MCNAMARA AND MCNAMARA AS TRUSTESS OF THE PH MCNAMARA FAMILY TRUST V MALCOLM J LUSBY LIMITED AND ORS HC AK CIV-2006-404-2967

MCNAMARA AND MCNAMARA AS TRUSTESS OF THE PH MCNAMARA FAMILY TRUST V MALCOLM J LUSBY LIMITED AND ORS HC AK CIV-2006-404-2967 18 August 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2006-404-2967BETWEEN PETER HARDIE MCNAMARA AND PATRICK STURGEON MCNAMARA AS TRUSTESS OF THE PH MCNAMARA FAMILY TRUST Plaintiff AND MALCOLM J LUSBY LIMITED First Defendant AND MALCOLM JOHN LUSBY Second Defendant AND KEPA DESIGN LIMITED Third Defendant AND AUCKLAND CITY COUNCIL Fourth Defendant AND BWPL LIMITED Fifth Defendant AND FERGUS WILLIAM MAHER Sixth Defendant AND DAVID GREENWOOD AND/OR DAVID AND MARY ANNE GREENWOOD Seventh Defendant AND NATURAL HABITATS LIMITED Eighth Defendant AND ACCESS CONCRETE LIMITED Ninth Defendant AND KINSMAN PLUMBING LIMITED Tenth Defendant AND MCDERMOND PLUMBING & GASFITTING Eleventh Defendant2 AND THE RUBBER ROOFING CO. GROUP LIMITED Twelfth Defendant AND SANSOM CONTRACT SERVICES LIMITED Thirteenth Defendant AND JOHNSON MASONRY LIMITED LASER ELECTRICAL GROUP LIMITED AND/OR LASER ELECTRICAL LIMITED AND/OR LASER SYSTEMS LIMITED Fifteenth Defendants AND TILE SPECIALIST CO LIMITED Sixteenth Defendant AND PATTEN DRAINAGE LIMITED Seventeenth Defendant AND DAVID M CHAPMAN Eighteenth Defendant AND LESLIE DAVID VISKOVICH Nineteenth Defendant Hearing: 27 April 2009 Counsel: G Erskine for Plaintiffs (Respondent) S Bryers for Twelfth Defendant (Applicant) Judgment: 18 August 2009 at 4.45 pmRESERVED JUDGEMENT OF ASSOCIATE JUDGE H SARGISSON (Application for Summary Judgment)This judgment was delivered by me on 18 August 2009 at 4.45 pm pursuant to Rule 11.5 of the High Court Rules Registrar/Deputy Registrar Date .......................... Solicitors: Carter & Partners, PO Box 2137, Auckland Smith & Partners, PO Box 104-065, Lincoln North, Auckland[1] The plaintiffs are P H McNamara and P S McNamara. They have brought this proceeding in their capacity as the trustees of the P H McNamara Family Trust. In their third amended statement of claim they name as twelfth defendant a company called The Rubber Roofing Co. Group Ltd, and they raise against it a single cause of action in negligence. [2] The basis of the trustees' claim against The Rubber Roofing Co. Group Ltd is allegedly defective waterproofing work done without the requisite degree of care on a house at 19 Arney Crescent, Remuera, which the trust acquired sometime in 2004 from Carmel Property Limited, the original owner. The trustees contend in their statement of claim that The Rubber Roofing Co. Group Ltd is a roofing contractor and that it did the waterproofing work "trading as Auckland Rubber Roofing Co and/or the Auckland Rubber Roofing Co Ltd". And therefore that it is liable for the very significant cost of repairing the resulting water damage. [3] The trustees are also suing eighteen other parties whom they say were also responsible for defective construction and water ingress problems that they inherited when they bought the house. Among the others are the builder, Malcolm J Lusby Ltd, the engineers and the architects. [4] The Rubber Roofing Co. Group Ltd has made application for summary judgment dismissing the claim against it. It is this application that is now before me for determination. [5] The application is brought essentially on the grounds that: a) Key factual allegations against the Rubber Roofing Co. Group Ltd are demonstrably incorrect because it has never been a roofing contractor and it did not in fact do any work at the Arney Crescent property; b) The trustees' claim discloses no cause of action against it that can succeed. Bald allegations that it traded as the Auckland Rubber Roofing Co Ltd or used the trade name, Auckland Rubber RoofingCo, do not give rise to cause of action against it in respect of work done by the Auckland Rubber Roofing Co Limited. [6] The trustees do not accept that the claim against The Rubber Roofing Co. Group Ltd has no prospect of success. They therefore oppose summary judgment. As explained at the hearing, their position is essentially that: a) There is evidence that The Rubber Roofing Co. Group Ltd did indeed carry on business as a roofing contractor; b) While accepting the evidence shows the company that did the waterproofing work at the Arney Crescent property was another company, the Auckland Rubber Roofing Co Ltd, there is evidence that The Rubber Roofing Co. Group Ltd was trading as that company. Therefore that company, the (Auckland Rubber Roofing Company Ltd), was in reality not carrying on its own business on the business but that of The Rubber Roofing Co. Group Ltd for which the latter is liable. [7] It is common ground that in order to succeed in its application, The Rubber Roofing Co. Group Ltd must demonstrate that the trustees' causes of action in the statement of claim (in this case a single cause of action) cannot succeed.Relevant legal principles - Defendant's summary judgment[8] Rule 12.2(2), so far as it applies provides:12.2 Judgment where no cause of action can succeed(a) (b) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.[9] The principles applicable to a summary judgment application by a defendant were conveniently stated by Elias CJ in Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298, 313-314 (CA), as approved by thePrivy Council in Jones v Attorney-General [2004] 1 NZLR 433 at [5]. The discussion relates to the former rule, r 136(2). It is however equally applicable to the new rule, r 12.2(2):[60] 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. [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. [63] Except in clear cases, such as a claim upon a simply 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 [64] 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 Courts 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. [Emphasis added][10] The Board went on to say that r 138 can save both time and costs by committing claims with no hope of success to be summarily dismissed at an early stage. But it also said at [5]: rarely, if ever, will the procedure be appropriate where the outcome of the action may depend on disputed issues of fact, and reliance on the rule in an inappropriate case may serve to increase both the length and the cost of proceedings.[11] At [10] the Board cautioned that the Court should not discount even a "theoretical possibility" which would provide support for the plaintiff's claim and that might be open to the tribunal of fact on the evidence. The Board went on to emphasise:Summary judgment should not be given for the defendant unless he shows on the balance of probabilities that none of the plaintiff's claims can succeed. That is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless is it quite clearly hopeless.[Emphasis added] [12] It is to be noted that judicial views may differ on issues such as these (seeTilialo v Contractors Bonding Limited (CA 50/93, 15 April 1994) at 6).DiscussionThe cause of action against twelfth defendant[13] In essence, the single cause of action against The Rubber Roofing Co. Group Ltd alleges: a) The Rubber Roofing Co. Group Ltd "trading as Auckland Rubber Roofing Co. and /or The Auckland Rubber Roofing Co. Ltd": i) Is a duly incorporated company having its registered office at Unit 5, 123 Glendale Road, and was at all material times carrying on business as roofing contractors. ii) Carried out work on the Arney Crescent house that was defective and not in compliance with the Building Code under the Building Act 1991 resulting in extensive water damage to the house. iii) Owed the trustees a duty to take reasonable care when doing the work, which it breached by failing to carry out the work toa proper and workmanlike standard, or in compliance with the Building Code. b) Particulars of the work The Rubber Roofing Co. Group Ltd carried out in breach of duty include: i) Staple holes in the butyl rubber used in the underflashing of the chimney parapet allowing the ingress of moisture; ii) Deficient butyl rubber installation resulting in leaking gutter outlets at scrupper points to the exterior of the building; iii) Inappropriate waterproofing around the perimeter sections of the upper deck due to deficient butyl installation around the deck area; iv) Ineffective butyl installation around the middle section of the deck enabling water penetration into the screed below. c) The defective work has caused the trustees to suffer loss amounting to around $2,619,225.62. This sum includes $1,151,089.60 for repairs (or other such sum as may be proved); loss of market value of the property; carrying costs on purchase price; interest costs on repairs; professional fees and costs in relation to the examination of the defects and causes; and demolition, rebuild or consequential costs. It also includes general and/or aggravated damages of $50,000 and punitive damages of $25,000.Issues for determination[14] The broad question for determination is whether The Rubber Roofing Co. Group Ltd has demonstrated to the required standard of proof that it has a clear answer to the sole cause of action against it. That question turns essentially on whether:a) The Rubber Roofing Co. Group Ltd is demonstrably right that it could not have done the work, as there is uncontroverted evidence that shows that : i) it was a roofing wholesaler and never carried out roofing work; or alternatively, ii) it did not in any event do the waterproofing work at Arney Crescent, and b) There is furthermore, no arguable basis raised in the statement of claim or in the evidence that could led to a finding that it is somehow to be treated as the company that undertook the work and that would warrant the Court's ignoring the concept of separate corporate identity.Evidential foundation for cause of action[15] The trustees rely on two main pieces of evidence. First they rely on two advertisements in the 2007 edition of the yellow pages telephone book, and secondly on a web site. [16] The advertisements and the web site indicate that both The Rubber Roofing Co. Group Ltd and the Auckland Rubber Roofing Co. Ltd (which was placed into liquidation approximately 6 months after the trustees' claim was filed) used the trade name "The Rubber Roofing Co". [17] The advertisements are found under the subject heading 'Roofing Contractors'. The first refers to "The Rubber Roofing Co" and lists four telephone contacts as follows: a) Auckland 09 444 6274 b) Eastern 09 630 5533c) Regional 09 416 7295 d) Trade Supply 09 444 9999 [18] There is no dispute that the last number is that of the twelfth defendant. [19] The second listing is for the "Auckland Rubber Roofing Co," with the telephone number AK 444 6274. It also contains an italicised note telling enquirers to "See Our Advertisement Previous Page". This is of course a reference to "The Rubber Roofing Co" advertisement on the previous page and is confirmed by the fact that the Auckland contact phone number is the same in each advertisement. [20] The web site is the web site for "The Rubber Roofing Group." It also refers to the "Rubber Roofing Co". It states:The rubber roofing co was established in 1988 specifically dedicated to marketing and fixing of butyl rubber membrane is now coming up to its 20th year in business.[21] Counsel for the trustees highlighted the links between the advertisements and the web site and that the web site: a) Lists the same telephone number for trade supply in the second of the yellow pages advertisements; b) Has its name, "The Rubber Roofing Group," in the same type of logo that appears for "The Rubber Roofing Co" in the yellow pages advertisements. c) Uses the trade name "Rubber Roofing Co" and the term "group" in connection with that trade name; d) Show all the entities using the trade name are dedicated not just to marketing but to fixing butyl rubber membrane.Is it beyond dispute that The Rubber Roofing Co. Group Ltd was a roofing wholesaler and that it never carried out roofing work?[22] The short answer is "no". As counsel for the trustees pointed out the web site for "The Rubber Roofing Group," which is plainly the web site for the twelfth defendant, represents that the rubber roofing co carries out the business of 'fixing'. The inference is that that the twelfth defendant was more than just a roofing wholesaler because 'fixing' is not just distributing; 'fixing' is what was carried out on the trustees' house. [23] The trustees also point to the fact that both listings in the yellow pages (one for "The Rubber Roofing Co" and the other for the "Auckland Rubber Roofing Co") are contained under the subject heading of 'Roofing Contractors'. They argue that this provides further support for their contention that The Rubber Roofing Co. Group Ltd was involved in fixing and/or installation. [24] Mr Cox, sole director and shareholder of The Rubber Roofing Co. Group Ltd and The Auckland Rubber Roofing Co Ltd, goes to some lengths to explain why he maintains The Rubber Roofing Co. Group Ltd never engaged in the business of installing waterproofing membrane or butyl product. His explanation also extends to the web site and advertisements. He said: a) He began business as a sole trader under the trade name "The Rubber Roofing Co" in 1988, at which time he both supplied and arranged for the fixing of butyl roofing products. b) In 1995 he formed two companies, namely The Rubber Roofing Co. Group Ltd and The Rubber Roofing Co. Contracting Ltd (later replaced by The Auckland Rubber Roofing Co Ltd). c) Thereafter, the Rubber Roofing Co. Group Ltd operated only as a supplier of Skellerup butyl roofing products, while the second company was involved only in fixing and/or the installation of such products.[25] Mr Cox may be right, but the finding he invites is not one I can safely reach on the evidence as it presently stands. As the evidence stands the contents of the web site and advertisements are not entirely consistent with Mr Cox's evidence and there remains the possibility of a genuine factual dispute about the question whether the twelfth defendant has ever undertaken fixing work. I am not satisfied therefore that I should treat Mr Cox's explanation on this point as providing a complete answer to the claim. I say this bearing in mind that in the context of applications for defendant's summary judgment the onus is on the defendant to prove that the plaintiff cannot succeed. I do not consider The Rubber Roofing Co. Group Ltd has presented evidence of a sufficient standard to prove that it is beyond dispute that it was only a roofing wholesaler and that it could not therefore have carried out waterproofing installation work at the Arney Crescent property. [26] That however does not dispose of other grounds raised as an absolute defence and I turn to those grounds. They are conveniently dealt with together.Is it beyond dispute that The Rubber Roofing Co. Group Ltd did not, in any event, do the waterproofing installation work at Arney Crescent? And can it be shown that there is no arguable basis raised in the statement of claim or in the evidence that could led to a finding that it is somehow to be treated as the company that undertook the work?[27] In the trustees' claim they allege that it was The Rubber Roofing Co. Group Ltd that carried out the work on the trustees' property. The allegation is coupled with allegations designed to attribute it to the work of the Auckland Rubber Roofing Co Limited. For its part however The Rubber Roofing Co. Group Ltd maintains that it did not in fact carry out such work and Mr Cox affirmed this in his affidavit evidence. The trustees raise no evidence in direct contradiction. [28] Indeed, at the hearing it was common ground that all the available evidence supports the conclusion that it was the Auckland Rubber Roofing Co Ltd that carried out the waterproofing at work the trustees' property. Furthermore, counsel for the trustees made clear, on my enquiry, that it is accepted that there is no dispute that the work was:a) Invoiced by the Auckland Rubber Roofing Co Ltd to the builder; and b) In fact carried out by the Auckland Rubber Roofing Co Ltd under contract to the builder, Malcolm J Lusby Ltd. [29] Counsel also went on to indicate that it is not suggested that the Auckland Rubber Roofing Co Ltd was the agent of The Rubber Roofing Co. Group Ltd for the purpose of undertaking the work or its subcontractor. Rather, he explained the real issue the trustees raise is whether, as a matter of fact, The Rubber Roofing Co. Group Ltd can be said to have traded as the Auckland Rubber Roofing Co Ltd and for that reason must be taken to be the entity that did the work. Put another way, the issue he raised is this: Was the Auckland Rubber Roofing Co Ltd carrying its own business or The Rubber Roofing Co. Group Ltd's business when it did the installation work? The related allegation in the statement of claim is that The Rubber Roofing Co. Group Ltd was trading as:a) The Auckland Rubber Roofing Co; and/or b) The Auckland Rubber Roofing Co Ltd [30] The supporting evidence is in the affidavit evidence of one of the trustees, Patrick McNamara. He deposes that The Rubber Roofing Co. Group Ltd traded asthe Auckland Rubber Roofing Co Ltd and that the Auckland Rubber Roofing Co Ltd did the work. This is not a claim that the twelfth defendant did the work. Essentially, it amounts to an invitation to lift the corporate veil to treat the latter's work as The Rubber Roofing Co. Group Ltd's work on the basis of an allegation about the method of trading. [31] It is a well-established principle of common law that a company becomes a separate legal entity following its incorporation: Salomon v A Salomon & Co Ltd[1897] AC 22. This principle is reflected in the use of the term "corporate veil" and is recognised by s 15 of the Companies Act 1993, which restates this fundamental principle.[32] Ordinarily, the concept of a separate corporate identity is treated as a legitimate facet of commerce: see Chen v Butterfield (1996) 7 NZCLC 261,086. In fact, the courts are actively committed to the preservation of separate legal personality of companies (see Gower & Davies Principles of Modern Company Law(8 th ed. 2008) at 201). Generally therefore a company's liability for tortious acts cannot be attributed to another company. [33] However, the protection offered by the 'corporate veil' is not absolute; there are exceptions and limitations to the protection. In certain situations the courts will lift the corporate veil to reveal what really lies behind the company. In A-G v Equity Corp Industries Group Ltd (in Stat Man) [1996] 1 NZLR 528 the Court of Appeal said "lifting the corporate veil" is not a principle but a description of the process by which the Court will look behind a "corporate facade" or ignore the separate legal personality of the company to identify the real nature of the transaction. [34] In New Zealand the courts have traditionally been reluctant to lift the corporate veil. Case law reflects that the courts are hesitant to interfere with commercial activity as the doctrine of separate legal identity is fundamental to company law. The reluctance of the courts to interfere with the protection affirmed in Salomon is clearly expressed in Chen v Butterfield where Tipping J stated at 261,092:In essence the corporate veil should be lifted only if in the particular context and circumstances its presence would create a substantial injustice which the Court simply cannot countenance. Whether this is so must be judged against the fact that corporate structures and the concept of separate corporate identity are legitimate facets of commerce. They are firmly and deeply ingrained in our commercial life. If they are genuinely and honestly used they should not be set aside. In any event something really compelling must be shown to go behind them.[35] There are a variety of possible reasons for lifting the corporate veil making it difficult to identify the precise circumstances in which a Court is likely to do so. Numerous authorities demonstrate that general unfairness or inequity suffered by a third party will not be sufficient: see Bently (1989) 4 NZCLC 64,780, Saville v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257, and Trevor Ivory [1992] 2 NZLR 517.[36] Circumstances where the courts have shown their willingness to look behind the corporate veil include those where the persons controlling the company have acted fraudulently; where the company is regarded as "sham"; and where a company is used to avoid an existing legal duty (see: Adams v Cape Industries Plc [1990] Ch.433, Scott J. and CA (pet. dis. [1990] 2 W.L.R. 786. HL)). Alternatively, a company may be held responsible for wrongs committed by it through the acts of other agents (see: Brookers Commentary - Company Law at CA 15.02(2)). [37] In Saville v Chase Holdings the Court considered in order to justify lifting the corporate veil there must be some element of fraud or sharp practice or where it would otherwise be unconscionable if strict adherence to the principle of separate corporate identity were maintained. Likewise, in Adams v Cape Industries the Court accepted "there is one recognised exception to the rule prohibiting the piercing of the corporate veil". Today, this exception is generally expressed as permitting disregard of the company when the corporate structure is a "mere façade concealing the true facts". In Cape the Court observed that there was relatively little in the way of guidance for determining whether or not a corporate group structure involved a facade. As expressed in Gower & Davies Principles of Modern Company Law at 204 "[t]he difficulty is to know what precisely may make a company a mere façade". It does appear at the very least that the answer is not simply dependent upon the facts of each individual case but the facts would need to be compelling. [38] In the present case however, the statement of claim and the evidence contain nothing compelling that might warrant going behind the corporate veil of the Auckland Rubber Roofing Co Ltd. There is no allegation in the statement of claim of fraud or sharp practice or that the company that undertook the work was a "sham" or used to avoid an existing legal duty. The key allegation is that the twelfth defendant traded as the company that actually did the work. It turns essentially on very little. The allegation is devoid of any factual particulars that give any substance to it or that might possibly justify lifting the corporate veil, keeping in mind of course that there is a high threshold that must be met in this respect. The evidence in support turns on the common use of a web site, yellow pages advertisements and the common use of a trade name. I do not accept that these factors are a compelling reason for treating this case as one that falls outside the application of the generalprinciple in Salomon. They are not factors that are sufficient to justify ignoring the corporate entity of the company that did the work. It is important not to confuse the common use of a trade name with corporate identity. The same can be said of the common use of a web-site and advertisements. Such use does not mean does not mean the two corporate entities must be engaged in some form of sham or that one is trading as the other. The same can be said of the common directorship and shareholding of the two companies. What the key allegation really comes down to is a plea that the Court should look behind the separate legal personality of the Auckland Rubber Roofing Co Ltd in order to fix responsibility for its actions on a related company, The Rubber Roofing Co. Group Ltd. However something more than this, something significantly more, is required to establish a possible basis for the court to ignore the separate corporate identity of the company that did the work and treating it as the twelfth defendant. In reaching this conclusion I do not overlook that the evidence points to the possibility that the twelfth defendant advertises in a way that suggests it could be operating as a roofing contractor. But in circumstances where it is acknowledged that the contractor that did the work was another company, the Auckland Rubber Roofing Company Ltd, the trustees need to put up compelling reasons why the court should look beyond its corporate identity. I do not consider the trustees have gone nearly far enough.Conclusion[39] I agree with counsel for The Rubber Roofing Co. Group Ltd that the trustees' pleading and evidence fail to raise a tenable cause of action. The cause of action alleges that The Rubber Roofing Co. Group Ltd carried out the work by trading as another and therefore owed a duty of care, but the uncontroverted evidence is that it was another corporate entity that carried out the work. There are no particulars pleaded in the claim to establish a possible factual and legal foundation for treating work done by the Auckland Rubber Trading Co Ltd as the work of The Rubber Roofing Co. Group Ltd. Indeed there is no basis in the claim or the evidence for treating as a possibility the result that The Rubber Roofing Co. Group Ltd should be deemed to be liable for the tort of the former. The same can be said of the evidence. It is clear on the evidence that the work was carried out by the Auckland Rubber Roofing Co Ltd. That is not contested. No proper factual basis has been raised bythe trustees to justify as arguable the contention that the duty of care owed by that company should be attributed to The Rubber Roofing Co. Group Ltd. [40] Furthermore, counsel for the trustees did not confront the difficulty that the law treats the two companies as distinct and separate legal entities, and that if one did the work it would be that company that owed the duty of care to subsequent owners of the house. Counsel also did not raise any issues as to agency or fraud, or raise any other compelling basis on which the one company should be treated as fixed with the duty of care owed by the other. On my invitation he said the companies were related companies but he did not develop any line of argument from that.Result[41] The cause of action against The Rubber Roofing Co. Group Ltd, in its legal and factual sense, must fail. The Rubber Roofing Co. Group Ltd has shown that it cannot succeed. [42] Accordingly I give summary judgment for The Rubber Roofing Co. Group Ltd on its cause of action. The proceeding against it is dismissed. [43] Costs must follow the event. The Rubber Roofing Co. Group Ltd is entitled to costs and disbursements on a category 2B basis together with disbursements to be fixed by the Registrar. ___________________________ Associate Judge Sargisson