IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE	
CIV-2018-485-622
[2020] NZHC 2979	

BETWEEN	NORMAN HUGH ANDERSON AND REBECCA ALICE CARRASCO
Plaintiffs	
AND	EUGENE JOHN DE MARCO
Defendant	

Hearing:	14–17 September 2020	
Appearances:	E S Dalzell, B M Lambert and D Viatos
G D R Shand and P H Biddle for the Defendant	
Judgment:	11 November 2020	

JUDGMENT OF COOKE J

Table of Contents
Factual background	[5]
The property	[6]
Initial issues encountered by Mr De Marco	[8]
Capital House Inspections report	[14]
Further weathertightness work	[18]
Parsons Building work	[25]
Building Science Ltd report	[31]
Sale process	[36]
Post settlement revelations	[43]
Misrepresentation	[48]
The pleaded representations	[51]
Acknowledgement form	[59]
Did representations induce entry of the contract?	[64]
Was it reasonable for the plaintiffs to rely on the representations?	[65]
Were the representations false?	[72]
(i)	Mr Winton’s report	[73]
(ii)	Mr De Marco’s representations	[85]
Is this a leaky home?	[92]

ANDERSON v DE MARCO [2020] NZHC 2979 [11 November 2020]

Material reduction in, or change to the benefits of the contract	[98]
Conclusion	[103]
Remedies	[106]
Breach of contractual warranty	[110]
Conclusion and result	[124]

[1]	On 22 December 2017 the plaintiffs entered a sale and purchase agreement to acquire the defendant’s residential property at Karaka Bays, Wellington for
$1,200,000. The agreement was unconditional. They paid a deposit of $120,000 with settlement set for 31 May 2018.

[2]	The disclosures made by the defendant to the plaintiffs prior to the agreement included a positive building inspection report that he had obtained for the property in December 2017. In the period leading up to settlement the plaintiffs became aware of additional information concerning the property, however, including an adverse building inspection report that the defendant had obtained in 2011. On 31 May 2018 the plaintiffs’ solicitors sought an explanation in relation to this information, and settlement did not proceed. The defendant’s solicitors responded by rejecting any contention that there had been any misrepresentation or breach of the agreement, and the defendant gave notice that settlement should proceed immediately. By letter dated 6 June 2018 the plaintiffs’ solicitors gave notice that the plaintiffs cancelled the agreement, and demanded a refund of the deposit and payment of consequential losses. The defendant’s solicitors subsequently gave notice that the defendant cancelled the agreement because of the plaintiffs’ failure to perform.

[3]	The plaintiffs advance two causes of action — the first for misrepresentation under s 37 of the Contract and Commercial Law Act 2017, and the second for breach of contractual warranty. The plaintiffs seek a declaration that they validly cancelled the agreement, a return of the deposit, and damages for certain consequential costs. The defendant contends that the agreement was validly cancelled by the defendant, that the deposit was forfeit, and that no damages are payable.

[4]	The defendant has subsequently sold the property. The dispute is limited to an argument on whether the $120,000 deposit is forfeit, and whether the plaintiffs may

recover  certain  additional  costs as damages.	The total claim is for $170,974.66 together with interest and costs.

Factual background

[5]	I first address the facts relevant to the claims. This will involve making factual findings, albeit that more specific factual findings will be required in connection with the causes of action themselves.

The property

[6]	The relevant property is in Fortification Road, Karaka Bays. It is built into the hillside over three levels looking over Wellington harbour. Its exterior cladding is Hardies texture spray monoclad, with minimal eaves, flat roofs and internal gutters. It also has balconies and aluminium joinery. As such it has the design and appearance of a building where weathertightness issues may be relevant, although for reasons I explain in greater detail below plaintiffs were not alert to that possibility from their own experience.

[7]	The building permit was granted for the home in June 1990 and it appears to have been constructed that year, although it also appears that additional decking was added in 1996 and 2002. The house was constructed before the Building Act 2004 was enacted, and the establishment of the Building Code under that Act.

Initial issues encountered by Mr De Marco

[8]	Mr De Marco purchased the property in October 2005. It would appear that he encountered weathertightness issues not long after taking ownership. He made an insurance claim in  2008 for storm  damage causing water damage.  A quote dated  13 January 2009 from Chalmers Building Maintenance Services Ltd indicates that the balcony had been leaking and that there had been some water damage to walls and ceilings.

[9]	A report to Mr De Marco from a second company, CoveKinlock Consulting Ltd dated 22 December 2009 identified that bubbles had appeared in the membrane of one of the external balconies, and that there were also some splits in the paint coating

to the external wall to the living room that could indicate defects in the membrane itself. It recorded dampness in a bathroom ceiling and recommended that a reputable membrane roofing contractor inspect the cladding to the external wall because dampness over a long period could cause mould growth and timber decay.

[10]	On 27 September 2010 yet another company, BR Contractors Ltd then gave Mr De Marco a quote for carrying out alterations and modifications to the north and south existing deck areas including demolition, work on the aluminium windows and doors, a new membrane system and other work. The quote for the work shows it involved extensive work with the options for the north balcony estimated to cost approximately $36,000–$42,000 and for the south $35,000–$45,000. Mr De Marco confirmed that none of this work was undertaken.

[11]	At about this stage Mr De Marco sought to sell the property. A conditional sale and purchase agreement for a price of $850,000 was entered with a prospective buyer on 7 April 2011. Under the terms of that agreement Mr De Marco warranted to complete “the repair work to the leaks on the lounge deck in a tradesmanlike manner prior to settlement date”. The contract was also conditional on the purchaser obtaining a “building and moisture report … which is to be satisfactory to themselves in all respects”.

[12]	Mr De Marco accepted that that contract did not proceed because of a failed building report.

[13]	Mr De Marco then investigated getting work done on the property. On 3 May 2011 he received a quote from a further company, Builders Plastics Ltd for “remedial and repainting work”. This included work on existing deck membranes, installing further Hardies sheets and replacing rotten and deteriorated timber if discovered. The quote was for a total of $120,000. Mr De Marco gave evidence that he did not contract with this company, but that the work identified by them was “remedied by others”. Mr De Marco’s real estate agent recommended later that month that Mr De Marco address “… any major repairs next summer, but in the interim get them to seal all the areas that may be allowing water in, and the worst deck”.

Capital House Inspections report

[14]	At this stage Mr De Marco received a report from Mr Phil Redican of Capital House Inspections Ltd dated 7 June 2011. Mr De Marco explained that the report had been arranged by his real estate agent. The report identified a number of significant weathertightness issues. Whilst it was only based on a visual inspection and the use of a moisture scanning device, a number of problems were identified.

[15]	Mr Redican advised that the dwelling sat at a “very high-risk” category of weathertightness risk, and he identified six areas of design and construction which involved this risk. He also identified a series of design or construction defects, including that there were inadequate clearances between the bottom of the cladding and decking/paving which was a “known weathertightness risk”. The readings taken in a number of rooms in the house revealed very high moisture levels, and he also identified water damage to certain areas. His conclusion was as follows:

This dwelling has suffered from deferred maintenance and is due for input. This dwelling has areas of the design and construction, which are now recognised as having risk potential for weathertightness type issues.

As it is unlikely that ‘bandaid’ type repairs will successfully address all of the failings, it is recommended some areas of the design be amended or redesigned to address the source of the leaking.

Removing the timber deck structures away from the cladding, removing the penetrations through the top of the parapet walls and creating better clearances between the balcony and the bottom of the cladding will rectify some of the high-risk design features.

Although the moisture survey has identified areas of elevated moisture, as noted this moisture survey is not an all-encompassing moisture evaluation.

Given the high moisture readings indicate a failure of the weathertightness, it is advisable that you commission a full weathertightness investigation to clarify the exact source of the moisture and the remedial work required to rectify. It is recommended that an invasive survey be undertake to determine the condition of the wall framing where high moisture readings were detected.

[16]	It is this report that the plaintiffs discovered after entering the agreement for sale and purchase, and prior to settlement, and which plainly raised their concerns leading them to cancel the agreement.

[17]	It is clear that the full weathertightness investigation that Mr Redican recommended did not take place. Mr De Marco gave evidence that he was not happy with the report. It is apparent that he had raised one issue with Mr Redican relating to the third level laundry. Mr De Marco did not believe that a particular wall was leaking and a change was made to the report before it was finalised. That was the only particular issue that Mr De Marco appears to have raised with the report at the time.

Further weathertightness work

[18]	Mr De Marco nevertheless had work done at the property the following summer. A tiling company, Pololitos Ltd, removed the existing membrane on the living room balcony and waterproofed the area in February or March 2012. Its total invoice was $8,207.84. Then in January 2013 the property suffered a water leak which had collapsed part of his kitchen ceiling, and Mr De Marco subsequently made a further insurance claim.

[19]	In April 2013 Mr De Marco replaced the roof over the living room. The invoice for that re-roofing was $9,849.75.

[20]	In October 2013 Mr De Marco made yet a further water damage insurance claim for storm damage. The loss adjustor advised, however, that the insurance company was not prepared to cover “the decking issue” which was regarded as a fault or error/omission in design, rather than arising from a sudden accidental event.

[21]	Further significant work was then done on the property between July and October 2014. Part of the background appears to be that Mr De Marco claimed that the tiler he had used in 2012 — Pololitos Ltd — had failed to do its earlier work properly, although this was not made clear from Mr De Marco’s brief of evidence. On the Sunday evening before trial Mr De Marco discovered some additional documentation, including an email dated 28 May 2014 from Mr Bruce Welsh, Architect, to the relevant person at Pololitos and Mr De Marco.1 The email attached

1	These documents were not found by Mr De Marco himself as he was at Rimutaka Prison at the time as a consequence of his conviction for certain theft and deception charges (see R v De Marco [2019] NZHC 3209). But his partner occupied the house, and the documents were found there.

a plan to remedy an apparent leaking problem with the living room balcony. The part of Mr Welsh’s email directly addressed to Mr De Marco stated:

I have titled this as a temporary repair as when/if the house is re-clad, the deck will need replacing.

As discussed on site I can give no warranty on the work or take any responsibility as it does not meet building code requirements. You have also decided not to go through the building consent process.

[22]	The attached plan involved a redesign and repair of the balcony. A note on the plan stated:

This work does not comply with the building code. (Deck falls are too low, upstand to floor too low, balustrade not to code, cladding not to code, etc) It is a repair of the deck to better than original condition. The deck will require replacement in the future when house is re-clad. No warranty is given or implied that this will resolve all the leak issues. The owner has been made aware of these issues.

[23]	Notwithstanding the very late disclosure of this material the plaintiffs were able to track down Mr Welsh, and he gave evidence. He was unable to recall the discussions he had had with Mr De Marco. That is not surprising as he had been retained by Pololitos, and the work set out in his plan did not proceed. I do not accept Mr De Marco’s evidence, however, that he had never met Mr Welsh and had no discussion with him. The email referred to in paragraph  [21]  had plainly been  in Mr De Marco’s possession, and it records the discussion that had taken place between them.

[24]	This proposed work demonstrates that there was a significant weathertightness problem with the design/construction of the building. It also indicates that Mr De Marco decided to engage in a temporary repair without obtaining building consent. Those conclusions are also consistent with Mr Parsons’ evidence, which I address below.

Parsons Building work

[25]	Mr Brett Parsons of Parsons Building Ltd was then retained to do the work on the leaking living room balcony around July 2014. This involved remedying the waterproofing between the tiles and the ply balcony floor which had failed, causing

water damage in the rooms below. It also involved removing and replacing water damaged and decayed plywood and timber under the balcony. In addition, the waterproofing needed to go up the walls where the balcony joined the wall, including the sides of the windows in that wall (the windows reached down to the floor level, somewhat like a door frame).

[26]	Mr Parsons explained that when he opened the wall area up he discovered that the windows had not been properly installed. There was a gap between the window framing and the wall which had simply been filed with sealant. This meant that the windows had to be removed, the area re-packed, the windows put back, and the cladding re-done to cover the cavity area in order to deal with the issue. Mr Parsons said in evidence:

I recall saying to Mr De Marco that this house really should be re-clad because if these windows were like that, then the rest of the house would have similar problems. I recall saying that it was obvious there was an issue with the way the property was built and that even if you cannot see them there would be leaks elsewhere.

[27]	This  evidence  was  not  challenged  in  cross-examination  and  I  accept   Mr Parsons gave that advice. Mr Parsons’ views are also consistent with the advice provided by Mr Redican and Mr Welsh. It is also significant that even when initially quoting to do the work in July Mr Parsons advised Mr De Marco “There is no guarantee for weather tightness, because of areas above windows that are not compliant”. Indeed Mr De Marco confirmed in his own evidence that Mr Parsons’ work in that area was done because the window joinery was non-compliant.

[28]	Mr Parsons also gave evidence that he advised that the work he was undertaking required a building consent. Mr De Marco, by contrast, gave evidence that Mr Parsons assured him that the work would not require a building consent.

[29]	I do not accept Mr De Marco’s evidence. In my view Mr Parsons was prepared to do the work without first obtaining consent as he viewed it as a repair directed to an immediate leak that needed to be addressed before it caused further damage. He realised that he was going further than a temporary repair, but he was prepared to do so as part of addressing an immediate problem. Mr De Marco knew this. At the very

least Mr Parsons advised Mr De Marco that there was a significant issue, and that the work he was undertaking was the type of work that would require a building consent. That is consistent with the advice that Mr Welsh had earlier provided. But Mr De Marco decided not to seek a building consent notwithstanding that it was clear there was a more widespread weathertightness issue.

[30]	There is no evidence of any further work following Mr Parsons’ work in 2014, so it is apparent that his work was treated by Mr De Marco as more than a temporary repair. This is the background to the subsequent sale of the property more than three years later in December 2017.

Building Science Ltd report

[31]	For the purposes of sale Mr De Marco procured a further building inspection report from Mr Mike Winton of Building Science Ltd. It is apparent that this report was obtained for the purposes of marketing the property for sale. Mr Winton produced two versions of his report — one dated November 2017, and a subsequent version dated 7 December 2017. The second version was prepared as part of the promotion of the property to potential purchasers. In an email dated 25 November when Mr Winton sent the first version of his report he said:

What I have sent so far is not what we would be going to Market with when you are ready.

I will give you a snappy more impactful report that will help make the sale.

[32]	Mr Winton was not provided with the Capital House Inspections report, or information of the weathertightness problems and the work Mr De Marco had undertaken that I have described. Whilst even the November report was positive, it appears that Mr Winton identified a number of areas that needed work to resolve weathertightness issues. For example in his email he said that “painting of the top roof internal balustrades will be very important as this is an area that will be hammered by other building inspectors”. In his November report he advised:

•	Parapets on roof need a repaint.

•	Moisture readings indicate joinery needs work to restore weathertightness in lower entry bedroom, to the right of the main entrance.

•	Butynol decks need to be cleaned and restored.

•	Fine lines and cracks in façade need to be sealed and recoated.

•	External envelope needs a soft wash and lichen removed.

[33]	Some of this work was significant. It is apparent that there was a leak in the lower entry bedroom. Moreover the repair to the cracks in the façade involved a number of cracks that were being resealed, and effectively a new re-coating of the protective surface.

[34]	On the other hand both versions of the report recorded positive readings from devices designed to detect moisture in all of the rooms. That included “moisture content” readings showing “safe” readings, “equilibrium moisture content” with a non-invasive probe showing a “safe reading” and “dry” in all rooms, and a “thermal imaging survey” showing “no” to “hidden leaks” or “hot spots” again for all rooms.

[35]	Most of the work Mr Winton identified was undertaken before the second version of Mr Winton’s report dated 7 December 2017. That report was used for marketing the property for sale, and it was very positive about the property. The thrust of the report was that there had been a comprehensive assessment of the property, it was in good condition, it met current building code requirements including as to weathertightness, the building was safe and dry and that there were no apparent weathertightness issues.

Sale process

[36]	It was the 7 December report that was presented to purchasers under the tender process for the property in December 2017. The report was provided along with a one page document entitled “Disclosures”. This document was prepared by the real estate agent, but it was approved by Mr De Marco, and in any event the real estate agent was acting as Mr De Marco’s agent. The relevant passages of the disclosures document read:

1.	This home was constructed of monolithic materials in the 1990’s and, although the owners recent building inspection report will be made available to all interested parties, along with original plans and LIM

report, we recommend as always that prospective purchasers undertake their own written building report.

2.	Prospective purchasers are referred to the owners recent building inspection report regarding the condition and construction method of the exterior cladding, roofs, decks and balconies, piles, insultation, glazing and window/door units, flashings and eaves.

…

4.	Exterior cladding painted in 2012 using a Resene X 200 acrylic water proof membrane system.

5.	Northern mid-level Butynol replaced in 2011.

6.	Roof above lounge replaced in 2014.

…

[37]	This document had been prepared by the real estate agent following information provided to the agent by Mr De Marco.

[38]	The plaintiffs showed interest in the property in early December. Ms Carrasco visited an open home on 3 December.  On 8 December the real  estate  agent  sent  Mr Anderson the Building Science Ltd report dated 7 December 2017. The disclosures document was later sent to him on 18 December 2017.

[39]	Although Mr Anderson and Ms Carrasco owned properties in Wellington through their family trust, they had lived much of their life in Singapore. They were interested in the property as a place for their retirement. They had been looking at houses for a while, and seen something in the nature of 15 other houses. They were attracted by this property because it was modern, low maintenance, and subject to a good building inspection report. I accept Mr Anderson’s evidence that whilst they had heard of leaky homes from their visits to New Zealand they had no experience or idea of what one might look like. It was only upon reading the Building Science report that Mr Anderson registered that it might be something that was relevant to this property, but he had no reason to consider that the report might be inaccurate given the positive assessment on this issue. Mr Anderson gave evidence, which I accept, that the report confirmed for him that it was a low maintenance home in good condition of the kind that they were seeking.

[40]	They made an offer for the property on 20 December 2017 for $1.1 million. Mr De Marco countered with an offer of $1.25 million, and they responded with their offer of $1.2 million. At that stage the real estate then advised them that Mr De Marco wanted to meet with them.

[41]	On 22 December 2017 the plaintiffs met with Mr De Marco and his partner at the real estate agent’s office. I accept Mr Anderson’s evidence that Mr De Marco specifically raised the topic of weathertightness — he referred to the replacement of the butynol deck, and emphasised that they should not walk on it with stilettos, or pressure wash the outside of the house. This made no reference to the weathertightness problems. I conclude that Mr De Marco made reference to these matters only in a general way suggesting he was being helpful because he knew there was a weathertightness problem with the house. Mr De Marco also asked for an increase in the offer which the plaintiffs declined. He also asked for an extension of the settlement date as Mr De Marco and his partner were expecting a baby and they agreed to that.

[42]	On 22 December the plaintiffs signed a sale and purchase agreement for the property for the price of $1.2 million, with a settlement date of 31 May 2018. The offer was unconditional. At the same time they paid the deposit of $120,000.

Post settlement revelations

[43]	In March 2018 Mr Anderson did a Google search on Mr De Marco and found that he had a conviction in the United States for possession of a stolen aircraft. This surprised him. By itself that did not cause him undue concern, but soon after the plaintiffs’ solicitors received anonymous information that the property may have weathertightness issues and that Mr De Marco was not an honest person. Mr Anderson raised this with the real estate agent on 12 May 2018. The agent responded on 15 May 2018 stating that the vendor’s building report was comprehensive and that it supported the available information and visual evidence that the home was dry and healthy and that the only known leakage was a “bit of water onto the ceiling” when the butynol had been replaced.

[44]	At that stage the plaintiffs nevertheless became concerned and they retained their present solicitors, and subsequently expert assistance from Mr Thomas Wutzler

of Helfen Ltd. With their assistance additional information was obtained in relation to the property, including the quote from Builders Plastics Ltd referred to in paragraph
[13]	above, and the report from Capital House Inspections referred to at paragraph
[14]	above.

[45]	By letter dated 31 May 2018, the day of settlement, the plaintiffs’ solicitors wrote to the defendant’s solicitors attaching the Capital House Inspections report and raising the concern that the vendor may have misrepresented the extent of known weathertightness issues with the property. They asked for an urgent response.

[46]	By letter dated 1 June 2018 Mr De Marco’s solicitors responded without addressing the alleged misrepresentations, but insisting on settlement. By further letter dated 6 June that position was reiterated, again without addressing the substance of the concerns.

[47]	By letter dated 6 June 2018 the plaintiffs, through their solicitors, then gave notice of cancellation of the agreement on the basis of misrepresentation and breach of warranty. By letter dated 15 June 2018 Mr De Marco’s solicitors responded confirming there were no weathertightness issues with the property and reiterating that Mr De Marco was ready and willing to settle. When this did not occur, by letter dated
21 June 2018 Mr De Marco through his solicitors then cancelled the contract, contending that the deposit was forfeit.

Misrepresentation

[48]	The plaintiffs’ first cause of action is in misrepresentation.

[49]	There was no material difference between the parties on the elements of this cause of action. Claims for misrepresentation are assessed in accordance with the requirements of the Contract and Commercial Law Act. Section 35 sets out the requirement that the claimant be induced to enter into a contract by a misrepresentation. Section 37 then identifies when a party may cancel a contract as a consequence of such a misrepresentation, and s 43 then enables the Court to grant relief by directing that a party pay compensation as the Court considers just.

[50]	In the present case this involves the following elements:2

(a)	That there was a misrepresentation by the defendant.

(b)	That the plaintiffs were induced to enter the sale and purchase agreement by the misrepresentation.

(c)	That it was reasonable for the plaintiffs to so rely on the representation.

(d)	That the effect of the misrepresentation was to substantially reduce the benefit of the contract to the plaintiffs, or make it substantially different from that represented.

The pleaded representations

[51]	The plaintiffs contend that the defendant made the following representations through provision of Mr Winton’s Building Science report, and the other pre-purchase disclosures:

(a)	That the Building Science report accurately reflected the condition of the property, that the property was not a leaky home, that it was a “dry occupancy” and there were no unconsented works.

(b)	That the only work undertaken by or on behalf of the defendant to the property was:

(i)	“Northern mid-level” butynol replaced in 2011; and

(ii)	“roof above the lounge replaced in 2014”.

(c)	That any known defects had been disclosed.

[52]	It is well established that an actionable misrepresentation must involve a representation of fact. Statements of opinion may nevertheless lead to actional

2	See for example Ridgway Empire Ltd v Grant [2019] NZCA 134, (2019) 20 NZCPR 236.

misrepresentation as there are frequently implicit statements of fact contained in the expression of an opinion. That may be particularly so when the opinion is that of an expert. As the Court of Appeal said in Ridgway Empire Ltd v Grant:3
[11] Whether there has been a misrepresentation of fact is not determined merely by considering the literal meaning of the words used without regard to the context. The enquiry is what a reasonable person would have understood from those words in all the circumstances.4 Relevant considerations will often include the nature and subject-matter of the transaction, the respective knowledge of the parties, their relative positions and the words used.5 Where a party with superior knowledge takes it upon itself to make a representation of fact without qualifying it by reference to the basis for its assertion, it will generally have to accept the consequences of being wrong.6 However, each case will ultimately turn on its own facts.

[53]	Here two important considerations are that Mr De Marco had superior knowledge  on  the  condition  of  the  building,  and  that  the  report  containing   Mr Winton’s opinions was an expert report reflecting an established area of expertise which the plaintiffs could not check themselves without seeking their own expert assistance.

[54]	I do not accept Mr Dalzell’s submission that the representations made in the “Disclosures” document, and through Mr Winton’s report, were absolute or unqualified. Mr Winton’s report expressly recorded qualifications. It stated:

Not every building weakness may be able to be discovered while on site, and the inspection is undertaken on that basis that you have understood, we might not be able to see and access all areas. And you understand that issues may not be presenting in a manner to be noted, when the building was inspected.

The inspection has been undertaken on the basis that you understand we will do our best efforts, to access all areas, to detect all issues, but that this is not always possible, and that you will not pursue remedy for any matters, issues or defects we were unable to detect while onsite.

[55]	So Mr Winton’s representations must be taken to be qualified by these limitations. In particular the representations were to the best of Mr Winton’s information and belief only. Mr De Marco’s representations in the Disclosures

3	Above n 2.
4	IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [2007] 1 Lloyd’s Rep 264 at [50].
5	Bisset v Wilkinson [1927] AC 177 (PC) at 183.
6	Re Reese River Silver Mining Company, Smith’s Case (1867) LR 2 Ch App 604 at 611.

document are similarly to be understood to be to the best of his information and belief. The relevant statements were not warranties. The disclaimer made that clear. So, for example, if there were hidden weathertightness issues that neither Mr Winton nor  Mr De Marco were aware of notwithstanding the assessment Mr Winton had undertaken, there would be no misrepresentation. To establish a misrepresentation the plaintiffs need to establish that the implicit representations of fact associated with the opinions were not true, or that the representations were not truthful (i.e. that the speaker did not honestly hold that opinion).7

[56]	Subject to those qualifications I accept that the representations as pleaded were made. The fact that numbered paragraph [2] in the “Disclosures” document referred prospective purchasers to the Building Science report for the “condition and construction method” of the listed aspects of the building means there was a representation from Mr De Marco that that report accurately described the condition of the building to the best of his knowledge and belief. There were more particular representations set out in Mr Winton’s report concerning the condition of the property and therefore what the report represented. I address the significance of the more particular representations when addressing whether the report, and Mr De Marco’s reliance upon the report, involved misrepresentations.8

[57]	As indicated in [35] above, by holding out the report in the “Disclosures” document Mr De Marco represented was that there had been a comprehensive assessment of the building by an expert, it was in good condition, it met current Building Code requirements including as to weathertightness, and that there were no apparent weathertightness issues. The reliance on the Building Science report, and the description of weathertightness works undertaken in the “Disclosures” document, also mean that there was a representation that all known weathertightness defects relevant to the property had been disclosed.

[58]	In terms of the description of work that had been undertaken at the property in paragraphs 4–6 of the “Disclosures” document it was implicit that this was all the

7	See Ian Gault and others Gault on Commercial Law - Westlaw NZ (online loose-leaf ed, Thomson Reuters) at CCL35.01.
8	At [73]–[91] below.

material weathertightness work that had been undertaken. I agree with Mr De Marco’s point that the document could not reasonably be taken to represent that that was absolutely all work that had ever been undertaken at the property. But it is significant that the described works were listed after reference to the Building Science report which was focused on weathertightness, and that the nature of the work described all related to weathertightness (replacement of butynol in 2011, application of waterproof membrane in 2012, and replacement of roof in 2014). It was therefore implicit that there was no other significant weathertightness work that had been undertaken at the property.9

Acknowledgement form

[59]	As part of their case the plaintiffs relied on another document titled “Purchaser(s) Acknowledgement” provided by the real estate agent to the plaintiffs.

[60]	This was a form which contemplated the purchaser ticking boxes in the form to indicate that the purchaser acknowledged and agreed to particular matters. A space also existed to identify further disclosures that the purchaser acknowledged had been made by the vendor. One of the boxes to be ticked involved the following description:

Made aware of any known defects in the property and/or advised that the property may be subject to hidden or underlying defects and/or advised the ability to make an offer to purchase a property conditional on obtaining a building report.

[61]	The plaintiffs relied on this form to show that the vendor had represented that it had disclosed all known defects.

[62]	For a series of related reasons I do not accept the plaintiffs’ arguments in this respect. In particular:

(a)	There is no evidence that this form was ever actually completed, and signed. Mr Anderson said that he received it from the real estate agent and would have read it and relied upon it, but in the absence of the signed document being produced in evidence I doubt that it had any

9	The representations as pleaded also exclude the 2012 work, which was clearly outlined in the Disclosures document, so I do not accept the pleading to that extent.

real impact on the process of sale, or that any representations it included induced entry of the contract.

(b)	The form seems to be designed for a different purpose — potentially limiting the liability of a vendor because of things that the purchaser is acknowledging have been disclosed. It does not seem to me to be a document that is designed to record representations made by a vendor, although I accept it could do so.

(c)	The statements made in the part of the form quoted above appear to involve alternatives. The execution of the document appears to contemplate the purchaser crossing out some of the propositions leaving the correct one which the purchaser was acknowledging. The middle words quoted above involve a statement that the purchaser had advised that the property was “subject to hidden or underlying defects”. That is obviously not the plaintiffs’ case, and neither did the defendant suggest this. In the absence of the form actually being completed, any representation said to arise had not been identified.

[63]	For these reasons I reject the plaintiffs’ contention that this records representations made by the defendant on which the plaintiffs relied.

Did representations induce entry of the contract?

[64]	I accept that the representations I have found that Mr De Marco made induced the plaintiffs to enter the sale and purchase agreement. As they explained in their evidence they were looking for a property that was a modern low maintenance building for their retirement. Mr Anderson explained they did not appreciate that weathertightness was a possible issue about this property as they were not familiar with this issue in New Zealand. But when he saw the documents that were disclosed he realised it was something that was relevant to this home, and he was satisfied when he read Mr Winton’s report that there was no need for concern. Ms Carrasco gave similar evidence. The condition of the property was plainly important to them, and the representations were accordingly highly relevant to their decision to buy. For these reasons the requirement for inducement is satisfied.

Was it reasonable for the plaintiffs to rely on the representations?

[65]	It must be established that it was reasonable for the plaintiffs to rely on the representations. Whether the reliance was reasonable depends on the position of the representee, objectively construed.10 In assessing the question of reasonable reliance, the Court of Appeal said in Ridgway Empire Ltd v Grant:11

[23] We should emphasise the obvious point that each case will turn on its own particular facts. Where it is obvious the vendor is not in a position to know the absolute correctness of a statement made, then, even if the statement is expressed as an unqualified statement of fact, it may be proper to interpret it as no more than a statement of opinion based on facts known or reasonably expected to be known to him or her. Liability in this context should not turn on whether a layperson vendor is sufficiently astute to qualify an oral statement about weathertightness by carefully limiting it to a statement of their knowledge. The circumstances may make that obvious. Further, it may not be reasonable for the representee to rely on such a statement, expressed orally by a layperson in answer to a question, as an unqualified statement of absolute fact. However, to escape liability in such a case, the representor would need to disclose all material facts known to them bearing on the issue.

[66]	In the “Disclosures” document Mr De Marco’s real estate agent provided what might be said to be a qualification relevant to whether it was reasonable for the plaintiffs to rely on the Building Science report and the associated representations. In particular the Disclosures document said that the agent “… recommended as always that prospective purchasers undertake their own written building report”.

[67]	The report Mr Winton provided Mr De Marco also anticipated that purchasers might be obtaining their own advice. That is demonstrated by his advice concerning the painting of the internal balustrades which he said was “an area that will be hammered by other building inspectors”. Moreover some of his evidence in response to challenges to the fullness or accuracy of his report appeared to be based on the idea that other building inspectors would be able to identify the extent to which his report may have material qualifications.

[68]	I accept that there is some force in Mr Shand’s argument that the plaintiffs took a risk by not obtaining their own building inspection report, not asking further

10 NZX Ltd v Ralec Commodities Pty Ltd [2016] NZHC 2742 at [200], citing West v Quayside Trustee Ltd (in rec and in liq) [2012] NZCA 232, [2012] NZCCLR 16 at [30]; Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2010) 11 NZCPR 879.
11 Above n 2.

questions of Mr Winton, and by making their offer unconditional. Indeed, the plaintiffs took a builder up to the property at some point to discuss potential alterations they might make to the property, but there is no suggestion that they asked him for advice on the condition of the property.

[69]	But that does not mean that it was unreasonable to rely on the representations. As the advice in the “Disclosures” document recognised, as a general proposition it might be considered prudent for potential purchasers to obtain their own building inspection report for this property. The first paragraph of the document referred to this building being “constructed of monolithic materials in the 1990s” which could be taken to be an oblique reference to the potential for weathertightness issues. Some potential buyers would recognise such a risk by simply looking at the building. But whether this reference or the building’s appearance would ring any alarm bells with any particular purchaser would depend on that purchaser’s state of knowledge. The plaintiffs here did not have that knowledge. And whilst the “Disclosures” document recommended potential purchasers to obtain their own report, the very point of providing purchasers with such a report that the vendor had commissioned is to avoid the need for each potential purchaser obtaining one for themselves. In the present case given the expert report was apparently comprehensive, and in very positive terms, a reasonable purchaser could have understood that there was no need to check on the accuracy of the report notwithstanding the accompanying advice.

[70]	It does not lie well in a vendor’s mouth to say it is unreasonable for a purchaser to rely on a report that the vendor has provided to describe the condition of the property in circumstances such as the present case, even when there is an accompanying recommendation they obtain their own. The sale of residential properties involves marketing a property to the public at large, including both the well-informed, and the not well-informed. A vendor cannot reasonably assume that all potential purchasers will be sufficiently well-informed on matters such as weathertightness risks to realise there is a need to have an expert report supplied to them checked. As the Court of Appeal observed in Vining Realty Group Ltd v Morehouse “… it does not normally sit

well in the mouth of someone who has been guilty of misrepresentation to blame the other person for believing the misrepresentation.”12

[71]	For completeness it is appropriate to address the fact that the plaintiffs had other properties that they owned in Wellington, so they were not wholly unfamiliar with property ownership. Those other properties were owned by a family trust with a solicitor as a further trustee. But the plaintiffs had not been involved in any recent property purchases, and had decided that they would own this property personally rather than it being owned by the family trust. For that reason the solicitor trustee was not involved. These features do not detract from the factors that lead me to conclude that it was reasonable for the plaintiffs to rely on the representations made.

Were the representations false?

[72]	One of the central contests between the parties addressed at greater length at trial was whether the representations made by Mr De Marco were false. I have little hesitation in finding that they were. That is particularly so when the particular matters are viewed in totality, but the reality is that there were a series of false representations arising from a number of matters.

(i)	Mr Winton’s report

[73]	I first conclude that Mr Winton’s report itself contained material misrepresentations.

[74]	First Mr Redican had advised in his earlier report to Mr De Marco the following:

Design Assessment

The design of the exterior building envelope has been assessed for areas of ‘risk design’ as defined by the New Zealand Standard NZS 4306 Definitions of Weathertightness Risk. Six areas of the design and construction are assessed using the building envelope risk matrix. Each one of these areas is rated and receives a score depending on the perceived risk.

12 Vining Realty Group Ltd v Morehouse [2010] NZCA 104, (2011) 11 NZCPR 879 at [53](b) –  appeal allowed on other grounds in Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726.

Based on my interpretation of the criteria for assessing the design, this dwelling sits in the very high-risk category.

[75]	When this passage was put to him Mr Winton agreed that the building sat in the high risk or very high risk category. Mr Redican’s report also identified a number of design or construction deficiencies — for example “… inadequate clearances between the bottom of the cladding and the deck/paving which is a known weathertightness risk”. Mr Winton agreed that these features identified by Mr Redican created weathertightness risks, although he stated that was only so by today’s standards, and not the standards when the building was originally constructed.

[76]	As Mr Dalzell submitted a misrepresentation can arise from making representations without disclosing further matters that need to be disclosed to capture the true position. In Thompson v Vincent this was described in the following way in relation to representations that a motel being sold had 24 units, which was literally true, but where planning consent allowed only 12 to be used.13
[70] We leave open the question whether, in absolute terms, this was a situation of duty to speak. If the vendors had said nothing whatsoever as to unit numbers, caveat emptor principles might apply. The present was not a case of complete silence. Nor was it a contract uberrima vides. It was, quite simply, a situation of half-truth, silence as to the other half rendering what was said deceptive. It was a half-truth to say the complex had 22-24 units without going on to say there was planning consent for only 12 of that number. There was, as the point sometimes is put, a “material distortion”. A half-truth is an untruth. What was said was wrong.

[77]	Whether half-truths involve a misrepresentation will depend on the circumstances,  including  the  extent  of  the  representor’s  knowledge.14   Given   Mr Winton’s acceptance that Mr Redican’s criticisms of the property were valid, the positive statements made in his report involved misrepresentations. They were half- truths, or distortions. The property involved a high risk/very high risk design, and there were also a number of design or construction defects. To provide an apparently comprehensive report on weathertightness containing a series of positive assessments, including that the home was in good condition, the dwelling was not a leaky home,

13         Thompson v Vincent [2001] 3 NZLR 355 (CA).
14 See Wakelin v R H and E A Jackson Ltd (1984) 2 NZCPR 195 (HC); Ware v Johnson [1984] 2 NZLR 518 (HC) at 538; and Burrows, Finn and Todd (eds) Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 476–377.

that it was well maintained in above average condition, that it was a dry occupancy, and that it met part E2 and B2 of the Building Act 2004 in relation to weathertightness, involved a materially inaccurate and misleading characterisation.

[78]	Indeed the representation in Mr Winton’s report under the heading “weather tightness” that “the home meets E2 and B2 under the 2004 building act” involves a misrepresentation in itself. Mr Winton’s evidence was that the building did not meet current standards because of its design, and some of the design and construction deficiencies, but that it met the standards at the time it was built. But the representation he made was to the effect that it met the current requirements in E2 (which related to “external moisture”) and B2 (which related to “durability”) in the Building Code.15 As Mr Winton accepted, the building does not meet current weathertightness standards. It would not now be approved by a local authority. His statement involved a material misrepresentation in itself. It did not accurately report on the building’s weathertightness condition to the best of his information and belief.

[79]	Furthermore Mr Winton had identified an area where the building had been leaking. In his first report to Mr De Marco in November he advised:

Moisture readings indicate joinery needs work to restore weather tightness in lower entry bedroom, to the right of the main entrance.

[80]	This turned out to be a significant leak. Not only had the timber framing below the window rotted, so had the flooring and timber framing for the flooring. Both required replacement. Mr Winton’s recommendation to replace the aluminium joinery could potentially address the origin of the leak but it would not deal with any damage that the leak had caused. Moreover, the fact there had been a leak would not then be apparent once the work he had recommended had been done.

[81]	Mr Winton’s 7 December 2017 report disclosed to purchasers simply stated on this issue that “the joinery has been serviced by Window Rescue prior to sale”. He accepted that this was inaccurate because this work had not actually taken place at the time of that report. But the more significant point is that there had been a leak in this area which was not disclosed. His report made no reference to any repair of a leaking

15	Building Regulations 1992, sched 1.

area by the statement that the joinery had been serviced. It also tabulated readings from the various forms of moisture reading technology used, and described the readings for this bedroom as “safe”, “dry” and that there were no hidden leaks or hotspots. Yet his November report he had identified that there had been leaking in this room because of moisture readings. When the area was subsequently opened up, significant damage had been caused by that leak. The report contains misrepresentations given that background.

[82]	It can also be said that the report involves misrepresentations in a more general sense given the background. This was a high or very high risk building with design/construction flaws. There was a recognition that there had been deferred maintenance and at least one leak had been identified. Mr Winton’s advice was that work needed to be done on the property to deal with the apparent weathertightness issues. This involved steps such as painting of the top roof internal balustrades which would be “hammered by other inspections”, and dealing with the cracks in the façade
— almost literally plastering over the cracks. This dealt with the issues cosmetically, but not substantively.

[83]	It is one thing for Mr Winton to provide advice to a vendor to enable the vendor to present their property in the best possible light. Caveat emptor could then operate. It is another to also provide a new version of a report to describe the property as he did thereafter, which he himself described as a “snappy more impactful report that will help make the sale”. Given the very positive description of the property contained in that report, including the comprehensive testing that it outlined, I conclude that the report did not accurately describe the weathertightness condition of the property in an overall sense to the best of Mr Winton’s information and belief.

[84]	Mr Winton sought to argue that what was stated in his report was literally true, particularly given the terms of art used in the industry. For example he said that it was true that this was a “dry occupancy” as that concept is understood by the industry. But the necessary enquiry concerns the meaning actually conveyed by a representation. The meaning intended by a representor is not relevant.16 The report was prepared to

16	West v Quayside Trustee Ltd [2012] NZCA 232, [2012] NZCCLR 16 at [30], citing Bisset v Wilkinson [1927] AC 177 (PC) at 183.

be given to prospective purchasers, not members of the industry. As Chambers J said in Gunton v Aviation Classics Ltd:17

… People in trade should choose their words carefully so that wrongful impressions are not conveyed. If they fail to act carefully they can scarcely complain when others, quite reasonably are misled to their detriment.

(ii)	Mr De Marco’s representations

[85]	In any event, the further statements made by Mr De Marco in the “Disclosures” document involved further significant misrepresentations.

[86]	First, Mr De Marco represented that the Building Science report accurately represented the condition of the property. But he had received the earlier report from Mr Redican which advised that there were significant weathertightness issues, and that a full investigation was required to identify the remedial action needed. Mr De Marco said he did not agree with the report.  But he only took up one issue about it with   Mr Redican, and Mr Redican had amended his report on that issue.

[87]	The position might have been different if Mr De Marco had received advice that  Mr  Redican’s  advice  was  wrong.  But  he  had  not.   He  did  not  disclose Mr Redican’s report to Mr Winton, or ask him to provide advice on its conclusions. Given that, for Mr De Marco to only disclose Mr Winton’s report to purchasers, when he was in possession of another expert report that advised there were significant issues involves a misrepresentation. It involves a false representation that the vendor knew of no weathertightness issues. In the absence of Mr Winton, or somebody else, advising that Mr Redican’s advice was incorrect and should not be relied upon, it was advice that qualified the positive report put forward.

[88]	In any event Mr De Marco knew that what Mr Redican had raised was likely to be correct. When Mr Parsons had come to address the work on the balcony he explained that the windows had not been correctly installed, and that this was likely to be the case with the other windows in the building. When he quoted for the work he said that his work involved no guarantee for weathertightness because the “areas

17	Gunton v Aviation Classics Ltd [2004] 3 NZLR 836 (HC) at [244] cited with approval in West v Quayside Trustee Ltd, above n 16, at [30].

above windows … are not compliant”. Similarly Mr Welsh had advised that the building did not comply with the Building Code because the deck falls were too low, the upstand to the floor was too low, the balustrade was not to Code, the cladding was not to Code and that “the owner has been made aware of these issues”. All of this advice was to the effect that the building had significant weathertightness issues.

[89]	Mr De Marco’s further description of the weathertightness work that had been done on the property in the Disclosures document involved additional misrepresentations. The work engaged in extended beyond replacing mid-level butynol in 2011, repainting with acrylic waterproof membrane in 2012, and replacing the roof above the lounge in 2014. Most significantly there had been Mr Parsons’ work which included removing and replacing water damaged and decayed plywood and timber under the deck, and identification that the adjacent walls involved non- compliant window installations which needed to be remedied. That work also involved repairing earlier allegedly inadequate work by the tiler which was associated with significant leaking. Moreover Mr Parsons had advised, as had Mr Welsh, that these were non-compliant works that could only be regarded as a temporary repair until the more significant weathertightness issues concern the building generally were addressed.

[90]	Indeed the building had had an additional history of weathertightness problems which I have outlined at [8]–[30] above, including at least two insurance claims for water damage, one of which was declined by a loss adjustor expressly because “the decking issue” was an error or omission in the design of the building rather than arising from an insured event. Furthermore Mr De Marco had unsuccessfully sought to sell the property in April 2011 because there had been a failed building and moisture report.

[91]	It follows that Mr De Marco’s representations on the weathertightness condition of the property, and the prior weathertightness work, were materially incomplete, and accordingly involved a significant misrepresentation both about the extent of weathertightness work that had been required at the property, and its present condition.

Is this a leaky home?

[92]	In support of the plaintiffs’ case the plaintiffs called expert evidence from a building surveyor and remediation specialist, Mr Thomas Wutzler, who had undertaken an assessment of the building. In order to do so orders were made by the Associate Judge allowing an inspection of the building to take place.18 It is significant that when this inspection occurred, internal walls at the property had been opened up and work to repair damage caused by leaking had taken place. This included the works to repair the damage from the leak in the lower entrance bedroom.

[93]	Mr Wutzler explained that there were not only places where remedial work had been undertaken, but there were further areas of the property where there were leaks or potential leaks. In addition expert evidence was given by a biodeterioration consultant, Dr Robin Wakeling, who gave evidence that the samples of timbers taken from the property showed fungal growth and decay which was inconsistent with sound building practice and weathertight design. Finally a structural engineer, Mr Alasdair Sinclair, explained that some of the repair work had been done in areas having structural significance.

[94]	In response the defendant called Mr Colin Prouse, an expert in building testing and certification services. Mr Prouse had not engaged in any assessment of the building itself, but he commented on the reports of the other experts. He was critical of Mr Wutzler’s work as he said that the type of assessment he had engaged in could not be regarded as a comprehensive assessment, and that some of the matters that he had put forward to demonstrate this was of not sufficient standard to allow conclusions to be drawn. He disagreed with Mr Wutzler’s conclusions. He also gave evidence that Mr Winton’s report was a far more complete and comprehensive report than   Mr Redican’s report.

[95]	Much of Mr Prouse’s criticism seems to me to be ill-founded. Mr Wutzler did not, and could not, engage in a comprehensive assessment to determine whether this is a leaky building or not, or the full extent of the weathertightness issues. That is because he could only obtain access to the property on a more limited basis following

18	Anderson v De Marco [2019] NZHC 570.

directions being made by the Associate Judge. This did not allow a comprehensive assessment of the kind Mr Prouse was contemplating. Mr Prouse was unaware of that background. In addition Mr Prouse’s comments on the relative merit of Mr Winton’s report compared to Mr Redican’s report needs to be considered in light of the fact that I have found that Mr Winton’s report contained material misrepresentations about the state of the property.

[96]	I cannot be sure about the full extent of the weathertightness issues with this property. Whether one can describe this building as a “leaky building” or not may also depend upon perspective. This  is  not  a  term  of  art.  What  I  do  accept  is  that Mr Wutzler’s evidence demonstrates there are a number of additional issues concerning the weathertightness of the building, and the potential that other parts of it have significant weathertightness problems.

[97]	It does not seem to me to be necessary, however, for the plaintiffs to have to prove the full extent of the weathertightness problems arising with respect to the building. The plaintiffs simply need to establish that the defendant made misrepresentations about the building meeting the requirements of the cause of action. I conclude that they have done  so  even  without  the  further  expert  evidence  of Mr Wutzler and the associated experts.

Material reduction in, or change to the benefits of the contract

[98]	The final requirement for the plaintiffs to demonstrate that they were entitled to cancel the contract is whether the misrepresentations resulted in the plaintiffs receiving materially less than what was represented, or a significant change from what was represented.

[99]	Mr Shand argued that since the cancelled transaction Mr De Marco had resold the property for $1.1 million. He argued that this could be taken as the value of the property in its true state, and that this involved a figure of only $100,000 less than the cancelled contract, and accordingly a loss of only $100,000. This he argued this loss was not sufficiently substantial to justify cancellation.19

19	Relying on Jolly v Palmer [1985] 1 NZLR 658 (HC).

[100]	I do not accept Mr Shand’s arguments. First, there is insufficient evidence before the Court about this further transaction to allow me to conclude that it properly represents the true value of the property in light of its true weathertightness state. The purchasers were known to Mr De Marco. The sale was not conducted through a real estate agent. There was an agreement with the purchaser allowing Mr De Marco’s partner to live on in the property for a low rental. I also have insufficient evidence of what was disclosed to the purchaser concerning the state of the building.

[101]	In any event, at the time of the prospective sale to the plaintiffs the scale of the weathertightness problem could not be known. The true position was that the property suffered from significant weathertightness issues, the scope of which could not be ascertained without a comprehensive assessment by experts, which in itself would involve significant work. The uncertainty in relation to the scale and scope of the problem itself significantly depresses the value of what the plaintiffs understood they were getting. The plaintiffs received something materially different, and considerably less valuable than what Mr De Marco had represented. The nature of the misrepresentations that I have found were made mean that there was a very significant difference between the position as represented, and the true position.

[102]	I accordingly accept that this requirement is satisfied.

Conclusion

[103]	For these reasons I accept that the pleaded representations were made, that they induced the plaintiffs to enter the contract to purchase Mr De Marco’s house, that it was reasonable of the plaintiffs to rely on the representations and that the representations were false.

[104]	In addition I accept that the misrepresentations led to a material reduction in or change of the benefits of the contract to the plaintiffs. For that reason I accept the plaintiffs were entitled to cancel the contract under s 37 of the Contract and Commercial Law Act.

[105]	The final question to address is the compensation that the plaintiffs should be awarded as a consequence.

Remedies

[106]	In addition to concluding that the plaintiffs acted within their rights in cancelling the contract, the plaintiffs seek compensation under s 43. The plaintiffs claim the following amounts:

(a)	The amount of the deposit	$120,000	

(b)	Interest on the deposit20	
$10,708	

(c)	
Fees for the legal advice and attendances on the purchase of the property from Michael J Hay Barrister and Solicitor	
$1,415	

(d)	
Legal advice and attendances in relation to the cancellation of the contract from Parker & Associates	
$38,851.66	
	
Total	
$170,974.66	

[107]	There was little challenge to these matters at trial, although Mr Anderson confirmed in cross-examination that the costs as set out in his evidence had been paid, and Mr Shand submitted in closing that the claim costs were unreasonable and too high.

[108]	In the absence of any more direct challenge, or reasons why the claimed costs and expenditure are not reasonable, they seem to me to be appropriate and I allow them with one qualification. The qualification relates to the legal fees for Parker & Associates which go through to 10 August 2018, and expressly include disbursements for filing the statement of claim and an interlocutory application. These proceedings were commenced on 10 August 2018. Whilst a plaintiff is entitled to claim legal costs as damages/compensation, it is not appropriate to include within that claim legal expenditure incurred in the proceedings themselves.21 That expenditure is to be

20	Calculated on the Ministry of Justice civil debt interest calculator.
21	See the summary of the authorities in Carr v Brookside Farm Trust Ltd [2016] NZHC 2065 at [731]–[737].

addressed by the costs award in this proceeding. That difficulty is illustrated by the plaintiffs claiming the filing fees for originally filing the proceeding, and bringing an interlocutory application, are recoverable as damages.

[109]	In the circumstances, and notwithstanding that Mr Shand did not directly address this question, I currently exclude the amount of $38,851.66 from the compensation allowed. I act under r 11.2(a) of the High Court Rules 2016 and currently award the plaintiffs $132,123 as an interim judgment. The question of what further amounts should be awarded for legal expenditure which is not expenditure on these proceedings will be addressed at the same time as assessing costs, with the final judgment sum to be awarded determined along with the costs decision.

Breach of contractual warranty

[110]	The plaintiffs’ second, and alternative, cause of action is for breach of contractual warranty. Given that I have upheld the claim for misrepresentation I will address this claim more briefly even though I accept that the plaintiffs are entitled to recover under this cause of action.

[111]	Clause 9.2(5) of the Sale and Purchase Agreement contains the following warranty:

Where the vendor has done or caused or permitted to be done on the property any works:

(a)	any permit, resource consent, or building consent required by law was obtained;

(b)	to the vendor’s knowledge, the works were completed in compliance with those permits or consents;

(c)	where appropriate, a code of compliance was issued for those works.

[112]	The plaintiffs contend that this warranty was breached as a consequence of the work undertaken by Mr Parsons remedying the leaking balcony, and attending to the associated remedial work on the adjacent wall where windows had been installed in a non-compliant manner. The key issue here is whether a building consent was required for this work, or whether a consent was not required as the work involved exempted repairs and maintenance.

[113]	I conclude that a consent was required. The starting point is that I accept that Mr Parsons advised Mr De Marco that such a consent was required, and was only prepared to do the work without a consent application because he was attending to an immediate leaking problem that needed to be remedied. Moreover Mr Parsons advised that the associated problems with the windows and the wall were non- compliant with weathertightness standards and this needed to be remedied. This approach is generally consistent with Mr Welsh’s advice that the building was non- compliant, and that the vendor had decided to proceed without getting a building consent.

[114]	It is, of course, possible that this advice was incorrect. Mr Shand argued that replacing elements of a balcony involved repairs or maintenance not caused by any Building Code non-compliance, and for a balcony to have lasted for the period it had showed that it met any relevant standards under the Building Code.

[115]	Schedule 1 of the Building Act 2004 sets out works for which a building consent is not required. This includes:

1	General repair, maintenance, and replacement

(1)	The repair and maintenance of any component or assembly incorporated in or associated with a building, provided that comparable materials are used.

(2)	Replacement of any component or assembly incorporated in or associated with a building, provided that—

(a)	a comparable component or assembly is used; and

(b)	the replacement is in the same position.

(3)	However, subclauses (1) and (2) do not include the following building work:

(a)	complete or substantial replacement of a specified system; or

(b)	complete or substantial replacement of any component or assembly contributing to the building’s structural behaviour or fire-safety properties; or

(c)	repair or replacement (other than maintenance) of any component or assembly that has failed to satisfy the provisions of the building code for durability, for example, through a failure to comply with the external moisture requirements of the building code; or

(d)	sanitary plumbing or drainlaying under the Plumbers, Gasfitters, and Drainlayers Act 2006.

[116]	This provision has been amended over the years, and the view has been taken that those amendments are important in determining whether repairs and maintenance require a consent.22

[117]	The work conducted by Mr Parsons between July and October 2014 took place when the proviso in cl 1(3)(c) applied. So the repair or replacement of any component or assembly that has failed because of failure to meet the provisions of the Code for durability required a consent. For example, a failure to comply with external moisture requirements under cl E2.23

[118]	Mr Shand argued that cl 1(3)(c) did not apply here because the Building Code did not apply to this building, and that the deck was 24 years old with durability only required for 15 years. I do not accept these arguments. It seems to me that cl 1(3)(c) is directed to whether the building meets current building code standards for durability/weathertightness irrespective of when the building was constructed. The purpose of the provision is to require a consent when that building does not meet current standards and repair work is required as a consequence. In effect it is contemplating that such repair work must be assessed against current standards.24 As the authors of Building Law in New Zealand state:25
Exemption (c) ensures that, for example, the owner of a leaky home can no longer replace rotten cladding or framing with the same material without the need for building consent, and therefore without an entry on the land information memorandum, which will put prospective purchasers on the alert.

[119]	This objective arises irrespective of when the building was constructed.

[120]	In terms of the durability requirement, the weathertightness failures around the balcony arose in connection with design or construction defects. Significant water damage had been caused to structural elements of the building, both under the balcony

22	See, for example, MBIE HB Determination 2014/056, 1 December 2014.
23	Building Regulations 1992, sch 1, cl E2.
24	What a consent authority might then reasonably require is a separate question.
25	Duncan Laing and others Building Law in New Zealand (loose-leaf ed, Thompson Reuters) at BLSch 1E1.06 exemptions in Exemption 1(3).

floor, and in the adjacent wall of the living room. This required opening up and replacing structural elements of the building that had failed because of a weathertightness failure. I do not accept that the weathertightness failure of the balcony, and the associated water damage caused under the balcony floor and in the adjacent wall, occurred solely as a consequence of inadequate earlier work by the tiler. The evidence suggests that there was a more long-standing issue arising from design and construction failures. That was the evidence of Mr Parsons, Mr Welsh, and had also been observed by one of the insurance assessors.

[121]	In short, the work involved a repair and replacement of components, including structural components, that had failed to meet external moisture standards of the Code. For that reason a building consent was required.

[122]	Under s 37(2)(a) of the Contract and Commercial Law Act a party can cancel a contract for breach if the parties have expressly or impliedly agreed that the performance of the term is essential to the cancelling party. That is ascertained at the time of entry into the contract.26 I do not accept Mr Dalzell’s argument that this arises here. As Mr Shand submitted there is nothing to demonstrate that the plaintiffs expressly and impliedly agreed that this warranty was essential.

[123]	I am satisfied, however that the breach of warranty meant that the plaintiffs received something significantly less valuable than warranted under s 37(2)(b). The unconsented work undertaken by Mr Parsons involved a potentially significant problem with the overall weathertightness of the building. Had a consent been sought it would likely have been necessary for the overall weathertightness issues with the property to be confronted. They were not, and as a consequence the property remained in a compromised state. Had the warranty been true the property would have been significantly more valuable.

26	Mana Property Trustee Ltd v James Development Ltd [2010] NZSC 90, [2010] 3 NZLR 805 at [23].

Conclusion and result

[124]	For the above reasons I uphold the plaintiffs’ claim for misrepresentation. I also uphold the plaintiffs’ claims for breach of contractual warranty. It follows that the defendant’s counter-claim is dismissed.

[125]	The plaintiffs are entitled to the judgment in the amount of $132,123 as an interim judgment, which may be increased to address the issue referred to in [108] above when the Court determines the question of costs.

[126]	On costs the plaintiffs should file a memoranda within 10 working days following release of this judgment, which should be responded to by the defendant within a period of a further 10 working days. As indicated the memoranda should address what additional amounts are to be awarded to the plaintiff for legal expenditure. An affidavit may be filed by the plaintiffs with the memoranda addressing the question of legal expenditure that is and is not attributable to these proceedings. That can be responded to by the defendant in his memoranda.

Cooke J

Solicitors:
Parker & Associates, Wellington for the Plaintiffs Grant Shand, Auckland for the Defendant