If I had a hammer …
Paul Robertson discusses whether contract-only builders should not, could not owe a duty of care
“If I had a hammer
I would hammer in the morning
I would hammer in the evening
All over this land…”
Pete Seeger/Lee Hays – 1949
The authors of the Report of the Overview Group on the Weathertightness of Buildings to the Building Industry Authority (the Hunn Report) in 2002 commented on changes in building practices over the years. They referred to the modern practice of engaging a multitude of “labour-only” subcontractors, inadequate project management, and a perception that “no one takes overall responsibility for projects anymore”. The authors identified this fragmentation of the building industry as leading to a “collective systems’ failure – and buildings that leak”.
Two such labour-only contractors disputed their liability in a recent hearing of the Weathertight Homes Tribunal. After the Tribunal held that they were liable for weathertightness issues caused by their faulty installation of the windows, they appealed to the High Court.
The contractors contested their liability on several fronts. Their primary submission was that because they contracted with a building company they did not, and should not, owe a duty of care to the owner of the property. The decision of Justice Williams in Boyd v McGregor (17 February 2010, High Court, Auckland CIV 2009-404-5332) sets out a clear rationale for such contractors to owe a common law duty in negligence to current and future owners of a house.
Background
Messrs Boyd and Halliday were contracted to a construction company, Woodtec Projects Limited (in liquidation), to undertake carpentry work on a house being constructed for Mrs McGregor and her family trust. Boyd and Halliday, trading in partnership, were on site for several weeks, and were paid $21,000 for carpentry work, including the installation of the windows. At the time of construction (1997 and 1998), both Boyd and Halliday had undertaken carpentry apprenticeships, but neither had any experience of the cladding material used on the house, Harditex.
Mr Jensen, the sole director of Woodtec, was a registered master builder. Jensen was bankrupt by the date of the Tribunal hearing, but appeared to give evidence. He explained that he had overall control of the project and, in fact, undertook the initial setting out of the house, particularly the foundations. He left Boyd and Halliday on site to complete the superstructure of the house. He visited regularly to provide materials as needed, and he was available to assist them with any unusual aspects of construction.
The Tribunal heard that the windows were installed by Boyd and Halliday without any sealant; they were simply nailed into place. Boyd and Halliday gave evidence that they were unsure about the correct way to install windows in a house clad with Harditex. They were not provided with manufacturer’s literature or other guidance. They gave evidence, and the Tribunal accepted, that they took advice from a specialist contractor on site – the texture coating applicator, Mr Hay. He in turn explained that there was no need for the builders to take any particular precautions; he would ensure that the windows were adequately flashed by applying sealant around the windows before spraying the texture coating over the Harditex cladding. Boyd and Halliday did not consult Jensen.
The Tribunal concluded that:
(a) Boyd and Halliday owed a duty of care to McGregor and her trust;
(b) They were negligent because they had not installed the windows in accordance with good trade practice and the requirements of the manufacturer;
(c) The failure to seal the windows into the walls had caused extensive damage; and
(d) It was appropriate to apportion 10 per cent of the loss to each of Boyd and Halliday (total 20 per cent) and 60 per cent to the plasterer. The Council was left bearing 20 per cent of the overall loss.
The Council was found not to be liable for the damage caused by inadequate waterproofing of the block work basement and subfloor area. The Tribunal also accepted that the Council had not been negligent for failing to check that sealant had been placed behind the reveals of the windows. This would have placed the Council in the role of a clerk of works. The Council was found liable for other failings with the cladding.
The appeal
Boyd and Halliday appealed to the High Court on the grounds that no duty of care was owed by them to McGregor, that they had not breached any relevant duty of care, and the breaches of duty, if established, had not caused water ingress. They also applied to reduce their apportioned share of the loss, at the expense of the Council.
In relation to duty, counsel for Boyd and Halliday argued that his clients were not the “builders of the house”, they were employed on a “labour-only basis” to undertake only part of the building work under the supervision of Jensen, and that as contractors the Court should not impose a common law duty in favour of the owner, McGregor. Their counsel placed specific reliance on a recent High Court decision, Northern Medical Clinic & Surgical Centre Ltd v Kingston (3 December 2008, High Court, Auckland CIV 2006-404-068, Justice Keane), where a subcontractor who installed the exterior cladding to a medical centre was struck out of a proceeding on the basis that the contractor did not owe a duty of care to the owner of the property.
A builder is a builder is a builder
The Court dismissed the submission that the label applied to a building party should determine their legal liability: “But the Court’s view is that labels are arid grounds for debate: in issue are the functions assumed by those said to be liable, what legal obligations may flow from their assumption of those functions, and whether those obligations have been breached” (at [28]).
The submission that the “labour only” epithet in some way reduced the appellant’s liability was also roundly rejected. His Honour referred to the Court of Appeal decision in Riddell v Porteous [1999] 1 NZLR 1, 8, where the Court held that while the contractual terms of a builder’s contract were relevant, a labour-only builder was still required to meet the requirements of the Building Code and good trade practice.
The easy way and the hard way
Justice Williams explained that there were two lines of reasoning that led to the conclusion that Boyd and Halliday were subject to a duty of care. The ‘easy’ way was to consider that the Tribunal was bound by authorities such as Mt Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA) and Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA), on the basis that Boyd and Halliday were akin to the builders found liable in those two cases. The practice of employing a number of specialist subcontractors on a building site may be a more recent innovation, but functionally, Boyd and Halliday were undertaking building work, and it was fair and reasonable to impose a duty of care on them.
Justice Williams then considered whether a duty of care should be imposed in accordance with the normal approach adopted by a court when considering whether to impose a novel duty of care.
Analogy with decided cases
The Court accepted the continuing relevance of Mt Albert Borough Council v Johnson and Bowen v Paramount Builders (Hamilton) Ltd. The practice of employing a number of specialist contractors might be new, but the rationale for imposing a duty of care on those parties for their building work remained the same.
His Honour considered cases where contractors have not been found liable for their building work, in particular Northern Medical Clinic, and also the older decision of Justice Potter in Body Corporate No 114424 v Glossop Chan Partnership Architect Ltd (22 September 1997, High Court, Auckland CP 612/93).
He referred to the Court of Appeal decision in Rolls Royce New Zealand Ltd v Carter Holt Harvey [2005] 1 NZLR 324, 349, and the concept of ‘assumption of responsibility’ as a touchstone as to whether a duty of care should be imposed. There the Court referred to assumption of responsibility being an objective test based upon whether it was fair, just, and reasonable to deem an assumption of responsibility.
His Honour referred (at [60] and [61]) to the functional aspects of Boyd and Halliday’s position:
“First – and, almost certainly, foremost – whatever their contractual position and possibility of oversight by Mr Jensen, the appellants assumed responsibility for installing the windows, the faulty installation of which was a prime cause of the house leaking. A competent builder and thus the appellants should have known that good trade practice is to achieve weathertightness and to do that requires the installation of the flashings on the windows even if they were not drawn in the plans.
“The cases demonstrate the extent of the appellants’ involvement in the building also requires to be taken into account. In that regard, an objective assessment must lead to the conclusion that, weathertightness of a building – whether domestic or commercial – is so inherently part of competent building that those who undertake building work are required to achieve weathertightness as a necessary component and should be visited with responsibility to those who erect buildings or have them erected. Thus they should be held liable if their work fails that fundamental function.”
Vulnerability
The High Court was also influenced by the relative vulnerability of a property owner. Once the defective flashings were covered up, an owner was vulnerable in the sense of being unable to discover the lack of weathertightness that resulted. By comparison “competent builders and thus the appellants” should have had the skills required to undertake the work so as to achieve weathertightness.
There were no other issues of policy or proximity that persuaded the Court that a duty of care should not be imposed. That duty was to ensure compliance with the New Zealand Building Code and standards applying at the time, for the work that they were contracted to undertake.
Breach of duty
At the hearing, evidence had been given by experts of the good and usual practice of builders. The expert engaged by the homeowner had emphasised the negligence of Boyd and Halliday in his written brief. During cross-examination, the expert softened his criticism. However, the Court accepted that there was sufficient evidence for the Tribunal to find that the building work had fallen below the standard to be expected of competent builders. His Honour discounted arguments that the lack of building experience of Boyd and Halliday, the absence of effective supervision from Jensen, the potentially ambiguous product literature from the manufacturer, and a misdirection from the plasterer, exculpated them. Their failure to raise their concerns about the flashing of the windows with Jensen was said to be particularly blameworthy.
Apportionment
The Tribunal’s apportionment of 60 per cent to the plasterer reflected in part the significant portion of the loss ascribed to the bad advice from Hay. The Court accepted that the 20 per cent apportioned to Boyd and Halliday was appropriate on these special facts.
What next?
The genie – or more appropriately the snail – is out of the bottle. Those involved in building work face liability for any deficiencies in their work irrespective of their building skills and their contractual status.
On the facts of McGregor, the Court did not need to consider another concern in the Hunn report - that is, the absence of good and effective project management. However, it seems likely that had Jensen not been bankrupt, he would have been found personally liable for his failure to ensure that his contractors were supervised and were provided with appropriate installation instructions from the manufacturer.
Paul Robertson is an associate with Heaney & Co. He can be contacted on 09 367 7004 and par@heaneyco.com.