Saffioti v Ward [2013] NZHC 2831 (29 October 2013)

Last Updated: 26 November 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-003390 [2013] NZHC 2831

IN THE MATTER of an appeal against the decision of the

Weathertight Homes Tribunal at Auckland

BETWEEN CARL SANTO SAFFIOTI and EIJA MARITA LINDEN SAFFIOTI Appellants

AND GREGORY PAUL WARD and KIM MICHELLE WARD

First Respondents

TONY HERON Second Respondent

Hearing: 8-9 October 2013

Counsel: TJ Rainey for Appellants

S Grant for First Respondent

Second Respondent in person

Judgment: 29 October 2013

_{JUDGMENT OF ASHER J}

This judgment was delivered by me on Tuesday, 29 October 2013 at 11.00 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel: Rainey Law, Auckland. Kennedys, Auckland.

S Grant, Auckland.

Copy to:

Second Respondent

SAFFIOTI v WARD [2013] NZHC 2831 [29 October 2013]

Table of Contents

_{Para No}

Introduction [1] Lead up to the claim [2] The Tribunal decision [5] The Ward appeal

Introduction [12]

Case law [18] Interpretation of cl 6.2(5)(d) [24] Subclause (b) [45] Breach [57] The Heron appeal [72] Result [83]

Introduction

[1] In 2004, Carl and Eija Saffioti purchased a home at 34 Wairere Avenue, Mt Albert. It proved to be a leaky building and was re-clad. The Saffiotis sought to recover the cost of that re-cladding by issuing proceedings in the Weathertight Homes Tribunal against a number of parties. Those parties included the first respondents Gregory and Kim Ward from whom they had purchased the property, and the second respondent Tony Heron, who had signed the code compliance certificate. Although they succeeded against some parties, the Saffiotis failed in their claims against the Wards and Mr Heron. This is an appeal against those two parts of

the Weathertight Homes Tribunal decision.¹

Lead up to the claim

[2] In 2002, Gregory and Kim Ward built a home for themselves at 34 Wairere Avenue, Mt Albert (the property). They had no particular knowledge of or skill in building. They used an architect and employed builders. There was a building consent for the work done, and after the work was completed they obtained a code compliance certificate (CCC). They employed Approved Building Certifiers Ltd (ABC), a building certifier, to carry out the certification process. One of the employees of ABC was the second respondent, Mr Heron. There were no

_{weathertightness issues evident after completion of the work or through the duration}

¹ Saffioti v Ward [2013] NZWHT Auckland 17.

of the Wards’ ownership of the property. There was no suggestion that they were aware of any problems.

[3] On 26 September 2004, the Wards and Saffiotis entered into an agreement for sale and purchase of the property to the Saffiotis for $600,000. The agreement was conditional on obtaining a LIM report and a satisfactory pre-purchase building report. These reports were obtained and did not contain significant adverse information.

[4] The Saffiotis settled and occupied the property for almost five years without any leaking issues becoming apparent. Then, in June 2009, they experienced a leak in the lounge. On 26 November 2009, they made an application for an assessor’s report under s 32 of the Weathertight Homes Resolution Services Act 2006 (WHRSA). In due course the Saffiotis re-clad their house (but not the roof). Ultimately this led to a hearing, the decision of the Weathertight Homes Tribunal (the Tribunal) and this appeal.

The Tribunal decision

[5] Two building experts gave evidence before the Tribunal, an expert assessor Mr Noel Casey appointed under the WHRSA, and Mr Barry Gill, a registered building surveyor who gave evidence for Mr and Mrs Saffioti. It was Mr Gill’s uncontradicted evidence, which was accepted by the Tribunal, that the defects which caused or contributed to the leaks in the house were as follows:²

A. The timber barge boards were imbedded within the EIFS cladding. B. The joinery penetrations lacked an adequate weathertight seal.

C. The parapet cap flashings were ineffective.

4. The apron flashings lacked a kick-out or appropriate means of diverting water away from the cladding.

E. The service penetrations were not sealed.

6. There were no saddle flashings provided at the parapet cladding junctions.

² Saffioti v Ward, above n 1, at [11].

[6] All of the defects arose from the original construction of the house and were present at the time of the CCC issuing on 16 April 2002, as well as when the agreement for sale and purchase between the Wards and the Saffiotis was settled on

8 December 2004. At the hearing, the experts agreed that a full re-clad of the house had been required save for the roof of the house or eaves replacing the former parapet caps. Mr Gill’s evidence, which the Tribunal accepted, was that defect “B” on its own had required a full re-clad. With some windows there was no sealant between the sill and jamb flashings, and with others inadequate sealant. This defect was accentuated by a lack of correct drip detail at the base of the cladding. There was no dispute before the Tribunal as to the reasonableness of the amount spent on re-cladding of $281,588.87.

[7] The Tribunal’s decision covered a range of claims. The appeal is limited to two aspects of its determination, namely:

The decision to dismiss the claim against the Wards alleging a breach

_{of the vendor warranties; and}

The decision to dismiss the claim against Mr Heron alleging that as an employee of ABC he was negligent in issuing the building certificate in reliance on which the building consent was issued, and in issuing

_{the code compliance certificate.}

[8] The Tribunal determined that the claim against the Wards turned on the interpretation of the warranties contained in cls 6.2(5)(b) and (d) of the agreement for sale and purchase. It concluded that the warranties did not extend to a warranty that there had been compliance with the Building Code when the house was built, or a warranty that the Building Code had been complied with in all respects. Therefore, the Saffiotis’ claims against the Wards failed. The Tribunal’s reasoning will be considered in greater detail later in this judgment.

[9] The claim against Mr Heron was dismissed on the basis that although

Mr Heron owed a duty to exercise due skill and care in performing his building

control functions, there was no evidence that he had breached that duty of care or done any work in a negligent fashion.

[10] I accept Mr Rainey’s submission that this is an appeal by way of a rehearing and that the Court has the responsibility of arriving at its own assessment of the merits of the case.³ The appellant bears an onus of satisfying the appeal Court that it should differ from the decision below.⁴

[11] There are in effect two separate appeals before the Court: the appeal against the claims against Mr and Mrs Ward, and the appeal against the claim against Mr Heron. They will be considered separately.

The Ward appeal

Introduction

[12] Clause 6.2(5) of the agreement for sale and purchase read:

The vendor warrants and undertakes that at the giving and taking of possession:

...

(5) Where the vendor has done or caused or permitted to be done on the property any works for which a permit or building consent was required by law:

(a) The required permit or consent was obtained; and

(b) The works were completed in compliance with that permit or consent; and

(c) Where appropriate, a code compliance certificate was issued for those works; and

(d) All obligations imposed under the Building Act 1991 were fully complied with.

(emphasis added)

[13] The form of agreement was the seventh edition of the Auckland District Law

_{Society form. There is now an eighth edition and cl 6.2(5)(d) has been deleted.}

³ _{Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [5].}

⁴ At [4].

[14] Mr Rainey, who appeared for the Saffiotis, asserted that both cls 6.2(5)(b) and (d) were breached and that the Tribunal’s decision to the contrary was in error. There are common themes running through his submissions on both cls 6.2(5)(b) and (d), and in the submissions of Ms Grant who appeared for the Wards. The principles on interpretation that are to be applied were not the subject of debate between counsel, and do not require elaboration.

[15] As was observed by the Court of Appeal in Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd, the “best start to understanding a document is to read the words used, and to ascertain their natural and ordinary meaning in the context of the document as a whole”.⁵ The natural and ordinary meaning of the words used by the parties must be understood in the proper context, not just of the document, but against the background facts. In that regard, the Court can look

outside a written contract to ascertain from the background facts the objective intentions of the parties.⁶ The background can be used as a cross-check or to assist in difficult interpretation points.

[16] In this case, part of the immediate context is the Building Act 1991, which is referred to in cl 6.2(5)(d), and the New Zealand Building Code (the Building Code).⁷

The Building Code was enacted under s 48, which provides for the making of regulations. Mr Rainey made submissions first in relation to cl 6.2(5)(d), and submitted that it must include the obligation under s 7(1) of the Building Act 1991 which provides that all building work shall comply with the Building Code.

[17] The Tribunal concluded that subcl (d) added nothing to the warranties in (a)-(c) and did not involve any warranty that the works done complied with the requirements of the Building Act and therefore the Building Code. The reference to compliance with the Building Act 1991 was to the house being “... the plans

_{attached to that consent and any relevant conditions contained in that consent”.}⁸

⁵ _{Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd [2002] NZEmpC 79; [2001] NZAR 789 (CA) at [29].}

⁶ _{See Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641 (CA) at 650–651.}

⁷ _{The Building Act 1991 has now been replaced by the Building Act 2004.}

⁸ Saffioti v Ward, above n 1, at [55].

Case law

[18] Mr Rainey submitted that the Tribunal’s interpretation of the warranties was wrong. He relied in particular on the High Court decision of Van Huijsduijnen v Woodley where Ronald Young J stated:⁹

I am satisfied that there is no reason to read down cl 5(d) by restricting its breadth only to Building Act requirements that relate to the code compliance certificate or the permit. To read down cl 5(d) in this way is, in my view, to reduce the clause to a superfluous provision except where the consent or code compliance certificate was wrongly granted.

However, in that situation, in terms of cl 6.2, the vendor will still be liable because of the warranty the vendor has given pursuant to cl 5(d). Irrespective of the warranties in cls 5(a), (b) and (c), the vendor warrants compliance with the Act and, therefore, the Code.

Thus, in most cases the warranty in cl 5(d) will add nothing to the warranties given in cl 5(a), (b) and (c). But the cl 5(d) warranty will be operative where the local authority’s process has failed and the permit or code compliance certificate wrongly granted. But I do not consider cl 5(d)’s meaning is restricted in the way identified by MacKenzie J in Ford v Ryan.

[19] It was observed in that case that the meaning of subcl (d) was “not at all clear”¹⁰ and that it had been removed from subsequent versions of the standard form agreement for sale and purchase, possibly because of the uncertainty of its breadth.¹¹

[20] The case can be contrasted with the decision of Ford v Ryan,¹² which Ronald Young J did not follow.¹³ MacKenzie J in Ford v Ryan took the view that under subcl (d) there had to be evidence that an obligation imposed under the Building Act, apart from those contained in the Building Code and to which a CCC would relate,

“had not been complied with”. He referred to a failure to comply with any part of the Building Code “which would prevent the issue of a [code compliance certificate] constituting a breach of subclause (d)”. He held that subcl (d) was “not a warranty

_{as to quality”.}¹⁴

⁹ _{Van Huijsduijnen v Woodley [2012] NZHC 2685 at [32]–[34].}

¹⁰ _{At [24].}

¹¹ _{At [30].}

¹² _{Ford v Ryan [2007] NZHC 1454; (2007) 8 NZCPR 945 (HC) at [21].}

¹³ _{Van Huijsduijnen v Woodley, above n 9, at [34].}

¹⁴ At [25].

[21] Ford v Ryan was followed by Williams J in Newton v Stewart¹⁵ in relation to the interpretation of cl 6.2(5) in the same form as in the present case. He noted:

The first point to make is that cl 6.2(5) of the agreement for sale and purchase is not a warranty as to the quality of the home. Specifically, it is not a warranty that the home is watertight.

[22] An approach which is consistent with Ford v Ryan and Newton v Stewart has in my view been since applied by this Court in Keven Investments Ltd v Montgomery¹⁶ and Brebner v Collie,¹⁷ which are considered later in this judgment.

[23] The approach in Ford v Ryan and Newton v Stewart was applied by the Tribunal in Heath v Auckland City Council¹⁸ and in the original Tribunal decision of Van Huijsduijnen v Woodley.¹⁹ The Tribunal decision in this case also followed the line of reasoning in Ford v Ryan and Newton v Stewart.²⁰ In particular, the Tribunal stated:²¹

We consider that the ordinary and natural meaning of sub-clause (d) of the contract between Mr and Mrs Ward and Mr and Mrs Saffioti was that a building consent had been obtained before the house was built, the house had been built in accordance with that consent, and that a CCC had been issued after the house had been completed. We consider that there was no intention for the warranty in sub-clause (d) to include compliance with the Building Code beyond the compliance necessary to obtain the consents referred to in the preceding sub clauses. At the time of settlement there had been no failure by Mr and Mrs Ward that would have prevented the CCC from being issued and the CCC demonstrated that the Building Code had been complied with.

Interpretation of cl 6.2(5)(d)

[24] The operative words to be drawn from cl 6.2(5)(d) conflating the words of the clause are:

¹⁵ _{Newton v Stewart [2013] NZHC 970 at [98].}

¹⁶ _{Keven Investments Ltd v Montgomery [2012] NZHC 1596.}

¹⁷ _{Brebner v Collie [2013] NZHC 63.}

¹⁸ _{Heath v Auckland City Council [2012] NZWHT Auckland 20 at [63]–[67].}

19. Van Huijsduijnen v Woodley [2012] NZWHT Auckland 11 at [184]–[186] (this not being accepted in obiter dicta on appeal: Van Huijsduijnen v Woodley, above n 9).

²⁰ _{At [57]–[64].}

²¹ At [64].

The vendor warrants and undertakes that at the giving and taking of possession ... where the vendor has done or caused or permitted to be done on the property works for which a permit or building consent was required by law ... all obligations imposed under the Building Act 1991 were fully complied with.

(emphasis added)

[25] As one of the “obligations” imposed under the Building Act 1991, Mr Rainey

relies on s 7, which provides:

7 All building work to comply with building code

(1) All building work shall comply with the building code to the extent required by this Act, whether or not a building consent is required in respect of that building work.

(2) Except as specifically provided to the contrary in any Act, no person, in undertaking any building work, shall be required to achieve performance criteria additional to or more restrictive in relation to that building work than the performance criteria specified in the building code.

[26] It is his submission that this section places an obligation on a non-builder owner to comply with the Building Code in respect of any building, and that therefore the Wards have warranted that the Building Code has been complied with in all respects. The Building Code²² contains express provisions that the building shall be constructed to provide adequate resistance to penetration by and the accumulation of moisture,²³ and that the exterior walls shall prevent the penetration of water that could cause undue dampness or damage to building elements.²⁴ It was Mr Rainey’s core argument that through s 7, the Wards warranted there had been

compliance with the watertightness provisions of the Building Code. Since the building had been proven to leak, the Wards were in breach. He also referred to a BRANZ document which contained express “good practice” for sealing window joints, but this document was not part of the Building Code, and he did not argue that the BRANZ requirements were part of the s 7 obligation.

[27] So the starting point is: what do the words in subcl (d) mean on a plain reading? The reference to compliance with “all obligations imposed under the

²² _{Building Regulations 1992.}

²³ _{E 2.2.}

²⁴ E 2.3.2.

Building Act 1991” is on its face a reference to all obligations in an Act which, including schedules, is 51 closely typed pages long.²⁵ There is no reference in subcl (d) to the Building Code, which is not a part of the Building Act 1991. Rather, it is a schedule to regulations made under the Act.²⁶

[28] As Ms Grant pointed out in submissions, the Act places obligations on not just the owner of a building who has applied for a building consent and carried out a construction, but on a number of parties. For example, there are obligations placed on territorial authorities relating to the audit of the issue of building consents²⁷ and to submit estimates of expenditure to the Minister.²⁸ The Act also imposes obligations on the Minister,²⁹ and on the Building Industry Authority.³⁰

[29] However, Mr Rainey did not suggest that subcl (d) placed a warranty on a vendor that all obligations by all parties upon whom obligations were placed under the Building Act 1991, were complied with. As I understand his submission, it was that subcl (d) meant that the vendor warranted that where the vendor had done or caused or permitted to be done works on the house, all obligations imposed on the owner (as distinct from every party) under the Building Act 1991 were fully complied with. Such a limitation does not necessarily flow from the wording of subcl (d) which refers to “all obligations” without reference to any particular party’s obligations.

[30] Mr Rainey submitted that the issue was whether subcl (d) meant what it said. However, to succeed Mr Rainey’s submission requires subcl (d) to be read as referring only to obligations under the Act that fall on the owner under the Act. Mr Rainey is effectively arguing that the warranty means more than it says. Further, the warranty he argues does not just relate to obligations on owners under the Building Act 1991, but on the appellants’ submission, a warranty that another

_{document altogether, the Building Code, will be complied with because it is referred}

²⁵ _{It has now been replaced by the Building Act 2004.}

²⁶ _{Building Regulations 1992.}

²⁷ _{Building Act 1991, s 23E(1), (3) and (4).}

²⁸ Section 23J(2). See also ss 23K(3), 23L(1) and (2); 24, 25(2) and (3); 27(1), (3) and (4); 29(4),

_{31(1), (2), (3) and (5); 33(2A) and (6); 34(1) and (5); 34A(3); 35(1) and (2).}

²⁹ _{See for example ss 23I and 23J.}

³⁰ See for example ss 20 and 23D(2).

to by s 7 of that Act. The appellants are seeking a wide interpretation of the subclause.

[31] The Building Act 1991 unambiguously does impose various obligations on owners. For instance, at s 33(1) it was stated that an owner intending to carry out any building work shall, before the commencement of work, apply for a building consent. If work is commenced without a building consent the owner shall take all reasonable steps to obtain one.³¹

[32] In contrast to the specific duties in the Act placed on “the owner” and other parties,³² s 7 is not worded so as to expressly impose a duty on “an owner” or to comply with the Building Code should that owner undertake building work. Section 7 is placed in pt 2 of the Act which is headed “Purposes and principles”. It is clearly a principle and purpose of the Act that all building work shall comply with the Building Code, but this is a very different matter from s 7 imposing an “obligation” on all owners to so comply. The word “obligation” is not used in s 7 and there is no reference to owners, or any other party for that matter. It reads as a

“principle”, rather than as an “obligation”. It is “all building work” and not the “owner” that must comply. It is difficult to transform a principle of compliance with the Building Code into a specific duty on an owner to ensure compliance with all of its requirements. If s 7 was intended to place obligations on specific parties it could be expected that it would have said so, and not place the obligation under a “Purposes and principles” heading.

[33] As has been observed in other cases, there has been no implied warranty for vendors in New Zealand that residential houses they sell have any quality or fitness for any particular purpose. There is no implied term of merchantable quality for houses. The law on this point has been clearly articulated and is well known.³³

_{Caveat emptor applies to contracts for the sale and purchase of land.}³⁴

³¹ _{S 32(2)(A). See also for example ss 33(1), 43(1), 44(4), 45(1) and (2), 46(1) and 65(5).}

³² _{For example, s 33 of the Building Act 1991.}

³³ _{Lynch v Thorne [1956] 1 WLR 303 (CA); Ware v Johnson [1984] 2 NZLR 518 (HC) at 534.}

³⁴ Spooner v Eustace [1963] NZLR 913 (HC) at 916; Riddell v Porteous [1999] 1 NZLR 1 (CA) at

8; Ford v Ryan, above n 12.

[34] It could be expected that if the parties intended to depart radically from that principle, as they would have done if the clause has the meaning proposed by Mr Rainey, this would be clearly articulated in the subclause by words to the effect that “the vendor warrants that all works done or caused or permitted by the vendor comply with the provisions of the Building Code”. There are no such words. This indicates that the expansive interpretation of “all obligations” urged by the appellant should be rejected. Section 7 does not create a bridge that turns a warranty of compliance with the Building Act 1991 into a warranty of compliance with the Building Code.

[35] A refusal to read subcl (d) as a vendor warranty of compliance with the Building Code is consistent with the Ford v Ryan and Newton v Stewart line of cases.³⁵ There, an interpretation of cl 6.2(5) that it was a warranty as to quality by the vendor was not accepted. It is also consistent with the approach taken to the interpretation of cl 6.2(5)(b) in Keven Investments Ltd v Montgomery. In that decision, Woodhouse J noted the distinction between an obligation to comply with a

building consent and an obligation to build in compliance with the Building Code. He observed in the context of subcl (b) that if the warranty was given an extended meaning it could operate unfairly.³⁶ An owner, who has not been involved in the detail of a building and was innocent of any fault in relation to it, could be liable for an error of which that owner had no knowledge. He noted:³⁷

If it was the intention of the parties that the vendor was warranting that, at the giving and taking of possession the building complied with the building code or, more broadly, complied with all obligations imposed under the relevant Building Act, the straightforward and conventional way of achieving this would be to insert an express provision to that effect. It was not done.

[36] Although Woodhouse J was referring to subcl (b), I consider that his reasoning applies equally to subcl (d). In my view, when cl 6.2(5)(d) is read in the context of the words of the Building Act 1991 and s 7, it is not possible to interpret the clause as involving a warranty that all of the provisions of the Building Act 1991

_{including the Building Code have been complied with. It was referring to the}

³⁵ _{Referred to above at [20]–[23].}

³⁶ _{Keven Investments Ltd v Montgomery, above n 16, at [51].}

³⁷ At [52].

obligations that are specifically placed on owners under the Building Act 1991. This does not include s 7, which does not place any specific obligation on an owner, but rather sets out a general purpose and principle. It would be a massive jump from the usual position of caveat emptor to a position where there was a guarantee that the design and workmanship of a house complied with the Building Code. If it was the intention of the parties that a warranty of compliance with the Building Code was being given, it could be expected that subcl (d) would have said so.

[37] It is necessary to consider subcl (d) in relation to the other subclauses in cl 6. There is already at (a) an obligation on a vendor to have obtained the required permit or consent, and at (b) a warranty that the works were completed in compliance with that permit or consent. I will consider subcl (b) in more detail later in this judgment, but it can be observed that (a), (b) and (c) all relate to obligations already imposed by the Building Act 1991. The question must be considered whether (d) actually has any meaning in addition to (a)–(c) if this interpretation is correct, bearing in mind the assumption that the clause should be assumed to have been intended to have meaning independent of the other clauses.

[38] In my view it does, as there are references to obligations on vendors in the Building Act 1991 that go beyond the obligations to obtain a permit, consent, CCC and complete the works in compliance with those requirements. These include the obligation of an owner to provide compliance schedules (if applicable),³⁸ provide a building warrant of fitness,³⁹ and the liability of an owner for the cost of work done by a territorial authority.⁴⁰

[39] It has been noted that the current ADLS/REINZ form of agreement for sale and purchase no longer contains subcl (d). I decline Mr Rainey’s invitation to draw an inference from this that the change supports the broad meaning for which he contends. It does not seem to me that the later actions of the Auckland District Law Society, or the observations of Law Society commentators, years after the agreement for sale and purchase assist in interpretation in the way that Hansard reports on a Bill

_{assist in interpreting the statute that follows the debates. The later actions and}

³⁸ _{Building Act 1991, s 44(2).}

³⁹ _{Section 45.}

⁴⁰ Sections 65(5) and 75(1).

commentaries by Law Society commentators are not in themselves a guide to the meaning of the agreement between the Saffiotis and the Wards.

[40] I note that the commentators in the New Zealand Law Society seminar appear to assume that cl 6.4(2)(d) does impose a broad warranty of the type contended for by Mr Rainey, but with respect for the reasons set out, I do not agree with that view.

[41] Insofar as there is a conflict between the approach favoured by Ronald Young J in Van Huijsduijnen v Woodley,⁴¹ and Ford v Ryan I respectfully prefer the approach in Ford v Ryan for the reasons I have set out. I note that the relevant observations in Van Huijsduijnen v Woodley were obiter as ultimately on the facts the Judge found that there had been no breach of warranty. I have been also referred to the decision of Aldridge v Boe.⁴² That case considered a clause that did not include subcls (b) and (d) and does not assist.

_{[42] Thus in summary, in relation to subcl (d):}

The words refer to compliance with the Building Act 1991, not the

Building Code. The Building Code is a schedule to the Act, but not part of the Act.

For the words to extend to the Wards’ obligations under the Building

Code, a gloss has to be read into the clause that it is only obligations of owners under the Act that are warranted.

Further, s 7 would need to be read as imposing a duty on owners to comply with the Building Code. However, s 7 of the Building Act

1991 does not impose an obligation in the sense of a duty on an owner to comply with the Building Code, but rather sets out a principle or

_objective.

⁴¹ _{Van Huijsduijnen v Woodley, above n 9 at [32]–[36].}

⁴² Aldridge v Boe HC Auckland CIV-2010-404-7805, 10 January 2012.

Against the background of caveat emptor for purchasers of real estate in New Zealand, if it was intended to impose a warranty of fitness on

_{a vendor, the clause could be expected to say so expressly.}

The majority of relevant New Zealand cases do not support the

_{interpretation put forward by the appellant.}

[43] I conclude that subcl (d) does not either expressly or by implication provide a warranty by the Wards of compliance with the Building Code. This being my conclusion as to interpretation it follows that the Wards have not breached cl 6.2(5)(d). They obtained a CCC and appear to have met all obligations that are specifically placed on an owner under the Building Act 1991. They did nothing that would have prevented the issue of the certificate. They took the steps that they were obliged to take.

[44] I should refer to the fact that in support of her argument Ms Grant referred to the fact that the agreement provided for a builder’s report, and that this suggested that viewed objectively the parties were not relying on a long term warranty as to the fitness of the building. I am unable to accept that submission. It is not stated what type of building report was being sought. The report could well have been to discern the level of wear and tear, or whether any problems had arisen since building. The fact that the buyers of cars may have them checked by the Automobile Association does not negate the existence of the implied warranty of fitness for purpose in chattels contracts. I do not regard the building report condition as assisting the respondents’ argument.

Subclause (b)

[45] The operative words of cl 6.5(2)(b) conflating the divisions in the section are:

The vendor warrants and undertakes that at the giving and taking of possession ... where the vendor has done or caused or permitted to be done on the property any works for which a permit or building consent was required by law ... the works were completed in compliance with that permit or consent.

(emphasis added)

[46] It is necessary to turn to the words of the permit. The first paragraph on the first page under the box of details reads as follows:

The Building Consent is a consent under the Building Act 1991 to undertake building work in accordance with the attached plans and specifications so as to comply with the provisions of the New Zealand Building Code. It does not affect any duty or responsibility under any other Act nor permit any breach of any other Act. All endorsements on plans form part of the Building Consent and must be adhered to.

(emphasis added)

[47] It is the last sentence on which Mr Rainey relies. It can be seen that the first sentence states that there were works undertaken in accordance with the attached plans and specifications “so as to comply” with the Building Code. This was interpreted by Woodhouse J in Keven Investments Ltd v Montgomery as recording an objective, namely a statement of what was intended to be achieved if the plans were

complied with. It was not a directive. As he observed:⁴³

This interpretation, confined to the words of immediate relevance, would mean that, if the house was built in accordance with the plans, but if it did not comply with the building code for some reason, there would be no breach of the warranty.

[48] Woodhouse J noted a sharp distinction between an obligation to comply with the building consent and an obligation to build in compliance with the Building Code.⁴⁴ He made the observation already referred to that if an undertaking of compliance with all obligations imposed under the relevant Building Act was intended, it could be expected that this would be stated. This approach, which was followed by Peters J in Brebner v Collie,⁴⁵ is not contested by Mr Rainey. I record with respect that I consider Woodhouse J’s interpretation to be correct.

[49] Rather, Mr Rainey in focussing on the last sentence of the paragraph in the building consent submitted that the sentence distinguished this case from Keven Investments v Montgomery and Brebner v Collie. That sentence read “all endorsements on plans form part of the building consent and must be adhered to”.

_{Mr Rainey referred to a plan that had been drafted by the Wards’ architects that was}

⁴³ _{Keven Investments Ltd v Montgomery, above n 16, at [41].}

⁴⁴ _{At [50].}

⁴⁵ Brebner v Collie, above n 17.

part of the building consent. Under the heading “Architectural Notes”, the plan had

on it six bullet points, the first of which read:

All works to comply with the NZ Building Code 1999, all amendments and compliance documents and all local council bylaws.

[50] Mr Rainey submitted that the obligation to comply with the building consent involved an obligation to comply with this endorsement on the plan attached to the consent. Therefore, it was a warranty that the Building Code would be complied with. Because the Building Code weathertightness requirement had not been met, the warranty had been breached. This submission was not made to the Tribunal where there was no particular reliance placed on the sentence, and the Tribunal did not deal with it in its decision.

[51] I consider that as a matter of contractual interpretation, the warranty at subcl (b) did not impose a warranty that the Building Code had been complied with. I am unable to convert the sentence that all endorsements on the building consent plans be converted into an obligation to complete works in compliance with the Building Code. There is no warranty in subcl (b) that the Building Code has been complied with. The reference to complying with the Building Code both in the first sentence of the building consent, and the inferred reference to the Building Code in the third sentence, do not make a warranty of compliance with the consent into a warranty of compliance with the Building Code. If that had been the intention, given the background of caveat emptor already referred to, it could be expected that this would be stated.

[52] The appellants’ argument in this respect fails for a further reason. I do not regard the architectural note as an “endorsement” and therefore a building consent requirement that had to be complied with. The architect’s plan was provided to the certifier with the building permit application. The architect’s note in the first bullet point on that plan does not have the flavour of a condition or endorsement, and was no more than a general observation as to the standard to be observed by the builder. In later bullet points there are requirements set out, and explanations provided. For instance, the last bullet point reads:

Window schedule: 1218/200

Denotes 1200 high and 1800 wide

Unit with 200 x 100 lintel

Window heads above F.L.

[53] In light of the above, I consider that with the first bullet point, the architect has provided a general reminder in the nature of an explanatory note for the builder. It is not an endorsement.

[54] It could be expected that any requirements that fell within the wording of the last sentence relied on by Mr Rainey would be specific endorsements imposed by the certifier, in this case ABC. While the word “endorsements” is not defined in the building consent, I accept Ms Grant’s submission that in context it means an endorsement imposed by Auckland City or, when there is a private certifier, by that certifier. I note that in the earlier part of the paragraph the building consent is noted as issued subject to conditions and endorsements overleaf, and there are a number of specific endorsements which in terms of the consent must be adhered to. They are the type of “endorsements” referred to as part of the building consent. These are entirely different from informal architect’s notes set out on a plan attached to the building permit application.

[55] I conclude that the works had to be completed in compliance with the plans and specifications attached to the consent, and the relevant conditions and endorsements expressly recorded by the Council or certifier on that consent. But subcl (b) is not thereby converted into a warranty by the vendor that the works also comply with the provisions of the Building Code.

[56] It is not argued that there was any failure to construct in accordance with what was shown on the plans and specifications, or that there had been any failure to adhere to any endorsements on the plans (save for the architect’s note argument which I have rejected). Therefore the appeal in relation to the Tribunal’s finding as to the meaning of and breach of subcl (b) must be dismissed.

Breach

[57] The Tribunal noted that the consent contained seven specific conditions, none of which related to any of the six defects that had been established. It also noted that there had been no allegation made of a breach of any specific provision of the building consent or Building Code. There was no attempt to link any of the defects to any specific provision in the building consent or in the plans. The Tribunal, adopting its interpretation of (b), was unable to link any of the six defects to a relevant requirement of the building consent. None of the seven conditions listed in the consent had relevance to the defects. Therefore there had been no breach of subcl (b). There was also no breach of subcl (d) as the defects were not a result of departures from the building consent.

[58] The Tribunal went on to observe:⁴⁶

There is also no evidence that at the time Mr and Mrs Ward sold the house it did not comply with the performance based Building Code. To the contrary the information before the Tribunal suggests that house was not at that stage leaking. Mr and Mrs Ward were not aware of any potential issues with the property and the pre-purchase inspection report that Mr and Mrs Saffioti obtained before they declared the purchase unconditional concluded the house was in very good condition and had been very well maintained. It also stated that “the installation of the plaster system has initially been well carried out and we have found no areas of concern in terms of water tightness”. In addition when the assessor carried out his investigation over five years later there were relatively few high moisture readings.

[59] Mr Rainey argued that there had been a breach of the Building Code at the time of the building, pointing to the fact it had ultimately been shown to be not weatherproof. He referred to Mr Gill’s unchallenged evidence of a failure to seal and construct the window joints in a manner that would ensure no water ingress, in breach of good practice.

[60] Ms Grant submitted that the Tribunal was correct in finding that there was no proven breach of the Building Code. She submitted that there was a failure to plead any breach of the code and the particulars of the claim, and that the evidence of breach provided by Mr Gill was too general and lacking in specificity to constitute

_{an adequate allegation of breach. No witness had given evidence to the effect that}

⁴⁶ Saffioti v Ward, above n 1, at [71].

the house was not constructed as the Council had required it to be, and there was no allegation that the CCC was wrongly issued.

[61] It is not necessary for me to make any final determination on the issue of breach given my conclusion that the appellants’ challenge to the meaning of the cl 6.2(5) warranties does not succeed. However, out of deference to the extensive arguments I have received I record my views on the issue of breach.

[62] I accept Mr Rainey’s argument that there was no procedural unfairness in the way in which the allegation of a warranty of compliance with the Building Code and a breach of that warranty was particularised.

[63] Section 57 of the WHRSA provides that the Tribunal must manage adjudication proceedings in a manner that tends best to ensure that they are speedy, flexible and cost effective. Adjudication is not commenced by the filing of a statement of claim but rather by application, which includes a statement as to the nature and brief description of the claim, and of the parties involved.⁴⁷ A Tribunal

may conduct the proceedings in any manner it thinks fit,⁴⁸ including adopting

processes that enable it to perform “an investigative role”. It may request further written submissions⁴⁹ and set its own deadlines,⁵⁰ and appoint experts.⁵¹ It may request the parties to do things in the course of proceedings to enable the effective and complete determination of questions.⁵²

[64] It is clear, therefore, that pleading rules that apply to High Court litigation and, are likely in the future to apply to District Court proceedings under the District Court Rules,⁵³ do not apply in the Tribunal. However, s 57(2) provides that in managing adjudication proceedings the Tribunal must comply with the principles of natural justice. Despite the lack of a formal pleading process, there can be no doubt

_{that a respondent is entitled to know what it is that is being alleged and what relief is}

⁴⁷ _{Weathertight Homes Resolution Services Act 2006, s 62(3)(b).}

⁴⁸ _{Section 73(1)(a).}

⁴⁹ _{Section 73(1)(b).}

⁵⁰ _{Section 73(1)(e).}

⁵¹ _{Section 73(1)(f).}

⁵² _{Section 73(1)(i).}

53. See Rules Committee Proposals for Reform of the District Courts Rules 2009 (consultation paper, 16 December 2012).

being sought so that the respondent has a fair opportunity to answer the allegations against it and respond.

[65] I accept Mr Rainey’s submission that in this hearing an allegation of breach of the weathertightness requirements in the Building Code at the time the house was built was clearly signalled through the brief of Mr Gill. Mr Gill, and indeed the assessor Mr Casey, both agreed that the house had been built with defects including the defect recorded by the Tribunal, that the joinery penetrations lacked an adequate

weathertight seal.⁵⁴ Mr Gill had set out his detailed investigation of the property in

his evidence. There was as Ms Grant submitted only evidence of moisture ingress in

2011 when Mr Gill carried out his investigation. However, Mr Gill also addressed the relevant performance requirements of the Building Code, and he set out breaches of those performance requirements.

[66] Mr Gill had viewed the property during deconstruction and had observed the lack of adequate seal to the windows. He set out what he observed in detail. It was a failure to seal junctions and not a deterioration of materials used that had caused the defect. He stated that the defects were contrary to BRANZ⁵⁵ good practice, and that this was a breach of the performance requirements of the Building Code, cls E2 and B2. He elaborated on how this had arisen. His evidence in this regard was

consistent with that of the assessor, who observed that moisture could enter along the

PVC sill junctions where they were not sealed to the vertical jamb junction.

[67] I conclude therefore that there was clear notice given to the words of these alleged failings prior to the hearing. Although it is correct that they were not detailed in opening submissions, there is nothing to show that this resulted in unfairness. It was open to the Wards to call an expert disputing Mr Gill’s evidence if they had wished to do so, but they did not do so.

_{[68] The wording of the Building Code at E2.2 and E2.3.2 is clear:}

⁵⁴ _{Saffioti v Ward, above n 1, at [11].}

55. The Building Research Association New Zealand, an independent building research and information company.

FUNCTIONAL REQUIREMENT

E2.2 Buildings shall be constructed to provide adequate resistance to penetration by, and the accumulation of, moisture from the outside.

PERFORMANCE

E2.3.2 Roofs and exterior walls shall prevent the penetration of water that could cause undue dampness, or damage to building elements.

[69] It seems to me that a window which has joins with inadequate sealant, with the consequence that at some stage, which might not be immediate but in the future, there can be water ingress, will not be weathertight whether or not there are leaks immediately. I conclude there was evidence that when the house was built there was a lack of compliance with the Building Code and that the weathertightness defects led to loss. In my view that was sufficient to establish a breach.

[70] I emphasise that this is not necessarily inconsistent with the Tribunal’s views. It may well have been that the intention of the Tribunal was to say no more than that there was no actual leaking at the time of construction. The Tribunal did not necessarily go so far as to say that this meant that there was no breach; clearly the fact that there was no actual leaking taking place did not mean that the building was in fact weathertight. If there were failures to seal joins properly, and for one reason or another it took some years for water to find its way through those defectively built joints, there was still a breach of the Building Code.

[71] Thus, I would have upheld Mr Rainey’s submissions on this point if the issue

of breach had been material to this appeal.

The Heron appeal

[72] Mr Heron was an employee of ABC. At the time the house was built, ABC was the approved building certifier under s 51 of the Building Act 1991. Mr Heron was one of a number of building control officers employed by ABC. He was one of six designated signatories approved by the Building Industry Authority to sign building certificates and CCC’s issued by ABC. He was not a director or shareholder of ABC, and did not have a senior management role. However, he was clearly a

senior certifier. He would receive information from other ABC employees working in the field, consider that information, and sign certificates.

[73] In relation to the construction of the Wards’ house, he signed on the building certificate “on behalf” of ABC that the proposed building work would comply with the list of provisions of the Building Code if properly completed in accordance with the listed plans. He also signed “for and on behalf of” ABC the CCC issued by ABC.

[74] The ABC job cards record 15 building inspections carried out on 11 separate dates during the process of construction of the Wards’ house. These were all carried out by a lower level employee of ABC, Martin Cleary, apart from a drainage inspection which was carried out by Mr Heron. That inspection was not connected to any of the defects that contributed to the leaks. In addition to the building inspections, there was also a final document vetting check which was approved by Mr Cleary and provided to Mr Heron before he signed the CCC.

[75] Mr Rainey submitted that by signing the certificate and CCC, Mr Heron assumed responsibility for the proposed building work to comply with the applicable provisions of the Building Code. He submitted that there were no reasonable grounds for Mr Heron to have been satisfied that weathertightness had been achieved. Mr Heron represented himself before both the Tribunal and this Court⁵⁶ and submitted that no blame could be placed on him for any failure to note the defects.

[76] It is undoubtedly arguable that Mr Heron could have owed the Saffiotis a duty of care. However, it is not necessary to consider that issue further as it is clear that even if such a duty existed, there was no breach of it by Mr Heron. By signing the certificate on behalf of ABC in accordance with his obligations as an employee, Mr Heron was not assuming a warranty obligation as to the fitness of the work done, to subsequent purchasers. The actual act of signing was perhaps more than the

_{“formality” indicated by the Tribunal, but nevertheless was a step taken by Mr Heron}

⁵⁶ See my Minute of 9 October 2013.

where he was entitled to rely on reports of others, and where there was nothing to suggest to him that there had not been compliance.

[77] There was no evidence before the Tribunal that Mr Heron did anything wrong when he signed the CCC. In particular, as Mr Rainey fairly acknowledged, there was no evidence that he failed to follow what was the usual professional course of conduct in signing the document. He appears to have had appropriate information before him in the form of processing sheets and other documents from employees of ABC, all of which indicated compliance with the Building Code.

[78] It seems also that a final review of the plans was carried out by another employee of ABC, a Mr Nick Ward who was a building control officer. Mr Ward has signed a “scope of building certifiers engagement” form which is attached to the building certificate.

[79] Mr Heron’s role in signing the certificate was to ensure that the reviews by ABC staff had been carried out. It was not to actually perform that function himself or in some way audit on site the checks already carried out by other employees.

[80] ABC was a certifier under the Act. It was audited on a yearly basis by the Building Industry Authority. It had a duty of care and may well have breached it, but its employees, including its approved certifiers, did not assume strict liability for their employer’s errors. Mr Heron had material before him which indicated that there had been compliance with the building consent and that it was appropriate for ABC to issue the permit. He signed accordingly. I agree with the Tribunal’s conclusion that in those circumstances there was no evidence that Mr Heron breached any duty of care.

[81] If Mr Rainey is right about Mr Heron, then employees who are guilty of no negligence at all can be required to assume absolute responsibility for the errors of their employers. There is no legal principle or policy consideration that could support such absolute liability.

[82] The claim against Mr Heron was properly dismissed.

Result

[83] The appeal is dismissed.

[84] The parties’ will I have no doubt endeavour to settle costs. I would expect that they would follow the event and that there would be a 2B award in favour of the first respondents. However, I will reserve the question of costs. If the parties cannot agree the respondent is to file submissions within 14 days, and the appellant within a further 14 days.

...................................

Asher J