Body Corporate 406198 v Argon Construction Ltd [2025] NZCA 684
The Court of Appeal's decision in Body Corporate 406198 v Argon Construction Ltd provides important guidance for construction industry participants on two key fronts: the nature of a builder's duty of care, and the consequences of failing to accept a written offer of settlement made "without prejudice except as to costs".
The case
The dispute concerned the Bianco Off Queen apartments in Auckland, a two-tower complex with 157 units built with widespread defective waterproofing to the cantilevered balconies and at ground level. The Body Corporate and individual unit owners sued the head contractor and Auckland Council in negligence. The developer was no longer in the picture.
Non-delegable duty confirmed
The Court of Appeal confirmed that builders who assume responsibility for construction are, like Councils and developers, generally subject to a tortious duty to ensure Building Code compliance; a duty which cannot be fulfilled simply by delegating it to a subcontractor. This is significant because the head contractor had argued it should not be liable for the negligent waterproofing work carried out by its tiling subcontractor. The Court rejected that argument.
The key factors underpinning the Court's finding were that the head contractor had assumed full contractual responsibility for the construction, including responsibility for the acts and omissions of subcontractors, and exercised direct control and supervision over the building works. However, the Court acknowledged that the precise scope of a builder's duty may vary depending on the terms of the particular contract. For example, if the contract specifically excluded responsibility for an inspection, there would be no duty of care to inspect or to carry out any work that the inspection might have identified.
The practical takeaway for builders is clear: where a head contractor assumes broad contractual responsibility for a construction project, it will likely owe a non-delegable duty of care to building owners (including subsequent purchasers) to ensure Building Code compliance across all aspects of the work, regardless of whether particular tasks were performed by subcontractors.
The importance of Calderbank offers
The costs aspect of the decision is also instructive. Before trial, the head contractor and Auckland Council jointly made a written offer to settle for $19 million on a "without prejudice except as to costs" basis. This meant it could not be shown to the trial judge until the outcome was decided and costs were being considered (a so called "Calderbank" offer). The Body Corporate did not accept the offer and was ultimately awarded approximately $6 million following the trial - roughly a third of the settlement offer.
Despite this, the High Court Judge declined to award costs to the defendants for post-offer steps.
The Court of Appeal found that the High Court was wrong not to award costs. The Court of Appeal held that a Calderbank offeror is entitled to costs on post-offer steps where it achieves a better result than the offer, unless there are compelling countervailing factors. The defendants who made the offer were effectively the successful parties, from the point at which their offer had been rejected.
As a result, the Court of Appeal set aside the costs order and referred the issue back to the High Court for reconsideration on the correct legal basis.
This aspect of the judgment is a reminder that Calderbank offers remain a powerful tactical tool, especially for defendants. Even if an offeror defendant loses at trial, if they secure a better result than the terms offered, they will normally be entitled to their costs from the offer date. Litigants and their advisers should therefore carefully evaluate any Calderbank offer received.
Tips for effective use settlement offers
For parties looking to make a Calderbank offer, ensure that it:
- is in writing and clearly expressed as being made on a "without prejudice save as to costs" basis;
- is made earlier rather than later. The sooner it is made the more legal costs will turn on the offer.
- is open for acceptance for a reasonable period;
- is not open for acceptance indefinitely, otherwise it might be accepted after the judgment is handed down; and
- reflects a genuine and realistic assessment of the claim. To put pressure on the receiving party you need to have a real prospect of achieving a more favourable result at trial than the terms offered.
In some cases, it can be advantageous to make multiple simultaneous or sequential Calderbank offers, to different parties or the same party.
For parties who receive a Calderbank offer:
- The offer should be evaluated with care.
- Construction disputes, with their typically high expert and evidential costs, can be particularly susceptible to significant adverse costs consequences.
- Before rejecting any offer, parties and their advisers should rigorously assess the likely trial outcome and the financial exposure that flows from continuing to litigate, including the risk that the costs of post-offer steps may ultimately fall on the rejecting party.