The High Court has recently passed judgement in the case of Palmer v Hewett Building Limited & Anor [2021] NZHC 1460, and in doing so puts construction companies and builders alike around New Zealand on notice.

 

Ms Palmer entered into a contract with Hewitt Building Limited (Company) back in June 2016 to renovate her Masterton house. However, as the project progressed, a number of serious issues emerged. Disputes soon began to arise, which at one point led to a case of dognapping. It ultimately brought about the litigation we will review here.

The fact that there were serious issues with the building work was not a disputed point. Issues identified included the construction of:

• a garage that was built smaller than the plans;
• a faulty stormwater disposal system;
• a septic tank prone to flooding;
• a wood burner that was not code-compliant;
• internal walls that were not sturdy; and
• gas pipes that did not work.

In short, the project was a nightmare for Ms Palmer. In the High Court, Justice Cooke summed the situation up as a ‘domestic building project that has gone seriously wrong.’

The issue before the High Court was where the liability for these defects was to lie.

 

 

The High Court’s findings

Ultimately, the Court found both the company and Mr Hewitt, as builder and director, liable. The company had to pay the plaintiff $392,000 and Mr Hewitt was ordered to pay $67,000.

 

Why was the Company held liable?

The Court found the Company liable for its breach of the terms of the contract. These terms were not expressly within the contract itself, but rather inferred as statutory warranties as set out in Part 4A of the Building Act (2004) (Act). These are applicable to all residential building contracts and cannot be excluded from the agreement.

However, these warranties do not extend to being applicable to the individual builders themselves on site. Under the Act, the Company was able to be found liable for breaching these standard warranties, but not the builder himself, as the Courts found that “Mr Hewitt was not himself a party to the contract into which the statutory warranties are implied.”

 

Why was the builder held liable?

The High Court then set its sights on Mr Hewitt as the builder. The Courts went to the common law of tort to find that Mr Hewitt was liable in this instance for his negligent actions. Justice Cooke found:

“A builder has a personal duty of care to a building owner to meet the standards of a reasonable builder… That duty is different from the contractual obligation of the entity obliged to undertake the building work. An action in contract against the entity promising to perform the building work is concerned with a failure to perform contractual promises. An action in negligence against the individual builder is directed to compensation for the loss caused by the builder’s failure to build with reasonable care.”

The Court found Mr Hewitt could be held liable for his “failure to conduct the building work he personally undertook with reasonable care”, in part, because his work was not in accordance with the Building Code as provided for within the Act. This does not mean if a builder carries out work in accordance with the Building Code that his actions are reasonable and therefore not negligent. But if it is in line with the Building Code, then the builder has likely not been negligent. As J Cooke stated:

“Compliance with the Building Code may not represent the entire analysis required to consider a claim in negligence against a builder, however. The obligation of the builder who conducts the work is to meet the standards of a reasonable builder. Those standards are generally to be found in the Building Code. For that reason, the duty of care is often described as a duty to comply with the Code.”

 

Q/ Was it because Mr Hewitt was the sole director of the Company, with full control of the project, that meant he could be held personally liable in negligence?

A/ No. Any builder can be held liable if they are negligent – even employees.

Chambers J in Body Corporate 202254 v Taylor states:

“If a builder carelessly constructs a residential building and thereby causes damage, the owners of the residential building can sue the builder in negligence… that is really the long and short of it… it should make no difference whether or not he was employed at the time that he allegedly did these careless things. The only relevance of his being employed is that his employer or employees may be vicariously liable for his tort committed in the course of employment.”

In this instance, the work carried out by Mr Hewitt was not compliant with the Building Code. The High Court held that in light of the work not being compliant with the Building Code, Mr Hewitt breached his duty of care to Ms Palmer and was therefore negligent.

 

A distinction to be made

The Court here has set out the grounds for where construction companies and builders themselves may be found liable and there is a distinction to be drawn.

Mr Hewitt’s liability as the builder came about due to his negligence and breaches of the standards required of a reasonable builder. A builder’s duty of care is largely met by complying with the Building Code as set out within the Act.

The Courts will not extend a builder’s liability for work that deviates from the planned construction, as set out in the building consent or from the particular terms of the contract. As Justice Cooke stated, “there is no duty in tort to take reasonable care to perform a contract.” It is the Company that is liable for breaches of the contractual terms. These extend to mandatory statutory warranties, which in this case, were set out within the Act.

 

 

What does this mean for builders and construction tradespeople?

This case looked purely at the actions of a construction company and builders. But the findings provide the legal principles that may be able to be applied to a variety of other industries; such as electricians, surveyors and plumbers. Where there are contracts, statutory duties and money involved, parties need to ensure that they are meeting the standards required of them. If not they may find themselves in the shoes of Mr Hewitt and his building company.