Scope of a builder’s personal liability in building project ‘gone seriously wrong’

The recent decision of the High Court in Palmer v Hewitt Building Limited & Anor [2021] NZHC 1460 clarified the scope of a builder’s personal liability to a homeowner for building work procured under a contract that the builder was not party to.

The homeowner pursued claims against the individual builder:

  1. in negligence for failure to take reasonable care; and
  2. for breach of statutory warranties and duties arising under the Building Act 2004 (the Act).

Background

Ms Palmer and Hewitt Building Limited (HBL) entered into a fixed price building contract for the extension and renovation of Ms Palmer’s house.  Mr Hewitt, the owner and sole director of HBL, carried out the building work.  A series of disputes arose when Mr Hewitt departed from the consented plans to save money on the fixed price contract, with the building work subsequently failing Council inspections.

Ms Palmer’s claim against HBL for breach of contract was undefended and upheld by the High Court.  However, as HBL did not have the assets to meet the judgement sought, the case was also brought against Mr Hewitt personally.  The focus of the judgment was whether, and to what extent, Mr Hewitt could be held personally liable for the building work.

Liability in negligence

The key issue of the case was whether Mr Hewitt was personally liable to Ms Palmer in negligence for loss caused by a failure to take reasonable care.

No duty to perform the contract

The High Court held that although an individual builder has a duty to take reasonable care, this does not extend to a duty to perform the contractual obligations of the party that entered into the building contract.  Mr Hewitt was therefore not liable for the failure of HBL to build in accordance with the contract with Ms Palmer.

Scope of the builder’s duty of care

A builder is under a duty to take reasonable care to build to the standards expected of a reasonable builder; and those standards are largely found in the building code.  The High Court notes that expressing the builder’s duty as a duty to comply with the code is a convenient shorthand expression, but it may not be legally precise.  If works are not soundly constructed, the builder may be liable in negligence regardless of compliance with the code.  Conversely, non-compliance with the code may not equate to a breach of the builder’s duty where works are soundly constructed.

The High Court clarified that a departure from the building consent does not establish a breach of the duty.  However, a builder who departs from a consent will need to demonstrate to the consenting authority that the departure is compliant – negligent building includes undertaking building work that is not consentable.

Statutory warranties and duties

Part 4A of the Act imposes warranties into contracts for residential building works.  The High Court held that such warranties only apply to the parties to the contract, and therefore do not apply to an individual builder who is not a contracting party.

Individual builders are subject to separate statutory duties under the Act and the Act sets out the consequences for failure to comply with them.  For example, a builder who breaches a statutory duty can be subject to the complaints procedure.  As Parliament has set out consequences for breaches in the Act, the High Court held there was no scope to imply a statutory remedy in damages.

Concluding remarks

This case is an important reminder of the distinction between liability found in contract and in tort.  It is only the contracting party, in this case HBL, that is obliged to meet the obligations under the contract.  However, an individual builder has a personal duty of care to build to the standards of a reasonable builder and can be held liable in negligence for failing to meet that standard.

This article was co-authored by Rebecca Neil, a Law Clerk in our Construction team.

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