1. If the Trustees on behalf of the Trust successfully sue Cowboys, whose assets will Cowboys use to pay damages to the Trust?

Facts

Jack and Lucy (a married couple) are both in their sixties, retired from their jobs in local government and own their own home mortgage free. They are also trustees of the Ataahua Whare Development Trust (the Trust). The Trust was established to build attractive and environmentally conscious housing in Papakura. Their adult children are the beneficiaries of the Trust.

Their first building project is the subdivision of a large single section of land which Jack inherited from his parents. Jack and Lucy contract local tradespeople to build three townhouses, including Cowboys in the Sun Limited (Cowboys) who provide and install solar panels. Each townhouse will have two solar panels installed on the north side of its roof to generate electricity for household use.

The townhouses are built and then sold within two months of the build being completed.

The sale and purchase agreement between the Trustees and each of the purchasers of the townhouses includes warranties providing that any defect arising within 10 years of purchase will be remedied by the Trustees on behalf of the Trust at no cost to the purchasers. (A warranty in the contract means the seller has to legally pay for the cost of any defect within the time frame specified.).

The Trustees distributed the profits from the sale of the townhouses to Jack and Lucy's children. After this distribution, the Trust's only asset is a savings account with $35,000.

Six months after the townhouses sold, an owner of one of the townhouses contacts Jack and Lucy because they noticed the roof is beginning to sag where the solar panels are placed. An engineer confirms the roof is sagging and warns Jack and Lucy that the roofs of the other two townhouses are likely to collapse in the coming two years.

There has been a lengthy dispute between Jack and Lucy, Dave from Cowboys, and the roofing contractors. (Dave is the sole director of Cowboys, which he co-owns Cowboys with his brother Andrew). Eventually, Dave acknowledged that he and his employee placed the solar panels on the roofs where it was easiest for them to reach and not where the roofing contractors recommended they should be placed (the strongest parts of the roof).

Each roof will cost $20,000 to repair and strengthen to prevent any collapse. The owners of the townhouses argue the Trustees must pay for the repairs referring to clauses in the agreements signed at the time the townhouses were sold and purchased.

Jack and Lucy think Cowboys should pay for the repairs.