Damages awarded against Housing Corporation

Press, 14 July 1982, Page 4

Damages awarded against Housing Corporation

• The Housing Corporation of New Zealand did not exercise the required standard of care and a couple, whose fibreglass home at Franz Josef in South Westland became uninhabitable, were entitled to damages Mr Justice Casey has ruled in a reserved decision given in the High Court yesterday. The couple. Peter Julian Bruce, an artist of Franz Josef, and Elaine Joy Bruce, his wife, claimed damages of $50,000 from the Housing Corporation in a case heard in the High- Court at Greymouth on June 30 and July 1. His Honour has held that Mr and Mrs Bruce are entitled to damages for their proved loss but did not fix an amount. The case has been adjourned to enable agreement to be reached on the figure. Messrs C. B. Atkinson and N. V. Taylor appeared for the Bruces, and Messrs D. L. Carruthers and J. R. Smart for the ■.Corporation which denied liability. In his decision Mr Justice Casey said that Mr and Mrs Bruce were a relatively young couple with two small children, who were successful in a ballot for the purchase of a residential section tit Franz Josef. It was one of

six developed by the Commissioner of Crown Lands and offered on deferred purchase terms. Mr Bruce, an artist with earlier family connections in the area, was attracted to it. Mr and Mrs Bruce had about $lOOO to put into the house. They were required to use the section for residential purposes only and to build within 12 months. Housing construction was a problem in the area and after extensive inquiries the Bruces settled on a prefabricated fibreglass design developed in Finland and newly introduced into New Zealand by a Christchurch firm. Future Homes (N.Z.). Ltd. called the Venture system. They learned from the firm that the concept was under investigation by the Housing Corporation for approval for loan eligibility. That was confirmed by the corporation’s Christchurch office. In October. 1975. the Bruces made a formal application for a loan from the corporation and that was approved in January, 1976. The total cost was $lB,OOO of which $16,000 was to come from the mortgage and family benefit capitalisation.

plus their own cash contribution of $lOOO and another $lOOO borrowed from Mr Bruce’s parents. Mr Bruce put in the foundations while working as a waiter at the Franz Josef Hotel while his wife and children stayed with his parents in Blenheim. He did the internal painting and they moved into the property in August. 1976. The house was finally certified complete by the corporation in May. 1977.

Even before the Bruces moved in some serious leaking was apparent and there followed a distressing history of complaints to the builders and the corporation. All the efforts to effect repairs were to no avail. Future Homes went into receivership in 1979 and it was hopelessly insolvent. The building deteriorated internally at a faster rate with the ’ floor rotting right through in places and the insulation and internal timber framing showed obvious' signs of dampness and decay. The house was now uninhabitable and beyond economic repair, his Honour said.

It was not until Mr and Mrs Bruce obtained a report from Mr O'Regan, a Christ-

church building consultant, in June. 1981. that they realised the root cause of the problem was condensation. The outer -walls and roof of their house were constructed of or sealed with fibreglass, and with aluminium joinery and glass doors and windows they were virtually inpermeable to water vapour. With all doors and windows shut, the structure was hermetically sealed. Vapour passed through the joins and openings in the gibraltar board internal lining and condensed in the cavity behind the cold outer wall, releasing substantial quantities of water into the fibreglass insulation, flooring and the timber in the wall and ceiling cavities. Although there were external leaks, especially in the early stages, he was satisifed that by themselves they played ho significant part in the disaster which had befallen this house. In December. 1981. Mr and Mrs Bruce issued a writ aainst the corporation, claiming damages of $50,000, on the basis that it owed them a duty of care to consider the design and method of construction generallv and in relation to the

intended site of erection at Franz Josef. The Bruces said that there was a failure by the corporation to ensure that the design allowed for the escape of water vapour and to require that the exterior was adequately sealed against leaking. Those allegations were denied.

Contributory negligence was pleaded by the corporation. which w’as effectivelytreated in counsel's closing submissions as an allegation that the Bruces failed to mitigate their damages. “I am satisfied this was not so. Mr Bruce did his best to get the builders to repair what he justifiably thought were leaks and took action himself. It is now only too clear that work to remedy them, especially in the latter stages. was completely wasted." said Mr Justice Casey. It was agreed that if the corporation was found to be liable that the question of damages would be reserved for discussion and negotiation.

The Bruces relied on the Housing Corporation's practice of approving new methods or material in residential homes for approval for lending. In doing so the

Bruces said that such approval would result in prospective home owners relying on the corporations skill and expertise in giving such approval and upon the fact that mortgage funds would be available to finance such a building. The corporation approved particular plans and specifications knowing that owners would rely on the exercise by its officers of skill and judgment in relation to proper standards of design and erection.

In reply the corporation said that it was simply a money lender and that any approval of. those matters was solely for its own purposes.

His Honour said that he agreed that probably the function for which the corporation was most widelv known was as a lender of money for housing purposes, but it was a lender with a difference.

In 1975 the corporation’s aim was to encourage lowcost building and he had no doubt that it was the lender of first choice for most young couples of limited means in the position of the Bruces, embarking on the erection of their first home.

having little or no experience in that field. Mr and Mrs Bruce certainly relied on the fact that the corporation had investigated and approved the new method of construction before committing themselves to the builder.

I am sure they reflected the widespread respect for the corporations standards in housing felt by the general community," his Honour said. That the corporation was well aware of that was acknowledged by the Assistant Director-General's acceptance that builders would regard its approval of newbuilding materials or methods as a very important factor in their marketing.

The wide functions and powers conferred on the corporation in the field of housing indicated that its expertise and concern went well beyond mortgage advances. and that was borne out by the evidence of its other activities with housing and properties and the number and calibre of specialist staff it employed, including architects and engineers.

He was satisifed that the corporation approval of this novel building was essential to the decision of Mr and Mrs Bruce.

"If this building had not been approved I am satisfied that they would have changed to some more conventional form of construction within their means or else have abandoned their plans to build at that stage." his Honour said. He held that there was the duty of care of the corporation as was alleged by the Bruces. The corporation and its officers must have been fully aware that carelessness in approving this novel method of construction could

be likely to cause serious loss to persons of modest means in the Bruces' position. borrowing to build their first home and who would be relying on the corporation’s approval in making that choice. "I am driven to the conclusion that the corporation and its officers did not exercise the standard of care expected in this situation byfailing to appreciate the problems likely to arise from condensation and to ensure a proper expert appraisal was

obtained, and appropriate measures taken to overcome the defects inherent in this building design." his Honour said.

The fact that the house was to be built in a cold area having one of the heaviest rainfalls in New Zealand should also have alerted the corporation's officers to the need to be especially cautious.

"The Bruces succeed and are entitled to damages for their proved loss. Costs are reserved." his Honour said.