Buyer beware principle — alive and well

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The recent case of Ford & Anor v Ryan & Anor demonstrates the very real difficulties owners of properties with water ingress issues face when relying on their sale and purchase agreement to seek cancellation of the contract or, alternatively, damages against the vendors.

In what seems like a harsh decision, an aggrieved purchaser is left empty-handed despite the obvious breaches made by the vendor.
The background to this case is that it involved a property in Whitby, Porirua, that had been constructed by, or on behalf of, the defendants as a home for themselves. The defendant is a builder and it is apparent he undertook some of the construction work himself, although he engaged and supervised contractors for other work on the property.

The defendants were approached by a real estate agent in August 2000, and later that month a sale and purchase agreement between the plaintiffs and defendants had been signed.
As part of the agreement, the plaintiffs had engaged a pre-purchase inspector to provide a report, which was received the same day the offer was signed. The report noted that a number of defects existed in the home.

Regardless, settlement went ahead, and eight months later the plaintiffs began to experience water ingress problems with the property.
The plaintiffs engaged an expert to inspect the property and it became evident through the expert’s report that not only did a number of defects exist but no Code of Compliance Certificate (CCC) had been issued by the Porirua City Council at the property.

An inspection by the council had not been requested by the defendants as the original owners/builders of the property. The plaintiffs, who had not been made aware that there was no CCC, then liaised with the defendants and requested they remedy the issues at the property.

The defendant arranged a council building inspector to inspect the property with a view to issuing the outstanding CCC although, ultimately, this was determined impossible until all of the faults identified by the council were remedied.

The defendant made attempts to rectify these faults, but his efforts were to the dissatisfaction of the plaintiff and, consequently, proceedings were commenced.
With the matter before the High Court in Wellington, the judge had to determine whether the defendants were liable to the plaintiffs in any way.

While it was true that the defendants had undertaken the construction of the house while they owned the property, the agreement was for the sale of a completed dwelling. The responsibility to be satisfied as to the quality of the property purchased, which includes the land and any buildings, lies entirely with the buyer.

Therefore, the only liability the defendants could face, if any, depends upon the express terms in the contract.
Turning then to look at the various elements of the sale and purchase agreement, Justice MacKenzie determined that the defendants had, in fact, breached clauses 6.2(5)(c) and (d).

Although counsel for the defendants tried to persuade the judge that the requirement for a CCC was waived by the plaintiffs, because any perceived waiver was not in writing as is required by the agreement, this argument was not entertained.

Instead, it was confirmed that the defendants’ failure to get a CCC issued for works they permitted to be done on the property breached their obligations under the Building Act 1991 and the express warranties they gave in the agreement.

After making a finding that clauses 6.2(5)(c) and (d) had been breached, it may seem peculiar or even unjust to the lay person that Justice MacKenzie ultimately found in favour of the defendant.

The remedies that the plaintiff sought from the court were cancellation of the contract, or, alternatively, damages. First, the plaintiffs purported to cancel the contract pursuant to section 7 of the Contractual Remedies Act 1979, claiming that the defendants were in breach of their agreement.

The judge quickly found that the steps the plaintiff took in seeking the defendants remedy the defects, amounted to an election to pursue a remedy for breach of contract, not to pursue a remedy of cancellation.

With respect to damages, the judge reasoned that compensation in these particular circumstances would be inappropriate. To award to the plaintiffs the cost to repair the existing cladding to the standard it should have been at in 2000 would not result in a CCC being obtained now.

Similarly, it would be inappropriate to award damages to allow the recladding work to be done in such a way that it would now enable a CCC to be issued — the Building Code requirements have changed since 2000 and it is likely that a different cladding system would now be required. This was not contracted for. 

The judge ruled that it simply was not possible to perform the contractual condition and, thus, damages could not be awarded on this basis. However, he did go on to suggest that damages could be awarded on the basis of the difference in value of the house when the contract was entered into, versus the same house without the defects and with a CCC.

However, the plaintiff failed to provide sufficient evidence on this measure of damages, to satisfy the burden of proof.
In conclusion then, despite the court finding there were technical breaches of the agreement for sale and purchase, no damages award was able to be made, resulting in a lucky escape for the defendants in this instance, in the authors’ opinion.