BODY CORPORATE 76712 v THOMPSON WENTWORTH LTD [2021] NZHC 693

BODY CORPORATE 76712 v THOMPSON WENTWORTH LTD [2021] NZHC 693 [31 March 2021]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2019-409-000397[2021] NZHC 693BETWEEN BODY CORPORATE 76712PlaintiffAND THOMPSON WENTWORTH LIMITEDFirst DefendantAND A FERGUSONSecond DefendantHearing: 19 March 2021Appearances: S J Jamieson and J A Higby for PlaintiffW J Hamilton and M J Claughton for DefendantsJudgment: 31 March 2021JUDGMENT OF ASSOCIATE JUDGE PAULSENThis judgment was delivered by me on 31 March 2021 at 10.00 ampursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:The application[1] The defendants applied under r 4.4 of the High Court Rules 2016 to join severalthird parties. They do not now pursue the application except in relation to PeterDonald Smith (Mr Smith). The plaintiff opposes the application.Background[2] The plaintiff is a body corporate under the Unit Titles Act 2010 comprising theowners of commercial units and common property at 44-46 Clarence Street,Addington, Christchurch (the property).[3] Mr Smith, via a partnership, owns two of the units in the property.[4] The first defendant carries on business as a property and corporate bodymanager.[5] The second defendant (Mr Ferguson) was, at material times, an employee ofthe first defendant.[6] The property suffered damage in the February 2011 Christchurch earthquake.[7] In August 2012, the plaintiff engaged the first defendant to provide it with bodycorporate management services. The plaintiff pleads Mr Smith accepted the firstdefendant's proposal to provide those services on behalf of the plaintiff.[8] The plaintiff's claim relates to the settlement of its insurance claim followingthe February 2011 earthquake. The insurance claim had been notified to the plaintiff'sinsurer, Zurich Australian Insurance Ltd (Zurich), in May 2011. Zurich's settlementoffer was accepted by Mr Ferguson on behalf of the plaintiff in June 2013 and asettlement agreement was signed by him in September 2013. Zurich paid the agreedsettlement sum. Broadly, the plaintiff says the settlement sum is insufficient to repairthe property and Mr Ferguson signed the settlement agreement without its knowledgeor authority.[9] The defendants deny liability and there is a significant difference between themas to the repair work required and the cost of that work.[10] Whether, and for which periods, Mr Smith was authorised to act as theplaintiff's agent in the management and settlement of the insurance claim, the extentof his involvement and, whether he authorised Mr Ferguson to accept Zurich'ssettlement offer on the plaintiff's behalf, are all in issue.[11] The defendants say Mr Smith was the plaintiff's Secretary until March 2013,was authorised to deal with third parties on its behalf and was responsible formanaging the insurance claim from the outset. Among other things, it is said he:(a) had his staff member notify the claim to the plaintiff's broker;(b) arranged for Mr Lewis, an engineer, to inspect the property and preparea report to support the insurance claim;(c) received Mr Lewis' engineering report on 23 August 2011;(d) sent Mr Lewis' report to Zurich, via its loss adjusters;(e) asked Mr Lewis about the %NBS of the property;(g) asked Mr Lewis to complete a DEE for the property;(h) was the approved contact person for Zurich until 18 October 2012;(i) corresponded with Mr Ferguson concerning the insurance claim; and(j) authorised Mr Ferguson to accept Zurich's settlement offer and sign thesettlement agreement on behalf of the plaintiff.[12] The plaintiff filed this proceeding in July 2019. The defendants were initiallyrepresented by other solicitors; Chapman Tripp was instructed in February/March2020. Since then:(a) the plaintiff provided discovery on 24 June 2020;(b) the first defendant provided discovery on 30 June 2020;(c) in September 2020, the plaintiff filed an amended statement of claimincreasing the quantum of the claim from an indicative figure of$401,000 to more than $2.4m;(d) in October 2020 the defendants served a statement of defence to theamended claim, and an engineering report and repair costing fromMaynard Marks; and(e) dates for a judicial settlement conference have been allocated butvacated at the parties' request.[13] Mr Hamilton took me through correspondence between the parties' solicitorsthat bear upon this application, which I set out below:(a) On 12 October 2020, the plaintiff's solicitors requested particulars ofcertain matters in the defendants' statement of defence, including "howMr Smith "purported" to be acting for the Body Corporate";(b) By letter dated 4 November 2020, the defendants provided particulars,and asked whether the Body Corporate would suggest that Mr Smithwas not authorised to deal with Mr Ferguson on its behalf;(c) On 2 December 2020, the plaintiff's solicitors answered that questionby stating:Mr Smith served as the Body Corporate's secretary prior to theengagement of your clients, following which he resigned from thisrole. Following that engagement, your clients had an obligation toreport to the Body Corporate as a whole, not just Mr Smith.(d) On 28 January 2021, Counsel sought further clarification regardingMr Smith's authority and advised that the plaintiff's position mightraise issues of personal liability for Mr Smith;(e) On 16 February 2021, the defendants Counsel again asked forconfirmation of the plaintiff's position regarding Mr Smith's authority;and(f) Later that day the plaintiff's solicitor responded by email stating(among other things):If you think that the matters you have set out at your paragraph 11create an agency relationship between the Body Corporate andMr Smith, such that he owed the duties to the Body Corporate thatyou set out, then we suggest you will need to bring an application forleave to join Mr Smith as a third party Mr Smith no longer hadauthority shortly after the Body Corporate had engaged ThompsonWentworth to provide those services ...Legal principles[14] The defendants require leave to join a third party under r 4.4(2)(b) of the HighCourt Rules.[15] Rule 4.4(1) provides that a defendant may issue a third party notice if it claimsany or all of the following:(a) that the defendant is entitled to a contribution or an indemnity from aperson who is not a party to the proceeding (a third party):(b) that the defendant is entitled to relief or a remedy relating to, orconnected with, the subject matter of the proceeding from a third partyand the relief or remedy is substantially the same as that claimed bythe plaintiff against the defendant:(c) that a question or issue in the proceeding ought to be determined notonly between the plaintiff and the defendant but also between—(i) the plaintiff, the defendant, and the third party; or(ii) the defendant and the third party; or(iii) the plaintiff and the third party:(d) that there is a question or an issue between the defendant and the thirdparty relating to, or connected with, the subject matter of theproceeding that is substantially the same as a question or an issuearising between the plaintiff and the defendant.[16] Rule 4.8 provides that on an application for leave, the Court must have regardto all relevant circumstances, including delay to the plaintiff.[17] The Court may grant leave to join a third party on terms.1[18] As I have noted previously,2 underlying applications to join third parties is theprinciple that all persons potentially responsible for a loss should be parties and presentin the same action and at the same trial. The principle is supported by the two mainconsiderations of practicality and justice. The latter is the overarching consideration.In Turpin v Direct Transport Ltd Cooke J observed, "[u]ltimately the determiningconsiderations seems [sic] to be to me the requirements of justice to all parties and areasonably speedy and convenient resolution of all the issues."3[19] Mr Hamilton referred, and I accept, the principles expressed by AssociateJudge Osborne in Westwood Group Holdings Ltd v Rilean Construction (South Island)Ltd as follows:4(a) The defendant's claim against the third party must be covered by oneof the four grounds set out in r 4.4(1). A defendant may join the thirdparty as of right within the time limit set down in r 4.4(2)(a). Anapplication outside this time limit requires leave of the Court(r 4.4(2)(b)).(b) Where leave is sought, the Court must consider firstly whether one ofthe grounds in r 4.4(1) exists and secondly whether to exercise itsdiscretion to join the third party: ANZ Banking Group (NZ) Ltd vDairy Containers Ltd (CA156/92, 17 December 1992).(c) In exercising its discretion, the Court must have regard to all relevantcircumstances, including delay to the plaintiff (r 4.8).(d) The interest of justice between all parties, however, is paramount.While any delay to the plaintiff is regrettable, the attainment of justiceby the most efficient means is an overriding consideration: KPMGPeat Marwick v Cory-Wright & Salmon Ltd (in rec and liq) (CA77/94,20 May 1994).(e) Where the defendant has not been guilty of unreasonable delay, afactor in favour of exercising the discretion will be whether thedefendant could have joined the third party as of right if it had applied1 High Court Rules 2016, r 4.8(2).2 Penley Ltd v Attorney General [2020] NZHC 2601.3 Turpin v Direct Transport Ltd [1975] 2 NZLR 172 (SC) at 176.4 Westwood Group Holdings Ltd v Rilean Construction (South Island) Ltd [2013] NZHC 1739 at[15].within the time limit: ANZ Banking Group (NZ) Ltd v DairyContainers Ltd.(f) Equally, unexplained or unacceptable delay by the defendant mayresult in leave being refused: Meroiti v National Australia FinanceLtd (CA128/90, 6 December 1990).(g) In cases of serious delay that risk prejudicing the plaintiff, the courtmay be prepared to make an order for joinder on conditions designedto preserve the hearing date for the plaintiff's claim against thedefendant: Total Air Supply Company Ltd v Total Air Supply Company(2007) Ltd (HC Auckland CIV-2008-404-7627, 10 January 2011).(h) Avoiding duplicity of proceedings and preventing the same questionbeing tried with different results militate in favour of allowing theapplication. The overriding purpose of the third party rules is to enableall the issues to be dealt with in one action: Turpin v Direct TransportLtd ([1975] 2 NZLR 172 (SC)).(i) There is, however, a need to strike a balance between all the parties'interests. The extent to which the plaintiff is necessarily involved inthe issues between the defendant and the third party is a consideration.Equally, it can be oppressive and unjust to involve a third party in aproceeding where much of the proceeding will not involve that thirdparty.(j) The Court may have regard to the relative strengths and weaknessesof the parties' cases, including the case against the proposed thirdparty and the likelihood of recovery: Dairy Containers Ltd v NZI BankLtd ([1993] 1 NZLR 160 (HC) at 167).[20] Further, if a prima facie case is made bringing the application within r 4.4(1),the Court should not investigate disputed facts.5 Factual allegations will be presumedcapable of proof.6DiscussionThe threshold[21] The defendants have filed a draft statement of claim against Mr Smith. Theysubmit the grounds in r 4.4(1)(a), (c) and (d) are engaged. I do not need to dwell onthis issue. Ms Jamieson accepts, subject to the Court being satisfied there is a primafacie case for the assertions made against Mr Smith, the defendants can make out atleast one of the grounds under r 4.4(1).5 Kupe Group Ltd v Ariadne Australia Ltd (No 2) HC Auckland CL151/88, 20 April 1990.6 Just Sounds Ltd v Watt HC Auckland CP506/97, 12 November 1998.[22] I have reservations as to the application of r 4.4(1)(a). I am, however, satisfiedthat at least r 4.4(1)(c)(ii) is engaged. There are issues arising in the proceeding asbetween the plaintiff and the defendants which should also be determined between thedefendants and Mr Smith. This arises in the following way.[23] By way of defence to the plaintiff's claim, the defendants say Mr Smith, actingas the agent of the plaintiff, authorised Mr Ferguson to accept Zurich's settlementoffer. The plaintiff's position is that Mr Smith did not authorise Mr Ferguson to acceptthe offer and had no authority from the plaintiff to do so. In their draft statement ofclaim against Mr Smith, the defendants plead if Mr Smith did not have authority (asthe plaintiff contends) then he breached an implied warrant of authority to thedefendants that will sound in damages.7 The issues of whether Mr Smith directedMr Ferguson to accept Zurich's settlement offer and, if so, whether Mr Smith hadauthority as the plaintiff's agent to do so therefore arise as substantive issues both asbetween the plaintiff and the defendants and as between the defendants and Mr Smith.The prima facie case[24] Ms Jamieson argues that the defendants have not made out a prima facie caseto join Mr Smith. Their position, she says, relies upon bald assertions againstMr Smith without supporting evidence. She refers to Kupe Group Ltd v AriadneAustralian Ltd (No 2) where Barker J said, in relation to an application to join thirdparties:8The Court should not investigate disputed facts of a third party joinderapplication, if a prima facie case has been made out to bring the proposed thirdparty notice within the scope of the Rule.[25] In Kupe the judgment records there were two days of hearing involvingpainstaking analysis of affidavit evidence concerning whether the proposed claimswere genuine and should or should not be allowed to proceed. Here, Ms Jamiesoncontends, there is no affidavit evidence of Mr Ferguson and no documentary evidence7 Peter Watts and FMB Reynolds Bowstead and Reynolds on Agency (21st ed, Thomson Reuters,London, 2018) at[9-060].8 Kupe Group Ltd v Ariadne Australian Ltd (No 2), above n 5, at 7.to support the allegation that Mr Smith authorised acceptance of the Zurich'ssettlement offer. She says the suggestion that Mr Smith authorised the settlement wasasserted by Mr Ferguson in his original statement of defence but only subsequentlyadopted by the first defendant in watered-down terms. She contends the highwatermark of the defendants' submissions is only that the allegations are "plausible"based on the fact that Mr Ferguson was a professional body corporate manager whohad nothing to gain from accepting the settlement.[26] I do not accept Ms Jamieson's submission. Mr Ferguson's position has alwaysbeen he was authorised by Mr Smith to accept Zurich's settlement. Particulars of thecircumstances under which Mr Smith is said to have done so have been provided bythe defendants. It cannot seriously be contended this will not be Mr Ferguson'sposition at trial. There is also much in the plaintiff's amended statement of claimtouching upon Mr Smith's dealings as agent of the plaintiff, his dealings with thedefendants and his role in the management of the insurance claim. There are alsodocuments before me, including correspondence between Mr Smith and Mr Fergusonconcerning the settlement offer. I am satisfied the defendants have made out a primafacie case for the allegations they are making.[27] I note also that in Kupe Barker J was of the view the Court should notinvestigate disputed facts on a third party joinder application. Furthermore, thesuggestion here is an absence of documents to support the allegation that Mr Smithauthorised settlement of the insurance claim. This has parallels with Kupe whereBarker J said:9I indicate, without having heard cross-examination, there is much to be saidfor the submission of counsel for Kupe that it strains belief there would be nowritten record of a transaction involving half a billion dollars. However, it isclear that I cannot adjudicate on the allegation at this stage. Subject toconsiderations relating to the exercise of discretion, there is a sufficient primafacie cause of action alleged against these proposed third parties.9 At 9.The discretion[28] The order sought is not to be made lightly when it will expose the newly joinedparty to much inconvenience and cost.[29] On the other hand, the application recognises the benefit of having all personspotentially responsible for the loss claimed by the plaintiff before the Court in thesame action.[30] Mr Hamilton also submits that if Mr Smith is not made a party to the claim andthe Court ultimately accepts the defendants' position that Mr Smith authorisedMr Ferguson to accept Zurich's settlement offer, the plaintiff might issue a separateproceeding against Mr Smith. He submits, and I accept, the risk of sequentialproceedings is to be avoided.10[31] Ms Jamieson submits that delay in making this application is a factor whichthe defendants have not adequately addressed. She contends it should always havebeen apparent that Mr Smith's authority would be in issue. On this basis theapplication should have been made sooner. Mr Hamilton says the plaintiff's positionconcerning Mr Smith's authority (or lack of it) was only confirmed in thecorrespondence between Counsel on 16 February 2021.[32] I note in the plaintiff's replies to the statements of defence the issue ofMr Smith's authority was not put directly in issue. The same can be said aboutcorrespondence between Counsel until the 16 February 2021 email exchange. As soonas the question of Mr Smith's authority was directly identified as a live issue thedefendants made the application for leave to join Mr Smith. I consider the delay inmaking this application is reasonably explained.[33] Ms Jamieson also raises future delay as an issue. She accepts there will not bethe same level of future delay caused by joining Mr Smith as there might be by joininga previously uninvolved party. Mr Hamilton argues there will not be material delayas the case is not ready to be set down for trial. Further, he says, Mr Smith is well10 Penley Ltd v Attorney General, above n 2.apprised of the status of the proceeding, has provided partial discovery and it will nottake him long to come up to speed.[34] I do not think future delay is of significance in this case. If the parties were toapply for a trial date today it is unlikely they would get one before mid-2022. But theyare not yet in that position. Whilst the plaintiff's desire to move forward with the claimis perfectly understandable that can be accommodated by appropriate casemanagement to avoid delays.[35] Mr Hamilton argues that granting leave to join Mr Smith may promotesettlement by creating a more open dialogue and allow the parties to properly assesstheir risk. Ms Jamieson disputes this argument and says the real issue between theparties concerns the wide gulf between them on quantum and joining Mr Smith doesnothing to resolve this.[36] Whether joining Mr Smith will promote settlement is a largely speculativeenquiry. I expect the extent to which the interests of the plaintiff and Mr Smithultimately diverge may be important and it is not known what further information maybecome available. I do not discount entirely the promotion of settlement as a relevantfactor in favour of joinder.[37] Ultimately, I am required to weigh the competing arguments and interests ofthe parties and determine what is, consistent with the attainment of justice, the mostefficient means of resolving the issues between the parties. For the reasons given, Iconsider that the balance is heavily in favour of granting leave to join Mr Smith.Results[38] The defendants are granted leave pursuant to r 4.8(2) of the High Court Rulesto join Mr Smith as a third party in this proceeding. The first defendant's third partynotice and statement of claim are to be filed within 10 working days and served uponMr Smith as soon as reasonably practicable thereafter.[39] The defendants' application to join the other persons/entities listed in theirnotice of application is dismissed.[40] In relation to costs, while the defendant was successful on its application tojoin Mr Smith, the plaintiffs opposed the joinder of other persons. Ultimately theplaintiff's stance was vindicated as the defendants did not pursue their applicationother than in respect of Mr Smith. Costs shall lie where they fall.______________________O G PaulsenAssociate JudgeSolicitors:Tavendale and Partners, ChristchurchChapman Tripp, Christchurch