in relation to the damage said to have been done to the property as a result of T & T’s work was whether T & T had any obligation to reinstate the property at all. The nature of the work meant that substantial quantities of metal and stones would be brought on to the property. Originally T & T was to access the property through a neighbour’s property which would have meant vehicles entering at the fence line between paddocks 2 and 3. However, that arrangement did not proceed and T & T had to make provision to access the property through paddock 1, which required some metal to be put down. After a month or so, with winter weather setting in, T & T’s vehicles began to get stuck in the paddocks with three trucks having to dump their load of metal and be dragged out. At that point T & T stopped attempting to access the property with trucks and began using “maggot” machines. Building material was brought to the entrance of paddock 1, stockpiled and from there transported by the “maggots” to other parts of the property.
[28] Messrs Rogers and Long, who both had many years experience in civil construction and earthworks, gave evidence for Mr and Mrs Rennell to the effect that industry practice was that, in the absence of specific contractual provisions, any part of the property a contractor was not required to alter as part of the work should not be altered or damaged and if it is altered or damaged it must be restored to an equivalent condition to the condition it was in before work started. Further, any parts of a property intended to be altered as part of the work should be restored upon completion of the work to a condition equivalent to the condition the property was in before work started.
[29] Mr O’Callahan put to both Mr Rogers and Mr Long in cross-examination that where the situation confronting a contractor develops differently from what was expected because of weather conditions then that is something that ought to be discussed and the question of who should bear the risk agreed on. Both witnesses were clear that, absent any specific agreement, it was the contractor’s responsibility to ensure that the property was restored to the condition it had previously been in.
[30] Mr O’Callahan was critical of the fact that Mr Michell was not cross- examined as to the standard of care to be expected of a reasonably competent contractor. It is true that the cross-examination of Mr Michell did not cover this particular aspect. However, it is perfectly clear from Mr Michell’s evidence that he did not regard himself as being under any obligation (whether contractual or otherwise) to restore the property. Mr O’Callahan was able to put this view to Mr and Mrs Rennell’s witnesses. T & T did not adduce evidence from any independent contractor as to industry practice in this regard.
[31] Given the nature of the work to be done I have no difficulty implying a term into T & T’s contract requiring it to reinstate the property so as to bring it back to a condition similar to what it was when the works began. However, this finding does not deal with the real issue, namely whether the need to reinstate arose from T & T’s negligence/breach of contract. Mr O’Callahan argued, correctly, that in the context of a charge-up contract, the cost of removing stones brought on to the property without negligence would have been chargeable. T & T’s position at trial, and on the appeal, was that the spillage of stones was an ordinary and reasonable consequence of the works and not the result of negligence or breach of contract. As a result, the Rennells did not suffer any loss by paying for that work since they would have had to pay T & T in any event.
[32] The findings under challenge appear at [98] and [106]. In considering
T & T’s assertion that the degree of spillage of stones was both unavoidable and to
be expected, given the volume of metal transported onto and across the property, the
Judge said at [98]:
The work being done was at all times known to be to improve the property and get it into a condition where it could be operated as an equestrian centre. Any spillage was therefore unacceptable...
[33] Then, having rejected T & T’s argument that there was existing stone contamination on the property and found that stones remained on the property in unacceptable areas and concentrations the Judge concluded at [106] and [107]:
I find that leaving stones on a property destined to be used for agisting and training horses is plainly negligent...I accept the evidence of Messrs Rogers and Long that contractors such as the plaintiff should generally leave the site
in the same condition as they found it when commencing work…Nor do I accept the suggestion that the defendants should have foreseen spillage of stones as a natural by-product of the work done. In the circumstances, the implied term of the contract as to the Plaintiff being expected to operate with reasonable care and skill has also been breached.
[34] Mr O’Callahan submitted that the Judge erroneously equated the spilling or leaving of stones on the property with negligence which effectively created a contractual obligation to remove stones rather than a consideration of whether T & T had exercised reasonable skill or care. He also submitted that the Judge failed to identify the acts or omissions that caused the stones to be spilled or left there and whether such acts or omissions fell below the reasonable standard of persons undertaking work of this nature. He further argued that there was no analysis or discussion in the judgment of the standard to be expected of a reasonable person undertaking this kind of work.
[35] I agree that the Judge did not specifically consider the issue of negligence in these terms. However, the evidence did clearly establish negligence by T & T. The evidence as to cause came mainly from Mr Smith, a Chartered Professional Engineer with over 20 years experience. The Judge regarded Mr Smith as a knowledgeable, fair and highly reliable witness and, in my view, the evidence bears out that assessment.
[36] Mr Smith spent considerable time inspecting the property and advising on the causes of the damage and options for remedial work. In his evidence he considered the problems that he observed in each paddock. He gave his opinion as to the cause
of those problems and offered a suggested course for remediation. In respect of many of the paddocks Mr Smith was critical of the way in which T & T had undertaken its work, concluding that the paddocks could have been returned to their original form had reasonable care been taken. Although he does not explicitly say so, I infer from his evidence that this meant returning the paddock to its original form at a cost well below the substantial amount ultimately spent.
[37] Mr Smith based his assessment on the assumption the property had no or a minimal amount of stones on it before T & T started work. T & T maintained throughout that there were stones on the property before it started work.
Mr O’Callahan submitted that the Judge failed to take into account the body of evidence pointing to the existence of stones on the property beforehand. The Judge found, on the evidence, that the part of the property that had previously been the adjoining farm had been stone-free and that soil in the Karaka area was generally clear. Further, Mr and Mrs Rennell had said that before the work began the property was grassed and in a suitable condition to be mown by a ride-on lawnmower.
[38] I accept that the Judge should have taken account of the known sources of stone Mr Callahan identifies. In particular, the aggregate and slag in the sewage system in paddocks 9 and 10 were such as to make it likely that work done in those paddocks would inevitably result in stone contamination at an unacceptable level, even without additional metal brought on to the property by T & T. Otherwise, however, the Judge was entitled to make a general finding that the property was either stone-free or such stones as did exist were at a level compatible with equestrian activity.
[39] Although not the only form of damage, the presence of stones throughout the paddocks was the major complaint, and the major part of the cost was their removal. Mr Smith inspected the property on many occasions in order to advise on the options
for remedial work. Mr O’Callahan was generally critical of Mr Smith’s evidence on the basis that it did not sufficiently detail the location and extent of stone contamination. However, I consider that Mr Smith’s evidence was adequate. Mr Smith considered that:
The overriding difficulty is that the extent of damage to the paddocks cannot
be accurately ascertained. Seemingly the stones are dispersed almost everywhere but are in higher concentration in some locations than in others. This has been confirmed by the investigations that have been carried out using both machine and hand methods and by the Rennells’ photographs. In some locations there may be very few stones but I understand that even a few can pose a risk to horses that is untenable.
[40] Mr Smith discussed the various options for remedying the damage. One was the Rennells’ preferred option which was replacement of the whole of the topsoil which would ensure that there was no stone in the paddocks. This was unquestionably the most expensive option (in January 2006 a contractor had quoted $509,000 for that work). An alternative was to accept that small stones would be
present in the finished work. If that were adopted it would allow screening processes
to be used. i.e. uplifting the existing topsoil, screening it, re-spreading and sowing grass. The quote for that work was $268,000 but, although much less than a total replacement, the quoted price did not include the supplying additional new topsoil to make up for the losses from the screening operations.
[41] Other options were also trialled. These included a Harley rake and a rotadairon (a stone burying machine). However, this was not an adequate solution given the typical 150 millimetre topsoil depth. The risk was that during winter months a horse could easily sink 100 millimetres onto a buried stone. In the end Mr Smith concluded that the most effective solutions were either complete replacement or sieving of the existing top soil and supplementing it with new topsoil. Given that stone quality and distribution varied from paddock to paddock his recommendation also varied from paddock to paddock.
[42] Mr Smith’s evidence as to the damage to the various paddocks and his opinion as to cause and remedial work can be summarised as follows:
·Paddock 1 – Although there had been some metal from a pre-existing drain the high number of stones and metal was due to a lack of care by T & T when filling the new drain and transporting stones, rock and fill onto the property. Mr Smith recommended the removal of the top 50 millimetres of topsoil, excavation of areas of concentrated stone, screening of remaining topsoil and addition of further screened topsoil to a loose depth of 200 millimetres with preparation for sowing.
· Paddock 2 – T & T suggested that there had been stones on the property from
an old farm race at the top of paddock 2 and around gateways. The Judge did not accept this. However, even if there had been it would not account for the dispersal of stones throughout the paddock that Mr Smith observed, including buried stones brought to the surface during Rotadiron trials, which he considered indicated the presence of numerous stones below the surface of the paddock. Mr Smith considered the probable cause of stone damage was T & T’s failure to take reasonable care not to spill stones and fill being
transported through the paddock and the dispersal of stones throughout the paddock by harrowing and rolling rather than uplifting them. Mr Smith recommended the same remedial work for this paddock as for paddock 1.
·Paddock 3 – Mr Smith observed stones over the entire area of this paddock and considered that their presence resulted from a failure to take reasonable care when transporting materials through the paddock and the decision to harrow and roll rather than uplift and remove stones. The same remedial work as recommended for paddocks 1 and 2 was recommended for this paddock.
· Paddock 4 – No work was actually undertaken by T & T in paddock 4.
Nevertheless, Mr Smith observed stones visible in the paddock though not as prolific as with paddocks 1-3. Mr Smith considered that the stones in paddock 4 probably came to be there through the dispersal of stones from other areas by the harrowing and rolling operation rather than by direct spills. He recommended the same remedial work.
·Paddock 5 – No actual work was undertaken in paddock 5 apart from the levelling of the knoll. Mr Smith described the paddock as quite steep with stone present at the upper end. He observed little or no topsoil, even though topsoil would have been removed in levelling the knoll. Mr Michell suggested that stone was likely to have reached paddock 5 from the race-way to the south of the arena through horses, tractors or by harrow. However, Mr Smith considered that the location of the stones indicated that the cause was lack of organisation and planning in protecting the clay substrate from stones used in other parts of the property.
·Paddock 6 – In paddock 6 T & T constructed a sub-soil drain. There were stones in this paddock which, according to Mr Smith, resulted from inadequate preparation for construction of the drain and spillage of stone from the drainlaying operations. Mr Michell claimed that the drain was disrupted by subsequent contractors and that later work has caused metal to
be scraped into the surrounding topsoil. Mr Smith, however, considered that
the presence of stones resulted from inadequate preparation for construction
of the drain, spillage of stones from the drainlaying operation (judging by the type of stones) and spillage or general spreading of aggregate in the arena.
· Paddock 7 – Mr Smith said that paddock 7 had stones through the upper part
of the paddock, probably caused by spillage or general spreading of aggregate in the arena and its surrounding area. Two light cuts proved sufficient to remove the stones from this paddock.
·Paddock 8 – Mr Smith observed stones through the upper half of the paddock and a severe loss of topsoil along the northern boundary. He described a mixture of clay and topsoil interspersed with stones that had apparently been placed over the top of existing topsoil creating a potentially unstable situation. He described paddock 8 as one of the worst affected by T & T’s work.
·Paddocks 9 and 10 – These paddocks were not specifically referred to in the judgment. Mr Smith considered, from his observations, that the existing contour had been steepened and this was confirmed by Mr Rennell. Mr Smith then expressed views about the probable reason for the re- contouring (connected with design) and expressed the view that re-contouring should have been carried out in a manner that did not result in steeper paddocks than existed before. He recommended the same kind of remedial work as for the other paddocks.
[43] The Judge made a general finding that the unacceptable level of stones on the property was due to a lack of care by T & T. I consider that the Judge was entitled to make that finding on the basis of Mr Smith’s evidence except for paddocks 8, 9 and 10, which I discuss separately in relation to the issue of betterment.
[44] Not only did T & T exhibit a lack of care in actually undertaking the work, it was also negligent in its dealings with Mr and Mrs Rennell. It was obvious from
T & T’s own evidence that a major factor in the amount of stone and metal deposited
on the property was the difficulty in moving material around in winter conditions. I
have already referred to the problems that T & T had in using trucks to get material
on to the rear paddocks. Mr Smith considered that working through the winter months was a significant factor in the cost of the remedial work that was ultimately needed. He noted that T & T’s March 2005 quote was valid for acceptance for two months from 1 March 2005 which meant that T & T must have anticipated carrying out the work during the winter months. Mr Smith observed:
85. It was inevitable that working through winter would mean that the project would take longer to complete, be more difficult and cost more. Any prudent contractor would have been aware of this. Had the work been undertaken during the normal earthworks period (October to May) I estimate that the work would have taken six weeks instead of the five months T & T were on site working for. Had the project been delayed until spring 2005 there is less risk that T & T would have encountered difficult working conditions.
86. Also, had the work been undertaken in spring or summer the risk of damage to the property would have been significantly reduced. T & T’s decision to work through winter is, I believe, the fundamental reason that so much damage has been caused to parts of the Rennells’ property outside the actual works area. Trucks and machinery can easily travel across dry pasture without effect but will inevitably make a mess when ground conditions are wet.
[45] Allied to the problems caused by working through the winter months Mr Smith identified a lack of communication by T & T with the Rennells as contributing to the adverse outcome:
90. Having perused T & T’s schedules of costs and the various items of correspondence, I am surprised that T & T did not advise the Rennells that commencing the project in May was unwise and that a better quality job with less mess would be achieved if the start time was delayed until the earthworks season.
91. Furthermore, if the cost of temporary works (and removal of same) and additional machinery costs (for winter work) were not built into the original quote, then T & T should have told the Rennells this before proceeding. I have not in 30 years of experience seen a contract price increase 250% without prior warning.
92. To summarise, in my opinion, the major factors which caused or contributed to the costs blow-out by T & T were T & T’s failure to carry out
a geo-technical appraisal of the site; carrying out of the work through winter
when this was not required; poor design; and lack of communication with the Rennells over the project. In failing to take these steps T & T did not meet the standards I would expect from a reasonably prudent earthworks and drainage contractor…
[46] I note that Mr Smith predicated his evidence on the incorrect assumption that the contract was based on a quoted price when it was, in fact, agreed on a charge-up basis. However, the points that Mr Smith made regarding the decision to continue working through the winter, with the consequent extraordinary increase from the estimated cost to the actual cost, are unaffected by that mistaken assumption.
[47] Although not the focus of Mr and Mrs Rennell’s counterclaim, the issue of
T & T’s failure to discuss the risks involved in working through winter was raised on the pleadings; in the second amended statement of defence and counterclaim they alleged negligence in failing to keep them advised in relation to the progress and cost of the contract works and failing to have advised them of the increase in the cost of the works in sufficient time to allow them to stop the work.
[48] On the evidence it is obvious that T & T was a very experienced earthworks and drainage contractor. There can be no doubt that it either did or should have recognised the likely result of attempting to cart significant quantities of stone and metal across the property in poor winter conditions. Indeed Mr Michell’s evidence was that he recognised the problems and raised them with Mr Rennell. The unavoidable consequence of more difficult and time consuming working conditions is increased cost. T & T either did or should have realised that the estimated cost was going to escalate enormously. It had a duty to alert Mr and Mrs Rennell to the fact that not only was the job going to be more difficult and take longer but the cost would be very significantly greater than originally estimated.[6]
[6] J & J Abrams Limited v Ancliffe [1981] 1 NZLR 244
[49] Taking all of the circumstances into account I conclude that most of the damage to the property was caused through a lack of care by T & T in undertaking the work. T & T also exhibited a serious lack of care in failing to raise with Mr and Mrs Rennell the inevitable increase in the cost over the original estimate as a result of workng in winter conditions.
Betterment / Unnecessary work
[50] T & T argued that the property enjoyed a significant degree of betterment as
a result of the remedial work. The Judge accepted that some of the work was not required as a result of T & T’s lack of care. In his submissions Mr O’Callahan characterised this issue as betterment. The Judge made deductions in respect of work to the races between paddocks 4, 5 and 6 and in respect of paddock 8. Mr O’Callahan argued that there had been betterment to the property generally. However, it is apparent from my earlier discussion that with only three exceptions the value of the property was not enhanced through the remedial work, but merely reinstated to the appropriate standard.
[51] An issue also arises as to the correct amount of the deductions. Although, strictly, this arises in the context of Mr and Mrs Rennell’s cross-appeals, I deal with
it here for convenience. The Judge had difficulty quantifying the work that he disallowed on account of betterment. Mr Gould submitted that the Judge misunderstood the evidence and, as a result, deducted too much.
[52] In relation to the race between paddocks 4, 5 and 6 the Judge deducted a figure of $10,501 which he believed to be the quote for the work done. However, the document to which the Judge was referring was Harrison Grierson’s initial estimate of cost based on the first, more expensive option. (complete replacement of the damaged topsoil). The evidence was that Mr and Mrs Rennell elected to take the less expensive option involving the removal and screening of the topsoil and that Harrison Grierson produced a further estimate for that work which totalled $279,705 plus GST. Looking at the two estimates it is clear that the Judge has erroneously taken the figures for reduction on account of betterment from the first estimate whereas, on the evidence, the second estimate was the estimate on which the work actually done was based. Under the revised estimate the cost for reinstating the races was $9,661 and this is the figure that should have been reduced rather than the $10,501 allowed at [131] of the decision.
[53] Paddock 8 was very steep and, according to Mr Michell, was recognised by both T & T and by Mr Rennell as a suitable area for dumping debris and fill left from
work on other parts of the property. The Judge found that Mr Rennell had instructed that it was to be used for this purpose. The factors that the Judge noted in making this finding was that the paddock was the furthest from the house, that Mr Michell gave evidence of being instructed that all waste from the project was to be dumped
in that area and that he did so and that another contractor coming to the site (Hydrotech Drainage & Plumbing Limited) had also acted on the expectation that rubbish was to be dumped in that area.
[54] The Judge did not accept Mr Rennell’s claim that the paddock was intended
for use for horses immediately after exercise. The factors that the Judge took into account in reaching his decision are all logical and accord with the evidence. It was one of the few issues on which the Judge did not accept Mr Rennell’s evidence. I am not prepared to interfere with his finding. Therefore, the cost of remediating paddock 8 could not be attributable to any fault by T & T. However, the Judge reduced the damages on the counterclaim by $49,846 based on Harrison Grierson’s first estimate. The second estimate, which reflected the work actually done was $14,262. That is the amount to be deducted in respect of paddock 8.
[55] The Judge should also have considered the issue of betterment in relation to paddocks 9 and 10 which were not specifically referred to in the judgment. Mr Michell’s evidence was that the work T & T did in paddocks 9 and 10 resulted from the work undertaken in relation to the haha wall:
In excavating the haha we found backwash drainage pipes and overflows from the swimming pool. They expired in the area to be filled. Therefore, we extended them through paddock 10 to expire on to the open drain at the open road via soak holes…
When filling the base of the retaining wall on the uphill side with scoria using a digger I spilled some scoria over the retaining wall into paddocks 9 and 10. To clean this up I send a bobcat down to collect it but could not do a very good job because it was so boggy…Across paddocks 9 and 10 there were two old effluent lines from the septic tank. There were horrible smells coming up so John Rennell asked me to determine what was wrong. I dug holes to locate the line. There was slag…in the existing lines. This was dug out to inspect the lines and put back. As a result of this there was slag material left near the surface. That is not unreasonable given the boggy conditions and the fact this was being used as a thoroughfare for machinery and for fencing contractors…The existing lines were found to be full of solids and basically that effluent system was stuffed. We installed a new aerated effluent system.
I wish to note that with regards to paddocks 9 and 10 I would not be surprised if a substantial amount of metal was located in these paddocks. There were after all three 40 metre trenches in there amounting to approximately 24 metres³ of pre-existing metal/slag…
[56] T & T’s evidence about the sewage overflow and slag found in the paddocks was unchallenged. In these circumstances there is no basis on which to find that remedial work to these paddocks was necessitated by any lack of care by T & T. Harrison Grierson’s estimate for the remedial work to these paddocks totalled $11,208 and the counterclaim should be reduced by that amount.
Defences of contributory negligence and volenti
[57] T & T raised defences of volenti and contributory negligence, alleging that it had advised Mr and Mrs Rennell that it was unwise to access the property through paddock 1 during winter and that Mr and Mrs Rennell were aware of the difficulties with trucks being stuck and inevitable damage to subsoil and risk of stone contamination but nevertheless instructed T & T to continue using that access route and declined to cease work during the winter months.
[58] Mr Rennell was cross-examined on whether Mr Michell had discussed the impact of winter weather with him. It was put to him that on the day in June 2005 when two trucks became stuck in paddock 1 Mr Michell explained that wet weather meant they would either need to stop work completely or until it was dry enough to get the trucks through which would probably be the end of winter. It was also put to him that he knew then that the nature of the project had substantially changed because of the onset of winter. Mr Rennell rejected both propositions saying that Mr Michell had never suggested that T & T stop work and never suggested any change to the contract other than having to bring more metal to the property to make the access way more useable. The Judge made factual findings on these issues early in his judgment but later drew conclusions that were inconsistent. The factual findings were:
[33] …the commencement date of the work was ill-advised. It is plain that the first steps taken on site started out of season (the correct season for such earthworks beginning November to end April). That decision was the Plaintiff’s but the Defendants were apparently “delighted” by it…The Plaintiff now maintains that by commencing then it caused the blow-out of
costs – at least in part. The Plaintiff says the commencement date was driven by Mr Rennell’s sixtieth birthday (he is said to have wanted the work completed before that) – but there is simply insufficient evidence as to this.
[34] Further, as an entity with some experience in this trade the Plaintiff could and probably should have made allowances for this factor in the original estimate or subsequently. It did not do so.
[35] On the other hand, Mr Rennell was given the option when the rains commenced (if Mr Michell is to be believed) or he could have taken the option to pause the work and await more settled weather at any time during the works. He plainly did not do so and watched the trucks coming and going across his fields, spilling metal and getting stuck, as well as at one point damaging the tarsealed driveway leading to the house. He could and probably should have done something about that.
[36] Faced with this conundrum the Court really has to decide that both parties were content with the timing of this work and remained content to continue on with the work despite the winter difficulties. To place any blame on any party as against the other would be unfair.
[59] The effect of this finding is that, whether or not Mr Rennell was told that work ought to stop during winter, he should have raised the issue himself, given the obvious difficulty trucks were having with access to the property. One would expect this to result in a finding of contributory negligence by Mr and Mrs Rennell, but it did not. The Judge rejected both defences:
[123] [Contributory negligence] was an issue that arose during final submissions, which reflect the insignificant emphasis placed on the proposition during evidence. Considering that the sub-contractors were called by the Plaintiff to confirm the quality of what they did or supplied, it ill behoves the Plaintiff to now suggest that any of them was a contributory to any negligence on the part of the Plaintiff. I did not understand the submission to include the notion that the Defendant had somehow contributed to their own detriment but having considered all the evidence, I am satisfied that there is insufficient material to support this conclusion…
And in relation to the defence of volenti:
[124] …The Plaintiff was suggesting that the Defendants had accepted the risk of their property becoming stone-infested by commencing the work...
[126] At no stage did the Plaintiff explain to the Defendants the likelihood
or even possibility of stone infestation. There is no evidence to suggest the subject was even mentioned. I am not satisfied that this has been established.
[60] Mr Rennell had no experience in earthworks contracting. He was a businessman. However, it is plain that he was an experienced businessman and the
Judge was right to find that, faced with the scene of substantial quantities of stone and metal being carted across boggy paddocks in the middle of winter, it should have occurred to him to question the wisdom of continuing. In my judgment Mr and Mrs Rennell must bear some, albeit a modest, level of responsibility in failing to take any action to protect their own interests in the face of a situation that was obviously worsening as time went by. To the extent that damage was the result of continuing to work in adverse winter conditions, the responsibility lies mainly with T & T but there ought to be recognition of Mr and Mrs Rennell’s own failure to take reasonable steps to protect their interests by enquiring as to the wisdom and consequences of continuing to work in such obviously poor conditions. I fix the apportionment at 90% to T & T and 10% to Mr and Mrs Rennell.
Measure of damages
[61] Initially, the counterclaim was brought for the (then unspecified) diminution
in value of the property resulting from T & T’s work. At trial, however, the claim was for the actual cost of the remedial work. The Judge identified both possible bases for measuring damages and said:
[21] I consider the statements of principle set out in Bevan Investments Limited v Blackhall & Struthers (No 2) [1978] 2 NZLR 97 and Ruxley Electronics Limited v Forsyth [1996] AC 344 binding on me in this regard.
In short, I accept that the preferred remedy is that of remediation but that care should be taken to ensure that any award should be proportionate to the loss actually suffered.
[62] Mr O’Callahan submitted that the Judge’s reliance on Bevan Investments Limited v Blackhall & Struthers (No 2)[7] and Ruxley Electronics Limited v Forsyth[8] was incorrect and that the correct position was as stated in Taylor (Wholesale) v Hepworths.[9] In particular, Mr O’Callahan pointed out that neither Bevan nor Ruxley involved damage to land but, rather, defective building work. Relying on the
[7] Bevan Investments Ltd v Blackhall & Struthers (No 2) [1978] 2 NZLR 97
[8] Ruxley Electronics Ltd v Forsyth[1996] AC 344
[9] [1977] 1 WLR 659 at 666B-667F
decision in Taylor( Wholesale) v Hepworths[10] and statements from the 13th edition of
[10] Taylor (Wholesale) v Hepworths [1977] 1 WLR 659
McGregor on Damages[11] cited by May J in that case Mr O’Callahan submitted that
[11] McGregor on Damages, (13th ed, 1972)
the primary (and in this case correct) measure of damages was diminution in value.
[63] I do not see significant differences between the statements of principle in
Taylor as opposed to Ruxley (in which Taylor was cited). The basic principles can
be stated simply. If a person suffers damage to property through a tort or breach of contract he is entitled to be put in the same position as he would have been had the tort or breach of contract not occurred, so far as that is possible. However, any damages awarded must be reasonable as between plaintiff and defendant. If the cost of reinstatement would be out of proportion to the benefit then a court will assess damages based on diminution in value. If, however, it is reasonable to reinstate the property then the plaintiff will be entitled to that cost.
[64] However, I agree that the Judge wrongly rejected diminution of value as a possibility without considering the valuation evidence:
[32] …The alternative method of assessing quantum in relation to the Counter Claim, namely the diminution of value is a matter I need not concern myself with. I will deal with quantum on the basis of the remediation done and whether such was required and if so, whether it was reasonable in the circumstances – as per the authorities mentioned above.
[65] This approach is incorrect because the question of whether diminution of value was the correct measure of damages turns on whether reinstatement was reasonable. So diminution in value could not be eliminated as a possible measure until the issue of whether reinstatement was reasonable had been resolved. It was apparent from the rest of the judgment that the question whether reinstatement was reasonable was not adequately considered.
[66] Mr O’Callahan asserted that the evidence showed that there was no diminution in value of the property as a result of the presence of stones throughout the paddocks. Having reviewed the evidence I do not think that that conclusion is justified. There was valuation evidence from two valuers, Mr Darroch, for Mr and Mrs Rennell, and Mr Irwin, for T & T. In addition, a valuation obtained by Mr and Mrs Rennell from Property Valuations Limited in March 2007 was in
evidence. Although the Judge expressed views about Mr Darroch and Mr Irwin as witnesses, he did not analyse their valuation evidence.
[67] Mr Darroch had an advantage over Mr Irwin in that he had been able to physically inspect the property. He had walked over it in late 2007 and observed the affected areas. He considered that diminution in value based on sales evidence would be difficult to prove. However, he considered that the concentration of stones and loss of topsoil made the property unsuitable for agisting valuable horses. Although that was not the only potential use for the property, it was the purpose for which the property had been developed. In those circumstances, he considered that the proper approach was to make an allowance for the cost of remedial work and treat that as the diminution in value. Of Mr Darroch, the Judge said that:
I found him to be plainly sensible and believable…He expressed the view that the re-contouring of the property which has occurred due to the remediation work was not significant in his view. He also commented on the fact that the stones he had seen on the property made it unsuitable for agisting horses. I accepted both those views, bearing in mind he had cast his experienced eyes over the property before and after.
[68] Mr Irwin pointed out, correctly, that the cost of improvements may be a useful tool to indicate value but was not definitive in terms of assessing value. However, Mr Irwin did not have the benefit of having inspected the property. His conclusion that there was no diminution in value turned mainly on the fact that in March 2007 the property was valued at $3.8m and in June 2008 it was sold for $3.8m and the valuation did not identify any issues with stones. Of Mr Irwin the Judge said:
To me, he made more sense than Mr Darroch (in fact he undermines him) regarding the theory of diminished value in that he said that there was no such diminution in this case. I noted that he was not permitted to visit the site but that was not his fault. He considered it hard to conceive of a former farm absolutely free of stones – due to races, stones in gateways and around drinking troughs. However, as he did not enter the property he was not in a position to comment with actual knowledge. As I did not need to address the diminution of value his evidence was of limited value to me.
[69] However, I consider that Mr Irwin’s evidence did not take account of the following facts. First, in relation to the valuation obtained in March 2007, there is
no indication as to the extent of the valuer’s inspection of the paddocks and whether
he was aware of the level of stone contamination. The description of the land (as opposed to the improvements) is very general and there is a reservation to the effect that:
Substances such as asbestos, other chemicals, toxic wastes or other potentially hazardous materials could, if present, adversely affect the value
of the property. The stated estimate is on the assumption that there is no
material on or in the property that would cause loss in value. No responsibility is assumed for any such conditions and the recipient of this report is advised that the Valuer is not qualified to detect such substances, quantify the impact on values or estimate the remedial cost.
[70] Secondly, Mr Irwin’s evidence did not consider the possibility that the property was unsuitable for agisting horses (which was the effect of evidence from Mr Ewen which the Judge accepted). Whether there was any diminution in value turns very much on whether the property was suitable for agisting for horses notwithstanding the stones. If the presence of stones made little difference to the use of the property for equestrian purposes then one would conclude that there had been no diminution in value. If it did make a difference then reinstating the property would more readily be viewed as reasonable because that cost would approximate the diminution in value.
[71] Mr O’Callahan submitted that the property was suitable for other than equestrian uses. As a result, it was unnecessary (and unreasonable) to embark on the level of remedial work that was undertaken. In this regard he also points to the fact that Mr and Mrs Rennell had decided to sell before they undertook the remedial work; the evidence showed that the remedial work to remove stones from the fields which comprised most of the cost, was not undertaken until late November 2007- early 2008. Mr Rennell gave evidence about the stress to he and his wife caused by the situation, with the effect that they did not wish to remain on the property. In March 2008 they put the property on the market and it sold in June 2008. It is apparent from the sequence of events that the remedial work was undertaken at a time when the Rennells anticipated selling the property.
[72] Although it was implicit in the valuation evidence that a purchaser need not purchase the property for equestrian use for the reasons already discussed, it seems highly likely that any purchaser of this property would buy it with that use in mind.
This was the effect of Mr Darroch’s evidence. Further, it is apparent from the March
2007 valuation that many of the comparable properties considered by the valuer had
no equestrian aspect and were valued at less than the Rennell property. The valuation indicated that the barn/stable complex, arena and fencing comprised about
10 percent of the value of the improvements on the property. Therefore, purchasers wishing to buy in this area for general use had plenty to choose from at a generally lower price than properties offering equestrian facilities. The result is that, although, theoretically, this property could be used for general purposes, a purchaser looking to obtain value from it would, more likely than not, buy it for its equestrian facilities.
[73] Both parties called evidence from veterinarians regarding the extent to which the presence of stones was acceptable at an equine facility. Mr and Mrs Rennell called Mr Ewen, an equine veterinarian for over 35 years who practices in South Auckland. He considered that the presence of stones creates unnecessary risks to horses in the form of sole bruises and resultant abscesses. In his experience most lameness in horses is caused by sole bruises and abscesses. The Judge found him to be a “good, safe, reliable witness”.
[74] T & T called Mr Cottle who has been involved in equestrian sport in various capacities for over 30 years. In addition, Mr Cottle has had many years experience
as an earth works contractor. Amongst his current business interests is the supply of
a European arena surface product to the New Zealand market and he has advised on the construction of horse arenas in South Auckland. Mr Cottle confirmed that horses can suffer bruising and other injuries if hooves come into contact with sharp objects. But he considered that stones of less than 20 millimetres did not pose any risk. He confirmed that sharp stones rather than rounded stones are more likely to cause damage. However, he placed some significance on the way stone is managed on a property. He also considered that it is to be expected that some stone would be present after the completion of work of the kind T & T had undertaken and that that is a risk the owner bears. He considered that an earthworks contractor can take as much care as they reasonably can but some stone will nevertheless remain.
[75] Mr Cottle’s evidence regarding the danger to horses from stones was not really inconsistent with that of Mr Ewen; while it is to be expected that there may be
some level of stones as Mr Ewen suggests around troughs and gateways, Mr Cottle’s evidence generally supported the conclusion that sharp stones in paddocks in any significant number will be a problem. Although neither witness specifically said so, one could not reasonably expect every last stone to be removed. However, the evidence overall certainly supported the conclusion that stones in any significant number will pose a risk to horses.
[76] I conclude that, given the specialist nature of the development the March
2007 valuation assumed that the property was suitable for that use. Further in order
to secure a price, at or near the March 2007 valuation, the property would need to have been in a condition that was suitable for agisting horses. The level of stone contamination precluded this. Although horses had been kept on the property between 2006 and 2008 the evidence supported Mr Rennell’s contention that a full- scale agistment operation for valuable horses was not possible. As a result, the decision to reinstate was reasonable.
Cross-appeal by Mr and Mrs Rennell on counterclaim
Personal liability of Mr Michell
[77] Mr and Mrs Rennell brought their counterclaim against both T & T and Mr Michell. The duties alleged to have been owed by Mr Michell personally can be summarised as follows:
a) Duties to exercise skill, care and judgment in providing the original quote including providing reliable information about the cost of the contract works.
b)Instructing and supervising the subcontractors, ensuring that materials were fit for their purpose and ensuring that any parts of the property not intended to be modified were not modified or damaged and if they were then ensuring that they were restored to their equivalent condition.
[78] The Judge disposed of the claim against Mr Michell at an early stage in the judgment on the ground that he had not assumed any personal duty of care towards Mr and Mrs Rennell:
[28] …The plaintiff is a limited liability company. In my view, all negotiation, discussion and work undertaken was done by, in the name of, and for the company. Mr Michell did some of that but by no means all – in fact the Defendants assert very little was actually done by Mr Michell and there is support for that suggestion.
[29] In my view, the proposition advanced by the Defendants regarding Mr Michell’s personal liability does not take into account that sole Director companies abound, and that sole Directors are in a different position to Directors of larger entities. I respectfully agree with the statements in Trevor Ivory Limited v Anderson [1992] 2 NZLR 517 and Body Corporate 202254 v Taylor CA205/06 20 November 2007, 22 August 2008. Only if Mr Michell takes over responsibility as an individual can a finding be made on this ground against him personally. I note that during his evidence Mr Rennell stated that he regarded Mr Michell as T & T and vice versa – he was unable to differentiate between the two.
[30] I assess that what Mr Michell did was done in his capacity as a director of the Plaintiff. I have decided that he did not assume a personal duty of care. There is therefore no basis for a personal action against the Second Counterclaim Defendant. He is entitled to his corporate shield; Saloman v Saloman & Co Limited [1897] AC 22.
[79] For Mr and Mrs Rennell, Mr Gould submitted that the Judge misdirected himself as to the law in asserting that sole directors are in a different position from directors of larger entities. He also submitted that the evidence showed a level of involvement by Mr Michell that warranted a finding of personal liability.
[80] The basis for personal liability of a company director for negligence was clearly described in Morton v Douglas Homes Limited where Hardie-Boys J considered a claim against company directors for damage caused through the negligent construction of a building. He considered that a director is personally liable
for his own torts and that any duty of care owed by him personally would arise by reason of proximity between him and the plaintiff, not by reason of his status as director:[12]
[12] [1984] 2 NZLR 548 at 593-594
The principle of limited liability protects shareholders and not directors, and
a director is as responsible for his own torts as any other servant or agent
(see for example Yullie v B & B Fisheries (Leigh) Limited [1958] 2 Lloyd’s
Rep 596, 619). His liability to the person injured is personal, and unaffected by any right of indemnity he may have against the company. Nonetheless, the separate corporate identity of the company must not be lost sight of, for the directors are not personally liable for the company’s torts, except in the limited type of case discussed by Lord Buckmaster in Rainham Chemical Works Limited v Belvedere Fish Guano Co [1921] 2 AC 465, 476, namely where the company’s wrongful acts were expressly directed by them. Apart from this kind of situation, whilst a director may be liable in negligence to a person with whom the company is dealing, it will only be where he personally, as distinct from the company, owed a duty of care, and failed to observe it. His liability then arises not by reason of his office of director but by reason of a relationship of proximity or neighbourhood existing between him and the plaintiff. It may well be that because he is a director that the relationship arises, but the fact that he is a director does not of itself create the relationship…
[81] Hardie-Boys J then went on to consider the decision Callaghan v Robert Ronayne Limited[13] in which Speight J referred to the concept of control in establishing negligence by a director that would give rise to personal liability:
[13] Auckland A1112/76 17 September 1979
To establish personal liability proof is required that the directors were the actual tortfeasors, in which case their status as directors is irrelevant. It is their personal liability. In the present case it will be noted that most if not all of the particulars of negligence and breach of statutory duty alleged are allegations of matters of default, that is to say failure rather than commission of tortious acts. There has been no proof here of any individual acts of neglect. The defective work was in all cases done by workmen or subcontractors employed by the company. Had there been evidence of personal control and instruction by one or more of the individual second defendants then in respect of such failure by him in the role of controller which might be proved which had led to defects then liability might have been established but there were four of these people and the evidence showed little more than that individual ones of them were present at the scene from time to time. There was little specific evidence of individual participation by them or any of them and to the extent that there is any suggestion that directors were sometimes on the scene there is no distinguishing evidence as to who did what and I cannot see that this claim can succeed.
[82] Drawing on Speight J’s concept of control, Hardie-Boys J proceeded to summarise that:
The relevance of the degree of control which a director has over the operations of the company is that it provides a test of whether or not his personal carelessness may be likely to cause damage to a third party, so that he becomes subject to a duty of care. It is not the fact that he is a director that creates the control but rather that the fact of control, however derived, may create the duty. There is therefore no essential difference in this respect between a director and a general manager or indeed a more humble
employee of the company. Each is under a duty of care both to those with whom he deals on the company’s behalf and to those with whom the company deals insofar as that dealing is subject to his control.
[83] Confusion arose subsequently, however, as a result of statements in Trevor Ivory Limited v Anderson which also concerned the basis for personal liability of directors, but in the context of a negligent misstatement claim.[14] In Trevor Ivory Hardie-Boys J said that clear evidence was needed to displace the “basic premise” that the effect of incorporation is that the acts of a director are usually identified with the company and do not give rise to personal liability but that there are circumstances in which a director may be liable personally for acts for which the company is also liable:[15]
[14] [1992] 2 NZLR 517 (CA)
[15] At 527
An agent is in general personally liable for his own tortious acts: Bowstead
on Agency (15th ed 1985) at p490. But one cannot from that conclude that whenever a company’s liability in tort arises through the act or omission of a director, he, because he must be either an agent or an employee, will be primarily liable, and the company liable only vicariously. In the area of negligence, what must always first be determined is the existence of a duty of care… In the policy area, I find no difficulty in the imposition of personal liability on a director in appropriate circumstances.
To make a director liable for his personal negligence does not in my opinion run counter to the purposes and effect of incorporation. Those purposes relevantly include protection of shareholders from the company’s liabilities, but that affords no reason to protect directors from the consequences of their own acts and omissions. What does run counter to the purposes and effect of incorporation is a failure to recognise the two capacities in which directors may act; that in appropriate circumstances they are to be identified with the company itself, so that their acts are in truth the company’s acts. Indeed, I consider that the nature of corporate personality requires that this identification normally be the basic premise and that clear evidence be needed to displace it with a finding that a director is acting not as the company but as the company’s agent or servant in a way that renders him personally liable.
Essentially I think the test is, or at least includes, whether there has been an assumption of responsibility, actual or imputed. That is an appropriate test for the personal liability of both a director and an employee…
[84] On the question of what might amount to an assumption of responsibility
McGechan J said at 532:
When it comes to assumption of responsibility, I do not accept a company director of a one-man company is to be regarded as automatically accepting
tort responsibility for advice given on behalf of the company by himself. There may be situations where such liability tends to arise, particularly perhaps where the director as a person is highly prominent and his company is barely visible, resulting in a focus predominantly on the man himself. All will depend upon the facts of individual cases and the degree of implicit assumption of responsibility, with no doubt some policy elements also
applying. I do not think this is such a case…There was no representation, express or implicit of personal involvement, as distinct from routine involvement for and through his company. There was no single feature which would justify a belief that Mr Ivory was accepting a personal commitment as opposed to the known company obligation.
[85] Morton was specifically discussed in Trevor Ivory with the confusing indication that it was to be regarded as an example of liability resulting from the assumption of responsibility. Cooke P said:[16]
[16] At [523]
So far as there were findings in [Morton] of personal liability on the part of directors, I am content to accept that on the particular facts there was an assumption of responsibility. Clearly the judgment was not intended to lay down a general rule in building negligence cases; and it would be unsafe to try and argue from one particular set of facts to another.
[86] And at page 527 McGechan J observed:
Assumption of responsibility may well arise or be imputed where the director or employee exercises particular control or control over a particular operation or activity…This is perhaps more likely to arise within a large company where there are clear allocations of responsibility, than in a small one. It arose however in the case of a small company in Morton v Douglas Homes Limited [1984] 2 NZLR 548, 593FF…
[87] Finding a consistent, principled approach that reconciles Trevor Ivory and Morton has proved difficult. However, the judgment of William Young P and Arnold J in Body Corporate 202254 v City Rental Trustees Ltd & Ors[17] provides a comprehensive discussion about the reasoning in Trevor Ivory in which the Judges conclude that an “elements of the tort” approach is to be preferred and make it clear that Trevor Ivory does not apply to cases in which assumption of responsibility is not an element of the tort:
[17] [2008] NZCA 317
[33] … The “elements of the tort” approach… was the rationale primarily adopted by McGechan J in Trevor Ivory and treated by Lord Steyn in Williams as the ratio of the case, see 836.[18] In a situation where assumption of responsibility is an element of tortious liability, an employee who is
[18] Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL)
acting on behalf of a principal can only be liable if there is a personal assumption of responsibility by that employee. Further, picking up points already made, to preserve the existing framework of the law of contracts and the idea that a corporation has a legal identity which is separate from those of the individuals involved in it, considerable caution is required before concluding that an employee has assumed responsibility.
[34] To put all of this into context, three further points need to be made:
(a)So restrictive an approach to employee responsibility is not taken in other cases which involve the provision of services of a professional or skilled kind, for instance social services provided by education authorities…
(b) The Trevor Ivory and Williams decisions have no application
at all to cases in which assumption of responsibility is not an element of the tort…
(c) Damage to property typically involves liability which is independent of any assumption of responsibility (beyond what is implicitly accepted by anyone who carried out a potentially dangerous activity). So if Mr Ivory had himself sprayed the Andersons’ plants, he would probably have been personally liable. He could certainly have been liable if, in the course of spraying the Andersons’ plants he had damaged a neighbour’s plants. The hesitation we have as to the first of the examples just given illustrates the distinction between “purely” economic loss associated with bargain disappointment and property damage is not always clear…
[88] In a separate judgment Chambers J directed his attention to the basis for a director’s liability for negligent acts or omissions as opposed to negligent misstatements. Deliberately leaving aside the problems that Trevor Ivory presents, the Judge effectively applied the same “elements of the tort” approach to negligent acts and omissions:
[125] The law in New Zealand is clear that if a builder carelessly constructs a residential building and thereby causes damage, the owners of the residential building can sue the builder in negligence… ...That is really the long and the short of it. If Mr Taylor was self-employed, no-one would have a moment’s doubt about the propriety of the appellants making the above allegations against him. It should make no difference whether or not he was employed at the time he allegedly did these careless things. But the only relevance of his being employed is that his employer or employees may be vicariously liable for his tort committed in the course of employment: Isaac and Todd “Directors’ Torts” in Rowe and Hawes (eds) Commercial Law Essays: A New Zealand Collection (2003) 39 at 50 and the cases there cited. He and the employer would be joint tortfeasors.
[126] All of this was stated with admirable clarity by Hardie-Boys J in
Morton v Douglas Homes Ltd [1984] 2 NZLR 548 (HC). Hardie-Boys J
made it clear that, if the company directors had personal control over the building operation, they could be personally liable…
[128] In short, there is nothing in principle preventing a builder owing a duty of care to subsequent owners of the building. Of course, in the present case, Mr Taylor did not “build” the villas on his own. Others will have helped. That will not prevent Mr Taylor being liable in negligence. It is enough that his conduct “is a contributory cause; [it does not need to be] in some sense a main or primary cause”: see Todd (gen ed) The Law of Torts in New Zealand (4 ed 2005) at [21.2.02].
[89] Later in his judgment Chambers J highlighted the difference between negligent misstatement cases and cases based on negligent acts or omissions:
[144] I should also mention Williams v Natural Life Health Foods Ltd
[1998] 1 WLR 830 (HL), a decision to which the President refers at length.
It, like Trevor Ivory, was a negligent misstatement case, not a case of pure negligence such as is pleaded here. Negligent misstatement has always been
subject to special rules. The reasons for this are set out by Todd at [5.8.02].
In order to contain liability for negligent misstatements the Courts have used various devices not necessary in conventional negligence cases. Sometimes the courts have referred to the need for the plaintiff to show that the defendant assumed responsibility for what he or she said. At other times, the courts have referred to the need for there to exist a “special relationship” between the parties: see Todd at [5.8.04] – [5.8.05]. In Williams the House of Lords took the view that directors, employees and agents acting on behalf of a company were under no duty to take care in making statements to company clients unless they had assumed responsibility for their words. That is not relevant, however, to the present case, as a builder’s liability in negligence does not turn on assumption of responsibility. Rather, the builder is liable, as Todd states, “on ordinary principles of negligence for physical damage to property caused by faulty work of construction”: at 6.4. This
appears to be a difference between the majority and me.
[90] The approach Chambers J describes to the imposition of personal liability for negligent acts or omissions is consistent with the House of Lords decision in Standard Chartered Bank v Pakistan National Shipping Corporation & Ors[19]. In that case, the director of a company who had made a false statement argued that he should not be personally liable because his statement was made on behalf of the company and not personally. The House of Lords rejected that argument, finding that a director was personally liable because he had committed a fraud. Lord Hoffman said:
[19] [2003] 1 AC 959
Mr Mehra made a fraudulent misrepresentation intending SCB to rely upon
it and SCB did rely upon it. The fact that by virtue of the law of agency this representation and the knowledge with which he made it would also be
attributed to Oak Prime would be of interest in an action against Oak Prime. But that cannot detract from the fact that they were his representation and his knowledge. He was the only human being involved in making the representation to SCB (apart from administrative assistance like someone to type the letter and carry the papers around to the bank). It is true that SCB relied on Mr Mehra’s representation being attributable to Oak Prime because it was the beneficiary under the credit. But they also relied upon it being Mr Mehra’s representation, because otherwise there could have been no representation and not attribution…
No-one can escape liability for his fraud by saying “I wish to make it clear that I’m committing this fraud on behalf of someone else and I am not to be personally liable”. Evans LJ [2000] 1 Lloyds Rep 218, 230 framed the question as being “whether the director may be held liable for the company’s tort”. But Mr Mehra was not being sued for the company’s tort. He was being sued for his own tort and all the elements of that tort were proved.
[91] With the benefit of the judgments in Taylor to which I have referred I proceed on the basis that, in relation to the allegations of negligent misstatement against Mr Michell relating to the estimate, Mr and Mrs Rennell must prove that Mr Michell personally assumed responsibility for the negligent statements. The essence of the complaint regarding the estimate is that T & T provided an estimate that was completely unrealistic and that Mr and Mrs Rennell should have been warned was liable to increase dramatically as a result of having to work through winter.
[92] This case has similarities with the circumstances of J & J C Abrams Ltd v
Ancliffe, to which I have already referred in the discussion regarding negligence by T
& T.[20] In that case the Court of Appeal accepted that a building company owed its client a duty of care in advising on the estimated cost of building. Finding that the relationship between the building company and the client was distinguished by the special characteristics of trust and confidence reposed in the former to advise on the cost of building, the Court found that the building company should be liable for the negligent failure to advise that the price would greatly exceed the estimate given. However, there was no attempt to impose personal liability on the director of the building company and no discussion of whether the director’s acts would have resulted in personal liability.
[20] Supra at fn 6
[93] The evidence in this case was clear that Mr Michell was negotiating on behalf
of T & T. There was nothing to indicate that he intended to go further and assume personal responsibility for any shortcomings in the estimated price. I therefore find that Mr Michell is not personally liable for the inaccurate estimate.
[94] As to the allegations relating to undertaking the works and supervising subcontractors, Mr and Mrs Rennell would have to prove that Mr Michell owed them a duty of care as a result of the nature and extent of the work he did and that his conduct caused or contributed to the loss. It is true that Mr Michell selected the sub- contractors and directed where materials were to go and in what order works were to be undertaken. However, these were the kinds of functions one would expect the director of a construction and earthworks company to make and did not directly result in any defective work. On the evidence, the damage was mostly caused by the lack of care in actually transporting the loads of metal across the property. Although Mr Michell did attend on the site sometimes and did undertake some of the work himself he was not on site consistently and staff or subcontractors undertook much of the work that was shown to be defective. To the extent that Mr Michell did undertake work himself the evidence is insufficient to show that such work actually caused or contributed to the damage complained of.
[95] I find that Mr Michell was not personally liable for any of the losses sustained.
Interest on counterclaim
[96] The Judge awarded interest to Mr and Mrs Rennell on their counterclaim from 12 July 2008. This date was selected by the Judge as being the date of the final payment certificate given by Harrison Grierson and recognising that some payments were made before that date and some afterwards. Mr Gould submitted that interest should have been awarded from the date the cause of action accrued which, at the latest, would have been 29 October 2005 being the date on which T & T issued a stop-work order. There is no invariable rule as to when interest should run from. Where, as in this case, the interest represents the loss of use on the money paid over
a period of time it is acceptable to find a date that strikes a fair mid-point in the time
line. The alternative is that parties embark on a minute calculation of interest on a month-by-month basis. So the general approach that the Judge took was acceptable.
Costs
[97] Although both parties succeeded to some extent in the District Court, the amount for which Mr and Mrs Rennell obtained judgment was more than twice that
of the judgment obtained by T & T. Further, most of the evidence at trial was directed towards Mr and Mrs Rennells’ counterclaim. In the normal course, one would expect costs to follow the event in respect of both claim and counterclaim with the result that Mr and Mrs Rennell would obtain a net costs judgment. However, the Judge declined to make any costs award:
[138] Although the Plaintiff has largely succeeded in its Claim, so have the Defendants. If costs are appropriate, I would set them at scale 2B. The attempt to undermine the veracity of Mr Rennell on the basis of propensity was in my estimation ill-conceived and wholly unsupported by the evidence. That factor caused me to reflect long and hard in relation to costs. In the end I have concluded that it is fair that each party bears its own costs.
[98] Mr and Mrs Rennell have challenged the decision not to award costs. Mr Gould submitted that there was no proper reasoning for the decision not to award costs, the general principle that a party who succeeds ought to obtain costs should apply and, further, that there was a particular reason for awarding costs in this case namely the cross-examination of Mr Rennell which the Judge himself described as ill-conceived and unsupported by evidence. Mr O’Callahan simply submitted that as both parties succeeded in part the Judge’s decision was an acceptable exercise of his discretion. T & T did not appeal the costs decision.
[99] Although r 46 High Court Rules confers a discretion to award costs, in most cases costs ought to be awarded in accordance with the principles identified at r 47. Rule 46 is not to be regarded as a general discretion allowing a Judge to do what he
or she thinks is fair in the circumstances unless the proposed course accords with the principles and purposes of the costs rules.[21] Rule 47(a) provides that the party who
[21] Glaister v Amalgamated Dairies Limited [2004] 2 NZLR 606 (CA) at [22], [24] and [28]
fails should pay costs to the party who succeeds.
[100] This was a trial of some complexity which ran for nearly three weeks in the District Court. The factual evidence was hotly disputed. Extensive expert evidence was adduced and a number of legal issues required argument and determination. As I have noted, the burden of most of the evidence and argument fell upon Mr and Mrs Rennell in support of their counterclaim. The District Court Judge had no criticism for the manner in which their case was conducted. In this regard I note the Judge’s criticism of the cross-examination by T & T’s counsel of Mr Rennell which, having reviewed the notes of evidence, I agree with.
[101] I consider that the Judge did make an error in departing from the principle in
r 47(a) and that there was no principled basis on which to decline Mr and Mrs Rennell costs; costs on a 2B basis would have been appropriate.
Appeal by Mr and Mrs Rennell on T & T’s claim
Valueless work
[102] Most of T & T’s claim related to its sub-contractor’s costs which included the earthworks found to have been undertaken negligently. The Judge reduced the claim
of $85,230.89 to $69,677.92 but allowed the balance sought on the ground that the work had been done and T & T had paid the subcontractors. Mr and Mrs Rennell appealed this finding.
[103] The basis for the appeal is that the claim related to the very work that the Judge had found to have been carried out negligently and in breach of the contract. However, issues over the quality of the work and loss resulting from the negligence were resolved through the counterclaim. If Mr and Mrs Rennell were relieved of the obligation to pay invoices for the work done they would, as a result of the recovery on the counterclaim, have effectively obtained the work at no cost. I consider that the Judge was correct to allow recovery in the sum that he did.
[104] I have concerns, however, over the Judge’s treatment of interest on this part
of T & T’s claim. T & T had claimed interest at varying rates on the basis that it had borrowed the money to pay the subcontractors and secured the borrowing against Mr Michell’s family home. Despite unsatisfactory aspects of the evidence the Judge
allowed the interest claim and Mr and Mrs Rennell did not appeal that finding. The
Judge’s calculation of the amount recovered by T & T included interest of
$20,671.60, being the full amount of interest claimed on T & T’s original claim. The calculation should have reflected interest only on the lower amount actually recovered. I will leave it to the parties to re-calculate that amount, since I do not have sufficient information regarding the rates to do so myself.
Result
[105] T & T has succeeded to a limited extent on its appeal against the decision on the Rennell’s counterclaim in that:
a) The amount recovered on the counterclaim is to be reduced for work that was part of the contract but which T&T failed to do and did not charge for. Counsel are to confer to identify the amount of such work;
b)A reduction of $9,661 should have been made for betterment in respect of the races and $11,208 in respect of paddocks 9 and 10;
c) Mr and Mrs Rennell should bear some responsibility for failing to take any steps to question the consequences of working through winter. The counterclaim should be further reduced by 10% to reflect that.
[106] Mr and Mrs Rennell also succeed to a limited extent on the cross-appeal in respect of the counterclaim in that:
a) The deduction for betterment in respect of paddock 8 should only have been $14,262;
b) They should have been awarded costs on the counterclaim.
[107] Mr and Mrs Rennell’s appeal in respect of T & T’s claim succeeds to a limited extent in that the interest allowed was not calculated on the actual amount recovered.
[108] My inclination is to let costs lie where they fall, given that both parties succeeded to a limited extent. However, if either party wishes to apply they may file memoranda.
[109] I invite counsel to confer as to the effect of these findings and submit calculations on which I can make final orders. Memoranda in respect of both the calculation as to the effect of my findings and costs (if necessary) may be filed by T & T and Mr and Mrs Rennell respectively within 21 and 28 days with any replies within a further 7 days.
P Courtney J
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