Not such a Dream Home!

Slow progress not defects enables cancellation of building contract.

In this month’s article I consider the decision of Justice Gardiner in Heish v Dreamhome Construction Group Limited of June 2025. In particular, this article considers the right of the principal to cancel a building contract for want of progress, the obligation of a builder to deliver up construction documents after termination of contract, and the scope of the duty of care owed by the hand on builder of the building company.

The Plaintiffs engaged Dreamhome (DH) as a replacement builder for the construction of two residential houses on their Auckland property. The original builder had been terminated by the Plaintiffs for building defects. The building with DH did not go well either and ultimately the building contract was cancelled by the Plaintiffs for reasons of slowness to complete and building defects. A third builder was engaged (Invogue) who effectively completed the construction works at great additional cost to the Plaintiffs. The Plaintiffs thereafter brought High Court proceedings against DH and Mr Sun being the key builder on site.

Justice Gardner set out 10 key issues for determination. This article will only address 4 of these as follows:

1. Were the Plaintiffs entitled to cancel?

On this first issue the Court ruled that in respect of the Lot 1 house, it was five months behind schedule and the Lot 2 house was 6 months behind schedule. It held that the Plaintiffs had the right to cancel the contract because DH failed to perform the building work diligently. DH also unreasonably delayed the work and failed to make progress. The Court was not convinced that there was clear evidence of defective works nor that DH was unwilling to rectify any defects. It ruled that the alleged defective work did not entitle the Plaintiffs to cancel.

2. Were the Plaintiffs entitled to damages and did any set off apply?

The evidence was clear that after DH was dismissed from site, Invogue had to come in and complete the two houses. These building works amounted to a sizeable sum over and above what the Plaintiffs understood they had to pay DH to complete the contract. Whilst the Court recognised the element of duplication and increased cost when a new builder replaces an old builder, it concluded that the Invogue costs that were in-scope and recoverable from Dreamhome amounted to $654,502.13 less what was still owing on the DH contract of $366,235 - so $288,267.13 in total. In addition, DH was found liable for approximately $20,000 in liquidated damages and consequential losses. However, the Court then applied a set off $115,000 for unpaid amounts owed to DH by the Plaintiffs making a total judgment sum entered against DH in the sum of approximately $200,000.00.

3. Did Mr Sun attract personal liability?

It was alleged by the Plaintiffs that due to Mr Sun’s overarching control of the build, (he made critical decisions including who to hire and how the build was to be organised and managed), that he owed a duty of care to the Plaintiffs. Justice Gardner recognised that Mr Sun owed a personal duty to the Plaintiffs to meet the standards of a reasonable builder when engaging in building work, whether a director, an employee or self-employed, applying long standing legal precedent. But ultimately she found no personal liability as the Plaintiffs were contending Mr Sun was liable for the contractual obligation of the entity to undertake the building work. She found there was no duty to take reasonable care to perform a contract. She ruled there was no evidence that he had not met the standards of a reasonable builder and had not complied with the standards set down by the Building Code.

4. Was there an implied duty in the building contract for DH to deliver up documents required in order for an Owner to obtain a Code Compliance Certificate?

The Court ultimately determined that there was in fact an implied term in this building contract for DH to deliver to the Plaintiffs construction documents generated by it or by the subcontractors for work performed which would enable them to secure a Code Compliance Certificate. Specific reference was made to section 362T of the Building Act 2004 which requires specific information to be provided on completion of a building contract.

Overall, this is an important case in restating the applicable liability principles to be applied where a simple residential building contract goes wrong. On a practical level it also shows that once a building contract goes wrong from the outset, it can be very difficult to turn that around despite personnel change.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. or Building Today to anyone who relies on the information in this article.