High Court consideration of negligence and misleading conduct for supply of building materials and specifications

In the High Court decision of Ulrich v Far North District Council and others (“the Council”), the Court was asked to determine whether Global Fibre8 Limited (“GF8”) was negligent and had engaged in misleading and deceptive conduct, through supplying defective building materials and specifications to the Urlich’s.

Facts.
In 2015, the Plaintiffs Karen and Randolph Urlich wanted to build their dream home in Northland. They engaged a number of parties to undertake the building of their dream home, who have all now settled out of the proceeding, save GF8.

The Urlich’s met with GF8 who promoted a pre-fabricated wall panel system called K3T as the ideal material to use to build their new home. GF8 promoted this product compellingly, representing to the Urlich’s that it was a tested and approved material to use in New Zealand which was accepted by the regulatory bodies and complied with building requirements. GF8 made a number of other representations as to the superior quality of this material, so the Urlich’s agreed to purchase K3T from GF8, along with engaging GF8 to draft the relevant house specifications for this panel system. The Council approved the plans and granted a building consent.

Near the end of 2016, the Urlich’s noticed cracking in the K3T especially around the windows and doors. They contacted GF8 about the cracking, who shortly after stopped responding to them.

In March 2017, the Council issued a Notice to Fix the defects in the K3T, meaning that all building works on site had to stop, and defects remedied.

A number of reports and investigations were undertaken, all of which stated that the works were defective and non-complying with the building code. It was considered that the only viable remedy was to replace the K3T panelling with new wall framing and exterior cladding system in order for it to be compliant with the New Zealand Building Code.

Was GF8 negligent?
In order for a party to be negligent, it has to be established that the loss is reasonably foreseeable, that there is sufficient proximity in the relationship, and that it is fair, just and reasonable to impose a duty of care.

The Court considered that there was a direct relationship between GF8 as a manufacturer, and the Urlich’s as a supplier, and therefore there was a sufficiently proximate relationship between the parties. The loss was reasonably foreseeable by GF8, who would have known that the material did not comply with the New Zealand Building Code. It was also considered that it was fair, just and reasonable to impose the duty of care on GF8 considering the circumstances. There was nothing in the contractual agreement to indicate that it would not be fair, just and reasonable for GF8 to be liable.

GF8 breached its duty of care to the Urlich’s both in supplying the K3T and designing the specifications for their house. They supplied materials that were non-compliant with the New Zealand Building Code, and designed plans that led to a defective house being built.

Did GF8 engage in misleading and deceptive conduct?
The test for misleading or deceptive conduct is whether a reasonable person in the Plaintiffs situation would have been, or likely to have been, misled or deceived. Intention to mislead is not required. Where a claimant has actually been deceived, the Court can make an order that the misleading party pay the loss suffered by the Claimant.

The Court held that GF8 was in trade and engaged in misleading and deceptive conduct through its characterisation of the qualities of K3T, and the status of it compliance with New Zealand’s regulatory requirements. The reasonable customer would likely have believed the representations made by GF8 about K3T, and therefore been misled or deceived. It was held that GF8’s misleading conduct led to the Urlich’s loss.

Conclusion
The purpose of damages in tort law is to put the party whose right has been violated in the same position as they would have been as if their loss had not occurred. The Urlich’s were awarded $64,464.04, being the portion of GF8’s contribution to the costs of removing and replacing the K3T. The Urlich’s were also awarded $20,000.00 in general damages, as well as costs and interest on the damages.

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