LAW SUE CONSULTANTS LIMITED V GROSS AND ANOR HC AK CIV-2010-404-00584

LAW SUE CONSULTANTS LIMITED V GROSS AND ANOR HC AK CIV-2010-404-00584 31 August 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2010-404-00584BETWEEN LAW SUE CONSULTANTS LIMITED Appellant AND JAY STEVEN GROSS PATRICIA LOUISE GROSS Respondents Hearing: 18 August 2010 Counsel: JN Bierre for Appellant DJ Jenkin for Respondents Judgment: 31 August 2010JUDGMENT OF RODNEY HANSEN JThis judgment was delivered by me on 31 August 2010 at 3.00 p.m., pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar Date: .Solicitors: Morgan Coakle, P O Box 114, Auckland for Appellant Matthew Tetley-Jones, P O Box 111, Auckland 1140 for RespondentsIntroduction[1] In 1997-1998 the appellants (Law Sue) provided engineering services to Mr and Mrs Gross for the construction of a new house. In 2003 defects appeared in the house. Law Sue inspected it and reported that the problems were the fault of the builder. An independent expert later reported to Mr and Mrs Gross that Law Sue was responsible for the failure. [2] Law Sue ultimately accepted that the defects were the result of its negligence but it declined liability for the resultant losses of $85,000. Law Sue relied on a clause in the original contract which excluded liability unless a claim was made within six years from completion of the services. [3] In the District Court, Judge Hubble found the limitation clause did not protect Law Sue and he entered judgment against it. Law Sue appeals against his judgment. [4] The issues that arise in the appeal are: a) Whether the limitation provision in the original contract was a condition of the contract covering the negligent services. b) If the limitation clause was a condition of the relevant contract, whether the inspections and report of Law Sue in 2003 prevent their relying on it.1997-1998 works – contractual terms[5] There is no dispute that the services initially provided by Law Sue in 1997 (as distinct from the services negligently performed later that year and in 1998) were subject to the limitation clause. The clause was in standard conditions of engagement attached to a proposal for engineering services submitted to Mr and Mrs Gross by Law Sue on 13 February 1997. The letter read as follows:RE: 8 MARAMA ST, CASTOR BAYDear Mr & Mrs Gross, We are pleased to submit our fee proposal for Consulting Engineering Services for the above project. Our fee is based on preliminary drawings supplied by your Architect, John Porter Architects. Our engagement will be to yourselves, in accordance with the ACENZ/IPENZ Short Form Agreement for Consultant Engagement, September 1992, a copy of which is enclosed for your information. This letter provides the scope of work and remuneration details. We understand the scope of our work to be as follows: 1. Wall Bracing to NZS 3604 : 1990. 2. Preparation on calculation and sketches for roof & floor beams, floor joists, rafters, suspended floor and block walls as nominated. The above is to be the satisfaction of the local authority to obtain a Building Consent, based on their normal checking procedures. Our lump sum fee for the noted above is $1200.00+ GST (One thousand and two hundred dollars plus GST). Our fee does not allow for site inspections, or Geotechnical services should they be required. We have assumed that an allowable soil bearing pressure of 100 KPa is attainable for foundation design as per NZS 3604 : 1990. We trust that this proposal is satisfactory and will commence design work on receipt of the attached agreement signed by you. Should you have any queries or require any clarification, please do not hesitate to contact us.[6] The short form agreement referred to in the second paragraph of the letter was attached. It identified the project as "8 Marama Street, structural design". The scope and nature of the services were as set out in the letter. The standard conditions of engagement relevantly provided:1. The Consultant shall perform the Services relating to the Project by the agreed date as described in the attached document. ... 7. Neither the Client nor the Consultant shall be considered liable for any loss or damage resulting from any occurrence unless a claim is formally made on him or her within the six years from completion of the Services. ...10. The Client may order variations to the Services in writing or may request the Consultant to submit proposals for variation to the Services.[7] Law Sue carried out the services specified in the letter, as varied on two occasions in April and May 1997. Consent to the building incorporating Law Sue's designs was obtained on 8 August 1997. [8] Before consent was obtained, Mr and Mrs Gross had obtained quotes and realised that construction costs would be much higher than they had budgeted for. The architects amended the plans to provide for cheaper materials. As a result of the changes, Law Sue was asked to amend its calculations and design. Among other things, a garage lintel changed from a concrete beam to a steel beam and there was consequential redesign of fixings, joints, bearers and posts. The new specifications were incorporated into amended plans on the basis of which a fresh building consent was issued in late October 1997. [9] The design work carried out for the amended plans is acknowledged to have been carried out negligently. The beam was of inadequate structural strength. [10] Further amended plans were submitted to Council in December 1997 and, in February 1998, a new design of the beam and floor structure was requested of Law Sue after concerns were raised by the builder. Further design work was carried out. However, the beam remained as specified in the earlier redesign and is accepted to have been causative of the structural failure which later occurred. Further advisory work on the engineering design issues was carried out in March – April 1998 which was admitted also to have been negligent. Law Sue's involvement at this stage concluded with a site visit on 3 April 1998. [11] For Mr and Mrs Gross it is contended that the services provided between September 1997 and April 1998, which involved the acknowledged causative negligence, were performed in relation to a second agreement or agreements which did not incorporate cl 7 of the written agreement. The Judge did not make an express finding on this issue, basing his decision on what occurred in 2003, but it isimplicit in his judgment that he thought the limitation clause applied to all work done by Law Sue in 1997 and 1998. He said at [12] of his judgment:If the defendant, through Mr Sue, had not become further involved in this contract by attending the site in April, 2003 carrying out calculations and submitting letter of advice then there would appear to be strength in the defendant's argument that the deflection and sinking of the house was "an occurrence" and since the defendants last "Services" were provided in April 1998, the letter of claim would need to have been issued by April of 2004. ...[12] Mr and Mrs Gross cross-appeal on this point. Mr Jenkin submitted that the only work covered by the written agreement was the work done in February – May 1997. He argued that the later work was the subject of a new oral contract or contracts. He relied on the passage in the letter from Law Sue to Mr and Mrs Gross which said the work "is to be [to] the satisfaction of the local authority to obtain a Building Consent, based on their normal checking procedures". He said this makes it clear that the parties contemplated the engineering services were undertaken for the purpose of obtaining a building permit. At that point the contract was discharged by performance. [13] I am unable to accept Mr Jenkin's argument. I consider all the work done by Law Sue in 1997 – 1998 was carried out pursuant to the original contract and on the standard conditions of engagement. This becomes apparent when the documentation is examined. [14] The covering letter was, as stated in the opening paragraph, a fee proposal, based on preliminary drawings supplied by the architect. It set out, to quote from the second paragraph, "the scope of work and remuneration details". I agree with Mr Bierre that the stipulation following the description of the work, that it be carried out to the satisfaction of the local authority to obtain a Building Consent, was not intended to limit the scope of the work but to set the standard to which the work would be executed. [15] The standard conditions expressly provide for variations to the services (cl 10). The services relate to the Project – see cl 1 – and the project, as earlier noted, is structural design at 8 Marama Street. The documents show that the parties contemplated that Law Sue would carry out structural design works for the buildingat that address as described in the letter. It is the project which defines the potential scope of the works. Structural design works for the building at that address are covered by the contract. [16] This interpretation of the works conforms precisely to the principles stated in Hudson's Building and Engineering Contracts 1 referred to by Mr Bierre:Whether additional or omitted work which has been ordered is of the character contemplated by the contract, and so within the conditions of the contract relating to the power to order variations, or whether on the other hand it is outside the contract, will depend in each case on the nature of the work and the terms of the contract.2[A variation involves such] modifications of the work contemplated at the time of making of the contract is to not radically change the nature or cost of the work or materials required.3[17] The work carried out by Law Sue as the project evolved was no different in kind from the work it was originally contracted to do. It was asked to modify designs in response to changes in materials dictated by budgetary constraints. The additional work was clearly of the character contemplated by the contract. [18] I am satisfied that all of the services carried out by Law Sue in 1997 and concluding in April 1998 were subject to the standard terms of engagement including, of course, cl 7, which excluded liability for loss or damage arising from Law Sue's negligence unless a claim were formally made within six years of completion of the works.2003 works[19] In late 2002 Mr and Mrs Gross noticed signs of movement in their house. In April 2003 they contacted Law Sue. Mr Sue, of that firm, inspected the site on 29 April and again, following receipt of a surveyor's report, on 19 and 20 June. He reported to Mr and Mrs Gross on 26 June 2003, concluding that "the main cause of1 IN Duncan Wallace, Hudson's Building and Engineering Contracts (11 th ed, Sweet & Maxwell, London 1995).2 Ibid, at 7.082.3 Ibid, at 7.079, quoting Smith v Sale Lake City 104 Fed Rep 457 (1900).excessive deflections can be attributed to the lack of fixings, quality of the timber and the undersized beams as noted above". [20] Law Sue's conclusions were rejected by Master Built Services Limited against whom Mr and Mrs Gross had claimed under the Master Builders Guarantee. It had engaged an independent consulting engineer who advised on 15 July that "the excessive deflections are due to structural members being under-designed and inadequate connections". It suggested that the matter be pursued against Law Sue. [21] In March 2004 Mr and Mrs Gross engaged a surveyor who quantified the deflection and, on 23 July 2004, obtained a report from an engineer. On 4 November 2004 their solicitors gave notice of claim to Law Sue. [22] Judge Hubble found that the "services" provided by Law Sue in 2003 were carried out under the original contract; that cl 7 – the limitation provision – did not begin to run until those services were completed; and that accordingly the notice of claim was given within time. [23] Judge Hubble began his analysis by quoting the following passage fromHalsbury: 41178 Work falling outside the contract. [If the nature or extent of the variation or additional work is such that it is not contemplated by the contract, the contractor can refuse to carry it out or can recover payment for it without complying with the requirements of the variation clause.] For the varied work to fall outside the contract, it must it seems, either result in it being impossible to trace the original work contracted for or be of a kind totally different from that originally contemplated. Where additional work is ordered after the completion of the contract, such work is severed from and is free from any restriction or requirement in the contract. If the contractor accepts an instruction purporting to require a variation under the contract and proceeds to execute it under the contract, it is submitted that he will not subsequently be able to argue that the varied work was outside the contract.[24] Judge Hubble's reasoning then proceeded:4 Halsbury's Laws of England (4 th ed, 1973) vol 4 Building Contracts, Architects and Engineers at [1178]. The first sentence was omitted in the judgment. The equivalent section in the current edition is Halsbury's Law of England (4 th ed, reissue, 2001) vol 4(3) Building Contracts, Architects, Engineers, Valuers and Surveyors at [74].[17] Based on this statement of the law, in my judgment two possibilities rise in this case: The first is that when the defect was brought to the attention of the defendant, in early 2003, and they were called upon ... to do additional work to remedy the problem, the defendant may have had the right to elect not to carry out that work unless it was agreed that it was not ongoing 'services' but rather a new contract. In that case they could continue to rely on Clause 7 and if proceedings were not issued by 4 April 2004 the claim would be statute barred. [18] In my judgment, the fact that they elected to carry out the work without evidence of such acknowledgement is an acceptance by them that the additional work was contemplated by the original contract in order to provide what was properly contracted for, therefore, the additional work continued to be "Services" pursuant to the original contract and the limitation time runs from the conclusion of those additional services. [19] It is not a case of the plaintiff seeking an additional "variation" because the contract remained unvaried. What was required was additional services, pursuant to the original contract, in order to provide what was contracted for.[25] Judge Hubble then considered the possibility that the 2003 services were carried out pursuant to a new contract. He said:[20] The second possibility is that the additional work was carried out pursuant to a new and entirely separate arrangement, the contractual terms of which would be implied by standard terms of conditions, which may include the equivalent of Clause 7 of the original contract. The issue would then be whether there has not been further negligence on the part of the defendants in the steps taken and the recommendations given based on new calculations and time would begin to run from the conclusion of that work. [21] It follows, therefore, that if I am wrong in concluding that the "Services" provided under the original contract were not completed until June of 2003, the plaintiff's broadly based allegations in the statement of claim include allegations of negligence in relation to the second contract. In either case, in my judgment, the time limitation had not been exhausted at the time the letter of claim was issued, on 4 November 2004. ...[26] I accept Mr Bierre's submission that the first limb of Judge Hubble's reasoning is unsustainable. The passage he relies on from Halsbury is concerned with the circumstances in which work falling outside a contract may be treated as a variation. He proceeds on the basis that in 2003 Law Sue had a right to "elect" not to do the work unless it was carried out under a new contract. The failure to elect was held to involve an acceptance that the additional work came within the original contract.[27] There is no mention of a right of election in the passage quoted fromHalsbury and I am unable to reconcile the notion of election with the principles of contract in issue. The correct and applicable statement of law appears in the quoted extract from Halsbury viz:Where additional work is ordered after the completion of the contract, such work is severed from and is free from any restriction or requirement in the contract.[28] The work carried out under the original contract was completed in April 1998. The services provided in 2003 – investigating the apparent failure in the structure – formed no part of the design work which was the subject of the contract. The only circumstances in which the later works could have come within the contract are, as suggested in the concluding sentence of the extract from Halsbury, if Law Sue had accepted the instructions as a variation of the original contract. It plainly did not do that. [29] The alternative ground relied on by the Judge – that a new contract was created on the same terms as the original contract – also fails on the facts. There was no consideration for what Law Sue did in 2003. There is no indication that payment was discussed; the work was not charged for. Law Sue simply responded to a request to investigate and report on the work. No contractual relationship came into being. [30] Even if there had been some basis for a finding that a contract came into existence in 2003, there were other insuperable obstacles to a successful claim which were not mentioned in the judgment. There was no pleading of a 2003 contract. There was reliance on negligence in the original design works. Of the twelve particulars of negligence, one refers to a failure to remedy the structural defects in 2003, but the pleading cannot be read as relying on causative negligence at that time. Mr Jenkin accepted that the pleadings do not indicate that negligence in 2003 was in issue. [31] Mr Bierre who, unlike Mr Jenkin, was counsel in the District Court, said that, in addition to issues concerning the contractual nature of the services executed by Law Sue, the arguments advanced on behalf of Mr and Mrs Gross in relation to thework done by Law Sue in 2003 were that it involved a waiver of the limitation clause and/or that Law Sue should be estopped from relying on it. [32] In their cross-appeal Mr and Mrs Gross relied on the estoppel argument and, for the first time, on a contention that the services undertaken in 2003 were negligent and caused loss by depriving Mr and Mrs Gross of the opportunity of giving notice of a claim within the limitation period. [33] Mr Jenkin did not pursue the estoppel argument. That was appropriate. I agree with Mr Bierre that Law Sue's report could not be construed as an unequivocal representation that it did not intend to rely on cl 7 of the agreement. [34] Even if it had been available on the pleadings, the further argument that the June 2003 report led to loss could not succeed on the admitted facts. As earlier noted, Mr and Mrs Gross received advice from Master Build Services Limited in July 2003 attributing responsibility for the structural failure to Law Sue. They consulted solicitors in January 2004. The proposition that Law Sue's report caused loss by denying Mr and Mrs Gross the opportunity to make a claim within the limitation period could not be sustained on the agreed facts. Had they filed their notice of claim by April 2004, they would have been within the limitation period. [35] Mr Jenkin was left relying as his "fallback position" on the general principle that a wrongdoer cannot rely on his own wrongdoing to escape liability. But Law Sue is not relying on its own wrongdoing. It is relying on a contractual limitation clause which applies to the works which were negligently executed. There is no principle of law which precludes such reliance in the circumstances of the case.Result[36] The appeal succeeds. The District Court judgment is quashed. [37] The appellant is entitled to costs on a category 2 band B basis.