Wordsworth v Purdie HC Auckland CIV 2010-404-001933

[2011] NZHC 1299

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-001933

BETWEEN  CJ WORDSWORTH AND NJ WORDSWORTH Plaintiffs

ANDNR PURDIE First Defendant

ANDHOUSE INSPECTIONS NZ LIMITED Second Defendant

ANDTJ BROWN Third Defendant

ANDJP BROWN Fourth Defendant

ANDM BISHARA Fifth Defendant

Hearing:         25 October 2011

Counsel:         MRC Wolff for the Plaintiffs

No Appearance for the First to Fourth Defendants
No Appearance for or by the Fifth Defendant

Judgment:      25 October 2011

[INTERIM] ORAL JUDGMENT OF WYLIE J (Formal Proof)

WORDSWORTH & ANOR V PURDIE & ORS HC AK CIV 2010-404-001933 25 October 2011

[1]      This is a leaky building case.  The plaintiffs, Mr and Mrs Wordsworth, seek judgment by way of formal proof against the fifth defendant, Mr Bishara.

Background

[2]      In May 2006, Mr and Mrs Wordsworth purchased a residential property at

4 Ashley Avenue, Torbay, Auckland from the third and fourth defendants, a Mr and Mrs Brown.  Mr and Mrs Brown had built the dwelling on the property between June and September 2002.  Mr Bishara had inspected the building while it was being built and  he  issued  the  code  compliance  certificate  in  respect  of  the  dwelling  on

12 December 2002.

[3]      It transpired that the dwelling was a leaky house.  There were various defects. They are itemised in the statement of claim as follows:

Defects

The dwelling was built with defects, including but not limited to:

(a)       Fibre   cement   cladding   not   installed   in   accordance   with   the

manufacturer’s technical literature;

(b)      Insufficient fall on the deck;

(c)       Lack of adequate drainage outlet on the deck;

(d)      Insufficient cladding clearance between the deck surface and deck balustrade walls;

(e)       Flat top balustrade wall on deck;

(f)       Incorrectly installed head flashings;

(g)       Support column to balcony not built correctly;

(h)      Junction  between  some  joinery  and  decorative  mouldings  not weatherproofed;

(i)       No gap between head flashings and cladding sheets;

(j)       Junction   between   wall   and   pergola   beams   not   adequately waterproofed;

(k)      Inter storey decorative band not adequately waterproofed; (l)        Unsealed cable penetrations;

(m)     Lack of saddle flashings to deck balustrade/wall junctions; (n)      Insufficient bracing.

[4]      As a result of the defects there was extensive moisture ingress through the roof and the cladding and into the structure of the dwelling, resulting in the need for extensive repairs to the exterior envelope of the house and to its structural elements.

[5]      Mr and Mrs Wordsworth  initially did not appreciate the full extent of the problem.   They endeavoured to stop the leaks.   They had various works done by Gunac (South Auckland) Limited at a total cost of $46,787.24.  Those works proved to be unsuccessful.

[6]      In May 2007, Mr and Mrs Wordsworth made application to the Weathertight Homes Resolutions Service.  A report dated July 2007 was prepared by Mr Neville, an assessor.  Mr Neville recorded that there was evidence of extensive water ingress and associated deterioration and decay, and that the house suffered from a lack of weathertight integrity.  He noted widespread areas of advanced decay, particularly in the front of the property and around the garage and garage bedroom on the lower level.   He recommended that certain work should be urgently undertaken in an attempt to reduce the extent of moisture ingress, decay and deterioration.   He recommended that all decayed timber and adjacent timber be removed for a distance of one metre past the site of decay and replaced with treated timber.   Mr Neville expressed the opinion that it would be prudent given:

(a)       the advanced levels of decay discovered;

(b)the “false negative” moisture content readings obtained during his assessment;

(c)       the perishable quality of the untreated framing; and

(d)      the extent of required re-cladding removal

to completely remove all cladding from the upper north-west and south elevations and to replace the cladding over a drained and ventilated cavity.   The cost of the

remediation works was estimated to be $207,308 including GST.  This estimate was based on costings done by a building firm.

[7]      Mr Neville prepared a subsequent report dated 30 July 2007.  He advised that there was some deterioration to the roof and therefore that roofing repairs were also necessary. The estimated cost of these repairs was $1,013 including GST.

[8]      Mr and Mrs Wordsworth then obtained three estimates from builders for the required repair work. Those estimates were as follows:

(a)      Dry Home Solutions, dated 8 May 2007.  It estimated the repair costs at $220,300 plus GST.  The estimate made no allowance for the appointment of a building consultant.   It recorded that a building consultant’s costs were likely to be in the vicinity of $50,000.

(b)      Reclad  Solutions,  dated  19  May  2007.    The  estimated  price  was

$207,050 plus GST.   No allowance was made for work on existing decks, roofs, or landscaping.  There was no allowance for a building consultant, although it noted that one would be required.

(c)      Babbage Consultants  Limited, dated 21  May 2007. The estimated figure for repairs was $285,000 plus GST. It was described as being a “ball-park budget”.   It recorded that until the “de-clad works” had been completed, and the extent of damage and decay quantified, it was impossible to provide a precise figure for completion of the required remediation works.

[9]      Against this background, Mr and Mrs Wordsworth had to decide whether to repair  or  rebuild  the house.   They were  concerned  that  they had  already spent substantial sums trying to repair the property and that those repairs had been unsuccessful.   They were also concerned that each of the estimates received were just that, estimates only, and that each of the building contractors approached had warned  them  that  the costs  could  increase,  depending on  the extent  of damage

revealed once the remediation works commenced.   They therefore decided to demolish the house and to rebuild the same.

[10]     In June 2008, Mr and Mrs Wordsworth entered into a contract to demolish the house.  The demolition works occurred and the total cost involved was $11,659.50 including GST.

[11]     Mr and Mrs Wordsworth  then  entered  into  a  contract  with  Team  Build (New Zealand) Limited.  That company is a franchisee for GJ Gardner Homes.  A new house was constructed and practical completion was achieved on 5 May 2009. The total cost of the new house was $343,027.90.

The Proceedings

[12]     In March 2010, Mr and Mrs Wordsworth commenced proceedings against the various entities involved in the construction, certification and sale of the original house.  The first and second defendants had carried out a pre-purchase report.  They were sued for breach of the Fair Trading Act and for giving negligent advice.  The second defendant was also sued for breach of contract.  The third defendant was the vendor, Mr Brown.  He was sued in negligence as the designer, the builder, and the project manager.  Mr Brown and the fourth defendant, his wife, were also sued in negligence as property developers.  Mr Bishara, was sued in negligence.  The sixth and seventh defendants, the real estate agent and the firm responsible for the sale, were sued under s 9 of the Fair Trading Act and for negligent misstatement.

[13]     An  amended  statement  of  claim  was  filed  in  September  2010.     The amendment introduced the eighth defendants, the vendors of the property.   They were sued for negligent misstatement.

[14]     The statement of claim recorded that there was damage to the house as a result of extensive moisture ingress through the roof and the cladding, and that this damage caused the need for extensive repairs to the exterior envelope and structural elements of the building.   Mr and Mrs Wordsworth sought to recover the costs of attending to the repair work.  They noted that that cost was approximately $320,625,

plus the costs of repairs carried out by Gunac (South Auckland) Limited.   The

$320,625 referred to in the statement of claim was calculated by reference to the highest estimate for repairs, namely $285,000 plus GST.

[15]     Mr and Mrs Wordsworth have settled matters with most of the defendants. The first and second defendants contributed the sum of $10,000 jointly to the settlement.    The  sixth,  seventh  and  eighth  defendants  contributed  the  sum  of

$210,000 to the settlement.   Mr and Mrs Wordsworth were unable to serve either Mr or Mrs Brown, and can take matters no further against those parties.  A notice of discontinuance has been filed in respect of the sixth, seventh and eighth defendants.

[16]     That leaves the fifth defendant, Mr Bishara, outstanding.

[17]     Mr Bishara  was  served  on  9  April  2010.    An  affidavit  has  been  filed confirming that service took place.  Mr Bishara has taken no steps in the proceeding. On 21 September 2011, Allan J directed that Mr and Mrs Wordsworth’s evidence in support of their application for judgment by way of formal proof could be adduced by way of affidavits.

[18]     A number of affidavits have been filed, and I have read them. [19]     I refer to some of the affidavits.  In particular:

(a)      An affidavit has been filed by a Mr Cartwright, a specialist building consultant.   He deposed that a reasonable and prudent building inspector performing the inspections carried out by Mr Bishara ought to have detected the various defects itemised in the statement of claim and in the Weathertight Homes Resolutions Services assessor’s report. He was of the opinion that Mr Bishara’s failure to detect the defects caused the house to be built with the defects.  As a result, the house was built in a way that did not comply with the then relevant building code.

(b)Mr  Neville  has  filed  an  affidavit  confirming  that  his  assessments prepared for the Weathertight Homes Resolution Service are true and correct.

[20]     Mr and Mrs Wordsworth are now seeking judgment against Mr Bishara.  The amount claimed against him is $425,050.55.  It is made up as follows:

Item	Sum	Interest	Total
Failed remedial work	$46,787.24	$5,674.97	$52,462.21
Demolition	$11,659.50	$1,414.22	$13,073.72
Repairs	$320,625.00	$38,889.62	$359,514.62
Total	$425,050.55

Liability

[21]     Strictly,  Mr and Mrs Wordsworth  need  not  establish  Mr Bishara’s  liability because he has taken no steps in the proceeding.  In any event, there is no difficulty as  to  liability.    I  am  satisfied  on  the  basis  of  Mr Cartwright’s  affidavit  that Mr Bishara was negligent.  I enter judgment against him accordingly.

Damages

[22]     The amount sought in the statement of claim is payment of an unliquidated demand.  Pursuant to r 15.10 of the High Court Rules, the proceedings must be tried to assess damages in such circumstances.  Under r 15.11, the hearing can proceed on the affidavits already filed.

[23]     As noted above in [15], Mr and Mrs Wordsworth have partially settled these proceedings.  They nevertheless seek judgment against Mr Bishara in the full amount noted in [20] above.  They acknowledge that that sum represents their total loss, and that they are not entitled to recover anymore from Mr Bishara than the full amount of

their loss.  In other words, in any recovery proceedings they will have to account for the sums already paid to them in partial settlement.[1]

[1] DB Breweries Ltd v Mainzeal Property & Construction Ltd HC Auckland CP418/96, 26 June 2000 at 88; Body Corporate 185960 v North Shore City Council HC Auckland CIV 2006-004- 003535, 28 April 2009.

[24]     When a defendant takes no steps and payment is sought of an unliquidated demand, the general principle is that a plaintiff in such circumstances must prove damages before judgment is given and an order is sealed, unless the damage is dependent on loss.  In such cases, the plaintiff must also prove the loss.[2]

[2] Moraham v Stubb (1993) 7 PRNZ 178 (HC).

[25]     Here, Mr and Mrs Wordsworth have proven both their loss and their damages in a broad sense.  I do however have some difficulty with the claim for damages to the extent that it is based on the highest estimate for repairs given by Babbage Consultants Limited.

[26]     Mr Bishara was sued in negligence.  In tort the Court awards compensatory damages: the sum of money required to put the plaintiff in the same position he or she would have been in if the tort had not been committed.

[27]     Here,  there  is  real  difficulty  with  the  estimate  relied  upon  to  found  the damages claim.   The Babbage Consultants Limited estimate was no more than a “ball-park budget”.  Mr and Mrs Wordsworth have understandably sought to rely on the Babbage Consultants Limited estimate because it was the highest estimate, but it was far from certain.

[28]     In such cases, the Court must estimate the value in money terms of the loss suffered by the plaintiffs and where uncertainty makes it difficult to calculate damages, the Court must simply do the best it can in the circumstances.[3]   In the end, the assessment of damages is essentially a question of fact.  Any rules or principles

[3] Butler v Countrywide Finance Ltd [1993] 3 NZLR 623 (HC) at 639.

constitute guidance only. The objective is to be fair to both sides.[4]

[4] Chase v De Groot [1994] 1 NZLR 613 (HC) at 627; Professor Todd (ed) The Law Reports of New Zealand (5th ed,) 1113–1114 at [25.201].

[29]     In the present case, it seems to me that it is highly speculative to rely on the one estimate from Babbage Consultants Limited for the following reasons:

(a)      there are significant differences between the estimates obtained.  They range from $207,050 to $285,000, both plus GST;

(b)there is a significant difference between the estimate and the figure for remediation  given  in  the  assessor’s  report  ($207,308  inclusive  of GST), and

(c)       none of the estimates were certain.

To award damages based on the highest estimate might well be unfair to one or both parties.

[30]     In my opinion, a better approach is to take the actual cost of rebuilding, namely    $343,027.90,    and    deduct    from    that    cost    any    betterment    that Mr and Mrs Wordsworth have achieved.   This could well include the fact that the new house will not have any “leaky house” stigma attached to it and may well be more readily saleable in the future.

[31]     Unfortunately, the case was not pleaded in this way, nor is there any evidence of  such  betterment  before  me.    Accordingly,  I  adjourn  this  hearing  to  enable Mr and Mrs Wordsworth to:

(a)      file an amended statement of claim seeking damages by reference to the actual rebuilding costs, less betterment, and

(b)obtain evidence from a reputable valuation expert as to the quantum of any betterment.

[32]     I comment on the issue of interest.  Again, Mr and Mrs Wordsworth sought interest from the date the proceedings were filed on the repair costs.  For the reasons I have noted above, it would seem to me preferable if interest, at the appropriate Judicature Act rates from time to time, was to be calculated from the date or dates

when Mr and Mrs Wordsworth paid for the construction of the new house.  It seems to me that this is more likely to put Mr and Mrs Wordsworth in the position they would have been in if the negligence had not occurred.

[33]     There can be no difficulty with the claim in respect of the failed remedial works or the demolition costs.   Mr and Mrs Wordsworth lost the house they had purchased, inter alia, in reliance on Mr Bishara having satisfactorily carried out his inspections and duties as a building inspector.  He did not do so, and the damages claimed in respect of the failed remedial works and the demolition costs are a direct consequence of his negligence among other things. Accordingly, I award damages to Mr and Mrs Wordsworth in the sum of $46,787.24 for the failed remedial work and

$11,659.50 for the demolition works.

[34]     Mr and Mrs Wordsworth should also be entitled to interest to compensate them for their loss.  On their behalf, Mr Wolff sought interest at the Judicature Act

1908 rates from the date that the proceedings were issued.  I do not think that is the appropriate date from which to properly compensate Mr and Mrs Wordsworth for their loss.  In my view, Mr and Mrs Wordsworth should be entitled to interest at the appropriate Judicature Act rates as from the date they paid for the failed remedial work and for the demolition work.  I direct Mr and Mrs Wordsworth to finalise their claim on this basis and to forward their resulting calculations to the Court for final approval and the entry of judgment.

Costs

[35]     Costs in relation to this matter to date are reserved.

[36]     I direct that any amended pleading and any valuation evidence is to be filed within 20 working days of today’s date.  The matter is then to be referred back to me

for any further directions that shall be necessary.

Wylie J