White v Zadeh
[2020] NZHC 3221
•8 December 2020
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2019-442-34
[2020] NZHC 3221
IN THE MATTER OF a property (residential dwelling) situated at 28 Blair Terrace, Richmond BETWEEN
GLENDA LEIGH JOURDAIN WHITE
Plaintiff
AND
FIROOZ EFTEKHAR ZADEH and
BERNADETTE MICHELLE ZADEH
Defendants
Hearing: 27-30 October 2020 Counsel:
J C Ironside for plaintiff G J Praat for defendants
Judgment:
8 December 2020
RESERVED JUDGMENT OF DOBSON J
Contents
Introduction [1]
The background [3]
The evidence [39]
Contested factual matters [46]
Ms White’s first inspection, 7 December 2016 [46]
The second inspection, 8 December 2016 [68]
Legal effect of the representation [95]
Inducement to purchase? [106]
Reasonable reliance? [109]
Damages – cost of cure [112]
Damages – general damages [129]Costs [133]
WHITE v ZADEH [2020] NZHC 3221 [8 December 2020]
Introduction
[1] This case is yet another sad tale involving an attempt to resolve the consequences of a residential property that has developed weathertightness issues. Not unusually, it is a case in which damages sought on a “cost of cure” basis exceed the plaintiff’s original purchase price.
[2] As is generally the case where a claim is brought in reliance on an alleged representation by the vendor that the property was not a leaky home, the critical factual issue is determining the precise terms and meaning of the disputed representation.
The background
[3] There are a number of differences between the recollection of the plaintiff (Ms White) and the defendants (the Zadehs) as to the lead-up to the agreement (including, importantly, Ms White’s inspections of the property prior to purchase), the agreement itself and actions post-agreement. I will briefly summarise the background to the case, and then consider the contested facts.
[4] Ms White purchased the property from the Zadehs in December 2016. The property is situated in Richmond near Nelson. It was constructed in 1993 using monolithic cladding permitted pursuant to the relevant building standards. In 2002 and 2003, the then owners (the Kokcus) discovered weathertightness issues and achieved a mediated solution with the builder for remedial works to be undertaken. The local territorial authority, Tasman District Council (TDC) appears to have had some involvement in the settlement, and approved the extent of remedial work undertaken.
[5] The Zadehs purchased the property in 2012, having had what they considered was full disclosure from the Kokcus about the previous weathertightness problems. The Zadehs bought in the belief that the problems had been completely resolved.
[6] The Zadehs did not reside in the property. They rented it to a person who turned out to be a member of the Nomads gang, justifiably described as “the tenant from hell”. Apart from failing to pay rent, the tenant became seriously abusive and
threatening towards the Zadehs when they attempted to re-take possession. They complained that the letting agent who had arranged the tenancy and assured them of the good character of the tenant was “useless”, and the Police were limited in what they could do to protect the Zadehs.
[7] Eventually the Police served an eviction notice. Whilst still in the property, the tenant produced a sign which he displayed prominently on the side of the house facing the road frontage stating “LEAKY HOME FOR SALE AVAILABLE AUGUST”.
[8] The Zadehs had been unable to conduct inspections of the property during the tenant’s occupancy. Very shortly after he had been evicted they went to the property with a real estate agent, intending to have the property assessed as part of instructing the agent to market the property for sale on their behalf. On entering the property, the agent was immediately concerned that methamphetamine had been consumed there, and advised the Zadehs they should not further inspect the property or put it on the market until it had been assessed for methamphetamine contamination.
[9] The Zadehs followed that advice. It transpired that some rooms in the house were very heavily contaminated consistent with the manufacture of methamphetamine, and other rooms were contaminated to lesser extents. On advice, the Zadehs had extensive decontamination work undertaken, which involved replacing floor coverings and curtains, washing all the internal surfaces, and replacing appliances. It transpired that the tenant had, deliberately or otherwise, slashed outlets serving a washing machine and a dishwasher, causing flooding in the laundry and kitchen areas of the house.
[10] The Zadehs retained Mr Alan Snowden of Betta Inspect It, a Nelson building inspection firm, to provide a report on the state of the house. Mr Snowden undertook a number of tests for methamphetamine residue and produced separate reports after various cleaning steps were undertaken. The Zadehs discovered that the drains had been blocked. They deduced that had been done deliberately by the tenant to prevent detection of drugs in the waste water flowing from the property. Unblocking the drains alone cost $8,000 and the rest of the repairs cost the Zadehs approximately $65,000.
[11] Once the remedial works recommended by Mr Snowden were substantially done, the Zadehs retained a real estate agent to market the property. However, they were not satisfied with the amount of interest generated by the real estate agent and Mr Zadeh then decided that he would attempt a private sale by advertising the property on TradeMe Property.
[12] Ms White saw the property advertised on TradeMe and made contact with the Zadehs on 7 December 2016. On her version of the dealings between them (material aspects of which are contradicted by the Zadehs), Ms White arranged to visit the property that same day, and went there with her then 19 year old son, Niko, for a half hour viewing at 7.30 pm. The Zadehs recall her inspecting the property on that first occasion on her own.
[13] Ms White’s and Niko’s evidence is that they liked the property. They were shown all around the house mostly by Mr Zadeh, who told them about the extent of remedial work they had done to repair damage caused by the tenant. Ms White recalls Mr Zadeh saying that the tenant had gang affiliations and had shown them a photo of the tenant outside the house wearing gang patches. She recalled Mr Zadeh saying that he was taking the tenant to the “Small Claims Court” because he owed thousands of dollars in rent, that the tenant had used P in the house, and that to comply with the recommendations in Mr Snowden’s report they had replaced the heat pump, dishwasher, carpets and curtains throughout the house. Mr Zadeh also disclosed that the dishwasher and washing machine had leaked over the kitchen and laundry floors, creating damage that had been repaired.
[14] Ms White recalls Mr Zadeh also telling them about the tenant hanging a banner from the deck on the front of the house, stating that it was a leaky home. After referring to that, her evidence was that Mr Zadeh said that the house was not a leaky home and that the tenant was telling lies about that as he had deliberately wanted to harm the Zadehs’ interests.
[15] Mr Zadeh also volunteered that he had a report from Mr Snowden on the state of the house and that any problems identified in that report had been or were being fixed. Ms White recalls being shown certain sections of the report with Mr Zadeh’s
handwritten comments endorsed at various points about the repairs that had been done or were being arranged. The report was a bulky document and Ms White’s recollection is that Mr Zadeh kept control of it, showing her parts that, on her impression, he considered were relevant. She said Mr Zadeh would not let them take the builder’s report away as he only had one copy and other people interested in the house would also want to see it.
[16] Mr Zadeh also showed Ms White a separate report from Mr Snowden confirming that the levels of methamphetamine residue had been reduced to acceptable levels.
[17] Mr Zadeh told Ms White that the house had been listed with an agent for some two months but the agent had not been proactive enough, and that now he was marketing it himself there was substantial interest and, if she wanted to buy, she would have to act fast.
[18] At the time, Ms White worked at the Nelson Marlborough Institute of Technology (NMIT). A work colleague, Mr Huw Morgan, who was a carpentry and joinery tutor, had accompanied her when visiting other houses she had assessed for possible purchase. Before her initial meeting with the Zadehs ended, Ms White asked if she could bring Mr Morgan to the house the next day, and the Zadehs agreed to that.
[19] The following morning, 8 December 2016, Ms White made arrangements with Mr Zadeh to go back to the property with Mr Morgan for a second inspection. For unrelated reasons, there was a measure of time pressure on this visit. As they arrived at the property, Ms White recalled seeing Ms Zadeh driving away from the property. The interactions on this occasion were only with Mr Zadeh.
[20] Mr Zadeh met them at the door and Messrs Morgan and Zadeh introduced themselves to each other. Ms White’s evidence was that she and Mr Zadeh talked in the living room of the house whilst Mr Morgan looked around the rest of the house and went outside to look at the exterior. After that, Mr Zadeh showed both of them around the house and made comments which Ms White recalled being directed to
Mr Morgan. Mr Zadeh gave another explanation of the difficulties with the former tenant and the extent of damage that had been caused to the property.
[21] Mr Zadeh also went through parts of the Snowden report. Ms White and Mr Morgan recall this occurring whilst they were standing at the bench in the kitchen. Ms White was not present for all of the time during which Mr Zadeh pointed out to Mr Morgan parts of the Snowden report and made comments on the work that had been done to address items of concern listed in it.
[22] At one point, the three of them were outside on the balcony, and Mr Zadeh showed them how he had fixed a problem with the balcony handrail that had previously retained water by drilling a hole in the bottom of each section of the handrail pipe so that the water would run out. Ms White’s recollection is that it was whilst they were out on the balcony that Mr Zadeh recounted the story about the tenant placing a banner there and stated emphatically to both of them that the house was not a leaky home and that he would not sell Ms White a leaky home.
[23] Mr Zadeh also explained that there had been a leak at the top corner of the house but that he had someone coming to fix it for a proposed open home on the following weekend.
[24] Ms White’s evidence was that, at the end of the visit, Mr Zadeh advised her that another couple were interested in the house and had offered to pay $5,000 more than the asking price, and that she would have to let him know by 1.30 pm that day if she wanted to purchase the house.
[25] After they left the property, Mr Morgan suggested that they should go to the TDC to check building records. His evidence was that this was because Mr Zadeh had told him the previous owners of the property had made a leaky home claim, which had resulted in the house being repaired, to an extent that had been signed off by the TDC.
[26] They duly visited the TDC office on their way back to Nelson. There were no documents on the property file recording a leaky home claim, or the extent of repairs approved by the Council that had been undertaken. On further enquiry at the TDC,
Mr Morgan and Ms White were provided with a five page Council record headed “Property Summary”, which included two potentially relevant notations:
22/04/2003 The owner of this property has lodged a claim with
the Weathertight Homes Resolution Service. Settlement has been reached regarding this property. A copy of the assessor’s report and resolution is to be kept on the property file. At the time of receiving any LIM or information request, Council should contact its regulatory solicitors to advise more specifically.
09/03/2012 Note of a summary of works relating to remedial
works carried out placed on property file.
[27] Mr Morgan and Ms White were unable to obtain copies of the further documents referred to at that time. They were advised that they could make an Official Information Act request to obtain it, but that would take 20 working days. Mr Morgan considered that the summary on the property file they had seen appeared to confirm what Mr Zadeh had told him and that what Mr Zadeh had said was correct about the tenant trying to spread malicious rumours by stating on his banner that it was a leaky home.
[28] Acting consistently with the time limit she perceived to have been imposed by Mr Zadeh, Ms White telephoned him at about 1.30 pm that same afternoon and confirmed that she was interested in buying the house. They made arrangements to meet the following morning to advance the matter.
[29] That meeting occurred in the foyer of the NMIT building in Nelson where Ms White worked. Mr Zadeh had prepared a two page document with some content and terminology not customarily used in New Zealand conveyancing practice. Mr Zadeh’s evidence was that he had adapted a precedent that had been used for sales by the Zadehs of sections owned by them in Colorado, United States of America.
[30] Mr Zadeh wanted some commitment in writing if he was to cancel the open home that was scheduled for the following day. Ms White’s evidence is that she was a little taken aback at being presented with the contract and, although she agreed to sign, she requested that she add a condition that her contract to buy the property was subject to her solicitor’s approval. Ms Zadeh was comfortable with this condition, but
Mr Zadeh (on Ms White’s recollection) was very reluctant. That contract provided for a deposit (described as a “down payment”) of $50,000 to be paid that day, the full purchase price of $520,000, and with settlement to occur on 20 January 2017 or earlier by mutual agreement.
[31] Later the same day, Mr Zadeh contacted Ms White to advise that his lawyer had prepared a formal agreement for sale and purchase. They made arrangements for her to visit the Zadehs’ home to sign the agreement and that occurred the next day. The agreement for sale and purchase provided for settlement on 20 January 2017, but the parties agreed to bring that forward to 20 December 2016. That change was made in handwriting and both copies of the agreement were signed and dated that day, 10 December 2016. The agreement was conditional on Ms White’s solicitors’ approval of the form and content of the agreement and the title to the property, which was to be provided within five working days. There was also a condition added that if Ms White was allowed into possession prior to settlement, then she would pay rental of $420 per week up to the date of settlement.
[32] Settlement duly occurred on 20 December 2016 and on that day the Zadehs took a gift to the property whilst Ms White was moving in, with the help of friends.
[33] On Ms White’s evidence, at some point in January 2017, Mr Zadeh delivered a bundle of documents to the property. The bundle included manufacturers’ warranties in respect of some replacement appliances in the property, a sequence of Mr Snowden’s decontamination reports after successive attempts to reduce the effects of methamphetamine in the property, and Mr Snowden’s 56 page building inspection report that was completed in August 2016, some content of which had been referred to by Mr Zadeh during the pre-purchase inspections of the property.
[34] Sometime after receiving these documents, Ms White considered Mr Snowden’s report and noted that it recommended further investigations given the prospect of weathertightness issues. She sought informal indications from contacts of hers, including one builder and also a plasterer. The builder asked another who specialised in the type of cladding used on the house to assess it. Although one of those contacts suggested there could be problems with the house, the other two did
not. Later, an architectural draftsman inspected the house. He expressed the opinion that there was a problem that did not need to be fixed immediately, but warned Ms White that it would probably need to be fixed within the next eight years and that the repairs would cost a considerable sum.
[35] In May 2017, Ms White made a further request of TDC for information on the history of the property. Her written request produced:
· a copy of a January 2003 assessor’s report for the then owners, identifying a range of weathertightness concerns and confirming that the owners’ claim was eligible for submission under the Weathertight Homes Resolution Services Act 2002 (the WHRSA); and
· a file note dated 9 March 2012 recording the history of a claim under the WHRSA that had been lodged with the TDC in 2003 and resolved by mediation between the parties.
The assessor’s report recorded that full recladding of the building was found not to be required, “as no signs of failure were evident, other than at the specified sites”.
[36] Ms White’s evidence was that these discoveries made her uneasy and for that and other reasons she now felt differently about the house. In mid-2017, she listed the property for sale with a local agent and received an offer at the end of August 2017. That offer was subject to a builder’s report but the contract did not proceed because the builder’s report was not satisfactory. The prospective purchasers provided Ms White with a copy of the report that had dissuaded them from proceeding and the author of the report, Mr Brett Whiteley, visited Ms White to explain his report. Mr Whiteley’s view was that there were some major items of concern with the house, that it might still be leaking and that invasive investigation should be undertaken to determine the extent of any leaking.
[37] Ms White concluded that the property could not be sold in its current state. The prospect of claims, including against the Zadehs, were raised and these proceedings were then commenced in June 2019.
[38] The recently revised estimate of the cost of repairs is $540,585.27. The contemplated work includes replacing substantial portions of the external framing, and recladding the exterior of the building to create a breathing space on the inside of the cladding that is not presently there. It would also be necessary to re-roof the property, partly because the result of placing new cladding with internal spacing increases the area of the roof required to cover it and also because the roof as installed has an insufficient fall to prevent the ingress of wind-blown water. Although Mr Zadeh was dismissive of the excessive work required and costings in the estimate, the defendants called no evidence to challenge that of the expert called for Ms White.
The evidence
[39] Ms White gave evidence of the relevant sequence of events, including the extent to which her present predicament has caused substantial stress and financial worry. She also called evidence from her son, Niko, to the effect that he had accompanied her on the first inspection of the property and heard the representations on which the claim is based, and from Mr Morgan, her work colleague who accompanied her on the second visit to the property. She called expert evidence from Mr Phillip Stephenson, a building surveyor who carried out invasive inspection and analysis of some 35 locations at the property and who was primarily responsible for a report which confirmed the extent of deterioration essentially caused by leaking external cladding most likely attributable to the system by which it had been constructed. Ms White also called Mr Grant Hunt, a quantity surveyor and building surveyor who employs Mr Stephenson, peer-reviewed his report and conducted a full quantity surveyor’s estimate of the costs of remedial work perceived by him to be required.
[40]Both Mr and Ms Zadeh gave evidence but did not call other witnesses.
[41] They had moved to New Zealand from the United States, where they had undertaken a relatively large-scale subdivision in Colorado. Ms Zadeh was originally from the United States. Mr Zadeh had moved to the United States, having come originally from Iran, and treated English as his second language. He was comfortable dealing with business matters, having attended personally to the marketing and sale of
sections in Colorado. He had personally conducted the sale of the Richmond property in issue in the proceeding, and was also managing three commercial properties the Zadehs owned in the Nelson area. Despite those activities, he described himself as a teacher. He is now elderly and complained of various ailments for which accommodations were made during his giving of evidence.
[42] As to his level of familiarity with English, Mr Zadeh occasionally misread the terms of his brief, but in oral responses to questions he was articulate and clear.
[43] The recollections of Mr and Ms Zadeh as to their dealings with Ms White were essentially consistent. Ms Zadeh had left all matters of detail to Mr Zadeh, and she was not present during Ms White’s second inspection when she was accompanied by Mr Morgan.
[44] I find that the Zadehs’ focus in selling the property was on the extent of remedial work they were required to undertake to repair the damage caused by their tenant. Their experience with him had clearly been traumatic and what had been required to reinstate the property because of his misuse and damage dominated their thinking about the property and its sale.
[45] Among the issues the tenant had left them with was the impact of his banner claiming that the house was a leaky home. Their perception was that the claim would have become well-known in the locality, to an extent that they would need to proactively acknowledge it to any prospective purchasers inspecting the property and to allay their concerns by explaining the malicious motive of the tenant who had made the claim.
Contested factual matters
Ms White’s first inspection, 7 December 2016
[46] Ms White claimed that, when she first inspected the property, Mr Zadeh made a representation to the effect that the house was not a leaky home. Her recollection is corroborated by her son, Niko, who gave evidence of being with her during that inspection. In contrast, the Zadehs deny that any representation about the house not
being leaky was made at all during the first inspection, and that Ms White inspected the property on her own. They say they met Niko when he accompanied his mother to their home on 10 December 2016 to sign the formal agreement for sale and purchase.
[47] Both Ms White and Niko were clear and confident of the accuracy of their recollections of the 7 December 2016 inspection. Ms White was pleased that Niko showed interest in viewing a prospective property, as he had not done so before. Niko was able to accompany his mother, having recently returned to Nelson from university. Both were cross-examined about the prospect of their recollections being mistaken and both maintained the accuracy of their recollection of the details.
[48] Niko rejected the Zadehs’ alternative recollection that he had not gone to the property, but rather to their home three days later. I am satisfied that there was a discussion between Niko and Mr Zadeh because they agree that he identified school friends of his who had been coached in football by Mr Zadeh. Niko was sure he was at work at a holiday job on Saturday, 10 December 2016. He produced a pay slip which recorded that either on that Saturday or the preceding one he had worked extra hours. Although the pay slip was not precise as to which Saturday, Niko was confident it was the second one as he had started the job in the previous week and the Saturday work only became available in the second week.
[49] In the informal contract prepared by Mr Zadeh and presented to Ms White for signature on 9 December 2016, he included “Niko” as a buyer of the property as a joint tenant with his mother. It is inherently far more likely that he would have done that as a result of having met Niko on the evening of 7 December 2016, rather than misconstruing any incidental reference to Niko that Ms White might have made had she been at the property on her own. I accept Ms White’s position that she did not ever contemplate purchasing the property jointly with either or both of her sons, so if Mr Zadeh had not met Niko before preparing the contract there is no plausible explanation for his misunderstanding that Niko was to be a joint purchaser.
[50] For her part, on seeing Niko in the witness box, Ms Zadeh thought she had never met him before at all, and that the person accompanying Ms White on
10 December 2016 must have been Ms White’s other son. There was no material challenge to the evidence of both Ms White and Niko that her other son was not in Nelson at the time.
[51] Unless Ms White and Niko were both fabricating their accounts of his visit to the property on 7 December 2016, then that was the only opportunity for him to view it before Ms White committed to the purchase. His enthusiasm for the property was material to his mother in choosing to buy, and I reject the prospect that they both fabricated their evidence that he was with her at the property on 7 December 2016.
[52] Ms White’s and Niko’s inspection of the property on the evening of 7 December 2016 is more likely to remain distinct in their recollection than it would for Mr and Ms Zadeh. As vendors, they were showing the property to a succession of potentially interested purchasers, and given that I am satisfied Ms Zadeh is mistaken about not having met Niko on the night of 7 December 2016, a question does arise over the reliability of her recollection on other details considered to be material to Ms White and Niko.
[53] Ms White’s evidence on the context and content of the conversations including the alleged representation made during the 7 December 2016 viewing remained consistent throughout. She recalled that she and Niko were greeted at the property by both Mr and Ms Zadeh and that both of them showed both she and Niko around the house, with Mr Zadeh doing most of the talking. Their conversation focused particularly on the difficulties the Zadehs had had with their previous tenant. She recalled Mr Zadeh saying that the tenant had gang affiliations and she recalls being shown a photo of the tenant outside the house wearing gang patches.
[54] During cross-examination, Mr Praat pointed out that the photograph she referred to showing the tenant at the property had a date stamped on the back of it in January 2017, so it could not have been available for her to see on 7 December 2016. Ms White could not explain the later date, but made the point that she was in occupation of the property throughout January 2017 and that the tenant was certainly never there during that month, and that her recollection of seeing such a photo was that it was during her first inspection. The prospect that she saw a different copy of
the same or a similar photograph was not explored. Niko did not see a photo of the tenant, but recalled him being described as a gang member. The discrepancy between the date endorsed on the copy of the photograph produced in evidence, and Ms White’s recollection, does not cause me to doubt the reliability of her recollection as to what she saw during her first inspection of the property.
[55] Ms White recalls Mr Zadeh saying that he was taking the tenant to the “Small Claims Court” for unpaid rent, that the tenant had threatened him, that the Police had been involved in getting the tenant out which involved damage to the front door that had been replaced. She was challenged in cross-examination on the accuracy of her recollection, given that the Zadehs’ dispute with the tenant had been before the Tenancy Tribunal rather than any small claims court, and that it had been resolved before the Zadehs were marketing the property. However, it appeared from the Zadehs’ evidence that they had taken steps to enforce the Tenancy Tribunal order by initiatives in the District Court, and there is a sufficient likelihood of some reference to the more recent initiatives against the tenant that would not be inconsistent with Ms White’s recollection of what she had been told on that topic.
[56] Niko’s recollection of the material parts of the discussion between his mother and Mr Zadeh was consistent with his mother’s. He recalled Mr Zadeh referring to the tenant having hung a banner from the balcony saying it was a leaky home, but stating that it was not a leaky home and that he would not sell it to them if it was leaky. Niko recalls references to the building report that listed matters that were wrong with the house and that steps had been done to fix everything which had been handwritten on the report.
[57] Cross-examination of Niko elicited an inconsistency in that he recalled the building report as being the only document available for them to consider, whereas Ms White acknowledged that there was a letter from ASB detailing insurance arrangements for the property that was with the building report. She took a photo of the letter to record the insurance details. I am not concerned that this inconsistency raises any doubt about the reliability of Niko’s recollection of what was said. It is the sort of detail about which a witness in Niko’s circumstances could quite
understandably be mistaken, without that raising a concern about the reliability of his recollection on the matters that were important to him at the time.
[58] Mr Zadeh’s evidence was that substantially more documents were made available for prospective purchasers to consider, including a LIM report, a copy of the photograph showing the leaky home banner hanging from the balcony, as well as a copy of a file note from the TDC in March 2012 recording that an earlier weathertightness claim had been resolved. These were in addition to the substantial report from Mr Snowden on the work required to be done to remediate the property, and his separate methamphetamine testing results.
[59] Mr Zadeh stated that there was no discussion about the leaky home banner, and that nothing was said during that inspection as to whether the house was a leaky home. His impression was that Ms White was very keen to buy. His firm recollection was that she came on that occasion on her own and, when leaving, asked if she could make arrangements to come again with a builder friend the following day.
[60] Mr Zadeh described the spiteful conduct of the tenant in hanging the banner over the balcony. They had asked the letting agent and the Police to help get the sign removed but they had been unable to help. His evidence was that the sign was there for almost three months. Both he and Ms Zadeh clearly considered that its presence would be widely known in the community and therefore to prospective purchasers. Mr Zadeh was firm that a photo of the banner was sitting on the kitchen bench on the evening of 7 December 2016. In cross-examination, he was emphatic that if he was the owner of a leaky home, he would not put a banner up of that type, and then try and sell the leaky home to somebody else. Mr Zadeh held to his recollection that the photograph of the banner was available on the evening of 7 December 2016, but that the topic was not discussed at all with Ms White that evening.
[61] Ms Zadeh said that for the most part she left matters to her husband, but was confident that he had not given any representation that the house was not a leaky home during Ms White’s visit on the evening of 7 December 2016.
[62] As to the context in which any discussion occurred, Ms White and Niko were firm that a photograph of the banner was not available to them during the 7 December 2016 visit. On their recollection, Mr Zadeh described the banner and denied that the statement in it was correct.
[63] I prefer Ms White’s recollection of what was available. She disputes that TDC documents about the settlement of an earlier weathertightness claim were available. Her unchallenged evidence about the events of the next day include her initially being surprised when Mr Morgan said, as soon as they left the property on 8 December 2016, that they should go to the TDC offices because there had been a previous settlement of a weathertightness claim. Had documents of that type been available on 7 December 2016, Ms White would most likely have taken an interest and would, in any event, not have been taken by surprise by Mr Morgan’s suggestion the following day.
[64] The TDC 2012 report was not available to Ms White and Mr Morgan when they called to obtain relevant records at the TDC on 8 December 2016.
[65] Although I prefer Ms White’s and Niko’s evidence that a photograph of the banner was not available, that does not lead to acceptance of Mr and Ms Zadeh’s recollection that the topic was not discussed at all. I am satisfied that it was a major issue for them in marketing the property themselves that they needed to counter the false statement in the banner, anticipating that the claim in the banner would be widely known among the community of potential purchasers. Their approach was to proactively describe the extent of harm caused by the tenant, and the extent of remediation work already undertaken or committed to in order to improve the property. In focusing on the misconduct of the tenant, an important component was his attempt to sabotage a sale by publicly proclaiming it to be a leaky home.
[66] Having found that the topic was broached, I accept the terms recalled by Ms White and Niko as accurately reflecting the comments made by Mr Zadeh, when contrasted against his denial that any statements were made on the topic at all.
[67] I find that Mr Zadeh’s statements included details of the damage done by the tenant, and the work done to repair it. Further, that Mr Zadeh told them about the tenant having hung a banner from the deck saying it was a leaky home, and Mr Zadeh’s rejection of that, saying the house was not a leaky home.
The second inspection, 8 December 2016
[68] The parties do agree that the topic of whether the property was a leaky home was discussed during Ms White’s second visit, but there are numerous differences between the respective recollections, particularly whether the denial that it was a leaky home was subject to either an express or clearly implicit qualification.
[69] As discussed the previous evening, Ms White phoned Mr Zadeh on the morning of 8 December 2016 to arrange for a second visit, this time with a work colleague. Mr and Ms Zadeh took Ms White to be referring to “a builder friend”, but Ms White was careful to emphasise that she treated Mr Morgan as a good friend who was useful in inspecting properties as “another set of eyes”. It is understandable that the Zadehs might see Mr Morgan as being relied on by Ms White for technical building competence in assessing the soundness of the property, whereas Ms White valued his views as a person with a reasonable level of knowledge in building matters, but not necessarily as a builder with particular skills enabling him to critique the quality of the structure of the property.
[70] Initially Mr Morgan looked over the property on his own, including parts of the exterior, and then all three of them walked around the interior of the property. Whilst outside on the balcony on the road side of the house, Mr Zadeh explained how he had repaired a water retention problem in the metal tubing of the balcony rail. Ms White recalls it is most likely, when they were on the balcony, that Mr Zadeh recounted the story he had told her the previous day about the tenant having hung a banner from the balcony, stating the house was a leaky home. Mr Zadeh said to both of them that the house was not a leaky home and that he would not sell her a leaky home. She recalls him being very emphatic in making these statements.
[71] Mr Morgan’s evidence of the visit was that after walking around inside and outside the house on his own, he went back to the living room and engaged in a
discussion with Mr Zadeh, covering the problems the Zadehs had had with the tenant. Mr Zadeh went through a number of pages of the building report, standing at the kitchen bench to explain the repairs that had been carried out. Mr Morgan recalls Ms White being present for some of the time during this discussion, but not all of it. Whilst Mr Zadeh was going through the report, he told Mr Morgan that the previous owner had made a leaky home claim but the house had been repaired and signed off by TDC.
[72] Mr Morgan recalls being told a number of the concerns about the tenant which repeated what Ms White had been told the night before. Mr Morgan recalled an aspect of this discussion, which he thought occurred when they were outside on the balcony, in which Mr Zadeh described the sign that had been put on the balcony and said forcefully that the claim the house was a leaky home was not true and that he would not sell a leaky home to Ms White. Mr Morgan recalled the visit to the property taking approximately 45 minutes to an hour. He heard Mr Zadeh tell Ms White that she had to make a decision about buying the house by early afternoon because of others who were interested in it. Mr Zadeh said he was not able to give them the builder’s report he had discussed because he only had one copy and others interested in the house would want to see it.
[73] Mr Morgan had not been to the property before, had no prior awareness of the banner, and does not recall seeing any photograph of it during the 8 December visit. His recollection is that Mr Zadeh told them about the banner as part of explaining the difficulties they had with the previous tenant.
[74] Both Ms White and Mr Morgan were firm in denying that Mr Zadeh had qualified his statements about the house not being a leaky home by adding any comment to the effect “as far as we know”. Nor would they accept that a qualification of this type was reasonably implicit from what Mr Zadeh said, and the circumstances.
[75] For his part, Mr Zadeh was quite emphatic that he would only have made any such statement in those qualified terms. His evidence was that he did not know enough about the construction of the house to be emphatic and that his knowledge was limited to the awareness that the previous owners had settled a weathertightness claim, with
the TDC signing off the repairs done at that time as having addressed the problems. Having not lived in the property, he was not in a position to be emphatic that it had not suffered from ingress of moisture, at least not in respects distinct from the flooding caused by the previous tenant.
[76] I took Mr Zadeh’s fall-back position to be that if Ms White and Mr Morgan did not hear him making a qualification along the lines of “as far as we know”, then such a limitation on any statement he made should have been very clear to them.
[77] Mr Snowden’s report had a section on the external wall cladding of the house. Observations in the report were endorsed with different colours to signal levels of concern, associated with the element of the structure being reported upon. These were:
· green for a low or nil level of concern;
· orange for a moderate level of concern; and
· red for a high level of concern.
[78] Four items reported on about external wall cladding were endorsed with red dots indicating a high level of concern. The commentary accompanying photographs stated:
The fibre cement has deteriorated at apron flashings to the roof and above the clear roofing. This has affected the integrity of the cladding and will compromise weather tightness.
As noted above. The textured coating has become ‘detached’ from the ‘Hardies’ harditex substrate. This allows water to be drawn in behind, eating at the substrate and possibly behind the substrate to framing substructure. Further invasive investigation by a registered builder is required.
The exterior corners to all wall areas on the roof have had moisture through the textured coating, which appears to have ‘blown out’ the stopping used on the hardies fibre cement board. This will affect the integrity for weather tightness and the dwelling.
As noted above. This is above the clear roofing above the deck. There is an exposed ceiling joint in the lounge below/West elevation, facing the road. This could be from moisture driven in here, but we cannot confirm this. …
[79] Mr Zadeh had endorsed in handwriting alongside the third of these reported items “It is an ongoing thing and our builder said it should be taken care [of] later”.
[80] Neither Ms White in respect of the 7 December visit, nor Mr Morgan in respect of the 8 December visit, acknowledged these references in Mr Snowden’s report having been drawn to their attention. Although the matter was not positively proven, I consider it more likely than not that these passages were not drawn to their attention by Mr Zadeh.
[81] Mr Zadeh downplayed the effect of these comments in Mr Snowden’s report. He treated the retainer of Mr Snowden as being essentially to recommend the remedial steps required to cure the harm done by methamphetamine contamination, and that Mr Snowden’s brief was effectively confined to that. He treated the recommendation for a “further invasive investigation” as being Mr Snowden touting for another job. Given the amount that the Zadehs were spending in remediating the damage to the property, Mr Zadeh was not inclined to give Mr Snowden any additional instructions.
[82] The history of the property as the Zadehs understood it included discovery by the previous owners (whom they knew and had a positive relationship with) of weathertightness issues in about 2002, the pursuit of a claim which was settled in 2003, and the confirmation in a note made in 2012 by TDC personnel that satisfactory remedial work had been undertaken. There is a prospect that the Zadehs placed more reliance than was justified on the indications that all weathertightness problems had been cured, given the age and lack of any detail in the 2012 TDC note that they relied on.
[83] In cross-examination, Mr Zadeh accepted that during their ownership they had the ceiling in the living room repaired twice because of the ingress of water, as well as leaks in the master bedroom and the ensuite (in addition to the flooding in the kitchen and the laundry). Mr Zadeh accepted that his evidence on the extent to which there had been leaks at the property during their ownership was quite different from his wife’s evidence, which denied the existence of any leaking problems.
[84] Those points do not have a direct bearing on my analysis of the terms of the representation critical to the present claim, but they support my preference for the reliability of the evidence for Ms White, over the reliability of the Zadehs’ denials.
[85] For her part, Ms Zadeh denied being aware at the time they were selling the property of the phenomenon of “leaky homes”. She claimed in her evidence that in late 2016, the concept of a “leaky home” for her was somewhere where you needed to run around with buckets to catch the water when it rained. It is not Ms White’s case that Ms Zadeh was responsible for making the representation on which the claim is based, but rather that she shares responsibility for her husband’s statements inducing entry into the contract. On Ms Zaheh’s own evidence, I find that she is not able to definitively deny that her husband made such statements at various points during the 7 December 2016 inspection, and she is not able to contribute to the evidence of what occurred on 8 December 2016.
[86] In closing submissions, Mr Ironside invited me to find that it was most unlikely Mr Zadeh would have expressed himself in qualified terms, given his emphatic and definitive mode of expressing himself during cross-examination. That characterisation of Mr Zadeh’s demeanour in cross-examination was certainly accurate, but I would not be persuaded solely on his demeanour in giving evidence about the terms in which the representation was made.
[87] In addition to that demeanour, the context suggests that both Mr and Ms Zadeh saw it as important to clearly distance themselves from the banner, and to deny that the statement in it was justified. That context makes it more likely that they would have been unqualified in denying the truth of the statement in the banner by assuring prospective purchasers that the house was indeed not a leaky home. I am also mindful that all of Ms White, Niko and Mr Morgan were clear in their recollection of the representation, in terms where I accept their reliability and their credibility.
[88] In contrast, whilst it is not alleged that Mr Zadeh made the representations deliberately knowing of their untruth, his explanation of what he would have said has the hallmarks of a reconstruction for the purposes of the claim now brought against them. The context at the time would suggest he considered himself justified in giving
an unqualified assurance, and that he considered it was necessary to do so to remove the stigma he thought had been unfairly imputed to the property by the tenant.
[89] From the context of the discussions on both visits, I find that Mr Zadeh presented himself as sufficiently knowledgeable about the structure of the house to be qualified to make statements about its structural soundness. He was clearly familiar with all of Mr Snowden’s report, was involved in arranging the remedial work and had undertaken minor matters himself.
[90] In closing, Mr Ironside submitted that Mr Zadeh was a clever salesman, able to exert pressure on Ms White to make a prompt commitment to purchase, without time for reflection or further advice from others. He instanced Mr Zadeh’s acknowledgement that he had been able to personally sell sections in their Colorado subdivision when the agents who had been retained were unable to do so. At several points in their dealings, he submitted that pressure was applied to Ms White. There was a difference between Ms White and Mr Zadeh as to the time limit she took him to be imposing on her to make a decision about whether she would purchase. Mr Zadeh was insistent that it was 1.30 pm on the day after the 8 December 2016 inspection, but Ms White (supported by Mr Morgan) took him to have meant that he needed an answer by 1.30 pm that day, if he was to cancel arrangements then in place to conduct an open home on 10 December 2016.
[91] In the contract he prepared, he contemplated that his solicitor would act for both parties and that they would each pay one half of that solicitor’s costs. Whilst Ms Zadeh was relaxed about Ms White adding a condition that the contract was subject to her solicitor’s approval, she discerned that Mr Zadeh was reluctant to have that condition added.
[92] The formal agreement for sale and purchase was completed by Mr Zadeh’s solicitor with what Mr Ironside suggested was unusual haste, being ready for presentation to Ms White the day after they had signed the informal contract. By confirming in cross-examination that the Zadehs had endorsed handwritten additions on the printed form in blue ink, whilst Ms White used black, and the fact that all the blue endorsements on the form had been completed before it was presented to
Ms White, Mr Ironside established that the Zadehs had circled “No” to conditions in the contract for a LIM or a builder’s report to be required.
[93] I did not take Mr Ironside to be inviting a finding that the alleged misrepresentations had been made deliberately rather than negligently. However, assessing all the evidence of the dealings between the parties, I accept that Mr Zadeh did apply a measure of pressure to get a committed contract quickly, including discouraging further independent assessment of the property. I find he would have preferred his own solicitor to act for both parties in the transaction.
[94] In summary, I am satisfied that Mr Zadeh made representations on both 7 and 8 December 2016 to Ms White that the property was not a leaky home, and stated that he would not sell her a leaky home. I do not accept that the representations were qualified in terms such as “as far as we know”. I am also satisfied that such a qualification was not reasonably implied so that Ms White should have understood that qualification to apply.
Legal effect of the representation
[95] The claim is brought under s 35 of the Contract and Commercial Law Act 2017. Like its predecessor in the Contractual Remedies Act 1979, that section creates liability for a party to a contract who has induced the other to enter into it by a misrepresentation, (being a false representation of past or present facts),1 entitling the induced party to damages in the same manner and to the same extent as if the representation were a term of the contract that has been breached. An additional element, which has received some academic and judicial criticism,2 but still appears to be part of the test for misrepresentation, is that it must have been reasonable in the circumstances for the induced party to have relied on the representation.
[96] Having determined what was said by way of the relevant representation, it is necessary to determine the meaning of the representation by reference to what a
1 West v Quayside Trustee Ltd [2012] NZCA 232 at [30]; Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 369.
2 See Yu v Bradley [2020] NZHC 1822 at [40], Ridgway Empire Ltd v Grant [2019] NZCA 134 at [22]–[23]; David McLauchlan “A misrepresentation muddle” [2020] NZLJ 56.
reasonable person would have understood the words to mean in all the particular circumstances.3
[97] Variants of a representation that a property for sale was not a leaky home have been considered in numerous cases, with the result depending on relatively fine distinctions between the words used and the context in which the representations were made.4
[98] In Magee v Mason, one of the vendors had stated, in response to a question whether the house was a leaky building, “absolutely not”, to which she added that in the time they had owned the home, they had experienced no weathertightness problems with it. In the High Court, that had been treated as a statement of fact amounting to a misrepresentation.5 On appeal, a majority of the Court of Appeal analysed the two components of the statement as being capable of three meanings:6
… first, that the house had not leaked while the Magees owned it (meaning 1); secondly, that Mrs Magee knew of no facts establishing that it was through design or construction prone to leak (meaning 2); and thirdly, that it was not through design or construction leaking or prone to leak (meaning 3). We say ‘through design or construction’ because it is common ground that a leaky building is susceptible to moisture ingress through some combination of design and construction characteristics …
[99] The majority held that the representation conveyed meanings one and two, but not three. They found the purchaser/representee to have understood that to be the effect of the statements made. The minority judge, Courtney J, agreed with the trial Judge’s approach that the first aspect of Mrs Magees’s – “absolutely not” – standing on its own would have been a misrepresentation and that the additional words had the effect of conveying reassurance that the first part of the answer could be supported from her personal experience, rather than qualifying the initial answer.7
3 For example, Ridgway Empire Ltd v Grant, above n 2, at [11].
4 For example, Magee v Mason [2017] NZCA 502, Ridgway Empire Ltd v Grant, above n 3; Shen v Ossyanin [2019] NZHC 135; Mitchell v Murphy [2019] NZHC 3262.
5 Mason v Magee [2017] NZHC 51.
6 Magee v Mason, above n 4, at [29].
7 At [62].
[100] In this case, Mr Praat invites a similar analysis to the majority in Magee so that Mr Zadeh’s statements are treated only as an expression of his opinion as to what he considered the structural state of the building to be.
[101] The finding in Magee v Mason was distinguished in the more recent Court of Appeal decision in Ridgway Empire Ltd v Grant.8 There, a long-term owner and occupier of a residential unit marketed it for sale himself. When questioned about weathertightness, the effect of the vendor’s response was that the unit does not leak and it is not a leaky building. Reflecting on the circumstances in which the representation was made, the Court of Appeal upheld the High Court finding that there was no qualification to what amounted to a representation of fact.9
[102] Here, the context is that Mr Zadeh was, with his wife, marketing the property himself, having had a terrible experience with a destructive and malicious tenant. He and his wife had owned the property for some four and a half years but had never lived there. To prepare it for sale, they had to retain various tradesmen to carry out substantial repairs and replacement of fittings, with a focus on removing the adverse effects of methamphetamine use and leaking from appliances in the premises. They had retained a building inspector who had completed a comprehensive building report. Although the report had a focus on the harm caused by methamphetamine use in the premises, it also contained an analysis of the building’s structural integrity.
[103] The immediate motivation for volunteering statements that the building was not a leaky home was to address the tenant’s malicious assertion that it was. I find Mr Zadeh volunteered the representations because of an apprehension that prospective purchasers such as Ms White would, or would be likely to, know about the tenant’s banner having been displayed in a position visible from the road for a substantial period of time.
[104] Mr Zadeh did not convey any expertise in analysing the structural integrity of the building, but would reasonably convey the impression from his familiarity with Mr Snowden’s detailed report that his involvement in authorising the works required
8 Ridgway Empire Ltd v Grant, above n 3.
9 At [11].
to be undertaken and considering Mr Snowden’s report would adequately equip him to provide a representation of present fact that the building did not leak.
[105] I accordingly find that the representations made to Ms White (and to her son, Niko, on 7 December 2016 and her friend, Mr Morgan, on 8 December 2016) were representations of present fact that the building did not leak.
Inducement to purchase?
[106] The Court of Appeal in Magee v Mason observed that there may be more than one factor inducing entry into the contract, and that the test for any single inducement is whether it had a material effect on the decision.10
[107] The Zadehs were marketing the property themselves and perceived it as necessary to acknowledge and dismiss the serious taint on the property caused by the tenant’s banner. Mr Zadeh volunteered a description of what the tenant had done, and, through assurances made to Ms White, made representations that the serious criticism inherent in the tenant’s banner was, in fact, not true.
[108] In that context, the representation was a material inducement for Ms White to proceed, and to proceed unusually promptly, with her commitment to purchase.
Reasonable reliance?
[109] Mr Praat questioned the reasonableness of Ms White’s claimed reliance on the representation. He pointed out that Mr Zadeh had not lived in the property himself, did not hold himself out as a builder or having building expertise. Further, that Ms White had her own source of advice on building matters by bringing Mr Morgan to the property on her second inspection. Arguably, if she felt able to rely on the representations, then it would have been unnecessary for her and Mr Morgan to search the TDC records for information relating to weathertightness issues. Rather, her rapid commitment suggested she was determined to buy the property irrespective of any potential difficulties with its weathertightness.
10 Magee v Mason, above n 4, at [48].
[110] I am not persuaded that these circumstances lessen the reasonableness of Ms White’s reliance on the representations. Her reliance occurred in dealings with Mr Zadeh in which she was pressured to decide to commit very quickly, and where she was presented with the agreement for sale and purchase already filled in so as to omit the need for a LIM or builder’s report.
[111] I accordingly find that the plaintiff has made out liability for the representation of present fact, reasonably relied upon and inducing entry into the contract. The consequence is that the Zadehs are liable for breach as if the representation were a term of the contract.
Damages – cost of cure
[112] Gault on Commercial Law describes the measure of damages for breach of a representation as requiring a quantification that puts the injured party in the position it would have been in if the representation had been true.11 In Marlborough District Council v Altimarloch Joint Venture Ltd,12 the Supreme Court reviewed the approach to the measure of damages in a case demonstrating the stark differences in outcome depending on the measure adopted. In that case, rural land was sold on the basis that certain water rights would be acquired with it, when in fact they were not. The difference in value of the property with and without those water rights was put at
$400,000, but the cost of a cure (being the building of a dam to provide for the shortfall of water) was a little in excess of $1 million. Tipping J introduced the competing modes of quantification with the following observation:
[156] It is as well to remember at the outset that what damages are appropriate is a question of fact. There are no absolute rules in this area, albeit the courts have established prima facie approaches in certain types of case to give general guidance and a measure of predictability. The key purpose when assessing damages is to reflect the extent of the loss actually and reasonably suffered by the plaintiff. The reference to reasonableness has echoes of mitigation. A plaintiff cannot claim damages which could have been avoided or reduced by the taking of reasonable steps.
11 Gault on Commercial Law: Contract and Commercial Law (online ed, Thomson Reuters) at CCL35.03(1).
12 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726.
[113] In this case, Ms White claimed on a “cost of cure” basis and has produced evidence of a thorough quantity surveyor’s projection of the cost of remedying the leaky building defects. Mr Ironside submitted that this approach is now treated as the usual response for damages in leaky building cases. He cited the decisions in Shen v Ossyanin, Ridgway Empire Ltd v Grant and Mitchell v Murphy.13
[114] Shen had factual complications in different respects from the present. The plaintiff had purchased the property as if not a leaky home, and then sold it on the basis that it was. Dealing with quantum of damages on a hypothetical basis, Whata J would have quantified the loss at about $1.5 million, which would have represented the difference between a purchase at the time the plaintiff acquired it on the assumption there were no leaks, and resale when he did on the basis that it was a leaky home.
[115] In Ridgway, the plaintiff had been awarded damages on a cost of cure basis, adducing evidence of the amounts that had been spent and estimates for work yet to be completed. That amount had been discounted by an allowance for betterment. In the absence of evidence challenging the plaintiff’s evidence on quantum, the Court of Appeal upheld the trial Judge’s quantification on these terms.14
[116] In Mitchell v Murphy, the defendant did not dispute that the cost of repairs to a leaky building and rendering it weathertight were accepted as the appropriate measure of loss.
[117] Considering alternative modes of quantifying the loss in this case is somewhat inhibited by the lack of further evidence. Ms White’s case on loss focused entirely on the very substantial costs of remediating all the damaged aspects of its structure. In proportionate terms, that is very substantial, being somewhat more than she paid in total for the land and buildings.
[118] I questioned both Messrs Stephenson and Hunt on their approach to the betterment that would result from what is a substantial exterior rebuilding. Despite the absence of conflicting evidence on this topic called for the Zadehs, I was left
13 Above n 4.
14 Ridgway Empire Ltd v Grant, above n 3, at [24], [25].
unconvinced by the reasonableness of the modest sums that Mr Hunt would allow for betterment. His projection of remedial costs was $540,585.27 (including complete recladding of the exterior of the house and the installation of an entirely new roof). From that amount, he would deduct an amount for “deferred maintenance” of
$18,051.49, leaving a balance of $522,533.78. I took him to accept my concern that the extent of improvement effected by the scope of works he recommended would involve substantially more betterment than he had allowed. However, he was not in a position to opine on the amount of deductions if other considerations were taken into account.
[119] I consider it more likely than not, on the totality of the evidence, that the property would not attract buyers in its present condition for a great deal more than the land value, given the uncertainty of the scale of what would inevitably be substantial work required to render it weathertight. That uncertainty had precluded a contract for its sale proceeding in 2017, and the disclosures of the costs projected in this litigation are likely to add to the stigma of it as a leaky home until substantial repairs are effected. Once such work has been completed and appropriately certified, the property will be free of the leaky home stigma which it no doubt presently suffers in the local market. Once the work is done, the property could be marketed legitimately as substantially a new home.
[120] In closing, Mr Ironside responded to the concerns about betterment that I had raised at various points during the hearing. He acknowledged that if successful and the cost of cure approach was adopted, Ms White would accept that a further reduction down to $500,000 for the cost of cure would be the amount sought. This acknowledged an additional reduction of some $22,000 from the balance of
$522,533.78 on account of the point I had made about the fully remediated structure benefiting from the removal of a present stigma attached to it.
[121] In addition to that amount, Ms White claimed $10,560 for the loss of rental she would suffer during the period that the property would need to be vacant for the work
to be undertaken.15 Ms White also sought $25,000 for general damages for stress, inconvenience and anxiety.
[122] Mr Praat was critical of the cost of cure approach. He submitted that was inappropriate where previous owners had passed on the property with significant defects, and the Zadehs, genuinely believing they were entitled to sell it as not being a leaky home, were landed with the total cost of other people’s mistakes. I was not offered any explanation as to why the Zadehs had not attempted to join TDC as a party to the proceeding. Mr Ironside submitted that he considered it was not for Ms White to join the local authority as she had not relied on any act or omission on their part.
[123] Mr Praat invited me to consider alternatives, including a differential, assessed by a registered valuer, between the property’s current value as is, and its value if otherwise in average condition without weathertightness issues. Alternatively, an order that the Zadehs re-purchase the property at a present-day market value as determined by a registered valuer, on the basis of it being in average condition but without weathertightness issues. His third suggestion was an order for the sale of the property as is, and a requirement for the Zadehs to pay the difference between the sale price and its present day market value as determined by a registered valuer, assuming it did not have weathertightness issues.
[124] There was no evidence on which I could compare the quantification of loss by such alternatives to Ms White’s claim on a cost of cure basis. Intuitively, some of these approaches might result in a quantum materially less than on a cost of cure basis.
[125] In some circumstances, a justification for a cost of cure measure is because there was something special about the property in suiting the plaintiff’s needs that justified the cost of remediating it to a weathertight state, rather than compensation in a money sum enabling the plaintiff to purchase a comparable property elsewhere.
15 By the time of the hearing, Ms White had moved for work purposes to Wellington and was renting the property out. The property has been rented at a rate of $1,760 per month and the projected period for the remedial works is 26 weeks.
Tipping J aptly described the distinction between these two types of cases in
Altimarloch, where he observed:16
[158] In the first kind of case, where the subject-matter is readily substitutable, the damages are truly compensatory, that is, they compensate for the difference between the value of the defective subject-matter (which is either actually or notionally sold) and the value or cost of goods or other subject-matter answering to the contractual requirements. In the second kind of case, where the subject-matter is not readily substitutable, the damages are designed to require the defendant to pay the plaintiff enough money to enable the plaintiff to have the contract performed as fully as is reasonable and possible. Damages in this second kind of case can therefore usefully be called performance damages, as opposed to damages which compensate for loss of value.
[126] Thus the issue, as noted by Tipping J in Altimarloch and Williams J in Mason v Magee, is one of reasonable substitutability. That is an issue of whether a house of the characteristics of the one at issue, in the same locality and with similar attributes but being weathertight, would suffice as substitutable.17
[127] Coming then to the key purposes described by Tipping J in Altimarloch of assessing damages to reflect the extent of the loss actually and reasonably suffered, I consider that a cost of cure measure, more realistically adjusted for substantial aspects of betterment that I am satisfied will accrue, is appropriate. In round figures, starting with Mr Stephenson’s full estimate less what he describes as “deferred maintenance”, giving a figure of, say, $520,000, I would deduct $100,000 for all aspects of betterment in the wider sense, including the removal of stigma that the property will no doubt attract in the local market until weathertightness issues have been competently addressed and certified. That amount of $420,000 is what I consider to be the appropriate extent of loss actually and reasonably suffered by the plaintiff.
[128] As to the additional claims, I consider that only a 50 per cent contribution to the projected loss of rental is reasonably recoverable, adding an amount of $5,280.
16 Marlborough District Council v Altimarloch Joint Venture Ltd, above n 12 (footnote omitted). See also Tipping J’s discussion of this distinction at [159]–[166] through the cases of Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 (HL) and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8, (2009) 236 CLR 272.
17 Mason v Magee, above n 5, at [82]–[83].
Damages – general damages
[129] Recent authorities have indicated that the courts have been willing to support and apply awards of general damages in misrepresentation cases involving “leaky” homes, where distress has been caused to the home owners/representees. This approach was summarised by Thomas J in the recent case of Roberts v Jules Consultancy Ltd:18
[109] The purpose of general damages is to compensate for losses that cannot objectively be quantified in monetary terms. They cover matters such as pain and suffering, indignity, humiliation and mental distress. The assessment of general damages depends upon the circumstances of the case. In leaky building decisions, they often include stress associated with having to live through the repairs. … Awards in this type of case are around the level of $25,000.
[130] Furthermore, as cited in Mitchell v Murphy, the Court of Appeal in O’Hagan v Body Corporate 189855 set out a range of High Court decisions concerning leaky homes and buildings where general damages had been awarded:19
[115] High Court decisions include Court v Dunedin City Council ($6000); Chase v de Groot (two years disturbance, $15,000); Birch v Palmerston North City Council ($10,000); Battersby v Foundation Engineering Ltd (total loss of cliff property to family with four children, $20,000 joint award to husband and wife); Dicks v Hobson Swan Construction Ltd ($22,500); Sunset Terraces ($25,000 per person); Body Corporate 185960 v North Shore City Council ($25,000); Body Corporate 183523 v Tony Tay & Associates Ltd ($25,000 per person).
[116] The facts of these cases vary considerably but generally entailed occupancy of a leaky building for a significant period and the associated anxiety.
…
[152] I consider that this Court has a role in giving general guidance as to appropriate levels of compensation for non-economic loss in leaky homes cases. Rules of thumb would serve to reduce the cost of resolving litigation of this sort, and, as well would facilitate consistency. On the other hand, I agree with Baragwanath J that this is not an ideal case for such general guidance to be given, primary [sic] because, as he notes, the material before us was rather too limited for us to be confident that we have a reasonably complete grasp of all the relevant issues.
18 Roberts v Jules Consultancy Ltd [2019] NZHC 3342 (footnote omitted).
19 See O’Hagan v Body Corporate 189855 [2010] NZCA 65 (footnotes omitted). See also Mitchell v Murphy, above n 4, at [337].
[153] For the reasons given by Baragwanath J, I support awards for non- economic loss in this case which proceed on the bases that:
(a)Such awards should not made in favour of corporate owners;
(b)$15,000 is appropriate per unit for non-occupiers ; and
(c)$25,000 is appropriate per unit for occupiers.
As Baragwanath J points out, however, not all the claims can be neatly categorised in this way and some evaluative assessment may be required.
[154] This approach involves elements of rough justice. By way of illustration of this proposition, a purchaser with a phlegmatic disposition does as well as one who is more prone to stress and allowances for the length of time the purchasers have lived with the problem are broad-brush at best. On the other hand, there is a limit to the extent to which it is practical to go into fine detail on assessments of this kind.
[131] Nevertheless, taking into account the observation of the Court of Appeal that an evaluative assessment is required, and without belittling the extent of stress and anxiety that the whole saga has caused to Ms White, I am not persuaded that it is a case for an award of general damages. I do not reject her evidence that the whole matter has caused her substantial stress. However, she has been away from the property for reasons other than its leaky state, she has been able to earn a market rental for it and will receive a contribution to the reduction in rental income, and she will not suffer the inconvenience of living there whilst repairs are undertaken. I found her to be an intelligent and mature woman who has received and taken thorough advice throughout the period in which a claim has been contemplated and pursued.
[132] This case is yet another of a structure completed in accordance with then permissible building standards that has caused losses disproportionate to its original value. To an extent, the Zadehs are not the authors of their own misfortune. The context discussed at [103] above somewhat distinguishes this case from other recent authorities. In making the statements that he did, Mr Zadeh was at pains to separate himself from the malicious actions and statements of the previous tenant in the property. While I have found that the statements Mr Zadeh made in the context of discussing the previous tenant’s banner amounted to actionable misrepresentations, I am not convinced that in this particular context an additional award of general damages is justified. Ultimately, stress for innocent purchasers in Ms White’s position is substantially caused by systemic failings. The case is a financial disaster for all
involved, and I consider it not to be a case deserving of an additional award for general damages.
Costs
[133] I was not given any indication of there having been attempts to settle the dispute. In the absence of any Caldberbank type offers that would have achieved a comparable outcome for Ms White, this is a case in which the successful plaintiff is entitled to costs, which I set on a 2B basis, together with all reasonable disbursements, the extent of which are to be settled by the Registrar in the absence of agreement between counsel.
Dobson J
Solicitors:
Stallard Law, Nelson for plaintiff Knapps Lawyers, Nelson for defendants
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