I Fall Apart: Literally and Figuratively

I. Introduction

Litigation is undoubtedly a stressful exercise for plaintiffs involved in building defects claims. This is for a variety of reasons, including the uncertainty of obtaining a favourable reward (if any) and the ongoing obligation to pay legal fees over a significant period of time. Our courts acknowledge this fact by awarding plaintiffs a monetary sum based on each plaintiff’s personal circumstances, with the awarded amounts varied accordingly. This sum is commonly known as “general damages”.

The purpose of this article is threefold. First, it will outline the legal principles that justify awards for general damages. Secondly, it will examine the law of general damages in the context of building defects claims. This will show that Courts (at the time of writing this article) have not awarded greater sums to plaintiffs who own multiple units in a proceeding, compared to single unit owners. Thirdly, it will establish that plaintiffs who own multiple units in a proceeding should be awarded greater sums if allowed by the circumstances.

II. General damages "generally"

General damages are a form of compensatory damages. It is a sum of money that is awarded to “put the plaintiff into the position that he or she would have been in if the wrong had not occurred” (Attorney-General v Geothermal Produce New Zealand Ltd [1987] 2 NZLR 348 (CA) at 359 and 370). In tort, this would be the sum which puts the plaintiff in the position he or she was in before the tort had been committed (Benter v Miller & Poulgrain [2005] 1 NZLR 66 (CA) at 89 per Hammond J).

However, general damages should not be confused with special damages. Special damages refer to losses capable of being objectively quantified in monetary terms, regardless of whether the sum has already been quantified. Examples of such include the costs of repairing property damage and loss of profits. General damages on the other hand, refer to damages that are incapable of being objectively quantified, such as losses caused by stress and anxiety. The scope of this article is limited to the law of general damages, with specific emphasis on how it is applied in building defects claims.

III. General damages in building defect claims

The most common cause of action in building defects claims is negligence. In such cases, the Court of Appeal in Mouat v Clark Boyce (No 2) [1992] 2 NZLR 559 (CA) held that general damages are claimable if the damages claimed are “reasonably foreseeable consequences of the breach of duty”, provided there are no public policy concerns which preclude an award. In an obiter comment, Baragwanath J in O’Hagan v Body Corporate 189855 [2010] NZCA 65 (Byron Avenue) provides guidance on quantifying general damages. There are four relevant factors: (1) The objective nature of the stress-inducing factors; (2) The evidence as to their effect on the plaintiff; (3) The health impacts of having a [defective building]; and (4) How a potential award compares with general damages awards in other cases. That said, quantum is ultimately a question of fact and degree for the trial Judge to assess (Mouat v Clark Boyce at 574).

Plaintiffs who are awarded general damages in building defects claims commonly fall under one of the following categories: (1) Single resident owners; (2) Joint resident owners; (3) Single non-resident owners; and (4) Joint non-resident owners. Cases have shown that greater sums are generally awarded to resident owners than non-resident owners (See Byron Avenue and, more recently, Body Corporate 346799 v KNZ International Co Ltd [2017] NZHC 511 (Victopia)). Similarly, joint owners are awarded more than their lonesome peers because it is accepted that there is greater stress when more than one owner shares the burden of having a defective unit (Victopia at [123], Byron Avenue at [129]).

However, the application of the law of general damages sometimes result in plaintiffs not being entitled to their claimed sums despite falling under one of the four categories above. An uncontentious example is when the plaintiff is a company (Byron Avenue at [125] and [153](a)). Companies cannot claim general damages because although the natural persons who control them may be distressed, the companies themselves are separate legal entities incapable of suffering from mental harm (Victopia at [110]). Trustees are also not entitled to general damages if they neither occupy the unit nor have any personal economic interest in the unit (Byron Avenue at [120]). Distinct from companies who are incapable of suffering from mental harm, these types of trustees do not suffer stress because they have no beneficial interest in the units they legally own. Further, plaintiffs who had their rights to the litigation assigned to them are not entitled to general damages. In contrast to genuine commercial claims, purely personal claims cannot be assigned (First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710 (HC) at 757). An assignor cannot pass his or her stress and anxiety to the assignee.

The focal point of this article, and perhaps the most questionable application of the law of general damages in building defects claims, is the issue of awarding greater sums to plaintiffs who own multiple units in a proceeding than owners who own single units. Although the High Court has decided against awarding greater sums to owners of multiple units on three separate occasions, the law is still uncertain because there is no guidance at the appellate level, and the reasons for not awarding such sums are lacking.

IV. Should owners of multiple units be awarded more?

This issue was most recently considered by the High Court in Victopia (See [126]). In her judgment, Thomas J simply concurred with the reasons and conclusions in Body Corporate 326421 v Auckland Council [2015] NZHC 862 (Nautilus) and Body Corporate 183523 v Tony Tay & Associates Ltd HC Auckland, CIV-2004-404-4824, 30 March 2009 (Ellerslie Gardens) when her Honour answered the question of “whether owners of more than one unit should be entitled to greater general damages”. In Nautilus at [290], it was submitted that “plaintiffs who own more than one unit should receive only one award of general damages”. Gilbert J accepts this submission as “clearly correct” without further reasoning. In slightly greater detail, Priestley J in Ellerslie Gardens makes the following comment on awarding general damages to owners of multiple units:

[202] I reject the proposition, however, that an investment unit owner of two properties is entitled to double the figure of the owner of one. The distress and anxiety relates to an investment across the board and is not tied to any dollar figure. The distress caused to the owner of a leaking home worth $200,000 would be just as great in principle as the distress caused to the owner of a leaking home worth $2,000,000.

With respect, the High Court in Victopia erred in simply concurring with the reasons and conclusions in Nautilus and Ellerslie Gardens because those decisions were decided on their own set of facts. Mouat v Clark Boyce makes it clear that the determination of quantum on general damages claims is a matter of fact and degree for the trial Judge to assess. Therefore, Victopia should have been assessed on its own merits and should not have taken previous quantum determinations as if they were statements of law.

There are three reasons in favour of awarding greater general damages to multi-unit owners. First, plaintiffs who own multiple units will likely have more money at risk than plaintiffs who only own one. This can exacerbate the stress and anxiety plaintiffs are suffering. With respect, the assertion in Ellerslie Gardens that “the distress caused to the owner of a leaking home worth $200,000 would be just as great as … the owner of a leaking home worth $2,000,000” is simply false. Although admittedly, the effect of having more money at risk will not have much of an adverse effect to some people. This leads to the second reason: The effect of having a defective building on a plaintiff is subjective in nature and will vary across plaintiffs. An award of general damages should reflect this reality. For instance, if an investor who owns multiple units is determined not to be affected by the building defects, the sum awarded can be reduced accordingly. On the contrary, for example, a non-investor who owns one unit for personal use and owns another for his or her adult child to occupy, will suffer greater distress than if that owner only had one unit. Thirdly, owners of multiple units can be compared to joint owners who share a single unit. In Byron Avenue, and in subsequent cases, joint owners have been awarded more than single owners because the burden is “shared” (Byron Avenue at [129]). As Thomas J further explains in Victopia at [125], joint owners are “both suffering this stress and should be entitled to compensation”. By applying this logic, plaintiffs with multiple units should be entitled to greater amounts since the burden is “shared” across multiple units.

It is arguable that investors (regardless of the number of units owned) should not be awarded general damages at all, let alone be awarded greater sums if they own multiple units. Investors who own multiple units are argued to suffer from similar stress as parties to ordinary commercial contracts and should therefore be barred from general damages due to public policy concerns. As Cooke P (as he then was) states in Mouat v Clark Boyce at 569:

The Courts have stopped short of giving stress damages for breach of ordinary commercial contracts. Such damages may be foreseeable, but I think that the restriction may be seen as justified by policy. Stress is an ordinary incident of commercial or professional life. Ordinary commercial contracts are not intended to shelter the parties from anxiety.

However, it is widely accepted that investors (non-residents/non-occupiers) who are natural persons can claim general damages (See Byron Avenue). The quantum is merely adjusted to recognise that investor owners suffer less than owner-occupiers (Body Corporate No 189855 v North Shore City Council HC Auckland, CIV-2005-404-5561, 25 July 2008). There is no reason in principle to prevent investor owners from obtaining greater sums unless an appellate Court in the future decides that investor owners are barred from obtaining general damages due to policy reasons.

V. Limitation

It is recognised that it may be impractical for Courts to assess and quantify general damages awards for each individual plaintiff in some cases. As William Young P in Byron Avenue at [154] states: “[T]here is a limit to the extent to which it is practical to go into fine detail on [assessing general damages]”. However, this should not prevent Courts from assessing individual unit claims when the number of claimants is small enough. This is a matter of practicality for Judges to assess.

VI. Conclusion

Plaintiffs who own multiple units should be awarded more general damages than owners of single units if such awards are justified by the facts. The reasons are as follows: (1) Plaintiffs who own more than one unit will likely have more money at risk than plaintiffs who only own one; (2) The effect of having a defective building on a plaintiff is subjective in nature and will vary across plaintiffs; (3) Plaintiffs with multiple units should be entitled to greater amounts since the burden is “shared” across multiple units. Quantum is a matter of fact and degree for Judges to assess, and Courts are currently not barred from awarding general damages to investor owners despite potential public policy concerns.

 

Alphonso Sales, Solicitor; Grimshaw & Co

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