High Court clarifies the extent of a builder’s personal liability

Tuesday, June 29, 2021

A recent High Court decision in a building negligence case (Palmer v Hewitt Building Limited & Anor [2021] NZHC 1460) has clarified some important issues that regularly occur:

  • what is the application of the statutory warranties under the Building Act 2004 (Act); and
  • to what extent is a builder personally liable, when they are trading through a limited liability company.

The Court also provided some helpful guidance for managing the potential conflict which arises when an expert witness may also have an interest in a party’s success, because they have been engaged to undertake work contingent on that success.

Background

The case involved a dispute arising from a residential building contract to extend and renovate Ms Palmer’s house. Ms Palmer issued proceedings against both the building company, Hewitt Building Limited, and Mr Hewitt, the licensed building practitioner (LBP) who did the building work.

The High Court found that Mr Hewitt treated the building plans, which were consented by the Masterton District Council, as “outlining the essence” of what Ms Palmer wanted. He departed from the plans both to deal with variations agreed with Ms Palmer, and where he could save costs.

Statutory warranties

The statutory warranties at Part 4A of the Act were introduced at the start of 2015 and imply a number of duties into all residential building contracts. These duties cannot be contracted out of, and transfer to subsequent purchasers.

The Court confirmed that the warranties are implied into building contracts, and the duties therefore apply only to the building contractor (usually a company) named in that building contract. Unless the individual builder is also a party to that contract, they will not be subject to those warranties.

The tort of breach of statutory liability cannot be used to make the individual builder liable, as it only applies if Parliament intends for there to be a civil penalty for failing to comply with a duty. Justice Cooke decided that was not the case here, as the Act sets own its own penalties, such as a complaint to the Building Practitioners Board.

A builder’s personal liability

The fact that an individual builder is not a party to a contract does not mean that they will have no liability. Rather than having a liability for breach of the building contract, the builder will have a liability in negligence.

Justice Cooke said that:

“A builder has a personal duty of care to a building owner to meet the standards of a reasonable builder when engaging in building work. That is so whether they are an employee, a director of a company or are self-employed. 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. Conceptually they address different issues. In the present case this line of analysis would mean that Mr Hewitt cannot be sued for the failure of Hewitt Building Ltd to build in accordance with the contract with the plaintiff, but he can be sued for any loss caused by his failure to conduct the building work he personally undertook with reasonable care.”

In this case there were a range of areas where the building work did not comply with the contract, including the installation of a smaller than specified water tank, roof eaves being shortened from 1100mm to 800mm, and a garage being built smaller than specified. Hewitt Building Ltd was liable in contract for all of these. However, Mr Hewitt was not liable in tort, as the building work itself was not defective, and “there is no duty in tort to take reasonable care to perform a contract”.

A builder’s personal duty of care is to meet the standards of a reasonable builder, which is largely met by complying with the Building Code, while more extensive contractual duties will be owed by the actual parties to the contract.

Expert witnesses

Ms Palmer’s sole expert was a licenced building practitioner, who was also engaged to undertake the remedial work on the property. The defendants objected to his evidence on the basis that he was not properly qualified to be an expert witness and could not be sufficiently independent when he would likely be retained to do the repairs.

The Court said that there is a distinction between impartiality and independence, noting that the code of conduct for expert witnesses requires impartiality, but does not necessarily require independence. However, there may be a point where an expert’s involvement in the subject matter means that their evidence may not be sufficiently helpful. The Court found that the plaintiff’s expert could still give impartial evidence despite being engaged to work on the property.

In relation the witness’ qualifications, the Court acknowledged that while a licenced building practitioner may not be as well-placed to identify building defects or produce a remedial scope as either a building surveyor or quantity surveyor, and that these may be necessary where greater sums are in dispute, the Court must also approach litigation with a pragmatic eye and bear in mind the economies of conducting litigation.

Comment

This decision is a useful reminder that the extent of liability can be very different in tort and in contract. While it is common to issue proceedings against the owner/builder of the building company, particularly if there are questions about the financial viability of the building company, the owner/builder only has a requirement to build a house that conforms with the Building Code, not one that meets the additional requirements of the contract.

If you have any questions about this decision, or about building disputes in general, please contact a member of our litigation and dispute resolution team.

 

Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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