A previous Wynyard Wood article, How the NZ Tiny Homes Liquidation Has Revived the Lien, provides our commentary on the judicial creation of equitable liens to protect buyers of modular homes, constructed off-site for ultimate delivery on site. Another recent case explores some of the limits of that doctrine.
Once more into the breach: Legal cases are defining the application of equitable liens in the construction sector in real-time
Another New Zealand modular home builder, FirstBuild Construction, has gone into liquidation, leaving families out of pocket. Like the previous NZ Tiny Homes court battles, the question of how to apply the ancient legal concept of a lien has once again found a judgement in the High Court.
In the FirstBuild Construction case ([2023] NZHC 2779, 6 October 2023) the High Court had to consider the situation where a family trust contracted with FirstBuild to build a holiday home. It was to be constructed off-site in six modules and then transported to the site where the modules were then to be put together into the completed house.
The trust paid for certain cladding materials for the build, but these were in the possession of FirstBuild. When FirstBuild went into liquidation the trust argued that it had an equitable lien over those materials. Their argument relied on the NZ Tiny Homes cases addressed in our previous article.
Note that unlike the NZ Tiny Homes cases, the FirstBuild case dealt with materials purchased for a home to be built under a contract, using modules. In those cases, by contrast, the materials were actually used to construct the modules for a home to be built under a contract so that the argument was over the modules, not the underlying materials.
The essential elements of the arguments in FirstBuild were – for the trust – the materials were specific goods, purchased and appropriated to a particular contract and a particular house and a lien should apply; and – for the liquidator – the materials were generic and could be appropriated for other builds, so that a lien should not apply.
The Court held in favour of the liquidator.
The NZ Tiny Homes cases did not support the argument that the equitable lien applied to generic materials used for the construction of the six modules. The NZ Tiny Homes cases were founded on the principle that it was fair to impose a lien over a partly completed home (as distinct from those materials) that was being constructed to the specific requirements of the purchaser. The facts were different in FirstBuild. The materials were generic. Therefore no equitable lien could arise over them.
If you’re seeking legal advice for a construction project, talk to the construction and property law experts at Wynyard Wood.
