La Grouw v Cairns (High Court, Auckland CIV-2002-404-156, 16 February 2004, O’Regan J)
With the growing number of leaky building cases, there are many house owners who suffer constantly from issues to do with leaky buildings. La Grouw was the purchaser in May 1997 of a residential property in Auckland. During a pre-contract inspection of the property La Grouw had asked Cairns whether there were any problems relating to leaks, or had been in the past. Cairns replied that there had been a few problems around windows in the lounge, but they had been fixed. On the day after she took possession, La Grouw was entertaining guests when there was a leakage in the house. A period of investigation followed which showed that there were serious problems which had been present at the time of the sale.
In the District Court, the Judge had found the misrepresentation proved, that it was untrue, and that the measure of damages was on the “cost of cure” basis. The cost of cure basis is the cost of reinstating the house to the condition as if the misrepresentation had been true, rather than the difference in price paid and the value of the property as purchased by the purchaser.
On an appeal and cross-appeal, the High Court, while ruling that the issue of misrepresentation needed a further hearing, discussed how damage could be awarded. He was quite clear that La Grouw was entitled to be placed in the position she would have been in had the representation been true and thus awarded the cost of cure because:
1) There was no basis for concluding that damages measured on a reinstatement basis were out of proportion to the benefit to be obtained by the plaintiff.
2) Even though the contracting party’s intention as to how the damages would be spent should be taken into account in determining whether the cost of reinstatement is the appropriate measure, once it is established that it is the appropriate measure, the Court is not concerned as to how the money is actually spent. There was no evidence to show that the La Grouw would not repair the leakage.
However, some deduction from awards ought to be made for betterment of the property. The appropriate approach to betterment was to make a deduction from the cost of cure to reflect betterment, but only after allowance to the plaintiff of any disadvantages associated with the involuntary nature of the additional investment in the improved asset.
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