What would the plaintiffs have done if properly advised?
74 A highly experienced and qualified conveyancing solicitor, Mr Neville Moses, prepared an opinion for the plaintiffs for this case. He was not required for cross-examination. In his report (part of Exhibit "A") he said inter alia:
"20. In my opinion the provisions of the Home Building Act relating to owner builders are well-known to practitioners in conveyancing and if the solicitor was aware of the fact that there was a possibility that work had been done on the property by an owner builder, it was standard practice for the solicitor, if no home building insurance certificate were attached to the Contract for Sale, to advise the client of the ability to escape from the contract.
21. … If no certificate could be produced, then it would be usual practice for the solicitor to advise the client of the dangers of proceeding without a certificate namely that if the building work proved to be defective and the vendor to be impecunious or untraceable or for some other reason unable to rectify the work, the purchaser, without the certificate, would have no recourse to any party of substance.
…
25. The question of whether in those circumstances the purchasers would have proceeded with the purchase in the present case is a matter for the Court and not one for expert opinion."
75 Although it was the plaintiffs' contention that if properly advised, they would have exercised their right to rescind, I am not so persuaded. I consider it far more likely they would have proceeded, eventually, to settlement.
76 I am satisfied that, on learning there was no policy of insurance, the plaintiffs would have been told of, and examined, a number of options. The first, and most obvious, was to insist the vendors obtain insurance and provide evidence of the policy before settlement. Had a policy been obtained, settlement, though delayed, I find, would have occurred, and the plaintiffs, on later learning the property was far more defective than they had thought, would have had available to them the possibility of recovering a sum under the policy. Mr Raphael submitted that had the plaintiffs learned there was no insurance and an application was made by the vendors for a policy, many of the "defects" would have been exposed then, and the plaintiffs could have negotiated to pay considerably less for the property. However, for the reasons given below, I think it unlikely the vendors would have been able to arrange insurance. Further, there was no evidence to support the proposition that the insurer would have made available to the plaintiffs any report it may have obtained about the building in the event an application for insurance had been made.
77 Although at various times through the trial Mr Raphael submitted otherwise, by the time of final addresses I took him to concede that had the defendants properly advised the plaintiffs, and a policy been issued before settlement, his clients could at most recover as damages such sum as I find they would have recovered under the policy. The maximum sum, I took the parties to agree, is $199,500, that being the policy limit on such insurance at the time of settlement.
78 According to the evidence of Mr Barker, a highly experienced engineer with a great deal of experience in the building insurance field, there was in 2001 a two-stage process in obtaining insurance. First there was an inspection by a building inspector acceptable to the insurance company and a report in accordance with "a prescribed form". The cost of the inspection, depending on location and building size, was between $400 and $1,000. Additionally, there was the cost of the premium. For this property he estimated the premium would have been between $3,000 and $3,500. He said the job of the inspector was to identify work not done in an acceptable manner, but which could be repaired, and work that was not acceptable but which could not be repaired. He continued:
"The insurance company then invariably requires that the repairable work be repaired and it will excise from the cover the work that is not acceptable, unrepairable. As a result, the policy on its face, you can't take the fact that you have a policy as being the be all and end all. You need to look behind that and see what the policy is covering in the actual building. In fact, it has been the situation where policies have been refused totally, that you could not get an owner warranty insurance because the building was in such poor condition. So, it can be total cover or very limited cover."
79 This process of arranging for an approved inspector to go to Caves Beach, inspect and report on the property, and then having a policy issued would, I am satisfied from his evidence, have taken quite some time.
80 Mr Barker said items identified in a pre-purchase report would not be covered by a policy, as the policy covers only latent conditions. He accepted that items such as water penetrating the garage, identified in the Jeffs report, may, absent any repair, have been excluded from any cover. I took him to say the same may have applied to other items as well. He said also that when claims are made under these policies, insurers will sometimes compromise them, paying some money, having initially declined liability.
81 There was in evidence an opinion from an experienced solicitor, Mr Mark Harrowell. He has practised extensively in the field of building insurance law. He drew attention to a policy requirement that a claimant lodge a claim within six months after the claimant first becomes aware, or ought reasonably have become aware, of the fact or circumstance from which the claim arises. I consider that if there had been a policy, the plaintiffs would probably have made a claim under it within the time limited for such claims.
82 When considering whether the vendors, had they been pressed, would have obtained a policy, their financial circumstances at the time of settlement are I think relevant. I am persuaded they were, at the time, in straitened financial circumstances. First, the agent told Mr Jonathan Livingstone, they "had to sell". Second, as the settlement sheet shows, on settlement there was an apparent surplus of only $20,420. Third, there was in evidence a letter from Kemp Strang to the vendors' solicitors on 31 August referring to an agreement that the mortgagee forebear commencing proceedings to obtain possession for mortgage default until after 3 September 2001, so they could sell. Fourth, it seems that the occupants of a neighbouring property were contemplating taking proceedings against the vendors for not paying a sum of $900 or so as their contribution to a dividing fence. (The letter of demand concerning this debt was marked for identification and not tendered. However, I took Mr Raphael (T 393.55) to concede the vendors had failed to pay their share of a dividing fence.) Fifth, there was in evidence a letter from the vendors' solicitors to Kemp Strang on 3 October 2001, offering to pay $30,000 from a mortgage debt. Finally, there was in evidence a statement of claim (apparently in draft form) in which their bank was seeking possession, payment of $322,749.09, and indemnity costs.
83 I consider it unlikely, given their financial position, that the vendors could or would have obtained insurance before settlement. Given a reference to the need for insurance in an Owner Builder Permit issued to them by the local council, I infer it is likely the male vendor at least, knew of the need for such insurance.
84 For the following reasons, I consider it highly likely that the plaintiffs would have settled without insurance:
· the vendors' were in a difficult financial position;
· the vendors needed to sell quickly;
· the plaintiffs had inspected the property;
· Mr Ian Livingstone and Mr Jonathan Livingstone were experienced property developers;
· the plaintiffs had received the Jeffs report;
· the plaintiffs had received an oral report from Mr Jolley;
· the plaintiffs had prepared their own costs estimates;
· the plaintiffs intended to do up the property and sell it in about a year or so;
· the plaintiffs, as I am satisfied was the case, thought they were getting a bargain.
85 Whilst I have no doubt they had some regard for the Jeffs report, they were very confident, I find, that they could make money from the property. Although Mr Raphael submitted there was no evidence his clients were aware in November 2001 how desperate the vendors were to sell, I am satisfied they knew they were very keen to sell. Further, and much more importantly, had they been informed there was no policy, and of their right to rescind, I consider the plaintiffs would have realised they were in a powerful position to negotiate a reduced price.
86 I find that had they been properly advised, the plaintiffs would have negotiated a lower price with the vendors and taken the risk there might be defects not disclosed by the Jeffs report or the inspections by the plaintiffs and Mr Jolley. Counsel for the plaintiffs submitted that, just as they had walked away from the purchase when the price went up $10,000, they would also have walked away from the purchase if any policy obtained by the vendors excluded cover for significant defects or if there were no policy. However, for the reasons appearing in [84] above, I do not accept that submission. For the same reasons, I reject Mr Jonathan Livingstone's evidence that if his parents had been properly advised he would have advised his parents not to proceed.
87 Mr Raphael put to me that counsel for the defendants did not cross-examine Mr Jonathan Livingstone to the effect he would still have advised his parents to buy the property, even if he had known there was no builders insurance. But although he did not put that question to him, his cross-examination raised squarely the plaintiffs' assertions about what they would have done had they been properly advised. See also my observations on this issue at [47].
88 Although there was evidence the plaintiffs had some knowledge of building insurance policies, and that an owner-builder had to annexe a certificate to a contract, there was no evidence they had ever made a claim under such a policy or to show how they saw the value of such a policy. Mr Raphael submitted (T384) their previous knowledge of such policies made it more likely they would have wanted to rescind. I agree that their knowledge of this form of insurance is a relevant factor and I take account of it, but see it as a neutral factor rather than one with the weight Mr Raphael contended for.
89 Mr Raphael submitted that if the plaintiffs could only have negotiated a small reduction in price for an
"unfinished, defective, uninsured, owner built property, … it is more likely than not that rational, commercially minded people with some experience in developing properties would have walked away from, let alone opened such a 'Pandora's box' and looked for a bargain elsewhere."
90 However, for the reasons I have given, I reject that submission.
91 It follows from my findings of what, on the balance of probabilities, would probably have occurred had there been no breach of duty, that the damage suffered by the plaintiffs is the sum they could, had they known of their rights, have negotiated off the price. At the very least it would, I consider, have been $3,500, the approximate minimum cost of obtaining insurance. The defendants submit that is all the plaintiffs would have negotiated off. However, as I have noted, the vendors apparently had up to $20,420 equity. The sum I estimate the plaintiffs would have negotiated off would have been $10,000. That, I consider, represents the value of their lost opportunity. It follows that that is the sum I consider restores the plaintiffs to the position, so far as money can do so, they would have been in, absent the breach of duty. They should have interest on that sum from the date settlement occurred. I propose to enter judgment for the plaintiffs in that sum.
92 In deference to the arguments, I shall deal with the alternative methods of assessment contended for.