New Zealand: Hawkins liable for $13.4 million: summary of the latest case involving builder negligence

Last Updated: 18 May 2018
Article by Shane Campbell

In a judgment released on 1 May 2018 Downs J, in a 344 paragraph judgment, has found H Construction North Island Limited (formerly Hawkins Construction North Island Limited) (Hawkins NI) liable for serious building defects at the Botany Downs Secondary College (School). Damages were ordered in the sum of $13,424,967.40 plus GST.

While long, the judgment is useful for the approach that courts will take to complex cases involving negligent builders. Unfortunately, this note is somewhat lengthy. But it has reduced the judgment from 88 pages to eight.

Background

The Minister of Education, the Secretary for Education and the School's Board of Trustees (plaintiffs) sued Hawkins NI for defective construction of the School between 2003-2009. Over $17 million was sought from Hawkins NI stemming from allegations of negligence.

Hawkins NI constructed a number of buildings at the School. Downs J stated that the "most striking feature" of the buildings was their "interconnected roofs". One area of roof consisted of over 10,000 square metres. The roof pitch was low at approximately three degrees. There was much expert evidence about the roof leaking. But the Judge considered some of the most important evidence, which was not contested, to be that of lay witnesses who described extensive leaking issues throughout the School.

An element of Hawkins NI's defence was that the architect was liable for the damage. It did not join that architect nor obtain any evidence from its personnel. While the reasons for this approach are not known, the Judge criticised this approach.

Duty of care

General

This case arose in tort (negligence) not in contract. The Court reviewed multiple authorities, from Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) to Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council [2017] NZSC 190, [2018] 1 NZLR 278 in holding that Hawkins NI is liable in negligence to the School.

The Court's discussion on the duty of care should be noted for the fact that a builder's liability in negligence is now accepted. There is less and less room for arguments that there is no duty of care by builders in relation to commercial buildings (although there is still some scope).

Exclusion by contract

Hawkins NI sought to argue that the contract it had for stage I excluded liability because it was a construction only contract that required works to be undertaken diligently to the satisfaction of the architect. Hawkins NI was not responsible for loss or damage caused by a design defect, and the architect was responsible for inspecting works during the defects liability period, and for certifying practical completion. Hawkins NI provided a weathertightness warranty for a period of two years. The Court rejected this argument for the following six reasons:

  1. The stage I contract is silent on tortious liability. As a large and sophisticated commercial entity, Hawkins NI could have negotiated an express exclusion of liability but it did not. Rather, it relied on the standard form agreement.
  2. The shifting of responsibility to the architect sits uncomfortably with the Buildings Act which provides a directive that the Building Code is not to be breached. This directive is to the world at large.
  3. Other provisions of the stage I contract emphasised Hawkins NI's responsibilities as a builder.
  4. The imposition of responsibilities on other parties is not inconsistent with Hawkins NI's primary duty of care as a builder.
  5. The provision of the two year warranty cuts across the duties placed on the architects and is not inconsistent with the imposition of a duty of care.
  6. The exclusion of design liability merely meant that Hawkins NI would not be responsible for design work and therefore could not be liable for the same. That says nothing about Hawkins NI's responsibility for construction works.

Scope of the duty

Downs J acknowledged that in recent cases the scope of the duty had been narrowed to one of building code compliance, which reflects the responsibility imposed on builders by legislation. The focus in such a case must therefore be on what the relevant Act(s) are designed to protect.

Poorly formed metal roofs

One of the main building defects alleged was "poorly formed metal roofs" which are said to breach the building code as a result of the weighted effect of the following seven defects:

  1. Inadequate roof pitch
  2. Inadequate sub-roof formation
  3. Poorly formed roof edges
  4. Poorly formed roof penetrations
  5. Inadequate provision for thermal provision
  6. Overtightening of fixings
  7. Inadequate length of fixings

Inadequate roof pitch

The pitch of the roof was three degrees which was the lowest pitch recommended for the roofing iron in question, and the lowest recommended in the Profiled Metal Roofing and Design Handbook. In this case, several areas of the roof were installed below the three degree pitch. Downs J considered the inadequate roof pitch to be a defect.

Hawkins NI contended that the issues arose because of deflection, not because of installation. Downs J found, however, that Hawkins had an obligation to check the "true plane" of the roof structure before installation. His Honour also accepted evidence that the contractor has an obligation to check the roof pitch before installation and, if there is an issue, to raise this with the designer.

Inadequate sub-roof formation

The issue with the sub-roof was that there was no gap between the roof cladding and the building wrap/insulation. The roof cladding was therefore squashing the insulation. This did not cause leaking in itself, but prevented the escape of moisture due to a lack of airflow.

There was competing expert evidence as to how the relevant detail (detail 111) was to be interpreted. The Court ultimately said that this expert dispute did not matter because (a) the experts agree it is undesirable to have insulation sandwiched under pressure between the steel; and (b) the evidence establishes that Hawkins understood the detail in the way contended for by the plaintiffs. The defect was found to exist.

Poorly formed roof edges

Hawkins acknowledged this defect existed but disputed it breached the building code.

Poorly formed roof penetration

Hawkins acknowledged this defect existed but disputed it breached the building code. Roof penetrations are where the continuity of the roof is broken because there is an object coming through the roof such as an exhaust vent or duct. The relevant flashings were not installed properly.

Inadequate provision for thermal movement

Hawkins acknowledged this defect existed but disputed it breached the building code. Notably, all experts agreed that Hawkins had used no techniques to minimise the effects of thermal expansion.

Over-tightening of fixings

Hawkins acknowledged this defect existed but disputed it breached the building code. Many of the fixings involved had been overtightened, squashing the rubber washer. This can permit water ingress. Sealant was used in an attempt to remedy some issues, but it is not a durable solution.

Inadequate length of fixings

Hawkins acknowledged this defect existed but disputed it breached the building code. There were isolated areas where the fixings were not long enough to penetrate the purlins and provide ample fixing.

Causation and cumulative effect

The plaintiffs' position was that the cumulative effect of the foregoing seven issues causes water ingress as the roof does not function as it ought to. Downs J accepted that the roof pitch and the sandwiched insulation were contributing factors to the roofing defects.

His Honour then moved to consider whether the defects breached either or both of Clauses B2 (durability) and E2 (external moisture) of the building code. He concluded both were breached. His Honour considered that "no other conclusion is available, even on the lay evidence from school witnesses alone" which established that "the roofs have leaked systemically since at least 2010. Downs J also found that Hawkins NI's experts disregarded the evidence about the roof, or gave it little weight. They also tried to downplay the significance of the leakage and to rationalize other consequential issues as "minor". His Honour stated that "Hawkins [NI's] experts ignored an elephant".

Poorly formed internal gutters

The plaintiffs alleged that the internal gutters had inadequate fall, are too shallow and have poorly formed membranes and joints. The Judge found that all gutter defects were established. His Honour then moved to consider whether the defects amount to a breach of the building code. This was answered in the affirmative. The gutters materially contribute to undue dampness and damage to building elements. The defects also breach clauses B2 and E2 of the building code.

Leaking near parapet walls

The plaintiffs alleged defective construction works at the junction between the roof and parapet walls. Apron flashings between the junctions were supposed to have the flashing sitting in a chase (a slot cut into the wall) to make water ingress less likely. The Court accepted the evidence of Ms Cockerell that it was more likely than not that some areas did not have a chase. There was also an issue with incorrect sealant application to the flashings to prevent leaks. The Court found that the sealant was incorrectly applied.

This breach was found to be established.

Soffits, eaves and pop-up roofs

This 'defect' differed in material respects from the foregoing. It alleged premature corrosition of the Colorsteel used for the soffits and eaves, and the Zincalume for the pop-up roofs. This was an allegation of materials that were unfit for purpose.

The Court dismissed this head of damage. Hawkins NI did nothing more than install the materials that were specified by the plaintiffs. His Honour said that the conceptual basis for liability was unclear, and that the statement of claim did not specify a duty of care to warn of the unsuitability of cladding, but this was nonetheless the way the case was advanced. It was described as "square peg, round hole".

Inadequate ground clearance and cold joints

Ground clearance is required because where cladding is installed too close to the ground, water can move upwards through building material through capillary action. It is uncontroversial in the industry that cladding must clear paved ground by at least 50 mm. In addition, the timber frame must be offset from the concrete base to ensure the cladding is clear of that concrete base. Finally, the timber frame of a building must be at least 150 mm above the ground.

It is possible for building frames to sit on a 'nib', which is a strip of concrete that elevates the framing to prevent moisture ingress (where properly formed). In this case the relevant nib was formed by a cold joint, which is where one part of the pour has dried, and the second is poured abutting the dry section. If not undertaken with care, this can be a point of water ingress. In order to prevent this the nib must be waterproofed.

The Court accepted the defects above. In relation to the clearances Downs J concluded as follows:

  • The architect's specifications show a sizeable gap between the cladding and the ground. The cladding had not been installed per that drawing.
  • If the architect had instructed Hawkins NI to reduce the ground clearance below the minimum standard (as was Hawkins NI's position at trial) then it would be expected that there would be a note of that. No documentary evidence was produced in support of this contention.
  • A notation from the defective works schedule implies that the architect was concerned with ensuring ground clearances were met. The architect directed cladding on the gymnasium to be raised to prevent contact with the concrete.
  • It is customary for an instruction of the kind contended for to be recorded by either the architect, the builder, or both. But none exists.
  • Hawkins NI could have joined the architect as a third party, or subpoenaed witnesses. It did neither.

Hawkins NI raised the possibility that its works had not caused damage but rather, the waterblasting by the school had caused the damage. Downs J was nonetheless satisfied that the school was "not the author of its own misfortune" because, in sum, the available evidence (and it was sparse) supported the notion that the waterblasting had not caused measurable water ingress.

The Court therefore found that there were defects and that they were damaging the building elements.

Fibre cement sheets fixed inadequately

The plaintiffs contended that fibre cement sheets had been fixed inadequately and in contravention of the code because the sheets are incorrectly joined, they lack adequate support, the edges are unpainted and therefore unsealed, and related flashings and sealants are incorrectly installed.

The first three components of this head of damage failed which left the flashings and sealants being incorrectly installed. This part of the claim was successful. Not only did the evidence establish it, but Hawkins NI admitted the defect. The defence based on architect design responsibility was dismissed.

Gymnasium floor

In relation to the floor, the main issue was Hawkins NI's limitation defence. In essence, the gymnasium floor was not installed as it ought to have been pursuant to the relevant specifications.

Downs J held that the claim was time-barred. The central issue was the leaking floor, and this was known in 2004–2005. The other issues were "detail only".

Defences

Long stop limitation defence – s 393 of the Building Act 2004.

Hawkins raised an affirmative defence on the basis that some works were out of time in terms of the 10-year longstop limitation period. This defence was dismissed as on the facts the stage I roofs were incomplete on 25 September 2003, being the date 10 years before the longstop crystallised.

Introduction of new causes of action after the 10-year period

Hawkins NI took the position that successive amendments to the original statement of claim had the effect of introducing new causes of action that were time-barred (see Commerce Commission v Visy Board Pty Ltd [2012] NZCA 383 at [146] and [147]; Ophthalmological Society of New Zealand Incorporated v Commerce Commission CA168/01, 26 September 2001 at [22]–[24]; and Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61].

This argument was rejected on the basis that "the first amended statement of claim contained the same defects as later iterations" and "while the claim has been enlarged since 25 September 2013, neither its ingredients nor character has changed to result in an essentially fresh (time-barred) cause of action". The defence was dismissed.

Quantum

Downs J referred to the principle of damages in tortious claims as being the money required to put the plaintiff in the position he or she would have been in had the wrong not occurred. In the case of building defect cases this is usually the amount required to remediate the defects.

Three costings were put to the Court. The plaintiffs' scheme, Hawkins NI's review of the plaintiffs' scheme and Hawkins NI's own scheme. Hawkins NI's own scheme was dismissed out of hand for seven reasons:

  1. It lacks coherent detail and is really only a methodology statement. Allowance is not made for "all but certain necessary works".
  2. It makes no allowance for the remediation of inadequate roof pitch and inadequate sub-roof formation.
  3. It assumes the works could be finished within 20 weeks. With the addition of the works above, a 20-week schedule is unmanageable. Further, with increased time comes increased cost.
  4. The remedial strategy for the internal gutters proposed using a less-expensive, but highly risky, strategy that could simply perpetuate an existing defect. Further, an untested strategy may not comply with the building code.
  5. It has a "band-aid like quality" that does not fix underlying issues.
  6. It presupposes a building consent is not required for the remedial works and this is incorrect.
  7. It risks poor workmanship being carried out.

This left a contest between the first two. The evidence of the plaintiffs was accepted almost without change (but for one minor point of difference where a mid-ground was reached). The criticisms of the plaintiffs' costings by Hawkins NI did not bear scrutiny. Of the proposed costings of $12,321,682.63 this was reduced by only $36,540.

The Court turned to betterment. Downs J stated that "remedial work to achieve Building Code compliance should not be considered betterment. Such work is involuntary, in the sense it is the product of another's wrong. And more particularly, the product of negligence". Ultimately, and without going into detail, betterment of $436,183 was established. It was possible this could have been offset by evidence, but the evidence adduced by the plaintiffs was insufficient to achieve this.

The Court then turned to consider an allowance for temporary accommodation. While the evidence was unsatisfactory, as were the pleadings, the Court adopted a conservative figure of $1,576,007.80 for temporary accommodation, being the amount to set it up and later remove it.

Hawkins NI also put in issue the intention of the School to repair the defects. This was shut down quickly with his Honour stating "the evidence is clear the Ministry intends to repair the School". A related question was one of implementation. Hawkins NI put the proposition that there is no evidence that the School intends to implement the precise scope of works advanced by the plaintiffs, and accepted by the Court. This was also unattractive. Ultimately the Court stated that it needs to decide the dispute on evidence, not speculation.

Indemnity

Hawkins also submitted that its works for stage I were subject to an indemnity that precludes liability for several aspects of the claim. The Court concluded that the indemnity was insufficiently clear to oust liability for negligence between the two parties to the contract. The defence was dismissed.

Contributory negligence

Hawkins NI's claim for contributory negligence failed because none of the points raised (largely budgetary pressures) were a substantial contributing cause of the defects which arose because of Hawkins NI's negligence. There was no causal link between the actions of the plaintiffs and the defects. The defence was dismissed.

Comment

This case assists construction industry participants in many ways:

  1. It is now largely settled that builders owe a duty of care to owners in carrying out the works. However, that liability is not akin to a warranty, guarantee, or contractual cause of action. The liability for negligence stems from the non-compliance with the Building Act and building code – that is likely to be the focus in any such proceeding.
  2. It is possible to exclude liability through an exclusion clause in a contract. However, that exclusion needs to be very clear and this is work that must be done front end. Parties should not be reliant on exclusion by implication or circuitous interpretation.
  3. In complex leaky building claims it is often preferable to bring in third parties in the primary claim so that liability between all relevant parties can be determined.
  4. In such claims the courts are unlikely to accept technical defences as resisting otherwise cogent positions established by evidence. For example, a reference to a range of error in this case was not sufficient to overcome two independent tests undertaken by two separate witnesses. This emphasizes the importance of expert evidence preparation and briefs.
  5. Industry codes of practice and guides provide a very useful benchmark in building liability cases because they provide a minimum acceptable standard. In this case the codes and guides were used to resolve conflicting evidential positions between parties.
  6. Witnesses must be carefully briefed on each important point in the case. In this case lines of defence run by Hawkins NI were undermined when its own witnesses gave contrary answers in examination-in-chief and cross-examination. A good example is the draping of blanket insulation between purlins. Hawkins NI's counsel attempted to rely on a detail, but this was undermined by Mr John Overton, a site manager for Hawkins NI during stage I.
  7. Expert evidence as to industry practice will be of assistance to the Court for the same reasons as outlined above. However, evidence that is inconsistent with relevant codes and guidelines is unlikely to be compelling.
  8. In proceedings involving contest between expert witnesses, credentials and expertise can be very important. It is essential that the expert both has the relevant expertise and enough of it to legitimately take a position contrary to other witnesses.
  9. When bringing a claim it is important to identify the basis for liability and to ensure all causes of action are consistent with that basis. Where a duty of care is not owed in relation to a specific head of damage it naturally follows that the claim will fail. There is little point in exerting time, effort and money on claims that have no conceptual basis.
  10. Defences based on limitation are largely factual. If such defences are to be run (and trial time expended on them) there needs to be a clear evidential basis for this. In this case the evidence was overwhelmingly against a 10-year limitation defence for the roof work.
  11. If quantum is to be put in issue, the basis for the differing quantum must be sound. In this case the costings were inadequate to adequately riposte the position of the plaintiffs.
  12. A claim for contributory negligence must be able to show that the plaintiffs also contributed to their own loss. This requires causation. Simple pressures are not enough to surmount this hurdle. As the judgment identified, budgetary constraints exist in almost every job.

Conclusion

This judgment is both a timely reminder and a cautionary tale for builders and developers. It shows the robust approach the Court will take to leaky building matters, and will decide on the evidence before it. It also highlights the highly technical nature of such litigation. Whether the judgment is appealed and, if so, whether that appeal will succeed, remains to be seen. At present the judgment is the latest in a long line of building defect cases to come before New Zealand courts.

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Authors
Shane Campbell
 
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