Measuring loss in building claims
Tuesday, 15 November, 2011
Author: Karen Shaw
Successful claimants in building disputes are entitled to damages. However, the damages awarded may not be the cost of fixing the property. An alternative basis for a damages award is the loss of value in the property. But what is the appropriate measure? This was the question that concerned the High Court in Cao and Tao v Auckland City Council and Ors.
In the Weathertight Homes Tribunal Mr Cao and Ms Tao (claimants) sought the estimated remedial costs of fixing their family home in Remuera. There was little issue that the claimants’ property suffered extensive defects. However, the Tribunal decided that the appropriate measure of damages was to award the claimants the loss of value in the property. The estimated value of the house without the defects was $965,000 and the estimated value with the defects was $513,000. Accordingly, the Tribunal awarded the claimants the difference between these two values: $452,000. The claimants appealed to the High Court. They argued that the property was their family home and in an area chosen specifically for their needs (i.e. school zones). The property was also a large home with five bedrooms which they said they required to meet their needs given that they often had visitors staying from overseas. They wanted to repair their home and retain it.
In the High Court, the parties argued about whether there was any “prima facie” measure of damages in cases involving building defects. The claimants argued the normal measure of damages was repair/reinstatement costs. Lawyers for the Council, on the other hand, argued that there was no prima facie rule as between remedial costs and loss in value. After reviewing the authorities, Justice Andrews accepted that the primary concern of the Court in each case should be to ascertain remedial costs but said as with any “prima facie rule” that is not inflexible and, the Court must always be satisfied that remedying the defects is a reasonable course to adopt. Several factors were relevant in assessing the appropriate measure of damages including:
- The nature of the property and the claimants’ relationship to it. If a property has a special or particular value to the claimants, such as being a family home as opposed to an investment property, this may point towards reinstatement.
- The wrongdoer’s connection with the property. Loss of value may be the fairer approach if the liable party was a complete outsider as opposed to a party whose purpose was to produce or contribute towards a particular result.
- Whether it is reasonably possible to recreate what has been damaged/unsoundly constructed on the site.
- Whether the claimants genuinely intend to have the property reinstated.
Each case will depend on its own particular facts.
In this case Justice Andrews found that the Tribunal had erred in assessing the measure of damages because it said a key issue was whether or not it was economic to the repair the property. However, the proper focus was what would fairly compensate the claimants while at the same time being reasonable between them and the liable parties. The Tribunal also erred in accepting evidence from the valuers (for the other parties) that there were other properties available in the same area of a comparable size and which the claimants could afford. The evidence did not actually support that conclusion. One valuer only referred to two other comparable properties both of which were valued at $1.1 million and which were outside the claimants’ means. Further, at the Tribunal hearing lawyers for the Council had referred the claimants to certain real estate listings but had not put any particular details of those listings to the claimants. There was no basis for the Tribunal’s conclusion that there were comparable properties available to the claimants.
Ultimately, the High Court decided that the fair measure of damages on the facts was the estimated remedial costs. The Tribunal ought to have considered the claimants’ evidence that the property was a family home which was specifically purchased because it satisfied particular requirements that they had.
For further information please contact:
Karen Shaw
Phone: 07 834 4665
Email: karen.shaw@harkness.co.nz
