Keven Investments Limited v Montgomery [2012] NZHC 1596 (6 July 2012)

Last Updated: 11 July 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-6481 [2012] NZHC 1596

BETWEEN KEVEN INVESTMENTS LIMITED Appellant

AND PHILIP ARTHUR MONTGOMERY, ROBERTA ANN DENNE MONTGOMERY AND BRIAN LAWRENCE BRAMWELL

First Respondents

AND IAN ROBERT SIMPSON Second Respondent

Hearing: 27 March 2012

Appearances: G Shand and L Chapman for the Appellant

D Wilson for the First Respondents

Second Respondent in person

Judgment: 6 July 2012

_{JUDGMENT OF WOODHOUSE J}

This judgment was delivered by me on 6 July 2012 at 5:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.

Registrar/Deputy Registrar

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

Solicitors / Counsel / Parties:

Mr GDR Shand, Grimshaw & Co., Solicitors, Auckland

Mr D Wilson, Barrister, Auckland

Mr T Piggin (instructing solicitor for the first respondents), Wilson McKay, Solicitors, Auckland

Mr I R Simpson,Taumaranui

KEVEN INVESTMENTS LIMITED V MONTGOMERY & ORS HC AK CIV-2011-404-6481 [6 July 2012]

Introduction

[1] The first respondents owned land zoned for both commercial and residential buildings. They built a residence on part of the land and replaced an existing commercial building. The property was sold to the appellant. The residential building was found to leak. The appellant brought a claim in the Weathertight Homes Tribunal against the first and second respondents. The claims against the first respondents were for negligence, on the basis that the first respondents were developers, and for breach of a warranty in the agreement for sale and purchase. The claim against the second respondent was for negligence as director of the company that built the house. All claims were dismissed by the Tribunal. This appeal has been brought against those decisions.

[2] At the commencement of the hearing Mr Shand, for the appellant, advised that the appeal against the decision in favour of the second respondent was abandoned. Nothing more needs to be said about the claim against the second respondent. In accordance with the Tribunal’s decision he has no liability.

[3] The issues arising in respect of the claims against the first respondents are:

(a) Were the first respondents “developers” as that expression is used in cases involving allegations of negligent construction of buildings? If the first respondents were developers then, on admitted facts, there will be liability for negligence in connection with the construction.

(b) What is the meaning of a warranty in the agreement for sale and purchase that the building was constructed in compliance with a building consent? The questions in practical terms, on the facts of this case, are whether this was a warranty that the building was constructed in accordance with the building consent plans, or does the warranty also require that the building was constructed in compliance with the building code?

(c) If the warranty has the narrower meaning – construction of the house in accordance with the building consent plans – was the house in fact constructed in accordance with the consent plans?

[4] After outlining the background facts, I will deal with each of the issues under separate headings. In each section I will outline the Tribunal’s decision on the issue, together with further facts relevant to the particular issue, submissions for the parties to the extent necessary, and my conclusions.

[5] The three first respondents are the trustees of the Montgomery Family Trust. They did not all hold title at all relevant times. For example, the building consent was obtained before transfer of title to the three trustees. And one of them, Mr Bramwell, does not appear to have had any involvement in matters relating to construction. However, no issues arise in this case from matters of that nature. For convenience, I will refer to the first respondents jointly as “the Montgomerys”. I will refer to the appellant as “Keven Investments”.

Background facts

[6] The background facts are conveniently taken from the Tribunal’s decision.

[4] In January 1993 Mr Montgomery purchased 38 Wakelin Road, Beachlands. At that time the only building located on the land was a commercial building occupied by the Post Office. The land was zoned commercial with residential use being discretionary. Mr Montgomery owned and operated the Post Office outlet operating from the property.

[5] In 1999 Mr and Mrs Montgomery decided to build a house on the land so that they could live near where they worked. They engaged Compass Certification Limited to deal with the necessary consents and Simpson Builders Limited (Simpson) to construct the dwelling. The contract with Simpson was a build and supervise contract with Simpson being responsible for contracting the majority of the subcontractors. Mr and Mrs Montgomery were not involved in the building work or supervision of the building work other than making the choices usually made by owners such as those relating to design and aesthetic matters.

[6] The dwelling is three stories with a three bedroom house with flat roofs on the upper two floors and a self contained two bedroom apartment on the lower level. Three balcony areas are located on the upper two floors. The dwelling was constructed with concrete block walls to the ground floor with timber framed walls clad with texture coated fibre-cement sheets to the

upper two floors. The flat roofs were clad with butyl rubber membrane. A Code Compliance Certificate (CCC) was issued in September 2000.

[7] Mr and Mrs Montgomery lived in the property from 2000 until it was sold to Keven in August 2007. After completing the construction of their new home Mr and Mrs Montgomery also arranged for the old Post Shop building to be replaced with new commercial premises incorporating two separate spaces. In January 2001, during the course of that construction, the property was transferred from Mr Montgomery to Mr and Mrs Montgomery and Mr Bramwell as trustees of the Montgomery Family Trust.

[7] The agreement for sale and purchase between Keven Investments and the Montgomerys was entered into in June 2007, with settlement in August 2007. Relevant provisions of the agreement are noted below when dealing with the contractual warranty claim.

[8] By 2009 the residential dwelling was found to be leaking. Keven

Investments lodged a claim with the Department of Building and Housing on 13 July

2009. The assessor who provided a report under the Weathertight Homes Resolution Services Act 2006 concluded that the dwelling was a leaky home and he recommended a full reclad over a cavity. Keven Investments carried out the recommended remedial work and claimed a sum of $360,780 for this work.

Issue 1: were the Montgomerys developers?

Tribunal decision

[9] The contention before the Tribunal was that Mr and Mrs Montgomery were developers. The findings of fact by the Tribunal directed more specifically to this issue were as follows:

[12] At the time of construction Mr Montgomery was a real estate agent who owned land adjacent to his former business which was then being run by Mrs Montgomery. They decided to build a home for themselves on that land with an attached flat so they could live nearer to their work. They engaged a reputable building company on a full contract to undertake the construction of the house. They were not in trade in the sense that it is used in s7 of the Building Act 2004. They were building the dwelling as a home for themselves not as an investment or to sell for profit.

[13] The decision to build the home however was [made in] conjunction with a longer term plan to further develop the commercial premises also located on the same piece of land. Like most prudent home builders they wanted the planned construction work to have long term financial benefits as well as providing them with a home. They accordingly saw the plan to construct a new home and adjoining apartment as contributing to their retirement assets or income.

[10] Section 7 of the Building Act 2004, referred to by the Tribunal at [12], is an interpretation section. There is a definition of “residential property developer” as follows:

residential property developer means a person who, in trade, does any of the following things in relation to a household unit for the purpose of selling the household unit:

(a) builds the household unit; or

(b) arranges for the household unit to be built; or

(c) acquires the household unit from a person who built it or arranged for it to be built

[11] The Tribunal also referred to discussions of the meaning of the word “developer” in Body Corporate 188273 v Leuschke Group Architects Ltd,1 Findlay v Auckland City Council,2 Body Corporate 187820 v Auckland City Council,3 and Mowlem v Young.4

[12] The Tribunal concluded:

[18] Mr and Mrs Montgomery’s motivation in building this dwelling was to build a home in which to live. They neither directed nor supervised the construction dwellings for profit. The courts have consistently held that land owners who arrange for people to build them a home are not then head contractors or developers. We accept that Mr Montgomery at the time he arranged for the house to be built was also intending to rebuild the commercial buildings on the site. This however does not make Mr Montgomery a developer in relation to the residential building. The claim that Mr and Mrs Montgomery were developers therefore fails.

1 _{Body Corporate 188273 v Leuschke Group Architects Ltd (2007) 8 NZCPR 914 (HC) at [31]-[32].}

2 _{Findlay v Auckland City Council HC Auckland CIV-2009-404-6497, 16 September 2010, Ellis J.}

3 _{Body Corporate 187820 v Auckland City Council [2005] NZHC 65; (2005) 6 NZCPR 536 (HC).}

4 Mowlem v Young HC Tauranga AP35/93, 20 September 1994, Robertson J.

[13] Some additional facts, which are not in issue, may be noted at this point. These are facts in addition to the uncontentious background facts at [4]-[5] of the Tribunal decision, earlier recorded, and to an extent expand on the Tribunal’s findings at [12]-[13]. Mr Montgomery, on leaving school, worked for a bank for many years. He was then made redundant. It was at that point that he purchased the Post Office shop in Beachlands. He purchased it, as the Tribunal noted, as the premises for his own Post Shop business. At a later point Mrs Montgomery took over running the Post Shop. Mr Montgomery got work as a letting agent. At this time Mr and Mrs Montgomery were living in Manurewa, some distance from the Post Shop. They wanted to be near the shop. That is what led to the construction of the house. They had the good fortune that the land in question was zoned in a way which permitted a residential building to be built on land which already had the commercial premises, and that there was a sufficient area of land for this to be done. Some of this is recorded in a contemporaneous document, part of which is at [21] below.

Legal principles

[14] The word “developer” is not a legal term.5 It is a word which has been used in this area of the law as a label for a person, or other legal entity, whose involvement in connection with construction of buildings (or in subdivision of land, or both) was such that the person is held by the court to have a duty of care to people who purchase one of the buildings, whether from the person described as the developer or subsequently, even though the physical construction of the building was carried out by an independent contractor. The duty of care in such circumstances is said to be non-delegable; the person labelled the “developer” is not able to delegate the duty of care to the builder.

[15] The leading authority in New Zealand on this question is Mt Albert Borough

Council v Johnson.6 In that case a company called Sydney Construction Co Ltd bought an area of approximately three acres of land, subdivided it, and had blocks of

5 See Body Corporate 187820 v Auckland City Council, above n 3, at [25]; Body Corporate 188273 v

_{Leuschke Group Architects Ltd, above n 1, at [31].}

6 Mt Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA).

flats built on the individual lots. Sydney Construction engaged another company to build the blocks of flats. In 1966 Sydney Construction sold a flat to purchaser A who sold it in 1968 to purchaser B, who sold it in 1970 to the plaintiff. The flat began to subside on its foundations with cracks appearing in the building. The flat was constructed on filled land. The plaintiff claimed that Sydney Construction was negligent in failing to ensure that the house was built with adequate foundations or built on solid land. Sydney Construction contended that it had no liability because an independent contractor had been engaged for construction of the building.

[16] The enquiry in that case was not whether Sydney Construction was a developer. In spite of its name, it was not in issue that Sydney Construction was a “development company” as that expression is used in the property sector. The question of legal principle was as to the circumstances in which an employer will be held liable in tort for the negligence of an independent contractor. In this regard,

Cooke J said (for himself and Somers J):7

... It is not easy to state clear principles about when an employer will be held liable in tort for the negligence of an independent contractor, as witness the difference of judicial opinion in the progress through Australian Courts of Stoneman v Lyons [1975] HCA 59; (1975) 8 ALR 173. Lord Reid’s observations in Davie v New Merton Board Mills Ltd [1959] AC 604, 646; [1959] 1 All ER 346, 367-

368, in a cognate field testify to the difficulty of evolving hard-and-fast rules. In Clerk and Lindsell on Torts (14th ed, 1975) para 262, Professor Jolowicz says, after reviewing the authorities, that in the result it seems that no general principle can be stated and that the various types of case must be dealt with individually.

In the instant type of case a development company acquires land, subdivides it, and has homes built on the lots for sale to members of the general public. The company's interest is primarily a business one. For that purpose it has buildings put up which are intended to house people for many years and it makes extensive and abiding changes in the landscape. It is not a case of a landowner having a house built for his own occupation initially — as to which we would say nothing except that Lord Wilberforce's two-stage approach to duties of care in Anns may prove of guidance on questions of non-delegable duty also. There appears to be no authority directly in point on the duty of such a development company. We would hold that it is a duty to see that proper care and skill are exercised in the building of the houses and that it cannot be avoided by delegation to an independent contractor.

7 Ibid, at 240-241. Richardson J concurred, without additional observations on the present question.

[17] In Body Corporate 187820 v Auckland City Council,8 one of the cases referred to by the Tribunal, Associate Judge Doogue reviewed some of the cases, including Mt Albert Borough Council v Johnson and Morton v Douglas Homes Ltd.9

He concluded that there were two essential considerations which would give rise to a non-delegable duty of care: (1) direct involvement or control in the building process (for example, by way of planning, supervising or directing the work); and (2) being in the business of constructing dwellings for other people for profit.10 It was on the basis of this analysis, in particular, that the Tribunal held that the Montgomerys were not developers; that is to say, that they were not subject to a non-delegable duty of care.

[18] On this appeal, Mr Shand relied in particular on Body Corporate 188273 v Leuschke Group Architects Ltd.11 In that case Harrison J noted a submission for the plaintiff founded on the statement of principle by Associate Judge Doogue, reviewed the observations of Cooke J in the Mt Albert Borough Council case, and said:

[32] The developer, and I accept there can be more than one, is the party sitting at the centre of and directing the project, invariably for its own financial benefit. It is the entity which decides on and engages the builder and any professional advisors. It is responsible for the implementation and completion of the development process. It has the power to make all important decisions. Policy demands that the developer owes actionable duties to owners of the buildings it develops.

[19] The use of the label “developer” in this context is fairly embedded, and I will continue to use it. But it is important to have clarity as to the purpose of the enquiry. As stated by Cooke J in the Mt Albert Borough Council case, it is to determine “when an employer will be held liable in tort for the negligence of an independent contractor”.12 In my judgment, there is one essential requirement for a person to have liability as a “developer” in the present context; that is that the person is in the business of having a building or buildings constructed for the primary purpose of sale to other people. On the facts of a particular case, other factors may be required

for the defendant to be found to have a non-delegable duty of care, but if the

_{business element is lacking then it is unlikely that the defendant will be a developer.}

8 _{Body Corporate 187820 v Auckland City Council, above n 3.}

9 _{Morton v Douglas Homes Ltd [1984] 2 NZLR 548 (HC).}

10 _{Body Corporate 187820 v Auckland City Council, above n 3, at [27].}

11 _{Body Corporate 188273 v Leuschke Group Architects Ltd, above n 1.}

12 Mt Albert Borough Council v Johnson, above n 6, at 240.

Because of the primacy I attach to the business element I therefore differ, to an extent and with respect, from the relative emphasis also placed on the extent of involvement in directing the building work, in addition to being in a business, in the decisions earlier noted of Harrison J and Associate Judge Doogue. However, and for reasons already adverted to, although the person may be in the business of having houses constructed for sale to others, that may be insufficient by itself in a given case, and it is likely in such a case that the extent of involvement in the building process may be determinative.

[20] I have expressed the matter this way because in my judgment it is the business element which provides the policy foundation for imposing the duty of care in the terms that it is imposed. It cannot be avoided by engaging an independent contractor to carry out the physical construction work. The business element was pivotal in the Mt Albert Borough Council case. The company’s interest there was, as Cooke J said, “primarily a business one”. In the present case the Tribunal referred to the definition in the Building Act 2004 of “a residential property developer”. The Tribunal recognised that the statutory definition was not determinative, but it does capture what the cases establish. It does, perhaps, provide indirect reinforcement of the policy underpinning the Mt Albert Borough Council analysis. And to the extent that it does, it is reinforcement of substance because it is statutory recognition of a similar concept in legislation concerned with the construction of buildings. The liability arises because the person is “in trade”.

Discussion

[21] Central to Mr Shand’s submission that the Montgomerys were developers is a letter of 8 October 1999 from a company called Architectural Design Associates Ltd to Manukau City Council. Architectural Design Associates were engaged by the Montgomerys to design the house and apply for a resource consent. The letter of 8

October 1999 was a covering letter in support of the application for the resource consent. The letter includes the following:

On behalf of my clients I wish to be granted a Resource Consent for the proposed development as shown on the enclosed plans and elevations.

...

My clients have a future business/development plan which includes this application, this plan has been covered by one of the enclosed statements.

...

2) Client Background

Mr and Mrs Montgomery (my clients) are the legal owners of the property situated at 38 Wakelin Road, Beachlands where the New Zealand Post Shop is sited. Mrs Montgomery runs the Post Shop during normal business hour [sic] from Monday to Friday.

Mr Montgomery is employed as Property Manager for the Beachlands Branch of L J Hooker Ltd and this position often requires working on weekends as well as normal Monday to Friday business hours.

At present Mr and Mrs Montgomery live at 11 Arrowsmith Drive, Hilltop Heights, Manukau and commute to and from Beachlands during the working week.

Their intention is to sell their Manukau property and to move into Beachlands thus saving the travel time and to live on the site of the Post Office.

3) Client Business/Development Plan

Whilst not covered by this application, my clients intend future development of the Post Shop which is situated on the Wakelin Road frontage. ...

This Practice has been requested to look into the various options of future development which may include remodelling the existing Post Shop to allow a rentable office or retail outlet on the Street frontage.

This application involves the development at the rear of the site for a three storey residential building which would include a rentable apartment.

[22] Mr Shand also placed some emphasis on Mr Montgomery’s evidence in cross-examination on this document. The document was put to Mr Montgomery and he was asked to read, in particular, the first page of the letter and sections 2) and 3), most of which is set out above. There was then the following:

MR MONTGOMERY: This was intended to be our retirement plan.

MR SHAND: And that’s in fact what you did isn’t it?

MR MONTGOMERY: Over time, yes.

MR SHAND: Essentially you had in place what’s described here, business development plan. And that’s exactly what you implemented isn’t it?

MR MONTGOMERY: Correct.

[23] The unprompted reference to “our retirement plan” has relevance and I will come back to that. The remaining evidence simply confirms what is in the letter and adds nothing of relevance as to the implications from the content of the letter.

[24] I do not agree with Mr Shand’s submission that what is said in this letter means that the Montgomerys were developers. The use of the word “development” and the composite expression “business/development plan” do not of themselves demonstrate that the Montgomerys were in the business of having buildings erected for the primary purpose of sale. The statement in the letter that “my clients have a future business/development plan” is simply a statement that the Montgomerys propose in the future to replace the existing commercial building with a new commercial building. The use of the word “development” in this context is no different from its use in the introductory sentence. The “proposed development” mentioned in the first sentence is the proposed construction of a home for Mr and Mrs Montgomery. This expression could be used, and no doubt is often used, to describe what large numbers of people do in New Zealand when they proceed with construction of their new home, or renovation of their existing home, for their private purposes; purposes which do not involve conducting a business. The focus on use of the word “development” invests the word with a legal meaning but, for reasons earlier outlined, this word, and the word “developer”, when used in every day communications do not have legal meanings.

[25] The use of the word “business” might have more significance if viewed in isolation. But it must be put into context. The context here does not establish that there was a business of constructing buildings for the primary purpose of sale. The business element, in the expression “business/development plan” involved the reconstruction of existing commercial premises for lease.

[26] The focus needs to be on the Montgomerys’ reasons for building the house. I

agree with Mr Shand’s submission that a person could be a developer even though

that person builds only one house. But that theoretical possibility is not the reality here. The Montgomerys’ reasons and objectives in building the house, including the self-contained flat, were in substance no different from those of large numbers of New Zealanders who build houses, with or without self-contained flats. It was built as their home. Their intentions at the time were expressly stated by Mr Montgomery as follows:

When the new house was built in 2000 it was to be our permanent home. The possibility of selling it at a profit was not part of our thinking or intentions.

Mr Montgomery did say that “this was intended to be our retirement plan”. It may reasonably be inferred that this was a reference to the whole project, including the intention in the future to rebuild the commercial premises. Planning to put money into one’s existing property in this way is, in my judgment, well removed from what is contemplated when the cases talk about a developer.

[27] Mr Shand’s submissions on the facts were not confined to the matters that I have referred to. I have not overlooked the further evidence. It relates to the involvement of Mr and Mrs Montgomery in matters relating to the construction of the buildings on their land. The submission was that a range of activities, and particularly by Mr Montgomery, indicated that they were in fact developers. I am not persuaded that this comes even close to establishing a degree of involvement which changes the character of the activities of the Montgomerys such as to establish that they were developers. The various activities referred to were again no different from the activities of numerous private property owners who decide to build their own home or rebuild commercial premises they already own.

[28] For these reasons I am satisfied that the Tribunal’s conclusion was correct: the first respondents did not owe a duty of care to potential future purchasers when they had the house built by Mr Simpson’s company.

Issue 2 : the meaning of the warranty

The terms of the warranty and the building consent, and the issue arising

[29] For their agreement the parties used the REINZ/ADLS standard form of agreement for sale and purchase of real estate, 8th edition. The warranty is contained in clause 6.2. This is part of the standard form provisions. The material part of clause 6.2 is as follows:

6.2 The vendor warrants and undertakes that at the giving and taking of

possession ...

(5) Where the vendor has done or caused or permitted to be done on the property any works:

(a) any permit, resource consent or building consent required by law was obtained; and

(b) the works were completed in compliance with those permits or consents; and

(c) where appropriate, a code compliance certificate was issued for those works.

[30] Keven Investments contends that the Montgomerys breached the warranty in clause 6.2(5)(b). It contends that the house was not completed in compliance with the building consent.

[31] The material provision of the consent is as follows:

This building consent is a consent under the Building Act 1991 to undertake building work in accordance with the attached plans and specifications so as to comply with the provisions of the building code. It does not affect any duty or responsibility under any other Act nor permit any breach of any other Act.

This building consent is issued subject to the conditions specified in the

attached 1 pages headed ‘Conditions of Building Consent No. 99/3940’.

[32] I will refer to this statement in the consent as the “operative consent provision”. The conditions of the consent are not relevant and there are no other provisions in the consent which Keven Investments relies on in support of its argument. Also, although the consent refers to attached plans and specifications,

there were no specifications. The absence of specifications has no relevance to the interpretation of the warranty.

[33] Compliance with the warranty in sub-paragraph (b) required compliance with the operative consent provision. As a result, compliance with the warranty in the present context means that the house had to be built “in accordance with the attached plans”. This much was not in issue on the interpretation point. The question whether the house was constructed in accordance with the plans attached to the consent is the subject of the third issue identified in the introduction. The present issue is primarily concerned with the question whether there would be breach of the warranty if, when possession passed to Keven Investments, the house did not “comply with the provisions of the building code”. The words just quoted are in the operative consent provision. It is these words in particular on which Keven Investments relies.

[34] Mr Shand submitted, in as many words, that the operative consent provision required the Montgomerys, as part of the consent, to build the house, or have the house built, in compliance with the provisions of the building code. It is not in issue that, at the date of the giving and taking of possession, the building did not comply with the code. As a result, it is contended, the Montgomerys are contractually liable to meet the costs of the work required to get the building into a code complying condition.

The Tribunal’s decision

[35] After noting the submissions for the parties on interpretation, the Tribunal recorded its reasons for concluding that the warranty did not amount to a warranty that the building complied with the building code at the time of sale. The Tribunal’s reasons may conveniently be set out in full:

[31] Prior to the 8th edition13 the warranties given by the vendor included one to the effect that all obligations of the Building Act were complied with. This was interpreted as meaning that, in line with section 7 of the Building Act 1991 there was a warranty that building work complied with the

13 That is, the 8th edition of the REINZ/ADLS standard form agreement for sale and purchase of real estate, as used by the parties in this case.

Building Code. Changes were made to the agreement for sale and purchase because the authors of the form were of the view that a warranty as to complying with all obligations of the Building Act was excessively onerous. The paper presented for the Auckland District Law Society seminar on the

8th edition for the agreement for sale and purchase real estate stated:

The subcommittee considered, particularly in the light of the litigation arising out of the “leaky home” crisis, that it is inappropriate for a vendor to give a blanket warranty that all obligations under the Building Act have been fully discharged, especially as the obligations are not limited in clause 6.2(5)(d) of the

7th edition form to those imposed on the vendor and that the parties to whom the vendor might have recourse if the warranty proves to be

incorrect, such as the architect, builder or territorial authority, may be protected from liability through the expiry of limitation periods,

especially as there is a 10 year longstop under the Building Act. It is considered that so long as the vendor obtains a building consent (and

resource consent, if that should be necessary) and then carries out the work in accordance with those consents and obtains, at the end of the job, a code compliance certificate, then that should be the end of

the vendor’s responsibilities.

[32] In our opinion this is an accurate summary of the ordinary meaning of the provisions as set out in 6.2. It would be wrong to read back into this clause a warranty that any construction work complied with the Building Code when the former provision which required this was specifically omitted. The natural and ordinary meaning is that at the time of sale the vendors warrant that:

they obtained the necessary resource and building consents for any work done that required such consents; and

they carried out the word in accordance with those consents; and at the end of the job they obtained a Code Compliance Certificate.

It is not, and should not be interpreted as, a warranty that the dwelling complied with the Building Code at the time of sale.

The appellant’s argument on appeal : Aldridge v Boe

[36] After delivery of the Tribunal’s determination, and not long before the hearing of this appeal, the judgment of this Court in Aldridge v Boe14 was delivered. This also was on an appeal from the Weathertight Homes Tribunal. A purchaser

_{relied on a warranty similar to the warranty in this case. The Court held the warranty}

14 Aldridge v Boe HC Auckland CIV-2010-404-7805, 10 January 2012, Potter J.

in that case – that the building works be completed in compliance with the building consent – included a warranty that the works complied with the building code.15

[37] Understandably, Mr Shand’s submissions on appeal were in substantial measure founded on the decision in Aldridge. For the Montgomerys, Mr Wilson submitted that the decision in Aldridge is distinguishable and that, if it is not distinguishable, it should not be followed. Counsel did refer to other cases interpreting warranties of this nature, but none of these was on point. It appears that the decision in Aldridge may be the only earlier decision of the High Court on the scope of a warranty similar to the warranty in this case.

[38] I have given careful consideration to the decision in Aldridge on this point16 and to the submissions of counsel. Without intending any discourtesy to counsel, I do not consider it necessary to record their submissions. The warranty provision in important respects was different from the warranty in this case. The Judge was required to construe the meaning of the provision against a factual background quite different from that in this case.17 There were important considerations relating to the absence of a code compliance certificate, considerations that do not arise in this case. Also, and importantly, liability did not turn on the meaning of the warranty, but on a clause excluding liability. The warranty provision was construed in that context and the Judge held that the exclusion provision applied.

[39] The task in this case is to construe the specific warranty in issue and having regard to contextual matters of relevance in this case. I do so in the following sections of this judgment.

Discussion : the words used

[40] As observed by the Court of Appeal in Pyne Gould Guiness Ltd v

Montgomery Watson (NZ) Ltd, the “best start to understanding a document is to read the words used, and to ascertain their natural and ordinary meaning in the context of

15 _{Ibid, at [266].}

16 _{Ibid, at [238]-[291].}

17 See, in particular, the discussion of principles at [255]-[260] and the analysis of the facts, in respect of the factual matrix, in particular at [268]-[275].

the document as a whole”. 18 The starting point in this case is clause 6.2(5)(b) and the operative consent provision.

[41] Reading clause 6.2(5)(b) and the operative consent provision together, on the face of it what is required is that the house be built in accordance with the plans. That is the directive in the consent. In the operative consent provision there are the words: “so as to comply with the provisions of the building code”. These words are not directive. They record an objective; a statement of what is intended to be achieved if the plans are complied with. This interpretation, confined to the words of immediate relevance, would mean that, if the house was built in accordance with the plans, but it did not comply with the building code for some reason, there would be no breach of the warranty. More needs to be considered than these words, but the conclusion to this point suggests that the extended meaning as contended for Keven Investments will require a firm foundation from other matters than can properly be brought into account for the purposes of interpretation.

[42] Counsel did not refer me to other provisions of the contract in support of their respective arguments. I agree with what is implicit from this; except in one respect there do not appear to be other provisions in the agreement for sale and purchase which bear in any material way on this interpretation question. The qualification is that there is need to construe sub-paragraph (b) in the context of clause 6.2(5) as a whole, including what is not there as well as what is there. I come back to this point after review of relevant provisions of the Building Act 1991 and the regulations under that Act.

Provisions of the Building Act 1991

[43] The Building Act 1991 (the Act) was the Act that was in force when the building consent was obtained. It is the Act referred to in the operative consent provision. The provisions of the Act are relevant because of the subject matter of the warranty and the operative consent provision. The Act has been replaced by the Building Act 2004. Although Mr Shand made some references to the 2004 Act it is

_{clear, in my judgment, that the 2004 Act is not relevant to the present interpretation}

18 Pyne Gould Guiness Ltd v Montgomery Watson (NZ) Ltd [2001] NZAR 789 (CA) at [29].

issue. The 2004 Act would be relevant if the warranty does require compliance with the building code and that the house be compliant when possession was given and taken. This issue does not arise if the warranty has the narrower meaning found by the Tribunal. It is convenient to describe the relevant provisions of the Act using the present tense and in this way assisting in conveying the sense of the provisions at the time.

[44] The Act refers to “the territorial authority”. As a matter of convenience I have substituted the word “council”. Section 32 provides that it is not lawful to carry out building work except in accordance with a building consent issued by the council in accordance with the Act. Section 33 makes provision for applications for building consents. Of present relevance, it requires applications to be made “in the prescribed form” and to “be accompanied by ... such plans and specifications” as the

council required.19

[45] Section 34 makes provision for the processing of building consents by the council. This provision is central to the present question of interpretation. The relevant provisions are as follows:

34 Processing building consents

(1) The [council] shall grant or refuse an application for a building consent within the prescribed period.

(2) A [council] may, within the prescribed period, require further reasonable information in respect of the application and, for the purposes of this Act, the prescribed period shall be deemed to have been suspended until the further information is received by the [council].

(3) After considering an application for building consent, the [council] shall grant the consent if it is satisfied on reasonable grounds that the provisions of the building code would be met if the building work was properly completed in accordance with the plans and specifications submitted with the application.

(4) The [council] may grant a building consent subject to—

(a) Such waivers or modifications of the building code, or any document for use in establishing compliance with the building code, subject to such conditions as the [council] considers appropriate; and

19 Building Act 1991, s 33(2).

(b) Such conditions as the [council] is authorised to impose under this Act or the regulations in force under this Act.

(5) ...

[46] What these provisions mean, and in particular sub-sections (3) and (4), is that the council must determine whether the plan submitted will produce a building which meets the requirements of the building code, provided, of course, that the building is constructed in accordance with the plans. This is given emphasis by the fact that the council is given power under sub-section (4) to modify the plans that are submitted if the council considers that such modification is needed to ensure compliance with the building code. What the council was required to do, in part, was make an assessment for the future; a prediction that building in accordance with the plans consented to would in fact produce a building which also complied with the building code.

[47] The operative provision in the building consent in this case is a provision that was prescribed in the Building Regulations 1992.20 The regulation did not say that a consent was being issued to undertake the work in accordance with the plans and in accordance with the building code. It distinguished between what was mandatory in respect of the consent – compliance with the plans – and what the objective of the mandatory provision was – compliance with the building code.

[48] This distinction between the obligation to comply with the plans and the objective of complying with the building code is consistent with the policy underlying the building code under the Act. The relevant policy was the change to a “performance based” building code in place of a “prescriptive” code.

[49] Section 43 makes provision for the issue of a code compliance certificate. The process is triggered by a requirement under s 43(1) that the owner notify the council as soon as practicable that the work had “been completed to the extent required by the building consent”. It is not a requirement to notify the council as soon as the work had been completed in accordance with the building code.

_{However, as with the issuing of the consent, it is the council’s responsibility in this}

20 Building Regulations 1992, regulation 4 (forms) and Form 4 in schedule 2.

context to seek to ensure compliance with the building code. This is the effect of s 43(3) as follows:

43 Code compliance certificate

...

(3) Except where a code compliance certificate has already been provided pursuant to subsection (2) of this section, the territorial authority shall issue to the applicant in the prescribed form, on payment of any charge fixed by the territorial authority, a code compliance certificate, if it is satisfied on reasonable grounds that—

(a) The building work to which the certificate relates complies with the building code; or

(b) The building work to which the certificate relates complies with the building code to the extent authorised in terms of any previously approved waiver or modification of the building code contained in the building consent which relates to that work.

[50] Section 7 of the Act separately imposes an obligation on people constructing buildings to comply with the building code. It is as follows:

7 All building work to comply with building code

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

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

This emphasises the sharp distinction between an obligation to comply with a building consent and an obligation to build in compliance with the building code. The obligation on those constructing the building was found in s 7, not in the consent. This is distinct from the obligations on councils when processing applications for building consents and the subsequent obligation on the consent holder to comply with the consent.

[51] The different statutory provisions dealing with the council’s obligations on processing a building consent application and the consent holder’s obligations in that regard, compared with the separate obligation in s 7, means that it is quite possible that a building could be constructed in accordance with the consent plans (and any specifications) but not meet the building code. That could happen at the date of completion of the building, and notwithstanding issue of a code compliance certificate. A substantial number of leaky home cases in recent years illustrate the point. What this indicates is that if the warranty has the extended meaning it could operate unfairly. The vendor, under the warranty, would have to ensure compliance with both the plans (and any specifications) and with the building code. The owner’s statutory obligation in respect of code compliance, at the point of obtaining a building consent, is to follow the building consent procedures. The owner, as many cases illustrate, could do that entirely properly, by building entirely in accordance with the plans and specifications and getting a code compliance certificate, but still end up with a building which does not comply with the code. If the land with the building was sold before anybody had knowledge, or ability to have knowledge, of non-compliance with the building code, the owner could end up with liability under the warranty years later for something the owner had no knowledge of or reasonable means of having knowledge of.

Other considerations

[52] I come back to the content of clause 6.2 of the agreement for sale and purchase. If it was the intention of the parties that the vendor was warranting that, at the giving and taking of possession the building complied with the building code or, more broadly, complied with all obligations imposed under the relevant Building Act, the straightforward and conventional way of achieving this would be to insert an express provision to that effect. It was not done. Moreover, given that this would be the conventional and simple way of recording what would be a significant warranty, I am unable to accept that the parties intended to achieve the same result by a strained interpretation of words that are not even in the agreement; that is to say, a strained interpretation of the operative consent provision. What is more, it is not contended that Keven Investments had regard to and relied on the words in the operative consent provision.

[53] I referred to the intention of the parties. This is their intention as determined by interpreting the words of the agreement in an objective way, and approaching this task in accordance with the principles discussed in the authorities. This approach, including the need for an objective appraisal, was concisely stated by the Court of Appeal in Attorney-General v Dreux Holdings Ltd as follows:21

... it is the duty of the Court to discover and give effect to the real intention of the parties as ascertained from the factual matrix, the background, object and commercial purpose of the contract viewed in an objective way.22 ...

This passage was cited by the New Zealand Court of Appeal in Airwork (NZ) Ltd v Vertical Flight Management Ltd.23 The Court of Appeal cited two further authorities recording what is well established but which requires emphasis; the actual intentions of the parties are not relevant. The “factual matrix” referred to in the passage just cited will often be an essential part of the enquiry as to meaning. In Aldridge v Boe24 this plainly influenced the Judge’s interpretation of the warranty in that case. This is apparent in particular from the Judge’s comments at [269]-[270]. It is unnecessary to consider matters of that nature in this case because no reliance was placed by the appellant on any part of the background matrix of fact.

Conclusion on interpretation

[54] For these reasons I am satisfied that the warranty in clause 6.2(5)(b) requires that the works be completed in compliance with the plans and specifications attached to the consent and any relevant conditions expressly recorded in the consent. The clause does not include a warranty from the vendor that the works also comply with the provisions of the building code or, more broadly, that all obligations imposed under the relevant Building Act have been complied with.

[55] This conclusion is sufficient to dispose of this ground of appeal. However, one other matter should be noted. This arises from the fact that the 8th edition of the

_{REINZ/ADLS standard form agreement for sale and purchase of real estate used in}

21 _{Attorney-General v Dreux Holdings Ltd (1996) 7 TCLR 617 (CA) at 624.}

22 Citing Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237 (HL); Codelfa Construction

_{Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337.}

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

24 Aldridge v Boe, above n 14.

this case omitted the warranty of compliance with the Building Acts that had been in the 7th edition. This is the change referred to by the Tribunal in its determination at [31].25 The Tribunal referred to part of what was recorded in the paper presented for the Auckland District Law Society on the changes in the 8th edition. The paper was presented by three experienced lawyers, with one of these being the chair of the sub- committee which produced the 8th edition and another being the convener of the Society’s documents and precedents committee. It may reasonably be inferred that the statement in the paper as to the reasons for the change – the reasons for deletion of clause 6.2(5)(d) with the Building Act warranty – is an authoritative statement.

[56] The Tribunal used the seminar paper as an aid to interpretation. Regard was had to the reasons given for the omission as well as to the fact of omission in the 7th edition compared with the 8th edition. There is a question as to whether information of this sort can be used in interpreting a contract.

[57] Because the question does not have to be answered to determine the issue, and because the issue was not argued on this appeal with reference to principle, it is unnecessary and inappropriate to express any conclusion. It nevertheless raises what may be an important issue relating to the interpretation of standard form contractual documents, and in particular standard form contractual documents which are as widely used as the REINZ/ADLS standard form.

[58] There are principles applying to the interpretation of contracts generally which would indicate that information of the sort contained in the Law Society seminar paper, and arising from a comparison between the 7th and 8th editions, would generally be excluded. There are, for example, the cases which hold that pre- contractual negotiations are generally to be ignored and that draft versions of contracts and deletions from drafts cannot be considered: see, in particular, Vector Gas Ltd v Bay of Plenty Energy Ltd.26 It is also clear, under general principles of

_{interpretation of contracts, that evidence of the subjective intentions of parties is}

25 _{Cited above at [35].}

26 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444. See also Yoshimoto v Canterbury Golf International Ltd [2001] 1 NZLR 534 (CA); [2004] 1 NZLR 1 (PC); A & J Inglis v John Buttery & Co (1878) 3 App Cas 522 (HL) at 569; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 (HL).

inadmissible (as noted earlier in this judgment). However, there are considerations relating to standard form contracts, such as the agreement for sale and purchase, which might justify a different, or at least modified, approach. And there are some established principles applying to standard form contracts which differ from those applying to one-off contracts.27

[59] In a very broad sense, having regard to information of the sort being considered here, it might be regarded as similar to a court’s having regard to reports of Parliamentary debates on a bill, and similar information, as an aid to the interpretation of a statute. This applies to the objectives of the lawyers who

produced the 8th edition of the standard form. Having regard to the difference

between the seventh and the 8th edition is, in one sense, similar to having regard to the history of legislation. However, there are significant differences between a contract and a statute which also mean that there could be significant differences in what may be used to assist interpreting a contract compared with a statute. As noted in Corbin on Contracts,28 the task of interpreting legislation differs from that of interpreting a contract. A contract prescribes reciprocal rights and obligations for each of at least two parties, and the search for the meaning of any part of it is influenced by awareness of this tension between the parties’ respective rights. However, a legislature speaks with one voice, irrespective of the many motivations that inspire it. A statute is enacted as embodying the statement of one unit (the legislature) rather than the words of at least two units (parties to a contract). A

statute governs the activities of millions of persons, but a contract directly affects only the parties to it.29

[60] There are, nevertheless, aspects of the REINZ/ADLS standard form which suggest that it is somewhat distant from one-off contracts and similar in some respects to legislation. This includes not only the widespread use of this form in

_{New Zealand, but also the way in which the form is regularly used without any}

27 See, for example, Beaufort v Gilbert-Ash [1998] 2 All ER 778 (HL) at 784 per Lord Hoffman. And see generally the discussion in K Lewison and O Hughes The Interpretation of Contracts in Australia (LawBook Co, 2012) at 149-156 and 293-297; K Lewison The Interpretation of Contracts (5th ed, Sweet & Maxwell, London, 2011) at 156-160 and 199-202; J Burrows, J Finn and S Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at 197.

28 _{M Kniffen Corbin on Contracts: Interpretation of Contracts (Vol 5, LexisNexis, Virginia, 1998).}

29 Ibid, at 7.

modification to the standard form provisions. There is also the knowledge that the contracts are often entered into by parties without particular regard to the standard content and without legal advice.

Issue 3: compliance with the plans?

[61] The remaining issue is whether there was breach of the warranty in sub- paragraph (b) as interpreted by the Tribunal and affirmed in this judgment: that is, was any part of the construction not in accordance with the consent plans?

[62] The Tribunal recorded that Keven Investments’ contention when the case opened was that the house had not been constructed in accordance with the plans in nine respects. At the end of the hearing these contentions were confined to two

_matters:

The height difference between internal floors and decks were not as

stipulated in the plans. This was referred to in submissions as the “step- down”.

The clearances between the base of the exterior cladding and balcony surfaces were not as specified in the plans. I will refer to this as “cladding

_{clearances”.}

[63] On this topic the Tribunal referred to the evidence of three experts. They are: Mr Frank Wiemann, the assessor who carried out an investigation and provided a report under the Weathertight Homes Resolution Services Act 2006; Mr John Bukowski, a registered architect and consultant, who gave evidence for Keven Investments; and Mr Clint Smith, a registered building surveyor, who gave evidence for the Montgomerys.

The step-down

[64] The Tribunal’s discussion and conclusion on this issue was concise. It is

convenient and appropriate to set it out in full:

[35] Keven alleges that the plans depicted a step down between the interior floor levels and the balconies and that the photographs in the assessor’s report show a lack of level difference between the interior floor level and the exterior balcony levels. While Mr Bukowski criticises the lack of level difference between the finished floor levels and balconies he gave no evidence as to whether the way the dwelling was built was in accordance with the plans. Mr Smith however said that due to the size of the deck and the requirement to get appropriate falls across the decks there was a requirement for the deck to be constructed in places at a higher level than the internal floor level. His opinion is that the height difference was anticipated by the designer and was shown on the long section of the building drawings on sheet 8A.

[36] Mr Wiemann, who is a qualified architect, did not consider this was an appropriate detail but he acknowledged it was sometimes done. Mr Wiemann was also clear that his criticism was not that the dwelling was built with no difference between the internal floor level and the deck level. His criticism was that the level of difference was insufficient. He however largely accepted Mr Smith’s evidence in relation to what was drawn.

[37] We accept Mr Smith’s evidence that no reliable measurements have been taken either of the step-down provided for in the plans or as the dwelling was built. He stated at 4.17 of the transcript:

There are no definitive measurements. No one has got a measurements on site to show exactly what the step down is. So we are making a certain amount of assumptions about what the measurements is on the plans which I think Mr Wiemann and myself agree is about 35 mm and then from photo 6 in Mr Wiemann’s report I have expressed the opinion that might be 35-40 mms. So I have reached a conclusion that from that information that is within cooey of what is shown in the plans

[38] We accordingly conclude that whilst the lack of level difference between the finished floor and the balconies may have contributed to water ingress there is no reliable evidence to establish that in this regard the dwelling was not built in accordance with the consented plans. Accordingly the claimant has failed to establish that there is any breach of clause

6.2(5)(b) in relation to this alleged defect.

[65] On the appeal Mr Wilson submitted that the Tribunal correctly summarised the evidence and further submitted, naturally enough, that the conclusion reached by the Tribunal was correct having regard to that evidence.

[66] Mr Shand sought to persuade me that the Tribunal’s findings of fact were incorrect. He referred to passages in the oral evidence of the experts. I am not persuaded that these demonstrate that the Tribunal was wrong in concluding that the step-down was contrary to the plans. And some of the evidence does not touch on the question of compliance with the plans; it was concerned with questions of

causation – whether the step-down as built (or the absence of a step-down) contributed to a water ingress. That evidence does not assist in determining whether the construction did not comply with the plans.

[67] Mr Shand also sought to persuade me that the Tribunal was wrong by presenting his interpretation of the relevant detail on the plans. What this amounted to was a submission that I should accept Mr Shand’s interpretation of the detail on the plans, as opposed to the interpretation of the experts. It may be that in some cases plans are sufficiently clear and straightforward for a court to come to a conclusion contrary to the opinion of experts. But that is not the case here. To an extent, Mr Shand was giving evidence as opposed to making submissions arising from evidence to the Tribunal. With due respect to Mr Shand’s experience as a lawyer in this field, the matters he dealt with were not appropriate matters of submission.

[68] I am not persuaded that there was any relevant error by the Tribunal in its conclusion on this point. As a consequence it is unnecessary to consider further points on appeal relating to causation and the measure of damages. I nevertheless note, in that regard, that it was Mr Wilson’s submission that Keven Investments had failed to prove the specific cost of any remedial work that may have been required in respect of any deficiency in the step-down, as opposed to proof of the total cost for all work on the entire building.

Cladding clearance

[69] I will record the Tribunal’s discussion and conclusions on this issue to the extent that it relates to the question of compliance with the plans, as opposed to causation. The Tribunal said:

[39] ... Mr Smith accepted that the detail shown on plan A.7 detail 1 has

150mm clearance but stated that this detail relates to one location only. There is no photograph of that area and no evidence was given as to what the “as built” clearance was in that location. Mr Smith noted that where photograph 6 in the assessors [sic] report is of detail 2 of sheet 7 of the plans and that drawing does not give a height for any of the cladding.

[40] Mr Smith’s opinion was that the balustrade cladding/balcony surface was constructed in a manner that very closely resembled the details on the plans. ... Mr Smith accepted there should have been a clearance but in the majority of locations the plans do not make it specific as to the extent of the clearance.

[41] We have examined the plans and photographs and agree that there is a 150mm clearance shown on plan A7 detail 1. However there is no photograph of this location nor is there any evidence as to what the cladding clearances were in that location. For other locations there are no specific measurements for clearance and again there have been no specific measurements taken of either what the plans did portray or what the clearances were as built. As noted earlier there is no reference at all in Mr Bukowski’s brief to what the plans specified or to lack of cladding clearances in the dwelling being causative of leaks. Mr Weimann in his report refers to lack of clearance between balustrade cladding and balcony tiled surfaces but again did not measure it or compare it to the consented plans.

[42] There is accordingly insufficient evidence on which we could conclude that the dwelling has not been built in accordance with the consented plans in relation to the clearance between the base of the cladding and balcony surfaces.

[70] The submissions for both parties on the appeal were similar, in broad terms, to their submissions on the step-down issue. Mr Shand again took me to evidence which is not referred to in the Tribunal’s decision. And he referred me to, amongst other things, the plan A7 with detail 1 discussed by the Tribunal, and photographs of areas of cladding with a notation “cladding did not have the required clearance”.

[71] There was one discrete issue as to whether Keven Investments’ claim was limited to cladding clearances on balustrade walls only, or whether it applied to the cladding on all walls which meet balcony surfaces. This was essentially a pleading point taken by Mr Wilson. I am satisfied that the wider scope of the claim was sufficiently clear. However, on the central issue as to whether the Tribunal’s conclusion was correct in terms of the evidence, I am satisfied that it was. For this reason it is again unnecessary to consider questions of causation and proof of damages, although I note that Mr Wilson’s submission on the absence of proof of damages applied to the cladding clearance issue as well.

Result

[72] The appeal is dismissed.

[73] If the first respondent seeks costs a memorandum should be filed within four weeks, with a memorandum in response for the appellant within a further four

_weeks.

Woodhouse J