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The principles around delay, defects and termination in construction contracts are authoritatively illuminated in the High Court decision in Hsieh v Dreamhome Construction Group Ltd. With most disputes of this kind resolved in arbitration, this judgment will become a leading authority in New Zealand on several core issues in construction law.
The facts
The Hsieh Family Trust engaged Dreamhome Construction Group Ltd to build two dwellings on their Auckland property under separate fixed-price contracts. Disputes arose over delays and alleged defects.
After extended correspondence, expert reports, site meetings and several standstills, the trustees terminated both contracts and engaged a new builder to complete the work. Dreamhome counterclaimed, asserting wrongful termination and seeking unpaid sums and lost profit.
A central tension in the case was whether Dreamhome was responsible for remedying defective work performed by a previous contractor, Latham Construction Ltd, and whether Dreamhome was entitled to extensions of time for delays caused by that work and other site conditions.
Key issues and findings
1. Contractor responsible for all incidental work (including remedying existing defects)
The Court confirmed that a contractor who agrees to complete a partially constructed project takes the site “as is” unless the contract expressly excludes responsibility for existing work. Accordingly, Dreamhome was liable for remedying Latham’s defects.
Key principle affirmed: “Where the contractor must complete a whole work… the courts readily infer a promise on his part to provide everything indispensably necessary to complete the whole work.” — At [40] citing Keating and Hudson’s.
2. Time bars upheld
Dreamhome claimed delays due to prior defects and adverse weather but failed to notify extensions in accordance with the contract - which required notice within 20 working days. The Court reaffirmed the orthodox rule: extension of time clauses are to be strictly construed and failure to comply with the procedure for seeking an extension of time results in loss of the right to extend.
3. Entitlement to cancel for delay
The trustees were entitled to cancel as Dreamhome had “failed to perform the building works diligently, unreasonably delayed the work, and failed to make reasonable progress”.
The Court accepted that some delays were caused by the trustees and should be taken into account when assessing whether this termination ground was met - even though Dreamhome had lost its right to an extension by failing to comply with the notice requirements. Nonetheless, substantial delay remained attributable to Dreamhome.
Note: In our view, the termination ground imposed a lower standard than NZS:3910 which only entitles a Principal to terminate where the Contractor “has abandoned the Contract or is persistently, flagrantly or wilfully neglecting to carry out its obligations under the Contract”.
4. No breach for defects prior to completion
Although there were defects in Dreamhome’s work, the Court held that this did not amount to a repudiation or breach of contract. The due date for completion had not yet arrived, and Dreamhome was actively attempting to remedy the issues - having appointed experts, attended site meetings, and worked toward completion.
Key principle affirmed: A contractor is not in breach merely because defective work exists during the project. A breach arises only where the contractor refuses or fails to remedy those defects by completion.
“If any defects can be remedied before completion, the builder will be in breach only where he has made it clear he does not intend to rectify.” — At [138], citing Yu v T & P Developments Ltd [2003] 1 NZLR 363 (CA).
5. Personal liability of a company director
The plaintiffs also claimed that Mr Sun, Dreamhome’s sole director, was personally liable in negligence. The Court held that a builder owes a personal duty of care to the building owner when carrying out building work - typically to meet the standards of a reasonable builder, including compliance with the Building Code.
Where a director exercises personal control over the building work, they may be personally liable. However, there is no duty in tort simply to take reasonable care to perform a contract.
In this case, the Court found no evidence that Dreamhome or Mr Sun failed to comply with the Building Code. The claim against Mr Sun in tort was dismissed.
Chapman Tripp comment
Hsieh underscores the need for careful contract drafting, strict procedural compliance, and robust project documentation. Contractors should not rely on informal communications to preserve claims for time or cost. Principals must be diligent in documenting performance concerns and complying with termination procedures.
The judgment also serves as a reminder that directors may be personally liable for building work if they have personal control over the building operations.
