Jerard v Paxton Paxton

• Jurisdiction: New Zealand
• Judge: LANG J
• Judgment Date: 10 October 2014
• Neutral Citation: [2014] NZHC 2493
• Docket Number: CIV-2011-404-7422
• Court: High Court
• Date: 10 October 2014

BETEWEEN

Kenneth James Jerard And Linda Irene Leader

Plaintiffs

Auckland Council

First Defendant

and

Bryce Warran Paxton And Amanda Sarah Paxton

Second Defendants

Brown Brothers Builders Limited

First Third Party

Ian Hutchinson Consultants Limited

Second Third Party

Brett Conway Brown

Third Third Party

Matthew Tickle

Fourth Third Party

Pole Specialists Limited

Fifth Third Party

Dean Henshaw

Sixth Third Party

Shore Plumbing Limited

Seventh Third Party

[2014] NZHC 2493

Judges:

Lang J

CIV-2011-404-7422

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Formal proof hearing into a claim against the second defendants for breach of warranties under an agreement for sale and purchase — the house was defective and did not meet building code — a code compliance certificate had been issued but was subsequently set aside — the cost of remedying defects would exceed the value of the property once it was repaired — no evidence given that the plaintiffs intended to undertake remedial work — whether damages should be performance based or based on diminution of value of the property.

Appearances:

T J Rainey, D A Cowan and J Heard for plaintiffs

No appearance for second defendants

JUDGMENT OF LANG J

This judgment was delivered by me on 10 October 2014 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date………………

1 This proceeding concerns a property situated at 12 Fairhaven Walk, Arkles Bay (“the property”). The plaintiffs, Mr Jerard and Ms Leader, are the present owners of the property. They purchased the property in December 2005 from the second defendants, Mr and Mrs Paxton.

2 The plaintiffs commenced this proceeding in order to recover from the defendants the cost of rectifying defects they have discovered in relation to the property. They now seek judgment against the second defendants by way of formal proof.

3 The plaintiffs originally sued Mr and Mrs Paxton in both negligence and for breach of contract, but ultimately restricted their claim to the latter. They allege that Mr and Mrs Paxton breached the warranties relating to building work contained in the agreement for sale and purchase that both parties signed when the plaintiffs agreed to purchase the property. Mr and Mrs Paxton defended the plaintiffs' claim up until July 2013, but thereafter took no steps to serve evidence in support of their defence or in support of their claims against the third parties. They did not appear when the trial commenced on 6 October 2014.

4 On the second day of the hearing, counsel for the remaining parties advised the Court they had reached an unconditional settlement that will involve the plaintiffs receiving the sum of $260,000 from those parties. For that reason the trial proceeded by way of formal proof against the second defendants alone.

5 When the trial began, the plaintiffs sought damages based on the cost of rendering the property code compliant. They contended that remedial works to the land would be likely to cost approximately $657,000, and that remedial works to the house will probably cost approximately $250,000. The plaintiffs also sought consequential losses totalling $42,514.69, and general damages for stress and inconvenience in the sum of $25,000.

6 When the plaintiffs closed their case, they sought damages calculated on the basis of the extent to which their property has diminished in value by virtue of the defects that have been identified. They sought damages in the sum of $550,000 on this basis, reduced by $260,000 to reflect the payment they are to receive from the other parties to this proceeding. They abandoned their claim for consequential losses, but maintained their claim for general damages in the sum of $25,000.

The plaintiffs' claim

7 The plaintiffs sue Mr and Mrs Paxton for breach of the following warranties contained in cl 6.2(5) of the agreement for sale and purchase that they signed when they agreed to purchase the property from them:

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

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

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

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

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

8 The evidence establishes conclusively that Mr and Mrs Paxton were the persons who caused the house to be built on the property, and that the construction of the house required a building consent. As a result, there can be no dispute that the plaintiffs are entitled to the protection of the warranty contained in cl 6.2(5) of the agreement for sale and purchase.

9 The plaintiffs accept that Mr and Mrs Paxton obtained both a resource consent and building permit from the Rodney District Council (the Council) in respect of works to be carried out on the property. They maintain, however, that these could not and did not cover preparatory work that the plaintiffs had already carried out on the property before they had obtained either a resource consent or a building consent. They therefore contend that Mr and Mrs Paxton breached the warranty contained in cl 6.2(5)(a).

10 The plaintiffs also accept that the Council subsequently issued a code compliance certificate in respect of the work carried out in relation to the construction of the house. The code compliance certificate was subsequently set aside, however, after the plaintiffs obtained a determination from the Chief Executive of the Department of Building and Housing that the Council did not have reasonable grounds to be satisfied that the work carried out under the building consent complied with the New Zealand Building Code. 1 Following that decision, the Council served a notice on the plaintiffs requiring them to rectify the defects identified in the Chief Executive's determination. The Council has agreed not to enforce that notice pending determination of the present proceeding.

11 As counsel for the plaintiffs recognised in his closing submissions, the fact that the code compliance certificate was subsequently set aside does not mean that Mr and Mrs Paxton are in breach of the warranty contained in cl 6.2(5)(c). That warranty related to the state of affairs that existed when the parties signed the agreement for sale and purchase. As at that date there had been no challenge to the validity of the code compliance certificate. There is therefore no basis for the plaintiffs to allege that Mr and Mrs Paxton breached the warranty contained in cl 6.2(5)(c).

12 For reasons I shall shortly explain, 2 it is not necessary in the circumstances of the present case for the plaintiffs to rely upon an alleged breach of cl 6.2(5)(d). The second defendants' liability can be determined by consideration of whether in terms of cl 6.2(5)(a) Mr and Mrs Paxton carried out work on the site before obtaining the necessary consents, and whether in terms of cl 6.2(5)(b) they built the house in compliance with the building consent.

The alleged defects

13 The section on which Mr and Mrs Paxton built the house slopes steeply from top to bottom, and was originally covered densely with large trees and thick bush. Mr and Mrs Paxton began the construction works by felling a large number of trees. They then created a small building platform by digging into the hillside. They

disposed of spoil from the excavation works by tipping it over fallen trees to the eastern side of the building platform. This area was later gravelled, and currently forms an unsealed driveway that travels along the eastern side of the house to the rear of the building platform

14 Mr and Mrs Paxton then built a house on the platform supported by poles. At the rear of the house is a small back yard bounded by a steep rock face that was exposed by the excavation works. The land above the rock face remains covered in a mixture of very large trees and dense bush.

15 The alleged defects that have given rise to the plaintiffs' claim can be summarised as follows:

• (a) although the rock face at the rear of the house is stable, the absence of any retaining wall means that the house is exposed to the risk of being damaged by debris that may wash down the hillside above the house during extreme weather events;

• (b) the construction of the house involved the diversion of natural water flows so that in times of heavy rainfall, water now runs under the house and through the uncompacted fill under the driveway on the eastern side of the house. This places the integrity of both the house and the driveway at risk;

• (c) a retaining wall that runs along the edge of the driveway on the eastern side of the property is not structurally fit for purpose and does not have a safety rail or barrier; and

• (d) the house suffers from weathertightness defects that have permitted water ingress and resulting damage to the structure of the house.

The remedial work

16 The expert evidence called by the plaintiffs establishes that the identified defects will require extensive remedial work. This will include:

• (a) construction of a substantial retaining wall at the rear of the house to protect the house from being damaged by debris that may be washed down the hillside;

• (b) removal of the uncompacted fill under the driveway on the eastern side of the house and replacement with compacted fill of suitable quality;

• (c) installation of appropriate drainage to ensure that the house and driveway are not placed at risk in times of extremely heavy rainfall;

• (d) replacement of the retaining wall on the eastern side of the property with a retaining wall that is fit for purpose and has an adequate barrier;

• (e) removal of existing cladding from the house and replacement of all damaged internal timber structures; and

• (f) replacement of...