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Sleight v Beckia Holdings Limited [2020] NZHC 2851 (30 October 2020)
Last Updated: 2 November 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
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BETWEEN
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JOAN MARGARET FRASER SLEIGHT and ALAN LEITHFIELD SLEIGHT
Plaintiffs
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AND
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BECKIA HOLDINGS LIMITED
(PREVIOUSLY FR 2012 LIMITED and FARRELL RESIDENTIAL LIMITED
First Defendant
ORANGE H MANAGEMENT LIMITED (PREVIOUSLY HAWKINS
MANAGEMENT LIMITED)
(In Receivership and In Liquidation) Second Defendant
IAG NEW ZEALAND LIMITED
Third Defendant
QBE INSURANCE (AUSTRALIA) LIMITED
Fourth Defendant
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Hearing:
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2 – 19 June 2020 and 20 – 22 July 2020
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Appearances:
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D J Cooper and M J Borcoski for Plaintiffs
N S Gedye QC, O V Collette-Moxon and M K Booth for Third Defendant
D H McLellan QC, S D Galloway and L Green for Fourth Defendant
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Judgment:
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30 October 2020
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JUDGMENT OF GENDALL J
SLEIGHT v BECKIA HOLDINGS LTD [2020]
NZHC 2851 [30 October 2020]
This judgment was delivered by me on 30 October
2020 at 3:00 p.m. pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date
Table of Contents
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Introduction
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Background
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The Policy
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Initial events involving the Sleights and IAG following the
CES
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Situation facing Canterbury after the CES
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IAG’s Managed Repair Programme and the 2012 RSMA
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Subsequent events leading to the Building Contract
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Building Contract
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Operational documents and forms subsidiary to the 2012 RSMA
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Inadequately repaired and unscoped earthquake damage to the
property
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(a) Scoping issues
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(b) Defects in the repair works
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Roles adopted by the Sleights, Farrells, IAG, Hawkins and its Rebuild
Solution Managers (RSMs)
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Termination of the Building Contract
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Building expert reports
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QBE position – Hawkins’ Negligence (PI) Policy
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Sleights’ causes of action
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Sleights’ claims for breach of contract, negligence and under the
CGA against Farrells
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Sleights’ claim for breach of the Policy contract against
IAG
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A proper interpretation of the Policy
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The Sleights’ four “Pathways”(Paths One, Two, Three
and Four)
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Sleights’ Path One Policy claim – Does IAG remain obliged to
meet the cost of further repair work to restore the home
to its “when
new” condition?
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Being a “to pay” policy – what is it that IAG promises
to pay?
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Conclusion on this Path One Policy claim
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The Sleights’ Path Four Policy Claim against IAG – implied
term
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IAG’s affirmative defences to the Policy claims
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Declarations sought by the Sleights regarding the enforceability of
certain exclusion clauses?
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Sleights’ claim under the Consumer Guarantees Act against
IAG
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Sleights’ negligence claim against IAG
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Sleights’ estoppel claim against IAG
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Slights’ claims in summary against Hawkins
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Sleights’ claim under the CGA against Hawkins
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Sleights’ negligence claim against Hawkins
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Hawkins’ additional defences
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IAG’s cross-claim against Hawkins
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The 2012 RSMA claim
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Operational documents and forms
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- 100K Manual
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- Milestone Payment Change Procedure
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- Swimlane Document
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- RSM Site Inspection Report
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- MIV Inspection Report
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- Milestone Payment Inspection form
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Interpreting the 2012 RSMA
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Pre-qualification breach?
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Scoping breach?
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Monitoring obligations breach?
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Milestone payments certification breach?
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Foundations/sub-floor work payment certifications
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Final Building Contract payment certifications
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QBE’s potential liability to the Sleights and to IAG?
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IAG’s cross-claim against Hawkins/QBE for contribution
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QBE’s cross-claim against IAG
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Repair works required – defects and damages
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Scoping defects
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- Removal and replacement of external window joinery
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- Removal and replacement of the conservatories
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- Removal and replacement of the entrance butyl membrane roofing and
plywood substrate
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- Bracing
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- Timber weatherboards – bay window on north-west elevations
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Key defects
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- Exterior cladding and windows
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- Structural defects
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Remaining defects
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- Upper storey deck
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- Concrete front entry steps, tiled rear entry steps and tiled steps to
dining area
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- Foundation plaster
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- Profiled metal roof
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- Sub-floor area (non-structural)
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- Interior
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Defences
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Quantum – the cost of repairs
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Quantum – my assessment
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Accommodation costs claim – declaration?
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Landscaping
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General damages
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Outcome
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Judgment
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Interest
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Costs
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Introduction
- [1] This
case concerns a claim by insureds for what are alleged to be defective and
inadequate repairs of their earthquake damaged
house in Christchurch carried out
as part of the insurer’s “Managed Repair
Programme”.
- [2] For almost
50 years the plaintiffs, Joan and Alan Sleight, who are now retired, lived and
had their home at 24 Kinnaird Place,
Hillmorton, Christchurch (the
property).
- [3] The
Sleights’ property was damaged significantly by earthquakes in the
2010/2011 Canterbury Earthquake Sequence (CES)
on 4 September 2010,
22 February 2011 and 13 June 2011.
- [4] The Sleights
had their property insured with the third defendant, IAG New Zealand Limited
(IAG), (trading under the brand name
“State”) under an insurance
contract described as a State “Home Comprehensive” insurance
policy” (the
Policy). The Policy referred to a reinstatement standard for
the Sleights’ damaged home “...to a condition as similar
as possible
to when it was new...”
- [5] The Sleights
made a claim under the Policy, which IAG accepted. It was common ground that the
earthquake damage to the property
was repairable.
- [6] All this
occurred in what were the extreme circumstances of the major natural disaster
that hit Christchurch – the CES.
The devastating impact of the CES on
Christchurch, Canterbury and this country generally was quite unprecedented. The
physical and
emotional impact on many people was huge. At a practical property
level, hundreds of thousands of earthquake damage insurance claims
were made and
it is fair to say that the insurance industry and the construction related
industries generally struggled to cope with
the magnitude of those claims and
the building and repair work required.
- [7] Recently,
insurance law commentator, Professor Rob Merkin QC, put this last aspect into
perspective:1
The number of damaged properties [as a result of the CES] has
been out of proportion to the capacity of New Zealand’s professional
infrastructure. Insurers and loss adjusters struggled to make the necessary
assessments. Architects, project managers and builders
faced unprecedented
demand, and new entrants were attracted into the market. The inevitable
consequence of these shortages was, regrettably,
many instances of substandard
repair work. The problem has, to date, not reached the epidemic levels of the
“leaky building”
scandal, but there are significant numbers of
policyholders whose repairs have proved to be defective and who have sought
corrective
work.
- [8] In response,
IAG, like other insurers at the time, established what was described as a
“Managed Repair Programme”.2 Like all their policy
claimants, IAG encouraged the Sleights to arrange for their property damage to
be repaired under its Managed
Repair Programme. IAG achieved this in two ways.
First, it arranged for one of its designated builders in a case like the present
to be “assigned” to the job. Here, this was to be the first
defendant, Beckia Holdings Limited (now in liquidation),
previously Farrell
Residential Limited (Farrells). They were to carry out the repair work to the
Sleights’ home. And, secondly,
it confirmed that the second defendant,
Orange H Management Limited (now in receivership and in liquidation) (previously
known as
Hawkins Management Limited) (Hawkins), would act as project manager, to
monitor the building repair works on IAG’s behalf.
IAG devised its Managed
Repair Programme in response to the huge number of policy claims from insureds
it was receiving and the overall
situation following the CES. It was being
widely used at the time.
- [9] Documentation
under the Managed Repair Programme was entered into by the parties to confirm
the arrangements. So far as the building
repair work was concerned, a standard
form building contract dated 14 October 2013 (the Building Contract) naming
Farrells as builder,
and the Sleights as owners, was signed. Unbeknown to the
Sleights at the time, a second contract, described as a “Rebuild Solution
Master
- Rob
Merkin QC, “Insurers’ Liability for Defective Repairs” (2019)
25 NZBLQ 133 at 133. (Footnotes omitted.)
- IAG,
in a 29 June 2015 letter to the Sleights, twice use the phrase “IAG
Managed Repair Programme” as their “Rebuild
Programme” and
separately referred to Farrells’ repair work on the house as “an IAG
Managed Repair”. Recently,
however, IAG has chosen to refer to the
Programme as the “Hawkins Managed Repair Programme”, but in any
event this carries
much the same meaning here.
Agreement”, had been entered into between IAG and Hawkins on 13 August
2012 (the 2012 RSMA). This related, amongst other things,
to Hawkins’ role
described in part as being to monitor the delivery of the building repair
work.
- [10] Repair
works to the property were carried out by Farrells in 2014 and 2015. The
Sleights say that these works were incomplete
and defective with the result that
the earthquake damage to their property still remains unrepaired. Their position
is that supplementary
and remedial works are required to complete the repairs to
the “when new” standard required by the
Policy.
- [11] The
Sleights say they were required by IAG to sign the Building Contract with
Farrells, which they did at the time without seeking
advice. They allege, first,
that the repairs required to their property were not scoped or completed to the
standard required by
the Policy, and secondly, that Farrells did not carry out
the remedial works in a proper and tradesmanlike manner.
- [12] They claim
that IAG is liable under the Policy to pay the cost of the work that now proves
to be necessary to undertake the required
repairs to the policy standard. This
is to include remedying the previous defective work. They claim also that IAG is
liable to them
in negligence, under the Consumer Guarantees Act 1993 (CGA) and
in estoppel.
- [13] Both the
builder, Farrells, and the project manager, Hawkins, are now in liquidation.
Notwithstanding this, the Sleights advance
causes of action here against
Farrells for breach of the Building Contract and under the CGA and against
Hawkins in negligence and
under the CGA.
- [14] At
the time, the fourth defendant, QBE Insurance (Australia) Limited (QBE),
indemnified Hawkins under contracts of insurance
Hawkins had maintained with QBE
before it went into liquidation. The Sleights in turn claim against QBE
that:
(a) Hawkins is liable to them as project manager for negligence
and also under the CGA; and
(b) QBE is liable for Hawkins’ liability, by virtue of a charge over
the insurance monies under s 9(1) of the Law Reform Act
1936. This gives rise to
contribution arguments between IAG and QBE under s 17(1)(c) of the Law Reform
Act and/or in equity.
- [15] In addition
to the Sleights’ claims against IAG, Farrells, Hawkins and QBE, in this
proceeding IAG brings a cross-claim
against QBE. This cross-claim is a contract
claim under cl 17.2 of the 2012 RSMA. This clause is an indemnity provision that
specifies
if owners (such as the Sleights) bring a claim against IAG and IAG
incurs any liability to those owners as a result of any breach
by Hawkins of its
obligations under the 2012 RSMA, then Hawkins must indemnify IAG for such
liability. The indemnity extends to all
reasonably incurred legal costs and
expert costs incurred by IAG.
- [16] Thus, if
and to the extent that the Sleights succeed in obtaining judgment against IAG
under any of their causes of action, IAG
claims from QBE that sum, plus its
costs under cl 17.2 of the 2012 RSMA. Alternatively, if the Sleights do not
succeed against IAG
then it will still claim for reimbursement under the
indemnity, its experts’, legal and related costs arising from the
Sleights’
claims. This is on the basis that it has incurred these costs as
a result of the Sleights bringing their claims against IAG and the
need to
defend them. This aspect of the indemnity claim, therefore, remains regardless
of the outcome of the Sleights’ claims
against IAG.
- [17] Finally,
IAG brings contribution claims against QBE. Those contribution claims only
engage in relation to any of IAG’s
liability to the Sleights which is not
recoverable from Hawkins or QBE under the 2012 RSMA indemnity cause of action.
The primary
case advanced by IAG is that the 2012 RSMA claim responds to any
liability IAG may be found to have to the Sleights. In this sense,
the
contribution claims are backup claims. Nevertheless if, for any reason, it is
established that IAG cannot recover fully from
Hawkins/QBE under the 2012 RSMA,
then the contribution claims represent a second pathway of potential liability
for a claim brought
by IAG against QBE. IAG claims this contribution from QBE
under two heads, first, under s 17(1)(c) Law Reform Act as a contribution
claim
from a joint tortfeasor and, secondly, in equity.
- [18] Lastly, QBE
itself brings a cross-claim against IAG pursuant to another indemnity provision
in the 2012 RSMA. Under this provision
(cl 17.1) IAG agreed to indemnify Hawkins
for all claims and costs incurred by Hawkins arising from or in connection with
the 2012
RSMA except to the extent caused by Hawkins’ breaches or by any
reckless, fraudulent or wilful acts or omissions by Hawkins.
This cross-
indemnity QBE says was specifically negotiated and drafted so that Hawkins would
be protected from the kinds of claim
that the Sleights have brought against it
in this proceeding.
- [19] Generally,
IAG has described this proceeding as an important “test case”. This
is in the sense that it may be the
first case to determine IAG’s potential
liability for the costs of completing earthquake repair work where the original
repairs
carried out under IAG’s Managed Repair Programme were defective.
In other words, this proceeding is said to be the first to
determine whether IAG
remains liable under its standard insurance policy if there are defective
repairs. Also, the claims brought
against IAG both in tort, under the CGA and
alleging estoppel, are said to be novel, in that they have not previously been
before
the courts.
- [20] In
addition, it is suggested this proceeding is also likely to establish potential
issues of liability as between IAG and QBE
which will be relevant for other
cases. In these respects, in an earlier judgment in this Court issued in this
proceeding, Associate
Judge Lester noted:3
[46] While
this is not a representative claim, I accept IAG’s submission that it
does involve extensive and complex test
case issues...whether the issues are
called “novel”, “pivotal” or otherwise is not the point.
The fact is
this proceeding raises a number of issues that have not been before
a New Zealand Court before.
And:
[48] Other litigants have structured their proceedings in part
on the basis that this claim was going to be heard in June 2020. Other
litigants will be assisted by rulings in this Court on the novel issues in this
case...
3 Sleight v Beckia Holdings Ltd (in liq)
[2020] NZHC 571.
- [21] Causes of
action seeking declarations under the Declaratory Judgments Act 1908 are also
pleaded here by the Sleights. The first
is a cause of action against IAG seeking
a declaration that certain exclusion clauses in the Building Contract defined in
their statement
of claim are voided as unconscionable. The second is a claim for
a further declaration under the Declaratory Judgments Act against
Hawkins in
relation to other limitation of liability and exclusion clauses. This is in
addition to those claims noted above the Sleights
have brought directly against
Hawkins (for whom QBE is insurer) in negligence and under the
CGA.
- [22] And,
finally, the contractual relationships between Hawkins and IAG, in particular
under their 2012 RSMA, and between the Sleights
and the builder Farrells, are
also potentially relevant here to the claims that IAG and Hawkins owed duties of
care to the Sleights,
in addition to the duties owed under the respective
contracts.
Background
The
Policy
- [23] The
Sleights’ Policy takes the form of what is standard “State”
policy wording which was issued originally
in April 2007. It purports to be a
plain language policy.
- [24] Relevant
parts of the Policy provide:
(a) An insuring promise to the insured that “You’re
covered for sudden accidental loss (physical loss or physical damage)
to the
home that happens during the period of cover.”
(b) Under the heading “Our other responsibilities to
you” IAG makes a general promise to:
...Provide you with information and advice to help you
understand your insurance and its terms and exclusions.
(c) On that same page in a section described as “Making
a Claim” IAG explains, under the heading “What we’ll
do”, that it will
if required “...arrange for a loss adjuster to inspect the damage and
explain the procedure that will be followed...”
and it will:
...give you all the information you need on how we’ll
settle your claim...
(d) Under the heading “Getting our permission
first” the insured must not:
...incur any expenses in connection with a claim under this
policy without the insurer’s prior consent.
This section also goes on to advise:
It is best that you allow us to manage your claim on your
behalf. We’ll let you know how you can help us when we talk to you
about
your claim.
- [25] It is
useful also to set out in full important Policy provisions at page 7 which
follow the heading “What you get if we accept your
claim”:
(a) This section begins with an explanation box with a border
incorporating an exclamation mark (!) icon (which is defined at the
start of the
Policy “This icon denotes important information”). The explanation
states:
This section explains when we’ll repair or rebuild
the home and when we’ll pay you cash for your
loss, if we accept your claim. Please make sure you
read this section carefully.
(b) The section then goes on in its
operative section to state:
Repair, rebuild or pay cash?
If you have a loss that is covered by this policy
and you repair or rebuild the home, we’ll pay:
- the
cost of repairing or rebuilding the home to a condition as similar as
possible to when it was new, using current materials and methods,
and
- any
cost of compliance with Government or local authority bylaws or regulations, as
long as:
(a) we pay the cost of compliance only for that part
of the home that has suffered loss covered by this policy, and
(b) the home complied with all requirements that existed
at the time it was originally built and at the time of any alteration.
We won’t pay these costs if you’ve
been given notice of non-compliance before the loss happened.
- the
following costs, as long as they were necessarily and reasonably
incurred:
(a) architects’, engineers’, surveyors’,
building consultants’, legal and council fees,
(b) costs of demolition and of removing debris and contents,
(c) costs of up to $2,500 to restore or reconstruct any part of
the garden or lawn within the boundary of the home that was damaged or
destroyed while the home was being repaired or rebuilt.
If you don’t repair or rebuild the home,
we’ll pay you the fair value of the loss based on the
present value of the home.
“Present value” means the market
value of the home, excluding the value of the land.
Rebuilding on a different site
If the home is totally destroyed, you may rebuild
the home at a different site, as long as we agree (we
won’t unreasonably withhold our agreement). However, we
won’t pay more than we would have paid if the home was
rebuilt to its original specifications on the original site.
- [26] The Policy,
under the heading “Exclusions that apply to the whole
policy”, also provides:
Faults and defects
You’re not covered for the cost of fixing faulty
design or faulty construction.
- [27] The Policy
was current for the period from 18 July 2010 to 18 July 2011. This covers the
period of the major CES for which the
Sleights’ claims relate. The policy
schedule which was attached described the “sum insured” as
“Home –
Actual
replacement” and gave a floor area of the home including all levels and
any attached garage as “230 m2”.
Initial
events involving the Sleights and IAG following the CES
- [28] Following
the CES, at various times the Sleights lodged claims with IAG under the
Policy.
- [29] On 26 May
2011, Neil Fazackerley, a loss adjuster representing IAG, first visited the
property. He provided a report in which
he checked a box categorising the damage
to the home as “Obvious repair over $100K”. The report recorded
brief details
about the damage and the following “Agreed Actions”
which were stated as:
Advised insured of: Land report, accommodation allowance,
that Hawkins will probably project manage as repairs likely to be over EQC
cap.
(emphasis added)
- [30] IAG/Hawkins
instructed Farrells to obtain geotechnical, and structural engineering reports
on the property and IAG/Hawkins “assigned”
Farrells to the
job.
- [31] On 12
November 2012 IAG obtained the geotechnical report on the property. It also
completed a home assessment summary on 29 November
2012.
- [32] Jane
Workman of IAG on 12 December 2012 then wrote to the Sleights reporting that the
damage to their home was economic to repair.
This was the first written
communication from IAG to the Sleights setting out information as to their
rights under the Policy. The
letter enclosed a standard-form IAG document at the
time described as a “Residential green zone options” fact sheet.
This was a one-page document which succinctly set out the options available to
the Sleights. It is unclear whether another common
document also used by IAG,
described as an “IAG Earthquake Information Pack” may have been
provided to the Sleights at
this time. It appears this was probably not the
case. Nevertheless, the document represents a customer communication widely used
then by IAG. Some of its contents may remain relevant here to the approach
adopted by IAG to repair claims generally and the actions
taken by its staff at
that time.
- [33] In
IAG’s Residential green zone options fact sheet, the option to repair (as
opposed to a cash settlement or rebuild) was
described in these
terms:
Option 1: Repair your house
We will complete the repairs to your house.
Our Project Management partner Hawkins can coordinate the repair
process for you.
(emphasis added)
- [34] Also
attached to that 12 December 2012 letter was a “Commonly Used Terms”
document. This set out further information
for homeowners generally. Consistent
with the fact sheet, IAG described the repair Option 1 under the Policy as an
“...option
under which State Insurance and Hawkins undertake the
building work for you...” (emphasis added).
- [35] In
addition, IAG explained Hawkins’ involvement in that “Commonly Used
Terms” document provided to the Sleights
in this
way:
Hawkins is State Insurance’s Project Management partner,
providing project management expertise to help repair or rebuild your
earthquake damaged property. Hawkins has been operating in New Zealand for
over 65 years and is the largest construction firm in the South Island.
(emphasis added)
Situation
facing Canterbury after the CES
- [36] At
this point, it is useful to mention in a contextual sense evidence before me
that related to the unprecedented situation facing
Canterbury and Christchurch
following the September 2010 and February 2011
earthquakes.
- [37] Aspects
of this from the insurance industry’s perspective were described in the
brief of evidence of Murray James, IAG’s
General Manager for the
Canterbury Rebuild Programme delivery at the time, in this
way:
After the September 2010 earthquake, [IAG] received many
thousands of claims. In total there were over 100,000 ranging from minor
to
severe damage. IAG attempted to use its own internal loss adjusters, as well as
engaging external loss adjusters, to administer
the many claims for
earthquake
damage to houses. This was how we had handled claims before the
earthquakes.
It quickly became apparent that IAG’s own resources, and
those of our external loss-adjusting partners, were nowhere near enough
to
manage the volume of claims that we received. We also decided to get a partner
to assist, Hawkins.
February 2011 earthquake
Our initial response
The February 2011 earthquake caused severe and widespread damage
to buildings across Canterbury. IAG’s priority was to assist
our most
vulnerable customers.
The scale of the work required following the February 2011
earthquake was much greater than it had been following the September 2010
earthquakes. To put some broad figures around that, after September 2010
IAG’s expectation was that the reinstatement programme
would cost in the
region of
$800 million. But after February 2011 that estimate increased to
approximately $4 billion. It subsequently went up from there.
Clearly IAG needed to obtain much greater resources in order to
provide our customers with the same quality of claim service that
we had
provided before the earthquakes. IAG did this in four main ways: (1) by
upscaling our claims team, (2) by entering into a
commercial agreement with two
Hawkins group companies for them to provide services exclusively for us and our
customers,
(3) by strategic relationships with building companies to provide
construction services exclusively for our customers, and (4) by
using external
loss adjusting resources.
- [38] In
addition, David Wood, who from April 2014 to December 2017 was General Manager
of Hawkins’ Canterbury Recovery Project,
gave evidence in part relating to
the nature of the Christchurch Rebuild. He said:
Christchurch Rebuild
It is stating the obvious to say that the repair works carried
out at 24 Kinnaird Place did not take place in the ‘business
as
usual’ environment.
IAG, as the largest residential insurer in New Zealand, had to
deal with thousands of repairs and rebuilds.
The majority of insurers chose to explore a managed response to
the crisis and established their own PMO or Project Management Officers.
My
involvement with Fletcher Construction [for whom he worked from 2010 to 2014],
for example, was in relation to the EQC programme.
The reason for this was to secure and rationally manage limited
contractor [sic], building materials and consultant resources. Experience
from
events overseas showed that rampant cost escalation occurred where claimants
were left to fend for themselves. This was known
as ‘demand surge’
and could only
be avoided if participants were locked in to a pre-agreed and structured
response defining their roles and compensation.
A balance needed to be sought by insurers between the number of
rebuild solutions that needed to be achieved and the availability,
capability
and cost of the necessary resources.
In New Zealand there are a certain number of construction
professionals who respond to normal demand. The nature of the Christchurch
earthquakes and the extent of damage meant that the demand for construction
professionals and builders was far in excess of normal
demand.
Individual homeowners would have had a very difficult time in
finding builders, agreeing contractual terms with them, engaging architects
and
engineers and obtaining the necessary consents. If they did do this, the process
would have been very inefficient and expensive
for them and their insurers.
There was a risk for homeowners if they cash settled with their insurer that the
amount they received
would turn out to be insufficient to carry out the repair
works because of differences in scope, escalation of costs and the discovery
of
further necessary work.
There were a number of ways to deal with the problem. Insurers
and builders could import resources from overseas. Insurers could flatten
the
demand surge by extending the date for completion of the programme. They could
accept that certain roles would be filled by people
with administrative, but not
necessarily construction expertise and experience. They could define the roles
of those construction
professionals so that they eliminated duplication of roles
and focused on activities most crucial to completion of the programme.
All of
these solutions were adopted by insurers in Christchurch and by IAG in respect
of the Hawkins PMO.
The shortage of construction professionals also impacted the way
in which quality of building work could be managed. Many of the building
companies, particularly tier 1 builders, employed their own project managers and
site foremen. There was not enough resource available
in Canterbury for insurers
or their PMOs to employ building surveyors or licensed building practitioners to
also inspect and ensure
the quality of building works on each rebuild. The PMO
schemes therefore needed to be devised on the basis that management activities
would be carried out by people with a range of skills but not necessarily
building experience and skills. Reliance had to be placed
on the skills and
diligence of the builders and consultants employed in relation to each
rebuild.
These solutions might, together or separately, have implications
for particular repair jobs, but were necessary for a programme of
work of this
size and complexity. Hawkins was involved in the completion of 1000 major
repairs and over 1300 new builds for IAG along
[with] many more thousands of
claims that went through the initial assessment phases.
- [39] With these
matters in mind, it is also useful to refer generally to IAG’s own
particular Managed Repair Programme here.
As I have noted, this was IAG’s
response to the unprecedented number of claims it received following the
CES.
IAG’s
Managed Repair Programme and the 2012 RSMA
- [40] In
this case, as I have noted, the repair works undertaken to the Sleights’
home were carried out under IAG’s Managed
Repair Programme. This was the
arrangement which had been set up at the time by IAG with Hawkins and a number
of builders, including
Farrells.
- [41] IAG’s
Managed Repair Programme was a similar response to that of other insurance
companies resulting from the CES. In Parkin v Vero Insurance New Zealand
Limited,4 Mander J in this Court
referred to a similar scheme instituted by Vero Insurance New Zealand
Limited:
- [63] The
evidence discloses that Vero did introduce a claims management process to handle
the unprecedented large number of claims
arising from the damage to the
properties caused by the Canterbury earthquake sequence...
- [64] Part of
Vero’s response, as with other insurance companies, was to enter into
business relationships with construction
companies to manage the assessment and
costing of reinstatement of damaged properties. [The] evidence showed that the
programme was
established to help manage the reinstatement process for its
clients, notwithstanding that under most of its policies, including
Mr
Parkin’s, Vero was not required to directly undertake the repair work. Mr
Parkin did not dispute that it was open to Vero
to offer additional settlement
options to homeowners...
...
[69] ...It is also apparent that both Mr Parkin, his broker and
Vero were dealing with Mr Parkins’ claim within the framework
of the
processes provided to policyholders by the Vero/MWHM joint venture. In following
that course, there were advantages and disadvantages
to both parties.
Importantly, however, the adoption of that process did not alter the terms and
conditions of the contractual relationship
between Mr Parkin and Vero...
...
[81] ...it was apparent on the evidence that the process
developed by Vero to manage the large wave of earthquake claims was the
framework within which Mr Parkin and Vero worked to progress Mr Parkin’s
claim. I have not found, however, that the express
terms of the policy were
displaced. The contractual relationship between the parties continues to be
governed by the express terms
of the insurance policy.
- [42] A key
document which established IAG’s Managed Repair Programme was the 2012
RSMA. As I have noted, this had been entered
into in 2012 between
IAG
4 Parkin v Vero Insurance New Zealand Limited
[2015] NZHC 1675.
and Hawkins. Originally, an earlier Rebuild Solution Master Agreement had been
executed by IAG and Hawkins following the September
2010 earthquake (known as
the 2010 RSMA). Following the February 2011 earthquake, and given the vastly
increased number of Christchurch
residential properties affected by this event,
IAG and Hawkins entered into the new 2012 RSMA on 13 August 2012. This replaced
the
earlier agreement.
- [43] IAG’s
Managed Repair Programme was widely used and promoted in Christchurch following
the CES. Of note, in the 2012 RSMA,
IAG contracted with Hawkins that it would
encourage its policyholders to engage in the Managed Repair Programme. This was
provided
for in cl 4.1 of the 2012 RSMA expressed in these
terms:
4.1 Promotion of Rebuild Solutions: IAG NZ will promote
the Project and the Rebuild Solution to its Customers. Hawkins acknowledges that
Customers have a choice as to
whether to engage the Rebuild Solution and that
IAG NZ gives no warranty or representation as to the number of Rebuild Solutions
to be undertaken or the aggregate cost of the Rebuild Solutions undertaken.
- [44] The essence
of the entire Managed Repair Programme was that Hawkins on behalf of IAG was
generally to scope, cost and project
manage earthquake repairs (described as
“Rebuild Solutions”) undertaken for homeowners insured by IAG.
Hawkins was to
do so by “monitoring” the delivery of work of
builders (such as Farrells) who had been pre-selected
(“pre-qualified”
in the language of the 2012 RSMA) by Hawkins
and approved by IAG. A “Rebuild Solution” was relevantly defined in
the 2012 RSMA to mean:
...the works required to make good the damage to the
property of a Customer as a result of the Canterbury Earthquakes that falls
within the scope of cover provided under the Customer’s Policy...
(emphasis added)
- [45] Hawkins and
IAG were to agree “a set of standard communications to be sent to
customers in respect of the Project”
and a “set of protocols for
managing sub- standard performance by a builder and establishing the
circumstances when Hawkins
will terminate a Customer Building Contract.”
They were also to agree on the terms of the Customer Building Contract
itself.
- [46] Importantly,
a part of this arrangement concerned certification of the work undertaken by
builders before they were paid by IAG.
Hawkins was required to “certify
completion of the relevant Solution Milestone and/or Rebuild Solution...under
the relevant
Customer Building Contract ...”
- [47] “Solution
Milestones” was also relevantly defined in the 2012 RSMA to mean
“... the milestones in respect of
the relevant Rebuild Solution triggering
payment of Rebuild Solution Payment Claims.”
- [48] I turn now
to the overall “Services” to be provided by Hawkins under the 2012
RSMA. These are set out in Schedule
2. In providing these
“Services”, in cl 3.2(b) Hawkins promised under the heading
“Standard of performance”
to “act diligently, efficiently and
in accordance with industry best practices.”
- [49] To achieve
that, in part, Hawkins promised to ensure that its personnel “are of a
high calibre, are suitably qualified
to undertake the roles assigned to them and
act at all times in accordance with industry best
practices.”
- [50] The
“Services” to be provided by Hawkins included:
(a) Pre-qualification of builders against a set of standards to
be agreed between IAG and Hawkins, and then, in conjunction with IAG,
“assigning” a builder to an individual repair project.
(b) Procuring the builder to obtain geotechnical and structural
engineering reports, and a Scope of Works, ensuring it is appropriate
to effect
the repairs and providing that to IAG for approval. The builder was then to
obtain any necessary building consent for the
work.
(c) Arranging for the homeowner/customer and builder to enter
into a customer building contract on terms approved by IAG.
(d) Monitoring the delivery of the rebuild solution (the
earthquake repairs). This included inspecting the work of the builder and
certifying completion of each “Solution Milestone” and final
completion.
(e) Over the period of the repair work, arranging weekly meetings between
IAG, Hawkins and the builder to discuss progress of the
repairs. The owner was
not involved in those meetings.
- [51] Although
Hawkins undertook to perform those Services on IAG’s behalf, IAG itself
retained close control in many respects.
At cl 3.2(a) of the 2012 RSMA, Hawkins
was obliged at all times to “comply with all reasonable directions of
IAG”. In
addition, IAG was entitled to “review the calibre” of
personnel employed by Hawkins and could require any particular
employee to be
removed or reassigned, including because the employee was not “suitably
qualified to undertake the roles assigned
to them”. IAG could also control
the number of Hawkins employees working on the project and it needed to approve
all builders
selected by Hawkins. IAG had rights to inspect all records and to
access all personnel, premises, facilities, data of any builder
involved in the
project. Hawkins was to procure this.
- [52] In terms of
the Building Contract, builders were required to communicate with the owner only
through the Hawkins RSM. The owner,
too, had no obligation to pay the builder
and no involvement in the payment process. IAG agreed to pay the builder
directly, as I
have noted, on the basis of various “Milestones” to
be certified to IAG by Hawkins.
- [53] And, if
material changes were required to the Scope of Works and payment terms under a
Building Contract (as happened here with
the Sleights’ repairs), IAG
agreed these directly with the builder, again without any involvement of the
owners. Both in the
present case with the Sleights and typically, substantial
variations which materially changed the Scope of Works and increased the
contract price (in this case by over $100,000) were agreed by IAG and builders
like the Farrells. IAG also changed the payment terms
and milestones, again
without discussion with the Sleights.
- [54] Finally,
cls 17 and 18 of the 2012 RSMA as between IAG and Hawkins address indemnities
and liability limitations. They read as
follows:
- INDEMNITIES
- 17.1 IAG NZ
Indemnity: IAG NZ indemnifies Hawkins to the maximum extent permitted by law
for all claims (including third party claims), liability, costs
(including
reasonably incurred legal costs on a solicitor-client basis), losses, penalties
and damages (including arising in tort,
including negligence) incurred by
Hawkins arising from or in connection with this Agreement, except to the extent
caused by a breach
of this Agreement or by any reckless, fraudulent or wilful
act or omission by Hawkins or any of its Personnel or Hawkins or its Personnel
acting outside the scope of their responsibilities under this
Agreement.
- 17.2 Hawkins
Indemnity: Hawkins indemnifies IAG NZ to the maximum extent permitted by law
for all claims (including third party claims), liability, costs
(including
reasonably incurred legal costs on a solicitor-client basis), losses and damages
incurred by IAG NZ as a result of any
breach by Hawkins of its obligations under
this Agreement or any reckless, fraudulent or wilful act or omission by Hawkins
or any
of its Personnel.
- LIABILITY
- 18.1 Maximum
Liability: The maximum liability of Hawkins to IAG NZ in relation to this
Agreement including under the indemnity set out in clause 17.2 is set
out in the
Contract Details [which form part of the 2012 RSMA as Schedule 1].5
This limitation will not apply in relation to any fraud or wilful default (being
a deliberate act or omission which results in a
breach of this
Agreement).
- 18.2 Limitation
of Liability: Neither party will be liable for:
(a) any breach of this Agreement to the extent the breach is
attributable to the breach or misconduct of the other party, or its agents,
employees or subcontractors (provided that, for these purposes, Hawkins and
Hawkins’ Personnel shall not be agents or subcontractors
of IAG NZ);
or
(b) any indirect, consequential or punitive losses or damages of
any party and any amounts for loss of income or profits.
- 18.3 Failure
to Achieve Programme: Notwithstanding any provision of this Agreement, IAG
NZ shall (other than in the event of fraud or the wilful default by Hawkins)
have no recourse to Hawkins and Hawkins shall have no liability to IAG NZ for
any loss, costs, damages or otherwise whatsoever
- “Hawkins
Maximum Liability” is defined in Schedule 1 as “$2,000,000 for each
and every event or series of related
events (excluding breaches of clauses 19
and 20 only) up to a maximum liability of $20,000,000 per annum in
total.”
as a result of any failure to achieve the Programme or
for any delays in implementing the Programme or any individual Rebuild
Solution.
(footnote added)
Subsequent
events leading to the Building Contract
- [55] Around
12 December 2012, evidence has been advanced for IAG that, one of their
consultants phoned Mr Sleight and noted in an
IAG file “Claim has been
selected to proceed with repairs in Q1 next year. No dates. Insureds are going
away and no preferred
builder”.
- [56] Mr Sleight
says in his evidence that he had “absolutely no recollection” of
this telephone call. Mrs Sleight, similarly,
gave evidence that she was not
aware at any time that she and her husband were asked whether they had a
preferred builder to carry
out the repairs. Nevertheless, this is ultimately of
little importance. IAG and its witnesses before me confirmed that the Managed
Repair Programme throughout was promoted to all IAG’s customers, including
the Sleights. They were encouraged to participate
and, as part of the Programme,
to accept what were described as the project management services of Hawkins.
And, all the evidence
before me seems to confirm that the Sleights had no wish
to undertake or manage their house repairs themselves.
- [57] As to the
Programme, the Sleights signed the Building Contract with Farrells on 14 October
2013. It would seem, too, that at
least by 12 December 2013 when IAG confirmed
with the Sleights that work on their home was scheduled to begin in quarter one
of 2014,
their repair process was set in train.
- [58] A meeting
at the property had taken place earlier on 19 February 2013. This was attended
by the Sleights and their daughter,
Anna Maxey. Nigel Wiblin attended for IAG
and Ray Brill for Farrells.
- [59] Uncontradicted
evidence was given by the Sleights and by Mrs Maxey that, as this was the
Sleights’ first contact with anyone
from Farrells, Mr Wiblin of IAG
introduced them to Mr Brill from Farrells and explained that Farrells were to be
the builders. Mr
Wiblin went on to assure the Sleights that Hawkins would be
project managers and they would ensure that Farrells carried out the
work
properly.
- [60] Subsequently,
Farrells, Hawkins and IAG agreed among themselves a “Scope of Works”
for repairs to the property. On
28 June 2013 Wade Cook of IAG sent a copy of
this to Mrs Maxey.
- [61] In late
July 2013 a further meeting was arranged at the property. This was attended by
the Sleights, Mrs Maxey, Mr Cook of IAG
and Mr Brill from Farrells. Discussion
took place at this meeting of options for exterior
cladding.
- [62] Then, in
September 2013, a number of things occurred:
(a) IAG gave approval for Farrells to lodge building consents
for the repairs and paid for doing so.
(b) IAG, Hawkins and Farrells agreed what was described as a
“Solution Budget” for the repairs. This showed a total cost
of
$378,800. Although this excluded certain costs, it did include what was
described as “Hawkins Construction Project Management
Fees”.
(c) The Building Contract for the repair work on the standard
form used by IAG was prepared. It is unclear who may have prepared this,
but it
seems it was either one of Hawkins or Farrells. Earlier, this standard form
Building Contract had been agreed between IAG
and Hawkins.
(d) On 26 September 2013, Farrells emailed Mrs Maxey, attaching
a copy of the Building Contract (which ran to some 50 pages), and
indicated this
was to be signed in the coming weeks.
- [63] On 14
October 2013, the Sleights, along with Mrs Maxey, went to Farrells’
offices in Christchurch to sign the Building
Contract. Evidence before me
indicated there was no discussion about the terms of the Building Contract. The
Sleights’ uncontested
evidence is that they had no advice on the contract,
nor did they read it before they signed the contract. The next day, Farrells
emailed a copy of the Building Contract to IAG, Hawkins and Mrs Maxey. That
email notified a start date for the
work of 27 January 2014 and a finish date of 20 June 2014 with
“accommodation confirmed” for that period. Farrells asked
IAG to
organise contract works insurance.
- [64] Also, on 14
October 2013, IAG wrote to the Sleights confirming that reinstatement work was
about to commence at the property.
This letter stated:
As discussed, IAG is responsible for all earthquake
reinstatement work in excess of the amount covered by EQC...
Please find attached an invoice showing the number of claims
lodged for each earthquake event, the settlement paid to you by EQC (nett
of
excess) and the applicable excess for each. We require these funds from you
prior to any work being started.
Once we have received clear funds, we will instruct Hawkins to
proceed.
Building Contract
- [65] Next,
I turn to consider the 14 October 2013 Building Contract terms. As I have noted,
the contract was in a standard form. It
consisted of:
(a) a two-page “Contract Agreement” including the
recitals which I will refer to below;
(b) a further 13 pages of “General Conditions”;
and
(c) a further 34 pages of Schedules, the most relevant parts of
which are the “Milestone Payments Schedule” in Schedule
2 and the
“Scope of Works” in Schedule 3. Schedule 3 is itself in two
parts:
(i) a detailed list of the works to be completed outlined in the
Form 720 builder’s quote report; and
(ii) a Specification document agreed between IAG and Hawkins
“For work to be done and materials to be used in the completion
of
Earthquake Repairs for IAG” (the Specification).6
- In
this judgment, clauses cited as being “of the Building Contract”
refer to the “General Conditions” unless
otherwise
stated.
- [66] Its cover
page states that it is a contract between the Sleights as owner and Farrells as
the Contractor. It is signed only by
or on behalf of the Sleights and Farrells.
In substance, however, as will appear later, I am satisfied the Contract confers
on Hawkins
(acting on behalf of IAG) and on IAG directly, most of the rights and
obligations which would normally be conferred on the
owner/principal.
- [67] I turn now
to the recitals on the opening page of the Building Contract. Recital C records
that the Sleights as Owners and Farrells
as Contractor enter into the
contract:
...to set out the terms on which the Contractor will carry out
work to the Owner’s property that falls within the scope of cover
provided
under the Owner’s insurance policy with IAG NZ (“Insurance
Works”).
And Recital D goes on to record Hawkins’ role:
Hawkins Management Limited (“Hawkins”) has
been appointed by IAG NZ to provide certain services for the purposes of the
Insurance Works. These services include:
- assessment of
the Scope of Works required to effect the Insurance Works;
- the processing
and certification of payments to the Contractor on behalf of IAG
NZ;
- monitoring the
delivery of the Insurance Works on behalf of IAG NZ; and
- providing
coordination assistance between IAG NZ, its loss adjusters, the Contractor and
the Owner (where applicable).
- [68] Addressing
quality and workmanship obligations, cls 1 of the Building Contract contains a
standard clause as to Farrells’
general obligations as builder, including
the obligation to “...carry out and complete the Insurance Works...in a
proper and
tradesman like manner”.
- [69] Similar
obligations feature in paragraph 15 of the Specification attached to and forming
part of the Building Contract as Schedule
3.
- [70] Paragraph
3.1 of the Specification states:
The whole of the work in all trades shall comply in every
respect with the requirements of all relevant Local and Government authorities,
the
New Zealand Building Code, New Zealand Standards and with the New
Zealand Standard Building Codes and the relevant Overseas
Standards where no NZ
Standard exist.
- [71] And,
paragraph 15.4 of the Specification states in part:
15.4 This is an IAG customers [sic] home and the standard of
workmanship and finish achieved shall be of sufficient standard as would
be
expected in this type of dwelling. Substandard workmanship or finish that does
not meet this standard will not be tolerated and
will be rejected. Any
substandard or unacceptable work or workmanship shall be rectified at the
Builders [sic] cost, with any additional
cost incurred by the Customer being the
responsibility of the Builder also.
...The workmanship shall be in accordance with best trade
practice...Defective work, if any, and work not in accordance with the high
standard required of all work in this contract shall be removed or made good by
each Subcontractor.
- [72] Other
relevant provisions outlined in the Specification include:
...
7.2 Any formal communication with the Owner is to be
conducted through [Hawkins] Rebuild Solution Manager.
...
11.3 The Rebuild Solution Manager may request the Builder to
remove and replace any person employed by the Builder who in the opinion
of the
Rebuild Solution Manager misconducts, is incompetent, negligent or endangers the
safety of others.
...
13.2 The Project Manager, working as Owner’s agent, will
lodge with the Territorial Authority such Resource and Building Consents
(relating to permanent works) as are required by the Building Act 2004 for the
works to lawfully commence. The Rebuild Solution Manager will arrange payment of
all charges due to lodge such Resource and
Building Consents including
inspection fees.
...
15.2 All materials and products shall be handled, stored, and
installed or fixed in accordance with the manufacturer’s or
supplier’s
latest recommendations in the absence of any other
instructions. Where there is conflict with the Specification the Builder shall
seek direction from the Rebuild Solution Manager.
...
16 INSPECTION
|
16.1
|
Adequate notice shall be given to the lead Consultant or Rebuild Solution
Manager to enable him to make all necessary inspections
wherever required.
|
16.2
|
The Rebuild Solution Manager will generally only be available to undertake
their duties between 8.00 a.m. and
5.00 p.m. Monday to Friday, excluding public holidays.
|
16.3
|
Refer also to Statutory Inspection requirements.
|
...
|
|
|
|
19.2
|
The Builder must take all necessary precautions to protect and maintain
surface finishes and completed work from damage, marking or
disfigurements
during the progress of the works. In the event of such damage, the Builder shall
repair, replace or make good the
damaged part of the work to the satisfaction of
the Rebuild Solution Manager.
|
...
|
|
|
- CONTRACT
ADMINISTRATION
- 24.1 All
instructions from the Rebuild Solution Manager will be in writing on a standard
form.
...
And:
1.5 The Builder shall co-ordinate with the Rebuild Solution
Manager where works are carried out within occupied areas of an existing
building...
4.2 Conflicting dimensions on the drawings or in the works
shall be referred to the Project Manager for a ruling.
- [73] As to
questions of the degree of control exerted by Hawkins and IAG under the Building
Contract, it will be apparent from some
of the provisions I have outlined above,
that this contract confers on Hawkins (acting on behalf of IAG) certain powers
which I consider
would normally be conferred on the owner/principal of a
property to be repaired, for example:
(a) All formal communications with the Owner were to be
conducted through the [Hawkins] Rebuild Solution Manager (RSM).
(b) Hawkins had the power to require Farrells to replace any Farrells
employee who Hawkins considered for example, incompetent or
negligent, etc.
(c) Hawkins had rights to inspect the property.
(d) Hawkins could require Farrells to prepare and design
construction drawings and had rights of access to all design information,
plans,
drawings, consents and similar.
(e) Hawkins had to approve any additional work, substituted
materials, or any provisional sum beyond agreed limits.
(f) Hawkins (and the Owner) had to approve any
subcontractor.
(g) Hawkins had power to suspend the contract work.
- [74] It is
important to note, too, that under the Building Contract it was Hawkins and IAG
and not the Sleights who controlled the
payment process. The initial contract
price for the Sleights’ repairs was the same as the insurance budget of
$318,938.81.
Farrells was to submit progress payment claims to Hawkins in
accordance with the “Milestone Schedule of Payments” in
Schedule 2.
Hawkins was to review and approve those payment claims. IAG was then to pay
Farrells the amounts approved by Hawkins.
The Sleights played no part in any of
this. Further, and significantly, as I have noted, that initial contract price
was increased
by over $100,000 by variations as the repairs progressed. These
variations were agreed only between Farrells, Hawkins and IAG without
any
reference to the Sleights.
- [75] Lastly,
it is appropriate now to consider exclusion clauses which were included in the
Building Contract. The “General
Conditions”, again which were
drafted by IAG and Hawkins, included these clauses. They purported to limit the
Sleights’
rights against the non-parties, IAG and Hawkins. These exclusion
clauses relevantly specify:
Limitation of Liability
- Neither
Hawkins nor IAG NZ make any representation or give any warranty or undertaking
(whether expressed or implied) concerning the
Works including as to the
performance of any person (whether a party to this contract or otherwise) of any
contractual or other obligation
in relation to the Works.
- The
Owner acknowledges and agrees that the liability of IAG NZ to the Owner is as
set out in the Owner’s insurance policy with
IAG NZ and IAG NZ shall have
no additional liability to the Owner under any claim whether in tort, including
negligence, or otherwise,
including in relation to the quality, workmanship or
timing of the Works, the creditworthiness of the Contractor and/or any other
services being carried out by any other person in relation to the
Works.
- The
role of Hawkins in relation to the Works is limited as set out in paragraph D of
the background. The parties agree that the liability
of Hawkins for all claims
whether in tort, including negligence, or otherwise shall be limited to the
direct loss sustained as a
result of the actions or omissions of Hawkins and
which occur within two years from the date the Works are completed and are
limited
in a maximum aggregate amount of $10,000.
- The
Contractor acknowledges and agrees that the only liability of IAG NZ to the
Contractor is to pay amounts under this Building Contract
when
due.
Operational
documents and forms subsidiary to the 2012 RSMA
- [76] Before
the Court are several subsidiary documents and forms agreed between IAG and
Hawkins. It seems these documents were drafted
to spell out process or
operational detail of how both Hawkins and IAG would perform their respective
obligations under the 2012
RSMA.
- [77] The
operational documents and forms include first, a 95 page document headed
“Project Canterbury: Repairs $100K”
(referred to by the parties and
in this judgment as the “100K Manual”), secondly, a four-page
document dated 2 July 2014
headed “Milestone Payment Change
Procedure” (Milestone Payment Change Procedure), thirdly, a process
document which the
parties refer to as the “Swimlane document”
(Swimlane document) setting out in boxed form certain processes to be followed,
fourthly, an “RSM Site Inspection Report” (RSM Site Inspection
Report) being a document used by Hawkins’ RSMs which
is said to include
quality assessment box entries, fifthly, a “Man in the Van Inspection
Report” (MIV Inspection Report)
and,
sixthly, a “Milestone Payment Inspection Report” (Milestone Payment
Inspection Report).
- [78] I will
further consider these subsidiary documents and forms, where relevant,
below.
Inadequately
repaired and unscoped earthquake damage to the property
- [79] Two
issues arise here:
(a) Scoping issues (where the Scope of Works assessed under the
Policy was inadequate to repair the house to the required standard
outlined in
the Policy);
(b) Defects in construction (the works fell below the standard
required).
(a) Scoping issues
- [80] As
to the Scope of Works concluded in 2013 (and later varied) for the repairs
provided to their house, the Sleights claim that
this was deficient and should
have included:
(a) Removal and replacement of the conservatories of their
home.
(b) Removal and replacement of external joinery.
(c) Removal and replacement of the entrance butyl membrane
roofing and plywood substrate.
(d) Checking of the bracing to the house and (if necessary)
rebracing carried out to ensure the bracing had adequate capacity.
(b) Defects in
the repair works
- [81] In
their claim that the repair works that were carried out, in any event, were
defective, the Sleights advance the following
reasons:
(a) The work
did not comply with the Building Act 2004 and the relevant New Zealand
standards.
(b) The work did not comply with the building consent.
(c) The work was not carried out to a reasonable and workmanlike
standard.
(d) The work was not completed in accordance with the standards
in the Building Contract (which are normally industry standards) in
that:
(i) As noted, it was not carried out in a proper and
tradesmanlike manner.
(ii) It was not carried out in accordance with good trade
practice.
(iii) As noted, it was not carried out in accordance with the
building consent.
(iv) It did not comply with the Building Code7
and relevant New Zealand standards.
(v) Materials and products were not fixed in accordance with the
manufacturers’ recommendations.
(vi) The workmanship was not in accordance with best trade
practice.
(vii) The painting was not of a “first class finish”
(as cl 3.1 of the specification “painting and wall coverings”
required).
7 Building Regulations 1992, Sch 1.
- [82] The
Sleights claim work needs to be carried out in order to remediate the defective
works and the scoping deficiencies. This
is to ensure that their house is
repaired to the standard required under the Policy.
- [83] In response
to this issue of defects in the works undertaken, IAG accepts that inadequacies
in relation to the Scope of Works
and defective workmanship on the part of
Farrells are to be treated conceptually as the same for the purposes of the
Sleights’
present claim. IAG suggests that if proven, both will constitute
defective performance by Farrells as builder and/or Hawkins as project
manager
during the course of the repair process.
- [84] So far as
defects are concerned, before me IAG relied on the evidence of its building
expert, Kenneth McGunnigle, together with
the evidence of its expert engineer,
Philip Cook, and its quantity surveyor, Gunther Hanne. On this, Mr
McGunnigle
disagrees with a number of defect issues which the Sleights’
expert, Thomas Wutzler, had identified. A summary of these by
way of a schedule
is to follow.
- [85] In a broad
sense, IAG’s position simply is that it:
(a) Accepts that some of the alleged construction
“defects” are seen as significant defects here.
(b) But it does not accept that all of the alleged defects in
combination require the Sleights’ house, first, to be completely
re-clad
(at what would be considerable expense) and, secondly, require a full
replacement of the 40-year-old windows in the house
(that IAG says leaked before
the CES and which were not damaged by the earthquakes) to be undertaken.
(c) Instead, IAG’s position is that the remaining defects
in this house are to some extent limited and each can be rectified
in isolation
without affecting other areas. This, IAG says, would leave the repair works
compliant with the Building Code and the
house substantially the same
as it was “when new” (save for the obvious aesthetic change to the
cladding which IAG says the plaintiffs agreed to).
Roles
adopted by the Sleights, Farrells, IAG, Hawkins and its Rebuild Solution
Managers (RSMs)
- [86] The
Sleights, as homeowners and the insured under their IAG policy, it is fair to
say, made the final decision to enter into
the Building Contract with Farrells.
From the evidence of both Mr Sleight and Mrs Sleight, however, a number of
things are apparent.
First, Mr Sleight is 87 and Mrs Sleight is in her early
eighties. Secondly, Mr Sleight has had a number of heart attacks, has spent
some
time in and out of hospital in recent years, and might be seen as somewhat
frail. And thirdly, their evidence (which IAG rejects)
is that they do not
remember being given any choice about the builder that was to be used to fix
their house. The only option they
say discussed with them by IAG’s
representatives was to get the repair work done by Farrells who had already been
“assigned”
through IAG’s Managed Repair Programme. IAG
disputes this and says at the outset discussions took place with the Sleights as
to whether they wished to select their own nominated builder, but they said they
had no builder in mind and were happy to proceed
with Farrells. In any event,
the Sleights say they were told, too, that Farrells was a tier 1 builder, and
they contend that Farrells
was effectively chosen by IAG to do the work and not
them. They say they were assured, too, that Farrells were IAG’s top
builders
and, finally, that Hawkins and IAG would make sure the repair work on
their house was done properly throughout.
- [87] As to the
role of Farrells, this was to complete the repairs in a tradesmanlike manner and
in accordance with the Building Contract,
the building consent, the Scope of
Works and the specifications. They were then to obtain a code compliance
certificate from the
Council when all the work was
completed.
- [88] Turning to
the position of IAG, as insurer in terms of the Policy it was to pay the cost of
having the house repaired to the
policy standard. This was to be to a
“when new” condition. So far as Hawkins is concerned, IAG says they
were appointed
as “project managers” for the repairs under the
Managed Repair Programme. To an extent Hawkins endeavours to dispute
here that
its role was one that could be described
as “project manager”. The full extent of what a “project
management” role might entail here depended to some
extent upon the 2012
RSMA, but it may be that general understandings of the construction industry
have some application in this case.
Hawkins say their obligation was not to
manage or monitor quality – this rested with the builder Farrells alone.
Hawkins’
position is that they were only there to certify for milestone
payments when they were due and simply to check that the work had
been, broadly
speaking, carried out. There was insufficient time and personnel available,
Hawkins says, to ensure that work had been
carried out in a proper and
tradesmanlike manner at all times. Hawkins maintains first, that this is
entirely in accordance with
what the 2012 RSMA stated, secondly, it followed the
clear thrust of all the lead-up negotiations and, thirdly, that all this
differed
markedly from the 2010 RSMA.
- [89] And last,
so far as Hawkins’ RSMs are concerned, these were employees of Hawkins who
carried out what IAG says is the Project
Management inspection role. Shane
Geraghty was an RSM (being a structural engineer from Ireland who came to New
Zealand around the
time of the CES). He gave evidence concerning this role. What
became clear from all the evidence before the Court was that at the
operative
times, Hawkins’ RSMs were extremely busy, often with huge workloads, and
on many occasions they had little time to
carry out property inspections other
than for Milestone Payment certifications.
Termination
of the Building Contract
- [90] Once
Nigel Maxey, the son-in-law of Mr and Mrs Sleight, in mid-2014 became involved
in the problems which were arising concerning
repairs to the Sleights’
house, regular meetings and the like took place.
- [91] Finally,
this resulted in Mr and Mrs Maxey on behalf of the Sleights on 1 May 2015
writing to Farrells giving notice that the
Building Contract had been terminated
because of breaches on the part of Farrells as builder.
- [92] This
followed quite a long period of complaints regarding repair work not being
properly undertaken.
- [93] After this,
it seems for a time Farrells did not accept that the Building Contract had been
properly terminated. Indeed, Farrells
continued to carry out certain matters
concerning the Sleights’ property and made several approaches to the
Christchurch City
Council in an endeavour to obtain a code compliance
certificate. This did not eventuate.
- [94] In the
meantime, a range of reports were obtained with respect to the problems with the
repair work to the property. I address
these in the next
section.
- [95] Notwithstanding,
first, that these experts’ reports all identified significant problems
with the repairs, and, secondly,
the fact that the Sleights had purported to
cancel the Building Contract, at some time later Hawkins chose to certify for
additional
payments of about $100,000 under the Building Contract as being
properly payable to Farrells, and IAG chose to make the
payments.
Building expert
reports
- [96] A
range of expert reports are before the Court giving opinions as to the scope,
workmanship and other defects in the remedial
work which had been carried out to
the Sleights’ house.
- [97] These
reports represent a Watkins Consultancy Report, an R M Hadley Ltd Report
regarding cladding assessment, an Axis Building
Consultants Report, detailed
reports from Helfen and a James Hardie Technical Specification
Report.
- [98] The upshot
of these reports leaves little doubt that some scope issues and a significant
range of defects and deficiencies in
the work undertaken by Farrells occurred
here.
- [99] The expert
reports generally reach agreement on the range of defects and deficiencies which
have occurred, although there is
some disagreement regarding the full extent of
the problems and, in particular, the remedial work required. I will address
these
matters later in this
judgment.
QBE
position – Hawkins’ Negligence (PI) Policy
- [100] Hawkins
held certain insurance policies, including a Professional Negligence Indemnity
Policy, with QBE. For QBE to be liable
under s 9 Law Reform Act 1936 to either
the Sleights or to IAG, the relevant liabilities must fall within the terms of
Hawkins’
insurance policies. Under the Hawkins Negligence Policy with QBE
there is a $50,000 excess for each claim (whether to the Sleights
or to
IAG).
Sleights’ causes of action
- [101] By
way of overview, a summary of all the causes of action pleaded by the Sleights
here is:
(a) Against Farrells for breach of contract, negligence and
under the CGA;
(b) Against Hawkins for negligence and under the CGA. The
Sleights also seek declarations that the limitation provisions in the Building
Contract purporting to limit the liability of Hawkins are unenforceable.
(c) Against IAG for breach of
contract, negligence, under the CGA and estoppel. The Sleights also seek
declarations that (to the extent
they might otherwise apply) the limitation
provisions in the Building Contract purporting to exclude or limit the liability
of IAG
are unenforceable.
(d) Against QBE on the basis of a charge over the insurance
monies in contracts of insurance entered into between QBE and Hawkins.
In this
sense the claims against Hawkins are brought indirectly against QBE.
Sleights’ claims for breach of contract, negligence and
under the CGA against Farrells
- [102] As
I have noted above, Farrells is in liquidation.
- [103] Notwithstanding
this, the Sleights, in their statement of claim, bring claims for breach of
contract, negligence and under the
CGA against Farrells. The
principal
claim is one against Farrells for breach of contract for defective and
inadequate work carried out under the Building Contract.
- [104] Farrells
have taken no part in this proceeding, nor have they filed any statement of
defence to the claims they face.
- [105] Essentially,
as I see it, there seems to be little disagreement between the experts in the
reports they have provided to the
Court that Farrells failed to meet their
performance and quality obligations under the Building Contract and, indeed,
could also
be considered liable to the Sleights here in negligence and under the
CGA. The Sleights’ earthquake damage repairs remain to
be completed and
the Christchurch City Council has both declined to issue a code compliance
certificate and warned that a “notice
to fix” will be issued unless
significant repair work is completed.
- [106] Insofar as
it may be appropriate, judgment is to follow in favour of the Sleights on their
claim against Farrells.
- [107] It is
convenient to turn to consider next the Sleights’ causes of action against
IAG under the Policy and otherwise as
noted at [101][101](c) above, which I now
do.
Sleights’ claim for breach of the Policy contract against
IAG
- [108] In
summary, there are four different ways in which the Sleights say that
contractual liability applies here:
(a) IAG remains obliged under the
Policy terms to meet the cost of the further repair work required to restore the
plaintiffs’
home to its “when new” condition because the
repairs have not yet achieved that result (“the first path”).
(b) Pursuant to a right under the Policy, IAG arranged and
controlled the repair work and is, therefore, liable for the costs of the
further repair work now required to achieve the “as when new”
standard (“the second path”).
(c) As an alternative to the second path, IAG in
fact controlled the repair process and is, therefore, liable for the costs of
the
further repair work now required to achieve the “as when new”
standard (“the third path”).
(d) IAG implicitly agreed that repair
works it arranged and paid for would achieve the “as when new”
standard which did
not occur (the “fourth path”).
- [109] Essentially,
the Sleights contend that IAG’s refusal to rectify or to meet the costs of
repairing the defective or deficient
repairs to their property was in breach of
either the insuring clause under the Policy (by one of the three pathways to
liability
noted at para [108][108](a) - [108](c) above) or by the implied term
noted above at [108][108](d).
- [110] First, and
generally, the Sleights say that IAG’s obligation to “pay...the cost
of repairing” is an insurance
obligation to either pay to reinstate the
property to the described standard or, here, to properly carry out the repair
work required
itself. Neither of these things have
occurred.
- [111] As an
initial enquiry, this requires a consideration of how the Policy itself is to be
interpreted. Linked to this, perhaps,
is also the question of what type of
policy it is. I turn now to address those questions.
A proper
interpretation of the Policy
- [112] Insurance
contracts are interpreted according to the ordinary principles of contract
interpretation. The proper approach is
an objective one, the aim being to
“ascertain the meaning which the document would convey to a reasonable
person having all
the background knowledge which would reasonably have been
available to the parties in the situation in which they were at the time
of the
contract”.8
Evidence
- Firm
PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR
432 at [60], citing Investors Compensation Scheme Ltd v West Bromwich
Building Society [1997] UKHL 28; [1998] 1 WLR 896 (HL) at 912 per Lord Hoffman; and
Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 101 at
[14] per: Lord Hoffman.
of subsequent conduct is admissible if it tends to establish a fact or
circumstance capable of demonstrating objective intention.9
- [113] Any
ambiguity in the Policy is to be resolved against IAG, whose document it
is.10 Moreover, in cases of ambiguity, exclusion clauses in insurance
policies should be read down, in favour of
cover.11
- [114] A duty of
good faith on the part of the insured and the insurer is implied in insurance
contracts. In Blanshard v National Mutual Life Association of Australasia
Limited,12 Harrison J said:
[53] A contract of
insurance obliges both parties to observe the duty of utmost good faith
throughout their relationship. This principle
applies most prominently in two
distinct situations – formation and renewal of the relationship, and
submission of claims for
indemnity. An insurer alleging bad faith by an insured
in the latter circumstances must prove dishonesty.
- [115] This
duty generally extends beyond a duty of continued disclosure and, as a minimum,
in appropriate cases requires an insurer
to:13
(a) disclose all material information that the insurer knows or
ought to have known, including, but not limited to, the initial formation
of the
contract and during and after the lodgement of a claim;
(b) act reasonably, fairly and transparently, including but not
limited to, the initial formation of the contract and during and after
the
lodgement of a claim; and
(c) process the claim in a reasonable time.
- Vector
Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [30]
– [31]; and Gibbons Holdings Ltd v Wholesale Distributors Limited
[2008] NZSC 37, [2008] 1 NZLR 277 at [52] – [53].
10
Tower Insurance Ltd v Skyward Aviation 2008 Ltd [2014] NZSC 185,
[2015] 1 NZLR 341 at [32].
11 Fund Managers Canterbury Ltd v AIG Insurance New Zealand
Ltd [2017] NZCA 325 at [39], [2017] NZCA 325; 19 ANZ Ins Cas 62-146 at [39].
12 Blanshard v National Mutual Life Association of Australasia
Ltd (2004) 13 ANZ Insurance Cases 61-621 (HC).
13 Young v Tower Insurance Ltd [2016] NZHC 2956, [2018] 2
NZLR 291 at [163]; and Dodds v Southern Response Earthquake Insurance
Services Ltd [2019] NZHC 2016, [2019] 3 NZLR 826 at [152] – [170].
- [116] In a
recent judgment of the Court of Appeal, Southern Response Earthquake Services
Limited v Dodds14 the Court
noted:
[194] We would however observe that it does not follow from
the fact that a contract of insurance can be described as a contract
of good
faith that there is an implied term of good faith in every insurance contract,
that applies across the board to all aspects
of the parties’ dealings in
connection with the contract. To the contrary, the authorities suggest that the
obligations that
one party owes the other are context-specific. For example, an
insured must not act dishonestly in connection with the making of
a claim. We
consider that it is likely to be more productive to consider what obligations
are implied by law, or can be implied as
a matter of fact, in relation to
particular aspects of the dealings between the parties. That was the approach
recently adopted by
this Court in Taylor v Asteron Life [Taylor v
Asteron Life Ltd [2020] NZCA 354].
- [117] On all of
this, the plaintiffs rely to some extent on a decision of the Supreme Court
of New South Wales, University of Newcastle v GIO General
Ltd.15 In that case the Court found
that, under policy wording somewhat similar to that in the Policy here, the
insurer, GIO, had a right
of election either to itself effect repairs to, or
reinstate the insured University’s earthquake-damaged building, or to pay
the cost of reinstatement. Despite this, the insurer GIO in that case chose to
pay the cost of reinstatement.
- [118] Buildings
at the University of Newcastle had been insured with GIO. One of the buildings
was damaged in an earthquake. The parties
settled on the basis of reinstatement
by restoration of the damaged property to the policy standard, being a condition
substantially
the same but not better or more extensive than its condition when
new. With the approval of GIO, the University entered into a contract
with a
builder for the carrying out of reinstatement works on the building. GIO made
progress payments to the builder for the performance
of the contract work. The
University claimed the works did not reinstate the building to the required
condition and further works
were needed in order to effect proper reinstatement.
GIO denied the University’s entitlement to the costs of rectification
and
maintained that the payments made by it satisfied its contractual
obligations.
14 Southern Response Earthquake Services Limited v
Dodds & Ors [2020] NZCA 395 at [194].
15 The University of Newcastle v GIO General Ltd (1995) 8
ANZ Insurance Cases 61-281 (NSWSC).
- [119] Under the
terms of the policy in that case, GIO had agreed to indemnify their policyholder
in the following way:16
...In the event of any Physical Loss, Destruction or Damage...to
The Property of the Insured...GIO will...indemnify the Insured in
accordance
with the applicable Basis of Settlement.
The relevant settlement arrangement was to be on a reinstatement basis, stated
as:17
The Basis upon which the payment amount is to be calculated
shall be the costs of Reinstatement to the Damaged Property at the time
of its
reinstatement...
Finally, “reinstatement” was defined by the Policy
as:18
...Where the Property is damage [sic], the repair of the Damage
and the restoration of the Damaged portion of the property to a condition
substantially the same as, but not better or more extensive than, its condition
when new.
- [120] In the
decision, Rolfe J found reinstatement was not completed until the defective work
was fully remedied. The reinstatement
requirement under the insurance contract,
as I have noted, was to restore the property to “substantially the same
as, but not
better...than” condition when it was new. This obligation was
not met by GIO because the property had not been restored to
that
condition.19 His Honour said “...until the additional cost is
met, so that the defective work is rectified, the contract stipulated for
reinstatement
will not have been
effected”.20
- [121] Rolfe J
noted that when the University entered into the contract for reinstatement works
with the builder, GIO acquiesced to
this course and paid out a large amount to
the builder in discharge of the obligations to reinstate. Plainly, according to
the language
of the obligation on GIO, the Judge found reinstatement had not
been completed because of the builder’s breach. While GIO had
a remedy
against the builder under its rights of subrogation, it was first required to
discharge its obligation to the insured to
pay the full cost of reinstating the
property.21
16 At 76,106.
17 At 76,106.
18 At 76,106.
19 University of Newcastle, above n 15, at 76,111.
20 At 76,111.
21 At 76,111.
- [122] In the
present case, the Sleights contend that IAG elected to effect reinstatement of
the Sleights’ house by arranging
for the necessary repairs to be carried
out through IAG’s Managed Repair Scheme. The Sleights say that because IAG
elected
reinstatement in that way, under ordinary principles of insurance law
IAG must meet the cost of rectification of those defective
repairs where, as
here, they fall below the standard required by the insuring clause.
Alternatively, the Sleights say because IAG
to all intents and purposes elected
to effect reinstatement, and in fact arranged for and controlled that
reinstatement, it is liable
to ensure the work is properly
completed.
- [123] In
response, IAG’s position is that the University of Newcastle case
was wrongly decided. Mr Gedye QC says the decision confused the difference
between a reinstatement policy and a costs incurred
policy, the latter being the
case with the Sleights’ Policy here. IAG maintains this was the starting
error in the Court’s
reasoning.
- [124] On this
aspect, the Sleights also refer to the decision of this Court in Best Food
Fresh Tofu Ltd v China Taiping Insurance (NZ) Co Ltd in support of their
position.22 There, Brown J was considering an application to review a
decision of Associate Judge Bell concerning whether further particulars
of
pleadings were required. Although this was a decision made on that interlocutory
review application, Brown J made certain comments
which the Sleights contend are
helpful. In particular, Brown J said of the contract of insurance there, which
in important respects
was similar to the wording in the present
case:23
I do not consider that expressing the
insurer’s obligation in such an anodyne manner (i.e. simply to
“pay”) changes
the reality that the insurer has an election either
to allow the insured to organise the repairs (and to then reimburse the insured
for the cost) or to itself assume responsibility for organising the
repairs...
In the second alternative, the insurer will be liable to the
insured for the cost of rectifying defective repairs.
22 Best Food Fresh Tofu Ltd v China Taiping
Insurance (NZ) Co Ltd [2014] NZHC 1279.
23 At 16.
- [125] In that
case the relevant part of the policy document said “We [the insurer] will
pay the cost of repairs to restore the
property to the condition it was in
immediately prior to the loss”.24
- [126] So far as
that Best Food Fresh Tofu case is concerned, IAG responds by saying it
was a decision made in error. Mr Gedye suggests that Brown J in his decision
also confused
the difference between a costs incurred policy and a reinstatement
policy. Further, and in any event, IAG’s position is that
little weight
should be attributed to this decision as it was not a substantive decision on
the legal effect of the policy in issue
there. Essentially the judgment was
simply a matter of determining whether the plaintiff’s pleadings in that
case were sufficiently
particularised.
- [127] Overall,
IAG takes the view in the present case that there is a fundamental difference
between insurance situations where there
is a “reinstatement policy”
and those where there is a “costs incurred” policy. Mr Gedye
maintains the vast
majority of decisions in the past have emphasised this. I
turn now specifically to that question.
- [128] I address
first, the insuring clause in the Policy set out at para [25](b) above. It is important to note
that, on its face, it would appear not to be a classic reinstatement policy
clause in that its strict
wording does not confer on IAG, as insurer, any right
to elect between paying the cost of reinstatement, replacement or repair, or
effecting such reinstatement. If anything, it confers on the Sleights as the
insured the right to choose between either repair/rebuild
or a cash settlement
(for the present indemnity value of the property). Under the option to
rebuild/repair, the clause provides that
if repair is elected by the Sleights,
IAG’s obligation as insurer is self-described in this
way:
...(if) you repair or rebuild the home we’ll
pay:
- The
cost of repairing or rebuilding the home to [an “as new”
standard]...
(emphasis original)
- [129] It follows
that the operative part of the insuring clause appears to provide that this is
an indemnity or “to pay”
policy whereby the Sleights, as insureds,
can make a
24 At [13].
decision about the basis upon which IAG’s payment is to be quantified. It
is IAG’s position that the Sleights, as insureds,
cannot through their
decision transform the core insurance obligation under the Policy from being one
“to pay the costs of
repair” into one “to effect
reinstatement”. It is a “to pay” policy and remains one
throughout.
- [130] IAG’s
position, too, is that there must remain a fundamental difference between those
cases involving a reinstatement
policy and those where there is a costs incurred
policy. IAG does accept that where the policy is one of reinstatement and an
insurer
like IAG might elect to reinstate, it is liable to the insured if the
repairs are defective.25 But, it maintains
that the Sleights’ Policy here is not such a reinstatement policy –
it is simply a costs incurred or
a “to pay” policy. IAG contends,
too, that overall both the Supreme Court of New South Wales, in the
University of Newcastle case, and Brown J, in the High Court in the
Best Food Fresh Tofu case, erred in their decisions, because in each case
the two different forms of insurance policy were confused.
- [131] To a large
extent I agree. There is one possible caveat, as I see it, to all this, however.
This relates to the “important
information” box on the operative
page of the Policy marked with the exclamation mark (!) symbol. It is useful to
repeat this
boxed explanation. It preceded the operative section of the Policy
headed “Repair, rebuild or pay cash?”:
This section explains when we’ll repair or
rebuild the home and when we’ll pay you cash
for your loss, if we accept your claim. Please make sure you
read this section carefully. If you have any questions, just phone us
...
- [132] There is
a clear inconsistency between the insuring clause and the “(!)
important information” clause
that introduces and signposts the supposed
effect of the insuring clause. The insuring clause is apparently in the nature
of a costs
incurred policy “[i]f you have a loss...and you
repair or rebuild the home we’ll
pay...” [bold original, italics added]. However, the
important information section differs
25 Bruce v IAG New Zealand Ltd [2018] NZHC
3444 at [17].
entirely and is in the nature of a reinstatement policy “[T]his section
explains when
we’ll repair or
rebuild the home and when we’ll pay you cash for
your loss...” (emphasis as above)
- [133] It need
hardly be said that the boxed explanation clause adds little but confusion to
the Policy itself. It precedes the operative
section which generally speaks only
of payments IAG will make. Nothing in that operative section of the Policy
appears to give IAG
the election to carry out repairs or to rebuild the
home.
- [134] Contrast,
however, the words used in the boxed explanation clause. These clearly suggest
the explanation relates to “when
we’ll [IAG] repair or
rebuild the home and when we’ll pay you cash for your loss if we
accept your claim” (emphasis original). Confusing though this may be, a
possible argument does
follow, therefore, that this may be a type of policy
which imposes a core insurance obligation on IAG either to effect reinstatement
or to pay the cost of repairs.
- [135] But, as I
note above, what follows later in the clause I see as the operative section of
these critical policy provisions refers
only to payments to be met by IAG. These
payments are required to be met after the insured signals an election either to
repair,
rebuild or otherwise.
- [136] Overall,
IAG in preparing its standard policy can take no credit from the potential
confusion and ambiguity arising from these
conflicting provisions. The operative
clause and the words in the “important information” section need to
be interpreted
so they make sense. That is scarcely possible here. In my view,
they can only be interpreted as containing phrases with contradictory
meanings.
One such phrase must prevail. This engages the contra proferentum rule, which is
a rule that clearly applies in insurance
contracts.26 Under the rule,
in a case of genuine ambiguity in a policy like the one we have here, the Court
is to resolve the ambiguity against
the party who proffered the phrase in
question, in this case IAG as the author of the Policy.
- D
A Constable Syndicate 386 v Auckland District Law Society Inc [2010] NZCA
237, [2010] 3 NZLR 23 (CA) at [69].
- [137] Notwithstanding
this requirement that in a case of inconsistency and confusion like this the
Policy must be read against its
author, I reach a tentative conclusion, although
perhaps only by a reasonably fine margin, that the Policy, referring as it does
on a number of occasions throughout to what IAG “will pay”, must be
seen on its face simply as a costs incurred or “to
pay” policy and
not a reinstatement policy.
- [138] This
conclusion is supported by comments outlined by the learned authors of
Colinvaux’s Law of Insurance (Colinvaux).27
Colinvaux states in a reasonably unequivocal way that the
University of Newcastle decision was one decided in error because the
claim was settled between the parties on the basis that the insurer in that
case, GIO,
elected not to reinstate the premises itself but to indemnify the
University as the insured for the cost of reinstatement. As such,
Colinvaux
suggests GIO as insurer did not become responsible for defects in rebuilding
when it elected to indemnify rather than to rebuild
itself.28
- [139] Earlier in
Colinvaux, it is said in relation to
reinstatement:29
...a typical insuring clause will provide that if the property
insured is destroyed or damaged as a result of [an insured risk]...the
insurer
will, at its option, pay the cost of reinstatement, replacement or repair,
effect such reinstatement or pay on an indemnity
basis.
- [140] As I have
noted, however, the insuring clause in this case, despite the clear
inconsistency between the operative clause and
the “important
information” clause, on its true interpretation provides for a “pay
the cost of repair” obligation
on IAG. Those words do not reflect a
“reinstatement” obligation.
- [141] On these
matters, Colinvaux does note that recourse may be had to recitals in
construing an ambiguous clause in an insurance policy, but where the operative
words
are unambiguous the recitals cannot be used to vary their grammatical
meaning.30 So too, with headings in policy documents. On this, the
Supreme Court recently has said
- Robert
Merkin, Colinvaux’s Law of Insurance (12th ed), Sweet
& Maxwell, Croydon 2019 (Colinvaux).
28 At
11-196.
29 At 11-139.
- At
[3-068] citing Anglo-International Bank Ltd v General Accident Fire &
Life Assurance Corp Ltd [1934] 48 LlLR 151 (HL) at
155.
they may be determinative in resolving ambiguity in a clause.31 The
“important information” box above the insuring clause here, in my
view, might be seen as similar to a recital or heading.
It is information
additional to the primary clauses of the Policy that describe its purpose or
effect. It may be difficult, however,
to conclude the operative clause in this
case is ambiguous on its face. Standing against this is the fact that the
“important
information” box was deliberately inserted into the
Policy. It might be said its purpose was to simplify the true effect of
the
clause and, that it may better articulate the core obligation on the insured
party as understood in its simplest possible terms.
- [142] In
McLean v IAG New Zealand Ltd, Whata J considered the effect of a very
similarly worded policy (albeit with the Court’s primary focus being on a
different
part of the insuring clause). 32
The clause relevantly read:33
SETTLEMENT OF YOUR
LOSS
If you repair or rebuild the home following a
loss covered by this Home Policy, we will pay:
- the
cost of repairing or rebuilding the home to a condition as similar as
possible to when it was new, using current materials and
methods...
- [143] In his
decision, Whata J described the policy as conferring on the insured a
right of election between (rebuilding (where IAG pays the costs) and simply
payment of the present value of the home).34
- [144] Given the
relevant policy wording in McLean is substantially the same as in the
present case (albeit with the omission of the “important
information” box noted above),
it is clear to me that the Sleights’
IAG policy conferred on them (like the insureds in McLean) the right of
election to choose between two options. These options are, first, where they
repaired or rebuilt their home and the
insurer, IAG, paid the cost of the
repairs or rebuilding or, secondly, where the insurer, IAG, paid to them the
indemnity value of
their home as their loss. And, it necessarily follows that,
in all the circumstances here, in the event that the Sleights elected
the first
option noted
31 Xu v IAG New Zealand Ltd [2019] NZSC 68 at
[132].
32 McLean v IAG New Zealand Limited [2013] NZHC 1105.
33 At [3].
34 McLean, above n 32,
at [17].
above, thereby IAG, as the insurer, was required simply to “pay the
cost” of repairs to the property. It is difficult
to interpret that phrase
“pay the cost” as requiring IAG, as insurer, to effect the
reinstatement itself rather than
simply meeting its cost.
- [145] Colinvaux
goes on to say:35
Insurer elects to pay
Where the insurer has elected to pay the repair costs to the
assured, rather than to commission repairs under the contract with a
contractor,
the position is inevitably different. The insurer may recommend a contractor,
and may even cap the sum payable to the
assured based upon its own network
contractors’ costs scale. Nevertheless, if the insurers do not themselves
enter into a contractual
relationship with the contractor, the only contract is
between the assured and the contractor.
- [146] Colinvaux
also criticises the University of Newcastle decision centrally on the
basis that Rolfe J’s reasoning is inconsistent with settled principles of
causation.36 Colinvaux says the authorities relied upon by
Rolfe J do not support the conclusions he reached, were incorrect in principle
and, in any event,
turned on unique policy wording in those other
cases.
- [147] The
authors of Kelly and Ball Principles of Insurance Law also criticised
the
University of Newcastle decision in an
endnote:37
10 ...Compare University of Newcastle v GIO General
Ltd where Rolfe J held that the costs of reinstatement included the costs of
remedying the defective workmanship of a contractor employed
by the insured. In
doing so, he appears to have confused discharge of the insurer’s
obligation by the payment of a sum of money
calculated by reference to the costs
of reinstatement with discharge of the obligation by reinstatement.
- [148] Of
relevance here, too, are comments in a further text, Law of Insurance
Contracts:38
In contrast, if there is no formal
election of this kind but the insurer pays an indemnity and the claimant uses
the money to employ
a repairer, the insurer
35 At [11-195].
36 At [11-196].
- Michael
Ball and David Kelly Kelly and Ball Principles of Insurance Law (Online
ed Lexis Nexis), at [12.0140.10] (citation omitted).
- Malcolm
A Clarke The Law of Insurance Contracts (6th ed Informa,
London, 2009) at [29-2B] (footnote omitted).
is not responsible for
defects in the work of repair. Less clear is the intermediate situation in which
the insurer has a hand in
choosing the repairer.
- [149] But the
passage noted above from The Law of Insurance Contracts goes on in the
same paragraph as follows:
Suppose that the contract requires the claimant to submit three
estimates for the work and the insurer pays the amount of the lowest
estimate
submitted, as it turns out, by a “cowboy” who does it badly and
disappears into the “sunset” of
insolvency. The [Insurance]
Ombudsman’s view is that the insurer must pay the cost of having the
repair completed properly.
“By insisting on the lowest estimate, in
effect, the insurer...nominated the builder. It agreed to pay for the
‘necessary’
work, which comprised both the initial defective work
and the later remedial work.” If it appears that the work could not have
been done at the chosen estimate, the claimant has not been indemnified and the
Ombudsman’s view is the strict view of law.
If, however, that is not so
but
e.g. the repairer had a “bad day,” it may be that it is not a
misfortune covered by the insurance.
- [150] Another
commentary of some relevance is contained in the text Property Insurance: Law
and Claims where it is stated:39
Insurers’ right to reinstate must be contrasted with the
position where insurers offer to involve a contractor or supplier in
order to
secure better rates for the work or to avoid the need for the policyholder to
obtain a number of alternative quotations
themselves... The loss adjuster should
ensure that the policyholder understands that insurers have not elected to
reinstate the property
themselves...If that is not made clear, confusion can
arise as some policyholders may assume that, if loss adjusters are making the
arrangements, they are doing so on behalf of insurers and that insurers will be
responsible for any defects in the works.
- [151] In a
relatively recent article, “Insurers’ Liability for Defective
Repairs”, Professor Robert Merkin again
discusses Rolfe J’s ratio in
the University of Newcastle case that an insurer who pays remains liable
for defective building work.40 Again, in his view, Professor Merkin
says this confuses electing to reinstate with electing to
pay.
- [152] In the
conclusion to this article, Professor Merkin
notes:41
...there is little direct authority on the question of whether
an insurer who has elected to pay rather than to reinstate faces liability
for
costs to correct defects in the reinstatement process. Indeed, the sole decision
in favour of such liability is Newcastle University. The decision is
problematic in a number of
39 Malcolm Hyde, Brendon McCarthy and James Deacon,
Property Insurance: Law and Claims
(Witherby Publishing Group, London, 2010) at 153.
40 Merkin, above n 1 at
146.
41 At 148.
respects. First, while recognising the distinction between reinstatement and
payment, the Judge appears to have treated the slow release
of funds as imposing
a continuing obligation akin to reinstatement. Insufficient attention appears to
have been paid to the point
of the insurers who simply agreed to pay the
assured, leaving the assured to spend the money as it thought fit. Secondly, the
notion
that a supervening event is to be disregarded, even if it takes the form
of an uninsured or excluded peril, while supported by dicta
in Australian cases,
is contrary to ordinary principles of causation...an insurer who has simply
agreed to pay a sum to the assured,
allowing the assured to employ a contractor
to make good the damage, has no liability for the contractor’s acts or
omissions.
It is only if the policy covers economic loss of this type, which
would be highly unusual, that the insurer can be called upon to
pay. The concept
that the obligation to indemnify is a continuing one, encompassing uninsured
eventualities, simply infringes ordinary
causation principles.
- [153] Taking
into account all the matters I have outlined above, I reach the view that the
Sleights’ Policy here is clearly
a “to pay” policy rather than
a “reinstatement policy”. It is one in which, in the words of the
Policy, the
election to repair or reinstate rests with the Sleights, and
IAG’s policy obligation is simply to meet the cost of those repairs
to the
policy standard.
The
Sleights’ four “pathways” (paths one, two, three and
four)
- [154] This
effectively disposes of the arguments advanced for the Sleights under paths two
and three noted at [108] above. Both of
these relied upon findings, first, that the Policy here could be seen as a
“reinstatement/repair” policy
as well as a “to pay”
policy and, secondly, that in this case IAG itself arranged and controlled the
repair work
and, thus, it is therefore liable for the further repair work
required. But, on the policy interpretation issue, noted first above,
I have
found otherwise. This deals with the Sleights’ paths two and three
arguments here which are dismissed.
- [155] There
remains an important question on Sleights’ path one argument, however.
This raises the issue on the policy wording
as to what “cost” it is
that IAG is required to meet in terms of its promise to pay. This obviously is
an amount to reflect
the policy standard – the cost to repair the
Sleights’ home to a “when new” standard. With this in mind,
there is a possible argument that, even where inadequate and defective repairs
are undertaken by a builder separately contracted
by an insured like the
Sleights, such that no required code compliance certificate can be obtained from
the Local Authority, IAG
is still required to meet the additional cost to fix
the repair work so that the
required “when new” policy standard is properly met. And, in terms
of the policy wording, this may require the insured
to pay twice if necessary to
fix defective workmanship.
- [156] An
interpolation is required relating to a recent judgment of this Court Evans v
IAG New Zealand dated 12 June 2020 which is usefully noted
here.42 That case
was in some ways remarkably similar to the present case. There, Churchman J gave
judgment on an application for referral
of a question of law from the Canterbury
Earthquake Insurance Tribunal pursuant to s 53 of the Canterbury Earthquakes
Insurance Tribunal
Act 2019.
- [157] The
Evans case involved a claim from homeowner plaintiffs against the same
insurer, IAG, on almost identical policy terms for defective post-earthquake
repairs carried out to their house under IAG’s Managed Repair Programme as
in the present case. The builder in that case was
again an IAG approved builder
introduced to the plaintiffs by IAG under its Programme. Again, Hawkins was
appointed project manager
by IAG to oversee the building repair
works.
- [158] The
preliminary question posed to the High Court by the Tribunal
was:43
Does IAG’s policy obligation to pay the cost of repairing
the house to the policy standard, as and when required by the insured,
include
an obligation to pay for the reasonable cost required to remedy defective repair
work?
- [159] The
Building Contract for the repairs was one made between the plaintiffs as
property owners and the builders, again, on standard
building contract terms as
prepared and provided by IAG.
- [160] Justice
Churchman in his judgment answered the question posed in the case stated
(together with an additional question as to
whether the post-contractual conduct
of IAG and QBE (as insurer of Hawkins) could be considered in determining the
meaning of the
contract). The questions were answered in this
way:44
(a) subsequent conduct may be relevant to
interpretation of the contract;
42 Evans v IAG New Zealand Ltd [2020] NZHC
1326.
43 At [7].
44 At [68].
(b) to be relevant, the conduct does not have to be mutual but may be
unilateral;
(c) the probative value to be given to subsequent conduct is
normally limited to confirmatory or supporting purposes where some other
evidence points to an interpretation consistent with the subsequent conduct and
it is at least possible that evidence of subsequent
conduct relating to the
claims administration process may fulfil that role in this case;
(d) evidence as to the implementation and administration of a
claims assessment regime is admissible and relevant in considering whether
or
not IAG’s policy obligations have been modified so that IAG should be
liable to remedy defective repairs or estopped from
denying such liability;
(e) the issue of whether the policy is merely a “to
pay” one or one involving liability on IAG for the costs to remedy
a
defective repair, will need to be resolved by the Tribunal; and
(f) the issue of whether IAG has discharged its policy
obligation to meet the cost of repairing the home to an as new standard when
the
repairs have not achieved that result is not capable of being answered in these
case-stated proceedings.
The Sleights’ Path One Policy Claim – Does IAG
remain obliged to meet the cost of further repair work to restore the home
to
its “when new” condition?
- [161] This
is precisely the same question that Churchman J found he was unable to answer in
his preliminary question judgment given
in
Evans.45
- [162] The
initial question relating to this particular claim, what does IAG’s Policy
here mean, I have answered above. To reiterate,
as between the Sleights and IAG,
I have found the substance of the Policy is a “to pay” policy rather
than a “to
repair” policy.
Being
a “to pay” policy – what is it that IAG promises to
pay?
- [163] When
the Policy is triggered, IAG’s contractual promise is to pay the cost of
repairing the house “to a condition
as similar as possible to when it was
new”.
- [164] This
“when new” standard requirement has several
aspects:
45 Evans v IAG & Or, above n 42.
(a) Usefulness and ability to enjoy the house as if it was more or less
“when new” is one aspect.
(b) Health and safety considerations in the house including the
ability for the house to last and have a useful life (in the case
of its
structure for 50 years and in the case of its cladding for example, for 15 years
in terms of the standard Building Act requirements) need to be met.
(c) Aesthetic equivalence and functional usefulness and safety
of the house are needed to enable continued enjoyment.
(d) Importantly, one aspect of the “when new”
standard, as I see it, relates to the ability of the Sleights not only to
enjoy,
but also to be able to sell, their house (for example when it might become too
large for their requirements) without there
being any impediment to a normal
sale.
- [165] This last
aspect requires some further elaboration. Almost all property sales in this
country are contracted using the standard
form Auckland District Law Society and
Real Estate Institute of New Zealand Agreement for Sale and Purchase of Real
Estate (the REINZ
ASP). At cl 7.0 of the 10th edition of the REINZ
ASP, various standard warranties and undertakings are provided on the part of
the vendor.
- [166] These
include an important warranty at paragraph 7.3(6):
7.3 The vendor warrants and undertakes that at
settlement:
...
(6) Where the vendor has done or caused or permitted to be done
on the property any works:
(a) any permit, resource consent, or building consent required
by law was obtained; and
(b) to the vendor's knowledge the works were completed in
compliance with those permits or consents; and
(c) where appropriate, a code compliance certificate was issued
for those works.
- [167] This
warranty in the almost universally-used REINZ ASP form generally is expected and
will apply in virtually every sale of
residential property in New Zealand. On
rare occasions, some of the vendor’s warranties and undertakings,
including the cl
7.3(6) warranty, might be deleted before a vendor sells a
property. This is not the usual case, however. And, if a warranty like
cl 7.3(6)
is deleted, no doubt it will invite inquiry and negative
comment.
- [168] Most
purchasers, if asked, would insist upon this warranty remaining for additions
and work carried out on a house they are
buying. If the work required a building
consent, then this was to be obtained, the work was to comply with the consent,
and a final
Council code compliance certificate was to be obtained. Failing
this, the value of the property would be likely to reduce
significantly.
- [169] IAG’s
position under their Policy with the Sleights seems to be that, once they have
provided cash to settle the initial
building repairs required because of the
earthquake damage, then that is the end of the matter so far as they are
concerned. If repairs
are not adequately done, then IAG says that is a matter
for the Sleights to pursue their builder.
- [170] Notwithstanding
this, it is important again to bear in mind IAG’s specific Policy
obligation here. It is one to pay the
cost of the repairs (even accepting, as I
do, that they have no responsibility under the Policy as worded to effect
the repairs themselves). And as to the amount that “cost” is to
be, the terms of the Policy require IAG to “pay
the cost of
repairing...the home to a condition as similar as possible to when it was new,
using current materials and methods.”
- [171] Prior to
the CES, the evidence of Mr McGunnigle confirms, first, that the house and the
various additions that had been made
to it were all completed in accordance with
appropriate building consents from the Council and, secondly, that
code
compliance certificates were obtained and remained in
force.
- [172] Coming
forward to the present, therefore, it is arguable, in my view, that IAG’s
liability under the Policy here, comprising
its “to pay” promise,
was one to meet all payments reasonably required so the house can be repaired to
a generally “when
new”
condition. To do so, this cost was to meet repairs to be completed in terms of a
proper building consent issued by the local Council
and, importantly, that a
Council code compliance certificate was to be finally issued for that work.
- [173] Since the
CES, there seems to be no question that the current repairs which Farrells
endeavoured to undertake at the property
have not been properly completed.
Indeed, no code compliance certificate has been issued. A letter from the
Council sets out a range
of matters to be attended to before a code compliance
certificate can be issued. The issue of a notice to fix has even been
threatened.
If, therefore, the Sleights were to try to sell their property now,
they would need to do so without a code compliance certificate,
and probably
also not having met the terms of their building consent. Thus, on any sale they
would need to delete the warranty in
cl 7.3(6) of the REINZ ASP. Otherwise, if
the Sleights concluded a sale of their property under the standard REINZ ASP
form with
cl 7.3(6) included, then, clearly, they would be in breach of the
warranty.
- [174] The
presence of this standard cl 7.3(6) warranty, in my view, helps to support the
conclusion I am reaching here that, in terms
of their policy liability, IAG has
agreed to meet all reasonable costs of repairing the Sleights’ home to a
condition which
would comply with the building consent such that a final code
compliance certificate could be issued.
- [175] In this
case, no code compliance certificate has been issued. There is still
considerable work to do.
- [176] I
conclude, therefore, that a reasonable argument exists to support the view that
IAG has not met its policy obligation to pay
for repairs to a condition as
similar as possible to when the house was new. This will only occur at such time
as the further repair
work required has been completed, is done in
compliance with the building consent, and a code compliance certificate has
issued.
- [177] The mere
fact that IAG has paid for repair work carried out (negligently) by Farrells
does not relieve IAG of its obligation
to meet the costs of the further work
necessary to “repair...the home to a condition as similar as possible to
when it was
new”. IAG’s prior payments do not change the character of the
further work that has to be carried out; namely, work necessary
to achieve the
standard of repair required by the Policy. The costs of that further work,
therefore, remain costs covered by the
insuring clause and IAG has not yet
satisfied or discharged its insurance obligation.
- [178] The
essential question of interpretation can be answered simply. It involves no more
than giving effect to the natural and ordinary
meaning of the words of the
Policy.
- [179] I turn to
IAG’s defence here. As I see the position, it seeks to avoid that natural
and ordinary meaning by recasting
the policy language as if it required IAG to
pay only an amount which – all going perfectly well in a hypothetical
repair process
– might theoretically have been sufficient to repair the
Sleights’ house. Essentially, this is, therefore, a notional rather
than actual concept of repair.
- [180] In my
view, this is wrong. IAG’s commitment in the policy wording is to meet the
costs actually necessary to achieve the
“as when new” standard of
repair. Its undertaking was not limited simply to paying for a “repair
process”
to be “carried out”. By using those words, IAG is
inviting this Court to rewrite the insuring clause in its favour so
that it
reads:
we’ll pay...the cost of carrying out a repair process
reasonably considered to be sufficient for repairing or rebuilding the home
to a condition as similar as possible to when it was new, using current
materials and methods.
- [181] Another
possible iteration of IAG’s proposed interpretation of the insuring
obligation was advanced before me in these
terms:
...the insurer’s payment promise is to pay what the
(original) contractors and the insured agreed under the repair contracts
to
charge the insured to repair the home to the policy standard.
- [182] As I see
it, that requires an even more extensive rewriting of the insuring clause as if
possibly it might read:
we’ll pay...the cost of repairing or rebuilding the home
to a condition as similar as possible to when it was new, using current
materials and methods, but not more than the amount initially agreed in the
building contract to be entered into between you and a builder with our consent
whether or not the work performed under that building contract actually results
in your home
being repaired or rebuilt to a condition as similar as possible to when it
was new.
- [183] As I
understand it, precisely the same reformulation of IAG’s obligation was
proposed by counsel for IAG in Evans. Although Churchman J was not
required to reach any final decision on this issue, his Honour set out an
alternative formulation as
follows “that the insurer’s promise is to
pay the amount actually required to repair the house to an ‘as when
new’
condition and that obligation is not discharged until the repairs
achieve that result”.46
- [184] IAG’s
suggested formulation of its indemnity obligation – “to pay what the
(original) contractors and the
insured agreed under the repair contracts”
– is also properly tested by considering the position if the building
contractor
became insolvent before starting work and the cost of contracting
with another builder was (say) 10 per cent higher. In that event,
could IAG
sensibly contend that its obligation had been capped by entry into the original
contract? In the absence of a binding discharge
and release agreement, in my
view, the answer to that question must be
“no”.
- [185] Turning
now to that issue of a release agreement, if, here, IAG had wanted to be
discharged from any further liability to the
Sleights under the Policy, it had
the option to propose a discharge and release agreement with them for a fixed
sum. It could also
have offered to the Sleights a discharge and release under
which IAG’s obligations would be fully and finally discharged by
paying
the amounts owing to Farrells under the Building Contract (irrespective of
whether Farrells in fact performed the work required
by that contract). IAG did
none of those things. In my view, it has not, therefore, modified or limited its
contractual obligation
from that which it undertook in the
Policy.
- [186] Nonetheless,
IAG at times has endeavoured to imply that the Sleights entered into a discharge
and release agreement by signing
the Building Contract with
Farrells.
- [187] I reject
this argument. There can be no basis for any suggestion that IAG relied on any
form of discharge and release for the
following reasons:
46 Evans, above n 42 at [39].
(a) The Sleights did not propose a Scope of Works for the Building Contract
“through Hawkins and Farrell”. Hawkins and
Farrells were working for
– and being paid by – IAG to prepare the Scope of Works. That Scope
of Works was prepared in
a form prescribed by IAG, in accordance with a process
prescribed by IAG, and it was approved by IAG.
(b) The Building Contract did not purport to modify or limit
IAG’s obligations under the Policy. If it was to operate as some
form of
discharge and release, clear words would be necessary to have that effect (such
as “entry into this Building Contract
is in full and final settlement and
satisfaction of IAG’s obligations to you under the insurance
Policy”). This did not
occur.
(c) IAG accepts it remains liable for the cost of repairing
earthquake damage omitted from the Scope of Works addressed in the Building
Contract. That concession is inconsistent with the proposition that IAG’s
liability was limited to paying the price agreed
under the Building Contract. I
accept, too, there is no logical distinction between
(i) earthquake damage which remains unrepaired because repair work has not
been scoped at all but turned out later that it needed
to be done;
(ii) work which has been scoped but not done at all; and (iii) earthquake
damage which remains unrepaired because the repair work
has not been properly
undertaken.
(d) Similarly, IAG agreed with Farrells to allow substantial
variations to the Scope of Works in the Building Contract. This resulted
in a
significant increase in the cost of earthquake repairs of some 53 per cent from
$318,938.81 to $487,165.82. IAG did that without
any involvement of the
Sleights. The evidence, too, was that such a process was typical for other
building contracts under IAG’s
Managed Repair Programme. That is again
inconsistent with the proposition that IAG’s liability was somehow settled
by entry
into the Building Contract.
- [188] Lastly,
IAG also endeavoured to argue that “the repair was carried out and work
was completed”. Thus, IAG’s
argument before me, as I understand it,
went “this is not a claim for the cost of finishing off unfinished
work” and
“it is not correct to characterise the resultant alleged
defects as incompleteness in the sense of meaning that the Policy
payment
obligation is not yet discharged”.
- [189] With
respect, I find these contentions entirely artificial here. They are also
inconsistent with the position IAG itself takes
when advancing its cross-claim
against QBE. The word “complete” is not used in the Policy and so
the issue is more properly
analysed by considering whether the repair works
carried out for which IAG is to pay achieved the result required by the Policy;
namely repair to an “as when new” condition. The clear answer is
that they have not.
- [190] And this
underlying point relating to “completion” was readily accepted by
IAG’s principal witness, Mr James,47 in
cross-examination.
Q. If we just recap where we’ve got to Mr James. You
had accepted that the milestone isn’t completed until the work
has been
properly completed, i.e. is free of defects?
A. Yes.
Q. And you would say the same would you about practical
completion. Hawkins should not have certified that the whole project was
completed
until the work was completed to a proper standard?
A. Correct.
Q. And again that’s because repair work is not really
completed until it’s properly completed?
A. Correct.
Q. And that matters to IAG because ultimately your customers
expect their repairs to be properly completed?
A. Correct.
Q. Meaning completed to a tradesman-like standard?
A. Yes.
- Mr
James’ position at the operative time post-CES, as I have noted above, was
IAG’s General Manager for the Canterbury
Rebuild.
- So
the short point is that repair works aren’t finished until they’re
properly finished?
A. Yes.
- [191] In
passing, I note again that this passage of evidence also illustrates an internal
inconsistency in IAG’s argument here.
When seeking to deny its insurance
obligations to the Sleights, IAG says that the work is complete, notwithstanding
that (as it accepts)
it is defective and, importantly, no certificate of
completion can be obtained. But when pursuing its cross-claim against QBE, IAG
asserts that Hawkins was wrong to certify work as “complete” when
the work was defective.
- [192] In
reconciling the views of Colinvaux and other commentators, it is not
clear from the texts whether the cases referred to there involved situations
where there had been
a discharge or cases where the insured had agreed to accept
a settlement payment. And I am satisfied, too, that an important factor
in the
present case is the impossibility of the Sleights being able to obtain a code
compliance certificate for the defective and
inadequate repairs. This is not
just a case of shoddy workmanship the usual subject of a post-completion
maintenance clause in the
usual building contract. If defective work already
paid for by IAG was simply minor, it could be easily remedied and often this
would
not prevent the Council issuing a code compliance certificate. In that
event, there is a greater likelihood, as I see it, that the
views expressed by
commentators like Colinvaux, Kelly and Ball, Merkin, and
Malcolm Clarke that I refer to above, would apply and, in my view, would
correctly cover the situation. But the position in this case, for all the
reasons I have outlined above, is markedly different.
- [193] By way of
a general cross-check of matters here, at its most basic, the Sleights’
Policy claim turns on the critical question
that might properly be asked of
IAG:
When do you say IAG’s obligation to meet the cost of
repairing the Sleights’ home to a condition as similar as possible
to when
it was new came to an end?
Under normal circumstances in a to pay policy situation like the present, no
issue will arise as to this question, because a full
discharge agreement would
have been entered into by the insureds. Here this did not occur. Nor could it be
said that the entry by
the Sleights into the Building Contract itself
constituted a discharge agreement. With its Managed Repair Programme and
otherwise,
IAG had put in place a mechanism that
did not attempt to define when its “to pay” liability as insurer of
the Sleights would be concluded. Originally IAG had
accepted the scope of works
for the Sleights’ repairs and Farrells’ Building Contract price
which IAG would meet. Then,
without reference to the Sleights, significant
variations to the Contract were agreed to by IAG involving extra payments to
Farrells
of over $100,000. Later, and even now, IAG knew and accepted that the
scope of works for the repairs was deficient and that its Policy
liability
included an obligation to meet the cost of this deficiency. So, on first
principles alone, the Sleights’ repair job,
although started by Farrells,
is unfinished and IAG is unable to say that it has met its policy obligation to
the Sleights in the
terms I outline above. IAG remains liable under the Policy
to meet the cost of the unscoped and remedial repairs to achieve this
“when new” standard. And again, at a fundamental level, in my view
this approach is consistent with an insurer’s
good faith obligation to
define for its insured when its policy obligations and the insured’s
contractual entitlement come
to an end. The cessation of such an important
obligation to an insured as insurance cover for their home by proper settlement
of
their damage claim is a critical matter.
Conclusion
on this Path One Policy claim
- [194] Given
all these matters, and my interpretation of the Policy as a “to pay”
policy, the overall question I have addressed
here is:
Has IAG complied with its policy obligation, which is to pay for repairs to a
“when new” standard? The answer to this
question, in my view, is,
no. To summarise my conclusions as to why this is so:
(a) The general measure or standard for repair required under
the Policy is a clear one. The repairs have not been carried out to
that
“when new” requirement. IAG has not yet met its promise to meet the
cost of repairs that reach that standard.
(b) Certain issues as to the adequacy of the Scope of Works
approved by IAG here also remain and obviously impact on the Policy repair
standard.
(c) The final letter from the Christchurch City Council raises several
issues. It confirms that building consent issues are outstanding,
it requires
that work is needed to be done and it confirms that no code compliance
certificate will be issued unless this work is
completed. Until that code
compliance certificate is issued, it cannot be said that IAG has met its payment
obligation to pay for
the costs of repairs needed to satisfy the Policy
standard.
- [195] Therefore,
I conclude that IAG as yet has not met its contractual obligation to pay the
true cost of repairs to the Sleights’
house to the “when new”
standard. This contractual policy claim under the Sleights’ Path One
succeeds.
The Sleights’ Path Four Policy Claim against IAG –
implied term
- [196] The
fourth path to the same outcome is by way of an implied term of the Policy
pleaded in the Sleights’ third amended
statement of claim at [64] in this
way:
It was an implied term of the Policy that repairs to the
Property to repair the damaged portion of the Property arranged for and paid
for
by IAG would be carried out to a reasonable and workmanlike standard...
- [197] On this
aspect, the Sleights’ contention is that the parties here should not be
presumed to have intended that IAG could
take for itself substantial control
over the repair works (in part through Hawkins acting on its behalf) and yet
assume no responsibility
for the quality of the work
undertaken.
- [198] The
Sleights contend, therefore, that the proposed implication spells out what they
say the Policy would reasonably be understood
to mean. They say too that the
implied term satisfies the BP Refinery criteria. The insurance policy
itself would lack commercial and practical coherence if IAG, as the party they
say is responsible for
arranging the repairs here and which had effective
control over the builder, was not required to exercise its powers to ensure that
the repairs to the Sleights’ home were carried out to a reasonable and
workmanlike standard.
- [199] In my
view, however, in all the circumstances prevailing here, those arguments are not
appealing. The Sleights’ pleading
is that the term noted above was one
implied
into the Policy itself. Whilst the pleading does not allege that a term such as
that IAG shall have a right itself to elect to carry
out the repairs can be
implied into the Policy, the pleaded term does seem to be predicated on what is
a new obligation in the Policy
to arrange the repairs, this being effectively a
reinstatement policy obligation.
- [200] The policy
in this case, however, is a “to pay” policy. It is not a policy in
which IAG has an option to undertake
or arrange repairs. IAG’s policy
promise is simply to pay the cost of repairs to the policy
standard.
- [201] I have
found, as I note above, that IAG’s Managed Repair Programme under which
the Sleights’ repairs were carried
out, is an out-of-policy undertaking
arranged by IAG. The Managed Repair Programme is clearly outside the Policy
terms and its obligations.
Clearly, it did not result from any implied term in
the Policy itself.
- [202] No such
implied policy term is therefore required in this case. It is not necessary to
give business efficacy to the Policy
contract, nor is it so obvious that it goes
without saying. Leaving on one side obligations which might flow from the
Managed Repair
Programme, it is not reasonable and equitable to imply any
additional term into the Policy here which might convert the Policy from
being a
“to pay” policy to a reinstatement policy.
- [203] I conclude
that the term the Sleights contend should be implied into the Policy is not
necessary, nor is it obvious, once the
correct scope of indemnity required by
the Policy is identified. To imply such a term might also effectively contradict
the express
“to pay” nature of the Policy that simply requires IAG
to indemnify the costs if the insured repairs the property. But
I need make no
final determination on that issue here.
- [204] If it is
accepted that IAG in fact arranged the repairs to the Sleights’ home here,
clearly that was done pursuant to
the Managed Repair Programme and this was an
outside-the-policy undertaking and not pursuant to IAG’s obligations under
the
Policy.
- [205] For all
these reasons the Sleights’ path four policy claim against IAG, based upon
a term to be implied into the Policy,
fails and is
dismissed.
IAG’s
affirmative defences to the Policy claims
- [206] Two
affirmative defences to the Sleights’ overall policy claims are raised in
IAG’s statement of defence which I
now turn to
address:
(a) IAG relies on the exclusion for “faults and
defects” in the Policy I have noted above. Again, this wording excludes
cover “for the cost of fixing faulty design or faulty construction”.
IAG says the re-done repairs needed here are, therefore,
an uninsured or
excluded peril under the Sleights’ Policy. In response, the
Sleights’ position is that this exclusion
clause is directed to
pre-existing faults and defects in the design or construction of the original
house and perhaps damage caused
therefrom. It does not apply in the current
situation where the damage to be repaired was caused by a clearly insured event,
namely
the earthquakes, and it is the cost of this damage that IAG contracted to
meet. I agree. The exclusion clause in the Policy is concerned
with defective
design or workmanship which already existed at the time of the earthquakes when
the insured damage occurred. I accept
the arguments advanced here for the
Sleights. As an exclusion clause it is to be construed narrowly but, in any
event, I find that
the meaning of this clause is plain from the words used and
its context. It is directed at pre-existing faults and defects in the
original
house. It does not apply in the current situation of inadequately repaired or
unscoped damage caused by insured earthquake
events.
(b) IAG also relies generally on an
exclusion clause found in cl 87 of the Building Contract between the Sleights
and Farrells. This
states:
The Owner acknowledges and agrees that the liability of IAG NZ
to the Owner is as set out in the Owner’s insurance policy with
IAG NZ and
IAG NZ shall have no additional liability to the Owner under any claim whether
in tort, including negligence, or otherwise,
including in relation to the
quality, workmanship or timing of the Works, the creditworthiness of the
Contractor and/or any other
services being carried out by any other person in
relation to the Works.
Clearly, the first part of this clause acknowledges that the liability of
IAG is as set out in the Policy. It affirms that IAG remains liable to pay for
the cost of repairing the home to a “when new”
condition. The second
part says that IAG shall have no “additional” liability to the
Sleights arising from the repair
work. This means that if the Sleights suffered
losses which are not insured under the Policy (such as consequential losses from
delay
in properly completing the repair work) IAG will have no liability for
those uninsured losses. But the second part of cl 87 does
not have any
application to IAG’s liability to pay for the costs of the remaining work
required to repair the home to a “when
new” condition. That is
because that liability is in no sense “additional” to IAG’s
existing liability under
the insurance policy. It follows, therefore, as I see
it, that cl 87 of the Building Contract cannot operate as a defence to a claim
under the Policy. Whether it may nonetheless be a defence for the
Sleights’ other causes of action I will discuss separately
below.
- [207] Shortly I
will turn to the Sleights’ second and third causes of action against IAG
which are brought in negligence and
under the CGA.
- [208] But,
before I do this, and importantly here, IAG contends, and the Sleights accept,
that their claim in negligence against IAG
will be excluded if the limitation
clause I have outlined above, cl 87 in the Building Contract, is enforceable.
This is different
from the plaintiffs’ contractual claim under the Policy
for the reasons I have discussed above at para [206][206](b). This brings into play the
Sleights’ second cause of action against IAG. This is to the effect that
these cls 86, 87 and 88
of the Building Contract are not enforceable against
them and do not bar the Sleights’ non-policy claims against IAG for the
cost of rectifying the defective reinstatement work. This of course, in any
event, does not affect the Sleights’ CGA claim,
given that the parties
cannot contract out of possible liability under that Act.
- [209] I now turn
to consider the declarations sought regarding these limitation
provisions.
Declarations sought by the Sleights regarding the
enforceability of certain exclusion clauses?
- [210] The
Sleights seek declarations in their second and third causes of action that, to
the extent they might otherwise apply, limitation
provisions at cls 86, 87 and
88 of the Building Contract, purporting to exclude or limit the liability of IAG
and Hawkins, are unenforceable.
I address these issues
now.
- [211] The
Sleights’ first cause of action against Hawkins and their second cause of
action against IAG are each described as
seeking a “declaration pursuant
to s 3 of the Declaratory Judgments Act 1908, that the plaintiffs are not
bound by the
[various limitation or] exclusion clauses”. Essentially
these plead:
- and
67. [The No Representation Clause [cl 86 of the Building Contract], the IAG
Exclusion Clause [cl 87] the Hawkins Limitation
Clause [cl 88] and the Contracts
Privity Clause [cl 95], were contained in the Building
Contract.
- and
68. Hawkins/IAG was not a party to the Building Contract.
- and
69. The Hawkins/IAG Limitation/Exclusion Clauses were unexpected and
onerous.
- and
70. IAG did not take reasonable steps to draw the Hawkins/IAG
Limitation/Exclusion Clauses to the attention of the
plaintiffs.
- and
71. The plaintiffs did not have any notice of the Hawkins/IAG
Limitation/Exclusion Clauses.
- and
72. The plaintiffs are not bound by the Hawkins/IAG Limitation/Exclusion
Clauses.
- [212] The
Sleights’ second cause of action against Hawkins and their third cause of
action against IAG are each described as
seeking a “Declaration pursuant
to s 3 of the Declaratory Judgments Act 1908 that the [various Limitation and
Exclusion Clauses]
are voided – unconscionable bargain”. Essentially
they plead as follows:
- and
73. The plaintiffs suffered from disadvantages that significantly diminished
their ability to assess their best interests in relation
to the Building
Contract.
Particulars
- 49.1 and
73.1 The plaintiffs are elderly.
- 49.2 and 73.2
The second named plaintiff [Mr Sleight] has a serious heart
condition.
- 49.3 and
73.3 The plaintiffs are not sophisticated business people.
- 49.4 and 73.4
The plaintiffs were anxious about the Earthquakes and the repair of the
Earthquake Damage.
- 49.5 and 73.5
The plaintiffs were not advised to, and did not receive, independent legal
advice regarding the Building Contract and
[the Hawkins/IAG Limitation/Exclusion
Clauses].
(Plaintiffs’ Disadvantages)
- and
74. It is unconscionable to permit Hawkins/IAG to receive the benefit of the
Hawkins/IAG Limitation Exclusion Clauses.
Particulars
- 50.1 and 74.1
Hawkins/IAG had knowledge or ought to have had knowledge of the
Plaintiffs’ Disadvantages.
- 50.2 and 74.2
Hawkins/IAG took advantage of the Plaintiffs’
Disadvantages.
- 50.3 and 74.3
The Hawkins Limitation and the IAG Exclusion Clauses were contained in the
Building Contract.
- 50.4 and 74.4
The Building Contract was not drafted by the plaintiffs.
- 50.5 and 74.5
Hawkins/IAG was not a party to the Building Contract.
- 50.6 and 74.6
Hawkins/IAG did not sign the Building Contract or the Hawkins/IAG Limitation or
Exclusion Clauses.
- 50.7 and 74.7
The Hawkins/IAG Limitation and Exclusion Clauses were not clauses that the
plaintiffs would expect to be in the Building
Contract.
- 50.8 and 74.8
The Hawkins/IAG Limitation and Exclusion Clauses were not brought to the
attention of the plaintiffs.
- 50.9 and 74.9
The plaintiffs were not aware of the Hawkins/IAG Limitation or Exclusion
Clauses.
- 50.10 and 74.10
The Hawkins/IAG Limitation and Exclusion Clauses were not individually signed by
the plaintiffs.
- 50.11 and
74.11The plaintiffs were not advised to obtain independent legal
advice.
- and
75. The Hawkins/IAG Limitation and Exclusion Clauses should be
voided.
(emphasis added)
- [213] Clauses
86, 87 and 88 of the Building Contract, outlined at [75] above, provide for these
exclusions/limitations.
- [214] The
Sleights say those clauses are very unusual in the circumstances here. They
appear in the General Conditions of the Building
Contract which, on its face, is
between the Sleights and Farrells only. Neither IAG nor Hawkins were named as
specific parties to
the Building Contract nor were they
signatories.
- [215] Clause 95
in the Building Contract, however, contains a privity clause. It records the
position outlined in ss 12 and 17 of
the Contract and Commercial Law Act 2017.
That is, a non-party like IAG or Hawkins here can enforce a promise in a
contract that:48
(a) confers or purports to confer a benefit on that non-party
designated by name, description or class; and
(b) is intended, on a proper interpretation of the contract, to
create an obligation to perform the promise that is enforceable by
that
non-party.
- [216] IAG and
Hawkins contend that the exclusion and limitation clauses are enforceable
against the Sleights in the same way as if
they were contained in a separate
contract between all these parties. This, of course, is subject to the usual
rules of interpretation
and any defences the Sleights may
establish.
- [217] Their
position is that the Sleights are not entitled to the declaration they seek to
the effect that these clauses in the Building
Contract do not bind them. This is
because they entered into the Building Contract freely, the clauses are
enforceable and they serve
to bar the Sleights’ non-policy claims (except
the CGA claim) against IAG and Hawkins for the cost of rectifying the alleged
defective reinstatement work.
- Jeremy
Finn, Stephen Todd and Matthew Barber, Burrows Finn and Todd Law of Contract
in New Zealand (6th ed, Lexis Nexis, Wellington, 2018) at
[15.2.3].
- [218] By way of
background, IAG and Hawkins say that in setting up the Managed Repair
Programme they each knew it would provide
considerable assistance to IAG’s
policyholders, but also that it might potentially expose IAG and Hawkins to
exactly the sort
of out-of-policy claim now pursued by the Sleights. IAG, in
particular, says its assistance here was entirely voluntary. It was under
no
legal obligation to provide it and would not have been prepared to do so if it
meant exposure to legal liability which could extend
in an unlimited way well
beyond its express policy limits.
- [219] This being
the case, IAG says that quite reasonably it wanted express exclusions of
liability from its customers under the extreme
circumstances of the CES, hence
the provisions in cls 86 and 87 of the Building Contract. Hawkins, too,
expresses a similar view
in relation to these provisions and also cl
88.
- [220] I turn now
to the Sleights’ position relating to these exclusion clauses. The points
they argue may be summarised here
as follows:
(a) The clauses are said to be very unusual, unexpected and
onerous. They appear in the Building Contract which is one made only between
the
Sleights and Farrells. They are included in the “General Conditions”
section of the Building Contract with the exclusion
and limitation clauses
appearing near the end of those conditions. This is well after the signing page
being the second page of the
Contract (but it must be noted that the Sleights
did initial all the pages of the Building Contract including the pages upon
which
the exclusion clauses featured).
(b) It is common ground that the Sleights were elderly and
commercially unsophisticated. The Building Contract was both prepared by,
approved, and indeed required, by IAG and Hawkins. The Sleights say they did not
read it before signing it. Neither IAG nor Hawkins,
nor anyone else, told the
plaintiffs the General Conditions to the Building Contract included these
exclusion and limitation clauses
which were for the particular benefit of IAG
and Hawkins. The Sleights say also that neither IAG nor Hawkins, nor anyone
else, advised
them to obtain independent advice before signing the Building
Contract.
(c) The Sleights say it is relevant here that the Building Contract was
signed in circumstances where:
(i) IAG as their insurer owed a duty of good faith to them which
included a duty to act reasonably, fairly and transparently in their
dealings
with the Sleights.
(ii) Under the Policy, IAG had promised the Sleights, first,
that it would advise them “how the claims process works”
and,
secondly, that IAG would “give you all the information you need on how
we’ll settle your claim” and, thirdly,
that “it is best that
you allow us [IAG] to manage your claim on your behalf”.
(d) In the material provided to the Sleights (presumably with
the approval of Hawkins) on 12 December 2012, IAG had formally advised
them that
IAG would “complete the repairs to your house” by a process
“under which State Insurance and Hawkins
undertake the building work for
you”. Those messages, it seems, were repeated by Mr Wiblin of IAG at the
meeting with the Sleights
and their daughter, Mrs Maxey, on 19 February
2013.
(e) The Sleights say they had no reason to believe that IAG, who
they reasonably expected prepared the Building Contract on terms
which sought to
promote and protect the Sleights’ interests, would have taken that
opportunity to insert what they say are
unusual exclusion terms into the middle
of a 50-page document. That contract significantly was between Farrells as
builder and the
Sleights as owners. These provisions too, the Sleights say, had
nothing to do with the normal terms of a Building Contract. Instead
they simply
sought to advance the interests in this case of IAG and Hawkins at the expense
of the Sleights.
- [221] As to the
legal basis on which the Sleights say the Court should decline to enforce the
exclusion clauses, the Sleights advance
two grounds:
(a) First, they
say that unusual or unexpected exclusion clauses may not be incorporated into a
contract unless they are especially
brought to the attention of the party whose
rights they seek to exclude. This principle is set out in J Spurling Ltd v
Bradshaw, and addresses especially what are
described as “ticket” case contracts which obviously the parties do
not sign.49 In this decision, Denning LJ said of some exclusion
clauses that they:50
... would need to be printed in red ink on the face of the document with a
red hand pointing to it before the notice could be held
to be sufficient.
The Sleights’ here do properly acknowledge two things however. The first
is that this principle is generally applied where
the clause is incorporated by
notice rather than with a signed contact document. And, secondly, they accept
there is a general (but
not invariable) rule that parties are bound by the terms
of their signed documents. Nonetheless, an exclusion or limitation clause
with
unusual effects and which is not readily apparent may be unenforceable, the
Sleights say, even in the case of it being present
in a contract they have
signed.51 Further, the Sleights claim an element of misrepresentation
is present here in that IAG assured them throughout that it and Hawkins
would
look after their interests. On this aspect the Sleights say it is clear that a
party is not entitled to rely on an exclusion
clause where its effect has been
misrepresented to the plaintiff.52
(b) The second legal basis ground advanced by the Sleights to
support their argument that the Court should decline to enforce the
exclusion
clauses here engages the doctrine of unconscionable bargain. Under this
doctrine, equity will intervene to relieve a party
of the rigours of the
49 J Spurling Ltd v Bradshaw [1956] EWCA Civ 3; [1956] 1 WLR 461
(CA).
50 At 466.
51 By way of example, the Sleights refer to the discussion in
Spiteri v RCR Infrastructure (New Zealand) Ltd [2017] NZHC 438 at [61]
– [70]. In that case the Court found on the evidence that the term in
question was not in fact disclosed to the plaintiff at
the time of signing the
contract, but the Court nonetheless appears to have contemplated at [75] and
[76] that the same result would
have arisen had the plaintiff been provided with
the full terms.
52 Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805
(CA).
common law in respect of a contract that is unconscionable. The general
principles of this doctrine are well established. They were
summarised in the
Court of Appeal’s judgment in Gustav & Co Ltd v Macfield
Ltd.53 The doctrine applies to protect
parties who are under a “qualifying disability or disadvantage”.
Although the categories
of disadvantage are not closed, generally they can
include by way of example, illness, age or ignorance, “but other
characteristics
may qualify depending on the circumstances of the case.”
Essentially there must also be some element of a stronger party “taking
advantage of” a weaker party.
- [222] On all
this, the Sleights say the key factors in their case are that when they signed
the Building Contract they reasonably
expected that IAG and Hawkins would be
acting in their interests (rather than contrary to their interests) and
consistently with
the representations which IAG had made to them on both 12
December 2012 and 19 February 2013 which I note above. The Sleights say
they
would not reasonably have expected IAG or Hawkins to have included in
the 16 pages of “General Conditions”
in the Building Contract
terms which had the very different effect of excluding or limiting liability of
IAG or Hawkins (who were
not named as parties to the Contract). The Sleights say
they would certainly not have expected IAG or Hawkins to do that without
fairly
bringing those clauses to their attention. In these circumstances, it is the
Sleights’ position that it would be unfair
and inequitable for the
exclusion and limitation clauses to be enforceable against
them.
- [223] Limitation
or exclusion clauses are to be construed in accordance with ordinary principles
of construction. They are to be given
their natural plain meaning, read in the
light of the Building Contract as a whole with an interpretation that correlates
with the
presumed mutual intention of the
parties.54
- [224] So far as
cl 87 is concerned here, the Sleights agreed that IAG’s liability would be
as set out in the Policy and that
there could be no additional liability. In
particular,
- Gustav
& Co Ltd v Macfield Ltd [2007] NZCA 205 at [30], aff'd [2008] NZSC 47,
[2008] 2 NZLR 735.
- Lumley
General Insurance (NZ) Ltd v Body Corporate No 205963 [2010] NZCA 316,
[2010] 16 ANZ Ins Cases 9161-853 at [27].
there was to be no additional liability in respect of the quality, workmanship
or timing of the works, the creditworthiness of the
Contractor and/or any other
services being carried out by any other person in relation to the works.
- [225] IAG says
the meaning of this clause is unambiguous, it operates in the present case in a
perfectly straightforward way, and
its meaning is supported entirely by the
context here. Clause 87, IAG says, is consistent with the existing rights,
obligations and
roles of the parties under the Policy and before any building
contract was entered into. IAG’s involvement was simply to ensure
policy
cover, that the costings of repair work were acceptable and consistent with an
obligation to assist its policyholders with
the claims process
generally.
- [226] IAG says
nothing in the text of cl 87, nor the context here, supports the Sleights’
contention that this clause shows
an intention that there would be a liability
for workmanship defects.
- [227] In
addition, both IAG and Hawkins say cl 86 is also unambiguous and its operation
straightforward.
- [228] The
position they take is that the circumstances surrounding Farrells’
defective repair of the Sleights’ property
here which Hawkins project
managed is exactly the situation specified in cls 86, 87 and 88 which is
expressed in comprehensive and
clear terms.
- [229] The
Building Contract, I accept, was not a standard form or “ticket
case” contract.55 The limitation provisions were included in
the signed Building Contract and, as I have noted, the page where they featured
was initialled
by the Sleights. Unexpectedness is not a defence here. Nor do I
see this as a similar situation to that which prevailed in J Spurling Ltd v
Bradshaw.56
- [230] And in
terms of the Sleights’ unconscionable bargain argument, IAG and Hawkins
contend the elements required for this
doctrine are simply not made out
here.
55 Such as parking tickets – see Thornton v
Shoe Lane Parking Ltd [1970] EWCA Civ 2; [1971] 2 QB 163 (CA).
56 J Spurling Ltd v Bradshaw, above n 49.
On this aspect, the elements needing to be satisfied for an unconscionable
bargain plea are:
(a) First, there must be a qualifying disadvantage which could
include age, health and stress or anxiety. It appears that a qualifying
disadvantage does not simply arise from an inequality of bargaining power but
instead must significantly diminish a party’s
ability to assess his or her
best interests.57
(b) Secondly, if one party is labouring under a qualifying
disadvantage the focus shifts to the conduct of the stronger party. The
essential question is whether in the particular circumstances it is
unconscionable to permit the stronger party to take the benefit
of the bargain.
The stronger party must know of the weaker party’s disadvantage and must
take advantage of that.
- [231] Once the
two limbs noted above are met, the burden falls on the stronger party to show
the transaction was fair, just and reasonable
and should be
upheld.58
- [232] The Court
in Gustav v Macfield Ltd summarised the basis upon which unconscionable
transactions are subject to equitable intervention in this way:
59
Equity will intervene, when one party in entering into a
transaction, unconscientiously takes advantage of the other. That will be
so
when the stronger party knows or ought to be aware that the weaker party is
unable adequately to look after his own interests
and is acting to his
detriment. Equity will not allow the stronger party to procure or accept a
transaction in these circumstances.
The remedy is conscience-based and, in
qualifying cases, the Court intervenes and says that the stronger party may not
take advantage
of the rights acquired under the transaction because it would be
contrary to good conscience to do so. The conscience of the stronger
party must
be so affected that equity will restrain that party from exercising its rights
at law.
- [233] In this
case, IAG and Hawkins contend the facts fall well short of what would be
required to make out an unconscionable bargain.
Although in October 2013 Mr
Sleight was 80 and had health issues and Mrs Sleight was 73 and apparently in
good
57 Gustav v Macfield Ltd, above n 53 at [6].
58 Bowkett v Action Finance Ltd [1992] 1 NZLR 449 (HC) at
459.
59 Gustav v MacField Ltd, above n 53 at [20].
health, it is claimed these factors did not amount to qualifying disadvantages.
In addition, the plaintiffs authorised their daughter,
Anna Maxey, a qualified
and experienced geotechnical engineer, to assist them with lodging their claim
and preparing for the repairs
of the house. It does seem that Mrs Maxey accepted
that she did provide assistance and advice to her parents in 2011 to 2013 and
this was later followed by the active involvement of her husband, Mr Maxey, who
had significant business experience.
- [234] Further,
IAG says there is no evidence that either it, Hawkins or Farrells knew of any
disadvantage the Sleights had and took
advantage of this. And, lastly, IAG
contends that cls 86 and 87 merely recorded the pre-existing policy position as
between IAG,
the owners and Hawkins and there was nothing inherently
unconscionable about them or the entry into the Building Contract which
contained
these exclusions. IAG and Hawkins say the exclusion and limitation
clauses in their favour did not detract at all from the plaintiffs’
entitlements under the Policy or otherwise which remained. Nor could they remove
any rights the Sleights had against anyone under
the CGA.
- [235] Essentially,
it is the position of IAG that, in all the fraught circumstances of the CES, for
IAG, other insurers and their
policyholders, the exclusion of non-policy claims
was a fair and reasonable quid pro quo for what is said to be the voluntary
assistance
and facilitation which IAG was providing under its Managed Repair
Programme.
- [236] Finally,
it is contended that in considering the overall justice in this case, it is
important to characterise these cls 86,
87 and 88 in a way that is fair and
balanced and which takes proper account of the realities and the unusual
circumstances which
were prevailing at the time. IAG says it was under no legal
obligation to provide its Managed Repair Programme. It maintains it would
not
have been prepared to provide the Programme if it meant exposure to legal
liability which could extend in an unlimited way well
beyond its express policy
limits. I accept this does ignore, of course, a further possible reason for the
Managed Repair Programme
which was, not only to assist homeowners in obtaining
repairs in a highly charged and demand-driven environment post the CES, but
also
to benefit IAG and other insurers by placing a cap
or limit upon repair costs and, secondly, to ensure they could sign up builders
and other contractors in the area to ensure availability.
- [237] The
limitation and exclusion provisions in cls 86, 87 and 88 clearly formed part of
the Building Contract. That Contract was
signed by the Sleights on 14 October
2013. It included the page below the heading for what was described as the
“Limitation of Liability” (emphasis original) section
containing these clauses. I am satisfied there was no fraud or misrepresentation
so far as the
Building Contract was concerned and the Sleights are bound by it.
This obviously includes all conditions to which they put their
signature. That
is so whether they read its contents or not.60 Clauses 86, 87 and 88
are clearly and unambiguously expressed. The operation of cl 86 is
straightforward. It targets possible misrepresentation
claims and would seem
also to apply to the Sleights’ estoppel claim here. I will address this
issue further below.
- [238] As to
whether the clauses at issue do cover the actual circumstances that occurred
here, the Sleights’ general claim in
this proceeding has arisen largely in
relation to defective repairs of their property by Farrells, repair work which
IAG contends
was project managed by Hawkins. The claim involves assertions
relating to the quality and workmanship of the repair work and its
scope and
contends that IAG is liable for alleged representations, including as to the
performance of Farrells and Hawkins. I accept
these represent the circumstances
specified particularly in the clauses in question.
- [239] For all
these reasons I conclude that these cls 86 , 87 and 88, expressed as they are in
comprehensive and clear terms, do apply
to any form of claim by the Sleights
against IAG and Hawkins other than a claim under the Policy itself or under the
CGA. These exclusion
provisions provide a complete answer to the Sleights’
tort claim in negligence against IAG and their estoppel claim against
IAG, and
also an answer to some aspects of the Sleights’ tort claim against
Hawkins.
- Nightingale
v Barfoot & Thompson Ltd HC Auckland CIV-2009-404-4073, 22 October 2009
at [30]; and L’Estrange v F Graucob Ltd [1934] 2 KB 394 (KB) at
403.
- [240] I turn now
to briefly consider the Sleights’ unconscionable bargain argument. In
doing so I am of the view that the facts
prevailing in this matter fall short of
what would be required to make out an unconscionable bargain, but only by a
reasonably fine
margin. On the issue, first, as to whether there is a qualifying
disadvantage in this case, again by a fine margin, I conclude that
the answer to
this question is, no. In October 2013, as I have noted, Mr Sleight was aged 80
and had health issues and Mrs Sleight
was 73 although in reasonable health.
Their ages did not necessarily affect their ability to assess their best
interests here, particularly
given the assistance they received from their
daughter, Mrs Maxey, and her husband. IAG maintains that at an early stage all
parties
were aware that Mrs Maxey was assisting her parents and it appears also
that most correspondence from IAG was sent to her email address.
This included
the draft Building Contract which she received some weeks before it was signed
by the Sleights. Even if Mr and Mrs
Sleight might have been regarded as having a
disqualifying disadvantage here, as I see it, this matter was covered to a
degree by
the regular involvement of their daughter, perhaps as their agent who,
as a senior geotechnical engineer, could certainly not be
said to be labouring
under any qualifying disadvantage. Mrs Maxey in her evidence did accept that she
provided assistance and advice
to her parents from 2011 to
2013.
- [241] Secondly,
I accept here that there was no evidence provided to the Court that IAG, Hawkins
or Farrells knew of any special disadvantage
the Sleights may have had in this
case and took advantage of it.
- [242] It is true
also that the exclusion and limitation clauses in favour of IAG did not detract
from entitlements the Sleights had
under their Policy. Nor, as I note below,
could these limitations remove any rights the Sleights had against IAG or any
other person/party
under the CGA.
- [243] A high
threshold exists before a ruling can follow that an agreement comprises an
unconscionable bargain. The normal remedy
too where unconscionable bargain is
made out is rescission or voiding the entire contract ab initio. Although
some authority does exist for a proposition that partial rescission may be
possible, the emphasis in equity on returning
the parties to the status quo
ante might make the remedy sought by the Sleights here inappropriate as it
would simply not be possible.
- [244] For
all these reasons I conclude, therefore, that cls 86, 87 and 88 in the Building
Contract are enforceable here and (with
the exception of the CGA claim) serve to
bar the Sleights’ non-policy claims against IAG and their non CGA claim
against Hawkins
for the cost of rectifying the alleged defective reinstatement
work. The declarations sought by the Sleights otherwise in their first
and
second causes of action against Hawkins and in their second and third causes of
action against IAG are refused.
- [245] Given that
I have accepted the Sleights’ claim against IAG under the CGA is not
barred by the limitation clauses I note
above, it is appropriate to turn next to
consider that claim.
Sleights’ claim under the Consumer Guarantees Act against
IAG
- [246] On
this claim, which is an alternative to their policy claim in contract, the
Sleights plead in their fifth cause of action
against IAG a “breach of s
28 of the CGA”. This claim proceeds, therefore, on the basis that the
Sleights have no claim
under their Policy for the cost of remedying outstanding
repairs. Although I have found otherwise on the Sleights’ Policy claim
[195] above, nevertheless for
completeness, I now proceed to address this alternative CGA
claim.
- [247] The CGA
claim is pleaded in the Sleights’ statement of claim as
follows:
- IAG
provided services to the plaintiffs.
Particulars
- 80.1 IAG carried
out the IAG Services [“the reinstatement work to repair the earthquake
damage to be carried out on the property
through the Managed Repair
Programme”].
- The
plaintiffs are consumers.
- IAG
was in trade.
- IAG
failed to carry out the IAG Services with reasonable care and
skill.
Particulars
[78.1 It failed to appoint a suitable and appropriately
qualified building contractor to carry out the Insurance Works.
- 78.2 It failed
to ensure that the Scope of Works included appropriate remedial work to repair
the Earthquake Damage in accordance
with the Reinstatement Obligation in the
Policy.
[(a) The Scope of Works did not include:
(i) replacement of the exterior joinery;
(ii) replacement of the front and rear conservatories.]
- 78.3 It failed
to ensure that its agent, Hawkins, adequately monitored the delivery of the
insurance work.
(a) failed to ensure that Hawkins used reasonable skill and care
to carry out the Hawkins’ services; or
(b) is vicariously liable for the failure of its agent Hawkins
to carry out the Hawkins’ services with reasonable care and skill:
(i) [53. Hawkins breached its duty of
care.
Particulars
- 53.1 It failed
to ensure that the Scope of Works included appropriate remedial work to repair
the Earthquake Damage to the standard
in the Policy.
- 53.2 It failed
to adequately monitor the delivery of the Insurance Works.
- 53.3 It provided
inadequate coordination assistance between IAG, Farrell and the plaintiffs to
ensure that the Insurance Works were
carried out with reasonable diligence and
in a timely manner and with reasonable care and skill.
- 53.4 The Insurance
Works were
constructed with the Defects:
(a) The plaintiffs
refer to Appendix A for
particulars of the
Defects.]
- The
failure by IAG to carry out the IAG Services with reasonable care and skill was
a failure that cannot be remedied or was of a
substandard
character.
- As
a result of the breach, the plaintiffs have incurred loss.
Particulars
- 85.1 The
plaintiffs will have to carry out work to remediate the
Defects:
[66.3 (a) The plaintiffs refer to Appendix B for
particulars of the Remedial Work.
(b) The plaintiffs estimate that as at 8 May 2019 the cost of
carrying out the Remedial Work was $458,942 including GST:
(i) The plaintiffs refer to an updated RLB Cost Estimate [dated
8 May 2019] (with the quote “new deck option” used in
place of the
“reuse deck option” and including the Addendum interior works).
(c) In addition to the Remedial Work, there will be further
remedial work, and costs, associated with structural work required to
remediate
structural defects;
[66.4 The plaintiffs will need to pay accommodation costs for
the period in which they will need to vacate the Property to carry
out the
Additional Work (Consequential Losses);]
- 85.2 The breach
has caused stress and inconvenience to the plaintiffs.
- [248] Section 28
of the CGA provides:
28 Guarantee as to reasonable care and skill
Subject to section 41 of this Act, where services are supplied
to a consumer there is a guarantee that the service will be carried
out with
reasonable care and skill.
- [249] In terms
of the CGA, s 2(1) defines “services” very broadly to
include:
(b) ... the rights, benefits, privileges, or facilities that
are, or are to be, provided, granted, or conferred by a supplier; [including]
under any of the following classes of contract:
(i) a contract for, or in relation to, the performance of work
(including work of a professional nature), whether with or without
the supply of
goods;
...
(iii) a contract of insurance, including life assurance and life
reassurance...
- [250] The
Sleights say the “services” in question are those same out-of-policy
Managed Repair Programme services as are
the subject of the negligence claim I
address below.
- [251] Their
position is that these are not services provided directly under the Policy but
rather are what IAG itself describes as
the “extra-contractual”
services it provided. And it is useful to note here that, following an amendment
to the CGA in
2003, the definition of “supplier” in relation to the
s 2(1) “services” provided was amended to include a
person who
“supplies services to an individual consumer or a group of consumers
(whether or not the consumer is a party or
the consumers are parties to a
contract with the person)”.
- [252] From the
evidence it seems that Mr James, called by IAG, accepted that IAG had arranged
for Hawkins to provide services for
the benefit of IAG’s customers. In
addition, Mr James appeared to accept that IAG and Hawkins were working
collectively towards
the common goal of undertaking repairs to customers’
homes. That, too, was precisely the situation represented to the Sleights
by IAG
in their post- CES communications outlined in their Residential green zone
options fact sheet, noted above.
- [253] Here, Mr
Gedye confirmed that IAG accepts the CGA has some application. He said it is
accepted, first, that the Sleights are
“consumers” in terms of the
CGA, secondly, that IAG is a company in trade, and, thirdly, that IAG provided
“services”
under the Policy to the Sleights.
- [254] A key
matter at issue under this cause of action, however, according to IAG, is the
question of what “services”
it provided here. The Sleights allege
the “services” were “arranging for the reinstatement work to
repair the earthquake
damage to be carried out on the property through the
Managed Repair Programme”.
- [255] I need to
say at the outset I am satisfied, first, that here the “services”
provided by IAG were properly as defined
by the Sleights in their pleading and,
secondly, that IAG clearly breached the statutory guarantee it gave under s 28
of the CGA
that the services would be carried out with reasonable care and
skill. I will address in more detail the defences advanced by IAG
to these
matters later in this judgment.
- [256] These
“services”, according to the Sleights, were supplied to them in
three ways:
(a) Directly, by IAG’s own role in its Managed Repair
Programme which included its selection, management and supervision of
Hawkins
and Farrells.
(b) Indirectly by procuring Hawkins as IAG’s
“Project Management partner” to provide its services “on
behalf
of IAG”, such Hawkins services including, importantly, monitoring
of the repair work.
(c) Directly by making milestone payments to Farrells under the
Building Contract, including what, in the present case, was in effect
a
significant overpayment to Farrells for work which was not properly
completed.
- [257] IAG
endeavours to argue that its out-of-policy Managed Repair Programme was governed
here entirely by the 2012 RSMA which it
entered into with Hawkins. Importantly,
however, the Sleights were not a party to the 2012 RSMA, nor were
they
aware of it at the relevant times. It was not until shortly before this
proceeding was brought that they became aware for the first
time of the 2012
RSMA.
- [258] Therefore,
it must follow that any arguments IAG endeavours to raise as to its position
under the 2012 RSMA are of little relevance
to the Sleights’ claim against
it, given that the Sleights at no operative time were aware of the existence of
the 2012 RSMA
or its terms.
- [259] Turning to
the relationship under the broad Managed Repair Programme between IAG and the
Sleights, as I see it, the following
is clear:
(a) Under the Programme, as IAG confirmed in its post-CES
information documentation provided to the Sleights, it would “complete
the
repairs to your house.” In addition, IAG confirmed “our Project
Manager partner Hawkins can co-ordinate the repair
process for you.”
(b) This information provided to the Sleights in IAG’s
Residential green zone option fact sheet was confirmed in later documentation
provided to the Sleights and, indeed, in other evidence before me. This included
a reference in IAG’s “Commonly used
terms” document, that
Option 1, the “Repair your home” option was described further as
an:
...option under which State Insurance and Hawkins undertake the
building work for you.
(c) Generally, in considering IAG’s actions in carrying
out its Programme, and illustrating the obligations it took on, IAG
effectively:
(i) Confirmed the pre-selected list of builders made available
to the Sleights and assisted in the selection of Farrells as their
builder.
(ii) Confirmed and signed off with Farrells and Hawkins the
scoping of works required for the repairs.
(iii) Instructed the builder Farrells and Hawkins.
(iv) Made milestone payments to the builders Farrells under the Building
Contract irrespective of the quality of the work or whether
indeed proper final
completion had been achieved (and all this in the face of reports such as the
detailed Watkins Report confirming
major inadequacies). This control of the
payment process was a major mechanism for ensuring Farrells complied with its
required workmanship
and quality standards.
(v) Throughout the entire Programme, IAG remained aware of its
requirement to meet the cost of “as new” standard repairs
in
accordance with its Policy obligations to the Sleights. This went hand in hand
with the need from the Sleights’ perspective,
as longstanding owners of
their home, to ensure that all work was carried out properly and to that
required standard.
(vi) IAG and its Project Manager “partner” Hawkins
(as an important part of the Programme) under the Building Contract
effectively
“took over” dealings with Farrells throughout, largely to the
general exclusion of the Sleights.
(vii) Under this arrangement, and unbeknown to the Sleights,
from the evidence before me it is difficult to escape the conclusion
that IAG
placed considerable emphasis on timing and cost issues relating to the repair
jobs that were to be undertaken. Much focus
was given to scheduling, processing
and finishing repairs and rebuilds which were “on IAG’s books”
after the CES.
This was well known to both Hawkins and Farrells. The evidence
again suggests they understood there was real pressure to “clear
IAG’s books” of such claims without delay. This was achieved
necessarily in the Sleights’ case, at least in part,
to the exclusion of
quality issues. At one level this whole emphasis on getting repair/rebuild jobs
completed quickly might be seen
as understandable. This was because of the huge
number of CES earthquake repairs and rebuilds to be addressed by IAG
and other insurers at the time. Clearly there was time pressure from many
quarters for damage to be “fixed” and for homeowners
to return to
their repaired/rebuilt properties. That this might be achieved at the risk of
repairs being carried out inadequately
or defectively, however, was hardly
acceptable.
(viii) On much of the evidence before
me, it became clear that IAG, both itself and partly through Hawkins, was
pressuring builders
like Farrells to “complete” the huge number of
IAG repair and rebuild jobs they had underway at the time. In large measure
it
seems IAG simply “hoped” that Hawkins would ensure workmanship
quality and proper completion issues were observed
by Farrells. It must be said,
too, that this was, notwithstanding what IAG must accept now in reality was at
the very least, a degree
of uncertainty as to Hawkins’ role in all of
this. This possible uncertainty did not arise, however, from the negotiations
for, or the final terms of, the 2012 RSMA. In my view they were clear, as I
address below. As I see it, despite IAG’s claims
to the contrary over the
2012 RSMA arrangements, and its assurances to policyholders that Hawkins would
carry out a project management
quality checking role for them, IAG simply chose
itself to take the real risk that overworked builders like Farrells might err in
meeting their quality and good workmanship obligations under the standard
building contracts it had prepared.
- [260] Addressing
s 28 of the CGA, IAG is deemed to have guaranteed to the Sleights that the
services it agreed to undertake would
be “carried out with reasonable care
and skill”. The standard applying to that guarantee is that of an ordinary
supplier
relating to the nature of the service supplied. IAG is an insurer. It
is not a builder or building contractor involved in the construction
industry.
But, as an insurer, it is often involved in repair and rebuild work pursuant to
insurance claims under its policies. And,
as an insurer, it also has those
obligations of good faith to its policyholders that I have outlined at [115] above.
- [261] Turning
now to address in more detail the Sleights’ claim that IAG breached its
obligations under the CGA, the first aspect
considering IAG’s direct
supply of services to the Sleights rests upon IAG’s own role in the
Managed Repair Programme.
On this, IAG has contended throughout that its Managed
Repair Programme was not in any way fundamentally or seriously flawed. I reject
this contention. It ignores what I see as clear evidence of a real flaw at the
heart of the programme. Namely, this was that, as
I record at para [259](c)(viii) above, IAG claims now that
it believed Hawkins would actively supervise the quality of building repair work
to be undertaken and,
indeed, had told the Sleights in this case that Hawkins
would do so, whereas Hawkins clearly considered that it had no such obligation.
The consequence of this for the Sleights, who had no idea of this flawed
arrangement, was that Farrells’ work was effectively
unsupervised, the
repair defects were not identified, and Farrells were significantly overpaid for
defective work.
- [262] The
principal witness who gave evidence for IAG, its General Manager at the time for
the Christchurch Rebuild Programme, Mr
James, accepted that this
misunderstanding or difference between IAG and Hawkins was a “recipe for
disaster”. In particular
in his evidence, in answer to questions put to
him, Mr James stated:
Q. So would you agree with me then the position seems to have
been, back in 2012 and 2013, that IAG thought Hawkins was to project
manage
quality, yes?
A. Yes.
Q. IAG told its customers that Hawkins was to project manage
quality?
A. Yes.
Q. But that Hawkins didn’t think its job was to project
manage quality?
A. It appeared that way, yes.
Q. Putting to one side which of IAG and Hawkins is right about
that, that was a major problem?
A. Yes.
Q. With hindsight, its not an overstatement to say it was a
recipe for disaster?
A. I think, from my perspective, Hawkins have let us down and
let our customers down.
Q. I understand that and they have a different perspective?
A. Yeah.
Q. What I’m saying is, putting to one side the rights and
wrongs of that –
A. Right, yes.
Q. – the fact of the misunderstanding –
A. Yes.
Q. – of a different view as to Hawkins role, [it] was a
recipe for disaster?
A. Yes.
- [263] Mr James
went on in his evidence to claim that he was not aware that Hawkins had a
fundamentally different view of its role
until he read the brief of evidence of
the Hawkins witness, Mr David Wood, as up to that point he said his
understanding was that
Hawkins “were managing the build quality”. Mr
Wood, as I have noted, was a senior Hawkins employee. From April 2014
to
December 2017 he was General Manager of Hawkins’ Canterbury Recovery
Project and effectively its leader in the Managed
Repair
Programme.
- [264] Mr James
in his evidence was commendably frank. What this clearly revealed, as supported
by other evidence before me, was a
fundamental misunderstanding over
responsibilities under the 2012 RSMA between IAG and Hawkins. This
misunderstanding was entirely
unknown to the Sleights.
- [265] A
difficulty here for IAG is that the evidence before me showed that Hawkins and
its advisors had in fact told IAG and their
advisors throughout the negotiations
for the 2012 RSMA that under this contract Hawkins was not to be responsible for
managing the
quality of a builder’s building work. That was to be the
position between IAG and Hawkins, irrespective of the fact that Hawkins’
duty to a homeowner, like the Sleights here, might be different. This was spelt
out in a letter from Hawkins’ lawyers, Duncan
Cotterill, to IAG’s
lawyers, Russell McVeagh, dated 23 May 2012 during the negotiations for the 2012
RSMA contract. This letter
said:
...whether or not a duty is owed to the homeowner by Hawkins
will be a matter for the court and will depend on the particular facts
that
arise. However, in that context, we note that IAG has already made
representations to its policyholders about Hawkins’
role, and stated that
Hawkins will ensure
the quality of workmanship. While contractually, this is not the position
vis a vis IAG, it does not assist with the practical
possibility that a court
may regard Hawkins as having duties to the homeowner that are more expansive
than the contract provides
for.
This point, it seems had previously been raised too in earlier correspondence
from Hawkins to IAG on 9 November 2011.
- [266] From
IAG’s perspective, Mr James, was in charge of the Programme. It seems,
however, from his evidence that no-one at
IAG had advised him that Hawkins had
expressed the views I have noted above. Mr James appears to have operated at all
times under
the impression that Hawkins did accept an obligation to manage the
quality of repair work carried out by builders like Farrells here.
So far as the
Sleights were concerned, this was also the clear position which IAG had
represented to them throughout.
- [267] There have
also been suggestions advanced before me that the overall post- CES relationship
between IAG and Hawkins was a problematic
one. This relationship has been
described as being “strained” at the time and particularly in 2013
– 2014. Certain
staff changes, it seems, were made as a result. I say
nothing further on this aspect.
- [268] What
appears clear, however, is that IAG became aware that Hawkins was having
difficulty with and were not performing the tasks
that IAG now says they
expected them to perform. Under the 2012 RSMA IAG had substantial powers to
monitor and modify Hawkins’
performance. Specifically, Hawkins was obliged
at all times to “comply with all reasonable directions of IAG”. IAG
was
entitled to “review the calibre” of staff employed by Hawkins
and could require any particular employee to be removed
or re-assigned,
including because the employee was not “suitably qualified to undertake
the roles assigned to them”.
IAG also had rights to inspect records and
access all personnel, premises, facilities, data of any builder involved in the
project
but there is no evidence here that it took active steps to use those
powers to force an improvement in Hawkins’ performance
in this
case.
- [269] Importantly,
IAG could also control the number of Hawkins’ employees working on the
Project. This was provided for in
cls 12.7 and 12.8 of the 2012
RSMA.
This was of particular importance, given the evidence from Mr Wood that
Hawkins’ ability to monitor the quality of building
work was severely
compromised by a major lack of resources approved by IAG. Indeed, Mr Wood said
that if it had been allowed, Hawkins
would have employed more RSMs who then
could have spent more time on each repair project. They therefore, would have
been able to
provide “a greater level of oversight and supervision”
and monitored more closely the quality of the repair work. This
simply could not
happen because of what he said was, firstly, limited resourcing IAG was placing
on Hawkins and, secondly, the huge
pressures IAG was applying to get repair jobs
“completed”. Specifically, and by way of example, when Mr Wood was
asked
about Hawkins’ role in ensuring that the cladding on the
Sleights’ house was installed in compliance with the building
consent, he
responded:
...the amount of time that would be required to meet that
expectation is completely out of sync with the amount of time that we had
available on site and that we were resourced to have on site.
- [270] It is
clear, as I see it, that IAG knew or ought to have known throughout that Hawkins
was not monitoring the quality of Farrells’
repair work on the
Sleights’ house. This was apparent on the face of site reports completed
by Hawkins and provided to IAG.
For six months from March to October 2014,
Hawkins’ site reports (the MIV site reports and RSM site reports) failed
completely
to report on the quality of Farrells’ repair work. The quality
sections of the report forms were left entirely blank. This
included the period
from June to October 2014 when it seems most of the defective work was
undertaken by Farrells.
- [271] In
cross-examination, Mr James was asked about these incomplete reports and he
acknowledged that Hawkins’ failures should
have been obvious to
IAG:
Q. ...if IAG was relying on these [site reports] to give it
assurance about the quality of Hawkins’ work then it should have
been
perfectly obvious to whoever looked at them in IAG that Mr McCullum [a Hawkins
RSM] at least wasn’t doing his job, is
that fair.
A. Yes.
- [272] There is
also no evidence of anyone at IAG challenging Hawkins as to their failure to
report on the quality of the repairs to
the Sleights’ house. The deficient
reports, it seems, were simply ignored by IAG.
- [273] From the
Sleights’ perspective, these failures by IAG to ensure that Hawkins was
performing its monitoring role, were
especially unacceptable given that both IAG
and Hawkins had reasons at the time to be concerned about the quality of
Farrells’
work generally, as the evidence before me confirmed. This is
despite the fact that IAG at the outset had told the Sleights that Farrells
were
“one of their top builders” and the Building Contract had described
Farrells as “a preferred contractor to
IAG” at Recital
B.
- [274] Notwithstanding
this, evidence before me also clearly showed that by early 2014 Farrells had a
huge number of contracts underway
for IAG and were unquestionably “spread
too thinly”, as Mr James confirmed. Farrells, it seems, had been simply
assigned
more repair contracts than it could properly perform. This meant that
in the Sleights’ case, according to the specialist building
reports in
evidence before me, Farrells’ work was generally of a poor and
unacceptable quality. In his evidence, Mr James confirmed
too that from April
2014 he had a “particular concern” about Farrells’ performance
and that Hawkins was not doing
enough to monitor this.
- [275] That
overall situation was an unsatisfactory one. Clearly it demanded a high level of
attention, scrutiny and management from
IAG. But, from the evidence it is
apparent little, if anything, was done to address the position until, so far as
the Sleights’
contract was concerned, it was too
late.
- [276] Lastly, in
terms of its payment obligations under the Sleights’ Building Contract,
IAG continued to pay Farrells notwithstanding
that it was aware of significant
difficulties with Farrell’s repair work. It is inexplicable too that IAG,
as it did, paid
Farrells further amounts exceeding $70,000 under the Building
Contract in October and December 2015, months after the contract had
been
terminated on behalf of the Sleights. By this time, as I have noted, IAG also
had reports from Axis Building Consultants and
Watkins Consultancy which
detailed major defects in Farrells repair works. Clearly there can have been no
obligation for these payments
to be made, given the known defects, and a right
of set off against any amounts otherwise owing should have been exercised. It
does
seem that IAG, although perhaps turning its mind to withholding payment,
nonetheless chose to pay, perhaps simply to satisfy Farrells
who were
undertaking work for IAG on many other repair contracts and no doubt
were
pressuring throughout for payments to be made to bolster cash flow. Both the
Sleights (and IAG) necessarily lost any ability to use
retained funds under the
Building Contract to remedy the defective repairs. Farrells had simply been
overpaid by IAG and this money
was effectively irrecoverable as Farrells are now
in liquidation.
- [277] I conclude
that in IAG’s own direct conduct it breached its obligation to carry out
its direct services under s 28 of
the CGA with reasonable care and
skill.
- [278] I turn now
to the indirect services provided by IAG to the Sleights here by procuring
Hawkins as IAG’s “Project
Management partner” to undertake
work for them on behalf of IAG including, importantly, monitoring of the repair
work. This
is in effect a claim that IAG should be found vicariously liable here
for the actions of Hawkins.
- [279] So far as
the Sleights understood, there seems little doubt that IAG had indicated Hawkins
was providing its services on IAG’s
behalf and, indeed, was a Project
Management partner of IAG. The Building Contract recitals drafted and approved
by IAG and Hawkins
recorded that IAG had “appointed Hawkins to provide
certain services to IAG NZ for the purposes of the insurance works”
and
added that Hawkins would be providing its services “on behalf of IAG
NZ”. These matters would have been apparent
to the Sleights when they
signed the Building Contract.
- [280] Although I
need not definitively decide this issue, it does seem at first glance that IAG
had a significant level of control
over Hawkins in terms of their 2012 RSMA
Contract and otherwise. This included the ability of IAG to give directions and
to dictate
the number of staff employed by Hawkins. This contractual
relationship too extended over a significant period. The evidence shows
that
Hawkins had been established as a special purpose company whose sole business
was to provide services under the 2012 RSMA and,
thus purely for purposes under
IAG’s Managed Repair Programme. For these reasons there is a reasonable
argument, as I see it,
that IAG should be held vicariously liable here for any
negligence of its “Project Manager partner”, Hawkins, including
by
way of any breaches by Hawkins of the CGA.
- [281] And, as to
the general provision and quality of Hawkins’ Project Management Services
to Farrells at the time, Mr Wood,
too, in his evidence said that “it was
understood by – between IAG and Hawkins that Farrells were
struggling”.
- [282] On these
aspects, there is little doubt that both IAG and Hawkins’ services here
could not be said to have been carried
out with reasonable care and skill.
Because Hawkins, vis a vis IAG, did not have a full project management role, it
follows that
they did not fully monitor Farrells’ work as builder. And,
the management and supervision undertaken by IAG over both Hawkins
and Farrell
was deficient to a significant degree. From the evidence of IAG’s own
employees at the time, it is clear that very
little oversight and management was
undertaken at all.
- [283] In
addition, as I have noted, there can be no question that IAG did not perform
adequately in terms of the CGA in its role in
procuring Hawkins to properly
project manage Farrells’ performance under the Building Contract. This led
to failures to detect
Farrells’ workmanship defects and scope deficiencies
until “it was too late”.
- [284] Section 43
of the CGA prevents IAG from “contracting out” of the statutory
liability regime under the Act. Accordingly,
IAG here cannot rely on any
limitation or exclusion clauses, including cls 86 and 88 of the Building
Contract as a defence to this
cause of action.
- [285] Turning
now to the defence to this claim advanced by IAG, at the outset IAG did accept
that the CGA has some application in
this case in that it acknowledged IAG was a
company in trade, it provided services under the Policy to the Sleights and the
Sleights
are consumers here.
- [286] Two key
issues, as I have noted, were advanced by IAG in its defence. The first relates
to the question as to precisely what
“services” IAG provided here.
On this, IAG contends that the “services” supplied to the Sleights
at issue
in this case were acts of the builder, Farrells, and the Project
Manager, Hawkins. IAG maintains that its Managed Repair Programme
represented a
scaled-up claims handling service only and one put in place to meet the demands
of the CES, which were major catastrophic
events. The Programme, however,
according to IAG, was no more than that.
- [287] Although
IAG accepts it did provide the Sleights as consumers with services, however, it
says the CGA cause of action they have
advanced is not tenable in the present
case as none of the “services” provided by IAG were building work or
project management
work and these were the services which caused the defects and
loss alleged by the Sleights. IAG says further that, in any event,
it did
exercise reasonable care and skill in relation to all services which it provided
in this case which were, namely, claims handling
services.
- [288] As I have
noted above, I do not accept these arguments put forward by IAG in its defence
here. On the argument that the Managed
Repair Programme was simply a
“scaled up claims handling service” this, in my view, understates
the position considerably.
There can be no doubt that this programme was indeed
a major outside- the-Policy undertaking by IAG, carefully crafted to meet the
post-CES situation faced by IAG and other insurers in
Christchurch.
- [289] Given this
conclusion, to describe the Managed Repair Programme as a simple scaled up
claims handling service is wrong. It was
much more than
that.
- [290] And,
despite IAG’s complaint to the contrary, I am satisfied the
Sleights’ description is appropriate where they
say at paragraph 76 of
their Amended Statement of Claim, that “services” were provided here
by IAG which were “arranging
for the reinstatement work to repair the
earthquake damage to be carried out on the property through the Managed Repair
Programme”.
Broadly speaking, IAG did arrange for the Repair Works
required to be carried out and this was through their Managed Repair Programme
scheme.
- [291] I am
satisfied too, that those “services”, which (in the main) were
deficiently provided by IAG, were adequately
described in the Sleights’
pleading as:
(a) a failure to appoint a suitable builder;
(b) a failure to ensure the Scope of Works was appropriate;
(c) a failure to ensure Hawkins adequately monitored the repair works, and
properly certified for Milestone Payments that were then
paid by IAG; and
(d) a failure to ensure Hawkins used reasonable skill and
carried out its Building Contract obligations properly and in a workmanlike
manner.
- [292] In
claiming that its own services here were limited to claims handling matters, IAG
goes on to contend that it was Hawkins which
provided its own services to the
Sleights, and these included the matters I have outlined above. I disagree. The
IAG Managed Repair
Programme was advanced by IAG and it encouraged all its
policyholders to participate on the basis that it was the best and most
appropriate
way to effect the Sleights’ repairs. As such, it provided
out-of-policy services as I have described above. These were services
provided
largely by IAG, but in conjunction with Hawkins who IAG described as its
“Project Partner”.
- [293] The second
key matter advanced by IAG in its defence to the CGA claim is its denial it
breached the statutory guarantee under
s 28 that the services were to be carried
out with reasonable care and skill. IAG quite properly notes that it did not
employ building
specialists itself. It goes on to claim, however, that it had no
role in the building repair work undertaken. In particular, IAG’s
claims
here, all of which I reject, are as follows:
(a) It did not appoint Farrells as builder. It says that at
most, it simply put forward Farrells as one of a list of builders believed
to
have the required capability and capacity and this was a reasonably based view.
IAG suggests it reasonably relied on Hawkins’
pre-qualification of
Farrells for the Sleights’ job. (On this it notes too that Farrells had
achieved the best rating score
in its 1 November 2012 builder ranking, evidence
of which is before the Court.) As to this claim, however, in my view, IAG had a
major hand in recommending Farrells as a suitable builder here. This was
notwithstanding that the evidence before me showed clearly
that Farrells at the
time were seriously over-committed in terms of work
and were unable to meet good workmanship standards in the Sleights’
contract and possibly too in other projects.
(b) It was not responsible for the content of the Scope of
Works. IAG says it simply confirmed the scope and also that the repairs
needed
were covered under the Sleights’ policy. IAG maintains it played no part
in drafting the Scope of Works and any involvement
it may have had, in any
event, was not lacking in reasonable care and skill. Again, I disagree. IAG, as
a driving force and significant
partner in promulgating its Managed Repair
Programme, gave instructions for and funded the provision of the Scope of Works,
effectively
without reference to the Sleights. IAG was the point of contact
throughout for the Sleights. Responsibility for the fact that the
Scope of Works
which it approved was inadequate must rest finally with IAG.
(c) It did not have responsibility for the quality of
Hawkins’ monitoring of the works, and any involvement it did have was
not
lacking in reasonable care and skill. I also disagree for all the reasons I have
outlined above.
(d) Lastly, so far as the claim that IAG failed to ensure that
Hawkins used reasonable skill and care here, again for the reasons
I have
outlined above, I reject this argument.
- [294] There is
nothing which assists IAG in these defences which it endeavours to advance. IAG
did not carry out these out-of-policy
Managed Repair Programme services it
agreed to provide for the Sleights with reasonable skill and
care.
- [295] For all
these reasons I conclude, therefore, that IAG has breached its duty to the
Sleights under the CGA. It is liable to them
for the cost of carrying out the
necessary work to remediate the defects and deficiencies in the repair work.
These costs, and the
Sleights’ claim for additional costs (for example
relating to accommodation), and the claim for damages for stress and
inconvenience,
will be addressed below.
Sleights’ negligence claim against IAG
- [296] Given
my conclusion at [244] above that the
Sleights’ tort claim in negligence against IAG is barred by cl 87 of the
Building Contract, for present purposes
I need go no further in considering that
negligence claim. Notwithstanding this, in case I may be wrong in that
conclusion and for
completeness, I turn now to briefly address the negligence
claim.
- [297] This tort
claim against IAG is pleaded as an alternative to the Sleights’ claims
against IAG in contract under the Policy.
They outline their negligence claim
against IAG in their pleadings in this way:
- IAG
owed a duty of care to the plaintiffs to act with all reasonable care and skill
when arranging for the reinstatement work to repair
the Earthquake Damage to be
carried out on the Property through the Managed Repair Programme (IAG
Services).
Particulars
- 76.1 The IAG
Services related to the Property.
- 76.2 The
plaintiffs were closely and proximately affected by IAG’s conduct in
carrying out the IAG Services.
- IAG
appointed Hawkins as its agent to carry out the Hawkins
services.
- IAG
breached its duty of care.
Particulars
- 78.1 It failed
to appoint a suitable and appropriately qualified building contractor to carry
out the Insurance Works.
- 78.2 It failed
to ensure that the Scope of Works included appropriate remedial work to repair
the Earthquake Damage in accordance
with the Reinstatement Obligation in the
Policy.
(a) The plaintiffs repeat paragraphs 65.1(a) above.
[65.1 The Scope of Works were not adequate to comply with the
Reinstatement Obligation.
Particulars
(a) The Scope of Works did not include:
(i) Replacement of the exterior joinery;
(ii) Replacement of the front and rear conservatories.]
- 78.3 It failed
to ensure that its agent, Hawkins, adequately monitored the delivery of the
Insurance Works.
(a) failed to ensure that Hawkins used reasonable skill and care
to carry out the Hawkins Services; or
(b) is vicariously liable for the failure of its agent, Hawkins,
to carry out the Hawkins Services with reasonable care and skill:
[53. Hawkins breached its duty of care.
Particulars
- 53.1 It failed
to ensure that the Scope of Works included appropriate remedial work to repair
the Earthquake Damage to the standard
in the Policy.
- 53.2 It failed
to adequately monitor the delivery of the Insurance Works.
- 53.3 It provided
inadequate coordination assistance between IAG, Farrell and the plaintiffs to
ensure that the Insurance Works were
carried out with reasonable diligence and
in a timely manner and with reasonable care and skill.
- 53.4 The
Insurance Works were constructed with the Defects:
(a) The plaintiffs refer to Appendix A for particulars of the
defects.
78.5 It failed to ensure that the Insurance Works were carried
out with reasonable care and completed to a proper standard.
- As
a result of IAG’s breach of its duty, the plaintiffs have incurred
loss.
- [298] This
negligence pleading refers specifically to IAG’s Managed Repair Programme,
a Programme which the Sleights had agreed
to participate in. The Programme has
been described in Mr Gedye’s closing submissions before me in this
way:
... IAG’s programme was an extra-contractual claim
management process unilaterally created by the insurer as a reaction to an
avalanche of claims following a catastrophic insured event.
(footnote omitted)
- [299] As I have
noted above, I have reached the conclusion that IAG’s Managed Repair
Programme, as Mr Gedye acknowledges, was
just such an extra-contractual claim
management arrangement reached outside the Sleights’ Policy
here.
- [300] The
Sleights’ negligence claim against IAG suggests that IAG in this case
“arranged for the reinstatement work to
repair the Earthquake
Damage” on their house to be carried out through the various components of
its Programme. The Sleights
say they were closely and proximately affected by
IAG’s conduct in arranging the repair work and they contend it was clearly
foreseeable that they would suffer loss if the reinstatement work was carried
out negligently. IAG, therefore, is said to owe a duty
to exercise reasonable
care and skill in relation to the reinstatement work under this out-of-policy
programme. This, of course,
is notwithstanding that the Policy itself, as I have
found, simply took the form of a “to pay”
policy.
- [301] Specifically,
as their pleading notes, the Sleights allege that IAG breached that duty in a
number of respects.
- [302] Key
circumstances here which give rise to IAG’s duty of care involve the
following matters:
(a) The proximity of the relationship arising from the
performance of repairs on the Sleights’ house under the IAG Managed Repair
Programme.
(b) The representations made by IAG to the Sleights and relied
on by them as to how that Programme would be undertaken and managed
for their
benefit.
(c) The vulnerability of the Sleights and their dependence on
IAG as a consequence of their Managed Repair Programme, including the
terms
of the Building Contract which gave IAG/Hawkins effective control over
Farrells’ work to the exclusion of the Sleights.
- [303] Addressing
these issues, first, it is clear to me that the relationship proximity test is
met in this case. The relevant proximity
may here be based in part in the
insurance arrangement between the parties but also on what IAG has described as
the “extra-contractual”
programme it put in place, a programme which
it says it had no legal obligation to provide. Nevertheless, those arrangements,
as
I see it, placed IAG in a position where:
(a) it was venturing beyond the normal contractual arrangements
under the Policy between insurer and insured; and
(b) IAG as insurer assumed a further outside-the-Policy role
under which it, along with Hawkins effectively to a large extent, managed
and
had control over repairs to the Sleights’ house.
- [304] A number
of significant and relevant representations, as I have outlined above, were made
by IAG here.
- [305] The
relevance of these representations so far as this duty of care is concerned is
clear. I accept IAG caused the Sleights to
believe that IAG would be responsible
for the repairs (“we will complete the repairs to your house”) and
that it had
engaged Hawkins as its “partner” to coordinate and
monitor the repair process (“Our Project Management partner
Hawkins can
coordinate the repair process for you”).
- [306] Next, the
vulnerability and dependence test, in my view, is met in a number of ways.
Specifically:
(a) the mere fact that the Sleights were required to provide
exclusive possession of their house to the builder, Farrells, who was
effectively selected by IAG/Hawkins and whose work was to be managed by them,
created a vulnerability and dependence on IAG/Hawkins’
builder selection
and the management of its work;
(b) that vulnerability and dependence was increased by the terms of the
Building Contract which conferred on IAG/Hawkins the effective
powers of control
over Farrell which would normally be exercisable by an owner; and
(c) all control over the milestone payment process to Farrells
as builder rested with IAG and Hawkins. The Sleights played no part
in this and,
therefore, had no control in holding the purse strings to ensure that work was
completed or even properly done. (On
this it is significant, too, that Hawkins
had authorised and IAG paid some $85,000 to Farrells after they had each
received the Axis
and the Watkins Reports setting out major defects in the
repair work and even following Mr Maxey’s termination of the Building
Contract.)
- [307] In
addition to these matters, the arrangements between IAG and Farrell here
illustrate a high degree of regular contact between
IAG/Hawkins and Farrells as
builder to the exclusion of the Sleights. This contact was to monitor the repair
work and ensure payments
were made, for example, with weekly meetings of the
type described in the evidence before me.
- [308] Further,
contractually, Hawkins was required to follow IAG’s instructions pursuant
to cl 3.2(a) of the 2012 RSMA and Farrells
was required to follow Hawkins’
instructions pursuant to cl 3.1 of the Building Contract. By way of example,
towards the end
of the Building Contract period, IAG instructed Hawkins to issue
to Farrells a notice of non-conformance in relation to the non-compliant
cladding on the house. This occurred on 17 March 2015 and required Farrells to
“MAKE GOOD INSTALLATION AS PER JAMES HARDIE
INSTALLATION
LITERATURE”. This notice was not complied with.
- [309] In
response, IAG endeavours to advance arguments against a duty of care here
directed mostly to IAG’s contractual obligations
under the Policy. By way
of example, IAG has argued that it was not reasonably foreseeable to it that
IAG’s involvement as
insurer would cause loss arising from defective
project management under the Policy. This, however, misses the point. The
plaintiffs’
negligence claim is not concerned
with IAG’s conduct of its obligations under the Policy. The negligence
claim is brought as an alternative to the Policy contract
claims. Therefore, for
present purposes (but not otherwise) the Sleights accept that IAG did not have a
contractual obligation under
the Policy to strictly monitor the quality of the
repairs (as opposed to its Policy payment obligations). Rather, this negligence
claim is brought under what IAG accepts is the “extra-contractual”
Managed Repair Programme it put in place. It is that
outside-the-policy
programme for which the question of a duty of care is to be assessed.
- [310] Also, by
way of defence here, IAG endeavours to argue that participation in its Managed
Repair Programme was voluntary because
the Sleights could have used their own
builder and that this somehow should preclude IAG from owing a duty of
care.
- [311] Leaving
aside questions as to the relevance of this particular contention advanced by
IAG, the factual proposition itself is
unsound.
- [312] Assuming
that homeowners like the Sleights were given a choice to use their own builder,
within the Managed Repair Programme
this was always to be on the basis that IAG
would have then required that builder, first, to pre-qualify under the Programme
and,
secondly, to enter into the Programme, accepting all its terms including
the payment requirements. That builder would, therefore,
have also been subject
to the same degree of control by IAG/Hawkins as applied to Farrells and, as I
see it, the reasons for recognising
a duty of care owed here by IAG would
continue to apply.
- [313] On this
aspect, indeed, matters are clear when IAG’s Residential green zone
options fact sheet outlining “Selecting
your builder” is considered.
This fact sheet particularly provided:
I already know a great builder – can I use
them?
Sure. They just need to pre-qualify with us. This means you can
use your builder, but still have a dedicated project manager on hand.
The pre-
qualification process is to ensure the builder is able to work to our Rebuild
Programme model and timelines, and meets our
expectations around health, safety
and quality. If you would like us to discuss getting your builder pre-
qualified, please contact
your Claims Case Manager.
- [314] In
summary, IAG’s position is that even if the Sleights’ negligence
claim here was permissible and cl 87 of the
Building Contract did not apply,
this Court should not impose a duty of care on its part. This is because IAG
claims there was no
proximity in the sense required in a first stage negligence
enquiry, any such duty of care would cut across and conflict with the
contractual policy relationship between IAG and the Sleights and, lastly, stage
two policy considerations, in any event, count against
imposing a duty on an
insurer like IAG in the current circumstances. Finally, IAG says that even if a
duty of care was found, its
scope here could not extend to the work carried out
by Farrells and Hawkins during the repair process. This related to their
obligations
entirely. IAG contends it has no responsibility
here.
- [315] With
respect, other than the argument that cl 87 exempts IAG from negligence
liability here, I do not find these other arguments
advanced by IAG
persuasive.
- [316] In my
view, the Sleights were closely and proximately affected by IAG’s conduct
under its Managed Repair Programme in
arranging what was significantly defective
repair work to their home. Further, it was clearly foreseeable that the Sleights
would
suffer loss if the reinstatement work was carried out negligently, which
is the case here. IAG, in owing a duty to exercise reasonable
care and skill in
relation to the repair work being arranged and managed under its Managed Repair
Programme, breached that duty.
- [317] I conclude
that, had I not found the Sleights’ claim in negligence against IAG is
barred by cl 87 of the Building Contract,
then I would have reached the decision
that their negligence cause of action against IAG succeeded. But, for the
reasons I have noted
above, the Sleights’ negligence claim against IAG is
barred by the limitation provision in cl 87 of the Building Contract and
it is
dismissed.
- [318] Next, I
turn to the estoppel claim the Sleights bring against IAG
here.
Sleights’ estoppel claim against IAG
- [319] In
this estoppel claim the Sleights suggest they had a belief or expectation that
IAG would take responsibility for the proper
repair of their home based on words
or conduct including unequivocal assurances by IAG that it would do so. The
Sleights
say they relied on that belief and those representations to this effect and, in
essence, left it to IAG (and Hawkins acting on IAG’s
behalf) to select
Farrells as builder and to control the reinstatement works. The Sleights say
these have failed and, as a result,
they have suffered detriment. The work by
Farrells was unquestionably negligent and there was inadequate (if any)
supervision of
the quality of that work resulting in the defective repairs.
- [320] Finally,
the Sleights say it would be unconscionable for IAG to depart from this belief
or expectation in circumstances where
it had exercised control of the repair
works through the Managed Repair Programme it set up, and where those repair
works were negligently
and inadequately undertaken causing loss to the
Sleights.
- [321] As I have
already found, cls 86 and 87 in the Building Contract, which I find are
enforceable here, serve to bar all the Sleights’
non-policy claims against
IAG with the exception of the CGA claim. These barred claims include the present
estoppel claim which effectively
falls away because of these limitation clauses.
This is sufficient to dispose of the Sleights’ estoppel claim which is
dismissed.
- [322] In
addition, however, IAG says this estoppel claim is barred under s 11(1) of the
Limitation Act 2010. For completeness I will
briefly address this
argument.
- [323] Section
11(1) of the Limitation Act states:
11 Defence to money claim filed after applicable
period.
(1) It is a defence to a money claim if the defendant proves
that the date on which the claim is filed is at least 6 years after the
date of
the act or omission on which the claim is based (the claim’s primary
period).
Here, the estoppel claim by the Sleights was not brought until an amendment was
allowed to its pleadings on 13 May 2020 and their
third amended statement of
claim was filed on 18 May 2020.
- [324] Section
11(1) of the Limitation Act refers to the operative commencement date as the
“date of the act or omission on which
the claim is placed” and not
to the alleged consequences of the acts or omissions (such as suffering
detriment). The acts and
omissions arguably were the words or conduct alleged on the part of IAG and the
Sleights’ alleged reliance on them. These occurred
prior to 13 May 2014, a
date six years before the estoppel cause of action was brought by virtue of the
filing of the amended statement
of claim. Even if the alleged detriment did come
within s 11, which IAG denies, I am satisfied there is a possible argument here
that this also occurred more than six years prior.
- [325] I find,
therefore, that the Sleights’ estoppel claim is also time-barred here
under the Limitation Act.
- [326] For these
reasons this estoppel claim is also dismissed.
Sleights’ claims in summary against Hawkins
- [327] The
Sleights sue Hawkins in negligence and under the CGA. QBE is sued under s 9 Law
Reform Act 1936 as the insurer of Hawkins
which, as I have noted, is now in
liquidation. For each cause of action, therefore, the overall potential
liability of QBE needs
to be considered as a two-stage
enquiry:
(a) is Hawkins liable to the Sleights?
(b) if so, to what extent was Hawkins insured by QBE for the
relevant liability?
It is convenient here to turn, first, to consider the Sleights’ claim
against Hawkins under the CGA and I now do so. Then I
will address their
negligence claim against Hawkins and, finally, later in this judgment,
QBE’s potential liability as insurer
of Hawkins.
Sleights’
claim under the CGA against Hawkins
- [328] Under
this claim, the Sleights contend that Hawkins are in breach of s 28 of the CGA
in that the services it agreed to provide
to the Sleights here were not carried
out with reasonable care and skill. This CGA claim is pleaded by the Sleights as
an
alternative to their other claim in negligence against Hawkins. It is
appropriate, however, to consider the CGA claim first.
- [329] The
Sleights plead this CGA claim in this way:
- Hawkins
provided services to the plaintiffs.
Particulars
- 55.1 Hawkins
carried out the Hawkins’ services. [(19.3) ...these services
include:
(a) assessment of the scope of works required to effect the
Insurance Work;
(b) the processing and certification of payments to Farrell on
behalf of IAG;
(c) monitoring the delivery of the Insurance Works on behalf of
IAG;
(d) providing co-ordination and assistance between IAG, its loss
adjusters, Farrell and the plaintiffs (where applicable)]
- The
plaintiffs are consumers.
- Hawkins
was in trade.
- Hawkins
failed to carry out the Hawkins’ services with reasonable care and
skill.
Particulars
- 58.1 The
plaintiffs repeat paragraphs 53.1 – 53.4 above. [53.1 It failed to ensure
that the scope of works
included appropriate remedial work to repair
the Earthquake Damage to the standard in the Policy.
- 53.2 It failed
to adequately monitor the delivery of the Insurance Works.
- 53.3 It provided
inadequate coordination assistance between IAG, Farrell and the plaintiffs to
ensure that the Insurance Works were
carried out (sic) with reasonable diligence
and in a timely manner and with reasonable care and skill.
- 53.4 The
Insurance Works were constructed with the Defects.
...]
- The
failure by Hawkins to carry out the Hawkins’ services with reasonable care
and skill was a failure that cannot be remedied
or was of a substantial
character.
- As
a result of the breach, the plaintiffs have incurred
loss...
- [330] As I have
noted, the statutory guarantee under s 28 of the CGA provides that: “where
services are supplied to a consumer
there is a guarantee that the service will
be carried out with reasonable care and skill.
This effectively replicates the normal standard of care recognised both in
contract and tort.
- [331] Issues
have been raised here over whether the Sleights were consumers and Hawkins a
supplier of “services” supplied
between them, in terms of s
28.
- [332] In
Nesbit v Porter the Court of Appeal took a broad view of the meaning of
the word “consumer”.61 As such, I am satisfied here that
the Sleights fall squarely within the definition of “consumer”
insofar as their relationship
with Hawkins is concerned. Clearly, the Sleights
“acquired” Hawkins’ services (within the statutory definition
of “acquire” which includes to “accept”) for the
purpose, amongst other things, of monitoring repairs carried
out by Farrells to
their home. As I see it, that is the purpose for which the services would
ordinarily be used and the Sleights
fall squarely within the definition of
“consumer” in terms of s 28.
- [333] So far as
the definition of “supplier” for the purposes of s 28 is concerned,
as I have noted above, from an amendment
to the CGA in 2003, the definition of
“supplier” was amended to include a person who “supplies
services to an individual
consumer or a group of consumers (whether or not the
consumer is a party or the consumers are parties to a contract with the
person)”.
- [334] Further,
the word “supply” is defined to include “provide, grant, or
confer”.
61 Nesbit v Porter [2000] NZCA 288; [2000] 2 NZLR 465 (CA).
- [335] Gault
on Commercial Law describes the effect of these 2003 amendments as
follows:62
The amendment of this definition in 2003 set out clearly that
there is no need for the consumer to be a party to the contract for
the supply
of a service. Paragraph (a) spells out the point that the service acquired from
a supplier does not need to be supplied
under a contract. This clarifies the
non- contractual nature of guarantees for both goods and services, which is
further underlined
by para (a)(ii) of the definition of “supplier”
which provides that a supplier is a person who supplies services to an
individual consumer or a group of consumers, whether or not any of those
consumers are parties to a contract with the supplier.
Thus the guarantees for services apply in circumstances where
there is no privity of contract between supplier and consumer, paralleling
the
rights of donees of goods (s 24 of the Act).
- [336] I find
without question here that Hawkins was the supplier of “services” to
Sleights in terms of the CGA.
- [337] A further
and important question arises, however, as to what were those
“services”.
- [338] As I see
the position, Recital D of the Building Contract sets out what Hawkins directly
stated and accepted as the services
it was to supply to the Sleights. So far as
the services involving “monitoring the delivery of the Insurance Works on
behalf
of IAG” are concerned, I discuss these in more detail at [379] following And those, along with
generally represented project management services, were the services the
Sleights understood were
to be provided to them. Ensuring, first, that Farrells
would carefully undertake properly scoped repairs to their home and, secondly,
that Farrells would only receive appropriately certificated milestone payments
for those completed repairs, the Sleights understood,
were the tasks Hawkins was
to fulfil. That is specifically what Recital D of the Building Contract has in
mind. To that extent, s
28 of the CGA, in my view, clearly
applies.
- [339] In
opposition to the Sleights’ arguments on this, Hawkins argues that the CGA
does not apply for two reasons.
62 Roger Thornton (ed) Gault on Commercial
Law, (online ed, Thomson Reuters) at [CG2.13.01(2)].
- [340] First,
Hawkins argues that its “services” in this case were provided only
to IAG and not to the Sleights. Hawkins
contends that the Sleights expressly
acknowledged that Hawkins’ supply of services were to IAG under its
contract with IAG. This contract is the 2012 RSMA which Hawkins suggests governs
its liability in this case. Hawkins claims,
too, that the two aspects of its
role that the Sleights’ case depends on, that is monitoring the delivery
of the works and
payment certification, were described in the Building Contract
as being carried out by Hawkins “on behalf of IAG”. When
this is
read against the contractual acknowledgment that Hawkins was providing services
to IAG, Hawkins says it becomes clear that the monitoring and
certification services were provided exclusively to IAG and not to the
Sleights.
- [341] In my
view, these arguments are wrong. First, the CGA, as I note above, does not
require any contractual relationship between
the consumer and the supplier for
the Act to operate. Although Hawkins, through the 2012 RSMA says its contract
was only with IAG,
there can be no doubt that its services were provided both to
IAG and to the Sleights as homeowners. The only Hawkins RSM to give
evidence
before me, Mr Geraghty, readily accepted that Hawkins was acting for the
benefit of the Sleights as homeowners. In his
evidence he was referred to the
reference in the standard Hawkins RSM job description and
said:
Q. And the customer being referred to there is the home owner
isn’t it?
A. I would think so.
Q. So in this case the customer is Mr and Mrs Sleight?
A. Agreed.
- And
their interests were at the heart of everything Hawkins and IAG and the builder
were doing because it was their home being repaired?
A. Yes.
Paragraph D of the recitals in the Building Contract also makes this abundantly
clear. And, although this paragraph, in recording
Hawkins’ role, did
acknowledge it had been appointed by IAG, this was clearly qualified as being
“...to provide certain
services for the purposes of the Insurance
Works”.
- [342] Again, I
stress that the relationship between Hawkins and the Sleights is an entirely
different one from the relationship between
Hawkins and IAG. What Hawkins and
IAG may have agreed between themselves in the 2012 RSMA (which was unknown to
the Sleights at the
time) can have no bearing on the obligations which Hawkins
undertook towards the Sleights. These obligations were accepted by Hawkins
and
described in material to which it had consented, to show that it was effectively
acting as a project manager here to protect
the interests of not only IAG but
also the Sleights. This was described to the Sleights, in words to that effect,
not only in Recital
D of the Building Contract but also in both the
(Hawkins-approved) post-CES material they and other homeowners had received, and
in explanatory meetings where Hawkins personnel were
present.
- [343] I conclude
that although Hawkins’ 2012 RSMA contract was with IAG, its services were
provided both to IAG and to the Sleights
as homeowners
here.
- [344] Hawkins’
second argument is that none of the services provided by Hawkins were ordinarily
acquired for personal, domestic,
or household use or consumption as the CGA
requires. This is said to be so because “Hawkins’ services in the
present
case were inherently commercial” in that they formed part of its
arrangement with “an insurance company to manage a large-scale
repair
programme”.
- [345] As I see
it, there is some difficulty with this argument. This is because it approaches
the issue before me from the opposite
perspective to that required by the
CGA.
- [346] The words
“ordinarily acquired for personal, domestic, or household use or
consumption” are found in the definition
of “consumer” under
the CGA. But a “supplier” of services under the Act, like Hawkins
here, will always be
“in trade” and so from its perspective the
services may well be regarded as “inherently commercial”. They
are,
nonetheless, consumer services from the consumer’s perspective, which is
the relevant requirement for the purposes of
the Act.
- [347] Notwithstanding
this, Hawkins contends that its services simply involved the provision of
co-ordination assistance to an insurance
company, IAG, to manage
what
was its large-scale repair programme. Hawkins does acknowledge though that this
role also required it to carry out functions in respect
of individual house
repairs and rebuilds. But it says all these functions were incidents of its
commercial arrangement with IAG.
They should not be characterised as services
provided to the Sleights. On this, Hawkins refers to the decision Kaori Ltd v
Shrinkwrap Services Limited (in rec) which it claims illustrates and
supports this point.63
- [348] With
respect, I disagree. The position before me is an entirely different one from
that which applied in Shrinkforce Shrink Wrap Services. In that case the
service in question was a shrink wrapping service supplied for the repair of a
damaged super yacht. This was plainly
not a service ordinarily acquired for
personal, domestic or household use, as the Court said, because “for the
most part, [the
party concerned] supplies its shrink wrapping services to
construction or renovation professionals”.64 It is my view that
this decision does not assist Hawkins here. From the Sleights’
perspective, the services supplied by Hawkins
in this case, being the relevant
concept for the purposes of the CGA, were clearly to monitor the Sleights’
own personal house
repair work to ensure it was properly carried out and to
certify payments properly due to the builder, Farrells. The Sleights were
the
end users of the services, which related to their own home. Hawkins’
arrangements here might be usefully described as those
of a project
manager’s for the Sleights’ domestic house repairs. I am satisfied
the services here fall within the definition
of personal, domestic or household
services.
- [349] And, as to
Hawkins’ argument that its services under the 2012 RSMA were limited to
co-ordination functions and, therefore,
this limited its liability under the
CGA, I disagree. The actual descriptions of Hawkins’ essential
obligations, both under
the 2012 RSMA and under Recital D of the Building
Contract, were to “monitor” delivery of the repair work and to
process
and certify milestone payments again, so far as the Sleights were
concerned, generally adopting the role of a project manager. And,
in any event,
I have already noted that, the Sleights were not parties to the 2012 RSMA and
had not seen it. Their rights against
Hawkins under the CGA cannot be limited
therefore by any terms contained in the 2012 RSMA.
63 Kaori Ltd v Shrinkforce Shrink Wrap Services
Ltd (in rec) [2012] NZHC 3204.
64 At [48].
- [350] As general
project managers here, I am satisfied that Hawkins, as the supplier of services
to its consumer, the Sleights, did
not comply with their s 28 obligations to
carry out these services with reasonable care and skill.
- [351] The key
points are that Hawkins can be seen here as failing in its obligation to the
Sleights in a number of respects. This
failure was, first, to ensure that the
scope of repair works required was adequate and, secondly, to both monitor the
quality of
Farrells’ work and also regarding certification of milestone
payments due to Farrells in that it certified a number of these
that were not
properly payable. These problems arose, at least in part on the evidence
before me, because Hawkins did not have sufficient RSMs to undertake
the
necessary work, and also because their employees who had the task of providing
project management services lacked the experience,
expertise and resources to do
a proper job.
- [352] QBE says
in response that Hawkins’ obligations overall did not extend to the
quality of the building work. QBE suggests
Hawkins was to monitor delivery
of the repair work undertaken by Farrells and other builders, but that did
not include monitoring quality matters and whether the
work was properly
done.
- [353] So far as
the Sleights’ position here is concerned, I do not find this an appealing
argument. QBE’s proposition
is artificial and ignores the essence of
Hawkins’ professed role as a complete project manager, a role that was
represented
to the Sleights it was to perform for them. As the Sleights saw the
position, how, for example, could Hawkins certify a milestone
payment claim
without assessing whether the milestone work had been completed in accordance
with the specification? QBE’s proposition
is directly contrary, first, to
the assurances that were given to the Sleights as to the role that Hawkins was
to perform and, secondly,
to what I see as the natural and ordinary meaning of
the overall description of Hawkins’ role in the Building
Contract.
- [354] On
that last role-description aspect, the words in issue in Recital D,
“monitoring the delivery of the Insurance Works”,
in the
context of the Building Contract must naturally mean monitoring the builder
Farrells’ performance in delivering
the repair works in accordance with
that contract. The ordinary meaning
of the word “monitor” in the Concise Oxford English Dictionary
is to “observe and check over a period of time, maintain regular
surveillance over (emphasis added).”65 And, in Civil
Aviation Authority v Airline Pilots’ Association the ordinary meaning
of the word “monitoring” was described by the Court of Appeal as to
“watch, observe or check
... to keep track of, regulate, or
control.”66 As to the word “delivery”, its ordinary
meaning is defined in the Concise Oxford English Dictionary as “the
action of delivering something ...” and the word to “deliver”
is defined as to “bring and hand
over ... provide (something promised
or expected) ...” (emphasis added). There is nothing in the context of
Recital D in the Building Contract which would suggest any different
or narrower
meaning than that which I express in the first sentence of this paragraph [354]. On the contrary, given the context
of previous communications from IAG to the Sleights, to which Hawkins acquiesced
at least, the
“monitoring” role would naturally be understood here
to include the full obligations of a project manager exercising
construction
expertise to manage the builder’s proper performance of the repair works.
This meaning is also consistent with
powers conferred on Hawkins under the
Building Contract, including the general power in the cl 3.1 general condition
to issue formal
instructions with which Farrells, as builder, was obliged to
comply.
- [355] Lastly,
I turn to s 43 of the CGA which prevents “contracting out” of the
statutory liability regime in circumstances
such as the present. Accordingly,
Hawkins cannot rely here on any limitation or exclusion clauses (including cls
86 and 88 of the
Building Contract), as a defence to the Sleights’ CGA
cause of action.
- [356] As to
remedies for this breach of the CGA, s 32(c) provides that where a service
supplied to a consumer fails to comply with
the s 28 guarantee, the consumer
may:
...obtain from the supplier damages for any loss or damage to
the consumer resulting from the failure (other than loss or damage through
reduction in value of the product or the service) which was reasonably
foreseeable as liable to result from the failure.
65 Concise Oxford English Dictionary (11th ed,
Oxford University Press, Oxford, 2004).
- Civil
Aviation Authority v Airline Pilots’ Association Industrial Union of
Workers Inc [2011] NZCA 520, [2012] NZAR 66 at [58].
- [357] The
Sleights do not allege that Hawkins has strict liability here for the building
defects. For example, they accept Hawkins
was not responsible for latent defects
which would not have been apparent to a prudent project manager. Rather,
Hawkins’ obligation
was to carry out its project management role with
reasonable care and skill. That was all that was needed to ensure Farrells
(despite
being substantially stretched here) undertook the repairs to the
Sleights’ house properly rather than negligently. It was also
entirely
foreseeable that Hawkins’ failure to properly carry out its services here
would result in the losses the Sleights
claim. On this, no evidence was provided
to me to suggest that Farrells were simply incapable of completing the repair
work to a
proper standard, given appropriate monitoring and quality control by
Hawkins.
- [358] And, the
reasonably foreseeable consequence of Hawkins’ failure to exercise
reasonable care and skill, in both assessing
the scope of repair work required
and in monitoring Farrells’ work, was that the Sleights would find
themselves in exactly
the position in which they are now. Namely, they are
confronted with inadequate and defective repairs which have failed to reinstate
their house to its “when new” condition. And this inevitably
prevents the house from obtaining the all-important code
compliance certificate.
All this has happened to date, and no doubt significantly reduces the present
market value of the Sleights’
property. The appropriate measure of damages
here is the cost of completing the repairs to the contractual policy standard to
ensure
also that a code compliance certificate can be
issued.
- [359] Finally,
QBE submits that Hawkins’ failures in this case were not “of a
substantial character” and were remediable
by Hawkins, thus affecting the
Sleights’ remedies here within the meaning of ss 32 and 36 of the CGA.
With respect I find this
claim is wrong. But, in any event, the defined term
(“of a substantial character”) is irrelevant to the Sleights’
claim for damages. They are entitled to damages for the loss they have suffered
under s 32(c) whether or not the failures here were
“of a substantial
character”.
- [360] The
Sleights’ CGA claim against Hawkins
succeeds.
Sleights’
negligence claim against Hawkins
- [361] There
is some common ground between this negligence claim by the Sleights against
Hawkins and the cross-claim by IAG against
Hawkins. That cross-claim is brought
also in negligence and in reliance on an indemnity from Hawkins in cl 17.2 of
the 2012 RSMA
which I will address below. Both the Sleights and IAG allege here
that Hawkins failed in fundamental respects to fulfil the obligations
it
undertook to perform in monitoring Farrells’ work.
- [362] Essentially,
the Sleights say they were relying on Hawkins to monitor Farrells’
performance of the building repair works.
They had been told by IAG that Hawkins
would provide “project management expertise to help repair...your
earthquake damaged
property” and Hawkins was aware that such a
representation had been made. Indeed, in an important a letter from Duncan
Cotterill
(the solicitors acting for Hawkins) to Russell McVeagh (who were
acting for IAG) dated 23 May 2012 it was stated “... we note
that IAG has
already made representations to its policyholders about Hawkins role, and stated
that Hawkins will ensure quality of
workmanship.” It shows that Hawkins
knew that IAG was representing Hawkins role as, in its nature, inconsistent with
the 2012
RSMA. Despite this, I accept here that, as between Hawkins and IAG,
there remains now what IAG says is a dispute over the actual
role Hawkins agreed
to undertake but all this was unbeknown to the Sleights.
- [363] And,
between both IAG and Hawkins, Farrells were chosen as the builder here. Recital
D to the Building Contract, the form of
which had been approved by Hawkins, also
set out the Project Management services which Hawkins was to provide for the
benefit of
the Sleights. These services were to include “monitoring
delivery of the insurance works on behalf of IAG NZ”. Plainly
the Sleights
were closely and proximately affected by Hawkins’ conduct as the Project
Manager here.
- [364] On all of
this, the Sleights’ claim against Hawkins includes a pleading whereby they
seek declarations that they are not
bound by limitation clauses in the Building
Contract for the benefit of Hawkins. Those declarations the Sleights seek are to
the
effect that limitation provisions at cls 86 and 88 of the Building Contract,
which purport to exclude or limit the liability of Hawkins
here, are
unenforceable.
- [365] As to cl
86 (and also cl 87), I have found at para [244] above that these clauses are
enforceable by IAG and (with the exception of the CGA claim) they serve to bar
the Sleights’ non-policy
claims against IAG.
- [366] I turn now
to consider the cls 86 and 88 limitation of liability provisions in the Building
Contract insofar as they relate
to Hawkins.
- [367] For
completeness I set out again those cls 86 and 88:
Limitation of Liability
86. Neither Hawkins nor IAG NZ make any representation or give
any warranty or undertaking (whether expressed or implied) concerning
the Works
including as to the performance of any person (whether a party to this contract
or otherwise) of any contractual or other
obligation in relation to the
Works.
...
88. The role of Hawkins in relation to the Works is limited as
set out in paragraph D of the background. The parties agree that the
liability
of Hawkins for all claims, whether in tort, including negligence, or otherwise,
shall be limited to the direct loss sustained
as a result of the acts or
omissions of Hawkins and which occur within two years from the date the works
are completed and limited
to a maximum aggregate amount of $10,000.
(the Hawkins limitation clauses)
- [368] As I have
noted, Hawkins is not a party to the Building Contract but, nevertheless, cl 95
addresses contractual privity issues,
and covers the current
situation.
- [369] The
Sleights contend that the limitation clauses in cls 86 and 88, along with that
contained in cl 87, were never brought to
their attention nor explained to them
by anyone, they are unconscionable and, therefore,
unenforceable.
- [370] Whilst it
is true on the evidence that it does seem the existence of these clauses was not
drawn to the attention of the Sleights
at any time, what is clear is that all of
the clauses formed part of the Building Contract, a contract that was freely
signed by
the Sleights. And, the page or pages containing these limitation
clauses were initialled by the Sleights.
- [371] Under the
circumstances here and for the reasons I have outlined above, I am satisfied
these clearly expressed limitation clauses
formed part of the Building Contract,
and they must be given their natural plain meaning read in the light of the
contract as a whole.
The Building Contract was not a standard form one in the
sense of being a “ticket case” contract.
- [372] And, so
far as the Sleights’ unconscionable bargain argument is concerned, I note
again that a high threshold is required
to be met before a ruling that a matter
comprises an unconscionable bargain can follow. That threshold has not been met
in the circumstances
here. I conclude cls 86 and 88 in the Building Contract are
enforceable. With the exception of the Sleights’ CGA claims, they
apply in
this case.
- [373] And, when
one considers the strict wording of cl 88, it does acknowledge, first, that
Hawkins’ role in this case is said
to be limited as set out in Recital D
to the Building Contract, and, secondly, that any liability Hawkins has for
claims in negligence
or otherwise is limited to a maximum aggregate amount of
$10,000.
- [374] I find
here that the limitation cls 86 and 88 of the Building Contract are enforceable
insofar as the Sleights’ claims
(other than their CGA claim) against
Hawkins are concerned. The impact this will have here I address
below.
- [375] Turning
now to the Sleights’ actual claim in negligence against Hawkins, this
alleges that Hawkins failed to:
(a) ensure the Scope of Works for the repair of their property
was complete and appropriate;
(b) adequately monitor the delivery of the repair work which
they say must mean to check on Farrells’ contract requirement to
complete
the work in a tradesmanlike manner and in accordance with the building consent
and the specifications;
(c) provide adequate co-ordination assistance between IAG, its
loss adjusters, Farrells and the Sleights, again to ensure the works
were
carried out by Farrells with reasonable skill and care and in a timely manner,
and milestone payments to Farrells were processed
and certified
appropriately.
- [376] Here, I am
satisfied the Sleights have established, first, that there was an assumption of
responsibility by Hawkins to them
to ensure that they would properly project
manage Farrells’ role as builder for the repair work, secondly, that the
Sleights
were closely and proximately affected by Hawkins’ conduct as
project manager and they reasonably relied upon Hawkins accordingly
and,
thirdly, that it was reasonably foreseeable that Hawkins’ conduct in this
case would cause harm to them.67
- [377] The
position of a project manager relating to general negligence principles has been
considered by this Court in Body Corporate 185960 v North Shore City
Council.68 There, Duffy J held that:69
If
someone is charged with responsibility for managing a residential building
project, the likelihood of careless workmanship and
defective construction
resulting from poor and careless management would be reasonably foreseeable to
that person.
- [378] This case
was followed in Auckland City Council v Grgicevich and also in Sayles
v Adams.70 These cases all confirmed that where a party accepts
the role of project manager, they are therefore responsible for ensuring that
the works in question are carried out in a workmanlike manner and with
reasonable skill and care.
- [379] In
the present case, I am satisfied that, as between the Sleights and Hawkins, the
words “monitoring the delivery of the
Insurance Works on behalf of IAG
NZ” would be understood in the circumstances to encompass a true project
management role.
This would involve checking on whether Farrells’
activities under the Building Contract complied with the building consent
and
specifications, ensuring that the repair work was completed in a proper and
tradesmanlike manner, and certifying
- See
Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2004] NZCA 97; [2005] 1 NZLR 324
(CA) at [99] on these requirements for imposing a duty of
care.
68 Body Corporate 185960 v North Shore City
Council (2008) 2 NZTR 18-032 (HC).
69 At [76].
- Auckland
City Council v Grgicevich HC Auckland CIV-2007-404-6712, 17 December 2010 at
[72]-[74]; and Sayles v Adams [2014] NZHC 1915.
milestone payments only when work, including final completion, was properly
undertaken.
- [380] There is
no doubt, based upon the number of expert reports before the Court, that at the
very least, the repair work here was
not carried out by Farrells in a proper and
tradesmanlike manner and as required under the Building Contract. And Hawkins,
too, failed
in its general project management obligations both to ascertain
this, to bring it to the attention of all parties, and also by certifying
milestone and final contract payments, ignoring Farrells’ failures. I
conclude that Hawkins breached its duty to the Sleights
to act with all
reasonable care and skill in carrying out its overall project management
services and in permitting the repair works
to be constructed with
defects.
- [381] Whilst
Hawkins contends that, as between itself and IAG, the specific terms in the 2012
RSMA and the lengthy negotiations between
the parties to reach those terms,
illustrate that Hawkins was not required to check on quality and
workmanship matters, this has no bearing on Hawkins’ relationship with,
and obligations to,
the Sleights.
- [382] I find,
therefore, that, leaving on one side the impact of cls 86 and 88 of the Building
Contract, I would hold here that the
Sleights’ negligence claim against
Hawkins also succeeded.
- [383] I turn now
to consider the application of cls 86 and 88 of the Building Contract outlined
above.
- [384] Under cl
86 the Sleights agreed that Hawkins did not make any representation or give any
warranty (whether express or implied)
concerning the repair works, including as
to the performance of any contractual or other obligation in relation to those
works.
- [385] On this
aspect, Mr Cooper for the Sleights contended that this cl 86 is not engaged by
the plaintiffs’ negligence claim
here. This is because that claim does not
concern a “representation”, “warranty” or
“undertaking”
by Hawkins but, rather, it concerns the quality of the
project management services which Hawkins agreed to
provide to the Sleights. The Sleights’ position is that so far as they
were concerned, as their claim made clear, Hawkins’
role in carrying out
these project management services was a clearly understood one and it simply did
not exercise due care in carrying
out that role. The Building Contract itself
set out the quality of the works to be undertaken and this was confirmed in
references
to the policy standard to complete repairs to return the home to a
“when new” condition. I accept the arguments advanced
here for the
Sleights and find that insofar as additional representations, warranties or
undertakings are concerned, cl 86 is not
engaged in the present
circumstances.
- [386] Turning
now to cl 88, this refers, first, to Hawkins’ role in relation to the
works being limited as set out in Recital
D of the Building Contract and,
secondly, it includes an express term that Hawkins’ liability for claims
whether in negligence
or otherwise is to be limited to the direct loss arising
from Hawkins’ actions or omissions and, in any event, is to be limited
in
a maximum aggregate amount of $10,000.
- [387] Hawkins
suggests the provisions of cl 88 in particular reflected its limited role here
and accordingly reduced any potential
liability it may have to the Sleights in
negligence to $10,000. I agree. Clause 88, included specifically in the Building
Contract
and acknowledged by the Sleights in signing and initialling the
document, limits Hawkins’ potential liability to the Sleights
in
negligence to a maximum aggregate amount of $10,000. But, as I note at [355] above, this limitation clause does
not apply to the Sleights’ CGA claim against Hawkins by virtue of s 43 of
the CGA which prevents
“contracting out” of the statutory
liability.
- [388] I
conclude, therefore that insofar as it may be relevant in this case,
Hawkins’ potential liability to the Sleights in
negligence here is not to
exceed this $10,000.
- [389] But, as to
that possible negligence liability, for reasons of brevity, I say nothing more
at this point. I have found Hawkins
liable to the Sleights here under the CGA.
The “limitation” provision in cl 88 of the Building Contract is
enforceable
in this case and, this provision will go some way towards acting, in
any event, as a real quantum limitation to any negligence claim
the Sleights may
have against Hawkins here. For present purposes, and in part for de minimis
reasons, I simply leave on one side a final
consideration of the possibility that Hawkins may have some additional liability
to the Sleights in negligence.
Hawkins’
additional defences
- [390] Several
additional defences to the Sleights’ claims against Hawkins were advanced
before me by Mr McLellan for QBE. There
is little of substance in these defences
but, nevertheless, I will address them briefly.
- [391] QBE argues
that it should have no liability here in the situation where (as I have found)
the Sleights succeed in their claims
against IAG. In his opening submissions for
QBE, Mr McLellan expressed this argument in the following
way:
... if the plaintiffs succeed against IAG, they will have a
complete remedy against that party. A plaintiff who has the opportunity
under
its primary contract to obtain full contractual protection against the relevant
loss cannot expect the Courts to provide further
protection through tort law. In
any event, if the plaintiffs succeed against IAG, they will not have suffered
loss and the tort claim
necessarily falls away.
- [392] Before me,
Mr Cooper for the Sleights acknowledged quite properly that the Sleights can
recover their loss here only once. Nonetheless,
he did note that the Sleights
are entitled to judgment in the usual way against all liable parties. The fact
that under the Policy
the Sleights are insured for the cost of the work required
to complete the repairs to the required “when new” standard
does not
prevent them from obtaining judgment against QBE for Hawkins’
liability.
- [393] This
involves the normal principle that plaintiffs like the Sleights are entitled to
recover their losses from a wrongdoer notwithstanding
that they may be insured
for those losses. As Todd on Torts notes:71
...
the courts have taken the view that a wrongdoer should not be able to take
advantage of the plaintiff’s foresight and past
expenditure in arranging
insurance, and so any entitlement to insurance is treated purely as a
contractual matter between the plaintiff
and its insurer and has no relevance to
the plaintiff’s claim in tort.
- Stephen
Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at
[25.2.04] (footnote omitted).
- [394] It is also
clear that an insurer in most instances will have a right of subrogation and, in
effect, can step into a victim’s
shoes for the purposes of recouping loss.
But, in any event, a successful plaintiff will not retain both damages and an
insurance
payment.
- [395] On these
aspects, QBE’s submissions before me endeavoured to draw support from a
Court of Appeal judgment, South Pacific Manufacturing Co Ltd v New Zealand
Security Consultants & Investigations Ltd.72 That case,
however, does not support QBE’s position. It was concerned with a
completely different factual position and issue.
There, the plaintiff was an
insured who had made a claim for damage caused by fire. The insurer obtained a
report from a private
investigator which led the insurer to decline the claim
under the policy. The plaintiff alleged the investigator’s report was
wrong and sued the investigator in negligence. In that context the Court of
Appeal said the plaintiff’s remedies were properly
found under its
contract of insurance (that is, if the investigator’s report was indeed
wrong, then the plaintiff would be
insured) rather than by recognising a direct
duty owed by the investigator to the insured.
- [396] This first
policy-type argument advanced on behalf of Hawkins for these reasons is of no
moment here.
- [397] Secondly,
by way of an additional policy argument, QBE suggested on Hawkins’ behalf
that to impose on Hawkins a tortious
duty of care to the Sleights in this case
would cut across the contractual scheme for IAG’s Managed Repair Programme
that IAG
had reached with Hawkins under the 2012 RSMA. The imposition of this
duty of care, it is said, would put Hawkins into a situation
in which its
obligations in tort conflicted with its contractual obligations undertaken with
IAG.
- [398] Hawkins
suggests that to impose a duty of care on it towards the Sleights would leave it
in an invidious position. Mr McLellan
endeavoured to provide an example of this
by way of Hawkins being instructed by IAG without reference to the Sleights to
issue the
builder Farrells with a notice of non-conformance (as it did on 17
March 2015, relating to installation of the James Hardie cladding
on the
home).
72 South Pacific Manufacturing Co Ltd v New
Zealand Security Consultants & Investigations Ltd
[1992] 2 NZLR 282 (CA).
- [399] This
misses the point. Hawkins has certain obligations to the Sleights which it
accepted outside the 2012 RSMA it entered into
with IAG. Those obligations must
remain regardless of what arrangements Hawkins and IAG themselves may have come
to.
- [400] The
additional defences Mr McLellan endeavours to advance on Hawkins’ behalf
do not assist its position insofar as the
Sleights’ CGA claim against
Hawkins is concerned. I have found this claim is clearly established
here.
IAG’s cross-claim against Hawkins
The
2012 RSMA claim
- [401] IAG’s
cross-claim requires the Court to examine the precise scope of Hawkins’
obligations under the 2012 RSMA. This
particular cross-claim is one brought in
contract relating to cl 17.2 of the 2012 RSMA. Paraphrased, the effect of this
cl 17.2 indemnity
provision is that, if an owner (such as the Sleights here)
brings a claim against IAG and IAG incurs any liability to that owner
as a
result of any breach by Hawkins of its obligations under the 2012 RSMA, then
Hawkins must indemnify IAG for such liability.
The indemnity also extends to all
reasonably incurred legal costs on a solicitor and client basis incurred by IAG
and expert costs
incurred on the same basis. Thus, and to the extent as I have
found here that the Sleights have succeeded in obtaining judgment against
IAG
under both their Policy and CGA claims, IAG claims that sum plus its costs under
cl 17.2.
- [402] This
cross-claim, as I have noted, involves an examination of Hawkins’
obligations under the 2012 RSMA. These obligations
addressed, amongst other
things, pre-qualification of builders, scoping of the repair work, monitoring
delivery of the work by the
builders, and certifying completion of the work for
payment.
- [403] IAG says
that subsidiary documents spell out some of the operational detail of how it was
agreed that Hawkins would perform
its 2012 RSMA obligations. These include the
100K Manual, the milestone payments change procedure document and the Swimlane
document,
all of which included forms to be completed by Hawkins’ RSMs in
this case.
- [404] IAG’s
position here is that the 2012 RSMA was simply a high-level master agreement and
the parties contemplated that the
operational details would be agreed and
included in subsidiary operational documents. Hawkins strongly disputes this,
however. In
response, IAG argues all the documents, but particularly the
operational documents, made it clear that Hawkins and its RSMs were
required to
monitor and check on each repair contract for quality and to ensure all work was
tradesmanlike.
- [405] Hawkins
also denies this. It says it was engaged by IAG only on more limited terms.
Hawkins maintains it was not engaged by
IAG to inspect for or to ensure the
quality of repair works. It says this was a deliberate commercial arrangement
reached at the
time with IAG, having regard to the massive scale of the post-CES
required repairs. Hawkins says the 2012 RSMA was negotiated over
many months as
a replacement contract to the earlier 2010 RSMA (which had placed express
obligations on a Hawkins related company
to check and ensure the quality of
works). The agreed 2012 arrangement, Hawkins says, circumscribed its potential
liability and did
not make it liable for issues of building quality. Nor did any
of the operational documents say anything different or alter the position
in any
way. In signing the 2012 RSMA, after lengthy and careful negotiations, Hawkins
maintains it did not become a surrogate for
IAG or indemnify it against any
building claims by homeowners brought against IAG or builders such as Farrells.
Hawkins said it made
this abundantly clear to IAG in all the negotiations. Mr
McLellan refers to a letter dated 9 February 2012 from Andrew Holmes, the
project director of Hawkins, to Robert King of IAG, in which he
states:
It is IAG’s obligation to replace/repair. Hawkins is
actively administering a process that will minimise downstream issues.
That
process alone significantly reduces IAG’s risk and should not be
dismissed.
Hawkins is promoting quality all the way – but we cannot
ensure it, nor can we confirm it conforms to all consented documentation,
or an
acceptable trade practice. Such a role is the outcome of the contracted parties,
and would require substantially more supervision
than either Hawkins or IAG
would be prepared to commit. Our investigations indicate other PMO’s
[project management officers]
are not underwriting quality.
(emphasis original)
- [406] Hawkins’
position is that it and IAG were entirely free to reach any bargain they chose.
Here they did so, and the bargain
reached purposely departed
significantly
from the earlier 2010 RSMA (under which Hawkins was liable to ensure builders
maintained quality) for good reason. To the extent
that arrangement might have
left IAG vulnerable to a relatively small number of claims by policyholders that
repairs to their properties
failed to reinstate them to the policy standard,
Hawkins says was an unfortunate but foreseeable consequence of the managed
repair
programme that IAG had put in place.
- [407] That
programme, I am told, cost over $4 billion and involved thousands of repair jobs
to be completed over a limited four –
five year period. Given this,
Hawkins says it was not practical or economically feasible for insurers to
implement systems imposing
a quality obligation on project management providers
like Hawkins as well as builders. The programme that IAG did put in place,
Hawkins
suggests, certainly placed a high degree of trust on builders. But, this
was a conscious decision taken by IAG. Mr McLellan says
this decision must be
perceived as one made by IAG in its ultimate financial interests. Hawkins’
position is also that this
is consistent with any modest private house repairs
project done outside the programme where an external project manager to check
quality would not be expected to be engaged.
- [408] It
follows, Hawkins suggests, that the Court should respect and give effect to the
parties’ clear arrangement reached
in the 2012 RSMA. To the extent an
individual home is not repaired to the standard required under the Policy and
the builder, like
Farrells here, is in liquidation, according to Hawkins, is an
issue between the Sleights as policyholders and IAG. Hawkins notes
that it can
only be directly liable to IAG if it has breached its duties under the 2012
RSMA. Whilst that may be so, as an aside,
I note again that what obligations
Hawkins might have undertaken here with the Sleights as policyholders in terms
of the Building
Contract and otherwise, however, is a separate
question.
- [409] On all
these aspects, it is useful to consider the unchallenged evidence of Richard
Neave who was the solicitor acting for Hawkins
in the negotiation of the 2012
RSMA. His evidence and the documents Mr Neave referred to, as I see it,
demonstrate clearly that issues
of quality were seen as important and were
prominent during the extensive negotiations between IAG and Hawkins for the 2012
RSMA.
The parties ultimately agreed that Hawkins was not to be responsible for
the quality of the repair
works. The detailed provisions of the 2012 RSMA, according to Mr Neave, confirm
this. He says too that the other negotiation evidence
shows that this later 2012
RSMA differed significantly from its earlier 2010 RSMA counterpart for important
reasons that both parties
accepted.
- [410] Next,
Hawkins contends that the relevant qualitative standard for its obligations
under the 2012 RSMA, including its payment
certification requirements, was
simply one to certify “completion” of the work in question.
Submissions advanced for
Hawkins suggest these decisions on its part simply
called for a robust common sense “naked eye” judgement to be made
by
their RSMs, having regard to the description of the relevant milestone. This, it
is said, was the nature of the milestone payment
system. It was designed to
ensure builders’ cash flow was maintained and broadly matched their
expenditure on the many IAG
repair contracts in which they were engaged at the
time.
- [411] And,
lastly, so far as replacement of the 2010 RSMA was concerned, Hawkins’
position is that the marked escalation in
the scale of required repairs
following the February 2011 earthquake was one of the major reasons it became no
longer feasible for
it to retain the quality obligations it had accepted in that
earlier 2010 RSMA.
- [412] After the
CES, Mr McLellan says IAG was obviously cost-sensitive on the many issues that
lay ahead for the company with the
huge increase in policy claims it was
experiencing. This was an uncertain landscape. Mr McLellan contends, and in my
view, with some
substance, that IAG and Hawkins tailored their agreement in the
2012 RSMA accordingly.
- [413] He
maintains too that a central aspect of Hawkins’ role was to ensure that
IAG’s wider repair programme was carried
out on time and within budget.
Under cl
4.6 of the 2012 RSMA, for example, Hawkins was required to use commercially
reasonable endeavours to obtain a lump sum building contract
price or, if that
was not obtainable, a guaranteed maximum price for the completion of each
rebuild from the relevant builder. The
obvious intention was pricing certainty
for IAG. Consistent with this, once construction was underway, in terms of cl
5.3 of Schedule
2 of the 2012
RSMA, Hawkins was responsible for “ensuring” each rebuild was
completed within budget.
- [414] Finally,
Hawkins maintains, and I accept, that a significant difficulty for IAG here is
that Hawkins’ monitoring and payment
obligations in the 2012 RSMA do not
refer to build quality or to any other similar concept. This contrasts markedly
with the earlier
2010 RSMA. Earlier provisions to this effect in the 2010 RSMA
were simply deleted from the later agreement.
- [415] On these
aspects, IAG contends that I need, however, to turn to the post- contract
operational documents and forms. Hawkins’
response is that these documents
played no part in the 2012 RSMA which was the governing document throughout. It
is suggested that
these ancillary or operational documents cannot alter or amend
the contractual obligations of the parties as agreed in the 2012 RSMA.
In
addition, Hawkins notes that cl 26.1 contains an entire agreement clause and cl
26.2 requires any variations or amendments to
the agreement to be in writing and
signed by an authorised representative of each party.
Operational
documents and form
- [416] I
will now briefly turn to the relevant operational documents and
forms.
100K Manual
- [417] This
document (dated January 2014) according to IAG “operationalised” the
high level 2012 RSMA obligations. It sets
out largely in table form the
mechanics of a series of repair processes to be undertaken and the Hawkins RSM
role in this. The “RSM
process” in this document does not appear to
make significant reference to quality matters. Nor does the “Man in Van
Procedures and Guidelines” section or other areas of the main body of the
document. By way of example, on page 5 of the document
under the hearing
“Construction Phase – Active On Site” there is a requirement
that the work for which payment
is claimed (only) is to be photographed by the
Hawkins RSM, and for variations (if applicable) to be completed it is noted
“Man
in Van may be used for this process to check that the work has
been done before a payment is made...” (emphasis added). Throughout
this document, as I see it, a real
emphasis is placed on “completion” of the work, pricing and matters
relating to prompt payment to the builder.
- [418] In all
this material, however, there seems to be only a few instances of specific
reference made to quality matters. One of
these is in standard Form 755 headed
“Owner Handover Checklist” at p 56 of the 100K Manual. This form
includes a box
for the Hawkins RSM to “carry our [sic] [out] QA inspection
of completed work”. QA here would seem to mean quality assurance.
It is
suggested that this reference supports the view that prior to handover to the
homeowner the Hawkins RSM considered the quality
of the work undertaken by the
builder. This owner handover checklist form, however, appears to be the only
document in the 100K Manual
specifically referring to this
aspect.
Milestone
Payments Change Procedure
- [419] This
document, dated 2 July 2014, is unsigned, it comprises some four pages, and
amongst other things states that its purpose
is to amend the current milestone
payment procedure. The background to this, as I understand the position, flowed
from builders’
complaints under IAG’s Programme of delays in
receiving milestone payments and issues over the pressure for the many
inspections
required to be eased.
- [420] Amendments
to the milestone payment procedure were described in the body of the document to
include:
- Hawkins RSM is
authorised to approve a milestone payment where the claimed task is 80 per cent
or more complete. The remaining 20
per cent will only be authorised for payment
once the claim task is 100 per cent complete.
- A builder may
make one claim per month for one or more milestones. Monthly site inspections
shall be undertaken (maximum one per calendar
month) by HCL staff to assess
milestones and certify confirmed tasks for payment.
...
- Claimed
milestones must meet the criteria of “tradesmanlike standard” and
have no outstanding unresolved health and safety
non- conformance issues, to
allow milestones to be certified for payment.
This in practice will include, but not limited to:
(a) Council sign-off
(b) PS1s and PS4s (where required)
(c) Health and safety observations
(d) Site inspection by the relevant RSM.
- [421] What is
clear from this is that the document contemplated that Hawkins’ RSMs would
spend only limited time on a site for
inspection and payment certification
purposes. A maximum of one site inspection per calendar month was now to be
undertaken. This
was in the context of what was an instruction to builders that
they “may make only one claim per month for one or more milestones”
under the change procedure. It is suggested on behalf of Hawkins, and I accept,
that all this again may be consistent with IAG’s
desire, first, to
minimise cost as a fundamental plank of its Managed Repair Programme and,
secondly, to ensure speed in meeting
requests and getting milestone payments to
their ranked builders who were carrying out huge numbers of repair contracts for
IAG policyholders
under the Programme.
- [422] More
difficulty arises, however, for Hawkins with respect to the reference in this
change procedure document that “claimed
milestones must meet the criteria
of ‘tradesmanlike standard’”. Hawkins’ position is that
this reference
is simply a reminder to the builders of their obligation
which they always had to complete work to tradesmanlike standards. But IAG
claims here, that the concession being
made to builders in this change procedure
in relation to increased progress payments did not relax the obligation Hawkins
had throughout
in relation to checking quality and general standards of
workmanship for the building work.
- [423] To the
extent that this milestone payments change procedure impacts upon the
relationship between IAG and Hawkins, this particular
provision, in my view, in
some respects, is not helpful to Hawkins’ argument here. Notwithstanding
this, as I see it, there
is some force in Hawkins’ argument that this
reference to a “tradesmanlike standard” requirement is directed at
builders and does not take away from the fundamental obligation IAG accepted in
the 2012 RSMA that Hawkins was to have a limited
role with respect to
quality.
Swimlane
document
- [424] The
Swimlane document sets out what seemed to be 50 steps to be carried out in
relation to each Rebuild Solution carried out
by a tier one builder. The steps
were assigned to a “Swimlane” with each lane representing a
particular role associated
with that construction process.
- [425] The only
steps that appeared to deal with Hawkins’ role during the construction
phase of the works were steps 35 and 37.
These stated that Hawkins RSMs were to
“monitor build and progress against milestone where applicable” and
“check
and approve variations and forward to Hawkins QS for
pricing”.
- [426] The
remaining Hawkins’ responsibilities outlined in the Swimlane document, as
I see it, were co-ordination based and generally
consistent with the terms of
the 2012 RSMA.
- [427] In my
view, this document is generally consistent with the 2012 RSMA insofar as it
provides for Hawkins to have only a limited
payment certification role. Work was
to be signed off as being completed, variations were to be approved and signed
off as completed,
health and safety plans by builders were to be reviewed and
evaluated, and Hawkins was to ensure that customer/builder building contracts
were signed.
RSM Site Inspection
Report
- [428] This
report was a document to be used by the RSMs. It contained a number of boxes for
a quality assessment to be made by the
RSM. This was to be recorded with three
possible gradings of quality and there was a further box which was headed for
overall quality
for the job. From the evidence before me, in many instances this
form or parts of it was not completed.
- [429] Once
again, this form does not assist Hawkins’ argument here but, in my view,
it still does not take away from the fundamental
obligations both parties
undertook in the carefully negotiated 2012
RSMA.
MIV Inspection
Report
- [430] This
report is similar to the RSM Site Report and also has, in this case, five grades
of quality in each of what are two quality
boxes. The graduated quality choices
in these forms were for completion by Hawkins RSMs in that they were to select
the correct grade.
Again, often this form was either not or only partially,
completed.
- [431] Again,
this form at one level might be seen as not assisting Hawkins’ position
here. But, in my view, it also does not
detract from the clearly negotiated
position Hawkins had with IAG under the 2012 RSMA.
Milestone
Payment Inspection form
- [432] This
form was one to be completed by a Hawkins RSM after a milestone payment
inspection was undertaken. The form was completed,
signed by the RSM and
forwarded to IAG with the important section “Approved For Payment
(Y/N)” completed either “yes”
or “no”. On the
basis of this form IAG then made the milestone payment to the
builder.
- [433] This
one-page form provided details of the property, the builder, the “Areas of
Work Inspected” and a section headed
“General Comments and
Observations that were obvious or apparent within the time available for this
review”. There was
also a section headed “Yes” or
“No” for “Reinspection Required” and then a final
section headed
“Correction Actions
Identified”.
- [434] At the
conclusion of the form in bold were the words “Progress photos must
accompany all milestone payment inspections”.
But significantly, nowhere
on this form was there a specific question or statement as to whether the work
was completed in a tradesmanlike
manner or otherwise complied with quality
matters. And, the section I have noted above headed “General Comments and
Observations
that were obvious or apparent within the time available for this
review” (emphasis added), might be seen as speaking for itself on this
issue regarding the absence of any quality assurance.
- [435] Overall
then, I reach the view that these ancillary operational documents, which are
essentially a guide and deal with process
matters, although not entirely helpful
to Hawkins’ arguments here, do not in any sense override the 2012 RSMA, an
agreement
and its terms which were reached after careful and lengthy (lawyer
driven) negotiations between IAG and Hawkins.
- [436] With that
in mind, I now turn to consider again, but in more detail, what were
Hawkins’ obligations under the specific
provisions of the 2012 RSMA
itself?
Interpreting the
2012 RSMA
- [437] In
interpreting the 2012 RSMA, the approach to be taken is set out in the Supreme
Court’s decision in Firm PI 1 Ltd v Zurich Australian Insurance
Ltd.73 Aspects of this judgment which need emphasis here
are:
(a) While context to an arrangement is a necessary element of
the interpretive process, the text of the contract remains centrally
important.
Courts are generally to give effect to the natural and ordinary meaning of words
used in a contract and “do not
easily accept that people have made
linguistic mistakes, particularly in formal documents”.74
(b) If the language used, viewed in the context of the whole of
that contract, has an ordinary and natural meaning, a conclusion that
the
language used produces a commercially absurd result should be reached only in
the most obvious and extreme of cases.75
(c) A purposive or contextual approach to contractual
interpretation is not dependent on there being an ambiguity in the contractual
language. The Court’s aim is to ascertain the meaning which the document
would convey to a reasonable person having all the
background knowledge
73 Firm PI 1 Ltd v Zurich Australian Insurance
Ltd, above n 8.
74 At [88].
75 At [63] and [89].
which would reasonably have been available to the parties in the situation they
were in at the time of the contract.76
(d) The commercial purpose and the structure of the bargain
reached by the parties is important to the extent these can be reliably
identified.77
- [438] It is
useful in this exercise to consider first, what was the purpose and origin of
the 2012 RSMA. As I have noted above, this
was linked directly to the more
severe earthquakes on and around 22 February 2011 and the massive consequences
of those events.
- [439] The 2012
RSMA in its recitals itself records in part:
- Following
the September Earthquake, several further earthquakes have occurred in the
Canterbury region, including a major earthquake
on 22 February 2011
(“Subsequent Earthquakes”). IAG NZ and Hawkins Construction agreed
that the original Rebuild Solution
Master Agreement was not appropriate or
suitable to deal with the consequences of the Subsequent Earthquakes and are
terminating
the original Rebuild Solution Master Agreement on or about the date
of this Agreement.
- In
order to appropriately take account of both the September Earthquake and the
Subsequent Earthquakes, the parties are to enter into
a revised Rebuild Solution
Master Agreement on the terms set out herein.
- [440] There can
be no doubt from the evidence before me that the February 2011 earthquake
substantially increased the number of claims
IAG and other insurers were facing,
the severity of the damage, the resources required and the estimated length of
time for all their
rebuild programmes. This meant the managed rebuild programme
undertaken by IAG after the February 2011 earthquake was subject to
significant
constraints in terms of timing, budget, resources and risk. This is emphasised
by the unchallenged evidence of both Mr
James and Mr Wood, which I note
respectively at
[37] and [38] above. The result of all this was that
in the 2012 RSMA IAG and Hawkins significantly renegotiated their earlier
contractual relationship.
I turn now as a central issue to the text of the 2012
RSMA.
76 At [60] – [61].
77 At [79].
- [441] On this,
Hawkins’ overall position is that, consistent with that evidence given by
both Mr Wood and Mr James, IAG had
appreciated by August 2012 when the 2012 RSMA
was signed that there would be a very significant number of insurance claims to
deal
with arising from the CES and that the rebuild and repair programmes would
be extremely challenging from a resourcing perspective.
It seems also to have
been accepted that IAG in 2012 foresaw that Hawkins staff would have very
limited time to spend onsite as a
result of the magnitude of all
this.
- [442] A
significant consequence of this context would have been that each of
Hawkins’ obligations under the 2012 RSMA must be
assessed against the time
and cost implications for the wider IAG programme which involved hundreds of
repair projects. Indeed, on
this the milestone change procedure, which operated
for the majority of the repair works, limited site visits by Hawkins for the
purposes of milestone inspections to one per month (inclusive for all milestone
and variation claims for the month). Progressive
inspections would have required
significantly more time on site than it seems the programme was able to
bear.
- [443] I turn now
to consider the text of relevant provisions in the 2012
RSMA.
- [444] The
overarching obligation undertaken by Hawkins under cl 5 of Schedule 2 of this
Agreement was to:
Monitor the delivery of each Rebuild Solution which shall
include the following:
[nine sub-clauses followed].
Clause 5.1
- [445] Under cl
5.1 Hawkins was to:
Monitor all Builders in accordance with the processes and
procedures agreed between the parties and promptly notify IAG NZ where it
believes that any builder no longer meets the pre-qualification standards.
- [446] Pre-qualification
is set out in cl 1 of Schedule 2. Reading these clauses together it appears that
Hawkins’ monitoring
obligation under cl 5.1 relates to notifying IAG when
a builder no longer meets the pre-qualification standards. I am satisfied that
if
the parties intended by cl 5.1 that Hawkins would play a more general monitoring
role the clause in question would have been cast
in different terms. Clause 5.1,
as I note, speaks of the requirement for Hawkins to “promptly notify
IAG...” of a failure
to continue to meet the pre-qualification standards.
I am satisfied this is the extent of the obligation here.
Clause 5.2
- [447] Under cl
5.2 Hawkins was to:
Use reasonable endeavours to assist IAG NZ’s Loss
Adjusters to ensure that the Rebuild Solution, when completed, complies with
the
Scope of Works for that Rebuild Solution (as may be updated to account for any
variations).
- [448] This is a
qualified obligation in that Hawkins was required to use its “reasonable
endeavours to assist IAG’s Loss
Adjusters” to ensure that the
Rebuild Solution when completed complied with the Scope of Works. I am satisfied
that if this
clause was intended to impose an obligation on Hawkins to monitor
quality aspects of the build progress to itself ensure that all
work was carried
out in a workmanlike manner, this clause would have said so. It did
not.
Clause 5.3
- [449] This
provides that Hawkins was to:
[Ensure] the implementation and completion of and monitoring the
delivery of each Rebuild Solution in accordance with its Rebuild
Priority and
within its Solution Budget (as updated in accordance with cls 4.5 and 4.6(b) of
the Agreement).
- [450] “Rebuild
Priority” is defined in cl 1.1 of the 2012 RSMA to mean “the
priority of the Rebuild Solution as
reasonably determined by IAG in accordance
with the system of priority rankings set out in the Project Priority
Table”. This
term is itself further defined to mean “the system of
priority ranking to be provided and updated by IAG NZ, acting reasonably,
from
time to time”.
- [451] “Solution
Budget” is also defined in cl 1.1 of the 2012 RSMA to mean “the
total amount that IAG NZ will pay
for the completion of the Rebuild
Solution”.
- [452] I am
satisfied that the obligation in this cl 5.3 was one to ensure that each home
was repaired in accordance with its designated
priority and within budget, that
is, on time and on budget. The cl 5.3 obligations, as I see it, relate to these
matters only. The
clause does not mention, nor is it concerned with, quality
issues relating to the repair works. No reference is made to that
concept.
Clause 5.5
- [453] Under this
clause Hawkins was to “immediately notify IAG NZ and its Loss Adjusters
upon becoming aware that a Code Compliance
Certificate may not be able to be
obtained for any Rebuild Solution”. This clause did not impose on Hawkins
any positive duty
to itself inspect for code compliance. Rather, the obligation
under cl 5.5, when triggered by knowledge, was simply to “notify
IAG” of this. It was part of the overall obligation in monitoring the
builder.
Clause 5.6
- [454] Under this
clause Hawkins was to:
Inspect the progress of each Rebuild Solution in order to
certify completion of each Solution Milestone.
- [455] The
payment certification obligation undertaken by Hawkins in terms of this cl 5.6
followed the overall terms of the Building
Contract. These entitled a builder,
such as Farrells, to be paid in accordance with a milestone schedule of payments
set out in specific
dollar terms in Schedule 2 to the Building
Contract.
- [456] The word
“completion” in cl 5.6 means obviously that the milestone in
question has been completed. As I see it,
this required simply that a robust
common- sense decision is to be made as to this concept of completion. In view
of what was acknowledged
by all parties as only limited time being available to
Hawkins’ RSMs in carrying out these inspections, the
“completion”
judgment, as between Hawkins and IAG, I am satisfied
was one that generally could only be made with a naked eye consideration, having
regard to the way the relevant milestone was described.
- [457] Nonetheless,
there were certain minimum requirements on Hawkins in making these payment
certification decisions and I now turn
to consider these.
- [458] The 2012
RSMA contained a number of payment certification clauses. In part these included
the following:
- REBUILD
SOLUTION PAYMENTS
Hawkins shall ensure that each payment claim in respect of any
Rebuild Solution [“Rebuild Solution Payment Claim”] must:
(a) Be in writing on a claim basis in accordance with the
relevant Solution Milestones and sent to IAG NZ;
(b) Be for an amount not exceeding, in aggregate with any
previous payments in respect of the same Rebuild Solution, the Solution
Budget;
...
(d) Contain sufficient information to enable IAG NZ to establish
the accuracy of the Rebuild Solution payment claim, including (without
limitation) a description of the work undertaken and a detailed breakdown of the
trades and material used and the associated rate;
...
(h) Indicate the due date for payment.
- 9.2 Certification
as to payment claims:
Hawkins will:
(a) Not certify any Rebuild Solution payment claim as payable by
IAG NZ until the customer has paid his proportion of the costs of
the Rebuild
Solution to the builder, if any;
(b) Certify completion of the relevant Solution Milestone and/or
Rebuild Solution (as applicable) under the relevant customer building
contract;
and
(c) Certify that the cost to complete the relevant Rebuild
Solution is no more than the unspent balance at the Solution Budget for
such
Rebuild Solutions.
- 9.3 Warranty
as to payment claims:
Hawkins warrants the accuracy of each Rebuild Solution payment
claim and any associated information submitted to IAG NZ for payment
and that
each Rebuild Solution payment claim is properly due and payable by IAG NZ in
accordance with the provision of the services
as set out in Schedule 2.
....
- [459] Again, the
references in these provisions to “completion” reflect
Hawkins’ obligation in cl 5.6 of Schedule
2 to certify each milestone is
broadly “completed”. Nowhere in these provisions or in the warranty
in cl 9.3 are there
additional obligations relating to quality, workmanship or
otherwise which do not appear in Schedule 2.
- [460] Similarly,
the warranty in cl 9.3 as to the accuracy of each payment claim is a warranty
also as to the information included
in that claim. It does not warrant the
standard of the work being certified for. This, as I see it, is a separate
concept. This was
confirmed in evidence which was before me of the draft payment
certification provisions that IAG sought to add into the 2012 RSMA
but which
were rejected by Hawkins during the contract negotiations. These were
deliberately omitted in the final form of the contract.
Clause 3.2
- [461] Clause
3.2(j) of the 2012 RSMA required Hawkins to:
ensure that it has appropriate health and safety plans and
procedures and that its Personnel comply with those health and safety plans
and
procedures and otherwise comply with the Health and Safety in Employment Act
1992 in performing the Services and promote good
health and safety practices and
procedures in the delivery of each Rebuild Solution by the Builder and any other
relevant contractors
in accordance with the procedures agreed between the
parties from time to time.
- [462] Clearly
the 2012 RSMA in this provision addressed explicitly health and safety
requirements. Indeed, under cross-examination,
Mr James confirmed, first, that
health and safety was a very real concern to IAG at the time and that, secondly,
IAG had agreed Hawkins
could employ additional people to manage the health and
safety aspect. All Hawkins’ RSMs, Mr Wood confirmed, were required
to do a
“site safe” initial course. By way of contrast, however, the 2012
RSMA in its actual wording was
silent as to quality issues. This provides a stark contrast between the explicit
requirement on Hawkins regarding health and safety
obligations as opposed to the
absence of any obligation in the contract for Hawkins to ensure or even to
“promote” the
quality of workmanship on the part of a builder.
- [463] Before me,
IAG placed some reliance on cl 3.2(b) of the 2012 RSMA. This provided that
Hawkins, in providing its services, would
“act diligently, efficiently,
and in accordance with industry best practices”. IAG argued this in itself
obliged Hawkins,
in acting in accordance with “industry best
practices”, to inspect for and ensure quality on the part of Farrells
here.
- [464] I do not
accept, however, that cl 3.2(b) can be read in this way. It does not expand the
services that Hawkins provided, nor
does it alter their scope. As I see the
position, it merely set the standards for the provision of those
services.
- [465] A general
cross-check of differences between the 2010 RSMA and the 2012 RSMA, is usefully
undertaken here. In my view, it confirms
clearly that one of the central
purposes of the 2012 RSMA was to limit Hawkins’ role to a general co-
ordination and payment
certification role. Specific references in the 2010
document to quality matters, including ensuring that work was to be carried out
in a proper and tradesmanlike manner, were deliberately omitted from the 2012
document. Hawkins, too, was described throughout as
the “Project
Manager” in the 2010 RSMA. This was deliberately omitted from the 2012
RSMA.
- [466] Finally,
it is clear the 2012 RSMA is not a standard form document in general use in the
construction industry. It is a bespoke
contract, carefully negotiated with
lawyers’ assistance over many months, entered into by IAG and Hawkins
specifically in relation
to the highly unique set of circumstances that had
developed at the time.
- [467] Although
IAG does not plead or allege that an implied term as to quality should be
included in the 2012 RSMA and its case is
based on the express words of the
contract, in evidence and submissions IAG has attempted to project a meaning
into the 2012 RSMA
that I am satisfied the words do not bear. In evidence of
certain experts advanced by IAG, opinions were expressed that Hawkins had
both
an expectation and
a responsibility through accepted practice to monitor quality and compliance of
the builder’s work, both through the currency
and at the completion of
each building contract. In my view, that is not, however, what the bespoke 2012
RSMA clearly provided. It
would not be appropriate here for the Court to imply a
term in the 2012 RSMA relying simply on what in some of the evidence before
me
was referred to as “common practice”.
- [468] As an
aside on this aspect, I note too that all parties before me accepted that it is
in fact uncommon in the construction industry
to engage an external project
manager (with a job of checking on quality matters) for a residential repair
project like this which
is valued at approximately
$300,000.
- [469] The
evidence I have noted above from Mr Neave and others as to the negotiations for
and the parties’ intentions with the
2012 RSMA, together with the terms of
the document itself, unquestionably lead to the conclusion that Hawkins was not
to be responsible
for monitoring quality on the part of builders as an integral
part of its management functions here. The 2012 RSMA (described as
a
“Revised RSMA”) was carefully negotiated with direct legal
assistance over many months. The parties, no doubt, regarded
it as an important
document. It was to set out the basis of their new relationship which was to
differ significantly from the arrangements
under the 2010 RSMA, as the
Background recitals to the 2012 RSMA made clear
- [470] The
importance to the parties of the 2012 RSMA and its terms were emphasised in part
by the entire agreement clause (cl 26.1)
and the variations clause (cl 26.2).
This latter clause stated:
26.2 Variations:
Amendments to this Agreement will be binding only if they are in
writing and are signed by an authorised representative of each party.
This confirmed the importance of the agreed terms in the 2012 RSMA and the need,
if any were to be varied or amended, that this required
such amendments to be in
writing and signed.
- [471] Nowhere is
it suggested here that there were any variations or amendments to the 2012 RSMA
regarding quality issues which were
made in writing and/or signed by the
parties. Certainly, in my view, none of the process matters set out in the
operational documents
and forms I have referred to above met these requirements.
And, as I see it, something dealing with as important a change as this
(relating
to what the parties in negotiations regarded as the fundamental quality
responsibility issue) would have needed to comply
with clause 26.2 and be in
writing and signed by the parties. That did not happen here. And I make these
comments especially in the
context of the considerable time, effort and trouble
taken by both IAG and Hawkins and their advisors to negotiate and conclude the
terms of the 2012 RSMA.
- [472] Lastly,
IAG has referred me to the evidence of Mr Shane Geraghty, a structural engineer
from Ireland who worked for a time as
a Hawkins RSM. His evidence, which in part
related to what was happening with some RSMs on the ground, as I see it,
however, does
not affect the contractual obligations and arrangements which had
been reached between IAG and Hawkins governed by the 2012 RSMA.
There is no
doubt, as I see it from Mr Geraghty’s evidence, that with the best of
intentions he, in particular, was well aware
of the position of the Sleights
relating to their house repairs and, as he noted on a number of occasions, he
did his best for them
as part of his job. This might suggest that he accepted
some additional obligation overall to check on quality and workmanlike issues.
But again, as I see it, this did not alter the contractual arrangements reached
between IAG and Hawkins.
- [473] For
all these reasons, I conclude that, so far as the relationship between IAG and
Hawkins is concerned, the 2012 RSMA did not
place an obligation on Hawkins to
check or certify quality matters or that the work of Farrells as builder was
carried out in a tradesmanlike
manner. Hawkins cannot be liable here to IAG
(though this is not the case with regard to its relationship with the Sleights)
for
quality or workmanship deficiencies in the work undertaken by
Farrells.
- [474] This,
however, does not impact upon Hawkins’ payment certification obligations
to IAG under the 2012 RSMA. On this aspect,
much evidence was provided from
various experts as to what payment certification generally entailed. This
payment certification work
is typically carried out elsewhere by
quantity
surveyors, architects or other parties. Here, Hawkins’ payments certifier
role was agreed and set out in part in cl 5.6 of
Schedule 2 to the 2012 RSMA.
This simply required inspections by the Hawkins RSMs “in order to certify
completion of each Solution
Milestone”.
- [475] On all of
this I am satisfied there is no clear industry standard or common practice as to
payment certification in all cases
which can be imported into the 2012 RSMA at
issue in this case. I find Hawkins’ payment certification role here
required inspections
which simply certified broad completion of each Solution
Milestone to enable Farrells to be promptly paid in terms of the Building
Contract. The work in question needed to be generally completed on the basis of
a naked eye overall inspection carried out by a reasonably
qualified RSM able to
make this judgment. As between IAG and Hawkins, however, I am satisfied
assurances as to quality and workmanship
were not expected. No time or payment
to Hawkins for this was allowed under the 2012 RSMA. Nevertheless, reasonable
completion of
the work in question, in a broad sense, was needed to justify the
milestone payment.
- [476] And, on
this aspect here, as I will outline below, issues clearly arose as to some of
Hawkins’ payment certifications
for work which had not been completed. I
will address these further shortly.
- [477] But first,
for completeness, it is useful to consider in a little more detail each of
IAG’s allegations as to breaches
by Hawkins of its specific obligations
outlined in the 2012 RSMA which I list at [402] above. The first relates to
pre-qualification obligations for the group of IAG-approved
builders.
Pre-qualification
breach?
- [478] Before
me it was not entirely clear the extent to which IAG wished to pursue
pre-qualification failure allegations. At trial
this issue was not explored in
any detail. In IAG’s pleadings it contends that it has not “been
provided with evidence
that Farrells was pre-qualified satisfactorily or
adequately”. Nowhere did IAG assert, however, that Farrells should not
have
been pre-qualified, nor is there any explanation as to how Farrells’
pre-qualification caused loss to IAG.
- [479] And, in
any event, on this, initially Farrells apparently rated highly on the IAG
selection criteria. It was described by IAG
as one of its few tier 1
builders.
- [480] This also
might be seen to be an area of some overall confusion. From the evidence before
me, IAG at the time had arranged for
Farrells to be engaged in completing
repairs for a huge number of IAG policyholders. IAG, too, had clearly invested
largely in continuing
with Farrells’ services and it does seem this may
have permeated considerations adopted by Hawkins. The pre-qualification
standards
also were somewhat murky. I find it difficult to conclude here that
Hawkins was in breach of any requirement either as to pre-qualification
of
Farrells or at some later stage to notify IAG that Farrells no longer met
pre-qualification standards. I reject IAG’s allegation
that Hawkins
breached its obligation to pre-qualify the builder Farrells under the 2012
RSMA.
Scoping breach?
- [481] Hawkins’
scoping obligations under the 2012 RSMA are set out in cl 2 of Schedule
2:
- SCOPING:
Hawkins will provide to IAG NZ a Scope of Works for each Rebuild
Solution which shall include the following:
- 2.1 Scope or
procure that the Builder scopes in detail the works to be undertaken for each
Rebuild Solution.
- 2.2 Provide to
IAG NZ and its Loss Adjusters the detailed Scope of Works for each Rebuild
Solution.
- 2.3 Where
applicable, procure that the appropriate industry specialists are engaged to
provide appropriate input into each Scope of
Works.
- 2.4 As
appropriate to the particular Silo, use reasonable endeavours to ensure that
each Scope of Works requires the Rebuild Solution
to be completed using the
equivalent building materials and techniques that are currently approved and
available in the market in
order for the Customer’s property to be
returned to the position it was in when it was new (or as close as possible to
such
position taking into account any customer changes under cl 4.5 of the
Agreement).
- 2.5 Update or
procure that the Builder updates each Scope of Works to account for any
variations to the initial Scope of Works.
- 2.6 Provide IAG
NZ and its Loss Adjusters with an updated Scope of Works that accounts for each
and every variation to the initial
Scope of Works.
- [482] Hawkins
was able to discharge its scoping obligations in cls 2.1 – 2.3 of the
Schedule by procuring Farrells as builder
here to provide a detailed Scope of
Works with the assistance of a relevant industry specialist in this case, AECOM.
In the situation
where the builder was a tier 1 builder (as was the case with
Farrells here) both IAG and Hawkins had agreed in the Swimlane document
that it
was the builder who would be responsible for preparing the Scope of Works. The
process that had been agreed was that the
builder was to engage the relevant
professionals who would then provide a report to the builder and to IAG. Those
relevant industry
specialists would then invoice the builder and the cost was
reimbursed by IAG under the normal payment procedure which Hawkins was
involved
in. Hawkins’ role was then to receive the Scope of Works, approve it and
then forward it to IAG’s loss adjuster
for approval.
- [483] In the
present case, specialist structural engineers, AECOM were engaged. They carried
out inspections and provided a report
with their assessment and remediation
recommendations. Farrells then prepared a Scope of Works with reference to the
AECOM report.
The Scope of Works was then reviewed and signed off by a Hawkins
RSM who emailed it to Mr Cook of IAG. It was forwarded to the Sleights
for
comments. An agreed amendment to the exterior cladding, changing it to Linea
weatherboard then occurred. The finalised Scope
of Works was sent to Farrells
for pricing which then took place.
- [484] This
agreed process, so far as tier 1 builders were concerned, relied on the
expertise of both professional and design specialists,
like AECOM here, and the
builders.
- [485] The Scope
of Works in this case was one produced by Farrells based on the assessment and
recommendation of AECOM. AECOM then
produced plans for the
purpose of obtaining building consents. As I see it, there was no reason here
for Hawkins to question the professional advice provided
by specialists from
AECOM.
- [486] Even if,
so far as the Sleights were concerned, there may have been some deficiencies in
the scoping process, insofar as Hawkins’
potential liability to IAG under
the 2012 RSMA is concerned, no issues arose on this scoping question given the
engagement of and
reliance upon AECOM.
- [487] Finally,
even if Hawkins might have breached its scoping obligations to IAG (and I have
found otherwise) it is difficult to
see how loss has resulted to IAG because of
any perceived inadequacy in the Scope of Works. If, for example, full
replacement of
window joinery and the conservatories should have been included
in the Scope as part of the earthquake repair work, then IAG would
have had to
pay for this in terms of the policy standard liability and it is required to
bear the additional costs of doing so now.
- [488] I conclude
that, so far as the scope required for the remedial work is concerned here, with
the engagement and reliance upon
the professionals, AECOM, and for the reasons I
have outlined above, I find that Hawkins, insofar as its scoping obligations
with
IAG under the 2012 RSMA are concerned, did not err.
Monitoring
obligations breach?
- [489] With
regard to Hawkins’ monitoring obligations, under the 2012 RSMA, IAG
contends Hawkins was in breach of these in the
following
ways:
(a) Hawkins’ RSMs failed to visit the Sleights’
house site frequently enough for the purpose of effectively monitoring
Farrells.
(b) Hawkins’ RSMs failed to complete the RSM site visit
reports with sufficient care and skill.
(c) Hawkins’ RSMs only completed RSM site visit reports on
some of the occasions they visited the site for payment inspection
purposes when
they completed their Milestone Payment Inspection forms.
(d) Hawkins’ RSMs failed to detect and observe deficiencies and
problems with the work of Farrells as builder which would have
been detected on
site visits by a competent RSM.
(e) Hawkins’ RSMs failed to address discrepancies between
the Scope of Works and the Building Contract, the building consent
drawings and
the specifications.
- [490] So far as
frequency of site visits are concerned, the milestone payment change procedure
document referred to monthly site inspections
to be undertaken to assess
milestones and certify confirmed tasks for payment. Although this related only
to milestone payments and
not general monitoring, this, linked with other
evidence before me signalled the difficulty overworked Hawkins RSMs were under
in
carrying out additional quality checks here. These could only have been
achieved, it seems, with a major increase in the Hawkins
workforce for which
Hawkins it seems was simply not resourced.
- [491] Hawkins
says too that under the 2012 RSMA, its obligations took on a more administrative
function from that which was envisaged
under the superseded 2010
RSMA.
- [492] Lastly,
from all the evidence before me, it is generally undisputed that Hawkins’
RSMs were heavily engaged throughout
simply in endeavouring to complete the
milestone payment inspections for the many building contract jobs each RSM was
in charge of.
The evidence shows this tended to fully occupy the time of all
RSMs. If additional quality-type inspections were required, as I have
noted,
Hawkins would need to have employed a significant number of additional RSMs
which it contends would not have been approved
by IAG for financial reasons.
This does not seem to be disputed.
- [493] As to the
complaint by IAG that Hawkins’ RSMs failed to complete the RSMs site visit
reports with sufficient care and
skill is concerned, I leave this aspect on one
side. Certainly, it does seem that some of the site visit reports were deficient
in
some
respects. But again, given my conclusion that the 2012 RSMA does not place a
requirement on Hawkins to certify quality issues, this
is of little moment
here.
- [494] The
absence, too, of completed RSM site visit reports on some occasions, although
apparent, is not a major deficit on the part
of Hawkins in this case, given my
conclusions on the quality questions.
- [495] The
complaint by IAG, too, of Hawkins’ failure to detect and observe
deficiencies and problems with Farrells’ work
and to note areas that did
not comply with the scope of works, drawings and specifications again, in my
view (with one rider), does
not directly place a liability on Hawkins relative
to IAG in terms of the 2012 RSMA. This rider relates to the obligation Hawkins
accepted to certify completion of work to justify milestone payments then made
by IAG. This was an area of some deficiency on the
part of Hawkins in this case
and I now turn to address that.
Milestone
payments certification breach?
- [496] As
I have noted above, under the 2012 RSMA Hawkins had an obligation to certify
milestone payments in order that IAG could make
these payments to the builder
Farrells. I repeat that certification in terms of the 2012 RSMA and arrangements
with IAG required
Hawkins to be satisfied the work justifying the milestone
payment was “completed”. I am satisfied here that
“completion”
was to occur in the sense that, following a reasonable
naked eye observation of the work from a suitably qualified RSM, certification
was provided that the work in question was in place and generally carried out
properly, although workmanship and quality issues might
still need to be
addressed by Farrells later (through the snagging list or otherwise) if they
arose.
- [497] So far as
payment certifications generally are concerned, I am satisfied there were two
instances in which Hawkins here clearly
breached its obligations towards IAG
under the 2012 RSMA. I now address
those.
Foundations/sub-floor
work payment certifications
- [498] The
first of these related to payment certifications for repairs to and replacement
of the timber pile foundations, bearers
and bearer connections in the
Sleights’ house. Before me all parties accepted there were numerous
problems and deficiencies
with these. They included:
(a) The original timber piles were not replaced with larger and
stronger components as specified in the construction drawings.
(b) Some of the new piles were in a different layout from the
originals. This meant that certain existing bearers now spanned further
than
they did before and in one place the bearer was missing altogether. In addition,
some existing bearer to bearer joints were
now occurring in the middle of a span
and not over a pile.
(c) Bearers lacked adequate damp-proof membrane where they met
the concrete perimeter beam.
(d) Many bearers had not been properly connected to piles using
concrete nails and connections and in places the bearers did not even
touch
their piles.
(e) Piles were misplaced and, in particular, one of the new
piles which was to be installed had simply been omitted.
- [499] The result
of this is that the repaired foundations do not currently meet the performance
requirements of the Building Code.
In addition, all the relevant experts before
me agreed that these issues with the inadequate foundation repairs were numerous
and
obvious. By way of example, the Hawkins RSM in inspecting this sub- floor
work needed only to count eight piles as being required
on the consented plan,
and contrast this with the seven piles actually installed in plain sight, to
identify there was a problem.
- [500] Payment to
Farrells for these foundation repairs, according to the milestone payment
schedule in the Building Contract was to
occur across separate milestones. These
were Milestone 4 (begin foundation repairs), and Milestone 5 (remove and replace
piles and
lower house onto new foundation).
- [501] It seems a
Hawkins RSM inspected Milestone 4 on 30 June 2014 and approved it for payment on
3 July 2014 with his site report
records stating, “foundation
complete”.
- [502] Milestone
5 was then inspected in early to mid-September 2014. It was approved for payment
on 16 September 2014 with the site
report recording that the house “has
been down for months”.
- [503] The
milestone payment inspection sheets for each of these milestones, including
Milestone 5, do not record that any third party
inspections were required or
occurred. It would seem the only conclusion one can reach is that the Hawkins
RSM certified milestones
for Milestone 4 and Milestone 5 without having checked
the work at all or, at best, certified payment on assurances given by the
builder Farrells. There is, however, no evidence before me of what assurances
were requested or given.
- [504] All this
is a clear breach of the certification requirements in the 2012 RSMA, even on
the case which Hawkins endeavours to
advance here.
- [505] In
response, a position advanced for both Hawkins and QBE here is that at the time
Hawkins had a policy preventing staff going
into sub-floor spaces for health and
safety reasons and, therefore, any subsequent inspection of the foundation and
sub- floor issues
was not to be part of its undertaking. This, however, does not
answer the fundamental question. This was that Milestones 4 and 5
in particular,
which had a combined value of around $85,000 (including some costs for erecting
scaffolding), were certified when
the foundations and sub-floor areas concerned
were not compliant and, even on a cursory naked eye examination, all the experts
concur
the foundation problems would have been immediately apparent.
- [506] What is
clear is that, even on its own admission, Hawkins has certified for payment
repairs to the foundation and sub-floor
across the overall repair programme
which are entirely deficient and possibly even on the basis that its RSMs did
not inspect the
work in question. This is in the face of what all experts agree
is entirely deficient work which would be obvious on any cursory
examination
from an RSM.
- [507] As to
these deficiencies, and in particular regarding the approximate $85,000 in
payments certified for Milestones 4 and 5,
Mr Hanne, the quantity surveyor for
IAG, in his evidence said restitution and repair work will now cost $60,000.
And, there seems
general agreement between the other quantum experts as to this
figure.
- [508] The
failure of Hawkins to properly identify this obviously defective and incomplete
area of work, which should never have been
certified for payment, has led to IAG
making an overpayment to Farrells for Milestones 4 and 5 to which it was not
entitled. Hawkins
is responsible to IAG for certifying what was effectively a
$60,000 overpayment as part of Milestones 4 and 5. This is the amount
required
to fix the defective foundation and sub-floor work, and is a loss which IAG has
suffered as a result of Hawkins’ failure
to comply with this particular
payment certification obligation under the 2012 RSMA.
Final
Building Contract payment certifications
- [509] On
15 December 2015, in two Milestone Payment Inspection Reports, Hawkins certified
to IAG that final payments under the Building
Contract of
$49,777.28 and $20,691.68 were approved for payment to Farrells. This
certification was made in the face of what, at that point,
appeared without
question to be major difficulties and problems which had arisen with
Farrells’ repair work on the Sleights’
property.
- [510] Indeed, on
7 March 2015, one of Hawkins’ senior RSMs, Dan Sinclair, on specific
instruction from IAG, issued a formal
Hawkins Non-Conformance Notice to Farrells
for the Sleight property. This required Farrells to “make good
installation as per
James Hardie installation literature” and to
“provide confirmation that cladding is installed in accordance with James
Hardie technical specification so James Hardie product warranty is
applicable”. None of this ever happened. And, in particular,
as
I
have noted, the parties were aware the Building Contract had been terminated on
1 May 2015 by Mr Maxey on behalf of the Sleights.
Further, independent expert
comments and formal reports were provided around this time setting out the major
deficiencies in many
areas of Farrells’ repair work, and accordingly the
extensive remedial work that would be required. These included in particular
the
detailed and unquestionably damning report from Watkins Consultancy referred to
at [97] above and provided in September
2015, over three months before the final payment certifications were made, and
the Axis Inspection
Report of 19 June 2015. Earlier, a 29 April 2015 cladding
assessment report from R M Hadley Limited, registered building surveyors,
had
identified a number of other serious issues. Hawkins and a number of their
relevant RSMs were well aware of these.
- [511] Notwithstanding
this, the final payments under the Building Contract to Farrells, totalling
$70,468,96 were certified on 15
December 2015.
- [512] In all the
circumstances, no such certification was appropriate. The many clearly
identified deficiencies in the repair work
meant that final payment should have
been withheld. Withholding payment, in addition to other remedies, would have
provided a source
of funds for repair work to be undertaken. This, however, did
not happen.
- [513] The later
liquidation of Farrells has simply exacerbated this problem both for the
Sleights and for IAG.
- [514] I find,
therefore, that Hawkins erred also in terms of its payment certification
obligations to IAG under the 2012 RSMA by certifying
these final
payments.
- [515] Some
suggestion is made that IAG, in any event, would have decided to make the final
payment to IAG irrespective of any certification
it had received from Hawkins,
and that IAG actually “instructed” or “sanctioned”
Hawkins to provide its 15
December 2015 Milestone Payment Inspection Reports. On
this aspect, in evidence before me was Hawkins’ first Milestone Payment
Inspection Report of 15 December 2015. This report certified approval for
payment of $49,777.28 for what was specifically stated
as 15 “Areas of
Work Inspected”. In response to the question
“Reinspection Required?”, the RSM who prepared the report had
answered “No”. And, in a section headed “Correction
Actions
Identified”, the report somewhat confusingly had a handwritten statement
from the Hawkins RSM “signed as per
instructions from IAG”. The
second Hawkins 15 December 2015 Milestone Payment Inspection Report also in
evidence before me
certified approval for payment of a further $20,691.68 which
seemed to be for a possible contract variation described as “VO37”.
Again, the report provided that this amount was “Approved for
Payment” and “No Reinspection Required”. In
the section of the
report headed “Correction Actions Identified”, the Hawkins RSM in
handwriting, again somewhat confusingly,
had stated “Signed as this VO is
sanctioned by IAG”.
- [516] Hawkins’
task, as payment certifier in these final Milestone Payment Inspection Reports
was to certify in terms of the
2012 RSMA that work was completed so that IAG
could meet its payment obligations to particular policyholders, like the
Sleights.
From these two Milestone Payment Inspection Reports, an implication
must arise that IAG had both sanctioned and instructed that the
payments in
question, no doubt requested by Farrells, were to be “approved for
payment”. This, however, should not have
impacted upon Hawkins’ role
as independent payment certifier. The building work in question is either
completed satisfactorily
or it is not, and Hawkins’ task is to certify
accordingly. I leave on one side where this might place the Sleights and any
obligations Hawkins may have to them. It seems little consideration was given to
the Sleights’ position. But also, as I see
it, Hawkins’ final
payment certifications here do not assist IAG either. This is in the sense that,
leaving on one side the
post-script comments on each of the Milestone Payment
Inspection forms in the “Correction Actions Identified” sections
(noted above at [515]), IAG’s
payment officers simply made these final payments to Farrells on the strength of
Hawkins’ certificate that they
were unconditionally “Approved for
Payment”.
- [517] And I need
to make clear that before me little additional or definitive evidence on these
aspects was provided. If it can be
concluded that these 15 December 2015 payment
certifications were part of an IAG “arrangement” reached with
Hawkins then,
arguably, Hawkins is complicit in this arrangement and can take no
comfort from it. And, I repeat that no consideration whatever
seems to have been
given by either Hawkins or IAG to the Sleights’ position in all this.
- [518] At this
point, it is clear that Hawkins was in error in certifying for these final
payments to Farrells. As a result, both the
Sleights and IAG, in relying on
these final certificates, have suffered loss in that Farrells has been
effectively overpaid for work.
- [519] This
overpayment amount of $70,468.96 represents a loss suffered by IAG here for
which Hawkins arguably has a responsibility.
- [520] Totalling
the two amounts I have mentioned at paras [508] and [519], being
$60,000 and $70,468.96 respectively, comes to a total figure of $130,468.96.
Hawkins has breached its payment certification obligations
under the 2012 RSMA
to this effect. I find, however, that with the exception of this $130,468.96,
there has been no breach by Hawkins
of its other payment certification
obligations. Nor, as I have concluded at para [473] above, is Hawkins liable to IAG for
any quality or workmanship deficiencies in other areas undertaken by Farrells
here. I reach this
conclusion given what I have found to be the limited project
management role Hawkins contractually undertook with IAG under the 2012
RSMA.
- [521] The
result, therefore, is that Hawkins is liable to IAG under its cross-claim
pursuant to cl 17.2 of the 2012 RSMA but limited
to this total sum of
$130,468.96.
QBE’s potential liability to the Sleights and to
IAG?
- [522] As
I note above at [14] and [100], before it went into liquidation,
Hawkins was indemnified by QBE for certain liabilities under a (PI) negligence
insurance policy.
For QBE to be liable under s 9 of the Law Reform Act 1936, to
either the Sleights or to IAG, its relevant liabilities here must fall
within
the terms of that insurance cover Hawkins held at the
time.
- [523] Hawkins
and the Hawkins group of companies, amongst other policies, had this cover with
QBE as insurer under the Hawkins PI
policy. The Hawkins PI policy was entered
into on 17 October 2016, and it was operative for the relevant periods
here.
- [524] Under
the Hawkins PI policy, the relevant clauses provided:
Insuring
Clause
The Insurer [QBE] agrees to indemnify the Insured [Hawkins]
for any sum or sums which the Insured may become legally liable to pay
to third
parties arising from any Claim first made against the Insured during the Period
of Insurance and notified to the Insurer
during the same period, arising out of
any act, error or omission in connection with the Professional Activities and
Duties of the
Insured.
Limit of Indemnity
The liability of the Insurer will not exceed in the aggregate
for all Claims under this Policy the Limit of Indemnity as stated in
the
Schedule. In addition, the Insurer shall pay any costs and expenses incurred by
the Insurer, or by the Insured with the written
consent of the Insurer, (whose
consent shall not unreasonably be withheld) in defence, investigation or
settlement of any Claim or
potential Claim up to an amount of $5,000,000 in the
aggregate.
The Excess
In respect of each Claim made against the Insured the amount
of the Excess as stated in the Schedule shall be borne by the Insured
at their
own risk and the Insurer shall only be liable to indemnify the Insured in excess
of such amount.
And, in the Schedule, the definition of “professional activities and
duties of the insured” was set out as follows:
Any professional services, advice, duties or activities of
whatsoever nature associated with development, construction, infrastructure,
maintenance, environment or interiors including, but not limited to:
- - Design,
engineering, planning, inspection, consulting, formulation, specification,
investigation, sampling, testing; and
- - Project
management and supervision and/or construction management and supervision;
and
- - “buildability”
peer review of all third party consultant work
- - Seismic
retrofit
- - Lifting/Jacking
and re-levelling/re-piling works
- [525] Also, in
the Schedule the limit of indemnity was defined as “$10,000,000 any one
claim and $20,000,000 in the aggregate
all claims”.
- [526] And, the
excess was defined in the Schedule as “$50,000 each & every Claim
(inclusive of costs & GST)”.
- [527] The
description of Hawkins’ professional activities and duties there includes
what I see initially as very broad responsibilities
which would cover all of its
activities in contention in this case. Notwithstanding this, Mr McLellan
suggests that these
responsibilities are far broader than Hawkins’ actual contractual
functions it has agreed to. Mr McLellan maintains the evidence
before me
indicates that cover under the Hawkins PI policy was likely to be a carry-over
from insurance cover that Hawkins had in
place under the earlier 2010 RSMA. Be
that as it may, the terms of cover under the Hawkins PI policy, which I note
above, are those
which apply here.
- [528] As the
Hawkins PI policy has an excess for each claim of $50,000, QBE is liable to
either the Sleights or to IAG only for Hawkins’
liabilities in excess of
that
$50,000. There is no dispute over this $50,000 excess figure.
- [529] An
area of contention, however, concerns an exclusion clause in the Hawkins PI
policy. This appears to exclude QBE’s liability
to indemnify Hawkins for
any “...contractual or other liability assumed by the Insured
[Hawkins]...unless...the liability [was]
ordinarily assumed in the conduct of
the Professional Activities and Duties of
[Hawkins]...”
- [530] This
aspect, it is said, is relevant to payment certification by Hawkins (in
particular cl 9.3 of the 2012 RSMA) and the indemnity
given to IAG under cl 17.2
of the 2012 RSMA.
- [531] That
cl 17.2 indemnity read as follows:
Hawkins indemnity:
Hawkins indemnifies IAG NZ to the maximum extent permitted by
law for all claims (including third party claims), liability, costs
(including
reasonably incurred legal costs on a solicitor-client basis), losses and damages
incurred by IAG NZ as a result of any
breach by Hawkins of its obligations under
this Agreement or any reckless, fraudulent or wilful act or omission by Hawkins
or any
of its Personnel.
- [532] QBE’s
essential argument is that IAG’s wide interpretation of cls 9.3 and 17.2
of the 2012 RSMA is wrong and gives
rise to alleged liabilities that are not
ordinarily assumed in Hawkins’ professional activities and duties as
defined in the
Hawkins’ PI policy. Therefore, they are
excluded.
- [533] So far as
these Hawkins’ “professional activities and duties” are
concerned, they are defined widely. Words
used in this definition include
“any professional
services, advice, duties or activities of whatsoever nature associated with
development, construction...” and “not limited
to...design...inspection... investigation ... project management and supervision
...”
- [534] The
“professional activities and duties” insuring clause in this QBE
policy, as quoted at [524] above, does
provide cover for Hawkins for sums it becomes legally liable to pay in
connection with a breach of those defined activities
and duties and for breach
of any contract in connection with those duties.
- [535] The
position advanced by the Sleights and IAG appears to be that each time Hawkins
certified work for payment it warranted that
the work was carried out in line
with the Scope of Works and to a proper standard of workmanship. IAG in
particular refers to that
cl 9.3 of the 2012 RSMA which provided
that:
Warranty as to Payment Claims:
Hawkins warrants the accuracy of each Rebuild Solution Payment
Claim and any associated information submitted to IAG NZ for payment
and that
each Rebuild Solution Payment Claim is properly due and payable by IAG NZ in
accordance with the provision of the Services
as set out in Schedule 2.
- [536] Here, I
accept the expected industry standard for someone occupying the role of project
manager or payment certifier in certifying
a milestone claim for payment is that
at a minimum it is accurate. The principal who employs such a manager may not
generally have
the expertise or ability to inspect building work to ensure
appropriate completion. This is obviously a major reason why a project
manager
or other expert is employed. The expectation is that this person will not
certify that a payment should be made by a principal
for work completed, unless
that has occurred. If this is not the case, then the project manager would
advise the principal to hold
back payment until work was satisfactorily
completed.
- [537] It is a
core part of the role of a project manager or payment certifier to accurately
certify claims for payment.
- [538] I am
satisfied, therefore, that the payment certification liability arising generally
and under cl 9.3 of the 2012 RSMA is a
liability that Hawkins
would
otherwise have at law and, therefore, the exclusion I note at [529] above does not apply.
- [539] It was
reasonably foreseeable too, that, if Hawkins breached its obligations under the
2012 RSMA, IAG would face claims from
its policyholders. The breach would be the
proximate cause of the loss. The likely damages that could result would include
any sum
IAG is found liable to pay to its policyholder and the attendant
experts’ fees and legal costs in investigating issues and
defending the
claim.
- [540] In this
respect, the types of losses and damages set out in the Hawkins’ indemnity
go no further than what Hawkins would
ordinarily face for a breach of the 2012
RSMA or otherwise. A possible exception might be scale costs a party to a
dispute would
ordinarily face if unsuccessful in litigation rather than
solicitor and client costs.
- [541] On this
basis, whilst this exclusion could not apply to liability under the CGA, I
accept the exclusion does not otherwise apply
here. QBE has failed to prove that
the liability is not one which would otherwise exist. In addition, it is the
position adopted
by both the Sleights and IAG, which I accept, that the proviso
applies even if the exclusion does engage, as the relevant liability
is one
which was ordinarily assumed by Hawkins.
- [542] This is
similar, as I see it, to indemnity provisions which are in common use in
standard form contracts, including the New
Zealand Standard “Conditions of
Contract for Building and Civil Engineering Construction and Conditions of
Contract for Consultancy
Services”.78 Both of these contain
wide indemnities. I accept the Hawkins indemnity here is materially the same as
the indemnities in these two
standard form contracts.
- [543] In
addition, under cl 18.5 of the 2012 RSMA, Hawkins was required at all times to
maintain insurance for the required indemnity
levels set out in the 2012 RSMA.
As I see it, that is precisely what has happened here.
78 NZS 3910:2013 Conditions of contract for building
and civil engineering construction; and INGENIUM and Others “Conditions of
Contract for Consultancy Services.” (3rd ed, August 2009).
- [544] It is
reasonable, as I see it, also to infer that insurers like QBE covering a group
like Hawkins would carry out some “due
diligence” of the obligations
undertaken by the proponent in major contracts. In any event, insurers would be
well aware of
the reach of the CGA in situations like this. And, this type of
information, in any event, would also normally be disclosed prior
to inception
to a prospective insurer. I find, on the balance of probabilities, that QBE was
aware of its obligations generally and
under the 2012 RSMA prior to 1 October
2016, the inception date of the relevant policy. This was some six years after
the original
2010 RSMA.
- [545] The fact
too that QBE would have agreed to provide the cover required by cl 18.5 of
the 2012 RSMA precludes it from now relying
on the exclusion to avoid
cover.
- [546] I find,
therefore, that the exclusion noted at [529] above does not apply. Further, given
Hawkins has breached its general obligations to the Sleights and (to a somewhat
lesser extent)
its obligations to IAG under the 2012 RSMA, the Hawkins PI policy
will respond to indemnify Hawkins for the losses suffered by the
Sleights and
IAG. It is accepted, however, there is a $50,000 excess, in the case of each
claim.
IAG’s cross-claim against Hawkins/QBE for
contribution
- [547] In
addition to IAG’s cross-claim against Hawkins brought in contract relating
to cl 17.2 of the 2012 RSMA (that I have
addressed from [401] above), IAG also brings contribution
claims against QBE. They are brought, first, under s 17(1)(c) of the Law Reform
Act 1936, being
a contribution claim from a joint tortfeasor and, secondly, an
equitable claim to a contribution from QBE/Hawkins.
- [548] For
completeness, I turn now to consider these contribution claims which, as I see
it, are quickly disposed of.
- [549] First, IAG
will only be able to seek contribution from QBE under s 17(1)(c) of the Law
Reform Act 1936 if IAG is held liable
to the Sleights in negligence. Otherwise,
IAG and Hawkins will not be joint tortfeasors. This will leave the only
contribution issue
arising as being whether IAG can recover by way of equitable
contribution.
- [550] In this
case, I have found IAG liable to the Sleights principally under the Policy and
pursuant to the CGA. Liability as a tortfeasor
in negligence, therefore,
effectively does not arise here. Section 17(1)(c) of the Law Reform Act 1936,
therefore does not assist
IAG.
- [551] So far as
IAG’s claim to recover from Hawkins/QBE by way of equitable contribution
is concerned, IAG will need to establish
that it and QBE/Hawkins have
“shared liability” for the “same
damage”.79
- [552] In this
respect, the allegation is made by IAG that:
(a) Hawkins is liable to the Sleights for the same harm or loss
as is pleaded against IAG in the Sleights’ statement of claim;
(b) it would be unjust and inequitable for IAG to have to bear
the burden of meeting the loss and for Hawkins, which IAG contends
is
responsible for that harm or loss, to escape liability; and
(c) the substantial justice of this case requires an order that
Hawkins contributes to IAG’s liability to the Sleights to the
full extent
of that liability.
- [553] Each of
these allegations essentially pre-supposes that Hawkins was held to be
responsible for the quality of the repair works.
But, for the reasons I have
outlined above, I have found that Hawkins was not responsible for ensuring
quality in the sense that,
amongst other things, in carrying out the repair
work, Farrells did so in a workmanlike manner. Instead, I have only held Hawkins
liable to IAG for breaching its contractual duties under the 2012 RSMA in a more
limited way with respect to some of the milestone
payment claim certifications
it made. Other than those matters, I have found that Hawkins did not breach its
contractual duties to
IAG under the contract. To that extent, and excluding the
liability I have identified for these payment certification errors, no
breaches
occurred by Hawkins in its relationship with IAG which could be said to be
causative of loss here.
79 Hotchin v NZ Guardian Trust Co Ltd [2016]
NZSC 24, [2016] 1 NZLR 906 (SC).
- [554] And, in
considering the substantial justice of the case here, I am satisfied that IAG
purposely structured its Managed Repair
Programme as it did to meet its
obligations to its insureds. Clearly, IAG struck a balance between what it was
prepared to pay Hawkins
and other consultants, and the risk that it was prepared
to retain in relation to the quality of remedial works. In my view, it would
not
be just or equitable to impose by way of a contribution the exact liability that
IAG and Hawkins, for good reasons, agreed that
Hawkins was not to have under the
2012 RSMA.
- [555] IAG’s
additional equitable contribution claim here must also
fail.
QBE’s cross-claim against IAG
- [556] Just
as Hawkins had provided an indemnity to IAG for potential IAG liability in
circumstances set out in cl 17.2 of the 2012
RSMA, which I outline at [531] above, IAG itself provided an
indemnity to Hawkins under cl 17.1 which read as follows:
IAG NZ Indemnity:
IAG NZ indemnifies Hawkins to the maximum extent permitted by
law for all claims (including third party claims), liability, costs
(including
reasonably incurred legal costs on a solicitor-client basis), losses, penalties
and damages (including arising in tort,
including negligence) incurred by
Hawkins arising from or in connection with this Agreement, except to the extent
caused by a breach
of this Agreement or by any reckless, fraudulent or wilful
act or omission by Hawkins or any of its Personnel or Hawkins or its Personnel
acting outside the scope of their responsibilities under this Agreement.
- [557] It follows
that Hawkins is indemnified for claims and costs incurred by it arising from or
in connection with the 2012 RSMA
except to the extent caused by Hawkins’
breaches or by any reckless, fraudulent or wilful act or omission by
it.
- [558] Here, as I
have noted at para [360] above, Hawkins
has been held liable to the Sleights in their CGA claim against Hawkins for
their losses here. This is in addition
to my holding that IAG, too, is liable to
the Sleights, no doubt on a joint and several basis with Hawkins, for these
losses.
- [559] On this,
IAG contends that QBE has no right to claim the contractual indemnity in cl 17.1
as it is not a contracting party to
the 2012 RSMA. I dismiss this
argument.
It ignores the plain words of s 9(4) of the Law Reform Act 1936 which provide as
follows:
Every such charge [on all insurance money under a contract of
insurance indemnifying against liability to pay damages or compensation]
as
aforesaid shall be enforceable by way of an action against the insurer in the
same way and in the same Court as if the action
were an action to recover
damages or compensation from the insured; and in respect of any such action and
of the judgment given therein
the parties shall, to the extent of the charge,
have the same rights and liabilities, and the Court shall have the same powers,
as
if the action were against the insured...
- [560] This s
9(4) creates statutory rights of subrogation. QBE has the same rights and
liabilities that Hawkins would have if it were
sued directly by IAG and this
must include the contractual indemnity in favour of Hawkins in cl 17.1 of the
2012 RSMA.
- [561] From
evidence before me, it is clear the indemnity in cl 17.1 in favour of Hawkins
was a coherent part of the bargain reached
between Hawkins and IAG when the 2012
RSMA was negotiated. It is suggested that at this time Hawkins had agreed to
reduce its remuneration
for each repair project, particularly from that which
was prevailing under the 2010 RSMA, but in return its quality obligations were
removed. The indemnity was suggested as an integral part of this compromise
arrangement.
- [562] Whilst I
accept there is some force in this argument, what is clear to me is that the cl
17.1 indemnity was undoubtedly designed
to protect Hawkins from any potential
inconsistency between the contractual duties it had to IAG under the 2012 RSMA
and any duties
it might owe to IAG’s homeowners imposed by law. I have
found that Hawkins’ services provided to IAG were limited. In
addition,
Hawkins was required to act on IAG’s instructions as the 2012 RSMA set
out. To the extent that a court might hold
that Hawkins owed duties in tort or
otherwise to homeowners extending beyond services outlined in the 2012 RSMA (as
indeed I have
found with the Sleights’ CGA claim against Hawkins here)
Hawkins no doubt needed the certainty that the performance of its
limited
contractual functions would not expose it to liability to potential plaintiffs.
That is what has occurred here.
- [563] The
indemnity in cl 17.1 given by IAG was designed to protect Hawkins from a major
part of the claim the Sleights have brought
against it in this case.
- [564] The
essence of that successful claim by the Sleights against Hawkins under the CGA
required Hawkins to check for quality issues
and to ensure compliance with both
the Building Code and the contract specifications. Hawkins’ contractual
functions under
the 2012 RSMA with IAG, as I have found, deliberately did not
extend to quality matters. Hawkins’ breaches of the 2012 RSMA
were limited
only to those few occasions when milestone payments have been certified in
error. I find that Hawkins’ liability
to the Sleights under the CGA is
largely not as a result of breaches of the 2012 RSMA other than for those few
milestone payment
certifications made in error. Otherwise, Hawkins has complied
with its obligations under the 2012 RSMA and, in this event, Hawkins
and QBE are
entitled to an indemnity from IAG to the extent of that additional liability
(that is, other than for those payment certification
errors).
- [565] In
summary, with respect to those situations where Hawkins has not been held liable
to IAG for breaches of the 2012 RSMA, Hawkins
and, therefore, QBE will be
entitled to an indemnity from IAG to the extent of that liability Hawkins has to
the Sleights. A calculation
of these amounts will follow. This will also include
an acknowledgment that the Hawkins PI policy has a $50,000 excess which, in
this
case, must be met by IAG. Issues on all of this relating to solicitor-client
costs claimed, including expert costs, will need
to be the subject of agreement
or further cost submissions.
Repair works required – defects and damages
- [566] The
Sleights in their pleadings seek damages against Farrells, IAG, Hawkins and QBE
for “amounts to be quantified at trial”
together with what are
described as “general damages for stress and inconvenience”,
interest and costs. And, in their
third amended statement of claim under the
first cause of action against IAG for breach of the Policy, the Sleights did
seek as an
alternative to their claim for damages:
(a) a declaration under the Declaratory Judgments Act 1908 that
IAG is liable to pay for the Additional Work and the Remedial Work;
and
(b) an award of damages for the Consequential Losses
(accommodation costs) in an amount to be quantified at trial.
- [567] Before me,
however, matters proceeded on the basis that it was the damages claim which the
Sleights endeavoured to pursue. No
argument was directed
towards
the alternative against IAG for the declaration under the Declaratory Judgments
Act.80 I proceed, therefore, to address their damages claim.
- [568] So far as
this is concerned, the Sleights in their third statement of claim
say:
- As
a result of the IAG breach the plaintiffs have incurred
loss:
- 66.1 Works that
should have been carried out in order to remediate the Earthquake Damage were
not included in the Scope of Works and
were not carried out by Farrell (out of
Scope work).
Particulars
(a) [And the Scope of Works did not include:
(i) Replacement of the exterior joinery;
(ii) Replacement of the front and rear conservatories.]
- 66.2 The
plaintiffs will have to pay for the Out of Scope Work and associated works and
fees necessary to complete the Out of Scope
Work (additional work) to be carried
out;
- 66.3 The
plaintiffs will have to carry out work to remediate the
Defects;
(a) The plaintiffs refer to Appendix B for particulars of the
Remedial Work:
(b) The plaintiffs estimate that as at 8 May 2019 the cost to
carry out the remedial work was $458,942 including GST:
(i) The plaintiffs refer to the RLB Cost Estimate (with the
“new deck option” used in place of the “reuse”
deck
option and including the addendum interior works.
(c) In addition to the Remedial Work, there will be further
Remedial work, and costs, associated with structural work required to
remediate
structural defects;
- 66.4 The
plaintiffs will have to pay accommodation costs for the period in which they
will need to vacate the Property to carry out
the Additional Work (consequential
losses);
80 Instead, Mr Cooper in his closing submissions
before me on the accommodation costs issue sought a declaration that a weekly
rental
rate of between around $500 and $875 per week is payable to the Sleights
for the period in which they are required to be out of their
house.
- 66.5 The IAG
breach has caused stress and inconvenience to the
plaintiffs.
- [569] Appendix B
attached to the Sleights’ third amended statement of claim is an
eight-page, document from Mr Wutzler’s
company, Helfen Ltd, building
surveyors, setting out what is described as a “Scope of works –
proposed like for like
remediation”.
- [570] Since that
third amended statement of claim, the evidence before me from Howard Jenkinson,
the quantity surveyor employed by
the Sleights, estimates costs of remediation
work for the defects at a slightly increased figure of $504,850. This, it is
said, includes
additional costs for the installation of a new deck and includes
a provisional sum for internal defects.
- [571] Both the
repair works which the Sleights say are required here, and thus the quantum
claimed for these, are significantly disputed
by both IAG and
QBE.
- [572] IAG,
however, does accept, first, that the reasonable measure of damages here is the
cost to fix the house to the policy standard
and, secondly, and obviously, that
quantifying this measure depends on what it is established needs to be
fixed.
- [573] At the
outset, IAG has acknowledged that if, as I have found, IAG is liable on any of
the Sleight’s causes of action against
it, then in summary
IAG:
(a) accepts there are numerous Building Code and workmanship
defects in the earthquake repair work carried out to the Sleights’
house;
but it
(b) does not accept that the house requires a complete re-clad
or that all of the work proposed by the Sleights’ expert, Mr
Wutzler, is
necessary.
- [574] This
appears to be the position also taken on behalf of QBE.
- [575] In
adopting the position it does, IAG relies upon the evidence of its expert, Mr
McGunnigle, in particular relating to:
(a) cladding/external defects; and
(b) internal defects;
and upon the evidence of its structural engineer expert, Mr Cook, in his
assessment relating to sub-floor defects.
- [576] As to the
required policy standard of repair, it is to be to a condition as similar as
possible to when the house was new. If
that is not practicable, the repair is to
be as close as is reasonably possible to that
condition.81 Exact equivalence is not
required. And, in assessing that similarity or equality of position, the purpose
or utility of the element
to be repaired must be considered. In addition, IAG is
also to meet any reasonable cost of compliance with government or local
authority
bylaws or regulations.
- [577] On
this, I am satisfied:
(a) Repairs that have not been carried out in a proper and
workmanlike manner or in accordance with good and reasonable trade practice,
are
not repairs carried out to a “when new” standard because the repairs
are not carried out to an equal or similar condition
as when the house was
built.82
(b) If repair work does not comply with the building consent for
the work and, as a consequence the Council will not provide a code
compliance
certificate, the repair work has not been carried out to a “when
new” standard.
(c) If a code compliance certificate cannot be issued for the
repair work, then the work has not been carried out to that required
standard.
Less certain is the question whether work carried out should, as an essential
requirement, be able to obtain a warranty from the
product manufacturer that it
complies with the manufacturer’s recommendations or specifications.
- Turvey
Trustee Ltd v Southern Response Earthquake Services Ltd [2012] NZHC 3344,
(2013) 17 ANZ Insurance Cases 961-965.
82 Bruce,
above n 25 at [21]; Parkin,
above n 4; and Turvey, above n
81.
- [578] Further,
the issue arises as to whether parts of a building which are not damaged by
earthquakes can or cannot be the subject
of a claim for costs to repair, where
the need to fix those items arose simply because they were defective prior to
the earthquakes
or in some way unrelated to the earthquake
repairs.
- [579] Difficulties
can also arise in that it is often necessary to carry out work to other
undamaged parts of a building in order
to repair earthquake damaged parts to the
policy standard. In circumstances such as this, the cost of that work arguably
will be
covered by the Policy, as it is a necessary part of the cost of
achieving the “when new” standard of repair.
- [580] Examples
of this relate to situations where work needs to be carried out on undamaged
parts of a building in order to ensure
that the new building work complies with
the Building Code in terms of s 17 of the Building Act 2004, and a code
compliance certificate can be obtained.
- [581] In
the present case, as I have noted, all parties accept there were numerous
defects in the earthquake repair work to the Sleights’
house. Those
defects can generally be divided into one of three types:
(a) Scoping defects (work that should have been included in the
original Scope of Works but was not).
(b) Key defects.
(c) Remaining defects.
Scoping defects
- [582] The
Sleights say the following work should have been included in the initial Scope
of Works but was not:
(a) Removal and replacement of external window joinery.
(b) Removal and replacement of the conservatories.
(c) Removal and replacement of the butyl roof.
(d) Bracing to the house should have been checked and, if
necessary, rebracing carried out to ensure the bracing had adequate
capacity.
- [583] In
addition, if the original Scope of Works did not provide for the weatherboards
in the bay window area to be replaced with
new Linea weatherboards, the Sleights
say this should have been included in the scope.
Removal and
replacement of external window joinery
- [584] The
original Scope of Works included a provisional sum for only one window to be
removed and replaced. There was no allowance
for the remaining exterior joinery
to be removed or replaced.
- [585] I am
satisfied on all the expert evidence before me that this was wrong. The Scope
should have included the cost of removing
and replacing external windows and
joinery for the following reasons:
(a) On the basis of generally uncontradicted evidence, it became
clear that it was not possible to achieve the details for the junction
between
the exterior cladding and the window joinery (required in the consented plans
for the flashing of the windows) and the requirement
to take the building wrap
in behind the windows) without those windows being removed. Once windows were
removed there appeared also
to be general agreement amongst all the experts
that, because of warping and the like, it was not sensible for these to be
simply
reinstalled. New replacement windows would need to be obtained and
installed.
(b) If the joinery units themselves were leaking, and there was
evidence before me that in many cases they were, this would also affect
the
durability of other elements such as in particular framing, floor plates and the
cladding. This would have resulted in repair
work failing to comply with the
Building Code.
(c) Although this was disputed, Mr Wutzler for the Sleights, in his evidence
said the windows needed to be removed to properly install
an air barrier
comprising building underlay and air seals (which had not occurred), again to
comply with the Building Code. I express
no definitive view whether this is
necessarily the case but, in any event, the other reasons for removal and
replacement of the external
joinery windows are sufficient here.
- [586] The
evidence of IAG’s expert in this area, Mr McGunnigle, accepted that new
windowsill flashings needed to be installed
as part of the repair work,
although, as I understand it, he claimed the existing windows could remain. But
he went on to say that
he accepted, if the windows were in fact to be removed,
then because of the risk of the window frames racking and other durability
questions, they were best replaced with new windows.
- [587] Mr Stuart
Wilson, an experienced building surveyor expert engaged by QBE, agreed with Mr
Wutzler that the windows ought to have
been removed. This was required and
necessary, he accepted, because there was a need to carry the flashing tapes in
and around the
openings and also to ensure suitable flashings were able to be
installed to prevent leaks from the old joinery units affecting the
new building
work.
- [588] I find,
therefore, that the Scope of Works here should have included the cost of
removing and replacing external joinery with
new windows. Costing of this is to
follow.
Removal and
replacement of the conservatories
- [589] All
the experts agreed that because the building contractors here were working on
the conservatories they were required to comply
with the current Building Code.
As such, it was accepted that, when the conservatories were initially to be
reinstalled, poor or
no flashing detailing was provided in the building consent
drawings. This meant that little consideration was given to weathertightness
questions. Reliance, for example, on the use of sealant to provide
weatherproofing for what was to be a minimum period of 15 years
was simply not
acceptable. The broad view of most of the experts before me was that, because of
weathertightness issues, the conservatories
should have been removed and replaced, and this was a deficiency in the original
Scope of Works. I accept this.
Removal and
replacement of the entrance butyl membrane roofing and plywood
substrate
- [590] Mr
Wutzler, in his evidence, identified significant defects with the butyl roof.
These included evidence of waterponding and
laps of the butyl releasing, poor
detailing of kickout flashing, and difficulties with the butyl not adequately
adhering to the substrate
which was itself inadequate and lacking a drip
edge.
- [591] Leaking
and failure of the butyl roof membrane was clearly something to be guarded
against, given also its impact upon other
consented repair work on the house.
Although Mr McGunnigle and Mr Wilson expressed the view that the membrane simply
needed to be
glued, Mr Wilson did accept if the membrane in the butyl roof was
failing that could have other impacts including on the cladding
and other repair
works.
- [592] Overall
here, I accept the viewpoint expressed by Mr Wutzler. I reach this conclusion in
light of the need to ensure that the
repair work complies with the Building
Code, achieves a code compliance certificate and has
longevity.
- [593] I find
that removal and replacement of the entrance butyl membrane roofing and plywood
substrate should have been included in
the Scope of Works and was not. This
needs to be remedied.
Bracing
- [594] Engineering
evidence before me from Mr Cross and Mr Philip Cook was to the effect that the
bracing to the house should have
been properly checked and this did not occur.
That this was required was to ensure the bracing had adequate capacity and, if
not,
rebracing would be required to be carried out. This is an inspection matter
now that needs to be remedied.
Timber weatherboards
– bay window on north-west elevations
- [595] Mr
Wutzler has identified defects with the existing weatherboards in the bay window
area in question. His evidence was to the
effect that real weathertightness
issues had arisen with the existing weatherboards in a number of places in this
area. Mr Wilson,
however, disagreed. He maintained there was not sufficient
evidence in this area of failing and weathertightness issues. But he did
accept
that if these weatherboards had been built in such a way that they were going to
impact on the weathertightness of other aspects
of the house, then that needed
to be remedied. Mr Wutzler’s evidence, on these aspects is detailed and
persuasive. First,
he confirmed that mitred corners and junctions of the
weatherboards are opening and, secondly, that reliance on sealant is not
adequate.
This means that real weathertightness issues for all the work,
including new repair work, does arise. Further, similar issues arise,
he said,
with the soffit installed below the bay window. I accept Mr Wutzler’s
evidence on these issues. I am satisfied generally
that all these matters also
need to be remedied. This should have been included in the Scope of
Works.
Key defects
- [596] I
turn now to consider the second category of defects which I describe as
“key defects” at [581]
above. These key matters in the defective work undertaken here
involve:
(a) Exterior cladding and windows.
(b) Certain structural defects.
Exterior cladding and
windows
- [597] For
the reasons I have set out above, I have accepted that the Scope of Works should
have included a requirement that the old
windows in this case were to be removed
and replaced with new windows. As I have noted, to a significant extent, there
was a measure
of agreement between the experts before me that, once removed, the
old windows, through racking and the like, could not effectively
be
reinstalled.
but needed to be replaced. The need, too, for appropriate flashing and tapes to
be installed here, meant the windows needed to be
removed for this to occur but
it did not happen. I conclude, therefore, that this is necessary repair work to
be undertaken to meet
the “when new” standard in the Policy and the
cost of this is to be included here.
- [598] So far as
the exterior cladding is concerned, Mr Wutzler identified what he described as
numerous defects with the cladding.
These, he said,
included:
(a) Inadequate cladded clearances to roof flashings in
places.
(b) Poor detailing at exterior corners, including some
inadequate attempts to fix this.
(c) Lack of or compromised cavity at the base of cladding in
places. This also included, but was not limited to, poor plastering of
the slab,
concrete poured against the cladding and installation of damp proof course in a
manner which blocked the cavity;
(d) Butt-jointing of Linea boards in places.
(e) Lack of adequate protection of cladding penetrations such as
pipes and vent covers.
(f) Embedding of ends of the Linea boards in concrete, leading
to a risk of decay of the Linea.
(g) Excessive overhang of the bottom plate in places, leaving an
open gap behind the cavity closure.
(h) Unsealed cut edges to Linea boards in places.
(i) Inadequate air barrier and air seals being provided.
(j) Poor finishing generally of the Linea cladding system.
- [599] He noted
also problems with the junctions between the cladding and the joinery units and
window sills.
- [600] In
considering an appropriate remediation, Mr Wutzler gave his opinion that it was
the cumulative effect of all these cladding
defects, as well as other defects
relating to the windows, the exterior envelope and their underlying elements
(including what he
described as the fact that the drained cavity could not
function as intended), which triggered the need for a complete re-cladding.
This
was, he said, so that the exterior envelope would meet the requirements of the
Building Code. His view was that the effect of
all these defects meant the
existing cladding needed to be removed on all elevations and
replaced.
- [601] Mr
McGunnigle and other experts such as Mr Wilson and Mr Philip Cook, however,
strongly disagreed. They took the view that there
was nothing inherently wrong
with the existing cladding apart from several areas which were acknowledged as
defective and these could
simply be addressed without the need for an entire re-
clad. They were adamant too that the existing as-built cavity behind the
cladding
was adequate, and it could drain and function as
intended.
- [602] Those
experts claimed the entire exterior re-clad advocated by Mr Wutzler was
excessive and simply not necessary. They said
a sign-off by an appropriate
expert and possibly also the manufacturer here was possible, with targeted
repair work done to the existing
cladding. They gave assurances that this was
likely to meet the Building Code requirements here and achieve a code compliance
certificate
from the Council.
- [603] On these
aspects, I am persuaded by these views advanced for the defendants. Generally,
all the relevant experts here, other
than Mr Wutzler, concur. They reach the
conclusion, first, that fundamentally there is nothing wrong with the existing
cladding and
also the double framing and cavity design that is in place, and,
secondly, that with spot repairs to the cladding undertaken, it
will serve this
house well for its normal life expectancy.
- [604] Whilst it
is true that a necessary component of the repair requirement here is the
obtaining of a code compliance certificate
from the Council, the Sleights, as I
see
it, have been unable to establish that this would not be possible unless a
complete re- clad of their house is undertaken. The expert
evidence before me
(other than that of Mr Wutzler) was unequivocal in confirming not only that a
full re-clad was not required in
this case and that targeted repairs to the
cladding would be sufficient, but also that this would satisfy the Council. An
existing
requirement from the Council that certain areas of the cladding be
opened up so inspections could be undertaken, it seems, can be
satisfactorily
accommodated in strategic areas without the need to remove the entire
cladding.
- [605] From the
expert evidence of Mr McGunnigle and others before me, it also seems clear that
any suggestion that a cladding sign
off from the cladding manufacturer, James
Hardie, would still be required by the Council, was unusual and, in any event,
was something
that could be solved with an appropriate PS3 or PS4 producer
statement confirming general compliance. The expert evidence before
me also
confirmed that producer statements such as these, in the circumstances of a
recladding of an older house like the Sleights,
would properly stand in place of
a James Hardie product manufacturer’s warranty where, as here, the new
cladding would meet
Building Code requirements. I note and accept all these
matters, and I bear in mind, too, that the earlier decision taken to install
the
cladding over a double cavity created for the house was something put to and
agreed in advance by the Sleights.
- [606] For all
these reasons I accept that no full re-clad of the house is required. An
estimated figure for targeted re-cladding work
here is to
follow.
Structural defects
- [607] Key
structural defects relate in the main to the sub-floor of the house. They are
summarised in the evidence of Mr Philip Cook,
IAG’s structural and
geotechnical engineer. They refer to a range of significant and fundamental
matters, as I have already
noted. First, certain piles provided for originally
have not been installed. Secondly, the arrangement of the piles which are
present
now does not match the original layout. And, thirdly, additional faulty
work with foundation and sub-floor connections has been apparent.
All this has
created issues with existing bearers which do not satisfy the performance
requirements of the Building Code. Additional
piles
are required to be installed to reduce the maximum bearer span allowable.
Further work relating to bearers and connections is also
to be undertaken.
- [608] These
structural defects, together with certain durability issues around connections
on the first-floor balcony of the house
and the need for re-checking of bracing
were agreed by the experts for all parties. Costing of these items was generally
agreed as
well.
Remaining defects
- [609] Lastly,
I turn to consider what are described as the “remaining defects” at
[581] above.
Upper storey deck
- [610] All
experts agree that as a result of a number of defects in this deck it needs to
be removed and replaced. A costing for this
is provided.
Concrete front entry
steps, tiled rear entry steps and tiled steps to dining area
- [611] The
experts now appear to agree that the rear steps need to be removed and replaced.
So far as the front entry steps are concerned,
Mr Wutzler says there is a lack
of adequate clearances between the concrete of the front entry steps and the
fibre cement cladding.
This also applies to the tiles on the rear steps to the
dining area and boxed corners. Mr McGunnigle agrees in part with this. He
disagrees, however, with Mr Wutzler’s contention that there is poor
detailing of the flashing between the front and rear entry
steps and poor
detailing of the flashing between the front steps and the Linea cladding. (This
incorporates a flat surface and an
area at the leading edge of the dining area
steps, it is said, which promotes retention of surface water.) These are not
major items,
as I understand it. Nevertheless, I accept Mr McGunnigle’s
view that there is substance in his disagreement to these matters.
An adjustment
to the allowance for those items is to be made.
Foundation plaster
- [612] Again,
these appear to be minor issues. On Mr Wutzler’s contention, the plaster
is drummy below the cladding adjacent
to the front porch on the north side. Mr
McGunnigle agrees. This should be rectified. Mr McGunnigle, however, disagrees
with Mr Wutzler
where he says that plastering of the foundation wall abutted to
the porch joinery requires remedial work. But on this, as I understand
the
position, it does seem the defects relate to the front conservatory and when
this conservatory is replaced these defects will
also be fixed. This is to occur
and the appropriate allowance listed for this is allowed.
Profiled metal roof
- [613] On
this aspect, Mr Wutzler maintains there is poor detailing of roof flashings
which were replaced during the repair works including
but not limited
to:
(a) the junction between the existing ridge flashing and the new
ridge flashing on the north side of the house which appears to be
unsealed;
and
(b) inadequate overlap of the new and existing ridge
flashing.
- [614] Mr
McGunnigle in his evidence agreed these are defects and they are required to be
remedied. This included the builder’s
inappropriate reliance on sealant, a
lack of adequate cover of replaced flashings on the south elevation and damaged
roofing underlay
left in place under the replaced profiled metal roofing
sheets.
- [615] One last
aspect on the profiled metal roof related to another relatively minor matter.
This involved a situation where Mr Wutzler
contended that a new roof cladding
sheet should be installed in place of one with inadequate clearance to the butyl
of the flat roof.
Although Mr McGunnigle disagrees with this aspect, given it is
a clearance issue, it needs to be remedied.
Sub-floor area
(non-structural)
- [616] Again,
these issues are minor. They involve inadequate clipping of cables, the
strapping of pipes and remedying dislodged underfloor
insulation. Mr McGunnigle
agrees these matters need attention. They are to be
remedied.
- [617] A fourth
item relating to what Mr Wutzler claimed was a failure to replace water damaged
timbers under the house is not accepted
by Mr McGunnigle. He says this timber
was decayed only from historic leaks, it did not relate to earthquake damage,
and is not part
of the remedial work required here. On the evidence before me I
agree. No allowance is to be made for this.
Interior
- [618] A
number of interior items relate to poor workmanship in relation to painting,
sealant application, and the plasterboard installation
including poor gib
stopping. For all of these, Mr Wilson agrees with Mr Wutzler that these do
represent minor aesthetic internal
finishing defects and should be remedied. Mr
McGunnigle, too, accepted there were some defects in these areas. I accept that
the
items identified by Mr Wutzler require remedy here.
- [619] Mr Wutzler
then identified what he said was poor workmanship in relation to certain other
minor defects involving slightly unstraightened
walls and in relation to
unlevelled flooring. Mr McGunnigle, however, disagreed. Again, Mr Wilson agreed
with Mr Wutzler that there
were a number of minor aesthetic internal finishing
defects engaged here. I accept these items identified by Mr Wutzler require
remedy.
- [620] Next, so
far as the timber floors are concerned, Mr Wutzler identified poor workmanship
relating to some gaps between flooring,
lack of filling, poor preparation and
finish. Mr McGunnigle accepted that, although this was minor, there were some
gaps between
floorboards. Mr Wilson agreed too that a number of minor aesthetic
finishing defects here needed remedy. I agree.
- [621] Mr Wutzler
also noted problems in relation to some internal doors which are out of plumb,
which the other experts generally
appeared to agree with. This is to be remedied
and allowed for.
- [622] Next, Mr
Wutzler noted what he again said was poor workmanship in relation to door and
window reveals, trim, architraves and
skirting. This, he said, included a lack
of replacement or poor preparation and a lack of filling, sanding and
finish.
- [623] Once
again, Mr Wilson agreed a number of these minor aesthetic finishing defects were
present and Mr McGunnigle, too, accepted
certain items. There is to be a
slightly reduced allowance for these.
- [624] Mr Wutzler
then identified poor workmanship in relation to beams which had been painted
instead of stained. Staining was required
under the Building Contract and the
specification. Mr McGunnigle agreed. But he did suggest that it was somewhat
unclear from the
contract what was required. I disagree. This is a defect which
requires remedy.
- [625] Lastly, in
relation to the ground floor shower, Mr Wutzler said this was poorly installed
and leaked in places. Mr McGunnigle
agreed, as did Mr Wilson. These are defects
to be remedied and allowed for.
Defences
- [626] For
completeness, I now address certain broad defence arguments IAG endeavoured to
advance relating broadly to Mr Wutzler’s
approach
here.
- [627] An
allegation is made that a number of defects identified by Mr Wutzler, first,
either did not exist or, secondly, were physical
deficiencies in the
Sleights’ house which were present there before the earthquakes or,
thirdly, are not earthquake damage
or, fourthly, were not the consequence of the
repair works.
- [628] On these
aspects, IAG maintains the Sleights cannot properly claim for the cost to fix
items that were said to be defective
before the earthquakes. It says these
include the forty-year old windows and conservatories at the property and items
unrelated to
the earthquake repairs (for example what is said to be wood decay such as that
in the sub-floor caused by historic and current plumbing
leaks).
- [629] I agree
with this contention insofar as the deficiencies or damage in question were not
caused by the earthquakes and are not
otherwise within the policy cover, given
that this cover generally responds only to accidental physical damage happening
during the
policy period.
- [630] On this,
IAG refers to provisions in the Policy relating to “hidden gradual
damage” (which are included in cover),
and “gradual damage”
and “faults and defects” exclusions in the Policy. I have already
noted that the “faults
and defects” exclusion, insofar as it only
relates to faults in the original design or construction of the Sleights’
house, does not apply here.
- [631] I am
satisfied in this case, however, that, subject to the riders that I have
outlined above, the faults and defects identified
by Mr Wutzler, which I have
generally accepted, were caused either by the earthquakes or necessarily by and
incidental to the carrying
out of the earthquake repair works. Therefore, they
are within the policy cover here.
- [632] Next, IAG
raised a general complaint against Mr Wutzler’s evidence contending that,
in the main, his assessment of defective
building work was addressed only
against the Building Code standard rather than either the “when new”
standard applying
under the IAG Policy or the reasonable and fitness for purpose
standard operating under the CGA. IAG contended that unlike the evidence
of Mr
McGunnigle, Mr Wutzler did not consider the policy standard issues of whether
the house is as durable, functional and aesthetically
pleasing as when it was
new.
- [633] I
disagree. In his evidence, I am satisfied that, Mr Wutzler did indicate he had
considered all these factors, including the
fact that the Building Code did not
exist when the Sleights’ house was built in the 1950s or when the upper
extension to it
was constructed in the late 1970s.
- [634] In my
view, there is little in this complaint advanced by IAG. As I have outlined
above, the “when new” policy standard
here must include the
important assurance that when homeowners like the Sleights wish to sell their
property, all repairs undertaken
will have a current local authority certificate
of code compliance. This is to be issued in accordance with Building Code
requirements.
It is clearly part of the policy standard
requirement.
- [635] Next, IAG
complained of the window pressure testing exercise undertaken by Mr Wutzler and
Mr Scott. I place that entirely on
one side here. I have not in any sense taken
into account results from that exercise.
- [636] IAG also
criticised what it describes as Mr Wutzler’s “flawed window
replacement theory”. This formed part
of IAG’s argument that the
windows do not need to be replaced as they were not damaged in the earthquakes
and they are simply
forty-year old windows at this point. For all the reasons
outlined above, I do not accept this. I have concluded that, although the
windows may not have been damaged in the earthquakes, they do require
replacement in light of the necessary earthquake repair work
which remains to be
rectified, and the experts’ agreement that, once removed, old windows
should not generally be reinstalled.
- [637] Linked in
part to this, does seem to be IAG’s complaint against what it describes as
Mr Wutzler’s “flawed
air transfer theory”, which he puts
forward largely to support the need for a total re-clad of the house. This is
claimed to
be a complicated but unsupported theory advanced by Mr Wutzler about
air transfer between the outside environment, the sub-floor
and the cladding
cavities of the Sleights’ house. IAG maintains this theory does not
withstand scrutiny. It strongly opposes
it. IAG says, in any event, the theory
depends on a pressure gradient existing between the sub-floor and other areas of
the house,
but it notes in its opposition that there are regular air vents in
the perimeter wall providing open gaps through which any difference
in pressure
can immediately equalise. On the somewhat limited scientific evidence that was
presented to me here, it was not possible
to reach a definitive view on this
major disagreement between the experts. I say nothing more on this aspect. I
have not accepted
Mr Wutzler’s air transfer theory in my deliberations
here. Nor have I taken
it into account in any of the conclusions I have reached, which include the
finding that the house does not need a full re-clad.
- [638] Overall,
and subject to the comments I have made above, I found Mr Wutzler’s
evidence here to be thorough, properly argued,
and reliable on most matters. In
many areas it has been accepted by the other experts. My decision has followed
bearing this in mind.
The scope of the remedial work required largely follows
that assessed by Mr Wutzler, with the exception, first, of any need for a
complete re-cladding of the house which is rejected and, secondly, the other
minor matters I have noted above.
Quantum – the cost of repairs
- [639] I
have already noted that Mr Jenkinson, the quantity surveyor consulted by the
Sleights, estimates the total cost of the remediation
work for all defects
identified in Mr Wutzler’s scope of works at a revised figure of $504,850.
This includes, first, the additional
cost for the installation of a new deck
and, secondly, includes a provisional sum for internal defects. A breakdown
of this
assessment was provided in Mr Jenkinson’s evidence as
follows:
CONSTRUCTION WORK
|
|
Demolition
|
$27,000.00
|
Exterior Works
|
$245,000.00
|
Interior Works
|
$43,000.00
|
Building Consent
|
$6,000.00
|
Consultants Fees
|
$52,000.00
|
Contingency Allowance (10%)
|
$38,000.00
|
Goods and Services Tax
|
$61,650.00
|
TOTAL BUDGET ESTIMATE
|
$472,650.00
|
OPTIONS
|
|
New Deck
|
$10,000.00
|
Addendum Interior Works
|
$18,000.00
|
Goods and Services Tax
|
$4,200.00
|
TOTAL BUDGET ESTIMATE
|
$32,200.00
|
(TOTAL)
|
($504,850.00)
|
- [640] Gunther
Hanne, the quantity surveyor who provided evidence for IAG, in his brief had
costed the construction work aspect on
the scope of works he thought was
sufficient to address the defects identified by Mr Wutzler at a figure of
$423,200 including GST,
rather than Mr Jenkinson’s $472,650 (including
GST).
- [641] Notwithstanding
this, Mr Hanne had also been requested to cost the reduced repair work
identified by Mr Cook and Mr McGunnigle
for IAG. Simply for completeness here, I
note he had provided an assessment of this at $286,350 including GST (which he
defined as
pre-existing issues of $139,610 and defective work
of
$146,740).
- [642] The
quantity surveyor who provided evidence on behalf of QBE, Heidi van
Eeden, provided her construction cost estimate
based only upon the scope of
repair works suggested by IAG at $178,465.05 including GST. She did not set out
a separate costing for
Mr Wutzler’s scope of repair
works.
- [643] But, as I
understand it, Ms van Eeden’s assessment of the cost to complete the
entire scope of repair works suggested
by Mr Wutzler, she said, would be
reasonably close to Mr Jenkinson’s assessment. Indeed, Ms van Eeden
assessed the rates of
measurements of Mr Jenkinson’s estimate as being
generally representative of the market for this type of remedial works.
She
disagreed with rates advanced by Mr Jenkinson in only four areas and in
three of these she gave her opinion that
Mr Jenkinson’s rates were
too low.
- [644] So far as
Mr Hanne’s evidence on Mr Jenkinson’s cost estimate is concerned, he
suggested that generally the actual
building cost estimates between his own and
Mr Jenkinson’s were not very different. His key differences
were:
(a) As to the cost of replacing the concrete porch, Mr Hanne
allowed a provisional sum of $3,737.50 (including GST) compared
to
Mr Jenkinson’s $6,279 (including GST).
(b) In his allowance for asbestos removal, Mr Hanne had
estimated $5,750 (including GST) as opposed to Mr Jenkinson’s estimate
at
$11,500 (including GST).
(c) Mr Jenkinson had used a rate of $250/m2
(excluding GST) for the application of James Hardie Linea Weatherboard. Mr
Hanne, however, had used a rate of $220/m2 (excluding GST) for this
Linea. Although
this is now of less significance given my conclusion that a full re-clad is not
required, it is still of some relevance relating
to the targeted cladding
repairs required. And, in any event, on this, Mr Jenkinson’s explanation
was that he had taken into
account that the actual house was two storeyed, had a
lot of windows and door openings and external corners which would increase
the
cost of installing this cladding.
(d) Lastly, for preliminary and general (P and G), Mr Hanne used
a figure of 8 per cent of the construction costs (including GST),
with
scaffolding allowed for separately which would be 13.5 per cent of overall
construction cost. This was compared to Mr Jenkinson’s
12 per cent
excluding scaffolding. Mr Hanne, however, did accept that Mr
Jenkinson’s P and G costs were about
halfway between Mr Hanne’s rate
and the 16 per cent rate Ms van Eeden suggested should be allowed (excluding
scaffolding).
(e) On the issue of professional fees, Mr Jenkinson allowed
$59,800 (including GST), (16 per cent of construction costs), whereas
Mr Hanne
had allowed $30,508.35 (including GST) plus $5,750 (including GST) for building
consent fees. In his reply brief, Mr Jenkinson
had explained why he considered
the consultant’s fee for the remediation work would be higher than a new
greenfields construction
project.
- [645] Overall,
the quantity surveying experts seemed to be in relatively close agreement
regarding the rates used in this case by
Mr Jenkinson in his assessment. I will
use Mr Jenkinson’s assessment as the starting point
here.
Quantum – my assessment
- [646] I
turn now to what I accept here as a proper quantum assessment of the
Sleights’ loss. As I have noted, I will use Mr
Jenkinson’s costing
of a like for like remediation assessment as the appropriate starting
point.
Demolition work
- [647] Mr
Jenkinson assesses this at a total of $27,000. It covers a range of matters,
most of which are effectively not challenged
here. There is an item relating to
exterior walls and exterior finish of $4,805 for demolition and removal of all
the existing house
cladding. Given that I have rejected the Sleights’
claim for a complete re-clad of the house, this item needs adjustment as
there
may be only minor removal of cladding required for inspection and related
purposes. This figure of $4,805 is to be replaced
by a figure of
$1,000.
- [648] Accordingly,
the figures under this demolition category for P and G and for margins are to be
reduced by about $750 to a figure
of $4,750.
- [649] These
amendments to the demolition work figures mean that the new total cost for
demolition (rounded up) is reduced from $27,000
to
$22,400.
Exterior works
- [650] Mr
Jenkinson’s exterior works total figure in his assessment is
$245,000.
- [651] This
includes $61,210 for replacement of exterior walls and exterior finish
(including external wall insulation, timber framing,
cavity batons,
weatherboards etc). In addition, a provisional sum of $10,000 is provided for
what is described as “sample analysis
of existing framing, frame saver and
to create an air barrier between sub-floor and wall
cavity”.
- [652] These
items totalling $71,210, as I see it, are no longer required which will amount
to a reduction of $71,210 in the exterior
works figure. This is subject,
however, to the addition of an amount estimated at about $10,000 for targeted
cladding repair work
and any accompanying internal wall repairs that may be
required. The net position, therefore, is that a reduction of $61,210 is to
be
made from this exterior works item.
- [653] This will
bring about appropriate adjustments to both the P and G figure
of
$24,000 and the margins figure of $22,941. This reduction adjustment is to
be
$12,000, reducing these total figures to $34,941.00.
- [654] The other
items in this exterior works figure, as I see it, are in order. The total
deduction from Mr Jenkinson’s exterior
works figure of $245,000 is,
therefore, to be
$73,210. This leaves a new total cost for exterior works of $171,790.
Interior works
- [655] Mr
Jenkinson’s assessment for interior works is $43,000. Much of it is in
order, including a sub-structure assessment
at $14,130 which, as I understand
it, has been specifically agreed by all experts.
- [656] A small
allowance is to be made, however, for certain of the minor items in Mr
Wutzler’s internal scope of works which,
as I note above, are to be
excluded. A fair figure for this here is $3,000 and with P and G, and a margin
adjustment totalling say
$500 this reduction in Mr Jenkinson’s interior
works figure of $43,000 now reduces this figure to
$39,500.
Building Consent fees
- [657] In Mr
Jenkinson’s assessment, building consent fees are provided at a total cost
of $6,000. This is in order. There is
to be no adjustment to this
figure.
Consultants’ fees
- [658] Mr
Jenkinson’s assessment includes consultants’ fees at a figure of
$52,000. Mr Hanne, in his evidence, contended
that an allowance for
consultants’ fees of about
$30,508.35 (including GST) would be more appropriate. In his
evidence Mr Jenkinson gave an explanation for his allowance
on the basis that he
considered consultants’ fees for remediation work of this type would be
significantly higher than new
greenfield construction work. This was, he said,
what accounted for the difference.
- [659] Notwithstanding
this, Mr Jenkinson’s allowance for consultants’ fees is almost
double that of Mr Hanne. Little direct
argument was addressed to me on this
aspect. Given that significant preliminary work has already been undertaken on
specifications
and scope for the remedial work required, I adopt a figure of
$40,000 (plus GST) which I consider to be appropriate for
consultants’
fees here, in place of Mr Jenkinson’s figure
of $52,000 (plus GST).
Contingency allowance (10
per cent)
- [660] In Mr
Jenkinson’s assessment this was itemised at a figure of $38,000. That 10
per cent contingency allowance figure,
with the adjustments for the figures I
have noted above, is now $27,969.00. I adopt that figure.
GST
- [661] GST on
these amended items now totals $46,149.00 and is to be
included.
- [662] The total
amount for construction works, therefore, which was shown in Mr
Jenkinson’s assessment at $472,650 is now
$353,808.00.
Options
New decks
- [663] Mr
Jenkinson assesses the cost of the new deck at a figure of $10,000 (plus
GST). As I understand it, there is no argument
from any expert with this
assessment and it is to apply here.
Addendum interior works
- [664] Mr
Jenkinson’s assessment under this heading of $18,000 (plus GST) is made up
of a range of generally smaller items but
includes approximately $4,000 for
floor finishings and $4,300 for wall finishes.
- [665] Some small
reduction adjustment of $1,000 for these items is appropriate, as I see it.
This, plus a corresponding adjustment
for preliminary and general and a
margin
of $200 is appropriate here. This brings this total $18,000 figure down to a new
figure of $16,800.
Good and Services Tax
- [666] The figure
for GST on these option items in Mr Jenkinson’s assessment
is
$4,200. With the small adjustment to the interior works addendum item, the new
GST figure is to be $4,020.00
- [667] Totalling
these amounts under this “Options” heading, Mr Jenkinson’s
total budget estimate figure of $32,200
now reduces to the figure of
$30,820.00.
Total repair costs
damages
- [668] From these
revised figures, therefore, I find that the reasonable measure of damages for
that repair cost based on the estimated
cost to rectify the defects on a
“cost to fix basis” is, therefore, $384,628.00 (including
GST).
- [669] For ease
of reference, it is useful here to provide in a revised schedule details of
these new total breakdown figures in the
order they were shown at [639]
above.
CONSTRUCTION WORK
|
|
Demolition
|
$22,400.00
|
Exterior Works
|
$171,790.00
|
Interior Works
|
$39,500.00
|
Building Consent
|
$6,000.00
|
Consultants Fees
|
$40,000.00
|
Contingency Allowance (10%)
|
$27,969.00
|
Goods and Services Tax
|
$46,149.00
|
TOTAL BUDGET ESTIMATE
|
$353,808.00
|
OPTIONS
|
|
New Deck
|
$10,000.00
|
Addendum Interior Works
|
$16,800.00
|
Goods and Services Tax
|
$4,020.00
|
TOTAL BUDGET ESTIMATE
|
$30,820.00
|
(TOTAL)
|
($384,628.00)
|
Accommodation
costs claim – declaration?
- [670] The
Sleights seek a declaration on this. It is to the effect that, as they will have
to pay alternative accommodation costs
for the period in which they will need to
vacate
their property to carry out the remedial works, they will at that point be
entitled to an award of damages for this consequential
loss at a weekly rental
rate of between $500 and $875 per week.
- [671] The
Sleights’ policy does provide for alternative accommodation costs. Under
the heading “What your policy covers”
and the subheading
“Alternative accommodation” the Policy stated:
If you can’t live in the home because of a
loss covered by this policy, we’ll pay the reasonable costs
of alternative accommodation (of a similar standard to the home) for
you and your domestic pets.
(emphasis original)
- [672] The Policy
says the most IAG is to pay for this alternative accommodation
is
$20,000 for any event.
- [673] Notwithstanding
this, I am satisfied, first, that, in any event, it would be unreasonable to
expect the Sleights to remain in
the home while the remedial works are
undertaken and, secondly, that this claim for accommodation costs for the period
the Sleights
will need to vacate their property is an appropriate loss claim
here. It is also a loss specifically covered by the
Policy.
- [674] On these
aspects, the uncontradicted evidence of Mr Maxey before me confirmed that the
present market rental rate for a two
to three-bedroom house in the general area
where the Sleights have resided was between $500 and $875 per
week.
- [675] No real
objection of any kind was taken to this evidence on behalf of IAG or
Hawkins/QBE.
- [676] As a
reasonable compromise here, I, therefore, adopt a midpoint rental rate between
these two figures of $685 per week. In my
view, this is an appropriate market
rental rate to adopt in the circumstances of this case.
- [677] A
declaration is made, therefore, that the Sleights are entitled to an award of
damages for their accommodation costs in renting
alternative accommodation,
when
this does occur, for the reasonable period during which they are required to be
out of their house for the remedial work, calculated
at a rental rate of $685
per week.
Landscaping
- [678] The
Policy provides that if the Sleights have a loss covered by the Policy and they
repair their home, amongst other things,
IAG will pay “costs of up to
$2,500 to restore or reconstruct any part of the garden or lawn within the
boundary of the home
that was damaged or destroyed while the home was being
repaired or rebuilt”.
- [679] As I
understand the position, IAG has properly accepted that, at the very least, this
$2,500 allowance in the Policy for landscaping
costs is payable here. As yet,
however, this amount has not been paid to the Sleights.
- [680] Before me,
Mr Maxey also provided evidence of a quote that had been obtained for $5,220
(including GST) to reinstate the lawns
at the Sleights’ home which were
damaged as a result of the earlier building repairs. That reinstatement has
occurred and I
am told this $5,220 cost has been paid by Mr and Mrs Maxey on
behalf of the Sleights. Before me there was no real dispute from any
other party
regarding these landscaping and lawn reinstatement costs.
- [681] I am
satisfied this $5,220 represents on a cost to fix basis a reasonable measure of
the costs required by the Sleights to rectify
defective and damaging work
here.
- [682] It follows
that this $5,220 is to be included as part of the damages amount to which the
Sleights are entitled.
General damages
- [683] The
Sleights seek an unquantified sum for general damages for what is described as
“stress and inconvenience” against
all of the defendants, Farrells,
Hawkins, IAG and QBE.
- [684] Two
aspects arise:
(a) The first concerns the issue as to whether general damages
are recoverable against IAG in this case for its breach of the Policy
as
insurer.
(b) The second relates to the more broad issue as to whether
general damages are recoverable, in this case for those losses the Sleights
may
have suffered, that cannot be objectively quantified in money terms, such as
pain and suffering, indignity and humiliation, and
mental distress.
- [685] I turn now
to consider the first issue noted above as to whether the Sleights might recover
general damages against IAG here
for its breach of the
Policy.
- [686] On
this aspect, the Sleights draw some support for their claim from the recent
decision in this Court of Mallon J in Bruce v IAG New Zealand Ltd.83
In that case, Mallon J found that post-CES the plaintiffs were entitled to
an award of general damages for IAG’s breach of its
obligation to repair
their house to an “as when new” condition. In her decision, Mallon J
determined that general damages
were available to the plaintiffs under three
heads:
(a) Physical inconvenience and discomfort of having to live in a
house with defects which had not been remedied;
(b) Stress and mental anguish for loss of amenity and the stress
of having to live in a house with the defects yet to be rectified;
and
(c) Disappointment and loss of amenity, for no longer having a
“gold standard” of workmanship available.
- [687] No final
view was reached in that case, however, on the quantum for general damages,
although Mallon J said there were some
general damages examples
from
83 Bruce v IAG New Zealand Ltd, above n 25 at [169].
other cases in the $20,000 to $25,000 range. I leave the decision in Bruce
to one side at this point. I will return to it shortly.
- [688] At this
point, I note that in two other relatively recent insurance decisions where
general damages claims were advanced against
insurers relating to the CES, this
Court refused any such awards. These decisions are:
(a) O’Loughlin v Tower Insurance Ltd:84
In that case this Court said that, when considering a claim for general
damages as a result of an insurer’s failure to tender
an appropriate sum
in settlement of the claim:
...general damages will only be payable if there has been a
breach of contract by Tower.
and:
(b) Parkin v Vero Insurance New Zealand Ltd.85
In this case, Mander J stated:
I have not found that Vero breached the insurance policy...there
is therefore no foundation upon which an award of general damages
could be
made.
- [689] It remains
open therefore that where a contractual breach of a policy has been established
against an insurer, subject to appropriate
proof and context, general damages
might be available.
- [690] Recently,
the issue of general damages under an insurance context came before me for
consideration in a case where there was
alleged to be a breach on the part of an
insurer of its implied duty of good faith. In Dodds v Southern Response
Earthquake Services Ltd, the plaintiff’s claim for general damages
failed and I went on to note in my decision that the threshold for such claims
was
a high one.86 The plaintiff homeowners had claimed $15,000 each
for inconvenience, stress and anxiety as a
84 O’Loughlin v Tower Insurance Ltd
[2013] NZHC 670 at [186].
85 Parkin, above n 4.
86 Dodds, above n 14.
result of Southern Response representing as the total cost of rebuilding their
damaged house a scope and costing that excluded particular
items.
- [691] In
rejecting the Dodds’ claim for general damages I
noted:87
- [222] Overall
then, it is the Dodds’ position that they have each suffered stress,
inconvenience and anxiety relating to the
misrepresentation by Southern Response
and its breach of good faith under their insurance
contract.
- [223] Whilst I
clearly have some sympathy for the position which the Dodds have found
themselves in relating to this matter, it is
my view that the reasonably high
threshold which exists for general damages claims in cases such as the present
has not been reached
here. The Dodds were effectively cash settled ultimately to
enable them to buy a replacement home of their choice. Their policy claim
did
not involve what is often seen as a long drawn out repair versus rebuild case.
There was some evidence before me of reasonable
physical inconvenience but I
need to say that there was no major evidence that the Court could consider of
significant mental distress
here. And as I see the position, the present case
differs somewhat from the position that prevailed in Young v Tower Insurance
where an award of nominal damages was made.
- [692] Likewise,
in another case which also came before me, Kilduff v Tower Insurance
Ltd88 I also rejected a claim by the plaintiffs for general
damages. This was despite the plaintiffs’ contention that Tower had caused
unreasonable delay and acted inappropriately in making offers of settlement
that, following judgment, were found to be seriously
inadequate. In that case I
found that while Tower was not entirely blameless, overall it was acting in good
faith on the basis of
the information available to it at the time, and I
rejected the general damages claim.89
- [693] Other than
the decision in Bruce v IAG New Zealand Ltd which I will return to
shortly, there has been only one other recently decided case in this Court in
which general damages have been
awarded in all the decisions arising from the
CES.90 That case, Young v Tower Insurance Ltd, referred to in
my decision in the Dodds case noted at [691] above, involved a deliberate
withholding by the insurer, Tower, at an early stage in the claim process of a
report that recommended
the plaintiffs’ home be rebuilt, when Tower
throughout wrongly claimed that the home was repairable.91
General
87 At [222] and [223].
88 Kilduff v Tower Insurance Ltd [2018] NZHC 704.
89 At [102] – [126].
90 Bruce, above n 25.
91 Young, above n 13.
damages were awarded there but only for what was a relatively nominal sum of
$5,000.
- [694] I return
now to the decision of Mallon J in Bruce v IAG New Zealand Ltd, which I
refer to at para [686] above.92
According to IAG this decision is clearly distinguishable here. Bruce
involved a reinstatement policy under which IAG had elected to repair the
property. At [167] of the decision, Mallon J alluded to
the situation where an
insurer obliged to reinstate fails to do so, either adequately or at all. She
held that in those circumstances
the insured is prima facie entitled to damages.
IAG’s position in the present case, with which I agree however, is that
the
legal relationship in that situation is one that is analogous to a building
contract. On this, the authors of MacGillivray on Insurance Law describe
this situation in the following way:93
In short, the
insurance policy becomes a building contract or a repair contract and is
enforceable as such. Thus, if the insurer fails
to perform the contract
adequately or at all, he will be liable for damages, although he will not be
compelled to perform the contract
specifically.
- [695] IAG’s
position, therefore, is that in the present case there is no prima facie
entitlement to general damages relating
to the insurance policy. This is because
this case involves a “will pay” policy under which, from a strictly
legal point
of view, the Sleights elected to repair their property themselves
and for this purpose they entered into the Building Contract with
Farrells.
- [696] Generally,
I agree with this assessment advanced on behalf of IAG.
- [697] And I
find, too, that, although I do not in any way underestimate the frustrations and
personal stress the Sleights have experienced
as a result not only of the CES,
but also from the earthquake damage caused to their home, and issues too with
Farrells and others
over their defective repairs, in the circumstances of the
present case IAG have not acted in such an unreasonable way as to justify
an
award of general
92 Above n 25.
- John
Birds, Ben Lynch and Simon Paul, MacGillivray on Insurance Law (14th
ed) Sweet & Maxwell, London, 2019 at 708.
damages against them for breach of the Policy. The high threshold for a possible
general damages claim against IAG as insurer here
has not been met.
- [698] I turn now
to the second aspect of the Sleights’ general damages claim. As I note
above, this relates to the broader issue
as to whether general damages are
recoverable in the present case for those losses the Sleights’ may have
suffered outside
the Policy that cannot be objectively quantified in money
terms, such as for pain and suffering, indignity and humiliation and mental
distress.
- [699] Again, on
this aspect, in their pleadings the Sleights have sought an unquantified sum for
general damages for what they describe
as “stress and
inconvenience”. This wider claim is against all defendants, Farrells,
Hawkins, IAG and QBE.
- [700] Awards of
general damages have been made for discomfort and inconvenience in cases where
special damages have been claimed for
damage to property. In Gabolinscy v
Hamilton City Corporation it was noted that general damages may be awarded
upon the basis of annoyance, frustration, discomfort and
inconvenience.94 However, it is clear that such awards are not made
on a liberal basis unless it is shown that actual damage to health or the like
has been involved.95
- [701] Awards of
general damages have been made in a number of cases involving leaky homes in
decisions such as Ridgway Empire Ltd v Grant,96 Body
Corporate 185960 v North Shore City Council97 and White v
Rodney District Council.98
- [702] In Day
v Black general damages were sought by the plaintiffs when their house was
constructed in an alleged breach of a restrictive covenant.99 In his
decision, Rodney Hansen J noted that general damages are appropriate in a case
such as that which involved interference with
property rights, where true
distress and anxiety have been caused.
94 Gabolinscy v Hamilton City Corporation
[1975] 1 NZLR 150 at 163-164.
95 Young v Tomlinson [1979] 2 NZLR 441 at [462].
96 Ridgway Empire Ltd v Grant [2019] NZSC 85.
97 Body Corporate 185960 v North Shore City Council [2008]
2 NZTR 18/032.
98 White v Rodney District Council (HC) Auckland 19
November 2009.
99 Day v Black (HC) Rotorua CIV-2004-463-179, 1 July
2004.
- [703] And, in
Sloper v W H Murray Ltd, original construction of the plaintiff’s
house was defective, causing problems which developed over years.100
This included, in particular, a fracture to the sewer under the house.
Hardie Boys J in that case accepted that the problems caused
a great deal of
anxiety to the plaintiff. He also noted the disruption caused to the plaintiff
by having to move out of the house
for its reinstatement. And, in his decision
given over 30 years ago, his Honour also acknowledged there had been some
liberalisation
in attitude towards general damages in such property damage
cases.
- [704] Before me,
both Mr and Mrs Sleight and Mr and Mrs Maxey gave evidence as to the grief and
stress the Sleights have suffered
as a result (both directly and indirectly) of
their IAG claim, the defective repairs to their house and this lengthy
litigation.
I acknowledge that both Mr and Mrs Sleight are elderly and Mr
Sleight, in particular, has significant health difficulties. Notwithstanding
this, there was no specific medical or expert evidence before me regarding the
impact of these matters upon them. I do not, however,
for a moment underestimate
the difficulties that arose for the Sleights as this matter and the present
litigation has developed.
- [705] I accept,
too, that the nature of “general” damages is often such that there
is often difficulty in specifically
proving or calculating these.
Differentiating between grief, stress and inconvenience which may be suffered as
a result of a series
of disasters like the CES itself, normal insurance claim
issues, the repair process, delays, litigation stress, physical illness
and
treatment is often difficult to discern.
- [706] So far as
IAG and Hawkins in particular are concerned, like the Sleights, they encountered
an extremely difficult situation
following the CES and the multitude of claims
and repair/rebuild events they faced. Notwithstanding this, as I have found
above,
in many respects neither of them could be said to have acted
satisfactorily here, even if they may have had good intentions throughout.
Overall however, and by a reasonably fine margin, I do not find IAG or Hawkins
to have acted so unreasonably, in all the circumstances
which arose in this
case, and particularly as a result of the CES
100 Sloper v W H Murray Ltd (HC) Dunedin
A31/85, 22 November 1988.
events and the problems they caused, such that an award of general damages
should lie against them or either of them.
- [707] But, so
far as Farrells is concerned, there can be no doubt that it significantly
breached the Building Contract terms it had
reached with the Sleights and, in
all the circumstances, some award of general damages may properly lie against it
here. Given, however,
that Farrells is in liquidation and, as I understand it,
has no realisable assets, an award of general damages against Farrells would
serve no purpose.
- [708] Overall,
for these reasons, I dismiss the Sleights’ claim for general damages
against all of the defendants.
Outcome
The
Sleights’ claims
- [709] The
Sleights have largely succeeded in their claims against:
(a) IAG under the Policy and the CGA;
(b) Farrells under the Building Contract, in negligence and
under the CGA; and
(c) Hawkins under the CGA;
and they are entitled to an initial sum for the reasonable measure of damages
here (represented by the “costs to fix”),
being the estimated cost
to rectify the repair defects which, as I accept, totals $389,848. This amount
is calculated as follows:
(i)
|
Cost of repairs (including GST)
|
$384,628
|
(ii)
|
Landscaping costs (including GST)
|
$5,220
|
|
Total
|
$389,848
|
- [710] The
Sleights have also largely succeeded in their claim against QBE under s 9 of the
Law Reform Act 1936, in that Hawkins’
joint and several liability to the
Sleights as outlined at [709] above
(at $389,848) less the QBE policy excess of $50,000
results
in QBE now being also jointly and severally liable to the Sleights for a
$339,848 part of this initial damages sum, within the terms
of the Hawkins PI
policy.
- [711] As to the
Sleights’ claim for a declaration as to damages for the cost of
alternative accommodation, this succeeds:
(a) A declaration is to be made that IAG, Farrells, Hawkins and
QBE are jointly and severally liable to pay to the Sleights an award
of damages
for their accommodation costs at a rate of $685 per week for renting alternative
accommodation (when this does occur)
for the reasonable period they are required
to be out of their house for the remedial work to be undertaken to rectify the
repair
defects (this amount being referred to hereafter as “the
Sleights’ alternative accommodation damages”).
(b) A further declaration is to be made that, first, IAG is to
indemnify QBE pursuant to cl 17.2 of the 2012 RSMA for 79.64 per cent
of the
ultimate Sleights’ alternative accommodation damages amount and, secondly,
QBE is to indemnify IAG pursuant to cl 17.1
of the 2012 RSMA for
20.36 per cent of the ultimate Sleights’ alternative accommodation damages
amount, to the end and intent that, assuming Farrells
and Hawkins as companies
in liquidation will make no contribution towards this alternative accommodation
damages figure, IAG will
meet 79.64 per cent and QBE will meet 20.36 per cent of
this amount.
- [712] As to the
Sleights’ claim for a declaration relating to the IAG and Hawkins
exclusion and limitation clauses, a declaration
is now made pursuant to s 3
Declaratory Judgments Act 1908 that, other than for the purposes of the
Sleights’ various claims
under the CGA, the provisions in cl 86, 87
and 88 of the Building Contract general conditions are not voided and the
Sleights
are bound by those clauses.
- [713] The
Sleights, however, have failed in their claim for general damages against IAG,
Hawkins, QBE and Farrells and this claim
is
dismissed.
IAG’s
indemnity cross-claim against QBE
- [714] IAG
has succeeded, but only to a limited extent, in its claim that QBE is liable to
indemnify IAG pursuant to cl 17.2 of the
2012 RSMA against a part only of
IAG’s liability here to the Sleights. An order is to follow that QBE is
liable to indemnify
IAG but only for the sum of $80,468.96 (being the total
Hawkins liability to IAG, I have noted at [521] above, of $130,468.96, minus the
accepted Hawkins PI policy excess of $50,000).
QBE’s
indemnity cross-claim against IAG
- [715] QBE
has largely succeeded in its claim that, pursuant to cl 17.1 of the 2012 RSMA,
IAG is liable to indemnify QBE against its
liability to the Sleights for the
amount QBE is to pay the Sleights in this judgment, as noted at [710] above, being
$339,848, excluding the sum of $80,468.96 referred to at [709] above This leaves a net indemnity
amount of $259,379.04. An order to this effect is to follow.
Judgment
- [716] The
Sleights are entitled to judgment for an initial amount which is now entered on
their damages claims:
(a) against IAG, Farrells and Hawkins being the sum of $389,848
as noted at [709] above; and
(b) against QBE as to part only of this initial amount of
$389,848 as noted at [710] above,
being the sum of $339,848;
in all cases jointly and severally.
- [717] A
declaration is made that the Sleights are entitled to an award of damages
against IAG, Farrells, Hawkins and QBE (jointly
and severally) for the
Sleights’ accommodation costs in renting alternative accommodation (when
this does occur) for the reasonable
period during which they are required to be
out of their house for the remedial work to rectify the defective repairs
calculated
at a rental rate of $685 per week (the Sleights’ alternative
accommodation damages).
- [718] As between
IAG and QBE, a further declaration is made that, first, IAG is to indemnify QBE,
pursuant to cl 17.2 of the 2012
RSMA for 79.64 per cent of the ultimate
Sleights’ alternative accommodation damages amount and, secondly, QBE is
to indemnify
IAG pursuant to cl 17.1 of the 2012 RSMA for 20.36 per cent of the
ultimate Sleights’ alternative accommodation damages
amount.
- [719] And, as
between IAG and QBE:
(a) IAG is entitled to judgment against QBE pursuant to the
indemnity in cl 17.2 of the 2012 RSMA for the sum of $80,468.96 as noted
at [714] above.
(b) QBE is entitled to judgment against IAG pursuant to the
indemnity in cl 17.1 of the 2012 RSMA for the sum of $259,379.04 as noted
at [715] above.
(c) The net apportionment of the amounts noted above to be paid
to the Sleights’ under the overall judgment in this proceeding
of $389,848
(plus the Sleights’ alternative accommodation damages noted at [717] above) is for IAG to meet
$309,379.04 (plus 79.64 per cent of the Sleights’ alternative
accommodation damages amount) and for
QBE to meet $80,468.96 (plus 20.36 per
cent of the Sleights’ alternative accommodation damages amount).
(d) A declaration is made pursuant to s 3 of the Declaratory
Judgments Act 1908 that, other than for the purposes of the Sleights’
various claims under the CGA, the provisions in cls 86, 87 and 88 of the
Building Contract general conditions are not voided and
the Sleights are bound
by these clauses.
Interest
- [720] The
Interest on Money Claims Act 2016 came into force on 1 January 2018. Under s 5,
it applies to every civil proceeding commenced
after that date. The Sleights
brought the present proceeding with their first statement of claim filed 6
October 2017.
It would seem, therefore, that the Interest on Money Claims Act has no
application here. In each of the Sleights’ various statements
of claim
filed in this proceeding, in addition to damages, an award of interest was
sought. However, generally, not all counsel addressed
me on the question of
interest and I should hear from all parties before determining an appropriate
award of interest in favour of
the Sleights.
- [721] As it
would be preferable for counsel to make further written submissions on the
question of interest on the basis of this judgment
if they might wish to do so,
I now direct as follows:
(a) Submissions on the question of interest on behalf of the
Sleights are to be filed and served within 15 working days of the date
of this
judgment.
(b) Submissions on the question of interest on behalf of IAG are
to be filed and served within a further 10 working days of that date.
(c) Submissions on the question of interest on behalf of QBE are
to be filed and served within a further 10 working days of that further
date.
(d) All submissions are then to be referred to me and, in the
absence of any party indicating they wished to be heard on the issue,
I will
decide the question of interest to be paid based upon the submissions filed and
all the other material before the Court.
Costs
- [722] So
far as costs are concerned again, generally, I heard no detailed submissions
from counsel addressed to costs.
- [723] Costs are
therefore reserved.
- [724] In the
event that counsel are unable to settle the issue of costs between themselves,
then they may file memoranda (sequentially)
on this issue and again, in the
absence of any party indicating they wished to be heard on the costs question,
I
will decide the issue of costs based upon the memoranda filed and all the other
material before the Court.
...................................................
Gendall J
Solicitors:
Saunders Robinson Brown, Christchurch for Plaintiffs Clark Boyce,
Christchurch for First Defendants
Hazelton Law, Wellington for Second and Fourth Defendants DLA Piper,
Wellington for Third Defendant
Copies to:
Nathan Gedye QC, Barrister, Auckland for Third Defendant Oliver
Collette-Moxon, Barrister, Auckland for Third Defendant Daniel McLellan
QC,
Barrister, Auckland for Fourth Defendant
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