Personal Liability of Builders Under Statutory Warranties in the Building Act 2004

Timothy Bates and Bodene Robertson-Wright of Auckland law firm TM Bates & Co review a recent case in which the application of the statutory warranties under the Building Act 2004, and the personal liability of a builder when operating through a limited liability company was explored.

In the High Court decision of Palmer v Hewitt Building Ltd, the homeowner sued a building company and its sole director for breach of statutory duties, warranties, and negligence.

Background

Mrs Palmer entered into a fixed price contract for the renovation of her newly purchased property with Hewitt Building Ltd in early 2016 for just over $500,000. The works were largely completed by the end of 2016, however Mrs Palmer paid more than the fixed price amount, and had serious concerns with the building work.

In May 2017, the Council inspection failed, followed by an onslaught of issues involving various forms of flooding, frozen pipes and defects with the fireplaces. Issues between Mrs Palmer, the Council and Hewitt continued to go unresolved, at which point Mrs Palmer retained a new builder to report on and remediate the building. By October 2018, the Masterton District Council issued a Notice to Fix under the Building Act 2004 before a Code Compliance Certificate could be issued.

The building company advised it would not be defending the claims brought against it, however, would not have assets to meet the judgment amount. This is why the decision is focused on Mr Hewitt and his personal liability to Mrs Palmer, as the sole director and licensed building practitioner responsible for the works.

Statutory Warranties

In these proceedings, Mrs Palmer claimed Mr Hewitt breached statutory duties/warranties owed to her under section 362 of the Building Act 2004, for defective building works, in addition to failing to provide her with the consented plans and making a number of changes without drawing these to the attention of her or Council.

It was argued on Mrs Palmer’s behalf that the definition of “building contractor” under the Act should include Mr Hewitt as he is “called” the building contractor. The Court, however, ruled that elsewhere in the Act, direct statutory duties imposed on individual builders are clear, and that Parliament was being precise in deciding who would have these statutory obligations. Justice Cooke ruled that the warranties in question were not intended to be imposed on individual builders. Mr Hewitt was not a party to the contract with Mrs Palmer, only his company, and therefore these warranties were not found to be implied as between them.

Statutory Duties

Mrs Palmer also alleged there had been a breach of statutory duty. This tortious duty of care requires the satisfaction of the following elements: the statute creating a duty; the duty created must be owed by the defendant to the plaintiff; and it must have been Parliament’s intent to create a civil remedy for damages resulting from this breach.

The particular statutory obligations relied upon by Mrs Palmer were those at 14E of the Building Act 2004, the responsibilities of builder. Justice Cooke did not agree however, and the Court was unwilling to find that Mr Hewitt had breached a statutory duty in tort to Mrs Palmer as her builder, stating this was a modern statute where there is little or no scope for implied statutory remedies in damages.

Negligence

The key issue here for the Court to determine was whether Mr Hewitt could be liable in tort personally as well as Hewitt Construction Ltd, for defective building works causing loss. The Court held Mr Hewitt personally liable where his negligent building work resulted in a loss, which totalled to an amount of $67,575.

Conclusion

Although there was ultimately a finding that Mrs Palmer was entitled to a judgment amount of $392,400 from Hewitt Construction Limited. This was likely a disappointing outcome for her as Hewitt Construction Limited asserted early on that it was unable to meet a judgment debt owed by it.

Ultimately, the Court was unwilling to extend the statutory duties and warranties to a builder personally, even where he was the sole director of that company, responsible for the near entirety of the works.

This case demonstrates that operating through a limited liability company still provides good protection to a builder albeit in this case there was some personal exposure to Mr Hewitt, it was limited to $67,575 of Mrs Palmer’s judgment amount. 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. Barristers / Solicitors to anyone who relies on the information contained in this article. All copyright in this article is retained by TM Bates & Co.