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Marc
A interesting piece of information from the latest Fortune Manning newsletter:
LEAKY BUILDINGS : Update on Weathertight Homes Resolution Service
Litigation partner Rob Coltman and others in our litigation team have provided advice not only to home owners, but also to builders, contractors, architects, engineers and even suppliers to affected residential developments on disputes arising from the "leaky building syndrome". Most of that advice has been provided in the context of litigation, actual or pending. With the passing of the Weathertight Homes Resolution Services Act, a new procedure has been established by Government through which to seek to resolve disputes arising out of leaky buildings.
Latest stats
As at 24 March 2005, the number of active WHRS claims is in the region of more than 2,100. A total of 265 have been resolved, with only 20 via adjudication and 170 via mediation.
The purpose of the WHRS forum was to give leaky homeowners the opportunity of a cheaper and quicker medium than the courts system, in which they could bring their claims personally.
The latest WHRS adjudication decision has been delivered on 11 March 2005. It took 7 unit owners of Ponsonby Gardens in the region of 2 years plus to get their individual claims resolved via the WHRS.
Because the WHRS process makes no provision to claim costs for legal representation at an adjudication, the respective owners elected fellow owner and lay person John Gray to represent them. They managed to get their respective adjudications heard at the same time, as they concerned the same complex.
In a newspaper interview afterwards he commented that the ordinary individual would not be in a position to conduct his or her own adjudication hearing successfully, without legal representation. He said it took him hours and hours to prepare for the adjudication and a number of his fellow claimants said they simply could not have undertaken the work.
This casts a big question mark as to whether the WHRS process is actually fulfilling its intended objectives: a cheap and speedy alternative resolution for home owners. There are also significant concerns about the legal efficiency of the awards made to date.
The jurisdiction of the adjudicator to award general damages.
In Waitakere City Council v Smith, a District Court case, it was held that it was within the jurisdiction of an adjudicator to award general damages and the Act should be interpreted in that the "fullest possible relief to deserving claimants" are awarded.
The adjudicator in Ponsonby Gardens (Vermont Street) as mentioned above, relied on Waitakere v Smith and held that it was within his powers not only to consider claims for general damages but also claims for consequential losses which include claims for "stigma damages", loss of rental, storage fees and other costs that may flow from defects and remedial work.
A retired High Court judge, the Hon Robert Smellie QC, has written an article that concludes that the jurisdiction of the WHRS under its empowering Act is in fact more narrow than this.
The award of legal costs
Section 43 of the Weathertight Homes Resolution Services Act 2002 provides adjudicators with the jurisdiction to award costs in circumstances in which it has determined that one party has caused the other to incur costs and expenses unnecessarily due to:
* its own bad faith, or
* due to the fact that it made allegations or objections that were without merit.
In the Kelleway adjudication it was alleged by the claimants that Council's conduct had been highhanded throughout the proceedings. The adjudicator turned to Section 43 of the Act and found that Council's actions were not in bad faith and neither was its case without substantial merit. It was ordered that each party bear its own costs.
In most cases the parties to an adjudication would therefore have to carry their own costs, irrespective of the outcome of the adjudication. However, it is highly unlikely that a claim could be made or defended without engaging an expert witness. In many cases the engagement of legal representation prior and during the adjudication, would also be required.
As mentioned earlier, it seems that the WHRS process has not fulfilled its very important objective, giving lay people (home owners) the access to have their leaky building claims heard on an economical basis.
Internal leaks
The issue whether internal leaks and dampness would be covered by the WHRS process were considered in Ponsonby Gardens (Vermont Street).
The adjudicator found that the intention of the Government was to only cover incidents that were related to water entering a property from the outside, being caused solely by the weather.
Therefore, a claim for a leaky shower or internal water pipe would not fall within the jurisdiction of this forum.
Stigma damages
In Ponsonby Gardens (Vermont Street) the claimants alleged that their dwellings had suffered a diminution of value, due to the stigma attached to a "leaky building".
They went further to allege that a prospective purchaser would view a repaired "leaky building" as something less than a dwelling that had been properly built.
The adjudicator referred to a research paper of Song Shi prepared as part of his masters degree at Massey university. Shi's conclusion is that there is a clear stigma directed at monolithic-clad houses in general and that a average reduction of 13% were experienced.
It was the adjudicator's opinion that an owner has to show more than the mere fact that the public may be resistant in purchasing houses that are associated with the leaky building syndrome.
They would also have to show that the problems with the house would probably lead to the actual diminishing of its value.
The adjudicator found that in a case where the owners have taken reasonable steps to "remediate" rather than repair defects to the property, they have reduced, if not eliminated the opportunity of any further loss due to stigma.
The other prominent factor in deciding against awarding stigma damages to the Ponsonby Gardens' owners were the fact that the relevant registered valuer's report found no stigma or loss in value for the units in complex.
Architect owing a duty of care
The adjudicator in Ponsonby Gardens (Vermont Street) found that an architect owed a duty of care to subsequent owners of a dwelling. This is to apply well-established common law principles but note the comments below (Joinder of Other Parties).
An architect of a building would be in breach of such a duty where he failed to provide adequate detail and or instruction to ensure that a building has been built to the standards of the New Zealand Building Code.
Claiming against the developer, a director of the development company in his personal capacity
It was opinion of the adjudicator in Ponsonby Gardens, that the leading authority that deals with the personal liability of a company director is Trevor Ivory Ltd v Anderson.
It in short states that an officer of a company may be held personally liable towards third parties, but that the crucial test would be whether there existed an actual or imputed assumption of duty.
The Ivory case goes further and holds that the liability depends on:
* The facts;
* The degree of implicit assumption of personal responsibility;
* The balancing of policy considerations.
Moreover, these are court cases giving rise to personal liability by application of Fair Trading Act principles which have been overlooked in the adjudicator's decision.
It was held by the adjudicator that a director of a development company being directly in contact with the development, but did not actually work on sight, nor did he design the buildings, would not be held personally liable. Most of the tasks would have been delegated to others. The fact that he may have been encouraging his people to carry out a costs savings exercise does not constitute a contravention of the Building Act.
The adjudicators decision in Ponsonby Gardens was further fuelled by the judgment in Morton v Douglas Homes Ltd. In this case it was held that if a director of a development company employed people who, he reasonably thought to be competent, he would not be found to be liable to third parties who have suffered damages due to the incompetence of the said people he employed.
Project Managers
It was held by the adjudicator in Ponsonby Gardens that project managers engaged on building projects owed a duty of care to subsequent purchasers and owners, and that they were to use reasonable care and skill to prevent defects or damage due from the building work they were in charge of. The extent of such a duty may be limited by the scope of their engagement.
The project manager of Ponsonby Gardens was found to be negligent as he was employed to bring the project to a successful conclusion, both for the developer and obviously for the new property owners. One of his important tasks were to ensure that the buildings were built to required standards, including the building code and the standards predicted by marketing material.
Employee or Independent Contractor?
The adjudicator in Ponsonby Gardens addressed three possible tests in determining whether an individual was an employee or an independent contractor:
1. The control test - who was in control of what work was to be done, and the manner in which it the work was conducted.
2. The fundamental test, which may include questions like:
* Whether he took any risks;
* Did he hire his own helper;
* Did he have opportunity from profiting from sound performance of his work; etc.
3. The integration test as described in Muollo v Rotaru: "This poses the question whether the (worker) was his own man, or whether he was part of the business organisation of the (putative employer)".
The most important point to look out for according to the adjudicator, was the tax stance the individual would have taken. If he issued his employer with tax invoices incorporating a GST number for the work he had done, it would clearly show that he was acting as an independent contractor and not as an employee.
It also gives rise to the concept of non-delegable duties in the building sector - which has yet to be grappled with by our adjudicator.
Joinder of other parties
In Auckland City Council v WHRS & Dennerly, the Council took the decision of the adjudicator on judicial review.
In the WHRS, the adjudicator had refused to allow the Council to join in various other usual parties: the architect and various sub-trades, to the adjudication process. In the Court review, the decision was upheld based on an absence of evidence to show a prima facie liability. Depending on which side of the divide you fall - this is either a very good development or a very bad one!
Affected persons, whether homeowner, builder, architect, engineer, developer, should contact Rob Coltman (ddi: 9152417, email: [email protected])
For more government information see: www.weathertightness.govt.nz
Litigation partner Rob Coltman and others in our litigation team have provided advice not only to home owners, but also to builders, contractors, architects, engineers and even suppliers to affected residential developments on disputes arising from the "leaky building syndrome". Most of that advice has been provided in the context of litigation, actual or pending. With the passing of the Weathertight Homes Resolution Services Act, a new procedure has been established by Government through which to seek to resolve disputes arising out of leaky buildings.
Latest stats
As at 24 March 2005, the number of active WHRS claims is in the region of more than 2,100. A total of 265 have been resolved, with only 20 via adjudication and 170 via mediation.
The purpose of the WHRS forum was to give leaky homeowners the opportunity of a cheaper and quicker medium than the courts system, in which they could bring their claims personally.
The latest WHRS adjudication decision has been delivered on 11 March 2005. It took 7 unit owners of Ponsonby Gardens in the region of 2 years plus to get their individual claims resolved via the WHRS.
Because the WHRS process makes no provision to claim costs for legal representation at an adjudication, the respective owners elected fellow owner and lay person John Gray to represent them. They managed to get their respective adjudications heard at the same time, as they concerned the same complex.
In a newspaper interview afterwards he commented that the ordinary individual would not be in a position to conduct his or her own adjudication hearing successfully, without legal representation. He said it took him hours and hours to prepare for the adjudication and a number of his fellow claimants said they simply could not have undertaken the work.
This casts a big question mark as to whether the WHRS process is actually fulfilling its intended objectives: a cheap and speedy alternative resolution for home owners. There are also significant concerns about the legal efficiency of the awards made to date.
The jurisdiction of the adjudicator to award general damages.
In Waitakere City Council v Smith, a District Court case, it was held that it was within the jurisdiction of an adjudicator to award general damages and the Act should be interpreted in that the "fullest possible relief to deserving claimants" are awarded.
The adjudicator in Ponsonby Gardens (Vermont Street) as mentioned above, relied on Waitakere v Smith and held that it was within his powers not only to consider claims for general damages but also claims for consequential losses which include claims for "stigma damages", loss of rental, storage fees and other costs that may flow from defects and remedial work.
A retired High Court judge, the Hon Robert Smellie QC, has written an article that concludes that the jurisdiction of the WHRS under its empowering Act is in fact more narrow than this.
The award of legal costs
Section 43 of the Weathertight Homes Resolution Services Act 2002 provides adjudicators with the jurisdiction to award costs in circumstances in which it has determined that one party has caused the other to incur costs and expenses unnecessarily due to:
* its own bad faith, or
* due to the fact that it made allegations or objections that were without merit.
In the Kelleway adjudication it was alleged by the claimants that Council's conduct had been highhanded throughout the proceedings. The adjudicator turned to Section 43 of the Act and found that Council's actions were not in bad faith and neither was its case without substantial merit. It was ordered that each party bear its own costs.
In most cases the parties to an adjudication would therefore have to carry their own costs, irrespective of the outcome of the adjudication. However, it is highly unlikely that a claim could be made or defended without engaging an expert witness. In many cases the engagement of legal representation prior and during the adjudication, would also be required.
As mentioned earlier, it seems that the WHRS process has not fulfilled its very important objective, giving lay people (home owners) the access to have their leaky building claims heard on an economical basis.
Internal leaks
The issue whether internal leaks and dampness would be covered by the WHRS process were considered in Ponsonby Gardens (Vermont Street).
The adjudicator found that the intention of the Government was to only cover incidents that were related to water entering a property from the outside, being caused solely by the weather.
Therefore, a claim for a leaky shower or internal water pipe would not fall within the jurisdiction of this forum.
Stigma damages
In Ponsonby Gardens (Vermont Street) the claimants alleged that their dwellings had suffered a diminution of value, due to the stigma attached to a "leaky building".
They went further to allege that a prospective purchaser would view a repaired "leaky building" as something less than a dwelling that had been properly built.
The adjudicator referred to a research paper of Song Shi prepared as part of his masters degree at Massey university. Shi's conclusion is that there is a clear stigma directed at monolithic-clad houses in general and that a average reduction of 13% were experienced.
It was the adjudicator's opinion that an owner has to show more than the mere fact that the public may be resistant in purchasing houses that are associated with the leaky building syndrome.
They would also have to show that the problems with the house would probably lead to the actual diminishing of its value.
The adjudicator found that in a case where the owners have taken reasonable steps to "remediate" rather than repair defects to the property, they have reduced, if not eliminated the opportunity of any further loss due to stigma.
The other prominent factor in deciding against awarding stigma damages to the Ponsonby Gardens' owners were the fact that the relevant registered valuer's report found no stigma or loss in value for the units in complex.
Architect owing a duty of care
The adjudicator in Ponsonby Gardens (Vermont Street) found that an architect owed a duty of care to subsequent owners of a dwelling. This is to apply well-established common law principles but note the comments below (Joinder of Other Parties).
An architect of a building would be in breach of such a duty where he failed to provide adequate detail and or instruction to ensure that a building has been built to the standards of the New Zealand Building Code.
Claiming against the developer, a director of the development company in his personal capacity
It was opinion of the adjudicator in Ponsonby Gardens, that the leading authority that deals with the personal liability of a company director is Trevor Ivory Ltd v Anderson.
It in short states that an officer of a company may be held personally liable towards third parties, but that the crucial test would be whether there existed an actual or imputed assumption of duty.
The Ivory case goes further and holds that the liability depends on:
* The facts;
* The degree of implicit assumption of personal responsibility;
* The balancing of policy considerations.
Moreover, these are court cases giving rise to personal liability by application of Fair Trading Act principles which have been overlooked in the adjudicator's decision.
It was held by the adjudicator that a director of a development company being directly in contact with the development, but did not actually work on sight, nor did he design the buildings, would not be held personally liable. Most of the tasks would have been delegated to others. The fact that he may have been encouraging his people to carry out a costs savings exercise does not constitute a contravention of the Building Act.
The adjudicators decision in Ponsonby Gardens was further fuelled by the judgment in Morton v Douglas Homes Ltd. In this case it was held that if a director of a development company employed people who, he reasonably thought to be competent, he would not be found to be liable to third parties who have suffered damages due to the incompetence of the said people he employed.
Project Managers
It was held by the adjudicator in Ponsonby Gardens that project managers engaged on building projects owed a duty of care to subsequent purchasers and owners, and that they were to use reasonable care and skill to prevent defects or damage due from the building work they were in charge of. The extent of such a duty may be limited by the scope of their engagement.
The project manager of Ponsonby Gardens was found to be negligent as he was employed to bring the project to a successful conclusion, both for the developer and obviously for the new property owners. One of his important tasks were to ensure that the buildings were built to required standards, including the building code and the standards predicted by marketing material.
Employee or Independent Contractor?
The adjudicator in Ponsonby Gardens addressed three possible tests in determining whether an individual was an employee or an independent contractor:
1. The control test - who was in control of what work was to be done, and the manner in which it the work was conducted.
2. The fundamental test, which may include questions like:
* Whether he took any risks;
* Did he hire his own helper;
* Did he have opportunity from profiting from sound performance of his work; etc.
3. The integration test as described in Muollo v Rotaru: "This poses the question whether the (worker) was his own man, or whether he was part of the business organisation of the (putative employer)".
The most important point to look out for according to the adjudicator, was the tax stance the individual would have taken. If he issued his employer with tax invoices incorporating a GST number for the work he had done, it would clearly show that he was acting as an independent contractor and not as an employee.
It also gives rise to the concept of non-delegable duties in the building sector - which has yet to be grappled with by our adjudicator.
Joinder of other parties
In Auckland City Council v WHRS & Dennerly, the Council took the decision of the adjudicator on judicial review.
In the WHRS, the adjudicator had refused to allow the Council to join in various other usual parties: the architect and various sub-trades, to the adjudication process. In the Court review, the decision was upheld based on an absence of evidence to show a prima facie liability. Depending on which side of the divide you fall - this is either a very good development or a very bad one!
Affected persons, whether homeowner, builder, architect, engineer, developer, should contact Rob Coltman (ddi: 9152417, email: [email protected])
For more government information see: www.weathertightness.govt.nz
Cheers
Marc