BODY CORPORATE 209549 & ANOR V AKITA CONSTRUCTION LTD & ORS HC AK CIV 2005-404-3080

BODY CORPORATE 209549 & ANOR V AKITA CONSTRUCTION LTD & ORS HC AK CIV 2005-404- 3080 8 November 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-3080BETWEEN BODY CORPORATE 209549 First Plaintiff AND SEALITE INVESTMENTS LIMITED AND OTHERS Second Plaintiffs AND AKITA CONSTRUCTION LIMITED First Defendant AND CORNERSTONE GROUP LIMITED Second Defendant AND GEORGE CLARKE Third Defendant AND COMPASS BUILDING CERTIFICATION LIMITED Fourth Defendant AND PLASTER SYSTEMS LIMITED Fifth Defendant AND NU-WAY PLASTERERS LIMITED Sixth Defendant AND RAYMARK WATERPROOFING LIMITED Seventh Defendant AND MSC CONSULTING LIMITED Eighth Defendant AND QBE INSURANCE (INTERNATIONAL) LIMITED Ninth Defendant AND CORNERSTONE OYSTER COVE LIMITED Tenth Defendant2 AND DEPARTMENT OF BUILDING AND HOUSING First Third Party AND BRANZ LIMITED Second Third Party Hearing: 30 October 2006 Counsel: M Josephson and K Harkess for plaintiffs D McGill for third defendant Judgment: 8 November 2006 at 09:30JUDGMENT OF ASSOCIATE JUDGE FAIRE [on third defendant's application for leave to bring an application for summary judgment and that summary judgment be entered in favour of the third defendant]Solicitors: Grimshaw & Co, PO Box 6646, Auckland for plaintiffs Armstrong Murray, PO Box 331 028, Takapuna for first defendant Brookfields, PO Box 240, Auckland for second defendant Duncan Cotterill, PO Box 5326, Auckland for third defendant Kennedys, PO Box 3158, Auckland for fourth defendant Glaister Ennor, PO Box 63, Auckland for fifth defendant Hunt/Edward, PO Box 186, Orewa for seventh defendant Morgan Coakle, PO Box 114, Auckland for eighth defendant Crown Law Office, PO Box 2858, Wellington for first third party Gibson Sheat, PO Box 2966, Wellington for second third partyThe application[1] The third defendant applies for orders:a) Granting him leave to bring an application for summary judgment against the plaintiffs; and b) That summary judgment against the plaintiffs be entered in favour of the third defendant.The parties and general nature of the proceeding[2] The first plaintiff is a Body Corporate constituted under the provisions of the Unit Titles Act 1972. The second plaintiffs are the proprietors or former proprietors of approximately thirty-five of forty-one units situated at 594 Laurie Southwick Parade, Gulf Harbour, Auckland. The complex is known as Oyster Cove. The plaintiffs' claim against the defendants has arisen as a result of various defects in the building which were allegedly discovered in 2002. The plaintiffs allege that those defects have resulted in extensive moisture ingress into the timber framing of the units with various consequences resulting in economic loss. The first defendant is alleged to have been the builder. The second defendant is alleged to have been the developer. The third defendant was, at various stages, a director of two companies who, at different times, carried out architectural services under contract to the second defendant. The fourth defendant is alleged to have been a company which certified the building construction. The fifth defendant is a cladding systems supplier which is alleged to have supplied the cladding for the building. The sixth defendant is a plastering company which is alleged to have plastered the cladding which was installed. The seventh defendant is a waterproofing installation company and it is alleged that it installed a waterproofing membrane to the building. The eighth defendant is an engineering company and it is alleged that it drew the sites work plan for the building. The ninth defendant is an insurance company. It is alleged that it is the insurer of the fourth defendant. The tenth defendant is also alleged to have been a property developer and is alleged to have been a related company with the second defendant.The plaintiffs' case[3] In summary, the plaintiffs' case against the third defendant is that it is alleged that he owed a duty of care to the plaintiffs, which he breached by failing: a) to carry out contract supervision at Oyster Cove with reasonable skill and care; and b) to ensure that the drawings issued for the building consent and construction had sufficient detail to ensure that the units would comply with the provisions of the building consent that was granted. [4] The duty of care is said to have arisen because Mr Clarke, the third defendant, carried out much of the alleged architectural work. His position was such, it is alleged, that he exercised control over the performance of the architectural services. That element of control, Mr Josephson submitted, gave rise to a duty of care.The third defendant's case[5] For the third defendant Mr McGill, in reliance upon Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517, submitted that the third defendant is not personally liable in negligence for the alleged breaches in respect of design and supervision at Oyster Cove because: a) All relevant contractual documentation was entered into by the second defendant with the two architectural companies, namely Francis Cook Architects Limited and George Clarke Architects Limited; b) The third defendant has at no time voluntarily assumed, either during discussions or in any written communication with any of the parties, any personal responsibility for work carried out by either of the two architectural companies in respect of the Oyster Cove development; c) All the third defendant did was to act as the representative of the two architectural companies in respect of the Oyster Cove development;d) There are no allegations outside of the duties imposed by the contract entered into between the second defendant and the two architectural companies that could possibly create a duty of care on the part of the third defendant to any of the plaintiffs; and e) The third defendant is a separate legal person from the two contracting parties. He was not personally a party to the contracts between the second defendant and the two architectural companies.The plaintiffs' opposition to the application for summary judgment[6] The plaintiffs raise five grounds in opposition to the application, namely: a) The fact that the third defendant is a separate legal entity from the contracting parties in the building development is not relevant to the claim; b) The third defendant has primary liability for his own actions and the architectural firm for which he worked when he took those actions are vicariously liable for the actions; c) The third defendant did assume personal responsibility to the plaintiffs in the legal sense of this expression; d) In all the circumstances, a duty of care is owed by the third defendant to the plaintiffs; and e) The Court cannot be satisfied that the plaintiffs have no arguable cause of action against the third defendant without making findings of fact which require a Court hearing.The application for leave[7] The third defendant's application involves, firstly, a consideration as to whether leave should be granted to him to make the application. The application is made pursuant to r 138 of the High Court Rules. Because the application was not made within the time within which the third defendant was required to file his statement of defence, the leave of the Court is required. [8] Mr McGill drew attention to the paragraph in McGechan on Procedure, discussing r 138(3), where the authors state:The question is clearly a discretionary one, and it will be up to the party applying for leave to show why it should be granted. If the absence of a defence has only become apparent after discovery or the exchange of briefs, this may well be an adequate reason for granting leave. In many cases, as with appeals, the leave question will be bound up with the merits, and it may be sensible to resolve the two together.[9] This is, indeed, a case where the leave question I directed be determined with the substantive application because of the importance of the merits of the application to the determination of the application. [10] Mr McGill referred to the background following the issue of the proceedings and the correspondence with counsel which led to his submission that the delay in filing the third defendant's application in this case causes no prejudice to the plaintiffs. Indeed, the application has not delayed the advancement of the proceeding generally. This aspect of the application was not the subject of any direct submission by Mr Josephson. He, very properly, took the view that it is the merits of the application which require the Court's consideration as the primary issue involved in this application. Accordingly, I proceed to an examination of the merits of the application.The Court's approach to summary judgment by defendants[11] The Court of Appeal has given guidance as to the approach which is to be adopted when the Court considers entering summary judgment on a defendant's application against a plaintiff pursuant to r 136(2) of the High Court Rules. Thatwas given in Westpac Banking Corporation v MM Kembla (NZ) Ltd [2001] 2 NZLR 298 at [58]-[64] and Bernard v Space 2000 Ltd (2001) 15 PRNZ 338. [12] In Westpac Banking Corporation v MM Kembla (NZ) Ltd the Court said:[58] The applications for summary judgment were made under R 136(2) of the High Court Rules which permits the Court to give judgment against the plaintiff "if the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed". [59] Since R 136(2) permits summary judgment only where a defendant satisfies the Court that the plaintiff cannot succeed on any of its causes of action, the procedure is not directly equivalent to the plaintiff's summary judgment provided by R 136(1). [60] Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under R 186. Rather R 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. The difference between an application to strike out the claim and summary judgment is that strike-out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between the parties on the dispute which operates as issue estoppel, whereas if a pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim. [61] The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege. [62] Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.[63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff's case prematurely before completion of discovery or other interlocutory steps and before the plaintiff's evidence can reasonably be assembled. [64] The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.[13] This passage was cited with approval by the Privy Council in Jones v Attorney-General [2004] 1 NZLR 433 at 437. [14] It is necessary to emphasise, in this case, that the inquiry involved requires a consideration of material facts so that, in this case, it is necessary for the defendant to establish that a proper determination can be made on what the Court of Appeal referred to as:Abbreviated procedure and affidavit evidence.The law[15] The application requires a consideration of: a) When a director of a architectural company will be liable in tort to the building owner; b) In respect of work which the director has undertaken for the architectural company;c) Which work is in respect of that company's contractual obligation to the developer of the building; and d) Whether the defendant has established, on the balance of probability and based on the abbreviated procedure and affidavit evidence, that the plaintiffs' claim cannot succeed against the third defendant. [16] The matters referred to in (a), (b) and (c) in the preceding paragraph are simply a breakdown of the general question, namely whether Mr Clarke, who is both a director of two architectural companies involved and also the person who is alleged to have had overall control of that architectural work, owes a duty of care to the present owners of the building. In Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 at 340 the Court of Appeal confirmed the two broad fields of inquiry required in determining whether a duty of care should be recognised, namely: a) An inquiry as to the degree of proximity or relationship between the parties; and b) Whether there are other wider policy considerations that tend to negative or restrict or strengthen the existence of a duty of care in the particular class of case. [17] The Court of Appeal decision in Trevor Ivory Ltd v Anderson examined whether, and in what circumstances, a director of an incorporated company acting in the course of employment with that company can be held to owe a personal duty of care to a third party. [18] The Court of Appeal determined that the acts of the company's director are normally the company's acts. In the absence of special circumstances, that is the position which applies in relation to economic loss claims arising out of alleged duties of care (524). See, also, the judgment of Rodney Hansen J in Body Corporate 187947 & Ors v EP Maddren & Sons Ltd & Ors HC AK CIV 2004-404-1149 13 May 2006 at [6].[19] This position, however, may be displaced by a finding that the director is acting not as the company but as the company's agent or servant in a way that renders him personally liable (527). Clear evidence is required to displace the normal position. That will occur if there has been an assumption of responsibility either actual or imputed on the part of the director (523) (527) (532). [20] An assumption of responsibility may arise where the director exercises particular control, or control, over a particular operation or activity (527). Thus it was possible for me to conclude in Drillien v Tubberty (2005) 6 NZCPR 471 that the work Mr Tubberty undertook was that of the company alone. There was no evidence to suggest that he was directly responsible for any of the defective workmanship on which the claim was based. He had left the subcontractors to get on with the actual building work themselves. The position, of course, is consistent with the caution given by Cooke P in Trevor Ivory to the effect that cases such as Morton v Douglas Homes Ltd [1984] 2 NZLR 548 do not lay down a general rule in building negligence cases covering the liability of directors (523). [21] Thus an analysis of what was done in this case by Mr Clarke and the extent to which his actions might be outside what could be classed as the routine involvement of a company is required. Can it be said that what he did is outside the normal position? These are matters which, when I examine the background facts, are difficult to determine in the context of a summary judgment application and on the limited enquiry that is permitted by this procedure. Indeed it must be recalled that inTrevor Ivory Hardie Boyes J, when considering the assumption of responsibility position, noted that the position may have been different had Mr Ivory, the director in that case, undertaken the spraying himself (527).The facts[22] Mr Clarke has filed an affidavit in support. He has also answered interrogatories. From that material the following emerges. On 14 February 2001 Francis Clarke Architects Limited entered into a contract with the second defendant to provide architectural services at Oyster Cove. Mr Clarke was a director and shareholder of Francis Clarke Architects Limited. The other director andshareholder was Mr Paul Francis. Design work was carried out by Mr Clarke and Mr Francis. Employees of Francis Clarke Architects Limited drew the plans and specifications for the purposes of obtaining a building consent. Mr Clarke oversaw the design. He reviewed the consent and construction drawings and specification for the project. He reviewed the plans and specifications in the construction drawings and provided advice about the content of these to the employees of Francis Clarke Architects Limited. He specified the use of duraplast at Oyster Cove. That was the cladding material used. Francis Clarke Architects Limited provided approximately 95 percent of the design work for Oyster Cove up until May 2001. In May 2001 George Clarke Architects Limited entered into a contract with the second defendant. It effectively took over the contractual obligations of Francis Clarke Architects Limited at Oyster Cove. Mr Clarke was the sole director of George Clarke Architects Limited. George Clarke Architects Limited then completed the design- work and carried out the site inspections and other administration roles pursuant to the contract with the second defendant. The contractual obligations included checking that the contract works on the site were being done in accordance with the contract documents; carrying out regular site inspections and attending site meetings; and verifying final inspection and approval of contract works. Mr Clarke carried out the site observations. He attended site meetings on a weekly and then, later, on a fortnightly basis during construction. Other employees of George Clarke Architects Limited also carried out this work. Mr Clarke was responsible for the overall project and it was he who oversaw the work of the employees. A certificate of practical completion was signed by Mr Clarke but over the designation George Clarke Architects Limited. [23] Mr McGill, in advancing the defendant's case, emphasised the following matters: a) The plaintiff can point to no single fact or circumstance on which it could be said that Mr Clarke was accepting personal responsibility for the work that was carried out under the architectural contract with the second defendant;b) Every document issued or completed was completed in the company's name and not in Mr Clarke's name. The correspondence is written in language that would identify the company as the person referred to and not an individual; c) The contracts of course, were between the second defendant and the two architectural companies; and d) The minutes of the site meetings all refer to one or other of the architectural companies rather than Mr Clarke personally. [24] The problem for summary judgment purposes is that the very work which is said to have led to the defects in the property was that either which was performed personally by Mr Clarke or under his direct supervision. Until he is cross-examined and the Court is given the opportunity to assess the facts, it is not possible to exclude any basis for Mr Clarke undertaking tasks which might be classified as beyond routine involvement of the company's obligations. By analogy, he is in that very class of case observed by Hardie Boyes J when he made passing reference to the possibility of Mr Ivory doing the spraying himself. It must be recalled: a) The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed; b) Summary judgment will not be appropriate where there is a need for the Court to ascertain the material facts particularly if the nature of the enquiry is such that that means examining closely the defendant's actions in the matter; and c) The result of the Court's enquiry at this stage must be a satisfaction that the claim against the third defendant simply cannot succeed. It is not a question of concluding that there are difficulties with the case or even that it is a weak one.[25] I conclude, therefore, that the third defendant has not proved that the plaintiff's case against him cannot succeed. On that basis I refuse the application for summary judgment.Costs[26] This is a defendant's application for summary judgment. Different considerations apply to those which must be taken into account where a plaintiff applies and fails. The plaintiff has been successful in opposing summary judgment. Accordingly, I conclude that the plaintiff is entitled to costs based on Category 2 Band B together with disbursements as fixed by the registrar. _____________________________ JA Faire Associate Judge