A recent decision of the Weathertight Homes Tribunal in a case known as Tabram v Slater (http://www.justice.govt.nz/wht/decisions/2009.asp) has stirred up some controversy. This was a leaky home case where the current owners (the Tabrams) claimed against the builders and previous owners (the Slaters) and the designer.
The Tabrams agreed to buy the Slaters’ house, but it was conditional on a satisfactory building inspection report. The report they obtained told them that there were significant moisture problems, that the dwelling was of a “higher risk construction”, and that “it would be naïve to think that no further water problems will occur”.
Notwithstanding this, the Tabrams went ahead and bought, at the original purchase price. Sure enough, six months later, they discovered leaks and cracking in the exterior cladding.
Three months after that they filed a claim against the Slaters, claiming the $368,716 cost of a full repair and re-clad, $13,626 interest on the money they had to borrow to fund the repair work, and $25,000 general damages for distress, anxiety and inconvenience. They won on all counts.
On the surface this seems an odd result, and flies in the face of our notions of fairness and justice. How could people who were aware of the risk, and decided to take that risk, then claim full compensation when that risk materialised? The answer, one could argue, is because sometimes the law is from Mars, and common sense is from Venus.
The Tabrans sued the Slaters for breach of the warranties in their sale & purchase agreement, and also for negligence, for building a defective house.
On the breach of warranties claim, the Tabrans relied on a warranty in the fine print of the standard sale & purchase agreement that is in common use by lawyers and real estate agents (this warranty is still in the latest edition of the agreement, but in a diluted form). This was a warranty by the Slaters that the building work complied with the building consent and the Building Code.
In fact the work did not comply, both because the Slaters had unilaterally departed from the Council-consented plans & specifications, and also because the house leaked (which is inconsistent with the Building Code requirements).
Probably neither the Tabrans nor the Slaters knew about the existence of this warranty when they signed the agreement, and the building inspection report actually told a different story, but the adjudicator found that this had no bearing on the Slaters’ liability for breach of warranty. Although the Tabrans had declared themselves satisfied with the building report, the adjudicator ruled that this was not a waiver of the warranty, because they had not expressly said so.
However on the negligence claim, the adjudicator ruled that the Tabrans’ knowledge of the risk of leaks did make them partially responsible for their own misfortune. Nevertheless the adjudicator was only prepared to reduce their damages by 25% on account of their contributory negligence. And since they also won 100% on the breach of warranty claim, the negligence claim was superfluous anyway.
One of the factors that probably influenced the adjudicator the most, was that the Slaters were not exactly blameless. A lot of the leaks were attributable to Mr. Slater departing from the Council-approved plans & specifications and using different materials, including the exterior cladding system. Also, when the Slaters persuaded the Tabrans to go ahead with the purchase, they gave them a workmanship guarantee and a producer statement which they knew to be false.
Judges and adjudicators are only human, and they prefer to see the good guys win and the bad guys lose, which is fair enough. There has also been considerable publicity in the media about the plight of innocent leaky home owners, and no doubt this had a subtle influence as well.
But what this case tells us is that a builder/vendor remains potentially exposed to a leaky home liability, even if the buyers know full well before they buy it, that the house is likely to develop leaks.
The decision seems particularly harsh on the vendors, particularly when the purchasers were able to take advantage of a warranty that they were probably not aware of at the time of contracting. How can a particular clause become part of the bargain you have struck with the other party, when you don’t even know of its existence?
The reason is, the law enforces standard term contracts because it is pragmatic to do so. We simply assume that the written words represent what the parties have agreed. Otherwise, there would be no certainty and the parties would argue endlessly about what they meant. This approach imposes a discipline on contracting parties to make the effort to understand the fine print before they sign, or alternatively get legal advice on it.
But in practice, we all know that very few people are aware of, let alone understand, all the fine print in a standard contract. And in situations where you are buying goods or services on the spot, it is unrealistic to expect you will stand at the checkout with a magnifying glass, carefully studying the back of the invoice or sales docket before you decide whether to buy or not.
If a dispute arises later, what really happens is that the parties discover for the first time what their contract actually says. It is like participating in a lottery where “the books are opened” to reveal who is the lucky winner. So this approach is what is known as a legal fiction – when the law assumes something for practical purposes that isn’t really true.
Nevertheless, there is a lesson in it for all of us. Where there’s a lot of money at stake, don’t sign standard forms without knowing what they say.