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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
CIV-2017-409-000818
[2020] NZHC 2851
BETWEEN
JOAN MARGARET FRASER SLEIGHT and ALAN LEITHFIELD SLEIGHT
Plaintiffs
AND
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
Hearing:
2 – 19 June 2020 and 20 – 22 July 2020
Appearances:
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
Judgment:
30 October 2020


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




Para
Introduction
Background
The Policy
Initial events involving the Sleights and IAG following the CES
Situation facing Canterbury after the CES
IAG’s Managed Repair Programme and the 2012 RSMA
Subsequent events leading to the Building Contract
Building Contract
Operational documents and forms subsidiary to the 2012 RSMA
Inadequately repaired and unscoped earthquake damage to the property
(a) Scoping issues
(b) Defects in the repair works
Roles adopted by the Sleights, Farrells, IAG, Hawkins and its Rebuild Solution Managers (RSMs)
Termination of the Building Contract
Building expert reports
QBE position – Hawkins’ Negligence (PI) Policy
Sleights’ causes of action
Sleights’ claims for breach of contract, negligence and under the CGA against Farrells
Sleights’ claim for breach of the Policy contract against IAG
A proper interpretation of the Policy
The Sleights’ four “Pathways”(Paths One, Two, Three and Four)
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?
Being a “to pay” policy – what is it that IAG promises to pay?
Conclusion on this Path One Policy claim
The Sleights’ Path Four Policy Claim against IAG – implied term
IAG’s affirmative defences to the Policy claims
Declarations sought by the Sleights regarding the enforceability of certain exclusion clauses?
Sleights’ claim under the Consumer Guarantees Act against IAG
Sleights’ negligence claim against IAG
Sleights’ estoppel claim against IAG
Slights’ claims in summary against Hawkins
Sleights’ claim under the CGA against Hawkins
Sleights’ negligence claim against Hawkins
Hawkins’ additional defences
IAG’s cross-claim against Hawkins
The 2012 RSMA claim
Operational documents and forms
- 100K Manual
- Milestone Payment Change Procedure
- Swimlane Document
- RSM Site Inspection Report
- MIV Inspection Report
- Milestone Payment Inspection form
Interpreting the 2012 RSMA
Pre-qualification breach?
Scoping breach?
Monitoring obligations breach?
Milestone payments certification breach?
Foundations/sub-floor work payment certifications
Final Building Contract payment certifications
QBE’s potential liability to the Sleights and to IAG?
IAG’s cross-claim against Hawkins/QBE for contribution
QBE’s cross-claim against IAG
Repair works required – defects and damages
Scoping defects
- Removal and replacement of external window joinery
- Removal and replacement of the conservatories
- Removal and replacement of the entrance butyl membrane roofing and plywood substrate
- Bracing
- Timber weatherboards – bay window on north-west elevations
Key defects
- Exterior cladding and windows
- Structural defects
Remaining defects
- Upper storey deck
- Concrete front entry steps, tiled rear entry steps and tiled steps to dining area
- Foundation plaster
- Profiled metal roof
- Sub-floor area (non-structural)
- Interior
Defences
Quantum – the cost of repairs
Quantum – my assessment
Accommodation costs claim – declaration?
Landscaping
General damages
Outcome
Judgment
Interest
Costs

Introduction

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.

  1. Rob Merkin QC, “Insurers’ Liability for Defective Repairs” (2019) 25 NZBLQ 133 at 133. (Footnotes omitted.)
  2. 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.

(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.

[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.

Background

The Policy

(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.

(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:

  1. 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
  1. 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.

  1. 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.

Faults and defects

You’re not covered for the cost of fixing faulty design or faulty construction.

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

Advised insured of: Land report, accommodation allowance, that Hawkins will probably project manage as repairs likely to be over EQC cap.

(emphasis added)

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)

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

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.

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.

IAG’s Managed Repair Programme and the 2012 RSMA

...

[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.

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.

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.

...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)

(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.

  1. LIABILITY

(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.

  1. “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

(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.

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.

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

(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



  1. In this judgment, clauses cited as being “of the Building Contract” refer to the “General Conditions” unless otherwise stated.

...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:

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.

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.

...

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.
...


  1. CONTRACT ADMINISTRATION

...


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.

(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.

Limitation of Liability

  1. 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.
  1. 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.
  1. 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.
  1. 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

sixthly, a “Milestone Payment Inspection Report” (Milestone Payment Inspection Report).

Inadequately repaired and unscoped earthquake damage to the property

(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

(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

(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.

(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)

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.

Termination of the Building Contract

Building expert reports

QBE position – Hawkins’ Negligence (PI) Policy

Sleights’ causes of action

(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

claim is one against Farrells for breach of contract for defective and inadequate work carried out under the Building Contract.

Sleights’ claim for breach of the Policy contract against IAG

(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”).

A proper interpretation of the Policy




  1. 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

[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.

(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.



  1. 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].

[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].






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).

...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.


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.

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.

...(if) you repair or rebuild the home we’ll pay:

  1. The cost of repairing or rebuilding the home to [an “as new” standard]...

(emphasis original)


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.

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 ...







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)



  1. D A Constable Syndicate 386 v Auckland District Law Society Inc [2010] NZCA 237, [2010] 3 NZLR 23 (CA) at [69].

...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.



  1. Robert Merkin, Colinvaux’s Law of Insurance (12th ed), Sweet & Maxwell, Croydon 2019 (Colinvaux).

28 At 11-196.

29 At 11-139.

  1. 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.

SETTLEMENT OF YOUR LOSS

If you repair or rebuild the home following a loss covered by this Home Policy, we will pay:

  1. 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...

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.

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.

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.

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].

  1. Michael Ball and David Kelly Kelly and Ball Principles of Insurance Law (Online ed Lexis Nexis), at [12.0140.10] (citation omitted).
  2. 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.

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.

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.

...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.

The Sleights’ four “pathways” (paths one, two, three and four)

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.

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?

(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?

Being a “to pay” policy – what is it that IAG promises to pay?




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.

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.

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.
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.

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.

...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.

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.


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.

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.



  1. Mr James’ position at the operative time post-CES, as I have noted above, was IAG’s General Manager for the Canterbury Rebuild.
    1. So the short point is that repair works aren’t finished until they’re properly finished?

A. Yes.

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


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.

The Sleights’ Path Four Policy Claim against IAG – implied term

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...

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.

IAG’s affirmative defences to the Policy claims

(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.

Declarations sought by the Sleights regarding the enforceability of certain exclusion clauses?

  1. 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.
  1. and 68. Hawkins/IAG was not a party to the Building Contract.
  1. and 69. The Hawkins/IAG Limitation/Exclusion Clauses were unexpected and onerous.
  1. and 70. IAG did not take reasonable steps to draw the Hawkins/IAG Limitation/Exclusion Clauses to the attention of the plaintiffs.
  1. and 71. The plaintiffs did not have any notice of the Hawkins/IAG Limitation/Exclusion Clauses.
  1. and 72. The plaintiffs are not bound by the Hawkins/IAG Limitation/Exclusion Clauses.
  1. and 73. The plaintiffs suffered from disadvantages that significantly diminished their ability to assess their best interests in relation to the Building Contract.

Particulars

(Plaintiffs’ Disadvantages)

  1. and 74. It is unconscionable to permit Hawkins/IAG to receive the benefit of the Hawkins/IAG Limitation Exclusion Clauses.

Particulars

  1. and 75. The Hawkins/IAG Limitation and Exclusion Clauses should be voided.

(emphasis added)

(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.





  1. 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].

(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.

(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.
  1. Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205 at [30], aff'd [2008] NZSC 47, [2008] 2 NZLR 735.
  2. 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.

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.

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.

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.
or limit upon repair costs and, secondly, to ensure they could sign up builders and other contractors in the area to ensure availability.




  1. 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.

Sleights’ claim under the Consumer Guarantees Act against IAG

  1. IAG provided services to the plaintiffs.

Particulars

  1. The plaintiffs are consumers.
  1. IAG was in trade.
  1. 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.

[(a) The Scope of Works did not include:

(i) replacement of the exterior joinery;

(ii) replacement of the front and rear conservatories.]

(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

constructed with the Defects:

(a) The plaintiffs

refer to Appendix A for

particulars of the

Defects.]

  1. 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.
  1. As a result of the breach, the plaintiffs have incurred loss.

Particulars

[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);]

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.

(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...

(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.

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.

(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.

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.

...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.
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.

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.

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.

(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.

(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.

Sleights’ negligence claim against IAG

  1. 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

  1. IAG appointed Hawkins as its agent to carry out the Hawkins services.
  1. IAG breached its duty of care.

Particulars

(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.]

(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

(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.

  1. As a result of IAG’s breach of its duty, the plaintiffs have incurred loss.

... 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)

(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.

(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.

(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.)

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.

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.

Sleights’ estoppel claim against IAG

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.

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.
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.

Sleights’ claims in summary against Hawkins

(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

alternative to their other claim in negligence against Hawkins. It is appropriate, however, to consider the CGA claim first.
  1. Hawkins provided services to the plaintiffs.

Particulars

(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)]

  1. The plaintiffs are consumers.
  1. Hawkins was in trade.
  1. Hawkins failed to carry out the Hawkins’ services with reasonable care and skill.

Particulars

included appropriate remedial work to repair the Earthquake Damage to the standard in the Policy.

...]

  1. 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.
  1. As a result of the breach, the plaintiffs have incurred loss...

This effectively replicates the normal standard of care recognised both in contract and tort.

61 Nesbit v Porter [2000] NZCA 288; [2000] 2 NZLR 465 (CA).

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).



62 Roger Thornton (ed) Gault on Commercial Law, (online ed, Thomson Reuters) at [CG2.13.01(2)].

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.

  1. 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”.
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


63 Kaori Ltd v Shrinkforce Shrink Wrap Services Ltd (in rec) [2012] NZHC 3204.

64 At [48].

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.

...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).

  1. Civil Aviation Authority v Airline Pilots’ Association Industrial Union of Workers Inc [2011] NZCA 520, [2012] NZAR 66 at [58].

Sleights’ negligence claim against Hawkins

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)

(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.

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.



  1. 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].

  1. 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.
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.
consideration of the possibility that Hawkins may have some additional liability to the Sleights in negligence.

Hawkins’ additional defences

... 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.

... 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.




  1. Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [25.2.04] (footnote omitted).

72 South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd

[1992] 2 NZLR 282 (CA).

IAG’s cross-claim against Hawkins

The 2012 RSMA claim

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)

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.
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.
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.

Operational documents and form

100K Manual

emphasis is placed on “completion” of the work, pricing and matters relating to prompt payment to the builder.

Milestone Payments Change Procedure

...

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.

Swimlane document

RSM Site Inspection Report

MIV Inspection Report

Milestone Payment Inspection form

Interpreting the 2012 RSMA

(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

  1. 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.
  1. 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.
[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].

Monitor the delivery of each Rebuild Solution which shall include the following:

[nine sub-clauses followed].

Clause 5.1

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.

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

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).

Clause 5.3

[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).

Clause 5.5

Clause 5.6

Inspect the progress of each Rebuild Solution in order to certify completion of each Solution Milestone.

  1. 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.

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.

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.

....

Clause 3.2

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.

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.
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”.

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.
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”.

Pre-qualification breach?

Scoping breach?

  1. SCOPING:

Hawkins will provide to IAG NZ a Scope of Works for each Rebuild Solution which shall include the following:

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.

Monitoring obligations breach?

(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.

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.

Milestone payments certification breach?

Foundations/sub-floor work payment certifications

(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.

Final Building Contract payment certifications

$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.
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.
“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”.
$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.

QBE’s potential liability to the Sleights and to IAG?

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:

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.
$50,000. There is no dispute over this $50,000 excess figure.

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.

services, advice, duties or activities of whatsoever nature associated with development, construction...” and “not limited to...design...inspection... investigation ... project management and supervision ...”

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.

otherwise have at law and, therefore, the exclusion I note at [529] above does not apply.

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).

IAG’s cross-claim against Hawkins/QBE for contribution

(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.

79 Hotchin v NZ Guardian Trust Co Ltd [2016] NZSC 24, [2016] 1 NZLR 906 (SC).

QBE’s cross-claim against IAG

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.

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...

Repair works required – defects and 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.

the alternative against IAG for the declaration under the Declaratory Judgments Act.80 I proceed, therefore, to address their damages claim.
  1. As a result of the IAG breach the plaintiffs have incurred loss:

Particulars

(a) [And the Scope of Works did not include:

(i) Replacement of the exterior joinery;

(ii) Replacement of the front and rear conservatories.]

(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;


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.

(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.

(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.

(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.
  1. 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.

(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

(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.


Removal and replacement of external window joinery

(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.


Removal and replacement of 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

Bracing
Timber weatherboards – bay window on north-west elevations

Key defects

(a) Exterior cladding and windows.

(b) Certain structural defects.


Exterior cladding and windows
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.

(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.

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.

Structural defects
are required to be installed to reduce the maximum bearer span allowable. Further work relating to bearers and connections is also to be undertaken.

Remaining defects


Upper storey deck

Concrete front entry steps, tiled rear entry steps and tiled steps to dining area
Foundation plaster

Profiled metal roof

(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.

Sub-floor area (non-structural)

Interior

Defences

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).
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.

Quantum – the cost of repairs

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)
$146,740).

(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.

Quantum – my assessment

Demolition work

Exterior works
$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.
$73,210. This leaves a new total cost for exterior works of $171,790.

Interior works

Building Consent fees

Consultants’ fees
$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.

Contingency allowance (10 per cent)

GST

Options


New decks

Addendum interior works
of $200 is appropriate here. This brings this total $18,000 figure down to a new figure of $16,800.

Good and Services Tax
$4,200. With the small adjustment to the interior works addendum item, the new GST figure is to be $4,020.00

Total repair costs damages

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?

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.

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)

$20,000 for any event.
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

General damages

(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.

(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.

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.

(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.




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.

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.

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.




92 Above n 25.

  1. 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.

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.




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.

Outcome

The Sleights’ claims

(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
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.

(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.

IAG’s indemnity cross-claim against QBE

QBE’s indemnity cross-claim against IAG

$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

(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.

(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

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.

(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

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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