IN THE KNOW —
If You Make a Mistake in a Building Contract, Can You Fix It Up Later? By Geoff Hardy of Auckland law firm Martelli McKegg It is reasonably common to make mistakes when completing a building contract. For example, sometimes in a fixed price contract the scope of work incorrectly lists something that should have been tagged out, so the builder is obliged to do it, for no extra payment. Or in a cost and margin contract the scope of work may omit to list something that should have been included, which means the owners are free to get someone else to do it. You may have been persuaded by a debt collector to attach terms and conditions of trade to your quote, which turn out to be totally at odds with what the building contract says. Or you may have done a side deal that never got recorded in the contract. But probably the costliest mistake is if you understate the contract price or the estimate, or you insert an amount or a rate thinking it is GST exclusive when in fact the contract says it is GST inclusive. When you discover the mistake, your clients might be understanding enough to let you change the contract. But I have seen many cases where they haven’t, particularly when the change is going to cost them a lot more money. After all, when they committed to the project they might have exhausted all their sources of finance, and it might not have occurred to them that the builder had made a blunder when writing up the terms of the contract. Consequently, even if they accept there was a mistake, they are likely to take the view that if anyone is going to suffer the financial pain then it ought to be the builder. And of course, if by the time you discover the mistake you are in dispute with your clients, they are likely to strenuously deny that there was any mistake at all. Where your clients aren’t willing to let you change the contract, can you do it anyway? The answer is, not easily. You can understand why. If everyone who later regretted the deal they had entered into, could simply argue that the contract doesn’t reflect their true intention and the terms ought to be changed, then no contract would ever be worth the paper it was written on. So very early on, the law adopted the approach that whatever the contract says is what you intended it to say, and it is up to you to read it carefully and get legal advice if necessary, to ensure that it does reflect your true intention. However, humans are not infallible, and there are some situations where the strict application of that rule would be unfair. So occasionally the rule is relaxed. Our law allowing you to correct mistakes in contracts goes back
a long way, but in 1977 Parliament decided to tidy it all up by passing the Contractual Mistakes Act which is now known as Part 2 Subpart 2 of the Contract and Commercial Law Act 2017. That Act allows any court or tribunal to make any order that it thinks is just, including an order modifying the contract or an order that the other party pays you compensation. That doesn’t mean that you can ask the Judge to annul your marriage on the grounds that you didn’t realise she would nag you incessantly and watch soap operas all day, nor does it allow you to reverse that $50,000 bet you put on the All Blacks when Namibia pulled off the upset of the century. It only applies when what you believed was the true situation, turns out not to have been true at all. Like when you thought your client had a resource consent to add another storey to the house – or in fact both of you thought that – but the High Court later rules that the resource consent was in breach of the unitary plan and is therefore revoked. Unfortunately for builders, the contractual mistakes legislation isn’t the get out of jail free card you might have thought. For a start, you have to apply to a court or tribunal – and that means significant costs, interminable delays, strenuous opposition by the other side, and no guarantee of success. Furthermore, the fact that you are the one who made the mistake counts against you. But most importantly, the Act says the court or tribunal can’t do anything for you if your mistake was a mistake about the interpretation of your contract. And if your contract doesn’t say what you thought it said, that is a mistake about its interpretation. For example, in a 2002
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