Causes of Action

Causes of action are legal reasons why a claimant is starting a lawsuit against another party. This page deals with causes of action in relation to leaky homes cases.

Eligibility

Once a claim is found to be eligible a claimant has the option of using the Tribunal or the District or High Court to determine liability.

The fact that a claim is eligible doesn't mean that it will be successful in the Tribunal. The eligibility criteria are more like an entry gate for getting into the Tribunal. The evidence and the various arguments supporting or criticising a claim will determine whether or not a claimant will be successful.

Causes of action

Causes of action are the legal reasons why a claimant is starting a lawsuit against another party. In order for a claimant to be successful in any case they must satisfy and prove all the elements required under a particular cause of action.

If a claimant does not have the necessary facts to support every element of a cause of action they are raising, the Tribunal may dismiss that particular cause of action altogether. Therefore it is vital for claimants, particularly those who are self-represented, to understand each of the elements of the causes of action they intend to raise before they make submissions to the Tribunal.

The most common legal reasons or causes of action for claims available to leaky homeowners are listed below. Please note that we have highlighted some key points but that this informatoin should only be used as a starting point and not the basis upon which to build your entire claim.

Tort of negligence

The most common cause of action in leaky building cases is negligence. In order for such a claim to be successful those parties who are alleged to be responsible for the damage must have owed a duty of care to the claimant.

There must also be demonstrated negligence that has resulted in damage or loss. Therefore to be successful in a claim based on negligence the claimant must establish:

that the respondent owed the claimant a duty of care
that the respondent acted in such a way as to breach the duty of care – that is, they were careless or negligent
the damage suffered by the claimant was caused by the respondent's breach of duty, that is, the leaks in the house were caused (or partially caused) by the respondent
the damage was a likely consequence of the breach.

Duty of care

A duty of care arises out of a relationship between parties. There is no all-embracing test that can be applied in every case to determine the question of duty. However the courts have laid down some guiding principles which provide a reference point.

In particular a duty of care has been found to be owed by:

a builder to a subsequent purchaser (Roest v Cottle Designer Homes Ltd (in liq) and Huang v Leung which rely on the decisions made in Mount Albert Borough Council v Johnson and Bowen v Paramount Builders (Hamilton) Ltd);
a developer (Lee v Napier City Council, Harris & Ors as Trustees of the Estuary Trust v Veltman, Body Corporate 188273 v Leuschke Group Architects Ltd and Patel v Auckland City Council);
a local authority to the owner (For Councils: Dicks v Hobson Swan Construction Ltd (in liq), Sunset Terraces (HC and CA), Byron Ave (HC and CA), Lee v Napier City Council; for private certifiers Brockie & Anor as Trustees of the Brockie Trust v Millington);
a subcontractor to a purchaser (Holland & Ors as Trustees of the Harbourview Trust v Auckland City Council, Harris & Ors as Trustees of the Estuary Trust v Veltman, Byron Ave and Kilham Mews);
a designer to a purchaser (Estuary Trust and Sunset Terraces);
a pre-purchase inspector (Roos v Wang, Abernethy v Coughlan and Brockie Trust);
previous owners (Tabram v Slater - Note: most decisions relating to the duty owed by previous owners is on the basis that they were developers/head-contractors or project managers)

The questions to address in a possible claim for negligence are:

Does the respondent owe the claimant a duty of care?
Was the respondent negligent or careless to the extent that they breached that duty of care?
Did the respondent's breach of the duty of care cause the house to leak or was it a contributing factor to the causes of the house leaking?
Are there any issues or defences that could reduce the potential liability of the respondent?

Personal liability of directors

In some cases a director of a company that carried out building or development work can be sued personally. In general this can be done where the director either:

personally carried out the work that was either in breach of the contract or was negligent. In other words the director was the actual builder or plasterer that did the work
controlled or directed the work that directly resulted in the home being leaky.

Case examples:

Folwell & Ors as Trustees of the Paul and Pauline Folwell Family Trust v NC Developers Ltd, Mayfair Street Units v Spargo, Wallis & Anor as Trustees of the Seaview Trust v Wet-Seal NZ Ltd, Hartley v Balemi, Morton v Douglas Homes Ltd and Dicks v Hobson Swan Construction Ltd.

Note: In Harris & Ors as Trustees of the Estuary Trust v Veltman the Tribunal found that the director personally owed a duty of care to the claimants because he gave a personal guarantee as to the workmanship of his company

Breach of a contract

A breach of contract claim primarily focuses on the obligations that different people have under a given contract. The role then for the Tribunal is to determine whether or not a respondent did or did not breach their obligations under a contract.

In order to make that determination the Tribunal must be satisfied that the claimant has met certain requirements before pursuing a breach of contract cause of action. The diagram below outlines those requirements.

In a typical building project there are a number of parties involved and each of those parties are all linked together by a "web of contracts". Depending then on the size of the project, the web of contracts will either involve a relatively small and simple web of contracts (see Figure 1) whereas a larger project will involve a bigger and more complex web of contracts (see Figure 2).

Figure 1

Simple Web of Contracts

Figure 1: Simple Web of Contracts

Figure 2

Complex Web of Contracts

Figure 2: Complex Web of Contracts

The most important part of a breach of contract claim is the specific links or contracts (as shown by the arrows in the diagrams above) that connect one party to another party. This is because in order for a claimant to bring a breach of contract claim against a particular respondent, that respondent must be at the other end of the link.

For example, using Figure 2, the "Owner" only has a link or contract with the Architect, the Building Company, the Painter, the New Owner, and the Real Estate Agent and so the Owner is entitled to bring a breach of contract claim against those parties only. That means then that the Owner cannot bring a breach of contract claim against the plasterer or the roofer for instance, because there the Owner does not have a direct link to those parties.

In order to bring a claim for breach of contract there needs to be a building related contract relative to the causes of the leaks or an agreement for sale and purchase. The contract could be between the owner and a supplier of goods or services (for example a builder, an architect, or a contractor), a developer and a builder, a builder and a subcontractor, or an owner and a previous owner. Note however that a claim in contract cannot be brought against a territorial authority as its duties and obligations derive from statute rather than contract.

The contract may comprise one document or several. For instance it may be an invoice, a quotation letter, an exchange of correspondence or a more formal contract. Normally it will include some reference to plans and specifications.

It can also be an oral contract although it can be more difficult to establish the terms of an oral contract.

The claimant may also rely on implied terms such as the quality of workmanship or details that are not specifically expressed in the plans and specifications. The normal rules as to implied terms apply, namely:

Is it reasonable and fair to imply such terms?
Does the term "go without saying"?
Is the term clear?
The term must also not contradict any other express term in the contract

The questions to address in a possible claim for breach of contract are:

Was there a contract between the claimant (the person bringing the claim) and respondent (the party or person against whom the claim is being brought)?
Is the claimant entitled to the benefit of a contract with the other party? Note: if a claimant is not a party to the contract but is seeking to take advantage of it, the Contracts (Privity) Act 1982 might apply provided the contract confers a benefit on the claimant, such as a supplier's guarantee on materials or workmanship
What were the terms of that contract (express or implied)?
Has there been a breach of those terms?
What is a reasonable remedy for the breach?

The following are examples of Weathertight Homes Resolution Services (WHRS) decisions where the claim involved a breach of contract in sale and purchase agreements:

Wall v Malone: A previous owner breached the vendor warranty in the agreement for sale and purchase in failing to provide a home that complied with the Building Code, and for failing to complete the outstanding work necessary to obtain a Code Compliance Certificate as stipulated in the agreement
Neville Wilson Family Trust v Welch: The previous owners who purchased a section with plans to permit stage breached the vendor warranty. The previous owners contracted each of the different trades on a labour-only basis and were responsible for the construction of a deck, for which no building consent was obtained. Although the previous owners were not aware of any potential weathertightness issues, they were liable for failing to ensure that the work of their subcontractors complied with the Building Act 1991 and were directly responsible for the design and construction of the deck, which leaked.
Roest v Cottle Designer Homes Ltd (in liq): The previous owner breached the vendor warranty for causing or permitting work to be carried out which was in breach of the Building Act - that is, every defect was due to a lack of supervision of the method and sequence of construction and it was the previous owner who decided which contractors to use and that there would be no on-site supervisor or project manager

The following is an example of a Weathertight Homes Resolution Services (WHRS) decision where the claim involved a breach of a building contract:

Sell v Harris: a builder entered into a contract with the claimants to build and provide on-site supervision for the construction and that his buildign work would be in accordance with the plans and specification. It was also implied that the construction work and supervision would be done competently and in accordance with standard building practices. As the defects occurring to the dwelling were due to the builder's work, the builder was liable in contract.

Contractual Remedies Act 1979

The Contractual Remedies Act 1979 was designed to simplify the law relating to remedies for misrepresentation and breach of contract.

The main principles are set out in s6(1) of this Act which provides that if a party to a contract has been induced to enter into the contract by a misrepresentation, whether innocent or fraudulent, made to them by another party the party who has suffered a loss is entitled to damages from that other party as if the representation was a term of the contract that had been broken. However in saying that, that party shall not be entitled to damages from that other party for deceit or negligence.

The effect is that a representation that encourages or induces a person to enter into a contract is treated as a term of the contract and it can be enforced and compensated for in the same way as any other term.

Claims under the Contractual Remedies Act 1979 can be considered where a vendor has misrepresented weathertightness issues about a house and these representations encouraged the claimant to buy the property. Note: there is no duty to disclose information in New Zealand. Therefore a misrepresentation under the Contractual Remedies Act 1979 focuses on what was actually said rather than what was not said.

Case Examples:

Hearn Family Trust v Parklane Investments (Interim Decision): The claim under the Contractual Remedies Act 1979 failed as the parties never met and there was no evidence of the agent making a misrepresentation to the claimants.
Bell Shepherd Family Trust v Lay: The claimants argued that the vendors misrepresented the condition of the house by failing to disclose that it was leaky because it was not built properly. However the Adjudicator held that the claimants could not show that the alleged misrepresentation induced or caused them to enter into the contract to purchase the property, and so the claim failed.

Claims under the Fair Trading Act 1986

The Fair Trading Act prevents certain conduct and practices in trade including:

misleading and deceptive conduct
false representations
unfair practices.

A claim alleging a breach of the Fair Trading Act does not require the claimant to have a contract with the respondent. Section 9 of the Fair Trading Act prohibits any person engaging in misleading or deceptive conduct or conduct that is likely to mislead or deceive. This section has been used to bring claims against real estate agents who have misled purchasers about the condition of the property or some aspect of the agreement for sale and purchase.

Section 10 of the Fair Trading Act provides that no person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, manufacturing procss, characteristics, suitability for a purpose, or quantity of goods.

The following are some examples of leaky home claims under the Fair Trading Act 1986:

Roos v Wang: A building inspection report provided to the claimants before they completed the purchase of the house was misleading. The building inspection company were also not entitled to rely on the disclaimer/exclusion clause contained in the report because parties cannot contract out of the provisions of the Fair Trading Act 1986.
Van Workum Family Trust v Auckland City Council: A real estate agent was found liable under section 9 of the Fair Trading Act 1986 for his misleading conduct and representations leading up to the sale of the property to the claimants.
De Wet v North Shore City Council: A pre-purchase inspector was liable for his report which was held to be misleading as the matters it outlined were clearly contrary to the correct position as it should have pointed out that there were serious risks in proceeding with the purchase and that a comprehensive watertight survey was required. Also the general tenor of the report was misleading overall as the situation was significantly worse than what was implied in the report.

Claims under the Consumer Guarantees Act 1993

This Act deals with the law relating to guarantees given or deemed to be given with the supply in trade of consumer goods and services that are ordinarily acquired for personal, domestic or household use or consumption. The Act does not apply if the goods or services are re-supplied in trade.

Trade is defined as "any trade, business, industry, profession, occupation, activity of commerce or undertaking relating to the supply or acquisition of good and services". Claims can be made against the manufacturer or the supplier of goods under this Act even when the manufacturer or supplier is not a party to the contract for purchase of the goods or services. For example, if a product such as timber or cladding is supplied under a contract with a builder a claim can be brought under the CGA against the builder for breach of any guarantees in respect of the services and goods supplied by the builder or against the builder for the services only and against a supplier or manufacturer for any breach of guarantee in respect of the goods.

It is important to note that the definition of "Goods" does not include a whole building attached to the land. However claims can be brought for components of the building or related services in certain situations.

The Act sets down a set of minimum standards for goods when they are supplied in trade. The guarantees for goods apply whether or not the goods were supplied in connection with a service. The main provisions relevant to this jurisdiction include guarantees as to:

acceptable quality
fitness for a particular purpose
complying with the description or sample.

The relevant guarantee for the supply of services is that such services will be performed with reasonable care and skill.

The rights of redress against manufacturers and suppliers of goods and services under the Consumers Guarantees Act are set out in the Act. Most commonly within the WHT a claim will be for damages and can also include consequential loss.